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: October 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 EIN)
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 October 31, 1998
Common Stock $0.01 Par Value 9,221,199
Part I.
Item I.
Jayark Corporation and Subsidiaries
Consolidated Balance Sheets
Unaudited Audited
10/31/98 04/30/98
--------- ---------
Assets
Current Assets
Cash and Cash Equivalents $30,997 $238,858
Accounts Receivable-Trade, Less Allowance For 2,344,946 1,723,833
Doubtful Accounts of $69,737 at 10/31/98 and $38,000 at 4/30/98
Other Accounts Receivable 27,277 2,277
Inventories 496,447 271,564
Other Current Assets 84,429 35,046
--------- ---------
Total Current Assets 2,984,096 2,271,578
Non Current Assets
Property & Equipment, Less Accumulated Depreciation 852,629 94,644
and Amortization
Excess of Cost Over Net Assets of Businesses 258,062 268,742
Acquired, Less
Accumulated Amortization of $474,375 at 10/31/98 and
$448,000 at 4/30/98
--------- ----------
Total Non-Current Assets 1,110,691 363,386
---------- ----------
Total Assets $4,094,787 $2,634,964
========== ==========
Liabilities
Current Liabilities
Notes Payable & Line of Credit $1,250,000 $300,000
Current Maturities of Long Term Debt 1,914 5,899
Accounts Payable 1,022,875 881,266
Accrued Salaries and Deferred Compensation 332,102 298,734
Accrual Related to Loss on Discontinued Operations - 74,225 84,124
Rosalco
Accrual Related to LCL Investment 113,068 113,068
Other Current Liabilities 589,500 431,418
--------- ---------
Total Current Liabilities 3,383,684 2,114,509
Non Current Liabilities
Long Term Debt, Excluding Current Maturities 144,925 -
Notes Payable to Related Parties 2,021,440 2,046,021
Subordinated Debentures 1,400,000 1,400,000
--------- ---------
Total Non Current Liabilities 3,566,365 3,446,021
---------- ----------
Total Liabilities $6,950,049 $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 10/31/98 and 4/30/98
Additional Paid-In Capital 8,066,122 8,066,122
Deficit (13,687,743) (13,758,047)
----------- ------------
Total Stockholders' Equity (Deficit) $(2,855,262) $(2,925,566)
----------- ------------
Total Liabilities & Stockholders' Equity (Deficit) $4,094,787 $2,634,964
=========== ============
See accompanying notes to consolidated financial statements
Jayark Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
10/31/98 10/31/97 10/31/98 10/31/97
Net Revenues $4,260,743 $3,148,761 $8,308,012 $7,321,605
Costs & Expenses:
Cost of Revenues 3,630,414 2,611,786 7,129,676 6,240,399
Selling, General and Administrative 428,394 447,051 909,570 883,381
Interest 104,786 92,385 198,461 181,573
--------- --------- --------- ---------
Total Costs & Expenses 4,163,594 3,151,222 8,237,707 7,305,353
Pre-Tax Income/(Loss) 97,149 (2,461) 70,305 16,252
Provision for Income Taxes (Benefit from) -- -- -- --
--------- ---------- --------- ---------
Net Income (loss) $97,149 $(2,461) $70,305 $16,252
========= ========== ========= =========
Basic & Diluted Earn(Loss) per Common Sh $.01 $(.00) $.00 $.00
========= ========== ========= =========
Weighted Average Common Shares:
Basic and Diluted 9,221,199 9,221,199 9,221,199 9,221,199
========= ========== ========= =========
See accompanying notes to consolidated financial statements
Jayark Corporation and Subsidiaries
Consolidated Statement of Cash Flows
For the Six Months Ended
(Unaudited)
10/31/98 10/31/97
--------- ---------
Cash Flows From Operating Activities:
Net Income (loss) $70,305 $16,252
Adjustments to Reconcile Earnings (Loss) to Cash From Operating Activities:
Depreciation and Amortization of Property and Equipment 59,803 6,175
Amortization of Excess of Cost Over Net Assets of 10,680 10,680
Businesses Acquired
Change In Assets and Liabilities Net of Effects From Acquisition of Subs:
(Increase) Decrease in Accounts Receivable Net (646,114) 802,001
(Increase) Decrease in Inventories (224,883) 91,808
(Increase) Decrease in Other Current Assets (49,382) (83,355)
Increase (Decrease) in Accounts Payable 141,609 (481,298)
Increase (Decrease) in Accrued Salaries and Deferred Comp 33,368 96,479
Increase (Decrease) in Accrual for Disc Ops - Rosalco (9,899) 47,000
Increase (Decrease) in Other Liabilities 154,096 (29,020)
--------- --------
Net Cash Provided By (Used In) Operating Activities (460,417) 476,722
Cash Flows From Investing Activities:
Capital Expenditures for Property and Equipment (817,788) --
--------- ---------
Net Cash Provided By (Used In) Investing Activities (817,788) --
Cash Flows From Financing Activities:
Proceeds (Payment) of Long Term Debt 144,925 (7,207)
Proceeds From Issuance of Notes Payable 950,000 --
Principal Payments on Notes Payable (24,581) (200,000)
---------- ----------
Net Cash Provided By (Used In) Financing Activities 1,070,344 (207,207)
Net Increase (Decrease) in Cash and Cash Equivalents (207,861) 269,515
Cash & Cash Equivalents at Beginning of Year 238,858 67,140
---------- ----------
Cash & Cash Equivalents at End of Year $30,997 $336,655
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $59,821 $42,573
========== ==========
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 October 31, 1998, and the related consolidated
statements of operations and cash flows for the periods ended October
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 October 31, 1998 as compared to October 31, 1997
NET REVENUES
Consolidated Revenues of $4,261,000 for the three months ended
October 31, 1998 increased $1,112,000, or 35%, as compared to the same
period in 1997. The increase is primarily the result of a $1,087,000
increase in direct sales.
COST OF REVENUES
Consolidated Cost of Revenues of $3,630,000 increased $1,019,000,
or 39%, as compared to the same period last year. The increase is a
primarily a result of increased revenues along with a slight decrease
in the direct sales margin.
GROSS MARGIN
Consolidated Gross Margin of $630,000 was 14.8% of revenues, as
compared to $537,000, or 17.0%, for the same period last year. This is
due to a decrease in the direct sales margin at AVES.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated Expenses of $428,000 decreased $19,000 or 4% as
compared to the same period last year. Jayark Corporate recognized an
increase in professional fees of $28,000, a $14,000 increase in taxes
due to refunds received in the prior year, and $4,000 in additional
insurance expenses. AVES had reduced spending of $29,000 in payroll
costs, $25,000 in advertising and exhibit expenses, $8,000 in office
supplies, $6,000 in other miscellaneous expenses, $3,000 in
depreciation and a $6,000 increase in freight.
INTEREST EXPENSE
Consolidated Interest Expense of $105,000 increased $12,000, or
13%. This increase is due to an increase in borrowing.
NET INCOME (LOSS)
Consolidated Net Income of $97,000 increased as compared to a net
loss of $2,000 during the same period last year. The $99,000 increase
is a direct result of an increase in margin due to higher revenues.
Six Months Ended October 31, 1998 as compared to October 31, 1997
NET REVENUES
Consolidated Revenues of $8,308,000 for the period ended October
31, 1998 increased $986,000, or 13%, as compared to the same period in
1997. The increase is a result of an $886,000 increase in AVES' sales,
due to an increase in direct sales and the addition of $100,000 in
rental sales from the new subsidiary, MED Services Corp.
COST OF REVENUES
Consolidated Cost of Revenues of $7,130,000, increased $889,000,
or 14%, as compared to the same period last year. The increase is a
direct result of higher revenues.
GROSS MARGIN
Consolidated Gross Margin of $1,178,000 was 14% of revenues, as
compared to $1,081,000, or 15%, for the same period last year. This
decrease is due a slight decrease in AVES' direct sales margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated Expenses of $910,000 increased $26,000 or 3% as
compared to the same period last year. This increase is primarily due
to $21,000 in expenses for the new subsidiary MED Services Corp. AVES
recognized $60,000 in reduced spending with savings in payroll
expenses, depreciation, and other miscellaneous expenses. Corporate
increased spending by $65,000 primarily a result of increased
professional fees due to increased representation required for the
formation of the new subsidiary, combined with lower than normal fees
incurred in the period ending 10/31/97.
INTEREST EXPENSE
Consolidated Interest Expense of $198,000 increased $17,000, or
9.0%. This increase is due to an increase in borrowing.
NET INCOME (LOSS)
Consolidated Net Income of $70,000 increased as compared to a net
income of $16,000 during the same period last year. The $54,000
increase is a result of increased margins recognized with the higher
revenues.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1998, consolidated open lines of credit available to the
Company for borrowing, were $450,000 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 $399,588 at October 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. The majority of which was used to purchase equipment
for rental in the new subsidiary.
Net cash used by operating activities was $460,417 in 1998, compared
$476,722 net cash provided in 1997. This is a result of increases in
accounts receivable and inventory partially offset by increases in
accounts payable and other liabilities.
Net cash used in investing activities was $817,788 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 $1,070,344 in 1998,
compared to $207,207 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 October 31, 1998, AVES had $800,000 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 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.
Subsequent Events
The Rights Offering expired on October 30, 1998. The total offering of
18,442,398 shares was fully subscribed with 111,600 shares purchased
with cash and the balance subscribed by conversion of debt. The
Company issued the new shares in November 1998.
The Koffman Group, which consists of David Koffman, Chairman of the
Board of Directors and President of the Company, Richard Koffman, Milton
Koffman, Jeffrey Koffman, Sara Koffman, Ruthanne Koffman, Elizabeth
Koffman, Steven Koffman, and three entities controlled by members of the
Koffman family, agreed to acquire all shares not purchased by other
stockholders on Primary Subscription. As a result, the Koffman Group
beneficially owns 20,417,188 shares of Common Stock, which represents
approximately 74% of the Common Stock outstanding.
On November 13, 1998 Jayark Corporation, through its newly formed,
wholly owned subsidiary, MED Services Corp. ("Med"), terminated its
Purchase and Sale, Distribution, and Custody Agreements 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 Purchase and Sale Agreement, dated
June 17, 1998, 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 was entitled to a range of forty-
eight to sixty-seven percent of the rental proceeds, based upon the
equipment rented. Vivax had an option to purchase the medical
equipment from Med after the twenty-fourth, thirty-six and forty-eighth
month of the consignment period. Med, under the Purchase and Sale
Agreement had an option, through October 31, 1999 to purchase an
additional $2,475,000 of medical equipment from Vivax.
In consideration for terminating the Agreements, MED received $840,000
from Vivax. MED, in turn, paid off the $450,000 outstanding on its
revolving line of credit to the bank and outstanding interest due on
the line.
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 - None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
JAYARK CORPORATION
Registrant
/s/ David L. Koffman December 14, 1998
David L. Koffman, President
Chief Executive Officer
/s/ Robert C. Nolt December 14, 1998
Robert C. Nolt
Chief Financial Officer
[ARTICLE] 5
[CIK] 0000053260
[NAME]
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] APR-30-1999
[PERIOD-START] MAY-01-1998
[PERIOD-END] OCT-31-1998
[CASH] 30,997
[SECURITIES] 0
[RECEIVABLES] 2,344,946
[ALLOWANCES] 0
[INVENTORY] 496,447
[CURRENT-ASSETS] 2,984,096
[PP&E] 1,269,203
[DEPRECIATION] (416,574)
[TOTAL-ASSETS] 4,094,787
[CURRENT-LIABILITIES] 3,383,684
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2,766,359
[OTHER-SE] (5,621,621)
[TOTAL-LIABILITY-AND-EQUITY] 4,094,787
[SALES] 8,308,012
[TOTAL-REVENUES] 8,308,012
[CGS] 7,129,676
[TOTAL-COSTS] 7,129,676
[OTHER-EXPENSES] 909,570
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 198,461
[INCOME-PRETAX] 70,305
[INCOME-TAX] 0
[INCOME-CONTINUING] 70,305
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 70,305
[EPS-PRIMARY] .00
[EPS-DILUTED] .00