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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended July 29, 1995.
Commission File Number 1-9647
JAN BELL MARKETING, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
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(State of Incorporation) (IRS Employer
Identification No.)
13801 N.W. 14TH STREET SUNRISE, FLORIDA 33323
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 846-2705
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
25,748,765 COMMON SHARES ($.0001 PAR VALUE)
AS OF SEPTEMBER 5, 1995
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FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED JULY 29, 1995
TABLE OF CONTENTS
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PART I: FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheets 3
B. Consolidated Statements of Operations 4
C. Consolidated Statements of Cash Flows 6
D. Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II: OTHER INFORMATION
Items 1, 2, 3, 4 and 5
have been omitted because they are not
applicable with respect to the current
reporting period.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
A S S E T S
July 29, January 28,
1995 1995
------------- ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 10,840 $ 28,212
Accounts receivable, net 5,661 12,156
Inventories 109,678 106,053
Other current assets 1,240 1,738
------- -------
Total current assets 127,419 148,159
Property, net 27,248 29,639
Other assets 8,759 6,085
Goodwill 2,777 2,869
------- -------
$ 166,203 $ 186,752
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,597 $ 10,824
Accrued expenses 4,682 13,492
Accrued lease payment 216 101
Long-term debt, current portion 9,000 35,000
----- ------
Total current liabilities 27,495 59,417
Long-term debt 17,500 ---
STOCKHOLDERS' EQUITY:
Common stock, $.0001 per value,
50,000,000 shares authorized,
25,748,765 and 25,741,991 shares
issued, respectively 3 3
Additional paid-in capital 180,321 178,896
Retained earnings (deficit) (58,318) (50,657)
Foreign currency translation
adjustment (798) (907)
----- -----
121,208 127,335
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$ 166,203 $ 186,752
======= =======
See notes to consolidated financial statements.
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4
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS SHOWN IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Thirteen Weeks Thirteen Weeks
Ended Ended
July 29, 1995 July 31, 1994
-------------- --------------
(Unaudited)
Net sales $ 55,452 $ 60,077
Cost of sales and
occupancy costs 44,404 50,363
----------- -----------
Gross profit 11,048 9,714
Store and warehouse
operating and selling expenses 7,992 9,175
General and administrative expenses 4,230 3,990
Amortization expense 282 577
Currency exchange loss 70 ---
----------- -----------
Operating loss (1,526) (4,028)
Interest and other income 343 55
Interest expense 740 816
----------- -----------
Loss before income taxes (1,923) (4,789)
Income taxes (benefit) ( 37) 143
----------- -----------
Net Loss $ (1,886) $ (4,932)
=========== ===========
Net Loss per
common share $ ( 0.07) $ ( 0.19)
Weighted average shares
outstanding 25,739,343 25,668,495
See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS SHOWN IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Twenty Six Weeks Twenty-Six Weeks
Ended Ended
July 29, 1995 July 31, 1994
---------------- ----------------
(Unaudited)
Net sales $ 105,471 $ 123,087
Cost of sales
and occupancy costs 87,039 103,284
----------- -----------
Gross profit 18,432 19,803
Store and warehouse
operating and selling expenses 16,071 18,280
General and administrative expenses 8,413 9,486
Amortization expense 562 1,234
Currency exchange loss 636 ---
----------- -----------
Operating loss (7,250) ( 9,197)
Interest and other income 952 105
Interest expense 1,277 1,614
----------- -----------
Loss before income taxes (7,575) (10,706)
Income taxes 86 205
----------- -----------
Net loss $ (7,661) $ (10,911)
=========== ===========
Net loss per common
share $ ( .30) $ (0.43)
Weighted average shares
outstanding 25,741,366 25,638,097
See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS SHOWN IN THOUSANDS)
Twenty-Six Weeks Ended Twenty-Six Weeks Ended
July 29, 1995 July 31, 1994
---------------------- ----------------------
(Unaudited)
Cash flows from operating
activities:
Cash received from customers $ 111,966 $ 125,492
Cash paid to suppliers and
employees (120,508) (129,025)
Interest and other income
received 952 105
Interest paid (1,277) (1,614)
Income taxes (paid) refunded 361 2,455
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Net cash (used in)
operating activities (8,506) (2,587)
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Cash flows from investing
activities:
Capital expenditures (385) (4,407)
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Net cash (used in)
investing activities (385) (4,407)
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Cash flows from financing
activities:
Net borrowings under line of
credit --- 9,200
Debt repayment (8,500) ---
Stock purchase plan payments
withheld 19 33
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Net cash provided by (used in)
financing activities (8,481) 9,233
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Net increase (decrease) in cash
and cash equivalents (17,372) 2,239
Cash and cash equivalents at
beginning of period 28,212 2,303
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Cash and cash equivalents at
end of period $ 10,840 $ 4,542
========= =========
See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(AMOUNTS SHOWN IN THOUSANDS)
Twenty-Six Weeks Twenty-Six Weeks
Ended Ended
July 29, 1995 July 31, 1994
----------------- ----------------
(Unaudited)
Reconciliation of net loss
to net cash used in
operating activities:
Net loss $ (7,661) $ (10,911)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and
amortization 3,340 3,892
Stock compensation expense --- 518
Foreign currency translation
adjustment 109 ---
(Increase) Decrease
in assets:
Accounts receivable (net) 6,495 2,405
Inventories (3,625) 23,913
Other (1,127) 952
Increase (Decrease) in
liabilities:
Accounts payable 2,773 (3,260)
Accrued expenses (8,810) (1,930)
Liability for inventory
sold and repurchased --- (18,166)
---------- -----------
Net cash used in
operating activities $ (8,506) $ (2,587)
========== ===========
See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Unaudited Financial Statements
The Company's financial statements for the thirteen and twenty-six
week periods ended July 29, 1995 and July 31, 1994 have not been audited by
certified public accountants, but in the opinion of management of the Company
reflect all adjustments (which include only normal recurring accruals)
necessary to present fairly the financial position, results of operations and
cash flows for those periods. Results of the thirteen and twenty-six week
periods ended July 29, 1995 and July 31, 1994 are not necessarily indicative of
annual results because of the seasonality of the Company's business.
Certain reclassifications have been made to the prior consolidated
financial statements to conform to the current presentation.
The accompanying financial statements should be read in conjunction
with the Company's annual financial statements for the year ended January 28,
1995.
B. Agreement with Sam's Wholesale Club
The Company operates an exclusive leased department at all existing
and future Sam's Wholesale Club ("Sam's") locations under an agreement which
expires February 1, 2001. The Company pays Sam's a tenancy fee of 9% of net
sales. During the thirteen and twenty six weeks ended July 29, 1995,
approximately 95% and 90% respectively of the Company's net sales were from
Sam's customers and for the foreseeable future it is expected that the
substantial portion of net sales will be generated through this agreement.
Accordingly, the Company is dependent on Sam's to conduct its business and the
loss of the leased department arrangement with Sam's would have a material
adverse effect on the business of the Company.
C. Inventories:
Inventories are summarized as follows:
July 29, January 28,
1995 1995
------------- -------------
(Amounts shown in thousands)
Precious and semi-precious jewelry-
related merchandise (and associated
gold):
Raw materials $ 9,188 $ 8,617
Finished goods 51,274 41,775
Gold jewelry-related merchandise:
Raw materials 2 2
Finished goods 14,903 18,305
Watches 16,642 27,461
Other consumer products 17,669 9,893
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$109,678 $106,053
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
D. Income Taxes
The Company's provision (benefit) for income taxes for 1995 and 1994 is
related to the operations of foreign affiliates. Federal and state tax benefits
have not been recognized for the domestic loss for 1995 and 1994 due to the
fact that all potential loss carrybacks have been fully utilized and, under
SFAS No. 109, "Accounting for Income Taxes," the Company has determined that it
is more likely than not that the deferred tax asset will not be realized.
E. Financing Arrangements
On May 31, 1995, the Company entered into an amended and restated
senior note agreement. At closing, the Company repaid $8.5 million in
principal amount of the notes. The notes (as amended, the "amended notes")
mature on February 1, 1998, are secured and bear interest for the period (a)
from closing to January 31, 1997, at an annual rate of 12.5% and (b) from
February 1, 1997 to maturity, at an annual rate of 16%. Two principal payments
in the amounts of $9 million and $10 million, respectively, are payable on
February 1, 1996 and February 1, 1997 with a final payment of $7.5 million due
February 1, 1998. The Company paid the noteholders a fee of $500,000 in
connection with this agreement.
On May 31, 1995 the Company also finalized a Working Capital Facility
with GBFC, Inc. (an affiliate of Gordon Brothers, Inc.) and Foothill Capital
Corporation which provides for a $30 million secured revolving bank credit
facility. Availability under the Working Capital Facility is determined based
upon a percentage formula applied to inventory and accounts receivable. The
Working Capital Facility terminates on May 31, 1997 and bears interest at an
annual rate of The First National Bank of Boston's base rate plus 1.5%. The
Company is required to pay a fee of $450,000 annually to the lenders and an
administration fee of $11,000 monthly.
The Company's liability under the amended notes is unconditionally
guaranteed by all of its material direct and indirect 51% (or greater)
subsidiaries. The liability under the Working Capital Facility is
unconditionally guaranteed by the Company and its subsidiaries. Substantially
all of the Company's assets are subject to a blanket lien in accordance with
the agreements related to the amended notes and Working Capital Facility. An
intercreditor agreement among the lenders provides that their respective
security interests in such collateral are subject to certain relative
priorities.
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
Further, the Company granted to the noteholders warrants (the
"noteholder warrants") to purchase 1,732,520 shares of the Company's common
stock at an initial purchase price per share of $2.25. The noteholder warrants
vest as follows: 20% on May 31, 1995, 20% on February 2, 1996, 30% on
February 2, 1997 and 30% on July 31, 1997 if any obligations under the amended
notes remain outstanding on such respective dates. Any vested noteholder
warrants expire on May 1, 2005. In connection with the Working Capital
Facility, the Company granted warrants to purchase up to 234,000 shares of the
Company's common stock at exercise prices ranging from $3.25 to $4.00 per
share. The estimated fair value of the warrants granted to the noteholders and
Working Capital Facility Lenders has been recorded as a deferred financing
cost, included in other assets, and as an addition to paid in capital.
The agreements related to the amended notes and the Working Capital
Facility contain covenants which require the Company to maintain financial
ratios related to earnings, working capital, inventory turnover, trade payables
and tangible net worth, limit capital expenditures and the incurrence of
additional debt, and prohibit payment of dividends.
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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company operates an exclusive leased department at all existing
and future Sam's Wholesale Club ("Sam's") locations under an agreement which
expires February 1, 2001. During the thirteen and twenty-six weeks ended July
29, 1995, approximately 95% and 90% of the Company's net sales were from Sam's
customers and for the foreseeable future it is expected that the substantial
portion of net sales will be generated through this agreement.
Prior to 1993, the Company operated principally as a jewelry, watch
and fragrance wholesaler to the warehouse membership club industry. Following
the Company's transition to retailing as a leased department operator at Sam's
in the fourth quarter of 1993, the Company recognized the need for additional
retail management expertise. In Fiscal 1994, new Board members were recruited
from department and specialty store senior executives, who in turn hired a new
C.E.O. New management then began addressing the Company's strategic direction.
In late 1994 as part of the Fiscal 1995 planning process, management
and the new Board reviewed the Fiscal 1994 results of all lines of business and
their attendant cost structures. This process resulted in the following
decisions.
First, the Company's domestic manufacturing operations engaged in the
manufacturing of fixtures for the Company's retail locations and various gem
and gold products were closed.
Second, staffing levels were reduced at the Company's headquarters,
other operational expenses were reduced and merchandising programs were
designed to better manage retail sales, gross profit and the replenishment
function.
Third, management addressed the Company's wholesale watch division,
which had evolved into a low end watch business with sourcing in the parallel
markets and which contributed disproportionately to expense. With no perceived
opportunity to improve the performance of this division, management closed the
wholesale watch division, other than selected sales, and continued balancing of
inventory.
Results of operations for the thirteen and twenty-six weeks ended July
29, 1995 reflect the implementation of these decisions.
Net sales were $55.5 million and $105.5 million for the thirteen and
twenty-six weeks ended July 29, 1995 compared to $60.1 million and $123.1
million for the thirteen and twenty-six weeks ended July 31, 1994. The decline
in sales in Fiscal 1995 reflects primarily the closing of the
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
wholesale division as well as the reduction in business through the Mexican
operations due to the peso devaluation. Net sales in the retail locations for
the thirteen and twenty-six weeks ended July 29, 1995 were $50.4 million and
$89.6 million compared to $50.7 million and $93.2 million for the thirteen and
twenty-six weeks ended July 31, 1994.
Gross profit was $ 11.0 million or 19.9% of net sales for the thirteen
weeks ended July 29, 1995 compared to $ 9.7 million or 16.2% of net sales for
the thirteen weeks ended July 31, 1994. Gross profit was $18.4 million or
17.5% of net sales for the twenty-six weeks ended July 29, 1995 compared to
$19.8 million or 16.1% of net sales for the twenty-six weeks ended July 31,
1994. The increase in gross profit as a percentage of net sales is primarily
attributable to margin improvements that are being recognized in the Company's
retail locations.
Management recognizes that significant continued improvement in both
sales and margins must be achieved for the Company to return to profitability.
Store and warehouse operating and selling expenses were $8.0 million
and $16.1 million for the thirteen and twenty-six weeks ended July 29, 1995
compared to $9.2 million and $18.3 million for the thirteen and twenty-six
weeks ended July 31, 1994. The decrease is reflective of field staff
reductions and warehouse operating expense savings as a result of the decision
to close the Company's wholesale watch and domestic manufacturing divisions.
General and administrative expenses were $4.2 million and $8.4 million
for the thirteen and twenty-six weeks ended July 29, 1995 compared to $4.0
million and $9.5 million for the thirteen and twenty-six weeks ended July 31,
1994. In the thirteen and twenty-six weeks ended July 31, 1994, the Company
recorded a reduction to general and administrative expenses of $1.4 million
reflecting a change in estimate of certain transition related liabilities. The
decrease in general and administrative expenses, after considering this 1994
reduction, is primarily reflective of expense reductions implemented as a
result of corporate staff reductions and the elimination of general and
administrative expenses associated with the Company's wholesale watch and
domestic manufacturing divisions.
The decrease in amortization expense to $282,000 and $562,000 for the
thirteen and twenty-six weeks ended July 29, 1995 from $577,000 and $1,234,000
for the thirteen and twenty-six weeks ended July 31, 1994 is primarily a result
of the write off at January 28, 1995 of $23.8 million of goodwill associated
with the Company's 1990 purchase of the minority interest of Big Ben '90.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
The continued devaluation of the Mexican peso of Fiscal 1995 resulted
in a currency exchange loss of $70,000 and $636,000 for the thirteen and
twenty-six weeks ended July 29, 1995.
The retail jewelry business is seasonal in nature with a higher
proportion of sales and earnings generated during the fourth quarter holiday
selling season. As a result, operating results for the thirteen and twenty-six
weeks ended July 29, 1995, are not necessarily indicative of results of
operations for the entire fiscal year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of July 29, 1995, cash and cash equivalents totalled $10.8 million,
a decrease of $17.4 million from January 28, 1995 which resulted primarily from
cash used in operations and a debt repayment of $8.5 million. The company had
no short-term borrowings outstanding.
The Company's working capital requirements are directly related to the
amount of inventory required to support its retail operations. During the
twenty six weeks ended July 29, 1995, the inventory increase of $3.6 million
primarily reflects an initial build up in anticipation of holiday sales.
For the remainder of Fiscal 1995, based on discussions with Sam's, the
Company expects a very limited increase in the number of leased departments it
operates, and consequently does not foresee a need for a significant increase
in retail inventory. Capital expenditures for Fiscal 1995 are projected not to
exceed $2 million.
The Company's business is highly seasonal, with seasonal working
capital needs peaking in October and November before the holiday selling
season.
On May 31, 1995, the Company entered into an amended and restated
senior note agreement. At closing, the Company repaid $8.5 million in
principal amount of the notes. The notes (as amended, the "amended notes")
mature on February 1, 1998, are secured and bear interest for the period (a)
from closing to January 31, 1997, at an annual rate of 12.5% and (b) from
February 1, 1997 to maturity, at an annual rate of 16%. Two principal payments
in the amounts of $9 million and $10 million, respectively, are payable on
February 1, 1996 and February 1, 1997 with a final payment of $7.5 million due
February 1, 1998. The Company paid the noteholders a fee of $500,000 in
connection with this agreement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
On May 31, 1995 the Company also finalized a Working Capital Facility
with GBFC, Inc. (an affiliate of Gordon Brothers, Inc.) and Foothill Capital
Corporation which provides for a $30 million secured revolving bank credit
facility. Availability under the Working Capital Facility is determined based
upon a percentage formula applied to inventory and accounts receivable. The
Working Capital Facility terminates on May 31, 1997 and bears interest at an
annual rate of The First National Bank of Boston's base rate plus 1.5%. The
Company is required to pay a fee of $450,000 annually to the lenders and an
administration fee of $11,000 monthly.
The Company's liability under the amended notes is unconditionally
guaranteed by all of its material direct and indirect 51% (or greater)
subsidiaries. The liability under the Working Capital Facility is
unconditionally guaranteed by the Company and its subsidiaries. Substantially
all of the Company's assets are subject to a blanket lien in accordance with
the agreements related to the amended notes and Working Capital Facility. An
intercreditor agreement among the lenders provides that their respective
security interests in such collateral are subject to certain relative
priorities.
Further, the Company granted to the noteholders warrants (the
"noteholder warrants") to purchase 1,732,520 shares of the Company's common
stock at an initial purchase price per share of $2.25. The noteholder warrants
vest as follows: 20% on May 31, 1995, 20% on February 2, 1996, 30% on February
2, 1997 and 30% on July 31, 1997 if any obligations under the amended notes
remain outstanding on such respective dates. Any vested noteholder warrants
expire on May 1, 2005. In connection with the Working Capital Facility, the
Company granted warrants to purchase up to 234,000 shares of the Company's
common stock with exercise prices ranging from $3.25 to $4.00 per share.
The agreements related to the amended notes and the Working Capital
Facility contain covenants which require the Company to maintain financial
ratios related to earnings, working capital, inventory turnover, trade payables
and tangible net worth, limit capital expenditures and the incurrence of
additional debt, and prohibit payment of dividends.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
The Company believes that its cash on hand, projected cash from
operations, the expected proceeds from the liquidation of wholesale watch
inventory and availability under the Working Capital facility will be
sufficient to meet its debt service requirements and anticipated working
capital and capital expenditure needs for the remainder of Fiscal 1995. There
can be no assurance that the Company's future operating results will improve to
the point where they will be sufficient to sustain such debt service and
working capital needs.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule (for SEC use only)
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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.
JAN BELL MARKETING, INC.
---------------------------------
(Registrant)
By: David P. Boudreau
---------------------------------
Senior Vice President of Finance,
Treasurer and Controller
Date: September 12, 1995
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