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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
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PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
JULY 28, 1998
DATE OF REPORT (Date of earliest event reported)
JAN BELL MARKETING, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 1-9647 59-2290953
-------- ------ ----------
(State of incorporation) (Commission (IRS Employer
File Number) Identification Number)
14051 N.W. 14th Street, Sunrise, Florida 33323
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(Address of principal executive offices)
(Zip Code)
(954) 846-2719
(Registrant's telephone number, including area code)
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Registrants original Form 8-K reporting an acquisition pursuant to Item 2 was
filed on August 10, 1998. This amendment consists of the required financial
information pursuant to Item 7.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
7(a)(1) The following audited consolidated financial
statements of Mayor's Jewelers, Inc. and subsidiaries are
included herein:
Independent Auditors' Report
Consolidated Balance Sheets as of January 30, 1998 and January
31, 1997
Consolidated Statements of Operations for each of the years
ended January 30, 1998, January 31, 1997 and January 31, 1996
Consolidated Statements of Shareholders' Equity for each of
the years ended January 30, 1998, January 31,1997 and January
31, 1996
Consolidated Statements of Cash Flows for each of the years
ended January 30, 1998, January 31, 1997 and January 31, 1996
Notes to Consolidated Financial Statements
7(a)(2) The following unaudited consolidated financial statements of
Mayor's Jewelers, Inc. and subsidiaries are included herein:
Consolidated Balance Sheets as of July 31, 1998 and January
31, 1998
Consolidated Statements of Operations for the twenty-six weeks
ended July 31, 1998 and July 30, 1997
Consolidated Statements of Cash Flows for the twenty-six weeks
ended July 31, 1998 and July 30, 1997
7(b) The following unaudited pro forma financial information is
included herein:
Pro Forma Statement of Operations (unaudited) for the year
ended January 31, 1998
Pro Forma Statement of Operations (unaudited) for the
twenty-six weeks ended August 1, 1998
Notes to Pro Forma Financial Statements (unaudited)
7(c) Exhibits
2* Stock Purchase Agreement among Mayor's Jewelers, Inc., the
stockholders of Mayor's Jewelers, Inc. and Jan Bell Marketing,
Inc. dated as of May 26, 1998. (previously filed with original
Form 8-K)
99* Press release dated July 28, 1998 (previously filed with
original Form 8-K)
* Incorporated herein by reference as indicated
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SIGNATURE
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 hereunto duly authorized.
Jan Bell Marketing, Inc.
(Registrant)
By: /s/ David P. Boudreau
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David P. Boudreau
Chief Financial Officer and
Senior Vice President of Finance
& Treasurer
Date: September 15, 1998
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INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Mayor's Jewelers, Inc.:
We have audited the accompanying consolidated balance sheets of Mayor's
Jewelers, Inc. and subsidiaries (the "Company") as of January 30, 1998 and
January 31, 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended January 30, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 accompanying consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of
January 30, 1998 and January 31, 1997, and the results of its operations and its
cash flows for each of the three years in the period ended January 30, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, there is an uncertainty regarding the
Company's ability to satisfy or extend the debt that matures during the year
ending January 29, 1999, which raises substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
April 24, 1998
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MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 30, 1998 and January 31, 1997
(amounts shown in thousands except share and per share data)
ASSETS 1997 1996
CURRENT ASSETS:
Cash $ 859 $ 652
Accounts receivable, net of allowance for doubtful accounts
of $760 and $683 in 1997 and 1996, respectively 27,359 24,390
Inventories 67,687 71,838
Income tax refund receivable -- 463
Other current assets 1,560 1,775
--------- ---------
Total current assets 97,465 99,118
PROPERTY AND EQUIPMENT, at cost, net 8,680 9,575
OTHER ASSETS 1,791 2,109
--------- ---------
TOTAL $ 107,936 $ 110,802
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 63,078 $ 950
Accounts payable 26,601 24,839
Accrued expenses 4,023 3,794
Deferred income taxes 4,327 5,616
Other current liabilities 1,205 1,150
--------- ---------
Total current liabilities 99,234 36,349
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LONG-TERM LIABILITIES:
Long-term debt 196 65,351
Other long-term liabilities 1,814 2,059
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Total long-term liabilities 2,010 67,410
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COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding
Common stock, $.01 par value, 15,000,000 shares
authorized, 3,050,000 issued and outstanding
at January 30, 1998 and January 31, 1997, respectively 30 30
Additional paid-in capital 12,217 12,217
Accumulated deficit (5,555) (5,204)
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Total shareholders' equity 6,692 7,043
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TOTAL $ 107,936 $ 110,802
========= =========
See accompanying notes to consolidated financial statements.
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MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997 and JANUARY 31, 1996
(Amounts shown in thousands)
1997 1996 1995
NET SALES $ 142,191 $ 138,381 $ 133,230
COST OF SALES, OCCUPANCY, STORE
PERSONNEL AND BUYING EXPENSES 104,137 103,139 99,834
--------- --------- ---------
Gross profit 38,054 35,242 33,396
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 28,753 28,228 32,209
PROVISION FOR BAD DEBTS 1,463 1,337 2,161
LOSS ON FOREIGN CUSTOMER 1,618 -- --
--------- --------- ---------
Income (loss) from operations 6,220 5,677 (974)
INTEREST EXPENSE, Net (7,474) (8,265) (7,357)
--------- --------- ---------
Loss before income tax benefit (1,254) (2,588) (8,331)
INCOME TAX BENEFIT 903 463 2,388
--------- --------- ---------
NET LOSS $ (351) $ (2,125) $ (5,943)
========= ========= =========
See accompanying notes to consolidated financial statements.
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MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997 AND JANUARY 31, 1996
(amounts shown in thousands)
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
BALANCE, JANUARY 31, 1995 2,804 $ 28 $ 11,848 $ 2,864 $ 14,740
Issuance of common stock 30 220 220
Exercise of warrants 53 1 1
Net loss (5,943) (5,943)
-------- -------- -------- -------- --------
BALANCE, JANUARY 31, 1996 2,887 29 12,068 (3,079) 9,018
Issuance of common stock 42 150 150
Exercise of warrants 121 1 (1)
Net loss (2,125) (2,125)
-------- -------- -------- -------- --------
BALANCE, JANUARY 31, 1997 3,050 30 12,217 (5,204) 7,043
Net loss (351) (351)
-------- -------- -------- -------- --------
BALANCE, JANUARY 30, 1998 3,050 $ 30 $ 12,217 $ (5,555) $ 6,692
======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements.
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MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANAURY 30, 1998, JANUARY 31, 1997 AND JANUARY 31, 1996
(amounts shown in thousands)
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (351) $ (2,125) $ (5,943)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation and amortization of property and equipment 3,029 3,332 2,073
Other amortization, net 606 147 701
Deferred income taxes (1,559) -- --
Provision for bad debts 1,463 1,337 2,161
Deferred gain on sale leaseback -- -- (185)
Loss on sale/write down of property and equipment 275 9 2
Deferred compensation expense 81 67 92
Deferred income tax benefit -- -- (500)
Changes in assets and liabilities (net of effect of
acquisition of Balogh's in 1995):
Increase in accounts receivable (4,432) (1,006) (6,075)
Decrease/(increase) in income tax refund receivable 463 1,980 (2,443)
Decrease/(increase) in inventories 4,152 1,844 (5,986)
Decrease in other current assets 216 217 400
Decrease/(increase) in other assets 75 (252) 421
Increase/(decrease) in accounts payable 1,762 2,404 (503)
Increase/(decrease) in accrued expenses (192) (2,575) 2,292
Decrease in income tax payable -- -- (1,923)
Increase/(decrease) in other current liabilities 55 102 (643)
Increase in other liabilities -- 55 1,070
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Cash flows (used in) provided by operating activities 5,643 5,536 (14,989)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used for acquisition of Balogh's -- -- (1,268)
Purchases of property and equipment, net (2,091) (2,054) (6,711)
Proceeds from sale of property and equipment -- 56 359
--------- --------- ---------
Cash flows used in investing activities (2,091) (1,998) (7,620)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility 144,383 143,903 157,176
Principal payments on revolving credit
facility and capital leases (147,728) (147,779) (133,994)
Issuance of common stock -- 150 221
Additions to deferred financing costs -- (381) (507)
--------- --------- ---------
Cash flows used in (provided by) financing activities (3,345) (4,107) 22,896
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 207 (569) 287
CASH, BEGINNING OF YEAR 652 1,221 934
--------- --------- ---------
CASH, END OF YEAR $ 859 $ 652 $ 1,221
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 7,989 $ 6,395 $ 6,150
========= ========= =========
Income taxes, net $ -- $ -- $ (2,169)
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
The Company incurred long-term debt in connection with the
acquisition of certain computer equipment $ 318 $ -- $ --
========= ========= =========
See accompanying notes to consolidated financial statements.
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MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997, AND JANUARY 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Mayor's Jewelers, Inc. and subsidiaries (the
"Company") is engaged in retail jewelry sales through stores located in
South and Central Florida and metropolitan Atlanta, Georgia. The
Company's operations are seasonal with a significant portion of sales
occurring during the fourth quarter of each fiscal year. The Company
changed its fiscal year-end during the year ended January 30, 1998 from
January 31 to a 52/53 week year ending on the Friday closest to January
31 of each year. The change in fiscal year-ends did not have a material
effect on the consolidated financial statements.
As indicated in Note 3, $63,078,000 of the Company's long-term debt is
due and payable during the year ending January 29, 1999. During
February 1998, the Company entered into a proposed transaction with a
third party, Jan Bell Marketing, Inc. ("Jan Bell") in which Jan Bell
would purchase from the shareholders of the Company all of the shares
and equity equivalents of capital stock of the Company outstanding as
of January 26, 1998, subject to certain conditions and events. The
Company's management believes that should the transaction be
consummated, Jan Bell would be able to provide adequate financing to
satisfy the debt requirements. As such, the Company's management has
not attempted to extend the maturity of the notes payable and line of
credit, all of which mature between June and August 1998. Management
believes that if the transaction is not consummated, the Company has
the ability to extend the debt or find alternative financing. However,
should the Company not be able to extend or refinance the debt, based
on the Company's current financial position and its results of
operations, there is significant concern that the Company would not be
able to satisfy the requirements of the debt obligations as they come
due which would impact the ability of the Company to continue as a
going concern.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its 100%-owned subsidiaries,
Maier's Jewelers, Inc., Maier & Berkele, Inc., Mayor's Jewelers
Receivables Holding Company and Mayor's Jewelers Intellectual Company
and its 79%-owned subsidiary, American Horological Corporation ("AHC").
All significant intercompany balances and transactions have been
eliminated in consolidation.
PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions 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 those estimates.
Significant estimates used by management in the consolidated financial
statements that could result in material adverse effects if
underestimated include the allowance for uncollectible accounts
receivable, allowance for inventory reserve, sales tax liability and
litigation reserves.
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ACCOUNTS RECEIVABLE - Accounts receivable arise primarily from
customers' use of the Company's credit cards. Several installment sales
plans are offered which vary as to repayment terms and finance charges
assessed. Finance charges, when applicable, accrue at rates ranging
from 10% to 18% per annum. Finance charge income totaled $2,314,000,
$2,238,000, and $1,830,000 for the years ended January 30, 1998,
January 31, 1997 and January 31, 1996, respectively, and is recorded as
a reduction of selling, general and administrative expenses in the
accompanying consolidated statements of operations.
Certain sales plans of the Company provide revolving lines of credit
under which the payment terms may exceed one year. In accordance with
industry practice, these receivables are included in current assets in
the accompanying consolidated balance sheets. The portion of these
receivables as of January 30, 1998 that is not scheduled to be
collected during the year ended January 29, 1999 is approximately
$6,073,000 or 22% of total accounts receivable.
INVENTORIES - Substantially all merchandise inventories are stated at
last-in, first-out ("LIFO") cost which is not in excess of market.
Under the first-in, first-out ("FIFO") cost method of accounting,
inventories would have been $3,128,000, $2,740,000 and $1,984,000
higher than those reported at January 30, 1998, January 31, 1997 and
January 31, 1996, respectively. Effective February 1, 1996, the Company
changed its method of determining FIFO inventory cost from the retail
inventory method to the cost method. Such change did not result in a
significant impact on the financial position or results of operations
of the Company.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization are
provided using the straight-line method over the estimated useful lives
of the related assets, which range from 3 to 30 years. Leasehold
improvements are amortized over the shorter of the term of the related
lease, including renewal options, or the useful life of the asset.
DEFERRED FINANCING COSTS - Deferred financing costs primarily relate to
the cost of obtaining debt and consist primarily of loan origination
and restructuring fees. These costs are amortized over the terms of the
related debt balances. Deferred financing costs were $149,000, $336,000
and $431,000, net of $468,000, $550,000 and $74,000 in accumulated
amortization as of January 30, 1998, January 31, 1997 and January 31,
1996, respectively, and are included in other assets in the
consolidated balance sheets. Such amortization is reflected as interest
expense in the accompanying consolidated statements of operations and
amounted to $488,000, $476,000 and $963,000 during the years ended
January 30, 1998, January 31, 1997 and January 31, 1996 respectively.
ADVERTISING - Advertising costs are either charged to expense when
incurred or, for direct response advertising, capitalized and amortized
in proportion to related revenues. Advertising expense amounted to
$5,463,000, $3,961,000 and $7,226,000 during the years ended January
30, 1998, January 31, 1997 and January 31, 1996, respectively.
SALES RETURNS - The Company generally gives its customers the right to
return merchandise purchased by them and records an accrual at the time
of sale for the amount of gross profit on estimated returns.
INCOME TAXES - Provision (benefit) for income taxes is the tax payable
(refundable) for the period plus or minus the change during the period
in deferred tax assets and liabilities. The Company provides for
deferred taxes under the liability method. Under such method, deferred
taxes are adjusted for tax rate changes as they occur. Deferred income
tax assets and liabilities are computed annually for differences
between the financial statements and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in
which
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the differences are expected to affect taxable income. Valuation
allowances are recorded when necessary to reduce deferred tax assets to
the amounts that are more likely than not to be realized.
LONG-LIVED ASSETS - Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, establishes accounting
standards for recognizing the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. Long-lived assets and certain
identifiable intangibles to be held and used by a company are required
to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for such long-lived
assets and identifiable intangibles should be based on the fair value
of the asset. Long-lived assets and certain identifiable intangibles to
be disposed of are reported at the lower of the carrying amount or fair
value less cost to sell. The adoption of SFAS No. 121 during the year
ended January 31, 1997 did not have a material effect on the Company's
financial position or the results of its operations. During the year
ended January 30, 1998, there was an impairment charge related to fixed
assets of approximately $255,000 as discussed in Note 3.
STOCK-BASED COMPENSATION - SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record
stock-based employee compensation at fair value at the date of the
grant. The Company has chosen to continue to measure for stock-based
compensation to employees using the intrinsic value method as
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for stock options issued to employees
are measured as the excess, if any, of the fair value of the Company's
stock at the date of grant over the amount an employee must pay for the
stock. Compensation costs would not have been different for the years
ended January 30, 1998, January 31, 1997 and January 31, 1996 had the
fair value of stock options granted been measured as prescribed by SFAS
No. 123. The fair value of the stock options at the date of grant were
estimated using the minimum value method prescribed by SFAS No. 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Fair values of financial
instruments that are not actively traded are based on market prices of
similar instruments and/or valuation techniques using market
assumptions. Although management uses its best judgment in estimating
the fair value of these financial instruments, there are inherent
limitations in any estimation technique. Therefore, the fair value
estimates presented herein are not necessarily indicative of the
amounts which the Company could realize in a current transaction. The
carrying values of cash, accounts receivable, accounts payable and the
note payable under the revolving credit facility approximate their fair
value. The subordinated notes and debentures payable are due at various
dates from June 30, 1998 through August 31, 1998; therefore, management
believes the carrying value represents the estimated fair value of such
instruments.
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2. ACQUISITION
On March 7, 1995, the Company purchased the assets (primarily inventory
and fixed assets) of an unaffiliated company, Balogh's of Coral Gables,
Inc. ("Balogh's"), for approximately $1,268,000 in cash. The purchase
method of accounting was used to account for the acquisition. The
Company's consolidated statements of operations include the operating
results of the acquisition from the date of the purchase.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 30, 1998 and
January 31, 1997:
1997 1996
Leasehold improvements $ 8,505,000 $ 7,774,000
Furniture, fixtures and equipment 5,178,000 5,257,000
Computer system upgrades 5,662,000 4,848,000
Construction in progress 62,000 235,000
------------ ------------
19,407,000 18,114,000
Less - accumulated depreciation and amortization (10,727,000) (8,539,000)
------------ ------------
$ 8,680,000 $ 9,575,000
============ ============
Depreciation expense for the years ended January 30, 1998, January 31,
1997 and January 31, 1996 was $3,029,000, $3,332,000 and $2,073,000,
respectively.
During the year ended January 30, 1998, the Company extended the
estimated useful life on the point of sale computer system from 3 to 4
years which resulted in approximately $323,000 less depreciation
expense in fiscal 1997 than if the useful life of the system remained
at 3 years. Additionally, during the year ended January 30, 1998, the
Company determined that there was impairment to certain computer
hardware that resulted in approximately $255,000 that was expensed and
is included in selling, general and administrative expenses within the
statements of operations.
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4. NOTES PAYABLE, LINE OF CREDIT AND CAPITAL LEASES
Long-term debt consists of the following at January 30, 1998 and
January 31, 1997:
1997 1996
Revolving credit facility, secured by substantially
all of the Company's assets due June 30, 1998 $ 51,807,000 $ 55,101,000
Class A subordinated note payable to American Bankers
Insurance Company of Florida, with interest payable
quarterly at 14.25%. Principal due in full on August 13, 1998 3,770,000 3,770,000
Class B subordinated notes payable to shareholders
with interest payable quarterly at 12%. Principal
due in full on August 31, 1998 3,000,000 3,000,000
Class C subordinated notes payable to shareholders with
interest payable quarterly at 12%. Principal of $950,000
due currently, remaining balance due on August 31, 1998 3,000,000 3,000,000
Subordinated convertible debentures payable to directors
with interest payable semiannually at 15%. Principal due
in full on August 31, 1998 1,430,000 1,430,000
Capital leases with expiration dates of April and June 2001
with interest rates of 11.4% for equipment which is
collateral for such leases 267,000 --
------------ ------------
63,274,000 66,301,000
Less - current maturities of long-term debt (63,078,000) (950,000)
------------ ------------
$ 196,000 $ 65,351,000
============ ============
The revolving credit facility allows for advances up to $70,000,000
with interest payable monthly at the bank's base rate plus one and
one-fourth percent (1-1/4%) per annum. The credit facility also allows
the Company to convert advances on such note into Eurodollar Rate
Advances for periods of one, two, three, six or nine months in
duration. Conversions are to be made in minimum amounts of $1,000,000
and in integral multiples of $1,000,000. The ability to convert
advances to Eurodollar Rate Advances was suspended in June 1996 due to
noncompliance of certain covenants by the Company for the year ended
January 31, 1996. Available borrowings are limited to the amount of
eligible accounts receivable and inventories as defined in the
agreement. The related agreement provides for periodic reductions in
advances on an annual basis to $55,000,000 or less for 30 consecutive
days during the 60-day period between December 15 and February 15 of
the following calendar year.
In May 1997, the credit facility was amended which (i) changed the
previously mentioned periodic reduction in advances to $52,000,000
during the period mentioned above; (ii) reinstated the Eurodollar Rate
Advances (with a Eurodollar Rate Margin of 3% per annum); (iii) reduced
the interest rate on advances to the bank's base rate plus one and
one-fourth percent (1-1/4%) per annum (effective rate at January 30,
1998 was 9.75%) from the bank's base rate plus 2%; (iv) changed the
maturity date of the credit facility to April 30, 1998, which was
subsequently extended to June 30, 1998; and (v) revised certain
financial covenants.
Advances and paydowns under the credit facility are made on a daily
basis depending on the Company's cash availability. Substantially all
cash balances are restricted for paydowns under the facility. At
January 30, 1998, additional borrowings of approximately $18,193,000
were available under the terms of
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the credit facility. In addition to other restrictions, the terms of
the credit facility require the maintenance of certain financial ratios
and account balances and limits cash outlays for capital expenditures
and payments of dividends. The credit facility is guaranteed by each of
the subsidiaries of Mayor's Jewelers, Inc.
American Bankers Insurance Company of Florida ("American Bankers") is
the holder of the Company's Class A subordinated note. The rights of
the subordinated note holders of Class B and Class C notes are
subordinated to the rights of the American Bankers subordinated note.
Related warrants to purchase approximately 121,000 shares of the
Company's common stock at an aggregate exercise price of $839.99 were
exercised during the year ended January 31, 1997. The terms of the note
require maintenance of certain financial covenants. As of January 31,
1996, the Company was not in compliance with certain covenants of the
debt. As a result of such noncompliance, effective February 1, 1996, a
3% interest penalty as provided in the American Bankers agreement
commenced. Such penalty was satisfied by issuing approximately 42,000
shares of common stock of the Company, calculated using the estimated
fair market value of the stock during the year ended January 31, 1997.
The Company's 15% subordinated convertible debentures are convertible
into common stock of the Company at a conversion price of approximately
$9.52 per share. The debentures are subordinate to the note payable
under the revolving credit facility and to Class A subordinated notes.
5. COMMITMENTS AND CONTINGENCIES
LITIGATION - During the year ended January 30, 1998, the Department of
Revenue for the State of Florida commenced a sales tax audit on the
Company for the tax periods July 1, 1990 through July 31, 1995. As of
January 30, 1998, the Department of Revenue has assessed the Company a
liability relating to such years of approximately $1.8 million,
including sales tax, interest and penalties. The Company is currently
vigorously contesting such assessment. A reserve in the amount of
approximately $625,000 has been recorded by the Company as of January
30, 1998 related to such contingency and is included in accrued
expenses in the consolidated balance sheets.
As of January 30, 1998, the Company is involved in litigation relating
to a class action suit by former employees, asserting that the Company
is in violation of certain wage and labor laws for which they seek
unspecified damages. The Company does not believe that the ultimate
resolution of this matter will materially affect the financial position
or results of operations of the Company.
Certain minority shareholders of the Company have threatened to bring
claims against the Company and its management for breach of fiduciary
duty and other alleged wrongdoings, related to the proposed transaction
with Jan Bell, discussed in Note 1.
The Company is also involved in litigation arising in the normal course
of its business. In the opinion of management, these matters will not
materially affect the financial position or results of operations of
the Company.
OPERATING LEASES - The Company has a land and building lease with a
trust which expired in the year ended January 30, 1998, but was renewed
for one year. Certain beneficiaries of the trust are shareholders of
the Company. Rent expense related to such lease was $378,000 for the
years ended January 30, 1998, January 31, 1997 and January 31, 1996 and
requires rent of $378,000 for the year ending January 29, 1999.
14
15
The Company leases all of its retail stores under operating leases. The
rentals are based primarily on a percentage of sales with required
minimum annual rentals. In addition, most leases are subject to annual
adjustment for increases in real estate taxes and maintenance costs. At
January 30, 1998, the Company was obligated for the following minimum
annual rentals under operating leases:
FISCAL YEAR ENDING: AMOUNT
1998 $ 3,946,000
1999 2,729,000
2000 2,539,000
2001 2,314,000
2002 2,333,000
Thereafter 8,307,000
-----------
$22,168,000
===========
Rent expense was approximately $5,896,000, $5,873,000 and $5,766,000,
including $2,127,000, $2,298,000 and $2,232,000 of contingent rent, in
the years ended January 30, 1998, January 31, 1997 and January 31,
1996, respectively.
CONSIGNED INVENTORIES - The Company has inventory consigned to it for
sale with an approximate cost of $15,047,000 and $14,764,000 at January
30, 1998 and January 31, 1997, respectively.
EMPLOYMENT AGREEMENTS - The Company has certain employment agreements,
including one with the Chairman of the Company's Board of Directors.
The employment agreements provide for aggregate payments of
approximately $500,000 annually through April 13, 2001.
15
16
6. EQUITY
During the year ended January 31, 1996, the Company's Board of
Directors approved the 1995 Long-term Stock Incentive Plan (the "Plan")
effective January 1, 1995. The Plan allows the Company to issue stock
options and stock in tandem with phantom options to certain Directors
and employees of the Company until, and if, the Company becomes
publicly traded, at which time only freestanding stock options will be
granted. The Plan stipulates that if the Company is not publicly traded
within five years of the grant date of the phantom options, the phantom
options and the underlying stock options will be canceled and the
holder will receive, in cash, an amount equal to the appreciation of
the fair market value of the Company's stock, as defined in the Plan,
from the grant date. The phantom options are accounted for similar to
stock appreciation rights. The total number of common stock shares
which may be granted as stock options, with or without tandem phantom
options under the Plan shall not exceed 200,000. During the years ended
January 30, 1998, January 31, 1997 and January 31, 1996, options to
purchase 10,000, 20,000 and 120,000 shares of stock and stock in tandem
with phantom options were granted to certain Directors and employees of
the Company at fair market value, as calculated, pursuant to the Plan.
As of January 30, 1998, January 31, 1997 and January 31, 1996, 120,000,
110,000 and 120,000 in tandem with phantom options, options were
outstanding under the Plan. No expense was required to be recorded for
the years ended January 30, 1998, January 31, 1997 and January 31,
1996.
7. DIRECTORS' DEFERRED COMPENSATION PLAN
The Company has established a deferred compensation plan in which the
Directors of the Company may elect to defer receipt of all fees to be
earned during the ensuing year as a Director in the form of cash or
stock. If the participant elects stock, shares will be credited to the
participant's account equal to the number of whole shares which could
be acquired with the value of the participant's account on a
determination date, calculated by dividing the total value of the
participant's account by the fair market value of the Company's stock,
as defined. To date, all Directors have elected to defer their
compensation in the form of the Company's stock.
During the years ended January 30, 1998 and January 31, 1997, there
were 18,609 and 15,423 shares credited to participants' deferred
accounts, respectively. At January 30, 1998 and January 31, 1997, there
were a total of 46,652 and 31,229 shares credited to participants'
deferred accounts, respectively.
At January 30, 1998 and January 31, 1997, there was approximately
$240,000 and $159,000, respectively, included in other long-term
liabilities in the consolidated balance sheets.
8. LOSS ON FOREIGN CUSTOMER
During the year ended January 30, 1998, the Company sold approximately
$4.6 million of merchandise to a foreign individual. Subsequent to
January 30, 1998, the Company became aware that approximately
$1,063,000 of the purchases that were charged on the customer's credit
card were pending charge-back to the Company. An additional amount of
approximately $555,000 that was charged on the Company's private label
credit card has not been paid by the customer. Although the Company is
still in the process of attempting to collect the amounts, management
has elected to write-off the total amount of $1,618,000.
16
17
9. BENEFIT PLAN
The Company has a profit sharing plan which covers substantially all of
its employees. Contributions to the profit sharing plan are made at the
discretion of the Company. Contributions made by the Company to the
profit sharing plan approximated $0, $274,000 and $254,000 in the years
ended January 30, 1998, January 31, 1997 and January 31, 1996,
respectively.
10. INCOME TAXES
The income tax benefit in the accompanying consolidated statements of
operations, for the years ended January 30, 1998, January 31, 1997 and
January 31, 1996, consists of the following:
1997 1996 1995
Current $ 656,000 $ (463,000) $(1,888,000)
Deferred (1,559,000) -- (500,000)
----------- ----------- -----------
Total income tax benefit $ (903,000) $ (463,000) $(2,388,000)
=========== =========== ===========
The reported income tax benefit differs from the expected amount
computed by applying the statutory federal income tax rate of 35% for
the years ended January 30, 1998, January 31, 1997 and January 31, 1996
are as follows:
1997 1996 1995
Income tax benefit at the statutory rate $ (439,000) $ (906,000) $(2,916,000)
Nondeductible expenditures 26,000 33,000 58,000
Other (primarily due to re-evaluation of valuation
reserves) (490,000) 410,000 470,000
----------- ----------- -----------
$ (903,000) $ (463,000) $(2,388,000)
=========== =========== ===========
17
18
The components of the net deferred tax liability as of January 30, 1998 and
January 31, 1997 are as follows:
1997 1996
Current deferred tax assets (liabilities):
Inventory capitalization differences $ 700,000 $ 700,000
Purchase accounting difference in basis of inventories (7,062,000) (7,062,000)
Net operating loss carryforward 1,128,000 1,140,000
Allowance for doubtful accounts 321,000 294,000
Accrued expenses and other 586,000 452,000
----------- -----------
(4,327,000) (4,476,000)
Less: Valuation allowance -- (1,140,000)
----------- -----------
Current deferred tax liabilities (4,327,000) (5,616,000)
----------- -----------
Non-current deferred tax assets, included in
"Other Assets:"
Excess of book over tax depreciation 1,119,000 863,000
Other 49,000 35,000
----------- -----------
Non-current deferred tax assets 1,168,000 898,000
----------- -----------
Net deferred tax liability $(3,159,000) $(4,718,000)
=========== ===========
As of January 30, 1998, the Company had net operating loss (NOL)
carryforwards for Federal income tax purposes of approximately $2.3
million and for state income tax purposes of approximately $9.2
million, which begin to expire in 2012 and 2011, respectively.
Current accounting standards require that deferred income taxes reflect
the tax consequences on future years of differences between the tax
bases of assets and liabilities and their bases for financial reporting
purposes. In addition, future tax benefits, such as NOL carryforwards,
are required to be recognized to the extent that realization of such
benefits is more likely than not. A valuation allowance is established
for those benefits that do not meet the more likely than not criteria.
At January 31, 1997, a valuation allowance was recorded for a portion
of the deferred tax assets. During the year ended January 30, 1998,
management re-evaluated the need for a valuation allowance and
determined that the reversal of taxable temporary differences in
conjunction with the implementation of certain tax planning strategies
will more likely than not facilitate the complete realization of its
deferred tax assets; therefore, a valuation allowance was not
established at January 30, 1998.
18
19
MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1998 AND JANUARY 30, 1998
(amounts shown in thousands except share and per share data)
JULY 31, JANUARY 30,
ASSETS 1998 1998
(UNAUDITED)
CURRENT ASSETS:
Cash $ 990 $ 859
Accounts receivable, net of allowance for doubtful accounts
of $1,295 and $760, respectively 21,317 27,359
Inventories 69,860 67,687
Other current assets 1,286 1,560
--------- ---------
Total current assets 93,453 97,465
PROPERTY AND EQUIPMENT, at cost, net 7,547 8,680
OTHER ASSETS 1,652 1,791
--------- ---------
TOTAL $ 102,652 $ 107,936
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ -- $ 63,078
Accounts payable 15,466 26,601
Accrued expenses 5,288 4,023
Deferred income taxes 2,497 4,327
Due to Jan Bell Marketing, Inc. 73,327 --
Other current liabilities 780 1,205
--------- ---------
Total current liabilities 97,358 99,234
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt 152 196
Other long-term liabilities 1,364 1,814
--------- ---------
Total long-term liabilities 1,516 2,010
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding
Common stock, $.01 par value, 15,000,000 shares
authorized, 3,050,000 issued and outstanding
at July 31, 1998 and January 30, 1998, respectively 30 30
Additional paid-in capital 12,217 12,217
Accumulated deficit (8,469) (5,555)
--------- ---------
Total shareholders' equity 3,778 6,692
--------- ---------
TOTAL $ 102,652 $ 107,936
========= =========
See accompanying notes to unaudited consolidated financial statements.
19
20
MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
FOR THE TWENTY-SIX WEEKS ENDED JULY 31, 1998 AND JULY 30, 1997
(amounts shown in thousands)
TWENTY-SIX WEEKS ENDED
JULY 31, JULY 30,
1998 1997
NET SALES $ 61,634 $ 59,442
COST OF SALES, OCCUPANCY, STORE
PERSONNEL AND BUYING EXPENSES 46,692 45,007
-------- --------
Gross profit 14,942 14,435
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 14,788 12,969
PROVISION FOR BAD DEBTS 1,405 571
-------- --------
Income (Loss) from operations (1,251) 895
INTEREST EXPENSE, Net (3,494) (3,868)
-------- --------
Loss before income tax benefit (4,745) (2,973)
INCOME TAX BENEFIT 1,831 1,189
-------- --------
NET LOSS $ (2,914) $ (1,784)
======== ========
See accompanying notes to unaudited consolidated financial statements.
20
21
MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE TWENTY-SIX WEEKS ENDED JULY 31, 1998 AND JULY 30, 1997
(amounts shown in thousands)
TWENTY-SIX WEEKS ENDED
JULY 31, JULY 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,914) $ (1,784)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Depreciation and amortization of property and equipment 2,328 1,638
Other amortization, net (109) 76
Provision for bad debts 1,405 571
Deferred taxes (1,830) (1,189)
Changes in assets and liabilities:
Decrease in accounts receivable 4,637 2,443
(Increase)/Decrease in inventories (2,173) 4,262
Decrease in other current assets 274 219
Decrease in other assets -- 75
Decrease in accounts payable (11,135) (3,300)
Increase/(Decrease) in accrued expenses 1,265 (1,378)
Decrease in other current liabilities (425) (111)
Decrease in other liabilities (202) 236
-------- --------
Cash flows (used in) provided by operating activities (8,879) 1,758
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,195) (948)
-------- --------
Cash flows used in investing activities (1,195) (948)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility 66,314
Principal payments on revolving credit
facility and capital leases (63,172) (66,427)
Increase in Due to Jan Bell Marketing, Inc. 73,327 --
Additions to deferred financing costs -- (301)
-------- --------
Cash flows provided by (used in) financing activities 10,205 (414)
-------- --------
NET INCREASE IN CASH 131 396
CASH, BEGINNING OF YEAR 859 652
-------- --------
CASH, END OF PERIOD $ 990 $ 1,048
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,015 $ 4,893
======== ========
See accompanying notes to unaudited consolidated financial statements.
21
22
MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
TWENTY-SIX WEEKS ENDED JULY 31, 1998 AND JULY 30, 1997
1. ACCOUNTING POLICIES - The consolidated financial statements included herein
have been prepared by Mayor's Jewelers, Inc. ("Mayor's" or the "Company"),
without audit. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although the Company believes that
the disclosures made herein are adequate to make the information not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the audited financial statements and the notes thereto included
herein.
2. ACQUISITION OF MAYOR'S - On July 28, 1998, Mayor's was acquired by Jan Bell
Marketing, Inc. ("Jan Bell"). Total consideration consisted of approximately $18
million cash, 2 million shares of Jan Bell common stock. In addition, Jan Bell
refinanced through a new $80 million working capital facility with a syndicate
of banks led by Citicorp, USA, Inc. Accordingly, debt obligations of Mayor's
aggregating approximately $63 million at January 30, 1998 have been satisfied
through use of available cash from Jan Bell and borrowings made by Jan Bell from
its working capital facility with Citicorp USA, Inc.
3. COMMITMENTS & CONTINGENCIES - During the year ended January 30, 1998, the
Department of Revenue for the State of Florida commenced a sales tax audit on
the Company for the tax periods July 1, 1990 through July 31, 1995. As of
January 30, 1998, the Department of Revenue has assessed the Company a liability
relating to such years of approximately $1.8 million, including sales tax,
interest and penalties. The Company is currently vigorously contesting such
assessment. A reserve in the amount of approximately $1,000,000 has been
recorded by the Company through July 31, 1998, including approximately $375,000
during the twenty-six weeks ended July 31, 1998, related to such contingency and
is included in accrued expenses in the consolidated balance sheet.
As of July 31, 1998, the Company is involved in litigation relating to a class
action suit by former employees, asserting that the Company is in violation of
certain wage and labor laws for which they seek unspecified damages. The Company
does not believe that the ultimate resolution of this matter will materially
affect the financial position or results of operations of the Company.
In connection with the Mayor's acquisition, certain former minority shareholders
of Mayor's have filed a lawsuit in state court in Miami, Florida against Mayor's
and Jan Bell claiming that the acquisition and merger violated their
shareholders' rights and that the acquisition of the Mayor's stock was unlawful.
Jan Bell believes the lawsuit to be without merit and intends to vigorously
defend the action.
The Company is also involved in litigation arising in the normal course of its
business. In the opinion of management, these matters will not materially affect
the financial position or results of operations of the Company.
22
23
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Pro Forma Statements of Operations for the year ended
January 31, 1998 and for the twenty-six weeks ended August 1, 1998 present
unaudited results of operations for Jan Bell Marketing, Inc. (the "Company") as
if the acquisition of Mayor's Jewelers, Inc. and Subsidiaries ("Mayor's") (the
"Acquisition") and other transactions described herein had occurred as of the
beginning of the periods presented.
The Pro Forma Statements of Operations reflect the Acquisition, which is
accounted for as a purchase, in accordance with Accounting Principles Board
Opinion No. 16 "Business Combinations" ("APB 16"). The excess purchase price
over the identifiable net assets and liabilities has been tentatively estimated
to be $23,500,000. This amount is subject to revision following the results of
appraisals and upon further review by the Company.
The Unaudited Pro Forma Statements of Operations are based in part on the
historical statements of operations of the Company and Mayor's and should be
read in conjunction with each of the consolidated financial statements of the
Company and Mayor's and the related notes thereto contained in (i) the Company's
Annual Report on Form 10-K for the year ended January 31, 1998, (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended August 1, 1998,
(iii) Mayor's audited financial statements as of January 30, 1998 and January
31, 1997, and for each of the three years in the period ended January 30, 1998,
which are included herein, (iv) Mayor's unaudited financial statements for the
twenty-six weeks ended July 31, 1998 and July 30, 1997, which are included
herein. Certain items derived from Mayor's historical financial statements have
been reclassified to conform to the pro forma presentation.
The Unaudited Pro Forma Statements of Operations are presented for information
purposes only and do not purport to be indicative of the actual financial
position or results of operations of the Company had such transactions actually
been consummated on such dates, or of the future financial position or results
of operations of the Company which may result from the consummation of such
transactions. The retail business is seasonal in nature, with a higher
proportion of sales and earnings usually being generated in the months of
November and December than in other periods. Because of this seasonality and
other factors, results of operations for an interim period are not necessarily
indicative of results of operations for an entire fiscal year.
As a result of the Acquisition, and the consolidation of various administrative
support functions, the Company's management expects to operate the combined
operations of the Company and Mayor's with a more efficient overhead expense
structure than each of the two entities operating on a stand-alone basis. The
Company also expects to achieve some level of cost reductions as a result of
increased purchasing power derived from the combination of the two companies.
However, for purposes of the Unaudited Pro Forma Statements of Operations, these
and other potential synergies in overhead expense have not been reflected
because their realization cannot be assured.
23
24
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED JANUARY 31, 1998
(amounts shown in thousands except share and per share data)
HISTORICAL PRO FORMA
JAN BELL MAYOR'S ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
Net Sales $ 247,890 $ 142,191 $ -- $ 390,081
Cost of Sales and Occupancy Costs 188,004 104,137 (17,103)(a)
700 (b) 275,738
----------- --------- --------- -----------
Gross profit 59,886 38,054 16,403 114,343
Store and Warehouse, Operating, &
Selling Expenses 33,082 13,811 15,205 (a) 62,098
General & Administrative Expenses 13,521 14,994 1,898 (a) 30,413
Depreciation & Amortization 6,928 3,029 1,570 (c) 11,527
Currency Exchange Loss 333 -- -- 333
----------- --------- --------- -----------
Total Operating Expenses 53,864 31,834 18,673 104,371
----------- --------- --------- -----------
Operating Profit 6,022 6,220 (2,270) 9,972
Interest/Other Income 1,756 -- (1,684)(e) 72
Interest expense -- (7,474) 3,359 (e) (4,115)
----------- --------- --------- -----------
Net income (loss) before taxes 7,778 (1,254) (595) 5,929
Income tax (benefit) (2,265) (903) 808 (d) (2,360)
----------- --------- --------- -----------
Net Income (loss) $ 10,043 $ (351) $ (1,403) $ 8,289
=========== ========= ========= ===========
Net income (loss) per common share
Basic $ 0.39 $ 0.30
=========== ===========
Diluted $ 0.39 $ 0.30
=========== ===========
Weighted average shares
outstanding
Basic 25,919,427 2,000,000 27,919,427
=========== ========= ===========
Diluted 26,006,635 2,000,000 28,006,635
=========== ========= ===========
See Notes to Unaudited Pro Forma Financial Statements
24
25
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 1, 1998
(amounts shown in thousands except share and per share data)
HISTORICAL PRO FORMA
JAN BELL MAYOR'S ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
Net Sales $ 112,846 $ 61,634 $ -- $ 174,480
Cost of Sales and Occupancy Costs 86,722 46,692 (7,235)(a)
700 (b) 126,879
------------ ------------ ------------ ------------
Gross profit 26,124 14,942 6,535 47,601
Store and Warehouse, Operating, &
Selling Expenses 18,030 6,980 6,362 (a) 31,372
General & Administrative Expenses 6,372 6,885 873 (a) 14,130
Depreciation & Amortization 2,681 2,328 785 (c) 5,794
Currency Exchange Loss 512 -- -- 512
------------ ------------ ------------ ------------
Total Operating Expenses 27,595 16,193 8,020 51,808
------------ ------------ ------------ ------------
Operating Profit (1,471) (1,251) (1,485) (4,207)
Interest/Other Income 1,506 -- (1,486)(e) 20
Interest expense (4) (3,494) 2,093 (e) (1,405)
------------ ------------ ------------ ------------
Net income (loss) before taxes 31 (4,745) (878) (5,592)
Income tax (benefit) 142 (1,831) 35 (d) (1,654)
------------ ------------ ------------ ------------
Net loss $ (111) $ (2,914) $ (913) $ (3,938)
============ ============ ============ ============
Net loss per common share $ (0.00) $ (0.14)
============ ============
Weighted average shares outstanding 26,490,765 2,000,000 28,490,765
============ ============ ============
See Notes to Unaudited Pro Forma Financial Statements
25
26
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(a) Reclassification of certain items in Mayor's Statement of Operations to
conform to the Company's statement of operations presentation.
Specifically, payroll expenses associated with certain selling
departments which Mayor's previously included in cost of sales are
being reflected in store and warehouse, operating and selling expenses.
(b) Adjustments to Mayor's inventories to conform with the Company's
accounting policies. Specifically, decreasing inventories as a result
of conforming the reserve for slow moving and obsolete inventories with
the Company's established methodology.
(c) To recognize amortization based upon an estimate of the excess purchase
price over net assets acquired in connection with the Acquisition
assuming a 15 year amortization period.
(d) To adjust income tax expense to normalize Mayor's benefit rate, reflect
deferred taxes on the proforma adjustments and recognize a rate of 2%
Alternative Minimum Tax on the net of goodwill amortization and
interest income.
(e) To reduce interest income to the extent of cash available to repay
debt and record interest expense attributed to incremental borrowings
to fund the Acquisition and debt repayments, based on the interest rate
guidelines included in the working capital facility. The assumed
borrowings of $53 million and $38 million for the periods ended January
31, 1998 and July 31, 1998, respectively, represent the amount required
in excess of available cash. The effective rate of interest for the
periods ended January 31, 1998 and July 31, 1998 is 7.8% and 7.4%,
respectively.
26