<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
( ) For the transition period from __________ to __________
Commission file number: 000-22855
NEW DIRECTIONS MANUFACTURING, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 86-0671974
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2940 W. WILLETTA STREET, PHOENIX, ARIZONA 85009
(Address of principal executive offices) (Zip Code)
(602) 352-1165
(Issuer's telephone number, including area code)
Check whether the issuer: (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
The issuer had 5,052,270 shares of common stock outstanding as of
September 30, 1998.
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
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NEW DIRECTIONS MANUFACTURING, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements
Comparative Unaudited Consolidated Balance
Sheets as of September 30, 1998 and June 30, 1998 3
Comparative Unaudited Consolidated Statements of
Operations for the Three Months Ended September
30, 1998 and 1997 4
Comparative Unaudited Consolidated Statements of
Cash Flow for the Three Months Ended September
30, 1998 and 1997 5-6
Notes to the Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 10
(b) Reports on Form 8-K 10
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1
NEW DIRECTIONS MANUFACTURING, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, 1998 June 30, 1998
------------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 84,403 $ 232,203
Accounts receivable, Net 649,650 564,565
Inventories 392,276 287,893
Other 40,047 29,361
----------- -----------
Total Current Assets 1,166,376 1,114,022
Property, Plant and Equipment, Net 480,091 474,915
Other Assets:
Covenant not-to-compete, Net 520,001 560,000
Goodwill, net 576,544 584,734
Deferred tax asset 14,000 0
Other 16,936 16,926
----------- -----------
Total Assets $ 2,773,948 $ 2,750,597
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 367,673 $ 168,455
Commissions payable 17,480 16,932
Accrued expenses 30,791 70,545
Income taxes payable 5,000 20,000
Current portion long-term debt 203,242 199,231
Current portion capital lease obligations 26,918 26,132
----------- -----------
Total Current Liabilities 651,104 501,295
----------- -----------
Long-Term Liabilities:
Long-term debt, less current portion 277,597 329,936
Deferred income taxes 0 17,000
Capital lease obligations, less current portion 69,907 77,071
----------- -----------
Total Long-Term Liabilities 347,504 424,007
----------- -----------
Commitments and Contingencies (See Notes)
Stockholders' Equity:
Common stock, $.001 par value, 25,000,000 shares
authorized, 5,052,270 shares issued and outstanding 5,052 5,052
Additional paid in capital 1,922,489 1,923,575
Retained earnings (152,201) (103,332)
----------- -----------
Total Stockholders' Equity 1,775,340 1,825,295
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,773,948 $ 2,750,597
=========== ===========
</TABLE>
3
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NEW DIRECTIONS MANUFACTURING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net Sales $ 1,448,467 $ 1,567,872
Cost of Sales 1,283,594 1,350,684
----------- -----------
Gross Profit 164,873 217,188
----------- -----------
Operating Expenses:
Selling and marketing 35,493 29,078
Administrative and general 198,444 186,153
----------- -----------
Total Operating Expenses 233,937 215,231
----------- -----------
Operating Income (Loss) (69,064) 1,957
----------- -----------
Interest Income (Expense):
Interest income 2,214 5,758
Interest expense (13,020) (16,181)
----------- -----------
Net Interest Expense (10,806) (10,423)
----------- -----------
Income (Loss) Before Taxes (79,870) (8,466)
Taxes on Income (Recovery) (31,000) 0
----------- -----------
Net Income (Loss) $ (48,870) $ (8,466)
=========== ===========
Earnings (Loss) Per Share $ (0.01) $ (0.00)
=========== ===========
Weighted Average Number of
Common Shares Outstanding 5,052,270 4,987,770
=========== ===========
</TABLE>
4
<PAGE> 5
NEW DIRECTIONS MANUFACTURING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (48,870) $ (8,466)
Adjustments to reconcile net income to
cash used for operating activities:
Amortization of covenant-not-to-compete 39,999 39,999
Amortization of goodwill 8,190 7,080
Depreciation 20,013 6,297
Deferred income taxes (31,000) (1,000)
Increase in accounts receivable (85,085) (125,229)
(Increase) decrease in inventory (104,383) 23,222
(Increase) decrease in other assets (10,696) 6,779
Increase (decrease) in accounts payable 199,218 (34,690)
Decrease in accrued expenses (39,754) (18,566)
Increase (decrease) in commissions payable 548 (13,258)
Increase (decrease) in income taxes payable (15,000) 1,000
--------- ---------
Net cash used for operating activities (66,820) (116,832)
--------- ---------
Cash flows for investing activities:
Purchase of property and equipment (25,189) (37,770)
--------- ---------
Net cash used for investing activities (25,189) (37,770)
--------- ---------
Cash flows for financing activities:
Repayment of debt (48,328) (44,624)
Payment of capital lease obligations (6,378) (20,237)
Offering costs (1,085) 0
--------- ---------
Net cash used for financing activities (55,791) (64,861)
--------- ---------
Net decrease in cash and cash equivalents (147,800) (219,463)
Cash and cash equivalents, beginning of period 232,203 570,486
--------- ---------
Cash and cash equivalents, end of period $ 84,403 $ 351,023
========= =========
</TABLE>
5
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NEW DIRECTIONS MANUFACTURING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Supplementary Disclosure of Cash Flow Information
Cash paid during the period for interest $13,020 $16,181
======= =======
Cash paid for income taxes $15,000 $ 0
======= =======
</TABLE>
Summary of Non-cash Investing and Financing Activities
1) During 1998, the Company acquired various equipment. A portion of the
equipment was financed by a capital lease obligation of $98,400.
6
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NEW DIRECTIONS MANUFACTURING, INC.
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
1. PRESENTATION OF INTERIM INFORMATION
In the opinion of the management of New Directions Manufacturing, Inc. (the
"Company"), the accompanying unaudited financial statements include all normal
adjustments considered necessary to present fairly the financial position as of
September 30, 1998, the results of operations for the three months ended
September 30, 1998, and September 30, 1997, and cash flows for the three months
ended September 30, 1998, and September 30, 1997. Interim results are not
necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-QSB,
and do not contain certain information included in the Company's audited
financial statements and notes for the fiscal year ended June 30, 1998. Audited
financial statements for the fiscal year ended June 30, 1998 were filed with the
SEC as part of the Issuer's Form 10-KSB on September 15, 1998, and are
incorporated herein by reference. Copies of the 10-KSB may be obtained by faxing
the Company at (602) 352-1505 or may be viewed on-line via the SEC's EDGAR
database at www.sec.gov.
2. ADJUSTMENTS TO SEPTEMBER 30, 1997 FINANCIAL STATEMENTS
As described in Amendment No. 2 to our March 31, 1998 10-QSB, it was discovered
in taking our physical inventory in conjunction with our year-end audit that our
perpetual inventory system had errors in input and withdrawals. Due to this
discovery, prior financial statements, including the September 30, 1997
financial statements presented herein, were adjusted to correct for these
errors. Steps have been taken to ensure the accuracy of this system in the
future.
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
New Directions Manufacturing Inc. ("Company") is a manufacturer of quality oak
furniture. The Company produces oak contemporary home furnishing items such as
television stands, stereo towers, entertainment centers, wall systems,
bookcases, and both adult and youth bedroom units. The Company sells its product
through retailers on both the East and West Coasts of the United States, and
Alaska, Hawaii, Puerto Rico, Canada, and the Bahamas. The Company includes New
Directions Manufacturing, Inc., a Nevada corporation, and its wholly owned
subsidiary, New Directions Manufacturing, Inc., an Arizona corporation, which
was founded in 1989.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 as compared to the Three Months Ended
September 30, 1997.
NET SALES
Net sales of $1,448,467 for the first quarter of fiscal 1999, which ended
September 30, 1998, were less than the sales of the same quarter for the
previous year of $1,567,872 by $119,405 or 7.6%. The sales loss can be
attributed to the loss of a major customer in July. While new customers offset
over half of this loss, it could have a negative short-term impact. Management
believes that new customers and new products will offset the impact in the
long-term.
COST OF SALES AND GROSS PROFIT
The gross profit was $164,873 or 11.4% in the quarter ending September 30, 1998
in comparison with $217,188 or 13.9% for the same quarter the previous year. As
a percentage of sales, cost of sales was 88.6% compared to 86.1% during the same
aforementioned time periods. The decrease in gross profit margin was primarily
due to an increase in labor costs, higher depreciation expense, and an increase
in building lease costs.
OPERATING EXPENSES
Operating expenses were $233,937 or 16.1% of net sales during the quarter ending
September 30, 1998. This compares with $215,231 or 13.7% for the quarter ending
September 30, 1997.
Operating expenses for the quarter ending September 30, 1998 increased $18,706
or 8.7% compared to the same time period in 1997. The difference was primarily
due to an increase in administrative payroll costs, insurance expense, and
showroom expenses.
INTEREST
Net interest expense for the quarter ending September 30, 1998 increased $383 or
3.7% compared to the same time period in 1997. The increase was primarily due to
the reduction of interest income in fiscal 1998 compared to fiscal 1997.
8
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital expenditures and
operating expenses, including labor costs, raw materials purchases, and funding
of accounts receivable. The Company's primary sources of cash have been from
operations since its private placement of stock in 1997.
Accounts receivable-net at September 30, 1998 decreased $42,258 or 6.2% from
September 30, 1997. This represents 23.1% of total assets at September 30, 1998
versus 22.4% at September 30, 1997. The decrease in the receivables is due to
the loss of sales volume and does not represent a change in uncollectible
accounts. The Company has not recognized any significant bad debt expense in any
of the periods represented.
The Company's current plans require additional capital expenditures for the
remainder of the year of approximately $120,000. Year to date, the Company has
expended approximately $25,000. As of September 30, 1998, the Company believes
the availability of credit under its $500,000 line of credit agreement and
internally generated cash will be adequate to finance its operations and
anticipated capital expenditures through fiscal 1999.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 10, 1997, the Company was served with a complaint, which
alleges claims for strict liability and negligence in connection with
an accident with a piece of furniture. The litigation has been
forwarded to the Company's insurance carrier who is handling the
defense of this claim on behalf of the Company. Due to the early stage
of this litigation, the Company has not been able to determine the
estimated loss or range of loss. Management believes, however, that
this matter will be completely covered by its liability insurance and
that the Company will not suffer any out-of-pocket cash losses in
defending/settling this matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1(a) The Annual Meeting of Stockholders of New Directions
Manufacturing, Inc., a Nevada corporation, was held at the
principal office of the Company, 2940 West Willetta, Phoenix,
Arizona 85009-3518 on Thursday, October 8, 1998 at 10:00 a.m.,
Arizona time.
(b) Four Directors were re-elected for the term of one year and
until their successors are duly elected and qualified: Sean F.
Lee, Donald A. Metke, Jack Horner, Jr., and Michael D. Dunn.
(c) Matters voted upon at the meeting and number of votes cast are
as follows:
1) Election of four Directors:
FOR ALL: 4,079,009 AGAINST: -0- ABSTAIN: 2,500
BROKER NON-VOTES: 771,748
2) Ratification of the appointment of Evers & Company,
Ltd. as the Company's independent public accountants
for the fiscal year ending June 30, 1999:
FOR: 4,080,309 AGAINST: 1,200 ABSTAIN: -0-
BROKER NON-VOTES: 771,748
The Company's proxy statement filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934, filed with the SEC on September 16,
1998, is hereby incorporated by reference.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K:
None.
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEW DIRECTIONS MANUFACTURING, INC.
(Registrant)
Date: November 10, 1998 /s/ Donald A. Metke
------------------------------------------
DONALD A. METKE
President, Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-QSB
OF NEW DIRECTIONS MANUFACTURING, INC. FOR THE THREE MONTH PERIOD ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 84,403
<SECURITIES> 0
<RECEIVABLES> 684,838
<ALLOWANCES> 35,188
<INVENTORY> 392,276
<CURRENT-ASSETS> 1,166,376
<PP&E> 566,916
<DEPRECIATION> 86,825
<TOTAL-ASSETS> 2,773,948
<CURRENT-LIABILITIES> 651,104
<BONDS> 0
0
0
<COMMON> 5,052
<OTHER-SE> 1,770,288
<TOTAL-LIABILITY-AND-EQUITY> 2,773,948
<SALES> 1,448,467
<TOTAL-REVENUES> 1,448,467
<CGS> 1,283,594
<TOTAL-COSTS> 1,283,594
<OTHER-EXPENSES> 233,937
<LOSS-PROVISION> 6,000
<INTEREST-EXPENSE> 13,020
<INCOME-PRETAX> (79,870)
<INCOME-TAX> (31,000)
<INCOME-CONTINUING> (48,870)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,870)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
