<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 March 31, 1999
( ) 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 March 31, 1999.
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
<PAGE> 2
NEW DIRECTIONS MANUFACTURING, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements
Comparative Unaudited Consolidated Balance
Sheets as of March 31, 1999 and June 30, 1998 3
Comparative Unaudited Consolidated Statements of
Operations for the Three Months and Nine Months
Ended March 31, 1999 and 1998 4
Comparative Unaudited Consolidated Statements of
Cash Flow for the Nine Months Ended March 31,
1999 and 1998 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 March 31, 1999 June 30, 1998
- ------ -------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 26,539 $ 232,203
Accounts receivable, Net 1,057,922 564,565
Inventories 391,902 287,893
Other 64,854 29,361
----------- -----------
Total Current Assets 1,541,217 1,114,022
----------- -----------
Property, Plant and Equipment, Net 472,646 474,915
----------- -----------
Other Assets:
Covenant not-to-compete, Net 440,003 560,000
Goodwill, Net 560,164 584,734
Deferred tax asset 59,000 0
Other 16,936 16,926
----------- -----------
Total Assets $ 3,089,966 $ 2,750,597
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 418,513 $ 168,455
Commissions payable 17,480 16,932
Accrued expenses 46,091 70,545
Income taxes payable 300 20,000
Short-term debt 435,698 0
Current portion long-term debt 211,508 199,231
Current portion capital lease obligations 26,744 26,132
----------- -----------
Total Current Liabilities 1,156,334 501,295
----------- -----------
Long-Term Liabilities:
Long-term debt, less current portion 169,735 329,936
Deferred income taxes 0 17,000
Capital lease obligations, less current portion 56,745 77,071
----------- -----------
Total Long-Term Liabilities 226,480 424,007
----------- -----------
Commitments and Contingencies (See Notes) 0 0
----------- -----------
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
Accumulated deficit (220,389) (103,332)
----------- -----------
Total Stockholders' Equity 1,707,152 1,825,295
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,089,966 $ 2,750,597
=========== ===========
</TABLE>
3
<PAGE> 4
NEW DIRECTIONS MANUFACTURING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Mar. 31, 1999 Mar. 31, 1998 Mar. 31, 1999 Mar. 31, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 1,821,700 $ 1,843,344 $ 4,821,121 $ 5,326,482
Cost of Sales 1,613,980 1,598,548 4,270,663 4,618,350
----------- ----------- ----------- -----------
Gross Profit 207,720 244,796 550,458 708,132
----------- ----------- ----------- -----------
Operating Expenses:
Selling and marketing 29,406 28,640 98,532 82,546
Administrative and general 188,719 192,742 603,911 580,549
----------- ----------- ----------- -----------
Total Operating Expenses 218,125 221,382 702,443 663,095
----------- ----------- ----------- -----------
Operating Income (Loss) (10,405) 23,414 (151,985) 45,037
----------- ----------- ----------- -----------
Interest Income (Expense):
Interest income 0 3,420 2,345 13,050
Interest expense (15,974) (14,809) (43,361) (46,762)
----------- ----------- ----------- -----------
Net Interest Expense (15,974) (11,389) (41,016) (33,712)
----------- ----------- ----------- -----------
Income (Loss) Before Taxes (26,379) 12,025 (193,001) 11,325
Taxes on Income (Recovery) (8,944) 4,000 (75,944) 11,600
----------- ----------- ----------- -----------
Net Income (Loss) $ (17,435) $ 8,025 $ (117,057) $ (275)
=========== =========== =========== ===========
Earnings (Loss) Per Share $ (0.00) $ 0.00 $ (0.02) $ (0.00)
=========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 5,052,270 4,989,675 5,052,270 4,989,675
=========== =========== =========== ===========
</TABLE>
4
<PAGE> 5
NEW DIRECTIONS MANUFACTURING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(117,057) $ (275)
Adjustments to reconcile net loss to
cash used for operating activities:
Amortization of covenant-not-to-compete 119,997 119,997
Amortization of goodwill 24,570 26,950
Depreciation 61,738 47,181
Deferred income taxes (76,000) (42,900)
Increase in accounts receivable (493,358) (123,756)
Increase in inventory (104,009) (87,449)
Increase in other assets (35,502) (9,894)
Increase (decrease) in accounts payable 250,058 (14,259)
Increase (decrease) in accrued expenses (24,454) 29,693
Increase (decrease) in commissions payable 548 (13,258)
Increase (decrease) in income taxes payable (19,700) 49,200
--------- ---------
Net cash used for operating activities (413,169) (18,770)
--------- ---------
Cash flows for investing activities:
Purchase of property and equipment (59,469) (104,657)
--------- ---------
Net cash used for investing activities (59,469) (104,657)
--------- ---------
Cash flows for financing activities:
Advance on line of credit 435,698 0
Repayment of debt (147,924) (136,841)
Payment of capital lease obligations (19,714) (32,925)
Proceeds from capital stock, net (1,086) 8,275
--------- ---------
Net cash provided by (used for) financing activities 266,974 (161,491)
--------- ---------
Net decrease in cash and cash equivalents (205,664) (284,918)
Cash and cash equivalents, beginning of period 232,203 570,484
--------- ---------
Cash and cash equivalents, end of period $ 26,539 $ 285,566
========= =========
</TABLE>
5
<PAGE> 6
NEW DIRECTIONS MANUFACTURING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Supplementary Disclosure of Cash Flow Information
Cash paid during the period for interest $43,361 $46,762
======= =======
Cash paid for income taxes $ 4,700 $ 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
<PAGE> 7
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
March 31, 1999, the results of operations for the three months and nine months
ended March 31, 1999, and March 31, 1998, and cash flows for the nine months
ended March 31, 1999, and March 31, 1998. 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 MARCH 31, 1998 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 March 31, 1998 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 and Nine Months Ended March 31, 1999 as compared to the Three
Months and Nine Months Ended March 31, 1998
NET SALES
Net sales of $1,821,700 for the third quarter of fiscal 1999, which ended March
31, 1999, were less than the sales of the same quarter for the previous year of
$1,843,344 by $21,644 or 1.2%. Net sales of $4,821,121 for the nine months ended
March 31, 1999 were less than the sales of the same period for the previous year
of $5,326,482 by $505,361 or 9.5%. The third quarter and nine months sales
losses can largely be attributed to the loss of a major customer in July 1998,
which represented approximately 17% of our sales. In the third quarter, we have
been able to offset most of the loss of the major customer through adding new
customers and introducing additional products to the marketplace
COST OF SALES AND GROSS PROFIT
The gross profit was $207,720 or 11.4% in the quarter ending March 31, 1999 in
comparison with $244,796 or 13.3% for the same quarter the previous year. As a
percentage of sales, cost of sales was 88.6% compared to 86.7% during the same
aforementioned time periods. The gross profit was $550,458 or 11.4% in the nine
months ending March 31, 1999 in comparison with $708,132 or 13.3% for the same
period the previous year. As a percentage of sales, cost of sales was 88.6%
compared to 86.7% during the same aforementioned time periods. The decrease in
gross profit margin for both the quarter and nine-months was primarily due to an
increase in labor costs, higher depreciation expense, and an increase in
building lease costs.
OPERATING EXPENSES
Operating expenses were $218,125 or 12.0% of net sales during the quarter ending
March 31, 1999. This compares with $221,382 or 12.0% for the quarter ending
March 31, 1998. Operating expenses were $702,443 or 14.6% of net sales during
the nine months ending March 31, 1999. This compares with $663,095 or 12.4% for
the nine months ending March 31, 1998.
8
<PAGE> 9
Operating expenses for the quarter ending March 31, 1999 decreased $3,257 or
1.5% compared to the same quarter in 1998. Operating expenses for the nine
months ending March 31, 1999 increased $39,348 or 5.9% compared to the same time
period in 1998. The difference was primarily due to an increase in
administrative payroll costs, insurance expense, and showroom expenses for both
the quarter and nine-month periods.
INTEREST
Net interest expense for the quarter ending March 31, 1999 increased $4,585 or
40.3% compared to the same quarter in 1998. Net interest expense for the nine
months ending March 31, 1999 increased $7,304 or 21.7% compared to the same time
period in 1998. The increase was primarily due to the reduction of interest
income in fiscal 1999 compared to fiscal 1998 and the use of our bank credit
line.
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 and the use of our bank credit line.
Accounts receivable-net at March 31, 1999 increased $493,357 or 87.4% from June
30, 1998. This represents 34.3% of total assets at March 31, 1999 versus 20.5%
at June 30, 1998. The increase in the receivables is primarily due to
traditionally stronger sales during this period 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 $10,000. Year to date, the Company has
expended approximately $59,470. Our current credit line lender has informed us
that they do not intend to renew our $500,000 credit line. We are presently in
negotiations with other lenders to establish a $1,000,000 line of credit
supported by 80% of the eligible receivables. This new line will replace the
current bank credit line.
YEAR 2000 ISSUE
The Company is addressing possible remedial efforts in connection with
computer software that could be affected by the Year 2000 problem. The Year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations.
The Company is working on the Year 2000 compliance issue. The scope of the
project includes ensuring the compliance of all applications, operating systems,
and hardware. The Company is currently in the process of upgrading its computer
system hardware and software. The target date for completion of the project is
June 1, 1999 with an estimated total cost of approximately $6,000.
The suppliers of substantially all of the Company's software have informed
the Company that all of those suppliers' software that is used by the Company is
Year 2000 compliant. The Company has no internally generated software. After
reasonable investigation, the Company has not yet identified any Year 2000
problems but will continue to monitor the issue. There can be no assurances,
however, that Year 2000 problems will not occur with respect to the Company's
computer systems. The Year 2000 problem may impact other entities with which the
Company transacts business, and the Company cannot predict the effect of the
Year 2000 problem on such entities. However, the Company has received
notification from a number of suppliers, vendors, and our payroll service that
their systems are currently Year 2000 compliant. Also, the Company is not
directly linked to any supplier or vendor by computer.
9
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, on November 10, 1997, the Company was served
with a Complaint, which alleged claims for strict liability and
negligence in connection with an accident with a piece of furniture.
This litigation was forwarded to the Company's insurance carrier who
handled the defense of this claim on behalf of the Company. On March 5,
1999, the Company and its insurance carrier entered into a settlement
agreement with Plaintiff for an undisclosed amount fully releasing all
parties from the litigation. Management of the Company believes that
there are no other litigation matters pending or threatened against the
Company.
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
None.
ITEM 5. OTHER INFORMATION
On January 22, 1999, the Board of Directors of the Company at a duly
noticed meeting approved the Company's 1999 Incentive and Nonstatutory
Stock Option Plan (the "Plan"). The Plan reserves 500,000 shares of
common stock of the Company for issuance to employees, directors, and
consultants in the form of options. The Plan is subject to approval of
the Company's shareholders at the next annual shareholders meeting. No
issuances have been made under the Plan as of this date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
(10) Material Contracts
(i) Amendment to Employment Agreement between New
Directions Manufacturing, Inc. and Donald A. Metke,
dated January 22, 1999.
(ii) Amendment to Employment Agreement between New
Directions Manufacturing, Inc. and Jack Horner, Jr.,
dated January 22, 1999.
(iii) Amendment to Consulting Agreement between New
Directions Manufacturing, Inc. and Sean F. Lee, dated
January 22, 1999.
(iv) New Directions Manufacturing, Inc. 1999 Incentive and
Nonstatutory Stock Option Plan.
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K:
None.
\
10
<PAGE> 11
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: May 10, 1999 /s/ Donald A. Metke
---------------------- ----------------------------------------------
DONALD A. METKE
President, Chief Executive Officer,
Chief Financial Officer,
Chief Operating Officer
11
<PAGE> 12
Index to Exhibits
(10) Material Contracts
(i) Amendment to Employment Agreement between New Directions
Manufacturing, Inc. and Donald A. Metke, dated January 22,
1999.
(ii) Amendment to Employment Agreement between New Directions
Manufacturing, Inc. and Jack Horner, Jr., dated January 22,
1999.
(iii) Amendment to Consulting Agreement between New Directions
Manufacturing, Inc. and Sean F. Lee, dated January 22, 1999.
(iv) New Directions Manufacturing, Inc. 1999 Incentive and
Nonstatutory Stock Option Plan.
(27) Financial Data Schedule
<PAGE> 1
EXHIBIT 10.i
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is dated as of January 22, 1999
(the "Amendment"), by and between New Directions Manufacturing, Inc., a Nevada
corporation (the "Company") and Donald A. Metke ("Employee") (collectively, the
"Parties"). All undefined capitalized terms shall have the meanings set forth
for them in the Employment Agreement between the Parties hereto effective as of
December 31, 1996 (the "Agreement").
1. The Agreement is hereby amended as follows:
The Agreement has a term of three years from December 31, 1996, meaning
it will expire on December 31, 1999. The Board of Directors of the Company have
approved this Amendment to the Agreement extending the term of the Agreement for
an additional three years, meaning the Agreement will now expire on December 31,
2002.
2. This Amendment may be executed in multiple counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
3. This Amendment shall be governed and construed in accordance with
the laws of the State of Nevada.
4. Except as otherwise set forth herein, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Amendment to Employment Agreement as of the date first above written.
THE COMPANY
NEW DIRECTIONS MANUFACTURING, INC.
a Nevada corporation
/s/ Donald A. Metke
----------------------------------
BY: Donald A. Metke
ITS: President
EMPLOYEE
/s/ Donald A. Metke
----------------------------------
Donald A. Metke
<PAGE> 1
EXHIBIT 10.ii
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is dated as of January 22, 1999
(the "Amendment"), by and between New Directions Manufacturing, Inc., a Nevada
corporation (the "Company") and Jack Horner, Jr. ("Employee") (collectively, the
"Parties"). All undefined capitalized terms shall have the meanings set forth
for them in the Employment Agreement between the Parties hereto effective as of
December 31, 1996 (the "Agreement").
1. The Agreement is hereby amended as follows:
The Agreement has a term of three years from December 31, 1996, meaning
it will expire on December 31, 1999. The Board of Directors of the Company have
approved this Amendment to the Agreement extending the term of the Agreement for
an additional three years, meaning the Agreement will now expire on December 31,
2002.
2. This Amendment may be executed in multiple counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
3. This Amendment shall be governed and construed in accordance with
the laws of the State of Nevada.
4. Except as otherwise set forth herein, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Amendment to Employment Agreement as of the date first above written.
THE COMPANY
NEW DIRECTIONS MANUFACTURING, INC.
a Nevada corporation
/s/ Donald A. Metke
----------------------------------
BY: Donald A. Metke
ITS: President
EMPLOYEE
/s/ Jack Horner, Jr.
----------------------------------
Jack Horner, Jr.
<PAGE> 1
Exhibit 10.iii
AMENDMENT TO CONSULTING AGREEMENT
This Amendment to Consulting Agreement is dated as of January 22, 1999
(the "Amendment"), by and between New Directions Manufacturing, Inc., a Nevada
corporation (the "Company") and Sean F. Lee ("Consultant") (collectively, the
"Parties"). All undefined capitalized terms shall have the meanings set forth
for them in the Employment Agreement between the Parties hereto effective as of
December 31, 1996 (the "Agreement").
1. The Agreement is hereby amended as follows:
The Agreement has a term of three years from December 31, 1996, meaning
it will expire on December 31, 1999. The Board of Directors of the Company have
approved this Amendment to the Agreement extending the term of the Agreement for
an additional three years, meaning the Agreement will now expire on December 31,
2002.
2. This Amendment may be executed in multiple counterparts, each of
which shall be deemed to be an original, but all of which shall be one and the
same document.
3. This Amendment shall be governed and construed in accordance with
the laws of the State of Nevada.
4. Except as otherwise set forth herein, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Amendment to Consulting Agreement as of the date first above written.
THE COMPANY
NEW DIRECTIONS MANUFACTURING, INC.
a Nevada corporation
/s/ Donald A. Metke
BY: Donald A. Metke
ITS: President
CONSULTANT
/s/ Sean F. Lee
Sean F. Lee
<PAGE> 1
Exhibit 10.iv
NEW DIRECTIONS MANUFACTURING, INC.
1999 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
1. Purpose
This Incentive and Nonstatutory Stock Option Plan (the "Plan") is
intended to further the growth and financial success of NEW DIRECTIONS
MANUFACTURING, INC., a Nevada corporation (the "Corporation") by providing
additional incentives to selected employees, directors, and consultants to the
Corporation or parent corporation or subsidiary corporation of the Corporation
as those terms are defined in Sections 425(3) and 425(f) of the Internal Revenue
Code of 1986, as amended (the "Code") (such parent corporations and subsidiary
corporations hereinafter collectively referred to as "Affiliates") so that such
employees, directors, and consultants may acquire or increase their proprietary
interest in the Corporation. Stock options granted under the Plan (hereinafter
"Options") may be either "Incentive Stock Options," as defined in Section 422A
of the Code and any regulations promulgated under said Section, or "Nonstatutory
Options" at the discretion of the Board of Directors of the Corporation (the
"Board") and as reflected in the respective written stock option agreements
granted pursuant hereto.
2. Administration
The Plan shall be administered by the Board of Directors of the
Corporation; provided however, that the Board may delegate such administration
to a committee of not fewer than three (3) members (the "Committee"), at least
two (2) of whom are members of the Board and all of whom are disinterested
administrators, as contemplated by Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"); and provided further, that the
foregoing requirement for disinterested administrators shall not apply prior to
the date of the first registration of any of the securities of the Corporation
under the Securities Act of 1933, as amended (the "Act").
Subject to the provisions of the Plan, the Board and/or the Committee
shall have authority to (a) grant, in its discretion, Incentive Stock Options in
accordance with Section 422A of the Code or Nonstatutory Options; (b) determine
in good faith the fair market value of the stock covered by an Option; (c)
determine which eligible persons shall be granted Options and the number of
shares to be covered thereby and the term thereof; (d) construe and interpret
the Plan; (e) promulgate, amend and rescind rules and regulations relating to
its administration, and correct defects, omissions, and inconsistencies in the
Plan or any Option; (f) consistent with the Plan and with the consent of the
optionee, as appropriate, amend any outstanding Option or amend the exercise
date or dates thereof; (g) determine the duration and purpose of leaves of
absence which may be granted to optionholders without constituting termination
of their employment for the purpose of the Plan; and (h) make all other
determinations necessary or advisable for the Plan's administration. The
interpretation and construction by the Board of any provisions of the Plan or of
any Option shall be conclusive and final. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option.
3. Eligibility
<PAGE> 2
The persons who shall be eligible to receive Options shall be key
employees, directors, and consultants to the Corporation or any of its
Affiliates ("Optionees"). The term consultant shall mean any person who is
engaged by the Corporation to render services and is compensated for such
services, and any director of the Corporation whether or not compensated for
such services; provided that, if the Corporation registers any of its securities
pursuant to the Act, the term consultant shall thereafter not include directors
who are not compensated for their services or are paid only a director fee by
the Corporation.
(a) Incentive Stock Options. Incentive Stock Options may only
be issued to employees of the Corporation or its Affiliates. Incentive Stock
Options may be granted to officers, whether or not they are directors, but a
director shall not be granted an Incentive Stock Option unless such director is
also an employee of the Corporation. Payment of a director fee shall not be
sufficient to constitute employment by the Corporation. Any grant of option to
an officer or director of the Corporation subsequent to the first registration
of any of the securities of the Corporation under the Act shall comply with the
requirements of Rule 16b-3. An optionee may hold more than one Option.
The Corporation shall not grant an Incentive Stock Option
under the Plan to any employee if such grant would result in such employee
holding the right to exercise for the first time in any one calendar year, under
all options granted to such employee under the Plan or any other stock option
plan maintained by the Corporation or any Affiliate, with respect to shares of
stock having an aggregate fair market value, determined as of the date of the
Option is granted, in excess of $100,000. Should it be determined that an
Incentive Stock Option granted under the Plan exceeds such maximum for any
reason other than a failure in good faith to value the stock subject to such
option, the excess portion of such option shall be considered a Nonstatutory
Option. If, for any reason, an entire option does not qualify as an Incentive
Stock Option by reason of exceeding such maximum, such option shall be
considered a Nonstatutory Option.
(b) Nonstatutory Option. The provisions of the foregoing
Section 3(a) shall not apply to any option designated as a "Nonstatutory Stock
Option Agreement" or which sets forth the intention of the parties that the
option be a Nonstatutory Option.
4. Stock
The stock subject to Options shall be the shares of the Corporation's
authorized but unissued or reacquired Common Stock (the "Stock").
(a) Number of Shares. Subject to adjustment as provided in
Paragraph 5(i) of this Plan, the total number of shares of Stock which may be
purchased through exercise of Options granted under this Plan shall not exceed
five hundred thousand (500,000) shares. If any Option shall for any reason
terminate or expire, any shares allocated thereto but remaining unpurchased upon
such expiration or termination shall again be available for the grant of Options
with respect thereto under this Plan as though no Option had been granted with
respect to such shares.
(b) Reservation of Shares. The Corporation shall reserve and
keep available at all times during the term of the Plan such number of shares as
shall be sufficient to satisfy the
<PAGE> 3
requirements of the Plan. If, after reasonable efforts, which efforts shall not
include the registration of the Plan or Options under the Act, the Corporation
is unable to obtain authority from any applicable regulatory body, which
authorization is deemed necessary by legal counsel for the Corporation for the
lawful issuance of shares hereunder, the Corporation shall be relieved of any
liability with respect to its failure to issue and sell the shares for which
such requisite authority was so deemed necessary unless and until such authority
is obtained.
5. Terms and Conditions of Options
Options granted hereunder shall be evidenced by agreements between the
Corporation and the respective Optionees, in such form and substance as the
Board or Committee shall from time to time approve. Such agreements need not be
identical, and in each case may include such provisions as the Board or
Committee may determine, but all such agreements shall be subject to and limited
by the following terms and conditions:
(a) Number of Shares: Each Option shall state the number of
shares to which it pertains.
(b) Option Price: Each Option shall state the Option Price,
which shall be determined as follows:
(i) Any Option granted to a person who at the time
the Option is granted owns (or is deemed to own pursuant to Section 425(d) of
the Code) stock possessing more than ten percent (10%) of the total combined
voting power of value of all classes of stock of the Corporation, or of any
Affiliate, ("Ten Percent Holder") shall have an Option Price of no less than
110% of the fair market value of the common stock as of the date of grant; and
(ii) Incentive Stock Options granted to a person who
at the time the Option is granted is not a Ten Percent Holder shall have an
Option price of no less than 100% of the fair market value of the common stock
as of the date of grant.
(iii) Nonstatutory Options granted to a person who at
the time the Option is granted is not a Ten Percent Holder shall have an Option
Price determined by the Board as of the date of grant.
For the purposes of this paragraph 5(b), the fair market value
shall be as determined by the Board, in good faith, which determination shall be
conclusive and binding; provided however, that if there is a public market for
such stock, the fair market value per share shall be the average of the bid and
asked prices (or the closing price if such stock is listed on the NASDAQ
National Market System) on the date of grant of the Option, or if listed on a
stock exchange, the closing price on such exchange on such date of grant.
<PAGE> 4
(c) Medium and Time of Payment: To the extent permissible by
applicable law, the Option price shall be paid, at the discretion of the Board,
at either the time of grant or the time of exercise of the Option (i) in cash or
by check, (ii) by delivery of other common stock of the Corporation, provided
such tendered stock was not acquired directly or indirectly from the
Corporation, or, if acquired from the Corporation, has been held by the Optionee
for more than six (6) months, (iii) by the Optionee's promissory note in a form
satisfactory to the Corporation and bearing interest at a rate determined by the
Board, in its sole discretion, but in no event less than 6% per annum, or (iv)
such other form of legal consideration permitted by the Nevada Revised Statutes
as may be acceptable to the Board.
(d) Term and Exercise of Options: Any Option granted to an
Employee of the Corporation shall become exercisable over a period of no longer
than ten (10) years, and no less than twenty percent (20%) of the shares covered
thereby shall become exercisable annually. No Option shall be exercisable, in
whole or in part, prior to one (1) year from the date it is granted unless the
Board shall specifically determine otherwise, as provided herein. In no event
shall any Option be exercisable after the expiration of ten (10) years from the
date it is granted, and no Incentive Stock Option granted to a Ten Percent
Holder shall, by its terms, be exercisable after the expiration of ten (10)
years from the date of the Option. Unless otherwise specified by the Board or
the Committee in the resolution authorizing such option, the date of grant of an
Option shall be deemed to be the date upon which the Board or the Committee
authorizes the granting of such Option.
Each Option shall be exercisable to the nearest whole share,
in installments or otherwise, as the respective option agreements may provide.
During the lifetime of an Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable by the Optionee, and no
other person shall acquire any rights therein. To the extent not exercised,
installments (if more than one) shall accumulate, but shall be exercisable, in
whole or in part, only during the period for exercise as stated in the option
agreement, whether or not other installments are then exercisable.
(e) Termination of Status as Employee or Consultant: If
Optionee's status as an employee, director, or consultant shall terminate for
any reason other than Optionee's disability or death, then the Optionee (or if
the Optionee shall die after such termination, but prior to exercise, Optionee's
personal representative or the person entitled to succeed to the Option) shall
have the right to exercise the portions of any such termination, in whole or in
part, at any time within three (3) months after such termination (or in the
event of "termination for good cause" as that term is defined under Nevada Labor
Code and case law related thereto, such shorter period as the option agreement
may specify, but not less than thirty (30) days) or the remaining term of the
Option, whichever is the lesser; provided, however, that with respect to
Nonstatutory Options, the Board may specify such longer period, not to exceed
six (6) months, for exercise following termination as the Board deems reasonable
and appropriate. The Option may be exercised only with respect to installments
that the Optionee could have exercised at the date of termination of employment.
Nothing contained herein or in any Option granted pursuant hereto shall be
construed to affect or restrict in any way the right of the Corporation to
terminate the Optionee with or without cause.
<PAGE> 5
(f) Death of Optionee: If an Optionee dies while employed or
engaged as a director or consultant by the Corporation or an Affiliate, the
portion of such Optionee's Option or Options which were exercisable at the date
of death may be exercised, in whole or in part, by the estate of the decedent or
by a person succeeding to the right to exercise such Option or Options, at any
time within (i) a period, as determined by the Board and set forth in the
Option, of not less than six (6) months nor more than one (1) year after
Optionee's death, which period shall not be less, in the case of a Nonstatutory
Option, than the period for exercise following termination, or (ii) during the
remaining term of the Option, whichever is the lesser. The Option may be so
exercised only with respect to installments exercisable at the time of
Optionee's death and not previously exercised by the Optionee.
(g) Nontransferability of Option: No Option shall be
transferable by the Optionee, except by will or by the laws of descent and
distribution.
(h) Recapitalization: Subject to any required action by the
stockholders, the number of shares of common stock covered by each outstanding
Option, and the price per share thereof set forth in each such Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of common stock of the Corporation resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, or any other
increase or decrease in the number of such shares affected without receipt of
consideration by the Corporation.
Subject to any required action by the stockholders, if the
Corporation shall be the surviving entity in any merger or consolidation, each
outstanding Option thereafter shall pertain to and apply to the securities to
which a holder of shares of common stock equal to the shares subject to the
Option would have been entitled by reason of such merger or consolidation. A
dissolution or liquidation of the Corporation or a merger or consolidation in
which the Corporation is not the surviving entity shall cause each outstanding
Option to terminate on the effective date of such dissolution, liquidation,
merger or consolidation. In such event, if the entity which shall be the
surviving entity does not tender to Optionee an offer, for which it has no
obligation to do so, to substitute for any unexercised Option a stock option or
capital stock of such surviving entity, as applicable, which on an equitable
basis shall provide the Optionee with substantially the same economic benefit as
such unexercised Option, then the Board may grant to such Optionee, but shall
not be obligated to do so, the right for a period commencing thirty (30) days
prior to and ending immediately prior to such dissolution, liquidation, merger
or consolidation or during the remaining term of the Option, whichever is the
lesser, to exercise any unexpired Option or Options, without regard to the
installment provisions of Paragraph 5(d) of this Plan; provided, that any such
right granted shall be granted to all Optionees not receiving an offer to
substitute on a consistent basis, and provided further, that any such exercise
shall be subject to the consummation of such dissolution, liquidation, merger or
consolidation.
In the event of a change in the common stock of the
Corporation as presently constituted, which is limited to a change of all of its
authorized shares without par value into the same number of shares with a par
value, the shares resulting from any such change shall be deemed to be the
common stock within the meaning of this Plan.
<PAGE> 6
To the extent that the foregoing adjustments relate to stock
or securities of the Corporation, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Paragraph 5(i), the Optionee shall have no
rights by reason of any subdivision or consolidation of shares of stock or any
class or the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class, and the number or price of shares of
common stock subject to any Option shall not be affected by, and no adjustment
shall be made by reason of, any dissolution, liquidation, merger or
consolidation, or any issue by the Corporation of shares of stock of any class
or securities convertible into shares of stock of any class.
The grant of an Option pursuant to the Plan shall not affect
in any way the right or power of the Corporation to make any adjustments,
reclassifications, reorganizations or changes in its capital or business
structure or to merge, consolidate, dissolve, or liquidate or to sell or
transfer all or any part of its business or assets.
(i) Rights as a Stockholder: An Optionee shall have no rights
as a stockholder with respect to any shares covered by an Option until the date
of the issuance of a stock certificate to Optionee for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Paragraph 5(h) hereof.
(j) Modification, Acceleration, Extension, and Renewal of
Options: Subject to the terms and conditions and within the limitations of the
Plan, the Board may modify an Option, or once an Option is exercisable,
accelerate the rate at which it may be exercised, and may extend or renew
outstanding Options granted under the Plan or accept the surrender of
outstanding Options (to the extent not theretofore exercised) and authorize the
granting of new Options in substitution for such Options, provided such action
is permissible under Section 422A of the Code and Nevada state law.
Notwithstanding the foregoing provisions of this Paragraph
5(j), however, no modification of an Option shall, without the consent of the
Optionee, alter to the Optionee's detriment or impair any rights or obligations
under any Option theretofore granted under the Plan.
(k) Investment Intent: Unless and until the issuance and sale
of the shares subject to the Plan are registered under the Act, each Option
under the Plan shall provide that the purchases of stock thereunder shall be for
investment purposes and not with a view to, or for resale in connection with,
any distribution thereof. Further, unless the issuance and sale of the stock
have been registered under the Act, each Option shall provide that no shares
shall be purchased upon the exercise of such Option unless and until (i) any
then applicable requirements of state and federal laws and regulatory agencies
shall have been fully complied with to the satisfaction of the Corporation and
its counsel, and (ii) if requested to do so by the Corporation, the person
exercising the Option shall (i) give written assurances as to knowledge and
experience of such person (or a representative employed by such person) in
financial and business matters and the ability of such person (or
representative) to evaluate the merits and risks of exercising the Option, and
(ii) execute and deliver to the Corporation a letter of investment intent, all
in such form and substance as the Corporation may require. If shares are issued
upon exercise of an
<PAGE> 7
Option without registration under the Act, subsequent registration of such
shares shall relieve the purchaser thereof of any investment restrictions or
representations made upon the exercise of such Options.
(l) Exercise Before Exercise Date: At the discretion of the
Board, the Option may, but need not, include a provision whereby the Optionee
may elect to exercise all or any portion of the Option prior to the stated
exercise date of the Option or any installment thereof. Any shares so purchased
prior to the stated exercise date shall be subject to repurchase by the
Corporation upon termination of Optionee's employment as contemplated by
Paragraphs 5(e) and 5(f) hereof prior to the exercise date stated in the Option
and such other restrictions and conditions as the Board or Committee may deem
advisable.
(m) Other Provisions: The Option agreements authorized under
this Plan shall contain such other provisions, including, without limitation,
restrictions upon the exercise of the Options, as the Board or the Committee
shall deem advisable. Shares shall not be issued pursuant to the exercise of an
Option, if the exercise of such Option or the issuance of shares thereunder
would violate, in the opinion of legal counsel for the Corporation, the
provisions of any applicable law or the rules or regulations of any applicable
governmental or administrative agency or body, such as the Act, the Securities
Exchange Act of 1934, as amended, the rules promulgated under the foregoing or
the rules and regulations of any exchange upon which the shares of the
Corporation are listed.
6. Availability of Information
During the term of the Plan and any additional period during which an
Option granted pursuant to the Plan shall be exercisable, the Corporation shall
make available, not later than one hundred and twenty (120) days following the
close of each of its fiscal years, such financial and other information
regarding the Corporation as is required by the bylaws of the Corporation and
applicable law to be furnished in an annual report to the stockholders of the
Corporation.
7. Effectiveness of Plan; Expiration
Subject to approval by the stockholders of the Corporation, this Plan
shall be deemed effective as of the date it is adopted by the Board. The Plan
shall expire on January 22, 2009, but such expiration shall not affect the
validity of outstanding Options.
8. Amendment and Termination of the Plan
The Board may, insofar as permitted by law, from time to time, with
respect to any shares at the time not subject to Options, suspend or terminate
the Plan or revise or amend it in any respect whatsoever, except that without
the approval of the stockholders of the Corporation, no such revision or
amendment shall (i) increase the number of shares subject to the Plan, (ii)
decrease the price at which Options may be granted, (iii) materially increase
the benefits to Optionees, or (iv) change the class of persons eligible to
receive Options under this Plan; provided, however, no such action shall alter
or impair the rights and obligations under any Option outstanding as of the date
thereof without the written consent of the Optionee thereunder. No Option may be
granted while the Plan is suspended or after it is terminated, but the rights
and
<PAGE> 8
obligations under any Option granted while the Plan is in effect shall not be
impaired by suspension or termination of the Plan.
9. Indemnification of Board
In addition to such other rights or indemnifications as they may have
as directors or otherwise, and to the extent allowed by applicable law, the
members of the Board and the Committee shall be indemnified by the Corporation
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any claim, action, suit
or proceeding, or in connection with any appeal thereof, to which they or any of
them may be a party by reason of any action taken, or failure to act, under or
in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such claim, action, suit or proceeding, except
in any case in relation to matters as to which it shall be adjudged in such
claim, action, suit or proceeding that such Board member is liable for
negligence or misconduct in the performance of his or her duties; provided that
within sixty (60) days after institution of any such action, suit or Board
proceeding the member involved shall offer the Corporation, in writing, the
opportunity, at its own expense, to handle and defend the same.
10. Application of Funds
The proceeds received by the Corporation from the sale of common stock
pursuant to the exercise of Options will be used for general corporate purposes.
11. No Obligation to Exercise Option
The granting of an Option shall impose no obligation upon the Optionee
to exercise such Option.
12. Notices
All notice, requests, demand, and other communications pursuant this
Plan shall be in writing and shall be deemed to have been duly given on the date
of service if served personally on the party to whom notice is to be given, or
on the third day following the mailing thereof to the party to whom notice is to
be given, by first class mail, registered or certified, postage prepaid.
* * * * *
The foregoing Incentive and Nonstatutory Stock Option Plan was duly
adopted and approved by the Board of Directors on January 22, 1999, subject to
approval of the Shareholders at their next annual meeting.
/s/ Jack Horner, Jr.
Jack Horner, Jr., Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIONS EXTRACTED FROM THE 10-QSB
OF NEW DIRECTIONS MANUFACTURING, INC. FOR THE 3 MONTHS AND 9 MONTHS PERIODS
ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 26,539
<SECURITIES> 0
<RECEIVABLES> 1,099,110
<ALLOWANCES> 41,187
<INVENTORY> 391,902
<CURRENT-ASSETS> 1,541,217
<PP&E> 601,197
<DEPRECIATION> 128,551
<TOTAL-ASSETS> 3,080,966
<CURRENT-LIABILITIES> 1,156,334
<BONDS> 0
0
0
<COMMON> 5,052
<OTHER-SE> 1,693,101
<TOTAL-LIABILITY-AND-EQUITY> 3,080,966
<SALES> 4,821,121
<TOTAL-REVENUES> 4,821,121
<CGS> 4,270,663
<TOTAL-COSTS> 4,270,663
<OTHER-EXPENSES> 702,443
<LOSS-PROVISION> 12,000
<INTEREST-EXPENSE> 43,361
<INCOME-PRETAX> (193,001)
<INCOME-TAX> (75,944)
<INCOME-CONTINUING> (117,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (117,057)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
