<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, 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
September 30, 1999.
Transitional Small Business Disclosure Format (check one)
Yes _____ No X
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NEW DIRECTIONS MANUFACTURING, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE NO.
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<S> <C> <C>
Item 1. Financial Statements
Comparative Unaudited Consolidated Balance
Sheets as of September 30, 1999 and June 30, 1999 3
Comparative Unaudited Consolidated Statements of
Operations for the Three Months ended September
30, 1999 and 1998 4
Comparative Unaudited Consolidated Statements of
Cash Flow for the Three Months Ended September
30, 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
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1
NEW DIRECTIONS MANUFACTURING, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, 1999 June 30, 1999
------------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 59,945 $ 676
Accounts receivable, Net 841,084 1,039,853
Inventories 425,365 313,905
Income tax refunds receivable 4,700 4,700
Other 21,938 26,812
----------- -----------
Total Current Assets 1,353,032 1,385,946
Property, Plant and Equipment, Net 419,932 434,932
Other Assets:
Covenant not-to-compete, Net 240,002 266,669
Other 16,936 16,936
----------- -----------
Total Assets $ 2,029,902 $ 2,104,483
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 462,298 $ 303,293
Line of credit 515,875 522,712
Accrued expenses 116,274 181,623
Income taxes payable 100 100
Current portion long-term debt 220,111 215,767
Current portion capital lease obligations 19,470 25,713
----------- -----------
Total Current Liabilities 1,334,128 1,249,208
----------- -----------
Long-Term Liabilities:
Long-term debt, net of current portion 57,486 114,169
Accrued severance 48,750 51,250
Capital lease obligations, net of current portion 55,642 50,801
----------- -----------
Total Long-Term Liabilities 161,878 216,220
----------- -----------
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 1,957,325 1,950,575
Retained earnings (1,428,481) (1,316,572)
----------- -----------
Total Stockholders' Equity 533,896 639,055
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,029,902 $ 2,104,483
=========== ===========
</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, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net Sales $ 1,611,790 $ 1,448,467
Cost of Sales 1,499,149 1,283,594
----------- -----------
Gross Profit 112,641 164,873
----------- -----------
Operating Expenses:
Selling and marketing 27,338 35,493
Administrative and general 172,971 198,444
----------- -----------
Total Operating Expenses 200,309 233,937
----------- -----------
Operating Income (Loss) (87,668) (69,064)
----------- -----------
Interest Income (Expense):
Interest income 348 2,214
Interest expense (24,589) (13,020)
----------- -----------
Net Interest Expense (24,241) (10,806)
----------- -----------
Income (Loss) Before Taxes (111,909) (79,870)
Taxes on Income (Recovery) 0 (31,000)
----------- -----------
Net Income (Loss) ($ 111,909) ($ 48,870)
=========== ===========
Earnings (Loss) Per Share ($ 0.02) ($ 0.01)
=========== ===========
Weighted Average Number of
Common Shares Outstanding 5,052,270 5,052,270
=========== ===========
</TABLE>
4
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NEW DIRECTIONS MANUFACTURING, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1999 September 30, 1998
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($111,909) ($ 48,870)
Adjustments to reconcile net income to
cash provided (used) for operating activities:
Amortization of covenant-not-to-compete 26,667 39,999
Amortization of goodwill 0 8,190
Depreciation 21,508 20,013
Stock issued to director as compensation 6,750 0
Deferred income taxes 0 (31,000)
Increase (decrease) in accounts receivable 198,769 (85,085)
(Increase) in inventory (111,460) (104,383)
(Increase) decrease in other assets 4,874 (10,696)
Increase in accounts payable 159,005 199,218
Decrease in accrued expenses (58,290) (39,754)
Increase (decrease) in commissions payable (9,559) 548
Increase (decrease) in income taxes payable 0 (15,000)
--------- ---------
Net cash provided (used) for operating activities 126,355 (66,820)
--------- ---------
Cash flows for investing activities:
Purchase of property and equipment (6,508) (25,189)
--------- ---------
Net cash used for investing activities (6,508) (25,189)
--------- ---------
Cash flows for financing activities:
Repayment of credit line (6,837) 0
Repayment of debt (52,339) (48,328)
Payment of capital lease obligations (1,402) (6,378)
Offering costs 0 (1,085)
--------- ---------
Net cash used for financing activities (60,578) (55,791)
--------- ---------
Net increase (decrease) in cash and cash equivalents 59,269 (147,800)
Cash and cash equivalents, beginning of period 676 232,203
--------- ---------
Cash and cash equivalents, end of period $ 59,945 $ 84,403
========= =========
</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, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Supplementary Disclosure of Cash Flow Information
Cash paid during the period for interest $24,589 $13,020
======= =======
Cash paid for income taxes $ 0 $15,000
======= =======
</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, 1999, the results of operations for the three months ended
September 30, 1999, and September 30, 1998, and cash flows for the three months
ended September 30, 1999, and September 30, 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, 1999. Audited
financial statements for the fiscal year ended June 30, 1999 were filed with the
SEC as part of the Issuer's Form 10-KSB on September 27, 1999, 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.
7
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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 Bermuda. 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, 1999 as compared to the Three Months Ended
September 30, 1998
NET SALES
Net sales of $1,611,790 for the first quarter of fiscal 2000, which ended
September 30, 1999, were more than the sales of the same quarter for the
previous year of $1,448,467 by $163,323 or 11.3%. The first quarter sales gains
can largely be attributed to the addition of new customers and placement of
newer products.
COST OF SALES AND GROSS PROFIT
The gross profit was $112,641 or 7.0% in the quarter ending September 30, 1999
in comparison with $164,873 or 11.4% for the same quarter the previous year. As
a percentage of sales, cost of sales was 93.0% compared to 88.6% during the same
aforementioned time periods. The decrease in gross profit margin for the quarter
was primarily due to an increase in material and labor costs, equipment repairs
and maintenance expense, and the cost of factory supplies.
OPERATING EXPENSES
Operating expenses were $200,309 or 12.4% of net sales during the quarter ending
September 30, 1999. This compares with $233,937 or 16.1% for the quarter ending
September 30, 1998.
Operating expenses for the quarter ending September 30, 1999 decreased $33,628
or 14.4% compared to the same quarter in 1998. The difference was primarily due
to a decrease in officers' compensation, insurance expense, and a reduction in
the amount of amortization of goodwill and the covenant for the quarter.
INTEREST
Net interest expense for the quarter ending September 30, 1999 increased $13,435
or 124.3% compared to the same quarter in 1998. The increase was primarily due
to the reduction of interest income in fiscal 2000 compared to fiscal 1999 and
the use of our bank credit line.
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 and the use of our bank credit line.
Accounts receivable-net at September 30, 1999 decreased $198,769 or 19.1% from
June 30, 1999. This represents 41.4% of total assets at September 30, 1999
versus 49.4% at June 30, 1999. The decrease in receivables is primarily due to
the collection of some older receivables during this period. 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 $12,000. Year to date, the Company has
expended approximately $6,500. In June 1999, the Company opened a $700,000 line
of credit with First Community Financial Corporation ("FCFC"). The line bears
interest at prime plus 5% and is secured by the accounts receivable of the
Company. Advances on the line may not exceed 75% of the eligible accounts
receivable. The line contains various restrictive covenants, including working
capital and tangible net worth. The Company was in default of certain of those
covenants at September 30, 1999. FCFC has indicated its intention to
renegotiate those covenants, however, there are no assurances that the Company
can renegotiate such covenants, nor that the Company can obtain such
additional funds as may be needed to expand production, increase sales, and
ultimately achieve profitability.
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.
After reasonable investigation, the Company has not yet identified any
Year 2000 problems but will continue to monitor the issue. The Company believes
its software and hardware are currently Year 2000 compliant. There can be no
assurances, however, that Year 2000 problems will not occur with respect to the
Company's computer systems.
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. 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.
SUBSEQUENT EVENTS
On September 29, 1999, the Company signed a letter of intent for an
acquisition and stock exchange in which the Company will be the surviving
entity. In the acquisition, New Directions will acquire all of the outstanding
shares of American Soil Technologies, Inc. ("ASTI"), spin off its operating
subsidiary, New Directions Manufacturing, Inc., an Arizona corporation ("New
Directions-Arizona"), and change its name to American Soil Technologies, Inc.
After a 15 for 1 reverse stock split, New Directions shareholders will receive
ASTI stock in exchange for their New Directions stock.
9
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Management of the Company believes that there are no 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
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 12, 1999 /s/ Sean F. Lee
-----------------------------------------
SEAN F. LEE
President, Chief Executive Officer,
Chief Financial Officer, Chief Operating
Officer
11
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Index to Exhibits
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-QSB
OF NEW DIRECTIONS MANUFACTURING, INC. FOR THE 3 MONTH PERIOD ENDED SEPTEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 59,945
<SECURITIES> 0
<RECEIVABLES> 891,084
<ALLOWANCES> 50,000
<INVENTORY> 425,365
<CURRENT-ASSETS> 1,353,032
<PP&E> 590,302
<DEPRECIATION> 170,371
<TOTAL-ASSETS> 2,029,902
<CURRENT-LIABILITIES> 1,334,128
<BONDS> 0
0
0
<COMMON> 5,052
<OTHER-SE> 528,844
<TOTAL-LIABILITY-AND-EQUITY> 2,029,902
<SALES> 1,611,790
<TOTAL-REVENUES> 1,611,790
<CGS> 1,499,149
<TOTAL-COSTS> 1,499,149
<OTHER-EXPENSES> 200,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,589
<INCOME-PRETAX> (111,909)
<INCOME-TAX> 0
<INCOME-CONTINUING> (111,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (111,909)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
