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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: JANUARY 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number: 000-28499
JAGGED EDGE MOUNTAIN GEAR, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-144-8778
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
52 PILOT KNOB LANE, TELLURIDE, CO 81435
(Address of principal executive offices)
970-728-0175
(Issuer's telephone number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
NEED SHARES OUTSTANDING as of March 30, 2000 are 13,766,172
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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PART I
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Page
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Item 1: Financial Statements (Unaudited)
Condensed Balance Sheet - January 31, 2000 3
Condensed Statements of Income 4
Three Months Ended January 31, 2000
and 1999 and Six Months Ended January 31, 2000 and Jan 1999
Condensed Statements of Cash Flows 5
Six Months Ended January 31, 2000 and 1999
Notes to Condensed Financial Statements 6
Item 2: Management's Discussion and Analysis or Plan of Operation 7
Part II
OTHER INFORMATION:
Item 6: Exhibits and Reports on Form 8-K 9
Signature 10
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PART I
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
JAGGED EDGE MOUNTAIN GEAR, INC.
CONSOLIDATED BALANCE SHEET (unaudited)
For the Three Months Ended: January 31, 2000 and
For the Six Months End July 31, 1999
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January 31, 2000 July 31, 1999
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Assets
Current Assets
Cash 94,652 42,606
Accounts Receivable 113,404 61,992
Accounts Receivable-Settlement 0 100,000
Inventories 926,357 866,558
Prepaid Expenses 4,403 525
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TOTAL CURRENT ASSETS 1,138,815 1,071,681
Equipment and Leasehold Improvements (net of Accumulated
Depreciation & amortization) 138,311 125,618
Other Assets
Deposits Paid 120,171 32,361
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TOTAL ASSETS 1,397,297 1,229,660
=========================================
Liabilities
Current Liabilities
Accounts Payable 621,847 351,897
Credit Cards 67,975 64,980
Short Term debt 34,789 106,100
Current Portion of Long Term Debt 0 33,786
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TOTAL CURRENT LIABILITIES 724,611 556,763
Long Term Debt, net of current portion 230,199 162,198
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TOTAL LIABILITIES 954,811 718,961
Shareholders' Equity
Common Stock $.001 par value; 50,000,000 shares authorized,
14,372,672 shares issued & outstanding 14,370 13,307
Common Stock Subscribed 14 13
Additional Paid-in Capital 1,589,506 1,235,388
Retained Deficit (1,161,403) (738,009)
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Total Shareholders' Equity 442,487 510,699
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Total Liability & Equity 1,397,298 1,229,660
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JAGGED EDGE MOUNTAIN GEAR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
For the Three Months Ended January 31, 2000 and the
Three Months Ended January 31, 1999:
For the Six Months Ended January 31, 2000 and the
Six Months Ended January 31, 1999:
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Three Months Ended January 31 Six Months Ended January 31
2000 1999 2000 1999
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Sales 671,138 592,143 1,478,439 1,206,921
Cost of Goods Sold 520,857 428,452 1,027,849 780,574
GROSS PROFIT 150,282 163,691 450,591 426,348
Selling, General, & Administrative 472,734 353,924 855,840 655,148
LOSS FROM OPERATIONS (322,453) (190,233) (405,250) (228,800)
Other Income (Expense)
Interest Expense (3,608) (8,400) (23,845) (13,817)
Other Income, net (1,562) 0 (623) 0
NET LOSS BEFORE INCOME TAX (327,622) (198,633) (429,717) (242,617)
Provision for Income Tax 0 0 0 0
NET LOSS (327,622) (198,633) (429,717) (242,617)
LOSS PER SHARE -0.02 -0.02 -0.03 -0.02
Weighted Average Shares 14,369,175 12,379,638 14,036,697 12,379,638
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JAGGED EDGE MOUNTAIN GEAR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
For the Six Months Ended January 31, 2000
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SIX MONTHS ENDED SIX MONTHS ENDED
JANUARY 1, JANUARY 1,
2000 1999
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Cash Flows from Operating Activities:
Net Loss (430,152) (242,617)
Depreciation & Amortization 14,000 0
Common Stock Issued as Compensation 24,708 0
Common Stock issued as interest on Notes Payable 19,225 0
Expenses paid with stock 2,160 0
Non-Cash Reduction in Stockholders' Equity 0 13,315
(Increase) Decrease in:
Accounts Receivable 48,588 (32,247)
Inventories (59,799) (347,665)
Increase in checks in excess of balance 2,974 0
Other Current Assets (91,688) (100)
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities 269,946 244,223
Credit Cards 2,995 43,215
NET CASH USED IN OPERATING ACTIVITIES (197,043) (321,876)
Cash Flows from Investing Activities:
Additions to Property, Plant, and Equipment (26,693) (51,705)
NET CASH USED IN INVESTING ACTIVITIES (26,693) (51,705)
Cash Flows from Financing Activities:
Principal Payments on Short Term Debt (36,557) (21,362)
Proceeds from Short Term Borrowings 40,011 193,828
Principal Payments on Long Term Debt (50,550) (1,208)
Proceeds from Long Term Borrowings 10,000 135,220
Proceeds from issuance of stock 313,375 0
Repurchases of Common Stock -500.7 0
NET CASH PROVIDED BY FINANCING ACTIVITIES 275,779 306,478
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 52,043 (67,103)
Cash Beginning of Period: 42,606 47,704
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Cash End of Period: 94,649 (19,399)
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5
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Notes to Condensed Financial Statements:
1: Management's Representation:
The management of Jagged Edge Mountain Gear, Inc. (JEMG) without audit has
prepared the attached financial statements. Certain information and note
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been omitted. In opinion of
the management of the JEMG, all adjustments considered necessary for fair
presentation of financial statements have been included and were of a normal
recurring nature, and the attached financial statements present fairly the
financial position for the three-month period ended on January 31, 2000. The
results of operations for the three month period ended on January 31, 2000 is
not necessarily indicative of the results to be expected for the full year.
Certain amounts recorded in 1999 have been reclassified to conform to the
1999-2000 presentation.
2: Stock Issued as Compensation:
On November 10, 1999, The Company issued 9,000 of restricted, common stock for
compensation of services consulting services. These shares were valued at 80% of
the fair market value of unrestricted stock on November 10, 1999. The total
expense recorded for in this transaction was $2,160.00.
3: Repurchase of Securities:
During the second quarter of fiscal year 2000, the company repurchased 1,000
shares from an investor for $500.00.
4: Depreciation
Depreciation expense of $14,000 was recorded in the second quarter, $7,000 of
which is to record depreciation expense incurred in the first quarter ended
October 31, 1999 but not previously recorded.
5: On September 26, 1999, the Company converted its line of credit
agreements of $100,000 with First National Bank of Telluride to a term loan of
$75,000 with First National Bank of Telluride, the line of credit had an
interest rate of 2.25% over prime rate, with interest only payments paid
monthly. The line of credit was paid down to $75,000 and converted to a fixed
term loan at an interest rate of 2.25% over rate, with principal and interest
payments due monthly.
6
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Item 2. Management's Discussion and Analysis or Plan of Operation
During the second quarter of fiscal year Jagged Edge Mountain Gear sustained a
loss of 48% compared with a loss of 34% for second quarter FY1999. Management
attributes the increase in loss in part to a low snow year in Colorado and
unseasonably warm temperatures. The low snow year adversely affected sales in
Colorado ski resort towns where Jagged Edge Mountain Gear company retail stores
are located. Additionally, unseasonably warm temperatures in early winter, also
contributed to lower than expected outerwear sales nationally.
Second quarter sales are ahead of 1999, second quarter, by 8%. This is largely
the result of an increase in the number of stores carrying Jagged Edge Mountain
Gear and a greater demand for The Company's products. Jagged Edge Mountain Gear
offers a product line of mountaineering garments that also appeal to skiers as
well as casual wearers. As with any outdoor products business, the weather is an
important determinant of sales levels during the peak seasons. As a result, The
Company's sales are concentrated in the winter months when ski resorts are in
full operation, and in the summer months when mountain climbing is at its peak
season.
In fiscal year 2000 and 2001, large increases in the number of catalog mailings
will help to drive The Company's success. By purchasing proven mailing lists for
the catalog distribution, Jagged Edge Mountain Gear's order response rate
dramatically increased by 150%. With this improved method of distribution, The
Company expects the mail order division to increase sales revenues and
subsequent gross margin with full margin achieved in the retail catalogs sales.
The Company's wholesale division is increasing sales and brand awareness from
the hiring of a National Sales Manager and National Sales Representative Force.
Purchase orders for upcoming seasons are beginning to roll in from this force.
The first sales from the efforts of this new team will be recognized in the Fall
2000 delivery season. International sales for Jagged Edge Mountain Gear are not
Sales Representative driven, but rather are handled in house. These sales are
also on the rise and international sales for The Company's products are becoming
a primary strategic focus for the coming years.
The Company's retail division located Colorado resort towns has a strong
presence with tourists and locals alike. Sales from the retail stores create
needed cash flow for continued productions of new Jagged Edge Mountain Gear
products. The stores increase The Company's brand name recognition and continue
to gain strength and market share in the resort towns. At least one more Jagged
Edge Mountain Gear company owned store is planned for the FY2000-FY2001 year.
In 1998, television's Small Business 2000 produced a documentary video for a 1/2
hour PBS segment describing The Company's success. As a result, IBM, a sponsorer
of the program, entered into a relationship with The Company whereby IBM assists
Jagged Edge Mountain Gear to upgrade its computer and network capabilities to
better track its sales, inventory and financial results. The Company and IBM
have begun to engage in joint marketing activities. Recently, IBM selected
Jagged Edge Mountain Gear for a promotion in the IBM's 1999 Annual Report. Other
marketing opportunities are being discussed between the two companies.
During fiscal 1999, The Company expanded its management team. As Jagged Edge
Mountain Gear transitions from a small, specialized business to one of the more
recognized brands in the technical outdoor garment industry, it was necessary to
add more specialized management staff members. Additions in areas of Design,
Finance, Marketing and Domestic Wholesale Sales were made during calendar 1999.
Additional management staff are under consideration in the area's of Production
and Operations Management.
7
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Item 2. Management's Discussion and Analysis or Plan of Operation (Continued)
The Company's advertising and marketing expenditures were approximately
$17,278.83 or 1.4% of sales in second quarter FY99. Advertising has increased by
70% of the advertising dollars spent in the comparable second quarter last year.
In addition to the increase in dollars spent, clever marketing has added large
free promotions in outdoor industry magazines and promotional opportunities. The
Company is exposure in specialized magazines and it expects to continue getting
free publicity due to the quality of its product line and attention for the
Company principals who are the Quenemoen twin sisters. Regardless of this
success, The Company desires to increase its paid advertisements in select
magazines and explore additional creative opportunities. As The Company is able,
increased advertising dollars will supplement the resourceful avenues.
The Company's reported operating loss, for the six months ending January 31,
2000 is largely a consequence of an aggressive expansion in fiscal 1999 and ran
concurrent with the significant decline in winter sales due to warm winter
weather, explained in paragraph 1 above.
Liquidity and Capital Resources:
The Company's balance sheet at the end of second quarter, January 2000 showed a
low cash balance, a seasonally low accounts receivable and a higher inventory
level than management would have desired. However, the inventory build-up has
been significantly reduced through the discount selling of all excessive
inventory through The Company's wholesale division in the Third Quarter. This
resulted in large sales and created an optimal inventory level for going into
Spring, 2000.
Strategic Plan:
The Company has a plan to capitalize on its strengths in FY2000 through its
strong brand identity, an excellent marketing campaign, a reputation for
creative use of fabrics and other features in its garments, and a reputation for
technical superiority. As many market leaders have been selling "down-market"
(into Wal-Marts, for example) to survive, Jagged Edge Mountain Gear is
attracting new customers to its high-quality technical line of products. The
Company will continue to develop innovative and unique garments and through its
intriguing marketing, capture the imagination of the consumer. By increasing the
mail order circulation, wholesale, international, and internet sales, Jagged
Edge Mountain Gear will achieve revenues that support The Company's
infrastructure and overhead.
The Company is targeting break-even cash flow as its mid-term operating goal.
This goal will conceivably be achieved in the next fiscal year with a timely
snowfall in Colorado and by avoiding excessive discounting of its less popular
products. For the foreseeable future, The Company expects to be able to finance
its operations from sales and existing financial resources, however contingency
plans are being made for private placements of common stock, if needed. However,
no such specific plans are in the process at this time.
Other:
Changes in and Disagreements with Accountants
Although management is confident that the financial information reported in this
form 10QSB is accurate, this form was complied without the resource of The
Company's controller. It is expected that return or replacement of this position
will be brought in proper order within one month.
Recent Developments:
On January 14, 2000, Jagged Edge Mountain Gear, Inc. was delisted from the OTC
BB and is currently being traded on the "Pink Sheets".
8
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PART II: OTHER INFORMATION
Item 6: Exhibits and Reports of Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
9
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Jagged Edge Mountain Gear, Inc.
Dated: March 30, 2000 By: /s/ Margaret A. Quenemoen
Margaret A. Quenemoen, President
10
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> JAN-31-2000
<CASH> 94,652
<SECURITIES> 0
<RECEIVABLES> 113,404
<ALLOWANCES> 0
<INVENTORY> 926,357
<CURRENT-ASSETS> 1,138,815
<PP&E> 189,522
<DEPRECIATION> 51,211
<TOTAL-ASSETS> 1,397,297
<CURRENT-LIABILITIES> 724,612
<BONDS> 0
0
0
<COMMON> 14,370
<OTHER-SE> 428,117
<TOTAL-LIABILITY-AND-EQUITY> 1,397,298
<SALES> 671,138
<TOTAL-REVENUES> 671,138
<CGS> 520,857
<TOTAL-COSTS> 993,591
<OTHER-EXPENSES> 1,562
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,608
<INCOME-PRETAX> (327,622)
<INCOME-TAX> 0
<INCOME-CONTINUING> (327,622)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327,622)
<EPS-BASIC> (0.02)
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