SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO.2 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B) OR (G)
OF THE SECURITIES EXCHANGE ACT OF 1934
JAGGED EDGE MOUNTAIN GEAR, INC.
(Name of Small Business Issuer in its Charter)
COLORADO 84-144-8778
(State or other jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
52 PILOT KNOB LANE, TELLURIDE, CO 81435
(Address of Principal Executive Offices) (Zip Code)
(970) 728-0175
(Issuer's Telephone Number)
SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT:
(None)
SECURITIES TO BE REGISTERED UNDER SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
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JAGGED EDGE MOUNTAIN GEAR, INC.
FORM 10SB - GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
TABLE OF CONTENTS
PART I
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis or Plan of Operation 5
Item 3. Description of Property 7
Item 4. Security Ownership of Certain Beneficial Owners and Management 9
Item 5. Directors, Executive Officers, Promoters and Control Persons 9
Item 6. Executive Compensation 11
Item 7. Certain Relationships and Related Transactions 11
Item 8. Description of Securities 11
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters 12
Item 2. Legal Proceedings 14
Item 3. Changes in and Disagreements with Accountants 14
Item 4. Recent Sales of Unregistered Securities 14
Item 5. Indemnification of Directors and Officers 15
Recent Developments
PART F/S
Financial Statements 17
PART III
Item 1. Index to Exhibits 17
Item 2. Description of Exhibits 17
Signatures 18
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business
Jagged Edge Mountain Gear, Inc. ("The Company") designs, produces and sells
technical outdoor clothing and accessories, using high-performance fabrics, for
outdoor sports activities under the name Jagged Edge Mountain Gear. The Company
owns and operates three retail stores under the name Jagged Edge Mountain Gear,
a retail web site, a catalog mail-order division and a wholesale division. The
retail stores are all located in Colorado resort towns. The web site and catalog
cover a national market. Wholesale sales are both domestic and international.
The Company was originally formed as a Utah LLC and was converted to a Colorado
corporation in 1997.
The Company's primary means of distribution of its products are:
-Retail, through it's own stores
-Wholesale, through its wholesale division, supplying retail and wholesale
accounts in both the US and overseas, primarily Japan.
-Catalog mail-order sales
-E-commerce, through the Company's own website and through affiliations
with major web portals such as Amazon.com
The Company introduces a line consisting of new and revised products every six
months. Each season, there are at least 45 products in the line. The lines are
offered at national trade shows and through independent sales representatives.
Competition
The Company's industry is intensely competitive, with many other manufactures of
technical outdoor clothing competing in the national and international
marketplace. Moreover, there are now other non-technical clothing companies
entering the outerwear market. Jagged Edge Mountain Gear's competitors include
Patagonia, The North Face, Marmot, Moonstone, Sierra Designs and other technical
outerwear manufactures. The Company is still a relatively small player in the
industry, but has already built strong brand recognition. The Company is
recognized as a highly creative producer of innovative and functional products.
Through continued wholesale distribution, direct mail, Jagged Edge Mountain Gear
retail stores and the web site, Jagged Edge Mountain Gear expects that it will
continue to expand its market share.
Sources of Raw Materials
The Company has well-established relationships with several major suppliers of
materials in the market. Some of these suppliers are: Malden Mills (Fleece
Fabrics), Dyersburg Fabrics (Fleece), Burlington Mills (Technical Fabrics), YKK
(zippers) and several others to a lesser degree. To diversify dependence on the
two primary fleece suppliers, orders have been historically divided between
Dyersburg and Malden Mills. Also by creating garments in unrelated fabric
technologies, dependence on these major suppliers reduces Jagged Edge Mountain
Gear's exposure and risk.
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Orders for fabric, and to a lesser extent for completed garments, are typically
placed 6-9 months prior to the beginning of the sales season and only limited
re-ordering for fabric is possible after. This large lead-time is typical for
the industry and requires accuracy in product sales forecasting. Historically,
the Company has had a good record of forecasting seasonal sales. Since a sales
forecast will never be 100% correct, some items will be short and some items
will be over at the end of the year. Factors that can effect our sales are
international, national, state and local economies, weather conditions
throughout the country, fashion trends, and other uncontrollable factors.
Because of these and other conditions the Company over produced for this fiscal
year, causing inventory levels to raise by 22% from $710,828 in 1998 to $866,558
in 1999.
The Company is not dependent on any one major customer. No customer accounts for
more than 5% of sales. However, seasonal factors do determine the Company's
fortunes to a great extent. In particular, since Jagged Edge Mountain Gear sells
its technical mountain gear to skiers in the three resort towns in which it runs
retail stores, as well as through other retailers located in winter resorts,
each year's snowfall has a significant effect on customer traffic and sales. On
the positive side, much of the mountain gear sold by Jagged Edge Mountain Gear
is purchased by sports enthusiasts in other geographic areas and in the summer
sports months.
Trademarks
The Company has one trademark registered with the United States Patent and
Trademark Office: Jagged Edge Mountain Gear. Royalties are paid to Renee Merlo
for the use of the name Jagged Edge. Royalties amount to $500 per quarter up to
$2 million in sales and $1,000 per quarter above that level, applying strictly
to sales of Jagged Edge Mountain Gear branded merchandise. In April, 2000 a
favorable agreement was arranged with Renee Merlo to purchase the trademark
name, "JAGGED EDGE" completely.
The Company owns the domain name for its web site jagged-edge.com and has
recently purchased the domain name jaggededge.com.
Government Regulations: Sales Tax, Import and Export Restrictions
1. Sales tax
The Company collects sales tax only on sales made in Colorado. In 1992, the
United States Supreme Court ruled that states may not impose taxes on
out-of-state direct sales, but it suggested that Congress could delegate that
power. To date, there has been no congressional action. If the Congress does
delegate the power to levy a sales tax and states do levy those taxes, The
Company will collect those taxes.
2. Import and Export restrictions
Jagged Edge Mountain Gear currently utilizes the services of a customs broker
(Newport Express) and the international department of First Security Bank of
Utah to comply with import and export regulations.
Research and development expenses for the past two years were nominal.
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Employees
Jagged Edge Mountain Gear employs 38 people, of which 19 are full time
employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
During fiscal year 1999, Jagged Edge Mountain Gear experienced a reduction in
gross margins across the whole spectrum of its products, caused by pricing
pressures in the industry. The two primary reasons were a softening of Asian
economies, where numerous outdoor apparel items are made, and the operating
problems of one of the industry leaders. Industry wide price cutting and the
Company's own aggressive discounting led to a decline in Jagged Edge Mountain
Gear's gross margins from 53.6% in fiscal 1998 to 36.3% in fiscal 1999. Efforts
are being made to reverse this trend.
1999 sales were ahead of 1998 by 69%, largely as a result of a larger number of
stores and greater demand for the Company's products. Jagged Edge Mountain Gear
offers a line of technical outdoor garments that are also used by skiers. 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
the summer months, when mountain sports are at there seasonal peak.
In fiscal year 2000, the expected large increase in the number of catalogs
mailed and the growing success of the company's wholesale division will continue
to test The Company's capital resources. On the positive side, the Company has
instituted across-the-board price increases and eliminated much of the
discounting that took place both at the retail and wholesale level in fiscal
year 1999 and is able to get better prices for merchandise that, in prior years,
would have been discounted. International sales, which are growing, are
generally made at full wholesale price. International sales will be a primary
strategic focus for the coming years.
Another noteworthy development during fiscal 1999 was the expansion of the
Company's management team, as Jagged Edge Mountain Gear transitions from a
small, specialized business to one of the most recognized brands in the
technical outdoor garment industry, known for innovation and functionality.
Areas of management where significant additions were made during calendar 1999
are Design, Finance, Operations, Marketing and Domestic Wholesale Sales. In
1998, Small Business 2000 produced a documentary video for PBS describing the
Company's success. As a result, IBM, one of the sponsors of the Small Business
2000, entered into a relationship with the Company whereby IBM permits 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 also
begun discussing the possibility of engaging in joint marketing activities.
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Results of Operations
At the beginning of fiscal 1999, Jagged Edge Mountain Gear opened two new
stores, for a total of five Jagged Edge Mountain Gear retail stores in operation
at the time. During fiscal 1999, the following stores were opened:
STORE DATE OPENED SQUARE FEET
------ ----------- -----------
Breckenridge, CO July 1998 1,100
Crested Butte, CO August 1998 1,400
Given the healthy revenue growth year-to-year, 1999 sales, the stores have met
expectations, with the exception of the Ouray and Mountain Village Stores. In
November 1999 it was determined that the Ouray store was not making a reasonable
contribution to The Company. The decision was made to temporarily close the
store with the intention of reopening it for the busy summer season if the
location could not be sublet. As of March 1, 2000, the Ouray store was
permanently closed and the location has been sublet for the remaining term of
the lease. On April 30, 2000, the retail store located in Mountain Village,
Colorado was closed. A tenant is being sought to take the location for 2 years
while the Mountain Village "matures". It is the intention of the Company to
reopen this location at the end of this time.
As a result of the management hires described above, SG&A expenses rose by 41%
from fiscal year 1998 to 1999. These expense levels will rise again in fiscal
year 2000 as well, however the Company anticipates sales to increase 35-50% for
the same period. This increase is expected to come largely from greater sales in
the catalog and wholesale divisions. The investment in adding management and
sales personnel in the catalog and wholesale divisions will be the main factors
contributing to the sales growth in these divisions.
The Company's advertising and marketing expenditures were approximately $19,757,
or .9% of sales for fiscal year 1999. The Company expects to increase its
advertising and marketing budget to 1.5-2.0% of sales for fiscal year 2000.
The Company's reported operating loss of $482,603 in 1999, is expected to be the
trough in its operating performance. The loss was a result of aggressive
expansion in fiscal 1999, concurrent with the significant decline in gross
margins explained above.
Liquidity and Capital Resources
The Company's balance sheet at the end of fiscal 1999 showed a low cash balance,
seasonally low account receivables and a higher inventory level than management
would have desired. The inventory build-up was reduced through heavy discounting
in our retail stores at the end of fiscal 1999 and the Company went into the
peak winter season 1999-2000 with more acceptable inventory levels.
In addition to the above items, the Accounts Receivable - Settlement outstanding
at the end of fiscal 1999 was also collected in fiscal 2000. It was the result
of a settlement with a defendant whose actions damaged The Company, in the
opinion of the Courts. This settlement also entailed the return of 640,000
common shares to the Company on November 1, 1999.
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Strategic Plan
The Company intends to capitalize on its strengths in fiscal 2000: a strong
brand identity, a reputation for creative use of fabrics and other features in
its garments, and a reputation for technical superiority. As the market leaders
have to sell "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 winter 2000 catalog had a print run of 200,000, a 100% increase
over 1999. The Company feels that the quality of its catalog and mailing lists
are higher than in previous years and that catalog sales will increase compared
to 1999. There now appears to be sufficient inventory on hand to satisfy both a
double-digit percentage increase in catalog sales and significantly higher
wholesale sales.
The Company is getting more exposure in specialized magazines and it expects to
continue getting favorable publicity due to the quality and innovation of its
product line. The Company plans to continue to expand it's international sales
which were 17% of wholesale sales and 4% of total sales in fiscal year 1999. The
Jagged Edge Mountain Gear brand is experiencing excellent demand in Japan, which
accounts for 99% of all international sales.
Year 2000
The Company has received representation from Apple Computer, Inc. that all
computer hardware is compliant. All Company run software has been certified
compliant by the software. Since entering the year 2000, the Company has not
experienced any disruptions to its business, nor is it aware of any significant
year 2000 issues impacting its suppliers and customers. The Company will
continue to monitor its critical systems over the next several months but does
not anticipate any exposures from its internal systems or from the activities of
its suppliers and customers.
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<CAPTION>
ITEM 3: DESCRIPTION OF PROPERTY
Property leased by Jagged Edge Mountain Gear:
<S> <C> <C>
LOCATION RENT LEASE EXP.
- -------- ---- ----------
JEMG HQ: 52 Pilot Knob Lane, Telluride CO 81435 $3,600/mo Nov. 1, 2004
Telluride, CO: 129 W. Colo. Avenue, Telluride, CO 81435 $3,000/mo. May 15, 2005
Ouray, CO: 612 Main Street, Ouray CO 81427 $950/mo. Feb. 28, 2001
Crested Butte, CO: 201 Elk Avenue, Crested Butte CO 81224 $4,193/mo. June 2, 2015
Breckenridge, CO: 326 Main Street, Breckenridge, CO 80424 $3,705/mo. Sep. 1, 2000
Mountain Village, CO: 565 Mt. Village Blvd, Mt. Village, CO 81435 $553/mo. Mar. 1, 2017
Salt Lake City, UT: 163 N. State Street, SLC, UT 84103 $450/mo. Oct. 31, 1999
Moab, UT: 2020 Navajo Heights, Moab, UT 48532 $600/mo. Oct. 31,2001
</TABLE>
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Sublease of Location
Ouray, CO: 612 Main Street, Ouray CO 81427
As of March 1, 2000, this location was sublet for the remaining term of the
lease.
Change of Location:
In October, 1999 the Salt Lake City, UT office was closed and replaced with the
Moab, Utah office. The lease on the Salt Lake office was voided.
Option to Purchase
Jagged Edge HQ: 52 Pilot Knob Lane, Telluride CO 81435
The Company's lease contains an option to purchase.
Expansion
Telluride, CO: 129 W. Colo. Avenue, Telluride, CO 81435
The Company increased the retail selling area by 400 square feet in February
1999.
Competitive Conditions
Jagged Edge Mountain Gear may experience competitive conditions at the
expiration of one of its leases. It is possible that renewal may become onerous,
however that has not been the experience historically.
Insurance
A comprehensive business insurance policy provides coverage for all Jagged Edge
Mountain Gear properties up to four million dollars each occurrence.
Jagged Edge Mountain Gear Locations: Address, Square Footage, and Annual Rent:
Jagged Edge Mountain Gear HQ: 52 Pilot Knob Lane, Telluride CO 81435
Area Square Feet: 5,000
Annual Rent: $43,200
Telluride, CO: 129 W. Colo. Avenue, Telluride, CO 81435
Area Square Feet: 1,838
Annual Rent: $36,000
Ouray, CO: 612 Main Street, Ouray CO 81427
Area Square Feet: 1,000
Annual Rent: $11,400
Crested Butte, CO: 201 Elk Avenue, Crested Butte CO 81224
Area Square Feet: 1,400
Annual Rent: $50,316
Breckenridge, CO: 326 Main Street, Breckenridge, CO 80424
Area Square Feet: 1,100
Annual Rent: $44,460
Mountain Village, CO: 565 Mt. Village Blvd, Mountain Village, CO 81435
Area Square Feet: 689
Annual Rent: $6,636
Moab, UT: 2020 Navajo Heights, Moab, UT 48532
Area Square Feet: 1,100
Annual Rent: $7,200
Gross Annual Rental:
The gross annual rental represented by Jagged Edge Mountain Gear leases totals
$199,312.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
NAME AND ADDRESS COMMON STOCK
OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ------------------- ---------------- ----------------
Margaret Quenemoen 4,196,000 31.6%
President / CEO / Director
PO Box 2514
Telluride, CO 81435
Paula Quenemoen 2,824,000 21.2%
Vice President / Director
PO Box 2514
Telluride, CO 81435
ITEM 5: DIRECTORS AND EXECUTIVE OFFICER, PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
MARGARET QUENEMOEN, CEO, President, Director, & founder of Jagged Edge Mountain
Gear. In 1998, Ms. Quenemoen was a finalist for the Ernst and Young Entrepreneur
of the Year Award. Margaret's organizational skills are demonstrated by her
competent overseeing all departments and aspects of Jagged Edge Mountain Gear
including, design, image and strategy. She steers and directs Jagged Edge
Mountain Gear, devising Company plans and goals. Ms. Quenemoen works closely
with bankers, lawyers and other advisors. Previous employment includes an
outerwear production management position at Odyssey of America in 1992,
overseeing 100 plus employees. Margaret graduated from the University of
Colorado at Boulder with a BA in Economics. Ms. Quenemoen has served as a
director of the Company since its inception. Ms. Quenemoen holds no
directorships in any other companies.
PAULA QUENEMOEN, Executive Vice President, Director. Ms. Quenemoen began with
Jagged Edge Mountain Gear in 1993. Her role encompasses all areas of management,
with special emphasis placed on catalog production and design, web site
development, wholesale development, trade shows and business strategy. Ms.
Quenemoen oversees the image and marketing of the Company. Ms. Quenemoen's
business experience includes working as an international offshore buyer in China
for Occidental Petroleum. Her fluent Chinese and contacts in China have been
utilized in establishing relationships with manufacturers in China and Hong
Kong. She graduated from the University of Utah with BA majors in Asian Studies
and Political Science, a Minor in Chinese and a Certificate of International
Relations. Ms. Quenemoen has served as a director of the Company since its
inception. Ms. Quenemoen holds no other directorships in any companies.
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Significant Employees
Members of management who make significant contributions to Jagged Edge Mountain
Gear include:
a. KELVIN VERITY, Controller
Mr. Verity came to Jagged Edge Mountain Gear in April 1999 with a strong
business and accounting background. Formerly a Commercial Banker with Norwest
Bank in Telluride from 1997 to 1999. From 1993 to 1997 Mr. Verity was a
Residential Mortgage Banker with Inter-Mountain. His position includes
implementing strategic plans, financial analysis, budgeting, forecasting and all
other aspects of the Company's finances. In addition, Mr. Verity will be working
with production and planning to best manage cash flow. Mr. Verity is also
creating systems within Jagged Edge Mountain Gear to accommodate future growth.
b. ERIC GILMORE: Lead Designer, Production Manager
Mr. Gilmore has been Jagged Edge Mountain Gear's lead outerwear and clothing
designer since 1997. He specs designs, sources materials, oversees production,
and is an expert in high tech fabrics. He also acts as liaison between the Asian
and domestic clothing factories and the Company. Mr. Gilmore joined the Company
from Eastern Mountain Sports, where he was Product Developer/Designer from 1993
to 1997.
c. JORDAN CAMPBELL, Marketing and PR Manager
Mr. Campbell joined Jagged Edge Mountain Gear in June of 1999. He possesses
extensive knowledge and experience in promoting outdoor garments to retailers
and the public. Mr. Campbell's skills will accelerate Jagged Edge Mountain Gear
growth. Mr. Campbell was Promotions Manager with The North Face, Inc from 1998
to 1999. From 1997 to 1998 Mr. Campbell was the Marketing Director for Boulder
Mountain Sports. From 1992 to 1997 he was Outreach Director with REI. Mr.
Campbell graduated from the University of Colorado in 1990 with a degree in
marketing and communication.
d. DOUGLAS ROSS, National Sales Manager
Mr. Ross was hired in July of 1999 to increase wholesale sales for Jagged Edge
Mountain Gear through growing existing accounts, establishing new accounts and
managing a national sales team of independent sales representatives. Mr. Ross
will be implementing a long-term strategic sales plan for the Company. He was
previously a Regional Sales Manager with Helly Hansen from 1998 to 1999 and
Division Sales Manager for Vail Resorts from 1995 to 1998. Mr. Ross graduated
from the University of Denver in 1989 with an MBA in marketing and strategic
planning.
Family Relationships
Margaret Quenemoen, CEO / President, and Paula Quenemoen, Executive Vice
President, are twin sisters and form the whole Board of Directors.
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No Director, Executive Officer, Promoter or Control Person of Jagged Edge
Mountain Gear has filed bankruptcy, has any convictions in any criminal
proceedings, is involved in any criminal proceedings, is the subject of any
order, judgment, order or decree involving any type of business, securities or
banking activities or violated any federal or state securities commodities law.
ITEM 6: EXECUTIVE COMPENSATION
Margaret Quenemoen, President / CEO is paid $15,000 annually for all services
performed on behalf the Company. The Company also pays approximately $425 per
month for the Company car used by Ms. Quenemoen and approximately $1,000 per
month for Ms. Quenemoen's living and miscellaneous personal expenses. Ms.
Quenemoen is committed to the viability and growth of Jagged Edge Mountain Gear.
Her financial needs are minimal and she chooses to the have the funds stay in
the Company at this time. No cash, stock or other compensation plan exists for
Ms. Quenemoen.
Paula Quenemoen, Executive Vice-President is paid $24,960 annually for all
services performed on behalf the Company. The Company also pays approximately
$400 per month for the Company car used by Ms. Quenemoen and approximately $600
per month for Ms. Quenemoen's living and miscellaneous personal expenses. Ms.
Quenemoen is committed to the viability and growth of Jagged Edge Mountain Gear.
Her financial needs are minimal and she chooses to have the funds stay in the
Company at this time. No cash, stock or other compensation plan exists for Ms.
Quenemoen.
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<S> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION LONG TERM COMPENSATION
RESTRICTED ALL OTHER
POSITION YEAR SALARY BONUS OTHER STOCK AWARD COMPENSATION
- -------- ---- ------ ----- ----- ----------- ------------
Margaret Quenemoen 1999 $15,000 $0 $14,100 0 $0
President / CEO 1998 $7,346 $0 $10,115 0 $0
1997 $15,703 $0 $6,740 4,236,000 $0
Paula Quenemoen 1999 $24,960 $0 $7,080 0 $0
Executive VP 1998 $24,960 $0 $6,615 0 $0
1997 $14,825 $0 $4,480 2,824,000 $0
</TABLE>
ITEM 7: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Eileen W. Cotro-Manes, mother of the Quenemoen sisters is a shareholder with
ownership listed below:
Eileen W. Cotro-Manes
1899 Wellington Circle
Salt Lake City, Utah 84117
Common stock (Restricted), 300,000 shares
d) Transactions with Promoters:
An Investor Relations Service firm was engaged by Jagged Edge Mountain Gear in
1998: Corporate Relations Group, Inc. (CRG, Inc. d.b.a. Stratcom Media, Inc.)
1947 Lee Road, Winter Park, FL 32789. In May, 1998 CRG was given 750,000 shares
of common stock in exchange for $35,000, a service contract for investor
relations, public relations, printing and advertising for promotion of Jagged
Edge Mountain Gear's stock.
ITEM 8: DESCRIPTION OF SECURITIES
The Company does not have any voting, dividend or preemptive rights provisions.
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PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Market Information
The Company's common stock was quoted on the OTC BB under the symbol JEMG until
January 14, 2000, when it was moved to the "pink sheets" for failure to timely
comply with the filing of this form 10-SB with the SEC. The Company anticipates
being re-listed on the OTC BB when this registration statement is finalized.
Quarter High Low
8/1/98-10/31/98* 1.00 0.08
11/1/98-1/31/99 0.49 0.09
2/1/99-4/30/99 0.91 0.3125
5/1/99-7/31/99 0.75 0.4063
8/1/99-10/31/99 0.57 0.30
11/1/99-1/31/00 0.60 0.20
* The OTC began quoting the Company's common stock in July of 1998.
These quotations reflect inter-dealer prices, without retail mark-up, markdown
or commission and may not represent actual transactions.
As of July 31, 1999 the Company had approximately 134 holders of record for its
common stock.
Dividends
At this time the Company intends to retain all earnings if and when derived, for
the use in its business and does not anticipate paying dividends in the near
future.
Common Stock:
Each share of common stock is entitled to one vote for each share held of
record. All shares of common stock will participate equally in dividends when
and if declared by the Board of Directors. The shares of common stock have no
preference, conversion, exchange, preemptive or cumulative rights.
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Availability of Rule 144:
Outstanding shares pursuant to Rule 144 under the Securities Act, of Jagged Edge
restricted stock eventually coming onto the market that are and not publicly
trading but have fulfilled the one year hold time requirement as of July 31,
1999 are 858,792 shares. Additionally, 7,320,000 shares held by the Company's
principals have passed the two year hold time requirement. Registration has not
occurred for the 8,178,792 shares surpassing the time requirements as of May 10,
2000. It is anticipated that registration of 858,792 shares will occur by July
2000. Additionally, 1,984,692 common restricted shares will become available for
registration and trading. The various dates and share amounts follow:
ISSUED DATE TYPE OF STOCK SHARES DATE ONE YEAR
RESTRICTION
ENDS
3/1/99 COMMON 3,000 3/1/00
3/1/99 COMMON 7,000 3/1/00
4/15/99 COMMON 1,500 4/15/00
4/15/99 COMMON 4,500 4/15/00
4/15/99 COMMON 3,000 4/15/00
4/15/99 COMMON 2,500 4/15/00
4/15/99 COMMON 8,000 4/15/00
4/15/99 COMMON 4,500 4/15/00
4/15/99 COMMON 2,000 4/15/00
4/15/99 COMMON 4,500 4/15/00
4/15/99 COMMON 500 4/15/00
4/15/99 COMMON 2,500 4/15/00
4/15/99 COMMON 5,500 4/15/00
4/15/99 COMMON 6,000 4/15/00
4/15/99 COMMON 4,500 4/15/00
4/15/99 COMMON 2,750 4/15/00
4/15/99 COMMON 2,950 4/15/00
4/15/99 COMMON 5,500 4/15/00
4/15/99 COMMON 4,000 4/15/00
4/15/99 COMMON 1,500 4/15/00
8/6/99 COMMON 2,583 8/6/00
8/6/99 COMMON 1,500 8/6/00
8/6/99 COMMON 750 8/6/00
8/6/99 COMMON 1,000 8/6/00
8/6/99 COMMON 750 8/6/00
8/6/99 COMMON 23,000 8/6/00
8/6/99 COMMON 4,250 8/6/00
4/1/99 COMMON 62,000 4/1/00
8/6/99 COMMON 14,000 8/6/00
8/6/99 COMMON 37,200 8/6/00
3/1/99 COMMON 200,000 3/1/00
3/1/99 COMMON 166,667 3/1/00
3/1/99 COMMON 200,000 3/1/00
3/4/99 COMMON 10,000 3/4/00
3/23/99 COMMON 33,333 3/23/00
3/23/99 COMMON 33,333 3/23/00
4/1/99 COMMON 6,250 4/1/00
4/1/99 COMMON 6,250 4/1/00
4/1/99 COMMON 10,000 4/1/00
4/15/99 COMMON 10,000 4/15/00
4/15/99 COMMON 6,000 4/15/00
4/15/99 COMMON 4,400 4/15/00
4/15/99 COMMON 2,725 4/15/00
6/4/99 COMMON 66,667 6/4/00
9/2/99 COMMON 50,000 9/2/00
9/2/99 COMMON 37,500 9/2/00
9/15/99 COMMON 50,000 9/15/00
9/15/99 COMMON 5,000 9/15/00
9/15/99 COMMON 666,667 9/15/00
9/21/99 COMMON 20,000 9/21/00
9/28/99 COMMON 10,000 9/28/00
9/28/99 COMMON 166,667 9/28/00
Total Restricted Shares in time 1,984,692
restriction period at July 31, 1999:
13
<PAGE>
Options and Warrants:
There are no options or warrants outstanding.
Preferred Stock:
As of this date, no preferred shares have been issued.
Common Stock Material Rights
All Common Stock will participate equally in net assets on liquidation.
ITEM 2: LEGAL PROCEEDINGS
As of November 1999 the following matter has been settled:
The following legal proceeding was pending as of July 31, 1999, in Telluride,
Colorado. Jagged Edge Mountain Gear, Inc. a Colorado Corporation; Margaret
Quenemoen and Paula Quenemoen, plaintiffs v. Robert Miller, as personally
representative of the Estate of M. Jack Duksin, defendant, civil action No.99 CV
65 (Division 1), filed July 1999. Jagged Edge Mountain Gear, Margaret and Paula
Quenemoen sought a $100,000 cash recovery of legal fees and damages, 640,000
shares of Jagged Edge Mountain Gear restricted stock and the nullification of
the August 11, 1997 agreement between the three parties. In November of 1999,
this matter was completely settled for the items listed above.
ITEM 3: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There are no disagreements between the Company and its auditors.
ITEM 4: RECENT SALES OF UNREGISTERED SECURITIES
The Company issued the following shares of common stock during the past three
years. None of the Company's securities have been registered under the
Securities Act of 1933 ("The Securities Act").
Shares of common stock (founder's Stock) were issued to the following pursuant
to Section 4(2) of the Securities Act people in connection with the Company's
incorporation in September of 1997 in consideration for service rendered:
Title Number of Shares Name
Common 300,000 Eileen Cotro-Manes
Common 4,196,000 Margaret Quenemoen
Common 2,824,000 Paula Quenemoen
Common 100,000 David H. Potter
Common 640,000 M. Jack Duksin ^
^ Please refer to Footnote 8 of the Fiscal Year 1999 Financial Statement.
In addition to the above shares, the following people exercised their option to
convert notes payable in the amount of $80,000 into 441,330 shares of common
stock.
14
<PAGE>
Timothy Moore & Susan Moore Ed Weaver
Don Roper Charles Wrye
Hugh Sawyer Kathleen Stanuch
Arnold Sumner
In November of 1997, the Company conducted a Limited Offering pursuant to Rule
504 under Regulation D (the "504 Offering"). No underwriters were used in the
504 Offering. A total of 185,400 shares of the Company's common stock were sold
for an aggregate amount of $92,700. The following investors purchased stock in
this offering:
Anne H. Alderman James Stevens Greg Child
H. Edward Ayliffe Richard J. Walsh Sigler & Co.
Charles Brainerd Ken Bailey & Miranda Smith Ray Carpenter
Jennifer Clothier Carrie Sumner Paul Oshiak
Cornelia C. Cummings Colburn H. Billings
Jeff Long & Barbara Rende Rowland Rincon & Ann McNamee
Timothy Moore & Susan Moore Roberta Cordell
Richard D. Chambers James Gregory & Nancy R Overton
David Breashers Broughton Coburn
Devin & Charmaine Gallagher Linda D. Gerow
Wayne Yee & Jamie Yates-Yee Ernest E. & Gloria H.Sheltry
<TABLE>
<CAPTION>
Since the 504 Offering, the Company has issued 1,761,459 shares of restricted
stock for an aggregate amount of $522,500 in private placement to the following
accredited investors pursuant to Sections 4(2) and 4(6) of The Securities Act:
<S> <C> <C>
Anne H. Alderman James Stevens Linda D. Gerow
H. Edward Ayliffe Richard J. Walsh Ernest E. & Gloria H.Sheltry
Charles Brainerd Joseph Giordono James Gregory & Nancy R Overton
Jennifer Clothier Ray Carpenter Timothy Moore & Susan Moore
Cornelia C. Cummings Greg Child Devin & Charmaine Gallagher
Sigler & Co. Carrie Sumner Wayne Yee & Jamie Yates-Yee
Jack B. Anon Roberta Cordell Rowland Rincon & Ann McNamee
Paul Oshiak Richard D. Chambers Colburn H. Billings
David Breashers Broughton Coburn Richard J. Walsh
J. Patrick Maher Susan K. Dalton Jeff Long & Barbara Rende
Vaughn E. Miller Mark Gillie Charles & Kathleen Brainerd
Robert W. Oliva W. H. Groce, Jr. Advest Inc. Cust., FBO John V. Schultz JR
Sidney Lipman Robert W. Oliva James Gregory & Nancy R. Overton
John V. Shultz, Jr. John Wright Raymond D. & Kathleen Carpenter
Broughton Coburn Margeret Wright Ken Bailey & Miranda Smith
Eugene Rontal James Stevens Holgren Partners
Revocable Ttrust Michael Rontal Timothy Moore & Susan Moore
Revocable Trust
</TABLE>
The Company has also issued, in aggregate, 144,283 shares of restricted common
stock to the following employees under the Company's Stock Plan pursuant to Rule
701 under The Securities Act:
Joshua Lear Jackie Gilmore Catherine Bouton
Timothy O'Neil Steve Nelson Lisa Chase
Brain Tobia Michelle Ray Leesalyn Koehler
Michael Gibbs Timothy O'Neil Keith McCallum
Brad Barlage David Potter Karen Mortimar
Andrew Russell Eric Gilmore Gregg Pavone
Ben Jordan Mark Rosenberg Allison Baumhefner
Kelvin Verity Joshua Bodine Lorraine Tennal
15
<PAGE>
ITEM 5: INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's bylaws provide for indemnification of officers, directors,
employees and agents to the fullest extent permitted by Colorado law. The
Company carries no Directors and Officers (D&O) insurance policy.
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".
On November 12, 1999 the retail store located in Ouray, Colorado was permanently
closed. As of March 1, 2000 this store location has been sublet for the
remaining term of the lease.
On April 30, 2000, 1999 the retail store located in Mountain Village, Colorado
was closed. A tenant is being sought to take the location for 2 years while the
Mountain Village "matures". It is the intention of The Company to reopen this
location at the end of this time.
On April 15, 2000, Jagged Edge Mountain Gear management entered into a formal
agreement with Renee Merlo, owner of the trademark "Jagged Edge" for all rights
and complete ownership of the name and trademark. At the time of this amendment
to the 10SB, legal documents are in the draft process.
16
<PAGE>
PART F/S
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheet - October 31, 1999 F-1
Consolidated Statement of Operations - Three Months Ended October 31, 1999 F-2
Consolidated Statement of Cash Flows - Three Months Ended October 31, 1999 F-3
Stockholders Equity - Three Months Ended October 31, 1999 F-4
Notes to Consolidated Financial Statements F-5-F-7
Managements Discussion - Three Months Ended October 31, 1999 F-8
Independent Auditor's Report F-9
Balance Sheet - July 31, 1999 F-10
Statement of Operations - Twelve Months Ended July 31, 1999 F-11
Statement of Change in Stockholders Equity - For Year Ended July 31, 1999 F-12
Statement of Cash Flows - Twelve Months Ended July 31, 1999 F-13
Notes to Financial Statements F-14-F-20
Balance Sheet - July 31, 1998 (unaudited) F-21
Statement of Operations - Twelve Months Ended July 31, 1998 (unaudited) F-22
Stockholders Equity- - Twelve Months Ended July 31, 1998 (unaudited) F-23
Statement of Cash Flows - Twelve Months Ended July 31, 1998 (unaudited) F-24
Notes to Financial Statements (unaudited) F-25
PART III
EXHIBITS INDEX
Exhibit No. Description
3.1 * Articles of Incorporation, Jagged Edge Mountain Gear, Inc.
3.2 * By-Laws, Jagged Edge Mountain Gear, Inc.
10.1 * Jagged Edge Mountain Gear, Inc. Stock Plan
27.1 Financial Data Schedule
* Incorporated by reference in the Company's Form 10SB filed with the Securities
and Exchange Commission on December 14, 1999.
17
<PAGE>
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: May 26, 2000 By: /s/ Margaret A. Quenemoen
Margaret A. Quenemoen, President
18
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1999 (UNAUDITED)
Consolidated Balance Sheet - October 31, 1999 F-1
Consolidated Statement of Operations - Three Months Ended October 31, 1999 F-2
Consolidated Statement of Cash Flows - Three Months Ended October 31, 1999 F-3
Stockholders Equity - Three Months Ended October 31, 1999 F-4
Notes to Consolidated Financial Statements F-5-F-7
Managements Discussion - Three Months Ended October 31, 1999 F-8
<PAGE>
<TABLE>
<CAPTION>
JAGGED EDGE MOUNTAIN GEAR, INC.
CONSOLIDATED BALANCE SHEET (unaudited)
<S> <C> <C>
ASSETS October 31, 1999 July 31, 1999
---------------- ---------------
Current Assets
Cash $83,821.00 $42,606.00
Accounts receivable (less allowance for doubtful
accounts of $3,338 for Oct. 31, 1999) 290,745.00 61,992.00
Accounts receivable-settlement - 100,000.00
Inventories 834,513.00 866,558.00
Prepaid expense 3,772.00 525.00
------------------------------------------
Total Current Assets 1,212,852.00 1,071,681.00
Equipment and Leasehold Improvements (net of
accumulated depreciation & ammortization) 122,045.00 125,618.00
Other Assets
Deposits Paid 44,861.00 32,361.00
Total Assets 1,379,758.00 1,229,660.00
==========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities 274,087.00 351,897.00
Credit cards 67,805.00 64,980.00
Customer deposits 18,137.00 -
Short-term debt 12,680.00 106,100.00
Current Portion of Long Term Debt 47,760.00 33,786.00
------------------------------------------
Total Current Liabilities 420,468.00 556,763.00
Long Term Debt, net of current portion 190,062.00 162,198.00
Total Liabilities 610,530.00 718,961.00
Stockholders' Equity
Common stock $.001 par value; 50,000,000 shares authorized,
14,362,172 shares issued and outstanding as
of October 31, 1999 14,362.00 13,307.00
Common Stock Subscribed 14.00 13.00
Additional Paid -in Capital 1,602,170.00 1,250,426.00
Retained Deficit (847,318.00) (753,047.00)
Total Shareholders' Equity 769,228.00 510,699.00
-------------------------------------------
Total Liability & Equity $ 1,379,758.00 $ 1,229,660.00
===========================================
The accompanying notes are an integral part of these statements.
F-1
</TABLE>
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
For the Three Months Ended:
October 31, 1999 October 31, 1998
----------------------------------------
Sales $807,301 $614,779
Cost of Goods Sold 506,992.00 352,122.00
Gross Profit 300,309.00 262,657.00
Operating Expenses
Selling, General and administrative 382,640.00 298,313.00
Loss From Operations (83,331.00) (35,656.00)
Other Income (Expense)
Interest expense (13,752.00) 5,417.00
Other expense - 2,911.00
Other income 1,814.00 -
Net Loss Before Income Tax (94,269.00) (43,984.00)
Provision for Income Tax - -
Net Loss (94,269.00) (43,984.00)
===========================================
Average shares outstanding 13,834,405.00 12,379,638.00
Net Loss per share (0.01) (-)
===========================================
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
JAGGED EDGE MOUNTAIN GEAR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
For the Three Months Ended:
<S> <C> <C>
October 31, 1999 October 31, 1998
Cash Flows from Operating Activities --------------------------------------------
Net loss (94,269.00) (43,984.00)
Depreciation and amortization 7,730.00 -
Common stock issued as compensation 1,270.00 -
Common stock issued as interest on notes payable 12,446.00 -
Common stock issued to retire accrued interest 5,447.00 -
Expenses paid with stock 1,174.00 -
Changes in assets and liabilities
Increase in accounts receivable (128,753.00) (90,102.00)
Decrease/Increase in inventories 32,045.00 (84,858.00)
Increase in checks in excess of balance - 3,500.00
Other current assets (15,747.00) (100.00)
Decrease/Increase in:
Accounts payable and accrued liabilities (77,810.00) 32,241.00
Customer deposits 18,137.00 -
Credit cards 2,825.00 40,869.00
-------------------------------------------
Net Cash Used by Operating Activities (235,505.00) (149,434.00)
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment (4,157.00) (38,095.00)
-------------------------------------------
Net Cash Used by Investing Activities (4,157.00) (38,095.00)
Cash Flows from Financing Activities:
Principle payments on short term debt (31,805.00)
Proceeds from short term borrowings 13,385.00 146,421.00
Principle payments on long term debt (13,162.00) (744.00)
Proceeds from long term borrowings - -
Proceeds from issuance of stock 313,300.00 -
Repurchase of common stock (840.00)
-------------------------------------------
Net Cash Provided by Financing Activities 280,877.00 145,677.00
Net Increase/Decrease in Cash and Cash Equivalents 41,215.00 41,852.00
Cash and Cash Equivalents - beginning of period 42,606.00 47,703.00
-------------------------------------------
Cash and Cash Equivalents - end of period $ 83,821.00 $ 5,851.00
Supplemental Cash Flow Information:
The accompanying notes are an integral part of these statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JAGGED EDGE MOUNTAIN GEAR, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (unaudited)
For the Three Months Ended October 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Common Stock Subscribed
Shares Amount Shares Amount Additional Retained Total
Paid in Capital Deficit
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - July 31, 1999 13,306,638 $13,307 13,395 $13 $1,250,426 ($753,047) $510,699
Sale of Common Stock 1,005,834 1,006 0 0 312,294 0 $313,300
Stock issued as compensation 3,330 3 0 0 1,267 0 $1,270
Stock issued as interest on 23,053 23 4,600 5 12,419 0 $12,446
Notes Payable
Stock issued to retire debt & 51,147 51 0 0 25,399 0 $25,450
Accrued interest
Stock issued for payment of 2,750 3 0 0 1,171 0 $1,174
expense
Repurchase of common stock (1,500) (2) 0 0 (839) 0 ($840)
Return of stock in excess of (33,330) (33) 0 0 33 0 $0
purchase
Subscribed Stock reclassified 4,250 4 (4,250) (4) 0 0 $0
as Common
Net Income 0 0 0 0 0 (94,269) ($94,269)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance - October 31, 1999 14,362,172 $14,362 13,745 $14 $1,602,170 ($847,318) $769,228
The accompanying notes are an integral part of these statements.
F-4
</TABLE>
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
For the Three Months Ended October 31, 1999
NOTE 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 October 31, 1999. The
results of operations for the three month period ended on October 31, 1999 is
not necessarily indicative of the results to be expected for the full year.
It is suggested that these financial statements be read in conjunction with the
JEMG audited financial statements for the year ended July 31, 1999 and the JEMG
unaudited financial statements for the year ended July 31, 1998, both are
included in this form 10SB.
NOTE 2 - DEBT:
On September 26, 1999 the Company converted its line of credit agreement of
$100,000 with First National Bank of the Telluride to a term loan of $75,000
with First National Bank of the Telluride. The line of credit had an interest
rate of 2.25% over prime rate, with interest only payments due 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 prime rate, with principal and interest payment due
monthly.
On August 6, 1999 the Company retired the unsecured note to stockholder
scheduled to mature on March 31, 2002, accrued interest on this note, and
current period interest due by issuing 14,000 shares of restricted common stock.
The aggregate value of these shares was $6,417.
On August 6, 1999 the Company retired the unsecured note to stockholder
scheduled to mature on April 1, 2003, accrued interest on this note, and current
period interest due by issuing 37,200 shares of restricted common stock. The
aggregate value of these shares was $19,059.73.
NOTE 3 - STOCK ISSUED AS COMPENSATION:
The Company issued 3,333 shares of restricted common stock with an aggregate
market value of $1,283 to employees as compensation. The Company issued 27,653
shares of restricted common stock with an aggregate market value of $12,446 as
compensation for accrued interest. The Company issued 2,750 shares of restricted
common stock with an aggregate market value of $1,059 as compensation for
miscellaneous expenses. See Note 2 for discussion of how fair market value of
stock is calculated.
F-5
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
For the Three Months Ended October 31, 1999
NOTE 4 - RESTRICTED STOCK SALES:
The gross and net proceeds received from the sale of 1,005,834 shares of
restricted stock for the financial period ended October 31, 1999 follow. No
stock sales were to any related parties.
Gross Proceeds: $313,300 Net Proceeds: $313,060
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date Type of Stock Shares Purchase Amount Expense Net Proceeds
9/2/99 Restricted Common 50,000 $20,000.00 $30.00 $19,970.00
9/2/99 Restricted Common 37,500 $15,000.00 $30.00 $14,970.00
9/15/99 Restricted Common 50,000 $15,000.00 $30.00 $14,970.00
9/15/99 Restricted Common 5,000 $2,000.00 $30.00 $1,970.00
9/15/99 Restricted Common 666,667 $200,000.00 $30.00 $199,970.00
9/21/99 Restricted Common 20,000 $8,000.00 $30.00 $7,970.00
9/28/99 Restricted Common 10,000 $3,300.00 $30.00 $3,270.00
9/28/99 Restricted Common 166,667 $50,000.00 $30.00 $49,970.00
--------------------------------------------------------------------
Total Shares 1,005,834 $313,300.00 $240.00 $313,060.00
</TABLE>
<TABLE>
<CAPTION>
NOTE 5 - ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The Company established an allowance for doubtful accounts on August 1, 1999.
<S> <C> <C> <C>
Balance Beginning of Additions Charged to Balance End of Period
Period Operating Expenses
For the three month period ended
October 31, 1999
Allowance deducted from assets
Accounts and note receivable $0.00 $3,798.00 $3,338.00
Total allowances deducted from $0.00 $3,798.00 $3,338.00
assets
</TABLE>
NOTE 6 - FAIR MARKET VALUE OF COMMON STOCK:
Common stock issued for consideration other than cash is valued at the fair
market value of the consideration. If the fair market value of the consideration
received is not readily obtainable or accurately measured then the stock is
valued at the average of the high and low trading price on the day the stock is
F-6
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
For the Three Months Ended October 31, 1999
issued. In the case of restricted common stock, the fair market value is
calculated as the average of the high and low trading price on the day the stock
is issued less a 30% discount for the restriction.
NOTE 7: During the 1st quarter a $100,000 short term loan was converted to a
term loan of $75,000. The $25,000 difference was paid and is recorded in the
Cash Flow Statement as a Principal Payment on Short Term Debt.
NOTE 8: 51,147 shares of common stock were issued during the quarter to retire
$25,450 in debt and accrued interest. The accrued interest is recorded as a
reduction in Accounts Payable and Accrued Liabilities with an offsetting entry
under the caption Common Stock Accrued to Retire Accrued Interest.
NOTE 9: An accounting adjustment was made to Accrued Interest in the first
quarter of FY 2000 to correct a prior period over-accrual. This non-cash
transaction reduced reported interest expense in the quarter by $6,761.
F-7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Three Months Ended October 31, 1999
Sales for the first quarter increased 31.3% from $614,779 in 1998 to $807,300 in
1999, as a result of increased sales in all divisions. The Crested Butte and
Breckenridge Jagged Edge retail stores moved into their second year of
operation, achieving significantly higher sales. Additionally, wholesale and
mail order sales increased as the Jagged Edge brand became better established in
all its markets.
With increased mailings and a greater emphasis in e-commerce, new customers
continue to be exposed to the Company's products. Other marketing efforts such
as increased exposure in magazines through advertising and promotional gear
reviews are also bearing fruit. Tourist traffic in Colorado ski towns continues
to grow, despite unfavorable snow conditions over the past year, and the Company
is optimistic about the growth in recognition in both its home market and
overseas. Sales in all divisions continue to increase at encouraging rates
year-to-year.
Gross margins declined from 43% in the first quarter of 1998 to 37% in 1999.
This reduction is due to excessive discounting, which was addressed in
subsequent periods. The company's largest wholesale order during the period came
from a single customer, representing 25% of sales in the wholesale channel.
The company, although currently not profitable and still in the process of
investing in its brand, is striving for break even in fiscal 2001. Jagged Edge
will need a cash injection to finance production for the fall 2000 season. At
this time, a plan of financing has not been completed but is in the process.
Future Strategy:
Growing sales with the Company's newly expanded sales team will lead to dramatic
increases in the wholesale channel. Also, the Company plans to expand the mail
order division by buying proven mailing lists and increasing the catalog
mailings by 400% in FY 2000, given that in 1999 response rates to the catalogs
shipped were a very satisfactory 2%. E-commerce opportunities through the
Company's web site are also increasing and greater promotion of this sales
channel is also planned. Additionally, sales increases are expected in the
retail division by improving the sales per square foot in the existing retail
stores and the projected opening of at least one more Jagged Edge store slated
for FY 2001.
The line of outerwear and specialized clothing will also grow with the
introduction of more sportswear for rugged and casual use. Jagged Edge will
continue to introduce new cutting edge technical designs in its efforts to be
recognized as a premium brand in its field.
F-8
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report F-9
Balance Sheet - July 31, 1999 F-10
Statement of Operations - Twelve Months Ended July 30, 1999 F-11
Statement of Change in Stockholders Equity - For Year Ended July 31, 1999 F-12
Statement of Cash Flows - Twelve Months Ended July 30, 1999 F-13
Notes to Financial Statements F-14-F-20
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Jagged Edge Mountain Gear,
Inc. as of July 31, 1999, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jagged Edge Mountain Gear, Inc.
as of July 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from operations
and a liquidity shortage, which raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 10. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/DALBY, WENDLAND & CO., P.C.
Grand Junction, Colorado
October 16, 1999
F-9
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
BALANCE SHEET
July 31, 1999
ASSETS
Current Assets
Cash $ 42,606
Accounts receivable 61,992
Accounts receivable - settlement 100,000
Inventories 866,558
Prepaid expenses 525
---------------
Total Current Assets 1,071,681
Equipment and Leasehold Improvements, at cost, net 125,618
Other Assets
Deposits 32,361
Total Assets $ 1,229,660
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 351,897
Credit cards 64,980
Short-term debt 106,100
Current portion of long-term debt 33,786
---------------
Total Current Liabilities 556,263
Long-Term Debt, net of current portion 162,198
---------------
Total Liabilities 718,961
---------------
Stockholders' Equity
Common stock $.001 par value; 50,000,000 shares authorized, 13,307
13,306,638 shares issued and outstanding
Common stock subscribed 13
Additional paid-in capital 1,250,426
Retained deficit (753,047)
---------------
Total Stockholders' Equity 510,699
---------------
Total Liabilities and Stockholders' Equity $1,229,660
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
STATEMENT OF OPERATIONS
For the year ended July 31, 1999
Sales $2,206,384
Cost of Goods Sold 1,406,694
------------------
Gross Profit 799,690
Operating Expenses
Selling 143,372
General and administrative 1,138,921
------------------
Other Income (Expense)
Interest expense (21,531)
Other income 934
------------------
Net Loss Before Income Tax (503,200)
Provision for Income Tax -
Net Loss $ (503,200)
==================
Loss Per Share $ (.04)
==================
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
JAGGED EDGE MOUNTAIN GEAR, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the year ended July 31, 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Additional Total
Common Stock Subscribed Paid-In Retained Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
- -----------------------------------------------------------------------------------------------------------
Balance -
July 31, 1998 12,380,000 $12,380 - - $972,558 $(249,847) $ 735,091
Net Loss - - - - - (503,200) (503,200)
Issuance of Stock
Issued to employees
as compensation 76,200 $ 76 - - $ 35,002 - $35,078
Issued in exchange
for debt & related
interest expense 62,000 62 - - 30,938 - 31,000
Issued for cash 788,438 789 - - 208,418 - 209,207
Subscribed as
required by - - 13,395 13 3,510 - 3,523
notes payable 926,638 927 13,395 13 277,868 - 278,808
terms
- -----------------------------------------------------------------------------------------------------------
Balance - 13,306,638 $13,307 13,395 $13 $1,250,426 $(753,047) $510,699
July 31, 1999
The accompanying notes are an integral part of these statements.
F-12
</TABLE>
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
STATEMENT OF CASH FLOWS
For the year ended July 31, 1999
Cash Flows from Operating Activities
Net loss $ (503,200.00)
Depreciation and amortization 28,015.00
Common stock issued as compensation 35,078.00
Common stock issued as interest on notes payable 9,523.00
Changes in assets and liabilities
Decrease in accounts receivable 18,556.00
Increase in accounts receivable - settlement (100,000.00)
Increase in inventories (155,729.00)
Increase in prepaid assets (525.00)
Increase in other assets (17,100.00)
Increase in accounts payable and accrued liabilities 245,478.00
Increase in credit cards 52,006.00
------------------
Net Cash Used by Operating Activities (387,898.00)
------------------
Cash Flows from Investing Activities
Purchase of equipment (80,222.00)
------------------
Net Cash Used by Investing Activities
(80,222.00)
------------------
Cash Flows from Financing Activities
Proceeds from short-term debt 147,518.00
Principal payments on short-term debt (51,419.00)
Proceeds from long-term debt 224,159.00
Principal payments on long-term debt (66,443.00)
Proceeds from issuance of stock 209,207.00
------------------
Net Cash Provided by Financing Activities 463,022.00
------------------
Decrease in Cash and Cash Equivalents (5,098.00)
Cash and Cash Equivalents - beginning of year 47,704.00
------------------
Cash and Cash Equivalents - end of year $ 42,606.00
==================
Cash paid during the year - interest $ 3,594.00
------------------
Non-cash transaction -
note payable exchanged for common stock $ 25,000.00
==================
The accompanying notes are an integral part of these statements.
F-13
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jagged Edge Mountain Gear, Inc. (the Company), incorporated July 27, 1997, under
the laws of the State of Colorado, is engaged in the design and sale of outdoor
garments. Sales are made through five Company operated retail stores located in
resort communities of Colorado, catalogue, internet, and other retail vendors.
Following is a summary of significant accounting policies:
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market.
Management monitors quantities of inventory to determine over and under stock
situations at the Company's retail stores and warehouse. When inventory is
identified as obsolete, it is segregated and adjusted to lower of cost or
salvage value.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Equipment is
depreciated using the straight-line method over the estimated economic life.
Leasehold improvements are amortized over the lesser of the lease term or the
economic life of the improvements using the straight-line method.
Revenue Recognition
The Company recognizes retail sales revenue at the point of sale. For wholesale,
mail order and internet sales, revenue is recognized upon shipment.
Customers returning merchandise within thirty days of the sale can receive cash
or merchandise at their option. Returns within thirty to sixty days after the
sale, the Company will accept exchanges for credit or merchandise. Factory
damaged merchandise is repaired or replaced at the Company's discretion. The
Company records these transactions when merchandise is returned, replaced or
repaired. Historically, returns, replacements and repairs have been
insignificant.
Income Taxes
The Company accounts for income taxes using an asset and liability approach for
financial accounting and reporting for income taxes. Under this method, deferred
tax assets and liabilities are recognized on temporary differences between the
financial statements and tax bases of assets and liabilities using applicable
enacted tax rates.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less, as
well as demand deposits, to be cash equivalents.
F-14
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
Business and Credit Concentrations
The Company's customers are not concentrated in any specific geographic region.
No single customer accounted for a significant amount of the Company's sales and
there were no significant accounts receivable from a single customer. Through
the end of fiscal year 1999, the Company considered accounts receivable to be
fully collectible. Accordingly, no allowance for doubtful accounts was
established. If amounts become uncollectible, they were charged to operations
when that determination is made. Starting with fiscal year 2000 an allowance for
doubtful accounts will be used.
Research and Development
All research and development costs are expensed when incurred.
Advertising Expenses
The Company expenses all advertising costs as incurred. Advertising charged to
expense for the year ended July 31, 1999 was $19,758.
Earnings Per Share
In accordance with SFAS No. 128, earnings (loss) per share is computed based on
the weighted average number of common shares outstanding during the reporting
period.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive Income
The Company has no items of other comprehensive income and the net loss for the
year ended July 31, 1999 represents the Company's comprehensive loss.
Segment Information
The Company operates predominantly in one industry segment: the design,
production, marketing and selling of technical outdoor clothing and accessories
using high-performance fabrics. No customer accounts for more than 5% of total
sales for the year ended July 31, 1999. International wholesale sales account
for approximately 4% of revenues for the year ended July 31, 1999.
F-15
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
NOTE 2 - INVENTORIES
Raw materials $130,829
Finished goods 735,729
---------
$866,558
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Leasehold improvements $ 86,982
Office fixtures and equipment 56,682
Auto 24,400
----------
Accumulated depreciation (42,446)
----------
$ 125,618
Depreciation expense for the year ended July 31, 1999 was $28,015.
The average estimated useful life of leasehold improvements was determined to be
5 years with a range of 3 to 7 years. The average estimated useful life of
office fixtures and equipment was determined to be 3 years with a range of 2 to
5 years. The average estimated useful life of autos was determined to be 3 years
with a range of 1 to 6 years. Because most all of the office fixtures and
equipment and autos are purchased used, the average expected useful life is
estimated to be shorter than if purchased new.
F-16
<PAGE>
<TABLE>
<CAPTION>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
<S> <C>
NOTE 4 - DEBT
Short term debt
Note payable to bank, interest at 10%, matures September 26, 1999.
Collateralized by accounts receivable, inventory, equipment, and personal
guarantee of President and Vice-President $100,000
Note payable, interest 8.50%, matures November 25, 1999. Collateralized by
inventory and equipment. 6,100
----------
Total short term $106,100
==========
Long term debt
Notes payable:
Note payable, monthly payments of $221, interest at 11.75%, matures
November 15, 2000. Collateralized by accounts receivable, inventory,
equipment, and personal guarantee of President and Vice-President. $ 3,524
Note payable, interest at 9.38%, matures October 13, 1999. Collateralized
by equipment. 3,500
Total notes payable 7,024
----------
Stockholder debt:
Note to stockholder, interest at 8.00%, matures March 31, 2002. Unsecured. 5,000
Note to stockholder, interest at 8.00%, matures March 31, 2002. Unsecured. 10,000
Note to stockholder, interest at 8.00%, matures April 1, 2003. Unsecured. 15,000
Note to stockholder, interest at 10.50%, matures March 31, 2003. 125,271
Secured by a life insurance policy on the president of the Company (see note 5)
Total stockholder debt 155,271
----------
Related party debt:
(1) Note payable to bank, assigned to the Company by officer, monthly
payments of $340, interest at 9.47%, matures February 22, 2002. Collaterized by truck. 9,368
(1) Note payable to bank, assigned to the Company by officer, interest at
8.50%, matures November 24, 1999. Collateralized by accounts with lender. 11,735
Note to related party. Unsecured. 2,586
Note to related party, interest at 8.00%. Unsecured. 10,000
----------
Total related party debt 33,689
----------
Total long term debt 195,984
Less current portion (33,786)
----------
Long term portion $162,198
==========
(1) These notes were made individually for the benefit of the Company by its
president. The Company has assumed the responsibility for these obligations.
</TABLE>
F-17
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
Annual maturity requirements for notes payable and long-term debt for the years
ending July 31 are as follows:
2000 $ 33,786
2001 4,620
2002 17,306
2003 140,272
---------
$ 195,984
Based on the borrowing rates currently available to the Corporation for bank
loans with similar terms and average maturates, the fair value of long-term debt
is approximately $135,000.
NOTE 5 - COMMON STOCK
During the fiscal year ended July 31, 1999, the Company issued 76,200 shares of
common stock with an aggregate market value of $35,078 to employees as
compensation. Compensation expense was determined based on the fair market value
of the shares at the time of issuance. Since the shares were restricted a
discount was applied to the market value.
Certain note payable agreements included provisions whereby common stock would
be issued in lieu of principal and/or interest payments. During the fiscal year
July 31, 1999, 62,000 shares of common stock were issued in consideration for a
note payable with principal of $25,000 and interest of $6,000.
Another note payable calls for the issuance of 1,500 shares of common stock to
the payee for each thirty days the note is outstanding. As of July 31, 1999, the
Company has recorded common stock subscribed (13,395 shares), additional
paid-in-capital and interest expense based on the estimated fair value of the
common stock and the number of days the note was outstanding during the year
ended July 31, 1999.
NOTE 6 - OPERATING LEASES
The Company leases all of its retail stores, warehouse and office space. The
total rental expense for the year ended July 31, 1999 was $197,406. The
following summarizes the future minimum lease payments under all lease
commitments:
2000 $198,867
2001 $200,122
2002 $158,467
2003 $163,521
The Company has the option to purchase the warehouse being leased in Telluride
for $455,000, which expires June 1, 2000.
F-18
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
NOTE 7 - TRADEMARK
The Company uses a distinctive trademark including the words "Jagged Edge" on
all of its products. The trademark "Jagged Edge" is owned by an individual,
unrelated to the Company, who has licensed the trademark to Jagged Edge Mountain
Gear, Inc. under a royalty agreement. No ownership rights are created by this
agreement for the licensee. The agreement is perpetual as long as the licensee
remains in business and does not breech the terms of the agreement. Royalties
are payable quarterly. The royalty amount is based on sales of "Licensed
Products". Annual sales volumes less than $2 million require a quarterly payment
of $500. Annual sales volumes greater than $2 million cause the royalty to
increase to $1,000 per quarter. For the year ended July 31, 1999, $2000 was paid
under this agreement.
NOTE 8 - SETTLEMENT
On October 15, 1999, the Company received a favorable settlement related to a
dispute over the terms of an agreement with former legal counsel. The terms of
the settlement included a monetary award of $100,000 as reimbursement for
Company expenses resulting from the agreement and a return of 640,000 shares of
common stock.
The settlement was recorded as a receivable and a reduction of expense as of
July 31, 1999. The shares of common stock were still outstanding at July 31,
1999.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Year 2000 Compliance
The Company relies on computers for the daily conduct of its business and for
general data processing. Significant national attention is directed at possible
problems that may occur with computer programs and data processing systems when
they start utilizing the year 2000 data fields.
The Company has considered information systems and other date sensitive
equipment and services and believe they have taken necessary steps to minimize
internal risks associated with the year 2000.
NOTE 10 - PROVISION FOR INCOME TAX
At July 31, 1999, the Company had a deferred tax asset of approximately $287,000
resulting from net operating loss carryforwards. There are no other temporary
differences between financial reporting and federal and state income tax
purposes. A valuation allowance of $287,000 has been established as of July 31,
1999. Net operating loss carryforwards begin to expire in 2013.
F-19
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
NOTE 11 - FUTURE PLANS
The Company has incurred significant losses in the last two years and this,
coupled with a shortage of liquidity, raises substantial doubt about its ability
to continue as a going concern. These conditions are the result of management's
decision to increase both staff and inventory to accommodate expected future
sales and price discounting in the industry. Also, poor snow conditions in the
resort areas where the Company operates retail stores contributed to less than
expected sales volumes during the year ended July 31, 1999. The Company is
planning for increased future sales volume by hiring a national sales manager,
increasing the distribution of their merchandise catalog, substantially
increasing the number of wholesale accounts, improving the web site exposure to
attract more online shoppers and opening additional Company owned stores.
Management expects to improve the gross margin by increasing sales prices,
reducing production costs and controlling discounting. The success of these
plans will directly affect the Company's ability to meet its short-term
obligations, allow continued growth and achieve profitable operations.
NOTE 12 - Fair Market Value of Common Stock
Common stock issued for consideration other than cash is valued at the fair
market value of the consideration. If the fair market value of the consideration
received is not readily obtainable or accurately measured then the stock is
valued at the average of the high and low trading price on the day the stock is
issued. In the case of restricted common stock, the fair market value is
calculated as the average of the high and low trading price on the day the stock
is issued less a 30% discount for the restriction.
F-20
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Jagged Edge Mountain Gear, Inc.
Balance Sheet - July 31, 1998 (unaudited) F-21
Statement of Operations - Twelve Months Ended July 31, 1998 (unaudited) F-22
Statement of Cash Flows - Twelve Months Ended July 31, 1998 (unaudited) F-23
Stockholders Equity- - Twelve Months Ended July 31, 1998 (unaudited) F-24
Notes to Financial Statements (unaudited) F-25
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
BALANCE SHEET (unaudited)
July 31, 1998
ASSETS
Current Assets
Cash $ 47,704
Accounts receivable 42,049
Accounts receivable - settlement 38,500
Inventories 710,828
---------------
Total Current Assets 839,081
Equipment and Leasehold Improvements, at cost, net 70,825
Other Assets
Deposits 15,261
Total Assets $ 925,167
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 89,605
Credit cards 12,974
Short-term debt 10,000
---------------
Total Current Liabilities 112,579
Long-Term Debt, net of current portion 60,682
---------------
Total Liabilities 173,261
---------------
Stockholders' Equity
Common stock $.001 par value; 50,000,000 shares authorized, 12,380
12,379,638 shares issued and outstanding
Additional paid-in capital 976,058
Retained Earnings (236,532)
---------------
Total Stockholders' Equity 751,906
---------------
Total Liabilities and Stockholders' Equity $ 925,167
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
STATEMENT OF OPERATIONS (unaudited)
For the Twelve Months Ended July 31, 1998
Sales $1,301,277.00
Cost of Goods Sold 603,504.00
Gross Profit 697,773.00
Operating Expenses
Selling 194,854.00
General and administrative 717,505.00
Loss From Operations (214,586.00)
Other Income (Expense)
Interest expense (22,914.00)
Other income 968.00
Net Loss Before Income Tax (236,532.00)
Provision for Income Tax -
Net Loss (236,532.00)
August 31, 1999 shares outstanding 10,460,484.00
Net Loss per share (0.02)
The accompanying notes are an integral part of these statements.
F-22
<PAGE>
<TABLE>
<CAPTION>
JAGGED EDGE MOUNTAIN GEAR, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the year ended July 31, 1998
<S> <C> <C> <C> <C> <C>
Additional Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Deficit Equity
- --------------------------------------------------------------------------------------------------------------
Balance -
August 1, 1997 - $ - $ - $ - $ -
Common Stock issued at inception 8,541,330 $8,541 ($95,203) - ($86,662)
Sale of Common Stock 3,809,670 3,810 1,068,390 - 1,072,200
Stock issued as compensation 29,000 29 2,871 - 2,900
Net income (loss) - - - (236,532) (236,532)
- ---------------------------------------------------------------------------------------------------------------
Balance -
July 31, 1998 12,380,000 $12,380 $ 976,058 $(236,058) $751,906
The accompanying notes are an integral part of these statements.
F-23
</TABLE>
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
STATEMENT OF CASH FLOWS (unaudited)
For the Twelve Months Ended July 31, 1998
Cash Flows from Operating Activities
Net loss $(236,532)
Depreciation and amortization 5,431
Common stock issued as compensation 2,900
Changes in assets and liabilities
Increase in accounts receivable (64,403)
Increase in inventories (407,377)
Decrease in checks in excess of balance (25,150)
Increase in other assets (7,486)
Decrease in accounts payable and accrued liabilities (41,167)
----------------
Net Cash Used by Operating Activities (773,695)
Cash Flows from Investing Activities
Purchase of equipment (38,145)
---------------
Net Cash Used by Investing Activities (38,145)
---------------
Cash Flows from Financing Activities
Principal debt retirement (460,543)
Proceeds from short term borrowing 235,000
Decrease in credit cards (55,585)
---------------
Proceeds from long-term borrowing 61,225
Proceeds from issuance of stock 1,072,200
---------------
Net Cash Provided by Financing Activities 852,296
---------------
Increase in Cash and Cash Equivalents 40,456
Cash and Cash Equivalents - beginning of year 7,248
---------------
Cash and Cash Equivalents - end of year $ 47,704
===============
Supplemental disclosure of cash flow information:
During the year ended July 31, 1998, the holders of convertible notes payable
totaling $80,000 elected to convert the notes into 441,330 shares of restricted
stock in accordance with the conversion option.
During the year ended July 31, 1998, 29,000 shares of restricted stock at a
market valued of $2,900 were issued to employees as compensation.
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
JAGGED EDGE MOUNTAIN GEAR, INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)
For the Twelve Months Ended July 31, 1998
NOTE 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 period ended on July 31, 1998 of JEMG.
It is suggested that these financial statements be read in conjunction with the
JEMG audited financial statements for the year ended July 31, 1999, included in
this form 10SB.
NOTE 2 - RULE 504 OFFERING:
On July 6, 1998, JEMG completed a private placement of 1,714,000 shares of
common stock under Rule 504 of Regulation D under the Securities Act of 1933
NOTE 3 - CHANGE OF ACCOUNTING PERIOD:
During the year ended July 31, 1998, the accounting period was changed from
ending December 31 to ending July 31.
NOTE 4 - STOCK SALES RECEIVABLE:
This receivable was collected August 3, 1998.
F-25
<PAGE>
EXHIBITS INDEX
Item 1. Index to Exhibits
Exhibit No. Description
3.1 * Articles of Incorporation, Jagged Edge Mountain Gear, Inc.
3.2 * By-Laws, Jagged Edge Mountain Gear, Inc.
10.1 * Jagged Edge Mountain Gear, Inc. Stock Plan
27.1 Financial Data Schedule
* Incorporated by reference in the Company's Form 10SB filed with the Securities
and Exchange Commission on December 14, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> JUL-31-1999 JUL-31-2000
<PERIOD-START> AUG-01-1998 AUG-01-1999
<PERIOD-END> JUL-31-1999 OCT-31-2000
<CASH> 42,606 83,821
<SECURITIES> 0 0
<RECEIVABLES> 61,992 290,745
<ALLOWANCES> 0 0
<INVENTORY> 866,558 834,513
<CURRENT-ASSETS> 1,071,681 1,212,852
<PP&E> 125,618 122,045
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 589 559
<CURRENT-LIABILITIES> 1,229,660 1,379,758
<BONDS> 0 0
0 0
0 0
<COMMON> 13,307 14,362
<OTHER-SE> 497,379 754,852
<TOTAL-LIABILITY-AND-EQUITY> 1,229,660 1,379,758
<SALES> 2,206,384 807,301
<TOTAL-REVENUES> 2,206,384 807,301
<CGS> 1,406,694 506,992
<TOTAL-COSTS> 1,550,066 506,992
<OTHER-EXPENSES> 1,138,921 382,640
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 21,531 13,752
<INCOME-PRETAX> (503,200) (94,269)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (503,200) (94,269)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (503,200) (94,269)
<EPS-BASIC> (.04) (.01)
<EPS-DILUTED> (.04) (.01)
</TABLE>
