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: April 30, 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
incorporation or organization) (IRS Employer Identification No.)
52 PILOT KNOB LANE, TELLURIDE, CO 81435
(Address of principal executive offices)
970-728-0175
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No
----- ------
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
SHARES OUTSTANDING as of April 30, 2000 are 13,833,392
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Part I
page
Item 1: Financial Statements (Unaudited)
Condensed Balance Sheets - April 30, 2000 and July 31, 1999 3
Condensed Statements of Income 4
Three Months Ended April 30, 2000
and 1999 and Nine Months Ended April 30, 2000 and 1999
Condensed Statements of Cash Flows 5
Nine Months Ended April 30, 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:
Signature 9
Exhibits and Reports on Form 8-K 10
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Part I
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
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<CAPTION>
JAGGED EDGE MOUNTAIN GEAR, INC.
CONSOLIDATED BALANCE SHEET (unaudited)
April 30, 2000 July 31, 1999
-----------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash 49,329 42,606
Accounts Receivable 94,825 61,992
Accounts Receivable-Settlement 0 100,000
Inventories 688,890 866,558
Prepaid Expenses 6,755 525
-----------------------------------------
TOTAL CURRENT ASSETS 839,799 1,071,681
Equipment and Leasehold Improvements, at cost, net 132,854 125,618
Goodwill, net of accumulated amortization 15,000 0
Other Assets
Deposits Paid 23,259 32,361
-----------------------------------------
Total Assets 1,010,912 1,229,660
=========================================
Liabilities
Current Liabilities
Accounts Payable & Accrued Liabilities 489,871 351,897
Credit Cards 67,187 64,980
Other Current Liabilities 993 0
Short Term debt 5,929 106,100
Current Portion of Long Term Debt 41,595 33,786
-----------------------------------------
TOTAL CURRENT LIABILITIES 605,575 556,763
Long Term Debt, net of current portion 185,589 162,198
-----------------------------------------
Total Liabilities 791,164 718,961
Shareholders' Equity
Common Stock $.001 par value; 50,000,000 shares authorized, 13,833 13,307
13,833,392 shares issued & outstanding
Common Stock Subscribed 2 13
Additional Paid-in Capital 1,632,213 1,250,426
Retained Deficit (1,426,300) (753,047)
-----------------------------------------
Total Shareholders' Equity 219,748 510,699
-----------------------------------------
Total Liability & Equity 1,010,912 1,229,660
=========================================
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<TABLE>
<CAPTION>
JAGGED EDGE MOUNTAIN GEAR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
For the Three Months Ended April 30, 2000 and the Nine Months Ended April 30, 1999:
Three Months Ended April 30 Nine Months Ended April 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales 844,580 575,766 2,327,301 1,782,687
Cost of Goods Sold 516,572 322,596 1,601,321 1,103,170
GROSS PROFIT 328,008 253,170 725,980 679,517
Selling, General, & Administrative 509,297 336,604 1,369,303 991,752
LOSS FROM OPERATIONS (181,289) (83,434) (643,323) (312,235)
Other Income (Expense)
Interest Expense (9,999) (11,910) (32,889) (25,727)
Other Income, net 1,225 810 2,961 810
NET LOSS BEFORE INCOME TAX (190,063) (94,534) (673,250) (337,152)
Provision for Income Tax 0 0 0 0
NET LOSS (190,063) (94,534) (673,250) (337,152)
LOSS PER SHARE (0.01) (0.01) (0.05) (0.03)
Weighted Average Shares 13,781,782 12,843,138 13,887,453 12,534,138
</TABLE>
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<CAPTION>
STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
April 30
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss (673,251) (337,151)
Depreciation & Amortization 24,932 0
Common Stock Issued as Compensation 2,270 76
Common Stock issued as interest on Notes Payable 15,398 0
Common Stock Issued to retire accrued interest 5,447 0
Expenses paid with stock 5,224 0
Common Stock Issued to retire loan 0 25,000
Non-Cash Adjustment of Accounts Receivable - Stock Sales 0 (3,500)
(Increase) Decrease in:
Accounts Receivable 67,167 6,300
Inventories 177,668 (123,974)
Other Assets 2,872 (625)
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities 137,974 10,909
Credit Cards 2,207 42,733
Other Current Liabilities 993 0
------------ ----------
NET CASH USED IN OPERATING ACTIVITIES (231,099) (380,232)
Cash Flows from Investing Activities:
Additions to Property, Plant, and Equipment (32,167) (75,423)
Purchase of trademark (15,000) 0
Stock Issued as partial payment for trademark 10,000 0
------------ ----------
NET CASH USED IN INVESTING ACTIVITIES (37,167) (75,423)
Cash Flows from Financing Activities:
Principal Payments on Short Term Debt (64,353) (88,043)
Proceeds from Short Term Borrowings 39,182 191,950
Principal Payments on Long Term Debt (33,801) (109,645)
Proceeds from Long Term Borrowings 10,000 226,402
Proceeds from issuance of stock 325,300 209,207
Repurchases of Common Stock (1,340) 0
------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 274,988 429,871
------------ ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,722 (25,784)
Cash Beginning of Period: 42,606 47,704
Cash End of Period: 49,328 21,921
============ ==========
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<PAGE>
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 tem 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 tem loan at an interest
rate of 2.25% over rate, with principal and interest payments due monthly.
Item 2. Management's Discussion and Analysis or Plan of Operation
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED APRIL 30, 2000
During the third quarter of fiscal year Jagged Edge Mountain Gear sustained an
operating loss of $181,289 compared with a loss of $83,438 for the third 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.
Third quarter sales were ahead of 1999, third quarter, at $844,580 compared to
$575,766 in 1999. 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.
The Company had a loss of ($190,063) or ($.01) per share in the 2000 quarter as
compared to ($94,534) or ($.01) per share in the same quarter in 1999.
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED APRIL 30, 2000
The Company had sales of $2,327,301 in the nine month period ended April 30,
2000 compared to sales of $1,782,687 in the same period ended April 30, 1999.
The cost of goods sold in the nine month period was $1,601,321 at April 30, 2000
and $1,103,170 at April 30, 1999. The Gross Profit for the period was $725,980
at April 30, 2000 and $679,517 at April 30, 1999.
For the nine month period ended April 30, 2000, the Company incurred $1,369,303
in general and administrative expenses and had a net loss on operations of
($643,323). In Comparison, for the nine month period ended April 30, 1999, the
Company incurred $991,752 in general and administrative expenses and had a net
loss on operations of ($312,235).
The Company had interest expense of $32,889 in the period ended April 30, 2000
compared to $25,727 in the same period in 1999. The Company had miscellaneous
income of $2,961 at April 30, 2000 and $810 for the same period in 1999.
The Company incurred a net loss of ($673,250) or ($.05) per share in the nine
month period ended April 30, 2000 and ($337,152) or ($.03) per share in the
period ended April 30, 1999.
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
<PAGE>
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.
The Company's reported operating loss, for the nine months ending April 30, 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 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.
<PAGE>
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."
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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
