U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 33-98682
------------------------------------
JD AMERICAN WORKWEAR, INC.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 05-0460102
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(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
46 Old Flat River Road, Coventry, Rhode Island 02816
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(Address of Principal Executive Offices)
(401) 397-6800
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(Issuer s Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer s classes
of common stock, as of the last practicable date.
Common Stock, $.002 par value per share, 1,984,899 shares outstanding at
June 30, 1998
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE> 1
JD AMERICAN WORKWEAR, INC.
INDEX TO FORM 10-QSB
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of May 31, 1998 and February 28, 1998 3
Statements of Operations for the three months ended May 31, 1998
and May 31, 1997 5
Statements of Cash Flows for the three months ended May 31, 1998
and May 31, 1997 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 10
Item 4. Submissions of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE> 2
JD AMERICAN WORKWEAR, INC.
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
May 31, 1998 February 28, 1998
------------ -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,854,991 $ 16,932
Accounts receivable, net of allowance 261,761 203,685
Inventories 1,237,130 1,057,784
Prepaid expenses, current portion 341,048 229,859
Loans receivable, employees 18,544 17,419
------------------------------
Total current assets 3,713,473 1,525,679
Property and equipment, net 73,031 75,369
Intangible assets, net 57,547 57,547
Prepaid expenses, long-term 0 182,713
Other assets, net 8,707 15,032
------------------------------
TOTAL ASSETS $ 3,852,758 $ 1,856,340
==============================
</TABLE>
See notes to Financial Statements
<PAGE> 3
JD AMERICAN WORKWEAR, INC.
BALANCE SHEETS -- CONTINUED
(unaudited)
<TABLE>
<CAPTION>
May 31, 1998 February 28, 1998
------------ -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Current portion of long-term debt $ 875,885 $ 868,325
Accounts payable and accrued expenses 225,393 234,412
Accrued interest on notes payable 100,068 85,958
Short-term loans 11,774 11,774
------------------------------
Total current liabilities 1,213,120 1,200,469
------------------------------
Long-term debt, net of current portion 79,967 101,830
Stockholders' equity:
Preferred stock, authorized 1,000,000 shares:
Series A, $.001 par value 313 shares issued and outstanding,
(liquidating preference $782,500);
Series B, $.001 par value 1,000 shares issued and outstanding,
(liquidating preference $2,500,000)
Common stock, $.002 par value; authorized, 4,500,000 shares;
issued and outstanding, 1,984,899 shares at May 31, 1998 and
February 28, 1998, respectively 3,970 3,970
Additional paid-in capital 7,380,195 5,046,637
Accumulated deficit (4,824,494) (4,496,566)
------------------------------
Total Stockholders' equity: 2,559,671 554,041
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,852,758 $ 1,856,340
==============================
</TABLE>
See notes to Financial Statements
<PAGE> 4
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months ended May 31, 1998 May 31, 1997
------------ ------------
<S> <C> <C>
Revenues
Net sales $ 141,654 $ 120,326
Cost of goods sold 91,497 71,019
--------------------------
Gross profit 50,156 49,307
Operating Expenses:
Payroll and payroll taxes 101,931 56,937
Selling Expenses 22,253 21,889
Consulting Expenses 68,155 59,745
Contract Labor 300 794
Depreciation and amortization 6,810 13,101
Employee benefits 8,488 4,356
Freight and delivery 12,936 9,972
Professional fees 75,438 28,950
Rent 7,470 7,300
Supplies 2,689 2,576
Telephone 5,041 3,785
Travel and Entertainment 10,870 8,920
Other 27,355 22,477
--------------------------
Total operating expenses 349,737 240,802
--------------------------
Operating loss (299,580) (191,495)
Interest expense (28,348) (27,997)
--------------------------
NET LOSS $ (327,928) $ (219,492)
==========================
Net loss per common share $ (.17) $ (.12)
==========================
Weighted average number of common shares outstanding 1,984,898 1,759,756
</TABLE>
See notes to Financial Statements
<PAGE> 5
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months ended May 31, 1998 May 31, 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (327,928) $ (219,492)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation and amortization 6,176 13,101
Securities issued for services rendered 0 140,696
Securities issued for interest payments 0 23,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (58,076) 32,710
(Increase) in inventories (179,346) (179,298)
(Increase) decrease in other assets 76,725 (73,494)
Increase in accounts payable 5,090 204,022
---------------------------
Net cash (used in) operating activities (477,359) (222,451)
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,839) (7,289)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal advances on notes payable and long-term debt 0 30,000
Sale of preferred stock 2,500,000 0
Repayments on notes payable and long-term debt (14,301) (65,585)
Costs of raising capital (166,442) 0
Sale of common stock 0 100,000
---------------------------
Net cash (used in) provided by financing activities 2,319,257 228,111
---------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,838,059 (1,629)
Cash and cash equivalents - beginning of period 16,932 7,634
---------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,854,991 $ 6,005
===========================
</TABLE>
See notes to Financial Statements
<PAGE> 6
JD AMERICAN WORKWEAR, INC.
Notes to Financial Statements
Note 1 - The Company
- --------------------
The Company was incorporated in Rhode Island in 1991 under the name Jaque
Dubois, Inc. and was re-incorporated in Delaware in 1994. In July 1995, the
Company's name was changed to JD American Workwear, Inc. The Company is
primarily engaged in the business of designing, manufacturing, marketing and
selling commercial and industrial workwear products
Substantial losses have been incurred since inception and additional
future losses are anticipated as the Company continues to expand operations and
establish itself in the market. Management believes that additional capital may
be required to sustain operations through February 28, 1999. The Company
anticipates meeting its future cash requirements through the sale of products
and obtaining additional financing. There can be no assurance that sufficient
cash can be generated from operations or financing activities or that the
Company will be able to operate profitably in the future.
Note 2 - Basis of Presentation
- ------------------------------
The interim financial statements are prepared pursuant to the
requirements for reporting on 10-QSB. The interim financial information
included herein is unaudited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments) that are, in
the opinion of management, necessary to a fair presentation of the Company's
financial position, results of operations, and cash flows for the interim
periods.
The accompanying financial statements do not contain all of the
disclosures required by generally accepted accounting principles and should be
read in conjunction with the financial statements and related notes included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended February
28, 1998. The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected for the fiscal
year ending February 28, 1999.
<PAGE> 7
PART I. FINANCIAL INFORMATION
Item 2. Management s Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended May 31, 1998 Compared to Three Months Ended May 31,
1997. Net sales for the three month period ended May 31, 1998 increased
approximately 17.7% to $141,654 from $120,326 for the three month period ended
May 31, 1997. The increase is directly attributable to an increase in unit
volume. Cost of goods sold for the three months ended May 31, 1998 was $91,497
compared to $71,019 for the three months ended May 31, 1997. Gross margin for
the three month period ended May 31, 1998 was 35.4% compared to 41.0% for the
three months ended May 31, 1997 primarily due to a higher concentration of
distributor sales at lower margins.
Operating expenses increased to $346,737 for the three months ended May
31, 1998 from $240,802 for the three months ended May 31, 1997. A significant
portion of the increase was incurred in connection with increases in payroll
and professional fees. Interest expense increased to $28,348 from $27,997 due
to increases in short-term borrowings.
The net loss for the three months ended May 31, 1998 was $327,928 ($.17
per share) compared to a net loss of $219,492 ($.12 per share) for the three
months ended May 31, 1997.
Liquidity and Capital Resources
Net cash used in operating activities was $481,196 for the three months
ended May 31, 1998 compared to $222,451 for the three months ended May 31,
1997. The Company used resources to continue to build finished goods inventory
in anticipation of its prime selling season and commencement of certain
marketing programs. Cash flows used to produce inventory was offset partially
by increases in accounts payable. Accounts receivable increased approximately
28.5% to $261,761 from February 28 to May 31, 1998. Inventory increased to
$1,237,130 during the first quarter of fiscal 1999.
Capital expenditures for the three months ended May 31, 1998 were $3,839
compared to $7,289 for the three months ended May 31, 1997.
As previously announced, on April 9, 1998, the Company entered into a
Securities Purchase Agreement (the "Purchase Agreement") with The Union Labor
Life Insurance Company, a Maryland corporation ("ULLICO"). Pursuant to the
terms of the Purchase Agreement, the Company issued 2,500 shares of Series B
12% Cumulative Convertible Preferred Stock, $.001 par value (the "Series B
Preferred Stock") as well as a detached ten-year stock purchase warrant to
purchase 799,000 shares of Common Stock at an exercise price of $.01 per share
(the "Investor Warrant"). The aggregate purchase price for the Series B
Preferred Stock and the Investor Warrant was $2,500,000.
The Company will use the net proceeds to facilitate and expand a program
of union labor manufacturing of its products, to repay certain notes payable
and long-term debt, and for sales and administrative salaries, product
development, sales and marketing expense, and other general corporate purposes.
<PAGE> 8
The Company is currently negotiating with debt holders to convert its
outstanding convertible debt into Common Stock of the Company.
Management believes cash flow from operations and the investment by
ULLICO will provide for working capital needs and principal payments on
long-term debt through fiscal 1999. However, the Company will be required to
seek additional financing to meet its business strategy of achieving
significant market penetration of its JD Uniform Safety Pants. Also, additional
capital may be required if adequate levels of revenue are not realized, if
higher than anticipated costs are incurred in the expansion of the Company's
manufacturing and marketing activities, or if product demand exceeds expected
levels. There can be no assurance that any additional financing thereby
necessitated will be available on acceptable terms to the Company, if at all.
<PAGE> 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
N/A
Item 2. Changes in Securities and use of Proceeds.
(1) Private Placement of Series B Preferred Stock. On April 9, 1998, the
Company entered into a Securities Purchase Agreement (the "Purchase
Agreement") with The Union Labor Life Insurance Company, a Maryland
corporation ("ULLICO"), and certain additional agreements related to the
Purchase Agreement. Pursuant to the terms of the Purchase Agreement, the
Company issued to ULLICO 2,500 shares of Series B 12% Cumulative
Convertible Preferred Stock, $.001 par value (the "Series B Preferred
Stock"). As a part of the issuance of the Series B Preferred Stock, the
Company also issued to ULLICO a detached ten-year stock purchase warrant
to purchase 799,000 shares of Common Stock at an exercise price of $.01
per share (the "Investor Warrant"). The Series B Preferred Stock is
convertible, at the option of the holder, into the number of shares of
Common Stock which results from dividing the Conversion Price into $1,000
for each share of Series B Preferred Stock being converted. The
Conversion Price shall be $5.00, subject to adjustment. The Series B
Preferred Stock entitles ULLICO to receive, when and as declared by the
Company's Board, cumulative cash dividends in preference to the payment
of dividends on all other shares of capital stock of the Company. During
the two-year period following issuance of the Series B Preferred Stock
(the "PIK Period") the Company has the option of making payment of the
semi-annual dividends on the Series B Preferred Stock either in cash or
by issuing additional shares of Series B Preferred Stock ("PIK
Dividends"). In the event the Company elects to pay dividends in shares
of Series B Preferred Stock, the Company is required to issue additional
detached ten-year dividend warrants (the "Dividend Warrants") to purchase
54,000 shares of Common Stock at an exercise price of $.01 per share for
each semi-annual dividend period that PIK Dividends are paid. During the
PIK Period the Company may not pay or declare cash dividends on any stock
other than the Series B Preferred Stock. Unless full dividends on the
Series B Preferred Stock for all past dividend periods and the then
current period shall have been paid or declared and a sufficient sum for
the payment thereof set aside in trust for the Series B Preferred Stock
Holders, no dividend (other than a dividend payable solely in Common
Stock) shall be paid or declared, and no distribution made, on any other
shares of stock.
Each holder of Series B Preferred Stock is entitled to vote on all
Company matters and is entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of
Series B Preferred Stock are convertible. The Series B Preferred Stock
holders shall be entitled to elect one director out of the seven
authorized directors of the Company's board and one director out of the
three directors comprising the Company's Compensation Committee. If
certain events occur or do not occur, such as the failure to pay either a
PIK Dividend or cash dividend to the Series B Preferred Stock holders,
the holders of the Series B Preferred Stock shall be entitled,
immediately upon giving written notice, to elect the smallest number of
directors that will constitute a majority of the authorized number of
directors.
(2) Increase in Authorized Shares of Common Stock. On June 15, 1998, the
Company filed a Certificate of Amendment to the Certificate of
Incorporation of the Company with the Secretary of State of Delaware
increasing the number of authorized shares of Common Stock of the Company
from 4,500,000 shares to 7,500,000 shares.
<PAGE> 10
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submissions of Matters to a Vote of Security Holders
During the quarter covered by this report, an annual meeting of stockholders of
the Company was held on April 15, 1998, the results of which are as follows:
Proposal No. 1, electing all of the following nominees as Directors of the
Company:
David N. DeBaene Dean M. Denuccio
Elizabeth Cotter Steev Panneton
Thomas A. Lisi Anthony P. Santucci
As to the Common Stock:
For: 1,075,652
Against: 3,500
Withhold authority: 0
As to the Series A Preferred Stock:
For: 160,000
Against: 0
Withhold authority: 0
Proposal No 2, approving an amendment to the Company's Certificate of
Incorporation that would increase the number of authorized shares of Common
Stock of the Company from 4,500,000 shares to 7,500,000 shares.
As to the Common Stock:
For: 1,053,287
Against: 16,165
Withhold authority: 9,700
As to the Series A Preferred Stock:
For: 160,000
Against: 0
Withhold authority: 0
<PAGE> 11
Proposal No. 3, approving an amendment to the Company's 1995 Stock Option Plan,
which would increase the number of shares of Common Stock eligible for issuance
under the Plan from 250,000 shares to 750,000 shares:
As to the Common Stock:
For: 1,054,318
Against: 15,124
Withhold authority: 9,700
As to the Series A Preferred Stock:
For: 160,000
Against: 0
Withhold Authority: 0
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C> <C> <C>
4.1 Securities Purchase Agreement dated As filed with the Registrant's Form 8-K N/A
April 9, 1998 on April 15, 1998
4.2 Certificate of Designation of Series B As filed with the Registrant's Form 8-K N/A
Preferred Stock. on April 15, 1998
4.3 Stockholders' Agreement dated April 9, As filed with the Registrant's Form 8-K N/A
1998. on April 15, 1998
4.4 Registration Rights Agreement dated As filed with the Registrant's Form 8-K N/A
April 9, 1998 on April 15, 1998
4.5 Warrant Certificate issued to ULLICO As filed with the Registrant's Form 8-K N/A
on April 15, 1998
4.6 Escrow Agreement As filed with the Registrant's Form 8-K N/A
on April 15, 1998
16.1 Letter of Richard A. Eisner and As filed with the Registrant's Form 8-K N/A
Company, LLP dated May 6, 1998 on May 13, 1998
</TABLE>
<PAGE> 12
(b) Reports on Form 8-K
During the quarter covered by this report, the Registrant filed the
following Forms 8-K:
On April 15, 1998, the Registrant filed a Form 8-K reporting the
following information:
ITEM 5. OTHER EVENTS
On April 9, 1998, the Company entered into a Securities
Purchase Agreement (the "Purchase Agreement") with The Union
Labor Life Insurance Company, a Maryland corporation
("ULLICO"), and certain additional agreements related to the
Purchase Agreement. Pursuant to the terms of the Purchase
Agreement, the Company issued to ULLICO 2,500 shares of
Series B 12% Cumulative Convertible Preferred Stock, $.001
par value (the "Series B Preferred Stock"). As a part of the
issuance of the Series B Preferred Stock, the Company also
issued to ULLICO a detached ten-year stock purchase warrant
to purchase 799,000 shares of Common Stock at an exercise
price of $.01 per share (the "Investor Warrant"). The
aggregate purchase price for the Series B Preferred Stock and
the Investor Warrant was $2,500,000. The Company will use the
net proceeds to facilitate and expand a program of union
labor manufacturing of its products, to repay certain notes
payable and long-term debt, and for sales and administrative
salaries, product development, sales and marketing expense,
and other general corporate purposes.
On May 13, 1998, the Registrant filed a Form 8-K reporting the
following information:
ITEM 4. CHANGES IN REGISTRANT'S CERTIFIED PUBLIC ACCOUNTANT
Effective April 1, 1998, the Boston office of Richard A.
Eisner & Company, LLP ("RAE") was merged into the Boston
office of BDO Seidman, LLP ("BDO"). As this merger resulted
in RAE no longer having an office in the Providence-Boston
area, the Company concluded that it would be appropriate to
select a new accounting firm. By unanimous consent, the Board
of Directors of the Company voted on May 5, 1998, to retain
BDO to serve as the Company's independent auditors.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JD AMERICAN WORKWEAR, INC.
By: /s/ David N. DeBaene
------------------------------------
David N. DeBaene, President
(Principal Executive Officer)
By: /s/ Anthony P. Santucci
------------------------------------
Anthony P. Santucci, Vice President
(Chief Financial Officer)
Date: July 16, 1998
<PAGE> 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> MAY-31-1998
<CASH> 1,854,991
<SECURITIES> 0
<RECEIVABLES> 278,561
<ALLOWANCES> 16,900
<INVENTORY> 1,237,130
<CURRENT-ASSETS> 3,713,473
<PP&E> 215,031
<DEPRECIATION> 142,000
<TOTAL-ASSETS> 3,852,758
<CURRENT-LIABILITIES> 1,213,120
<BONDS> 0
782,500
2,500,000
<COMMON> 3,970
<OTHER-SE> 4,099,695
<TOTAL-LIABILITY-AND-EQUITY> 3,852,758
<SALES> 141,654
<TOTAL-REVENUES> 141,654
<CGS> 91,497
<TOTAL-COSTS> 349,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,348
<INCOME-PRETAX> (327,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (327,928)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327,928)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
