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 August 31, 1998
---------------
[x] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 33-98682
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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
- -------------------------------------------------------------------------------
(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, 2,125,468 shares outstanding
at October 15,1998
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
----- -----
JD AMERICAN WORKWEAR, INC.
INDEX TO FORM 10-QSB
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of August 31, 1998 and February 28, 1998 3
Statements of Operations for the three months ended August 31,
1998 and August 31, 1997 5
Statements of Operations for the six months ended August 31,
1998 and August 31, 1997 6
Statements of Cash Flows for the six months ended August 31,
1998 and August 31, 1997 7
Notes to Financial Statements 8
Item 2. Management s Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submissions of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
JD AMERICAN WORKWEAR, INC.
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
August 31, 1998 February 28, 1998
-------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 932,918 $ 16,932
Accounts receivable, net of allowance 373,961 203,685
Inventories 1,449,977 1,057,784
Prepaid expenses, current portion 298,563 229,859
Loans receivable, employees 7,633 17,419
--------------------------------
Total current assets 3,063,052 1,525,679
Property and equipment, net 105,861 75,369
Intangible assets, net 75,547 57,547
Prepaid expenses, long-term 182,713 182,713
Other assets, net 15,032 15,032
--------------------------------
TOTAL ASSETS $ 3,442,205 $ 1,856,340
================================
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
BALANCE SHEETS -- CONTINUED
(unaudited)
<TABLE>
<CAPTION>
August 31, 1998 February 28, 1998
-------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Current portion of long-term debt $ 475,200 $ 868,325
Accounts payable and accrued expenses 134,898 234,412
Accrued interest on notes payable 39,649 85,958
Short-term loans 10,524 11,774
--------------------------------
Total current liabilities 660,271 1,200,469
--------------------------------
Long-term debt, net of current portion 102,158 101,830
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 2,097,507 shares at
August 31, 1998 and 1,984,899 shares at February 28,
1998, respectively. 4,195 3,970
Additional paid-in capital 7,815,929 5,046,637
Accumulated deficit (5,140,348) (4,496,566)
--------------------------------
Total Stockholders' equity: 2,679,775 554,041
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,442,205 $ 1,856,340
================================
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months ended August 31, 1998 August 31, 1997
-----------------------------------
<S> <C> <C>
Revenues
Net sales $ 264,619 $ 191,834
Cost of goods sold 169,188 106,276
----------------------------
Gross profit 95,431 85,558
Operating Expenses:
Payroll and payroll taxes 137,994 58,938
Selling Expenses 37,071 12,133
Consulting Expenses 80,419 60,965
Contract Labor 250 655
Depreciation and amortization 6,176 292
Employee benefits 10,401 6,534
Freight and delivery 17,058 3,243
Professional fees 30,961 39,245
Rent 10,805 7,950
Supplies 9,421 3,001
Telephone 5,072 3,967
Travel and Entertainment 38,314 11,216
Other 34,514 18,658
----------------------------
Total operating expenses 418,455 226,796
----------------------------
Operating loss (323,024) (141,238)
Interest income (expense), net 7,170 (50,019)
----------------------------
NET LOSS $ (315,854) $ (191,257)
============================
Net loss per common share $ (.16) $ (.11)
============================
Weighted average number of common shares outstanding 2,034,800 1,815,473
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months ended August 31, 1998 August 31, 1997
-----------------------------------
<S> <C> <C>
Revenues
Net sales $ 406,273 $ 312,160
Cost of goods sold 260,685 177,295
----------------------------
Gross profit 145,588 134,865
Operating Expenses:
Payroll and payroll taxes 239,925 115,875
Selling Expenses 59,324 34,022
Consulting Expenses 148,574 120,710
Contract Labor 550 1,449
Depreciation and amortization 12,986 13,393
Employee benefits 18,889 10,890
Freight and delivery 29,994 13,215
Professional fees 106,399 68,195
Rent 18,275 15,250
Supplies 12,110 5,577
Telephone 10,113 7,752
Travel and Entertainment 49,184 20,136
Other 61,869 41,135
----------------------------
Total operating expenses 768,192 467,598
----------------------------
Operating loss (622,604) (332,733)
Interest expense (21,178) (78,016)
----------------------------
NET LOSS $ (643,782) $ (410,749)
============================
Net loss per common share $ (.32) $ (.23)
============================
Weighted average number of common shares outstanding 2,009,849 1,779,354
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months ended August 31, 1998 August 31, 1997
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (643,782) $ (410,749)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation and amortization 12,986 18,912
Securities issued for services rendered 194,500 144,000
Securities issued for interest payments 21,313
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (170,276) (102,374)
(Increase) in inventories (392,193) (24,021)
(Increase) decrease in other assets (58,917) (54,268)
Increase in accounts payable (147,073) 169,994
-------------------------------
Net cash (used in) operating activities (1,204,755) (120,507)
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (61,478) (7,289)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal advances on notes payable and long-term debt 30,000
Sale of preferred stock 2,500,000
Repayments on notes payable and long-term debt (151,339) (70,046)
Costs of raising capital (166,442) (3,195)
Sale of common stock 285,000
-------------------------------
Net cash (used in) provided by financing activities 2,182,219 241,759
-------------------------------
NET INCREASE (DECREASE) IN CASH 915,986 1,566
Cash and cash equivalents - beginning of period 16,932 7,634
-------------------------------
CASH - END OF PERIOD $ 932,918 $ 9,200
===============================
</TABLE>
See notes to Financial Statements
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.
PART I. FINANCIAL INFORMATION
Item 2. Management s Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended August 31, 1998 Compared to Three Months Ended
August 31, 1997. Net sales for the three month period ended August 31, 1998
increased approximately 37.9% to $264,619 from $191,834 for the three month
period ended August 31, 1997. The increase is directly attributable to an
increase in unit volume generated by the Company's expanded sales force.
Cost of goods sold for the three months ended August 31, 1998 was $169,188
compared to $106,276 for the three months ended August 31, 1997. Gross
margin for the three month period ended August 31, 1998 was 36.1% compared
to 44.6% for the three months ended August 31, 1997 primarily due to a
higher concentration of distributor sales at lower margins.
Operating expenses increased to $418,455 for the three months ended
August 31, 1998 from $226,796 for the three months ended August 31, 1997. A
significant portion of the increase was due to additional payroll incurred
in connection with the expansion of the Company's inside sales force,
additional professional fees as well as charges for options and warrants
issued to consultants for services. The Company earned interest income in
excess of interest expense for the three months ended August 31, 1998 versus
net interest expense of $50,019. This is a direct result of short-term
investments of cash and the reduction of long-term debt through repayments
and conversions to equity.
The net loss for the three months ended August 31, 1998 was $315,854
($.16 per share) compared to a net loss of $191,257 ($.11 per share) for the
three months ended August 31, 1997.
Six Months Ended August 31, 1998 Compared to Six Months Ended August
31, 1997. Net sales for the six month period ended August 31, 1998
increased approximately 30.1% to $406,273 from $312,160 for the six month
period ended August 31, 1997. The increase is directly attributable to an
increase in unit volume. Cost of goods sold for the six months ended August
31, 1998 was $260,685 compared to $177,295 for the six months ended August
31, 1997. Gross margin for the six month period ended August 31, 1998 was
35.8% compared to 43.2% for the six months ended August 31, 1997 primarily
due to a higher concentration of distributor sales at lower margins.
Operating expenses increased to $768,192 for the six months ended
August 31, 1998 from $467,598 for the six months ended August 31, 1997. A
significant portion of the increase was due to additional payroll incurred
in connection with the expansion of the Company's inside sales force,
additional professional fees as well as charges for options and warrants
issued to consultants for services. Net interest expense decreased to
$21,178 from $78,016. This is a direct result of short-term investments of
cash and the reduction of long-term debt through repayments and conversions
to equity.
The net loss for the six months ended August 31, 1998 was $643,782
($.32 per share) compared to a net loss of $410,749 ($.23 per share) for the
six months ended August 31, 1997.
Liquidity and Capital Resources
Net cash used in operating activities was $1,204,755 for the six
months ended August 31, 1998 compared to $120,507 for the six months ended
August 31, 1997. The Company used resources to continue to build finished
goods inventory in anticipation of its prime selling season, commencement of
certain marketing programs as well as reducing accounts payable. Accounts
receivable increased approximately 83.6% to $373,961 from February 28 to
August 31, 1998. Inventory increased to $1,449,977 during the first half of
fiscal 1999.
Capital expenditures for the six months ended August 31, 1998 were
$57,609 compared to $7,289 for the six months ended August 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.
The Company is currently negotiating with debt holders to convert its
outstanding convertible debt into Common Stock of the Company. As of August
31, 1998, approximately $225,000 of outstanding indebtedness plus accrued
interest, evidenced by the Company's 11% Convertible Subordinated Notes (the
"11% Notes") had been converted into approximately 62,600 shares of the
Company's Common Stock. Subsequent to August 31, 1998, an additional
$75,000 plus accrued interest was converted in to approximately 20,700
shares of Common Stock through October 15, 1998, and management anticipates
that an additional $75,000 plus accrued interest, of the 11% Notes will be
converted into Common Stock before November 30, 1998. The Company has not
heard whether the holders of the remaining 11% Notes outstanding,
representing an aggregate balance of $100,000 plus accrued interest, will
convert their notes into Common Stock or demand repayment.
In addition, the Company repaid $70,000 plus accrued interest during
the quarter ended August 31, 1998 pursuant to the Company's 10% Convertible
Secured Notes (the "10% Notes"). However, management anticipates that the
balance of the 10% Notes, representing an aggregate $130,000 of indebtedness
plus accrued interest, will be converted into Common Stock by November
30,1998.
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
N/A
Item 2. Changes in Securities and use of Proceeds.
N/A
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submissions of Matters to a Vote of Security Holders
N/A
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter of fiscal
1999.
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: October 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> AUG-31-1998
<CASH> 932,918
<SECURITIES> 0
<RECEIVABLES> 373,961
<ALLOWANCES> 0
<INVENTORY> 1,449,977
<CURRENT-ASSETS> 3,063,052
<PP&E> 250,828
<DEPRECIATION> 105,861
<TOTAL-ASSETS> 3,442,205
<CURRENT-LIABILITIES> 660,271
<BONDS> 0
0
0
<COMMON> 4,195
<OTHER-SE> 2,675,580
<TOTAL-LIABILITY-AND-EQUITY> 3,442,205
<SALES> 406,273
<TOTAL-REVENUES> 406,273
<CGS> 260,685
<TOTAL-COSTS> 260,685
<OTHER-EXPENSES> 768,192
<LOSS-PROVISION> (622,604)
<INTEREST-EXPENSE> 21,178
<INCOME-PRETAX> (643,782)
<INCOME-TAX> (643,782)
<INCOME-CONTINUING> (643,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (643,782)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
