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, 1999
------------
[X] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 33-98682
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JD AMERICAN WORKWEAR, INC.
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(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
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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, 2,295,835 shares
outstanding at June 30, 1999
Transitional Small Business Disclosure Format (check one)
Yes No X
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JD AMERICAN WORKWEAR, INC.
INDEX TO FORM 10-QSB
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of May 31, 1999 and February 28, 1999 3
Statements of Operations for the three months ended May 31, 1999 and
May 31, 1998 5
Statements of Cash Flows for the three months ended May 31, 1999 and
May 31, 1998 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 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submissions of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
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JD AMERICAN WORKWEAR, INC.
BALANCE SHEETS
(unaudited)
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<CAPTION>
May 31, 1999 February 28, 1999
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 19,660 $ 174,472
Accounts receivable, net of allowance 467,723 751,397
Inventories 1,401,683 1,267,628
Prepaid expenses, current portion 141,819 181,149
Loans receivable, employees 384 20,193
-------------------------------
Total current assets 2,031,269 2,394,839
Property and equipment, net 262,307 269,323
Intangible assets, net 63,080 61,341
Prepaid expenses, long-term 154,540 154,540
Other assets, net 3,203 4,998
-------------------------------
TOTAL ASSETS $ 2,514,399 $ 2,885,041
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Current portion of long-term debt $ 306,674 $ 306,674
Accounts payable and accrued expenses 227,751 284,900
Accrued interest on notes payable 30,367 30,366
-------------------------------
Total current liabilities 564,792 621,940
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Long-term debt, net of current portion 178,002 205,756
-------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, authorized 1,000,000 shares:
Series A, $.001 par value 267 shares and
299 shares at May 31, 1999 and February 28,
1999, respectively., (liquidating
preference $782,500) -
Series B, $.001 par value 2,500 shares issued
and Outstanding, (liquidating preference
$2,500,000) 3 3
Common stock, $.002 par value; authorized ,
7,500,000 shares; issued and outstanding,
2,295,835 shares and 2,248,241 shares at May
31, 1999 and February 28, 1999, respectively. 4,592 4,496
Additional paid-in capital 5,060,668 5,046,177
Detachable warrant 3,196,000 3,196,000
Accumulated deficit (6,489,655) (6,189,331)
-------------------------------
Total Stockholders' equity: 1,771,605 2,057,345
-------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,514,399 $ 2,885,041
===============================
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF OPERATIONS
(unaudited)
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<CAPTION>
For the Three Months ended May 31, 1999 May 31, 1998
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Revenues
Net sales $ 105,465 $ 141,654
Cost of goods sold 80,421 91,497
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Gross profit 25,043 50,156
Operating Expenses:
Payroll and payroll taxes 151,632 101,931
Selling Expenses 10,666 22,253
Consulting Expenses 44,014 68,155
Contract Labor 7,317 300
Depreciation and amortization 9,351 6,810
Employee benefits 14,805 8,488
Freight and delivery 29,560 12,936
Professional fees 11,781 75,438
Rent 1,370 7,470
Supplies 3,717 2,689
Telephone 4,743 5,041
Travel and Entertainment 14,755 10,870
Other 0 27,355
---------------------------
Total operating expenses 322,547 349,737
---------------------------
Operating loss (297,504) (299,580)
Interest income (expense) (2,820) (28,348)
---------------------------
NET LOSS $ (300,324) $ (327,928)
===========================
Net loss per common share $ (.13) $ (.17)
===========================
Weighted average number of common shares outstanding 2,254,773 1,984,898
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Three months ended May 31, 1999 May 31, 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (300,324) $ (327,928)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization 9,351 6,176
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 283,675 (58,076)
(Increase) in inventories (134,055) (179,346)
(Increase) decrease in other assets 60,933 76,725
Increase in accounts payable (57,148) 5,090
----------------------------
Net cash (used in) operating activities (137,568) (477,359)
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,074) (3,839)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal advances on notes payable and long-
term debt - -
Sale of preferred stock - 2,500,000
Repayments on notes payable and long-term debt (13,170) (14,301)
Costs of raising capital - (166,442)
Sale of common stock - -
----------------------------
Net cash (used in) provided by financing
activities (13,170) 2,319,257
----------------------------
NET INCREASE (DECREASE) IN CASH (154,812) 1,838,059
Cash and cash equivalents - beginning of period 174,472 16,932
----------------------------
CASH - END OF PERIOD $ 19,660 $ 1,854,991
============================
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
Notes to Financial Statements
Note 1 - The Company
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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 will be required to sustain operations through February, 28, 2000.
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, 1999. 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, 2000.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Since its inception, the Company has been involved in the design and
development of its products, the development of its relationships with its
suppliers and manufacturing contractors and the marketing of its products
through various distribution channels. First commercial shipments of JD
Safety Work Jeans were made in September 1992. First commercial shipments
of an early version of JD Safety Uniform Pants were made during 1994.
Following the Company's initial public offering in January 1995, the Company
significantly increased its expenditures for inventory, salaries, advertising
and marketing expenditures and other costs to increase its level of
production. In March 1995, relatively small quantities of a later version
of JD Safety Uniform Pants were sold, and this version became the working
prototype for the JD Safety Uniform Pants currently manufactured by the
Company. The Company experienced during fiscal 1999 and 1998, and expects
that it will continue to experience during all or a portion of fiscal 2000,
substantial fluctuations in production volume, order receipt and shipments
due to overall product demand, inventory levels, working capital
availability and ordering and payment patterns of new and existing
customers.
The Company's losses to date have principally been the result of
product design, testing and development expenses, marketing expenses, initial
production and administrative costs and professional fees. In addition, the
Company incurred higher than expected costs of goods sold because of the low
level of production (and commensurately low volume of raw materials
purchases), a higher proportion of sample goods to goods available for sale,
and the initial sewing and cutting of garments at prices significantly higher
than are now available to the Company.
The Company's business has been subject to seasonal trends based upon
climate, because highly durable denim in JD Safety Work Jeans is heavier (and
consequently warmer) than the materials used in conventional work jeans.
Sales volume for JD Safety Work Jeans is higher during the fall and winter
seasons and declines to lower levels during the spring and summer seasons.
Sales of JD Safety Uniform Pants and the conventional workwear now offered by
the Company are less sensitive to the seasonal trends which affect JD Safety
Work Jeans. As the Company's revenue mix has shifted to include greater
uniform sales volume, overall seasonality has reduced.
Historically, the Company used a team of independent sales
representatives, regional sales directors, and sales agents to generate
sales. The Company established a representative network based principally
upon industry grouping of the account types which the representative may
solicit. During the fiscal year ended February 1999, the Company shifted
focus and added three full-time, in-house salaried executives to its sales
force. These sales executives have brought a variety of sales and
marketing experience to the Company, and have enabled the Company to target
traditional and new markets for the Company's products.
For the reasons stated above, the Company believes that its results of
operations for the three month periods ended May 31, 1999 and 1998 are not
necessarily indicative of the Company's future results of operations.
Three Months Ended May 31, 1999 Compared to Three Months Ended May
31, 1998. Net sales for the three month period ended May 31, 1999
decreased approximately 25.5% to $105,465 from $141,654 for the three
month period ended May 31, 1998. The increase is directly attributable to
an decrease in unit volume. Cost of goods sold for the three months ended
May 31, 1999 was $80,421 compared to $91,497 for the three months ended May
31, 1998. Gross margin for the three month period ended May 31, 1999 was
23.7% compared to 35.4% for the three months ended May 31, 1998. The
decrease in gross profit percentage is primarily due to a shift from direct
marketing and sales to higher volume retailers, catalog merchants and rental
customers, all of whom are resellers rather than consumers of these products.
Operating expenses decreased to $322,547 for the three months ended
May 31, 1999 from $349,737 for the three months ended May 31, 1998. An
increase in payroll was offset by decreases in consulting expenses,
professional fees and advertising and promotional costs. Interest expense
decreased to $2,820 from $28,348 following the reduction in long-term debt
over the past several months.
The net loss for the three months ended May 31, 1999 was $300,324
($.13 per share) compared to a net loss of $327,928 ($.17 per share) for
the three months ended May 31, 1998.
Liquidity and Capital Resources
Net cash used in operating activities was $137,568 for the three
months ended May 31, 1999 compared to $477,359 for the three months ended
May 31, 1998. The Company used resources to continue to build finished
goods inventory in anticipation of its fall selling season. Cash flows
used to produce inventory was offset partially by significant reductions in
accounts receivable reflecting collections of receivables from sales made
in the third and forth quarters of fiscal 1999. Accounts receivable
decreased approximately 37.7% to $467,723 from February 28 to May 31, 1999.
Inventory increased to $1,401,683 during the same three month period.
Capital expenditures for the three months ended May 31, 1999 were
$4,074 compared to $3,839 for the three months ended May 31, 1999.
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.
Cash flow from operations and the investment by ULLICO provided 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
provide for working capital needs and principal payments on long-term debt
during fiscal 2000 and to meet its business strategy of achieving
significant market penetration of its JD workwear products. 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. As a result of the expansion of inventory in
contemplation of sales to union workers as well as the increase in
receivables generated through increased sales, the Company has and
continues to experience cash flow shortages. The Company's inability to
timely pay vendors and service providers as a result of a cash flow
shortage will adversely affect the Company's operations. There can be no
assurance that financing will be available to the Company on acceptable
terms, if at all.
Inflation is not expected to have a major impact on the Company's
operations.
Year 2000 Issue
General. The Year 2000 issue arises because many computer programs
use two digits rather than four to define the applicable year. Using two
digits could result in system failure or miscalculations that cause
disruptions of operations. In addition to computer systems, any equipment
with embedded technology that involves date sensitive functions is at risk
if two digits have been used rather than four. The Board of Directors has
instructed the Company's Chief Financial Officer to oversee the Company's
Year 2000 readiness project. The project is composed of the following
stages: 1) assessment of the problem, 2) developing a plan of action, 3)
remediation activities and 4) compliance testing.
State of Readiness. The Company is in the process of inventorying
and making an assessment of its information and non-information technology
systems (such as telephone and alarm systems), and expects to complete such
assessment by the end of June 1999. A plan of corrective action using both
internal and external resources to enhance or replace the systems for Year
2000 compliance will be implemented during the Summer 1999. Internal
resources consist of permanent employees of the Company, where as external
resources will be composed of contract programming personnel that are
directed by the Company's management. The Company is in the process of
contacting the appropriate customers, vendors, banks and service providers
to determine their Year 2000 compliance. Remediation for critical systems
is expected by the end of Summer 1999. The testing stage for critical
systems within the entire Company is planned for early Fall 1999.
Costs. The Company has incurred approximately $12,000 in expenses in
updating its management information system to alleviate potential Year 2000
problems, and expects to incur an additional $25,000 prior to the end of
fiscal year 2000. These expenditures represent personnel costs related to
software remediation of major impact systems. The Company had previously
initiated a hardware upgrade plan for desktop computers that was
independent of the Year 2000 issue, and, therefore, most hardware upgrades
were completed under this plan.
Risks. The Company does not anticipate that the costs of its Year
2000 issues or the risks to the Company which might arise from the Year
2000 problem are likely to be material. If the Company's desktop software
applications are not compliant, employees will not be able to use such
applications. If the Company's customers are not Year 2000 compliant, the
Company risks not being paid on time, and if its suppliers, vendors, banks,
service providers and internal voice and data systems are not compliant,
the Company risks not being able to timely service its customers. However,
the Company does not have control over third parties, and as a result,
cannot currently estimate to what extent future operating results may be
adversely affected by the failure of third parties to successfully address
their Year 2000 issues. If the Company's plans to address the Year 2000
issue are not successfully or timely implemented, the Company may need to
devote more resources to the process and additional costs may be incurred,
which could have a material adverse effect on the Company's financial
condition, liquidity and results of operations. There can be no
assurance that the Company's assessment of the impact of Year 2000 is
complete and that further analysis and study, as well as the testing and
implementation of planned solutions, will not reveal the need for
additional remedial work. The Company is potentially vulnerable to
mistakes made by key suppliers of products and services in their advice to
the Company with respect to their Year 2000 readiness. The Company is also
potentially vulnerable to operational difficulties in the Company's
corporate offices, including the risk of power outages, banking delays and
the potential failure of credit card and check authorization systems. The
financial magnitude of these risks cannot currently be estimated.
Worst Case Scenario. The Y2K problem may result in the Company's own
or other third-party computers shutting down or performing incorrect
computations. If uncorrected, the Year 2000 problem could adversely
impact: (a) the reliability of the company's internal information
management systems, such as accounting systems, e-mail and desktop
computers, (b) the physical operation of systems used by the Company which
have embedded technology, such as telephone systems, utility services,
security systems and other physical office infrastructure, (c) the
Company's ability to interface with third parties, such as delivering
products to or receiving payments from customers or obtaining products from
vendors on a timely basis. It is not presently possible to describe a
reasonably likely "worst case Year 2000 scenario" without making numerous
assumptions. The Company presently believes that a most likely worst case
scenario would make it necessary for the Company to replace some suppliers
or contractors, rearrange some work plans, and delay routinely performed
management, administrative, operational and financial activities.
Assuming this worst case scenario is correct, the Company believes that
such circumstances could have a materially adverse effect on its financial
condition or results of operations.
Contingency Plans. The Company currently does not have contingency
plans in place in the event that it does not complete all of its Year 2000
remediation, some of its systems are not Year 2000 compliant or some of its
major customers, vendors, banks or service providers are not Year 2000
compliant. However, it expects to have completed sufficient compliance
work by the end of the Summer 1999 and to have sufficient time to identify
those areas for which contingency plans will be necessary, and it will
create those contingency plans as necessary at that time. Contingency
plans may include backup manual bookkeeping and accounting procedures,
shifting production to Y2K compliant vendors and inventory buildup by the
Company prior to December 31, 1999. Any additional inventory buildup by
the Company could generate unfavorable cash flows and inventory valuation
exposures of uncertain amount and duration. Any future contingency plan
will be based on its best estimates of numerous factors, which, in turn,
will be derived by relying on numerous assumptions about future events.
However, there can be no assurance that these assumptions or estimates will
have been correctly made, that the Company will have anticipated all
relevant factors or that there will not be increased costs associated with
the Company's Year 2000 problems. Additionally, there can be no assurance
that any contingency plans implemented by the Company would be adequate to
meet the Company's needs without materially impacting its operations, that
any such plan would be successful or that the Company's results of
operations would not be materially and adversely affected by the delays and
inefficiencies inherent in conducting operations in an alternative manner.
The foregoing statements as to the Company's Year 2000 efforts are
forward looking and, along with all other forward-looking statements
herein, are made in reliance on the safe harbor provisions of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 regarding events, conditions and financial trends that may affect the
Company's future plans of operations, business strategy, operating results
and financial position. Current stockholders and prospective investors are
cautioned that any forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties and that actual
results may differ materially from those included within the forward-looking
statements as a result of various factors.
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
During the quarter covered by this report, an annual meeting of stockholders
of the Company was held on March 5, 1999, the results of which are as
follows:
Proposal No. 1, electing all of the following nominees as Directors of the
Company:
David N. DeBaene
Elizabeth Cotter
Thomas A. Lisi
Dean M. Denuccio
Steev Panneton
Anthony P. Santucci
Herbert Canapary
As to the Common Stock:
For: 978,132
Against: 0
Withhold authority: 0
As to the Series A Preferred Stock:
For: 136,000
Against: 0
Withhold authority: 0
As to the Series B Preferred Stock:
For: 1,000,000
Against: 0
Withhold authority: 0
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
16.1 Letter of BDO Seidman, LLP As filed with the Registrant's N/A
dated April 14, 1999 Form 8-K /A on April 19, 1999
(b) Reports on Form 8-K
During the quarter covered by this report, the Registrant filed the
following Form 8-K:
On April 9, 1999, the Registrant filed a Form 8-K reporting the
following information:
ITEM 4. CHANGES IN REGISTRANT'S CERTIFIED PUBLIC ACCOUNTANT
On April 5, 1999, JD American Workwear, Inc. (the "Registrant")
dismissed BDO Seidman, LLP as the principal independent
accountants for the Registrant. On April 5, 1999, the Registrant
engaged the auditing firm of Bederson & Company, LLP to audit the
Registrant's financial statements for the fiscal year ended
February 28, 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: July 20, 1999
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-END> MAY-31-1999
<CASH> 19,660
<SECURITIES> 0
<RECEIVABLES> 519,923
<ALLOWANCES> 52,200
<INVENTORY> 1,401,683
<CURRENT-ASSETS> 2,031,269
<PP&E> 426,655
<DEPRECIATION> 164,348
<TOTAL-ASSETS> 2,514,399
<CURRENT-LIABILITIES> 564,792
<BONDS> 0
0
3
<COMMON> 4,592
<OTHER-SE> 2,509,804
<TOTAL-LIABILITY-AND-EQUITY> 2,514,399
<SALES> 105,465
<TOTAL-REVENUES> 105,465
<CGS> 80,421
<TOTAL-COSTS> 80,421
<OTHER-EXPENSES> 322,547
<LOSS-PROVISION> (297,504)
<INTEREST-EXPENSE> (2,820)
<INCOME-PRETAX> (300,324)
<INCOME-TAX> (300,324)
<INCOME-CONTINUING> (300,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (300,324)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
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