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 November 30, 1998
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[ ] 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 (I.R.S. Employer
of 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, 2,136,385 shares outstanding
at January 2, 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 November 30, 1998 and February 28, 1998 3
Statements of Operations for the three and nine months ended
November 30, 1998 and November 30, 1997 5
Statements of Cash Flows for the three and nine months ended
November 30, 1998 and November 30, 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
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JD AMERICAN WORKWEAR, INC.
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
November 30, 1998 February 28, 1998
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ASSETS
Current Assets:
Cash and cash equivalents $ 497,972 $ 16,932
Accounts receivable, net of allowance 586,914 203,685
Inventories 1,514,700 1,057,784
Prepaid expenses, current portion 441,148 229,859
Loans receivable, employees 25,325 17,419
---------------------------------
Total current assets 3,066,058 1,525,679
Property and equipment, net 191,770 75,369
Intangible assets, net 57,547
Prepaid expenses, long-term 182,713
Other assets, net 8,336 15,032
---------------------------------
TOTAL ASSETS $ 3,266,163 $ 1,856,340
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Current liabilities:
Current portion of long-term debt $ 264,605 $ 868,325
Accounts payable and accrued expenses 272,063 234,412
Accrued interest on notes payable 24,631 85,958
Short-term loans 10,524 11,774
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Total current liabilities 307,218 1,200,469
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Long-term debt, net of current portion 149,525 101,830
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, 2,136,385 shares at
November 30, 1998 and 1,984,899 shares at February 28,
1998, respectively. 4,273 3,970
Additional paid-in capital 7,965,535 5,046,637
Accumulated deficit (5,406,441) (4,496,566)
---------------------------------
Total Stockholders' equity: 2,538,704 554,041
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,266,163 $ 1,856,340
=================================
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF OPERATIONS
(unaudited)
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For the Three Months ended November 30, 1998 November 30, 1997
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Revenues
Net sales $ 358,238 $ 164,093
Cost of goods sold 263,278 99,796
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Gross profit 94,960 64,297
Operating Expenses:
Payroll and payroll taxes 134,208 70,857
Selling Expenses 10,190 41,032
Consulting Expenses 61,117 88,234
Contract Labor 380 71
Depreciation and amortization 6,176 6,995
Employee benefits 7,621 9,996
Freight and delivery 18,845 7,570
Professional fees 63,052 18,304
Rent 6,055 7,950
Supplies 7,895 3,986
Telephone 6,132 3,880
Travel and Entertainment 40,659 14,495
Other 32,570 16,384
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Total operating expenses 394,900 289,755
--------------------------------
Operating loss (299,940) (225,458)
Interest income (expense), net 9,185 (37,551)
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NET LOSS $ (290,755) $ (263,009)
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Net loss per common share $ (.14) $ (.13)
================================
Weighted average number of common shares outstanding 2,125,162 1,955,000
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF OPERATIONS
(unaudited)
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For the Nine months ended November 30, 1998 November 30, 1997
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Revenues
Net sales $ 764,511 $ 476,253
Cost of goods sold 523,963 277,091
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Gross profit 240,548 199,162
Operating Expenses:
Payroll and payroll taxes 374,133 186,733
Selling Expenses 69,514 75,054
Consulting Expenses 209,691 208,944
Contract Labor 930 1,520
Depreciation and amortization 19,162 20,388
Employee benefits 26,510 20,886
Freight and delivery 48,839 20,785
Professional fees 169,451 86,499
Rent 24,330 23,200
Supplies 20,005 9,563
Telephone 16,245 11,632
Travel and Entertainment 89,843 34,632
Other 94,439 57,519
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Total operating expenses 1,163,092 757,353
--------------------------------
Operating loss (922,544) (558,191)
Interest income (expense), net (11,993) (115,577)
--------------------------------
NET LOSS $ (934,537) $ (673,759)
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Net loss per common share $ (.46) $ (.34)
================================
Weighted average number of common shares outstanding 2,047,906 1,955,000
</TABLE>
See notes to Financial Statements
JD AMERICAN WORKWEAR, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
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<CAPTION>
For the Nine months ended November 30, 1998 November 30, 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (934,537) $(410,749)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation and amortization 19,162 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 (383,229) (102,374)
(Increase) in inventories (456,916) (24,021)
(Increase) decrease in other assets (16,940) (54,268)
Increase in accounts payable 4,542 169,994
---------------------------------
Net cash (used in) operating activities (1,573,418) (120,507)
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (78,016) (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 (201,085) (70,046)
Costs of raising capital (166,442) (3,195)
Sale of common stock 285,000
---------------------------------
Net cash (used in) provided by financing activities 2,132,473 241,759
---------------------------------
NET INCREASE (DECREASE) IN CASH 481,039 1,566
Cash and cash equivalents - beginning of period 16,932 7,634
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CASH - END OF PERIOD $ 497,972 $ 9,200
=================================
</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 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 November 30, 1998 Compared to Three Months Ended
November 30, 1997. Net sales for the three month period ended November 30,
1998 increased approximately 118.3% to $358,238 from $164,093 for the three
month period ended November 30, 1997. The increase is directly attributable
to an increase in unit volume, notably to JC Penney for distribution on its
www.jcpenney.com online catalog website, to other retail stores and to the
rental service market. Cost of goods sold for the three months ended
November 30, 1998 was $263,278 compared to $99,796 for the three months
ended November 30, 1997. Gross margin for the three month period ended
November 30, 1998 decreased to 26.5% from 39.2% for the three months ended
November 30, 1997, primarily due to lower margins associated with sales to
the rental service market. The company is in the process of exploring
product design modifications, lower raw material costs and packaging and
shipping efficiencies with the goal of decreasing unit costs and increasing
gross margin in future quarters.
Operating expenses increased $36.3% to $394,900 for the three months
ended November 30, 1998 from $289,755 for the three months ended November
30, 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 and additional professional fees, as well as charges for options
and warrants issued to consultants for services. The Company earned $9,185
of interest income in excess of interest expense for the three months ended
November 30, 1998 versus net interest expense of $37,551 for the three
months ended November 30, 1997. This is a direct result of short-term
investments of cash and the reduction of long-term debt through repayments
and conversions of debt to common stock.
As a result of the increase in operating expenses not offset by the
increase in gross profits, the net loss for the three months ended November
30, 1998 was $290,755 ($.14 per share) compared to a net loss of $263,009
($.13 per share) for the three months ended November 30, 1997.
Nine months Ended November 30, 1998 Compared to Nine months Ended
November 30, 1997. Net sales for the nine month period ended November 30,
1998 increased approximately 60.5% to $764,511 from $476,253 for the nine
month period ended November 30, 1997. The increase is directly attributable
to an increase in unit volume, notably to JC Penney for distribution on its
www.jcpenney.com online catalog website, to other retail stores and to the
rental service market. Cost of goods sold for the nine months ended
November 30, 1998 was $523,963 compared to $277,091 for the nine months
ended November 30, 1997. Gross margin for the nine month period ended
November 30, 1998 was 31.5% compared to 41.8% for the nine months ended
November 30, 1997, primarily due to lower margins associated with sales to
the rental service market. The company is in the process of exploring
product design modifications, lower raw material costs and packaging and
shipping efficiencies with the goal of decreasing unit costs and increasing
gross margin.
Operating expenses increased to $1,163,092 for the nine months ended
November 30, 1998 from $757,355 for the nine months ended November 30, 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
$11,993 from $115,577 due to increases in short-term borrowings.
As a result of the increase in operating expenses not offset by the
increase in gross profits, the net loss for the nine months ended November
30, 1998 was $934,537 ($.42 per share) compared to a net loss of $673,759
($.34 per share) for the nine months ended November 30, 1997.
Liquidity and Capital Resources
Net cash used in operating activities was $1,573,418 for the nine
months ended November 30, 1998 compared to $120,507 for the nine months
ended November 30, 1997. The Company used resources to continue to build
finished goods inventory of traditional and new product lines in
anticipation of its prime selling season. Cash flows used to produce
inventory was offset partially by increases in accounts payable. Accounts
receivable increased approximately 288.1% to $586,914 from February 28, 1998
to November 30, 1998 corresponding to the increase in net sales. Inventory
increased 43.2% to $1,514,700 during the first nine months of fiscal 1999,
which the Company will use to satisfy anticipated sales demands in the
quarters ended February 28, 1999 and May 31, 1999.
Capital expenditures for the nine months ended November 30, 1998 were
$78,016 compared to $7,289 for the nine months ended November 30, 1997,
primarily due to the purchase of three trucks, additional sewing equipment
and warehouse fixtures.
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 has and will continue to 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 has reduced its long-term debt by negotiating with debt
holders to convert its outstanding convertible debt into Common Stock of the
Company. During the nine months ended November 30, 1998, approximately
$365,000 of outstanding indebtedness plus accrued interest, evidenced by the
Company's 11% Convertible Subordinated Notes (the "11% Notes") had been
converted into approximately 101,000 shares of the Company's Common Stock,
and approximately $131,000 of said notes, plus accrued interest, was repaid
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 approximately $75,000 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 nine months ended November 30, 1998 pursuant to the Company's 10%
Convertible Secured Notes (the "10% Notes"). 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
February 28, 1999.
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 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. 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
N/A
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
November 30, 1998.
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: January 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> NOV-30-1998
<CASH> 497,972
<SECURITIES> 0
<RECEIVABLES> 606,514
<ALLOWANCES> 19,600
<INVENTORY> 1,514,700
<CURRENT-ASSETS> 3,066,058
<PP&E> 266,465
<DEPRECIATION> 151,142
<TOTAL-ASSETS> 3,266,163
<CURRENT-LIABILITIES> 307,218
<BONDS> 0
0
0
<COMMON> 4,273
<OTHER-SE> 2,534,431
<TOTAL-LIABILITY-AND-EQUITY> 3,266,163
<SALES> 764,511
<TOTAL-REVENUES> 764,511
<CGS> 523,963
<TOTAL-COSTS> 523,963
<OTHER-EXPENSES> 1,163,092
<LOSS-PROVISION> 922,544
<INTEREST-EXPENSE> 11,963
<INCOME-PRETAX> (934,537)
<INCOME-TAX> 0
<INCOME-CONTINUING> (934,537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (934,537)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
