UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE OF 1934 For the quarterly period ended April 30, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-17899 FRENCHTEX, INC. (Exact name of small Business issuer as specified in this charter) FLORIDA 65-0007008 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 8940 S.W. 129th Terrace, Miami, FL 33176 (Address of principal executive offices) Issuer's telephone number, including area code: (305) 255-4300 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO There were 3,126,000 shares of the registrant's Common Stock, $.01 par value, outstanding as of June 9, 1995 FRENCHTEX, INC. CONTENTS PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS PAGE BALANCE SHEET 1 STATEMENTS OF OPERATIONS 2 STATEMENTS OF CASH FLOW 3 NOTES TO FINANCIAL STATEMENTS 4 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS 5 & 6 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 7 SIGNATURES 8 FRENCHTEX, INC. BALANCE SHEET APRIL 30, 1995 (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 76,656 Accounts receivable - trade, net of allowance for returns and doubtful accounts of $45,000 892,075 Inventories 1,274,069 Other current assets 312,483 TOTAL CURRENT ASSETS 2,555,283 PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation of $114,646 11,252 OTHER ASSETS 13,519 TOTAL ASSETS $ 2,580,054 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 1,041,000 Current maturities of long-term debt 17,714 Accounts payable 392,892 Accrued expenses 24,266 TOTAL CURRENT LIABILITIES 1,475,872 LONG-TERM DEBT 232,875 SHAREHOLDERS' EQUITY Common stock, $.01 par value; 10,000,000 shares authorized, 3,186,000 issued 31,860 Additional paid-in capital 743,048 Retained earnings since August 1, 1994, net of deficit eliminated of $7,394,411 (Note 2) 246,399 1,021,307 Less cost of 60,000 common shares in treasury 150,000 TOTAL SHAREHOLDERS' EQUITY 871,307 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,580,054 See Accompanying Notes PAGE 1 FRENCHTEX, INC. STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Nine Months Ended April 30, April 30, 1995 1994 1995 1994 NET SALES $1,200,112 $1,092,030 $3,509,769 $ 2,522,719 COSTS AND OPERATING EXPENSES Cost of sales 893,421 890,587 2,577,559 2,007,997 Selling, general and administrative 239,789 183,119 630,818 496,571 TOTAL COSTS AND OPERATING EXPENSES 1,133,210 1,073,706 3,208,377 2,504,568 INCOME FROM OPERATIONS 66,902 18,324 301,392 18,151 OTHER INCOME (EXPENSE) Interest income - 480 756 1,524 Interest expense (25,943) (6,900) (55,748) (17,305) TOTAL OTHER (EXPENSE) (25,943) (6,420) (54,993) (15,781) NET INCOME $ 40,959 $ 11,904 $ 246,399 $ 2,370 EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: NET INCOME $ .013 $ .004 $ .079 $ .001 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,126,000 3,057,111 3,126,000 3,057,111 SEE ACCOMPANYING NOTES PAGE 2 FRENCHTEX, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED April 30, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 246,399 $ 2,370 Adjustments to reconcile net income to net cash used for operating activities: Depreciation and amortization 13,972 22,466 Provision for doubtful accounts 15,000 (5,020) Gain on the sale of property - (1,406) Changes in assets and liabilities: (Increase) decrease in assets Accounts receivable (487,105) (351,527) Inventories (985,145) 47,743 Vendor deposits for inventory purchases (162,138) (124,776) Other assets (1,553) (2,636) Increase (decrease) in liabilities Accounts payable 368,571 111,438 Accrued expenses (33,068) 17,305 Total adjustments (1,271,466) (286,413) NET CASH USED FOR OPERATING ACTIVITIES (1,025,067) (284,043) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (3,056) (13,498) Proceeds from sale of property and equip. - 3,000 Proceeds from short-term borrowings 575,000 67,000 NET CASH PROVIDED BY INVESTING ACTIVITIES 571,944 56,502 CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in notes payable (5,811) 256,400 Dividends paid - (34,840) NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (5,811) 221,560 NET DECREASE IN CASH AND CASH EQUIVALENTS (458,934) (5,981) CASH AND CASH EQUIVALENTS, Begining of period 535,590 102,322 CASH AND CASH EQUIVALENTS, End of period $ 76,656 $ 96,341 Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 52,555 $ - See Accompanying Page PAGE 3 FRENCHTEX, INC. NOTES TO FINANCIAL STATEMENTS FORM 10-QSB APRIL 30, 1995 Note 1 - Basis of Presentation: The accompanying unaudited financial statements reflect all adjustments which are, in the opinion of management, consisting of normal recurring adjustments necessary to present fairly the financial condition, the results of operations and the changes in cash flows of the Company for the interim periods. These financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all of the disclosures normally required by generally accepted accounting principles or those normally made in the Company's annual Form 10-K filing. Users of the financial information for interim periods are encouraged to refer to the footnotes contained in the Annual Report to stockholders for the year ended July 31, 1993. Note 2 - Inventories: Inventories are stated at the lower of cost or market, cost being determined by the first-in, first-out basis. Note 3 - Long-term Debt On July 23, 1993, the Company received approval on a loan for the physical loss of inventory and other damages sustained in Hurricane Andrew in the amount of $256,400 from the U.S. Small Business Administration (SBA). The loan bears interest at 4%, is payable in monthly installments of $2,477, including principal and interest, beginning July 1994 and matures in July 2005. It is collateralized by the Company's inventory and fixed assets. The Company received $175,600 in advances prior to the end of the second quarter and $80,800 in February 1994. PAGE 4 ITEM 2. Management's Discussion and Analysis of Operations. Product sales in the third quarter ended April 30, 1995 are $1,200,112 as compared to 1,092,030 in the same quarter of the prior year and for the nine month period are $3,509,769 as compared to $2,522,719 in the same period last year. This increase in sales of $108,082 (10%) and $987,050 (39%), respectively, is primarily due to the Company's expanded product line of terry robes and towels resulting in new programs with new and existing customers. Selling, general and administrative expenses for the third quarter are $239,789 in 1995, as compared to $183,119 in the same quarter of the prior year and for the nine month period are $630,818 in 1995 as compared to $496,571 in the same period of the prior year. The increase in expenses of $56,670 (31%) and $134,247 (27%), respectively, in 1995 is related to the increase in sales volume, resulting in an increase in commissions to independent sales representatives, warehouse supplies and temporary labor. The third quarter increase is also due to the one time advertising allowance to various customers of approximately $12,000 and a nonrecurring expense of $21,000 for payment of an invoice for merchandise that was being disputed by the Company. Interest expense for the third quarter of 1995 is $25,943 as compared to $6,900 in the same quarter of the prior year and for the nine months period is $55,748 in 1995 as compared to $17,305 in the same period of the prior year. This increase is primarily due to the increase in notes payable to related parties which were funded during and after the second quarter of 1994. Net income for the third quarter ended April 30, 1995 increased to $40,959 or $.013 per share from a net income of $11,904 or $.004 per share in the same quarter of the prior year. Net income for the nine month period increased to $246,399 or $.079 per share from a net income of $2,370 or ($.001) per share. Page 5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION Net cash used in operations for the nine months period ended April 30, 1995 was $1,025,067 as compared to $284,615 in the same period in 1994. The increase is primarily due to increase in inventory of $985,145 as compared to a decrease of $47,743 in the same period of the prior year. The cash used in operations was offset by an increase in short-term borrowing from related parties of $575,000 during the first nine months of 1995. Page 6 PART II - OTHER INFORMATION ITEM 6 : EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K: None PAGE 7 SIGNATURE 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. FRENCHTEX, INC. (Registrant) JUNE 9, 1995 By: Don M. Waters Date Don M. Waters, President Chief Executive Officer