SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C., 20459
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
COMMISSION FILE # 1-06855
WORKSAFE INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1874010
(State or other jurisdiction of (Employer I.D.#)
incorporation or organization)
130 West 10th Street, Huntington Station, N.Y. 11746
(Address of principal executive offices and zip code)
(631) 427-1802
(Issuer's telephone number)
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 registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at September 31, 1999
Common Stock, par value 1,686,579
$.12 per share
PART I - FINANCIAL INFORMATION
WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1999 1999
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 33,884 $ 129,352
Accounts receivable - (less allowance
for doubtful accounts of $75,000 at
September 30, 1999, and $72,500 at
June 30, 1999) 3,450,760 3,485,813
Inventories 6,195,336 4,582,581
Other current assets 633,117 812,868
Net assets of discontinued operations 109,998 205,142
----------- -----------
Total current assets 10,423,095 9,215,756
Property, plant and equipment, net 2,103,590 2,112,886
Excess of cost over net assets acquired 397,847 403,547
Other assets 67,618 73,832
----------- -----------
Total assets $12,992,150 $11,806,021
=========== ===========
See accompanying notes.
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WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1999 1999
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $ 5,995,823 $ 5,698,642
Current maturities of long-term debt 94,334 151,411
Accounts payable 3,281,431 2,289,220
Accrued expenses and other liabilities 292,735 226,580
------------ ------------
Total current liabilities 9,664,323 8,365,853
LONG-TERM DEBT 382,099 396,447
------------ ------------
Total liabilities 10,046,422 8,762,300
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value;
authorized 1,000,000 shares;
no shares issued and outstanding
Common stock, $.12 par value;
authorized 20,000,000 shares;
issued and outstanding 1,686,579
shares 202,390 202,390
Additional paid-in capital 9,844,338 9,844,338
Accumulated deficit (7,101,000) (7,003,007)
------------ ------------
Total shareholders' equity 2,945,728 3,043,721
------------ ------------
Total liabilities
and shareholders' equity $ 12,992,150 $ 11,806,021
============ ============
See accompanying notes.
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WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,
1999 1998
(Unaudited) (Unaudited)
NET SALES $ 5,787,162 $ 5,667,936
COST OF GOODS SOLD 4,798,138 4,780,754
----------- -----------
Gross profit 989,024 887,182
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 953,315 799,537
----------- -----------
INCOME FROM OPERATIONS 35,709 87,645
OTHER INCOME, net (12,127) (12,651)
INTEREST EXPENSE 145,829 130,724
----------- -----------
LOSS FROM CONTINUING OPERATIONS (97,993) (30,428)
LOSS FROM DISCONTINUED OPERATIONS -0- (253,395)
----------- -----------
Net loss $ (97,993) $ (283,823)
=========== ===========
BASIC AND DILUTED NET LOSS PER SHARE:
Loss from continuing operations $ (.06) $ (.02)
Loss from discontinued operations -0- (.15)
----------- -----------
Net loss $ (.06) $ (.17)
=========== ===========
Weighted average number of
common shares outstanding
Basic and diluted 1,686,579 1,683,079
=========== ===========
See accompanying notes.
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WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
September 30
1999 1998
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (97,993) $ (30,428)
Adjustment to reconcile net loss from
continuing operations to net cash (used
in) provided by operating activities:
Depreciation and amortization 75,200 60,922
Provision for losses on accounts receivable 216 600
Net changes in assets and liabilities:
Accounts receivable 34,837 102,784
Inventories (1,612,755) 517,828
Other current assets 179,751 88,784
Other assets 6,214 9,367
Accounts payable 992,211 (475,630)
Accrued expenses and other liabilities 66,155 (68,508)
----------- -----------
Net cash (used in) provided by
operating activities (356,164) 205,719
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (60,204) (28,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (71,425) (69,102)
Borrowings under line of credit agreement 6,481,886 8,392,395
Repayments under line of credit agreement (6,184,705) (8,554,983)
----------- -----------
Net cash provided by (used in) financing
activities 225,756 (231,690)
----------- -----------
Net cash used in continuing operations (190,612) (54,371)
Net cash provided by (used in)
discontinued operations 95,144 (110,359)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (95,468) (164,730)
CASH AND CASH EQUIVALENTS, beginning of period 129,352 223,125
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 33,884 $ 58,395
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 150,483 $ 151,223
=========== ===========
Income taxes $ 1,405 $ 5,680
=========== ===========
See accompanying notes.
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WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements of Worksafe Industries Inc. and subsidiaries ("Worksafe")
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the consolidated balance sheet as of September 30, 1999 and
the related statements of operations and cash flows for the three months ended
September 30, 1999 and 1998.
The results of operations for the three months ended September 30, 1999 and 1998
are not necessarily indicative of the results for the entire year.
The summarized financial information does not include all disclosures required
to be included in a complete set of financial statements prepared in conformity
with generally accepted accounting principles. Such disclosures were included
with the consolidated financial statements of Worksafe at June 30, 1999, and
included in its annual report on Form 10-K. Such statements should be read in
conjunction with the data herein.
2. Inventories
September 30, June 30,
1999 1999
Raw material $2,036,500 $1,571,734
Work-in-process 750,069 1,040,826
Finished goods 3,408,767 1,970,021
---------- ----------
Total $6,195,336 $4,582,581
========== ==========
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3. Litigation
Worksafe is a party to various asbestos lawsuits alleging damages from exposure
to asbestos products previously sold by Worksafe. Refer to Part II, Other
Information, Item I "Legal Proceedings" in this form 10-Q as well as Note 11 to
the June 30, 1999, Audited Consolidated Financial Statements regarding the
asbestos litigation.
4. Net Loss Per Share
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share", basic earnings per common share amounts were computed by
dividing net earnings by the weighted average number of common shares
outstanding, excluding any potential dilution. Diluted earnings per common share
amounts are computed by reflecting potential dilution from the exercise of stock
options. As there were no dilutive securities for the quarters ended September
30, 1999 or 1998, no reconciliation is presented herein.
5. Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" requires companies to report all
changes in equity during a period, except those resulting from investment by
owners and distributions to owners, in a financial statement for the period in
which they are recognized. Comprehensive income is the total of net income and
all non-owner changes in equity (or other comprehensive income). Comprehensive
income must be reported on the face of the annual financial statements or in the
case of interim reporting, in the footnotes to the financial statements. For the
quarters ended September 30, 1999 and 1998, Worksafe's operations did not give
rise to items included in comprehensive income which were not already included
in net income. Therefore, Worksafe's comprehensive income is the same as its net
income for all periods presented.
6. Discontinued Operations
During fiscal 1999, Worksafe sold certain assets (including inventory and
certain fixed assets) of its distribution division to Arbill Industries, Inc.
("Arbill"). As a result of this transaction, the operating results of this
division have been classified as discontinued operations, with the prior year
restated.
Summarized financial information for the discontinued operation is as follows:
Three Months Ended
September 30,
1999 1998
Net Sales -- $2,332,327
Cost of Sales -- 1,933,964
Gross Profit -- 398,363
Expenses -- 651,758
Net Loss -- $ (253,395)
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WORKSAFE INDUSTRIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Risks and Other Consideration
From time to time, information provided by Worksafe or statements made by its
employees, or information provided in its filings with the Securities and
Exchange Commission may contain forward-looking information. Any statements may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "expects", "anticipates", "plans" and similar expressions are
intended to identify forward-looking statements. Worksafe's actual future
results may differ materially from those projections or statements made in such
forward-looking information as a result of various risks and uncertainties,
including, but not limited to, the following:
Worksafe, since its fiscal year ended June 30, 1991 with the exception of fiscal
years 1996 and 1995, has had a history of significant losses. There can be no
assurances that Worksafe will be profitable or will not incur losses in the
future.
Worksafe is dependent upon its revolving line of credit with Congress Financial
Corporation ("Congress"). In the event that Worksafe is unable to comply with
its obligations to Congress, Worksafe's indebtedness could be declared
immediately due and payable and in certain cases Worksafe's assets could be
foreclosed upon. There can be no assurances that there will be other sources of
financing for Worksafe, if required.
Worksafe is a party to numerous cases with respect to asbestos litigation and
additional asbestos actions which continue to be brought against it. To date,
Worksafe believes that its insurance coverage has been adequate for those
actions previously terminated, but there can be no assurances that such coverage
will continue to be adequate in the future. There can be no assurances that
asbestos litigation will not have an adverse affect upon Worksafe. See Item 1 of
Part II of this Form 10-Q.
Worksafe has competitors that have greater financial, management, sales and
technical resources than Worksafe. Worksafe's success also depends to a
significant degree on the contributions of its key management. The loss of
services of one or more key members of management could have an adverse affect
upon Worksafe. Worksafe is also dependent upon Dupont which supplies Worksafe
with Tyvek (R) which is used for various lines of Worksafe's limited-use
products. Management believes that its current relationship with Dupont is
satisfactory. Worksafe is a party to a Garment Manufacturer & Seller License
Agreement with Dupont, pursuant to which Dupont provides Worksafe with
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nonwoven fabric under its trademark. This agreement, subject to its terms,
continues in effect until January 31, 2000. Management expects that based upon
its past relationship with Dupont, although there can be no assurances, that
this agreement will be extended. Loss of Dupont as a supplier of Tyvek (R) would
have a material adverse effect on Worksafe's operations. Worksafe is also
required to maintain substantial inventory for its customers who require
products on short notice. There can be no assurances that Worksafe will be able
to maintain sufficient inventory or that Worksafe will not return to periods
where there is not sufficient working capital to maintain its inventory to meet
the needs of its customers.
Worksafe also enjoys the benefits of various tax incentives with respect to its
operations in Puerto Rico. As Puerto Rico's tax exemptions are reduced or
expire, Worksafe may be required to pay taxes on income earned in Puerto Rico.
Worksafe is unable to predict the amount of such impact after such exemptions
are reduced or expire.
Due to the foregoing, the market price of Worksafe's Common Stock may be
volatile at times in response to fluctuations of Worksafe's operating results,
changes in analyst earnings estimate, market conditions as well as general
conditions and other factors general to Worksafe.
Continuing Operations
Worksafe's continuing operations now consist entirely of its manufacturing
segment which produces limited-use and reusable industrial apparel and
protective knit gloves. Worksafe maintains facilities for warehousing and
production in Puerto Rico, Alabama, Mexico (a contractor), Texas, California,
Louisiana and Minnesota.
The accompanying financial statements have been restated to reflect the former
distribution division as a discontinued operation and Management's Discussion
and Analysis addresses only the continuing operations.
Results of Operations
Net sales for the three months ended September 30, 1999 were $5,787,000 as
compared to $5,668,000 for the three months ended September 30, 1998, an
increase of 2.1%. This increase was due to increased levels of available
inventory and additional sales of more profitable items sold along with core
products.
Worksafe's gross margin increased to 17.1% for the first quarter of fiscal 2000
from 15.7% for the same quarter in fiscal 1999. This increase is also due to the
increased production levels in Mexico at lower costs for products previously
produced in Alabama and Puerto Rico.
Selling, general and administrative expenses for the quarter ended September 30,
1999 were $953,000 (or 16.5% of sales) as compared to $800,000 (or 14.1% of
sales) for the same period in the prior year. This increase, both in amount and
as a percentage of sales, was due to increased freight rates which took effect
in January 1999, increased advertising programs and increased commissions and
salaries during the period.
Interest expense was $146,000 for the first quarter of fiscal 2000, an increase
of $15,000 when compared to the same quarter of fiscal 1999. This increase was
principally due to higher average borrowings from Congress
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Financial Corporation.
Liquidity and Capital Resource
Worksafe had working capital inclusive of net assets from discontinued
operations as of September 30, 1999 of $759,000 as compared to $850,000 as of
June 30, 1999. A substantial portion of Worksafe's working capital consists of
inventory, which was $6,195,000 and $4,583,000 as of September 30, 1999 and June
30, 1999, respectively. The increase in inventory at September 30, 1999 was
needed to meet the demands of Worksafe's customers for continuing sales growth
opportunities. Worksafe believes that its current working capital position will
be sufficient to satisfy its needs for the next twelve months.
The amounts outstanding under Worksafe's loan agreement with Congress Financial
Corporation at September 30 and June 30, 1999, were $5,996,000 and $5,699,000,
respectively. As of September 30, 1999, the Company had $29,000 available,
including additional borrowings of $175,000 allowed until December 31, 1999,
based on its formula with Congress.
Net cash used in operating activities was principally a result of an increase in
inventories, which was partially offset by an increase in accounts payable and a
decrease in other current assets. Cash flows used in investing activities was
for the purchase of property, plant and equipment. Cash flows provided by
financing activities were principally from Worksafe's loan agreement with
Congress Financial Corporation.
At the present time, Worksafe, together with a variety of defendants, is party
to various asbestos-related lawsuits involving a number of plaintiffs alleging
damages from exposure to asbestos products previously sold. Worksafe may become
a party to additional asbestos-related actions in the future. Worksafe is also
party to other non-asbestos-related litigation. Worksafe cannot, at this time,
determine the outcome of this uncertainty. To date, Worksafe's insurance
coverage has been adequate and Worksafe's costs relative to asbestos litigation
against it has not been material.
Year 2000
The Year 2000 issue results from the inability of some computer programs to
identify the year 2000 properly, potentially leading to errors or system
failure. A company's business may be adversely affected if it, or any of its
suppliers, customers or other third parties with whom it transacts business
(including banks and governmental agencies), have not resolved the Year 2000
issue in a timely manner.
Worksafe's internal computing systems are primarily limited to hardware and
software for its financial systems, such as general ledger, accounts receivable
and accounts payable systems, and word processing. Worksafe believes that it
could replace any of its software or systems, if necessary, quickly and at a
reasonable expense.
Worksafe has completed its internal review with respect to Year 2000 issues.
Worksafe does not believe Year 2000 issues, within its internal information
systems, will have a material adverse effect on the Company's business,
financial condition or results of operations. Worksafe believes that its
internal computer systems used are currently Year 2000 compliant.
Worksafe has completed its review of the Year 2000 readiness of its customers
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and vendors and believes, based upon such review, that such parties should not
cause a material disruption in the Company's business due to Year 2000 issues.
To date, the cost of the Company's Year 2000 assessment and compliance efforts
has not been material to Worksafe's results of operations or liquidity. The
Company is not aware, at this time, of any Year 2000 non-compliance that will
materially affect the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the quarter ended September 30, 1999 approximately 872 asbestos actions
involving approximately 2015 plaintiffs were instituted against Worksafe and
Puerto Rico Safety Equipment Corporation. The actions are all pending in the
Supreme Court of the State of New York within the City of New York and involve a
multitude of defendants. They are either actions, pursuant to standard
complaints, for personal injury or wrongful death setting forth a number of
causes of action in amounts of up to $10,000,000 for compensatory damages and
$10,000,000 for punitive damages. All of the foregoing actions have been
submitted to Worksafe's and Puerto Rico Safety Equipment Corporation's insurance
carriers for defense. A schedule of these cases is annexed hereto as Exhibit
99.13. Reference is also made to Item 3 of Worksafe's Form 10-K for June 30,
1999 regarding asbestos actions against Worksafe and its insurance coverage.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
99.13 Schedule of asbestos actions filed against the Company and Puerto
Rico Safety Equipment Corporation during the quarter ended
September 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 15, 1999
WORKSAFE INDUSTRIES INC.
By: /s/ LAWRENCE DENSEN
-------------------
LAWRENCE DENSEN, PRESIDENT
& CHIEF EXECUTIVE OFFICER
By: /s/ ARTHUR J. WASSERSPRING
--------------------------
ARTHUR J. WASSERSPRING,
VICE PRESIDENT OF FINANCE/
CHIEF FINANCIAL OFFICER
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