<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------
FORM 10-Q
(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, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ________ TO ______
COMMISSION FILE NO. 1-7848
LAZARE KAPLAN INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2728690
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
529 FIFTH AVENUE, NEW YORK, NY 10017
(Address of principal executive offices) (Zip Code)
(212) 972-9700
(Registrant's telephone number, including area code)
--------------------------------------------------------------
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
--- ---
As of September 30, 1999, 8,251,073 shares of the registrant's common
stock were outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
(Unaudited)
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 69,742 $ 68,844
Cost of sales 63,250 65,651
----------- -----------
6,492 3,193
----------- -----------
Selling, general & administrative expenses 4,450 3,356
Interest Expense - net 706 589
----------- -----------
5,156 3,945
----------- -----------
Income/(loss) before taxes and cumulative effect of
change in accounting principle 1,336 (752)
Income tax provision/(benefit) (Note 2) 320 (205)
----------- -----------
Income/(loss) before cumulative effect of change in
accounting principle 1,016 (547)
Cumulative effect of change in method of accounting for
reporting the costs of start-up activities in accordance
with Statement of Position 98-5 (Note 5) (1,522) --
----------- -----------
Net income/(loss) $ (506) $ (547)
=========== ===========
Income/(loss) per share (Note 3)
Basic earnings/(loss) per share before cumulative
effect of change in accounting principle $ 0.12 $ (0.06)
=========== ===========
Basic earnings/(loss) per share $ (0.06) $ (0.06)
=========== ===========
Average number of shares outstanding during the period 8,369,318 8,532,549
=========== ===========
Diluted earnings/(loss) per share before cumulative
effect of change in accounting principle $ 0.12 $ (0.06)
=========== ===========
Diluted earnings /(loss) per share $ (0.06) $ (0.06)
=========== ===========
Average number of shares outstanding during the period 8,447,179 8,532,549
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
August 31, 1999
(Unaudited) May 31, 1999
--------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 5,851 $ 5,181
Accounts receivable - net 42,523 32,902
Inventories - rough diamonds 28,276 30,363
- polished diamonds 51,210 50,991
Prepaid expenses and other current assets 12,167 13,038
Deferred tax assets - current 1,491 1,450
--------- ---------
TOTAL CURRENT ASSETS 141,518 133,925
DEFERRED TAX ASSETS, net 7,995 7,665
NON-CURRENT ASSETS, net 10,926 10,323
--------- ---------
$ 160,439 $ 151,913
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 36,778 $ 25,186
Notes payable - banks -- 2,158
--------- ---------
TOTAL CURRENT LIABILITIES 36,778 27,344
SENIOR NOTES AND OTHER
LONG-TERM DEBT 38,133 38,575
--------- ---------
TOTAL LIABILITIES 74,911 65,919
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share
Authorized 5,000,000 shares;
no shares outstanding -- --
Common stock, par value $1 per share
Authorized 20,000,000 shares;
issued 8,538,223 and 8,535,493 shares 8,538 8,535
Additional paid-in capital 58,161 58,149
Cumulative translation adjustment 69 44
Retained earnings 19,973 20,479
--------- ---------
86,741 87,207
Less treasury stock, 167,150 shares
at cost (1,213) (1,213)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 85,528 85,994
--------- ---------
$ 160,439 $ 151,913
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1999 1998
------------ ----------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income/(loss) $ (506) $ (547)
Adjustments to reconcile net income/(loss)
to net cash provided by/(used in)operating activities:
Depreciation and amortization 327 224
Provision for uncollectible accounts 15 15
Deferred income taxes 300 (205)
Cumulative effect of change in method of accounting 1,522 --
(Increase)/decrease in assets and increase/(decrease) in liabilities:
Notes and accounts receivable (9,636) 3,830
Inventories 1,868 (9,111)
Prepaid expenses and other current assets (1,322) 460
Non-current assets (249) (4,000)
Accounts payable and other current liabilities 11,592 5,347
-------- --------
Net cash (used in)/provided by operating activities 3,911 (3,987)
-------- --------
Cash Flows From Investing Activities:
Capital expenditures (681) (386)
-------- --------
Net cash used in investing activities (681) (386)
-------- --------
Cash Flows from Financing Activities:
Decrease in short-term borrowings (2,158) --
Increase/(decrease) in long-term borrowings (442) 5,183
Proceeds from exercise of stock options 15 --
-------- --------
Net cash provided by financing activities (2,585) 5,183
-------- --------
Effect of cumulative translation adjustment 25 --
-------- --------
Net increase/(decrease) in cash 670 810
Cash at beginning of year 5,181 1,222
-------- --------
Cash at end of period $ 5,851 $ 2,032
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Reporting
This financial information has been prepared in conformity with the accounting
principles and practices reflected in the financial statements included in the
annual report filed with the Commission for the preceding fiscal year. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly Lazare Kaplan
International Inc.'s operating results for the three months ended August 31,
1999 and 1998 and the financial position as of August 31, 1999.
The balance sheet at May 31, 1999 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended May 31, 1999. The operating results for
the interim periods presented are not necessarily indicative of the operating
results for a full year.
2. Taxes
The Company's subsidiaries conduct business in foreign countries. The
subsidiaries are not subject to Federal income taxes and their provisions have
been determined based upon the effective tax rates, if any, in the foreign
countries.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carryforwards. The Company's net deferred tax asset as of August 31, 1999, which
is comprised primarily of operating loss carryforwards, is approximately
$10,071,000 less a valuation allowance of approximately $585,000 resulting in a
net deferred tax asset of $9,486,000. For the three months ended August 31,
1999, the Company generated approximately $150,000 of net operating losses which
can be used to offset future Federal, state and local income taxes.
At August 31, 1999, the Company has available U.S. net operating losses of $20.5
million which expire as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------------
<S> <C>
2000 $ 2,000
2001 3,500
2002 500
2007 500
2008 900
2010 400
2013 1,200
2019 11,350
2020 150
-------
$20,500
=======
</TABLE>
5
<PAGE>
3. Earnings/(Loss) Per Share
Basic and diluted earnings per share are computed in accordance with Financial
Accounting Standards Board Statement No. 128 "Earnings per Share." Basic
earnings per share is computed based upon the weighted average number of common
shares outstanding. Diluted earnings per share includes the impact of dilutive
stock options.
4. Comprehensive Income/(Loss)
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) established rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires foreign currency
translation adjustments to be included in other comprehensive income. For the
three months ended August 31, 1999 and 1998, total comprehensive loss was
$481,000 and $547,000, respectively.
5. Cumulative Effect of Change in Method of Accounting for Start-up Costs
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities", which was required for
financial statements for fiscal years beginning after December 15, 1998. The SOP
broadly defines start-up costs as those one-time activities related to opening a
new facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer, initiating a new
process in an existing facility or commencing some new operation. The SOP
requires that start-up costs capitalized prior to adoption be written off as a
cumulative effect of a change in accounting principle and any future start-up
costs be expensed as incurred. The Company was required to adopt this standard
on June 1, 1999 and recorded a non-cash charge of $1,522,000 (net of tax benefit
of $671,000). This amount is primarily comprised of a) the start-up expenses
related to the operations of the Company's newly formed, wholly owned
subsidiary, Pegasus Overseas Ltd. and the signing and implementation of its ten
year agreement with a wholly owned subsidiary of General Electric Company, and
b) the start-up expenses related to the signing and implementation of the March
1999 Cooperation Agreement with AK Almazi Rossii Sakha of Russia. The effect of
adoption of SOP 98-5 on income from continuing operations for the three months
ended August 31, 1999 was insignificant.
6
<PAGE>
6. Geographic Segment Information
Revenue, gross profit and income/(loss) before income tax provision for the
three months ended August 31, 1999 and 1998 and identifiable assets at the end
of each of those periods, classified by geographic area, which was determined by
where sales originated from and where identifiable assets are held, were as
follows (in thousands):
<TABLE>
<CAPTION>
North Far Elimi- Consoli-
America Europe Africa East nations dated
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended August 31, 1999
Net sales to unaffiliated customers $24,255 $41,270 $ - $4,217 $ - $69,742
Transfers between geographic areas 4,793 812 17,712 - (23,317) -
---------------------------------------------------------------
Total revenue $29,048 $42,082 $17,712 $4,217 ($23,317) $69,742
---------------------------------------------------------------
Gross profit $4,821 $726 $189 $756 $ - $6,492
---------------------------------------------------------------
Income/(loss) before income tax provision and
cumulative effect of change in accounting
principle $1,166 $384 ($90) ($124) $ - $1,336
---------------------------------------------------------------
Identifiable assets at August 31, 1999 $146,634 $23,311 $25,166 $11,587 ($46,259) $160,439
---------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Three months ended August 31, 1998
Net sales to unaffiliated customers $24,608 $41,266 $2,970 $ - $ - $68,844
Transfers between geographic areas 3,476 3,349 35,373 - (42,198) -
---------------------------------------------------------------
Total revenue $28,084 $44,615 $38,343 $ - ($42,198) $68,844
---------------------------------------------------------------
Gross profit $2,982 $156 $178 $ - ($123) $3,193
---------------------------------------------------------------
Income/(loss) before income tax provision ($714) $24 $62 $ - ($124) ($752)
---------------------------------------------------------------
Identifiable assets at August 31, 1998 $141,803 $13,921 $14,268 $ - ($17,679) $152,313
---------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The identifiable assets which are included in the eliminations primarily
represent advances to affiliates. These advances are included therein since the
Company, which is the parent company, finances the operations of these
affiliates.
7
<PAGE>
6. Geographic Segment Information (continued)
Revenue and gross profit for the three months ended August 31, 1999 and 1998
classified by product were as follows (in thousands):
<TABLE>
<CAPTION>
Polished Rough
diamonds diamonds Total
<S> <C> <C> <C>
Three months ended August 31, 1999
Net sales $29,682 $40,060 $69,742
-------------------------------
Gross profit $5,594 $898 $6,492
-------------------------------
Three months ended August 31, 1998
Net sales $25,441 $43,403 $68,844
-------------------------------
Gross profit $2,839 $354 $3,193
-------------------------------
</TABLE>
8
<PAGE>
7. Commitments and Contingencies
On or about April 13,1999, International Diamond Traders CY B.V.B.A. ("IDT") and
Avi Neumark ("Neumark"), the President and controlling stockholder of IDT,
commenced an action in the U.S. District Court for the Southern District of New
York against the Company, Lazare Kaplan Belgium, N.V., a subsidiary of the
Company ("LKB"), and Maurice Tempelsman, Leon Tempelsman and Sheldon Ginsberg,
each of whom is a director and officer of the Company and a director of LKB. The
plaintiffs subsequently amended their complaint to eliminate LKB and Mr.
Ginsberg as defendants. The plaintiffs alleged, among other things, that the
Company and its principals fraudulently induced IDT to make more than $1.75
million in payments to the Company in connection with an alleged "joint venture"
for the purchase of rough diamonds, excluded IDT from this relationship and
expropriated its interest, defamed the plaintiffs, causing injury to their
business reputation and interfered with plaintiffs' business prospects. The
plaintiffs are seeking damages of $1.75 million, together with interest,
general, consequential and other damages in an unspecified amount and punitive
damages. The plaintiffs further seek the value of half of the alleged profits
since September 1998, the date at which the relationship was allegedly
wrongfully terminated. In addition, the plaintiffs allege that the Company's
Quarterly Report on Form 10-Q for the quarter ended November 30, 1998
inaccurately includes all of the sales of the Company's Angolan operations. The
Company has filed motions to dismiss this action which are pending before the
court. The Company believes that the plaintiffs' allegations are without merit
and is vigorously defending this action.
In a related matter, on or about April 13, 1999, Novel Diamonds Inc. ("Novel")
and Lexco Limited ("Lexco") submitted a demand for arbitration to the
International Chamber of Commerce naming as respondents, the Company, Lazare
Kaplan (Bermuda) Ltd., a wholly-owned subsidiary of the Company, LKN Diamond
Company, LTD. ("LKN") and Sheldon Ginsberg. Each of the claimants is controlled
by Neumark. The claimants have alleged, among other things, that the respondents
are in breach of their obligations to transfer the Company's "rough diamond
trading sight" (the "sight") to LKN as was allegedly required by a 1994
shareholders agreement and have improperly barred claimants and Mr. Neumark from
access to the "sight" business. As a result of the foregoing, the claimants are
seeking damages of $5 million and at least 50% of the profits from the "sight"
business since September 1998, plus interest, and 50% of the net asset value of
LKN, including the "sight." The Company believes that the claimants' allegations
are without merit and is vigorously defending this action.
If the opposing parties are successful in some or all of above related
proceedings, the Company's business could be materially and adversely affected.
The two above actions followed the institution, earlier in 1999, of an
arbitration proceeding jointly submitted by Neumark, IDT and the Company. This
matter was voluntarily submitted to arbitration by Neumark, IDT, the Company and
LKB to resolve all disputes between the parties as a result of the termination
of their relationship, except for issues relating to LKN and the "sight". All
matters submitted to arbitration have now been resolved. On September 16, 1999,
the arbitrator ruled in the Company's favor that there was no goodwill owing
from the parties alleged relationship in Angola, and therefore, no payment was
required to be made to IDT or Neumark and, in fact, the arbitrator ruled that
they are obliged to pay the Company some sums of money.
9
<PAGE>
In addition, Neumark has commenced an action in Delaware Chancery Court against
the Company seeking the right to inspect, and make copies of, certain books and
records of the Company. The Company believes that Neumark does not have a proper
purpose for this request.
8. Subsequent Event
In September 1999, the Company entered into a long-term unsecured line of credit
with a bank. The line of credit is for $20 million at an interest rate of 150
basis points above the bank's "base rate". The proceeds of this line of credit
will be available for the Company's working capital requirements.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
This quarterly report contains, in addition to historical information, certain
forward-looking statements that involve significant risks and uncertainties.
Such forward-looking statements are based on management's belief as well as
assumptions made by, and information currently available to, management pursuant
to the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995. The Company's actual results could differ materially from those
expressed in or implied by the forward-looking statements contained herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Liquidity - Capital Resources" and in Item 1 -
"Description of Business" and elsewhere in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1999. The Company undertakes no
obligation to release publicly the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date of this quarterly report or to reflect the occurrence of other
unanticipated events.
Results of Operations
Net Sales
Net sales during the three months ended August 31, 1999 were $69.7 million
compared to $68.8 million in sales during the comparable period last year.
Revenue from the sale of polished diamonds was $29.7 million for the three
months ended August 31, 1999 compared to $25.4 million in the comparable period
last year, an increase of 17%. Polished diamond revenue increased during the
three months ended August 31, 1999 due to increased sales in all regions, i.e.
the United States and Japan and in other areas of Southeast Asia.
Rough diamond sales were $40.1 million for the three months ended August 31,
1999 compared to $43.4 million in the comparable period last year. The decrease
from the prior year was primarily attributable to decreased volume in the
Company's rough buying operation in Angola, which was partially offset by
increased volume from other rough diamond sources.
Gross Profit
During the three months ended August 31, 1999, gross margin on net polished
sales was 19%, compared to 11% in the comparable period last year. Polished
diamond margins were favorably affected by higher margins on sales of large
polished stones during the quarter. During the three months ended August 31,
1999, overall (both polished and rough diamonds) gross margin on net sales was
9.3% compared to 4.6% for the same period last year. The increase from the prior
year was primarily due to the improved margins realized on polished diamond
sales during the three months and a higher percentage of higher margined
polished sales compared to rough diamond sales.
11
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended August
31, 1999 were $4.5 million, compared to $3.4 million for this period last year.
The increase was primarily attributable to expenses related to the Company's
sales office in Japan in the current year (costs were initially recorded in the
second quarter last year), as well as increased costs relating to the Company's
current litigation, partially offset in Japan by the effect of the strengthening
yen when compared to the U.S. dollar.
Interest Expense
Net interest expense for the three month period ended August 31, 1999 was
$706,000 compared to $589,000 last year. The increase was due to an increase in
the average balance outstanding on the Company's revolving loan in the current
year.
Cumulative Effect of Change in Method of Accounting for Start-up Costs
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities", which was required for
financial statements for fiscal years beginning after December 15, 1998. The SOP
broadly defines start-up costs as those one-time activities related to opening a
new facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer, initiating a new
process in an existing facility or commencing some new operation. The SOP
requires that start-up costs capitalized prior to adoption be written off as a
cumulative effect of a change in accounting principle and any future start-up
costs be expensed as incurred. The Company was required to adopt this standard
on June 1, 1999 and recorded a non-cash charge of $1,522,000 (net of tax benefit
of $671,000), or $0.18 per share. This amount is primarily comprised of a) the
start-up expenses related to the operations of the Company's newly formed,
wholly owned subsidiary, Pegasus Overseas Ltd. and the signing and
implementation of its ten year agreement with a wholly owned subsidiary of
General Electric Company, and b) the start-up expenses related to the signing
and implementation of the March 1999 Cooperation Agreement with AK Almazi Rossii
Sakha of Russia. The effect of adoption of SOP 98-5 on income from continuing
operations for the three months ended August 31, 1999 was insignificant.
Liquidity and Capital Resources
The Company's working capital at August 31, 1999 was $104.7 million, which was
$1.9 million less than its working capital at May 31, 1999.
In September 1999, the Company entered into a long-term unsecured line of credit
with a bank. The line of credit is for $20 million which will be available for
the Company's working capital requirements. This line of credit is in addition
to the Company's existing $40 million long-term unsecured, revolving loan
agreement. The Company believes that it has the ability to meet its current and
anticipated financing needs for the next twelve months.
12
<PAGE>
Stockholders' equity was $85.5 million at August 31, 1999 as compared to $86.0
million at May 31, 1999. No dividends were paid to stockholders during the three
months ended August 31, 1999.
Impact of Year 2000
In connection with the Company's efforts to update and modernize its information
systems, as well as to address its Year 2000 issue, during 1998 the Company
commenced the implementation of a new, fully integrated computer system. The
majority of the costs of this implementation will be capitalized by the Company.
The Company is utilizing both internal and external resources to implement and
test its new software and hardware and anticipates completing the project during
the second quarter of fiscal year 2000. The total cost of the new computer
system is expected to be approximately $4.0 million, of which $3.4 million has
been incurred to date, including approximately $810,000 of salary and benefit
costs (for certain employees who are directly involved with the project) and
interest costs capitalized in accordance with Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed For or Obtained For
Internal Use."
In addition, the Company has identified its significant suppliers and other
third party service providers and has initiated formal communications to
determine the extent to which the Company's operations are vulnerable to the
failure of those third parties to remediate their own Year 2000 issues.
Contingency plans in the event of unsuccessful implementation of the above
project or noncompliance of any of the Company's primary service providers have
not been developed. However, the Company believes that any delay in the
implementation of its new computer system beyond December 1999 would not have a
material adverse effect on the Company's operations or its ability to service
its customers.
The costs of the computer project and the time frame in which the Company
believes it will complete installation of its new computer system, including the
Year 2000 compliance, are based on management's best estimates; however, there
can be no assurance that these estimates will be achieved and actual results
could differ materially from those anticipated.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
Not applicable
PART 2
ITEM 1. LEGAL PROCEEDINGS
As more fully described in the Company's Annual Report on Form
10-K for the year ended May 31, 1999, the Company, International Diamond Traders
CY B.V.B.A. ("IDT") and Avi Neumark ("Neumark"), the President and controlling
stockholder of IDT, had earlier in 1999, jointly submitted to arbitration all
disputes between the parties as a result of the termination of their
relationship. On September 16, 1999, the arbitrator ruled in the Company's favor
that there was no goodwill owing from the parties alleged relationship in
Angola, and therefore, no payment was required to be made to IDT or Neumark and,
in fact, the arbitrator ruled that they are obliged to pay the Company some sums
of money.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(27) Financial Data Schedule
(B) Reports on Form 8-K
None
14
<PAGE>
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.
LAZARE KAPLAN INTERNATIONAL INC.
By /s/ Sheldon L. Ginsberg
----------------------------------
Sheldon L. Ginsberg
Executive Vice President and
Chief Financial Officer
Dated: October 15, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted
from the balance sheet and income statement and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 5,851
<SECURITIES> 0
<RECEIVABLES> 42,740
<ALLOWANCES> 217
<INVENTORY> 79,486
<CURRENT-ASSETS> 141,518
<PP&E> 16,595
<DEPRECIATION> 8,002
<TOTAL-ASSETS> 160,439
<CURRENT-LIABILITIES> 36,778
<BONDS> 38,133
<COMMON> 8,538
0
0
<OTHER-SE> 76,990
<TOTAL-LIABILITY-AND-EQUITY> 160,439
<SALES> 69,742
<TOTAL-REVENUES> 69,742
<CGS> 63,250
<TOTAL-COSTS> 63,250
<OTHER-EXPENSES> 4,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 706
<INCOME-PRETAX> 1,336
<INCOME-TAX> 320
<INCOME-CONTINUING> 1,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,522)
<NET-INCOME> (506)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
