FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
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 number 0-19000
-------
JLM COUTURE, INC.
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3337553
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer)
incorporation or organization) Identification No.)
225 West 37th Street, New York, New York 10018
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212) 921-7058
-----------------------------------------------------
(Registrant's telephone number, including area code)
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 June 16, 1998: 1,828,973 shares of
common stock, par value $.0002 per share.
Transitional Small Business Disclosure Format (check one);
Yes No X
---- ----
Page 1 of 14
The Exhibit Index is located on page 14.
JLM COUTURE, INC.
INDEX
Part I. Financial Information: Page
Item 1. Financial Statements.
Balance Sheets at April 30, 1998 and
October 31, 1997 3-4
Statements of Income for the three and six
months ended April 30, 1998 and 1997 5
Statements of Cash Flows for the
six months ended April 30, 1998 and 1997 6
Notes to Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 10-11
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. 12
Signature 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
JLM COUTURE, INC.
BALANCE SHEETS
(Unaudited)
ASSETS
April 30, October 31,
1998 1997
----------- -----------
Current assets:
Cash and cash equivalents $ 466,703 $ 473,694
Accounts receivable, net of allowance
for doubtful accounts and trade dis-
counts - $280,000 at April 30, 1998
and $355,000 at October 31, 1997 3,515,093 2,542,782
Inventories 2,532,670 1,912,049
Prepaid expenses and other current assets 333,158 364,991
--------- ---------
Total current assets 6,847,624 5,293,516
Property and equipment - at cost net of ac-
cumulated depreciation and amortization
of $398,928 at April 30, 1998 and $364,465
at October 31, 1997 258,541 286,439
Goodwill 274,651 281,693
Other assets 388,198 361,653
---------- ----------
$7,769,014 $6,223,301
========== ==========
See accompanying notes to financial statements.
<PAGE>
JLM COUTURE, INC.
BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
April 30, October 31,
1998 1997
----------- -----------
Current liabilities
Revolving line of credit $ 1,070,891 $ 792,707
Accounts payable 1,755,851 956,849
Current portion of long-term debt 14,282 19,428
Income taxes payable 380,279 430,485
Accrued expenses and
other current liabilities 215,113 164,722
--------- ---------
Total current liabilities 3,436,416 2,364,191
--------- ---------
Long-term debt 56,533 64,523
Other liabilities 56,509 61,581
Shareholders' equity
Preferred stock - $.0001 par value,
authorized 1,000,000 shares; issued
and outstanding- none - -
Common stock - $.0002 par value,
authorized 10,000,000 shares;
issued and outstanding 1,828,973
at April 30, 1998 and 1,828,973
at October 31, 1997 365 365
Additional paid-in capital 2,678,774 2,678,774
Accumulated earnings 1,607,482 1,120,932
--------- ---------
4,286,621 3,800,071
Less: Note receivable and accrued
interest (62,075) (62,075)
1,667 shares held in treasury (4,990) (4,990)
--------- ---------
Total shareholders' equity 4,219,556 3,733,006
--------- ---------
$7,769,014 $6,223,301
========= =========
See accompanying notes to financial statements.
JLM COUTURE, INC.
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1998 AND 1997
(Unaudited)
Three Months Ended April 30, Six Months Ended April 30,
1998 1997 1998 1997
--------- ---------- ---------- ----------
Net sales $4,450,173 $3,962,619 $7,768,262 $7,165,152
Cost of goods sold 2,687,837 2,512,067 4,663,538 4,474,954
--------- --------- --------- ---------
Gross profit 1,762,336 1,450,552 3,104,724 2,690,198
Selling, general and
administrative ex-
penses 1,243,248 1,001,362 2,228,074 1,858,090
--------- --------- --------- ---------
Income from continu-
ing operations before
provision for income
taxes 519,088 449,190 876,650 832,108
Provision for income
taxes 231,247 220,103 390,100 407,733
--------- --------- --------- ---------
Net income $ 287,841 $ 229,087 $ 486,550 $ 424,375
========= ========= ========= =========
Net income per com-
mon and common equi-
valent share
Primary $ 0.15 $ 0.12 $ 0.25 $ 0.22
========= ========= ======== ========
Fully diluted $ 0.15 $ 0.12 $ 0.25 $ 0.22
========= ========= ======== ========
See accompanying notes to financial statements.
<PAGE>
JLM COUTURE, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
APRIL 30, 1998 and 1997
1998 1997
------------- ---------
Cash Flows from Operating Activities
Net Income $ 486,550 $ 424,375
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation and amortization 41,505 28,505
Provision for doubtful accounts
and trade discounts (75,000) 78,868
Deferred income taxes -
Changes in operating assets and liabilities
Increase in accounts receivable (897,311) (712,344)
(Increase) in inventories (620,621) (30,382)
Increase in prepaid expenses and
other current assets 31,833 (39,633)
Increase in security deposits
and other assets (26,545) (2,789)
(Decrease) increase in accounts payable 799,002 314,839
(Decrease) incurrent portion of long-term debt (5,146) _
Increase (decrease) in payroll taxes payable
and other current liabilities 185 (39,633)
Increase (decrease) in long term liabilities (5,072) 1,831
------- -------
Net Cash provided by (used in)
Operating Activities (270,620) 23,282
------- -------
Cash Flows From Investing Activities
Purchase of property and equipment (6,565) (43,576)
------- -------
Net Cash used in Investing Activities (6,565) (43,576)
------- -------
Cash Flows from Financing Activities
Net (reduction) proceeds from
short term borrowing 278,184 (29,306)
Reduction of long-term debt (7,990) 300,979
Proceeds from sale of common stock _
Proceeds from exercise of options _ 28,212
------- -------
Net Cash provided by Financing Activities 270,194 299,885
------- -------
Net (decrease) increase in cash (6,991) 279,591
Cash, beginning of year 473,694 83,807
------- -------
Cash, end of period $ 466,703 $ 363,398
------- =======
See accompanying notes to financial statements.
JLM COUTURE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. General
The consolidated Balance Sheet as of April 30, 1998, the
consolidated Statements of Income for the six month periods ended
April 30, 1998 and 1997 and the consolidated Statements of Cash
Flows for the six month periods ended April 30, 1998 and 1997 have
been prepared by the Company, without audit. In the opinion of
management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows, as of
April 30, 1998 and for all periods presented have been made. The
results of operations are not necessarily indicative of the results
to be expected for the full year.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. It is suggested
that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's
Form 10-KSB for its fiscal year ended October 31, 1997 which was
filed with the Securities and Exchange Commission.
Note 2. Composition of Inventory
Fiscal Quarter Ended Fiscal Year Ended
April 30, 1998 October 31, 1997
------------------- ------------------
Raw materials $1,248,668 $1,180,107
Work-in-process 463,108 145,670
Finished Goods 820,894 586,272
---------- ----------
$2,532,670 $1,912,045
---------- ----------
Note 3. Revolving Line of Credit
On March 17, 1998, the Company negotiated a line of credit
with a financial institution in the maximum amount of $2,000,000.
Borrowings are collateralized by the Company's accounts receivable,
chattel paper and general intangibles. At April 30, 1998, the
Company had borrowed $1,070,891 under this line of credit.
JLM COUTURE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 4. Acquisition of Business
On May 1, 1997, the Company acquired Alvina Valenta Couture
Collection, Inc. for a combination of cash and shares of the
Company's common stock. The cash portion of the purchase price
totaled $25,000 and the stock portion of the purchase price
totalled $172,900 and consisted of 36,400 shares of the Company's
common stock valued at $4.75 per share (market price of the
Company's common stock immediately preceding the acquisition date).
The acquisition was accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated
to the assets purchased and the liabilities assumed based upon the
fair values at the date of acquisition. The results of operations
of the acquired business prior to its acquisition is not material
to the Company's consolidated statements of operations. The table
below summarizes the purchase price allocation --
Current assets $98,000
Equipment and leasehold
improvements 2,000
Current liabilities (59,000)
Debt (93,000)
The excess purchase price over net assets acquired (goodwill)
of approximately $282,000 includes $30,000 of transaction costs and
has been reflected in the accompanying consolidated balance sheets
as of October 31, 1997 and April 30, 1998. The results of the
acquired business have been reflected in the accompanying
consolidated statement of operations for the quarter and six months
ended April 30, 1998.
<PAGE>
JLM COUTURE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 5. Long-Term Debt
Long-term debt, which was assumed in connection with the
acquisition of Alvina Valenta Couture Collection, Inc. (See Note
4), consists of the following at October 31, 1997 and April 30,
1998 --
October 31 April 30
1997 1998
Small Business Administration
note payable dated December 20,
1996, with interest payable at
8.25% per annum. Monthly
principal payments of $952
through December 2003. $71,951 $62,815
Small Business Administration
note payable dated May 4, 1994,
with interest payable at 8.5%
per annum. Monthly principal
payments of $667 through May
1999. $12,000 $ 8,000
------ ------
83,951 70,815
Current portion of long-term
debt (19,428) (14,282)
------ ------
Long-term debt $64,523 $56,533
====== ======
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Three months ended April 30, 1998 as compared to three months ended
April 30, 1997 and six months ended April 30, 1998 as compared to
six months ended April 30, 1997.
For the first six months of the Company's fiscal year ending
October 31, 1998 ("Fiscal 1998"), revenues increased to $7,768,262
from $7,165,152, an increase of 8.4% over the same period a year
ago. Net income was $486,550, or $0.25 per share, for this period,
an increase of 15% over net income of $424,375, or $.22 per share,
in the first six months of Fiscal 1997. The increase in net income
in the current period is largely due to increased sales. Gross
profit as a percentage of sales increased to 40% from 37.5% in the
first six months of the prior year largely due to volume
efficiencies. Selling, general and administrative expenses as a
percentage of net sales increased to 28.7% from 25.9% in the prior
year due to increased marketing costs.
For the quarter ended April 30, 1998, revenues increased to
$4,450,173 from $3,962,619, an increase of 12.3% over the
comparable period a year ago. Net income increased to $287,841, or
$0.15 per share, for the quarter ended April 30, 1998, an increase
of 25% over net income of $229,987, or $0.12 per share, for the
period ended April 30, 1997. The increase in net income in the
current period is largely due to increased sales. Gross profits as
a percentage of sales increased to 39.6% in the quarter ended April
30, 1998 from 36.6%. Selling, general and administrative expenses
as a percentage of sales increased to 27.9% in the current quarter
from 25.3% in the comparable period a year ago, due largely to
increased marketing costs.
Liquidity and Capital Resources
The Company's working capital increased to $3,411,208 at April
30, 1998 from $2,929,325 at October 31, 1997. The Company's
current ratio decreased slightly to 2.0 at April 30, 1998 from 2.2
to 1 at October 31, 1997.
During the six months ended April 30, 1998, the Company used
$270,620 of cash from operating activities, as compared to
generating $23,282 of cash during the earlier period. Inventories
increased approximately $590,000, accounts payable increased
$485,000 and the provision for doubtful accounts and trade
discounts was reduced $75,000 during the current period (as
compared to an increase during the prior year of $78,868). These
Management's Discussion and Analysis of Financial
Condition and Results of Operations.
events occurred because of higher volume. The Company used $6,585
to purchase equipment during the six months ended April 30, 1998 as
compared to $43,576 in the year earlier period. The Company
generated $270,194 from financing activities during the six months
ended April 30, 1998 as compared to $299,885 in the year earlier
period.
During the first quarter of Fiscal 1997, the Company through
a private placement offering consisting of an aggregate of 75,000
shares of Common Stock and 22,500 warrants to purchase additional
shares of Common Stock at prices ranging from $4.37 to $6.62 were
issued for net proceeds of $300,979 (after private placement
offering expenses). These funds along with the Company's line of
credit are expected to be sufficient for the Company to meet its
cash flow requirements.
The Company is exploring its options with respect to software
in order to be in compliance with year 2000. The Company does not
expect the costs associated with this to be material.
Safe Harbor Statement
Statements which are not historical facts, including
statements about the Company's confidence and strategies and its
expectations about new and existing products, technologies and
opportunities, market and industry segment growth, demand and
acceptance of new and existing products or forward looking
statements that involve risks and uncertainties. These include,
but are not limited to, product demand and market acceptance risks;
the impact of competitive products and pricing; the results of
financing efforts; the loss of any significant customers of any
business; the effect of the Company's accounting policies; the
effects of economic conditions and trade, legal, social, and
economic risks, such as import, licensing, and trade restrictions;
the results of the Company's business plan and the impact on the
Company of its relationship with its lender.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Certificate of Incorporation of the Company as amended
dated December 30, 1994, incorporated by reference to
Exhibit 3.1 of the Company's annual Report on Form 10-KSB
filed for its fiscal year ended October 31, 1995 ("1995
10-K").
3.2 The Company's By-Laws are incorporated by reference to
Exhibit 3.03 of Registration Statement No. 33-10278 NY
filed on Form S-18 ("Form S-18").
10.1 Letter of credit approval from Israel Discount Bank of
New York to JLM Couture, Inc. dated February 4, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
<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.
JLM COUTURE, INC.,
Registrant
s/ Joseph L. Murphy
Dated: June 19, 1998 By: --------------------------------
Joseph L. Murphy
President (Authorized officer
and Principal Financial Officer)
WP51\HJELM\10Q.98
<PAGE>
EXHIBIT INDEX
PAGE
10.1 Letter of Credit Approval from
Israel Discount Bank of New York to
JLM Couture, Inc. dated February 4, 1998. A-1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<CASH> 466,703
<SECURITIES> 0
<RECEIVABLES> 3,795,093
<ALLOWANCES> 280,000
<INVENTORY> 2,532,670
<CURRENT-ASSETS> 6,847,624
<PP&E> 657,469
<DEPRECIATION> 398,928
<TOTAL-ASSETS> 7,769,014
<CURRENT-LIABILITIES> 3,436,416
<BONDS> 0
0
0
<COMMON> 365
<OTHER-SE> 4,219,191
<TOTAL-LIABILITY-AND-EQUITY> 7,769,014
<SALES> 7,768,262
<TOTAL-REVENUES> 7,768,262
<CGS> 4,663,538
<TOTAL-COSTS> 4,663,538
<OTHER-EXPENSES> 2,228,074
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,870
<INCOME-PRETAX> 876,650
<INCOME-TAX> 390,100
<INCOME-CONTINUING> 486,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 486,550
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
EXHIBIT 10.1
February 4, 1998
JLM Couture, Inc.
225 West 37th Street
New York, NY 10018
Attn: Mr. Joseph L. Murphy, President
Mr. Joseph O'Grady
Dear Sirs:
We are pleased to advise you that Israel Discount Bank of New
York (the "Bank") has approved the following line of credit for JLM
Couture, Inc.:
BORROWER: JLM Couture, Inc. ("JLM"), a Delaware
corporation authorized to do business in New
York (NASDAQ: JHPC).
LINE OF CREDIT: Up to $2,000,000 (A/R only) ("Line").
Borrowing Base: The total amount of
outstanding under this line of credit shall
not at any time, exceed 80% of acceptable net
amounts receivable.
The term "eligible accounts receivable" as
used herein means accounts receivable which
are due and payable not more than 120 days
from the date of the invoice thereof excluding
contra-account, related accounts, foreign
accounts, poor credit accounts or other
accounts which, in the sole discretion of the
Bank, do not constitute acceptable collateral.
Concentrations shall be limited to 25% of the
total A/R and cross-aging shall be 50 %.
INTEREST RATE: Prime Rate of Israel Discount Bank of New York
in effect from time to time.
FACILITY FEE: 1% of credit facility ($20,000) annually
payable at closing and thereafter upon renewal
of credit facility each year.
SECURITY: A first security lien on all accounts
receivable, contract rights, general
intangibles, and the proceeds thereof now
owned or hereafter created by JLM Couture,
Inc. and all tradestyles including Lazaro and
Alvina Valente.
LOAN COVENANTS: Minimum tangible net worth of $3,000,000.
FINANCIAL Financial Statements: JLM shall furnish the
INFORMATION & Bank:
EXAMINATION
(a) within 90 days after the end of each of
its fiscal years, Form 10K including balance
sheet and income statement of JLM. Said
balance sheet and income statement shall be
audited and certified by a certified public
accountant acceptable to be Bank without
material exception or qualification.
(b) within 45 days after the end of its
Fiscal quarters, the Form 10Q statement for
the quarter then ended (including a balance
sheet and statement of income).
Monthly Borrowing Base Certificate and
Information: JLM shall furnish the Bank with
monthly Borrowing Base Certificate which shall
set forth the above borrowing base in
accordance with the above formula. Said
certificates shall be certified as true by the
chief financial officer of JLM and delivered
no later than the 10th of the following month.
Reports: JLM shall furnish the Bank with
monthly accounts receivables agings with the
borrowing base certificate adequate to
identify and value eligible accounts
receivable no later than the 10th of the
following month.
Examinations: JLM will allow representatives
of the Bank to examine any of the books and
any of the books and records of JLM at any
reasonable time. Examination will normally
take place twice a year but may be done more
frequently at the Bank's discretion. The Bank
will charge $750 per day for each such
examination cost to JLM not to exceed $4,500
per annum.
General Information: JLM shall supply the
Bank with such other information, reports and
statements as the Bank may reasonably
request.
DOCUMENTATION: Utilization of this Line of Credit is subject
to the execution and delivery to the Bank of
such documentation as the Bank and its counsel
in their sole discretion deem necessary or
desirable. Such documents shall include, but
not be limited to, the following: (i) a
demand grid note to evidence the advances,
(ii) general security agreement and accounts
receivable security agreement granting the
Bank a security interest in the above
collateral, (iii) UCC-1's, (iv) board
resolutions of granting authority to certain
of its officers to execute the transaction
contemplated hereby.
FEES: All out-of-pocket expenses incurred by the
Bank in connection with this Line of Credit
shall be paid by JLM Couture, Inc.
This letter is furnished to you solely for information
purposes and does not, and in no way should be construed as, a
commitment from the Bank. Terms and conditions of our transactions
shall be reflected in the agreements to be executed between us.
Very truly yours,
s/ Gerald Grossman
Gerald J. Grossman
Senior Vice President
WPDOCS\HJELM\MURPHY-GRADY
