UNITES 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 ACT OF 1934
For the quarterly period ended July 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 number 0-19000
JLM COUTURE, INC.
(Exact name of small business issuer 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
(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 of 1934 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: As of
September 15, 1999, there were 2,059,905 shares of common stock,
par value $.0002 per share.
Transitional small business disclosure format (check one)
Yes No X
Page 1 of 15.
There is no Exhibit Index.
INDEX
Page
Part I. Financial Information:
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets at July 31, 1999 and
October 31, 1998 3-4
Consolidated Statements of Income for the three
and nine months ended July 31, 1999 and 1998 5
Consolidated Statements of Cash Flows for the
nine months ended July 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation. 10-13
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. 14
Signature 15
<PAGE>
PART I. FINANCIAL INFORMATION
JLM COUTURE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, October 31,
1999 1998
(Unaudited)
Current assets:
Cash and cash equivalents $ 148,981 $ 107,713
Accounts receivable, net of allowance
for doubtful accounts and trade
discounts - $340,000 at July 31,
1999 and $315,000 at October 31, 1998 3,638,003 2,516,511
Inventories 3,426,184 2,464,944
Prepaid expenses and other current assets 437,498 706,240
Note receivable-current portion 45,000 -
Total current assets 7,695,666 5,795,408
Property and equipment - at cost net of
accumulated depreciation and amortization
of $488,779 at July 31, 1999 and
$432,665 at October 31, 1998 219,506 275,555
Goodwill, net 257,045 267,608
Samples, net of accumulated amortization
of $160,846 at July 31, 1999 and
$63,746 at October 31, 1998 211,514 357,596
Note receivable-non current portion 405,000 -
Other assets 164,302 215,116
$8,953,033 $6,911,283
See accompanying notes to consolidated financial statements
<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, October 31,
1999 1998
(Unaudited)
Current liabilities
Revolving line of credit $ 950,000 $ 900,000
Accounts payable 1,654,351 1,397,639
Income taxes payable 569,183 75,436
Accrued expenses and
other current liabilities 264,768 230,068
Total current liabilities 3,438,302 2,603,143
Other liabilities 37,053 47,639
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 2,073,348 at July 31, 1999
and 1,873,348 at October 31, 1998;
Outstanding 2,043,181 at July 31,
1999 and 1,853,181 at October 31, 1998 414 374
Additional paid-in capital 3,219,617 2,769,657
Retained earnings 2,459,165 1,668,040
5,679,196 4,438,071
Less: Note receivable and accrued
interest (69,015) (69,015)
Treasury stock at cost:
31,167 shares at April 30,
1999 and 20,167 at October
31, 1998 (132,503) (108,555)
Total shareholders' equity 5,477,678 4,260,501
$8,953,033 $6,911,283
See accompanying notes to consolidated financial statements
JLM COUTURE, INC.
STATEMENT OF INCOME
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1999 AND 1998
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
1999 1998 1999 1998
Net sales $5,409,904 $4,810,067 $14,341,425 $12,578,329
Cost of goods sold 3,268,123 3,026,990 8,722,521 7,690,528
Gross profit 2,141,781 1,783,077 5,618,904 4,887,801
Selling, general and
administrative
expenses 1,632,034 1,207,766 4,169,934 3,371,395
Operating Income 509,747 575,311 1,448,970 1,516,406
Interest Expense, net
of interest income 18,739 16,147 72,435 80,592
Income from operations
before provision for
income taxes 491,008 559,164 1,376,535 1,435,814
Provision for income
taxes 204,624 252,150 585,410 642,250
Net income $ 286,384 $ 307,014 $ 791,125 $ 793,564
Net income per common
and common equivalent
share
Basic $ 0.14 $ 0.17 $ 0.39 $ 0.43
Diluted $ 0.14 $ 0.16 $ 0.38 $ 0.40
Weighted average number
of common equivalent
shares
Basic 2,043,181 1,835,974 2,011,020 1,830,537
Diluted 2,097,724 1,975,038 2,074,387 1,960,324
See accompanying notes to financial statements.
JLM COUTURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
JULY 31,
1999 1998
Cash Flows from Operating Activities
Net income $ 791,125 $ 793,564
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 212,694 62,357
Provision for doubtful accounts and trade
discounts 25,000 (75,000)
Changes in operating assets and liabilities
(Increase) in accounts receivable (1,146,492) (813,474)
(Increase) in inventories (961,240) (651,161)
Decrease (Increase) in prepaid expenses
and other current assets 268,742 (253,944)
Decrease in other assets 50,814 27,537
Increase in accounts payable 256,712 593,688
Increase (decrease) in income taxes
payable and other current liabilities 528,447 (41,682)
(Decrease) in long term liabilities (10,586) ( 7,608)
Net Cash (used in) provided by Operating
Activities 15,216 (365,723)
Cash Flows From Investing Activities
Purchase of property and equipment 0 (17,278)
Net Cash used in Investing Activities 0 (17,278)
Cash Flows from Financing Activities
Net increase from short term
borrowing 50,000 241,207
Reduction of long-term debt 0 (77,951)
Purchase of Treasury Stock (23,948) 0
Net Cash provided by Financing Activities 26,052 163,256
Net increase (decrease) in cash 41,268 (219,745)
Cash, beginning of year 107,713 473,694
Cash, end of period $ 148,981 $ 253,949
See accompanying notes to financial statements.
<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
JULY 31, 1999 and 1998
(Unaudited)
Supplemental Disclosures of Cash Flow Information;
1999 1998
Cash paid during the year for:
Interest $ 96,452 $ 79,325
Income taxes $150,000 $518,034
Non-cash transactions
Common Stock issued in exchange
for note receivable from employee $450,000 $ 0
See accompanying notes to consolidated financial statements
<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.
The consolidated balance sheets as of July 31, 1999, the
consolidated statements of income for the nine month periods ended
July 31, 1999 and 1998 and the consolidated statements of cash
flows for the nine month periods ended July 31, 1999 and 1998 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
July 31, 1999 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, 1998 which was
filed with the Securities and Exchange Commission.
Note 2. Composition of Inventory
Fiscal Quarter Ended Fiscal Year Ended
July 31, 1999 October 31, 1998
Raw materials $2,158,414 $1,629,899
Work-in-process 174,805 128,124
Finished Goods 1,092,965 706,921
$3,426,184 $2,464,944
Note 3. Revolving Line of Credit
The Company had an available line of credit of up to
$1,700,000 with a financial institution. On March 12, 1998, the
Company refinanced the line of credit with another financial
institution in the amount of $2,000,000. Borrowings are
collateralized by the Company's cash, accounts receivable,
securities, deposits and general intangibles. At July 31, 1999 and
October 31, 1998 the Company had borrowed $950,000 and $900,000,
respectively, under the revolving line of credit.
JLM COUTURE, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 4. Sale of Common Stock
On December 22, 1998, an executive of the Company purchased
from the Company 200,000 shares of the Company's Common Stock at a
price of $2.25 per share, the market value of the Company's Common
Stock on that date. The purchase was financed by the executive
executing a ten year promissory note due to the Company in the
amount of $450,000. The promissory note bears interest at 5% per
annum and calls for annual principal payments of $45,000 with
accrued interest.
Note 5. Bad Debt Expense
During the quarter ended July 31, 1999, a former significant
customer of the Company sold substantially all of its assets to a
new entity pursuant to a foreclosure. As a result of that event,
management determined that it was unlikely that it would collect
its outstanding receivables from that customer. The Company had
previously reserved $100,000 against these receivables and recorded
an additional $100,000 pretax bad debt expense in the most recent
quarter, resulting in fully expensing this loss. The entity that
acquired this former customer's assets continues to do substantial
business with the Company and is current in its obligations to the
Company.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Nine months ended July 31, 1999 as compared to nine months
ended July 31, 1998 and three months ended July 31, 1999 as
compared to three months ended July 31, 1998.
For the first nine months of the Company s Fiscal Year ending
October 31, 1999 ("Fiscal 1999"), revenues increased to $14,341,425
from $12,578,329, an increase of 14% over the same period a year
ago. This increase was due to increased market penetration of the
Company s products. Gross profits as a percentage of sales rose
slightly to 39.2% from 38.9%. Net income was $791,125 as compared
to net income of $793,564 in the first nine months of Fiscal 1998.
Per share earnings for this period was $0.39 basic share and $0.38
per diluted share, as compared to $0.43 per basic share and $0.40
per diluted shared a year ago, due to the increased number of
shares outstanding. In the current fiscal year, selling, general
and administrative expenses as a percentage of sales increased to
29.0% of sales as compared to 26.8% due to increased marketing
costs in the first quarter of Fiscal 1999, as well as an increase
in bad debt expense due to a large former customer selling
substantially all of its assets to a new entity pursuant to a
foreclosure.
For the quarter ended July 31, 1999 ("Fiscal 1999"), revenues
increased to $5,409,904 from $4,810,067, an increase of 12.5% over
the same period a year ago. This increase was due to increased
market penetration of the Company's products. Gross profit as a
percentage of sales rose to 39.6% from 37.1% as last years quarter
had a larger contribution to sales from the more moderately priced
"Occasions" line. Net income for the current three month period
was $286,384 a decrease of 6.7% as compared to net income of
$307,014 in the third quarter of Fiscal 1999, as the current
quarter were impacted by the bad debt write off referred to above.
Per share earnings for this period were $0.14 per basic share and
diluted shares, as compared to $0.17 per basic share and $0.16 per
diluted share a year ago. Selling, general and administrative
expenses as a percentage of sales increased to 30.2% of sales as
compared to 25.1% due to the bad debt writeoff referred to above,
are increased expenditures related to the Company's European
operations.
Liquidity and Capital Resources
The Company's working capital increased to $4,257,364 at July
31, 1999 from $3,192,265 at October 31, 1998. The Company's
current ratio was 2.2 to 1 at July 31, 1999 and October 31, 1998.
During the nine months ended July 31, 1999, the Company
generated $15,216 of cash from operating activities, as compared to
using $365,723 during the year earlier period. The Company did not
use any cash in investing activities in the current year compared
to using $17,278 a year ago. The Company generated $26,052 of cash
from financing activities during the nine months ended July 31,
1999 as compared to $163,256 a year earlier as the Company did not
need to borrow as much money because the operations did not use as
much cash as a year ago.
Year 2000 Compliance
The Company is on schedule with a project that addresses the
Year 2000 (Y2K) issue of computer systems and other equipment with
embedded chips or processors not being able to properly recognize
and process date-sensitive information after December 31, 1999.
The Company has completed all programming changes required to make
its computer system Y2K complaint. JLM's computer systems are able
to recognize date sensitive information with dates after December
31, 1999. The total cost incurred to convert the system had a
minimal impact on earnings. Many systems use only two digits
rather than four to define the year and these systems will not be
able to distinguish between the year 1900 and the year 2000. This
may lead to disruption in the operations of business and
governmental entities resulting from miscalculations or system
failures. This project is designed to ensure the compliance of all
of the Company's applications, operating systems and hardware
platforms, and to address the compliance of key business partners.
Key business partners are those customers and vendors that have a
material impact on the Company's operations. The total estimated
cost of the required modifications to become Y2K compliant should
not be material to the Company's financial position.
Failure to make all internal business systems Y2K compliant
could result in an interruption in, or failure of, some of the
Company's business activities or operations. Y2K disruption in the
operations of key vendors could impact the Company's ability to
obtain components necessary for the manufacture of products and
fulfillment of contractual obligations. If one or more of these
situations occur, the Company's results of operations, liquidity
and financial conditions could be materially and adversely
affected. The Company is unable to determine the readiness of its
key business partners at this time and is therefore unable to
determine whether the consequences of Y2K failures will have a
material impact on the Company's result of operations, liquidity or
financial condition. The Y2K project is expected to reduce the
Company's level of uncertainty about the Y2K problem and reduce the
possibility of significant interruptions of normal business
operations.
Introduction Of The Euro
On January 1, 1999, eleven of the fifteen member countries of
the European Union established fixed conversion rates between their
existing sovereign currencies and a new currency called the "Euro."
These countries agreed to adopt the Euro as their common legal
currency on that date. The Euro trades on currency exchanges and
is available for non-cash transactions. Until January 1, 2002, the
existing sovereign currencies will remain legal tender in these
countries. On January 1, 2002, the Euro is scheduled to replace
the sovereign legal currencies of these countries. The Company's
initial international expansion will be in the United Kingdom,
which has not adopted the Euro. The Company will evaluate the
impact the implementation of the Euro will have on its business
operations and no assurances can be given that the implementation
of the Euro will not have material adverse effect on the Company's
business, financial condition and results of operations. However,
the Company does not expect the Euro to have a material effect on
its competitive position. In addition, the Company cannot
accurately predict the impact the Euro will have on currency
exchange rates or the Company's currency exchange risk.
Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income." This standard
establishes requirements for the reporting and display of
comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is the total of
net income and all other nonowner changes in equity. The objective
of this statement is to report a measure of all changes in equity
of a company that result from transactions and other economic
events in the period other than transactions with owners. This
standard is effective for the Company's fiscal year beginning
November 1, 1998. The Company does not have any transactions other
than with owners. As such, disclosure of comprehensive income is
not necessary. As this statement relates solely to disclosure
provisions, the Company believes that the adoption of this standard
will not have an effect on its financial position or results of
operations.
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," ("SFAS 131"). This pronouncement establishes
standards for companies to report information about operating
segments in financial statements based on the approach that
management utilizes to organize the segments within the company for
management reporting and decision making. In addition, SFAS No.
131 requires that companies report disclosures about products and
services, geographic areas and major customers. SFAS No. 131 is
effective for the Company's fiscal year beginning November 1, 1998.
Financial statement disclosures for prior periods are required to
be restated. As this statement relates solely to disclosure
provisions, the Company believes that the adoption of this
statement will not have an effect on its financial position or
results of operations.
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").
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and 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
By:s/Joseph L. Murphy
Joseph L. Murphy, President
(Duly authorized officer)
Dated: September 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 148,981
<SECURITIES> 0
<RECEIVABLES> 4,023,003
<ALLOWANCES> 340,000
<INVENTORY> 3,426,184
<CURRENT-ASSETS> 7,695,666
<PP&E> 708,285
<DEPRECIATION> 488,779
<TOTAL-ASSETS> 8,953,033
<CURRENT-LIABILITIES> 3,438,302
<BONDS> 0
0
0
<COMMON> 414
<OTHER-SE> 5,477,264
<TOTAL-LIABILITY-AND-EQUITY> 8,953,033
<SALES> 14,341,425
<TOTAL-REVENUES> 14,341,425
<CGS> 8,722,521
<TOTAL-COSTS> 8,722,521
<OTHER-EXPENSES> 4,169,934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,435
<INCOME-PRETAX> 1,376,535
<INCOME-TAX> 585,410
<INCOME-CONTINUING> 791,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791,125
<EPS-BASIC> 0.39
<EPS-DILUTED> 0.38
</TABLE>
