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 January 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
(Address of principal executive offices)
(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) has 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
The number of shares outstanding of the issuer's common stock,
par value $.0002 per share, as of March 12, 1999 was 2,057,405.
<PAGE>
JLM COUTURE, INC.
INDEX
Part I. Financial Information:
Item 1. Financial Statements.
Consolidated Balance Sheets at
January 31, 1999 (unaudited) and
October 31, 1998 3-4
Consolidated Statements of Income
for the Three Months ended January 31,
1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows
for the Three Months ended January 31,
1999 and 1998 (unaudited) 6-7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 10-13
Part II. Other Information:
Item 2. Changes in Securities and Use of Proceeds. 14
Item 6. Exhibits and Reports on Form 8-K. 14
Signature 15
PART I. FINANCIAL INFORMATION
JLM COUTURE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
January 31, October 31,
1999 1998
(Unaudited)
Current assets:
Cash and cash equivalents 113,520 107,713
Accounts receivable, net of allowance
for doubtful accounts and trade
discounts - $425,000 at January 31,
1999 and $315,000 at October 31, 1998 3,290,897 2,516,511
Inventories 2,817,208 2,464,944
Prepaid expenses and other current assets 723,391 706,240
Note receivable-current portion 45,000 -
Total current assets 6,990,016 5,795,408
Property and equipment - at cost net of
accumulated depreciation and amortization
of 451,161 at January 31, 1999 and
432,665 at October 31, 1998 257,059 275,555
Goodwill, net 264,087 267,608
Samples, net of accumulated amortization
of $124,610 at January 31, 1999 and
$63,746 at October 31, 1998 296,732 357,596
Note receivable-non current portion 405,000 -
Other assets 167,291 215,116
$8,380,185 $6,911,283
See accompanying notes to consolidated financial statements
JLM COUTURE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
January 31, October 31,
1999 1998
(Unaudited)
Current liabilities
Revolving line of credit 1,250,000 900,000
Accounts payable 1,746,408 1,397,639
Income taxes payable 271,703 75,436
Accrued expenses and
other current liabilities 170,808 230,068
Total current liabilities 3,438,919 2,603,143
Other liabilities 44,153 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 January 31, 1999
and 1,873,348 at October 31, 1998;
Outstanding 2,053,181 at January 31,
1999 and 1,853,181 at October 31, 1998 414 374
Additional paid-in capital 3,219,617 2,769,657
Retained earnings 1,854,652 1,668,040
5,074,683 4,438,071
Less: Note receivable and accrued
interest (69,015) (69,015)
Treasury stock at cost:
20,167 shares at January 31,
1999 and October 31, 1998 (108,555) (108,555)
Total shareholders' equity 4,897,113 4,260,501
$8,380,185 $6,911,283
See accompanying notes to consolidated financial statements
JLM COUTURE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
(Unaudited)
1999 1998
Net sales $3,762,110 $3,318,089
Cost of goods sold 2,234,504 1,975,701
Gross profit 1,527,606 1,342,388
Selling, general and
administrative
expenses 1,178,814 950,242
Operating Income 348,792 392,146
Interest expense, net
of interest income of
$214 and $2,000 for 1999
and 1998, respectively 24,250 34,584
Income operations before
provision for income
taxes 324,542 357,562
Provision for income
taxes 137,930 158,853
Net income $ 186,612 $ 198,709
Net income per weighted
average number of common
and common equivalent
share:
Basic $ 0.10 $ 0.11
Diluted $ 0.09 $ 0.10
Weighted average number
of common and common
equivalent shares
outstanding:
Basic $1,942,311 $1,828,973
Diluted $2,019,893 $1,987,357
See accompanying notes to consolidated financial statements
JLM COUTURE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
JANUARY 31, 1999 and 1998
(Unaudited)
1999 1998
Cash Flows From Operating Activities
Net Income $186,612 $198,709
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 82,881 20,902
Provision for (benefit from) doubtful
accounts and trade discounts 110,000 (40,000)
Changes in operating assets and liabilities
Increase in accounts receivable (884,386) (495,423)
Increase in inventories (352,264) (164,931)
(Increase) decrease in prepaid
expenses and other current assets (17,151) 101,508
(Increase) decrease in other assets 47,825 (24,600)
Increase in accounts payable 348,769 35,165
Increase (decrease) in income taxes
payable and accrued expenses and other
current liabilities 137,007 (206,784)
Decrease in long term liabilities (3,486) (4,671)
Net Cash (Used In) Operating Activities (344,193) (580,125)
Cash Flows From Investing Activities - -
Cash Flows from Financing Activities
Net proceeds from
revolving line of credit 350,000 393,125
Net Cash provided by Financing Activities 350,000 393,125
Net increase (decrease) in cash 5,807 (187,000)
Cash, beginning of year 107,713 473,694
Cash, end of period $113,520 $286,694
See accompanying notes to consolidated financial statements
JLM COUTURE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
JANUARY 31, 1999 and 1998
(Unaudited)
Supplemental Disclosures of Cash Flow Information;
1999 1998
Cash paid during the year for:
Interest $ 24,464 $ 36,584
Income taxes 0 195,000
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 January 31, 1999, the
consolidated statements of income for the three month periods ended
January 31, 1999 and 1998 and the consolidated statements of cash
flows for the three month periods ended January 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
January 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
January, 31, 1999 October 31, 1998
Raw materials $1,603,190 $1,629,899
Work-in-process 394,723 128,124
Finished Goods 819,295 706,921
$2,817,208 $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 January 31, 1999
and October 31, 1998 the Company had borrowed $1,250,000 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.
<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Three months ended January 31, 1999 as compared to three
months ended January 31, 1998.
For the first three months of the Company's fiscal year ending
October 31, 1999 ("Fiscal 1999"), revenues increased to $3,762,110
from $3,318,089, an increase of 13.4% over the same period a year
ago. The increase was due to increased market penetration of the
Company's products. Gross profit as a percentage of sales was
40.6% compared to 40.5% in the first three months of the prior
year. Selling, general and administrative expenses as a percentage
of net sales was 31.3% in the current period as compared to 28.6%
in the prior period. The increase in the current period was due to
increased marketing costs and increased salary costs. Net income
was $186,612 or $.10 per basic share and $.09 per diluted share for
this period as compared to net income of $198,709 or $.11 per basic
share and $.10 per diluted share in the first three months of
Fiscal 1998.
Liquidity and Capital Resources
The Company's working capital increased to $3,551,097 at
January 31, 1999 from $3,192,265 at October 31, 1998. The
Company's current ratio decreased to 2.0 to 1 at January 31, 1999
from 2.2 to 1 at October 31, 1998.
During the three months ended January 31, 1999, the Company
used $344,193 from operating activities as compared to using
$580,125 during the year earlier period. The decrease in the use
of funds was primarily due to an increase in accounts payable
partially offset by an increase in inventory. The Company did not
use any cash in investing activities during the three months ended
January 31, 1999 or 1998. The Company generated $350,000 from
financing activities during the three months ended January 31, 1999
as compared to $393,125 in the year earlier period.
On December 22, 1998, Mr. Joseph L. Murphy purchased from the
Company 200,000 shares of Common Stock at a price of $2.25 per
share, the market value of such shares on such date. The purchase
was financed by Mr. Murphy executing a ten year promissory note due
to the Company in the principal amount of $450,000. The promissory
note bears interest at 5% per annum and requires annual principal
payments of $45,000 with accrued interest. The purchase was
approved by the unanimous consent of the Board of Directors of the
Company. The Company sold these shares to Mr. Murphy because it
was deemed to be in the best interests of the Company for him to
increase his equity ownership in the Company to better align his
interest with that of the other shareholders of the Company.
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 affect 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 are 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 lenders.
<PAGE>
PART II. Other Information.
Item 2. Changes in Securities and Use of Proceeds.
On December 22, 1998, the Company sold 200,000 shares of
the Company's Common Stock to Mr. Joseph L. Murphy at a
price of $2.25 per share, the market value of such shares
on such date.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Certificate of Incorporation of the Company, as
amended, 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.
3.2 By-Laws of the Company incorporated by reference to
Exhibit 3.03 of Registration Statement No. 33-10278
NY filed on Form S-18.
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.
Dated: March 19, 1999 JLM COUTURE, INC.,
Registrant
By:s/Joseph L. Murphy
Joseph L. Murphy
President (Authorized
officer and Principal
Financial Officer)
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