SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] Annual Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended October 31, 1999
OR
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.: 0-19000
JLM COUTURE, INC.
(Name of Small Business Issuer in its charter)
Delaware 13-3337553
(State or other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
225 West 37th Street, 5th Floor, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 921-7058
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.0002 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities 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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [X].
The issuer's revenues for its most recent fiscal year were
$18,097,989.
The aggregate market value of the shares of Common Stock held by
non-affiliates as reported by NASDAQ on January 26, 2000 was
approximately $2,207,181.
As of January 26, 2000, the registrant had outstanding 2,059,905
shares of Common Stock, par value $.0002 per share.
The Proxy Statement of the registrant to be filed on or before
February 28, 2000 is incorporated herein by reference.
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
PART I
Item 1. Description of Business.
(a) Background. JLM Couture, Inc. (the "Company"), a Delaware
corporation whose name was changed from Jim Hjelm's Private
Collection, Ltd. in July 1997, was organized in April 1986 to
design, manufacture and market high quality bridal wear and related
accessories, including bridesmaid gowns.
In May 1997, the Company acquired Alvina Valenta Couture
Collection, Inc. ("Alvina"), a New York corporation. Alvina
designs, manufactures and markets couture-quality bridal wear.
(b) Business. The Company is engaged in the design,
manufacture and distribution of bridal gowns, veils and bridesmaid
gowns.
The Company's couture lines of bridal gowns, bridesmaid gowns,
veils and related items (the "Private Collection," "Lazaro" and
"Alvina Valenta" lines) emphasize contemporary and traditional
styles characterized by ankle or floor length gowns, with or
without trains, and are principally constructed in satin, silk and
lace. The Company's designs reflect its emphasis on quality and
design originality. Wholesale prices for the Company's bridesmaid
and bridal gowns range from $90 to $120 and $750 to $1,500,
respectively, with suggested retail prices ranging from $180 to
$240 for bridesmaid gowns and $1,500 to $3,000 for bridal gowns.
The Company added the Alvina Valenta line through its
acquisition of Alvina during its fiscal year ended October 31,
1997. The Company also produces a line of less expensive bridal
gowns called "Visions," which is styled similar to the Company's
couture lines, but is constructed from less expensive fabrics. The
wholesale prices for bridal gowns in the "Visions" line range from
$395 to $550 and the retail prices range from $800 to $1,100.
The Company utilizes the efforts of its employees and several
independent contractors to assemble its dresses. The Company
maintains strict quality control over the contractors and supplies
the contractors with cut pattern pieces. There are no written
agreements between the Company and these contractors, enabling the
Company to utilize each contractor on an as-needed basis. The
Company also makes custom alterations on its basic designs at a
customer's request. The Company charges the customer for custom
alterations.
The Company has identified bridal boutiques or bridal
departments in women's clothing stores to market its products.
Since the Company's acquisition of Alvina, distribution of the
Alvina line has increased from 25 stores to over 55 stores. During
its fiscal year ended October 31, 1999 ("Fiscal 1999") and its
fiscal year ended October 31, 1998 ("Fiscal 1998"), no customer
accounted for more than ten percent of the Company's sales.
The Company's lines of gowns for its new seasons are generally
introduced at fashion shows held at the Company's showroom or at
fashion shows held at a New York City location. There are
generally two seasons per year, one in the Spring and one in the
Fall. The Company also displays its products at regional markets
and periodic bridal fashion shows sponsored by its retail customers
at the retail customer's showroom, sometimes called "trunk shows."
These trunk shows are generally supported with local advertising
paid for by the Company's retail customer.
The Company has three principal designers. Mr. Jim Hjelm has
been designing bridal gowns and related items for approximately 25
years. He began his career as a bridal designer with the House of
Bianchi, and then served as the head designer of Priscilla of
Boston, for 18 years. From 1980 until he left in 1986 to co-found
the Company with Mr. Joseph L. Murphy, he was a principal designer
for Galina Bouquet, New York, another couture quality bridal gown
manufacturer.
Mr. Lazaro Perez is another of the Company's bridal gown
designers. Lazaro (the name under which Mr. Perez designs) had
previously designed for Riccio, and studied at Chicago's Ray
College of Design, where he won an award for "Best New Bridal
Designer." Lazaro's designs have enabled the Company to diversify
and add depth to its product lines. For both 1997 and 1998, he was
awarded the 1997 Distinctive Excellence in the Bridal Industry
Award in the category of Style Innovator for Bridal Gowns. This
award recognized Lazaro as a leading designer of contemporary-classic bridal
styling, which represents one of the fastest growing
sectors of the bridal industry. Lazaro's dresses are marketed by
the Company under the name "Lazaro."
Victoria McMillan is the designer for the Company's Alvina
Valenta line of upscale wedding gowns. Ms. McMillan has been the
designer for Alvina since 1989.
The Company's designers are frequently featured in articles
and advertisements published in Bride's and Your New Home and
Modern Bride magazines. Major fashion department stores and bridal
boutiques have featured all three designers and their work in
advertisements, in store customer showings, and in retail area
displays.
The Company also markets its products through its five
internet sites and generates customer demand through distribution
of its bridal and bridesmaids catalogs.
Each designer also participates in the Company's marketing
efforts by appearing at seasonal bridal fashion shows and trunk
shows, and otherwise being available for showing the Company's
lines of bridal products. The Company also employs a full-time
sales manager and four salespeople.
The Company advertises in periodicals and other publications
dealing with the bridal industry in advance of and during each
bridal season. The Company's dresses have been advertised in
Bride's and Your New Home and Modern Bride magazines. This
advertising is directed toward displaying the Company's products in
a manner that enhances the general perception of the quality of the
Company's gowns and the Company's reputation.
The primary raw materials necessary for the Company's business
are quality fabrics, such as silks, taffetas and laces. The
Company maintains a minimum inventory of these raw materials.
Generally, the Company has been able to obtain necessary materials
relatively easily.
Although the bridal industry is seasonal, with showings to
retail buyers in advance of the Spring and Fall seasons, the
Company's business has only experienced slight seasonal
fluctuations, with a slight decrease in its fourth quarter.
The bridal wear industry is highly competitive. In marketing
its bridalwear and bridesmaid gowns, the Company competes directly
with the House of Bianchi, Priscilla of Boston, Amsale, Richard
Glasgow, the Diamond Collection, Watters & Watters, Bari Jay, and
others who currently market high fashion traditional bridal wear.
Competition with these firms is intense. Although the Company's
sales represent a small percentage of the bridal gown market (less
than one percent), the Company competes on the basis of prestige,
design, quality, service and price.
In its marketing efforts, the Company emphasizes the couture
quality of its products and the public recognition of Jim Hjelm,
Lazaro, and Alvina Valenta, including their experience and
reputation in the industry. In the Company's view, the ability of
the Company to continue to successfully compete is dependent upon
the continued development and maintenance of a line of high
quality, fashionable bridal wear and the promotion of the
reputations of Jim Hjelm, Lazaro, Victoria McMillan and other
recognized designers that the Company employs.
In an effort to establish a presence in Europe, the Company
hired a sales representative located in England to market its
Occasions Bridesmaids and Lazaro and Visions bridal gowns to the
European community. Such activities have not been significant to
date.
The Company employs approximately 60 full-time employees. The
Company also employs seven full-time sales people under Mr.
Murphy's direction.
ITEM 2. Description of Property.
The Company's executive offices and manufacturing facility are
located at 225 West 37th Street, New York, New York. This space is
located in Manhattan's "garment center." which primarily contains
garment manufacturers and office space. The premises are occupied
pursuant to a lease with an unaffiliated party, which expires in
January 2003. The Company's manufacturing facility consists of a
fully-equipped design and production area, which includes cutting
tables, sewing machines and other equipment required to manufacture
the Company's products. The Company also maintains showroom space
at 501 Seventh Avenue, New York, New York, pursuant to a lease with
an unaffiliated party, which expires in 2002. This space is
primarily utilized to display the Company's products to buyers.
The Company maintains a permanent showroom in the Chicago bridal
mart building pursuant to a lease that runs through March 31, 2001,
with an unaffiliated party.
ITEM 3. Legal Proceedings.
The Company is not a party to any material pending legal
proceedings, and to the best knowledge of the Company, no such
proceedings have been threatened.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
(a) The Common Stock of the Company (the "Common Stock") is
traded in the Over-the-Counter market and is quoted on the NASDAQ
System.
The following table sets forth, for the Company's last two
fiscal years, high and low bid quotations for its Common Stock.
The market quotations represent prices between dealers, do not
include retail markup, markdown, or commissions and may not
represent actual transactions.
Quarter Ended High Bid Low Bid
Fiscal 1999
January 31, 1999 $4.0625 $2.0625
April 30, 1999 3.00 1.875
July 31, 1999 2.40625 1.875
October 31, 1999 2.65625 1.375
Fiscal 1998
January 31, 1998 $6.625 $3.75
April 30, 1998 4.3125 3.375
July 31, 1998 4.15625 2.375
October 31, 1998 3.00 2.125
On January 18, 2000, the closing bid and ask prices in the
Over-the-Counter market for the Common Stock as reported by NASDAQ
were $1.9375 and $2.125, respectively.
(b) At January 26, 2000, there were approximately 152 holders
of record of the Common Stock. The Company believes that there are
significantly more beneficial holders of the Common Stock as many
of the shares of Common Stock are held in "street" names.
(c) No cash dividends have been paid on the Common Stock, and
the Company does not anticipate paying cash dividends in the
foreseeable future.
ITEM 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Disclosure Regarding Forward Looking Statements
The following discussion should be read in conjunction with
the Company's financial statements and notes thereto appearing
elsewhere in this Form 10-KSB. In addition to the historical
information contained herein, the discussion in this Form 10-KSB
contains certain forward looking statements that involves risks and
uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The Company's actual
results could differ materially from management's current
expectations.
Results of Operations - Fiscal 1999 as Compared to Fiscal 1998.
For Fiscal 1999, revenues were $18,097,989 as compared to
$15,704,889 in Fiscal 1998, an increase of $2,393,100 or 15.2%.
This increase was due to increased market penetration of the
Company's products.
The Company's gross profit margin increased in Fiscal 1999 to
41.2% from 39.7% in Fiscal 1998. The Company attributes the
increase in its gross profit margin to pricing increases during the
year as well as increased operating efficiencies created by the
higher sales volume.
Selling, general and administrative ("SG&A") expenses
decreased to 32.1% of net sales in Fiscal 1999 as compared to 33.2%
of sales in Fiscal 1998. The decrease was a result of decreased
marketing costs that were partially offset by an expansion of its
sales force in certain geographical areas including Eurpoe as well
as a one-time bad debt expense resulting from a large customer's
insolvency.
The Company generated net income of $880,169, or $0.44 per
share ($0.43 on a diluted basis), for Fiscal 1999 as compared to
net income of $547,108, or $0.30 per share ($0.28 on a diluted
basis) for Fiscal 1998. The increase in net income for Fiscal 1999
was due primarily to higher sales volume coupled with a rising
gross profit margin.
Liquidity and Capital Resources
The Company's working capital increased to $4,269,262 at
October 31, 1999 from $3,192,265 at October 31, 1998, an increase
of $1,076,997. The Company's current ratio was 2.7 to 1 at October
31, 1999 as compared to 2.2 to 1 at October 31, 1998.
During Fiscal 1999, net cash provided by the Company's
operating activities was $303,556 as compared to cash used by
operating activities of $280,193 in Fiscal 1998. Cash flow from
operations increased in Fiscal 1999 primarily due to an increase in
net income as well as a reduction in prepaid expenses and an
increase in income taxes payable in the current year. These gains
were partially offset by increases in accounts receivable and
inventory and a reduction in accounts payable in the current year.
Cash used in investing activities in Fiscal 1999 was $28,051
as compared to $57,315 in Fiscal 1998, as the Company spent less on
the purchase of property and equipment in Fiscal 1999.
Cash used in financing activities in Fiscal 1999 was $202,502
as compared to cash used in financing activities of $28,473 in
Fiscal 1998. This was primarily a result of the Company reducing
its revolving credit borrowings by $150,000 in Fiscal 1999 as
compared to increasing borrowings by $107,293 in Fiscal 1998.
In March 1998, the Company entered into a $2,000,000 loan
agreement with Israel Discount Bank of New York (the "Credit
Line"). The loan agreement calls for interest to be charged at the
prime interest rate. The loan is secured by a first lien on all of
the Company's accounts receivable, cash, securities, deposits and
general intangibles.
Funds generated from operations along with the Credit Line are
expected to be sufficient for the Company to meet its cash flow
requirements in the foreseeable future.
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.
Year 2000 Compliance
The Company completed its 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 recognize
date sensitive information with dates after December 31, 1999. The
total cost incurred to convert the system had a minimal impact on
earnings.
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. Financial statement disclosures for prior
periods are required to be restated. The Company adopted SFAS No.
130 in the first quarter of Fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information,". 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. The Company adopted SFAS No. 131 during Fiscal 1999,
however, management considers the Company to be operating under one
segment and no additional disclosure is necessary.
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.
ITEM 7. Financial Statements.
The financial statements listed below are included on pages-F-1 through
F-22 following the signature page.
Title of Document Page
Report of Independent Public Accountants F-1
Balance Sheets as of October 31, 1999 F-2 - F-3
and 1998
Consolidated Statements of Operations for the
Years Ended October 31, 1999 and 1998 F-4
Consolidated Statements of Shareholders' Equity
for the Years Ended October 31, 1999 and 1998 F-5 - F-6
Consolidated Statements of Cash Flows for the
Years Ended October 31, 1999 and 1998 F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-22
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
The information required by Items 9, 10, 11 and 12 of this
Part will be incorporated by reference to the Proxy Statement of
the Company to be filed with the Securities and Exchange Commission
on or before February 28, 2000.
<PAGE>
PART IV
ITEM 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 The Company's Certificate of Incorporation, 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 (the
"1995 10-KSB").
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 Form of Stock Option Plan is incorporated by reference to
Exhibit 10.02 to the Form S-18.
10.2 Amendment No. 1 dated November 1, 1998 to Employment
Agreement dated January 1, 1996 between the Company and
Mr. Lazaro Perez incorporated by reference to Exhibit
10.2 of the Company's Annual Report on Form 10-KSB filed
for its fiscal year ended October 31, 1998 (the "1998 10-KSB").
10.3 Security Agreement between Israel Discount Bank of New
York and JLM Couture, Inc. dated March 1998 incorporated
by reference to Exhibit 10.3 of the Company's 1998 Form
10-KSB.
10.4 Amendment No. 2 dated May 19, 1998 to Employment
Agreement dated February 1, 1995 between the Company and
Mr. Joseph L. Murphy incorporated by reference to Exhibit
10.4 to the Company's 1998 Form 10-KSB.
10.5 Pledge Agreement dated as of December 22, 1998 between
Joseph L. Murphy and the Company.
10.6 Subscription Agreement dated as of December 22, 1998
between Joseph L. Murphy and the Company.
10.7 Promissory Note dated as of December 22, 1998 by Joseph
L. Murphy to the Company.
23.1 Consent of Arthur Andersen LLP dated January 31, 2000.
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the last quarter of Fiscal 1999, the Company filed no
reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: January 31, 2000 By:/s/Joseph L. Murphy
Joseph L. Murphy,
President
Pursuant to the requirement of the Securities Exchange Act of
1934, as amended, the Company has duly caused this report to be
signed on its behalf by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
Name Capacity Date
/s/Daniel M. Sullivan Chairman of the Board January 31, 2000
Daniel M. Sullivan of Directors
/s/Joseph L. Murphy President and Director January 31, 2000
Joseph L. Murphy (principal executive and
financial officer)
/s/Joseph E. O'Grady Secretary and Director January 31, 2000
Joseph E. O'Grady
N:\RSKLAW\HJELM\10KSB-99.O31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To JLM Couture, Inc.
We have audited the accompanying consolidated balance sheets
of JLM Couture, Inc. (a Delaware corporation) and subsidiary as of
October 31, 1999 and 1998, and the related consolidated statements
of operations, shareholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
JLM Couture, Inc. and subsidiary as of October 31, 1999 and 1998,
and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
January 18, 2000
<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Balance Sheets as of
October 31, 1999 and 1998
1999 1998
Current Assets:
Cash $ 180,716 $ 107,713
Accounts receivable, net of
allowance for doubtful
accounts, trade discounts
and sales returns of $300,000
at October 31, 1999 and $315,000
at October 31, 1998 2,873,319 2,516,511
Inventories 3,241,480 2,464,944
Prepaid expenses and other
current assets 336,346 706,240
Deferred income taxes 56,934 -
Note receivable from shareholder 45,000 -
Total current assets 6,733,795 5,795,408
Equipment and leasehold
improvements, net of accumulated
depreciation and amortization of
$502,656 at October 31, 1999 and
$432,665 at October 31, 1998 233,615 275,555
Goodwill, net 253,524 267,608
Samples, net of accumulated
amortization of $134,851 at
October 31, 1999 and
$63,746 at October 31, 1998 324,833 357,596
Other assets 87,530 215,116
$7,633,297 $6,911,283
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Balance Sheets as of
October 31, 1999 and 1998
(continued)
1999 1998
Current Liabilities:
Revolving line of credit $ 750,000 $ 900,000
Accounts payable 693,253 1,397,639
Accrued expenses and
other current liabilities 313,568 230,068
Income taxes payable 707,712 75,436
Total current liabilities 2,464,533 2,603,143
Other Liabilities 33,696 47,639
Commitments and Contingencies
(Note 12)
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 2,059,905 at
October 31, 1999 and 1,873,348
at October 31, 1998;
Outstanding 2,012,905 at
October 31, 1999 and 1,838,905
at October 31, 1998 411 374
Additional paid-in capital 3,175,237 2,769,657
Retained earnings 2,548,209 1,668,040
5,723,857 4,438,071
Less: Note receivable and
accrued interest (467,465) (69,015)
Treasury stock, at cost:
47,000 shares at October 31,
1999 and 34,443 shares at
October 31, 1998 (121,324) (108,555)
Total shareholders' equity 5,135,068 4,260,501
$7,633,297 $6,911,283
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended October 31, 1999 and 1998
1999 1998
Net sales $18,097,989 $15,704,889
Cost of goods sold 10,646,955 9,476,902
Gross profit 7,451,034 6,227,987
Selling, general and
administrative expenses 5,815,061 5,220,197
Operating income 1,635,973 1,007,790
Interest expense, net of interest
income of $22,789 and $12,856 for
1999 and 1998, respectively 87,235 93,739
Income before provision for
income taxes 1,548,738 914,051
Provision for income taxes 668,569 366,943
Net income $ 880,169 $ 547,108
Net income per weighted
average number of common and
common equivalent share:
Basic $0.44 $0.30
Diluted $0.43 $0.28
Weighted average number of
common and common equivalent
shares outstanding:
Basic 2,003,735 1,833,827
Diluted 2,054,517 1,956,093
The accompanying notes to consolidated financial statements are
an integral part of these financial statements.
JLM COUTURE, INC. AND SUBSIDIARY
<TABLE> Statements of Shareholders' Equity
<CAPTION> For the Years Ended October 31, 1999 and 1998
Notes Total
Additional Receivable Share-
Common Stock Paid-in Retained and Accrued Treasury holders'
Shares Amount Capital Earnings Interest Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 31, 1,828,973 365 2,678,774 1,120,932 (62,075) (4,990) 3,733,006
1997
Purchase of Treasury - - - - - (103,565) (103,565)
Stock
Compensation Expense - - 7,109 - - - 7,109
Related to the
Issuance of Common
Stock and Stock Options
Exercise of Common 44,375 9 55,547 - - - 55,556
Stock Options
Accrued Interest on - - - - (3,134) - (3,134)
Notes Receivable
Note Receivable Due From - - - - (3,806) - (3,806)
Employees Issued
Upon Exercise
of Options
Tax Benefit From - - 28,227 - - - 28,227
Exercise of Common
Stock Options
Net Income - - - 547,108 - - 547,108
Balance October 31, 1,873,348 $374 $2,769,657 $1,668,040 $(69,015) $(108,555) $4,260,501
1998
Retirement of Treasury (15,943) (3) (56,737) - - 56,740 -
Stock, at cost
Purchase of Treasury - - - - - (69,509) (69,509)
Stock
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
JLM COUTURE, INC. AND SUBSIDIARY
<TABLE> Statements of Shareholders' Equity
<CAPTION> For the Years Ended October 31, 1999 and 1998
Notes Total
Additional Receivable Share-
Common Stock Paid-in Retained and Accrued Treasury holders'
Shares Amount Capital Earnings Interest Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Compensation Expense - - 5,100 - - - 5,100
Related to the
Issuance of Stock Options
Exercise of Stock 2,500 - 7,257 - - - 7,257
Options
Accrued Interest on - - - - (3,200) - (3,200)
Notes Receivable
Payment on Note Receivable - - - - 9,750 - 9,750
Shares issued to Joe Murphy 200,000 40 449,960 - (450,000) - -
for Note Receivable
Reclass to Receivable Payment - - - - 45,000 - -
on Note Receivable from Joe
Murphy received subsequent to
year-end
Net Income - - - 880,169 - - 880,169
Balance October 31, 2,059,905 $411 $3,175,237 $2,548,209 $(467,465) $(121,324) $5,135,068
1999
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended October 31, 1999 and 1998
1999 1998
Cash flows from operating activities:
Net income $ 880,169 $ 547,108
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 155,180 82,283
Provision for doubtful accounts (15,000) 235,570
Inventory obsolescence reserve 60,000 -
Accrued interest income on note
receivable (3,200) (3,134)
Compensation expense on issuance
of stock options and common stock 5,100 7,109
Changes in assets and liabilities:
Increase in accounts receivable (341,808) (209,299)
Increase in inventories (836,536) (552,895)
Decrease/(Increase) in prepaid
expenses and other current assets 369,894 (341,249)
Decrease/(Increase) in samples and
other assets 89,244 (211,057)
(Decrease)/Increase in accounts
payable (704,386) 440,789
Increase in accrued expenses
and other current liabilities 26,566 65,346
Increase/(Decrease) in income
taxes payable 632,276 (326,822)
(Decrease) in other long-term
liabilities (13,943) (13,942)
Net cash provided by (used in)
operating activities 303,556 (280,193)
Cash flows from investing activities:
Purchase of property and equipment (28,051) (57,315)
Net cash used in investing activ-
ities (28,051) $ (57,315)
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended October 31, 1999 and 1998
(Continued)
1999 1998
Cash flows from financing activities:
Net (reductions) borrowings of
revolving line of credit $(150,000) $107,293
Repayments of notes payable - (83,951)
Payments on note receivable 9,750 -
Proceeds from stock option exercise 7,257 -
Purchase of treasury stock (69,509) (51,815)
Net cash used in financing activities (202,502) (28,473)
Net increase (decrease) in cash 73,003 (365,981)
Cash, beginning of year 107,713 473,694
Cash, end of year $ 180,716 $107,713
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 81,788 $ 96,045
Income taxes $150,000 $518,034
Non-cash transactions:
Tax benefit from exercise of
stock options $ - $ 28,227
Common Stock issued in exchange
for note receivable from employees $450,000 $ 3,806
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
Note 1. The Company
JLM Couture, Inc. and subsidiary (the "Company") is
engaged in the design and manufacture of traditional,
high quality bridal wear and related accessories,
including bridesmaid gowns. Products are sold to
specialty bridal shops located throughout the continental
United States and England.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the
accounts of JLM Couture, Inc. and its wholly-owned
subsidiary, Alvina Valenta Couture Collection, Inc. All
significant intercompany balances and transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is determined based
upon estimates made by management and maintained at a
level considered adequate to provide for future
uncollectable amounts. Actual results could differ from
these estimates.
Inventories
Inventories are valued at the lower of cost (first-in,
first-out) or market and include material, labor and
overhead.
Prepaid Advertising and Marketing Costs
Prepaid advertising and marketing costs include costs of
advertisements that have not been published. Upon
publishing of an advertisement, the related cost is
expensed by the Company. Adverstising expenses for the
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
years ended December 31, 1999 and 1998 were $2,299,857 and
$1,720,082 respectively.
Equipment and Leasehold Improvements
Depreciation of equipment is computed using the
straight-line method over the estimated useful lives of
the respective assets, which range from five to ten
years. Amortization of leasehold improvements and leased
equipment is computed using the straight-line method over
the lesser of the lease term or estimated useful lives of
the assets. Major additions and improvements are
capitalized, and repairs and maintenance are charged to
operations as incurred.
Goodwill
Goodwill represents the excess of the purchase price over
the fair value of the net assets of the business acquired
and is being amortized on a straight-line basis over 20
years.
Samples
The Company produces samples of each dress line to be
used for displaying the Company's dresses at stores where
they are sold and at fashion shows. Samples are
amortized over their estimated useful lives (4 years).
Long-Lived Assets
During its Fiscal year ended October 31, 1997, the
Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets," ("SFAS 121"). SFAS 121
requires, among other things, that an entity review its
long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate
that the carrying amount of an asset may not be fully
recoverable. As a result of its review, the Company does
not believe that any such change has occurred.
Revenue Recognition
Revenue is recognized upon shipment and acceptance by the
customer.
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
Income Taxes
Income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under SFAS
109, an asset and liability approach is required. Such
approach results in the recognition of deferred tax
assets and liabilities for the expected future tax
consequences of temporary differences between the book
carrying amounts and the tax basis of assets and
liabilities.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"). This statement establishes
a fair value based method of accounting for an employee
stock option or similar equity instrument. However, SFAS
123 allows an entity to continue to measure compensation
cost for employee stock-based compensation plans using
the intrinsic value method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to
Employees," ("Opinion 25"). Entities electing to
continue to follow the accounting under Opinion 25 are
required to make pro forma disclosures of net income and
earnings per share as if the fair value based method of
accounting under SFAS 123 had been applied. The Company
has elected to continue to account for employee stock-based
compensation under Opinion 25 and provide the
required pro forma disclosures.
Comprehensive Income
In 1997, the Financial Accounting Standards Board
("FASB") 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. The Company adopted
SFAS No. 130 during the first quarter of Fiscal 1999, and
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
has no comprehensive income components to report.
Earnings per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," which the Company adopted effective November 1, 1998,
establishes new standards for computing and presenting earnings per
share ("EPS"). The new standard requires the presentation of basic
EPS and diluted EPS. Basic EPS is calculated by dividing income
available to common shareholders by the weighted average
number of common shares outstanding during the period.
Diluted EPS is calculated by dividing income available to common
shareholders by the weighted average number of common shares
outstanding adjusted to reflect potentially dilutive securities.
Certain options and warrants have been excluded from the
calculation of diluted EPS, as their effect is anti-dilutive.
A reconciliation of the weighted average number of shares
of common stock outstanding to the weighted average
number of shares of common stock outstanding assuming
dilution is as follows:
Years Ended October 31,
1999 1998
Basic weighted average 2,003,735 1,833,827
common shares outstanding
Effect of dilutive securities:
Stock options 50,782 121,898
Warrants - 368
Diluted weighted average
common shares outstanding 2,054,517 1,956,093
New Accounting Pronouncements
In June 1997, the FASB 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. The Company adopted SFAS No. 131
during Fiscal 1999, however, management views Company
operations as one segment. In addition, new European
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
operations accounted for only approximately $300,000 of
revenue during 1999. As such, no advertising disclosure is
necessary.
In June 1998, the FASB issued SFAS No. 133, "Accounting
for Derivative and Hedging Activities", which must be
adopted for fiscal quarters of fiscal years beginning
after June 15, 2000. SFAS No. 133, requires the
recognition of all derivatives as either assets or
liabilities in the balance sheets and measurement of
those instruments at fair value. The Company has not
entered into any derivative or hedging activities.
Note 3. Inventories
Inventories consisted of the following:
October 31,
1999 1998
Raw materials $2,094,866 $1,629,899
Work-in-process 128,564 128,124
Finished goods 1,018,050 706,921
$3,241,480 $2,464,944
Raw materials is shown net of a $60,000 obsolescence
reserve.
Note 4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of
the following:
October 31,
1999 1998
Prepaid advertising and $ 310,516 $ 640,488
marketing costs
Other 25,830 67,752
$ 336,346 $ 706,240
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
Note 5. Equipment and Leasehold Improvements
Equipment and leasehold improvements are summarized as
follows:
October 31,
1999 1998
Furniture and equipment $ 511,469 $ 488,036
Leasehold improvements 190,540 185,922
Leased equipment 34,261 34,261
736,270 708,219
Less: Accumulated
depreciation and
amortization (502,655) (432,664)
Equipment and leasehold
improvements, net $ 233,615 $ 275,555
Note 6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are
summarized as follows:
October 31,
1999 1998
Payroll and related
expenses $ 265,578 $ 85,952
Other 47,990 46,442
$ 313,568 $ 230,068
Note 7. Revolving Line of Credit and Long-term Debt
Revolving Line of Credit
At October 31, 1999 and 1998, the Company had lines of
credit agreements available for up to $2,000,000. At
October 31, 1999 and 1998, the Company had borrowed
$750,000 and $900,000, respectively, under the lines of
credit agreements.
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
In March 1998, the Company entered into a line of credit
agreement with Israel Discount Bank of New York ("IDB").
The proceeds of the credit facility were initially used
to repay amounts outstanding under the Company's previous
line of credit facility. Credit availability is based on
eligible amounts of accounts receivable, as defined, up
to a maximum of $2,000,000. Based on eligible accounts
receivable at October 31, 1999, $1,250,000 was available
for future borrowing. The line of credit facility is
secured by the Company's cash, accounts receivable,
securities, deposits and general intangibles. Interest
is charged at the prime rate (8.25% at October 31, 1999).
The line of credit agreement will automatically renew
each year unless either party provides 60 days notice to
terminate the line of credit agreement. Interest expense
charged to operations related to the IDB line of credit
facility totaled $80,498 for the year ended October 31,
1999.
Note 8. Income Taxes
The provision for income taxes for the years ended
October 31, 1999 and 1998, consist of the following:
1999 1998
Current:
Federal $643,892 $153,635
State and local 139,948 51,682
$783,840 $205,317
Deferred:
Federal (116,835) $125,081
State and local 1,564 36,545
(115,271) $161,626
$668,569 $366,943
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
A reconciliation of the statutory Federal income tax rate to
the effective income tax rate for the years ended October 31,
1999 and 1998, is as follows:
1999 1998
Statutory Federal income tax at
applicable rates 34% 34%
State and local taxes, net of
federal tax benefit 6% 6%
Nondeductible expenses 1% 2%
Other 2% (2%)
43% 40%
The components of deferred income tax assets and liabilities
are as follows:
October 31,
1999 1998
Deferred Tax Assets:
Allowance for doubtful accounts $ 129,000 $ 135,450
Other liabilities and accruals 102,775 104,332
Total deferred tax assets 231,775 239,782
Deferred Tax Liabilities:
Prepaid advertising and
marketing expenses (175,407) (275,410)
Capitalized design costs - (22,708)
Total deferred tax liabilities (175,407) (298,118)
Net deferred tax asset (liability) $ 56,368 $ (58,336)
<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
Deferred income taxes are provided on temporary
differences between financial statement and taxable
income. Realization of deferred income taxes is
dependent on generating sufficient taxable income in the
future. Although realization is not assured, management
believes it is more likely than not that its deferred tax
assets will be realized.
Note 9. Shareholders' Equity
During Fiscal 1999 and Fiscal 1998, the Company
repurchased 28,500 and 18,500, shares of Common Stock,
respectively, in the open market at a cost of $69,509 and
$51,815, respectively.
Warrants- In connection with a private placement
completed during November 1996, the Company granted to
the investors, warrants to purchase 7,500 shares of the
Company's Common Stock exercisable at $4.37 per share
which expire December 31, 2001 and warrants to purchase
15,000 shares of Common Stock exercisable at $6.62 per
share which expire December 31, 2001. The investors were
granted registration rights whereby the Company agreed to
use its best efforts to include the shares in any
registration statement filed by the Company to publicly
offer the Company's securities.
Stock Option Plans
On November 17, 1986, the Company adopted a Stock Option
Plan, as amended (the "1986 Plan"). The 1986 Plan
provided for options and limited stock appreciation
rights ("Limited SARs") to be granted in tandem to
employees for a total of up to 100,000 shares of Common
Stock. Limited SARs may only be granted in conjunction
with related options. The exercise price of options
granted may not be less than the fair market value of the
shares on the date of the grant (110% of such fair market
value for a holder of more than 10% of the Company's
voting securities), nor may options be exercised more
than ten years from date of grant (5 years for a holder
of more than 10% of the Company's voting securities).
The 1986 Plan terminated in 1996, but the options
outstanding are valid pursuant to its terms.
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
On August 26, 1996, the Company adopted a Stock Option Plan
(the "1996 Plan"). The 1996 Plan provides for the issuance
of incentive and nonstatutory stock options to employees,
consultants, advisors and/or directors for a total of up to
100,000 shares of Common Stock. In September 1998, the
1996 Plan was amended to increase the number of shares
available for grant to 250,000 shares. The exercise price
of options granted may not be less than the fair market
value of the shares on the date of grant (110% of such fair
market value for a holder of more than 10% of the Company's
common stock). The 1996 Plan is scheduled to terminate on
August 26, 2006.
The following table summarizes data relating to
non-incentive plan options and incentive plan options:
Incentive Non-Incentive
1999 1998 1999 1998
Options outstanding
at the beginning of
the year 145,625 40,000 443,000 259,666
Options granted - 110,000 - 230,000
Options expired (30,000) - - (8,333)
Options exercised (2,500) (4,375) - (38,333)
Options outstanding
at the end of the
year 113,125 145,625 443,000 443,000
Options exercisable
at the end of the
year 42,272 72,292 273,000 273,000
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
The exercise prices of the options outstanding at October
31, 1999 and 1998 range from $.87 to $4.625. At October
31, 1999, there are options covering 150,000 shares of
Common Stock available for future grant under the 1996
Plan.
During Fiscal 1998, an employee exercised stock options
to acquire 38,333 shares of Common Stock at an exercise
price of $1.35 per share. The employee tendered 14,276
shares of Common Stock to the Company in exchange for the
option exercised. The shares of Common Stock tendered by
the employee had been outstanding for many years. The
tendered shares of Common Stock have been included in
treasury stock in the accompanying financial statements.
As a result of individuals exercising their non-incentive
stock options in Fiscal 1998, the Company realized an
income tax benefit of $28,227. The benefit was utilized
to reduce current income taxes payable and the benefits
were recorded in additional paid-in capital in the
accompanying, consolidated balance sheets as of October
31, 1998.
Effective November 1, 1996, the Company adopted the
provisions of SFAS 123, "Accounting for Stock
Compensation." As permitted by the statement, the
Company has elected to continue to account for stock-based
compensation using the intrinsic value method under
APB Opinion No. 25. Accordingly, no compensation expense
has been recognized for stock-based compensation given to
employees, since the options granted were at prices that
equaled or exceeded their fair market value at the date
of grant. If compensation expense for the Company's
stock options issued in Fiscal 1999 and Fiscal 1998 had
been determined based on the fair value method of
accounting, the Company's net income and earnings per
share would have been reduced to the pro forma amounts
indicated below:
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
For The Years Ended
October 31,
1999 1998
Net income --
As reported $880,169 $547,108
Pro forma $598,306 $333,670
Basic earnings
per share --
As reported $0.44 $0.30
Pro forma $0.30 $0.18
Diluted earnings
per share --
As reported $0.43 $0.28
Pro forma $0.29 $0.17
The fair value of issued stock options was estimated at the
date of grant using the Black-Scholes option pricing model
incorporating the following assumptions for options granted:
For The Years Ended
October 31,
1999 1998
Weighted average
market price at
date of grant $1.97 $2.64
Risk free interest
rate 5.9% 5.6%
Volatility factor 76% 81%
Expected life of
the stock options 3.0 yrs. 3.6 yrs.
During the year, the Company granted 23,000 non-plan stock
options to three employees at a grant price that approximates
fair-value. These options are exercisable immediately for up
to three years from date of grant, however, the shares of
Common Stock issuable upon exercise of these options are
restricted for one year.
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
Note 10. Related Party Transactions
Notes Receivable - Sale of Stock
On October 15, 1990, the Company's former president
exercised a stock option to purchase 36,458 shares of
Common Stock at a purchase price of $.96 per share. A
$35,000 note was received for the purchase. The note
together with interest accruing at a prime rate plus one
percent per annum, is due on demand. The outstanding
principal and interest balance at October 31, 1999 and
1998 was $62,465 and $65,209, respectively.
Periodically, compensation expense has been recorded for
the difference between the original price and the current
fair value of the Common Stock, which as of yet has not
been paid for by the executive.
On December 22, 1998, the Company issued an executive of
the Company 200,000 shares of Common Stock at a price of
$2.25 per share, which was the fair value on the issuance
date. The executive executed a ten-year promissory note
due to the Company in the amount of $450,000, with
$45,000 principal and accrued interest payments due
annually on December 22, until repaid. The promissory
note bears interest at 5% per annum. This first
installment was paid subsequent to year end.
Note 11. Commitments and Contingencies
Lease Commitments
The Company leases office, production, and retail
facilities under leases expiring through 2003. Minimum
annual rentals under such leases are as follows:
Year Ending
October 31,
2000 214,426
2001 203,840
2002 136,834
2003 28,500
$583,600
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1999 and 1998
(continued)
Rent expense charged to operations for the foregoing
lease and short-term rentals for the years ended October
31, 1999 and 1998, amounted to $295,612 and $290,402,
respectively.
Employment Agreements
The Company has employment agreements with three of its
key employees terminating from June 2001 to December
2005. Total compensation expense under the terms of
these agreements for the years ended October 31, 1999 and
1998 was $606,296 and $535,630, respectively.
Future minimum commitments under these employment
agreements are as follows:
Year Ending October 31,
2000 $ 398,000
2001 325,000
2002 155,000
2003 155,000
Thereafter 205,000
$1,238,000
<PAGE>
EXHIBIT INDEX
10.5 Pledge Agreement dated as of December 22, 1998 between
Joseph L. Murphy and the Company.
10.6 Subscription Agreement dated as of December 22, 1998
between Joseph L. Murphy and the Company.
10.7 Promissory Note dated as of December 22, 1998 by Joseph
L. Murphy to the Company.
23.1 Consent of Arthur Andersen LLP dated January 31, 2000.
27 Financial Data Schedule
EXHIBIT 10.5
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of December 22, 1998 between Joseph
L. Murphy (herein called the "Pledgor") and JLM COUTURE, INC.
(herein called the "Lender").
W I T N E S S E T H:
WHEREAS, on the date hereof, Pledgor is purchasing 200,000
shares of Common Stock of Lender for $450,000, which amount is
being paid to lender by Pledgor's delivery of his promissory note
to Lender (the "Loan").
WHEREAS, Pledgor has agreed to pledge 200,000 shares of Common
Stock of Lender (the "Common Stock") owned by him as security for
the Loan; and
WHEREAS, the Lender will hold the Common Stock pursuant to the
terms of this Agreement.
NOW THEREFORE, in consideration of the terms hereof, it is
agreed as follows:
1. As collateral security for the full and timely payment,
performance and observance of the Loan, the Pledgor herewith
deposits and pledges with the Lender, in form transferable for
delivery, and grants to the Lender a security interest in, the
Common Stock more particularly described in Schedule A annexed
hereto, and such additional property at any time and from time to
time receivable by the Lender hereunder or otherwise distributed in
respect of or in exchange for any or all such shares and/or
obligations (herein collectively called the "Pledged Securities").
2. The Pledgor represents and warrants the Pledged Securities
are, and will be on deposit hereunder, duly and validly issued and
duly and validly pledged with the Lender in accordance with law,
and agrees to defend the Lender's right, title, lien and security
interest in and to the Pledged Securities against the claims and
demands of all persons whomsoever. The Pledgor also represents and
warrants to the Lender that he has, and will have on deposit
hereunder, good title to all of the Pledged Securities, free and
clear of all claims, mortgages, pledges, liens, encumbrances and
security interests of every nature whatsoever.
3. So long as there shall exist no condition, event or act
which constitutes, or with notice or lapse of time, or both, would
constitute, a default or an event of default under the Loan, the
Pledgor shall be entitled:
(a) To exercise, as he shall think fit, but in a manner
in the judgment to the Lender not inconsistent with the terms
hereof or of the Loan, the voting power with respect to the Pledged
Securities, and for that purpose the Lender shall execute or cause
to be executed from time to time, at the expense of the Pledgor,
such proxies or other instruments in favor of the Pledgor or his
nominee, in such form and for such purposes as shall be reasonably
required by the Pledgor and shall be specified in a written request
therefor, to enable him to exercise such voting power with respect
to the Pledged Securities; and
(b) To receive and retain for his own account any and
all dividends (other than stock or liquidating dividends) and
interest at any time and from time to time declared or paid upon
any of the Pledged Securities.
4. In case, upon the dissolution or liquidation (in whole or
in part) of the issuer of any of the Pledged Securities, any sum
shall be paid as a liquidating dividend or otherwise upon or with
respect to any of the Pledged Securities, and in case any sum shall
be paid on account of the principal of any of the Pledged
Securities which shall be an obligation, such sum shall be paid
over to the Lender, to be held by it as additional collateral
hereunder. In case any stock dividend shall be declared on any of
the Pledged Securities, or any shares of stock or fractions thereof
shall be issued pursuant to any stock split involving any of the
Pledged Securities, or any distribution of capital shall be made on
any of the Pledged Securities, or any shares, obligations or other
property shall be distributed upon or with respect to the Pledged
Securities pursuant to a recapitalization or reclassification of
the capital of the issuer thereof, or pursuant to the dissolution,
liquidation (in whole or in part), bankruptcy or reorganization of
such issuer, or to the merger or consolidation of such issuer with
or into another corporation, the shares, obligations or other
property so distributed shall be delivered to the Lender, to be
held by it as additional collateral hereunder, and all of the same
(other than cash) shall constitute Pledged Securities for all
purposes hereof.
5. So long as there shall exist a condition, event or act
which constitutes, or with notice or lapse of time, or both, would
constitute, a default or an event of default under the Loan, the
Lender shall be entitled to exercise all voting power with respect
to the Pledged Securities and to receive and retain, as additional
collateral hereunder, any and all dividends and interest at any
time and from time to time declared or paid upon any of the Pledged
Securities.
6. Any cash received and retained by the Lender as collateral
hereunder pursuant to the foregoing provisions may at any time and
from time to time be applied (in whole or in part) by the Lender,
at its option, to the payment of interest on and/or principal of
the Loan (in such order of maturity as the Lender shall in its sole
discretion determine).
7. If a default or an event of default shall occur under the
Loan or if the Loan shall not be paid when due, whether at the
stated maturity thereof or by acceleration or otherwise, the
Lender, without obligation to resort to other security, shall have
the right at any time and from time to time to sell, resell, assign
and deliver, in its discretion, all or any of the Pledged
Securities, in one or more parcels at the same or different times,
and all right, title and interest, claim and demand therein and
right of redemption thereof, on any securities exchange on which
the Pledged Securities or any of them may be listed, or at public
or private sale, for cash, upon credit or for future delivery, and
in connection therewith the Lender may grant options, the Pledgor
hereby waiving and releasing any and all equity or right of
redemption. If any of the Pledged Securities are sold by the
Lender upon credit or for future delivery, the Lender shall not be
liable for the failure of the purchaser to purchase or pay for the
same and, in the event of any such failure, the Lender may resell
such Pledged Securities. In no event shall the Pledgor be credited
with any part of the proceeds of sale of any Pledged Securities
until cash payment thereof has actually been received by the
Lender.
8. No demand, advertisement or notice, all of which are
hereby expressly waived, shall be required in connection with any
sale or other disposition of any part of the Pledged Securities
which threatens to decline speedily in value or which is of a type
customarily sold on a recognized market; otherwise the Lender shall
give the Pledgor five days' prior notice of the time and place of
any public sale and of the time after which any private sale or
other disposition is to be made, which notice the Pledgor agrees is
reasonable, all other demands, advertisements and notices being
hereby waived. The Lender shall not be obligated to make any sale
of Pledged Securities if he shall determine not to do so,
regardless of the fact that notice of sale may have been given.
The Lender may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such sale
may, without further notice, be made at the time and place to which
the same was so adjourned. Upon each private sale of Pledged
Securities or a type customarily sold in a recognized market and
upon each public sale, the Lender or any holder of the Loan may
purchase all or any of the Pledged Securities being sold, free from
any equity or right of redemption, which is hereby waived and
released, and may make payment therefor (by endorsement without
recourse) to the amount then due which the Pledgor hereby agrees to
accept. In the case of all sales of Pledged Securities, public or
private, the Pledgor shall pay all costs and expenses of every kind
for sale and delivery, including brokers' and attorneys' fees, and
after deducting such costs and expenses from the proceeds of sale,
the Lender shall apply any residue to the payment of the Loan, and
the Pledgor shall continue liable for any deficiency. The balance,
if any, remaining after payment in full of all of the Loan, shall
be paid to the Pledgor, subject to any duty of the Lender imposed
by law to the holder of any subordinate security interest in the
Pledged Securities known to the Lender.
9. The remedies provided herein in favor of the Lender shall
not be deemed exclusive, but shall be cumulative, and shall be in
addition to all other remedies in favor of the Lender existing at
law of in equity.
10. The Lender shall have the right, for and in the name,
place and stead of the Pledgor, to execute endorsements,
assignments or other instruments of conveyance or transfer with
respect to all or any of the Pledged Securities.
11. The Lender shall have no duty as to the collection or
protection of the Pledged Securities or any income thereon or as to
the preservation of any rights pertaining thereto, beyond the safe
custody of any thereof actually in his possession. With respect to
any maturities, calls, conversions, exchanges, redemptions, offers,
tenders or similar matters relating to any of the Pledged
Securities (herein called "events"), the Lender's duty shall be
fully satisfied if (i) the Lender exercises reasonable care to
ascertain the occurrence and to give reasonable notice to the
Pledgor of any events applicable to any Pledged Securities which
are registered and held in the name of the Lender or its nominee,
(ii) the Lender gives the Pledgor reasonable notice of the
occurrence of any events, of which the Lender has received actual
knowledge, as to any securities which are in bearer form or are not
registered and held in the name of the Lender or its nominee (the
Pledgor agreeing to give the Lender reasonable notice of the
occurrence of any events applicable to any securities in the
possession of the Lender of which the Pledgor has received
knowledge), and (iii) in the exercise of its sole discretion (a)
the Lender endeavors to take such action with respect to any of the
events as the Pledgor may reasonably and specifically request in
writing in sufficient time for such action to be evaluated and
taken or (b) if the Lender determines that the action requested
might adversely affect the value of the Pledged Securities as
collateral, the collection of the Loan, or otherwise prejudice the
interests of the Lender, the Lender gives reasonable notice to the
Pledgor that any such requested action will not be taken and if the
Lender makes such determination or if the Pledgor fails to make
such timely request, the Lender takes such other action as it deems
advisable in the circumstances. Except as hereinafter specifically
set forth, the Lender shall have no further obligation to ascertain
the occurrence of, or to notify the Pledgor with respect to, any
events and shall not be deemed to assume any such further
obligation as a result of the establishment by the Lender of any
internal procedures with respect to any securities in its
possession. The Pledgor releases the Lender from any claims,
causes of action and demands at any time arising out of or with
respect to this Agreement, the Pledged Securities and/or any
actions, taken or omitted to be taken by the Lender with respect
thereto, and the Pledgor hereby agrees to hold the Lender harmless
from and with respect to any and all such claims, causes of action
and demands.
12. The Pledgor hereby appoints the Lender as the Pledgor's
attorney-in-fact for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument
which either may deem necessary or advisable to accomplish the
purposes hereof. Without limiting the generality of the foregoing,
the Lender shall have the right and power to receive, endorse and
collect all checks and other orders for the payment of money made
payable to the Pledgor representing any interest or dividend or
other distribution payable in respect of the Pledged Securities or
any part thereof and to give full discharge for the same.
13. No delay on the part of the Lender or of any holder of
the Note in exercising any of its options, powers or rights, or
partial or single exercise thereof, shall constitute a waiver
thereof.
14. Upon full payment in full of the Loan, the Pledgor shall
be entitled to the return of all of the Pledged Securities and of
all other property and cash which have not been used or applied
toward the payment of the Loan. The assignment by the Lender to
the Pledgor of such Pledged Securities and other property shall be
without representation or warranty of any nature whatsoever and
wholly without recourse.
15. Pledgor shall have the right (with written consent of
Lender) to substitute collateral for the Pledged Securities, at any
time, upon reasonable notice to the Lender. Lender agrees to allow
for said substitution of collateral if the substituted collateral
is of equal value to the Pledged Securities, and is otherwise
commercially reasonable, and Lender shall not unreasonably withhold
his approval.
16. Any notice or demand upon the parties shall be deemed to
have been sufficiently given for all purposes thereof if mailed,
postage prepaid, by registered or certified mail, return receipt
requested, or if delivered, to the party at the following address:
(a) If to Pledgor, to:
Joseph L. Murphy
c/o JLM Couture, Inc.
225 West 35th Street
New York, NY 10018
(b) If to Lender, to:
Joseph L. Murphy
c/o JLM Couture, Inc.
225 West 35th Street
New York, NY 10018
(c) with a copy to:
Richard S. Kalin, Esq.
Kalin & Associates, P.C.
One Penn Plaza, Suite 1425
New York, NY 10119
The foregoing addresses may be changed by the aforesaid
parties by notifying the other parties in the manner hereinabove
specified.
17. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and
governed by the law of the State of New York, cannot be changed
orally and shall bind and inure to the benefit of the Pledgor and
the Lender and their respective successors and assigns, and all
subsequent holders of the Note.
18. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of
which taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers duly authorized as of
the day and year first above written.
JLM Couture, Inc., Lender
By: s/Joseph E. O'Grady
Authorized Officer
s/Joseph L. Murphy
Joseph L. Murphy, Pledgor
N:\RSKLAW\HJELM\PLED-AGR.F99
Exhibit 10.6
SUBSCRIPTION AGREEMENT
JLM COUTURE, INC.
225 West 37th Street
New York, New York 10018
Dear Sirs:
The undersigned (the "Investor") hereby tenders his
subscription for and offers to acquire 200,000 shares of Common
Stock (the "Common Stock") of JLM Couture, Inc. (the "Company") at
a purchase price of $2.25 per share.
1. Subscription Payment. As payment for this subscription,
simultaneously with the execution hereof, the Investor is
delivering herewith his promissory note (the "Note") payable to the
order of JLM Couture, Inc. in the form set forth hereto as Exhibit
A and entering into a Pledge Agreement in the form attached hereto
as Exhibit B to secure the Note.
2. Representations of the Investor. The Investor,
recognizing that the Company will be relying on the information and
on the representations set forth herein, hereby represents,
warrants and agrees as follows:
(a) The Investor understands that the offer and sale of the
Common Stock is being made by means of this Subscription
Agreement, and is aware of the high degree of risk associated
with an investment in the Common Stock.
(b) The Investor, who is a significant shareholder, officer
and director of the Company, is a person who is capable to
bear economic risks including the entire loss of an investment
in the Common Stock.
(c) The Investor is purchasing the shares of Common Stock
issued pursuant to this Subscription Agreement (the "Shares")
for his own account for investment, and not with a view to or
for sale in connection with the distribution of the Shares nor
with any present intention of selling or otherwise disposing
of all or any part of the Shares; provided, however, the
Investor shall have the right to transfer the securities to
third parties pursuant to an exemption from registration under
the Securities Act of 1933 (the "Act"). In connection with
any such future transfer, the Company will accept an
acceptable opinion of counsel to the Investor as to the
existence of any exemption. The Investor hereby acknowledges
his understanding that the Shares are not being registered
under the Act or any state securities laws, on the ground that
the issuance and sale of the Units to the Investor is exempt
under the Act and relevant state securities laws, as a small
offering and not involving a public offering. The Investor
agrees not to sell the Shares unless they are subsequently
registered or an exemption from such registration is
available.
The Investor further acknowledges his understanding that the
Company's reliance on such exemptions are, in part, based upon
the foregoing representations, warranties, and agreements by
the Investor and that the statutory basis for such exemptions
would not be present, if notwithstanding such representations,
warranties and agreements, the undersigned were acquiring the
Shares for resale on the occurrence or non-occurrence of some
predetermined event. In order to induce the Company to issue
and sell the Shares subscribed for hereby to the Investor, it
is agreed that the Company will have no obligation to
recognize the ownership, beneficial or otherwise, of such
Shares by anyone but the Investor, except as set forth herein.
(d) All information contained in this Subscription Agreement
is correct and complete. Any material change occurring in
this Subscription Agreement prior to acceptance of this
subscription shall be promptly reported to the Company. The
Investor, in connection with his investment in the Company,
has sufficient knowledge and experience in matters relating to
business and financial matters in general and he is capable of
evaluating the merits and risks of an investment in the
Company and of making an informed investment decision.
(e) The address set forth in this Subscription Agreement is
his true and correct primary residence, and he has no present
intention of becoming a resident of any other state or
jurisdiction.
(f) The Investor acknowledges and is aware that, except as
set forth herein, the Investor will not transfer or assign
this subscription, the Shares or any interest therein; if and
to the extent this subscription is accepted, the assignment
and transferability of the Shares subscribed for by the
Investor will be governed by this Subscription Agreement and
all applicable laws.
(g) The Investor acknowledges and is aware that this
subscription is voidable by the Investor within three days
after the first tender of consideration is made by the
Investor to the Company, an agent of the Company or an escrow
agent. Subsequent to this three day period, the Investor is
not entitled to cancel, terminate or revoke this subscription,
and any agreements of the Investor in connection herewith
shall survive the death or disability of the Investor.
(h) The Investor has been given access to full and fair
disclosure of all material information concerning the Company.
The Investor has also been given the opportunity to ask
questions of, and receive answers from, management of the
Company regarding the terms and conditions of this Agreement,
and the transactions contemplated thereby, as well as the
affairs of the Company and related matters.
The Investor may have access to whatever additional
information concerning the Company, its financial condition,
business, prospects, management, capitalization, and other
similar matters, that the Investor or his purchaser
representative, if any, desires, provided that the Company can
acquire such information without unreasonable effort or
expense.
(i) The Investor has had the opportunity to obtain additional
information necessary to verify the accuracy of the
information referred to in subparagraph (h) hereof.
3. Indemnification. The Investor hereby agrees to indemnify
and hold harmless the Company, its respective officers, directors,
shareholders, employees, agents and attorneys of each such entity
against any and all losses, claims, demands, liabilities and
expenses (including reasonable legal or other expenses incurred by
each such person in connection with defending or investigating any
such claims or liabilities, whether or not resulting in any
liability to such person) to which any such indemnified party may
become subject under the Act, under any other statute, at common
law or otherwise, insofar as such losses, claims, demands,
liabilities and expenses (a) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in this Subscription Agreement or (b) arise out of or are
based upon any breach of any representation, warranty or agreement
contained herein.
4. Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements contained herein
shall survive the delivery of, and payment for, the Shares.
5. Acceptance of Subscription. The Company may accept this
Subscription Agreement at any time for the Shares subscribed for by
executing a copy hereof as provided and notifying the Investor.
The Investor understands that the Company may, in its sole
discretion, reject this subscription or may accept only a portion
of this subscription.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement as of the 22nd day of December, 1998.
Organization Signature: Individual Signature:
s/Joseph L. Murphy
Print Name of Subscriber
By: Joseph E. O'Grady
Signature (s)
Secretary Joseph L. Murphy
Print Name and Title of Print Name (s)
Person Signing
Print Name (s)
Number of Shares Subscribed for: 200,000
(Please print information below
exactly as you wish it to appear in
the records of the Company)
Name and capacity in which Social Security Number of Indi-
subscription is made -- see dividual or other Taxpayer I.D.
below for particular Number
requirements
Address: Address for notices if different:
Number and Street Number and Street
City State Zip Code City State Zip Code
Please indicate form of ownership:
TENANTS-IN-COMMON JOINT TENANTS WITH RIGHT OF
(Both Parties must sign SURVIVORSHIP
above) (Both Parties must sign above)
ACCEPTANCE OF SUBSCRIPTION
JLM COUTURE, INC.
The foregoing subscription is hereby accepted by JLM Couture,
Inc., this 22nd day of December, 1998, for 200,000 Shares.
By:s/Joseph E. O'Grady
Name: Joseph E. O'Grady
Title:Secretary
EXHIBIT 10.7
PROMISSORY NOTE
$450,000.00 New York, New York
December 22, 1998
The undersigned, JOSEPH L. MURPHY (hereinafter collectively
called "Maker" or "Obligor") promises to pay to the order of JLM
COUTURE, INC. (hereinafter, together with any holder hereof, called
"Holder"), at the offices of the Maker or at such other place as
Holder may from time to time designate, the principal sum of Four
Hundred Fifty Thousand ($450,000) Dollars, with interest thereon
from the date hereof at the rate of five percent (5%) per annum.
The principal amount of this Note shall be repaid in ten equal
annual installments of Forty Five Thousand ($45,000) Dollars,
commencing December 22, 1999, (each such annual installment date
referred to herein as an "Installment Date"). All accrued and
unpaid interest on the unpaid principal balance hereof shall be
paid on each Installment Date.
This Note, together with accrued and unpaid interest, if any,
shall be prepayable upon a Default as defined herein.
All payments hereunder shall first be credited to interest and
lawful charges then accrued and the remainder to principal.
The following shall be an event of default (a) nonpayment of
any interest or principal hereunder when due; (b) insolvency, or
appointment of a receiver for any part of the property of Maker,
assignment for the benefit of creditors by or the commencement of
any proceedings in bankruptcy or insolvency by or against Maker;
(c) the entry of a material judgment against Maker; (d) the issuing
of any attachment or garnishment, or the filing of any lien against
any property of Maker; or (e) the taking of possession of any
substantial part of the property of Maker at the insistence of any
governmental authority. Upon an event of default, the holder may
declare a Default and the unpaid principal amount hereof shall
immediately be due.
Holder shall have all of the rights and remedies of a creditor
under applicable law. In the event that a Default is declared and
the Holder enforces his rights in a court of competent jurisdiction
located in the State of New York, Maker shall be liable for all
reasonable attorneys' fees and costs. This agreement shall be
governed by the laws of the State of New York.
No delay or omission on the part of Holder in exercising any
rights hereunder shall operate as a waiver of such or of any other
rights under this Note. Presentment, demand, protest, notice of
dishonor and all other notices are hereby waived by Obligor. Any
notice to Maker shall be sufficiently served for all purposes if
placed in the mail, postage prepaid, addressed to, or left upon the
premises at the address shown below or any other address shown on
Holder's records.
S/Joseph L. Murphy
Joseph L. Murphy
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-KSB, into the
Company's previously filed Registration Statement File No. 333-2366.
ARTHUR ANDERSEN LLP
New York, New York
January 31, 2000
:\RSKLAW\HJELM\00EXH-23.1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 180,716
<SECURITIES> 0
<RECEIVABLES> 3,173,319
<ALLOWANCES> 300,000
<INVENTORY> 3,241,480
<CURRENT-ASSETS> 6,733,795
<PP&E> 736,271
<DEPRECIATION> 502,656
<TOTAL-ASSETS> 7,633,297
<CURRENT-LIABILITIES> 2,464,533
<BONDS> 0
0
0
<COMMON> 411
<OTHER-SE> 5,134,657
<TOTAL-LIABILITY-AND-EQUITY> 7,633,297
<SALES> 18,097,989
<TOTAL-REVENUES> 18,097,989
<CGS> 10,646,955
<TOTAL-COSTS> 10,646,955
<OTHER-EXPENSES> 5,815,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,235
<INCOME-PRETAX> 1,548,738
<INCOME-TAX> 668,569
<INCOME-CONTINUING> 880,169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 880,169
<EPS-BASIC> .44
<EPS-DILUTED> .43
</TABLE>
