UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2002
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
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JLM COUTURE, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3337553
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(State or other jurisdiction of (IRS Employer)
incorporation or organization) Identification No.)
225 West 37th Street, New York, New York 10018
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(212) 921-7058
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Registrant's telephone number, (including area code)
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(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of September 13, 2002, there were 2,014,270 shares of
common stock, par value $.0002 per share, outstanding.
Transitional small business disclosure format (check one)
Yes [ ] No [X]
Page 1 of 16.
The Exhibit Index is located on Page 13.
JLM COUTURE, INC.
INDEX
Page
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Part I. Financial Information:
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets at July 31, 2002 and
October 31, 2001 3-4
Consolidated Statements of Income for the three
and nine months ended July 31, 2002 and 2001 5
Consolidated Statements of Cash Flows for the
nine months ended July 31, 2002 and 2001 6-7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation. 10-12
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. 13
Signature 14
Certifications 15-16
PART I. FINANCIAL INFORMATION
JLM COUTURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, October 31,
2002 2001
----------- -----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 341,195 $ 204,647
Accounts receivable, net of allowances
for doubtful accounts and trade
discounts - $550,000 at July 31,
2002 and $425,000 at October 31, 2001 4,837,754 3,434,528
Inventories 4,036,402 3,716,153
Prepaid expenses and other current assets 343,065 487,877
Deferred income taxes 4,000 4,000
Prepaid Taxes - 152,910
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Total current assets 9,562,416 8,000,115
Property and equipment - at cost net of
accumulated depreciation and amortization
of $707,495 at July 31, 2002 and
$645,548 at October 31, 2001 360,235 199,664
Goodwill, net of accumulated amortization
of $66,960 at July 31, 2002 and $56,337
at October 31, 2001 214,793 225,356
Samples, net of accumulated amortization
of $224,433 at July 31, 2002 and
$139,853 at October 31, 2001 211,277 250,958
Other assets 63,332 63,332
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$10,412,053 $8,739,425
========== =========
See accompanying notes to consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, October 31,
2002 2001
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(Unaudited)
Current liabilities:
Revolving line of credit $ - $ 450,000
Accounts payable 1,578,463 1,175,013
Income taxes payable 277,090 -
Accrued expenses and
other current liabilities 807,549 283,515
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Total current liabilities 2,663,102 1,908,528
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Deferred income taxes 594,000 594,000
Other liabilities - 8,239
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Total liabilities 3,257,102 2,510,767
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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 2,330,530 at July 31, 2002
and 2,330,530 at October 31, 2001;
Outstanding 2,014,770 at July 31,
2002 and 2,098,210 at October 31,
2001 465 465
Additional paid-in capital 3,653,642 3,653,642
Retained earnings 4,987,467 3,963,095
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8,641,574 7,617,202
Less: Deferred compensation (350,938) (421,250)
Note receivable and accrued
interest (396,245) (432,135)
Treasury stock at cost:
315,760 shares at July 31,
2002 and 232,320 shares at
October 31, 2001 (739,440) (535,159)
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Total shareholders' equity 7,154,951 6,228,658
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$10,412,053 $8,739,425
========== =========
See accompanying notes to consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2002 AND 2001
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
2002 2001 2002 2001
---------- --------- ----------- -----------
Net sales $7,521,046 $6,334,194 $19,629,794 $16,886,056
Cost of goods sold 4,624,529 3,935,996 12,117,569 10,465,579
--------- --------- ---------- ----------
Gross profit 2,896,517 2,398,198 7,512,225 6,420,477
Selling, general and
administrative
expenses 2,047,797 1,833,846 5,704,688 5,003,978
--------- --------- --------- ---------
Operating income 848,720 564,352 1,807,537 1,416,499
Interest expense, net
of interest income 3,151 11,694 13,165 46,757
--------- --------- --------- ---------
Income from operations
before provision for
income taxes 845,569 552,658 1,794,372 1,369,742
Provision for income
taxes 370,000 245,000 770,000 590,000
--------- --------- --------- ----------
Net income $ 475,569 $ 307,658 $1,024,372 $ 779,742
========= ========= ========= ==========
Net income per weighted
average number of common
shares
Basic $ 0.23 $ 0.16 $ 0.50 $ 0.40
========= ========= ========= ==========
Diluted $ 0.23 $ 0.16 $ 0.49 $ 0.40
========= ========= ========= ==========
Weighted average number
of common shares
Basic 2,026,982 1,927,900 2,051,100 1,944,381
========= ========= ========= =========
Diluted 2,080,560 1,955,210 2,073,881 1,968,595
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
JULY 31, 2002 AND 2001
NINE MONTHS ENDED
JULY 31,
2002 2001
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Cash Flows from Operating Activities
Net income $ 1,024,372 $ 779,742
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and goodwill amortization 72,510 65,816
Amortization of deferred compensation 70,312 8,437
Provision for doubtful accounts and
trade discounts 125,000 (75,000)
Changes in operating assets and liabilities
(Increase) in accounts receivable (1,528,226) (640,334)
(Increase) in inventories (320,249) (302,273)
(Increase) decrease in prepaid expenses
and other current assets 144,812 (297,096)
Decrease in samples 39,681 96,648
(Increase) in other assets - (3,159)
Increase in accounts payable, accrued
expenses and other current liabilities 927,484 402,163
Increase in taxes payable 430,000 186,711
(Decrease) in long term liabilities (8,239) (24,379)
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Net cash provided by Operating Activities 977,457 197,276
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Cash Flows From Investing Activities
Purchase of property and equipment (222,518) (36,349)
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Net Cash used in Investing Activities (222,518) (36,349)
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Cash Flows from Financing Activities
Net (reductions) proceeds from short term
borrowing (450,000) 200,000
Payments of notes receivable 35,890 33,656
Purchase of treasury stock (204,281) (166,786)
Exercise of stock options - 8,700
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Net Cash (used in) provided by Financing
Activities (618,391) 75,570
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Net increase in cash 136,548 236,497
Cash, beginning of period 204,647 155,334
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Cash, end of period $ 341,195 $ 391,831
======== ========
See accompanying notes to consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
JULY 31, 2002 AND 2001
(Unaudited)
Supplemental Disclosures of Cash Flow Information:
2002 2001
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Cash paid during the year for:
Interest $ 33,958 $ 38,839
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Income taxes $340,000 $397,622
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See accompanying notes to consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The consolidated balance sheets as of July 31, 2002, the
consolidated statements of income for the nine month periods ended
July 31, 2002 and 2001 and the consolidated statements of cash
flows for the nine month periods ended July 31, 2002 and 2001 have
been prepared by the Company, without audit. In the opinion of
management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows, as of
July 31, 2002 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, 2001 which was
filed with the Securities and Exchange Commission.
Note 2. Inventories
Inventories are stated at the lower of cost (first in, first
out) or market and include material, labor and overhead.
Inventories consisted of the following:
July 31, 2002 October 31, 2001
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Raw materials $2,399,358 $2,302,754
Work-in-process 497,645 176,823
Finished Goods 1,139,399 1,236,576
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$4,036,402 $3,716,153
========= =========
Raw materials are shown as net of $260,000 obsolescence
reserves at July 31, 2002 and October 31, 2001.
JLM COUTURE, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 3. Revolving Line of Credit
The Company had an available line of credit of up to
$1,250,000 with a financial institution. Borrowings are
collateralized by the Company's cash, accounts receivable,
securities, deposits and general intangibles. At July 31, 2002 and
October 31, 2001 the Company had borrowed $0 and $450,000,
respectively, under the revolving line of credit.
Note 4. Treasury Stock
During the nine month period ended July 31, 2002, the Company
purchased 83,440 shares of Common Stock at a total cost of
$204,281. Treasury stock is reflected on the balance sheet as a
reduction of shareholders equity.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
---------------------
Nine months ended July 31, 2002 as compared to nine months
ended July 31, 2001 and three months ended July 31, 2002 as
compared to three months ended July 31, 2001.
For the first nine months of the Company's fiscal year ending
October 31, 2002 ("Fiscal 2002"), revenues increased to $19,629,794
from $16,886,056, an increase of 16.2% over the same period a year
ago. This increase was due to increased market penetration of the
Company's products. Gross profit as a percentage of sales
increased to 38.3% from 38% during the same period a year ago.
Selling, general and administrative ( SG&A") expenses as a
percentage of sales decreased to 29.1% of sales as compared to
29.6% due to economies of scale. Net income was $1,024,372 an
increase of 31.8% from net income of $779,742 in the first nine
months of Fiscal 2001 as a result of increased sales. Per share
earnings for this period was $.50 per basic share and $.49 per
diluted share, as compared to $0.40 per basic and diluted share a
year ago.
For the quarter ended July 31, 2002 ("3Q FY2002"), revenues
increased to $7,521,046 from $6,334,194, an increase of 18.7% over
the same period a year ago. This increase was due to increased
market penetration of the Company's products. Gross profit as a
percentage of sales rose to 38.5% from 37.9% as there were
economies of scale associated with the increased sales volume.
SG&A expenses as a percentage of sales decreased to 27.2% as
compared to 29.0%. Net income was $475,569, an increase of 54.6%
over net income of $307,658 in the third quarter of Fiscal 2001.
Per share earnings for this period were $.23 per basic and diluted
share, as compared to $0.16 per basic and diluted share a year ago.
Liquidity and Capital Resources
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The Company's working capital increased to $6,899,314 at July
31, 2002 from $6,091,587 at October 31, 2001. The Company's
current ratio decreased to 3.6 to 1 at July 31, 2002 from 4.2 to 1
at October 31, 2001.
During the nine months ended July 31, 2002, the Company
provided $977,457 of cash from operating activities, as compared to
$197,276 in the year earlier period. The Company used $222,518 of
cash in investing activities in the current year compared to using
$36,349 cash a year ago. This was primarily due to the capital
costs associated with the moving of the company's showroom during
the current period. The Company used $618,391 of cash for
financing activities during the nine months ended July 31, 2002, as
compared to being provided $75,570 a year earlier, as the Company
paid down $450,000 to its revolving credit facility during the
current period.
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. The outstanding principal and
interest balance at July 31, 2002 and October 31, 2001 was $344,500
and $374,000 respectively.
On August 14, 2001, pursuant to an employment agreement the
Company issued 200,000 unregistered shares to an executive of the
Company. The employment agreement expires on April 30, 2006.
Deferred compensation for the fair value of the related shares was
recorded in connection with this issuance. The unamortized portion
of such deferred compensation will be amortized over the remaining
life of the employment agreement.
Recent Accounting Pronouncements
--------------------------------
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141, Business
Combinations" (SFAS No. 141) and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets" (SFAS No.
142).
SFAS No. 141 addresses financial accounting and reporting for
business combinations. This statement requires the purchase method
of accounting to be used for all business combinations, and
prohibits the pooling-of-interests method of accounting. This
statement is effective for all business combinations initiated
after June 30, 2001 and supersedes APB Opinion No. 16, Business
Combinations" as well as FASB Statement of Financial Accounting
Standards No. 38, Accounting for Preacquisition Contingencies of
Purchased Enterprises."
SFAS No. 142 addresses how intangible assets that are acquired
individually or with a group of other assets should be accounted
for in financial statements upon their acquisition. This statement
requires goodwill to be periodically reviewed for impairment rather
than amortized, effective with fiscal years beginning after
December 15, 2001. SFAS No. 142 supersedes APB Opinion No. 17,
Intangible Assets." The Company is currently evaluating the
implications of adoption of SFAS No. 142 and anticipates adopting
its provisions for its fiscal year beginning November 1, 2002.
In August 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long- Lived Assets"
(SFAS No. 144). This Statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets.
This Statement supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," and amends the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations Reporting
the Effect of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business. The
provisions of SFAS No. 144 will be effective for fiscal years
beginning after December 15, 2001. The Company is currently
evaluating the implications of adoption of SFAS No. 144 and
anticipates adopting its provisions for its financial year
beginning November 1, 2002.
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 lender.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
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3.1 Certificate of Incorporation of the Company as
amended dated December 30, 1994, incorporated by
reference to Exhibit 3.1 of the Company's annual
Report on Form 10-KSB filed for its fiscal year
ended October 31, 1995 ("1995 10-K").
3.2 The Company's By-Laws are incorporated by reference
to Exhibit 3.03 of Registration Statement No.
33-10278 NY filed on Form S-18 ("Form S-18").
10.1 Amendment No. 1 dated August 14, 2001 to Employment
Agreement between the Company and Joseph L. Murphy
dated May 19, 1998 incorporated by reference to the
Company's Quarterly Report on Form 10-QSB for the
period ended July 31, 2001.
99.1 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
-------------------
None.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
JLM COUTURE, INC.
Registrant
By:/s/Joseph L. Murphy
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Joseph L. Murphy, President
(Duly authorized officer)
Dated: September 19, 2002
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph L. Murphy, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
JLM Couture, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
Date: September 19, 2002
/s/Joseph L. Murphy
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Name: Joseph L. Murphy
Title: Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jerrold Walkenfeld, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of JLM
Couture, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
Date: September 19, 2002
/s/Jerrold Walkenfeld
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Name: Jerrold Walkenfeld
Title: Financial Consultant