UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
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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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(Address of Principal Executive Offices)
(212) 921-7058
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Issuer's telephone number
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(Former name, former address and former fiscal year, if changed
since last report)
As of September 18, 2003, there were 1,909,105 shares of common
stock, par value $.0002 per share, outstanding.
Transitional small business disclosure format (check one)
Yes [ ] No [ X ]
Page 1 of 17.
The Exhibit Index is located on Page 16.
JLM COUTURE, INC.
INDEX
Page
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Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements.
Condensed Consolidated Balance Sheets at July 31,
2003 and October 31, 2002 3-4
Condensed Consolidated Statements of Income for the
three and nine months ended July 31, 2003 and 2002 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended July 31, 2003 and 2002 6-7
Notes to Condensed Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation. 12-14
Item 3. Controls and Procedures 15
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. 16
Signature 17
PART I. FINANCIAL INFORMATION
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, October 31,
2003 2002
---------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 422,384 $ 958,810
Accounts receivable, net of allowances
for doubtful accounts and trade
discounts - $501,000 at July 31,
2003 and $451,000 at October 31, 2002 5,277,140 3,596,205
Inventories 4,015,382 3,747,357
Prepaid expenses and other current
assets 293,717 531,712
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Total current assets 10,008,623 8,834,084
Equipment and leasehold improvements
net of accumulated depreciation and
amortization of $482,578 at July 31,
2003 and $412,053 at October 31, 2002 594,509 460,264
Goodwill 211,272 211,272
Samples, net of accumulated amortization
of $266,960 at July 31, 2003 and
$132,493 at October 31, 2002 187,959 261,037
Other assets 94,415 49,540
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$11,096,778 $9,816,197
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See accompanying notes to condensed consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, October 31,
2003 2002
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(Unaudited)
Current liabilities
Accounts payable $ 1,516,952 $1,014,241
Accrued expenses and
other current liabilities 649,648 786,099
Deferred income taxes - 73,000
Income taxes payable 175,089 157,289
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Total current liabilities 2,341,689 2,030,629
Deferred income taxes 664,000 664,000
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Total liabilities 3,005,689 2,694,629
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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, 2003
and 2,330,530 at October 31, 2002;
Outstanding 1,903,360 at July 31,
2003 and 1,964,360 at October 31, 2002 465 465
Additional paid-in capital 3,653,642 3,653,642
Retained earnings 6,146,823 5,072,228
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9,800,930 8,726,335
Less: Deferred compensation (270,313) (335,000)
Notes receivable and accrued
interest (320,765) (365,265)
Treasury stock at cost:
427,170 shares at July 31,
2003 and 366,170 at October
31, 2002 (1,118,763) (904,502)
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Total shareholders' equity 8,091,089 7,121,568
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$11,096,778 $9,816,197
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See accompanying notes to condensed consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2003 AND 2002
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
2003 2002 2003 2002
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Net sales $7,615,995 $7,521,046 $20,932,512 $19,629,794
Cost of goods sold 4,531,231 4,624,529 12,485,706 12,117,569
--------- --------- ---------- ----------
Gross profit 3,084,764 2,896,517 8,446,806 7,512,225
Selling, general and
administrative
expenses 2,233,526 2,047,797 6,561,076 5,704,688
--------- --------- ---------- ----------
Operating income 851,238 848,720 1,885,730 1,807,537
Interest Income
(expense), net (133) (3,151) 3,865 (13,165)
--------- --------- ---------- ----------
Income before provision
for income taxes 851,105 845,569 1,889,595 1,794,372
Provision for income
taxes 370,000 370,000 815,000 770,000
--------- --------- ---------- ----------
Net income $ 481,105 $ 475,569 $ 1,074,595 $ 1,024,372
========= ========= ========== ==========
Net income per weighted
average number of common
shares
Basic $ 0.25 $ 0.23 $ 0.56 $ 0.50
========= ========= ========== ==========
Diluted $ 0.24 $ 0.23 $ 0.53 $ 0.49
========= ========= ========== ==========
Weighted average number
of common shares
Basic 1,905,733 2,026,982 1,915,611 2,051,100
========= ========= ========== ==========
Diluted 1,977,293 2,080,560 2,028,270 2,073,881
========= ========= ========== ==========
See accompanying notes to condensed consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
JULY 31, 2003 AND 2002
NINE MONTHS ENDED
JULY 31,
2003 2002
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Cash Flows from Operating Activities
Net income $ 1,074,595 $ 1,024,372
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and goodwill amortization 70,525 72,510
Amortization of deferred compensation 64,687 70,312
Provision for doubtful accounts and
trade discounts 50,000 125,000
Changes in operating assets and liabilities
Increase in accounts receivable (1,730,935) (1,528,226)
Increase in inventories (268,025) (320,249)
Decrease in prepaid expenses
and other current assets 237,995 144,812
Decrease in samples 73,078 39,681
Increase in other assets (44,875) -
Increase in accounts payable 502,711 403,450
(Decrease) increase in accrued expenses
and other current liabilities (136,451) 524,034
(Decrease) increase in taxes payable (55,200) 430,000
Decrease in long term liabilities - (8,239)
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Net cash (used in ) provided by
Operating Activities (161,895) 977,457
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Cash Flows From Investing Activities
Purchase of property and equipment (204,770) (222,518)
Net payments of notes receivable 44,500 35,890
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Net Cash used in Investing Activities (160,270) (186,628)
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Cash Flows from Financing Activities
Net (reductions) proceeds from short term
borrowing - (450,000)
Purchase of treasury stock (214,261) (204,281)
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Cash used in Financing Activities (214,261) (654,281)
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Net increase (decrease) in cash (536,426) 136,548
Cash, beginning of period 958,810 204,647
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Cash, end of period $ 422,384 $ 341,195
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See accompanying notes to condensed consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
JULY 31, 2003 AND 2002
(Unaudited)
Supplemental Disclosures of Cash Flow Information:
2003 2002
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Cash paid during the year for:
Interest $ 12,264 $ 33,958
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Income taxes $870,000 $340,000
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See accompanying notes to condensed consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated balance sheet as of July 31, 2003,
the condensed consolidated statements of income for the three and
nine month periods ended July 31, 2003 and 2002 and the condensed
consolidated statements of cash flows for the nine month periods
ended July 31, 2003 and 2002 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, 2003 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, 2002, which was
filed with the Securities and Exchange Commission.
The Company has elected to apply Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations in accounting for its stock options
issued to employees (intrinsic value) and has adopted the
disclosure-only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation. Had the Company elected to recognize compensation
cost based on the fair value of the options granted at the grant
date as prescribed by SFAS No. 123, the Company's net income and
income per common share would have been as follows:
Nine months ended July 31, 2003 2002
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Net income - as reported $1,074,595 $1,024,372
Add: Stock based employee compensation
expense included in reported net income,
net of related tax effects 125,132 -
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects 62,063 59,483
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Nine months ended July 31, 2003 2002
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Net income pro forma $1,137,664 $964,889
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Basic income per share as reported $0.56 $0.50
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Basic income per share pro forma $0.59 $0.47
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Diluted income per share as reported $0.53 $0.49
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Diluted income per share pro forma $0.56 $0.46
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Three months ended July 31, 2003 2002
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Net income - as reported $481,105 $475,569
Add: Stock based employee compensation
expense included in reported net income,
net of related tax effects - -
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects - -
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Net income pro forma $481,105 $475,569
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Basic income per share as reported $0.25 $0.23
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Basic income per share pro forma $0.25 $0.23
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Diluted income per share as reported $0.24 $0.23
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Diluted income per share pro forma $0.24 $0.23
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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, 2003 October 31, 2002
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Raw materials $2,986,908 $2,782,515
Work-in-process 544,167 354,114
Finished Goods 484,307 610,728
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$4,015,382 $3,747,357
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Raw materials are shown net of $260,000 obsolescence reserve
at July 31, 2003 and October 31, 2002.
Note 3. Goodwill
Effective November 1, 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires that an intangible asset
with a definite life be amortized over its useful life and that
goodwill and intangible assets with indefinite lives are not to be
amortized but are to be evaluated for impairment.
The Company concluded, as of July 31, 2003, that there was no
impairment to goodwill, and, pursuant to SFAS 142, goodwill is no
longer being amortized.
The following pro-forma information reconciles net income
reported for the three month and nine month periods ended July 31,
2003 and 2002 to adjusted net income reflecting the adoption of
SFAS No. 142.
Three Months Ended Nine Months Ended
July 31, July 31,
2003 2002 2003 2002
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Reported net income $481,105 $475,569 $1,074,595 $1,024,372
Addback: Goodwill
amortization - 3,521 - 10,563
Adjusted net income $481,105 $479,090 $1,074,595 $1,034,935
Basic income per share:
Reported net income 0.25 0.23 0.56 0.50
Addback: Goodwill
amortization - 0.01 - -
Adjusted net income 0.25 0.24 0.56 0.50
Diluted income per share:
Reported net income 0.24 0.23 0.53 0.49
Addback: Goodwill
and amortization - - - 0.01
Adjusted net income 0.24 0.23 0.53 0.50
Note 4. Revolving Line of Credit
The Company had an available line of credit of up to $500,000
with a financial institution. Borrowings are collateralized by the
Company's cash, accounts receivable, securities, deposits and
general intangibles. At July 31, 2003 and October 31, 2002 the
Company had no outstanding balances under the revolving line of
credit.
Note 5. Treasury Stock
During the nine month period ended July 31, 2003 the Company
purchased 61,000 shares of Common Stock at a total cost of
$214,261. Treasury stock is reflected on the balance sheet as a
reduction of shareholder equity.
Additionally, during the nine month period ended July 31,
2003, the Company, in conjunction with its stock repurchase
program, repurchased 206,000 stock options from employees for
$208,554.
These costs were reflected as a charge to income in the
current period.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Critical Accounting Policies
The preparation of our condensed consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires us to make
estimates and judgments that affect the reported amounts of assets
and liabilities, net sales and expenses, and the related
disclosures. We base our estimates on historical experience, our
knowledge of economic and market factors and various other
assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates under
different assumptions or conditions. We believe the following
critical accounting policies are affected by significant estimates,
assumptions and judgments used in the preparation of our condensed
consolidated financial statements.
Allowances for Doubtful Accounts
We maintain an allowance for doubtful accounts for losses that
we estimate will arise from our customers inability to make
required payments. We make our estimates of the uncollectability of
our accounts receivable by analyzing historical bad debts, specific
customer creditworthiness and current economic trends. At July
31, 2003 the allowance for doubtful accounts was $501,000 and at
October 31, 2002 it was $451,000.
Inventory Valuation
We regularly assess the valuation of our inventories and write
down those inventories which are obsolete or in excess of our
forecasted usage to their estimated realizable value. Our estimates
of realizable value are based upon our analyses and assumptions
including, but not limited to, forecasted sales levels by product,
expected product lifecycle, product development plans and future
demand requirements. If market conditions are less favorable than
our forecasts or actual demand from our customers is lower than our
estimates, we may be required to record additional inventory write-
downs. If demand is higher than expected, we may sell our
inventories that had previously been written down. At July 31,
2003 and October 31, 2002 we maintained an obsolescence reserve of
$260,000.
Impairment of Goodwill
In determining the recoverability of goodwill, assumptions
must be made regarding estimated future cash flows and other
factors to determine the fair value of the asset. If these
estimates or their related assumptions change in the future, the
Company may be required to record charges not previously recorded.
Effective November 1, 2002, the Company adopted Statement of
Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets". Under the provisions of SFAS No. 142, the cost
of certain intangibles will no longer be subject to amortization
but was reviewed for potential impairment during the first six
months of Fiscal 2003 and on an annual basis thereafter. The
Company concluded, as of April 30, 2003, that there was no
impairment to goodwill, and, pursuant to SFAS 142, goodwill is no
longer being amortized.
Results of Operations
Nine months ended July 31, 2003 as compared to nine months
ended July 31, 2002 and three months ended July 31, 2003 as
compared to three months ended July 31, 2002.
For the first nine months of the Company's fiscal year ending
October 31, 2003 ("Fiscal 2003"), revenues increased to $20,932,512
from $19,629,794, an increase of 6.6% 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 40.4% from 38.3% as a larger percentage of sales were
from higher margin products. Net income for the current nine month
period was $1,074,595 an increase of 4.9% from net income of
$1,024,372 in the first nine months of Fiscal 2002. The increase
in net income, due to the increase in sales, was tempered by a pre-
tax expense of $208,554 for the repurchase of stock options from
employees. Per share earnings for this period was $.56 per basic
share and $.53 per diluted share, as compared to $0.50 per basic
$0.49 per diluted share a year ago. Selling, general and
administrative expenses as a percentage of sales increased to 31.3%
of sales as compared to 29.1% largely due to the expense relating
to the payment made to cancel certain stock options.
For the quarter ended July 31, 2003 ("3Q FY2003"), revenues
increased to $7,615,995 from $7,521,046, an increase of 1.3% over
the same period a year ago. Gross profit as a percentage of sales
rose to 40.5% from 38.5% as a larger percentage of sales were from
higher margin products. In the current quarter net income was
$481,105 an increase of 1.2% from net income of $475,569 in the
third quarter of Fiscal 2002. Per share earnings for 3Q FY2003
were $0.25 per basic and $0.24 per diluted share, as compared to
$0.23 per basic and diluted share a year ago. Selling, general and
administrative expenses as a percentage of sales increased to 29.3%
of sales as compared to 27.2%, largely due to increased costs
related to the expansion of the Company's facilities.
Liquidity and Capital Resources
The Company's working capital increased to $7,666,934 at July
31, 2003 from $6,803,455 at October 31, 2002. The Company's
current ratio decreased to 4.3 to 1 at July 31, 2003 from 4.4 to 1
at October 31, 2002.
During the nine months ended July 31, 2003, the Company used
$161,895 of cash from operating activities, as compared to
providing $997,457 during the year earlier period as the Company
was more prompt with payments to vendors in the current period.
The Company used $160,270 of cash in investing activities in the
current year compared to using $186,628 cash a year ago. The
Company used $214,261 of cash from financing activities during the
nine months ended July 31, 2003 as compared to using $654,281 a
year earlier, as the Company reduced its debt by $450,000 a year
ago.
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, 2003 and October 31, 2002 was $274,875
and $319,375 respectively.
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.
Item 3. Controls and Procedures.
The Company maintains "disclosure controls and procedures," as
such term is defined in Rules 13a-15e and 15d-15e of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are
designed to ensure that information required to be disclosed in its
reports, pursuant to the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and
communicated to its management, including its Chief Executive
Officer and Principal Accounting Officer, as appropriate, to allow
timely decisions regarding the required disclosures. In designing
and evaluating the disclosure controls and procedures, management
has recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurances of
achieving the desired control objectives, and management
necessarily is required to apply its judgment in evaluating the
cost benefit relationship of possible controls and procedures.
The Company's Chief Executive Officer and Principal Accounting
Officer(its principal executive officer and principal accounting
officer, respectively) have evaluated the effectiveness of its
"disclosure controls and procedures" as of the end of the period
covered by this Quarterly Report on Form 10-QSB. Based on their
evaluation, the principal executive officer and principal financial
officer concluded that its disclosure controls and procedures are
effective. There were no significant changes in its internal
controls or in other factors that could significantly affect these
controls subsequent to the date the controls were evaluated.
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").
31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
32.2 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.
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On June 23, 2003, the Company filed a current report on Form
8-K to report the Company's announcement of its earnings for the
second quarter of its fiscal year ending October 31, 2003.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
JLM COUTURE, INC.
Registrant
By:/s/Joseph L. Murphy
---------------------------
Joseph L. Murphy, President
(Duly authorized officer)
Dated: September 17, 2003