(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 1993 the Company launched the Lazaro bridal division. In May 1997, the Company acquired Alvina Valenta Couture Collection, Inc. ("Alvina"), which designs, manufactures and markets couture-quality bridal wear. In 1999, the Company set up a sales office in England to penetrate the European market. In 2000, the Company launched Lazaro Ensembles and Jim Hjelm Just Separates as new bridesmaid divisions.

(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 ("Jim Hjelm," "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 $150 and $500 to $3,000, respectively, with suggested retail prices ranging from $180 to $300 for bridesmaid gowns and $1,000 to $6,000 for bridal gowns.

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 $600 and the retail prices range from $800 to $1,200.

The Company utilizes its employees and independent contractors to assemble its dresses. The Company uses its best efforts to maintain quality control over its independent contractors and supplies these contractors with cut pattern pieces. There are generally 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 generally charges the customer for custom alterations.

The Company has identified bridal boutiques or bridal departments in women's clothing stores to market its gowns. During its fiscal year ended October 31, 2002 ("Fiscal 2002") and its fiscal year ended October 31, 2001 ("Fiscal 2001"), no customer accounted for more than two 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. 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. Additionally, its new collections are featured in their entirety at trunk shows, which often include a personal appearance by the designer, at the Company's retail customers store. These trunk shows are generally supported with local advertising paid for by the local bridal boutique.

The Jim Hjelm bridal collections and Bridesmaid collections are designed by Natasha Addonizio. Ms. Addonizio has been designing these collections since 1998. Mr. Jim Hjelm, who co- founded the company with Mr. Joseph L. Murphy in 1986, represents the Company in a promotional capacity, at markets and occasionally at trunk shows.

Mr. Lazaro Perez designs the Lazaro bridal and bridesmaid collections. Lazaro's designs enabled the Company to diversify and add depth to its product lines. In both 1997 and 1999 he was awarded the Distinctive Excellence in Bridal Industry (DEBI) Award in the category of Style Innovator for bridal gowns.

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 as well as Martha Stewart, Weddings. 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.

The Company's designers generally participate 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 staff of 10 persons supervised by Mr. Murphy.

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 and Martha Stewart, Weddings and Elegant 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 numerous domestic and foreign bridal houses. Competition is intense.

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 management'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 and fashionable bridal wear. Equally important is the continued enhancement of the images of the Jim Hjelm, Lazaro and Alvina Valenta designer labels.

In an effort to establish a presence in Europe, the Company retains a sales representative located in England to market its Occasions and Lazaro bridesmaids gowns to the European community. Sales from this operation comprised approximately three percent of the Company's revenues in this past fiscal year.

The Company employs approximately 70 full-time employees.

The Company has registered "Jim Hjelm A Private Collection", "Alvina Valenta", "Jim Hjelm Occasions", "Lazaro", and "Jim Hjelm" as trademarks with the U.S. Patent and Trademark Office (the "USPTO"). It has also filed applications for "Just Separates" and "Occasions" with the USPTO. There is no assurance that any of these marks will be allowed to be registered.