UNITED STATES
SECURITIES AND FORM EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2004
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 registrant as specified in its charter)
Delaware 13-3337553
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 West 37th Street, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
(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)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the preceding 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 [ ]
Indicate by checkmark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [x]
The number of shares outstanding of the issuer's common
stock, par value $.0002 per share, as of March 22, 2004 was
1,912,694.
Page 1 of 20.
The Exhibit Index is located on Page 19.
JLM COUTURE, INC.
INDEX
Page
----
Part I. Financial Information:
Item 1. Financial Statements.
Independent Accountants Report 5
Condensed Consolidated Balance Sheets at
January 31, 2004 (unaudited) and
October 31, 2003 6-7
Condensed Consolidated Statements of Income
for the Three Months ended January 31,
2004 and 2003 (unaudited) 8
Condensed Consolidated Statements of Cash Flows
for the Three Months ended January 31,
2004 and 2003 (unaudited) 9-10
Notes to Condensed Consolidated
Financial Statements 11-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 14-17
Item 3. Quantitative and Qualitative Disclosures
Disclosures About Market Risk. 18
Item 4. Controls and Procedures. 18
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K. 19
Signature 20
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. For example,
statements included in this report regarding the Company's
financial position, business strategy and other plans and
objectives for future operations, and assumptions and predictions
about future product demand, supply, manufacturing, costs,
marketing and pricing factors are all forward-looking statements.
When the Company uses words like "intend," "anticipate,"
"believe," "estimate," "plan" or "expect," it is making forward-
looking statements. The Company believes that the assumptions and
expectations reflected in such forward-looking statements are
reasonable, based on information available to it on the date
hereof, but the Company cannot assure you that these assumptions
and expectations will prove to have been correct or that the
Company will take any action that it may presently be planning.
The Company is not undertaking to publicly update or revise any
forward-looking statement if it obtains new information or upon
the occurrence of future events or otherwise.
INDEPENDENT ACCOUNTANT'S REPORT
To JLM Couture, Inc.
We have reviewed the accompanying condensed consolidated
balance sheet of JLM Couture, Inc. and Subsidiaries as of January
31, 2004, and the related condensed consolidated statements of
income and cash flows for the three-month periods ended January
31, 2004 and 2003. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing
standards generally accepted in the United States of America, the
consolidated balance sheet of JLM Couture, Inc. and Subsidiaries
as of October 31, 2003, and the related consolidated statements
of income, shareholders' equity, and cash flows for the year then
ended (not presented herein), and in our report dated January 21,
2004, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of
October 31, 2003 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it is
derived.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 19, 2004
PART I. FINANCIAL INFORMATION
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
January 31, October 31,
2004 2003
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(Unaudited)
Current assets:
Cash and cash equivalents $ 598,200 $ 1,219,063
Accounts receivable, net of allowance
for doubtful accounts of $301,000 4,391,068 3,610,523
Inventories, net 4,260,091 4,070,192
Prepaid expenses and other current
assets 331,645 325,283
Deferred income taxes 27,600 20,000
Prepaid taxes 58,188 76,188
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Total current assets 9,666,792 9,321,249
Equipment and leasehold improvements, net
of accumulated depreciation and
amortization of $544,410 at January 31,
2004 and $515,333 at October 31, 2003 663,205 677,357
Goodwill 211,272 211,272
Samples, net of accumulated amortization
of $164,874 at January 31, 2004 and
$108,190 at October 31, 2003 190,436 247,120
Other Assets 94,416 94,416
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Total Assets $10,826,121 $10,551,414
========== ==========
See accompanying notes to condensed consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
January 31, October 31,
2004 2003
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(Unaudited)
Current liabilities:
Accounts payable $ 1,509,243 $ 1,193,570
Accrued expenses and
other current liabilities 807,621 917,630
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Total current liabilities 2,316,864 2,111,200
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Deferred income taxes 615,000 615,000
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Total liabilities 2,931,864 2,726,200
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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 2,344,530 at January 31,
2004 and October 31, 2003;
Outstanding 1,912,694 at January 31,
2004 and October 31, 2003 465 465
Additional paid-in capital 3,679,542 3,679,542
Retained earnings 5,915,526 5,879,980
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9,595,533 9,559,987
Less: Deferred compensation (227,188) (248,750)
Notes receivable and accrued
interest (321,335) (317,960)
Treasury stock at cost:
431,836 shares at January 31,
2004 and October 31, 2003 (1,142,968) (1,142,968)
Accumulated other comprehensive loss (9,785) (25,095)
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Total shareholders' equity 7,894,257 7,825,214
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Total Liabilities and
Shareholders' Equity $10,826,121 $10,551,414
========== ==========
See accompanying notes to condensed consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JANUARY 31, 2004 AND 2003
(Unaudited)
2004 2003
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Net sales $5,320,696 $5,653,948
Cost of goods sold 3,265,627 3,240,696
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Gross profit 2,055,069 2,413,252
Selling, general and
administrative
expenses 2,005,171 2,065,614
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Operating income 49,898 347,638
Interest Income, net of
Interest expense of $641 and
$2,837 for 2004 and 2003,
respectively 3,648 2,867
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Income before provision
for income taxes 53,546 350,505
Provision for income
taxes 22,000 150,000
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Net income $ 31,546 $ 200,505
========= =========
Net income per weighted
average number of common
shares:
Basic $ 0.02 $ 0.10
========= =========
Diluted $ 0.02 $ 0.10
========= =========
Weighted average number
of common shares
outstanding:
Basic 1,912,694 1,932,034
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Diluted 1,975,372 2,066,347
========= =========
See accompanying notes to condensed consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
JANUARY 31, 2004 and 2003
(Unaudited)
2004 2003
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Cash Flows From Operating Activities:
Net Income $ 31,546 $ 200,505
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 29,077 20,665
Provision for doubtful accounts - 50,000
Accrued interest on note receivable (3,375) (3,938)
Deferred compensation 21,562 21,562
Changes in operating assets and liabilities
Increase in accounts receivable (780,545) (812,666)
Increase in inventories (189,899) (501,994)
Increase in prepaid expenses and
other current assets (6,362) (2,210)
(Increase) Decrease in prepaid taxes 22,000 (62,911)
Decrease in samples 56,684 79,588
Increase in deferred income taxes (7,600) -
Increase in accounts payable 315,673 1,057,946
Decrease in accrued expenses and other
current liabilities (110,009) (208,325)
Decrease in income taxes payable - (157,289)
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Net Cash Used In Operating Activities (621,248) (319,067)
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Cash Flows From Investing Activities -
Purchase of property and equipment (14,925) (5,897)
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Cash Flows from Financing Activities -
Purchase of treasury stock - (144,147)
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Foreign currency translation 15,310 -
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Net decrease in cash and cash equivalents (620,863) (469,111)
Cash and cash equivalents,
beginning of period 1,219,063 958,810
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Cash and cash equivalents,
end of period $ 598,200 $489,699
========= ========
See accompanying notes to condensed consolidated financial statements.
JLM COUTURE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
JANUARY 31, 2004 and 2003
(Unaudited)
Supplemental Disclosures of Cash Flow Information:
2004 2003
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Cash paid during the period for:
Interest $ 7,661 $ 5,704
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Income taxes - 370,000
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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 January 31,
2004, the condensed consolidated statements of income for the
three month periods ended January 31, 2004 and 2003 and the
condensed consolidated statements of cash flows for the three
month periods ended January 31, 2004 and 2003 have been prepared
by the Company, without audit. In the opinion of management, all
adjustments necessary to present fairly the financial position,
results of operations and cash flows, as of January 31, 2004 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-K for its fiscal year ended
October 31, 2003, which was filed with the Securities and
Exchange Commission.
Sales for the three month period ended January 31, 2003 have
been reclassified to include shipping charges.
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:
JLM COUTURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three months ended January 31, 2004 2003
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Net income - as reported $31,546 $200,505
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects 16,517 9,374
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Net income - pro forma $15,029 $191,131
================================================================
Basic income per share - as reported $ 0.02 $ 0.10
================================================================
Basic income per share - pro forma $ 0.01 $ 0.10
================================================================
Diluted income per share - as reported $ 0.02 $ 0.10
================================================================
Diluted income per share - pro forma $ 0.01 $ 0.09
================================================================
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:
January 31, 2004 October 31, 2003
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Raw materials $2,930,073 $3,319,321
Work-in-process 649,301 180,816
Finished Goods 680,717 570,055
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$4,260,091 $4,070,192
========= =========
JLM COUTURE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Raw materials are shown net of $150,000 obsolescence reserve
at January 31, 2004 and October 31, 2003.
Note 3. Goodwill
Effective November 1, 2002, the Company adopted 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 and the remaining book
value is to be tested for impairment at least annually at the
reporting unit level using a two-step impairment test. To
accomplish this, the Company determined the fair value of the
reporting unit and compared it to the carrying amount of the
reporting at that date. No impairment charges resulted from this
evaluation since the fair value of the reporting unit exceeded
the carrying amount at October 31, 2003.
Note 4. 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 January 31,
2004 and October 31, 2003 the Company had no outstanding balances
under the revolving line of credit.
JLM COUTURE, INC. AND SUBSIDIARIES
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.
The allowance for doubtful accounts was $301,000 at January 31,
2004 and October 31, 2003.
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
JLM COUTURE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (Continued)
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 January 31, 2004 and October
31, 2003 we maintained an obsolescence reserve of $150,000.
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 three months of Fiscal 2004 and on an annual basis
thereafter. The Company concluded, as of January 31, 2004, that
there was no impairment to goodwill, and, pursuant to SFAS 142,
goodwill is no longer being amortized.
Revenue Recognition
Revenue is recognized when persuasive evidence of an
arrangement exists, the product has been delivered, the rights
and risks of ownership have passed to the customer, the price is
fixed and determinable, and collection of the resulting
receivable is reasonably assured. For arrangements which include
customer acceptance provisions, revenue is not recognized until
the terms of acceptance are met. Reserves for sales returns and
allowances are estimated and provided for at the time of
shipment.
JLM COUTURE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(Continued)
Results of Operations
Three months ended January 31, 2004 as compared to three
months ended January 31, 2003.
For the first three months of the Company's fiscal year
ending October 31, 2004 ("Fiscal 2004"), revenues decreased to
$5,320,696 from $5,653,998, a decrease of 6% over the same period
a year ago. This decrease was due to reduced demand for the
Company's products in the current economic environment as there is
a trend to more simpler weddings. Post 9/11 there was a jump
in weddings. This increase has subsided as time goes by, and the
weak job market forces people to make tough economic decisions. Gross
profit as a percentage of sales decreased to 39% from 43% as
there were higher fixed production costs that were spread over
lower sales. During the past year our production facility lease
was renewed to include more space. Additionally, the renewed rent
included an increase. Net income was $31,546, a decrease of 84% from net
income of $200,505 in the first three months of fiscal 2003.
Primarily due to the lower sales volume, per share earnings for
this period was $.02 per basic and diluted share, as compared to
$0.10 per basic and diluted share last year. Selling, general
and administrative expenses as a percentage of sales increased to
38% of sales as compared to 37%.
Liquidity and Capital Resources
The Company's working capital increased to $7,349,928 at
January 31, 2004 from $7,210,049 at October 31, 2003. The
Company's current ratio decreased to 4.2 to 1 at January 31, 2004
from 4.4 to 1 at October 31, 2003.
During the three months ended January 31, 2004, the Company
used $621,248 of cash from operating activities. It is primarily
due to a decreased income as compared to using $319,067 during
the same period a year ago. The Company used $14,925 for
investing activities in the current period compared to using
$5,897 the same period a year ago. The Company did not use cash
in financing activities as compared to having used $144,147 of
cash from financing activities during the three months ended
January 31, 2003 when the Company purchased treasury stock.
JLM COUTURE, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(Continued)
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 January 31, 2004 and October
31, 2003 was $278,250 and $281,625 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 lenders.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk.
Not Applicable.
JLM COUTURE, INC. AND SUBSIDIARIES
Item 4. Controls and Procedures.
The Company maintains "disclosure controls and procedures," as
such term is defined in Rules 13a-14(c) and 15d-14(c)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-
Q. 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.
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: March 22, 2004