Mail Stop 3561
October 21, 2005
Jack Abramov, President
House of Taylor Jewelry, Inc.
9200 Sunset Boulevard, Suite 425
West Hollywood, California 90069
Re: House of Taylor Jewelry, Inc.
Registration Statement on Form SB-2
Filed September 23, 2005
File No. 333-128523
Form 10-KSB for Fiscal Year Ended March 31, 2005
Form 10-QSB for Fiscal Quarter Ended June 30, 2005
File No. 0-25377
Dear Mr. Abramov:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a revision is
unnecessary.
Please be as detailed as necessary in your explanation. In some
of
our comments, we may ask you to provide us with information so we
may
better understand your disclosure. After reviewing this
information,
we may or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We
look forward to working with you in these respects. We welcome
any
questions you may have about our comments or on any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form SB-2
Inside Front Cover Page
1. It appears the prospectus delivery obligation language in the
second paragraph under your table of contents is inappropriate.
Please revise or advise. See Rule 174 under the Securities Act.
Prospectus Summary, page 1
The Offering
2. We suggest you provide a brief summary of your business. See
Item
503(a) and (c)(2) of Regulation S-B.
Risk Factors, page 3
3. Please revise to describe the risks to you or your investors in
a
concrete manner. Please avoid the generic conclusion that the
risk
will "adversely affect" your business, prospects, financial
condition,
results of operations or cash flow." As examples, please consider
the
following risk factors:
* "Our inability to manage growth could adversely affect our
business."
* "There is limited liquidity on the Nasdaq Bulletin Board."
* "No Dividends."
4. Please revise each subheading to ensure it reflects the risk
that
you discuss in the text. Many of your subheadings currently
either
merely state a fact about your business, such as "Our sales are
heavily influenced by general economic cycles" or describe an
event
that may occur in the future, such as "Our products may infringe
upon
the intellectual property rights of others." Succinctly state in
your
subheadings the risks that result from the facts or uncertainties.
Management`s Discussion and Analysis or Plan of Operation, page 15
5. Please revise to provide a balanced, executive level discussion
of
the most important matters on which your management focuses in
evaluating financial condition and operating performance.
Further,
please expand this section to discuss known material trends and
uncertainties that will have, or are reasonably likely to have, a
material impact on your revenues or income or result in your
liquidity
decreasing or increasing in any material way. Please provide
additional information about the quality and variability of your
earnings and cash flows so that investors can ascertain the
likelihood
of the extent past performance is indicative of future
performance.
Please discuss whether you expect levels to remain at this level
or to
increase or decrease. Also, you should consider discussing the
impact
of any changes on your earnings, economic or industry-wide factors
relevant to you, and material opportunities, challenges, and risks
in
the short and long term and the actions you are taking to address
them. See Item 303 of Regulation S-B and SEC Release No. 33-8350.
6. In circumstances where you describe more than one business
reason
for a significant change between periods in key financial data or
indicators, please quantify to the extent possible the incremental
impact of each individual business reason on the overall change.
This
would provide the reader with a better understanding of the change
and
the extent to which each factor contributed to the overall change.
In
each circumstance where you describe and quantify a change between
periods, please also provide an analysis of the business reasons
underlying the change.
7. We note that your business sells or plans to sell jewelry
pieces
which range from $200 to $1,000,000. Please expand your
descriptions
of such products to include the primary products marketed under
each
brand, such as House of Taylor, Elizabeth Taylor, Kathy Ireland,
and
Mirabelle. In addition, please disclose the revenue from each
product
to the extent material. Refer to paragraph 37 of SFAS 131.
8. Your revenue discussions should identify and quantify changes
resulting from demand, prices and other factors. Other factors
should
be described and, where necessary, quantified. In this regard, we
note that you describe the $2,031,851 reduction in sales for the
year
ended December 31, 2004 as being attributable to the introduction
of
new products in 2004 which resulted in a decrease in sales of the
old
product lines. It appears that the impact of changes in prices
should
be quantified as well as the impact of changes in demand. Such
disclosure could be enhanced with an analysis of the specific
products
that contributed to the reduction in sales. Please apply this
guidance throughout Management`s Discussion and Analysis where
significant.
9. You discuss the business reasons for changes in the various
line
items of your statements of operations. However, in circumstances
where there is more than one business reason for the change, you
should quantify the incremental impact of each individual business
reason discussed on the overall change in the line item. For
example,
you indicate that reduction in selling, shipping and general and
administrative expenses for the year ended December 31, 2004 was
the
result of lower officers` salaries due to the passing of an
officer,
reduced commissions because of lower sales and reduced advertising
and
marketing costs. While this information is helpful, you do not
quantify the extent to which income was affected by each of these
reasons. Please quantify all line item changes with more than one
business reason.
10. Please ensure your discussion and analysis of historical
cashflows
is not merely a recitation of changes evident from the financial
statements. For example, you indicate that for the six months
ended
June 30, 2005, you incurred negative cash flow from operations of
$1,393,779. Please provide the appropriate analysis explaining
the
underlying reasons for the fluctuations in the working capital
accounts.
11. Please move the penultimate paragraph on page 19 to your
Liquidity
and Capital Resources discussion on page 16.
Business, page 21
12. Please revise to discuss in further detail important aspects
of
your business, such as:
* Who is designing your jewelry and where?
* What is the role of computer assisted design?
* Are you reproducing jewelry owned by Dame Elizabeth Taylor, as
well
as designing new lines?
* Will all of your "Brand Partners" be located in China?
* Will Baguette World also manufacture your jewelry?
* Where geographically do you intend to concentrate your sales?
* Have you considered synthetic diamonds as a risk to your
business?
These are just examples.
13. Please explain industry specific terms, such as Ms. Ireland`s
"Style Guides" and "direct source partnering."
Management, page 28
14. Please provide a summary compensation table as well as any
other
applicable information from Item 402 of Regulation S-B.
Selling Security Holders, page 37
15. Disclose the beneficial owner or owners who have the ultimate
voting or investment control over the shares held by each
stockholder
in this section.
16. Please disclose whether any of your selling stockholders are
broker-dealers. If so, please identify the stockholder as an
underwriter.
17. For each selling stockholder that is an affiliate of a broker-
dealer, please disclose the following, if true:
* the seller purchased the securities to be resold in the ordinary
course of business; and
* at the time of the purchase, the seller had no agreements or
understandings, directly or indirectly, with any person to
distribute
the securities.
Alternatively, if not true, please disclose that the stockholder
is an
underwriter. We may have additional comments upon review of your
response.
18. Please revise footnote (50) to clarify the reference that the
selling stockholder is an "associated person" of Laidlaw. If
"associated person" means "affiliate," so state.
Plan of Distribution, page 42
19. Please tell us whether any of the selling stockholders have
taken,
or plan to take, a short position or other forms of hedges in your
common stock prior to this resale registration statement`s
effectiveness. We note, for example, that the selling
stockholders
may engage in hedging transactions and short sales. Please note
that
creating short positions before the resale registration
statement`s
effectiveness is inappropriate under Section 5 of the Securities
Act
because the shares underlying the short sales are deemed to be
sold at
the time such sales are made.
Where You Can Find More Information, page 51
20. Please revise to show only our new address.
Consolidated Financial Statements, page F-1
21. We note that $459,294 of distributions, less non cash
distributions and the $1,115,090 note issued in payment of
distributions reflected on your statements of cashflows for the
six
months ended June 30, 2005 does not sum to the $2,114,936 total
distributions reported on your consolidated statement of
stockholders`
equity for the same period. Please revise or advise.
Consolidated Statements of Stockholders` Equity, page F-4
22. We note that you have reflected the 3,753,801 outstanding
shares
of common stock and related $816,624 in additional paid in capital
prior to the reverse acquisition in your statement of
stockholders`
equity. Please explain how you arrived at this entry and
specifically
how you determined the additional paid in capital. In this
regard,
please provide us the summary journal entries and supporting
balance
sheets of both entities immediately prior to the reverse
acquisition.
23. Please provide us a detail of the $2,114,936 distributions
made
during the three months ended June 30, 2005. Please explain the
purpose of these distributions and identify to whom they were
made.
Note to Consolidated Financial Statements, Page F-6
24. Please tell us whether the various distribution channels -
such as
wholesale to specialty couture jewelry retailers, wholesale to
department store retailers, and through web site and other
approaches
to internet sales - represent distinct operating segments as
discussed
in paragraph 10 of SFAS 131. Further, please tell us if your
business
of granting licensing agreements represents a separate operating
segment. Please note that an operating segment may engage in
business
activities for which it has yet to earn revenues, for example,
start-
up operations may be operating segments before earning revenues.
If
you do not believe such distribution channels represent distinct
operating segments, please tell us in detail how you made this
determination. Based on your disclosures elsewhere in the
document,
it would appear that each of these distribution channels exhibits
the
three characteristics of operating segments described in paragraph
10
of SFAS 131. If these distribution channels represent operating
segments that have been aggregated, please tell us in detail your
basis for such aggregation. Refer to paragraph 17 of SFAS 131.
Please particularly address how you determined these operations to
have similar economic characteristics and distribution methods.
Note 2. Significant accounting policies, page F-6
25. Please disclose your accounting policy and methodology used to
estimate the allowance for doubtful accounts. The description of
the
policy should identify the factors that influenced your judgment
including historical losses and existing economic conditions and
should also include a discussion of risk elements relevant to
particular categories of accounts receivables.
26. Please disclose activity in your sales returns allowance,
allowance for doubtful accounts, and other valuation accounts. To
the
extent you do not believe this information is required, please
specify
why.
27. Please disclose the types of expenses that you include in the
cost
of goods sold line item and the types of expenses that you include
in
the selling, shipping, and general and administrative expenses
line
item in addition to shipping and handling. In doing so, please
disclose specifically whether you include inbound freight charges,
receiving costs, inspection costs, warehousing costs, internal
transfer costs and the other costs of your distribution network in
cost of goods sold. If you currently exclude a significant
portion of
these costs from cost of goods sold, please provide cautionary
disclosure in Management`s Discussion and Analysis that your gross
margins may not be comparable to others, since some entities
include
the costs related to their distribution network in cost of sales
and
others like you exclude all or a portion of them from gross
margin,
including them instead in a line item such as selling, general and
administrative expenses. To the extent it would be material to an
investor`s ability to compare your operating results to others in
your
industry, quantify in Management`s Discussion and Analysis the
amount
of these costs excluded from cost of goods sold.
28. Please disclose and quantify those securities that could
potentially dilute basic earnings per share in the future that
were
not included in the computation of diluted earnings per share
because
to do so would have been antidilutive for the periods presented.
Refer to paragraph 40(c) of SFAS 128.
Recent Sales of Unregistered Securities, page II-iii
29. With respect to each of the transactions you describe, please
specifically identify the investors to whom you issued
unregistered
securities and describe the facts relied upon to make the
exemptions
claimed available. Where you converted promissory notes into
shares
of your common stock, please indicate the principal and accrued
interest on the note. Where you issued common stock in exchange
for
services rendered, please describe the services.
30. We note the issuance of various equity securities the occurred
subsequent to December 31, 2004. Please provide us the summary
journal entries with respect to each issuance of common stock or
units, and conversion of promissory notes to common stock. If no
journal entry was recorded, please tell us how you concluded such
accounting treatment was appropriate and provide us with a brief
analysis with respect to your valuation methodology for each
issuance
of equity. Please ensure that we can reconcile such journal
entries
to the amounts reflected in your consolidated statement of
stockholders` equity for the six months ended June 30, 2005.
Exhibits, page II-v
31. Please file your legality opinion with your next amendment.
Undertakings, page II-vi
32. Please add the undertaking described in Item 512(e) of
Regulation
S-B.
Form 10-KSB for Fiscal Year Ended March 31, 2005
33. Please revise to comply with the above comments as applicable.
Form 10-QSB for Fiscal Quarter Ended June 30, 2005
34. Please revise to comply with the above comments as applicable.
Item 3. Controls and Procedures
35. Your citations to Rules 13a-14(c) and 15d-14(c) are incorrect.
Please revise to refer to 13a-15(e) and 15d-15(e), as reflected in
Item 307 of Regulation S-B.
36. We note your disclosure that there were no "significant"
changes
to your internal controls or in other factors that could
"significantly" affect internal controls subsequent to the date
you
carried out your evaluation. Please be aware that Item 308(c) of
Regulation S-B - which became effective on August 14, 2003 -
requires
disclosure as to whether there was any change in your internal
controls over financial reporting during the last quarter that has
materially affected, or is reasonably likely to materially affect,
your internal controls. Please revise to reflect the correct Item
308(c) standard.
37. Please refer to Exhibits 31.1 and 31.2. Your certifications
do
not conform to that set forth in Item 601(b)(31). Accordingly,
please
refile your Form 10-QSB in its entirety with conforming
certifications.
* * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that the filing includes all information required under
the
Securities Act of 1933 and they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division
of Corporation Finance in connection with our review of your
filing or
in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering of
the securities specified in the above registration statement. We
will
act on the request and, pursuant to delegated authority, grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact John Cannarella, Staff Accountant, at (202) 551-
3337
or William Choi, Accounting Branch Chief, at (202) 551-3716 if you
have questions regarding comments on the financial statements and
related matters. Please contact Anita Karu, Attorney-Advisor, at
(202) 551-3240, David Mittelman, Legal Branch, at (202) 551-3214,
or
me at 202-551-3720 with any other questions.
Sincerely,
H. Christopher Owings
Assistant Director
Cc: Aaron A. Grunfeld, Esq.
Fax: (310) 552-3209
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Jack Abramov, President
House of Taylor Jewelry, Inc.
October 21, 2005
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