As filed with the Securities and Exchange Commission on April 26, 2000
Registration No. 333-90201
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NETJEWELS.COM, INC.
(Name of issuer as specified in its charter)
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Delaware 3911 98-0211492
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code No.) I.D. No.)
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1001 Petrolia Road
North York, Ontario, Canada M3J 2X7
(877) 638-5393
(Address and Telephone Number of Principal Executive Offices)
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GERSTEN SAVAGE & KAPLOWITZ, LLP
101 East 52nd Street
New York, New York 10022
(212) 752-9700
(Name, address and telephone number of agent for service)
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Copies to:
Jay M. Kaplowitz, Esq. Lawrence B. Fisher, Esq.
GERSTEN SAVAGE & KAPLOWITZ, LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
101 East 52nd Street 666 Fifth Avenue
New York, New York 10022 New York, New York 10103
(212) 752-9700 (212) 506-5000
(212) 980-5192 facsimile (212) 506-5151 facsimile
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount maximum maximum
to be offering price aggregate offering Amount of
registered per share(1) price(1) registration fee
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Units(2) ........................ 2,530,000 $ 12.00 $30,360,000 $ 8,015.04
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Common Stock underlying
units(2) ....................... 2,530,000 (2) (2) --
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Warrants underlying units(3) .... 2,530,000 $ 16.80(3) $42,504,000 $ 11,221.06
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Common stock underlying
Warrants(4) .................... 2,530,000 (4) (4) --
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Representative's Warrants(5) .... 1 $ 10.00 $ 10.00 --
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Units underlying Representative's
Warrants(3) .................... 220,000 $ 14.40 $ 3,168,000 $ 836.36
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Common stock underlying
Representative's Warrants ...... 220,000 (5) (5) --
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Warrants underlying
Representative's Warrants(3) ... 220,000 $ 16.80(3) $ 3,696,000 $ 975.75
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Common stock underlying War-
rants contained in Representa-
tive's Warrants ................ 220,000 (4) (4) --
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Total ........................................................................... $ 21,048.21
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Total registration fee due(6) ................................................... $ 11,727.42
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(1) Estimated solely for calculating the registration fee pursuant to Rule
457(a) under the Securities Act of 1933, as amended. Units are composed of
one share of Common Stock and one Warrant to purchase one share of Common
Stock.
(2) The amount to be registered includes 330,000 shares of Common Stock,
330,000 Warrants and 330,000 shares of Common Stock underlying the
Warrants.
(3) The exercise price of the Warrants has been included for purposes of
calculating the registration fee. Each Warrant entitles the holder to
purchase one share of Common Stock.
(4) Shares of Common Stock issuable upon exercise of Warrants. Pursuant to Rule
457(i), no additional registration fee is required.
(5) The Representative's Warrant is composed of the option to purchase 220,000
Units.
(6) $9,320.79 has previously been paid.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED APRIL 26, 2000
PROSPECTUS
NetJewels.com, Inc.
2,200,000 units, each consisting of
one share of common stock and
one common stock purchase warrant
This is an initial public offering of 2,200,000 units, each unit
consisting of one share of common stock and one redeemable common stock
purchase warrant. The common stock and the warrants will trade as separate
securities immediately following the completion of this offering of
NetJewels.com, Inc. We anticipate that the initial public offering price will
be $11.10 per unit, consisting of $11.00 per share of common stock and $.10 per
warrant.
Prior to this offering, there has been no public market for any of our
securities. We intend to file an application to have our common stock and
warrants listed on the Nasdaq SmallCap Market, under the symbols "NTJL" and
"NTJLW", respectively.
Please see "Risk Factors" beginning on page 6 to read about factors you
should consider before buying any of our securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
Per Unit Total
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Initial public offering price .......... $ $
Underwriter's discount ................. $ $
Proceeds before our expenses ........... $ $
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We have granted the underwriters an option for 45 days to purchase up to
an additional 330,000 shares and/or 330,000 warrants at their respective
initial public offering prices, less the underwriting discounts, solely to
cover over-allotments. The underwriters are offering the securities on a firm
commitment basis.
It is expected that the securities will be ready for delivery on or
about , 2000.
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Dirks & Company, Inc.
The date of this prospectus is , 2000
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and our financial statements
and the notes accompanying the financial statements appearing elsewhere in this
prospectus.
The company
NetJewels.com, Inc. is a start-up Internet-based retailer and wholesaler
focused exclusively on jewelry and related products. By combining the expertise
of our employees and DG Jewelry Inc., our strategic partner and owner of 50% of
our parent company's stock, in the jewelry industry and our commitment to
customer service with the benefits of Internet retailing, we intend to deliver
our customers a first-rate shopping experience. Our online store offers a
selection of competitively priced jewelry including rings, earrings, pendants,
bracelets, watches, chains, and accessories which generally features over 5,000
different products. Most of the products offered at our online store range in
price from $25 to $10,000, and we believe our products generally cater to the
value conscious consumer. Our Web site features what we believe to be detailed
product information and innovative merchandising through an easy-to-use
interface. In addition, we offer our products on independent third-party Web
sites and have an exclusive arrangement to offer our products on UBid.com. We
have also entered into advertising and promotion agreements with Web portal and
community sites including AOL, on a non-exclusive basis, and theglobe.com, on
an exclusive basis, in order to direct consumers to our online store. DG is a
party to the agreement with theglobe.com and is a guarantor of our financial
obligations under various agreements, although the agreements are intended to
promote the sale of our products.
Our total sales from inception in January 1999 through December 31, 1999,
including our parent company's sales from February 1999 to June 1999, have
amounted to $1,581,280, in approximately 25,000 separate transactions, 65% of
which have occurred on independent third-party Web sites. All of our sales
volume occurred since February 1999. Since inception to December 31, 1999, we
have incurred losses of $1,404,833 which includes our parent's losses from
January 1999 to June 1999.
All of our products are currently supplied through an intercompany
services agreement with DG Jewelry Inc., a manufacturer and distributor of
stone-set jewelry in the middle market. DG is a 50% shareholder of our parent
company, NetJewels.com, Inc. ("NetJewels Canada"), an Ontario corporation, and
DG's Chief Executive Officer is the chairman of our board of directors and the
father of our CEO.
Our strategy
We seek to become the leading online retailer of jewelry and complementary
products. In order to achieve this goal, we will implement the following
strategies:
o continually enhance our customers' experience at our online store;
o offer a large product selection and continue to expand such selection;
o ensure fast delivery, generally within five business days;
o continue to expand the product offering within our online store;
o offer an on-line store which is available 24 hours a day 7 days a week
and may be electronically visited from any PC with access to the
Internet;
o build brand awareness through advertising and promotion;
o enter into, strengthen and expand strategic alliances with independent
third-party Web sites and content providers;
o pursue acquisitions, joint ventures and other similar strategic
investments and relationships with complementary businesses and
companies;
3
o establish an affiliate program of independent Web sites, which may or may
not be on an exclusive basis; and
o continue to invest in technology to further develop state-of-the-art
product, service and logistics platforms.
Our history
We were incorporated in Delaware in June 1999 as Exite Jewelry.com, Inc.
In October 1999, we changed our name to NetJewels.com, Inc. Our principal
executive offices are located at 1001 Petrolia Road, North York, Ontario Canada
M3J2X7 and our phone number is (877) NetJewels. From January 1999 until June
1999, our business was conducted through our parent company XiteJewelry.com
Canada, incorporated in January 1999 which changed its name to NetJewels.com
Inc. in August 1999. Our business activities prior to February 1999 consisted
of market research, the negotiation of third party contracts and the
development of our on-line store. Prior to this offering, we were a
wholly-owned subsidiary of NetJewels Canada. In January 1999, NetJewels Canada,
purchased all of the intellectual property involved in DG's Internet business,
including the domain names (which are still currently registered in DG's name)
for nominal consideration ($100), and began to develop our online store. In
January 1999 our parent issued 50% of its common stock to DG in exchange for
DG's commitment to fund our parent's and our operations until the earlier of
(a) our ability to fund our own operations; or (b) upon completion of this
offering. In May 1999, NetJewels Canada purchased all of the third party
internet contracts of DG for $1.8 million. In June 1999, we purchased these
contracts from NetJewels Canada in exchange for our assumption of NetJewels
Canada's $1.8 million obligation to DG. The contracts purchased were with UBid,
Bid.com and Ideal International Inc. which operates the web site DealDeal.com
and DG remains as a guarantor of each of these contracts. Our online store is
located at www.NetJewels.com. Information contained on our Web pages does not
constitute part of this prospectus.
Industry overview
The retail jewelry industry, which according to the U.S. Department of
Commerce, generated $22.3 billion dollars in retail sales in 1998, grew at a
8.5% rate from the prior year. Internet and online commerce provides retailers
with the opportunity to serve a rapidly growing market as consumers
increasingly accept the Internet as an alternative shopping channel. Forrester
Research in a report dated May 1999 entitled "Apparel's On-line Makeover,"
predicts that online sales of jewelry and accessories will reach $2.58 billion
by 2003.
We believe that traditional store-based retailers face a number of
challenges in providing a satisfying shopping experience for purchasers of
jewelry. These challenges include limited product selection, location and
levels of customer service. As a result, we believe that many consumers will
find the jewelry shopping experience more convenient over the Internet because
of the potential for larger selection, ability to customize selections and
lower prices that can be offered online. However, online retailers face
challenges including the uncertainty of consumer acceptance of the Internet and
intense competition, as well as other risks outlined in the "Risk Factors"
section.
The offering
o Units, each consisting of one share of our com- 2,200,000
mon stock and one redeemable common stock
purchase warrant offered by us:
4
o Terms of redeemable common purchase warrants: Each warrant entitles the holder to purchase one
share of our common stock, at an exercise price
of $15.54 per share (140% of the purchase price
of units offered in this offering), for a four year
period beginning twelve (12) months from the
date of this prospectus. Beginning eighteen (18)
months from the completion of this offering, we
will be able to redeem these warrants at a price
equal to $0.10 per warrant if the average closing
price of our common stock on the Nasdaq
SmallCap Market is equal to or greater than
$25.00 per share for any 20 trading days within a
30 day period.
o Common stock to be outstanding after the
completion of this offering: 5,500,000 shares
o Warrants to be outstanding after the completion of
this offering: 2,200,000 warrants
o Use of proceeds: o Marketing and sales;
o Acquisitions;
o Technological and system upgrades;
o Expansion of facilities; and
o Working capital and general corporate
purposes.
o Proposed Nasdaq SmallCap Symbols:
common stock: NTJL
warrants: NTJLW
Except as noted, all of the information in this prospectus assumes that
none of the following have been exercised:
o the 2,200,000 redeemable warrants offered by this prospectus;
o the over-allotment option granted to the representative by us to purchase
330,000 additional shares and/or 330,000 warrants;
o warrants to purchase 220,000 shares of our common stock and/or 220,000
warrants to be granted to the representative upon completion of this
offering; and
o options available for grant to purchase 750,000 shares of our common
stock pursuant to our 1999 stock option plan.
Following the offering our affiliates will beneficially own 60% of our
common stock, DG (30%), Dan Berkovits (15%) and Ben Berkovits (15%) through
their ownership of our parent. Jack Berkovits may be deemed to be the
beneficial owner of the DG shares as a result of being chairman and CEO
of DG. Ben Berkovits is our former president and is the brother of our CEO, Dan
Berkovits, and the son of our chairman, Jack Berkovits.
5
Summary Financial Data
The following summary financial and other data are qualified by reference
to, and should be read in conjunction with, our financial statements and their
related notes appearing elsewhere in this prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected statement of operations data shown below for the six months ended
December 31, 1999 and the balance sheet data as of December 31, 1999 are
derived from our unaudited financial statements included elsewhere in this
prospectus and have been prepared on the same basis as the audited financial
statements, and in our opinion, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such data.
The unaudited results of operations for the interim periods are not necessarily
indicative of the results for the full year or any future period. The selected
statement of operations data shown below for the fiscal year ended June 30,
1999 and the balance sheet data as of June 30, 1999 are derived from our
audited financial statements included elsewhere in this prospectus. They
include the financial performance of NetJewels Canada for the period between
January 1999 and June 1999.
Six Months Ended Fiscal Year Ended
December 31, 1999 June 30, 1999
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(unaudited)
Statement of Operations Data:
Revenues .............................................................. $1,505,841 $ 75,439
Cost of revenues ...................................................... 1,175,715 64,009
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Gross profit .......................................................... 330,126 11,430
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Expenses: .............................................................
Sales and marketing ................................................. 775,712 325,495
Financial ........................................................... 30,404 0
General and administrative .......................................... 305,696 36,166
Web site development ................................................ 0 62,916
Amortization ........................................................ 180,000 30,000
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Total Expenses ........................................................ 1,291,812 454,577
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Operating income (loss) ............................................... (961,686) (443,147)
Net interest income (expense) ......................................... 0 0
Income (loss) from continuing operations .............................. (961,686) (443,147)
Net loss .............................................................. (961,686) (443,147)
Net loss applicable to common shares .................................. (961,686) (443,147)
Net loss per basic and diluted common share ........................... (0.29) (1.61)
Shares used in computing basic and diluted net loss per share ......... 3,300,000 275,000
As of
December 31, 1999
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Actual As Adjusted(1) June 30, 1999
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Balance Sheet Data (at period end):
Cash and cash equivalents ....................... 57,204 21,513,104 0
Working capital (deficiency) .................... (1,081,147) 20,374,753 (496,805)
Total assets .................................... 1,700,427 23,156,327 1,770,000
Total liabilities ............................... 3,101,960 3,101,960 2,209,847
Total shareholders' equity (deficiency) ......... (1,401,533) 20,054,367 (439,847)
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(1) Reflects the receipt of the net proceeds from the sale of 2,200,000 units
offered hereby at an assumed initial public offering price of $11.10 per
unit, and the application thereof.
6
RISK FACTORS
An investment in our securities involves a high degree of risk. In
addition to other information contained in this prospectus, you should
carefully consider the following risk factors and other information in this
prospectus before investing in our common stock.
We have a short operating history which makes it difficult for you to evaluate
our business and prospects.
We, through our parent company, began selling products through third party
Web sites in February 1999 and on our own Web site in July 1999. Accordingly,
we have a limited operating history upon which you can evaluate our business
and prospects. Our historical data is of limited value in projecting future
operating results. An investor in our common stock must consider the risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets. These risks include our:
o evolving business model;
o competition;
o need for increased customer acceptance of the online purchase of jewelry;
o ability to maintain and expand our customer base;
o need to continue to develop and upgrade our Web site,
transaction-processing systems and network infrastructure;
o ability to scale our systems and fulfillment capabilities to accommodate
the growth of our business;
o ability to access additional capital when required;
o ability to develop and renew strategic relationships; and
o dependence on the reliability and growing use of the Internet for
commerce and communication and on general economic conditions.
If we cannot successfully address these risks it is likely that our
business strategy will be unsuccessful and our revenues and operating
activities will be severely harmed.
We have incurred a net loss since inception and expect to incur substantial net
losses for the foreseeable future.
Since inception, we have been operating at a loss. Our net losses of
$443,147 and $961,686 for the fiscal year ended June 30, 1999, which includes
our parent's losses from January 1999 to June 1999, and the six months ended
December 31, 1999, respectively, primarily relates to start-up costs. We expect
that operating losses and negative cash flow will continue for the foreseeable
future as we must invest in marketing and promotional activities, technology
and operating systems. We do not know when and if we will achieve sufficient
revenues in relation to expenses to become profitable.
Our future profitability depends on generating and sustaining high revenue
growth while maintaining reasonable expense levels. Slower revenue growth than
we anticipate or operating expenses that exceed our expectations would harm our
business. If we achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability in the future. As of December 31,
1999 we had a working capital deficit of $1,081,147.
We have a limited operating history as an independent company and may be unable
to perform or obtain essential services now being supplied by DG.
We have not operated as a fully independent company. Our results of
operations include our parent's operations from January 1999 to June 1999. We
have relied on DG to provide corporate, fulfillment, inventory supply,
space-sharing and other administrative services. We will continue to receive
those services pursuant to an intercompany services agreement with DG. The
intercompany services agreement is for a term of five
7
years. If DG fails to adequately provide services to us or if we fail to
develop management and financial systems, our business could suffer until we
develop our own sufficient operational, administrative and other systems and
infrastructure. We may not be able to secure these services from third parties
on acceptable terms or at all. We have no plans, arrangements or agreements to
obtain these services from any party other than DG. See "Certain Transactions."
DG is our sole supplier of jewelry and if DG does not produce attractive
merchandise in sufficient quantities and in a timely manner, demand for our
products will decrease and our brand may suffer.
DG is our sole supplier of jewelry. We are therefore dependent on consumer
acceptance of the jewelry designs and products offered by DG. If DG fails to
design jewelry that is attractive to consumers, it could have a negative effect
on the demand for our products and services. We do not know if the intercompany
service agreement were to be terminated, that we would be able to find an
alternative, comparable supplier capable of providing product on terms
satisfactory to us. In addition, to the extent that DG does not have sufficient
capacity, is unable to satisfy our requirements on a timely basis, suffers a
financial setback or a change in its strategic objectives, such an event could
have a negative effect on the demand for our products and services and hurt our
brand. DG supplies its products to numerous customers. We have the right to
purchase products from sources other than DG, although we have no agreements or
intentions of doing so at the present time.
We are controlled by our parent company's principal stockholder, DG, which has
a familial relationship with our chief executive officer, therefore you may
have no effective voice in our management.
Upon the completion of this offering, NetJewels Canada, our parent
company, will beneficially own sixty percent (60%) of our common stock. DG,
through its ownership of fifty percent (50%) of NetJewels Canada, will
beneficially own thirty percent (30%) of the issued and outstanding shares of
our common stock. Daniel P. Berkovits, our CEO, will beneficially own fifteen
percent (15%) of us, through his 25% ownership of NetJewels Canada. Daniel
Berkovits is the son of Jack Berkovits, our chairman and CEO and chairman of
DG. Ben Berkovits, our former president, will beneficially own fifteen percent
(15%) of us, through his 25% ownership of NetJewels Canada. Ben Berkovits is
the brother of our CEO, Daniel Berkovits, and the son of our chairman and CEO
and chairman of DG, Jack Berkovits. Our charter documents contain no
requirement to obtain a super majority (more than 50%) approval for corporate
actions requiring shareholder approval. Accordingly, DG and the Berkovits
family will collectively beneficially own sixty percent (60%) of our common
stock after this offering and will be able to exercise control over all matters
requiring stockholder approval, including the election of all directors and
approval of significant corporate transactions. If you purchase shares of our
common stock, you may have no effective voice in our management. In addition,
Jack Berkovits' relationship to us, DG and Daniel Berkovits could create or
appear to create potential conflicts of interest if faced with decisions that
have different implications for each company, including the negotiation,
performance and any renewal of the inter-company services agreement. Jack
Berkovits beneficially owns forty-eight percent (48%) of DG's capital stock and
Daniel Berkovits is a nominal shareholder of DG.
In order to effectuate our business plan, we will require substantial funds and
we may need and be unable to obtain additional capital in the future, and if we
raise additional capital through the sale of equity securities you may
experience dilution.
We cannot assure you that we will be able to achieve our goals without
additional capital or that we will be able to raise additional capital. Even if
additional capital is obtained, we cannot assure you that we will be able to
achieve our goals with additional capital, or that any new capital, if
available, will be on favorable terms. We expect that the proceeds of this
offering, together with cash generated from operations, will be sufficient to
satisfy our capital requirements for at least the 12 months following
completion of this offering. However, we may need to raise additional capital
in this period if our estimates of revenues, expenses and/or capital
expenditures change or prove inaccurate in order for us to respond to
unforeseen technological, operational or marketing hurdles or to take advantage
unanticipated opportunities. In the event that we raise additional capital
through the sale of our equity securities you may experience dilution.
8
Our future operating results are unpredictable and may fluctuate due to a
variety of factors, many of which are beyond our control.
As a result of our limited operating history, it is difficult to
accurately forecast our sales and we have limited meaningful historical
financial data upon which to base planned operating expenses. We base our
current and future expense levels on our operating plans and estimates of
future net sales. Sales and operating results are difficult to forecast because
they generally depend on the volume and timing of the orders we receive. As a
result, we may be unable to adjust our spending in a timely manner to
compensate for any unexpected revenue shortfall. We may also be unable to
increase our spending and expand our operations in a timely manner to
adequately meet customer demand to the extent it exceeds our expectations.
Our annual and quarterly operating results may be affected and may
fluctuate significantly in the future due to a variety of factors, many of
which are outside of our control. Factors that may harm our business or cause
our operating results to fluctuate include the following:
o our inability to obtain new customers at a reasonable cost, retain
existing customers, or encourage repeat purchases;
o decreases in the number of visitors to our Web site or our inability to
convert visitors to our Web site into customers;
o our inability to manage fulfillment operations;
o our inability to adequately maintain, upgrade and develop our Web site,
transaction-processing systems or network infrastructure;
o the ability of our competitors to offer new or enhanced Web sites,
services or products;
o price competition;
o the termination of existing, or failure to develop new, strategic
marketing relationships pursuant to which we receive exposure to traffic
on third-party Web sites;
o increases in the cost of online or offline advertising;
o our inability to attract new personnel in a timely and effective manner
or retain existing personnel;
o the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
o technical difficulties, system downtime or Internet brownouts;
o a breach in our on-line security systems;
o government regulations related to use of the Internet for commerce or for
sales; and
o general economic conditions and economic conditions specific to the
Internet, online commerce and the jewelry industry.
We may not be able to compete successfully against current and future
competitors.
The online commerce market is new, rapidly evolving and intensely
competitive. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our net sales and results of operations. We expect competition to
intensify in the future because current and new competitors can enter our
market with little difficulty and can launch new Web sites at a relatively low
cost. In addition, the retail jewelry industry is intensely competitive.
We currently or potentially compete with a variety of other companies
including:
o traditional store-based jewelry retailers such as Gordons, Sterling and
Friedmans;
o department store retailers such as Sears, J.C Penney, Macy's and Ward's;
o major discount retailers such as Kmart, Target and Service Merchandise;
o cable shopping networks such as HSN;
o online efforts of traditional and cable network retailers, including the
online stores operated by HSN, ValueAmerica and Gordons;
o catalog retailers of jewelry;
9
o other online retailers that may include jewelry as part of their product
offerings, such as Amazon.com;
o online wedding portal sites that feature shopping services, such as the
Knot.com and Modern Bride;
o Internet portals, online auction services and online service providers
that feature shopping services, such as eBay, Yahoo! and Amazon.com; and
o various online retailers of jewelry, such as Alle Fine Jewelry, eJewelry
and Just Jewelry.
Many of our competitors and potential competitors have substantially
greater financial, technical and marketing resources, longer operating
histories, greater name recognition and more established relationships with
advertisers and Internet portal sites than we do. These competitors may be able
to undertake more extensive marketing campaigns and adopt more aggressive
pricing polices then we can. As a result, we may have difficulty increasing our
market share.
If our marketing efforts do not result in a significant increase in traffic
directed to our Web site our revenues will not grow as expected.
We are reliant on the marketing efforts, which we expect to fund from a
portion of the net proceeds of this offering, to drive traffic to our online
store. If traffic directed to our online store does not significantly increase,
our revenues will not grow as expected and we may never achieve profitability
and even if achieved, maintain profitability. To date, our marketing efforts
have been limited to advertising on portals, and listing our products and site
name on several auction sites and search engines. We do not currently employ
any marketing staff. In order to generate traffic to our Web site we expect to
spend heavily on advertising and marketing efforts online and in traditional
mediums. If we are unable to attract appropriate marketing personnel on a
timely basis, we may not be able to effectuate our marketing strategy.
We are dependent upon our strategic alliances with third-party web-sites
including Ubid.com and Bid.com and advertising agreements with web portals and
community sites including AOL and theglobe.com to increase traffic to our
websites and the sales of our products.
We rely on strategic alliances with web portals and community sites to
attract users to our online store and have entered into agreements with,
theglobe.com and AOL to attract users from their Web sites and online services.
DG is a party to the agreement with theglobe.com although the agreements are
intended to promote the sale of our products. We rely on strategic alliances
with third-party web-sites such as UBid.com and Bid.com for the sale of our
products. These agreements were entered into by DG and were assigned to us from
DG. In addition, DG remains as a guarantor of each of these agreements.
Approximately 65% of our sales from inception to date, including our parent's
sales from February 1999 to June 1999, have been through these third-party
sites. We can not be sure that these agreements will be maintained beyond their
initial terms, or that they will not be terminated or that we will be able to
enter into additional third-party agreements on acceptable commercial terms or
even at all. If we are unable to enter into new strategic agreements or to
maintain any one or more of our existing, significant strategic alliances, it
would probably result in a material adverse effect on our business.
We may be unable to support increased volume on our Web site, thus preventing
potential customers from purchasing our products and adversely affecting our
revenues and harming our brand.
A key element of our strategy is to generate a high volume of traffic on
our Web site. However, significant growth in the number of users of our online
store may strain or exceed the capacity of our computer systems and lead to
declines in performance or systems failure, thus preventing potential customers
from purchasing our products and adversely affecting our revenues.
We must also introduce additional or enhanced features and services to
retain current users and attract new users to our online store. If a new
service is not favorably received, our current customers may visit our online
store less frequently. These new services or features may not function well and
we may need to significantly modify the design of these services to correct
errors. If users encounter difficulty with or do not accept our services or
features, our business would be damaged.
10
If the Internet does not become a usable medium for commerce, we may not
achieve significant revenues.
Consumer use of the Internet as a medium for commerce is a recent
phenomenon and is subject to a high level of uncertainty. The Internet may not
prove to be a viable commercial marketplace because of inadequate development
of the necessary infrastructure, such as reliable network backbones, or
complementary services. The viability of the Internet or its viability for
commerce may prove uncertain due to delays in the development and adoption of
new standards and protocols to handle increased levels of Internet activity or
due to increased government regulation or taxation.
While the number of Internet users has been rising, the Internet
infrastructure may not expand fast enough to meet the increased levels of
demand. The increased use of the Internet as a medium for commerce raises
concerns regarding Internet security, reliability, pricing, accessibility and
quality of service. If use of the Internet does not continue to grow, or if the
necessary Internet infrastructure or complementary services are not developed
to effectively support growth that may occur, the demand for our services and
products could be negatively affected. In addition, the nature of the Internet
as an electronic marketplace which may, among other things, facilitate
competitive entry, comparison shopping and advertising revenue supported
business models, may render it inherently more competitive than conventional
retailing formats.
Any imposition of a sales or other tax on e-commerce could negatively effect
the demand for our products and services.
We do not currently collect sales or other similar taxes for physical
shipments of goods into any states or provinces, other than Ontario, Canada
where we are based. There have recently been several proposals put forth in the
United States Congress which would impose sales tax on goods sold over the
Internet. In the event that such proposals are adopted there could be an
adverse affect on the demand for our products. In addition, one or more local,
state or foreign jurisdictions may seek to impose sales tax collection
obligations on us. In addition, any new operation in states or provinces
outside of Ontario could subject our shipments in such states or provinces to
sales taxes under current or future laws. If one or more states or any foreign
country successfully asserts that we should collect sales or other taxes on the
sale of our products, it could adversely affect the demand for our services and
products.
The demand for our products and services may fluctuate with the price of
jewelry and the holiday season.
The availability and cost of precious metals and precious and
semi-precious stones will affect the demand for our products and services. The
availability and prices of gold, diamonds and other precious metals and
precious and semi-precious stones may be influenced by cartels, political
instability in exporting countries and inflation. Shortages of these materials
or sharp changes in their prices could have a material adverse effect on our
results of operations or financial condition.
We expect to experience increased demand for our products during the
holiday season, which is during the second quarter of our fiscal year. If for
any reason our sales during the second quarter were substantially below
expectations, our annual and quarterly operations could be materially and
adversely affected.
The sale of jewelry and the demand for our products and services is dependent
upon a strong economy.
Retail jewelry sales are sensitive to fluctuations in the economic cycle.
Unfavorable general economic conditions generally have an adverse effect on
consumer spending, and therefore on our business. It is probable that
unfavorable general economic conditions or a downturn in consumer confidence in
the future would have an adverse effect on consumer spending preferences and,
therefore, on our business.
If we do not continually update our technology and the ease and functionability
of our Web site, we may not be able to compete effectively.
To remain competitive, we must continually enhance and improve the
responsiveness, functionality and features of our online store. The Internet
and the e-commerce industry are characterized by rapid technological change,
changes in user and customer requirements and preferences, frequent new product
and service introductions embodying new technologies and the emergence of new
industry standards and practices. These changes could render our existing
online store and proprietary technology and systems obsolete. Our success will
depend, in part, on our ability to license appropriate technologies, enhance
our existing services, and
11
develop new services and technology that address the increasingly sophisticated
and varied needs of our existing and prospective customers. We must also be
able to respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
Internet security concerns could hinder e-commerce and the demand for our
products and services.
Public concern over Internet security has been, and may continue to be, a
hindrance to commercial use of the Internet. Despite our implementation of
third-party vendor network security measures, our infrastructure is vulnerable
to computer break-ins and disruptive problems. We may incur significant costs
to protect against the threat of security breaches or alleviate problems
created by breaches. Internet usage and the demand for our services and
products could decline if a well publicized compromise of security occurs.
Computer viruses, break-ins or other security problems could lead to
misappropriation of proprietary information and interruptions, delays or
cessation in service to our customers. Any computer break-in could affect
consumer confidence in the security of our services and could seriously damage
our brand and business.
Web site addreses and domain names similar to our's could cause confusion and
may damage our brand.
We own various registered Internet Web site addresses and domain names
related to our business. We may not be able to prevent third parties from
acquiring Web site addresses and domain names that are similar to our
addresses, which could cause confusion and may damage our brand. We are aware
of several names which are similar to our name and may cause confusion and hurt
our brand. The regulation of Web site addresses and domain names in the United
States and foreign countries is subject to change. As a result, we may not be
able to acquire or maintain relevant Web site addresses and domain names in all
countries where our services and products are made available through the
Internet. Furthermore, the relationship between regulations governing Web site
addresses and domain names and laws protecting trademarks is unclear.
Your proportionate ownership interest in NetJewels.com may be diluted because
current shareholders paid less than the public offering price for their shares.
Based upon an assumed initial public offering price of $11.10 per unit,
purchasers of common stock in this offering will experience an immediate and
substantial dilution in net tangible book value (assets minus liabilities and
intangible assets) of $7.35 per share of common stock purchased. Dilution will
reduce the per share value of your shares of common stock and reduce your
proportionate ownership interest in the company.
Our sole shareholder and its owners will benefit disproportionately from this
offering.
NetJewels Canada our sole shareholder, which is owned 50% by DG, 25% by
Daniel Berkovits and 25% by Ben Berkovits, will benefit if a market for their
securities develops upon completion of this offering. Our sole shareholder will
experience an immediate increase in net tangible book value per share of $4.07.
NetJewels Canada paid $.001 per share for its 3,300,000 shares, meaning that
they would have an unrealized gain of $3.65 per share and an aggregate
unrealized gain of $12,045,000 upon completion of this offering, assuming an
$11.10 initial public offering price per unit.
Our management has broad discretion as to how to use the proceeds of this
offering and you may have no opportunity to approve the use of proceeds of this
offering.
Approximately $12,655,900 or 59% of the net proceeds of this offering has
been allocated to working capital and general corporate purposes. Accordingly,
our management will have broad discretion over the use of the proceeds. Our
stockholders may have no opportunity to approve the use of the proceeds of this
offering.
We need to effectively manage the growth of our personnel and operations to
avoid unnecessary expenses.
Our success depends, in part, upon effective planning and growth
management. Our anticipated future operations will place a significant strain
on our management, personnel, information systems and resources. To
12
manage the expected growth of our operations and personnel, we will be required
to improve existing and implement new transaction-processing, operational and
financial systems, procedures and controls, and to expand, train and manage our
limited employee base on a timely basis. We will need to hire and retain highly
skilled personnel to manage our expected growth. If we do not successfully
implement and integrate these new systems or fail to scale these systems with
our growth, we may not have adequate, accurate and timely forecasting and
financial information and may incur unnecessary expenses.
The loss of the services of Daniel Berkovits, or Jack Berkovits or any other
key personnel, or our failure to attract, assimilate and retain highly
qualified personnel in the future, could seriously harm our business.
Our future success depends, in part, on the continued services of our
senior management and our ability to retain and motivate our other key
employees. The loss of the services of Daniel, or Jack Berkovits, who have
developed and implemented our business plan, or any other key employee would
have a material adverse effect on our business, results of operations and
financial condition. Although we have employment agreements with Daniel, and
Jack Berkovits, they can be terminated at any time. We do not currently have
key-man life insurance on Daniel, or Jack Berkovits.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate highly skilled technical, managerial, merchandising,
marketing and customer service personnel. Competition for such personnel is
intense, and we cannot be certain that we will be able to successfully attract,
assimilate or retain sufficiently qualified personnel. Our inability to do so
could result in a loss of revenues and market share.
The redeemable nature of our warrants may impact your investment decision as to
if and when to exercise them.
The 2,200,000 redeemable common stock purchase warrants included in the
units being offered by this prospectus are redeemable by us. Commencing 18
months after the date of this prospectus, we can redeem the warrants at a
redemption price of $.10 per warrant if our common stock trades above $25.00
for any 20 trading days within a period of 30 consecutive trading days ending
on the fifth trading day prior to the date of the redemption notice. If we
decide to redeem the warrants, holders will lose their rights to purchase the
underlying shares of common stock unless the warrant is exercised before we
redeem them. Upon receipt of a notice of redemption, holders may be forced to
make an investment decision forcing the investor to exercise the warrants prior
to the time the investor desires to do so.
You cannot sell the shares underlying the redeemable common stock purchase
warrants if we do not have an effective registration statement.
The redeemable common stock purchase warrants included in the units
offered by this prospectus are not exercisable unless, at the time of exercise,
we have a current prospectus covering the shares of common stock issuable upon
exercise of the warrants, and the shares have been registered, qualified or
deemed to be exempt under the securities laws of the state of residence of the
exercising holder of the warrants. Although we have agreed to use our best
efforts to keep a registration statement covering the shares of common stock
issuable upon the exercise of the warrants effective for the term of the
warrants, if we fail to do so for any reason, the warrants may be deprived of
value.
The common stock and warrants included in the units offered by this
prospectus will be detachable and separately transferable immediately following
completion of this offering. Purchasers may buy warrants in the aftermarket or
may move to jurisdictions in which the shares underlying the warrants are not
so registered or qualified during the period that the warrants are exercisable.
In that event, we would be unable to issue shares to those holders desiring to
exercise their warrants, and these holders would have no choice but to attempt
to sell the warrants in a jurisdiction where a sale is permissible or allow the
warrants to expire unexercised.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements that involve
risks and uncertainties. These statements refer to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "believes", "will", "expects", "anticipates",
"intends", "plans" and similar expressions. Our actual results could differ
materially from those anticipated in such forward-looking statements. Factors
that could contribute to these differences include, but are not limited to,
those discussed in
13
"Risk Factors" and elsewhere in this prospectus. We caution you not to place
undue reliance on these forward- looking statements which reflect our
management's view only as of the date of this prospectus. After the date of
this prospectus, we undertake no obligation to update this prospectus with
respect to forward-looking statements for any reason, even if new information
becomes available or other events occur in the future, although we have certain
obligations under the securities laws to disclose any material information
pertaining to us in our periodic filings.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $21,455,900
from our sale of the 2.2 million units being offered hereby, assuming an
initial public offering price of $11.10 per unit. If the representative
exercises its over-allotment option in full, we will receive net proceeds of
approximately $24,734,285. Both of these figures are after deduction of
estimated underwriting discounts and commissions and fees and expenses of
$2,964,100 $3,348,715 if the over-allotment option is exercised in full,
payable by us. We expect to use the net proceeds of this offering as follows:
Approximate Percentage of
Use Amount Net Proceeds
- --- ------ ------------
Marketing and sales ............................................... 5,000,000 23.3%
Equipment and software purchase and upgrades ...................... 500,000 2.3
Expansion of fulfillment operations and executive offices ......... 500,000 2.3
Hiring executive personnel ........................................ 300,000 1.4
Acquisitions ...................................................... 2,500,000 11.7
General corporate and working capital purposes .................... 12,655,900 59.0
---------- -----
Total ............................................................. $21,455,900 100.0%
=========== =====
Upon completion of this offering, we intend to utilize approximately
$5,000,000 to market our Web site through advertising methods including print,
radio, television and online advertising. We also intend to hire a celebrity as
a spokesperson to increase consumer awareness of our company and products.
We expect that we will experience an on-going need to add additional
hardware and software upgrades to our existing systems in order to handle
expected increased traffic at our Web site, accordingly we have budgeted
$500,000 for such use.
We expect that our future growth will require us to secure new office
space to adequately house our operations and we have budgeted $500,000 for such
use, although we have not selected any office space at this time.
In addition to hiring other employees to meet our anticipate growth, we
intend to hire a full time director of marketing, as well as a chief financial
officer and chief information officer following the offering.
It is part of our strategy to acquire complementary technologies or
businesses; however, we currently have no commitments or agreements and are not
involved in any negotiations with respect to any such transactions.
We have budgeted $2,500,000 of the net proceeds for any potential
acquisitions, however, we currently have no commitments or agreements and are
not involved in any negotiations with respect to any such transactions.
We have dedicated approximately $12,655,900 to general corporate needs and
working capital purposes. These needs include added salaries, including
salaries of executives which have been accrued, health care costs, professional
fees and other costs which will require us to use the proceeds of this offering
until the time that we become a profitable business, of which there can be no
assurance.
Pending application, the net proceeds will be invested principally in
short-term certificates of deposit, money market funds or short-term treasury
bonds.
14
We reserve the right to reallocate proceeds to different uses if, in
management's view, the needs of the business so require. In addition, a large
portion of the proceeds is allocated to discretionary purposes, including
working capital and general corporate purposes. Investors may not agree with
any such allocation or reallocation. In the event the representative exercises
the over-allotment option we intend to utilize such additional proceeds for
working capital.
Based on our operating plan, we believe that the net proceeds of this
offering, together with available funds on hand and cash flow from future
operations, will be sufficient to satisfy our working capital requirements for
at least twelve months following this offering. Such belief is based upon
certain assumptions, including assumptions as to our contemplated operations
and business plan and economic and industry conditions. We cannot be certain
that such resources will be sufficient for such purpose and if not we may need
to raise additional capital through the sale of equity securities. In addition,
contingencies may arise that may require us to obtain additional capital. We
cannot be certain that we will be able to obtain such capital on favorable
terms or at all.
DIVIDEND POLICY
We have never paid or declared cash or stock dividends on our common
stock. The payment of cash dividends, if any, is at the discretion of our board
of directors and will depend upon our earnings, our capital requirements,
financial condition and other relevant factors. We intend, for the foreseeable
future, to retain any future earnings for use in our business.
15
DILUTION
Our net tangible book value as of December 31, 1999 was approximately
($1,400,000) or (0.42) per share. Net tangible book value per share represents
the amount of our total tangible assets reduced by the amount of our total
liabilities and divided by the total number of shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common
stock immediately after the completion of this offering. After giving effect to
the sale of the 2,200,000 units offered hereby at an assumed initial public
offering price of $11.10 per unit, and after deducting the underwriting
discount and estimated offering expenses payable by us, our pro forma net
tangible book value at December 31, 1999 would have been approximately
$20,054,367 or $3.65 per share of common stock. This represents an immediate
increase in net tangible book value of $4.07 per share to existing stockholders
and an immediate dilution of $7.35 per share to new investors of common stock.
The following table illustrates this dilution on a per share basis:
Assumed initial public offering price ........................ $ 11.00
Net tangible book value at December 31, 1999 .............. (0.42)
Increase in net tangible book value attributable to new
investors ................................................ 4.07
Net tangible book value after this offering .................. 3.65
--------
Dilution of net tangible book value to new investors ......... $ 7.35
========
In the event that the over-allotment option is exercised in full, the
dilution to new investors would be $7.00 per share.
The following table sets forth, as of the date of this prospectus, the
number of shares of common stock purchased, the percentage of the total number
of common stock purchased, the total consideration paid, the percentage of
total consideration paid, and the average price per share paid by the investors
in this offering and our current shareholders:
Shares purchased Total consideration Average
-------------------------- ----------------------------- price per
Number Percentage Amount Percentage share
----------- ------------ -------------- ------------ ----------
Existing stockholders ......... 3,300,000 60% $ 3,300 0.1% $ 0.001
New investors ................. 2,200,000 40% $24,200,000 99.9% $ 11.00
--------- -- ----------- -----
Total ...................... 5,500,000 100.0% $24,203,300 100.0%
========= ===== =========== =====
The preceding table excludes deduction of underwriting commissions,
discounts and other expenses of this offering. The preceding table also
excludes the purchase and any exercise of the redeemable warrants offered by
this prospectus.
16
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
o on an actual basis; and
o on a pro forma basis to reflect the receipt and application of the
estimated net proceeds from the sale by us of 2,200,000 units offered
hereby at an assumed initial public offering price of $11.10 per unit.
This table should be read in conjunction with our financial statements and
the accompanying notes appearing elsewhere in this prospectus.
Actual Pro-Forma
--------------- ---------------
Notes payable -- DG Jewelry Inc. ...................................... $ 2,387,982 $ 2,387,982
Stockholders' equity:
Preferred stock, 1,000,000 authorized, none issued and outstanding . 0 0
Common stock, $.001 par value per share, 19,000,000 authorized,
3,300,000 issued and outstanding, actual; and 5,500,000 issued and
outstanding, pro-forma ............................................... 3,300 5,500
Additional paid in capital ............................................ -- 21,453,700
Accumulated deficit ................................................... (1,404,833) (1,404,833)
------------ ------------
Total stockholders equity (deficit) and capitalization ................ 986,449 22,442,349
============ ============
- ------------
The preceding table excludes:
o 2,200,000 shares issuable upon the exercise of the warrants offered by
this prospectus;
o 750,000 shares reserved for grant under our stock option plan;
o 220,000 shares issuable upon exercise of the representative's warrants;
o 220,000 warrants issuable upon exercise and the representative's
warrants;
o 220,000 shares of common stock issuable upon the exercise of the warrants
included in the representative's warrants;
o 330,000 shares issuable upon exercise of the underwriter's over-allotment
option in full.
o 330,000 shares issuable upon exercise of the warrants included in the
underwriter's over-allotment option in full.
17
SELECTED FINANCIAL DATA
The following selected historical financial and other data are qualified
by reference to, and should be read in conjunction with, our financial
statements and their related notes appearing elsewhere in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected statement of operations data shown below for the six
months ended December 31, 1999 and the balance sheet data as of December 31,
1999 are derived from our unaudited financial statements included elsewhere in
this prospectus and have been prepared on the same basis as the audited
financial statements, and in our opinion, reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
data. The unaudited results of operations for the interim periods are not
necessarily indicative of the results for the full year or any future period.
The selected statement of operations data shown below for the fiscal year ended
June 30, 1999 and the balance sheet data as of June 30, 1999 are derived from
our audited financial statements included elsewhere in this prospectus. They
include the financial performance of NetJewels Canada for the period between
January 1999 and June 1999.
Six Months Ended Fiscal Year
December 31, 1999 Ended June 30, 1999
----------------- --------------------
(unaudited)
Statement of Operations Data:
Revenues ....................................... 1,505,841 75,439
Cost of revenues ............................... 1,175,715 64,009
--------- --------
Gross profit ................................... 330,126 11,430
--------- --------
Expenses:
Sales and marketing ........................... 775,712 325,495
Financial ..................................... 30,404 0
General and administrative .................... 305,696 36,166
Web site development .......................... 0 62,916
Amortization .................................. 180,000 30,000
--------- --------
Total Expenses ................................. 1,291,812 454,577
--------- --------
Operating income (loss) ........................ (961,686) (443,147)
Net interest income (expense) .................. 0 0
Income (loss) from continuing operations ....... (961,686) (443,147)
Net loss ....................................... (961,686) (443,147)
========= ========
Net loss applicable to common shares ........... (961,686) (443,147)
Net loss per basic and diluted common share .... (0.29) (1.61)
========= ========
Shares used in computing basic and diluted
not loss per share ............................ 3,300,000 275,000
========= ========
As of December 31, 1999 June 30, 1999
----------------------- -------------
(unaudited)
Balance Sheet Data:
Cash and cash equivalents ...................... $ 57,204 $ 0
Working capital (deficiency) ................... (1,081,147) (496,805)
Total assets ................................... 1,700,427 1,770,000
Total liabilities .............................. 3,101,960 2,209,847
Total shareholders' (deficit) equity ........... (1,401,533) (439,847)
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our Financial Statements and the accompanying notes thereto appearing elsewhere
in this prospectus.
Overview
Our goal is to become the leading Web-based retailer of jewelry. We
currently generally offer approximately 5,000 jewelry products which we believe
are competitively priced and intend to continue to expand our product
offerings.
We were incorporated in June 1999 as Exite Jewelry.Com,Inc., which name
was changed to NetJewels.Com, Inc. in October 1999, but began offering products
for sale on third-party Web sites including Internet auction sites in February
1999 through our parent company, NetJewels Canada. We have realized revenues of
approximately $1,581,280 from these activities from inception to December 31,
1999, including NetJewels Canada's revenues from February 1999 until June 1999.
In January 1999, NetJewels Canada purchased all of the intellectual property
involved in DG's Internet business, including the domain names for nominal
consideration, and began to develop our online store. In May 1999, NetJewels
Canada purchased all of the third-party Internet contracts from DG for $1.8
million. In June 1999, we purchased the Internet contracts from NetJewels
Canada in exchange for our assumption of the $1.8 million obligation to DG.
This amount is to be repaid over a five year term with no interest. The
agreements purchased were with UBid, Bid.com and Ideal International Inc. The
$1,800,000 purchase price was based on an independent valuation. We believe
that the purchase price was fair and reasonable and on terms at least as
favorable as could be obtained from an unaffiliated party. In addition, in
January 1999 NetJewels Canada upon its formation issued 1,650,000 shares of its
common stock, which represented 50% of its shares, to DG in exchange for
agreeing to advance funds to use in our operations and our parent company's
operations, until such time that we are able to fund ourselves. In addition, we
have agreed to reimburse DG for all monies advanced in connection with our
start-up. All of our obligations to DG, including advances of approximately
$587,982 and the $1,800,000 owed to DG for the purchase of the Internet
contracts, are memorialized by two separate promissory notes neither of which
bear interest and each of which are payable over a five year term. Pursuant to
the notes, DG has been granted a security interest in all of our assets. As of
December 31, 1999 our total indebtedness to DG is approximately $2,387,982.
Upon the consummation of this offering, DG will not be obligated to continue to
advance funds for our operations. Since launching our online store we have
continued to sell goods on third party sites and have also focused on building
sales momentum on our Web site store, expanding our product offerings,
promoting our brand name and establishing fulfillment and customer service
operations. We expect our cost of sales and operating expenses will increase
significantly. This reflects the costs associated with our formation as well as
increased efforts to promote our brand, build market awareness, attract new
customers, recruit personnel, build operating infrastructure and develop our
Web site and associated transaction-processing systems.
We expect to significantly increase our on-line traffic once our intended
intensive advertising campaign begins upon completion of this offering. Since
launching our Web-site in July 1999, we have dedicated our efforts to making
shopping on our site user-friendly and secure.
Since inception, we and our parent, have incurred losses and, as of
December 31, 1999, had an accumulated deficit, since inception, of $1,404,833
which includes our parent's losses from January 1999 to June 1999. We expect
operating losses and negative cash flow to continue for the foreseeable future.
We anticipate our losses will increase significantly from current levels
because we expect to incur additional costs and expenses related to: (a) brand
development, (b) marketing and other promotional activities, (c) the expansion
of our management and order fulfillment infrastructure, (d) the continued
development of our Web site, (e) transaction-processing systems and network
infrastructure, (f) the expansion of our product offerings and Web site
content, and (g) strategic relationship development.
We have a very limited operating history on which to base an evaluation of
our business and prospects. You must consider our prospects in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development, particularly companies in new and rapidly evolving
markets such as online commerce. These risks include, but are not limited to,
an evolving and unpredictable business model and management of growth.
19
Our executive offices and other long-lived assets are located in Canada.
With the exception of the amounts payable as salaries to our employees, all of
our expenses are in U.S. dollars. Approximately, 77% of our expenses have been
in U.S. dollars. Approximately, 90% of our revenues have been derived from
sales to customers in the United States during the fiscal year ended June 30,
1999 and the six months ended December 31, 1999. Accordingly, we do not believe
that we are subject to material foreign exchange risks.
Results of operations
In view of the rapidly changing nature of our business and our limited
operating history, we believe that our gross profit margin and operating
expenses as a percentage of sales, are not necessarily meaningful and should
not be relied upon as an indication of future performance.
The financial information included in this prospectus may not necessarily
be indicative of the financial position, results of operations and cash flows
had we been operating as a separate stand-alone company during the periods
presented. Our results of operations for the fiscal year ended June 30, 1999
include our parent's operations from January 1999 to June 1999.
The following table sets forth statement of operations data as a
percentage of net sales for the periods indicated:
Six Months
Fiscal Year Ended Ended
June 30, 1999 December 31, 1999
------------------------ ------------------------
(unaudited)
Statement of Operations Data:
Revenues ............................... $ 75,439 100% $1,505,841 100%
Cost of revenues ....................... 64,009 85% 1,175,715 78%
========== === ========== ===
Gross Profit ........................... 11,430 15% 330,126 22%
Operating expenses:
Sales and marketing .................... 325,495 431% 775,712 52%
Web site development ................... 62,916 83% 0 0%
Financial .............................. 0 0% 30,404 2%
General administrative ................. 36,166 48% 305,696 20%
----------
Amortization ........................... 30,000 40% 180,000 12%
---------- ----------
Total operating expenses ............... 454,577 602% 1,291,812 86%
---------- ----------
Operating loss ......................... (443,147) 587% (961,686) 64%
Interest income (expense), net ......... 0 0% 0 0%
Provision for income taxes ............. 0 0% 0 0%
---------- ----------
Net loss ............................... (443,147) 587% (961,686) 64%
========== ==========
Six Months Ended December 31, 1999
Net Sales. Net sales include the sale of our jewelry products, net of
returns, up front fees and commissions paid to third party web sites. Net sales
totaled $1,505,841 for the six month period ended December 31, 1999. Sales
include those made on our website and those made on third party websites. We
recognize the entire amount of revenues and remit the appropriate commission to
the third party websites. Sales to customers in the United States represented
70% of our sales during this period.
Cost of Sales. Cost of sales includes the cost actually paid for goods
sold and commissions paid to third party websites. Cost of goods sold totaled
$1,175,715, or 78% of our net sales, for the six months ended December 31,
1999.
Gross Profit. For the six months ended December 31, 1999, we had a gross
profit of $330,126 or 22% of our net sales. We expect our gross profit to
increase as the percentage of our on-line store sales increase and the
percentage of our sales on third-party web sites decreases as a percentage of
total sales.
20
General and Administrative Expenses. General and administrative expenses
consist of payroll and related expenses for executive, accounting and
administrative personnel, recruiting, professional fees, and other corporate
expenses. General and administrative expenses totaled $305,696 or 20% of our
net sales, for the six months ended December 31, 1999. Management expects
general and administrative expenses will continue to increase as our staff
expands and incurs additional costs to support the growth of our business
including the potential acquisition of additional office space. Currently, DG
provides us with all of our services related to payroll processing, benefits
administration, insurance including property and casual, medical, dental and
life, merchandising and telecommunications. Pursuant to the intercompany
services agreement. DG charges us $5,000 per month for such services and $6,000
per year for the use of approximately 3,000 square feet of space from DG. In
addition, upon completion of this offering the salary of our CEO will increase
by $50,000 per year.
Net Loss. We incurred a net loss of $961,686, or $(0.29) per share, for
the six months ended December 31, 1999, and expect to continue to incur net
losses for the foreseeable future.
Fiscal Year Ended June 30, 1999
Net Sales. Net sales include the sale of our jewelry products, net of
returns, up front fees and commissions paid to third party sites. Net sales
totaled $75,439 for the fiscal year ended June 30, 1999. Sales include those
made on our website and those made on third party websites. Sales to customers
in the United States represented approximately 70% of our sales in the period.
Cost of Sales. Cost of sales includes the costs actually paid for the
goods and the commissions paid to third-party websites. Cost of sales totaled
$64,009, or 85% of our net sales, for the fiscal year ended June 30, 1999.
Gross Profit. For the year ended June 30, 1999, we had a gross profit of
$11,430 or 15% of our net sales. We expect our gross profit to increase as the
percentage of our on-line store sales increase and the percentage of our sales
on third-party web sites decreases as a percentage of total sales.
General and Administrative Expenses. General and administrative expenses
consist of payroll and related expenses for executive, accounting and
administrative personnel, recruiting, professional fees, and other corporate
expenses including accrued salary for executives. General and administrative
expenses totaled $36,166, or 47.9% of our net sales, for the fiscal year ended
June 30, 1999. General and administrative expenses will continue to increase as
our staff expands and incurs additional costs to support the growth of our
business. Currently, the majority of such services are provided by DG pursuant
to the intercompany services agreement. DG charges us $5,000 per month for such
services, plus actual cost incurred.
Net Loss. We incurred a net loss of $443,147, or $(1.61) per share, for
the year ended June 30, 1999, and expect to continue to incur net losses for
the foreseeable future.
Liquidity and Capital Resources
Our principal capital requirements are to acquire merchandise, maintain
and improve our online store and engage in advertising and promotional
activities. Since inception through December 31, 1999, we have primarily
financed this requirement through approximately $587,982 of advances from DG
and cash flows from operations which is represented by a promissory note. Our
parent purchased certain Internet contracts, which were subsequently purchased
by us. We assumed the $1.8 million promissory note to DG. Neither of these
notes bear interest and each are payable over a term of five years. Once this
offering is consummated, DG will not be obligated to make any advances to us.
At December 31, 1999, we had a working capital deficit of approximately
$1,081,147 and incurred losses since inception, including our parent company's
losses from January 1999 to June 1999, of approximately $1,404,833. We are
significantly dependent on DG for the conduct of our operations. Pursuant to
the intercompany service agreement, DG provides us various additional services
including, among others, services for payroll processing, benefits
administration, insurance including property and casualty, medical, dental and
21
life, merchandising and telecommunications. DG charges us $5,000 per month for
such services. We rent 3,000 square feet of office space from DG at an annual
rate of $6,000. Our agreement with U.Bid.com required us to pay an upfront fee
of $150,000, which was paid on our behalf by DG and is included in the amounts
owed to DG. Pursuant to our advertising agreement with AOL we are committed to
expend $1,000,000 in advertising through November 2000. To date, we have spent
$450,000 pursuant to such agreement. The agreement with the Globe.com requires
us to pay $27,000 on the completion of the term of the agreement in September
2001 and to spend an aggregate of $594,000 during the term of the agreement. We
have spent $123,000 to date. We have also accrued an aggregate of $300,000 of
executives' salaries to December 31, 1999 which we intend to pay from the net
proceeds of this offering.
We believe that funds generated from operations and the net proceeds of
this offering will be sufficient to finance our current and anticipated
operations for at least 12 months after this offering. Our long-term capital
requirements beyond this period will depend on numerous factors, including, but
not limited to, the following:
o the rate of market acceptance of our online store;
o the ability to expand our customer base;
o the cost of upgrades to our online store; and
o the level of expenditures for sales and marketing and other factors.
If the funds from this offering and our revenues are insufficient to fund
the activities in the short or long term, we would need to raise additional
funds by incurring debt or through public or private offerings of our stock. We
may not be able to do either on terms favorable to us, if at all.
Recent accounting pronouncements
We do not believe any recently issued accounting standards have had or
will have a material affect on our business.
22
BUSINESS
General
Our goal is to be the leading online retailer of jewelry and complementary
products. Since commencing our on-line sales through our Web-site, in July
1999, and through third party web sites including Ubid.com, we and our parent
have sold products to over 12,000 customers. We believe we have created a model
for jewelry distribution based upon an attractive value proposition. Our online
store is integrated with DG's production and distribution infrastructure and
offers customers an extensive product offering at what we believe to be
attractive prices. Our online store, located at "www.NetJewels.com" at any
given time generally contains over 5,000 products including rings, bracelets,
necklaces watches, diamonds and other jewelry items. Most items offered on our
Web site range in price from $25 to $10,000. In addition, we believe we offer
our customers fast delivery (generally within five business days), competitive
pricing, easy and secure ordering, rich editorial content and industry
experience.
We believe our advertising and promotion agreements with Web portal and
community sites including AOL and theglobe.com, will extend our brand and
consumer exposure to our online store. Because these sites feature us as a
jewelry supplier, we believe our brand recognition increases and lends us
credibility. DG is a party to the agreement with theglobe.com and is a
guarantor of our financial obligations under such agreements, although the
agreements are intended to promote the sale of our products.
Our online store includes what we believe to be a user friendly search
engine and product reviews. During the first half of the year 2000, we expect
to establish a custom jewelry design feature on the site that will allow
customers to design jewelry to their individual tastes, a gift center, an
online shopping assistant and gift certificates.
Corporate history
NetJewels.com, Inc. was incorporated on June 21, 1999 in the State of
Delaware as Exite Jewelry.com, Inc. In January 1999, NetJewels Canada, our
parent company, purchased all of the intellectual property involved in DG's
Internet business, including the domain names for nominal consideration, and
began to develop our online store. In May 1999, NetJewels Canada purchased all
of the third party internet contracts from DG for $1.8 million, which we
subsequently purchased for $1.8 million from NetJewels Canada in June 1999.
Between January 1999 and June 1999, when we purchased our internet contracts
from NetJewels Canada, the business was conducted by NetJewels Canada, which is
50% owned by DG, 25% by Daniel Berkovits, our CEO, and 25% by Ben Berkovits,
our former president, the brother of Daniel Berkovits and the son of Jack
Berkovits our chairman. Until April 1999, our business activities, which were
conducted by our parent, consisted of developing our web site and the
negotiation of third party contracts. Jack Berkovits is the Chairman of
NetJewels Canada and DG Jewelry Inc.
In January 1999, Daniel Berkovits and Ben Berkovits formed NetJewels
Canada, then known as Xite Canada, an entity in which they collectively owned
100% of the outstanding equity. In May 1999, NetJewels Canada issued 50% of its
capital stock to DG in exchange for DG agreeing to advance the necessary funds
for NetJewels Canada's operations and our operations, until such time as both
us and our parent are able to fund our operations.
We are offering 2,200,000 units, each unit consisting of one share of our
common stock and one redeemable warrant to the public in this offering.
Immediately after the offering, we will be beneficially owned 60% by our parent
company (30% by DG, 15% by Daniel Berkovits, 15% by Ben Berkovits, through
their ownership of our parent) and 40% by the public stockholders purchasing
units offered by this prospectus.
DG Jewelry
We believe that our relationships with DG, through the intercompany
services agreement, provides us with competitive advantages relative to other
online retailers in our category, including:
The use of DG's distribution center as our principal product supplier,
which enables us to:
23
o offer over 5,000 in-stock items, ensure fast delivery (generally within 5
business days), offer a large product selection without the need to make
a significant investment in inventory and the ongoing expense related to
the management of such inventory;
o purchase goods at a lower price than would otherwise be generally
available through other wholesalers; and
o ongoing access to the jewelry manufacturing and distribution knowledge
and experience of the management of DG.
DG is primarily engaged in the design, manufacture and distribution of
stone-set jewelry for department stores, mass merchants, catalog showrooms,
television shopping networks and other high volume retailers and major
discounters.
Industry background
E-commerce. We believe e-commerce provides retailers with the opportunity
to serve a rapidly growing market because consumers are increasingly accepting
the Internet as an alternative shopping channel. Forrester Research, in a
September 1999 report entitled "Post-Web Retail", estimates that 17 million
U.S. households will be online purchasers in 1999 and that the number will grow
to 49 million by 2004. There can be no assurance that our growth rate will bear
any relationship to the overall growth rate of e-commerce.
The Internet also provides e-commerce companies with an opportunity to
serve a global market. IDC in its June 1999 report entitled "The Global Market
Forecast for Internet Usage and Commerce: Based on Internet Market Model(TM),
Version 5" estimates that the number of Web users worldwide will exceed 142
million by the end of 1998 and will grow to over 502 million users by the end
of 2003.
The jewelry industry. The size of the U.S. jewelry market, according to
the U.S. Department of Commerce was $22.3 billion in 1998.
Online shopping forecast. Industry analysts, including Forrester Research
and Jupiter Communications, forecast continued and accelerating acceptance of
the Internet as a channel that consumers will turn to for a wide range of
products. Forrester Research, in a May 1999 report entitled "Apparel's On-line
Makeover", predicts that online sales of jewelry and accessories will reach
$2.58 billion by 2003. We do not know if our growth rate will grow at the same
rate as the overall jewelry market or the online jewelry and accessories
market.
Business strategy
Our goal is to become the leading Web-based retailer of jewelry and
complementary products. To achieve this objective, we have focused our efforts
on providing a high level of value and service, which we believe is reflected
in the variety of our product selection, the ease-of-use of our Web site, the
prices of our products and the speed of delivery we offer to our customers.
While our principal focus is online jewelry, we will continue to seek
opportunities that expand our product offering to complementary information and
products. It is our goal to be recognized as the most innovative and
customer-focused e-commerce jeweler, making online purchasing a simple,
personal and gratifying experience that results in customer loyalty and
long-standing relationships with our customers.
In order to achieve our objectives, we intend to implement the following
strategies:
Continually enhance the consumer experience. We are committed to making
every aspect of browsing and shopping in our online store an easy and
pleasurable experience. We shall make continual efforts to improve the
design, layout and navigation of all elements of our Web site.
Offer a large product selection and fast delivery. We intend to offer our
customers one of the largest selections of jewelry available online. We
intend to capitalize on our relationship with DG by generally offering over
5,000 items from DG's inventory to our customers.
24
Expanding our product offering. We intend to continue to expand our jewelry
product offering and expand our business lines to information and products
that are complimentary to jewelry purchases and can be easily cross
marketed. We believe that offering complementary information and products
is a natural extension of our business.
Offer our products 24 hours a day 7 days a week. Our on-line store is open
24 hours a day 7 days a week and may be electronically visited from any PC
with access to the Internet.
Building brand awareness and driving customer acquisition through
advertising and promotion. We will continue to invest in building our brand
and in communicating the benefits and convenience of shopping at our online
store. We intend to advertise in a variety of media, including online,
radio, television and print, to further our goal of rapidly growing our
customer base. We also intend to hire a celebrity as a spokesperson to
increase consumer awareness of our company and products. In all of our
advertising and promotion initiatives, we will seek to drive new customers
to our site, as well as seek to have customers return to our site more
frequently and to increase the size of their average purchase per visit.
Strengthening and expanding strategic alliances. We intend to provide our
major strategic partners with merchandising support, strengthening their
ability to generate sales and to promote our brand.
Pursue acquisitions, partnerships and strategic ventures. We intend to
pursue acquisitions, joint ventures and other similar strategic investments
and relationships with complementary businesses and companies, where
appropriate, in order to augment or expand our current offerings. While we
continually examine those possibilities, we have not entered into any
agreements with respect to any such acquisitions, joint ventures or
strategic investments, nor do we have any plans or arrangements at the
present time.
Establish an affiliate program. We intend to establish an affiliate program
whereby third party web-sites can earn commissions by linking users from
their sites to our online store. We intend that commissions would be earned
if such users make purchases at our online store.
Continue to invest in technology to further develop state-of-the-art
product, service and logistics platforms. We plan to continue to invest in
technologies that improve our Web site and our ability to support its
growth while offering our customers the most convenient, user-friendly and
secure online shopping experience possible.
In addition to the foregoing strategies, we believe that the following
factors will help provide us with a competitive advantage:
Competitive pricing. Our affiliation with DG gives us the benefit of their
high capacity and quality, low-cost manufacturing process. DG has
represented to us that this process allows unskilled labor to set as many
as 8,000 stones per day per stone setter. We believe this gives us a price
advantage over other web-based jewelry retailers.
Personalized service. During the second quarter of the year 2000, we intend
to launch our "Jeweler Jack" personalized shopping system. The Jeweler Jack
personalized shopping system is intended to lead customers through the
shopping process by asking questions and making recommendations. We intend
that the Jeweler Jack system will be interactive and will be integrated
with our Web site's other editorial content.
Rich editorial and educational content. We intend to provide users of our
site with accurate and authoritative information with regard to jewelry
purchases. We intend that this information will include educational and
editorial content such as articles on the proper method for selection of
diamond rings or the role of skin tone in jewelry selection. Our group of
editorial experts includes Jack Berkovits, our chairman and author of
several industry journal articles on jewelry. We strive to integrate our
editorial content with our "Jeweler Jack" electronic shopping assistant.
High level of customer service. We believe that high levels of customer
service and support are critical to retain and expand our customer base.
Our system monitors orders from the time they are placed through delivery
by providing points of electronic, telephonic and personal communication
with our customers. Our customer service staff are well trained and are
able to provide information on jewelry and walk customers through purchase
decisions.
25
Sales and marketing
Online strategic alliances. Since our inception, we have pursued strategic
alliances with premier online companies and high-traffic Web sites with the
goal of driving traffic to our online store. Our largest strategic alliance is
with AOL. On July 9, 1999, we entered into a one-year agreement with AOL to
become a gold tenant in the jewelry and watch category on AOL, Netscape and
Compuserve. On March 10, 1999, DG entered into an agreement with AOL Canada,
for us to be featured as an anchor tenant in the jewelry shopping section of
AOL Canada's network. The agreement with AOL requires us to expend an aggregate
of $1,000,000 on advertising fees during the term of the agreement.
DG has entered into arrangements, each of which were subsequently
transferred to us, for distribution of jewelry products with DealDeal.com,
UBID.com and Bid.com.
The agreement with UBid.com is an exclusive agreement under which we will
offer our jewelry products for sale on the UBid.com web site. Our agreement
with UBID.com is for a period of five (5) years and prohibits us from offering
our products on any other online auction site, except that we are permitted to
offer products on Bid.com and two other online auction sites of our choice. We
paid UBid.com an upfront fee of $150,000 in connection with the agreement.
Pursuant to the agreement we have agreed to pay a commission to Ubid.com in
connection with the sale of our products on their website as follows: (i) 15%
of the first $3 million in sales, and (ii) 20% of sales in excess of $3
million.
We have entered into a non-exclusive agreement with Shopnow.com to offer
our products on its Web site. Our agreement with Shopnow.com is for an initial
period of one hundred-eighty (180) days, which is May 1, 2000, and
automatically renews for successive thirty (30) day periods unless the other
party elects to terminate the agreement on thirty (30) days prior written
notice. Shopnow.com will make reasonable efforts to develop a presentation of
certain of our products on one or more of its websites during the term of this
agreement.
The agreements described above are generally cancellable at will and
require us to pay the online companies a royalty on all sales made on the
respective sites. We also list our products, on a non-contractual basis, on
auction sites operated by Amazon.com and Yahoo.com.
In September 1999, DG entered into a two-year agreement with theglobe.com,
for the sale of our products which we are obligated to comply with. The
agreement with theglobe.com requires them to host a jewelry storefront on its
website for a period of two years featuring our products. Pursuant to the
agreement we will be the exclusive third-party jewelry retailer whose products
are promoted on the globe.com's jewelry storefront. In addition, we are
required to expend an aggregate of $594,000, over a period of two (2) years, in
advertising fees in exchange for these services.
DG has agreed to guaranty all of our obligations under the agreements with
UBid.com, Bid.com, Ideal International Inc., AOL and theglobe.com. As a
guarantor of our obligations pursuant to the assigned agreements DG is
ultimately responsible for the payment of advertising fees aggregating
$1,594,000.
Affiliate program. In addition to securing alliances with high-traffic Web
sites, we intend to establish an affiliate program consisting of third parties,
whereby third-party web-sites can earn commissions from us by linking users
from their site to our online store. We do not currently have any affiliate
program agreements.
Advertising. Upon receipt of the net proceeds from this offering, we
intend to begin a comprehensive national print, radio, television and online
banner campaign in Canada and the U.S., as well as hire a celebrity
spokesperson, to increase awarenes of our Web site.
Shopping at our online store
Our online store offers visitors several features arranged in what we
believe to be are simple, easy-to-use formats intended to enhance product
search, selection and discovery. By clicking on the permanently displayed
products and product categories, our users can move directly to the Web page
that contains details about the particular products. Users can browse
promotions, such as our offer of the month and other feature products.
Customers can also link to pages based on product category, such as women's
jewelry or men's jewelry, necklaces, bracelets, as well as other product
categories.
The most prominent feature of our online store is the interactive,
searchable catalog of our line of products. Our search capabilities allow users
to search for a product by category, such as rings, earrings, pendants,
necklaces, bracelets, diamonds and watches.
26
To purchase products, customers simply click on a button to add products
to their virtual shopping cart. Customers can add and subtract products from
their shopping cart as they browse around our store prior to making a final
purchase decision, just as in a physical store. To execute orders, customers
click on the checkout button and, depending upon whether the customer has
previously shopped with us, are prompted to supply shipping details online. We
also offer customers, shipping options during the checkout process. Prior to
finalizing an order by clicking the submit order button, customers are shown
their total charges along with the various options chosen, such as shipping
method, at which point customers still have the ability to change their order
or cancel it entirely.
To pay for orders, a customer must use a credit card, which is authorized
during the checkout process, but which is charged when we ship the customers
items. Our online store uses a security technology that works with the most
common Internet browsers and makes it unlikely that an unauthorized party can
read information sent by our customers. Once an order is placed, we notify the
customer of our receipt of the order and at the time the order is shipped we
notify the customer by e-mail that the order has been shipped. Additionally,
our customers can speak to a customer service representative by telephone from
Monday through Friday between the hours of 7:30 a.m. and 7:00 p.m. eastern
standard time.
Our average daily page views, which represent the number of times per day
our server delivers a page to a user, has grown consistently. In March 2000,
we had a total of 329,586 hits and 66,456 page views. On average, users spend
approximately eighty-seven minutes per visit at our online store.
Warranties
We offer a 30-day money back guarantee on all of our products and agree to
service such products for a period of one year from the date of purchase. DG
provides us with a 30 day manufacturer's warranty, although the customer deals
directly with us.
Order fulfillment
Internet customer orders are processed at DG's distribution center in
Toronto, for Canadian and international orders and DG's distribution center in
New Jersey, for United States orders. Orders are forwarded to the respective DG
distribution center where the order items are selected and shipped.
Technology
Our online store is maintained on servers located at PSINet. Our web
server is connected to PSINet's backbone (a connection made to another service
provider) via a 256k dedicated connection and our mail server is connected to
PSINet's backbobe via a 128k dial-on-demand ISDN (Integrated Services Digital
Network) connection. We have a backup of the live site in the event of
equipment failure. Our agreement with PSINet is for a period of one (1) year,
and will be automatically renewed for one (1) year periods, unless either party
notifies the other thirty (30) days prior to the expiration of each one (1)
year period. We are obligated to pay PSINet a monthly service fee of $667
pursuant to the agreement.
Intellectual Property
DG has applied for a trademark for the name "NETJEWELS" with the United
States Patent and Trademark Office. Upon issuance DG has agreed to transfer
such trademarks to us. We have reserved site names in the names "NetJewels" and
"NetJewls."
We rely on various intellectual property laws and contractual restrictions
to protect our proprietary rights in products and services. These include
confidentiality, invention assignment and nondisclosure agreements with our
employees, contractors, vendors and strategic partners. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our intellectual property without our authorization. In addition, we
pursue the registration of our trademarks and service marks in the U.S. and
internationally. However, effective intellectual property protection may not be
available in every country in which our services are made available on line. We
are aware of several trademarks which are somewhat similar to ours and may
create a likelihood of confusion. Depending on the activities of other
companies using similar names our brand name could be damaged.
27
We rely on technologies that we license from third parties. These licenses
may not continue to be available to us on commercially reasonable terms in the
future. As a result, we may be required to obtain substitute technology of
lower quality or at greater cost, which could materially adversely affect our
business, results of operations and financial condition.
As of the date of this prospectus, we have not been notified that our
technologies infringe the proprietary rights of third parties. However, there
can be no assurance that third parties will not claim infringement by us with
respect to our current or future technologies. We expect that participants in
our markets will be increasingly subject to infringement claims as the number
of services and competitors in our industry segment grow. Any infringement
claim, with or without merit, could be time-consuming, result in costly
litigation, cause service upgrade delays or require us to enter into royalty or
licensing agreements. These royalty or licensing agreements might not be
available on terms acceptable to us or at all. As a result, any claim of
infringement against us could have a material adverse effect upon our business.
Competition
The online commerce market is new, rapidly evolving and intensely
competitive. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our net sales and results of operations. We expect competition to
intensify in the future because current and new competitors can enter our
market with little difficulty and can launch new Web sites at a relatively low
cost. In addition, the retail jewelry industry is intensely competitive.
We currently or potentially compete with a variety of other companies
including:
o traditional store-based jewelry retailers such as Gordons, Sterling and
Friedmans.
o department store retailers such as Sears, JC Penney, Macy's and Ward's.
o major discount retailers such as Kmart, Target and Service Merchandise;
o cable shopping networks such as HSN;
o online efforts of traditional and cable network retailers, including the
online stores operated by ValueAmerica and Gordons;
o catalog retailers of jewelry;
o other online retailers that may include jewelry as part of their product
offerings, such as Amazon.com;
o online wedding portal sites that feature shopping services, such as the
Knot.com and Modern Bride;
o Internet portals, online auction services and online service providers
that feature shopping services, such as eBay, Yahoo! and Amazon.com; and
o various online retailers of jewelry, such as Alle Fine Jewelry, eJewelry
and Just Jewelry.
We believe that the following are the principal competitive factors in our
market:
o brand recognition;
o selection;
o order delivery performance;
o customer service;
o site features and content; and
o price.
Many of our current and potential traditional store-based and online
competitors, particularly the traditional store-based retailers and the brand
owners of products we sell, have longer operating histories, larger customer or
user bases, greater brand recognition and significantly greater financial,
marketing and other resources than
28
we do. Many of these current and potential competitors can devote substantially
more resources to web site and systems development than we can. In addition,
larger, well-established and well-financed entities may acquire, invest in or
form joint ventures with online competitors.
Our online competitors are particularly able to use the internet as a
marketing medium to reach significant numbers of potential customers. Finally,
new technologies and the expansion of existing technologies, such as price
comparison programs that select specific titles from a variety of web sites and
may direct customers to other online retailers, may increase competition.
Government Regulation
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally and directly
applicable to online commerce. However, as Internet use gains popularity, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet. These laws may cover issues such as user privacy, freedom of
expression, pricing, content and quality of products and services, taxation,
advertising, intellectual property rights and information security.
Furthermore, the growth of online commerce may prompt calls for more stringent
consumer protection laws. Several states have proposed legislation to limit the
uses of personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties. We
do not currently provide personal information regarding our users to third
parties. However, the adoption of additional consumer protection laws could
create uncertainty in web usage and reduce the demand for our products and
services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel and
obscenity matters. The vast majority of these laws were adopted prior to the
advent of the Internet. As a result, they do not contemplate or address the
unique issues of the Internet and related technologies. Changes in laws that
are intended to address these issues could create uncertainty in the Internet
market place. This uncertainty could reduce demand for our services or our cost
of doing business may increase as a result of litigation costs or increased
service delivery costs.
In addition, because our services are available over the Internet in
multiple states and foreign countries, other jurisdictions may claim that we
are required to qualify to do business in that state or foreign country. We are
qualified to do business only in Delaware. Our failure to qualify in a
jurisdiction where we are required to do so could subject us to taxes and
penalties. It could also hamper our ability to enforce contracts in these
jurisdictions. The application of laws or regulations from jurisdictions whose
laws do not currently apply to our business could have a material adverse
effect on our business, results of operations and financial condition.
Employees
As of March 31, 2000, we employed 20 full-time employees, five of which
are involved in management, two in purchasing, seven in shipping and
fulfillment, two in graphic design and four in customer service. We also employ
independent contractors to perform duties in various departments, including
software development, editorial production and administration. Our employees
are not represented by labor unions, and we consider our relationship with our
employees to be good. We believe that our success is dependent on our ability
to attract and retain qualified personnel in numerous areas, including software
development. We expect to hire a full time director of marketing, as well as a
chief financial officer and chief information officer following the offering.
Facilities
Our principal administrative, marketing and technical facilities are
located in approximately 3,000 square feet of office space in Toronto subleased
from DG. This lease expires in December 2001. We have an option to renew our
sublease for an additional five (5) years. The lease provides for annual
payments of $6,000;
29
which increase annually by the greater of 5% or the increase in the CIPI for
Toronto as published by statistics Canada. We expect that our future growth
will require us to secure new office space to adequately house our operations.
We have no understandings or agreements to acquire any new or additional space.
Legal proceedings
We are not involved in any pending, or to our knowledge, any threatened
legal proceedings. We may from time to time become a party to various legal
proceedings in the ordinary course of business.
Where you can find additional information
We have filed, with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all of the information in the
registration statement, the exhibits and schedules. For more information, about
our common stock and us, please refer to the registration statement, exhibits
and schedules. With respect to any contract, agreement or other document
referred to in the registration statement which is filed as an exhibit,
reference is made to the exhibit for a complete description.
The registration statement, exhibits and schedules may be inspected
without charge and copied at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at the
SEC's regional offices located at Citicorp Center, 500 West Madison, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such material may be obtained at prescribed rates
from such offices upon the payment of the fees proscribed by the SEC. The SEC
phone number is 1-800-SEC-0330.
The SEC maintains a Web site that contains registration statements,
reports, proxy and other information regarding registrants that file
electronically with the Securities and Exchange Commission. The address for the
Web site is http://www.sec.gov.
The Nasdaq Amex Market Group, Inc. maintains a Web site that contains
information regarding registrants at http://www.Nasdaq.com. Once our securities
are listed on the Nasdaq SmallCap Market, you will be able to find information
on us on the Web site.
As a result of this offering, we will be subject to the informational
requirements of the Exchange Act. So long as we are subject to the periodic
reporting requirements of the Exchange Act, we will furnish reports and other
information required thereby to the Commission. We intend to furnish our
shareholders with annual reports containing, among other information, audited
financial statements certified by an independent accounting firm and quarterly
reports containing unaudited financial statements. We also intend to file such
other reports as we may determine or as may be required by law.
30
MANAGEMENT
Directors, executive officers and key personnel
The following table sets forth information about our directors and
executive officers and key personnel as of March 31, 2000.
Name Age Position
- ---- --- --------
Jack Berkovits ............... 47 Chairman of the board
Daniel Berkovits ............. 24 Chief executive officer and director
Albert Reichmann ............. 71 Director nominee
Greg Lerman .................. 54 Director nominee
Theodore Bonsignore .......... 53 Chief Financial Officer
Wesley P. Smith .............. 49 Vice President of Operations
Sergey Bubnov ................ 29 Chief Technology Officer
Jack Berkovits, Chairman. Since July 1999, Mr. Berkovits has served as our
chairman. From 1977 to the present, Mr. Berkovits has served as the chief
executive officer and chairman of D.G. Jewelry Inc., a company whose securities
are traded on The Nasdaq National Market. In 1979, Mr. Berkovits purchased a
controlling interest in DG. Mr. Berkovits has extensive experience in the
production, sales and marketing of jewelry through mass merchandise accounts
and direct television retailers including HSN, QVC and ValueVision. Mr.
Berkovits currently appears on his own show as "Trader Jack" on ValueVision
which began approximately two years ago. The "Trader Jack" show airs for
approximately fifteen hours per month. Mr. Berkovits has also appeared on the
show "Deals of the Century", which is broadcast on The Shopping Channel, for
the past 12 years and airs approximately four times per year. Mr. Berkovits
earned a Bachelor of Commerce at Sir George Williams University (Montreal) in
1973 and received his Chartered Accountant designation at McGill University in
1975.
Daniel P. Berkovits, CEO. Since our inception in June 1999, Mr. Berkovits has
served as our chief executive officer. Since January 1999, Mr. Berkovits has
served as Chief Executive Officer of NetJewels Canada, our parent company. From
July 1998 to December 1998, Mr. Berkovits was an analyst in investment banking
at Scotia McLeod, a Canadian investment banking firm. Mr. Berkovits was
responsible for negotiating DG's strategic alliances with Amazon.com, Ubid and
Bid.com. Mr. Berkovits earned his M.S. degree in finance at Johns Hopkins
University in June 1998. Mr. Berkovits earned a Bachelor of Talmudic Law from
Ner Israel College in December 1996.
Albert Reichmann, Director Nominee. Upon completion of this offering, Mr.
Reichmann has agreed to serve as a member of our board of directors. From
1960-1992, Mr. Reichmann served as president of O&Y Development, a worldwide
real estate development company. Since 1992, Mr. Reichmann has been a private
investor focusing on structuring real estate and entertainment transactions.
Greg Lerman, Director Nominee. Upon completion of this offering, Mr. Lerman has
agreed to serve as a member of our board of directors. In November 1999, Mr.
Lerman was named President of the interactive division of Digital Convergence
Inc. From February 1999 through September 1999, Mr. Lerman served as president
of the electronic commerce division of Paxson Communications. From January 1998
to January 1999, Mr. Lerman was Executive Vice President and General Manager of
ValueVision Television. From February 1997 to September 1997, Mr. Lerman was
president and chief executive officer of Kent and Spiegel Direct. From November
1989 to February 1994, Mr. Lerman served as an Executive Vice President of
Fingerhut Companies. Mr. Lerman earned a B.A. in History from the University of
Minnesota in 1978.
Theodore Bonsignore, CFO has been our CFO since March 2000. A CPA, Mr.
Bonsignore began his career with KPMG/Peat Marwick in 1968 and remained there
until 1975. While at KPMG/Peat Marwick Mr. Bonsignore was a Supervisor, and he
managed the office's largest clients, as well as many small and medium sized
manufacturing and service businesses. Mr. Bonsignore joined Krementz & Co. in
1975. Established in 1866, Krementz was one of the largest jewelry
manufacturers. Mr. Bonsignore was named President and CEO of Krementz and
elected to its Board of Directors in 1990 where he remained until 1997. In
January 1998,
31
Mr. Bonsignore formed T.L. Bonsignore Management and Advisory Services a
company which provides consulting services to jewelry companies. Mr. Bonsignore
has been a director of D.G. Jewelry, Inc. since 1998. Mr. Bonsignore received a
B.S. in Accounting from Fairleigh Dickinson University in 1968.
Wesley P. Smith V.P. Operations. Since January 1999, Mr. Smith has served as
our V.P. of Operations. Mr. Smith played a large role in the establishment and
implemetation of the customer service and shipping departments as well as in
the sourcing and pricing of merchandise. From 1997 to 1999, Mr. Smith served as
the regional manager of 17 retail jewelry stores where he was responsible for
coordinating the opening of 10 new stores from design, to staffing and
training. From 1986 to 1991, Mr. Smith worked as the store manager of the
jewelry division of Consumers Distributing. Mr. Smith received a bachelors
degree in Electricl Engineering from the University of Waterloo in 1973.
Sergey Bubnov, CTO. Since June 1999, Mr. Bubnov has served as our Chief
Technology Officer. From March 1994 to April 1999, Mr. Bubnov worked as a
programmer/analyst at the Mediacal Radiological Research Centre in Russia. Mr.
Bubnov has also taken part in several projects on behalf of the European
Commission, World Health Organization, International Agency for Research Agency
for Research on Cancer, and Radiation Effects Research Foundation. Mr. Bubnov
received a grant of United States Department of Energy presenting software
products for large scale registration systems at the 1998 American Association
for the Advancement of Sciences (AAAS) Annual Meeting and Science Innovation
Exposition in Philadelphia, USA. Mr. Bubnov received an M.S. in applied
mathematics from the Institute of Nuclear Power Engineering in Obninsk, Russia
in 1994.
We expect to increase the depth of our management team to help implement
our growth strategy. Following the completion of this offering, we intend to
expand our senior management team to include a director of marketing.
Directors and executive officers
Directors hold office until the next annual meeting of stockholders or
until their successors have been duly elected and qualified. Our by-laws
provide for a minimum of three directors to serve on our board.
Our executive officers are appointed by our board of directors on an
annual basis and serve until the next annual meeting of the board of directors
or until their successors have been duly elected and qualified.
The representative of this offering has been granted the right to
designate a nominee to our board of directors for a period of five years from
the effective date of this offering. In the event that the representative does
not elect to exercise this right, then the representative may designate one
person to attend our board of directors' meeting.
Compensation committee interlocks and insider participation
Jack Berkovits, our chairman, is the father of Daniel Berkovits, our chief
executive officer.
Director compensation and committees
Upon completion of the offering, our board of directors intends to
establish two formal committees; an audit committee and a compensation
committee, each of which will consist of Jack Berkovits, our chairman, and two
independent outside directors.
The functions of the audit committee include: (a) recommending for
approval by the board of directors a firm of certified public accountants whose
duty it will be to audit our financial statements for the fiscal year in which
they are appointed, and (b) to monitor the effectiveness of the audit effort,
our internal financial and accounting organization and controls and financial
reporting. The audit committee will also consider various capital and
investment matters.
We intend that our compensation committee will consist of Jack Berkovits,
Greg Lerman and Albert Reichmann. Greg Lerman and Albert Reichmann have not
been officers or employees of ours since our inception. None of our executive
officers serve as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
our board of directors or compensation committee.
32
The compensation committee is responsible for establishing compensation
arrangements for our officers and directors, reviewing benefit plans and
administering our stock option plan.
Upon completion of the offering, directors who are not our employees will
receive 10,000 options to purchase shares of our common stock at the initial
public offering price, $5,000 per year for services rendered as a director and
$1,000 for attending each meeting of the board of directors or one of its
committees. In addition, directors will be reimbursed for expenses incurred in
connection with attendance at any meeting of the board of directors or
committees. Other than reimbursement for expenses, directors who are our
employees receive no additional compensation for service as a director. To
date, we have not paid any amounts to any of our directors for acting in such
capacity.
Executive compensation
The following table sets forth certain information regarding compensation
paid by us during the last fiscal year to the Company's Chief Executive Officer
and to each of our executive officers who earned in excess of $100,000.
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------------------ --------------------------------------------
Securities
Underlying
Name and Other Annual Options/ All Other
Principal Position Year Salary Bonus Compensation SARs(#) Compensation
- ----------------------------- ------ ----------- ------- -------------- ----------- -------------
Daniel Berkovits(1) ......... 1999 $100,000 $-0- $-0- -0- $12,000
CEO and Director
Ben Berkovits(2) ............ 1999 $100,000 $-0- $-0- -0- $12,000
Former President
Jack Berkovits(3) ........... 1999 $100,000 $-0- $-0- -0- $ -0-
Chairman of the Board
- ------------
(1) During the year ended 1999, $60,000 of Mr. Berkovits annual salary was
accrued and will be paid out of the proceeds of this offering. All other
compensation consists of an annual automobile allowance.
(2) During the year ended 1999, $60,000 of Mr. Berkovits annual salary was
accrued and will be paid out of the proceeds of this offering. Mr. Berkovits
is no longer employed by us. All other compensation consists of an annual
automobile allowance.
(3) During the year ended 1999, all of Mr. Berkovits annual salary was accrued
and will be paid out of the proceeds of this offering.
Option Grants in Last Fiscal Year
We did not grant any options during the fiscal year ended June 30, 1999
and have not granted any options during fiscal year 2000, as of the date of
this prospectus.
Employment agreements
As of January 1, 1999, NetJewels Canada entered into a three-year
employment agreement with Daniel Berkovits, which was subsequently transferred
to us in July 1999, at an annual salary of $100,000. Upon completion of this
offering Mr. Berkovits' salary will be increased to $150,000 per year. The
agreement provides for a minimum annual salary increase of $15,000. Mr.
Berkovits is also entitled to a $1,000 per month automobile allowance. The
agreement also contains confidentiality provisions and prohibits Mr. Berkovits
from engaging in any other business or occupation, during his employment with
us, without our
33
prior written consent. Mr. Berkovits may receive an annual bonus in an amount
to be determined by our board of directors. In addition, the agreement grants
our board of directors the right to terminate Mr. Berkovits' employment at any
time. The agreement does not provide for any severance payments to be made to
Mr. Berkovits upon the termination of his employment.
As of January 1, 1999, NetJewels Canada entered into an employment
agreement with Jack Berkovits, which was subsequently transferred to us in July
1999, at an annual salary of $100,000 which has no stated term. Mr. Berkovits'
annual salary will be reviewed on each anniversary of this agreement. Mr.
Berkovits may receive an annual bonus at the discretion of our board of
directors. The agreement does not prohibit Mr. Berkovits from being involved in
other businesses or occupations. In addition, the agreement grants our board of
directors the right to terminate Mr. Berkovits' employment at any time. The
agreement does not provide for any severance payments to be made to Mr.
Berkovits upon the termination of his employment.
Stock option plan
We adopted the 1999 stock option plan in September 1999. The plan will be
administered by the compensation committee or our board of directors, who will
determine among other things, those individuals who shall receive options, the
time period during which the options may be partially or fully exercised, the
number of shares of common stock issuable upon the exercise of the options and
the option exercise price. The options may be granted as either or both of the
following: (a) incentive stock options, or (b) non-qualified stock options.
750,000 shares may be issued under this plan. To date, no options have been
granted under the plan.
In connection with the plan, the exercise price of each incentive stock
option may not be less than 100% of the fair market value of our common stock
on the date of grant or 110% of fair market value in the case of an employee
holding 10% or more of our outstanding common stock. The aggregate fair market
value of shares of common stock for which incentive stock options granted to
any employee are exercisable for the first time by such employee during any
calendar year, pursuant to all of our, or any related corporation's, stock
option plan, may not exceed $100,000. Non-qualified stock options may be
granted at a price determined by our compensation committee, but not at less
than 85% of the fair market value of our common stock. Stock options granted
pursuant to our stock option plan will expire not more than ten years from the
date of grant.
The plan is effective for a period of ten years, expiring in 2009. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to us. The plan is
designed to enable our management to attract and retain qualified and competent
directors, employees, consultants and independent contractors. Options granted
under the plan may be exercised for up to ten years, require a minimum two year
vesting period, and shall be at an exercise price all as determined by our
board. Options are non-transferable except by the laws of descent and
distribution or a change in control of us, as defined in the plan, and are
exercisable only by the participant during his or her lifetime. Change in
control includes (a) the sale of substantially all of the assets of us and
merger or consolidation with another company, or (b) a majority of the board
changes other than by election by the stockholders pursuant to board
solicitation or by vacancies filled by the board caused by death or resignation
of such person.
If a participant ceases affiliation with us by reason of death, permanent
disability or retirement at or after age 70, the option remains exercisable for
one year from such occurrence but not beyond the option's expiration date.
Other types of termination allow the participant three months to exercise,
except for termination for cause which results in immediate termination of the
option.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by us become available again for issuance under the
plan.
The plan may be terminated or amended at any time by our board of
directors, except that the number of shares of common stock reserved for
issuance upon the exercise of options granted under the plan may not be
increased without the consent of our stockholders.
Limitation on liability
Our certificate of incorporation and by-laws provide that we shall
indemnify to the fullest extent permitted by Delaware law any person whom we
may indemnify thereunder, including our directors, officers,
34
employees and agents. This indemnification, other than as ordered by a court,
shall be made by us only upon a determination that indemnification is proper in
the circumstances because the individual met the applicable standard of
conduct. Advances for such indemnification may be made pending this
determination. This determination shall be made by a majority vote of a quorum
consisting of disinterested directors, or by independent legal counsel or by
the stockholders. In addition, our certificate of incorporation provides for
the elimination, to the extent permitted by Delaware law, of personal liability
of our directors for monetary damages for breach of fiduciary duty as
directors.
We intend to obtain a directors and officers insurance and company
reimbursement policy prior to or shortly after the completion of this offering.
We intend that the policy will insure directors and officers against
unindemnified losses arising from certain wrongful acts in their capacities and
would reimburse us for such loss for which we have lawfully indemnified the
directors and officers.
We have also agreed to indemnify each of our directors and executive
officers pursuant to an indemnification agreement with each director and
executive officer from and against any and all expenses, losses, claims,
damages and liability incurred by such director or executive officer for or as
a result of action taken while a director or an executive officer was acting in
his capacity as a director, officer, employee or agent of ours. We have entered
into indemnification agreements with our officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be provided to directors, officers and controlling persons of ours, we
have been advised that in the opinion of the Commission, this indemnification
is against public policy as expressed in the Securities Act and is therefore,
unenforceable.
The underwriting agreement provides for reciprocal indemnification between
us and the representative against certain liabilities in connection with this
offering, including liabilities under the Securities Act.
35
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this prospectus,
information with respect to the beneficial ownership of our common stock by:
o each of our directors and director nominees;
o each executive officer named in the Executive compensation section under
"Management";
o all of our executive officers and directors as a group; and
o each person known by us who beneficially owns 5% or more of the
outstanding shares of our common stock.
Unless otherwise indicated, each of the stockholders listed below has sole
voting and investment power with respect to the shares beneficially owned.
A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this prospectus upon
the exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held by
such person, but not those held by any other person, and which are exercisable
within 60 days from the date of this prospectus have been exercised. Unless
otherwise indicated, we believe that all persons named in this table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them, common stock beneficially owned is based on
3,300,000 shares outstanding prior to the offering and 5,500,000 shares
outstanding after the offering.
Unless otherwise indicated, the address of each person listed below is
1001 Petrolia, North York, Ontario, Canada M3J 2X7.
Prior to the offering After the offering
Number of shares ----------------------- -------------------
Name of Beneficial Owner beneficially owned Percentage of Ownership
- ------------------------ ------------------ ---------------------------------------------
D.G. Jewelry Inc. (1) ......................... 1,650,000 50.0% 30.0%
Daniel P. Berkovits(l) ........................ 825,000 25.0% 15.0%
Ben Berkovits(l) .............................. 825,000 25.0% 15.0%
Jack Berkovits(l)(2) .......................... 1,650,000 50.0% 30.0%
Albert Reichmann .............................. 0 0.0% 0.0%
Greg Lerman ................................... 0 0.0% 0.0%
Theodore Bonsignore ........................... 0 0.0% 0.0%
Wesley P. Smith ............................... 0 0.0% 0.0%
Sergey Bubnov ................................. 0 0.0% 0.0%
All directors and executive officers as a group
(five persons)(1)(2) ......................... 3,300,000 100.0% 60.0%
- ------------
(1) Such beneficial ownership arises from their respective ownership interests
in NetJewels Canada.
(2) Includes 1,650,000 shares beneficially owned by D.G. Jewelry Inc. of which
Mr. Berkovits is the Chief Executive Officer, President and Chairman. Mr.
Berkovits beneficially owns approximately 48% of DG's common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following completion of this offering, DG will beneficially own
approximately 30% of our outstanding common stock and either directly or
through subsidiaries will control us. Mr. Jack Berkovits, the chairman of the
board of both us and DG, is currently the beneficial owner of approximately 48%
of the common stock of DG. Daniel P. Berkovits, our CEO is the son of Jack
Berkovits. Ben Berkovits, our former president, is the son of Jack Berkovits.
Daniel P. Berkovits and Ben Berkovits each, through their respective ownership
of NetJewels Canada, beneficially own approximately 15% of us following
completion of this offering.
Through December 31, 1999, DG has advanced to our parent and us,
approximately $587,982 which has been utilized primarily to finance our
start-up costs. Such advance is memorialized by a promissory note which bears
no interest and is payable in five equal installments over a five year period.
DG intends to continue to fund our operations until we are able to fund our own
operations or until the completion of this offering. DG sold NetJewels Canada
its Internet contracts for $1,800,000. NetJewels Canada transferred these
36
contracts to us in June 1999, in exchange for our assumption of its obligation
to DG and is memorialized by a promissory note which bears no interest and is
payable upon demand. DG has a security interest in all of our assets until such
amounts are paid. We have entered into an agreement with DG whereby we will
repay these obligations 20% per year for each of the five years following
completion of this offering. DG has agreed to act as a guarantor with respect
to each of the ubid.com, bid.com and Ideal International Inc. agreements.
Since our inception, we and our parent have purchased all of our
merchandise from DG. Pursuant to our intercompany service agreement with DG, DG
supplies us with products at a price guaranteed to be no less favorable than
the lower of the price it offers to its best customers and DG's cost plus 15%.
In addition, on all products sold by us through third party auction sites, DG
will amend the purchase price to an amount equal to 85% of the final amount
actually received by us, so that we are guaranteed a 15% profit on all items
sold through an auction site. Through its distribution facilities, DG accounted
for 100% of our purchases to date and is expected to account for substantially
all of our purchases for the fiscal year ended June 30, 2000. From inception
through December 31, 1999, such purchases totalled $1,239,724, which also
include our parent company's purchases from January 1999 to June 1999. We
expect to continue to source most, if not all, of our merchandise through DG in
the future. We may, however, secure products from other distributors and
suppliers. This intercompany service agreement remains effective for a term of
five years and may be renewed thereafter for a term of five years. Either party
may terminate the agreement upon ninety (90) days written notice to the other
party. In addition, the intercompany services agreement requires DG to provide
us with certain general corporate services at a price of $5,000 per month plus
actual expenses. These services include maintenance of insurance, property and
casualty, medical, dental and life, payroll processing, including the
withholding of taxes, employment insurance and Canada pension plan payments,
preparation and filing of tax returns, benefits administration and
telecommunications.
In July 1999, we entered into an advertising agreement with AOL which
requires us to expend an aggregate of $1,000,000 in advertising fees during the
contract period. Under the agreement with theGlobe.com we are obligated to
expand an aggregate of $594,000 in advertising fees during the term of the
agreement which expires in September 2001. DG has agreed to act as a guarantor
with respect to each of these agreements.
We also lease 3,000 square feet of space from DG at an annual rent of
$6,000. The lease has a term of two years and three months and expires on
December 31, 2001, with an option for an additional five years.
Our trademark applications have been filed in DG's name, but will be
transferred to us upon issuance.
Our CEO loaned us an aggregate of $6,544, which does not bear interest and
is payable on demand.
Daniel Berkovits owns a nominal amount of DG's shares of common stock.
As chairman of our company, Mr. Jack Berkovits, during the term of his
employment agreement, will receive $100,000 per year subject to annual reviews,
so long as he is chairman of our company.
Theodore L. Bonsignore, our chief financial officer, is also a member of
the board of directors of DG.
We believe that the transactions described above were fair and reasonable
and on terms at least as favorable as we would expect to negotiate with an
unaffiliated third party. In the future, we will present all proposed
transactions between us and our officers, directors or 5% shareholders, and
affiliates to our board of directors for its consideration and approval. Any
such transaction will require approval by a majority of the directors and such
transactions will be on terms no less favorable than those available to
disinterested third parties.
37
DESCRIPTION OF SECURITIES
The following description of matters relating to our securities is
qualified by Delaware law and to the provisions of our certificate of
incorporation, as amended, and bylaws, and the underwriting agreement between
us and the underwriter, copies of which have been filed with the Commission as
exhibits to the registration statement of which this prospectus is a part.
General
We are authorized by our certificate of incorporation to issue an
aggregate of 19,000,000 shares of common stock, $.001 par value per share and
1,000,000 shares of blank check preferred stock. Immediately prior to this
offering, an aggregate of 3,300,000 shares of our common stock were issued and
outstanding. All outstanding shares of common stock are of the same class and
have equal rights and attributes. No shares of preferred stock are outstanding.
Common stock
We are authorized to issue 19,000,000 shares of common stock, $.001 par
value per share. Each share of common stock entitles the holder thereof to one
vote on all matters submitted to a vote of the shareholders. Since the holders
of common stock do not have cumulative voting rights, holders of more than 50%
of the outstanding shares can elect all of our directors and approve
significant corporate transactions and holders of the remaining shares by
themselves cannot elect any directors. The holders of our common stock do not
have preemptive, conversion, redemption, subscription or cumulative voting
rights. Holders of common stock are entitled to receive ratably such dividends
as may be declared by our board of directors out of funds legally available
therefor. In the event of our liquidation, dissolution or winding up, holders
of common stock will be entitled to participate equally in net assets subject
to the preferences that may be applicable to any outstanding preferred stock.
All outstanding shares of common stock and common stock to be outstanding upon
completion of this offering are and will be validly authorized and duly issued,
fully paid, and non-assessable.
Preferred stock
Our certificate of incorporation authorizes the issuance of up to
1,000,000 shares of blank check preferred stock, the rights, privileges and
preferences of which may be designated by our board of directors from time to
time. Accordingly, our board of directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion, or
other rights that could adversely affect the rights of our stockholders. These
shares may have rights which are senior to our common stock. Preferred stock
may be issued in the future in connection with acquisitions, finances or such
other matters as our board of directors deems to be appropriate. In the event
that any such shares of preferred stock shall be issued, a certificate of
designation, setting forth the series of such preferred stock and the relative
rights, privileges and designations with respect thereto, shall be filed with
the Secretary of State of the State of Delaware. The effect of such preferred
stock is that our board of directors alone may authorize the issuance of
preferred stock which could have the effect of making more difficult or
discouraging an attempt to obtain control of us by means of a merger, tender
offer, proxy contest or other means.
Redeemable common stock purchase warrants
Generally. Each redeemable common stock purchase warrant entitles the
registered holder to purchase, at any time commencing twelve months after the
date of this prospectus until 60 months after the date of this prospectus, one
share of our common stock at a price equal to 140% of the initial public
offering price of the common stock.
Redemption provisions. Commencing eighteen months after the date of this
prospectus, the warrants will be subject to redemption by us, in whole but not
in part, at $.10 per warrant on 30 days prior written notice. The warrants may
only be redeemed if the average closing sale price of our common stock as
reported on the Nasdaq SmallCap equals or exceeds $25.00 per share for any 20
trading days within a period of 30 consecutive trading days ending on the fifth
trading day prior to the date of notice of redemption. The holder
38
of any redeemable warrant may exercise the warrant by surrendering the
certificate representing the warrant to the warrant agent, with the
subscription form properly completed and executed, together with payment of the
exercise price. No fractional shares will be issued upon the exercise of the
warrants. The exercise price of the redeemable warrants bears no relationship
to any objective criteria of value and should in no event be regarded as an
indication of any future market price of the securities offered in this
offering.
Adjustments. The exercise price of the redeemable warrants and the number
of shares of common stock that may be issued upon the exercise of the
redeemable warrants are subject to adjustment in certain events, including
stock dividends, stock splits, combinations or reclassifications of the common
stock. Additionally, an adjustment would be made in the case of a
reclassification or exchange of common stock, consolidation or merger of us
with or into another corporation, other than a consolidation or merger in which
we are the surviving corporation, or sale of all or substantially all of our
assets, in order to enable warrant holders to acquire the kind and number of
shares of stock or other securities or property receivable in such event by a
holder of the number of shares of common stock that might otherwise have been
purchased upon the exercise of the redeemable warrant.
Transfer, exchange and exercise. The redeemable warrants are in registered
form and may be presented to the warrant agent for transfer, exchange or
exercise at any time on or prior to their expiration date, at which time they
will be void and have no value. The redeemable warrants may not be exercised
until 12 months after the date of this prospectus. If a market for the
redeemable warrants develops, the holder may sell the redeemable warrants
instead of exercising them. However, we do not know if a market for the
redeemable warrants will develop or, if developed, will continue.
Modification of redeemable warrants. We and the warrant agent may make
such modifications to the redeemable warrants as we deem necessary and
desirable that do not adversely affect the interests of the redeemable warrant
holders. We may, in our sole discretion, lower the exercise price of the
redeemable warrants for a period of no less than 30 days on not less than 30
days prior written notice to the warrant holders and the representative.
Modification of the number of securities purchasable upon the exercise of any
redeemable warrant, the exercise price, other than as provided in the preceding
sentence, and the expiration date with respect to any redeemable warrant
requires the consent of at least two-thirds of the redeemable warrant holders.
The redeemable warrants are not exercisable unless, at the time of the
exercise, we have a current prospectus covering the shares of common stock
issuable upon exercise of the redeemable warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities or blue sky
laws of the state of residence of the exercising holders of the redeemable
warrants. Although we have undertaken to use our best efforts to have all of
the shares of common stock issuable upon exercise of the redeemable warrants
registered or qualified on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the redeemable
warrants. We do not know if we will be able to do so.
Although the securities will not knowingly be sold to purchasers in
jurisdictions in which the securities are not registered or otherwise qualified
for sale, investors in such jurisdictions may purchase redeemable warrants in
the secondary market or investors may move to jurisdictions in which the shares
underlying the redeemable warrants are so registered or qualified during the
period that the warrants are exercisable. In such event, we would be unable to
issue shares to those persons desiring to exercise their warrants, and holders
of redeemable warrants would have no choice but to attempt to sell the warrants
in jurisdictions where such sale is permissible or allow them to expire
unexercised.
Representative's warrants
We have granted the representative, for a total of $22.00, warrants to
purchase up to 220,000 shares of our common stock and/or 220,000 warrants. Each
warrant is exercisable at 120% of the respective initial public offering prices
of the common stock and warrants for a period of four (4) years commencing one
(1) year after their issuance and sale. The warrants issuable upon exercise of
the representative's warrants are identical to the warrants being sold in this
offering. The representative is prohibited from transferring such
39
warrants for the first year except to partners of the underwriters or selling
group. For a period of five (5) years from the date of the closing of our
initial public offering, we have granted the holders of the representative's
warrants demand registration rights and for a period of seven (7) years
"piggyback" registration rights with respect to the common stock issuable upon
exercise of the representative's warrants. The representatives warrants and the
shares underlying them are registered in the registration statement of which
this prospectus is a part. The representative's warrants contain anti-dilution
provisions providing for automatic adjustment of the exercise price and number
of shares upon the occurrence of specific events including stock dividends,
splits, mergers, acquisitions and recapitalization.
Transfer agent
The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have 5,500,000 shares of our
common stock issued and outstanding. The 2,200,000 shares of common stock
offered by this prospectus will be freely tradable without restriction or
further registration under the Securities Act, except for any shares purchased
or held by our affiliates, in general, a person who has a control relationship
with us, which will be subject to the limitations of Rule 144 adopted under the
Securities Act. The remaining 3,300,000 shares of common stock are "restricted
securities" as that term is defined under Rule 144, and may not be sold unless
registered under the Securities Act or sold pursuant to an exemption. These
restricted securities were issued and sold by us in private transactions in
reliance upon exemptions from registration under the Securities Act.
In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an "affiliate,"
as defined under Rule 144, of ours, or persons whose shares are aggregated, who
for at least one year has beneficially owned restricted securities acquired
directly or indirectly from us or an affiliate of ours in a private transaction
is entitled to sell in brokerage transactions within any three-month period, a
number of shares that does not exceed the greater of (a) 1% of the total number
of outstanding shares of the same class, or (b) if the stock is quoted on a
national securities exchange, the average weekly trading volume in the stock
during the four calendar weeks preceding the day notice is given to the
Commission with respect to the sale. Sales under Rule 144 are also subject to
manner of sale and notice requirements and to the availability of current
public information about us. A person, or persons whose shares are aggregated,
who is not an affiliate and has not been an affiliate of ours for at least the
three months immediately preceding the sale and who has beneficially owned
restricted securities for at least two years is entitled to sell shares
pursuant to Rule 144(k) without regard to any of the limitations described
above.
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of options granted under a written compensatory plan
of ours or contract with us prior to the date of this prospectus may be resold
by persons, other than our affiliates, beginning 90 days after the date of this
prospectus, subject only to the manner of sale provisions of Rule 144 and by
affiliates under Rule 144 without compliance with its one-year minimum holding
period, subject to limitations. There are 750,000 shares of our common stock
issuable upon the exercise of options which may be granted under our stock
option plan. Except as otherwise provided above, beginning 90 days after the
date of this prospectus, the option shares, if any, would be eligible for sale
in reliance on Rule 701, subject to vesting provisions. All of such shares are
subject to the 24 month lock-up.
Each of our officers and directors and all other holders of shares of our
common stock have agreed that, they will not, without the prior written consent
of the representative of the underwriters, directly or indirectly, sell or
otherwise dispose of any shares of our common stock or securities convertible
into or exercisable for our common stock during the twenty-four (24) month
period commencing on the effective date of the registration statement. Upon
expiration of the lock-up period, all of the shares of common stock subject to
such lock-up agreements will be eligible for sale under Rule 144. The 3,300,000
shares will become eligible
40
for sale in accordance with the exemptive provisions and the volume limitations
of Rule 144 in January 2000, however, the owners of such shares have agreed not
to offer, sell or otherwise dispose of their shares for a period of 24 months
commencing on the effective date of our registration statement without the
prior approval of the representative.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
form of which is filed as an exhibit to the registration statement filed with
the Commission of which this prospectus is a part, the underwriters named below
have, severally and not jointly, agreed through Dirks & Company, Inc., as the
representative of the underwriters, to purchase from us, and we have agreed to
sell to the underwriters, the aggregate number of units set forth opposite
their respective names:
Number of
Underwriters Units
- ------------ ---------
Dirks & Company, Inc. ............................................
---------
Total ........................................................ 2,200,000
The underwriting agreement provides that the obligations of the several
underwriters under that agreement are dependent on conditions, including the
absence of any material adverse change in our business and the receipt of
certificates, opinion and letters from our counsel and our independent public
accountants. The underwriters are committed to take and to pay for all of the
units offered hereby, if any are purchased. In the event of a default by any of
the underwriters, purchase commitments of the non-defaulting underwriters may
be increased or the underwriting agreement may be terminated.
The underwriters have advised us that they propose to offer all or part of
the units offered hereby directly to the public initially at the price set
forth on the cover page of this prospectus. They have also advised us that they
may offer units to certain dealers at a price that represents a concession of
not more than $ per share and $ per warrant; and that the underwriter may
allow, and these dealers may reallow, a concession of not more than $ per
share and $ per warrant to certain other dealers. After the completion of
this offering, the price to the public and the concessions may be changed.
We have granted the underwriters an option, exercisable within 45 days
after the effective date of the registration statement of which this prospectus
is a part, to purchase up to an additional 330,000 shares of our common stock
and/or 330,000 warrants at the same price per share and price per warrant as
the initial 2,200,000 shares of common stock and 2,200,000 warrants to be
purchased by the underwriters. The underwriters may exercise this option only
to cover over-allotments, if any. If the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase the same
percentage of the additional shares of common stock and warrants as the
percentage of the initial 2,200,000 shares of common stock and 2,200,000
warrants to be purchased by that underwriter.
We have agreed to indemnify the underwriters and their controlling persons
against certain liabilities, including liabilities under the Securities Act,
and to contribute to payment the underwriters and their controlling persons may
be required to make.
In addition to the underwriters commission referred to on the cover page
of this prospectus, we have agreed to pay the representative of the
underwriters a non-accountable expense allowance equal to 2.5% of the gross
proceeds of this offering, of which $25,000 has previously been paid to
Security Capital Trading, Inc. as of the date of this prospectus. We have also
agreed to pay all expenses in connection with qualifying the securities under
the laws of those states the representative may designate, including fees and
expenses of counsel retained for such purposes by the representative and the
costs and disbursements in connection with qualifying the offering with the
National Association of Securities Dealers, Inc.
41
We have agreed to issue to the representative of the underwriters, for a
total of $22.00, warrants to purchase an aggregate of 220,000 shares of common
stock and/or 220,000 warrants exercisable for a period of four years commencing
one year after the effective date of the registration statement of which this
prospectus is a part, at a price equal to 120% of their respective initial
public offering prices. The warrants issuable upon exercise of the
representative's warrants are identical to the warrants being sold in this
offering. The representative's warrants contain anti-dilution provisions
providing for automatic adjustments of the exercise price and number of shares
issuable on exercise price and number of shares issuable on exercise of the
representative's warrants upon the occurrence of some events, including stock
dividends, stock splits, mergers, acquisitions and recapitalizations.
The representative's warrants contain demand and piggyback registration
rights relating to the 220,000 shares of common stock and 220,000 warrants
issuable thereunder. For the life of the representative's warrants, the
representative will have the opportunity to profit from a rise in the market
price for voting, dividend or other stockholder rights with respect to those
warrants. The holders of shares of common stock issued upon exercise of those
warrants will have the voting, dividend, and other stockholder rights of holder
of shares of common stock. The representative's warrants are restricted from
sale, transfer, assignment or hypothecation for the one year period from the
date of this prospectus, except to officers or partners of the underwriters and
members of the selling group and/or their officers or partners. For a period of
five (5) years from the date of the closing of our initial public offering, we
have granted the holders of the representative's warrants demand and
"piggyback" registration rights for a period of seven (7) years with respect to
the common stock issuable upon exercise of the representative's warrants. The
representatives warrants and the shares underlying them are registered in the
registration statement of which this prospectus is a part.
We have also granted to the representative of the underwriters the right,
for a period of 3 years from the closing of this offering, to nominate a
designee of the representative for election to our board of directors. The
representative has not yet exercised their right to designate this person. If
the representative elects not to exercise this right, then the representative
may designate one person to attend meetings of our board of directors.
We and our officers, directors and present shareholders have agreed that,
for a period of two years after the completion of this offering, without the
prior written consent of the representative of the underwriters, none of us
will sell or otherwise dispose of any of our respective equity securities or
securities convertible into our equity securities, except for the sale of
shares to the underwriters under the terms of the underwriting agreement.
The representative of the underwriters has informed us that the
underwiters do not expect any sales of the units offered by this prospectus to
be made to discretionary accounts controlled by the underwriters.
Prior to this offering, there has been no established market in the United
States or elsewhere for our securities. The public offering price will be
determined by us in consultation with the representative of the underwriters.
It is expected that the price determination will take several factors into
account, including our results of operations, our future prospects and the
prevailing market and economic conditions at the time of this offering.
The representative, on behalf of the underwriters, may engage in (a)
over-allotment, (b) stabilizing transactions and (c) syndicate covering
transactions. Over-allotment involves syndicate sales in excess of this
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the units being offered so long as the
stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the units in the open
market after the distribution has been completed in order to cover syndicate
short positions.
Stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the shares of common stock and warrants to be higher
than it would otherwise be in the absence of such transactions. These
transactions may be effected on Nasdaq or otherwise and, if commenced, may be
discontinued at any time. In addition, the underwriters may engage in passive
market making transactions in our securities on the Nasdaq in accordance with
Rule 103 of Regulation M. Neither we nor the underwriters make any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the securities
offered by this prospectus.
42
Underwriters and selling group members participating in this offering may
engage in transactions that stabilize, maintain or otherwise affect the price
of the common stock and warrants offered in this prospectus. These actions
include purchasing common stock and warrants to cover some or all of a short
position of common stock and warrants maintained by the representative and the
imposition of penalty bids.
LEGAL MATTERS
The legality of the common stock and warrants offered by this prospectus
and certain legal matters in connection with the offering will be passed upon
for us by Gersten, Savage & Kaplowitz, LLP, New York, New York. The
underwriters have been represented by Orrick, Herrington & Sutcliffe LLP.
EXPERTS
Our financial statements for the year ended June 30, 1999, appearing in
this prospectus and registration statement have been audited by Schwartz
Levitsky Feldman LLP Chartered Accountants, as set forth in their report
thereon appearing elsewhere herein, and in the registration statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
43
NETJEWELS.COM, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 (UNAUDITED)
AS OF JUNE 30, 1999
TOGETHER WITH AUDITORS' REPORT
TABLE OF CONTENTS
Report of Independent Auditors ............................ F-2
Balance Sheet ............................................. F-3
Statement of Operations and Stockholders' Deficit ......... F-4
Statement of Changes in Stockholders' Deficiency .......... F-5
Statement of Cash Flows ................................... F-6
Notes to Financial Statements ............................. F-7-11
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
NetJewels.com, Inc.
We have audited the accompanying balance sheet of NetJewels.com, Inc. (a
Delaware Corporation) as of June 30, 1999 and the related statement of
operations and stockholders' deficit and cash flows for the year ended June 30,
1999. These financial statements are the responsibility of the management of
NetJewels.com, Inc. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, these financial statements referred to above present
fairly, in all material respects, the financial position of NetJewels.com, Inc.
as of June 30, 1999 and the results of its operations and cash flows for the
year ended June 30, 1999, in conformity with generally accepted accounting
principles in the United States of America.
Toronto, Ontario Schwartz Levitsky Feldman LLP
August 13, 1999 -----------------------------
Chartered Accountants
F-2
NETJEWELS.COM, INC.
BALANCE SHEET AS OF DECEMBER 31 (unaudited) and JUNE 30 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
December 31, June 30,
1999 1999
-------------- ------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash ...................................................... $ 57,204 $ 0
Accounts receivable (note 2) .............................. 53,223 0
------------ ---------
110,427 0
INTERNET CONTRACTS (note 3) ................................ 1,590,000 1,770,000
------------ ---------
Total Assets ............................................... 1,700,427 1,770,000
============ =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 4) ......... 707,434 62,000
Advances from an officer (note 5) ......................... 6,544 6,544
Notes payable Shareholder (Note 6) ........................ 477,596 428,261
------------ ---------
Notes Payable -- Shareholder ............................... 1,910,386 1,713,042
------------ ---------
Total liabilities .......................................... 3,101,960 2,209,847
------------ ---------
STOCKHOLDERS' DEFICIENCY
CAPITAL STOCK
Authorized ................................................
19,000,000 shares of common stock,
$0.001 par value per share
1,000,000 shares of preferred stock
Issued
3,300,000 common stock .................................. 3,300 3,300
DEFICIT .................................................... (1,404,833) (443,147)
------------ ---------
Total stockholders deficiency .............................. (1,401,533) (439,847)
------------ ---------
Total Liabilities and Stockholders' Equity ................. 1,700,427 1,770,000
============ =========
The accompanying notes are an integral part of these financial statements.
F-3
NETJEWELS.COM, INC.
STATEMENT OF OPERATIONS AND STOCKHOLDERS'
DEFICIT FOR THE SIX MONTH PERIOD ENDED DECEMBER 31 (unaudited) AND THE YEAR
ENDED JUNE 30 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
December 31, June 30,
1999 1999
-------------- -------------
(unaudited)
SALES .................................. $1,505,841 $ 75,439
Cost of sales ......................... 1,175,715 64,009
---------- ----------
GROSS PROFIT ........................... 330,126 11,430
---------- ----------
EXPENSES
Sales and marketing ................... 775,712 325,495
Financial ............................. 30,404 0
General and administrative ............ 305,696 36,166
Web site development .................. 0 62,916
Amortization .......................... 180,000 30,000
---------- ----------
1,291,812 454,577
---------- ----------
NET LOSS ............................... (961,686) (443,147)
========== ==========
NET LOSS PER SHARE BASIC AND DILUTED
(note 7) .............................. (0.29) (1.61)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING BASIC AND DILUTED ......... 3,300,000 275,000
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
NETJEWELS.COM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31 AND THE YEAR ENDED JUNE 30
(AMOUNTS EXPRESSED IN US DOLLARS)
Common
Stock
Number of Paid in
Shares Capital Deficit
----------- --------- ---------------
$ $
Opening Balance July 1, 1998 ............ -- -- --
Common shares issued .................... 3,300,000 3,300 --
Net loss for the year ................... -- -- (443,147)
--------- ------ ------------
Balance as of June 30, 1999 ............. 3,300,000 3,300 (443,147)
Net loss for the period ................. -- -- (961,686)
--------- ------ ------------
Balance as of December 31, 1999 ......... 3,300,000 3,300 (1,404,833)
========= ====== ============
The accompanying notes are an integral part of these financial statements.
F-5
NETJEWELS.COM, INC.
STATEMENT OF CASH FLOWS FOR THE SIX MONTH PERIOD ENDED DECEMBER 31 (unaudited)
AND THE YEAR ENDED JUNE 30 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
December 31, June 30,
1999 1999
-------------- --------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .......................................................... $ (961,686) $ (443,147)
Adjustments to reconcile net loss to net cash provided by operating
activities
Amortization ...................................................... 180,000 30,000
Increase in accounts receivable ................................... (53,223) 0
Increase in accounts payable and accrued liabilities .............. 645,434 62,000
---------- ------------
(189,475) (357,147)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of internet contracts .................................... 0 (1,800,000)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by advances from shareholder ........................ 0 6,544
Cash provided by issuance of common stock ......................... 0 3,300
Cash provided by notes payable .................................... 246,679 2,141,303
---------- ------------
246,679 2,151,147
---------- ------------
NET INCREASE IN CASH ............................................... 57,204 0
Cash, beginning of period ......................................... 0 0
---------- ------------
CASH, END OF PERIOD ................................................ 57,204 0
========== ============
The accompanying notes are an integral part of these financial statements.
F-6
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
i) Principal Activities
The company was incorporated in the United States of America in June 1999
as Exite Jewelry.com, Inc. and in October 1999 the company changed its name to
NetJewels.com, Inc. The company is a start-up internet based retailer and
wholesaler focused exclusively on jewelry and related products.
In January 1999 XiteJewelry.com Canada, an Ontario corporation, which in
August 1999 changed its name to NetJewels.com, Inc. (Netjewels Canada), the
company's parent company, was incorporated and an agreement was signed with DG
Jewelry, Inc. (DG) for the right to acquire all of DG's third-party internet
site sale business and all strategic agreements relating to Internet sales. The
transfer of all internet contracts was subsequently effected for a cost of
$1,800,000. Netjewels Canada subsequently transferred all of their rights and
obligations under the contract to the company.
These financial statements include the company's parent company's costs
and sales from January 1999 to June 1999.
During the period July 1, 1998 to the date of incorporation of the parent
company, a principal of the company carried out market research to determine
the feasibility of online jewelry distribution. The company was in a
development stage, the costs during that period were minimal and there was no
revenue. Therefore comparative figures would not be meaningful to an investor.
ii) Acquisition
The company acquired the rights to the internet line of business of DG
Jewelry for a total cost of $1,800,000. This acquisition has been accounted for
as a purchase business combination and the cost has been allocated to Internet
contracts. The acquisition is payable over five years on an interest free
basis. The purchase has been reflected as follows:
Internet contracts ............................................ $ 1,800,000
Notes payable ................................................. (1,800,000)
Goodwill ...................................................... --
============
iii) Sales
As different jurisdictional law prevails as to the passage of title, the
company recognizes sales revenue on the shipment of goods to the customer by an
insured carrier. The delivery time by the carriers is one day and at the point
of shipment, the risks of ownership are transferred to the carrier. Sales
through third party websites may, depending upon the contract terms, be subject
to a profit sharing with the web site. Sales are reflected at the gross amount
and the profit sharing costs are reflected in sales and marketing expenses.
iv) Inventory
Inventory is valued at the lower of cost or net realizable value. Cost is
determined on the first-in, first-out basis.
v) Other Financial Instruments
The carrying amount of the company's accounts payable approximates fair
value because of the short maturity of this instrument.
vi) Internet Contracts
Cost of internet contracts is being amortized using the straight-line
method over five years.
vii) Income taxes
The company accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax
F-7
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
consequences of events that have been included in the financial statements or
tax returns. Deferred income taxes are provided using the liability method.
Under the liability method, deferred income taxes are recognized for all
significant temporary differences between the tax and financial statement bases
of assets and liabilities.
viii) Net Loss Per Share
The company has adopted SFAS 128 for computing Earnings Per Share.
Basic loss per share is computed based on the average number of common
shares outstanding during the period.
Fully diluted loss per share reflects the potential dilution that could
occur if securities, or other contracts to issue common stock, were exercised
or converted into common stock or resulted in the issuance of common stock that
then shared in the income of the company. Such securities or contracts are not
considered in the calculation of diluted income per share if the effect of
their exercise or conversion would be antidilutive.
ix) Stock Based Compensation
In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation,
was issued. It introduced the use of a fair value-based method of accounting
for stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for stock-based compensation to employees based
on the new fair value accounting rules. Companies that choose not to adopt the
new rules will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion No. 25, Accounting for Stock issued to
employees. However, SFAS No. 123 requires companies that choose not to adopt
the new fair value accounting rules to disclose pro-forma net income and
earnings per share under the new method. SFAS No. 123 is effective for
financial statements for fiscal years beginning after December 15, 1995. The
company has adopted the disclosure provisions of SFAS No. 123.
x) Unaudited Comparatives
The financial statements and related notes thereto as of December 31, 1999
and for the six-month period ended December 31, 1999 are unaudited. Though they
have been prepared on the same basis as the audited financial statements
included herein, they do not form part thereof as no audit opinion has been
expressed thereon. In the opinion of management, such unaudited financial
statements include all adjustments (consisting only of normal and recurring
adjustments) necessary to present fairly the information set forth herein. The
interim results are not necessary indicative of the results for any future
period.
xi) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
xii) Foreign Currency Translation
The company's functional currency is the U.S. dollar and substantially all
transactions are denominated in U.S. dollars. Sales denominated in Canadian
dollars are translated at the average rate of exchange for the period. Balance
sheet items are translated at the exchange rate prevailing at the balance sheet
date.
F-8
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
xiii) Comprehensive Income
The company has adopted the provisions of SFAS No. 130 "Reporting
Comprehensive Income". This standard requires companies to disclose
comprehensive income in their financial statements. In additional to items
included in net income, comprehensive income includes items currently charged
or credited directly to stockholders' equity, such as the changes in unrealized
appreciation (depreciation) of securities and foreign currency translation
adjustments.
2. ACCOUNTS RECEIVABLE
December 31, June 30,
1999 1999
$ $
-------------- ---------
(Unaudited)
Accounts receivable ........................... 53,223 0
Less: Allowance for doubtful accounts ......... 0 0
------ ---------
Accounts receivable, net ...................... 53,223 0
====== =========
3. INTERNET CONTRACTS
December 31, June 30,
1999 1999
$ $
------------ ----------
(Unaudited)
Internet contracts ............................ 1,800,000 1,800,000
Less: Accumulated amortization ................ 210,000 30,000
--------- ---------
1,590,000 1,770,000
========= =========
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31, June 30,
1999 1999
$ $
-------------- ---------
(Unaudited)
Accounts payable -- other ..................... 274,882 0
Accrued liabilities ........................... 432,552 62,000
------- ------
707,434 62,000
======= ======
5. ADVANCES FROM AN OFFICER
The advances from an officer does not bear interest and is due on demand.
6. NOTES PAYABLE -- SHAREHOLDER
The notes payable to shareholder are non-interest bearing, are repayable
over 5 years have no specific terms of repayment and are secured by all of the
company's assets. The repayments shall commence one year after the date of the
company's initial public offering. One note in the amount of $1.8 million arose
in connection with the assumption of the parent company's obligations to DG in
connection with the acquisition of the internet contracts. The second note in
the amount of $587,982 represents the net advances from DG for goods purchased
from DG and expenses incurred on the company's behalf. The notes were
originally to be repaid from the offering proceeds of the Company's initial
public offering.
F-9
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
7. NET LOSS PER COMMON SHARE
Fully diluted net loss per common share was the same as basic net loss per
common share as there are no unexercised stock options outstanding and the
exercise of the warrants is anti-dilutive.
8. INCOME TAXES
December 31, June 30,
1999 1999
$ $
-------------- -------------
(Unaudited)
Loss carryforwards .......... 492,000 155,000
Valuation allowance ......... (492,000) (155,000)
-------- --------
0 0
======== ========
9. RELATED PARTY TRANSACTION
The company's parent company is owned 50% by DG and 25% by the company's
CEO and former President and COO. In addition, Ben Berkovits, is the brother of
our CEO. The principal shareholder of DG is the father of the company's CEO and
former President and COO and is the company's Chairman.
The company and our parent company have purchased all of their merchandise
from DG. Pursuant to the intercompany services agreement, DG sells its products
to NJ at a price equal to the lower of: (i) DG's cost plus 15%; and (ii) the
lowest price paid, or which may be paid to DG by third parties with respect to
the same or similar jewelry within six (6) month of NJ's purchase, except that
DG will reduce the purchase price for products sold on third-party auction
sites to equal 85% of the amount actually received or receivable by NJ in
connection with the sale. The purchase price from DG is determined and
accounted for at the time of shipping of the goods to the customer and is
aggregated for billing to NetJewels.
Since inception, DG has provided the company with corporate, fulfillment,
space sharing and other administrative services at a cost of $5,000 per month
plus actual expenses.
December 31, 1999 June 30, 1999
------------------- --------------
Purchase of internet contracts .......... -- $1,800,000
Purchases and expenses .................. 1,240,000 420,000
10. COMMITMENTS
a) The company has signed a lease, which expires December 31, 2001, to
rent premises from DG. The minimum annual payments are as follows:
2000 $6,000
2001 $6,000
b) The company has entered into advertising agreements with AOL which
requires the Company to expend $1,000,000 in advertising during the year ended
July 2000. The advertising agreement with theglobe.com requires the company to
expend $594,000 during the contract period which runs from September 1999 to
September 2001.
c) Effective January 1, 1999, the company entered into an employment
agreement with its Chairman with no stated term. The employment agreement
provides for a salary of $100,000 plus $1,000 per month of automobile
allowance. The amount payable is subject to annual reviews.
d) Effective January 1, 1999, the company entered into employment
agreements with its CEO and former President and COO for a three year term. The
employment agreements provide for an annual salary of $100,000 each plus $1,000
per month each of automobile allowance. If the company's proposed IPO is
completed, then the
F-10
NETJEWELS.COM, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1999 (unaudited) AND JUNE 30, 1999 (audited)
(AMOUNTS EXPRESSED IN US DOLLARS)
10. COMMITMENTS -- (Continued)
compensation payable to the executives from the date of completion of the IPO
to and including the expiry of the term shall be based on an annual salary of
$150,000. The amount payable is subject to minimum annual increases of at least
$15,000. Effective January 1, 2000, the agreement with the company's COO has
been terminated.
e) The salaries referred to in notes 10(c) and 10(d) have been reflected
in the expenses as $150,000 in each of the year ended June 30, 1999 and the six
months ended December 31, 1999. Amounts unpaid as at June 30, 1999 and December
31, 1999 have been accrued and are included in accounts payable and accrued
liabilities.
f) The company has entered into a letter of intent with an underwriting
firm and is proceeding to complete an initial public offering of 2,200,000
units at a price of $11.10 per unit. Each unit consists of one share of common
stock and one redeemable warrant.
g) In September 1999, the board of directors and stockholders adopted the
1999 NetJewels.com, Inc. Stock Option Plan (the "1999 Plan"), pursuant to which
750,000 shares of common stock are provided for issuance. The 1999 Plan is
administered by the board of directors or compensation committee.
The 1999 Plan is for a period of ten years, expiring September 2009.
Options may be granted to officers, directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to the
company. Options granted under the 1999 Plan may be exercisable for up to ten
years, require a minimum two year vesting period, and shall be at an exercise
price all as determined by the board or compensation committee.
The exercise price of all future options will be at least 85% of the fair
market value of the common stock on the date of granting of the options.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the company become available again for issuance under
the 1999 Plan.
The 1999 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of common stock reserved for
issuance upon the exercise of options granted under the 1999 Plan may not be
increased without the consent of the stockholders of the company.
To date no options have been granted under the plan.
(g) The company acquired contracts with three internet companies which
operate internet websites from NetJewels Canada. The agreements entitle the
company to offer jewelry products for sale on the websites and the websites are
paid a royalty for sales made on their sites. The agreement with ubid.com is an
exclusive agreement for a period of five years and prohibits the company from
offering its products on other online auction sites except bid.com and two
other online auction sites. The agreements are generally cancelable with short
notice. DG has guaranteed the Company's obligation under such agreements.
11. ECONOMIC DEPENDENCE
Pursuant to an intercompany service agreement with DG, DG has accounted
for 100% of the purchases to date and is expected to account for substantially
all of the purchases for the year ended June 30, 2000. DG beneficially owns 50%
of the shares of the company and the principal shareholders of DG and the
company are members of the same family. The company has entered into a number
of agreements (see note 10) to market the company's products on third party
websites. Approximately 65% of the company's sales since inception to December
31, 1999 have been through third party websites and these agreements are
generally cancelable with short notice.
F-11
================================================================================
-----------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary ....................... 3
Risk Factors ............................. 6
Forward-Looking Statements ............... 12
Use of Proceeds .......................... 13
Dividend Policy .......................... 14
Dilution ................................. 15
Capitalization ........................... 16
Selected Financial Data .................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................ 18
Business ................................. 23
Management ............................... 31
Principal Stockholders ................... 35
Certain Transactions ..................... 36
Description of Securities ................ 37
Shares Eligible for Future Sale .......... 38
Underwriting ............................. 39
Legal Matters ............................ 41
Experts .................................. 41
Financial Statements ..................... F-1
-----------------------------------
Until , 2000 (25 days after the commencement of the offering), all
dealers effecting transactions in the common stock, whether or not
participating in this distribution, may be required to deliver a prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a prospectus when acting as Underwriter and with respect to their
unsold allotments or subscriptions.
================================================================================
================================================================================
NETJEWELS.COM, INC.
2,200,000 Units
----------------------------------------
Prospectus
----------------------------------------
DIRKS & COMPANY, INC.
, 2000
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is a statement of the estimated expenses to be paid by us in
connection with the issuance and distribution of the securities being
registered:
SEC Registration Fee ................................... $ 9,320.79
NASD Filing Fee ........................................ 3,140.00
Nasdaq Listing Fees .................................... 63,725.00
Printing and Engraving Expenses * ...................... 75,000.00
Legal Fees and Expenses * .............................. 150,000.00
Accounting Fees and Expenses * ......................... 70,000.00
Blue Sky Fees and Expenses * ........................... 15,000.00
Transfer Agent and Registrar Fees and Expenses ......... 2,500.00
Nonaccountable expense allowance ....................... 605,000.00
Miscellaneous .......................................... $ 11,314.21
--------------
Total .................................................. $ 1,005,000.00
==============
- ------------
* estimate
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law, among other things,
and subject to certain conditions, authorizes us to indemnify our officers and
directors against certain liabilities and expenses incurred by such persons in
connection with claims made by reason of their being such an officer or
director. Our restated certificate of incorporation and by-laws of the Company
provide for indemnification of our officers and directors to the full extent
authorized by law. Following the offering, we intend to procure officer's and
director's liability insurance. We have entered into indemnification agreements
with our officers and directors which provide that we will indemnify our
officers and directors from any liability that arises as a result of their
performance of their duties, unless such liability arises as a result of
intentional misconduct or gross negligence.
Reference is made to the Underwriting Agreement, the proposed form of
which is filed as Exhibit 1.1, pursuant to which the underwriter agrees to
indemnify our directors and certain officers and certain other persons against
certain civil liabilities.
Item 15. Recent Sales of Unregistered Securities
Since our incorporation in June 1999, we have sold unregistered securities
as described below. Unless otherwise indicated, there was no underwriters
involved in the transactions and there was no underwriting discounts or
commissions paid in connection therewith, except as disclosed below. Unless
otherwise indicated, the issuances of these securities were considered to be
exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended, and the regulations promulgated thereunder. The purchasers of the
securities in such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
certificates for the securities issued in such transaction. The purchasers of
the securities in the transactions had adequate access to information about us.
In June 1999, we issued 3,300,000 shares of our common stock to
NetJewels.com, Inc, an Ontario corporation, as the founder of the corporation
pursuant to Section 4(2) of the Securities Act of 1933, as amended. The shares
were issued at par value ($001 per share).
II-1
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the issuer pursuant
to any charter provision, by-law, contract, arrangements, statute, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Act:
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to suit information in the registration statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the Offering of such
securities at that time shall be deemed to be the initial bona fide Offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the Offering.
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b)(1), or (4) of 497(h),
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) to provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-2
ITEM 27. EXHIBITS
*** 1.1 Form of Underwriting Agreement
*** 1.2 Form of Representative's Warrant Agreement
*** 1.3 Form of Representative's Warrants (included in the form of Representative's Warrant
Agreement)
** 1.4 Form of Public Warrant Agreement
** 1.5 Form of Warrant
*** 3.1 Bylaws of Registrant
*** 3.2 Certificate of Incorporation dated June 21, 1999
*** 3.3 Amended Certificate of Incorporation dated September 29, 1999
*** 3.4 Amended Certificate of Incorporation dated December 23, 1999
** 4.3 Specimen Common Stock Certificate
*** 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP
***10.1 1999 Stock Option Plan
***10.2 Employment Agreement between the Company and Daniel Berkovits.
***10.3 Employment Agreement between the Company and Ben Berkovits.
***10.4 Employment Agreement between the Company and Jack Berkovits
***10.5 Merchandising Agreement between DG Jewelry Inc. and theglobe.com, Inc.
***10.6 Shopping Channel Promotional Agreement between the Company and America Online, Inc.
***10.7 Partnership Vendor Agreement between DG Jewelry Inc. and uBid.com, Inc.
*10.8 Sales and Distribution Agreement between the Company and Shopnow.com.
*10.9 Sales and Distribution Agreement between the Company and Bid.com.
***10.11 Auction Agreement between iDeal International, Inc. and DG Jewelry Inc.
***10.12 Intercompany Services Agreement between DG Jewelry and the Company.
***10.13 Common Stock Purchase Warrant certificate between the Company and Jack Berkovits dated
July 1, 1999.
***10.14 Agreement between NetJewels Canada and the Company dated June 25, 1999.
***10.15 Agreement between Xite Jewelry.com Canada and DG Jewelry Inc. dated May 3, 1999.
***10.16 Agreement between Xite Jewelry.com Canada and DG Jewelry Inc. dated January 29, 1999.
***10.17 Form of indemnification agreement between NetJewels.com, Inc. and officers and directors.
*23.1 Consent of Schwartz Levitsky Feldman, Chartered Accountants.
***23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit 5.1)
*23.3 Consent of Albert Reichmann
*23.4 Consent of Greg Lerman
***24.1 Power of Attorney (included on the signature page to this Registration Statement)
*27 Financial Data Schedule
- ------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
II-3
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form S-1 and has duly caused this Amendment No. 2 to the Registration
Statement to be signed an its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on April 25, 2000.
NetJewels.com, Inc.
By: Daniel Berkovits
Chief Executive Officer
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Jack Berkovits Chairman of the Board April 25, 2000
-----------------
Jack Berkovits
/s/ Daniel Berkovits Chief Executive Officer, Principal Accounting April 25, 2000
-----------------
Daniel Berkovits Officer, Principal Financial Officer and
Director
/s/ Theodore Bonsignore Chief Financial Officer, Principal Accounting April 25, 2000
-----------------
Theodore Bonsignore Officer
II-4
EXHIBIT INDEX
*** 1.1 Form of Underwriting Agreement
*** 1.2 Form of Representative's Warrant Agreement
*** 1.3 Form of Representative's Warrants (included in the form of Representative's Warrant
Agreement)
** 1.4 Form of Public Warrant Agreement
** 1.5 Form of Warrant
*** 3.1 Bylaws of Registrant
*** 3.2 Certificate of Incorporation dated June 21, 1999
*** 3.3 Amended Certificate of Incorporation dated September 29, 1999
*** 3.4 Amended Certificate of Incorporation dated December 23, 1999
** 4.3 Specimen Common Stock Certificate
*** 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP
***10.1 1999 Stock Option Plan
***10.2 Employment Agreement between the Company and Daniel Berkovits.
***10.3 Employment Agreement between the Company and Ben Berkovits.
***10.4 Employment Agreement between the Company and Jack Berkovits
***10.5 Merchandising Agreement between DG Jewelry Inc. and theglobe.com, Inc.
***10.6 Shopping Channel Promotional Agreement between the Company and America Online, Inc.
***10.7 Partnership Vendor Agreement between DG Jewelry Inc. and uBid.com, Inc.
*10.8 Sales and Distribution Agreement between the Company and Shopnow.com.
*10.9 Sales and Distribution Agreement between the Company and Bid.com.
***10.11 Auction Agreement between iDeal International, Inc. and DG Jewelry Inc.
***10.12 Intercompany Services Agreement between DG Jewelry and the Company.
***10.13 Common Stock Purchase Warrant certificate between the Company and Jack Berkovits dated
July 1, 1999.
***10.14 Agreement between NetJewels Canada and the Company dated June 25, 1999.
***10.15 Agreement between Xite Jewelry.com Canada and DG Jewelry Inc. dated May 3, 1999.
***10.16 Agreement between Xite Jewelry.com Canada and DG Jewelry Inc. dated January 29, 1999.
***10.17 Form of indemnification agreement between NetJewels.com, Inc. and officers and directors.
*23.1 Consent of Schwartz Levitsky Feldman, Chartered Accountants.
***23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit 5.1)
*23.3 Consent of Albert Reichmann
*23.4 Consent of Greg Lerman
***24.1 Power of Attorney (included on the signature page to this Registration Statement)
*27 Financial Data Schedule
- ------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.