U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1 to
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Jewelnique Designs, Inc.
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(Name of Small Business Issuer in its charter)
Colorado 84-1385900
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2449 Lyric Avenue
Los Angeles, California 90027
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (213) 660-8665
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
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Item 1. Description of Business.
(a) Business Development.
Jewelnique Designs, Inc., formerly Blue Mountain Capital, Inc. (hereinafter
referred to as the "Company" or "JDI"), was organized under the laws of the
State of Colorado on March 6, 1997. The Company was organized by Messrs. Roland
W. Fink and Kendall L. Dorsett, executive officers and directors of the Company,
for the purpose of engaging in the business of manufacturing, marketing and
distributing consumer products, including, primarily, a dental device. This
initial proposed business plan was abandoned in approximately mid-April 1997
after Ms. Suzanne Sorensen, Executive Vice President of JDI, joined the Company.
At this time, the Board of Directors decided to pursue the Company's presently
proposed business of designing, manufacturing, marketing and distributing a
specialized line of jewelry products based upon the determination that this
proposed business is potentially more profitable and because of the anticipated
benefit from the synergy expected to result from the combination of the general
business experience and expertise of Messrs. Fink and Dorsett with Ms.
Sorensen's established design capabilities and contacts in the jewelry business.
The name of the Company was changed to "Jewelnique Designs, Inc.," on June 20,
1997. The Company's executive offices are presently located at 2449 Lyric
Avenue, Los Angeles, California 90027, and its telephone number is (213)
660-8665.
The Company has generally been inactive, having conducted no business
operations except organizational and fund raising activities since its
inception. JDI received gross proceeds in the amount of $20,000 from the sale of
a total of 80,000 shares of common stock, $.001 par value per share (the "Common
Stock"), in an offering conducted pursuant to Section 3(b) of the Securities Act
of 1933, as amended (the "Act"), and Rule 504 of Regulation D promulgated
thereunder. The Company undertook its offering of 80,000 shares of Common Stock
pursuant to Rule 504 of Regulation D under Section 3(b) of the Act on March 7
and 8, 1997. There were twenty purchasers of shares in the offering. While no
offering memorandum was used in connection with the offering, the business plan
of the Company, which was disclosed to each prospective investor, was the
production, marketing and distribution of consumer products, including,
primarily, a dental instrument.
See (b) "Business of Issuer" immediately below for a description of the
Company's proposed business of designing, manufacturing, marketing and
distributing a specialized line of jewelry products through, primarily,
boutiques, hair salons, beauty supply stores, department stores and children's
stores. As of the date hereof, the Company has no jewelry products available for
distribution.
(b) Business of Issuer.
General
Since its inception, the Company has conducted no business operations
except for organizational activities and an offering of Common Stock pursuant to
which it has received gross offering proceeds in the amount of $20,000. Further,
the Company has had no employees since its organization. It is anticipated that
the Company's executive officers and directors who, except for one lump-sum
consulting fee received by two such persons, have served in those positions
without compensation through the date hereof, will receive reasonable salaries
for services as exective officers at such time as the Company commences business
operations. (See Part I, Item 6., "Executive Compensation - Executive
Compensation.") The Company's executive officers and/or directors will devote
such time and effort as may be necessary to participate in the day-to-day
management of the Company. (See Part I, Item 5. "Directors, Executive Officers,
Promoters and Control Persons - Executive Officers and Directors.") The Company
has no plans to employ any individuals except its three executive officers on a
part-time basis for the foreseeable future. The Company proposes to engage in
business as a designer, manufacturer and distributor of a specialized line of
jewelry products which, except for the design of the "Face Jewel," JDI's initial
proposed product, has not yet been developed and which is intended to be
marketed, primarily, through boutiques, hair salons, beauty supply stores,
department stores and children's stores to a target market comprised of young
adults and children, especially, whose tastes in jewelry are expected to be
characterized by a desire for unique, different or unusual designs and products
at moderate prices. As of the date hereof, JDI has no jewelry products available
for distribution, although the Face Jewel is in the design stage.
The following discussion of the jewelry business, as it relates to the
Company's business objectives, is of course pertinent only if the Company is
successful in obtaining sufficient debt and/or equity financing to commence
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operations in the jewelry business and, in addition thereto, is able to generate
significant profits from operations (which are not expected in the foreseeable
future) and/or additional financing to continue in business and/or fund the
anticipated growth, assuming JDI's proposed product line is successful. There
can be no assurance such financing can be obtained or that the Company's
proposed product line will be successful. While each of Messrs. Roland W. Fink
and Kendall L. Dorsett, executive officers, directors and owners together of
approximately 62.7% of the outstanding common stock of JDI, has over twenty
years of business experience, having co-founded, managed, been employed by and
retained as consultants to a variety of companies, neither individual has any
specific experience or expertise in the jewelry business. (See Part I, Item 1.
"Description of Business," (b) "Business of Issuer - Risk Factors.")
Mr. Kendall L. Dorsett, JDI's Secretary/Treasurer, and Ms. Suzanne
Sorensen, Executive Vice President of the Company, have been personal friends
for the past approximately seven years. Messrs. Fink and Dorsett decided to
pursue the jewelry business via the Company because of the belief that their
collective prior business experience and expertise, when combined with Ms.
Sorensen's creativity, design capabilities and expertise, experience and
contacts in the jewelry business, will enable them to develop a successful
jewelry company which will have the advantages of, among other things, greater
availability of capital and potential for growth through the vehicle of a public
company as compared to a privately-held company. The time required to be devoted
by each executive officer, including Messrs. Fink and Dorsett and Ms. Suzanne
Sorensen, to manage the day-to-day affairs of the Company is presently estimated
to approximate five to ten hours per week. This time commitment on the part of
the Company's executive officers is expected to increase at such time, if ever,
as JDI obtains sufficient funding with which to commence jewelry production and
employ additional personnel in the areas of jewelry design, product development
and/or marketing and customer support.
The Company will be dependent upon its Executive Vice President, Ms.
Suzanne Sorensen, to develop the jewelry designs and products which will be
featured in JDI's proposed, specialized jewelry line. Ms. Sorensen has
approximately twenty-three years of experience in the jewelry business and has
managed Suzanne Designs, a family-owned jewelry business, since approximately
1976. The principal product of Suzanne Designs in recent years, the "Hair
Jewel," a unique, elegant, easy-to-use hair accessory made from fine Austrian
crystals, fourteen carat gold spirals and other fine materials, has been sold in
Nordstrom, Macy's, Dillard's, Bullock's, Accessory Place, Etcetera, Judy's and
Casual Corner; in most of the fifty states of the United States and in Japan,
Panama, Canada and Mexico; and continues to be re-ordered by customers after
nine years since its first availability. Ms. Sorensen's jewelry, clothing and
other product designs have been featured in advertisements in major U.S.
magazines, newspapers and other publications such as Women's Wear Daily; on
television productions, including the Donnie and Marie Show and CBS' The Young
and the Restless; and in several Hollywood feature films, including Steve
Martin's L.A. Stories and The Addams Family (Part II). The Company intends to
use to its advantage Ms. Sorensen's reputation in the jewelry business as a
creator of jewelry and other product designs so unique, different and unusual as
to readily attract media, even Hollywood's, attention and her creative talents
which have, in the past, resulted in continuous developments of new jewelry
designs and products available to consumers at moderate prices in an industry
dominated by mass merchandisers of inexpensive, unimaginative jewelry products
and fine jewelers whose high-end products are so costly as to be unavailable to
consumers of moderate means. Nevertheless, while Ms. Sorensen's jewelry designs
have been successful in the past, there can be no assurance that her designs for
JDI's proposed product line, including the Face Jewel, will be successful since
the popularity of any design is largely a measure of subjective public reaction.
Further, the Company has very limited financial, personnel and other resources
and lacks a customer base and market recognition. (See Part I, Item 1.
"Description of Business," (b) "Business of Issuer - Risk Factors.")
Ms. Sorensen may be subject to direct conflicts of interest, because of her
position as an executive officer of JDI and her management position with Suzanne
Designs, with regard to opportunities in the jewelry and accessories businesses
which come to her attention and concerning any possible business dealings
between JDI and Suzanne Designs. In any instance where such a conflict may
arise, the Company intends to employ certain safeguards, such as ensuring that
any agreement between the Company and Suzanne Designs conforms with standard
industry practice, if any, in the western United States and is fair and
reasonable to the Company. For example, if JDI produced a jewelry product using
designs developed by Suzanne Designs and the Company entered into an agreement
with Suzanne Designs providing for Suzanne Designs to receive a royalty on each
such product manufactured and sold by the Company, the Board of Directors of the
Company would take action to ensure that any royalty paid to Suzanne Designs
would not exceed the royalty, if any, customarily paid to product designers in
the western United States. Further, Ms. Sorensen has agreed, should she be
elected to the Board of Directors of JDI at any time in the future, that she
will abstain from voting as a member of the Board of Directors on any such
agreement in which Suzanne Designs is a party or has an interest or with regard
to any business opportunity which may be attractive to both companies. The
Company's Amended Articles of Incorporation provide that any such related party
contract or transaction must be authorized, approved or ratified at a meeting of
the Board of Directors by sufficient vote thereon by
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directors not interested therein or the contract or transaction must be fair and
reasonable to the Company. Accordingly, it is possible for the Company's Board
of Directors, by vote of a sufficient number of disinterested members thereof,
to authorize, approve or ratify a related party contract or transaction or
business opportunity involving Suzanne Designs which is unfair and/or
unreasonable to the Company, even though Ms. Sorensen abstains from voting
thereon. (See Part I, Item 1. "Description of Business," (b) "Business of Issuer
- - Risk Factors" - 10. "Conflicts of Interest.")
Business Strategy
The Company's business strategy, which is dependent upon its obtaining
sufficient financing with which to implement its business plan, is to provide a
specialized line of jewelry products and other fashion accessories to retailers
who target consumers, especially young adults and children, seeking unique,
different or unusual jewelry at moderate prices, as opposed to fine jewelry, and
who are willing to purchase jewelry and accessories at frequent intervals as
fashions and styles change. Management has made a conscious decision at this
time not to develop a line of traditional jewelry products which would force JDI
into direct competition, immediately, with the numerous large and small
manufacturers already established in the industry, many of which have
substantial resources and numerous other significant competitive advantages as
compared to the Company. However, depending upon the commercial success, no
assurance of which can be made, of the "Face Jewel," JDI's initial proposed
product, and specialized designs for other items of jewelry proposed to complete
a line of similar such unique, different or unusual products, the Company may in
the future develop a line of traditional jewelry if business conditions appear
to provide a niche or other opportunity in the traditional jewelry market which
management believes JDI could successfully exploit.
To accomplish this strategy and to stay abreast of changing styles and
tastes, design and marketing personnel anticipated to be employed by the
Company, assuming that sufficient operating capital becomes available, are
expected to work closely with suppliers, distributors and customers and
continually participate in jewelry fairs, trade shows and other industry forums.
JDI expects to introduce numerous designs and variations of those designs in
order to extend the length of time each design is marketable. In addition, the
Company plans to develop a sophisticated computerized system to track, and to
continuously engage in market research in order to monitor, new market trends,
seasonality factors and other critical information deemed relevant to JDI's
business.
Management hopes, in the event that JDI achieves commercial success
initially, to increase the Company's domestic market penetration and product
lines through selected acquisitions. Such acquisitions could include both
jewelry and non-jewelry businesses which could complement and be integrated into
the Company's product lines and/or operations. Management believes that, in the
current international trade environment, expansion into markets such as the
Canadian, Latin American and Asian markets, could be especially attractive.
However, foreign markets present certain unique challenges and risks, and there
could be no assurance that JDI, even if it were to be successful in establishing
foreign markets, could be expected to be successful in profitably penetrating
these potential markets.
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Proposed Product Line
Ms. Suzanne Sorensen, the Executive Vice President of the Company, has
managed Suzanne Designs, a family jewelry business, since 1976. In recent years,
the principal product of Suzanne Designs has been the "Hair Jewel," a unique,
elegant, easy-to-use hair accessory that works equally well in long, short,
normal or very fine hair. The Hair Jewel is suitable for evening wear, and can
be used to hold the hair up; hold the hair back; decorate braids or sweeps; or
help spike the hair for the "punkier" look. The Hair Jewel is made from the
finest Austrian Crystals, fourteen carat gold spirals and other fine materials.
The product has sold in Nordstrom, Macy's Dillard's, Bullock's, Asccessory
Place, Etcetera, Judy's and Casual Corner, and continues to be re-ordered by
customers since it first became available approximately nine years ago. The
product has been sold in most of the fifty states of the United States and in
Japan, Panama, Canada and Mexico. Ms. Sorensen has designed elegant, black
tassel, Austrian Crystal earrings featured in Women's Wear Daily and the
eagle-feather jackets and long-feather earrings worn on the Donnie and Marie
Show. Her designs have also been featured on CBS' The Young and the Restless and
in several Hollywood feature films, including Steve Martin's L.A. Stories and
the Addams Family (Part II).
JDI intends to develop a line of specialized jewelry products and other
accessories similar, from the standpoint of novelty, moderate price and appeal
to youthful consumers, to that marketed and distributed by Suzanne Designs.
Along these lines, Ms. Sorensen has developed a design for the "Face Jewel," a
novel, elegantly sculpted earring that extends daringly out onto the face,
accentuating the graceful line of a woman's cheek. Management anticipates that
the Company's first product will be the Face Jewel currently under development,
while its ultimate product line, proposed to be developed from this initial
product, would include earrings, necklaces, bracelets, rings, pendants, pins,
brooches, ankle jewelry and decorations for other areas of the body or for
clothing, each of a unique or unusual design, hoped to be attractive to
consumers, particularly young adults and children, seeking to adorn themselves
other than with traditional jewelry. JDI's proposed products, including the Face
Jewel, are expected to be sold, primarily, through boutiques, hair salons,
beauty supply stores, department stores and children's stores.
Management is unable at this time to forecast with any degree of certainty
the average price or wholesale or retail price range of the Company's products;
however, JDI intends to design its products so that the retail prices will be
considered "moderate" by the Company's target markets.
Marketing and Distribution
The Company presently anticipates that the Face Jewel, together with the
other proposed products in its product line presently under development, will be
sold through the same distribution channels that Suzanne Designs' "Hair Jewel"
is currently being distributed, including, principally, boutiques, hair salons,
beauty supply stores, department stores and children's stores. Company
management hopes, but cannot assure, that JDI's proposed products will
eventually attract the attention of retail jewelry stores, mass merchandisers,
catalog showrooms, high-volume retailers, major discounters and specialty
marketers such as home shopping networks, direct marketers and mail order
companies as well. The Company intends to compete, assuming that it is
successful in obtaining sufficient financing with which to commence jewelry
production, primarily on the basis of its unique designs and by offering quality
products at modest prices in combination with marketing and customer support
services, and not solely on the basis of price.
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Management anticipates that its primary marketing efforts will be in the
areas of product design and customer support services, calculated to assure
JDI's timely response to fashion trends, quality products, favorable pricing and
accurate inventory control for the Company's customers. The Company's proposed
products are intended to be marketed, for the most part, through independent
third party sales representatives. However, the Company expects that it will
maintain a small sales force as well, which would be expected to work closely
with third party representatives and customers, as well as JDI's design, product
development and marketing support personnel proposed to be employed if adequate
financing becomes available. The Company believes that by utilizing independent
third party representatives, primarily, it will be able to penetrate additional
markets at a minimal cost and without the overhead associated with a large sales
force.
The Company's ability to develop and market its Executive Vice President's
designs is, of course, dependent upon management's ability to obtain the
necessary financing, of which there can be no assurance. Assuming the
availability of adequate funding, JDI intends to stay abreast of changing styles
and market tastes by ensuring that its design and product development personnel
work closely with suppliers, independent sales representatives and customers;
participating in jewelry fairs, trade shows and other industry forums; and
generating new designs and variations on earlier designs to remain competitive.
JDI does not anticipate obtaining long-term contracts with any distributors or
customers, but management believes that the loyalty of its distributors and
customers, if once obtained, could be maintained through product designs and
development which timely reflect fashion trends and changes and providing them
with proper marketing and customer support.
Competition
The jewelry industry in the United States is highly fragmented, with little
significant brand name recognition or customer loyalty. Selection is generally a
function of design appeal, preceived high value and quality in relation to
price. Jewelry stores alone account for an estimated $15 billion in annual sales
in the United States. Retail jewelry sales have historically increased at a rate
surpassing the inflation rate. This increase is primarily attributable to the
increasing disposable income of women in the United States as more and more
women, the largest group of jewelry purchasers, enter the workforce and achieve
higher salaries and more responsible positions. Working women are often
responsible for the purchase of jewelry by teenagers and children as well. The
rise in the number of women in the workforce has also increased the overall
demand for women's clothing and accessories of all types, including jewelry.
While JDI expects to compete on the basis of the uniqueness of its designs,
its reputation among customers as a quality provider of products in tandem with
marketing and customer support services, and, to a lesser extent, on the basis
of price, its opportunity to obtain customers may be limited by its financial
and other resources. In this regard, many of the companies and other
organizations with which the Company will be in competition are established and
have far greater resources, substantially greater experience and larger staffs
than the Company expects to have for the foreseeable future. Additionally, many
of these companies and organizations have proven operating histories, which the
Company lacks.
While the competition may, among other things, "knock off" the Company's
designs, offer a wider selection of products, undercut JDI's prices and employ
any number of other strategies and tactics against the Company, management hopes
that the Company's unique designs, which are expected in many cases to be
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proprietary and/or copyrighted, together with its anticipated close relationship
with its customers, vendors and distributors, will enable it to maintain a
competitive position in the specialized jewelry and accessory market segment.
The Company further believes, but cannot assure, that its net profit margins
will be equal to, or in excess of, many of its competitors and that its capital
costs will be lower. Therefore, although competition is expected to be intense,
management hopes to position the Company strategically in the jewelry industry.
Seasonality
The jewelry business is highly seasonal in general, with the fourth
calendar quarter (which includes the Christmas shopping season) historically
contributing the highest sales of any quarter during the year. Nevertheless,
seasonality cannot be predicted because of customer promotions and special
events which may occur throughout the year. Management intends that the Company
participate in promotions and other events conducted by retailers at times of
the year other than Christmas, and conduct similar such special events and
promotions and take other measures to minimize the impact of seasonality on its
business to the extent possible.
Purchasing, Manufacturing and Assembly
At least initially, the Company intends to purchase most of its jewelry and
accessories in an assembled state from suppliers located inside the United
States. At most, management expects that the Company will be required to perform
a minimal amount of light assembly of the items received into jewelry and
accessory products. Management expects to purchase jewelry from a number of
suppliers based on quality, pricing and available quantities. While purchases of
materials are expected to be made from a relatively small number of suppliers,
the Company believes, but cannot assure, that there will be numerous alternative
sources for all materials, and that the failure of any principal supplier(s)
would not have a material adverse effect on operations or JDI's financial
condition. The Company does not expect to experience any difficulty in securing
product.
Management expects manufacturing and assembly operations conducted by the
Company to be limited primarily to designing jewelry and other accessories, and
some light assembly of products. Upon completing a design, depending upon the
nature of the product, the Company will either purchase the materials and
subcontract the manufacture or assembly of the product, or provide such design
to its suppliers which will purchase the raw materials and manufacture the
product or subcontract for its manufacture. Management believes that the use of
third party manufacturers will enable the Company to substantially shift the
risk and capital cost of manufacturing to the third party. Depending upon the
availability of funding, the Company has preliminary plans to maintain a light
manufacturing and assembly operation in the United States for the purpose of
producing prototype designs and to fulfill custom orders for specialized
products and short-run orders required to be shipped within several days of the
order date. While JDI may in the future establish its own manufacturing
operations and facilities if substantial savings in the cost of inventory
appears likely and the necessary capital becomes available, the Company's
financial position does not permit management to consider such a course of
action at this time.
Employees and Consultants
The Company has had no employees since its organization. Except for a lump
sum consulting fee received by each of Messrs. Roland W. Fink and Kendall L.
Dorsett, JDI's executive officers and directors, including Messrs. Fink and
Dorsett and Ms. Suzanne Sorensen, have served in those positions without
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compensation through the date hereof. Messrs. Fink and Dorsett were compensated
for certain specialized services, including the preparation of a business plan
and the performance of certain financial consulting services, commonly performed
by outside consultants, despite their positions as executive officers and
directors of JDI, because the Company does not presently have the financial
capability to pay management salaries or retain outside consultants on an
ongoing basis. It is anticipated that at such time, if ever, as the Company's
financial position permits, assuming that JDI is successful in raising adequate
funding through equity and/or debt financing and/or generating a sufficient
level of revenue from operations, Messrs. Fink and Dorsett and Ms. Sorensen and
any other executive officers the Company may employ, will receive appropriate
compensation, in addition to salaries, which may include bonuses, coverage under
medical and/or life insurance benefits plans and participation in stock option
and/or other profit sharing or pension plans, for services as executive officers
of the Company. Additionally, directors may receive fees for their attendance at
meetings of the Board of Directors of the Company. While JDI may retain
consultants to perform services for the Company in the future, it does not
intend to retain members of management or other affiliated person(s) in this
capacity or pay consulting fees to any such person(s).
Facilities
The Company maintains its offices rent free at the home of its Executive
Vice President located at 2449 Lyric Avenue, Los Angeles, California 90027. Its
telephone number is (213) 660-8665. The Company anticipates that it will have
continued use of the Executive Vice President's home on a rent-free basis for
the foreseeable future and that this arrangement will be adequate for the
Company's needs while it is in the development stage. Assuming that JDI obtains
the necessary additional financing and is successful in implementing its
business plan, no assurance of which can be made, the Company will require its
own commercial facilities, including sufficient space to establish the intended
light assembly operation. In such event, management believes that JDI would be
able to locate adequate facilities at reasonable rental rates in the Los Angeles
area suitable for its future needs.
Before making an investment decision, prospective investors in the
Company's Common Stock should carefully consider, along with other matters
referred to herein, the following risk factors inherent in and affecting the
business of the Company.
Risk Factors
1. Development Stage Company. JDI was only very recently organized on March
6, 1997, and, accordingly, is in the early form of development stage and must be
considered promotional. Management's efforts, since inception, have been
allocated primarily to organizational and fund raising activities and the
ability of the Company to establish itself as a going concern is dependent upon
the receipt of additional funds from operations or other sources to continue
those activities. Potential investors should be aware of the difficulties
normally encountered by a new enterprise in its development stage, including
undercapitalization, cash shortages, limitations with respect to personnel,
technological, financial and other resources and lack of a customer base and
market recognition, most of which are beyond the Company's control. The
likelihood that the Company will succeed must be considered in light of the
problems, expenses and delays frequently encountered in connection with the
competitive environment in which the Company will operate. The Company's success
depends to a large extent on gauging public tastes in jewelry and accessories
and its ability to design products which will capture the public eye and hold
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the public's attention. There is no guarantee that the Company's proposed
products, initially the Face Jewel, will attain the level of popularity
necessary for the Company to find a niche in the jewelry industry or achieve
profitable operations. There are numerous manufacturers of jewelry and
accessories already positioned in the business which are better financed than
the Company. There can be no assurance that the Company, with its very limited
capitalization, will be able to compete with these companies and achieve
profitability. (See Part I, Item 1. "Description of Business.")
2. No Operating History, Revenues or Earnings. As of the date hereof, the
Company has not yet commenced operations and, accordingly, has received no
operating revenues or earnings. Since inception, most of the time and resources
of JDI's management have been spent in organizing the Company, obtaining interim
financing and developing a business plan. The Company's success is dependent
upon its obtaining additional financing from intended operations or otherwise.
The Company's success in the business of designing, manufacturing, merchandising
and distributing unique jewelry and accessory products on a wholesale basis is
dependent upon the receipt of profits from operations, which are not expected
for the foreseeable future, and/or additional financing to enable the Company to
continue in operation. There is no assurance that JDI will be able to obtain
additional debt or equity financing from any source. The Company, during the
development stage of its operations, can be expected to sustain substantial
operating expenses without generating any operating revenues or the operating
revenues generated can be expected to be insufficient to cover expenses. Thus,
for the foreseeable future, unless the Company attains profitable operations,
which is not anticipated, the Company's financial statements will show an
increasing net operating loss. (See Part I, Item 1. "Description of Business.")
3. Minimal Assets, Working Capital and Net Worth. As of September 30, 1997,
the Company's total assets in the amount of $1,782 consisted, principally, of
the sum of $1,338 in cash. As a result of its having minimal assets and a net
loss from operations in the amount of $16,590 as of September 30, 1997, the
Company has very minimal net worth presently. Further, JDI's working capital is
presently minimal and there can be no assurance that the Company's financial
condition will improve. The Company is expected to continue to have minimal
working capital or a working capital deficit as a result of current liabilities.
Messrs. Roland W. Fink and Kendall L. Dorsett, executive officers and/or
directors of JDI, each contributed services valued by them at $128 (a total of
$256) in consideration for 128,000 shares of the Company's Common Stock received
by each. Additionally, Patricia Cudd, Esq., received an aggregate of 64,000
shares of Common Stock in consideration for her performance of legal services
for JDI valued at $64. Even though management believes, without assurance, that
it will obtain sufficient capital with which to implement its business plan on a
limited scale, the Company is not expected to continue in operation, without an
infusion of capital, after the expiration of a period of six months to one year
from the date hereof. In order to obtain additional equity financing, management
may be required to dilute the interest of existing shareholders or forego a
substantial interest in its revenues, if any. (See Part I, Item 1. "Description
of Business.")
4. Need for Additional Capital; Going Concern Qualification Expressed by
Auditor. Without an infusion of capital or profits from operations, the Company
is not expected to continue in operation after the expiration of the period of
six months to one year from the date hereof. Accordingly, the Company is not
expected to become a viable business entity unless additional equity and/or debt
financing is obtained. JDI's independent certified public accountant has
expressed this as a "going concern" qualification to the opinion of Janet Loss,
C.P.A., P.C., on the Company's financial statements. The Company does not
anticipate the receipt of operating revenues until management successfully
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implements its business plan, which is not assured. Further, JDI may incur
significant unanticipated expenditures which deplete its capital at a more rapid
rate because of, among other things, the development stage of its business, its
limited personnel and other resources and its lack of a customer base and market
recognition. Because of these and other factors, management is presently unable
to predict what additional costs might be incurred by the Company beyond those
currently contemplated to obtain additional financing and achieve market
penetration on a commercial scale in its proposed line of business, i.e., the
design, manufacturing, merchandising and wholesale distribution of specialized
jewelry and accessory products. JDI has no identified sources for funds, and
there can be no assurance that resources will be available to the Company when
needed. (See Part I, Item 1. "Description of Business," - (b) "Business of
Issuer - Risk Factors" - 10. "Conflicts of Interest.")
5. Dependence on Management; Directors' Lack of Experience in Jewelry
Business . The possible success of the Company is expected to be largely
dependent on the continued service of its Executive Vice President, Ms. Suzanne
Sorensen, because Messrs. Roland W. Fink and Kendall L. Dorsett, the directors
and the other executive officers of JDI, have no experience or expertise in the
jewelry business. Virtually all decisions concerning the design and proposed
manufacture, marketing and distribution of jewelry and accessories by the
Company will be made or significantly influenced by Ms. Sorensen. She is
presently serving as the manager of Suzanne Designs, a closely-held jewelry
business owned by her family since 1976, and is required to devote a significant
amount of her time to the conduct of that company's business. Ms. Sorensen, Mr.
Fink and Mr. Dorsett are expected to devote only such time and effort to the
business and affairs of the Company as may be necessary to perform their
responsibilities as executive officers and/or directors of JDI. The loss of the
services of Ms. Sorensen would adversely affect the conduct of the Company's
business and its prospects for the future. The Company presently holds no
key-man life insurance on the lives of, and has no employment contract or other
agreement with, Ms. Sorensen or Messrs. Fink or Dorsett. (See Part I, Item
1."Description of Business," - (b) "Business of Issuer - Risk Factors" - 10.
"Conflicts of Interest.")
6. No Jewelry or Accessory Products or Customer Base. The Company was only
very recently organized. While JDI intends to engage in the design, manufacture,
merchandising and wholesale distribution of a specialized line of jewelry and
accessory products, the Company's initial proposed product, the "Face Jewel" is
only in the design stage and no other jewelry or accessory products are
presently being designed or manufactured. Further, the very limited funding
currently available to the Company will not permit it to commence business
operations in the jewelry industry except on a very limited scale. There can be
no assurance that the debt and/or equity financing, which is expected to be
required by the Company in order for JDI to continue in business after the
expiration of the next six months to one year, will be available. The Company
has no customers presently and there can be no assurance that it will be
successful in obtaining any customers in the major prospective market segments,
including boutiques, hair salons, beauty supply stores, department stores and
children's stores, which JDI intends to target for wholesale distribution of its
proposed products. JDI does not expect to have long-term contracts with any
customers; thus, management believes that the Company must, in order to survive,
ultimately obtain the loyalty of large volume purchasers through design and
product development which timely reflects fashion trends and changes and proper
customer and marketing support. The Company expects to be limited in the number
of designers and customer and marketing support personnel it is capable of
employing as a result of its limited operating capital. Thus, the Company could
be expected to experience substantial difficulty in attracting the high volume
- 10 -
<PAGE>
customers in the prospective target markets which would enable JDI to achieve
commercial viability. The Company will be dependent upon its Executive Vice
President, Ms. Suzanne Sorensen, who has approximately twenty-one years of
experience in managing her family's jewelry business, to design the Company's
proposed jewelry and accessory products; nevertheless, there can be no assurance
that designs for such products, including the Face Jewel, will have a chance of
achieving popular and commercial success. (See Part I, Item 1. "Description of
Business," (b) "Business of Issuer - Business Strategy; - Proposed Product Line;
- - Marketing and Distribution; and Purchasing, Manufacturing and Assembly."
7. No Marketing Organization; Limited Marketing Capability. The Company's
success depends in large part upon its ability to identify and adequately
penetrate the markets for its potential jewelry and accessory products. As
compared to JDI, which lacks the financial, personnel and other resources
required to compete with its larger, better-financed competitors, virtually all
of the Company's competitors have much larger budgets for marketing, advertising
and promotion. Except for its Executive Vice President, JDI presently has no
design, product development, marketing or customer support personnel whatsoever
and, accordingly, management expects that the Company's products will be
marketed, for the most part, through third party independent sales
representatives. Depending upon the level of funding obtained by the Company,
management believes, without assurance, that it will be possible for JDI to
attract qualified personnel in the areas of jewelry design, product development
and marketing and customer support to work closely with both the third party
sales force and with the suppliers and customers and to participate in jewelry
fairs. However, in the event that only limited funds are obtained, the Company
anticipates that its limited finances and other resources may be a determinative
factor in the decision of any prospective employee as to whether to become
employed by JDI. Until such time, if ever, as the Company is successful in
attracting and employing capable design, product development, marketing and
customer support personnel, it intends to rely upon the judgment and conclusions
of its Executive Vice President based upon her knowledge and experience gained
in managing a family-owned jewelry business, relative to the Company's needs for
marketing and related expertise in these areas. However, the fact that neither
Mr. Fink nor Mr. Dorsett, executive officers and directors of JDI, has any
specific experience in the jewelry industry may adversely impact the Company's
chances for success. (See Part I, Item 1. "Description of Business," (b)
"Business of Issuer - Marketing and Distribution.")
8. High Risks and Unforeseen Costs Associated with JDI's Entry into the
Jewelry Business. There can be no assurance that the design, manufacturing,
merchandising, distribution and other costs incurred by JDI will not be
significantly greater than those estimated by Company management. Therefore, the
Company may expend significant unanticipated funds or significant funds may be
expended by JDI without the development of commercially viable jewelry or
accessory products or customer or marketing support services. There can be no
assurance that cost overruns will not occur or that such cost overruns will not
adversely affect the Company. Further, unfavorable general economic conditions
and/or a downturn in consumer confidence has in the past had, and could be
expected in the future to have, an adverse effect on consumer spending
preferences which could, in turn, adversely affect the Company's business.
Additionally, competitive pressures and changes in customer mix, among other
things, which management expects the Company to experience in the uncertain
event that it achieves commercial viability, could reduce the Company's gross
profit margin from time to time. Accordingly, there can be no assurance that JDI
will be capable of establishing itself in a commercially viable position in the
worldwide jewelry distribution market despite the uniqueness of its designs or
the modesty of its pricing. (See Part I, Item 1. "Description of Business," (b)
"Business of Issuer.")
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<PAGE>
9. Dependency on Suppliers and Customers. The Company's ability to
manufacture and distribute jewelry on a profitable and timely basis depends, at
least initially, upon the availability of jewelry products assembled to
management's specifications. There can be no assurance that assembled products
will be readily available from numerous sources and/or at prices acceptable to
JDI in accordance with management's belief. Further, even if the Company
receives sufficient proceeds from equity and/or debt financing or otherwise,
thus enabling it to employ the design, manufacturing, marketing and other
personnel needed to implement its business plan, it will nevertheless be
dependent upon the availability of raw materials, primarily precious metals and
gemstones, which management believes, without assurance, to be readily available
from numerous suppliers. Increases in the prices of raw materials and/or
limitations on the availability of such raw materials may adversely affect JDI's
ability to manufacture and distribute jewelry to customers on a timely basis or
at prices acceptable to the Company and its customers, if any. Additionally,
because a substantial portion of the jewelry products proposed to be distributed
by the Company is expected to be purchased from third party suppliers, failure
by such suppliers to deliver jewelry on a timely basis and increases in the
costs charged by such suppliers could adversely affect the Company's
relationship with its customers. While management hopes to sell products to a
large number of customers in a broad range of markets, to the extent that a few
large volume customers account for the bulk of its product sales, the loss of
any of these customers, or a significant reduction in their orders, could have a
material adverse effect on JDI's business. The Company does not anticipate that
it will have long-term contracts with its prospective customers. (See Part I,
Item 1. "Description of Business," (b) "Business of Issuer - Marketing and
Distribution; - Purchasing, Manufacturing and Assembly.")
10. Conflicts of Interest. There are existing and potential conflicts of
interest, including time, effort and corporate opportunity, involved in the
participation by the Company's executive officers and directors in other
business entities and transactions. Ms. Suzanne Sorensen, the Company's
Executive Vice President and the manager of Suzanne Designs, an affiliate of the
Company, will divide her time and effort between and among the Company, Suzanne
Designs and her other business obligations. Accordingly, Ms. Sorensen and/or
other members of management of the Company may be subject to direct conflicts of
interest and the corporate opportunities doctrine with respect to business
opportunities in the jewelry and accessory business which come to their
attention. The Company's Amended Articles of Incorporation provide that any
related party contract or transaction must be authorized, approved or ratified
at a meeting of the Board of Directors by sufficient vote thereon by directors
not interested therein or the transaction must be fair and reasonable to the
Company. Ms. Sorensen, who is not presently a director of JDI, has agreed, in
the event that she is elected to serve as a director of the Company in the
future, that she would abstain from voting on any related party contract or
transaction involving Suzanne Designs. Nevertheless, assuming Ms. Sorensen's
future election to JDI's Board of Directors and her abstention from voting on
any related party contract or transaction in accordance with her agreement, it
would still be possible for the Board of Directors of the Company, by a vote of
a sufficient number of disinterested directors, to authorize, approve or ratify
such a contract or transaction with Suzanne Designs or any other affiliate even
if the terms were unfair to the Company or unreasonable.
Because of existing and/or potential future associations of the Company's
executive officers and directors in various capacities with other firms involved
in a range of business activities and because of the limited or minimal amount
of time and effort which is expected to be devoted to the Company by such
persons, there are existing and potential continuing conflicts of interest in
their acting as executive officers and/or directors of the Company. None of the
executive officers or directors of the Company will be able to devote a
significant amount of time or effort to the business and affairs of the Company
- 12 -
<PAGE>
because of their simultaneous participation in, employment by and/or commitments
to other firms involved in a range of business activities. In addition, all of
such persons are or may become, in their individual capacities, officers,
directors, controlling shareholders and/or partners of other entities (in
addition to Suzanne Designs) engaged in a variety of businesses which are
engaged, or may in the future engage, in various transactions, or compete
directly, with the Company. Conflicts of interest and transactions which are not
at arm's-length may arise in the future because the Company's executive officers
and/or directors are involved in the management of any company which transacts
business, or competes directly, with the Company. (See Part I, Item 1.
"Description of Business," (b) "Business of Issuer - General.")
11. Competition. Competition is intense within the jewelry industry in
general and in the specialized jewelry and accessory market segment in which JDI
proposes to operate. It is anticipated that the jewelry industry may be subject
to changes in the general state of the economy, shifts in the demographic
structure, changes in the buying habits of the public, the availability of
alternative products and the increased cost of doing business. Further, there
may be significant technological advances in the future and the Company may not
have adequate creative management and resources to enable it to take advantage
of such advances. The Company anticipates that virtually all of its many
competitors, both domestic and international, will have substantially greater
technical, financial and marketing resources than the Company. While JDI expects
to compete on the basis of the uniqueness of its designs, its reputation among
customers as a quality provider of products and marketing and customer support
services together with its anticipated close relationship with its customers,
vendors and distributors and, to a lesser extent, on the basis of price, its
opportunity to obtain customers may be limited by its financial resources and
other assets. In this regard, many of the companies and other organizations with
which JDI will be in competition are established and have far greater financial
resources, substantially greater experience and larger staffs than the Company
and are expected to to offer a wider selection of products than the Company.
Additionally, many of such organizations have proven operating histories, which
the Company lacks. JDI expects to face strong competition from both such
well-established companies and small independent companies like itself. In
addition, the Company's proposed business may be subject to decline because of
the general state of the economy and generally increasing costs and expenses of
doing business, thus further increasing anticipated competition. While
management hopes that the Company's proposed products will be well-positioned
and competitive under current market conditions, there can be no assurance that
any such products will continue to be competitive in the face of changes in
product design, changes in fashion and the entry of new competitors into the
market. (See Part I, Item 1. "Description of Business," (b) "Business of Issuer
- - Competition.")
12. Absence of Public Market for Shares. The Company's shares of Common
Stock are not registered with the U.S. Securities and Exchange Commission under
the Securities Act of 1933, as amended (hereinafter referred to as the "Act").
There is no public market for the shares of Common Stock and no assurance that
one will develop. Of such shares, 80,000 thereof are "free-trading" because of
their issuance to persons unaffiliated with JDI pursuant to the exemption from
registration provided by Rule 504 of Regulation D promulgated under Section 3(b)
of the Act, and the balance of 328,000 of such shares are "restricted
securities." Rule 144 of the Act provides, in essence, that holders of
restricted securities for a period of one year after the acquisition thereof
from the Company or an affiliate of the Company, may, every three months, sell
to a market maker or in ordinary brokerage transactions an amount equal to one
per cent of the Company's then outstanding securities. Nonaffiliates of the
Company who hold restricted securities for a period of two years may sell their
securities without regard to volume limitations or other restriction. Resales of
- 13 -
<PAGE>
the free-trading shares of Common Stock by "affiliates, control persons and/or
underwriters" of JDI, as those terms are defined in the Act, will be subject to
the volume limitations described in paragraph (e) of Rule 144. Any transfer or
resale of the shares of JDI's Common Stock will be subject, in addition to the
Federal securities laws, to the "blue sky" laws of each state in which such
transfer or resale occurs. A total of 320,000 shares and 8,000 shares of the
Company's Common Stock will be available for resale under Rule 144 commencing in
March and April 1998, respectively. Sales of shares of Common Stock under Rule
144 may have a depressive effect on the market price of the Company's Common
Stock, should a public market develop for such stock. Such sales might also
impede future financing by the Company.
13. No Dividends. While payment of dividends on the Common Stock rests with
the discretion of the Board of Directors, there can be no assurance that
dividends can or will ever be paid. Payment of dividends is contingent upon,
among other things, future earnings, if any, and the financial condition of the
Company, capital requirements, general business conditions and other factors
which cannot now be predicted. It is highly unlikely that cash dividends on the
Common Stock will be paid by the Company in the foreseeable future. (See Part I,
Item 8. "Description of Securities - Description of Common Stock - Dividend
Policy.")
14. No Cumulative Voting. The election of directors and other questions
will be decided by majority vote. Since cumulative voting is not permitted and
one-third of the Company's outstanding shares constitutes a quorum, investors
who purchase shares of the Company's Common Stock may not have the power to
elect even a single director and, as a practical matter, the current management
will continue to effectively control the Company. (See Part I, Item 4. "Security
Ownership of Certain Beneficial Owners and Management" and Part I, Item 8.
"Description of Securities - Descrition of Common Stock.")
15. Control by Present Shareholders. The present shareholders of the
Company's outstanding Common Stock will, by virtue of their percentage share
ownership and the lack of cumulative voting, be able to elect the entire Board
of Directors, establish the Company's policies and generally direct its affairs.
Accordingly, persons investing in the Company's Common Stock will have no
significant voice in Company management, and cannot be assured of ever having
representation on the Board of Directors. "See Part I, Item 4. "Security
Ownership of Certain Beneficial Owners and Management.")
16. Potential Anti-Takeover and Other Effects of Issuance of Preferred
Stock May Be Detrimental to Common Shareholders. The Company is authorized to
issue up to 10,000,000 shares of preferred stock, $.01 par value per share
(hereinafter referred to as the "Preferred Stock"); none of which shares has
been issued. The issuance of Preferred Stock does not require approval by the
shareholders of the Company's Common Stock. The Board of Directors, in its sole
discretion, has the power to issue shares of Preferred Stock in one or more
series and establish the dividend rates and preferences, liquidation
preferences, voting rights, redemption and conversion terms and conditions and
any other relative rights and preferences with respect to any series of
Preferred Stock. Holders of Preferred Stock may have the right to receive
dividends, certain preferences in liquidation and conversion and other rights;
any of which rights and preferences may operate to the detriment of the
shareholders of the Company's Common Stock. Further, the issuance of any shares
of Preferred Stock having rights superior to those of the Company's Common Stock
may result in a decrease in the value or market price of the Common Stock,
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<PAGE>
provided a market exists, and, additionally, could be used by the Board of
Directors as an anti-takeover measure or device to prevent a change in control
of the Company. (See Part I, Item 8. "Description of Securities - Description of
Preferred Stock.")
17. No Secondary Trading Exemption. Secondary trading in the Common Stock
will not be possible in each state until the shares of Common Stock are
qualified for sale under the applicable securities laws of that state or the
Company verifies that an exemption, such as listing in certain recognized
securities manuals, is available for secondary trading in that state. There can
be no assurance that the Company will be successful in registering or qualifying
the Common Stock for secondary trading, or availing itself of an exemption for
secondary trading in the Common Stock, in any state. If the Company fails to
register or qualify, or obtain or verify an exemption for the secondary trading
of, the Common Stock in any particular state, the shares of Common Stock could
not be offered or sold to, or purchased by, a resident of that state. In the
event that a significant number of states refuse to permit secondary trading in
the Company's Common Stock, a public market for the Common Stock will fail to
develop and the shares could be deprived of any value.
18. Possible Adverse Effect of Penny Stock Regulations on Liquidity of
Common Stock in any Secondary Market. If a secondary trading market develops in
the shares of Common Stock of the Company, of which there can be no assurance,
the Common Stock is expected to come within the meaning of the term "penny
stock" under 17 CFR 240.3a51-1 because such shares are issued by a small
company; are low-priced (under five dollars); and are not traded on NASDAQ or on
a national stock exchange. The Securities and Exchange Commission has
established risk disclosure requirements for broker-dealers participating in
penny stock transactions as a part of a system of disclosure and regulatory
oversight for the operation of the penny stock market. Rule 15g-9 under the
Securities Exchange Act of 1934, as amended, obligates a broker-dealer to
satisfy special sales practice requirements, including a requirement that it
make an individualized written suitability determination for the purchaser and
receive the purchaser's written consent prior to the transaction. Further, the
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 require a
broker-dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure instrument that provides information about penny
stocks and the risks in the penny stock market. Additionally, the customer must
be provided by the broker-dealer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and the salesperson in the
transaction and monthly account statements showing the market value of each
penny stock held in the customer's account. For so long as the Company's Common
Stock is considered penny stock, the penny stock regulations can be expected to
have an adverse effect on the liquidity of the Common Stock in the secondary
market, if any, which develops.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operations
- ------------------
Since its inception, the Company, which is now known as "Jewelnique
Designs, Inc.," has conducted no business operations except for organizational
and capital raising activities. For the period from inception (March 6, 1997)
through September 30, 1997, the Company had no income from operations and
operating expenses aggregating $16,590. The Company proposes to engage in
business in the design, manufacture, marketing and wholesale distribution of a
specialized line of jewelry products. Management expects that the Company's
proposed product line will initially be distributed through the identical
distribution channels, including boutiques, hair salons, beauty supply stores,
department stores and children's stores, presently being utilized to distribute
the jewelry products manufactured, marketed and distributed by Suzanne Designs,
a closely-held jewelry business owned and operated by the Sorensen family since
approximately 1976. However, should JDI achieve commercial success in designing,
manufacturing, marketing and distributing a specialized line of jewelry products
based upon Ms. Sorensen's unique, different or unusual product designs, the
Company expects, but cannot assure, that it would obtain many of its own product
distribution channels separate from those of Suzanne Designs. Ms. Suzanne
Sorensen, Executive Vice President of JDI, agreed to develop jewelry designs and
products for the Company for the following, among other, reasons: (i) because of
her belief that a public company could exploit her creative talents, services
and business reputation to commercial advantage and (ii) to observe directly
whether the perceived advantages of a public company, including, among others,
greater ease in raising capital, liquidity of securities holdings and
availability of current public information, would translate into greater
profitability for a public, as compared to a family-owned, jewelry business.
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<PAGE>
If the Company is unable to generate sufficient revenue from operations,
management intends to explore all available alternatives for debt and/or equity
financing, including but not limited to private and public securities offerings.
Depending upon the amount of revenue, if any, generated by the Company,
management anticipates that it will be able to satisfy its cash requirements for
the next approximately three to nine months without raising funds via debt
and/or equity financing or otherwise. Accordingly, management expects that it
will be necessary for JDI to raise additional funds in the next twelve months,
commencing approximately three months from the date hereof in the event that the
Company is unable to generate any revenue from operations and commencing six to
nine months from the date hereof if only a minimal level of revenue is generated
in accordance with management's expectations. Ms. Sorensen, at least initially,
will be solely responsible for developing JDI's jewelry products and designs
and, accordingly, the Company does not expect to expend any funds on product
research and development. However, at such time, if ever, as sufficient
operating capital becomes available, management expects to employ additional
design and marketing personnel who are expected to participate continually in
jewelry fairs, trade shows and other industry forums. In addition, the Company
expects to continuously engage in market research in order to monitor new market
trends, seasonality factors and other critical information deemed relevant to
JDI's business through the development of a sophisticated computerized system.
At lease initially, the Company intends to purchase most of its jewelry and
accessories in an assembled state from suppliers located inside the United
States and, at most, management expects that the Company will be required to
perform a minimal amount of light assembly of the items received into jewelry
and accessory products. Thus, it is not anticipated that JDI will purchase a
plant or any significant equipment in the foreseeable future. Depending upon the
availability of funding, however, the Company has preliminary plans to maintain
a light manufacturing and assembly operation in the United States for the
purpose of producing prototype designs and to fulfill custom orders for
specialized products and short-run orders required to be shipped within several
days of the order date. While JDI may in the future establish its own
manufacturing operations and facilities if substantial savings in the cost of
inventory appears likely and the necessary capital becomes available, the
Company's financial condition does not permit management to consider the
acquisition of plant or equipment at this time.
Financial Condition, Capital Resources and Liquidity
- ----------------------------------------------------
At September 30, 1997, the Company had assets totaling $1,782 and no
liabilities. Since the Company's inception, it has received $20,000 in cash
contributed as consideration for the issuance of shares of Common Stock. In
March 1997, the Company paid a lump sum consulting fee in the amount of $5,000
to each of Messrs. Roland W. Fink and Kendall L. Dorsett, executive officers and
directors of JDI, in consideration for certain specialized services performed
for the Company by each individual. These services included the preparation of a
business plan for the Company, in the case of Mr. Fink, and, in Mr. Dorsett's
case, the performance of certain financial consulting services. The Company paid
Cudd & Associates, a law firm of which Patricia Cudd, Esq., is the sole
proprietor, the sum of $5,000 in consideration for the performance of certain
legal services, including but not limited to passing upon the legality of the
Common Stock and certain other matters in connection with this Registration
Statement on Form 10-SB. The Company pays a fee in the amount of $250 per month
to Fink & Dorsett, a consulting firm owned by Messrs. Fink and Dorsett, in
consideration for certain administrative services performed and costs incurred
by said firm on behalf of JDI. Messrs. Fink and Dorsett and Ms. Cudd own of
record and beneficially 128,000, 128,000 and 64,000 shares, respectively,
representing approximately 31.4%, 31.4% and 15.7%, respectively, of the
outstanding shares, of the Company's Common Stock. (See Part I, Item 4.
"Security Ownership of Certain Beneficial Owners and Management" and Item 7.
"Certain Relationships and Related Transactions.")
The Company has no potential capital resources.
- 16 -
<PAGE>
Item 3. Description of Property.
The Company's executive offices are located at 2449 Lyric Avenue, Los
Angeles, California 90027, and its telephone number is (213) 660-8665. The
Company owns no real or personal property.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of November 15, 1997,
regarding the ownership of the Company's Common Stock by each shareholder known
by the Company to be the beneficial owner of more than five per cent of its
outstanding shares of Common Stock, each director and all executive officers and
directors as a group. Except as otherwise indicated, each of the shareholders
has sole voting and investment power with respect to the shares of Common Stock
beneficially owned.
<TABLE>
<CAPTION>
Amount
Name and Address of Beneficially Percent of
Beneficial Owner Owned Class
---------------- ------------ -----------
<S> <C> <C>
Roland W. Fink 128,000 31.4%
1201 North Pacific Avenue, Suite #104
Glendale, California 91202
Kendall L. Dorsett 128,000 31.4%
1201 North Pacific Avenue, Suite #104
Glendale, California 91202
Patricia Cudd 64,000 15.7%
1120 Lincoln Street, Suite #703
Denver, Colorado 80203
Suzanne Sorensen 8,000 2.0%
2449 Lyric Avenue
Los Angeles, California 90027
All Executive Officers and Directors as 264,000 64.7%
a Group (three persons)
</TABLE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Executive Officers and Directors
Set forth below are the names, ages, positions with the Company and
business experiences of the executive officers and directors of the Company.
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<PAGE>
Name Age Position(s) with Company
---- --- ------------------------
Roland W. Fink 42 President and Director
Kendall L. Dorsett 55 Secretary, Treasurer and Director
Suzanne Sorensen 49 Executive Vice President
- -------------------
*Except for Ms. Sorensen, who had no role in founding or organizing the
Company, the above-named persons may be deemed to be "promoters" and "parents"
of the Company, as those terms are defined under the Rules and Regulations
promulgated under the Securities Act of 1933, as amended.
All directors hold office until the next annual meeting of the Company's
shareholders and until their successors have been elected and qualify. Officers
serve at the pleasure of the Board of Directors. Messrs. Fink and Dorsett and
Ms. Sorensen will devote such time and effort to the business and affairs of the
Company as may be necessary to perform their responsibilities as executive
officers and/or directors of the Company.
Family Relationships
There are no family relationships between or among the executive officers
and directors of the Company.
Business Experience
Roland W. Fink has served as the President and a director of the Company
since its inception on March 6, 1997. Since March 1997, Mr. Fink, together with
Mr. Dorsett, have been general partners of Fink & Dorsett, Glendale, California,
a consulting firm specializing in corporate finance. During the period from
October 1995 through March 1997, Mr. Fink was a self-employed consultant
performing services of a financial and accounting nature for private and public
companies. He was the managing partner of Greenberg & Jackson, a Los
Angeles-based certified public accounting firm, from May 1992 through October
1995. Mr. Fink, from 1983 through 1992, served as the Vice President and
Controller of WellTech Inc. ("WellTech"), a major Houston-based oil field
services commpany. Prior to his tenure with WellTech, Mr. Fink was employed by a
"Big Six" accounting firm and a large local accounting firm with offices in Fort
Wayne, Indiana. He received a B.S. degree in accounting from Manchester College,
North Manchester, Indiana, in 1977. He is a certified public accountant.
Suzanne Sorensen has served as the Executive Vice President of the Company
since April 1, 1997. Ms. Sorensen has managed Suzanne Designs, Los Angeles,
California, a family-owned jewelry business, where she has been responsible for
the design, manufacture, marketing and distribution of a variety of jewelry and
other fashion accessory items, since 1976.
Kendall L. Dorsett has served as the Secretary, Treasurer and a director of
the Company since the organization of JDI on March 6, 1997. He has been a
general partner, together with Mr. Fink, of Fink & Dorsett, a consulting firm
specializing in corporate finance, since March 1997. During the period from
January 1995 through March 1997, Mr. Dorsett was semi-retired, engaged in
managing his own investments and in part-time commission sales of internet
access subscriptions for EarthLink Network, Inc., an internet service provider
located in Pasadena, California. From 1990 to January 1995, Mr. Dorsett served
as the Vice President of Shareholder Relations for American Technologies Group,
Inc., a publicly-held corporation whose securities trade on the Over-the-Counter
Bulletin Board under the symbol "ATEG." Prior to 1990, he was a registered
- 18 -
<PAGE>
representative with a number of New York Stock Exchange-listed brokerage firms,
including Shearson Lehman Brothers, Prudential Securities and others. Mr.
Dorsett received his B.A. degree in economics from the University of California
at Santa Barbara in 1966.
Item 6. Executive Compensation.
Executive Compensation
Except for certain shares of the Company's Common Stock issued and sold to
each of the three executive officers and/or directors of the Company in
consideration for various services performed for the Company by each of them, a
lump-sum consulting fee in the amount of $5,000 paid to each of Messrs. Roland
W. Fink and Kendall L. Dorsett and the fee in the amount of $250 per month paid
by the Company to Fink & Dorsett, a consulting firm owned by Messrs. Fink and
Dorsett, for administrative services performed and costs incurred by said firm
on behalf of JDI, no cash or non-cash compensation was awarded to, earned by or
paid to any executive officer or director of the Company for all services
rendered in all capacities to the Company since its inception on March 6, 1997.
On March 6, 1997, the Company issued and sold 128,000 shares of Common Stock,
representing approximately 31.4% of the total number of shares of Common Stock
of the Company outstanding on the date hereof, to each of Messrs. Fink and
Dorsett for services in connection with the organization of the Corporation (an
aggregate of 256,000 shares of Common Stock). Ms. Suzanne Sorensen, on April 1,
1997, received a total of 8,000 shares of Common Stock, representing
approximately 2.0% of the total number of outstanding shares of the Company's
Common Stock as of the date hereof, in consideration for certain business
consulting services performed by her for the Company. Except for the
above-described compensation, it is not anticipated that any executive officer
of the Company will receive any cash or non-cash compensation for his or her
services in all capacities to the Company until such time as the Company
commences business operations. At such time as JDI commences operations, it is
expected that the Board of Directors will approve the payment of salaries in a
reasonable amount to each of Mr. Fink, Ms. Sorensen and Mr. Dorsett for their
services in the positions of President, Executive Vice President and
Secretary/Treasurer, respectively, of the Company. At such time, the Board of
Directors may, in its discretion, approve the payment of additional cash or
non-cash compensation to the foregoing for their services to the Company.
The Company does not provide officers with pension, stock appreciation
rights, long-term incentive or other plans and has no intention of implementing
any such plans for the foreseeable future.
Compensation of Directors
The Company has no standard arrangements for compensating the directors of
the Company for their attendance at meetings of the Board of Directors.
Item 7. Certain Relationships and Related Transactions.
On March 6, 1997, the Company issued and sold 128,000 shares of Common
Stock to each of Messrs. Roland W. Fink and Kendall L. Dorsett (a total of
256,000 shares of Common Stock), the President and Secretary/Treasurer,
respectively, of the Company and record and beneficial owners each of
- 19 -
<PAGE>
approximately 31.4% of the Company's outstanding Common Stock, in consideration
and exchange therefor of services in connection with the organization of JDI
valued at $128 (an aggregate of $256) performed for the Company by each such
person.
The Company issued and sold, on March 6, 1997, an aggregate of 64,000
shares of its Common Stock to Patricia Cudd, Esq., the owner of record and
beneficially of approximately 15.7% of the Company's outstanding shares of
Common Stock and the sole proprietor of Cudd & Associates, Denver, Colorado,
which firm has passed upon the legality of the Common Stock and certain other
matters in connection with this Form 10-SB Registration Statement. The shares
were issued to Ms. Cudd in consideration for her performance of certain legal
services related to the organization of the Company, including the preparation
and filing with the Colorado Secretary of State of the Articles of Incorporation
of the Company, the preparation of the Company's Bylaws; and the preparation of
the Minutes of the Organizational Meeting of the Board of Directors of JDI;
which services were valued at $64.
On April 1, 1997, the Company issued and sold a total of 8,000 shares of
Common Stock to Ms. Suzanne Sorensen, the Executive Vice President of the
Company and the record and beneficial owner of approximately 2.0% of the
Company's outstanding Common Stock, as consideration for certain business
consulting services performed for the Company relating to, among other things,
jewelry design, fabrication and marketing, valued at $2,000.
Since the Company's inception on March 6, 1997, it has paid a monthly fee
in the amount of $250 (plus certain out-of-pocket expenses) to Fink & Dorsett, a
consulting firm owned by Messrs. Fink and Dorsett, in consideration for
administrative services performed and costs incurred by said firm on behalf of
JDI. As of September 30, 1997, management fees paid totaled $1,960. Management
believes that the management fees paid by the Company to Fink & Dorsett are
comparable to those fees which would be payable by the Company to unaffiliated
third parties for comparable services in the Los Angeles, California, area.
Item 8. Description of Securities.
Description of Capital Stock
- ----------------------------
The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, $.001 par value per share, and 10,000,000 shares of Preferred
Stock, $.01 par value per share.
Description of Common Stock
- ---------------------------
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, are entitled to one vote per share in all matters to be
voted upon by shareholders. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as
fully-paid and nonassessable shares. Cumulative voting in the election of
directors is not permitted; which means that the holders of a majority of the
issued and outstanding shares of Common Stock represented at any meeting at
which a quorum is present will be able to elect the entire Board of Directors if
they so choose and, in such event, the holders of the remaining shares of Common
Stock will not be able to elect any directors. In the event of liquidation of
the Company, each shareholder is entitled to receive a proportionate share of
the Company's assets available for distribution to shareholders after the
payment of liabilities and after distribution in full of preferential amounts,
if any, to be distributed to holders of the Preferred Stock. All shares of the
Company's Common Stock issued and outstanding are fully-paid and nonassessable.
Dividend Policy. Holders of shares of Common Stock are entitled to share
pro rata in dividends and distributions with respect to the Common Stock when,
as and if declared by the Board of Directors out of funds legally available
therefor, after requirements with respect to
- 20 -
<PAGE>
preferential dividends on, and other matters relating to, the Preferred Stock,
if any, have been met. The Company has not paid any dividends on its Common
Stock and intends to retain earnings, if any, to finance the development and
expansion of its business. Future dividend policy is subject to the discretion
of the Board of Directors and will depend upon a number of factors, including
future earnings, capital requirements and the financial condition of the
Company.
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Company's Common Stock is U.S. Stock Transfer Corporation, 1745 Gardena Avenue,
Suite #200, Glendale, California 91204.
Description of Preferred Stock
- ------------------------------
Shares of Preferred Stock may be issued from time to time in one or more
series as may be determined by the Board of Directors. The voting powers and
preferences, the relative rights of each such series and the qualifications,
limitations and restrictions thereof shall be established by the Board of
Directors, except that no holder of Preferred Stock shall have preemptive
rights. The Company has no shares of Preferred Stock outstanding, and the Board
of Directors has no plan to issue any shares of Preferred Stock for the
foreseeable future unless the issuance thereof shall be in the best interests of
the Company.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
(a) Market Information.
There has been no established public trading market for the Common Stock
since the Company's inception on March 6, 1997.
(b) Holders.
As of November 15, 1997, the Company had twenty-four shareholders of record
of its 408,000 outstanding shares of Common Stock.
(c) Dividends.
The Company has never paid or declared any dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future.
Item 2. Legal Proceedings.
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
- 21 -
<PAGE>
Item 3. Changes in and Disagreements with Accountants.
Because the Company has been generally inactive since its inception, it has
had no independent accountant until the retention of Janet Loss, C.P.A., P.C.,
9101 East Kenyon Avenue, Suite #2000, Denver, Colorado 80237, in May 1997. There
has been no change in the Company's independent accountant during the period
commencing with the Company's retention of Janet Loss, C.P.A., P.C., in May,
1997, through the date hereof.
Item 4. Recent Sales of Unregistered Securities.
On March 6, 1997, the Company issued and sold to each of Mr. Roland W.
Fink, the President and a director of the Company, and Kendall L. Dorsett, the
Secretary/Treasurer and a director of the Company, 128,000 shares of the
Company's Common Stock (a total of 256,000 shares of Common Stock), in
consideration, in each case, for services rendered in connection with the
organization of the Company valued at $128 (services valued at an aggregate of
$256). The Company, on March 6, 1997, issued and sold an aggregate of 64,000
shares of its Common Stock to Patricia Cudd, Esq., the sole proprietor of the
law firm which has passed upon the legality of the Common Stock and certain
other matters in connection with this Form 10-SB Registration Statement, in
consideration for her performance of certain legal services, including the
preparation and filing with the Colorado Secretary of State of the Articles of
Incorporation of the Company and the preparation of the Bylaws and the Minutes
of the Organizational Meeting of the Board of Directors of JDI, valued at $64.
On April 1, 1997, the Company issued and sold to its Executive Vice President,
Ms. Suzanne Sorensen, a total of 8,000 shares of Common Stock in consideration
for certain business consulting services performed by her for the Company valued
at $2,000. No underwriter was used in conenction with the offering and sale of
the shares of Common Stock to the aforementioned persons. The Company relied, in
connection with each of the transactions described in this Item 4. whereby the
Company issued and sold shares of its Common Stock in consideration and exchange
for various types of services, upon the exemption from registration afforded by
Section 4(2) of the Act. The basis for reliance upon the Section 4(2) exemption
in connection with each of these transactions is the following: (i) the sale of
the shares of Common Stock did not constitute a public offering and (ii)(a) Mr.
Fink and Mesdames Sorensen and Cudd are sophisticated purchasers and had access
to information on the Company necessary to make an informed investment decision,
in the case of Mr. Fink and Ms. Sorensen, by virtue of their positions as
executive officers and/or directors of the Company and, in the case of Patricia
Cudd, Esq., because of her position as special securities counsel and (b) Mr.
Dorsett is an accredited investor. (See Part I, Item 7. "Certain Relationships
and Related Transactions.")
During March 7 and 8, 1997, the Company issued and sold an aggregate of
80,000 shares of Common Stock to California residents for cash consideration
totaling $20,000 ($.25 per share). No underwriter was employed in connection
with the offering and sale of the shares. The Company claimed the exemptions
from registration in connection with the offering provided under Section 3(b) of
the Act and Rule 504 of Regulation D promulgated thereunder and Section 25102(f)
of the California Corporations Code. The facts relied upon by the Company to
make the federal exemption available include the following: (i) the aggregate
offering price for the offering of the shares of Common Stock did not exceed
$1,000,000, less the aggregate offering price for all securities sold within the
twelve months before the start of and during the offering of the shares in
reliance on any exemption under Section 3(b) of, or in violation of Section 5(a)
of, the Act; (ii) no general solicitation or advertising was conducted by the
Company in connection with the offering of any of the shares; (iii) the fact
that the Company has not been since its inception (a) subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended; (b) an "investment company" within the meaning of the Investment
Company Act of 1940, as amended; or (c) a development stage company that either
has no specific business plan or purpose or has indicated that its business plan
is to engage in a merger or acquisition with an unidentified company or
companies, or other entity or person; and (iv) the required number of manually
- 22 -
<PAGE>
executed originals and true copies of Form D were duly and timely filed with the
U.S. Securities and Exchange Commission. The facts relied upon to make the
California exemption available include the following: (i) sales of the shares of
Common Stock were not made to more than 35 persons; (ii) neither the offer nor
the sale of any of the shares was accomplished by the publication of any
advertisement; (iii) all purchasers either had a preexisting personal or
business relationship with one or more of the executive officers of JDI or, by
reason of their business or financial experience, could be reasonably assumed to
have the capacity to protect their own interests in connection with the
transaction; (iv) each purchaser represented that he was purchasing for his own
account and not with a view to or for sale in connection with any distribution
of the shares; and (v) the required number of manually executed originals of the
Notice of Transaction Pursuant to Corporations Code Section 25102(f),
accompanied by the requisite filing fee, and the Consent to Service of Process
were duly and timely filed with the Commissioner of Corporations of the State of
California. (See Part I, Item 7, "Certain Relationships and Related
Transactions.)
Item 5. Indemnification of Directors and Officers.
Article VII of the Company's Articles of Incorporation contains provisions
providing for the indemnification of directors and officers of the Company as
follows:
(a) The corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is otherwise serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding, by judgment, order,
settlement, conviction upon a plea of nolo contendere or its equivalent, shall
not of itself create a presumption that the person did not act in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe the action was unlawful.
- 23 -
<PAGE>
(b) The corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action or
suit by or in the right of the corporation, to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation, unless, and only to the extent that, the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability, but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
which such court deems proper.
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections (a) and (b) of this Article,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
(d) Any indemnification under Section (a) or (b) of this Article (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the officer, director
and employee or agent is proper in the circumstances, because he has met the
applicable standard of conduct set forth in Section (a) or (b) of this Article.
Such determination shall be made (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (ii) if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote and represented at a meeting
called for such purpose.
(e) Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding, as authorized in
Section (d) of this Article, upon receipt of an understanding by or on behalf of
the director, officer, employee or agent to repay such amount, unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article.
(f) The Board of Directors may exercise the corporation's power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under this Article.
- 24 -
<PAGE>
(g) The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under these Articles of Incorporation, the Bylaws, agreements, vote of
the shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs and
personal representatives of such a person.
The Company has no agreements with any of its directors or executive
officers providing for indemnification of any such persons with respect to
liability arising out of their capacity or status as officers and directors.
At present, there is no pending litigation or proceeding involving a
director or executive officer of the Company as to which indemnification is
being sought.
PART F/S
The Financial Statements of Jewelnique Designs, Inc., required by
Regulation S-X commence on page F-1 hereof in response to Part F/S of this
Registration Statement on Form 10-SB and are incorporated herein by this
reference.
PART III
Item 1. Index to Exhibits.
Item
Number Description
- ------- ---------------------------------------------------------------
2.1* Articles of Incorporation of Blue Mountain Capital, Inc.,
filed March 6, 1997.
2.2* Articles of Amendment to the Articles of Incorporation of Blue
Mountain Capital, Inc., filed June 20, 1997.
2.3* Bylaws of Blue Mountain Capital, Inc.
- ------------------
*Previously filed.
Item 2. Description of Exhibits.
The documents required to be filed as Exhibit Number 2 in Part III of Form
1-A filed as part of this Registration Statement on Form 10-SB are listed in
Item 1 of this Part III above. No documents are required to be filed as Exhibit
Numbers 3, 5, 6 or 7 in Part III of Form 1-A, and the reference to such Exhibit
Numbers is therefore omitted. No additional exhibits are filed hereto.
- 25 -
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
JEWELNIQUE DESIGNS, INC.
(Registrant)
Date: November 20, 1997 By: /s/ Roland W. Fink
------------------------------
Roland W. Fink, President
- 26 -
<PAGE>
JEWELNIQUE DESIGNS, INC.
Formerly, Blue Mountain Capital, Inc.
(A DEVELOPMENT STAGE COMPANY)
AUDIT REPORT
------------
March 31, 1997
--------------
Index to Financial Statements
-----------------------------
Page
----
Independent Auditor's Report F-2
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7 through F-8
<PAGE>
JEWELNIQUE DESIGNS, INC.
(Formerly Blue Mountain Capital, Inc.)
(A Development Stage Company)
FINANCIAL STATEMENTS
March 31, 1997
Page No.
--------
Independent Auditor's Report F-2
Balance Sheet as of March 31, 1997 F-3
Statement of Operations for the Period
March 6, 1997 (Inception) to March 31, 1997 F-4
Statement of Stockholders' Equity for the Period
March 6, 1997 (Inception) to March 31, 1997 F-5
Statement of Cash Flows for the Period
March 6, 1997 (Inception) to March 31, 1997 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
Janet Loss, C.P.A., P.C.
Certified Public Accountant
3525 S. Tamarac Drive, Suite 120
Denver, Colorado 80237
303-220-0227
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Jewelnique Designs, Inc.
I have audited the accompanying balance sheet of Jewelnique Designs, Inc. (a
development stage company) as of March 31, 1997, and the related statements of
operations, stockholders' equity and cash flows for the period March 6, 1997
(inception) to March 31, 1997. These financial statements are the responsibility
of the company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
These standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Jewelnique Designs, Inc. (a
development stage company) as of March 31, 1997, and the results of its
operations and its cash flows for the period March 6, 1997 (inception) to March
31, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The company is a development stage enterprise,
and its ability to continue in business is dependent upon obtaining future
financing and the success of future operations, the outcome of which cannot be
determined at this time, which raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in this regard are
described in Note 3. The financial statements do not include any adjustments
which might result from the outcome of this uncertainty.
Janet Loss, C.P.A., P.C.
June 18, 1997
F-2
<PAGE>
JEWELNIQUE DESIGNS, INC.
(Formerly Blue Mountain Capital, Inc.)
(A Development Stage Company)
Balance Sheet
As of March 31, 1997
Assets
------
Current Assets:
Cash $ 4,950
Other Assets:
Organization Costs, less accumulated
amortization of $6 494
--------
Total Assets $ 5,444
========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accrued management fees $ 210
Stockholders' Equity:
Preferred stock, par value $0.01,
10,000,000 shares authorized, none
issued and outstanding --
Common stock, par value $0.001,
100,000,000 shares authorized,
400,000 shares issued and outstanding 400
Additional paid-in capital 15,895
Deficit accumulated during
development stage (11,061)
--------
Total Stockholders' Equity 5,234
--------
Total Liabilities and Stockholders' Equity $ 5,444
========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
JEWELNIQUE DESIGNS, INC.
(Formerly Blue Mountain Capital, Inc.)
(A Development Stage Company)
Statement of Operations
For the Period March 6, 1997 (Inception) to March 31, 1997
Revenues $ --
Operating Expenses:
Amortization 6
Consulting fees 8,242
Filing Fees 50
Legal fees 2,553
Management fees 210
---------
Total Operating Expenses 11,061
---------
Loss from Operations (11,061)
---------
Income Tax Benefit --
---------
Net Loss $ (11,061)
=========
Loss per Share:
Net loss $ (0.03)
=========
Weighted Average Number of Common
and Common Equivalent
Shares Outstanding 400,000
=========
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
JEWELNIQUE DESIGNS, INC.
(Formerly Blue Mountain Capital, Inc.)
(A Development Stage Company)
Statement of Stockholders' Equity
For the period March 6, 1997 (Inception) to March 31, 1997
Deficit
Common Stock Additional Accumualted
----------------------- Paid-In During Develop-
Shares Amount Capital ment Stage Total
------ ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C>
Issuance
of Stock
for Cash 80,000 $ 80 $ 15,895 $ -- $ 15,975
Issuance of
Stock for Services 320,000 320 -- -- 320
Net Loss for Period -- -- -- (11,061) (11,061)
-------- -------- -------- -------- --------
Balance,
March 31, 1997 400,000 $ 400 $ 15,895 $(11,061) $ 5,234
======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-5
</TABLE>
<PAGE>
JEWELNIQUE DESIGNS, INC.
(Formerly Blue Mountain Capital, Inc.)
(A Development Stage Company)
Statement of Cash Flows
For the Period March 6, 1997 (Inception) to March 31, 1997
Operating Activities:
Net Loss $(11,061)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 6
Stock issued for services 320
Increase in accured management fees 210
--------
Net Cash used in Operating Activities: (10,525)
--------
Investing Activities:
Organization costs (500)
--------
Net Cash used in Investing Activities (500)
--------
Financing Activities:
Proceeds from issuance of common stock,
net of $4,025 in offering expenses 15,975
--------
Net Cash provided by Financing Activities 15,975
--------
Net Increase in Cash 4,950
Cash, Beginning of Period --
--------
Cash, End of Period $ 4,950
========
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
JEWELNIQUE DESIGNS, INC.
(Formerly Blue mountain Capital, Inc.)
(A Development Stage Company)
Notes to Financial Statements
March 31, 1997
NOTE 1 - HISTORY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jewelnique Designs, Inc. (the "Company"), a Colorado corporation, was
incorporated March 6, 1997. The Company's purpose is to design, manufacture,
market, and distribute a specialized line of jewelry products to be sold
primarily through stores.
Development Stage - The Company is a development stage enterprise and has
had no operations to date.
Fiscal Year - The Company has elected the calendar year.
Accounting Method - The Company prepares its financial statements under the
accrual method of accounting.
Organizational Costs - Costs incurred in organizing the Company are being
amortized over a sixty month period.
Public Offering - The Company completed a public offering wherein it sold
80,000 shares af Common Stock for $20,000 under Rule 504 of Regulation D on
March 8, 1997. The price per share was fixed arbitrarily by the Board of
Directors. Costs associated with the offering of $4,025 have been charged
against the proceeds of the offering.
Earnings Per Share - Earnings per share is calculated by dividing the net
income or loss for the period by the weighted average number of common and
common equivalent shares outstanding during the period. At March 31, 1997 the
Company had no options, warrants or any other common equivalents outstanding.
Cash Flow Statement - For purposes of reporting cash flows, the Company
considers all funds with original maturities of three months or less to be cash
equivalents.
There was no cash paid for interest or income taxes during the period ended
March 31, 1997.
Total cash inflows for the period ended March 31, 1997 were $20,000, and
total cash outflows for the period were $15,050.
F-7
<PAGE>
In non-cash transactions, the Company issued 256,000 shares of common stock
to two related parties in exchange for services rendered.
Fair Value of Financial Instruments - The carrying amounts of cash, and any
accounts receivable, prepaid expenses, accounts payable or accrued
expenses approximate their fair value because of the short maturity of
these items.
Income Taxes - Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", requires the use of the asset and
liability method of accounting for income taxes. Under this method,
deferred income taxes are recorded to reflect the tax consequences in
future years of temporary differences between the tax bases of those
assets and liabilities and their financial statement amounts at the
end of each reporting period. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to
be realized. Income tax expense is the tax payable for the current
period plus or minus the change during the period in deferred tax
assets and liabilities. Deferred tax assets and liabilities are netted
to reflect the tax impact of temporary differences.
For the partial period ended March 31, 1997 the Company had a net
operating loss of approximately $11,000, for which no deferred tax
asset was recorded.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from these estimates.
NOTE 2 - RELATED PARTY TRANSACTIONS
On March 6, 1997 the Company issued 256,000 shares of common stock to
executive officers and directors in exchange for services rendered in connection
with formation of the Company, valued by the Board of Directors at $256.
During the period ended March 31, 1997, the Company paid a total of $10,000
in consulting fees to executive officers and directors; which management
believes was fair and reasonable.
The Company is paying $250 per month in management fees (plus certain
out-of-pocket expenses) to a company owned by its executive officers and
directors, and maintains its offices rent free at space provided by an executive
officer.
NOTE 3 - UNCERTAINTIES
The Company is in the development stage. Management believes that in order
to execute its business plan and continue in business it will be required to
raise additional capital. No potential capital resources exist at this time.
Management intends to pursue every available avenue of raising additional debt
and/or equity financing, including the public or private sale of securities.
F-8
