RISK FACTORS
Before you invest in our common stock by purchasing shares from a
selling stockholder named in this prospectus, you should be aware that there
are various risks involved in investing in our common stock. We have described
below all of the risks which we deem material to your investment decision. You
should consider carefully these risk factors, together with all of the other
information included in this prospectus and in the periodic reports we have
filed with the SEC under the Securities Exchange Act of 1934, or Exchange Act,
before you decide to purchase any shares of our common stock. Additional risks
that we do not yet know of or that we currently think are immaterial may also
impair our business operations.
Our focus on our Joes®
brand may not be successful.
Our ongoing business model
focuses on our Joes® brand. We reported
a profit in fiscal 2007 in part due to our decision to focus on our Joes®
brand while continuing to reduce expenses.
We cannot assure you that our reliance on sales from only one brand will
continue to result in profitability for us.
We cannot assure you that our Joes® brand will continue to meet our
expectations in terms of sales, profits and acceptance in the marketplace by
consumers and retailers. Therefore, our
business operations could be negatively impacted by a change in any one or all
of these expectations and may have a material adverse impact on our financial
condition and results of operations.
Our success will depend on our ability to implement our strategic plan
which includes, increasing international and mens sales, opening retail stores
and expanding our product offerings.
Our
ability to operate profitably depends on our ability to implement our strategic
plan with success. We expect to
recognize growth for our Joes® brand through increasing our international
sales and sales from our mens product line, opening retail stores and
diversifying our product offering.
Historically, we sold our Joes® products internationally through a
master distribution agreement that we terminated in February 2007 after
experiencing decreases in our international sales. Shortly thereafter, we engaged consultants
based in Europe to assist us in entering into agreements with distributors and
sales agents in various countries. For
Japan, we entered into a separate three year distribution and licensing
agreement to distribute existing products and develop and manufacture
additional products specifically for the Japanese market. We believe that by working directly with our
distributors and agents abroad rather than through a third party, we will be
able to exercise more control and guidance over their sales. Further, we expect to benefit in sales and profitability
over the long term from selling our products directly to the distributors or
through agents rather than through a third party.
Our
next two initiatives which are part of our strategic plan are expanding our
product offering and opening retail stores.
These two initiatives complement each other because offering a full
collection of items in a retail store will help boost sales while giving us an
avenue to showcase products other than denim bottoms. In January 2008, we entered into a lease
for retail space at Woodbury Common Premium Outlets® in Central Valley, New
York. The outlet center is approximately
50 miles outside of New York City. We
expect to open the store in the fall of 2008.
An outlet center will also allow us to test our ability to open retail
stores plus give us an alternative distribution channel to sell our overstock
or slow-moving items at better profit margins.
However, opening retail outlets will require us to spend money on
capital expenditures and leasehold improvements, which if not managed properly,
could have a material adverse impact on our financial condition and results of
operations.
While
we believe that we are putting in place the mechanisms necessary to implement
successfully these strategies, there can be no assurance that we will be able
to achieve our level of expectations.
Further, there can be no assurance that our strategic initiatives will
result in profitability for us in the short term or in the future.
In order to effectively manage growth, we are dependent on our
financing arrangements and our cash flow from operations.
Our
ability to fund our operations for 2007 was dependent on (i) utilizing our
accounts receivable and inventory based agreements with CIT; (ii) utilizing
the proceeds from our equity financing in December 2006 and
4
June 2007;
(iii) maximizing our trade payables with our domestic and international
suppliers; (iv) managing our inventory levels and operating expenses; and (v) increasing
collection efforts on existing account receivables.
As
of November 30, 2007, our cash availability with CIT was approximately
$749,000 under our agreements. This
amount fluctuates on a daily basis based upon invoicing and collection related
activity by CIT on our behalf. Because
our history of negative cash flows, CIT has the ability to terminate the
agreements we have with them upon notice or require additional collateral to
secure its advances. If CIT elects to
terminate, we could be forced to pay our liability with CIT and CIT may also elect
to take possession of the pledged collateral, which includes raw materials
through finished goods and receivables.
Although we have undertaken numerous measures to increase sales and cash
flow, control inventory costs and operate more efficiently so that we may be
able to fund our operations for fiscal 2008, we may continue to experience
losses and negative cash flows. We can
give you no assurance that we will in fact continue to operate profitably in
the future.
As a
result of our completion of the merger with JD Holdings and the issuance of
14,000,000 shares of our common stock, our existing stockholders became
diluted. In addition, Mr. Dahan may
be able to exert significant influence and control over us as a result of his
percentage of stock ownership, position as an executive officer and membership
on our Board of Directors.
As a result of the
completion of the merger and the issuance of the 14,000,000 shares of our
common stock, the equity interests of our existing stockholders were
diluted. This dilution may have caused
or may continue to cause our existing stockholders to sell their shares which
could contribute to a decline in the price of our common stock. Furthermore, Mr. Dahan beneficially owns
approximately 24 percent of our total shares outstanding and is our largest
stockholder. In addition, Mr. Dahan
is an executive officer and a member of our Board of Directors. As a result, he is in a position to exert
significant influence and control over us as a result of his voting power,
position as an executive officer and membership on our Board of Directors. We are not aware of any intent by Mr. Dahan
to influence or control our affairs as result of his percentage ownership of
our common stock and his position as both an executive officer and member of
our Board of Directors.
In order to implement our strategic plan, we will have to attract and
retain talented personnel. Further, our
future success depends on our ability to retain our key employees, including
our chief executive officer and creative director.
Our
ability to implement our strategic plan will depend on our ability to attract
and retain talented personnel. To date,
we have not had any difficulty in attracting or retaining personnel to fill
open or new positions, however, in the future, we may need to expand our
infrastructure to support any anticipated growth. We may need to provide incentives, both short
term and long term, to attract and retain personnel. Incentives can range from bonuses, grants of
options or restricted stock to perquisites unique to the industry. All such incentives will result in an
increase in certain expenses. More
particularly, growth, payment of incentives to personnel and expenditures to
expand our infrastructure to support our growth will cause our selling, general
and administrative expenses to increase if we cannot maintain or decrease our
other expenses. An increase in our
selling, general and administrative expenses may cause us to be less profitable
even if we are successful in implementing our strategic plan. There can be no assurance that we will be
able to maintain or decrease other expenses, therefore, a decrease in profit
may have a material adverse impact on our financial condition and results of
operations.
Our
chief executive officer, Marc Crossman, has substantial experience and
expertise in our business and has made significant contributions to our growth
and success. The unexpected loss of
services of this individual could adversely affect us. We are protected to a limited extent by a key
man term life insurance policy that we maintain on our behalf for Mr. Crossman;
however, there can be no assurance that his departure would trigger protection
under this policy. We do not have a
written employment agreement with Mr. Crossman. If he should leave us, his absence would
likely have a substantial impact on our ability to operate on a daily basis
because we would be forced to find and hire similarly experienced personnel to
fill one or more of his positions and daily operations may suffer temporarily
as a result of this immediate void.
5
Mr. Dahan
is our only executive officer with a formal employment agreement. Mr. Dahans departure could materially
adversely affect our operations because his experience, design capabilities,
and name recognition in the apparel industry is important to our business and
we rely heavily on Mr. Dahans capabilities to design, direct and produce
product for the Joes brand. However,
the loss of Mr. Dahan would not have any effect on our ownership of the
brand. While we believe that we would be
able to find a suitable replacement to design, direct and produce product for
the Joes® brand, we do not know the effect a new or different designer would
have on the products and consumers response to those new products. Therefore, loss of Mr. Dahans services
could have an impact on our ability to operate on a daily basis and daily
operations may suffer temporarily as well.
We also maintain a key man term life insurance policy on our behalf for Mr. Dahan;
however, there can be no assurance that his departure would trigger protection
under this policy.
We outsource certain of our business operations and are dependent on
third parties to perform these services for us.
In
connection with our operations, we outsource certain services and are dependent
on third parties for the manufacture and product fulfillment of our apparel
products. The inability of one or more
of these service providers to manufacture, ship or fulfill our customer
purchase orders in a timely manner or to meet our quality standards could cause
us to miss the delivery dates for our customers for those items. As a result, our customers may decide to
cancel orders, refuse to accept delivery of the products or cause us to provide
discounts or allowances. Any of these
events could have a material adverse effect on our financial condition and
results of operations.
We are dependent on our relationships with our vendors.
We
purchase our raw materials, including fabric, yarns, threads and trims, such as
zippers, buttons, and tags from a variety of vendors. While we are not reliant exclusively on one
or more particular vendor for the supply of the raw materials or component
parts required to meet our manufacturing needs, we depend on our relationships
and these vendors to ensure our supply of these raw materials or component
parts. Any problems or disputes with
these vendors could result in us having to source these raw materials or
component parts from another vendor, which could delay production, and in turn
have a material adverse effect on our financial condition and results of
operations.
Our common stock price is volatile and may decrease.
The
trading price and volume of our common stock has historically been subject to
fluctuations in response to factors such as the following, some of which are
beyond our control:
·
annual and quarterly variations in actual
or anticipated operating results,
·
operating results that vary from the
expectations of securities analyst and investors,
·
changes in expectations as to our future
financial performance, including financial estimates by securities analysts and
investors,
·
changes in market valuations of other
denim apparel companies,
·
announcements of new product lines by us
or our competitors, announcements by us or our competitors of significant
contracts, acquisitions or dispositions of assets, strategic partnerships,
joint ventures or capital commitments,
·
additions or departures of key personnel
or members of our board of directors, and
·
general conditions in the apparel
industry.
6
In the 52 week period prior to February 28, 2008, the closing
price of our common stock has ranged from $0.60 to $2.45. In addition, stock markets generally have
experienced price and volume trading volatility in recent years. This volatility has had an effect on the
market prices of securities of many companies for reasons unrelated to the
operating performance of the specific companies. These broad market fluctuations may
negatively affect the market price of our common stock.
Our directors and management beneficially own a large percentage of our
common stock.
Our
executive officers and directors beneficially own approximately 33 percent of
our common stock, including options exercisable within 60 days of February 28,
2008, in the aggregate. More specifically,
Joe Dahan beneficially owns approximately 24 percent of our common stock and
the Chairman of our Board, Sam Furrow, beneficially owns approximately five
percent of our common stock. Because of
this level of stock ownership, in the aggregate, certain persons may be in a
position to directly or indirectly control our affairs.
Our bylaws
also limit the ability of stockholders to call a special meeting of
stockholders. These bylaw provisions
could have the effect of discouraging a takeover of us, and therefore may
adversely affect the market price and liquidity of our securities. We are also subject to a Delaware statute
regulating business combinations that may hinder or delay a change in control. The anti-takeover provisions of the Delaware
statute may adversely affect the market price and liquidity of our securities.
The seasonal nature of our business makes management more difficult,
severely reduces cash flow and liquidity during parts of the year and could
force us to curtail our operations.
Our
business is seasonal. The majority of
our marketing and sales activities take place from late fall to early
spring. Historically, our greatest
volume of shipments and sales have occurred from late spring through the
summer, which coincides with our second and third fiscal quarters. This requires us to build-up inventories
during our first and second fiscal quarters when our cash flow is weakest. Historically speaking, our cash flow is
strongest in the third and fourth fiscal quarters. Unfavorable economic conditions affecting
retailers during the fall and holiday seasons in any year could have a material
adverse effect on our results of operations for the year. We are likely to experience periods of negative
cash flow throughout each year, including, a drop-off in business commencing
each December, which could force us to curtail operations if adequate liquidity
is not available. We cannot assure you
that the effects of such seasonality will diminish in the future. For fiscal 2007, we funded our liquidity
needs to build inventory through cash from operations, cash availability under
our financing agreements with CIT and two private placements.
In
fiscal 2007, as a result of changing our third party manufacturer in Mexico, we
acquired additional inventories, from raw materials to work-in-progress, than
we had in previous years. As a result,
our inventory levels increased by $14,536,000 from fiscal 2006 to fiscal
2007. This increase in inventory
impacted our liquidity and availability of cash to be used for other
purposes. We have put in place a plan to
decrease our inventory levels which includes utilizing existing fabric for
future production during 2008. We expect
this strategy will help reduce cash needed for raw material purchases for fiscal
2008 compared to fiscal 2007.
We face risks associated with constantly changing fashion trends,
including consumers response to our Joes® brand.
Our
success will depend on our ability to anticipate, gauge and respond to changing
consumer demand and fashion trends in a timely manner. Any failure on our part to anticipate,
identify and respond effectively to changing consumer demands and fashion
trends could adversely affect the acceptance of our products and leave us with
a substantial amount of unsold inventory or missed opportunities in the
marketplace. If that occurs, we may be
forced to rely on markdowns or promotional sales to dispose of excess,
slow-moving inventory, which may negatively affect our ability to achieve
profitability. At the same time, a focus
on tight management of inventory may result, from time to time, in our not
having an adequate supply of products to meet consumer demand and may cause us
to lose sales.
7
We
attempt to minimize our risk associated with delivering items through early
order commitments by retailers. We must
generally place production orders with manufacturers before we have received
all of a seasons orders and orders may be cancelled by retailers before shipment. Therefore, if we fail to anticipate
accurately and respond to consumer preferences, we could experience lower
sales, excess inventories or lower profit margins, any of which could have a
material adverse effect on our results of operations and financial condition.
Our business could be negatively impacted by a change in consumer
demand for denim in the marketplace.
Denim,
including premium denim, an industry term for denim jeans with a typical retail
price of $120 or more, has been increasingly popular and growing in sales over
the past few years as a consumer discretionary purchase both domestically and
internationally. However, because
consumer demands and fashion trends are subject to cyclical variations as well
as the fact that the general economy and future economic prospects can often
affect consumer spending habits, a change in any one of the following:
·
consumer demand,
·
consumer purchases of discretionary items,
·
the economy in general, or
·
fashion trends,
any
of which may result in lower sales, excess inventories or lower profit margins
for our Joes® products, any of which could have a material adverse effect on
our results operations and financial condition.
A portion of our net sales and gross profit is derived from a small
number of large customers.
Our
10 largest customers and customer groups accounted for approximately 61 percent
of our net sales during fiscal 2007. We
do not enter into any type of long-term agreements or firm commitment orders
with any of our customers. Instead, we
enter into a number of individual purchase order commitments with our
customers. A decision by the controlling
owner of a group of stores or any other significant customer, including our
limited number of private label customers, whether motivated by competitive
conditions, financial difficulties or otherwise, to decrease the amount of
merchandise purchased from us, or to change their manner of doing business with
us, could have a material adverse effect on our financial condition and results
of operations if we are unable to find an alternative customer for our products
in a timely manner.
Our business could be negatively impacted by the
financial health of our retail customers.
We
sell our product primarily to retail and distribution companies around the
world based on pre-qualified payment terms.
Financial difficulties of a customer could cause us to curtail business
with that customer, in addition to the customers decision to decrease the
level of its orders, to cancel orders previously placed in advance of shipment
dates or to cease carrying our products.
We may also assume more credit risk relating to that customers
receivables. We are dependent primarily
on lines of credit that we establish from time to time with customers, and should
a substantial number of customers become unable to pay to us their respective
debts as they become due, we may be unable to collect some or all of the monies
owed by those customers.
In
recent years, the retail industry has experienced consolidation or other
ownership changes that have resulted in one entity controlling several
different stores. This consolidation can
result in fewer customers for our products or the closing of some stores or the
number of doors which carry our products.
As a result, the potential for consolidation or ownership changes,
closing of retail outlets and fewer customers could negatively impact sales of
our products and have a material adverse effect on our financial condition and
results of operations.
8
Our business could suffer as a result of a manufacturers inability to
produce our goods on time and to our specifications or if we need to replace
manufacturers.
We
do not own or operate any manufacturing facilities and therefore depend upon
independent third parties for the manufacture of all of our products. We enter into a number of purchase order
commitments each season specifying a time for delivery, method of payment,
design and quality specifications and other standard industry provisions, but
do not have long-term contracts with any manufacturer. The inability of a certain manufacturer to
ship orders of our products in a timely manner or to meet our quality standards
could cause us to miss the delivery date requirements of our customers for
those items, which could result in cancellation of orders, refusal to accept
deliveries or a reduction in purchase prices, any of which could have a
material adverse effect on our financial condition and results of operations. Because of the seasonality of our business,
and the apparel and fashion business in particular, the dates on which
customers need and require shipments of products from us are critical, as
styles and consumer tastes change so rapidly in the apparel and fashion
business, particularly from one season to the next. Further, because quality is a leading factor
when customers and retailers accept or reject goods, any decline in quality by
our third-party manufacturers could be detrimental not only to a particular
order, but also to our future relationship with that particular customer.
We
compete with other companies for the production capacity of our
manufacturers. Some of these competitors
have greater financial and other resources than we have, and thus may have an
advantage in the competition for production and import quota capacity. If we experience a significant increase in
demand, or if an existing manufacturer of ours must be replaced, we may have to
expand our third-party manufacturing capacity.
We cannot assure you that this additional capacity will be available
when required on terms that are acceptable to us or similar to existing terms
which we have with our manufacturers, either from a production standpoint or a
financial standpoint.
If an independent manufacturer of ours fails to use acceptable labor
practices, our business could suffer.
While
we require our independent manufacturers to operate in compliance with
applicable laws and regulations, we have no control over the ultimate actions
of our independent manufacturers.
Despite our lack of control, we have internal and vendor operating
guidelines to promote ethical business practices and our staff periodically
visits and monitors the operations of our independent manufacturers. We also use the services of a third party
independent labor consulting service to conduct on site audits as required by
state labor laws to help minimize our risk and exposure to unacceptable labor
practice violations. The violation of
labor or other laws by one of our independent manufacturers or the divergence
of an independent manufacturers labor practices from those generally accepted
as ethical in the United States, could interrupt or otherwise disrupt the
shipment of finished products to us or damage our reputation. Any of these, in turn, could have a material
adverse effect on our financial condition and results of operations. In particular, the laws governing garment
manufacturers in the State of California impose joint liability upon us and our
independent manufacturers for the labor practices of those independent
manufacturers. As a result, should one
of our independent manufacturers be found in violation of state labor laws, we
could suffer financial or other unforeseen consequences.
Our trademark and other intellectual property rights may not be
adequately protected outside the United States and some of our products are
targets of counterfeiting.
We
believe that our trademarks and other proprietary rights are important to our
success and our competitive position. We
may, however, experience conflict with various third parties who acquire or
claim ownership rights in certain trademarks as we expand our product offerings
and expand the number of countries where we sell our products. We cannot ensure that the actions we have
taken to establish and protect these trademarks and other proprietary rights
will be adequate to prevent imitation of our products by others or to prevent
others from seeking to block sales of our products as a violation of their trademarks
and proprietary rights. Also, we cannot
assure you that others will not assert rights in, or ownership of, trademarks
and other proprietary rights of ours or that we will be able to successfully
resolve these types of conflicts to our satisfaction. In addition, the laws of
certain foreign countries may not protect proprietary rights to the same extent
as do the laws of the United States.
9
Our
Joes® products are sometimes the target of counterfeiters. As a result, there are often products that
are imitations or knock-offs of our Joes® products that can be found in the
marketplace or consumers can find products that are confusingly similar to
ours. We intend to continue to
vigorously defend our trademarks and products bearing our trademarks, however,
we cannot assure you that our efforts will be adequate to prosecute and block
all sales of infringing products from the marketplace.
Our ability to conduct business in international markets may be affected
by legal, regulatory, political and economic risks.
Our
ability to capitalize on growth in new international markets and to maintain
the current level of operations in our existing international markets is
subject to risks associated with international operations. Some of these risks
include:
·
the burdens of complying with a variety of
foreign laws and regulations,
·
unexpected changes in regulatory
requirements, and
·
new tariffs or other barriers to some
international markets.
We
are also subject to general political and economic risks associated with
conducting international business, including:
·
political instability,
·
changes in diplomatic and trade
relationships, and
·
general economic fluctuations in specific
countries or markets.
We
cannot predict whether quotas, duties, taxes, or other similar restrictions
will be imposed by the United States, Mexico, the European Union, Canada,
China, Japan, India, South Korea or other countries upon the import or export
of our products in the future, or what effect any of these actions would have
on our business, financial condition or results of operations. Changes in regulatory or geopolitical
policies and other factors may adversely affect our business in the future or
may require us to modify our current business practices.
We face intense competition in the denim industry.
We
face a variety of competitive challenges from other domestic and foreign
fashion-oriented apparel producers, some of whom may be significantly larger
and more diversified and have greater financial and marketing resources than we
have. We do not currently hold a
dominant competitive position in any market.
We compete with other denim manufacturers such as Seven for All Mankind,
Citizens of Humanity and Rock & Republic, and other larger competitors
primarily on the basis of:
·
anticipating and responding to changing
consumer demands in a timely manner,
·
maintaining favorable brand recognition,
·
developing innovative, high-quality products
in sizes, colors and styles that appeal to consumers,
·
appropriately pricing products,
·
providing strong and effective marketing
support,
·
creating an acceptable value proposition for
retail customers,
10
·
ensuring product availability and optimizing
supply chain efficiencies with manufacturers and retailers, and
·
obtaining sufficient retail floor space and
effective presentation of our products at retail.
Furthermore,
some of our competitors are privately held corporations and may have resources
available to them that we, as a public company, do not have. Therefore, it may be difficult for us to
effectively gauge consumer response to our products and how our products are
competing with these and other competitors in the marketplace.
USE OF PROCEEDS
The
selling stockholder will receive all of the proceeds from the sale of its
common stock offered by this prospectus. We will not receive any of the
proceeds from the sale of the shares of common stock offered by the selling
stockholder.
DIVIDEND POLICY
We
have never declared or paid a dividend on our common stock. We intend to retain
earnings to finance the growth and development of our business and do not
expect to declare or pay any cash dividends on our common stock in the
foreseeable future. The declaration of dividends is within the discretion of
our board of directors, which will review this dividend policy from time to
time.
11
SELLING STOCKHOLDER
The
table below sets forth information regarding ownership of our common stock by
the selling stockholder and the shares of common stock to be sold by them under
this prospectus. Beneficial ownership is determined in accordance with SEC rules and
includes voting or investment power with respect to the securities. Except as
indicated by footnote, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them. SEC rules require
that the number of shares of common stock outstanding used in calculating the
percentage for each listed person includes the shares of common stock
underlying the warrants or options held by such person that are currently
exercisable or exercisable within 60 days of February 28, 2008 are deemed
to be outstanding and to be beneficially owned by the person holding the
options for the purpose of computing the percentage ownership of that person
but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. As of February 28, 2008, 59,750,204 shares
of our common stock were outstanding.
|
|
Shares Beneficially Owned
Prior to the Offering
|
|
Number of
Shares to be
|
|
Shares Beneficially Owned
After Offering
|
|
Name of Selling Stockholder
|
|
Number of
Shares
|
|
Percent of
Class
|
|
Sold in the
Offering
|
|
Number of
Shares
|
|
Percent of
Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph M. Dahan(1)
|
|
14,418,708
|
(2)
|
24.13
|
%
|
2,333,333
|
|
12,085,375
|
|
20.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL for Selling Stockholders:
|
|
|
|
|
|
2,333,333
|
|
|
|
|
|
*
Represents less than 1%
|
(1)
|
In
addition to his ownership of approximately 24 percent of our total shares
outstanding, since October 25, 2007, Mr. Dahan has served as a
member of our board of directors and one of our executive officers in the position
of Creative Director. Prior to that, Mr. Dahan
was an employee and president of our Joes Jeans subsidiary since February 2001.
|
|
|
|
|
(2)
|
The
shares registered hereunder include (i) 14,218,708 shares held for the
personal account of Mr. Dahan; and (ii) 200,000 shares issuable
upon exercise of a currently exercisable employee stock option. This
information is based upon a Schedule 13D filed with the SEC on
November 8, 2007.
|
On
October 25, 2007, Mr. Dahan acquired 14,000,000 shares of our commons
stock pursuant to that certain Agreement and Plan of Merger, dated February 6,
2007, by and between us, our Joes Jeans subsidiary, JD Holdings, Inc., or
JD Holdings and Mr. Dahan, as amended, or the Merger Agreement.
Pursuant
to the Merger Agreement, our Joes Jeans subsidiary merged with and into JD
Holdings, with Joes Jeans subsidiary as the surviving entity and our wholly
owned subsidiary, or the Merger. At the
time, Mr. Dahan was the sole shareholder of JD Holdings. In connection with the Merger, we issued
14,000,000 shares of our common stock and made a cash payment of $300,000 to Mr. Dahan
in exchange for all of the outstanding shares of JD Holdings.
Upon
the closing of the Merger, we also entered into an investor rights agreement
with Mr. Dahan pursuant to which we agreed to register for resale, on a
periodic basis at the request of Mr. Dahan, the shares eligible for resale
issued in connection with the Merger. The shares issued as Merger consideration
become eligible for resale beginning on the six month anniversary of the
closing date of the Merger at an initial rate of one-sixth of the shares issued
and every six months thereafter at the same rate until all the shares are fully
released on the third anniversary of the closing date. We agreed to bear all
expenses associated with registering these shares for resale and have granted
to Mr. Dahan certain piggyback rights with respect to future registration
statements filed by us.
12
Mr. Dahan
may make, or cause to be made, further acquisitions of shares from time to time
and may dispose of, or cause to be disposed of, subject to the terms of the
Investor Rights Agreement, any or all of the shares held by him at any
time. Mr. Dahan intends to evaluate on an ongoing basis the
investment in us and his options with respect to such investment.
The
information set forth herein is qualified in its entirety by reference to the
following documents: (i) Agreement
and Plan of Merger, dated February 6, 2007, by and between us, our Joes
Jeans subsidiary, JD Holdings and Mr. Dahan, as amended, and (ii) Investor
Rights Agreement dated October 25, 2007, by and between us and Mr. Dahan.
We
are registering 2,333,333 shares of common stock as described above in order to
permit the selling stockholder to offer the common stock for resale from time
to time. We are obligated to maintain the effectiveness of the registration
statement of which this prospectus forms a part until at least two years from
the effective date. In addition, we have
an obligation to continue to register certain of Mr. Dahans shares for
resale under the terms of the Investor Rights Agreement.
Except
as otherwise disclosed above, the selling stockholder has not, within the past
three years, had any position, office or other material relationship with us or
any of our predecessors or affiliates.
Because the selling stockholders may sell all or some portion of the
shares of common stock beneficially owned by him from time to time or at any
time, only an estimate (assuming the selling stockholder sells all of the
shares offered hereby) can be given as to the number of shares of common stock
that will be beneficially owned by the selling stockholder after this offering.
The
preceding table has been prepared based upon the information furnished to us by
the selling stockholder.
13
PLAN OF DISTRIBUTION
We
are registering the shares of common stock on behalf of the selling
stockholder. The selling stockholder is the person named on page 12 and
also includes any donnee, pledgee, transferee or other successor-in-interest
selling shares received after the date of this prospectus from a selling
stockholder as a
gift
,
pledge, partnership or limited liability company or corporate distribution,
assignment or other non-sale related transfer.
We will not receive any of the
proceeds from the sale of the shares by the selling stockholder. The selling stockholder may sell the shares
of common stock covered by this prospectus from time to time at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The selling stockholder may offer their shares
for sale in one or more of the following transactions:
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on
the Nasdaq Stock Market;
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through
the facilities of any national securities exchange or U.S. automated
inter-dealer quotation system of a registered national securities association
on which any of the shares of common stock are then listed, admitted to
unlisted trading privileges or included for quotation at the time of sale;
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in
the over-the-counter market; and
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in
privately negotiated transactions.
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The
transactions in the shares may be effected by one or more of the following
methods:
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ordinary
brokerage transactions and transactions in which the broker solicits
purchasers;
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purchases
by a broker or dealer as principal, and the resale by that broker or dealer
for its account under this prospectus, including resale to another broker or
dealer;
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block
trades in which the broker or dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal in order to
facilitate the transaction; or
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negotiated
transactions between the selling stockholder and purchasers without a broker
or dealer.
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The selling stockholder may sell
their shares directly, or indirectly through underwriters, broker-dealers or
agents acting on their behalf, and in connection with such sales, the
underwriters, broker-dealers or agents may receive compensation in the form of
commissions, concessions, allowances or discounts from the selling stockholder
and/or the purchasers of the shares for whom they may act as agent or to whom
they sell the shares as principal or both (which commissions, concessions,
allowances or discounts might be in excess of customary amounts thereof). We
have not been advised of any selling arrangement at the date of this prospectus
between the selling stockholder and any underwriter, broker-dealer or agent.
In connection with the
distribution of the shares, certain of the selling stockholder may enter into
hedging transactions with broker-dealers. In connection with such transactions,
broker-dealers may engage in short sales of the shares in the course of hedging
the positions they assume with the selling stockholder. The selling stockholder
may also sell the shares short and redeliver the shares to close out the short
positions. The selling stockholder may also enter into option or other
transactions with broker-dealers which require the delivery of the shares to
the broker-dealer. The selling stockholder may also loan or pledge the shares
to a broker-dealer and the broker-dealer may sell the shares so loaned, or upon
a default, the broker-dealer may effect sales of the pledged shares.
The selling stockholder and any
dealer acting in connection with the offering or any broker executing a sell
order on behalf of the selling stockholder may be deemed to be underwriters
within the meaning of the Securities Act, in which event any profit on the sale
of shares by the selling stockholder and any commissions or discounts received
by any such broker or dealer may be deemed to be underwriting compensation under
the Securities Act. In addition, any such broker or dealer may be required to
deliver a copy of this prospectus to any person who purchases any of the shares
from or through such broker or dealer.
14
DESCRIPTION OF CAPITAL STOCK
Common
Stock
Pursuant
to our Amended and Restated Certificate of Incorporation, we are authorized to
issue 100,000,000 shares of common stock, $0.10 par value per share. As of February 28,
2008, there were 59,750,204 shares of common stock issued and outstanding.
Holders
of the common stock are entitled to one vote for each share held of record in
each matter properly submitted to such holders for a vote. Subject to the
rights of the holders of any other outstanding series of stock our board of
directors may designate from time to time, holders of common stock are entitled
to receive their pro rata share of (i) any dividends that may be declared
by the board of directors out of assets legally available therefor, and (ii) any
excess assets available upon the liquidation, dissolution or winding up of our
company. Holders of our common stock have no conversion, preemptive or other
subscription rights and there are no redemption rights or sinking fund
provisions with respect to the common stock. Any shares of common stock sold
under this document will be fully paid and non-assessable upon issuance against
full payment of the purchase price for such shares.
Our
board of directors may issue the additional shares of common stock, up to the
authorized 100,000,000 shares, without soliciting additional stockholder
approval. The existence of authorized but unissued shares of the common stock
could tend to discourage or render more difficult the completion of a hostile
merger, tender offer or proxy contest. For example, if in the due exercise of
its fiduciary obligations, the board of directors were to determine that a
takeover proposal was not in the best interest of the company and its
stockholders, the ability to issue additional shares of stock without further
stockholder approval could have the effect of rendering more difficult or
costly the completion of the takeover transaction by diluting the voting or
other rights of the proposed acquirer or insurgent stockholder group, by
creating a substantial voting block in hands that might support the position of
the board of directors, by effecting an acquisition that might complicate or
preclude the takeover, or otherwise.
Preferred
Stock
Our
Amended and Restated Certificate of Incorporation authorizes the issuance of up
to 5,000,000 shares of preferred stock with designations, rights and
preferences determined from time to time by the board of directors.
Accordingly, the board of directors is empowered, without stockholder approval,
to issue preferred stock with dividends, liquidation, conversion, voting and
other rights that could adversely affect the voting power or other rights of
the holders of common stock. In the event of issuance, the preferred stock
could be used, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control. As of February 28, 2008, we
did not have any shares of preferred stock outstanding.
Certain
Provisions Relating to Share Acquisitions
Section 203
of the Delaware General Corporation Law generally prevents a corporation from
entering into certain business combinations with an interested stockholder
(defined as any person or entity that is the beneficial owner of at least 15
percent of a corporations voting stock) or its affiliates for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless (i) the transaction is approved by the
board of directors of the corporation prior to such business combination, (ii) the
interested stockholder acquires 85 percent of the corporations voting stock in
the same transaction in which it exceeds 15 percent, or (iii) the business
combination is approved by the board of directors and by a vote of two-thirds
of the outstanding voting stock not owned by the interested stockholder. The
Delaware General Corporation Law provides that a corporation may elect not to
be governed by Section 203. We have made no such election and are
therefore governed by Section 203. Such anti-takeover provision may have
an adverse effect on the market for our securities.
15
Transfer
Agent and Registrar for our Common Stock
The
transfer agent and registrar for our common stock is Continental Stock Transfer
and Trust Company located at
17 Battery Place, New York, New York 10004, and its telephone number is (212)
509-4000.
LEGAL MATTERS
The
validity of the shares of common stock offered by this prospectus will be
passed upon for our company by our general counsel, Dustin A. Huffine, Esq. Mr. Huffine beneficially owns options to
purchase 100,000 shares (including shares exercisable within 60 days of the
date of this prospectus) of our common stock and 27,000 units of restricted
common stock pursuant to our 2004 Stock Incentive Plan.
EXPERTS
The
consolidated financial statements of Joes Jeans Inc. appearing in Joes Jeans
Inc.s Annual Report (Form 10-K) for the year ended November 30, 2007
(including the schedule appearing therein), have been audited by Ernst &
Young LLP, independent registered public accounting firm, as set forth in their
report thereon, included therein, and incorporated herein by reference. Such consolidated
financial statements are, and audited financial statements to be included in
subsequently filed documents will be incorporated herein in reliance upon the
report of Ernst & Young LLP pertaining to such financial statements given
on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We
file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the SECs
public reference rooms at 100 F Street, N.E., Washington, D.C. 20549. Please
call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from the SECs website at http://www.sec.gov.
We also make such documents that we file with the SEC available on our website
at http://www.innovogroup.com as soon as reasonably practicable after such
reports are electronically filed with or furnished to the SEC. However, we do
not intend that the information available through our website be incorporated
into this prospectus.
16
We have filed
a registration statement on Form S-3 with the SEC to register the offering
of the shares of common stock offered pursuant to this prospectus. This
prospectus is part of that registration statement and, as permitted by the SECs
rules, does not contain all of the information included in the registration
statement. For further information about us, this offering and our common
stock, you may refer to the registration statement and its exhibits and
schedules as well as the documents described herein. You can review and copy
these documents at the public reference facilities maintained by the SEC or on
the SECs website as described above.
This
prospectus may contain summaries of contracts or other documents. Because they
are summaries, they will not contain all of the information that may be
important to you. If you would like complete information about a contract or
other document, you should read the copy filed as an exhibit to the
registration statement.
INCORPORATION BY REFERENCE
The
SEC allows us to incorporate by reference the information we file with the
SEC, which means that we can disclose important information to you by referring
you to those documents. The information we incorporate by reference is
considered to be an important part of this prospectus, and information that we
file with the SEC at a later date will automatically update or supersede this
information. We incorporate by reference the documents listed below:
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1.
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Our
Annual Report on Form 10-K for the fiscal year ended November 30,
2007, filed with the SEC on February 28, 2008;
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2.
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Our
Quarterly Report on Form 10-Q for the three months ended
February 24, 2007 filed with the SEC on April 10, 2007;
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3.
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Our
Quarterly Report on Form 10-Q for the three months ended May 26,
2007 filed with the SEC on July 10, 2007;
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4.
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Our
Quarterly Report on Form 10-Q for the three months ended August 25,
2007 filed with the SEC on October 9, 2007;
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5.
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Our
Definitive Merger Proxy Statement on Schedule 14A filed with the SEC on
September 5, 2007;
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6.
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Our
Current Report on Form 8-K/A filed with the SEC on January 10,
2008;
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7.
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Our
Current Report on Form 8-K filed with the SEC on December 21, 2007;
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8.
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Our
Current Report on Form 8-K filed with the SEC on October 31, 2007;
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9.
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Our
Current Report on Form 8-K filed with the SEC on October 30, 2007;
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10.
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Our
Current Report on Form 8-K filed with the SEC on October 17, 2007;
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11.
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Our
Current Report on Form 8-K filed with the SEC on October 15, 2007;
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12.
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Our
Current Report on Form 8-K filed with the SEC on August 27, 2007;
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13.
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Our
Current Report on Form 8-K filed with the SEC on July 24, 2007;
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14.
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Our
Current Report on Form 8-K filed with the SEC on July 9, 2007;
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15.
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Our
Current Report on Form 8-K filed with the SEC on July 3, 2007;
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16.
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Our
Current Report on Form 8-K filed with the SEC on June 26, 2007;
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17.
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Our
Current Report on Form 8-K filed with the SEC on May 25, 2007;
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18.
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Our
Current Report on Form 8-K filed with the SEC on May 3, 2007;
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19.
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Our
Current Report on Form 8-K filed with the SEC on April 19, 2007;
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20.
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Our
Current Report on Form 8-K/A filed with the SEC on March 14, 2007;
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21.
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Our
Current Report on Form 8-K filed with the SEC on February 12, 2007;
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22.
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Our
Current Report on Form 8-K filed with the SEC on February 7, 2007;
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23.
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Our
Current Report on Form 8-K filed with the SEC on February 1, 2007;
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24.
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Our
Current Report on Form 8-K/A filed with the SEC on January 16,
2007;
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25.
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Our
Current Report on Form 8-K filed with the SEC on January 3, 2007;
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26.
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Our
Current Report on Form 8-K filed with the SEC on December 26, 2006;
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27.
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Our
Current Report on Form 8-K filed with the SEC on December 8, 2006;
and
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28.
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Our
description of common stock that is referenced in our registration statement
on Form 8-A, File No. 000-18926, filed with the SEC on
December 6, 1990 (which incorporates by reference the description of
Common Stock that is contained in our Post Effective Amendment No. 6 to
Form S-18, File No. 33-25912, filed with the SEC on
November 29, 1990), including all amendments or reports filed for the
purpose of updating such description.
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All
documents filed (File No. 0-18926) under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, after the date of this
prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference in this prospectus and to be part of this prospectus
from the date they are filed. In addition, all documents filed pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
the initial registration statement and prior to the effectiveness of the
registration statement of which this prospectus forms a part shall be deemed to
be incorporated by reference into this prospectus and to be part of this
prospectus from the date they are filed. However, we are not incorporating any
information furnished under Item 2.02 or Item 7.01 of any Current Report on Form 8-K.
We
will provide to each person, including any beneficial owner, to whom a prospectus
is delivered, a copy of any or all of the information that has been
incorporated by reference in this prospectus, but not delivered with this
prospectus, at no cost, by writing to or calling Lori Nembirkow, Secretary, Joes
Jeans Inc., 5901 South Eastern Avenue, Commerce, California 90040, telephone
(323) 837-3700.
FORWARD-LOOKING STATEMENTS
This
prospectus and the documents incorporated by reference in this prospectus
contain both historical and forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are not statements
of historical fact but rather reflect our current expectations, estimates and
predictions about future results and events. These statements may use words
such as anticipate, believe, estimate, expect, intend, predict, project
and similar expressions as they relate to us or our management. When we make
forward-looking statements, we are basing them on our managements beliefs and
assumptions, using information currently available to us. These forward-looking
statements are subject to risks, uncertainties and assumptions, including but
not limited to, risks, uncertainties and assumptions discussed in this
prospectus. Factors that can cause or contribute to these differences include
those described under the headings Risk Factors These forward-looking
statements
18
include,
but are not limited to, statements regarding the following: growth
opportunities and increasing market share, earnings estimates, future financial
performance and other matters. Although we believe that the expectations
contained in these forward-looking statements are reasonable, you cannot be
assured that these expectations will prove correct.
If
one or more of these or other risks or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, actual results may vary
materially from what we projected. Any forward-looking statements you read in
this prospectus and the documents incorporated by reference in this prospectus
reflect our current views with respect to future events and are subject to
these and other risks, uncertainties and assumptions relating to our
operations, results of operations, growth strategy and liquidity. All
subsequent written and oral forward-looking statements attributable to us or
individuals acting on our behalf are expressly qualified in their entirety by
this paragraph. You should carefully review and consider all information,
including the information included in the section of this prospectus entitled Risk
Factors as well as information included in our most recent annual report on
Form 10-K including, without limitation, under captions Risk Factors and
Managements Discussion and Analysis of Financial Condition and Results of
Operation, and the financial statements and the notes to the financial
statements and related disclosures incorporated by reference in this prospectus
before making an investment decision. We are under no duty to update any of the
forward-looking statements after the date of this prospectus or to conform
these statements to actual results.
DISCLOSURE OF COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILIT
IES
Our
Amended and Restated Certificate of Incorporation provides that we shall
indemnify our officers and directors to the fullest extent permitted by
Delaware law, including some instances in which indemnification is otherwise
discretionary under Delaware law. The Amended and Restated Certificate of
Incorporation also provides that, pursuant to Delaware law, our directors shall
not be liable for monetary damages for breach of the directors fiduciary duty
of care to the company and its stockholders. This provision does not eliminate
the duty of care, and, in appropriate circumstances, equitable remedies such as
an injunction or other forms of non-monetary relief would remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the directors duty of loyalty to the company, for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a directors responsibilities for environmental laws.
At
present, there is no pending litigation or proceeding involving any of our
directors or officers as to which indemnification is being sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted for our directors, officers or controlling persons pursuant to the
foregoing provisions, we have been informed that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
CAUTIONARY STATEMENTS
No
person has been authorized to give any information or to make any
representation not contained in this prospectus in connection with this
offering of common stock and, if given or made, no one may rely on such
unauthorized information or representations. This prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the common stock to which it relates, or an offer to sell
or the solicitation of an offer to buy such securities in any jurisdiction in
which such offer or solicitation may not be legally made. Neither the delivery
of this prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information contained herein is correct as of
any date subsequent to the date hereof.
19
You
should rely only on the information contained in this document or to which we
have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information contained in this document is current
only as of its date.
2,333,333 SHARES
JOES JEANS INC.
COMMON STOCK
PROSPECTUS
March 24, 2008
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