<PAGE>
ROOM PLUS, INC.
LOGO
1,100,000 SHARES OF COMMON STOCK AND
2,200,000 REDEEMABLE WARRANTS
AS DESCRIBED BELOW, AN ADDITIONAL 670,000 SHARES OF COMMON STOCK ARE BEING
REGISTERED IN CONNECTION WITH THIS OFFERING ON BEHALF OF CERTAIN SELLING
SECURITY HOLDERS; HOWEVER, SUCH SHARES ARE BEING REGISTERED FOR RESALE
PURPOSES ONLY AND NOT AS PART OF THE UNDERWRITTEN OFFERING.
------
Room Plus, Inc., a New York corporation (the "Company") hereby offers
1,100,000 shares of the Company's common stock, $.00133 par value per share
(the "Common Stock"), and 2,200,000 redeemable common stock purchase warrants
of the Company (the "Redeemable Warrants"). The Common Stock and the
Redeemable Warrants offered hereby (sometimes hereinafter collectively
referred to as the "Securities") will be separately tradeable immediately
upon issuance and may be purchased separately. Investors will not be required
to purchase shares of Common Stock and Redeemable Warrants together or in any
particular ratio. The shares of Common Stock offered hereby include 100,000
shares held by the four directors of the Company (the "Directors Shares").
The Directors Shares are being underwritten in this Offering; however, the
Company will not receive any proceeds from the sale of the Directors Shares.
Each Redeemable Warrant entitles the holder to purchase one share of Common
Stock at a price of $5.50 per share, subject to adjustment as described
herein, commencing November 1, 1997 until November 1, 2001 and is redeemable
by the Company at a redemption price of five cents ($.05) commencing November
1, 1997 on 30 days' prior written notice, provided that the average closing
bid price of the Common Stock equals or exceeds $7.50 per share, subject to
adjustment as described herein, for thirty (30) consecutive trading days
ending on the fifteenth trading day immediately prior to the notice of
redemption. See "Description of Securities."
Prior to this Offering, there has been no public market for the Common
Stock or the Redeemable Warrants and there can be no assurance that a market
will develop after completion of this Offering or if a market develops, it
will be sustained. The initial public offering price of the Common Stock will
be $5.00 per share and the initial public offering price of the Redeemable
Warrants will be $.10 per warrant. See "Risk Factors" and "Underwriting" for
a discussion of the factors considered in determining the initial public
offering prices of the Securities and the terms of the Redeemable Warrants.
Subject to official notice of issuance, the Common Stock and the Redeemable
Warrants have been approved for quotation on the National Association of
Securities Dealers Automated Quotation System SmallCap Market ("NASDAQ
SmallCap") under the symbols "PLUS" and "PLUSW," respectively, and the Boston
Stock Exchange ("BSE") under the symbols "RPI" and "RPIW," respectively.
This Prospectus also relates to the registration by the Company, at its
expense, for the account of certain security holders (the "Selling Security
Holders") of an aggregate of 670,000 shares of Common Stock (which do not
include the 100,000 Directors Shares). None of the shares of Common Stock
held by the Selling Security Holders are being underwritten in this Offering,
and the Company will not receive any proceeds from their sale. See "Selling
Security Holders."
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" ON PAGE 7 AND "DILUTION."
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Proceeds to
Underwriting Holders of
Price to Discounts and Proceeds to Directors
Public Commissions(1) Company(2) Shares
- --------------------------------------------------------------------------------
Per Share $ 5.00 $ 0.50 $ 4.50 $ 4.50
- --------------------------------------------------------------------------------
Per Redeemable Warrant $ 0.10 $ 0.01 $ 0.09 $ 0
- --------------------------------------------------------------------------------
Total(3) .............. $5,720,000 $572,000 $4,698,000 $450,000
================================================================================
(1) Does not include additional compensation to the Representative consisting
of (i) a non-accountable expense allowance equal to 3% of the aggregate
purchase price of the Securities, or $171,600 ($197,340 if the
Representative's over-allotment option is exercised in full), of which
$25,000 has been paid to date; (ii) warrants to purchase 110,000 shares
of Common Stock at $7.50 per share and/or 220,000 warrants at $.15 per
warrant, each of which is identical to the Redeemable Warrants except the
price to purchase a share of Common Stock is $8.25; and (iii) a two-year
consulting agreement providing for fees totalling $114,400, which is
payable to the Representative in full on the closing of this Offering.
For additional information concerning further agreements between the
Company and the Representative, including an agreement to indemnify the
Representative against certain civil liabilities, including liabilities
under the Securities Act of 1933, see "Underwriting."
(2) Before deducting estimated expenses of $671,600 payable by the Company,
including the non-accountable expense allowance.
(3) The Company has granted to the Underwriters an option to purchase up to
165,000 additional shares of Common Stock and/or 330,000 additional
Redeemable Warrants, upon the same terms and conditions as set forth
above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Holders of Directors
Shares will be $6,578,000, $657,800, $5,470,200, and $450,000,
respectively. See "Underwriting."
------
The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this Offering and to reject any order in whole or in part. It is
expected that delivery of the Securities offered hereby will be made against
payment at the offices of The Thornwater Company, L.P., New York, New York on
or about November 6, 1996.
------
THE THORNWATER COMPANY, L.P.
November 1, 1996
<PAGE>
[PICTURES, IF ANY, TO BE INSERTED HERE]
The Company is not currently a reporting company for purposes of the
Securities Exchange Act of 1934. The Company intends to furnish its
stockholders with annual reports containing audited financial statements
certified by an independent public accounting firm and quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
statements.
------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BOSTON STOCK EXCHANGE, THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus. Unless
otherwise indicated, all share and per share data give effect to a 4 to 3
reverse split of the shares of Common Stock of the Company which occurred on
July 1, 1996. In addition, unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise of (i) the Redeemable
Warrants offered hereby, (ii) the Underwriters' over-allotment option to
purchase additional shares of Common Stock and/or Redeemable Warrants, (iii)
the Representative's Warrants to purchase shares of Common Stock and/or
Redeemable Warrants, (iv) certain warrants issued by the Company to the three
principals of the Company (the "Principals Warrants"), (v) certain warrants
issued by the Company to Kirlin Securities, Inc. in connection with a private
placement by the Company consummated in September 1995 (the "Kirlin
Warrants"), (vi) certain warrants issued by the Company to Mark Rubin (the
"Rubin Warrants"), and (vii) certain options issued by the Company to
McCormick & Company (the "McCormick Options"). See "Description of
Securities" and "Underwriting." See "Risk Factors" for a discussion of
certain factors that should be considered in connection with an investment in
the Securities offered hereby.
THE COMPANY
Room Plus, Inc. (the "Company") is a fully-integrated manufacturer and
retailer of high-pressure, mica-laminated furniture for residential uses,
primarily bedroom furniture for children ages three to 16 years old. The
Company's products are of a modular design and are intended to be
multi-functional, interchangeable and space-saving.
The Company distributes its products through its own distribution network
of 12 retail showrooms located in the greater New York City metropolitan
area. The Company uses standard component pieces to manufacture furniture for
children's and adult's bedrooms and home offices. The approximately 300
standard components can be finished in various colors and textures and
combined in various configurations to produce a finished product which is
personalized to the customer's taste, space and budget. The use of standard
components also permits the Company's furniture to be reconfigured as the
customer's needs or tastes change. For example, a loft bed can be converted
into separate beds, a desk, a dresser and a bookcase, and a baby's changing
table can be converted into a child's play table and a dresser.
Unlike many of its direct competitors, the Company uses high quality raw
materials in the manufacture of its products, including high-pressure mica
laminate that is more resistent to impact and engineered wood that has been
laminated on both sides to provide greater stability and protection against
warping. The quality of materials and manufacturing processes used by the
Company enable it to offer a limited lifetime warranty against structural
defects.
Because the Company's finished products are manufactured from standard
components and personalized to the customer's needs, the Company does not
maintain a large inventory of finished products (other than showroom display
models). Finished products are manufactured to meet a specified delivery
date, which is generally fixed at the time of the order and is within two to
six weeks thereafter.
The Company's manufacturing operations are conducted in a 78,000 square
foot facility located in Paterson, New Jersey. In the past year, the Company
has implemented numerous changes to its manufacturing facility and processes
in order to significantly reduce the direct costs of manufacturing and to
produce more contemporary styles of high quality, mica-laminated furniture.
The Company's existing manufacturing facility currently operates on a
single shift and has sufficient capacity to more than double its
manufacturing volume without substantially increasing indirect costs of
manufacture. The Company plans to use a substantial portion of the proceeds
of this Offering to establish 12 to 14 additional retail showrooms, primarily
in the New York to Washington, D.C. corridor, to increase demand for its
products, and to continue to upgrade and automate its manufacturing process
and further reduce direct manufacturing costs.
3
<PAGE>
The Company is a New York corporation that was organized in 1982 under the
name RPF Holding Corp. ("RPF Holding") and was engaged in the retail sale of
mica-laminated furniture. From 1979 to 1982, the founders of the Company had
engaged in the same business under other corporate names. In March 1995, Bunk
Trunk Manufacturing Company, Inc. ("Bunk Trunk"), which was the principal
manufacturer of the furniture sold by RPF Holding, was merged into RPF
Holding. The surviving entity in such merger, which was named TAM Industries,
Inc., changed its name to Room Plus, Inc. in June 1995. The Company's
principal offices are located at 91 Michigan Avenue, Paterson, New Jersey
07503, and its telephone number at that address is (201) 523-4600.
THE OFFERING
Securities Offered............. 1,100,000 shares of Common Stock and
2,200,000 Redeemable Warrants. The shares of
Common Stock being offered hereby include
100,000 Directors Shares. The Company will
not receive any proceeds from the sale of
the Directors Shares. See "Description of
Securities" and "Selling Security Holders".
Redeemable Warrants............ Each Redeemable Warrant entitles the holder
to purchase one share of Common Stock at a
price of $5.50, subject to adjustment,
commencing November 1, 1997, until November
1, 2001 and is redeemable by the Company at
a redemption price of five cents ($.05)
commencing November 1, 1997 on 30 days'
prior written notice, provided that the
average closing bid price of the Common
Stock equals or exceeds $7.50 per share,
subject to adjustment, for thirty (30)
consecutive trading days ending on the
fifteenth trading day immediately prior to
the notice of redemption. See "Description
of Securities -- Redeemable Warrants."
Securities Being Registered for
the Account of Selling
Security Holders............. 670,000 shares of Common Stock. None of the
shares of Common Stock held by the Selling
Security Holders (which do not include the
100,000 Directors Shares) are being
underwritten in this Offering and the
Company will not receive any proceeds from
their sale. See "Selling Security Holders."
Shares of Common Stock
Outstanding
Before Offering............. 3,220,000(1)
After Offering............... 4,220,000(1)
- ------
(1) Includes 100,000 Directors Shares. Does not include (i) up to 2,200,000
shares of Common Stock issuable upon exercise of the Redeemable Warrants
offered hereby, (ii) up to 165,000 shares of Common Stock and/or 330,000
Redeemable Warrants issuable upon exercise of the Underwriters'
over-allotment option, (iii) up to 330,000 shares of Common Stock
issuable upon exercise of the Redeemable Warrants included in the
Underwriters' over-allotment option, (iv) up to 110,000 shares of Common
Stock and/or 220,000 Redeemable Warrants issuable upon exercise of the
Representative's Warrants, (v) up to 220,000 shares of Common Stock
issuable upon exercise of the warrants included in the Representative's
Warrants, (vi) up to 750,000 shares of Common Stock issuable upon the
exercise of the Principals Warrants at an exercise price of $3.00 per
share, (vii) up to 750,000 shares of Common Stock issuable upon exercise
of the Kirlin Warrants at an exercise price of $1.20 per share, (viii) up
to 56,250 shares of Common Stock issuable upon exercise of the Rubin
Warrants at an exercise price of $2.00 per share, and (ix) up to 25,000
shares of Common Stock issuable upon exercise of the McCormick Options at
$3.00 per share.
4
<PAGE>
Use of Proceeds................ Costs of opening new retail showrooms,
renovation of existing retail showrooms,
repayment of bank borrowings, purchase
and/or lease of machinery and equipment,
marketing and advertising and general
corporate purposes and working capital. See
"Use of Proceeds".
Risk Factors................... Investment in the Securities offered hereby
involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
NASDAQ
SmallCap BSE
Symbol(1) Symbol(1)
------------ -----------
Common Stock .......... PLUS RPI
Redeemable Warrants ... PLUSW RPIW
- ------
(1) There is currently no market for the Common Stock or the Redeemable
Warrants and there can be no assurance that a market for the Common Stock
or the Redeemable Warrants will develop after this Offering. Subject to
official notice of issuance, the Common Stock and the Redeemable Warrants
have been approved for listing on NASDAQ SmallCap and the BSE. However,
there can be no assurance that such listing will be maintained. See "Risk
Factors -- No Prior Public Market; Arbitrary Determination of Offering
Prices; Possible Volatility of Securities" and "Risk Factors -- Possible
Delisting of Securities."
SUMMARY FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
Year ended Year Ended ------------------------------
December 31, 1994 December 31, 1995 1995 1996
----------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues ......................... $13,215,387 $13,149,018 $ 6,325,885 $6,671,082
Cost of goods sold ............... 6,003,314 6,922,500 3,780,917 2,919,695
Operating expenses ............... 7,424,579 7,891,297 3,926,102 3,733,369
----------- ----------- ----------- ----------
Earnings (loss) from operations .. (212,506) (1,664,779) (1,381,134) 18,018
Interest expense ................. (16,576) (182,605) (40,260) (23,426)
Miscellaneous income ............. 16,661 23,033 734 6,783
----------- ----------- ----------- ----------
Earnings (loss) before income tax
benefits ........................ (212,421) (1,824,351) (1,420,660) 1,375
Pro forma income tax (benefits)(1) (30,963) (426,388) (292,150) 300
----------- ----------- ----------- ----------
Pro forma net earnings (loss) .... $ (181,458) $(1,397,963) $(1,128,510) $ 1,075
=========== =========== =========== ==========
Pro forma net earnings (loss)
per equivalent common stock ..... $ (0.06) $ (0.42) $ (0.35) $ --
=========== =========== =========== ==========
Common stock and equivalent common
stock outstanding ............... 3,212,590 3,363,850 3,212,590 3,691,667
=========== =========== =========== ==========
</TABLE>
- ------
(1) From inception through September 27, 1995, the Company elected to be
taxed as an S Corporation under the applicable provisions of the Internal
Revenue Code of 1986, as amended. Effective September 27, 1995, the
Company's S Corporation election was voluntarily revoked, subjecting the
Company to corporate income taxes subsequent to that date. Pro forma
income tax (benefits), pro forma net income (loss) per equivalent common
stock and common stock and equivalent common stock outstanding represent
the Company's income tax position had the Company been a C Corporation
for all periods presented other than the six months ended June 30, 1996.
5
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
Pro Forma
As
December 31, 1995 Actual Pro Forma(1) Adjusted(1)(2)
----------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Working capital (deficit) ..... $(1,246,590) $(1,230,088) $ (897,588) $3,128,812
Total assets .................. 2,382,173 2,887,131 3,219,631 7,246,031
Total liabilities ............. 3,176,669 3,424,452 3,424,452 3,424,452
Stockholders' equity (deficit) (794,496) (537,321) (204,821) 3,821,579
</TABLE>
- ------
(1) Reflects the issuance of an additional 500,000 shares of Common Stock
subsequent to June 30, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources".
(2) Reflects the receipt and initial application of the net proceeds from the
sale of the Common Stock (excluding the Directors Shares) and Redeemable
Warrants offered hereby. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
The Securities offered hereby involve a high degree of risk. Prospective
investors should consider carefully the following factors, in addition to
other information and financial data contained in this Prospectus, in
evaluating an investment in the Securities offered hereby.
HISTORY OF LOSSES; NO ASSURANCE OF PROFITABILITY; GOING CONCERN QUALIFICATION
IN CERTIFIED PUBLIC ACCOUNTANT'S REPORT
The Company incurred a net loss for the fiscal years ended December 31,
1994 and 1995 and realized only modest net earnings for the six months ended
June 30, 1996. There can be no assurance that the Company will be profitable
in the future. As of June 30, 1996, the Company had a working capital deficit
of ($1,230,088) and an accumulated deficit of ($2,107,242). In connection
with the audit of the Company's financial statements for the fiscal year
ended December 31, 1995, the Company has received a report from its
independent public accountants, Ehrenkrantz and Company, that includes an
explanatory paragraph describing the uncertainty as to the ability of the
Company to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements (and the related notes thereto) included elsewhere in
this Prospectus.
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company expects that cash flow from operations, together with the net
proceeds of this Offering, will fund its cash requirements for at least the
24 months following the consummation of the Offering. However, additional
financing may be required in the event the Company incurs operating losses in
the future or new retail showrooms do not generate sufficient cash. In
addition, additional financing may be required in order to increase the
number of the Company's retail showrooms as planned by management. Because
there can be no assurance that adequate additional financing will be
available on acceptable terms if at all, the Company may be forced to limit
such planned expansion or reduce its operations. Any future financings that
involve the sale of the Company's equity securities may result in dilution to
then current stockholders. See "Use of Proceeds."
POSSIBLE ADVERSE EFFECT OF GEOGRAPHIC CONCENTRATION
All of the Company's currently operating retail showrooms are located in
the states of New York and New Jersey. The Company intends to open retail
showrooms in Pennsylvania, Maryland, Washington, DC and Virginia in the next
three to four years. Accordingly, the Company is susceptible to fluctuations
in its business caused by adverse economic conditions in those markets. See
"Business -- Expansion Strategy."
AVAILABILITY OF RETAIL SHOWROOM LOCATIONS
The Company intends to open retail showrooms in Pennsylvania, Maryland,
Washington, DC and Virginia in the next three to four years. There can be no
assurance that the Company will be able to locate suitable showroom sites,
arrange acceptable leases for new retail showrooms or open such showrooms in
a timely manner. The inability of the Company to locate suitable sites, enter
into acceptable leases or open new retail showrooms in a timely manner may
have a material adverse effect on the Company's financial condition.
UNCERTAINTY OF MARKET ACCEPTANCE IN NEW MARKETS
The Company intends to expand its retail showrooms, all of which are
presently located in the metropolitan New York area, into Pennsylvania,
Maryland, Washington, DC and Virginia, areas in which the Company has not
previously advertised. As a result, the Company will have to advertise
extensively and develop name recognition among consumers. Moreover, the
consumers in these expansion areas may have different preferences for
furniture or may otherwise not be as receptive to the Company's products as
consumers in the metropolitan New York area. For these reasons, as well as
factors normally associated with expansion, there can be no assurance that
retail showrooms to be opened in these new markets will generate sales
sufficient to compensate for the increase in overhead, or generate sales or
earnings consistent with those generated by retail showrooms in the Company's
existing markets.
7
<PAGE>
LACK OF EXPERIENCE OF REPRESENTATIVE
The Thornwater Company, L.P. (the "Representative") commenced operations
in 1995 and it does not have extensive experience as a managing underwriter
of public offerings of securities. The Representative is a relatively small
firm and no assurance can be given that it will be able to adequately support
trading of the Common Stock or the Redeemable Warrants in the aftermarket.
CYCLICAL NATURE OF RETAIL FURNITURE INDUSTRY
The retail furniture industry historically has been cyclical and directly
affected by, among other things, housing starts, existing home sales,
consumer confidence and general economic conditions. Furniture purchases are
generally discretionary and, in light of the fact that they represent a
significant expenditure to the average consumer, they are often deferred
during times of economic uncertainty. Accordingly, any period of economic
uncertainty may have a material adverse effect on the Company's financial
condition.
COMPETITION
The home furnishings industry is a highly competitive and fragmented
market with annual U.S. sales of over $45 billion in 1994 and estimated
annual U.S. sales of $48 billion in 1995.
The Company is the largest retailer of mica-laminated home furniture in
the New York metropolitan area. Several small retailers, such as Atlantic
Furniture and Kids' Room, and large retailers, such as IKEA, also sell mica-
laminated furniture similar to that sold by the Company in the same
geographic region. The Company also competes directly or indirectly with all
manufacturers and retailers of home furniture, including Huffman Koos,
Levitz, Thomasville and Drexel Heritage. In addition, there are no
significant barriers to prevent the entry of additional competitors in the
home furniture industry generally or in the mica-laminated furniture market
itself. Many of the Company's current and potential competitors have
substantially greater financial, manufacturing, marketing, distribution and
sales resources than the Company, and there can be no assurance that the
Company will be able to compete successfully in the future. See "Business --
Competition."
DEPENDENCE ON KEY PERSONNEL
The Company is largely dependent on the continued service of Marc Zucker,
its Chairman and Chief Executive Officer, Allan Socher, its President and
Director of Marketing, and Theodore Shapiro, its Executive Vice President and
Director of Manufacturing. The loss of the services of any of Messrs. Zucker,
Socher or Shapiro could have a material adverse effect on the Company's
operations and financial condition. The Company does not maintain key man
life insurance on the lives of Messrs. Zucker, Socher or Shapiro. The Company
has entered into employment agreements with each of Messrs. Zucker, Socher
and Shapiro, which agreements may be terminated by the Company by not less
than three years' notice or by the respective employee on not less than three
months' notice. See "Management -- Employment Agreements."
CONTROL BY CERTAIN SHAREHOLDERS
As of the date of this Prospectus, the three largest stockholders of the
Company, Messrs. Zucker, Socher and Shapiro, owned an aggregate of 45.0% of
the outstanding shares of Common Stock, excluding any outstanding warrants
owned by such individuals, or 55.4%, assuming exercise of such warrants.
After giving effect to this Offering, Messrs. Zucker, Socher and Shapiro will
own an aggregate of 32.1% of the outstanding shares of Common Stock,
excluding any outstanding warrants owned by such individuals, or 44.3%,
assuming exercise of such warrants. Accordingly, if Messrs. Zucker, Socher
and Shapiro were to vote in the same manner on the election of members of the
Board of Directors (the "Board") or on any other matter requiring approval of
a majority of the outstanding shares of Common Stock, such matter would
likely be approved or defeated, as the case may be, depending on the vote of
such stockholders. See "Principal Stockholders."
BROAD DISCRETION IN USE OF FUNDS BY MANAGEMENT
Approximately 23.0% of the net proceeds of this Offering will be applied
to working capital and other general corporate purposes. Accordingly,
management of the Company will have broad discretion as to the application of
such proceeds. See "Use of Proceeds."
8
<PAGE>
MANAGEMENT OF GROWTH
The Company's business plan contemplates a significant expansion of its
level of operations in all areas, including a substantial increase in the
number of the Company's retail showrooms. Such expansion may cause
significant strain on the Company's management, financial, marketing and
distribution resources. To manage its growth effectively, the Company must
continue to improve and expand its existing resources and attract, train and
motivate qualified employees. If the Company is unable to manage growth
effectively, its business, operating results and financial condition will be
materially adversely affected. See "Business" and "Management."
FAMILIAL RELATIONSHIPS; TRANSACTIONS BETWEEN BOARD MEMBERS AND COMPANY
The Company's Board currently consists of the three largest stockholders
of the Company (who are also the three highest-paid officers and are related
to each other by marriage) and one individual who serves as a consultant to
the Company. See "Management." Accordingly, there are currently no
independent directors on the Board. In the past, the Company has entered into
transactions with certain of the directors and may do so in the future. See
"Certain Transactions." Although any such transaction between the Company and
its officers and directors will be approved by a majority of the directors
disinterested in such transaction, investors should bear in mind the
foregoing relationships among the directors and the absence of any fully
independent director on the Board.
POTENTIAL DILUTIVE EFFECT OF WARRANTS AND OPTIONS
For the life of the Representative's Warrants, the Redeemable Warrants,
the Rubin Warrants, the Kirlin Warrants, the Principals Warrants and the
McCormick Options, the holders thereof are given the opportunity to profit
from a rise in the market price of the Common Stock. Any rise in the market
price of the Common Stock may encourage the holders to exercise such warrants
or options, which may result in a dilution of the interests of other
stockholders. As a result, the Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the
Company while such warrants and options are outstanding. See "Description of
Securities."
IMMEDIATE SUBSTANTIAL DILUTION; RISK TO NEW INVESTORS
The initial public offering price of the Common Stock is substantially
higher than the book value per share of Common Stock. Investors purchasing
the Common Stock offered hereby will incur immediate substantial dilution of
$4.06 per share (81%) in net tangible book value. The present stockholders of
the Company acquired their respective shares of Common Stock at costs
substantially below the initial public offering price of the Common Stock
offered hereby. Accordingly, to the extent the Company incurs losses in the
future, investors purchasing the Common Stock in this Offering will bear a
disproportionate risk of such losses. See "Dilution."
NO PRIOR PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICES; POSSIBLE
VOLATILITY OF SECURITIES
Prior to this Offering, there has been no public market for the Company's
Securities. Accordingly, there can be no assurance that an active trading
market will develop or, if developed, that it will be sustained upon the
completion of this Offering or that the market prices of the Securities will
not decline below the initial public offering prices. The initial public
offering prices of the Securities and the terms of the Redeemable Warrants
have been arbitrarily determined by negotiations between the Company and the
Representative and do not necessarily bear any relationship to the Company's
assets, book value, net earnings, net sales or other established criteria of
value, and should not be considered indicative of the actual value of the
Securities. See "Underwriting." The stock market has, from time to time,
experienced extreme price and volume fluctuations, which often have been
unrelated to the operating performance of particular companies. Regulatory
developments and economic and other external factors, as well as
period-to-period fluctuations in financial results of the Company, may have a
significant impact on the market prices of the Securities.
POSSIBLE DELISTING OF SECURITIES
Prior to this Offering, there has been no established trading market for
the Company's Securities and there is no assurance that a trading market for
such Securities will develop after the completion of this Offering. If a
trading market does in fact develop for the Securities offered hereby, there
can be no assurance that it will be sustained. Subject to official notice of
issuance the Common Stock and the Redeemable Warrants have been approved for
trading on
9
<PAGE>
NASDAQ SmallCap and the BSE. If the listings are approved, the continued
trading of the Common Stock and the Redeemable Warrants on NASDAQ SmallCap
and the BSE is conditioned upon the Company meeting certain criteria. If the
Company fails to meet any of these criteria, the Common Stock and/or the
Redeemable Warrants could be delisted from trading on NASDAQ SmallCap or the
BSE, which delisting could materially adversely affect the trading market for
the Common Stock and/or the Redeemable Warrants. There can be no assurance
that the Securities will not be delisted. See "Underwriting."
PENNY STOCK REGULATION
In the event the Common Stock is delisted from trading on NASDAQ SmallCap
and the trading price of the Common Stock is less than $5.00 per share,
trading in the Common Stock would also be subject to the requirements of Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchaser and receive the purchaser's written consent
prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990 also require additional disclosure in connection with any
trades involving a stock defined as a "penny stock" (generally, according to
recent regulations adopted by the Securities and Exchange Commission (the
"Commission"), any non-NASDAQ equity security that has a market price of less
than $5.00 per share, subject to certain exceptions), including the delivery,
prior to any penny stock transaction, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. Such requirements
could severely limit the market liquidity of the Common Stock and the ability
of purchasers in this Offering to sell their securities in the secondary
market. There can be no assurance that the Common Stock will not be treated
as a penny stock.
NO DIVIDENDS ANTICIPATED
The holders of Common Stock are entitled to receive dividends when, as and
if declared by the Board, out of funds legally available therefor. The
Company does not anticipate paying any dividends on its Common Stock in the
foreseeable future. See "Dividend Policy" and "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE
Sale of a substantial number of shares of the Common Stock in the public
market contemporaneously with or following this Offering could materially
adversely affect the market price of the Common Stock. In addition to the
Common Stock offered hereby, (i) approximately 75,000 shares of Common Stock
being registered for the account of Selling Security Holders will be
available for sale on the date of this Prospectus, (ii) approximately 20,000
shares of Common Stock, which are being registered for the account of Selling
Security Holders, will be available for sale in the public market commencing
six months after the date of this Prospectus unless released earlier by the
Representative, (iii) approximately 825,000 shares of Common Stock, including
75,000 shares being registered for the account of Selling Security Holders,
will be available for sale in the public market commencing 12 months after
the date of this Prospectus unless released earlier by the Representative,
(iv) approximately 1,700,000 additional shares of Common Stock will be
available for sale in the public market commencing 24 months after the date
of this Prospectus, unless released earlier by the Representative, and (v)
approximately 500,000 shares of Common Stock being registered for the account
of Selling Security Holders will be available for sale in the public market
commencing 24 months after the date of this Prospectus, which shares may not
be released earlier by the Representative. See "Shares Eligible For Future
Sale." Sales of these shares are subject, in the case of shares held by
directors, officers and other affiliates of the Company, to certain volume
limitations and other requirements of Rule 144 under the Securities Act of
1933 (the "Securities Act").
Each of the Company's directors and officers (all such stockholders
holding an aggregate of 1,500,000 shares of Common Stock, including the
Directors Shares, and warrants and options to purchase an aggregate of
775,000 shares of Common Stock), have agreed not to publicly offer, sell or
otherwise dispose of any Common Stock (other than the 100,000 Directors
Shares and 3,334 shares of Common Stock being registered for the account of
Edmund J. McCormick, Jr. as a Selling Security Holder) for a period of 24
months after the date of this Prospectus without the prior written consent of
the Representative. See "Shares Eligible For Future Sale."
Concurrently with the Offering, the Company is registering an aggregate of
670,000 shares of Common Stock for the account of Selling Security Holders.
The Selling Security Holders have agreed to contractual restrictions on the
sale of such shares. See "Shares Eligible for Future Sale." No prediction can
be made as to the effect, if any, that sales
10
<PAGE>
of shares of Common Stock by the Selling Security Holders, or the
availability of such shares for sale will have on the market prices of the
Company's Securities prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital in the future
through the sale of equity securities.
POTENTIAL ANTI-TAKEOVER EFFECTS OF NEW YORK LAW
Certain provisions of New York law could delay and impede the removal of
incumbent directors and could make a merger, tender offer or proxy contest
involving the Company more difficult, even if such event could be beneficial,
in the short term, to the interests of the stockholders. Such provisions
could limit the price that certain investors might be willing to pay in the
future for the Company's Securities.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted under the New York Business Corporation Law, the Company's
Certificate of Incorporation provides for the indemnification and elimination
of the personal liability of the directors to the Company or any of its
shareholders for damages for breaches of their fiduciary duty as directors.
As a result of the inclusion of such provision, shareholders may be unable to
recover damages against directors for actions taken by them which constitute
negligence or gross negligence or that are in violation of their fiduciary
duties. The inclusion of this provision in the Company's Certificate of
Incorporation may reduce the likelihood of derivative litigation against
directors and other types of shareholder litigation. See "Management --
Limitation of Liability and Indemnification of Directors and Officers."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Redeemable Warrants are subject to redemption by the Company.
Redemption of the Redeemable Warrants could force the holders to exercise the
Redeemable Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Redeemable Warrants at
the current market price when they might otherwise wish to hold the
Redeemable Warrants, or to accept the redemption price, which may be
substantially less than the market value of the Redeemable Warrants at the
time of redemption. The holders of the Redeemable Warrants will automatically
forfeit their rights to purchase the shares of Common Stock issuable upon
exercise of such Redeemable Warrants unless the Redeemable Warrants are
exercised before they are redeemed. The holders of Redeemable Warrants will
not possess any rights as stockholders of the Company unless and until the
Redeemable Warrants are exercised. See "Description of Securities --
Redeemable Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN CONNECTION WITH
EXERCISE OF REDEEMABLE WARRANTS
The Company will be able to issue shares of its Common Stock upon exercise
of the Redeemable Warrants only if there is a then current prospectus
relating to the Common Stock issuable upon the exercise of the Redeemable
Warrants under an effective registration statement filed with the Commission
and only if such Common Stock is then qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various holders of Redeemable Warrants reside. Although the Company
will use its best efforts to meet such requirements, there can be no
assurance that the Company will be able to do so. The failure of the Company
to meet such requirements may deprive the Redeemable Warrants of any value
and cause the resale or other disposition of Common Stock issued upon the
exercise of the Redeemable Warrants to become unlawful. See "Description of
Securities."
11
<PAGE>
USE OF PROCEEDS
At initial public offering prices of $5.00 per share of Common Stock and
$.10 per Redeemable Warrant, the net proceeds to be received by the Company
from the sale of the Securities offered hereby, after deducting expenses
payable by the Company in connection with this Offering, are estimated to be
$4,026,400 ($4,787,860 if the Underwriters' over-allotment option is
exercised in full).
The Company intends to use the net proceeds of this Offering substantially
as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of Net
Use of Proceeds Dollar Amount Proceeds
- --------------- ------------- -----------------
<S> <C> <C>
Opening twelve to fourteen new retail showrooms .................... $2,100,000 52.2%
Improvements to existing retail showrooms(1) ....................... 400,000 9.9
Repayment of outstanding balance of bank borrowings(2) ............. 250,000 6.2
Lease and/or purchase machine tools and office and computer
equipment ......................................................... 200,000 5.0
Marketing and advertising .......................................... 150,000 3.7
General corporate purposes and working capital ..................... 926,400 23.0
---------- ---
Total ............................................................ $4,026,400 100 %
========== ===
</TABLE>
- ------
(1) Such improvements include, but are not limited to, painting, new signs
and new carpeting.
(2) Such bank borrowings bear interest at the prime rate plus two percentage
points (currently 10.25%) per annum.
The amounts and timing of these expenditures may vary depending upon
numerous factors, including the ability of the Company to enter into
acceptable leases for the opening of new retail showrooms.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based on both the expected utilization of
funds necessary to finance the Company's existing activities and the
Company's current objectives, as well as current economic conditions. The
Company may reallocate funds from time to time among the uses discussed above
or to new uses if it believes such reallocation to be in its best interest.
Prior to the application of the net proceeds of this Offering to the
purposes discussed above, the Company intends to invest such net proceeds in
short-term, investment grade, interest-bearing obligations, certificates of
deposit, or direct obligations of, or obligations unconditionally guaranteed
by, the United States of America.
The Company expects that cash flow from operations, together with the net
proceeds of this Offering, will fund its cash requirements for at least the
24 months following the consummation of the Offering.
Any proceeds from the exercise of the Redeemable Warrants and/or the
Underwriters' over-allotment option will be included in the Company's working
capital.
DILUTION
As of June 30, 1996, the Company had a negative net tangible book value of
($383,121) or ($0.14) per share. Net tangible book value per share is
determined by dividing the number of shares of Common Stock outstanding as of
June 30, 1996 into the net tangible book value of the Company. Without taking
into account any changes in net tangible book value after June 30, 1996 other
than to give effect to the issuance of an additional 500,000 shares of Common
Stock and the estimated net proceeds from the sale and issuance of the
Securities being offered hereby (at initial public offering prices of $5.00
per share of Common Stock and $0.10 per Redeemable Warrant), and the
application of the net proceeds therefrom, the pro forma net tangible book
value of the Company as of June 30, 1996 would be $3,975,779 or $0.94 per
share, representing an immediate increase in net tangible book value of $1.08
per share to existing stockholders and an immediate dilution of $4.06 per
share to purchasers of the Common Stock in this Offering. The number of
shares of Common Stock outstanding used in the calculation of the pro forma
net tangible book value per share gives effect to this Offering.
12
<PAGE>
The following table illustrates the per share dilution of a new investor's
equity in a share of Common Stock at June 30, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share ........................................ $5.00
Negative net tangible book value per share at June 30, 1996 .................... (0.14)
Increase per share attributable to new investors ............................... $ 1.08
--------
Pro forma net tangible book value per share after giving effect to this Offering . 0.94
-------------
Dilution in net tangible book value per share to new investors ................. $4.06 (81%)
</TABLE>
If the Underwriter's over-allotment option is exercised in full, the
increase per share attributable to new investors, the pro forma net tangible
book value per share and the dilution in net tangible book value per share to
new investors would be $1.22, $1.08 and $3.92 (78%), respectively.
The following table sets forth, as of the date of this Prospectus on a pro
forma basis, giving effect to this Offering (at an initial public offering
price of $5.00 per share of Common Stock), the number of shares of Common
Stock purchased from the Company, the total cash consideration paid to the
Company and the average price per share paid by the existing stockholders and
the purchasers of the Common Stock in this Offering.
<TABLE>
<CAPTION>
Shares Cash
Purchased Consideration Average Price
------------------------ --------------------------
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders 3,220,000 76.3% $1,460,175 22.6% $0.45
New investors ........ 1,000,000 23.7 5,000,000 77.4% $5.00
----------- --------- ------------- --------- ---------------
Total ................ 4,220,000 100.0% $6,460,175 100.0%
=========== ========= ============= =========
</TABLE>
The foregoing table assumes no exercise of the Underwriters'
over-allotment option or the Representative's Warrants. In addition, the
above calculations assume no exercise of any stock options or warrants
outstanding as of June 30, 1996 and assume no value attributable to the
Redeemable Warrants included in this Offering.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996, actual, pro forma and pro forma as adjusted. The information
presented in the table below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's financial statements (and the related notes thereto) included
elsewhere in the Prospectus. See also "Use of Proceeds" and "Selected
Financial Data."
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
Pro Forma
As
Actual Pro Forma(1) Adjusted(1)(2)
------------- ------------- ---------------
<S> <C> <C> <C>
Stockholders equity:
Common Stock; Par Value $.00133, 10,000,000 shares
authorized; 2,720,000 issued and outstanding
actual, 3,220,000 issued and outstanding pro
forma and 4,220,000 shares issued and
outstanding pro forma as adjusted(3) $ 3,618 $ 4,283 $ 5,613
Common stock warrants; 2,200,000 warrants issued
and outstanding pro forma as adjusted 0 0 220,000
Additional paid-in capital 1,566,303 1,898,138 5,923,208
Deficit (2,107,242) (2,107,242) (2,107,242)
----------- ----------- -----------
Total stockholders' equity (deficit) $ (537,321) $ (204,821) $ 4,041,579
=========== =========== ===========
</TABLE>
- ------
(1) Gives effect to issuance of an additional 500,000 shares of Common Stock
subsequent to June 30, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
(2) Reflects the receipt and initial application of the net proceeds of the
Common Stock and Redeemable Warrants offered hereby. See "Use of
Proceeds."
(3) Shares of Common Stock issued and outstanding actual, pro forma and pro
forma as adjusted do not include (i) up to 2,200,000 shares of Common
Stock issuable upon exercise of the Redeemable Warrants offered hereby,
(ii) up to 165,000 shares of Common Stock and/or 330,000 Redeemable
Warrants issuable upon exercise of the Underwriters' over-allotment
option, (iii) up to 330,000 shares of Common Stock issuable upon exercise
of the Redeemable Warrants included in the Underwriters' over-allotment
option, (iv) up to 110,000 shares of Common Stock and/or 220,000 warrants
issuable upon exercise of the Representative's Warrants, (v) up to
220,000 shares of Common Stock issuable upon exercise of the warrants
included in the Representative's Warrants, (vi) up to 750,000 shares of
Common Stock issuable upon the exercise of the Principals Warrants at an
exercise price of $3.00 per share, (vii) up to 750,000 shares of Common
Stock issuable upon exercise of the Kirlin Warrants at an exercise price
of $1.20 per share, (viii) up to 56,250 shares of Common Stock issuable
upon exercise of the Rubin Warrants at an exercise price of $2.00 per
share, and (ix) up to 25,000 shares of Common Stock issuable upon
exercise of the McCormick Options at $3.00 per share. See "Description of
Securities" and "Underwriting."
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common Stock
in the foreseeable future. The Board of the Company currently anticipates
retaining all available earnings for the growth and expansion of the
Company's business. The declaration and payment of future cash dividends, if
any, generally would depend upon the Company's earnings, financial condition,
results of operations, current and anticipated capital requirements, plans
for expansion, if any, future prospects, restrictions under then existing
credit and other debt instruments and arrangements and other factors deemed
relevant by the Board. See "Description of Securities -- Common Stock" and
"Risk Factors -- No Dividends Anticipated."
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the Company's statements
of operations for the years ended December 31, 1994 and 1995 and the balance
sheet data at December 31, 1995 are derived from the Company's financial
statements which have been audited by Ehrenkrantz and Company, independent
public accountants, and which appear elsewhere in this Prospectus. The
statement of operations data for the six months ended June 30, 1995 and 1996
and the balance sheet data at June 30, 1996 are derived from unaudited
financial statements which appear elsewhere in this Prospectus. Management
believes that all adjustments necessary for a fair presentation have been
made in such interim periods. However, the results of operations for the most
recent interim period are not necessarily indicative of the Company's
financial results for the entire current fiscal year.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months Ended
December 31, 1994 December 31, 1995 June 30,
----------------- ----------------- ------------------------------
1995 1996
-------------- ------------
<S> <C> <C> <C> <C>
Revenues ......................... $13,215,387 $13,149,018 $ 6,325,885 $6,671,082
Cost of goods sold ............... 6,003,314 6,922,500 3,780,917 2,919,695
Operating expenses ............... 7,424,579 7,891,297 3,926,102 3,733,369
----------- ----------- ----------- ----------
Earnings (loss) from operations .. (212,506) (1,664,779) (1,381,134) 18,018
Interest expense ................. (16,576) (182,605) (40,260) (23,426)
Miscellaneous income ............. 16,661 23,033 734 6,783
----------- ----------- ----------- ----------
Earnings (loss) before income tax
benefits ........................ (212,421) (1,824,351) (1,420,660) 1,375
Pro forma income tax (benefits)(1) (30,963) (426,388) (292,150) 300
----------- ----------- ----------- ----------
Pro forma net earnings (loss) .... $ (181,458) $(1,397,963) $(1,128,510) $ 1,075
=========== =========== =========== ==========
Pro forma net earnings (loss) per
equivalent common stock ......... $ (0.06) $ (0.42) $ (0.35) $ --
=========== =========== =========== ==========
Common stock and equivalent common
stock outstanding ............... 3,212,590 3,363,850 3,212,590 3,691,667
=========== =========== =========== ==========
</TABLE>
- ------
(1) From inception through September 27, 1995, the Company elected to be
taxed as an S Corporation under the applicable provisions of the
Internal Revenue Code of 1986, as amended. Effective September 27, 1995,
the Company's S Corporation election was voluntarily revoked, subjecting
the Company to corporate income taxes subsequent to that date. Pro forma
income tax (benefits), pro forma net income (loss) per equivalent common
stock and common stock and equivalent common stock outstanding represent
the Company's income tax position had the Company been a C Corporation
for all periods presented other than the six months ended June 30, 1996.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
December 31, Pro Forma
As
1995 Actual Pro Forma(1) Adjusted(1)(2)
-------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Working capital (deficit) ..... $(1,246,590) $(1,230,088) $ (897,588) $3,128,812
Total assets .................. 2,382,173 2,887,131 3,219,631 7,246,031
Total liabilities ............. 3,176,669 3,424,452 3,424,452 3,424,452
Stockholders' equity (deficit) (794,496) (537,321) (204,821) 3,821,579
</TABLE>
- ------
(1) Reflects the issuance of an additional 500,000 shares of Common Stock
subsequent to June 30, 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources".
(2) Reflects the receipt and initial application of the net proceeds from the
sale of the Common Stock (excluding the Directors Shares) and Redeemable
Warrants offered hereby. See "Use of Proceeds."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements (and the related notes thereto) included
elsewhere in this Prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."
RESULTS OF OPERATIONS -- RATIOS
The following tables set forth, for the periods indicated, certain items
from the Company's Statements of Operations, presented as a percentage of
revenues. The operating results for any period are not necessarily indicative
of results that can be expected for any future period.
<TABLE>
<CAPTION>
Year ended Six Months
December 31 ended June 30
--------------------- ---------------------
1994 1995 1995 1996
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 45.4% 52.6% 59.8% 43.8%
Gross profit 54.6% 47.4% 40.2% 56.2%
Selling, general & administrative expenses 56.2% 60.0% 62.1% 56.0%
Earnings (loss) from operations (1.6)% (12.6)% (21.8)% .2%
Other income (deductions) -- (1.2)% (.6)% (.2)%
Pro forma net earnings (loss) (1.4)% (10.6)% (17.8)% --
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues for the six months ended June 30, 1996 totaled $6,671,082 as
compared to $6,325,885 for the six months ended June 30, 1995, or an increase
of $345,197 or 5.5%. This increase is primarily the result of an increase in
the average price received by the Company for its products.
Cost of goods sold totaled $2,919,695 or 43.8% of revenues for the first
six months of 1996 as compared to $3,780,917 or 59.8% of revenues for the
first six months of 1995. This reduction of $861,222 or 22.8% was primarily
the result of reductions of labor costs and material costs and manufacturing
overhead. The overall decrease in direct manufacturing costs was the result
of changes made to the method of manufacturing recommended and implemented by
a newly hired plant operations manager and the Target Team, which consists of
senior management of the Company and management consultants. See "Business --
Manufacturing Process".
As a result of the foregoing, the Company realized an increase in gross
profit in 1996 as compared to 1995, with a gross profit of $3,751,387 or
56.2% of revenues in the first six months of 1996 as compared to $2,544,968
or 40.2% of revenues achieved during the same period in 1995.
Selling, general and administrative expenses totaled $3,733,369 for the
first six months of 1996, as compared to $3,926,102 for the first six months
of 1995. The decrease of $192,733 or 4.9% was primarily the result of
decreased administrative expenses after the merger of Bunk Trunk and RPF
Holding and reduced delivery expenses associated with a change in the
furniture delivery company used by the Company. The Company also achieved
other reductions in selling, general and administrative expenses through the
elimination of states sales tax late payment penalties.
Operating income for the period ended June 30, 1996 was $18,018 or .2% of
revenues as compared to an operating loss of $1,381,134 or 21.8% of revenues
during the period ended June 30, 1995.
Other income and expenses for the period ended June 30, 1996 was ($16,643)
as compared to ($39,526) for June 30, 1995. The decrease in other expenses of
$22,883 is primarily due to decreased interest expense attributable to the
New Jersey sales tax amnesty program that forgave all interest and penalties
on delinquent taxes.
Due to the combination of the preceding factors, the Company realized pro
forma net earnings of $1,075 during the six months ended June 30, 1996 as
compared to a pro forma net loss of $1,128,510 or 17.8% of revenues during
the six months ended June 30, 1995.
16
<PAGE>
TWELVE MONTHS ENDED DECEMBER 31, 1995 AND 1994
During the fiscal year ended December 31, 1995, the Company introduced
several new styles of mica-laminated furniture featuring a more rounded
modern look. The new line of rounded-edged furniture gained customer
acceptance and grew to represent more than 30% of the Company's furniture
sales in the first six months of 1996. However, this new line of
rounded-edged furniture proved to be more costly to produce than originally
anticipated. As a result of the high costs to manufacture these products, in
March 1995 the Company implemented many manufacturing processes and
management changes. These changes included the hiring of management
consultants, the replacement of the operations manager of the manufacturing
facility and the establishment of the Target Team.
Revenues remained relatively stable at $13,149,018 for the twelve months
ended December 31, 1995 as compared to $13,215,387 for the twelve months
ended December 31, 1994.
Cost of goods sold for the fiscal year ended December 31, 1995 were
$6,922,500 or 52.6% of revenues as compared to $6,003,314 or 45.4% of
revenues for the same period in 1994. This increase is primarily due to the
introduction of the new rounded-edged product line and the associated
increase in manufacturing costs. In October 1995, the Company began
implementing changes to the manufacturing processes recommended by the Target
Team, which changes have resulted in reductions in such costs.
As a result of the foregoing, the Company realized a decrease in gross
profit in 1995 as compared to 1994, with a gross profit of $6,226,518 or
47.4% of revenues in the twelve months ended December 31, 1995 as compared to
$7,212,073 or 54.6% of revenues achieved during the same period in 1994.
Selling, general and administrative expenses amounted to $7,891,297 or
60.0% of revenues in fiscal year 1995 as compared to $7,424,579 or 56.2% of
revenues in fiscal year 1994. Such increase is due primarily due to higher
compensation for sales personnel resulting from a new bonus commission
program, $99,900 of compensation expense representing the value of certain
warrants issued to the placement agent in connection with the September 1995
Private Placement and an $85,000 write-off relating to a dispute with a
delivery company previously used by the Company.
Operating loss for the fiscal year ended December 31, 1995 was $1,664,779
or 12.6% of revenues as compared to an operating loss of $212,506 or 1.6% of
revenues during the fiscal year ended December 31, 1994.
Other income and expenses for the fiscal year ended December 31, 1995 was
($159,572) as compared to $85 in fiscal year ended December 31, 1994. The
primary reasons, for the $159,657 net increase in other expenses were $99,900
of interest expense representing the value of certain warrants issued to the
several lenders in the 1995 bridge loan and the payment of interest and
penalties relating to delinquent states sales taxes.
In September 1995, the Company's S corporation status was changed to a C
corporation under the applicable sections of the Internal Revenue Code of
1986, as amended, as a result of the private placement of 750,000 shares of
the Company's Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." This change caused a revised tax treatment so that federal income
taxes thereafter became the direct responsibility or benefit of the Company
and not of the stockholders. This change gave rise to pro forma tax benefits
of $426,388 and $30,963 in the fiscal years ended December 31, 1995 and 1994,
respectively, as a result of the operating loss incurred by the Company
during those periods.
The preceding factors combined to show an increase in pro forma net loss
totaling $1,216,505 in the fiscal year ended December 31, 1995 as compared to
the fiscal year ended December 31, 1994. There was a pro forma net loss of
$1,397,963 or 10.6% of revenues in 1995 as compared to a pro forma net loss
of $181,458 or 1.4% of revenues in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $1,230,088 at June 30, 1996
which represented a decrease in the deficit of $16,502 or 1.0% from the
working capital deficit of $1,246,590 at December 31, 1995. The decrease in
the deficit was mainly due to an increase in inventory levels at June 30,
1996 as compared to December 31, 1995. The Company's cash position increased
from ($61,436) on December 31, 1995 to $22,802 on June 30, 1996. This was
primarily related to borrowings from the Company's line of credit discussed
below.
From inception, the Company's operations have been funded by operating
revenues, capital contributions, loans from corporate officers and bank debt.
In addition, in September 1995 and July 1996, the Company consummated private
placements of 750,000 and 500,000 shares of its Common Stock, respectively.
The Company's operating activi-
17
<PAGE>
ties provided or (used) cash of ($1,385,761) and $491,424 for the fiscal
years ended December 31, 1995 and 1994, respectively, and ($200,275) for the
six months ended June 30, 1996. In fiscal year 1995, cash was used to
primarily finance an approximately 15% decrease in accounts payable relating
to obtaining more favorable terms with raw material suppliers, expenses
related to the June 1995 bridge loan and the 1995 Private Placement and an
increase in cost of goods sold relating to the introduction of the new line
of rounded-edged furniture. In fiscal year 1994, cash was provided primarily
by an increase in accounts payable, accrued expenses and other liabilities
due to a deficiency in working capital. In addition, cash was provided by an
increase in payroll and sales tax payable due to an agreement to pay deferred
states sales tax. Such increases were offset by a decrease in prepaid
expenses and inventory due to the timing of payments for liability and
workman's compensation insurance and normal fluctuations in work in process
inventory levels. In the first six months of 1996, cash was used primarily to
finance payments of payroll taxes through an employee leasing arrangement on
a weekly basis rather than on a quarterly basis as in the past. In addition,
cash was used to finance the exchange of inventory for future advertising of
the Company's products.
The Company's investing activities provided (used) cash of $195,094,
($302,401) and ($194,496) for the fiscal years ended December 31, 1995 and
1994 and the six months ended June 30, 1996, respectively. The principal
source of the cash provided in 1995 was loans from officers in the amount of
$254,465, and the principal use of the cash in 1994 was loans to officers of
$158,488 and purchases of property and equipment of $135,791. The principal
use of cash for the period ended June 30,1996 was the purchase of leasehold
improvements and manufacturing machinery.
The Company's financing activities provided (used) cash of $1,116,716,
($122,255) and $479,009 for the fiscal years ended December 31, 1995 and 1994
and the six months ended June 30, 1996, respectively. The cash provided by
the Company's financing activities for the fiscal year 1995 primarily
resulted from the 1995 Private Placement (as defined below). The cash used by
the Company's financing activities in 1994 primarily consisted of the
deferral of rent on retail showrooms and payments made in connection with
closed showroom locations. The cash provided by financing activities for the
period ended June 30, 1996 was the result of bank borrowings more fully
discussed in the following paragraph.
In March 1996, the Company obtained a bank line of credit in the amount of
$350,000, which bears interest at the rate of prime rate plus 2% per annum
and must be repaid by April 1997. As of the date of this Prospectus, the
outstanding balance on this line of credit is $200,000. In June 1996, the
Company obtained a bank loan in the amount of $50,000, which bears interest
at prime rate plus 2% per annum and must be repaid by September 1996. As of
the date of this Prospectus, the outstanding balance on this bank loan is
$50,000. The Company intends to use a portion of the net proceeds from this
Offering to repay the outstanding balances on such bank borrowings. See "Use
of Proceeds."
In June 1995, the Company obtained a bridge loan in the amount of $300,000
from several investors. The loan was non-interest bearing and was fully
repaid in September 1995 with the proceeds of the 1995 Private Placement
discussed below. In connection with the bridge loan, the Company issued to
the investors warrants to purchase an aggregate of 75,000 shares of Common
Stock at a purchase price of $0.00133 per share. Such warrants were exercised
in June 1996.
In September 1995, the Company issued 750,000 shares of Common Stock in a
private placement at a price of $1.33 per share and received net proceeds of
approximately $831,000 (the "1995 Private Placement"). The proceeds from this
private placement were utilized for deposits on leased machinery for the
Company's manufacturing facility, the development of additional retail
showrooms and working capital.
In connection with the 1995 Private Placement, the Company granted to the
placement agent a warrant to purchase 75,000 shares of Common Stock at a
purchase price of $.00133, which warrant was exercised in September 1995, and
the Kirlin Warrants to purchase 750,000 shares of Common Stock at a purchase
price of $1.20 per share. See "Description of Securities -- The Kirlin
Warrants".
In June 1996, a bridge loan in the amount of $150,000 was obtained from
four investors. The loan bears interest at the rate of 13% per annum and is
due on June 18, 1997. In connection with this bridge loan, the Company issued
an aggregate of 20,000 shares of Common Stock to the investors.
In July 1996, a private placement of 500,000 shares of Common Stock at a
purchase price of $.80 per share was completed by the Company (the "1996
Private Placement"). The Company received net proceeds of $332,500 from the
1996 Private Placement and such proceeds were utilized for expenses relating
to this Offering, repayment of a portion of the Company's bank borrowings and
working capital.
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<PAGE>
The Company's plan of operation for the next 12 months includes using a
portion of the net proceeds of this Offering to open additional retail
showrooms and further reducing manufacturing costs. Although the Company
believes that this plan will result in the recognition of net earnings by the
Company in 1996 and future years, there can be no assurance that the Company
will be profitable in the future.
The Company expects that cash flow from operations, together with the net
proceeds of this Offering, will fund its cash requirements for at least the
24 months following the consummation of the Offering. However, there can be
no assurance that a sufficient level of sales will be attained to fund such
operations, to provide for continuing working capital or to pay for any
unanticipated costs that may be incurred by the Company in pursuing its
objectives. In the event that the net proceeds of this Offering, together
with cash flow from operations will not be sufficient to fund the Company's
anticipated cash requirements, the Company may seek to raise funds through
bank borrowings and private placements of its securities. It is also the
Company's intention to apply for lines of credit that may be utilized to
cover any variations in cash availability that may occur on a day-to-day
basis. However, there can be no assurance that such borrowings or placements
can be completed on terms acceptable to the Company, if at all.
Historically, demand for the Company's products has been seasonal, with
demand increasing in the third and fourth quarters, corresponding to the
beginning of the school year and the holiday season. The Company generally
realizes 60% of its annual revenues during those quarters.
The Company's operations have not been materially affected by the impact
of inflation.
19
<PAGE>
BUSINESS
GENERAL
The Company is a fully-integrated manufacturer and retailer of
high-pressure, mica-laminated furniture for residential uses, primarily
bedroom furniture for children ages three to 16 years old. The Company's
products are of a modular design and are intended to be multi-functional,
interchangeable and space-saving.
The Company distributes its products through its own distribution network
of 12 retail showrooms located in the greater New York City metropolitan
area. Management believes that stores located in strip malls and densely
populated areas offer the highest visibility of the Company's products and
ease of access for the Company's targeted customers. The Company's retail
showrooms range from approximately 2,000 to 5,000 square feet and yield
average annual sales of $320 per square foot as compared to the median annual
sales of $220 per square foot reported for 52 other furniture stores by
Furniture/Today, an industry publication.
The Company uses standard component pieces to manufacture furniture for
children's and adult's bedrooms and home offices. The approximately 300
standard components can be finished in various colors and textures and
combined in various configurations to produce a finished product which is
personalized to the customer's taste, space and budget. The use of standard
components also permits the Company's furniture to be reconfigured as the
customer's needs or tastes change. For example, a loft bed can be converted
into separate beds, a desk, a dresser and a bookcase, and a baby's changing
table can be converted into a child's play table and a dresser.
Unlike many of its direct competitors, the Company uses high quality raw
materials in the manufacture of its products, including high-pressure mica
laminate that is more resistant to impact and engineered wood that has been
laminated on both sides to provide greater stability and protection against
warping. The quality of materials and manufacturing processes used by the
Company enable it to offer a limited lifetime warranty against structural
defects.
Because the Company's finished products are manufactured from standard
components and personalized to the customer's needs, the Company does not
maintain a large inventory of finished products (other than showroom display
models). Finished products are manufactured to meet a specified desired
delivery date, which is generally fixed at the time of the order and is
generally within two to six weeks thereafter.
The Company's manufacturing operations are conducted in a 78,000 square
foot facility located in Paterson, New Jersey. In the past year, the Company
has implemented numerous changes to its manufacturing facility and processes
in order to significantly reduce the direct costs of manufacturing and to
produce more contemporary styles of high quality, mica-laminated furniture.
The Company's existing manufacturing facility currently operates on a
single shift and has sufficient capacity to more than double its
manufacturing volume without substantially increasing indirect costs of
manufacture. The Company plans to use a substantial portion of the proceeds
of this Offering to establish 12 to 14 additional retail showrooms, primarily
in the New York to Washington, D.C. corridor, to increase demand for its
products, and to continue to upgrade and automate its manufacturing process
and to further reduce direct manufacturing costs.
The residential furniture industry is cyclical, fluctuating with the
general economy. While the Company believes that furniture sales are
influenced by a number of macroeconomic factors including existing home
sales, housing starts, consumer confidence, interest rates and demographic
trends, the Company believes that it is less affected by industry economic
trends because of its focus on furniture for children. The Company believes
that regardless of economic trends, parents will place a high priority on
furnishing their children's rooms with affordable, high quality furniture.
This discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
The Company is a New York corporation that was organized in 1982 under the
name RPF Holding Corp. ("RPF Holding") and was engaged in the retail sale of
mica-laminated furniture. From 1979 to 1982, the founders of the Company had
engaged in the same business under other corporate names. In March 1995, Bunk
Trunk Manufacturing Company, Inc. ("Bunk Trunk"), which was the principal
manufacturer of the furniture sold by RPF Holding, was
20
<PAGE>
merged into RPF Holding. The surviving entity in such merger, which was named
TAM Industries, Inc., changed its name to Room Plus, Inc. in June 1995. The
Company's principal offices are located at 91 Michigan Avenue, Paterson, New
Jersey 07503, and its telephone number at that address is (201) 523-4600.
MANUFACTURING PROCESS
The Company manufactures its products in a 78,000 square foot plant
located in Paterson, New Jersey. The plant currently operates on one shift
five days per week utilizing a "Just In Time" manufacturing process that
allows the Company to reduce expenses associated with the maintenance of
inventory. The plant has sufficient capacity to enable the Company to more
than double its manufacturing volume without substantially increasing
indirect manufacturing costs.
Many of the current production processes used by the Company in the
manufacture of its products are highly labor intensive as is traditional in
the furniture manufacturing industry. The Company intends to utilize a
portion of the net proceeds of this Offering to lease and/or purchase machine
tools to further automate the manufacture of the Company's products in order
to decrease the costs associated with such manufacturing. Management believes
that additional shifts of workers, together with the continued automation of
the manufacturing process, will permit the Company to meet its manufacturing
requirements over the foreseeable future without the necessity of expanding
its manufacturing facility beyond its current size. The Company is also
exploring the possibility of using any excess manufacturing capacity to
provide independent retailers with a private label of the Company's products.
In March 1995, the Company established the Target Team program as a method
of engaging the participation of all Company employees in Company-wide
improvements. The Target Team solicits individual employee and group ideas as
to how to reduce costs and make the Company more profitable. Groups are
created to establish and meet aggressive targets in all phases of the
manufacturing process, such as the time it takes to build a piece of
furniture and the amount of raw materials utilized. The Target Team consists
of senior management of the Company and management consultants who review
employee suggestions and provide recommendations that have resulted in the
significant reduction of manufacturing costs. For example, the Target Team
recommended the establishment of work cells into the production line under
which employees are assigned to the manufacture of certain products, thereby
increasing productivity and enhancing the skills of workers.
RAW MATERIALS AND SUPPLIERS
The raw materials used by the Company in manufacturing its products
include laminate, lumber, plywood, fiberboard, engineered wood, hardware,
adhesives, finishing materials and mirrored glass. Management believes that
such raw materials are readily available.
The Company has no long-term supply contracts for its raw materials and
generally purchases its raw materials from a small number of suppliers.
Although the Company has strategic reasons such as price, quality and
delivery for using a limited number of suppliers, the Company believes that
sufficient other sources of raw materials are available should its current
supply sources be disrupted. Raw materials prices fluctuate over time
depending on factors such as supply and demand and increases in prices may
have a short-term negative impact on the Company's financial condition.
PRODUCTS
The Company manufactures and sells multi-functional high quality
mica-laminated furniture designed both to make small spaces larger and to be
convertible into other uses. The furniture offered by the Company is
primarily made of engineered wood covered on the interior with low-pressure
mica laminate and on the exterior with high-pressure mica laminate. The
Company has recently test marketed a thinner, low-pressure laminated
furniture line that sells at lower prices, and management believes that there
is sufficient demand for this product line to warrant further test marketing.
In addition, the Company recently introduced a new contemporary modular
furniture design that has rounded (post-formed) edges on tops and drawers.
The benefits of rounded edges to the consumer include enhanced visual appeal
and elimination of hard edges, which is an important safety consideration,
since the Company principally targets the children's furniture market.
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<PAGE>
The Company manufactures approximately 300 standard components that can be
combined in various configurations to meet a customer's space limitations or
storage needs, and such components can be finished in hundreds of colors and
textures. In addition, the Company offers numerous options and features to
personalize its products for each customer. For example, telephone jacks can
be added to bedroom headboards, dividers can be included in drawers and night
tables can be manufactured with a tray that slides away when not in use. Such
features allow customers to have the look and utility of customized furniture
at a lower cost.
The Company maintains an open stock policy, which enables customers to add
additional matching pieces over time to previously purchased furniture
products and to change the look of their furniture by replacing door and
drawer fronts and other accent pieces. The Company believes that such
flexibility enhances the value of the furniture to the customer and
encourages repeat business.
A substantial majority of the Company's sales relate to bedroom furniture
for children and young adults. The Company offers a wide range of beds for
children with matching desks and dressers, including multi-functional bunk
and storage modules. One of the most popular models for children is the loft
bed that utilizes space more efficiently than conventional bedroom furniture.
It is able to sleep one or two people and has a built-in desk and storage
drawers. Since a child's room is often the smallest room in the house, the
Company's children's furniture line is designed to save space through modular
designs and filling space vertically, leading to the Company's motto "A LOT
OF LIVING in a Little Space". See "Business -- Advertising and Promotion."
In addition, a portion of the Company's sales relate to adult bedroom
furniture and home office furniture. The Company offers, among other items,
night tables, headboards, armoires, bookcases, computer stations and desks.
Approximately 5% of the Company's sales are comprised of accessory
furnishings such as lamps, bed coverings, bookends, picture frames and other
small items that give the Company the ability to complete the design of the
room in the showroom.
GALLERY/SPECIALTY FORMAT
Two formats widely used by retailers of furniture to market their products
are the gallery format and the specialty format. The gallery format displays
products in complete room settings, including furnishings, wall decor, window
treatments, accents and accessories and typically feature the products of one
manufacturer, such as Ethan Allen, La-Z-Boy, Thomasville and Drexel
Heritage. The specialty format specializes in a category of merchandise such
as bedding, sofas or lighting and is utilized by retailers such as Pier 1
Imports, Sleepy's and The Bombay Company.
The Company utilizes a combination gallery/specialty format as its
high-pressure mica-laminated furniture is displayed in settings designed to
allow the consumers to envision the look of a complete room in their homes.
Each retail showroom features approximately 10-12 room settings. This
presentation format encourages consumers to purchase an entire room of
furniture and accessories from the Company, instead of individual pieces from
different manufacturers and results in an average sale per customer of
approximately $2,000. The Company believes that distributing its products
through dedicated Company owned stores strengthens brand awareness, provides
well-informed and focused sales personnel and encourages the purchase of
multiple items per visit.
ADVERTISING AND PROMOTION
The Company's marketing effort is supported by extensive advertising and
promotion featuring the Company's slogan "Just Round the Corner" and "A LOT
OF LIVING in a Little Space" motto. Management believes that advertising on
broadcast and cable television has made the Company a household name in the
area of children's furniture in the New York metropolitan area.
For fiscal year ended December 31, 1995, the Company's advertising budget
was approximately $1,000,000 or 7% of revenues. The Company achieves savings
in advertising costs through its use of an affiliated entity to purchase
advertising at discounts and its strategy of making long-term advance
purchases and purchasing in time blocks in bulk to achieve discounted rates.
The Company also advertises to a lesser extent in newspapers and has begun a
direct mail campaign to selected target markets.
The Company's primary target market is women in the 24 to 50 age bracket,
since the Company believes they most strongly influence the buying decision
for children's furniture. Much of the Company's advertising is also shown
during programming for children because children may influence their parents'
decision on what type of furniture to have in their rooms.
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The three principals of the Company established Retail Media Plus, Inc.
("Retail Media Plus") in June 1995. Retail Media Plus places all of the
Company's advertising and bills the Company only for the actual cost of such
advertising, without any additional expenses or mark-ups. See "Certain
Transactions."
EXPANSION STRATEGY
The Company's expansion strategy is primarily focused on opening
additional retail showrooms in the existing markets of New York and New
Jersey and in new markets such as Pennsylvania, Maryland, Washington, DC and
Virginia. Management currently has identified three sites in the metropolitan
New York area which will be evaluated for possible expansion in the last six
months of 1996 and the first quarter of 1997. The Company intends to use
approximately 50% of the proceeds from this Offering to open twelve to
fourteen new retail showrooms in the next 24 months. See "Use of Proceeds."
CUSTOMER SATISFACTION
The Company is committed to providing high-quality customer service in all
phases of its business, including offering instant store credit, a decorating
service and professional delivery. The Company offers no interest, deferred
payment plans to qualified purchasers, which the Company believes gives
customers the flexibility to structure their purchases of the Company's
furniture according to their budget.
The Company is generally able to offer delivery and in-home set-up of its
products within two to six weeks from the date of the order. Delivery is
provided by an independent professional furniture delivery company whose
delivery personnel are trained by the Company in the set-up of its products.
The Company also offers free in-home decorating service with a minimum
purchase of $1,000. A trained salesperson will travel to a customer's home
with pictures of the Company's products, floor plans and charts of available
colors and finishes, assist the customer in the selection of products and
take measurements to ensure that the furniture selected will fit properly in
the intended location.
In addition to its sales personnel, skilled customer satisfaction
representatives are available to answer customer questions during business
hours. The Company believes that its commitment to customer service has
contributed to the number of repeat purchases by the Company's customers.
GOVERNMENT REGULATION
The Company's manufacturing operations are subject to a wide range of
federal, state and local laws and regulations relating to the protection of
the environment, worker health and safety and the emission, discharge,
storage, treatment and disposal of hazardous materials. These laws include
the Clean Air Act of 1970, as amended, the Resource Conservation and Recovery
Act, the Federal Water Pollution Control Act and the Comprehensive
Environmental, Response, Compensation and Liability Act. Certain of the
Company's operations use glues and coating materials that contain chemicals
that are considered hazardous under various environmental laws. Accordingly,
management closely monitors the Company's environmental performance at its
manufacturing facility. The Company is also a voluntary participant in the
Occupational Safety and Health Administration ("OSHA") Consultation Program
in which OSHA periodically inspects the Company's facilities and makes
recommendations on how to eliminate unsafe conditions in the manufacturing
process before a complaint is filed. The cost to the Company to comply with
government regulation of its manufacturing process and the effect of such
compliance on the Company's operations are not material.
The Company's retail operations are not subject to material federal, state
and local laws and regulations other than consumer protection laws.
Management believes that the Company is in substantial compliance with all
laws and regulations affecting its business.
COMPETITION
The home furniture industry is a highly competitive and fragmented market
with annual U.S. sales of over $45 billion in 1994 and estimated annual U.S.
sales of $48 billion in 1995.
The Company is the largest retailer of mica-laminated home furniture in
the New York metropolitan area, where its eleven retail showrooms are
located. Several small retailers such as Atlantic Furniture and Kids' Room,
and large
23
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retailors, such as IKEA, also sell mica-laminated furniture similar to that
sold by the Company in the same geographic region, but generally through only
one or two retail outlets. The Company also competes with many companies,
including much larger and diverse furniture companies, such as Huffman Koos,
Levitz, Thomasville and Drexel Heritage, that sell primarily wood furniture
that is not mica-laminated. The Company believes that it will face similar
competitive conditions (a few small retailers specializing in mica-laminated
furniture and many retailers, both large and small, of home furniture that is
not mica-laminated) in the market areas in which it plans to open additional
retail showrooms.
Many of the Company's current and potential competitors have substantially
greater financial, manufacturing, marketing, distribution and other resources
than the Company, and there is no assurance that the Company will be able to
compete successfully in the future.
RETAIL SHOWROOMS
The Company distributes substantially all of its products through a
network of Company-owned retail showrooms dedicated solely to the display of
the Company's products. All of such showrooms are located in premises leased
by the Company. As of the date of this Prospectus, the Company operates 12
retail showrooms in New York and New Jersey, which showrooms are set forth
below:
Month and Year Square Feet
Location Opened (Approximate)
------------------------------ -------------- -------------
Manhattan (3rd. Ave.), NY June 1981 3,500
Manhattan (Lexington Ave.), NY November 1995 2,700
Manhattan (Broadway between
18th & 19th Sts.), NY September 1996 5,000
Scarsdale, NY January 1982 3,500
Farmingdale, NY February 1995 3,700
Carle Place, NY August 1987 4,400
Forest Hills, NY October 1987 2,000
Paramus, NJ (Rt.4) March 1983 5,000
Paramus, NJ (Rt.17) February 1988 5,000
East Hanover, NJ August 1983 4,000
East Brunswick, NJ August 1985 3,350
Union, NJ October 1995 3,900
The leases for the Company's retail showrooms have terms ranging from five
to 13 years, and some leases contain optional renewal provisions for
additional five year periods.
The Company's retail showrooms are open seven days a week, generally from
10 a.m. to 9 p.m. Monday through Saturday and 12 p.m. to 5 p.m. on Sundays.
The two retail showrooms located in Paramus, New Jersey are closed on
Sundays.
From June 1991 to September 1995, the Company closed seven retail
showrooms to reduce costs and consolidate selling efforts. The showrooms that
were closed were located in Manhasset and Cedarhurst, New York, Totowa,
Eatontown, Toms River, and Manalapan, New Jersey and Westport, Connecticut.
In addition to its retail showrooms, the Company currently leases a 78,000
square foot plant in Paterson, New Jersey, which houses its administrative
offices, executive staff, sales and marketing staff and its manufacturing and
shipping facilities. The Company leases the facility at a monthly rent of
approximately $23,000, subject to annual adjustment as more fully set forth
in such leases. The leases expire on May 31, 1999, and the Company has the
option to renew the leases for an additional 15 year period on the same terms
and conditions as the original leases, including annual adjustments in rent.
The owner of the Paterson facility is M & S Realty Company, which is owned by
Theodore Shapiro, the Company's Executive Vice President and Director of
Manufacturing. See "Certain Transactions."
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<PAGE>
EMPLOYEES
In January 1996, all Company employees became employees of Corporate
Management Group Recruiting, Inc. ("CMGR") and their services were then
leased back to the Company pursuant to an employee leasing agreement (the
"Employee Leasing Agreement") between the Company and CMGR. All references to
employees in this Prospectus refer to employees whose services are leased by
the Company from CMGR pursuant to the Employee Leasing Agreement.
Pursuant to the Employee Leasing Agreement, CMGR is responsible for
payment of all federal, state and local employment taxes and providing
workers' compensation and disability coverage and other mandated employee
benefits for the employees. The Company retains the right to make all
decisions concerning the hiring and termination of employees. The Employee
Leasing Agreement provides that it shall continue in full force and effect
unless terminated by (i) either party for cause, as described in such
agreement, (ii) the Company on thirty (30) days prior notice, or (iii) CMGR
on ninety (90) days prior notice.
The Company provides intensive two-week, 100-hour training program to all
sales personnel. Topics include merchandising, room layout, product knowledge
and salesmanship and are taught by a full-time professional trainer. The
Company believes that a well-trained sales force helps increase sales,
encourages repeat customers and minimizes employee turnover. The Company
attempts to select its retail managers from the pool of sales personnel
employed by the Company. The average store manager has been with the Company
for approximately seven years, and the sales manager has been with the
Company for over 13 years.
As of June 30, 1996, the Company had approximately 141 employees, of whom
four were executive officers, 51 were engaged in sales, 66 were engaged in
manufacturing and 20 were administrative staff. Approximately 50 of the
Company's manufacturing employees are covered by a collective bargaining
agreement with a local division of the International Union of Electronic,
Electrical, Salaried, Machine and Furniture Workers, AFL-CIO (the "Union").
The Company entered into a three-year collective bargaining agreement with
the Union in September 1994. The Company has never experienced a material
work stoppage and believes that its relationship with its employees is
generally satisfactory.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings, nor,
to the Company's knowledge, is any material legal proceeding threatened.
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MANAGEMENT
The directors, executive officers and significant employees of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Marc Zucker 48 Chairman of the Board and Chief Executive Officer
Allan Socher 46 President, Director of Marketing and Director
Theodore Shapiro 62 Executive Vice President, Director of Manufacturing and
Director
Edmund J. McCormick, Jr. 54 Director
William Halpern 42 Chief Financial Officer
</TABLE>
Marc Zucker has been the Chairman of the Board and Chief Executive Officer
of the Company since March 1995. He was a co-founder of RPF Holding and was
its president from 1982 until its merger with Bunk Trunk in March 1995. In
addition, he was Vice President and General Manager of Bunk Trunk from its
inception in 1984 until the merger with RPF Holding. Prior to that, Mr.
Zucker worked in other areas of the retail furniture business for 10 years.
Allan Socher has been the President, Director of Marketing and a Director
of the Company since March 1995. Mr. Socher is also the Company's
spokesperson in its extensive television commercials. He was a
Vice-President, Secretary and a co-founder of RPF Holding from 1982 until its
merger with Bunk Trunk in March 1995 and was a Vice-President and Secretary
of Bunk Trunk from its inception in 1984 until the merger with RPF Holding.
Prior to that, Mr. Socher worked in other areas of the retail furniture
business for 10 years.
Theodore Shapiro has been the Executive Vice President, Director of
Manufacturing and a Director of the Company since March 1995. He was one of
the original founders of Bunk Trunk in 1982 and was its President from
inception until the merger with RPF Holding in March 1995. Mr. Shapiro had
worked in the retail furniture business for over 12 years before founding his
own retail furniture chain, Mr. Sandman Furniture, in 1960.
Edmund J. McCormick, Jr. has been a Director of the Company since March
1995. He has been the Chairman of McCormick & Company, an international
management consulting firm, since 1985.
William Halpern, CPA, has been the Chief Financial Officer of the Company
since March 1995. Prior to that, Mr. Halpern was Chief Financial Officer of
Bunk Trunk and RPF Holding from December 1989 until their merger in March
1995. Prior to that, he served for over 12 years in diversified financial
positions with several corporations, including Xerox Corporation, Colt
Industries and Household International. He holds a BA degree in accounting
from Brooklyn College.
Mr. Zucker and Mr. Socher are brothers-in-law and Mr. Shapiro is the uncle
of their spouses.
The Representative is entitled to designate one member of the Board for a
period of three years after the date of this Prospectus, subject to the
Company's good faith approval. In the event the Representative elects not to
exercise this right, it may designate one person to attend all meetings of
the Board for a period of three years.
Directors are elected to serve until the next meeting of stockholders and
until their successors are elected and qualified. Meetings of stockholders of
the Company will be held on an annual basis upon the completion of this
Offering. However, if at any time a meeting is not held for the election of
directors, the then current directors will continue to serve until their
successors are elected and qualified. Officers serve at the discretion of the
Board.
The Company has undertaken to appoint two independent directors to its
Board within 90 days after the date of this Prospectus. The Company is
required to appoint two independent directors in order to maintain listing on
the Boston Stock Exchange. Failure to appoint such directors could result in
a termination of the Company's listing on the Boston Stock Exchange.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements effective June 30,
1995, as amended on August 1, 1996, with each of Marc Zucker, Allan Socher
and Theodore Shapiro (the "Principals"). Pursuant to each employment
agreement, Messrs. Zucker, Socher and Shapiro will act as Chairman and Chief
Executive Officer, President and Director of Marketing, and Executive Vice
President and Director of Manufacturing, respectively, and each will be
entitled to receive, among other things, (a) a salary of $125,000 per annum,
(b) such further sum by way of bonus or otherwise as determined by the
Compensation Committee of the Board, or if no such committee is established
by the Board, the entire Board, in each year of the employment agreement, and
(c) pension contributions as set forth in any future plan adopted by the
Company.
26
<PAGE>
In addition, pursuant to their employment agreements, Allan Socher is
entitled to a performance bonus of .75% of revenues and Marc Zucker and
Theodore Shapiro are each entitled to a performance bonus of 1.5% of gross
profit.
Each employment agreement shall continue unless terminated by the Company
for cause, as described in such employment agreement, or terminated by not
less than three (3) years written notice if given by the Company or not less
than three (3) months written notice if given by the respective Principal.
In the event any person shall become beneficially entitled to 50% plus one
share or more of the issued and outstanding Common Stock of the Company
pursuant to an offer, the terms of which are not recommended by the Board,
each of the Principals shall be permitted to terminate his employment
agreement within one week of the completion of the change in control or such
later date as may be agreed upon by such Principal and the Company. In the
event of such termination, the Principal shall be entitled to payment from
the Company of an amount calculated in accordance with the provisions of his
employment agreement.
For a period of one year following the termination of each employment
agreement, such Principal shall not solicit or endeavor to entice away any
employee, director or agent of the Company or any entity affiliated with the
Company. In addition, such Principal may not, at any time after the
termination of the employment agreement, use the names or slogans "Room
Plus", "Just 'Round the Corner" or "A LOT OF LIVING in a Little Space" or any
similar name for the purpose of a business competing with the Company or any
entity affiliated with the Company.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to, as well as any other compensation paid to or earned by, the Chairman and
Chief Executive Officer of the Company and those executive officers
compensated at or greater than $100,000 for services rendered to the Company
in all capacities during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------- ----------------------
Awards
----------------------
Name of Securities
Individual Underlying
and Principal Options/
Position Year Salary(1) Bonus SARS(#)
---------------------------- ------ ---------- --------- ----------------------
<S> <C> <C> <C>
Marc Zucker
Chairman (Chief Executive
Officer) .................. 1995 $172,500 $51,184 250,000(2)
Allan Socher
President and Director of
Marketing ................. 1995 $172,500 $41,861 250,000(2)
Theodore Shapiro
Executive Vice President
and Director of
Manufacturing ............. 1995 $172,500 $46,559 250,000(2)
</TABLE>
- ------
(1) Prior to June 30, 1995, each of the named executive officers were paid a
base salary of $220,000 per annum. Subsequent to June 30, 1995, each of
such officers were paid a base salary of $125,000 per annum as set forth
in their respective employment agreements. See "Management--Employment
Agreements."
(2) Includes warrants to purchase 250,000 shares of Common Stock at a price
of $3.00 per share. Such warrants are exercisable at any time until
November 1, 2001.
27
<PAGE>
The following table sets forth certain information with respect to options
granted to the named executive officers during the fiscal year ended December
31, 1995, and the aggregated number and value of options exercisable and
unexercisable by the named executive officers as of December 31, 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
Percent of
Total
Number of Options/
Securities SAR's Exercise
Underlying Granted To or Base
Options/SAR's Employees in Price
Name Granted (#) Fiscal Year ($/Share) Expiration Date
- ---- --------------- -------------- ---------- -------------------
<S> <C> <C> <C> <C>
Marc Zucker
Chairman (Chief Executive
Officer) .................. 250,000 33.3% $3.00 November 1, 2001(1)
Allan Socher
President and Director of
Marketing ................. 250,000 33.3 3.00 November 1, 2001(1)
Theodore Shapiro
Executive Vice President
and Director of
Manufacturing ............. 250,000 33.3 3.00 November 1, 2001(1)
</TABLE>
- ------
(1) Warrants are exercisable for a period of five years from the date of this
Prospectus.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the Company provides that no director
of the Company shall be personally liable to the Company or its shareholders
for damages for any breach of duty in such capacity, except as otherwise
provided in the Business Corporation Law of the State of New York, as amended
from time to time.
Section 722 of the New York Business Corporation Law empowers a New York
corporation to indemnify any person, made, or threatened to be made, a party
to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type
or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of
the corporation served in any capacity at the request of the corporation, by
reason of the fact that he, his testator or intestate, was a director or
officer of the corporation, or served such other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and reasonable
expenses, including attorney's fees actually and necessarily incurred as a
result of such action or proceeding, or any appeal therein, if such director
or officer acted, in good faith, for a purpose which he reasonably believed
to be in, or in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and, in criminal
actions or proceedings, in addition, had no reasonable cause to believe that
his conduct was unlawful.
In addition, Section 722 of the New York Business Corporation Law states
that a New York corporation may indemnify any person made, or threatened to
be made, a party to an action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he, his testator
or intestate, is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of any
other corporation of any type or kind, domestic or foreign, of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred by him in connection with
the defense or settlement of such action, or in connection with an appeal
therein if such director or officer acted, in good faith, for a purpose which
he reasonably believed to be in, or, in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan
or other enterprise, not opposed to, the best interests of the corporation,
except that no indemnification under this paragraph shall be made in
28
<PAGE>
respect of (1) a threatened action, or a pending action which is settled or
otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and
only to the extent that the court on which the action was brought, or, if no
action was brought, any court of competent jurisdiction, determines upon
application that, in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
COMPENSATION OF DIRECTORS
Outside Directors of the Company are currently entitled to receive $250
for attendance at each Board meeting.
29
<PAGE>
PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
Percent Ownership of
Number of Shares of Common Stock Outstanding
Common Stock ----------------------------------
Beneficially Owned After
Name and Address of Beneficial Owner Before Offering Before Offering Offering(1)
------------------------------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
Marc Zucker 733,334 (2) 21.1% 15.7%
91 Michigan Avenue
Paterson, NJ 07503
Allan Socher 733,333 (3) 21.1% 15.7%
91 Michigan Avenue
Paterson, NJ 07503
Theodore Shapiro 733,333 (4) 21.1% 15.7%
91 Michigan Avenue
Paterson, NJ 07503
Edmund J. McCormick, Jr. 78,334 (5) 2.4% 1.6%
91 Michigan Avenue
Paterson, NJ 07503
Swan Alley (Nominees) Limited 775,000 (6) 20.8% 16.4%
40 Queen Street
London ECR IDD England
Frank Terzo 500,000 (7) 14.4% 11.2%
26 Tunnel Street
Floral Park, NY 11001
Kirlin Holding Corp. 224,687 (8) 7.0% 5.3%
6901 Jericho Turnpike
Syosset, NY 11791
Mark Rubin 192,396 (9) 5.9% 4.5%
17 Cardinal Drive
East Hills, NY 11576
All Directors and Officers as a Group
(4 Persons) 2,278,334(10) 57.0% 43.5%
</TABLE>
- ------
(1) Gives effect to the sale of shares of Common Stock in connection with an
offering by the holders of the Directors Shares and the Selling Security
Holders which is being made concurrently with this Offering.
(2) Includes warrants to purchase 250,000 shares of Common Stock which Marc
Zucker is eligible to exercise on the date of this Prospectus.
(3) Includes warrants to purchase 250,000 shares of Common Stock which Allan
Socher is eligible to exercise on the date of this Prospectus.
(4) Includes warrants to purchase 250,000 shares of Common Stock which
Theodore Shapiro is eligible to exercise on the date of this Prospectus.
(5) Includes currently exercisable options to purchase 25,000 shares of
Common Stock.
(6) Includes an option to purchase that portion of the Kirlin Warrants
entitling the holder thereof to purchase 500,000 shares of Common Stock.
(7) Includes an option of Small Cap. Consulting International, Inc. to
purchase that portion of the Kirlin Warrants entitling the holder thereof
to purchase 250,000 shares of Common Stock. Frank Terzo is the President,
sole director and sole stockholder of Small Cap. Consulting
International, Inc.
(8) Includes (i) 219,375 shares of Common Stock owned by Kirlin Holding Corp.
and its wholly owned subsidiary, Kirlin Securities, Inc. (collectively,
"Kirlin") and (ii) 5,312 shares of Common Stock owned by David Lindner,
the Chief Executive Officer of Kirlin. Does not include the Kirlin
Warrants to purchase 750,000 shares of Common Stock as to which Kirlin
granted options to purchase to Small Cap. Consulting International, Inc.
and Swan Alley (Nominees) Limited.
(9) Includes currently exercisable warrants to purchase 56,250 shares of
Common Stock.
(10) Includes an aggregate of 775,000 shares of Common Stock issuable upon
exercise of outstanding options and warrants.
30
<PAGE>
SELLING SECURITY HOLDERS
The 100,000 Directors Shares and an aggregate of 670,000 shares of Common
Stock are being registered in this Offering at the expense of the Company for
the account of the holders of the Directors Shares and the Selling Security
Holders, respectively. An aggregate of 75,000 shares of Common Stock being
registered for the account of the Selling Security Holders are not subject to
any contractual restrictions on resale and can be offered for immediate sale
on the date of this Prospectus. Sales of the shares held by the Selling
Security Holders may depress the price of the Common Stock or the Redeemable
Warrants in any market that may develop for such securities.
The following tables set forth certain information with respect to the
holders of the Directors Shares and the Selling Security Holders. The 670,000
shares of Common Stock being registered for the account of the Selling
Security Holders are not being underwritten by the Underwriters in connection
with this Offering. However, the 100,000 Directors Shares are being
underwritten by the Underwriters in connection with this Offering. The
Company will not receive any proceeds from the sale of the Directors Shares
or the shares held by the Selling Security Holders. Except as indicated
below, none of the Selling Security Holders has had any position, office or
other material relationship with the Company within the past 3 years.
DIRECTORS SHARES BEING UNDERWRITTEN IN THIS OFFERING
<TABLE>
<CAPTION>
Beneficial Ownership of Beneficial Ownership of
Shares of Common Stock Securities Shares of Common Stock
Name Prior to Sale to be Sold After Sale(1)
---- ----------------------- ------------ -----------------------
<S> <C> <C> <C>
Edmund J. McCormick, Jr. 78,334 8,334(2) 70,000(2)
Theodore Shapiro ........ 733,333 31,667 701,666(3)
Allan Socher ............ 733,333 31,667 701,666(4)
Marc Zucker ............. 733,334 31,666 701,668(5)
</TABLE>
- ------
(1) The percentage of the outstanding shares of Common Stock to be owned by
the holders of the Directors Shares upon the completion of the sale of
the Common Stock offered hereby is as follows: Edmund J. McCormick
(1.6%); Theodore Shapiro (15.7%); Allan Socher (15.7%); and Marc Zucker
(15.7%).
(2) Also reflects sale of 3,334 shares of Common Stock being registered for
the account of Edmund J. McCormick, Jr. as a Selling Security Holder,
which are not being underwritten in this Offering and are subject to a
six month contractual restriction on resale. See "Selling Security
Holders -- Shares Being Registered for the Account of Selling Security
Holders." The 70,000 shares of Common Stock owned by Mr. McCormick
includes currently exercisable options to purchase 25,000 shares of
Common Stock and such shares are subject to a 24 month contractual
restriction on resale. See "Shares Eligible for Future Sale." Mr.
McCormick is a director of the Company.
(3) Includes warrants to purchase 250,000 shares of Common Stock which
Theodore Shapiro is eligible to exercise on the date hereof. Such shares
are subject to a 24 month contractual restriction on resale. See "Shares
Eligible for Future Sale." Mr. Shapiro is the Executive Vice President,
Director of Manufacturing and a director of the Company.
(4) Includes warrants to purchase 250,000 shares of Common Stock which Allan
Socher is eligible to exercise on the date hereof. Such shares are
subject to a 24 month contractual restriction on resale. See "Shares
Eligible for Future Sale." Mr. Socher is the President, Director of
Marketing and a director of the Company.
(5) Includes warrants to purchase 250,000 shares of Common Stock which Marc
Zucker is eligible to exercise on the date hereof. Such shares are
subject to a 24 month contractual restriction on resale. See "Shares
Eligible for Future Sale." Mr. Zucker is the Chairman of the Board and
Chief Executive Officer of the Company.
31
<PAGE>
SHARES BEING REGISTERED FOR THE ACCOUNT OF SELLINGSECURITY HOLDERS
<TABLE>
<CAPTION>
Beneficial Ownership of Beneficial Ownership of
Shares of Common Stock Securities Shares of Common Stock
Name Prior to Sale to be Sold After Sale(1)
-------------------------------------- ----------------------- ------------- -----------------------
<S> <C> <C> <C>
Atlantis Capital Partners, Inc. 25,000 25,000(11) 0
K. Barton 25,000 25,000(11) 0
M. Behner 25,000 25,000(11) 0
Ronald Bibbo 25,000 25,000(11) 0
Monica Carreca 50,000 50,000(11) 0
Allen Cohen 12,500 12,500(11) 0
Jeffrey Godin 25,000 25,000(11) 0
Greg Khononov 12,500 12,500(11) 0
Kirlin Securities, Inc. 224,687 89,687(3) 135,000
Edmund J. McCormick, Jr. 78,334 8,334(4) 70,000(8)
Allan Lyons 3,333 3,333(2) 0
A.C. Providenti 4,250 4,250(11) 0
A. Rella 4,250 4,250(11) 0
Marco Rossi 6,250 6,250(11) 0
Mark Rubin 192,396 48,646(5) 143,750(6)
D. Scaringella 4,000 4,000(11) 0
The Clinton Company 10,000 10,000(2) 0
Robert Starr 50,000 50,000(11) 0
Swan Alley (Nominees) Limited 775,000 200,000(11) 575,000(9)
Peter Lontai 6,250 6,250(7) 0
Ronald Heineman 28,125 28,125(10) 0
Robert J. Lehrman and Laura L. Lehrman
JTWROS 3,125 3,125(7) 0
Susan Cohen, Claudene Bonanno and
Robyn Cohn JTWROS 3,125 3,125(7) 0
Anthony Agnello and Annemarie Agnello
JTWROS 2,500 2,500(7) 0
Michael Madden and Juliette Madden
JTWROS 3,125 3,125(7) 0
</TABLE>
- ------
(1) The percentage of the outstanding shares of Common Stock to be owned by
each Selling Security Holder upon completion of the Offering is less
than 1%, except in the cases of Kirlin (3.2%); Edmund J. McCormick, Jr.
(1.6%); Mark Rubin (3.3%); and Swan Alley (Nominees) Limited (12.1%).
(2) Shares are subject to a six month contractual restriction on resale. See
"Shares Eligible for Future Sale."
(3) Includes (i) 88,125 shares of Common Stock owned by Kirlin and (ii)
1,562 shares of Common Stock owned by David Lindner, the Chief Executive
Officer of Kirlin. 44,843 shares of Common Stock are not subject to any
contractual restrictions on resale and can be offered for immediate sale
on the date of this Prospectus. 44,844 shares of Common Stock are
subject to a 12 month contractual restriction on resale. See "Shares
Eligible for Future Sale." Kirlin acted as placement agent for the
Company's 1995 Private Placement.
(4) Also reflects the sale of 5,000 Directors Shares being underwritten in
this Offering. See "Selling Security Holders -- Directors Shares Being
Underwritten in this Offering." 3,334 shares are subject to a six month
contractual restriction on resale. See "Shares Eligible for Future
Sale."
(5) 7,031 shares of Common Stock are not subject to any contractual
restrictions on resale and can be offered for immediate sale on the date
of this Prospectus. An additional 3,333, 7,032 and 31,250 shares of
Common Stock are subject to a six, a 12 and a 24 month contractual
restriction on resale, respectively. See "Shares Eligible for Future
Sale." Mark Rubin is a management consultant to the Company.
32
<PAGE>
(6) Includes currently exercisable options to purchase 56,250 shares of
Common Stock.
(7) 50% of such shares of Common Stock are not subject to any contractual
restrictions on resale and can be offered for immediate sale on the date
of this Prospectus. 50% of such shares of Common Stock are subject to a
12 month contractual restriction on resale. See "Shares Eligible for
Future Sale."
(8) Includes currently exercisable options to purchase 25,000 shares of
Common Stock.
(9) Includes an option to purchase that portion of the Kirlin Warrants
entitling the holder thereof to purchase 500,000 shares of Common Stock.
(10) 1,562 shares of Common Stock are not subject to any contractual
restrictions on resale and can be offered for immediate sale on the date
of this Prospectus. An additional 25,000 and 1,563 shares of Common
Stock are subject to a six and a 12 month contractual restriction on
resale, respectively. See "Shares Eligible for Future Sale."
(11) Shares are subject to a 24 month contractual restriction on resale. See
"Shares Eligible for Future Sale."
The sale of the shares of Common Stock held by the Selling Security
Holders may be effected from time to time in transactions (which may include
block transactions by or for the account of the Selling Security Holders) in
the over-the-counter market or in negotiated transactions, through a
combination of such methods of sale, or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale,
or at negotiated prices. If any shares held by the Selling Security Holders,
or options thereon, are sold pursuant to this Prospectus at a fixed price or
at a negotiated price which is in either case other than the prevailing
market price or in a block transaction to a purchaser who resells, or if any
Selling Security Holder pays compensation to a broker-dealer that is other
than the usual and customary discounts, concessions or commissions, or if
there are any arrangements either individually or in the aggregate that would
constitute a distribution of the shares held by the Selling Security Holders,
a post-effective amendment to the Registration Statement of which this
Prospectus is a part would need to be filed and declared effective by the
Commission before such Selling Security Holder could make such sale, pay such
compensation or make such distribution. The Company is under no obligation to
file a post-effective amendment to the Registration Statement of which this
Prospectus is a part under such circumstances.
The Selling Security Holders may effect transactions in their securities
by selling their securities directly to purchasers, through broker-dealers
acting as agents for the Selling Security Holders or to broker-dealers who
may purchase the Selling Security Holders' securities as principals and
thereafter sell such securities from time to time in the over-the-counter
market, in negotiated transactions, or otherwise. Such broker-dealers, if
any, may receive compensation in the form of discounts, concessions or
commissions from the Selling Security Holders and/or the purchasers for whom
such broker-dealers may act as agents or to whom they may sell as principals
or both.
The Selling Security Holders and broker-dealers, if any, acting in
connection with such sales might be deemed to be underwriters within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of such securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
CERTAIN TRANSACTIONS
The Company leases its manufacturing facility located in Paterson, New
Jersey from M&S Realty Company, which is owned by Theodore Shapiro, a
director and the Executive Vice President and Director of Manufacturing of
the Company. The leases for the facility expire May 31, 1999 (subject to
extension at the option of the Company) and provide for an annual rental of
approximately $277,000. See "Business -- Properties."
In fiscal year 1994, the Company advanced $158,488 on open account to the
three principals of the Company, Marc Zucker, Allan Socher and Theodore
Shapiro. Such advances were non-interest bearing and increased the total net
amount receivable to the Company from the three principals to $373,410. At
December 31, 1995, the three principals' aggregate indebtedness to the
Company had been reduced to $118,945 as a result of net payments to the
Company by the principals aggregating $254,465 during fiscal year 1995. Such
$118,945 balance bears interest at the rate
33
<PAGE>
of 8% per annum and matures in January 1997. During the six months ended June
30, 1996, the aggregate amount due to the Company from the three principals
increased by $45,649 to $164,594. Such increase consisted of additional
advances to the principals in the amount of $39,318 and accrued interest in
the amount of $6,331.
During 1995, the Company agreed to pay $150,000 to the owner of a
commercial property in which the Company had previously leased retail
showroom space in settlement of claims in respect of unpaid rent and related
items. In connection with such settlement, Messrs. Zucker and Socher, who had
been members of the partnership that owned such commercial property,
transferred their interests in such partnership to the remaining partner in
exchange for a release of certain claims against them.
Retail Media Plus was incorporated by the three principals of the Company
in June 1995. Retail Media Plus places all of the Company's advertising and
passes through any cost savings to the Company. For fiscal year 1995 and the
first six months of 1996, the Company reimbursed Retail Media Plus $65,695
and approximately $440,000, respectively, for advertising costs.
In 1995, as partial payment for consulting and advisory services to the
Company, the three principals of the Company contributed an aggregate of
50,000 shares of Common Stock to Edmund J. McCormick, a director of the
Company, which shares were valued at $1.00 per share for purposes of the
Company's financial statements. In addition, the Company paid Mr. McCormick
$15,400 for such services. In June 1995 the Company issued the McCormick
Options to McCormick & Company in connection with an agreement for payment of
consultant and advisory services. Edmund J. McCormick is the sole stockholder
of McCormick & Company. The McCormick Options consist of the right to
purchase up to 25,000 shares of Common Stock at any time at a purchase price
of $3.00 per share. See "Description of Securities -- The McCormick Options."
In June 1996, Edmund J. McCormick loaned the Company $25,000 in connection
with the Company's $150,000 bridge loan. Such loan bears interest at the rate
of 13% per annum and is due on June 18, 1997. Mr. McCormick also received
3,334 shares of Common Stock in connection with his participation in the
bridge financing. Mr. McCormick is also a party to a consulting agreement
with the Company pursuant to which he makes recommendations aimed at reducing
the Company's operating costs. Pursuant to such consulting agreement, Mr.
McCormick is entitled to receive 10% of any cost savings realized by the
Company in its manufacturing processes during the period of September 1, 1995
to November 1, 1996. The amount of such cost savings cannot be determined
with any certainty as of the date of this Prospectus. However, the Company
believes that Mr. McCormick will receive approximately $55,000 pursuant to
this agreement.
In June 1995, Mark Rubin, a stockholder of the Company, became a
consultant to the Company. As compensation for his services under his
consulting agreement, as amended, Mr. Rubin receives $3,000 per month, of
which $1,000 per month has not yet been paid, and in June 1995, he received
the Rubin Warrant to purchase 56,250 shares of Common Stock at $2.00 per
share. In connection with an extension of the consulting agreement until June
1997, subject to the Company's right to terminate such agreement after
December 1996, Mr. Rubin received 50,000 shares of Common Stock, which shares
were valued at $.80 per share (the price of the stock sold in the 1996
Private Placement) for financial accounting purposes.
Kirlin acted as placement agent in the 1995 Private Placement and received
a placement agent commission of $100,000 plus the Kirlin Warrant.
In July 1996, Frank Terzo became a consultant to the Company. Under his
consulting agreement, which is for a term of three years, Mr. Terzo received
a cash payment of $25,000 and 250,000 shares of Common Stock, which shares
were valued at $.80 per share (the price of the stock sold in the 1996
Private Placement) for financial accounting purposes.
All future transactions and/or loans between the Company and officers and
directors will be on terms no less favorable than could be obtained from
independent, third parties and will be approved by a majority of the
directors of the Company disinterested in such transactions and/or loans.
34
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for securities of
the Company, and no prediction can be made as to the effect, if any, that
public market sales of shares or the availability of such shares for sale
will have on the market price of the Common Stock. Nevertheless, sales of a
substantial number of shares of Common Stock in the public market may have a
material adverse impact on their market price.
Upon completion of this Offering, the Company will have 4,220,000 shares
of Common Stock outstanding. Of these shares, the 1,100,000 being
underwritten in this Offering and 75,000 shares being registered for the
account of certain Selling Security Holders will be freely transferable
without restriction under the Securities Act.
Of the remaining 3,045,000 shares held by the existing shareholders of the
Company, 1,700,000 shares will be "restricted" securities within the meaning
of Rule 144 under the Securities Act and will be available for sale in the
public market commencing 24 months after the date of this Prospectus unless
released earlier by the Representative.
The remaining 1,345,000 shares will be freely transferrable without
restriction under the Securities Act, but, they are subject to certain
contractual restrictions on resale. 20,000 and 825,000 of such shares will be
available for sale in the public market commencing six months and twelve
months, respectively, after the date of this Prospectus unless released
earlier by the Representative. The remaining 500,000 shares will be available
for sale in the public market commencing 24 months after the date of this
Prospectus, which shares may not be released earlier by the Representative.
Each of the Company's current officers and directors (all such
stockholders holding an aggregate of 1,500,000 shares of Common Stock,
including the Directors Shares, and warrants and options to purchase an
aggregate of 775,000 shares of Common Stock), have agreed not to publicly
offer, sell or otherwise dispose of any Common Stock (other than the
Directors Shares and 3,334 shares of Common Stock being registered for the
account of Edmund J. McCormick, Jr. as a Selling Security Holder) for a
period of 24 months after the date of this Prospectus without the prior
written consent of the Representative.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares of Common Stock for at least two years
(including the holding period of any prior owner other than an affiliate) is
entitled to sell in a broker's transaction or to a market maker, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
then outstanding shares of Common Stock (approximately 42,200 shares based on
the number of shares expected to be outstanding after this Offering), or (ii)
the average weekly trading volume in the public market during the four
calendar weeks preceding the filing of a Form 144. Sales under Rule 144 are
also subject to certain requirements as to the manner and notice of sale and
the availability of public information concerning the Company. A person who
is not an affiliate of the Company at the time of sale, and has not been an
affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the restricted shares for at least three years, would be
entitled to sell shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice or public information
requirements described above.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 10,000,000 shares of Common Stock
having a par value of $.00133 per share. As of the date of this Prospectus,
3,220,000 shares of Common Stock were issued and outstanding and were held of
record by 117 stockholders. An additional 1,581,250 shares of Common Stock
are reserved for issuance upon the exercise of various options and warrants
as of the date of this Prospectus. The holders of Common Stock are entitled
to one vote for each share on all matters submitted to a vote of stockholders
and do not have any cumulative voting rights. Accordingly, the holders of the
majority of the Common Stock entitled to vote in any election of Directors
may elect all of the Directors standing for election. The holders of Common
Stock are entitled to receive such dividends, if any, as may be declared by
the Board from time to time out of legally available funds. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share in all assets of the Company that are legally available for
distribution, after payment of all debts and other liabilities of the
Company. The holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are,
and the shares to be issued in this Offering will be, when issued, legally
issued, fully paid and non-assessable.
35
<PAGE>
REDEEMABLE WARRANTS
Each Redeemable Warrant entitles the registered holder thereof to purchase
one share of Common Stock at a price of $5.50 per share, subject to
adjustment, commencing on November 1, 1997. The Redeemable Warrants expire on
November 1, 2001. The Redeemable Warrants will be subject to redemption at a
price of $.05 per Redeemable Warrant commencing November 1, 1997 on 30 days'
written notice provided the average closing bid price of the Common Stock as
reported by NASDAQ SmallCap (or the last sale price if listed on a national
securities exchange), equals or exceeds $7.50 per share, subject to
adjustment, for 30 consecutive trading days ending on the fifteenth trading
day prior to the date of the notice of redemption. The holder of a Redeemable
Warrant will lose his right to purchase Common Stock if such right is not
exercised prior to redemption by the Company on the date for redemption
specified in the Company's notice of redemption or any later date specified
in a subsequent notice. Notice of redemption by the Company shall be given by
first class mail to the holders of the Redeemable Warrants at their addresses
set forth in the Company's records.
The exercise price of the Redeemable Warrants and the number and kind of
shares of Common Stock or other securities and property to be obtained upon
exercise of the Redeemable Warrants are subject to adjustment in certain
circumstances including stock splits, stock dividends, subdivisions,
combinations, reclassifications, or issuances of stock at a price lower than
the current market price. Additionally, an adjustment would be made upon the
sale of all or substantially all of the assets of the Company so as to enable
Redeemable Warrant holders to purchase the kind and number of shares of stock
or other securities or property (including cash) receivable in such event by
a holder of the number of shares of Common Stock that might otherwise have
been purchased upon exercise of such Redeemable Warrant.
The Redeemable Warrants do not confer upon the holder any voting or any
other rights of a stockholder of the Company. Upon notice to the Redeemable
Warrant holders, the Company has the right to reduce the exercise price or
extend the expiration date of the Redeemable Warrants.
The Redeemable Warrants may be exercised upon surrender of the Redeemable
Warrant certificate on or prior to the respective expiration date (or earlier
redemption date) of such Redeemable Warrants at the offices of American Stock
Transfer & Trust Company (the "Warrant Agent"), with the form of "Election to
Purchase" on the reverse side of the Redeemable Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price
(by certified check payable to the order of the Warrant Agent) for the number
of Redeemable Warrants being exercised.
The warrants included in the Representative's Warrants are identical to
the Redeemable Warrants except the purchase price for a share of Common Stock
is $8.25.
THE RUBIN WARRANTS
The Rubin Warrants are obligations of the Company to Mark Rubin in
connection with the provision of financial consulting services to the
Company. The Rubin Warrants consist of the right to purchase up to 56,250
shares of Common Stock at any time until August 15, 2000 at a purchase price
of $2.00 per share. The Rubin Warrants do not contain any anti-dilution
provisions and do not confer any voting or other rights as a stockholder of
the Company.
THE KIRLIN WARRANTS
The Kirlin Warrants were issued by the Company to Kirlin in connection
with serving as placement agent for the Company's 1995 Private Placement. The
Kirlin Warrants consist of the right to purchase up to 750,000 shares of
Common Stock at any time until November 1, 2001 at a purchase price of $1.20
per share. The exercise price and the number of shares of Common Stock
purchasable upon exercise of the Kirlin Warrants are subject to adjustment
upon the occurrence of certain events, including stock dividends, stock
splits, reverse stock splits, recapitalizations, reclassifications, merger or
consolidation of the Company with another corporation or a sale of all or
substantially all of the Company's assets, and the exercise price and the
number of shares of Common Stock purchasable pursuant to the Kirlin Warrants
shall be proportionately adjusted after such event. The Kirlin Warrants do
not confer any voting or other rights as a stockholder of the Company.
36
<PAGE>
THE PRINCIPALS WARRANTS
The Principals Warrants were collectively issued by the Company to Marc
Zucker, Allan Socher and Theodore Shapiro as compensation for such
individuals serving as officers of the Company. See "Management -- Executive
Compensation". The Principals Warrants consist of the right to purchase up to
750,000 shares of Common Stock at any time until November 1, 2001 at a
purchase price of $3.00 per share. The exercise price and the number of
shares of Common Stock purchasable upon exercise of the Principals Warrants
are subject to adjustment upon the occurrence of certain events, including
stock dividends, stock splits, reverse stock splits, recapitalizations,
reclassifications, merger or consolidation of the Company with another
corporation or a sale of all or substantially all of the Company's assets,
and the exercise price and the number of shares of Common Stock purchasable
pursuant to the Principals Warrants shall be proportionately adjusted after
such event. The Principals Warrants do not confer any voting or other rights
as a stockholder of the Company.
THE MCCORMICK OPTIONS
The McCormick Options were issued by the Company to McCormick & Company in
connection with a June 1995 agreement for payment of consultant and advisory
services. The McCormick Options consist of the right to purchase up to 25,000
shares of Common Stock at any time at a purchase price of $3.00 per share.
The McCormick Options do not contain any anti-dilution provisions and do not
confer any voting or other rights as a stockholder of the Company.
TRANSFER AND WARRANT AGENT
The Company has appointed American Stock Transfer & Trust Company as the
transfer agent and registrar for its Common Stock and warrant agent for the
Redeemable Warrants.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, each of the Underwriters named below, for whom The Thornwater
Company, L.P. is acting as Representative, has severally agreed to purchase
from the Company, and the Company has agreed to sell to the Underwriters, on
a firm commitment basis, the respective number of shares of Common Stock,
Directors Shares and/or Redeemable Warrants set forth below opposite each
such Underwriter's name:
Number of Number of
Number of Directors Redeemable
Underwriter Shares Shares Warrants
----------- ----------- ----------- ------------
The Thornwater Company, L.P. 500,000 50,000 1,100,000
H.J. Meyers & Co., Inc. .... 500,000 50,000 1,100,000
--------- ------- ---------
Total ...................... 1,000,000 100,000 2,200,000
========= ======= =========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Securities are subject to
certain conditions precedent, and that the several Underwriters will purchase
all of the Securities shown above if any of such Securities are purchased.
The Representative has advised the Company that the Underwriters propose
initially to offer the Securities directly to the public at the initial
public offering prices set forth on the cover page of this Prospectus and to
certain dealers who are members in good standing with the National
Association of Securities Dealers, Inc. ("NASD") at such prices less a
concession not in excess of $0.15 per share of Common Stock and there will be
no concession on the Redeemable Warrant. Neither the Underwriters or such
dealers will reallow any concession to other dealers. After the initial
public offering, the public offering prices, concessions and re-allowances
may be changed.
The Company has granted to the Underwriters an option, exercisable during
the 45-day period after the date of this Prospectus, to purchase from the
Company at the initial public offering prices less underwriting discounts and
the non-accountable expense allowance, an aggregate of 165,000 additional
shares of Common Stock and/or an aggregate
37
<PAGE>
of 330,000 additional Redeemable Warrants for the purpose of covering
over-allotments, if any. To the extent that such option is exercised in whole
or in part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of additional Securities proportionate to
such Underwriter's initial commitment.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds of this
Offering, $25,000 of which has already been paid to date.
Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Representative,
and to the extent not inconsistent with the guidelines of the NASD and the
Rules and Regulations of the Commission, the Company has agreed to pay the
Representative a commission which shall not exceed five percent of the
aggregate exercise price of such Redeemable Warrants in connection with bona
fide services provided by the Representative relating to any warrant
solicitation. In addition, the individual must designate the firm entitled to
payment of such warrant solicitation fee. However, no compensation will be
paid to the Representative in connection with the exercise of the Redeemable
Warrants if (a) the market price of the Common Stock is lower than the
exercise price, (b) the Redeemable Warrants were held in a discretionary
account, or (c) the Redeemable Warrants are exercised in an unsolicited
transaction. Unless granted an exemption by the Commission from Rule 10b-6
under the Exchange Act, the Representative will be prohibited from engaging
in any market-making activities with regard to the Company's securities for
the period from nine business days (or other such applicable periods as Rule
10b-6 may provide) prior to any solicitation of the exercise of the
Redeemable Warrants until the later of their termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Representative may have to receive a fee. As a result, the Representative may
be unable to continue to provide a market for the Company's Securities during
certain periods while the Redeemable Warrants are exercisable. If the
Representative has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Representative undertakes to waive
unconditionally its right to receive a commission on the exercise of such
Redeemable Warrants.
Pursuant to the Underwriting Agreement, the Company has agreed that, for
three years from the effective date of the Registration Statement of which
this Prospectus is a part, the Representative may designate one person to the
Board of the Company subject to the Company's good faith approval. In the
event the Representative elects not to exercise this right, it may designate
one person to attend all meetings of the Board for a period of three years.
The Underwriters have informed the Company that they do not expect any
sales of shares of Common Stock and Redeemable Warrants to be made to
discretionary accounts.
The Company has also agreed to retain the Representative as the Company's
financial consultant for a period of 24 months from the date hereof and to
pay the Representative the amount of $114,400 for such services, all payable
in advance on the closing date of this Offering as set forth in the
Underwriting Agreement.
The Company and the Underwriters have agreed to indemnify each other
against, or to contribute to losses arising out of, certain civil liabilities
in connection with this Offering, including liabilities under the Securities
Act.
Prior to this Offering there has been no public trading market for the
Company's Securities. The initial public offering prices of the Securities
and the terms of the Redeemable Warrants have been determined by negotiation
between the Company and the Representative. Factors considered in determining
the initial public offering prices of the Securities and the terms of the
Redeemable Warrants, in addition to prevailing market conditions, included
the history of and prospects for the industry in which the Company competes,
an assessment of the Company's management, the prospects of the Company, its
capital structure and such other factors that were deemed relevant.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the
Company 110,000 shares of Common Stock and/or 220,000 warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $7.50 per share of Common Stock and $0.15 per
warrant. The warrants issuable upon exercise of the Representative's Warrants
are identical to those offered to the public, except the price to purchase a
share of Common Stock is $8.25. The Representative's Warrants contain
anti-dilution provisions providing for adjustment of the number of warrants
and exercise price under certain circumstances. The Representative's Warrants
grant to the holders thereof certain rights of registration of the securities
issuable upon exercise of the Representative's Warrants.
The foregoing includes a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made
to the copy of the Underwriting Agreement that is on file as an exhibit to
the Registration Statement of which this Prospectus is a part. See
"Additional Information."
38
<PAGE>
While certain of the officers of the Representative have significant
experience in corporate financing and the underwriting of securities, the
Representative has previously acted as an underwriter in only one "firm
commitment" underwriting and has not acted as the principal underwriter in
any such offerings. Accordingly, there can be no assurance that the
Representative's limited public offering experience will not adversely affect
the Company's offering of the Securities and subsequent development of a
trading market in the Securities, if any.
LEGAL MATTERS
Certain legal matters in connection with this Offering will be passed upon
for the Company by Wilentz, Goldman & Spitzer, P.A., 90 Woodbridge Center
Drive, Woodbridge, New Jersey. Certain legal matters will be passed upon for
the Underwriters by Gersten, Savage, Kaplowitz & Curtin, LLP, New York, New
York.
EXPERTS
The financial statements of the Company appearing in this Prospectus and
Registration Statement have been audited by Ehrenkrantz and Company,
independent public accountants, to the extent and for the periods indicated
in their report appearing elsewhere herein and in the Registration Statement.
Such financial statements have been included herein in reliance upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act with the Commission in Washington, D.C. with respect to the
Securities offered hereby. This Prospectus, which is part of the Registration
Statement, omits certain information set forth in the Registration Statement,
and reference is made to the Registration Statement and the exhibits and
schedules thereto for further information with respect to the Company and the
Securities offered hereby. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete and in each instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement and such exhibits and schedules may be inspected
without charge at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its
public reference facilities in New York, New York and Chicago, Illinois, at
prescribed rates. In addition, this Registration Statement, amendments hereto
and electronically filed exhibits are also available to the public through an
Internet Web Site (http://www.sec.gov) maintained by the Commission.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT ................................................ F-2
BALANCE SHEETS AS OF DECEMBER 31, 1995 (Audited) AND JUNE 30, 1996
(Unaudited) ................................................................ F-3
STATEMENTS OF OPERATIONS AND DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1995 (Audited) AND THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(Unaudited) ................................................................ F-4
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31,
1995 (Audited) AND THE SIX MONTHS ENDED JUNE 30, 1996 (Unaudited) .......... F-5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(Audited) AND THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 (Unaudited) ...... F-6
NOTES TO FINANCIAL STATEMENTS ............................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of Room Plus, Inc.
Paterson, New Jersey
We have audited the accompanying balance sheet of Room Plus, Inc. as of
December 31, 1995, and the related statements of operations, statements of
stockholders' equity (deficit) and cash flows for each of the two years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Room Plus, Inc. as of
December 31, 1995, and the results of its operations and cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Certain conditions indicate that the Company may be unable to continue as a
going concern. As discussed in Note 3 to the financial statements, the
Company has suffered recurring losses from operations and has a net capital
deficiency. These conditions raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Management's plans with regard to this matter are described in Note 3.
/s/ EHRENKRANTZ AND COMPANY
-----------------------------------
EHRENKRANTZ AND COMPANY
Roseland, New Jersey
April 25, 1996
(Except for Notes 12, 13 and 14, as to which
the date is July 1, 1996)
F-2
<PAGE>
ROOM PLUS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash .................................................... $ 66,863 $ 22,802
Accounts receivable, less allowance for doubtful accounts
of $77,000 in 1995 .................................... 165,163 113,570
Inventories ............................................. 1,229,561 1,266,928
Notes receivable, officers .............................. -- 164,594
Prepaid expenses ........................................ 144,844 330,502
Deferred income taxes ................................... 102,000 102,000
-------------- -------------
TOTAL CURRENT ASSETS .................................... 1,708,431 2,000,396
-------------- -------------
PROPERTY AND EQUIPMENT, at cost .............................. 2,003,872 2,110,530
Less: Accumulated depreciation ............................. 1,617,197 1,669,734
-------------- -------------
386,675 440,796
-------------- -------------
OTHER ASSETS
Security deposits ....................................... 107,000 146,635
Deferred charges ........................................ -- 243,800
Deferred income taxes ................................... 52,500 52,200
Notes receivable, officers .............................. 118,945 --
Miscellaneous assets .................................... 3,304 3,304
Cash surrender value, officers' life insurance, net of
loans of $163,089 in 1995 ............................. 5,318 --
-------------- -------------
287,067 445,939
-------------- -------------
$ 2,382,173 $ 2,887,131
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Cash overdraft .......................................... $ 128,299 $ --
Current portion of long-term debt ....................... 163,440 125,129
Notes payable, bank ..................................... -- 395,000
Notes payable, other .................................... -- 150,000
Due to related companies ................................ 107,156 290,734
Accounts payable and accrued expenses ................... 1,783,145 1,491,461
Payroll and sales taxes payable ......................... 186,931 118,251
Customer deposits and other advances .................... 586,050 659,909
-------------- -------------
TOTAL CURRENT LIABILITIES ............................... 2,955,021 3,230,484
-------------- -------------
LONG-TERM DEBT, less current portion ......................... 221,648 193,968
-------------- -------------
COMMITMENTS AND CONTINGENCY .................................. -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Capital stock
Authorized, 10,000,000 shares at $.00133 par value,
issued and outstanding, 2,325,000 and 2,720,000
shares in 1995 and 1996 .......................... 3,092 3,618
Additional paid-in capital ................................. 1,310,729 1,566,303
Deficit .................................................... (2,108,317) (2,107,242)
-------------- -------------
(794,496) (537,321)
-------------- -------------
$ 2,382,173 $ 2,887,131
============== =============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31 Six Months Ended June 30
------------------------------- -------------------------------
1994 1995 1995 1996
------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
(Unaudited)
REVENUES ........................... $13,215,387 $13,149,018 $ 6,325,885 $6,671,082
COST OF GOODS SOLD ................. 6,003,314 6,922,500 3,780,917 2,919,695
------------- -------------- --------------- ------------
GROSS PROFIT ....................... 7,212,073 6,226,518 2,544,968 3,751,387
------------- -------------- --------------- ------------
EXPENSES
Selling .......................... 4,480,587 4,491,812 2,616,146 2,755,425
General and administrative ....... 2,943,992 3,399,485 1,309,956 977,944
------------- -------------- --------------- ------------
7,424,579 7,891,297 3,926,102 3,733,369
------------- -------------- --------------- ------------
EARNINGS (LOSS) FROM
OPERATIONS ....................... (212,506) (1,664,779) (1,381,134) 18,018
------------- -------------- --------------- ------------
OTHER INCOME (DEDUCTIONS)
Interest expense .................. (16,576) (182,605) (40,260) (23,426)
Miscellaneous income .............. 16,661 23,033 734 6,783
------------- -------------- --------------- ------------
85 (159,572) (39,526) (16,643)
------------- -------------- --------------- ------------
EARNINGS (LOSS) BEFORE INCOME TAXES
(BENEFITS) ....................... (212,421) (1,824,351) (1,420,660) 1,375
INCOME TAXES (BENEFITS) ............ (7,865) (118,103) (28,261) 300
------------- -------------- --------------- ------------
NET EARNINGS (LOSS) ................ $ (204,556) $(1,706,248) $(1,392,399) $ 1,075
============= ============== =============== ============
PRO FORMA NET LOSS DATA
(UNAUDITED):
Loss before provision for income
tax
benefits ...................... $ (212,421) $(1,824,351) $ (1,420,660) $ --
Pro forma income tax benefits .... (30,963) (426,388) (292,150) --
------------- -------------- --------------- ------------
Pro forma net loss ............ $ (181,458) $(1,397,963) $ (1,128,510) $ --
============= ============== =============== ============
PRO FORMA NET LOSS PER COMMON SHARES
OUTSTANDING ...................... $ (0.06) $ (0.42) $ (0.35) $ --
============= ============== =============== ============
PRO FORMA COMMON SHARES
OUTSTANDING ...................... 3,212,590 3,363,850 3,212,590 --
============= ============== =============== ============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1995
AND SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
------------------------ -------------
Shares Amount Capital Deficit
----------- --------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994 1,500,000 $1,992 $ 230,082 $ (402,069)
STOCK SPLIT ............... -- -- 58,000 --
ISSUANCE OF COMMON STOCK .. 825,000 1,100 1,022,647 --
NET LOSS .................. -- -- -- (1,706,248)
----------- --------- ------------- --------------
BALANCE, December 31, 1995 2,325,000 3,092 1,310,729 (2,108,317)
ISSUANCE OF COMMON STOCK .. 395,000 526 255,574 --
NET EARNINGS .............. -- -- -- 1,075
----------- --------- ------------- --------------
BALANCE, June 30, 1996
(Unaudited) ............ 2,720,000 $3,618 $1,566,303 $ (2,107,242)
=========== ========= ============= ==============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ROOM PLUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31 Six Months Ended June 30
-------------------------------- ------------------------------
1994 1995 1995 1996
------------- --------------- --------------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ............................. $ (204,556) $ (1,706,248) $ (1,392,399) $ 1,075
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities
Depreciation ................................. 127,131 136,849 77,619 52,537
Loss on sale of equipment .................... -- 1,335 -- 2,554
Reserve for bad debts ........................ -- 77,412 -- --
Deferred income taxes ........................ (9,826) (121,300) (31,400) 300
(Increase) decrease in operating assets
Accounts receivable ........................ 20,282 (191,438) (21,928) 51,693
Inventories ................................ (20,941) 510,394 435,404 (37,367)
Prepaid expenses ........................... (59,980) (17,331) 674 (89,658)
Deferred charges ........................... -- -- -- (83,800)
Increase (decrease) in operating liabilities
Accounts payable, accrued expenses and other
liabilities ............................. 588,929 (153,984) 187,389 (34,247)
Payroll and sales taxes payable ............ 51,179 78,074 100,613 (68,680)
Cash surrender value, officers' life
insurance ............................... (794) 476 -- 5,318
------------- --------------- --------------- -----------
Net cash provided by (used in) operating
activities .............................. 491,424 (1,385,761) (644,028) (200,275)
------------- --------------- --------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ............. (135,791) (59,124) (21,373) (109,212)
Net loans (to) from officers .................... (158,488) 254,465 338,588 (45,649)
Increase in security deposits and other assets .. (8,122) (247) (3,154) (39,635)
------------- --------------- --------------- -----------
Net cash provided by (used in) investing
activities .............................. (302,401) 195,094 314,061 (194,496)
------------- --------------- --------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of) short-term debt .... (34,133) -- 227,490 545,000
Net proceeds (repayment) of long-term debt ...... (88,122) 34,969 13,089 (65,991)
Proceeds from issuance of common stock .......... -- 1,081,747 -- --
------------- --------------- --------------- -----------
Net cash provided by (used in) financing
activities .............................. (122,255) 1,116,716 240,579 479,009
------------- --------------- --------------- -----------
NET INCREASE (DECREASE) IN CASH ................... 66,768 (73,951) (89,388) 84,238
CASH (OVERDRAFT), beginning of period ............. (54,253) 12,515 12,515 (61,436)
------------- --------------- --------------- -----------
CASH (OVERDRAFT), end of period ................... $ 12,515 $ (61,436) $ (76,873) $ 22,802
============= =============== =============== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was established in 1982 under the name RPF Holding Corp. In
March 1995, Bunk Trunk Manufacturing Company, Inc. ("Bunk Trunk") was merged
into the Company. Three months later, the surviving entity, which was named
TAM Industries, Inc., changed its name to Room Plus, Inc.
The Company is located in Paterson, New Jersey, and manufactures high
quality mica furniture. Substantially all sales are made through its 11
retail showrooms located in New York and New Jersey, under the trade name of
Room Plus Furniture.
ESTIMATES
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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost determined by the first-in,
first-out method or market.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed on the straight-line and
various accelerated methods over the estimated useful lives of the related
assets as follows:
Automobiles ................................... 3-5 years
Showroom furniture, fixtures and equipment .... 5-7 years
Factory machinery and equipment ............... 5-10 years
Leasehold improvements ........................ 10-39 years
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's assets and liabilities which constitute
financial instruments as defined in Statement of Financial Accounting
Standards No. 107 approximate their recorded value.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF
In March 1995, Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and the Long-Lived
Assets to be Disposed of" ("SFAS 121"), was issued. This statement, which
will be required in 1996, establishes accounting standards for the impairment
of long-lived assets, certain indentifiable intangibles and goodwill related
to those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company does not expect that
the adoption of SFAS 121 will have a material impact on the financial
statements.
ADVERTISING
The Company expenses the production costs of advertising the first time
the advertising takes place.
Advertising expense was $960,990 and $996,602 in 1994 and 1995,
respectively.
F-7
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share has been computed by dividing pro
forma net loss by the pro forma number of common shares outstanding. As
required by the Securities and Exchange Commission rules, all warrants,
options and shares issued within one year of the public offering at less than
the public offering price are assumed to be outstanding for each year
presented for purposes of the per share calculation. Such incremental shares
were determined utilizing the treasury stock method as if they were
outstanding for all periods presented.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1996 include, in the opinion of management, all adjustments
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The results for the interim period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire
year.
NOTE 2: MERGER
The merger of Bunk Trunk into the Company in March 1995 has been accounted
for as a pooling of interests and, accordingly, the Company's financial
statements have been restated to include the accounts and operations of Bunk
Trunk for all periods prior to the merger.
Results of operations for the periods prior to the merger with Bunk Trunk
for the year ended December 31, 1995 are as follows:
NET SALES
Room Plus, Inc.......... $12,978,052
Bunk Trunk.............. 170,966
------------
$13,149,018
===========
NET LOSS
Room Plus, Inc.......... $ (1,311,757)
Bunk Trunk.............. (194,691)
------------
$ (1,506,448)
============
NOTE 3: GOING CONCERN
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has incurred working capital
deficiencies in each of the last three fiscal years and has a deficiency in
assets of approximately $794,500 at December 31, 1995, which raises
substantial doubt about the Company's ability to continue as a going concern.
The Company intends to raise additional capital through short term
borrowings, a private placement and an initial public offering (see Note 14).
The Company believes upon successful completion of the private placement and
initial public offering, the substantial doubt about the Company's ability to
continue as a going concern will be eliminated.
NOTE 4: INVENTORIES
Inventories consist of the following:
December 31, June 30,
1995 1996
-------------- -----------
(Unaudited)
Showrooms ................. $ 957,259 $ 960,185
Raw materials............... 261,111 296,645
Work-in-process............. 11,191 10,098
-------------- -----------
$1,229,561 $1,266,928
============== ===========
F-8
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- ------------
(Unaudited)
<S> <C> <C>
Automobiles ...................................... $ 20,304 $ 20,304
Showroom office furniture, fixtures and equipment 410,110 428,194
Factory machinery and equipment .................. 663,353 695,205
Leasehold improvements ........................... 910,105 966,827
---------- ----------
$2,003,872 $2,110,530
========== ==========
</TABLE>
NOTE 6: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
-------------- -----------
(Unaudited)
<S> <C> <C>
Obligations under capital leases are payable in monthly installments of
$3,206 maturing in 1999 and bear interest at rates between 10.70% and
19.70%. The obligations are collateralized by machinery and equipment and
guaranteed by three executive officers (see Note 7) ...................... $ 98,494 $101,616
Obligation payable to New York State Department of Finance, with interest,
payable in monthly installments of $9,650 until December, 1996 ........... 121,739 61,626
Various unsecured obligations payable to landlords of showrooms leased by
Room Plus, Inc. and maturing through September, 2001 ..................... 150,000 141,000
A note due a spouse of an executive officer bearing interest at 8%, due
January 15, 1997 ......................................................... 14,855 14,855
-------- --------
385,088 319,097
Less: Current portion, including obligations under capital leases of
$26,701 in 1995 .......................................................... 163,440 125,129
-------- --------
$221,648 $193,968
======== ========
</TABLE>
Annual payments of long-term debt are as follows:
Years Ending
December 31 Amount
-------------- -----------
1996 .............................. $163,440
1997 .............................. 63,653
1998 .............................. 47,335
1999 .............................. 68,160
2000 .............................. 36,000
2001 .............................. 6,500
-----------
$385,088
===========
NOTE 7: OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain machinery and equipment under capital leases
with a capitalized cost of $170,628 less accumulated depreciation of $84,106.
F-9
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 7: OBLIGATIONS UNDER CAPITAL LEASES - (Continued)
The following is a schedule of future minimum payments required under the
leases together with their present value as of December 31, 1995:
Years Ending
December 31 Amount
------------ ----------
1996 ......................... $ 38,472
1997 ......................... 38,472
1998 ......................... 35,948
1999 ......................... 9,008
----------
121,900
Less: Amount representing interest 23,406
----------
$ 98,494
==========
NOTE 8: RELATED PARTY TRANSACTIONS
In 1995, the Company received $254,465, net of advances from three
officers. The balance due from the officers has been reduced to an aggregate
of $118,945 at December 31, 1995. The amounts, represented by promissory
notes, bear interest at 8% per annum and mature in January 1997.
During the year ended December 31, 1995, the Company accrued an obligation
of $150,000 to the owner of a commercial property in which the Company had
previously leased retail showroom space in settlement of claims in respect of
unpaid rent and related items. In connection with such settlement, certain
executive officers, who had been members of the partnership that owned such
commercial property, transferred their interests in such partnership to the
remaining partner in exchange for a release of certain claims against them.
In addition, during the year ended December 31, 1995, the Company incurred
advertising costs of approximately $66,000 payable to a related company.
Employment contracts between the Company and three executive officers
through 1998 each provide for minimum annual salaries of $125,000, adjusted
for incentives based on the Company's attainment of specified levels of
sales. In addition, the executive officers receive an allowance for certain
expenses.
See Notes 6, 10, 12, 13 and 14 for other related party transactions.
NOTE 9: INCOME AND DEFERRED TAXES
The Company was an "S" Corporation for Federal and New York state income
tax purposes through September 30, 1995. The stockholders accounted for their
share of the Company's earnings, losses, deductions and credits on their
income tax returns. Accordingly, these statements do not include any
provision for Federal and New York state income taxes prior to September 30,
1995. The Company was subject to New Jersey income taxes for the year ended
December 31, 1995.
The accompanying statements of operations include unaudited pro forma
adjustments for income tax expense which would have been recorded prior to
September 30, 1995 had the Company been subject to Federal and New York
income taxes based on the tax laws in effect during those periods.
A deferred tax asset results from timing differences in the recognition of
depreciation for tax and financial reporting purposes and the recognition of
net operating loss carryforwards for financial statement purposes in 1995 of
approximately $400,000 and $1,300,000 for Federal and state income taxes,
respectively. The carryforwards expire between 1998 and 2010. The Company has
provided a valuation reserve of approximately $155,000 in 1995 against the
future benefits of the net operating loss carryforwards.
F-10
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 9: INCOME AND DEFERRED TAXES - (Continued)
The Federal and State income tax expense (benefit) is comprised of the
following:
December 31,
----------------------------- June 30,
1994 1995 1996
----------- ------------- ----------
Current income tax expense
Federal ................ $ -- $ -- $ --
State .................. 9,267 3,197 --
----------- ------------- ----------
9,267 3,197 --
----------- ------------- ----------
Deferred income tax (benefit)
Federal ................ -- (79,400) 234
State .................. (17,132) (41,900) 66
----------- ------------- ----------
(17,132) (121,300) 300
----------- ------------- ----------
$ (7,865) $ (118,103) $300
=========== ============= ==========
NOTE 10: COMMITMENTS AND CONTINGENCY
COMMITMENTS
Leases for retail showrooms in New York and New Jersey expire at various
dates through October 2005. The leases require the Company to pay certain
operating expenditures including real estate taxes, while certain leases
contain provisions for rent escalations.
The Company leases its manufacturing facility from M & S Realty Company, a
related party, under two leases which expire May 31, 1999 at an annual rental
of approximately $277,000. The leases require the Company to pay certain
operating expenses of the facility, including real estate taxes and
insurance. In addition, the leases contain provisions for rent escalations
and an optional renewal term of fifteen years.
Rent expense for retail showrooms and the manufacturing facility totaled
$1,440,700 and $1,409,500 in 1995 and 1994, respectively.
The Company has automotive and other equipment leases expiring through
December 2000, with future minimum lease payments of approximately $197,000.
Rent expense for these leases totaled approximately $47,000 and $32,000 in
1995 and 1994, respectively.
Approximate future minimum rentals under all operating lease arrangements
are due as follows:
<TABLE>
<CAPTION>
Years Ending
December 31 Amount
-------------- -------------
<S> <C>
1996 .................... $1,069,300
1997 .................... 1,079,200
1998 .................... 930,000
1999 .................... 628,700
2000 .................... 385,000
Thereafter .............. 838,000
-------------
$4,930,200
=============
</TABLE>
F-11
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 10: COMMITMENTS AND CONTINGENCY - (Continued)
LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect
the financial position or the results of operations of the Company.
CONSULTING AGREEMENT
A director is a party to a consulting agreement with the Company pursuant
to which he makes recommendations aimed at reducing the Company's operating
costs. Under such consulting agreement, the director is entitled to receive
10% of any cost savings realized by the Company in its manufacturing
processes during the period September 1, 1995 to November 1, 1996. The amount
of such cost savings cannot be determined with any certainty.
NOTE 11: PENSION PLAN
The Company funds a union sponsored defined contribution pension plan
which covers its union employees. Contributions totaled $16,311 in 1995 and
$16,375 in 1994.
The Company has a deferred compensation plan under section 401(k) of the
Internal Revenue Code. Under the plan, which may be funded at the employer's
discretion, all non-union employees may elect to defer a portion of their
salary. No contributions were made by the Company in 1995 and 1994.
NOTE 12: CAPITAL TRANSACTIONS
In addition to the merger with Bunk Trunk Manufacturing Company, Inc. (see
Note 2) the following occurred in June 1995:
1. The stockholders of the Company approved amendments to its
Certificate of Incorporation increasing the number of authorized shares to
10,000,000 with a designated par value of $.001.
2. The Company approved a 33,333 for 1 stock split whereby 1,999,940
additional shares of common stock were issued and additional paid-in
capital was increased by approximately $58,000.
3. As payment for consulting and advisory services to the Company,
three executive officers contributed an aggregate 50,000 shares of common
stock to a Director as additional compensation. In connection with the
transaction, professional fees related to these services charged to
expenses totaled $50,000 with a corresponding credit to additonal paid-in
capital. In addition, the Company granted an option to this Director of
25,000 common shares at $3 per share.
In September 1995, the Company, through a private placement, sold 750,000
shares of common stock to unrelated investors at $1.33 per share and received
net proceeds of approximately $831,000. The proceeds were utilized for
deposits on leased machinery in the factory, development of additional retail
showrooms and to provide working capital. In connection with the private
placement, the following other events occurred;
1. Three executive officers of the Company received warrants to
purchase 750,000 shares of common stock exercisable at $3 per share any
time up to five years after the Company's shares of common stock are first
offered to the public pursuant to a valid registration statement (see Note
14).
2. Warrants were granted to several lenders in connection with prior
bridge loan financing to purchase 75,000 shares of common stock at $.00133
per share and were exercised in June 1996. Interest expense of $99,900
relating to the issuance of the warrants was charged to expenses with a
corresponding credit to additional paid-in capital.
3. A warrant was granted to the placement agents to purchase 75,000
shares at $.00133 per share which was exercised at the closing of the
private placement. Compensation expense of $99,900 relating to these
services was charged to expenses with a corresponding credit to additional
paid-in capital.
4. Warrants to purchase 750,000 additional common shares exercisable at
$1.20 per share were issued to the placement agents exercisable any time
up to five years after the Company's shares of common stock are first
offered to the public pursuant to a valid registration statement.
F-12
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 12: CAPITAL TRANSACTIONS - (Continued)
5. An unrelated individual who provided financial consulting, received
warrants to purchase 56,250 shares of common stock at $2.00 per share.
On July 1, 1996, the Board of Directors and the shareholders approved a 4
for 3 reverse stock split of the Company's common stock with an increase in
par value to $.00133.
All references in the accompanying financial statements to the number of
common shares for December 31, 1994 have been restated to reflect the stock
splits.
NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended
December 31, Six Months
------------------------ Ended June 30,
1994 1995 1996
---------- ---------- --------------
(Unaudited)
<S> <C> <C> <C>
Cash paid during the year for
Interest ............................... $50,686 $79,065 $ 22,326
Income taxes ........................... 9,267 3,198 --
NON CASH FINANCING ACTIVITY
Three executive officers contributed
50,000 common shares at $1 per share to
a director as additional compensation. $ -- $50,000 $ --
Issuance of 300,000 common shares at
$.80 per share to two consultants ..... -- -- 240,000
Issuance of 20,000 common shares to
unrelated parties and a Director at
$.80 per share for fees in connection
with receiving four bridge loans. ..... -- -- 16,000
Issuance of 75,000 common shares at
$1.33 per share to placement agent as
compensation .......................... -- $99,900 --
Issuance of 75,000 common shares at
$1.33 per share to several lenders in
connection with bridge loan financing . -- $99,900 --
</TABLE>
NOTE 14: SUBSEQUENT EVENTS
LINE OF CREDIT AND BANK LOAN
In March and June 1996, the Company received proceeds from a $350,000 line
of credit and a $50,000 note, from BSB Bank and Trust Company bearing
interest at prime plus 2% per annum and maturing in April 1997 and September
1996, respectively. Substantially all of the Company's assets collateralize
the loans, along with personal guarantees by three executive officers of the
Company. Both loans will be repaid from the proceeds of the initial public
offering.
Proceeds from the line were used to open a new retail showroom and provide
working capital. The additional proceeds received in June 1996 will fund
deposits on two new retail showrooms.
PRIVATE PLACEMENT
In July 1996, the Company expects to complete an additional private
placement of 500,000 shares of common stock which will raise approximately
$400,000 in capital, before expenses. The proceeds will be utilized for the
payment of fees incurred in connection with the public offering and provide
for working capital.
F-13
<PAGE>
ROOM PLUS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
Note 14: SUBSEQUENT EVENTS - (Continued)
AGREEMENTS UNDER NEGOTIATION
In June 1996, the Company entered into a letter of intent with an
underwriting firm with respect to an initial public offering of common stock
and warrants to purchase common stock of the Company, which offering, if
consummated on the terms contemplated by such letter of intent would result
in proceeds to the Company of $5,220,000 before expenses. There is no
assurance that the offering will be completed.
The Board has approved consulting agreements with two individuals for
which an aggregate of 300,000 shares of common stock were issued in June 1996
at $.80 per share.
In June 1996, the Company received four bridge loans totaling $150,000
from unrelated parties and a Director in the form of promissory notes which
will bear interest at 13% and mature in June 1997. In addition, the Company
issued 20,000 shares of common stock to the holders of the notes. The
effective price of $.80/share for such common stock represent a cost of
financing and will be amortized over the term of the promissory notes as
interest expense. The proceeds of the bridge loans will be used to finance
anticipated costs of a new retail showroom.
F-14
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or the Underwriters. This
Prospectus does not constitute an offer to sell or the solicitation of an
offer to buy any security other than the Securities offered by this
Prospectus, nor does it constitute an offer to sell or a solicitation of an
offer to buy any of the Securities by anyone in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making
such offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation. 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 time subsequent, to the date hereof, or that there has
been no change in the affairs of the Company since the date hereof.
------
TABLE OF CONTENTS
Page
--------
PROSPECTUS SUMMARY ................ 3
RISK FACTORS ...................... 7
USE OF PROCEEDS ................... 12
DILUTION .......................... 12
CAPITALIZATION .................... 14
DIVIDEND POLICY ................... 14
SELECTED FINANCIAL DATA ........... 15
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ........ 16
BUSINESS .......................... 20
MANAGEMENT ........................ 26
PRINCIPAL STOCKHOLDERS ............ 30
SELLING SECURITY HOLDERS .......... 31
CERTAIN TRANSACTIONS .............. 33
SHARES ELIGIBLE FOR FUTURE SALE ... 35
DESCRIPTION OF SECURITIES ......... 35
UNDERWRITING ...................... 37
LEGAL MATTERS ..................... 39
EXPERTS ........................... 39
ADDITIONAL INFORMATION ............ 39
FINANCIAL STATEMENTS .............. F-1
Until November 26, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
================================================================================
1,100,000 Shares of Common Stock
and
2,200,000 Redeemable Warrants
LOGO
ROOM PLUS, INC.
------
PROSPECTUS
------
THE THORNWATER COMPANY, L.P.
November 1, 1996
================================================================================
