<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996
REGISTRATION NO. 333-3000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
CABLE & CO. WORLDWIDE, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5139 22-3341195
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Identification No.)
Classification Code
Number)
</TABLE>
CABLE & CO. WORLDWIDE, INC.
724 FIFTH AVENUE
NEW YORK, NEW YORK 10019
(212) 489-9686
(Name, address and telephone number of principal executive offices
and principal place of business)
DAVID ALBAHARI
CABLE & CO. WORLDWIDE, INC.
724 FIFTH AVENUE
NEW YORK, NEW YORK 10019
(212) 489-9686
(Name, address and telephone number of agent for service)
COPIES TO:
<TABLE>
<S> <C>
MARTIN C. LICHT, ESQ. SCOTT A. ZIEGLER, ESQ.
GALLET DREYER & BERKEY, LLP ZIEGLER, ZIEGLER & ALTMAN
845 THIRD AVENUE 750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 935-3131 (212) 319-7600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. (X)
SEE "CALCULATION OF REGISTRATION FEE" ON NEXT PAGE.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C>
PROPOSED OFFERING
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE PER SHARE PROPOSED AGGREGATE
TO BE REGISTERED REGISTERED (1) OFFERING PRICE (1)
<S> <C> <C> <C>
Shares of Common Stock,
$.01 par value ("Common Stock") (2)................ 1,119,500 $5.00 $5,597,500
Common Stock Purchase Warrants ("Warrants") (3)...... 1,299,500 $0.10 $ 129,950
Shares of Common Stock Underlying the Warrants (4)... 1,299,500 $6.00 $7,797,000
Underwriter's Warrants (5)........................... 113,000 $0.0001 $ 10
Shares of Common Stock Underlying Underwriter's
Warrants (6)....................................... 113,000 $6.00 $ 678,000
Warrants Underlying the Underwriter's Warrants (5)... 113,000 $0.12 $ 13,560
Shares of Common Stock Underlying the Warrants
Underlying the Underwriter's Warrants (6).......... 113,000 $6.00 $ 678,000
Shares of Common Stock (7)........................... 1,062,547 $6.00 $6,375,282
Selling Securityholders' Warrants (8)................ 630,000 $0.10 $ 63,000
Shares of Common Stock Underlying Selling
Securityholders' Warrants (9)...................... 630,000 $6.00 $3,780,000
Total Registration Fee (10)..........................
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES AMOUNT OF
TO BE REGISTERED REGISTRATION FEE
<S> <C>
Shares of Common Stock,
$.01 par value ("Common Stock") (2)................ $ 1,930.17
Common Stock Purchase Warrants ("Warrants") (3)...... $ 44.81
Shares of Common Stock Underlying the Warrants (4)... $ 2,688.62
Underwriter's Warrants (5)........................... --
Shares of Common Stock Underlying Underwriter's
Warrants (6)....................................... $ 233.79
Warrants Underlying the Underwriter's Warrants (5)... $ 4.68
Shares of Common Stock Underlying the Warrants
Underlying the Underwriter's Warrants (6).......... $ 233.79
Shares of Common Stock (7)........................... $ 2,198.37
Selling Securityholders' Warrants (8)................ $ 21.72
Shares of Common Stock Underlying Selling
Securityholders' Warrants (9)...................... $ 1,303.45
Total Registration Fee (10).......................... $ 8,659.40
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes the 950,000 shares of Common Stock being offered hereby by the
Company and being underwritten by State Street Capital Markets, Corp. (the
"Underwriter") and 169,500 shares of Common Stock which may be purchased by
the Underwriter to cover over-allotments, if any, but does not include
180,000 shares of Common Stock held by the Bridge Selling Stockholders, as
defined below. See footnote (7) below.
(3) Includes 169,500 Warrants which may be purchased by the Underwriter to
cover over-allotments, if any.
(4) Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to the anti-dilution provisions of
the Warrants.
(5) Represents warrants (the "Underwriter's Warrants") granted to the
Underwriter to acquire an aggregate of 113,000 shares of Common Stock and
113,000 Warrants at a price equal to 165% of the price to the public in
this offering.
(6) Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to the anti-dilution provisions of
the Underwriter's Warrants.
(7) Represents shares of Common Stock being registered for the account of
certain selling stockholders, including (i) 180,000 shares of Common Stock
held by certain lenders (the "Bridge Selling Stockholders") who loaned the
Company an aggregate of $1,764,000 in March 1996, (ii) 462,531 shares of
Common Stock issuable to the holders of the Company's Series A Preferred
Stock upon the redemption of the Series A Preferred Stock, which is
anticipated to occur upon the closing of this offering, (iii) 20,016 shares
of Common Stock held by an individual who loaned the Company $130,000 in
October 1995, and (iv) 400,000 shares of Common Stock held by the Company's
international consultant.
(8) Represents warrants held by certain securityholders to acquire an aggregate
of 630,000 shares of Common Stock at a price equal to 165% of the initial
public offering price.
(9) Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to the anti-dilution provisions of
the Selling Securityholders' Warrants.
(10) The registration fee of $8,659.40 was paid upon the initial filing of this
registration statement.
<PAGE>
CABLE & CO. WORLDWIDE, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NO. CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover.
2. Inside Front and Outside Bank Cover Pages of
Prospectus......................................... Inside Front and Outside Back Covers.
3. Summary Information; Risk Factors.................. Prospectus Summary; Risk Factors.
4. Use of Proceeds.................................... Use of Proceeds.
5. Determination of Offering Price.................... Underwriting.
6. Dilution........................................... Dilution.
7. Selling Securityholders............................ Underwriting; Selling Securityholders
8. Plan of Distribution............................... Underwriting.
9. Legal Proceedings.................................. Business -- Litigation.
10. Directors, Executive Officers, Promoters and
Control Persons.................................... Management; Certain Transactions.
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Principal Stockholders.
12. Description of Securities.......................... Description of Securities; Underwriting.
13. Interests of named Experts and Counsel............. Legal Matters; Experts.
14. Disclosure of Commission Position on Indemni-
fication for Securities Act Liabilities............ Underwriting.
15. Organization Within Last Five Years................ Prospectus Summary.
16. Description of Business............................ Prospectus Summary; Management's Discussion and Analysis of
Financial Condition and Results of Operations; Business; and
Financial Statements.
17. Management's Discussion and Analysis or Plan of
Operation.......................................... Management's Discussion and Analysis of Financial Condition and
Results of Operations.
18. Description of Property............................ Business -- Properties.
19. Certain Relationships and Related Transactions..... Certain Transactions.
20. Market for Common Equity and Related Stockholder
Matters............................................ Outside Front Cover.
21. Executive Compensation............................. Management -- Executive Compensation.
22. Financial Statements............................... Financial Statements.
</TABLE>
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MAY 29, 1996
1,130,000 SHARES OF COMMON STOCK
1,130,000 COMMON STOCK PURCHASE WARRANTS
CABLE & CO. WORLDWIDE, INC.
Of the 1,130,000 shares (the "Shares") of common stock, $.01 par value (the
"Common Stock"), offered hereby (the "Offering"), 950,000 shares of Common Stock
are being sold by Cable & Co. Worldwide, Inc., a Delaware corporation (the
"Company"), and 180,000 shares of Common Stock are being sold by certain selling
stockholders of the Company (the "Bridge Selling Stockholders") in each case
through State Street Capital Markets, Corp. (the "Underwriter"). The Bridge
Selling Stockholders purchased such shares of Common Stock in February and March
1996 for a purchase price of $.20 per share. The Company will not receive any of
the proceeds from the sale of the shares of Common Stock by the Bridge Selling
Stockholders. See "DESCRIPTION OF SECURITIES" and "SELLING SECURITYHOLDERS."
The Company is also hereby offering 1,130,000 common stock purchase
warrants (the "Warrants") through the Underwriter. The Common Stock and the
Warrants are sometimes referred to collectively as the "Securities." The shares
of Common Stock and the Warrants will be sold on the basis of one Warrant for
each share of Common Stock purchased. The Common Stock and the Warrants will
trade separately immediately upon the date of this Prospectus (the "Effective
Date").
Each Warrant entitles the holder to purchase for $7.20, 120% of the assumed
initial public offering price, one share of Common Stock for a period of three
years commencing thirteen months after the Effective Date. The exercise price of
the Warrants is subject to adjustment in certain events pursuant to the
antidilution provisions thereof. The Warrants are redeemable by the Company at a
price of $.10 per Warrant commencing one year after the Effective Date and prior
to their expiration, provided that (i) prior notice of not less than 15 days is
given to the holders of the Warrants, and (ii) the closing bid price of the
Common Stock as reported on The NASDAQ Stock Market ("NASDAQ") (or the last sale
price, if quoted on a national securities exchange) for 20 consecutive trading
days, ending on the fifteenth day prior to the date on which the Company gives
notice of redemption, has been at least $10.80, 180% of the assumed initial
public offering price. The holders of the Warrants shall have exercise rights
until the close of the business day immediately preceding the date fixed for
redemption. See "DESCRIPTION OF SECURITIES -- Warrants" and "UNDERWRITING."
Prior to this Offering there has been no public market for the Securities
and there can be no assurance that any such market will develop therefor. It is
anticipated that the initial public offering price will be between $5.00 and
$7.00 per Share and $.10 per Warrant. The Company has applied for listing and
quotation of the Common Stock and the Warrants on The NASDAQ SmallCap Market
under the proposed trading symbols "CCWW" and "CCWWW," respectively. The initial
public offering prices of the Common Stock and the Warrants, and the exercise
price of the Warrants have been determined by negotiation between the Company
and the Underwriter on an arbitrary basis and bear no direct relationship to the
assets, earnings or any other recognized criterion of value. See "RISK
FACTORS -- Absence of Public Market; Arbitrarily Determined Offering Price" and
"UNDERWRITING."
Concurrently with this Offering, the Company has registered for resale by
certain securityholders (collectively, the "Selling Securityholders") 882,547
shares of Common Stock, 630,000 Warrants and 630,000 shares of Common Stock
issuable upon the exercise of such Warrants (collectively, the "Selling
Securityholders' Securities"). Each of the Selling Securityholders (except for
the Bridge Selling Stockholders with respect to 180,000 Warrants) have agreed
not to sell any of the Selling Securityholders' Securities for periods of up to
25 months after the Effective Date without the prior written consent of the
Underwriter. Sales of the Selling Securityholders' Securities in such offering
(the "Concurrent Offering") will be subject to the prospectus delivery
requirements and other requirements of the Securities Act of 1933, as amended
(the "Securities Act"). These securities are not being sold in the Offering
which is being underwritten by the Underwriter, and the Company will not receive
any of the proceeds from the sale of the Selling Securityholders' Securities,
although the Company will receive the proceeds from the exercise of the Selling
Securityholders' Warrants. See "DESCRIPTION OF SECURITIES -- Prior Financings,"
"CONCURRENT OFFERING" and "SELLING SECURITYHOLDERS."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION. PURCHASERS SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER
"RISK FACTORS" ON PAGE 8 AND "DILUTION" ON PAGE 18.
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.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS (1) PROCEEDS TO COMPANY (2)
<S> <C> <C> <C>
Per Share................... $ $ $
Per Warrant................. $.10 $.01 $.09
Total (3)................... $ $ $
<CAPTION>
PROCEEDS TO BRIDGE
SELLING STOCKHOLDERS
<S> <C>
Per Share................... $
Per Warrant................. --
Total (3)................... $
</TABLE>
(FOOTNOTES ON PAGE 3)
The Shares and the Warrants being offered through the Underwriter are being
sold by the Company and the Bridge Selling Stockholders on a "firm commitment"
basis subject to prior sale, when, as and if accepted by the Underwriter and
subject to approval of certain legal matters by counsel to the Underwriter and
certain other conditions. The Underwriter reserves the right to withdraw, cancel
or modify such offer and reject any order in whole or in part. It is expected
that delivery of certificates representing the Securities being sold hereby will
be made against payment therefor at the offices of the Underwriter at One World
Trade Center, New York, New York 10048 on or about , 1996.
STATE STREET CAPITAL MARKETS, CORP.
The date of this Prospectus is , 1996.
Language is rotated 90 degrees on left side of page and reads
as follows:
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[INSERT PHOTO]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports containing
audited financial statements certified by an independent public accounting firm
and such other reports as the Company deems appropriate.
2
<PAGE>
(FOOTNOTES FROM COVER PAGE)
(1) In addition, the Company and the Bridge Selling Stockholders have agreed to
pay to the Underwriter, on a pro-rata basis, a non-accountable expense
allowance equal to 3% of the gross proceeds of this Offering, or $
($ if the Over-allotment Option described below is exercised in full),
of which $25,000 has been paid to date by the Company. The Company also has
agreed: (a) to sell to the Underwriter, for nominal consideration, an option
to purchase 113,000 shares of Common Stock and 113,000 Warrants (the
"Underwriter's Warrants") at a price equal to 165% of the initial public
offering price, subject to adjustment pursuant to the antidilution
provisions thereof, exercisable for four years commencing one year from the
Effective Date, (b) to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, (c) to engage
the Underwriter as a financial consultant for a period of 36 months
commencing on the date of this Prospectus, for which the Underwriter will
receive a consulting fee of $144,000 to be paid in full in advance at the
closing of this Offering, and (d) that the Underwriter has the right to
designate an individual to serve as an advisor to, or a member of, the
Company's Board of Directors after the closing of the Offering for a period
of three years. See "UNDERWRITING."
(2) After deducting Underwriting Discounts and Commissions, but before payment
of the Underwriter's non-accountable expense allowance in the amount of
$ ($ if the Underwriter's Over-allotment Option referred
to below is exercised in full) and other expenses of the Offering (estimated
at $550,000) which are payable by the Company. See "UNDERWRITING."
(3) The Company has granted the Underwriter an option to purchase up to 169,500
additional shares of Common Stock and up to 169,500 additional Warrants (the
"Underwriter's Over-allotment Option"), which is exercisable within 30 days
from the Effective Date, upon the same terms set forth above, solely for the
purpose of covering over-allotments, if any. If the Underwriter's
Over-allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company, and Proceeds to
the Bridge Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED
INFORMATION, THE FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED TO THE CONTRARY, THE INFORMATION
IN THIS PROSPECTUS GIVES EFFECT TO A 26.688 FOR ONE STOCK SPLIT EFFECTED IN
JANUARY 1996 IN THE FORM OF A STOCK DIVIDEND AND THE ISSUANCE OF 462,531 SHARES
OF COMMON STOCK ISSUABLE UPON THE REDEMPTION OF THE COMPANY'S SERIES A PREFERRED
STOCK (THE "PREFERRED STOCK") WHICH WILL OCCUR UPON THE COMPLETION OF THE
OFFERING, AND ASSUMES NO EXERCISE OF (I) THE WARRANTS, (II) THE UNDERWRITER'S
OVER-ALLOTMENT OPTION OR (III) ANY OTHER OPTIONS, WARRANTS OR CONVERSION RIGHTS
DESCRIBED HEREIN. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN
ITS ENTIRETY.
THE COMPANY
The Company designs, imports and markets on a wholesale basis a broad range
of men's footwear bearing the Cable & Co.(Register mark) trademark. The Company
markets its products to approximately 700 department and specialty store
locations in the United States. The Company's products are designed to appeal to
fashion conscious consumers. The Company's men's footwear consists of casual
shoes and dress shoes. The retail price of the men's shoes sold under the Cable
& Co. trademark ranges from $120 to $170 for casual shoes and from $150 to $190
for the Company's dress shoes. The Company has recently commenced selling a
women's footwear line under the Cable & Co. trademark, consisting of women's
dress shoes and casual shoes on an introductory basis at select retail
locations. The Company plans a full-scale launch of the women's footwear line in
the Fall of 1996. The women's footwear sells for retail prices ranging from $130
to $150. In addition, the Company markets a line of casual men's footwear under
the name "Bacco Bucci" which sells for retail prices ranging from $110 to $140.
The Company has licensed the right to use the Bacco Bucci name from D&D Design
and Details Limited ("D&D Design"), an entity controlled by Alberto Salvucci, a
principal stockholder of the Company. See "CERTAIN TRANSACTIONS."
The Company believes that its footwear is comfortable, fashionable and
practical. The Company incorporates technically sophisticated designs into the
construction of its footwear, which is intended to be worn with casual or
business attire. The Company's men's footwear, consistent with men's footwear in
general, is less style-driven than women's footwear. The Company sells
approximately 45 styles of men's shoes each season bearing the Cable & Co.
trademark and 20 styles under the Bacco Bucci brand name. In addition, the
Company carries an average of approximately 30 styles of men's footwear from
prior seasons. The Company also intends to offer approximately 20 styles of
women's shoes each season beginning in the Fall of 1996.
The Company plans to increase revenues by increasing sales to existing
accounts, establishing new accounts, developing high quality shoes with styling
and design detail to sell at competitive prices and expanding the Company's
marketing programs. The Company intends to increase its marketing to include
direct mail. The Company also intends to explore opportunities to acquire rights
to related products such as bags, belts, wallets, accessories and other small
leather goods. In addition, the Company may seek to grant license rights to the
Cable & Co. trademark.
The Company was formed on November 10, 1994 to acquire certain net assets
of Hongson, Inc. used in the sale and marketing of footwear bearing the Cable &
Co. trademark (the "Acquired Net Assets"). The Company purchased the Acquired
Net Assets effective as of the close of business on December 31, 1994 for a net
purchase price of $1,401,787 (the "Acquisition"). The Company acquired all of
the rights of Hongson, Inc. to use the Cable & Co. trademark in the Western
Hemisphere. Cable & Co. S.R.L., an entity controlled by Alberto Salvucci, a
principal stockholder of the Company, owns the rights to use the Cable & Co.
trademark in Europe and the Company believes that International Hongson, Inc.,
an affiliate of Hongson, Inc., owns the rights to use the Cable & Co. trademark
in Asia and that Hongson, Inc. is no longer doing business. See "BUSINESS" and
"ACQUISITION."
Prior to the Acquisition, David Albahari, Chairman of the Board, President,
Chief Executive Officer, a director and a principal stockholder of the Company,
was the president of the Cable & Co. product line of Hongson, Inc. and Alan
Kandall, Executive Vice President, Treasurer, Chief Financial Officer, a
director and a principal stockholder of the Company, was the chief financial
officer of Hongson, Inc. In addition, Alberto Salvucci, a principal stockholder
of the Company, through Cable & Co. S.R.L., identified raw materials and
provided design and production services for the Cable & Co. product line of
Hongson, Inc. prior to the Acquisition. Mr. Salvucci, through Cable & Co. S.R.L.
and D&D Design, continues to provide substantially the same services to the
Company, and acts on his own behalf in connection with the sale in Europe of
footwear under the names Cable & Co. and Bacco Bucci. See "RISK FACTORS,"
"ACQUISITION," "CERTAIN TRANSACTIONS" and "PRINCIPAL STOCKHOLDERS."
4
<PAGE>
The Company's principal executive office is located at 724 Fifth Avenue,
New York, New York 10019, and its telephone number is (212) 489-9686.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.................................... 1,130,000 shares of Common Stock
1,130,000 Warrants
ASSUMED INITIAL PUBLIC
OFFERING PRICE........................................ $6.00 per share of Common Stock
$.10 per Warrant
COMMON STOCK
Outstanding Prior to the Offering................... 1,812,206 shares(1)
Outstanding After the Offering...................... 3,224,737 shares(2)
PREFERRED STOCK
Outstanding Prior to the Offering................... 43,327 shares
Outstanding After the Offering...................... 0 shares(3)
WARRANTS
Outstanding Prior to the Offering................... 630,000 Warrants
Outstanding After the Offering...................... 1,760,000 Warrants(4)
Exercise Terms........................................ Each Warrant entitles the holder to purchase one share of Common
Stock for $7.20, 120% of the assumed initial public offering price,
subject to adjustment in certain circumstances, for a period of three
years commencing thirteen months from the Effective Date. See
"DESCRIPTION OF SECURITIES -- Warrants."
Redemption of Warrants................................ The Warrants are redeemable by the Company, commencing one year after
the Effective Date, at a price of $.10 per Warrant, provided that not
less than 15 days prior notice is given to the holders of such
Warrants and the closing bid price of the Common Stock as reported on
NASDAQ (or the last sale price, if quoted on a national securities
exchange) is at least $10.80, 180% of the assumed initial public
offering price, for 20 consecutive trading days ending on the 15th
day prior to the date on which the Company gives notice of
redemption. See "DESCRIPTION OF SECURITIES -- Warrants."
Use of Proceeds....................................... The net proceeds of this Offering will be used primarily for repaying
the Bridge Notes, as defined below, redeeming the Preferred Stock,
direct mail marketing, advertising and working capital. See "USE OF
PROCEEDS."
Risk Factors.......................................... The purchase of the shares of Common Stock and the Warrants offered
hereby involves a high degree of risk and immediate substantial
dilution. See "RISK FACTORS" and "DILUTION."
Proposed NASDAQ Trading Symbols:(5)
Common Stock........................................ CCWW
Warrants............................................ CCWWW
</TABLE>
(1) Does not include (i) 462,531 shares of Common Stock issuable upon the
redemption of the Preferred Stock, which is anticipated to occur upon the
completion of this Offering, (ii) 280,000 shares of Common Stock which are
issuable upon exercise of options which may be granted pursuant to the
Company's 1996 Stock Option Plan, or (iii) 630,000 shares of Common Stock
issuable upon the exercise of outstanding Warrants. See "USE OF PROCEEDS,"
"MANAGEMENT -- Stock Options," "DESCRIPTION OF SECURITIES -- Preferred
Stock" and " -- Prior Financings."
(2) Does not include (i) 1,760,000 shares of Common Stock, subject to
adjustment, issuable upon the exercise of the Warrants; (ii) a maximum of
226,000 shares of Common Stock reserved for issuance upon the exercise of
the Underwriter's Warrants and the Warrants contained therein; (iii) 169,500
shares of Common Stock or the shares of Common Stock issuable upon the
exercise of 169,500 Warrants, which are issuable upon the exercise of the
Underwriter's Over-allotment Option; or (iv) 280,000 shares of Common Stock
which are issuable upon exercise of options which may be granted pursuant to
the Company's 1996 Stock Option Plan, but does include 462,531 shares of
Common Stock issuable upon the redemption of the Preferred Stock, which is
anticipated to occur upon the completion of this Offering. See "USE OF
PROCEEDS," "CAPITALIZATION," "MANAGEMENT -- Stock Options," "DESCRIPTION OF
SECURITIES -- Preferred Stock," " -- Warrants" and "UNDERWRITING."
5
<PAGE>
(3) It is anticipated that the outstanding shares of Preferred Stock will be
redeemed by the Company upon the completion of the Offering and that the
Company will issue 462,531 shares of Common Stock to the holders of shares
of Preferred Stock. See "USE OF PROCEEDS" and "DESCRIPTION OF
SECURITIES -- Preferred Stock."
(4) Does not include the Underwriter's Warrants, pursuant to which the
Underwriter has the option to purchase 113,000 shares of Common Stock and
113,000 Warrants. See "UNDERWRITING."
(5) The Company has applied for listing and quotation of the Common Stock and
the Warrants on NASDAQ. Quotation on NASDAQ, does not imply that a
meaningful, sustained market for the Company's securities will develop, or
if developed, that it will be sustained for any period of time. See "RISK
FACTORS -- Lack of Trading Market; NASDAQ Maintenance Requirements; Possible
Delisting of Securities from NASDAQ; Risks of Low Priced Stocks."
RECENT DEVELOPMENTS
In March 1996, the Company consummated a $1,800,000 private placement (the
"Bridge Financing") of 36 units (the "Units") to 40 investors (the "Bridge
Selling Stockholders"). Each Unit consists of the Company's 11% promissory note
in the original principal amount of $49,000 (the "Bridge Notes"), 5,000 shares
of Common Stock and 5,000 common stock purchase warrants, subject to adjustment
(the "Bridge Warrants"). Upon the completion of this Offering, the terms of the
Bridge Warrants will be automatically modified pursuant to their terms to become
identical to the terms of the Warrants offered hereby. The Bridge Notes are due
and payable upon the earlier of February 2, 1997 or the Company's receipt of
gross proceeds of at least $4,080,000 from the sale of its debt and/or equity
securities in a public or private financing. It is anticipated that the Bridge
Notes will be repaid out of the net proceeds of this Offering. The 180,000
shares of Common Stock issued in the Bridge Financing are being offered hereby
and the 180,000 Warrants are included in the Concurrent Offering. See "USE OF
PROCEEDS," "DESCRIPTION OF SECURITIES -- Prior Financings," "CONCURRENT
OFFERING" and "SELLING SECURITYHOLDERS."
SUMMARY FINANCIAL DATA
The following summary financial information is derived from, and should be
read in conjunction with, the financial statements included elsewhere in this
Prospectus. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
STATEMENT OF OPERATIONS DATA FOR THE COMPANY
<TABLE>
<CAPTION>
ONE-MONTH PERIOD
YEAR ENDED ENDED JANUARY 31,
DECEMBER 31, 1995 1996
1995 (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net sales...................................................................... $10,432,926 $ 772,140 $ 1,198,778
Cost of goods sold............................................................. 6,397,568 462,681 752,308
Gross profit................................................................... 4,035,358 309,459 446,470
Operating expenses (including moving expenses of $84,356 during the year ended
December 31, 1995 and $1,352,624 of non-cash compensatory charges for the
one-month period ended January 31, 1996)..................................... (3,699,672) (239,478) (1,829,408)
Commission income.............................................................. 34,302 -- --
Income (loss) from operations.................................................. 369,988 69,981 (1,382,938)
Interest expense............................................................... 429,197 24,984 47,982
Provision (benefit) for income taxes........................................... 43,900 19,000 (13,157)
Net income (loss).............................................................. (103,109) 25,997 (1,417,763)
Dividends on Preferred Stock................................................... 53,148 -- 5,096
Net income (loss) applicable to Common Stock................................... $ (156,257) $ 25,997 $(1,422,859)
Net income (loss) per common share............................................. $ (.08) $ .01 $ (.79)
Weighted average number of common shares outstanding........................... 2,023,486 2,059,070 1,812,206
</TABLE>
6
<PAGE>
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
FOR CABLE & CO. (A PRODUCT LINE OF HONGSON, INC.)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
<S> <C>
Net sales.......................................................................... $ 8,702,461
Cost of goods sold................................................................. 5,166,494
Gross profit....................................................................... 3,535,967
Selling expenses................................................................... 1,367,435
Excess of revenues over direct operating expenses.................................. $ 2,168,532
</TABLE>
BALANCE SHEET DATA FOR THE COMPANY
<TABLE>
<CAPTION>
JANUARY 31, 1996 (UNAUDITED)
DECEMBER 31, 1995 HISTORICAL PRO FORMA(1) AS ADJUSTED(1)(2)
<S> <C> <C> <C> <C>
Current assets............................................. $ 4,180,078 $4,518,137 $ 4,518,137 $ 6,523,082
Working capital (deficiency)............................... (887,776) (971,712) (418,612) 2,612,333
Property and equipment, net................................ 851,972 874,955 874,955 874,955
Trademark and Trade name, net.............................. 1,113,340 1,107,876 1,107,876 1,107,876
Intangible Assets, net..................................... 29,525 42,370 259,370 28,735
Other Assets............................................... 7,015 6,171 6,171 118,171
Current Liabilities........................................ 5,067,854 5,489,849 4,936,749 3,910,749
Total Liabilities.......................................... 5,774,931 6,167,649 5,614,549 4,588,549
Redeemable Preferred Stock -- Series A..................... 500,000 500,000 500,000 --
Stockholders' equity (deficiency).......................... (93,001) (118,140) 651,960 4,064,270
</TABLE>
(1) As adjusted to give effect to (i) the receipt of the net proceeds of
$1,583,000 from the Bridge Financing, including the issuance of the Bridge
Notes and 180,000 shares of Common Stock to the Bridge Selling Stockholders
for which there is issue discount of $738,000, (ii) the repayment of a loan
from a stockholder in the original principal amount of $130,000 plus accrued
interest of $3,900 from the net proceeds of the Bridge Financing, and (iii)
the issuance of an aggregate of 224,761 shares of Common Stock to the
Company's officers and a principal stockholder for which $943,996 of
compensation expense will be recognized, all of which transactions occurred
subsequent to January 31, 1996. See "MANAGEMENT -- Employment and Consulting
Agreements," "CERTAIN TRANSACTIONS" and "DESCRIPTION OF SECURITIES -- Prior
Financings."
(2) As adjusted to give effect to (i) the receipt of the net proceeds of this
Offering, (ii) the redemption of the outstanding shares of Preferred Stock
and the issuance of 462,531 shares of Common Stock to the holders thereof
and (iii) the repayment of the Bridge Notes from the net proceeds of the
Offering, all of which transactions are anticipated to occur on or
subsequent to the closing of this Offering. See "USE OF PROCEEDS,"
"DESCRIPTION OF SECURITIES -- Preferred Stock" and " -- Prior Financings."
7
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. THE SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT. IN EVALUATING AN INVESTMENT IN THE
COMPANY AND ITS BUSINESS, PRIOR TO PURCHASE PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS OTHER INFORMATION SET
FORTH ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; WORKING CAPITAL DEFICIT
The Company, which was organized in November 1994, was formed for the
purpose of acquiring the Acquired Net Assets from Hongson, Inc. For the year
ended December 31, 1995 and for the one-month period ended January 31, 1996, the
Company had a net loss of $103,109 and $1,417,763 (including $1,352,624 of
non-cash compensatory charges), respectively. As of January 31, 1996, the
Company had a working capital deficit of $971,712. The Company has a limited
operating history and there can be no assurance of future profitable operations.
Moreover, there can be no assurance that the Company will be able to attain
improved operating results and, as a result, no assurance can be given that the
Company's financial condition will improve. See "BUSINESS."
DEPENDENCE ON PROPOSED EXPANSION PROGRAM
The Company's continued growth depends to a significant degree on its
ability to increase sales to existing customers, to obtain new customers and to
expand its product lines, while insuring adequate quality controls. The Company
plans to increase revenues by increasing sales to existing accounts,
establishing new accounts, developing high quality shoes with styling and design
detail to sell at competitive prices and expanding the Company's marketing
programs. The Company intends to increase its marketing to include direct mail
and to explore opportunities to acquire the rights to related products. In
addition, the Company may seek to grant license rights to the Cable & Co.
trademark.
There can be no assurance that the Company will be able to hire, train and
integrate employees and adapt its management information and other operational
systems, to the extent necessary to grow in a profitable manner. In addition,
the costs associated with the planned expansion of the Company may have a
material adverse impact upon the Company's results and prospects. In the event
that the Company's plans for expansion are not successful, there would be a
material adverse affect on the Company's business. See "USE OF PROCEEDS" and
"BUSINESS."
NEED FOR ADDITIONAL FINANCING
The Company intends to use the net proceeds of this Offering for redeeming
the Preferred Stock, repaying the Bridge Notes, direct mail marketing,
advertising and working capital. The Company believes that the anticipated net
proceeds of this Offering, together with anticipated cash flow, will be
sufficient to meet the Company's anticipated cash requirements for at least 18
months subsequent to the closing of this Offering. If revenues are not
sufficient for the operation of the Company, or to enable the Company to
complete its present plans for expansion, then the Company will have to seek
additional financing. Such additional financing may be in the form of
indebtedness from institutional lenders or other third parties or as equity
financing. Moreover, the Company's credit facilities with Heller Financial, Inc.
("Heller") may limit the Company's ability to obtain additional financing. There
can be no assurance that such financing will be available and, if so, on
acceptable terms. Any such financing may result in significant dilution to
investors in this Offering or cause the Company to become overly leveraged. In
such event, the stockholders, including purchasers in this Offering, may lose or
experience a substantial reduction in the value of their investment in the
Company. See "USE OF PROCEEDS."
SECURED LIENS -- LIENS ON THE COMPANY'S ASSETS
The Company's accounts receivable, inventory, machinery, equipment,
fixtures, instruments, documents, chattel paper, general intangibles and
contract rights (the "Secured Assets") have been pledged as collateral to secure
obligations owed to Heller. If the Company fails to comply with such
obligations, including making required payments of principal and interest,
Heller could declare the indebtedness immediately due and payable and, in
certain events, foreclose upon the Secured Assets. Moreover, to the extent that
the Company's assets continue to be pledged to secure outstanding indebtedness,
such assets will be unavailable to secure additional debt financing, which may
adversely affect the Company's ability to borrow in the future. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
8
<PAGE>
DEPENDENCE ON CREDIT FACILITIES
The Company's operations are dependent upon the availability of credit. As
of January 31, 1996, the total amount outstanding under the Company's credit
facilities with Heller was $3,519,739 of which $3,047,519 is classified as a
current liability. The Company's existing credit facility with Heller expires in
February 1998. As of January 31, 1996, the Company was not in compliance with
certain financial covenants in the credit facilities with Heller, but such
noncompliance has been waived by Heller and the credit facilities have
subsequently been amended such that the Company is presently in compliance with
such financial covenants. If Heller fails to renew or declares a default under
or imposes a material change in the terms of the Company's credit facilities,
there could be a material adverse affect on the Company. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
COMPETITION
Competition in the footwear industry is intense. The Company's products
compete with other branded products within their product category. In varying
degrees, depending on the product category involved, the Company competes on the
basis of style, price, quality, comfort and brand prestige and recognition,
among other considerations. The Company competes with numerous manufacturers,
importers and distributors of men's and women's footwear for the limited
shelf-space available for displaying products to the consumer. Moreover, the
general availability of contract manufacturing capacity allows access by new
market entrants. Some of the Company's competitors are larger, have achieved
greater recognition for their brand names, have captured greater market share
and/or have substantially greater financial, distribution, marketing and other
resources than the Company. See "BUSINESS -- Competition."
CONTINUED RELATIONSHIP WITH ALBERTO SALVUCCI
The Company is dependent on the design, production and production control
services provided by Alberto Salvucci, a principal stockholder of the Company,
individually and through Cable & Co. S.R.L. and D&D Design. The Company has a
non-competition agreement with each of Mr. Salvucci, Cable & Co S.R.L. and D&D
Design and a license agreement for the name Bacco Bucci with D&D Design. In
addition, Mr. Salvucci, Cable & Co. S.R.L. and D&D Design, all of which are
involved in the European footwear industry, including marketing footwear bearing
the Cable & Co. trademark and the Bacco Bucci name, will not devote all of their
time or resources to the Company's business. The loss or curtailment on
acceptable terms of Mr. Salvucci's services, or indirect competition with Mr.
Salvucci, Cable & Co. S.R.L. or D&D Design could have a material adverse affect
on the Company's business. See "BUSINESS -- Design."
DEPENDENCE ON KEY PERSONS
The Company is dependent upon the services of David Albahari and Alan
Kandall. Mr. Albahari is the Company's Chairman of the Board, President and
Chief Executive Officer and a member of the Company's Board of Directors and Mr.
Kandall is the Company's Executive Vice President, Chief Financial Officer,
Treasurer and a member of the Company's Board of Directors. Mr. Albahari and Mr.
Kandall each have employment agreements with the Company which expire on
December 31, 1997. The Company carries "keyman" insurance in the amount of
$500,000 on the life of each of Mr. Albahari and Mr. Kandall. The loss or
curtailment of the services of either Mr. Albahari or Mr. Kandall would have a
material adverse affect on the Company's operations and prospects.
In addition, the Company has an ongoing need to expand its management,
marketing and support staff. Competition for personnel having the qualifications
required by the Company is intense and no assurance can be given that the
Company will be successful in recruiting or retaining such personnel as the need
arises. See "BUSINESS -- Employees" and "MANAGEMENT."
DEPENDENCE ON MAJOR CUSTOMERS
Approximately 55% of the Company's sales were made to five customers,
including 28% to one customer, during the year ended December 31, 1995. The loss
of, or reduced purchases by, any of the Company's major customers could have a
material adverse affect on the Company. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
9
<PAGE>
CHANGING CONSUMER DEMANDS; UNCERTAINTY OF MARKET ACCEPTANCE
The footwear industry is subject to changing consumer demands and fashion
trends. The Company believes that its success will depend in large part upon its
ability to identify and interpret fashion trends and to anticipate and respond
to such trends in a timely manner. There can be no assurance that the Company
will be able to meet changing consumer demands or to develop successful styles
in the future. If the Company misjudges the market for a particular product or
product line, it may result in an increased inventory of unsold and outdated
finished goods and have an adverse affect on the Company's financial condition
and results of operations. In addition, any failure by the Company to identify
and respond to changing demands and trends could adversely affect consumer
acceptance of the Company's products and diminish the Company's business and
prospects.
The Company intends to market additional lines of footwear in the future.
Achieving market acceptance for each of these products will be difficult and may
require substantial marketing efforts and the expenditure of significant funds.
There can be no assurance that the Company will have sufficient funds to do so
or that its marketing effort will be successful. See "BUSINESS -- Advertising
and Marketing."
DEPENDENCE UPON UNAFFILIATED MANUFACTURERS
The Company does not own or operate any manufacturing facilities. The
Company's footwear has been produced to its specifications by manufacturers
located primarily in Italy. Moreover, the Company generally has relied on a
small number of suppliers to produce products within each of its product lines.
Although the Company is generally the largest and, in many cases, the exclusive
customer of these manufacturers and has established long-standing relationships
with most of them, it has not entered into any written supply agreements. The
Company believes that the production capacity of the Company's manufacturers is
sufficient to satisfy its present and anticipated production requirements. In
addition, the Company believes that it has alternative manufacturing sources
available to it in the event that its requirements change or the Company's
current manufacturers are unable to fulfill the Company's needs. However,
establishing new relationships involves uncertainties and the loss of a
substantial portion of its manufacturing capacity could have a material adverse
affect on the Company's financial condition or results of operations. The
Company intends to explore the feasibility of diversifying by contracting with
manufacturers situated in alternative locations around the world to manufacture
its products. Nevertheless, there can be no assurance that the Company's current
manufacturers will continue to provide production capacity sufficient to satisfy
the Company's requirements if and when it expands and, if required, alternative
suppliers will be available in a timely manner on terms comparable to the
Company's existing arrangements. See "BUSINESS -- Manufacturing."
IMPACT OF DOING BUSINESS IN FOREIGN COUNTRIES
The Company's business is subject to risks of doing business abroad,
including, but not limited to, fluctuations in exchange rates and changes in
regulations relating to imports, including quotas, duties, taxes and other
charges. Political and economic instability in countries where the Company's
products are manufactured or sold may have a material adverse affect on the
Company's operations.
In order to reduce the risk of exchange rate fluctuations, the Company
enters into forward exchange contracts to protect gross profit margins on some,
but not all, of its foreign currency transactions. The Company cannot anticipate
all of its currency needs and, therefore, cannot fully hedge against such
fluctuations. Thus, changes in exchange rates could adversely affect the costs
of goods purchased by the Company.
Although the goods sold by the Company are not currently subject to quotas,
countries in which the Company's products are manufactured may, from time to
time, impose new quotas or adjust prevailing quotas or other restrictions on
exported products and the United States may impose new duties, tariffs and other
restrictions on imported products, any of which could adversely affect the
Company's operations. In accordance with the 1993 Harmonized Tariff Schedule, a
fixed duty structure is in effect for the United States. The Company pays import
duties on its products ranging from approximately 8.5% to 10%, depending on the
principal component of the product and whether the product is men's or women's
footwear. Other import restrictions on footwear and related products are
periodically considered by the United States Congress and no assurances can be
given that any new regulations will not result in higher costs to the Company,
or that import quotas will not be imposed or made more restrictive.
The Company imports a large portion of its products from Italy. Italy is on
the "watch list" maintained by the United States Trade Representative (the
"USTR") under "Special 301" provisions of the Trade Act of 1974 for purposes of
monitoring protection of intellectual property rights. If the USTR were to
determine that Italy's actions, policies, or practices with
10
<PAGE>
respect to intellectual property rights are actionable, sanctions against
imports from Italy, including higher duties, could be imposed. See
"BUSINESS -- Government Regulation."
ADVANCE PURCHASES OF PRODUCTS
To minimize purchasing costs and the time necessary to fill customers'
orders and the risk of non-delivery, the Company places orders with its
manufacturers before receiving customers' orders, and maintains an inventory of
certain key products which it anticipates will be in demand. However, there can
be no assurance that the Company will be able to sell the products that it has
ordered or has in its inventory. As of April 30, 1996, the Company had
approximately $4,150,000 of pending purchase orders with its manufacturers,
including landing costs, and approximately $2,425,000 of inventory. The Company
must make decisions regarding how much inventory to buy well in advance of
anticipated sale. Deviations in actual from projected demand for products could
have an adverse affect on the Company's sales and profitability. In addition, if
the Company's manufacturers fail to meet their delivery schedules to the
Company, the Company may be unable to meet its delivery requirements to its
customers. Such delayed delivery could result in cancellation of purchase orders
and reduced sales, but the Company may still be obligated to pay its
manufacturers, thereby having an adverse effect on the Company's financial
condition. See "BUSINESS -- Manufacturing" and " -- Backlog."
PRODUCT DIVERSION
The Company does not control the distribution of the footwear produced by
Cable & Co. S.R.L, International Hongson, Inc. or D&D Design or others that may
have or acquire rights to the Cable & Co. trademark for Europe, Asia or
elsewhere, and no assurances can be given that products manufactured or sold in
Europe, Asia or elsewhere will not be sold in the Company's markets. Management
believes that International Hongson, Inc. and Cable & Co., S.R.L., an entity
controlled by Alberto Salvucci, a principal stockholder of the Company, retain
the rights to the Cable & Co. trademark for Asia and Europe, respectively. See
"BUSINESS -- Competition."
POTENTIAL LIMITATION ON TRADEMARK PROTECTION
The Company has been granted trademark registrations in the United States,
Canada and several Central and South American countries for "Cable & Co." In
addition, a trademark application has been filed in the United States by Alberto
Salvucci for Bacco Bucci. However, the trademark registration has not been
granted, and there can be no assurance concerning when or if such registration
will be effected. Additional trademark registration applications which may be
filed by the Company with the United States Patent and Trademark Office and in
other countries may or may not be granted and the breadth or degree of
protection of the Company's existing or future trademarks may not be adequate.
In addition, pursuant to the asset purchase agreement between the Company and
Hongson, Inc. in connection with the Acquisition, Hongson, Inc. was obligated to
indemnify the Company for any misrepresentations it made with respect to the
Cable & Co. trademark. However, management believes that Hongson, Inc. is no
longer doing business and it is not anticipated that it will be able to fulfill
such obligation, if so requested. Moreover, the Company may not be able to
defend successfully any of its legal rights with respect to its present or
future trademarks. The failure of the Company to protect its legal rights to the
Cable & Co. trademark or the Bacco Bucci trademark, when and if granted, from
improper appropriation or otherwise may have a material adverse affect on the
Company. See "BUSINESS -- Trademarks."
EFFECT OF GENERAL ECONOMIC CONDITIONS
The fashion-related segments of the Company's business are cyclical, with
consumer purchases generally declining during recessionary periods when
disposable income decreases. There can be no assurance that a poor economic
climate will not have an adverse impact on the Company's ability to compete for
limited consumer resources.
Although the retail footwear industry has experienced significant changes
and difficulties over the past several years, including consolidation of
ownership, centralization of buying decisions, restructurings, bankruptcies and
liquidations, management believes that such changes have not had a material and
adverse affect on the Company's business. However, the Company cannot predict
what effect, if any, continued changes within the retail industry will have on
its business.
SEASONALITY
The Company's business is subject to seasonal variations. Historically in
the footwear industry, a significant portion of the Company's sales are realized
during the spring and fall fashion seasons, and levels of sales are generally
lower during the winter and summer fashion seasons. If the Company's sales were
to be substantially below seasonal norms during the spring
11
<PAGE>
and fall fashion seasons, the Company's annual results could be materially and
adversely affected. See "BUSINESS -- Seasonality."
CONTROL BY CURRENT OFFICERS AND DIRECTORS
Upon completion of this Offering, the current officers and directors of the
Company will own an aggregate of approximately 25.1% of the Company's Common
Stock and will be in a position to influence the election of the Company's
directors and otherwise essentially control the outcome of all matters requiring
stockholder approval. See "PRINCIPAL STOCKHOLDERS."
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividends, liquidation, conversion, voting or other rights
which could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and adversely affect the relative voting
power or other rights of the holders of the Company's Common Stock. In the event
of issuance, the preferred stock could be used, under certain circumstances, as
a method of discouraging, delaying or preventing a change in control of the
Company. The Company intends to redeem all of the outstanding shares of Series A
Preferred Stock with a portion of the net proceeds of this Offering. Although
the Company has no present intention to issue any additional shares of its
preferred stock, there can be no assurance that the Company will not do so in
the future. See "USE OF PROCEEDS" and "DESCRIPTION OF SECURITIES -- Preferred
Stock."
ABSENCE OF PUBLIC MARKET; ARBITRARILY DETERMINED OFFERING PRICE
Prior to the Offering, there has been no public market for the Securities
and there can be no assurance that an active market in these Securities will
develop or be sustained after the Offering. In the absence of an active public
trading market, an investor may be unable to liquidate his or her investment.
The price of the Securities being offered hereby and the exercise price of the
Warrants were determined solely by negotiations between the Company and the
Underwriter on an arbitrary basis and do not necessarily bear any relationship
to the Company's asset and book value, its results of operations or any other
recognized criterion of value. Factors considered in determining such prices, in
addition to prevailing market conditions, were the history of and the business
prospects for the Company and assessment of the net worth and financial
condition of the Company, as well as such other factors as were deemed relevant,
including an evaluation of management and the general economic climate. The
prices should in no event, however, be regarded as an indication of any future
market price of the Common Stock or Warrants. See "UNDERWRITING."
IMMEDIATE AND SUBSTANTIAL DILUTION
This Offering involves an immediate and substantial dilution to investors.
Purchasers of Common Stock in this Offering will suffer immediate dilution of
$5.09 per share or 85% of the net tangible book value per share of the Common
Stock purchased in this Offering from the assumed initial public offering price
of $6.00 per share. See "DILUTION."
NO DIVIDENDS
The Company has not paid and does not anticipate declaring or paying any
dividends on its Common Stock in the foreseeable future. Moreover, the Company's
loan agreements with Heller prohibit the payment of dividends if such payment
would cause the Company to violate any of the Company's financial covenants. See
"DIVIDEND POLICY."
BENEFITS TO CERTAIN SELLING SECURITYHOLDERS AND INSIDERS
In March 1996, the Company consummated the Bridge Financing to the 40
Bridge Selling Stockholders of an aggregate of 36 Units at a purchase price of
$50,000 per Unit. The Units included a Bridge Note in the principal amount of
$49,000 which will be repaid from the net proceeds of this Offering. Therefore,
the Bridge Selling Stockholders paid only $.20 per share of Common Stock
acquired in the Bridge Financing, which is substantially less than the assumed
initial public offering price of $6.00 per share. The shares of Common Stock
issued to the investors in the Bridge Financing are included in this Offering
and the Warrants are included in the Concurrent Offering. Moreover, Mr. Albahari
and Mr. Kandall have guaranteed certain of the Company's obligations. The
likelihood that such individuals will have to perform their obligations pursuant
to such guarantees will be reduced upon the Company's receipt of the net
proceeds of the Offering. In addition, Cable & Co. S.R.L. and D&D Design, both
of which are controlled by Alberto Salvucci, a principal stockholder of the
Company, are paid
12
<PAGE>
fees based upon a percentage of the cost of goods shipped to the Company.
Therefore, when and if the Company's anticipated expansion results in an
increase in purchases, the amounts payable to Cable & Co. S.R.L. and D&D Design
would increase. Moreover, to the extent that amounts are owed to Cable & Co.
S.R.L. and D&D Design, the likelihood that such amounts will be repaid will be
increased upon the Company's receipt of the net proceeds of this Offering. See
"CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES -- Prior Financings," and
"CONCURRENT OFFERING."
SHARES ELIGIBLE FOR FUTURE SALE
Except for 180,000 shares of Common Stock being offered hereby by the
Bridge Selling Stockholders and 420,016 shares of Common Stock being registered
for resale by the Selling Securityholders in the Concurrent Offering, all of the
1,812,206 shares of Common Stock currently outstanding are "restricted
securities" as that term is defined in Rule 144 under the Securities Act and may
only be sold pursuant to a registration statement filed under the Securities Act
or in compliance with Rule 144 or another exemption from the registration
requirements of the Securities Act. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who has beneficially owned restricted shares of Common Stock for at
least two years is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of outstanding
shares of the same class, or if the Common Stock is quoted on NASDAQ or a stock
exchange, the average weekly trading volume during the four calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate of the Company for at least three months immediately preceding
the sale and who has beneficially owned the shares of Common Stock for at least
three years is entitled to sell such shares under Rule 144 without regard to any
of the volume limitations described above. All of the Company's stockholders
(except for the Bridge Selling Stockholders with respect to 180,000 Warrants)
have agreed not to sell any of their securities without the consent of the
Underwriter for periods of up to twenty-five months from the Effective Date. See
"CERTAIN TRANSACTIONS," "PRINCIPAL STOCKHOLDERS," "DESCRIPTION OF
SECURITIES -- Prior Financings," "UNDERWRITING," "CONCURRENT OFFERING" and
"SELLING SECURITYHOLDERS."
Immediately after the Offering the Company will have 3,224,737 shares of
Common Stock outstanding and 1,760,000 shares of Common Stock will be issuable
upon the exercise of the Warrants. In addition, up to 226,000 shares of Common
Stock are issuable upon the exercise of the Underwriter's Warrants and the
Warrants contained therein. Moreover, 280,000 shares of Common Stock will be
available for issuance upon the exercise of options which may be granted under
the Company's 1996 Stock Option Plan. To the extent that options or warrants are
exercised, dilution to the interests of the Company's stockholders may occur.
Moreover, the terms upon which the Company will be able to obtain additional
equity capital may be adversely affected, since the holders of the outstanding
options or warrants can be expected to exercise them, to the extent they are
able to, at a time when the Company would, in all likelihood, be able to obtain
any needed capital on terms more favorable to the Company than those provided in
the options or warrants. See "MANAGEMENT -- Stock Options," "CERTAIN
TRANSACTIONS" and "DESCRIPTION OF SECURITIES."
IMPACT OF CONCURRENT OFFERING
Concurrently with this Offering, the Company is registering on behalf of
the Selling Securityholders 882,547 shares of Common Stock, Warrants to purchase
630,000 shares of Common Stock and 630,000 shares of Common Stock underlying
such Warrants. Sales of substantial amounts of the Company's securities by the
Selling Securityholders or the Company's other stockholders, or even the
potential for such sales, could have an adverse affect on the market price of
the Securities and could impair the Company's ability to raise capital through
the sale of its securities. See "SELLING SECURITYHOLDERS."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants are redeemable by the Company at a price of $.10 per Warrant,
commencing one year after the Effective Date and prior to their expiration,
provided that (i) 15 days prior written notice is given to the holders of the
Warrants, and (ii) the closing bid price per share of the Common Stock as
reported on NASDAQ (or the last sale price, if quoted on a national securities
exchange) on each of the 20 consecutive trading days ending on the fifteenth day
prior to the date of the notice of redemption has been at least $10.80, 180% of
the assumed initial public offering price. The holders of the Warrants have
exercise rights until the close of the business day immediately preceding the
date fixed for redemption. Notice of redemption of the Warrants could force the
holders to exercise the Warrants and pay the respective exercise prices at a
time when it may be disadvantageous for them to do so, to sell the Warrants at
the market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price which is likely to be substantially less than the
market value of the Warrants at the time of redemption. See "DESCRIPTION OF
SECURITIES -- Warrants."
13
<PAGE>
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
Warrantholders will have the right to exercise the Warrants and purchase
shares of Common Stock only if a current prospectus relating to such shares is
then in effect and only if the shares are qualified for sale under the
securities laws of the applicable state or states, or there is an exemption from
the applicable qualification requirements. The Company has undertaken and
intends to file and keep effective and current a prospectus which will permit
the purchase and sale of the Common Stock underlying the Warrants, but there can
be no assurance that the Company will be able to do so. Although the Company
intends to qualify for sale the shares of Common Stock underlying the Warrants
in those states in which the securities are to be offered, no assurance can be
given that such qualification will occur. The Warrants may be deprived of any
value if a prospectus covering the shares issuable upon the exercise thereof is
not kept effective and current or if such underlying shares are not, or cannot
be, registered in the applicable states. However, the Company will not redeem
the Warrants unless a current registration statement is in effect. Although the
Warrants will not knowingly be sold to purchasers in jurisdictions in which the
Warrants are not registered or otherwise qualified for sale, purchasers may buy
Warrants in the after-market or may move to jurisdictions in which the
underlying shares are not so registered or qualified during the period that the
Warrants are exercisable. In this event, the Company would be unable to issues
shares of Common Stock to those persons desiring to exercise their Warrants
unless and until the underlying shares could be qualified for sale in the
jurisdictions in which such purchasers reside, or an exemption from such
qualification exists in such jurisdictions, and holders of Warrants would have
no choice but to attempt to sell the Warrants in a jurisdiction where such sale
is permissible or allow them to expire unexercised. See "DESCRIPTION OF
SECURITIES -- Warrants."
LIMITED EXPERIENCE OF UNDERWRITER
The Underwriter, State Street Capital Markets, Corp., formerly White Rock
Partners & Co., Inc., has previously completed two firm commitment public
offerings. The Underwriter is a relatively small firm and there can be no
assurance that the Underwriter will be able to make a meaningful market in the
Company's Securities or that another broker-dealer will make a meaningful market
in the Company's Securities. Prior to September 1995, the Underwriter's name was
White Rock Partners & Co., Inc. If the Underwriter does not receive recognition
of its new name by its clients or the public, it could adversely affect the
Underwriter's operations. The Underwriter also has the right to act as the
Company's exclusive agent in connection with any future solicitation of holder's
of Warrants to exercise their Warrants. Unless granted an exemption by the
Commission from Rule 10b-6 under the Exchange Act, the Underwriter will be
prohibited from engaging in market-making activities or solicited brokerage
activities with regard to the Company's securities during the periods prescribed
by exemption (xi) to Rule 10b-6 before the solicitation of the exercise of any
Warrant until the later of the termination of such solicitation activity or the
termination by waiver or otherwise of any right the Underwriter may have to
receive a fee for the exercise of the Warrants following such solicitation. As a
result, the Underwriter and soliciting broker/dealers may be unable to continue
to make a market in the Company's Securities during certain periods while the
Warrants are exercisable. Such a limitation, while in effect, could impair the
liquidity and market price of the Company's Securities. See "UNDERWRITING."
UNDERWRITER'S WARRANTS AND REGISTRATION RIGHTS
The Company has agreed to sell to the Underwriter for $10.00, Underwriter's
Warrants to purchase an aggregate of 113,000 shares of Common Stock and 113,000
Warrants at an exercise price equal to 165% of the initial public offering
price. The shares of Common Stock and the Warrants issuable upon exercise of the
Underwriter's Warrants are identical to those offered hereby. The Underwriter's
Warrants are exercisable for a period of four years commencing one year from the
date hereof. The exercise of the Underwriter's Warrants will dilute the value of
the shares of Common Stock and may adversely affect the Company's ability to
obtain equity capital. Moreover, if the Common Stock issuable upon the exercise
of the Underwriter's Warrants is sold in the public market it may adversely
affect the market price of the Common Stock. The Underwriter has been granted
certain "piggyback" registration rights for a period of seven years from the
date of this Prospectus and demand registration rights for a period of five
years from the date of this Prospectus, with respect to the registration under
the Securities Act of the securities issuable upon exercise of the Underwriter's
Warrants. The exercise of such rights could result in substantial expense to the
Company. The Underwriter's Warrants can be expected to be exercised at a time
when the Company would, in all likelihood, be able to obtain equity capital by
the sale of its securities on terms more favorable than those provided by the
Underwriters's Warrants, whereby these obligations could be a hindrance to any
future financing. Furthermore, in the event the Underwriter exercises its
registration rights to effect the distribution of the Common Stock and/or
Warrants underlying the Underwriter's Warrants, the Underwriter and any holder
of such Warrants who is a market maker of the Company's Securities, prior to
such distribution, will be unable to make a market in the Company's Securities
for up to nine days prior to the commencement of such distribution and until
such distribution is completed. If the
14
<PAGE>
Underwriter ceases making a market, the market and market prices for the
Securities may be adversely affected and the holders thereof may be unable to
sell such Securities. See "UNDERWRITING."
LACK OF TRADING MARKET; NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
SECURITIES FROM NASDAQ; RISKS OF LOW-PRICED STOCKS
Prior to the Offering, there has been no established public trading market
for the Company's securities and there is no assurance that a regular public
trading market will develop after the completion of the Offering. If a trading
market does develop for the Company's securities, there can be no assurance that
it will be sustained. The Company has applied for listing of the Common Stock
and the Warrants on the NASDAQ SmallCap Market. For continued listing on NASDAQ,
the Company generally must have $2,000,000 in total assets, $1,000,000 in total
capital and surplus, $200,000 in market value of public float, a minimum bid
price of $1.00 per share, a minimum of 100,000 shares publicly held and a
minimum of 300 stockholders. If the Company is unable to satisfy NASDAQ's
maintenance criteria in the future, its securities will be subject to being
delisted and trading, if any, in the Company's securities would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or the
NASD's "Electronic Bulletin Board." As a consequence of such delisting, coverage
of the Company by financial and other publications would likely be limited and
an investor would likely find it more difficult to dispose of, or to obtain
quotations as to the price of, the Company's securities. Quotation on the Nasdaq
SmallCap Market does not imply that a meaningful sustained market for the
Company's Securities will develop or, if developed, that it will be sustained
for any period of time.
If the Company's securities are not quoted on NASDAQ or the Company does
not have at least $2,000,000 in net tangible assets, trading in the Company's
securities would be covered by Rules 15g-5 through 15g-9 promulgated under the
Exchange Act for non-NASDAQ and non-exchange listed securities. Under such
rules, broker-dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from this rule
if they are listed on NASDAQ or if the market price is at least $5.00 per share.
The Commission has adopted regulations that generally define a penny stock
to be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on NASDAQ and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith. If the Company's
securities were subject to the regulations applicable to penny stocks, the
market liquidity for the securities would be severely affected by limiting the
ability of broker-dealers to sell the Company's securities and the ability of
purchasers in this Offering to sell their securities in the secondary market.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company of this Offering from the sale of the
Shares and the Warrants at an assumed initial public offering price of $6.00 per
share and $.10 per Warrant, after deducting underwriting discounts and other
estimated expenses of the Offering (estimated at $550,000), are anticipated to
be $4,507,310, and $5,406,847 if the Underwriter's Over-allotment Option is
exercised in full. The Company will not receive any of the proceeds from the
sale of Securities by the Selling Securityholders or the Bridge Selling
Stockholders. The Company expects to use such proceeds (assuming no exercise of
the Underwriter's Over-allotment Option) as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE PERCENTAGE
DOLLAR AMOUNT OF NET PROCEEDS
<S> <C> <C>
Repayment of Bridge Notes(1).......................................................... $ 1,824,000 40.5%
Redemption of Preferred Stock(2)...................................................... 580,000 12.9%
Direct Mail Marketing(3).............................................................. 400,000 8.9%
Advertising(4)........................................................................ 300,000 6.6%
Working Capital(5).................................................................... 1,403,310 31.1%
Total............................................................................... $ 4,507,310 100.0%
</TABLE>
(1) Represents repayment of the Bridge Notes in the aggregate principal amount
of $1,764,000. The Bridge Notes bear interest at a rate of 11% per annum and
are due upon the earlier of February 2, 1997 or the Company's receipt of
gross proceeds of at least $4,080,000 from the sale of its debt and/or
equity securities in a public or private financing. The proceeds from the
sale of the Bridge Notes were used primarily for working capital purposes
and the repayment of a loan in the original principal amount of $130,000 to
a stockholder. See "DESCRIPTION OF SECURITIES -- Prior Financings."
(2) Represents the redemption price and accrued dividends on all outstanding
shares of Preferred Stock. See "DESCRIPTION OF SECURITIES -- Preferred
Stock."
(3) Represents the commencement of direct mail marketing efforts by the Company.
See "BUSINESS -- Advertising and Marketing."
(4) Represents funds to be added to the Company's advertising budget, which will
primarily be utilized to purchase additional print advertising. See
"BUSINESS -- Advertising and Marketing."
(5) The remaining proceeds will be allocated to working capital. Proceeds
allocated to working capital may be used, among other things, for payment of
general and administrative expenses or other operating expenses.
The Company estimates that the net proceeds of this Offering, together with
anticipated cash flow, will be sufficient to meet its anticipated cash
requirements for at least 18 months subsequent to the closing of the Offering.
The Company anticipates that additional financing will be required for the
Company's further expansion. See "RISK FACTORS -- Need For Additional Financing"
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
The cost, timing and amount of funds required for specific uses by the
Company cannot be precisely determined at this time. The use of proceeds is
subject to change based upon, among other factors, the Company's sales,
competitive conditions and creditor and supplier relations. The amounts actually
expended for any purpose could vary significantly and the Company reserves the
right to reallocate proceeds depending upon numerous factors including, among
other things, revenues derived from the Company's activities. The Company cannot
currently predict the circumstances under which the Company may be required or
may find it appropriate to apply the proceeds in a manner other than as
indicated in this Prospectus. If the Underwriter's Over-allotment Option is
exercised in full, the Company will add the net proceeds to working capital.
Pending use of the net proceeds for the above purposes, the Company intends to
invest such funds in short-term bank deposits and investment grade securities,
U.S. government securities and other short-term, income-producing securities.
16
<PAGE>
DIVIDEND POLICY
The Company has not in the past paid, and does not anticipate paying in the
foreseeable future, cash dividends on its Common Stock, but instead intends to
retain future earnings, if any, for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant, including whether the Company's loan agreements
prohibit the payment of dividends. The Company's loan agreements with Heller
prohibit the payment of dividends if such payment would cause the Company to
violate any of the Company's financial covenants. See "RISK
FACTORS -- Dependence on Credit Facilities" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources."
17
<PAGE>
DILUTION
As of January 31, 1996, without giving effect to any changes after January
31, 1996 other than (i) the receipt of the net proceeds from the Bridge
Financing, including the issuance of the Bridge Notes and 180,000 shares of
Common Stock to the Bridge Selling Stockholders, (ii) the repayment of a loan
from a stockholder in the original principal amount of $130,000, plus accrued
interest of $3,900, from the net proceeds of the Bridge Financing, (iii) the
issuance of an aggregate of 224,761 shares of Common Stock to the Company's
officers and a principal stockholder, the net tangible book value of the
Company's Common Stock was $(715,286) or $(.39) per share of Common Stock. The
net tangible book value of the Company is its tangible assets less its total
liabilities. Tangible assets equals total assets less intangible assets.
Dilution per share represents the difference between the amounts paid per share
by purchasers in this Offering and the pro forma net tangible book value per
share after the Offering, after giving effect to (i) the sale of the Securities
offered hereby and the receipt of the net proceeds $4,507,310 therefrom (plus
$13,635 of Offering costs paid through January 1996), (ii) the issuance of
462,531 shares of Common Stock upon the redemption of the outstanding shares of
Preferred Stock, including the payment of $80,000 of accrued dividends, and
(iii) the repayment of the Bridge Notes, including $738,000 of issue discount
and $60,000 of accrued interest from the net proceeds of the Offering, the pro
forma net tangible book value of the Company as of January 31, 1996 would have
been $2,927,659, or $.91 per share. This represents an increase in net tangible
book value per share of $1.30 to the Company's existing stockholders and an
immediate dilution of $5.09 per share to public investors in the Offering or 85%
of the net tangible book value per share of the Common Stock. The computation of
dilution on a per share basis gives effect to the receipt of the net proceeds
from the sale of the Warrants, but does not give effect to their exercise. The
following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock...................... $6.00
Net tangible book value per share before Offering.................................... $(.39)
Increase in net tangible book value.................................................. 1.30
Pro forma net tangible book value per share after Offering........................... .91
Dilution per share to new investors.................................................. $5.09
</TABLE>
The following table summarizes as of January 31, 1996, the number and
percentage of shares of Common Stock purchased from the Company, the amount and
percentage of total consideration paid, and the average price per share paid by
existing stockholders and by new investors pursuant to this Offering.
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED PERCENTAGE
PERCENTAGE OF OF TOTAL
OUTSTANDING CONSIDERATION CONSIDERATION
NUMBER SHARES PAID PAID
<S> <C> <C> <C> <C>
Present Common Stockholders.............................. 1,812,206 56.2% $ 226,000 3.8%
Present Preferred Stockholders........................... 462,531 14.3 -- --
New investors............................................ 950,000 29.5 5,700,000 96.2
Total.................................................. 3,224,737 100.0% $ 5,926,000 100.0%
<CAPTION>
TOTAL CONSIDERATION
AVERAGE
PRICE
PER SHARE
<S> <C>
Present Common Stockholders.............................. $ .12
Present Preferred Stockholders........................... --
New investors............................................ 6.00
Total.................................................. $1.84
</TABLE>
The computations set forth in both tables above include all outstanding
shares of Common Stock, as well as the issuance of 462,531 shares of Common
Stock issuable upon the anticipated redemption of the Preferred Stock upon the
completion of this Offering, but do not include (i) a maximum of 1,760,000
shares of Common Stock, subject to adjustment, issuable upon the exercise of the
Warrants; (ii) a maximum of 280,000 shares of Common Stock issuable upon
exercise of options which may be granted under the Company's 1996 Stock Option
Plan; (iii) 169,500 shares of Common Stock or the shares of Common Stock
issuable upon the exercise of 169,500 Warrants, which are issuable upon the
exercise of the Underwriter's Over-allotment Option; and (iv) 226,000 shares of
Common Stock reserved for issuance upon the exercise of the Underwriter's
Warrants and the Warrants contained therein. See "CAPITALIZATION,"
"MANAGEMENT -- Stock Options," "DESCRIPTION OF SECURITIES -- Prior Financings"
and " -- Preferred Stock."
18
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of January 31, 1996 and the capitalization as of January 31, 1996 (a) on a pro
forma basis to give effect to (i) the receipt of the net proceeds of $1,583,000
from the Bridge Financing, including the issuance of the Bridge Notes and
180,000 shares of Common Stock to the Bridge Selling Stockholders for which
there is issue discount of $738,000, (ii) the repayment of a loan from a
stockholder in the original principal amount of $130,000, plus accrued interest
of $3,900, from the net proceeds of the Bridge Financing, (iv) the issuance of
an aggregate of 224,761 shares of Common Stock to the Company's officers and a
principal stockholder for which $943,996 of compensation expense will be
recognized, and (b) as further adjusted to give effect to the sale of the
Securities offered hereby and the receipt of the net proceeds therefrom, the
issuance of 462,531 shares of Common Stock upon the redemption of the Preferred
Stock and the repayment of the Bridge Notes from the net proceeds of the
Offering.
<TABLE>
<CAPTION>
JANUARY 31, 1996
HISTORICAL PRO FORMA AS ADJUSTED (1)(2)
<S> <C> <C> <C>
Term loan payable............................................................ $ 130,000 -- --
Notes payable, including current portion..................................... 805,556 $ 805,556 $ 805,556
Bridge Notes payable......................................................... -- 1,026,000 --
Capital lease obligations, including current portion......................... 156,466 156,466 156,466
Redeemable preferred stock -- Series A, par value $.01 per share,
58,340 shares authorized, 43,327 shares issued and outstanding (no shares
as adjusted)............................................................... 500,000 500,000 --
Stockholders equity
Preferred stock, par value $.01 per share; 1,420,000 shares authorized,
no shares issued........................................................ -- -- --
Common Stock, par value $.01 per share; 10,000,000 shares authorized,
1,407,445 shares issued and outstanding (1,812,206 shares pro forma,
3,224,737 as adjusted).................................................. 14,074 18,122 32,247
Additional paid-in capital................................................... 1,388,658 3,102,606 7,515,791
Accumulated deficit.......................................................... (1,520,872) (2,468,768) (3,483,768)
Total stockholders' equity (deficiency)...................................... (118,140) 651,050 4,064,270
Total capitalization......................................................... $ 1,473,882 $ 3,139,982 $ 5,026,292
</TABLE>
(1) Does not include (i) a maximum of 1,760,000 shares of Common Stock, subject
to adjustment, issuable upon the exercise of the Warrants; (ii) a maximum of
280,000 shares of Common Stock issuable upon exercise of options which may
be granted under the Company's 1996 Stock Option Plan; (iii) 169,500 shares
of Common Stock or the shares of Common Stock issuable upon the exercise of
169,500 Warrants, which are issuable upon the exercise of the Underwriter's
Over-allotment Option; and (iv) 226,000 shares of Common Stock reserved for
issuance upon the exercise of the Underwriter's Warrants and the Warrants
contained therein. See "MANAGEMENT -- Stock Options" and "DESCRIPTION OF
SECURITIES -- Prior Financings."
(2) Upon completion of the Offering, the Company will expense $217,000 of debt
issue costs associated with the Bridge Financing, $738,000 of issue discount
on the Bridge Notes and $60,000 of interest attributable to the Bridge
Notes.
SELECTED FINANCIAL DATA
The statement of operations data for the Company and the statement of
revenues over direct operating expenses for Cable & Co. (a product line of
Hongson, Inc.) for the years ended December 31, 1995 and 1994, respectively, and
the balance sheet data for the Company at December 31, 1995, have been derived
from the audited financial statements appearing elsewhere in this Prospectus.
The selected statement of operations data for the one-month period ended January
31, 1995 and 1996 and the balance sheet data at January 31, 1996 are derived
from unaudited financial statements of the Company. The results of operations
for the one-month period ended January 31, 1996 is not necessarily indicative of
the results of operations that may be expected for the full year. However, in
the opinion of management, the unaudited financial statements have been prepared
on the same basis as the audited financial statements and all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the results for such periods, have been reflected therein. All
of such information should be read in conjunction with, and is qualified by
reference to, the financial statements, including the notes
19
<PAGE>
thereto, which are set forth elsewhere in this Prospectus. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
SELECTED STATEMENT OF OPERATIONS DATA FOR THE COMPANY
<TABLE>
<CAPTION>
YEAR ENDED ONE-MONTH PERIOD
DECEMBER 31, ENDED JANUARY 31,
1995 1995 1996
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net sales......................................................................... $ 10,432,926 $ 772,140 $ 1,198,778
Cost of goods sold................................................................ 6,397,568 462,681 752,308
Gross profit...................................................................... 4,035,358 309,459 446,470
Operating expenses (including moving expenses of $84,356 during the year ended
December 31, 1995 and $1,352,624 of non-cash compensatory charges for the
one-month period ended January 31, 1996)........................................ (3,699,672) (239,478) (1,829,408)
Commission income................................................................. 34,302 -- --
Income (loss) from operations..................................................... 369,988 69,981 (1,382,938)
Interest expense.................................................................. 429,197 24,984 47,982
Provision (benefit) for income taxes.............................................. 43,900 19,000 (13,157)
Net income (loss)................................................................. (103,109) 25,997 (1,417,763)
Dividends on Preferred Stock...................................................... 53,148 -- 5,096
Net income (loss) applicable to Common Stock...................................... $ (156,257) $ 25,997 $(1,422,859)
Net income (loss) per common share................................................ $ (.08) $ .01 $ (.79)
Weighted average number of common shares outstanding.............................. 2,023,486 2,059,070 1,812,206
</TABLE>
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
FOR CABLE & CO. (A PRODUCT LINE OF HONGSON, INC.)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
<S> <C>
Net sales............................................................................... $8,702,461
Cost of goods sold...................................................................... 5,166,494
Gross profit............................................................................ 3,535,967
Selling expenses........................................................................ 1,367,435
Excess of revenues over direct operating expenses....................................... $2,168,532
</TABLE>
SELECTED BALANCE SHEET DATA FOR THE COMPANY
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996
<S> <C> <C>
(UNAUDITED)
Current assets........................................................... $4,180,078 $ 4,518,137
Working capital (deficiency)............................................. (887,776) (971,712)
Property and equipment, net.............................................. 851,972 874,955
Trademark and Trade name, net............................................ 1,113,340 1,107,876
Intangible Assets, net................................................... 29,525 42,370
Other Assets............................................................. 7,015 6,171
Current Liabilities...................................................... 5,067,854 5,489,849
Total Liabilities........................................................ 5,774,931 6,167,649
Redeemable Preferred Stock -- Series A................................... 500,000 500,000
Stockholders' deficiency................................................. (93,001) (118,140)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed on November 10, 1994 to purchase the Acquired Net
Assets used by Hongson, Inc. in the sale and marketing of footwear bearing the
Cable & Co. trademark. The Company purchased the Acquired Net Assets effective
as of the close of business on December 31, 1994 for a net purchase price of
$1,401,787.
The Company designs, imports and markets on a wholesale basis a broad range
of footwear bearing the Cable & Co. trademark. The Company markets its products
to approximately 700 department and specialty store locations in the United
States. In addition, the Company markets a line of casual men's footwear under
the name "Bacco Bucci." The Company has licensed the right to use the Bacco
Bucci name from D&D Design, an entity controlled by Alberto Salvucci, a
principal stockholder of the Company.
The Company plans to increase revenues by increasing sales to existing
accounts, establishing new accounts, developing high quality shoes with styling
and design detail to sell at competitive prices and expanding the Company's
marketing programs. The Company intends to increase its marketing to include
direct mail. The Company also intends to explore opportunities to acquire rights
to related products such as bags, belts, wallets, accessories and other small
leather goods. In addition, the Company may seek to grant license rights to the
Cable & Co. trademark.
YEARS ENDED DECEMBER 31, 1995 AND 1994
The Company's net sales for fiscal 1995 were $10,432,926 as compared to net
sales of $8,702,461 in fiscal 1994 from the Cable & Co. product line of Hongson,
Inc. (the "Cable Product Line") derived from footwear bearing the Cable & Co.
trademark, an increase of 19.9%. In fiscal 1995, the Company derived $9,612,304
of net sales from the sale of men's footwear bearing the Cable & Co. trademark,
a 10.5% increase over the net sales of the Cable Product Line in fiscal 1994.
The Company believes that the increase in net sales during fiscal 1995 is
primarily attributable to increased advertising and marketing efforts by the
Company. In addition, the Company's net sales for fiscal 1995 included $295,557
of net sales of women's footwear, which the Company commenced selling in the
second half of 1995. The Company also began marketing a less expensive men's
casual footwear line under the Bacco Bucci name, which produced $525,065 of net
sales in fiscal 1995.
The Company's cost of goods sold for fiscal 1995 was $6,397,568 as compared
to $5,166,494 for the Cable Product Line in fiscal 1994, a 23.8% increase. The
Company believes that such increase is primarily attributable to the increase in
net sales in fiscal 1995. The Company's gross profit as a percentage of net
sales was 38.7% in fiscal 1995 as compared to 40.6% for the Cable Product Line
in fiscal 1994. The Company believes that such decrease is primarily
attributable to increased freight costs, the lower initial gross profit margins
on Bacco Bucci and women's footwear and increases in manufacturing costs.
In fiscal 1995 the Company had a net loss of $103,109. The Company believes
that the net loss is primarily attributable to the expenses incurred in
connection with severing the Company's business from Hongson, Inc., including
moving costs of $84,356 and other costs of relocating the Company's warehouse
and offices. Management does not believe that the Company will incur similar
expenses in 1996.
Management anticipates that the Company's results of operations in fiscal
1996 will reflect non-cash expenses of $3,588,738. Such expenses will be
incurred as a result of expensing (i) $738,000 issue discount in connection with
the issuance of 180,000 shares of Common Stock and 180,000 Warrants in the
Bridge Financing, (ii) $561,667 annually for a period of three years
representing an aggregate expense of $1,685,000 over the term of the agreement
attributable to the issuance of 400,000 shares of Common Stock and 450,000
Warrants to an international consultant, (iii) $1,345,075 attributable to the
release of an aggregate of 320,256 shares of Common Stock from escrow to Mr.
Albahari, Mr. Kandall and Mr. Salvucci, and (iv) $943,996 attributable to the
issuance of an aggregate of 224,761 shares of Common Stock to Mr. Albahari, Mr.
Kandall and Mr. Salvucci. See "ACQUISITION," "MANAGEMENT -- Employment and
Consulting Agreements," "CERTAIN TRANSACTIONS" and "DESCRIPTION OF
SECURITIES -- Prior Financings."
ONE MONTH PERIOD ENDED JANUARY 31, 1996 AND 1995
The Company's net sales for January 1996 were $1,198,778 as compared to net
sales of $772,140 in January 1995, an increase of 55.3% in January 1996. The
Company believes that the increase in net sales in January 1996 is primarily
attributable to net sales of women's footwear of $107,000 and net sales of
footwear bearing the Bacco Bucci name of $176,000, as well as a 19% increase of
footwear bearing the Cable & Co. trademark.
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<PAGE>
The Company's cost of goods sold for January 1996 was $752,308, as compared
to $462,681 in January 1995, a 62.6% increase. The Company believes that such
increase is primarily attributable to the increase in net sales in January 1996.
The Company's gross profit as a percentage of net sales was 37.2% in January
1996 as compared to 40.1% in January 1995. The Company believes that such
decrease is primarily attributable to the lower initial gross profit margins on
Bacco Bucci and women's footwear.
In January 1996 the Company incurred selling, general and administrative
expenses of $476,784, 39.8% as a percentage of net sales as compared to selling,
general and administrative expenses in January 1995 of $239,478, 31.0% as a
percentage of net sales. The Company believes that the increase in selling,
general and administrative expenses is primarily attributable to increases in
expenses incurred in connection with severing the Company's business with
Hongson, Inc., additional costs attributable to launching the Bacco Bucci line
and the women's footwear line in 1996, including increased selling expenses and
sampling costs, additional marketing and advertising expenses, higher rent
expenses and increased factoring costs. In addition, management believes that
the increase is also attributable to increased warehouse costs of approximately
$43,000 which resulted from the Company terminating its warehouse lease and
moving its inventory.
In January 1996, the Company incurred interest expense of $47,982 as
compared to $24,984 in January 1995, an increase of 92.1%. The Company believes
that the increase is attributable to an increase in borrowing relating to the
higher sales and inventory levels in January 1996 together with additional
borrowing attributable to the purchase of 266,880 shares of Common Stock and
21,660 shares of Preferred Stock from Harry Chen. See "ACQUISITION".
In January 1996 the Company incurred noncash compensatory charges of
$1,352,624. Of the total $1,345,075 related to the release of an aggregate of
320,256 shares of Common Stock to Mr. Albahari, Mr. Kandall and Mr. Salvucci
which had been held in escrow pursuant to a stockholders agreement which had
been entered into in connection with the Acquisition. In addition, such charges
also included $7,549 attributable to an international consulting agreement. See
"ACQUISITION" and "MANAGEMENT -- Employment and Consulting Agreements."
In January 1996, the Company had a net loss of $1,417,763 as compared to
net income of $25,997 in January 1995. The Company believes that it incurred
such net loss because of the decrease in gross profit margins, the increase in
selling, general and administrative expenses, the noncash compensatory charges
and increased interest expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its requirements for the Acquisition, working
capital and capital expenditures from net cash provided through various
borrowings, including borrowings under its credit facility with Heller, the 1995
Financing, as defined below, and the Bridge Financing. As of January 31, 1996,
the Company had a working capital deficit of $971,712 and a debt to equity ratio
of 429.50 to 1.
The Company's obligations to Heller include a collateral installment note
in the original principal amount of $1,000,000 of which $722,222 was outstanding
as of April 30, 1996. The collateral installment note is payable in 36 monthly
installments of $27,777 and bears interest at 3% above the prime rate of Chase
Manhattan Bank, N.A. ("Chase"). In addition, the Company may borrow from Heller
the lesser of 50% of the Company's eligible inventory or $2,000,000 (the
"Inventory Loan"). The Inventory Loan bears interest at 2% above Chase's prime
rate. The Company also finances its accounts receivable under a factoring
agreement with Heller. Pre-approved accounts are factored without recourse to
the Company and non-approved accounts are factored with recourse. At January 31,
1996, $385,496 of the $2,266,114 (17%) of factored accounts receivable, were
factored with recourse. Heller is entitled to a fee equal to 1.25% of all
accounts receivable purchased. Moreover, advances by Heller bear interest at
rates equal to Chase's prime rate plus 1.5% to 2%. Under the credit facility,
all of the Company's obligations to Heller may not exceed $6,000,000.
In February 1995, the Company consummated the 1995 Financing of 64,987
shares of Preferred Stock in the aggregate amount of $750,000. It is anticipated
that the redemption price and accrued dividends on the shares of Preferred Stock
will be paid out of the net proceeds of the Offering. In October 1995, the
Company purchased and retired 266,880 shares of Common Stock and 21,660 shares
of Preferred Stock from Harry Chen for a purchase price of $132,500 and
$267,500, respectively. In October 1995, the Company borrowed $130,000 from a
stockholder which was repaid in February 1996 from the net proceeds of the
Bridge Financing and issued such stockholder 20,016 shares of Common Stock in
consideration for making such loan. In March 1996, the Company consummated the
Bridge Financing of 36 Units to the Bridge Selling Stockholders at a purchase
price of $50,000 per Unit, $1,800,000 in the aggregate. Each Unit consists of
the Company's 11% Bridge Note in the original principal amount of $49,000, 5,000
shares of Common Stock and 5,000 Bridge Warrants. The Bridge Notes are due and
payable upon the earlier of February 2, 1997 or the Company's receipt of gross
proceeds of at least $4,080,000 from
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<PAGE>
the sale of its debt and/or equity securities in a public or private financing.
It is anticipated that the Bridge Notes will be repaid out of the net proceeds
of this Offering. See "USE OF PROCEEDS" and "DESCRIPTION OF SECURITIES -- Prior
Financings."
The Company believes that the net proceeds of the Offering, together with
net cash provided by operations and available borrowings under the Company's
credit facility, will be sufficient to meet its anticipated cash requirements
for at least the 18 months subsequent to the closing of the Offering. However,
additional funds may be required for additional expansion.
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<PAGE>
BUSINESS
GENERAL
The Company was formed on November 10, 1994 to acquire the Acquired Net
Assets previously used by Hongson, Inc. since 1989 in the sale and marketing of
footwear bearing the Cable & Co. trademark. The Company purchased the Acquired
Net Assets effective as of the close of business on December 31, 1994 for a net
purchase price of $1,401,787. See "ACQUISITION."
Prior to the Acquisition, David Albahari, Chairman of the Board, President,
Chief Executive Officer, a director and a principal stockholder of the Company,
was the president of the Cable & Co. product line of Hongson, Inc. and Alan
Kandall, Executive Vice President, Chief Financial Officer, Treasurer, a
director and a principal stockholder of the Company, was the chief financial
officer of Hongson, Inc. In addition, Alberto Salvucci, through Cable & Co.
S.R.L., identified raw materials, and provided design and production services
for shoes bearing the Cable & Co. trademark for the Cable & Co. product line of
Hongson, Inc. prior to the Acquisition. Mr. Salvucci, through Cable & Co. S.R.L.
and D&D Design, continues to provide substantially the same services to the
Company, and acts on his own behalf in connection with the sale in Europe of
footwear under the names Cable & Co. and Bacco Bucci. Mr. Albahari, Mr. Kandall
and Mr. Salvucci had no beneficial interest in Hongson, Inc. prior to the
Acquisition.
The Company designs, imports and markets on a wholesale basis a broad range
of men's footwear bearing the Cable & Co.(Register mark) trademark. The Company
markets its products to approximately 700 department and specialty store
locations in the United States. The Company's products are designed to appeal to
fashion conscious consumers. The Company's men's footwear consists of casual
shoes and dress shoes. The retail price of the men's shoes sold under the Cable
& Co. trademark ranges from $120 to $170 for casual shoes and ranges from $150
to $190 for the Company's dress shoes. The Company has recently commenced
selling a women's footwear line under the Cable & Co. trademark consisting of
women's dress shoes and casual shoes on an introductory basis at select retail
locations. The Company plans a full-scale launch of the women's footwear line in
the Fall of 1996. The women's footwear sells for retail prices ranging from $130
to $150. In addition, the Company markets a line of casual men's footwear under
the name "Bacco Bucci" which sells for retail prices ranging from $110 to $140.
The Company has licensed the right to use the Bacco Bucci name from D&D Design,
an entity controlled by Alberto Salvucci, a principal stockholder of the
Company. See "CERTAIN TRANSACTIONS."
The Company believes that its footwear is comfortable, fashionable and
practical. The Company incorporates technically sophisticated designs into the
construction of its footwear, which is intended to be worn with casual or
business attire. The Company's men's footwear, consistent with men's footwear in
general, is less style-driven than women's footwear. The Company sells
approximately 45 styles of men's shoes each season bearing the Cable & Co.
trademark and 20 styles under the Bacco Bucci brand name. In addition, the
Company carries an average of approximately 30 styles of men's footwear from
prior seasons. The Company also intends to offer approximately 20 styles of
women's shoes each season beginning in the Fall of 1996.
The Company plans to increase revenues by increasing sales to existing
accounts, establishing new accounts, developing high quality shoes with styling
and design detail to sell at competitive prices and expanding the Company's
marketing programs. The Company intends to increase its marketing to include
direct mail. The Company also intends to explore opportunities to acquire rights
to related products such as bags, belts, wallets, accessories and other small
leather goods. In addition, the Company may seek to grant license rights to the
Cable & Co. trademark.
DISTRIBUTION AND WHOLESALE OPERATIONS
The Company's products are distributed to approximately 450 customers for
sale in approximately 700 store locations in the United States. The Company
markets its products to (i) major department stores and specialty stores, such
as Bloomingdales, Dillard Department Stores, Inc., Nordstrom, Inc. and R.H. Macy
& Co., Inc., (ii) upscale specialty retailers, such as Neiman Marcus, Saks Fifth
Avenue, Lord & Taylor and Parisian, and (iii) upscale shoe and apparel
merchants. Out-of-season products are sold only through a select channel of
distribution.
The Company's strategy has been to provide marketing and management support
to its customers by producing what management believes to be strong image
advertising campaigns. The Company markets its product line and introduces new
styles at industry-wide footwear shows, which occur twice a year in Las Vegas
and New York, and at regional shows throughout the year. These shows afford the
Company an opportunity to assess demand for its products. After each show, the
Company's agents and corporate account specialists visit customers to review the
Company's product lines and to secure purchase commitments. The Company also
facilitates sales by offering what management believes are creative, quality
products and
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maintaining adequate inventory levels of new products as well as products
included in the Company's "open stock" program. The Company's "open stock"
program enables customers to order individual pairs of shoes from the Company's
inventory, primarily through an electronic data interchange system. See
" -- Management Information Systems."
DESIGN
The Company believes that its success will depend in substantial part on
its ability to originate and define fashion trends as well as to anticipate and
react to changing consumer demands in a timely manner. To meet this objective,
the Company retains Cable & Co. S.R.L. and D&D Design, both of which are
controlled by Alberto Salvucci, a principal stockholder of the Company, to
provide design, production and production control services. The process of
designing and introducing a new product takes approximately three to four
months. The Company's management works with Cable & Co. S.R.L. and D&D Design to
create a design which they believe fits the Company's image, reflects current or
approaching trends and can be manufactured cost-effectively. Once the initial
design is complete, a prototype is developed, fit trials are conducted and the
prototype is reviewed and refined prior to commencement of production. See "RISK
FACTORS -- Continued Relationship with Alberto Salvucci," "CERTAIN
TRANSACTIONS," and "PRINCIPAL STOCKHOLDERS."
MANUFACTURING
The Company does not own or operate any manufacturing facilities and
purchases its products through independently owned manufacturers located
primarily in Italy. Cable & Co. S.R.L. maintains an office in Montegranaro,
Italy and monitors the production, quality and timely distribution of the
Company's products.
The footwear marketed by the Company is produced primarily in Italy because
management believes that Italian manufacturers can satisfy the Company's quality
control requirements. Approximately 86% of the dollar value of its footwear
purchases in 1995 were purchased from three manufacturers in Italy. The Company
is generally the largest and, in many cases, the exclusive customer of these
manufacturers and has established long-standing relationships with most of them.
In advance of the Fall and Spring selling seasons, the Company's management
works with Cable & Co. S.R.L. to develop new products for industry trade shows
and with manufacturers to determine production costs, materials, break-even
quantities and component requirements for new styles. Based on indications of
interest obtained at trade shows and initial purchasing commitments from
retailers, the Company places production orders with its manufacturers. To
maintain inventory positions, the Company places manufacturing orders prior to
receiving firm commitments. Once an order has been placed, delivery time ranges
from 10 weeks to three months depending on whether the product is new or is
currently in production. The Company, primarily through Cable & Co., S.R.L.,
monitors product quality through inspections at the factories throughout the
production process and upon receipt. To reduce the risk of inventory
overstocking, the Company monitors sales data on a weekly basis.
ADVERTISING AND MARKETING
The Company markets its products based on the design and quality
specifications of such products. The Company believes that its advertising
campaigns have resulted in increased sales and consumer awareness of its
products. The Company's advertisements appear in magazines such as GQ, Esquire,
Cigar Aficionado and Vanity Fair. The Company spent approximately $630,000 on
advertising in 1995. In order to strengthen brand awareness of its products and
increase sales, the Company intends to continue to be actively involved in the
development of marketing and merchandising programs. As part of this effort, the
Company provides cooperative advertising programs, sales incentives and sales
promotions. All advertising and marketing production is produced in-house
allowing the Company to have complete control over marketing functions, while at
the same time reducing the high costs associated with contracting with
advertising agencies to produce high quality work.
The Company has an in-house direct "teleservicing" department which is
responsible for maintaining and servicing the Company's present customer list,
referring retail customers to local retail stores to purchase advertised and
non-advertised products and to provide product information. Currently, this
function is performed by the Company during normal business hours using a toll
free telephone number.
The Company anticipates that a portion of the net proceeds of the Offering
will be utilized to commence direct mail marketing and to purchase additional
print advertising. The Company intends to enter into an agreement with an
independent firm to provide direct mail marketing services to the Company,
although it has not yet commenced negotiations and there can be no assurance
that it will be able to consummate any such agreement on acceptable terms. See
"USE OF PROCEEDS."
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Substantially all of the Company's footwear is sold in the United States
and, to a lesser extent, in Canada. In consultation with U.K. Hyde Park
Consultants, Ltd., the Company intends to explore the feasibility of marketing
its footwear to countries in Central and South America. See
"MANAGEMENT -- Employment and Consulting Agreements."
PRODUCT DELIVERY
Once manufacturing is completed overseas, the Company's products are
inspected, packed and shipped by air and boat to the United States. Thereafter,
the products are transported by truck to an independent warehouse facility
utilized by the Company located in Bayonne, New Jersey. The products are then
shipped to the Company's customers. By maintaining significant inventory
positions, the Company strives to fill at least a 95% of customer orders within
72 hours. While the Company's "open stock" program requires an increased
investment in inventories, management believes that it is an important service
for its customers, allowing them to manage inventory levels more effectively.
MANAGEMENT INFORMATION SYSTEMS
Information systems are essential to the Company's ability to maintain its
competitive position and to support continued growth. The Company's management
information system was designed to provide, among other things, comprehensive
order processing, production, accounting and management information for the
importing, distribution and marketing aspects of the Company's business. The
Company has installed an electronic data interchange system which provides a
computer link between the Company and certain of its wholesale customers that
enable both the customer and the Company to monitor purchases, shipments and
invoicing.
TRADEMARKS
Cable & Co.(Register mark) is a registered trademark of the Company in the
United States, Canada and several Central and South American countries. The
registered trademark includes footwear and related products. The Company
believes that the Cable & Co. trademark contributes significantly in the
marketing of its products. In addition, a trademark application has been filed
in the United States by Alberto Salvucci for Bacco Bucci. However, the trademark
registration has not been granted, and there can be no assurance concerning when
or if such registration will be effected.
COMPETITION
Competition in the footwear industry is intense. The Company's products
compete with other branded products within their product category sold by
retailers. In varying degrees depending on the product category involved, the
Company competes on the basis of style, price, quality, comfort and brand
prestige and recognition, among other considerations. The Company competes with
numerous manufacturers, importers and distributors of footwear and accessories
for the limited shelf-space available for displaying such products to the
consumer. Moreover, the general availability of contract manufacturing capacity
allows access by new market entrants. The Company believes that its ability to
deliver quality merchandise in a timely manner is a critical competitive factor,
particularly in connection with the introduction of new product lines. The
Company's ability to maintain existing relationships and develop new
relationships with foreign manufacturers is another important element in its
ability to compete. Some of the Company's competitors are larger, have achieved
greater recognition for their brand names, have captured greater market share
and have substantially greater financial, distribution, marketing and other
resources than the Company. However, some of such competitors have been in
business longer than the Company and are better capitalized than the Company.
GOVERNMENT REGULATION
Although the goods sold by the Company are not currently subject to quotas,
countries in which the Company's products are manufactured may, from time to
time, impose new or adjust prevailing quotas or other restrictions on exported
products and the United States may impose new duties, tariffs and other
restrictions on imported products, any of which could adversely affect the
Company's operations and its ability to import its products. In accordance with
the 1993 Harmonized Tariff Schedule, a fixed duty structure is in effect for the
United States. The Company pays import duties on its products ranging from
approximately 8.5% to 10%, depending on the principal component and whether the
product is men's or women's footwear. Other restrictions on the importation of
footwear are periodically considered by the United States Congress and no
assurances can be given that tariffs or duties on the Company's goods may not be
raised, resulting in higher costs to the Company, or that import quotas
respecting such goods may not be imposed or made more restrictive.
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The Company imports a large portion of its products from Italy. Italy is on
the "watch list" maintained by the USTR for purposes of monitoring protection of
intellectual property rights. According to the USTR, its consultations with
Italy have contributed to an improved and stronger legal framework for the
protection of intellectual property rights. If the USTR were to determine that
Italy's actions, policies, or practices with respect to intellectual property
rights are actionable, sanctions against imports from Italy, including higher
duties, could be imposed.
SEASONALITY
The Company's business is subject to seasonal variations. Historically in
the footwear industry, a significant portion of the Company's sales are realized
during the spring and fall fashion seasons, and levels of sales are generally
lower during the winter and summer fashion seasons. If the Company's sales were
to be substantially below seasonal norms during the spring and fall fashion
seasons, the Company's annual results could be materially and adversely
affected. The Company must make decisions regarding how much inventory to buy
well in advance of anticipated sale. Deviations in actual from projected demand
for products could have an adverse affect on the Company's sales and
profitability.
BACKLOG
As of April 30, 1996, the Company had unfilled customers orders of
approximately $5,325,000. The Company's backlog is affected by a number of
factors, including seasonality and customer purchases of its products through
the Company's "open stock" program. To date, the Company has not experienced
material returns of its products or material cancellations of orders.
EMPLOYEES
As of April 30, 1996, the Company had 28 full-time employees of which five
were involved in sales and 23 in general management and administration. In
addition, the Company utilizes the services of six independent exclusive sales
agents on a regular basis. The Company believes its success depends upon its
ability to identify, hire and retain capable personnel. As there is significant
competition for qualified personnel, there can be no assurance that the Company
will succeed in recruiting or retaining suitable staff. The Company considers
its relations with its employees, none of whom are covered by collective
bargaining agreements, to be excellent.
PROPERTIES
The Company, through its wholly-owned subsidiary Cable & Company
Enterprises, Ltd., leases approximately 4,500 square feet at 724 Fifth Avenue,
New York, New York at a monthly base rental of $9,750, which increases to
$10,500 per month commencing in May 2000. The lease expires on July 31, 2005 and
the space is utilized as the Company's executive office and showroom. In
addition, the Company, through Cable & Company Enterprises, Ltd., leases
approximately 2,800 square feet of office space in Edison, New Jersey at a
monthly base rental of $4,086, which amount increases each year of the lease to
a maximum of $4,981 in September 1999. The lease expires on September 30, 2000.
INSURANCE
The Company maintains insurance coverage including workers' compensation
coverage, and liability insurance in respect of hazards on the Company's
business premises. The Company carries a general liability policy which provides
for coverage of $1,000,000 per occurrence and $2,000,000 in the aggregate. The
Company carries key man life insurance in the amount of $500,000 on the life of
each of David Albahari and Alan Kandall with the Company as beneficiary.
LITIGATION
The Company is not a party to any material pending litigation.
ACQUISITION
On January 16, 1995, the Company entered into an asset purchase agreement
(the "Asset Purchase Agreement") providing for the purchase from Hongson, Inc.
of the Acquired Net Assets. The Company consummated the purchase of the Acquired
Net Assets on February 16, 1995. However, the Company was entitled to all of the
income, and responsible for all of the expenses, in connection with the Acquired
Net Assets as of the close of business on December 31, 1994. The net purchase
price for the Acquired Net Assets was $1,401,787. The Company believes that the
assets of Hongson, Inc. have
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been liquidated and that Hongson, Inc. is no longer doing business. In
connection with the Acquisition, Harry Chen, a principal stockholder of Hongson,
Inc., was issued 266,880 shares of Common Stock for an aggregate purchase price
of $100.
As a condition of the Asset Purchase Agreement, David Albahari, Alan
Kandall, Alberto Salvucci, Harry Chen and the Company entered into a
stockholders agreement (the "Stockholders Agreement") with respect to their
shares of Common Stock. Pursuant to the Stockholders Agreement, Mr. Albahari,
Mr. Kandall and Mr. Salvucci (the "Management Group") agreed not to sell their
shares of Common Stock for nine months if the Company either merged with an
entity having a publicly traded class of securities or registered its shares
under the Securities Act without the consent of the Company's investment advisor
or underwriter, respectively. The Management Group also placed an aggregate of
320,256 shares of Common Stock in escrow which were not to be released to the
Management Group unless the Company satisfied certain performance criteria (the
"Escrow Shares"). The Stockholders Agreement was to expire on the earlier of a
merger of the Company, the date upon which the Company consummated the sale of
its securities pursuant to a registration statement filed under the Securities
Act or on the fifteenth anniversary of the Stockholders Agreement. In January
1996, the Company terminated the Stockholders Agreement and released all of the
Escrow Shares to the Management Group, although the terms for the release of the
Escrow Shares had not yet been satisfied. The Company recorded a noncash
compensatory charge of $1,345,075 in January 1996, relating to the release of
the Escrow Shares.
In October 1995, the Company purchased and retired all of Mr. Chen's
remaining interest in the Company, namely, 266,880 shares of Common Stock, and
21,660 shares of Preferred Stock which Mr. Chen purchased for $250,000 in the
1995 Financing, as defined below. Of the $400,000 purchase price, $132,500 was
attributable to the 266,880 shares of Common Stock and $267,500 was attributable
to the 21,660 shares of Preferred Stock and the accrued dividends thereon. See
"CERTAIN TRANSACTIONS" and "DESCRIPTION OF SECURITIES -- Prior Financings."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
David Albahari 40 Chairman of the Board, President,
Chief Executive Officer and
Director
Alan Kandall 52 Executive Vice President, Chief
Financial Officer, Treasurer and
Director
Martin C. Licht 54 Secretary and Director
</TABLE>
In accordance with the Underwriting Agreement, the Underwriter has been
granted the option of designating an individual to serve, in its discretion, as
an advisor to, or a member of, the Company's Board of Directors for a period of
three years after the completion of this Offering. However, the Underwriter has
not advised the Company whether it will exercise such option or, if so, whom it
will designate. The Company's officers are elected to serve in such capacities
until the earlier to occur of the election and qualification of their respective
successors or until their respective deaths, resignations or removals by the
Company's Board of Directors from such positions. The Company's directors are
elected to serve in such capacities until the earlier to occur of the election
and qualification of their respective successors or their respective deaths,
resignations or removals by the Company's stockholders from such positions. The
Company intends to establish an Audit Committee, a Stock Option Committee and a
Compensation Committee upon the closing of the Offering.
The following is a brief summary of the background of each executive
officer and director:
DAVID ALBAHARI has been the Chairman of the Board, President and Chief
Executive Officer of the Company and a member of the Board of Directors since
its inception. From May 1989 until February 1995, Mr. Albahari was the President
of the Cable & Co. product line of Hongson, Inc. From 1986 through 1989, Mr.
Albahari was President of the men's footwear division of Kenneth Cole
Productions Inc. From 1985 through 1986, Mr. Albahari served as Vice President
Men's of Mark Alpert, a footwear company. From 1978 through 1985, Mr. Albahari
was employed by Saks Fifth Avenue as a buyer for mens's footwear, men's
furnishings and women's footwear. From 1976 through 1978 Mr. Albahari was a
junior executive in R.H. Macy & Co.'s executive training program.
ALAN KANDALL has served as the Executive Vice President, Chief Financial
Officer, and Treasurer of the Company and a member of the Board of Directors
since its inception. From April 1993 through February 1995, Mr. Kandall was the
Chief
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Financial Officer of Hongson, Inc., which the Company believes has been
liquidated and is no longer doing business. From June 1992 to March 1993, Mr.
Kandall was the Chief Financial Officer of Publix Corp. From January 1992
through May 1992, Mr. Kandall was the Chief Financial Officer of Orly, Inc. From
1988 through 1991, Mr. Kandall was the Chief Financial Officer of Barbizon
Corporation.
MARTIN C. LICHT has served as Secretary and a member of the Company's Board
of Directors since its inception. He has been a practicing attorney since 1967
and has been a partner of the law firm of Gallet Dreyer & Berkey, LLP, since
October 1993. From April 1993 until that time, he was a partner of Solomon,
Weiss & Moskowitz, P.C. For one year prior thereto he was a partner of the law
firm of Summit, Solomon & Feldesman. Prior to such time, Mr. Licht was a member
of the law firm of Herzfeld & Rubin, P.C. for twelve years. All of such firms
are located in New York City. Mr. Licht is also a director of two companies
traded on the NASDAQ SmallCap Market, Natural Health Trends Corp., a company
that owns and operates three vocational schools in Florida, and Gaylord
Companies, Inc., a company that operates retail bookstores and retail stores
selling cookware and serving equipment.
DIRECTORS' COMPENSATION
Directors of the Company do not receive any fixed compensation for their
services as directors. However, the Board of Directors may authorize the payment
of a fixed sum to non-employee directors for their attendance at regular and
special meetings of the Board as is customary for similar companies. Directors
will be reimbursed for their reasonable out-of-pocket expenses incurred in
connection with their duties to the Company. For the fiscal year ended December
31, 1995, the Company did not pay its directors any cash or other form of
compensation for acting in such capacity. For the fiscal year ended December 31,
1995, directors who were also executive officers of the Company received cash
compensation for acting in the capacity of executive officers. See
" -- Executive Compensation," " -- Stock Options" and "CERTAIN TRANSACTIONS."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides a summary of cash and non-cash compensation
for the year ended December 31, 1995 with respect to the following officers of
the Company:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING PAYOUTS
OTHER ANNUAL STOCK OPTIONS LTIP
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) COMPENSATION($)(1) AWARD(S)($) SARS(#) PAYOUTS($)
<S> <C> <C> <C> <C> <C> <C> <C>
David Albahari
Chairman of the Board,
President and Chief Executive
Officer...................... 1995 $200,000 -- -- -- -- --
Alan Kandall
Executive Vice President,
Chief Financial Officer and
Treasurer.................... 1995 $150,000 -- -- -- -- --
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITIONS COMPENSATION
<S> <C>
David Albahari
Chairman of the Board,
President and Chief Executive
Officer...................... --
Alan Kandall
Executive Vice President,
Chief Financial Officer and
Treasurer.................... --
</TABLE>
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of each of such individual's total annual salary and bonus.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into employment agreements with David Albahari and
Alan Kandall expiring in December 1997, under which they will receive annual
salaries of $200,000 and $150,000, respectively. The agreements provide that the
executive will be eligible to receive short-term incentive bonus compensation,
the amount of which, if any, will be determined by the Board of Directors based
on the employee's performance, contributions to the Company's success and on the
Company's ability to pay such incentive compensation. The employment agreements
also provide for termination based on death, disability, voluntary resignation
or material failure in performance. The employment agreements do not provide for
severance payments upon termination unless the executive is terminated without
cause, in which case the executive will receive severance payments until the
later of two and one-half years from the date of severance or December 31, 1997.
The
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<PAGE>
agreements contain non-competition provisions that preclude Mr. Albahari and Mr.
Kandall from competing with the Company for a period of one year and two years
from the date of termination of employment, respectively.
The Company entered into a three year international consulting agreement as
of January 26, 1996 with U.K. Hyde Park Consultants, Ltd. ("Hyde Park Group"),
and issued thereto 400,000 shares of Common Stock and warrants to purchase up to
450,000 shares of Common Stock identical to the Warrants offered hereby, as
compensation for services and for $40,000 paid by Hyde Park Group to the
Company. Hyde Park Group will provide international consulting services to the
Company relating to the Company's anticipated expansion upon the completion of
this Offering, business and financial development and potential business
acquisitions. The Company and Hyde Park Group have agreed that the Company will
not be able to pursue its anticipated plans for expansion without additional
financing. Accordingly, if the Company does not have a net worth of at least
$3,000,000 by July 31, 1996, such agreement may be terminated, and the Company
will have the right to acquire all of such shares of Common Stock and warrants
for $40,000.
STOCK OPTIONS
No stock options were granted to, held or exercised by, any of the
Company's officers during the fiscal year ended December 31, 1995. The Company
has adopted the 1996 Stock Option Plan under which up to 280,000 options to
purchase shares of Common Stock may be granted to key employees, consultants and
members of the Board of Directors of the Company. The exercise price of the
options will be determined by the Stock Option Committee selected by the Board
of Directors, but the exercise price will not be less than 85% of the fair
market value of the Common Stock on the date of grant. No options have been
granted to date.
CERTAIN TRANSACTIONS
Alberto Salvucci, a principal stockholder of the Company, owns and operates
Cable & Co. S.R.L. which owns the rights to products bearing the Cable & Co.
trademark for Europe. Cable & Co. S.R.L. identifies raw material for the Company
and provides design and production services. For such services, Cable & Co.
S.R.L. received a fee of $410,000 for fiscal 1995, which was equal to 7% of the
cost of the goods shipped to the Company. Commencing January 1, 1996, the
Company agreed to pay Cable & Co. S.R.L. 8% of the production cost of goods
shipped to the Company, of which 3% will be paid to D&D Design at the direction
of Cable & Co. S.R.L. Cable & Co. S.R.L. and D&D Design have received an
aggregate of $83,595 from the Company for fiscal 1996 through April 30, 1996 and
are owed an additional $30,628 through April 30, 1996. The Company's obligations
to Cable & Co. S.R.L. are secured by a standby letter of credit in the amount of
$300,000.
The Company licenses the right to sell Bacco Bucci footwear under the Bacco
Bucci name from D&D Design, which is also controlled by Mr. Salvucci. The
Company paid D&D Design 3% of the production cost of Bacco Bucci footwear for
the license for fiscal 1995. In addition, D&D Design and Cable & Co. S.R.L.
received additional fees equal to 2% and 5%, respectively, of the cost of the
Bacco Bucci footwear shipped to the Company in fiscal 1995. D&D Design received
$75,809 in connection with Bacco Bucci footwear from the Company for fiscal
1995. Commencing as of January 1, 1996, the Company has agreed to pay to D&D
Design 3% of the net sales of Bacco Bucci footwear. In addition, the Company has
agreed to pay an aggregate of 5% of the production cost of Bacco Bucci footwear
to D&D Design and Cable & Co. S.R.L., as directed by Cable & Co. S.R.L. As of
April 30, 1996, the Company has paid an aggregate of $52,286 to Cable & Co.
S.R.L. and D&D Design in connection with Bacco Bucci footwear and owes Cable &
Co. S.R.L. and D&D Design an additional $32,714. On May 15, 1996, the Company
entered into agreements with Mr. Salvucci, D&D Design and Cable & Co. S.R.L.
which provides for the license of the Bacco Bucci name from D&D Design and
provides for non-competition. See "PRINCIPAL STOCKHOLDERS."
In February 1995, Mr. Albahari, Mr. Kandall and Mr. Salvucci each purchased
329,143 shares of Common Stock from the Company for $50,000 each. Concurrently,
each entered into a certain Stockholders Agreement which provided that 106,752
of such shares of Common Stock were to be held in escrow for each of Mr.
Albahari, Mr. Kandall and Mr. Salvucci, subject to satisfying certain
performance criteria. In January 1996, the Company terminated the Stockholders
Agreement and released such shares of Common Stock to such individuals, although
the performance criteria had not yet been satisfied. In February 1996, the
Company issued an aggregate of 224,761 shares of Common Stock to Messrs.
Kandall, Albahari and Salvucci, of which 74,921 shares of Common Stock were
issued to Mr. Albahari and 74,920 shares of Common Stock were each issued to Mr.
Kandall and Mr. Salvucci. Mr. Albahari and Mr. Kandall have guaranteed certain
of the Company's obligations aggregating approximately $114,000 for leasing
computer hardware and telephone equipment. See "USE OF PROCEEDS" and
"ACQUISITION."
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<PAGE>
In February 1995, in connection with the Acquisition, Harry Chen, a
principal stockholder of Hongson, Inc., purchased from the Company 266,880
shares of Common Stock for $100 and 21,660 shares of Preferred Stock in the 1995
Financing for $250,000. In October 1995, the Company purchased and retired all
of Mr. Chen's shares of Common Stock and Preferred Stock for $132,500 and
$267,500, respectively. In addition, the Company paid $226,000 to Hongson, Inc.
pursuant to subleases for office and warehouse space in 1995. The Company no
longer leases such space from Hongson, Inc. See "ACQUISITION."
On February 14, 1995, the Company entered into an agreement with Gruntal &
Co., Inc. ("Gruntal") pursuant to which Gruntal was to receive $50,000 of
financial advisory fees in connection with the Acquisition and the 1995
Financing and $2,000 per month for rendering financial advice for a period of
twelve months. Douglas Kleinberg was a director of the Company and a Vice
President of Gruntal. In February 1995, Gruntal converted $50,000 of financial
advisory fees in connection with the 1995 Financing into 4,332 shares of
Preferred Stock and in February 1996 Gruntal converted $26,000 in commissions
received in the Bridge Financing into .52 Units. Upon the completion of this
Offering and the redemption of the Preferred Stock, Gruntal and officers of
Gruntal will own an aggregate of 144,882 shares of Common Stock and 20,000
Warrants. Martin C. Licht, a partner of Gallet Dreyer & Berkey, LLP, which is
the Company's counsel, the Secretary and a director of the Company, purchased
4,332 shares of Preferred Stock in the 1995 Financing and subsequently gave such
shares of Preferred Stock to his three adult children. The Company has paid
Gallet Dreyer & Berkey, LLP legal fees and expenses of $116,015 for various
legal services rendered in 1995 and $50,000 for various legal services rendered
in 1996. The Company anticipates paying additional legal fees and expenses in
conjunction with and out of the proceeds of this Offering. See "MANAGEMENT."
The Company has agreed with the Underwriter, among other things, that for a
period of three years from the closing of this Offering, the Underwriter may, in
its discretion, designate an individual to serve as an advisor to, or a member
of, the Company's Board of Directors. In addition, effective on the closing of
the Offering, the Company will enter into a three year financial consulting
agreement with the Underwriter pursuant to which the Company will pay the
Underwriter consulting fees at the rate of $4,000 per month, all of which will
be paid in advance at the closing of the Offering. The Underwriter may also
receive a finder's fee in the event that it originates a merger, acquisition,
joint venture or other transaction in which the Company is a party. See
"MANAGEMENT" and "UNDERWRITING."
Mr. Albahari and Mr. Kandall may be deemed parents of the Company as a
result of their executive positions, service as directors and ownership of
approximately 22% each of the Common Stock of the Company prior to the Offering
and Messrs. Albahari, Kandall and Salvucci may be deemed to be promoters. See
"MANAGEMENT."
All ongoing and future transactions and/or loans to officers, directors or
5% stockholders will be on terms no less favorable than could be obtained from
independent third parties on an arms length basis and will be approved by a
majority of the independent, disinterested directors of the Company.
31
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as to the Common Stock
ownership of each of the Company's directors, executive officers, all executive
officers and directors as a group and all persons known by the Company to be the
beneficial owners of more than five percent of the Company's Common Stock.
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
OF COMMON STOCK(2)
NUMBER BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES(1) OFFERING OFFERING
<S> <C> <C> <C>
David Albahari 404,064 22.3% 12.5%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Alan Kandall 404,063 22.3% 12.5%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Alberto Salvucci 404,063 22.3% 12.5%
c/o Cable & Co. Worldwide, Inc.
724 Fifth Avenue
New York, New York 10019
Martin C. Licht (3) 0 * *
c/o Gallet Dreyer & Berkey, LLP
845 Third Avenue
New York, New York 10022
U.K. Midland Group Ltd. 400,000 22.1% 12.4%
15 Victoria Street
Isle of Man, IM1 2SQ
All present officers (3) and directors as 808,127 44.6% 25.1%
a group (3 persons)
</TABLE>
(1) Unless otherwise noted, all persons named in the table have sole voting and
dispositive power with respect to all shares of Common Stock beneficially
owned by them and such persons disclaim beneficial ownership of the
securities owned by any other persons.
(2) The calculation of the percentages used in the column "Before Offering"
herein do not include 462,531 shares of Common Stock issuable upon the
redemption of the Preferred Stock, but the column "After Offering" includes
the issuance of such shares. See "DESCRIPTION OF SECURITIES -- Preferred
Stock."
(3) Does not include an aggregate of 4,332 shares of Preferred Stock owned by
Mr. Licht's three adult children before the Offering and the 46,244 shares
of Common Stock to be issued after Offering upon the redemption of the
Preferred Stock. Mr. Licht's three adult children each have sole voting and
dispositive power with respect to their securities.
(4) Does not include warrants to purchase up to 450,000 shares of Common Stock
which are not exercisable for at least 60 days. Such securities were
transferred to U.K. Midland Group Ltd. from U.K. Hyde Park Consultants Ltd.,
its wholly-owned subsidiary. See "MANAGEMENT -- Employment and Consulting
Agreements."
* Represents less than 1% of the applicable number of shares of Common Stock
outstanding.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, $.01 par value, and 1,478,340 shares of preferred stock, $.01
par value. The Company currently has 1,812,206 shares of Common Stock issued and
outstanding. Moreover, 462,531 shares of Common Stock are issuable to holders of
the Preferred Stock upon the redemption of the Preferred Stock and 630,000
shares of Common Stock are issuable upon the exercise of outstanding warrants.
The Company presently has 43,327 shares of Preferred Stock outstanding. After
the completion of the Offering and the redemption of the Preferred Stock,
3,224,737 shares of Common Stock will be issued and outstanding and an aggregate
of 1,986,000 shares of Common Stock will be issuable upon the exercise of
outstanding options, warrants and conversion rights,
32
<PAGE>
including 226,000 shares of Common Stock which are issuable upon the exercise of
the Underwriter's Warrants and the Warrants contained therein, and assuming that
the Underwriter does not exercise the Over-allotment Option. After completion of
the Offering and the redemption of the outstanding shares of Preferred Stocks,
no shares of Preferred Stock will be issued and outstanding. The Company has 45
holders of shares of Common Stock and 23 holders of shares of Preferred Stock.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of the stockholders. Since the holders of Common
Stock do not have cumulative voting rights, holders of more than 50% of the
outstanding shares can elect all of the directors of the Company then being
elected and holders of the remaining shares by themselves cannot elect any
directors. The holders of Common Stock do not have preemptive rights or rights
to convert their Common Stock into other securities. Holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock have the right to a ratable portion of the assets remaining after payment
of liabilities subject to any superior claims of any shares of Preferred Stock
hereafter issued. See " -- Preferred Stock." All shares of Common Stock
outstanding and to be outstanding upon completion of the Offering are and will
be fully paid and nonassessable.
WARRANTS
Each Warrant is issued pursuant to a Warrant Agreement between the Company
and Continental Stock Transfer & Trust Company, as warrant agent. The following
description is subject to the detailed provisions of and are qualified in their
entirety by reference to the Warrant Agreement, which is included as an exhibit
to the Registration Statement of which this Prospectus is a part.
Each Warrant entitles the holder to purchase for $7.20, 120% of the assumed
initial public offering price, one share of Common Stock for a period of three
years commencing thirteen months after the Effective Date. The exercise price of
the Warrants and the number of shares issuable upon exercise of such Warrants
will be subject to adjustment to protect against dilution in the event of stock
dividends, stock splits, combinations, subdivisions, or reclassifications or the
sale of any shares of Common Stock below the market price thereof. Warrants may
be exercised by surrendering to the warrant agent the Warrants and the payment
of the exercise price in United States funds by cash or certified or bank check.
No fractional shares of Common Stock will be issued in connection with the
exercise of the Warrants. The Warrants may not be exercised unless a
registration statement pursuant to the Securities Act covering the underlying
shares of Common Stock is current and such shares have been qualified, or there
is an exemption from registration and qualification requirements, under the
Securities Act and securities laws of the state of residence of the holder of
the Warrants. The Common Stock and the Warrants will trade separately
immediately upon the Effective Date.
Commencing one year from the Effective Date, the Company may redeem the
Warrants at a price of $.10 per Warrant, provided that (i) prior notice of not
less than 15 days is given to the holders of the Warrants, and (ii) the closing
bid price per share of Common Stock as reported on NASDAQ (or the last sale
price, if quoted on a national securities exchange) has been at least $10.80,
180% of the assumed initial public offering price, for 20 consecutive trading
days ending on the fifteenth day prior to the date on which the Company gives
the notice of redemption. In the event the Company notifies the holders of the
Warrants of its intention to redeem Warrants, the holders of the Warrants may
exercise same at any time prior to the close of business on the business day
immediately preceding the date fixed for redemption. The Warrants may not be
redeemed by the Company unless a current registration statement is in effect.
Unless extended by the Company in its discretion, the Warrants will expire
at 3:00 p.m., New York time, 49 months from the Effective Date. In the event a
holder of Warrants fails to exercise the Warrants prior to their expiration, the
Warrants will expire and the holder thereof will have no further rights
thereunder.
PREFERRED STOCK
The Company is authorized to issue up to 1,478,340 shares of preferred
stock, $.01 par value per share, in one or more series. Upon the redemption of
the 43,327 shares of Series A Preferred Stock outstanding, the Company will be
authorized to issue up to 1,435,013 shares of preferred stock. The Company's
Board of Directors is authorized to fix the relative rights, preferences,
privileges and restrictions thereof including, among other things, dividend
rights and rates, conversion rights, voting privileges, liquidation preferences,
terms of redemption and the number of shares constituting any series thereof.
33
<PAGE>
Other than the Company's Series A Preferred Stock as described herein, there are
no other shares of preferred stock issued and outstanding and the Company has no
present plans to authorize the issuance or to issue any other shares of
preferred stock. The issuance of shares of preferred stock with voting power,
conversion rights or privileges superior to those of the shares of Common Stock
being offered hereby may adversely affect investors in this Offering.
SERIES A PREFERRED STOCK
The Company presently has 43,327 shares of Series A Preferred Stock
outstanding. The Series A Preferred Stock, with respect to dividend rights and
with respect to rights of liquidation, dissolution and winding up, ranks senior
to the Common Stock and accrues dividends at 12% percent of the liquidation
value of $11.54 per share of the Preferred Stock. The Company has the right to
redeem the Preferred Stock, in whole or in part. The holders of the Preferred
Stock have the right to require the Company to redeem the Preferred Stock
commencing February 16, 2000. Upon the completion of this Offering, the Company
will (i) pay each holder of shares of Preferred Stock a redemption price of
$11.54 per share, plus accrued and unpaid dividends to the date of redemption,
and (ii) issue to each holder of shares of Preferred Stock 10.6752 shares of
Common Stock for each share of Preferred Stock, representing an aggregate of
462,531 shares.
PRIOR FINANCINGS
In February 1995, the Company consummated a private placement to 22
individuals of 64,987 shares of Preferred Stock in the aggregate amount of
$750,000 (the "1995 Financing"). Upon using a portion of the net proceeds of
this Offering to redeem all outstanding shares of Preferred Stock, the Company
is required to issue an aggregate of 462,531 shares of Common Stock to the
holders thereof. The shares of Common Stock issuable upon the redemption of the
Preferred Stock are being registered for resale in the Concurrent Offering. The
holders of shares of Preferred Stock have agreed that they shall only be
entitled to sell the Common Stock issuable upon the redemption of the Preferred
Stock, without the consent of the Underwriter, as follows: (i) up to one-third
of such shares of Common Stock commencing 13 months from the Effective Date,
(ii) up to two-thirds of such shares of Common Stock commencing 19 months after
the Effective Date, and (iii) the balance of such shares of Common Stock
commencing 25 months after the Effective Date. See "USE OF PROCEEDS" and
"CONCURRENT OFFERING."
In March 1996, the Company consummated the Bridge Financing of 36 Units to
the Bridge Selling Stockholders at a purchase price of $50,000 per Unit. Each
Unit consists of the Company's 11% Bridge Note in the original principal amount
of $49,000, 5,000 shares of Common Stock and 5,000 Bridge Warrants. Upon the
completion of this Offering, the terms of the Bridge Warrants will be
automatically modified pursuant to their terms to become identical to the terms
of the Warrants offered hereby. The Bridge Notes, aggregating $1,764,000, are
due and payable upon the earlier of February 2, 1997 or the Company's receipt of
gross proceeds of at least $4,080,000 from the sale of its debt and/or equity
securities in a public or private financing. It is anticipated that the Bridge
Notes will be repaid out of the net proceeds of this Offering. The 180,000
shares of Common Stock issued in the Bridge Financing are being offered hereby
and the 180,000 Warrants are included in the Concurrent Offering. The Company
has valued the 180,000 shares of Common Stock at approximately $756,000 in
accordance with generally accepted accounting principles. In connection with the
Bridge Financing, the Company paid commissions and non-accountable expense
allowances in the aggregate amount of $217,000 of which $166,000 was paid to the
Underwriter. See "SELLING SECURITYHOLDERS."
Except for the adult children of Martin C. Licht, a director of the
Company, none of the Bridge Selling Stockholders are believed to have material
relationships with either the Underwriter or the Company. See "USE OF PROCEEDS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "MANAGEMENT," "UNDERWRITING" and "FINANCIAL STATEMENTS."
CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to Delaware Law, the power to adopt, amend and repeal bylaws is
conferred solely upon the stockholders unless the corporation's certificate of
incorporation also confers such power upon the board of directors. Under the
Company's Certificate of Incorporation, the Board of Directors are granted the
power to amend the Bylaws of the Company. Such Bylaws provide that each director
has one vote on each matter for which directors are entitled to vote. The
Certificate of Incorporation and/or the Bylaws also provide that the directors
will hold office until the next annual meeting of stockholders and until their
respective successors are elected and qualified, and special meetings of
stockholders may only be called by the Board of Directors, President, Chairman
or Vice Chairman of the Board of the Company. These provisions, in addition to
the existence of authorized but unissued capital stock, may have the effect,
either alone or in combination with each other, of making more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors. The
34
<PAGE>
Board of Directors of the Company currently consists of three persons. Following
completion of the Offering, the Company expects to appoint an additional
director. See "MANAGEMENT."
SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date the business combination is approved by the board of directors
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
that is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person, who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. This provision of law could
discourage, prevent or delay a change in management or stockholder control of
the Company, which could have the effect of discouraging bids for the Company
and thereby prevent stockholders from receiving the maximum value for their
shares, or a premium for their shares in a hostile takeover situation.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation of the Company provides that the Company
shall indemnify to the fullest extent permitted by Delaware law any person whom
it may indemnify thereunder, including directors, officers, employees and agents
of the Company. Such indemnification (other than as ordered by a court) shall be
made by the Company only upon a determination that indemnification is proper in
the circumstances because the individual met the applicable standard of conduct.
Advances for such indemnification may be made pending such determination. In
addition, the Certificate of Incorporation provides for the elimination, to the
extent permitted by Delaware law, of personal liability of directors to the
Company and its stockholders for monetary damages for breach of fiduciary duty
as directors.
Insofar as indemnification for liabilities arising under the Securities 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 Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company, will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the shares of Common Stock and
Warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New York,
New York 10004.
SHARES ELIGIBLE FOR FUTURE SALE
COMMON STOCK
Except for the 180,000 shares of Common Stock being offered hereby by the
Bridge Selling Stockholders and 420,016 shares of Common Stock registered for
resale by the Selling Securityholders in the Concurrent Offering, all of the
1,812,206 shares of the Company's Common Stock currently outstanding are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Such shares may be sold only pursuant to a registration under the
Securities Act or in compliance with Rule 144 or pursuant to another exemption
therefrom. In general, under Rule 144, subject to the satisfaction of certain
other conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class, or if the Common Stock is quoted on NASDAQ or a stock exchange, the
average weekly trading volume during the four calendar weeks immediately
preceding the sale. A person who presently is not and who has not been an
affiliate of the Company for at least three months immediately preceding the
sale and who has beneficially owned the shares of Common Stock for at least
three years is entitled to sell such shares
35
<PAGE>
under Rule 144 without regard to any of the volume limitations described above.
The 180,000 shares of Common Stock sold in the Bridge Financing are being
offered hereby. Of the outstanding shares of Common Stock, 1,212,190 shares are
"control securities" because they are held by "affiliates" of the Company (as
such terms are defined in Rule 144). All of the current stockholders, including
the officers and directors, except for the holders of shares of Preferred Stock,
have agreed that they will not sell without the consent of the Underwriter any
of their securities (except for the securities acquired in the Bridge Financing)
for a period of two years from the Effective Date. The holders of shares of
Preferred Stock have agreed not to sell any of the 462,531 shares of Common
Stock issuable upon the redemption of the Preferred Stock until 13 months after
the Effective Date, without the consent of the Underwriter. Thereafter, the
holders of shares of Preferred Stock may sell the shares of Common Stock
issuable upon the redemption of the Preferred Stock, without the consent of the
Underwriter, as follows: (i) up to one-third of such shares of Common Stock
until 19 months after the Effective Date and (ii) up to two-thirds of their
shares of Common Stock until 25 months after the Effective Date. Thereafter, the
sale of such shares of Common Stock will not be subject to the Underwriter's
consent. Sales of the Company's Common Stock by existing stockholders may have a
depressive effect on the price of the Company's Common Stock in any market which
may develop. See "CONCURRENT OFFERING."
UNDERWRITING
The Company has entered into an Underwriting Agreement with the
Underwriter. The Underwriter is a registered broker-dealer which was organized
on or about January 1994 and is engaged primarily in the retail brokerage
business. The Underwriter is a relatively small firm and there can be no
assurance that the Underwriter will be able to make a meaningful market in the
Company's Securities or that the broker-dealers will make a meaningful market in
the Company's Securities. The Underwriting Agreement has been filed as an
exhibit to the Registration Statement filed with the Commission of which this
Prospectus forms a part.
SUMMARY OF UNDERWRITING AGREEMENT
The Underwriter has agreed, subject to the terms and conditions contained
in the Underwriting Agreement to purchase 950,000 shares of Common Stock and
1,130,000 Warrants from the Company and 180,000 shares of Common Stock from the
Bridge Selling Stockholders. The Underwriter is committed to purchase and pay
for all of the Securities offered hereby if any Securities are purchased. The
shares of Common Stock and Warrants are being offered by the Underwriter,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to approval of certain legal matters by counsel and to
certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the public offering price set forth on the cover
page of this Prospectus. The Underwriter may allow to certain dealers who are
members of the National Association of Securities Dealers, Inc. ("NASD")
concessions, not in excess of $ and $ per share and Warrant
respectively. The Underwriter will not confirm sales of any of the Securities
offered to any account over which it exercises discretionary authority.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Accordingly, the offering and exercise price of such
Securities being offered hereby was determined, in large part, by negotiations
between the Company and the Underwriter on an arbitrary basis and bear no direct
relationship to the assets, earnings or other recognized criterion of value.
Factors considered in determining such prices, in addition to prevailing market
conditions, includes the history of and the business prospects of the Company,
as well as such other factors as were deemed relevant, including an evaluation
of management and the general economic climate. The prices should in no event,
however, be regarded as an indication of any future market price of the Common
Stock or the Warrants.
Neither the Company nor any of its officers, directors, affiliates and
associates will recommend, encourage or advise investors to open brokerage
accounts with any broker-dealer that is obtained to make a market in the
Company's Securities. Furthermore, no promoter or anyone acting at the direction
of the Company's officers, directors, affiliates, associates or promoters will
engage in such activities.
The Company has granted to the Underwriter an option, exercisable for 30
days from the Effective Date, to purchase up to an additional 169,500 shares of
the Common Stock and 169,500 Warrants at the public offering prices set forth on
the cover page of this Prospectus, less the underwriting discounts and
commissions. The Underwriter may exercise this option in whole or, from time to
time, in part, solely for the purpose of covering over-allotments, if any, made
in connection with the sale of the Securities offered hereby.
36
<PAGE>
The Company has agreed that it will not issue any other securities (except
with respect to the shares of Common Stock issuable upon the exercise of
outstanding options, warrants or conversion rights, the redemption of the
Preferred Stock, pursuant to the 1996 Stock Option Plan, the Warrants or the
Underwriter's Warrants) for two years from the Effective Date of the
registration statement of which this Prospectus is a part without the prior
written consent of the Underwriter. The Company and the Bridge Selling
Stockholders have agreed to pay the Underwriter 3% of the gross proceeds of the
Securities offered hereby on a pro rata basis, or a total of $ ($ )
if the Over-allotment Option is exercised in full), for the Underwriter's
expenses on a non-accountable basis, of which $25,000 has been paid by the
Company to date. The Underwriter's expenses in excess of the non-accountable
expense allowance, if any, will be borne by the Underwriter. To the extent that
the expenses of the Underwriter are less than the non-accountable expense
allowance, such excess may be deemed to be additional compensation to the
Underwriter. The Company is required to pay the cost of qualifying and
registering the Securities being sold under federal and certain state securities
laws, together with any other legal and accounting fees, printing and other
costs in connection with the Offering.
Upon the exercise of the Warrants at any time commencing one year from the
Effective Date, the Company will pay the Underwriter a commission of 7% of the
aggregate exercise price if (i) the market price of the Common Stock on the date
the Warrant is exercised is greater than the then current exercise price of the
Warrants; (ii) the exercise of the Warrant was solicited by a member of the
NASD; (iii) the Warrant is not held in a discretionary account; (iv) disclosure
of compensation arrangements was made both at the time of the Offering and at
the time of exercise of the Warrant; (v) the holder of the Warrant has stated in
writing that the exercise was solicited and designated in writing the soliciting
broker-dealer; and (vi) the solicitation of exercise of the Warrant was not in
violation of Rule 10b-6, promulgated under the Exchange Act. No fee will be paid
to the Underwriter on Warrants exercised within one year of the Effective Date
or on Warrants voluntarily exercised at any time without solicitation by the
Underwriter.
Unless granted an exemption by the Commission from its Rule 10b-6, the
Underwriter and any soliciting broker-dealers will be prohibited from engaging
in any market making activities with regard to the Company's Securities for the
period from nine business days prior to any solicitation for the exercise of
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Underwriter and
soliciting broker-dealers' may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Underwriter and
soliciting broker-dealers may be unable to continue to provide a market for the
Securities during certain periods while the Warrants are exercisable.
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for $10, the Underwriter's Warrants to purchase from the Company an
aggregate of 113,000 Shares and 113,000 Warrants. The Underwriter's Warrants for
shares of Common Stock are exercisable at a price equal to 165% of the pubic
offering price of the Shares and the Underwriter's Warrants for Warrants are
exercisable at a price equal to 165% of the public offering price of the
Warrants. The Underwriter's Warrants are exercisable for a four year period
commencing one year from the Effective Date. The Underwriter's Warrants may not
be sold, transferred, assigned or hypothecated for a period of one year, except
to the officers of the Underwriter or officers or partners or members of the
selling group. The Underwriter's Warrants will contain anti-dilution provisions
providing for appropriate adjustment under certain circumstances. The holders of
the Underwriter's Warrants have no voting, dividend or other rights as
stockholders of the Company with respect to the Shares underlying the
Underwriter's Warrants or the Warrants contained therein until the Underwriter's
Warrants or the Warrants contained therein for Shares have been exercised.
In addition, the Company has agreed to enter into a consulting agreement
with the Underwriter as a financial consultant for a period of three years at a
monthly fee of $4,000 payable in advance at the closing of the Offering. As part
of the consulting agreement, the Company has agreed, for a period of five years
following the Effective Date, to pay the Underwriter a cash finder's fee of (i)
five percent of the first $1,000,000; (ii) four percent of the second
$1,000,000; (iii) three percent of the third $1,000,000; (iv) two percent of the
fourth $1,000,000; and (v) one percent of any consideration over $5,000,000 upon
the completion of any transaction in which the Underwriter was responsible for
introducing a merger or acquisition candidate to the Company.
The Company has agreed, for a period of five years following the Effective
Date, to give advance notice to the holders of the Underwriter's Warrants or the
underlying securities of its intention to file a registration statement, and in
such case the holders of Underwriter's Warrants and the underlying securities
shall have the right to require the Company to include the Underwriter's
Warrants and underlying securities in such registration statement at the
Company's expense. In addition, at any time during the four year period
following the first anniversary of the Effective Date, holders of 50% of the
Underwriter's Warrants or the underlying securities will have the right to
require the Company to prepare and file, at the Company's
37
<PAGE>
expense, one registration statement so as to permit the public offering of the
Underwriter's Warrants and the underlying securities.
All of the current stockholders, including the officers and directors,
except for the holders of shares of Preferred Stock, have agreed that they will
not offer, sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock or other securities of the Company (except for the securities
acquired in the Bridge Financing) for a period of 24 months without the prior
written consent of the Underwriter. The holders of shares of Preferred Stock
have agreed not to offer, sell or otherwise dispose of, directly or indirectly,
any of the shares of Common Stock issuable upon the redemption of the Preferred
Stock until 13 months after the Effective Date without the prior written consent
of the Underwriter. Thereafter, the holders of shares of Preferred Stock may
sell the shares of Common Stock issuable upon the redemption of the Preferred
Stock, without the consent of the Underwriter, as follows: (i) up to one-third
of such shares of Common Stock commencing 13 months after the Effective Date,
(ii) up to two-thirds of such shares of Common Stock commencing 19 months from
the Effective Date, and (iii) the balance of such shares of Common Stock
commencing 25 months after the Effective Date.
The Company has granted the Underwriter the right to designate an
individual to serve in its discretion as an advisor to, or a member of, the
Company's Board of Directors for a period of three years. In the event that such
an individual is designated, such individual shall receive reimbursement of
expenses for attending the meetings of the Board of Directors.
The Company has agreed to indemnify the Underwriter against liabilities
incurred by the Underwriter by reason of misstatements or omissions to state
material facts in connection with the statements made in this Prospectus and the
Registration Statement of which it forms a part. The Underwriter, in turn, has
agreed to indemnify the Company against liabilities incurred by the Company by
reason of misstatements or omissions to state material facts in connection with
statements made in the Registration Statement and prospectus based on
information furnished in writing by the Underwriter. To the extent that such
section of the Underwriting Agreement may purport to provide exculpation from
possible liabilities arising under the Federal securities laws, it is the
opinion of the Commission that such indemnification is contrary to public policy
and unenforceable. See "DESCRIPTION OF SECURITIES -- Indemnification of Officers
and Directors."
The Underwriter received commissions and non-accountable expense allowances
in connection with Bridge Financing in the aggregate amount of $166,000.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Agreement, copies of which are filed at the offices of the
Company and the Underwriter and may be examined during their regular business
hours.
CONCURRENT OFFERING
In the Concurrent Offering which is not being underwritten, the Selling
Securityholders are offering on their own behalf an aggregate of 882,547 shares
of Common Stock, 630,000 Warrants, as well as 630,000 shares of Common Stock
underlying the Warrants. The securities being offered by the Selling
Securityholders include the shares of Common Stock issuable upon the redemption
of the Preferred Stock issued by the Company in the 1995 Financing and the
Warrants offered in the Bridge Financing. All of the current stockholders,
including the officers and directors, except for the holders of shares of
Preferred Stock, have agreed that they will not sell without the consent of the
Underwriter any of their securities (except for the securities acquired in the
Bridge Financing) for a period of two years from the Effective Date. The holders
of shares of Preferred Stock have agreed not to sell any of the 462,531 shares
of Common Stock issuable upon the redemption of the Preferred Stock until 13
months after the Effective Date, without the consent of the Underwriter.
Thereafter, the shares of Common Stock issuable upon the redemption of the
Preferred Stock may be sold, without the consent of the Underwriter, as follows:
(i) up to one-third of such shares of Common Stock until 19 months after the
Effective Date and (ii) up to two-thirds of such shares of Common Stock until 25
months after the Effective Date. Thereafter, the sale of such shares of Common
Stock will not be subject to the Underwriter's consent. Sales of the Selling
Securityholders' Securities in the Concurrent Offering will be subject to the
prospectus delivery requirements and other requirements of the Securities Act.
38
<PAGE>
SELLING SECURITYHOLDERS
The Bridge Selling Stockholders are offering an aggregate of 180,000 shares
of Common Stock in the underwritten Offering. The Bridge Selling Stockholders
and the Selling Securityholders are also offering an aggregate of 882,547 shares
of Common Stock and 180,000 Warrants on their own behalf in the Concurrent
Offering. The Company has agreed to register for resale the public offering of
the Securityholders' Securities under the Securities Act concurrently with this
Offering and to pay substantially all of the expenses in connection therewith.
All of such Securities have been included in the Registration Statement of which
this Prospectus forms a part. Except as set forth below, none of the Bridge
Selling Stockholders or Selling Securityholders have ever held any position or
office with the Company or had any other material relationship with the Company.
Sales of the Selling Securityholders' Securities in the Concurrent Offering will
be subject to the prospectus delivery requirements and other requirements of the
Securities Act. The following table sets forth certain information with respect
to the Selling Securityholders and the Bridge Selling Stockholders.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
SHARES OWNED AFTER WARRANTS/WARRANT
SHARES OFFERED SHARES THIS OFFERING SHARES
BENEFICIALLY HEREBY OFFERED IN AND BENEFICIALLY
OWNED PRIOR IN THIS CONCURRENT CONCURRENT OWNED PRIOR TO
NAME OF SELLING SECURITYHOLDER TO SALE OFFERING OFFERING OFFERING(1) SALE
<S> <C> <C> <C> <C> <C>
John S. Bai (2).............................. 900 900 -- 0 900
E. Wayne Boland.............................. 5,000 5,000 -- 0 5,000
Elliot Braun................................. 5,000 5,000 -- 0 5,000
Adam S. Brzostovski.......................... 5,000 5,000 -- 0 5,000
Samiron K. Chatterjee........................ 5,000 5,000 -- 0 5,000
Harvey J. Cohen.............................. 5,000 5,000 -- 0 5,000
Arnold Curnyn................................ 5,000 5,000 -- 0 5,000
Robert W. Deutsch............................ 5,000 5,000 -- 0 5,000
Joseph Enea.................................. 5,000 5,000 -- 0 5,000
James M. Franco, M.D., Inc. Profit Sharing
Trust...................................... 5,000 5,000 -- 0 5,000
Mattes Friesel............................... 5,000 5,000 -- 0 5,000
Paul Hawran.................................. 5,000 5,000 -- 0 5,000
Austin E. Hills, Trustee..................... 5,000 5,000 -- 0 5,000
G. Lenard Johnston........................... 5,000 5,000 -- 0 5,000
Dennis J. Lewis.............................. 5,000 5,000 -- 0 5,000
Gary Lyons................................... 5,000 5,000 -- 0 5,000
Timothy H. Martin............................ 5,000 5,000 -- 0 5,000
Carol Moss................................... 2,500 2,500 -- 0 2,500
Jeffrey Muhlgeier............................ 5,000 5,000 -- 0 5,000
Jacob and Sophia Popovic..................... 5,000 5,000 -- 0 5,000
Edward Reardon............................... 10,000 10,000 -- 0 10,000
Robert J. Reardon............................ 10,000 10,000 -- 0 10,000
Edward Secker................................ 2,500 2,500 -- 0 2,500
Mark P. Schlefer............................. 5,000 5,000 -- 0 5,000
George W. Smith.............................. 5,000 5,000 -- 0 5,000
John C. and Julia S. Smith................... 5,000 5,000 -- 0 5,000
Marie Speziale............................... 5,000 5,000 -- 0 5,000
White Rock of Tucson......................... 5,000 5,000 -- 0 1,000
C. Clarke Ambrose............................ 18,501 -- 18,501 0 --
S. Coca Brandt (3)........................... 9,256 -- 9,256 0 --
Joel P. Brooks (3)........................... 9,256 -- 9,256 0 --
Chinook Equities (2)......................... 9,256 -- 9,256 0 --
James C. Gale (2)............................ 22,501 4,000 18,501 0 4,000
Michael Gironta (2).......................... 14,062 2,500 11,562 0 2,500
Paul Gordon.................................. 48,139 5,000 43,139 0 5,000
Gruntal & Co. Inc. (4)....................... 48,845 2,600 46,245 0 2,600
<CAPTION>
WARRANTS/WARRANT
SHARES
BENEFICIALLY
OWNED AFTER
NAME OF SELLING SECURITYHOLDER SALE(1)
<S> <C>
John S. Bai (2).............................. 0
E. Wayne Boland.............................. 0
Elliot Braun................................. 0
Adam S. Brzostovski.......................... 0
Samiron K. Chatterjee........................ 0
Harvey J. Cohen.............................. 0
Arnold Curnyn................................ 0
Robert W. Deutsch............................ 0
Joseph Enea.................................. 0
James M. Franco, M.D., Inc. Profit Sharing
Trust...................................... 0
Mattes Friesel............................... 0
Paul Hawran.................................. 0
Austin E. Hills, Trustee..................... 0
G. Lenard Johnston........................... 0
Dennis J. Lewis.............................. 0
Gary Lyons................................... 0
Timothy H. Martin............................ 0
Carol Moss................................... 0
Jeffrey Muhlgeier............................ 0
Jacob and Sophia Popovic..................... 0
Edward Reardon............................... 0
Robert J. Reardon............................ 0
Edward Secker................................ 0
Mark P. Schlefer............................. 0
George W. Smith.............................. 0
John C. and Julia S. Smith................... 0
Marie Speziale............................... 0
White Rock of Tucson......................... 0
C. Clarke Ambrose............................ 0
S. Coca Brandt (3)........................... 0
Joel P. Brooks (3)........................... 0
Chinook Equities (2)......................... 0
James C. Gale (2)............................ 0
Michael Gironta (2).......................... 0
Paul Gordon.................................. 0
Gruntal & Co. Inc. (4)....................... 0
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
SHARES OWNED AFTER WARRANTS/WARRANT
SHARES OFFERED SHARES THIS OFFERING SHARES
BENEFICIALLY HEREBY OFFERED IN AND BENEFICIALLY
OWNED PRIOR IN THIS CONCURRENT CONCURRENT OWNED PRIOR TO
NAME OF SELLING SECURITYHOLDER TO SALE OFFERING OFFERING OFFERING(1) SALE
John Heffer.................................. 102,490 10,000 92,490 0 10,000
<S> <C> <C> <C> <C> <C>
Lionel G. and Amy Hest (2)................... 17,378 3,500 13,878 0 3,500
David Kandall (5)............................ 4,633 -- 4,633 0 --
Daniel Kleinberg (6)......................... 4,633 -- 4,633 0 --
Alice Kres (3)............................... 9,256 -- 9,256 0 --
Daniel Livingston (3)........................ 9,256 -- 9,256 0 --
Charles Lowlicht............................. 46,245 46,245 0
Joan Lowlicht................................ 5,000 5,000 -- 0 5,000
Herbert D. Wise (3).......................... 9,256 -- 9,256 0 --
Glenn Zagoren (3)............................ 9,256 -- 9,256 0 --
Howard Boilen................................ 46,245 -- 46,245 0 --
Robert Sablowsky (2)......................... 14,062 2,500 11,562 0 2,500
Alyssa Licht (7)............................. 15,415 -- 15,415 0 --
Michelle Licht (7)........................... 15,414 -- 15,414 0 --
Evan Licht (7)............................... 15,414 -- 15,414 0 --
Douglas Kleinberg (2)(8)..................... 1,000 1,000 -- 0 1,000
John Cirrito (2)............................. 500 500 -- 0 500
Robert Weinstein (2)......................... 1,000 1,000 -- 0 1,000
Barry Richter (2)............................ 15,378 1,500 13,878 0 1,500
U.K. Midland Group Ltd....................... 400,000 -- 400,000 0 450,000
TOTAL...................................... 1,062,547 180,000 882,547 0 630,000
<CAPTION>
WARRANTS/WARRANT
SHARES
BENEFICIALLY
OWNED AFTER
NAME OF SELLING SECURITYHOLDER SALE(1)
John Heffer..................................
<S> <C>
Lionel G. and Amy Hest (2)................... 0
David Kandall (5)............................ 0
Daniel Kleinberg (6)......................... 0
Alice Kres (3)............................... 0
Daniel Livingston (3)........................ 0
Charles Lowlicht.............................
Joan Lowlicht................................ 0
Herbert D. Wise (3).......................... 0
Glenn Zagoren (3)............................ 0
Howard Boilen................................ 0
Robert Sablowsky (2)......................... 0
Alyssa Licht (7)............................. 0
Michelle Licht (7)........................... 0
Evan Licht (7)............................... 0
Douglas Kleinberg (2)(8)..................... 0
John Cirrito (2)............................. 0
Robert Weinstein (2)......................... 0
Barry Richter (2)............................ 0
U.K. Midland Group Ltd....................... 0
TOTAL...................................... 0
</TABLE>
(1) Assumes that all Securities are sold by such Securityholders and no
additional securities are acquired thereby.
(2) Each of such persons are officers or are comprised of officers of Gruntal.
Douglas Kleinberg, an officer of Gruntal, was a director of the Company.
(3) Each of such individuals are employees of the Company.
(4) Gruntal has provided financial advisory services to the Company and Douglas
Kleinberg, an officer of Gruntal, was a director of the Company.
(5) David Kandall is the brother of Alan Kandall, the Executive Vice President,
Treasurer and a director of the Company.
(6) Daniel Kleinberg is the father of Douglas Kleinberg, who was a director of
the Company.
(7) Each of such individuals are adult children of Martin C. Licht, the
Secretary and a director of the Company and a member of Gallet Dreyer &
Berkey, LLP, the Company's counsel.
(8) Mr. Kleinberg was a director of the Company.
The Bridge Selling Stockholders are offering 180,000 shares of Common Stock
in this Offering and the Selling Securityholders may sell the balance of the
Selling Securityholders' Securities from time to time in their discretion on
NASDAQ, in the over-the-counter market, or in privately-negotiated transactions,
at fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Securityholders may effect such transactions in their
discretion in sales to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders or the purchasers of the Selling Securityholders'
Securities for whom such broker-dealers may act as agent or to whom they sell as
principal, or both (which compensation to a broker-dealer might be in excess of
customary commissions).
The Selling Securityholders and any broker-dealers who act in connection
with the sale of the Selling Securityholders' Securities offered hereby may be
deemed to be "underwriters" as that term is defined in the Securities Act with
respect to the
40
<PAGE>
securities offered and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the Securities
offered hereby will be passed upon for the Company by Gallet Dreyer & Berkey,
LLP, 845 Third Avenue, New York, New York 10022. Martin C. Licht, a partner of
such firm, is the Secretary and a member of the Board of Directors of the
Company. Certain legal matters in connection with this Offering will be passed
upon for the Underwriter by Ziegler, Ziegler & Altman, 750 Lexington Avenue, New
York, New York 10022.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and for the year then ended and the financial statements of Cable & Co. (a
product line of Hongson, Inc.) for the year ended December 31, 1994, have been
included herein and in the Registration Statement in reliance upon the report of
Goldstein Golub Kessler & Company, P.C., independent certified public
accountants, appearing elsewhere herein, and upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
A Registration Statement on Form SB-2 (the "Registration Statement") under
the Securities Act relating to the securities offered hereby has been filed by
the Company with the Securities and Exchange Commission (the "Commission"), in
Washington, D.C. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the securities offered
hereby, reference is made to such Registration Statement, exhibits and
schedules. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as exhibits to the Registration Statement, each such statement being qualified
in all respects by such reference. A copy of the Registration Statement may be
inspected without charge at the Commission's principal offices in Washington,
D.C., and copies of all or any part thereof may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
Following this Offering, the Company will be subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company may be inspected or
copied at the public reference facilities of the Commission located at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York, 7 World Trade Center, 13th Floor, New York, New
York 10048, and in Chicago, Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such documents can be
obtained at the public reference section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
41
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY:
Independent Auditor's Report................................................................................... F-2
Consolidated Balance Sheet as of December 31, 1995............................................................. F-3
Consolidated Statement of Operations for the Year Ended December 31, 1995...................................... F-4
Consolidated Statement of Stockholders' Deficiency for the Year Ended December 31, 1995........................ F-5
Consolidated Statement of Cash Flows for the Year Ended December 31, 1995...................................... F-6
Notes to Consolidated Financial Statements..................................................................... F-7-F-13
CABLE & CO. (A PRODUCT LINE OF HONGSON, INC.):
Independent Auditor's Report................................................................................... F-14
Statement of Revenues over Direct Operating Expenses for the Year Ended December 31, 1994...................... F-15
Statement of Cash Flows for the Year Ended December 31, 1994................................................... F-16
Notes to Financial Statements.................................................................................. F-17
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY:
Consolidated Balance Sheet as of January 31, 1996 (unaudited).................................................. F-18
Consolidated Statement of Operations for the One-month Periods Ended January 31, 1995 and 1996 (unaudited)..... F-19
Consolidated Statement of Stockholders' Deficiency for the One-month Period Ended January 31, 1996
(unaudited)................................................................................................. F-20
Consolidated Statement of Cash Flows for the One-month Periods Ended January 31, 1995 and 1996 (unaudited)..... F-21
Notes to Consolidated Financial Statements (unaudited)......................................................... F-22-F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS OF
CABLE & CO. WORLDWIDE, INC.
We have audited the accompanying consolidated balance sheet of Cable & Co.
Worldwide, Inc. and Subsidiary as of December 31, 1995, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cable & Co.
Worldwide, Inc. and Subsidiary as of December 31, 1995, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
February 2, 1996, except for Note 6,
as to which the date is March 21, 1996
and Note 17, as to which the date is
March 28, 1996
F-2
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS (NOTE 6)
CURRENT ASSETS:
Cash.......................................................................................................... $ 8,010
Accounts receivable, less allowances for doubtful accounts and sales discounts of $100,125.................... 650,540
Inventory (Notes 1 and 2)..................................................................................... 2,878,082
Prepaid expenses and other current assets (Note 3)............................................................ 643,446
Deferred income tax asset, net of valuation allowance of $58,800 (Note 15).................................... --
TOTAL CURRENT ASSETS....................................................................................... 4,180,078
Property and Equipment, net (Notes 1, 4 and 10)................................................................. 851,972
Trademark and Trade Name, net of accumulated amortization of $58,597 (Note 1)................................... 1,113,340
Other Intangible Assets, net of accumulated amortization of $12,820 (Note 1).................................... 29,525
Other Assets.................................................................................................... 7,015
TOTAL ASSETS............................................................................................... $ 6,181,930
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Due to factor (Note 6)........................................................................................ $ 2,525,671
Accounts payable.............................................................................................. 1,266,123
Accrued expenses and other current liabilities (Notes 5 and 14)............................................... 771,526
Income taxes payable (Note 15)................................................................................ 14,300
Term loan payable (Note 7).................................................................................... 130,000
Current portion of note payable (Note 8)...................................................................... 333,336
Current portion of capital lease obligations (Notes 4 and 9).................................................. 26,898
TOTAL CURRENT LIABILITIES.................................................................................. 5,067,854
Note Payable -- net of current portion (Note 8)................................................................. 499,997
Capital Lease Obligations -- net of current portion (Notes 4 and 9)............................................. 133,598
Deferred Rent (Note 10)......................................................................................... 45,382
Deferred Income Tax Liability (Note 15)......................................................................... 28,100
TOTAL LIABILITIES.......................................................................................... 5,774,931
Commitments and Contingencies (Note 10)
Redeemable Preferred Stock -- Series A -- 12% cumulative; $.01 par value; authorized 58,340 shares, issued and
outstanding 43,327 shares ($500,000 liquidation preference) (Note 12)......................................... 500,000
STOCKHOLDERS' DEFICIENCY (NOTE 12):
Preferred stock -- $.01 par value; authorized 1,420,000 shares, no shares issued --
Common stock -- $.01 par value; authorized 10,000,000 shares, issued and outstanding
1,007,445 shares........................................................................................... 10,074
Additional paid-in capital.................................................................................... 34
Accumulated deficit........................................................................................... (103,109)
STOCKHOLDERS' DEFICIENCY................................................................................... (93,001)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY............................................................. $ 6,181,930
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Net sales...................................................................................................... $ 10,432,926
Cost of goods sold (Note 14)................................................................................... 6,397,568
Gross profit................................................................................................... 4,035,358
Selling expenses (Note 1)...................................................................................... (2,255,874)
General and administrative expenses (Note 1)................................................................... (1,443,798)
Commission income.............................................................................................. 34,302
Income from operations......................................................................................... 369,988
Interest expense (Notes 6, 7 and 8)............................................................................ 429,197
Loss before provision for income taxes......................................................................... (59,209)
Provision for income taxes (Note 15)........................................................................... 43,900
Net loss....................................................................................................... (103,109)
Dividends on preferred stock (Note 12)......................................................................... 53,148
Net loss applicable to common stock............................................................................ $ (156,257)
Net loss per common share (Note 1)............................................................................. $ (.08)
Weighted average number of common shares outstanding (Note 1).................................................. 2,023,486
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
COMMON STOCK ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
<S> <C> <C> <C> <C> <C>
Issuance of common stock.................................... 1,254,309 $ 12,543 $137,557 -- $ 150,100
Purchase and retirement of common stock and preferred stock
dividend (Note 12)........................................ (266,880) (2,669) (147,331) -- (150,000)
Issuance of common stock in connection with term loan
payable (Note 7).......................................... 20,016 200 9,808 -- 10,008
Net loss.................................................... -- -- -- $(103,109) (103,109)
Balance at December 31, 1995................................ 1,007,445 $ 10,074 $ 34 $(103,109) $ (93,001)
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................................................... $ (103,109)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................................................. 106,062
Provision for doubtful accounts and sales discounts....................................................... 100,125
Provision for deferred income taxes....................................................................... 28,100
Noncash interest expense.................................................................................. 10,008
Changes in operating assets and liabilities, net of effect of purchase of the Cable & Co. product line
(Note 1):
Increase in accounts receivable......................................................................... (744,285)
Increase in inventory................................................................................... (1,208,200)
Increase in prepaid expenses and other current assets................................................... (615,446)
Increase in intangibles................................................................................. (42,345)
Increase in other assets................................................................................ (7,015)
Increase in accounts payable............................................................................ 117,814
Increase in accrued expenses and other current liabilities.............................................. 771,526
Increase in income taxes payable........................................................................ 14,300
Increase in deferred rent............................................................................... 45,382
NET CASH USED IN OPERATING ACTIVITIES................................................................ (1,527,083)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................................................................... (716,462)
Purchase of Cable & Co. product line......................................................................... (1,401,787)
CASH USED IN INVESTING ACTIVITIES.................................................................... (2,118,249)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from factor, net.................................................................................... 2,199,568
Proceeds from issuance of short-term note.................................................................... 130,000
Principal payments under capital lease obligation............................................................ (9,659)
Net proceeds from issuance of long-term note payable......................................................... 833,333
Proceeds from issuance of redeemable preferred stock......................................................... 750,000
Proceeds from issuance of common stock....................................................................... 150,100
Purchase and retirement of redeemable preferred stock and common stock (Note 12)............................. (400,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES............................................................ 3,653,342
NET INCREASE IN CASH AND CASH AT END OF YEAR................................................................... $ 8,010
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................................................................. $ 419,189
Income taxes.............................................................................................. $ 1,400
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchased under capital lease obligations.......................................................... $ 170,155
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPAL BUSINESS ACTIVITY:
Cable & Co. Worldwide, Inc. ("Cable"), which was incorporated November 10,
1994, is an importer and wholesaler of men's and ladies' shoes. Sales are made
primarily to major department and specialty stores located in the United States.
The Company was inactive until January 1, 1995.
The accompanying consolidated financial statements include the accounts of
Cable and its wholly owned subsidiary, Cable & Company Enterprises, Ltd.
(collectively referred to as the "Company"). All intercompany accounts and
transactions have been eliminated in consolidation.
Effective January 1, 1995, pursuant to a purchase agreement dated January
16, 1995, the Company acquired the Cable & Co. product line of Hongson, Inc.
("Hongson") in a business combination accounted for as a purchase. The Company
acquired assets with a fair value of $3,187,714 and assumed liabilities of
$2,957,864.
The assets acquired and liabilities assumed are as follows:
<TABLE>
<S> <C>
Assets acquired:
Accounts receivable................................................................... $1,489,832
Inventory............................................................................. 1,669,882
Miscellaneous receivables............................................................. 28,000
3,187,714
Liabilities assumed:
Accounts payable...................................................................... 1,148,309
Amount due to factor.................................................................. 1,809,555
2,957,864
Net operating assets acquired...................................................... $ 229,850
</TABLE>
The total purchase price was $1,401,787 including $151,787 of acquisition
costs. The cost in excess of the fair value of the net operating assets acquired
amounting to $1,171,937 has been allocated entirely to trademark and trade name
and is being amortized by the straight-line method over 20 years. The fair value
of the other assets acquired such as promotional and advertising materials along
with the original artwork and plates, customer list, dies and molds, software
and programs, and trade show booth was de minimus and consequently no value has
been assigned to them.
At the time of the acquisition of the Cable product line of Hongson the
stockholders of the Company, including the Company's management, entered into a
stockholders' agreement ("Stockholders' Agreement") with respect to their shares
of common stock. Pursuant to the Stockholders' Agreement, the Company's
management placed an aggregate of 320,256 shares of common stock in escrow. In
January 1996, the Company terminated the Stockholders' Agreement and released
all of the shares held in escrow. As a result of this release, the Company will
record a noncash compensatory charge in the amount of $1,345,075 in January
1996.
At each balance sheet date the Company evaluates the period of amortization
of intangible assets. The factors used in evaluating the period of amortization
include: (i) current operating results, (ii) projected future operating results,
and (iii) any other material factors that effect the continuity of the business.
Revenue is recognized when merchandise is shipped.
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Depreciation of property and equipment is provided for by the straight-line
method over the estimated useful lives of the assets. Amortization of leasehold
improvements is provided for by the straight-line method over the terms of the
respective leases.
Intangible assets consisting of debt issue costs, trademarks, at cost, and
organization costs are amortized using the straight-line method over 3 to 15
years.
Foreign currency transaction gains of approximately $57,000 are included in
cost of goods sold.
F-7
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPAL BUSINESS
ACTIVITY: -- Continued
Advertising costs are charged to operations as incurred. Total advertising
expense for the year ended December 31, 1995 was approximately $629,000 and is
included in selling expenses.
Included in general and administrative expenses is moving expense of
approximately $84,000 which relates to expenses incurred to relocate the
Company's office, showroom and warehouse.
The financial statements have been prepared in conformity with generally
accepted accounting principles which require the use of estimates by management.
The fair value of the Company's financial instruments approximate their
carrying value.
Net loss per common share is calculated by dividing net loss by the
weighted average number of shares of common stock outstanding. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, shares of
common stock issued during the 12-month period preceding the date of the filing
of a Registration Statement for an initial public offering ("IPO") (see Note 17)
at prices below the IPO price, including the shares released from escrow as
discussed above, have been included in the weighted average number of shares
outstanding since inception.
Management does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
2. INVENTORY:
Inventory consists of the following:
<TABLE>
<S> <C>
Raw materials........................................................................... $ 205,904
Finished goods.......................................................................... 2,672,178
$2,878,082
</TABLE>
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
<TABLE>
<S> <C>
Claims receivable......................................................................... $180,000
Cooperative advertising receivable........................................................ 120,000
Salesperson advances...................................................................... 151,033
Prepaid expenses.......................................................................... 165,610
Other receivables......................................................................... 26,803
$643,446
</TABLE>
Claims receivable will be offset against future inventory purchases.
4. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
<S> <C> <C>
Leasehold improvements............................................................... $264,204 Term of lease
Furniture and fixtures............................................................... 63,436 10 years
Computer and office equipment........................................................ 391,904 4 to 10 years
Display booth........................................................................ 150,298 10 years
Shoe molds........................................................................... 16,775 3 years
886,617
Less accumulated depreciation........................................................ 34,645
$851,972
</TABLE>
F-8
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. PROPERTY AND EQUIPMENT: -- Continued
Property and equipment includes assets acquired under capital leases
amounting to $170,155 and related accumulated depreciation of $5,300 at December
31, 1995.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<S> <C>
Accrued inventory purchases............................................................... $546,698
Accrued commissions....................................................................... 104,202
Accrued moving expenses................................................................... 38,892
Accrued professional fees................................................................. 28,000
Other current liabilities................................................................. 53,734
$771,526
</TABLE>
6. DUE TO FACTOR:
The Company finances all accounts receivable under an agreement with a
factor. Certain preapproved accounts receivable are factored on a nonrecourse
basis. Nonapproved accounts are factored with recourse. Under the terms of this
agreement, the Company is advanced funds against receivables assigned to the
factor and additional funds which are collateralized by inventory and
substantially all other assets. These advances may not exceed $6,000,000. The
factor is responsible for servicing the factored receivables and charges the
Company a fee on the net cash advances equal to the prime rate (8.5% at December
31, 1995) plus 1.5% to 2% per annum, plus additional fees of 1.25% of the gross
amount of receivables serviced by the factor.
The factoring agreement contains covenants that require the Company to meet
certain financial ratios and maintain certain levels of working capital and net
worth.
At December 31, 1995, the Company was not in compliance with certain
covenants. On March 21, 1996, the factor amended or waived compliance with these
covenants. Compliance with the amended covenants will be measured at various
dates during 1996 commencing May 31, 1996. The Company anticipates that it will
be in compliance with the amended covenants at the respective measurement dates.
Due to factor consists of:
<TABLE>
<S> <C>
Outstanding accounts receivables assigned to factor without recourse................... $ 1,483,452
Cash advances from factor.............................................................. (4,009,123)
$(2,525,671)
</TABLE>
7. TERM LOAN PAYABLE:
The Company has a term note payable to a stockholder. The note bears
interest at a rate of 9% per annum. In connection with this note the Company
issued an additional 20,016 shares of common stock valued at $10,008. The note
plus interest was paid in February 1996.
8. NOTE PAYABLE:
The note payable represents an installment note payable to the factor with
interest at the prime rate (8.5% at December 31, 1995) plus 3% and is subject to
the same collateral and covenants as the factoring agreement.
F-9
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. NOTE PAYABLE: -- Continued
Maturities are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996............................................................................... $333,336
1997............................................................................... 333,336
1998............................................................................... 166,661
833,333
Less current portion...................................................................... 333,336
Long-term portion.................................................................... $499,997
</TABLE>
9. CAPITAL LEASE OBLIGATIONS:
The Company acquired equipment under leases that have been accounted for as
capital leases.
Minimum future lease payments are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996............................................................................... $ 50,302
1997............................................................................... 50,302
1998............................................................................... 50,301
1999............................................................................... 45,239
2000............................................................................... 30,215
226,359
Less amount representing interest......................................................... 65,863
Present value of minimum lease payments................................................... 160,496
Current portion........................................................................... 26,898
Long-term portion.................................................................... $133,598
</TABLE>
Certain leases are guaranteed by stockholders. At December 31, 1995,
guarantees approximated $114,000.
10. COMMITMENTS AND CONTINGENCIES:
The Company leases office and showroom facilities under noncancelable
operating leases. The leases provide for escalation based on increases in real
estate taxes and other expenses. Additionally, the Company leases equipment
under noncancelable operating leases. Future minimum aggregate annual rental
payments are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996............................................................................. $ 160,743
1997............................................................................. 160,608
1998............................................................................. 181,782
1999............................................................................. 181,782
2000............................................................................. 171,704
Thereafter......................................................................... 577,500
$1,434,119
</TABLE>
Rent expense charged to operations under these leases for the year ended
December 31, 1995 amounted to approximately $67,000.
Rent expense recognized annually differs from rent paid as a result of free
rent periods and scheduled rent increases provided for in the office and
showroom leases. Accordingly, the Company has recorded deferred rent of $45,382
at December 31, 1995, which will be charged to operations over the term of the
leases.
F-10
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. COMMITMENTS AND CONTINGENCIES: -- Continued
The Company has a letter of credit line with the factor up to a maximum of
$750,000, $200,000 of which is reserved as collateral for purchases of foreign
currency contracts to a maximum amount of $2,000,000. At December 31, 1995, the
Company has outstanding letters of credit in the amount of $722,000, $200,000
serving as collateral for foreign currency contracts, $222,000 serving as
collateral for lease security deposits, and a standby letter of credit in the
amount of $300,000 in favor of Cable & Co. S.R.L. (see Note 14). Management does
not expect any material losses to result from the off-balance-sheet instruments
because performance is not expected to be required.
The Company enters into foreign currency forward contracts to manage
foreign currency exchange risk associated with inventory purchases denominated
in Italian lira. The contracts are recorded at market value and any gains and
losses are included in operations. At December 31, 1995, the Company has open
foreign currency contracts to purchase 1,459,750,000 Italian lira for $890,000
expiring at various dates from January 9, 1996 to July 31, 1996. These financial
instruments may give rise to off-balance-sheet risk. Risks arise from potential
counterparty nonperformance and from changes in the market value of the
underlying currency.
The Company has entered into employment agreements with its president and
executive vice president through December 31, 1997 that provide for minimum
annual salaries and incentive bonus compensation based upon the performance of
the employee and the Company. The agreements also provide for severance due to
termination without cause, in which case the employee will receive severance
payments until the later of two and one-half years from the date of severance or
December 31, 1997. At December 31, 1995, the total commitment, excluding
incentives, was $700,000.
11. RETIREMENT PLAN:
The Company has a defined contribution plan under Section 401(k) of the
Internal Revenue Code, wherein qualified employees may contribute a percentage
of their pretax eligible compensation to the plan. Matching contributions are at
the discretion of the Board of Directors. No contributions were made to the plan
for the year ended December 31, 1995.
An officer and the corporate controller serve as trustees of the plan.
12. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIENCY:
In October 1995, the Company repurchased 266,880 shares of its Common Stock
for $132,500. These shares were then retired. In addition, the Company
repurchased and retired 21,660 shares of its redeemable preferred stock for
$250,000 plus $17,500 of accrued dividends.
The 12% cumulative preferred stock is redeemable at the Company's
discretion, in whole or in part, beginning February 16, 1996 or upon the
completion of an IPO of the Company's securities, a merger of the Company or a
sale of all or substantially all of the Company's assets. The preferred stock is
redeemable at $11.54 per share plus accrued and unpaid dividends to the date of
redemption plus 10.6752 shares of common stock for each share of preferred
stock.
The preferred stockholders have the right to require the Company to redeem
the preferred stock at $11.54 per share plus accrued and unpaid dividends
commencing five years from the date of issuance (see Note 17).
The Company is required to pay quarterly dividends on preferred stock at
the rate of $1.38 per share per annum, as and when declared by the Board of
Directors. At December 31, 1995, no dividends have been declared. At December
31, 1995, preferred dividends in arrears aggregated approximately $53,000 or
$1.23 per share.
The common stock has certain piggyback registration rights (see Note 17).
13. MAJOR CUSTOMER:
One customer accounted for approximately 28% of gross sales for the year
ended December 31, 1995.
F-11
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. RELATED PARTY TRANSACTIONS:
The Company had operating leases with Hongson for office, showroom and
warehouse space. Rent expense and warehouse fees paid to Hongson amounted to
approximately $226,000.
Included in costs of goods sold are commissions charged from Cable & Co.
S.R.L., and D & D Design and Details Limited, companies whose controlling
stockholder is a stockholder of the Company. These companies provide the Company
with design, production and production control services. Commissions are a
percentage of purchases and amounted to approximately $436,000 for the year
ended December 31, 1995. The amount due to these companies for commissions
earned was $104,202 at December 31, 1995 and is included in accrued expenses and
other current liabilities.
15. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<S> <C>
Current:
Federal.................................................................................. $ 8,700
State and local.......................................................................... 7,100
15,800
Deferred:
Federal.................................................................................. 21,000
State and local.......................................................................... 7,100
28,100
$43,900
</TABLE>
The components of deferred income tax and the deferred income tax
provision, resulting from the differences in the bases of assets and liabilities
for income tax and financial reporting purposes, and other items are as follows:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
<S> <C> <C>
Allowance for doubtful accounts and sales discounts....................................... $ 40,050 --
Charitable contribution carryforward...................................................... 18,750 --
Property and equipment.................................................................... -- $(23,300)
Trademark and trade name.................................................................. -- (7,800)
Deferred rent............................................................................. -- 3,000
Valuation allowance....................................................................... (58,800) --
$ -0- $(28,100)
</TABLE>
The difference between the income tax provision computed at the federal
statutory rate and the actual income tax provision is accounted for as follows:
<TABLE>
<S> <C>
Income tax benefit computed using statutory rate of 34%.................................... $(20,100)
Effect of nondeductible expenses........................................................... 64,000
$ 43,900
</TABLE>
16. INSURANCE:
The Company is the beneficiary of term insurance policies on the lives of
the president and executive vice president in the aggregate amount of
$1,000,000.
17. INTENDED TRANSACTIONS, SUBSEQUENT EVENTS AND INITIAL PUBLIC OFFERING:
In January 1996, the Company entered into a three-year international
consulting agreement with U.K. Hyde Park Consultants, Ltd. ("Hyde Park"). In
addition, Hyde Park purchased 400,000 shares of common stock and warrants to
purchase up to 450,000 shares of common stock for a note in the amount of
$40,000 which was subsequently paid in March 1996. The
F-12
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
17. INTENDED TRANSACTIONS, SUBSEQUENT EVENTS AND INITIAL PUBLIC
OFFERING: -- Continued
warrants are identical to the warrants issued in conjunction with the March 28,
1996 private placement (see below). The agreement contains cancelation clauses
and stock repurchase provisions in the event that the Company does not have a
net worth of at least $3,000,000 at July 31, 1996.
The Company intends to value these shares of common stock and warrants to
purchase shares of common stock at $1,725,000. The difference between this
amount and the purchase price of $40,000 will be recognized ratably as a noncash
compensatory charge over the life of the agreement.
During January 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"). Under the Plan, options to purchase shares of the Company's common
stock are granted to key employees, consultants and members of the Board of
Directors at the discretion of the Stock Option Committee. The Plan permits the
granting of options to purchase a maximum of 280,000 shares at an exercise price
to be determined by the Stock Option Committee.
On January 25, 1996, the Company executed a Letter of Intent with State
Street Capital Markets, Corp. with respect to an IPO. The Company anticipates
that 1,130,000 common shares, of which 950,000 shares of common stock are being
sold by the Company and 180,000 shares of common stock are being sold by the
private placement investors (see below), and 1,130,000 common share purchase
warrants will be offered at an assumed price of $6.00 per share and $.10 per
warrant. The warrants will entitle the holder to purchase common stock at $7.20
per share, 120% of the assumed IPO price per share, over a 3-year period
beginning 13 months from the date of issuance. The warrants will be redeemable
by the Company one year after the effective date of the IPO at the price of $.10
per warrant, subject to the closing bid price of the common stock.
On January 26, 1996, the Board of Directors increased the number of
authorized shares from 80,000 to 1,500,000 for preferred stock and from 120,000
to 10,000,000 for common stock. In conjunction with the increase, the Company
effected a 26.688 for 1 stock split effective January 26, 1996. All references
in the financial statements to number of shares and per share amounts have been
retroactively restated to reflect the increased number of shares of preferred
and common stock authorized, issued and outstanding.
On March 28, 1996, the Company completed a private placement, whereby it
issued 36 units at a price of $50,000 per unit. Each unit consisted of a $49,000
promissory note, 5,000 shares of common stock and a warrant to purchase up to
5,000 shares of common stock, subject to adjustment, as defined, at an exercise
price of $7.20 per share, 120% of the assumed IPO price per share. The
promissory notes, aggregating $1,764,000, bear interest at an annual rate of 11%
and are due upon the earlier of 12 months from date of issuance or the Company's
receipt of gross proceeds of at least $4,080,000 from the sale of its debt
and/or equity securities in a public or private financing. The warrants are
exercisable over a 3-year period, commencing 13 months from date of issuance.
Upon the closing of the Company's proposed IPO, the terms of the warrants will
be adjusted to be identical to the terms of the warrants to be issued in
conjunction with the IPO.
In connection with the private placement, a discount of $738,000 will be
recorded based upon the allocation of the proceeds between the Bridge Notes
payable and the common stock and warrants issued. This discount will be
reflected as a reduction of the face amount of the Bridge Notes payable. This
amount was calculated by attributing a value of $4.20 per share of common stock
and $.10 per warrant, less cash received of $36,000.
The net proceeds of $1,583,000 net of $217,000 in debt issue costs was used
to repay the term loan payable plus accrued interest of $3,900, and the
remaining balance was used to reduce the amount due to factor.
In February 1996, the Company issued 224,761 shares of common stock to
existing stockholders which will be recorded as compensation of $943,996 ($4.20
per share) in 1996.
F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Cable & Co. Worldwide, Inc.
We have audited the accompanying statements of revenues over direct
operating expenses and cash flows of Cable & Co. (a product line of Hongson,
Inc.) ("Cable product line") the net assets of which were acquired by Cable &
Co. Worldwide, Inc. (the "Company") for the year ended December 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the registration statement on Form SB-2 of Cable &
Co. Worldwide, Inc. as described in Note 1 and are not intended to be a complete
presentation of the Cable product line's results of operations.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenues over direct operating expenses and cash
flows of Cable & Co. (a product line of Hongson, Inc.) for the year ended
December 31, 1994, in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
March 5, 1996
F-14
<PAGE>
CABLE & CO.
(A PRODUCT LINE OF HONGSON, INC.)
STATEMENT OF REVENUES OVER DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Net sales....................................................................................................... $8,702,461
Cost of goods sold (Notes 2 and 3).............................................................................. 5,166,494
Gross profit.................................................................................................... 3,535,967
Selling expenses................................................................................................ 1,367,435
Excess of revenues over direct operating expenses............................................................... $2,168,532
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the financial statements.
F-15
<PAGE>
CABLE & CO.
(A PRODUCT LINE OF HONGSON, INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Cash flows from operating activities:
Excess of revenues over direct operating expenses............................................................ $ 2,168,532
Adjustments to reconcile excess of revenues over direct operating expenses to net cash provided by operating
activities:
Provision for doubtful accounts and sales discounts....................................................... 40,000
Changes in operating assets and liabilities:
Decrease in accounts receivable......................................................................... 141,064
Increase in inventory................................................................................... (1,025,071)
Increase in other assets................................................................................ (2,539)
Increase in accounts payable............................................................................ 709,722
Net cash provided by operating activities............................................................ 2,031,708
Cash flows from investing activity -- advances from factor, net................................................ 274,288
Net cash remitted to Hongson, Inc.............................................................................. $ 2,305,996
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the financial statements.
F-16
<PAGE>
CABLE & CO.
(A PRODUCT LINE OF HONGSON, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. BASIS OF PRESENTATION:
The statements of revenues over direct operating expenses and cash flows of
Cable & Co. (a product line of Hongson, Inc.) ("Cable product line"), the net
assets of which were acquired by Cable & Co. Worldwide, Inc. (the "Company"),
have been prepared for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission for inclusion in the registration
statement on Form SB-2 of the Company. These financial statements are not
intended to be a complete presentation of the Cable product line's results of
operations.
Effective January 1, 1995, pursuant to a purchase agreement dated January
16, 1995, the Cable product line net assets were acquired by the Company for
$1,401,787 which included acquisition costs of $151,787.
The statement of revenues over direct operating expenses includes only
those revenues and expenses directly related to the importation and sale of
men's shoes using the Cable product line trademark. All nondirect costs
allocated to the Cable product line from Hongson, Inc., such as occupancy and
administrative costs, interest expense and depreciation and amortization, have
been excluded because such amounts are not readily obtainable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPAL BUSINESS ACTIVITY:
The Cable product line is comprised of men's shoes sold primarily to major
department and specialty stores located in the United States.
Revenue is recognized when merchandise is shipped.
Advertising costs are charged to operations as incurred.
Cost of goods sold was computed by stating inventory at the lower of cost,
first-in, first-out method, or market.
The financial statements have been prepared in conformity with generally
accepted accounting principles which require the use of estimates by management.
3. RELATED PARTY TRANSACTIONS:
Included in costs of goods sold are commissions charged from Cable & Co.
S.R.L., a company whose controlling stockholder is a stockholder of the Company.
Cable & Co. S.R.L. provides the Company with design, production and production
control services. Commissions are a percentage of purchases and amounted to
approximately $330,000 for the year ended December 31, 1994.
F-17
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
<S> <C> <C>
(NOTE 4)
ASSETS
CURRENT ASSETS:
Cash.......................................................................................... $ 673 $ 673
Accounts receivable, less allowances for doubtful accounts and
sales discounts of $83,000................................................................. 690,444 690,444
Inventory..................................................................................... 3,123,721 3,123,721
Prepaid expenses and other current assets..................................................... 703,299 703,299
Deferred income tax asset, net of valuation allowance of $90,000.............................. -- --
TOTAL CURRENT ASSETS....................................................................... 4,518,137 4,518,137
Property and Equipment, net of accumulated depreciation of $45,388.............................. 874,955 874,955
Trademark and Trade name, net of accumulated amortization of $64,061............................ 1,107,876 1,107,876
Deferred Offering Costs (Note 4)................................................................ 13,635 13,635
Debt Issue Costs (Note 4)....................................................................... -- 217,000
Other Intangible Assets, net of accumulated amortization of $13,891............................. 28,735 28,735
Other Assets.................................................................................... 6,171 6,171
TOTAL ASSETS.................................................................................. $ 6,549,509 $ 6,766,509
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Due to factor................................................................................. $ 2,714,183 $ 1,265,083
Bridge notes payable (Note 4)................................................................. -- 1,026,000
Accounts payable.............................................................................. 1,576,983 1,576,983
Accrued expenses and other current liabilities................................................ 707,665 707,665
Term loan payable............................................................................. 130,000 --
Current portion of note payable............................................................... 333,336 333,336
Current portion of capital lease obligations.................................................. 27,682 27,682
TOTAL CURRENT LIABILITIES.................................................................. 5,489,849 4,936,749
Note Payable -- net of current portion.......................................................... 472,220 472,220
Capital Lease Obligations -- net of current portion............................................. 128,784 128,784
Deferred Rent................................................................................... 47,554 47,554
Deferred Income Tax Liability................................................................... 29,242 29,242
TOTAL LIABILITIES............................................................................. 6,167,649 5,614,549
Redeemable Preferred Stock -- Series A -- 12% cumulative; $.01 par value;
authorized 58,340 shares, issued and outstanding 43,327 shares
($500,000 liquidation preference)............................................................. 500,000 500,000
STOCKHOLDERS' EQUITY (DEFICIENCY) (Notes 2 and 3):
Preferred stock -- $.01 par value; authorized 1,420,000 shares,
no shares issued........................................................................... -- --
Common stock -- $.01 par value; authorized 10,000,000 shares,
issued and outstanding 1,407,445 shares (1,812,206 shares pro forma)....................... 14,074 18,122
Additional paid-in capital.................................................................... 1,388,658 3,102,606
Accumulated deficit........................................................................... (1,520,872) (2,468,768)
STOCKHOLDERS' EQUITY (DEFICIENCY).......................................................... (118,140) 651,960
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY).................................... $ 6,549,509 $ 6,766,509
</TABLE>
See Notes to Consolidated Financial Statements.
F-18
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
ONE-MONTH PERIOD ENDED
JANUARY 31,
1995 1996
<S> <C> <C>
Net sales......................................................................................... $ 772,140 $ 1,198,778
Cost of goods sold................................................................................ 462,681 752,308
Gross profit...................................................................................... 309,459 446,470
Noncash compensatory charges (Notes 2 and 3)...................................................... -- (1,352,624)
Selling expenses.................................................................................. (154,170) (276,350)
General and administrative expenses............................................................... (85,308) (200,434)
Income (loss) from operations..................................................................... 69,981 (1,382,938)
Interest expense.................................................................................. 24,984 47,982
Income (loss) before provision (benefit) for income taxes......................................... 44,997 (1,430,920)
Provision (benefit) for income taxes.............................................................. 19,000 (13,157)
Net income (loss)................................................................................. 25,997 (1,417,763)
Dividends on preferred stock...................................................................... -- 5,096
Net income (loss) applicable to common stock...................................................... $ 25,997 $(1,422,859)
Net income (loss) per common share................................................................ $ .01 $ (.79)
Weighted average number of common shares outstanding.............................................. 2,059,070 1,812,206
</TABLE>
See Notes to Consolidated Financial Statements.
F-19
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
ONE-MONTH PERIOD ENDED JANUARY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............................. 1,007,445 $10,074 $ 34 $ (103,109) $ (93,001)
Issuance of common stock and warrants to purchase common
stock (Note 3)......................................... 400,000 4,000 1,721,000 -- 1,725,000
Deferred consulting costs (Note 3)....................... -- -- (1,685,000) -- (1,685,000)
Amortization of deferred consulting costs (Note 3)....... -- -- 7,549 -- 7,549
Release of escrow shares (Note 2)........................ -- -- 1,345,075 -- 1,345,075
Net loss................................................. -- -- -- (1,417,763) (1,417,763)
BALANCE AT JANUARY 31, 1996.............................. 1,407,445 $14,074 $1,388,658 $(1,520,872) $ (118,140)
</TABLE>
See Notes to Consolidated Financial Statements.
F-20
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
ONE-MONTH PERIOD ENDED
JANUARY 31,
1995 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................................. $ 25,997 $(1,417,763)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization.............................................................. 5,951 17,278
Provision for doubtful accounts and sales discounts........................................ 8,000 (17,125)
Provision for deferred income taxes........................................................ -- 1,142
Noncash compensatory charges............................................................... -- 1,352,624
Changes in operating assets and liabilities, net of effect of purchase of the Cable & Co.
product line:
Increase in accounts receivable.......................................................... (152,168) (22,779)
(Increase) decrease in inventory......................................................... 103,467 (245,639)
Increase in prepaid expenses and other current assets.................................... (40,496) (19,853)
Increase in intangibles.................................................................. (42,344) (281)
(Increase) decrease in other assets...................................................... (1,000) 844
Increase (decrease) in accounts payable.................................................. (532,274) 310,860
Increase (decrease) in accrued expenses and other current liabilities.................... 385,236 (63,861)
Increase (decrease) in income taxes payable.............................................. 19,000 (14,300)
Increase in deferred rent................................................................ -- 2,172
Net cash used in operating activities................................................. (220,631) (116,681)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................................ -- (33,726)
Purchase of Cable & Co. product line.......................................................... (1,401,787) --
Cash used in investing activities.......................................................... (1,401,787) (33,726)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs....................................................................... -- (13,635)
Advances from factor, net..................................................................... 472,318 188,512
Principal payments under capital lease obligations............................................ -- (4,030)
Net proceeds from issuance of long-term note payable.......................................... 1,000,000 --
Proceeds from issuance of common stock........................................................ 150,100 --
Principal payments of long-term note payable.................................................. -- (27,777)
Net cash provided by financing activities.................................................. 1,622,418 143,070
Net decrease in cash............................................................................ -- (7,337)
Cash at beginning of period -- 8,010
Cash at end of period........................................................................... $ 0 $ 673
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest...................................................... $ 24,984 $ 47,007
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Common stock issued for note receivable....................................................... -- $ 40,000
</TABLE>
See Notes to Consolidated Financial Statements.
F-21
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted from the accompanying financial statements. The results of
operations for the one-month period ended January 31, 1996 is not necessarily
indicative of the results of operations expected for the year ended December 31,
1996. The consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1995.
The accompanying unaudited interim consolidated financial statements
include all adjustments (consisting only of those of a normal recurring nature)
necessary for a fair statement of the results of the interim period.
2. ESCROW SHARES:
At the time of the acquisition of the Cable product line (see Note 1 of the
Company's year-end consolidated financial statements) the stockholders of the
Company, including the Company's management, entered into a Stockholders'
Agreement with respect to their shares of common stock. Pursuant to the
Stockholders' Agreement, the Company's management placed an aggregate of 320,256
shares of common stock in escrow. In January 1996, the Company terminated the
Stockholders' Agreement and released all of the shares held in escrow. As a
result of this release, the Company has recorded a noncash compensatory charge
in the amount of $1,345,075.
The noncash compensatory charge relating to release of the escrow shares is
offset by an increase in additional paid-in capital. There is no impact on total
stockholders' equity reflected on the Company's consolidated financial
statements as a result of the release of the escrow shares. The charges related
to the release of the shares are not deductible for income tax purposes.
The following table illustrates the impact of the noncash compensatory
charge relating to the release of the escrow shares for the one-month period
ended January 31, 1996:
<TABLE>
<CAPTION>
IMPACT OF WITHOUT
AS STATED CHARGES CHARGES
<S> <C> <C> <C>
Net sales.......................................................................... $ 1,198,778 $1,198,778
Cost of goods sold................................................................. 752,308 752,308
Gross profit....................................................................... 446,470 446,470
Noncash compensatory charges....................................................... (1,352,624) $1,345,075 (7,549)
Selling expenses................................................................... (276,350) (276,350)
General and administrative expenses................................................ (200,434) (200,434)
Loss from operations............................................................... (1,382,938) 1,345,075 (37,863)
Interest expense................................................................... 47,982 47,982
Loss before income tax benefit..................................................... (1,430,920) 1,345,075 (85,845)
Income tax benefit................................................................. (13,157) (13,157)
Net loss........................................................................... (1,417,763) 1,345,075 (72,688)
Dividends on preferred stock....................................................... 5,096 5,096
Net loss applicable to common stock................................................ (1,422,859) $1,345,075 $ (77,784)
Net loss per common share.......................................................... $ (.79) $ (.04)
Weighted average number of common shares outstanding............................... $ 1,812,206 $1,812,206
</TABLE>
The presentation of the net loss without the noncash compensatory charge
does not intend to represent an alternative to the calculation of the net loss
in accordance with generally accepted accounting principles as an indicator of
operating performance.
This information is presented to assist a reader of the consolidated
financial statements in understanding the effect of this compensatory charge.
This charge represents a noncash item, which has no net effect on stockholders'
equity and is not tax deductible.
F-22
<PAGE>
CABLE & CO. WORLDWIDE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
(UNAUDITED)
3. INTERNATIONAL CONSULTING AGREEMENT:
In January 1996, the Company entered into a three-year international
consulting agreement with U.K. Hyde Park Consultants, Ltd. ("Hyde Park"). In
addition, Hyde Park purchased 400,000 shares of common stock and warrants to
purchase up to 450,000 shares of common stock for a note in the amount of
$40,000 which was subsequently paid in March 1996. The warrants are identical to
the warrants issued in conjunction with the March 28, 1996 private placement
(see below). The agreement contains cancellation clauses and stock repurchase
provisions in the event that the Company does not have a net worth of at least
$3,000,000 at July 31, 1996.
The Company has valued these shares of common stock and warrants to
purchase shares of common stock at $1,725,000. The difference between this
amount and the purchase price of $40,000 will be recognized ratably as a noncash
compensatory charge over the life of the agreement. For the one-month period
ended January 31, 1996, the Company recognized $7,549 of consulting expense in
the accompanying consolidated statement of operations.
4. INITIAL PUBLIC OFFERING AND PRO FORMA ADJUSTMENTS TO BALANCE SHEET:
On January 25, 1996, the Company executed a letter of intent with State
Street Capital Markets Corp. with respect to an IPO. The Company anticipates
that 1,130,000 common shares, of which 950,000 shares of common stock are being
sold by the Company and 180,000 shares of common stock are being sold by the
private placement investors (see below), and 1,130,000 common share purchase
warrants will be offered at an assumed IPO price of $6.00 per share and $.10 per
warrant. The warrants will entitle the holder to purchase common stock at $7.20
per share, 120% of the assumed IPO price per share over a 3-year period
beginning 13 months from the date of issuance. The warrants will be redeemable
by the Company one year after the effective date of the IPO at the price of $.10
per warrant, subject to the closing bid price of the common stock.
The unaudited pro forma balance sheet as of January 31, 1996 gives effect
to certain transactions which have occurred subsequent to January 31, 1996. The
pro forma balance sheet does not give effect to the consummation of the proposed
IPO.
Transactions reflected as pro forma adjustments to the January 31, 1996
balance sheet are as follows:
On March 28, 1996, the Company completed a private placement, whereby it
issued 36 units at a price of $50,000 per unit. Each unit consisted of a $49,000
promissory note, 5,000 shares of common stock and a warrant to purchase up to
5,000 shares of common stock, subject to adjustment, as defined, at an exercise
price of $7.20 per share, 120% of the assumed IPO price per share. The
promissory notes, aggregating $1,764,000, bear interest at an annual rate of 11%
and are due upon the earlier of 12 months from date of issuance or the Company's
receipt of gross proceeds of at least $4,080,000 from the sale of its debt
and/or equity securities in a public or private financing. The warrants are
exercisable over a 3-year period, commencing 13 months from date of issuance.
Upon the closing of the Company's proposed IPO, the terms of the warrants will
be adjusted to be identical to the terms of the warrants to be issued in
conjunction with the IPO.
In connection with the private placement, a discount of $738,000 has been
recorded based upon the allocation of the proceeds between the Bridge Notes
payable and the common stock and warrants issued. This discount has been
reflected as a reduction of the face amount of the Bridge Notes payable. This
amount was calculated by attributing a value of $4.20 per share of common stock
and $.10 per warrant, less cash received of $36,000.
The net proceeds of $1,583,000, net of $217,000 in debt issue costs, were
used to repay the term loan payable, plus accrued interest of $3,900, and the
remaining balance was used to reduce the amount due to factor.
In February 1996, the Company issued 224,761 shares of common stock to
existing stockholders which will be recorded as compensation of $943,996 ($4.20
per share).
F-23
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY
OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THE PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................... 4
Risk Factors......................................... 8
Use of Proceeds...................................... 16
Dividend Policy...................................... 17
Dilution............................................. 18
Capitalization....................................... 19
Selected Financial Data.............................. 19
Management's Discussion and Analysis
of Financial Condition and
Results of Operations.............................. 21
Business............................................. 24
Acquisition.......................................... 27
Management........................................... 28
Certain Transactions................................. 30
Principal Stockholders............................... 32
Description of Securities............................ 32
Shares Eligible for Future Sale...................... 35
Underwriting......................................... 36
Concurrent Offering.................................. 38
Selling Securityholders.............................. 39
Legal Matters........................................ 41
Experts.............................................. 41
Available Information................................ 41
Index to Financial Statements........................ F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THE
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.
1,130,000 SHARES
OF COMMON STOCK
1,130,000 COMMON
STOCK PURCHASE WARRANTS
CABLE & CO.
WORLDWIDE, INC.
PROSPECTUS
STATE STREET
CAPITAL MARKETS,
CORP.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law ("DGCL") permits, in
general, a Delaware corporation to indemnify any person made, or threatened to
be made, a party to an action or proceeding by reason of the fact that he or she
was a director or officer of the corporation, or served another entity in any
capacity at the request of the corporation, against any judgment, fines, amounts
paid in settlement and expenses, including attorney's fees actually and
reasonably incurred as a result of such action or proceeding, or any appeal
therein, if such person acted in good faith, for a purpose he or she reasonably
believed to be in, or, in the case of service for another entity, 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 or her
conduct was unlawful. Section 145(e) of the DGCL permits the corporation to pay
in advance of a final disposition of such action or proceeding the expenses
incurred in defending such action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount as, and to the
extent, required by statute. Section 145(f) of the DGCL provides that the
indemnification and advancement of expense provisions contained in the DGCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled.
The Company's Certificate of Incorporation provides, in general, that the
Company shall indemnify, to the fullest extent permitted by Section 145 of the
DGCL, any and all persons whom it shall have power to indemnify under said
section from and against any and all of the expenses, liabilities or other
matters referred to in, or covered by, said section. The Certificate of
Incorporation also provides that the indemnification provided for therein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to actions taken in his or her official capacity
and as to acts in another capacity while holding such office.
In accordance with that provision of the Certificate of Incorporation, the
Company shall indemnify any officer or director (including officers and
directors serving another corporation, partnership, joint venture, trust, or
other enterprise in any capacity at the Company's request) made, or threatened
to be made, a party to an action or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that he or she was
serving in any of those capacities against judgments, fines, amounts paid in
settlement and reasonable expenses (including attorney's fees) incurred as a
result of such action or proceeding. Indemnification would not be available if a
judgment or other final adjudication adverse to such director or officer
establishes that (i) his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty or (ii) he or she personally gained
in fact a financial profit or other advantage to which he or she was not legally
entitled.
The Underwriting Agreement contains, among other things, provisions whereby
the Underwriter agrees to indemnify the Company, each officer and director of
the Company who has signed the Registration Statement, and each person who
controls the Company within the meaning of Section 15 of the Securities Act,
against any losses, liabilities, claims or damages arising out of alleged untrue
statements or alleged omissions of material facts with respect to information
furnished to the Company by the Underwriter for use in the Registration
Statement or Prospectus. See Item 28, "UNDERTAKINGS."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling,
commissions and other fees paid or payable to the Underwriter) which will be
paid by the Company in connection with the issuance and distribution of the
securities being registered. With the exception of the registration fee, the
NASD filing fee and the NASDAQ and BSE listing fees, all amounts shown are
estimates.
<TABLE>
<S> <C>
Registration fee.......................................................................... $ 8,659
NASDAQ listing fees....................................................................... 10,000
NASD filing fee........................................................................... 3,011
Blue Sky fees and expenses (including legal and filing)................................... 40,000
Printing expenses......................................................................... 100,000
Legal fees and expenses (other than Blue Sky)............................................. 200,000
Accounting fees and expenses.............................................................. 150,000
Transfer agent fees and expenses.......................................................... 5,000
Miscellaneous expenses.................................................................... 33,330
Total................................................................................... $550,000
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In the past three years, the Company has made the sales of unregistered
securities set forth below, all of which sales were intended to be exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
and/or Rule 506 promulgated thereunder. Each of the parties represented and
agreed that they acquired the shares for investment and without a view to the
distribution thereof.
I. The Company issued the shares of Common Stock to the individuals listed
below prior to, and in connection with, the Acquisition. These sales were
intended to be exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
<TABLE>
<CAPTION>
AMOUNT PAID
DATE NAME OF STOCKHOLDER NUMBER OF SHARES PER SHARE
<C> <S> <C> <C>
1/5/95 David Albahari 27 .15
1/5/95 Alan Kandall 27 .15
2/16/95 David Albahari 329,116 .15
2/16/95 Alan Kandall 329,116 .15
2/16/95 Alberto Salvucci 329,143 .15
2/16/95 Harry Chen 266,880 .0003
</TABLE>
II. In February 1995, the Company consummated a private placement to 22
purchasers of 64,987 shares of Preferred Stock in the aggregate amount of
$750,000 (the "1995 Financing"). Upon redeeming the Preferred Stock, the Company
is required to issue an aggregate of 462,531 shares of Common Stock to the
holders thereof. These sales were intended to be exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) and Rule 506
promulgated thereunder. The 462,531 shares of Common Stock issuable upon the
redemption of the Preferred Stock are being registered for resale by the holders
thereof in the Concurrent Offering. See "DESCRIPTION OF SECURITIES -- Prior
Financings," " -- Preferred Stock" and "CONCURRENT OFFERING."
<TABLE>
<CAPTION>
NUMBER OF SHARES
DATE NAME OF STOCKHOLDER OF PREFERRED STOCK
<C> <S> <C>
2/16/95 C. Clarke Ambrose 1,733
2/16/95 S. Coca Brandt 867
2/16/95 Joel P. Brooks 867
2/16/95 Chinook Equities 867
2/16/95 James C. Gale 1,733
2/16/95 Michael Gironta 1,083
2/16/95 Paul Gordon 2,166
2/16/95 Gruntal & Co. Incorporated 4,332
2/16/95 John Heffer 8,664
2/16/95 Lionel Gray Hest and Amy Hest, JTROS 1,300
2/16/95 David Kandall 434
2/16/95 Daniel Kleinberg 434
2/16/95 Alice Kres 867
2/16/95 Daniel Livingston 867
2/16/95 Charles Lowlicht 4,332
2/16/95 Barry Richter 1,300
2/16/95 Herbert D. Wise 867
2/16/95 Glenn Zagoren 867
2/16/95 Howard Boilen 4,332
2/16/95 Robert Sablowsky 1,083
2/16/95 Martin C. Licht 4,332
2/16/95 Harry Chen 21,660
</TABLE>
III. On October 11, 1995 the Company borrowed $130,000 from Paul Gordon, a
holder of shares of Preferred Stock, issued its promissory note in such amount
and 20,016 shares of Common Stock to Mr. Gordon in consideration for making such
loan. This sale was intended to be exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof.
IV. The Company entered into a three year international consulting
agreement as of January 26, 1996 with U.K. Hyde Park Consultants, Ltd. ("Hyde
Park Group"), and issued thereto 400,000 shares of Common Stock and warrants to
purchase
II-2
<PAGE>
up to 450,000 shares of Common Stock identical to the Warrants offered hereby,
as compensation for services and for $40,000 paid by Hyde Park Group to the
Company. This sale was intended to be exempt from the registration requirements
of the Securities Act pursuant to Section 4(2). See "MANAGEMENT -- Employment
and Consulting Agreements."
V. In March 1996, the Company consummated the Bridge Financing of 36 Units
to the Bridge Selling Stockholders at a purchase price of $50,000. Each Unit
consists of the Company's 11% Bridge Note in the original principal amount of
$49,000, 5,000 shares of Common Stock and 5,000 Bridge Warrants. Upon the
completion of this Offering, the terms of the Bridge Warrants will be identical
to the terms of the Warrants offered hereby. The Bridge Notes are due and
payable upon the earlier of February 2, 1997 or the Company's receipt of gross
proceeds of at least $4,080,000 from the sale of its debt and/or equity
securities in a public or private financing. It is anticipated that the Bridge
Notes will be repaid out of the net proceeds of this Offering. These sales were
intended to be exempt from the registration requirements of the Securities Act
pursuant to Rule 506 promulgated thereunder. In connection with the Bridge
Financing, the Company paid commissions and non-accountable expense allowances
in the aggregate amount of $217,000, of which $166,000 was paid to the
Underwriter. See "CERTAIN TRANSACTIONS" and "DESCRIPTION OF SECURITIES -- Bridge
Financing."
<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF
AMOUNT OF SHARES OF NUMBER OF
DATE NAME OF SHAREHOLDER NOTE COMMON STOCK WARRANTS
<C> <S> <C> <C> <C>
2/02/96 John S. Bai $ 8,820 900 900
2/14/96 E. Wayne Boland $49,000 5,000 5,000
2/14/96 Elliot Braun $49,000 5,000 5,000
2/14/96 Adam S. Brzostovski $49,000 5,000 5,000
2/02/96 Samiron K. Chatterjee $49,000 5,000 5,000
2/02/96 John Cirrito $ 4,900 500 500
2/02/96 Harvey J. Cohen $49,000 5,000 5,000
2/14/96 Arnold Curnyn $49,000 5,000 5,000
2/02/96 Robert W. Deutsch $49,000 5,000 5,000
2/02/96 Joseph Enea $49,000 5,000 5,000
2/02/96 James M. Franco, M.D., Inc. $49,000 5,000 5,000
Profit Sharing Trust
2/14/96 Mattes Friesel $49,000 5,000 5,000
2/02/96 James C. Gale $39,200 4,000 4,000
2/02/96 Michael Gironta $24,500 2,500 2,500
3/28/96 Paul Gordon $49,000 5,000 5,000
2/14/96 Gruntal & Co., Incorporated $25,480 2,600 2,600
2/14/96 Paul Hawran $49,000 5,000 5,000
2/14/96 John Heffer $98,000 10,000 10,000
2/02/96 Lionel G. Hest and Amy Hest $34,300 3,500 3,500
2/02/96 Austin E. Hills, Trustee $49,000 5,000 5,000
2/14/96 G. Lenard Johnston $49,000 5,000 5,000
2/02/96 Douglas Kleinberg $ 9,800 1,000 1,000
2/02/96 Dennis J. Lewis $49,000 5,000 5,000
2/14/96 Joan Lowlicht $49,000 5,000 5,000
2/02/96 Gary Lyons $49,000 5,000 5,000
2/14/96 Timothy H. Martin $49,000 5,000 5,000
2/14/96 Carol Moss $24,500 2,500 2,500
2/14/96 Jeffrey Muhlgeier $49,000 5,000 5,000
2/02/96 Jacob Popovic and Sophia Popovic $49,000 5,000 5,000
2/02/96 Edward Reardon $98,000 10,000 10,000
2/02/96 Robert J. Reardon $98,000 10,000 10,000
2/02/96 Barry Richter $14,700 1,500 1,500
2/02/96 Robert Sablowsky $24,500 2,500 2,500
2/14/96 Edward Secker $24,500 2,500 2,500
2/14/96 Mark P. Schlefer $49,000 5,000 5,000
2/02/96 George W. Smith $49,000 5,000 5,000
2/02/96 John C. Smith, II and Julia S. Smith $49,000 5,000 5,000
2/14/96 Marie Speziale $49,000 5,000 5,000
2/02/96 Robert Weinstein $ 9,800 1,000 1,000
2/14/96 White Rock of Tucson $49,000 5,000 5,000
</TABLE>
II-3
<PAGE>
VI. On February 8, 1996, the Company issued 74,921 Shares of Common Stock
to David Albahari and 74,920 Shares of Common Stock to each of Alan Kandall and
Alberto Salvucci as compensation. These issuances were intended to be exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof. See "CERTAIN TRANSACTIONS."
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
<C> <S> <C>
1.1 -- Form of Underwriting Agreement between the Company and the Underwriter.+
2.1 -- Asset Purchase Agreement dated January 16, 1995 between Hongson, Inc., as seller and Cable & Co. Worldwide, Inc.,
as buyer.+
3.1 -- Certificate of Incorporation of the Company, as amended.+
3.2 -- By-Laws of the Company.+
4.1 -- Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust, as warrant agent.+
4.2 -- Specimen Certificate of the Company's Common Stock.+
4.3 -- 1996 Stock Option Plan.+
4.4 -- Specimen Certificate of the Company's Warrant.+
4.5 -- Form of Underwriter's Purchase Option.+
4.6 -- Form of Bridge Warrant.+
4.7 -- Form of Bridge Note.+
5.1 -- Opinion of Gallet Dreyer & Berkey, LLP counsel to the Company.+
10.1 -- Employment Agreement dated as of January 1, 1995 between the Company and David Albahari.+
10.2 -- Employment Agreement dated as of January 1, 1995 between the Company and Alan Kandall.+
10.3 -- Agreements between the Company and Heller Financial, Inc.+
10.4 -- Intentionally Omitted.
10.5 -- Agreement dated as of the 26th day of January 1996 between U.K. Hyde Park Consultants, Ltd. and the Company.+
10.6 -- Lease dated July 28, 1995 between Raritan Plaza I Associates, L.P., as landlord, and Cable & Company Enterprises,
Ltd., as tenant.+
10.7 -- Lease dated May 16, 1995 between 724 Fifth Avenue Realty Co., as landlord, and Cable & Co. Enterprises Ltd., as
tenant.+
10.8 -- Financial Advisory and Investment Banking Agreement between the Underwriter and the Company.+
10.9 -- Agreements between Gruntal & Co., Inc. and the Company.+
10.10 -- Agreement dated as of May 15, 1996 among D&D Design and Details Limited, Pio Alberto Salvucci and Cable & Co.
Worldwide, Inc.+
11.1 -- Statement of computation per share earnings+
21.1 -- List of Subsidiaries.+
23.1 -- Consent of Goldstein Golub Kessler & Company, P.C.
23.2 -- Consent of Gallet Dreyer & Berkey, LLP (contained in Exhibit 5.1).+
24.1 -- Power of Attorney (included on the signature page of this Registration Statement).
99.1 -- Cable & Co. Trademark Registration from the United States Patent and Trademark Office.+
</TABLE>
+ Previously filed
ITEM 28. UNDERTAKINGS.
1. The undersigned, Company, hereby undertakes:
(a) To file, during any period in which the Company offers or sells
securities, a post-effective amendment(s) to this registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(3) To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement;
II-4
<PAGE>
(b) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(c) The Company will provide to the Underwriter at the closing
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
(d) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (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 Securities and Exchange
Commission (the "Commission") such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
3. If the Company relies on Rule 430A under the Act, the Company will:
(a) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Company under Rule 424(b)(1), or (4), or 497(h) under the Act
as part of this registration statement as of the time the Commission
declared it effective; and
(b) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Amendment to Form SB-2 and has authorized
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, New York, on May 28, 1996.
CABLE & CO. WORLDWIDE, INC.
By: /s/ David Albahari
DAVID ALBAHARI, CHAIRMAN OF THE
BOARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints DAVID ALBAHARI and/or ALAN KANDALL his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ DAVID ALBAHARI Chairman of the Board, President, Chief Executive May 28, 1996
DAVID ALBAHARI Officer and Director
/s/ ALAN KANDALL Executive Vice President, Chief Financial and May 28, 1996
ALAN KANDALL Accounting Officer, Treasurer and Director
/s/ MARTIN C. LICHT Secretary and Director May 28, 1996
MARTIN C. LICHT
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBIT PAGE NO.
<C> <S> <C> <C>
1.1 -- Form of Underwriting Agreement between the Company and the Underwriter.+
2.1 -- Asset Purchase Agreement dated January 16, 1995 between Hongson, Inc., as seller and Cable & Co.
Worldwide, Inc., as buyer.+
3.1 -- Certificate of Incorporation of the Company, as amended.+
3.2 -- By-Laws of the Company.+
4.1 -- Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust, as warrant
agent.+
4.2 -- Specimen Certificate of the Company's Common Stock.+
4.3 -- 1996 Stock Option Plan.+
4.4 -- Specimen Certificate of the Company's Warrant.+
4.5 -- Form of Underwriter's Purchase Option.+
4.6 -- Form of Bridge Warrant.+
4.7 -- Form of Bridge Note.+
5.1 -- Opinion of Gallet Dreyer & Berkey, LLP counsel to the Company.+
10.1 -- Employment Agreement dated as of January 1, 1995 between the Company and David Albahari.+
10.2 -- Employment Agreement dated as of January 1, 1995 between the Company and Alan Kandall.+
10.3 -- Agreements between the Company and Heller Financial, Inc.+
10.4 -- Intentionally Omitted.
10.5 -- Agreement dated as of the 26th day of January 1996 between U.K. Hyde Park Consultants, Ltd. and the
Company.+
10.6 -- Lease dated July 28, 1995 between Raritan Plaza I Associates, L.P., as landlord, and Cable & Company
Enterprises, Ltd., as tenant.+
10.7 -- Lease dated May 16, 1995 between 724 Fifth Avenue Realty Co., as landlord, and Cable & Co. Enterprises
Ltd., as tenant.+
10.8 -- Financial Advisory and Investment Banking Agreement between the Underwriter and the Company.+
10.9 -- Agreements between Gruntal & Co., Inc. and the Company.+
10.10 -- Agreement dated as of May 15, 1996 among D&D Design and Details Limited, Pio Alberto Salvucci and Cable
& Co. Worldwide, Inc.+
11.1 -- Statement of computation per share earnings+
21.1 -- List of Subsidiaries.+
23.1 -- Consent of Goldstein Golub Kessler & Company, P.C.
23.2 -- Consent of Gallet Dreyer & Berkey, LLP (contained in Exhibit 5.1).
24.1 -- Power of Attorney (included on the signature page of this Registration Statement).
99.1 -- Cable & Co. Trademark Registration from the United States Patent and Trademark Office.+
</TABLE>
+ Previously filed
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
TO THE BOARD OF DIRECTORS OF
CABLE & CO. WORLDWIDE, INC.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated February 2, 1996, except
for Note 6, as to which the date is March 21, 1996, and Note 17, as to which the
date is March 28, 1996, on the financial statements of Cable & Co. Worldwide,
Inc. and Subsidiary as of December 31, 1995 and for the year then ended and our
report dated March 5, 1996 on the financial statements of Cable & Co. (a product
line of Hongson, Inc.) for the year ended December 31, 1994 which appear in such
Prospectus. We also consent to the reference to our firm under the caption
"experts" in such Prospectus.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
May 28, 1996
<PAGE>
