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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1997
REGISTRATION NO. 333-5190-A
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THRIFT MANAGEMENT, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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Florida 5932 65-0309540
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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3141 W. HALLANDALE BEACH BOULEVARD
HALLANDALE, FLORIDA 33009
(954) 985-8100
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(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
3141 W. HALLANDALE BEACH BOULEVARD, HALLANDALE, FLORIDA 33009
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(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
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MARC DOUGLAS
CHIEF EXECUTIVE OFFICER AND PRESIDENT
THRIFT MANAGEMENT, INC.
3141 W. HALLANDALE BEACH BOULEVARD
HALLANDALE, FLORIDA 33009
(954) 985-8100
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(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
Dale S. Bergman, P.A. Arthur S. Marcus, Esq.
Nina S. Gordon, P.A. Gersten, Savage,
Broad and Cassel Kaplowitz & Curtin, LLP
201 South Biscayne Boulevard 575 Lexington Avenue
Suite 3000 New York, New York 10022-6102
Miami, Florida 33131 (212) 752-9700
(305) 373-9400
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[x]
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.
(ii)
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THRIFT MANAGEMENT, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM SB-2
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REGISTRATION STATEMENT CAPTION OR
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
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1. Front of Registration Statement
and Outside Front Cover of
Prospectus Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk
Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Not applicable
5. Determination of Offering
Price Outside Front Cover Page of Prospectus; Risk Factors
6. Dilution Not applicable
7. Selling Security Holders Concurrent Registration of Securities; Principal and Selling
Security Holders; Plan of Distribution
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Certain Transactions
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
Beneficial Owners and Management Principal and Selling Security Holders
12. Description of Securities Description of Securities
13. Interest of Named Experts and
Counsel Not applicable
14. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities Description of Securities
15. Organization Within Last
Five Years Prospectus Summary; Business
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and
Analysis or Plan of Operation Management's Discussion and Analysis of Financial Condition
and Results of Operations
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REGISTRATION STATEMENT CAPTION OR
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
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18. Description of Property Business
19. Certain Relationships and
Related Transactions Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters Outside Front Cover Page of Prospectus; Prospectus Summary;
Risk Factors; Dividend Policy; Principal and Selling Security
Holders; Shares Eligible for Future Sale
21. Executive Compensation Management
22. Financial Statements Index to Consolidated Financial Statements
23. Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosure Not applicable
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<PAGE> 5
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.
PROSPECTUS
SUBJECT TO COMPLETION, DATED APRIL 18, 1997
765,000 SHARES OF
COMMON STOCK
600,000 COMMON STOCK
PURCHASE WARRANTS
THRIFT MANAGEMENT, INC.
This Prospectus relates to the registration by the Company, at its expense,
on behalf of certain selling security holders (the "Selling Security Holders")
of 165,000 shares of Common Stock, $.01 par value (the "Common Stock"), of
Thrift Management, Inc., a Florida corporation (the "Company"); 600,000 warrants
to purchase shares of Common Stock (the "Warrants"); and 600,000 shares of
Common Stock underlying the Warrants (the Common Stock and Warrants of the
Selling Security Holders are collectively referred to herein as the "Selling
Security Holders' Securities"). None of the proceeds from the sale of the
Selling Security Holders' Securities (the "Selling Security Holders' Offering")
will be received by the Company. The Company will bear all expenses (other than
selling commissions and fees and expenses of counsel or other advisors to the
Selling Security Holders) in connection with the registration of the Selling
Security Holders' Securities. See "Plan of Distribution."
The Registration Statement of which this Prospectus forms a part also
related to the initial public offering by the Company (the "Company Offering")
of 900,000 units (the "Units") of its securities, each Unit consisting of one
share of Common Stock and one redeemable warrant to purchase one share of Common
Stock for $5.00 per share (the "Warrants"). The Company Offering was completed
on December 11, 1996. Of the 900,000 shares of Common Stock included in the
Units, 615,000 shares were sold by the Company and 285,000 were sold by Rozel
International Holdings, Inc. ("Rozel") directly to the underwriter of the
Company Offering, First Hanover Securities, Inc. (the "Underwriter"). Rozel is
one of the Selling Security Holders, whose remaining Selling Security Holders'
Securities are covered by this Prospectus. The Selling Security Holders have
agreed not to sell or otherwise dispose of any of their shares of Common Stock
or shares of Common Stock issuable upon conversion or exercise of securities
convertible into Common Stock, or any Warrants held by them, until December 5,
1998 without the prior written consent of the Underwriter. The Company has been
advised that the Underwriter agreed to release Rozel from its lock-up agreement
as to the 15,000 shares of Common Stock and 600,000 Warrants owned by Rozel
following the Company Offering. The National Association of Securities Dealers,
Inc. (the "NASD") has approved the Underwriter's release of Rozel's lock-up
agreement as to its shares of Common Stock and 300,000 of its Warrants, and
NASD approval is pending with respect to the release of the lock-up agreement
as to the remaining 300,000 Warrants. See "Principal and Selling Security
Holders" and "Plan of Distribution."
The Selling Security Holders' Securities may be offered from time to time
by the Selling Security Holders in transactions in the over-the-counter market,
in negotiated transactions or a combination of such methods of sale, 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 Security Holders may effect such transactions by selling to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of the Selling Security Holders' Securities for whom such
broker-dealers may act as agent or to whom they sell as principal, or both.
<PAGE> 6
The Selling Security Holders may be deemed to be "underwriters" as defined in
the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used by the Selling Security Holders, any commissions paid to
broker-dealers and, if broker-dealers purchase any Selling Security Holders'
Securities as principals, any profits received by such broker-dealers on the
resales of such securities may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any profits realized by the
Selling Security Holders may be deemed to be underwriting commissions. All
costs, expenses and fees in connection with the registration of the securities
offered by the Selling Security Holders will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of such securities will be borne
by the Selling Security Holders.
The Units, Common Stock and Warrants of the Company are currently traded on
the over-the-counter ("OTC") Bulletin Board under the symbols THMMU, THMM and
THMMW, respectively. The Company had previously applied to list the Units,
Common Stock and Warrants on the Nasdaq system. The Company's application for
listing on the Nasdaq SmallCap Market was denied by the Nasdaq staff, and the
staff's denial was upheld by a Nasdaq Listing Qualifications Panel. The Company
does not currently intend to pursue further appeals. There is currently only a
limited trading market for the Company's securities, and there can be no
assurance that an active trading market for the Company's securities will
develop. As a result, an investor may find it more difficult to dispose of, or
to obtain adequate quotations as to, the prices of the Units, Common Stock and
Warrants offered hereby.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN SUCH SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL , 1997
<PAGE> 7
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information and
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. Except as otherwise indicated, all information in this Prospectus
does not give effect to 1,300,000 shares of Common Stock issuable upon the
exercise of outstanding options and Warrants.
THE COMPANY
GENERAL
Thrift Management, Inc. (the "Company") manages and operates retail outlets
known as thrift stores, which deal in new and used articles of clothing,
miscellaneous household items, furniture, bric-a-brac and antiques at discounted
prices. The Company currently operates four thrift stores in South Florida: two
in Hallandale, Florida (Broward County), one in Margate, Florida (Broward
County) and one in Hialeah, Florida (Dade County), and in March 1997 entered
into a lease for one additional thrift store located in Lauderdale Lakes,
Florida (Broward County). Inventory for the Company's stores is obtained
primarily as the result of donations made to charities under contracts entered
into by the Company for the solicitation and purchase of merchandise. The
Company also purchases merchandise in bulk from a contract collector who
maintains drop boxes.
The Company has solicitation and purchasing agreements with two charities
in the South Florida area, the Missing Children Awareness Foundation and Temple
Beth Ahm Israel. The Company is registered with the Department of Agriculture
and Consumer Affairs of the State of Florida as a professional solicitor. The
charities receive a percentage of gross revenues from the sale of the donated
merchandise. The charities gain the benefit of the Company's expertise in
solicitation and resale of donated goods through a higher return on sales than
the charity itself may be able to realize through its own efforts.
The Company uses direct mail, newspaper advertising and telemarketing to
solicit donations for its client charities. The Company uses 12 to 14 trucks to
make scheduled pick-ups of donated goods. The donors are given receipts to
document the items donated. Merchandise is then taken back to the appropriate
thrift shop, where it is inspected, sorted, priced, tagged and displayed for
sale. Items remaining unsold in the stores are sold in bulk to exporters, which
ship the items to countries throughout the Caribbean, Central and South America
and Eastern Europe.
The Company positions its outlets in lower socio-economic neighborhoods, on
heavily traveled streets, and preferably in the vicinity of other thrift shops.
The Company believes that competition, rather than being a limiting factor as it
is in many other industries, actually encourages sales because the close
proximity of other outlets attracts customers to the area to shop for new
bargains, as the merchandise changes frequently.
2
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INITIAL PUBLIC OFFERING
In December 1996, the Company consummated the Company Offering in which
it sold 900,000 Units at a price of $5.75 per Unit. Each Unit consisted of
one share of Common Stock and one Warrant to purchase one share of Common
Stock for $5.00 per share. Of the 900,000 shares of Common Stock underlying
the Units, 615,000 shares were offered by the Company and 285,000 shares were
offered by Rozel. The Warrants are exercisable for a period of five years
commencing December 11, 1996 and may be redeemed by the Company on 30 days'
notice at any time during such period at a price of $.10 per Warrant if the
closing bid price of the Common Stock for 20 consecutive trading days ending on
the 15th day prior to the date that notice of redemption was given by the
Company has been at least 150% of the exercise price then in effect. The
Company realized approximately $2,596,950 in proceeds from the Company
Offering, net of underwriting discounts and expenses and other offering
expenses.
EXPANSION STRATEGY
The Company currently intends to expand its operations by opening
additional thrift stores, initially in other counties in Florida, and ultimately
in various out-of-state locations including Georgia and New Jersey. The
Company's current plans include opening approximately four to six additional
stores during 1997 and 1998. In addition, the Company intends to establish a
merchandise export facility, through which the Company will sell unsold
inventory in bulk to exporters who resell the items in the Caribbean, Central
and South America, and Eastern Europe. See "Business -- Expansion Strategy."
The Company may also, from time to time, identify one or more established
thrift stores or other businesses related to the Company's current operations,
such as wholesale export businesses, as possible acquisition candidates. The
Company has not at this time identified any such candidates. There can be no
assurance that the Company would be able to identify thrift stores or other
businesses for possible acquisition and, if identified, that the Company would
be able to consummate any such acquisitions. See "Business -- Expansion
Strategy."
The Company was incorporated in Florida in July 1991. Its executive offices
are located at 3141 W. Hallandale Beach Boulevard, Hallandale, Florida 33009,
telephone number (305) 985-8100.
REORGANIZATION
As used herein, the "Company" refers to Thrift Management, Inc. ("TMI") and
its wholly owned subsidiaries, Thrift Shops of South Broward, Inc., Thrift Shops
of West Dade, Inc., Hallandale Thrift Management, Inc., Hallandale Thrift, Inc.
and North Broward Consignment, Inc. (collectively, the "Subsidiaries").
Effective as of May 31, 1996, the Company completed a tax-free reorganization
whereby the Subsidiaries, which had previously been separate but affiliated
companies, became wholly owned subsidiaries of TMI (the "Reorganization").
Unless the context specifically states otherwise, all disclosure in this
Prospectus gives pro forma effect to consummation of the Reorganization. See
"Certain Transactions -- Reorganization."
3
<PAGE> 9
THE SELLING SECURITY HOLDERS' OFFERING
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Securities Offered(1) 765,000 shares of Common Stock, $.01 par value, and 600,000
Warrants. See "Description of Securities."
Common Stock Outstanding 2,115,000 shares
Warrants Outstanding 1,500,000 Warrants
RISK FACTORS THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS."
OTC Bulletin Board
Symbols(2) Common Stock THMM
Warrants THMMW
Units THMMU
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(1) Includes 600,000 shares of Common Stock underlying the Warrants.
(2) The Units, Common Stock and Warrants are currently traded on the OTC
Bulletin Board. The Company had previously applied to list the Units,
Common Stock and Warrants on the Nasdaq system. The Company's
application for listing on the Nasdaq SmallCap Market was denied by the
Nasdaq staff, and the staff's denial was upheld by a Nasdaq Listing
Qualifications Panel. The Company does not currently intend to pursue
further appeals. There is currently only a limited trading market for
the Company's securities, and there can be no assurance that an
active trading market for the Company's securities will develop. As a
result, an investor may find it more difficult to dispose of, or to
obtain adequate quotations as to, the prices of the Units, Common
Stock and Warrants offered hereby. See "Risk Factors."
4
<PAGE> 10
RISK FACTORS
An investment in the Units offered hereby, and in the Common Stock and
Warrants included therein, is speculative and involves a high degree of risk.
Investors should consider carefully the risks discussed elsewhere in this
Prospectus under the caption "Risk Factors." These risks include, but are not
limited to: (1) the Company's limited history of profitability and its existing
working capital deficit; (2) certain past criminal and bankruptcy proceedings
involving the Company's President, Chief Executive Officer and controlling
shareholder; (3) certain related party transactions involving the Company and
its management and principal shareholders; (4) the denial of the Company's
Nasdaq listing application and the current limited market for the Company's
Units, Common Stock or Warrants; (5) risks related to the nature of the
Company's business, including the Company's dependence on charitable donations
and a limited number of charities; (6) the benefits to be realized by certain of
the Company's management and current shareholders from the Selling Security
Holders' Offering; (7) risks related to the Company's expansion strategy; (8)
the continuing control by the Company's management of more than a majority of
the voting power of the outstanding shares of the Company's capital stock; and
(9) the Company's reliance on its current management.
5
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following is a summary of the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus, and should
be read in conjunction therewith.
The Company's Consolidated Financial Statements and the Notes thereto
reflect the consummation of the Reorganization, which was effective as of May
31, 1996, and the Company Offering, which closed on December 11, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions -- Reorganization."
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FOR THE
YEARS ENDED
DECEMBER 31,
---------------------------------
1996 1995
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STATEMENT OF OPERATIONS DATA:
Net sales................................................. $6,104,905 $4,574,305
Gross profit.............................................. $3,289,695 $2,420,304
Net income before pro forma income tax provision.......... $ 124,508 $ 6,183
========== ==========
Pro forma income tax provision(1)...................... $ 46,900 $ 1,000
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Pro forma net income(1)................................ $ 77,608 $ 5,183
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Pro forma net income per share(1)...................... $ .05 $ .01
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AT
DECEMBER 31,
1996
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BALANCE SHEET DATA:
Cash...................................................... $2,570,188
Total current assets...................................... $2,926,410
Total assets.............................................. $3,420,193
Due to stockholder(2)..................................... $ 208,540
Total current liabilities................................. $ 665,740
Stockholders' equity...................................... $2,726,831
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(1) Reflects the impact of federal corporate income taxes that the Company
and the Subsidiaries would have paid if they had been Subchapter C
corporations for tax purposes during the periods presented.
(2) See "Certain Transactions -- Loans to/from Marc Douglas."
6
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT IN THE
COMPANY. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS, AS WELL AS ALL OTHER INFORMATION SET FORTH ELSEWHERE IN THIS
PROSPECTUS.
THE COMPANY CAUTIONS READERS THAT CERTAIN IMPORTANT FACTORS MAY AFFECT THE
COMPANY'S ACTUAL RESULTS AND COULD CAUSE SUCH RESULTS TO DIFFER MATERIALLY FROM
ANY FORWARD-LOOKING STATEMENTS WHICH MAY BE DEEMED TO HAVE BEEN MADE IN THIS
PROSPECTUS OR WHICH ARE OTHERWISE MADE BY OR ON BEHALF OF THE COMPANY. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT STATEMENTS OF
HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, WORDS SUCH AS "MAY," "EXPECT," "BELIEVE,"
"ANTICIPATE," "INTEND," "COULD," "ESTIMATE," OR "CONTINUE" OR THE NEGATIVE OTHER
VARIATIONS THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. FACTORS WHICH MAY AFFECT THE COMPANY'S RESULTS
INCLUDE, BUT ARE NOT LIMITED TO, LIMITED HISTORY OF PROFITABILITY, DEPENDENCE ON
CHARITABLE DONATIONS AND A LIMITED NUMBER OF CHARITIES, RELIANCE ON MANAGEMENT,
COMPETITION AND SEASONALITY. THE COMPANY IS ALSO SUBJECT TO OTHER RISKS
DETAILED BELOW OR ELSEWHERE HEREIN OR DETAILED FROM TIME TO TIME IN THE
COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
LIMITED HISTORY OF PROFITABILITY; WORKING CAPITAL DEFICIT
For the years ended December 31, 1996 and 1995, the Company achieved net
income of $158,508 and $6,183, respectively. No assurance can be given that the
Company will be able to continue to operate profitably. The Company believes
that the net proceeds of the Company Offering, together with cash flow from its
operations, will be sufficient to meet its anticipated working capital
requirements for at least the next 24 months. There can be no assurances,
however, that such will be the case. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE ON CHARITABLE DONATIONS
The Company's operations depend to a significant degree on charitable
donations of clothing and other items. In the event of a recession affecting the
ability of individuals to make charitable donations, the number of people
donating merchandise is likely to decrease, and, along with it, the amount of
goods available for sale through the Company's thrift shops. In addition, in the
event that the federal tax laws were modified to eliminate the deduction for
charitable contributions, the number of people donating merchandise and the
amount of merchandise donated would also likely decrease. In that the Company's
primary source of revenues is from sales of donated merchandise, a recession or
change in the tax laws could materially adversely effect its business,
operations, revenues and prospects. See "Business -- Inventory Collection."
7
<PAGE> 13
DEPENDENCE ON A LIMITED NUMBER OF CHARITIES
The Company currently has solicitation and purchasing agreements with two
charities in the South Florida area, the Missing Children Awareness Foundation
and Temple Beth Ahm Israel, a Broward County, Florida synagogue. A substantial
portion of the merchandise inventory offered in the Company's thrift stores is
obtained as a result of donations made to these two charities. The Company bears
all costs of and assumes all responsibility for the solicitation of donations
and operation of the thrift stores, and pays the charity a percentage of gross
sales. In the event that either of these charities defaulted upon or failed to
renew their contracts with the Company, the operations, revenues and prospects
of the Company could be materially adversely affected. See
"Business -- Inventory Collection."
PRIOR ACTS AND BANKRUPTCY OF MEMBERS OF MANAGEMENT
In 1985, Marc Douglas, the Chief Executive Officer, President and a
Director of the Company, pled guilty to one count of wire fraud in a federal
criminal action arising from his employment from 1980 to 1982 as a salesman of
oil and gas leases for U.S. Oil & Gas Corporation. Mr. Douglas was sentenced to
a 90-day jail term and five years' probation and, in addition, entered into a
settlement agreement in a related civil action brought by the Federal Trade
Commission, in connection with which he paid $65,000 as restitution.
In 1989, Mr. Douglas, his spouse and M.J.S.S. Enterprises, Inc., a
corporation for which Mr. Douglas was an officer, filed for bankruptcy
protection. Both the personal and corporate bankruptcies were discharged in
1990. See "Management."
TRANSACTIONS WITH MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Prior to the Reorganization, the Company and each of the Subsidiaries were
treated for federal and state income tax purposes as S corporations under
Subchapter S of the Internal Revenue Code of 1985, as amended (the "Code"), and
comparable state tax laws. The Company and the Subsidiaries paid cash dividends
to their respective shareholders, representing earnings distributions. For the
years ended December 31, 1996 and 1995, such dividends totaled $283,384 and
$104,500, respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions --
Reorganization."
In March 1995, Thrift Shops of West Dade, Inc., a subsidiary of the
Company, entered into a deferred compensation agreement with Ileen Little, a
director, executive officer and principal shareholder of the Company. Pursuant
to such agreement, Ms. Little will be entitled to receive 5% of the gross
proceeds from the liquidation of the Company or any of the Subsidiaries, payable
in two equal annual installments following such liquidation. See "Certain
Transactions -- Deferred Compensation Agreement," "Management" and "Principal
and Selling Security Holders."
As of December 31, 1996, the Company's President and majority stockholder
is owed $208,540 by the Company. Such amount is composed of the $150,000
representing a bonus for reimbursement of taxes for dividend distributions (see
Note 12(e) to the Financial Statements), $22,464 for unpaid dividend
distributions through May 31, 1996, and $36,076 for the annual bonus in the
amount equal to 1% of the Company's annual gross revenue since June 1, 1996. See
8
<PAGE> 14
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company has also advanced Mr. Douglas monies from time to time on an
interest-free basis, the amount of which totaled approximately $189,473 as of
December 31, 1996. Mr. Douglas and the Company have agreed that the advances to
Mr. Douglas will be taken into income by Mr. Douglas over a three-year period
through December 1999. No further loans to or from Mr. Douglas are currently
contemplated.
The Company believes that the foregoing transactions were on terms no less
favorable to the Company than those that would be available from unaffiliated
parties. The Company does not at the present time contemplate entering into
additional related party transactions. In the future, the Company plans to
present all proposed transactions with affiliated parties to the Board of
Directors for its consideration and approval. Any Board member who has an
interest in such transaction will abstain from voting.
DENIAL OF APPLICATION FOR INCLUSION ON NASDAQ; PENNY STOCK; ADDITIONAL
REQUIREMENTS ON BROKER-DEALER SALES OF SECURITIES
The Company's Units, Common Stock and Warrants are currently traded on the
OTC Bulletin Board and are not listed for trading on the Nasdaq system. In order
for an issuer to be included in the Nasdaq system, an issuer must meet certain
quantitative criteria relating to its total assets, its capital and the trading
prices of its securities. In addition, the Nasdaq staff may consider other
factors, such as the issuer's management and the circumstances surrounding the
issuer's operations, when determining whether to approve an issuer's application
for inclusion in the Nasdaq system. The Company filed an application for listing
on the Nasdaq SmallCap Market, which was denied by the Nasdaq staff. The Company
appealed the staff's denial before a Nasdaq Listing Qualifications Panel, which
upheld the staff's determination based upon consideration of the background of
the Company's Chief Executive Officer and President (see "Prior Acts and
Bankruptcy of Members of Management," above) and the determination that the
structure of the Company's pre-offering financings were contrary to just and
equitable principles of trade. The Company does not currently intend to pursue
further appeals. As a result, an investor may find it more difficult to dispose
of, or to obtain adequate quotations as to, the prices of the Units, Common
Stock and Warrants offered hereby.
The Commission has adopted regulations which generally define "penny stock"
to be any equity security that has a market price less than $5.00 per share or
an exercise price less than $5.00 per share, subject to certain exceptions,
including that the issuer have net tangible assets of a minimum of $2,000,000.
Thus, the Units, Common Stock and Warrants may become subject to rules that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Additionally, for any transaction involving a penny stock, unless exempt,
the rules require the delivery, prior to the transaction, of
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a disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. If applicable, the above-described rules may
adversely affect the liquidity of the market for the Company's Units, Common
Stock and Warrants and may also adversely affect the ability of the Company's
shareholders to sell the Units, Common Stock and Warrants in the secondary
market.
BENEFITS TO SELLING SECURITY HOLDERS IN CONNECTION WITH SELLING SECURITY
HOLDERS' OFFERING
The Selling Security Holders have received the benefit in connection with
the Selling Security Holders' Offering of inclusion at the Company's expense of
the Common Stock and Warrants in the Registration Statement of which this
Prospectus is a part. The Selling Security Holders include Ileen Little, who is
a director, executive officer and principal shareholder of the Company. See
"Plan of Distribution." All of the offering expenses, except for the selling
commissions and fees and expenses of counsel or other advisors, will be paid by
the Company on their behalf. Such offering expenses attributable to the Selling
Security Holders cannot be determined precisely, but are estimated by the
Company to range from approximately $5,000 to $10,000. The net profits that may
be realized by the Selling Security Holders are not determinable at this time,
but will depend on the market prices of the Company's Common Stock and Warrants
at the time of sale and the selling commissions and fees incurred in connection
with any such sales.
CONTROL BY MANAGEMENT
The Company's officers and directors currently own, in the aggregate,
approximately 50% of the issued and outstanding shares of Common Stock of the
Company, excluding any Common Stock that may be issued upon the exercise of the
Warrants or upon the exercise of certain outstanding options to acquire Common
Stock. In addition, Marc Douglas, the Company's Chief Executive Officer and
President, beneficially owns 250,000 shares of Series A Preferred Stock, which,
when combined with the shares of Common Stock held by him, results in Mr.
Douglas holding approximately 76.9% of the voting power of the Company's
outstanding voting shares. Accordingly, management will be able to influence
significantly the election of the Company's Board of Directors and have the
continuing ability to influence the Company's affairs and the conduct of its
business. See "Management" and "Principal and Selling Security Holders."
AGREEMENT WITH BULK SUPPLIER
The Company is party to a purchase commitment agreement with All Around
Recycling, Inc. ("All Around") pursuant to which it purchases merchandise in
bulk from All Around. The Company re-sells the merchandise in its thrift stores,
and any merchandise remaining unsold is then sold in bulk to exporters. A
material portion of the Company's revenues are generated by its contract with
All Around. In the event that All Around materially defaults upon its contract
with the Company, it could materially adversely affect the operations, revenues
and prospects of the Company. See "Business -- Thrift Store Operations."
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GOVERNMENT REGULATION
In order to solicit donations of merchandise on behalf of charities, the
Company must be registered as a professional solicitor with and is subject to
oversight by the Department of Agriculture and Consumer Affairs of the State of
Florida. In the event the Company expands its operations to other states, the
Company will likely be subject to similar licensing and oversight in those
jurisdictions. As a professional solicitor, the Company and its personnel are
required to comply with various regulations governing the manner and terms of
solicitations, including, among others, posting of a surety bond. Failure to
comply with these regulations could result in disciplinary action including
significant fines and penalties or suspension or revocation of licenses. Such
disciplinary action, if taken, would likely have a material adverse effect on
the operations, revenues and prospects of the Company. See
"Business -- Government Regulation."
EXPANSION RISKS
The Company's strategy is to expand its operations by opening new thrift
stores or acquiring existing thrift stores or other businesses related to the
Company's current operations. See "Business -- Expansion Strategy." The
expansion of the Company's business by opening new stores may depend upon the
Company's ability in the future to obtain additional financing if necessary. At
the present time, the Company has not identified nor sought any sources of such
additional financing, and there can be no assurance that additional financing
will be available on terms acceptable to the Company, if at all. In the event
that the Company is unable to obtain such additional financing as it becomes
necessary, the Company will not be able to achieve all of its expansion plans.
If the Company decides to expand through acquiring existing stores or other
businesses related to its current operations, the Company would consummate such
acquisitions in exchange for cash or for shares of the Company's capital stock.
The use of cash or stock would depend, in part, on the Company's available
working capital or other sources of funds and its anticipated capital needs at
the time of acquisition. Although the Company does not currently anticipate
incurring debt to fund any such acquisitions, management may determine that,
depending on prevailing market interest rates, the cost of funds available to
the Company, and the extent of revenues generated by the acquisition candidate,
the use of debt to fund an acquisition may be advantageous to the Company. Such
debt would result in an ongoing interest expense obligation to the Company,
however. Furthermore, there can be no assurance that the Company would be able
to obtain debt financing on acceptable terms. Issuance of shares of the
Company's capital stock in an acquisition, in lieu of cash, could have the
effect of diluting the Company's earnings on a per share basis or diluting the
voting control of existing shareholders, and could result in an additional
ongoing dividend obligation for the Company, depending on the terms of the stock
issued.
The successful expansion of the Company's operations will also depend on
the ability of the Company to secure suitable sites for its outlets, obtain
leases on favorable terms, ensure adequate supplies of merchandise for sale, and
hire, train and retain qualified personnel. An acquisition of an existing store
or business would require the Company to assimilate and coordinate the store's
or business' inventory and accounting systems, personnel, and other operational
functions. The Company currently believes that its existing sources of
merchandise are adequate to stock at least one additional new store. The Company
will be required to obtain additional merchandise if it opens more than one new
store or if the Company experiences unanticipated declines in supplies from
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existing sources or increases in sales. The Company currently believes it can
obtain additional merchandise by increasing its advertising to encourage
donations to the charities with which the Company has contracts at the present
time, by seeking arrangements with additional charities, or by seeking
additional sources of merchandise (such as arrangements with other drop box
operators). There can be no assurance that the Company will be successful in any
of these regards.
There are currently only two executive officers of the Company. Following
this Offering, there can be no assurance that, if the Company expands, the
current management team will be able to continue to adequately manage the
Company's affairs. See "Business -- Expansion Strategy" and
"Management -- Directors and Executive Officers."
RELIANCE ON MANAGEMENT
The Company's business is dependent upon the experience of its executive
officers and key personnel, all of whom are familiar with the specific processes
of soliciting donations and selling donated merchandise through thrift shops.
The Company is party to an employment agreement with Marc Douglas, the Company's
Chief Executive Officer and President. The Company's other executive officers or
key employees, unrestricted by any contractual prohibitions, are free to leave
at any time in order to work for competitors or to pursue other opportunities.
The Company does not at the present time maintain "key man" insurance on Mr.
Douglas or any other officer or key employee. The loss of the services of Mr.
Douglas or of any other officers or key employees might have a material adverse
effect on the business, operations, revenues and prospects of the Company. In
addition, the Company's ability to maintain a competitive position depends, in
part, on its ability to attract and retain qualified managerial personnel. There
can be no assurance that the Company will be able to attract or retain such
personnel in the future on terms economically feasible to the Company or
otherwise. See "Management."
COMPETITION
The Company competes for donations of merchandise and competes with other
thrift stores for sales. Some of these other thrift stores are located in the
vicinity of the Company's stores. In addition, the Company competes with a
number of small, as well as large, general retail stores that offer new goods at
discounted prices. See "Business -- Competition."
SEASONALITY
The Company's operations are located in South Florida, which has numerous
part-time residents during the winter. The Company's results of operations
reflect the seasonal nature of this market, with donations and sales of
merchandise being higher in the winter months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DIVIDEND POLICY
Except for the payment of certain undistributed S corporation dividends,
the Company has not paid cash dividends and the Board of Directors does not
currently contemplate the payment of cash dividends on its Common Stock. Any
decisions as to the payment of cash dividends on the Common Stock will depend on
the Company's ability to generate earnings, its need for capital, its
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overall financial condition and such other factors as the Board of Directors
deems relevant. See "Dividend Policy."
AUTHORIZATION OF PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of 1,500,000
shares of "blank check" Preferred Stock with such designations, rights and
preferences as may be determined from time to time by the Company's Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue additional shares of Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. If issued, such
shares of Preferred Stock could be used under certain circumstances as a method
of discouraging, delaying or preventing a change in control of the Company. In
connection with the Company Offering, however, the Company has agreed that it
will not issue additional shares of Preferred Stock until December 5, 1998
without the consent of the Underwriter. The Company currently has outstanding
250,000 shares of Series A Preferred Stock, which were issued to Marc Douglas,
the Company's President and Chief Executive Officer, in connection with the
Reorganization. See "Certain Transactions -- Reorganization" and "Description of
Securities -- Preferred Stock -- Series A Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Of the 2,115,000 shares of Common Stock outstanding as of the date of this
Prospectus, 1,215,000 shares are restricted securities, as that term is defined
in Rule 144, promulgated under the Securities Act. Such shares are currently
subject to a 24-month "lock-up" period. The Selling Security Holders' Offering
relates to 600,000 Warrants and 765,000 shares of Common Stock (including
600,000 shares of Common Stock underlying the Warrants) that have been
registered for sale by the Selling Security Holders. The Company has been
advised that the Underwriter agreed to release Rozel, one of the Selling
Security Holders, from its lock-up agreement as to the 15,000 shares of Common
Stock and 600,000 Warrants owned by Rozel. It is not known at this time whether,
and to what extent, the Underwriter may agree to a release of the lock-up with
respect to the remaining Selling Security Holders' Securities.
Of the 2,115,000 shares currently outstanding, 1,200,000 shares are owned
by affiliates of the Company, as that term is defined under the Securities Act.
Absent registration under the Securities Act, such as in the Selling Security
Holders' Offering, the sale of such shares is subject to Rule 144. Until April
29, 1997, under Rule 144, subject to 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 up to the greater of 1% of the
total number of outstanding shares of Common Stock, or if the Common Stock is
quoted on Nasdaq, the average weekly trading volume during the four calendar
weeks preceding the sale. A person 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 the volume
limitations described above. As a result of recently adopted amendments to Rule
144, effective April 29, 1997 the above-described two-year holding period to
sell restricted securities subject to volume limitations will be reduced to one
year, and the three-year holding period for unlimited sales by non-affiliates
will be reduced to two years.
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No prediction can be made as to the effect, if any, that sales of shares or
the availability of such shares for sale as described above will have on the
market prices of the Common Stock prevailing from time to time. Nevertheless,
the possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect prevailing market prices for the Common Stock
and could impair the Company's ability to raise capital in the future through
the sale of equity securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Shares Eligible For Future
Sale."
REQUIREMENTS FOR EXERCISE OF WARRANTS; ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants included in the Units offered in the Company Offering were
detachable from the Units and separately tradeable immediately upon issuance.
Although the Units have not been knowingly sold to purchasers in jurisdictions
in which the Units are not registered or otherwise qualified for sale,
purchasers may buy Units (or the components thereof) in the aftermarket who
reside in or move to jurisdictions in which the securities underlying the
Warrants are not so registered or qualified during the period that the Warrants
are exercisable. In this event, the Company would be unable to issue securities
to those persons desiring to exercise their Warrants unless and until the
underlying securities could be qualified for sale in the jurisdictions in which
such purchasers reside, or an exemption from such qualification exists in such
jurisdictions. No assurance can be given that the Company will be able to effect
any such required qualification or obtain any such exemption.
Additionally, holders of Warrants will be able to exercise their Warrants
only if a current prospectus relating to the Common Stock underlying the
Warrants is then in effect under the Securities Act and such shares are
qualified for sale or exempt from qualification under applicable securities or
"blue sky" laws of the states in which holders of Warrants reside. Although the
Company has undertaken to use its reasonable best efforts to maintain the
effectiveness of a current prospectus covering the Common Stock underlying the
Warrants, there can be no assurance that the Company will be able to do so. The
value of the Warrants may be greatly reduced if a current prospectus covering
the Common Stock underlying the Warrants is not kept effective or if such shares
are not qualified or exempt from qualification in states in which holders of
Warrants reside.
The Warrants are also subject to redemption by the Company, commencing one
year from the date of this Prospectus, on at least 30 days' prior written notice
if the average closing bid price of the Common Stock for 20 consecutive trading
days ending on the 15th day prior to the date of any redemption notice has been
at least 150% of the exercise price then in effect. If the Warrants are
redeemed, holders of Warrants will lose their right to exercise the Warrants,
except during such 30-day notice of redemption period. Upon receipt of a notice
of redemption, holders of Warrants would be required to: (i) exercise their
Warrants (and pay the exercise price) at a time when it may be disadvantageous
for them to do so; (ii) sell the Warrants at the then-market price (if any) when
they might otherwise wish to hold the Warrants; or (iii) accept the redemption
price of $.10 per Warrant, which is likely to be substantially less than the
market value of the Warrants at the time of redemption. See "Description of
Securities -- Warrants."
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DIVIDEND POLICY
Except for the payment of certain undistributed S corporation dividends
declared prior to the Reorganization (see "Certain
Transactions -- Reorganization"), the Board of Directors does not currently
contemplate the payment of cash dividends following completion of this Offering.
Any decisions as to the payment of cash dividends on the Common Stock will
depend on the Company's ability to generate earnings, its need for capital, its
overall financial condition and such other factors as the Board of Directors
deems relevant.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in the Prospectus.
GENERAL
The Company was organized in July 1991 for the purpose of managing the
operation of retail thrift stores that offer new and used articles of clothing,
furniture, miscellaneous household items and antiques. The Company is registered
with the State of Florida as a professional solicitor. The Company obtains its
merchandise primarily from two sources, (i) purchase contracts with charitable
organizations in return for an average of 5% to 6% (2% to 3% effective January
1, 1996) of its gross sales, and (ii) contracts with drop box collectors who
maintain drop boxes throughout designated areas from whom the Company purchases
merchandise in bulk at a flat rate per pound. Items from the stores that remain
unsold are sold in bulk to exporters, which ship the items to countries
throughout the Caribbean, Central and South America, and Eastern Europe. Through
its Subsidiaries, the Company operates its four retail stores. Hallandale Thrift
Management, Inc. ("HTMI"), also a Subsidiary of the Company, and the Company are
responsible for the solicitation of donations on behalf of the charities through
direct mailings, newspaper advertising and telemarketing. The Company and HTMI
are, in addition, responsible for the pickup of the donated merchandise
throughout the communities surrounding the Company's stores.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995.
The Company recognizes merchandise sales when the customer pays for the
merchandise upon exiting the Company store. Merchandise inventories consist of
donated and purchased used clothing, furniture, miscellaneous household items
and antiques. Purchased and donated inventories have been assigned a value based
on all costs connected to bringing the merchandise to the selling floor. These
costs include advertising, transportation, marketing and grading, and
commissions paid to the sponsoring charitable organization.
Revenues for the years ended December 31, 1996 and 1995 totaled $6,104,905
and $4,574,305, respectively. Revenues increased by $1,530,600, or 34%, for
1996, as compared to 1995. Although the Company's gross profit for 1996
increased to $3,289,695, as compared to
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$2,420,304 for 1995, the Company's gross profit margins for 1996 only increased
by 1% to 54% versus the 53% for 1995.
The net increase in the Company's sales during 1996, as compared to 1995,
is attributable to the following:
1. During late November 1995, the Company opened a fourth retail store
located in Margate, Florida. Sales for the fourth store for 1996
totaled approximately $840,000. Sales on the remaining three stores
for 1996 increased by approximately $690,000.
2. Commencing during the fourth quarter of 1995 and continuing during
1996, management started to shift merchandise between stores, whereby
merchandise that was deemed unsalable at one location was made
available for sale at another location.
3. During 1996, the Company spent an additional $25,000 on advertising,
primarily for the new store located in Margate. Management believes
the additional advertising had a positive impact on all stores.
Although the Company's gross profits increased substantially, the gross
margins for 1996 as compared to 1995 only increased by 1%. This is principally
attributable to the cost of the merchandise. The Company has two sources for
merchandise, direct donated goods through the charities with which it has
entered into purchase contracts, and fresh donated goods purchased from private
sources. In order for the Company to support the additional sales, the Company
has been relying to a greater degree on purchased merchandise as compared to
merchandise acquired through direct donations. This affected the mix of
purchased goods to donated goods, such that, for 1996, purchased goods amounted
to $1,023,859, which constituted approximately 36% of total goods sold, as
compared to 1995, in which purchased goods amounted to $674,459, which
constituted approximately 30% of total goods sold. The additional cost resulting
from the Company's greater reliance on purchased goods offset the cost reduction
achieved by the Company when it renegotiated its purchase contracts with the
charitable organizations to reduce the fees paid to them by the Company
effective January 1, 1996. Management is currently reviewing ways to improve
donation levels at the charities with which it currently has agreements and is
considering entering into purchase contracts with additional charitable
organizations, in order to reduce the cost of and obtain additional sources for
the Company's merchandise, although there can be no assurance that it will be
able to do so.
General and administrative expenses for 1996 were $3,163,455, as compared
to $2,402,237 for 1995, an increase of $761,218 or 32%. The increase in general
and administrative expenses is attributable primarily to the Company's Margate
store, which opened in late November 1995. General and administrative expenses
incurred directly by the Margate store for 1996 totaled $486,728. Payroll costs,
insurance and professional fees for the remaining three stores increased during
1996 by $274,490 as compared to 1995. Management has hired more store and
administrative personnel to support the additional sales volume. Professional
fees have increased by approximately $120,000 principally due to the costs
associated with the Company Offering. The Company does not expect professional
fees to continue to increase at the same level as from 1995 to 1996, however
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such increase will stabilize at a certain level as a result of additional filing
requirements associated with its status as a public company. Included in the
selling, general and administrative expenses for 1996 is also the $150,000 bonus
for the tax reimbursement associated with dividend distributions to the
Company's President for dividends earned through May 31, 1996.
During the fourth quarter of 1996, the Company experienced a net loss
from operations of approximately $150,000. The net loss from operations is
principally attributable to selling, general and administrative expenses
amounting to $1,039,512 for the fourth quarter of 1996, as compared to an
increase in gross profit of only $886,465. The increase in expenses for the
fourth quarter of 1996 was as a result of the following: (1) a one-time $150,000
payment to the Company's President for reimbursement of taxes on S Corporation
dividends earned through May 31, 1996 (see "Liquidity and Capital Resources,"
below); (2) a $36,076 year-end bonus to the Company's President based upon 1% of
the Company's annual gross sales since June 1996, pursuant to the President's
employment agreement with the Company; (3) additional professional fees and
expenses totaling approximately $60,000 incurred prior to year end, including
the fees and expenses incurred in connection with the Company's year-end audit
and related filings; and (4) approximately $85,000 of miscellaneous operating
expenses associated with an increase in sales for the fourth quarter. The
$150,000 tax reimbursement payment is a non-recurring item. The Company may,
however, incur increased expenses for the last quarter of future years, due
in part to the seasonal nature of the Company's sales and the terms of the
President's employment agreement with the Company.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $2,260,670, as
compared to a working capital deficiency of $570,638 at December 31, 1995. The
$2,831,308 net increase in working capital for 1996 is attributable primarily to
cash increasing by $2,554,484, principally as a result of consummation of the
Company Offering in December and the receipt of the net proceeds therefrom, and
the liquidation of a $250,000 promissory note receivable that represented
consideration received by the Company for the sale of its securities in a
private offering in February 1996.
For 1996, cash increased by $2,554,484, as compared to a decrease of $7,126
for 1995. Cash at December 31, 1996 and 1995 totaled $2,570,188 and $15,704,
respectively. Net cash provided by operations for 1996 and 1995 amounted to
$138,402 and $196,790, respectively, or a decrease of $58,388.
Net cash provided by financing activities for 1996 totaled $2,501,865 as
compared to net cash used for financing activities of $42,258 for 1995, or a net
increase of $2,544,123. This increase is the net result of three items: receipt
of net proceeds of $2,596,950 from the Company Offering, receipt of net proceeds
of $680,000 from two private offerings, liquidation of the Company's liability
to the Miami Jewish Home, dividends and loans paid to the sole stockholder and
the purchase of Common Stock and Warrants for $500,000. As discussed in Notes
12(b) and 12(c) to the Company's financial statements, the Company completed two
private offerings in February and May of 1996, respectively. As discussed in
Note 12(b) to the financial statements, the Company sold to the Investor on
February 29, 1996, and as subsequently amended during October 1996, 300,000
shares of Common Stock and Warrants for aggregate consideration of $250,000. On
February 29, 1996, the Company received a $250,000 promissory note, which bore
interest at 7% per annum, which note was paid in August 1996.
As discussed in Note 12(c) to the financial statements, during May 1996,
and as subsequently amended during October 1996, the Company sold 20 units of
the Company's securities at $25,000 per unit. Each unit consisted of 15,000
shares of Common Stock and 10,000 Warrants. The Company received from this
offering net proceeds of $430,000, after deducting the placement agent's
commission and legal costs of $60,000 and $10,000, respectively. A portion of
said proceeds were used to liquidate current liabilities including reducing
accounts payable and accrued expenses to reduce vendors' payment cycles. In
December 1996, the NASD deemed certain of the investors in the private offering
to be affiliates of the Underwriter for purposes of determining the fairness of
the compensation payable to the Underwriter in connection with the Company
Offering. Accordingly, in order to comply with the NASD's rules, upon completion
of the Company Offering, the Company redeemed the shares of Common Stock and
Warrants sold in the offering for the aggregate of $500,000 originally paid by
investors in the private offering. A portion of the net proceeds of the Company
Offering was used to effect such redemption.
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In December 1996, the Company consummated the Company Offering, in which it
sold 900,000 Units at a price of $5.75 per Unit. Each Unit consisted of one
share of Common Stock and one Warrant to purchase one share of Common Stock for
$5.00 per share. Of the 900,000 shares of Common Stock underlying the Units,
615,000 shares were offered by the Company and 285,000 shares were offered by
the investor in the February 1996 private offering. The Warrants are exercisable
for a period of five years commencing December 11, 1996 and may be redeemed by
the Company on 30 days' notice at any time during such period at a price of $.10
per Warrant if the closing bid price of the Common Stock for 20 consecutive
trading days ending on the 15th day prior to the date that notice of redemption
was given by the Company has been at least 150% of the exercise price then in
effect. The Company realized approximately $2,596,950 in proceeds from the
Company Offering, net of underwriting discounts and expenses and other
offering expenses, which amounted to $653,050.
As discussed in Note 11(h) to the financial statements, the Company was
indebted to the Miami Jewish Home as a result of a legal settlement. In May
1996, the Company paid in full the balance due of approximately $55,000. The
Company's collateral was released, thereby enabling the Company to effect the
Reorganization as discussed in Note 12(d) to the financial statements.
Prior to the effective date of the Reorganization, the Company paid
dividends or distributions to its shareholders because the Companies had
Subchapter S corporation tax status, whereby taxable income from each
corporation flows to the shareholders. Accordingly, no tax is recognized at the
corporate level, and tax on the Company's income is recognized on the individual
level. Hence, in order for the shareholders to pay the personal tax liability,
the Company must distribute income sufficient to cover the individual tax
liability. The Company made cash distributions to its shareholders of $283,384
and $104,500 for 1996 and 1995, respectively. The distributions totaling
$283,384 for 1996 reflected an adjustment made by the Company during the fourth
quarter of 1996 upon the audit of its December 31, 1996 financial statements.
Such adjustment reflects a capitalized major repair to one of the Company's
stores that occurred prior to May 31, 1996, the effective date of the
Reorganization. This expenditure was originally charged to operations prior to
the effective date of the Reorganization and was reflected as such in the
Company's September 30, 1996 unaudited financial statements. In the Company's
December 31, 1996 audited financial statements, this expenditure was
reclassified as a capital improvement. As a result of such reclassification, the
Subchapter S corporation distributions for 1996 increased to a total of
$283,384, as compared to the unaudited amount of $260,920 reported at September
30, 1996.
The Company believes that its current capital resources, together with cash
flow from its operations, will be sufficient to meet its anticipated working
capital requirements through at least 1998. There can be no assurances, however,
that such will be the case.
INFLATION AND SEASONALITY
Although the Company cannot accurately determine precisely the effects of
inflation, management does not believe that inflation currently has a material
effect on the Company's sales or results of operations.
The Company's operations are located in South Florida, which has numerous
part-time residents during the winter. The Company's results of operations
reflect the seasonal nature of this market, with donations and sales of
merchandise being higher in the winter months.
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BUSINESS
GENERAL
The Company operates retail outlets known as thrift stores, which deal in
new and used articles of clothing, miscellaneous household items, furniture,
bric-a-brac and antiques at discounted prices. The Company currently manages and
operates four thrift stores in South Florida, two in Hallandale, Florida
(Broward County), one in Margate, Florida (Broward County), and one in Hialeah,
Florida (Dade County), and in March 1997 entered into a lease for one additional
thrift store located in Lauderdale Lakes, Florida (Broward County). Inventory
for the Company's stores is obtained primarily as the result of donations made
to charities under contracts entered into by the Company for the solicitation
and purchase of merchandise. The Company also purchases merchandise in bulk from
a contract collector that maintains drop boxes.
INVENTORY COLLECTION
A substantial portion of the merchandise offered in the Company's thrift
stores is obtained as the result of donations made to charities. The Company
enters into a contract with a participating charity pursuant to which the
Company solicits donations of merchandise on behalf of the charity, picks-up and
sorts donated merchandise and resells the merchandise, principally through its
thrift stores. The Company bears all costs of and assumes all responsibility for
the solicitation of donations and operation of the thrift stores and pays the
charity a percentage of gross sales for all merchandise (typically in the range
of 2% to 3%). The Company believes that such amount is comparable to, if not
better than, that which a charity would typically earn if it operated its own
thrift store and bore the costs of and responsibility for such operation,
including the costs of solicitation and collection of donated merchandise, rent
and other operating costs for the thrift store and hiring of personnel.
Moreover, the Company believes that its experience in soliciting donations of
and reselling merchandise make its services attractive to charities, which may
have little experience in the field. The Company is currently party to contracts
with the Missing Children Awareness Foundation and Temple Beth Ahm Israel, a
Broward County synagogue. The Company believes that its arrangements with these
charities provide it with an adequate amount of donated merchandise for its
present operations. As the Company expands its operations, it may seek
arrangements with additional charities. There can be no assurance, however, that
the Company will be able to successfully do so.
The Company supplements the inventory received from charitable donations by
purchasing merchandise in bulk from a contract collector that maintains drop
boxes.
THRIFT STORE OPERATIONS
The Company uses 12 to 14 trucks to make scheduled pick-ups of donated
merchandise. The donors are given receipts to document the items donated.
Following pick-up, merchandise is taken to the appropriate thrift store
where it is sorted and inspected. Unsuitable items, such as those that are
broken, badly stained or torn, are either discarded or sold in bulk to
exporters, which pay the Company between $.10 and $.12 per pound
19
<PAGE> 25
and resell the items in countries in the Caribbean, Central and South America
and Eastern Europe. Goods deemed suitable for sale in the Company's thrift
stores are priced and date-coded by color. Pricing is for the most part
subjective and is based upon the Company's experience of how much a customer is
willing to pay for a particular type of item.
Apparel accounts for a majority of the Company's sales. Other items sold by
the Company include furniture, bric-a-brac, antiques, small appliances (such as
toasters, stereos and televisions), linens and domestics, and other merchandise
such as toys, books, records and jewelry. Furniture is only sold in two of the
Company's thrift stores and the Company currently does not plan to sell
furniture in future thrift stores.
Sales areas are well lighted and merchandise is displayed in loose
arrangements to promote browsing. Apparel is grouped and displayed by sex, type
and color. For example, all women's blouses are hung together by color.
Furniture items (which include brown goods, case goods, and upholstered pieces)
requiring minor repairs, such as loose legs or cracked parts, are repaired by
Company employees prior to display. Furniture and small appliances are sold "as
is." Items of bric-a-brac and antiques are evaluated by an antiques expert and
are displayed in a separate controlled-access area.
In order to tempt the frequent shopper and control inventory levels, the
Company encourages rapid inventory turnover and displays new merchandise on a
daily basis. For example, apparel items are generally allowed to remain in
inventory for up to four weeks, during which time the prices of the items are
subject to weekly markdowns. Merchandise remaining unsold at the end of a
specified time period is removed from inventory and sold in bulk to exporters.
In order to provide convenient shopping hours for customers, the Company's
thrift stores are open from 8:00 a.m. until 6:00 p.m. on Monday, Tuesday,
Thursday and Saturday; from 8:00 a.m. until 9:00 p.m. on Wednesday and Friday;
and from 9:00 a.m. until 5:00 p.m. on Sunday.
MARKETING
The Company's primary mode of soliciting donations is through direct mail,
using a colored 5-1/2" x 8-1/2" postcard, sent to between 50,000 and 75,000
households per week. Mailings are targeted to selected zip codes in Dade,
Broward and Palm Beach counties in South Florida. The post card prominently
bears the name of the charity sponsor and a telephone number to call to offer
donations. Supporting this effort is a team of telemarketers who field pick-up
calls and who telephone previous donors to solicit additional merchandise
donations. In order to encourage repeat donations, the Company endeavors to
provide prompt and courteous pick-up of donated merchandise. The Company
supplements its direct mail efforts through advertising in local publications.
Customers at the Company's thrift stores can be classified into three
general categories: (i) shoppers who must clothe and supply their family on a
limited budget, (ii) "bargain hunters" who look for quality items in
bric-a-brac, antiques and new or nearly new clothing, and (iii) dealers in
antiques and clothing, flea market operators and wholesalers who are seeking
merchandise for their own operations. As many of the Company's customers are
repeat shoppers who frequently visit the
20
<PAGE> 26
Company's thrift stores searching for bargains, the Company seeks to introduce
new merchandise on a daily basis and display merchandise in a manner designed to
encourage browsing.
The Company also seeks to attract customers to its outlets by locating its
outlets in the vicinity of other thrift stores, which the Company believes
attracts potential customers to the area and through the use of high visibility
signage.
STORE LOCATIONS
The following sets forth information with respect to the Company's four
thrift stores:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
LOCATION DATE OPENED FOOTAGE EXP./RENEWAL
------------- ----------- --------------
<S> <C> <C> <C>
3149 W. Hallandale Beach Boulevard August 1986 8,300 April 2001/
Hallandale, FL one five-year
renewal option
3141 W. Hallandale Beach Boulevard August 1992 15,000 April 2001/
Hallandale, FL one five-year
renewal option
901 E. Tenth Ave Hialeah, FL November 1992 10,500 October 1999/
one seven-year
renewal option
1041 N. State Rd. 7 Margate, FL November 1995 10,050 November 2000/
one five-year
renewal option
</TABLE>
Aggregate monthly rental for the Company's four thrift stores is
approximately $29,000.
In March 1997, the Company entered into a lease for a new store location in
Lauderdale Lakes, Florida (Broward County). This new location is approximately
29,000 square feet in size, reflecting the Company's intention to develop larger
stores. The Company anticipates that its new location will be opened to the
public during the second quarter of 1997.
The Company seeks to locate its outlets in lower socio-economic
neighborhoods that have a high concentration of potential customers and, if
possible, in the vicinity of other thrift stores, which serves to attract the
potential customer base to the area. The Company also seeks locations on highly
traveled streets with adequate on-site parking and the availability under zoning
ordinances of high visibility signage. Although the Company's present outlets
are between 8,000 and 15,000 square feet in size, the Company intends to focus
its future efforts on developing larger stores of between
21
<PAGE> 27
20,000 to 30,000 square feet in size, as exemplified by its new Lauderdale
Lakes, Florida location described above. The Company believes that numerous
adequate locations exist, such as former supermarkets, drug stores and discount
outlets, that meet the Company's criteria for store locations and that can be
leased at reasonable rates. The Company is actively seeking additional store
locations. There can be no assurances, however, that the Company will be able to
identify additional suitable locations or, once identified, negotiate acceptable
lease terms.
EXPANSION STRATEGY
The Company's strategy is to expand its operations by opening additional
thrift stores or acquiring existing thrift stores or other businesses related to
the Company's current operations. The strategy is to expand initially in other
counties in Florida, and ultimately in various out-of-state locations including
Georgia and New Jersey. As described above, the Company will seek to focus its
expansion efforts on larger stores of 20,000 to 30,000 square feet in size, as
compared to the Company's existing outlets.
The Company estimates that it will take approximately 60 to 90 days from
execution of a lease to open a new thrift store. During this period, the Company
will prepare the location, hire and train personnel, mail initial solicitations,
and collect, sort, price and display initial donated merchandise. The Company
estimates that the cost of opening a new thrift store is approximately $200,000
to $375,000.
The Company currently intends to open approximately four to six additional
stores during 1997 and 1998. The Company's ability to expand its chain of thrift
stores will depend on, among other things, securing suitable locations,
obtaining sufficient merchandise and having adequate financing to effect its
expansion plans. There can be no assurance that the Company will be able to open
any additional thrift stores or that any thrift stores so opened will be
profitable.
An additional area of potential expansion is the direct export of certain
merchandise. Currently, donated merchandise that is unsuitable for sale, as well
as merchandise that remains in inventory beyond a specific time period, is sold
in bulk to exporters who resell the items in countries in the Caribbean, Central
and South America, and Eastern Europe. The Company currently sells approximately
70,000 pounds of merchandise per week in bulk to exporters. As the Company opens
additional thrift stores, it expects that the volume of bulk merchandise
available for export will increase. When it reaches a level of approximately
150,000 pounds per week, the Company believes that it will be economically
advantageous to export such merchandise directly. In order to do so, the Company
will need to establish a separate facility to receive, sort and grade the export
merchandise, bale it and otherwise prepare the merchandise for shipment. There
can be no assurance that the Company's operations will generate a sufficient
amount of bulk merchandise to enable the Company to begin direct export of such
merchandise, that the Company will have the necessary financing to establish the
needed facility if it elects to do so, or that if the Company expands into this
field of business, that it can do so successfully or profitably.
The Company may also, from time to time, identify one or more established
thrift stores or other businesses related to the Company's current operations,
such as wholesale export businesses, as possible acquisition candidates. The
Company's criteria for identifying existing stores as possible
22
<PAGE> 28
acquisition candidates are similar to those used by the Company when identifying
locations for new stores. The Company would consider whether an existing store
would be an acquisition candidate based on the store's proximity to lower
socio-economic neighborhoods and to other thrift stores; the store's location on
highly traveled streets with adequate on-site parking and permitted
high-visibility signage; the store's size; the store's profitability; the terms
of the existing lease, if any; and the anticipated purchase price. The criteria
for identifying other businesses as acquisition candidates would be based on the
geographic area of the business' operations; the financial condition of the
business, including the nature of the assets used in its operations; the value
of any goodwill associated with the business; the business' profitability; the
anticipated purchase price; and such other criteria as are deemed relevant by
the Board of Directors. The Company does not at the present time expect that any
such existing stores or businesses would be acquired from or in a transaction
involving the Company's management, principal shareholders or other affiliates.
Such acquisitions would be consummated in exchange for cash or for shares
of the Company's capital stock, depending, in part, on the Company's available
working capital or other sources of funds and its anticipated capital needs at
the time of the proposed acquisition. Although the Company does not currently
anticipate incurring debt to fund any such acquisitions, management may
determine that, depending on prevailing market interest rates, the cost of funds
available to the Company, and the extent of revenues generated by the
acquisition candidate, the use of debt to fund an acquisition may be
advantageous to the Company. Such debt would result in an ongoing interest
expense obligation for the Company, however. Issuance of shares of the Company's
capital stock in an acquisition would enable the Company to preserve its cash,
but could have the effect of diluting the Company's earnings on a per share
basis or diluting the voting control of existing shareholders, and could result
in an additional ongoing dividend obligation, depending on the terms of the
stock issued.
There can be no assurance that the Company would be able to negotiate with
any such stores or other businesses or, even if negotiations are undertaken,
that the Company would be able to consummate any such acquisitions.
COMPETITION
The Company faces competition from a variety of discount retail stores. The
Company competes for donations of merchandise and with other thrift stores for
sales. Some of such other thrift stores are located in the vicinity of the
Company's outlets. The Company believes, however, that other thrift stores
located in close proximity allow customers to shop around for the best choices
and as a result be more efficient shoppers, which encourages business. In
addition to other thrift stores that sell used goods, low-end discounters such
as K-Mart and Wal-Mart, which offer new clothing, housewares and furniture at
deep discount prices, compete with the Company to a lesser extent. These
competitors generally have greater financial and other resources than the
Company.
GOVERNMENT REGULATION
In order to solicit donations of merchandise on behalf of charities, the
Company must be registered as a professional solicitor with and is subject to
oversight by the Department of Agriculture and Consumer Affairs of the State of
Florida. In the event the Company expands its
23
<PAGE> 29
operations to other states, the Company will likely be subject to similar
licensing and oversight in those jurisdictions. As a professional solicitor, the
Company and its personnel are required to comply with various regulations
governing the manner and terms of solicitations, including, among other things,
the requirement to post a surety bond. Failure to comply with these regulations
could result in disciplinary action including significant fines and penalties or
suspension or revocation of licenses. Such disciplinary action, if taken, would
likely have a material adverse effect on the operations, revenues and prospects
of the Company.
EMPLOYEES
The Company currently employs approximately 120 full-time employees. None
of the Company's employees are members of labor unions. Management believes that
it enjoys satisfactory relations with its employees.
PROPERTIES
The Company's executive offices occupy a portion of its thrift store
located at 3141 W. Hallandale Beach Boulevard, Hallandale, Florida 33009. See
"Store Locations" above for more information, including the rental payments,
regarding the Company's other store locations.
LITIGATION
The Company is not currently a party to any action, proceeding or
litigation, which, if adversely determined, would have a material adverse effect
on the Company's business, operations, revenues and prospects.
24
<PAGE> 30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- --------
<S> <C> <C> <C>
Marc Douglas................................... 37 President, Chief Executive Officer 1996
and Director
Ileen Little................................... 58 Vice President, Secretary and Director 1991
</TABLE>
MARC DOUGLAS: Mr. Douglas founded the Company in 1991 and has served as its
Chief Operating Officer since its inception, and, in February 1996, was elected
President and Director. Prior thereto, Mr. Douglas was Executive Director of
Thrift Shops of West Broward, Inc., and Southeast Thrift Shops of South Broward,
Inc., since 1986 and 1990, respectively. Mr. Douglas received his A.A. in
Business from Miami Dade College and his B.S. in Business from Florida
International University, Miami, Florida. Mr. Douglas is Ms. Little's son.
In 1985, Marc Douglas, the Chief Executive Officer, President and a
Director of the Company, pled guilty to one count of wire fraud in a federal
criminal action arising from his employment from 1980 to 1982 as a salesman of
oil and gas leases for U.S. Oil & Gas Corporation. Mr. Douglas was sentenced to
a 90-day jail term and five years' probation and, in addition, entered into a
settlement agreement in a related civil action brought by the Federal Trade
Commission, in connection with which he paid $65,000 as restitution.
In 1989, Mr. Douglas, his spouse and M.J.S.S. Enterprises, Inc., a
corporation for which Mr. Douglas was an officer, filed for bankruptcy
protection. Both the personal and corporate bankruptcies were discharged in
1990.
ILEEN LITTLE: Ms. Little is currently the Vice President, Secretary and a
Director of the Company. From its inception until February 1996, when she was
elected to her current position, she acted as President and a Director of the
Company. Prior to joining the Company, Ms. Little was President of Thrift Shops
of West Broward, Inc., and Southeast Thrift Shops of South Broward, Inc., two
companies which she co-founded in 1986 and 1990, respectively. Ms. Little
received her B.S. in business from Brooklyn College. Ms. Little is Mr. Douglas'
mother.
In addition to the foregoing, until December 1999, the Underwriter shall have
the right to designate a representative as an advisor to, or in lieu thereof,
as a member of the Company's Board of Directors. The Underwriter has not
identified its designees as of the date of this Prospectus. Following the
consummation of this Offering, the Company intends to appoint at least two
non-employee directors to the Board of Directors and intends to establish
audit and compensation committees of the Board composed of a majority of
outside directors.
25
<PAGE> 31
Although the Company currently has no policy with respect to director
compensation, it is anticipated that nonemployee directors of the Company will
receive some form of compensation, which may be in cash not to exceed $10,000
per year or stock options, and reimbursement for expenses incurred in connection
with their attendance at Board of Directors meetings.
Directors of the Company hold their offices until the next annual meeting
of the Company's shareholders and until their successors have been duly elected
and qualified or their earlier resignation, removal from office or death. There
are currently no committees of the Board of Directors.
Officers of the Company serve at the pleasure of the Board of Directors and
until the first meeting of the Board of Directors following the next annual
meeting of the Company's shareholders and until their successors have been
chosen and qualified.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE. The following table sets forth information with
respect to the total compensation earned by, or paid to, the Company's Chief
Executive Officer and President for services rendered to the Company during 1996
and 1995. The Company's other executive officer did not earn total salary and
bonus in excess of $100,000 during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------------------------- -------------------
OTHER ANNUAL SHARES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- --------------------------- ---- --------- ------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Marc Douglas 1996 297,000 150,000 (1) 700,000(3)
Chief Executive Officer
and President
1995 265,000 -0- (1) -0-
</TABLE>
- --------------
(1) Perquisites and other personal benefits paid to the named executive
officer for 1996 and 1995 did not exceed 10% of the total of annual
salary and bonus reported.
(2) See "Certain Transactions -- Reorganization" for information regarding
dividend distributions to Mr. Douglas during 1996 and 1995 from the
Subsidiaries prior to the Reorganization.
(3) See "Executive Employment Agreement" below.
EXECUTIVE EMPLOYMENT AGREEMENT. Effective as of June 1, 1996, the Company
entered into an employment agreement with Marc Douglas, its Chief Executive
Officer and President for a term of 60 months. At the end of each 12-month
period of the term of the employment agreement, the term will automatically be
extended for one additional 12-month period unless the Company or Mr. Douglas
gives written notice of the intent not to renew to the other party at least 90
days prior to the end of such period. The employment agreement provides for a
base salary of $286,000 (subject to 10% annual automatic cost-of living
increases), an annual bonus in an amount equal to 1% of the Company's annual
gross revenues subsequent to the date of the agreement, and an automobile
allowance of $1,500 per month. The employment agreement generally provides that
26
<PAGE> 32
Mr. Douglas will continue to receive his salary until the expiration of the term
of the employment agreement if terminated by the Company for any reason other
than death, disability or Cause (as defined in the employment agreement), or for
a period of 12 months after termination of the employment agreement as a result
of his disability, and that Mr. Douglas' estate will receive a lump sum payment
equal to one year's salary plus a pro rata portion of any bonus to which he is
entitled upon termination of the employment agreement by reason of his death.
The employment agreement also prohibits Mr. Douglas from directly or indirectly
competing with the Company for one year after termination of his employment
agreement for any reason other than the Company's termination of his employment
without Cause. If a Change of Control (as defined in the employment agreement)
occurs, the employment agreement provides for the continued employment of Mr.
Douglas until the later of three years following the Change of Control or the
then-scheduled expiration date of the term of employment. The term "Change of
Control," as defined in the employment agreement, generally means (i) any
person's or group's acquisition of 20% or more of the combined voting power of
the Company's outstanding securities, or (ii) in the event of any cash tender or
exchange offer, merger or other business combination, sale of assets or
contested election, the persons who were directors of the Company prior to such
transaction cease to constitute a majority of the Board of Directors following
the transaction. In addition, following a Change of Control, if Mr. Douglas'
employment is terminated by the Company other than for Cause or by reason of his
death or disability, or for certain specified reasons (such as a representation
or diminution of duties), Mr. Douglas will receive a lump sum cash payment equal
to the greater of three times the aggregate compensation paid to him during the
preceding year or the remaining salary, plus any applicable bonus, payable to
him for the remaining term of the agreement.
STOCK OPTION PLAN. The Company has adopted its 1996 Plan, under which
options to acquire up to 1,000,000 shares of Common Stock may be granted. The
1996 Plan is designed to serve as an incentive for retaining qualified and
competent employees, directors, consultants and independent contractors of the
Company.
The Company's Board of Directors, or a committee thereof, administers and
interprets the 1996 Plan and is authorized to grant options thereunder to all
eligible employees of the Company, including executive officers (whether or not
employees) of the Company, as well as non-employee directors, consultants and
independent contractors. The 1996 Plan provides for the granting of both
"incentive stock options" (as defined in Section 422 of the Code) and
nonstatutory stock options. Incentive stock options may only be granted,
however, to employees. Options can be granted under the 1996 Plan on such terms
and at such prices as determined by the Board or a committee thereof, except
that the per share exercise price of incentive stock options granted under the
1996 Plan will not be less than the fair market value of the Common Stock on the
date of grant and, in the case of an incentive stock option granted to a 10%
shareholder, the per share exercise price will not be less than 110% of such
fair market value as defined in the 1996 Plan.
Options granted under the 1996 Plan that would otherwise qualify as
incentive stock options will not be treated as incentive stock options to the
extent that the aggregate fair market value of the shares underlying incentive
stock options exercisable for the first time by any individual during any
calendar year exceeds $100,000.
Options granted under the 1996 Plan will be exercisable after the period or
periods specified in the related option agreement. Options granted under the
1996 Plan are not exercisable after the
27
<PAGE> 33
expiration of 10 years from the date of grant and are not transferable other
than by will or by the laws of descent and distribution. Adjustment of the
number of shares subject to options granted under the 1996 Plan can be made by
the Board of Directors or the appropriate committee in the event of a stock
dividend or recapitalization. Under the 1996 Plan, options may become
immediately exercisable in the event of a change in control or approval by
shareholders of the Company of a merger, reorganization, liquidation,
dissolution or disposition of all or substantially all of the assets of the
Company.
The exercise price of any stock option granted under the Plan may not be
less than the fair market value of the shares subject to the option on the date
of grant, provided, however, that the exercise price of any incentive option
granted to an eligible employee owning more than 10% of the outstanding Common
Stock may not be less than 110% of the fair market value of the shares
underlying such option on the date of grant.
The term of each option and the manner in which it may be exercised is
determined by the Board of Directors, or a committee appointed by the Board of
Directors, provided that no option may be exercisable more than 10 years after
the date of grant and, in the case of an incentive option granted to an eligible
employee owning more than 10% of the Common Stock, such option shall be
exercisable no more than five years after the date of grant. Options may be
granted to officers and employees. In the event of death or disability, options
may be exercised during a 12-month period following such event. In the event of
retirement of an option holder who is an officer or employee of the Company, an
option must be exercised within three months of the date of termination. In the
event that an option holder is terminated other than pursuant to death,
disability or retirement, all options must be exercised by the date of
termination. Options will not be transferable, except upon death of the
optionee.
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth
information concerning individual grants of stock options made during the fiscal
year ended December 31, 1996 to the Company's Chief Executive Officer.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------
NUMBER OF
SHARES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OF
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE
------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Marc Douglas................................................ 700,000 100% $5.00 5/31/06
</TABLE>
(1) Represents options granted under the Company's 1996 Stock Option Plan.
Of the total amount granted, 125,000 of such options will vest upon the
opening or acquisition by the Company of the first new thrift store or
related business following the consummation of the Offering and 125,000
will vest when such first new thrift store or related business has
operated profitably for one year. Similarly, 125,000 and 100,000 of
such options will vest upon the opening or acquisition by the Company
of each of the next two thrift stores or other businesses,
respectively, and 125,000 and 100,000 will vest when such two thrift
stores or related businesses, respectively, operate profitably for one
year. Subject to such vesting, the options will be exercisable
commencing June 11, 1997.
28
<PAGE> 34
STOCK OPTIONS HELD AT END OF 1995. The following table indicates the total
number and value of exercisable and unexercisable stock options held by the
Company's Chief Executive Officer as of December 31, 1996. No options were
exercised by the Chief Executive Officer during 1995.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTION
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
-------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Marc Douglas................................................ -- 700,000 -- $525,000
</TABLE>
(1) Based on a closing price on December 30, 1996 (the last day of 1996
that a quotation was available) of $5.75 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Company's
Board of Directors sets the compensation for the Company's executive officers.
At present, the Board has not appointed a separate committee to perform this
function.
29
<PAGE> 35
PRINCIPAL AND SELLING SECURITY HOLDERS
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of March 15, 1997,
regarding the Company's Common Stock owned of record or beneficially by (i) each
shareholder who is known by the Company to beneficially own in excess of 5% of
the outstanding shares of Common Stock, (ii) each director and executive
officer, (iii) all directors and executive officers as a group, and (iv) each
Selling Security Holder. Except as otherwise indicated, each shareholder listed
below has sole voting and investment power with respect to shares beneficially
owned by such person. The initial Selling Shareholders may be considered
underwriters under the Securities Act.
In accordance with Rule 13d-3, promulgated under the Exchange Act, shares
that are not outstanding but that are issuable upon exercise of immediately
exercisable, outstanding options, warrants, rights or conversion privileges have
been deemed to be outstanding for the purpose of computing the percentage of
outstanding shares owned by the individual owning such right, but have not been
deemed outstanding for the purpose of computing the percentage for any other
person. As of March 15, 1997, there were 2,115,000 shares of Common Stock issued
and outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP PERCENT OF COMMON STOCK PERCENT OF TOTAL
NAME AND ADDRESS OF COMMON STOCK(1) BENEFICIALLY OWNED(1) VOTING POWER(1)(2)
- ---------------- --------------- --------------------- ------------------
<S> <C> <C> <C>
Marc Douglas 1,050,000(3) 50.0% 76.9%
3141 W. Hallandale Beach Blvd. Hallandale, Florida 33009
Ileen Little -0- -0- -0-
3141 W. Hallandale Beach Blvd. Hallandale, Florida 33009
1997 Marc Douglas 150,000 7.3% 3.3%
Irrevocable Family Trust c/o Barry Nelson, Esq., Trustee
19495 Biscayne Boulevard, Aventura, Florida 33180
All directors and executive 1,050,000(3) 50.0% 77.0%
officers as a group (two persons)
</TABLE>
(1) There are no currently outstanding options, warrants or other rights to
purchase securities of the Company that are exercisable within 60 days.
Therefore, for purposes of calculating the beneficial ownership and voting
power, no shares of Common Stock underlying rights to purchase securities
have been included.
30
<PAGE> 36
(2) The Common Stock votes together with the Series A Preferred Stock on
all matters, except as required by law. The Series A Preferred Stock
entitles the holder to 10 votes per share and the Common Stock entitles
the holder to one vote per share. Mr. Douglas holds 250,000 shares of
Series A Preferred Stock, which are reflected in Mr. Douglas'
percentage of total voting power.
(3) Does not include 150,000 shares of Common Stock held by the 1997 Marc
Douglas Irrevocable Family Trust (the "Trust") of which Mr. Douglas is
the beneficiary. Mr. Douglas does not exercise voting or dispositive
control of the shares held by the Trust.
SELLING SECURITY HOLDERS
The following table sets forth certain information as of March 15, 1997
regarding the number of shares of Common Stock of the Company (including the
shares of Common Stock underlying the Warrants) and the number of Warrants
beneficially owned by each Selling Security Holder and the number of such
securities included for sale in this Prospectus.
<TABLE>
<CAPTION>
NUMBER OFFERED
BENEFICIAL OWNERSHIP BY SELLING
SELLING SECURITY HOLDER PRIOR TO SALE(1) SECURITY HOLDER(2)
- ----------------------- ------------------------------------------- --------------------
COMMON STOCK WARRANTS
------------------- ------------------ COMMON
NUMBER PERCENT NUMBER PERCENT STOCK WARRANTS
------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
1997 Marc Douglas
Irrevocable Family Trust(4).......... 150,000 10.0% -- -- 150,000 --
Rozel International
Holdings, Inc.(5).................. 615,000 37.5% 600,000 100.0% 15,000 600,000
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER SALE (3)
-------------------------------------------
COMMON STOCK WARRANTS
------------------- ------------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
1997 Marc Douglas
Irrevocable Family Trust(4).......... 0 -- -- --
Rozel International
Holdings, Inc.(5).................. 0 -- 0 --
</TABLE>
- ------------------
* Less than 1%.
(1) The number of shares of Common Stock reflected for each Selling
Security Holder includes the number of shares of Common Stock
underlying the Warrants held by such Selling Security Holder.
(2) Rozel sold 285,000 of its shares of Common Stock in the Company
Offering.
(3) Assumes consummation of the Selling Security Holders' Offering.
The Selling Security Holders have agreed not to sell or otherwise
dispose of any of their shares of Common Stock or shares of Common
Stock issuable upon conversion or exercise of securities convertible
into Common Stock, or any Warrants held by them, until December 5, 1998
without the prior written consent of the Underwriter. The Company has
been advised that the Underwriter agreed to release Rozel form its
lock-up agreement as to the 15,000 shares of Common Stock and 600,000
Warrants owned by Rozel following the Company Offering. The National
Association of Securities Dealers, Inc. (the "NASD") has approved the
Underwriter's release of Rozel's lock-up agreement as to its shares of
Common Stock and 300,000 of its Warrants, and NASD approval is pending
with respect to the release of the lock-up agreement as to the
remaining 300,000 Warrants. See "Principal and Selling Security
Holders" and "Plan of Distribution."
(4) Barry Nelson, Esq. is trustee of the 1997 Marc Douglas Irrevocable
Family Trust, of which Mr. Douglas is the beneficiary. Mr. Douglas does
not exercise voting or dispositive control of the shares held by the
Trust.
(5) Harold Chaffe maintains voting control over the shares held by Rozel.
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<PAGE> 37
CERTAIN TRANSACTIONS
REORGANIZATION
In connection with the Reorganization, the Company acquired all of the
outstanding capital stock of the Subsidiaries from Marc Douglas, effective as of
May 31, 1996, in exchange for the issuance to Mr. Douglas of 1,050,000 shares of
Common Stock and 250,000 shares of Series A Preferred Stock of the Company. The
Reorganization was effected as a tax-free reorganization within the meaning of
Section 368(a)(1)(B) of the Code. As a result of the Reorganization, each of the
Subsidiaries became a wholly owned subsidiary of the Company. The Company also
effected, in connection with the Reorganization, a 12,000-for-1 split of its
outstanding shares of Common Stock.
Prior to the Reorganization, the Company and each of the Subsidiaries were
treated for federal and state income tax purposes as S corporations under
Subchapter S of the Code. As a result, earnings through the date of termination
of the Company's and the Subsidiaries' S corporation status (the "Termination
Date") have been and will be taxed for federal and state income tax purposes
directly to the respective shareholders of the corporations. The Termination
Date for the Company occurred on February 29, 1996, when the Company completed a
private placement of shares of Common Stock and Investor Warrants (see "Certain
Transactions -- Private Placement"); the Termination Date for the Subsidiaries
occurred upon completion of the Reorganization, May 31, 1996.
The Company and the Subsidiaries have previously paid cash dividends to
their respective shareholders, representing earnings distributions and funds
necessary to pay federal and state income tax obligations attributable to
earnings. For the years ended December 31, 1996 and 1995, such dividends totaled
$283,384 and $104,500, respectively.
DEFERRED COMPENSATION AGREEMENT
In March 1995, Thrift Shops of West Dade, Inc. ("TSWD"), a subsidiary of
the Company, entered into a deferred compensation agreement with Ileen Little, a
director, executive officer and principal shareholder of the Company. Pursuant
to such agreement, Ms. Little will be entitled to receive 5% of the gross
proceeds from the liquidation of the Company or any of the Subsidiaries, payable
in two equal annual installments following such liquidation. See "Management."
LOANS TO/FROM MARC DOUGLAS
As of December 31, 1996, the Company's President and majority stockholder
is owed $208,540 by the Company. Such amount is composed of the $150,000
representing a bonus for reimbursement of taxes for dividend distributions (see
Note 12(e) to the Financial Statements), $22,464 for unpaid dividend
distributions through May 31, 1996, and $36,076 for the annual bonus in the
amount equal to 1% of the Company's annual gross revenue since June 1, 1996.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
The Company has advanced Mr. Douglas monies from time to time on an
interest-free basis, the amount of which totaled approximately $189,473 as of
December 31, 1996. Mr. Douglas and the Company have agreed that the advances to
Mr. Douglas will be taken into income by
32
<PAGE> 38
Mr. Douglas over a three-year period through December 1999. No further loans to
or from Mr. Douglas are currently contemplated.
DISPUTE WITH MIAMI JEWISH HOME; AGREEMENT WITH FORMER SHAREHOLDER
In February 1994, the Miami Jewish Home filed a motion for contempt against
Mr. Douglas (as the sole shareholder of the Subsidiaries, prior to the
Reorganization) alleging violations of an injunction awarded to the Miami Jewish
Home in December 1993 against a former shareholder of one of the Subsidiaries
and two other companies controlled by that shareholder. The injunction had been
awarded, together with monetary damages, as a result of an action filed by the
Miami Jewish Home in 1987 alleging trade name infringement and unfair
competition by the former shareholder and his companies.
Although neither Mr. Douglas, Ms. Little, TMI nor any of the Subsidiaries
was party to the 1987 action, in November 1994, the Miami Jewish Home, Mr.
Douglas and two of the Subsidiaries agreed to be bound by certain provisions of
the injunction. As part of the settlement, the former shareholder relinquished
his right to receive further payments under non-competition agreements entered
into in 1993 with two of the Subsidiaries in connection with the termination of
the former shareholder's and Mr. Douglas' business relationship. Mr. Douglas and
the two Subsidiaries also agreed to pay the Miami Jewish Home the sum of
$176,130, payable in installments through April 1997, and the sum of $20,000 for
the use of a trade name approved by the Miami Jewish Home. Such payments were
allocated to Mr. Douglas and each of the two Subsidiaries in proportion to their
respective original obligations to the former shareholder. The payments were
secured by a pledge of the capital stock of all of the Subsidiaries. The balance
remaining of the settlement was paid in full in May 1996 and, accordingly, all
of the shares of the Subsidiaries' capital stock were released and the Miami
Jewish Home agreed to withdraw its motion with prejudice and waive any further
claims thereunder.
Pursuant to a consulting agreement with the Company, the former shareholder
is entitled to receive 2% of the monthly gross sales of the Company's Hialeah
store if that store's gross sales exceed $70,000 in such month. The agreement
provides for a weekly draw of $600 against such compensation, with any necessary
adjustments made within 14 days after the end of each month. The agreement
terminates in October 1999.
COMPANY POLICY REGARDING TRANSACTIONS WITH AFFILIATES
The Company believes that the transactions described above were on terms no
less favorable to the Company than those that would be available from
unaffiliated parties. The Company does not at the present time contemplate
entering into additional related party transactions. In the future, the Company
plans to present all proposed transactions with affiliated parties to the
Company's Board of Directors for its consideration and approval. Any Board
member who has an interest in such transaction will abstain from voting thereon.
33
<PAGE> 39
DESCRIPTION OF SECURITIES
Set forth below is a summary of certain terms and provisions of the
Company's capital stock, which is qualified in its entirety by reference to the
Company's Articles of Incorporation and to the Statement of Designation setting
forth the resolutions establishing the rights and preferences of the outstanding
Series A Preferred Stock. Copies of the Articles of Incorporation and the
Statement of Designation have been filed as exhibits to, or incorporated by
reference into, the Registration Statement of which this Prospectus forms a
part.
Under the Articles of Incorporation, the authorized but unissued and
unreserved shares of the Company's capital stock will be available for issuance
for general corporate purposes, including, but not limited to, possible stock
dividends, future mergers or acquisitions, or private or public offerings.
Except as may otherwise be required, stockholder approval will not be required
for the issuance of those shares.
The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock, par value $.01 per share, and 1,500,000 shares of Preferred Stock,
par value $.01 per share. As of the date of this Prospectus, 2,115,000 shares of
Common Stock and 250,000 shares of Series A Preferred Stock are outstanding.
UNITS
Each Unit consists of one share of Common Stock and one Warrant exercisable
at $5.00 to purchase one share of Common Stock. The Common Stock and Warrants,
which constitute a Unit, will be detachable and separately tradeable immediately
upon issuance.
COMMON STOCK
Each share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of the shareholders. The holders of Common Stock are
entitled to receive dividends, when, as and if declared by the Board of
Directors, in its discretion, from funds legally available therefor. The Company
does not currently intend to declare or pay cash dividends in the foreseeable
future, but rather intends to retain any future earnings to finance the
expansion of its businesses. Upon liquidation or dissolution of the Company, the
holders of Common Stock are entitled to share ratably in the assets of the
Company, if any, legally available for distribution to shareholders after the
payment of all debts and liabilities of the Company and payment of the
liquidation preference of any outstanding shares of Preferred Stock.
The Common Stock has no preemptive rights and no subscription, redemption
or conversion privileges. The Common Stock does not have cumulative voting
rights, which means that the holders of a majority of the outstanding shares of
Common Stock voting for the election of directors can elect all members of the
Board of Directors. A majority vote is also sufficient for other actions that
require the vote or concurrence of shareholders.
34
<PAGE> 40
PREFERRED STOCK
The Board of Directors has the authority to issue up to 1,500,000 shares of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designation, preferences and
relative participation, option or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights and dividend
rate, terms of redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the shareholders.
Except for the shares of Series A Preferred Stock currently outstanding, the
Board of Directors does not currently intend to issue additional shares of
Preferred Stock. In connection with the Company Offering, the Company has agreed
that it will not issue additional shares of Preferred Stock during the two-year
period from the date of this Prospectus.
Series A Preferred Stock
The Company has designated 250,000 shares of Preferred Stock as Series A
Preferred Stock, which shares were issued to Marc Douglas, Chief Executive
Officer, President, and a director of the Company, in connection with the
Reorganization. See "Certain Transactions -- Reorganization." Holders of the
Series A Preferred Stock are entitled to vote together with the holders of
Common Stock on all matters (except as required by law), with each share of
Series A Preferred Stock having 10 votes. The Series A Preferred Stock has a
liquidation preference of $.10 per share over the Common Stock. The Series A
Preferred Stock does not provide for the payment of a stated rate of dividends,
is not convertible into Common Stock, and is not redeemable by the Company.
WARRANTS
The Warrants have been issued pursuant to an agreement (the "Warrant
Agreement") between the Company and North American Transfer Co., as warrant
agent (the "Warrant Agent"). The following discussion of certain terms and
provisions of the Warrants is qualified in its entirety by reference to the
detailed provisions of the Warrant Agreement and the Warrant certificates, the
forms of which have been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
Each Warrant entitles its holder to purchase one share of Common Stock at
an exercise price of $5.00 per share. The Warrants, which expire on December 5,
2002, are exercisable for five years commencing one year from the date of
issuance, which is the date of this Prospectus. The Warrants may be redeemed by
the Company at any time, commencing one year from the date of this Prospectus,
at a redemption price of $.10 per Warrant upon 30 days' prior written notice,
provided the average closing bid price of the Common Stock for 20 consecutive
trading days ending on the 15th day prior to the date notice of redemption was
given by the Company has been at least 150% of the exercise price then in
effect. Warrant holders shall have exercise rights until the close of the
business day preceding the date fixed for redemption.
In order for a holder to exercise a Warrant, and as required in the Warrant
Agreement, there must be a current registration statement on file with the
Securities and Exchange Commission pertaining to the shares of Common Stock
underlying the Warrants, and such shares must be registered or qualified for
sale under the securities laws of the state in which such Warrant holder
35
<PAGE> 41
resides or such exercise must be exempt from registration in such state. The
Company will be required to file post-effective amendments to the Registration
Statement of which this Prospectus forms a part during the nine-month period
from the date hereof, when events require such amendments. In addition, the
Company has agreed with the Underwriter to use its best efforts to keep the
registration statement covering the shares underlying the Warrants current and
effective. There can be no assurance, however, that such registration statement
(or any other registration statement filed by the Company to cover shares of
Common Stock underlying the Warrants) can be kept current. If a registration
statement covering such shares of Common Stock is not kept current for any
reason, of if the shares underlying the Warrants are not registered in the state
in which a holder resides, the Warrants will not be exercisable and will be
deprived of any value. See "Risk Factors -- Requirements for Exercise of
Warrants; Adverse Effect of Redemption of Warrants."
Holders of the Warrants will be protected against dilution upon the
occurrence of certain events, including, but not limited to, the issuance of any
Common Stock or other securities convertible or exercisable for Common Stock at
a price per share less than the exercise price or the market price of the Common
Stock, or in the event of any stock dividend, stock split, reclassification,
recapitalization, stock combination or similar transaction. Holders of the
Warrants will have no voting rights and will not be entitled to dividends. In
the event of liquidation, dissolution or winding up of the Company, holders of
Warrants will not be entitled to participate in any distribution of the
Company's assets.
The purchase price payable upon exercise of the Warrants is to be paid in
lawful money of the United States. The Company is not required to issue
certificates representing fractions of shares of Common Stock upon the exercise
of Warrants; rather, with respect to any fraction of a share, the Company will
make payment in cash based upon the market price of the Common Stock as
determined by the Warrant Agent.
Immediately prior to the Company Offering, the Company had outstanding
800,000 Common Stock purchase warrants sold in a private placement of the
Company's securities (the "Private Warrants"). The Private Warrants were
exercisable for four years, commencing one year from the date of issuance, to
purchase one share of Common Stock at $5.00 per share. Upon consummation of the
Company Offering, the Private Warrants were automatically converted into
Warrants identical to those included in the Units sold in the Company Offering.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent and registrar for the Common Stock and the Warrant Agent
for the Warrants is North American Transfer Co., Freeport, New York.
"ANTI-TAKEOVER" PROVISIONS
Although the Board of Directors is not currently aware of any takeover
attempts, the Articles of Incorporation and Bylaws of the Company contain
certain provisions that may be deemed to be "anti-takeover" in nature, in that
such provisions may deter, discourage or make more difficult the assumption of
control of the Company by another corporation or person through a tender offer,
merger, proxy contest or similar transaction or series of transactions. These
provisions were adopted unanimously by the Board of Directors and approved by
the shareholders of the Company.
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<PAGE> 42
AUTHORIZED BUT UNISSUED SHARES. The Company has authorized 15,000,000
shares of Common Stock and 1,500,000 shares of Preferred Stock. These shares
were authorized for the purpose of providing the Board of Directors of the
Company with as much flexibility as possible to issue additional shares for
proper corporate purposes, including equity financing, acquisitions, stock
dividends, stock splits, the 1996 Plan, other grants of stock options, and other
purposes. With the exception of shares issuable in connection with this
Offering, the Company has no agreements, commitments or plans at this time for
the sale or use of additional shares of Common Stock or Preferred Stock. The
issuance of shares of Preferred Stock may have an adverse effect on the holders
of the Company's Common Stock. See "Preferred Stock." Shareholders of the
Company do not have preemptive rights with respect to the purchase of any
shares. Therefore, such issuances could result in a dilution of voting rights
and book value per share as to Common Stock of the Company.
NO CUMULATIVE VOTING. The Company's Bylaws do not contain any provisions
for cumulative voting. Cumulative voting entitles shareholders to as many votes
as equal the number of shares owned by such holder multiplied by the number of
directors to be elected. A shareholder may cast all these votes for one
candidate or distribute them among any two or more candidates. Thus, cumulative
voting for the election of directors allows a shareholder or group of
shareholders that hold less than 50% of the outstanding shares voting to elect
one or more members of a board of directors. Without cumulative voting for the
election of directors, the vote of holders of a plurality of the shares voting
is required to elect any member of a board of directors and would be sufficient
to elect all the members of the board being elected.
GENERAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The overall effect of these
provisions may be to deter a future tender offer or other takeover attempt that
some shareholders might view to be in their best interest, as the offer might
include a premium over the market price of the Company's Common Stock at that
time. In addition, these provisions may have the effect of assisting the
Company's current management in retaining its positions and better enable it to
resist changes that some shareholders may want to make if dissatisfied with the
conduct of the Company's business.
CERTAIN FLORIDA LEGISLATION
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. Section 607.0902 of the Florida Statutes (the Florida
Control Share Act) generally provides that shares acquired in excess of certain
specified thresholds will not possess any voting rights unless such voting
rights are approved by a majority vote of a corporation's disinterested
shareholders. Section 607.0901 of the Florida Statutes (the Florida Affiliated
Transactions Act) generally requires supermajority approval by disinterested
shareholders of certain specified transactions between a public corporation and
holders of more than 10% of the outstanding voting shares of the corporation (or
their affiliates). Florida law and the Company's Articles of Incorporation also
authorize the Company to indemnify the Company's directors, officers, employees
and agents. Pursuant to such authorization, the Company intends to enter into an
agreement with each of its directors and officers providing for indemnification
to the fullest extent allowed by law or obtain insurance with respect to
liabilities arising in connection with the directors' and officers' performance
of their duties.
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<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE
Of the 2,115,000 shares of Common Stock of the Company outstanding as of
the date of this Prospectus, 1,215,000 shares are restricted securities, as that
term is defined in Rule 144 promulgated under the Securities Act. Such shares
are currently subject to a 24-month "lock-up" period. The Selling Security
Holders' Offering relates to 600,000 Warrants and 765,000 shares of Common Stock
(including 600,000 shares of Common Stock underlying the Warrants) that have
been registered for sale by the Selling Security Holders. The Company has been
advised that the Underwriter agreed to release Rozel, one of the Selling
Security Holders, from its lock-up agreement as to the 15,000 shares of Common
Stock and 600,000 Warrants owned by Rozel. It is not known at this time whether,
and to what extent, the Underwriter may agree to a release of the lock-up with
respect to the remaining Selling Security Holders' Securities.
Of the 2,115,000 shares currently outstanding, 1,200,000 shares are owned
by affiliates of the Company, as that term is defined under the Securities Act.
Absent registration under the Securities Act, such as in the Selling Security
Holders' Offering, the sale of such shares is subject to Rule 144. Until April
29, 1997, 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 up to the
greater of 1% of the total number of outstanding shares of Common Stock, or if
the Common Stock is quoted on Nasdaq, the average weekly trading volume during
the four calendar weeks preceding the sale. A person 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. As a result of recently adopted
amendments to Rule 144, effective April 29, 1997 the above-described two-year
holding period to sell restricted securities subject to volume limitations will
be reduced to one year, and the three-year holding period for unlimited sales by
non-affiliates will be reduced to two years.
No prediction can be made as to the effect, if any, that sales of shares or
the availability of such shares for sale as described above will have on the
market prices of the Common Stock prevailing from time to time. Nevertheless,
the possibility that substantial amounts of Common Stock may be sold in the
public market may adversely affect prevailing prices for the Common Stock and
could impair the Company's ability to raise capital in the future through the
sale of equity securities.
PLAN OF DISTRIBUTION
The Selling Security Holders have agreed not to sell or otherwise dispose
of any of their shares of Common Stock or shares of Common Stock issuable upon
conversion or exercise of securities convertible into Common Stock, or any
Investor Warrants held by them, for a period of two years from the date of this
Prospectus without the prior written consent of the Underwriter. An appropriate
legend has been marked on the face of the stock certificates representing all
such shares of Common Stock.
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<PAGE> 44
The Company has been advised that the Underwriter agreed to release Rozel,
one of the Selling Security Holders, from its lock-up agreement as to the 15,000
shares of Common Stock and 600,000 Warrants owned by Rozel. Prior to the release
of the lock-up with respect to any securities registered in this Prospectus, the
Underwriter has notified the NASD. Any transaction with respect to such
securities is also subject to review and approval by the NASD; therefore, the
Underwriter or any other NASD member intending to assist in sales by the Selling
Security Holders must file with and receive NASD approval prior to effecting any
transactions. The NASD has approved the Underwriter's release of Rozel's lock-up
agreement as to its shares of Common Stock and 300,000 of its Warrants, and NASD
approval is pending with respect to the release of the lock-up agreement as to
the remaining 300,000 Warrants. At the present time, there are no current or
future plans, proposals, agreements, arrangements or understandings of the
Underwriter or known to the Underwriter with respect to engaging in further
transactions with or by the Selling Security Holders or with respect to waiving
or shortening the lock-up period applicable to the remaining Selling Security
Holders' Securities. Depending on market conditions, including, without
limitation, the trading volume and the market price of the Company's securities,
the Underwriter may determine, in its sole discretion, to waive or shorten the
lock-up period applicable to such remaining Selling Security Holders'
Securities. In such event, the Company will amend or supplement this Prospectus
in accordance with applicable law and regulations.
Unless the applicable lock-up period has been previously waived or
shortened, after a period of two years from the date of this Prospectus has
elapsed, the Selling Security Holders are free to offer and sell their Selling
Security Holders' Securities at such times, in such manner and at such prices as
each shall determine. Such securities may be offered by the Selling Security
Holders in one or more types of transactions, which may or may not involve
brokers, dealers or cash transactions. The Selling Security Holders may also use
Rule 144 under the Securities Act to sell such securities, if the criteria and
the requirements of such rule are met. There is no underwriter or coordinating
broker currently acting in connection with any such proposed sales by the
Selling Security Holders.
The Selling Security Holders have advised the Company that sales of the
Selling Security Holders' Securities may be effected from time to time in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through the writing of options on the Common
Stock, or a combination of such methods of sale, at fixed prices that may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices. After a period of two years from the date of this Prospectus has
elapsed, the Selling Security Holders may effect such transactions by selling
directly to purchasers or to or through broker-dealers acting as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Security Holders and/or
the purchasers of the Selling Security Holders' Securities for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). The Selling Security Holders and any broker-dealers that
act in connection with such sales may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
them and any profit on the resale of such securities as principal may be deemed
to be underwriting discounts and commissions under the Securities Act. The
Selling Security Holders may agree to indemnify any agent, dealer or
brokerdealer that participates in transactions involving sales of such
securities against certain liabilities, including liabilities arising under the
Securities Act.
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<PAGE> 45
Because the Selling Security Holders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling Security
Holders will be subject to prospectus delivery requirements under the Securities
Act. Furthermore, in the event of a "distribution" of securities, the Selling
Security Holders, any selling broker-dealer, and any "affiliated purchasers" may
be subject to Rule 10b-7 under the Securities Exchange Act of 1934, as amended,
which prohibits any "stabilizing bid" or "stabilizing purchase" for the purpose
of pegging, fixing or stabilizing the price of securities in connection with an
offering.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the securities
offered hereby will be passed upon for the Company by Broad and Cassel, a
partnership including professional associations, 201 South Biscayne Boulevard,
Suite 3000, Miami, Florida 33131. Gersten, Savage, Kaplowitz & Curtin, LLP, has
acted as counsel for the Underwriter in connection with the Offering.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1996 and for each of the years ended December 31, 1996 and 1995 included in this
Prospectus have been included herein in reliance upon the report of Scarano &
Lipton, P.C., independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 with respect to the securities being offered hereby. This Prospectus does
not contain all of the information set forth in such Registration Statement, as
permitted by the Rules and Regulations of the Commission. For further
information with respect to the Company and such securities, reference is made
to the Registration Statement and to the exhibits and schedules filed therewith.
Each statement made in this Prospectus referring to a document filed as an
exhibit to the Registration Statement is qualified by reference to the exhibit
for a complete statement of its terms and conditions. The Registration
Statement, including exhibits thereto, may be inspected without charge at the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549;
at its Northeast Regional Office at 7 World Trade Center, Suite 1300, New York,
New York 10048; and at its Midwest Regional Office at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and copies of all or any part thereof
may be obtained from such offices upon payment of the prescribed fees.
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ITEM 7. FINANCIAL STATEMENTS
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
PAGE
NUMBER
-------
<S> <C>
Independent Auditors' Report ....................................... F-2
Consolidated Balance Sheet at December 31, 1996 .................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 ......................................... F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for the
years ended December 31, 1996 and 1995 ............................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 ......................................... F-6
Notes to Consolidated Financial Statements ......................... F-7 - F-22
</TABLE>
F-1
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Thrift Management, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Thrift
Management, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and
the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the years ended December 31, 1996 and 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1996, and the consolidated results of its operations
and cash flows for the years ended December 31, 1996 and 1995 in conformity with
generally accepted accounting principles.
/s/ SCARANO & LIPTON, P.C.
Scarano & Lipton, P.C.
Mitchel Field, New York
February 17, 1997
F-2
<PAGE> 48
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 2,570,188
Merchandise inventories 114,972
Prepaid expenses 94,092
Prepaid income taxes 18,000
Advances to stockholder 63,158
Deferred tax asset 66,000
-----------
Total current assets 2,926,410
Equipment, fixtures, and improvements, net 196,253
Advances to stockholder - non-current 126,315
Prepaid expenses - non-current 50,000
Covenants not to compete, net 60,237
Security deposits 43,508
Other assets 17,470
-----------
Total assets $ 3,420,193
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 304,004
Accrued expenses 133,517
Due to stockholder 208,540
Current portion of notes payable 19,679
-----------
Total current liabilities 665,740
Notes payable, less current portion 27,622
-----------
Total liabilities 693,362
-----------
Commitments and contingencies (Note 11) --
Stockholders' equity:
Preferred stock, $.01 par value, authorized 1,500,000 shares,
issued and outstanding 250,000 shares 2,500
Common stock, $.01 par value, authorized 15,000,000 shares,
issued and outstanding 2,115,000 shares 21,150
Additional paid in capital 3,019,066
Accumulated deficit (315,885)
-----------
Total stockholders' equity 2,726,831
-----------
Total liabilities and stockholders' equity $ 3,420,193
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 49
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales $ 6,104,905 $ 4,574,305
Cost of goods sold 2,815,210 2,154,001
----------- -----------
Gross profit 3,289,695 2,420,304
----------- -----------
Expenses:
Selling, general and administrative expenses 3,013,455 2,402,237
Officer's, bonus incentive (Note 12e) 150,000 --
----------- -----------
Total expenses 3,163,455 2,402,237
----------- -----------
Income from operations before interest expense
and income tax benefit 126,240 18,067
Interest expense 1,732 11,884
----------- -----------
Income before income tax benefit 124,508 6,183
Income tax benefit 34,000 --
----------- -----------
Net income $ 158,508 $ 6,183
=========== ===========
Earnings per common equivalent share:
Primary:
Net income before income tax benefit .08 .01
=========== ===========
Income tax benefit .02 NIL
=========== ===========
Net income .10 .01
=========== ===========
Weighted average number of common shares outstanding 1,638,125 1,086,364
=========== ===========
Pro forma data (Note 2g)
Income before pro forma income tax provision $ 124,508 $ 6,183
=========== ===========
Pro forma income tax provision $ 46,900 $ 1,000
=========== ===========
Pro forma net income $ 77,608 $ 5,183
=========== ===========
Pro forma earnings per equivalent common share:
Net income before pro forma income tax provision .08 .01
=========== ===========
Pro forma income tax provision (.03) Nil
=========== ===========
Pro forma net income .05 .01
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 50
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Common
stock stock Additional Stockholder's
----------------- ---------------- paid-in Accumulated equity
Shares Amount Shares Amount Capital deficit (deficiency)
------- --------- ------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 -- $ -- 927,273 $ 1,700 $ 9,540 $ (92,692) $ (81,452)
Initial capitalization of North
Broward Consignment, Inc. -- -- 272,727 500 -- -- 500
Net income for the year ended
December 31, 1995 -- -- -- -- -- 6,183 6,183
"S" Corporation distributions -- -- -- (104,500) (104,500)
------- ------ --------- ------- ---------- --------- -----------
Balances at December 31, 1995 -- -- 1,200,000 2,200 9,540 (191,009) (179,269)
Sale of common stock in
connection with private placement -- -- 300,000 3,000 247,000 -- 250,000
Sale of common stock in connection
with confidential private offering
memorandum, net of costs
of $70,000 -- -- 300,000 3,000 427,000 -- 430,000
Issuance of preferred stock in
connection with reorganization 250,000 2,500 -- -- -- -- 2,500
Reorganization of affiliates -- -- -- 9,800 (9,800) -- --
Sale of common stock in connection
with initial public offering, net
of costs and deferred costs of $901,524 -- -- 615,000 6,150 2,842,326 -- 2,848,476
Purchase and retirement of common stock - -- (300,000) (3,000) (497,000) -- (500,000)
Net income for the year ended
December 31, 1996 -- -- -- -- -- 158,508 158,508
"S" Corporation distributions -- -- -- -- -- (283,384) (283,384)
------- ------ --------- ------- ---------- --------- -----------
Balances at December 31, 1996 250,000 $2,500 2,115,000 $21,150 $3,019,066 $(315,885) $2,726,831
======= ====== ========= ======= ========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 51
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 158,508 $ 6,183
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 94,118 47,400
Loss on abandonment of leasehold improvements -- 3,378
Deferred income taxes (66,000) --
Change in assets and liabilities:
Merchandise inventory (3,915) 20,541
Prepaid expenses (116,014) (9,491)
Accounts payable (126,822) 83,075
Accrued expenses 216,527 45,704
Prepaid income taxes (18,000) --
----------- -----------
Net cash provided by operating activities 138,402 196,790
----------- -----------
Cash flows from investing activities:
Security deposits (9,635) (18,016)
Equipment, fixtures and improvements acquired (76,148) (143,642)
----------- -----------
Net cash used for investing activities (85,783) (161,658)
----------- -----------
Cash flows from financing activities:
Advances to stockholder (6,036) (68,500)
Proceeds from stockholder loan -- 214,070
Repayment of stockholder loan (220,549) --
Principal payments on loans payable (81,606) (43,328)
Sale of preferred stock 2,500 --
Proceeds from initial public offering
and private placements 4,500,000 --
Costs of initial public offering and
private placements (931,524) (40,000)
Repurchase of common stock (500,000) --
Dividends paid (260,920) (104,500)
----------- -----------
Net cash provided by (used for) financing activities 2,501,865 (42,258)
----------- -----------
Net increase (decrease) in cash 2,554,484 (7,126)
Cash, beginning of period 15,704 22,830
----------- -----------
Cash, end of period $ 2,570,188 $ 15,704
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 5,750 $ 10,620
=========== ===========
Taxes paid $ 50,000 $ --
=========== ===========
Supplemental schedule of non cash investing and
financing activities:
Acquisition of equipment through issuance of notes payable $ 15,024 $ 58,499
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 52
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 1 - GENERAL
Thrift Management, Inc. (the "Company"), was organized in the State of
Florida on July 22, 1991 for the purpose of managing the operation of
retail thrift stores which offer new and used articles of clothing,
furniture, miscellaneous household items and antiques. The Company is
registered with the State of Florida as a professional solicitor. The
Company obtains its merchandise primarily from two sources, i) purchase
contracts with charitable organizations in return for an average of 5%
to 6% (2% to 3% effective January 1, 1996) of its gross sales, and ii)
contracts with drop box collectors who maintain drop boxes throughout
designated areas from whom the Company purchases merchandise in bulk at
a flat rate per pound. Items from the stores which remain unsold are
sold in bulk to exporters to countries throughout the Caribbean,
Central and South America, and Eastern Europe. Through its wholly-owned
subsidiaries, the Company operates four (4) retail stores plus a
management company. Hallandale Thrift Management, Inc. ("HTMI"), the
additional management company, and the Company are responsible for the
solicitation of donations on behalf of the affiliated charities through
direct mailings, newspaper advertising and telemarketing. The Company
and HTMI are also responsible for the pickup of the donated merchandise
throughout the communities. HTMI was organized in the State of Florida
on December 9, 1993.
The Company's four (4) retail stores are operated under separate
wholly-owned subsidiaries as follows:
1. Thrift Shops of South Broward, Inc. ("TSSB")
organized in the State of Florida on May 19, 1989.
2. Thrift Shops of West Dade, Inc. ("TSWD") organized in
the State of Florida on October 8, 1992.
3. Hallandale Thrift, Inc. ("HTI") organized in the
State of Florida on June 14, 1993.
4. North Broward Consignment, Inc. ("NBCI") organized in
the State of Florida on May 10, 1995.
A portion of the outstanding common stock of the Company and its
subsidiaries were held in escrow as collateral pursuant to an
agreement. On May 28, 1996, the Company liquidated amounts due to the
Miami Jewish Home and Hospital for the Aged, Inc. ("Jewish Home") and
the aforementioned common stock was released. (See Note 11h for
additional information).
On May 31, 1996, following the completion of the confidential private
offering memorandum, the Company reorganized its capital structure as
more fully discussed in Note 12d. The financial statements give
retroactive effect to the reorganization of the Company's capital
structure.
F-7
<PAGE> 53
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The consolidated financial statements at December 31, 1996 and 1995
include the accounts of the Company, HTMI, TSSB, TSWD, HTI and NBCI
(collectively the "Companies"). All entities were wholly-owned by a
common stockholder as of December 31, 1995. As of May 31, 1996, HTMI,
TSSB, TSWD, HTI, and NBCI became wholly-owned subsidiaries of the
Company pursuant to the reorganization plan. Accordingly, as of
December 31, 1996 and for the year then ended, the Company has
presented consolidated financial statements. All significant
intercompany accounts and transactions have been eliminated for
financial statement presentation purposes.
b) EQUIPMENT, FIXTURES AND IMPROVEMENTS
Equipment, fixtures and improvements are recorded at cost. Depreciation
is provided using the straight-line method over the estimated useful
lives (5-10 years) of the related assets. Leasehold improvements are
amortized over the lesser of the related lease terms or the estimated
useful lives of the improvements. Maintenance and repairs are charged
to operations as incurred.
c) MERCHANDISE INVENTORIES
Merchandise inventories consist primarily of new and used clothing,
furniture, miscellaneous household items and antiques, which are stated
at the lower of cost (determined by specific identification method) or
market. The cost of donated inventories includes the actual cost of
merchandise paid to the respective charities plus expenses incurred
that are directly associated to the acquisition of such inventory.
Inventory write-downs are recorded in the period in which it becomes
reasonably evident that the merchandise is not saleable or the market
value is less than cost.
d) COVENANTS NOT TO COMPETE
Covenants not to compete consist of costs in connection with the buyout
of a previous stockholder. Such covenants not to compete are being
amortized on a straight line basis over their contractual lives of six
years.
e) INTANGIBLE ASSETS
Included in other assets are intangible assets consisting of
organizational and trade name costs which have been recorded at cost.
Organizational and trade name costs are being amortized on a
straight-line basis over their estimated useful lives which range from
five years to fifteen years.
f) PER SHARE DATA
Pro forma net income per share is computed using the weighted average
number of shares outstanding during each respective period, and is
based on the number of shares issued and outstanding giving retroactive
effect to the Company's reorganization.
F-8
<PAGE> 54
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
g) INCOME TAXES
Prior to the reorganization, the Companies, with the consent of its
then sole stockholder, elected under the Internal Revenue Code to be
taxed as an "S" corporation. In lieu of corporation income taxes, the
stockholders of an "S" corporation are taxed on their proportionate
share of the company's taxable income or loss, accordingly, no
provision or liability for federal taxes is included in the
consolidated financial statements through May 31, 1996. Effective June
1, 1996, the Company will be taxed as a "C" Corporation as a result of
its new capital restructure pursuant to the reorganization. The Company
will file a consolidated federal and state income tax returns with its
subsidiaries. The pro forma income tax provision represents the
approximate Federal and State income taxes that the Company would have
incurred had the Company not been an "S" Corporation during the years
presented and accordingly, subject to Federal and State income taxes.
h) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. At December 31, 1996, the
Company had deposits in excess of federally insured amounts which
totalled $2,431,925.
i) USE OF ACCOUNTING ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles require management to
make estimates and assumptions that effect the amounts reported in the
consolidated financial statements and accompanying notes. Accordingly,
actual results could differ from those estimates.
j) FAIR VALUE DISCLOSURES
The carrying value of cash, prepaid expenses, prepaid income taxes,
accounts payable and accrued expenses are a reasonable estimate of
their fair value. The carrying values of notes payable at December 31,
1996 are a reasonable estimate of their fair value based upon currently
available interest rates of similar instruments available with similar
maturities.
k) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected earlier adoption of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which requires the recognition of compensation expense
for stock-based awards based upon the fair value of the award at the
grant date.
NOTE 3 - MERCHANDISE INVENTORIES
Merchandise inventories at December 31, 1996 amounting to $114,972
consists of donated and purchased new and used clothing, furniture,
miscellaneous household items and antiques. The cost of donated
inventories includes the actual cost of merchandise paid to the
respective charities plus expenses incurred that are directly
associated to the acquisition of such inventory. (See Notes 11b and
11c). Inventory write-downs are recorded in the period in which it
becomes reasonably evident that the merchandise is not saleable or the
market value is less than cost.
F-9
<PAGE> 55
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 4 - ADVANCES TO STOCKHOLDER
As of December 31, 1996, the Company has advanced $189,473 to its
majority stockholder. The advances are non-interest bearing and will be
taken into income over a three year period commencing December 5,
1996, the effective date of the initial public offering.
NOTE 5 - EQUIPMENT, FIXTURES AND IMPROVEMENTS, NET
Equipment, fixtures, and improvements consists of the following at
December 31, 1996:
<TABLE>
<S> <C>
Furniture and fixtures $ 148,545
Automobile 73,499
Leasehold improvements 101,277
Transportation equipment 16,580
-----------
339,901
Less accumulated depreciation and amortization 143,648
-----------
$ 196,253
===========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1996 and 1995 amounted to $68,753 and $47,400, respectively.
NOTE 6 - COVENANTS NOT TO COMPETE
In connection with a non-competition agreement with a former
stockholder for a period of six years, the Company agreed to pay
$182,500 as consideration for said individual agreeing not to engage in
any facet of the thrift shop business within a defined geographic area.
Pursuant to a final judgement against such previous stockholder, the
previous stockholder relinquished his rights to receive further
payments from the Companies under the non-competition agreements. For
the years ended December 31, 1996 and 1995 amortization expense
amounted to $24,093 and $24,093, respectively. (See Note 11h for
additional information).
NOTE 7 - ACCRUED EXPENSES
Accrued expenses at December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Consulting $ 4,398
Payroll 82,265
Property taxes 20,014
Rent 10,200
Advertising 16,640
--------------
Total $ 133,517
==============
</TABLE>
NOTE 8 - DUE TO STOCKHOLDER
As of December 31, 1996, the Company's President and majority
stockholder of the Company is owed $208,540. Such amount is composed of
$150,000 representing an accrued incentive bonus, (see Note 12e)
$22,464 for accrued and unpaid dividend distributions through May 31,
1996, and $36,076 for unpaid annual bonus in the amount equal to 1% of
the Company's annual gross revenue since June 1, 1996.
F-10
<PAGE> 56
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 9 - NOTES PAYABLE
Notes payable amounting to $47,301 are comprised of the following at
December 31, 1996:
i) An original loan agreement dated January 9, 1995 for a total of $58,499
in connection with the acquisition of an automobile. The total purchase
price of the automobile amounted to $84,543. The loan is payable in
forty-eight (48) equal monthly installments amounting to $1,449 at an
interest rate of 8.75%. The loan is collaterized by such automobile. As
of December 31, 1996 the balance outstanding is $32,997 of which
$15,092 is current.
ii) An original loan agreement dated October 15, 1996 for a total of
$15,024 in connection with the purchase of store security equipment.
The loan is payable in 36 monthly payments of $505 including principal
and interest at a rate of 10.17%. The balance as of December 31, 1996
is $14,304, of which $4,587 is considered current.
Maturities of long-term notes payable are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1997 $ 19,679
1998 21,543
1999 6,079
-------------
Total $ 47,301
=============
</TABLE>
NOTE 10 - INCOME TAX BENEFIT
The Company has adopted SFAS No. 109, "Accounting for Income Taxes",
effective January 1, 1995. Management has evaluated the effect of
implementation and has determined that there is no material impact on
the Company's financial position.
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related to differences between the financial and tax
basis of assets and liabilities for financial and income tax reporting
purposes. A reconciliation of the income tax expense on income per the
U.S. Federal statutory rate to the reported income tax expense is as
follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
U.S. Federal statutory rate applied to
pretax income $ 42,500 $ -
State income taxes, net of federal
income tax benefit 4,500 -
Benefit of S Corporation election, federal
and state (76,000) -
Benefit of graduated tax rates to statutory
tax rate (11,750) -
Temporary differences 66,250 -
Effect of annualizing income for the short
C Corporation year 6,500 -
------------ --------
Income tax expense $ 32,000 $ -
============ ========
</TABLE>
F-11
<PAGE> 57
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 10 - INCOME TAX BENEFIT (Cont'd)
Deferred tax assets and liabilities represent the future tax return
consequences of these temporary differences, which will either be
taxable or deductible in the year when the assets or liabilities are
recovered or settled.
The deferred income tax asset consists of the following at December
31, 1996:
<TABLE>
<S> <C>
Deferred tax assets relating to:
Accrued expenses $ 57,000
Property and equipment 9,000
------------
Total deferred income tax assets $ 66,000
============
</TABLE>
Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that deductible temporary differences
are expected to be available to reduce taxable income. Management
considers it "more likely than not" that the deferred tax assets will
be utilized and therefore, no valuation allowance is deemed necessary
at December 31, 1996:
Income tax benefit is comprised of the following at December 31, 1996:
<TABLE>
<S> <C>
Current:
Federal income tax expense $ 26,000
State income tax expense 6,000
------------
32,000
------------
Deferred:
Federal income tax benefit 56,000
State income tax benefit 10,000
------------
66,000
------------
Total income tax benefit (net) $ 34,000
============
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
a) DEFERRED COMPENSATION AGREEMENT
Pursuant to a deferred compensation agreement dated March 10, 1995
with the Companies' former President, upon liquidation of any of the
Companies, such liquidating entity shall pay the former President the
sum of five (5%) percent of the gross sales proceeds from such
liquidation, payable fifty (50%) percent in the first year after
liquidation and 50% in the second year after liquidation.
F-12
<PAGE> 58
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Cont'd)
b) AGREEMENT TO SOLICIT AND PURCHASE SALVAGEABLE MERCHANDISE WITH MISSING
CHILDREN AWARENESS FOUNDATION, INC.
On December 1, 1993, the Company entered into an agreement to solicit
salvageable merchandise for the Missing Children Awareness Foundation,
Inc. ("MCAF"), a Florida not-for-profit corporation. MCAF shall pay
the Company on a monthly basis a fee equal to fifteen percent (15%) of
the total gross sales of the merchandise in excess of $1,600 per month
to be sold by an affiliate of the Company, plus reimbursement of all
expenses incurred by the Company in fulfilling its obligations
pursuant to such agreement, provided however, that in no event shall
the total fee, including expense reimbursements, exceed fifty percent
(50%) of the total gross sales price of the merchandise. The fee shall
be paid monthly to the Company within twenty (20) days following the
end of each calendar month. The term of this agreement shall be for a
period of five (5) years, commencing on December 1, 1993, and
terminating on November 30, 1998, with one (1) five (5) year renewal
option commencing December 1, 1998, unless terminated sooner or
extended pursuant to the terms and conditions of this agreement.
Also on December 1, 1993, TSSB entered into an agreement to purchase
salvageable merchandise from MCAF. Pursuant to such agreement, MCAF
agreed to sell to TSSB all merchandise received as contributions. The
price to be paid to MCAF shall be based upon a percentage of the gross
sales price of such merchandise. For the purpose of the agreement, the
term "gross sales" shall mean the income derived from the sale of the
merchandise. The purchase price shall be equal to the greater of (i)
$1,600 per month or (ii) 20% of the gross sales of the merchandise per
month, payable monthly, based upon gross sales of merchandise during
the preceding calendar month.
The term of this agreement shall be for a period of five (5) years,
commencing on December 1, 1993 and terminating on November 30, 1998,
with one (1) five (5) year renewal option, commencing on December 1,
1998, unless terminated sooner or extended pursuant to the terms and
conditions of this agreement.
The net effect of the above agreements results in the Company paying a
5% fee on gross sales derived from donated merchandise. During the
first quarter 1996 the Company renegotiated its agreements with MCAF
and effective January 1, 1996 the Company's fee on gross sales for all
merchandise will be 2%. All other terms of the December 1, 1993
agreement remain in effect.
F-13
<PAGE> 59
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Cont'd)
c) AGREEMENT TO SOLICIT AND PURCHASE SALVAGEABLE MERCHANDISE WITH THE
TEMPLE BETH AHM ISRAEL
On February 1, 1994, HTMI entered into an agreement to solicit
salvageable merchandise for the Temple Beth Ahm Israel ("TBAI"), a
Florida not-for-profit corporation. Pursuant to such agreement, TBAI
has retained the services of HTMI to solicit and gather merchandise on
its behalf. TBAI shall pay HTMI on a monthly basis a sum equal to
fifteen percent (15%) of the total gross sales of the merchandise in
excess of $10,000 per month to be sold by an affiliate of HTMI, plus
reimbursement of all expenses incurred by HTMI in fulfilling its
obligations pursuant to such agreement, provided however, that in no
event shall the total fee, including expense reimbursements, exceed
fifty percent (50%) of the total gross sales price of the merchandise.
The fee shall be paid monthly to HTMI within five (5) days following
the charity's receipt of the fee due the charity from HTI. (See below
for agreement to purchase salvageable merchandise). In the event HTI
fails to pay TBAI, TBAI shall have no obligation to pay HTMI. The term
of this agreement shall be for a period of five (5) years, commencing
on February 1, 1994, and terminating on February 1, 1999, with one (1)
five (5) year renewal option commencing February 1, 1999, unless
terminated sooner or extended pursuant to the terms and conditions of
this agreement.
Also on February 1, 1994, HTI entered into an agreement to purchase
salvageable merchandise from TBAI. Pursuant to such agreement, TBAI
agreed to sell to HTI all merchandise received as contributions. The
price to be paid to TBAI shall be based upon a percentage of the gross
sales price of such merchandise. For the purpose of the agreement, the
term "gross sales" shall mean the income derived from the sale of the
merchandise. The purchase price shall be equal to the greater of (i)
$10,000 per month or (ii) 21% of the gross sales of the merchandise,
payable monthly, based upon gross sales of merchandise during the
preceding calendar month.
The term of this agreement shall be for a period of five (5) years,
commencing on February 1, 1994, and terminating on February 1, 1999,
with one (1) five (5) year renewal option, commencing on February 1,
1999, unless terminated sooner or extended pursuant to the terms and
conditions of this agreement.
The net effect of above agreements results in the Company paying a 6%
fee on gross sales derived from donated merchandise. During the first
quarter of 1996 the Company renegotiated its agreement with TBAI and
effective January 1, 1996 the Company's fee on net sales of all
merchandise will be 3%. All other terms of the February 1, 1994
agreement remained in effect.
d) PURCHASE COMMITMENT AGREEMENTS
i) On October 21, 1994, the Companies entered into a purchase
commitment agreement with All Round Recycling, Inc. ("All Round"),
a Florida Corporation, for the purpose of purchasing approximately
two (2) container loads of property per week with each container
containing between 13,000 and 20,000 pounds of property. For the
years ended December 31, 1996 and 1995, the Companies purchased
$762,951 and $399,644, respectively of property from All Round.
The term of this agreement shall be for one (1) year commencing
October 21, 1994, and shall be automatically renewed for
subsequent one (1) year periods unless either party cancels this
agreement with thirty (30) days written notice to the other party
prior to the end of a one year term.
F-14
<PAGE> 60
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Cont'd)
d) PURCHASE COMMITMENT AGREEMENTS (Cont'd)
ii) On December 21, 1995, the Companies entered into a second
purchase commitment agreement with All Round for the purpose of
purchasing the entire collection of property gathered by All
Round. The Companies and All Round have agreed to share certain
delivery costs with the Companies paying all other costs. The term
of this second purchase agreement shall be for two (2) years with
a two (2) year option which must be exercised within thirty (30)
days prior to the end of the first term.
e) DEPENDENCE ON CHARITABLE DONATIONS
The Companies primary source of revenues is through its sales of
charitable property donated. A recession or change in the tax laws
could materially adversely effect the Company's business,
operations, revenues and prospects since a material portion of the
Company's sales are dependent on charitable contributions.
f) Operating leases
The Companies lease properties and equipment under non-cancelable
operating lease agreements which expire through December 2001 and
require minimum annual rentals. Certain leases provide for renewal
options to extend the leases up to an additional seven (7) years.
Below is a summary of each of the Company's subsidiary's
respective lease terms, including a summary of the aggregate
future minimum lease payments due under these noncancelable
leases.
i) TSSB leases its location pursuant to a non-cancelable operating
lease which commenced on May 1, 1996 and expires on April 30,
2001. The lease contains an option to renew for one (1) successive
five (5) year period under the same terms and conditions, except
that the rent for each option year shall increase five (5) percent
per annum. TSSB shall pay the landlord the following sums: year 1,
$96,900, year 2, $101,745, year 3, $106,832, year 4, $112,174, and
year 5, $117,783.
ii) NBCI leases its location pursuant to a non-cancelable
operating lease which commenced on May 22, 1995 and expires on or
about May, 2000. The lease contains two (2) successive renewal
options each for a period of five (5) years. All terms and
conditions of the lease shall remain the same during the first and
second option period as they were during the initial term, except
for rent increases. NBCI shall pay the landlord year 1, $60,300,
year 2, $65,325, year 3, $75,375, year 4, $85,425 and year 5,
$90,450. In addition to rent payments, NBCI is liable for its
pro-rata shares of real estate taxes assessed. NBCI receives a
rent credit of $1 per square foot while the floor space adjacent
to its location remains vacant. As of December 31, 1996 this space
was vacant and NBCI was receiving the credit.
F-15
<PAGE> 61
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Cont'd)
f) OPERATING LEASES (Cont'd)
iii) TSWD leases its location pursuant to a non-cancelable
operating lease which commenced on November 1, 1992 and expires
on October 31, 1999. The lease contains an option to renew for
one (1) seven year period under the same terms and conditions as
the initial term. Annual rent increases are based upon the
consumer price index ("CPI") from a minimum of 4% to a maximum of
8%, except for the first year whereby the increase was $1 per
square foot or $10,500. The initial rent expense was $55,125 per
annum.
iv) TSSB leases its location pursuant to a non-cancelable
operating lease which commenced on May 1, 1996 and expires on
April 30, 2001. The lease contains an option to renew for one (1)
successive five (5) year period under the same terms and
conditions, except that the rent for each option year shall
increase five (5) percent per annum. TSSB shall pay the landlord
the following sums: year 1, $93,516, year 2, $98,192, year 3,
$103,102, year 4, $108,257, and year 5, $113,670.
v) TMI leases an automobile pursuant to a non-cancelable
operating lease dated September 3, 1996 and expiring September 3,
1999. The lease requires monthly payments of $518. The Company is
responsible for all registration, maintenance and insurance
costs.
vi) TMI leases an automobile pursuant to a non-cancelable
operating lease dated January 11, 1996 and expiring April 11,
1998. The lease requires monthly payments of $615. The Company is
responsible for all registration, maintenance and insurance
costs.
Total rent expense for the years ended December 31, 1996 and 1995
amounted to $339,761 and $289,062, respectively.
A schedule of consolidated future minimum rental payments is as
follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1997 $ 357,411
1998 374,041
1999 393,359
2000 410,370
2001 430,537
---------------
$ 1,965,718
===============
</TABLE>
g) CONSULTING AGREEMENT - TSWD
On October 1, 1992, TSWD entered into a seven year consulting agreement
with the previous 50% stockholder of TSSB. Said consultant is
responsible for all facets of day to day operations, and shall devote
such time and attention as deemed necessary in order to accomplish the
objectives of the Company. However, in no event shall consultant devote
less than 10 hours per week. As consideration, the consultant shall be
paid an amount equal to 3% of the monthly gross sales only if such
sales exceed $70,000.
On January 1, 1995, the consulting agreement was amended whereby the
consultant shall receive as consideration 3% of the first $90,000 of
monthly gross sales and 4% of gross sales in excess of $90,000 only if
gross sales exceed $70,000 for the month.
F-16
<PAGE> 62
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Cont'd)
g) CONSULTING AGREEMENT - TSWD (Cont'd)
On October 1, 1995, the consulting agreement was further amended
whereby pursuant to such amendment, the consultant shall be paid 2% of
the monthly gross only if such gross sales exceed $70,000 per month.
Consulting fee expense for the year ended December 31, 1996 and 1995
amounted to $38,547 and $62,593, respectively.
h) LEGAL MATTERS
On December 3, 1987, the Jewish Home, a not-for-profit corporation,
filed an action against a previous stockholder in United States
District Court alleging trade name infringement and unfair
competition. The Company's majority stockholder and the Companies were
not a party to such action. During December 1993, the Court entered a
final judgement in favor of Jewish Home which included both a damage
award and a grant of injunctive relief against the Companies' previous
stockholder ("Weiner").
During February 1994, the Jewish Home filed a motion for contempt
against the now majority stockholder of the Company alleging
violations of the injunction, notwithstanding the fact that the
Companies were not party to the original action. On October 23, 1994
the Companies settled with the Jewish Home and the agreement provided
for the Companies to use a trade name approved by the Jewish Home. In
return for the use of this trade name the Companies were required to
pay the Jewish Home a fee of $20,000. Simultaneously, Weiner
relinquished his rights to receive further payments from the Companies
under non-competition agreements, whereby the balance due to Weiner
plus the additional fee were assigned to the Jewish Home. On October
23, 1994 amounts payable to the Jewish Home amounted to $146,188
including imputed interest of $16,777. $8,300 of the settlement amount
was paid in November and December 1994, with the balance payable in
equal payments of $3,320 including imputed interest at an annual rate
of 7.50% over a 41 month period ending in April 1998. Such payments
were secured by a promissory note and a pledge of all the capital
stock of the Companies. On May 28, 1996, the Company liquidated
amounts due to the Jewish Home and the aforementioned capital stock of
the Companies was released.
i) STOCK OPTION PLAN
The Company has adopted the 1996 Stock Option Plan, ("1996 Plan")
under which options to acquire up to 1,000,000 shares of Common Stock
may be granted. The 1996 Plan is designed to serve as an incentive for
retaining qualified and competent employees, directors, consultants
and independent contractors of the Company. The 1996 Plan provides for
the granting of both "incentive stock options" (as defined in Section
422 of the Code) and nonstatutory stock options. As of December 31,
1996 the Company has granted 700,000 options to its President. (See
Note 11j for additional information).
j) EXECUTIVE EMPLOYMENT AGREEMENT
The Company entered into a five year employment agreement with its
newly elected President. The employment agreement which is effective
June 1, 1996, provides for an annual base salary of $286,000 (subject
to a 10% annual automatic cost-of-living increase), an annual bonus in
an amount equal to 1% of the Company's annual gross revenues
subsequent to the date of the agreement, payment of life insurance
premiums of approximately $12,000 annually and an automobile allowance
of $1,500 per month.
F-17
<PAGE> 63
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Cont'd)
j) EXECUTIVE EMPLOYMENT AGREEMENT (Cont'd)
In connection with the employment agreement, the President was also
granted non-statutory performance options under the Company's 1996
Plan which was formed pursuant to the private offering memorandum to
purchase originally 350,000 shares of common stock. In connection with
the amendment to the letter of intent, during October 1996, the number
of options granted to the Company's President was increased to
700,000. Of the total amount granted, 125,000 of such options will
vest upon the opening or acquisition by the Company of the first new
thrift store or related business following the consummation of the IPO
and additional 125,000 will vest when such first new thrift store or
related business has operated profitably for one year. Similarly,
125,000 and 100,000 of such options will vest upon the opening or
acquisition by the Company of each of the next two thrift stores or
other businesses, respectively, and 125,000 and 100,000 will vest when
such two thrift stores or related business, respectively, operate
profitably for one year. Subject to such vesting, the options will be
exercisable upon the later of (i) six months after consummation of the
IPO (June 11, 1997) or (ii) six months after the date of grant, and
will expire 10 years from the date of grant. The exercise price of the
options is $5.00 per share. As of December 31, 1996, no options were
vested.
NOTE 12 - STOCKHOLDERS' EQUITY
a) COMPONENTS OF STOCKHOLDER'S DEFICIENCY PRIOR TO THE REORGANIZATION
The combined stockholder's deficiency for the Companies prior to the
reorganization consisted of the following at December 31, 1995:
<TABLE>
<CAPTION>
Common Stock Additional Retained
Par Paid-in Earnings
Name of Company Authorized Issued Value Capital (Deficiency)
--------------- ---------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Thrift Management, Inc. 1,000 100 $ 100 $ -- $ (67,638)
Hallandale Thrift Management 1,000 500 500 -- (3,838)
Thrift Shops of South Broward, Inc. 1,000 500 500 -- (51,109)
Thrift Shops of West Dade, Inc. 100 100 100 -- 5,060
Hallandale Thrift, Inc. 1,000 500 500 9,540 63,454
North Broward Consignment, Inc. 1,000 500 500 (136,938)
------- --------- ---------
$ 2,200 $ 9,540 $(191,009)
======= ========= =========
</TABLE>
The Companies made cash distributions to their then sole stockholder
of $283,384 and $104,500 respectively for the years ended December 31,
1996 and 1995.
F-18
<PAGE> 64
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 12 - STOCKHOLDERS' EQUITY (Cont'd)
b) PRIVATE PLACEMENT
On February 29, 1996, the Company completed a private placement
originally selling 500,000 shares of common stock and 200,000 common
stock purchase warrants ("Warrants") to purchase one share of common
stock each to a single investor in a private transaction for an
aggregate of $250,000. The Company received a $250,000 promissory note
which beared interest at seven percent (7%) per annum and was
initially due on May 29, 1996 and extended to July 15, 1996. Such note
was paid in full on August 2, 1996. The proceeds from the private
placement will be used for general working capital purposes, including
establishment of one additional thrift store. During October 1996,
such investor and the Company agreed to modify the private
transaction, whereby the number of shares were reduced to 300,000 and
the warrants were increased to 600,000. The Company has agreed to
register under the Securities Act of 1933, as amended, the resale of
100,000 of the 300,000 shares in the Company's Initial Public Offering
("IPO"). However, during December 1996, the Company and the
underwriter amended such registration whereby it registered 285,000 of
such shares. (See Note 12e for additional information). The Company
shall bear all fees and expenses related to this initial registration.
The remaining 15,000 shares and the 600,000 warrants are being
concurrently registered on behalf of the selling security holders
under a selling security holders' prospectus.
c) CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
Pursuant to a confidential private offering memorandum (the
"Offering") dated March 4, 1996, the Company originally offered to
accredited investors, for a period of sixty (60) days, units at a
purchase price of $25,000 per unit through a placement agent. Each
unit consisted of 20,000 shares of common stock and 10,000 warrants.
Each warrant was exercisable for a period of four (4) years commencing
one year from the date of issuance to purchase one share of common
stock at a purchase price of $4.80 per share. On May 3, 1996, the
offering period was extended by mutual agreement.
The Company offered a minimum of six (6) units ($150,000) (the
"Minimum Offering") and a maximum of twenty (20) units ($500,000) (the
"Maximum Offering"). During May 1996, the Company sold all twenty (20)
units which yielded net proceeds to the Company of $430,000. During
October 1996, the Company amended the offering by decreasing the
number of shares in each unit sold from 20,000 shares to 15,000
shares. Accordingly, the Company has issued 300,000 shares in
connection with the modified offering.
The Company originally agreed to register under the Securities Act of
1933, as amended, the resale of the 300,000 shares in the Company's
IPO. The Company was to bear all fees and expenses related to this
initial registration. Concurrently with the Company's IPO, the 200,000
warrants issued in connection with the private offering memorandum
were to be registered on behalf of the selling security holders' under
a selling security holders prospectus. During December 1996, in order
to comply with NASD rules, the Company agreed that upon completion of
the IPO, it will re-acquire such shares of Common Stock and Common
Stock Purchase Warrants for an aggregate of $500,000 as originally
paid by such Accredited Investors. Accordingly, a portion of the
proceeds from the IPO have been used to repurchase such securities.
The placement agent received a commission equal to nine (9%) percent
of the price of each unit sold and a non-accountable expense allowance
equal to three (3%) percent of the price of each unit.
F-19
<PAGE> 65
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 12 - STOCKHOLDERS' EQUITY (Cont'd)
d) REORGANIZATION
On May 31, 1996, TMI acquired all of the issued and outstanding
capital stock of its affiliates from its sole stockholder in exchange
for a total of 1,200,000 shares of common whereby 1,050,000 common
shares and 250,000 shares of Series A Preferred Stock were issued to
the prior sole stockholder and 150,000 shares were issued to the
former President/Director of the Companies for nominal consideration
pursuant to the exercise of an option. Simultaneously, TMI effected a
twelve thousand (12,000) for one (1) stock split of its previous 100
outstanding shares of common stock. As a result of the reorganization,
each of the affiliated corporations became wholly-owned subsidiaries
of the Company. Accordingly, the Company has presented consolidated
financial statements as of December 31, 1996 and for the year then
ended.
The Company's authorized capital stock after the reorganization
consists of 15,000,000 shares of common stock, par value $.01 per
share, and 1,500,000 shares of preferred stock, par value $.01 per
share. The financial statements give retroactive effect to the
reorganization of the Company's capital structure.
e) INITIAL PUBLIC OFFERING
On January 22, 1996, the Company signed a letter of intent with an
underwriter, which was subsequently amended during December 1996, with
respect to an IPO of units of securities on a "Firm Commitment" basis.
The Company was to offer 585,000 units at an IPO price of
approximately $8.60 per unit, for an aggregate public offering of
approximately $5,031,000.
During December 1996, the Company and the underwriter agreed to amend
the offering whereby the Company offered a total of 900,000 units.
Each unit consisted of one share of Common Stock, (the "Common Stock")
par value $.01 per share and one redeemable warrant (the "Warrant") to
purchase one share of Common Stock for $5 per share. The 900,000
shares of Common Stock and Warrants were offered to the public at
$5.00 and $.75 each respectively. As an additional incentive to
Company's President and majority stockholder, the Company agreed to
pay $150,000 to its President in the form of a bonus for reimbursement
for taxes for the distributions as discussed in Note 12a. The Company
has accrued such bonus as of December 31, 1996 and the bonus was paid
during January 1997.
The offering was completed December 11, 1996 yielding the Company net
proceeds of $2,596,950 after deducting underwriter selling expenses
and non-accountable expense allowance, and purchase of securities
previously sold. (See Note 12c for additional information).
Simultaneously with the offering, the Company charged all offering
costs incurred to additional paid-in capital which totalled $653,050.
Of the 900,000 shares of Common Stock included in the 900,000 units
offered, 615,000 shares were offered by the Company and 285,000 shares
were offered by the holders thereof (the "initial selling
shareholders") directly to the Company's underwriter on the same terms
and conditions as the Company. The Company did not receive any of the
proceeds from the sale of the shares of common stock by the initial
selling shareholders. Accordingly, the gross offering proceeds to the
Company was $3,750,000.
F-20
<PAGE> 66
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 12 - STOCKHOLDERS' EQUITY (Cont'd)
e) INITIAL PUBLIC OFFERING (Cont'd)
The Warrants are exercisable for a period of five years commencing one
year from the date of issuance, subject to prior redemption. The
Warrants may be redeemed by the Company on 30 days' notice at any time
after one year from the date of issuance at a redemption price of $.10
per Warrant if the closing bid price of the Common Stock for 20
consecutive trading days ending on the 15th day prior to the date
notice of redemption was given by the Company has been at least 150%
of the exercise price then in effect. The Common Stock and Warrants
are detachable and separately tradeable immediately upon issuance.
In order to cover over-allotments, the Company granted the underwriter
the over-allotment option to purchase all or part of an additional
fifteen percent (15%) or 135,000 of the units for a period of thirty
(30) calendar days from the date of the closing. The over-allotment
shall be exercisable by the underwriter in whole or in part, from time
to time during the over-allotment period and resold to the public on
the same terms as the units. The over-allotment option was not
exercised by the underwriter upon completion of the IPO.
As additional compensation to the underwriter, the Company issued
five-year warrants, exercisable after one year, to purchase 90,000
units at $9.49 per unit. Lastly, the underwriter entered into a
three-year consulting agreement with the Company as financial
consultants for a total fee of $75,000, which was paid in full as of
December 31, 1996.
NOTE 13 - RELATED PARTY TRANSACTIONS
a) ADVANCES TO STOCKHOLDER
As of December 31, 1996, the Company has advanced $189,473 to its
majority stockholder. The advances are non-interest bearing and will
be repaid over a three year period commencing December 5, 1996, the
effective date of the Company's IPO as pursuant to the letter of
intent.
b) COVENANTS NOT TO COMPETE
In connection with a non-competition agreement with a former
stockholder for a period of six years the Company agreed to pay
$182,500 as consideration for said individuals agreeing not to engage
in any facet of the thrift shop business within a defined geographic
area. Pursuant to a final judgement against such previous stockholder,
the previous stockholder relinquished his rights to receive further
payments from the Companies under the non-competition agreements.
c) DEFERRED COMPENSATION AGREEMENT
Pursuant to a deferred compensation agreement dated March 10, 1995
with the Companies' former President, upon liquidation of any of the
consolidated companies, such liquidating entity shall pay the former
President the sum of five (5%) percent of the gross sales proceeds
from such liquidation payable fifty (50%) percent in the first year
after liquidation and 50% in the second year after liquidation.
F-21
<PAGE> 67
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 13 - RELATED PARTY TRANSACTIONS (Cont'd)
d) DUE TO STOCKHOLDERS
As of December 31, 1996, the Company's President and majority
stockholder of the Company is owed $208,540. Such amount is composed
of $150,000 representing a bonus for reimbursement of taxes associated
with dividend distributions, (see Note 12e) $22,464 for unpaid
dividend distributions through May 31, 1996, and $36,076 for the
annual bonus in the amount equal to 1% of the Company's annual gross
revenue since June 1, 1996.
F-22
<PAGE> 68
============================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in 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 of the securities offered hereby in any jurisdiction to any person
to whom it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any offer, solicitation or sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to the date of this
Prospectus.
---------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Prospectus Summary.......................................... 2
Risk Factors................................................ 7
Dividend Policy............................................. 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 19
Management.................................................. 25
Principal and Selling Security Holders...................... 30
Certain Transactions........................................ 32
Description of Securities................................... 34
Shares Eligible for Future Sale............................. 38
Plan of Distribution........................................ 38
Legal Matters............................................... 40
Experts..................................................... 40
Additional Information...................................... 40
</TABLE>
765,000 SHARES
OF
COMMON STOCK
AND
600,000 COMMON STOCK
PURCHASE WARRANTS
OF
THRIFT MANAGEMENT, INC.
--------------------------
PROSPECTUS
--------------------------
APRIL , 1997
==============================================================================
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VIII of the Company's Amended and Restated Articles of
Incorporation provides that the Company shall indemnify its officers and
directors to the fullest extent permitted by law.
The Company's Bylaws and the Florida Business Corporation Act provide for
indemnification of directors and officers against certain liabilities. Pursuant
to the Company's Bylaws, officers and directors of the Company are indemnified,
to the fullest extent available under Florida law, against expenses actually and
reasonably incurred in connection with threatened, pending or completed
proceedings, whether civil, criminal or administrative, to which an officer or
director is, was or is threatened to be made a party by reasons of the fact that
he or she is or was an officer, director, employee or agent of the Company. The
Company may advance expenses in connection with defending any such proceeding,
provided the indemnitee undertakes to repay any such amounts if it is later
determined that he or she was not entitled to be indemnified by the Company.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that its expenses in connection with this
Post-Effective Amendment will be as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ (A)
Legal fees and expenses..................................... 5,000
Accounting fees and expenses................................ 3,000
Miscellaneous*.............................................. 1,000
------
Total..................................................... $9,000
======
</TABLE>
-----------------------------------
(A) The SEC registration fee was previously paid.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
See Note 12 to the Company's Consolidated Financial Statements included in
the Prospectus for a description of sales of unregistered securities by the
Company during 1996. All of such sales were made pursuant to the exemption from
registration afforded by Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
(1.1) Form of Underwriting Agreement between the Company, the
Selling Security Holders and the Underwriter(A)
(3.1) Amended and Restated Articles of Incorporation of the
Company(A)
</TABLE>
II-1
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
(3.2) Amended and Restated Bylaws of the Company(A)
(4.1) Statement of Designation of Series A Preferred Stock(A)
(4.3) Form of Common Stock Certificate(A)
(4.6) Form of Warrant Agent Agreement with attached Form of
Warrant(A)
(4.7) Form of Underwriter's Warrant Agreement(A)
(5.1) Opinion of Broad and Cassel(A)
(10.1) Form of Employment Agreement with Marc Douglas(A)
(10.2) 1996 Stock Option Plan(A)
(10.3) Purchase Commitment Agreement dated December 21, 1995
between the Company and All Around Recycling(A)
(10.4) Agreement to Purchase Salvageable Property between Hallandale
Thrift, Inc., d/b/a The Jewish Bargain Thrift shop, and Temple
in the Pines, d/b/a Beth Ahm Israel, as amended(A)
(10.5) Agreement to Solicit Salvageable Property between Hallandale
Thrift Management, Inc. and Temple in the Pines, d/b/a Beth
Ahm Israel, as amended(A)
(10.6) Agreement to Solicit Salvageable Property between Thrift Shops
of South Browwar, Inc. d/b/a the Community Thrift Shop, Thrift
Shops of West Date, Inc. and Missing Children Awareness
Foundation, Inc., as amended(A)
(10.7) Agreement to Solicit Salvageable Property between the Company
and Missing Children Awareness Foundation, Inc., as amended(A)
(21.1) Subsidiaries of the Registrant
(23.1) Consent of Scarano & Lipton, P.C.(B)
(23.2) Consent of Broad and Cassel (included in Exhibit 5.1)(A)
(24.1) Power of Attorney (see page II-4 of the Registration
Statement as originally filed)(A)
(27.1) Financial Data Schedule (SEC use only)(A)
</TABLE>
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(A) Previously filed.
(B) Filed with this Post-Effective Amendment No. 2.
ITEM 28. UNDERTAKINGS.
RULE 415 OFFERING. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information set forth in the Registration
Statement; and (iii) include any additional or changed material information in
the plan of distribution.
II-2
<PAGE> 71
(2) For determining liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the Offering.
EQUITY OFFERINGS OF NONREPORTING SMALL BUSINESS ISSUERS. The undersigned
registrant hereby undertakes to 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 underwriters to permit prompt
delivery to each purchaser.
ACCELERATION OF EFFECTIVE DATE. Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Act"), may be
permitted to directors, officers or persons controlling the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant 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 Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
TRANSACTIONS WITH OR BY SELLING SECURITY HOLDERS; LOCK-UP PERIODS. The
undersigned registrant hereby undertakes:
(1) To file a post-effective amendment to this Registration Statement
in the event that there is a change in the plans, proposals, agreements,
arrangements or understandings, if any, with respect to transactions with or by
Selling Security Holders or plans to waive or shorten the lock-up periods
applicable to such Selling Security Holders from those set forth in the
Registration Statement; and
(2) In the event that all or a part of the Selling Security Holders are
released by the Underwriter from their respective lock-up agreements, to file
(i) a post-effective amendment to this Registration Statement if more than 10%
of the Selling Security Holders' Securities are proposed to be released and (ii)
a sticker prospectus supplement if between 5% and 10% of the Selling Security
Holders' Securities are proposed to be released.
II-3
<PAGE> 72
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 Post-Effective Amendment No. 2 to Form SB-2
and authorizes this Registration Statement to be signed on its behalf by the
undersigned, in the City of Hallandale in the State of Florida on the 16th day
of April, 1997.
THRIFT MANAGEMENT, INC.
By:/s/Marc Douglas
---------------------------------
Marc Douglas
Chief Executive Officer and President
In accordance with the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 2 to the Registration Statement has
been signed by the following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Marc Douglas Chief Executive Officer, April 16, 1997
- ------------------------------------------ President and Director
Marc Douglas
/s/Ileen Little Vice President, Secretary April 16, 1997
- ------------------------------------------ and Director
Ileen Little
*By:
--------------------------------------
Marc Douglas, Attorney-in-Fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 23.1
333 Earle Ovington Blvd., Suite 102
[LOGO] SCARANO & LIPTON, P.C. Mitchel Field, New York 11553-3656
Certified Public Accountants & Consultants 516-222-9393 - Fax: 516-228-9396
- --------------------------------------------------------------------------------
MEMBER OF THE SEC PRACTICE SECTION,
AICPA DIVISION FOR CPA FIRMS
April 17, 1997
Thrift Management Inc.
3141 West Hallandale Beach Blvd.
Hallandale, Florida 33009
We hereby consent to the use of our name "as experts," in the "Summary
Consolidated Financial Information" section and the use of our opinion dated
February 17, 1997, to be included in the Post-Effective Amendment No. 2 to
Form SB-2 Registration Statement being filed for Thrift Management Inc.
Very truly yours,
/s/ Scarano & Lipton, P.C.
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Scarano & Lipton, P.C.
