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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 333-5190-A
THRIFT MANAGEMENT, INC.
(Exact name of Small Business Issuer in Its Charter)
Florida 65-0309540
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
3141 W. Hallandale Beach Boulevard
Hallandale, Florida 33009
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (954) 985-8100
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports, and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $6,104,905
The aggregate market value of the issuer's Common Stock, $.01 par value, held by
non-affiliates on March 14, 1997 was approximately $6,290,625.
As of March 14, 1997, there were 2,115,000 shares of the issuer's Common Stock,
$.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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FORWARD-LOOKING STATEMENTS
Thrift Management, Inc. (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 Report or which are otherwise made by or on
behalf of the Company. For this purpose, any statements contained in this Report
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 donation and a limited number of
charities, expenses or risks, reliance on management, competition and
seasonality. The Company is also subject to other risks detailed herein or
detailed from time to time in the Company's filings with the Securities and
Exchange Commission.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
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). 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.
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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.
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. Accordingly, in March 1997, the Company entered
into a lease for one new thrift store located in Lauderdale Lakes, Florida
(Broward County). 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.
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.
In February 1996, the Company sold 500,000 shares of Common Stock and
200,000 Warrants (as hereinafter defined), to a single accredited investor (the
"Investor"), in a private transaction in reliance on Section 4(2) of the
Securities Act of 1933, as amended, for an aggregate of $250,000. In payment of
the subscription price, Rozel International Holdings, Inc. ("Rozel") gave to the
Company a 7% promissory note, which promissory note was paid in full on August
2, 1996. The Investor and the Company subsequently agreed to a modification of
the terms of its investment in the Company, such that the Investor received
300,000 shares of Common Stock and 600,000 warrants in consideration for the
$250,000 the Investor paid to the Company.
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 in a
private offering. 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 commissions and legal costs of
$60,000 and $10,000, respectively. In December 1996, The National Association of
Securities Dealers, Inc. (the "NASD") deemed certain of the investors in the
private offering to be affiliates of the managing underwriter (the
"Underwriter") of the Company's initial public offering (the "IPO") for purposes
of determining the fairness of the compensation payable to the Underwriter in
connection with the IPO. Accordingly, in order to comply with the NASD's rules,
upon completion of the IPO, the Company redeemed the shares of Common Stock and
Warrants sold in the private offering for the aggregate of $500,000 originally
paid by investors in the offering.
In December 1996, the Company consummated the IPO in which it sold
900,000 units (the "Units") at a price of $5.75 per Unit. Each Unit consisted of
one share of Common Stock and one redeemable warrant to purchase one share of
Common Stock for $5.00 per share (the
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"Warrants"). 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 IPO,
net of underwriting discounts and expenses and other offering expenses.
The Company was incorporated in Florida in July 1991. Its executive
offices are located at 3141 West Hallandale Beach Boulevard, Hallandale, Florida
33009, telephone number (305) 985-8100.
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. ("HTMI"),
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. Unless the
context specifically states otherwise, all disclosure in this Report gives pro
forma effect to consummation of the Reorganization.
OVERVIEW
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.
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
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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 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.
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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 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 Lease
Location Date Opened Square Footage Exp./Renewal
- -------- ----------- -------------- ------------
<S> <C> <C> <C>
3149 W. August 1986 8,300 April 2001/
Hallandale one five-year
Beach Boulevard renewal option
Hallandale, FL
3141 W. August 1992 15,000 April 2001/
Hallandale one five-year
Beach Boulevard renewal option
Hallandale, FL
</TABLE>
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<TABLE>
<CAPTION>
Approximate Lease
Location Date Opened Square Footage Exp./Renewal
- -------- ----------- -------------- ------------
<S> <C> <C> <C>
901 E. Tenth Ave November 1992 10,500 October 1999/
Hialeah, FL one seven-year
renewal option
1041 N. State Rd. 7 November 1995 10,050 November 2000/
Margate, FL 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 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 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
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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
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
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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 identify or
negotiate an acquisition transaction 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 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
As of March 14, 1997, the Company 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.
ITEM 2. DESCRIPTION OF PROPERTY
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" in Part I, Item 1 above for more information, including the
rental payments, regarding the Company's store locations.
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ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCK MATTERS
MARKET INFORMATION
The Company's Units, Common Stock and Warrants have traded since
December 5, 1996 under the symbols "THMMU," "THMM" and "THMMW," respectively, on
the OTC Bulletin Board operated by the NASDAQ Stock Market, Inc. The high and
low prices as furnished by the National Quotation Bureau Incorporated for the
Company's Common Stock for the period from December 5, 1996 to December 31, 1996
were $7.50 and $5.75, respectively, and the high and low prices for the Warrants
during such period were $1.25 and $1.125, respectively. These bid prices are
inter-dealer prices without retail markup, mark-down or commission, and may not
represent actual transactions.
HOLDERS
As of March 14, 1997 there were approximately five holders of record of
the Common Stock and three holders of record of the Warrants. The Company
believes that the Common Stock and Warrants are each held by in excess of 300
beneficial holders.
DIVIDEND POLICY
The Board of Directors does not currently contemplate the payment of
cash dividends. 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.
SALES OF UNREGISTERED SECURITIES
See Note 12 to the Financial Statements included in Part II, Item 7 of
this Report with respect to 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 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
included in Part II, Item 7 of this Report.
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%
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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.
The Company and HTMI, a Subsidiary, 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 $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
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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 IPO. The Company does not expect professional fees
to continue to increase at the same level as from 1995 to 1996, however 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.
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
IPO 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 IPO,
-13-
<PAGE> 14
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 IPO.
Accordingly, in order to comply with the NASD's rules, upon completion of the
IPO, 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 IPO was used to effect
such redemption.
In December 1996, the Company consummated the IPO 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 IPO,
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
-14-
<PAGE> 15
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 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.
-15-
<PAGE> 16
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 ....................................... 17
Consolidated Balance Sheet at December 31, 1996 .................... 18
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 ......................................... 19
Consolidated Statements of Stockholders' Equity (Deficiency) for the
years ended December 31, 1996 and 1995 ............................. 20
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 ......................................... 21
Notes to Consolidated Financial Statements ......................... 22 - 37
</TABLE>
-16-
<PAGE> 17
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
-17-
<PAGE> 18
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.
-18-
<PAGE> 19
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.
-19-
<PAGE> 20
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.
-20-
<PAGE> 21
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
-21-
<PAGE> 22
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.
-22-
<PAGE> 23
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.
-23-
<PAGE> 24
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.
-24-
<PAGE> 25
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.
-25-
<PAGE> 26
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>
-26-
<PAGE> 27
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.
-27-
<PAGE> 28
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.
-28-
<PAGE> 29
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.
-29-
<PAGE> 30
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.
-30-
<PAGE> 31
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.
-31-
<PAGE> 32
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.
-32-
<PAGE> 33
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.
-33-
<PAGE> 34
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.
-34-
<PAGE> 35
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.
-35-
<PAGE> 36
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.
-36-
<PAGE> 37
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.
-37-
<PAGE> 38
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Marc Douglas 37 President, Chief Executive Officer
and Director
Ileen Little 58 Vice President, Secretary and Director
</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 a 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.
-38-
<PAGE> 39
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 had
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 designee as of the date of this Report. The Company is seeking 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.
Although the Company currently has no policy with respect to director
compensation, it is anticipated that non-employee 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.
ITEM 10. EXECUTIVE COMPENSATION
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 Part II, Item 6 above for information regarding dividend
distributions to Mr. Douglas during 1996 and 1995 from the Company and
the Subsidiaries prior to the Reorganization.
(3) See "Executive Employment Agreement" below.
-39-
<PAGE> 40
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
Mr. Douglas will continue to receive his salary until the expiration of the term
of the employment agreement is 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.
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
-40-
<PAGE> 41
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.
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.
-41-
<PAGE> 42
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information, as of March 14,
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, and (iii) all directors and executive officers as a group. Except as
otherwise indicated, each shareholder listed below has sole voting and
investment power with respect to shares beneficially owned by such person.
<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.
(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.
-42-
<PAGE> 43
ITEM 12. CERTAIN RELATIONSHIP AND RELATED 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 offering of shares of Common Stock and Warrants; 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 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 and executive officer 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.
LOANS TO/FROM MARC DOUGLAS
As of December 31, 1996, the Company's President and majority
stockholder is owed $208,540. 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.
The Company has advanced Mr. Douglas monies from time to time on an
interest-free basis, the amount of which totaled $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
-43-
<PAGE> 44
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.
-44-
<PAGE> 45
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
----------- ---------------------- --------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the
Company(1)
3.2 Amended and Restated Bylaws of the Company(1)
4.1 Statement of Designation of Series A Preferred Stock(1)
4.3 Form of Common Stock Certificate(1)
4.6 Form of Warrant Agent Agreement with attached Form of Warrant(1)
10.1 Form of Employment Agreement with Marc Douglas*(1)
10.2 1996 Stock Option Plan*(1)
10.3 Purchase Commitment Agreement dated December 21, 1995 between
the Company and All Around Recycling(1)
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(1)
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(1)
10.6 Agreement to Purchase Salvageable Property between Thrift Shops
of South Broward, Inc. d/b/a the Community Thrift Shop, Thrift
Shops of West Dade, Inc. and Missing Children Awareness Foundation,
Inc., as amended(1)
10.7 Agreement to Solicit Salvageable Property between the Company and
Missing Children Awareness Foundation, Inc., as amended*(1)
21.1 Subsidiaries of the Registrant(1)
27.1 Financial Data Schedule (SEC use only) 47
</TABLE>
- ----------
*Management compensation plan or arrangement
(1) Incorporated by reference from the exhibit filed with the Company's
Registration Statement on Form SB-2 (File No. 333-5190-A).
(b) The Company did not file any Reports on Form 8-K during the fourth
quarter of the year ended December 31, 1996.
-45-
<PAGE> 46
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THRIFT MANAGEMENT, INC.
DATE: March 25, 1997 By: /s/ Marc Douglas
---------------------------------
Marc Douglas, President and Chief
Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated:
DATE: March 25, 1997 /s/ Marc Douglas
-------------------------------------
Marc Douglas, President, Chief
Executive Officer and Director
(Principal executive officer and
principal financial and accounting
officer)
DATE: March 25, 1997 /s/ Ileen Little
-------------------------------------
Ileen Little, Vice President,
Secretary and Director
-46-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, STATEMENT OF OPERATIONS, STATEMENTS OF CASH FLOWS AND NOTES THERETO
INCORPORATED IN PART II, ITEM 7 OF THIS FORM 10-KSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,570,188
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 114,972
<CURRENT-ASSETS> 241,250
<PP&E> 196,253
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,420,193
<CURRENT-LIABILITIES> 665,740
<BONDS> 0
0
2,500
<COMMON> 21,150
<OTHER-SE> 2,703,181
<TOTAL-LIABILITY-AND-EQUITY> 3,420,193
<SALES> 6,104,905
<TOTAL-REVENUES> 6,104,905
<CGS> 2,815,210
<TOTAL-COSTS> 2,815,210
<OTHER-EXPENSES> 3,163,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,732
<INCOME-PRETAX> 124,508
<INCOME-TAX> (34,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,508
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
