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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1999
[ ] 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.
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(Name of Small Business Issuer in Its Charter)
Florida 65-0309540
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3141 W. Hallandale Beach Boulevard
Hallandale, Florida 33009
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (954) 985-8430
---------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
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 is not 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. [X]
State issuer's revenues for its most recent fiscal year: $9,202,067.
The aggregate market value of the issuer's common stock, $.01 par value, held by
non-affiliates on March 20, 2000 was approximately $10,540,000.
As of March 20, 2000, there were 2,342,210 shares of the issuer's common stock,
$.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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THRIFT MANAGEMENT, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 26, 1999
TABLE OF CONTENTS
<TABLE>
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Page No.
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PART I
Item 1. Description of Business...................................................................... 1
Item 2. Description of Property...................................................................... 8
Item 3. Legal Proceedings............................................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters..................................... 9
Item 6. Management's Discussion and Analysis or Plan of Operations................................... 9
Item 7. Financial Statements......................................................................... 13
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure......................................................................... 35
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............................................ 35
Item 10. Executive Compensation....................................................................... 37
Item 11. Security Ownership of Certain Beneficial Owners and Management............................... 40
Item 12. Certain Relationships and Related Transactions............................................... 41
Item 13. Exhibits and Reports on Form 8-K............................................................. 42
</TABLE>
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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, dependence on sources of
inventories, dependence on the resale market for unsold goods, dependence on
charitable donations and a limited number of charities, reliance on management,
changes in trends in buyer preferences, competition with other retail sources,
general economic conditions and seasonality of the population in the Company's
market areas. 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 seven thrift stores in Florida: two in Hallandale, Florida (Broward
County), one in Margate, Florida (Broward County), one in Lauderdale Lakes,
Florida (Broward County), one in Pompano Beach, Florida (Broward County), one in
Hialeah, Florida (Miami-Dade County) and one in Orlando, Florida (Orange
County). Inventory for the Company's stores is obtained as the result of
donations made to charities under agreements entered into by the Company for the
solicitation and purchase of merchandise. The Company also purchases merchandise
in bulk from various independent contract collectors.
During 1999, the Company had solicitation and purchasing agreements
with three charities in the South Florida area, the Missing Children Awareness
Foundation, Temple Beth Ahm Israel and the Samuel M. and Helene Soref Jewish
Community Center, Inc., a Florida not-for profit corporation. The Company is
registered with the Department of Agriculture and Consumer Affairs of the State
of Florida as a professional solicitor. The charities receive 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 approximately 20
trucks to make scheduled pick-ups of donated goods. The donors are given
receipts to document the items donated. The
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Company also operates manned Missing Children Awareness Foundation donation
trailers as a source of merchandise for its thrift stores. As of March 2000, the
Company is operating 5 donation trailers. In 1999, the Company began a new
door-to-door solicitation program in Central and South Florida. All merchandise
is delivered 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 ("rag sales"), which ship the items to countries
throughout the Caribbean, Central and South America and Eastern Europe.
The Company positions its outlets in lower socio-economic
neighborhoods, on heavily traveled streets, and preferably in the vicinity of
other thrift shops. The Company believes that competition, rather than being a
limiting factor as it is in many other industries, actually encourages sales
because the close proximity of other outlets attracts customers to the area to
shop for new bargains, as the merchandise changes frequently.
The Company currently intends to expand its operations by opening
additional thrift stores, initially in Florida, and ultimately in various
out-of-state locations. The Company's two newest stores, in Pompano Beach and
Orlando, Florida, opened in August 1998 and February 1999, respectively.
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. 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.
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The Company's internet subsidiary Collectiblesandart.com, Inc., plans
to offer unique products, lower prices and outstanding customer service on its
collectiblesandart.com website focusing on collectibles, art and antiques. The
site is being designed to be a business-to-consumer, business-to-business,
service-to-consumer and service-to-business enterprise. Collectiblesandart.com
has entered into a strategic alliance with BFW Advertising, Inc., a fully
integrated and interactive marketing communications company that specializes in
new media. Collectiblesandart.com has completed its pre-launch for its web site
and expects to be operational on a limited basis in the second quarter of 2000.
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) 985-8430.
INVENTORY COLLECTION
A significant 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 an agreement 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 for the merchandise. The Company believes that such amount is
comparable to, if not better than, that which a charity would typically earn if
it operated its own thrift store and bore the costs of and responsibility for
such operation, including the costs of solicitation and collection of donated
merchandise, rent and other operating costs for the thrift store and hiring of
personnel. Moreover, the Company believes that its experience in soliciting
donations of and reselling merchandise make its services attractive to
charities, which may have little experience in the field. The Company is
currently party to agreements with the Missing Children Awareness Foundation,
Temple Beth Ahm Israel and the Samuel M. and Helene Soref Jewish Community
Center, Inc. As the Company expands its operations, it may seek agreements with
additional charities. There can be no assurance, however, that the Company will
be able to successfully do so.
The Company also purchases merchandise in bulk from various independent
contract collectors to supplement the merchandise obtained from its agreements
with its charities.
THRIFT STORE OPERATIONS
The Company currently uses 20 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
three of the Company's thrift stores.
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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." Antiques are evaluated by an antiques expert and will be offered on the
Company's internet site.
In order to tempt the frequent shopper and control inventory levels,
the Company encourages rapid inventory turnover and displays new merchandise on
a daily basis. For example, apparel items are generally allowed to remain in
inventory for up to four weeks, during which time the prices of the items are
subject to weekly markdowns. Merchandise remaining unsold at the end of a
specified time period is removed from inventory and sold in bulk to exporters.
In order to provide convenient shopping hours for customers, the
Company's thrift stores are generally open from 9:00 a.m. until 7:00 p.m. on
Monday, Tuesday, Thursday and Saturday; from 9:00 a.m. until 9:00 p.m. on
Wednesday and Friday; and from 10:00 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
Miami-Dade, Broward and Palm Beach counties in South Florida. The postcard
prominently bears the name of the charity sponsor and a telephone number to call
to offer donations. Supporting this effort is a team of employees 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. The Company also solicits donations by operating manned Missing
Children Awareness Foundation donation trailers located primarily in high
traffic retail strip centers. In addition, in 1999 the Company began a
door-to-door solicitation program in Central and South Florida as a new source
of merchandise for its thrift stores.
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.
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STORE LOCATIONS
The following sets forth information with respect to the Company's
seven thrift stores:
<TABLE>
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Approximate Square Lease
Location Date Opened Footage Exp./Renewal
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<S> <C> <C> <C>
3149 W. Hallandale Beach August 1986 8,300 April 2001/one five-year
Boulevard renewal option
3141 W. Hallandale Beach August 1992 15,000 April 2001/one five-year
Boulevard renewal option
901 E. Tenth Ave November 1992 10,500 October 2004
Hialeah, FL
1041 N. State Rd. 7 November 1995 10,050 November 2005/one five-year
Margate, FL renewal option
3200 N. State Rd. July 1997 29,000 July 2002/two five-year
Lauderdale Lakes, FL renewal options
1028 E. Sample Road August 1998 8,990 July 2003/two five-year
Pompano Beach, FL renewal options
5401 W. Colonial Dr February 1999 10,802 June 2004/two five-year
Orlando, FL renewal options
</TABLE>
Aggregate monthly rental for the Company's seven thrift stores is approximately
$60,000.
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. The Company believes that numerous
adequate retail locations exist, such as former drug stores, discount outlets
and specialty retail stores 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 once the
Company identifies suitable locations, it will be able to 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 Florida, and ultimately in various out-of-state locations. The Company
currently anticipates that its new stores will range from 10,000 to 15,000
square feet
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with smaller stores selling men's, women's and children's apparel, accessories,
shoes and linens, with the larger stores also selling bric-a-brac and household
items, and furniture.
The Company's ability to expand its chain of thrift stores will depend
on, among other things, securing suitable locations, obtaining sufficient
merchandise and having adequate financing to effect its expansion plans. There
can be no assurance that the Company will be able to open additional thrift
stores or that any thrift stores so opened or the new collectibles and art
internet company will be profitable.
The Company believes its new internet subsidiary,
Collectiblesandart.com, is an integral component of the Company's expansion
strategy. Collectiblesandart.com will focus on collectibles, art and antiques.
The Company expects to have its new web site operational in the second quarter
of 2000.
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 specified time period,
is sold in bulk to exporters that resell the items in countries in the
Caribbean, Central and South America and Eastern Europe. The Company currently
sells approximately 105,000 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, 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.
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Such acquisitions would be consummated in exchange for combinations of
cash, notes, shares of the Company's capital stock and options to purchase
shares of the Company's capital stock and 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. However, such debt would result in an ongoing
interest expense obligation for the Company. Issuance of shares of the Company's
capital stock in an acquisition would enable the Company to preserve its cash,
but could have the effect of diluting the Company's earnings on a per share
basis or diluting the voting control of existing shareholders, and could result
in an additional ongoing dividend obligation, depending on the terms of the
stock issued.
There can be no assurance that the Company would be able to 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.
The Company's new internet subsidiary faces competition from a variety
of internet companies as well as traditional retailers. The Company believes the
design of its web site and its focus only on collectibles, art and antiques will
allow it to compete successfully. The internet 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.
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EMPLOYEES
As of March 20, 2000, the Company employed approximately 325 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 approximately 2,100 sq. ft.
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.
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 STOCKHOLDER 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. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
--------------------- ------------------------
Period High Low High(1) Low(1)
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<S> <C> <C> <C> <C>
March 31, 1998 $2.3750 $1.7500 $0.5625 $0.3750
June 30, 1998 $2.6250 $2.0000 $0.5625 $0.3750
September 30, 1998 $4.4600 $3.5000 $1.3125 $0.7500
December 31, 1998 $1.7500 $0.9375 $0.1000 $0.0500
March 31, 1999 $1.5000 $0.8750
June 30, 1999 $4.6250 $1.2500
September 30, 1999 $6.5225 $4.0000
December 31, 1999 $5.8750 $4.1250
</TABLE>
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(1) The Company's Warrants and Units ceased trading on the OTC Bulletin Board in
December 1998 when the Company redeemed all outstanding Warrants.
HOLDERS
As of March 20, 1999, there were approximately 22 holders of record of
the Common Stock. The Company believes that the Common Stock is held by in
excess of 400 beneficial holders. In 1998 and 1999, the redemption and the
exercise of warrants retired all outstanding warrants.
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.
SALE OF UNREGISTERED SECURITIES
See "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Liquidity and Capital Resources" for a description of a
private placement of covertible debentures completed in March 2000. These
securities were sold pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended (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.
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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 agreements with charitable
organizations; and (ii) from various independent contract collectors from whom
the Company purchases merchandise in bulk. 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 seven 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, operating manned donation trailers and operating door-to-door
solicitation programs. HTMI is, in addition, responsible for the pick-up of the
donated merchandise throughout the communities surrounding the Company's stores.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 26, 1999 AS COMPARED TO YEAR ENDED DECEMBER 27,
1998.
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 valued by the retail
method and include all costs associated with bringing the merchandise to the
selling floor. These costs include advertising, marketing, transportation, and
grading and processing costs plus commissions paid to the sponsoring charitable
organization.
Revenues for the years ended December 26, 1999 and December 27, 1998
totaled $9,202,067 and $8,848,337, respectively. Revenues increased by $353,730,
or 4.0%, for 1999, as compared to 1998. The Company's gross profit for 1999
increased to $3,438,043 as compared to $3,063,703 for 1998 and the Company's
gross profit margins for 1999 increased to 37.4% versus 34.6% for 1998.
The net increase in the Company's sales during 1999, as compared to
1998, is attributable to the following:
1) Sales of the new Pompano Beach store, which opened on August
14, 1998, accounted for $227,610 of the increase.
2) Sales of the new Orlando store, which opened February 19,
1999, accounted for $522,381 of the increase.
3) Sales of the five stores opened prior to 1998 decreased
$407,262, or 4.7%, offsetting some of the increase due to the
new stores. An aggressive retail price increase was
implemented in early 1999 which resulted in decreased store
traffic and related sales revenue. This price increase was
rescinded in the third quarter and store traffic and sales
trends are improving.
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The Company's gross profits for 1999 increased by 12.2%, as compared
to 1998, and the gross margins for 1999 increased by 2.8% points to 37.4% from
34.6% for 1998. The improvement of the gross margins is attributable to several
different factors including the stabilizing of rag sale prices and the
decreasing reliance of purchased goods.
The Company has two sources for merchandise, direct donated goods
through the charities with which it has entered into purchase agreements and the
purchase in bulk from various independent contract collectors. The net cost to
the Company of direct donated goods is less than the cost to the Company of
goods purchased from independent contract collectors. In 1999, the Company
decreased its bulk purchases from independent contract collectors by 46.5%
compared to 1998, while sales increased 4.0% over the same period.
In addition to the Company's direct mail solicitation program, in 1997
the Company began operating manned donation trailers as an additional source of
donated merchandise. In 1998, the Company began operating a solicitation phone
room using a 16-station automated phone dialer, and in 1999 the Company began a
door-to-door solicitation program as additional sources of merchandise. In 1998,
the Company also entered into a solicitation and purchasing agreement with the
Samuel M. and Helene Soref Jewish Community Center, a new charity for the
Company.
These new solicitation efforts have significantly decreased the
Company's reliance on merchandise purchases from independent contract
collectors, resulting in an improvement in its gross profit margins.
The Company's operating expenses for 1999 were $4,149,440 (or 45.1% of
sales) as compared to $4,241,322 (or 47.9% of sales) for 1998 representing a
decrease of $91,882, or 2.2%. The 1999 operating expenses for the new Pompano
Beach store, which opened in August 1998, increased $64,801, as result of being
open for a full year in 1999. The 1999 operating expenses increased by an
additional $245,389 due to the additional operating expenses associated with the
new Orlando store, which opened in February 1999. The operating expenses of the
five other stores decreased $141,306. The corporate overhead expenses decreased
$260,766 primarily due to reduction of professional fees.
The 1999 loss before income tax benefit was $679,812 as compared to the
1998 loss before income tax benefit of $1,101,444. The $421,632 decrease in loss
before income tax benefit is due primarily to the $374,340 increase in gross
profit and the $91,882 decrease in operating expenses.
For the year ended December 27, 1998, the Company recorded an income
tax benefit amounting to $429,000. For the year ended December 26, 1999, the
Company had an income tax benefit amounting to $259,000. The Company recorded a
100% valuation allowance because the realization of this tax benefit is not
considered probable.
LIQUIDITY AND CAPITAL RESOURCES
At December 26, 1999, the Company had working capital of $923,350 as
compared to $1,035,123 at December 27, 1998. For 1999, cash decreased by
$686,675 as compared to a decrease of $1,329,199 in 1998, which was principally
as a result of the Company's operating losses.
Net cash used in operations for 1999 amounted to $460,872 as compared
to $724,209 net cash used in operations in 1998, or a reduction of $263,337,
reflecting the receipt of refundable income taxes totaling $110,351
11
<PAGE> 14
in 1999 partially offset by the $311,000 deferred income tax benefit recorded
in 1998 as compared to none in 1999.
Net cash used in investing activities for 1999 and 1998 amounted to
$216,667 and $508,429, respectively. Net cash used in investing activities in
1999 reflected a $291,762 decrease in capital expenditures.
Net cash used in financing activities for 1999 amounted to $9,136 as
compared to $96,561 in 1998. Both years reflect the Company's redemption of its
warrants. In addition, the exercise of warrants resulted in proceeds to the
Company of $16,050 and $60,580, respectively. No warrants or options were
exercised during 1998.
During December 1998, the Company reduced the exercise price on the
1,500,000 redeemable warrants from $5.00 to $1.50 per warrant, a total of 10,700
warrants were exercised at a $1.50 per share and the remaining warrants were
redeemed by the Company for $.10 per warrant.
In March 2000, the Company completed a private placement of a 7%
convertible debenture with a principal amount of $1,000,000 (the "Debenture").
The Debenture matures and automatically converts into shares of the Company's
Common Stock on March 21, 2003. The Debenture is convertible into shares of the
Company's Common Stock at a conversion rate equal to the lower of (i) 80% of the
five day average closing bid price as reported by Bloomberg L.P. for the five
consecutive trading days prior to the conversion date or (ii) 80% of the five
day average closing bid price as reported on Bloomberg, L.P. for the five
consecutive trading days prior to the issuance of the Debenture (the "Conversion
Price"), subject to adjustment as provided in the Debenture. Interest on the
Debenture is payable at the time of conversion in cash or in shares of the
Company's Common Stock, at the Company's option.
The net proceeds to the Company from the sale of the Debenture totaled
$825,000. The placement agent received a cash commission of $130,000, plus
reimbursement of legal fees, and a five-year warrant to purchase 50,000 shares
of the Company's Common Stock at an exercise price equal to 110% of the
Conversion Price of the Debenture, subject to adjustment under the terms of
such warrant.
The Company believes with the current sales trends, the continuing
improvement in the gross profit margins and cost reductions that its current
capital resources and cash flow from its operations and the proceeds from the
private placement transaction will be sufficient to meet its anticipated
working capital requirements through at least 2000.
INFLATION AND SEASONALITY
Although the Company cannot 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.
12
<PAGE> 15
ITEM 7. FINANCIAL STATEMENTS
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report......................................................................... 14
Consolidated Balance Sheet........................................................................... 15
Consolidated Statements of Operations ............................................................... 16
Consolidated Statements of Stockholders' Equity ..................................................... 17
Consolidated Statements of Cash Flows................................................................ 18
Notes to Consolidated Financial Statements........................................................... 20
</TABLE>
13
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Thrift Management, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Thrift
Management, Inc. and Subsidiaries as of December 26, 1999 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 26, 1999 and December 27, 1998. 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 Thrift
Management, Inc. and Subsidiaries as of December 26, 1999, and the consolidated
results of their operations and cash flows for the years ended December 26, 1999
and December 27, 1998 in conformity with generally accepted accounting
principles.
/s/ Berkowitz Dick Pollack & Brant LLP
Berkowitz Dick Pollack & Brant LLP
Miami, Florida
February 21, 2000, except for Note 11
which is as of March 21, 2000
14
<PAGE> 17
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 26, 1999
-----------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 186,666
Merchandise inventories 588,541
Prepaid expenses, including $63,025
of advances to stockholder 644,467
-----------
TOTAL CURRENT ASSETS 1,419,674
EQUIPMENT, FIXTURES AND IMPROVEMENTS, net 942,416
DEFERRED TAX ASSETS 311,000
OTHER ASSETS 98,869
-----------
TOTAL ASSETS $ 2,771,959
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 344,929
Accrued expenses 151,395
-----------
TOTAL CURRENT LIABILITIES 496,324
COMMITMENTS AND CONTINGENCIES
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 2,342,210 shares 23,422
Additional paid-in capital 3,653,911
Accumulated deficit (1,404,198)
-----------
TOTAL STOCKHOLDERS' EQUITY 2,275,635
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,771,959
===========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 18
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
Net sales $ 9,202,067 $ 8,848,337
Cost of goods sold 5,764,024 5,784,634
----------- -----------
GROSS PROFIT 3,438,043 3,063,703
Selling, general and administrative
expenses 4,057,198 4,152,831
Officer's bonus incentive 92,241 88,491
----------- -----------
TOTAL OPERATING EXPENSES 4,149,439 4,241,322
----------- -----------
LOSS FROM OPERATIONS 711,396 1,177,619
Interest expense -- 309
Interest income (31,585) (76,484)
----------- -----------
LOSS BEFORE INCOME
TAX (BENEFIT) 679,811 1,101,444
Income tax (benefit) -- (429,000)
----------- -----------
NET LOSS $ 679,811 $ 672,444
=========== ===========
LOSS PER COMMON SHARE: BASIC AND DILUTED $ 0.31 $ 0.31
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic and diluted 2,197,948 2,161,250
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 19
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------- ---------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------- ------- --------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 250,000 $ 2,500 2,145,000 $ 21,450 $3,052,266 $ (51,943) $3,024,273
Common stock issued for
consulting services 30,000 300 30,074 30,374
Stock options issued to
directors for services 95,200 95,200
Net loss for the year
ended December 27, 1998 (672,444) (672,444)
------- ------- --------- -------- ---------- ----------- ----------
Balance at December 27, 1998 250,000 2,500 2,175,000 21,750 3,177,540 (724,387) 2,477,403
Common stock issued on
exercise of warrants 10,700 107 15,943 16,050
Common stock issued on
exercise of stock options 31,510 315 60,273 60,588
Stock options issued to
directors for services 1,898 1,898
Warrants redeemed (148,930) (148,930)
Common stock issued
for future services 125,000 1,250 547,187 548,437
Net loss for the year
ended December 26, 1999 (679,811) (679,811)
------- ------- --------- -------- ---------- ----------- ----------
Balance at December 26, 1999 250,000 $ 2,500 2,342,210 $ 23,422 $3,653,911 $(1,404,198) $2,275,635
======= ======== ========= ======== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 20
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (679,811) $ (672,444)
Adjustments to reconcile net (loss) to
net cash used in operating activities:
Depreciation and amortization 161,138 123,826
Loss on sale of equipment -- 3,027
Payment of consulting expenses with common
stock -- 30,374
Deferred income tax (benefit) -- (311,000)
Stock options issued to directors for services 1,898 95,200
Changes in current assets and liabilities:
(Increase) in merchandise inventories (161,363) (98,744)
Decrease in prepaid expenses and other assets 146,238 57,753
Increase in accounts payable 2,952 200,087
(Decrease) in accrued expenses (42,275) (13,921)
Decrease (increase) in refundable income taxes 110,351 (110,351)
(Decrease) in accrued income taxes -- (28,016)
----------- -----------
Total adjustments 218,939 (51,765)
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (460,872) (724,209)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (216,667) (508,429)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (216,667) (508,429)
----------- -----------
Cash flows from financing activities:
Advances to stockholder, net 63,156 63,156
Warrants exercised 16,050 --
Deposit paid to warrant agent -- (150,000)
Warrants redeemed (148,930)
Options exercised 60,588 --
Principal payments on notes payable -- (9,717)
----------- -----------
NET CASH (USED IN) FINANCING ACTIVITIES (9,136) (96,561)
----------- -----------
NET (DECREASE) IN CASH (686,675) (1,329,199)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 873,341 2,202,540
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 186,666 $ 873,341
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ -- $ 309
=========== ===========
Income taxes $ -- $ 91,000
=========== ===========
</TABLE>
18
<PAGE> 21
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Effective December 26, 1999, the Company issued 125,000
restricted common shares, valued at approximately $548,000, for
future investor relations services.
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1999 AND DECEMBER 27, 1998
NOTE 1 -- GENERAL
Thrift Management, Inc. (the "Company" or "TMI"), was organized in the
State of Florida on July 22, 1991 for the purpose of managing the operation of
retail thrift stores which offer for sale 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 agreements with charitable
organizations, and ii) purchases from independent contract collectors from whom
the Company purchases merchandise in bulk. Items from the stores which remain
unsold are sold in bulk to exporters for export to countries throughout the
Caribbean, Central and South America and Eastern Europe. Through its wholly
owned subsidiaries, the Company operates seven retail stores plus a management
company. Hallandale Thrift Management, Inc. ("HTMI"), is responsible for the
solicitation of donations on behalf of the affiliated charities through direct
mailing, newspaper advertising and telemarketing. HTMI is also responsible for
operating donation trailers and the pick-up of donated merchandise throughout
the communities in which the Company operates. HTMI was organized in the State
of Florida on December 9, 1993.
The Company's seven (7) retail stores are operated under separate wholly
owned subsidiaries as follows:
Thrift Shops of South Broward, Inc. ("TSSB")
Organized in the State of Florida on May 19, 1989.
Thrift Shops of West Dade, Inc. ("TSWD")
Organized in the State of Florida on October 8, 1992.
Hallandale Thrift, Inc. ("HTI")
Organized in the State of Florida on June 14, 1993.
North Broward Consignment, Inc. ("NBCI")
Organized in the State of Florida on May 10, 1995.
Thrift Shops of North Lauderdale, Inc. ("TSNL")
Organized in the State of Florida on January 24, 1997.
Thrift Retail, Inc. ("TRI") (2 stores)
Organized in the State of Florida on January 23, 1998.
On January 23, 1998, Thrift Retail, Inc. was organized in the State of
Florida for the purpose of operating a new store in Pompano Beach, Florida which
opened in August 1998 and a new store in Orlando, Florida which opened in
February 1999.
20
<PAGE> 23
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
On June 8, 1998, Thrift Management Canada, Inc. ("TMCI"), a wholly
owned subsidiary, was organized in Ontario, Canada for the purpose of conducting
business in Canada.
On July 8, 1998, Thrift Export, Inc. ("TEI"), a wholly owned
subsidiary, was organized in the State of Florida for the purpose of operating
an export business.
On July 8, 1998, Thrift Holdings, Inc. ("THI"), a wholly owned
subsidiary, was organized in the State of Florida for the purpose of acquiring
thrift-related businesses.
On May 27, 1999, Collectiblesandart.com, Inc. ("CACI"), a wholly owned
subsidiary, was organized in the State of Florida for the purpose of developing
an internet business.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements for the
years ended December 26, 1999 and December 27, 1998 include the accounts of the
Company and its wholly owned subsidiaries, HTMI, TSSB, TSWD, HTI, NBCI, TSNL,
TRI, TMCI, TEI, THI and CACI (collectively, the "Companies"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
ACCOUNTING PERIOD: The Company's fiscal year is the 52-53 week period
ending on the Sunday closest to December 31st.
EQUIPMENT, FIXTURES AND IMPROVEMENTS: Equipment, fixtures and
improvements are recorded at the lower of cost or estimated fair value.
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 including options or the
estimated useful lives of the improvements. Maintenance and repairs are charged
to operations as incurred.
MERCHANDISE INVENTORIES: Merchandise inventories consist primarily of
new and used clothing, furniture, miscellaneous household items and antiques
which are valued by the retail method and stated at the lower of cost (FIFO) or
market. The cost of inventories includes the actual cost of merchandise paid to
the respective charities or the independent contract collectors plus all
expenses incurred that were directly associated with the acquisition and
processing of such inventory including certain store overhead and salaries.
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.
INTANGIBLE ASSETS: Included in other assets are intangible assets
consisting principally of trade name costs and non-compete agreements which have
been recorded at cost. Trade name costs are being amortized on a straight-line
basis over their estimated useful lives which range from five years to fifteen
years. Non-compete agreements are being amortized over six years on a straight
line basis. For the years ended December 26, 1999
21
<PAGE> 24
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
and December 27, 1998, amortization expense related to these assets amounted to
approximately $13,300 and $25,300, respectively.
EARNINGS PER SHARE: Basic earnings per share has been computed using
the weighted average number of common shares outstanding during the period.
Diluted earnings per share has been computed using the weighted average number
of common shares and equivalents (representing the dilutive effect of stock
options) outstanding during the period. Net (loss) has not been adjusted for any
period presented for purposes of computing basic and diluted earnings per share.
For purposes of computing diluted earnings per share, weighted average
common share equivalents do not include stock options with an exercise price
that exceeds the average fair market value of the Company's common stock for the
period. For the year ended December 26, 1999 all options to purchase 1,377,067
shares of common stock at an average price of $4.02 were excluded from the
computation.
COMPREHENSIVE INCOME: The Company has no components of other
comprehensive income. Accordingly, comprehensive net loss equals net loss for
all periods presented.
CASH CONCENTRATION: The Company maintains substantially all of its cash
balances in a bank located in Florida. The balances are insured by the Federal
Deposit Insurance Corporation up to $100,000. The Company has not experienced
any losses in such accounts. The Company believes it is not exposed to any
significant credit risks on cash and cash equivalents.
INCOME TAXES: Deferred income tax assets and liabilities are computed
for those differences that have future tax consequences using the currently
enacted tax laws and rates that apply to the periods in which they are expected
to affect taxable income. Valuation allowances are established, if necessary, to
reduce the deferred tax asset to the amount that will more likely than not be
realized. Income tax expense is the current tax payable or refundable for the
period plus or minus the net change in the deferred tax assets and liabilities.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
FAIR VALUE DISCLOSURES: The carrying value of cash, prepaid expenses,
accounts payable and accrued expenses are a reasonable estimate of their fair
value.
ADVERTISING COSTS: The Company expenses all advertising costs as they
are incurred. Total advertising costs for the years ended December 26, 1999 and
December 27, 1998 were approximately $63,700 and $96,000, respectively.
SEGMENT REPORTING: The Company operates as a single segment and will
evaluate additional segment disclosure requirements as it expands operations.
22
<PAGE> 25
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
USE OF ACCOUNTING ESTIMATES: The preparation of the consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Accordingly, actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 and does not require restatement of financial
statements from prior periods. SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company believes that
the adoption of SFAS No. 133 will not have a significant impact on the Company's
consolidated financial position, results of operations or cash flows.
NOTE 3 - PREPAID EXPENSES
Effective January 4, 1998, the Board of Directors approved an agreement
providing for the prepayment of up to $130,000 of 1998 salary and bonus of the
Company's President with interest to be paid monthly at an annual rate of 8.5%.
As of December 27, 1998, the prepaid salary and bonus was $15,266.
Effective January 1, 1999, the Board of Directors approved a new
agreement providing for the prepayment of up to $155,266 of future bonuses of
the Company's President with interest to be paid monthly at an annual rate of
8.0% payable by December 31, 2000. The outstanding prepaid salary and bonus from
1998 was incorporated into the new agreement. As of December 26, 1999, the
prepaid bonus was $63,025, which amount is included in prepaid expenses in the
accompanying balance sheet.
For the years ended December 26, 1999 and December 27, 1998, interest
income amounting to approximately $8,000 and $6,800 was recorded in connection
with the above prepaid bonuses.
23
<PAGE> 26
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4 - EQUIPMENT, FIXTURES AND IMPROVEMENTS, NET
Equipment, fixtures and improvements consist of the following at December 26,
1999:
Furniture, fixtures and equipment $ 810,567
Leasehold improvements 279,332
Transportation equipment 69,293
-----------
1,259,192
Less accumulated depreciation and amortization (316,776)
-----------
$ 942,416
===========
For the years ended December 26, 1999 and December 27, 1998,
depreciation and amortization expense amounted to approximately $147,400 and
$98,000, respectively.
NOTE 5 -- ACCRUED EXPENSES
Accrued expenses at December 26, 1999 consist of the following:
Payroll $ 87,940
Sales taxes 19,802
Rent 27,300
Other 16,353
--------
$151,395
========
NOTE 6 -- INCOME TAX (BENEFIT)
The components of income tax (benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
Current:
Federal $ -- $(118,000)
State -- --
--------- ---------
-- (118,000)
--------- ---------
Deferred:
Federal -- (252,000)
State -- (59,000)
--------- ---------
-- (311,000)
--------- ---------
Total $ -- $(429,000)
========= =========
</TABLE>
24
<PAGE> 27
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Deferred tax (assets) liabilities are comprised of the following:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
Utilization of federal net operating
loss carryforward $(514,000) $ (280,000)
Utilization of state net operating loss
carryforward (97,000) (59,000)
--------- ----------
Net long term deferred tax asset (611,000) (339,000)
--------- ----------
Excess tax depreciation over book
depreciation 41,000 28,000
Net long term deferred tax liability
41,000 28,000
--------- ----------
(570,000) (311,000)
Valuation allowance 259,000
--------- ----------
Net deferred tax asset $(311,000) $(311, 000)
========= ==========
</TABLE>
A reconciliation between statutory and effective rates is as follows:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
U.S. federal statutory rate applied to
pretax income $(231,000) $(374,000)
State income taxes, net of federal income
tax (benefit) expense (38,000) (63,000)
--------- ---------
Other 10,000 8,000
Valuation allowance 259,000 --
--------- ---------
$ -- $(429,000)
========= =========
</TABLE>
The Company has a net operating loss of approximately $1,595,000 which
can be carried forward through 2019 to offset federal taxable income. The
Company has placed a valuation allowance against certain of its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management periodically evaluates the recoverability of the deferred tax
assets and the level of valuation allowance. Accordingly, an adjustment was
recorded in the fourth quarter of the year ended December 26, 1999, increasing
the allowance from zero to $259,000. At such time as it is determined that it
is more likely than not that these deferred tax assets are realizable, the
valuation allowance will be reduced.
25
<PAGE> 28
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7 - LOSS PER SHARE
The following table presents the calculation of basic and diluted loss
per common share:
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
DECEMBER 26, 1999 DECEMBER 27, 1998
----------------- -----------------
<S> <C> <C>
Numerator:
Net loss $ 679,811 $ 672,444
---------- ----------
Denominator:
Denominator for basic loss per
share-weighted-average shares 2,197,948 2,161,250
Effect of dilutive securities:
Stock options -- --
---------- ----------
Denominator for diluted loss per share 2,197,948 2,161,250
========== ==========
Loss per common share:
Basic and diluted $ 0.31 $ 0.31
========== ==========
</TABLE>
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
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 eight percent (8%), as
amended on January 1, 1996, 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 days following the end of each calendar
month. The term of this agreement is five years, commencing on December 1, 1993,
and terminating on November 30, 1998, with one five-year renewal option
commencing December 1, 1998, unless terminated sooner or extended pursuant to
the terms and conditions of this agreement. The Company exercised its five-year
renewal option commencing December 1, 1998.
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
26
<PAGE> 29
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 $1,600 per month or 10%, as amended on January 1, 1996, 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 years, commencing on December 1, 1993 and
terminating on November 30, 1998, with one five-year renewal option, commencing
on December 1, 1998, unless terminated sooner or extended pursuant to the terms
and conditions of this agreement. The Company exercised its five year renewal
option commencing on December 1, 1998. On January 1, 2000, the second amendment
to this agreement was executed whereby the Orlando retail store and the West
Dade retail store were included as parties to this agreement.
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 seven percent, as amended
on January 1, 1996, 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 days
following the charity's receipt of the fee due the charity from HTI. 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 years, commencing on February 1,
1994; and terminating on February 1, 1999, with one five-year renewal option
commencing February 1, 1999, unless terminated sooner or extended pursuant to
the terms and conditions of this agreement. The Company exercised its five-year
renewal option commencing February 1, 1999.
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 (1) $10,000 per month or (2) 10%, as amended on January
1, 1996, 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 is five years, commencing on February 1, 1994, and terminating on
February 1, 1999, with one five-year renewal option, commencing on February 1,
1999, unless terminated sooner or extended pursuant to the terms and conditions
of this agreement. The Company exercised its five-year renewal option commencing
February 1, 1999.
27
<PAGE> 30
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
AGREEMENT TO SOLICIT AND PURCHASE SALVAGEABLE MERCHANDISE WITH THE
SAMUEL M. AND HELENE SOREF JEWISH COMMUNITY CENTER, INC.: On April 8, 1998, HTMI
entered into an agreement to solicit salvageable merchandise for the Samuel M.
and Helene Soref Jewish Community Center, Inc. (the "JCC"), a Florida
not-for-profit corporation. Pursuant to such agreement, the JCC has retained the
services of HTMI to solicit and gather merchandise on its behalf.
The JCC shall pay HTMI on a monthly basis a sum equal to $1,000 per
month, plus reimbursement of all expenses incurred by HTMI in fulfilling its
obligations under the agreement (the "Fee"). In accordance with Florida law the
JCC and HTMI have agreed that, among other things, the net amount to be realized
by the JCC after the payment of the Fee to HTMI shall be $20,000 and, the
compensation to HTMI, exclusive of direct expense reimbursements, as a
percentage of gross revenues will be 6%. The term of this agreement is five
years, commencing on April 1, 1998 and terminating on March 31, 2003, with one
five-year renewal option unless terminated sooner or extended pursuant to the
terms and conditions of the agreement.
On April 8, 1998, TSNL entered into an agreement to purchase
salvageable merchandise from the JCC. Pursuant to such agreement, the JCC agreed
to sell to TSNL all merchandise received as contributions. The purchase price to
be paid for the property shall include reimbursement of all expenses incurred in
soliciting and collecting the goods plus an amount equal to $1,000 plus the
greater of (1) $1,000 per month, or (2) 10% of all the furniture, as defined in
the agreement, sold by TSNL.
DEPENDENCE ON CHARITABLE DONATIONS: The Company realizes a significant
portion of its revenues through the sale of donated charitable property. A
recession and/or change in the federal tax laws relating to charitable donations
could materially adversely affect the Company's business, operations, revenues
and prospects.
OPERATING LEASES: The Companies lease properties and equipment under
non-cancelable operating lease agreements which expire through June 2002 and
require minimum annual rentals. Certain leases provide for renewal options to
extend the leases up to an additional seven years. Below is a summary of each of
the respective lease terms.
HTI 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 five-year period under the same terms and conditions,
except that the rent for each option year shall increase five percent per annum.
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 five-year period under the same terms and conditions,
except that the rent for each option year shall increase five percent per annum.
28
<PAGE> 31
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
TSWD leases its location pursuant to a non-cancelable operating lease
which commenced on November 1, 1992 and expires on October 31, 1999. In 1999,
the Company exercised its option to renew for one seven-year period under the
same terms and conditions as the initial term which expires on October 21, 2004.
Annual rent increases are based upon the consumer price index ("CPI") from a
minimum of four percent (4%) to a maximum of eight percent (8%).
NBCI leases its location pursuant to a non-cancelable operating lease
which commenced on November 21, 1995 and expires on November 21, 2000. The lease
contains two successive five-year renewal options. The first five-year renewal
option was exercised in 1999 and expires on November 21, 2005. 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. In
addition to rent payments, NBCI is liable for its pro-rata share of real estate
taxes assessed. NBCI receives a rent credit of $1.00 per square foot while the
floor space adjacent to its location remains vacant. As of December 26, 1999,
NBCI was not receiving the credit.
TSNL leases its location pursuant to a non-cancelable operating lease
which commenced on July 19, 1997 and expires on July 31, 2002. The lease
contains two successive five-year renewal options. 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.
TRI leases its Pompano Beach store location pursuant to a
non-cancelable operating lease which commenced on June 1, 1998 and expires on
July 31, 2003. The lease contains two successive five-year renewal options. 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.
TRI leases its Orlando store location pursuant to a non-cancelable
operating lease which commenced on May 1, 1999 and expires on June 30, 2004. The
lease contains two successive five-year renewal options. 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.
TMI leases an automobile pursuant to a non-cancelable operating lease
dated April 25, 1998 and expiring April 25, 2000. The lease requires monthly
payments of $2,122. The Company is responsible for all registration, maintenance
and insurance costs.
HTMI leases 15 trucks pursuant to non-cancelable operating leases dated
May 28, 1998, August 8, 1998 and December 8, 1998 and expiring May 27, 2003,
August 7, 2003 and December 7, 2007, respectively. The leases require monthly
fixed lease payments of $11,164. In addition, the leases requires payment of
$0.07 per mile. The lessor is responsible for all maintenance and repair costs.
TMI leases seven balers and three compactors for its seven stores
pursuant to two non-cancelable operating leases which commenced on February 5,
1999 and expire on February 5, 2004. The leases require monthly payments of
$2,111. The Company is responsible for all
29
<PAGE> 32
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
maintenance, taxes and insurance costs.
Total rent expense for the years ended December 26,1999 and December
27, 1998 under all operating leases amounted to $881,613 and $645,864,
respectively.
A schedule of approximate consolidated future minimum rental payments
is as follows:
Year ending
-----------
2000 $ 878,000
2001 730,000
2002 608,000
2003 479,000
2004 303,000
Thereafter 2,723,000
----------
$3,271,000
==========
CONSULTING AGREEMENT: Effective January 1, 1998, the Company entered
into a consulting agreement with a director of the Company pursuant to which the
director will assist the Company in developing, studying and evaluating
capital-raising and proposals to expand the Company's business, including
through mergers and acquisitions. The agreement is for a six-month term that
automatically renews for additional six-month terms unless terminated by the
Company or the director at least fifteen days prior to the end of the
then-current term. As compensation for services under the agreement, the Company
granted to the director five-year options to purchase 66,000 shares of the
Company's Common Stock at a price of $2.00 per share. The options vest as
follows: 5,000 upon execution of the consulting agreement, 5,000 at the end of
the initial six-month term, and 14,000 at the end of every six-month period
thereafter until all of the options are vested and exercisable. Any unvested
options will be cancelled if the consulting agreement is terminated by either
party.
INTERNET DEVELOPMENT AGREEMENT: On November 28, 1999, TMI entered into
an internet product development agreement with BFW Advertising, Inc. whereby BFW
Advertising will design and prepare a specialized interactive web site for the
purpose of electronic commerce, marketing and promotion of TMI's subsidiary
CACI. This agreement provides for payment of cash and shares of capital stock,
payable in three equal installments. The total contract price for project
application design and development is $84,960 (subject to price adjustments due
to change orders), of which $28,800 shall be paid in cash and $56,160 in
capital stock. The cash portion of the compensation shall be paid in three
installment payments of $12,000, $8,800 and $8,000 on the payment milestones
stated in the agreement and the $56,160 in capital stock shall be transferred in
a single transaction upon final acceptance of the project, at the then market
price of the shares so transferred. Any future price adjustments of the original
contract price are payable 40% in cash and 60% in capital stock. In fiscal year
1999, a cash payment of $12,000 was made.
30
<PAGE> 33
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
INVESTOR RELATIONS AGREEMENT: On December 2, 1999, TMI entered into an
investor relations agreement with InsiderStreet.com, Inc. whereby
InsiderStreet.com, Inc. provides a TMI listing on their home page, development
of a corporate profile with an investor inquiry function, listing on "Companies
to Watch" section and various press releases and corporate mentions. This
agreement expires in 12 months and provides for a payment of $2,500 plus 125,000
restricted shares of common stock. The cash payment of $2,500 was made in the
1999 fiscal year ending December 26, 1999. On December 27, 1999 (fiscal year
2000), 125,000 restricted common shares were issued which were valued at
$548,437 or 90% of the stock closing price. The Company has recorded the
issuance of the 125,000 restricted common shares as of December 26, 1999.
Amounts related to this agreement will be amortized over the twelve month period
commencing December 27, 1999.
EXECUTIVE EMPLOYMENT AGREEMENT: Effective June 1, 1996, the Company
entered into a five-year employment agreement with its President which 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. The agreement automatically renews at the end of
each year for one additional year unless terminated by either party.
In connection with the employment agreement, the President was also
granted non-statutory performance options under the Company's 1996 Stock Option
Plan to purchase 700,000 share of common stock. 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 initial public offering ("IPO") and an 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 (1)
six months after consummation of the IPO (June 11, 1997) or (2) 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 26, 1999, 475,000
options were vested.
NOTE 9 -- STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING: In December 1996, the Company consummated its
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 "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 an investor in the Company.
Additionally, the Company had 600,000 warrants outstanding at December
27, 1998 as a
31
<PAGE> 34
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
result of private placement transactions. In December 1998, the Company reduced
the exercise price on its 1,500,000 redeemable warrants to $1.50. In 1999, a
total of 10,700 Warrants were exercised at $1.50 per share and the remaining
Warrants were redeemed by the Company for $.10 per Warrant.
Preferred stock: The holders of the Company's Preferred Stock are
entitled to vote with the holders of the common stock on all matters, except as
required by law, with each share of preferred stock currently outstanding having
10 votes. The preferred stock has a liquidation preference of $.10 per share
over the common stock. The preferred stock does not provide for the payment of a
stated rate of dividends, is not convertible into common stock and is not
mandatorily redeemable by the Company.
STOCK ISSUED FOR CONSULTING SERVICES: On June 15, 1998, the Company
issued 30,000 shares of its restricted Common Stock to a consultant in payment
for services rendered to the Company. Such restricted Common Stock was valued at
$30,374.
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.
In 1998, the 1996 Plan was amended to increase the number of options that may be
granted to 1,700,000. 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
non-statutory stock options.
The following summarizes the activity in the 1996 Plan:
<TABLE>
<CAPTION>
December 26, 1999 December 27, 1998
------------------------------ ---------------------------
Average Average
Exercise Exercise
Shares Price Shares Price
--------- -------- ------- --------
<S> <C> <C> <C> <C>
STOCK OPTIONS
Options at beginning of year 1,566,805 $ 3.18 915,000 $ 3.83
Options granted 150,065 $ 3.82 651,805 $ 1.61
Options exercised (31,510) $ 2.06 -- --
Options cancelled (348,293) $ 1.41 -- --
Options at end of year 1,377,067 $ 4.02 1,566,805 $ 3.18
At end of year:
Shares exercisable 834,705 $ 3.62 521,758 $ 3.38
Weighted average fair value
of options granted during the year -- $ 1.07 -- $ 1.00
</TABLE>
The Company has elected to follow APB Opinion No. 25, "Accounting for
Stock Issued to Employees" in accounting for its employee stock options as
permitted under SFAS No. 123, "Accounting for Stock-Based Compensation," and,
accordingly, recognized no compensation
32
<PAGE> 35
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
expense for the stock option grants to employees when the market price on the
underlying stock on the date of grant equals the exercise price of the Company's
employee stock option. Stock option grants issued to non-employees are accounted
for in accordance with SFAS No. 123.
The stock options generally vest over a two year period and expire from
5 or 10 years from the date of grant.
The Company issued options to acquire 113,065 restricted shares to
employees during 1999 and 561,805 in 1998. The Company issued options to acquire
37,000 shares to non-employees during 1999 and 90,000 in 1998. Vesting periods
range from the date of grant to two years. The Company did not recognize any
compensation expense related to options issued to employees during 1999 and
1998. The Company recognized compensation expense amounting to $1,898 related to
options issued to non-employees in 1999 and $95,200 in 1998.
The following summarizes options outstanding at December 26, 1999:
<TABLE>
<CAPTION>
Weighted Average
Remaining Weighted Average Number
Range of Exercise Price Number Outstanding Contractual Life Exercise Price Exercisable
----------------------- ----------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
$1.13 - $5.625 1,377,067 7.3 years $4.02 834,705
</TABLE>
Pro forma information has been determined as if the Company had
accounted for its employee stock options and restricted shares under the fair
value method. The fair value of each option grant is estimated on the date of
grant using the Black Scholes pricing model with the following range of
assumptions: risk free interest rate of 7%, dividend yield of 0%, expected lives
of seven years and expected volatility of .18% to .21%. Total compensation
expense related to options included in pro forma net loss for the years ended
December 26, 1999 and December 27, 1998, amounted to $360,040 and $596,340,
respectively. Had compensation cost for the stock based compensation plan
applicable to employees been determined in accordance with SFAS No. 123, the
Company's net loss would have been the following amounts:
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
December 26, 1999 December 27, 1998
----------------- -----------------
<S> <C> <C>
Net Loss, as reported $ 679,811 $ 672,444
Pro forma net loss 985,852 1,268,784
Pro forma loss per common share:
Basic and diluted 0.45 0.59
</TABLE>
The Company sponsors an employee stock ownership plan (ESOP) that
covers all employees who have attained the age of 21 and have been credited with
1,000 hours of service, as defined in the plan. The Company makes annual
contributions to the ESOP in such amounts as are determined by the Board of
Directors. As of March 20, 2000, the Company has not made any contributions to
the ESOP.
NOTE 10 -- RELATED PARTY TRANSACTIONS
Effective January 4, 1998, the Board of Directors approved an agreement
providing for the prepayment of up to $130,000 of 1998 salary and bonus of the
Company's President with interest to be paid monthly at an annual rate of 8.5%.
As of December 27, 1998, the prepaid
33
<PAGE> 36
THRIFT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
salary and bonus was $15,266.
Effective January 1, 1999, the Board of Directors approved a new
agreement providing for the prepayment of up to $155,266 of future bonuses of
the Company's President with interest to be paid monthly at an annual rate of
8.0% payable by December 31, 2000. The outstanding prepaid salary and bonus from
1998 was incorporated into the new agreement. As of December 26, 1999, the
prepaid bonus was $63,025.
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 fifty
percent (50%) in the second year after liquidation. Effective March 31, 1998,
the former President agreed to the termination of the deferred compensation
agreement.
In 1999 and 1998, the Company paid approximately $16,800 and $23,400,
respectively, to a marketing and advertising company controlled by a member of
the Board of Directors.
NOTE 11 -- SUBSEQUENT EVENT
In March 2000, the Company completed a private placement of a 7%
convertible debenture with a principal amount of $1,000,000 (the "Debenture").
The Debenture matures on March 21, 2003, and is convertible into shares of the
Company's Common Stock at a conversion rate equal to the lower of (i) 80% of
the five day average closing bid price as reported for the five consecutive
trading days prior to the conversion date or (ii) 80% of the five day average
closing bid price as reported for the five consecutive trading days prior to the
issuance of the Debenture (the "Conversion Price"), subject to adjustment as
provided in the Debenture. Interest on the Debenture is payable at the time of
conversion in cash or in shares of the Company's common stock, at the Company's
option.
The net proceeds to the Company from the sale of the Debenture totaled
$825,000. The placement agent received a cash commission of $130,000, plus
reimbursement of legal fees, and a five-year warrant to purchase 50,000 shares
of the Company's Common Stock at an exercise price equal to 110% of the
Conversion Price of the Debenture, subject to adjustment under the terms of
such warrant.
34
<PAGE> 37
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
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Director
Name Age Position Since
- - - ---- --- -------- -------
<S> <C> <C> <C>
Marc Douglas 41 President, Chief Executive Officer 1996
and Director
Ileen Little 62 Vice President, Secretary and Director 1991
Stephen L. Wiley 60 Chief Financial Officer and Director 1997
Jay M. Haft 64 Director 1998
Howard L. Rothchild 65 Director 1999
</TABLE>
MARC 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 Community College and his B.S. in Business from Florida
International University, Miami, Florida. Mr. Douglas is Ms. Little's son.
In 1985, Mr. Douglas 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 February 1998, Mr. Douglas filed an application for a
Presidential pardon with the U.S. Department of Justice. No estimate can be made
at this time, however, of the likelihood that a pardon will be granted and, if
granted, when it will be received.
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.
35
<PAGE> 38
ILEEN LITTLE is currently the Vice President, Secretary and a Director
of the Company. From its inception until February 1996, when she was elected to
her current position, she acted as President and a Director of the Company.
Prior to joining the Company, Ms. Little was President of Thrift Shops of West
Broward, Inc., and Southeast Thrift Shops of South Broward, Inc., two companies
which she co-founded in 1986 and 1990, respectively. Ms. Little received her
B.S. in business from Brooklyn College. Ms. Little is Mr. Douglas' mother.
STEPHEN L. WILEY became a Director of the Company and its Chief
Financial Officer in 1997. Prior to joining the Company, Mr. Wiley had been
Senior Vice President and Chief Financial Officer of Linen Supermarket, Inc.
since 1989. Linen Supermarket, Inc. was a private company that operated 120
specialty linen retail stores in six states. In February 1997, Linen
Supermarket, Inc. filed for protection from its creditors under Chapter 13 of
the Bankruptcy Code, which was converted to Chapter 11 in May 1997. Mr. Wiley
has more than 25 years' experience in the retail industry, including more than
10 years with the W.R. Grace retail companies. Mr. Wiley received his B.S. in
Industrial Management from Purdue University in West Lafayette, Indiana and his
M.B.A. from the University of Edinburgh in Edinburgh, Scotland.
JAY M. HAFT has been a Director of the Company since January 1, 1998.
Mr. Haft is a Managing General Partner of Gen Am "1" Venture Fund, an
international venture capital fund, respectively. Mr. Haft is also a director of
numerous public and private corporations, including RSVI, Inc., NCT Group, Inc.,
DCAP, Inc., Encore Medical Corporation, PC Service Source, Inc., DUSA
Pharmaceuticals, Inc., and Oryx Technology Corp. He is a graduate of Yale
College and Yale Law School.
HOWARD L. ROTHCHILD has been a Director of the Company since June 1999.
Mr. Rothchild is President of JES/Comm, Inc., a marketing consultant, who
provides services to the Company. He is also Director of Business Development of
Gold Coast Advertising, Inc., a full service advertising agency in Miami,
Florida. Mr. Rothchild has over 30 years experience in marketing and
advertising. He received his B.S. from University of Vermont, and his M.A. in
Advertising from the University of Pittsburgh.
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.
Officers of the Company hold office until the first meeting of the
Board of Directors following the annual meeting of the Company's shareholders
and until their successors have been chosen and qualified, subject to early
removal by the Board of Directors.
The non-employee directors of the Company receive compensation in the
form of options to purchase shares of the Company's Common Stock. The two
non-employee directors of the Company were granted 35,000 stock options in 1999
at exercise prices of $1.190, $1.50, $3.125, $4.625 and $5.625 per share, the
fair market values of the Common Stock on the dates of the grant. As long as
they continue to serve as a director, they will receive additional grants at the
then fair market price of 5,000 options at the end of each quarter and 2,000
options upon each anniversary of their appointment to the Board of Directors.
36
<PAGE> 39
Effective January 1, 1998, the Company entered into a consulting
agreement with Jay M. Haft, a director of the Company, pursuant to which Mr.
Haft is assisting the Company in developing, studying and evaluating
capital-raising and proposals to expand the Company's business, including
through mergers and acquisitions. The agreement is for a six-month term that
automatically renews for additional terms unless terminated by the Company or
Mr. Haft at least 15 days prior to the end of the then-current term. As
compensation for his services under the agreement, the Company granted to Mr.
Haft five-year options to purchase 66,000 shares of the Company's Common Stock
at a price of $2.00 per share. The options vest as follows: 5,000 upon execution
of the consulting agreement, 5,000 at the end of the initial six-month term, and
14,000 at the end of every six-month period thereafter until all of the options
are vested and exercisable. Any unvested options will be cancelled if the
consulting agreement is terminated by either party.
During 1998, the Board of Directors established Audit and Compensation
Committees. Mr. Rothchild chairs the Audit Committee and its other members
currently are Messrs. Haft and Wiley. Mr. Haft chairs the Compensation Committee
and its other members are Messrs. Rothchild and Douglas.
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, Chief Financial Officer and Vice President (the "Named
Executive Officers"), for services rendered to the Company during 1999, 1998 and
1997. No other executive officer of the Company earned total salary and bonus in
excess of $100,000 during the fiscal year ended December 26, 1999, December 27,
1998 and December 31, 1997.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------------------- -------------
Shares
Other Annual Underlying
Name and Principal Position Year Salary($) Bonus($) Compensation Options
- - - --------------------------- ----- --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Marc Douglas 1999 380,666 92,241 124,570(1) --
Chief Executive Officer 1998 346,060 88,646 111,132(1) --
1997 314,050 75,627 101,491(1) --
Ileen Little 1999 139,600 7,000 (2) 20,000
Vice President and 1998 139,600 -- (2) --
Secretary 1997 129,000 -- (2) 177,000
Steve Wiley 1999 137,500 -- (2) 5,000
Chief Financial Officer 1998 137,500 -- (2) 33,750
</TABLE>
- - - ----------
37
<PAGE> 40
(1) Includes advances amortized into operations as compensation, personal
use of Company car, life insurance payments and payments in lieu of
vacation time.
(2) Perquisites and other personal benefits paid to the Named Executive
Officers for the periods indicated did not exceed 10% of the total of
annual salary and bonus reported.
EXECUTIVE EMPLOYMENT AGREEMENTS. 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 to the other party at least 90 days prior to
the end of each 12-month period of the intent not to renew. The employment
agreement provides for a base salary 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 if terminated by the Company for any reason other
than death, disability or cause (as defined in the employment agreement), or for
a period of 12 months after termination of the employment agreement as a result
of his disability, and that Mr. Douglas' estate will receive a lump sum payment
equal to one year's salary plus a pro rata portion of any bonus to which he is
entitled upon termination of the employment agreement by reason of his death.
The employment agreement also prohibits Mr. Douglas from directly or indirectly
competing with the Company for one year after termination of his employment
agreement for any reason other than the Company's termination of his employment
without cause. If a change of control (as defined in the employment agreement)
occurs, the employment agreement provides for the continued employment of Mr.
Douglas until the later of three years following the change of control or the
then-scheduled expiration date of the term of employment. The term "change of
control," as defined in the employment agreement, generally means (i) any
person's or group's acquisition of 20% or more of the combined voting power of
the Company's outstanding securities, or (ii) in the event of any cash tender or
exchange offer, merger or other business combination, sale of assets or
contested election, the persons who were directors of the Company prior to such
transaction cease to constitute a majority of the Board of Directors following
the transaction. In addition, following a change of control, if Mr. Douglas'
employment is terminated by the Company other than for cause or by reason of his
death or disability, or for certain specified reasons (such as a representation
or diminution of duties), Mr. Douglas will receive a lump sum cash payment equal
to the greater of three times the aggregate compensation paid to him during the
preceding year or the remaining salary, plus any applicable bonus, payable to
him for the remaining term of the agreement.
38
<PAGE> 41
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 26, 1999.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
----------------------------------------------------------------------------
Number of
Shares % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Share) Year
---- ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Ileen Little 20,000 23.4% $4.000 2009
Stephen L. Wiley 5,000 5.8% $4.000 2009
</TABLE>
STOCK OPTIONS HELD AT YEAR END. The following table indicates the total
number and value of exercisable and unexercisable stock options held by the
Company's Named Executive Officers as of December 26, 1999. No options were
exercised by the Named Executive Officers during 1999.
<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 475,000(2) 575,000(2)(3) -- $1,312,500
Ileen Little 30,000 20,000(3) $ 65,000 $ 47,500
Stephen L. Wiley 27,500 8,750(3) $ 49,375 $ 49,375
</TABLE>
- - - ----------
(1) Based on a closing price on December 26, 1999 of $5.00 per share.
(2) Includes 700,000 options granted to Marc Douglas in 1996 under the
Company's 1996 Plan. Of the total amount granted, 125,000 of these
options vested upon the opening of the Company's first thrift store
following the Company IPO and 125,000 vested this year when that thrift
store operated profitably for one year. Similarly, 125,000 and 100,000
of such options will vest upon the opening of each of the next two
thrift stores, respectively, and 125,000 and 100,000 will vest when
those two thrift stores or related businesses, respectively, operate
profitably for one year. Subject to this vesting, the options were
exercisable commencing June 11, 1997.
(3) Includes options granted in 1998, which will vest as follows: 30% of
the shares if the Company's 1999 total sales exceed $10 million; 30% of
the shares if the Company's 1999 total store expenses as a percentage
of total sales is 47.5% or less and 40% of the shares if the Company's
consolidated pre-tax profit is $150,000 or greater, as reflected in
this Report.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Prior to
1998, the full Board of Directors determined the compensation for the Company's
executive officers. In 1998, the Board established a Compensation Committee,
which will set the compensation for the Company's executive officers. Marc
Douglas, the Company's President and Chief Executive Officer, is a member of
the Compensation Committee.
39
<PAGE> 42
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 20,
2000, regarding the Company's Common Stock owned of record or beneficially by
(i) each shareholder who is known by the Company to beneficially own more than
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.
Each shareholder listed below has sole voting and investment power.
<TABLE>
<CAPTION>
Amount
and
Nature of
Beneficial
Ownership Percent of Common Percent of Total
Name and Address of Common Stock Beneficially Owned Voting Power(1)
- - - ---------------- --------------- ------------------ ---------------
<S> <C> <C> <C>
Marc Douglas 1,630,000(2)(3) 55.8% 76.2%
3141 W. Hallandale Beach Blvd.
Hallandale, Florida 33009
Ileen Little 43,000(3) 1.3% 0.7%
3141 W. Hallandale Beach Blvd.
Hallandale, Florida 33009
Stephen L. Wiley 32,500(3) 1.4% 0.7%
3141 W. Hallandale Beach Blvd.
Hallandale, Florida 33009
Jay M. Haft 99,060(3) 4.1% 2.0%
3141 W. Hallandale Beach Blvd.
Hallandale, Florida 33009
Howard Rothchild 5,000(3) 0.2% 0.1%
3141 W. Hallandale Beach Blvd.
Hallandale, Florida 33009
1997 Ileen Little 150,000(3) 6.0% 3.0%
Irrevocable Family Trust
c/o Barry Nelson, Esq., Trustee
19495 Biscayne Boulevard
Aventura, Florida 33180
InsiderStreet.com Inc. 125,000 5.3% 2.6%
2907 Bay to Bay Boulevard
Suite 203
Tampa, FL 33629
All directors and executive 1,809,560(2)(3) 58.3% 76.9%
officers as a group (five
persons)
</TABLE>
- - - ----------
(1) The Common Stock votes together with the Series A Preferred Stock on
all matters, except as otherwise legally required. 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.
40
<PAGE> 43
Mr. Douglas holds 250,000 shares of Series A Preferred Stock, which are
reflected in Mr. Douglas' percentage of total voting power.
(2) Does not include 150,000 shares of Common Stock underlying options held
by the 1997 Ileen Little Irrevocable Family Trust (the "Trust") of
which Mr. Douglas is the beneficiary. Mr. Douglas does not exercise
voting or dispositive control of the shares underlying options held by
the Trust. Of Mr. Douglas' total shares, 6,000 shares are held of
record by Douglas Family Holdings, Inc. ("Douglas Holdings"), a
corporation of which Mr. Douglas is the sole shareholder, and 400,000
shares are held of record by Douglas Family Limited Partnership, of
which Douglas Holdings is the general partner.
(3) Includes shares underlying options exercisable within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DEFERRED COMPENSATION AGREEMENT
In 1995, Thrift Shops of West Dade, Inc., 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 would
have been 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. Effective March 31, 1998, Ms. Little agreed to the
termination of the deferred compensation agreement.
LOANS TO/FROM MARC DOUGLAS
The Company previously advanced Mr. Douglas monies on an interest-free
basis, the amount of which totaled $63,156 as of December 27, 1998. Mr. Douglas
and the Company have agreed that the advances to Mr. Douglas will be amortized
into operations as compensation of $5,263 per month through December 1999.
Effective January 4, 1998, the Board of Directors approved an agreement
providing for the prepayment of up to $130,000 of 1998 salary and bonus of the
Company's President with interest to be paid monthly at an annual rate of 8.5%.
As of December 27, 1998, the prepaid salary and bonus was $15,266.
Effective January 1, 1999, the Board of Directors approved a new
agreement providing for the prepayment of up to $155,266 of future bonuses of
the Company's President with interest to be paid monthly at an annual rate of
8.0% payable by December 31, 2000. The outstanding prepaid salary and bonus from
1998 was incorporated into the new agreement. As of December 26, 1999, the
prepaid bonus was $63,025
CONSULTING AGREEMENTS
See "Item 9. Directors, Executive Officers, Promoters and Control
Person; Compliance with Section 16(a) of the Exchange Act" for a description of
the consulting agreement between the Company and Jay M. Haft, a director of the
Company.
41
<PAGE> 44
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<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)
4.2 Form of Common Stock Certificate(1)
4.3 Form of Warrant Agent Agreement with attached Form of Warrant(1)
4.4 7% Convertible Debenture in the principal amount of $1,000,000(3)
10.1 Employment Agreement with Marc Douglas*(1)
10.2 1996 Stock Option Plan, as amended*(2)
10.3 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)
10.4 Agreement to Solicit Salvageable Property between Hallandale Thrift Management, Inc. and Temple
in the Pines, d/b/a Beth Ahm Israel, as amended(1)
10.5 Agreement to Purchase Salvageable Property between Thrift Shops of South Broward, Inc. d/b/a
Community Thrift Shop, Thrift Shops of West Dade, Inc. and Missing Children Awareness
Foundation, Inc., as amended(1)
10.6 Agreement to Solicit Salvageable Property between the Company and Missing Children Awareness
Foundation, Inc., as amended(1)
10.7 Consulting agreement dated January 1, 1998 between the Company and Jay M. Haft(4)
10.8 Promissory Note dated May 8, 1998 from Marc Douglas, as maker, to the Company(6)
10.9 Agreement to Solicit Property between Hallandale Thrift Management, Inc. and Samuel M. and Helen
Soref Jewish Community Center, Inc. dated April 8, 1998(2)
10.10 Agreement to Purchase Property between Thrift Shops of North Lauderdale, Inc. and Samuel M. and
Helen Soref Jewish Community Center, Inc. dated April 8, 1998(2)
10.11 Amendment dated January 1, 2000 by and between the Company and the Missing Children Awareness
Foundation, Inc.(3)
21.1 Subsidiaries of the Registrant(3)
27.1 Financial Data Schedule (SEC use only) (3)
</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).
(2) Incorporated by reference from the exhibit filed with the Company's
Post-Effective Amendment No. 2 to Form SB-2.
(3) Filed herewith.
(4) Incorporated by reference from the exhibit filed with the Company's Annual
Report on Form 10-KSB for the year ended December 27, 1998.
42
<PAGE> 45
(5) Incorporated by reference from the exhibit filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997.
(6) Incorporated by reference from the exhibit filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended March 29, 1998.
(b) The Company did not file any Reports on Form 8-K during the fourth
quarter of the year ended December 26, 1999.
43
<PAGE> 46
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has caused its Annual Report on Form 10-KSB to be signed
on its behalf by the undersigned, thereunto duly authorized.
THRIFT MANAGEMENT, INC.
Date: March 27, 2000 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:
Dated: March 27, 2000 By: /s/ Marc Douglas
--------------------------------
Marc Douglas, President, Chief Executive
Officer and Chairman of the Board of
Directors (Principal executive officer)
Dated: March 27, 2000 By: /s/ Stephen L. Wiley
--------------------------------
Stephen L. Wiley, Chief Financial Officer
and Director (Principal financial and
accounting officer)
Dated: March 27, 2000 By: /s/ Ileen Little
--------------------------------
Ileen Little, Vice President, Secretary
and Director
Dated: By:
--------------------------------
Jay M. Haft, Director
Dated: March 27, 2000 By: /s/ Howard L. Rothchild
--------------------------------
Howard L. Rothchild, Director
44
<PAGE> 1
EXHIBIT 4.2
7% CONVERTIBLE DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
ISSUANCE DATE: March 21, 2000
DUE DATE March 21, 2003
PRINCIPAL AMOUNT: $1,000,000.00
DEBENTURE NUMBER: DB-1
FOR VALUE RECEIVED, Thrift Management, Inc., a Florida corporation with
its principal executive office located at 3141 West Hallandale Beach Boulevard,
Hallandale, Florida 33009 (the "Company") hereby promises to pay to James R.
Scott or registered assigns (the "Holder") on March 21, 2003 (the "Maturity
Date"), the principal amount of One Million Dollars and No Cents
($1,000,000.00), and to pay interest on the principal amount hereof, in such
amounts, at such times and on such terms and conditions as are specified herein.
This Debenture is one of a series of 7% Convertible Debentures of the
Company (collectively, the "Debentures") being sold by the Company in a "best
efforts" private placement (the "Offering"), pursuant to Subscription Agreements
dated the date hereof between the Company and each purchaser of a Debenture,
including the Holder (the "Subscription Agreement").
ARTICLE 1. INTEREST
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") at the rate of seven (7%) percent per annum, payable
at the time of each conversion, with respect to the principal amount of the
Debenture being converted, until the principal amount hereof is paid in full or
has been converted. Interest shall be computed on the basis of a 360 day year of
twelve (12), thirty (30) day months. Each payment shall be paid in cash or in
freely trading shares of common stock, par value $.01, of the Company (the
"Common Stock"), at the Company's option. If the interest is to be paid in cash,
the Company shall make such payment within five (5) business days of the
"Conversion Date" as that term is defined in
<PAGE> 2
Section 3.2(b). If the interest is to be paid in Common Stock, said Common Stock
shall be delivered to the Holder, or per the Holder's instructions, within five
(5) business days of the date of conversion. If such interest is paid in shares
of Common Stock, then the number of shares of Common Stock to be issued on
account of the accrued interest shall be equal to the amount of the interest
owed divided by the lower of (i) 80% of the average closing bid price of the
Common Stock for the five (5) consecutive trading days prior to the date of
issuance of the Debentures (as reported by Bloomberg, L.P.), and (ii) 80% of the
average closing bid price (as reported by Bloomberg, L.P.) for the five (5)
consecutive trading days preceding the Conversion Date (as hereinafter defined);
provided, however, that notwithstanding anything to the contrary provided herein
or elsewhere, the 80% discount factor utilized to determine the number of shares
of Common stock to be issued on account of the accrued interest will be reduced
by 2% for each $100,000 principal amount of Debentures sold by the Company in
excess of an aggregate principal amount of $1,000,000 (e.g., the discount factor
will be 78% if $1,100,000 principal amount of Debentures is sold). The
Debentures are subject to automatic conversion at the end of three (3) years
from the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 3.2. The
closing of the sale of the Debentures shall be deemed to have occurred on the
date the funds are received by the Company (the "Closing Date").
ARTICLE 2. METHOD OF PAYMENT
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall have
the option of paying the interest on this Debenture in United States dollars or
in shares of Common Stock upon conversion pursuant to Article 1 hereof. The
Company may draw a check for the payment of interest to the order of the Holder
of this Debenture and mail it to the Holder's address as shown on the Register
(as defined in Section 7.2 below). Interest and principal payments shall be
subject to withholding under applicable United States Federal Internal Revenue
Service Regulations.
ARTICLE 3. CONVERSION
Section 3.1 CONVERSION PRIVILEGE
(a) The Holder of this Debenture shall have the right, at its sole
option, to convert it into shares of Common Stock, at any time or from time to
time in whole or in part which is before the close of business on the Maturity
Date, except as set forth in Section 3.1(c) below. The number of shares of
Common Stock issuable upon the conversion of this Debenture is determined
pursuant to Section 3.2 and rounding the result to the nearest whole share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
-2-
<PAGE> 3
(c) In the event all or any portion of this Debenture remains
outstanding on the third (3rd) anniversary of the date hereof, the unconverted
portion of such Debenture will automatically be converted into shares of Common
Stock on such date in the manner set forth in Section 3.2.
Section 3.2. CONVERSION PROCEDURE
(a) DEBENTURES. Upon the Company's receipt of a facsimile or original
of the Holder's signed Notice of Conversion and the original Debenture to be
converted, the Company shall instruct the transfer agent to issue one or more
Stock Certificates representing that number of shares of Common Stock into which
the Debenture, or portion thereof, is convertible in accordance with the
provisions regarding conversion set forth in the conversion notice. The Company
or its counsel shall act as Registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Debenture.
(b) CONVERSION DATE. At the option of the Holder the face amount of the
Debentures, plus accrued interest at the option of the Company, may be converted
at any time or from time to time in whole or in part after the Closing Date.
Such conversion shall be effectuated by surrendering to the Company, or its
attorney, this Debenture to be converted together with a facsimile or original
of the signed Notice of Conversion which evidences the Holder's intention to
convert the Debenture indicated. The date on which the Notice of Conversion is
effective ("Conversion Date") shall be deemed to be the date on which the Holder
has delivered to the Company a facsimile or original of the signed Notice of
Conversion, as long as the original Debentures to be converted are received by
the Company or its designated attorney within five (5) business days thereafter.
As long as the Debentures to be converted are received by the Company or its
designated attorney within seven (7) business days after it receives a facsimile
or original of the signed Notice of Conversion, the Company shall deliver to the
Holder, or per the Holder's instructions as may be required by the terms of the
Subscription Agreement, certificates for the shares of Common Stock (which
certificates after the date of the effective date of the registration statement
covering the shares of Common Stock issuable upon conversion of the Debentures
must be delivered without restrictive legend).
(c) ISSUANCE OF COMMON STOCK. Upon the conversion of any Debentures and
upon receipt by the Company or its attorney of a facsimile or original of the
Holder's signed conversion notice, the Company shall instruct the Company's
transfer agent to issue certificates (which certificates after the date of the
effective date of the registration statement covering the shares of Common Stock
issuable upon conversion of the Debentures must be delivered without restrictive
legend), as may be required pursuant to the terms of the Subscription Agreement
entered into by the Company and the Holder in the name of the Holder (or its
nominee) and in such denominations to be specified at conversion representing
the number of shares of Common Stock issuable upon such conversion, as
applicable. The Company warrants that no instructions, other than these
instructions, have been given or will be given to the transfer agent and that
the Common Stock shall otherwise be freely transferable on the books and records
of the Company.
(d) CONVERSION RATE. Any time after the Closing Date, the Holder is
entitled to convert the fact amount of this Debenture, plus accrued interest,
into Common Stock at the lower
-3-
<PAGE> 4
of (i) eighty (80%) percent of the five (5) day average closing bid price as
reported by Bloomberg LP for the five (5) consecutive trading days prior to the
Conversion Date or (ii) 80% of the five (5) day average closing bid price as
reported on Bloomberg, L.P. for the five (5) consecutive trading days prior to
the issuance of the Debentures (each being referred to as the "Conversion
Price"); provided, however, that notwithstanding anything to the contrary
provided herein or elsewhere, the 80% discount factor utilized to determine the
Conversion Price will be reduced by 2% for each $100,000 principal amount of
Debentures sold by the Company in excess of an aggregate principal amount of
$1,000,000 (e.g., the discount factor will be 78% if $1,100,000 principal amount
of Debentures is sold). No fractional shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded up or down, as the case may be, to the nearest whole share.
The Debentures are subject to a 36 month conversion feature at the end
of which all Debentures outstanding will be automatically converted upon the
terms set forth in this section ("Mandatory Conversion Date").
(e) USURIOUS INTEREST. Nothing contained in this Debenture shall be
deemed to establish or require the payment of interest to the Company at a rate
in excess of the maximum rate permitted by governing law. In the event that the
rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the Holder to the
Company.
(f) COSTS OF SHARES. It shall be the Company's responsibility to take
all necessary actions and to bear all such costs to issue the Certificate of
Common Stock as provided herein, including the responsibility and cost for
delivery of an opinion letter to the transfer agent, if so required. The person
in whose name the certificate of Common Stock is to be registered shall be
treated as a shareholder of record on and after the Conversion Date. Upon
surrender of any Debentures that are to be converted in part, the Company shall
issue to the Holder a new Debenture equal to the unconverted amount, if so
required in writing by the Holder.
(g) LIQUIDATED DAMAGES. Following the first day that a registration
statement covering the shares of Common Stock issuable upon exercise of the
Debentures is declared effective by the SEC, in the event certificates for
unlegended, unrestricted shares of Common Stock are not delivered per the
written instructions of the Holder within seven (7) business days after the
Conversion Date, then in such event the Company shall pay to the Holder one (1%)
percent in cash of the principal amount of the Debentures being converted per
each day after the seventh (7th) business day following the Conversion Date that
the Common Stock is not delivered.
The Company acknowledges that its failure to deliver the Common Stock
within seven (7) business days after the Conversion Date will cause the Holder
to suffer damages in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this Agreement a
provision for liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents the parties'
good faith effort to qualify such damages and, as such, agree that the form and
amount of such
-4-
<PAGE> 5
liquidated damages are reasonable and will not constitute a penalty. The payment
of liquidated damages shall not relieve the Company from its obligations to
deliver the Common Stock pursuant to the terms of this Agreement.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3 is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 3(g) shall not
apply but instead the provisions of Section 3(h) shall apply.
The Company shall make any payments incurred under this Section 3(g) in
immediately available funds within three (3) business days from the date of
issuance of the applicable Common Stock. Nothing herein shall limit the Holder's
right to pursue actual damages or cancel the conversion for the Company's
failure to issue and deliver Common Stock to the Holder within seven (7)
business days after the Conversion Date.
(h) AUTHORIZED SHARES; LACK OF AUTHORIZED SHARES. The Company shall at
all times reserve and have available all Common Stock necessary to meet
conversion of the Debentures (and payment of interest thereon in shares of
Common Stock) by all Holders of the entire amount of Debentures then
outstanding. If, at any time the Holder submits a Notice of Conversion and the
Company does not have sufficient authorized but unissued shares of Common Stock
available to effect, in full, a conversion of the Debentures (a "Conversion
Default," the date of such default being referred to herein as the "Conversion
Default Date"), the Company shall issue to the Holder all of the shares of
Common Stock which are available, and the Notice of Conversion as to any
Debentures requested to be converted but not converted (the "Unconverted
Debentures"), upon the Holder's sole option, may be deemed null and void. The
Company shall provide notice of such Conversion Default ("Notice of Conversion
Default") to all existing Holders of outstanding Debentures, by facsimile within
three (3) business days of such default (with the original delivered by
overnight to two (2) day courier), and the Holder shall give notice to the
Company by facsimile within five (5) business days of receipt of the original
Notice of Conversion Default (with the original delivered by overnight or two
(2) day courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payment for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of the Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Holder's option, payable as follows: (i) in
the event the Holder elects to take such payment in cash, cash payments shall be
made to the Holder of outstanding Debentures by the fifth (5th) day of the
following calendar month, or (ii) in the event the Holder elects to take such
payment in stock, the Holder may convert such payment into Common Stock at the
Conversion Rate set forth in Section 3.2(d) at
-5-
<PAGE> 6
any time after the fifth (5th) day of the calendar month following the month in
which the Authorization Notice was received, until the expiration of the
mandatory thirty-six (36) month conversion period. The Company acknowledges that
its failure to maintain a sufficient number of authorized but unissued shares of
Common Stock to effect in full a conversion of the Debentures will cause the
Holder to suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in this
Debenture a provision for liquidated damages. The parties acknowledge and agree
that the liquidated damages provision set forth in this section represents the
parties' good faith effort to quantify such damages and, as such, agree that the
form and amount of such liquidated damages are reasonable will not constitute a
penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of this
Debenture.
Nothing herein shall limit the Holder's right to pursue actual damages
or cancel the conversion for the Company's failure to maintain a sufficient
number of authorized shares of Common Stock.
(i) PROSPECTUSES. The Company shall furnish to the Holder such number
of prospectuses and other documents incidental to the registration of the shares
of Common Stock underlying the Debentures, including any amendment of or
supplements thereto.
(j) LIMITATION ON CONVERSION. The Holder is limited in the amount of
this Debenture it may convert and own. Other than the Mandatory Conversion
provisions contained in this Debenture which are not limited by the following,
in no other event shall the Holder be entitled to convert, any amount of
Debentures in excess of that amount upon conversion of which the sum of (1) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Debenture, and (2)
the number of shares of Common Stock issuable upon the conversion of the
Debentures with respect to which the determination of this provision is being
made, would result in beneficial ownership by the Holder and its affiliates of
more than 4.99% of the outstanding shares of Common Stock of the Company (after
taking into account the shares to be issued to the Holder upon such conversion).
For purposes of this provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as
otherwise provided in clause (1) of such provision. The Company must not permit
conversion of any Debentures which could result in more than 4.99% of the
outstanding shares of Common Stock (after taking into account the shares upon
such conversion) being issued to the Purchaser.
(k) REDEMPTION. The Company reserves the right, at its sole option, to
call a mandatory redemption of the outstanding Debentures, as follows: In the
event the Company exercises such right of redemption at any time following the
Closing Date, it shall pay the Holder, in United States currency, the benefit of
the bargain (intrinsic value) that is, the principal amount of the Debenture
being redeemed, plus accrued interest and the profit the Holder would have
received upon conversion of that portion of the Debenture being redeemed and
sale of the Common Stock. The date by which the Debentures must be delivered to
the Escrow Agent, shall not be later than five (5) business days following the
date the Company notifies the Holder by
-6-
<PAGE> 7
facsimile of the redemption. The Company shall give the Holder at least twenty
(20) business days' advance written notice of its intent to redeem; PROVIDED,
HOWEVER, that notwithstanding anything to the contrary provided herein or
elsewhere, as a condition to the Company selling any of its securities other
than in this Offering, the Company must redeem all of the Debentures outstanding
with the proceeds from any such sale as provided in the Subscription Agreement
at the above described redemption price.
(l) INVESTMENT INTENT. The Holder of this Debenture by acceptance
hereof, agrees that this Debenture is being acquired for investment and that
such Holder will not offer, sell or otherwise dispose of this Debenture or the
shares of Common stock issuable upon conversion thereof except under
circumstances which will not result in violation of the Securities Act of 1933,
as amended (the "Securities Act"), or any applicable state Blue Sky law or
similar laws relating to the sale of securities.
(m) ADJUSTMENT. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
and the validity and enforceability of the remaining provisions of this
Debenture will not in any way be affected or impaired thereby.
Section 3.3 FRACTIONAL SHARES.
The Company shall not issue fractional shares of Common Stock or scrip
representing fractions of such shares, upon the conversion of this Debenture.
Instead, the Company shall round up or down, as the case may be, to the nearest
whole share.
Section 3.4 TAXES ON CONVERSION.
The Company shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of shares of Common Stock upon the conversion of
this Debenture. However, the Holder shall pay any such tax which is due because
the shares are issued in a name other than its name.
Section 3.5 COMPANY TO RESERVE STOCK.
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Debentures (and the interest thereon) and the
exercise of the Agent Warrants (as defined in the Subscription Agreement), such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of the then outstanding Debentures (and the interest
thereon) and the exercise of the Agent Warrants; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding Debentures (and the interest
thereon) and the Agent Warrants, the Company will take such action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose. All shares of Common
Stock which may be issued upon the conversion hereof shall upon issuance be
validly issued,
-7-
<PAGE> 8
fully paid and non-assessable and free from all pre-emptive rights, rights of
first refusal, taxes, liens and charges with respect to the issuance thereof.
Section 3.6 RESTRICTIONS ON TRANSFER.
This Debenture has not been registered under the Securities Act, and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Securities Act. This Debenture and the Common Stock
issuable upon the conversion thereof may only be offered or sold pursuant to
registration under or an exemption from the Securities Act.
Section 3.7 MERGERS, ETC.
If the Company merges or consolidates with another corporation or sells
or transfers all or substantially all of its assets to another person and the
holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchasers or transferee shall amend this Debenture to provide that
it may thereafter be converted on the terms and subject to the conditions set
forth above into the kind and amount of stock, securities or property receivable
upon such merger, consolidation, sale or transfer by a holder the number of
shares of Common Stock into which this Debenture might have been converted
immediately before such merger, consolidation, sale or transfer, subject to
adjustments which shall be as nearly equivalent as may be practicable to
adjustments provided for in this Article 3.
ARTICLE 4. MERGERS AND ADJUSTMENTS
Section 4.1 MERGERS.
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to any person, unless such person expressly
assumes in writing the obligations of the Company under this Debenture and
immediately after such transaction no Event of Default exists. Any reference
herein to the Company shall refer to such surviving or transferee corporation
and the obligations of the Company shall terminate upon such written assumption.
Section 4.2 ADJUSTMENTS.
The number of shares of Common Stock purchasable upon the conversion of
this Debenture shall be subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend on Common Stock in
Common Stock or securities convertible into, exchangeable for or otherwise
entitling a holder thereof to receive Common Stock, (ii) declare a dividend
payable in cash on its Common Stock and at substantially the same time offer its
shareholders a right to purchase new Common Stock (or securities convertible
into, exchangeable for or other entitling a holder thereof to receive Common
Stock) from the proceeds of such dividend (all Common Stock so issued shall be
deemed to have issued as a stock dividend), (iii) subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, (iv)
combine its outstanding shares of Common
-8-
<PAGE> 9
Stock into a smaller number of shares of Common Stock, or (v) issue by
reclassification, reorganization or recapitalization of its Common Stock any
shares of Common Stock or other securities of the Company, the number of shares
of Common Stock issuable upon conversion of this Debenture immediately prior
thereto shall be adjusted so that the Holder of this Debenture shall be entitled
to receive after the happening of any of the events described above that number
and kind of shares as the Holder would have received had this Debenture been
converted immediately prior to the happening of such event or any record date
with respect thereto. Any adjustment made pursuant to this subdivision shall
become effective immediately after the close of business on the record date in
the case of a stock dividend and shall become effective immediately after the
close of business on the effective date in the case of a stock split,
subdivision, combination or reclassification.
(b) In case the Company shall distribute, without receiving
consideration therefor, to all holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends other than as described in
Section 4.2(a)), or rights, options or warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock, then in such case, the number of shares of Common Stock thereafter
issuable upon conversion of this Debenture shall be determined by multiplying
the number of shares of Common Stock theretofore issuable upon conversion of
this Debenture, by a fraction, of which the numerator shall be the closing bid
price per share of Common Stock on the record date for such distribution, and of
which the denominator shall be the closing bid price of the Common Stock less
the then fair value (as determined by the Board of Directors of the Company,
whose determination shall be conclusive) of the portion of the assets or
evidences of indebtedness so distributed or of such subscription rights, options
or warrants, or of such convertible or exchangeable securities applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
distribution.
(c) Any adjustment to the number of shares of Common Stock issuable
hereunder otherwise required to be made by this Section 4.2 will not have to be
adjusted if such adjustment would not require an increase or decrease in one
(1%) percent or more in the number of shares of Common Stock issuable upon
conversion of this Debenture. No adjustment in the number of shares of Common
Stock issuable upon conversion of this Debenture will be made for the issuance
of shares of capital stock to directors, employees or independent contractors
pursuant to the Company's or any of its subsidiaries' stock option, for the
purpose of the Company's Common Stock warrants issued, issuable or to be issued
for services rendered by others to the Company stock ownership or other benefit
plans or arrangements or trusts related thereto or for issuance of any shares of
Common Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
options amounts in shares of Common Stock under such plan.
ARTICLE 5. REPORTS
The Company will mail to the Holder hereof, at its address as shown on
the Register, a copy of any annual, quarterly or current report that it files
with the Securities and Exchange
-9-
<PAGE> 10
Commission promptly after the filing thereof and a copy of any annual, quarterly
or other report or proxy statement that it gives to its shareholders generally
at the time such report or statement is sent to shareholders.
ARTICLE 6. DEFAULTS AND REMEDIES
Section 6.1 EVENTS OF DEFAULT.
An "Event of Default" occurs if (a) the Company does not make the
payment of the principal of this Debenture when the same becomes due and payable
at maturity, upon redemption or otherwise, (b) the Company does not make a
payment, other than a payment of principal, for a period of five (5) business
days thereafter, (c) the Company fails to comply with any of its other
agreements in this Debenture and such failure continues for the period and after
the notice specified below, (d) there is an event of default in any other
Debenture; (e) the Company is not in compliance or is in breach and/or default
of any material representation, warranty, covenant or any other term of the
Registration Rights Agreement dated the date hereof between the Company and the
Holder, the Subscription Agreement, the Agency Agreement between the Company and
the Placement Agent, the Agent Warrants, or any other material agreement, note
or debenture of the Company, except to the extent such noncompliance, breach, or
default results in the imposition of a penalty pursuant to the terms of such
agreement, note, or debenture; provided, however, that notwithstanding the
imposition of such a penalty, any such noncompliance, breach, or default that
continues for a period of 60 days shall constitute an Event of Default; (f) the
Company does not file any report required to be filed with the SEC on a timely
basis (including any extension period as reported on a Form 12(b)-25 of the
Company); (g) the Common Stock is delisted from the OTCBB; or (h) the Company
pursuant to or within the meaning of any Bankruptcy Law (as hereinafter
defined): (i) commences a voluntary case; (ii) consents to the entry of an order
for relief against it in an involuntary case; (iii) consents to the appointment
of a Custodian (as hereinafter defined) of it or for all or substantially all of
its property, (iv) makes a general assignment for the benefit of its creditors
or (v) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (A) is for relief against the Company in an involuntary
case; (B) appoints a Custodian of the Company or for all or substantially all of
its property, (C) orders the liquidation of the Company, and the order or decree
remains unstayed and in effect for sixty (60) days; (D) the Company's Common
Stock is no longer listed on any recognized exchange including electronic
over-the-counter bulletin board. As used in this Section 6.1, the term
"Bankruptcy Law" means Title 11 of the United States Code or any similar federal
or state law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law. A
default under clause (c) above is not an Event of Default until the Holders of
at least twenty-five (25%) percent of the aggregate principal amount of the
Debentures outstanding notify the Company of such default and the Company does
not cure it within five (5) business days after the receipt of such notice,
which must specify the default, demand that it be remedied and state that it is
a "Notice of Default."
-10-
<PAGE> 11
Section 6.2 ACCELERATION.
If an Event of Default occurs and is continuing, the Holder hereof by
notice to the Company, may declare the remaining principal amount of this
Debenture to be due and payable. Upon such declaration, the remaining principal
amount shall be due and payable immediately.
ARTICLE 7. REGISTERED DEBENTURES
Section 7.1 SERIES.
This Debenture is one of a numbered series of Debentures which are
identical except as to the principal amount and date of issuance thereof and as
to any restriction on the transfer thereof in order to comply with the
Securities Act and the regulations of the Securities and Exchange Commission
promulgated thereunder. Such Debentures are referred to herein collectively as
the "Debentures." The Debentures shall be issued in whole multiples of $5,000.
Section 7.2 RECORD OWNERSHIP.
The Company, or its attorney, shall maintain a register of the Holders
of the Debentures (the "Register") showing their names and addresses and the
serial numbers and principal amounts of Debentures issued to or transferred of
record by them from time to time. The Register may be maintained in electronic,
magnetic or other computerized form. The Company may treat the person named as
the Holder of this Debenture in the Register as the sole owner of this
Debenture. The Holder of this Debenture is the person exclusively entitled to
receive payments of interest on this Debenture, receive notifications with
respect to this Debenture, convert it into Common Stock and otherwise exercise
all of the rights and powers as the absolute owner hereof.
Section 7.3 REGISTRATION OF TRANSFER.
Transfers of this Debenture may be registered on the books of the
Company maintained for such purpose pursuant to Section 7.2 above (i.e., the
Register). Transfer shall be registered when this Debenture is presented to the
Company with a request to register the transfer hereof and the Debenture is duly
endorsed by the appropriate person, reasonable assurances are given that the
endorsements are genuine and effective, and the Company has received evidence
satisfactory to it that such transfer is rightful and in compliance with all
applicable laws, including tax laws and state and federal securities laws. When
this Debenture is presented for transfer and duly transferred hereunder, it
shall be cancelled and a new Debenture showing the name of the transferee as the
record holder thereof shall be issued in lieu hereof. When this Debenture is
presented to the Company with a reasonable request to exchange it for an equal
principal amount of Debenture of other denominations, the Company shall make
such exchange and shall cancel this Debenture and issue in lieu thereof
Debentures having a total principal amount equal to this Debenture in such
denominations as agreed to by the Company and the Holder.
-11-
<PAGE> 12
Section 7.4 WORN OR LOST DEBENTURES.
If this Debenture becomes worn, defaced or mutilated but is still
substantially intact and recognizable, the Company or its agent may issue a new
Debenture in lieu hereof upon its surrender. Where the Holder of this Debenture
claims that the Debenture has been lost, destroyed or wrongfully taken, the
Company shall issue a new Debenture in place of the original Debenture if the
Holder so requests by written notice to the Company actually received by the
Company before it is notified that the Debenture has been acquired by a bona
fide purchaser and the Holder has delivered to the Company an indemnity bond in
such amount and issued by such surety as the Company deems satisfactory together
with an affidavit of the Holder setting forth the facts concerning such loss,
destruction or wrongful taking and such other information in such form with such
proof or verification as the Company may request.
ARTICLE 8. NOTICES
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company to
its principal executive offices. The time when such notice is sent shall be the
time of the giving of the notice.
ARTICLE 9. TIME
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period if time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in New York are not required or allowed to be
closed.
ARTICLE 10. WAIVERS
The Holders of a majority in principal amount of the Debentures may
waive a default or rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal or conversion into
Common Stock.
ARTICLE 11. RULES OF CONSTRUCTION
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words in the masculine gender include the feminine and the neuter, and when the
sense so indicates, words in the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are
-12-
<PAGE> 13
inserted for convenience of reference only, and they neither form a part of this
Debenture nor are they to be used in the construction or interpretation hereof.
Whenever in this Debenture a determination of the Company is required or
allowed, such determination shall be made by a majority of the Board of
Directors of the Company and if it is made in good faith, it shall be conclusive
and binding upon the Company and the Holder of this Debenture.
ARTICLE 12. REGISTRATION RIGHTS
The shares of Common Stock issuable upon conversion of the Debentures
shall be subject to certain registration rights as provided in the Registration
Rights Agreement between the Company and each holder of Debentures dated the
date hereof and all such terms are expressly incorporated by reference herein.
ARTICLE 13. GOVERNING LAW; JURISDICTION, ETC.
(a) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York without regard to the conflicts
of laws principles thereof. The parties hereto hereby agree that any suit or
proceeding arising directly and/or indirectly pursuant to or under this
Agreement, shall be brought solely in a federal or state court located in the
City, County and State of New York. By its execution hereof, the parties hereby
covenant and irrevocably submit to the IN PERSONAM jurisdiction of the federal
and state courts located in the City, County and State of New York and agrees
that any process in any such action may be served upon any of them personally,
or by certified mail or registered mail upon them or their agent, return receipt
requested, with the same full force and effect as if personally served upon them
in New York City. The parties hereto waive any claim that any such jurisdiction
is not a convenient forum for any such suit or proceeding and any defense or
lack of IN PERSONAM jurisdiction with respect thereto. In the event of any such
action or proceeding, the party prevailing therein shall be entitled to payment
from the other party hereto of its reasonable counsel fees and disbursements in
an amount judicially determined.
(b) The Holder and the Company hereby knowingly, voluntarily and
intentionally waive any rights they may have to a trial by jury in respect of
any litigation based hereon, or arising out of, under, or in connection with
this Agreement, or any course of conduct, course of dealing, statements (whether
oral or written) or actions of the Holder or the Company. The Company
acknowledges and agrees that it has received full and sufficient consideration
for this provision and that this provision is a material inducement for the
Holder entering into this Agreement.
-13-
<PAGE> 14
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first appearing above.
THRIFT MANAGEMENT, INC.
By: /s/ Marc Douglas
----------------------------------
Name: Marc Douglas
Title: President
ATTEST:
- - - ----------------------------------
Name:
Title:
-14-
<PAGE> 1
EXHIBIT 10.11
SECOND AMENDMENT TO
AGREEMENT TO PURCHASE SALVAGEABLE PROPERTY
THIS SECOND AMENDMENT TO AGREEMENT TO PURCHASE SALVAGEABLE PROPERTY
("Amendment") is made and entered into effective this 1st day of January, 2000,
by and among THRIFT SHOPS OF SOUTH BROWARD, INC., a Florida corporation, d/b/a/
THE COMMUNITY THRIFT SHOP ("South Broward"), THRIFT SHOPS OF WEST DADE, INC., a
Florida corporation ("West Dade"),THRIFT RETAIL, INC., a Florida corporation
("Retail") and MISSING CHILDREN AWARENESS FOUNDATION, INC., a Florida
not-for-profit corporation ("Charity").
WITNESSETH:
WHEREAS, South Broward, West Dade and Charity are parties to that certain
Agreement to Purchase Salvageable Property dated December 1, 1993, as amended
effective January 1, 1996 ("Agreement"), pursuant to which South Broward and
West Dade Agreed to purchase items of salvageable personal property from
Charities; and
WHEREAS, Retail operates a facility in Orlando ("Retail/Orlando"), and
Retail/Orlando desires to also purchase property from Charity, and Charity
desires to also sell property to Retail/Orlando; and
WHEREAS, the parties have agreed to amend the Agreement as ore fully
provided herein, and to provide for Retail/Orlando to be a purchaser of items of
tangible personal property from Charity.
NOW THEREFORE, in consideration of the agreement and mutual covenants
set for the herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Except as otherwise provided herein, all defined terms shall have
the meaning set for the in the Agreement.
2. Wheresovever the term "Purchaser" shall be used in the Agreement,
such terms shall be defined to include all of South Broward, West Dade and
Retail/Orlando. South Broward, West Dade and Retail/Orlando shall be separately
liable for their respective purchases pursuant to the Agreement. South Broward,
West Dade and Retail/ Orlando shall determine the proportion in which they shall
purchase the Property from the Charity. For purposes of the foregoing, the
obligation of Retail shall be limited to Retail/Orlando.
3. In the event of any inconsistencies between this Amendment and the
Agreement, the terms of this Amendment shall control. As hereby amended, the
Agreement is hereby ratified and confirmed.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective on the date first above-written.
Signed, sealed and delivered THRIFT SHOPS OF SOUTH BROWARD INC., a
in the presence of: Florida corporation, d/b/a THE
COMMUNITY THRIFT SHOP
/s/ Diane Richards /s/ Marc Douglas
- - - ------------------------------------- -------------------------------------
/s/ Lana Baltz
- - - -------------------------------------
THRIFT SHOPS OF WEST DADE, INC.,
a Florida corporation
/s/ Diane Richards /s/ Marc Douglas
- - - ------------------------------------- -------------------------------------
/s/ Lana Baltz
- - - -------------------------------------
THRIFT RETAIL, INC., a Florida
corporation
/s/ Diane Richards /s/ Marc Douglas
- - - ------------------------------------- -------------------------------------
/s/ Lana Baltz
- - - -------------------------------------
MISSING CHILDREN AWARENESS FOUNDATION,
INC., a Florida not-for-profit
corporation
/s/ Greg Southworth /s/ Dawn Warren
- - - ------------------------------------- -------------------------------------
/s/ Illegible
- - - -------------------------------------
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
1) Thrift Shops of South Broward, Inc., a Florida corporation
2) Thrift Shops of West Dade, Inc., a Florida corporation
3) Hallandale Thrift, Inc., a Florida corporation
4) North Broward Consignment, Inc., a Florida corporation
5) Thrift Shops of North Lauderdale, Inc., a Florida corporation
6) Thrift Retail, Inc., a Florida corporation
7) Thrift Management Canada, Inc., a Canadian corporation
8) Thrift Export, Inc., a Florida corporation
9) Thrift Holdings, Inc., a Florida corporation
10) Collectiblesandart.com, Inc., a Florida corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THRIFT MANAGEMENT, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 26, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> DEC-26-1999
<CASH> 186,666
<SECURITIES> 644,467
<RECEIVABLES> 0
<ALLOWANCES> 588,541
<INVENTORY> 1,419,673
<CURRENT-ASSETS> 1,669,062
<PP&E> (316,776)
<DEPRECIATION> 2,771,959
<TOTAL-ASSETS> 496,324
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
2,500
<COMMON> 23,422
<OTHER-SE> 2,249,713
<TOTAL-LIABILITY-AND-EQUITY> 2,771,959
<SALES> 9,202,067
<TOTAL-REVENUES> 9,202,067
<CGS> 5,764,024
<TOTAL-COSTS> 5,764,024
<OTHER-EXPENSES> 4,149,439
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (679,811)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (679,811)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
