UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Commission File Number 0-21703
STYLING TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2665378
------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2390 EAST CAMELBACK ROAD SUITE 435
PHOENIX, ARIZONA 85016
- ---------------------------------------- ----------
(address of principal executive offices) (zip code)
(602) 955-3353
----------------------------------------------------
(registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
The number of shares of the issuer's class of capital stock as of the latest
practicable date, is as follows: 3,948,703 Shares of Common Stock, $.0001 par
value, as of November 14, 1997.
<PAGE>
STYLING TECHNOLOGY CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 and September 30, 1997 ................... 3
Condensed Consolidated Statements of Operations -
Three Months ended September 30, 1996 (Predecessors)
and Three Months ended September 30, 1997................... 4
Condensed Consolidated Statements of Operations -
Nine Months ended September 30, 1996 (Predecessors)
and Nine Months ended September 30, 1997.................... 5
Condensed Statements of Cash Flows - Predecessors -
Nine Months ended September 30, 1996........................ 6
Condensed Consolidated Statement of Cash Flows -
Nine Months ended September 30, 1997........................ 7
Notes to Condensed Consolidated Financial Statements.......... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 10
PART II. OTHER INFORMATION.......................................... 14
Item 1. Legal Proceedings............................................. 14
Item 2. Changes in Securities......................................... 14
Item 3. Defaults Upon Senior Securities............................... 14
Item 4. Submission of Matters to a Vote of Security Holders........... 14
Item 5. Other Information............................................. 14
Item 6. Exhibits and Reports on Form 8-K.............................. 14
2
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ITEM 1. FINANCIAL STATEMENTS
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,492,000 $ 1,389,000
Accounts receivable, net of allowance for
doubtful accounts of $427,000 at December
31, 1996 and September 30, 1997 1,640,000 8,596,000
Inventories, net 2,635,000 4,601,000
Prepaid expenses and other current assets 292,000 1,308,000
----------- -----------
Total current assets 9,059,000 15,894,000
----------- -----------
PROPERTY AND EQUIPMENT, net 1,125,000 1,559,000
GOODWILL AND OTHER 22,050,000 43,880,000
----------- -----------
Total assets $32,234,000 $61,333,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,000,000 $ 2,819,000
Accrued liabilities 1,518,000 2,981,000
Current portion of long-term debt 83,000 3,100,000
----------- -----------
Total current liabilities 4,601,000 8,900,000
----------- -----------
LONG-TERM DEBT, less current portion 2,316,000 23,792,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 1,000,000
shares authorized, no shares issued
and outstanding -- --
Common stock, $.0001 par value, 10,000,000
shares authorized, 4,756,554 shares issued
and 3,948,703 outstanding at December 31, 1996;
and September 30, 1997 1,000 1,000
Additional paid-in capital 27,455,000 27,866,000
Retained earnings (deficit) (339,000) 2,574,000
Treasury stock (1,800,000) (1,800,000)
----------- -----------
Total stockholders' equity 25,317,000 28,641,000
----------- -----------
Total liabilities and stockholders' equity $32,234,000 $61,333,000
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
3
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STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Predecessor's Three Months Ended
September 30, 1996 | Three Months
------------------------------------------- | Ended
Body | September 30,
Gena Drench JDS KII | 1997
---------- ---------- -------- -------- | -----------
<S> <C> <C> <C> <C> <C>
NET SALES $2,401,000 $1,705,000 $775,000 $295,000 | $10,669,000
|
COST OF SALES 1,337,000 1,063,000 356,000 135,000 | 4,867,000
---------- ---------- -------- -------- | -----------
Gross profit 1,064,000 642,000 419,000 160,000 | 5,802,000
|
SELLING, GENERAL AND |
ADMINISTRATIVE EXPENSES 672,000 1,001,000 373,000 158,000 | 3,574,000
---------- ---------- -------- -------- | -----------
Income from operations 392,000 (359,000) 46,000 2,000 | 2,228,000
|
INTEREST EXPENSE (INCOME) AND |
OTHER, NET -- 60,000 (63,000) 27,000 | 777,000
---------- ---------- -------- -------- | -----------
Income (loss) before |
income taxes 392,000 (419,000) 109,000 (25,000) | 1,451,000
|
PROVISION FOR (BENEFIT FROM) |
INCOME TAXES 124,000 (159,000) 41,000 -- | 623,000
---------- ---------- -------- -------- | -----------
|
Net income (loss) $ 268,000 $ (260,000) $ 68,000 $(25,000) | $ 828,000
========== ========== ======== ======== | ===========
WEIGHTED AVERAGE SHARES |
OUTSTANDING: |
Primary | 4,146,000
Fully diluted | 4,209,000
|
NET INCOME PER COMMON SHARE: |
Primary | $ .20
| ===========
Fully diluted | $ .20
| ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Predecessor's Nine Months Ended
September 30, 1996 | Nine Months
---------------------------------------------- | Ended
Body | September 30,
Gena Drench JDS KII | 1997
---------- --------- -------- -------- | -----------
<S> <C> <C> <C> <C> <C>
NET SALES $6,753,000 $8,291,000 $2,440,000 $1,031,000 | $25,585,000
|
COST OF SALES 3,873,000 4,528,000 1,031,000 478,000 | 11,347,000
---------- ---------- ---------- ---------- | -----------
Gross profit 2,880,000 3,763,000 1,409,000 553,000 | 14,238,000
|
SELLING, GENERAL AND |
ADMINISTRATIVE EXPENSES 2,050,000 3,403,000 1,301,000 487,000 | 8,305,000
---------- ---------- ---------- ---------- | -----------
Income from operations 830,000 360,000 108,000 66,000 | 5,933,000
|
INTEREST EXPENSE (INCOME) AND |
OTHER, NET 30,000 69,000 (44,000) 66,000 | 951,000
---------- ---------- ---------- ---------- | -----------
Income before income |
taxes 800,000 291,000 152,000 -- | 4,982,000
|
PROVISION FOR INCOME TAXES 268,000 111,000 58,000 -- | 2,069,000
---------- ---------- ---------- ---------- | -----------
Net income $ 532,000 $ 180,000 $ 94,000 $ -- | $ 2,913,000
========== ========== ========== ========== | ===========
WEIGHTED AVERAGE SHARES |
OUTSTANDING: |
Primary | 4,092,000
Fully diluted | 4,180,000
|
NET INCOME PER COMMON SHARE: |
Primary | $ .71
| ===========
Fully diluted | $ .70
| ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
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STYLING TECHNOLOGY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS - PREDECESSORS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Body
Gena Drench JDS KII
--------- ---------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 532,000 $ 180,000 $ 94,000 $ --
Adjustments to reconcile net income to net
cash used in operating activities-
Depreciation and amortization 344,000 87,000 10,000 20,000
Changes in assets and liabilities-
Accounts receivable 72,000 (628,000) 37,000 (29,000)
Inventory 281,000 1,026,000 (24,000) 30,000
Prepaids and other assets (172,000) 138,000 (18,000) 2,000
Accounts payable and
accrued liabilities (99,000) 419,000 43,000 98,000
--------- ----------- --------- ---------
Net cash provided by operating
activities 958,000 1,222,000 142,000 119,000
--------- ----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (202,000) (15,000) 3,000 --
--------- ----------- --------- ---------
Net cash used in investing activities (202,000) (15,000) 3,000 --
--------- ----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Note Payable (274,000) -- -- --
Bank Overdraft -- (165,000) -- --
Payments of long-term debt 82,000 -- (87,000) (215,000)
Net payments to parent -- (1,042,000) -- --
--------- ----------- --------- ---------
Net cash used in financing activities (192,000) (1,207,000) (87,000) (215,000)
INCREASE IN CASH 564,000 -- 58,000 (96,000)
CASH, beginning of period -- -- 27,000 96,000
--------- ----------- --------- ---------
CASH, end of period $ 564,000 $ -- $ 85,000 $ --
========= =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
<PAGE>
STYLING TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,913,000
Adjustments to reconcile net income to net cash used in
operating activities -
Depreciation and amortization 1,147,000
Interest accretion on note payable 128,000
Changes in assets and liabilities -
Accounts receivable (5,758,000)
Inventory 293,000
Prepaid expenses and other assets (559,000)
Accounts payable and accrued liabilities (904,000)
------------
Net cash used in operating activities (2,740,000)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of acquired businesses, net of cash acquired (22,130,000)
Purchases of property, plant & equipment (333,000)
Net cash used in investing activities (22,463,000)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long term debt (854,000)
Proceeds from credit facility, net of financing costs 22,954,000
Net cash provided by financing activities 22,100,000
------------
DECREASE IN CASH AND CASH EQUIVALENTS (3,103,000)
CASH AND CASH EQUIVALENTS, beginning of period 4,492,000
------------
CASH AND CASH EQUIVALENTS, end of period $ 1,389,000
============
The accompanying notes are a integral part of these
condensed consolidated financial statements.
7
<PAGE>
STYLING TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. FORMATION OF THE COMPANY
ACQUISITIONS AND INITIAL PUBLIC OFFERING
Styling Technology Corporation (the Company) was formed in June 1995. From June
1995 through November 26, 1996, the Company conducted no operations and its only
activities related to negotiating acquisitions and related financing. During
November 1996, the Company completed an initial public offering (the Offering)
of 3,115,852 shares of its common stock. Simultaneously with the consummation of
the Offering, the Company acquired in separate transactions four businesses
(collectively, the Acquired Businesses) that develop, produce, and market
professional salon products.
The Company acquired all of the outstanding stock of Gena Laboratories, Inc.
(Gena) and JDS Manufacturing Co., Inc. (JDS) and certain assets and liabilities
of the Body Drench Division of Designs by Norvell, Inc. (Body Drench) and
Kotchammer Investments, Inc. (KII). The cost of the Acquired Businesses,
including direct acquisition costs, was approximately $22,900,000. The combined
purchase price was funded with approximately $20,800,000 in cash from the net
proceeds of the Offering, and approximately $2,100,000 of seller carryback
financing and issuance of common stock. The acquisitions were accounted for
using the purchase method of accounting. The historical financial results of the
individual Acquired Businesses are presented for comparative purposes as the
predecessors of the Company.
Immediately following the purchase of the Acquired Businesses, the Company
commenced operations on November 27, 1996. After the purchase, the Company began
consolidating its operations, negotiated a new manufacturing agreement with a
major supplier, met with major customers to discuss its new marketing plans,
strengthened its distribution network, and established its infrastructure and
organization for the future growth of existing operations and for future
acquisitions.
During March 1997, the Company acquired inventory and other assets of the Utopia
line of high-end tanning products from Creative Laboratories, Inc. for
approximately $350,000. Effective June 26, 1997, the Company acquired U.K. ABBA
Products, Inc., a producer and marketer of an aromatherapy-based line of hair
products, for $20,000,000 (see Note 3).
NOTE 2. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
The statements presented do not include all information and footnotes required
to be in conformity with generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Results of operations in interim periods are not necessarily
indicative of results for a full year. These consolidated financial statements
and notes thereto should be read in conjunction with the Company's consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1996. The preparation of financial
8
<PAGE>
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities as well as disclosure of
contingent assets and liabilities at the date of the accompanying consolidated
financial statements, and the reported amounts of the revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
NOTE 3. ACQUISITION OF U.K. ABBA PRODUCTS, INC.
Effective June 26, 1997, the Company acquired all of the issued and outstanding
capital stock of U.K. ABBA Products, Inc., (ABBA), a producer of a proprietary
line of aromatherapy-based professional hair care products. The Company paid a
purchase price of $20,000,000 for the stock of ABBA. This transaction was
accounted for using the purchase method of accounting.
The following unaudited pro forma summary includes the combined results of
operations of the Company and ABBA as if the acquisition had occurred at the
beginning of 1997, after giving effect to certain pro forma adjustments
permitted by the disclosure requirements of Accounting Principles Board Opinion
No. 16, BUSINESS COMBINATIONS. These adjustments include only the effect of
amortization of goodwill, interest expense that would have been incurred to
finance the purchase and the estimated related income tax effects. The pro forma
financial data is for informational purposes only, and is not necessarily
indicative of the results of operations as they would have been had the
transaction been effected on January 1, 1997, and is also not necessarily
indicative of future operating results.
For the six months ended June 30, 1997, pro forma net sales were $20,658,000,
income from operations was $3,724,000, net income was $1,297,000 and earnings
per share was $0.32.
In connection with the acquisition of ABBA, the Company entered into a six-year,
$28.0 million senior credit facility (the Credit Facility) with a group of banks
for whom Credit Agricole Indosuez acted as agent. The Credit Facility consists
of Term Loan A, Term Loan B and a Revolving Credit Facility. Term Loan A is a
$13.0 million term loan maturing in June 2002 with principal and interest
payable quarterly, at the agent's prime rate plus 1.50% (10.0% at September 30,
1997). Term Loan B is a $10.0 million term loan maturing in June 2003 with
principal and interest payable quarterly at the agent's prime rate plus 2.00%
(10.5% at September 30, 1997). The Revolving Credit Facility, which matures in
June 2002, provides for up to $5.0 million in borrowings that may be used for
general corporate purposes, including working capital, acquisitions and
repayment of existing indebtedness. Interest is payable quarterly at the agent's
prime rate plus 1.50% (10.0% at September 30, 1997). As of September 30, 1997,
there was $1.5 million outstanding under the Revolving Credit Facility. Under
the Credit Facility, the Company may prepay all or part of the loan amounts at
any time, without penalty. As a part of the financing, the Company has granted a
security interest in substantially all of its assets to the agent, and recorded
approximately $2.0 million in loan costs (including the fair value of 150,000
market value warrants issued to the agent), which are being amortized over the
maturity period of the Credit Facility.
9
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NOTE 4. INVENTORY
Inventories consist of the following at:
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
Raw materials & work-in-process $1,262,000 $1,325,000
Finished goods 3,339,000 1,310,000
---------- ----------
$4,601,000 $2,635,000
NOTE 5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 128, (SFAS No. 128), EARNINGS PER SHARE, which
established a new accounting principle for accounting for earnings per share.
SFAS No. 128 is effective for the Company's fiscal year ended December 31, 1998.
When adopted, SFAS No. 128 will require restatement of prior years' earning per
share. The pro forma SFAS No. 128 earnings per share is as follows for all
periods presented.
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1997
------------- -------------
Basic EPS $ .21 $ .74
Diluted EPS .20 .71
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The Company develops, produces, and markets high-end professional salon
products, including hair care, nail care, and skin and body care products as
well as salon appliances and salonwear. The Company sells its products primarily
to beauty and tanning supply distributors and, to a lesser extent, directly to
spas, resorts, health and country clubs, beauty salon chains, and hair, nail and
tanning salons throughout the United States as well as in Canada, Europe,
Argentina, Australia, and New Zealand. The Company offers a diversified line of
well-established, brand-name professional salon products that have been popular
in the professional salon products industry for more than 10 years.
The Company was founded in June 1995 and commenced operations on
November 26, 1996. On that date, simultaneous with the consummation of an
initial public offering, the Company acquired four professional salon products
businesses (the Acquired Businesses) that, on a combined basis, have a
diversified line of well-established, brand-name salon products. In March 1997,
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the Company acquired the Utopia line of premium tanning products from Creative
Laboratories, Inc. Effective June 26, 1997, the Company acquired U.K. ABBA
Products, Inc. (ABBA), a producer and marketer of an aromatherapy-based line of
hair products, for $20,000,000.
Except for the historical information contained herein, the discussion
in this Report contains or may contain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed herein, as well as
those factors discussed under "Special Considerations" contained in Item 1 of
the Company's Form 10-K for the fiscal year ended December 31, 1996. Historical
results are not necessarily indicative of trends in operating results for any
future period.
RESULTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997
The Company earned net income of $828,000, or $0.20 per share, for the
three months ended September 30, 1997. The Company earned net income of
$2,913,000, or $0.71 per share, for the nine months ended September 30, 1997.
These results mark significant improvement over the operating results of the
Acquired Businesses during the same period in 1996. The Company attributes the
improvement in net income during the three and nine months ended September 30,
1997 primarily to the successful implementation of a key component of its
business strategy, the enhancement of operating efficiencies of the Acquired
Businesses and subsequent acquisitions. Prior year financial information for the
Acquired Businesses presented and discussed herein excludes the operating
results of Utopia and ABBA which were acquired during 1997.
Net sales amounted to $10,669,000 for the three months ended September
30, 1997, compared to combined net sales for the Acquired Businesses of
$5,176,000 for the three months ended September 30, 1996. Net sales amounted to
$25,585,000 for the nine months ended September 30, 1997, compared to combined
net sales for the Acquired Businesses of $18,515,000 for the nine months ended
September 30, 1996. The $7,070,000, or 38%, increase in sales was partly the
result of increased sales of the Company's Body Drench, Gena, and JDS product
lines as compared to the sales achieved by the individual Acquired Businesses in
the same period during 1996. In addition, the three and nine months ended
September 30, 1997 include the operating results of ABBA from June 26, 1997 to
September 30, 1997. For the three months ended September 30, 1997, net sales at
ABBA were higher than expected due to a successful launch of its "Botanical
High" line of volumizing products and seasonal promotions which partially offset
the expected seasonal impact of Body Drench's line of indoor tanning products.
Shipments related to the 1998 tanning season are expected to begin in December
1997.
Cost of sales amounted to $4,867,000, or 46% as a percentage of net
sales, for the three months ended September 30, 1997, compared to $2,891,000, or
56% as a percentage of the combined net sales of the Acquired Businesses, for
the three months ended September 30, 1996. Cost of sales amounted to
$11,347,000, or 44% as a percentage of net sales, for the nine months ended
September 30, 1997, compared to $9,910,000, or 54% as a percentage of the
combined net sales of the Acquired Businesses, for the nine months ended
September 30, 1996. As a result of the foregoing, the Company realized gross
profit for the three months and nine months ended September 30, 1997, of
$5,802,000, or 54%, and $14,238,000, or 56%, respectively, compared to
$2,285,000, or 44%, and $8,605,000, or 46%, respectively, realized by the
Acquired Businesses on a combined basis for the corresponding periods in 1996.
This improvement in gross margin percentage is attributable primarily to the
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negotiation of reduced product costs in December 1996 with the primary supplier
of the Company's Body Drench product line, as well as the consolidation of
warehousing and production functions of the Gena and Alpha 9/Omni product lines
at the Company's Duncanville, Texas facility. The decrease in gross margin for
the three months ended September 30, 1997 compared to prior quarters is
primarily the result of the seasonal impact of Body Drench's indoor tanning
products.
Selling, general, and administrative expenses were $3,574,000, or 33% as
a percentage of net sales, for the three months ended September 30, 1997,
compared to $2,204,000, or 43% as a percentage of the combined net sales of the
Acquired Businesses, for the three months ended September 30, 1996. Selling,
general, and administrative expenses were $8,305,000, or 32% as a percentage of
net sales, for the nine months ended September 30, 1997, compared to $7,241,000,
or 39% as a percentage of the combined net sales of the Acquired Businesses, for
the nine months ended September 30, 1996. This improvement in selling, general,
and administrative expenses as a percentage of net sales is primarily
attributable to the elimination of duplicative management and other personnel,
the consolidation of certain accounting, human resources, and other
administrative functions of the Acquired Businesses and subsequent acquisitions,
and is partially offset by non-cash goodwill amortization resulting from
acquisitions and increased costs of operating as a public company.
The provision for income taxes for the three months and nine months
ended September 30, 1997 amounted to $623,000 and $2,069,000, respectively,
which represents an effective tax rate of approximately 43% and 42%,
respectively. The higher effective tax rate for the quarter ended September 30,
1997 is primarily attributable to the income tax effect of goodwill associated
with the ABBA acquisition.
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
was $2,797,000 for the three months ended September 30, 1997, compared to
$386,000 on a combined basis for the Acquired Businesses. EBITDA was $8,132,000
for the nine months ended September 30, 1997, compared to $1,825,000 on a
combined basis for the Acquired Businesses as a result of the factors described
above. EBITDA is not intended to represent net cash provided by operating
activities as defined by generally accepted accounting principles and should not
be considered as an alternative to net income as an indicator of operating
performance or to net cash provided by operating activities as a measure of
liquidity. The Company believes EBITDA is a measure commonly reported and widely
used by analysts, investors, and other interested parties who monitor
performance of companies that employ a consolidation or "roll-up" strategy.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance relative to
other consolidators.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position increased to $6,994,000 at
September 30, 1997 from $4,458,000 at December 31, 1996. The increase of
$2,536,000 is primarily due to the Company's results of operations for the nine
months ended September 30, 1997. The Company's working capital at December 31,
1996 was primarily the result of the completion of an initial public offering in
November 1996, which resulted in net proceeds to the Company of approximately
$27,200,000, reduced by the simultaneous distribution of the cash portion of the
purchase price of the Acquired Businesses of approximately $20,500,000 and the
repurchase of treasury shares from a founder of the Company for $1,800,000.
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During the nine months ended September 30, 1997, the Company used
$2,740,000 of cash in operating activities, which resulted primarily from the
increased investment in accounts receivable and the reduction of accounts
payable and accrued liabilities of $5,758,000 and $904,000, respectively. The
increased investment in accounts receivable at September 30, 1997 is directly
related to a substantial portion of sales for the quarter ending September 30,
1997 occurring during the month of September. The month of September included
initial shipments from Body Drench's new Hydro Balancing line of personal care
products as well as seasonal and other promotions generated in part from sales
activity at the industry's major distributor trade show in mid-August. The lower
accounts receivable balance at December 31, 1996 was due to the Company's focus
on the consolidation of operations following its initial public offering and
simultaneous acquisition of the Acquired Businesses in November 1996 and did not
include receivables subsequently acquired in the Utopia and ABBA acquisitions.
The reduction of accounts payable and accrued liabilities during the period
relates primarily to the payment of liabilities assumed in the acquisition of
the Acquired Businesses as well as related accrued acquisition and offering
costs.
Effective June 26, 1997, the Company acquired all of the issued and
outstanding capital stock of U.K. ABBA Products, Inc., (ABBA), a producer of a
proprietary line of aromatherapy-based professional hair care products. The
Company paid a purchase price of $20,000,000 for the stock of ABBA. This
transaction was accounted for using the purchase method of accounting.
In connection with the acquisition of ABBA, the Company entered into a
six-year, $28.0 million senior credit facility (the Credit Facility) with a
group of banks for whom Credit Agricole Indosuez acted as agent. The Credit
Facility consists of Term Loan A, Term Loan B, and a Revolving Credit Facility.
Term Loan A is a $13.0 million term loan maturing in June 2002 with principal
and interest payable quarterly, at the agent's prime rate plus 1.50% (10.0 % at
September 30, 1997). Term Loan B is a $10.0 million term loan maturing in June
2003 with principal and interest payable quarterly at the agent's prime rate
plus 2.00% (10.5 % at September 30,1997). The Revolving Credit Facility, which
matures June 2002, provides for up to 5.0 million in borrowing that may be used
for general corporate purposes, including working capital, acquisitions and
repayment of existing indebtedness. Interest is payable quarterly at the agent's
prime rate plus 1.50% (10.0 % at September 30, 1997). As of September 30, 1997,
there was $1.5 million outstanding under the Revolving Credit Facility.
The Company's line of credit, current cash resources and expected cash
flows from operations are expected to be sufficient to fund the Company's
capital needs during the next twelve months at its current level of operations,
apart from capital needs resulting from acquisitions. However, the Company may
be required to obtain additional capital to fund its planned growth. The Company
plans to pursue strategic acquisitions to capitalize on the substantial
fragmentation and growth potential existing in the professional salon products
industry. The Company intends to fund its future capital needs through a
combination of current cash resources, expected cash flows from operations, bank
financing, seller notes payable, issuance of common stock, and additional public
or private debt or equity financing. The availability of such capital resources
cannot be assured and is dependent upon prevailing market conditions, interest
rates, and the financial condition of the Company.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Pursuant to a registration exemption under Section 4(2) of the
Securities Act of 1933, the Company granted Bank Boston N.A. a warrant to
purchase up to 10,000 shares of Common Stock at an exercise price of $11.375 per
share on July 3, 1997 in connection with the Company's credit facility. The
warrants expire in July 2002.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
4.4 Form of Warrant issued to Bank Boston N.A.
11.1 Statement regarding computation of primary earnings per share
11.2 Statement regarding computation of fully diluted earnings per
share
27 Financial Data Schedule
- -------------------
(b) REPORT ON FORM 8-K.
Pursuant to a Stock Purchase Agreement dated as of June 25, 1997, the
Registrant acquired all of the issued and outstanding common stock of U.K. ABBA
Products, Inc., as reported on Form 8-K dated July 10, 1997 and Form 8-K/A dated
July 30, 1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STYLING TECHNOLOGY CORPORATION
Dated: November 14, 1997 By: /s/ Richard R. Ross
-------------------------------------------------
Richard R. Ross
Chief Financial Officer, Treasurer, and Secretary
(Duly authorized officer of the registrant,
principal financial and accounting officer)
15
EXHIBIT 4.4
NEITHER THIS WARRANT, NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAW. SUCH SECURITIES MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO OR (II) IN THE OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH A PROPOSED
SALE OR TRANSFER.
REDEEMABLE COMMON STOCK PURCHASE WARRANT
FOR THE PURCHASE OF SHARES
OF
COMMON STOCK OF STYLING TECHNOLOGY CORPORATION
(PAR VALUE $.0001 PER SHARE)
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
VOID AFTER 5:00 P.M. EST ON JULY 3, 2002
Date of Original Issuance: JULY 3, 1997
This is to certify that, for value received, Bank Boston N.A., or its
assigns (the "Warrantholder"), is entitled, subject to the terms and conditions
hereinafter set forth, at any time after the date hereof and on or before 5:00
P.M., Eastern Standard Time, on July 3, 2002, but not thereafter, to purchase
10,000 shares of common stock, par value $.0001 per share (the "Common Stock"),
of STYLING TECHNOLOGY CORPORATION (the "Company") for the Warrant Price (as
defined below), and to receive a certificate or certificates for the shares of
Common Stock so purchased.
1. TERMS AND EXERCISE OF WARRANTS.
(a) EXERCISE PERIOD. Subject to the terms of this Warrant, the
Warrantholder shall have the right, at any time during the period (the "Exercise
Period") commencing on the date hereof and ending at 5:00 P.M., Eastern Standard
Time, on July 3, 2002 (the "Termination Date"), or if such date is a day on
which banking institutions are authorized by law to close, then on the next
succeeding day which shall not be such a day, to purchase from the Company up to
the number of fully paid and nonassessable shares of Common Stock which the
Warrantholder may at the time be entitled to purchase pursuant to this Warrant;
provided, however, the Company may redeem this Warrant prior to the Termination
Date in accordance with SECTION 2 hereof. Shares of Common Stock purchasable
pursuant to this Warrant and any other securities that the Company may be
required by the operation of SECTION 4 to issue upon the exercise hereof are
referred to hereinafter as the "Warrant Shares."
(b) METHOD OF EXERCISE. This Warrant shall be exercised by
surrender of this Warrant to the Company at its principal office, Styling
Technology Corporation, 2390 East Camelback Road, Suite 435, Phoenix, Arizona
85016, Attn: Chief Financial Officer, or at such other address as the Company
may designate by notice in writing to the Warrantholder at the address of the
Warrantholder appearing on the books of the Company or such other address as the
Warrantholder may designate in writing, together with the Exercise Form included
1
<PAGE>
as EXHIBIT "A" hereto, duly completed and signed, and upon payment to the
Company of the Warrant Price (as defined in SECTION 3) multiplied by the number
of Warrant Shares being purchased upon such exercise (the "AGGREGATE WARRANT
PRICE"), together with all taxes applicable upon such exercise. Payment of the
Aggregate Warrant Price shall be made in cash or by certified check or cashier's
check, payable to the order of the Company. If, at the time of exercise thereof,
the Common Stock is listed on a national securities exchange or quoted on an
interdealer quotation system of a national securities association, any portion
of the Warrant Price may be paid by surrender to the Company of one or more
shares of Common Stock, which shall be valued for purposes of exercise at the
Daily Market Price as set forth in Section 2(e) hereof.
(c) PARTIAL EXERCISE. This Warrant shall be exercisable, at the
election of the Warrantholder, either in full or from time to time in part,
during the Exercise Period.
(d) SHARE ISSUANCE UPON EXERCISE. Upon the exercise and surrender
of this Warrant certificate and payment of such Warrant Price, the Company shall
issue and cause to be delivered with all reasonable dispatch to the
Warrantholder, in such name or names as the Warrantholder may designate in
writing, a certificate or certificates for the number of full Warrant Shares so
purchased upon the exercise of the Warrant, together with cash, as provided in
SECTION 7 hereof, with respect to any fractional Warrant Shares otherwise
issuable upon such surrender and, if applicable, the Company shall issue and
deliver a new Warrant to the Warrantholder for the number of shares not so
exercised. Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of such Warrant Shares as of the close of business on the date of the
surrender of the Warrant and payment of the Warrant Price, notwithstanding that
the certificates representing such Warrant Shares shall not actually have been
delivered or that the stock transfer books of the Company shall then be closed.
2. REDEMPTION.
(a) This Warrant may be redeemed, at the option of the Company,
at a price of $0.01 per share of Common Stock purchasable upon exercise of the
Warrant upon 30 days notice after the closing bid price of the Common Stock has
equalled or exceeded two hundred percent (200%) of the Warrant Price (as defined
in SECTION 3 below), and prior to expiration of the Warrant. The Daily Market
Price of the Common Stock shall be determined by the Company in the manner set
forth in SECTION 2(E) as of the end of each trading day (or, if no trading in
the Common Stock occurred on such day, as of the end of the immediately
preceding trading day in which trading occurred). The Warrant must be redeemed
and any right to exercise the Warrant shall terminate at 5:00 p.m. (Eastern
Standard Time) on the business day immediately preceding the date fixed for
redemption. A trading day shall mean a day in which trading of securities
occurred on the New York Stock Exchange.
(b) If the Company exercises its right to redeem, it shall give
notice to the Warrantholder pursuant to SECTION 2(A), by mailing to the
Warrantholder a notice of redemption, first class, postage prepaid, at the
Warrantholder's address as it shall appear on the records of the Company. Any
notice mailed in the manner provided herein shall be conclusively presumed to
have been duly given whether or not the Warrantholder actually receives such
notice.
(c) The notice of redemption shall specify the redemption price,
the date fixed for redemption (which shall be the 30th day after such notice is
mailed), the place where the Warrant certificate shall be delivered and the
redemption price shall be paid, and that the right to exercise the Warrant shall
2
<PAGE>
terminate at 5:00 P.M. (Eastern Standard Time) on the business day immediately
preceding the date fixed for redemption.
(d) Appropriate adjustment shall be made to the redemption price
and to the minimum Daily Market Price prerequisite to redemption set forth in
SECTION 2(A) hereof, in each case on the same basis as provided in SECTION 4
hereof with respect to adjustment of the Warrant Price.
(e) For purposes of this Agreement, the term "Daily Market Price"
shall mean (i) if the Common Stock is traded in the over-the-counter market or
the Nasdaq SmallCap Market and not quoted on the Nasdaq National Market nor on
any national securities exchange, the closing bid price per share of the Common
Stock on the trading day in question, as reported by Nasdaq or an equivalent
generally accepted reporting service, or (ii) if the Common Stock is quoted on
the Nasdaq National Market or listed on a national securities exchange, the
daily per share closing price per share of the Common Stock quoted on the Nasdaq
National Market or on the principal stock exchange on which it is listed on the
trading day in question, as the case may be. For purposes of clause (i) above,
if trading in the Common Stock is not reported by Nasdaq, the bid price referred
to in said clause shall be the lowest bid price as reported in the "pink sheets"
published by National Quotation Bureau, Incorporated. The closing price referred
to in clause (ii) above shall be the last reported sale price or, in case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices, in either case on the Nasdaq National Market or on the
national securities exchange on which the Common Stock is then listed.
3. WARRANT PRICE. The price per share at which Warrant Shares shall be
purchasable on the exercise of this Warrant shall be $11.375, subject to
adjustment pursuant to SECTION 4 hereof (originally and as adjusted, the
"Warrant Price").
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES.
The Company agrees to reserve and shall keep reserved for issuance the
number of shares of Common Stock issuable upon exercise of this Warrant. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
(a) In case the Company shall (1) pay a dividend or make a
distribution in shares of its Common Stock, (2) subdivide its outstanding Common
Stock into a greater number of shares, (3) combine its outstanding Common Stock
into a smaller number of shares, or (4) issue by reclassification of its Common
Stock any shares of capital stock of the Company (other than a change in par
value, or from par value to no par value, or from no par value to par value),
the Warrant Price and the number of shares of Common Stock or other securities
issuable upon exercise of this Warrant in effect immediately prior thereto shall
be adjusted so that the Warrantholder, by operation of Section 3(d) hereof,
shall be entitled to receive the number of shares which it would have owned or
have been entitled to receive immediately following the happening of any of the
events described above, had this Warrant been exercised immediately prior to the
record or effective date thereof.
An adjustment made pursuant to SECTIONS 4(a)(1)-(4) above shall
become effective immediately after the record date in the case of a dividend or
distribution (PROVIDED, HOWEVER, that such adjustments shall be reversed if such
dividends or distributions are not actually paid) and shall become effective
immediately after the effective date in the case of a subdivision, combination
3
<PAGE>
or reclassification. If, as a result of an adjustment made pursuant to this
paragraph, the Warrantholder shall become entitled to receive shares of two or
more classes of capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be evidenced by a resolution) shall
determine the allocation of the adjusted Warrant Price between or among the
shares of such classes of capital stock.
(b) In case of any reclassification of the outstanding Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision, combination or
stock dividend), or in case of any consolidation of the Company with, or merger
of the Company into, another corporation wherein the Company is not the
surviving entity, or in case of any sale of all, or substantially all, of the
property, assets, business and goodwill of the Company, the Company, or such
successor or purchasing corporation, as the case may be, shall provide, by a
written instrument delivered to the Warrantholder, that the Warrantholder shall
thereafter be entitled, upon exercise of this Warrant, to the kind and amount of
shares of stock or other equity securities, or other property or assets which
would have been receivable by such Warrantholder upon such reclassification,
consolidation, merger or sale, if this Warrant had been exercised immediately
prior thereto. Such corporation, which thereafter shall be deemed to be the
"Company" for purposes of this Warrant, shall provide in such written instrument
for adjustments to the Warrant Price which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this SECTION 4.
(c) No adjustment in the number of securities purchasable
hereunder shall be required unless such adjustment would require an increase or
decrease of at least five percent (5%) in the number of securities (calculated
to the nearest full share or unit thereof) then purchasable upon the exercise of
this Warrant; provided, however, that any adjustment which by reason of this
SECTION 4(c) is not required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
(d) Whenever the Warrant Price is adjusted as provided in this
SECTION 4, the number of shares of Common Stock or other securities issuable
upon exercise of this Warrant shall be adjusted simultaneously, by multiplying
the number of shares previously issuable by a fraction, of which the numerator
shall be the Warrant Price in effect immediately prior to such adjustment, and
of which the denominator shall be the Warrant Price as so adjusted.
(e) For the purpose of this SECTION 4, the term "Common Stock"
shall mean (i) the class of stock designated as Common Stock of the Company at
July 3, 1997, or (ii) any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment made pursuant to this
SECTION 4, the Warrantholder shall become entitled to purchase any shares of the
Company's capital stock other than Common Stock, thereafter the number of such
other shares so purchasable upon the exercise of this Warrant and the Warrant
Price of such shares shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares contained in this SECTION 4.
(f) Whenever the number of shares of Common Stock and/or other
securities purchasable upon the exercise of this Warrant or the Warrant Price is
adjusted as herein provided, the Company shall cause to be promptly mailed to
the Warrantholder by first class mail, postage prepaid, notice of such
adjustment and a certificate of the Company's chief financial officer setting
forth the number of shares of Common Stock and/or other securities purchasable
upon the exercise of this Warrant, the Warrant Price after such adjustment, a
4
<PAGE>
brief statement of the facts requiring such adjustment, and the computation by
which such adjustment was made.
(g) Irrespective of any adjustments in the Warrant Price or the
number or kind of securities purchasable upon the exercise of this Warrant, the
Warrant certificate or certificates theretofore or thereafter issued may
continue to express the same price or number or kind of securities stated in
this Warrant initially issuable hereunder.
5. TRANSFER OF WARRANT.
(a) The Warrantholder may not sell, assign, pledge, hypothecate
or otherwise transfer any right under this Warrant without the written consent
of the Company, except to any "affiliate" of the Warrantholder as defined in
Rule 144(a)(1) of the Securities Act of 1933, as amended.
(b) This Warrant and the shares of Common Stock or any other
security issued or issuable upon exercise of this Warrant may not be offered or
sold except in compliance with the Securities Act of 1933, as amended. The
Holder represents that it has acquired the Warrant and the shares of Common
Stock on exercise thereof for its own account.
(c) The Company may cause a legend in substantially the form set
forth on the first page of this Warrant on each Warrant and certificate
representing shares of Common Stock or any other security issued or issuable
upon exercise of this Warrant not theretofore distributed to the public or sold
to underwriters for distribution to the public, unless counsel for the Company
is of the opinion as to any such certificate that such legend is unnecessary.
6. REGISTRATION RIGHTS. For purposes of this SECTION 6:
(a) DEFINITIONS.
(i) The terms "register", "registered", and "registration"
refer to a registration effected by preparing and filing a registration
statement on Form S-1 or Form SB-2 or similar document in compliance with the
Act, and the declaration or ordering of effectiveness of such registration
statement or document;
(ii) The term "Registrable Securities" means the shares of
Common Stock issuable upon the exercise of this Warrant; and
(iii) The term "Holder" means Payee.
(b) PIGGYBACK REGISTRATION. If the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than Holder) any of its shares of Common Stock under the Act
in connection with the public offering of such securities solely for cash (other
than a registration of securities to be offered to employees pursuant to an
employee benefit plan on Form S-8, a registration in connection with an exchange
offer or any acquisition, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall give Holder written notice of such proposed registration at least
thirty (30) days prior to filing the registration statement respecting such
proposed registration. Upon the written request of Holder given within twenty
5
<PAGE>
(20) days after mailing of such notice by the Company in accordance with SECTION
12 hereof, the Company shall cause to be registered under the Securities Act all
of the Registrable Securities that Holder has requested to be registered,
subject to SECTIONS 6(C) AND 6(E) below.
(c) INFORMATION CONCERNING HOLDER. It shall be a condition
precedent of the obligations of the Company to take any action pursuant to this
SECTION 6 that Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by Holder, and the intended method of
disposition of such securities as shall be required to effect the registration
of the Registrable Securities.
(d) EXPENSES. All expenses incurred in connection with the
registration pursuant to this SECTION 6 (other than underwriter's commissions
and fees or any fees of others employed by Holder, including attorneys' fees),
including without limitation all registration, filing and qualification fees,
printer's and accounting fees, and fees and disbursements of counsel for the
Company, shall be borne by the Company.
(e) ACCEPTANCE OF UNDERWRITING AGREEMENT. The Company shall not
be required under this SECTION 6 to include any of the Registrable Securities in
an underwriting of securities being issued by the Company unless Holder accepts
the terms of the underwriting agreement as agreed upon between the Company and
the underwriter selected by the Company, and then only in such quantity, if any,
as will not, in the opinion of the managing underwriter, jeopardize or in any
way reduce the success of the offering by the Company.
(f) EXPIRATION OF PIGGYBACK REGISTRATION RIGHTS. Any obligation
of the Company to register the Registrable Securities pursuant to SECTION 6(B)
shall expire on the second anniversary of the receipt by Holder of the Warrant
Shares.
(g) SUBORDINATION OF PIGGYBACK RIGHTS. Notwithstanding anything
contained herein, the Piggyback registration rights granted under this SECTION 6
to Holder are junior and subordinate to any registration rights with respect to
any securities of the Company granted or existing prior to the date hereof.
7. FRACTIONAL INTEREST. No fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of this Warrant, but on
exercise of this Warrant, the Warrantholder hereof may purchase only a whole
number of shares of Common Stock. The Company shall make a payment in cash in
respect of any fractional shares which might otherwise be issuable upon exercise
of this Warrant, calculated by multiplying the fractional shares amount by the
market price of the Company's Common Stock on the date of exercise as reported
by the national securities exchange or quoted on the interdealer quotation
system on which the Company's Common Stock is traded.
8. RESERVATION OF SHARES. The Company shall at all times reserve for
issuance such number of authorized and unissued shares of Common Stock (or other
securities substituted therefor as hereinabove provided) as shall be sufficient
for exercise of this Warrant. The Company covenants and agrees that upon
exercise of this Warrant, all shares of Common Stock issuable upon such exercise
shall be duly and validly issued, fully paid, nonassessable and not subject to
preemptive rights, rights of first refusal or similar rights of any person or
entity.
6
<PAGE>
9. BENEFITS OF THIS WARRANT. Nothing in this Warrant shall be construed
to confer upon any person other than the Company and the Warrantholder any legal
or equitable right, remedy or claim under this Warrant and this Warrant shall be
for the sole and exclusive benefit of the Company and the Warrantholder.
10. LOSS OF WARRANT. Upon receipt by the Company of evidence of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of indemnity or security reasonably satisfactory to
the Company, and upon surrender the cancellation of this Warrant, if mutilated,
the Company shall execute and deliver a new Warrant of like tenor and date.
11. NOTICES. Any notice given pursuant to this Warrant by the Company or
by the Warrantholder shall be in writing and shall be deemed to have been duly
given upon (a) transmitter's confirmation of the receipt of a facsimile
transmission, (b) confirmed delivery by a standard overnight carrier, or (c) the
expiration of three business days after the day when mailed by United States
Postal Service by certified or registered mail, return receipt requested,
postage prepaid at the following addresses:
If to the Company:
Styling Technology Corporation
2390 East Camelback Road, Suite 435
Phoenix, Arizona 85016
Attention: Chief Financial Officer
If to the Warrantholder:
To the address of the Warrantholder in the
Company's books and records.
Each party hereto may, from time to time, change the address to
which notices to it are to be transmitted, delivered or mailed hereunder by
notice in accordance herewith to the other party.
12. GENERAL PROVISIONS.
(a) SUCCESSORS. All covenants and provisions of this Warrant
shall bind and inure to the benefit of the respective executors, administrators,
successors and assigns of the parties hereto.
(b) CHOICE OF LAW. This Warrant and the rights of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of Arizona, including all matters of construction, validity, performance,
and enforcement, and without giving effect to the principles of conflict of
laws.
(c) ENTIRE AGREEMENT. Except as provided herein, this Warrant,
including exhibits, contains the entire agreement of the parties, and supersedes
all existing negotiations, representations or agreements and all other oral,
written, or other communications between them concerning the subject matter of
this Warrant.
7
<PAGE>
(d) SEVERABILITY. If any provision of this Warrant is
unenforceable, invalid, or violates applicable law, such provision shall be
deemed stricken and shall not affect the enforceability of any other provisions
of this Warrant.
(e) CAPTIONS. The captions in this Warrant are inserted only as a
matter of convenience and for reference and shall not be deemed to define,
limit, enlarge, or describe the scope of this Warrant or the relationship of the
parties, and shall not affect this Warrant or the construction of any provisions
herein.
(f) AMENDMENTS. This Warrant may be amended only by the written
agreement of the Company and the Warrantholder.
IN WITNESS WHEREOF, the Company caused this Warrant to be duly executed
as of the date first above written.
STYLING TECHNOLOGY CORPORATION, a
Delaware corporation
By: /S/ Sam L. Leopold
----------------------------------
Name: Sam L. Leopold
Its: Chairman of the Board and
Chief Executive Officer
8
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: STYLING TECHNOLOGY CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
________ shares of the Common Stock of Styling Technology Corporation, a
Delaware corporation, evidenced by the attached Warrant, and herewith makes
payment of the Exercise Price with respect to such shares in full, all in
accordance with the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer, or otherwise
dispose of any of such Common Stock and consents that the following legend, and
any other legends required by applicable securities laws the Company deems to be
reasonable and appropriate, may be affixed to the certificates for the Common
Stock hereby subscribed for, if such legend is applicable:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities law, and may not
be sold, transferred, pledged, hypothecated or otherwise
disposed of UNLESS either (i) a registration statement under
the Securities Act and applicable state securities laws shall
have become effective with regard thereto, or (ii) an exemption
from registration under the Securities Act or any applicable
state securities laws is available in connection with such
offer, sale or transfer."
The undersigned requests that certificates for such shares be issued,
and a warrant representing any unexercised portion thereof be issued, pursuant
to the Warrant in the name of the registered Warrantholder and delivered to the
undersigned at the address set forth below:
- --------------------------------------------------------------------------------
Signature of Registered Warrantholder
- --------------------------------------------------------------------------------
Printed Name of Registered Warrantholder
- --------------------------------------------------------------------------------
Address
- ----------
The attached Warrant and the securities issuable on exercise thereof have not
been registered under the Securities Act of 1933, as amended, and my not be
sold, transferred, pledged, hypothecated or otherwise disposed of in the absence
of registration or the availability of an exemption from registration under said
Act.
EXHIBIT 11.1
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1997
------------- -------------
Shares
Weighted average number of common
shares outstanding 3,948,703 3,948,703
Additional shares assuming conversion of:
Stock options and warrants 197,567 143,029
Weighted average shares outstanding 4,146,270 4,091,732
========== ==========
Net income $ 828,000 $2,913,000
========== ==========
Primary earnings per share $ 0.20 $ 0.71
========== ==========
EXHIBIT 11.2
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1997
------------- -------------
Shares
Weighted average number of common
shares outstanding 3,948,703 3,948,703
Additional shares assuming conversion of:
Stock options and warrants 260,215 231,634
Weighted average shares outstanding 4,208,918 4,180,337
========== ==========
Net income $ 828,000 $2,913,000
========== ==========
Primary earnings per share $ 0.20 $ 0.70
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,389
<SECURITIES> 0
<RECEIVABLES> 8,596
<ALLOWANCES> 427
<INVENTORY> 4,601
<CURRENT-ASSETS> 15,894
<PP&E> 1,559
<DEPRECIATION> 0
<TOTAL-ASSETS> 61,333
<CURRENT-LIABILITIES> 8,900
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 28,640
<TOTAL-LIABILITY-AND-EQUITY> 61,333
<SALES> 25,585
<TOTAL-REVENUES> 25,585
<CGS> 11,347
<TOTAL-COSTS> 19,652
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</TABLE>
