AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 4, 2001
REGISTRATION NO. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
BONUS STORES, INC.
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(Exact name of small business issuer as specified in its charter)
Florida 5331 59-3652250
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(State or other jurisdiction of (Primary and iindustrial (I.R.S.)Employer
incorporation or organization) classification code number) Identification No.)
--------------------------
2520 West Highway 44
DeLand, Florida 32720
(904) 736-1662
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(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Jim Schafer, Chief Executive Officer
2520 West Highway 44
DeLand, Florida 32720
(904) 736-1662
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(Name and address, including zip code, and telephone number, including area
code, of agent for service)
--------------------------
Copies to:
Gregory Sichenzia, Esq.
Sichenzia, Ross & Friedman, LLP
135 West 50th Street, 20th Floor
New York, New York 10020
(212) 261-2007
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Approximate date of proposed sale to public:
As soon as practicable after this registration statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------------------
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SECURITY OFFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Units, consisting of two shares of 862,500(1) $12.00 $10,350,000 $2,735
common .001 par value, and
two class A warrants
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Common stock underlying the units 1,725,000(1) --- --- ---
===================================================================================================================================
Class A warrants underlying the units 1,725,000(1) --- --- ---
===================================================================================================================================
Common stock underlying the class A 725,000(1) $7.20 $12,420,000 $3,280
warrants included in the units
===================================================================================================================================
Underwriters' Warrants 75,000 $.00013 $ 10 ---
===================================================================================================================================
Units underlying the underwriters' 75,000 $14.40 $ 1,080,000 $ 286
warrants
===================================================================================================================================
Common stock underlying the units 150,000 --- --- ---
underlying the underwriters' warrants
===================================================================================================================================
Class A warrants underlying the units 150,000 --- --- ---
underlying the underwriters' warrants
===================================================================================================================================
Common stock underlying the class A 150,000 $7.20 $ 1,080,000 $ 286
warrants underlying the units
underlying the underwriters' warrants
===================================================================================================================================
TOTAL $24,930,010 $6,587
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(1) Includes the underwriter's over-allotment of 112,500 units of which 225,000
shares of common stock will be sold by Continental Capital & Equity
Corporation.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
</TABLE>
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Prospectus Subject To Completion
BONUS STORES, INC.
750,000 units
We are offering 750,000 units in a firmly underwritten offering. Each unit
consists of two shares of our common stock and two class A warrants to purchase
two shares of our common stock at an exercise price of $7.20 at anytime within a
five year period from the date on this prospectus.
This is our initial public offering, and no public market currently exists
for our units. We anticipate that the initial public offering price for our
units will be $12.00 per unit. After the offering, the market price for our
units may be outside of this range.
We have granted the underwriters the right to purchase up to an additional
112,500 units to cover over-allotments. The underwriters can exercise this right
at any time within 45 days after this offering.
We plan to apply for listing of our units on the Nasdaq SmallCap Market and
The Boston Stock Exchange.
------------------
Your investment in our securities involves a high degree of risk. Before
investing in our securities, you should consider carefully the risks described
under "Risk Factors" beginning on page 6.
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The offering Per unit Total
------------
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Public offering price $12.00 $ 9,000,000
Underwriting discounts $ 1.20 $ 900,000
Proceeds to Bonus Stores, Inc. $10.80 $ 8,100,000
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is complete or accurate. Any representation to the contrary is a
criminal offense.
INSTITUTIONAL EQUITY CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
Section Number
------- ------
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 15
Dilution.................................................................. 16
Capitalization............................................................ 17
Selected Financial Data................................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 19
Business.................................................................. 22
Management................................................................ 30
Summary Compensation Table................................................ 32
Security Ownership of Management and Certain Beneficial Owners............ 35
Certain Transactions...................................................... 37
Description of Capital Stock.............................................. 38
Shares Eligible for Future Sale........................................... 41
Underwriting.............................................................. 43
Legal Matters............................................................. 46
Experts................................................................... 46
Additional Information.................................................... 47
Index to Financial Statements............................................. 48
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS
OR IN DOCUMENTS REFERRED TO IN THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY BEFORE INVESTING IN OUR SECURITIES, INCLUDING THE "RISK
FACTORS," "BUSINESS" AND "SELECTED FINANCIAL DATA" SECTIONS.
Bonus Stores, Inc.
Bonus Stores, Inc. operates single price point, deep discount stores that
offer name brand, closeout, and regularly available general merchandise at a $1
price point. Our stores offer a wide assortment of regularly available every day
consumer goods as well as a changing variety of first quality seasonal and
closeout merchandise. Our core objective is provide customers significant value
on their everyday household needs and an exciting shopping experience for fresh
merchandise in an attractively merchandised, brightly lit and well maintained
store that emphasizes customer service. Our focus on brand name, value-priced
everyday household items is intended to increase the frequency of customer
visits and our changing array of first quality seasonal and closeout merchandise
is intended to produce impulse purchases. We expect our attractive and
well-maintained stores to increase customer visit lengths and result in higher
unit sales per visit. We believe that our format appeals to value-conscious
customers in broad demographic groups.
The first Bonus Dollar store opened in June of 1999 and as of December 1,
2000 we have 16 Bonus Stores in operation. The initial store format, the first
nine stores, relied on approximately 3,000 to 4,000 sq. ft. of retail space
generally located in a strip center anchored by a major tenant, usually a
grocery store chain. The format was then modified to test a larger store in the
10,000 to 12,000 sq. ft. range. This larger format allows a greater variety of
merchandise including food items and allows for stocking larger quantities of
the higher volume consumer goods. The larger format has generated more
attractive results and accordingly, we plan to concentrate development on the
larger store format. From January 2000 to May 2000, we also tested a $1.25 price
point for our stores and decided to return to the more recognizable and
simplified $1 format. We have relocated one small format store as a result of
poor performance.
All of our existing stores are located on the I-4 corridor in Central
Florida and range in size from 3,000 to 10,000 sq. ft. The I-4 corridor of
Central Florida generally runs from Tampa on the West Coast of Florida to
Jacksonville on the East Coast. We plan to continue development within this
geographic area with additional expansion into adjacent Central Florida
communities for the foreseeable future.
Our principal offices are located at 2520 West Highway 44, DeLand, FL 32720
and our telephone number is (904) 736-1662. We are a Florida corporation.
3
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The Offering
Common stock outstanding prior to
this offering........................... 1,500,000
Class A warrants outstanding prior to
this offering........................... 0
Securities offered by us in this
offering................................ 750,000 units. Each unit consists of
two shares of common stock, $0.001
par value, and two class A warrants
to purchase two shares of our common
stock.
Common stock to be outstanding
after this offering..................... 3,000,000 shares of common stock.
Class A warrants to be outstanding
after this offering..................... 1,500,000 class A warrants to
purchase 1,500,000 shares of our
common stock.
Use of proceeds......................... We intend to use the net proceeds of
this offering for business expansion
and working capital purposes.
Trading symbols......................... We plan on applying for listing of
our units on the Nasdaq SmallCap
Market and The Boston Stock Exchange.
The number of shares of common stock to be outstanding immediately after
this offering excludes:
o 1,000,000 shares of common stock issuable upon the conversion of
750,000 shares of series A preferred stock
o 1,500,000 shares of common stock issuable upon the exercise of
1,500,000 class A warrants
o 300,000 shares of common stock issuable upon the exercise of options
granted to Continental Capital & Equity Corporation at an exercise
price of $1.00
o 400,000 shares of common stock reserved for issuance pursuant to our
2000 Stock Option Plan
o 225,000 shares of common stock and 225,000 warrants subject to the
underwriter's over-allotment option
o 150,000 shares of common stock and 150,000 warrants issuable upon the
exercise of the underwriters' warrants
4
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<TABLE>
<CAPTION>
Summary Selected Financial Data
The summary financial data set forth below has been derived from our
audited and unaudited financial statements included in this prospectus.
For the period
from inception on
Six Months Ended Year Ended Januray 25, 1999
September 30, March 31, to March 31,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales $ 1,672,348 $ 285,500 $ 1,069,076 $ --
Gross Profit 610,009 111,222 358,211 --
Operating expenses 1,360,054 502,995 1,219,369 54,594
Loss from operations (750,045) (391,773) (861,158) (54,594)
Net loss (841,077) (423,400) (909,767) (55,252)
Basic and diluted loss per share $(.56) $(.28) $(.61) $(.04)
Weighted average of common shares
outstanding-basic and diluted 1,500,000 1,500,000 1,500,000 1,500,000
September 30, September 30, 2000
2000 as Adjusted (1)
---- ------------
(unaudited)
Balance Sheet Data:
Cash and cash equivalents $ 581,507 $8,131,507
Working capital 1,344,793 8,894,793
Total assets 3,032,298 10,582,298
Long-term debt 5,135 5,135
Stockholders' equity 2,339,580 9,889,580
(1) As adjusted to give effect to the receipt and application of the estimated
net proceeds of this offering without giving effect to the conversion of series
A preferred stock, the exercise of the underwriters' warrants or other
outstanding warrants or stock options.
5
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<PAGE>
RISK FACTORS
Investing in our securities will provide you with an equity ownership
interest in Bonus Stores, Inc. As one of our shareholders, your investment will
be subject to risks inherent in our business. If any of the following risks
actually occur, our business could be harmed. In that event, the trading price
of our shares might decline, and you could lose all or part of your investment.
You should carefully consider the following factors as well as other information
contained in this prospectus before deciding to invest in shares of our
securities. Additional risks that are not currently known to us or that we deem
immaterial may also harm us and the value of your investment. An investment in
our securities involves a high degree of risk.
Risks Related To Our Business And Industry
Failure to meet our expansion goals or successfully manage our growth may harm
our net sales growth and profitability.
If we do not increase the number of our stores and the capacity of our
store support systems in a profitable, timely and efficient manner, our net
sales growth and profitability may be harmed. As a single price point retailer,
we cannot increase our sales prices. Therefore, we rely heavily on new and
larger stores to increase sales and profitability. We expect to add 10 to 12
stores during 2001 and 15 to 18 stores during 2002. We may not anticipate all
the challenges that our expanding operations will impose on our systems and
personnel. We may not meet our targets for opening new stores and expanding
profitably. Our continued growth will depend on whether we can:
o supply an increasing number of stores with the proper mix and volume
of merchandise;
o successfully add and operate larger stores;
o hire, train and retain an increasing number of qualified employees,
including employees, managers and executives, at affordable rates of
compensation;
o locate, lease, build out and open stores in suitable locations on a
timely basis and on favorable economic terms;
o expand into new geographic markets, where we have limited or no
experience;
o expand within our established geographic markets, where new stores may
draw sales away from our existing stores; and
o build, expand and upgrade our distribution centers and internal store
support systems in an efficient, timely and economical manner.
6
<PAGE>
Our profitability is especially vulnerable to future increases in operating and
merchandise costs.
Future increases in labor, shipping, merchandise and other operating costs
may reduce our profitability. As a fixed price retailer, we cannot raise the
price of our merchandise to offset cost increases. Instead, we attempt to obtain
closely comparable merchandise with a cost that allows us to maintain our target
profit margin and to continually evaluate our operations for improved efficiency
and cost savings. Inflation and adverse economic changes in the United States,
where we both buy and sell merchandise, and in China and other parts of Asia,
where we buy a large portion of our merchandise, may reduce our profitability.
Unforeseen disruptions or costs in operating and expanding our purchasing and
distribution systems may harm our sales and profitability.
Our future success will depend on our ability to obtain merchandise from
suppliers and ship it to our stores in a timely and cost-effective manner. We
may not anticipate, respond to or control all the challenges of operating and
expanding our receiving and distribution systems. Some of the factors that could
have an adverse effect on our shipping and receiving systems or costs are:
o expansion, replacement and addition of distribution centers
o expenses associated with warehouse automation
o shipping costs, including gasoline prices
o vulnerability to natural or man-made disasters
o labor disagreements
An increase in the cost or a disruption in the flow of our imported goods may
significantly decrease our sales and profits.
We rely heavily on imported goods to sell in our stores. Asia is the source
of a majority of our imports. Imported goods are generally less expensive than
domestic goods and contribute significantly to our favorable profit margins. A
disruption in the flow of our imported merchandise or an increase in the cost of
those goods may significantly decrease our sales and profits.
If Asian or other imported merchandise becomes more expensive or
unavailable, the transition to alternative sources may not occur in time to meet
our demands. Products from alternative sources may also be of lesser quality and
more expensive than those we currently import. Risks associated with our
reliance on imported goods include:
o disruptions in the flow of imported goods because of factors such as:
o raw material shortages, work stoppages, strikes and political
unrest; and
7
<PAGE>
o problems with oceanic shipping, including shipping container
shortages.
o increases in the cost of purchasing foreign merchandise resulting
from:
o failure of the United States to maintain favorable trade
relations with China;
o import duties, import quotas and other trade sanctions;
o increases in shipping rates imposed by the trans-Pacific shipping
cartel; and
o adverse fluctuations in foreign exchange rates.
Chinese goods imported into the United States currently enjoy favorable
duties because the United States grants China "most favored nation" trade
status. China's favorable trade status is reviewed on an annual basis and is
currently extended through July 2, 2001. Although the U.S. House of
Representatives approved a bill on May 24, 2000 extending normal trade relations
to China on a permanent basis, there continues to be significant political
opposition to this proposal and we cannot be sure of its passage. A
deterioration in trade relations with China could significantly increase the
cost of our goods. For example, administration officials testified in June 1999
that ending normal trade relations with China would raise tariffs on Chinese
products from their current overall trade-weighted average of 4% to an estimated
44%. Even if normal trade relations with China become permanent, the United
States could impose punitive trade sanctions on Chinese goods for a variety of
reasons. Although no punitive import duties are currently imposed, the United
States Trade Representative has in the past threatened retaliatory sanctions
equaling as much as 100% of the cost of some Chinese goods.
Difficulties experienced in obtaining sufficient quantities of low-cost
merchandise may cause our sales and profits to suffer.
Our future success depends on our ability to buy large quantities of
quality merchandise at low prices. Because we sell our merchandise at a fixed
price, it would be difficult to maintain our gross profit margins if the cost of
our merchandise increases. Disruptions in the availability of quality, low-cost
merchandise in sufficient quantities to maintain our growth may reduce our sales
and profits. Quality, low-cost merchandise may not be available in the future,
or it may not be available in the quantities necessary for our expansion. We do
not have significant long-term or continuing contracts for the purchase of
merchandise, and we compete with other retailers and wholesalers for new buying
opportunities from both our existing suppliers and new sources. We sometimes buy
merchandise from manufacturers having standard sales policies that a dollar
retailer cannot satisfy. For example, a policy may require us to sell a product
at a retail price above $1.00, or to advertise or comply with some other
restriction that is inconsistent with our method of operation. As a result, we
could have difficulty obtaining low-cost merchandise and could incur some
additional expenses.
8
<PAGE>
Our operating results could fluctuate significantly and cause our stock price to
fall.
We expect to experience fluctuations in our quarterly and annual operating
results, which may cause the price of our stock to fall. We realize a
disproportionately large amount of our net sales and net income during the
Christmas, Halloween, and Easter seasons. In anticipation of these holidays, we
purchase substantial amounts of seasonal inventory and hire many temporary
employees. If for any reason our net sales were below seasonal norms, our
operating results would suffer.
We continually change our mix of seasonal merchandise, non-seasonal
merchandise and consumable products. As a result, our comparable store net sales
and gross profit margins fluctuate from quarter to quarter. Our quarterly and
annual results of operations, including comparable store net sales and income,
also fluctuate for a variety of other reasons, including:
o changes in the date on which Easter is observed each year and the
length of the Easter, Halloween and Christmas selling seasons;
o the timing of new store openings;
o the net sales contributed by new and expanded stores;
o difficulties in obtaining sufficient quantities of merchandise from
our suppliers;
o disruptions in or adjustments to our shipping and receiving schedules;
o competition; and
o economic and weather conditions.
Increased competition in the future may reduce our sales and profits.
The retail industry is highly competitive and we expect competition to
increase in the future. Increased competition may reduce our sales and profits.
Our competitors include variety and discount stores such as Dollar Tree Stores,
Inc., Dollar General, Family Dollar, closeout stores such as Odd Lots and Big
Lots, mass merchandisers such as Wal-Mart, individually owned and operated
dollar stores, and, to a lesser extent, other fixed price retailers. In
addition, certain of these competitors have an inherent competitive advantage
over us in that they have substantially greater financial resources, operating
experience, marketing and selling experience and purchasing power. Competition
is also growing in less traditional retail areas such as the growth of Internet
retailing. Competition may also increase because there are no significant
economic barriers to other companies becoming fixed price retailers.
9
<PAGE>
The substantial number of shares of our common stock that are eligible for
public sale may cause our stock price to fall.
There are relatively few restrictions on the resale of our common stock,
and a large number of shares of common stock will become eligible for public
sale. Sales of substantial amounts of these shares in the public market, or the
perception that such sales could occur, could cause the market price for our
common stock to fall. Significant sources of future public sales of our common
stock, in addition to shares held by the general public, include:
o 1,500,000 shares of common stock issuable upon the exercise of
1,500,000 class A warrants
o 300,000 shares of common stock issuable upon the exercise of options
granted to Continental Capital & Equity Corporation at an exercise
price of $1.00
o 400,000 shares of common stock reserved for issuance pursuant to our
2000 Stock Option Plan
o 150,000 shares of common stock and 150,000 warrants issuable upon the
exercise of the underwriters' warrants
The holders of a substantial majority of our privately issued shares,
including our warrant holders, can generally require that we register their
shares for resale, subject to specified limitations. Even when shares are not
registered for resale, the rules of the Securities and Exchange Commission
permit a holder who has held shares for one year to sell the stock into the
public market subject, in some cases, to volume and other limitations. A person
who has held shares for two years can generally sell without limitation.
We may experience variability in our operating results, which could negatively
impact the price of our shares.
Our annual and quarterly results have fluctuated in the past. The reasons
for these fluctuations may similarly affect us in the future. Prospective
investors should not rely on results of operations in any past period to
indicate what our results will be for any future period. Our operating results
may fluctuate in the future as a result of many factors, including:
. variations in the timing and volume of customer visits;
. introduction and market acceptance of our new products;
. changes in demand for our existing products;
. the accuracy of our forecasts of future requirements;
10
<PAGE>
. changes in competitive and economic conditions generally or in our markets;
and
. the timing of, and the price we pay for, acquisitions and related
integration costs.
Any of these factors or a combination of these factors could have a
material adverse effect on our business, financial condition and results of
operations.
The public offering price is significantly higher than the book value of our
shares and you will experience immediate and substantial dilution in the value
of your investment.
The public offering price per share will significantly exceed the net
tangible book value per share. Accordingly, investors purchasing shares in this
offering will suffer immediate and substantial dilution of their investment of
$2.70 based on an assumed offering price of $6.00 per share. Additional dilution
will occur upon the exercise of outstanding options and warrants. See
"Dilution."
We may need additional capital that could dilute the ownership interest of
investors.
We require substantial working capital to fund our business. If we raise
additional funds through the issuance of equity, equity-related or convertible
debt securities, these securities may have rights, preferences or privileges
senior to those of the rights of holders of our common stock and shares of
common stock sold in this offering may experience additional dilution. We cannot
predict whether additional financing will be available to us on favorable terms
when required, or at all. Since our inception, we have experienced negative cash
flow from operations due to startup costs associated with store openings and we
expect to experience startup costs for new store openings in the future. The
issuance of additional common stock by our management, may have the effect of
further diluting the proportionate equity interest and voting power of holders
of our common stock, including investors in this offering.
The conversion of our outstanding series A preferred stock may depress our stock
price.
We currently have outstanding 750,000 shares of series A preferred stock,
which will be converted into 1,000,000 shares of our common stock one year from
the date of our initial public offering. The conversion of a substantial number
of shares of series A preferred stock within a relatively short period of time
could have the effect of depressing the market price of our common stock and
could impair our ability to raise capital through the sale of additional equity
securities. Also, these converted shares may have the effect of further diluting
the proportionate equity interest and voting power of holders of our common
stock, including investors in this offering.
11
<PAGE>
WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus and the documents referred to in this prospectus contain
"forward-looking statements" as that term is used in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements address future events,
developments or results and typically use words such as believe, anticipate,
expect, intend, plan or estimate. For example, our forward-looking statements
include statements regarding:
o our growth plans, including our plans to open, expand or relocate
stores;
o the possible effect of inflation and other economic changes on our
costs and profitability, including the possible effect of future
changes in oceanic shipping rates, freight costs, fuel costs, minimum
wage rates and wage costs;
o our cash needs, including our ability to fund our future capital
expenditures and working capital requirements;
o the capabilities of, and the cost of improving, our inventory supply
chain processes;
o the future reliability of, and cost associated with, our sources of
supply, particularly Asia;
o the future availability of quality merchandise that can be profitably
sold for $1.00;
o the capacity, performance and cost of our existing and planned
distribution centers, including opening and expansion schedules; and
o our expectations regarding competition.
For a discussion of the risks, uncertainties, and assumptions that could
affect our future events, developments or results, you should carefully review
the "Risk Factors" beginning on page 6 of this prospectus, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
starting on page 19 and "Business" beginning on page 22. In light of these
risks, uncertainties and assumptions, the future events, developments or results
described by our forward-looking statements in this prospectus or in the
documents referred to in this prospectus could turn out to be materially
different from those we discuss or imply. We have no obligation to publicly
update or revise our forward-looking statements after the date on the front
cover of this prospectus and you should not expect us to do so.
12
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $7,550,000
from our sale of the 750,000 units offered by us (approximately $7,784,900 if
the underwriter fully exercises its over-allotment option). This estimate is
based on an offering price of $12.00 per unit and is after deducting estimated
underwriting discounts and commissions, the underwriter's non-accountable
expense allowance and other estimated offering expenses payable by us. We expect
to use the net proceeds of this offering for the following purposes:
Amount Percentage
---------- ----------
Business expansion.................................. $6,000,000 79.47%
Distribution center................................. 300,000 3.97%
Working capital and general corporate purposes...... 1,250,000 16.56%
---------- ------
Total................................. $7,550,000 100%
========== ======
Business expansion represents the costs of:
o finding satisfactory locations for new stores;
o performing leasehold improvements on new store locations;
o acquiring new store fixtures, equipment, and electronic
point-of-sale systems;
o inventory needed to fully stock new stores;
o start-up costs associated with new stores including labor for
fixture and equipment installation, new employee training;
o grand opening marketing and advertising; and
o costs to upgrade software for inventory tracking and
scanning.
Distribution center costs include the following:
o addition of warehouse racking to accommodate the expansion for
new stores;
o transportation equipment to service the expanding chain of
stores;
o warehouse inventory handling equipment such as fork lifts; and
o software enhancements to warehouse distribution system.
Working capital and general corporate purposes include the following:
o hiring additional personnel;
o enhancing our operating, support and management systems;
o financing new store leases and start up costs;
o funding short-term losses; and
o acquiring additional inventory to support the increased number of
stores and larger stores sizes, both stores inventory and supply
chain (warehouse) inventory.
13
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Working capital may also be applied to acquisitions, although we do not
have current plans, agreements or commitments for any acquisition. Any proceeds
from the exercise of the overallotment option we granted to the underwriters to
purchase additional shares of common stock from us will be added to working
capital.
We will retain broad discretion in the allocation of the net proceeds of
this offering within the categories listed above. We may also use portions of
the net proceeds for other purposes. The amount actually expended and their uses
will depend on a number of factors, including the amount of our future revenues
and the other factors described under "Risk Factors."
We expect that the net proceeds from this offering, together with cash flow
from our operations, will be sufficient to fund our operations and capital
requirements for at least 12 months following the consummation of this offering.
We may be required to seek additional sources of capital sooner if:
o operating assumptions change or prove to be inaccurate; or
o we consummate any acquisitions of significant businesses or assets.
Pending the uses described above, the net proceeds will be invested in a
money market account and/or short-term government bonds.
14
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DIVIDEND POLICY
We have not paid any cash dividends on our common stock and we currently
intend to retain any future earnings to fund the development and growth of our
business. Any future determination to pay dividends on our common stock will
depend upon our results of operations, financial condition and capital
requirements, applicable restrictions under any credit facilities or other
contractual arrangements and such other factors deemed relevant by our board of
directors.
15
<PAGE>
DILUTION
As of September 30, 2000, our net tangible book value was $2,339,580 or
$1.56 per share of common stock. Net tangible book value per share is determined
by dividing a company's tangible net worth (total assets, net of intangible
assets, less total liabilities) by the number of outstanding common shares. Our
pro forma net tangible book value as of September 30, 2000 would have been
approximately $9,889,580 or $3.30 per share without taking into account any
change in our net tangible book value after September 30, 2000, other than to
give effect to the sale of 750,000 units or 1,500,000 shares of common stock and
1,500,000 warrants to purchase common stock at an assumed offering price of
$6.00 per share, attributing no value to the warrants, and after deducting
underwriting discounts and commissions, the underwriters' non-accountable
expense allowance and other estimated offering expenses. This represents an
immediate increase in the net tangible book value of $1.74 per share to existing
shareholders and an immediate dilution of $2.70 per share to new investors. The
following table illustrates this per share dilution:
Assumed offering price per share................................ $6.00
-----
Net tangible book value per share as of September 30, 2000.... $1.56
Increase per share attributable to this offering.............. $1.74
-----
Pro forma net tangible book value per share after this offering $3.30
-----
Dilution to new investors $2.70
=====
16
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION
The following table summarizes our capitalization as of September 30, 2000
and as adjusted as of that date to reflect our sale of 750,000 units and our
application of the estimated net proceeds without giving effect to the exercise
of the warrants, the overallotment option, the underwriters' warrants, or other
outstanding warrants or options. The information in the table assumes a public
offering price of $12.00 per unit. The information in the table should be read
in conjunction with the more detailed financial statements and notes thereto
presented elsewhere in this prospectus.
September 30, 2000
Actual As Adjusted
---------- -----------
<S> <C> <C>
Long-term debt $ 5,135 $5,135
---------- ----------
Stockholders' equity:
Preferred stock, no par value, 4,250,000 shares authorized
and none outstanding -0- -0-
Series A preferred stock, no par value, 750,000
shares authorized, issued and outstanding 4,060,776 4,060,776
Common stock, $0.001 par value, 20,000,000 shares
authorized, 1,500,000 shares issued and outtanding;
3,000,000 shares 3,000d and outstanding, as adjusted 1,500 3,000
Additional paid in capital 83,400 7,631,900
Accumulated deficit (1,806,096) (1,806,096)
---------- ----------
Total stockholders' equity 2,339,580 9,889,580
---------- ----------
Total capitalization $2,344,715 $9,894,715
========== ==========
Additional Information About Financial Presentation
Options and Warrants. Unless this prospectus indicates otherwise, the
information presented in this prospectus assumes no exercise of the
underwriters' over-allotment option, underwriters' warrants to purchase 75,000
units, conversion of our series A preferred stock, or other shares of common
stock to be issued pursuant to options granted.
17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to our statements
of operations for the year ended March 31, 2000 and for the period from
inception on January 25, 1999 to March 31, 1999 and with respect to our balance
sheet as of March 31, 2000 is derived from our audited financial statements
included elsewhere in this prospectus which have been audited by McGladrey &
Pullen, LLP. The selected financial data with respect to our balance sheet as of
September 30, 2000 and our statement of operations for the six months ended
September 30, 2000 and 1999 is derived from unaudited financial statements. The
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments that we consider necessary for a fair presentation
of the financial position and results of operations for the six months ended
September 30, 2000 and 1999. Operating results for the six months ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2001. The financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto appearing elsewhere in the prospectus.
For the period
from inception on
Six Months Ended Year Ended Januray 25, 1999
September 30 March 31, to March 31,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales $ 1,672,348 $ 285,500 $ 1,069,076 $ --
Cost of goods sold 1,062,339 174,278 710,865 --
----------- ----------- ----------- -----------
Gross Profit 610,009 111,222 358,211 --
Operating expenses 1,360,054 502,995 1,219,369 54,594
Non operating income (expense) (91,032) (31,627) (48,609) 658
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (841,077) $ (423,400) $ (909,767) $ (55,252)
=========== =========== =========== ===========
Basic and diluted loss per share $ (.56) $ (.28) $ (.61) $ (.04)
=========== =========== =========== ===========
Weighted average of common shares
outstanding-basic and diluted 1,500,000 1,500,000 1,500,000 1,500,000
September 30, March 31,
2000 2000 1999
---- ---- ----
(unaudited)
Balance Sheet Data:
Cash and cash equivalents $ 581,507 $ 293,366 $114,655
Working capital 1,344,793 586,980 217,099
Total assets 3,032,298 1,315,180 303,595
Long-term debt 5,135 2,007,274 297,773
Stockholders' equity (deficit) 2,339,580 (905,019) 4,748
18
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this prospectus are not purely historical
statements, but rather include what we believe are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. These include
statements about our expectations, beliefs, intentions or strategies for the
future, which are indicated by words or phrases such as "anticipate," "expect,"
"intend," "plan," "will," "we believe," "the company believes", "management
believes" and similar words or phrases. The forward-looking statements are based
on our current expectations and are subject to certain risks, uncertainties and
assumptions, including factors set forth in the following discussion and in the
discussions under "Risk Factors" and "Business." Our actual results could differ
materially from results anticipated in these forward-looking statements. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements.
Results Of Operations
Bonus Stores began operations on January 25, 1999 and opened its first
store in June 1999. We have limited operating history and certain comparisons
such as same store sales would likely produce misleading results. In addition,
the initial store openings were effectively prototype formats and not
necessarily representative of more recently opened stores. Bonus Stores has
generated substantial losses since inception in part because of operating loses
from newly opened and immature stores and because of administrative and
warehouse distribution costs incurred in anticipation of servicing a
significantly larger chain of stores. During the period from inception on
January 25, 1999 to March 31, 2000, we were a limited liability corporation.
Effective April 1, 2000 all of the assets and liabilities of Bonus Stores, L.C.
were transferred to Bonus Stores, Inc., a new Florida Corporation.
Six Months Ended September 30, 2000 As Compared to the Six Months Ended
September 30, 1999
Revenues. Revenues for the six months ended September 30, 2000 increased
486% to $1,672,348 from $285,500 for the six months ended September 30, 1999.
This increase was primarily attributable to the increase in the number of stores
in operation. The six month period ended September 30, 2000 began with eight
stores in operation and ended with fifteen stores in operation as compared to
the six month period ended September 30, 1999 which began with no stores in
operation and ended with six stores in operation.
Gross Profit. Gross Profit for the six months ended September 30, 2000
increased 448% to $610,009 from $111,222 for the six months ended September 30,
1999. This increase is also attributable to the increase in the number of stores
in operation. The gross profit percentage for the six months ended September 30,
2000 was 36.5% compared to 38.9% for the six months ended September 30, 1999.
The decrease in the profit margin between these periods was primarily the result
of changes in product mix, particularly the addition of grocery items that were
added in July 2000 for our new larger store format.
19
<PAGE>
General and Administrative Expenses. General and administrative expenses
for the six months ended September 30, 2000 increased 170% to $1,360,054 from
$502,995 for the six months ended September 30, 1999. This increase is directly
attributable to the greater number of stores operating during the six months
ended September 30, 2000 as compared to the comparable period in 1999. As a
percentage of sales, general and administrative expenses for the six months
ended September 30, 2000 decreased to 81% of sales, down from 176% of sales for
the six months ended September 30, 1999. This percentage decrease resulted from
the significant increase in sales generated from new store openings.
Net Losses. Net losses for the six months ended September 30, 2000
increased to $841,077 or $.56 per share as compared to $423,400, or $.28 per
share for the six months ended 1999. This increase primarily resulted from the
aggressive schedule of new store openings and the related start-up expenses as
well as the expected store operating losses that are incurred during the initial
months of operation. During the six months ended September 30, 2000, we opened
seven new stores, five of which were the larger store format, compared to six
new store openings for the six months ended September 30, 1999.
Year Ended March 31, 2000 As Compared to the Period From Inception on January
25, 1999 to March 31, 1999
Revenues. Revenues for the year ended March 31, 2000 totaled $1,069,076.
The first store opened in June of 1999 and there were no sales for the period
from inception on January 25, 1999 to March 31, 1999.
General and Administrative Expenses. General and administrative expenses
for the year ended March 31, 2000 totaled $1,219,369 compared to $54,594 for the
period from inception on January 25, 1999 to March 31, 1999. General and
administrative expenses represent the cost of operating the stores as well as
distribution and administration costs. For the period from inception on January
25, 1999 to March 31, 1999, these costs represented only the costs associated
with our start-up as no stores were opened as of March 31, 1999.
Net Losses. The net loss for the year ended March 31, 2000 was $909,767 or
$.61 per share as compared to $55,252, or $.04 per share for the period from
inception on January 25, 1999 to March 31, 1999. The net loss for year ended
March 31, 2000 resulted primarily from the high start-up costs associated with
the new stores along with the expected losses that are incurred in the initial
months of operating a new store.
20
<PAGE>
Liquidity And Capital Resources
Net cash used in operating activities for the period from inception on
January 25, 1999 to March 31, 1999 and for the year ended March 31, 2000 was
$185,045 and $1,140,484, respectively. Net cash used in operating activities for
the six months ended September 30, 2000 was $1,139,096. These amounts were
primarily generated from the losses resulting from our start-up and the losses
incurred in the opening of new stores including start-up costs.
In addition, net cash used in the purchase of property and equipment needed
to establish a distribution center and open stores for the period from inception
on January 25, 1999 to March 31, 1999, for the year ended March 31, 2000, and
for the six months ended September 30, 2000 was $58,073, $388,205 and $546,374,
respectively.
The capital required to open new stores and to operate them until they
become profitable has come primarily from credit facilities secured by direct
loans and capital contributions received from a limited number of investors.
During the six months ended September 30, 2000, approximately $4,060,776 of
these loans were converted to equity in Bonus Stores in the form of Preferred
Stock.
On November 3, 2000, we obtained a one year revolving credit facility in
the maximum amount of $1,000,000 from ISLANDBANKI-FBA HF. Borrowings under this
credit facility are collateralized by our assets. At December 1, 2000, we have
aggregate draws on this credit facility of $600,000. At December 1, 2000, we had
cash and cash equivalents of $465,000 and a seasonally high inventory of
approximately $1,700,000.
The net proceeds of the public offering made hereby will be used primarily
for funding new store development, the funding of the expected initial operating
losses of those stores, expansion of our distribution facility, working capital
and other general corporate needs. The net proceeds are estimated to be
approximately $7,550,000.
We believe that the funds currently available under the existing credit
facility, our current working capital balances, and the net proceeds of this
offering will provide sufficient liquidity and working capital for the next
twelve months.
21
<PAGE>
BUSINESS
General
Bonus Stores, Inc. operates single price point, deep discount stores that
offer name brand, closeout, and regularly available general merchandise at a $1
price point. Our stores offer a wide assortment of regularly available every day
consumer goods as well as a changing variety of first quality seasonal and
closeout merchandise. Our core objective is provide customers significant value
on their everyday household needs and an exciting shopping experience for fresh
merchandise in an attractively merchandised, brightly lit and well maintained
store that emphasizes customer service. Our focus on brand name, value-priced
everyday household items is intended to increase the frequency of customer
visits and our changing array of first quality seasonal and closeout merchandise
is intended to produce impulse purchases. We expect our attractive and
well-maintained stores to increase customer visit length and result in higher
unit sales per visit. We believe that our format appeals to value-conscious
customers in broad demographic groups.
The first Bonus Dollar store opened in June of 1999 and as of December 1,
2000 we have 16 Bonus Stores in operation. The initial store format, the first
nine stores, relied on approximately 3,000 to 4,000 sq. ft. of retail space
generally located in a strip center anchored by a major tenant, usually a
grocery store chain. The format was then modified to test a larger store in the
10,000 to 12,000 sq. ft. range. This larger format allows a greater variety of
merchandise including food items and allows for stocking larger quantities of
the higher volume consumer goods. The larger format has generated more
attractive results and accordingly, we plan to concentrate development on the
larger store format. From January 2000 to May 2000, we also tested a $1.25 price
point for our stores and decided to return to the more recognizable and
simplified $1 format. We have relocated one small format store as a result of
poor performance.
Industry
We participate primarily in the highly competitive "deep-discount" retail
industry. The deep-discount retail industry is distinguished from other retail
formats by the purchase of close-out and other special-situation merchandise at
prices substantially less than original wholesale cost, and the subsequent sale
of this merchandise at prices significantly below regular retail. This results
in a continually changing selection of specific brands of products.
The sale of close-out or special-situation merchandise developed in
response to the need of manufacturers, wholesalers and others to distribute
merchandise outside their normal channels. Close-out or special-situation
merchandise becomes available for a variety of reasons, including a:
o manufacturer's over-production;
o discontinuation due to a change in style, color, size, formulation or
packaging;
o inability to move merchandise effectively through regular channels;
22
<PAGE>
o reduction of excess seasonal inventory;
o discontinuation of test-marketed items; and
o financial needs.
Many deep-discount retailers also sell merchandise that can be purchased
from a manufacturer or wholesaler on a regular basis. Although this merchandise
can usually be purchased at less than original wholesale and sold below normal
retail, the discount, if any, is generally less than with close-out merchandise.
Deep-discount retailers sell regularly available merchandise to ensure a degree
of consistency in their product offerings and to establish themselves as a
reliable source of basic goods.
I-4 Corridor Market in Central Florida
We currently operate 16 Bonus Dollar Stores on the I-4 corridor in Central
Florida. This geographic area generally stretches from the Jacksonville -
Daytona Beach area on the East Coast of Florida to the Tampa Bay area on the
West Coast. The major metropolitan areas encompassed in this corridor include
Orlando, Lakeland, Tampa, Clearwater, St. Petersburg, Daytona Beach and
Jacksonville. The strategy in developing this geographic corridor was based on
the efficiencies of distribution from our offices and warehouse in DeLand,
Florida. We believe this geographic area is the fastest growing one in Florida
and is one of the fastest growing regions of the country. We estimate that the
primary radius from which each of our stores draws its customers is
approximately 4 miles allowing for significant additional development within
this core development area. The concentration of stores in a geographic and
media center basis will also allow us to efficiently market and advertise,
something that is generally not available in the deep discount single price
point industry.
Business Strategy
Our goal is to provide significant value to our customers on a wide variety
of consumable merchandise in an exciting store environment. Our strategies to
achieve this goal include the following principles that distinguish it from
other "dollar stores" as well as other deep-discount operators:
Value offering. We strive to exceed our customers' expectations of the
variety and quality of products that can be purchased for $1.00. We believe that
many of the items we sell for $1.00 are typically sold for higher prices
elsewhere. We purchase a portion of our products directly from manufacturers,
allowing us to pass on additional value to the customer. In addition, direct
relationships with both domestic and foreign manufacturers permit us to select a
broad product range, customize packaging and frequently obtain larger product
sizes and higher package quantities.
Changing merchandise mix. We supplement our wide assortment of quality
everyday core merchandise and consumable products with a changing mix of new and
exciting products, including seasonal goods, such as Easter items, summer toys,
Halloween and Christmas decorations. We also take advantage of the availability
23
<PAGE>
of lower-priced, private-label and regional brand goods, which we believe are
comparable to national name brands. We continually change the mix of seasonal
merchandise, non-seasonal merchandise, and consumable products to add variety
and freshness to our merchandise offerings.
Convenient, highly visible store locations. We locate our stores to be
convenient to customers. We prefer opening new stores in strip shopping centers
anchored by strong mass merchandisers such as Wal-Mart, Kmart and Target, whose
target customers we believe to be similar to ours. We also open stores in
neighborhood centers anchored by large grocery retailers. We believe that our
stores' bright lighting and curb appeal attract new and repeat customers and
enhance our image as both a destination and impulse store.
Attractive and consistent store economics. We believe that our attractive
store level economics will facilitate our planned expansion. The average
investment per new store opened for the fiscal year ended March 31, 2000,
including capital expenditures and inventory on-hand, but excluding pre-opening
expenses, was approximately $225,000.
Focus on Central Florida Market. We believe Central Florida has significant
potential for our growth in store locations, sales and profitability. By
continuing to locate new stores in Central Florida, we will be able to take
advantage of our existing warehouse and distribution facility, regional
advertising and other management and operating efficiencies to provide for
further growth without incurring the additional overhead and risk that would be
entailed by expansion in new geographic markets. We have concentrated on the I-4
corridor due to favorable demographics, high population growth projections, and
ease of servicing store locations from our central warehouse.
Growth Strategy
We believe that our growth will primarily result from new store openings
that are initially targeted in the Central Florida I-4 corridor. With our stores
currently spanning Central Florida as far west on the I-4 corridor as the Tampa
area and as far east as Jacksonville, we will initially concentrate our growth
within this territory. Expansion within this area will allow us to leverage our
brand awareness in the region and take advantage of our existing warehouse and
distribution facility, regional advertising and other management and operating
efficiencies. Our growth strategy in Central Florida will focus on opening
locations in existing markets as well as expanding into markets adjacent to
those currently served. We now operate 16 Bonus Dollar Stores on the I-4
corridor in Central Florida. We plan to open at least 20 new Bonus Dollar Stores
by mid 2002 located within our existing core territory. We intend to continue
our expansion thereafter both within the core territory and on the adjacent
transportation corridors that would include I-75, I-95 and the Florida Turnpike.
We believe that expansion in this manner will allow us to continue to service
our entire store population from a single distribution center thereby providing
the greatest efficiency and use of resources.
24
<PAGE>
Retail Operations
We offer customers quality merchandise, generally at a significant discount
from normal retail. Our stores are attractively merchandised, clean,
full-service "destination" locations that offer consumable general merchandise
to value-conscious consumers for their regular household needs. All merchandise
sold in our stores is sold for $1.00. We strive to exceed the customer's
expectations of the range and quality of name-brand consumables that can be
purchased for $1.00. We believe that many of our customers purchase more items
than they anticipated when entering our store.
Merchandise mix. Our stores retail a broad variety of first-quality,
name-brand and other close-out merchandise as well as a wide assortment of
regularly available consumer goods. Each store typically carries over 5,000
different stock keeping units also known as SKUs. The merchandise sold in our
stores includes a wide variety of basic consumer items including:
o beverages and food;
o health and beauty care;
o household products, such as cleaning supplies and paper goods;
o housewares, such as glassware and kitchen items;
o hardware;
o stationery and party goods;
o seasonal items;
o baby products and toys;
o giftware; and
o craft items.
While our stores regularly carry a variety of basic household consumer
items, the stores differ from typical discount retail stores in that they do not
continuously stock complete lines of merchandise. Although a substantial portion
of the merchandise purchased by us is available for reorder, the mix of specific
brands of merchandise on store shelves frequently changes, depending upon the
availability of close-out and other special-situation merchandise at suitable
prices. We believe that the continuously changing mix of merchandise found in
our stores from one week to the next encourages impulse and larger volume
purchases, results in customers shopping more frequently and helps to create a
sense of urgency, awareness and excitement. Unlike many discount retailers, we
impose no limitations on the quantity of specific items that may be purchased by
a single consumer.
Visual merchandising. The layout of each of our stores is customized to the
actual size and configuration of the individual space. The interior of each
store is, however, designed to reflect a uniform format, featuring attractively
displayed products in windows, consistent merchandise display techniques, bright
lighting, cleanliness, distinctive color scheme, interior and exterior signage,
and customized check-out counters, shopping carts and shopping bags. We
emphasize strong visual presentation in all key traffic areas of the store.
Merchandising displays are maintained throughout the day and changed frequently,
and incorporate seasonal themes. We believe that due to the continuously
changing merchandise the typical customer tends to shop the whole store.
25
<PAGE>
Store locations. Our sixteen existing Bonus Dollar Stores are all located
on the I-4 corridor in Central Florida and range between 4,000 and 10,000 gross
sq. ft. We are concentrating on opening larger stores, generally ranging from
10,000 to 12,000 gross sq. ft. We expect to open 25 to 30 of these larger stores
by 2002. We experience higher sales per sq. ft. in these larger stores because
they are a bigger draw for our customers. These larger stores carry more items
with nearly double the selection and maintain a larger inventory of items that
customers demand on a daily basis. The larger format of 10,000 to 12, 000 sq.
ft. stores produces greater profitability for us. We view the development of
these larger stores as a continuation of our core business.
We currently lease our existing stores and expect this policy to continue
as we expand. Our leases typically provide for a short initial lease term and
give us the option to extend. We believe that this leasing strategy enhances our
flexibility to pursue various expansion and relocation opportunities resulting
from changing market conditions.
As current leases expire, we believe that we will be able either to obtain
lease renewals, if desired, for present store locations, or to obtain leases for
equivalent or better locations in the same general area. To date, we have not
experienced difficulty in either renewing leases for existing locations or
securing leases for suitable locations for new stores. Most of our leases are at
or below market rates, and we have historically been able to secure leases for
suitable locations.
26
<PAGE>
<TABLE>
<CAPTION>
The table below summarizes certain information with respect to the our
existing Bonus Dollar Stores:
Estimated Estimated Sales
Gross Sq. Floor Sq.
Location Date Opened Footage Footage
-------- ----------- ------- -------
<S> <C> <C> <C>
1750 Sunshadow Dr. Suite 134, Casselberry 32707 June 1999 3,600 3,000
7354 East Curry Ford, Orlando 32822 June 1999 2,400 2,200
10147 University Blvd Orlando Fl 32817 June 1999 3,000 2,600
12 North U.S. Highway 17-92, Debary 32713 July 1999 2,400 2,200
7800 Hwy 17-92, Suite 124, Fern Park 32730 July 1999 4,100 3,600
3812 Clyde Morris Blvd, Port Orange 32119 September 1999 3,600 3,200
2243 Citrus Blvd. Suite 12, Leesburg 34748 November 1999 4,000 3,700
3205 S. Bermuda Ave, Kissimmee 34746 March 2000 4,100 3,600
8585 SW Hwy 200, Ocala 34481 June 2000 3,600 3,000
2580 S Atlantic Ave Daytona Beach Shores 32118 July 2000 10,900 8,000
7628-20 103rd. St. Jacksonville 32210 August 2000 10,900 8,000
1973 E. Hwy 60, Valrico 33594 June 2000 4,000 3,600
6925 S. Hwy 301 Riverview 33569 June 2000 3,000 2,400
1536 W. Brandon Blvd., Brandon 33511 June 2000 2,600 2,400
4270 Aloma Ave. Suite 132, Winter Park 32792 September 2000 10,900 8,000
6210 Highway 98 North Lakeland FL 33809 October 2000 10,900 8,000
Purchasing
Our purchasing department staff consists of our Vice President of
Merchandise and one assistant. Our Chief Executive Officer also participates
actively in our purchasing activities.
We believe that our substantial buying power oriented towards a $1.00 price
point contributes to our successful purchasing strategy. At the same time, we
establish disciplined, targeted merchandise margin goals. We purchase
merchandise from numerous sources, including directly from manufacturers,
trading companies and brokers. No vendor accounted for more than 10% of total
merchandise purchased in any one of the last two years or the six months ending
September 30, 2000. We frequently use new vendors to offer competitive, yet
varied, product selection and high value. We have no long-term purchase
contracts or other assurances of continued product supply or guaranteed product
cost with any supplier. As the number of stores increases, we believe the added
purchasing power will result in even lower purchase prices on repeat items.
27
</TABLE>
<PAGE>
Our purchasing strategy balances imported merchandise and domestic
products. We believe imported merchandise and domestic products currently
account for approximately 40% and 60%, respectively, of our purchases. Our
domestic products include name-brand merchandise from manufacturers and a
variety of consumable products, housewares and paper and plastic goods. Our
domestic purchasing program has evolved over the past year to include direct
relationships with some manufacturers.
Warehousing and Distribution
Merchandise receiving and distribution is managed centrally from our
distribution center located in Deland, Florida. Maintaining a strong receiving
and distribution system is critical to our expansion and ability to maintain a
low cost operating structure.
Our inventory is shipped or picked up directly from suppliers and delivered
to our distribution center, where the inventory is keyed into the warehouse
system and then distributed to our stores. Our inventory is delivered to the
stores by our own trucks, except for beverage items which are supplied directly
by the distributors to our stores. All stores receive weekly shipments of
merchandise from our distribution center based on their anticipated inventory
requirements for that week.
Our distribution center is located in Deland, Florida and the existing
lease ends in June 2002. We currently occupy 25,000 sq. ft. of office and
warehouse space with an additional 45,000 sq. ft. of warehouse space available.
We believe our existing operational distribution center can support
approximately 75 stores with the available warehouse space.
Management information systems
We have software and available hardware to implement point-of-purchase
scanning. We believe that such implementation will provide us a competitive
advantage by tracking item movement, producing detailed management reports, and
instituting auto replenishment resulting in more efficient stock movement. In
addition, the stores are designed to offer many commonly used high volume items
on a continuing basis and scanning will help prevent out-of-stock events.
We are currently supported by the following systems:
1. Point of Sale Software
a. Tracks sales daily, weekly, or monthly
b. Tracks sales by location or stores
c. Tracks sales by category, by store, by company
2. Management Report Functions
a. Home office module
b. Daily sales updates
c. Daily markdowns reports
d. Real time management
e. Employee scheduling and time accounting
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<PAGE>
3. Inventory Management
a. Warehouse inventory management
b. Centralized distribution
c. Category movement from store to store
d. Category movement from warehouse to store
e. Track category movement
f. Margin on receipts
g. Auto replenishment for repeat items
Competition
The market in which we operate in is highly competitive. We sell product
lines which are similar to other deep-discount stores, single price point
merchandisers, discount merchandisers, food markets, drug stores, club stores
and other retailers. The industry also includes many individually owned and
operated $1.00 stores. There is increasing competition with other wholesalers
and retailers, including other deep-discount retailers, for the purchase of
quality close-out and other special situation merchandise. Some of these
competitors have substantially greater financial resources and buying power than
us. Our ability to compete will depend on many factors including the success of
our purchase and resale of such merchandise at lower prices than the
competition. We may face intense competition in the future that could have an
adverse effect on its business and results of operations.
Employees
At September 30, 2000, we had 95 employees consisting of 81 in our retail
operation, 8 in our warehouse and distribution facility, and 6 in management and
administration. None of our employees is party to a collective bargaining
agreement. We consider our relations with our employees to be satisfactory. We
offer certain benefits, including health insurance, vacation and holiday pay, to
our full-time employees.
Legal proceedings
We are engaged in litigation in the ordinary course of our business, none
of which we believe to be material.
Trademarks and service marks
"Bonus Dollar Stores" is a registered service mark of the company and is
being processed for listing on the United States Patent and Trademark Office
Principal Register. We believe that our service mark is an important but not
critical element of our merchandising strategy.
29
<PAGE>
MANAGEMENT
Executive Officers, Directors, Director Nominees And Key Employees
Our executive officers, directors and key employees and their ages and
positions with us as of December 15, 2000, are as follows:
NAME AGE POSITION
---- --- --------
Jim Schafer 39 Chief Executive Officer and Chairman
Tryggvi Jonsson 45 Director and Secretary
Jim Schnorf 46 Director
Guy Heyl 48 Chief Financial Officer and Director
Cory Brick 29 Vice President - Merchandise
Jim Schafer founded Bonus Stores in March 1999 and has served as the Chief
Executive Officer of the Company since its inception. Immediately prior to
founding Bonus Stores, Mr. Schafer served as a consultant to domestic and
foreign corporations including Baugur, a major Icelandic retailer, and Tesco,
Europe's largest retailer. From 1984 to 1996, Mr. Schafer served in several
positions with Wal-Mart Stores, Inc., most recently as Executive Vice president
of Ek Chor Distribution System Co. Ltd. where he was responsible for the design,
development and operation of 16 Lotus Supercenters throughout Thailand and
China. As the Chief Executive Officer, Mr. Schafer is responsible for all
aspects of the operation including the design, site selection, merchandise
development, and the corporate growth of Bonus Stores.
Tryggvi Jonsson is the Chief Operating and Chief Financial Officer of
Baugur hf., an Icelandic retailer, since 1998. Previously, Mr. Jonsson was a
partner with the accounting firm of KPMG. Mr. Jonsson serves as Bonus Stores's
Secretary and Director. He also serves as a board member for several other
companies and professional organizations including Hans Petersen hf. (Kodak
distributor), SMS P/f Island (retail), The Icelandic Federation of Employers,
The Trade and Services Federation, The Icelandic Chamber of Commerce and The
Association of Icelandic Auditors.
Jim Schnorf is the Chief Financial Officer of Continental Capital & Equity
Corporation, a financial public relations firm in Longwood, Florida. Mr. Schnorf
joined Continental Capital & Equity Corporation in February 1998. Previously,
Mr. Schnorf was the Chief Executive Officer of Cardinal Capital, a limited
liability corporation engaged in managing a fund that provides mezzanine
financing and which takes a controlling interest in emerging growth companies.
From 1988 to 1995, he served as Chief Financial Officer of Stevens Industries,
Inc., a large manufacturer and distributor of laminated wood products. Mr.
Schnorf earned a BS degree in accounting from Eastern Illinois University and an
MBA from the University of Illinois and is a CPA and CMA. Mr. Schnorf has
provided financial consulting to Bonus Stores and serves as a Director.
Guy Heyl joined Bonus Stores in December 2000 as Chief Financial Officer.
From 1995 until joining the Company, Mr. Heyl held the positions of Chief
Financial Officer for the Pino Training Organization and Director of Finance for
30
<PAGE>
LiquidGolf.com Corporation. Previously, Mr. Heyl served as VP Finance and Chief
Financial Officer for Omni Films International, Inc. and as VP Finance and
acting CFO for Iwerks Entertainment, Inc., both NASDAQ NMS listed companies. Mr.
Heyl started his career with the accounting firm of Price Waterhouse & Co. where
he served from 1974 to 1979. He graduated from the University of Cincinnati in
1974 and is a CPA in Ohio and Florida. As Chief Financial Officer of the
Company, he has the responsibility for the design and operation of the Company's
accounting, tax and financial reporting.
Cory Brick joined the Company in April 1999 and serves as the Vice
President Merchandise. From 1993 to 1998 Mr. Brick held the position of General
Sales Manager at Sam's Wholesale Club, a subsidiary of Wal-Mart Stores. Mr.
Brick received his MBA in Marketing and International Business from the
University of South Florida in 1997.
Board Committees And Compensation
Outside Board members receive an annual retainer of $5,000, plus $1,000 for
each meeting attended. It is the intention of the Company to grant Outside Board
members an option to purchase 10,000 shares of common stock at the IPO price.
Our audit committee is composed of Messrs. Jonsson and Schnorf. Our compensation
committee is composed of Messrs. Schafer and Jonsson.
31
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
we paid to our Chief Executive Officer and our other executive officers whose
income exceeded $100,000 for our last fiscal year ended March 31, 2000 (the
"Named Officers").
Summary compensation table
=================================================================================================================================
Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Awards Payouts
------ -------
Securities Restricted
Under Shares or
Other Annual Options Restricted LTIP All Other
Name and Year Salary Bonus Compensation Granted Share Units Payouts Compensation
Principal Position ($) ($) ($) # ($) ($) ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jim Schafer, 2000 100,000 Nil Nil Nil Nil Nil Nil
Chief Executive
Officer
=================================================================================================================================
Aggregate Options Exercised in the Last Fiscal Year and Financial Year-End
Option Values. The following table sets out certain information relating to
options exercised by the Named Officer during the last fiscal year and the value
of unexercised in-the-money options held by such person as of March 31, 2000:
=================================================================================================================================
Securities Unexercised Options at Value of Unexercised in-the-
Acquired Aggregates FY-End Money Options at FY-End
Exercise Value Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---------------------------------------------------------------------------------------------------------------------------------
Jim Schafer, Nil Nil Nil Nil
Chief Executive Officer
=================================================================================================================================
Options Granted in the Last Fiscal Year. The following table sets out certain
information relating to options granted during the last fiscal year to the Named
Executive Officer.
=================================================================================================================================
Name Securities % of Total Options
Under Granted to Exercise Per Market Value of Securities
Options Employees in Security Underlying Options on the Date Expiration
Granted Financial Year ($/Security) of the Grant ($/Security) Date
---------------------------------------------------------------------------------------------------------------------------------
Jim Schafer, Nil Nil Nil Nil Nil
Chief Executive Officer
=================================================================================================================================
Compensation Pursuant to Plans
2000 Stock Option Plan. On December 18, 2000 our board of directors adopted
our 2000 Stock Option Plan. The 2000 plan will enable us to attract and retain
top-quality employees, officers, directors and consultants and to provide such
employees, officers, directors and consultants with an incentive to enhance
stockholder return. The 2000 plan will allow the grant of options to purchase a
maximum aggregate of 400,000 shares of common stock to our officers, directors,
or other key employees and consultants.
32
</TABLE>
<PAGE>
The board of directors or a committee of the board will administer the 2000
plan, and has complete discretion to select the optionees and terms and
conditions of each option, subject to the provisions of the 2000 plan. Options
granted under the 2000 plan may be "incentive stock options" as defined in
Section 411 of the Internal Revenue Code of 1986 or nonqualified options.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the common stock as of the date of grant (110% of the
fair market value if the grant is to an employee who owns more than 10% of the
total combined voting power of all classes of capital stock of the company). The
Internal Revenue Code currently limits to $100,000 the aggregate value of common
stock that may be acquired in any one year pursuant to incentive stock options
under the 2000 plan or any other option plan adopted by a company.
Nonqualified options may be granted under the 2000 plan at an exercise
price of not less than 100% of the fair market value of the common stock on the
date of grant. Nonqualified options also may be granted without regard to any
restriction on the amount of common stock that may be acquired pursuant to such
options in any one year.
Subject to the limitations contained in the 2000 plan, options become
exercisable at such times and in such installments (but not less than 20% per
year) as the Committee shall provide in the terms of each individual stock
option agreement. The Committee must also provide in the terms of each stock
option agreement when the option expires and becomes unexercisable, and may also
provide the option expires immediately upon termination of employment for any
reason. No option held by directors, executive officers or other persons subject
to Section 16 of the Securities Exchange Act of 1934 may be exercised during the
first six months after such option is granted.
Unless otherwise provided in the applicable stock option agreement, upon
termination of employment of an optionee, all options that were then exercisable
would terminate three months (twelve months in the case of termination by reason
of death or disability) following termination of employment. Any options which
were not fully vested and exercisable on the date of such termination would
immediately be cancelled concurrently with the termination of employment.
Options granted under the 2000 plan may not be exercised more than ten
years after the grant (five years after the grant if the grant is an incentive
stock option to an employee who owns more than 10% of the total combined voting
power of all classes of capital stock of the company). Options granted under the
2000 plan are not transferable and may be exercised only by the respective
grantees during their lifetime or by their heirs, executors or administrators in
the event of death. Under the 2000 plan, shares subject to cancelled or
terminated options are reserved for subsequently granted options. The number of
options outstanding and the exercise price thereof are subject to adjustment in
the case of certain transactions such as mergers, recapitalizations, stock
splits or stock dividends. The 2000 plan is effective for ten years, unless
sooner terminated or suspended.
33
<PAGE>
Director and Officer Indemnification
Our articles of incorporation provide that we will indemnify our officers,
directors and other eligible persons to the fullest extent permitted under the
laws of the state of Florida. We have also entered into indemnification
agreements with each of our current directors and executive officers which will
provide for indemnification of, and advancement of expenses to, such persons for
expenses and liability incurred by them by reason of the fact that they are or
were a director, officer, or shareholder of Bonus Stores, Inc. including
indemnification under circumstances in which indemnification and advancement of
expenses are discretionary under Florida law.
We believe that it is the position of the Securities and Exchange
Commission that, insofar as the foregoing provisions may be invoked to disclaim
liability for damages arising under the Securities Act of 1933, the provisions
are against public policy as expressed in the Securities Act of 1933 and are,
therefore, unenforceable.
34
<PAGE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Bonus Stores,
Inc.'s voting securities as of the closing date of this offering, by each person
known by us to beneficially own 5% or more of the outstanding shares of our
voting securities, each of our directors, our named executive officers, and all
directors and executive officers as a group. The applicable percentage is based
on 1,500,000 shares outstanding and 3,000,000 shares to be outstanding upon
consummation of this offering. The information set forth in the table and
accompanying footnotes has been furnished by the named beneficial owners.
Before Offering After Offering
---------------------------------------------------------------------------------------------------
Amount and Amount and
Nature of Percent of Nature of Percent of
Name of Beneficial Beneficial Class Beneficial Class
Owner (1) Ownership (2) (%) Ownership (2) (%)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James Schafer 750,000 50.0% 750,000 25.0%
---------------------------------------------------------------------------------------------------
Tryggvi Jonsson 175,000 11.7% 175,000 5.8%
Skutuvogi 7
104 Reykjavik, Iceland
---------------------------------------------------------------------------------------------------
Baugur hf., (3) 400,000 26.6% 400,000 13.3%
Skutuvogi 7
104 Reykjavik, Iceland
---------------------------------------------------------------------------------------------------
Jon Asgier 175,000 11.7% 175,000 5.8%
Skutuvogi 7
104 Reykjavik, Iceland
---------------------------------------------------------------------------------------------------
Continental Capital & 300,000 20.0% 300,000 10.0%
Equity Corporation(4)
195 Wekiva Springs Road,
Suite 200
Longwood, Fl 32779
---------------------------------------------------------------------------------------------------
All officers and directors
as a group (2 persons) 925,000 61.7% 925,000 30.8
---------------------------------------------------------------------------------------------------
--------------------
* Less than 1%
(1) Except as otherwise indicated, the address of each beneficial owner is c/o
Bonus Stores, Inc. 2520 West Highway 44, DeLand, Florida 32720.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to the shares shown. Except where indicated by footnote and subject to
community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of voting
securities shown as beneficially owned by them.
35
</TABLE>
<PAGE>
(3) Baugur hf., is a public corporation.
(4) James Schnorf is the Chief Financial Officer of Continental Capital &
Equity Corporation. In accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, Dodi Handy may be deemed a control person of the
shares owned by Continental Capital & Equity Corporation.
36
<PAGE>
CERTAIN TRANSACTIONS
On February 15, 2000, we engaged the services of Continental Capital &
Equity Corporation to provide financial consulting and to assist us in our
capital formation including the possibility of an initial public offering. The
agreement provided for a $25,000 retainer and additional fees of up to $75,000
upon certain events occurring, such as a completion of a reverse merger
transaction or initial public offering. In addition, the agreement provided that
Continental Capital & Equity Corporation would receive 7% ownership in Bonus
Stores on a fully diluted basis, upon our initial public offering.
On June 19, 2000, the agreement with Continental Capital & Equity
Corporation was amended to provide for the immediate granting of an option for
300,000 shares of Bonus Stores, as adjusted in accordance with the reverse split
of our common stock, at an exercise price of $1.00 in lieu of the provision that
would have issued stock upon consummation of our initial public offering. The
option carries full piggyback registration rights as well as a single demand
registration right at our expense if the shares are not registered within six
months after the initial public offering. We are also required to register a
sufficient quantity of shares of our common stock in this offering to allow
Continental Capital & Equity Corporation to sell any quantity for which demand
is present in the over-allotment.
As of March 31, 2000, one of our stockholders committed to loan to us up to
$4,000,000. In fulfillment of this commitment, in March 2000, Baugur hf., an
Icelandic corporation, guaranteed, along with Jim Schafer our CEO, a term loan
facility with an Icelandic bank in the amount of $2,000,000. In May 2000, an
additional term loan facility of $1,000,000 was obtained under substantially the
same terms and guarantees. In August 2000, Baugur hf. directly advanced an
additional $1,000,000 to Bonus Stores.
On September 14, 2000, Baugur hf. agreed to assume the $3,000,000 debt
along with approximately $61,000 of accrued interest owed by us to the Icelandic
bank. The assumption of $3,060,776 debt and accrued interest, along with the
$1,000,000 advanced in August, was converted into 750,000 shares of series A
preferred stock. This series A preferred stock carries a liquidation preference
and rights to conversion into 1,000,000 shares of our common stock one year
after an initial public offering.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 shares of common stock,
par value $.001 per share, of which 1,500,000 shares were issued and outstanding
as of the date hereof, and 5,000,000 shares of "blank check" preferred stock, of
which 750,000 shares of convertible series A preferred common stock have been
issued as of the date hereof.
Units
The units being offered under this prospectus consists of two shares of our
common stock and two class A warrants to purchase two shares of our common
stock. See below for a description of our common stock and class A warrant.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters to be voted on by the shareholders. The holders of common
stock are entitled to receive dividends ratably, when, as and if declared by the
Board of Directors, out of funds legally available therefor. In the event of a
liquidation, dissolution or winding-up of Bonus Stores, Inc., the holders of
common stock are entitled to share equally and ratably in all assets remaining
available for distribution after payment of liabilities and after provision is
made for each class of stock, if any, having preference over the common stock.
The holders of shares of common stock, as such, have no conversion,
preemptive, or other subscription rights and there are no redemption provisions
applicable to the common stock. All of the outstanding shares of common stock
are, and the shares of common stock offered by the selling stockholders hereby,
when issued against the consideration set forth in this prospectus, will be,
validly issued, fully-paid and non-assessable.
Class A warrant
Each class A warrant represents the right to purchase one share of common
stock at an initial exercise price of $7.20 per share (120% of the offering
price of one share of common stock in this prospectus) for a period of five
years from the date hereof. The exercise price and the number of shares issuable
upon exercise of the class A warrants will be adjusted upon the occurrence of
the following events:
o issuance of common stock as a dividend on shares of common stock,
o subdivisions, reclassifications or combinations of the common
stock or similar events.
The class A warrants do not contain provisions protecting against dilution
resulting from the sale of additional shares of common stock for less than the
exercise price of the class A warrants or the current market price of our
securities and do not entitle class A warrant holders to any voting or other
rights as a shareholder until such class A warrants are exercised and common
stock is issued.
38
<PAGE>
Class A warrants may be redeemed in whole or in part at our option after
one year from the date hereof, upon 30 days' notice and with the consent of
Institutional Equity Corporation, at a redemption price equal to $.10 per class
A warrant if the closing price of our common Stock on the Nasdaq SmallCap Market
(or the Bulletin Board) is at least $9.00 per share (150% of the offering price
of one share of common stock in this prospectus) for 20 consecutive trading
days, ending not earlier than 15 days before the class A warrants are called for
redemption.
Holders of class A warrants may exercise their class A warrants for the
purchase of shares of common stock only if a current prospectus relating to such
shares is then in effect and only if such shares are qualified for sale, or
deemed to be exempt from qualification under applicable state securities laws.
We are required to use our best efforts to maintain a current prospectus
relating to such shares of common stock at all times when the market price of
the common stock exceeds the exercise price of the class A warrants until the
expiration date of the class A warrants, although there can be no assurance that
we will be able to do so.
The shares of common stock issuable on exercise of the class A warrants
will be, when issued in accordance with the class A warrants, duly and validly
issued, fully paid and non-assessable. At all times that the class A warrants
are outstanding, we will authorize and reserve at least that number of shares of
common stock equal to the number of shares of common stock issuable upon
exercise of all outstanding class A warrants.
For the term of the class A warrants, the holders thereof are given the
opportunity to profit from an increase in the per share market price of our
common stock, with a resulting dilution in the interest of all other
stockholders. So long as the class A warrants are outstanding, the terms on
which we could obtain additional capital may be adversely affected. The holders
of the class A warrants might be expected to exercise the class A warrants at a
time when we would, in all likelihood, be able to obtain additional capital by a
new offering of securities on terms more favorable than those provided by the
class A warrants.
Preferred Stock
General. Under our articles of incorporation, our Board of Directors are
authorized, subject to any limitations prescribed by the laws of the Florida,
but without further action by our shareholders, to provide for the issuance of
up to 5,000,000 shares of preferred stock in one or more series, to establish
from time to time the number of shares to be included in each such series, to
fix the designations, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof, and to
increase or decrease the number of shares of any such series (but not below the
number of shares of such series then outstanding) without any further vote or
action by the stockholders. Our Board of Directors may authorize and issue
preferred stock with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of common stock. The issuance of
preferred stock, for example in connection with a shareholder right's plan,
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, a majority of our outstanding
stock.
39
<PAGE>
Series A Preferred Stock
The series A preferred stock consists of 750,000 shares. The series A
preferred stockholders are not entitled to dividends and shall on any voluntary
or involuntary liquidation, dissolution, or winding up of the corporation
receive a preferential amount of $4.00 per share. The holder of any shares of
the series A preferred stock, may at any time one year from the initial public
offering of the common stock of the corporation or December 31, 2001, whichever
is earlier, convert said shares to common shares. On surrender at the office of
the corporation or office of the transfer agent of the shares of the certificate
or certificates for the preferred shares, duly endorsed to the corporation, the
holder shall be entitled to receive 1.3333 common shares for each preferred
share so converted on payment of transfer taxes, if any, on the common shares to
be issued in exchange for the preferred share.
Transfer Agent And Registrar
The transfer agent and registrar for our common stock is Continental Stock
Transfer and Trust Company.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Shares Outstanding and Freely Tradable After Offering. Upon completion of
this offering, we will have approximately 3,000,000 shares of common stock
outstanding. In addition, we have reserved for issuance the following shares:
o 1,000,000 shares of common stock issuable upon the conversion of
750,000 shares of series A preferred stock
o 1,500,000 shares of common stock issuable upon the exercise of
1,500,000 class A warrants underlying the units sold in this
offering
o 300,000 shares of common stock issuable upon the exercise of
options granted to Continental Capital & Equity Corporation at an
exercise price of $1.00
o 400,000 shares of common stock reserved for issuance pursuant to
our 2000 Stock Option Plan
o 225,000 shares of common stock and 225,000 warrants subject to
the underwriter's over-allotment option
o 150,000 shares of common stock and 150,000 warrants issuable upon
the exercise of the underwriters' warrants
The 750,000 units to be sold by Bonus Stores, Inc. in this offering will be
freely tradable without restriction or limitation under the Securities Act,
except for any such shares held by "affiliates" of Bonus Stores, Inc., as such
term is defined under Rule 144 of the Securities Act, which shares will be
subject to the resale limitations under Rule 144.
Except for the sale of 225,000 shares of our common stock by Continental
Capital & Equity Corporation in the overallotment, our directors, officers and
5% stockholders have agreed that they will not sell directly or indirectly, any
shares of common stock without the prior written consent of the underwriters for
a period on 12 months from the date of this prospectus.
Rule 144. In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least one year, including an affiliate of us, would be entitled to sell, within
any three-month period, that number of shares that does not exceed the greater
of 1% of the then-outstanding shares of common stock (approximately 30,000
shares after this offering) or the average weekly trading volume in the common
stock during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the Commission, provided certain manner of sale and
notice requirements and requirements as to the availability of current public
information about us is satisfied. In addition, affiliates of ours must comply
with the restrictions and requirements of Rule 144, other than the one-year
41
<PAGE>
holding period requirement, in order to sell shares of common stock. As defined
in Rule 144, an "affiliate" of an issuer is a person who, directly or
indirectly, through the use of one or more intermediaries controls, or is
controlled by, or is under common control with, such issuer. Under Rule 144(k),
a holder of "restricted securities" who is not deemed an affiliate of the issuer
and who has beneficially owned shares for at least two years would be entitled
to sell shares under Rule 144(k) without regard to the limitations described
above.
42
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, the underwriter named below has agreed to purchase from Bonus Stores,
Inc., and Bonus Stores, Inc. has agreed to sell to the underwriter, the number
of units set forth opposite the underwriter's name below, excluding units set
aside for options granted for over-allotments. Institutional Equity Corporation
shall serve as the managing underwriter for the offering.
================================================================================
UNDERWRITERS UNITS
--------------------------------------------------------------------------------
Institutional Equity Corporation............. 750,000
--------------------------------------------------------------------------------
Total........................................ 750,000
================================================================================
Institutional Equity Corporation has agreed, subject to the terms and
conditions of the underwriting agreement, to purchase from us all of the shares
of common stock offered hereby. The underwriter's principal business function is
to act as a retail brokerage firm purchasing and selling the securities of
publicly traded companies on behalf of its clients. There are no material
relationships between our promoters and the underwriter.
The managing underwriter has advised us that it proposes to offer the units
purchased by it directly to the public at the public offering set forth on the
cover page of this prospectus and to certain dealers at a price that represents
a concession of $1.20 per unit. The managing underwriter is committed to
purchasing and paying for all of the units any units are taken. After the
initial public offering of the units, the offering price and the selling terms
may be changed in the sole discretion of the managing underwriter. The managing
underwriter does not intend to sell any of our securities to accounts for which
it exercises discretionary authority.
We have also granted the managing underwriter an overallotment option,
exercisable within 45 days from the date of this prospectus, to purchase 112,500
units at the public offering price less the underwriting discount, of which
225,000 shares of common stock may be purchased from Continental Capital &
Equity Corporation and 225,000 warrants may be purchased from us. Continental
Capital & Equity Corporation bears all costs and expenses associated with their
portion of the over-allotment option, including the underwriter's discount. The
managing underwriter is otherwise under no obligation to exercise their
over-allotment option or purchase any shares of common stock subject to the
overallotment option.
The managing underwriter shall purchase the units (including units subject
to the overallotment option) from us at a price of $10.80 per unit. In addition,
we have agreed to pay the managing underwriter a 2% nonaccountable expense
allowance on the aggregate initial public offering price of the shares of common
stock, including shares of common stock subject to the overallotment option.
We have agreed to issue the underwriter's warrants to the managing
underwriter for a consideration of $100. The underwriter's warrants are
exercisable at any time in the five year period commencing one year from the
43
<PAGE>
date of this prospectus to purchase up to an aggregate of 75,000 units for
$14.40 per unit in cash (120% of the offering price of the units). The units
which may be purchased upon exercise of the underwriter's warrants and will be
identical to the units offered to the public, except that the redeemable common
stock purchase warrants included in the underwriter's shares of common stock
will be exercisable to purchase shares of common stock at a purchase price equal
to 120% of the effective public offering price for the common stock in this
offering. The underwriter's warrants are not transferable for one year from the
date of this prospectus except (i) to an underwriter or a partner or officer of
an underwriter or (ii) by will or operation of law. During the term of the
underwriter' warrants, the holder thereof is given the opportunity to profit
from an increase in the per share market price of our securities. As long as the
underwriter's warrants are outstanding, we may find it more difficult to raise
additional equity capital. At any time at which the underwriter's warrants are
likely to be exercised, we would probably be able to obtain additional equity
capital on more favorable terms. If we file a registration statement relating to
an equity offering under the provisions of the 1933 Act at any time during the
five-year period following the date of this prospectus, the holders of the
underwriter's warrants or underlying shares of common stock will have the right,
subject to certain conditions, to include in such registration statement, at our
expense, all or part of the underlying shares of common stock at the request of
the holders.
In connection with the offering, the managing underwriter and selling group
members (if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the common stock and
warrants. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
or purchase common stock or warrants for the purpose of stabilizing their market
prices. The managing underwriter may also create a short position for the
account of the managing underwriter by selling more securities in connection
with the offering than it is committed to purchase from us and in such case may
purchase securities in the open market following completion of the offering to
cover all or a portion of such short overallotment option. Any of the
transactions described in this paragraph may result in the maintenance of the
securities at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
In connection with the Offering, the Underwriter may also purchase and sell
the common stock and warrants in the open market. These transactions may include
overallotment and stabilizing transactions as described above, and purchases to
cover syndicate short positions created in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purposes
of preventing or retarding a decline in the market price of the common stock and
warrants; and syndicate short positions involve the sale by the underwriter of a
greater number of shares of common stock or of warrants than they are required
to purchase from us in the offering. The managing underwriter also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the common stock and warrants sold in the offering
for their account may be reclaimed by the managing underwriter if such
securities are repurchased by the managing underwriter in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the common stock and warrants, which may be higher
44
<PAGE>
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the Nasdaq SmallCap Market.
45
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for Bonus Stores, Inc. by Sichenzia, Ross & Friedman LLP, New York, New York.
EXPERTS
Our financial statements as of March 31, 2000 and 1999 and for the period
from inception on January 25, 1999 to March 31, 1999 and the year ended March
31, 2000 have been included in this prospectus in reliance on the report of
McGladrey & Pullen, LLP, independent certified public accountants, as given upon
the authority of said firm as experts in accounting and auditing.
46
<PAGE>
ADDITIONAL INFORMATION
Bonus Stores, Inc. is subject to the informational requirements of the
Securities Exchange Act of 1934, and in accordance therewith files reports,
proxy or information statements and other information with the Securities and
Exchange Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the following regional offices: Seven World Trade Center, New
York, New York 10048, and Citicorp Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C.20549, at prescribed rates. In addition, the Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's web site is http://www.sec.gov.
Bonus Stores, Inc. has filed with the Commission, a registration statement
on Form SB-2 under the Securities Act of 1933 with respect to the common stock
being offered hereby. As permitted by the rules and regulations of the
Commission, this prospectus does not contain all the information set forth in
the registration statement and the exhibits and schedules thereto. For further
information with respect to us and the common stock offered hereby, reference is
made to the registration statement, and such exhibits and schedules. A copy of
the registration statement, and the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at the addresses set forth above, and copies of all or any part of
the registration statement may be obtained from such offices upon payment of the
fees prescribed by the Commission. In addition, the registration statement may
be accessed at the Commission's web site. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference.
47
<PAGE>
CONTENTS
--------------------------------------------------------------------------------
INDEPENDENT AUDTOR'S REPORT ON THE
CONSOLIDATED FINANCIAL STATEMENTS F-1
--------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets F-2 and F-3
Consolidated statements of operations F-4
Consolidated statements of stockholders' equity F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-7 - F-13
--------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
BONUS STORES, INC.
DeLand, Florida
We have audited the accompanying consolidated balance sheets of Bonus Stores,
Inc. as of March 31, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended March 31,
2000 and for the period from inception on January 25, 1999 to March 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 financial position of Bonus Stores, Inc.
as of March 31, 2000 and 1999, and the results of its operations and its cash
flows for the year ended March 31, 2000 and for the period from January 25, 1999
to March 31, 1999, in conformity with generally accepted accounting principles.
Champaign, Illinois
May 12, 2000, except for Note 6 as to
which the date is October 30, 2000
F-1
<PAGE>
BONUS STORES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, March 31, March 31,
ASSETS 2000 2000 1999
---------- ---------- ----------
(Unaudited)
Current Assets
Cash $ 581,507 $ 293,366 $ 114,655
Inventories 1,423,307 476,729 --
Prepaid inventory and expenses 27,562 29,810 103,518
---------- ---------- ----------
Total current assets 2,032,376 799,905 218,173
---------- ---------- ----------
Other Assets
Lease deposits 95,262 68,537 27,349
Prepaid expense -- 25,000 --
Deferred debt expense -- 14,000 --
---------- ---------- ----------
95,262 107,537 27,349
---------- ---------- ----------
Property and Equipment
Furniture and fixtures 426,290 183,359 58,073
Leasehold improvements 287,289 110,120 --
Machinery and equipment 10,814 9,532 --
Office equipment 165,510 107,810 --
Signage 83,574 48,558 --
Vehicles 32,276 -- --
---------- ---------- ----------
1,005,753 459,379 58,073
Less accumulated depreciation 101,093 51,641 --
---------- ---------- ----------
904,660 407,738 58,073
---------- ---------- ----------
$3,032,298 $1,315,180 $ 303,595
========== ========== ==========
See Notes to Financial Statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
BONUS STORES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND September 30, March 31 March 31,
STOCKHOLDERS' EQUITY 2000 2000 1999
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Current Liabilities
Notes payable $ -- $ 25,000 $ --
Accounts payable 481,707 84,887 --
Accrued expenses 205,876 103,038 1,074
----------- ----------- -----------
Total current liabilities 687,583 212,925 1,074
----------- ----------- -----------
Long-Term Liabilities
Long-term debt -- 2,000,000 297,773
Other 5,135 7,274 --
----------- ----------- -----------
Total long-term liabilities 5,135 2,007,274 297,773
----------- ----------- -----------
Commitments
Stockholders' Equity
Series A preferred stock, no par value,
nonvoting, authorized 750,000 shares;
issued and outstanding 750,000 shares 4,060,776 -- --
Preferred stock, no par value; authorized
4,250,000 shares; issued and outstanding
none -- -- --
Common stock, par value $0.001; authorized
20,000,000 shares; issued and outstanding
1,500,000 shares 1,500 1,500 1,500
Additional paid in capital 83,400 60,000 60,000
Accumulated deficit (1,806,096) (965,019) (55,252)
----------- ----------- -----------
2,339,580 (903,519) 6,248
Less: Subscriptions receivable -- (1,500) (1,500)
----------- ----------- -----------
2,339,580 (905,019) 4,748
----------- ----------- -----------
$ 3,032,298 $ 1,315,180 $ 303,595
=========== =========== ===========
See Notes to Financial Statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BONUS STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
Inception
(January 25,
Six Months Ended Year Ended 1999) to
September 30, March 31, March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 1,672,348 $ 285,500 $ 1,069,076 $ --
Cost of goods sold 1,062,339 174,278 710,865 --
----------- ----------- ----------- -----------
Gross profit 610,009 111,222 358,211 --
Operating expenses 1,360,054 502,995 1,219,369 54,594
----------- ----------- ----------- -----------
Operating loss (750,045) (391,773) (861,158) (54,594)
Nonoperating income (expense):
Interest income 9,784 3,420 5,914 416
Interest expense (105,644) (35,047) (56,354) (1,074)
Other income 4,828 -- 1,831 --
----------- ----------- ----------- -----------
Loss before taxes (841,077) (423,400) (909,767) (55,252)
Income tax benefit -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (841,077) $ (423,400) $ (909,767) $ (55,252)
=========== =========== =========== ===========
Net Loss Per Share:
Basic and diluted $ (0.56) $ (0.28) $ (0.61) $ (0.04)
=========== =========== =========== ===========
Weighted Average Shares
Outstanding:
Basic and diluted 1,500,000 1,500,000 1,500,000 1,500,000
=========== =========== =========== ===========
See Notes to Financial Statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BONUS STORES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
From Inception (January 25, 1999) to September 30, 2000
Series A Additional
Preferred Common Paid In Accumulated Subscriptions
Stock Stock Capital Deficit Receivable Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 25, 1999 $ -- $ -- $ -- $ -- $ -- $ --
Capital contributions
by stockholders -- 1,500 60,000 -- (1,500) 60,000
Net loss -- -- -- (55,252) -- (55,252)
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1999 -- 1,500 60,000 (55,252) (1,500) 4,748
Net loss -- -- -- (909,767) -- (909,767)
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 -- 1,500 60,000 (965,019) (1,500) (905,019)
Salary to officer (unaudited) -- -- -- -- 750 750
Stockholder's assumption of debt
and accrued interest of $3,060,776
plus contribution of $1,000,000 of
cash in exchange for 750,000
shares of Series A preferred
stock (unaudited) 4,060,776 -- -- -- 750 4,061,526
Stock options granted (unaudited) -- -- 23,400 -- -- 23,400
Net loss (unaudited) -- -- -- (841,077) -- (841,077)
Balance, September 30, 2000 (unaudited) $ 4,060,776 $ 1,500 $ 83,400 $(1,806,096) $ -- $ 2,339,580
=========== =========== =========== =========== =========== ===========
See Notes to Financial Statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BONUS STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
Inception
(January 25,
Six Months Ended Year Ended 1999) to
September 30, March 31, March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $ (841,077) $ (423,400) $ (909,767) $ (55,252)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 49,452 11,627 51,641 --
Amortization of deferred debt expense 14,000 -- -- --
Subscription receivable charged to
compensation expense 750 -- -- --
Compensation under stock option agreement 23,400 -- -- --
Change in assets and liabilities:
(Increase) decrease in:
Inventories (946,578) (621,161) (476,729) --
Prepaid inventory, expenses and other assets 523 30,544 7,520 (130,867)
Increase in:
Accounts payable and accrued expenses 560,434 267,795 186,851 1,074
----------- ----------- ----------- -----------
Net cash used in operating activities (1,139,096) (734,595) (1,140,484) (185,045)
----------- ----------- ----------- -----------
Cash Flows from Investing Activities
Purchase of property and equipment (546,374) (302,133) (388,205) (58,073)
----------- ----------- ----------- -----------
Net cash used in investing activities (546,374) (302,133) (388,205) (58,073)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities
Proceeds from long-term debt 1,000,000 1,000,000 1,702,227 297,773
Payments on notes payable (25,000) -- 25,000 --
Deferred debt expense paid -- -- (14,000) --
Capital contributed by stockholders 1,000,000 -- -- 60,000
Proceeds from subscription receivable 750 -- -- --
Other (2,139) (882) (5,827) --
----------- ----------- -----------
Net cash provided by financing activities 1,973,611 1,000,000 1,707,400 357,773
----------- ----------- ----------- -----------
Net increase (decrease) in cash 288,141 (36,728) 178,711 114,655
Cash
Beginning 293,366 114,655 114,655 --
----------- ----------- -----------
Ending $ 581,507 $ 77,927 $ 293,366 $ 114,655
=========== =========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest $ 53,195 $ -- $ 47,124 $ --
=========== =========== =========== ===========
Supplemental Disclosure of Noncash Investing Activity
Debt assumed in exchange for issuance of
Series A preferred stock $ 3,000,000 $ -- $ -- $ --
=========== =========== =========== ===========
Accrued interest assumed in exchange for
issuance of Series A preferred stock $ 60,776 $ -- $ -- $ --
=========== =========== =========== ===========
See Notes to Financial Statements.
F-6
</TABLE>
<PAGE>
BONUS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to the Six Months Ended September 30, 2000 is
Unaudited)
--------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Bonus Stores, Inc. (Company), which is headquartered in
DeLand, Florida, operates eight (fifteen at September 30, 2000) discount variety
retail stores throughout central Florida which sell candy and food, seasonal
goods, art-and-craft supplies, party goods, toys, beauty and health care
products, stationery and other consumer items at a single price point of $1.25
($1.00 at September 30, 2000). The Company is headquartered in DeLand, Florida.
The Company was originally formed on January 25, 1999 as a limited liability
company under the name Bonus Stores, L.C. Effective March 31, 2000, Bonus
Stores, Inc. was formed by the members of Bonus Stores, L.C. and it acquired all
of the assets and assumed all of the liabilities of Bonus Stores, L.C. The
assets acquired and liabilities assumed were recorded at the carrying value to
Bonus Stores, L.C., since Bonus Stores, L.C. and Bonus Stores, Inc. are entities
under common control.
Since Bonus Stores, Inc. and Bonus Stores, L.C. were under common control prior
to the acquisition, the financial statements have been stated as if the
transaction had occurred on January 25, 1999.
Significant accounting policies:
Principles of consolidation: The consolidated financial statements include the
accounts of Bonus Stores, Inc. and its wholly owned subsidiary, Bonus Stores,
L.C. All significant intercompany accounts and transactions have been eliminated
in consolidation.
Use of estimates in the preparation of financial statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Inventories: Inventories are valued at the lower of cost (average method) or
market.
Property and equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation of property and equipment is computed
using the straight-line method over lives ranging from three to ten years.
Leasehold improvements are amortized utilizing the straight-line method over the
estimated useful lives of the assets or terms of the related leases, whichever
is shorter.
Start-up costs: The Company expenses the costs of opening new stores as they are
incurred.
Long-lived assets: The Company adopted Statement on Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The Statement required the recognition of
an impairment loss on a long-lived asset when events and circumstances indicate
that the estimate of undiscounted future cash flows expected to be generated by
the asset are less than its carrying amount.
F-7
<PAGE>
BONUS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to the Six Months Ended September 30, 2000 is
Unaudited)
--------------------------------------------------------------------------------
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
For the year ended March 31, 2000 and for the period from January 25, 1999 to
March 31, 1999, the Company was operating under income tax laws which provide
that, in lieu of corporation income taxes, the owners separately accounted for
the Company's items of income, deductions, losses and credits. As of March 31,
2000, there were no significant temporary differences.
Stock-based compensation: The Company applies APB Opinion 25 in accounting for
its stock options for employees and directors. Options to third parties are
accounted for under FASB Statement No. 123.
Net loss per share: Basic and diluted net loss per common share were determined
by dividing net loss available for common shareholders by the weighted average
common shares outstanding during the period. Basic and diluted net loss per
share are the same. As of March 31, 2000 and 1999, respectively, there were no
outstanding common stock options or convertible preferred shares. As of
September 30, 2000, all outstanding common stock options (300,000) and
convertible preferred shares (1,000,000) have been excluded from the computation
of diluted net loss per share as they are considered antidilutive.
Fair value of financial instruments: The Company's financial instruments consist
mainly of cash, accounts payable, and long-term debt. The carrying amounts of
these instruments approximate their fair value.
New pronouncements: In March 2000, the Financial Accounting Standards Board
(FASB) issued interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation - an Interpretation of APB Opinion No. 25." The
interpretation clarifies the application of APB Opinion No. 25 in specified
events, as defined. The interpretation is effective July 1, 2000, but covers
certain events occurring during the period after December 15, 1998, but before
the effective date, the effects of applying this interpretation would be
recognized on a prospective basis from the effective date. Accordingly, upon
initial application of the final interpretation, (a) no adjustment would be made
to the financial statements for periods before the effective date and (b) no
expense would be recognized for any additional compensation cost measured that
is attributable to periods before the effective date. We expect that the
adoption of this interpretation would not have any effect on the accompanying
financial statements
Unaudited interim results: The accompanying balance sheet as of September 30,
2000, the statements of income and cash flows for the six months ended September
30, 2000 and 1999 and the statements of stockholders' equity for the six months
ended September 30, 2000 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of the results of these periods.
The data disclosed in the notes to financial statements for these periods are
unaudited.
F-8
<PAGE>
BONUS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to the Six Months Ended September 30, 2000 is
Unaudited)
--------------------------------------------------------------------------------
Note 2. Note Payable and Long-Term Debt
Note Payable
------------
As of March 31, 2000, the Company has a $25,000, unsecured, noninterest bearing
note payable to a related party which is due on demand.
Long-Term Debt
--------------
Long-term debt consists of:
<TABLE>
<CAPTION>
March 31, March 31,
Payable Rate Payment Terms 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank LIBOR rate of Interest only payable quarterly through
interest plus 130 June 2002, then due in quarterly principal
130 basis points payments of $93,750 plus interest, final
(an effective rate installment due March 2006, no collateral,
of 7.42% at guaranteed by the Company's owners
March 31, 2000) $ 2,000,000 $ --
Related 8% Due in monthly payments of interest
Party only through March 2000, then due in
monthly payments of $3,613 including
interest, final installment due 2010 -- 297,773
--------------------------
2,000,000 297,773
Less current maturities -- --
--------------------------
$ 2,000,000 $ 297,773
==========================
</TABLE>
During the year ended March 31, 2000 and the period from January 25, 1999 to
March 31, 1999, the Company recognized interest expense to related parties of
$44,885 and $1,074, respectively. There was no interest expense to related
parties during the six months ended September 30, 2000.
As of March 31, 2000, one of the Company's stockholders has committed to loan up
to $4,000,000 to the Company. In fulfillment of this commitment, in March 2000,
Baugur hf, an Icelandic corporation, guaranteed, along with Jim Schafer, the
Company's CEO, a term loan facility with an Icelandic bank in the amount of
$2,000,000. In May 2000, an additional term loan facility of $1,000,000 was
obtained under substantially the same terms and guarantees. In August 2000,
Baugur hf. directly advanced an additional $1,000,00 to the Company.
F-9
<PAGE>
BONUS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to the Six Months Ended September 30, 2000 is
Unaudited)
--------------------------------------------------------------------------------
Aggregate maturities of long-term debt are as follows:
March 31,
2000
-------------
2001 $ --
2002 93,750
2003 375,000
2004 375,000
2005 375,000
Thereafter 781,250
-------------
$ 2,000,000
=============
Note 3. Lease Commitments
The Company leases all of the retail store and warehouse space under operating
leases which expire between May 2002 and April 2005. The leases provide that the
Company pays all rent, property taxes, insurance, and maintenance at monthly
fees ranging from $1,980 to $6,720. The Company also leases several vehicles
under operating leases which expire between August 2002 and April 2003. These
vehicle leases require monthly payments ranging from $275 to $395. The total
minimum rental commitment at September 30, 2000 and March 31, 2000, under these
leases, not including contingent rentals and not including any estimates of
executory costs, is $2,826,021 and $1,928,408, respectively, which is due as
follows:
September 30, March 31,
2000 2000
------------------------------
2001 $ 746,255 $ 452,393
2002 733,759 480,393
2003 607,070 420,271
2004 511,635 357,200
2005 221,073 214,182
Thereafter 6,229 3,969
-------------------------------
$ 2,826,021 $ 1,928,408
===============================
Total rental expense for the six months ended September 30, 2000 was $321,067.
Total rental expense for the year ended March 31, 2000 and for the period from
January 25, 1999 through March 31, 1999 was $296,497 and $2,970, respectively.
F-10
<PAGE>
BONUS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to the Six Months Ended September 30, 2000 is
Unaudited)
--------------------------------------------------------------------------------
Note 4. Financial Consulting Services
Effective February 15, 2000, the Company engaged Continental Capital & Equity
Corporation (CCEC) to assist the Company with evaluation of the capital
structure necessary to fund its growth, including a possible initial public
offering or reverse merger transaction. The agreement between the companies
provides for a $25,000 retainer and additional fees of $50,000 upon receipt of a
firm commitment from an underwriter and $25,000 upon consummation of an initial
public offering. In addition, the agreement provides that CCEC be granted stock
options to acquire 300,000 shares of common stock at an exercise price of $1.00
per share. The $25,000 retainer paid was reflected as a prepaid expense in other
assets at March 31, 2000 and was charged to expense during the six months ended
September 30, 2000. The stock options were granted on June 19, 2000 and expense
was recognized for the fair value of the options.
Note 5. Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on its cash account balances.
Note 6. Subsequent Events
Asset Acquisition:
-----------------
On May 31, 2000, the Company acquired leasehold improvements, fixtures,
equipment and inventory and assumed retail location leases for three stores in
the Tampa area. The total purchase price was approximately $330,000 and was paid
in cash at closing.
Stock Option Plan:
-----------------
On June 19, 2000, the Company and its Board of Directors approved a stock option
plan creating 300,000 options covering 300,000 shares of unissued common stock.
All 300,000 options were granted to Continental Capital & Equity Corporation on
June 19, 2000. The terms of the options are as follows:
o The options allow Continental Capital & Equity Corporation to purchase
300,000 shares of unissued common stock at $1.00 per share.
o The options vest immediately.
F-11
<PAGE>
BONUS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to the Six Months Ended September 30, 2000 is
Unaudited)
--------------------------------------------------------------------------------
o In the event the quantity of option shares granted to Continental
Capital & Equity Corporation result in Continental Capital & Equity
Corporation having less than 7% of the shares outstanding on a fully
diluted basis, excluding up to 400,000 option shares pursuant to a
company stock option plan which may be issued, provided these option
shares have an exercise price at least equal to the initial public
offering price, then Continental Capital & Equity Corporation shall be
issued additional option shares at an exercise price of $1.00 to
increase Continental Capital & Equity Corporation's ownership to 7%.
This additional option grant requirement shall be void 90 days after
Continental Capital & Equity Corporation's initial 300,000 options are
fully registered to be free trade.
o The options expire two years after the date the underlying shares are
registered and the underlying shares shall carry full piggyback
registration rights.
o All of the options granted are subject to a single demand registration
at the expense of Bonus Stores, Inc. if the shares are not registered
to be free trade within six months after the initial public offering
date.
Preferred Stock Authorized:
--------------------------
On September 14, 2000, the Company's stockholders agreed to amend the Articles
of Incorporation in order to authorize 5,000,000 shares of no par value
preferred stock, which shall be issued from time to time in series. From this
preferred stock, the stockholders approved the issuance of 750,000 shares of
Series A preferred stock. This Series A Preferred Stock shall not be entitled to
receive dividends; shall on any voluntary or involuntary liquidation,
dissolution or winding up of the corporation receive a preferential amount of
$4.00 per share and shall be convertible into 1,000,000 shares of common stock
one year after an initial public offering of the Company's common stock or
December 31, 2001, which ever is earlier.
Preferred Stock Issued:
----------------------
As of March 31, 2000, one of the Company's stockholders committed to loan up to
$4,000,000 to the Company. In fulfillment of this commitment in March 2000,
Baugur hf., an Icelandic corporation, guaranteed, along with Jim Schafer, the
Company's CEO, a term loan facility with an Icelandic bank in the amount of
$2,000,000. In May 2000, an additional term loan facility of $1,000,000 was
obtained under substantially the same terms and guarantees. In August 2000,
Baugur, hf. directly advanced an additional $1,000,000 to the Company
On September 14, 2000, Baugur hf. agreed to assume the $3,000,000 debt and
$60,776 of accrued interest owed by the Company to the Icelandic bank. The
assumption of $3,060,776 debt and accrued interest along with the $1,000,000
advanced in August was converted into 750,000 shares of Series A Preferred
Stock.
F-12
<PAGE>
BONUS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information With Respect to the Six Months Ended September 30, 2000 is
Unaudited)
--------------------------------------------------------------------------------
Reverse Stock Split:
-------------------
On September 20, 2000, the stockholders approved a 2.13:1 reverse stock split.
The reverse stock split resulted in the 3,200,000 shares of common stock then
outstanding, being replaced with 1,500,000 shares of common stock. All
references to the number of common shares and the amounts per common share have
been restated to give effect to this reverse stock split.
Note 7. Income Tax Matters (Unaudited)
Prior to March 31, 2000, Bonus Stores was a limited liability that was treated
as a partnership for federal and state tax purposes. As a result, all federal
and state tax matters for Bonus Stores, L.C. prior to March 31, 2000 are the
responsibility of the members.
As a result of the net operating loss for the six month period ended September
30, 2000, the Company has not recorded a provision for income taxes. No deferred
tax asset resulting from the Company's net operating loss carryforward has been
recorded, as the Company has placed a valuation allowance against the deferred
tax asset. The Company recorded the valuation allowance due to the likelihood
that the Company may not generate sufficient taxable income during the
carryforward period to utilize the net operating loss carryforwards.
The Company's ability to utilize it's net operating loss carryforward to offset
future income may be limited if certain stock ownership changes occur.
Note 8. Subsequent Events (Unaudited)
Employee stock option plan:
--------------------------
The Company and its Board of Directors approved a stock option plan for its key
employees, officers, directors and consultants creating 400,000 options covering
400,000 shares of unissued common stock. The exercise price of options granted
under this plan will be equal to the fair market value of such common shares at
the time the options are granted. Unless determined by the Board of Directors,
the options shall be exercisable for 10 years after the grant date. The Board of
Directors will determine the vesting period of the options at the time the
options are granted. No options have been granted under this plan.
Revolving line of credit:
------------------------
On November 3, 2000, the Company entered into a $1 million revolving line of
credit with a third party lender. Advances made against this line of credit
accrue interest at a rate of 3.5% above the LIBOR annual rate of interest.
Interest and principal are due in full three months after each advance is made
or as of November 3, 2001, whichever is earlier.
F-13
<PAGE>
================================================================================
==================
750,000
Units
BONUS STORES, INC.
-----------------
PROSPECTUS
-----------------
INSTITUTIONAL EQUITY CORPORATION
THE DATE OF THIS PROSPECTUS IS _____________ [ ], 2000
================================================================================
=================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the Corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances. The Company's
articles of incorporation provide that the Company shall indemnify directors and
executive officers to the fullest extent now or hereafter permitted by the
Florida Act. In addition, the Company has entered into Indemnification
Agreements with its directors and executive officers in which the Company has
agreed to indemnify such persons to the fullest extent now or hereafter
permitted by the Florida Act, including in circumstances in which
indemnification and advancement of expenses are discretionary under the Florida
Act. The indemnification provided by the Florida Act and the Company's Articles
of Incorporation is not exclusive of any other rights to which a director or
officer may be entitled. The general effect of the foregoing provisions may be
to reduce the circumstances which an officer or director may be required to bear
the economic burden of the foregoing liabilities and expense. The Company
intends to obtain a liability insurance policy for its directors and officers as
permitted by the Florida Act, which may extend to, among other things, liability
arising under the Securities Act of 1933, as amended.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for the underwriters' indemnification of the company and its
directors and officers for certain liabilities arising under the Securities Act
or otherwise.
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities offered hereby.
SEC registration fee......................................... $ 6,590.00
NASD registration fee........................................ 1,400.00
Nasdaq SmallCap Market listing fee........................... 15,000.00
Boston Stock Exchange listing fee............................ 7,500.00
Printing and engraving....................................... 20,000.00
Accountants' fees and expenses............................... 70,000.00
Legal fees................................................... 85,000.00
Transfer agent's and warrant agent's fees and expenses....... 5,000.00
Blue Sky fees and expenses................................... 40,000.00
Underwriter's non-accountable expense allowance.............. 180,000.00
Miscellaneous................................................ 119,510.00
------------
Total.................................... $ 550,000.00
============
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On September 14, 2000, Baugur hf. agreed to assume a $3,000,000 debt along
with approximately $61,000 of accrued interest owed by us to the Icelandic bank.
The assumption of $3,060,776 debt and accrued interest, along with the
$1,000,000 capital contributed in August, was converted into 750,000 shares of
series A preferred stock. This series A preferred stock carries a liquidation
preference and rights to conversion into 1,000,000 shares of our common stock
one year after an initial public offering.
The forgoing issuance of securities was made in reliance on Section 4(2) of
the Securities Act of 1933, as amended.
<PAGE>
ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of Bonus Stores and amendments
3.2 Bylaws of Bonus Stores
4.1 Specimen Stock Certificate of Bonus Stores*
4.2 Form of Underwriters' Warrant *
4.3 Form of Consulting Agreement with Underwriter*
5.1 Opinion of Sichenzia, Ross & Friedman, LLP *
10.1 Form of 2000 Stock Option Plan *
10.2 Form of Employment Agreement with Jim Schafer*
10.3 Lease of Distribution Center*
21.1 List of Subsidiaries
23.1 Consent of McGladrey & Pullen, LLP,
23.2 Consent of Sichenzia, Ross & Friedman, LLP (included in Exhibit
5.1)*
27.1 Financial Data Schedule
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file a post-effective amendment to this Registration Statement during any
period in which offers or sales are being made:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) ((S)230.424(b) of this Chapter) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement of
any material change to such information in the Registration Statement.
<PAGE>
(2) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of this
offering.
(3) To provide to the Underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser.
(4) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and this offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) That, insofar as indemnification for liabilities arising from the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6) That, for purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Company certifies that it has
reasonable grounds to believe that it meets all of the requirement for filing on
Form SB-2 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the State of Florida on
January 4, 2001.
BONUS STORES, INC.
By: /s/ Jim Schafer
---------------------------
Jim Schafer, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Jim
Schafer, his true and lawful attorney-in-fact and agent, acting alone, with full
powers of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, any Amendments
thereto and any Registration Statement of the same offering which is effective
upon filing pursuant to Rule 462(b) under the Securities Act, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Commission, granting unto said attorney-in-fact and agent, each acting
alone, full powers and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intends and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this
Registration Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
By: /s/ Jim Schafer Chief Executive Officer and January 4, 2001
---------------------- Chairman
Jim Schafer
By: /s/ Tryggvi Jonsson Director and Secretary January 4, 2001
----------------------
Tryggvi Jonsson
By: /s/ Jim Schnorf Director January 4, 2001
--------------------
Jim Schnorf
By: /s/ Guy Heyl Chief Financial Officer and January 4, 2001
---------------------- Director
Guy Heyl
