<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-17941
Specialty Retail Services, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-2686442
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
150 East 58th Street, Suite 3400
New York, New York 10155
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 935-5030
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to be the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Non-affiliates of the registrant held shares of Common Stock as of
March 23, 1998 with an aggregate market value of approximately $430,812 (based
upon the closing bid price of the Common Stock on March 23, 1998 as quoted by
the National Association of Securities Dealers, Inc. OTC Bulletin Board).
As of March 23, 1998, 3,367,018 shares of the registrant's Common
Stock were outstanding.
----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
SPECIALTY RETAIL SERVICES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I............................................................................................................1
ITEM 1. BUSINESS........................................................................................1
ITEM 2. PROPERTIES......................................................................................1
ITEM 3. LEGAL PROCEEDINGS...............................................................................2
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................2
PART II...........................................................................................................3
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.....................................................................3
Market Information..............................................................................3
Dividend Information............................................................................3
Registrar and Transfer Agent....................................................................3
ITEM 6. SELECTED FINANCIAL DATA.........................................................................4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................................5
Results of Operations...........................................................................5
Liquidity and Capital Resources.................................................................5
Net Operating Loss Carryforwards................................................................5
Year 2000 Considerations........................................................................6
Forward-Looking Statements......................................................................6
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...............................................................................7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................................................7
i
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................................................7
PART III..........................................................................................................8
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............................................8
Board Committees................................................................................9
Compensation of Directors.......................................................................9
Compliance with Section 16(a) of the Exchange Act...............................................9
ITEM 11. EXECUTIVE COMPENSATION.........................................................................10
Summary Compensation...........................................................................10
Stock Options..................................................................................10
Employment Agreements..........................................................................10
Compensation Committee Interlocks and Insider Participation....................................10
Report of the Compensation Committee on Executive Compensation.................................10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.....................................................................................11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................11
PART IV..........................................................................................................12
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.......................................................................................12
SIGNATURES.......................................................................................................14
</TABLE>
ii
<PAGE>
PART I
ITEM 1. BUSINESS.
In late October 1991, the Board of Directors of Specialty Retail
Services, Inc. (the "Company"), after determining that there were no further
sources of capital available to meet severe working capital shortages faced by
its principal subsidiary, Gobi Primak, Inc. ("Gobi"), decided to liquidate the
Company's affairs as quickly as possible. On November 6, 1991, Gobi's
principal lender, Fleet Credit Corporation ("Fleet"), sent Gobi a notice of an
Event of Default under the Loan Agreement and demanded immediate repayment of
all sums outstanding under the Loan Agreement. Immediately thereafter, Fleet
began the liquidation of Gobi's assets. As of December 31, 1992, all of Gobi's
assets had been liquidated. The liquidation of Gobi's assets did not generate
sufficient funds to repay the outstanding borrowings from Fleet. The
outstanding borrowings from Fleet at December 30, 1997 were approximately
$19,000.
Through October 1991, Specialty Retail Services, Inc., through its
wholly-owned subsidiaries (hereinafter, collectively, the "Company"),
manufactured, distributed and marketed a broad range of professional beauty
products, including hair care, nail care, cosmetics, skin care and other
beauty accessories to independent and chain drug stores, supermarkets, mass
merchandisers, warehouse clubs, retail distributors, salons and beauty supply
outlets, and to consumers. The Company had serviced approximately 90% of its
product sales directly from its 52,000 square foot of space and distribution
facility located in East Brunswick, New Jersey. From 1994 through December
1997, the Company had no operations or activities.
On December 30, 1997, the Company sold the capital stock of all of
its subsidiaries, including Gobi, to a private investor for a purchase price
of $1.00. None of these corporations contained any assets, although they did
contain certain liabilities which the corporations sold have been unable to
pay.
Also on December 30, 1997, the Company effected a one-for-ten reverse
split of its common stock, par value $.01 per share (the "Common Stock"). Each
stockholder of the Company was entitled to receive one share of Common Stock
(rounded up to the nearest whole number of shares), for each ten shares of
Common Stock owned by such stockholder as of the close of business on December
30, 1997.
On December 31, 1997, the Board of Directors approved the conversion
of certain indebtedness owed by the Company into shares of its Common Stock.
All shares were issued on a post-split basis. As a result of such conversions,
Mr. Bentley J. Blum, a director and principal shareholder of the Company,
received (i) 156,412 shares in exchange for debts owed to Mr. Blum, (ii)
455,000 shares in exchange for the conversion of 4,550 shares of the Company's
cumulative preferred stock owned by Mr. Blum, and (iii) 267,985 shares in
exchange for accrued dividends owed to Mr. Blum on the cumulative preferred
stock. In addition, the Blum Asset Trust received 1,758,548 shares of Common
Stock in exchange for debts owed by the Company to such entity, and Mr. Murray
Steinfink, the Company's Chairman of the Board, President and Chief Executive
Officer, received 80,544 shares of Common Stock in exchange for debts owned by
the Company to him.
ITEM 2. PROPERTIES
The Company's executive offices are located in New York City in
approximately 2,000 square feet of space leased by an affiliate of Bentley J.
Blum. The Company does not pay rent for the use of these premises. Such lease
expires in December 1998.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
In the third quarter of 1994, the Company settled a disagreement
with subordinated note holders. Since then, the subordinated note holders have
been paid approximately $700,000 in principal and accrued interest. These
obligations were personally guaranteed by a director of the Company. As of
December 30, 1997, the balance owed on the subordinate note was $108,645 and,
at that time, a director assumed the obligation in exchange for 108,645
post-split shares of Common Stock of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth fiscal quarter of the year ended December 31, 1997.
2
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded in the over-the-counter
market. Stock price quotations for the Company's Common Stock were reported on
the NASDAQ System under the symbol SRSI from August 25, 1989 until June 11,
1991. Since June 11, 1991, stock price quotations for the Company's common
stock have been reported in the "pink sheets" by the National Quotation Bureau
and through the NASD OTC Bulletin Board (the "Bulletin Board"). As of March
23, 1998, the Company had 3,367,018 outstanding shares of Common Stock held by
approximately 113 registered holders.
The following table sets forth the high and low bid quotations for
the Company's Common Stock (rounded to the nearest cent), as quoted by the
Bulletin Board, for each full quarterly period within the two most recent
fiscal years. Such quotations reflect inter-dealer quotations without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
High Low
-------- --------
Fiscal 1996
First Quarter ............ $ 0.08 $ 0.05
Second Quarter ........... 0.19 0.02
Third Quarter ............ 0.17 0.09
Fourth Quarter ........... 0.10 0.03
Fiscal 1997
First Quarter ............ 0.04 0.01
Second Quarter ........... 0.01 0.01
Third Quarter ............ 0.02 0.01
Fourth Quarter ........... 0.25 0.01
DIVIDEND INFORMATION
The Company has never paid cash dividends on its Common Stock and
does not anticipate paying cash dividends on its Common Stock in the
foreseeable future.
REGISTRAR AND TRANSFER AGENT
The Bank of New York, 101 Barclay Street, New York, New York 10286
acts as the Company's Registrar and Transfer Agent.
3
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company,
as of December 31, 1997, for the fiscal years ended December 31, 1993, 1994,
1995, 1996 and 1997. The following selected historical data is derived from
the Company's Financial Statements and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Financial Statements and Notes thereto included
elsewhere in this Annual Report.
Consolidated Statement of Operations Data (1):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net sales ......................... -- -- -- -- --
Net (loss) ........................ -- -- -- -- --
Net (loss) per share .............. -- -- -- -- --
Weighted average shares
outstanding(2) .................... 649 649 649 649 649
</TABLE>
Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Working capital ................... (6,914) (7,502) (7,871) (8,232) (4)
Long-term debt and 14% Series A
Preferred Stock ............... 455 455 455 455 --
Total assets ...................... 1 1 1 1 1
Total liabilities ................. 6,915 7,503 7,872 8,233 5
Stockholders' equity (deficiency in
assets)(3) .................... (6,914) (7,502) (7,871) (8,232) (4)
</TABLE>
- --------------------------------
(1) The Company had no operations during 1993, 1994, 1995, 1996 and 1997.
(2) On December 30, 1997, the Company effected a one-for-ten reverse split of
its Common Stock. The information for all periods presented has been
restated to give effect to such reverse split.
(3) The Company has not paid a cash dividend on its Common Stock since its
inception in 1986.
4
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 compared to Year Ended December 31, 1996
The Company had no operations during the years ended December 31,
1997 and 1996.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
The Company had no operations during the years ended December 31,
1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
In the third quarter of 1994, the Company settled a disagreement
with subordinated note holders. Since then, the subordinated note holders have
been paid approximately $700,000 in principal and accrued interest. These
obligations were personally guaranteed by a director of the Company. As of
December 30, 1997, the balance owed on the subordinate note was $108,645 and,
at that time, a director assumed the obligation in exchange for 108,645
post-split shares of Common Stock of the Company.
On December 30, 1997, the Company sold the capital stock of all of
its subsidiaries, including Gobi, to a private investor for a purchase price
of $1.00. None of these corporations contained any assets, although they did
contain certain liabilities which the corporations sold have been unable to
pay.
Also on December 30, 1997, the Company effected a one-for-ten reverse
split of its Common Stock. Each stockholder of the Company was entitled to
receive one share of Common Stock (rounded up to the nearest whole number of
shares), for each ten shares of Common Stock owned by such stockholder as of
the close of business on December 30, 1997.
On December 31, 1997, the Board of Directors approved the conversion
of certain indebtedness owed by the Company into shares of its Common Stock.
All shares were issued on a post-split basis. As a result of such conversions,
Mr. Bentley J. Blum, a director and principal shareholder of the Company,
received (i) 156,412 shares in exchange for debts owed to Mr. Blum, (ii)
455,000 shares in exchange for the conversion of 4,550 shares of the Company's
cumulative preferred stock owned by Mr. Blum, and (iii) 267,985 shares in
exchange for accrued dividends owed to Mr. Blum on the cumulative preferred
stock. In addition, the Blum Asset Trust received 1,758,548 shares of Common
Stock in exchange for debts owed by the Company to such entity, and Mr. Murray
Steinfink, the Company's Chairman of the Board, President and Chief Executive
Officer, received 80,544 shares of Common Stock in exchange for debts owned by
the Company to him.
As of December 31, 1997, the Company had liquidated all of its net
assets. At December 31, 1997, the Company had $1,000 in assets and total
liabilities of $5,000.
NET OPERATING LOSS CARRYFORWARDS
The Company has net operating loss carry forwards of approximately
$1,610,000 which expire in the year 2003. The amount of net operating loss
carry forward that can be used in any one year will be limited by the
applicable tax laws which are in effect at the time such carry forward can be
utilized. A valuation allowance of $580,000 has been established to offset any
benefit from the net operating loss carry forwards. It cannot be determined
when or if the Company will be able to utilize the net operating losses.
5
<PAGE>
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a
year in the date datum field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If
uncorrected, many computer applications could fail or create erroneous results
by or at the Year 2000. The Year 2000 issue affects virtually all companies
and organizations.
The Company is currently evaluating Year 2000 issues and their
potential impact on its information systems and computer technologies. All
evaluation costs will be expensed as incurred. The Company does not expect
that the cost of addressing any Year 2000 issue will be a material event or
uncertainty that would cause its reported financial information not to be
necessarily indicative of future operating results or future financial
condition, or that the costs or consequences of incomplete or untimely
resolution of any Year 2000 issue represent a known material event or
uncertainty that is reasonably likely to affect its future financial results,
or cause its reported financial information not to be necessarily indicative
of future operating results or future financial condition.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Annual Report are "forward-looking
statements" intended to qualify for the safe harbors from liability
established by Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects" or words of similar import. Similarly, statements
that describe the Company's future plans, objectives or goals are also
forward-looking statements. Such statements may address future events and
conditions concerning, among other things, the Company's results of operations
and financial condition; the consummation of acquisition and financing
transactions and the effect thereof on the Company's business; capital
expenditures; litigation; regulatory matters; and the Company's plans and
objectives for future operations and expansion. Any such forward-looking
statements would be subject to the risks and uncertainties that could cause
actual results of operations, financial condition, acquisitions, financing
transactions, operations, expenditures, expansion and other events to differ
materially from those expressed or implied in such forward-looking statements.
Any such forward-looking statements would be subject to a number of
assumptions regarding, among other things, future economic, competitive and
market conditions generally. Such assumptions would be based on facts and
conditions as they exist at the time such statements are made as well as
predictions as to future facts and conditions, the accurate prediction of
which may be difficult and involve the assessment of events beyond the
Company's control. Further, the Company's business is subject to a number of
risks that would affect any such forward-looking statements. These risks and
uncertainties could cause actual results of the Company to differ materially
from those projected or implied by such forward-looking statements.
6
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the Company are included on
pages F-1 through F-10 of this Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the executive officers, directors and key
employees of the Company, and their positions with the Company, are as
follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Murray Steinfink 57 Chairman of the Board, President and Chief Executive Officer
Bentley J. Blum 56 Director
Andrew P. Oddi 36 Director
</TABLE>
- -----------------------
Murray Steinfink co-founded the Company with Messrs. Paul E.
Hannesson and Bentley J. Blum in January 1986, and currently serves as the
Chairman of the Board, President and Chief Executive Officer of the Company.
From September 1984 to January 1986, Mr. Steinfink served as President of M.S.
Associates, a private consulting and investment group which assisted private
investors in acquiring various companies. From September 1983 to September
1984, Mr. Steinfink served as Vice President of Conair Corporation, a
manufacturer and marketer of professional and retail personal care and beauty
products. From March 1982 to August 1983, he was employed as Senior Vice
President-Professional Products Group for Revlon, Inc., a manufacturer of
professional health and beauty aids. In such capacity he was responsible for
initiating and implementing sales incentive, profit enhancement and cost
savings programs. For six years prior to joining Revlon, Mr. Steinfink was the
President-Specialty Products Group of M. Lowenstein Corporation, a textile
manufacturer, where he was responsible for the introduction of a diverse group
of textile related profit centers, the redeployment of assets and the
divestiture of unprofitable corporate operations.
Bentley J. Blum is a co-founder of the Company and was elected as a
director of the Company in January 1986. For more than 15 years, Mr. Blum has
been actively engaged in real estate acquisitions and currently is the sole
stockholder and director of a number of corporations which hold real estate
interests, oil drilling interests and other corporate interests. Mr. Blum has
served as a director of Commodore Environmental Services, Inc.
("Environmental") since 1984 and served as the Chairman of the Board from 1984
to November 1996. Mr. Blum has served as a director of Commodore Applied
Technologies, Inc. ("Applied"), an environmental treatment and services
company, since March 1996 and served as its Chairman of the Board from March
to November 1996. Mr. Blum also currently serves as a director of Commodore
Separation Technologies, Inc. ("Separation"), Commodore Solution Technologies,
Inc. ("Solution") and Commodore CFC Technologies, Inc. ("CFC") Mr. Blum is
also a director of Lanxide Corporation; Federal Resources Corporation, a
company formerly engaged in manufacturing, retail distribution and natural
resources development; and North Valley Development Corp., an inactive real
estate development company. Mr. Blum is a principal stockholder of the
Company.
Andrew P. Oddi was elected a director of the Company in December
1997. Since June 1996, Mr. Oddi has served as Vice President and Treasurer of
Environmental, Applied, Separation, Solution and CFC. Mr. Oddi also served as
Vice President of Finance & Administration and Chief Financial Officer of
Environmental from 1987 to May 1997 and as a director of Environmental from
December 1990 to July 1996. Mr. Oddi also served as the Vice President of
Finance, Chief Financial Officer and Secretary of Applied from March to
November 1996, and as the Vice President--Finance of Separation from September
1996 to May 1997. From 1982 to 1987, Mr. Oddi was employed by Ernst & Young,
independent accountants, and held the position of audit manager in 1986 and
1987. Mr. Oddi is a Certified Public Accountant.
8
<PAGE>
BOARD COMMITTEES
The Company's Board of Directors does not have any standing
committees.
COMPENSATION OF DIRECTORS
Directors are reimbursed for actual expenses incurred in attending
meetings of the Board of Directors. The Company does not otherwise compensate
directors.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors
and executive officers, and persons who own more than 10% of the outstanding
shares of the Company's Common Stock, to file initial reports of beneficial
ownership and reports of changes in beneficial ownership of shares of Common
Stock with the Securities and Exchange Commission (the "Commission"). Such
persons are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the year ended December 31, 1997, and upon a
review of Forms 5 and amendments thereto furnished to the Company with respect
to the year ended December 31, 1997, or upon written representations received
by the Company from certain reporting persons that no Forms 5 were required
for those persons, the Company believes that no director, executive officer or
holder of more than 10% of the outstanding shares of Common Stock failed to
file on a timely basis the reports required by Section 16(a) of the Exchange
Act during, or with respect to, the year ended December 31, 1997.
9
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The Company did not pay any salary, bonus or other form of
compensation to its current Chief Executive Officer, or any other executive
officer of the Company during the years ended December 31, 1997, 1996 and
1995.
STOCK OPTIONS
The Company did not grant any stock options or stock appreciation
rights during the year ended December 31, 1997 and has no outstanding stock
options or stock appreciation rights.
EMPLOYMENT AGREEMENTS
The Company currently does not have any employment agreements with
any of its executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors did not have a standing compensation
committee during the year ended December 31, 1997.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's Board of Directors did not have a standing compensation
committee, nor any other committee that had the responsibility of dealing with
compensation matters during the year ended December 31, 1997. The full Board
of Directors did not deal with any compensation matters during the year ended
December 31, 1997.
10
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of March 23,
1998, with respect to the beneficial ownership of Company Common Stock by each
person know to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock of the Company, each director, each
individual listed in the Summary Compensation Table and all executive officers
and directors of the Company as a group, as reported by such persons. Unless
otherwise indicated, the owners have sole voting and investment power with
respect to their respective shares.
<TABLE>
<CAPTION>
Number of Shares Percentage of Outstanding
of Common Stock Common Stock
Name and Address of Beneficial Owner(1) Beneficially Owned(2) Beneficially Owned
- --------------------------------------- ---------------------- ----- ------------------
<S> <C> <C>
Bentley J. Blum............................. 2,814,320 83.6%
Murray Steinfink............................ 168,044 5.0%
All executive officers
and directors as
a group (3 persons)....................... 2,982,364 88.6%
</TABLE>
- -----------------------------------
(1) The address of Bentley J. Blum and Murray Steinfink is 150 East 58th
Street, Suite 3400, New York, New York 10155.
(2) As used herein, the term beneficial ownership with respect to a security
is defined by Rule 13d-3 under the Exchange Act as consisting of sole or
shared voting power (including the power to vote or direct the
disposition of) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise, including a right
to acquire such power(s) during the next 60 days. Unless otherwise
noted, beneficial ownership consists of sole ownership, voting and
investment rights.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's executive offices are located in New York City in
approximately 2,000 square feet of space leased by an affiliate of Bentley J.
Blum, a director of the Company. The Company does not pay rent for the use of
these premises.
On December 31, 1997, the Board of Directors approved the conversion
of certain indebtedness owed by the Company into shares of its Common Stock.
All shares were issued on a post-split basis. As a result of such conversions,
Mr. Bentley J. Blum, a director and principal shareholder of the Company,
received (i) 156,412 shares in exchange for debts owed to Mr. Blum, (ii)
455,000 shares in exchange for the conversion of 4,550 shares of the Company's
cumulative preferred stock owned by Mr. Blum, and (iii) 267,985 shares in
exchange for accrued dividends owed to Mr. Blum on the cumulative preferred
stock. In addition, the Blum Asset Trust received 1,758,548 shares of Common
Stock in exchange for debts owed by the Company to such entity, and Mr. Murray
Steinfink, the Company's Chairman of the Board, President and Chief Executive
Officer, received 80,544 shares of Common Stock in exchange for debts owned by
the Company to him.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
. AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The Company's consolidated financial statements for tile fiscal
years ended December 31, 1997, 1996 and 1995 are included on pages
F-1 through F-10 of this Annual Report and consist of:
Independent Auditor's Report
Consolidated Statements of Deficiency in Net Assets Available in
Liquidation
Consolidated Statements of Changes in Deficiency in Net Assets
Available in Liquidation
Notes to Consolidated Financial Statements
(2) (i) List of Exhibits - The following exhibits are filed
as part of this report.
Exhibit No. Description of Exhibit
3.1 Restated Certificate of Incorporation of tile Company. (1)
3.2 Amendment to Restated Certificate of Incorporation of tile
Company. (1)
3.3 By-laws of the Company. (1)
4.1 Specimen Certificate of Common Stock. (2)
4.2 Form of Underwriters Warrant Agreement. (2)
4.3 1987 Stock Option Plan, as amended. (1)
4.4 Form of Stock Option Agreement. (1)
10.1 Notice of Event of Default dated November 5, 1991 from Fleet
Credit Corporation to Gobi-Primak, Inc., Salon Technology, Inc.,
Special Market Services, Inc. and Specialty Retail Services,
Inc.(3)
10.2 Agreement. dated November 1, 1991, by and between the Company,
the Company's subsidiaries, Fleet, Murray Steinfink and Bentley
J. Blum (3)
10.3 Agreement, dated January 16, 1992, between tile Company, its
subsidiary Salon Technology, Inc. and American International
Industries on the sale of substantially all of the assets of
Salon Technology, Inc to American International Industries. (4)
10.4 Notice of Default dated March 23, 1992 by the Company on the 10%
Subordinated Notes dated January 30, 1986. (4)
*21.1 Subsidiaries of the Company.
*27.1 Financial Data Schedule.
<PAGE>
- --------------------------
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-18
(Reg. No., 33-29702-NY) and incorporated herein by reference.
(2) Filed as an Exhibit to Amendment No. 1 to the Company's Registration
Statement of Form S-18 and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Form 8-K filed on November 7, 1991.
(4) Filed as an Exhibit to the Company's Form 10-K for the year ended
December 31, 1991.
Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated December 30,
1997, with the Commission on January 23, 1998, relating to the sale of the
Company's subsidiaries, a one-for-ten stock split and a conversion of
subordinated notes. Such events were reported under Item 5 of Form 8-K and no
financial statements were included in such report.
13
<PAGE>
SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
Financial Statements
December 31, 1997, and 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Specialty Retail Services, Inc.
We have audited the consolidated statement of deficiency in net assets
available in liquidation of Specialty Retail Services, Inc., and subsidiaries
(the Company) as of December 31, 1997 and 1996, and the related consolidated
statements of changes in deficiency in net assets available in liquidation and
changes in stockholders' deficiency in assets for the three years ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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.
As described in Note 1 to the consolidated financial statements, on November
5, 1991, the Company turned over all of its assets for liquidation to the
financial institution holding certain liens on a peaceful possession basis.
The financial institution commenced a liquidation shortly thereafter. As a
result, the Company has changed its basis of accounting for periods subsequent
to November 5, 1991 from the going concern basis to a liquidation basis.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated deficiency in net
assets in liquidation of Specialty Retail Services, Inc., and subsidiaries as
of December 31, 1997 and 1996 and consolidated changes in deficiency in net
assets in liquidation for the three years ended December 31, 1997, in
conformity with generally accepted accounting principles applied on the basis
described in the preceding paragraph.
TANNER + CO.
Salt Lake City, Utah
March 18, 1998
F-1
<PAGE>
SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statement of Deficiency in
Net Assets Available in Liquidation
December 31,
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Assets:
Cash $ 1,000 $ 1,000
------------ ------------
Liabilities:
Accounts payable and accrued liabilities 5,000 2,346,000
Accrued lease obligation -- 2,160,000
Due to related parties -- 1,427,000
Subordinated notes payable -- 1,214,000
Accrued interest payable and dividends -- 1,067,000
Note payable bank -- 19,000
------------ ------------
Total liabilities 5,000 8,233,000
------------ ------------
Net deficiency in assets available $ (4,000) $ (8,232,000)
============ ============
Stockholders' deficiency in assets:
Preferred stock, 6% cumulative callable, $100 par value
no shares and 4,550 shares issued and outstanding $ -- $ 455,000
Common stock, $.01 par value; 15,000,000 shares
authorized; 3,367,018 shares and 648,529 shares
issued and outstanding 34,000 6,000
Additional paid-in capital 5,724,000 3,034,000
Accumulated deficit (5,762,000) (11,727,000)
------------ ------------
Net stockholders' deficiency in assets $ (4,000) $ (8,232,000)
============ ============
</TABLE>
- ------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-2
<PAGE>
SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Deficiency in
Net Assets Available in Liquidation
Years Ended December 31,
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Changes in deficiency in net assets available
in liquidation attributed to:
Decrease in accounts payable $ 2,341,000 $ 70,000 $ --
Decrease in note payable bank 19,000 -- --
Decrease in subordinated notes payable 1,214,000 190,000 202,000
Decrease (increase) in accrued lease
obligation 2,160,000 (140,000) (126,000)
Decrease (increase) in accrued interest
and dividends payable 490,000 (165,000) (114,000)
Increase in advance from related parties (259,000) (316,000) (331,000)
----------- ----------- -----------
5,965,000 (361,000) (369,000)
Conversion of liabilities to common stock 2,263,000 -- --
----------- ----------- -----------
Total change in deficiency 8,228,000 (361,000) (369,000)
Deficiency in net assets available in
liquidation at beginning of year (8,232,000) (7,871,000) (7,502,000)
----------- ----------- -----------
Deficiency in net assets available in liquidation
at end of year $ (4,000) $(8,232,000) $(7,871,000)
=========== =========== ===========
</TABLE>
- ------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-3
<PAGE>
SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Deficiency in Assets
Three Years Ended December 31, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Accumulated
--------------------- ------------------------- Paid-In
Shares Amount Shares Amount Capital Deficit
------ ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995
(as previously reported) 4,550 $ 455,000 6,485,294 $ 65,000 2,975,000 $(10,997,000)
Reverse one for ten stock split -- -- (5,836,765) (59,000) 59,000 --
----- ------------ --------- ------------ --------- ------------
Balance, January 1, 1995 (restated) 4,550 455,000 648,529 6,000 3,034,000 (10,997,000)
Change in deficiency in net assets
available in liquidation -- -- -- -- -- (369,000)
----- ------------ --------- ------------ --------- ------------
Balance December 31, 1995 4,550 455,000 648,529 6,000 3,034,000 (11,366,000)
Changes in deficiency in net assets
available in liquidation -- -- -- -- -- (361,000)
----- ------------ --------- ------------ --------- ------------
Balance, December 31, 1996 4,550 455,000 648,529 6,000 3,034,000 (11,727,000)
Conversion of liabilities to common
stock -- -- 2,263,489 23,000 2,240,000 --
Conversion of preferred stock to
common stock (4,550) 455,000 455,000 5,000 450,000 --
Change in deficiency in net assets
available in liquidation -- -- -- -- -- 5,965,000
----- ------------ --------- ------------ --------- ------------
Balance, December 31, 1997 -- $ -- 3,367,018 $ 34,000 $ 5,724,000 $ (5,762,000)
===== ============ ========= ============ ========= ============
</TABLE>
- ------------------------------------------------------------------------------
See notes to consolidated financial statements.
F-4
<PAGE>
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
- ------------------------------------------------------------------------------
1. The Specialty Retail Services, Inc., (the Company), formerly
Company known as Quaker Penn Corp. through its principal
subsidiaries (Gobi-Primak, Inc., and Salon Technology,
Inc. (Gobi-Primak), was a distributor of professional
beauty products and accessories to retail markets.
On October 24, 1991, the Company announced that the board
of directors of Gobi-Primak, its principal operating
subsidiary, had determined there were no further sources
of capital available to meet the severe working capital
shortages faced by Gobi-Primak and that the Company
intended to explore various alternatives, including the
sale of Gobi-Primak.
On November 5, 1991, Fleet Credit Corporation,
Gobi-Primak's principal lender, sent Gobi-Primak a letter
of an event of default under the loan agreement demanding
immediate repayment of all sums outstanding under the loan
agreement. Since Fleet Credit Corporation had liens
against all assets of Gobi-Primak and its subsidiaries,
the board of directors decided to immediately turn over
all of the assets of Gobi-Primak to Fleet Credit
Corporation on a peaceful possession basis for
liquidation. Fleet Credit Corporation immediately
appointed a liquidator to supervise the liquidation.
Subsequent to November 5, 1991, the Company has had no
operations other than to resolve its obligations.
On December 30, 1997, the Company sold the capital stock
of all of its subsidiaries, including Gobi-Primak, Inc.,
to an individual employed by the majority shareholder, for
a purchase price of one dollar ($1.00). None of these
corporations contained any assets, although they did
contain certain liabilities which the sold subsidiaries
have been unable to repay. Prior to the sale of the
subsidiaries the Company had obtained a general release of
obligations.
Also on December 30, 1997, the Company effected a
one-for-ten reverse split of its common stock, par value
$.01 per share (the "Common Stock"). Each stockholder of
the Company received one share of Common Stock (rounded up
to the nearest whole number of shares), for each ten
shares of Common Stock owned by such stockholder as of the
close of business on December 30, 1997. The prior years
financial statements were restated to reflect the reverse
stock split as though it occurred January 1, 1995.
- ------------------------------------------------------------------------------
F-5
<PAGE>
SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
1. The On December 31, 1997, the Board of Directors approved the
Company conversion of certain indebtedness owed by the Company
Continued into shares of its Common Stock. All shares were issued on
a post-split basis at a value of $1 of obligation for one
share of common stock. As a result of such conversions,
Mr. Bentley J. Blum, a director and principal shareholder
of the Company, received (i) 156,412 shares in exchange
for debt owed to Mr. Blum, (ii) 455,000 shares in exchange
for the conversion of 4,550 shares of the Company's
cumulative preferred stock owned by Mr. Blum, and (iii)
267,985 shares in exchange for accrued dividends owed to
Mr. Blum on the cumulative preferred stock. In addition,
the Blum Asset Trust received 1,758,548 shares of Common
Stock in exchange for debts owed by the Company to such
entity, and Mr. Murray Steinfink, the Company's Chairman
of the Board, President and Chief Executive Officer,
received 80,544 shares of Common Stock in exchange for
debts owned by the Company to him.
As of December 31, 1997, the Company has liquidated
substantially all of its net assets.
2. Significant Principles of Consolidation
Accounting The consolidated financial statements include the accounts
Policies of the Company and its wholly-owned subsidiaries. All
Prior material intercompany transactions have been eliminated.
to
Liquidation Cash and Cash Equivalents
Cash and cash equivalents represent cash on deposit at
banks and commercial paper which have maturities of three
months or less.
Basis of Presentation
The financial statements have been prepared on a
liquidation basis as the Company has had no operations and
as discussed in Note 1, had a liquidator supervise the
liquidation.
Accounting Estimate
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.
- ------------------------------------------------------------------------------
F-6
<PAGE>
SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
2. Significant Fair Value of Financial Instruments
Accounting None of the Company's debt instruments are held for trading
Policies purposes. The Company estimates that the fair value of all
Prior financial instruments at December 31, 1997, does not differ
to materially from the aggregate carrying values of its
Liquidation financial instruments recorded in the accompanying balance
Continued sheet.
Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income." SFAS 130 requires entities
presenting a complete set of financial statements to
include details of comprehensive income that arise in the
reporting period. Comprehensive income consists of net
income or loss for the current period and other
comprehensive income, which consists of revenue, expenses,
gains, and losses that bypass the income statement and are
reported directly in a separate component of equity. This
statement is effective for fiscal years beginning after
December 15, 1997, and requires restatement of prior
period financial statements presented for comparative
purposes.
3. Notes Fleet Credit Corporation
Payable At December 31, 1996, the balance outstanding on the loan
was approximately $19,000. This is the unpaid principal
balance from the note, which a liquidator was assigned to
collect, see Note 1. The Company sold, on December 31,
1997, the subsidiaries, which were obligated on the Fleet
debt.
- -------------------------------------------------------------------------------
F-7
<PAGE>
SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
3. Notes Subordinated Notes Payable
Payable Subordinated notes payable consist of the following at
Continued December 31:
1997 1996
---------------------
Note payable with interest at 14%
with installment payments due
through March 31, 1995. The
Company is in default under the
terms of the agreement $ - $ 988,000
Notes payable to two individuals
with interest at 10%, requiring
quarterly installments totaling
$57,010 including interest, due in
1999, personally guaranteed by a
director of the Company during 1997 - 226,000
--------------------
$ - $1,214,000
--------------------
In 1997, the Company paid approximately $117,000 on the
subordinated notes, obtained a general release for
approximately $988,000 and exchanged approximately
$109,000 for 109,000 shares of common stock.
During the years ended December 31, 1997 and 1996
increases in accrued interest payable were charged against
the net deficiency in assets available in liquidation in
the amount of $157,000 and $171,000, respectively.
4. Accounts During 1997, the Company and its legal counsel determined
Payable and that under state law, the recorded general liabilities,
Accrued which totaled $2,346,000 at December 30, 1997, were in
Liabilities excess of six years old, had passed the statute of
limitations, and were, therefore, no longer obligations of
the Company. These amounts were, therefore, written-off.
The Company has a balance of $5,000 in accounts payable at
December 31, 1997.
- -------------------------------------------------------------------------------
F-8
<PAGE>
SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
5. Accrued During 1997, general release was obtained for past due
Lease lease obligations totaling $2,160,000 the Company had on
Obligations its facilities. The Company ceased operations in 1991 and
vacated the facilities.
6. Due to The Company, in 1997, exchanged 1,427,000 shares of its
Related common stock to satisfy the balance owed of $1,427,000 to
Parties the majority shareholder and his related entities. The
outstanding balance at December 31, 1996 was $1,427,000.
7. Income There are no significant temporary differences in the
Taxes recognition of income and expenses between financial and
tax reporting. The Company has net operating loss
carryforwards available in the amount of approximately
$1,610,000, which expire beginning in the year 2003. If
substantial changes in the Company's ownership should
occur, there would be an annual limitation of the amount
of carryforwards which could be utilized.
No tax asset has been established as it is not possible to
estimate the utilization of carrying forward the available
net operating losses to future periods to offset income.
An allowance has, therefore, been established to offset
any tax asset.
8. Commitments Deferred Preferred Dividend and Interest Payments
Under the notes payable agreement, the Company may not pay
dividends on the 6% cumulative callable preferred stock or
interest on the loan prior to conversion of preferred
stock. At December 30, 1997, there were outstanding
dividend and interest accruals of $267,985, which were
satisfied through the issuance of common stock at December
31, 1997. At December 31, 1996, the outstanding balance
was $240,685.
9. Stock Option The Company had a stock option plan in which the Company
Plan could grant 600,000 shares of its common stock to key
employees. At December 31, 1996, options of 10,000 were
outstanding. Those options expired in 1997 and the Plan
has been terminated.
- ------------------------------------------------------------------------------
F-9
<PAGE>
SPECIALTY RETAIL SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Continued
- ------------------------------------------------------------------------------
10. Related Party During the year ended December 31, 1997, the following
Transactions related party transactions occurred:
o Conversion of $2,263,000 of liabilities into
2,263,000 shares of common stock to the majority
shareholder and an officer of the Company.
o Interest of $309,000 was incurred relating to
advances referred to above.
o Sale of the Gobi subsidiaries for $1 to an affiliate
of the majority shareholder.
o Conversion of the 4,550 shares of preferred stock
into 455,000 shares of common stock . The majority
common shareholder also held the preferred stock.
During the year ended December 31, 1996, the following
related party transactions occurred:
o A company controlled by an officer/shareholder of the
Company and another related individual made net
advances of approximately $315,100 to pay for
administrative and liquidation expenses. The total
amount advanced from the related Company and other
officers and shareholder of the Company at December
31, 1996 is $1,427,000.
At December 31, 1996, the Company had recorded a balance
of approximately $33,000 due to an officer/shareholder of
the Company in connection with an employment agreement.
The balance is included in the $1,427,000 due to related
parties.
- ------------------------------------------------------------------------------
F-10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 15, 1998 SPECIALTY RETAIL SERVICES, INC.
By: /s/ Murray Steinfink
--------------------------------
Murray Steinfink, President,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Dated
- --------- ----- -----
<S> <C> <C>
/s/ Murray Steinfink Chairman of the Board, President April 15, 1998
- -------------------------------
Murray Steinfink and Chief Executive Officer (principal
executive officer)
/s/ Murray Steinfink Chairman of the Board April 15, 1998
- -------------------------------
Murray Steinfink
/s/ Bentley J. Blum Director April 15, 1998
- -------------------------------
Bentley J. Blum
/s/ Andrew P. Oddi Director April 15, 1998
- -------------------------------
Andrew P. Oddi
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1
<CURRENT-LIABILITIES> 5
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> (38)
<TOTAL-LIABILITY-AND-EQUITY> 1
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 465
<INCOME-PRETAX> 5,965<F1>
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,965
<EPS-PRIMARY> 9.21
<EPS-DILUTED> 9.21
<FN>
<F1> Includes approximately 6,335 of Indebtedness for which the Company or its
subsidiaries were released or forgiven.
</FN>
</TABLE>
