<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required, Effective October
7, 1996] For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the
transition period from to
Commission File No. 0-24952
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PRENTICE CAPITAL, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 84-1139554
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13902 N. Dale Mabry Highway, Suite 119, Tampa, Florida 33618
- ------------------------------------------------------ -----------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (813) 969-2002
Securities registered under Section 12(b) of the Exchange Act:
Name of each Exchange
Title of Each Class on Which Registered
None NASDAQ OTC BULLETIN BOARD
- ------------------- -------------------------
- --------------------------------------------------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock (No par value)
- --------------------------------------------------------------------------------
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
X No
- --- ---.
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were:
$2,090,115.
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 10, 1997 totaled $8,309,711 (computed by reference
to the closing bid price ($0.82) on that date).
The number of shares outstanding of registrant's common stock, no par
value, at March 10, 1997 was 12,327,308 shares.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
Prentice Capital, Inc., a Delaware corporation incorporated on March
26, 1990 ("Prentice Capital" or the "Company"), was organized to obtain funding
in order to establish a vehicle to take advantage of business opportunities.
The Company identified Universal Footcare, Inc., a Florida corporation
("Universal Footcare"), as an acquisition candidate and acquired Universal
Footcare on September 6, 1994. Universal Footcare is engaged in the business
of acquiring medical podiatry practices. To date, Universal Footcare has
acquired two podiatry practices in the greater Tampa, Florida area, Dameron,
Levy and Baker, Inc. and CMS Management, Inc. The Company's executive and
administrative offices were, as of March 9, 1997, located at 13902 N. Dale
Mabry, Suite 119, Tampa, Florida 33618 (tel. (813) 969-2002).
ACQUISITION OF DAMERON, LEVY & BAKER, INC.
Effective March 31, 1995, the Company and its wholly owned subsidiary,
Universal Footcare, consummated the transactions contemplated by the Agreement
and Plan of Merger (the "Merger Agreement") by and among the Company, Universal
Footcare and Dameron, Levy & Baker, Inc. ("Dameron-Levy") wherein Dameron-Levy,
a Florida corporation engaged in the business of owning and operating a
podiatry practice in Tampa, Florida, was merged into Universal Footcare, with
Universal Footcare being the surviving entity. The following is a summary of
the Merger Agreement which does not purport to be complete and which is subject
to and qualified, in its entirety, by reference to the actual Merger Agreement:
1. Universal Footcare was merged in a "forward triangular
merger", with Dameron-Levy in a transaction intended to qualify as a tax-free
reorganization within the meaning of Section 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended.
2. As a result of the merger contemplated by the Merger
Agreement, the holders of the common stock of Dameron-Levy (the "Shareholders")
received, in the aggregate, 316,332 shares of the capital common stock of
Dameron-Levy (the "Shares") and $100,002 cash.
3. The Company granted the Shareholders "piggyback" registration
rights enabling the shareholders to include their shares in the next
registration statement filed by the Company with the Securities and Exchange
Commission (the "Registration Statement"). The registration rights are subject
to whatever restrictions may be imposed upon the sale of such shares by the
underwriter(s) of the Company's next public offering, if any, including without
limitation, a lock-up period of up to 12 months during which the former
shareholders of Dameron-Levy would not be able to sell or offer to sell their
Shares. Moreover, the Shareholders agree to cooperate with the managing
underwriter(s) of the offering regarding the sale or other disposition of their
Shares upon the expiration of the lock-up period.
4. If at such time that the Shareholders can freely transfer
their Shares under the Registration Statement, or July 1, 1996 if earlier, the
value of the Company's common stock is less than $3.00 per share, then on such
date, additional shares shall be transferred by the Company to the Shareholders
so that the value of the shares then held by the Shareholders,
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inclusive of the additional shares issued, equals the product of $3.00 and the
number of shares held prior to the issuance of additional shares.
On the date one year from the date on which any lock-up restrictions
imposed by the underwriter are waived, but not later than July 1, 1997, the
value of the shares then held by the Shareholders shall be added to the gross
disposition proceeds, if any, from any shares disposed of by the Shareholders
pursuant to a registration statement, and if the resulting sum of such amounts
results in the shareholders holding shares, and/or having received value from
shares publicly sold, of less then $3.00 a Share, then, on such date, Universal
Footcare will issue the Shareholders its noninterest bearing, ninety day
promissory note (the "Note") for the deficiency, which Note shall be secured by
all of the assets of Universal Footcare and shall be guaranteed by the Company.
5. In the event that Universal Footcare defaults on the Note, in
addition to any other remedy that may be available to Dameron-Levy, each
Shareholder shall have the right, exercisable within thirty days after a
default under the Note, to sell all of the Shares that he received under the
Merger Agreement to the Company in exchange for the following consideration:
(a) Universal Footcare's waiver of its rights to enforce the restrictive
covenant set forth in that Shareholder's employment agreement; (b) all medical
records for the patients of the departing Shareholder; and (c) a sum equal to
six months of the net Base Compensation payable to the Shareholder under his
employment agreement.
6. Universal Footcare will appoint a person mutually agreeable to
the existing Board of Directors of each of Dameron-Levy and Universal Footcare,
to Universal Footcare's Board of Directors, until such time as the Company
consummates its initial public offering, or five years from the date of the
Merger Agreement, whichever is earlier.
7. Dameron, Levy & Baker Associates, a Florida general
partnership (the "Partnership") and Universal Footcare executed an agreement
for the sale and purchase of the office building located at 2511 W. Martin
Luther King Jr. Blvd., Tampa, Florida (the "Office Building"). The Partnership
represented that the Office Building had a fair market value of $450,000 and
was encumbered by a mortgage of approximately $270,000, resulting in a net fair
market value of $180,000. The Partnership agreed to transfer the Office
Building to Universal Footcare and in exchange therefore Universal Footcare
agreed to assume the existing note and mortgage encumbering the Office Building
and cause Drs. Dameron, Levy and Baker to be released from any liability in
connection therewith and pay the difference between the appraised value of the
Office Building and the amount of the debt encumbering the Office Building to
the Partnership, in cash and, if the appraised value of the Office Building
exceeded $450,000, that amount of shares of the Company's common stock having a
value equal to the difference between the appraised value of the Office
Building and $450,000. The Partnership and Universal Footcare closed on this
transaction and then, subsequently, rescinded the transaction as the Company
determined that it did not want to own the Office Building and the Partnership
was willing to permit the transaction to be rescinded.
8. Each of Drs. Dameron, Levy and Baker executed employment and
non-competition agreements which provided:
a. that Universal Footcare would employ each of Drs. Dameron,
Levy and Baker (the "Employee") for the ten year period running from
February 1, 1995 through January
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31, 2005 which employment shall be automatically extended for one
successive ten year period unless it is terminated as provided in the
employment agreements;
b. The base compensation payable to the Employee (the "Base
Compensation") is to be calculated on an annual basis and is to be
determined by the following formula:
<TABLE>
<CAPTION>
Collections of Accounts Receivable
Generated by the Employee During Percentage to
the Fiscal Year be Paid the Employee
- --------------- --------------------
<S> <C>
$0 - $ 99,999 45%
$100,000 - $199,999 50%
$200,000 - $299,999 60%
$300,000 - $399,999 70%
$400,000+ 80%
</TABLE>
c. Notwithstanding the above, the Base Compensation paid to each
Employee is to be reduced among all of the Shareholders, pro rata,
based on the respective salaries of the Shareholders, in the event
that Universal Footcare's net income before income taxes during any
fiscal year is less than $100,000, determined under the cash basis
method of accounting.
d. The Shareholders are entitled to share in a bonus pool which
shall consist of 35% of the net income of Universal Income in excess
of $100,000 during any given fiscal year, which shall be allocated
amongst Drs. Dameron, Levy and Baker in the same ratio as their
respective Base Compensation amounts for the fiscal year in question
relate to each other. The payment of such bonus shall be made out of
available cash flow of Universal Footcare.
PROPOSED BUSINESS PLAN - UNIVERSAL FOOTCARE, INC.
Business of Universal Footcare, Inc.
Universal Footcare contemplated expanding its business operations by
entering into long term management and service agreements (the "Management and
Services Agreement") with other podiatry practices to manage the day to day
operations of existing podiatry practices. Under its proposed Management and
Services Agreement, Universal Footcare expected to perform the billing,
collection and other administrative functions associated with operating a
podiatry practice. The podiatrist entering into a Management and Services
Agreement with Universal Footcare would remain independent of Universal
Footcare, however, he or she would agree to share a to be negotiated percentage
of the anticipated additional revenue to be generated by such doctor's podiatry
practice after such doctor entered into the Management and Services Agreement
and agreed to become a part of the Universal Footcare network of podiatrists.
Expansion Plans
Universal Footcare's operations were limited to the greater Tampa Bay
Area, however, it was Universal Footcare's intention to expand throughout the
State of Florida during the next twelve months.
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Competition
Universal Footcare anticipated facing substantial competition from
existing podiatry practices, most of whom had greater resources than Universal
Footcare.
Employees
Prentice Capital currently has two employees and Universal Footcare,
as of March 10, 1997 had 19 employees.
PROPOSED BUSINESS PLAN - CASINOS INTERNATIONAL, INC.
In addition to the Company's plans to acquire additional medical
podiatry practices through its wholly owned subsidiary Universal Footcare, it
was also the intention of the Company, through a separate wholly owned
subsidiary, Casinos International, Inc. ("Casinos International") to engage in
the business of owning and operating one or more gaming vessels that would be
based in ports in the State of Florida. Casinos International intended to
operate such vessels in the business known as the "cruise to nowhere" business,
wherein the vessels leave a designated port around 6:00 pm and return to that
same port at approximately 11:00 pm that evening. Casinos International
intended to appeal to the more affluent gambler and, to that end, anticipated
building a luxury cruise ship. Casinos International has had extended
negotiations with a major British bank to finance such vessel, which was to
cost approximately $14,000,000. The bank committed to provide up to $6,500,000
in financing. Casinos International expected to obtain the balance of the
funding needed to construct the vessel through an offering by Prentice Capital
of its debt or equity securities. Prentice Capital never obtained a commitment
from an underwriter to raise capital for Prentice Capital.
COMPANY'S PROPOSED BUSINESS PLAN - 1997
Casinos International Merger
On February 26, 1997, the Company, together with its wholly owned
subsidiary, Casinos International, entered into an Agreement and Plan of
Reorganization with Eco2, Inc. ("Eco2"), a publicly traded company, and its
wholly owned subsidiary, Eco2 Acquisition, Inc. ("Eco2 Acquisition"), whereby
Casinos International would be merged into Eco2 Acquisition. As a result of
this merger contemplated by this agreement, Prentice received 5,000,000 shares
of Eco2 common stock, $.03 par value, and a promissory note in the amount of
$500,000.
The promissory note, including interest at the rate of 8% per annum,
is payable in sixty equal monthly installments of $10,138, the first
installment being payable on March 31, 1997. No payments have been received by
the Company. The promissory note is secured by 100 shares of common stock of
Casinos International held in escrow in accordance with an Escrow and
Disposition Agreement of even date.
On the effective date of the merger, the existing members of the Board
of Directors of Eco2 appointed Alan S. Lipstein, the president of the Company,
as director of Eco2, and immediately thereafter the then members of the Board
of Directors and Officers of Eco2 resigned.
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Eco2 and Prentice Capital jointly and severally agreed to indemnify
Charles Ledford, Vivian Ledford, and Raymond Ledford, all of the officers and
directors of Eco2, as well as Energy Systems, Inc., a company owned by the
Ledfords (hereinafter collectively referred to as "Indemnitees"), from and
against any and all damages, losses, obligations, deficiencies, liabilities,
claims, encumbrances, penalties, costs and expenses, including reasonable
attorney's fees, which the Indemnitees may suffer or incur, resulting from (a)
their being an officer or director of Eco2; (b) the merger transactions; (c)
misrepresentations, breach of warranty, or nonfulfillment of any of the
covenants or agreements of Casinos International under the Agreement and Plan
of Reorganization or from any misrepresentation in or omission from any
certificate or document furnished or to be furnished to the Indemnitees
thereunder, and; (d) any and all actions, suits, investigations, proceedings,
demands, assessments, audits, judgments, and claims arising out of the
foregoing.
Purchase of Mineral Rights
On March 17, 1997, the Company and Chartwell International, Inc., a
Nevada corporation ("Chartwell") entered into a Purchase and Sale Agreement
(the "Purchase Agreement") pursuant to which the Company purchased certain
gypsum mining property located in Washington County, Utah, generally known as
Riverview Placer Claims and New Riverview Claims (the "Claims") in exchange for
$4,000,000 in cash, cash equivalents and restricted shares of the Company's
common stock.
Under the terms of the Purchase Agreement and upon execution thereof,
the Company is obligated to deliver to Chartwell 1,000,000 shares of common
stock of the Company (the "Closing Shares"). Additionally, pursuant to the
Purchase Agreement, in the event that on April 1, 1997 (which date was
subsequently extended until April 15, 1997 by that certain Extension Agreement,
as herein described, dated April 2, 1997 between the Company and Chartwell),
the market value of the Closing Shares is less than $4,000,000, then the
Company shall deliver to Chartwell a sufficient number of additional shares of
the Company's common stock (the "Exchange Shares") having a market value equal
to the difference between the value of the Closing Shares on April 1, 1997
(which date was subsequently extended until April 15, 1997 by that certain
Extension Agreement dated April 2, 1997 between the Company and Chartwell) and
$4,000,000. Further, under the terms of that certain agreement between the
Company and Chartwell, dated April 10, 1997 (the "Amended Purchase Agreement"),
for purposes of determining the market value of the common stock under the
Purchase Agreement, such market value shall be determined based on the closing
bid price of the Company's common stock on April 15, 1997.
The Purchase Agreement also provided that in the event that on April
1, 1998, the date on which all restrictions on the Closing Shares (and the
Exchange Shares, if any) shall be removed, the market value of the Closing
Shares (plus the Exchange Shares, if any) is not equal to or in excess of
$4,000,000, then at the option of the Company, the Company shall have the right
and obligation to issue Chartwell additional shares, or deliver to Chartwell
cash equal to the difference between the market value of the Closing Shares
(plus the Exchange Shares, if any) and $4,000,000, or, in lieu thereof, return
to Chartwell the Claims, with Chartwell retaining all shares of common stock
previously issued to it.
All shares of the Company's common stock to be delivered under the
Purchase Agreement shall be restricted securities under the Securities Act of
1933 and will be legended with the standard Securities Act of 1933 restrictive
legend. Further, the Company has agreed
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to grant Chartwell, on customary terms, piggyback registration rights on all
shares of common stock granted pursuant to the Purchase Agreement.
On April 2, 1997, the Company and Chartwell entered into an Extension
Agreement (the "Extension Agreement") pursuant to which each of the parties
agreed to extend the time period established in the Purchase Agreement for
valuing the market price of the Closing Shares from April 1, 1997 to April 15,
1997. Additionally, pursuant to the Extension Agreement, the parties agreed
that the Company shall deliver to Chartwell 1,000,000 shares of the Company's
common stock on or before April 4, 1997. The parties have also agreed that in
the event that on April 15, 1997 the bid price of the Company's common stock
is $4.00 per share or greater, Chartwell shall return to the Company the
1,000,000 shares referenced in the sentence above, or the Exchange Shares, as
that term is used in the Purchase Agreement, such that the stock retained by
Chartwell has a market value on April 15, 1997 of $4,000,000. Further,
pursuant to the Extension Agreement, the Company shall deliver to Chartwell
$100,000 on or before April 15, 1997, plus shares of the Company's common stock
(unrestricted) that together with the $100,000 will equal $500,000 based on the
bid price on the day of delivery.
Option to Sell Common Stock
On March 10, 1997, the Company and Lee J. Unger ("Unger") entered into
an agreement (the "Unger Agreement") pursuant to which the Company agreed to
sell to Unger 5,000,000 shares of its restricted common stock at a price of
$.05 per share, which purchase shall be effected by delivery to Unger of an
assignable Promissory Note bearing interest at 6% per annum and payable one
year from the date of the Unger Agreement.
Cancellation of Stock
Under the terms of the Unger Agreement referred to above, Alan S.
Lipstein and Dr. Gerard Norton have agreed to contribute back to the capital of
the Company an aggregate 7,800,000 shares of common stock in exchange for the
cancellation of promissory notes due and payable to the Company in the
following amounts due by the respective parties: Dr. Norton - $2,500,000; Alan
Lipstein - $2,500,000; Roscom Limited - $400,000; and Veitri Investments, Ltd. -
$400,000.
Election of Officers
Pursuant to the Unger Agreement referred to above, Unger was elected
President and director of the Company. Simultaneously with the agreement, Mr.
Lipstein and Dr. Norton resigned as officers and directors of the Company
leaving Unger as the sole officer and director of the Company.
Purchase of MRI Business
On June 3, 1997, the Company and Diagnostics, Inc. a Florida
corporation ("Diagnostics"), and its sole shareholder, Nate Hollander, entered
into an agreement to purchase all of the common stock of Diagnostics and the
assets of MRI Management Services, Inc. ("MMS") and Bentley Designers and
Builders, Inc. ("BDB") in exchange for $5,500,000 in cash and restricted
Company stock.
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Diagnostics is in the business of magnetic resonance imaging and
neurological nerve conduction testing in the South Florida area. The assets of
MMS and BDB consist of two mobile MRI units each with an estimated value of
$500,000 used in the business.
ITEM 2. DESCRIPTION OF PROPERTY
Prentice Capital's principal offices were located at 13902 N. Dale
Mabry Highway, Suite 119, Tampa, Florida 33618. These premises, which
comprised approximately 600 square feet, were leased by Prentice Capital under
a month-to-month lease at a monthly lease rate of $600.
Universal Footcare leased five different offices in the Tampa Bay Area
under the following terms and conditions:
<TABLE>
<CAPTION>
Location Square Footage Annual Rent
<S> <C> <C>
Tampa, Florida 4,000 square feet $44,000
Brandon, Florida 1,750 square feet $8,312
Tampa, Florida 1,800 square feet $5,994
Brookesville, Florida 2,800 square feet $5,712
Clearwater, Florida 1,450 square feet $16,675
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Prentice Capital was, as of March 10, 1997, not a party in any
significant legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year closed by this report, no
matters were submitted to a vote of Prentice Capital's shareholders.
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(Balance of Page Intentionally Left Blank)
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) PRICE RANGE OF COMMON STOCK
The following table shows the high and low closing bid prices as
represented by Nasdaq for Prentice Capital's common stock for the calendar
quarters indicated. Prentice Capital's common stock is traded on The NASDAQ
OTC Bulletin Board under the symbol "PCAP".
The quotations represent prices between dealers in securities, do not
include retail markup, markdowns or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
1995 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $6.44 $5.00
Second Quarter $5.88 $ .25
Third Quarter $1.38 $ .25
Fourth Quarter $3.06 $ .25
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter $0.63 $0.60
Second Quarter $4.50 $3.00
Third Quarter $5.37 $2.50
Fourth Quarter $4.50 $0.31
</TABLE>
(B) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of March 10, 1997, the number of shareholders of record of Prentice
Capital's common stock was approximately 369.
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(C) DIVIDENDS
Prentice Capital has never paid cash dividends on its common stock.
Payment of dividends is within the discretion of Prentice Capital's Board of
Directors and will depend on, among other factors, earnings, capital
requirements and the operating and financial condition of Prentice Capital. At
the present time, Prentice Capital anticipates retaining future earnings, if
any, in order to finance the development of its business activities.
(Balance of Page Intentionally Left Blank)
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ITEM 6. SELECTED FINANCIAL DATA
PRENTICE CAPITAL, INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C>
ASSETS
------
Total current assets $565,196
Total property and equipment 178,139
Total other assets 2,946
----------
TOTAL ASSETS $746,281
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Total current liabilities $85,358
Total long-term debt 10,871
----------
TOTAL LIABILITIES 96,229
TOTAL STOCKHOLDERS' EQUITY 650,052
----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY 746,281
==========
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------
Sales and Revenues: $2,090,115
Costs and Expenses 2,549,987
----------
Loss From Operations (459,872)
Other Expense: 59,348
----------
Net Loss (519,220)
==========
Net Loss Per Share of Common stock ($.14)
=========
Weighted Average Number of Common Shares
and Common Shares Equivalents Outstanding 3,726,149
==========
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PLAN OF OPERATION
The only operating revenues that the Company received were those
generated by Universal Footcare, the Company's then wholly owned subsidiary
that was engaged in the business of owning and operating podiatry practices.
Prior to Universal Footcare's acquisition of Dameron-Levy effective March 31,
1995, Universal Footcare had no operating revenues. It was the intention of
Universal Footcare to expand its business operations by entering into long term
Management and Service Agreements (as described above) with other podiatry
practices to manage the day to day operations of unrelated, existing podiatry
practices. Under its proposed Management and Services Agreement, Universal
Footcare expected to perform the billing, collection and other administrative
functions associated with operating a podiatry practice. The podiatrist
entering into a Management and Services Agreement with Universal Footcare would
remain independent of Universal Footcare, however, he or she would have agreed
to share a negotiated percentage of the anticipated additional revenue to be
generated by such podiatry practice as a result of the podiatrist entering into
the Management and Services Agreement with Universal Footcare and agreeing to
become a part of the Universal Footcare network of podiatrists. Universal
Footcare's operations were then limited to the greater Tampa Bay Area, however,
it was Universal Footcare's intentions to expand throughout the State of
Florida.
In addition to the Company's plans to acquire additional medical
podiatry practices through its wholly owned subsidiary Universal Footcare, it
was also the intention of the Company, through a then separate wholly owned
subsidiary, Casinos International to engage in the business of owning and
operating one or more gaming vessels that would be based in ports in the State
of Florida. Casinos International intended to operate such vessels in the
business known as the "cruise to nowhere" business, wherein the vessels leave a
designated port around 6:00 pm and return to that same port at approximately
11:00 pm that evening. Casinos International intended to appeal to the more
affluent gambler and to that end, anticipated building a luxury cruise ship.
Casinos International had extended negotiations with a major British bank to
finance such vessel, which will cost approximately $14,000,000. The bank
committed to provide up to $6,500,000 in financing. Casinos International
expected to obtain the balance of the funding needed to construct the vessel,
and approximately $2,000,000 for its working capital needs, through an offering
by Prentice Capital of its debt or equity securities. See "ITEM 1. Company's
Proposed Business Plan -- 1997".
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RESULTS OF OPERATIONS.
1996 Fiscal Year
The Company generated revenues from the operation of Universal
Footcare's podiatry practices in the amount of $2,090,115 for the period from
January 1, 1996 to December 31, 1996. During the one year period ended
December 31, 1996, the Company incurred costs and expenses of $2,549,987,
resulting in the Company incurring a loss from its operations of $459,872.
During 1996, the Company incurred significant non-cash expenses, which the
Company's former management believed to be, in part, of a non-recurring nature.
Such expenses, which the Company paid by the issuance of its stock, included
salary and consulting fees.
1995 Fiscal Year
The Company generated revenues from the operation of Universal
Footcare's podiatry practices in the amount of $887,854 for the period from
April 1, 1995 to December 31, 1995. During the one year period ended December
31, 1995, the Company incurred costs and expenses of $1,551,595, resulting in
the Company incurring a loss from its operations of $663,741. During 1995, the
Company incurred significant non-cash expenses, which the Company's management
believes to be, in part, of a non-recurring nature. Such expenses, which the
Company paid by the issuance of its stock, include one-time consulting fees for
investment banking services of $170,555 and compensation paid to Joel M. Levy,
the Company's vice president of acquisitions, in the amount of $250,000. The
Company also accrued a salary of $240,000 payable to Alan S. Lipstein, who does
not anticipate drawing a salary from the Company during the next several years.
Absent these in-part nonrecurring, and in-part, noncash expenditures totaling
$660,555, the Company would have broken even during its 1995 fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assets exceeded its current liabilities as of
the end of its 1996 fiscal year by approximately $469,000, however, the
Company's ability to convert its then current assets into cash or its
equivalent depends upon the Company's ability to collect its accounts
receivable as well as its notes receivable form related parties.
During 1996, Alan S. Lipstein, the Company's former Chief Executive
Officer, funded the working capital needs of the Company by making cash advances
to the Company in the amount of $15,800, paying Company expenses in the amount
of $134,800 and repaying advances made to him by the Company in the amount of
$450,000. As of the end of its 1996 fiscal year, the Company owed Mr. Lipstein
$53,200, which included $26,500 in accrued interest. The Company anticipated
funding its working capital needs and amounts needed to expand its business
from the issuance of its securities and by obtaining bank financing.
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As indicated above, the Company has significantly changed its business
plan and its liquidity and capital resources have materially changed. See the
Company's Form 8-K filed with the Securities and Exchange Commission on April
11, 1996 and "ITEM 1. Company's Proposed Business Plan -- 1997".
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<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS
The Financial Statements and Schedules are attached hereto as required
by Rule 14(a)-3(b).
<TABLE>
<CAPTION>
Page No.
<S> <C>
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . 19 - 20
Consolidated Statements of Stockholders' Equity
for Years Ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Operations for Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Cash Flow for Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 24 - 40
</TABLE>
(Remainder of page left blank intentionally.)
-17-
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
and Stockholders of
Prentice Capital, Inc.
Tampa, Florida
We have audited the consolidated balance sheets of Prentice Capital, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. 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. These standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Prentice Capital, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the results of their
operations, and their cash flows for the two years ended, in conformity with
generally accepted accounting principles.
GUIDA & JIMENEZ, P.A.
Tampa, Florida
July 3, 1997
-18-
<PAGE> 19
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 103 $ -
Marketable securities - 450,000
Accounts receivable, less allowance for uncollectible
accounts of $79,943 in 1996 and $74,526 in 1995 304,294 207,771
Other receivables 36,557 33,538
Prepaid expenses 70,122 182,227
Notes receivable - related party - 2,250,000
-------- ----------
Total current assets 411,076 3,123,536
-------- ----------
PROPERTY & EQUIPMENT:
Property & equipment, net of accumulated
depreciation of $19,870 in 1996 and $8,827 in 1995 178,139 223,372
-------- ----------
OTHER ASSETS:
Organization costs, net of accumulated amortization of
$3,124 in 1996 and $2,410 in 1995 2,946 4,160
-------- ----------
TOTAL ASSETS $592,161 $3,351,068
======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-19-
<PAGE> 20
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY 1996 1995
----------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 36,204 $ 18,725
Accrued expenses 5,413 1,966
Current portion of long term debt 4,737 -
Due to related parties 84,884 111,105
----------- ----------
Total current liabilities 131,238 131,796
LONG TERM DEBT 10,871 -
----------- ----------
TOTAL LIABILITIES 142,109 131,796
----------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.03 par value, 500,000,000
shares authorized, 12,328,889 issued and
outstanding in 1996, 328,889 (restated) in 1995 369,867 9,867
Additional paid-in capital 9,658,732 4,018,732
Receivable for stock issued (8,250,000) -
----------- ----------
1,778,599 4,028,599
Retained deficit (1,328,547) (809,327)
----------- ----------
Total Stockholders' equity 450,052 3,219,272
----------- ----------
TOTAL LIALBILITIES & STOCKHOLDERS' EQUITY $ 592,161 $3,351,068
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-20-
<PAGE> 21
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
(Restated) (Restated)
Common Stock Additional
----------------------- Paid-in Retained
Shares Amount Capital Deficit Total
------------ --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 220,982 $ 663 $1,132,346 ($125,598) $1,007,411
Stock issued in exchange for
investment services 5,685 17 170,558 - 170,575
Stock issued in connection with the
acquisition of Dameron, Levy &
Baker P.A. 10,556 32 224,983 - 225,015
Stock issued in connection with the
purchase of real estate 367 1 54,999 - 55,000
Stock canceled in connection with the
sale of real estate (367) (1) (54,999) - (55,000)
Stock issued in exchange for note
receivalbe 75,000 225 2,249,775 - 2,250,000
Stock issued in exchange for personal
services 16,667 50 249,950 - 250,000
Net loss for the year - - - (683,729) (683,729)
------------ -------- ---------- --------- ----------
BALANCE, December 31, 1995 328,889 987 4,027,612 (809,327) 3,219,272
Stock split - (954) 954 - -
Adjust capital stock to $.03 per - 9,834 (9,834) - -
----------- -------- ---------- --------- ----------
RESTATED, December 31, 1995 328,889 9,867 4,018,732 (809,327) 3,219,272
Stock issued in exchange for cash
and notes receivable 12,000,000 360,000 5,640,000 - 6,000,000
Offset for notes receivables for
stock issued - - (8,250,000) - (8,250,000)
Net loss for the year - - - (519,220) (519,220)
----------- -------- ---------- --------- ----------
BALANCE, December 31, 1996 12,328,889 $369,867 $1,408,732 $(1,328,547) $ 450,052
=========== ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-21-
<PAGE> 22
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
REVENUE $2,090,115 $ 887,854
COSTS AND EXPENSES
Accounting and legal 79,159 112,478
Depreciation and amortization 16,717 14,566
Consulting services 171,006 329,221
Public company expenses - 22,176
Salaries and benefits 1,061,550 755,415
General and administrative 1,221,555 317,739
---------- ----------
Total costs and expenses 2,549,987 1,551,595
---------- ----------
LOSS FROM OPERATIONS (459,872) (663,741)
---------- ----------
OTHER INCOME (EXPENSE)
Interest income 3,018 10,544
Loss on disposal of assets (40,140) (15,285)
Interest expense (22,226) (15,247)
---------- ----------
Net other income (expense) (59,348) (19,988)
---------- ----------
NET LOSS $ (519,220) $ (683,729)
========== ==========
NET LOSS PER SHARE OF
COMMON STOCK $ (0.14) $ (2.24)
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
SHARE EQUIVALENTS OUTSTANDING
(RESTATED) 3,726,149 304,711
========== ==========
</TABLE>
The accompanying notes are in integral part of these financial statements.
-22-
<PAGE> 23
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash used in
operating activities:
Net loss $(519,220) $(683,729)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on disposal of fixed assets 40,140 -
Depreciation and amortization 16,717 10,066
Non-cash transactions 6,387 58,701
Bad debt expense 5,417 -
Increase (decrease) in current assets:
Accounts receivable (101,940) 65,541
Prepaid expenses 112,104 43,558
Increase (decrease) in current liabilities:
Accounts payable 18,192 -
Accrued expenses 3,447 8,017
--------- ---------
Total adjustments 60,324 185,883
--------- ---------
Net cash used in operating activities (418,756) (497,846)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash - restricted - 46,771
Marketable securities 450,000 (450,000)
Purchase of property and equipment (17,509) (81,140)
Other receivables (3,019) (28,496)
--------- ---------
Net cash provided by (used in) investing activities 429,472 (512,865)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable 15,608 -
Repayment of note payable - (19,785)
Organization costs - (500)
Loans from related parties (26,221) 213,185
Cash as a result of stock exchange - 14,712
--------- ---------
Net cash provided by financing activities (10,613) 207,612
--------- ---------
INCREASE (DECREASE) IN CASH 103 (803,099)
CASH AT BEGINNING OF PERIOD - 803,099
--------- ---------
CASH AT END OF PERIOD $ 103 $ -
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-23-
<PAGE> 24
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Prentice Capital, Inc. was incorporated in Delaware on March 26, 1990, for the
purpose of obtaining capital to take advantage of business opportunities which
have potential for profit. On September 6, 1994, Prentice Capital acquired
Universal Footcare, Inc. (a Florida corporation) through an exchange of stock.
On February 10, 1995, the Company's subsidiary, Universal Footcare, Inc.
(Universal) acquired substantially all of the assets of Dameron Levy & Baker,
P.A. (the "Clinic"), a podiatry clinic in Tampa, Florida.
On February 5, 1995, the Company established a wholly owned subsidiary, Casinos
International, Inc., a Florida Corporation, for the purpose of operating a
gaming cruise ship.
The Company was considered to be a development stage enterprise as more fully
defined in Statement No. 7 of the Financial Accounting Standards Board. Since
inception until February 10, 1995, the Company was engaged primarily in
organizational, fund raising activities, and investigating business
opportunities.
Principles Of Consolidation
The consolidated financial statements include the accounts of Prentice Capital,
Inc. and its wholly owned subsidiaries, Universal Footcare, Inc., and Casinos
International, Inc., (collectively referred to as the "Company"). All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Concentration of Credit Risks
The Company is primariily in medical services in connection with its podiatrist
clinics in the Tampa Bay area, through insurance companies, medicare and
medicaid, and private pay patients. Therefore, the Company is subject to a
concentration of credit risks on its accounts receivable resulting from these
sources of payment, and the local Tampa Bay area economy in the amount of
$304,294.
-24-
<PAGE> 25
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Costs
Organization costs, consisting principally of legal and professional fees
incurred during the formation of the Company have been capitalized and are
being amortized over a five-year period.
Depreciation
Property and equipment are carried at cost. Depreciation is computed using the
straight-line method for financial reporting purposes at rates based on the
respective assets estimated useful lives.
Income Taxes
The Company provides for deferred income taxes based on income reported for
financial statement purposes. A provision for current and deferred income
taxes is made under Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". Under the liability method specified in SFAS
No. 109, deferred tax assets and deferred tax liabilities are determined based
on the difference between the financial statement and tax basis of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
The Company recognizes certain items of income and expense for financial
reporting purposes in different periods from those in which such items are
recognized for income tax purposes. No deferred income taxes are reflected on
the accompanying financial statements due to the Company's losses from
operations.
NOTE 2: RESTRICTED CASH
Pursuant to the requirements of the Colorado Securities Act, the Company has
escrowed 80% of the net offering proceeds ($45,660) of its initial public
offering, to remain in escrow until such time as the Company enters into a
definitive merger or acquisition agreement with a target company. On February
10, 1995, the Company completed an acquisition of an operating company, and
upon filing the appropriate documents, the escrowed funds were released.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications as follows:
-25-
<PAGE> 26
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 3: PROPERTY AND EQUIPMENT (Continued)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Machinery and equipment $ 98,386 $ 123,361
Furniture and fixtures 34,055 43,270
Lease improvements 10,000 10,000
Vesssel 55,568 55,568
-------------- --------------
198,009 232,199
Less accumulated depreciation (19,870) (8,827)
-------------- --------------
Net property and equipment $ 178,139 $ 223,372
============== ==============
</TABLE>
NOTE 4: DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Bank note, payable in monthly installments of $494 per month,
including interest at the rate of 8.475% per annum,
collateralized by computers and telephone system $ 15,608
Less current portion of long-term 4,736
---------
Long-term debt $ 10,457
=========
</TABLE>
Scheduled principal payments are as follows:
<TABLE>
<CAPTION>
Year Ending December 31, Amount
------------------------ ---------
<S> <C>
1997 $ 4,737
1998 5,209
1999 5,662
---------
$ 15,608
=========
</TABLE>
NOTE 5: CAPITAL STOCK
Stock Issuances
Effective January 1, 1995, Prentice issued 170,555 shares (5,685 shares after
the 1 for 30 split of June 10, 1996) of its common stock to an unrelated
consultant in exchange for investment banking services during a three year
period.
-26-
<PAGE> 27
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 5: CAPITAL STOCK (Continued)
Stock Issuances (Continued)
On March 31, 1995, Prentice agreed to issued 11,000 shares (367 shares after
the 1 for 30 split of June 10, 1996) of its common stock to the a Florida
general partnership owned by the former shareholders of Dameron Levy & Baker,
P.A. in connection with the purchase of real estate used in the Company's
operations. The Company is also obligated to pay the general partnership
$144,662 in cash.
On March 31, 1995, Prentice issued 316,666 shares (10,556 shares after the 1
for 30 split of June 10, 1996) of its common stock to the former shareholders
of Dameron Levy & Baker, P.A., plus $100,002 in cash, in exchange for
substantially all of the assets of that company.
On March 31, 1995, Prentice issued 2,250,000 shares (75,000 shares after the 1
for 30 split of June 10, 1996) of its common stock to its President, Alan S.
Lipstein, in exchange for a single maturity payment promissory note of even
amount held in escrow. The promissory note is payable on March 31, 1996
together with interest at the rate of 6% per annum. On December 15, 1995 the
Company entered into an agreement with Alan S. Lipstein, the Companys president
to exchange the promissory note for 450,000 shares of Med Vax Technologys
common stock. Mr. Lipstein is also the president and one of the major
shareholders of Med Vax Technology. Prior to the end of the year, it was
determined that the shares of Med Vax Technology had become worhtless,
therefore the carrying value of the shares of $2,250,000 was written off
reestablishing the receivable for stock from Mr. Lipstein. This amount due to
the Company was satisfied, subsequent to the end of the year, in connection
with the cancellation of 7,800,000 shares of the Companys common stock from
Alan S. Lipstein and Gerard Norton (Note 17).
On April 3, 1995, Prentice issued 500,000 shares (16,667 shares after the 1 for
30 split of June 10, 1996) of its common stock to Dr. Joel M. Levy in exchange
for his services as president of Universal for a one year period. The shares,
restricted under Section 144, were valued at $.50 per share.
On July 1, 1996, the Company entered into a stock purchase agreement with
Vietri Investments, Ltd., an unrelated entity, for the sale of 1,000,000 shares
of the Company's $.03 par value for $500,000, in exchange for a promissory note
in the amount of $500,000. The promissory note is secured by the purchaser
pledging the shares acquired, and bears interest at the rate of 10% per annum.
The accrued interest is payable quarterly beginning November 30, 1996, and all
the principal and accrued interest is payable in full on November 30, 1997. On
March 17, 1997 in conjunction with the Purchase Agreement (Note 17) the
promissory note was canceled.
On July 1, 1996, the Company entered into a stock purchase agreement with
Roscom, Ltd., an unrelated entity, for the sale of 1,000,000 shares of the
Company's $.03 par value for $500,000, in exchange for a promissory note in the
amount of $500,000. The promissory note is secured by the
-27-
<PAGE> 28
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 5: CAPITAL STOCK (Continued)
Stock Issuances (Continued)
purchaser pledging the shares acquired, and bears interest at the rate of 10%
per annum. The accrued interest is payable quarterly beginning November 30,
1996, and all the principal and accrued interest is payable in full on November
30, 1997. On March 17, 1997 in conjunction with the Purchase Agreement (Note
17) the promissory note was canceled.
On June 6, 1996, the Company authorized the issuance of 10,000,000 shares of
the Company's $.03 par value common stock, 5,000,000 shares to Alan S. Lipstein
and 5,000,000 to Gerard Norton, in exchange for promissory notes from Mr.
Lipstein and Mr. Norton in the original principal amount of $2,500,000 each.
The promissory notes are secured by the respective purchaser pledging the
shares acquired, and bears interest at the rate of 10% per annum. The accrued
interest is payable quarterly beginning September 6, 1996, and all the
principal and accrued interest in payable in full one year after the date of
issuance. On March 17, 1997 in conjunction with the Unger Agreement (Note 17)
Mr. Norton and Mr. Lipstein agreed to return 7,800,000 shares of the Companys
common stock to the treasury in exchange for the cancellation of certain debts.
Reverse Stock Split
On June 10, 1996, the Board of Directors approved a 1 for 30 reverse stock
split of the Company's $.0001 par value common stock, which became effective
June 24, 1996. The par value of these shares were adjusted to $.03 per share.
The historical shares outstanding were retroactively restated to reflect the
effect of the reverse stock split as of the date of the initial stock
issuances.
NOTE 6: PREFERRED STOCK
On March 14, 1996, the Board of Directors approved the creation of a Series A
Preferred Stock, and an offering of the preferred shares. The Company offered
up to 10 investment units ("Units") at a purchase price of $250,000 per Unit.
Each Unit consisted of 500,000 preferred shares. The preferred shares are
non-voting, and entitle the holder to an annual dividend of $.50 per share,
once the Company's net income is in excess of $1 million, payable in cash or in
shares of the Company's common or preferred stock. Each share is convertible
beginning on April 1, 1998 into shares of the Company's common stock. The
Company can redeem the preferred shares on or after April 15, 2001 at a price
of $10 per share.
On April 15, 1996, the Company sold to Roscom, Ltd., and Vietri Investments,
Ltd., two unrelated entities, 4,000,000 and 1,000,000 shares respectively of
the Company's Series A Preferred Stock in exchange for their promissory notes
in the face amount of $2,000,000 and $500,000 respectively. The promissory
notes mature on April 15, 1997, at which time all principal and accrued
interest at the
-28-
<PAGE> 29
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 6: PREFERRED STOCK (Continued)
rate of 6% per annum is due. The promissory notes are secured by each purchaser
pledging their respective shares of Series A Preferred stock.
On March 17, 1997, the Company, Roscom, Ltd., and Vietri Investments, Ltd.
agreed to rescind the sale of preferred stock, by returning the preferred shares
issued and by the cancellation of the promissory notes. Therefore, the issuance
of the preferred shares were not recorded in the accompanying financial
statements.
NOTE 7: INCOME TAXES
No provision for income taxes is required for the years ended December 31, 1996
and 1995, because the Company has incurred net operating losses since its
inception, and there are no previous earnings to which such losses may be
carried back.
At December 31, 1996, the Company has net operating loss carryforward for
Federal and state income tax purposes of approximately $1,216,920 which, if not
used will expire as follows:
<TABLE>
<CAPTION>
Year of Expiration Amount
------------------ -----------
<S> <C>
2005 $ 100
2006 4,300
2007 7,800
2008 7,900
2009 105,500
2010 697,700
2011 519,220
-----------
$ 1,342,520
===========
</TABLE>
As of December 31, 1996 and 1995 total deferred tax assets and valuation
allowance are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Deferred tax assets resulting from
loss carryforward $ 304,200 $ 163,500
Valuation allowance (304,200) (163,500)
--------------- ---------------
$ - $ -
=============== ===============
</TABLE>
-29-
<PAGE> 30
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 7: INCOME TAXES (Continued)
The Company has unused book operating losses of $849,000 (including $19,300 by
Universal Footcare prior to the merger) as a result of deficit accumulated
during the development stage, to offset future taxable income.
NOTE 8: NET LOSS PER SHARE OF COMMON STOCK
The net loss per common share is computed based on the weighted average number
of historical shares outstanding during the periods presented, giving effect to
the 1 for 30 reverse stock split effective June 24, 1996.
For purpose of computing the weighted average number of shares, all common
shares outstanding were retroactively adjusted to the beginning of the periods
presented.
Shares issued for nominal consideration have been treated as outstanding for
the entire period, in accordance with rules established by the Securities and
Exchange Commission. Common stock equivalents have been excluded because the
effect of their inclusion would be antidilutive.
NOTE 9: INCENTIVE STOCK OPTION PLAN
On March 26, 1990, the Company adopted an Incentive Stock Option Plan (the
Plan) under which options granted are intended to qualify as "incentive stock
options" under Section 422A of the Internal Revenue Code of 1986. Pursuant to
the Plan, options to purchase up to 10,000,000 shares of the Company's common
stock may be granted to employees of the Company.
The Plan is administered by the Board of Directors, which is empowered to
determine the terms and conditions of each option, subject to the limitation
that the exercise price cannot be less than the market value of the common
stock on the date of the grant (110% of the market value in the case of options
granted to an employee who owns 10% or more of the Company's outstanding common
stock) and no option can have a term in excess of 10 years (5 years in the case
of options granted to employees who own 10% or more of the Company's common
stock). At December 31, 1996 no options have been granted pursuant to the
Plan.
NOTE 10: RELATED PARTY TRANSACTIONS
Office Arrangement
During 1995, the Company obtained a verbal arrangement with Alan S. Lipstein,
the Company's president at the time, for an affiliated entity controlled by Mr.
Lipstein to provide for the use of a
-30-
<PAGE> 31
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 10: RELATED PARTY TRANSACTIONS (Continued)
Office Arrangement (Continued)
portion of a business office on a month to month basis, at no cost to the
Company until February 1995, except for the reimbursement to the affiliate
company for any out-of-pocket office expenses, not to exceed $200 per month.
Subsequent to February 1995, the Company pays rent expense of $601 per month
for the office space.
Due To Affiliates
During 1995, the Company received advances from Alan S. Lipstein in the amount
of $80,055. In addition, Mr. Lipstein paid expenses in behalf of the Company
in the amount of $25,109. The balance due to Mr. Lipstein by the Company at
December 31, 1995, including interest at the rate of 9% per annum, is $111,104.
During 1996, Mr. Lipstein paid expenses in behalf of the Company in the amount
of $134,800 and made cash advances to the Company of $15,800. Additionally,
the Company accrued interest at the rate of 9% per annum in the amount of
$26,500. On December 31, 1996, Mr. Lipstein reimbursed the Company $450,000
for funds paid to him for the purchase of stock (See, PURCHASE OF SECURITIES"
below)
The balance due to Mr. Lipstein by the Company at December 31, 1996, including
interest, rate of, is $53,200.
Purchase Of Securities
On January 28, 1995, the Company purchased from Mr. Alan S. Lipstein, the
Companys president, 800,000 shares of common stock of Eagle Vision, Inc., a
publicly traded company, for $450,000 in cash. Mr. Alan S. Lipstein, the
Company's president, is also the president of and a major shareholder of Eagle
Vision. On December 15, 1995, the Company exchanged the 800,000 shares of
Eagle Vision stock for 100,000 shares of Med Vax Technology, Inc. valued at $5
per share. Mr. Alan S. Lipstein is also the president and one of the major
shareholders of Med Vax Technology.
Prior to the end of the year, it was determined that the shares of Med Vax
Technology became worthless, therefore, Mr. Lipstein reimbursed the Company for
the $450,000 paid by the Company, by the cancellation of amounts otherwise due
to Mr. Lipstein for salaries due to him and for expenses paid by Mr. Lipstein
in behalf of the Company.
Employment Agreement
On December 1, 1994, the Company entered into an employment agreement with Alan
S. Lipstein, the Company's president, for an initial period of five years and
automatically extended for unlimited
-31-
<PAGE> 32
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 10: RELATED PARTY TRANSACTIONS (Continued)
Employment Agreement (Continued)
successive one year periods unless previously terminated according to the terms
of the agreement. For the services rendered be Mr. Lipstein under the
agreement, the Company shall pay him a base compensation of $240,000 per year.
On December 19, 1994 and due to the Company's limited capital resources, Mr.
Lipstein agreed to accept, in lieu of the monthly cash compensation, 50,000
shares of the Company's common stock, provided that the Company agrees to file
a registration statement registering the shares for sale. On January 5, 1995,
the Company filed a registration statement on behalf of Mr. Lipstein and
registered the 50,000 common shares.
NOTE 11: SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1996 and 1995, cash payments of interest was
$3,018 and $14,852 respectively. No payments for taxes were made in 1996 or
1995. Cash receipt of interest income was $-0- in 1996, and $4,604 in 1995.
Supplemental disclosure of non-cash operating, investing and financing
activities are as follows:
Effective January 1, 1995, the Company issued 170,555 shares (5,685 shares
after the 1 for 30 split of June 10, 1996) of its common stock to an unrelated
consultant in exchange for investment banking services during a three year
period.
On March 31, 1995, the Company agreed to issued 11,000 shares (367 shares after
the 1 for 30 split of June 10, 1996) of its common stock to the a Florida
general partnership owned by the former shareholders of Dameron Levy & Baker,
P.A. in connection with the purchase of real estate used in the Company's
operations. The stock was subsequently cancelled as a result of a sale of the
real estate to the partnership.
On March 31, 1995, Company issued 316,666 shares (10,556 shares after the 1 for
30 split of June 10, 1996) of its common stock to the former shareholders of
Dameron Levy & Baker, P.A., plus $100,002 in cash, in exchange for
substantially all of the assets of that company.
On March 31, 1995, the Company issued 2,250,000 shares (75,000 shares after the
1 for 30 split of June 10, 1996) of its common stock to its President, Alan S.
Lipstein, in exchange for a single maturity payment promissory note of even
amount held in escrow.
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<PAGE> 33
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 11: SUPPLEMENTAL CASH FLOW INFORMATION (Continued)
On April 3, 1995, the Company issued 500,000 shares (16,667 shares after the 1
for 30 split of June 10, 1996) of its common stock to Dr. Joel M. Levy in
exchange for his services as president of Universal for a one year period.
On December 15, 1995 the Company entered into an agreement with Alan S.
Lipstein to exchange his $2,250,000 promissory note for 450,000 shares of Med
Vax Techonologys common stock.
On December 15, 1995, the Company exchanged 800,000 shares of Eagle Vision
stock for 100,000 shares of Med Vax Technology, Inc. valued at $5 per share.
On June 6, 1996, the Company issued 5,000,000 shares of its common stock to
Mariner Financial of Florida ,Inc(a privately held company of Alan Lipstein,
the Companys President), and 5,000,000 shares of its common stock to Gerard
Norton, its Vice President, in exchange for promissory notes in the principal
amount of $2,500,000 respectively.
On July 1, 1996, the Company issued 1,000,000 shares of its common stock to
Roscom, Ltd. in exchange for a promissory note in the amount of $500,000.
NOTE 11: SUPPLEMENTAL CASH FLOW INFORMATION (Continued
On July 1, 1996, the Company issued 1,000,000 shares of its common stock to
Vietri Investments, Ltd. in exchange for a promissory note in the amount of
$500,000.
NOTE 12: EXCHANGE OF STOCK
Effective on September 6, 1994, the Company completed of an Agreement
Concerning the Exchange of Common Stock whereby Prentice Capital, Inc.
(Prentice) acquired all of the issue and outstanding common and preferred stock
of Universal Footcare, Inc. (Universal) in exchange for which Prentice issued
to the shareholders of Universal 5,800,000 shares of Prentice's $.0001 par
value common stock. The acquisition was accounted as a purchase, similar to a
reverse acquisition. The accounts of Prentice have been consolidated with
those of Universal as of September 6, 1994.
On August 4, 1994, in accordance with the terms of the Agreement, two of the
former Directors of Universal, Alan S. Lipstein and Gerald Norton, as well as
another individual, Dr. Joel Levy were elected as Directors of Prentice, and
concurrently, Timothy J. Brasel, Prentice's sole Director at the time resigned
his position.
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<PAGE> 34
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 13: MERGER
On February 10, 1995, Prentice Capital, the Company's subsidiary, Universal
Footcare, Inc. (Universal) and Dameron Levy & Baker, P.A. (the "Clinic"),
completed a "forward triangular merger", merging the Clinic with and into
Universal, at the conclusion of which Universal, remains as the surviving
entity and the corporate existence of the Clinic terminated and expired.
In connection with such merger the Company issued 316,666 shares (10,556 shares
after the 1 for 30 split of June 10, 1996) to the former shareholders of the
Clinic, and agreed to register these shares as part of the Registration
Statement the Company intends to file with the Securities and Exchange
Commission, subject to whatever restrictions may be imposed upon the sale of
such shares by the underwriter of the public offering.
The Company also committed to issued additional shares to the former
shareholders of the Clinic, if at the time these shares can be freely
transferred under the Registration Statement, or July 1, 1996 if earlier, the
value of the shares issued to them in connection with the merger is less than
$3 per share. The Company would issue such additional shares so that the value
of the original shares issued plus the additional shares equal the product of
$3 per share.
The Company agrees to keep the Registration Statement effective until all the
registered shares owned by the former shareholders of the Clinic are sold, or
one year from the date on which any lock-up restrictions imposed by the
underwriter are waived (the "True-Up Date), but in no event later than July 1,
1997. If on the True-Up Date, the value of the shares then held by the former
shareholder of the Clinic, plus the gross proceeds of any shares previously
sold is less than the product of the 316,666 multiplied by $3, then the Company
will issue the former shareholders of the Clinic a non-interest bearing
promissory note for the deficiency, payable within 90 days thereafter.
Employment Agreements
In connection with the merger agreement discussed above, the Company entered
into employment agreement with the three professional employees of the Clinic
all of which were also shareholders of the Clinic. The employment agreement
cover a period of ten years ending on January 31, 2005. The compensation under
these agreements is based on an increasing scale of collections of accounts
receivable generated by each employee.
NOTE 14: PURCHASE OF REAL ESTATE
Simultaneously with the execution of the merger agreement discussed above,
Dameron, Levy & Associates, a Florida general partnership owned by the
shareholders of the Clinic, entered into an agreement to sell to the Company an
office building being used to house the main office of the Clinic. The
purchase price was $450,000 plus 11,000 shares (367 shares after the 1 for 30
split of June 10, 1996) of the Company's common stock.
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<PAGE> 35
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 14: PURCHASE OF REAL ESTATE (Continued)
On December 15, 1995, the Company entered into an agreement to sell the
building to the partnership in exchange for the remaining bank debt, the
amounts due by the Company to the partnership, and the cancellation of 11,000
shares (367 shares after the 1 for 30 split of June 10, 1996) of the Company's
common stock.
NOTE 15: GAMING SHIP FINANCING
On December 23, 1996, the Company received a formal commitment letter from the
Royal Bank of Scotland for a loan facility in the amount of $6.5 million to
partially finance the proposed construction of a luxury gaming cruise ship.
The loan would be for a term of 8 years at 2.5% over LIBOR rate, with a
commitment fee of 1.25% and an arrangement fee of 2.5% of the loan amount. The
commitment contains certain operating restrictions.
The projected capital expenditure for the construction of the ship is
$14,070,000, therefore the Company would be required to provide the additional
$7,570,000.
The Company was in process of negotiating with an underwriter for a stock
offering with anticipated proceeds of $5 million. That underwriting process
was not successful.
NOTE 16: OPERATING LEASE OBLIGATIONS
The Company conducts its operations which consist principally of podiatrist
clinics under operating leases ranging from $5,700 to $44,000 per annum.
Rental expense for the year ended December 31, 1996 was $71,200.
NOTE 17: SUBSEQUENT EVENTS
Casino International Merger
On February 26, 1997, the Company, together with its wholly owned subsidiary
Casino International, Inc., entered into an Agreement and Plan of
Reorganization with Eco2, Inc., a publicly traded company, its wholly owned
subsidiary, Eco2 Acquisition, Inc. whereby Casino International would be merged
into Eco2 Acquisition, Inc. As a result of this merger contemplated by this
agreement, Prentice received 5,000,000 shares of Eco2, Inc. $.03 par value
common stock and a promissory note in the amount of $500,000.
The promissory note, including interest at the rate of 8% per annum, is payable
in sixty equal monthly installments of $10,138, the first installment being
payable on March 31, 1997. No
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<PAGE> 36
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 17: SUBSEQUENT EVENTS (Continued)
Casino International Merger (Continued)
payments have been received by the Company. The promissory note is secured by
100 shares, representing 100% of the outstanding shares of common stock of
Casino International, Inc. held in escrow in accordance with an Escrow and
Disposition Agreement of even date.
On the effective date of the merger, the existing members of the Board of
Directors of Eco2, Inc. appointed Alan S. Lipstein, the president of the
Company, as director of Eco2, Inc., and immediately thereafter the former
members of the Board of Directors and Officers of Eco2, Inc. resigned.
Eco2, Inc. and Prentice jointly and severally agreed to indemnify Charles
Ledford, Vivian Ledford, and Raymond Ledford, all of the officers and directors
of Eco2, Inc., as well as Energy Systems, Inc., a company owned by the
Ledfords, (hereinafter collectively referred to as "Indemnitees") from and
against any and all damages, losses, obligations, deficiencies, liabilities,
claims, encumbrances, penalties, costs and expenses, including reasonable
attorney's fees, which the Indemnitees may suffer or incur, resulting from (a)
their being an officer or director of Eco2, Inc.; (b) the transaction
contemplated under the merger contemplated under this agreement; (c)
misrepresentations, breach of warranty, or nonfulfillment of any of the
covenants or agreements of Casinos International in this agreement or from any
misrepresentation in or omission from any certificate or document furnished or
to be furnished to the Indemnitees hereunder, and; (d) any and all actions,
suits, investigations, proceedings, demands, assessments, audits, judgments,
and claims arising out of the foregoing.
Universal Footcare Merger
On March 26, 1997, the Company, together with its wholly owned subsidiary
Universal Footcare, Inc., (Universal) entered into an Agreement of Merger with
Footcare Centers of America, Inc., (FCA) its wholly owned subsidiary, Footcare
Acquisition, Inc., (Acquisition) and Dr. Joel M. Levy, D.P.M., James P.
Dameron, D.P.M., and Steven Baker, D.P.M. (Podiatrists), whereby Universal
would be merged into Aquisition.
According to the agreement Footcare Centers of America will purchase the
operations of the Clinics for a combination of cash and stock. As part of the
terms of the transaction, employment agreements withe the former Dameron, Levy
& Baker principals will be renegociated, superseding prior commitments by
Prentice Capital concerning shares of Prentice stock issued in connection with
the 1995 acquisitions of the Clinics by Prentice Capital.
On the effective date of the merger, the existing members of the Board of
Directors of Acquisition immediately prior to the merger remain as officers and
directors of the surviving company.
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<PAGE> 37
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 17: SUBSEQUENT EVENTS (Continued)
Purchase Of Mineral Rights
On March 17, 1997, the Company and Chartwell International, Inc., a Nevada
corporation ("Chartwell") entered into a Purchase and Sale Agreement (the
"Purchase Agreement") pursuant to which the Company purchased certain gypsum
mining property rights located in Washington County, Utah, generally known as
Riverview Placer Claims and New Riverview Claims (the "Claims") in exchange for
$4,000,000 in cash, cash equivalents and restricted shares of the Company's
$.03 par value common stock.
Under the terms of the Purchase Agreement, the Company delivered to Chartwell
1,000,000 shares of Common Stock of the Company (the "Closing Shares").
Additionally, pursuant to the Purchase Agreement, in the event that on April 1,
1997 (which date was subsequently extended until April 15, 1997 by that certain
Extension Agreement, as herein described, dated April 2, 1997 between the
Company and Chartwell), the market value of the Closing Shares is less than
$4,000,000, then the Company shall deliver to Chartwell a sufficient number of
additional shares of the Company's Common Stock (the "Exchange Shares") having
a market value equal to the difference between the value of the closing shares
on April 1, 1997 (subsequently extended until April 15, 1997 by that certain
Extension Agreement dated April 2, 1997 between the Company an and Chartwell)
and $4,000,000. Further, under the terms of that certain agreement between the
Company and Chartwell, dated April 10, 1997 (the "Amended Purchase Agreement"),
for purposes of determining the market value of the Common Stock under the
Purchase Agreement, such market value shall be determined based on the closing
bid price of the Company's Common Stock on April 15, 1997.
The Purchase Agreement also provides that in the event that on April 1, 1998,
the date on which all restrictions on the Closing Shares and the Exchange
Shares shall be removed, the market value of the Closing Shares plus the
Exchange Shares is not equal to or in excess of $4,000,000, then the Company
has the right and obligation to issue Chartwell additional shares, or deliver
to Chartwell cash equal to the difference between the market value of the
Closing Shares plus the Exchange
Shares and $4,000,000, or, in lieu thereof, return to Chartwell the Claims,
with Chartwell retaining all shares of Common Stock previously issued to them.
All shares of Company Common Stock issued under the Purchase and Amended
Purchase Agreements are restricted securities under the Securities Act of 1933
and will be legended with the normal Securities Act of 1933 restrictive legend.
Further, the Company has agreed to grant Chartwell, on customary terms,
piggyback registration rights on all shares of common stock issued pursuant to
the Purchase and Amended Purchase Agreements.
On April 2, 1997, the Company and Chartwell entered into an Extension Agreement
(the "Extension Agreement") pursuant to which each of the parties agreed to
extend the time period established in the Purchase Agreement for valuing the
market price of the Closing Shares from April 1, 1997 to April 15, 1997.
Additionally, pursuant to the Extension Agreement, the parties agreed that the
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<PAGE> 38
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 17: SUBSEQUENT EVENTS (Continued)
Purchase Of Mineral Rights (Continued)
Company shall deliver to Chartwell 1,000,000 shares of the Company's Common
Stock on or before April 4, 1997. The parties have also agreed that in the
event that on April 15, 1997, the bid price of the Company's Common Stock is
$4.00 per share or greater, Chartwell shall return to the Company the 1,000,000
shares referenced in the sentence above, or the Exchange Shares, as that term
is used in the Purchase Agreement such that the stock retained by Chartwell has
a market value on April 15, 1997 of $4,000,000. Further, pursuant to the
Extension Agreement, the Company shall deliver to Chartwell $100,000 on or
before April 15, 1997, plus shares of the Company's Common Stock (unrestricted)
that together with the $100,000 will equal $500,000 based on the bid price on
the day of delivery.
Option To Sell Common Stock
On March 10, 1997, the Company and Lee J. Unger entered into an agreement (the
"Unger Agreement") pursuant to which the Company agreed to sell to Mr. Unger
5,000,000 shares of its restricted common stock at a price of $.05 per share,
which purchase shall be effected by delivery by Mr. Unger of an assignable
Promissory Note bearing interest at 6% per annum and due payable one year from
the date of the Unger Agreement.
Cancellation Of Stock
Under the terms of the Unger Agreement referred to above, Alan S. Lipstein and
Dr. Gerard Norton have agreed to contribute back to the capital of the Company
an aggregate of 7,800,000 shares of common stock in exchange for the
cancellation of promissory notes due and payable to the Company in the
following amounts due by the respective parties: Dr. Gerard Norton -
$2,500,000; Alan S. Lipstein - $2,500,000; Roscom Limited - $400,000; and
Veitri Investments, Ltd. - $400,000.
Election Of Officers
Pursuant to the Unger Agreement referred to above, Mr. Lee Unger was elected
President and director of the Company. Simultaneously with the agreement, Mr.
Alan S. Lipstein and Dr. Gerard Norton resigned as officers and directors of
the Company leaving Mr. Unger as the sole officer and director of the Company.
Purchase of MRI Business
On June 3, 1997, the Company, entered into a Stock Purchase Agreeemnt
(Agreement) with U.S.A. Diagnostics, Inc., a Florida corporation (Diagnostics),
and its sole shareholder, Nate Hollander, for the acquisition of 100% of the
capital stock of Diagnostics and the assets of MRI Management
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<PAGE> 39
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 17: SUBSEQUENT EVENTS (Continued)
Purchase of MRI Business (Continued)
Services, Inc.(MMS) and Bentley Designers and Builders, Inc.(BDB) consisting of
two Magnetic Resonance Imaging (MRI) units. Mr. Hollander is the sole
shareholder of MMS and DBD, each of which owns one mobile MRI unit with an
estimated value of $500,000 each.
Diagnostics is in the business of magnetic resonance imaging and neurological
nerve conduction testing in the South Florida area.
The aggregate purchase price of Diagnostics and the two MRI units is $5,500,000
payable $4,000,000 in cash at the closing, and shares of restricted common
stock of the Company having a value of $1,500,000, determined by the average
closing bid price over the five trading day period preceeding the date of the
Agreement.
Within 45 days of signing the Agreement, the Company is to deposit $1,750,000
into an escrow account, and within 75 days the Company is to use its best
efforts to obtain a firm commitment underwriting, represented by a letter of
intent satisfactory to Mr. Hollander, to raise net proceeds of no less than
$2,500,000 to be used as part of the cash required for closing. According to
the Agreement, the Company is to have an effective registration statement and
closing of the firm commitment underwriting within 175 days of this Agreement.
Should the Company fail to secure a firm commitment underwriting within 45 days
or have a firm commitment underwriting within 75 days, or such longer period as
the parties may mutually agree, then the escrowed funds will be returned to the
Company and the Agreement will terminate.
The shares representing the $1,500,000 are to be paid 10% at the closing and
the remaining 90% on February 2, 1998. However, in the event closing does not
occur prior to February 2, 1998, then the entire 100% of the shares will be
paid at closing.
NOTE 18: SUBSEQUENT EVENTS PROFORMA INFORMATION
The following is a proforma balance sheet of the material post balance sheet
subsequent events. These events have not been audit.
TABLE ON NEXT PAGE
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<PAGE> 40
PRENTICE CAPITAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 18: SUBSEQUENT EVENTS PROFORMA INFORMATION
<TABLE>
<CAPTION>
ASSETS At 12/31/96 Adjustments Proforma
- ----------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Current assets $ 411,076 (C) $ (326,812) $ 84,264
Property and equipment 178,139 (B) (55,568)
(C) (122,571) -0-
Mineral rights (A) 4,100,000 4,100,000
Note receivable (B) 500,000 500,000
Investment in restricted stock (B) 1,100,000 1,100,000
Other assets 2,946 2,946
----------- ----------- -------------
$ 592,161 $ 5,195,049 $ 5,787,210
=========== =========== =============
LIABILITIES & CAPITAL
- -----------------------------
Current liabilities $ 131,867 (A) $ 100,000 $ 178,490
(C) (52,748)
Long-term debt 10,871 (C) (10,871) -0-
Capital stock 369,867 (A) 60,000 195,867
(D) (234,000)
Paid-in-capital 9,658,732 (A) 3,940,000 5,257,695
(C) (325,037)
(D) (8,016,000)
Receivable for stock issued (8,250,000) (D) 8,250,000 -0-
Retained deficit (1,328,547) (B) 1,544,432 155,158
(C) (60,727)
----------- ----------- -------------
$ 592,161 $ 5,195,049 $ 5,787,210
=========== =========== =============
</TABLE>
(A) To record the purchase of gypsum mining mineral rights from Chartwell
International, Inc. by the issuance of 2,000,000 shares of the Companys $.03
par value common stock valued at $2 per share, representing the five-day
average bid price of the stock, and the payment of $100,000 by a third party on
behalf of the Company.
(B) To record the merger of Casino International, Inc. into Eco2, Inc. by
the issuance of 5,000,000 shares of Eco2, Inc. $.01 par value common stock
valued at $.22 per share and a promissory note for $500,000.
(C) To record the transfer of all of the assets and liabilities of
Universal Footcare Clinics to Footcare Centers of America in exchange for the
cancellation of certain liabilities resulting from the issuance of Prentice
Capital stock to the previous shareholders of Dameron, Levy and Baker, PA..
(D) To record the cancellation of 7,800,000 shares of the Companys stock in
exchange for liabilities resulting from previous sales of stock.
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<PAGE> 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Prentice Capital had no change in or disagreements with its accountants
during the last two fiscal years.
(Remainder of page left blank intentionally.)
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<PAGE> 42
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following individuals were the Directors and Officers of Prentice
Capital during its 1996 fiscal year. These officers and directors have
subsequently resigned. All Directors are elected annually by the shareholders
to serve until the next annual meeting of shareholders and until their
successors are duly elected and qualified. Officers are elected annually by
the Board of Directors to serve at the pleasure of the Board.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Alan S. Lipstein Chairman of the Board and 49
Director, President and Chief
Executive Officer
Gerard Norton Secretary and Director 61
Joel M. Levy President, Universal Footcare 48
</TABLE>
ALAN S. LIPSTEIN, age 49, was the President, Chief Executive Officer
and Chairman of the Board of Directors of Prentice Capital, Inc., a corporation
whose stock is traded on the NASDAQ OTC Bulletin Board. Mr. Lipstein has
served in such capacity since August 1994. Prentice Capital was engaged in the
business of owning and operating podiatry practices in Tampa, Florida and
intended to engage in the business of owning and operating gaming vessels based
in South Florida. While serving as the Chief Executive Officer of Prentice
Capital, Inc., Mr. Lipstein also served as the Chief Executive Officer and
President of Advantage Life Products, Inc., a corporation whose stock is traded
on the NASDAQ Small Cap Market. Mr. Lipstein served in such position from
August 1995 until December 1995 and again from February 1996 to December 31,
1996. Advantage Life was engaged in the business of selling consumer products
through "infomercials" and was also engaged in the business of environmental
remediation, through its wholly owned subsidiary, Environmental Professionals,
Inc. ("Enpro"). Mr. Lipstein has served as the Vice President and Director of
Enpro since July 1993. Mr. Lipstein also served as the Chief Executive Officer
and President of Eagle Vision, Inc., a corporation that previously owned Enpro.
Mr. Lipstein has held such positions since 1989. Mr. Lipstein owns equity
interests in, and has served as the officer and director of,
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<PAGE> 43
various other private and public companies including Mariner Financial
Corporation, Lipper Video, Inc., Parkdale Capital Corporation, A & L Prescott,
Inc., Southnet Corporation and Ivory Coast, Inc.
DR. GERALD NORTON, age 61, was the Vice President and a Director of
Prentice Capital, Inc., a corporation whose stock is traded on the NASDAQ OTC
Bulletin Board. Mr. Norton had served in such capacity since August 1994.
Prentice Capital was engaged in the business of owning and operating podiatry
practices in Tampa, Florida and intended to engage in the business of owning
and operating gaming vessels based in South Florida. While serving as the Vice
President of Prentice Capital, Inc., Mr. Norton also served as the Vice
President of Advantage Life Products, Inc., a corporation whose stock is traded
on the NASDAQ Small Cap Market. Mr. Norton served in such position from August
1995 until December 1995 and again from February 1996 to December 31, 1996.
Advantage Life was engaged in the business of selling consumer products through
"infomercials" and was also engaged in the business of environmental
remediation, through its wholly owned subsidiary, Environmental Professionals,
Inc. ("Enpro"). Mr. Norton has served as the Vice President and Director of
Enpro since July 1993. Mr. Norton also served as the Vice President of Eagle
Vision, Inc., a corporation that previously owned Enpro. Mr. Norton has held
such positions since 1989. Previous thereto, Mr. Norton was engaged in
business as a self employed consultant, for the period beginning July 1990 and
ending August 1991, on a full time basis by Great Lakes Environmental, Ltd., a
Canadian corporation ("Great Lakes") that contemplated acquiring the common
stock of Frontier Chemical. Mr. Norton's duties included analyzing, on behalf
of Great Lakes, the economic feasibility of acquiring Frontier Chemical. From
February 1990 to July 1990, Mr. Norton was employed as the President of Xysys
Systems, Inc., a corporation based in Ann Arbor, Michigan, engaged in the
automotive computer aided design ("CAD") software business. Prior thereto,
from January 1989 to February 1990, Mr. Norton worked in England and, as a self
employed consultant, provided managerial consulting services, on a full time
basis, to Ortech, Ltd., an engineering firm specializing in providing services
to the coal mining industry. From August 1988 to December, 1988, Mr. Norton
was employed as the Chairman and Chief Executive Officer of Xysys
International, Inc., the holding company for Xysys Systems, Inc.
JOEL M. LEVY, Doctor of Podiatric Medicine (DPM), obtained his
Bachelor of Arts degree at the State University of New York of Buffalo. Upon
graduation from the State University of New York, Dr. Levy received a Doctorate
in Podiatric Medicine at the New York College of Podiatric Medicine in 1974.
During 1975, Dr. Levy was employed, for one year, as a resident in Foot Surgery
at the New York College of Podiatric Medicine and Affiliated Hospitals. Upon
completion of his residency program, Dr. Levy entered private practice in 1976
and has been employed by Universal Footcare and its predecessors (Dameron-Levy)
since that time. Dr. Levy is currently a licensed Podiatrist in Florida and
New York, a Diplomate of the National Board of Podiatric Examiners and a Fellow
of the International College of Podiatric Laser Surgery. Originally appointed
by the Governor of the State of Florida in 1987, Dr. Levy is currently Chairman
of the Board of Podiatric Medicine - Florida, where he directs the Department
of Business and Professional Regulations. Dr. Levy is board certified in
Primary Care and Podiatric Surgery.
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<PAGE> 44
SECTION 16 REPORTS
The requirements imposed by Section 16(a) of the Securities Exchange
Act of 1934, as amended, provide that Prentice Capital's Officers and
Directors, and persons who own more than ten percent of Prentice Capital's
Common Stock, file initial statements of beneficial ownership (Form 3), and
statements of changes in beneficial ownership (Forms 4 or 5) with the
Securities and Exchange Commission ("SEC"). Officers, directors and greater
than ten percent shareholders are required by SEC regulations to furnish
Prentice Capital with copies of all such forms they file. Based solely on its
review of the copies of such forms received, Prentice Capital believes that all
of its officers, directors and greater than 10% shareholders filed such reports
in a timely manner.
ITEM 11. EXECUTIVE COMPENSATION
CASH COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
--------------------------------- --------------------- -------
Restricted
Name and Other Annual Stock LTIP All Other
Principal Salary Bonus Compensation Award(s) Options/ Payouts Compensation
Position Year $ $ $ $ SAR's (#) $ $
-------- ---- -------- ------ ------------- --------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan S.
Lipstein, 1996 240,000
Chief 1995 240,000
Executive
Officer
Gerard
Norton, 1996 0
Vice 1995 29,900
President
Joel
Levy, 1996 155,925
Vice- 1995 90,000
President
</TABLE>
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<PAGE> 45
Prentice Capital may adopt additional compensation programs at a later
date suitable for its executive personnel. Prentice Capital is unable to
predict at this time the format or manner of compensation to be included in any
such program.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table enumerates, as of March 9, 1997, the name,
address and ownership, both by numerical holding and percentage interest, of
Prentice Capital's Common Stock by (1) the beneficial owners of more than five
percent of Prentice Capital's outstanding Common Stock; (2) the Directors and
Executive Officers of Prentice Capital, individually; and (3) the Directors and
Executive Officers as a group. There are no shares which each of the
following could purchase under outstanding stock options, warrants, conversion
privileges or other rights which were exercisable as of March 9, 1997.
In preparing the following tables, Prentice Capital has relied upon
statements filed with the Securities and Exchange Commission by beneficial
owners of more than 5 percent of Prentice Capital's outstanding Common Stock
pursuant to Section 13(d) or 13(g) of the Securities Act of 1934, unless
Prentice Capital knew or had reason to believe that the information contained
in such statements was not complete or accurate, in which case Prentice Capital
relied upon information which it considered to be accurate and complete.
(Remainder of page left blank intentionally.)
-45-
<PAGE> 46
<TABLE>
<CAPTION>
Title Percent
Class Name and Address Amount of Class
- ----- ---------------- ------ --------
<S> <C> <C> <C>
Common Alan S. Lipstein (Chairman of 56,505 .46%
the Board and Director)
4332 Carrollwood Village Drive
Tampa, Florida 33624
Common Gerard Norton (Vice President, 5,001,667 40.57%
Secretary and Director)
7000 Hummingbird Lane,
New Port Richey, Florida 34655
Common Dr. Joel Levy (Vice President) 21,117 .17%
2511 W. Martin Luther King Blvd.
Tampa, Florida 33607
Common Vietri Investments, Ltd. 1,000,000 8.11%
17 Bond
St. Helier, Jersey
Channel Islands
Common Management as a Group (3 Persons) 5,079,289 41.20%
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH MANAGEMENT
AND OTHERS
On January 28, 1995, Prentice Capital acquired 800,000 shares of the
common stock of Eagle Vision, Inc. ("Eagle Vision") from Alan Lipstein in
exchange for a cash payment of $450,000. At the time of the transaction, Mr.
Lipstein was a director of Eagle Vision and also served as its president. Mr.
Lipstein had acquired the Eagle Vision shares for $450,000.
Effective February 10, 1995, Prentice Capital issued 133,000 shares of
its common stock to Joel M. Levy in exchange for his shares of Dameron-Levy.
Dr. Levy, who is the current President of Universal Footcare, had no prior
affiliation with Prentice Capital.
On March 31, 1995, Prentice Capital issued 2,250,000 shares (75,000
shares after the 1 for 30 split of June 10, 1996) of its capital stock to Alan
S. Lipstein in exchange for his promissory note in the principal amount of
$2,250,000 (the "Lipstein Note"). The note bore interest at the rate of 6% per
annum and all principal and accrued interest thereon was due in one lump sum
payment on March 31, 1996. The Lipstein Note was subsequently satisfied by the
transfer to the Company of 450,000 shares of the common stock of Med-Vax
Technologies, a corporation of which Mr. Lipstein is an affiliate. On
December 31, 1996 it was determined by the Company that the shares of Med-Vax
Technologies had become worthless, therefore the
-46-
<PAGE> 47
carrying value of the shares of $2,250,000 was written off reestablishing
the receivable for the common stock issued to Mr. Lipstein.
On April 3, 1995, Prentice Capital issued 500,000 shares (16,667
shares after the 1 for 30 split of June 10, 1996) of its capital stock to Joel
Levy in partial payment of the compensation due to Dr. Levy for his services to
Prentice Capital during the term of his three year employment agreement,
wherein Dr. Levy is to receive annual compensation of $180,000.
During 1995, Alan Lipstein advanced $111,104 to Prentice Capital. The
amounts owed to Mr. Lipstein are evidenced by a demand note bearing interest at
the rate of 9% per annum. During 1996, Alan Lipstein made cash advances to the
Company in the amounts of $15,800, paid Company expenses in the amount of
$134,800 and repaid advances made to him by the Company in the amount of
$400,000. As of the end of the fiscal year 1996, the Company owed Mr. Lipstein
$53,200, which includes $26,500 in accrued interest. The amounts owed to Mr.
Lipstein are evidenced by a demand note bearing interest at the rate of 9% per
annum.
On July 1, 1996, the Company sold 1,000,000 shares of its common stock
to each of Vietri Investments, Ltd. and Roscom Limited, respectively, in
exchange for, in each case, their respective promissory note in the face amount
of $500,000. The promissory notes were to mature on November 30, 1997, however,
on March 17, 1997 in conjunction with the Company's acquisition of assets from
Chartwell International, Inc. the promissory notes were cancelled.
On June 6, 1996, the Company authorized the issuance of 10,000,000
shares of its common stock, 5,000,000 shares to each of Alan S. Lipstein and
Gerard Norton, in exchange for their respective promissory notes, each in the
face amount of $2,500,000. The promissory notes were secured by the respective
purchaser pledging the shares he acquired and bore interest at the rate of 10%
per annum. The accrued interest under the notes was to be paid beginning
September 6, 1996 and was to continue to be paid in quarterly installments
until June 6, 1997, at which time all principal and accrued interest due under
the notes was to be paid in full. On March 17, 1997, in conjunction with the
acquisition of assets from Chartwell International, Inc., the promissory notes
were cancelled, and Mr. Norton and Mr. Lipstein returned to the Company
7,800,000 shares of the Company's common stock.
(Balance of Page Intentionally Left Blank)
-47-
<PAGE> 48
ITEM 14. EXHIBITS
<TABLE>
<CAPTION>
Item # Assigned
Exhibit in Item 601 of
Exhibit # Regulation S-B Description of Document
- --------- -------------- -----------------------
<S> <C> <C>
10 Agreement and Plan of Merger by and among Prentice Capital,
Universal Footcare and Dameron-Levy dated February 10, 1995.*
10 Employment Agreement between the Company and Joel Levy.**
21 Subsidiaries of registrant.**
27 Financial Data Schedule (for SEC use only)
</TABLE>
__________________
* Incorporated herein by reference to the Company's Report on Form 8-K
for events first occurring on February 10, 1995.
** Incorporated herein by reference to the Company's Annual Report on
Form 10-KSB for its fiscal year ending December 31, 1995
-48-
<PAGE> 49
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized on this 18th day of July 1997.
Prentice Capital, Inc.
By: /s/ Alan S. Lipstein
--------------------------------
Alan S. Lipstein
Chief Executive Officer
In accordance with the Exchange, this Report has been signed below by
the following persons on behalf of the Registrant, and in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Alan S. Lipstein Chairman of the Board of Directors,
- ---------------------- Chief Executive Officer,
Alan S. Lipstein Chief Financial Officer and
Principal Accounting Officer July 18, 1997
/s/ Gerard Norton Secretary and Director July 18, 1997
- ----------------------
Gerard Norton
</TABLE>
-49-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 103
<SECURITIES> 0
<RECEIVABLES> 340,851
<ALLOWANCES> 70,122
<INVENTORY> 0
<CURRENT-ASSETS> 411,076
<PP&E> 178,139
<DEPRECIATION> 19,870
<TOTAL-ASSETS> 592,161
<CURRENT-LIABILITIES> 142,109
<BONDS> 0
0
0
<COMMON> 369,867
<OTHER-SE> 80,185
<TOTAL-LIABILITY-AND-EQUITY> 592,161
<SALES> 2,090,115
<TOTAL-REVENUES> 37,122
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,549,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,226
<INCOME-PRETAX> (519,220)
<INCOME-TAX> 0
<INCOME-CONTINUING> (519,220)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (519,220)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
