<PAGE>
As filed with the Securities and Exchange Commission on October 28, 1996.
Registration No. 333-8741
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
----------------------
PREMIER CONCEPTS, INC.
----------------------------------------------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Colorado 5699 84-1186026
- ---------------- --------------------------- --------------------
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
3033 S. Parker Road, Suite 120
Aurora, Colorado 80014
(303) 338-1800
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Sissel B. Greenberg, President
3033 S. Parker Road, Suite 120
Aurora, Colorado 80014
(303) 338-1800
- --------------------------------------------------------------------------------
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF
AGENT FOR SERVICE OF PROCESS)
Copies to:
----------
Clifford L. Neuman, Esq. Samuel E. Wing, Esq.
Nathan L. Stone, Esq. Jones & Keller, P.C.
Neuman & Cobb 1625 Broadway
1507 Pine Street Denver, Colorado 80202
Boulder, Colorado 80302 (303) 573-1600
(303) 449-2100
----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class Amount Proposed Maximum Proposed Maximum
of Securities to be To be Offering Price Aggregate Amount of
Registered Registered Per Share (1)(2) Offering Price (1)(2) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.002 par value (3) 1,150,000 $3.75 $4,312,500 $1,487.07
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Common Stock Purchase
Warrants (4) 1,150,000 $.15 $172,500 $59.48
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.002 Par Value,
Underlying A Warrants (5) 575,000 $5.625 $3,234,375 $1,115.30
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Common Stock,
$.002 par value (6) 100,000 $4.50 $450,000 $155.17
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Class A Warrants (7) 100,000 $.18 $18,000 $6.21
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.002 par value (8) 50,000 $5.625 $281,250 $96.98
- ------------------------------------------------------------------------------------------------------------------------------------
Selling Shareholders' Common Stock, $.002 par 102,041 $3.125 (11) $318,878 $109.96
value issuable upon conversion of preferred
stock (9)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Common Stock Purchase Warrants(10) 83,334 $.15 (11) $12,500 $4.31
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.002 Par Value (12) 41,667 $5.625 $234,377 $80.82
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL: $9,034,380 $3,116
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 416, the Registration Statement also relates to an
indeterminate number of additional shares of Common Stock issuable upon the
exercise of warrants pursuant to anti-dilution provisions contained
therein, which shares of Common Stock are registered hereunder.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) Consists of Common Stock offered in the offering and issuable upon exercise
of the Underwriters' Over-Allotment Option.
(4) Consists of Class A Warrants offered in the offering and Class A Warrants
issuable upon exercise of the Underwriters' Over-Allotment Option.
(5) Consists of shares of Common Stock issuable upon exercise of the Class A
Common Stock Purchase Warrants, including the Warrants issuable upon
exercise of the Underwriters' Over-Allotment Option.
(6) Consists of Common Stock issuable upon exercise of the Representative's
Share Options.
-ii-
<PAGE>
(7) Consists of Class A Warrants issuable upon exercise of the Representative's
Warrant Options.
(8) Consists of Common Stock issuable upon exercise of the Class A Warrants
issuable upon exercise of the Representative's Warrants.
(9) Consists of Common Stock offered by the Selling Shareholders issuable upon
conversion of Series A Convertible Preferred Stock.
(10) Consists of Class A Warrants reoffered by certain Selling Shareholders.
(11) Based upon the average bid and ask prices of the Common Stock being offered
by the Selling Shareholders in accordance with Rule 457(c).
(12) Consists of Common Stock issuable upon exercise of the Class A Warrants
reoffered by the Selling Shareholders.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
-iii-
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus; one to be
used in connection with the Offering of up to 1,000,000 Shares of the Company's
$.002 par value Common Stock ("Shares") and 1,000,000 Class A Warrants ("A
Warrants") ("Offering Prospectus"), and one to be used in connection with the
sale of Common Stock by certain selling shareholders (the "Selling Shareholders'
Prospectus"). The Offering Prospectus and the Selling Shareholders' Prospectus
will be identical in all respects except for the alternate pages for the Selling
Shareholders' Prospectus included herein and labeled "Alternate Page for Selling
Shareholders' Prospectus."
-iv-
<PAGE>
PREMIER CONCEPTS, INC.
CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
Item No. and Heading Location
In Form SB-2 in Prospectus
Registration Statement -------------
----------------------
<S> <C>
1. Forepart of the Registration Statement Forepart of Registration Statement and
and Outside Front Cover Page of Prospectus Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover
of Prospectus Pages of Prospectus
3. Summary and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Front Cover Page; Underwriting
6. Dilution Dilution
7. Selling Securityholders Selling Shareholder Prospectus -- Selling Shareholders and Plan of
Distribution
8. Plan of Distribution Underwriting; Selling Shareholder Prospectus -- Selling Shareholders and
Plan of Distribution
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Promoters Management
and Controlling Persons
11. Security Ownership of Certain Beneficial Owners Security Ownership of
and Management Management and Principal
Shareholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of SEC Position on Indemnification Management - Indemnification and
for Securities Act Liabilities Limitation on Liability of Directors
-v-
<PAGE>
15. Organization Within Last Five Years The Company; Business - Overview
16. Description of Business Prospectus Summary; Risk Factors;Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis
Plan of Operation of Financial Condition and Results of
Operations; Financial Statements Business
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Market for Common Stock
Stockholder Matters
21. Executive Compensation Management - Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants Business - Changes in Independent
on Accounting and Financial Disclosure Public Accountants
</TABLE>
-vi-
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1996
PROSPECTUS
PREMIER CONCEPTS, INC.
1,000,000 SHARES OF COMMON STOCK
1,000,000 CLASS A COMMON STOCK PURCHASE WARRANTS
Premier Concepts, Inc. (the "Company") is offering 1,000,000 shares of
Common Stock and 1,000,000 Class A Common Stock Purchase Warrants ("Warrants"),
which must be purchased together in this offering on the basis of one share of
Common Stock and one Warrant. The Common Stock and Warrants will trade
separately thereafter. Two Warrants entitle the holder to purchase one share of
Common Stock at a price of $__________ ("Warrant Exercise Price") during the
three-year period commencing on the date of this Prospectus and the Warrants may
be redeemed by the Company under certain circumstances. See "Description of
Securities."
It is currently anticipated that the combined offering prices of the Common
Stock and Warrants will be between $3.00 and $3.75 with $.10 allocated to the
Warrants. For a discussion of the factors considered in determining the initial
public offering prices, see "Underwriting."
Although the Company is a publicly-held corporation, the present market
for its Common Stock is limited and sporadic. On October 23, 1996, the
closing bid and ask prices of the Common Stock on the Electronic Bulletin
Board System under the trading symbol PMRCA were $3.44 and $4.06,
respectively, as adjusted for a one-for-five reverse stock split effective
the date of this Prospectus. There is presently no trading market for the
Warrants. Application has been made to have the Common Stock and Warrants
approved for quotation on the Nasdaq SmallCap Market under the symbols "FAUX"
and "FAUXW," respectively, subject to completion of this offering.
Concurrently with the commencement of this offering, 102,041 shares of
Common Stock and 83,334 Warrants may be offered by certain Selling Shareholders
subject to certain lock-up and prospectus delivery requirements (the
"Selling Shareholders' Offering"). The Company will not receive any of the
proceeds from the sale of securities by the Selling Shareholders.
--------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 9.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- ------------------------------------------------------------------------
Per Share................... $ $ $
- ------------------------------------------------------------------------
Per Warrant................. $ $ $
- ------------------------------------------------------------------------
Total (3) $ $ $
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(1) The Company has agreed to pay the Representative of the Underwriters (the
"Representative") a non-accountable expense allowance and to issue options
to the Representative to acquire the Representative's Securities (as
defined herein). The Company also has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company of approximately
$375,000 including the non-accountable expense allowance to the
Representative. See "Underwriting."
(3) The Company has granted the Underwriters options for 45 days from the date
of this Prospectus to purchase up to an additional 150,000 shares of Common
Stock and 150,000 Warrants on the same terms as set forth above solely to
cover over-allotments, if any. If the over-allotment options are exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $4,025,000, $402,500 and $3,622,500, respectively assuming
a combined offering price for the Common Stock and Warrants of $3.50. See
"Underwriting."
The Common Stock and Warrants are being offered by the Underwriters, on a
firm commitment basis, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to their right to reject any order, in
whole or in part, and certain other conditions. It is expected that delivery of
the certificates representing the Common Stock and Warrants will be made on or
about _______________, 1996.
COHIG & ASSOCIATES, INC.
The date of this Prospectus is ______________, 1996.
-2-
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION WITH REGARD TO THE COMMON STOCK OF THE COMPANY IN THIS PROSPECTUS,
INCLUDING SHARE AND PER SHARE INFORMATION, GIVES EFFECT TO (i) A ONE-FOR-FIVE
(1-FOR-5) REVERSE STOCK SPLIT EFFECTED BY THE COMPANY ON THE DATE OF THIS
PROSPECTUS AND (ii) THE CONVERSION OF 416,670 (PRE-SPLIT) SHARES OF SERIES A
CONVERTIBLE PREFERRED STOCK INTO 102,041 SHARES OF COMMON STOCK.
THE COMPANY
Premier Concepts, Inc., a Colorado corporation ("Premier" or the "Company")
was organized on July 15, 1988 under the laws of the State of Colorado.
Operating under the name "Impostors," the Company believes it is one of the
nation's largest specialty chain retailers of faux jewelry. Specializing in the
marketing and retailing of high-end fashion and reproduction jewelry that has
the appearance, but not the cost, of fine jewelry, the Company sells products
that emulate fine jewelry and classic pieces originally designed by famous
jewelers such as Tiffany & Co.-Registered Trademark-, Cartier-Registered
Trademark-, Bulgari-Registered Trademark- and Harry Winston. The Company's
product line also includes replicas of jewelry owned by Princess Diana, The
Duchess of Windsor, Elizabeth Taylor and other celebrities. The Company's faux
jewelry is created with layered gold, cubic zirconia and Austrian crystal to
simulate the look of fine jewelry. Also, the Company offers an extensive
collection of 14 karat gold jewelry with synthetic stones. In June 1996, the
Company introduced a new collection of genuine sterling silver featuring semi-
precious and synthetic stones. The Company's products are purchased principally
from several domestic vendors and from vendors in China, England, Hong Kong,
Italy, Korea, Spain, Taiwan and Thailand.
The 27 currently operating Impostors retail stores are designed to match
the elegant look of the Company's products and to provide customers with the
feeling of shopping in an upscale, fine jewelry environment. The Company's
stores are located in shopping malls and tourist locations. Currently, the
Company has stores in Southern California, Northern California, the states of
Arizona, Colorado, Louisiana, Missouri and Washington and in the Washington,
D.C. area. On August 30, 1996, the Company opened its 27th store in the Park
Meadows shopping mall in the Denver metropolitan area. The largest and most
visible store is located in the prime retail area of San Francisco's Union
Square. In addition, the Company has entered into leases for eight new retail
stores in California, Florida, Nevada, and New Jersey which are scheduled to
open over the next five months.
The Company believes that it has an opportunity to become a leader in the
specialty retailing segment of the national and international market for faux
and reproduction jewelry and related accessory items through a combination of
internal growth and acquisitions. Its plans include expansion of retail store
locations, development of new marketing channels including multimedia and direct
mail, and the marketing of its high-end jewelry reproductions and store concept
internationally through licensing and distribution arrangements.
The Company maintains its principal executive offices at 3033 S. Parker
Road, Suite 120, Aurora, Colorado 80014, where its telephone number is
(303) 338-1800.
-3-
<PAGE>
THE OFFERING
Securities offered by the Company. . . . . . 1,000,000 shares of Common Stock
and 1,000,000 Warrants. Two
Warrants will entitle the holder
to purchase one share of Common
Stock at the Warrant Exercise
Price during the three-year
period commencing on the date of
this Prospectus. The Warrants
will be redeemable under certain
circumstances. See "Description
of Securities."
Common Stock outstanding before offering . . . 748,939 shares (1)(2)
Common Stock outstanding after offering. . . 1,748,939 shares (1)(2)(3)
Use of proceeds. . . . . . . . . . . . . . . To lease, equip and stock with
inventory new retail locations,
to remodel existing store
locations, to develop new
marketing channels, and for debt
reduction and working capital.
See "Use of Proceeds."
Proposed NASDAQ symbols:
Common Stock . . . . . . . . . . . . . . . "FAUX"
Warrants . . . . . . . . . . . . . . . . . "FAUXW"
- ---------------
(1) Does not include (i) 230,000 shares of Common Stock reserved for issuance
upon exercise of options which may be granted under the Company's 1993
Stock Incentive Plan, 133,000 of which are subject to outstanding and
unexercised options having a weighted average exercise price of $2.25 per
share, and of which 40,000 options are subject to future vesting,
(ii) 60,250 shares of Common Stock reserved for issuance upon exercise of
outstanding Class C Common Stock Purchase Warrants ("C Warrants") at a
price of $10.00 per share, (iii) 37,000 shares of Common Stock reserved for
issuance pursuant to the exercise of other outstanding options and warrants
having a weighted average exercise price of $2.50 per share, and
(iv) 60,000 shares of Common Stock reserved for issuance pursuant to the
exercise of options which may be granted under the Company's 1995 Employee
Stock Purchase Plan ("1995 ESPP").
(2) On June 24, 1996, the Company completed the sale of 416,670 (pre-split)
shares of Series A Convertible Preferred Stock ("Convertible Preferred
Stock") and 208,335 Class B Warrants (the "Bridge Offering"), realizing net
proceeds of $225,000. Does not include 102,041 shares of Common Stock
reserved for issuance on the date of this Prospectus pursuant to the
automatic conversion of the Convertible Preferred Stock, or 41,667 shares
of Common Stock reserved for issuance upon exercise of the outstanding
Warrants. See "Description of Securities -- Series A Convertible Preferred
Stock".
(3) Assumes no exercise of Warrants and Representative's Securities to be sold
by the Company in this offering.
-4-
<PAGE>
The information contained in this Prospectus relates solely to the issuance
of up to 1,000,000 shares of Common Stock and 1,000,000 Warrants and additional
Common Stock and Warrants included in the Over-Allotment Options granted to the
Underwriters. The shares of Common Stock and Warrants are being offering and
sold to the public through the Underwriters on the terms set forth in
"Underwriting."
A separate resale Prospectus may also be used in connection with the sale
by certain securityholders of up to 102,041 shares of Common Stock and 83,334
Warrants. See "Concurrent Offering." Any sales of these securities will be
made only in accordance with Prospectus delivery requirements described in the
resale Prospectus.
RISK FACTORS
This offering involves a high degree of risk and immediate substantial
dilution. Prospective investors should carefully consider the matters set forth
under "Risk Factors" and "Dilution".
SUMMARY FINANCIAL DATA
Set forth below is selected summary financial data with respect to the
Company. Financial information for the period ended January 29, 1995, for the
year ended January 28, 1996, and as of and for the six months ended July 30,
1995 and July 28, 1996, is derived from the financial statements included
elsewhere in this Prospectus and is qualified by reference to such financial
statements and the notes related thereto. In February 1995, the Company adopted
its new fiscal year to begin January 30, 1995 and end January 28, 1996; and
thereafter the fiscal year will end on the last Sunday of each January of each
successive year.
<TABLE>
<CAPTION>
Six months ended
Period ended Year ended -----------------------
January 29, January 28, July 30, July 28,
1995 (1) 1996 1995 1996
------------ ----------- -------- --------
<S> <C> <C> <C> <C>
STATEMENTS
OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $8,335,790 $9,069,840 $4,139,329 $3,957,452
Operating (loss) . . . . . . . . . . . . . . . . . . . . . . (886,667) (37,298) (330,668) (213,332)
Income from discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . 141,237 270,441 90,390 16,177
Net income (loss). . . . . . . . . . . . . . . . . . . . . . (1,038,726) 114,219 (306,631) (196,064)
Net income (loss) available to
common shareholders. . . . . . . . . . . . . . . . . . . . (1,038,726) 114,219 (306,631) (199,064)
Net income (loss) per common share . . . . . . . . . . . . . (2.93) .23 (.71) (.27)
Weighted average number of
common shares outstanding (2). . . . . . . . . . . . . . . 354,600 495,800 434,583 748,939
-5-
<PAGE>
Six months ended
Period ended Year ended -----------------------
January 29, January 28, July 30, July 28,
1995 (1) 1996 1995 1996
------------ ----------- -------- --------
<S> <C> <C> <C> <C>
STATISTICAL DATA:
Store revenues . . . . . . . . . . . . . . . . . . . . . . . $8,178,054 $8,957,344 $4,096,758 $3,949,134
Store gross margin . . . . . . . . . . . . . . . . . . . . . 5,509,955 6,337,334 2,802,975 2,775,731
Store operating expenses . . . . . . . . . . . . . . . . . . 4,850,747 4,906,077 2,395,543 2,313,303
Store operating profit . . . . . . . . . . . . . . . . . . . 659,237 1,431,257 407,432 462,428
Corporate overhead operating
expenses . . . . . . . . . . . . . . . . . . . . . . . . . 1,430,884 1,518,416 746,518 677,816
Gross margin percentage. . . . . . . . . . . . . . . . . . . 66.4% 70.3% 68.4% 70.3%
Comparable same store
sales (4). . . . . . . . . . . . . . . . . . . . . . . . . 7,448,884 8,186,449 3,644,764 3,731,821
Comparable same store
sales growth (4) . . . . . . . . . . . . . . . . . . . . . N/A 9.9% N/A 2.4%
Comparable same store
sales per square foot (4). . . . . . . . . . . . . . . . . 520.68 572.24 254.77 260.86
</TABLE>
As of
July 28, 1996
-------------------------------------
Actual As Adjusted (3)
------ ---------------
BALANCE SHEET DATA:
Total assets . . . . . . . . . . $3,277,922 $6,052,922
Total liabilities. . . . . . . . 2,206,782 2,206,782
Working capital. . . . . . . . . 543,626 3,406,865
Stockholders' equity . . . . . . 1,071,140 3,846,140
- ---------------
(1) Due to the Company's change in fiscal year, the Company's financial
statements are reported for the year ending December 31, 1994 ("Fiscal
1994"), a one month period ending January 29, 1995, and the year ending
January 28, 1996 ("Fiscal 1996"). The Impostors acquisition was completed
on February 24, 1994, and accordingly results of operations for the period
ended December 31, 1994 reflect only ten months of Impostors' operations.
Prior to the Impostors acquisition, which includes the period from January
1, 1994 through February 23, 1994 (approximately two months), the Company
had no significant operating activity. Therefore, for purposes of
comparison, the one-month period from January 1, 1995 through January 29,
1995 has been combined with Fiscal 1994 and therefore represents thirteen
(13) months of combined operations but only eleven (11) months of
operations of Impostors. This combined period is referred to as "the
period ended January 29, 1995."
-6-
<PAGE>
(2) Gives effect to the one-for-five (1-for-5) reverse split which was
effective on the date of this Prospectus.
(3) Adjusted to reflect net proceeds from the sale by the Company in this
offering of 1,000,000 shares of Common Stock and 1,000,000 Warrants at the
assumed initial offering prices of $3.40 per share and $.10 per Warrant.
The "As Adjusted" information does not include the exercise of the
Warrants, the Underwriters' Over-Allotment Options or the options to
acquire the Representative's Securities. See "Use Of Proceeds,"
"Capitalization" and "Underwriting."
(4) Includes only the 24 stores open for the entire periods being compared.
For the purpose of comparable same store sales only, the period ended
January 29, 1995 includes 12 months of sales. However, the financial
statement data for the same period includes only 11 months of Impostors
operations, as the retail chain was acquired in late February, 1994.
-7-
<PAGE>
[Alternate Page for Selling Shareholders' Prospectus]
THE OFFERING
Securities offered by the Selling Shareholders 102,041 shares of Common
Stock, $.002 par value and
83,334 Warrants. See
"Description Of Securities."
Offering price . . . . . . . . . . . . . . . . Prevailing market price
Common stock outstanding:. . . . . . . . . . . 1,748,939 shares(1)(2)(3)
Proposed NASDAQ symbols:
Common Stock . . . . . . . . . . . . . . . . "FAUX"
Warrants . . . . . . . . . . . . . . . . . . "FAUXW"
RISK FACTORS
An investment in the Shares involves certain risks. Prospective investors
should carefully consider the factors set forth under "RISK FACTORS."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of shares
offered by Selling Shareholders.
- ---------------
(1) Does not include (i) 230,000 shares of Common Stock reserved for issuance
upon exercise of options which may be granted under the Company's 1993
Stock Incentive Plan, 133,000 of which are subject to outstanding and
unexercised options having a weighted average exercise price of $2.25 per
share, and of which 40,000 options are subject to future vesting,
(ii) 60,250 shares of Common Stock reserved for issuance upon exercise of
outstanding Class C Common Stock Purchase Warrants ("C Warrants") at a
price of $10.00 per share, (iii) 37,000 shares of Common Stock reserved for
issuance pursuant to the exercise of other outstanding options and warrants
having a weighted average exercise price of $2.50 per share, and
(iv) 60,000 shares of Common Stock reserved for issuance pursuant to the
exercise of options which may be granted under the Company's 1995 Employee
Stock Purchase Plan ("1995 ESPP").
(2) On June 24, 1996, the Company completed the sale of 416,670 (pre-split)
shares of Series A Convertible Preferred Stock ("Convertible Preferred
Stock") and 208,335 Class B Warrants (the "Bridge Offering"), realizing net
proceeds of $225,000. Does not include 102,041 shares of Common Stock
reserved for issuance on the date of this Prospectus pursuant to the
automatic conversion of the Convertible Preferred Stock, or 41,667 shares
of Common Stock reserved for issuance upon exercise of the outstanding
Warrants. See "Description of Securities -- Series A Convertible Preferred
Stock".
(3) Assumes no exercise of Warrants and Representative's Securities sold by the
Company in the concurrent offering.
-4-
<PAGE>
[Alternate Page for Selling Shareholders' Prospectus]
SUMMARY FINANCIAL DATA
Set forth below is selected summary financial data with respect to the
Company. Financial information for the period ended January 29, 1995, for the
year ended January 28, 1996, and as of and for the six months ended July 30,
1995 and July 28, 1996, is derived from the financial statements included
elsewhere in this Prospectus and is qualified by reference to such financial
statements and the notes related thereto. In February 1995, the Company adopted
its new fiscal year to begin January 30, 1995 and end January 28, 1996; and
thereafter the fiscal year will end on the last Sunday of each January of each
successive year.
<TABLE>
<CAPTION>
Six months ended
Period ended Year ended -----------------------
January 29, January 28, July 30, July 28,
1995 (1) 1996 1995 1996
------------ ----------- -------- --------
<S> <C> <C> <C> <C>
STATEMENTS
OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $8,335,790 $9,069,840 $4,139,329 $3,957,452
Operating (loss) . . . . . . . . . . . . . . . . . . . . . . (886,667) (37,298) (330,668) (213,332)
Income from discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . 141,237 270,441 90,390 16,177
Net income (loss). . . . . . . . . . . . . . . . . . . . . . (1,038,726) 114,219 (306,631) (196,064)
Net income (loss) available to
common shareholders. . . . . . . . . . . . . . . . . . . . (1,038,726) 114,219 (306,631) (199,064)
Net income (loss) per common share . . . . . . . . . . . . . (2.93) .23 (.71) (.27)
Weighted average number of
common shares outstanding (2). . . . . . . . . . . . . . . 354,600 495,800 434,583 748,939
Six months ended
Period ended Year ended -----------------------
January 29, January 28, July 30, July 28,
1995 (1) 1996 1995 1996
------------ ----------- -------- --------
<S> <C> <C> <C> <C>
STATISTICAL DATA:
Store revenues . . . . . . . . . . . . . . . . . . . . . . . $8,178,054 $8,957,344 $4,096,758 $3,949,134
Store gross margin . . . . . . . . . . . . . . . . . . . . . 5,509,955 6,337,334 2,802,975 2,775,731
Store operating expenses . . . . . . . . . . . . . . . . . . 4,850,747 4,906,077 2,395,543 2,313,303
Store operating profit . . . . . . . . . . . . . . . . . . . 659,237 1,431,257 407,432 462,428
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[Alternate Page for Selling Shareholders' Prospectus]
Corporate overhead operating
expenses . . . . . . . . . . . . . . . . . . . . . . . . . 1,430,884 1,518,416 746,518 677,816
Gross margin percentage. . . . . . . . . . . . . . . . . . . 66.4% 70.3% 68.4% 70.3%
Comparable same store
sales (4). . . . . . . . . . . . . . . . . . . . . . . . . 7,448,884 8,186,449 3,644,764 3,731,821
Comparable same store
sales growth (4) . . . . . . . . . . . . . . . . . . . . . N/A 9.9% N/A 2.4%
Comparable same store
sales per square foot (4). . . . . . . . . . . . . . . . . 520.68 572.24 254.77 260.86
</TABLE>
As of
July 28, 1996
-------------------------------------
Actual As Adjusted (3)
------ ---------------
BALANCE SHEET DATA:
Total assets . . . . . . . . . . $3,277,922 $6,052,922
Total liabilities. . . . . . . . 2,206,782 2,206,782
Working capital. . . . . . . . . 543,626 3,406,865
Stockholders' equity . . . . . . 1,071,140 3,846,140
- ---------------
(1) Due to the Company's change in fiscal year, the Company's financial
statements are reported for the year ending December 31, 1994 ("Fiscal
1994"), a one month period ending January 29, 1995, and the year ending
January 28, 1996 ("Fiscal 1996"). The Impostors acquisition was completed
on February 24, 1994, and accordingly results of operations for the period
ended December 31, 1994 reflect only ten months of Impostors' operations.
Prior to the Impostors acquisition, which includes the period from January
1, 1994 through February 23, 1994 (approximately two months), the Company
had no significant operating activity. Therefore, for purposes of
comparison, the one-month period from January 1, 1995 through January 29,
1995 has been combined with Fiscal 1994 and therefore represents thirteen
(13) months of combined operations but only eleven (11) months of
operations of Impostors. This combined period is referred to as "the
period ended January 29, 1995."
(2) Gives effect to the one-for-five (1-for-5) reverse split which was
effective on the date of this Prospectus.
(3) Adjusted to reflect net proceeds from the sale by the Company in this
offering of 1,000,000 shares of Common Stock and 1,000,000 Warrants at the
initial offering prices of $_______ per share and $_____ per Warrant. The
"As Adjusted" information does not include the exercise of the Warrants,
the Underwriters' Over-Allotment Options or the options to acquire the
Representative's Securities. See "Use Of Proceeds," "Capitalization" and
"Underwriting."
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<PAGE>
[Alternate Page for Selling Shareholders' Prospectus]
(4) Includes only stores open for the entire period to which it is being
compared. For the purpose of comparable same store sales only, the period
ended January 29, 1995 includes 12 months of sales. However, the financial
statement data for the same period includes only 11 months of Impostors
operations, as the retail chain was acquired in late February, 1994.
-7-
<PAGE>
THE COMPANY
The Company was incorporated on July 14, 1988 under the laws of the State
of Colorado under the name Protron Systems, Inc. In April, 1991, under the
corporate name of Silver State Holding, Inc., the Company completed a small
initial public offering in connection with its business involving the purchase
and sale of real estate in the Colorado Springs, Colorado area. In March 1993,
following the sale of all the real estate, the Company acquired two gaming
properties in Central City, Colorado in a series of transactions in which it
issued, in the aggregate, 205,800 shares of Common Stock and changed its name to
Silver State Casinos, Inc. In September 1993, the Company exchanged its
interest in those properties for 2,500,000 shares of common stock of Global
Casinos, Inc., a Utah corporation. Between September 1993 and March 1994, the
Company had no material operations. The Company has no continuing involvement
or interest in any of the prior businesses.
In March, 1994, the Company acquired from American Fashion Jewels, Inc.,
d.b.a. Impostors, and its affiliates (collectively "AFJ"), substantially all of
the assets and properties utilized in connection with the operation of the chain
of 27 Impostors retail jewelry stores and changed its name to Premier Concepts
Inc. In a parallel transaction, the Company acquired certain additional leases
utilized in connection with the operation of the retail businesses. Impostors'
assets consisted of cash, accounts receivable, inventory, leasehold
improvements, equipment, furniture, fixtures, leases, licenses, contracts,
trademarks and registrations thereof, trade names, servicemarks and
registrations thereof, and other miscellaneous assets having a book value of
approximately $3,700,000. In consideration of the assets, the Company assumed
and agreed to pay certain current and long-term liabilities, including certain
bankruptcy administrative claims, post-petition liabilities, priority claims,
notes payable and other accounts payable in the aggregate amount of
approximately $3,147,000, and issued to the unsecured creditors of AFJ an
aggregate of 27,500 shares of Common Stock. See Note 2 to Financial Statements.
AFJ opened its first reproduction jewelry store in San Francisco,
California in 1985. By 1988, Impostors had grown to ten corporate owned stores,
with nine additional stores operating as Impostors licensees. Impostors began
selling franchises in 1989, adding two additional corporate stores and 36
franchise locations. By 1991, the chain had grown to 43 corporate stores and 69
franchises, for a total of 112 locations. In 1992, AFJ began to experience
problems in its relationships with franchisees. Many franchisees were not
paying for the merchandise purchased from Impostors, or were purchasing
merchandise from unauthorized sources. As a result, management began to
terminate its relationships with certain franchisees for failure to comply with
the terms of the franchise agreements. By the end of January, 1993, 12
franchisees had filed suits seeking in excess of $2,000,000 in damages. The
amount of resources and management time devoted to defending the lawsuits
interfered with operations and the Company's ability to raise new capital. On
May 28, 1993, AFJ and its affiliates filed four Chapter 11 cases in the United
States Bankruptcy Court for the Northern District of California, which cases
were later consolidated for joint administration. The Company's acquisition of
"Impostors" was confirmed by the Bankruptcy Court on March 3, 1994.
Concurrently with the Company's purchase of the 27 then operating Impostors
stores, the Company also acquired three additional reproduction jewelry stores
from Mirage Concepts, Inc. in exchange for 20,000 shares of its Common Stock.
Those stores were located in California and Arizona. See Note 2 to Financial
Statements.
The Company currently operates 27 Impostors stores, has executed leases for
eight additional stores scheduled to open over the next five months, and has
plans to open a total of 10 new stores in the next 12 months. See "Use of
Proceeds" and "Business -- Expansion Strategy."
The Company's principal offices are located at 3033 S. Parker Road, Suite
120, Aurora, Colorado 80014. Its telephone number at that address is (303)
338-1800.
-8-
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE POSSIBILITY OF THE
LOSS OF THEIR ENTIRE INVESTMENT IN THE COMPANY'S SECURITIES AND, ALONG WITH EACH
OF THE FOLLOWING FACTORS, CONSIDER THE INFORMATION SET FORTH ELSEWHERE IN THIS
PROSPECTUS.
RISK FACTORS RELATED TO THE BUSINESS OF THE COMPANY
BANKRUPTCY OF PREDECESSOR. The Impostors operations were acquired by the
Company in 1994 out of a Chapter 11 bankruptcy proceeding by American Fashion
Jewels, Inc. ("AFJ"), the prior owner of Impostors. In its eight-year operating
history prior to the 1993 bankruptcy petition, AFJ had incurred substantial
debts, operating losses and unliquidated liabilities to numerous franchisees.
While the Company closed most of the unprofitable stores acquired from AFJ and
believes that it has defined and adopted an operating strategy which can lead to
profitable and successful operations, the Company has to date experienced only
operating losses from its Impostors operations and there can be no assurance
that the Company's efforts to achieve profitability will be any more successful
than those of AFJ. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
LACK OF PROFITABLE OPERATING HISTORY. For the year ended December 31,
1994, the month ended January 29, 1995, the fiscal year ended January 28, 1996,
and for the six months ended July 28, 1996, the Company reported operating
losses of $683,641, $203,026, $37,298 and $213,332, respectively. There can be
no assurance that operating costs and expenses will not continue to out-pace
revenues, or that the Company will not continue to experience losses due to
increased operating costs and expenses and/or reduced revenues. See Financial
Statements.
OPERATING LEASES; RISK OF LONG-TERM COMMITMENTS. The commercial leases
covering the Company's existing 27 retail locations, combined with the eight
additional leases the Company has executed for new stores, in the aggregate,
represent over $11 million in future fixed rental payments. In addition, all of
the Company's store leases have provisions requiring additional payments for
operating expenses, real estate taxes and additional rent based upon a
percentage of sales. There can be no assurance that store revenues will be
sufficient to cover the Company's unconditional future rent obligations under
these leases. Further, the Company's leases expire at various dates from 1996
to 2007, and upon expiration, there can be no assurance that the Company will be
able to renegotiate lease terms that are favorable to the Company, or, failing
renegotiation, locate suitable replacement facilities. In October 1995, the
Company's Rodeo Drive lease expired without renewal due to the landlord's desire
to remodel the building. For the 11 month period ended January 29, 1995, the
Rodeo Drive store had contributed $97,287 to the Company's operating income. In
addition, the Company's largest store in Union Square, San Francisco expires in
the year 2001. During Fiscal 1996, this store contributed $245,626 to the
Company's total net store contribution and was one of the five stores that
contributed, in the aggregate, 52% of the total net store contribution (store
revenues less direct store expenses). The loss of the Union Square store or one
or more of the other established retail locations could have a material adverse
effect on the Company and its operations. Further, the Company's office lease
was personally guaranteed by four of the members of the Company's Board of
Directors at the time it was executed. See "Certain Transactions -- Lease
Guarantee" and Notes 5 and 6 to Financial Statements.
-9-
<PAGE>
Additionally, the Company plans to lease and open 10 additional retail
stores over the next 12 months, of which eight locations are already under
lease commitment. While the Company has developed criteria utilized in
identifying new store sites, the Company has no way of predicting with
certainty whether any new location will support a profitable retail store.
As a result, the Company's expansion activities represent a substantial risk
that the Company will commit itself to new leases for locations which will
prove to be unprofitable. See "Business -- Business Strategy."
ADDITIONAL CAPITAL REQUIREMENTS; POSSIBLE ADDITIONAL DILUTION. It is
probable that the Company will require additional capital in the future to
finance its business activities. The Company's future plans include remodeling
the Company's existing stores and leasing, equipping and stocking new retail
locations during fiscal 1997. The Company also plans to heighten its
merchandizing efforts through the various home shopping networks and the
development and marketing of the Company's product catalogue. It is likely that
proceeds from this offering will be below the funding necessary for the Company
to fully develop its business strategy. Additional capital, to the extent
needed, may be obtained through borrowings or by additional equity financing.
Future equity financing may occur through the sale of either unregistered common
stock in exempt offerings or through the public offering of registered equity
securities. In any case, such additional equity financing may result in
additional dilution to investors. The Company has no arrangements for the
acquisition of additional capital, and there can be no assurance that any
additional capital, funding or revenues can be satisfactorily arranged. See
"Business," "Use of Proceeds," and "Risk Factors Related to the Offering."
SEASONALITY; FLUCTUATIONS IN CAPITAL DEMANDS. The Company's business is
highly seasonal with its mall locations generating nearly 20% of their business
during the Christmas holiday season. The Company's 12 tourist locations are
less sensitive to seasonal fluctuations, however, on a store-by-store basis,
they do experience fluctuations based upon such factors as seasonal economic
conditions, transportation costs and other factors effecting tourism in their
particular locations. This seasonality results in higher demand for working
capital at certain times of the year. Also, interim operating results are not
necessarily indicative of the Company's results of operations or financial
conditions on an annualized basis. The Company cannot accurately predict the
potential adverse effect of seasonality on its business, and there can be no
assurance that the Company can acquire or develop additional retail locations in
counter-seasonal locales or cultivate innovative marketing campaigns which will
balance out the potential adverse consequences. See "Business -- Seasonality."
MANAGEMENT'S LACK OF VOTING INFLUENCE. The Company's President, Sissel
B. Greenberg, owns only 2,300 shares of Common Stock, which represents less
than 1% of the total issued and outstanding shares. All of the Company's
officers and directors as a group own only 5,200 shares, or less than 1% of
the total outstanding shares of Common Stock. Even giving effect to the
exercise of their outstanding options, the Company's officers and directors
as a group will exercise voting control over only 3.6% of the Company's
outstanding shares of Common Stock following completion of this offering.
The foregoing does not include 175,292 shares of Common Stock which the
Company's Board of Directors will vote as proxy until October 23, 1997
without discretion and consistent with the majority vote of shares at any
special or regular meeting of shareholders. As a result of this lack of
voting influence as shareholders, there can be no assurance that the
Company's officers and directors will be able to implement the plans and
strategies described in this Prospectus. Further, it is possible that
shareholders with greater voting influence could initiate actions which could
be adverse to those plans or hostile to current management. See "Security
Ownership of Management and Principal Shareholders."
-10-
<PAGE>
LIMITED LIQUIDITY AND CAPITAL RESOURCES. The operation of numerous retail
locations is very capital intensive, particularly during the holiday season. In
the past, the Company has operated on limited capital resources and has depended
primarily on funds generated from stock sales and short-term loans from its
shareholders and other short-term funding sources to make up any working capital
shortfalls. There can be no assurance that funds necessary for operations can
be generated from future stock sales and short-term loans from related parties
and/or other investors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RISK OF LEVERAGE AND DEFAULT. A substantial portion of the Company's
assets are encumbered by debt, the service of which requires a substantial
portion of the net cash flow generated by the Company's operations. Of the
proceeds of this offering, only $100,000 has been allocated to reduce the
Company's secured debt. Future losses from operations may impair the Company's
ability to service its debt and retire it in accordance with its terms. Should
the Company default under any of its secured debt, a creditor could foreclose
against the Company's assets and effectively force the cessation of the
Company's business. See "Use of Proceeds" and Note 4 to Financial Statements.
Further, the Company's leveraged position impairs its ability to obtain
additional financing to fund working capital requirements, capital expenditures
or other purposes, renders the Company more vulnerable to extended economic
downturn, restricts the Company's ability to make acquisitions or otherwise
exploit business opportunities, and limits the Company's flexibility to respond
to changing economic conditions.
NEW BUSINESS AND LIMITED RETAILING EXPERIENCE. The Company has only been
engaged in the business of marketing and retailing high-end fashion and
reproduction jewelry since March, 1994. Certain of the Company's management
does not have prior retailing experience. As a result, the Company has only
limited experience in the merchandizing of fashion and reproduction jewelry, and
there can be no assurance that its intended activities will be successful or
result in profitable operations. It is also impossible to predict what effect,
if any, fluctuations in the United States or worldwide economy will have on such
industry. See "The Company" and "Business."
DEPENDENCE UPON MANAGEMENT. The Company's future success depends in a
large part on the continued service of its President, Sissel B. Greenberg, and
to a lesser extent on its marketing, sales and promotional personnel, as well as
on its ability to continue to attract, motivate and retain highly qualified
employees. Although the Company provides employees with the opportunity to
acquire equity in the Company pursuant to Incentive Stock Options granted under
the Company's 1993 Stock Incentive Plan, its key employees may nevertheless
voluntarily terminate their employment with the Company at any time. The loss
of the services of key personnel could have a material adverse effect upon the
Company's operations and marketing efforts. While the Company has a written
employment contract with its President, Sissel B. Greenberg, which expires on
June 20, 1997, there can be no assurance of her continued service to the
Company. The Company does not have key person life insurance covering its
management personnel or other key employees. See "Management."
COMPETITION. The Company faces significant competition from numerous
organizations throughout the country, and world-wide, which offer fashion and
reproduction jewelry, many of which possess significantly greater resources than
the Company and in many cases greater retailing expertise. Indirectly, the
Company competes against retailers of fashion jewelry on the low end and fine
jewelry on the upper end of the jewelry market. Within the faux jewelry
industry, the Company competes against department stores, some of whom have
significantly greater resources and retailing experience than the Company, as
well as other businesses which function exclusively as specialty retailers of
faux jewelry. The Company competes against these specialty retailers not only
in its sources of supply but also in locations for its retail
-11-
<PAGE>
stores. The Company may suffer a competitive disadvantage due to its limited
resources and lack of retailing experience. See "Business - Competition."
RISK OF INFRINGEMENT. A significant portion of the Company's products
represent jewelry designs or concepts copied or inspired by fine jewelry
developed and sold by famous designers. While most jewelry designs are not
protected by copyright or trademark law, on occasion a particular design may be
subject to a design copyright or trademark registration obtained by the original
designer. Due to the magnitude of the number of the Company's products, it is
impracticable for the Company to research each jewelry design that it purchases
for resale to determine whether or not there may exist a copyright or trademark
registration preventing its unauthorized copy. While the Company has developed
certain merchandizing and purchasing methodologies which minimize the risk,
there can be no assurance that from time to time the Company will not
inadvertently infringe upon the intellectual property rights of third parties.
Under these circumstances, the Company may be subject to liability to the owner
of the design copyright or trademark to disgorge the Company's profits earned
from sales of the particular product, or in the alternative, liability for
statutory damages under copyright laws. See "Business -- Intellectual
Property."
NO PROPRIETARY ADVANTAGE. Neither the design nor concept of any of the
Company's jewelry is subject to protection by the Company under applicable
copyright, trademark or trade secret laws. As a result, the Company holds no
proprietary advantage over others competing in the faux jewelry markets. See
"Business -- Intellectual Property."
NO FIRM CONTRACTS FROM SUPPLIERS OR MANUFACTURERS. The Company does not
have any written contracts with any of its suppliers or manufacturers or
commitments from any of its suppliers or manufacturers to continue to sell
products to the Company. As a result, there is a risk that any of the Company's
suppliers or manufacturers may discontinue selling their products to the Company
for any reason. Although the Company believes that it could establish alternate
sources for most of its products, any delay in locating and establishing
relationships with other sources could result in product shortages and back
orders for the product, with a resulting loss of revenues to the Company. See
"Business - Suppliers and Vendors."
COMMITMENT TO SUPPLIER. In connection with the Company's purchase of the
Impostors retail chain out of bankruptcy, the Company agreed to purchase a
minimum of $500,000 of merchandise annually from a certain vendor through 1997
or until the Company's predecessor's liability to that vendor (totaling $66,634
at July 28, 1996) has been paid in full. Payment for this merchandise is made
at 110% of cost, with the additional 10% applied against the outstanding balance
of the vendor's claim. While in the past this vendor has supplied the Company
with competitive merchandise of good price and quality, there can be no
assurance that the Company's commitment to this vendor will not interfere with
its ability to purchase more competitive or desirable products from other
vendors. See "Business -- Suppliers and Vendors."
LICENSING AND OTHER GOVERNMENTAL REGULATION. For each retail location
operated by the Company, it is necessary for the Company to apply for and obtain
certificates of authority, permits and other licenses from state and local
governmental authorities permitting and/or controlling the Company's operation
of one or more retail stores in the particular state and/or municipality. Each
governmental jurisdiction has its own regulatory requirements which can impose
additional reporting requirements and costs. While the Company has been able to
obtain all necessary certificates, permits and licenses in the past, there can
be no assurance that future changes in governmental regulation or the adoption
of more
-12-
<PAGE>
stringent requirements may not have a material adverse impact upon the Company's
future operations. See "Business -- Properties."
EXPANSION INTO FOREIGN MARKETS. Although the Company intends to expand
into foreign markets, there can be no assurance that the Company can open
markets on a timely basis or that such new markets will prove to be profitable.
Significant regulation and legal barriers must be overcome before marketing can
begin in any foreign market. Also, before marketing has commenced, it is
difficult to assess the extent to which the Company's products and sales
techniques will be successful in any given country. In addition to significant
regulatory barriers, the Company may also expect problems relating to entering
new markets with different cultural bases and legal systems from those
encountered in the past. See "Business - Marketing and Distribution."
Moreover, expansion of the Company's operations into new markets may entail
substantial working capital and capital requirements associated with regulatory
compliance. The Company intends to spend a portion of the proceeds of this
offering for the purpose of expansion into foreign markets. See "Use of
Proceeds."
EFFECT OF EXCHANGE RATE FLUCTUATIONS. The Company intends to expand its
activities in foreign countries, both with respect to inventory purchases and
retail sales. As a result, exchange rate fluctuations may have a significant
effect on its sales, costs and gross margins. Further, if exchange rates
fluctuate dramatically, it may become uneconomical for the Company to establish
or continue purchasing or selling activities in certain countries. See
"Business -- Other Marketing and Distribution Channels."
CONFLICTS OF INTEREST AND RELATED PARTY TRANSACTIONS. The Company has
entered into certain transactions with its former and current officers,
directors and principal shareholders relating to the issuance of securities
and an office lease. There was the potential for conflicts of interest from
these transactions. The Board of Directors has determined that any future
transactions with officers, directors or principal shareholders will be
approved by the disinterested directors and will be on terms no less
favorable than could be obtained from an unaffiliated third party. See
"Certain Transactions" and "Security Ownership of Management and Principal
Shareholders."
LIMITATION OF DIRECTORS' LIABILITY. The Company's Articles of
Incorporation provide, as permitted by Colorado law, that its directors shall
have no personal liability for certain breaches of their fiduciary duties to the
Company. This provision may reduce the likelihood of derivative litigation
against directors and may discourage shareholders from bringing a lawsuit
against directors for a breach of their duty. In addition, the Company's Bylaws
provide for mandatory indemnification of directors and officers to the fullest
extent permitted by Colorado law. See "Management."
MANAGEMENT OF GROWTH. If the Company is successful in increasing demand
for the Company's products, of which there can be no assurance, growth of the
Company could create certain additional risks. Rapid growth can be expected to
place a substantial burden on the Company's management resources and financial
controls. The Company's ability to manage its growth effectively will require
the Company to continue to implement and refine its operational, financial and
information management systems and to train, motivate and manage its employees.
The Company's ability to attract and retain qualified personnel will have a
significant affect on the Company's ability to establish and maintain its
position in the market, and failure of the Company to manage its growth
effectively could have material adverse effects on the Company's results of
operations. See "Management."
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<PAGE>
RISK FACTORS RELATED TO THIS OFFERING
OFFERING PRICES ARBITRARILY DETERMINED. The offering price of the Common
Stock and Warrants and the Warrant Exercise Price and other terms of the
Warrants being offered hereby were determined by negotiation between the Company
and the Representative and are not necessarily related to the Company's assets,
book value or financial condition, and may not be indicative of the actual value
of the Company. See "Underwriting."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED ACQUISITIONS. Of
the $2,863,239 net proceeds from this offering, $2,000,000 or 70% will be
used for new store openings, store remodeling, working capital and other general
corporate purposes. The net proceeds allocated to the development of new stores
and marketing is subject to change depending upon a number of factors, including
future revenue growth, the amount of cash generated by the Company's operations
and the availability of desirable locations. Management believes that the
availability of proceeds from this offering would enhance the Company's ability
to expand its business more rapidly by taking advantage of opportunities to
acquire additional retail locations, or even competitive or complementary
businesses, on a favorable basis. Although the Company is not currently a party
to any agreement or understanding with respect to any prospective acquisition,
it has explored and continues to evaluate possible opportunities that complement
the Company's business. Accordingly the Company's management will have broad
discretion concerning the exact nature of the application of net proceeds of
this offering. See "Use of Proceeds."
DILUTION. The Company has sold the outstanding 850,980 shares of Common
Stock, giving the effect to the conversion of 416,670 shares of Convertible
Preferred Stock into 102,041 shares of Common Stock, at an average cost per
share of approximately $3.51, which is $.01 per share more than the price to
the public in this offering. At July 28, 1996, the Company had a net tangible
book value of $888,201, or $1.04 per share of Common Stock outstanding, based on
850,980 shares issued and outstanding and, giving effect to conversion into
102,041 shares of Common Stock of the 416,670 shares of Convertible Preferred
Stock sold in the Bridge Offering. Giving effect to the sale of 1,000,000
shares of Common Stock and 1,000,000 Warrants by the Company, after deduction of
expenses of the offering, the Company will have a net tangible book value of
approximately $3,751,440, or $2.02 per share. Investors in this offering will
sustain an immediate substantial dilution of $1.48 or 42% of their price per
share. See "Dilution."
NEED FOR CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATIONS. Holders of
the Warrants will have the right to exercise the Warrants for the purchase of
shares of Common Stock only if there is a current and effective Registration
Statement and Prospectus covering the Warrants and the shares of Common Stock
issuable upon their exercise, and only if the shares are qualified for sale
under the securities laws of the applicable state or states. While the Company
has undertaken plans to do so, there can be no assurance that a current
Registration Statement and Prospectus will be in effect when any of the Warrants
are attempted to be exercised. Although the Company will seek to qualify for
sale the shares of Common Stock underlying the Warrants in those states in which
the securities are to be offered, no assurance can be given that such
qualification will occur. The Warrants may be deprived of any value if a
Prospectus covering the shares issuable upon the exercise thereof is not kept
effective and current, or if such underlying shares are not, or cannot be,
registered in the applicable states. See "Description Of Securities."
POTENTIAL ADVERSE EFFECT OF WARRANT REDEMPTION. The Warrants may be
redeemed by the Company, after 12 months from the date of this Prospectus, at a
price of $0.05 per Warrant upon 45 days'
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<PAGE>
notice, mailed after the closing bid price of the Common Stock has equaled or
exceeded 150% of the then current Warrant Exercise Price (initially $______ per
share), for a period of 20 or more of the 30 consecutive trading days
immediately preceding such notice. Warrantholders shall have exercise rights
until the close of the business day preceding the date fixed for redemption.
Redemption of the Warrants could force the holders to exercise the Warrants and
pay the Exercise Price at a time when it may be disadvantageous for holders to
do so, to sell the Warrants at the then current market price when they might
otherwise wish to hold the Warrants, or to accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption. The Warrants may not be exercised unless a Registration
Statement pursuant to the Securities Act covering the underlying shares of
Common Stock is current and such shares have been qualified for sale, or there
is an exemption from applicable qualification requirements, under the securities
laws of the state of residence of the holder of the Warrant. See "Description
Of Securities."
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant number of the shares
of Common Stock and Warrants may be sold to customers of the Underwriters. Such
customers may subsequently engage in transactions for the sale or purchase of
such securities through or with the Underwriters. Although they have no legal
obligation to do so, the Underwriters from time to time in the future may make a
market in and otherwise effect transactions in the Company's securities. To the
extent the Underwriters do so, they may be a dominating influence in any market
that might develop and the degree of participation by the Underwriters may
significantly affect the price and liquidity of the Company's securities. Such
market making activities, if commenced, may be discontinued at any time or from
time to time by the Underwriters without obligation or prior notice. Depending
on the nature and extent of the Underwriters' market making activities and
retail support of the Company's securities at such time, the Underwriters'
discontinuance could adversely affect the price and liquidity of the Company's
securities.
LACK OF DIVIDENDS. No cash dividend was paid for the fiscal year ended
January 28, 1996, and the Company does not intend to declare or pay any
dividends on its outstanding shares of Common Stock in the foreseeable future.
In March 1994, the Company distributed to its shareholders of record, PRO RATA,
2,409,700 shares of the common stock of Global Casinos, Inc. previously acquired
by the Company in its disposition of two casino properties. See "Dividends."
LIMITED PUBLIC TRADING MARKET FOR THE COMPANY'S COMMON STOCK. While there
currently exists in the over-the-counter market a limited and sporadic public
trading market for the Company's Common Stock, there can be no assurance that
such a market will improve in the future, even if the Company's securities are
approved for listing on NASDAQ. There can be no assurances that an investor
will be able to liquidate his investment without considerable delay, if at all.
If a more active market does develop, the price may be highly volatile. Factors
discussed herein may have a significant impact on the market price of the shares
offered. Moreover due to the relatively low price of the Company's securities,
many brokerage firms may not effect transactions in the Company's Common Stock.
See "Description Of Securities."
RISKS OF PRICE AND VOLUME FLUCTUATIONS. The over-the-counter markets for
securities such as the Company's Common Stock and Warrants historically have
experienced extreme price and volume fluctuations during certain periods. These
broad market fluctuations and other factors, such as new product developments
and trends in the Company's industry and the investment markets generally, as
well as economic conditions and quarterly variations in the Company's results of
operations, may adversely affect the market price of the Company's Common Stock.
POSSIBLE LOSS OF NASDAQ LISTING. In order to facilitate this offering and
the Company's application for Nasdaq listing, the Company recently completed
several measures which included (i) the resignation of two directors, (ii) the
execution of Standstill Agreements and Proxies with several shareholders and
(iii) the redemption by the Company and sale by certain shareholders of some
securities of the Company. See "Certain Transactions - Agreements With Certain
Shareholders." However, the Company's listing, which was approved on __________,
1996, is subject to review by a Nasdaq Review Committee and may be withdrawn
within 45 days thereafter. Further, in order to continue to be listed on Nasdaq,
the Company must satisfy certain maintenance standards which relate to the
Company's assets, capital surplus and public trading price of its securities.
As a result, there can be no assurance that the Company's securities will
continue to be listed on Nasdaq. If the Company's Common Stock and Warrants are
delisted from Nasdaq, trading, if any, in those securities would thereafer be
conducted in the over-the-counter market on an electronic bulletin board
established for securities that do not meet Nasdaq listing requirements, or in
what are commonly referred to as the "pink sheets." As a result, an investor
would find it substantially more difficult to dispose of, or to obtain accurate
quotations as to the price of the Company's securities, and depending upon
several factors including future market price of the Common Stock, the Company's
securities could become subject to the "penny stock" rules. See "Risk Factors
- - The Securities Enforcement and Penny Stock Reform Act of 1990."
-15-
<PAGE>
THE SECURITIES ENFORCEMENT AND PENNY STOCK REFORM ACT OF 1990. The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure, relating to the market for penny stocks, in connection with trades
in any stock defined as a penny stock. The Commission recently adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on NASDAQ and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000, if such issuer has been in continuous operation for less
than three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
See "Certain Market Information."
Although the Common Stock and Warrants are anticipated to be approved for
quotation on the Nasdaq SmallCap Market, there can be no assurance that they
will remain eligible to be included on Nasdaq. In the event that the Company's
Common Stock and Warrants were no longer eligible for quotation on Nasdaq, the
Common Stock and Warrants could become subject to rules adopted by the
Commission regulating broker-dealer practices in connection with transactions in
"penny stocks." Those disclosure rules applicable to penny stocks require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized list disclosure document prepared by the
Securities and Exchange Commission. That disclosure document advises an
investor that investments in penny stocks can be very risky and that the
investor's salesperson or broker is not an impartial advisor but rather paid to
sell the shares. It contains an explanation and disclosure of the bid and offer
prices of the security, any retail charges added by the dealer to those prices
("markup" or "markdown"), and the amount of compensation or profit to be paid to
or received by the salesperson in connection with the transaction. The
disclosure contains further admonitions for the investor to exercise caution in
connection with an investment in penny stocks, to independently investigate the
security as well as the salesperson with whom the investor is working, and to
understand the risky nature of an investment in the security. Further, the
disclosure includes information regarding the market for penny stocks,
explanations regarding the influence that marketmakers may have upon the market
for penny stocks and the risk that one or two dealers may exercise domination
over the market for such security and therefore control and set prices for the
security not based upon competitive forces. The broker-dealer must also provide
the customer with certain other information and must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. Further, the
rules require that following the proposed transaction the broker provide the
customer with monthly account statements containing market information about the
prices of the securities. These disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for a stock that
becomes subject to the penny stock rules. If the Company's Common Stock or
Warrants became subject to the penny stock rules, many brokers may be unwilling
to engage in transactions in the Company's securities because of the added
disclosure requirements, thereby making it more difficult for purchasers of
Common Stock and Warrants in this offering to dispose of their securities.
SHARES ELIGIBLE FOR FUTURE SALE. As of October 1, 1996, 748,939 shares of
the Company's Common Stock, were issued and outstanding, 691,758 of which are
"restricted securities" and under certain circumstances may, in the future, be
sold in compliance with Rule 144 adopted under the Securities Act. Of these
restricted shares, 433,442 shares are being registered for resale by the Company
in a separate registration statement. Further, concurrently with this offering,
102,041 shares of Common Stock and 83,334 Warrants are being registered for sale
under the Securities Act for certain selling shareholders. In
-16-
<PAGE>
general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class, or if the Common Stock is quoted on NASDAQ or a stock exchange, the
average weekly trading volume during the four calendar weeks immediately
preceding the sale. A person who presently is not and who has not been an
affiliate of the Company for at least three months immediately preceding the
sale and who has beneficially owned the shares of Common Stock for at least
three years is entitled to sell such shares under Rule 144 without regard to any
of the volume limitations described above.
The Company has outstanding options and Class C Warrants exercisable to
purchase, in the aggregate, 230,250 shares of Common Stock at a weighted average
exercise price of $4.32 per share. The Company also has outstanding Warrants
exercisable to purchase 41,667 shares of Common Stock at a price of $_____ per
share, which warrants are being registered concurrently with this offering. In
addition, the Company is authorized to issue an additional 97,000 options under
the Company's 1993 Stock Incentive Plan ("Incentive Plan") and an additional
60,000 options under its Employee Stock Purchase Plan ("ESPP"). The Company
plans to register for sale under the Securities Act all shares issuable upon
exercise of options granted under either the Incentive Plan or ESPP. Following
completion of the offering covered by this Prospectus, assuming no exercise of
the Underwriter's Over-Allotment Option, the Company will have outstanding
Warrants exercisable to purchase, in the aggregate, 550,000 shares of Common
Stock at a price of $_______ per share, including Warrants issuable upon
exercise of the option granted to the Representative. See also "Options to
Representative" below. The Company has undertaken to register for sale under
the Securities Act all shares issuable upon exercise of those Warrants. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock or the availability of such shares for sale will have on the market prices
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital in the future through the sale of equity securities.
Actual sales or the prospect of future sales of shares of Common Stock under
Rule 144 may have a depressive effect upon the price of the Common Stock and the
market therefor.
RIGHTS TO ACQUIRE SHARES. A total of 230,250 shares of Common Stock have
been reserved for issuance upon exercise of outstanding options and warrants,
all but 40,000 of which are currently exercisable. In addition, there are
outstanding Warrants exercisable to purchase an aggregate of 41,667 shares of
Common Stock. The exercise prices of these options and warrants range between
$1.875 per share and $10.00 per share, with a weighted average exercise price of
approximately $4.32 per share. During the terms of the outstanding options and
warrants, the last of which expire in 2003, the holders thereof will have the
opportunity to profit from an increase in the market price of the Company's
Common Stock with resulting dilution to the holders of the Common Stock. The
existence of such options and warrants may adversely affect the terms on which
the Company can obtain additional financing, and the holders of such options and
warrants can be expected to exercise or convert those securities at a time when
the Company, in all likelihood, would be able to obtain additional capital by
offering shares of its Common Stock on terms more favorable to the Company than
those provided by the exercise or conversion of such options or warrants.
AUTHORIZATION OF PREFERRED STOCK. The Company's Articles of Incorporation,
as amended, authorize the issuance of up to 20,000,000 shares of preferred
stock, $.10 par value. The Board of Directors has been granted the authority to
fix and determine the relative rights and preferences of
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<PAGE>
preferred shares, as well as the authority to issue such shares, without further
stockholder approval. As a result, the Board of Directors could authorize the
issuance of a series of preferred stock which would grant to holders preferred
rights to the assets of the Company upon liquidation, the right to receive
dividend coupons before dividends would be declared to common stockholders, and
the right to the redemption to such shares, together with a premium, prior to
the redemption of Common Stock. Common stockholders have no redemption rights.
In addition, the Board could issue large blocks of voting stock to fend against
unwanted tender offers or hostile takeovers without further shareholder
approval. The ability of the Board to issue one or more series of preferred
stock without further stockholder approval could have the effect of delaying,
deterring or preventing a change in control of the Company or otherwise making
it more difficult for a person to acquire control of the Company. Further, the
ability of the Board to so issue one or more series of Preferred Stock could
have a depressive effect on the market price of the Company's Common Stock. See
"Description Of Securities."
AUTHORIZATION OF ADDITIONAL SHARES. The Company's Articles of
Incorporation, as amended, authorized the issuance of up to 850,000,000 shares
of Common Stock, of which 748,939 shares are outstanding on the date of this
Prospectus. The Company's Board of Directors has the authority to issue
additional shares of Common Stock and to issue options and warrants to purchase
shares of the Company's Common Stock without shareholder approval. Future
issuance of Common Stock could be at values substantially below the offering
price in the offering and therefore could represent further substantial dilution
to investors in the offering. In addition, the Board could issue large blocks
of voting stock to fend off unwanted tender offers or hostile takeovers without
further shareholder approval. The Company has outstanding options and warrants
exercisable to purchase in the aggregate up to 230,250 shares of Common Stock at
an average exercise price of $4.32 per share. Exercise of the options will have
a further dilutive effect on existing shareholders and investors in the
offering. See "Description Of Securities."
OPTIONS TO REPRESENTATIVE. In connection with this offering, the Company
will sell to the Representatives, for a nominal cost, options (the
"Representative's Securities") to purchase up to 100,000 shares of Common Stock
and 100,000 Warrants. The Representative's Securities will be exercisable
commencing one year after the date of this Prospectus and for four years
thereafter, at an exercise price of 120% of the initial public offering prices
of the Common Stock and of the Warrants. Holders of the Representative's
Securities are given the opportunity to profit from a rise in the market price
of the Common Stock with a resulting dilution of the interest of shareholders.
Furthermore, the Company will grant certain registration rights with regards to
the Representative's Securities and such registration could result in
substantial expense to the Company. See "Underwriting - Representative's
Securities."
-18-
<PAGE>
USE OF PROCEEDS
The proceeds to the Company from the offering, net of expenses of the
offering estimated to be $375,000, will be approximately $2,863,239, assuming
a combined offering price of the Common Stock and Warrants of $3.50.
Management anticipates that the proceeds will be applied with the following
priority during the next 12 month period:
Description of Use Amount Percent
------------------ ------ -------
Opening new retail locations(1) . . . . . . . . $2,000,000 70%
Remodeling existing retail locations(2) . . . . 225,000 7.8%
Development of marketing channels (3) . . . . . 100,000 3.5%
Debt Reduction(4) . . . . . . . . . . . . . . . 250,000 8.7%
Working Capital(5). . . . . . . . . . . . . . . 288,239 10.0%
---------- -------
$2,863,239 100.00%
---------- -------
---------- -------
- ---------------
(1) During the next 12 months, the Company intends to open ten new retail
locations. The cost to open a new store will range between $100,000 and
$200,000 depending on location and size. The cost of opening a new store
includes leasehold improvements, equipment and fixtures, and initial
inventory buildup. The Company is currently targeting tourist and upscale
locations in existing and new markets. To date, the Company has executed
eight additional leases in California, Florida, Nevada and New Jersey.
Management has also engaged in negotiations with several potential lessors
in Arizona, Florida, Massachusetts, Nevada, New Jersey and New York and
shortly after the offering, expects to have identified a "target list" of
possible additional locations for expansion. Any funds not used to open
new stores will be allocated to working capital.
(2) The Company's merchandising strategy focuses on high-quality designer
influenced products and an upscale shopping environment. To this end, the
Company has launched a campaign to enhance the appearance of its existing
stores. The Company intends to allocate a portion of the proceeds to
remodel up to ten stores over the next 12 months.
(3) Over the next 12 months, the Company plans to enhance and upgrade its
internet website, pursue development of the international marketplace,
establish arrangements with home shopping networks and complete the
Company's product catalogue. The development of these additional marketing
channels is expected to cost approximately $100,000 over the next 12
months.
(4) Consists of retirement of $200,000 in short-term notes, of which $100,000
is collateralized by the Company's assets, and $50,000 of selected accounts
payable.
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<PAGE>
(5) The proceeds allocated to working capital will be applied, to the extent
necessary, to the Company's current operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
A portion of those proceeds may also be used for additional store
remodelings in the future. Further, as it is an inherent part of the
Company's strategic plan to achieve long-term growth and profitable
operations through, in part, acquisitions, a portion of the proceeds
allocated to working capital may be used in connection the acquisition of
one or more stores or chain of stores. While the Company regularly
evaluates acquisition and business combination opportunities, there are no
substantive negotiations, arrangements, agreements or understandings with
respect to any potential acquisition.
The amounts set forth above represent the Company's present intentions for
the use of the proceeds from this offering. However, actual expenditures could
vary considerably depending upon many factors, including, without limitation,
changes in the economic conditions, unanticipated complications, delays and
expenses, or problems relating to the development of additional retail
locations. Any reallocation of the net proceeds of the offering will be made at
the discretion of the Board of Directors but will be in furtherance of the
Company's strategy to achieve growth and profitable operations through the
development of additional retail locations. The Company's working capital
requirements are a function of its future sales growth and expansion, neither of
which can be predicted with any reasonable degree of certainty. As a result,
the Company is unable to precisely forecast the period of time for which
proceeds of this offering will meet its working capital requirements. The
Company may need to seek funds through loans or other financing arrangements in
the future, and there can be no assurance that the Company will be able to make
such arrangements in the future should the need arise.
Pending use of the net proceeds of the offering, the funds will be invested
temporarily in certificates of deposit, short-term government securities or
similar investments. Any income from these short-term investments will be used
for working capital.
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<PAGE>
DILUTION
The net tangible book value of the Company at July 28, 1996, before giving
effect to this offering, was $888,201 or $1.04 per share, based upon 850,980
shares outstanding giving retroactive effect to the conversion of the
Convertible Preferred Stock into 102,041 shares of Common Stock. Net tangible
book value per share is determined by dividing the number of outstanding shares
of Common Stock into the net tangible book value of the Company (total assets
less total liabilities and intangible assets). After giving effect to the sale
of 1,000,000 shares of Common Stock and 1,000,000 Warrants by the Company in
this offering and receipt of the estimated net proceeds therefrom, the adjusted
net tangible book value at July 28, 1996 would have been $3,751,440 or $2.02
per share of Common Stock. This represents an immediate increase of $.98 per
share to current shareholders and an immediate dilution of $1.48 per share to
the investors in this offering. The following table illustrates the per share
dilution, assuming all 1,000,000 shares of Common Stock and Warrants are sold in
this offering:
Assumed public offering price per share of Common Stock (1). . . . . . $3.50
Net tangible book value per share of Common Stock
before offering (2). . . . . . . . . . . . . . . . . . . . . $1.04
Increase per share of Common Stock attributable to
new investors. . . . . . . . . . . . . . . . . . . . . . . . $ .98
-----
Adjusted net tangible book value per share of Common Stock
after offering (2)(3)(4) . . . . . . . . . . . . . . . . . . $2.02
-----
Dilution of net tangible book value per share of Common Stock
to new investors (2)(3)(4) . . . . . . . . . . . . . . . . . $1.48
-----
-----
Dilution per share of Common Stock as a percentage of
offering price (2)(3)(4) . . . . . . . . . . . . . . . . . . 42%
----
----
__________________________
(1) Does not include the effect of the sale of the Warrants.
(2) Assumes that all the consideration paid by investors in the Bridge Offering
is allocated to the Convertible Preferred Stock. Also assumes conversion
of all shares of Convertible Preferred Stock into 102,041 shares of Common
Stock.
(3) Additional dilution to new investors will also result if shares of Common
Stock upon exercise of outstanding warrants and options available for grant
under the Company's 1993 Stock Incentive Plan, which have exercise prices
of less than the offering price per share paid for shares of the Company's
Common Stock purchased in this offering. Further, warrants and options are
outstanding to purchase an aggregate of 230,250 shares of Common Stock at a
weighted average exercise price of $4.32 per share, as well as Warrants
exercisable to purchase an additional 41,667 shares of Common Stock at a
price of $______ per share.
(4) Assumes no exercise of Warrants or Representative's Securities.
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<PAGE>
As of the date of this Prospectus, the Company had issued and sold an
aggregate of 850,980 shares of Common Stock for a total purchase price of
$2,983,235, or an average price per share of $3.51. This compares to a purchase
price of $3.50 per share and Warrant for investors in this offering. Upon
completion of this offering, assuming the maximum number of shares are sold,
and after deduction of expenses of the offering, investors will have contributed
74% of the capital of the Company for which they will have received 54% of the
Common Stock.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
28, 1996 (i) on an historical basis and (ii) as adjusted to give effect to the
conversion of the Convertible Preferred Stock and the sale of the securities
offered hereby and the initial application of the estimated net proceeds
therefrom. See "Use Of Proceeds." This section should be read in conjunction
with the financial statements and notes to the financial statements which are
contained elsewhere in this Prospectus.
July 28, 1996
----------------------------------
As
Actual Adjusted (1)(2)(3)
------ ------------------
Long term debt . . . . . . . . . . . . . $713,432 $713,432
-------- --------
Stockholders' equity
Preferred Stock, $.10 par value, . . 41,667 --
20,000,000 shares authorized; --
416,670 shares outstanding,
pro forma; none outstanding
as adjusted.
Common Stock, $.002 par value, 1,498 3,702
850,000,000 shares authorized;
748,939 shares issued and
outstanding; 748,939 shares
outstanding pro forma
1,850,980 as adjusted.(1)
Additional paid-in capital . . . . . 2,940,070 5,754,533
Accumulated deficit. . . . . . . . . (1,912,095) (1,912,095)
Total stockholders' equity (3) . 1,071,140 3,846,140
---------- ----------
Total capitalization . . . . . . . . . . $1,784,572 $4,559,572
---------- ----------
---------- ----------
(1) Adjusted to give effect to (i) conversion of the Convertible Preferred
Stock into 102,041 shares of Common Stock, (ii) the sale of 1,000,000
Shares of Common Stock and 1,000,000 Warrants offered hereby for gross
proceeds of $3,500,000 and (iii) reduced by estimated expenses of the
offering of $375,000.
(2) Does not include (i) 230,000 shares of Common Stock reserved for issuance
upon exercise of options which may be granted under the Company's 1993
Stock Incentive Plan, 133,000 of which are subject to outstanding and
unexercised options having a weighted average exercise price of $2.25 per
share, and of which 40,000 options are subject to future vesting,
(ii) 60,250 shares of Common Stock reserved for issuance upon exercise of
outstanding Class C Common Stock Purchase Warrants ("C Warrants") at a
price of $10.00 per share, (iii) 37,000 shares of Common Stock reserved for
issuance pursuant to the exercise of other outstanding options and
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<PAGE>
warrants having a weighted average exercise price of $2.50 per share,
(iv) 60,000 shares of Common Stock reserved for issuance pursuant to the
exercise of options which may be granted under the Company's 1995 Employee
Stock Purchase Plan ("1995 ESPP"), and (v) 41,667 shares of Common Stock
reserved for issuance upon exercise of outstanding Warrants.
(3) Assumes no exercise of Warrants and Representative's Securities to be sold
by the Company in this offering.
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<PAGE>
DIVIDENDS
No cash dividend was paid for the last two fiscal years. In March 1994,
following completion of a rights offering, the Company distributed to its
shareholders of record, PRO RATA, 2,409,700 shares of the common stock of Global
Casinos, Inc. previously acquired by the Company in its disposition of two
casino properties.
While no decision with regard to the payment of dividends in the future
has, to date, been made, the Company does not, as of the date of this
Prospectus, intend to declare or pay any dividends on its outstanding shares of
Common Stock in the foreseeable future. Future dividend policy is subject to
the discretion of the Board of Directors, and is dependent upon a number of
factors including future earnings, capital requirements and the financial
condition of the Company. The rights of Common Stock shareholders to dividends
shall be subject to the rights and preferences of Preferred Stock shareholders,
if any, at the time the dividend is declared.
-25-
<PAGE>
CERTAIN MARKET INFORMATION
PRICE RANGE OF COMMON STOCK
The outstanding shares of Common Stock are traded over-the-counter and
quoted on the OTC Electronic Bulletin Board on a limited and sporadic basis
under the symbol "PMRCA." The reported high and low bid and asked prices for
the Common Stock are shown below for the period through October 23, 1996. The
prices presented are bid and asked prices which represented prices between
broker-dealers and do not include retail mark-ups and mark-downs or any
commission to the broker-dealer. The prices do not necessarily reflect actual
transactions.
BID(1) ASK(1)
High Low High Low
---- --- ---- ---
1994
- ----
First Quarter $ 7.50 $ 6.25 $ 10.00 $ 10.00
Second Quarter 7.50 7.50 10.00 10.00
Third Quarter 7.50 7.50 10.00 10.00
Fourth Quarter 5.00 5.00 10.00 10.00
1995
- ----
First Quarter (2) (2) (2) (2)
Second Quarter $ 5.00 $ 5.00 $ 10.00 $ 10.00
Third Quarter 5.00 1.25 10.00 3.75
Fourth Quarter 3.75 1.875 8.125 6.25
1996
- ----
First Quarter $ 2.50 $ 1.875 $ 8.125 $ 4.375
Second Quarter 2.50 1.875 4.375 4.375
Third Quarter 3.44 2.50 5.94 4.06
Fourth Quarter
(through October 23, 1996) 3.44 3.44 4.06 4.06
- ------------------------
(1) All prices have been adjusted to give retroactive effect to a one-for-five
reverse stock split which will be completed on the date of this Prospectus.
(2) No trading activity during the period.
The bid and ask prices of the Company's Common Stock on October 23, 1996
were $3.44 and $4.06, respectively, as quoted on the OTC Electronic Bulletin
Board and as adjusted for the reverse stock split referred to above. As of
October 23, 1996 there were approximately 156 shareholders of record of the
Company's Common Stock.
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<PAGE>
SELECTED FINANCIAL DATA AND STATISTICAL DATA
Set forth below is selected summary financial data with respect to the
Company. Financial information for the period ended January 29, 1995, for the
year ended January 28, 1996, and as of and for the three months ended July 30,
1995 and July 28, 1996, is derived from the financial statements included
elsewhere in this Prospectus and is qualified by reference to such financial
statements and the notes related thereto. In February 1995, the Company adopted
its new fiscal year to begin January 30, 1995 and end January 28, 1996; and
thereafter the fiscal year will end on the last Sunday of each January of each
successive year.
<TABLE>
<CAPTION>
Six months ended
Period ended Year ended ------------------------------
January 29, January 28, July 30, July 28,
1995 (1) 1996 1995 1996
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENTS
OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . . . . . $8,335,790 $9,069,840 $4,139,329 $3,957,452
Operating (loss) . . . . . . . . . . . . (886,667) (37,298) (330,668) (213,332)
Income from discontinued
operations . . . . . . . . . . . . . . 141,237 270,441 90,390 16,177
Net income (loss). . . . . . . . . . . . (1,038,726) 114,219 (306,631) (196,064)
Net income (loss) available to
common shareholders. . . . . . . . . . (1,038,726) 114,219 (306,631) (199,064)
Net income (loss) per common share . . . (2.93) .23 (.71) (.27)
Weighted average number
of shares outstanding (2). . . . . . . 354,600 495,800 434,583 748,939
<CAPTION>
Six months ended
Period ended Year ended ------------------------------
January 29, January 28, July 30, July 28,
1995 (1) 1996 1995 1996
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
STATISTICAL DATA:
Store revenues . . . . . . . . . . . . . $8,178,054 $8,957,344 $4,096,758 $3,949,134
Store gross margin . . . . . . . . . . . 5,509,955 6,337,334 2,802,975 2,775,731
Store operating expenses . . . . . . . . 4,850,747 4,906,077 2,395,543 2,313,303
Store operating profit . . . . . . . . . 659,237 1,431,257 407,432 462,428
Corporate overhead operating
expenses . . . . . . . . . . . . . . . 1,430,884 1,518,416 746,518 677,816
Gross margin percentage. . . . . . . . . 66.4% 70.3% 68.4% 70.3%
-27-
<PAGE>
Comparable same store
sales (4). . . . . . . . . . . . . . . 7,448,884 8,186,449 3,644,764 3,731,821
Comparable same store
sales growth (4) . . . . . . . . . . . N/A 9.9% N/A 2.4%
Comparable same store
sales per square foot (4). . . . . . . 520.68 572.24 254.77 260.86
<CAPTION>
As of
July 28, 1996
--------------------------------------
Actual As adjusted (3)
------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets. . . . . . . . . . . . $3,277,922 $6,052,922
Total liabilities . . . . . . . . . 2,206,782 2,206,782
Working capital . . . . . . . . . . 543,626 3,406,865
Stockholders' equity. . . . . . . . 1,071,140 3,846,140
__________________________
</TABLE>
(1) Due to the Company's change in fiscal year, the Company's financial
statements are reported for the year ending December 31, 1994 ("Fiscal
1994"), a one month period ending January 29, 1995, and the year ending
January 28, 1996 ("Fiscal 1996"). The Impostors acquisition was completed
on February 24, 1994, and accordingly results of operations for the period
ended December 31, 1994 reflect only ten months of Impostors' operations.
Prior to the Impostors acquisition, which includes the period from January
1, 1994 through February 23, 1994 (approximately two months), the Company
had no significant operating activity. Therefore, for purposes of
comparison, the one-month period from January 1, 1995 through January 29,
1995 has been combined with Fiscal 1994 and therefore represents thirteen
(13) months of combined operations but only eleven (11) months of
operations of Impostors. This combined period is referred to as "the
period ended January 29, 1995."
(2) Gives effect to the one-for-five (1-for-5) reverse split which was
effective on the date of this Prospectus.
(3) Adjusted to reflect net proceeds from the sale by the Company in this
offering of 1,000,000 shares of Common Stock and 1,000,000 Warrants at the
initial offering prices of $3.40 per share and $.10 per Warrant. The
"As Adjusted" information does not include the exercise of the Warrants,
the Underwriters' Over-Allotment Options or the options to acquire the
Representative's Securities. See "Use Of Proceeds," "Capitalization" and
"Underwriting."
(4) Includes only the 24 stores open for the entire periods being compared.
For the purpose of comparable same store sales only, the period ended
January 29, 1995 includes 12 months of sales. However, the financial
statement data for the same period includes only 11 months of Impostors
operations, as the retail chain was acquired in late February, 1994.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this report.
RETAIL FISCAL YEAR
The method of financial reporting is a fifty-two to fifty-three (52-53)
week fiscal year ending on the last Sunday in January of each year. Likewise,
reporting quarters end on the Sunday closest to the calendar end of April, July
and October. Each reporting quarter contains 13 weeks of operations.
LIQUIDITY AND CAPITAL RESOURCES
Approximately 20% of the Company's business is generated during the
Christmas holiday season. The Company's cash position will therefore be the
highest at the end of December as compared to any other month of the year, and
tends to decrease during the first and second quarter. On June 24, 1996, the
Company successfully completed a bridge financing in which it sold an aggregate
of 416,670 shares of Series A Convertible Preferred Stock (convertible into
102,041 shares of Common Stock) and 208,335 Class B Warrants, realizing net
proceeds of $225,000. As a result, the Company's cash position increased
$93,810 from $327,198 at January 28, 1996 to $421,008 at July 28, 1996. The
Company's net accounts payable and other accrued liabilities increased
approximately $362,000 during the six months ended July 28, 1996. These funds
and increases in accounts payable and other accrued liabilities have been
largely used to finance the store remodels that were completed during the first
six months of fiscal 1997, to purchase fixtures and equipment, to finance
offering costs and net losses and to reduce notes payable.
During the first six months of fiscal 1996, the Company continued its
efforts to liquidate its common stock position in Global Casinos, Inc.
Therefore, marketable securities decreased from $45,113 at January 28, 1996 to
$10,813 at July 28, 1996. Management intends to liquidate its remaining
securities holdings as allowed by the general market conditions.
During the six months ended July 28, 1996, the Company invested $194,273 in
leasehold improvements, furniture and equipment. Approximately $166,000 of this
investment represents leasehold improvements, furniture and fixtures in
connection with the remodels and investments in the locations in St. Louis,
Missouri, Tucson, Arizona, Bellevue, Washington, and Denver, Colorado. The
balance of $28,000 represents investments in corporate furniture and equipment
in connection with the relocation of the corporate office in January, 1996.
Therefore, property and equipment, net of $126,454 in depreciation,
increased $64,159 from $977,727 at January 28, 1996, to $1,041,866 at July 28,
1996. At January 28, 1996, the Company's trademark assets were $104,900, net of
accumulated amortization, which represented the goodwill associated with the
Impostors trademark and other intellectual property acquired as part of the
purchase of the Impostors' assets in February, 1994. The Company's trademark
asset is being amortized over a 10 year period, and had an amortized book value
of $94,700 at July 28, 1996.
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<PAGE>
The Company has incurred costs in connection with this offering of $88,239
which primarily represents professional services, printing and other
administrative costs. It is estimated that the total costs to complete the
offering will approximate $300,000 which will be offset against the proceeds of
this offering.
As of July 28, 1996, the Company had total outstanding liabilities of
$2,206,782 compared to $1,994,590 at January 28, 1996, representing an increase
of $212,192 which was due to an increase in current liabilities of $227,398,
from $1,178,567 at January 28, 1996 to $1,405,965 at July 28, 1996. This
increase was primarily the result of an increase in net accounts payable and
other accrued liabilities of approximately $337,000 which was used to help
finance offering costs, store remodelings and net losses and to reduce notes
payable. Also, management continued its efforts to purchase larger quantities
of inventories to maintain favorable inventory costs and to maintain inventory
levels to accommodate the opening of Park Meadows. As a result of the
foregoing, working capital decreased by $139,546, from $683,172 at January 28,
1996 to $543,626 at July 28, 1996.
The amount borrowed from related parties was $64,420 at July 28, 1996 which
reflects a reduction of $34,459, from the January 28, 1996 figure of $98,879.
During the six month period, the Company also reduced other short and long term
notes by $121,294, which resulted in other notes payable of $1,017,743 as of
July 28, 1996 compared to $1,138,766 at January 28, 1996. As of July 28, 1996,
the Company was in arrears in the payment of two notes totaling, in the
aggregate, approximately $120,000. See Note 4 to Financial Statements.
Management has been in discussions with the two noteholders and plans to retire
these two notes with the proceeds of this offering.
The largest portion of the Company's long-term debt is comprised of a
$635,000 promissory note, which note carries interest at the rate of 10% per
annum and is payable in monthly interest payments of approximately $5,300 and is
due February 22, 1998. The note is secured by the Company's inventory and cash.
As a result of the Company's net loss for the six months of $196,064, the
accumulated deficit increased from $1,716,031 at January 28, 1996 to a deficit
of $1,912,095 at July 28, 1996. However, due to the Bridge Offering proceeds of
$225,000 stockholders' equity increased in the six months from $1,042,204 at
January 28, 1996 to $1,071,140 at July 28, 1996.
Net cash provided by operating activities for the period ended July 28,
1996 was $256,511, compared to $173,594 for the six months ended July 30, 1995.
The improvement was principally due to lower overhead costs and a resulting
reduction in the operating loss for the period.
The primary change in cash flow generated by operations in the six month
periods ended July 30, 1995, compared to July 28, 1996, reflects the net
increase in accounts payable and other accrued liabilities from $411,355 to
$362,896.
During the period ended July 28, 1996, the Company invested $194,273 in
capital equipment, which reflects the investments in leasehold improvements,
furniture and equipment discussed above. During the period, management
continued its efforts to sell its holdings of Global Casinos common stock, which
resulted in proceeds of $50,564. For the period ended July 30, 1995, the
Company's
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<PAGE>
investments in assets were immaterial, while the sale of Global Casinos common
stock resulted in proceeds of $96,612.
Net cash used in financing activities for the six months ended July 30,
1995 and July 28, 1996 was $238,942 and $18,992 respectively, reflecting a
reduction of $219,950. The majority of the change was the result of reduced
payments on notes in 1996 as compared to 1995 in the amount of $224,814 as well
as proceeds from the Bridge Offering of $225,000 in June, 1996.
The foregoing resulted in an increase in the Company's cash position of
$64,996, from $28,814 at July 30, 1995 to $93,810 at July 28, 1996.
At January 28, 1996, the Company had a net operating loss carryforward for
federal tax purposes of $680,000 that may be utilized to offset future profits.
As discussed above, the Company opened its 27th retail location in Denver,
Colorado, on August 30, 1996. In addition, the Company has executed leases
for eight new locations, scheduled to open between November, 1996 and
March, 1997. These new leases represent, in the aggregate, an additional $3.6
million in future base rent commitments through the year 2007. Several other
sites are currently being evaluated, and the Company expects to execute
additional leases to open new retail stores within its current fiscal quarter.
Depending on location and size, the opening of a new retail location represents
an aggregate capital commitment of approximately $100,000-$200,000 which
includes leasehold improvements, furniture, fixtures, equipment and inventory.
Rather than to retire long-term debt, the Company intends to use the
proceeds from this offering to fund the growth of its retail chain and take
advantage of other distribution opportunities such as direct mail, home shopping
and internet distribution. However, since the Company's ability to achieve
profitability in the future depends, to a large extent, upon realizing economies
of scale from expansion without a proportionate increase in general and
administrative expenses, the majority of the proceeds from the financing will be
utilized to expand the number of stores to 37 within the next 12 months.
Initial expansion plans have been concentrated in the states of California,
Florida, New Jersey, Illinois, Massachusetts, New York and Nevada.
The Company believes the proceeds from this offering, along with cash flow
generated from operations will be sufficient to meet the Company's capital needs
over the next 12 months. However, if the Company is unsuccessful in securing the
contemplated financing, its ability to pursue additional opportunities for
distribution and retail store expansion will be significantly impaired and the
results of operations for future periods may be adversely affected.
RESULTS OF OPERATIONS
REPORTING PERIODS AND COMPARABILITY
Due to the Company's change in fiscal year, the Company's financial
statements are reported for the year ending December 31, 1994 ("Fiscal 1994"),
an one month period ending January 29, 1995, and the year ending January 28,
1996 ("Fiscal 1996"). The Impostors acquisition was
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<PAGE>
completed on February 24, 1994, and accordingly results of operations for the
period ended December 31, 1994 reflect only ten months of Impostors' operations.
Prior to the Impostors acquisition, which includes the period from January 1,
1994 through February 23, 1994 (approximately two months), the Company had no
significant operating activity. Therefore, for purposes of comparison, the one-
month period from January 1, 1995 through January 29, 1995 has been combined
with Fiscal 1994 and therefore represents 13 months of combined operations but
only 11 months of operations of Impostors. This combined period is referred to
in the following discussion as "the period ended January 29, 1995."
The following table sets forth for the periods indicated, the percentage
relationship between selected items in the Statements of Operations to revenues:
<TABLE>
<CAPTION>
Six Months Six Months
Period Ended Fiscal Year Ended Ended Ended
January 29, 1995 January 28, 1996 July 30, 1995 July 28, 1996
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Revenues $8,335,790 100% $9,069,840 100% $4,139,329 100% $3,957,452 100%
Cost of goods
sold 2,797,607 33.6% 2,690,658 29.7% 1,326,517 32.0% 1,179,665 29.8%
Gross margin 5,538,183 66.4% 6,379,182 70.3% 2,812,812 68.0% 2,777,787 70.2%
Operating
expenses 6,424,850 77.0% 6,416,480 70.7% 3,143,480 75.9% 2,991,119 75.6%
Operating loss (886,667) (10.6%) (37,298) (0.4%) (330,668) (8.0%) (213,332) (5.4%)
Other income
(expenses), net (344,296) (4.1%) 2,186 nil (121,353) (2.9%) (8,909) (0.2%)
Income (loss)
before
discontinued
operations (1,179,963) (14.2%) (156,222) (0.2%) (397,021) (9.6%) (212,241) (5.4%)
Net income
(loss) available
to common
shareholders (1,038,726) (12.5%) 114,219 1.3% (306,631) (7.4%) (199,064) (5.0%)
Net income (loss)
per common share (2.93) .23 (.71) (.27)
</TABLE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED JULY 28, 1996 COMPARED TO SIX MONTHS
ENDED JULY 30, 1995
Revenues for the period ended July 30, 1995 were $4,139,329 which reflects
revenues from 29 retail locations. The Company's total revenues for the six
months ended July 28, 1996 were
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<PAGE>
$3,957,452 a decrease of $181,877 which reflects a reduction in the number of
retail locations from 29 in the six month period ended July 30, 1995 to 26 in
the period ended July 28, 1996. Comparable same store sales (24 stores) were
$3,731,821 for the six months ended July 28, 1996 compared to $3,644,764 for the
same period in 1995, an increase of 2.4%. Management attributes this increase
to a continued improvement in the Company's merchandise assortment and strategy,
which included the introduction of a genuine sterling silver line of products in
May, 1996.
Although management expects that some store sales may increase marginally
in the future, it is anticipated that any material future increase in revenue
will depend upon expanding the number of stores. The Company expects that over
the next twelve months these store expansions will not require a proportionate
increase in corporate overhead.
For the six months ended July 28, 1996, cost of goods sold was $1,179,665
and the gross margin was $2,777,787, or approximately 70%. For the six months
ended July 28, 1995, cost of goods sold was $1,326,517 and the gross margin was
$2,812,812 or approximately 68%. The Company attributes the improvement in
gross margin percentage to less sales discounting and advantageous buying
opportunities and quantity discounts that reduced merchandise costs.
Selling, general and administrative expenses were $2,850,805 for the six
months ended July 28, 1996, compared to $2,971,550 for the six months ended July
30, 1995. The majority of these expenses were comprised of personnel expenses,
which amounted to $1,344,750 and $1,424,165 for the six months ended July 28,
1996 and July 30, 1995, respectively, and occupancy costs of $961,987 and
$988,792 respectively. Depreciation and amortization expense was $140,314 for
the six months ended July 28, 1996, and $170,511 for the six months ended July
30, 1995, representing a reduction of $30,197 due to a reduced depreciable asset
base. The Company credits the majority of the decrease in total operating
expenses of $152,361 to owning and operating three fewer stores in the six
months ended July 28, 1996 compared to the same period in 1995. Also, the
Company's relocation of its corporate offices from California to Colorado in
January, 1996 resulted in lower personnel and occupancy costs of approximately
$75,000 for the six months ended July 28, 1996.
As a result of the foregoing, the Company's net operating loss for the six
months ended July 28, 1996 was $213,332. This compares with a loss from
operations for the six months ended July 30, 1995 of $330,668.
Net interest expense was $54,422 and $65,858 for the six months ended July
28, 1996, and July 30, 1995, respectively. The Company's gain on investments of
$16,264 for the period ended July 28, 1996 relates to the Company's holdings of
common stock in Global Casinos, Inc. During the six months ended July 28, 1996,
the Company sold most of its holdings of these securities and management intends
to liquidate its remaining holdings of Global common stock as allowed by general
market conditions. For the period ended July 30, 1995, the Company reported a
loss of $145,876 on its investment in tradable securities.
For the period ended July 30, 1995, other income, net of other expenses,
was $90,381, of which approximately $72,000 represented income from a settlement
with a former franchisee, which receivable had been previously written off in
fiscal 1994.
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<PAGE>
Income from discontinued operations, net of income tax benefit, was $16,177
and $90,390 for the six months ended July 28, 1996 and July 30, 1995
respectively. The income from discontinued operations reflects negotiated
settlements with creditors relating to the Company's previous gaming operations.
Based on the foregoing, the Company reported a net loss available to common
shareholders for the six months ended July 28, 1996 of $199,064, which
translates to a net loss per common share, after income from discontinued
operations, of $0.27 based on 748,939 weighted average shares outstanding,
compared to a net loss available to common shareholders for the six months ended
July 30, 1995 of $306,631 or $0.71 per share, based on 434,583 weighted average
common shares outstanding as of that date. Future profitability will depend
upon achieving the economies of scale from expanding the number of stores as
previously discussed.
Other than the foregoing, management knows of no trends, or other demands,
commitments, events or uncertainties that will result in, or that are reasonably
likely to result in, a material impact on the income and expenses of the
Company.
RESULTS OF OPERATIONS - FISCAL 1996 COMPARED TO PERIOD ENDED JANUARY 29, 1995
The Company's revenues increased from $8,335,790 for the period ended
January 29, 1995 to $9,069,840 for the year ended January 28, 1996 ("Fiscal
1996"). During fiscal 1996, the Company's same store sales increased by 9.9%,
or approximately $738,000. On a percentage basis, sales improved most
significantly in the first quarter ended April 1, 1995, mainly due to higher
inventory levels and a refocus in the Company's merchandising strategy, from
less fashion-oriented merchandise to more fine jewelry looks.
The Company closed four stores during Fiscal 1996 and one store during the
period ended January 29, 1995 due to unprofitable operations. One additional
location, Rodeo Drive, was also closed due to the landlord's termination of a
month-to-month lease. In October 1995, the Company opened a new location in the
Tucson Mall in Tucson, Arizona, and in November 1995, the Company opened a new
store in Bellevue Square, Bellevue, Washington. During the year ended January
28, 1996, the sales per store ranged from approximately $197,000 to
approximately $1,460,000 for the highest sales volume store. A majority of the
retail stores generated between $250,000 and $450,000 in annual sales. During
the same period, store contributions (store revenues less direct store
expenses), ranged from a negative contribution of approximately $19,000 to a
positive contribution of $246,000, averaging $52,000 per store. The Company
believes that existing stores have potential for further improvements in sales
and contribution through the continuation of a focused merchandise mix as well
as from a higher inventory turn rate. In addition, the Company remodeled and
updated the overall look of the stores at the Stoneridge Mall in Northern
California to reflect a more contemporary look and color scheme. In March 1996,
the Company's store in the St. Louis Galleria in St. Louis, Missouri was
remodeled and relocated to an improved location in the mall. The Company's
remodeling efforts will continue to the extent that funds are available and the
expected sales increases justifies the capital investment.
Approximately $111,000 of the Company's sales in Fiscal 1996 represented
sales to wholesale clients, while the comparable amount for the period ended
January 29, 1995 was $154,954. The
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<PAGE>
Company's wholesale business was primarily to former franchisees that signed
licensee agreements with the Company allowing the licensees a continued use of
the Impostors' mark. In March 1996, these licensee agreements expired, and
management has offered to renew these agreements on a case-by-case-basis. As of
the date of this report, three of these agreements, representing five stores,
have been renewed for an annual licensee fee of $5,000 per store.
For the year ended January 28, 1996, cost of goods sold was 29.7% compared
to 33.6% for the period ended January 29, 1995. The gross margin percentage
therefore improved by approximately 4% from 66.4% for the period ended January
29, 1995 to 70.3% for the year ended January 28, 1996. Approximately 3% of the
gross margin increase resulted from the relatively higher discounts obtained on
merchandise where the Company bought larger quantities. The Company's gross
margin also improved from an increase in the amount of products purchased from
the Pacific Rim, which normally offers a lower merchandise cost than if the same
products were bought from domestic vendors. In addition, less promotional
activity without erosion in sales in Fiscal 1996 compared to the period ended
January 29, 1995 generated overall improved gross margins in most product
categories. Gross margin incorporates the costs of shrinkage and freight, which
for Fiscal 1996 were approximately $52,000 and $51,000 respectively and
approximately $146,000 and $49,000 respectively in Fiscal 1995. 1% of the total
4% gross margin improvement therefore resulted from an approximate $94,000
reduction shrinkage in Fiscal 1996 as compared to Fiscal 1995.
Operating expenses were essentially unchanged at $6,416,480 for the year
ended January 28, 1996 compared to $6,424,850 for the period ended January 29,
1995. The majority of these expenses were comprised of salaries and wages which
amounted to $2,473,000 in Fiscal 1996 compared to approximately $2,500,000 for
the period ended January 29, 1995. Occupancy costs were $1,974,000 compared to
$1,740,000 for the period ended January 29, 1995. Depreciation an amortization
was $337,070 for the year ended January 28, 1996, compared to $341,809 for the
period ended January 29, 1995.
As part of management's efforts to reduce the Company's overhead expenses,
in January 1996, the Company relocated its corporate headquarters from San
Francisco, California to Denver, Colorado. Management believes this relocation
will result in lower occupancy costs and will position the Company to realize
efficiencies in overhead personnel.
As a result of the foregoing, the Company improved its results from
operations by $849,369, or 96%, from an operating loss of $886,667 for the
period ended January 29, 1995, to an operating loss of $37,298 for the year
ended January 28, 1996. The Company reduced its notes and loans outstanding,
which resulted in a decrease in interest expense of $49,296, or approximately
31%, from $157,476 for the period ended January 29, 1995 to $108,180 for the
year ended January 28, 1996. The net loss on marketable securities, which
primarily related to the Company's holdings of common stock in Global Casinos,
Inc. increased by $35,680, from a loss of $146,963 at January 29, 1995 to a loss
of $182,643 at January 28, 1996. The loss on the marketable securities includes
an unrealized loss of $93,232, reflecting a decrease in the market value of the
Global Casinos, Inc. shares at January 28, 1996 as compared to the investment
cost basis of these shares at January 29, 1995.
Income from discontinued operations of $270,441, net of income tax benefit
of $161,000 for the year ended January 28, 1996 represented negotiated
settlements of approximately $209,000 with
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<PAGE>
certain creditors and a reduction in accounts payable of approximately $222,000
which related to claims associated with the Company's operations prior to the
Impostors acquisition. The reduction of accounts payable of approximately
$222,000 was based upon management's estimates of amounts which may ultimately
be paid, but the Company has not received formal releases from the creditors. At
December 31, 1994, income from discontinued operations was $141,237, net of
income tax benefit of $51,000, representing negotiated settlements with certain
creditors related to the Company's prior business activities.
Based on the foregoing, at January 28, 1996, the Company reported an
improvement in net income from a net loss of $1,038,726 for the period ended
January 29,1995 to a net income of $114,219 for the year ended January 28, 1996,
which, based on average shares outstanding 495,800, translate to a net income
per share, after discontinued operations of $.23. This compares to a net loss
for the period ended January 29, 1995 of $2.93 per share based on weighted
average shares outstanding of 354,600. Inflation and changing prices have not
had a material impact on the Company's prices, net sales and revenues and income
from continuing operations, and are not expected to have a material impact in
the future.
RESULTS OF OPERATIONS - ONE MONTH ENDED JANUARY 29, 1995
Revenues for the one month period were $543,377. Cost of goods sold was
$228,076 resulting in a gross margin of $315,301, or 58%. The margin percentage
reflects management's effort to reduce inventories and also the reduction in
margin that resulted from a "going out of business sale" in connection with the
closing of two stores in February and March, 1995.
Operating expenses of $518,327 which included personnel expenses of
$231,802 and occupancy expenses of $174,592, resulted in an operating loss of
$203,026 for the one-month period. Also included in operating expenses was
depreciation of $29,663 and general administrative expenses of $82,270.
Interest expense was $11,899.
As a result of the foregoing, the Company reported a net loss for the one-
month period ended January 29, 1995 of $214,784, or $.49 per share on 434,200
weighted average shares outstanding. Management's attributes a significant
portion of this loss to the two store closings in the first calendar quarter in
1995.
Net cash used in operating activities of $410,030 was the result of a
significant reduction in accounts payable of $435,030, which was partially
offset by cash provided by a $201,735 reduction in merchandise inventories.
Payments on notes payable were $18,008. As a result of the foregoing, the
Company's cash position decreased by $428,038, from $599,202 at January 1, 1995
to $171,164 at January 29, 1995.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1996, the Financial Accounting Standards Board issued a statement
entitled "Accounting for Impairment of Long-Lived Assets." In the event that
facts and circumstances indicate that the cost of assets or other assets may be
impaired, an evaluation of recover ability would be
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<PAGE>
performed. If an evaluation is required, the estimated future in discounted
cash flows associated with the asset would be compared to asset's carrying
amount to determine if a write-down to market value or discounted cash flow
value is required. Adoption of FAS 121 had no effect on the unaudited July 28,
1996, financial statements.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation" (FAS 123). The new
statement is effective for fiscal years beginning after December 15, 1995. FAS
123 encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options, and other equity instruments to
employees based on fair value. Companies that do not adopt the fair value
accounting rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity instruments with non-
employees for goods or services must be accounted for on the fair value method.
The Company has elected not to adopt the fair value accounting prescribed by FAS
123 for employees, and will be subject only to the disclosure requirements
prescribed by FAS 123.
Other than what has been discussed above, management knows of no trends, or
other demands, commitments, events or uncertainties that will result in, or that
are reasonably likely to result in a material impact on the income and expenses
of the Company.
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<PAGE>
BUSINESS
OVERVIEW
Operating under the name "Impostors," Premier Concepts, Inc. (the
"Company") specializes in the marketing and retailing of high-end reproduction
jewelry ("faux jewelry") and 14 karat gold jewelry with cubic zirconia and other
synthetic stones. Through its national chain of 27 currently operating retail
stores, the Company sells jewelry that emulates classic fine jewelry as well as
pieces designed by famous jewelers such as Tiffany & Co.-Registered Trademark-,
Cartier-Registered Trademark-, Bulgari-Registered Trademark- and Harry Winston.
The Company's product line also includes replicas of jewelry owned by Princess
Diana, The Duchess of Windsor, Elizabeth Taylor and other celebrities. The
Company's faux jewelry is created with layered gold, cubic zirconia and Austrian
crystal to simulate the look of fine jewelry. In June 1996, the Company
introduced a new collection of genuine sterling silver jewelry featuring semi-
precious and synthetic stones. The Company's products are purchased from
several domestic vendors and from vendors in China, England, Hong Kong, Italy,
Korea, Spain, Taiwan and Thailand.
The Impostors stores are designed to match the elegant look of the
Company's products and to provide customers with the feeling of shopping in an
upscale, fine jewelry environment. The Company's stores are located in shopping
malls and tourist locations. Currently, the Company's stores are located in
Southern California, Northern California, the states of Arizona, Colorado,
Louisiana, Missouri and Washington and in the Washington, D.C. area. On August
30, 1996, the Company opened its 27th store in the Park Meadows shopping mall in
the Denver metropolitan area. The largest and most visible store is located
in the prime retail area of San Francisco's Union Square. In addition, the
Company has entered into leases for eight new retail stores in California,
Florida, Nevada and New Jersey, scheduled to open between November, 1996
and March, 1997.
BUSINESS STRATEGY
In March 1994, the Company acquired out of bankruptcy substantially all of
the assets and assumed certain liabilities associated with the operation of a
nationwide chain of 27 faux jewelry stores which were then operating under the
trademark "Impostors." In the months following the Company's entry into the
faux jewelry industry, results of operations continued to deteriorate
principally due to the continuing burden of excessive operating and overhead
expenses, pre-petition and post-petition bankruptcy liabilities, the
unprofitability of certain stores, as well as the continuation of ineffective
marketing and merchandizing strategies. In June 1994, the Company hired a new
president, Sissel B. Greenberg, who immediately began implementing a transition
plan calculated to reverse the negative impacts of the Company's predecessor's
ineffective business strategy. In furtherance of the turnaround effort, the
Company has reduced overhead by moving its corporate offices from San Francisco
to Denver, closed five stores due to unprofitable operations, and one store due
to an expired lease, reduced debt through negotiated settlements, opened three
new stores and implemented a new merchandizing strategy. These actions have
reduced the Company's operating loss from $886,667 for the 13-month period ended
January 29, 1995 to an operating loss of $37,298 for the fiscal year ended
January 28, 1996, and from an operating loss of $330,668 for the six months
ended July 30, 1995 to a loss of $213,332 for the six months ended July 28,
1996.
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With its turnaround strategy in place, Premier believes that it has an
opportunity to become a leader in the specialty retailing segment of the market
for faux and reproduction jewelry and related accessory items through a
combination of internal growth and acquisitions. Its plans include adding new
stores and remodeling existing stores, development of new marketing channels
including multimedia and direct mail, and the marketing of its high-end jewelry
reproductions and store concept internationally through licensing and
distribution arrangements.
PRINCIPAL PRODUCTS
Since inception, Impostors' merchandising strategy has evolved through
several phases. Initially, the concept was based on the marketing and retailing
of jewelry representing faux copies of expensive fine and designer jewelry.
However, in 1993, when AFJ filed for Chapter 11 protection, the "Rediscover
Impostors" program presented a new business focus presenting the merchandise in
a theme oriented style and focusing on more trendy fashion jewelry. Price
points were significantly lowered for a day-in, day-out value. A significant
decline in revenues and margins resulted from this program. As part of the
turnaround plan, the merchandise has been refocused to designer and fine jewelry
inspired faux jewelry, with more emphasis on 14 karat gold and most recently,
genuine sterling silver.
The Company's products are comprised of approximately 60% fine jewelry
reproductions and emulations of merchandise inspired by classic designers such
as Cartier-Registered Trademark-, Tiffany & Co.-Registered Trademark-, Bulgari-
Registered Trademark- and Harry Winston, and approximately 40% of 14 karat gold
featuring cubic zirconia and other synthetic stones. The jewelry ranges from
solitaire rings and faux pearl necklaces to earrings, pendants and bracelets.
Since the Company's products are set in layered 18 karat gold over jewelers
bronze or 18 karat gold over sterling silver, the jewelry can be offered at
substantially less cost than the original pieces. The use of cubic zirconia and
other laboratory grown stones offers a more affordable product by emulating the
look and feel of expensive gemstone jewelry. The Company recently introduced a
collection of genuine sterling silver with semi-precious and synthetic stones.
The Company offers approximately 3,000 different jewelry items, with none
representing more than 10% of the Company's total annual sales. As a group, 14
carat gold items constitute the largest classification, representing 40% of
total inventory. Throughout the year, individual stores offer between 1,000 and
2,000 different pieces, with certain specialty items being added from time to
time for seasonal or other marketing purposes.
Most of the Company's products are selected by the Company from existing
inventory offered by vendors. However, from time to time the Company purchases
exclusive items that are manufactured under special order for the Company.
Because the Company's products are high-quality emulations of classic fine
jewelry designs that change little from year to year, the Company has not
experienced problems associated with inventory obsolescence.
REMODELING AND EXPANSION STRATEGY
The Company has developed a new interior design to match the elegant look
of its products and to provide its customers with the feeling of shopping in a
high-end, fine jewelry environment. During 1995, the Company completed one
interior remodel of an existing store in San Francisco,
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California. During 1996, the Company has completed three remodelings. In
addition, the Company's new stores will incorporate its new interior design.
The Company plans to remodel eight additional stores over the next two
years, at an average estimated cost of $25,000 per store. See "Use of
Proceeds." Additional remodeling activity will depend upon the availability of
working capital from future operations, of which there can be no assurance. The
Company also plans to open ten new Impostors stores in existing and new markets
over the next 12 months. On August 30, 1996, the Company opened its 27th store
in the Park Meadows shopping mall in the Denver metropolitan area. In addition,
the Company has entered into leases for eight new retail stores scheduled to
open over the next five months. Other potential real estate sites in Florida,
Massachusetts, Nevada, New Jersey and New York are currently being evaluated,
although to date no leases covering additional new locations have been executed.
In selecting and evaluating new sites, the Company has developed criteria
which consider local population demographics, customer base, sales per square
foot of other retailers in the area, and most significantly, location. The
Company focuses on centers and malls with a heavy tourist trade. Absent a high
tourist component, a regional mall would be considered only if the location
offered is in a high traffic area with a mix of other fashion tenants. The
Company also plans to pursue opportunities in casinos and high-profile hotels.
The Company develops financial projections for any new proposed site and will
reject any location where it believes break-even operations cannot be achieved
within a three- to six-month period. The opening of a new retail location
represents an aggregate capital requirement of approximately $100,000 to
$200,000, depending on location and size, which includes initial leasehold
expenses and improvements, purchases of furniture, fixtures and equipment and
initial inventory costs.
Since the Company's inventory, accounting and information systems are
highly automated, it believes that it has the present capacity to handle the
accounting, informational and inventory tracking needs for up to 100 stores.
Current management could manage an additional 10 stores with minimum increases
in overhead costs, with further additions requiring increased management and
other staffing.
In addition to developing its own new store locations, the Company is
continually investigating the possibility of acquiring companies in similar
lines of business, including faux jewelry, fine jewelry and accessories.
Potential candidates include small retail chains, companies currently engaged in
multimedia faux jewelry sales, as well as former Impostors franchisees. While
the Company continually investigates such acquisition opportunities, there are
no substantive negotiations, arrangements, agreement or understandings with
respect to any potential acquisition.
OTHER MARKETING AND DISTRIBUTION CHANNELS
Currently, over 98% of the Company's revenues are derived from its retail
store sales. The Company also has limited sales nationally and internationally
through distributors and wholesalers. The Company frequently receives inquiries
from overseas businesses regarding the development of
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wholesale and retail distribution of its concept and products in Europe as well
as the Orient. Prior to this offering, the Company has had no resources to
focus on this international demand and products have been sold in limited
amounts to accounts in Australia, Chile, Italy and Taiwan. The Company plans to
increase its international business by hiring additional persons and/or agents
to represent its line of products internationally, and may use a portion of the
offering proceeds for investments in inventory to service any increase in its
international business, although no proceeds of this offering have been
specifically allocated for this purpose. The ability of the Company to fully
develop the potential offered by the international marketplace depends upon both
overcoming legal obstacles and the availability of additional working capital
from future operations, of which there can be no assurance.
The Company plans to develop a catalogue which initially will be
distributed through its retail stores located in tourist areas. Depending on
the results of the in-store distribution, the Company may decide to broaden the
catalogue distribution through direct mailings to new potential customers. The
Company has also explored possible multimedia distribution of its jewelry. In
October, 1996, the Company completed the development of its internet Home Page.
Additionally, the Company has initiated discussions to market its concept and
products to the home shopping networks, and intends, through an independent
producer, to develop a "Concept Program" around its theme of designer inspired
and faux jewelry. Part of this process includes the licensing of a
spokesperson, who may be a celebrity, to add credibility and entertainment to
the Company's product line. The Company expects to have developed its Concept
Program within six to eight months following the completion of this offering,
which will then be presented to primarily domestic home shopping networks.
Approximately $100,000 has been budgeted for the development of these additional
marketing channels. See "Use of Proceeds."
MARKET AND CUSTOMERS
The Impostors' niche bridges the markets between costume and fine jewelry
by offering high-quality reproductions of classic and designer fine jewelry and
also a collection of 14 karat gold and sterling silver with cubic zirconia,
semi-precious and synthetic stones. The Company's faux jewelry distinguishes
itself from traditional fashion jewelry by the quality of the metals, stones and
craftsmanship utilized in the design and manufacturing process. While costume
jewelry is typically price-pointed in the $5 to $30 range, the majority of the
Company's faux jewelry is priced in the $30 to $100 range. The 14 karat gold
collection has pricepoints between $45 to $1,000, with the majority in the $100
to $400 range.
The market for the Company's products is to a large extent defined by a
knowledgeable customer's desire to have the look, feel and design of classic
fine jewelry and expensive diamond and gemstone jewelry, without the cost. The
Company targets women between the ages of 30 and 60 who are either purchasing
jewelry reproductions in place of or to complement expensive fine jewelry, or
professional women who want the look of fine jewelry but are unwilling or unable
to pay the fine jewelry price tag. The Company expects this market to continue
to grow in accordance with the expected increases in the number of women
entering the professional workplace. The Company also expects to benefit from
the maturation of the baby boomer generation who, according to the United States
Census Bureau, will have reached the age of 45 by the year 2000. It has been
the Company's
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experience that the vast majority of its retail customers are women purchasing
for themselves rather than men purchasing for others.
SUPPLIERS AND VENDORS
The Company purchases its products from vendors who have an established
history of manufacturing high quality jewelry products. These vendors offer a
standard product line through catalogues and trade shows, and also will
manufacture certain products specially for the Company, for which the Company
will typically be given a 12 to 18 month exclusivity for that item by the
vendor. The Company's relationship with its vendors of high-quality product is
considered a component of its strategic advantage over other competitors. The
Company works closely with its vendors to constantly upgrade the quality of its
products.
The Company's products are currently being purchased 80% from domestic
vendors and 20% from vendors in England, Hong Kong, Italy, Korea, Spain, Taiwan
and Thailand. Most of the inventory is purchased from vendors' existing
inventory and designs, while some is manufactured under special order. Orders
from foreign vendors take 6 to 8 weeks to fill, with U.S. vendors delivering in
approximately 3 to 4 weeks. Most domestic vendors offer the Company terms of
payment of between 30 and 60 days and some offer up to 90 days, while many
international vendors require either prepayment or payment prior to shipment.
The Company continually investigates new sources of merchandise in order to
maximize profit margins and expects to concentrate future purchases to a larger
degree from vendors in the Pacific Rim. The Company considers the identity of
its sources of supply to be proprietary to the extent that a product's quality,
source and price bear directly upon the Company's competitive advantage. The
Company does not rely on any single source of supply and could readily obtain
product from new suppliers should any given source become unavailable. The
Company has not experienced any difficulty in obtaining merchandise and does not
anticipate any future problems or restriction of availability.
COMPETITION
Because the Company's products address a market niche for the look and feel
of fine jewelry without the cost, it experiences both indirect and direct
competition from others. Indirect competition comes from costume and fashion
jewelry at the low end and fine jewelry on the upper end, with the Company's
faux jewelry and 14 karat gold with synthetic stones bridging the gap. The
Company believes its products are superior both in design and quality to jewelry
offered by traditional fashion jewelry retailers. Conversely, the Company's
advantage over expensive fine gemstone and diamond jewelry is one of cost
without a commensurate sacrifice in appearance or durability.
The Company competes directly with vendors and other retailers of faux
jewelry and indirectly with specialty retailers of accessories and related
items. Department stores typically offer lower-end costume and fashion jewelry,
or on occasion will offer higher-end faux jewelry designed by their own
exclusive designers. While some department stores will have a limited offering
of faux jewelry, the Company's exclusive emphasis on this specialty market niche
is designed to attract the customer who has already decided to purchase faux
jewelry rather than either costume jewelry or the high cost genuine piece of
fine jewelry. However, the Company is not alone in this marketing approach, as
there exist a few other chains of retailers offering faux jewelry in a directly
competitive manner. The
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Company is aware of only one other business, N. Landau Hyman, that has a
comparable number of specialty retail stores that focus on the sale of faux
jewelry. Other specialty retailers who focus on the sale of faux jewelry
include Elegant Illusions which has approximately 10 stores in California and
Minnesota, Mystique which has 4 stores in Florida, and Diamond Essence which has
3 retail stores in New York and Chicago and a direct marketing catalogue
concentrating exclusively on 14 karat gold jewelry with faux gemstones. The
Company's advantage, if any, over these other retailers lies in its
relationships with its vendors, some of which it considers to be highly
proprietary, economies of scale offered by the Company's ability to purchase
large quantities of inventory from vendors who have certain minimum quantity
requirements, and in its store locations. Nevertheless, in order for the
Company to continue to be competitive, it must maintain and expand its desirable
store locations and continue to develop its strong vendor relations, neither of
which can be assured.
INTELLECTUAL PROPERTY
Copyrights, trademarks and trade secrets are the principal protection for
the Company's products, services and reputation. The Company owns federally
registered trademarks for the following names: Impostors-Registered Trademark-,
Impostors De Classique Copy Jewels-Registered Trademark-, Impostors Copy Jewels-
Registered Trademark-, Elegant Pretenders-Registered Trademark-, and The Latest
In Faux-Registered Trademark-. All of the trademarks are considered by the
Company to be valuable property rights. The protection afforded by these
intellectual property rights and the law of trade secrets is believed by the
Company to be adequate protection for its products and or services.
As a reseller of emulations and copies of fine designer jewelry, the
Company must avoid infringing any copyrights or trademarks claimed by the
original designer. A copyright protects the manner of expression of a piece of
a jewelry rather than the idea or concept behind making it. As the Company's
products do not purport to be exact copies, but rather emulations inspired by
other designs, the Company believes that the sale of faux jewelry does not PER
SE violate the copyright interest of others. Nevertheless, if a particular
jewelry design is subject to copyright protection, that copyright expires after
75 years, if owned by a corporation, or after 50 years after the creator's
death, if an individual. Prior to 1988, in order for a designer to claim
copyright protection to a piece of jewelry, a copyright notice would have to
have been affixed to the original piece. Thus, any jewelry sold in the United
States before 1988 without a copyright notice is considered to be in the public
domain. However, fine jewelry designed and sold in the United States after 1988
could be subject to copyright protection without the necessity of a copyright
notice on the original piece. As a result, the Company has no effective way of
determining if a particular piece of fine jewelry is subject to copyright
protection claimed by its original designer. It is, therefore, important for
the Company to ensure that its products do not purport to be exact copies of an
original, but only inspired by the original designs.
Although infrequent, it is possible for a designer to claim trademark
protection if it can establish that the customer realizes that a particular
piece of jewelry comes from a particular manufacturer. In order to be claimed,
however, a registered trademark indication must usually be placed on the
original piece. The Company takes meticulous precaution to avoid advertising
and marketing strategies that might lead to confusion in the minds of its
customers as to the source or origins of its emulation jewelry.
The Company has developed and adopted methodologies designed to prevent its
infringement of the intellectual property rights of third parties; however,
there can be no assurance that it will not
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be subject to claims for inadvertent infringement from time to time. While
there have been only four instances of claimed infringement in the past, when
the Company has received notice of inadvertent infringement, it has been its
policy to voluntarily cease and desist selling the particular product. As an
average store has more than 1,000 different items of jewelry on display and
offered for sale, the Company has not experienced, and does not expect to
experience, any material adverse effects on its revenues in these instances.
LICENSE ARRANGEMENTS
The Company has granted a total of three licenses to former Impostors
franchisees granting to them the right to use the Impostors trademark in a total
of five retail locations for a period of one year. Each license requires the
payment of $5,000 per store per year, and is renewable annually at the
discretion of the Company. It is not expected that these license arrangements
will represent a material portion of the Company's future activity.
EMPLOYEES AND CONSULTANT
The Company currently has 70 full-time and 90 part-time employees, of which
14 are employed in the Company's corporate offices. Each retail store is
staffed by a manager and assistant manager, as well as one or more sales
personnel. The Company also has four area managers and one regional manager
(for the East Coast). Store managers are hired and supervised by area managers.
All management and staff personnel are employed directly by the Company.
The Company believes that it currently has sufficient management to add 10
additional stores over the next 12 months. Further store expansions will
require additions to management and staff on a case-by-case basis. The success
of future expansion will depend to a large extent on the Company's ability to
attract, motivate and retain highly-qualified personnel.
As President and Chief Executive Officer, Ms. Greenberg serves under a
written employment agreement expiring on June 20, 1997. She receives a base
salary of $7,500 per month and is eligible to participate in the Company's
Incentive Stock Option Plan ("ISOP"). Ms. Greenberg was granted incentive stock
options pursuant to the ISOP exercisable to purchase, in the aggregate, 40,000
shares of Common Stock of the Company at an exercise price of $1.875 per share,
all of which are fully vested, and incentive stock options exercisable to
purchase an additional 20,000 shares of common stock at a price of $2.50 per
share, of which 10,000 are vested and 10,000 will vest ratably over two (2)
years ending March, 1998.
In January 1996, the Company hired Todd Huss as its Chief Financial
Officer. Mr. Huss brings with him nearly 10 years of experience as a licensed
certified public accountant, primarily with KPMG Peat Marwick and nearly five
years experience in the retail industry as Controller/Chief Financial Officer.
Effective February 1996, the Company retained Jack Brandon, the former
Vice-President of a 200 store portrait studio retail chain. It is expected that
Mr. Brandon will devote approximately 30 to 40 hours per month on behalf of the
Company, exclusive of his services as a director. Mr. Brandon
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also provides construction oversight services for new Impostor locations and
remodels. Fees for these services are paid on a job-by-job basis, which have
averaged approximately $4,000 per month.
SEASONALITY
The Company's business is highly seasonal with its mall locations
generating 20% of revenues during the Christmas holiday season. The Company's
12 tourist locations experience fluctuations, based upon such factors as
seasonality, economic conditions and other factors effecting tourism in their
particular locations.
PROPERTIES
The Company currently maintains executive offices at 3033 S. Parker Road,
Suite 120, Aurora, Colorado 80014. The offices consist of approximately 5,000
square feet which the Company holds under a 5-year lease expiring in the year
2001, for a rental of $5,150 per month. The lease is guaranteed by four of the
Company's directors. The opening of the Company's executive offices represented
the culmination of a strategic plan to close its executive offices in San
Francisco, California to reduce operating expenses. The Company expects the
move to represent substantial savings over the next several years.
The Company's 35 current and committed retail locations are or will be
operated under commercial leases with expiration dates ranging from 1996 to
2007. Store size varies from 310 to 1,200 square feet with annual sales ranging
from $200,000 to $1,500,000. Each lease requires the payment of a minimum base
rent and additional payments for operating expenses, taxes, insurance, in some
cases, and additional rent based upon a percent of gross sales. The Company
monitors on a daily basis sales, margin and inventory turn-over for each store
location. This information is used not only to develop criteria for additional
store expansions but also to determine acceptable parameters for lease renewals
as they arise. In the ordinary course of business, the Company is continually
engaged in discussions with its various commercial landlords over issues that
arise from time to time under the leases. The lease for the Company's store in
the Stoneridge Mall in San Francisco is currently terminated but the subject of
renegotiations which the Company expects to be completed in the second fiscal
quarter. All of the remaining Company's existing commercial retail leases are
in full force and effect as of the date of this Prospectus.
LEGAL PROCEEDINGS
The Company from time-to-time is involved in commercial disputes in the
ordinary course of business with vendors, landlords and other parties which on
occasion become the subject matter of litigation. At the present time, the
Company is not a party to any legal proceedings outside of the ordinary course
of business or which would have a material adverse impact upon the Company's
operations or properties.
During 1995 and 1996, the Company received requests for information from
the U.S. Securities and Exchange Commission ("SEC") related to an
investigation begun by the SEC during
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1994 into various matters, including certain transactions in securities by a
former officer and director of the Company. The Company has fully complied with
all requests. The Company has been informed that the SEC staff intends to
recommend to the Commission that an action be brought against certain persons
including two of the Company's shareholders and two of its former directors.
Although there can be no assurance, the Company's present management does not
believe that this investigation of the activities of these persons will have a
direct material impact on the Company or its business operations.
CHANGES IN INDEPENDENT PUBLIC ACCOUNTANTS
On February 16, 1995 the Company's Board of Directors approved a change in
the Company's independent accountant. The change was effective February 16,
1995.
The independent accountant who was previously engaged as the principal
accountant to audit the Company's financial statements was Schumacher & Bruce.
None of Schumacher & Bruce's reports for the years ended December 31, 1993 and
1992 on the financial statements of the Company contained any adverse opinion or
disclaimer of opinion, or was qualified or was modified as to uncertainty, audit
scope or accounting principles except the following: The report of Schumacher &
Bruce dated June 9, 1994 accompanying the audited balance sheet of the Company
as of December 31, 1993 and the related statements of operations, changes in
stockholders' (deficit), and cash flows for the years ended December 31, 1993
and 1992 was qualified assuming that the Company would continue as a going
concern. There have not been any disagreements between the Company and
Schumacher & Bruce on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure during the past two years
and through the date of the change in certifying accountants.
The Company retained the accounting firm of Hein + Associates LLP to serve
as the Company's independent accountant to audit the Company's financial
statements. This engagement was effective February 16, 1995. Prior to its
engagement as the Company's independent accountant, Hein + Associates LLP had
not been consulted by the Company either with respect to the application of
accounting principles to a specific transaction or the type of audit opinion
that might be rendered on the Company's financial statements.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The name, position with the Company, age of each Director or executive
officer of the Company is as follows:
Name Age Position
---- --- ---------
Sissel B. Greenberg 37 President, Chief Executive
Officer and Director
William Nandor 54 Director
Jack Brandon 67 Director
Simona Katz Yuffa 37 Director
Todd Huss 44 Chief Financial Officer,
Secretary, Treasurer
- -------------------
SISSEL B. GREENBERG, President and Chief Executive Officer since July 1994
and a Director since March, 1995. From April, 1992 to July, 1994, Ms. Greenberg
was employed as Senior Financial Analyst in the investment banking department of
Chatfield Dean & Company, a national broker/dealer based in Denver, Colorado.
Her duties included evaluating companies for funding of equity capital, mergers
and acquisition, workout plan analysis and preparation. Ms. Greenberg was
actively involved in firm projects which raised in excess of $80,000,000 for
small capitalization companies. From December, 1989 to April, 1992, Ms.
Greenberg worked as a business consultant for small public companies in the
areas of Financial Management and Strategic Planning. From November, 1987 to
November, 1988, Ms. Greenberg worked as a senior supervisor of Leventhal and
Horwath, a national accounting firm. From July, 1984 until August, 1987, Ms.
Greenberg worked as an assistant CFO for Selmer Sande, A.S., a billion dollar
international contracting company based in Oslo, Norway. Ms. Greenberg
graduated from the University of Denver with a degree in Business Administration
in March, 1982. Ms. Greenberg obtained her Masters in Business Administration
from the University of Denver in March, 1983.
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WILLIAM NANDOR, Director. Mr. Nandor was originally retained by the
Company in March, 1995, as a consultant to assist the Company with its search
for new retail locations and other issues surrounding the Company's strategic
growth plans. Mr. Nandor was also made a director of the Company at this time.
Mr. Nandor no longer performs consulting services for the Company; however, he
remains as a director. From 1987 through 1990, Mr. Nandor was employed with
Gymboree Corporation, first as Vice-President of Retailing and then as President
and C.E.O. While with Gymboree, Mr. Nandor spearheaded its growth from a
franchised play program for parents and kids into the retail specialty arena.
Under him, the retail stores grew from inception to over 40 stores. From 1990
to 1993 Mr. Nandor served as President and C.O.O. of Impostors Copy Jewelry,
Inc., and during 1993 and 1994 he served as Executive Vice-President and C.O.O.
of S.S.R.S. Corporation, operator of Sesame Street Retail Stores. Under his
leadership, Impostors grew from 50 retail stores to over 100 locations, and
S.S.R.S. saw an increase in locations, comparable store sales and profits. In
addition to the Company, Mr. Nandor currently serves as a member of the Board of
Directors of Lisa's Tea Treasures, Inc., a San Jose, California wholesaler and
retailer of high quality tea and other related products.
JACK BRANDON, Director. Mr. Brandon has been a director of the Company
since October 1996 and a consultant to the Company, first informally since
October, 1995 and formally since February, 1996. As a consultant, Mr. Brandon
is actively involved with the Company's expansion and remodeling program. He
has worked as a real estate, retail and construction consultant since 1995.
From 1988 to 1995, Mr. Brandon served as Vice-President of Studio Development
for Expressly Portraits, a large national portrait chain with locations in over
30 states. From 1980 to 1988, he served as Vice-President of Operations for
Prints Plus, a mall-based national print and frame retailer with over 100 stores
throughout the United States. From 1975 to 1980, he was Senior Vice-President
of Athernton Industries, which operated over 200 retail clothing stores.
SIMONA KATZ YUFFA, Director. Ms. Yuffa has been a director since October,
1996. Since April, 1996, Ms. Yuffa has been the Chief Financial Officer,
Director and principal shareholder of Dazbog Coffee Company, a company which she
formed and organized specializing in custom roasting and distribution of coffee
equipment and accessories. Since 1990, she has also been a director and
officer, and since 1992, controller, of Shoe Biz, Ltd., a retail western boot
chain, where she is responsible for
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corporate operations and finance. From 1989 to 1992, Ms. Yuffa was controller
of American Water Development, Inc., where she was involved with corporate
finance and fundraising. From 1981 to 1989, she practiced as a Public
Accountant, auditing publicly-held companies and specializing in litigation
consulting. Ms. Yuffa graduated with high distinction from Colorado State
University with a Bachelor of Science degree in Business Administration and
received her license as a Certified Public Accountant in the State of Colorado
in 1982 and practiced in that capacity until 1994.
TODD HUSS, Chief Financial Officer, Secretary, Treasurer. Mr. Huss has
been the Chief Financial Officer of the Company since January, 1996 and
Secretary/Treasurer since October, 1996. Prior to joining the Company, he
served as the Chief Financial Officer for Gardenswartz Sportz, Inc., a
privately-held corporation which owned and operated eight full service retail
sporting goods stores in New Mexico and Texas. Mr. Huss graduated from
California State University-Long Beach in 1984, with a Bachelor of Science
degree in business administration and professional accounting, and subsequently
worked for KPMG Peat Marwick in its Los Angeles, California, and Albuquerque,
New Mexico offices until 1991. He received his license as a certified public
accountant from California in 1987, and from New Mexico in 1990.
During the fiscal year ended January 28, 1996, three meetings of the Board
of Directors of the Company were held. Each meeting was attended by all members
of the Board of Directors.
During the fiscal year ended January 28, 1996, the Company did not have
standing Audit, Compensation or Nominating Committees of the Board of Directors.
However, during the first quarter of fiscal 1997, the Company formed Audit and
Compensation Committees of the Board of Directors. The members of the Audit
Committee will be Simona Katz Yuffa and William Nandor. No member of the Audit
Committee receives any additional compensation for his service as a member of
that Committee. The Audit Committee is responsible for providing assurance that
financial disclosures made by Management reasonably portray the Company's
financial condition, results of operations, plan and long-term commitments. To
accomplish this, the Audit Committee oversees the external audit coverage,
including the annual nomination of the independent public accountants, reviews
accounting policies and policy decisions, reviews the financial statements,
including interim financial statements and annual financial statements, together
with auditor's opinions, inquires about the existence and substance of any
significant accounting accruals, reserves or estimates made by Management,
reviews with Management the Management's Discussion and Analysis section of the
Annual Report, reviews the letter of Management Representations given to the
independent public accountants, meets privately with the independent public
accountants to discuss all pertinent matters, and reports regularly to the Board
of Directors regarding its activities.
The Compensation Committee will consist of William Nandor and a director
to be named. No member of the Compensation Committee receives any additional
compensation for his service as a member of that Committee. The Compensation
Committee is responsible for reviewing pertinent data and making
recommendations with respect to compensation standards for the executive
officers, including the President and Chief Executive Officer, establishing
guidelines and making recommendations for the implementation of Management
incentive compensation plans, reviewing the performance of the President and
CEO, establishing guidelines and standards for the grant of incentive stock
options to key employees under the Company's Incentive Stock Option Plan, and
reporting regularly to the Board of Directors with respect to its
recommendations.
-49-
<PAGE>
There were no family relationships among Directors or persons nominated
or chosen by the Company to become a Director, nor any arrangements or
understandings between any Director and any other person pursuant to which
any Director was elected as such. The present term of office of each
Director will expire at the next annual meeting of shareholders.
The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
Shareholders. Each executive officer will hold office until his successor is
duly elected and qualified, until his resignation or until he is be removed in
the manner provided by the Company's ByLaws.
DIRECTOR COMPENSATION
Directors who are also executive officers of the Company receive no
additional compensation for their services as Directors.
In March 1995, the Board of Directors adopted a Formula Plan for outside
Directors pursuant to which each outside Director is entitled to receive for
each year of service as a Director non-qualified stock options exercisable to
purchase 5,000 shares of Common Stock at an exercise price equal to 100% of the
fair market value of the Company's Common Stock on the date of grant. Pursuant
to the Formula Plan, the Company granted retroactively for the year ended
December 31, 1994 to each of its outside Directors 5,000 non-qualified stock
options exercisable at $2.50 per share. In fiscal 1996, the Company issued
options for a total of 25,000 shares to directors of the Company under the
Formula Plan and options for 12,000 shares to four of the Company's Directors
(See "Certain Transactions") in return for personally guaranteeing the Company's
corporate office lease, which options are exercisable at a price of $2.50 per
share and expire in 2001. In addition, outside Directors are entitled to be
reimbursed for their expenses associated with attendance at meetings or
otherwise incurred in connection with the discharge of their duties as Directors
of the Company.
EXECUTIVE COMPENSATION
The following tables and discussion set forth information with respect to
all plan and non-plan compensation awarded to, earned by or paid to the Chief
Executive Officer ("CEO"), and the Company's four most highly compensated
executive officers other than the CEO, for all services rendered in all
capacities to the Company and its subsidiaries for each of the Company's last
three completed fiscal years; provided, however, that no disclosure has been
made for any executive officer, other than the CEO, whose total annual salary
and bonus does not exceed $100,000.
-50-
<PAGE>
TABLE 1
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
-------------------------------------- ------------------------------------
Other All
Annual Restricted Other
Name and Compen- Stock LTIP Compen-
Principal Year Salary Bonus sation Award(s) Options/ Payouts sation
Position ($)(1) ($) ($)(2)(3) ($) SARs(4) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sissel B. Greenberg, 1995 $76,750 -0- $6,312 $4,500 -0- -0- -0-
President 1994 $32,953 -0- -0- $1,000 40,000 -0- -0-
Stephen G. Calandrella,
President 1993- -0- -0- -0- -0- -0- -0- -0-
1994
</TABLE>
- -------------------------
(1) Effective June 20, 1994, the Company hired its new President, Sissel B.
Greenberg, at $6,000 per month, which sum was subsequently increased to a
base salary of $7,500 per month. Ms. Greenberg is also eligible to
participate in the Company's Incentive Stock Option Plan.
(2) All executive officers of the Company participate in the Company's group
health insurance plan. However, no executive officer received perquisites
and other personal benefits which, in the aggregate, exceeded the lesser of
either $50,000 or 10% of the total of annual salary and bonus paid during
the respective fiscal years.
(3) As of January 1, 1995, the Company assumed and agreed to pay a lease
covering an automobile acquired for the use of the Company's employees.
The total monthly lease payment is $480.
(4) The Company has granted to Ms. Greenberg incentive stock options
exercisable to purchase, in the aggregate 60,000 shares of the Company's
Common Stock at a weighted average exercise price of $2.08 per share under
the Company's Stock Incentive Plan, 40,000 of which are fully vested.
The Company currently has a two year written Employment Agreement with its
President, expiring June 20, 1997. The Company has no key man life insurance
covering any of its officer or employees.
-51-
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
On June 12, 1995, the Company's shareholders ratified and approved a
qualified Employee Stock Purchase Plan ("ESPP") pursuant to Section 423 of the
Internal Revenue Code of 1986, as amended. Pursuant to the ESPP, the Company
has been authorized to offer up to 20,000 shares per year over a three-year
term, or a total of 60,000 shares, to the Company's employees. The ESPP
includes certain restrictions which preclude participation by part-time
employees and employees owning five percent (5%) or more of the Company's Common
Stock. The purchase price for the shares may not be less than eighty-five
percent (85%) of the market value of the stock on either the Enrollment Date or
the Exercise Date as those terms are defined in the ESPP. As of the date of
this Proxy Statement, no shares of common stock have been issued under the ESPP
and there have been no subscriptions of employees to participate in the plan.
STOCK INCENTIVE PLAN.
On November 23, 1992, the Company's Shareholders adopted a Stock Incentive
Plan ("Plan") to commence in 1993. Pursuant to the Plan, stock options granted
to eligible participants may take the form of Incentive Stock Options ("ISO's")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
or options which do not qualify as ISO's (Non-Qualified Stock Options or
"NQSO's"). An aggregate of 230,000 shares of common stock have been authorized
to be issued under the Plan. As required by Section 422 of the Code, the
aggregate fair market value of the Company's Common Stock with respect to its
ISO's granted to an employee exercisable for the first time in any calendar year
may not exceed $100,000. The foregoing limitation does not apply to NQSO's.
The exercise price of an ISO may not be less than 100% of the fair market value
of the shares of the Company's Common Stock on the date of grant. The exercise
price of an NQSO may be set by the administrator, but must not be less than fair
market value. An option is not transferable, except by will or the laws of
descent and distribution. If the employment of an optionee terminates for any
reason (other than for cause, or by reason of death, disability, or retirement),
the optionee may exercise his options within a ninety (90) day period following
such termination to the extent he was entitled to exercise such options at the
date of termination. Either the Board of Directors (provided that a majority of
Directors are "disinterested") can administer the Plan, or the Board of
Directors may designate a committee comprised of Directors meeting certain
requirements to administer the Plan. The Administrator will decide when and to
whom to make grants, the number of shares to be covered by the grants, the
vesting schedule, the type of award and the terms and provisions relating to the
exercise of the awards. An aggregate of 133,000 shares of the Company's Common
Stock are reserved for issuance upon the exercise of options granted under the
Plan.
As of January 28, 1996, incentive stock options to purchase 40,000 shares
of Common Stock were outstanding and unexercised, all of which were granted in
1994 to Sissel B. Greenberg, the Company's President, and were exercisable at a
price of $5.00 per share. During the fiscal year ended January 28, 1996, the
exercise price was reduced to $1.875 per share, the then current fair market
value of the Company's Common Stock and the term was extended to December 31,
1998. An additional 13,000 incentive stock options were granted to other
employees during the year ended January 28, 1996, which options are also
exercisable at $1.875 and expire on February 15, 2003. All of these options are
currently vested.
-52-
<PAGE>
In March, 1996, the Company granted incentive stock options exercisable to
purchase 80,000 shares to several employees at an exercise price of $2.50 per
share which expire in 2001. 40,000 of these incentive stock options vest
immediately and 20,000 vest on each of the first and second anniversary dates.
No officer of the Company receives any additional compensation for his
services as a Director. The Company has no retirement, pension, profit sharing
or insurance or medical reimbursement plans covering its Directors.
The following table sets forth certain information concerning the exercise
of incentive stock options during the last completed fiscal year by each of the
named executive officers and the fiscal year-end value of unexercised options on
an aggregated basis:
TABLE 2
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)(1)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
----- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sissel B. Greenberg -0- $-0- 40,000/-0- $-0-(2)
</TABLE>
(1) The value of unexercised options is determined by calculating the
difference between the fair market value of the securities underlying the
options at fiscal year end and the exercise price of the options.
(2) Ms. Greenberg's options are exercisable at $1.875 per share. The fair
market value of the securities underlying Ms. Greenberg's options at fiscal
year end was $1.875 per share based upon the average of the closing bid and
asked prices of the Common Stock as quoted on the OTC Electronic Bulletin
board.
INDEMNIFICATION AND LIMITATION ON LIABILITY OF DIRECTORS
The Company's Articles of Incorporation provide that the Company shall
indemnify, to the full extent permitted by Colorado law, any director, officer,
employee or agent of the corporation made or threatened to be made a party to a
proceeding, by reason of the former or present official of the person, against
judgments, penalties, fines, settlements and reasonable expenses incurred by the
person in connection with the proceeding if certain standards are met. At
present, there is no pending
-53-
<PAGE>
litigation or proceeding involving any director, officer, employee or agent of
the Company where indemnification will be required or permitted. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
The Company's Articles of Incorporation limit the liability of its
directors to the fullest extent permitted by the Colorado Business Corporation
Act. Specifically, directors of the Company will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for (i) any
breach of the duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or that involved intentional misconduct or a knowing
violation of law, (iii) dividends or other distributions of corporate assets
that are in contravention of certain statutory or contractual restrictions, (iv)
violations of certain laws, or (v) any transaction from which the director
derives an improper personal benefit. Liability under federal securities law is
not limited by the Articles.
-54-
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTION IN SECURITIES
In September 1993, the Company exchanged its interest in two gaming
properties to Global Casinos, Inc. for 2,500,000 shares of common stock of
Global Casinos. A $350,000 Promissory Note which had been held by an
unaffiliated third party was assigned to the Company in exchange for shares of
Common Stock of the Company in a private offering. The Company agreed to
convert the total outstanding balance of principal and all accrued and unpaid
interest on the Promissory Note into 200,000 shares of common stock of Global
Casinos. Those 200,000 shares were subsequently registered for sale under the
Securities Act by Global Casinos and have been used by the Company to
collateralize a venture capital loan with an affiliate of the Representative.
At the time of the agreement of the Company to convert the Promissory Note for
200,000 shares of Global Casinos common stock, Mr. Stephen G. Calandrella served
on the Board of Directors of both the Company and Global Casinos. See Note 2 to
Financial Statements.
During 1994, the Company engaged in market transactions in the
securities of Global Casinos, Inc. and other corporations. These
transactions resulted in losses on marketable securities for the years ended
December 31, 1994 and January 28, 1996 of $146,963 and $182,643,
respectively, principally due to market declines in the value of Global
Casinos, Inc. common stock. At the time of these transactions, Mr. Gerald
Jacobs, and to a limited extent, Mr. Calandrella were members of the Board of
Directors of Global Casinos and members of the Board of Directors of the
Company (Messrs. Calandrella and Jacobs resigned as Directors of the Company
in February 1995 and October 1996, respectively), and Mr. Pete Bloomquist was
Chief Financial Officer of Global Casinos and a member of the Board of
Directors of the Company, (Mr. Bloomquist resigned as a Director in October
1996). See Note 1 to Financial Statements.
STOCK DISTRIBUTION
In March 1994, the Company undertook a stock distribution pursuant to which
it distributed to its common stockholders one share of common stock of Global
Casinos, Inc., a Utah corporation held by the Company as a portfolio security,
for each share of Company Common Stock beneficially owned on the record date of
the distribution. In connection with the stock dividend, the Company
distributed a total of 2,409,700 shares of Global Casinos, Inc. common stock to
its shareholders of record. The shares had been acquired by the Company in
connection with the exchange involving the Company's gaming property located in
Central City, Colorado. At the time of the stock distribution, Messrs. Jacobs
and Calandrella were members of the Board of Directors of both the Company and
Global Casinos, and Mr. Bloomquist was Chief Financial Officer of Global Casinos
and a member of the Company's Board of Directors. See Note 2 to Financial
Statements.
MIRAGE CONCEPTS, INC. ACQUISITION
In March, 1994, the Company acquired 100% of the outstanding common stock
of Mirage Concepts, Inc., an Arizona corporation ("Mirage"), which owned three
reproduction jewelry stores, operating under the tradenames "Mira Boutique" and
"Classic Copies." At the time of the transaction, the stockholders of Mirage
Concepts, Inc. were Raymond Stanz (50%), John C. Power (25%) and Mark R. Power
(25%). At the time, Mr. Stanz was serving as the Chief Operating Officer of the
Company, and John C. Power would be deemed a principal shareholder of the
Company by virtue of
-55-
<PAGE>
the security ownership of Redwood Microcap Fund, Inc., of which Mr. Power is a
director and President.
The agreement for the acquisition of Mirage Concepts, Inc. initially
provided for the Company to issue to the shareholders of Mirage, PRO RATA,
27,000 units of the Company's securities, each unit consisting of one share of
Common Stock and one Common Stock Purchase Warrant exercisable through December
31, 1994 at an exercise price of $6.25 per share. However, following the
closing of the transaction, and prior to the issuance of any securities to the
Mirage shareholders, a dispute arose between Mr. Stanz, on the one hand, and the
Company, on the other, concerning numerous matters, including the financial
condition of Mirage Concepts, Inc. at the time it was acquired by the Company.
Following extensive negotiations, an agreement was entered into with Mr.
Stanz resolving the areas of disagreement pursuant to which (i) Mr. Stanz
resigned as an officer and director of Mirage as well as Chief Operating Officer
of the Company, (ii) Mr. Stanz transferred, sold and assigned to Rockies Fund,
Inc. 3,500 shares of the Company's Common Stock, 3,500 C Warrants, and all of
the Units which Stanz was to have received as a shareholder of Mirage Concepts,
Inc., in consideration for which Rockies Fund agreed to pay Stanz an aggregate
sum of $85,000, and (iii) the Company and Stanz exchanged mutual general
releases. Rockies Fund, Inc. was and is a principal shareholder of the Company
whose President and director was and is Stephen G. Calandrella, who at the time
of the Stanz agreement served as a director of the Company.
Following the resolution of the dispute with Stanz, the Company entered
into an agreement with Rockies Fund, Inc., Mr. Calandrella, Redwood Microcap
Fund, Inc., and John C. Power pursuant to which the Company issued an aggregate
of 20,000 shares of Common Stock as full and final consideration for its
acquisition of Mirage Concepts, Inc. The warrants that were to have been
included in the units issuable in the Mirage transaction had already expired
unexercised and were therefore moot. See Note 2 to Financial Statements.
SHAREHOLDER GUARANTEES
In connection with the Company's acquisition of the Impostors retail
jewelry chain from bankruptcy proceedings, the Company agreed to assume and pay
certain post-petition liabilities of American Fashion Jewels, Inc. Included in
those post-petition liabilities were obligations to the law firm of Bronson &
Bronson, of San Francisco, California. This obligation is in the amount of
$35,000, and by agreement is being retired in monthly installments. By written
agreement, the Company's obligation to that law firm has been guaranteed by the
Rockies Fund, Inc., Redwood Microcap Fund, Inc., John C. Power, individually,
and Stephen G. Calandrella, individually. Under the terms of the written
guarantees, in the event any of the guarantors is required to cure the Company's
default or delinquency in any payment to that law firm, such payment can be
applied, at the option of the guarantor, to the purchase of Company Common Stock
at a price per share which is equal to the lesser of $5.00 per share or 50% of
the closing bid price of the Company's Common Stock on the date of such payment,
but in no event at a price per share less than $3.125. In addition, in the
event a guarantor is required to make any payment then Redwood would be entitled
to designate one person to serve as a member of the Company's Board of Directors
for a minimum term of one year. See Note 4 to Financial Statements.
-56-
<PAGE>
PRIVATE OFFERING - INVESTOR GUARANTEES
On September 30, 1995, the Company entered into an Investment Term Sheet
("ITS") with Redwood Microcap Fund, Inc. ("Redwood"), a principal shareholder of
the Company. (See "Securities Ownership Of Management and Principal
Shareholders.") Under the terms of the ITS, Redwood, and its affiliates,
agreed to purchase up to 240,000 shares of Common Stock at a price of $1.25 per
share, representing aggregate maximum proceeds to the Company of $300,000 (the
"Private Offering"). Further under the terms of the ITS, in consideration of
their investment of the Company's Common Stock at $1.25 per share, investors in
the Private Offering (the "Investors") severally agreed to subscribe for and
purchase all Shares of the Company's Common Stock offered in a proposed rights
offering which was never undertaken. See Note 6 to Financial Statements.
In connection with the Private Offering, the Company sold an aggregate of
234,000 shares of Common Stock for aggregate net proceeds of $282,500. The
Company utilized the proceeds of the Private Offering to open two new stores and
to meet working capital requirements during the holiday season, the fourth
quarter of 1995.
The Company is registering for resale the shares of Common Stock sold in
the Private Offering in a concurrent offering herewith by certain selling
shareholders.
LEASE GUARANTEE
In April, 1996, the Company granted to four of its directors non-qualified
stock options exercisable to acquire 3,000 shares of the Company's common stock
each in exchange for each persons agreement to personally guarantee the
Company's office lease. The options are exercisable at a price of $2.50 per
share and expire in 2001. See "Securities Ownership of Management and Principal
Shareholders" and Notes 4 and 6 to Financial Statements.
All transactions between the Company and its officers, Directors, principal
shareholders, or other affiliates have been and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
on an arms-length basis and will be approved by a majority of the Company's
independent, disinterested Directors.
AGREEMENTS WITH CERTAIN SHAREHOLDERS
Effective October 23, 1996, the Company entered into certain agreements
with the Rockies Fund, Inc. and Redwood Microcap Fund, Inc., shareholders of the
Company, as well as their respective affiliates, Stephen G. Calandrella and John
C. Power, pursuant to which (i) the Company purchased and redeemed from Rockies
Fund, Inc., Redwood Microcap Fund, Inc., and Mr. Calandrella an aggregate of
32,500 Class C Warrants for a total redemption price of $10,000, (ii) Rockies
Fund, Inc. and Redwood Microcap Fund, Inc. agreed to sell to a third party
identified by the Company 10,000 shares of Common Stock each at price of $3.25
per share, (iii) Rockies Fund, Inc., Redwood Microcap Fund, Inc. and Messrs.
Power and Calandrella each granted to the Company's Board of Directors a proxy
until October 23, 1997 to vote all shares of Common Stock owned by each (an
aggregate of 175,292 shares) at any special or regular meeting of the Company's
shareholders in conformity with the majority vote of the Company's other
shareholders and (iv) Rockies Fund, Inc., Redwood Microcap Fund, Inc. and
Messrs. Calandrella and Power each
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<PAGE>
executed and delivered to the Company their Standstill Agreement pursuant to
which each agreed until October 23, 1997 not to acquire any additional shares of
the Company's Common Stock and to refrain from any activities or efforts to
influence or control management of the Company.
-58-
<PAGE>
SECURITIES OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, the
stock ownership of each person known by the Company to be the beneficial owner
of five (5%) percent or more of the Company's Common Stock, all directors
individually and all directors and officers of the Company as a group. Each
person has sole voting and investment power with respect to the shares shown,
except as noted.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME & ADDRESS ---------------------------------------------
OF BENEFICIAL OWNER NUMBER PERCENT(1)
- ------------------- ------ ----------
BEFORE OFFERING AFTER OFFERING(2)
--------------- -----------------
<S> <C> <C> <C>
Sissel B. Greenberg (3) 55,600 6.9% 2.9%
3033 S. Parker Rd., #120
Aurora, CO 80014
William Nandor 2,600 nil nil
2698 Gapwall Court
Pleasanton, California 94566
Jack Brandon -0- -0- -0-
3033 S. Parker Rd., #120
Aurora, CO 80014
Simona Katz Yuffa -0- -0- -0-
3033 S. Parker Rd., #120
Aurora, Colorado 80014
Todd Huss (4) 10,000 1.3% 0.5%
3033 S. Parker Rd., #120
Aurora, Colorado 80014
Raymond D. Hand (5) 57,500 7.6% 3.1%
310 Radford Place
Knoxville, Tennessee 37927
Redwood MicroCap Fund, Inc.(6) 68,972 9.2% 3.7%
P.O. Box 3463
Carefree, Arizona 85377
</TABLE>
-59-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Banca Adamas S.A. 80,000 10.7% 4.3%
Via Nassa 42
6901 Lugano, Switzerland
The Rockies Fund, Inc. (7) 76,850 10.3% 4.2%
4465 Northpark Drive
Colorado Springs, Colorado 80907
Directors and Officers as 68,200(8) 8.4% 3.6%
a Group (5 persons)
</TABLE>
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of the date of this Prospectus, or
within sixty (60) days of such date, are treated as outstanding when
determining the percent of the class owned by such individual and when
determining the percent owned by a group.
(2) Assumes that the Over-Allotment Option is not exercised, none of the
Warrants sold in this offering have been exercised and none of the
Representative's Securities have been issued.
(3) Includes incentive stock options to purchase 50,000 shares of the Company's
Common Stock at a weighted average exercise price of $2.00 per share
granted under the Company's Stock Incentive Plan. Also includes non-
qualified stock options to purchase 3,000 shares of the Company's Common
Stock at an exercise price of $2.50 per share granted to Ms. Greenberg in
return for her agreement to personally guarantee the Company's corporate
office lease. Does not include incentive stock options to purchase 10,000
shares of the Company's Common Stock at an exercise price of $2.50 per
share which vest in 1997.
(4) Consists of Incentive Stock Options exercisable to purchase 10,000 shares
of Common Stock at an exercise price of $2.50 per share. Does not include
additional Incentive Stock Options exercisable to purchase an additional
10,000 shares of Common Stock at an exercise price of $2.50 per share which
are not yet vested.
-60-
<PAGE>
(5) Includes Class C Common Stock Purchase Warrants exercisable to acquire up
to 12,500 additional shares of Common Stock at an exercise price of $10.00
per share.
(6) Redwood MicroCap Fund, Inc. is a diversified, closed-end, mutual fund
registered under the Investment Company Act of 1940. Voting and investment
power with respect to these securities is exercised by the company's Board
of Directors, whose members are John C. Power, Joseph O. Smith, and J.
Andrew Moorer. No affiliate of the Redwood MicroCap Fund, Inc. is an
affiliate of the Company, or an affiliate of an affiliate of the Company.
The Company has been granted an irrevocable proxy until October 23, 1997 to
vote all the securities at any regular or special meeting of the Company's
shareholders in conformity with the majority vote of the other shares of
Common Stock voted at any such meeting. In addition, Redwood Microcap
Fund, Inc. has agreed that until October 23, 1997 it will not acquire any
additional securities of the Company and will not attempt to control or
influence the Company. See "Certain Transactions - Agreements with Certain
Shareholders."
(7) The Rockies Fund, Inc. is a Colorado Springs, Colorado based business
development company regulated under the Investment Company Act of 1940, as
amended. Voting and investment power with respect to these securities is
exercised by the Company's Board of Directors whose members are Stephen
Calandrella, Charles Powell and Clifford C. Thygesen. Messrs. Calandrella
and Powell are former directors of the Company. The Company has been
granted an irrevocable proxy until October 23, 1997 to vote all the
securities at any regular or special meeting of the Company's shareholders
in conformity with the majority vote of the other shares of Common Stock
voted at any such meeting. In addition, Rockies Fund, Inc. has agreed that
until October 23, 1997 it will not acquire any additional securities of the
Company and will not attempt to control or influence the Company. See
"Certain Transactions - Agreements with Certain Shareholders."
(8) Does not include the 175,292 shares of Common Stock subject to the proxy
given to the Board of Directors by Rockies Fund, Inc., Redwood Microcap
Fund,Inc. and Messrs. Calandrella and Power. See "Certain Transactions -
Agreements with Certain Shareholders."
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<PAGE>
[Alternate Page for Selling Shareholders' Prospectus]
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
This Prospectus relates to the resale to the public of 102,041 shares of
Common Stock and 83,334 Warrants by the Selling Shareholders set forth below.
The following table sets forth certain information with respect to persons for
whom the Company is registering the Common Stock for resale to the public. The
Company will not receive any of the proceeds from the sale of the Common Stock
by the Selling Shareholders. Beneficial ownership of the Common Stock by such
Selling Shareholders after this offering will depend on the number of shares
sold by each Selling Shareholder. None of the Selling Shareholders have had any
material relationship within the past three years with the Company, or any of
its predecessors or affiliates, except as specifically noted.
<TABLE>
<CAPTION>
Offering Shares Class A Shares
Beneficially Owned Shares Warrants Beneficially
Owned As Of Offering Date Offered Offered After Offering
Name and Address ------------------- ------- ------- ------------------
of Beneficial Owner Number Percent(1) Number Number Number Percent(1)
- ------------------- ------- ---------- ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Caribou Bridge Fund, L.L.C. 22,909 3.1% 20,409 16,667 2,500 nil
5350 S. Roslyn Street, #380
Englewood, CO 80111
Corporate Communications 40,816 5.4% 40,816 33,334 -0- -0-
Network, Inc.
36 Tacoma Circle
Littleton, CO 80127
AMC Consumer 40,816 5.4% 40,816 33,334 -0- -0-
One Main Street, Suite 312
Eatontown, NJ 07724
</TABLE>
- --------------------
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of the date of this Prospectus, or
within 60 days of such date, are treated as outstanding when determining
the percent of the class owned by such individual and when determining the
percent owned by the group.
The Selling Shareholders have agreed that they will not sell any of the
shares of Common Stock for a period of six months from the date of this
Prospectus without the consent of the Representative. Subject to this
restriction, the Selling Shareholders have advised the Company that sales of
the shares of Common Stock may be effected from time to time in transactions
(which may include block transactions) in the over-the-counter market, in
negotiated transactions, through the writing of options on the Common
-59-
<PAGE>
[Alternate Page for Selling Shareholders' Prospectus]
Stock or a combination of such methods of sale, at fixed prices that may be
changed, at market prices prevailing at the time of sale, or at negotiated
prices. The Selling Shareholders may effect such transactions by selling the
Common Stock directly to purchasers or through broker-dealers that may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholders and/or
the purchasers of shares of Common Stock for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
The Selling Shareholders and any broker-dealers that act in connection with
the sale of the shares of Common Stock as principals may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commissions received by them and any profit on the resale of the shares of
Common Stock as principals might be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Shareholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares of Common Stock against certain liabilities,
including liabilities arising under the Securities Act. The Company will not
receive any proceeds from the sales of shares of Common Stock by the Selling
Shareholders. Sales of the shares of Common Stock by the Selling Shareholders,
or even the potential of such sales, would likely have an adverse effect on the
market price of the Common Stock.
The shares of Common Stock are offered by the Selling Shareholders on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act. The
Company has agreed to pay all expenses incurred in connection with the
registration of the shares offered by the Selling Shareholders; provided,
however, that the Selling Shareholders shall be exclusively liable to pay any
and all commissions, discounts and other payments to broker-dealers incurred in
connection with their sale of the shares.
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
covers 1,000,000 Shares of Common Stock and 1,000,000 Warrants being offered by
the Company through the Representative in the offering.
-60-
<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 850,000,000 shares of $.002 par
value Common Stock and up to 20,000,000 shares of $.10 par value Preferred
Stock. As of the date of this Prospectus, 748,939 shares of Common Stock and
416,670 (pre-split) shares of Series A Convertible Preferred Stock were issued
and outstanding.
COMMON STOCK
Each holder of Common Stock of the Company is entitled to one vote for each
share held of record. There is no right to cumulative votes for the election of
directors. The shares of Common Stock are not entitled to pre-emptive rights
and are not subject to redemption or assessment. Each share of Common Stock is
entitled to share ratably in distributions to shareholders and to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive, PRO RATA, the
assets of the Company which are legally available for distribution to
shareholders. The issued and outstanding shares of Common Stock are validly
issued, fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue up to 20,000,000 shares of $.10 par
value Preferred Stock. The preferred stock of the corporation can be issued in
one or more series as may be determined from time to time by the Board of
Directors without further stockholder approval. In establishing a series, the
Board of Directors shall give to it a distinctive designation so as to
distinguish it from the shares of all other series and classes, shall fix the
number of shares in such series, and the preferences, rights and restrictions
thereof. All shares of any one series shall be alike in every particular. All
series shall be alike except that there may be variation as to the following:
(1) the rate of distribution, (2) the price at and the terms and conditions on
which shares shall be redeemed, (3) the amount payable upon shares for
distributions of any kind, (4) sinking fund provisions for the redemption of
shares, and (5) the terms and conditions on which shares may be converted if the
shares of any series are issued with the privilege of conversion, and (6) voting
rights except as limited by law.
Although the Company currently does not have any plans to designate a
series of Preferred Stock, there can be no assurance that the Company will not
do so in the future. As a result, the Company could authorize the issuance of a
series of preferred stock which would grant to holders preferred rights to the
assets of the Company upon liquidation, the right to receive dividend coupons
before dividends would be declared to common stockholders, and the right to the
redemption of such shares, together with a premium, prior to the redemption of
Common Stock. Common stockholders have no redemption rights. In addition, the
Board could issue large blocks of voting stock to fend against unwanted tender
offers or hostile takeovers without further shareholder approval.
SERIES A CONVERTIBLE PREFERRED STOCK
The Company has issued and outstanding 416,670 (pre-split) shares of Series
A Convertible Preferred Stock (the "Convertible Preferred Stock") which were
issued to investors in the Bridge
-62-
<PAGE>
Offering which was completed on June 24, 1996. Holders of shares of Convertible
Preferred Stock are entitled to one vote for each share on any matter to come
before the shareholders of the Company and are entitled to a liquidation
preference of $.60 per share of Convertible Preferred Stock in the event of a
liquidation of the Company. Each outstanding share of Convertible Preferred
Stock is entitled to receive cumulative cash dividends at the annual rate of
$.051 per share, payable quarterly on the last day of January, April July and
October of each year. Each share of Convertible Preferred Stock is convertible
at the option of the holder into one share of Common Stock (the "Conversion
Shares") commencing June 24, 1997. However, each share of Convertible Preferred
Stock will convert automatically into shares of Common Stock if the Conversion
Shares are registered for sale under the Securities Act (the "Automatic
Conversion"). In the event of an Automatic Conversion, the conversion price
shall be equal to 70% of the offering price of the Common Stock to the public in
the public offering. The Registration Statement of which this Prospectus forms
a part includes the registration for sale by the Company of the Conversion
Shares issuable upon conversion of the Convertible Preferred Stock; and all
information with regard to the capital stock of the Company contained in this
Prospectus gives effect to that Automatic Conversion. Upon such Automatic
Conversion, holders of outstanding shares of Convertible Preferred Stock shall
have no further rights as preferred stockholders of the Company other than the
right to receive certificates evidencing the Conversion Shares issuable upon
such conversion.
CLASS A WARRANT
The Board of Directors has authorized the issuance of up to 1,333,334
Warrants, including 1,000,000 Warrants offered hereby, 150,000 Warrants subject
to the Over-Allotment Option, 100,000 Warrants subject to the Representative's
Securities and 83,334 Warrants issuable to holders of outstanding Class B
Warrants. Two Warrants entitle the holder thereof to purchase one share of
Common Stock at a price of $_____. The Warrant Exercise Price is subject to
adjustment upon certain events such as stock splits, stock dividends and similar
transactions. The Warrants are subject to redemption by the Company, as
described below. The exercise period for the Warrants expires at 5:00 p.m.,
Denver time on the date that is three years from the date of this Prospectus
(the "Warrant Term"), after which the Warrants will expire automatically. The
Company may at any time and from time to time extend the Warrant Term or reduce
the Warrant Exercise Price, provided written notice of such extension or
reduction is given to the registered holders of the Warrants prior to the
expiration date then in effect. The Company does not presently contemplate any
extension of the Warrant Term or reduction in the Warrant Exercise Price.
Subject to compliance with applicable securities laws, Warrants
certificates may be transferred or exchanged for new certificates of different
denominations at the offices of the Warrant Agent described below. The holders
of Warrants, as such, are not entitled to vote, to receive dividends or to
exercise any of the rights of shareholders for any purpose. The Warrants may be
transferred separately from the Common Stock with which they will be issued.
EXERCISE. The Warrants may be exercised during the Warrant Term only upon
surrender of the Warrant certificate at the offices of the Company with the form
of "Election to Purchase" on the reverse side of the Warrant certificate
completed and signed, accompanied by payment of the full Exercise Price for the
number of Warrants being exercised. Warrantholders will receive one share of
Common Stock for every two Warrants exercised, subject to any adjustment
required by the Warrant
-63-
<PAGE>
Agreement. For a holder to exercise Warrants, there must be a current
Registration Statement in effect with the Commission and various state
securities authorities registering the shares of Common Stock underlying the
Warrants or, in the sole determination of the Company and its counsel, there
must be a valid exemption therefrom. The Company has undertaken, and intends,
to maintain a current Registration Statement which will permit the exercise of
the Warrants during the Warrant Term. Maintaining a current effective
Registration Statement could result in substantial expense to the Company and
there is no assurance that the Company will be able to maintain a current
Registration Statement covering the shares issuable upon exercise of the
Warrants. Holders of Warrants will have the right to exercise the Warrants
included therein for the purchase of shares of Common Stock only if a
Registration Statement is then in effect and only if the shares are qualified
for sale under securities laws of the state in which the exercising
warrantholder resides or if the Company, in its and its counsel's sole
discretion, is able to obtain valid exemptions from the foregoing requirements.
Although the Company believes that it will be able to register or qualify the
shares of Common Stock underlying the Warrants for sales in those states where
the Securities are offered, there can be no guarantee that such registration or
qualification, or an exemption therefrom, can be accomplished without undue
hardship or expense to the Company. The Warrants may be deprived of any value
if a Registration Statement covering the shares issuable upon exercise thereof
or an exemption therefrom cannot be filed or obtained without undue expense or
hardship or if such underlying shares are not registered or exempted from such
registration in the states in which the holder of a Warrant resides. In the
latter event, the only option available to a holder of a Warrant may be to
attempt to sell his or her Warrants into the market, if a market then exists and
only then in compliance with applicable securities laws and restrictions on
transfer.
REDEMPTION. The Company shall have the right, at its discretion, to call
all of the Warrants for redemption on 45 days' prior written notice at a
redemption price of $.05 per Warrant if: (i) the closing bid price of the
Company's Common Stock exceeds the Warrant Exercise Price by a least 50% during
a period of at least 20 of the 30 trading days immediately preceding the notice
of redemption; (ii) the Company has in effect a current Registration Statement
covering the Common Stock issuable upon exercise of the Warrants; and (iii) the
expiration of the 45 day notice period is within the Warrant Term. If the
Company elects to exercise its redemption right, holders of Warrants may either
exercise their Warrants, sell such Warrants in the market or tender their
Warrants to the Company for redemption. Within five business days after the end
of the 45 day period, the Company will mail a redemption check to each
registered holder of a Warrant who holds unexercised Warrants as of the end of
the 45 day period, whether or not such holder has surrendered the Warrant
certificates for redemption. The Warrants may not be exercised after the end of
such 45 day period.
CLASS B WARRANT
The Company has outstanding Class B Warrants exercisable to purchase, in
the aggregate, 41,667 shares of Common Stock at an exercise price of $5.00 per
share. The Class B Warrants were issued by the Company in the Bridge Offering.
The Class B Warrants are exercisable at any time commencing on the date of
issuance and expiring on June 24, 1998. Upon expiration, the Class B Warrant
will terminate automatically, subject to certain rights of the Company to extend
the warrant term. The exercise price of each Class B Warrant is subject to
adjustment upon certain events such as stock splits, stock dividends and similar
transactions.
-64-
<PAGE>
Each Class B Warrant will be automatically exchanged for two Class A
Warrants upon the Effective Date of the Registration Statement of which this
Prospectus forms a part. Upon such Effective Date, all outstanding Class B
Warrants shall be deemed surrendered for cancellation in exchange for the
issuance of twice the number of Class A Warrants; and holders of Class B
Warrants shall have the right only to receive two Class A Warrants for each
Class B Warrant beneficially owned on the Effective Date.
Holders of outstanding Class B Warrants were granted certain registration
rights by the Company in connection with the Bridge Offering, which rights are
being exercised and fulfilled by the Registration Statement of which this
Prospectus forms a part.
CLASS C WARRANTS
The Company has outstanding Class C Warrants exercisable until December 31,
1996 to purchase 60,250 shares of Common Stock at a price of $10.00 per share.
TRANSFER AND WARRANT AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and warrant agent for
the Warrants is Corporate Stock Transfer, Inc., Denver, Colorado.
REPORTS TO SHAREHOLDERS
The Company intends to furnish annual reports to shareholders which will
include certified financial statements reported on by its certified public
accountants. In addition, the Company may issue unaudited quarterly or other
interim reports to shareholders as it deems appropriate. The Company will
comply with the periodic reporting requirements imposed by the Securities
Exchange Act of 1934.
-65-
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, the Underwriters named below (the "Underwriters")
have severally agreed, through Cohig & Associates, Inc. as the Representative of
the Underwriters, to purchase from the Company on a firm commitment basis, the
aggregate number of shares of Common Stock and Warrants set forth opposite their
names below:
Number of
Shares and
Underwriters Warrants
------------ ----------
Cohig & Associates, Inc. 1,000,000
---------
Total 1,000,000
The Common Stock and the Warrants are being offered by the several
Underwriters, subject to prior sale, when, as, and if delivered to and accepted
by the Underwriters and subject to their right to reject orders in whole or in
part and subject to approval of certain legal matters by counsel and to various
conditions. The nature of Underwriters' obligation is such that they must
purchase all of the Common Stock and Warrants offered hereby if any are
purchased.
The Company has granted the Underwriters options for 45 days from the
date of this Prospectus to purchase up to an additional 150,000 shares of Common
Stock and/or 150,000 Warrants at the assumed initial public offering prices
less the underwriting discounts of $.34 per share and $.01 per Warrant. The
Underwriters may exercise such options only for the purpose of covering any
over-allotments in the sale of the Common Stock and Warrants being offered.
The Underwriters have advised the Company that they propose to offer
the 1,000,000 shares of Common Stock and 1,000,000 Warrants directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to selected dealers at that price, less a concession of not more
than $________ per share of Common Stock and $________ per Warrant. After the
offering, the Price to the public and the concession may be changed by the
Underwriters.
The Underwriters have advised the Company that they will not make
sales of the Common Stock or Warrants offered in this Prospectus to accounts
over which they exercise discretionary authority without specific authorization.
The Company will pay the Representative a non-accountable expense
allowance from offering proceeds, including proceeds from the over-allotment
options to the extent exercised. The Representative's expenses in excess of the
non-accountable expense allowance will be borne by the Representative. To the
extent that the expenses of the Representative are less than the non-accountable
expense allowance, the excess shall be deemed to be compensation to the
Representative. On April 29, 1996, the Company and the Representative entered
into an agreement under which the
-66-
<PAGE>
Representative will act as the Company's exclusive financial advisor until the
agreement is terminated by either party after September 30, 1996. The Company
has paid $30,000 to the Representative in consideration of the financial
advisory services relating to this offering. This amount will be deducted from
the non-accountable expense allowance due the Representative. Accordingly, the
amount payable in respect of the remaining non-accountable expense allowance
would be 2.1% of the offering proceeds if the over-allotment option were not
exercised, or 2.3% of the offering proceeds if the over-allotment were
exercised.
The Company will bear all costs and expenses incident to the issuance,
offer, sale and delivery of the Common Stock and Warrants. The Underwriters
have agreed to pay all fees and expenses of any legal counsel whom it may employ
to represent it separately in connection with or on account of the proposed
offering by the Company, mailing, telephone, travel and clerical costs and all
other office costs incurred or to be incurred by the Underwriters or by their
representatives in connection with this offering.
The Company has granted the Representative a right of first refusal
for a period of three years after the date of this Prospectus to act as managing
underwriting for any public offering of the Company's securities.
The public offering price of the Common Stock and Warrants and the
exercise price of the Warrants were determined by negotiations between the
Representative and the Company. Among the factors considered in determining the
public offering price and the Warrant exercise price were the prospects for the
Company, an assessment of the industry in which the Company operates, the
assessment of management, the number of shares of Common Stock and Warrants
offered, the price that purchasers of such securities might be expected to pay
given the nature of the Company, and the general condition of the securities
markets at the time of the offering. Accordingly, the offering price set forth
on the cover page of this Prospectus should not be considered an indication of
the actual value of the Company or the Common Stock or Warrants.
The Company has obtained the agreement of its officers and certain
other shareholders not to sell, contract to sell or otherwise dispose of,
directly or indirectly, any shares of the Common Stock of the Company
beneficially held by them, other than Common Stock offered hereby, for a period
of six months after the date of this Prospectus, without the prior written
consent of the Representative.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the 1933 Act, and, if
such indemnifications are unavailable or insufficient, the Company and the
Underwriters have agreed to damage contribution agreements between them based
upon relative benefits received from this offering and relative fault resulting
in such damages. The Company also has agreed with the Underwriters that the
Company will file and cause to become effective a Registration Statement
pursuant to Section 12(g) of the Securities Exchange Act of 1934 no later than
the date of this Prospectus.
The Company has also agreed that, at the closing of this offering, it
will enter into a consulting agreement retaining the Representative as a
financial consultant to the Company for a fee of $2,500 per month for 12 months
after the closing of this offering. The entire $30,000 fee shall be payable to
the Representative at the closing.
-67-
<PAGE>
The foregoing does not purport to be a complete statement of the terms
and conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Representative, the Company and the Commission. See "Available
Information."
REPRESENTATIVE'S SECURITIES
Upon completion of the offering, the Company will sell to the
Representative for $100 options to purchase 100,000 shares of Common Stock and
100,000 Warrants (the "Representative's Securities"). The Representative's
Securities will not be exercisable for one year after the date of this
Prospectus. Thereafter, for a period of four years, the Representatives'
Securities will be exercisable at 120% of the public offering price of the
Common Stock and 120% of the public offering price for the Warrants. The
Warrants have the same exercise price as the Warrants offered hereby. The
exercise price for the Representative's Securities is payable in cash or through
the surrender of Common Stock or Warrants having a value equal to the difference
between the exercise price and the average of the current market prices of the
Common Stock for the 20 consecutive trading days commencing 21 trading days
before the date the Common Stock or Warrants are tendered for exchange.
The Representative's Securities will be non-transferable for one year
after the date of this Prospectus except between the Underwriters and by their
respective officers or partners. The Representative's Securities will also
contain anti-dilution provisions for stock splits, combinations and
reorganizations, piggyback registration rights, one demand registration right at
the expense of the Company, and one demand registration right paid for by the
holders of the Representative's Securities (all of which expire five years from
the date of the Prospectus) and will otherwise be in form and substance
satisfactory to the Representative. The Warrants included in the
Representative's Securities will be exercisable during the period provided in
the Warrants, commencing one year after the date of this Prospectus.
-68-
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will
be passed upon for the Company by Neuman & Cobb, Boulder, Colorado. Clifford L.
Neuman, a partner in the firm of Neuman & Cobb, is the beneficial owner of
24,300 shares of the Company's Common Stock, and Nathan L. Stone, an associate
with the firm, is the beneficial owner of 300 shares of the Company's Common
Stock. Certain legal matters will passed upon for the Representative by Jones
& Keller, P.C., Denver, Colorado.
EXPERTS
The financial statements of the Company as of January 28, 1996, for
the fiscal year ended January 28, 1996, the month ended January 29, 1995 and the
year ended December 31, 1994 are included herein in reliance on the reports of
Hein + Associates LLP, independent certified public accountants, and upon the
authority of that firm as experts in auditing and accounting. With respect to
the unaudited interim financial information for the six months ended July 30,
1995 and July 28, 1996, the independent public accountants have not audited or
reviewed such financial statements and have not expressed an opinion or other
form of assurance with respect to such financial statements.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance with the
Exchange Act files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information concerning the Company can be inspected and
copied (at prescribed rates) at the Commission's Public Reference Section, Room
1024, 450 Fifth Street, N.W. Judiciary Plaza, Washington, D.C. 20549, as well as
at the following Regional Offices: Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such material also may be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The Company has filed a Registration Statement on Form SB-2 with the
Commission in Washington, D.C., in accordance with the provisions of the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. For further
information pertaining to the shares of Common Stock and Warrants offered hereby
and the Company, reference is made to the Registration Statement, including the
exhibits and financial statement schedules filed as a part thereof. Statements
herein contained concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an Exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference. The Registration Statement may be
obtained from the Commission upon payment of the fees prescribed therefor and
may be examined at the principal office of the Commission in Washington, D.C.
-69-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT............................................. F-2
BALANCE SHEET - For the Year Ended January 28, 1996 and the Six Months
Ended July 28, 1996 (Unaudited)................................ F-3
STATEMENTS OF OPERATIONS - For the Year Ended December 31, 1994, for
the One Month Ended January 29, 1995, for the Fiscal Year
Ended January 28, 1996, for the Six Months Ended July 30, 1995
(Unaudited), and for the Six Months Ended July 28, 1996
(Unaudited).................................................... F-4
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - For the Period from
January 1, 1994 through January 28, 1996 and Through
July 28, 1996 (Unaudited)...................................... F-5
STATEMENTS OF CASH FLOWS - For the Year Ended December 31, 1994, for the
One Month Ended January 29, 1995, for the Fiscal Year Ended
January 28, 1996, for the Six Months Ended July 30, 1995
(Unaudited), and for the Six Months Ended July 28, 1996
(Unaudited).................................................... F-6
NOTES TO FINANCIAL STATEMENTS............................................ F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Premier Concepts, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Premier Concepts, Inc. as of
January 28, 1996, and the related statements of operations, changes in
stockholders' equity, and cash flows for the year ended December 31, 1994, for
the one month ended January 29, 1995, and for the fiscal year ended January 28,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Premier Concepts, Inc., as of
January 28, 1996, and the results of its operations and its cash flows for the
year ended December 31, 1994, for the month ended January 29, 1995, and for the
fiscal year ended January 28, 1996, in conformity with generally accepted
accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
April 5, 1996
<PAGE>
<TABLE>
<CAPTION>
PREMIER CONCEPTS, INC.
BALANCE SHEETS
JANUARY 28, JULY 28,
1996 1996
----------- ---------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 327,198 $ 421,008
Marketable securities 45,113 10,813
Merchandise inventories 1,393,925 1,391,835
Prepaid expenses and other current assets 95,503 125,935
---------- ----------
Total current assets 1,861,739 1,949,591
PROPERTY AND EQUIPMENT, net 977,727 1,041,886
TRADEMARKS, net of accumulated amortization
of $39,100, and $49,300, respectively 104,900 94,700
DEFERRED OFFERING COSTS - 88,239
OTHER ASSETS 92,428 103,506
---------- ----------
TOTAL ASSETS $3,036,794 $3,277,922
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt:
Related parties $ 98,879 $ 64,420
Other 378,902 304,040
Accounts payable 291,905 743,571
Other accrued liabilities 408,881 293,934
---------- ----------
Total current liabilities 1,178,567 1,405,965
LONG-TERM DEBT, less current portion 759,864 713,432
DEFERRED RENT 56,159 87,385
---------- ----------
Total liabilities 1,994,590 2,206,782
---------- ----------
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 20,000,000 shares authorized;
416,670 shares issued and outstanding at July 28, 1996 - 41,667
Common stock, $.002 par value; 850,000,000 shares authorized;
748,939 shares issued and outstanding 1,498 1,498
Additional paid-in capital 2,756,737 2,940,070
Accumulated deficit (1,716,031) (1,912,095)
---------- ----------
Total Stockholders' Equity 1,042,204 1,071,140
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,036,794 $3,277,922
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
PREMIER CONCEPTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE SIX
FOR THE FOR THE ONE FISCAL MONTHS ENDED
YEAR ENDED MONTH ENDED YEAR ENDED -----------------------------
DECEMBER 31, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1994 1995 1996 1995 1996
-------------- -------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUES
Retail $ 7,641,427 $ 539,409 $ 8,958,807 $ 4,098,221 $ 3,940,997
Wholesale 150,986 3,968 111,033 41,108 16,455
------------ ------------ ------------ ------------ ------------
Total revenues 7,792,413 543,377 9,069,840 4,139,329 3,957,452
COST OF GOODS SOLD 2,569,531 228,076 2,690,658 1,326,517 1,179,665
------------ ------------ ------------ ------------ ------------
Gross margin 3,222,882 315,301 6,379,182 2,812,812 2,777,787
OPERATING EXPENSES:
Selling, general and administrative 5,451,377 488,664 6,087,717 2,971,550 2,850,805
Provision for store closures 143,000 - (8,307) 1,419 -
Depreciation and amortification 312,146 29,663 337,070 170,511 140,314
------------ ------------ ------------ ------------ ------------
Total operating expenses 5,906,523 518,327 6,416,480 3,143,480 2,991,119
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (681,641) (203,026) (37,298) (330,668) (213,332)
OTHER INCOME (EXPENSE):
Interest expense, net (145,577) (11,899) (108,180) (65,858) (54,422)
Gain (loss) on marketable securities, net (146,963) - (182,643) (145,876) 16,264
Other (39,998) 141 10,899 90,381 29,249
------------ ------------ ------------ ------------ ------------
Other, net (332,538) (11,758) (279,921) (121,353) (8,909)
------------ ------------ ------------ ----------- ------------
LOSS BEFORE INCOME TAX BENEFIT AND
DISCONTINUED OPERATIONS - (1,016,179) (214,784) (317,222) (452,021) (222,241)
Income tax benefit 51,000 - 161,000 55,000 10,000
------------ ------------ ------------ ----------- ------------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS (965,179) (214,784) (156,222) (397,021) (212,241)
DISCONTINUED OPERATIONS:
Income from discontinued operations, net
of income tax expense of $51,000 and
$161,000 for the years ended December
31, 1994 and January 28, 1996 and
$55,000 and $10,000 for the six months
ended July 30, 1995 and July 28, 1996 141,237 - 270,441 90,390 16,177
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (823,942) $ (214,784) $ 114,219 $ (306,631) $ (196,064)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ (823,942) $ (214,784) $ 114,219 $ (306,631) $ (199,064)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) PER COMMON SHARE
Before discontinued operations $ (2.77) $ (.49) $ (.31) $ (.92) $ (.28)
Discontinued operations .40 - .54 .21 .02
Dividends applicable to preferred stock - - - - (.01)
------------ ------------ ------------ ------------ ------------
Net income (loss) per common share $ (2.37) $ (.49) $ .23 $ (.71) $ (.27)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 348,000 434,200 495,800 434,583 748,939
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
PREMIER CONCEPTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1994 THROUGH JULY 28, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ----------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------------ -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1994 - $ - 101,441 $ 203 $ 223,742 $ (791,524) $ (567,579)
Common stock issued for:
Rights offering - - 16,285 33 274,476 - 274,509
Private placement - - 185,511 371 893,910 - 894,281
Acquisition of Imposters
and Mirage - - 127,500 255 794,745 - 795,000
Settlement of claims - - 2,750 5 54,995 - 55,000
Compensation to employees - - 660 1 3,299 - 3,300
Net loss - - - - - (823,942) (823,942)
------- ------------ -------- ------------ ------------ ------------ ------------
BALANCES, DECEMBER 31, 1994 - - 434,147 868 2,245,167 (1,615,466) 630,569
Net loss - - - - - (214,784) (214,784)
------- ------------ -------- ------------ ------------ ------------ ------------
BALANCES, JANUARY 29, 1995 - - 434,147 868 2,245,167 (1,830,250) 415,785
Common stock issued for:
Private placement - - 234,000 468 282,032 - 282,500
Settlement of claims - - 53,792 108 184,592 - 184,700
Services - - 27,000 54 44,946 - 45,000
Net income - - - - - 114,219 114,219
------- ------------ -------- ------------ ------------ ------------ ------------
BALANCES, JANUARY 28, 1996 - - 748,939 1,498 2,756,737 (1,716,031) 1,042,204
Preferred stock issued for
cash 416,670 41,667 - - 183,333 - 225,000
Net loss (unaudited) - - - - - (196,064) (196,064)
------- ------------ -------- ------------ ------------ ------------ ------------
BALANCES, JANUARY 28, 1996
(UNAUDITED) 416,670 $ 41,667 748,939 $ 1,498 $2,940,070 $(1,912,095) $1,071,140
------- ------------ -------- ------------ ------------ ------------ ------------
------- ------------ -------- ------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
PREMIER CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FOR THE ONE FISCAL MONTHS ENDED
YEAR ENDED MONTH ENDED YEAR ENDED -----------------------------
DECEMBER 31, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1994 1995 1996 1995 1996
-------------- -------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (823,942) $ (214,784) $ 114,219 $ (306,631) $ (196,064)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Stock for services 45,000
Reduction of accounts payable -
discontinued operations (192,237) - (431,441) (145,390) (26,177)
Provision for store closure 143,000 - 8,307 (1,419) -
Depreciation and amortization 312,146 29,663 337,070 170,511 140,314
(Gain) loss on marketable securities 146,963 - 182,643 145,876 (16,264)
Other, net 25,307 - (13,201) (9,165) (11,078)
Changes in operating assets and liabilities
(Increase) decrease in
Inventories (122,259) 201,735 (197,665) 20,765 2,090
Other assets 382,853 6,356 (40,870) (14,590) (30,432)
Increase (decrease) in:
Accounts payable and accrued liabilities 39,716 (435,030) 99,834 411,355 362,896
Other liabilities 29,509 2,030 24,620 (97,358) 31,226
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities (58,944) (410,030) 128,516 173,954 256,511
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property and equipment (56,445) - (165,137) (2,810) (194,273)
Cash balances of businesses acquired 367,313 - - - -
Proceeds from sale of investments 155,283 - 156,374 96,612 50,564
Purchase of investments (221,909) - - - -
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by investing
activities 242,242 - (8,763) 93,802 (143,709)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs - - - - (88,239)
Proceeds from the issuance of preferred stock - - - - 225,000
Proceeds from issuance of common stock 1,236,381 - 282,500 141,625 -
Proceeds from issuance of notes payable 466,453 - 100,000 - -
Payment on notes payable (1,296,407) (18,008) (346,219) (380,567) (155,753)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 406,427 (18,008) 36,281 (238,942) (18,992)
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH 589,725 (428,038) 156,034 28,814 93,810
CASH AND CASH EQUIVALENTS, beginning of
period 9,477 599,202 171,164 171,164 327,198
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 599,202 $ 171,164 $ 327,198 $ 199,978 $ 421,008
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 135,319 $ 11,899 $ 102,134 $ 66,717 $ 60,479
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Purchase of Imposters and Mirage with
common stock $ 650,000 $ - $ - $ - $ -
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Conversion of liabilities to equity
securities $ 149,000 $ - $ 184,700 $ - $ -
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS - Premier Concepts, Inc. (the Company) was
incorporated in the state of Colorado in 1988. During 1993, the Company
acquired certain real estate located in a limited stakes gaming city in
Colorado, which were exchanged during 1993 for common stock of Global
Casinos, Inc. (Global), a company which has two common directors. As
further discussed in Note 2, during 1994, the Company purchased out of
bankruptcy certain assets and liabilities of American Fashion Jewels, Inc.
(Impostors) and, in a separate transaction, Mirage Concepts, Inc. (Mirage),
both of which are retail chains of reproduction jewelry stores. As of
July 28, 1996 the Company operated 26 retail stores with a geographic
concentration of stores in California, including one store in San
Francisco, California that accounted for 17% of total revenues during the
fiscal year ended January 28, 1996.
FISCAL YEAR - The Company was on a calendar year through December 31, 1994.
The Company changed its fiscal year to a 52/53-week period ending on the
last Sunday in January effective for periods ending after December 31,
1994. The period ended January 29, 1995 had 29 days of activity. Fiscal
year ended January 28, 1996 contained 364 days of activity.
INVENTORIES - Inventories consist primarily of merchandise which is held
for resale. Inventories are stated at the lower of cost or market, as
calculated using the average-cost method.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation is computed over the estimated useful lives of the assets
using the straight-line method generally over a 5 to 10-year period.
Leasehold improvements are amortized on the straight-line method over the
lesser of the lease term or the useful life. Expenditures for ordinary
maintenance and repairs are charged to expense as incurred. Upon
retirement or disposal of assets, the cost and accumulated depreciation
are eliminated from the account and any gain or loss is reflected in the
statement of operations.
TRADEMARKS - A portion of the Impostors purchase price was allocated to
trademarks (see Note 2). This cost is being amortized over 10 years. The
Company evaluates the recoverability of this intangible based on
projected, undiscounted future cash flows exclusive of interest. During
the year ended January 28, 1996, the Company determined that it was remote
that a payable of $60,000 to a consultant, that was capitalized as part of
the trademark acquired from Impostors, would ever be paid. Accordingly,
trademarks were reduced to reflect the reduction in the payable.
DEFERRED RENT - Many of the Company's store leases contain predetermined
fixed escalations of the minimum rentals during the initial term. For these
leases, the Company recognizes the related rental expense on a straight-
line basis and records the difference as deferred rent.
MARKETABLE SECURITIES - Trading securities, all of which are equity
investments, are carried at market value at the balance sheet date. All of
the marketable securities at January 28, 1996 are common stock of Global.
Realized gain (loss) on marketable securities is determined based on
specific identification of securities sold.
F-7
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
The change in the net unrealized holding loss for the year ended December
31, 1994, for the month ended January 29, 1995, and for the year ended
Janaury 28, 1996, was $53,164, $155, and $20,243, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values for
financial instruments are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The carrying amounts of marketable
securities, accounts payable, and accrued liabilities approximate fair
value. The fair value of certain notes payable is less than their carrying
value as generally their interest rates are lower than the Company's
current effective annual borrowing rate, however, the difference is not
considered significant.
CASH EQUIVALENTS - For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
NET INCOME (LOSS) PER COMMON SHARE - Net income (loss) per common share is
calculated based upon the weighted average number of common shares
outstanding during the periods presented. Dividends, including those
accrued but not yet paid on preferred stock is deducted to arrive at net
income (loss) available to the common shareholders. Convertible preferred
stock, stock options, and warrants have not been included in the
calculation of net income (loss) per share for the year ended December 31,
1994, for the one month ended January 29, 1995, and for the six months ended
July 30, 1995 and July 28, 1996, as the results are antidilutive. Dilutive
options have been included in the calculation of net income per common
share for the fiscal year ended January 28, 1996.
LICENSE AGREEMENTS - The Company grants license agreements to entities for
the use of the Impostor's name. License fees are recognized as income on a
straight-line basis over the term of the agreement.
INCOME TAXES - The Company accounts for income taxes under SFAS No. 109
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined, based on the difference between the
financial statements and tax bases of asset and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires the Company's management to make estimates and assumptions that
affect the amounts reported in these financial statements and accompanying
notes. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS - Effective January 29, 1996, the Company
adopted Financial Accounting Standards Board Statement 121 (FAS 121). In
the event that facts and circumstances indicate that the cost of assets or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's
carrying amount to determine if a write-down to market value
F-8
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
or discounted cash flow value is required. Adoption of FAS 121 had no
effect on the unaudited July 28, 1996 financial statements.
PROVISION FOR STORE CLOSURES AND WRITE-DOWN PRODUCTIVE ASSETS - The Company
accrues costs associated with store closures that are incremental to other
costs incurred prior to commitment date as a direct result of the exit plan.
The Company also accrues any amounts to be incurred under contractual
obligations that existed prior to the commitment date and will continue
after the exit plan is completed with no economic benefit. Prior to the
adoption of FAS 121 on January 29, 1996, the Company also wrote-down
productive assets to their net realizable value when it was determined the
productive assets were permanently impaired. During the year ended
December 31, 1994, the Company accrued a provision for store closures of
$143,000 based upon the above described accounting policies.
STOCK BASED COMPENSATION - In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for Stock-Based
Compensation" (FAS 123). The new statement is effective for fiscal years
beginning after December 15, 1995. FAS 123 encourages, but does not
require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on fair
value. Companies that do not adopt the fair value accounting rules must
disclose the impact of adopting the new method in the notes to the
financial statements. Transactions in equity instruments with
non-employees for goods or services must be accounted for on the fair
value method. The Company has elected not to adopt the fair value
accounting prescribed by FAS 123 for employees, and will be subject only
to the disclosure requirements prescribed by FAS 123.
LIQUIDITY - At January 28, 1996, the Company had working capital of
$683,172 and a stockholders' equity of $1,042,204. The Company incurred an
operating loss (before interest expense and other income) of $(37,298) for
the year ended January 28, 1996. For the six months ended July 28, 1996,
the Company incurred an operating loss (213,332) which is less than the
comparable loss of ($330,668) for the six months ended July 30, 1995. The
Company does experience seasonal sales and the Company's net income for
1996 is substantially composed of income from extinguishment and reversal
of prior payables related to a predecessor business (see Note 2).
Impostors emerged from bankruptcy in February 1994, and the Company has
experienced liquidity difficulties in the past.
As shown in the Company's financial statements, the Company's sales have
increased during the fiscal year ended January 28, 1996, which has also
resulted in improved financial performance. As discussed further in Note
6, the Company obtained additional capital through private place ments of
common stock during fiscal 1996, and preferred stock and warrants in June
1996, and is undertaking a proposed public offering of common stock and
warrants. Management believes through these efforts and improved
operations, the Company will be able to resolve its liquidity difficulties.
UNAUDITED INFORMATION - The balance sheet as of July 28, 1996 and the
statements of operations for the six-month periods ended July 30, 1995 and
July 28, 1996 were taken from the Company's books and records without
audit. However, in the opinion of management, such information includes
all adjustments (consisiting only of normal accruals), which are necessary
to properly reflect the financial
F-9
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
position of the Company as of July 28, 1996 and the results of operations
for the six months ended July 30, 1995 and July 28, 1996.
2. ACQUISITIONS AND DISPOSITIONS:
In 1993, the Company exchanged its ownership in certain real estate and a
note receivable for 2,500,000 and 200,000 shares of common stock,
respectively, in Global, of which 2,409,700 shares of Global's common stock
were distributed to stockholders' of the Company during 1993. The
remaining 290,300 shares were held by the Company, which represents less
than 5% of Global's outstanding common stock. The Company has two common
directors with Global. After distributing the Global common stock to the
Company's stockholders, there remained substantial liabilities to
uncollateralized creditors related to prior activities of the Company. As
of January 28, 1996 and July 28, 1996, the Company had accounts payable of
$80,844 and $52,925, respectively, that related to the prior activities of
the Company. Certain of these creditors have filed claims against the
Company demanding payment. The Company has negotiated settlements with
certain creditors, which has resulted in income before income tax expense,
totaling approximately $192,000 and $209,000 during the years ended
December 31, 1994 and January 28, 1996, respectively. The Company also
recorded approximately $222,000 of income during the year ended January 28,
1996, as a result of the reduction in recorded amounts of accounts payable
based upon management's estimates of amounts which may ultimately be paid,
but the Company has not received formal releases from payment from the
creditors. Accordingly, these amounts were recorded as income from
discontinued operations, net of income tax expense.
RETAIL JEWELRY STORES - During 1994, the Company acquired substantially all
of the assets and liabilities of Impostors, a retail jewelry chain from a
corporation which had filed for protection under the United States
Bankruptcy Court. The retail jewelry chain was comprised of 30 retail
jewelry stores, operating under the trademark "Impostors." One store was
closed in 1994 and five stores were closed during the year ended January
28, 1996. In an affiliated bankruptcy proceeding, the Company acquired
certain additional commercial leases utilized in connection with the
operation of the retail business. In connection with this transaction, the
Company issued 107,500 shares of its common stock, which was valued by the
bankruptcy court at $695,000. The Company also assumed liabilities of
approximately $3,147,000, and acquired assets of approximately $3,697,000,
including trademarks and tradename valued at $204,000. For financial
statement purposes, this transaction has been treated as a purchase by the
Company of Impostors.
Also during 1994, the Company acquired Mirage, which, at the time of
acquisition, owned and operated three retail costume jewelry stores. The
Company and Mirage had a common officer and a common stockholder prior to
the acquisition date. The Company issued 20,000 shares of common stock
valued at $100,000 for the acquisition of Mirage. The Company also assumed
liabilities of approximately $76,000, and acquired assets of approximately
$176,000. For financial statement purposes, this transaction has been
treated as a purchase by the Company of Mirage.
F-10
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
The accompanying statement of operations includes Impostors and Mirage
since March 1, 1994, the date of acquisition.
3. PROPERTY AND EQUIPMENT:
At January 28, 1996, property and equipment consists of the following:
Furniture, fixtures and equipment $ 717,869
Leasehold improvements 845,015
-----------
1,562,884
Less accumulated depreciation 585,157
-----------
$ 977,727
-----------
-----------
Depreciation expense for the year ended December 31, 1994, one month ended
January 29, 1995, and for the year ended January 28, 1996 was $295,146,
$27,963, and $316,670, respectively.
4. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consist of the following:
January 28, July 28,
1996 1996
----------- ---------
RELATED PARTIES
Note payable to a stockholder, payable in
monthly installments of $5,000 plus
accrued interest at 18%, collateralized by
marketable securities, paid during the six
months ended July 28, 1996. $ 30,959 $ -
Note payable to a stockholder, at 12%
principal and interest due July 1996. 39,000 35,500
Notes and advances payable to stockholders
of the Company, payable on demand,
non-interest bearing. 28,920 28,920
--------- ---------
Total related parties - all current $ 98,879 $ 64,420
--------- ---------
--------- ---------
F-11
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
January 28, July 28,
1996 1996
----------- ---------
OTHER
Note payable to a bank, interest payable
monthly at 10%, principal payable in
February 1998, collateralized by cash and
inventory. $ 635,000 $ 635,000
Note payable to a entity, interest payable
monthly at 12%, principal payable in
Janaury 1996. Management has been in
discussions with the noteholder to pay off
the note with part of the proceeds from a
proposed public offering. 100,000 100,000
Payable to a vendor and creditor of Impostors
from bankruptcy settlement (less unamortized
discount of $8,743), payable by adding 10% to
the cost of current purchases. Discounted at
7.7% assumed interest rate, collateralized by
receivables, inventory, property and
equipment (Note 5). 87,591 66,634
Notes payable to creditors of Impostors from
bankruptcy settlement, payable in monthly
installments plus accrued interest at 6% to
8%, over variable terms through December 1999.
A note totaling $35,000 is guaranteed by
certain stockholders of the Company. 197,724 140,546
Note payable to an entity, payable in monthly
installments of $10,000 plus accrued interest
at 12%. As of July 28, 1996, the Company
is in arrears on $20,000 of principal
payments. The Company has been in discussions
with the noteholder to pay off part of the
note with the proceeds of the offering. 100,000 60,000
Other 18,451 15,293
----------- -----------
1,138,766 1,017,473
Less current portion (378,902) (304,040)
----------- -----------
$ 759,864 $ 713,433
----------- -----------
----------- -----------
F-12
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
Principal payments on the above obligations at January 28, 1996 are due as
follows:
RELATED
PARTIES OTHER
--------- -----------
1997 $ 98,878 $ 378,904
1998 - 725,326
1999 - 26,787
2000 - 7,751
--------- -----------
$ 98,878 $ 1,138,768
--------- -----------
--------- -----------
5. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS - The Company leases its offices and retail facilities
under operating leases for terms expiring at various dates from 1996 to
2007. Subsequent to January 28, 1996, the Company entered into 9 new
retail facility operationg leases. The corporate office lease has been
guaranteed by the directors of the Company. The aggregate minimum
annual lease payments under leases are as follows:
NEW OPERATING
OPERATING LEASES FROM
LEASES AS OF JANUARY 29, 1996
JANUARY 28, TO OCTOBER 24,
1996 1996 TOTAL
----------- --------------- -----
1997 $ 1,487,312 $ 70,511 $ 1,557,823
1998 1,385,860 429,093 1,814,953
1999 1,190,250 444,771 1,635,021
2000 1,056,871 464,341 1,521,212
Thereafter 1,767,854 2,898,132 4,665,986
----------- ---------- -----------
Total minimum lease payments $ 6,888,147 $4,306,848 $11,194,995
----------- ---------- -----------
----------- ---------- -----------
Most leases also provide for payment of operating expenses, real estate
taxes and in some cases for additional rent based on a percentage of sales.
Rental expense was $1,739,802, $174,592, and $1,977,718 for the fiscal year
ended December 31, 1994, for the one month ended January 29, 1995, and for
the year ended January 28, 1996, respectively.
LITIGATION SETTLEMENT - The Company entered into a commitment to guarantee
the value of 55,000 shares of Global stock and 2,750 shares of the
Company's common stock related to a settlement with a former creditor.
Under the terms of the agreement, the Company agreed to buy back or
guarantee that the total "asking" price of the combined common shares
would equal $200,000 at March 1, 1995. In fiscal 1996, the Company
settled with the former creditor for the issuance of an additional
46,792 shares of the Company's stock, valued at $171,625.
F-13
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
"asking" price of the combined common shares would equal $200,000
at March 1, 1995. In fiscal 1996, the Company settled with the
former creditor for the issuance of an additional 46,792 shares
of the Company's stock, valued at $171,625.
PAYABLE TO VENDOR - The Company has agreed to purchase a minimum of
$500,000 of merchandise annually from the vendor through 1997 or until
Impostors' liability to the vendor prior to Impostor's bankruptcy (totaling
$66,634 at July 28, 1996) has been paid in full. Payment for merchandise
purchased will be paid at 110% of the cost, with the additional 10% to be
applied against the outstanding balance of the vendor's claim until paid in
full (see Note 4).
6. STOCKHOLDERS' EQUITY:
PREFERRED STOCK - The Board of Directors has authority to divide the class
of the preferred stock into series and to fix and determine the relative
rights and preferences of the shares of any such series as permitted by the
Company's articles of incorporation at the time of designation (see Note
8).
During June 1996, the Company sold 208,335 units at $1.20 per unit in a
private offering. Each unit includes two shares of Series A convertible
Preferred stock and one warrant. Five warrants currently entitles the
holder to purchase one share of common stock at $5 per share and is
exercisable through June 1998. Each share of Series A Preferred Stock is
entitled to $.051 per annum cumulative dividends and is convertible
commencing in June 1997 at a rate of five shares of preferred stock for one
share of common stock. If the Company completes a public offering of
common stock by October 31, 1996, the preferred shares will automatically
convert into 102,041 shares of common stock and five warrants will
automatically be exchanged for two warrants offered in the proposed public
offering.
COMMON SHARES - During 1994, the Company declared a 1 for 4 reverse stock
split and changed the par value from $.0001 to $.0004 per share. The
Company's shareholders have also approved a 1 for 5 reverse stock split and
a change in the par value from $.0004 to $.002 per share, to be on the date
of a public offering. Accordingly, all common stock reflected in the
accompanying financial statements and notes reflect of these reverse
splits.
During 1994, the Company sold, in a private placement, 92,750 units for
$10.00 per unit. Each unit consisted of two shares of common stock and a
warrant for the purchase one share of common stock at a purchase price of
$10.00 per share, exercisable through December 31, 1995. Proceeds of
$894,281 were net of $33,219 expenses of the offering. The Company has
extended the term of the warrants to December 31, 1996. Subsequent to
July 28, 1996, the Company redeemed warrants for the purchase of 32,500
of common stock for $10,000.
During 1994, the Company completed a rights offering of 50,000 shares of
the Company's common stock at $18.00 per share and the right to a
distribution of 1,000,000 shares of Global stock from the Company, which
was part of a distribution of Global stock to all of the Company's
stockholders (see
F-14
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
Note 2). During 1994, the 16,285 remaining shares and 33,715 shares of
this offering were sold. Proceeds of $881,378 were net of $18,622
expenses of the offering.
During fiscal 1996, the Company sold in a private placement, 234,000
shares of common stock at $1.25 per share.
During fiscal 1996, the Company issued 53,792 shares of common stock in
settlement of liabilities and 27,000 shares of common stock in payment for
services, including 2,400 issued to an officer and director, and 2,600
issued to a director. Also, the Company has agreed to register 102,041
shares, under the Securities Act of 1933, to be filed in fiscal 1997.
OPTIONS - The Company has an Incentive Stock Option Plan (Plan) which
provides for the grant of options to purchase up to 230,000 shares of
the Company's Common Stock to officers and employees of the Company.
Options are granted at a price equal to the market value at the date of
grant. Options were granted in 1994 to an officer/director on 40,000
shares at an exercise price of $5; in fiscal 1996, the exercise price
was reduced to $1.875 per share, and the term was extended to December
31, 2001. An additional 13,000 incentive stock options were granted to
other employees in fiscal 1997 at $1.875 per share, which expire in
February 15, 2003. All of these options are currently vested.
In March 1996, the Company granted incentive stock options for 80,000
shares to employees, at an exercise price of $2.50, which expire in 2001.
Forty-thousand of these incentive stock options vest immediately and 20,000
on each of the first and second anniversary dates.
In April 1996, the Company adopted an non-qualified option plan (Director
Plan) for outside directors. Each outside director is to be granted stock
options for each full year of service for the purchase of 5,000 shares of
common stock at a price equal to 100% of the fair market value of the
Company's common stock at the date of grant. In fiscal 1996, the Company
issued options on a total of 25,000 shares to directors of the Company
under the Director Plan and options for 12,000 shares to directors in
return for guaranteeing the Company's corporate office lease, at an
exercise price of $2.50 and which expire in 2001.
EMPLOYEE STOCK PURCHASE PLAN - During June 12, 1995, the Company adopted a
qualified Employee Stock Purchase Plan (ESPP). The Company has been
authorized through the ESPP to offer up to 20,000 shares per year over a
three-year term, or a total of 60,000 shares, to the Company's employees.
The ESPP includes certain restrictions which preclude participation by
part-time employees and employees owning 5% or more of the Company's common
stock. The purchase price for the shares may not be less than 85% of the
market value of the stock on either the enrollment date or the exercise
date as those terms are defined in the ESPP. No shares of common stock
have been issued under the ESPP and there have been no subscriptions of
employees to participate in the plan.
F-15
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 28, 1996 IS UNAUDITED)
7. INCOME TAXES:
The Company's actual effective tax rate differs from U.S. Federal corporate
income tax rate of 34% as follows for the fiscal year ended January 28,
1996.
Statutory rate 34%
Effect of graduated rate (4.6%)
State income taxes, net of Federal income tax benefit 3.3%
Reduction in valuation allowance due to usage of net
operating loss carryforwards and change in
temporary differences (32.7%)
---------
$ -0-%
---------
---------
The components of the net deferred tax asset recognized as of January 28,
1996 are as follows:
Current deferred tax assets (liabilities):
Unrealized loss on investments $ 56,000
Accrued expenses not currently deductible for tax 35,000
Other, net (2,000)
Valuation allowance (89,000)
--------
Net current deferred tax asset $ -
--------
--------
Long-term deferred tax assets (liabilities):
Net operating loss carryforwards $231,000
Other, net 5,000
Valuation allowance (236,000)
--------
Net long-term deferred tax asset $ -
--------
--------
- - The valuation allowance was $546,000 at December 31, 1994, increased by
$73,000 in the one month ended January 29, 1995, and decreased by $302,000
for the year ended January 28, 1996
At January 28, 1996, the Company had net operating loss carryforwards for
Federal tax purposes of approximately $680,000. The estimated NOL
carryforward has been reduced by approximately $400,000 as a result of
changes in ownership and a change in line of business which occurred in
1994 and prior years. The loss carryforwards, unless utilized, will expire
from 2009 through 2010.
F-16
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and if, given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or the solicitation of any offer to buy any security other than the shares of
Common Stock and Warrants offered by this Prospectus, nor does it constitute an
offer to sell or a solicitation of any offer to buy the shares of Common Stock
or Warrants by anyone in any jurisdiction in which such offer or solicitation is
not authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information contained herein is correct as of any time subsequent to the date
hereof.
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Certain Market Information . . . . . . . . . . . . . . . . . . . . . . . . .26
Selected Financial Data and Statistical
Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Securities Ownership of Management and
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .58
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . .61
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-1 to F-16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,000,000 Shares of Common Stock
1,000,000 Common Stock
Purchase Warrants
PREMIER CONCEPTS, INC.
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
COHIG & ASSOCIATES, INC.
__________________, 1996
- --------------------------------------------------------------------------------
<PAGE>
[Alternative Page for Selling Shareholders' Prospectus]
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and if, given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or the solicitation of any offer to buy any security other than the shares of
Common Stock and Warrants offered by this Prospectus, nor does it constitute an
offer to sell or a solicitation of any offer to buy the shares of Common Stock
or Warrants by anyone in any jurisdiction in which such offer or solicitation is
not authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information contained herein is correct as of any time subsequent to the date
hereof.
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Certain Market Information . . . . . . . . . . . . . . . . . . . . . . . . .26
Selected Financial Data and Statistical
Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Selling Shareholders and Plan of
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . .61
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Financial Statement. . . . . . . . . . . . . . . . . . . . . . . . F-1 to F-16
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
102,041 Shares of Common Stock
83,334 Class A Common Stock
Purchase Warrants
PREMIER CONCEPTS, INC.
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
COHIG & ASSOCIATES, INC.
_________________, 1996
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other arrangement
under which any controlling person, director or officers of the Registrant is
insured or indemnified in any manner against any liability which he may incur in
his capacity as such, is as follows:
Sections 7-109-101 through 7-109-110 of the Colorado Corporation Code
provide as follows:
7-109-101. DEFINITIONS. As used in this article:
(1) "Corporation" includes any domestic or foreign entity that is a
predecessor of a corporation by reason of a merger or other
transaction in which the predecessor's existence ceased upon
consummation of the transaction.
(2) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation,
is or was serving at the corporation's request as a director, officer,
partner, trustee, employee, fiduciary, or agent of another domestic or
foreign corporation or other person or of an employee benefit plan. A
director is considered to be serving an employee benefit plan at the
corporation's request if his or her duties to the corporation also
impose duties on, or otherwise involve services by, the director to
the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate
or personal representative of a director.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an
excise tax assessed with respect to an employee benefit plan, or
reasonable expenses.
(5) "Official capacity" means, when used with respect to a director,
the office of director in a corporation and, when used with respect to
a person other than a director as contemplated in section 7-109-107,
the office in a corporation held by the officer or the employment,
fiduciary, or agency relationship undertaken by the employee,
fiduciary, or agent on behalf of the corporation. "Official capacity"
does not include service for any other domestic or foreign corporation
or other person or employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
-71-
<PAGE>
7-109-102. AUTHORITY TO INDEMNIFY DIRECTORS.
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding
because the person is or was a director against liability incurred in
the proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonable believed:
(I) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best
interests; and
(II) In all other cases, that his or her conduct was at
least not opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan for
a purpose the director reasonably believed to be in the interests of
the participants in or beneficiaries of the plan is conduct that
satisfies the requirement of subparagraph (II) of paragraph (b) of
subsection (1) of this section. A director's conduct with respect to
an employee benefit plan for a purpose that the director did not
reasonably believe to be in the interests of the participants in or
beneficiaries of the plan shall be deemed not to satisfy the
requirements of paragraph (a) of subsection (1) of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the
standard of conduct described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an
improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
7-109-103. MANDATORY INDEMNIFICATION OF DIRECTORS. Unless limited by
its articles of incorporation, a corporation shall indemnify a person
who was wholly successful, on the merits or otherwise, in the defense
of any proceeding to which the person
-72-
<PAGE>
was a party because the person is or was a director, against reasonable
expenses incurred by him or her in connection with the proceeding.
7-109-104. ADVANCE OF EXPENSES TO DIRECTORS.
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
(a) The director furnishes to the corporation a written
affirmation of the director's good faith belief that he or she has met
the standard of conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written
undertaking, executed personally or on the director's behalf, to repay
the advance if it is ultimately determined that he or she did not meet
the standard of conduct; and
(c) A determination is made that the facts then known to those
making the determination would not preclude indemnification under this
article.
(2) The undertaking required by paragraph (b) of subsection (1) of
this section shall be an unlimited general obligation of the director
but need not be secured and may be accepted without reference to
financial ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in section 7-109-106.
7-109-105. COURT-ORDERED INDEMNIFICATION OF DIRECTORS.
(1) Unless otherwise provided in the articles of incorporation, a
director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an application, the
court, after giving any notice the court considers necessary, may
order indemnification in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred to
obtain court-ordered indemnification.
(b) If it determines that the director is fairly and reasonable
entitled to indemnification in view of all the relevant circumstances,
whether or not the director met the standard of conduct set forth in
section 7-109-102 (1) or was adjudged liable in the circumstances
described in section 7-109-102 (4), the court may order such
indemnification as the court deems proper; except that the
indemnification with respect to any proceeding in which liability
shall have been adjudged in the circumstances described in section
7-109-102 (4) is limited to reasonable expenses incurred in connection
with the proceeding and reasonable expenses incurred to obtain court-
ordered indemnification.
-73-
<PAGE>
7-109-106. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF
DIRECTORS.
(1) A corporation may not indemnify a director under section 7-109-102
unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct set
forth in section 7-109-102. A corporation shall not advance expenses
to a director under section 7-109-104 unless authorized in the
specific case after the written affirmation and undertaking required
by section 7-109-104 (1) (a) and (1) (b) are received and the
determination required by section 7-109-104 (1) (c) has been made.
(2) The determinations required by subsection (1) of this section
shall be made:
(a) By the board of directors by a majority vote of those
present at a meeting at which a quorum is present, and only those
directors not parties to the proceeding shall be counted in satisfying
the quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to
the proceeding may participate in the designation of directors for the
committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a)
of subsection (2) of this section, and a committee cannot be
established under paragraph (b) of subsection (2) of this section, or,
even if a quorum is obtained or a committee is designated, if a
majority of the directors constituting such quorum or such committee
so directs, the determination required to be made by subsection (1) of
this section shall be made:
(a) By independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in paragraph (a)
or (b) of subsection (2) of this section or, if a quorum of the full
board cannot be obtained and a committee cannot be established, by
independent legal counsel selected by a majority vote of the full
board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall be
made in the same manner as the determination that indemnification or
advance of expenses is permissible; except that, if the determination
that indemnification or advance of expenses is permissible is made by
independent legal counsel, authorization of indemnification and
advance of expenses shall be made by the body that selected such
counsel.
-74-
<PAGE>
7-109-107. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND
AGENTS.
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification under
section 7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same
extent as a director;
(b) A corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent of the corporation to the same
extent as to a director; and
(c) A corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a
greater extent, if not inconsistent with public policy, and if
provided for by its bylaws, general or specific action of its board of
directors or shareholders, or contract.
7-109-108. INSURANCE. A corporation may purchase and maintain
insurance on behalf of a person who is or was a director, officer,
employee, fiduciary, or agent of the corporation, or who, while a
director, officer, employee, fiduciary, or agent of the corporation,
is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, fiduciary, or agent of another
domestic or foreign corporation or other person or of an employee
benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a
director, officer, employee, fiduciary, or agent, whether or not the
corporation would have power to indemnify the person against the same
liability under section 7-109-102, 7-109-103, or 7-109-107. Any such
insurance may be procured from any insurance company designated by the
board of directors, whether such insurance company is formed under the
laws of this state or any other jurisdiction of the United States or
elsewhere, including any insurance company in which the corporation
has an equity or any other interest through stock ownership or
otherwise.
7-109-109. LIMITATION OF INDEMNIFICATION OF DIRECTORS.
(1) A provision treating a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles of
incorporation or bylaws, in a resolution of its shareholders or board
of directors, or in a contract, except an insurance policy, or
otherwise, is valid only to the extent the provision is not
inconsistent with sections 7-109-101 to 7-109-108. If the article of
incorporation limit indemnification or advance of expenses,
indemnification and advance of expenses are valid only to the extent
not inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's
power to pay or reimburse expenses incurred by a director in
connection with an appearance as a witness in a proceeding at a time
when he or she has not been made a named defendant or respondent in
the proceeding.
-75-
<PAGE>
7-109-110. NOTICE TO SHAREHOLDER OF INDEMNIFICATION OF DIRECTOR. If
a corporation indemnifies or advances expenses to a director under
this article in connection with a proceeding by or in the right of the
corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the
notice of the next shareholders' meeting. If the next shareholder
action is taken without a meeting at the instigation of the board of
directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such
action.
* * *
Article XIII of the Amended and Restated Articles of Incorporation of the
Company provides, in pertinent part:
Section 1. A director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent
that such exemption from liability or limitation thereof is
not permitted under the Colorado Corporation Code as the same
exists or may hereafter be amended.
Section 2. Any repeal or modification of the foregoing Section 1 by the
stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing
at the time of such repeal or modification.
Article XII of the Amended and Restated Articles of Incorporation of the
Company provides, in pertinent part:
Section 2. INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS.
(a) All officers and directors of the Corporation shall be
entitled to indemnification to the maximum extent permitted by
law or by public policy.
(b) Any mandate for indemnification, whether by statute or
order of Court, is to be expressly subject to the
Corporation's reasonable capability of paying.
(c) No person will be entitled to be reimbursed for
expenses incurred in connection with a Court proceeding to
obtain Court ordered indemnification unless such person first
made reasonable application to the Corporation and the
Corporation either unreasonably denied such application or
through no fault of the applicant was unable to consider such
application within a reasonable time.
(d) A director who is or was made a party to a proceeding
because he is or was an officer, employee, or agent of the
Corporation is entitled to the same rights as if he were or
had been made a party because he was a director.
(e) To the maximum extent permitted by law or by public
policy, directors of this Corporation are to have no personal
liability for monetary damages for breach of fiduciary duty as
a director.
-76-
<PAGE>
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering are to be borne by the Company,
are as follows:
SEC Filing Fee $ 3,116
NASD Fee 1,403
Printing Expenses 40,000
Accounting Fees and Expenses 30,000
Legal Fees and Expenses 90,000
Blue Sky Fees and Expenses 20,000
Registrar and Transfer Agent Fee 5,000
Underwriter's Non-Accountable Expense 134,550
Allowance
Miscellaneous 50,931
-------
Total $375,000
- --------------------------
Item 26. RECENT SALES OF UNREGISTERED SECURITIES.
1. In January, 1994, the Company sold a total of 16,285 shares of Common
Stock to 45 accredited investors for an aggregate consideration of $274,509.
The shares were acquired for investment purposes and were subject to appropriate
transfer restrictions. These shares were not registered under the Act in
reliance upon Section 3(b) thereof and Regulation D, Rule 506 thereunder.
2. In March, 1994, the Company issued 80,000 shares of Common Stock
to eight accredited investors in consideration of $145,000. These shares were
acquired for investment purposes and were subject to appropriate transfer
restrictions. These shares were not registered under the Act in reliance upon
Section 4(2) thereof.
3. In order to finance the acquisition of Impostors, the Company
also undertook a private placement of its securities in March 1994 consisting of
Units comprised of one (1) share of Common Stock and one (1) Class C Common
Stock Purchase Warrant. In connection with the private placement, the Company
sold an aggregate of 185,511 Units at a private offering price of $5.00 per Unit
for a total consideration of $894,281. These shares were acquired by 18
accredited investors for investment purposes and were subject to appropriate
transfer restrictions. These shares were not registered under the Act in
reliance upon Section 3(b) thereof and Regulation D, Rule 506 thereunder.
4. In March 1994, the Company issued 27,500 shares of Common Stock
to the unsecured creditors of American Fashion Jewels, Inc. pursuant to the
confirmed Plan of Reorganization in the bankruptcy proceedings. The shares were
not registered under the Act in reliance upon Section 1145 of the United States
Bankruptcy Code and Section 3(10) of the Act.
5. In March 1994, the Company issued 20,000 shares of Common Stock
to two accredited investors in exchange for 100% of the issued and outstanding
shares of Mirage Concepts, Inc., an Arizona
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<PAGE>
corporation which owned three (3) additional reproduction jewelry stores. The
shares were acquired for investment purposes and are subject to appropriate
transfer restrictions. These shares were not registered under the Act in
reliance upon Section 4(2) thereof.
6. In 1994, the Company issued an aggregate of 2,750 shares of
Common Stock to 11 investors in settlement of a dispute involved in pending
litigation. The shares were acquired for investment purposes and were subject
to appropriate transfer restrictions. The shares were not registered under the
Act in reliance upon Section 4(2) thereof.
7. In December 1994, the Company issued to six employees as a bonus
an aggregate of 660 shares of Common Stock valued at $5.00 per share. The
shares were acquired for investment purposes and were subject to appropriate
transfer restrictions. The shares were not registered under the Act in reliance
upon Section 4(2) thereof.
8. In October 1995, the Company issued an additional 46,792 shares
of Common Stock to 11 investors in settlement of a dispute involved in pending
litigation. The shares were acquired for investment purposes and were subject
to appropriate transfer restrictions. The shares were not registered under the
Act in reliance upon Section 4(2) thereof.
9. In December 1995, the Company sold an aggregate of 234,000 shares
of Common Stock for gross proceeds of $292,500, or $1.25 per share. The shares
were acquired by eight accredited investors for investment purposes and were
subject to appropriate transfer restrictions. The shares were not registered
under the Act in reliance upon Section 3(b) thereof and Regulation D, Rule 506
thereunder.
10. In 1995, the Company issued 7,000 shares of Common Stock in
settlement of claims valued at $35,000. These shares were acquired by two
accredited investors for investment purposes and were subject to appropriate
transfer restrictions. The shares were not registered under the Act in reliance
upon Section 4(2) thereof.
11. In January 1996, the Company issued 22,000 shares of Common Stock
in consideration of services to the Company valued at $27,500. These shares
were acquired by one accredited investor for investment purposes and were
subject to appropriate transfer restrictions. The shares were not registered
under the Act in reliance upon Section 4(2) thereof.
12. In January 1996, the Company issued 5,000 shares of Common Stock
in consideration of services to the Company valued at $17,500. These shares
were acquired by two accredited investors for investment purposes and were
subject to appropriate transfer restrictions. The shares were not registered
under the Act in reliance upon Section 4(2) thereof.
13. In June 1996, the Company issued 416,670 (pre-split) shares of
Convertible Preferred Stock and 208,335 Class B Common Stock Warrants in
consideration of $250,000. These securities were acquired by three accredited
investors for investment purposes and were subject to appropriate transfer
restrictions. The securities were not registered under the Act in reliance upon
Section 4(2) thereof.
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<PAGE>
Item 27. EXHIBITS.
a. The following Exhibits are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B:
Exhibit No. Title
- ----------- -----
Exhibit 1.1 Underwriting Agreement
Exhibit 1.2 Letter of Intent with Cohig & Associates, Inc.
* Exhibit 3.1 Articles of Incorporation
* Exhibit 3.2 Certificate and Articles of Amendment
* Exhibit 3.3 By-Laws
* Exhibit 4.1 Specimen Certificate of Common Stock
Exhibit 4.2 Specimen Class A Warrant Certificate
Exhibit 4.3 Designations of Series A Convertible Preferred Stock
Exhibit 4.4 1992 Stock Incentive Plan
Exhibit 4.5 1995 Employee Stock Purchase Plan
Exhibit 4.6 Representative's Share Option Agreement
Exhibit 4.7 Representative's Warrant Option Agreement
Exhibit 5.0 Opinion of Neuman & Cobb
Exhibit 9.0 Form of General Proxy
* Exhibit 10.1 Copy of signed Stock Transfer Agent Agreement
Exhibit 10.2 Warrant Agreement
** Exhibit 10.3 Amendment No. 1 to Definitive Agreement and Plan of
Reorganization, dated March 16, 1993
** Exhibit 10.4 Amended Plan of Reorganization dated January 24, 1994
** Exhibit 10.5 Order Confirming Amended Plan of Reorganization dated
February 24, 1994
** Exhibit 10.6 Commitment Letter dated January 4, 1994
** Exhibit 10.7 Amendment to Commitment Letter dated January 21, 1994
** Exhibit 10.8 Conveyance and Bill of Sale dated March 3, 1994
** Exhibit 10.9 Assumption Agreement dated March 3, 1994
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<PAGE>
Exhibit 10.10 Employment Agreement with Sissel Greenberg
Exhibit 10.11 Consulting Agreement with Cohig & Associates, Inc.
Exhibit 10.13 Form of Standstill Agreement
*** Exhibit 16 Letter of Schumacher & Bruce, Inc. on change in
certifying accountant
Exhibit 24.1 Consent of Neuman & Cobb
Exhibit 24.2 Consent of Hein + Associates, LLP
- ------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1; SEC File No. 33-42701.
** Incorporated by reference from the Company's Current Report on Form 8-K
dated March 3, 1994
*** Incorporated by reference from the Company's Current Report on Form 8-K
dated February 16, 1995
Item 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. To provide, upon effectiveness, certificates in such denominations and
registered in such names as are required to permit prompt delivery to each
purchaser.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this Amendment
No. 3 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Aurora, State of Colorado
on the 28th day of October, 1996.
PREMIER CONCEPTS, INC.
By: /s/ Sissel Greenberg
----------------------------------------
Sissel Greenberg, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the Registration Statement has been signed by the
following persons in the capacities with Premier Concepts, Inc. and on the dates
indicated.
Signature Position Date
- --------- -------- ----
/s/ Sissel Greenberg
- ------------------------- Chief Executive Officer 10/28/96
Sissel Greenberg Director
/s/ William Nandor
- ------------------------- Director 10/28/96
William Nandor
/s/ Jack Brandon
- ------------------------- Director 10/28/96
Jack Brandon
/s/ Simona Katz Yuffa
- ------------------------- Director 10/28/96
Simona Katz Yuffa
/s/ Todd Huss
- ------------------------- Chief Financial Officer 10/28/96
Todd Huss Principal Accounting Officer
<PAGE>
EXHIBIT 9.0
TO THE BOARD OF DIRECTORS OF
PREMIER CONCEPTS, INC.
The undersigned hereby irrevocably constitutes and appoints for the term
hereof the Board of Directors of Premier Concepts, Inc., acting by a majority,
the undersigned's substitute, attorney and agent and in the undersigned's name,
place and stead to vote as the undersigned's proxy as any regular or special
meeting, and at any adjournment or adjournments thereof, of the shareholders of
Premier Concepts, Inc., upon any question which may be brought before such
meeting, including the election of directors, according to the number of votes
that the undersigned should be entitled to vote if then personally present, with
full power of substitution, subject to the following:
1. All shares which are subject to this Proxy shall be voted in
accordance and in conformity with the vote of the majority of shares of the
Company's voting securities cast on any matter presented to the Company's
shareholders for their approval at such meeting; and
2. This Proxy shall terminate and expire twelve (12) months from the date
hereof.
Dated: October ____, 1996
shares
c:\premier\document\prx!gen.o96
<PAGE>
EXHIBIT 10.13
STANDSTILL AGREEMENT
Board of Directors
Premier Concepts, Inc.
3033 South Parker Road, Suite 120
Denver, Colorado 80014
Dear Sirs:
1. The undersigned agrees that for a period of twelve (12) months from
the date hereof, neither the undersigned nor any affiliate (as that term is
defined in Rule 405 under the Securities Act of 1933) of the undersigned
(regardless of whether such person or entity is an affiliate on the date hereof)
will:
a. Acquire, offer to acquire or agree to acquire, directly or indirectly,
by purchase or otherwise, any voting securities or direct or indirect rights or
options to acquire any voting securities of Premier Concepts, Inc., a Colorado
corporation (the "Company") (except by way of stock dividends or other
distributions or offerings made available to holders of voting securities
generally);
b. Solicit proxies or become a "participant", directly or indirectly, in
any "solicitation" of proxies to vote (as such terms are used and defined in
Regulation 14A under the Securities Exchange Act of 1934 ("Exchange Act"), or
seek to advise or influence any person or entity with respect to the voting of
any voting securities of the Company;
c. Join a partnership, limited partnership, syndicate or other group, or
otherwise act in concert with any person, for the purpose of acquiring, holding,
or disposing of voting securities of the Company, or otherwise become a "person"
within the meaning of Section 13(d)(3) of the Exchange Act with respect to any
voting securities of the Company; or
d. Otherwise act, alone or in concert, with others, to seek to control or
influence the management, board of directors or policies of the Company.
2. The undersigned acknowledges that the Company would not have an
adequate remedy at law for money damages in the event that this covenant were
not performed in accordance with the terms and therefore agrees that the Company
shall be entitled to specific enforcement of the terms hereof in addition to any
other remedy to which it may be entitled, at law or in equity.
The undersigned acknowledges and agrees that the foregoing agreements are
given in consideration of the Company's securities being listed on Nasdaq and
that such listing constitutes sufficient, good and valuable consideration to the
undersigned by virtue of the undersigned's beneficial ownership of voting
securities of the Company.
Sincerely,
_____________________________
DATED: ___________________________
APPROVED AND ACCEPTED:
PREMIER CONCEPTS, INC.
By:_______________________________
Sissel Greenberg, President
<PAGE>
EXHIBIT 24.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in Amendment No. 3 to the Registration Statement on
Form SB-2 and related Prospectus of Premier Concepts, Inc. of our report dated
April 5, 1996, accompanying the financial statements of Premier Concepts, Inc.
contained in such Registration Statement, and to the use of our name and the
statements with respect to us, as appearing under the heading "Experts" in the
Prospectus.
HEIN + ASSOCIATES LLP
Denver, Colorado
October 24, 1996
