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FILED PURSUANT TO RULE 424b2
REGISTRATION NO. 333-19901
PROSPECTUS
PREMIER CONCEPTS, INC.
102,041 SHARES OF COMMON STOCK
483,334 CLASS A COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to the offer and sale of 102,041 shares of Common
Stock, $.002 par value ("Common Stock") and 483,334 Class A Common Stock
Purchase Warrants ("Warrants") of Premier Concepts, Inc. ("Premier" or the
"Company") being sold by certain shareholders (the "Selling Shareholders"). See
"Selling Shareholders and Plan of Distribution." The Company will not receive
any of the proceeds from the sales of the Common Stock or Warrants by the
Selling Shareholders.
The Selling Shareholders may be deemed to be "underwriters" as defined in
the Securities Act of 1933 (the "Securities Act"). If any broker-dealers are
used by the Selling Shareholders, any commissions paid to broker-dealers and, if
broker-dealers purchase any securities as principals, any profits received by
such broker-dealers on the resales of the securities may be deemed to be
underwriting discounts or commission under the Securities Act. In addition, any
profits realized by the Selling Shareholders may be deemed to be underwriting
commissions. All costs, expenses and fees in connection with the registration of
the securities offered by Selling Shareholders will be borne by the Company.
Brokerage commissions, if any, attributable to the sale of the securities will
be borne by the Selling Shareholders. The Company has agreed to indemnify the
Selling Shareholders against certain liabilities, including liabilities under
the Securities Act.
The Common Stock and Warrants offered by this Prospectus may be sold from
time to time by the Selling Shareholders, or by transferees, commencing the date
of this Prospectus based upon prevailing market conditions for the Company's
Common Stock, subject to the consent of Cohig & Associates, Inc., as
Representative of the Underwrites in the concurrent offering. Such consent must
be obtained in writing by the Selling Shareholders prior to effecting any sales
of the Common Stock. No underwriting arrangements have been entered into by
Selling Shareholders. The distribution of the Selling Shareholders' Common Stock
by the Selling Shareholders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
dealers for resale of such shares as principals, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Shareholders in connection with the
sales of the Selling Shareholders' securities. See "Selling Shareholders and
Plan of Distribution."
Concurrently with the commencement of this offering (the "Selling
Shareholders' Offering"), the Company is offering, by separate Prospectus
1,100,000 shares of Common Stock and 1,100,000 Warrants through Cohig &
Associates, Inc., as Representative of the Underwriters.
Although the Company is a publicly-held corporation, the present market for
the Common Stock is limited and sporadic. On April 8, 1997, the closing bid and
ask prices of the Common Stock on the Electronic Bulletin Board System under the
symbol PMRCA were $2.25 and $4.00, respectively. There is presently no trading
market for the Warrants. The Company's Common Stock and Warrants have been
approved for quotation on the Nasdaq SmallCap Market under the symbols "FAUX"
and "FAUXW," respectively.
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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 7.
---------------------
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.
COHIG & ASSOCIATES, INC.
The date of this Prospectus is April 21, 1997.
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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, and other information with the Securities and
Exchange Commission (the "Commission"). Reports, 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, and are publicly available
through the Commission's web site at http:// www.sec.gov.
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.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK AND WARRANTS ON THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE
"UNDERWRITING."
2
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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 DECEMBER 20, 1996, AND
(II) THE CONVERSION OF 416,670 SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
INTO 102,041 SHARES OF COMMON STOCK.
THE COMPANY
Premier Concepts, Inc. ("Premier" or the "Company"), operating under the
name "Impostors," believes that its 35 retail stores make it 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 35 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. Stores are considered to be in
tourist locations where more than 50% of sales are made to non-residents.
Currently, the Company has stores in Southern California, Northern California,
the states of Arizona, Colorado, Florida, Louisiana, Maryland, Missouri, New
Jersey and Washington and in the Washington, D.C. area. Since August 30, 1996
the Company has opened nine stores located in Colorado, Florida, Nevada and New
Jersey, resulting in the current 35 locations. In addition, the Company has
entered into leases for four new retail stores in Southern California, Florida,
and Washington, D.C, which are scheduled to open over the next four 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 was organized on July 15, 1988 under the laws of the State of
Colorado.
3
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THE OFFERING
<TABLE>
<S> <C>
Securities offered by the Selling
Shareholders.................... 102,041 shares of Common Stock, $.002 par value and
483,334 Warrants. See "Description Of Securities."
Offering price.................... Prevailing market price
Common stock outstanding:......... 1,762,208 shares(1)(2)(3)
Proposed NASDAQ SmallCap symbols:
Common Stock.................... "FAUX"
Warrants........................ "FAUXW"
</TABLE>
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.
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(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, 196,000 of which are subject to outstanding and unexercised
options having a weighted average exercise price of $2.55 per share, and of
which 55,000 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) 12,000 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 shares of Series
A Convertible Preferred Stock ("Convertible Preferred Stock") and Class B
Warrants entitling the holders thereof to acquire 41,667 shares of Common
Stock (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) Does not include shares reserved for issuance upon the conversion of the 12%
Convertible Promissory Notes (the "Convertible Notes"). On December 27,
1996, the Company completed a bridge financing (the "Bridge Note Financing")
consisting of $1,120,000 in Convertible Notes and 200,000 Class B Warrants,
realizing net proceeds of $1,041,600. The Company utilized $624,325 of these
proceeds to redeem from certain securityholders 189,180 of the Company's
Common Stock and 32,500 Class C Warrants. The principal balance of the
Convertible Notes is convertible after April 1, 1997, at the option of the
holder, into shares of the Company's Common Stock at a conversion value of
$2.80 per share, subject to adjustment under certain circumstances. Each
Class B Warrant entitles the holder to purchase one share of the Company's
Common Stock at an exercise price of $5.00 per share and will be
automatically exchanged for two Warrants upon the effective date of the
Registration Statement of which this Prospectus forms a part. See
"Description of Securities--12% Convertible Promissory Notes."
4
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SUMMARY FINANCIAL DATA
Set forth below is selected summary financial data with respect to the
Company. Financial information for the years ended January 28, 1996 and January
26, 1997, 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 or is derived from store-level schedules not included
herein.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 28, JANUARY 26,
1996 1997
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<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues........................................................................ $ 9,069,840 $ 9,773,700
Operating profit (loss)............................................................... (37,298) 326,439
Income from discontinued operations................................................... 270,441 13,620
Net income............................................................................ 114,219 354,524
Net income available to common shareholders........................................... 114,219 341,949
Net income per common share........................................................... .23 .44
Weighted average number of common shares outstanding.................................. 495,800 777,408
STATISTICAL DATA: (2)
Store revenues........................................................................ $ 8,957,344 $ 9,739,845
Store gross margin.................................................................... 6,337,334 6,941,934
Store operating expenses.............................................................. 4,906,077 5,237,659
Store operating profit................................................................ 1,431,257 1,704,275
Corporate overhead operating expenses................................................. 1,518,416 1,386,611
Gross margin percentage............................................................... 70.3% 71.1%
Comparable same store sales (1)....................................................... 8,380,595 8,700,643
Comparable same store sales growth (1)................................................ N/A 3.8%
Comparable same store sales per square foot (1)....................................... 526.88 547.00
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 26, 1997
----------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Total assets..................................................................... $ 4,811,774 $ 6,502,351
Total liabilities................................................................ 3,814,371 2,093,948
Working capital.................................................................. 168,059 2,884,482
Stockholders' equity............................................................. 997,403 4,408,403
</TABLE>
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(1) Includes only the 26 stores open for the entire periods being compared.
(2) Based on store-level schedules and is not meant to tie to the financial
statements and notes related thereto included elsewhere herein.
(3) Adjusted to reflect net proceeds from the sale by the Company of 1,100,000
shares of Common Stock and 1,100,000 Warrants at the public offering prices
of $3.75 per share and $.15 per Warrant and the utilization of $1,370,000 of
the net proceeds therefrom to retire the Convertible Notes and other
liabilities in the amount of $250,000. See "Use of Proceeds." 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," and "Capitalization."
5
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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 35 Impostors stores, has executed leases for
four additional stores scheduled to open over the next four months, and has
plans to open a total of six to eight 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.
6
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FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and are thus prospective. Such statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Such risks and uncertainties include, but are not limited to,
competitive pressures, changing economic conditions and other factors, some of
which will be outside of the control of the Company.
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 experienced operating losses
from its Impostors operations prior to the latest fiscal year and there can be
no assurance that the Company's efforts to achieve sustained 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, and the fiscal year ended January 28, 1996,
the Company reported operating losses of $683,641, $203,026 and $37,298,
respectively. While the Company reported operating income of $326,439 for the
fiscal year ended January 26, 1997, there can be no assurance that future
operations will continue to be profitable. See Financial Statements.
OPERATING LEASES; RISK OF LONG-TERM COMMITMENTS. The commercial leases
covering the Company's existing 35 retail locations, combined with the four
additional leases the Company has executed for new stores, in the aggregate,
represent approximately $13 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 1997 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 addition, the
Company's largest store in Union Square, San Francisco expires in the year 2001.
During Fiscal 1997, this store contributed $202,825 to the Company's total net
store contribution and was one of the five stores that contributed, in the
aggregate, (41%) 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.
Additionally, the Company plans to lease and open six to eight additional
retail stores over the next 12 months, of which four 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
7
<PAGE>
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 1998. 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 17 tourist locations are less
sensitive to the effect of the holiday season, 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 2,600 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 5,600 shares, or approximately 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 4.8% of the Company's outstanding shares of
Common Stock following completion of this offering. 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."
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. All 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,
$1,220,000 has been allocated to reduce the Company's secured debt including
retiring the
8
<PAGE>
Convertible Notes. Future losses from operations may impair the Company's
ability to service its remaining 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, 1999, 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 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."
9
<PAGE>
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."
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 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 its
wholesale distribution 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,
10
<PAGE>
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."
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 approximate $3,486,000 net proceeds from this offering, $1,500,000 will be
used for store openings, some of which have been recently completed, $1,370,000
will be used to retire the $1,120,000 in Convertible Notes and to repay certain
short-term debt of $250,000, $250,000 for store remodeling, and $100,000 for
development of new marketing channels. The remainder will be used for 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. At January 26, 1997, giving retroactive effect to the conversion
of the Convertible Preferred Stock into 102,041 shares of Common Stock, the
Company had a proforma net tangible book value of $411,411 or $.62 per share
based upon 662,208 Common Stock shares outstanding. 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 1,100,000
shares of Common Stock and 1,100,000 Warrants by the Company in this offering
and receipt of the estimated net proceeds therefrom, the adjusted net tangible
book value at January 26, 1997 would have been $4,247,834 or $2.41 per share of
Common Stock. This represents an immediate increase of $1.79 per share to
current shareholders and an immediate dilution of $1.49 per share or 38% to the
investors in this offering.
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
11
<PAGE>
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' notice, mailed after the closing bid
price of the Common Stock has equaled or exceeded 150% of the then current
Warrant Exercise Price (initially $5.00 per share), for a period of 20 or more
of the 30 consecutive trading days ending within 30 days 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
redeemed or 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 years ended
January 28, 1996 and January 26, 1997, 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
continue to be listed 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
12
<PAGE>
conditions and quarterly variations in the Company's results of operations, may
adversely affect the market price of the Company's Common Stock and Warrants.
POSSIBLE LOSS OF NASDAQ LISTING. In order to continue to be listed on
NASDAQ, the Company must satisfy certain maintenance standards applicable to all
NASDAQ-listed companies which relate to the Company's assets, capital surplus
and public trading price of its securities. In addition, NASDAQ, in its listing
approval letter, has informed the Company that the failure to maintain the
minimum initial bid price as required by applicable NASDAQ listing requirements
($3.00 per share) for the 30 consecutive calendar days subsequent to this
offering may result in the immediate implementation of delisting proceedings, at
which the Company will be afforded all rights specified in NASD rules. 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 thereafter be conducted
in the over-the-counter market on an electronic bulletin board established for
securities that do no 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."
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 have been 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 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
13
<PAGE>
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 April 10, 1997, 560,167 shares of
the Company's Common Stock, were issued and outstanding, 502,735 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, 244,409 shares may be registered for resale by the Company in
a separate Registration Statement which may go effective as early as thirty days
after the date of this Prospectus. Further, concurrently with this offering,
102,041 shares of Common Stock and 483,334 Warrants are being registered for
sale under the Securities Act for certain selling shareholders. In 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. Effective April 29, 1997, the two year holding period referred
to above will be reduced to one year and the three year holding period referred
to above will be reduced to two years.
The Company has outstanding options and Class C Warrants exercisable to
purchase, in the aggregate, 268,250 shares of Common Stock at a weighted average
exercise price of $4.22 per share. The Company also has outstanding Warrants
exercisable to purchase 241,667 shares of Common Stock at a price of $5.00 per
share, which warrants are being registered concurrently with this offering. In
addition, the Company is authorized to issue an additional 34,000 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, 791,667 shares of Common
Stock at a price of $5.00 per share, in addition to 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 268,250 shares of Common Stock have
been reserved for issuance upon exercise of outstanding options and warrants,
all but 55,000 of which are currently exercisable. In addition, there are
outstanding Warrants exercisable to purchase an aggregate of 241,667 shares of
14
<PAGE>
Common Stock. The exercise prices of these options and warrants, excluding the
Warrants, range between $1.875 per share and $10.00 per share, with a weighted
average exercise price of approximately $4.22 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 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 662,208 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 268,250 shares of Common Stock at
an average exercise price of $4.22 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 110,000 shares of Common Stock
and 110,000 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."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 26, 1997 (i) on a historical basis and (ii) as adjusted to give effect
to the conversion of the Convertible Preferred Stock, 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.
<TABLE>
<CAPTION>
JANUARY 26, 1997
-------------------------------
AS
ACTUAL ADJUSTED(1)(2)(3)
------------- ----------------
<S> <C> <C>
Long term debt, less current portion......................... $ 1,792,624 $ 672,624
Stockholders' equity
Preferred Stock, $.10 par value, 20,000,000 shares
authorized; 416,670 shares outstanding; none outstanding
as adjusted.............................................. 41,667 --
Common Stock, $.002 par value, 850,000,000 shares
authorized; 560,167 shares issued and outstanding;
1,762,208 as adjusted(1)................................. 1,120 3,524
Additional paid-in capital................................. 2,316,125 5,766,386
Accumulated deficit.......................................... (1,361,507) (1,361,507)
Total stockholders' equity (3)............................... 997,403 4,408,403
------------- ----------------
Total capitalization......................................... $ 2,790,027 $ 5,081,027
------------- ----------------
------------- ----------------
</TABLE>
- ------------------------
(1) Adjusted to give effect to (i) the automatic conversion of the Preferred
Stock into 102,041 shares of Common Stock, (ii) the sale of 1,100,000 Shares
of Common Stock and 1,100,000 Warrants offered hereby for gross proceeds to
the Company of $3,861,000, (iii) reduced by estimated expenses of the
offering of $450,000, of which $75,000 have already been paid by the Company
and (iv) the repayment of the $1,120,000 in Convertible Notes.
(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, 196,000 of which are subject to outstanding and unexercised
options having a weighted average exercise price of $2.55 per share, and of
which 55,000 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) 12,000 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, (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) 241,667 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.
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<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 April 8, 1997. 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.
<TABLE>
<CAPTION>
BID(1) ASK(1)
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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................................................ 2.50 2.50 3.75 3.44
1997
First Quarter (through April 8, 1997)......................... $ 2.625 $ 2.25 $ 4.50 $ 4.00
</TABLE>
- ------------------------
(1) All prices have been adjusted to give retroactive effect to a one-for-five
reverse stock split which was effective on December 20, 1996.
(2) No trading activity during the period.
The bid and ask prices of the Company's Common Stock on April 8, 1997 were
$2.25 and $4.00, respectively, as quoted on the OTC Electronic Bulletin Board.
As of April 8, 1997 there were approximately 625 shareholders of record of the
Company's Common Stock.
18
<PAGE>
SELECTED FINANCIAL DATA AND STATISTICAL DATA
Set forth below is selected summary financial data with respect to the
Company. Financial information for the years ended January 28, 1996, and January
26, 1997, 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 or is derived from store-level schedules not included
herein.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 28, JANUARY 26,
1996 1997
------------- -------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues...................................................................... $ 9,069,840 $ 9,773,700
Operating income (loss)............................................................. (37,298) 326,439
Income from discontinued operations................................................. 270,441 13,620
Net income (loss)................................................................... 114,219 354,524
Net income (loss) available to common shareholders.................................. 114,219 341,949
Net income (loss) per common share.................................................. .23 .44
Weighted average common shares outstanding.......................................... 495,800 777,408
STATISTICAL DATA: (2)
Store revenues...................................................................... $ 8,957,344 $ 9,739,845
Store gross margin.................................................................. 6,337,334 6,941,934
Store operating expenses............................................................ 4,906,077 5,237,659
Store operating profit.............................................................. 1,431,257 1,704,275
Corporate overhead operating expenses............................................... 1,518,416 1,386,611
Gross margin percentage............................................................. 70.3% 71.1%
Comparable same store sales (1)..................................................... 8,380,595 8,700,643
Comparable same store sales growth (1).............................................. N/A 3.8%
Comparable same store sales per square foot (1)..................................... 526.88 547.00
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 26, 1997
----------------------------
ACTUAL AS ADJUSTED(3)
------------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets...................................................................... $ 4,811,774 $ 6,502,351
Total liabilities................................................................. 3,814,371 2,093,948
Working capital................................................................... 168,059 2,884,482
Stockholders' equity.............................................................. 997,403 4,408,403
</TABLE>
- ------------------------
(1) Includes only the 26 stores open for the entire periods being compared.
(2) Based on store-level schedules and is not meant to tie to the financial
statements and notes related thereto included elsewhere herein.
(3) Adjusted to reflect net proceeds from the sale by the Company in this
offering of 1,100,000 shares of Common Stock and 1,100,000 Warrants at the
public offering prices of $3.75 per share and $.15 per Warrant and the
utilization of $1,370,000 of the net proceeds therefrom to retire the
Convertible Notes and other liabilities in the amount of $250,000. See "Use
of Proceeds." 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."
19
<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, second, and third quarters of the fiscal
year. 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 and Class B Warrants entitling the holders to purchase 41,667 shares of
Common Stock, realizing net proceeds of $225,000. These proceeds were primarily
used to finance the remodeling projects for the St. Louis and Tucson locations,
to partially finance the completion of a new store in the Park Meadows Mall in
Denver, Colorado, and to purchase various fixtures and equipment associated with
improvements for other existing locations.
On December 27, 1996, the Company consummated the sale of $1,120,000 in
Convertible Promissory Notes and 200,000 Class B Warrants, realizing net
proceeds of $1,041,600. From the net proceeds, the Company utilized $624,325 to
redeem from certain former securityholders an aggregate of 189,180 shares of
Common Stock and 32,500 Class C Warrants. This redemption was necessary to
facilitate the Company's proposed secondary financing and concurrent listing of
its securities on the Nasdaq Stock Market. The Convertible Notes bear interest
at the rate of 12% per annum, payable quarterly and are convertible into shares
of Common Stock, at the option of the holder, at a conversion rate of $2.80 per
share. However, if (i) the Company fails to complete a public offering of its
securities by June 30, 1997 or (ii) the principal balance of the Convertible
Notes is not repaid by the Company by their Maturity Date, the conversion value
is reduced to $1.00 per share. The Company has agreed to repay the Convertible
Notes from the proceeds of this offering. Unless earlier converted or repaid,
the Convertible Notes mature and become due and payable on December 26, 1999.
The obligation of the Company to repay the Convertible Notes is secured by a
subordinated security agreement covering all of the Company's tangible and
intangible assets.
The Company used the remaining proceeds from the Bridge Note Financing to
pay the accrued cost incurred in the Company's opening of five new stores during
the fourth quarter, and for working capital. The proceeds of the Bridge Note
Financing were not sufficient to meet all of the Company's capital commitments
for its six additional new stores which have opened since November, 1996 and
four additional stores that are scheduled to open over the next four months.
Those capital commitments will require additional financing which a portion of
the proceeds of this offering have been allocated to satisfy. See "Use of
Proceeds."
The increases in accounts payable of $861,590, from $291,905 at January 28,
1996 to $1,153,495 at January 26, 1997 reflect expenses for new store
construction and existing store remodels that were completed during the last six
months of fiscal 1997, expenses to purchase fixtures and equipment, to finance
the increase in inventories for new stores opened in fiscal 1997 and three new
stores opened in February, 1997 and to finance deferred offering costs.
As a result, the Company's cash position decreased by $115,623 from $327,198
at January 28, 1996 to $211,575 at January 26, 1997.
20
<PAGE>
During fiscal 1997, 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 $6,813 at January 26, 1997.
Management intends to liquidate its remaining securities holdings as allowed by
general market conditions.
During fiscal 1997, the Company invested $1,332,575 in property and
equipment. Approximately $1,027,000 of this investment represents leasehold
improvements and costs of equipment and fixtures in connection with new store
projects completed in Denver, Colorado, Bellevue, Washington, six new stores
opened since November, 1996 in Florida and New Jersey, and three new stores
opened in February, 1997 in Florida and Nevada. Approximately $186,000 of this
investment represents leasehold improvements and costs of equipment and fixtures
in connection with three existing locations remodeled in San Mateo, California,
St. Louis, Missouri, and Tucson, Arizona. Approximately $75,000 represents
investments in corporate office improvements and purchases of furniture and
fixtures in connection with the relocation of the corporate office in January,
1996. The remaining approximately $44,000 represents minor improvements and
maintenance of other existing store locations.
Therefore, property and equipment, net of accumulated depreciation,
increased $1,056,212, from $977,727 at January 28, 1996, to $2,033,939 at
January 26, 1997. At January 26, 1997, the Company's trademark assets were
$87,833 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.
As of January 26, 1997, the Company had total outstanding liabilities of
$3,814,371 compared to $1,994,590 at January 28, 1996, representing an increase
of $1,819,781 which was due to an increase in current liabilities of $739,941
from $1,178,567 at January 28, 1996 to $1,918,508 at January 26, 1997 and the
result of the $1,120,000 Convertible Promissory Notes executed on December 27,
1996. During fiscal 1997, management continued its efforts to purchase larger
quantities of inventories to maintain favorable inventory costs and to increase
inventory levels to accommodate the opening of the six new locations which
occurred in the months of August, November and December. As a result of the
foregoing, and the fiscal 1997 increase in accounts payable of $861,590 as
discussed above, working capital decreased by $515,113 from $683,172 at January
28, 1996 to $168,059 at January 26, 1997.
The amount borrowed from related parties was $74,420 at January 26, 1997
which reflects a reduction of $24,459 from the January 28, 1996 figure of
$98,879. During the 1997 fiscal year the Company also reduced other short- and
long-term notes by $181,663. However, other notes payable increased from
$1,138,766 at January 28, 1996 to $2,055,936 at January 26, 1997, which increase
was due to the execution of the $1,120,000 Convertible Promissory Notes executed
on December 27, 1996. As of April 1, 1997, the Company was in arrears in the
payment of three notes totaling, in the aggregate, $195,500. Management has been
in discussions with the three noteholders and plans to retire these three notes
with the proceeds from this offering.
Other than the $1,120,000 Convertible Notes, 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, requires monthly interest
payments of approximately $5,300 and is due February 22, 1998. The note is
secured by the Company's assets. As a result of the Company's net income for the
fiscal year ended January 26, 1997 of $354,524, the accumulated deficit
decreased from $1,716,031 at January 28, 1996 to a deficit of $1,361,507 at
January 26, 1997. However, although the Company's equity increased by the
$225,000 proceeds realized from the bridge offering in June, 1996, the December
27, 1996 repurchase of 189,180 common shares as discussed above for a total
consideration of $624,325, resulted in a net reduction of stockholders' equity
in the 1997 fiscal year from $1,042,204 at January 28, 1996 to $997,403 at
January 26, 1997.
Net cash provided by operating activities improved for the fiscal year ended
January 26, 1997 to $1,093,363 as compared to net cash provided by operating
activities of $284,890 for the fiscal year ended
21
<PAGE>
January 28, 1996. The principal cause of the change in cash flow generated by
operations for the fiscal years ended January 26, 1997 and January 28, 1996 was
the increase in accounts payable and other accrued liabilities of $901,609 and
$99,834. The improvement in cash generated by operations also reflects the
reduction of overhead costs by approximately $132,000, and an improvement from
an operating loss for the fiscal year ended January 28, 1996 of $37,298 to an
operating income of $326,439 for the fiscal year ended January 26, 1997.
During the fiscal year ended January 26, 1997, the Company invested
$1,332,575 in capital equipment, which reflects the investments in leasehold
improvements, furniture and equipment discussed above.
Net cash provided by financing activities for the fiscal years ended January
26, 1997 and January 28, 1996 was $123,589 and $36,281, respectively. The change
of $87,308 represents the net effect of the Company obtaining additional
financing during fiscal 1997 of approximately $1,345,000 from a $225,000
convertible preferred stock offering in June, 1996 and the issuance of
convertible promissory notes of $1,120,000 on December 27, 1996. As discussed
above, $624,325 of the funds were utilized to repurchase 189,180 shares of
common stock to facilitate the Company's listing on the NASDAQ Stock Market. The
remainder of the funds were used to finance the Company's retail chain
expansion, and to fund a portion of the Company's deferred offering costs of
$425,423 at January 26, 1997.
The foregoing resulted in a decrease in the Company's cash position of
$115,623 from $327,198 January 28, 1996 to $211,575 at January 26, 1997
At January 26, 1997, the Company had a net operating loss carryforward
("NOL") for federal tax purposes of approximately $298,000 that may be utilized
to offset future profits. Due to the public offering, the usage of the NOL will
be limited under Section 382 of the Internal Revenue Code.
As mentioned above, during the months of August through December, 1996, the
Company opened six additional retail locations. These locations are at the Park
Meadows Mall in Denver, Colorado, the Coastland Center in Naples, Florida,
Sawgrass Mills in Sunrise, Florida, Bayside Marketplace in Miami, Florida, Menlo
Park in Edison, New Jersey, and Garden State Plaza in Paramus, New Jersey. In
addition, during the month of February, 1997 the Company opened three additional
locations, one at the Rio Hotel and Casino in Las Vegas, Nevada, one at
Beachplace, Fort Lauderdale, Florida, and one location at Miami International
Mall in Miami, Florida. The Company has executed four additional leases to open
new locations in the second quarter of fiscal 1998. These stores will be located
in Orange County, California, Ft. Lauderdale, Florida and Washington, DC. Other
sites are currently being evaluated. 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.
The Company intends to use the proceeds from this offering to retire
$1,120,000 in Convertible Notes and $250,000 in other long- and short-term
obligations. The balance of offering proceeds will be used 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 sustain profitability in the future depends, to a large
extent, upon realizing economies from expansion without proportionate increases
in general and administrative expenses, the largest use of the proceeds from the
financing will be utilized to expand the number of stores to approximately 42
within the next 8 to 12 months. The Company believes the proceeds from this
offering, along with cash flow generated by operations will be sufficient to
meet the Company's capital needs over the next 12 months.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, the percentage
relationship between selected items in the Statements of Operations to revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY FISCAL YEAR ENDED JANUARY
28, 1996 26, 1997
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Total revenues.............................................. $ 9,069,840 100% $ 9,773,700 100%
Cost of goods sold.......................................... 2,690,658 29.7% 2,823,733 28.9%
Gross margin................................................ 6,379,182 70.3% 6,949,967 71.1%
Operating expenses.......................................... 6,416,480 70.7% 6,623,528 67.8%
Operating income (loss)..................................... (37,298) (3.1)% 326,439 3.3%
Other income (expenses), net................................ (279,924) nil 6,465 nil
Income tax benefit.......................................... 161,000 1.88 % 8,000 nil
Income (loss) before discontinued operations................ (156,222 ) (1.7 )% 340,904 3.5 %
Net income available to common shareholders................. 114,219 1.3 % 341,949 3.5 %
Net income per common share................................. .23 .44
</TABLE>
RESULTS OF OPERATIONS--FISCAL 1997 COMPARED TO FISCAL 1996
The Company's revenues increased from $9,069,480 for the period ended
January 28, 1996 to $9,773,700 for the fiscal year ended January 26, 1997, an
increase of $704,220 or 7.8%. The Company's revenues of $9,773,700 reflect the
26 retail locations that were open for the entire fiscal year and the additional
six locations opened during the third and fourth quarter of fiscal 1997. In
August, 1996, the Company opened its 27th location at the new Park Meadows Mall
in Denver, Colorado. In November, 1996, the Company opened three additional
locations, at the Coastland Center in Naples, Florida, at Sawgrass Mills,
Sunrise, Florida, and at the Bayside Galleria in Miami, Florida. In December,
1996 the Company opened two locations in New Jersey, one at Garden State Plaza,
in Paramus, New Jersey and one location at the Menlo Park Mall in Edison, New
Jersey.
During fiscal 1997, management's focus was to a large extent directed on the
expansion of the Company's retail chain and also on the Company's secondary
financing. As a result, wholesale revenues decreased in the period from $111,033
at January 28, 1996 to $33,856 at January 26, 1997, a decrease of $77,177. Upon
completion of the proposed financing, management expects to devote additional
personnel and resources to develop its wholesale business. However, for the next
twelve months, the wholesale business is expected to remain a small percentage
of the Company's total revenues.
For the fiscal year ended January 26, 1997, the Company's same store sales
(consisting of 26 stores) increased by 3.8% or approximately $320,000. The same
store sales increase can be attributed to a continued improvement in the
Company's merchandising strategy, focusing mainly on high quality, designer
inspired jewelry collections, and the remodeling of three locations in fiscal
1997.
Although management expects that same store sales will continue to increase
in the future, especially as existing stores are remodeled and refixtured, it is
anticipated that any material future increase in total sales will depend on the
Company's ability to expand its number of stores. The Company expects that over
the next twelve months planned store expansion will not require a proportionate
increase in corporate overhead expenses.
For the fiscal year ended January 26, 1997, cost of goods sold was
$2,823,733, and the gross margin was $6,949,967, or approximately 71.1%. For the
fiscal year ended January 28, 1996, cost of goods sold was $2,960,658, and the
gross margin was $6,379,182, or approximately 70.3%. Included in cost of goods
sold are inventory shrinkage of $51,723 and $84,292 for the fiscal years ending
January 28, 1996 and January 26, 1997, respectively. Management attributes the
improvement in gross margin of 0.8% to less promotional activity and improved
buying opportunities offering lower merchandise costs.
23
<PAGE>
Selling, general and administrative expenses were $6,079,410 and $6,330,097
for the fiscal years ended January 28, 1996 and January 26, 1997, respectively.
As a percentage of revenues, selling, general and administrative expenses
decreased from 67.0% in fiscal 1996 to 64.8% in fiscal 1997. The percentage
decrease reflects the Company's ability to add additional retail locations
without a proportionate increase in corporate overhead expenses as discussed
above. The majority of the selling and administrative expenses are comprised of
personnel expenses which amounted to $2,898,069 and $2,945,431 in fiscal 1996
and fiscal 1997 respectively. The other major operating expense category is
occupancy costs, which was $1,974,316 and $2,067,726 for the fiscal years ending
January 28, 1996 and January 26, 1997, respectively. Depreciation and
amortization expense was $337,070 and $293,431 for fiscal 1996 and fiscal 1997,
respectively. The decrease of $43,639 is representative of a reduced depreciable
asset base, and the addition of new stores late in the fiscal 1997 year.
Included in selling, general and administrative expenses are corporate
overhead expenses in the amount of $1,386,611 and $1,518,416 for the fiscal
years ended January 26, 1997 and January 28, 1996, respectively, which
represents a decrease of $131,715. As a percentage, corporate overhead expenses
decreased from 16.7% of revenues in fiscal 1996 to 14.2% for fiscal 1997. The
Company attributes the decrease in corporate overhead expenses to lower
personnel and occupancy costs realized from the relocation of the corporate
offices from California to Colorado in January, 1996.
As a result of the foregoing, the Company's operating results improved from
an operating loss of $37,298 for the year ended January 28, 1996 to an operating
profit of $326,439 for the year ended January 26, 1997, an improvement of
$363,737 over the prior year.
Net interest expense was $116,722 and $108,180 for the fiscal years ended
January 26, 1997, and January 26, 1996, respectively. The increase of $8,542
represents additional interest expense incurred from the execution of the
$1,120,000 convertible notes on December 27, 1996, which interest is 12% or
approximately $11,200 per month. As discussed above, the Company utilized the
majority of the net proceeds from this financing to repurchase 189,180 common
shares for a total purchase price of $624,325, while the remainder of $417,275
was used to finance new store expansion. The Company's gain on marketable
securities of $12,264 at January 26, 1997 compared to a loss of $182,643 at
January 28, 1996 related to the Company's holdings in Global Casinos, Inc.
During fiscal 1997, the Company sold most of its holdings of these securities,
and intends to liquidate its remaining position as market conditions permit.
For the fiscal year ended January 26, 1997, the Company recorded gains on
settlements of $55,626. Gains on settlements includes a gain of approximately
$25,000 which represented a final settlement of a recorded liability and funds
held in escrow that were used to satisfy certain liabilities to unsecured
creditors of the predecessor company. Gains in settlements also includes gains
from debt settlements of approximately $26,000 realized from settlements with
former franchisees.
For the fiscal year ended January 26, 1997, other income was $55,297
compared to $10,889 for the same twelve month period in fiscal 1996. Other
income also included $25,000 in license fees from three former franchisees who
operate five independent Impostors locations. These former franchisees have
executed license agreements with the Company which entitle them to use the
Impostors name to operate their stores for one year. The license fee for one
store is $5,000 annually, which agreements may be renewed annually at the
Company's discretion. The Company recently renewed these agreements to extend
until February 1, 1998. As a result of the foregoing, income before discontinued
operations, net of income tax benefit was $340,904 compared to a loss of
$156,222 for fiscal 1996.
During fiscal 1997, the Company had no income tax expenses on income before
taxes of $354,524. The zero tax effect was the direct result of a decrease in
the Company's deferred tax valuation allowance from January 28, 1996 to January
26, 1997 (see Note 7 to the Financial Statements). Assuming that the Company did
not have a deferred tax valuation allowance at January 28, 1996, the Company's
income tax expense for fiscal 1997 would have been approximately $128,000. The
Company's net deferred tax asset at
24
<PAGE>
January 26, 1997 was $110,000 and is partially offset by a valuation allowance
of $71,000. The Company will continue to evaluate its net deferred tax asset
allowance based upon the results of future operations.
Income from discontinued operations of $13,620 and $270,441 for fiscal 1997
and fiscal 1996, respectively, represents negotiated settlements with creditors
relating to the Company's previous gaming operations.
Based on the foregoing, the Company reported a net income available to
common shareholders of $341,949 for the fiscal year ended January 26, 1997,
which translates to a net income per share of $.44 based on weighted average
shares outstanding of 777,408. For the fiscal year that ended January 28, 1996,
net income available to common shareholders was $114,219 or $.23 per share,
based on 495,800 weighted average shares outstanding.
The Company's continued profitability will depend on the Company's ability
to further expand its number of retail locations in profitable markets, its
ability to generate favorable lease cost/sales ratios, its ability to continue
to control overhead expenses and its capability to take advantage of other
distribution opportunities.
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.
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 recoverability would be performed. If an evaluation
is required, the estimated future 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 January 26, 1997 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.
25
<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 35 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, Florida,
Louisiana, Maryland, Missouri, Nevada, New Jersey, Washington and in the
Washington, D.C. area. The largest and most visible store is located in the
prime retail area of San Francisco's Union Square. During the period from August
30, 1996, to February 15, 1997 the Company opened nine additional retail
locations, bringing the current total to 35 stores. In addition, the Company has
entered into leases for four new retail stores in California, Florida, and
Washington, D.C., scheduled to open over the next four months.
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, acquired three
stores and opened 11 new stores and implemented a new merchandizing strategy.
These actions have improved the Company's results of operations from an
operating loss of $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, to
operating income of $326,439 for the fiscal year ended January 26, 1997.
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.
26
<PAGE>
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, Imposters redirected
its focus to present 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
karat 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, California. During 1996,
the Company completed three remodelings. In addition, the Company's new stores
will incorporate its new interior design.
The Company plans to remodel six additional stores over the next 12 months,
at an average estimated cost of $40,000 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 six to eight new Impostors stores in existing and new markets
over the next 12 months. Since August 30, 1996, the Company has opened 11
additional retail stores and four more are planned in California, Florida and
Washington, D.C., and are scheduled to open over the next four months. Other
potential real estate sites in Florida, Massachusetts, Nevada 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
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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 eight 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 99% 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 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
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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 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
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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 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 13 faux jewelry stores, 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 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.
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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 approximately 110 full-time and 120 part-time
employees, of which 17 are employed in the Company's corporate offices. In
addition, the Company typically hires additional part-time employees during the
peak holiday season. 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
eight 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, 1999. She receives a base
salary of $7,500 per month, which will increase to $10,833 per month the earlier
of June 20, 1997 or the completion of this offering. She is also 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 15,000 are vested, and 5,000 will
vest in March, 1998, and incentive stock options exercisable to purchase an
additional 25,000 shares at a price of $3.25 per share, of which 15,000 will
vest on June 20, 1997 and 10,000 will vest on June 20, 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 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 15 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 current and former 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.
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The Company's 39 current and committed retail locations are or will be
operated under commercial leases with expiration dates ranging from 1997 to
2007. Store size varies from 310 to 1,200 square feet with annual sales ranging
from $220,000 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. All of the 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 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 three of the Company's former 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.
In the past, the Company has engaged in discussions with third parties
regarding possible business combinations. The Company has been informed by one
such third party that it may commence a civil action based upon a claim that
there exists an enforceable agreement with the Company to effect a business
combination. Since the Company has no signed agreements with any party and there
exist no documents evidencing any meeting of the minds or intention to be bound
to any such agreements, the Company disputes that there exists any enforceable
agreement with any third party with respect to any possible business
combination. While the Company cannot predict if a civil action will, in fact,
be commenced, if sued the Company will vigorously defend any such action. The
Company has agreed to indemnify the Underwriters and their agents and affiliates
from any liability incurred in connection with any proceeding which may be
brought by such third party.
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 were no 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.
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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:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- ----------- -----------------------------------------------------------
<S> <C> <C>
Sissel B. Greenberg.................. 38 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
</TABLE>
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.
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.
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From 1975 to 1980, he was Senior Vice-President of Atherton 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 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 Simona Katz
Yuffa. 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.
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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. Effective
fiscal 1998, the options issuable to outside Directors under the Formula Plan
were increased to 10,000 for each Director. 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.
Further, during fiscal 1997 the Company has issued under the Formula Plan
additional options to one outside director exercisable to purchase 5,000 shares
of Common Stock at an exercise price of $3.25 per share.
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 $100,000.
36
<PAGE>
TABLE 1
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION (2)(3)
----------------------------------- AWARDS
OTHER ------------------------
ANNUAL RESTRICTED PAYOUTS
COMPEN- STOCK -------------
SALARY SATION AWARD(S) OPTIONS/ LTIP PAYOUTS
NAME AND PRINCIPAL POSITION FISCAL YEAR ($)(1) BONUS ($) ($) ($) SARS(4) ($)
- ----------------------------------- ----------- --------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sissel B. Greenberg, 1997 $ 90,000 -0- -0- -0- 20,000 -0-
1996 $ 76,750 -0- $ 6,312 $ 4,500 -0- -0-
President 1994 $ 32,953 -0- -0- $ 1,000 40,000 -0-
<CAPTION>
ALL OTHER
COMPEN- SATION
NAME AND PRINCIPAL POSITION ($)
- ----------------------------------- -------------
<S> <C>
Sissel B. Greenberg, -0-
-0-
President -0-
</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 and will be increased to $10,833 the earlier
of June 20, 1997 or the completion of this offering. 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 85,000 shares of the Company's Common Stock at
a weighted average exercise price of $2.43 per share under the Company's
Stock Incentive Plan, 55,000 of which are fully vested as of the date of
this Prospectus.
The Company currently has a written Employment Agreement with its President,
expiring June 20, 1999. The Company has no key man life insurance covering any
of its officers or employees.
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 Prospectus, 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
37
<PAGE>
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
196,000 shares of the Company's Common Stock are reserved for issuance upon the
exercise of options granted under the Plan having a weighted average exercise
price of $2.55 per share.
As of the date of this Prospectus, incentive stock options to purchase
166,000 shares of Common Stock were outstanding and unexercised, having a
weighted average exercise price of $2.54 per share. Of these incentive stock
options, 55,000 are subject to future vesting.
No officer of the Company receives any additional compensation for his
services as a Director. The Company has no retirement, pension, profit sharing
or insurance or medical reimbursement plans covering its Directors.
38
<PAGE>
The following table sets forth certain information concerning the exercise
of incentive stock options during the fiscal year ended January 26, 1997 by each
of the named executive officers and the fiscal year-end value of unexercised
options on an aggregated basis:
TABLE 2
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS (#) FY-END($)(1)
------------------ -----------------
SHARES ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------- ------------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Sissel B. Greenberg.......................... -0- $ -0- 55,000/30,000(2) $ -0-
</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) Includes options exercisable to purchase 20,000 shares of Common Stock at a
price of $2.50 granted in March, 1996, of which 5,000 options are subject to
future vesting, and an additional 25,000 options granted in January, 1997,
exercisable at a price of $3.25 per share which are subject to future
vesting.
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 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.
39
<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 have been deemed a principal shareholder of the
Company by virtue of 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
40
<PAGE>
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 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.
PRIVATE OFFERING--INVESTOR GUARANTEES
On September 30, 1995, the Company entered into an Investment Term Sheet
("ITS") with Redwood Microcap Fund, Inc. ("Redwood"), a former principal
shareholder of the Company. 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.
41
<PAGE>
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.
STOCK REDEMPTION
On December 27, 1996, the Company completed the Bridge Note Financing from
which it utilized $624,325 of net proceeds to redeem from certain former
securityholders an aggregate of 189,180 shares of Common Stock and 32,500 Class
C Warrants. The redemption consisted of all the equity securities of the Company
owned by these former securityholders, and was undertaken by the Company to
expedite this offering and the Company's application to have its securities
listed on NASDAQ. The price paid to these former securityholders in connection
with this redemption was $3.25 per share of Common Stock and an aggregate
redemption price of $10,000 for all 32,500 Class C Warrants.
42
<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
---------------------------------------------------
PERCENT(1)
--------------------------------------
NAME & ADDRESS OF BENEFICIAL OWNER NUMBER BEFORE OFFERING AFTER OFFERING(2)
- ------------------------------------------------------------ ----------- ----------------- -------------------
<S> <C> <C> <C>
Sissel B. Greenberg(3)...................................... 60,600 9.8% 3.5%
3033 S. Parker Rd., #120
Aurora, CO 80014
William Nandor(4)........................................... 8,000 1.4% 0.5%
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, CO 80014
Todd Huss(5)................................................ 15,000 2.6% 0.9%
3033 S. Parker Rd., #120
Aurora, Colorado 80014
Raymond D. Hand(6).......................................... 57,500 10.0% 3.4%
310 Radford Place
Knoxville, Tennessee 37927
Banca Adamas S.A............................................ 80,000 14.3% 4.8%
Via Nassa 42
6901 Lugano, Switzerland
AMC Consumer(7)............................................. 61,224 10.5% 3.6%
One Main Street, Suite 312
Eatontown, NJ 07724
Caribou Bridge Fund(8)...................................... 33,114 5.8% 2.0%
5350 S. Roslyn Street, #380
Englewood, CO 80111
Lee Schlessman(9)........................................... 35,714 6.0% -0-
1301 Pennsylvania St., #800
Denver, CO 80203
Gary C. Batz(9)............................................. 53,570 8.7% -0-
c/o Fike Corporation
704 S. 10th Street
Blue Springs, FL 64015
Directors and Officers as 83,600 13.1%
a Group (5 persons)....................................... 4.8%
</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.
43
<PAGE>
(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 55,000 shares of the Company's
Common Stock at a weighted average exercise price of $2.05 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 30,000 shares of the
Company's Common Stock at an exercise prices ranging from $2.50 to $3.25 per
share which vest through 1998.
(4) Includes unqualified stock option exercisable to purchase 5,000 shares of
Common Stock at an exercise price of $3.25 per share.
(5) Consists of Incentive Stock Options exercisable to purchase 15,000 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
20,000 shares of Common Stock at an exercise prices ranging from $2.50 to
$3.25 per share which are not yet vested.
(6) 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.
(7) Includes Class B Warrants exercisable to purchase 20,408 shares of Common
Stock at an exercise price of $5.00 per share. Each B Warrant will
automatically be exchanged for two Warrants upon the effective date of the
registration statement of which this Prospectus forms a part.
(8) Includes Class B Warrants exercisable to purchase 10,204 shares of Common
Stock at an exercise price of $5.00 per share. Each B Warrant will
automatically be exchanged for two Warrants upon the effective date of the
registration statement of which this Prospectus forms a part.
(9) Consists entirely of Class B Warrants purchased as part of the Bridge Note
Financing. Assumes all Warrants issued in exchange for the Class B Warrants
are sold in the Selling Shareholders' Offering.
44
<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, 560,167 shares of Common Stock and
416,670 shares of Series A Convertible Preferred Stock were issued and
outstanding. However, immediately upon the date of this Prospectus the 416,670
shares of Preferred Stock will automatically convert into 102,041 shares of
Common Stock.
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 shares of Series A
Convertible Preferred Stock (the "Convertible Preferred Stock") which were
issued to investors in the Bridge 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
45
<PAGE>
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.
12% CONVERTIBLE PROMISSORY NOTE
The Company has issued an aggregate of $1,120,000 in 12% Convertible
Promissory Notes. Each Convertible Promissory Note accrues interest at a rate of
12% per annum, payable quarterly. The total outstanding balance of principal and
any accrued and unpaid interest is due and payable December 26, 1999. Holders of
the Notes have the option to convert the outstanding principal balance of the
Notes into shares of the Company's Common Stock at any time commencing the
earlier of (i) December 27, 1997, or (ii) upon the effective date of the
Registration Statement registering for sale under the Securities Act the
Conversion Shares. The conversion value at which the principal amount of the
Convertible Notes is convertible is initially $2.80 per share of Common Stock,
subject to adjustment under certain circumstances; provided, however, that if
either the Company fails to consummate a public offering on or before June 30,
1997 or the Company fails to retire the Notes on or before the Maturity Date,
the conversion value shall be reduced to $1.00 per share of Common Stock after
either such event. The obligation of the Company to repay the Convertible Notes
is secured by a subordinated security interest encumbering all of the Company's
tangible and intangible assets. The Company has agreed to repay the Convertible
Notes out of the proceeds of this offering.
CLASS A WARRANT
The Board of Directors has authorized the issuance of up to 1,858,334
Warrants, including 1,100,000 Warrants offered hereby, 165,000 Warrants subject
to the Over-Allotment Option, 110,000 Warrants subject to the Representative's
Securities and 483,334 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 $5.00. 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
46
<PAGE>
every two Warrants exercised, subject to any adjustment required by the Warrant
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 after 12 months from the date of this
Prospectus 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 ending within 30 days 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, 241,667 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
and the Bridge Note Financing. 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.
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.
47
<PAGE>
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,
1997 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.
48
<PAGE>
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
This Prospectus relates to the resale to the public of 102,041 shares of
Common Stock and 483,334 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
BENEFICIALLY OWNED CLASS A SHARES
AS OF OFFERING SHARES WARRANTS BENEFICIALLY OWNED
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.(2) .................................. 28,742 5.1% 20,409 16,667 2,500 nil
5350 S. Roslyn Street, #380
Englewood, CO 80111
Corporate Communications(3) ..................................... 21,988 3.9% 15,613 12,751 -0- -0-
Network, Inc.
36 Tacoma Circle
Littleton, CO 80127
AMC Consumer(4) ................................................. 57,483 10.0% 40,816 33,334 -0- -0-
One Main Street, Suite 312
Eatontown, NJ 07724
Ralph H. Grills, Jr.(5) ......................................... 14,370 2.5% 10,204 8,333 -0- -0-
4155 East Jewell Ave., #1115
Denver, CO 80222
Rickey Chow(6) .................................................. 7,041 1.3% 5,000 4,083 -0- -0-
2135 E. California Street
San Marino, CA 91108
J.D. Bilberg Trust(6) ........................................... 7,041 1.3% 5,000 4,083 -0- -0-
Century City Trust Company, Ltd.
19800 MacArthur Blvd., #1450
Irvine, CA 92612
John Shaffer(6) ................................................. 7,041 1.3% 5,000 4,083 -0- -0-
7803 E. Lewis Street
Scottsdale, AZ 85257
Lee Schlessman(7) ............................................... 35,714 6.0% -0- 71,428 -0- -0-
1301 Pennsylvania St., #800
Denver, CO 80203
Estate of Fannabelle Z. Robineau, ............................... 17,856 3.1% -0- 35,712 -0- -0-
Acct. #30160855(7)
Larry C. Serr, Personal Rep.
12265 W. Bayaud Ave., #240
Lakewood, CO 80228
Estate of Fannabelle Z. Robineau, ............................... 8,929 1.6% -0- 17,858 -0- -0-
Acct. #30160860(7)
Larry C. Serr, Personal Rep.
12265 W. Bayaud Ave., #240
Lakewood, CO 80228
Cal Rickel & Amanda Mae Rickel, ................................. 8,929 1.6% -0- 17,858 -0- -0-
JTWROS(7)
P.O. Box 1076
Cortez, CO 81321
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
OFFERING SHARES
BENEFICIALLY OWNED CLASS A SHARES
AS OF OFFERING SHARES WARRANTS BENEFICIALLY OWNED
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>
Gary Schlessman(7) .............................................. 8,929 1.6% -0- 17,858 -0- -0-
Lee Schlessman, POA
1301 Pennsylvania St., #800
Denver, CO 80203
Gary Schlessman Irrevocable Trust ............................... 8,929 1.6% -0- 17,858 -0- -0-
Dtd. 4/5/94(7)
Gerald D. Marrs, TTEE
1301 Pennsylvania St., #800
Denver, CO 80203
Susan Duncan(7) ................................................. 8,929 1.6% -0- 17,858 -0- -0-
2651 S. Wadsworth Circle
Lakewood, CO 80227
Susan M. Duncan, TTEE(7) ........................................ 8,929 1.6% -0- 17,858 -0- -0-
FBD Susan M. Duncan
Irrevocable Gift Trust Dtd. 12/28/73
2651 S. Wadsworth Circle
Lakewood, CO 80227
Sandra Garnett(7) ............................................... 8,929 1.6% -0- 17,858 -0- -0-
Les Schlessman, POA
1301 Pennsylvania St., #800
Denver, CO 80203
Cheryl Bennett(7) ............................................... 8,929 1.6% -0- 17,858 -0- -0-
Less Schlessman, POA
1301 Pennsylvania St., #800
Denver, CO 80203
Frederick A. Esgar & Jayne S. ................................... 5,000 0.9% -0- 10,000 -0- -0-
Esgar, JTWROS(7)
S. Jayne Esgar
P.O. Box 215
Wiley, CO 81092
Cord Investment Company(7) ...................................... 16,428 2.9% -0- 32,856 -0- -0-
Attn: Marvin Pepper
1660 S. Albion St., Suite 412
Denver, CO 80222
Gary C. Batz(7) ................................................. 53,570 8.7% -0- 107,140 -0- -0-
c/o Fike Corporation
704 S. 10th Street
Blue Springs, FL 64015
</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.
(2) Includes Class B Warrants exercisable to purchase 8,333 shares of Common
Stock at an exercise price of $5.00 per share. Each B Warrant will
automatically be exchanged for two Warrants upon the effective date of the
registration statement of which this Prospectus forms a part.
(3) Includes Class B Warrants exercisable to purchase 6,375 shares of Common
Stock at an exercise price of $5.00 per share. Each B Warrant will
automatically be exchanged for two Warrants upon the effective date of the
registration statement of which this Prospectus forms a part.
(4) Includes Class B Warrants exercisable to purchase 16,667 shares of Common
Stock at an exercise price of $5.00 per share. Each B Warrant will
automatically be exchanged for two Warrants upon the effective date of the
registration statement of which this Prospectus forms a part.
(5) Includes Class B Warrants exercisable to purchase 4,166 shares of Common
Stock at an exercise price of $5.00 per share. Each B Warrant will
automatically be exchanged for two Warrants upon the effective date of the
Registration Statement of which this Prospectus forms a part.
50
<PAGE>
(6) Includes Class B Warrants exercisable to purchase 2,041 shares of Common
Stock at an exercise price of $5.00 per share. Each B Warrant will
automatically be exchanged for two Warrants upon the effective date of the
Registration Statement of which this Prospectus forms a part.
(7) Consists entirely of Class B Warrants purchased as part of the Bridge Note
Financing. Each Class B Warrant will automatically be exchanged for two
Warrants upon the effective date of the Registration Statement of which this
Prospectus forms a part.
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 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
1,100,000 Shares of Common Stock and 1,100,000 Warrants being offered by the
Company through the Representative in the offering.
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.
51
<PAGE>
EXPERTS
The financial statements of the Company as of January 26, 1997, and for the
fiscal years ended January 28, 1996 and January 26, 1997, 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.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITOR'S REPORT............................................................................... F-2
BALANCE SHEET--As of January 26, 1997...................................................................... F-3
STATEMENTS OF OPERATIONS--For the Fiscal Years Ended January 28, 1996 and January 26, 1997................. F-4
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY--For the Fiscal Years Ended January 28, 1996 and January 26,
1997..................................................................................................... F-5
STATEMENTS OF CASH FLOWS--For the Fiscal Years Ended January 28, 1996 and January 26, 1997................. F-6
NOTES TO FINANCIAL STATEMENTS.............................................................................. F-7
</TABLE>
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 26, 1997, and the related statements of operations, changes in
stockholders' equity, and cash flows for the years ended January 28, 1996 and
January 26, 1997. 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 26, 1997, and the results of its operations and its cash flows for
the years ended January 28, 1996 and January 26, 1997, in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
April 2, 1997
F-2
<PAGE>
PREMIER CONCEPTS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 26,
1997
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................ $ 211,575
Marketable securities............................................................................ 6,813
Merchandise inventories.......................................................................... 1,749,643
Prepaid expenses and other....................................................................... 118,536
-------------
Total current assets......................................................................... 2,086,567
PROPERTY AND EQUIPMENT, net........................................................................ 2,033,939
OTHER ASSETS:
Trademarks, net of accumulated amortization of $56,167........................................... 87,833
Deferred offering costs.......................................................................... 425,423
Deferred tax asset............................................................................... 39,000
Other............................................................................................ 139,012
-------------
TOTAL ASSETS....................................................................................... $ 4,811,774
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt:
Related parties................................................................................ $ 74,420
Other.......................................................................................... 263,312
Accounts payable................................................................................. 1,153,495
Accrued liabilities.............................................................................. 427,281
-------------
Total current liabilities.................................................................... 1,918,508
LONG-TERM DEBT, less current portion............................................................... 1,792,624
DEFERRED RENT...................................................................................... 103,239
-------------
Total liabilities............................................................................ 3,814,371
-------------
COMMITMENTS (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value, 20,000,000 shares authorized; 416,670 shares issued and
outstanding at January 26, 1997................................................................ 41,667
Common stock, $.002 par value; 850,000,000 shares authorized; 560,167 shares issued and
outstanding.................................................................................... 1,120
Additional paid-in capital....................................................................... 2,316,123
Accumulated deficit.............................................................................. (1,361,507)
-------------
Total Stockholders' Equity................................................................... 997,403
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................................... $ 4,811,774
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
PREMIER CONCEPTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------
JANUARY 28, JANUARY 26,
1996 1997
------------ ------------
<S> <C> <C>
NET REVENUES:
Retail.............................................................................. $ 8,958,807 $ 9,739,844
Wholesale........................................................................... 111,033 33,856
------------ ------------
Total revenues.................................................................... 9,069,840 9,773,700
COST OF GOODS SOLD.................................................................... 2,690,658 2,823,733
------------ ------------
Gross margin........................................................................ 6,379,182 6,949,967
OPERATING EXPENSES:
Selling, general and administrative................................................. 6,079,410 6,330,097
Depreciation and amortization....................................................... 337,070 293,431
------------ ------------
Total operating expenses.......................................................... 6,416,480 6,623,528
------------ ------------
OPERATING INCOME (LOSS)............................................................... (37,298) 326,439
OTHER INCOME (EXPENSE):
Interest expense, net............................................................... (108,180) (116,722)
Gain (loss) on marketable securities, net........................................... (182,643) 12,264
Gain on settlements................................................................. -- 55,626
Other............................................................................... 10,899 55,297
------------ ------------
Other, net........................................................................ (279,924) 6,465
------------ ------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT AND DISCONTINUED OPERATIONS................... (317,222) 332,904
Income tax benefit.................................................................. 161,000 8,000
------------ ------------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS.......................................... (156,222) 340,904
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of income tax expense of
$161,000 and $8,000 for the years ended January 28, 1996 and January 26, 1997..... 270,441 13,620
------------ ------------
NET INCOME............................................................................ $ 114,219 $ 354,524
------------ ------------
------------ ------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS........................................... $ 114,219 $ 341,949
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE:
Before discontinued operations...................................................... $ (.31) $ .44
Discontinued operations............................................................. .54 .02
Dividends applicable to preferred stock............................................. -- (.02)
------------ ------------
Net income per common share....................................................... $ .23 $ .44
------------ ------------
------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................................ 495,800 777,408
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
PREMIER CONCEPTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 28, 1996 AND JANUARY 26, 1997
<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 30, 1995........... -- $ -- 434,388 $ 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............. -- -- 53,959 108 184,592 -- 184,700
Services......................... -- -- 27,000 54 44,946 -- 45,000
Net income......................... -- -- -- -- -- 114,219 114,219
--------- --------- ---------- --------- ------------ ------------- ------------
BALANCES, January 28, 1996........... -- -- 749,347 1,498 2,756,737 (1,716,031) 1,042,204
Preferred stock issued for
cash............................. 416,670 41,667 -- -- 183,333 -- 225,000
Redemption and cancellation of
common stock..................... -- -- (189,180) (378) (623,947) -- (624,325)
Net income......................... -- -- -- -- -- 354,524 354,524
--------- --------- ---------- --------- ------------ ------------- ------------
BALANCES, January 26, 1997........... 416,670 $ 41,667 560,167 $ 1,120 $ 2,316,123 $ (1,361,507) $ 997,403
--------- --------- ---------- --------- ------------ ------------- ------------
--------- --------- ---------- --------- ------------ ------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
PREMIER CONCEPTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
----------------------------
JANUARY 28, JANUARY 26,
1996 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $ 114,219 $ 354,524
Adjustments to reconcile net income to net cash from operating activities:
Stock for services.............................................................. 45,000 --
Gain on settlements of debt..................................................... -- (55,626)
Reduction of accounts payable--discontinued operations.......................... (431,441) (21,620)
Provision for store closure..................................................... 8,307 --
Depreciation and amortization................................................... 337,070 293,431
Deferred tax asset.............................................................. -- (39,000)
(Gain) loss on marketable securities............................................ 182,643 (12,264)
Other, net...................................................................... (13,201) (46,584)
Changes in operating assets and liabilities:
(Increase) decrease in:
Marketable securities, net.................................................... 156,374 50,564
Merchandise inventories....................................................... (197,665) (355,718)
Other assets.................................................................. (40,870) (23,033)
Increase (decrease) in:
Accounts payable and accrued liabilities...................................... 99,834 901,609
Other liabilities............................................................. 24,620 47,080
------------- -------------
Net cash provided by operating activities....................................... 284,890 1,093,363
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment................................... (165,137) (1,332,575)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs........................................................... -- (425,423)
Proceeds from the issuance of preferred stock..................................... -- 225,000
Proceeds from issuance of common stock............................................ 282,500 --
Proceeds from issuance of notes payable........................................... 100,000 1,130,000
Payment on notes payable.......................................................... (346,219) (181,663)
Redemption of common stock........................................................ -- (624,325)
------------- -------------
Net cash provided by financing activities....................................... 36,281 123,589
------------- -------------
INCREASE (DECREASE) IN CASH......................................................... 156,034 (115,623)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 171,164 327,198
------------- -------------
CASH AND CASH EQUIVALENTS, end of period............................................ $ 327,198 $ 211,575
------------- -------------
------------- -------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid for interest............................................................ $ 102,134 $ 111,744
------------- -------------
------------- -------------
Conversion of liabilities to equity securities.................................... $ 184,700 $ --
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS
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
had two common directors. 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 January 26, 1997 the Company
operated 32 retail stores with a geographic concentration of stores in
California, including one store in San Francisco, California that accounted for
approximately 17% and 14% of total revenues during the fiscal year ended January
28, 1996 and January 26, 1997, respectively.
FISCAL YEAR--The Company's year is a 52/53-week period ending on the last
Sunday in January. Fiscal year ended January 28, 1996 (fiscal 1996) and January
26, 1997 (fiscal 1997) 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.
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.
DEFERRED OFFERING COSTS--The amount represents costs incurred in connection
with a proposed public offering that was in process at January 26, 1997. This
amount will be offset against the proceeds if the offering is successful, or
expensed in operations if the offering is unsuccessful.
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 26, 1997 are common stock of Global. Realized
gain (loss) on marketable securities is determined based on specific
identification of securities sold.
The change in the net unrealized holding loss for the years ended January
28, 1996 and January 26, 1997 was $20,243 and $142,402, 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.
F-7
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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. Dilutive options, convertible preferred stock and
warrants have been included in the calculation of net income per common share
for the fiscal year ended January 28, 1996 and January 26, 1997.
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 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 or discounted cash flow value is
required. Adoption of FAS 121 had no effect on the January 26, 1997 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.
STOCK BASED COMPENSATION--In fiscal 1997, the Company adopted Financial
Accounting Standards Board "Accounting for Stock-Based Compensation" (FAS 123).
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 is subject only to the disclosure
requirements prescribed by FAS 123.
F-8
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. 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. 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 January 26, 1997, the Company had accounts payable of $80,884 and $45,865,
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 $209,000 and $-0-
during the years ended January 28, 1996 and January 26, 1997, respectively.
The Company also recorded approximately $222,000 and $24,000 of income during
the years ended January 28, 1996 and January 26, 1997, respectively, 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.
3. PROPERTY AND EQUIPMENT:
At January 26, 1997, property and equipment consists of the following:
<TABLE>
<S> <C>
Furniture, fixtures and equipment............................... $1,145,577
Leasehold improvements.......................................... 1,749,882
---------
2,895,459
Less accumulated depreciation................................... (861,520)
---------
$2,033,939
---------
---------
</TABLE>
Depreciation expense for the years ended January 28, 1996 and January 26,
1997 was $316,670 and $269,044, respectively.
4. NOTES PAYABLE AND LONG-TERM DEBT:
At January 26, 1997, notes payable and long-term debt consist of the
following:
<TABLE>
<S> <C>
RELATED PARTIES
Note payable to a stockholder, at 12% principal and interest due
December 31, 1996. The Company has been in discussions with the
noteholder to extend the maturity date of the note.................... $ 35,500
Notes and advances payable to stockholders of the Company, payable on
demand, non-interest bearing.......................................... 28,920
Other................................................................... 10,000
---------
Total related parties--all current.................................. $ 74,420
---------
---------
</TABLE>
F-9
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE AND LONG-TERM DEBT: (CONTINUED)
<TABLE>
<S> <C>
OTHER
Convertible notes payable. Interest payable quarterly at 12%. Principal
due December 26, 1999 (see further discussion below).................. $1,120,000
Note payable to a bank, interest payable monthly at 10%, principal
payable in February 1998, collateralized by cash and inventory........ 635,000
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 former stockholders of the Company...................... 111,414
Note payable to a entity, interest payable monthly at 12%, principal
payable in January 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
Note payable to an entity, payable in monthly installments of $10,000
plus accrued interest at 12%. Principal due October 5, 1996. The
Company has been in discussions with the noteholder to pay off the
note with the proceeds of the offering................................ 60,000
Other................................................................... 29,522
---------
2,055,936
Less current portion.................................................... (263,312)
---------
$1,792,624
---------
---------
</TABLE>
Principal payments on the above obligations at January 26, 1997 are due as
follows:
<TABLE>
<CAPTION>
RELATED
PARTIES OTHER
--------- ------------
<S> <C> <C>
1998........................................................................... $ 74,420 $ 263,312
1999........................................................................... -- 661,541
2000........................................................................... -- 1,131,083
--------- ------------
$ 74,420 $ 2,055,936
--------- ------------
--------- ------------
</TABLE>
On December 27, 1996, the Company completed the sale of $1,120,000 in
Convertible Notes and 200,000 Class B Warrants, realizing net proceeds of
$1,041,600. From the net proceeds, the Company utilized $624,325 to redeem an
aggregate of 189,180 shares of Common Stock and 32,500 Class C Warrants from
certain former securityholders. The Convertible Notes bear interest at the rate
of 12% per annum, payable quarterly and are convertible into shares of Common
Stock commencing April 1, 1997, at the option of the holder, at a conversion
value of $2.80 per share. However, if (i) the Company fails to complete a public
offering of its securities by June 30, 1997 or (ii) the principal balance of the
Convertible notes is not retired by the Company by their maturity date, the
conversion value is reduced to $1.00 per share. The Company has agreed to retire
the Convertible Notes from the proceeds of a proposed public offering. Unless
earlier converted or retired, the Convertible Notes mature and become due and
payable on December 26, 1999. The obligation of the Company to repay the
Convertible Notes is collateralized by a subordinated security agreement
covering all of the Company's tangible and intangible assets.
F-10
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS:
LEASE COMMITMENTS--The Company leases its offices and retail facilities
under operating leases for terms expiring at various dates from 1997 to 2012.
The corporate office lease has been guaranteed by a director and certain former
directors of the Company. The aggregate minimum annual lease payments under
leases for the fiscal year are as follows:
<TABLE>
<S> <C>
1998................................................... $2,138,431
1999................................................... 2,065,399
2000................................................... 1,991,567
2001................................................... 1,781,665
Thereafter............................................. 5,351,257
----------
Total minimum lease payments........................... $13,328,319
----------
----------
</TABLE>
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 $1,977,718 and $2,067,727 for the years ended January 28,
1996 and January 26, 1997, 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 the year ended January 28, 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.
6. STOCKHOLDERS' EQUITY:
STOCK REDEMPTION--During December 1996, the Company redeemed from certain
securityholders, 189,180 shares of its common stock and 32,500 of its Class C
warrants for $624,325.
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.
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 entitle the holder to
purchase one share of common stock at $5 per share and are 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, 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--In December 1996, the Company's shareholders approved a 1 for
5 reverse stock split and a change in the par value from $.0004 to $.002 per
share. Accordingly, all common stock reflected in the accompanying financial
statements and notes reflect this reverse split.
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
F-11
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY: (CONTINUED)
purchase price of $10.00 per share, exercisable through December 31, 1995. The
Company has extended the term of the warrants to December 31, 1997. As discussed
above, the Company redeemed warrants for the purchase of 32,500 shares of common
stock for $10,000.
During the year ended January 28, 1996, the Company sold in a private
placement, 234,000 shares of common stock at $1.25 per share. Also, during the
year ended January 28, 1996, the Company issued 53,959 shares of common stock in
settlement of liabilities and guarantees 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. The Company has agreed to register
102,041 shares, under the Securities Act of 1933.
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.
STOCK OPTION PLAN--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 June 20, 2001. An additional 20,000 incentive stock options
were granted to other employees in fiscal 1996 at $1.875 per share, which expire
in December 2000 and of which 7,000 were forfeited in fiscal 1997. All of these
options are currently vested. No options have been exercised.
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. During 1996,
20,000 of these options were canceled due to termination of an employee. Of the
remaining stock options for 60,000 shares of common stock, 30,000 of these
incentive stock options have vested immediately and 15,000 vest on each of the
first and second anniversary dates.
Subsequent to January 26, 1997, the Company granted incentive stock options
for 25,000 shares of common stock to the Company's president, at an exercise
price of $3.25 and which expire in January 2002. Options for the purchase of (i)
15,000 shares of common stock vest in June 1997, (ii) 10,000 shares of common
stock vest in June 1998.
Subsequent to January 26, 1997, the Company granted incentive stock options
for 28,000 shares of common stock to employees at an exercise price of $3.25,
and which expire in January 2002. Options for the purchase of (i) 13,000 shares
of common stock vested immediately, (ii) 10,000 shares of common stock vest in
January 1998, and (iii) 5,000 shares of common stock vest in January 1999.
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. During fiscal 1996, the Company issued options on a
total of 25,000
F-12
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY: (CONTINUED)
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 2000. During
fiscal 1997, the Board of Directors approved an increase in options from 5,000
to 10,000 that will be granted to outside directors for fiscal 1998.
Subsequent to January 26, 1997, the Company granted to a director an option
for the purchase of 5,000 shares at $3.25 per share for services for the fiscal
year ended January 26, 1997, which expires January 2002.
The following is a table of activity under these plans:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding, beginning of year.................... 40,000 $ 5.00 97,000 $ 2.113
Granted to:
Employees, including exchanges................ 60,000 1.875 80,000 2.500
Directors..................................... 25,000 2.500 -- --
Directors--lease guarantee.................... 12,000 2.500 -- --
Exchanged*...................................... (40,000) (5.000) -- --
Forfeited....................................... -- -- (27,000) 2.338
----------- -----------
Outstanding, end of year.......................... 97,000 2.113 150,000 2.279
----------- -----------
----------- -----------
</TABLE>
- ------------------------
* All options outstanding at January 29, 1995 were reissued with an exercise
price at $1.875.
For all options granted during fiscal 1996 and 1997, the weighted average
market price of the Company's common stock on the grant date was approximately
equal to the weighted average exercise price. Due to the extremely limited
trading activity of the Company's common stock, for the purpose of pricing
Incentive Stock Options and Non-qualified Stock Options, the fair market value
of the Company's common stock is determined by the average of the bid price as
quoted on the OTC Electronic Bulletin Board on the date of grant and a date two
weeks subsequent to the date of grant.
The weighted average contractual life for all options as of January 26, 1997
was approximately 3.8 years, with the exercise prices ranging from $1.875 to
$2.50. At January 26, 1997, options for 120,000
F-13
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY: (CONTINUED)
were exercisable and options for the remaining shares become exercisable pro
rata through fiscal 1999. If not previously exercised, options outstanding at
January 26, 1997, will expire as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- -----------
<S> <C> <C>
1998.................................................................... 5,000 $ 1.875
1999.................................................................... -- --
2000.................................................................... -- --
2001.................................................................... 45,000 2.388
2002.................................................................... 100,000 2.250
----------- -----------
150,000 $ 2.279
----------- -----------
----------- -----------
</TABLE>
PRO FORMA STOCK-BASED COMPENSATION DISCLOSURES--The Company applies APB
Opinion 25 and related interpretations in accounting for its stock options which
are granted to employees. Accordingly, no compensation cost has been recognized
for grants of options to employees since the exercise prices were not less than
the fair value of the Company's common stock on the grant dates. Had
compensation cost been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of FAS 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amount indicated below.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------
JANUARY 28, JANUARY 26,
1996 1997
----------- -----------
<S> <C> <C>
Net income (loss) applicable to common shareholders:
As reported....................................................... $ 114,219 $ 341,949
Pro forma......................................................... (44,599) 275,541
Net income (loss) per common share:
As reported....................................................... 0.23 0.44
Pro forma......................................................... (.09) 0.35
</TABLE>
The fair value of each employee option granted in fiscal year 1996 and 1997,
was estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
JANUARY 28, JANUARY 26,
1996 1997
--------------- ---------------
<S> <C> <C>
Expected volatility........................................... 167% 176%
Risk-Free interest rate....................................... 6.5% 6.5%
Expected dividends............................................ -- --
Expected terms (in years)..................................... 5.0 5.0
</TABLE>
F-14
<PAGE>
PREMIER CONCEPTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 26,
1996 1997
------------- -------------
<S> <C> <C>
Statutory rate................................................ 34% 34%
Effect of graduated rate...................................... (4.6)% --
State income taxes, net of Federal income tax benefit......... 3.3% 3.3%
Reduction in valuation allowance due to usage of net operating
loss carryforwards and change in temporary differences...... (32.7)% (38.3)%
Other......................................................... -- 1%
----- -----
-0-% -0-%
----- -----
----- -----
</TABLE>
The components of the net deferred tax asset recognized as of January 26,
1997 are as follows:
<TABLE>
<S> <C>
Long-term deferred tax assets (liabilities):
Net operating loss carryforwards........................ $ 110,000
Valuation allowance..................................... (71,000)
---------
Net long-term deferred tax asset...................... $ 39,000
---------
---------
</TABLE>
The valuation allowance was $325,000 at January 28, 1996 decreased by
$254,000 for the year ended January 26, 1997.
At January 26, 1997, the Company had net operating loss carryforwards for
Federal tax purposes of approximately $298,000. Certain of the loss
carryforwards are subject to restrictions due to a greater than 50% change in
ownership in prior years. The loss carryforwards, unless utilized, will expire
from 2009 through 2010.
F-15
<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
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Prospectus Summary............................. 3
The Company.................................... 6
Forward-Looking Statements..................... 7
Risk Factors................................... 7
Capitalization................................. 16
Dividends...................................... 17
Certain Market Information..................... 18
Selected Financial Data and Statistical Data... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 26
Management..................................... 34
Certain Transactions........................... 40
Securities Ownership of Management and
Principal Shareholders....................... 43
Description of Securities...................... 45
Selling Shareholders and Plan of
Distribution................................. 49
Concurrent Offering............................ 51
Legal Matters.................................. 51
Experts........................................ 52
Financial Statements........................... F-1
</TABLE>
102,041 SHARES OF COMMON STOCK
483,334 CLASS A COMMON STOCK
PURCHASE WARRANTS
PREMIER CONCEPTS, INC.
---------------------
PROSPECTUS
---------------------
April 21, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
