UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For Three Month Period Ended September 30, 1996.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From to . -----------
-----------
Commission File No. 0-24352
INTERIORS, INC.
(Doing Business in New York under the name A.P.F. Master Framemakers)
(Exact name of small business issuer as specified in its charter)
Delaware 13-3590047
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 Washington Street, Mt. Vernon, New York 10553
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(Address of principal executive offices) (zip code)
Issuer's Telephone Number: (914) 665-5400
-----------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
The number of shares outstanding of the issuer's Class A Common Stock and Class
B Common Stock as of November 15, 1996 was 4,216,135 and 2,039,500,
respectively.
Transitional Small Business Disclosure Format (check one). Yes . No X .
----- ----
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INTERIORS, INC.
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial
Statements........1..........................................................1
Consolidated Balance Sheet as of September 30, 1996....................2
Consolidated Statements of Operations -
For the Three Months Ended September 30, 1996 and 1995............3
Consolidated Statement Changes in Stockholders' Equity -
For the Three Months Ended September 30, 1996.................... 4
Consolidated Statements of Cash Flows-
For the Three Months Ended September 30, 1996 and 1995............5
Notes to Consolidated Financial Statements.............................7
Item 2. Management's Discussion and Analysis...............................17
PART II - OTHER INFORMATION
Item 1. Legal Proceeding...................................................27
Item 2. Changes in Securities..............................................29
Item 3. Defaults Upon Senior Securities....................................29
Item 4. Submission of Matters to a Vote of Security Holders................29
Item 5. Other Information..................................................29
Item 6. Exhibits and Reports on Form 8-K...................................29
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed financial statements included herein have been prepared
by Interiors, Inc. without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, these
statements include all adjustments necessary to present fairly the financial
condition of the Company as of September 30, 1996 and the results of operations
for the three months ended March 31, 1996 and 1995.
The Company's results of operations during the three months ended
September 30, 1996 are not necessarily indicative of any future results. It is
suggested that the financial statements included in this report be read in
conjunction with the financial statements and notes thereto in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1996.
1
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INTERIORS, INC.
---------------
CONSOLIDATED
------------
BALANCE SHEET
-------------
(Unaudited)
September 30,
ASSETS 1996
----------
CURRENT ASSETS:
Cash $ 0
Accounts receivables -
Trade, net of allowance of $40,000 811,044
Inventories 1,949,565
Prepaid expenses and other current assets 349,565
------------
Total current assets 3,110,174
INVESTMENT IN AFFILIATE 824,000
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment 1,927,015
Furniture and fixtures 164,929
Leasehold improvements 259,405
----------
Total property and equipment, at cost 2,351,349
Less- Accumulated depreciation and
amortization 1,152,100
----------
Net property and equipment 1,199,249
OTHER ASSETS 599,616
----------
Total assets $5,733,039
==========
<PAGE>
INTERIORS, INC.
---------------
CONSOLIDATED
------------
BALANCE SHEET
-------------
(Unaudited)
September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996
- ----------------------------------- -------------
CURRENT LIABILITIES:
Notes payable and current maturities of
long-term debt $ 2,583,586
Accounts payable and accrued liabilities 2,090,364
Capital lease obligations 22,112
------------
Total current liabilities 4,696,062
NON-CURRENT LIABILITIES:
Notes payable 0
Capital lease obligations 30,652
------------
Total noncurrent liabilities 30,652
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,300,000 shares authorized,
1,140,000 issued and outstanding 11,400
Class A common stock, $.001 par value,
30,000,000 shares authorized,
4,026,247 shares issued and outstanding 4,026
Class B common stock, $.001 par value,
2,500,000 shares authorized,
2,039,500 shares issued and outstanding 2,040
Additional paid-in-capital 10,219,685
Retained deficit (8,792,726)
Treasury Stock (600)
Note receivable (437,500)
------------
Total stockholders' equity 1,006,325
------------
Total liabilities and stockholders' equity $ 5,733,039
============
The accompanying notes are an integral part of this balance sheet
2
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INTERIORS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
NET SALES $ 1,179,170 $ 1,293,258
COST OF GOODS SOLD 621,453 705,261
----------- -----------
Gross profit from continuing operations 557,717 587,997
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 488,071 649,665
----------- -----------
Operating expenses 488,071 649,665
Income (loss) from continuing operations
before interest and provision for taxes 69,646 (61,668)
INTEREST EXPENSE (including financing charges) 77,240 95,348
----------- -----------
Income (loss) from continuing operations
before provision for taxes (7,594) (157,016)
PROVISION FOR INCOME TAXES
----------- -----------
Income (loss) from continuing operations (7,594) (157,016)
DISCONTINUED OPERATIONS (Note 3)
Loss from operations of discontinued operations 0 42,293
------------ -----------
Loss from discontinued operations 0 42,293
NET INCOME (LOSS) ($ 7,594) ($ 199,309)
=========== ===========
NET EARNINGS PER COMMON STOCK
CONTINUING OPERATIONS $ 0.00 ($ 0.08)
DISCONTINUED OPERATIONS $ 0.00 ($ 0.02)
NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ 0.00 ($ 0.10)
WEIGHTED AVERAGE NUMBER OF SHARES USED
IN COMPUTATION 3,927,116 1,977,158
=========== ===========
</TABLE>
the accompanying notes are an integral part of these financial statements
3
<PAGE>
<TABLE>
<CAPTION>
INTERIORS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
Series A Class A Class B
Preferred Stock Common Stock Common Stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1996 790,000 $7,900 3,470,247 $3,470 2,039,500 $2,040
Proceeds from the exercise
of common stock warrants 556,000 $556
Proceeds from the exercise
of pfd. stock options 350,000 $3,500
Net loss through September
30, 1996
BALANCE, September 30, 1996 1,140,000 $11,400 4,026,247 $4,026 2,039,500 $2,040
</TABLE>
<TABLE>
<CAPTION>
INTERIORS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
(CONTINUED)
Additional Retained
Paid-In Earnings Treasury Note
Capital (Deficit) Stock Receivable Total
------- --------- ----- ---------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1996 $8,564,741 ($8,785,132) ($600) ($437,500) ($645,081)
Proceeds from the exercise
of common stock warrants $833,444 $834,000
Proceeds from the exercise
of pfd. stock options $821,500 $825,000
Net loss through September
30, 1996 ($7,594) ($7,594)
BALANCE, September 30, 1996 $10,219,685 ($8,792,726) ($600) ($437,500) $1,006,325
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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INTERIORS, INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
FOR THE QUARTERS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED
SEPTEMBER 30
1996 1995
--------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss ($7,594) ($199,309)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 158,875 112,081
Provision for losses on accounts receivable (20,000)
Accretion of interest expense 25,000
Restructuring costs
Non-cash provision for discontinued catalog operations 89,250
Non-cash satisfaction of debt Provision for issuance of stock Changes in
assets and liabilities:
Decrease (increase) in accounts receivable, trade (26,444) 20,615
Decrease (increase) in inventories (228,261) (261,784)
Decrease (increase) in prepaid catalog costs, prepaid expenses and other current assets (36,300) (16,489)
Decrease (increase) in other assets (27,705)
Increase (decrease) in notes payable and current maturities of long term debt 67,013
Increase (decrease) in accounts payable and accrued expenses (616,024) (629,005)
Increase (decrease) in net liabilities and accrued expenses of discontinued operations (90,557)
Increase (decrease) in prepaid sales & customer deposits (14,345)
----------- -----------
Net cash used in operating activities (779,292) (921,691)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (59,850) (180,557)
Investment in Decor Group, Inc. (824,000)
----------- -----------
Net cash used in investing activities (883,850) (180,557)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of debt 507,000
Repayments of debt and capitalized lease obligations (580,642)
Net proceeds from sale of Series A preferred stock and warrants 1,693,096
Net proceeds from exercise of common stock warrants 834,000
Net proceeds from exercise of preferred stock options 825,000
----------- -----------
Net cash provided by financing activities 1,659,000 1,619,454
----------- -----------
Net Increase (decrease) in cash (4,142) 517,206
CASH, beginning of period 4,142 2,114
----------- -----------
CASH, end of period $ 0 $ 519,320
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 21,157 $ 85,630
Taxes $ 5,566 $ 5,150
NON-CASH FINANCING ACTIVITIES:
Conversion of convertible debt into Class WC Warrants $ 100,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by the Company
without audit, in accordance with generally accepted accounting principles, and
pursuant to the rules and regulations of the Securities and Exchange Commission.
Reference should be made to the Company's financial statements for the year
ended June 30, 1996 for a description of the accounting policies which have been
applied consistently. Also, reference should be made to the notes to the
Company's June 30, 1996 financial statements contained in the Company's Form
10-KSB for the fiscal year ended June 30, 1996, for additional details of the
Company's financial condition, results of operations and cash flows. The details
in those notes have not changed except as a result of normal transactions in the
interim. All adjustments (of normal recurring nature) which are, in the opinion
of management, necessary for a fair presentation of the results of the interim
period have been included. The results of operations for the three months ended
September 30, 1996 are not necessarily indicative of those to be expected for
the entire year. The Company, for the three months ended September 30, 1996 and
1995, used the gross profit method to value inventory.
2. ACQUISITIONS AND STRATEGIC ALLIANCES
Part of the Company's long-term plan for growth includes either the acquisition
of or entering into strategic alliances with unrelated companies in the
decorative accessories industry to maximize market potential. For this purpose,
pursuant to a March 3, 1996 agreement relating to the capitalization of Decor
Group, Inc., ("Decor"), Decor issued to the Company 250,000 shares of its Series
A Non-Voting Convertible Preferred Stock and an option to purchase 10,000,000
shares of its Series B Non-Convertible Voting Preferred Stock (the "Option
Shares") in exchange for issuance to Decor by the Company of 200,000 shares of
its Class A Common stock and 200,000 shares of its Series A Convertible
Preferred stock and a guarantee with respect to certain indebtedness should such
indebtedness become necessary. Also, the Company exercised its option to
purchase the Option Shares in September 1996, for total cash consideration of
$2,000. Concurrent with the exercise of this option, the Company executed a
Voting Agreement (the "Voting Agreement") to vest the power to vote the Option
Shares in a Voting Trust (the "Voting Trust".) The Voting Agreement will expire
on December 31, 1997. The Voting Trust shall comprise three individuals: the
Company's President and Chief Executive Officer (and also the Chairman of the
Board of Decor), and two Directors of Decor who are otherwise unrelated to the
Company. Conversion of the 250,000 shares of Series A Convertible Preferred
stock into common stock would give the Company approximately 88.6% of the voting
stock of Decor. On November 12, 1996, (the "Effective Date") a public offering
by Decor of certain of its securities was declared effective by the Securities
and Exchange Commission. Subsequent to this effective date, the Company will own
approximately 86.0% of the total voting stock of Decor. The holding in Decor
will be recorded on the Company's financial statements under the equity method
of accounting until such time the Company obtains unconditional and effective
control of Decor, which is expected to occur upon the expiration of the Voting
Agreement.
During the quarter ended September 30, 1996, the Company has also provided
$824,000 cash as part of the capitalization of Decor. At September 30, 1996, the
Company has not made a valuation of either the securities issued or received in
the capitaliztion of Decor. This valuation will take place subsequent to this
date. Thus, at September 30, 1996, the Company's investment in Decor is based on
its cash investment only. This basis may increase if the ultimate valuation of
the securities exchanged warrants such increase.
The Decor securities acquired by the Company, as described in the preceding
paragraph, reflects a 1-for-2 reverse split effected by Decor in October 1996.
7
<PAGE>
Decor has entered into an asset purchase agreement (the "Agreement") with
Artisan House, Inc. ("Artisan House") to purchase substantially all of the
operating assets, and assume certain liabilities, of Artisan House for an
aggregate purchase price of $3,526,400, subject to certain adjustments. Decor
expects to close on the Agreement contemporaneously with its public offering.
Artisan House, located in Los Angeles, California and founded in 1964, is
engaged in the design, manufacturing, and marketing of metal wall, table and
freestanding sculptures. Management believes that Artisan House's products
bridge the gap between high priced gallery art and mass produced decorative
pieces. Artisan House products retail from approximately $100 to over $400. The
primary goal of Artisan House is to supply a broad spectrum of design driven
sculpture and decorative accessories at moderate prices.
As part of the Company's investment in Decor, during the months of August
and September 1996, the Company purchased 54,934 shares (adjusted for a 1-for-2
reverse split effected by Decor in October 1996) of Decor's Series C Non-Voting,
Convertible, Preferred Stock at a cost of $824,000.
Pursuant to a March 31, 1996 agreement relating to the capitalization of
Decor, Laurie Munn, wife of the Company's President and Chief Executive Officer
purchased and was issued certain shares of the Common Stock of Decor. As of the
date of this filing, Ms. Munn was issued 100,000 shares of the outstanding
1,312,500 common shares of Decor, adjusted to reflect a 1-for-2 reverse split
effected by Decor in October 1996. Also, the Company has executed a management
agreement with Decor, whereby the Company will provide management and
administrative support to Decor in exchange for minimum annual fees of $75,000.
At September 30, 1996, approximately $19,000 of fees were accrued by the Company
for such services.
As of the date of this filing, Laurie Munn, wife of the Company's President
and Chief Executive Officer, was issued 9 of the outstanding 100 Common shares
of Lance Acquisition Corp. ("LAC") which on March 3, 1996 acquired the assets of
The Lance Corporation ("Lance") a Massachusetts manufacturer and distributor of
various products for the giftware and collectibles marketplace. The Company and
LAC entered into an agreement whereby each entity will guarantee certain
liabilities of the other. During April 1996, the Company moved the operations of
Italia Collection to Lance. Subsequent to this move, the ownership of Lance and
its business operations changed. Because of this, Company management believes
that the operations of Italia Collection will be best served by retaining a
lower cost, independent manufacturer. The Company is accordingly conducting
discussions with a Mexican company to finalize terms under which this entity
will manufacture and support the entire product line of Italia Collection, which
largely consists of ceramic and porcelain collectibles, mirrors, and other
decorative accessories for the home. Also, the Company plans to base its Italia
operations in California, to leverage upon the infrastructure acquired as part
of the Decor transaction. During this period of transition, shipments of Italia
products have significantly slowed (See "Management's Discussion".) Although the
Company expects Italia revenues to grow once the reorganization of Italia
operations is completed, no assurances can be given that such growth will
actually occur. LAC is expected to be dissolved during the current period.
8
<PAGE>
3. DISCONTINUATION OF CERTAIN OPERATIONS
On March 31, 1996, the Company's Board of Directors decided to discontinue the
Company's catalog operations because of declining revenues and high operating
costs. As a result, a charge against earnings of approximately $2,100,000 was
recorded at June 30, 1996. For the twelve months ended June 30, 1996, losses
from continuing catalog operations totaled $789,332. The Company plans to fully
carry out the discontinuation of the catalog operation within one year from
March 31, 1996. The Company plans to wind down operations by filling existing
orders and possibly mailing one final catalog as a "close-out sale" to liquidate
inventory. As of March 1997, no catalog related assets or liabilities are
expected to remain on the Company's balance sheet. The financial statements
included with this filing have reclassified the results of operations for the
quarter ended September 30, 1995 as if the Company's catalog operations had been
discontinued during this quarter. For the quarter ended September 30, 1996,
results of the discontinued catalog operations were not material.
4. NOTES PAYABLE
On November 23, 1994, the Company borrowed the sum of $225,000 from Ekistics
Corp., a Bahamian corporation, pursuant to a promissory note due March 30, 1995,
together with interest at the rate of 14% per annum and a 5% financing charge.
In April 1995, the Company paid $25,000, plus interest on account of the
principal amount of said Note and entered into a revised note for the $200,000
balance with such revised note providing for payment of principal on October 20,
1995, having an interest rate of 14% per annum and being convertible into 80,000
shares of Preferred Stock and 40,000 Class WC Warrants. On December 15, 1995,
this conversion took place. The 80,000 Preferred Shares and 40,000 WC Warrants
were registered in a Registration Statement declared effective September 18,
1996.
In June and July 1995, the Company delivered to unaffiliated parties promissory
notes in the aggregate amount of $300,000 with interest at the rate of 10% per
annum (the "10% Notes") and promissory notes in the principal amount of $100,000
with interest at the rate of 6% per annum (the "6% Notes".) The 10% Notes and 6%
Notes were each payable in June and July 1996 or the closing of the sale by the
Company of an issue of Preferred Stock, whichever is earlier. The 6% Notes were
convertible, in whole or in part, at the option of the holder, into a maximum of
2,000,000 WC Warrants entitling the holders for a period of five years to
purchase one share of Preferred Stock per Class WC Warrant at a price of $5.50
per share. These Warrants are redeemable by the Company. The Notes were secured
by a lien on the Company's assets. In September 1995 the Company repaid all 10%
Notes in full, plus all accrued interest for both the 10% Notes and 6% Notes.
All holders of 6% Notes have converted in full, into a total of 2,000,000 Class
WC Warrants, which were registered in a Registration Statement declared
effective by the Securities and Exchange Commission on September 18, 1995.
On October 16, 1995, the Company entered into an agreement to restructure a
promissory note dated May 1995, with the principal amount of $500,000 bearing
interest at the rate of 18% per annum with the principal which was due and
payable in full on September 30, 1995 and a $150,000 note dated May 12, 1995,
bearing interest at the rate of 18% payable monthly with
9
<PAGE>
135% of the principal which was also due and payable in full on September 30,
1995 with a Nevis, BWI Corporation. As of October 16, 1995 the parties agreed
the Company owes the lender, including interest and monthly extension fees of
approximately $102,500 through December 15, 1995, an aggregate amount of
approximately $805,000. Pursuant to the new agreement, the Company paid $405,000
to the Nevis Corporation upon acceptance of the agreement. The Company also
delivered a Promissory Note in the principal amount of approximately $400,000,
in extension and replacement of the remaining balance due and payable of
$180,000 on or before December 15, 1995 and $220,000 on July 31, 1996. The new
agreement also stipulates that the lender shall sell the 180,000 shares of the
Company's Class A Common Stock, held in escrow by the lender, for $180,000 to an
unaffiliated third party. The proceeds of such sale will be applied against the
note and during January 1996. In addition, during December 1995, the Company
issued to the lender 35,000 unregistered shares of Class A Common Stock. Such
shares shall be afforded a piggyback registration right for all registration
statements filed by the Company before July 31, 1996 and a one time demand
registration right commencing after July 31, 1996. Approximately $25,000 was
charged against earnings during the quarter ended December 31, 1995 in
conjunction with the issuance of these shares. The promissory note is also
guaranteed by Max Munn, President and Chief Executive Officer of the Company.
The note is collateralized by 600,000 shares of the Company's Class A Common
Stock owned by the Company's Italia Collections Inc. subsidiary. The Company has
reached a general agreement with this lender to restructure the repayment
schedule of approximately $245,000 of outstanding principal and interest
payable.
5. COMMITMENTS AND CONTINGENCIES
The litigation relating to the termination of the 1995 employment agreement
between Ann Stevens and the Company has been settled by the execution of an
employment severance agreement (the "Agreement"). Pursuant to the Agreement, the
Company paid Ms. Stevens $63,000 for accrued and unpaid compensation upon
execution of the Agreement. Subsequently, for a period of seven years, the
Company will make bi-weekly payments to Ms. Stevens to total $72,000 for the
first year, $70,000 for each of the next three years, and $50,000 for each of
the final three years. As additional compensation, the Company will pay Ms.
Stevens for reimbursement of certain expenses, $50,000 in various installments
during the four months ending December 1996. The Company also entered into a
non-compete agreement with Ms. Stevens for which the Company will make bi-weekly
payments to Ms. Stevens to total $25,000 per year for seven years, plus
automobile and insurance costs for five years. As of June 30, 1996, the Company
issued to Ms. Stevens 50,000 shares of the Company's Class A Common Shares,
which were previously commited to Ms. Stevens pursuant to her 1995 employment
agreement. The Company plans to register these shares with the Securities and
Exchange Commission during the quarter ended December 31, 1996. As of June 30,
1996, the Company issued 1,250,000 shares of its Class B Common Shares (the
"Escrow Shares") to Michael Levine, Esq., attorney of Ms. Stevens, as escrow
agent (the "Escrow Agent"). The Escrow Agent shall abstain from voting the
Escrow Shares for any purpose, except in the event of either the failure by the
Company to adhere to the payment provisions noted above or the financial
insolvency of the Company. If either event occurs, Ms. Stevens will be in a
position to elect replacement Directors. Once the payment
10
<PAGE>
provisions in the severance and non-compete agreements are satisfied, the Escrow
Agent shall return the Escrow Shares to the Company.
On February 15, 1996, the Company's Board of Directors agreed in principle to
enter into a four-year employment agreement between the Company and its
President and Chief Executive Officer. The agreement will provide an annual base
salary of $150,000, with annual increases of 10%. Such increases will be subject
to the attainment of profitable results of operations by the Company. In
addition, the agreement will grant the President and Chief Executive Officer an
option to purchase at any time 150,000 shares of the Company's Series A, 10%
Cumulative Convertible Preferred Stock at a price of $2.50 per share. The
exercise of this option, as well as any subsequent conversion to the Company's
Class A Common Stock, will require the prior consent of the Company's investment
banking firm. The agreement will also contain a "non-compete" clause and provide
the President and Chief Executive Officer with the use of an automobile. As of
the date of this filing, the document for this agreement has not been finalized
or executed. This is expected to occur during the current fiscal year.
Presently, the President and Chief Executive Officer draws an annual salary of
$150,000 and has the use of an automobile provided by the Company.
In August 1995 the Company entered into a four year employment agreement with
Ann Stevens, then Executive Vice President, with an annual salary of $150,000.
In addition, on or about September 30, 1995, the agreement provides for Ms.
Stevens to receive a one time payment of either, at the Company's option,
$50,000 or 50,000 shares of Class A Common Stock. Pursuant to this agreement,
Ms. Stevens was also entitled to receive stock options, stock bonuses and other
equity instruments in an amount equal to that received by Max Munn or members of
his immediate family. In June 1996, the Company executed an employment severance
agreement with Ms. Stevens which terminated the provisions of the August 1995
employment agreement. The employment severance agreement stipulated that the
Company will pay to Ms. Stevens an initial payment of $63,000, and make various
periodic payments over seven years. In addition, the Company agreed to issue to
Ms. Stevens 50,000 shares of the Company's Class A Common Shares. Such shares
were issued on July 25, 1996. (See "Legal Proceedings.")
11
<PAGE>
On October 27, 1995 the Company entered into a one-year employment agreement
with Robert Schildkraut, then Vice President, Operations with an annual base
salary of $120,000. The Agreement may be terminated by the Company with a
payment of 50% of the employee's salary remaining under the agreement or a
payment of six week's salary in the event the employee resigns from the Company.
The Agreement also provides for the employee to be granted certain stock options
to purchase an aggregate of 100,000 Class A Shares, 50,000 of which are to be
granted and vested immediately at a price of $2.00 per share, exercisable in six
months from the date of grant, and any attempt to exercise these options during
the exercise period will terminate the options granted on September 16, 1994;
options to purchase 25,000 shares at a price of $4.00 per share to be granted on
the second anniversary; and options to purchase 25,000 shares at a price of
$5.00 per share to be granted on the third anniversary. The Agreement also
provides for a bonus program based on the Company meeting certain minimum profit
goals. In April 1996, the employment of the Vice President, Operations was
terminated. The Company settled its obligations to the employee during the
subsequent quarter. This settlement took the form of severance payments totaling
approximately $27,000. No securities have been issued to the employee as part of
the settlement.
On May 8, 1995, the Company entered into an Employment Agreement with Donald
Feldman, Vice President of Sales and Marketing of the Company. The Agreement is
for a term of four years beginning June 1995 and may be terminated by the
Company after the first year with payment of 80% of the employee's salary,
reduced by the employee's other income. The Agreement provides that the Vice
President of Sales and Marketing will be employed at a base salary of $117,500
plus a sales commission structure based on increases in net sales for the
Company and for Italia. Mr. Feldman will be granted an option to purchase 10,000
shares of the Company's Class A Common Stock for every full year under the
employment agreement at a price of $2.50 per share. Concurrent with the
Effective Date of Decor Group, Inc.'s ("Decor") initial public offering (See
"Acquisitions and Strategic Alliances."), the Company and Mr. Feldman plan to
terminate Mr. Feldman's Employment Agreement. Mr. Feldman will enter into a
three (3) year employment agreement with Decor at such Effective Date. Mr.
Feldman, who is President of Decor, will receive a salary of $117,500 per annum
and an annual bonus equal to two percent (2%) of the amount by which Decor's net
sales exceed the sales recorded by Decor for the year ending June 30, 1997. In
addition, Mr. Feldman will be granted options to purchase 10,000 shares of
Common Stock of Decor at an exercise price of $2.50 per share for each full year
of employment under the agreement. Decor will also reimburse Mr. Feldman for
bona fide business expenses including up to $400 per month for the use of an
automobile and $200 per month for insurance.
As part of the Italia acquisition during fiscal year ended June 30, 1995, the
Company entered into various consulting and employment agreements aggregating
$176,000 per annum. The agreements were subject to termination at any time by
Italia for reasons specified in the agreements. In July 1995, the employment
agreement for the President of Italia, as well as all other agreements, were
terminated by the Company.
On April 1, 1995, the Company entered into a Consulting Agreement with Morris
Munn, father of Max Munn, the Company's President and Chief Executive Officer
under which he will provide the Company with: design and fabrication of new
molds for sculpture; recommend, and implement
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improvements in antiquing, woodworking, gilding and carving processes; and
attend trade shows for frame making and mold making. Fees under the agreement
are payable at $54,000 per annum for one year renewable at the Company's option.
On June 30, 1996, Morris Munn's Consulting Agreement was extended for five (5)
years. Pursuant to the terms of this new agreement, the Company agreed to issue
to Morris Munn an option to purchase up to 350,000 shares of the Company's
Preferred Shares at a net exercise price of $2.25 per share. The Preferred
Shares issuable upon the exercise of the Option were registered for sale to the
public under a Registration Statement in Form S-8 filed with the Securities and
Exchange Commission on July 3, 1996. The Option was fully exercised during July
to September 1996 generating net proceeds to the Company totalling $787,500.
(See "Liquidity and Capital Resources.") In addition, the new agreement provides
for bi-weekly payments to Morris Munn totalling $54,000 per year for five years.
In exchange, Morris Munn has agreed to assist the Company with marketing,
acquisitions, divestitures, joint ventures and other strategic initiatives. In
conjunction with the issuance of the Option, the Company recorded charges
against earnings of $87,500 at June 30, 1996.
Except as otherwise set forth herein, the Company has no material commitments
for capital expenditures. In order to fund growth over the long term, the
Company anticipates possible future issuance of its securities resulting in
further dilution to its securityholders
Disclosure of the Company's current legal matters are reflected at Part II, Item
1. - Legal Proceedings.
6. SHAREHOLDERS' EQUITY
In August 1995, the Company agreed to issue, at a future date, 60,000 Class A
Common shares in settlement of all current and future liabilities under a
two-year Marketing and Organizational Agreement (the "Marketing Agreement") with
a consulting firm dated January 4, 1994. The Company's Board of Directors
approved the issuance of such shares in November 1995. In conjunction with the
issuance of these shares, approximately $105,000 of charges against earnings
were recorded during the year ended June 30, 1996.
In September 1995, the Company issued 460,000 shares of Series A, 10% Cumulative
Convertible Preferred Stock ("Preferred Stock") and 230,000 Redeemable Class WC
Warrants ("Warrants") to purchase Preferred Stock at the exercise price of $5.50
per share. The net proceeds from this Offering were approximately $1,633,000,
including over-allotments. Each share of Preferred Stock is convertible,
commencing one year from the date of issue, subject to adjustment, into three
shares of Class A Common Stock of the Company.
In September 1995, the Company lowered the exercise price of the Company's Class
WA Warrant to $1.50 per share and arranged to place 180,000 shares of the
Company's Class A shares which were previously sold pursuant to a "Regulation S"
private placement into escrow. These shares were sold in January 1996 to
unrelated parties pursuant to a restructuring of a note payable by the Company
to the holder of these shares as discussed below. On July 16, 1996, the Company
filed a Registration Statement with the Securities and Exchange Commission to
register the Class WA Warrants and underlying Common A Shares. The Commission
declared this
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Registration Statement effective on July 19, 1996. Through the date of this
filing, 635,252 of the Company's Class WA Warrants were exercised at $1.50 per
warrant, generating proceeds to the Company totaling $952,878. Of these
proceeds, $811,500 was used to purchase 54,100 shares (adjusted for a 1-for-2
reverse split effected in October 1996) of Decor Group, Inc.'s Series C
Non-Voting, Convertible, Preferred Stock. The balance of the proceeds was
retained by the Company for working capital needs, for the repayment to Decor of
outstanding loans of $50,000, and for the provision of additional loans to
Decor.
In December 1995, an consideration for certain services rendered, 10,000 shares
of the Company's Class A Common Stock were issued to various individuals as
determined by Richard Josephberg, an outside Director of the Company.
Approximately $7,000 was charged against earnings during the quarter ended
December 31, 1995 in conjunction with the issuance of these shares.
In December 1995, pursuant to the terms of a promissory note, the holder of such
note converted the note into 80,000 shares of Preferred Stock. Also in December
1995, and pursuant to the terms of another promissory note, 35,000 shares of the
Company's Class A Common Stock were issued to the lender. The Company plans to
register these securities with the Securities and Exchange Commission during the
quarter ended December 31, 1996. Approximately $25,000 was charged against
earnings during the quarter ended December 1995 in conjunction with the issuance
of these shares.
In January 1996, the Company's Board of Directors elected to lower the exercise
price of the Company's Class WB Warrant to $2.00 per Class A Common share,
subject to the filing and effectiveness of a Registration Statement with the
Securities and Exchange Commission. Such Registration Statement was filed with
the Commission on July 16, 1996 and declared effective on July 19, 1996. Through
the date of this filing, 90,636 of the Company's Class WB Warrants were
exercised at an exercise price of $2.00 per option generating proceeds to the
Company of $181,272. These proceeds were used by the Company to support working
capital needs, and for the provision of loans to Decor Group, Inc.
In February 1996, the Company's Board of Directors declared a stock dividend
equivalent to $0.25 per share to its Series A 10% Cumulative Convertible
Preferred Stockholders of record as of the close of business on February 23,
1996 (the record date.) Payment was made on March 1, 1996 by the issuance of
0.10231 of a share of the Company's Class A Common Stock for each share of
Series A Preferred Stock held of record on the record date. Accordingly, 55,247
shares of the Company's Class A Common Stock was issued for this purpose.
Retained earnings was charged $165,741 in March 1996 in conjunction with the
issuance of these shares. As of the date of this filing, the Company has not
declared or established a record date for a dividend for its Series A 10%
Cumulative Convertible Preferred Stock for September 1996.
In February 1996, the Company's Board of Directors approved the issuance to Sol
Munn of 150,000 shares of the Company's Class A Common Stock, in consideration
for past consulting services provided. These shares, which bear a restrictive
legend, were issued on April 12, 1996. The Company is planning to register these
securities with the Securities and Exchange
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Commission during the quarter ended December 31, 1996. In conjunction with the
issuance of these shares, approximately $54,000 of charges were recorded against
earnings during the year ended June 30, 1996.
On March 3, 1996, the Company acquired 250,000 shares of Series A Convertible
Preferred Stock and an option to purchase 10,000,000 shares (the "Option
Shares") of Series B Non-Convertible Voting Preferred Stock of Decor Group,
Inc., ("Decor") in exchange for issuance to Decor by the Company of 200,000
shares of its Class A Common stock and 200,000 shares of its Series A
Convertible Preferred stock and a guarantee with respect to certain indebtedness
should such indebtedness become necessary. (The Decor securities are adjusted to
reflect a 1-for-two reverse split effected by Decor in October 1996.) Also, the
Company exercised its option to purchase the Option Shares in September 1996,
for total cash consideration of $2,000. Concurrent with the exercise of this
option, the Company executed a Voting Agreement (the "Voting Agreement") to vest
the power to vote the Option Shares in a Voting Trust (the "Voting Trust".) The
Voting Agreement will expire on December 31, 1997. The Voting Trust shall
comprise three individuals: the Company's President and Chief Executive Officer
(and also the Chairman of the Board of Decor), and two Directors of Decor who
are otherwise unrelated to the Company. Conversion of the 250,000 shares of
Series A Convertible Preferred stock into common stock would give the Company
approximately 88.6% of the voting stock of Decor as of the date of this filing.
On November 12, 1996, (the "Effective Date") a public offering by Decor of
certain of its securities was declared effective by the Securities and Exchange
Commission. Subsequent to this effective date, the Company will own
approximately 86.0% of the total voting stock of Decor. The holding in Decor
will be recorded on the Company's financial statements under the equity method
of accounting until such time the Company obtains unconditional and effective
control of Decor, which is expected to occur upon the expiration of the Voting
Agreement.
In April 1996, the Company's investment banking firm arranged for the private
placement of 175,000 shares of the Company's Common A Stock and 50,000 shares of
the Company's Series A Preferred Stock. These shares, all of which bear a
restrictive legend, were issued on April 24, 1996 to various independent
investors (the "Investors") generating gross proceeds of $431,251. The Company
realized net proceeds of $310,609 which was used to pay certain outstanding
liabilities. Commencing thirty (30) days following the date of the close of the
private placement, any of the Investors had the right to demand in writing (the
"Demand Notice") that the Company file a registration statement with the
Securities and Exchange Commission (the "Commission") which shall cover the
shares and allow the Investor to sell the shares to the public. Within fifteen
(15) days following receipt of the Demand Notice, the Company is required to
file such registration statement and use its best efforts to have such
registration statement declared effective by the Commission and such state
securities regulators as reasonably requested by the Investor. The Company is
planning to register these securities with the Securities and Exchange
Commission during the quarter ended December 31, 1996.
On April 4, 1996 the Company's Board of Directors resolved to issue 250,000
shares of the Company's Class B Common Stock to Laurie Munn, wife of the
Company's President and Chief Executive Officer. This issuance is in
consideration for a down payment of $250, Ms. Munn's
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6.6% note to the Company providing for principal of $437,500 to be paid to the
Company in five equal annual installments of $105,561.90, and Ms. Munn's
guarantee and pledge of her assets for certain Company debt. The shares were
issued to Ms. Munn on April 8, 1996. Ms. Munn has executed a Promissory Note and
Security Agreement in conjunction with the issuance of these shares. The Company
obtained an appraisal to determine the fair market values of this transaction.
Effective June 30, 1996, the Company entered into a consulting agreement with
Morris Munn, father of the Company's President and Chief Executive Officer, in
exchange for certain services. As part of this agreement, over the subsequent
five-years, the Company will pay Mr. Munn $54,000 per annum in equal bi-weekly
installments, and issue to Mr. Munn options to purchase up to 350,000 shares of
the Company's Series A Preferred stock. These options were fully exercised
during July to September 1996, generating net proceeds to the Company totalling
$787,500. Of these proceeds, approximately $127,000 was used pursuant to the
Company's June 30, 1996 settlement with Ann Stevens, a former Company executive
(See "Legal Proceedings."), and $12,500 was used to purchase 834 shares
(adjusted for a 1-for-2 reverse split effected in October 1996) of Decor Group,
Inc.'s Series C Non-Voting, Convertible, Preferred Stock. The balance of
proceeds was retained by the Company to support working capital needs. In
conjunction with the issuance of the options to Mr. Munn, the Company recorded
charges against earnings totaling $87,500 at June 30, 1996.
Pursuant to the Company's June 30, 1996 settlement with Ann Stevens (the
"Settlement"), a former executive of the Company, the Company issued to Ms.
Stevens 50,000 shares of the Company's Class A Common Stock. The Company plans
to register these securities with the Securities and Exchange Commission during
the quarter ended December 31, 1996. Also pursuant to the Settlement, the
Company issued to Michael Levine as escrow agent (the "Escrow Agent") 1,250,000
unregistered shares of the Company's Class B Common shares (the "Escrow
Shares".) The Escrow Shares shall not be voted by the Escrow Agent, unless the
Company defaults on its obligations under the agreement. Upon satisfaction of
such obligations, the Escrow Shares shall be returned by the Escrow Agent to the
Company. (See "Legal Proceedings".) In conjunction with the issuance of the
Company's shares to Ms. Stevens, the Company recorded charges against earnings
totaling $71,400 at June 30, 1996.
During September 1996, pursuant to the Company's Director Stock Option Plan, the
Company issued: 10,000 shares of its Class A Common shares to Roger Lourie, an
outside director of the Company, and 10,000 shares of its Class A Common shares
to various individuals named by Richard Josephberg, also an outside director of
the Company. These shares bear a restrictive legend.
Other than services provided by the Company's investment banking firm, no
services have been provided at the Company's direction by any consultant or
advisor with respect to the issuance or sale of the Company's equity securities.
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7. RECENT DEVELOPMENT
On October 24, 1996, the Company received notification from the Nasdaq Stock
Market, Inc. ("Nasdaq") that the Company's capital and surplus at June 30, 1996
was less than $1,000,000, thereby failing to satisfy a requirement for continued
listing of its securities on The Nasdaq SmallCap Market. The Company is subject
to delisting effective November 18, 1996 if the Company does not demonstrate
that it currently meets all Nasdaq SmallCap Market listing criteria. Because of
equity raised by the Company during the quarter ending September 30, 1996, the
Company's capital and surplus at September 30, 1996 now exceeds $1,000,000 (See
"Financial Statements".) The Company accordingly believes that it now meets all
Nasdaq SmallCap Market listing criteria, and has so advised Nasdaq, providing
Nasdaq with a copy of this filing to support its position.
Item 2. Management's Discussion
The following discussion should be read in conjunction with the
information contained in the financial statements of the Company (the "Financial
Statements") and the Notes (the "Notes") thereto appearing elsewhere herein and
in conjunction with the Management's Discussion and Analysis set forth in the
Company's Form 10-KSB for the fiscal year ended June 30, 1996, which discussion
is incorporated herein by reference.
Results of Operations
Quarter Ended September 30, 1996 as Compared to Quarter Ended September 30,
1995.
The Company's net sales from continuing operations for the first
quarter ended September 30, 1996 decreased by $114,000 or 9% to $1,179,000 from
$1,293,000 for the quarter ended September 30, 1995, restated to reflect the
discontinuation of the company's catalog operation. (See "Discontinuation of
Certain Operations.")
Net sales for the A.P.F. Master Framemakers division for the quarter
ended September 30, 1996 increased $405,000 or 61% to $1,065,000 from $660,000
for the quarter ended September 30, 1995. Net sales for the Italia Collection
subsidiary for the quarter ended September 30, 1996 decreased $519,000 or 82% to
$114,000 from $633,000 for the quarter ended September 30, 1996. The Company has
significantly curtailed the conduct of Italia's business while it finalizes the
reorganization of Italia's operations to improve efficiency, quality, and
controls. (See "Acquisition and Strategic Alliances.") The Company plans to
finalize such reorganization during the quarter ended December 31, 1996.
Thereafter, the Company expects to resume the full operation of Italia, which it
expects will lead to growing revenues and profits. Assurances, however, cannot
be given that the Company's expectations will be realized.
The Company's cost of goods sold as a percentage of net sales decreased
to 53% for the three months ended September 30, 1996, from 55% for the three
months ended September 30, 1995. The reduced cost percentage is primarily due to
an adjustment made during September 1996 to correct an overaccrual of costs
during the prior period. Otherwise, the Company believes
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that the margins generated during the three months ended September 30, 1996 are
largely consistent with those of the three months ended September 30, 1995. The
Company used during the three months ended September 30, 1996 and 1995 the gross
profit method to value inventory. During the quarter ended December 31, 1996,
the Company plans to begin the implementation of a perpetual inventory system.
The Company believes that such a system will enable it to determine product
costing and margins more precisely. Although the Company expects this system to
be fully operational during the quarter ended March 31, 1997, no assurances can
be given that this will occur.
The Company's selling, general and administrative expenses as a
percentage of net sales decreased to 41% for the three months ended September
30, 1996, from 50% for the three months ended September 30, 1995. The Company
has taken certain measures to reduce expenses, leading to this improved ratio of
expenses-to-sales. For example, reductions of administrative personnel have led
to reduced salaries, benefits, and travel expenses. Also discretionary spending
for such items as stationery and supplies, advertising, and consulting fees has
been curtailed. Finally, due to the overall reduction of revenues, sales
commission expenses are reduced in the current period versus the prior period.
Interest expense as a percentage of sales remained at approximately 7% for the
quarter ended September 30, 1996, and the quarter ended September 30, 1995. In
absolute dollars howevery. interest expense is $18,000 lower in the quarter
ended September 30, 1996 versus the prior quarter because of reduced balances in
interest-bearing debt. Interest as a percent of sales is largely unchanged
because of the reduced sales of the current quarter versus the prior quarter.
For the quarter ended September 30, 1996, the Company realized a net
loss of $8,000, which constitutes largely break-even performance, versus a net
loss from continuing operations of $157,000 ($.08 per share), and a loss from
discontinued operations of $42,000 ($.02 per share) for the quarter ended
September 30, 1995.
Liquidity and Capital Resources
At September 30, 1996, no cash balances were recorded as compared to
approximately $519,000 at September 30, 1995. Net cash used in operating
activities during the quarter ended September 30, 1996 totalled approximately
$779,000 compared with net cash used in operating activity of approximately
$922,000 during the quarter ended September 30, 1995. The current period
reduction in the use of cash from operations is largely due to the current
period's net loss of approximately $8,000 versus a net loss of approximately
$199,000 for the quarter ended September 30, 1995. The decrease in accounts
payable and accrued expenses during the quarter ended September 30, 1996 was
largely due to equity raised during the period (see below.)
Net cash used in investing activities during the quarter ended
September 30, 1996 totalled approximately $884,000 versus approximately $181,000
for the quarter ended September 30, 1995. During the current period, the Company
invested $824,000 of cash to acquire 54,934 shares of Series C non-voting
convertible preferred stock of Decor Group, Inc. (See "Acquisitions and
Strategic Alliances.") During the same current period, an additional amount of
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approximately $60,000 was used to acquire equipment, versus approximately
$181,000 for the quarter ended September 30, 1995.
Net cash provided by financing activities was $1,659,000 during the
quarter ended September 30, 1996 versus approximately $1,619,000 during the
quarter ended September 30, 1995. During the current period, the funding was the
result of the exercise by investors of 556,000 Class WA Warrants to acquire
556,000 shares of Class A Common shares and 556,000 Class WB Warrants for an
exercise price of $1.50, and the exercise of an option to acquire 350,000 shares
of Series A Preferred Shares at a net exercise price of $2.25. During the
quarter ended September 30, 1996, the funding was the result of the sale by the
Company of 460,000 shares of Series A Preferred Stock registered by the Company
in September 1995.
As of September 30, 1996, the Company's financial position reflected a
working capital deficit of approximately $1,586,000, versus a working capital
deficit of approximately $2,512,000 at June 30, 1996. Of this working capital
deficit at September 30, 1996, $824,000 is directly attributable to the
Company's direct investment in Decor Group, Inc. (See above.) As of September
30, 1996 versus June 30, 1996, trade receivables increased approximately
$26,000, inventories increased approximately $228,000, and accounts payable and
accrued expenses decreased approximately $616,000, due largely to the proceeds
received from the equity transactions described in the preceding paragraph.
In July 1994, The Company replaced its then existing financing agreement with a
line of credit of up to $950,000 with a New York Bank following the Company's
Initial Public Offering in June 1994. Such borrowings are based on trade
receivables and inventory. The borrowings under such line of credit are secured
by a lien on all personal property and fixtures of the Company and personally
guaranteed by the President and Chief Executive Officer of the Company. In March
1996, the Company agreed with the bank to reduce the line of credit by $10,000
per month. As of the date of this filing, the line of credit has been reduced to
$870,000. This line of credit bears interest at a rate of prime plus 1% (9.25%
as of the date of this filing.) The Company is also seeking alternative sources
of financing to ultimately replace the current line of credit, but there can be
no assurance it will be able to do so.
In connection with the Company's plan to restructure its wholesale business, the
Company, through its wholly owned subsidiary, Italia Collection, Inc.
("Italia"), acquired the businesses of two privately held Florida-based
companies, Murano Crystal Corp. ("Murano") and Ceramic Productions, Corp.
("CPC"), which manufacture and market upscale decorative ceramic accessories to
the home furnishings industry through a showroom in High Point, North Carolina
and a network of sales representatives. Closing on such acquisitions occurred on
October 21, 1994. These acquisitions were accounted for under the purchase
method of accounting. In connection therewith, the Company agreed to pay the
seller on the basis of a formula purchase price computed as a factor of future
earnings from continuing operations, subject to certain adjustments and offsets
in cash and/or Class A Shares. As of the date of this filing, based on the
results of operations of these acquisition, the Company's Management believes
that no liabilities are due to the seller, nor have any liabilities for such
payment been recorded on the Company's financial statements. The parties are
currently in dispute regarding the nature and amount, if any,
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of the consideration necessary. The parties are discussing a resolution to this
matter and in the opinion of management, there will not be any material
adjustment to the Company's financial position or results of operations as a
result of the outcome of such discussions. Upon resolution of these discussions,
appropriate payments, if any, will be made and recorded on the Company's
financial statements.
On February 15, 1995, Italia Collection entered into a Financing Agreement with
a New York based secured lender whereby Italia Collection may borrow pursuant to
an asset-related formula. The agreement remains in effect as of the date of this
filing, and may be terminated by either party upon notice to the other and
payment of the commitment fee for the unexpired term of this agreement. Although
the Company is currently pursuing alternative financing agreements, as of the
date of this filing, no such arrangements have been finalized. According to the
current agreement, the lender, upon confirmation of shipments, will advance
Italia Collection 70% of the receivable. Upon collection of the receivable, the
lender remits the balance of 30%. Interest is calculated on the daily cash
balance at the rate of prime plus 9% per annum (17.25% as of the date of this
filing) or a minimum of 18% per annum against a minimum monthly defined
compensation of $3,000. As of the date of this filing, the amount due to the
lender was approximately $750,000. In addition, the secured lender received
personal guarantees from Max Munn, President and Chief Executive Officer of the
Company, and his spouse. During February 1996, the Company's President and Chief
Executive Officer arranged for $160,000 additional financing from this lender at
the rates in effect for existing loans. The President and Chief Executive
Officer, and his spouse, have provided personal guarantees for this additional
funding, in addition to a security interest in certain real estate and Company
stock owned by his spouse. Of these proceeds, approximately $121,000 was used to
pay outstanding tax liabilities. The balance of the proceeds was loaned by the
Company to the President and Chief Executive Officer. A $38,000 demand loan
dated February 8, 1996, bearing an annual rate of interest of 18% was executed
by the President and Chief Executive Officer, and countersigned by the Chief
Financial Officer. On May 13, 1996, the Company's Board of Directors affirmed by
majority vote the loan by the Company to its President and Chief Executive
Officer. The principal balance of the loan will be partially offset by
rereimbursed business expenses generated by the President and Chief Executive
Officer. The remaining loan balance will be repaid by the President and Chief
Executive Officer to the Company, with interest as provided above, during the
twelve months ended October 1997.
In March 1996, the Company executed an agreement with the Internal Revenue
Service (the "Service") for the payment of outstanding payroll tax liabilities
totalling approximately $100,000. The agreement will require the Company to pay
approximately $9,000 per month for approximately 14 months for this purpose. As
of the date of this filing, all such tax liabilities are being paid on a timely
basis.
On November 23, 1994, the Company borrowed the sum of $225,000 from Ekistics
Corp., a Bahamian corporation, pursuant to a promissory note due March 30, 1995,
together with interest at the rate of 14% per annum and a 5% financing charge.
In April 1995, the Company paid $25,000, plus interest on account of the
principal amount of said Note and entered into a revised note for the $200,000
balance with such revised note providing for payment of principal on
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October 20, 1995, having an interest rate of 14% per annum and being convertible
into 80,000 shares of Preferred Stock and 40,000 Class WC Warrants. On December
15, 1995, this conversion took place. The 80,000 Preferred Shares and 40,000 WC
Warrants were registered in a Registration Statement declared effective
September 18, 1996.
In August 1995, the Company agreed to issue, at a future date, 60,000 Class A
Common shares in settlement of all current and future liabilities under a
two-year Marketing and Organizational Agreement (the "Marketing Agreement") with
a consulting firm dated January 4, 1994. The Company's Board of Directors
approved the issuance of such shares in November 1995. The Company is planning
to register these securities with the Securities and Exchange Commission during
the quarter ended December 31, 1996. In conjunction with the issuance of these
shares, approximately $105,000 of charges against earnings were recorded during
the year ended June 30, 1996.
In June and July 1995, the Company delivered to unaffiliated parties promissory
notes in the aggregate amount of $300,000 with interest at the rate of 10% per
annum (the "10% Notes") and promissory notes in the principal amount of $100,000
with interest at the rate of 6% per annum (the "6% Notes".) The 10% Notes and 6%
Notes were each payable in June and July 1996 or the closing of the sale by the
Company of an issue of Preferred Stock, whichever is earlier. The 6% Notes were
convertible, in whole or in part, at the option of the holder, into a maximum of
2,000,000 WC Warrants entitling the holders for a period of five years to
purchase one share of Preferred Stock per Class WC Warrant at a price of $5.50
per share. These Warrants are redeemable by the Company. The Notes were secured
by a lien on the Company's assets. In September 1995 the Company repaid all 10%
Notes in full, plus all accrued interest for both the 10% Notes and 6% Notes.
All holders of 6% Notes have converted in full, into a total of 2,000,000 Class
WC Warrants, which were registered in a Registration Statement declared
effective by the Securities and Exchange Commission on September 18, 1995.
In September 1995, the Company issued 460,000 shares of Series A, 10% Cumulative
Convertible Preferred Stock ("Preferred Stock") and 230,000 Redeemable Class WC
Warrants ("Warrants") to purchase Preferred Stock at the exercise price of $5.50
per share. The net proceeds from this Offering were approximately $1,633,000,
including over-allotments. Each share of Preferred Stock is convertible,
commencing one year from the date of issue, subject to adjustment, into three
shares of Class A Common Stock of the Company.
In September 1995, the Company lowered the exercise price of the Company's Class
WA Warrant to $1.50 per share and arranged to place 180,000 shares of the
Company's Class A shares which were previously sold pursuant to a "Regulation S"
private placement into escrow. These shares were sold in January 1996 to
unrelated parties pursuant to a restructuring of a note payable by the Company
to the holder of these shares as discussed below. On July 16, 1996, the Company
filed a Registration Statement with the Securities and Exchange Commission to
register the Class WA Warrants and underlying Common A Shares. The Commission
declared this Registration Statement effective on July 19, 1996. Through the
date of this filing, 635,252 of the Company's Class WA Warrants were exercised
at $1.50 per warrant, generating proceeds to the Company totaling $952,878. Of
these proceeds, $811,500 was used to purchase 54,100 shares of
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Decor Group,Inc.'s ("Decor") Series C Non-Voting, Convertible, Preferred Stock,
adjusted to reflect a 1-for-2 reverse split effected by Decor in October 1996.
The balance of the proceeds was retained by the Company for working capital
needs, and for the provision of loans to Decor Group, Inc.
On October 16, 1995, the Company entered into an agreement to restructure a
promissory note dated May 1995, with the principal amount of $500,000 bearing
interest at the rate of 18% per annum with the principal which was due and
payable in full on September 30, 1995 and a $150,000 note dated May 12, 1995,
bearing interest at the rate of 18% payable monthly with 135% of the principal
which was also due and payable in full on September 30, 1995 with a Nevis, BWI
Corporation. As of October 16, 1995 the parties agreed the Company owes the
lender, including interest and monthly extension fees of approximately $102,500
through December 15, 1995, an aggregate amount of approximately $805,000.
Pursuant to the new agreement, the Company paid $405,000 to the Nevis
Corporation upon acceptance of the agreement. The Company also delivered a
Promissory Note in the principal amount of approximately $400,000, in extension
and replacement of the remaining balance due and payable of $180,000 on or
before December 15, 1995 and $220,000 on July 31, 1996. The new agreement also
stipulates that the lender shall sell the 180,000 shares of the Company's Class
A Common Stock, held in escrow by the lender, for $180,000 to an unaffiliated
third party. The proceeds of such sale will be applied against the note and
during January 1996. In addition, during December 1995, the Company issued to
the lender 35,000 unregistered shares of Class A Common Stock. Such shares shall
be afforded a piggyback registration right for all registration statements filed
by the Company before July 31, 1996 and a one time demand registration right
commencing after July 31, 1996. Approximately $25,000 was charged against
earnings during the quarter ended December 31, 1995 in conjunction with the
issuance of these shares. The promissory note is also guaranteed by Max Munn,
President and Chief Executive Officer of the Company. The note is collateralized
by 600,000 shares of the Company's Class A Common Stock owned by the Company's
Italia Collections Inc. subsidiary. The Company has reached a general agreement
with this lender to restructure the repayment schedule of approximately $245,000
of outstanding principal and interest payable.
In December 1995, in consideration for certain services rendered, 10,000 shares
of the Company's Class A Common Stock were issued to various individuals related
to Richard Josephberg, an outside Director of the Company. Approximately $7,000
was charged against earnings during the quarter ended December 31, 1995 in
conjunction with the issuance of these shares.
In January 1996, the Company's Board of Directors elected to lower the exercise
price of the Company's Class WB Warrant to $2.00 per Class A Common share,
subject to the filing and effectiveness of a Registration Statement with the
Securities and Exchange Commission. Such Registration Statement was filed with
the Commission on July 16, 1996 and declared effective on July 19, 1996. Through
the date of this filing, 90,636 of the Company's Class WB Options have been
exercised at an exercise price of $2.00, generating proceeds to the Company of
$181,272. These proceeds were used by the Company to support working capital
needs, and for the provision of loans to Decor Group, Inc.
22
<PAGE>
In February 1996, the Company's Board of Directors declared a stock dividend
equivalent to $0.25 per share to its Series A 10% Cumulative Convertible
Preferred Stockholders of record as of the close of business on February 23,
1996 (the record date.) Payment was made on March 1, 1996 by the issuance of
0.10231 of a share of the Company's Class A Common Stock for each share of
Series A Preferred Stock held of record on the record date. Accordingly, 55,247
shares of the Company's Class A Common Stock was issued for this purpose.
Retained earnings was charged $165,741 in March 1996 in conjunction with the
issuance of these shares. As of the date of this filing, the Company has not
declared or established a record date for a dividend for its Series A 10%
Cumulative Convertible Preferred Stock for September 1996.
In February 1996, the Company's Board of Directors approved the issuance to Sol
Munn of 150,000 shares of the Company's Class A Common Stock, in consideration
for past consulting services provided. The Company is planning to register these
securities with the Securities and Exchange Commission during the quarter ended
December 31, 1996. These shares, which bear a restrictive legend, were issued on
April 12, 1996. In conjunction with the issuance of these shares, approximately
$54,000 of charges were recorded against earnings during the year ended June 30,
1996.
On March 3, 1996, the Company acquired 250,000 shares of Series A Convertible
Preferred Stock and an option to purchase 10,000,000 shares (the "Option
Shares") of Series B Non-Convertible Voting Preferred Stock of Decor Group,
Inc., ("Decor") in exchange for issuance to Decor by the Company of 200,000
shares of its Class A Common stock and 200,000 shares of its Series A
Convertible Preferred stock and a guarantee with respect to certain indebtedness
should such indebtedness become necessary. (The Decor securities are adjusted to
reflect a 1-for-2 reverse split effected by Decor in October 1996.) Also, the
Company exercised its option to purchase the Option Shares in September 1996,
for total cash consideration of $2,000. Concurrent with the exercise of this
option, the Company executed a Voting Agreement (the "Voting Agreement") to vest
the power to vote the Option Shares in a Voting Trust (the "Voting Trust".) The
Voting Agreement will expire on December 31, 1997. The Voting Trust shall
comprise three individuals: the Company's President and Chief Executive Officer
(and also the Chairman of the Board of Decor), and two Directors of Decor who
are otherwise unrelated to the Company. Conversion of the 250,000 shares of
Series A Convertible Preferred stock into common stock would give the Company
approximately 88.6% of the voting stock of Decor as of the date of this filing.
On November 12, 1996, (the "Effective Date") a public offering by Decor of
certain of its securities was declared effective by the Securities and Exchange
Commission. Subsequent to this effective date, the Company will own
approximately 86.0% of the total voting stock of Decor. The holding in Decor
will be recorded on the Company's financial statements under the equity method
of accounting until such time the Company obtains unconditional and effective
control of Decor, which is expected to occur upon the expiration of the Voting
Agreement.
In April 1996, the Company's investment banking firm arranged for the private
placement of 175,000 shares of the Company's Common A Stock and 50,000 shares of
the Company's Series A Preferred Stock. These shares, all of which bear a
restrictive legend, were issued on April 24,
23
<PAGE>
1996 to various independent investors (the "Investors") generating gross
proceeds of $431,251. The Company realized net proceeds of $310,609 which was
used to pay certain outstanding liabilities. Commencing thirty (30) days
following the date of the close of the private placement, any of the Investors
had the right to demand in writing (the "Demand Notice") that the Company file a
registration statement with the Securities and Exchange Commission (the
"Commission") which shall cover the shares and allow the Investor to sell the
shares to the public. Within fifteen (15) days following receipt of the Demand
Notice, the Company is required to file such registration statement and use its
best efforts to have such registration statement declared effective by the
Commission and such state securities regulators as reasonably requested by the
Investor. The Company is planning to register these securities with the
Securities and Exchange Commission during the quarter ended December 31, 1996.
On April 4, the Company's Board of Directors resolved to issue 250,000 shares of
the Company's Class B Common Stock to Laurie Munn, wife of the Company's
President and Chief Executive Officer. This issuance is in consideration for a
down payment of $250, Ms. Munn's 6.6% note to the Company providing for
principal of $437,500 to be paid to the Company in five equal annual
installments of $105,561.90, and Ms. Munn's guarantee and pledge of her assets
for certain Company debt. The shares were issued to Ms. Munn on April 8, 1996.
Ms. Munn has executed a Promissory Note and Security Agreement in conjunction
with the issuance of these shares. The Company obtained an appraisal to
determine the fair market values of this transaction.
Effective June 30, 1996, the Company entered into a consulting agreement with
Morris Munn, father of the Company's President and Chief Executive Officer, in
exchange for certain services. As part of this agreement, over the subsequent
five-years, the Company will pay Mr. Munn $54,000 per annum in equal bi-weekly
installments, and issue to Mr. Munn options to purchase up to 350,000 shares of
the Company's Series A Preferred stock. These options were fully exercised
during July to September 1996, generating net proceeds to the Company totalling
$787,500. Of these proceeds, approximately $127,000 was used pursuant to the
Company's June 30, 1996 settlement with Ann Stevens, a former Company executive
(See "Legal Proceedings."), and $12,500 was used to purchase 834 shares of Decor
Group, Inc.'s Series C Non-Voting, Convertible, Preferred Stock. The balance of
proceeds was retained by the Company to support working capital needs. In
conjunction with the issuance of the options to Mr. Munn, the Company recorded
charges against earnings totaling $87,500 at June 30, 1996.
Pursuant to the Company's June 30, 1996 settlement with Ann Stevens (the
"Settlement"), a former executive of the Company, the Company issued to Ms.
Stevens 50,000 shares of the Company's Class A Common Stock. The Company is
planning to register these securities with the Securities and Exchange
Commission during the quarter ended December 31, 1996. Also pursuant to the
Settlement, the Company issued to Michael Levine as escrow agent (the "Escrow
Agent") 1,250,000 unregistered shares of the Company's Class B Common shares
(the "Escrow Shares".) The Escrow Shares shall not be voted by the Escrow Agent,
unless the Company defaults on its obligations under the agreement. Upon
satisfaction of such obligations, the Escrow Shares shall be returned by the
Escrow Agent to the Company. (See "Legal Proceedings".) In conjunction with the
issuance of the Company's shares to Ms. Stevens, the Company recorded charges
against earnings totaling $71,400 at June 30, 1996.
24
<PAGE>
As part of the Company's investment in Decor, during the months of August and
September 1996, the Company purchased 54,934 shares of Decor's Series C
Non-Voting, Convertible, Preferred Stock, adjusted to reflect a 1-for-2 reverse
split effected by Decor in October 1996, at a cost of $824,000. As disclosed
above, the funds for this investment were generated from two sources: 1)
$811,500 of the $952,878 proceeds generated by the Company from the exercise of
$952,878 of its Class WA Warrants through the date of this filing were so used,
and 2) $12,500 of the $787,500 proceeds generated by the Company from the
exercise by Morris Munn, father of the Company's President and Chief Executive
Officer, of an option to purchase 350,000 shares of the Company's Series A
Preferred Shares were also so used.
During September 1996, pursuant to the Company's Director Stock Option Plan, the
Company issued: 10,000 shares of its Class A Common shares to Roger Lourie, an
outside director of the Company, and 10,000 shares of its Class A Common shares
to various individuals named by Richard Josephberg, also an outside director of
the Company. These shares bear a restrictive legend.
Except as otherwise set forth herein, the Company has no material commitments
for capital expenditures other than for ordinary expenses incurred during the
usual course of business. In order to fund growth over the long term, the
Company anticipates possible future issuance of its securities resulting in
further dilution to its security holders.
Management believes that cash flow from operations as they currently exist are
not sufficient to support such operations. Accordingly, Company management is
now identifying and implementing what it believes to be the corrective changes
deemed necessary. Specific action taken as of the date of this filing include
the following: a) The Company is seeking either the acquisition of or entering
into strategic alliances with unrelated companies in the decorative accessories
industry. As part of this strategy, a public offering of certain securities of
Decor Group, Inc. ("Decor"), an affiliate of the Company, has been declared
effective by the Securities and Exchange Commission on November 12, 1996 (the
"Effective Date".) Contemporaneously with the effective date, Decor expects to
acquire substantially all of the operating assets and assume certain liabilities
of Artisan House, Inc., a California based manufacturer and distributor of metal
wall, table, and freestanding sculptures. ( see "Acquisitions and Strategic
Alliances."), b) Due to declining revenues and high operating costs, the Company
has discontinued its catalog business effective March 31, 1996 (See
"Discontinuation of Certain Operations."), c) Beginning with the quarter ended
March 31, 1996, the Company has begun to reduce operating expenses through a
combination of staff reductions and expense controls, d) The Company is
currently restructuring the operations of its Italia Collections subsidiary in
an effort to generate greater revenues and operating margins (See "Acquisitions
and Strategic Alliances".), and e) The Company is seeking additional sources of
revenues. Two specific initiatives have been announced as of the date of this
filing. On September 17, 1996, the Company announced that it has signed an
exclusive licensing agreement to reproduce the artwork of James Rizzi, a noted
contemporary artist, for decorative accessories in ceramic and related
materials. Also, on October 12, 1996, the Company announced that it has entered
into an exclusive three year agreement with a major party plan marketer of
customized, canvas based enlargements of photographs. No assurances can be
25
<PAGE>
given that these, or any subsequent initiatives by the Company will produce the
desired positive cash flow from operations.
The Company has no current plans to employ financing strategies which will
materially affect the Company's operating results or financial condition, other
than those disclosed herein.
While the Company operates pursuant to a policy that generally precludes
acceptance of goods on a non-cash basis (sometimes known as barter
transactions), the Company does from time to time execute upon goods provided by
a customer in the event of non-payment by that customer.
Impact of Inflation
The Company does not believe that inflation has had a material adverse
effect on sales or income during the past several years. Increases in supplies
and other operating costs could adversely affect the Company's operations.
However, the Company believes it could increase prices to offset increases in
cost of goods sold or other operating costs.
Sales Variations
Although the Company's net sales are not subject to seasonality
fluctuations experienced by certain retailers, the Company experiences some
minor variations in the level of sales by quarter. The first quarter of the
fiscal year (i.e., July 1 through September 30) is generally the Company's
slowest sales period due to the fact that the summer period is typically the
period when art galleries are at their slowest purchasing period. During this
period, the Company's warehouse and factory closes for three to five days to
take the annual physical inventory and to consolidate vacation periods for the
Company's employees.
26
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceeding
During April and May of 1995, Hide Tashiro commenced two law suits totaling
$225,000 (plus interest and attorneys' fees) against the Company and others. The
Company believes it has meritorious defenses against these claims. In April 1996
the plaintiff's motions for summary judgement were denied and the court held
that there was an issue of fact to be tried.
On or about December 28, 1994, Merrill Corp. filed a complaint in the Supreme
Court of the State of New York, county of New York against the Company seeking
payment for goods sold and delivered to the Company. The matter was settled in
July 1996.
In July 1995, the Company through its attorneys made demand against Morgan Steel
Ltd. the office of which is located on the Isle of Man, England, for the payment
to the Company of $362,507 on account of a perceived violation of Section 16 (b)
of the Securities and Exchange Act. No response to said demand for payment has
been made to date. On May 23, 1996, the Company's Board of Directors resolved
that the Company and its officers and directors undertake no action given the
uncertainty of the cost of collectibility, and ultimate legal liability of
Morgan Steel Ltd. either in the United States or the Isle of Man.
Gear Holdings, Inc. brought an action against the Company for the alleged breach
of a licensing agreement. The Company denies that it was a party to an agreement
with Gear, or that any sum of money is owed. The complaint demands sums Gear
allegedly would have received under the agreement in a sum to be determined, but
not less than $250,000.
On October 13, 1995, Ted Stevens, individually, as a Shareholder and Director
and Morris Munn, individually and as a Director and on behalf of themselves and
all other similarly situated Shareholders and Directors of the Company filed a
complaint in the Supreme Court of the State of New York, County of Westchester,
against the Company and its directors seeking unspecified damages and certain
changes in the composition of the Company's Board.
On December 1, 1995, Ted Stevens filed a complaint in United States District
Court, Southern District of New York, against Laurie Munn and American Stock
Transfer & Trust Company seeking, among other things, the equitable recission of
a stock sale agreement between Mr. Stevens and Ms. Munn. On February 29, 1996,
the Court held that Mr. Stevens did not have the right to recission and denied
Mr. Stevens' motion for a preliminary injunction and on April 17, 1996, the
Court dismissed the action for lack of subject matter jurisdiction.
On December 12, 1995, Ann Stevens filed a complaint in the Supreme Court of the
State of New York, County of Nassau against the Company and certain Directors
deeking, among other things, compensatory and punitive damages arising out of
the alleged breach of Ann Stevens' Employment Agreement.
27
<PAGE>
On April 23, 1996, Ted Stevens filed a complaint in the Court of Chancery of the
State of Delaware against the Company and certain Directors, seeking among other
things, the recission of a certain stock sale agreement between the Company and
Laurie Munn.
In July 1996, all litigation brought against the Company and its principals and
Directors by Ted Stevens, Ann Stevens and Morris Munn was settled. Settlement of
the lawsuits by Ted Stevens and Morris Munn against the Company and its officers
and Directors are subject to Court approval.
The litigation relating to the termination of the 1995 employment agreement
between Ann Stevens and the Company has been settled by the execution of an
employment severance agreement (the "Agreement"). Pursuant to the Agreement, the
Company paid Ms. Stevens $63,000 for accrued and unpaid compensation upon
execution of the Agreement. Subsequently, for a period of seven years, the
Company will make bi-weekly payments to Ms. Stevens to total $72,000 for the
first year, $70,000 for each of the next three years, and $50,000 for each of
the final three years. As additional compensation, the Company will pay Ms.
Stevens for reimbursement of certain expenses, $50,000 in various installments
during the four months ending December 1996. The Company also entered into a
non-compete agreement with Ms. Stevens for which the Company will make bi-weekly
payments to Ms. Stevens to total $25,000 per year for seven years, plus
automobile and insurance costs for five years. As of June 30, 1996, the Company
issued to Ms. Stevens 50,000 shares of the Company's Class A Common Shares,
which were previously commited to Ms. Stevens pursuant to her 1995 employment
agreement. As of June 30, 1996, the Company issued 1,250,000 shares of its Class
B Common Shares (the "Escrow Shares") to Michael Levine, Esq., attorney of Ms.
Stevens, as escrow agent (the "Escrow Agent"). The Escrow Agent shall abstain
from voting the Escrow Shares for any purpose, except in the event of either the
failure by the Company to adhere to the payment provisions noted above or the
financial insolvency of the Company. If either event occurs, Ms. Stevens will be
in a position to elect replacement Directors. Once the payment provisions in the
severance and non-compete agreements are satisfied, the Escrow Agent shall
return the Escrow Shares to the Company.
The Munn Trust of 1975, Sol Munn and Evelyn A. Munn, Co-Trustees commenced an
action against the Company as well as Max Munn, the Company's President and
Chief Executive Officer and Laurie Munn, his wife.
SJP Contractors of New York, Inc. commenced an action in September 1996 against
the predecessor entity of the Company, A.P.F. Holdings, Inc. , and others for
$208,165 for work, labor and services allegedly performed in January 1991 for
the renovation of the Company's premises. The Company's answer pleads that
payment was made for the amount owed.
Artagraph Reproduction Technology, Inc., a Canadian company, brought an action
against the Company demanding the sum of $27,838.08 plus attorney's fees,
alleging that the Company was obligated to deliver a confession of judgement in
connection with the sale of merchandise.
28
<PAGE>
Artagraph seeks injunctive relief; the Company is not aware of a determination
of this motion by the Court and denies any obligation to Artagraph.
In September 1991, without admitting or denying the allegations, Max Munn, the
Company's President and Chief Executive Officer agreed with the Federal Trade
Commission (FTC) to the entry of a Consent Order in an action brought against
Mr. Munn and others; which action arose out of the advertisisng of certain
lithographs of original works of art as regards to whether or not the artist had
played a substantial role in the production of lithographs. The case was settled
before trial or discovery solely with entry of the above Consent Order; which
enjoins Mr. Munn from making certain representations in connection with the sale
of any works of art. The Consent Order also requires Mr. Munn for a period of
five years (which expired as of September 1996) as to the maintenance of certain
records as they concern the sale of certain lithographs.
The Company is subject to other claims and litigation in the ordinary course of
business. In management's opinion, such claims are not material to the Company's
financial position or its results of operations
Item 2. Changes in Securities
None in addition to those disclosed herein.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re: computation of per share earnings.
27 Financial data summary.
(b) Reports on Form 8-K
During the Three Months Ended September 30, 1996, no report on
Form 8-K was filed.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security exchange Act of 1934, the
registrant has duly caused 0 this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERIORS, INC.
November 15, 1996 By: /s/Max Munn
--------------------------------
Max Munn, President and
chief Executive office
November 15, 1996 By: /s/Michael J. Amore
--------------------------------
Micahel J. Amore, Vice President
and Chief Financial Officer
Interiors, Inc
Earnings Per Share
September 30, 1996
<TABLE>
<CAPTION>
Exhibit 11
COMMON A SHARES QTY DAYS O/S WEIGHTED
- ------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
As of IPO 517,500 92/92 517,500
Conversion of Bridge Loan units 300,000 92/92 300,000
Sale to Morgan Steel 2/10/95 200,000 92/92 200,000
Ted Stevens conversion of B shares 117,500 92/92 117,500
Reg S sale to Canillo 3/29/95 55,000 92/92 55,000
Class A sh sold to various 92/92
investors on 4/25/95 300,000 92/92 300,000
Subscription agreement Ekistics 92/92
4/24/95 80,000 92/92 80,000
Conversion B shares 8/95 330,000 92/92 330,000
Iss'd to various investors 7/95 55,000 92/92 55,000
Iss'd to various investors - 12/15/95 10,000 92/92 10,000
Iss'd to Infinity Investors - 12/17/95 30,000 92/92 30,000
Iss'd to Infinity Investors - 12/18/95 5,000 92/92 5,000
Sold by Infinity Investors - 1/8/96 180,000 92/92 180,000
Iss'd to various investors - 3/1/96 1,529 92/92 1,529
Iss'd to Decor - 3/3/96 200,000 92/92 200,000
Iss'd to various investors - 3/4/96 53,718 92/92 53,718
Iss'd to Sol Munn - 4/12/96 150,000 92/92 150,000
Iss'd to R. Leopold - 4/16/96 60,000 92/92 60,000
Private placement - 4/24/96 175,000 92/92 175,000
--------- ----------
Com A sh O/S per Form 10K - 6/96 2,820,247 2,820,247
COMMON B SHARES
- ---------------
As of IPO 1,000,000 92/92 1,000,000
Ted Stevens conversion of B shares (117,500) 92/92 (117,500)
Conversion B shares 8/95 (330,000) 92/92 (330,000)
Issued to Laurie Munn - 4/12/96 250,000 92/92 250,000
Correct prior period issuance (13,000) 92/92 (13,000)
-------- ----------
Com B sh O/S per Form 10K - 6/96 789,500 789,500
-------- ----------
Tot Com A & B sh @ June 1996 3,609,747 3,609,747
ACTIVITY - QTR ENDED 9/96
- -------------------------
Common A shares
- ---------------
Exercise of 500,000 Cl WA Wts-Aug 6, 1996 500,000 56/92 304,348
Exercise of 500 Cl WA Wts-Aug 22, 1996 500 40/92 217
Exercise of 5,500 Cl WA Wts-Sep 5, 1996 5,500 26/92 1,554
Exercise of 35,000 Cl WA Wts- ep 6, 1996 35,000 25/92 9,511
Exercise of 10,000 Cl WA Wts-Sep 18, 1996 10,000 13/92 1,413
Exercise of 5,000 Cl WA Wts-Sep 25, 1996 5,000 6/92 326
-------- ----------
Com A Sh issued - Qtr end 9/96 556,000 317,369
-------- ----------
Total Common A Sh. @ 9/30/96 3,376,247 3,137,616
-------- ----------
Common B shares
- ---------------
-------- ----------
Com B Sh issued - Qtr end 9/96
-------- ----------
Total Common B Sh. @ 9/30/96 789,500 789,500
-------- ----------
Com A & B sh iss'd - Qtr end 9/96 556,000 317,369
-------- ----------
Tot Com A & B sh @ Sept 1996 4,165,747 3,927,116
======== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 851,044
<ALLOWANCES> 40,000
<INVENTORY> 1,949,565
<CURRENT-ASSETS> 3,110,174
<PP&E> 2,351,349
<DEPRECIATION> 1,152,100
<TOTAL-ASSETS> 5,733,039
<CURRENT-LIABILITIES> 4,696,062
<BONDS> 0
0
11,400
<COMMON> 6,066
<OTHER-SE> (438,100)
<TOTAL-LIABILITY-AND-EQUITY> 5,733,039
<SALES> 1,179,170
<TOTAL-REVENUES> 1,179,170
<CGS> 621,453
<TOTAL-COSTS> 621,453
<OTHER-EXPENSES> 488,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,240
<INCOME-PRETAX> (7,594)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,594)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,594)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
