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As filed with the Securities and Exchange Commission on
January 14, 1997 Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM S-8
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
INTERIORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-35900047
-------- -----------
(State or other juris- (I.R.S. Employer
diction of organization) Identification No.)
60,000 SHARES OF CLASS A COMMON STOCK
ISSUED PURSUANT TO AN AGREEMENT DATED NOVEMBER 13, 1995
Max Munn
President
Interiors, Inc.
320 Washington Street
Mt. Vernon, NY 10553
(914) 665-5400
(Name, address and telephone number,
including area code, of agent for service)
COPIES TO:
Hartley T. Bernstein, Esq.
Bernstein & Wasserman, LLP
950 Third Avenue
New York, New York 10022
(212) 826-0730
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box: /X/
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CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
Proposed
Proposed maximum
Title of Amount maximum aggregate Amount of
securities to be offering price offering registration
to be registered registered per Share(1) price(1) fee
- ---------------- ---------- -------------- -------- -------------
Class A Common 60,000 $2.00 $ 120,000 $36.36
Stock, par value
$.001 per share
(1) Estimated solely for the purpose of calculating the registration fee
based upon the average of bid and asked closing prices of the shares of
the Class A Common Stock on January 6, 1997 of $1.94 and $2.06 as
reported on The Nasdaq SmallCap Market.
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PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item 1. Plan Information
Item 2. Registrant Information and Employee Plan Annual Information
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PROSPECTUS
INTERIORS, INC.
60,000 Shares of Class A Common Stock,
To be sold by a Selling Stockholder
This Prospectus relates to the resale or offer for sale from time to
time of 60,000 shares (the "Shares") of Class A Common Stock, $.001 par value
(the "Class A Common Stock"), of Interiors, Inc., a Delaware corporation (the
"Company"). Such Shares were acquired by the Selling Stockholder pursuant to a
certain Marketing and Organizational Agreement, and a subsequent amendment
thereto, between the Company and the Selling Stockholder. The Class A Stock is
quoted on The Nasdaq Small Cap Market ("Nasdaq") under the symbol "INTXA". The
Shares may be offered for sale by the Selling Stockholder from time to time
through or to brokers in the over-the-counter market or otherwise at prices
acceptable to the Selling Stockholder. The Company will not receive any of the
proceeds from the sale of the Shares pursuant to this Prospectus. All costs
incurred in connection with the registration of the Shares are being borne by
the Company. See "The Offering".
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS
WHICH BEGINS ON PAGE 19."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No dealer, salesman or other person has been authorized to give any
information or make any representations not contained in this Prospectus and if
given or made, such information or representations must not be relied upon as
having been authorized by the Company. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since the date
hereof. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby in any jurisdiction to
any person to make such offer or solicitation in such jurisdiction.
The date of this Prospectus is January , 1997
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AVAILABLE INFORMATION
The Company filed with the Commission in Washington, D.C. a
Registration Statement on Form SB-2 under the Securities Act of 1933, as amended
(the "Securities Act), with respect to the securities described herein. The
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement and to the exhibits filed as a part thereof.
Summaries and reference to the contents of any contract or other document is not
necessarily complete and, in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith, files reports, proxy statements and other information
including annual and quarterly reports on Forms 10-KSB and 10-QSB (File No.
0-24352) (the "1934 Act Filings") with the Securities and Exchange Commission
(the "Commission"). For further information about the Company and the securities
described herein, reference is made to the Registration Statement and to the
exhibits filed therewith. The Registration Statement, including the exhibits
thereto, and the Company's 1934 Act Filings may be inspected at: (i) the public
reference facilities of the Commission located at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549; and (ii) the offices of the
Commission located at Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, Illinois 60661, and the offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material may
also be obtained upon request and payment of the appropriate fee from the Public
Reference Section of the Commission located at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
on the Internet (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission through the Electronic Data Gathering,
Analysis, and Retrieval System (EDGAR).
DOCUMENTS INCORPORATED BY REFERENCE
The following documents or portions thereof, as filed with the
Securities and Exchange Commission by Interiors, Inc., a Delaware corporation
(the "Corporation"), are incorporated herein by reference:
(1) Annual Report on Form 10-KSB for the year ended June 30, 1996
(2) Quarterly Report on Form 10-QSB for the period ended September 30,
1996.
(3) The description of the Class A Common Stock, par value $.001 per
share ("Class A Common Stock"), of the Corporation contained in the
Corporation's registration statement filed under Section 12 of the Exchange Act,
including any amendment or report filed for the purpose of updating such
description.
All documents filed by the Corporation pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), subsequent to the effective date of this Registration Statement and prior
to the filing of a post-effective amendment which indicate that all securities
offered have been sold or
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which registers all securities then remaining unsold, shall be deemed
to be incorporated by reference in the Registration Statement and to be part
thereof from the date of filing such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this registration statement
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this registration statement.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the request of any such person, a copy of any or all
of the foregoing documents incorporated herein by reference (other than exhibits
to such documents). Written or telephone requests should be directed to Max
Munn, President, Interiors, Inc., 320 Washington Street, Mt. Vernon, New York
10553, telephone (914) 665-5400.
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THE COMPANY
The Company was incorporated in October 1990 under the name A.P.F.
Holdings, Inc., a New York corporation ("A.P.F.") and merged with and into
Interiors, Inc., a Delaware corporation in March 1994. It has been engaged since
1990, through its A.P.F. Master Framemakers and Conservators Division ("A.P.F.
Master Framemakers"), in the manufacturing and marketing of museum quality
traditional and contemporary picture and mirror frames to museums, art
galleries, decorators, collectors and frame retailers. The Company is qualified
to do business in New York under the name A.P.F. Master Framemakers.
The Company operates three showrooms, one at 75th Street in Manhattan,
one in "Old City" in Philadelphia and one at the Company's Mt. Vernon location.
The sales generated from the Manhattan showroom were approximately $821,000 and
$474,000 for the quarters ended September 30, 1996 and 1995, respectively. The
Philadelphia showroom generated sales of approximately $33,000 and $57,000 for
the quarters ended September 30, 1996 and 1995, respectively. The Company's
showroom in Mt. Vernon, New York, conducts business with upscale custom picture
frame shops located throughout the country. Sales generated from the Mt. Vernon
showroom were approximately $211,000 and $370,000 for the quarters ending
September 30, 1996 and September 30, 1995, respectively.
The Company believes that the decorative accessory supply industry will
consolidate as major retailers attempt to increase their "single-sourcing" in
order to reduce distribution and related expenses. The Company intends to
capitalize on the fragmented nature of the supply side of the home decorative
accessory industry and the consolidation of such industry through either
strategic alliances or the acquisition of manufacturers and distributors of
art-related decorative accessories. Through such means, the Company intends to
increase the number and nature of products manufactured by the Company, thereby
expanding its presence in the decorative accessories market. Such products will
be offered for sale by the Company through its existing segments or other newly
created units. Management believes that increasing the number and kinds of
products it manufactures will enhance its ability to expand its wholesale
operations as the Company develops the ability to market "whole room" packages
of accessories to furniture and department stores.
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A.P.F. Master Framemakers
The Company's custom picture frames are marketed primarily to museums,
better art galleries, upscale frame shops and decorators, as well as collectors
of important works of art under the trade name "A.P.F. Master Framemakers and
Conservators" (previously defined and hereinafter referred to as "A.P.F. Master
Framemakers"). A.P.F. Master Framemakers' customers have included nationally
known museums, art institutes and galleries.
There are approximately 15,000 picture frame retailers in the United
States alone. In management's opinion, approximately 3,000 of these serve
markets which the Company believes may be sufficiently affluent to support the
Company's product line. The A.P.F. Master Framemakers division now conducts
business with only approximately 300 of these retailers, or about 10% of this
market segment. The Company plans to expand its sales to the "high-end" of this
industry.
Prices on individual custom-made frames range from $100 to well over
$10,000 with the majority under $5,000. The Company has crafted several single
frames in excess of $20,000 each during the last three years. The Company
utilizes varying discount and pricing structures for its different market
segments, with frame retailers receiving the largest price discount and art
collectors receiving minimal price reductions depending on the level of
aggregate annual purchases and the degree of customization requested.
Historically, The A.P.F. Master Framemakers division has not experienced
significant returns since its business is generated from orders for custom-made
products.
Italia Collection
On October 21, 1994 (the "Closing Date") the Company, through its
newly-formed wholly-owned subsidiary, Italia, acquired all of the issued and
outstanding stock of Murano Crystal Corp. ("Murano"), a Florida corporation
doing business under the name "Italia Collection," pursuant to the terms of a
certain stock purchase agreement dated October 21, 1994 (the "Murano Purchase
Agreement") between Italia and Murano and Stephen M. Tucker, the sole
stockholder and acquired all of the issued and outstanding capital stock of
Ceramic Productions Corp., a Florida corporation ("Ceramic") pursuant to the
terms of a certain stock purchase agreement dated as of such date (the "Ceramic
Purchase Agreement") between Italia and Ceramic and Stephen M. Tucker and
Michael D. Tucker, the sole stockholders. The Company agreed to pay such
respective stockholders an "allocated portion" of three times the combined
"after-tax earnings" of Murano and Ceramic, net of intercompany transactions for
the third fiscal year following the Closing date. One-third of the purchase
price is payable on or before each of September 28, 1997, 1998, and 1999 and, at
the sole election of Italia, up to two-thirds of the purchase price is payable
by the delivery of Class A Common Stock of the Company but in no event shall
more than an aggregate of 300,000 shares of Class A Common Stock be issuable in
payment of the purchase price under the Murano and Ceramic Purchase Agreements.
Italia further agreed that in the event that it elects to pay a portion of the
purchase price in shares of Class A Common Stock, that it will grant to the
stockholders a one-time "piggy-back" registration right for the inclusion for
registration of such securities in a registration statement filed under the
Securities Act at such time as other securities are registered following the
fifth anniversary of the Closing Date provided that the respective stockholder
is at the time of such registration an employee of the Purchaser. As of the date
of this filing, no payments have been made to the seller for this acquisition,
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, of the consideration necessary. Discussions are currently in
progress. 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 discussion. In connection with the Italia
transaction, the Company entered into an employment agreement
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with one of such stockholders and a consulting agreement with a relative of such
stockholders. In July 1995, both the employment and consulting agreements were
terminated by the Company.
During the months of March and April 1996, the Company has moved its
Italia Collections subsidiary to the Lance Acquisition Corporation (Lance), a
Massachusetts manufacturer and distributor of various products to the giftware
and collectibles market. Subsequently, the Company has determined that this
facility is not suitable to its operating needs. As a result, the Company has
fully removed its operating assets from Lance and is seeking alternative sources
for the production of its Italia product line.
Discontinuation of operations of Interiors Catalog
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 by March
31, 1997. 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. 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 in the quarter ended
September 30, 1995.
Manufacturing
The Company's manufacturing operations include specialized woodworking
systems using unique and customized proprietary equipment, tools, dies and molds
especially created for the Company. Production also includes frame finishing,
which involves gold leaf application, antiquing and painting.
The Company maintains an inventory of metal and wood molding, composite
resins and other materials for use in its manufacturing processes. The Company's
mold and steel die inventory allows reproduction of frames from the 14th Century
(gothic) to the present day. These tools can be used to produce over 1,500
styles of picture and mirror frames. The Company has an extensive collection of
tools, molds and dies and has been unable to locate any other manufacturer of
picture frames which casts glass and urethane composite reproductions of
decorative frames to the extent and type that the Company does.
No single outside manufacturer supplies five percent or more of the
Company's products, and the Company's management is not aware at this time of
any product or manufacturer that the Company cannot replace with a comparable
product from an alternative manufacturer.
Products
Custom Frames. Each frame manufactured by the Company's A.P.F Master
Framemakers Division is
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individually made to the customer's size and finish "coloration" specifications.
In approximately 40% of the orders received by this division, the customer also
specifies a customized decorative element or carving change to the basic design
of the frame. The A.P.F. Master Framemakers Division uses primarily fine
domestic hardwoods and other traditional materials to hand carve a "museum"
quality frame. The Company's custom frames include styles as follows: (a) Gothic
through the Renaissance and various Italian styles; (b) a product range of 15th
through 17th Century Spanish designs; (c) a variety of French "Empire" styles;
(d) Dutch and Northern European designs, generally 17th Century styles; (e)
various English designs, including Queen Anne and Georgian; (f) a broad range of
American styles, including Colonial, Federal, Empire, Late 19th Century Hudson
River School type frames, turn- of-the-century designs, including designs by the
artists Whistler, Prendergast, and others; and (g) contemporary designs
utilizing hardwoods and welded brass and aluminum. The Company has selected the
most popular segments of some of these periods, and has incorporated them into
brochures which picture the actual designs.
Ceramic accessories and collectibles. The Company's Italia Collections
Inc. subsidiary ("Italia") manufactures and markets ceramic and hydrocal
sculptures, resin framed mirrors, and other decorative accessories for the home.
Organization
Interiors, Inc. (the "Company" or "Interiors" known formally as A.P.F.
Holdings, Inc. or "A.P.F.") was incorporated pursuant to the laws of Delaware in
February 1994. A.P.F. was incorporated pursuant to the laws of New York in
October 1990. A.P.F. was incorporated in order to reincorporate in the State of
Delaware. Effective March 1994, A.P.F. merged with and into the Company. In
October 1994, the Company purchased "Ceramic Production Corp." and "Murano
Crystal" to form a wholly-owned subsidiary, "Italia Collections, Inc."
After giving effect to the discontinuance of the Catalog operations,
the Company has two operating divisions: 1) the Custom Framing Division which is
engaged in the manufacture of antique and contemporary picture frames for
museums, art galleries, designers, collectors and frame retailers; and 2) the
Wholesale Division, which manufactures and markets a line of high-end
traditional and contemporary mirrors through upscale retail furniture and
department stores. The wholesale division's wholly owned subsidiary manufactures
and markets ceramic vases and bowls, sculpture and lamps to upscale furniture
stores, furniture galleries, department stores, catalog and other decorative
accessory retailers. The majority of the Company's sales are domestic. Sales to
the largest customer totaled $390,000, or 30% for the quarter ended September
30, 1996.
Pursuant to a March 3, 1996 agreement relating to the capitalization of
Decor Group, Inc., ("Decor"), an affiliate of the Company, Decor issued to the
Company 250,000 shares of its Series A 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. 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 the current Board of Directors of Decor The Voting Agreement will
expire on December 31, 1997. The Board of Directors of Decor is currently
comprised of three individuals, one of whom is Max Munn, the Company's President
and Chief Executive Officer (and also the Chairman of the Board of Decor), and
two of whom 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 86% of the voting stock of Decor. On November 12, 1996
(the "Effective Date"),
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a public offering by Decor of certain of its securities was declared effective
by the Securities and Exchange Commission. The Company's interest 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.
Marketing
The Company currently markets its custom picture frames to art
galleries, museums, custom frame retailers, art consultants, artists,
corporations and private collectors.
Typically, sales for the picture frame division are generated through
the following activities:
o Sales of "high-end" custom-made picture and mirror frames through the
Company's three showrooms.
o Sales to retail picture framers. These sales generally require that the
Company supply samples or "corners," consisting of two short sides of
the frame, to the retailers who use the "corners" to promote the sales
of the Company's frames.
The Company has established an unwritten arrangement with an art
gallery in Manhattan at 231 E. 60th Street to allow one of the Company's
employees to work from that location to assist the gallery in the sale of custom
picture frames to gallery clients and other customers. The Company operates from
such location without a lease or any cost or obligation of any kind and has done
so since the Company's inception.. Less than 4% of the Company's revenues are
generated through that location. While the Company believes that the
relationship is mutually beneficial to both the Company and such gallery, there
can be no assurance that the art gallery will allow the relationship to
continue.
The Company markets its corners to the retail framer through direct
mail brochures and through advertising in trade publications. The Company
believes these corners aid the retail framer in the sale of custom framing to
the consumer. The retail framers' investment in new corners is made
significantly easier by both the Company's extended payment terms for corners
and its coupon redemption program. The Company offers the retailer the
opportunity to extend payments for corners over several months. The coupon
redemption program encourages utilization of the corners by affording the retail
framer credit on his first order of that particular style of frame from the
Company. The Company intends to expand its distribution of such corners through
the increase in its advertising expenditures and by offering more liberal
payment terms. To the extent retail framers accept such extended payment terms,
the Company expects that its levels of accounts receivable will increase.
The Company plans to add an additional showroom in a key market on the
West Coast of the United States during the next fiscal year. The Company has not
identified the exact location of such showroom facility and there can be no
assurance that the Company will be able to select locations which are suitable
or be able to lease showroom space on acceptable terms or be able to attract and
hire qualified personnel for such facility. The possibility exists that the
Company will not adequately forecast the time, costs, management and capital
needed to expand its A.P.F. Master Framemakers Division.
Suppliers
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Substantially all of the picture and mirror frames sold by the Company
are manufactured by the Company in its facility in Mt. Vernon, New York. The
Company purchases wood, composite resins, gold leaf, plexiglas, matboards and
other materials from a wide variety of sources, and has at least two, and often
more, suppliers for each item used in its manufacturing process, and is not
dependent upon any one supplier. The Company currently purchases from a vendor
base of more than 300 suppliers. While there are many suppliers of most
materials, the Company has chosen to limit the majority of its purchases to the
one or two vendors with whom it has developed long-term relationships. The
Company generally does not need to enter into contracts with its suppliers as
most merchandise is readily available from multiple sources.
Competition
The custom framing industry in the United States is highly fragmented
and consists primarily of small, local framing retailers. Only a few companies
are basic manufacturers of higher priced picture frames, which frames are
selected for valuable works of art owned by museums, galleries and collectors.
Custom framing of the type produced by the Company is not in competition with
local frame stores. Management of the Company believes that its A.P.F. Master
Framemakers division is one of the largest custom framers of its type in the
country. However, there can be no assurance that the Company's position in this
industry will continue.
Management believes that the sale of decorative accessories in the
wholesale market is also highly fragmented, with thousands of small, specialized
manufacturers and distributors and management is not aware of a manufacturer of
upscale decorative accessories similar to those distributed by Italia.
The Company believes that its competitive advantage lies in its
ownership of a substantial number of models, tools, dies and molds developed
from museum-quality antiques and its continuing ability to manufacture quality
reproductions of those antiques. Management also believes that the Company is
further protected by what the Company considers to be its excellent reputation
with its customer base and management's estimation that the cost today (i.e. the
difficulty) of obtaining antiques to reproduce, as well as the costs to build
tools, dies and molds, make the entry of meaningful competition extremely
difficult. Management believes that it would be difficult to build such a
collection of tools, dies and molds because of the cost of acquiring antiques
and the reluctance of museums and collectors to loan or dispose of irreplaceable
antiques and the difficulty in establishing a trained work force of skilled
crafts people.
However, there can be no assurance that such assets will continue to
afford the Company any competitive advantage. See "Manufacturing."
Backlog and Backorders
The Company has no backlog in its A.P.F. Master Framemakers division
since the nature of custom framemaking requires that frames be constructed only
after receipt of an order. Such custom orders are generally filled approximately
thirty days after receipt of the order. At September 30, 1996, open orders total
$666,000.
As of September 30, 1996, the Company's Italia Collections, Inc.
("Italia") subsidiary has a backlog of approximately $103,000. During the month
of April 1996, the Company moved Italia's operations from Florida to
Massachusetts. Soon thereafter, it became apparent that operational restrictions
at this new location would prevent Italia from providing a reliable and ongoing
supply of merchandise. Accordingly, the Company has temporarily
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halted the acceptance of new orders for Italia products and is arranging for
product sourcing from an established, third-party manufacturer.
Patents and Trademarks
The Company believes that its future success does not depend upon patents.
Instead, the Company depends, to a large extent, upon the technical competence
and creative skills of its personnel and on its unpatented proprietary
technology as well as its collection of tools, dies and molds. The Company
believes that it owns or has the right to use all proprietary technology
necessary to manufacture and market its existing and planned products. The
Company has no knowledge that it is infringing on any existing patent such that
it would be liable for material damages or be prevented from manufacturing or
marketing its products. In fact, most of the Company's technology is
process-related and may not be patentable. The decorative accessory
manufacturing industry is generally not technology driven, but is more design
and marketing driven; consequently there are few applicable patents in this
industry. In the event the Company's right to market any of its products were to
be successfully challenged, the Company may be required to discontinue certain
products and the Company's business and prospects may be adversely affected if
acceptable alternative products were not available.
The Company owns the registered trademarks: "Interiors" and "A.P.F."
The name "Italia Collection" was registered by the former owner of this business
with the Secretary of State of Florida. Pursuant to the acquisition of this
business by the Company, it also owns this trademark.
The Company does not own any other patents, copyrights, or other
intellectual property. The Company relies upon trade secrets, a substantial
quantity of tools, dies and molds and continuing design and marketing innovation
to maintain its competitive position.
Research and Development
The Company continually seeks to develop additional design and related
molds for picture and mirror frames and capitalizes the cost thereof over a
five-year period. The Company estimates that it has expended approximately $ 0
and $3,600 on such activities during the quarters ended September 30, 1996 and
1995, respectively. There can be no assurance that such product development
activity will yield profitable growth.
Government Regulation
The Company must comply with federal, state and local laws affecting
companies in the manufacturing and catalog business. To date, such government
regulations have not had a material adverse effect on the Company. Prior to the
date of this filing, the New York Environment Conservation Department has
requested the Company to provide operation plans with regard to the management
of chemical and waste material currently stored on the Company's premises. The
Company has complied with this request. No other requirements or requests are
currently pending from any agency or representative or any governmental
authority.
Employees
As of the date of this filing, the Company had a total of 82 full-time
employees. Effective April 1, 1991, the Company signed a three-year collective
bargaining agreement with the Production, Merchandising and Distribution
Employees Union, Local 210, Affiliated with The International Brotherhood of
Teamsters, Chauffeurs,
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Warehousemen and Helpers of America, AFL-CIO (the "Union") covering its
manufacturing employees. The agreement contains a provision for an automatic
two-year renewal through April 1, 1996. As of the date of this filing, the
Company is currently negotiating the renewal of its Union contract. None of the
Company's employees have been on strike, or threatened to strike since the
Company's inception and the Company believes its relationship with all of its
personnel is satisfactory.
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"), an affiliate of the Company, Decor issued to the
Company 250,000 shares of its Series A 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. 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 the current Board of Directors of Decor The Voting Agreement will
expire on December 31, 1997. The Board of Directors of Decor is currently
comprised of three individuals, one of whom is Max Munn, the Company's President
and Chief Executive Officer (and also the Chairman of the Board of Decor), and
two of whom 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 86% 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. The Company's
interest 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 in cash as part of the capitalization of Decor. At September
30, 1996, the Company was unable to make a valuation of either the securities
issued or received in the capitalization of Decor. This valuation will take
place subsequent to the Effective Date of the Decor public offering. At
September 30, 1996, the Company's investment in Decor is based on its cash
investment only. The basis may substantially change if the ultimate valuation of
the securities exchanged warrants such change.
Decor 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 $3,626,400, subject to certain adjustments. Decor
and Artisan House closed the transaction effective close of business November
18, 1996. 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.
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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 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 200,000 shares of the
outstanding 2,625,000 common shares of Decor. Also, the Company has executed a
management agreement with Decor, whereby the Company will provide management and
administrative support to Decor. At September 30, 1996, approximately $19,000 of
fees were accrued by the Company for such services.
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. Subsequently, LAC disposed of its interest in Lance, and has
finalized the terms of transition with the new owners and existing secured
creditors.
Description of Property
The Company has its principal offices at 320 Washington Street, Mt.
Vernon, New York, where it has sub-leased approximately 56,000 square feet of
administrative offices, manufacturing and warehousing facilities and a factory
showroom. The Company's sublease with Stern Metals expires 31, 1996. The
Company's monthly base rent payments under the sublease are approximately
$20,000 per month. As of the date of this filing, the Company and Stern Metals
agree that rent of approximately $199,000 is accrued at September 30, 1996. The
Company and Stern Metals are currently negotiating terms of the payment of this
liability. The Company is also negotiating an extension its lease with the new
owners of the building. The Company has determined that there is substantial
manufacturing and warehousing space available in its present vicinity if the
Company were required to expand or relocate some or all of its current
facilities. However, there can be no assurances that when the current sublease
for the Company's principal facility expires that the Company will be able to
negotiate a renewal thereof on acceptable terms or obtain alternative
manufacturing and warehousing space on terms acceptable to the Company.
The Company also operates three specialty custom frame showrooms, which
are in Mt. Vernon, New York City, and Philadelphia. The Company occupies
approximately 1,800 square feet of showroom and office space at 172 East 75th
Street in New York City pursuant to a lease expiring January 31, 2003 between
the Company and Francesco Saggese. The lease requires the Company to pay rent at
rates which escalate 4% per year on February 1 and which rental is currently
approximately $6,200 per month. In addition, pursuant to a five-year lease
agreement dated August 31, 1995 between I.R.A.L., Inc., a subsidiary of the
Company and Hoopskirts Factory Partners, the Company occupies approximately
5,740 square feet of showroom, warehouse and office space in "Old Town"
Philadelphia, PA. The agreement provides for minimum rent of $2,500 per month.
Under the current lease agreement, the lease term will expire on August 31,
2000. The Company believes alternate space is available if the Company is
required to relocate and that any such relocation would not have a material
adverse effect on the Company. However, there can be no assurance that the
Company will be able to obtain such alternate space on terms acceptable to the
Company.
During April 1996, Italia moved its operations to the premises of The
Lance Acquisition Corporation ("Lance"),
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a Massachusetts manufacturer and distributor of various products to the giftware
and collectibles market. Lance operates in a 48,000 square foot facility located
at 321 Central Street, Hudson Massachusetts 01748. Italia had occupied
approximately 10,000 square feet of this space on a temporary basis. The Company
is arranging for the sourcing of Italia products from an established,
third-party manufacturer. As of the date of this filing, the Company has fully
vacated Lance's facilities. Italia had occupied approximately 1,750 square feet
of space at International Home Furnishings Center ("IHFC") in High Point, North
Carolina, pursuant to a lease dated May 1, 1993. The term of the lease was five
years and required rent payments of approximately $2,200 per month. The Company
and the IHFC terminated the Italia lease effective November 1996.
The Company believes all of such facilities are adequate for its
current needs; however, the Company will require approximately 1,500 to 2,000
square feet of space for its contemplated showroom location. Inasmuch as the
Company has not selected the city in which it plans to establish such showroom,
it has no arrangements for such lease and there can be no assurance that the
Company will be able to obtain appropriate facilities on terms acceptable to the
Company.
Legal Proceedings
During April and May of 1995, Hide Tashiro commenced two lawsuits
totaling $225,000 (plus interest and attorney's fees) against the Company and
others. The complaint demands payment by the Company for loans made by the
plaintiff. The Company believes it has meritorious defenses against these claims
since it believes that it is owed commissions in excess of the loan payment. 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. As of the date of this
filing, there has been no further action.
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.
As of the date of this filing, there has been no further action.
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, or that an agreement in writing exists with Gear, or that any
sum of money is owed. The complaint demands sums Gear allegedly would have
received under an agreement in a sum to be determined, but not less than
$250,000.
In July 1996, certain litigation brought against the Company and its
principals and Directors by Ted Stevens, Ann Stevens and Morris Munn, as listed
below, 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. Although such Court approval has not been received as of the date of
this filing, the Company anticipates receiving such approval since to the
Company's knowledge, there have been no objections to the terms of the
settlement.
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(a) 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.
(b) 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 recision 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 recision 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.
(c) 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 seeking, among other things, compensatory and
punitive damages arising out of the alleged breach of Ann Stevens'
Employment Agreement.
(d) 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 recision of a certain stock
sale agreement between the Company and Laurie Munn.
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 for 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 committed to Ms. Stevens pursuant to her 1995
employment agreement. The purpose of this filing, among other things, is to
register these 50,000 Class A Common Shares with the Securities and Exchange
Commission. The 50,000 Class A Common Shares are subject to a "lock-up"
agreement with VTR Capital Corporation, the Company's investment bankers. As of
June 30, 1996, the Company placed into escrow 1,250,000 shares of its Class B
Common Shares (the "Escrow Shares") with 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 for non-payment
of $150,000 plus interest. The Company claims that any obligation that it had
pursuant to this
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matter has been satisfied by the Company in the prior fiscal year and that any
amounts that may be unpaid are due solely by Mr. and Mrs. Munn. The Company has
not guaranteed such liabilities.
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. 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 advertising
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 the 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.
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RISK FACTORS
The purchase of the securities offered hereby involves a high degree of
risk. Prospective purchasers should carefully consider the following risk
factors, as well as other matters set forth elsewhere in this Prospectus, before
deciding whether to invest in the Company's securities
Modified Auditor's Report; Working Capital Deficit:. The Company's
independent auditors have modified their report on the Company's financial
statements for the year ended June 30, 1996. The Company's ability to continue
as a going concern is dependent upon the successful achievement of certain
initiatives currently in progress. Most importantly, the Company has made a
major investment in Decor Group, Inc. ("Decor"). Effective November 19, 1996,
Decor has acquired substantially all of the operating assets and assumed certain
liabilities of a California based manufacturer of metal wall-art and related
accessories. To finance this acquisition, Decor offered for sale to the public
certain of its equity shares. Such Offering was declared effective by the
Securities and Exchange Commission on November 12, 1996. (See "The Company") As
of September 30, 1996, the Company had a working capital deficit of
approximately $1,586,000 and negative cash flow from operations for the quarter
ending September 30, 1996 totaling approximately $779,000. See "The Company" and
the Company's Form 10-KSB for the period ended June 30, 1996 which is
incorporated by reference. Further, in connection with Decor's public offering,
the Company will recognize any gains in accordance with Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 51
Cash Flow Constraints: The Company has been experiencing a shortage of
working capital since commencement of its catalog operations in February 1992.
Initially, this shortage was due substantially to the fact that the unexpected
response to catalog mailings and therefore the demand for the products offered
exceeded the Company's ability to finance the cost of inventory levels adequate
for such demand, thus leading to delays in fulfilling orders. Ultimately, the
working capital shortages became more a function of the difficulty in sustaining
revenue levels from the catalog business and the high costs associated with the
conduct of such business, particularly with respect to recent substantial
increases in paper, printing, and postage costs. Although management has decided
to discontinue the catalog business as of March 31, 1996, there can be no
assurance that such action will eliminate current cash restraints.
Financing costs of doing business. Currently, the Company incurs
significant costs incurred in the financing of its business operations. Two
principal sources of financing are currently available to the Company. On
February 15, 1996, the Company entered into a financing agreement with a New
York based secured lender whereby its Italia Collection subsidiary may borrow
pursuant to an asset-related formula. Under this agreement, upon confirmation of
shipments, the lender will advance 70% of the receivable to the Company. 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 $813,000. The Company is
currently pursuing alternative financing arrangements, but as of the date of
this Prospectus, no such arrangements have been made. No assurances can be given
that alternative arrangements, whether or not at more favorable terms, can be
made. As of the date of this Prospectus, interest charges for the quarter ended
September 30, 1996 pursuant to this arrangement total approximately $38,000. The
Company currently maintains a line of credit with a New York bank based on
receivables and inventories, bearing interest at a rate of prime plus 1% (9.25%
as of the date of this Prospectus.) As of the date of this Prospectus, the
balance of the line of credit is $815,000. Interest charges for the quarter
ended September 30, 1996 pursuant to this line of credit total approximately
$21,000. The Company and the bank have agreed that the line of credit will be
reduced by $20,000 per month. Accordingly, the Company is seeking alternative
arrangements. No such arrangements have
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been made as of the date of this Prospectus, nor can any assurances be given
that alternative arrangements can be made at more-favorable or even comparable
terms.
Liquidity of Current Business Operations. Management believes that cash
flow from operations as they currently exist are not sufficient to support such
operations. For the quarter ended September 30, 1996, approximately $779,000 of
cash was used in the Company's operating activities. Accordingly, Company
management is now identifying and implementing the corrective changes deemed
necessary. The Company has taken certain specific steps for this purpose. As of
March 31, 1996, the Company has decided to discontinue its catalog operation.
The difficulty associated with the maintenance of such revenues, together with
relatively high costs of operations have led to this decision. Also, during the
months of March and April 1996, the Company has moved its Italia Collections
subsidiary to The Lance Corporation (Lance), a Massachusetts manufacturer and
distributor of various products to the giftware and collectibles market.
Subsequently, the Company has determined that this facility is not suitable to
its operating needs. As a result, the Company has fully removed its operating
assets from Lance and is finalizing the terms under which it will source the
production of its Italia product line with a Mexican company. Final arrangements
for such sourcing have not been completed. During the quarter ended December 31,
1996, the Company entered into an exclusive three-year contract to provide
certain services to a major "direct-in-home" marketer of computer enhanced
photographic enlargements. The Company expects that this arrangement will
provide significant incremental revenues. Finally, the Company is currently
reviewing its staffing needs and has already made certain staff reductions. No
assurances can be given that the actions described above, or any subsequent
actions will fully meet management expectations or offset the current operating
cash shortfall.
Dilution. Dilution may result to holders of the Company's Series A
Preferred Shares in the event of exercise of outstanding Warrants at exercise
prices that are less than the prices paid by purchasers of Series A Preferred
Shares. Additional dilution may result to holders of the Company's Class A
Common Shares in the event of the conversion of outstanding Class B Shares,
Series A Preferred Shares, or the exercise of outstanding Warrants, or options
at exercise prices that are less than the prices paid by purchasers of Class A
Shares. See "Description of Securities."
Dependence on Management. The Company is highly dependent on the
services of Max Munn, President, Chief Executive Officer and Treasurer. The loss
of the services of this executive could have a material adverse effect upon the
business and prospects of the Company. In the event that the Company's financial
condition stabilizes, the Company will investigate securing "key person" life
insurance in the amount of one million dollars on the life of Max Munn.
Voting Control by a related party, a former Director, and an escrow
agent. Laurie Munn, wife of the Company's President and Chief Executive Officer
owns approximately 25.5% (519,750), Theodore Stevens, a former director of the
Company owns approximately 13.2% (269,750), and Michael Levine, as escrow agent
owns approximately 61.3% (1,250,000) of the Company's 2,039,500 issued and
outstanding Class B Shares, each such Class B Share entitled to five votes or
approximately 70.4% of the votes to which the Class A and Class B Shares taken
as a single class are entitled and assuming that none of the outstanding
Warrants is exercised. Accordingly, these three individuals are in a position to
influence the election of the Company's directors and the Company's business
affairs. See "Description of Securities".
Potential Conflicts of Interest. The Company has from time to time
entered into certain transactions with its officers, directors and/or associates
and relatives of such persons. Although two independent directors currently
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serve on the Company's Board of Directors, the likelihood of such transactions
to continue in the future is highly probable.
Dependence on Skilled Craftsmen and Salespersons. The Company's A.P.F.
Master Framemakers division, a provider of fine picture frames for art
galleries, upscale retail picture framers, museums, collectors and decorators in
the U.S., relies on its skilled craftsmen with specialized skills in the design
and crafting of its frames and the manufacture of other of its products.
Although the Company attempts to hire and train skilled craftsmen, the inability
of the Company to retain skilled craftsmen and creative designers may adversely
affect the division's operations. Furthermore, the Company is dependent on the
showroom salespersons who have relationships with museum curators, art
collectors, architects and other purchasers of "museum" quality picture frames.
The loss of such persons could have a material adverse impact on the Company.
See "The Company-Personnel."
Possible Change of Control. Various legal proceedings have been in
progress between and among the Company's President and Chief Executive Officer,
his wife, other members of the Company's Board of Directors, a former member of
the Company's Board of Directors, and such former member's wife who was also a
Company executive. The proceedings involved various issues, but primarily
involved the composition of the Company's Board of Directors, the status of a
sale of 269,500 of the Company's Class B Common shares by Theodore Stevens to
Laurie Munn, an alleged breach of an employment agreement between the Company
and Ann Stevens, wife of Theodore Stevens (a former Director), the status of a
sale of 250,000 shares of the Company's Class B Common shares to Laurie Munn,
and the sustainability of any election at a shareholder's meeting should the
Company hold such a meeting during the pendency of certain legal proceedings.
The parties to these various actions have entered into various agreements in
settlement of all differences. Under the terms of settlement, the Company must,
among other things, provide over seven years bi-weekly payments to Ann Stevens
in settlement of her employment agreement with the Company. Ms. Stevens'
attorney, Michael Levine, Esq. has been appointed escrow agent and issued
1,250,000 shares of the Company's Class B Common Stock (the "Escrow Shares").
Mr. Levine is empowered to vote these shares, which represent voting control of
the Company, to replace the Company's Board of Directors in the event of the
Company's default of its obligations under the settlement agreements. After the
Company fully performs under the settlement agreements, which will take place
after seven years, the Escrow Shares will be returned to the Company. See "The
Company - Legal Proceedings."
Possibility of Litigation Involving Works of Art. Although the Company
endeavors to buy products which it believes the supplier has the right to
distribute, in the event an artist claims that his copyright has been violated,
the Company may be joined in any action against the supplier for infringement.
Each of the Company's vendors is required to execute and return to the Company a
certificate that the merchandise conforms to all federal and state laws as to
labeling, brands, etc. and agreeing to indemnify the Company against claims
arising from violation of trademark, patent or similar laws; however, there can
be no assurance that the Company would be successful in enforcing any such
agreement. The Company knows of no such claims which have been asserted nor
lawsuits which have been threatened other than as disclosed herein. There can be
no assurance that claims and/or lawsuits will not arise in the future or that
the cost of defending such actions will not be material. See "The Company Legal
Proceedings" and " - Patents and Trademarks."
Consent Order for Permanent Injunction as to Max Munn. 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 advertising of certain lithographs of
original works of art as regards to whether or not the
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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.
Competition. The custom framing industry in the United States is highly
fragmented and consists primarily of small, local framing retailers. Only a few
companies are basic manufacturers of higher priced picture frames, which frames
are selected for valuable works of art owned by museums, galleries and
collectors. Custom framing of this type is not in competition with local retail
frame stores. Management of the Company believes that its A.P.F. Master
Framemakers division is one of the largest custom framers of its type in the
country. However, there can be no assurance that the Company will be able to
maintain its position in this industry.
Management believes that the sale of decorative accessories in the
wholesale market is also highly fragmented, with thousands of small, specialized
manufacturers and distributors. Management is not aware of a manufacturer of
upscale decorative accessories similar to those distributed by Italia.
Reliance on Outside Suppliers. All picture and mirror frame
manufacturing is performed by the Company in its facility in Mt. Vernon, New
York. The Company purchases wood, gold leaf, plexiglass, matboards, composite
resins, and other materials from a wide variety of sources, and has at least
two, and often more, suppliers for each item used in its manufacturing process,
and is not dependent upon any sole supplier. See "The Company - Suppliers."
Convertibility of Class B Common Stock and Super Voting Rights. The
Company's Certificate of Incorporation authorizes the issuance of up to
2,500,000 Class B Shares, 269,750 of which are currently owned by Theodore
Stevens, a former director of the Company, 519,750 of which are currently owned
by Laurie Munn, wife of the Company's President and Chief Executive Officer, and
1,250,000 of which are held in escrow by Michael Levine as escrow agent and
designated as "Escrow Shares." (See preceding risk factor - Terms of Settlement
of Litigation Involving Related Parties). Each Class B Share entitles the holder
thereof to five non-cumulative votes per share on all matters on which
stockholders may vote at meetings of stockholders. The Escrow Shares shall only
vote in the event of the Company's default under the terms of settlement
agreements under which the Escrow Shares were issued. The Class A Shares and
Class B Shares shall generally vote together as a single class. The Class B
Shares are convertible on a one-for-one basis at any time after issuance at the
option of the holder into Class A Shares; however, there can be no assurance
that the holder thereof will convert such Class B Shares. The Escrow Shares
however are not subject to conversion. In addition, such conversion could result
in a charge to earnings to the extent that the fair market value of the Class A
Shares exceeds the fair market value of the Class B Shares at the date of
conversion. In addition, while the issue is not entirely clear, the issuance of
additional Class B Shares could, under certain circumstances, have the effect of
delaying or preventing a change in control of the Company and may adversely
affect the voting and other rights of holders of Class A Shares. See
"Description of Securities."
Reliance on Tradename Reputation. The Company's custom frame operation
is conducted under the tradename "A.P.F. Master Framemakers," which tradename
has been used in the custom frame business since 1955 and which tradename the
Company acquired in 1990. See "The Company." The Company believes that its
ability to market its high-end custom picture and mirror frames has been based
largely upon its reputation as a reliable source of high-quality frames suitable
for use by nationally known museums, art galleries, decorators, fine frame
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retailers and collectors. As a result of this reliance on its reputation, if the
Company's custom frame products and service were to be deemed unreliable, the
Company could experience a significant adverse impact.
Absence of Dividends. The Company has not paid and does not anticipate
paying any cash dividends on its Class A Shares or Class B Shares in the
foreseeable future, but instead intends to retain all working capital and
earnings, if any, for use in the Company's business operations and in the
expansion of its business. In February 1996, the Company did, however, declare 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. See "Description of Securities."
Significant retained deficits and negative equity. At September 30,
1996, the Company has recognized retained deficits totaling approximately
$8,800,000. Of this amount, approximately $2,200,000 was incurred as a provision
for the discontinuation of the Company's catalog operation in the fiscal year
ended June 30,1996. At June 30, 1996, the Company had recorded negative net
worth totaling approximately $645,000, primarily because of its retained
deficits. During the first quarter ended September 30, 1996, the Company raised
additional capital of $1,700,000 and improved the results of operations to
produce a virtual break-even from such operations. Such actions resulted in the
restoration of net worth to $1,006,000. However, no assurances can be given that
the Company's net worth will continue to grow in subsequent periods. See "The
Company".
No Assurance of Public Trading Market or Continued Nasdaq Inclusion.
Prior to the Company's Initial Public Offering, which took place on June 23,
1994, there was no established trading market for the Company's securities. In
connection with the Initial Public Offering, the Company applied for, and was
granted, inclusion of the Class A Shares, the Class WA Warrants and the Class WB
Warrants on Nasdaq and the Class A Shares and Class WA Warrants commenced
quotation on Nasdaq on June 23, 1994 under the symbols INTXA and INTXW,
respectively. The Class WB Warrants commenced quotation on Nasdaq on June 24,
1994 under the symbol INTXZ. Further, on September 18, 1995, the Company
registered and issued 460,000 shares of Series A, 10% Cumulative Convertible
Preferred Stock and 230,000 Redeemable Class WC Warrants. The Series A, 10%
Cumulative Convertible Preferred Stock, and the Redeemable Class WC Warrants
commenced quotation on Nasdaq on September 19, 1995 under the symbols INTXP and
INTXL respectively. See "Market for the Company's Securities and Related
Stockholder Matters." However, there can be no assurance given that the Company
will be able to satisfy the requirements for continued quotation, that such
quotation will otherwise continue or that any market for the Company's
securities that has developed since completion of the Initial Public Offering or
the Preferred Stock Offering will continue or be sustained. If for any reason,
however, any of the Company's securities are not eligible for continued listing
or a public trading market does not develop, purchasers of the Class A Shares,
Series A, 10% Cumulative Convertible Preferred Shares and/or Warrants may have
difficulty selling their securities should they desire to do so. Under the
current rules adopted by the NASD for continued listing, a company, among other
things, must have $2,000,000 in total assets, $1,000,000 in total capital and
surplus, $1,000,000 in market value of public float and a minimum bid price of
$1.00 per share. If the Company is unable to satisfy the requirements for
continued quotation on Nasdaq, trading, if any, in the securities would be
conducted in the over-the-counter market in what are commonly referred to as the
"pink sheets" or on the NASD OTC Electronic Bulletin Board. As a result, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities.
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"Penny Stock" Regulations. The Commission has adopted regulations under
the Exchange Act which generally define a "penny stock" to be any equity
security that has a market price (as defined) of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions. If
the securities offered hereby are removed from Nasdaq, the Company's securities
may be deemed to be "penny stocks" and become subject to rules that impose
additional sales practice requirements on broker-dealers who sell such
securities. For any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities, information on
the limited market in penny stocks and, if the broker-dealer is the sole
marketmaker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. In addition, the broker-dealer must obtain a
written acknowledgment from the customer that such disclosure information was
provided and must retain such acknowledgment for at least three years. Further,
monthly statements must be sent disclosing current price information for the
penny stock held in the account. While many Nasdaq-listed securities would
otherwise be covered by the definition of penny stock, transactions in a
non-Nasdaq-listed security would be exempt from all but the sole marketmaker
provision for (i) issuers who have $2,000,000 in tangible assets, (ii)
transactions in which the customer is an institutional accredited investor and
(iii) transactions that are not recommended by the broker-dealer. In addition,
transactions in a Nasdaq-listed security directly with a Nasdaq marketmaker for
such securities would be subject only to the sole marketmaker disclosure, and
the disclosure with respect to commissions to be paid to the broker-dealer and
the registered representative.
The above-described rules may materially adversely affect the liquidity
for the market for the Company's securities. Such rules may also affect the
ability of broker-dealers to sell the Company's securities and may impede the
ability of subsequent holders of the Class A Common Shares, Series A Preferred
Shares, or Warrants to sell such securities in the secondary market.
Future Issuances of Stock by the Company. The Company has authorized
capital stock of 32,500,000 shares of $.001 par value Common Stock, of which
30,000,000 have been designated as Class A Shares and 2,500,000 have been
designated as Class B Shares; and 5,300,000 shares of Preferred Stock, $.01 par
value per share (the "Preferred Stock"). As of the date hereof, there are
4,312,671 Class A Shares, 2,039,500 Class B Shares and 1,140,000 Preferred
Shares issued and outstanding. In addition, the Company has issued and
outstanding 3,055,588 Class WA Warrants, 845,150 Class WB Warrants, 2,270,000
Class WC Warrants and Representative's Warrants to purchase 14,985 Class A
Shares, for which it has reserved for issuance an aggregate of 9,673,407 Class A
Shares. Although there are no present plans, agreements or undertakings, written
or oral, with respect to the Company's issuance of any shares of stock or
related convertible securities, other than as disclosed herein, the issuance of
any of such securities by the Company could have anti-takeover effects insofar
as they could be used as a method of discouraging, delaying or preventing a
change in control of the Company. Such issuance could also dilute the public
ownership of the Company. Inasmuch as the Company may, in the future, issue
authorized shares of Common Stock or Preferred Stock without prior stockholder
approval, there may be substantial dilution to the interests of the Company's
stockholders. Given that the Company is authorized to issue additional
securities, there can be no assurance that the Company will not do so. In
addition, a stockholder's pro rata ownership interest in the Company may be
reduced to the extent of the issuance and/or exercise of any options or warrants
relating to the Common Stock or Preferred Stock.
Future Sales of Stock by Stockholders. All of the Company's outstanding
Class B Shares are "restricted
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securities" as that term is defined under the Securities Act and in the future
may only be sold in compliance with an exemption from registration, including
Rule 144, under the Securities Act or pursuant to an effective registration
statement. Rule 144 provides, in essence, that a person (including a group of
persons whose shares are aggregated) who has satisfied a two-year holding period
for such restricted securities may sell within any three-month period, under
certain circumstances, an amount of restricted securities which does not exceed
the greater of one percent of that class of the Company's outstanding securities
(43,127 Class A Shares as of the date hereof) or the average weekly trading
volume of that class of securities during the four calendar weeks prior to such
sale. Persons who are not affiliated with the Company and who have held their
restricted securities for at least three years are not subject to the quantity
limitations or the manner of sale restrictions of the rule. As of the date of
this prospectus, Laurie Munn, wife of the Company's President and Chief
Executive Officer owns 519,750 shares of the Company's Class B Common shares,
Ted Stevens, a former Director, owns 269,750 of such Class B shares, and Michael
Levine, as escrow agent, holds 1,250,000 of such Class B Shares, designated
Escrow Shares.(See preceding risk factor "Terms of Settlement of Litigation
Involving Related Parties.") These holdings comprise all of the Company's
outstanding Class B Common shares as of the date of this filing. Pursuant to
agreements with the Company's investment banking firm, and in connection with
the Company's September 18, 1995 offering of preferred stock and warrants, the
outstanding Class B shares may not be sold or otherwise disposed before March
17, 1997 without the prior consent of the Company's investment banking firm. As
of the date of this Prospectus, the Company's stockholders own an aggregate of
1,140,000 Preferred Shares and 4,312,671 Class A Shares. Of these shares,
3,092,671 Common A Shares and 890,000 Series A Preferred Shares are freely
saleable in the public market. A sale of shares by current stockholders, whether
pursuant to Rule 144 or otherwise, may have a depressing effect upon the market
price of the Company's securities in any market that continues to exist. To the
extent that such shares enter the market, there may be a negative effect on the
market price of the Company's securities and on the ability of the Company to
obtain additional equity financing. See "Description of Securities".
Representative's Warrants. In connection with the Initial Public
Offering, the Company sold to the Representative's designees, for nominal
consideration, Representative's Warrants to purchase an aggregate of 45,000
Class A Shares, 40,000 Class WA Warrants and 22,500 Class WB Warrants. In
October 1994 Representative's Warrants to purchase 30,015 Class A Shares, 40,000
Class WA Warrants and 22,500 Class WB Warrants were repurchased by the Company.
The Representative's Warrants are exercisable until June 22, 1999, at an
exercise price equal to $1.50 per Class A Share, subject to certain adjustments.
In connection with the Preferred Stock Offering, the Company sold to VTR
Capital, Inc. a Warrant to purchase 40,000 shares of Series A Preferred Stock
and 20,000 Class WC Warrants for an aggregate price of $20.00, (the "VTR
Warrants"). The holders of outstanding Representative's Warrants and VTR
Warrants have the opportunity to profit from a rise in the market price of the
Company's securities, if any, without assuming the risk of ownership, with a
resulting dilution in the interest of other shareholders. The Company may find
it more difficult to raise additional equity capital if it should be needed for
the business of the Company while the Representative's Warrants and VTR Warrants
are outstanding. At any time when the holders thereof might be expected to
exercise such Warrants, the Company would probably be able to obtain additional
capital on terms more favorable than those provided by the Representative's
Warrants and VTR Warrants. The holders of the Representative's Warrants and VTR
Warrants have the right to require registration under the Securities Act of the
securities issuable upon exercise of such Warrants and have certain "piggy-back"
registration rights. The cost to the Company of effecting a demand registration
may be substantial. See "Description of Securities".
Certain Provisions of Certificate of Incorporation and By-Laws; Potential
Anti-Takeover Effect. The Company's Board of Directors may designate the terms
of and issue up to 2,500,000 shares of Preferred Stock
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without further action by the stockholders, of which 1,140,000 are issued and
outstanding as of the date of this filing. Voting rights that may be granted in
the future to holders of Preferred Stock could adversely affect the voting power
of holders of Class A Shares. The Company's By-Laws contain provisions which may
discourage certain transactions which involve an actual or threatened change in
control of the Company. The By-Laws provide that certain vacancies on the Board
of Directors shall be filled by a majority of the remaining directors then in
office, limit the ability to call a special meeting of shareholders, and require
that no proposal by a shareholder be presented for vote at a special or annual
meeting of shareholders unless the shareholder provides the Board of Directors
or the secretary of the Company with written notice of intention to present a
proposal for action at the meeting in accordance with the By-Laws. See
"Description of Securities."
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of the fiduciary duty of care as a director, except under certain
circumstances including breach of the director's duty of loyalty to the Company
or its stockholders or any transaction from which the director derived an
improper personal benefit.
The Company has expressly not opted out of, and is therefore subject
to, Section 203 of the Delaware General Corporation Law regulating "business
combinations" between Delaware corporations and "interested stockholders." Under
this provision, a corporation subject to Section 203 may not engage in any
business combination with any interested stockholder for a period of three years
from the date such person became an interested stockholder unless certain
conditions are satisfied. This provision may also have the effect of delaying or
preventing a change in control of the Company. See "Description of Securities."
Possible Redemption of the Class WA Class WB and Class WC Warrants.
Commencing at any time after June 22, 1995, in the event the closing bid price
per share of the Class A Shares as quoted in the over-the-counter market (as
reported by Nasdaq) or on an exchange on which the Company's securities are then
listed has equaled or exceeded 120% or more of the then effective exercise price
of the Class WA and Class WB Warrants, respectively, for 20 consecutive trading
days, the Warrants may be redeemed by the Company at a redemption price of $.01
per warrant prior to exercise or expiration upon 30 days prior written notice
thereof. Commencing at any time after September 17, 2000, in the event the
closing bid price per share of the Preferred Stock as quoted in the
over-the-counter market (as reported by Nasdaq) or on an exchange on which the
Company's securities are then listed has equaled or exceeded 110% or more of the
then effective exercise price of the Class WC Warrants for 20 consecutive
trading days, the Warrants may be redeemed by the Company at a redemption price
of $.01 per WC warrant prior to exercise or expiration upon 30 days prior
written notice thereof. Although holders of the Warrants will have the right to
exercise their Warrants through the date of redemption, they may be unable to do
so because they lack sufficient funds at the time of redemption, or they may
simply not wish to invest any more money in the Company's Class A Shares, Series
A Preferred Shares, Class WB Warrants, or Class WC Warrants at that time. Should
holders of the Warrants fail to exercise such Warrants or to sell such Warrants
on or prior to the redemption date, such Warrants will have no value beyond
their redemption value. As noted above, the Company may not redeem the Warrants
unless the Company has available a current prospectus with respect to the
Warrants. See "Description of Securities - Redeemable Warrants."
Delinquent Payment of Payroll Taxes. In March 1996, the Company
executed an agreement with the Internal Revenue Service (the "Service") for the
payment of outstanding payroll tax liabilities totaling approximately $100,000.
The agreement requires that the Company pay approximately $9,000 per month for
approximately 14
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months in order to satisfy its federal payroll tax responsibilities. As of the
date of this filing, the Company has complied with its agreement with the
Service.
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THE OFFERING
This Prospectus relates to the resale or offer for sale form time to
time of up to 60,000 Shares, of the Class A Common Stock of the Company. All of
the Shares are being offered by a Selling Stockholder. Such Shares were acquired
by the Selling Stockholder pursuant to a certain Marketing and Organizational
Agreement, and a subsequent amendment thereto, between the Company and the
Selling Stockholder.
The Selling Stockholder, Robert M. Leopold, 4 Gilder Street, Larchmont,
New York 10538, beneficially owns 60,000 shares of Class A Common Stock of the
Company. Mr. Leopold entered into a Marketing and Organizational Agreement on
January 4, 1994 with APF Holdings, Inc. (the "1994 Agreement"), whereby Mr.
Leopold became a Consultant to APF Holdings, Inc. on marketing, business
operations and management issues. On November 13, 1995, Interiors, Inc., as
successor to APF Holdings, Inc., entered into an Agreement with Mr. Leopold for
the purpose of clarifying the scope of the services previously rendered and to
be rendered in the future as per the 1994 Agreement. As part of the remaining
compensation owed to Mr. Leopold under the 1994 Agreement, Interiors, Inc.
delivered 60,000 shares of Class A Common Stock, par value $.001 per share, to
Mr. Leopold.
The securities offered hereby may be sold from time to time directly by
the Selling Stockholder. Alternatively, the Selling Stockholder may from time to
time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Stockholder 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 broker-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 at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholder in connection with such sales of securities. The securities offered
by the Selling Stockholder may be sold by one or more of the following methods,
without limitations: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Stockholder may
arrange for other brokers or dealers to participate. The Selling Stockholder and
intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the Act with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.
At the time a particular offer of securities is made by or on behalf of
the Selling Stockholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the Offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for sales
purchased from the Selling Stockholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
Under applicable rule and regulations promulgated under the Exchange
Act, any person engaged in a distribution of securities may not simultaneously
bid for or purchase securities of the same class or a period of two business
days prior to the commencement of such distribution. In addition and without
limiting the
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foregoing, the Company will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including without limitation Rules
10b-5, 10b-6 and 10b-7, in connection with transactions in the Share during the
effectiveness of the Registration Statement of which the Prospectus is a part.
All of the foregoing may affect the marketability of the Shares.
The Company will pay all of the fees and expenses incident to the
registration of the Shares (other than any fees or expenses of any counsel
retained by the Selling Stockholder and any out-of-pocket expenses incurred by
the Selling Stockholder or any person retained by the Selling Stockholder in
connection with the registration of the Shares) and fees and expenses of
compliance with state securities or blue sky laws and commissions. The expenses
payable by the Company are estimated to be approximately $5,000.
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DESCRIPTION OF SECURITIES
DESCRIPTION OF SECURITIES
Common Stock
The Certificate of Incorporation of the Company authorizes the
issuance of up to (i) 30,000,000 shares of Class A Common Stock, par
value $.001 per share, (previously defined as "Class A Shares") of which
4,312,671 Class A Shares are issued and outstanding as of the date
hereof and (ii) 2,500,000 shares of Class B Common Stock, par value
$.001 per share (previously defined as "Class B Shares") of which
2,039,500 Class B Shares are issued and outstanding as of the date
hereof. The holders of shares of Common Stock: (i) have equal ratable
rights to dividends from funds legally available therefor, when, as and
if declared by the Board of Directors of the Company; (ii) are entitled
to share ratably in all of the assets of the Company available for
distribution to holders of Common Stock, upon liquidation, dissolution
or winding up of the affairs of the Company; and (iii) do not have
preemptive or subscription rights and there are no redemption or sinking
fund provisions applicable thereto. All shares of Common Stock issued
and outstanding are duly authorized, fully paid and nonassessable.
Class A Shares. Each Class A Share is entitled to one non-cumulative
vote per share on all matters on which stockholders may vote at meetings of
stockholders. The Class A Shares are not convertible into any other securities
of the Company.
Class B Shares. Each Class B Share is entitled to five non-cumulative
votes per share on all matters on which stockholders may vote at all meetings of
stockholders. The Class B Shares are convertible on a one-for-one basis at any
time after issuance at the option of the holder into Class A Shares. Issuance of
additional Class B Shares could, under certain circumstances, have the effect of
delaying or preventing a change in control of the Company and may adversely
affect the rights of holders of Class A Shares.
Except as otherwise required by law, the holders of the Common Stock
shall vote together as a single class on all matters.
Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance
of up to 5,300,000 shares of Preferred Stock, $.01 par value per share. Prior to
September 18, 1995, none of such Preferred Stock had been designated or issued.
On September 18, 1995, the Company's "Registration Statement" with respect to
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 was declared
effective by the Securities and Exchange Commission. 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. The Board
of Directors is authorized to issue shares of Preferred Stock from time to time
in one or more series and, subject to the limitations contained in the
Certificate of Incorporation and any limitations prescribed by law, to establish
and designate any such series and to fix the number of shares and the relative
conversion rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences. If shares of Preferred Stock are issued
with voting rights, such issuance could affect the voting rights of the holders
of the Company's Class A Shares and Class B Shares by increasing the number of
outstanding shares having voting rights, and by the creation of class or series
voting rights. Shares of Preferred Stock with conversion rights could
potentially increase the number of shares of Common Stock outstanding. Issuance
of Preferred Stock could, under certain circumstances, have the effect of
delaying or preventing a change in control of the Company and may adversely
affect the rights of holders of Class
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A Shares. Also, Preferred Stock could have preferences over the Class A Shares
(and other series of stock) with respect to dividends and liquidation rights. As
of the date of this filing, the Company has issued 1,140,000 shares of Series A
Preferred Stock, all of which are convertible into three shares of Common A
shares beginning September 17, 1996.
Series A 10% Cumulative Convertible Preferred Stock
The Series A Preferred Stock consists of 2,870,000 shares of which
1,140,000 shares are currently issued and outstanding. Each share of Series A
Preferred Stock is convertible commencing one year from the date this Prospectus
into 3 shares of Class A Common Stock. After September 17, 2000, it is
redeemable by the Company in whole or in part at $5.50 per share upon 30 days
prior written notice. The Series A Preferred Stock is entitled to a dividend,
prior to any payment of dividends on the Class A or Class B Common Stock, of
$0.50 per share per annum payable in semi-annual installments of $0.25 per
share. If the Series A Preferred stock dividend is not paid, it accumulates
until paid in full to date. The Company may elect to pay the Series A Preferred
Stock dividend either in cash or in shares of Class A Common Stock shall be
issued for such purposes on the basis of the average closing prices of the Class
A Common Stock for the ten business days prior to the date of declaration of the
Series A Preferred Stock dividend. The Series A Preferred Stock shall not have
any right to vote except to the extent, if any, required by Delaware Law. Upon
liquidation of the Company, the Series A Preferred Stock is entitled to receive
$5.00 per share plus accrued and unpaid dividends before any payment is made to
the holders of Class A and Class B Common Stock.
Redeemable Warrants
Class WA Warrants. Each Class WA Warrant entitles the registered holder
thereof to purchase one Class A Share and one Class WB Warrant at a combined
exercise price of $1.50 until June 23, 1997. The combined exercise price of the
Class WA Warrants as originally issued was $6.00. On March 29, 1995 the Company
announced that because of certain sales of Class A Shares by the Company, the
combined exercise price of each Class WA Warrant had been reduced to $5.17 and
each Class WA Warrant now entitled the holder to purchase 1.1 Class A Shares and
1.1 WB Warrants; and that the exercise price of each WB Warrant had been reduced
from $7.00 to $6.03 (subsequently reduced to $2.00 - see below) and each Class
WB Warrant now entitles the holder to purchase 1.1 Class A Shares. On April 13,
1995 the Board of Directors, as permitted by the terms of the Warrant
Agreements, reduced the combined exercise price of each of the Class WA Warrants
to $1.50 for one share of Class A Stock and for one Class WB Warrant in order to
facilitate the sale of 300,000 shares of Class A Stock by the Company. The
exercise price of the Class WA Warrants is subject to adjustment under certain
circumstances. Fractional Class A Shares will not be issued upon exercise of the
Class WA Warrants and, in lieu thereof, a cash adjustment based on the market
value of the Class A Shares immediately prior to the date of exercise will be
made.
The Class WA Warrants are redeemable by the Company at any time after
June 22, 1995, and prior to their exercise upon notice of redemption in writing
to the Class WA Warrant holders of record, giving a 30-day notice of such
redemption. The redemption price of the Class WA Warrants is $0.01 per Warrant
if the closing bid price per Class A Share has equaled or exceeded 120% of the
then exercise price of the Class WA Warrants for 20 consecutive trading days
prior to any such call for redemption. Any Class WA Warrants so redeemed, and
not exercised by the end of the date specified in the notice of redemption, will
expire on the books of the Company and cannot be exercised.
Class WB Warrants. Each Class WB Warrant entitles the registered holder
thereof to purchase one Class A Share at a purchase price of $2.00 until June
22, 1999. The exercise price of the Class WB Warrant was previously $6.03. In
January 1996, the Company announced that the exercise price of the Class WB
Warrant is reduced to $2.00 per Class A Common share. The exercise price of the
Class WB Warrants is subject to adjustment under certain circumstances.
Fractional Class A Shares will not be issued upon exercise of the Class WB
Warrants and, in lieu thereof, a cash adjustment based on the market value of
the Class A Shares immediately prior to the date of exercise will be made.
The Class WB Warrants are redeemable by the Company at any time prior
to their exercise after June 22, 1995, and
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upon notice of redemption in writing to the Warrant holders of record, giving a
30-day notice of such redemption. The redemption price of the Class WB Warrants
is $0.01 per Warrant if the closing bid price per Class A Share has equaled or
exceeded 120% of the then exercise price of the Class WB Warrants for 20
consecutive trading days prior to any such call for redemption. Any Class WB
Warrants so redeemed, and not exercised by the end of the date specified in the
notice of redemption, will expire on the books of the Company and cannot be
exercised.
Class WC Warrants. Each Class WC Warrant entitles the holder to
purchase one share of Preferred Stock during the five year period commencing
September 18, 1995 at a purchase price of $5.50, subject to the maintenance by
the Company of a current registration statement filed with the Securities and
Exchange Commission. Commencing one year from the date of issuance, each Class
WC Warrant shall be redeemable by the Company at a redemption price of $.05 per
Warrant upon thirty days prior written notice to holders; provided, however,
that the closing average bid price of the Preferred Stock in the
over-the-counter market, for a period of twenty consecutive trading days prior
to such call for redemption, shall have been 110% or more of the then effective
exercise price of the Class WC Warrants.
The Warrants are exercisable by tendering to American Stock Transfer &
Trust Company, New York (the "Warrant Agent") the appropriate exercise price
along with the Warrant certificate (with the election to purchase section on the
reverse side of the certificate properly filled out.) The Company shall then
issue and sell such fully paid and nonassessable Class A Shares, Class WB
Warrants, and Series A Preferred Shares, as applicable, to the Warrant holder as
specified on the certificate so tendered. Payment of the exercise price shall be
made in cash or by certified check or bank draft made payable to the order of
the Company. For further information, reference is made to the Warrant
Agreements which has been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
The Warrants pursuant to their terms are subject to adjustment upon the
occurrence of certain events including subdivisions or combinations of the Class
A Shares or Preferred Stock, as the case may be. The Company may at any time,
and from time to time, extend the exercise period of the Warrants, provided that
written notice of such extension is given to the Warrant holders prior to the
expiration date then in effect. Also, the Company may reduce the exercise price
of the Warrants for limited periods or through the end of the exercise period if
deemed appropriate by the Board of Directors of the Company. Notice of any
reduction of the exercise price will be given to the Warrant holders. Prior to
any such extension or modification of the exercise price of such Warrants, the
Company may be required to amend the Registration Statement covering such
securities or to file a new registration statement.
Representative's Warrants
In connection with the June 1994 Initial Public Offering, the Company
sold to the Representative's designees for nominal consideration, the
Representative's Warrants to purchase up to an aggregate of 45,000 Class A
Shares, 40,000 Class WA Warrants and 22,500 Class WB Warrants. The
Representative's Warrants are exercisable through June 22, 1999 at exercise
prices of $1.50, $0.12 and $0.12 as to the Class A Shares, Class WA Warrants and
Class WB Warrants, respectively, subject to certain adjustments. In October 1994
the Company repurchased Representative's Warrants to purchase 30,015 Class A
Shares, 40,000 Class WA Warrants and 22,500 Class WB Warrants from the holder
thereof. The holders of the remaining outstanding Representative's Warrants have
the opportunity to profit from a rise in the market price of the securities, if
any, without assuming the risk of ownership, with a resulting dilution in the
interest of other shareholders. The Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the Company
while the Representative's Warrants are outstanding. At any time at which the
holder thereof might be expected to exercise them, the Company would probably be
able to obtain additional capital on terms more favorable than those provided by
the Representative's Warrants. See "Risk Factors."
In connection with the Preferred Stock offering in September 1995, the
Company sold to VTR, Underwriters Warrants, for an aggregate purchase price of
$20.00, entitling the Holders to purchase 40,000 shares of Series A Preferred
Stock and 20,000 Class WC Warrants. These Warrants shall not be exercisable
until
32
<PAGE>
September 17, 1996. Such Warrants shall be exercisable for a period of four
years commencing September 17, 1996. The exercise price for each Warrant to
purchase Series A Preferred Stock shall be $6.00 per share, and the exercise
price to purchase WC Warrants is $.06 each. The Company has agreed that, while
the VTR Warrants are outstanding, it will not enter into any merger or
reorganize or to take any other action which would terminate the VTR Warrants.
The Warrants contain anti-dilution adjustment provisions.
Registration Rights
The holders of the remaining Representative's Warrants and VTR Warrants
have demand and piggy-back registration rights with respect to the
Representative's Warrants and VTR Warrants and the securities underlying the
Representative's Warrants and VTR Warrants for a period of five years. Any
exercise of such registration rights may result in dilution in the interest of
the Company's shareholders, hinder efforts by the Company to arrange future
financing of the Company and/or have an adverse effect on the market price of
the Company's Class A Shares and/or Warrants.
Business Combination Provisions
The Company is subject to a Delaware statute ("Section 203") regulating
"business combinations," defined to include a broad range of transactions
between Delaware corporations and "interested stockholders," defined as persons
who have acquired at least 15% of a corporation's outstanding voting stock.
Under the law, a corporation which is subject to Section 203 may not engage in
any business combination with any interested stockholder for a period of three
years from the date such person became an interested stockholder unless certain
conditions are satisfied. Section 203 contains provisions enabling a corporation
to avoid the statute's restrictions.
Anti-Takeover Measures
The Company's Certificate of Incorporation and By-Laws contain
provisions that could discourage potential takeover attempts and prevent
shareholders from changing the Company's management. The existence of such
anti-takeover provisions could, among other things; (1) result in the Company
being less attractive to a potential acquirer and (2) result in shareholders
receiving less for their shares than otherwise might be available in the event
of a take-over attempt. The By-Laws provide that certain vacancies on the Board
of Directors shall be filled by a majority of the remaining Directors then in
office.
In addition, the Company's By-Laws limit the ability to call a special
meeting of shareholders to the president or any executive vice president upon
the request in writing of two-thirds of the Board of Directors or upon the
written request of shareholders of the Company owning two-thirds of each class
of stock issued and outstanding and entitled to vote. The By-Laws also provide
that no proposal by a shareholder shall be presented for vote at a special or
annual meeting of shareholders unless such shareholder, not later than the close
of business on the fifth day following the date on which notice of the meeting
is first given to shareholders, shall provide the Board of Directors or the
secretary of the Company with written notice of intention to present a proposal
for action at the forthcoming meeting of shareholders, which notice shall
include the name and address of such shareholder, the number of voting
securities held of record and held beneficially, the text of the proposal to be
presented at the meeting and
33
<PAGE>
a statement in support of the proposal. Any shareholder may make any other
proper proposal at an annual or special meeting of shareholders and the same may
be discussed and considered, but unless stated in writing and filed with the
Board of Directors or the secretary prior to the date set forth hereinabove,
such proposal shall be laid over for action at an adjourned, special or annual
meeting of the shareholders taking place 60 days or more thereafter. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of reports of officers, directors, and committees; but in
connection with such reports, no new business shall be acted upon at such annual
meeting unless stated and filed as described above.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Company's securities is
American Stock Transfer & Trust Company, 40 Wall Street, New York, NY 10005.
LEGAL MATTERS
Certain legal matters in connection with the shares of Common Stock
offered hereby are being passed upon the Company by Bernstein & Wasserman, LLP,
950 Third Avenue, New York, NY 10022.
EXPERTS
The audited financial statements incorporated by reference in the
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP., independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. Reference is made to
said report which includes an explanatory paragraph that addresses a going
concern issue discussed in Note 1 to the financial statements.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of shareholders or otherwise.
34
<PAGE>
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Commission Policy
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and of the agents of the Company, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
35
<PAGE>
TABLE OF CONTENTS
Page
----
Available Information .......... 5
Document Incorporated
By Reference................... 5
The Company..................... 7
Risk Factors.................... 19
The Offering.................... 28
Description of Securities....... 30
Legal Matters................... 34
Experts......................... 34
Indemnification................. 34
60,000 shares
of
Common Stock
INTERIORS, INC.
------------------
PROSPECTUS
------------------
January , 1997
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The following documents filed with the Commission are incorporated
herein by reference and made a part hereof:
(1) Annual Report on Form 10-KSB for the year ended June 30, 1996
(2) Quarterly Report on Form 10-QSB for the period ended September 30,
1996.
(3) The description of the Class A Common Stock, par value $.001 per
share ("Class A Common Stock"), of the Corporation contained in the
Corporation's registration statement filed under Section 12 of the Exchange Act,
including any amendment or report filed for the purpose of updating such
description.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to
the date of this Registration Statement and prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which registers all securities then remain in unsold, are incorporated
by reference in this Registration Statement and are a part hereof from the date
of filing such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Registration Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the request of any such person, a copy of any or all
of the foregoing documents incorporated herein by reference (other than exhibits
to such documents). Written or telephone requests should be directed to Max
Munn, President, Interiors, Inc., 320 Washington Street, Mt. Vernon, New York
10553, telephone (914) 665-5400.
Item 4. Description of Securities
Not applicable.
Item 5. Interests of Named Experts and Counsel
Not applicable.
37
<PAGE>
Item 6. Indemnification of Directors and Officers.
See "INDEMNIFICATION" contained in Part I hereof, which is incorporated
herein by reference.
Item 7. Exemption from Registration Claimed
The Company believes that the issuance of the Common Stock to the
Selling Stockholder was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2)
thereunder.
Item 8. Exhibits
Number Description
*3.01 Certificate of Incorporation of the Company
*3.02 By-Laws of the Company
*4.01 Common Stock Certificate
5.01 Opinion of Bernstein & Wasserman, LLP.
*10.19 Marketing and Organizational Agreement, dated
January 4, 1994 between the Company and Robert Leopold.
*10.74 Amendment to Marketing and Organizational Agreement,
dated November 13, 1995, between the Company and Robert
Leopold.
23.01 Consent of Bernstein & Wasserman, LLP. (Included in
Exhibit 5.1 above).
23.02 Consent of Arthur Andersen & Co.
- ---------------------
* Incorporated by Reference to the Company's Registration
Statement on Form SB-2, No. 33-77288-NY
38
<PAGE>
Item 9. Undertakings
A. Rule 415 Offering
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment of this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. To Transmit Certain Material.
(1) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus to each Plan participant to whom the prospectus is
sent or given a copy of the Registrant's annual report to stockholders for its
last fiscal year. unless such Plan participant otherwise has received a copy of
such report, in which case the Registrant shall state in the prospectus that it
will promptly furnish, without charge, a copy of such report on written request
of the Plan participating. If the last fiscal year of the Registrant has ended
within 120 days prior to the use of the prospectus, the annual report of the
Registrant for the preceding fiscal year may be so delivered, but within such
120 period the annual report for the last fiscal year will be furnished to each
such Plan participant.
(2) The undersigned Registrant hereby undertakes to transmit or cause to
be transmitted to all participants in the Plan who do not otherwise receive such
material as stockholders of the Registrant, at the time and in the manner such
material is sent to its stockholders, copies of all reports, proxy statements
and other communications distributed to its stockholders generally.
C. Subsequent Exchange Act Documents Incorporated by Reference.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
39
<PAGE>
D. Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, 1933 and is therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by a
registrant of expenses incurred or paid by a director, officer or controlling
person of such registrant in the successful defense of any action, suit or
proceeding) is asserted against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Mt.
Vernon, State of New York, on January 10, 1997.
INTERIORS, INC.
By: /s/ Max Munn
---------------------
Max Munn, President
Chief Executive Officer and
Treasurer
In accordance with the requirements of the Securities Act of 1933, as
amended, this amendment to Registration Statement on Form SB-2 was signed by the
following persons in the capacities and on the dates stated.
Signature Title Date
/s/ Max Munn President, Chief Executive January 10, 1997
- ---------------------- Officer, Treasurer and
Max Munn Director
/s/ Donald Feldman Vice President- Sales and January 10, 1997
- ---------------------- Marketing and Director
Donald Feldman
/s/ Michael Amore Vice President and Chief January 10, 1997
- ---------------------- Financial and Accounting
Michael Amore Officer
/s/ Roger Lourie Director January 10, 1997
- ----------------------
Roger Lourie
/s/ Richard A. Josephberg Director January 10, 1997
- ----------------------
Richard A. Josephberg
41
<PAGE>
[LETTERHEAD OF BERNSTEIN & WASSERMAN]
January 10, 1997
Interiors, Inc.
320 Washington Street
Mt. Vernon, New York 10553
Ladies and Gentlemen:
We have acted as counsel for Interiors, Inc., a Delaware company (the
"Company"), in connection with a Registration Statement on Form S-8
("Registration Statement") being filed contemporaneously herewith by the Company
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), covering an aggregate of 60,000 shares of the
Company's Class A Common Stock, $.001 par value ("Common Stock"), issued to
Robert Leopold pursuant to a certain Marketing and Organizational Agreement
dated January 4, 1994, and a certain Amendment to Marketing and Organizational
Agreement, dated November 13, 1995 (the "Agreement").
In that connection, we have examined the Certificate of Incorporation,
and the By-Laws of the Company, the Registration Statement, Agreement, corporate
proceedings of the Company relating to the issuance of the Common Stock pursuant
to the Agreement, and such other instruments and documents as we have deemed
relevant under the circumstances.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us as original or photostatic copies. We have also assumed that the
corporate records of the Company include all corporate proceedings taken by the
Company to date.
Based upon and subject to the foregoing, we are of the opinion that the
Common Stock has been duly and validly authorized and, has been duly and validly
issued, fully paid and nonassessable.
<PAGE>
We hereby consent to the use of this opinion as herein set forth as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Bernstein & Wasserman, LLP
BERNSTEIN & WASSERMAN, LLP
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated October
4, 1996, included in Interiors, Inc.'s Form 10-KSB for the year ended
June 30, 1996 and to all references to our Firm included in this
registration statement on Form S-8 registering 60,000 shares of Class A
Common Stock.
ARTHUR ANDERSEN LLP
New York, New York
January 10, 1997
