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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Date of Report (For the quarterly period ended August 1, 1998)
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
2CONNECT EXPRESS, INC
(exact name of registrant as specified in its charter)
FLORIDA 65-0674664
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 GATEWAY DRIVE, SUITE 101, POMPANO BEACH, FL 33069
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 797-7960
--------------
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share, 3,752,500 shares outstanding as of
September 14, 1998.
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2CONNECT EXPRESS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheets--
August 1, 1998 and January 31, 1998 1
Condensed statements of operations--
three months and six months ended August 1, 1998 and July 31, 1997 2
Condensed statements of cash flows--
three months and six months ended August 1, 1998 and July 31, 1997 3
Notes to condensed financial statements 4 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
</TABLE>
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
2Connect Express, Inc.
Condensed Balance Sheets
August 1, and January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
August 1, January 31,
1998 1998
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 735,749 $ 218,068
Accounts Receivable, net of reserves 195,928 350,296
Inventory, net of reserves 7,049 1,277,913
Prepaid Expenses & Other Current Assets 27,890 118,086
----------- -----------
Total Current Assets 966,616 1,964,363
Property & Equipment, Net 7,500 394,000
Other Assets 2,090 86,806
----------- -----------
Total Assets $ 976,206 $ 2,445,169
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable - Prepetition $ 900,894 $ 1,001,158
Accounts Payable - Postpetition (See Note Below) 185,941 44,557
Notes Payable - 275,000
Accrued Expenses & Other Current Liabilities 132,372 134,300
Accrued Landlord Claims 691,228 781,826
Accrued Employee Contract Claims 553,447 540,815
Accrued Other Bankruptcy Claims 76,850 149,546
Current Maturities of long-term Debt 2,967 22,209
----------- -----------
Total Current Liabilities 2,543,699 2,949,411
Other Liabilities
Long-term Debt & Capital Leases 7,871 8,803
----------- -----------
Total Liabilities 2,551,570 2,958,214
----------- -----------
Shareholders' Equity
Common Stock ($.01 par value. Authorized 25,000,000 Shares; 37,525 37,525
Issued & Outstanding 3,752,500 shares)
Paid-In-Capital 8,667,451 8,667,451
Retained Deficit - Prior Year (9,218,021) (9,218,021)
Net Loss - Current Year (1,062,319) -
----------- -----------
Total Shareholders' Equity (1,575,364) (513,045)
----------- -----------
Total Liabilities & Shareholders' Equity $ 976,206 $ 2,445,169
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
1
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2Connect Express, Inc.
Condensed Statements of Operations
For the Three Months and Six Months Ended August 1, 1998 and July 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------- --------------------------------
August 1, 1998 July 31, 1997 August 1, 1998 July 31, 1997
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 112,061 $ 844,730 $ 872,215 $ 1,248,103
Cost of sales 24,500 681,975 790,516 974,929
----------- ----------- ----------- -----------
Gross profit 87,561 162,755 81,699 273,174
General and administrative expenses:
Selling, general and administrative
expenses (excluding depreciation) 203,797 1,114,343 937,062 1,631,077
Depreciation and amortization -- 16,805 56,444 16,805
Preopening cost amortization -- 52,084 38,932 74,181
----------- ----------- ----------- -----------
Operating loss (116,236) (1,020,477) (950,739) (1,448,889)
Other income (expense):
Interest income 5,448 40,865 9,688 64,769
Interest expense (108) (381) (6,856) (759)
Restructuring charges and reserves (111,520) -- (265,752) --
Other, net 150,867 -- 151,340 --
----------- ----------- ----------- -----------
Net loss $ (71,549) $ (979,993) $(1,062,319) $(1,384,879)
=========== =========== =========== ===========
Net loss per share $ (0.02) $ (0.26) $ (0.28) $ (0.37)
=========== =========== =========== ===========
Number of shares used in calculating
loss per share 3,752,500 3,752,500 3,752,500 3,752,500
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
2
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2Connect Express, Inc.
Condensed Statement of Cash Flows
For the Six Months Ended August 1, 1998 and July 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
---------------------------------------
August 1, 1998 July 31, 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,062,319) $ (1,384,879)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 56,444 74,181
Preopening cost amortization 38,932 16,805
Changes in assets & liabilities:
Accounts receivable 154,368 (133,557)
Inventory 1,270,864 (835,674)
Prepaid expenses & other assets 135,980 (83,502)
Accounts payable - prepetition (100,264) 307,115
Accounts payable - postpetition 141,384 -
Accrued expenses (1,928) 102,637
Accrued landlord claims (90,598) -
Accrued employee contract claims 12,632 -
Accrued other bankruptcy claims (72,696) -
------------ ------------
Net cash provided by (used in) operating activities 482,799 (1,936,874)
------------ ------------
Cash flows from investing activities:
Capital expenditures - (770,946)
Loss on closed store assets and reserve for asset liquidations 330,056 -
------------ ------------
Net cash provided by investing activities 330,056 (770,946)
------------ ------------
Cash flows from financing activities:
Decrease in notes payable (275,000) -
Net proceeds from issuance of common stock - 5,354,731
Increase (decrease) in long-term debt (20,174) 17,643
------------ ------------
Net cash provided by (used in) financing activities (295,174) 5,372,374
------------ ------------
Net increase (decrease) in cash and cash equivalents 517,681 2,664,554
Cash and cash equivalents, beginning of period 218,068 1,449,167
------------ ------------
Cash and cash equivalents, end of period $ 735,749 $ 4,113,721
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
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2CONNECT EXPRESS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The unaudited condensed financial statements have been prepared in
conformity with instructions to Form 10-QSB, and therefore, do not include all
the information and footnotes required by generally accepted accounting
principals for complete financial statements. Certain items included in these
statements are based upon management estimates. In the opinion of management,
the accompanying financial statements contain all adjustments (consisting of
normal recurring accruals, reserves and restructuring reserves) necessary for
fair presentation. The results of operations for the three months and six months
ended August 1, 1998 are not necessarily indicative of the operating results
expected for the fiscal year ending January 30, 1999. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto for the fiscal year ended January 31, 1998. Such financial
statements for fiscal year ended January 31, 1998 have not yet been issued, as
the audit of such financial statements has not been completed due to the
Company's bankruptcy filing.
2) NET LOSS PER COMMON SHARE
Net loss per common share has been determined by dividing net loss by
the weighted average number of shares of common stock outstanding during the
respective periods. Common stock equivalents were not included due to their
antidilutive effect.
3) STORE PROPERTY AND DEVELOPMENT COSTS
Costs incurred prior to the opening of a store and certain costs
related to the implementation of corporate sales programs are capitalized and
amortized over a period of twelve months starting with the month of commencement
of such programs and new stores. All such previously accrued "pre-opening" costs
have been written off to restructuring expense as part of the Company's
reorganization.
4) STOCK OFFERING
On May 2, 1997, the Company's Board of Directors declared a one-for-two
reverse split of the Company's issued and outstanding shares of common stock
effective May 6, 1997. The par value of each common share remained $.01 and a
total of $27,100 were reclassified from common stock to paid-in capital.
On May 9, 1997, the Company completed an initial public offering (the
"IPO") of 520,000 units of its Common Stock. Each unit consists of two shares of
Common Stock, par value $.01 per share (the "Common Stock"), and one Common
Stock Purchase Warrant (a "Warrant") of the Company. Each Warrant entitled the
holder to purchase one share of common stock at a purchase price of $6.00 per
share for a period of sixty days commencing one year from the date of the final
prospectus, May 9, 1997. Neither the share of Common Stock nor the Warrant
contained in the units were detachable or separately transferable from the units
until May 9, 1998, at which time the units automatically terminated. The units
were listed for quotation on the OTC Bulletin Board under the symbol CNTCU until
the units components were detached and then the Common Stock was listed for
quotation on the OTC Bulletin Board under the symbol CNTC until recently
qualified by the NASD Regulation, Inc. and given the symbol CNTCQ. The price to
the public was $12.50 per unit and the Company received gross proceeds of
$6,500,000 before underwriting discounts and offering expenses of approximately
$530,000 and $611,000, respectively.
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5) LEASE OBLIGATIONS
(a) Operating Leases:
The Company had entered into eleven (11) non-cancelable operating
leases for store locations, corporate office and security equipment as of
January 31, 1998. The Company filed a voluntary petition for protection under
Chapter 11 of the U.S. Bankruptcy Code on January 12, 1998, and subsequent to
the filing, closed all but one of its' retail stores, relocated its' corporate
office to smaller space on a month to month basis, terminated all leases for
security equipment except for the one store which continues to operate, and has
rejected all such leases. Only the retail store at Coral Square Mall, Coral
Springs, Florida remains open, operating under a Management Agreement with Bobby
Allison Cellular Systems of Florida, Inc. ("Bobby Allison") effective June 18,
1998, whereby Bobby Allison is responsible for the operations of this store
including all expenses related thereto, and is entitled to all resulting profits
(losses).
Minimum future rental payments for all non-cancelable operating leases consist
of the following:
Year ending
the Saturday closest
to January 31
- --------------------
1999....................................................... $ 81,370
2000 ....................................................... 108,493
2001 ....................................................... 112,001
2002 ....................................................... 87,927
2003 ....................................................... 57,882
Thereafter ................................................. 242,052
--------
$689,725
========
6) RESTRUCTURING AND BANKRUPTCY FILING
On January 12, 1998, the Company filed a voluntary petition for relief
("the Filing") under chapter 11 ("Chapter 11") of title II of the United States
Code ("the Bankruptcy Code") in the United States Bankruptcy Court for the
Southern District of Florida ("the Bankruptcy Court"). In Chapter 11, the
Company will and has continued to manage its affairs and operate its business as
a debtor-in-possession and has developed a reorganization plan that will
restructure the Company and allow its emergence from Chapter 11. As a
debtor-in-possession in Chapter 11, the Company may not engage in transactions
outside of the ordinary course of business without approval, after notice and
hearing, of the Bankruptcy Court.
In accordance with the Bankruptcy Code, the Company can seek court
approval for the rejection of executory contracts, including real property
leases. In connection with the Company's Chapter 11 proceedings, a review was
undertaken of all the Company's obligations under its executory contracts,
including real property leases. All store leases and executory contracts have
been rejected except for the Coral Square Mall (Coral Springs, Florida) store
lease and a related lease of electronic article surveillance systems for that
store. All re-seller agreements with service providers have not been rejected,
except for an agreement with a telephone service provider, which was terminated
by mutual agreement between the parties.
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Subsequent to the bankruptcy filing, the Company reached an agreement
with Bay Tech Investments, Inc., to provide secured debtor-in-possession
financing in the form of a credit facility. The credit facility provides for
borrowings dependent upon the Company's level of inventory and accounts
receivable with maximum borrowings of $500,000. The agreement grants a security
interest in substantially all of the Company's assets. Advances under the
facility bear interest at 11%. The debtor-in-possession facility replaced a
Revolving Credit Facility provided by Bay Tech Investments, Inc. which had been
in existence pre-petition. At the time of the Chapter 11 petition, $275,000 was
borrowed on this facility, which balance rolled over to the debtor-in-possession
facility. The debtor-in-possession agreement was originally scheduled to
terminate on February 29, 1998. The Company requested and received a thirty-day
extension of the facility until March 28, 1998 unless further extended upon
request of the borrower and such extension to be at the option of the lender.
The interest rate on advances under the facility was changed to 12% for the
extension period only. On March 28, 1998 the Company voluntarily paid off the
balance owed on the debtor-in-possession facility plus accrued interest and did
not seek extension of the facility. The Company believed that cash raised
through liquidation of excess assets would provide sufficient liquidity through
the anticipated date that the Company expects to emerge from the proceeding.
Subsequent to the bankruptcy filing, the Company announced on March 3,
1998 that it had executed a Letter of Intent whereby Bobby Allison Cellular
Systems of Florida, Inc. ("Bobby Allison") would merge with and into the
Company. The transaction was contingent upon completion of a Merger Agreement,
which would be incorporated into a Plan of Reorganization to be filed with the
Bankruptcy Court and subsequent confirmation of that Plan by the court. The
surviving entity of the merger was expected to be financed principally by Sterne
Agee & Leach, Inc., an investment banking firm that was the managing underwriter
of the Company's initial public offering in May 1997. The merger and related
financing was anticipated to take place following the Company's emergence from
the bankruptcy proceeding.
The Company subsequently filed a Plan of Reorganization on April 14,
1998 and an accompanying Disclosure Statement. The Company also executed the
Merger Agreement with Bobby Allison on May 1, 1998. The Company executed a
Management Agreement with Bobby Allison on May 6, 1998, whereby Bobby Allison
would assume the operation of the Company's Coral Square Mall store and be
responsible for all expenses related thereto. The Court approved the Management
Agreement on June 16, 1998, which became effective June 18, 1998.
On August 27, 1998 the Company entered into an agreement ("Agreement")
with Sterne Agee whereby Sterne Agee will, as of the Effective Date of the Plan
of Reorganization of the Company filed with the U.S. Bankruptcy Court, Southern
District of Florida, acquire out of bankruptcy 100% of the equity interests of
the Company and the Company will retain the Coral Square Mall store lease and
certain store fixtures. In consideration for such acquisition, Sterne Agee will
make a new value contribution to the bankruptcy estate for the benefit of the
Company's creditors in the amount of $175,000, which funds are currently in
escrow. To effect this transaction and in accordance with the Plan of
Reorganization, as amended on August 7, 1998, upon the Effective Date, all of
the current and existing Common Stock of the Company will be forever
extinguished and canceled and the Company will issue new shares of Common Stock
to Sterne Agee which shall constitute 100% of the issued and outstanding shares.
The existing shareholders of Common Stock will not retain any interest in the
post-bankruptcy entity or receive any distribution from the bankruptcy estate
for their extinguished and cancelled interests. The Bankruptcy Court scheduled a
hearing to confirm the Plan of Reorganization for October 14, 1998. The
Effective Date is to occur ten days after confirmation of the Plan of
Reorganization.
Also pursuant to the terms of the Agreement and effective August 27,
1998, all of the members of the Company's Board of Directors, except for Marc D.
Fishman, resigned from the Board of Directors and Mr. Fishman, as the sole
remaining director, and in accordance with the Bylaws of the Company, appointed
James S. Holbrook, Jr., Craig R. Heyward and F. Eugene Woodham, each of whom are
employees of Sterne Agee, to fill three of the vacancies. The Board of Directors
has further resolved to
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appoint James S. Holbrook, Jr. as the Chairman of the Board and, in accordance
with the Bylaws of the Company, to designate that the Chairman of the Board is
the chief executive officer of the Company.
The accompanying condensed financial statements have been prepared on a
going concern basis of accounting, after adjustments to inventory valuation and
asset values that are not anticipated to be included in the merger described
above, and also after adjustments to the assets to be included in the merger.
The assets included in the proposed merger, which is subject to confirmation of
the Plan of Reorganization by the Court, consist of one store lease, inventory
for one store and its store fixtures, certain fixtures from nine closed stores,
and a payment to be made by Bobby Allison for the business. Remaining minimal
office assets, required during the period until the merger, have been written
down to current estimated market value. The condensed financial statements do
not reflect any adjustments that might result should the Company's Plan of
Reorganization not be confirmed by the Court, the merger not be consummated or
should the Company be unable to continue as a going concern and liquidate. The
Company's losses from operations, which resulted in its bankruptcy filing and
partial liquidation, raise substantial doubt about its ability to continue as a
going concern. The appropriateness of using the limited going concern basis is
dependent upon, among other things, (i) confirmation of a Plan of Reorganization
under the Bankruptcy Code, (ii) the ability to achieve profitable operations
after such confirmation and under the proposed merger, and (iii) the ability to
generate sufficient cash from operations to meet its obligations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Factors That May Affect Future Results
As stated above, pursuant to the Agreement, Sterne Agee will acquire out
of bankruptcy 100% of the equity interests of the Company and all current and
existing Common Stock of the Company will be forever extinguished and cancelled.
Consequently, the existing shareholders will not participate in the Company's
future, and the Company's future results are therefore immaterial to the
shareholders. The Management Discussion and Analysis below is primarily
historical.
Comparison of Second Quarter Ended August 1, 1998 and First Six Months of 1998
with 1997
The Company's net sales for the second quarter ended August 1, 1998
were $112,061 versus $844,730 during the comparable second quarter ended July
31, 1997. The Company operated approximately 3.0 stores during the second
quarter last year. The Company commenced operation of its first store on
December 6, 1996 and subsequently opened two stores in April 1997, three stores
in August 1997, two stores in September 1997 and two stores in November 1997.
The Company closed its five worst performing stores immediately upon its
bankruptcy filing on January 12, 1998 and operated five stores at January 31,
1998. During the second quarter ended August 1, 1998 the Company operated
approximately 0.5 stores for the full quarter including the only on-going store
in Coral Springs, Florida until June 18, 1998 when it was turned over to Bobby
Allison under a Management Agreement in which Bobby Allison is responsible for
management and all resulting profits (losses).
The Company's net sales for the six months ended August 1, 1998 were
$872,215 versus $1,248,103 during the comparable six months ended July 31, 1997.
The Company operated 2.2 equivalent full-time stores in the first six months of
1998 versus 2.1 equivalent full-time stores during the comparable 1997 period.
In the first six months of 1998 the Company conducted inventory clearance and
liquidation sales at steep discounts and then sold remaining inventory and
defective merchandise which
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had been returned by customers in two public auctions conducted by Stampler
Auctions in April 1998. The first such auction consisted of first quality
merchandise and generated proceeds of $300,000 while the second auction,
consisting of customer returns, generated proceeds of $34,500.
Gross profit for the second quarter ended August 1, 1998 was $87,561
(78.1% to sales) versus gross profit in the prior year comparable quarter ended
July 31, 1997 of $162,755 (19.3% to sales). The gross profit in second quarter
1998 was due to residual income on previous sales of primarily cellular plans
and sales of services that carried activation commissions and related to
equipment which was supplied directly to customers by the service provider. The
lower gross profit in the last year second quarter ended July 31, 1997 was due
to price driven promotional activity related to two new stores, which opened in
late April 1997.
Gross profit for the six months ended August 1, 1998 was $81,699 (9.4%
to sales) versus $273,174 (21.9%) for the comparable last year six months ended
July 31, 1997. The lower gross profit in 1998 was due to the aforementioned
retail store clearance sales and public auctions. The auction sales returned
approximately 30% of the merchandise inventory cost value, but they enabled to
Company to immediately eliminate expenses of operating the stores where the
inventory was housed and allowed the Company to reject those store leases. The
gross margin of 21.9% for the six months ended July 31, 1997 was adversely
affected by grand opening promotions in connection with opening the Dadeland and
Westchester stores during April 1997 and heavy promotional advertising intended
to create store awareness and garner market share. In the first six months of
1997 the Company priced its products at or below competition and used customer
incentives to increase sales, which lowered average selling price per unit and
gross margin.
Selling, general and administrative expenses ("SG&A"), excluding
depreciation and amortization, for the second quarter ended August 1, 1998 was
$203,797 (181.6% to sales) versus $1,114,343 (131.9% to sales) during the
comparable quarter last year ended July 31, 1997. The decrease in SG&A expenses
was due to the reduced number of stores operated during the second quarter of
1998 and reduction of corporate expenses and personnel to skeleton levels. SG&A
expenses for the six months ended August 1, 1998, excluding depreciation and
amortization, was $937,062 (107.4% to sales) versus $1,631,077 (130.7% to sales)
for the last year comparable period ended July 31, 1997. The 1998 SG&A expenses
included store closing expenses and expenses related to the movement of
merchandise from closed stores to operating stores and movement of store
fixtures and equipment to a warehouse awaiting subsequent sale to Bobby Allison.
Subsequent to conduct of the aforementioned auctions in April 1998, the Company
has reduced personnel headcount to five persons, including management, in its
Coral Springs store, prior to the effective date of the Management Agreement,
and four in the corporate office. The 1997 SG&A expenses included all management
functions which had been anticipated for the support of rapid store count growth
and personnel used in the start-up of telemarketing and direct outside sales
functions.
Depreciation, amortization and amortization of pre-opening costs for
the second quarter ended August 1, 1998 was -0- versus $68,889 for the prior
year comparable quarter ended July 31, 1997. The decrease was due to the sale
and write-off of fixed assets and pre-opening expenses subsequent to the
Company's bankruptcy filing. Depreciation, amortization and amortization of
pre-opening costs for the six months ended August 1, 1998 was $95,376 versus
$90,986 for the comparable last year six months ended July 31, 1998. The
equivalent full-time store count in both periods was approximately the same.
Net interest expense for the second quarter ended August 1, 1998 was
$108 versus $381 in the comparable prior year quarter ended July 31, 1997. For
the six months ended August 1, 1998 net interest expense was $6,856 versus $759
in the comparable last year period. The increase was due to borrowings under the
Company's debtor-in-possession credit facility during first quarter 1998.
Net interest income for the second quarter ended August 1, 1998 was
$5,448 versus $40,865 during the last year comparable quarter ended July 31,
1997. The decline in interest income was due to lower cash and short term
investments in second quarter 1998 versus second quarter 1997 which included
proceeds from the Company's initial public offering which had not yet been
invested in committed new
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store capital expenditures and working capital. Net interest income for the six
months ended August 1, 1998 was $9,688 versus $64,769 for the last year
comparable six months ended July 31, 1997.
Restructuring charges and reserves in the second quarter ended
August 1, 1998 was ($39,347) versus $0 in the last year comparable quarter ended
July 31, 1997. The net restructuring charges and reserve adjustments included
adjustments to previously established store closing accruals, reserves for the
disposition of assets and recoveries of accounts receivable. Net restructuring
charges, reserves and adjustments for the six months ended August 1, 1998 was
$114,412 versus -0- in the last year comparable period ended July 31, 1997. The
net expenses recorded included write-down to realized proceeds of assets
(merchandise inventory) sold to Bobby Allison under the aforementioned Merger
Agreement, assets (store selling fixtures) contemplated to be sold to Sterne
Agee under the Agreement formalized and dated August 27, 1998 and legal fees
related to the Company's bankruptcy proceeding in excess of retainers previously
paid to the Company's securities counsel, general and bankruptcy counsel and
professional employed by the creditor's committee in the bankruptcy case.
Net loss for the second quarter ended August 1, 1998 was ($71,549)
versus ($979,993) for the last year comparable quarter ended July 31, 1997. The
net loss is due to the effective shutdown of the Company's retailing operations.
Although the Company has now closed all but one store and reduced corporate
headcount to skeleton levels, the Company anticipates that it will continue to
incur costs, expenses and losses until, at the earliest, the Company emerges
from bankruptcy, merges with Bobby Allison and establishes a number of stores
generating sufficient revenue to offset its operating costs and costs of any
continuing expansion. Net loss the six months ended August 1, 1998 was
($1,062,319) versus ($1,384,879) for the last year comparable period ended July
31, 1997. The 1998 loss was primarily due to losses sustained in the liquidation
of assets in the bankruptcy proceeding. The 1997 loss was primarily due to store
operating losses, promotional expenses and corporate expenses which had been
established in anticipation of future store count growth.
FINANCIAL CONDITION
The Company increased its cash position by $517,681 during the second
quarter ended August 1, 1998, to $735,749 from $218,068 at fiscal year ended
January 31, 1998. During that period the Company repaid its $275,000 borrowings
under its debtor-in-possession credit facility. The cash increase was primarily
due to the liquidation of excess merchandise inventory and inventory from stores
which were closed during the bankruptcy proceeding, the sale of excess corporate
office furniture and fixtures no longer required due to downsizing, and
settlement of a contractual dispute with a previous cellular service provider
whose plans were sold in the Company's retail stores.
The Company expects to receive nominal additional funds from the
collection of receivables and $175,000 from the sale of assets to Sterne Agee
under the aforementioned Agreement. However, all of the Company's excess cash at
the Effective Date of the Plan of Reorganization is anticipated to be paid to
creditors after confirmation of the Company's Plan of Reorganization by the
court. Also at such time, all of the current and existing Common Stock of the
Company will be forever extinguished and cancelled and the Company will issue
new shares of Common Stock to Sterne Agee which shall constitute 100% of the
issued and outstanding shares. The existing shareholders of Common Stock will
not retain any interest in the post-bankruptcy entity or receive any
distribution from the bankruptcy estate for their extinguished and cancelled
interests.
This form 10-QSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical facts included in this
Form 10-QSB and located elsewhere herein regarding the Company's financial
position and business strategy may constitute forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be accurate.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
- Exhibit Item 10 of Rule 601 - Management Agreement by and
between 2Connect Express, Inc. and Bobby Allison Cellular
Systems of Florida, Inc. effective May 31, 1998.
- Exhibit Item 27 of Rule 601 - Financial Data Schedule (for
SEC use only).
(b) Reports on Form 8-K. Reports on Form 8-K have been filed
during the quarter ended August 1, 1998, on a monthly basis
pursuant to the filing of U.S. Bankruptcy Court Trustee
Reports, and as material events occurred.
- Form 8-K dated May 19, 1998 re: Merger Agreement with Bobby
Allison and auction inventory liquidation results;
- Form 8-K dated June 19, 1998 re: U.S. Trustee Report (May,
1998 financial results);
- Form 8-K dated July 16, 1998 re: U.S. Trustee Report (June,
1998 financial results);
- Form 8-K dated July 28, 1998 re: motion to amend Disclosure
Statement to provide for the extinguishment of
pre-confirmation equity.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
2CONNECT EXPRESS, INC.
----------------------
(Registrant)
Date: September 14, 1998 /s/ James S. Holbrook, Jr.
- ------------------------ ---------------------------------------
James S. Holbrook, Jr., Chairman of the
Board and Chief Executive Officer
10
<PAGE> 1
EX-10
MANAGEMENT AGREEMENT
This Management Agreement (hereinafter referred to as "this Agreement")
is made and entered into on the latest date this Agreement is executed by either
party hereto, to be effective for all purposes as of May 31, 1998 (hereinafter
referred to as "the Effective Date"), by and between 2CONNECT EXPRESS, INC.
(hereinafter referred to as "2Connect"), a Florida corporation and BOBBY ALLISON
CELLULAR SYSTEMS OF FLORIDA, INC. (hereinafter referred to as "BAC"), a Florida
corporation. For the purposes of this Agreement, 2Connect and BAC are
hereinafter referred to as "the Parties", in the plural, and as "Party" in the
singular, wherever such terms appear.
WHEREAS, the Parties, 2CONNECT ACQUISITION CORP., a Florida
corporation, ROBERT L. McGINNIS, and JAMES L. RALPH have executed that certain
merger agreement dated May 1, 1998 (hereinafter referred to as "the Merger
Agreement"); and
WHEREAS, subsection 1.05(f) of the Merger Agreement requires 2Connect
and BAC to use their best efforts to enter into a management agreement whereby
BAC agrees to manage 2Connect's operations at its Coral Square Mall Store until
the date upon which the articles of merger described in Article I of the Merger
Agreement are filed with the Florida Department of State; and
WHEREAS, subsection 1.05(f) of the Merger Agreement states that such
management agreement shall be mutually acceptable to 2Cconnect and BAC; and
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<PAGE> 2
WHEREAS, subsection 1.05(f) of the Merger Agreement further states that
such management agreement shall be subject to the approval of the Untied States
Bankruptcy Court for the Southern District of Florida (hereinafter referred to
as "the Bankruptcy Court"); and
WHEREAS, 2Connect and BAC desire to execute this Agreement to satisfy
the requirements of subsection 1.05(f) of the Merger Agreement.
NOW, THEREFORE, in consideration of the terms hereinafter contained,
the adequacy of which are hereby acknowledged, the Parties, intending to be
legally bound, hereby agree as follows:
1. FOREGOING STATEMENTS. The Parties acknowledge and agree that all of the
foregoing statements are true and accurate. The Parties further
acknowledge and agree that all of the foregoing statements constitute
integral parts of this Agreement.
2. BANKRUPTCY COURT APPROVAL. Upon the execution of this Agreement by the
Parties, 2Connect shall promptly cause this Agreement to be submitted
to the Bankruptcy Court for approval. The validity of this Agreement
shall be subject to the approval of the Bankruptcy Court. In the event
the Bankruptcy Court does not approve this Agreement, this Agreement
shall be void ab initio.
3. TERM. The term of this Agreement shall commence on the Effective Date
and shall expire on the date upon which the articles of merger
described in Article I of the Merger Agreement are filed with the
Florida Department of State. Notwithstanding the
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<PAGE> 3
immediately preceding sentence, either Party may immediately terminate
this Agreement upon the material breach of this Agreement by the other
Party.
4. LOCATION TO BE MANAGED. As of the Effective Date, BAC shall commence to
manage and operate 2Connect's Coral Square Mall Store, located in Coral
Springs, Florida (hereinafter referred to as "the Store").
5. INVENTORY PROCEDURES. After the close of business with respect to the
Store on May 30, 1998, (i.e., after 9:00 P.M.) or on the Effective Date
at 7:00 A.M., whichever time and date are mutually agreed upon by
2Connect and BAC, a physical inventory shall be taken to determine all
merchandise located at the Store. 2Connect and BAC shall prepare a
mutually agreed upon inventory list showing in detail the quantities
and costs of each item of inventory (hereinafter referred to as "the
Inventory").
6. CONTRACTS. BAC will use its best efforts to maintain and preserve
2Connect's contracts with Nextel, PrimeCo, Sprint, Icanect, Beepers To
Go, World Com, and Trescom (hereinafter referred to as "the 2Connect
Contracts", in the plural, and as "2Connect Contract", in the
singular), unless BAC determines, in its sole discretion, that a
2Connect Contract will directly or indirectly conflict with BAC's
existing dealer agreement with AT&T. In the event BAC uses its best
efforts to maintain and preserve a 2Connect Contract, BAC shall not be
responsible for
-3-
<PAGE> 4
volume commitments required by such 2Connect Contract, where such
commitments, if not met, could directly or indirectly result in a
default with respect to, or termination of, such 2Connect Contract. BAC
shall not be required to become a party to any of the 2Connect
Contracts, and 2Connect shall remain as a party on all of the 2Connect
Contracts. With respect to any and all of the 2Connect Contracts with
respect to which BAC will use its best efforts to maintain and
preserve, 2Connect shall obtain from the applicable parties to such
2Connect Contracts any consents required by such parties to achieve the
intent of this Section 6; provided, further, such consents shall be in
writing, and shall be, in form and substance, satisfactory to BAC.
7. DISPOSITION OF INVENTORY. BAC and 2Connect, by mutual agreement, shall
segregate the Inventory into two (2) distinct categories. The first
category shall be comprised of items that BAC will endeavor to sell at
retail for 2Connect's account (hereinafter referred to as "the 2Connect
Inventory"). 2Connect shall remain the owner of the 2Connect Inventory.
The second category shall be comprised of items that BAC will endeavor
to sell at retail for BAC's account (hereinafter referred to as "the
BAC Assortment Inventory"). BAC shall become the owner of the BAC
Assortment Inventory upon identification of the same and upon payment
to 2Connect of an amount equal to 80% of 2Connect's original cost of
the BAC Assortment Inventory. Regarding any and all sales of
-4-
<PAGE> 5
the 2Connect Inventory, BAC shall, upon receipt of the sales proceeds
from the purchaser, remit to 2Connect on a weekly basis, an amount
equal to the Net Proceeds; moreover, for the purpose of this Agreement,
the Net Proceeds shall be equal to the result obtained by subtracting
from the sale proceeds both salesperson commissions pertaining to the
sale, sales tax, and any other direct selling expenses, such as
bankcard fees, check authorization fees, and the like. In connection
with the remittance of the Net Proceeds to 2Connect, BAC shall provide
a written report that substantiates the sales transactions generating
the Net Proceeds. Regarding any and all sales of the BAC Assortment
Inventory, and of any inventory acquired by BAC on or after the
Effective Date, BAC shall be entitled to retain all proceeds therefrom,
and shall be responsible for all commissions and all expenses attendant
with such sales; provided, further, 2Connect shall not have any
interest in such proceeds.
8. ACTIVATION AND RESIDUAL COMMISSIONS. 2Connect shall be entitled to
receive: (a) all activation and residual commissions arising from Bell
South cellular transactions, and any other transactions, consummated by
2Connect prior to the Effective Date; (b) 75% of AT&T activation
commissions pertaining to sales made by 2Connect prior to the Effective
Date and booked through BAC; and (c) all Bell South residual
commissions, and all residual commissions from other suppliers
(excluding any AT&T
-5-
<PAGE> 6
residual commissions), received before, on, or after the Effective
Date. BAC shall be entitled to receive and retain any and all
activation and residual commissions, other than those described in the
immediately preceding sentence, but only to the extent such commissions
arise from sales consummated on or after the Effective Date; provided,
however, BAC shall be entitled to receive 25% of AT&T activation
commissions pertaining to sales made by 2Connect prior to the Effective
Date and booked through BAC, and BAC shall be entitled to receive any
and all AT&T residual commissions resulting from sales made by 2Connect
prior to the Effective Date.
9. OUTSTANDING PURCHASE ORDERS. On the Effective Date, 2Connect shall
deliver to BAC all outstanding purchase orders pertaining to items of
inventory and merchandise not yet received from vendors. If such items
and such merchandise are of the identical kind and character as the
items constituting the BAC Assortment Inventory, BAC shall accept such
items and such merchandise as additions to the BAC Assortment
Inventory, and BAC shall be responsible for paying in total, the
purchase orders related to such additions to the BAC Assortment
Inventory. If such items and such merchandise are not of the identical
kind and character as the items constituting the BAC Assortment
Inventory, BAC shall not be obligated to accept such items and such
merchandise as additions to the BAC Assortment Inventory, and 2Connect
shall be
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<PAGE> 7
responsible for either paying the purchase orders related to the same
or cancelling such orders, unless BAC agrees, in writing, to accept the
same as additions to the BAC Assortment Inventory, in which case BAC
shall be responsible for payment, in full, of such purchase orders. Any
items and merchandise described in this Section 9 that are accepted by
BAC as additions to the BAC Assortment Inventory shall be disposed of
in accordance with Section 7 hereinabove in the same manner, and with
the same consequences, as the disposition of the BAC Assortment
Inventory. As determined by 2Connect in its sole discretion, any items
and merchandise described in this Section 9 that are not accepted by
BAC as additions to the BAC Assortment Inventory shall either be
disposed of in accordance with Section 7 hereinabove in the same
manner, and with the same consequences, as the disposition of the
2Connect Inventory or delivered to 2Connect at 2Connect's sole cost and
expense.
10. EXPENSES TO BE ASSUMED AND PAID BY BAC. With respect to BAC's
management and operation of the Store, as of the Effective Date, BAC
shall be responsible for all operating costs related to such operation
and management, including but not limited to, payroll for the Store's
employees, fringe benefits for the Store's employees, sales taxes,
bankcard fees, check approval fees, merchandise payables, and freight.
As of the Effective Date, BAC, in its sole discretion, shall be
entitled to make all
-7-
<PAGE> 8
decisions regarding the retention, hiring, and dismissal of the Store's
employees. Any and all of the Store's employees that BAC elects to
employ shall become employees of BAC and any employees that BAC elects
not to employ shall be terminated by 2Connect. Notwithstanding any
contrary provision of this Agreement, in the event any CAM adjustments
are retroactively charged by the landlord with respect to the lease
pertaining to the Store, BAC shall not be responsible for any such
adjustments to the extent such adjustments are attributable, on a pro
rata basis, to any period of time before the Effective Date; provided,
further, BAC's responsibility for such adjustments shall be limited to
the pro rata portion of such adjustments attributable to periods of
time occurring on or after the Effective Date and prior to the earlier
of the expiration or termination of this Agreement. Notwithstanding any
contrary provision of this Section 10, BAC shall not be responsible for
any operating costs directly or indirectly related to proceeds or
revenues generated at the Store to which 2Connect is entitled.
11. EXPENSES TO BE PAID BY 2CONNECT AND REIMBURSED BY BAC. With respect to
the Store, 2Connect shall continue to be responsible for the payment of
rent and ancillary expenses, telephone, taxes described in this Section
11, and utilities incurred in connection with BAC's operation and
management of the Store on and after the Effective Date. BAC shall
reimburse 2Connect for
-8-
<PAGE> 9
such expenses in accordance with the succeeding provisions of this
Section 11. Notwithstanding any contrary provision of this Agreement,
in the event any CAM adjustments are retroactively charged by the
landlord with respect to the lease pertaining to the Store, BAC shall
not be responsible for any such adjustments to the extent such
adjustments are attributable, on a pro rata basis, to any period of
time before the Effective Date; provided, further, BAC's responsibility
for such adjustments shall be limited to the pro rata portion of such
adjustments attributable to periods of time occurring on or after the
Effective Date and prior to the earlier of the expiration or
termination of this Agreement. BAC shall reimburse 2Connect for
tangible personal property taxes imposed by the State of Florida with
respect to taxable items located in the Store to extent such taxes are
attributable, on a pro rata basis, to periods of time occurring after
the Effective Date and prior to the earlier of the expiration or
termination of this Agreement. Notwithstanding any contrary provision
of this Agreement, except for such personal property taxes, BAC shall
not be responsible for any other property taxes. BAC shall reimburse
2Connect for occupational license fees and similar fees to the extent
such fees are attributable, on a pro rata basis, to periods of time
occurring after the Effective Date and prior to the earlier of the
expiration or termination of this Agreement. Notwithstanding any
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<PAGE> 10
contrary provision of this Section 11, BAC shall not be responsible for
reimbursing 2Connect for any expenses directly or indirectly related to
proceeds or revenues generated at the Store to which 2Connect is
entitled. Upon its payment of any expenses described in this Section 11
for which BAC is obligated to reimburse 2Connect, 2Connect shall submit
to BAC periodic invoices evidencing 2Connect's payment of such
expenses. BAC shall reimburse 2Connect for such expenses within five
(5) business days after the date of BAC's receipt of each invoice.
12. `REMOVAL OF SIGNAGE. In the event AT&T requires the removal of any Bell
South signage located at the Store, 2Connect shall promptly obtain any
required consent of its landlord to permit the removal of such signage.
The removal of such signage shall be the sole responsibility of BAC.
13. SALES RETURNS. BAC shall be responsible for any sales returns related
to sales made at the Store on or after the Effective Date, in
connection with BAC's operation and management of the Store; provided,
however, such sales returns shall be subject to the return policy
established by BAC. Any sales returns related to sales made at the
Store prior to the Effective Date (hereinafter referred to as "the
2Connect Return Sales", in the plural, and as "2Connect Return Sale",
in the singular) shall be dealt with by BAC pursuant to 2Connect's
return policy in existence before the Effective Date. 2Connect
acknowledges,
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<PAGE> 11
agrees, represents, and warrants that such return policy requires each
customer to submit each sales return within thirty (30) days after
purchase and to present a sales receipt with respect to such sales
return; provided, however, any clearance merchandise sold by 2Connect
as is, without the right to refund, return, or exchange, does not
entitle the customer to return such merchandise, and BAC shall not be
obligated to accept the return of such merchandise. BAC shall not be
obligated to take possession of any 2Connect Return Sale, unless the
customer has satisfied all requirements of 2Connect's return policy. If
a 2Connect Return Sale received by BAC is of the identical kind and
character as an item constituting part of the BAC Assortment Inventory
and is saleable, 2Connect shall be obligated to reimburse BAC for an
amount equal to the excess of the sum returned to the customer by BAC
over 2Connect's original cost of the item returned by such customer;
provided further, BAC shall accept such 2Connect Return Sale as an
addition to the BAC Assortment Inventory, and BAC shall be entitled to
retain all proceeds from the resale thereof. If a 2Connect Return Sale
received by BAC is defective or damaged, it shall be deemed unsaleable,
and 2Connect shall be obligated to reimburse BAC for an amount equal to
the amount returned to the customer by BAC; provided, further, such
2Connect Return Sale shall be delivered to 2Connect, at 2Connect's sole
expense, for disposition by
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<PAGE> 12
2Connect. Notwithstanding any contrary provision contained in the
immediately preceding sentence, 2Connect shall not incur any obligation
with respect to a particular defective or damaged 2Connect Return Sale
unless such 2Connect Return Sale is returned by the customer during the
period beginning on the Effective Date and ending thirty (30) days
thereafter. If a 2Connect Return Sale received by BAC is not of the
identical kind and character as an item constituting part of the BAC
Assortment Inventory and is saleable, 2Connect shall be obligated to
reimburse BAC for an amount equal to the amount returned to the
customer by BAC; provided, further, such 2Connect Return Sale shall
become an addition to the 2Connect Inventory, and shall be disposed of
in accordance with Section 7 hereinabove in the same manner, and with
the same consequences, as the disposition of the 2Connect Inventory.
BAC shall be entitled to offset against its reimbursement obligations
to 2Connect, as set forth in Section 11 hereinabove, 2Connect's
reimbursement obligations to BAC set forth in this Section 13, until
BAC fully recoups all such reimbursements due from 2Connect.
Notwithstanding any contrary provision of this Section 13, 2Connect's
reimbursement obligations pursuant to this Section 13 shall not exceed,
in the aggregate, an amount equal to ten percent (10%) of 2Connect's
gross sales at the Store during the thirty (30) day period immediately
preceding the Effective Date.
-12-
<PAGE> 13
14. 4-WALL OPERATING PROFIT. Except as otherwise provided in this
Agreement, as of the Effective Date, and continuing up until the
earlier of the expiration or termination of this Agreement, BAC shall
be entitled to retain all 4-wall operating profit of the Store and
shall be responsible for all 4-wall operating losses of the Store. For
the purpose of this Agreement, 4-wall operating profit and 4-wall
operating losses shall be determined pursuant to the principles set
forth in Exhibit "A", which is attached hereto, incorporated by
reference, and made an integral part of this Agreement. Except as
otherwise provided in this Agreement, BAC shall be entitled to retain
all revenue and income received on or after the Effective Date with
respect to its operation and management of the Store, and BAC shall be
responsible for all expenses incurred on or after the Effective Date
with respect to its operation and management of the Store.
15. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. Except for, and excluding, the Merger
Agreement, this Agreement contains all representations and the
entire understanding and agreement between the Parties. Except
for, and excluding, the Merger Agreement, correspondence,
memoranda or agreements, whether written or oral, originating
before the date of this Agreement are replaced in total by
this Agreement. In the event any conflict or inconsistency
exists between this Agreement and
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<PAGE> 14
the Merger Agreement, this Agreement shall be controlling with
respect to the same.
(b) AMENDMENT. This Agreement may be amended only by a writing
signed by both of the Parties.
(c) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
Unless pre-empted by the Bankruptcy Court, the state courts of
Florida shall have exclusive jurisdiction and venue over any
judicial proceeding relating to any dispute arising out of the
interpretation, performance or breach of this Agreement.
(d) SEVERABILITY. If any part of this Agreement is determined to
be illegal or unenforceable, all other parts shall be given
effect separately and shall not be affected.
(e) NOTICES. Notices given or permitted under this Agreement shall
be in writing and shall either be served personally or
delivered by certified mail, return receipt requested, postage
prepaid. Notices shall be effective upon actual receipt,
except as otherwise provided herein. Notices shall be directed
to the Parties at the following addresses:
If to 2Connect: 2Connect Express, Inc.
3500 Gateway Dr.
Ste. 101
Pompano Beach, Florida 33069
Attn: Thomas H. Hicks
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<PAGE> 15
With a copy to: Kelley, Drye & Warren, LLP
201 S. Biscayne Boulevard
2400 Miami Center
Miami, Florida 33131
Attn: Paul J. Battista, Esq.
If to BAC: Bobby Allison Cellular Systems
of Florida, Inc.
2055 Lake Avenue S.E., Suite A
Largo, Florida 34641
Attn: Robert L. McGinnis
With a copy to: Hines & Associates, P.A.
315 South Hyde Park Avenue
Tampa, Florida 33606
Attn: Christopher H. Norman, Esq.
Either Party may change such Party's address for purposes of this
Agreement by giving written notice of the new address to the other
Party in accordance with either medium described hereinabove. Rejection
or other refusal to accept delivery of a notice, or the inability to
deliver a notice because of changed address of which no notice was
given, shall cause such notice to be effective when sent.
(f) ADDITIONAL DOCUMENTS. Each Party agrees to execute and
acknowledge, if required, any and all other documents and
writings which may be necessary to carry out the purposes and
provisions of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
-15-
<PAGE> 16
(h) NONWAIVER. No assent or waiver, express or implied, of any
breach of any one or more of the covenants, conditions or
provisions of this Agreement shall be deemed a waiver of any
subsequent breach, or a waiver of any other covenant,
condition or provision of this Agreement.
(i) INTERPRETATION. The language used in this Agreement shall not
be construed in favor of or against either Party, but shall be
construed as if both of the Parties prepared this Agreement.
The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against
either Party.
(j) ATTORNEYS' FEES. Except as otherwise provided in Section 15(k)
hereinbelow, TThe prevailing party to a dispute between, or
litigation between, the Parties, if said dispute or litigation
relates to this Agreement, shall be entitled to reimbursement
from the non-prevailing party for such prevailing party's
reasonable costs and expenses, including reasonable attorneys'
fees. For purposes of this Agreement, the "prevailing party"
shall be deemed to be that party who obtains substantially the
result sought, whether by settlement, mediated or otherwise,
dismissal, or judgment. For purposes of this Agreement, the
term "reasonable attorneys' fees" shall include, without
limitation, the
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<PAGE> 17
actual attorneys' fees incurred in retaining counsel for
advice, negotiations, suit, appeal, or any other legal
proceeding, including mediation and arbitration.
(k) RESOLUTION OF DISPUTES WITH RESPECT TO ALLOCATION OF EXPENSES.
In the event the parties initially disagree as to the
allocation of expenses between 2Connect and BAC for the
purposes of Sections 10 and 11 hereinabove, the parties shall,
in good faith, use their respective best efforts to resolve
such disagreement within ten (10) days. If such efforts do not
result in a resolution of such disagreement prior to or upon
the expiration of such ten (10) day period, the parties shall
petition the Bankruptcy Court to resolve such disagreement.
Notwithstanding Section 15(j) hereinabove, each party shall
bear its own legal fees, accounting fees, and other
professional fees in connection with such a proceeding before
the Bankruptcy Court; provided, however, each party shall be
equally responsible for any court costs. Upon the Bankruptcy
Court's issuance of an order setting forth a resolution of
such disagreement, such resolution shall be binding and
conclusive once such order becomes non-appealable.
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<PAGE> 18
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
date or dates set forth hereinbelow, to be effective for all purposes as of the
Effective Date.
2CONNECT EXPRESS, INC.
By: /s/ Thomas H. Hicks
----------------------------------
Printed Name: Thomas H. Hicks
------------------------
Title: President and CEO (Interim)
-------------------------------
Date: May 22, 1998
-------------------------------
BOBBY ALLISON CELLULAR SYSTEMS OF
FLORIDA, INC.
By: /s/ Robert McGinnis
----------------------------------
Printed Name: Robert McGinnis
------------------------
Title: CEO
-------------------------------
Date: May 22, 1998
-------------------------------
-18-
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
<CASH> 735,749
<SECURITIES> 0
<RECEIVABLES> 249,829
<ALLOWANCES> 53,901
<INVENTORY> 7,049
<CURRENT-ASSETS> 966,616
<PP&E> 7,500
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 976,206
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