<PAGE> 1
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
For the Quarterly Period Ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-22917
---------------
LEGACY BRANDS, INC.
(Exact name of registrant as specified in its charter)
California 68-0323138
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2424 Professional Drive, Suite A
Roseville, California 95661
(Address of principal executive offices, including zip code)
---------------
Registrant's phone number, including area code:
(916) 782 - 2029
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 1997.
Class Outstanding at October 31, 1997
----- -------------------------------
Common Stock, No Par Value 3,100,345
<PAGE> 2
LEGACY BRANDS, INC.
Index
---------------
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Statements of Operations
Three and Nine Months Ended October 31, 1997 and 1996 3
Balance Sheets
October 31, 1997; January 31, 1997 and October 31, 1996 4
Statements of Cash Flows
Nine Months Ended October 31, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Part II Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
LEGACY BRANDS, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 1,451 $ 1,155 $ 3,839 $ 2,810
Cost of goods sold 904 691 2,334 1,692
--------- --------- --------- ---------
Gross profit 547 464 1,505 1,118
Marketing expenses 282 204 758 578
General and administrative 240 248 684 661
--------- --------- --------- ---------
Operating income (loss) 25 12 63 (121)
Interest expense and other,
net 103 153 424 455
--------- --------- --------- ---------
Loss before income taxes
and extraordinary item (78) (141) (361) (576)
Income tax expense -- -- 1 1
--------- --------- --------- ---------
Loss before extraordinary
item (78) (141) (362) (577)
Extraordinary gain, debt
forgiveness 272 -- 272 --
--------- --------- --------- ---------
Net income (loss) $ 194 $ (141) $ (90) $ (577)
========= ========= ========= =========
Earnings (loss) per common
and common equivalent share:
Primary:
Loss before
extraordinary item $ (0.03) $ (0.07) $ (0.16) $ (0.28)
Extraordinary item $ 0.10 -- 0.12 --
--------- --------- --------- ---------
Primary earnings
(loss) per share $ 0.07 $ (0.07) $ (0.04) $ (0.28)
========= ========= ========= =========
Shares used in computing
primary earnings (loss)
per share 2,619,522 2,137,610 2,332,958 2,043,904
========= ========= ========= =========
Assuming full dilution:
Loss before
extraordinary item $ (0.02) $ (0.07) $ (0.16) $ (0.28)
Extraordinary item $ 0.10 -- 0.12 --
--------- --------- --------- ---------
Fully diluted earnings
(loss) per share $ 0.08 $ (0.07) $ (0.04) $ (0.28)
========= ========= ========= =========
Shares used in computing
fully diluted earnings
(loss) per share 2,744,022 2,137,610 2,332,958 2,043,904
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE> 4
LEGACY BRANDS, INC.
Balance Sheets
<TABLE>
<CAPTION>
October 31, January 31, October 31,
1997 1997 1996
(Unaudited) (Audited) (Unaudited)
----------- ----------- -----------
(In thousands, except share data)
<S> <C> <C> $
ASSETS
Current Assets:
Cash $ 290 $ 22 $ 44
Accounts receivable from related party --- --- 28
Accounts receivable 247 23 194
Inventory 145 50 154
Prepaid expenses & other 50 7 ---
------- ------- -------
Total current assets 732 102 420
Office equipment - net 19 8 7
Debt issuance costs - net 88 268 407
Organization costs - net 1 2 2
Licenses - net 2,321 2,431 2,451
Package design costs - net 85 --- ---
Deferred offering costs --- 336 56
------- ------- -------
Total assets $ 3,246 $ 3,147 $ 3,343
======= ======= =======
LIABILITIES & SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Line of credit $ 728 $ --- $ ---
Accounts payable 367 551 653
Accrued expenses & other 780 488 259
Notes payable, current:
Related parties 60 60 60
Other --- 595 600
Liability to manufacturer, current 348 348 375
------- ------- -------
Total current liabilities 2,283 2,042 1,947
Notes payable, noncurrent, to related parties 587 566 560
Liability to manufacturer, noncurrent 833 1,050 1,167
------- ------- -------
Total liabilities 3,703 3,658 3,674
Shareholders' Equity (deficit):
Common stock, no par value; 30,000,000 shares
authorized; 3,100,345 and 2,763,145 and
2,698,045 shares issued and outstanding at
October 31, 1997 (unaudited) and at January
31, 1997 and at October 31, 1996 (unaudited) $ 5,246 $ 5,094 $ 5,016
Contributed capital 560 560 560
Notes receivable from shareholders (1,536) (1,528) (1,519)
Accumulated deficit (4,727) (4,637) (4,388)
------- ------- -------
Total shareholders' equity (deficit) (457) (511) (331)
------- ------- -------
Total liabilities & shareholders'
equity (deficit) $ 3,246 $ 3,147 $ 3,343
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
LEGACY BRANDS, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
------------------------
October 31, October 31,
1997 1996
----------- -----------
(In thousands)
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (90) $(577)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 122 64
Amortization of debt issuance costs 227 348
Common stock issued for services -- 4
Forgiveness of debt (272) --
Changes in assets and liabilities:
Decrease in accounts receivable, related parties -- 22
(Increase) in accounts receivable (224) (194)
Decrease in other receivables -- 15
(Increase) in inventory (95) (154)
(Increase) in prepaid expenses & other (43) (56)
Increase in accounts payable 89 70
(Decrease) increase in accrued expenses & other liabilities 90 (21)
Payments on liability to manufacturer (217) (203)
----- -----
Net cash used in operating activities (413) (682)
----- -----
Cash flows from investing activities:
Purchase of office equipment (12) (4)
Payment toward purchase of license -- (13)
Payment of packaging costs (92) --
----- -----
Net cash used in investing activities (104) (17)
----- -----
Cash flows from financing activities:
Proceeds from issuance of common stock, net of commissions 703 --
Payment of offering costs (43) --
Proceeds from issuance of loans payable -- 445
Payments on credit line and loan payable (715) --
Proceeds from issuance of notes payable to related parties -- 379
Payment of debt issuance costs (8) (163)
Proceeds from line of credit 848 --
----- -----
Net cash provided from financing activities 785 661
----- -----
Increase (decrease) in cash 268 (38)
Cash, beginning of period 22 82
----- -----
Cash, end of period $ 290 $ 44
===== =====
Interest paid $ 31 $ 38
===== =====
Income taxes paid $ 1 $ 1
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE> 6
LEGACY BRANDS, INC.
Notes To Financial Statements
--------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations: Legacy Brands, Inc. is a California corporation
that primarily markets frozen cookie dough through alliances with Mrs. Fields
Cookies and a single manufacturer. The Company became subject to the Securities
Exchange Act of 1934 (the "1934 Act") in late September 1997 at which time the
Form 10SB as filed with the Securities and Exchange Commission became effective.
The Company is in the process of responding to Securities and Exchange
Commission comments to its Form 10SB and plans to file an amended Form 10SB. The
Company's common stock is not yet traded on any market.
Accounting Change: In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings Per Share. Statement No. 128, which is
effective for both interim and annual financial statements ending after December
15, 1997, establishes revised standards for computing and reporting earnings per
share. The Company will change the method currently used to compute earnings per
share and restate all prior periods in its annual report for the year ended
January 31, 1998, to be filed on Form 10-KSB. The impact on earnings per share
has not yet been determined.
Deferred Offering Costs: Deferred offering costs consist primarily of legal,
accounting and printing costs which were netted against the proceeds of the
offering of common stock more fully described in these footnotes and in the
Company's Form 10SB. At October 31, 1997, all deferred offering costs of
$655,151 were netted against the proceeds of the offering.
Mrs. Fields License: As part of the Mrs. Fields License, the Company paid a
non-refundable fee described as a prepaid royalty of $2,500,000 to Mrs. Fields.
The fee is being amortized on a straight-line basis over the life of the Mrs.
Fields License plus each extension term for a total of 30 years. In addition,
the Company pays a royalty equal to $1 per 12 pound equivalent case sold, net of
damages, returns and credits. Such royalties included in marketing expense were
$177,574 for the year ended January 31, 1997 and $102,670 (unaudited) and
$166,726 (unaudited) for the nine months ended October 31, 1996 and 1997,
respectively. The contract with Mrs. Fields requires a minimum royalty of
$285,000 for the calendar year ended December 31, 1997. The Company has accrued
an additional $50,000 over the royalty liability based on actual cookie sales as
of October 31, 1997 as uncertainty exists as to whether the Company will be able
to meet the minimum royalty requirement solely as a result of sales. The Company
believes it continues to be in compliance with the insolvency provisions of the
agreement with Mrs. Fields and has received no notice to the contrary.
Earnings (Loss) Per Share: Primary earnings (loss) per share for the three month
period ended October 31, 1997 was computed by dividing earnings (loss) by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. The number of common shares was increased by the
number of shares issuable upon the exercise of warrants and shares issued upon
exercise of warrants for notes, using the treasury stock method.
Primary earnings (loss) per share for the three month period ended October 31,
1997 would have been as follows had the C. Brands convertible debt been
converted at the beginning of the period:
Loss before extraordinary item $(0.02)
Extraordinary item 0.10
------
Net income $ 0.08
Fully diluted earnings per share for the three month period ended October 31,
1997 was computed assuming that the C. Brands convertible debt was converted
at the beginning of the period.
6
<PAGE> 7
For the three month period ended October 31, 1996, and for each of the nine
month periods ending October 31, 1997 and 1996, loss per share has been computed
based on the weighted average number of shares outstanding during those
respective periods. Common stock equivalents are anti-dilutive for each of those
periods and, therefore are not included in the computations of primary and fully
diluted loss per share.
NOTE 2 - BASIS OF PRESENTATION
In the opinion of management, the accompanying financial statements reflect all
adjustments (consisting of only normal recurring accruals) necessary for a fair
presentation of the Company's financial position as of October 31, 1997 and its
results of operations for the three and nine months ended October 31, 1997 and
1996. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements should be
read in conjunction with the financial statements and notes thereto contained in
the Company's financial statements contained within the Form 10SB filed with the
Securities and Exchange Commission in late July, 1997.
NOTE 3 - ACCOUNTS PAYABLE AND EXTRAORDINARY ITEM
The Company is currently in the process of negotiating settlements of certain
old accounts payable, primarily dating back to summer 1994, which have been
recorded at the billed amounts. These negotiations relate to substantiation of
the extent of goods and services received in relation to the billed amounts.
Such amounts included in accounts payable were $422,202 at January 31, 1997 and
$150,000 and $425,702 at October 31, 1997 and 1996, respectively. Management
determined as of October 31, 1997 that $272,202 of the old accounts payable
accrued should be reversed and recorded as an extraordinary item for debt
forgiveness.
NOTE 4 - CONVERTIBLE NOTES PAYABLE
In the period August 1995 through October 1996, C. Brands Management, L.L.C. (C.
Brands), a company whose principal manager is a shareholder of the Company,
received notes from the Company, for cash consideration in the aggregate
principal amount of $622,500. The carrying value on balance sheet of the C.
Brands notes is $586,857, which is net of unaccreted discount of $35,643.
Pursuant to the notice of conversion provided by C. Brands, the notes were
converted into 124,500 shares of common stock at the close of the private
placement offering on November 27, 1997. The interest accrued and payable to C.
Brands through October 31, 1997 totaled $107,966 which the Company also believes
is to be converted into stock of the Company, but is seeking clarification with
respect thereto. The unamortized debt issuance costs related to the C. Brands
notes at October 31, 1997 totaled $73,518.
Had the C. Brands notes, excluding the accrued interest, been converted into
stock of the Company at October 31, 1997, total assets would have been reduced
by $73,518, long-term and total liabilities would have been reduced by $586,857.
Total shareholders' equity would have increased by $513,339. Total assets would
have been $3,172,885, total liabilities would have been $3,116,519 and total
shareholders' equity would have been $56,366.
NOTE 5 - CREDIT LINE PAYABLE
Effective June 10, 1997, the Company entered into a formal agreement with
DayStar L.L.C. (DayStar), pursuant to which DayStar agreed to provide a credit
facility to the Company in an amount not to exceed $440,000 to be used for
working capital purposes (DayStar Credit Facility).As part of the agreement, the
7
<PAGE> 8
Company is currently negotiating a due diligence fee of $40,000. As of October
31, 1997, the entire credit facility of $440,000 is outstanding. The interest
rate on the DayStar credit facility is currently 12%, and will non-retroactively
increase to 15% in January, 1998. The DayStar Credit Facility will be due at the
earlier of: i) July, 1998 or, ii) pursuant to an amended agreement entered into
in December, 1997, within five business days of the Company raising $1,750,000
in connection with a financing transaction.
On July 1, 1997, the Company entered into a second agreement with DayStar
pursuant to which DayStar agreed to provide to the Company a supplemental credit
facility (Supplemental DayStar Credit Facility) in the aggregate amount of
$400,000, plus a facility fee of 2% of the amount advanced, to be used to repay
certain Bridge Notes which matured on June 30, 1997. Pursuant to the
Supplemental DayStar Credit Facility, the Company has executed a promissory note
providing for the payment of interest on the amounts outstanding at an interest
rate of 1% per week.With regard to the Supplemental DayStar Credit Facility, the
Company has repaid $120,000 through October 31, 1997 and an additional $78,000
through December 10, 1997. Accordingly, the principal due at October 31, 1997
was $288,000 and as of December 10, 1997 is $210,000. An agreement was entered
into in December 1997 with respect to the Supplemental DayStar Credit Facility
to provide the same maturity provisions as applicable to the DayStar Credit
Facility.
As of October 31, 1997, the total accrued interest payable to DayStar was
$5,955. DayStar converted $75,000 of accrued interest into 30,000 shares common
stock of the Company on October 31, 1997 pursuant to the provisions of the
private offering of securities more fully discussed in Note 10.
NOTE 6 - LIABILITY TO MANUFACTURER
During 1994, the Company arranged for the manufacture of approximately
$2,500,000 of frozen cookie dough product. In 1995, all of this product was
either discarded by the manufacturer due to obsolescence or reworked and sold to
reduce the loss. Based upon a troubled debt restructuring negotiated with the
manufacturer, $2 per case of new product sold since March, 1995 is deducted from
the monthly amount received by the Company from the manufacturer related to
current product sales and applied to the liability. The Company may negotiate
with the manufacturer related to a discount for early payoff of the liability.
Such discount, if any, will be recorded when final settlement is made.
Estimated aggregate future payments based on historical data are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31, OCTOBER 31,
1997 1997 1996
(UNAUDITED) (AUDITED) (UNAUDITED)
----------- ---------- ----------
<S> <C> <C> <C>
PERIOD ENDING:
1997 $ --- $ --- $ 375,000
1998 348,092 348,092 525,000
1999 348,092 348,092 641,748
2000 348,092 348,092 ---
2001 136,603 353,586 ---
---------- --------- ----------
Total $1,180,879 1,397,862 1,541,748
Less current portion (348,092) (348,092) (375,000)
---------- ---------- ----------
Noncurrent portion $ 832,787 $1,049,770 $1,166,748
========== ========== ==========
</TABLE>
8
<PAGE> 9
NOTE 7 - INCOME TAXES
The Company continues to maintain a 100% valuation allowance against its
deferred tax assets, which primarily relate to net operating loss carry
forwards.
NOTE 8 - STOCK OPTION PLAN
The Company maintains a stock option plan adopted in October, 1996. No options
have been granted under the plan and there have not been any amendments or
restatements to the plan since the April 30, 1997 financial statements included
within the Form 10SB filed by the Company.
NOTE 9 - RELATED-PARTY TRANSACTIONS
Effective November 1, 1997, the Company moved its principal office to a building
owned by the Company's Chief Executive Officer and another shareholder of the
Company. The owners of the building are in the process of engaging an objective
third party expert in determining the fair rental value of the Company's office
space as compared to similar office space in the area. As of December 22, 1997,
no payments have been made by the Company as a deposit or for rent.
In connection with the Company's now concluded private placement of its common
stock, the Company entered into a placement agent agreement with Capitol Bay
Securities, a related party. The Company has total expense to Capitol Bay
Securities of $103,700 through October 31, 1997 with $52,400 unpaid as of
October 31, 1997, but paid in full by December 22, 1997. The offering of
equity securities, which closed November 27, 1997, is more fully discussed in
Note 10 of these financial statements.
NOTE 10 - OFFERING OF EQUITY SECURITIES
The Company commenced an offering to private investors, on a best efforts basis,
of up to 1,600,000 shares of its common stock at a price of $2.50 per share, or
a total of $4,000,000, in July, 1997. Through October 31, 1997, net proceeds of
$778,129 had been raised. Of the $778,129, a total of $703,129 had been raised
from private investors and $75,000 of accrued interest payable to DayStar on the
credit line were converted into stock of the Company. The Company had extended
the offering which would have expired on August 29, 1997 until November 27,
1997. The offering was closed on November 27, 1997.
NOTE 11 - CONTINGENCIES
The founder and former director of the Company, who is a shareholder holding in
excess of 5% of the Company's outstanding stock, had advised the Company that he
has a number of claims against the Company and others. These claims relate to an
agreement entered into by the shareholder and the Company and other parties in
August, 1995, (Exhibit 1 hereto) with respect to the transfer of certain stock
in the Company, providing additional capital to the Company and to alleged back
wages due to him and the repayment of amounts allegedly advanced by him to the
Company. On November 19, 1997, the founder and former director filed a lawsuit
against the Company with regard to these matters. Counsel and management are of
the opinion that the transfer of certain shares of common stock pursuant to the
August, 1995, agreement are valid and in force. The Company also believes it has
substantial defenses to and offsets against any claims which are asserted in the
litigation brought by the shareholder with respect to these matters. As a
result, the Company has not accrued a liability with respect to these
contingencies.
9
<PAGE> 10
LEGACY BRANDS, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
INTRODUCTION
The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with the
information set forth in the financial statements and notes thereto included
elsewhere herein and the financial statements and the notes thereto included in
the Form 10SB filed with the Securities and Exchange Commission in late July,
1997 which are incorporated herein by reference thereto.
OVERVIEW
The Company markets primarily Mrs. Fields super premium frozen cookie
dough products and cookie ice cream sandwiches which are distributed throughout
North America in supermarkets, club stores, convenience stores such as 7-Eleven
and other mass merchandisers. The Company commenced sales of the Gumby freeze
pop in summer of 1997 with limited success due to the late introduction into the
1997 season.
Sales attributable to the ice cream sandwiches and Gumby pops during
1997 through October 31 were $406,785 and $130,007, respectively. The remainder
of the approximately $3,839,000 of total sales through October 31, 1997 is
attributable to the sale of cookie dough.
COMPARATIVE QUARTERLY RESULTS
Total Revenues. Total revenues for the nine and three months ended
October 31, 1997 were $3,839,357 and $1,451,330, respectively, as compared to
$2,809,989 and $1,155,234 for the nine and three months ended October 31, 1996,
respectively. These increases represent sales growth of 36.6% and 25.6% for the
nine and three months ended October 31, 1997, and are attributable to the 1997
introductions of the Mrs. Fields ice cream sandwiches and Gumby freeze pops as
well as the expanded distribution of the cookie dough products.
Cost of Goods Sold. Cost of goods sold for the nine and three months
ended October 31, 1997 were $2,334,763 and $904,332, respectively, as compared
to $1,691,743 and $691,050 for the nine and three months ended October 31, 1996,
respectively. As a percentage of sales, cost of goods sold were 60.8% for the
nine ended October 31, 1997 as compared to 60.2% for the nine months ended
October 31, 1996. Such costs were 62.3% of sales for the three months ended
October 31, 1997 as compared to 59.8% for the same 1996 period. The percentages
remained consistent with regard to the nine month numbers, but are somewhat
higher for the three month numbers due to higher costs of production on the ice
cream sandwiches and Gumby freeze pops which are new 1997 products. The nine
month percentages are not materially higher in light of the sales mix being
dominated by cookie dough sales.
Gross Profit. Gross profits for the nine and three months ended
October 31, 1997 were $1,504,594 and $546,998, respectively, as compared to
$1,118,246 and $464,184 for the nine and three months ended October 31, 1996. As
a percentage of sales, gross profits were 39.2% for the nine months
10
<PAGE> 11
ended October 31, 1997 as compared to 39.8% for the nine months ended October
31, 1996. Gross profits were 37.7% of sales for the three months ended October
31, 1997 as compared to 40.2% for the same 1996 period.
Marketing Expenses. Marketing expenses for the nine and three months
ended October 31, 1997 were $757,662 and $282,604, respectively, as compared to
$578,022 and $204,005 for the nine and three months ended October 31, 1996,
respectively. As a percentage of sales, marketing expenses were 19.7% for the
nine months ended October 31, 1997 as compared to 20.6% for the nine months
ended October 31, 1996. Such costs were 19.5% of sales for the three months
ended October 31, 1997 as compared to 17.7% for the same 1996 period. The
percentages in all cases remain consistent. The Company expended, at cost,
approximately $43,000 in free ice cream sandwiches to the 7-Eleven retailers
carrying the product in the second and third quarters of 1997. This cost, as a
percentage of ice cream sandwich sales through October 31, 1997 is approximately
11%, and approximately 1% of total sales as of the same date. The Company
anticipates that the free cases will be a one-time charge with regard to
existing retailers, but anticipates similar promotions for new retailers in the
future.
General and Administrative Expenses. General and administrative
expenses for the nine and three months ended October 31, 1997 were $684,215 and
$239,761, respectively, as compared to $661,475 and $248,287 for the nine and
three months ended October 31, 1996, respectively. As a percentage of sales,
general and administrative expenses were 17.8% for the nine ended October 31,
1997 as compared to 23.5% for the nine months ended October 31, 1996. Such costs
were 16.5% of sales for the three months ended October 31, 1997 as compared to
21.5% for the same 1996 period. The nine and three month amounts of 1997 and
1996 are consistent which is expected as general and administrative expense is
comprised of fixed costs. The percentages, as compared to sales, has dropped due
to the increased sales in each of the nine and three month comparative periods.
Operating Income (Loss). The operating income for the nine and three
months ended October 31, 1997 was $62,717 and $24,633, respectively, as compared
to an operating loss of $(121,251) and operating income of $11,892 for the nine
and three months ended October 31, 1996, respectively. As a percentage of sales,
operating income was 1.6% for the nine months ended October 31, 1997 as compared
to a negative (4.3%) for the nine months ended October 31, 1996. Operating
profits were 1.7% of sales for the three months ended October 31, 1997 as
compared to 1.0% for the same 1996 period. Most notable is the absolute dollar
increase of $183,968 in operating income for the nine month period ended October
31, 1997 as compared to the nine month period ended October 31, 1996.
Interest Expense and Other. Interest expense for the nine and three
months ended October 31, 1997 were $413,519 and $102,679, respectively, as
compared to $430,175 and $154,757 for the nine and three months ended October
31, 1996, respectively. As a percentage of sales, interest expense was 10.8% for
the nine ended October 31, 1997 as compared to 15.3% for the nine months ended
October 31, 1996. Such expense was 7.1% of sales for the three months ended
October 31, 1997 as compared to 13.4% for the same 1996 period. Although the
total expense and comparative percentages have dropped, the Company continues to
maintain substantial debt. Refer to Notes 5 and 10 of the financial statements
included herewith. The "other" expense totaled $10,000 and $24,692 for the nine
month periods ended October 31, 1997 and 1996, respectively. In each year the
other expenses were incurred prior to the third quarter.
11
<PAGE> 12
The 1996 expense relates to costs paid on a potential merger candidate which was
abandoned, while the 1997 costs relate to an abandoned deposit made with an
underwriting firm in contemplation of filing Form SB-2.
Net Income (Loss). The net loss for the nine months and net income
for the three months ended October 31, 1997 was $(89,400) and $194,156,
respectively, as compared to net losses of $(576,918) and $(141,365) for the
nine and three months ended October 31, 1996, respectively. As a percentage of
sales, net losses were (2.3%) for the nine months ended October 31, 1997 as
compared to (20.5%) for the nine months ended October 31, 1996. Net income was
13.4% of sales for the three months ended October 31, 1997 as compared to a net
loss of (12.2%) for the same 1996 period. Because of the extraordinary gain in
the October 31, 1997 quarter, which is discussed in Note 3 to the financial
statements, the amounts and percentages are different than might be expected in
future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily financed its activities through the
issuance of common stock and debt. The cumulative losses from the Company's
inception through October 31, 1997, total $(4,726,767) with negative
shareholders' equity of $(456,973) as of the same date. With the conversion of
the C. Brands obligation (Note 4 to the financial statements) on November 27,
1997, total shareholders' equity would have been $56,366 had the conversion
taken place on October 31, 1997.
Current liabilities exceeded current assets at October 31, 1997 and
October 31, 1996 by $(1,551,972) and $(1,527,689), respectively. Current
liabilities exceeded current assets by $(1,939,734) at January 31, 1997. From
January 31, 1997 to October 31, 1997, current assets increased by $629,597 and
current liabilities increased by $241,835. The increase in current assets is
primarily attributable to the increase in cash from the equity offering as well
as increases in accounts receivable and inventory associated with the
introduction of ice cream sandwiches and freeze pops. Most notable in analyzing
the current liabilities is the payment in full of notes in the amount of
$595,000 during the second quarter and the new credit line obligation undertaken
in the aggregate amount of $728,000 as of October 31, 1997 (The DayStar
Obligations). As noted in Note 3 to the financial statements included herewith
and the analysis above regarding the extraordinary gain, current liabilities
decreased by $272,202 with respect to the reversal of the accrual regarding
certain contested old accounts payable.
Management had anticipated repayment of the entire DayStar credit
line obligations by October 31, 1997 from the proceeds of the private offering
of securities. See Note 5 to the financial statements. The DayStar obligations
were due within five business days from the close of the private offering. The
Company has entered into an agreement with respect to an amendment to the
DayStar Obligations providing that they are not due until the earlier of: i)
July 1998 or ii) at such time as the Company raises an aggregate of $1,750,000
through other financings.
Long-term liabilities decreased from January 31, 1997 to October 31,
1997 by $196,556 due primarily to the repayment on the liability to the
manufacturer (Financial statements, Note 6) in the amount of $216,983. The
remaining difference of $20,427 represents the accretion of discounts on debt
12
<PAGE> 13
for the nine month period ended October 31, 1997.
As of October 31, 1997, the Company held three notes, originally
issued in 1994, payable to two unrelated parties and a third party that is
currently the beneficial owner of in excess of 5% of the common stock, totaling
$60,000 in principal. The Company had intended to satisfy these obligations from
the proceeds of the private equity offering concluded November 27, 1997, but was
unable to do so. The Company is in the process of negotiating that the debt be
satisfied with the issuance of common stock, warrants or a combination thereto.
Should negotiations fail, the Company anticipates satisfying the obligation from
a future equity offering.
Even with the conversion of the C. Brands convertible debt
obligations at November 27, 1997, the Company still maintains large debt. The
need for equity continues in light of the debt and also with the working capital
demands necessary to expand the distribution of the ice cream sandwiches and
freeze pops. Management is in the process of interviewing underwriters for the
purpose of undertaking a new offering of the Company's securities, although no
assurances can be provided that the engagement of such new underwriter(s) will
occur or that an offering of securities will commence or be successful.
Impact of Inflation. The Company does not believe that inflation has had a
material adverse effect on sales or costs of production nor does management
believe that moderate increases in interest rates of commercial lenders or
moderate rates of inflation will have a significant impact upon future
operations.
Forward Looking Statements. The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for forward-looking statement. Certain information
contained in this Form 10-QSB and other materials filed or to be filed by the
Company with the Securities and Exchange Commission (as well as information
included in oral statements, electronic statements or other written statements
made or to be made by the Company) contain statement that are forward-looking,
such as statements relating to plans for future product development, settlements
of disputes or outstanding obligations as well as with respect to capital
expenditures, financial sources and the effects of competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties may include,
but are not limited to those relating to the ability of the Company to meet its
obligations with respect to the Mrs. Fields License, new product development,
expansion of sales of existing products, the prospects of settlements of
disputes with third parties, obtaining sufficient financing, seasonal
differences in sales volumes, price and other competitive pressures, the quality
of the Company's products, dependence on discretionary consumer spending,
dependence on existing management, general economic conditions, or changes in
federal or state laws or regulations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On November 19, 1997 an action was filed by Gregory B. Plunkett
("Plunkett") against the Company in the Superior Court of the State of
California in San Francisco; Gregory B. Plunkett v. Legacy Brands, Inc. case
number 991187. Plunkett is the founder of the Company, a former director and
13
<PAGE> 14
holder in excess of 5% of the outstanding common stock of the Company. Plunkett
seeks $112,500 in compensatory damages allegedly due with respect to a
promissory note issued to him by the Company; $99,000 in allegedly unpaid wages
and a declaration by the Court that the agreement entered into as evidenced by
the August 8, 1995 Memorandum is void and further to declare that Plunkett is
the owner of 9,300,000 shares of the Company's common stock (930,000 shares
after giving effect to the 1:10 reverse stock split effective October, 1996),
rather than the 400,000 (after giving effect to the 1:10 reverse stock split)
shares which are currently reflected in the Company's records as owned by
Plunkett.
While no assurance can be given with respect to the ultimate outcome of
any such litigation, management of the Company continues to be of the view that
all of the material provisions of the August 8, 1995 Memorandum have been
complied with and that it has substantial defenses to and offsets against any
claims asserted by Mr. Plunkett.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
1.0 Memorandum of Agreement dated August 8, 1995, by and
among Gregory B. Plunkett, CBG Partnership, Capital
Bay Group, BKP Partners and Greg Plunkett, Inc.
B. Reports on Form 8-K:
The Company was not required to and did not file any
reports on Form 8-K during the quarter ended October
31, 1997.
14
<PAGE> 15
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.
Legacy Brands, Inc.
(Registrant)
By: /s/ Thomas E. Kees Date: December 15, 1997
-------------------------------------
Thomas E. Kees,
President and Chief Executive Officer
15
<PAGE> 1
MEMORANDUM OF AGREEMENT
THIS MEMORANDUM OF AGREEMENT ("Memorandum") is entered into as of
August 8th, 1995 by and among Gregory B. Plunkett ("Plunkett"), CBG
Partnership, a California general partnership ("CBG"), Capital Bay Group, a
California corporation ("CapBay"), BKP Partners ("BKP") and Greg Plunkett,
Inc., a California corporation (the "Company").
This Memorandum of Agreement is made with respect to the following facts
and circumstances:
A. Plunkett, CBG, CapBay and BKP desire to restructure in part the
capitalization of the Company as described in this Memorandum.
B. The parties desire to establish a management committee (the "Management
Committee") to govern the business of the Company pursuant to the provisions of
this Memorandum.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CBG Shares. CBG shall immediately:
(a) relinquish and reconvey to the Company an aggregate of 635,000
common shares at no cost to the Company;
(b) transfer to BKP at no cost to BKP an aggregate of 300,000 common
shares;
(c) transfer and convey up to 300,000 common shares at no cost as
directed by CapBay pursuant to the provisions of paragraph 5(a)
below; and
(d) transfer and convey up to 165,000 common shares at no cost
pursuant to the provisions of paragraph 5(b) below.
2. Plunkett Shares. Plunkett shall immediately:
(a) relinquish and reconvey to the Company an aggregate of 1,515,000
common shares at no cost to the Company;
(b) transfer to BKP at no cost to BKP an aggregate of 700,000 common
shares;
(c) transfer and convey up to 700,000 common shares at no cost as
directed by CapBay pursuant to the provisions of paragraph 5(a)
below; and
(d) transfer and convey up to 385,000 common shares at no cost
pursuant to the provisions of paragraph 5(b) below.
1
<PAGE> 2
3. Management Committee. The Management Committee shall immediately be
formed. The members of the Management Committee shall consist of Plunkett,
Steven Kircher, a representative of BKP and a representative CBG. The
Management Committee shall be empowered to administer the business of the
Company. Each member of the Management Committee shall have one vote and the
actions of the Management Committee shall be governed by a majority of the
voting member. All contractual obligations undertaken by the Company, all
modifications to any existing contractual obligations, all expenditures of
funds, capital issuances and all material decisions with respect to the
operation of the Company shall be subject to the prior approval of the
Management Committee. Plunkett shall remain as President of the Company but
shall not undertake any matters with respect to the Company subject to the
control of the Management Committee without the prior consent of the
Management Committee. The Management Committee shall coordinate the efforts of
Steven Riccardelli ("Riccardelli") and Douglas Shannon ("Shannon") as such
individuals are involved in the business of the Company and in particular in
connection with the resolution of the immediate problems relating to the Mrs.
Fields license. The Management Committee will immediately commence a search for
a chief executive officer for the Company and at the direction of the
Management Committee the individual as selected by the Management Committee
will be promptly appointed as the Chief Executive Officer and shall thereafter
exercise the authority of the Chief Executive Officer of the Company subject to
the continuing authority of the Management Committee. Plunkett will continue to
explore the possibilities of new licenses for the Company and will assist in
marketing the products of the Company subject to the control of the Management
Committee and subject to the Chief Executive Officer when appointed.
4. BKP Shares. As provided in paragraph 1(b) and paragraph 2(b) above,
Plunkett and CBG shall immediately convey to BKP 700,000 and 300,000 shares
respectively of the common stock of the Company at no cost to BKP. Such shares
to be conveyed to BKP, together with 1,822,858 common shares of the Company
currently held by BKP (an aggregate amount of 2,822,858 common shares) shall
constitute the total share ownership in the Company held by BKP as of the date
hereof. It is acknowledged that as of the date of this Memorandum, BKP holds
no common shares or rights to common shares (including warrants) or promissory
notes other than as set forth in this paragraph 4.
5. Additional Shares.
(a) CapBay has agreed to endeavor to raise the sum of $500,000 for the
immediate needs of the Company by offering to investors shares at the
rate of $0.50 per common share of the Company. For each such share
purchased by an investor as issued by the Company, such investor as
designated by CapBay shall be entitled to receive an additional share
of common stock of the Company at not cost to the investor. Each such
additional share to be conveyed to the investor as designated by
CapBay, shall be conveyed seven-tenths (0.7) by Plunkett and
three-tenths (0.3) by CBG from the shares as described in paragraph
2(c) and paragraph 1(c) respectively above. The equity funds to raised
by CapBay shall be raised pursuant to that certain letter agreement,
dated August 1, 1995, ("Letter Agreement") a copy of which is attached
to this Memorandum as Exhibit A. The
2
<PAGE> 3
parties acknowledge that any inconsistency between the provisions of
this Memorandum and the provisions of the Letter Agreement shall be
governed by the provisions of this Memorandum.
(b) CapBay, or designee of CapBay, shall in addition be entitled to
receive, at no cost, an aggregate of 50,000 common shares of the
Company and one share of common stock of the Company for each one
dollar ($1) raised pursuant to the provisions of this paragraph 5
and the Letter Agreement up to a maximum of 500,000 shares. Each
such share shall be conveyed seven-tenths (0.7) by Plunkett and
three-tenths (0.3) by CBG from shares as described in paragraph 2(d)
and paragraph 1(d), respectively, above.
6. Captions. The captions or paragraph headings used herein are for
convenience only and not a part of this Memorandum. They shall not be referred
to in construing or interpreting this Memorandum.
7. Necessary Document. Each of the parties does hereby agree to do any act
and to execute any other or further documents necessary or convenient to the
carrying out of the provisions of this Memorandum.
8. Kay & Merkle. The parties hereto acknowledge that certain principals of
Kay & Merkle participate as partners of CBG and that Kay & Merkle has
represented and may in the future represent one or more of the parties to this
Memorandum and that therefore the potential for conflict of interest exists.
Each of the parties acknowledges and agrees that Kay & Merkle has not
represented any party in connection with the negotiation or preparation of this
Memorandum.
9. Release of Claims. As a material consideration for this Memorandum, each
of the parties hereto hereby releases and forever discharges each of the other
parties (and its employees, officers, partners, and representatives) from any
and all claims, causes of action, or liabilities of any kind whatsoever, known
or unknown, arising out of or relating in any fashion to the Company, issuance
of shares of the Company or any other matters as described in this Memorandum.
Each of the parties waives the provisions of section 1542 of the Civil Code of
California which states:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR."
10. Inurement. This Memorandum shall be binding on and shall inure to the
benefit of the parties hereto, their respective heirs, legal representatives,
successors and assigns.
11. California Law. This Memorandum shall be governed by and be construed
according to the laws of the State of California.
3
<PAGE> 4
12. Severability. In the event that any provision of this Memorandum shall be
found to be unenforceable or invalid, such provision shall be severed from the
balance of this Memorandum and the balance of this Memorandum shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Memorandum to be
duly executed and delivered as of the day and year first above written.
Plunkett: CapBay:
/s/ GREGORY B. PLUNKETT Capital Bay Group, a California
- ------------------------------- corporation
Gregory B. Plunkett
CBG: By: /s/ STEVEN KIRCHER
---------------------------------
CBG Partnership, a California Steven Kircher, President
general partnership
BKP:
BKP Partners
By: /s/
- -------------------------------
General Partner
The Company: By: /s/ ROBERT PRYT
----------------------------------
Robert Pryt, C.E.O.
Greg Plunkett, Inc.
By: /s/ GREGORY B. PLUNKETT
- -------------------------------
Gregory B. Plunkett, President
4
<PAGE> 5
STATE OF CALIFORNIA ]
] ss.
COUNTY OF SAN FRANCISCO ]
_____________________________]
On August 8, 1995 before me, Carlanne Foushee, personally appeared
Gregory B. Plunkett, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity, and that by his/her/their signature(s) on
the instrument, the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal. CARLANNE FOUSHEE
Comm. # 1034372
Notary Public-
California
San Francisco County
My Comm. Expires July 31, 1998
/s/ CARLANNE FOUSHEE [SEAL]
- -----------------------------
Carlanne Foushee
STATE OF CALIFORNIA ]
] ss.
COUNTY OF SAN FRANCISCO ]
_____________________________]
On August 8, 1995 before me, Carlanne Foushee, personally appeared
W. Bruce Bercovich, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity, and that by his/her/their signature(s) on
the instrument, the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal. CARLANNE FOUSHEE
Comm. # 1034372
Notary Public-
California
San Francisco County
My Comm. Expires July 31, 1998
/s/ CARLANNE FOUSHEE [SEAL]
- -----------------------------
Carlanne Foushee
5
<PAGE> 6
STATE OF CALIFORNIA ]
] ss.
COUNTY OF ________________ ]
_____________________________]
On August __, 1995 before me, __________________, personally appeared
Steven Kircher, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity, and that by his/her/their signature(s) on
the instrument, the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
[SEAL]
- -----------------------------
STATE OF CALIFORNIA ]
] ss.
COUNTY OF ________________ ]
_____________________________]
On August __, 1995 before me, __________________, personally appeared
Robert Pryt, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity, and that by his/her/their signature(s) on
the instrument, the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
[SEAL]
- -----------------------------
6
<PAGE> 7
C.B. MANAGEMENT, L.L.C. 220-B Douglas Boulevard
Suite 100
Roseville, California 95661
Telephone: (916) 782-5522
Facsimile: (916) 782-6779
August 1, 1995
Mr. Gregory B. Plunkett
GREG PLUNKETT, INC.
600 California Street, Suite 1300
San Francisco, CA 91408
Mr. Bruce Bercovich
CBG PARTNERSHIP
100 The Embarcadero, Penthouse
San Francisco, CA 94105
Re: Greg Plunkett, Inc. Financing
Dear Messers. Plunkett and Bercovich:
The following sets forth the agreement of C.B. Management ("CBM"), an Arizona
Limited Liability Corporation, to purchase newly issued common stock of Greg
Plunkett, Inc., a California Corporation ("Company"). The terms and conditions
under which CBM agrees to purchase such common stock of the Company are
summarized as follows:
1. CBM has retained Capitol Bay Securities ("CBS") to raise up to $500,000 of
additional capital on behalf of CBM through a private placement of securities
(the "Offering"). CBM will use all net proceeds from the Offering to purchase
newly issued common stock of the Company ("Common Stock") at $0.50 per share
(the "Investment"). CBM will use its best efforts to complete the Investment
within 30 days from the date hereof but will purchase a minimum of $75,000 of
Common Stock by August 4, 1995 (the "Initial Investment");
2. As a condition of the Investment, Gregory B. Plunkett ("Plunkett") and CBG
Partnership ("CBG") will jointly convey, from their respective holdings,
Company common stock to CBM or its designated assign or nominee as follows:
a. Two (2) Company common shares for every dollar of the Investment at
the time any portion of the Investment is consummated;
b. Fifty Thousand (50,000) Company common shares upon completion of the
Initial Investment for use of services to be performed by a law firm,
designated by CBM; and
Exhibit A
<PAGE> 8
Mr. Gregory B. Plunkett
Mr. W. Bruce Bercovich
August 1, 1995
Page 2
c. One Company common share for every dollar of the Investment at the
time any portion of the Investment is consummated as compensation
for arranging the Investment.
Company common stock conveyed to CBM under this provision will come 2/3 from
Plunkett and 1/3 from CBG.
3. In connection with this issuance of shares to CBM and CBS, the Company
acknowledges that it may not currently be in compliance with both the federal
securities laws and the securities laws of the State of California, as a result
of earlier issuance of its securities. Therefore, the Company agrees in a
timely manner to take all steps necessary to bring itself into compliance with
the relevant statutory provisions of which it is currently in violation, if
any, and to provide to CBM and CBS written documentation that any and all
disqualifications arising from such earlier violations have been waived.
4. As a further condition of the Investment, Plunkett agrees that, upon
completion of the Initial Investment, all affairs of the Company will be
managed exclusively by a management committee (the "Committee"). The Committee
shall be comprised of two representatives of CBS, one representative of CBG,
and Plunkett. The Committee shall be responsible for coordinating the
day-to-day management of the Company and Steven Riccardelli, and Douglas
Shannon, a consultant retained by the Company in conjunction with the Mrs.
Fields project and all other Company projects.
5. It is agreed by the parties that the allocation of the Investment shall be
determined by the Committee. The parties contemplate that the proceeds will be
allocated by the Committee in the following order:
a. Up to $25,000 shall be paid to Douglas Shannon and Steven Riccardelli
as reimbursement for past wages and expenses;
b. Up to $60,000 shall be paid to Mr. Fields, to satisfy past-due
royalty payments and to amend the Mrs. Fields license provisions
regarding minimum annual case sales to the Company's satisfaction;
c. Up to $40,000 shall be paid to Haagen-Dazs and Van Der Bergh Foods,
the specific allocation of which shall be determined by the
Committee;
d. Up to $15,000 shall be used to provide immediate working capital; and
e. Up to $10,000 shall be paid to Plunkett for past wages and expenses.
<PAGE> 9
Mr. Gregory B. Plunkett
Mr. W. Bruce Bercovich
August 1, 1995
Page 3
f. The remaining sums shall be used to make payment upon, and retire,
any additional past due obligations of the Company or used for
working capital.
6. It is further acknowledged by the parties that the Company, through the
Committee, shall proceed with negotiations concerning a reverse merger or
acquisition of the Company with a company whose shares are currently publicly
traded. These negotiations shall be conducted in a prompt and expeditious
manner, so as to permit the Company to begin listing its shares for public
trading as soon as practicable.
7. The parties further agree that, within 14 days from receipt of the Initial
Investment, the Company shall relocate its principal place of business as soon
as practicable from its present location to 50 California Street, San
Francisco, California. In connection with this arrangement, the Company shall
pay rent to CBS, and a monthly management fee to CBS, in consideration for the
preparation of financial statements and other financial reports not currently
prepared by the Company, which may be necessary for the continued operation of
the Company. The amount of the rental payments and management fees must be
satisfactory to the Company prior to relocating its principal place of business
as contemplated herein.
8. CBS agrees that prior to the Initial Investment, it will waive all current
defaults under its $100,000 loan to the Company and will extend the maturity of
such loan for a period of not less than 6 months from the date hereof. The
principal amount of the loan, accrued interest to date, and the type and extent
of security for the loan will be confirmed by CBS and the Company prior to the
aforementioned restructuring. CBS and the Company agree to use their respective
best efforts to convert CBS's loan into Company common stock as soon as
practicable.
If this letter accurately reflects the agreement of the parties involved,
please sign below where indicated and return a copy to Capitol Bay Securities
via facsimile at (916) 782-6779 and at 2200-B Douglas Blvd., Suite 100,
Roseville, California 95661.
Sincerely,
/s/ STEPHEN C. KIRCHER
Stephen C. Kircher
President
<PAGE> 10
Mr. Gregory B. Plunkett
Mr. W. Bruce Bercovich
August 1, 1995
Page 4
AGREED & ACCEPTED:
/s/ W. BRUCE BERCOVICH
- ----------------------------------
W. Bruce Bercovich
as representative for CBG Partners
Dated: August 1, 1995
----------------------------
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
/s/ GREGORY B. PLUNKETT /s/ GREGORY B. PLUNKETT
- ---------------------------------- -----------------------------------
Gregory B. Plunkett, President Gregory B. Plunkett, an individual
Greg Plunkett, Inc.
Dated: August 1, 1995 Dated: August 1, 1995
---------------------------- -----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF THE COMPANY FOR THE NINE MONTH PERIOD ENDED
OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 290
<SECURITIES> 0
<RECEIVABLES> 247
<ALLOWANCES> 0
<INVENTORY> 145
<CURRENT-ASSETS> 732
<PP&E> 25
<DEPRECIATION> 6
<TOTAL-ASSETS> 3,426
<CURRENT-LIABILITIES> 2,283
<BONDS> 0
0
0
<COMMON> 5,246
<OTHER-SE> (5,703)
<TOTAL-LIABILITY-AND-EQUITY> 3,246
<SALES> 3,839
<TOTAL-REVENUES> 3,839
<CGS> 2,334
<TOTAL-COSTS> 3,776
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 425
<INCOME-PRETAX> (361)
<INCOME-TAX> 1
<INCOME-CONTINUING> (362)
<DISCONTINUED> 0
<EXTRAORDINARY> 272
<CHANGES> 0
<NET-INCOME> (90)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
