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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB/A No. 1
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------- to --------------
Commission file number 0-17001
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Choices Entertainment Corporation
- - - ------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 52-1529536)
- - - ------------------------------------ -------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
836 W. Trenton Avenue, Morrisville, Pennsylvania 19067
- - - ------------------------------------------------ ----------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (215) 428-1000
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Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share.
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(Title of class)
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___
----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
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Issuer's revenues for the year ended December 31, 1996: $5,173,000.
Aggregate market value of the voting stock held by non-affiliates of the
registrant based upon a price of $0.05 per share, the average of the inside bid
and ask prices of the registrant's Common Stock at March 17, 1997: $995,730. For
purposes of this calculation, all directors and officers of the registrant have
been considered affiliates.
Number of outstanding shares of the registrant's Common Stock at March 17,
1997: 22,004,395 shares.
Transitional Small Business Disclosure Format (check one):
YES________ NO X
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(ii)
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AMENDMENT NO. 1
The Registrant hereby amends its 1996 Annual Report on Form 10-KSB, by
filing herewith the complete text of ITEMS 9 through 12 of Part III thereof,
consisting of:
ITEM 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section
16(a) of the Exchange Act
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ITEM 10. Executive Compensation
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ITEM 11. Security Ownership of Certain Beneficial
Owners and Management
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ITEM 12. Certain Relationships and Related
Transactions
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
YEAR FIRST
YEAR FIRST BECAME AN
BECAME A EXECUTIVE
NAME AGE POSITION DIRECTOR OFFICER
- - - ----------------------------------------- --- ----------------------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Ronald W. Martignoni..................... 42 Chairman of the Board, Chief Executive 1992 1988
Officer and President
Fred E. Portner.......................... 53 Director 1988 --
James D. Sink............................ 47 Director 1997 --
Lorraine E. Cannon....................... 46 Chief Financial Officer, Treasurer and -- 1989
Secretary
</TABLE>
Ronald W. Martignoni has been Chairman of the Board since December 1996,
and Chief Executive Officer and President of the Company since October 1995.
Mr. Martignoni was elected to the Company's Board of Directors in April 1992
and served as Vice Chairman--Finance from April 1992 until October 1995. Mr.
Martignoni joined the Company as its Vice President--Finance and
Administration in July 1988 and was elected to the positions of Senior Vice
President--Finance, Chief Financial Officer and Treasurer in November 1988,
in which positions he served until October 1995.
Fred E. Portner has served as a director since July 1988. Since January
1992, Mr. Portner has served as President of Portner Consulting Services, a
mortgage banking consulting company, wholly-owned by Mr. Portner. Mr. Portner
also served as Executive Vice President and Chief Financial Officer of M.D.S.
Bankmark Company, a residential mortgage company, from September 1993 to
January 1996.
James D. Sink, M.D. has served as a director since February 1997. Since
March 1996, Dr. Sink has been affiliated with Allegheny University Hospitals
in Philadelphia, Pennsylvania, where he is Professor of Cardiothoracic
Surgery. Prior to joining Allegheny University Hospitals, Dr. Sink was, for
more than five years, affiliated with Presbyterian Medical Center, in
Philadelphia, Pennsylvania, where he was Chief of Cardiothoracic Surgery at
the Philadelphia Heart Institute of Presbyterian Medical Center.
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Lorraine E. Cannon has been Chief Financial Officer and Treasurer since
October 1995. Ms. Cannon joined the Company as its Controller in January 1989
and was elected to the position of Secretary in August 1989.
Directors of the Company hold their offices until the next annual meeting of
the Company's stockholders, until their successors have been duly elected and
qualified or until their earlier resignation, removal from office or death.
Officers of the Company serve at the pleasure of the Board of Directors and
until the first meeting of the Board of Directors following the next annual
meeting of the Company's stockholders and until their successors have been
chosen and qualified or until their earlier resignation, removal from office or
death.
There are no family relationships among the present executive officers and
directors of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
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As previously reported, in April 1996, Fred E. Portner, a director, filed
a late Form 5, with respect to the expiration of an option in accordance with
its terms during 1994 and with respect to the grant of an option in 1995.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information relating to the
compensation awarded to, earned by or paid to the Chief Executive Officer
(the "Named Executive Officer") for services in all capacities during 1996,
1995 and 1994 (there being no other executive officer of the Company whose
total annual salary and bonus exceeded $100,000 during 1996).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL -------------------- OPTIONS COMPENSATION
POSITION YEAR SALARY($) (#) ($)(1)
- - - ------------------------------------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C>
Ronald W. Martignoni................. 1996 $ 98,557 -0- $ 529
Chairman, Chief 1995 115,914 -0- 529
Executive Officer and President 1994 116,346 375,000 569
</TABLE>
- - - ------------------------
(1) Includes term life insurance premiums paid by the Company.
In April 1992, the Company entered into a severance agreement with Mr.
Martignoni which provides, under certain circumstances,
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that the Company will pay him upon his severance an amount equal to one full
year's base salary in the event that his affiliation with the Company ceases
within either one or two years (depending upon the circumstances) following a
"change in control" of the Corporation, as that term is defined under the
Company's Stock Option and Appreciation Rights Plan of 1987. In November
1993, the Board of Directors adopted an amendment to the severance agreement
for Mr. Martignoni, which principally increases the amount to be paid on
severance from one full year's base salary to two full years' base salary, as
well as contains certain other provisions, including a provision for the
continued registration of option stock following termination of his
affiliation with the Company.
STOCK OPTIONS HELD AT FISCAL YEAR-END
The following table sets forth the aggregate options to purchase shares of
Common Stock of the Company held by the Named Executive Officer at December 31,
1996. No options were exercised during the year ended December 31, 1996 by the
Named Executive Officer, and there were no in-the-money unexercised options held
by the Named Executive Officer at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS HELD AT
DECEMBER 31, 1996(#)
-----------------------------
<S> <C> <C>
NAME EXERCISABLE UNEXERCISABLE
- - - -------------------------------------------- ---------- -----------------
Ronald W. Martignoni........................ 1,425,000 -0-
</TABLE>
COMPENSATION OF DIRECTORS
The Company currently has no standard arrangements pursuant to which
non-employee directors are compensated for services provided as directors.
On February 13, 1997, three non-employee directors, Messrs. James D. Sink,
Joseph DeSaye and Fred E. Portner, were granted, respectively, nonqualified
options to purchase 200,000, 200,000 and 50,000 shares of the Company's Common
Stock, exercisable on or after August 13, 1997, at an exercise price of $.05 per
share, the price of the Company's Common Stock on the date of grant, which
options expire on February 13, 2002. Mr. DeSaye has since resigned as a
director.
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ITEM 11. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding ownership of
the Company's Common Stock and Series C Preferred Stock (the "Preferred
Stock"), as of April 15, 1997, by: (i) each person who is known by the
Company to own beneficially shares of Common Stock and/or Preferred Stock to
which are attributable more than five percent of the combined number of votes
attributable to all shares of Common and Preferred Stock outstanding on that
date, (ii) each director (Messrs. Martignoni, Portner and Sink), (iii) the
Named Executive Officer (Ronald W. Martignoni) and (iv) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
NO. OF VOTES ATTRIBUTABLE
NO. OF SHARES OF TO
NO. OF SHARES OF COMMON PREFERRED COMMON STOCK AND
STOCK BENEFICIALLY STOCK BENEFICIALLY PREFERRED
OWNED, OWNED, STOCK BENEFICIALLY OWNED,
NAME AND ADDRESS INCLUDING INCLUDING INCLUDING
OF BENEFICIAL OWNER PERCENTAGE OWNED(1) PERCENTAGE OWNED(1) PERCENTAGE OWNED(1)(2)
- - - ----------------------------------- ----------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Attel & Cie, S.A. 2,601,112 (11.8%) -- 2,601,112 (11.1%)
Via Nassa 58
6901 Lugano, Switzerland
John Maioriello 1,826,000 (7.8%)(3) -- 1,826,000 (7.3%)
3416 The Strand
Manhattan Beach, CA 90266
John A. Boylan 1,442,000 (6.2%)(4) -- 1,442,000 (5.8%)
509 Kinsale Road
Timonium, MD 21093
Ronald W. Martignoni 1,425,000 (6.1%)(5) -- 1,425,000 (5.7%)
6 Chadwick Court
Voorhees, NJ 08043
James D. Sink 1,041,650 (4.7%) -- 1,041,650 (4.4%)
220 Curwen Road
Rosemont, PA 19010
Fred E. Portner 190,000 *(6) -- 190,000 *
121 Montgomery Place
Alexandria, VA 22314
Shareholder Committee 4,334,700 (18.3%)(7) 37.4 (90.7%)(7)(8) 4,334,700 (18.3%)
All executive officers and
directors as a Group (four
persons) 2,931,650 (12.3%)(9) -- 2,931,650 (11.5%)
</TABLE>
- - - ------------------------
* Less than 1%.
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities Exchange Commission and generally includes voting or investment
power with respect to securities. A person is also deemed to be the
beneficial owner of securities if that person has the right to acquire
beneficial ownership of such securities, such as Common or Preferred Stock,
through the exercise of options or warrants that are currently exercisable
or exercisable within 60 days. Any securities not outstanding, which are
subject to such options or warrants, shall be deemed outstanding for
purposes of computing the percentage ownership
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of the person holding such options or warrants, but shall not be deemed
outstanding for purposes of computing the percentage ownership of any other
person. Except as may be indicated otherwise, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common and
Preferred Stock shown as beneficially owned by them.
(2) Each share of Preferred Stock is entitled to vote on all matters submitted
to a vote of the Company's stockholders together with the Common Stock and
not as a separate class, unless otherwise required by law, with each share
of Preferred Stock entitled to 40,000 votes.
(3) Includes 1,500,000 shares of Common Stock issuable upon exercise of
fully-vested nonqualified stock options.
(4) Includes 1,000,000 shares of Common Stock issuable upon exercise of
fully-vested 1991 Management Options and 375,000 shares of Common Stock
issuable upon exercise of fully-vested 1994 Management Options.
(5) Includes 1,050,000 shares of Common Stock issuable upon exercise of
fully-vested 1991 Management Options and 375,000 shares of Common Stock
issuable upon exercise of fully-vested 1994 Management Options.
(6) Represents 100,000 shares of Common Stock issuable upon exercise of
fully-vested nonqualified stock options and 90,000 shares of Common Stock
issuable upon exercise of fully-vested 1994 Management Options.
(7) The Shareholder Committee may be deemed to constitute a group under the
rules of the Securities and Exchange Commission. The following table sets
forth the number of shares of the Company's Common and Preferred Stock owned
beneficially by the members of the Shareholder Committee, as well as the
percentage of outstanding Preferred Stock owned by each, and together as a
group, on April 15, 1997:
<TABLE>
<CAPTION>
NAME COMMON STOCK+ PREFERRED STOCK++
- - - ---------------------------------------------------------------------------- --------------- ------------------
<S> <C> <C>
Carl Shaifer 1,128,500 14.1 (36.3%)
8515 Seminole Avenue
Philadelphia, PA 19118
Joseph DeSaye 26,000 --
10 Eaglenest Road
Coltsneck, NJ 07722
Max Scheuerer 312,000 --
47 Knollwood Drive
Livingston, NJ 07039
Maureen and Lawrence Feeney 200,000 --
160 Milton Street
Dorchester, MA 02124
William and Evelyn Goatley 502,100 9.2 (24.0%)
5925 Oakland Valley Drive
Rochester, MI 48306
P.L. Anderson, Jr. 674,500 1.8 (4.9%)
115 Watson Street
Danville, VA 24543
Harold E. Hamburg 217,000 3.7 (9.7%)
4122 Shelbyville Road
Louisville, KY 40207
</TABLE>
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<TABLE>
<CAPTION>
NAME COMMON STOCK+ PREFERRED STOCK++
- - - ---------------------------------------------------------------------------- --------------- ------------------
<S> <C> <C>
David F. Beckman 272,600 --
35 Webster Avenue
Beverly, MA 01915
Mark and Barbara Raifman 759,000 6.1 (16.1%)
862 Woodmere Place
Woodmere, NY 11598
Frank Harvey 243,000 2.5 (6.5%)
619 Hallie Drive
Houston, TX 77024
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Total 4,334,700 37.4 (90.7%)
--------------- ----------------
--------------- ----------------
</TABLE>
- - - ------------------------
+ This column includes a total of 1,494,500 shares of Common Stock obtainable
upon conversion of 37.4 shares of Preferred Stock, which includes 3.8 shares
of Preferred Stock obtainable upon exercise of warrants.
++ This column includes 3.8 shares of Preferred Stock obtainable upon
exercise of warrants, as follows: Carl Shaifer, 1.4 shares; William and
Evelyn Goatley, 0.9 shares; P.L. Anderson, Jr., 0.3 shares; Harold Hamburg,
0.4 shares; Mark and Barbara Raifman, 0.6 shares; and Frank Harvey, 0.3
shares. In addition, on April 15, 1997, Gail A. Ramey, 115 Watson Street,
Danville, VA 24543, owned beneficially 2.5 shares of Preferred Stock, which
includes 0.3 shares obtainable upon exercise of warrants, or 6.5% of the
Preferred Stock outstanding on that date. Ms. Ramey, together with the
holders of Preferred Stock set forth in the foregoing table, represent all
persons known to the Company who own beneficially more than five percent of
the Preferred Stock on April 15, 1997. See also ITEM 12. Certain
Relationships and Related Transactions.
(8) Includes 3.8 shares of Preferred Stock obtainable upon exercise of warrants.
(9) Includes 1,250,000 shares of Common Stock issuable upon exercise of
fully-vested 1991 Management Options, 100,000 shares of Common Stock
issuable upon exercise of fully-vested nonqualified options, and 540,000
shares of Common Stock issuable upon exercise of fully-vested 1994
Management Options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
John E. Maioriello, Chairman of the Board and a principal stockholder of
JD Store Equipment, Inc. ("JD"), is deemed under rules of the Securities and
Exchange Commission to be the beneficial owner of more than five percent of
the Company's Common and Preferred Stock voting together. See ITEM 11.
Securities Ownership of Certain Beneficial Owners and Management.
On November 4, 1994, the Company and JD entered into a letter of intent
(the "JD Letter of Intent"), providing for a merger of the Company and JD
(the "JD Merger"). In connection with the JD Letter of Intent, JD arranged
for the issuance on its credit of a $100,000 letter of credit to a vendor of
the Company, which letter of credit expired in accordance with its terms on
April 15, 1995. Upon expiration of the letter of credit, Mr. Maioriello
personally
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guaranteed a line of credit provided by said vendor to the Company in an
amount of approximately $250,000.
In accordance with the JD Letter of Intent and in contemplation of the JD
Merger, John Maioriello was appointed Chairman of the Board of the Company.
Also in contemplation of the JD Merger, the Company and JD incurred certain
costs in connection with the Company's plans to acquire certain retail video
store chains.
In connection with the JD Letter of Intent, the Company and JD also
reached an agreement for the payment of finder's fees, in the event the JD
Merger was not consummated, with respect to any completed merger or
acquisition which Mr. Maioriello was responsible for having introduced to the
Company from the date of the JD Letter of Intent until such time as it was
publicly announced that the JD Merger would not be consummated (September 11,
1995). Any finder's fees paid are to consist of warrants to purchase shares
of the Company's Common Stock in an amount based upon 10% of the
consideration issued or paid by the Company in said merger or acquisition.
The exercise price of the warrants is to be at a 20% discount to the bid
price of the Company's Common Stock, generally calculated on the date of the
letter of intent for said merger or acquisition. The warrants are to have a
five-year term and are to include piggy-back registration rights.
The Company and JD entered into an Agreement and Plan of Reorganization
and Merger (the "Merger Agreement"), dated as of July 19, 1995, as amended,
which provided, inter alia, for the JD Merger, through the merger of a newly
formed California corporation, formed as a wholly-owned subsidiary of the
Company, with and into JD, as a result of which, JD, as the surviving
corporation in the merger, would become a wholly-owned subsidiary of the
Company. On September 8, 1995, JD notified the Company that it was
terminating the Merger Agreement in accordance with its terms and, in
connection therewith, Mr. Maioriello resigned as Chairman of the Board of the
Company.
Previously, on December 6, 1994, JD agreed that, in the event the JD
Merger was not consummated, JD would pay to the Company legal fees billed to
the Company by the law firm retained in connection with the Company's
acquisition program. That law firm resigned as counsel to the Company shortly
after JD notified the Company that it was terminating the Merger Agreement
and, in accordance with its agreement with JD, the Company has made a demand
for payment upon JD for all fees and disbursements in the amount of $793,281
billed to it by the law firm, of which $439,482 has to date been paid by the
Company. To avoid the uncertainties associated with litigation and with
collecting any judgment that may be obtained, the Company is attempting to
reach a settlement with JD, pursuant to which, among other things, JD will
assume any obligation of the Company for the above professional fees which
have been billed but not paid
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to the law firm, and the Company will release JD from any obligation to pay
the $793,281 of legal fees billed to the Company. As part of such settlement,
the Company would be released by the law firm. There is no assurance that any
such settlement will be concluded.
The Company, in connection with a private offering of units of Preferred
Stock, which terminated in September 1995, issued a total of: (1) 34 shares
of the Company's Preferred Stock, convertible into 1,360,000 shares of Common
Stock, (ii) 5% unsecured promissory notes in the aggregate principal amount
of $680,000 due in September 1997, with interest payable annually in cash or,
at the election of the Company, in shares of Preferred Stock (valued at $.25
per share of Common Stock), and with principal and any accrued but unpaid
interest convertible into Preferred Stock (valued at $.25 per share of Common
Stock) as the sole remedy of the holders in the event the Company defaults in
the payment of principal or is otherwise in default, and (iii) three-year
warrants to purchase 10.2 shares of Preferred Stock at an exercise price of
$10,000 per share, convertible into a total of 408,000 shares of Common
Stock. In September 1996, the Company issued 3.4 shares of Preferred Stock to
the holders of its 5% unsecured notes, in payment of $34,000 of accrued
interest due such noteholders, in accordance with the terms of such notes.
Certain of the members of the Shareholder Committee, Carl Shaifer, William
and Evelyn Goatley, P.L. Anderson, Jr., Harold E. Hamburg, Mark and Barbara
Raifman and Frank Harvey, purchased in the private placement a total of 30.5
shares of Preferred Stock (33.55 shares after giving effect to the foregoing
issuance of Preferred Stock in lieu of interest), 5% unsecured promissory
notes in the aggregate principal amount of $610,000, and three-year warrants
to purchase 3.8 shares of Preferred Stock. See ITEM 11. Securities Ownership
of Certain Beneficial Owners and Management.
John A. Boylan, a former officer and director, is deemed under the rules
of the Securities and Exchange Commission to be the beneficial owner of more
than five percent of the Company's Common and Preferred Stock voting
together. See ITEM 11. Securities Ownership of Certain Beneficial Owners and
Management. As previously reported, on August 15, 1996, the Company entered
into an eleven-month consulting agreement with Mr. Boylan, under which he
receives $3,500 on a bi-weekly basis, has use of a car, already under lease
by the Company, and receives health insurance benefits for a period of one
year. The Company entered into this agreement as part of a severance
agreement with Mr. Boylan, pursuant to which he resigned from employment and
from all positions with the Company, released the Company from all
obligations and liabilities, including any obligations under an existing
severance agreement between him and the Company, and agreed to the
cancellation of certain fully-vested options to purchase 291,667 shares of
Common Stock.
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On July 12, 1994, Max Scheuerer, a member of the Shareholder Committee,
loaned the Company $50,000, and on December 7, 1994, loaned the Company
$100,000, which loans are evidenced by two 10% promissory notes. The
aggregate principal amount owing on the promissory notes was reduced to
$120,000 from $150,000 as a result of a $30,000 payment by the Company on
November 30, 1995, following the filing of a lawsuit against the Company by
Mr. Scheuerer seeking collection of said notes. The lawsuit was withdrawn
following said $30,000 payment without prejudice to its being reinstated if
the balance owing on the notes was not paid in full prior to March 15, 1996.
No further payments were made on such notes and, on September 18, 1996, Mr.
Scheuerer filed a new lawsuit against the Company, in which Mr. Scheuerer is
seeking a judgment in the amount of $146,298 (plus future interest, costs and
any other appropriate damages), which amount allegedly represents $120,000 of
principal and $26,298.35 of interest then owed by the Company to Mr.
Scheuerer under the two 10% promissory notes. Since that time, the Company
has made payments to Mr. Scheuerer totaling $6,988.74, and has entered into a
settlement agreement with Mr. Scheuerer, providing for $3,000 monthly
payments to Mr. Scheuerer, with the unpaid balance to be paid upon the
closing of the proposed sale of substantially all of the Company's assets and
business to West Coast Entertainment Corporation. Notwithstanding the
settlement agreement, Mr. Scheuerer has proceeded with the litigation, and
the Company has made no monthly payments to Mr. Scheuerer.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this Amendment to its 1996 Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
CHOICES ENTERTAINMENT CORPORATION
BY: /s/ Lorraine E. Cannon
-----------------------------------------
Lorraine E. Cannon
Chief Financial Officer
April 28, 1997
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