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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999
[ ] Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from _____________ to _____________
Commission file number 000-17001
Choices Entertainment Corporation
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 52-1529536
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2455 East Sunrise Boulevard
Suite 313
Ft. Lauderdale, Florida 33304
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(Address of Principal Executive Offices) (Zip code)
Issuer's Telephone Number, Including Area Code
954-396-3144
------------
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(Former Name, Former Address and Former Fiscal Year, if
changed since last report)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the
past 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 [ ]
State the number of shares outstanding of the
issuer's Common Stock, as of June 15, 1999:
22,004,395
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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<TABLE>
<CAPTION>
Index to Financial Statements Page Number
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<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet at September 30, 1999
And December 31, 1998 (Unaudited) .............................................. 1
Consolidated Condensed Statements of Loss for the
Three and Nine Months Ended September 30, 1999 and 1998 (Unaudited) ............ 2
Consolidated Condensed Statement of Stockholders' Deficit
for the Three Months Ended September 30, 1999 (Unaudited) ...................... 3
Consolidated Condensed Statements of Cash Flows for the
Three and Nine Months Ended September 30, 1999 and 1998 (Unaudited) ............ 4
Notes to the Unaudited Consolidated Condensed Financial Statements ............. 5
Note 1. Basis of Presentation and Significant Accounting Policies .............. 5
Note 2. Net Income (Loss) Per Common Share ..................................... 5
Note 3. Liquidity .............................................................. 5
Note 4. West Coast Transaction and Discontinued Operations ..................... 6
Item 2. Management Discussion and Analysis ..................................... 6
Part II - OTHER INFORMATION
Item 1. Legal Proceedings ...................................................... 7
Item 6. Exhibits and Reports on Form ........................................... 7
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
CHOICES ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 54,991 $ 2,074
------------ ------------
Total current assets 54,991 2,074
Other assets 146 146
------------ ------------
Total assets $ 55,137 $ 2,220
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 6,201 $ 11,851
Accrued merger and acquisition expenses -0- 50,000
Accrued professional fees 588,408 30,403
Notes payable - current 55,000 -0-
------------ ------------
Total current liabilities 649,609 92,254
------------ ------------
Long-term liabilities
Notes payable - noncurrent 125,000 -0-
Other long-term liabilities 6,289 -0-
------------ ------------
Total long-term liabilities 131,289 -0-
------------ ------------
Total liabilities 780,898 92,254
Stockholders' deficit:
Preferred stock, par value $.01 per share:
Authorized 5,000 shares: 109 shares issued
and outstanding in 1999 and 1998 1 1
Common stock, par value $.01 per share:
Authorized 50,000,000 shares: issued and
outstanding 22,004,395 shares in 1999 and 1998 220,044 220,044
Additional paid-in-capital 21,236,035 21,236,035
Accumulated deficit (22,181,841) (21,546,114)
------------ ------------
Total stockholders' deficit (725,761) (90,034)
------------ ------------
$ 55,137 $ 2,220
============ ============
</TABLE>
See accompanying notes to financial statements.
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CHOICES ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
----- ---- ---- ----
<S> <C> <C> <C> <C>
Operating costs and expenses:
Selling and administrative expenses $ 1,098 $ 11,266 $ 17,226 $ 70,597
Professional and consulting expenses 498,313 11,165 612,212 60,566
Depreciation and amortization -0- -0- -0- 484
----------- ----------- ----------- ---------
Total operating costs and expenses 499,411 22,431 629,438 131,647
----------- ----------- ----------- ---------
Other expenses:
Loss (gain) on settlement of lawsuit -0- -0- -0- (40,000)
Interest expense (income), net 3,125 -0- 6,289 (1,034)
----------- ----------- ----------- ---------
Total other expenses (income) 3,125 -0- 6,289 (41,034)
----------- ----------- ----------- ---------
Loss from continuing operations (502,536) (22,431) (635,727) (90,613)
----------- ----------- ----------- ---------
Discontinued operations - Note x
Loss from discontinued operations
----------- ----------- ----------- ---------
Net loss $ (502,536) $ (22,431) (635,727) (90,613)
=========== =========== =========== =========
Net loss per share of common stock - Note x:
Basic loss per share:
Continuing operations $ (0.02) $ -0- $ (0.03) $ -0-
=========== =========== =========== =========
Discontinued operations $ -0- $ -0- $ -0- $ -0-
=========== =========== =========== =========
Diluted loss per share:
Continuing operations $ (0.02) $ -0- $ (0.02) $ -0-
=========== =========== =========== =========
Discontinued operations $ -0- $ -0- $ -0- $ -0-
=========== =========== =========== =========
</TABLE>
See accompanying notes to financial statements.
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CHOICES ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Three Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
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Shares Amount Shares Amount
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<S> <C> <C> <C> <C>
Balance at December 31, 1998: 109 $1 22,004,395 $220,044
Net loss for the nine months
ended September 30, 1999: -------- ---------- ---------- ----------
109 $1 22,004,395 $220,044
======== ========== ========== ==========
Additional
Paid-in Accumulated
Capital Deficit Total
----------- -------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1998: $21,236,035 $(21,546,114) $(90,034)
Net loss for the nine months
ended September 30, 1999: (635,727) (635,727)
----------- ------------- ----------
$21,236,035 $(22,181,841) $(725,761)
=========== ============= ==========
</TABLE>
See accompanying notes to financial statements.
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CHOICES ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(635,727) $(90,613)
---------- ---------
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization -0- 484
Change in assets and liabilities:
Increase in accounts receivable -0- 1,124
Decrease in other assets
Increase (decrease) in accounts payable (5,650) (21,642)
Decrease in accrued merger and acquisition
Expenses (50,000)
Decrease in accrued professional fees 558,005 (70,944)
Increase (decrease) in accrued salaries -0- (2,859)
Decrease in other accrued expenses -0-
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Total adjustments 502,355 (119,557)
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Net cash provided by (used in) operating activities (133,372) (184,451)
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Cash flows from financing activities:
Proceeds from notes payable 180,000
Other long-term liabilities 6,289
---------- ---------
Net cash used in financing activities 186,289
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Net increase (decrease) in cash 52,917 (184,451)
Cash at beginning of period 2,074 197,117
---------- ---------
Cash at end of period $ 54,991 $ 12,666
========== =========
Supplementary disclosure of cash flow information:
Cash paid during the year for interest $ -0- $ -0-
========== =========
</TABLE>
See accompanying notes to financial statements.
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CHOICES ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The financial information included herein for the
three-month and nine-month periods ended September 30, 1999
and 1998 and as of September 30, 1999 is unaudited. In
addition, the financial information does not include all
disclosures required under generally accepted accounting
principles because certain note information has been omitted;
however, such information reflects all adjustments which are,
in the opinion of management, necessary for a fair statement
of the results of the interim periods and such adjustments are
of a normal recurring nature. The results of operations for
the nine-month period ended September 30, 1999 are not
necessarily indicative of the results to be expected for the
full year.
Note 2. NET INCOME (LOSS) PER COMMON SHARE:
Primary income per share for the three-month and
nine-month periods ended September 30, 1999 and 1998 was
computed by dividing the net income by the weighted average
number of common shares outstanding during the periods.
Fully diluted income per share for the three-month
and nine-month periods ended September 30, 1999 and 1998 was
computed by dividing the net income by the weighted average
number of common shares outstanding during the periods, as
well as the number of common shares that would be outstanding
as a results of the conversion of the Company's preferred
stock.
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
----------------------
1999 1998
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<S> <C> <C>
Number of shares used in calculation:
Basic 22,004,000 22,004,000
Diluted 26,364,395 26,364,395
</TABLE>
Cash and Cash Equivalents
For cash flow purposes the Company considers all
certificates of deposit and highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Revenue Recognition
Revenue is recognized using the accrual method of
accounting.
Note 3. LIQUIDITY
As previously reported, on June 16, 1997, the Company
sold substantially all of its assets and business to West
Coast Entertainment Corporation, ("West Coast").
Notwithstanding the sale of its operating business, the
Company's financial statements included herein have been
presented on the basis that the Company is a going concern,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
On or about August 30, 1999, the Company entered into
a binding letter of intent with Republic Hotel Investors, Inc.
("RHII") of Seattle, Washington to acquire its business. RHII
is in the business of acquiring, developing, owning,
operating, managing and disposing of hotel
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properties. RHII has been developing its business since at
least 1995. RHII does not currently own or operate any hotel
properties. The accounting impact of the acquisition
transaction on the financial statements of the Company is
considered by management to be immaterial.
The letter of intent provides that the Company will
acquire all of the rights, title and interest in and to RHII's
assets consisting of books, documents, records, papers, human
resources network (consisting of names, telephone numbers,
contact and other information) business plan, goodwill, hotel
acquisition and development agreements in various stages of
negotiation, proprietary information, and other miscellaneous
categories of business assets. The ultimate success of the
Company in acquiring RHII and in successfully executing RHII's
business strategy will depend on the Company's ability to and
success in raising the amounts of money needed to pursue an
acquisition strategy. No assurance can be given that the
Company will be successful in raising the amounts of money
required to be successful.
The Company's viability for the foreseeable future is
and will continue to be dependent upon its ability to find
other business opportunities and to secure needed capital. No
assurance can be given that the Company will be successful in
that regard. In the event the Company is not successful, it is
unlikely that there would be any amounts available for
distribution to the Company's stockholders.
Note 4. WEST COAST TRANSACTION AND DISCONTINUED OPERATIONS
As previously reported, the Company consummated the
previously announced sale of substantially all of its assets
to West Coast on June 16, 1997. The consideration for the
assets sold consisted entirely of cash in the amount of
$2,430,000. A substantial portion of the proceeds was used to
reduce a portion of the Company's liabilities at closing. In
addition, $243,000 of the proceeds was escrowed with West
Coast pursuant to the terms of the Asset Purchase Agreement
between the Company and West Coast. The escrowed funds have
been released to the Company and expended.
Note 5. NOTES PAYABLE
The Company has been dependent on borrowing for
capital. The Company has borrowed $180,000 as of quarter
ending September 30, 1999. $125,000 of the borrowings are in
the form of two- (2) year notes and accrued interest at 10%
per annum compounded annually payable at maturity in mid 2001.
$55,000 of the borrowings are in the form of a 90 day note at
12% interest per annum compounded annually payable at maturity
in late 1999.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's discussion of certain
significant factors that have affected the Company's financial
condition changes in financial condition, and results of
operations. The discussion also includes the Company's
liquidity and capital resources at September 30, 1999 and
later dated information, where practicable. The following
discussion should be read in conjunction with the Financial
Statements and notes included in this form 10-QSB.
The Company generated no revenues during the
three-months ended September 30, 1999 and 1998. Management of
the Company anticipates that the Company will not generate any
significant revenues until the Company accomplishes it
business objective of merging with a nonaffiliated entity or
acquiring assets from the same. The Company presently has no
liquid financial resources to offer such a candidate and must
rely upon an exchange of its stock to complete such a merger
or acquisition. Between December 31, 1998 and September 30,
1999 the Company incurred a net loss of $635,727 resulting in
a net working capital deficiency of approximately $726,000 as
of quarter-ending September 30, 1999.
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The Company's viability for the foreseeable future is
and will continue to be dependent upon its ability to find
other business opportunity and to secure needed capital. No
assurance can be given that the Company will be successful in
that regard. In the event the Company is not successful, it is
unlikely that there would be any amounts available for
distribution to the Company's stockholders.
As previously reported, on June 16, 1997, the Company
sold substantially all of its assets and business to West
Coast Entertainment Corporation, ("West Coast").
Notwithstanding the sale of its operating business, the
Company's financial statements included herein have been
presented on the basis that the Company is a going concern,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company has no operations at the present, however, and has
engaged in no business since at least June 16, 1998.
The Company has been dependent on borrowing for
capital. The Company has borrowed $180,000 as of quarter
ending September 30, 1999. Borrowings of $125,000 are in the
form of two-year notes with accrued interest at 10% per annum
compounded annually, payable at maturity in mid-2001.
Borrowings of $55,000 are in the form of a 90-day note at 12%
interest per annum compounded annually payable at maturity in
late 1999. See Note 5 to Consolidated Financial Statements.
On or about August 30, 1999, the Company entered into
a binding letter of intent with Republic Hotel Investors, Inc.
("RHII") of Seattle, Washington to acquire its business. RHII
is in the business of acquiring, developing, owning,
operating, managing and disposing of hotel properties. RHII
has been developing its business since at least 1995. RHII
does not currently own or operate any hotel properties. The
accounting impact of the acquisition transaction on the
financial statements of the Company is considered by
management to be immaterial. See Note 3 to Consolidated
Financial Statements.
Current officers and Directors of the Company
estimated that outstanding liabilities of the Company are
approximately $780,000 and cash in the bank is approximately
$55,000.
This Quarterly Report on Form 10-QSB contains forward
looking information with respect to, among other things, plans
future events or future performance of the Company, the
occurrence of which involve certain risks and uncertainties
that could cause actual results or future events to differ
materially from those expressed in any forward looking
statements. These risks and uncertainties include, but are not
limited to, the risk and uncertainties associated with adverse
litigation, the ability to identify and conclude alternative
business opportunities, and those risks and uncertainties
detailed in the Company's filings with the Securities and
Exchange Commission. Where any forward looking statement
includes a statement of the assumption or bases believed to be
reasonable and are made in good faith, assumed facts or bases
almost always vary from actual result, and the differences
between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any
forward looking statement, the Company expresses and
expectation or belief as to plans or future results or events,
such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will
result or be achieved or accomplished. The words "believe".
"expect" and "anticipate" and similar expressions identify
forward-looking statements.
The Company is aware of the issues associated with
Year 2000 software compliance and the need to upgrade existing
programming code in any computer system that it may use or
purchase as the year 2000 approaches. The year 2000 issue
relates to whether computer systems will function correctly
and will properly recognize dates after 1999. If they cannot
adequately process beyond the year 1999 and are not corrected
significant uncertainties exist. The Company currently uses
computer time on a system that is available on an as needed
basis provided for by an affiliate of the Company. It is not
anticipated that the Company will incur any negative impact as
a result of this potential problem. However, it is possible
that this issue may have an impact on
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the Company after the Company successfully consummates a
merger or acquisition. Management intends to address this
potential problem with any prospective merger or acquisition
candidate. There can be no assurances that new management of
the Company will be able to avoid a problem in this regard
after a merger or acquisition is so consummated.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not aware of any pending legal
proceedings to which the company is party or of which any of
its property is the subject that has not been previously
reported.
Item 6. Exhibits
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
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3 (a) Certificate of Incorporation, as amended (1)
(b) Certificate of Designations of Series C Preferred Stock, as
amended (2)
(c) By-Laws, as amended (3)
4 (a) Form of Certificate Evidencing Shares of Common Stock (4)
(b) Form of 5% Promissory Note (5)
10.99 (a) Consulting Agreement between Registrant and Thomas Renna (7)
(b) Letter of Intent to Acquire Republic Hotel Investors, Inc. (8)
27 Financial Data Schedule (9)
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(1) Filed as an Exhibit to Registrant's Registration Statement on Form S-8
(File No. 33-87016) and incorporated herein by reference.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB, for
the year ended December 31, 1996 and incorporated herein by reference.
(3) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 and incorporated herein by reference.
(4) Filed as an Exhibit to Registrant's Registration Statement on Form S-1
inclusive of Post-Effective Amendment No. 1 thereto (File No.:
33-198983) and incorporated herein by reference.
(5) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1995 and incorporated herein by
reference.
(6) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1997.
(7) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 1999 and incorporated herein by reference.
(8) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
August 30, 1999 and incorporated herein by reference.
(9) Filed herewith.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CHOICES ENTERTAINMENT CORPORATION
(Registrant)
Date: October 14, 1999 By: /s/ George D. Pursglove
-----------------------------------
George D. Pursglove, Director and
Interim Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JUL-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 54,991 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 54,991 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 55,137 0
<CURRENT-LIABILITIES> 649,609 0
<BONDS> 131,289 0
0 0
1 0
<COMMON> 220,044 0
<OTHER-SE> 21,236,035 0
<TOTAL-LIABILITY-AND-EQUITY> 55,137 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 629,438 499,411
<OTHER-EXPENSES> 6,289 3,125
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (635,727) (502,536)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (635,727) (502,536)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (635,727) (502,536)
<EPS-BASIC> (0.03) (0.02)
<EPS-DILUTED> (0.02) (0.02)
</TABLE>
