<PAGE>
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 SEPTEMBER 30, 1998
[ ] 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
CHOICES ENTERTAINMENT CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 52-1529536
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10770 WILES ROAD
CORAL SPRINGS, FLORIDA 33076-2009
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(954) 752-4289
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 [ ] No [X]
As of May 19, 1999, 22,004,395 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
CHOICES ENTERTAINMENT CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash $ 12,666 $197,117
Accounts receivable - 1,123
-------- --------
Total Current Assets $ 12,666 198,240
Equipment, net 3,147 3,631
Other assets $ 125 125
-------- --------
TOTAL ASSETS $ 15,938 $201,996
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 11,460 $ 33,104
Accrued merger and acquisition expense 353,799 353,799
Accrued professional fees 58,814 129,758
Accrued salaries - 2,859
Other accrued expenses 5,419 5,419
-------- --------
Total Current Liabilities 429,492 524,938
-------- --------
Stockholders' Deficit:
Preferred Stock, par value $.01 per share:,
Authorized 5,000 shares: 109 shares issued
and outstanding in 1998 and 1997 1 1
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares:
22,004,395 shares issued and 220,044 220,044
outstanding in 1998 and 1997
Additional paid-in-capital 21,236,035 21,236,035
Accumulated deficit (21,869,635) (21,779,022)
------------ ------------
Total Stockholders' Deficit (413,554) (322,941)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,938 $201,996
-------- --------
-------- --------
</TABLE>
2
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CHOICES ENTERTAINMENT CORPORATION
STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Sept. 30, Ended Sept. 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating costs and expenses:
Selling and administrative expenses $ 11,266 $ 71,205 $70,597 $ 157,451
Professional and consulting expenses 11,165 214,332 60,566 340,773
Depreciation and amortization - 9,953 484 29,537
-------- --------- -------- ---------
22,431 295,490 131,647 527,761
Other expenses:
Settlement - - 40,000 -
Interest expense(income), - 2,591 (1,034) 37,081
-------- --------- -------- ---------
Loss from continuing operations (22,431) (298,081) (90,613) (564,842)
-------- --------- -------- ---------
Discontinued operations--Note 4
Loss from discontinued operations - - - (303,785)
Gain on sale of discontinued
Operations net of tax of $13,092 - - - 1,312,045
-------- --------- -------- ---------
Gain(loss)from discontinued operations - - - 1,008,260
-------- --------- -------- ---------
Net income (loss) $(22,431) $(298,081) $(90,613) $ 443,418
-------- --------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
Net income (loss) per share of common stock--Note 2:
<S> <C> <C> <C> <C>
Primary income (loss) per share
Continuing operations $ -- $(0.01) $ -- $(0.03)
Discontinued operations $ -- $ -- $ -- $ 0.05
Fully diluted income (loss) per share:
Continuing operations $ -- $(0.01) $ -- $(0.02)
Discontinued operations $ -- $ -- $ -- $ 0.04
</TABLE>
CHOICES ENTERTAINMENT CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional paid-in Accumulated Deficit
(Shares) (Shares) (Amount) Capital
<S> <C> <C> <C> <C>
Balance at December 31, 1997:
109.0 22,004,395 $ 220,044 $21,236,035 $(21,869,635)
Net income for the 9 months
ended September 30, 1998 $ (90,613)
</TABLE>
3
<PAGE>
CHOICES ENTERTAINMENT CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(90,613) $ 443,418
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 484 489,968
Gain on sale of assets, net of tax (Note 4) (1,312,045)
Cost of rental films sold 121,342
Loss on disposal of rental films 83,621
Videocassette and inventory reserves 7,667
Change in assets and liabilities:
Increase in cash held in escrow (243,000)
(Increase) decrease in accounts receivable 1,124 ( 4,068)
(Increase) decrease in merchandise inventories 62,584
(Increase) decrease in prepaid expenses 24,053
Increase in other deferred expenses 8,487
Increase (decrease) in accounts payable (21,642) (651,911)
Decrease in accrued merger and acquisition expenses ( 50,550)
Increase (decrease) in accrued professional fees (70,944) ( 40,203)
Decrease in deferred revenue ( 27,797)
Decrease in accrued salaries (2,859) ( 43,774)
Decrease in accrual for lease cancellation ( 1,250)
and litigation reserves
Increase (decrease) in other accrued expenses (165,909)
-------- --------
Total adjustments (119,557) (1,742,785)
Net cash provided (used in) operating activities (184,451) (1,299,367)
-------- --------
Cash Flows From Investing Activities:
Purchase of equipment, net (10,049)
Purchase of videocassette rental films (620,807)
Net proceeds from sale of assets (Note 4) 2,411,507
-------- --------
Net cash provided (used in) investing activities 1,780,651
-------- --------
Cash Flows From Financing Activities:
Proceeds from notes payable 49,000
Repayment of notes payable (393,950)
-------- --------
Net cash used in financing activities (344,950)
Net increase (decrease) in cash (184,451) 136,334
Cash at beginning of period $197,117 $ 66,739
-------- --------
Cash at end of period $ 12,666 $ 203,073
-------- --------
-------- --------
Supplemental Disclosure of cash flow information:
Cash paid during the period for interest $ 0 $ 37,081
</TABLE>
4
<PAGE>
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, 1998 and 1997 and as of September
30, 1998, and December 31, 1997, are 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, 1998, 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 six-month periods ended
September 30, 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, 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 result of the
conversion of the Company's preferred stock.
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Number of shares used in calculation:
Primary dilution 22,004,000 22,004,000 22,004,000 22,004,000
Full dilution 24,372,000 24,272,000 24,372,000 24,372,000
</TABLE>
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
The Company's viability for the foreseeable future is and will continue to
be dependent upon its ability to find other business opportunities, to secure
needed capital and to successfully conclude existing litigation. 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.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is Management's discussion and analysis of certain
significant factors which 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, 1998 and
later dated information, where practicable.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
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.
Current Directors of the Company estimate that outstanding liabilities of
the Company are approximately $429,000 and cash in the bank is approximately
$12,600.
The Company's viability for the foreseeable future is and will continue to
be dependent upon its ability to find other business opportunities, to secure
needed capital and to successfully conclude existing litigation. 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.
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 risks 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 assumptions or bases believed to be
reasonable and are made in good faith, assumed facts or bases almost always vary
from actual results, 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 an 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not aware of any pending legal proceedings to which the
Company is a party or of which any of its property is the subject that has not
been previously reported.
Item 6. Exhibits
(a) Exhibits.
There are no exhibits other than Exhibit 27 (Financial Data Schedule)
included as part of this report.
(b) Reports on Form 8-K.
The Company filed a Form 8-K dated June 16, 1998 which included disclosure
under Item 1. Change of Control of Registrant thereof.
The Company filed a Form 8-K dated October 28, 1998 which included
disclosure under Item 4. Change in Registrant's Certifying Accountant thereof.
6
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report on Form 10QSB for the period ending
September 30, 1998 to be signed on its behalf by the undersigned, thereunto duly
authorized.
Choices Entertainment Corporation
(Registrant)
Date: May 19, 1999 By:
/s/ George D. Pursglove
-----------------------------
George D. Pursglove , Interim
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 12,666 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,666 0
<PP&E> 3,147 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 15,938 0
<CURRENT-LIABILITIES> 429,942 0
<BONDS> 0 0
0 0
1 0
<COMMON> 220,044 0
<OTHER-SE> 21,236,035 0
<TOTAL-LIABILITY-AND-EQUITY> 15,938 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 22,431 131,647
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (22,431) (90,613)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (22,431) (90,613)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (22,431) (90,613)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
