<PAGE>
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 March 31, 1999
[ ] Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from _____________ to _____________
Commission file number 0-17001
Choices Entertainment Corporation
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 52-1529536
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10770 Wiles Road Coral Springs, Florida 33076-2009
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip code)
Issuer's Telephone Number, Including Area Code
(954) 752-4289
--------------
- --------------------------------------------------------------------------------
(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 [ ] No[X]
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]
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Financial Statements Page Number
Consolidated Condensed Balance Sheets at March 31, 1999
And March 31, 1998 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Condensed Statements of Loss for the
Three Months Ended March 31, 1999 and 1998 (Unaudited) . . . . . . . . . . 3
Consolidated Condensed Statements of Stockholders' Deficit for the
Three Months Ended March 31, 1999 (Unaudited). . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash flows for the
Three Months Ended March 31, 1999 and 1998 (Unaudited) . . . . . . . . . . 5
Notes to the Unaudited Consolidated Condensed Financial Statements . . . . 6
Item 2. Management Discussion and Analysis. . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibit Index . . . . . . . . . . . . . . . . . . . . . . E-1
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<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
CHOICES ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 December 31,1998
-------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,106 $ 2,074
------------ ------------
Total current assets 2,106 2,074
Other assets 146 146
------------ ------------
$ 2,252 $ 2,220
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 6,851 $ 11,851
Accrued merger and acquisition expenses -0- 50,000
Accrued professional fees 51,373 30,403
Other accrued expenses 5,000 -0-
------------ ------------
Total current liabilities 63,224 92,254
------------ ------------
Long-term liabilities
Notes payable - noncurrent 75,000 -0-
Other long-term liabilities 206 -0-
------------ ------------
Total long-term liabilities 75,206 -0-
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 (21,592,258) (21,546,114)
------------ ------------
Total stockholders' deficit (136,178) (90,034)
------------ ------------
$ 2,252 $ 2,220
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CHOICES ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Operating costs and expenses:
Selling and administrative expenses $ 8,152 $ 36,178
Professional and consulting expenses 37,786 30,661
Depreciation and amortization -0- 81
-------- --------
45,938 66,920
-------- --------
Other expenses:
Gain on settlement of lawsuit -0- 30,000
Interest income (expense), net (206) 950
-------- --------
(306) 30,950
-------- --------
Loss from continuing operations (46,144) (35,970)
-------- --------
Discontinued operations:
Loss from discontinued operations
-------- --------
Net loss $(46,144) $(35,970)
======== ========
Net loss per share of common stock:
Basic loss per share:
Continuing operations $ -0- $ -0-
======== ========
Discontinued operations $ -0- $ -0-
======== ========
Diluted loss per share:
Continuing operations $ -0- $ -0-
======== ========
Discontinued operations $ -0- $ -0-
======== ========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CHOICES ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Three Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------ ------------------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ---------- -------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998: 109 $1 22,004,395 $220,044 $21,236,035 $(21,546,114) $ (90,034)
Net loss for the three months
ended March 31, 1999: (46,144) (46,144)
--- -- ---------- -------- ----------- ------------ ---------
109 $1 22,004,395 $220,044 $21,236,035 $(21,592,258) $(136,178)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
See accompanying notes to financial statements.
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<PAGE>
CHOICES ENTERTAINMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(46,144) $(35,970)
-------- --------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization -0- 81
Change in assets and liabilities:
Increase in accounts receivable -0- (28,877)
Decrease in other assets
Increase (decrease) in accounts payable (5,000) (23,381)
Decrease in accrued merger and acquisition
Expenses (50,000)
Decrease in accrued professional fees 20,970 (78,528)
Increase (decrease) in accrued salaries -0- (2,859)
Decrease in other accrued expenses 5,000 (420)
-------- --------
Total adjustments (29,030) (133,985)
-------- --------
Net cash provided by (used in) operating activities (75,174) (169,955)
-------- --------
Cash flows from investing activities:
Proceeds from sale of fixed asset 164
-------- --------
Net cash provided by (used in) investing activities 164
-------- --------
Cash flows from financing activities:
Proceeds from notes payable 75,000
Other long-term liabilities 206
-------- --------
Net cash used in financing activities 75,206
-------- --------
Net increase (decrease) in cash 32 (169,791)
Cash at beginning of period 2,074 197,117
-------- --------
Cash at end of period $ 2,106 $ 27,326
======== ========
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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<PAGE>
CHOICES ENTERTAINMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Financial Statements
Quarterly Financial Statements:
The accompanying unaudited financial statements for the three-month
period ended March 31, 1999 and 1998 have been prepared in accordance
with the instructions for Form 10QSB and do not include all of the
information and footnotes required by generally accepted accounting
principles for completed financial statements.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments, which are necessary for a fair presentation of
the results for the interim period have been made. The results of
operations for the three-month period ended March 31, 1999, are not
necessarily indicative of the results to be expected for the full
year.
Note 2. Summary of Significant Accounting Policies
Net Income (Loss) Per Common Share
Primary income per share for the three-month periods ended March
31, 1999 and March 31, 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 period ended
March 31, 1999, 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 Three Months
Ended March 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Number of shares used in calculation
Basic 22,004,000 22,004,000
Diluted 26,364,395 26,364,395
</TABLE>
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<PAGE>
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.
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.
Note 5. Long Term Notes Payable
The Company has been dependent on borrowing for operating
capital. The Company has borrowed $75,000 as of quarter ending March
31, 1999. The notes are for a two- (2) year term and accrued interest
at 10% per annum compounded annually payable at maturity.
Note 6. Borrowing, Related Party Transactions
A current Company officer has loaned the Company $5,000 as of
quarter ended March 31, 1999. The Company has repaid the amount.
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<PAGE>
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 March
31, 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
March 31, 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 or acquiring
revenue producing assets from a nonaffiliated entity. The Company
presently has no liquid financial resources to offer an acquisition
candidate and must rely upon an exchange of its stock to complete a
merger or acquisition. Between December 31, 1998 and March 31, 1999
the Company incurred a net loss of $46,144 resulting in a net working
capital deficiency of approximately $60,000 as of March 31, 1999.
The Company's viability for the foreseeable future is and will
continue to be dependent upon its ability to find other business
opportunity, to secure needed capital and to successfully resolve
existing disputes. 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.
Current officers and Directors of the Company estimated that
outstanding liabilities of the Company are approximately $138,000 and
cash in the bank is approximately $2,000.
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
-8-
<PAGE>
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
("Y2K") 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 a
computer system will properly recognize dates after 1999. If it
cannot adequately process beyond the year 1999 and is not corrected,
significant difficulties may be encountered in using the computer
system. 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 the Company if 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
On February 9, 1999 a lawsuit was filed against the Company by a
law firm seeking payment of professional fees of $353,799. The
Company entered into a settlement agreement in the amount of $50,000
that was paid on March 31, 1999. Further on June 9, 1999 the Company
entered into a settlement agreement with another law firm, which was
seeking payment of $15,500 for professional fees. The Company
subsequently settled the amount in dispute for $1,500 and payment was
made on June 18, 1999.
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<PAGE>
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: July 16, 1999 By:
/s/ George D. Pursglove
----------------------------
George D. Pursglove, Director and
Interim Chief Financial Officer
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<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
- ------- ----------------------
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 Consulting Agreement between Registrant and Thomas Renna (7)
27 Financial Data Schedule (7)
- ------------------------------------------------------------------------------
(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 herewith.
E-1
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is entered into as of the 2nd day of
June 1998 by and between Thomas Renna ("Consultant") an individual, and
Choices Entertainment Corporation (the "Company") a Delaware corporation.
WHEREAS, the Company is interested in obtaining the consulting services
of the Consultant and Consultant is interested in performing such services
for the Company;
WHEREAS, the Company hereby engages and retains Consultant to act as its
agent to assist it in reorganizing and repositioning the Company and
analyzing various candidates for merger with the Company and developing short
term expansion and acquisition strategy.
NOW THEREFORE, in consideration of the premises, the covenants and the
conditions contained herein, the promises made hereby and other good and
valuable consideration, the receipt of which is hereby acknowledged, it is
hereby agreed as follows:
1. Consultant's services are needed, in part, because Company's
existing officers and certain directors have resigned from the
Company.
2. The Consulting fee for Consulting services shall be $10,000 per
month commencing as of the date first above written and ending as
of December 31, 1998, unless Consultant accepts employment which
renders performance hereunder impossible in which case the
agreement shall terminate as of the date of Consultant's employment.
3. Company shall accrue the fees payable to Consultant and at such
time as funds are available and not required for important
corporate purposes, pay to Consultant in amounts not less than
$10,000 per disbursement the fees accrued pursuant to this contract.
4. No amendment, alteration or modification of this Agreement shall be
valid unless each party duly executes a written instrument, and said
written instrument refers specifically to the Agreement.
5. This Agreement is made and shall be governed by and construed in
accordance with the laws of the State of Florida, without giving
affect to the principles of conflict of laws thereof. The parties
submit to the jurisdiction of the State of Florida for any action
or proceeding arising out of this Agreement and agree that the
venue for any such action shall be in Broward County, Florida.
<PAGE>
6. This Agreement and any amendment thereto may be executed
simultaneously or in two or more counterparts, each of which
together shall constitute on and the same instrument.
7. If there is any claim or controversy regarding the terms and
provisions of this Agreement, the prevailing party in any
proceeding shall be entitled to attorney's fees from the
nonprevailing party.
8. No waiver of any covenant, condition or provision of this Agreement
shall be deemed effective, unless such waiver is in writing and
signed by the party against whom such waiver is charged.
IN WITNESS HEREOF, the parties hereto have executed this Agreement as of the
day and years first written above.
By signing below, this Agreement shall be agreed upon and accepted by the
Parties hereto:
On behalf of the Company:
Choices Entertainment Corporation
By: /s/ George Pursglove
-------------------------------------
George Pursglove, Director
On behalf of Consultant:
Thomas Renna
By: /s/ Thomas Renna
-------------------------------------
Thomas Renna, an individual
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,106
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,106
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,252
<CURRENT-LIABILITIES> 63,224
<BONDS> 75,206
0
1
<COMMON> 220,044
<OTHER-SE> 21,236,035
<TOTAL-LIABILITY-AND-EQUITY> 2,252
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 45,938
<OTHER-EXPENSES> (206)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (46,144)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,144)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,144)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
