<PAGE>
UNITED STATES
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, 2000
[ ] 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
- --------------------------------------------------------------------------------
(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)
121 Vine Street, Suite 1903 Seattle, Washington 98121-1456
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip code)
Issuer's Telephone Number, Including Area Code
(206) 443-6948
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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 March
30, 2000:
29,274,355
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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PART I - FINANCIAL INFORMATION
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<CAPTION>
Item 1. Financial Statements
Index to Financial Statements Page
<S> <C>
Condensed Balance Sheet at March 31, 2000
(Unaudited) 2
Condensed Statements of Income for the
Three Months Ended March 31, 2000 and 1999 (Unaudited) 3
Condensed Statement of Stockholders' Deficit for the
Three Months Ended March 31, 2000 (Unaudited) 3
Condensed Statements of Cash Flow for the
Three Months Ended March 31, 2000 and 1999 (Unaudited) 4
Notes to the Unaudited Condensed Financial Statements 4
Item 2. Management Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 6. Exhibit Index 9
</TABLE>
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
CHOICES ENTERTAINMENT CORPORATION
CONDENSED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
March 31, 2000
--------------
<S> <C>
ASSETS
Current assets:
Cash $ 71,781
------------
Total current assets 71,781
Other assets
Prepaid expense and misc. 464
Non-marketable securities - net at cost 467,215
------------
Total assets $ 539,460
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expense $ 175,233
Notes payable-current 297,000
-----------
Total current liabilities 472,233
------------
Total liabilities 472,233
Stockholders' deficit:
Preferred stock, par value $.01 per share:
Authorized 5,000 shares: 478.829
issued and outstanding 4
Common stock, par value $.01 per share:
Authorized 50,000,000 shares: 29,315,235 issued
And outstanding 293,152
Additional paid-in-capital 22,276,035
Accumulated deficit (22,501,961)
------------
Total stockholders' deficit 67,227
------------
$ 539,460
============
</TABLE>
See accompanying notes to financial statements.
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CHOICES ENTERTAINMENT CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
2000 1999
-------- --------
<S> <C> <C>
Operating costs and expenses:
Selling and administrative expense $ 26,711 $ 8,152
Professional and consulting expense 163,510 37,786
-------- --------
190,221 45,938
-------- --------
Other expenses:
Merger and Acquisition Expense 27,000 -0-
Interest (income) expense, cash-net (587) 206
Issuance of stock in lieu of interest expense 14,000 -0-
-------- --------
Income from continuing operations (230,634) (46,144)
-------- --------
Gain on reconciliation of accruals 115,576 -0-
-------- --------
Net income $(115,058) $(46,144)
======== ========
Net loss per share of common stock:
Basic income per share:
Continuing operations $ (0.01) $ -0-
Net income -0- -0-
======== ========
Diluted income per share:
Continuing operations $ (0.01) $ -0-
Net income -0- -0-
======== ========
</TABLE>
CONDENSED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Three Months Ended March 31, 2000
(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>
Balance at December 31, 1999:
109.1 $1 28,504,395 $285,044 $21,496,035 $(22,386,903) $(605,823)
Issuance of preferred stock in exchange for debt and cash:
390 $3 779,997 - 780,000
Issuance of common stock on
conversion of preferred stock
(20.271) - 810,840 8,108 - - 8,108
Net loss for the three months
ended March 31, 2000: (115,058) (115,058)
- --- -- ---------- -------- ----------- ------------ ---------
478.829 $4 29,315,235 $293,152 $22,276,035 $(22,501,961) $ 67,227
- -------------------------------------------------------------------------------
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</TABLE>
See accompanying notes to financial statements.
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CHOICES ENTERTAINMENT CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(115,058) $(46,144)
-------- --------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Change in assets and liabilities:
Change in accounts payable
and accrued expense (200,703) (5,000)
Change in accrued merger and acquisition
expenses 27,000 (50,000)
Change in accrued professional fees - (20,970)
Change in other accrued expenses (4,570) 5,000
-------- --------
Total adjustments (178,273) (29,030)
-------- --------
Net cash provided by (used in) operating activities (293,331) (75,174)
-------- --------
Cash flows from investing activities:
Purchase of non-marketable securities (467,215) -0-
-------- --------
Net cash provided by (used in) investing activities (467,215) -0-
-------- --------
Cash flows from financing activities:
Proceeds from notes payable 297,000 75,000
Repayment of notes payable (250,000) -0-
Issuance of preferred stock
for cash and in exchange for
notes payable 780,000 -0-
Other long-term liabilities (14,167) 206
-------- --------
Net cash provided by (used in) financing activities 812,833 75,206
-------- --------
Net increase (decrease) in cash 52,287 32
Cash at beginning of period 19,494 2,074
-------- --------
Cash at end of period $ 71,781 $ 2,106
======== ========
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $ 167 $ -0-
======== ========
</TABLE>
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1. Financial Statements
Quarterly Financial Statements:
The accompanying unaudited financial statements for the three-month
period ended March 31, 2000 and 1999 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, 2000, are not
necessarily indicative of the results to be expected for the full
year.
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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,
2000 and March 31, 1999 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, 2000 and 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 result of the conversion of the Company's preferred
stock.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Number of shares used in calculation
Basic 24,489,387 22,004,000
Diluted 28,853,327 26,364,395
</TABLE>
Cash and Cash Equivalents
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.
Securities
Marketable securities are carried at lower of cost or market.
Non-marketable securities are carried at cost.
Note 3. Liquidity
The Company continues to rely on borrowing and capital raising
activities to provide funds for its operating and investing
activities. The Company's viability for the foreseeable future is and
will continue to be dependent upon its ability to find 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. Notes Payable
The Company has been dependent on borrowing for operating capital. The
Company has borrowed $297,000 as of the quarter ending March 31, 2000.
The notes mature on or before June 29, 2000 and bear interest at 12%
per annum, compounded annually, interest and principal payable at
maturity.
Note 5. Related Party Transactions
In August 1999, the Company's Board of Directors passed a resolution
expressly recognizing the obligation of the Company to compensate each
of Jim Sink, George Pursglove, Thomas Renna and Tracy Shier for
services rendered and to be rendered to the Company in connection with
the change of control of the Company and the
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maintenance of it as an existing, reporting corporation. Pursuant to
that resolution, the Board fixed the obligation to each of the named
individuals at $120,000 and gave each the option to take some part or
that entire amount in securities of the Company. On December 29, 1999
the Board of Directors of the Company passed a resolution instructing
the Company's transfer agent to issue restricted shares of the
Company's common stock to the named individuals, in an amount of
shares and in exchange for release of an amount of the Company's
obligation as follows: Jim Sink--2,400,000 shares--$120,000; George
Pursglove--1,200,000 shares--$60,000; Thomas Renna--1,200,000
shares--$60,000; and Tracy Shier--1,200,000 shares--$60,000. At or
about the time of the adoption of the December 29th resolution, the
price of the stock was approximately $.05 per share.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is our 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 our liquidity and capital resources at March 31, 2000 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 Board of Directors (the "Board") of Choices Entertainment
Corporation (the "Company" or "We") adopted a proposal on January 17,
2000 to change the business of the Company to that of a technology
holding company. We are acquiring, investing in, and incubating
companies engaged in Internet, computing and other technologies in
various stages of development.
We have acquired securities issued by publicly traded
Photochannel Networks Inc. In January 2000, the Company subscribed to
a private placement of CAN$2,300,000 principal amount of Convertible
Subordinated Redeemable 0% Debentures maturing April 30, 2000 (the
"Debentures") issued by PhotoChannel Networks Inc., a British
Columbia corporation ("Photochannel"). The subscription agreement
calls for advances to Photochannel in exchange for the issuance of
Debentures as follows: CAN$350,000 by January 31, 2000; CAN$750,000
by February 29, 2000; and CAN$1,200,000 by April 14, 2000. The
Debentures are convertible into Photochannel common stock, no par
value, ("Photochannel Stock")at the rate of 1 share of Photochannel
Stock for each CAN$.50 in debenture principal amount. Also, the
company was granted warrants pursuant to a vesting schedule to
purchase additional shares of Photochannel Stock as follows: 140,000
warrants with an exercise price of CAN$.75; 300,000 warrants with an
exercise price of CAN$1.00; and 480,000 warrants with an exercise
price of CAN$1.25. Each warrant entitles the Company to purchase 1
share of Photochannel Stock at the exercise price, for cash. The
warrants are presently fully vested and will expire June 30, 2000. As
of the date of the filing of this report on Form 10KSB, the Company
had completed its obligations under the subscription agreement and
has converted the Debentures to common stock. All of the securities
acquired in this transaction as well as the securities into which the
securities acquired are convertible or exercisable against are
restricted securities ad must be held for the applicable holding
period from the date of conversion or exercise, as the case may be.
The applicable holding period in most cases will be 1 year.
We have acquired securities of non-publicly traded Tridium
Research, Inc. In March 2000, the Company paid $50,000 cash to
acquire 250,000 shares of common stock of Tridium Research Inc., a
Washington corporation ("Tridium") based in Kirkland, Washington. The
250,000 shares of common stock acquired represents approximately 5%
of all
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Tridium common stock issued and outstanding. The Company has also
obligated itself to provide an additional $200,000 to Tridium, upon
terms and conditions to be determined.
The Company generated no revenues during the three-months ended
March 31, 2000. The primary source of funds for the quarter was the
completion of a private placement of the Company's Series C Preferred
Stock (the "Preferred Stock") and shareholder loans.
In February 2000, the Company closed a self-offered private
offering of 390 shares of the Company's Preferred Stock in the
aggregate offering amount of $780,000. Offering expenses were less
than $3,000. Each share of the Preferred Stock is convertible into
40,000 shares of the Company's common stock and carries the voting
rights of the underlying common stock. The proceeds from
this offering were used to retire all notes payable, to pay down the
obligations of the Company to officers and directors of the Company,
to pay down accounts payable to an immaterial amount, and to acquire
interests in the two companies identified above.
The Company paid down $250,000 of notes outstanding as a result
of the private placement discussed above but borrowed $297,000 at an
interest rate of 12%.
We anticipate that the Company will not generate any significant
revenues until the we accomplish our business objective of merging or
acquiring revenue producing assets from a nonaffiliated entity. We
presently have no liquid financial resources to offer an acquisition
candidate and must rely upon an exchange of our stock to complete a
merger or acquisition.
Between December 31, 1999 and March 31, 2000 the Company incurred
a net loss on continuing operations of $(230,634) resulting in a net
working capital deficiency of approximately $400,452 as of March 31,
2000.
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 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.
We estimate that outstanding liabilities of the Company are
approximately $138,000 and cash in the bank is approximately $17,218.
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
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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
The Company is a defendant to the lawsuit Dion Signs & Service, Inc.
vs. Choices Entertainment Corporation, Civil Action No. 91-6871. The case is now
pending in the Providence County Superior Court, Providence, Rhode Island. Dion
Signs & Service, Inc. alleges that it is owed approximately $33,000 plus
interest, costs and reasonable attorney's fees for the failure by Choices
Entertainment Corporation to pay for signage that was erected at various
locations pursuant to a contract. The Company is advised that pre-judgment
interest on the claim accrues from the date the cause of action arose and that
the amount of pre-judgment interest could approximate the amount of the claim,
or approximately $33,000. The Company is further advised that the case has not
been set for trial, there has been very little discovery, and that it is not
possible to determine the likelihood of the outcome of this case at this time.
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: May 15, 2000 By:
/s/ Tracy M. Shier
-------------------------------------
Tracy M. Shier, Director, President and
Interim Chief Financial Officer
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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 (8)
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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-KSB for the
year ended December 31, 1999 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.
(8) Filed herewith.
(9) To be filed by amendment.
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 71,781
<SECURITIES> 467,215
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,781
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 539,460
<CURRENT-LIABILITIES> 472,233
<BONDS> 297,000
0
4
<COMMON> 293,152
<OTHER-SE> 21,236,035
<TOTAL-LIABILITY-AND-EQUITY> 539,460
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 190,221
<OTHER-EXPENSES> 30,413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (587)
<INCOME-PRETAX> (230,634)
<INCOME-TAX> 0
<INCOME-CONTINUING> (230,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (115,058)
<EPS-BASIC> .01
<EPS-DILUTED> 0
</TABLE>
