<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 14(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended February 29, 1996
-----------------
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from __________________ to __________________
Commission file number 0-21634
--------
Metro Global Media, Inc.
------------------------
(Exact name of small business issuer as specified in its chapter)
Florida 65-0025871
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1060 PARK AVENUE, CRANSTON, RHODE ISLAND 02910
-----------------------------------------------
(Address of principal executive offices)
(401) 942-7876
--------------
(Issuer's telephone number)
South Pointe Enterprises, Inc.
------------------------------
(Former name, former address and former fiscal year,
if changed since last year)
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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,473,034 as of April 29,
1996
<PAGE> 2
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<S> <C>
Balance Sheets..................................................... F-1
Statements of Income............................................... F-2
Statements of Cash Flow............................................ F-3
Statements of Cash Flow (continued)................................ F-4
Notes to Condensed Consolidated Financial Statements............... F-5 - F-7
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FOR THE THREE MONTHS ENDED FEBRUARY 29, 1996 VERSUS THREE MONTHS ENDED FEBRUARY
28, 1995
Total revenues decreased $740,023 to $4,034,143 during the three months
ended February 29, 1996 from $4,774,166 during the same period in 1995.
The decrease in revenue of 15.5% is primarily attributed to the severe
winter that adversely affected retail sales in the northeast and north
central region of the country, and the sale of the Company's three
Airborne for Men retail stores. Revenues consist principally of
sales of prerecorded videocassettes, magazines, electronic software
products and related items.
Cost of revenues (including amortization of film costs) for the nine
month period ended February 29, 1996 increased approximately 10.3% to
$2,666,323 from $2,417,172 for the corresponding period in the prior
year. Cost of revenues as a percentage of revenues was 66.1% in the
third quarter of fiscal 1996 versus 50.6% in the third quarter of
fiscal 1995. The Company's gross profit margin was negatively impacted
by the decrease in sales which affected the Company's ability to cover
its increased fixed cost, principally attributable to the amortization
of film costs which increased $200,000 over the same period in 1995.
The Company, in an attempt to increase sales and reduce inventory,
initiated a sale accepting lower than usual margins on its products.
Additionally during the quarter ended February 29, 1996, the Company
provided for an inventory allowance of $100,000 for slow moving items.
Selling, general and administrative expenses for the quarter ended
February 29, 1996, decreased 27.3% to $1,411,126 from $1,941,401 for
the quarter ended February 28, 1995. The decrease was primarily due to
the company incurring, during the third quarter 1995, one time start-up
and administrative costs associated with the Company's Arcus Media
Group subsidiary, higher personnel costs associated with the expansion
of the Rhode Island and California distribution facilities, the
adoption of a more aggressive advertising budget and non-recurring
professional, administrative and merchandising costs associated with
the Airborne for Men, Ltd. retailing and franchising subsidiary. As a
percentage of sales, selling, general and administrative expenses
decreased to 35.0% for the quarter ended February 29, 1996 from 40.7%
for the quarter ended February 28, 1995.
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Other income (expense) net increased $260,587 to $242,693 for the
quarter ended February 29, 1996 as compared to ($17,894) for the same
quarter in 1995. The increase is due to a gain on the sale of three
Airborne for Men retail stores of $289,620, an increase in other income
of $27,316, primarily royalty income, offset by an increase in interest
expense of $56,349 due to the line of credit discussed below.
Primarily as a result of the decreased revenues, net income for the
quarter ended February 29, 1996 was $145,384 ($.04 per share) as
opposed to $248,167 ($.09 per share) for the quarter ended February 28,
1995.
FOR THE NINE MONTHS ENDED FEBRUARY 29, 1996 VERSUS NINE MONTHS ENDED FEBRUARY
28, 1995
Revenues for the nine month period ended February 28, 1996 increased
12.42% to $14,246,384 from $12,671,947 for the nine months ended
February 28, 1995, further reflecting the effect of the Company's
expansion of its product lines and sales' markets. Costs of revenues
(including amortization of film costs) for the nine month period ended
February 29, 1996 were $8,542,581 in comparison to $6,918,907 for the
corresponding period in the prior year, an increase of 23.5%. The
Company's gross profit percentage for the nine month period ended
February 29, 1996 decreased to 40.0% from 45.4% for the comparative
prior fiscal period. The primary reason for the decrease was the lower
than expected sales in the third fiscal quarter and increased fixed
expenses, principally film amortization.
Selling, general and administrative expenses for the nine months ended
February 29, 1996 increased 6.2% to $5,025,995 from $4,730,637 for the
nine months ended February 28, 1995. The increase was primarily due to
higher costs associated with the expansion of the Company's product
lines and sales markets. However, as a percentage of sales, selling,
general and administrative expenses decreased by 2.0% over the same
period in the prior year.
Other income (expense) net increased $243,424 to $159,583 for the nine
months ended February 29, 1996 as compared to ($83,841) for the same
nine month period ended February 28, 1995. The primary reason for the
increase is a gain on the sale of three Airborne for Men retail stores
of $289,620, an increase in other income of $178,118 primarily royalty
and rental income, offset by an increase in interest expense of
$224,314 due to the line of credit discussed below. Net income for the
nine months ended February 29, 1996 increased to $569,736 ($.21 per
share) from $565,381 ($.22 per share) over the prior year's
corresponding period, as a result of the factors previously discussed.
LIQUIDITY AND CAPITAL RESOURCES AT FEBRUARY 29, 1996
At February 29, 1996, the Company had $312,472 in cash compared to
$67,057 in cash at May 31, 1995. Working capital increased by 67.4% to
$3,745,022 at February 29, 1996 from $2,237,665 at May 31, 1995 due to
increased inventory caused by the Company's broader product line and
anticipated sales growth needs, and accounts receivable resulting from
increased sales of all the Company's products. In addition,
management's effort to pay all operating expenditures on a timely basis
caused accounts payable to decrease substantially in fiscal 1996.
2
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Cash Flows from Operating Activities: Net cash of $789,142, a decrease
of ($1,082,687), (57%), was provided by operations for the nine months
ended February 29, 1996 as compared to $1,871,829 for the nine months
ended February 28, 1995. Net accounts receivable increased $545,275
and inventory increased $403,694 from May 31, 1995. The large increase
in the customer base of the Company's Metro, Inc. (formerly North Star
Distributors, Inc.) subsidiary, the premiering of the Arcus line to
electronic software distributors of twenty-four CD-Rom titles plus its
release of Virtual Valerie 2 late in August, and six full months of
operations for the three Airborne stores caused accounts receivable to
increase and required increased stocking of inventory. Additionally,
the increase in inventory was caused by the minimum duplication
requirements for CD-Rom products and packaging and reprinting of over
250 video titles related to the distribution of the Company's products
into the emerging international marketplace. During the first nine
months of fiscal year 1996, the Company's management began implementing
programs with respect to payment terms on accounts receivable,
warehouse distribution and inventory control to increase cash flow from
operations. The impact of these changes will primarily be reflected in
fiscal 1997. Of Metro, Inc.'s total accounts receivable at February
29, 1996, $592,800 was owed by Capital Video Corporation ("Capital"), a
chain of retail video stores of which certain affiliates of the Company
are officers or shareholders, as compared to $306,184 at February 28,
1995. Metro, Inc. has a perfected interest in the inventory of Capital.
Accordingly, no allowance for related party receivables and no related
party bad debt expense has been recorded in the Company's financial
statements. The increase in Capital Video Corporation's accounts
receivable reflects Capital Video Corporation's return to normal
payment terms.
Cash Flows from Financing Activities: Cash flows from financing
activities during the first three quarters of fiscal 1996 resulted from
borrowing from finance companies, capital leases, repayments of such
borrowing and leases, and issuances of Common Stock. Proceeds from the
issuance of Common Stock were $563,038 in the nine months ended
February 29, 1996. These proceeds consisted of the exercise of 306,916
warrants at $1.50 per share in August 1995 and the issuances of stock
to and the exercise of options by consultants to the company.
During the quarter ended May 31, 1995, Capital Video Corporation
advanced the Company $1,000,000 bearing interest at the rate of 12% to
be repaid on or before May 31, 1996. Effective June 1, 1995, Capital
Video Corporation extended the loan to July 1, 1997 and the interest
rate was increased to 15%. Effective November 30, 1995, the Company
converted this note payable to Capital Video Corporation plus accrued
interest of $95,866 to 730,568 shares of Common stock (a conversion
price of $1.50 per share). The debt to stock conversion was approved
by the Board of Directors on December 7, 1995. The shares will bear
restrictive legend but Capital has been provided with a registration
right with respect to up to 250,000 shares, exercisable upon demand.
Proceeds from borrowing were $369,466 and were primarily due to the
line of credit agreement entered into with a finance company in June,
1995.
Proceeds from borrowing were used to fund the decrease in cash flow
from operations and to fund production of new videos and films to be
released later in this fiscal year. At February 29, 1996, the Company
had entered into approximately 37 agreements with producers to finance
new feature films and videos which will be released during the forth
quarter of fiscal 1996 and in the first two quarters of fiscal 1997.
The completion of the these films and
3
<PAGE> 5
videos will require approximately $150,000 to $250,000. Financing for
these activities will be generated through earnings and profits in the
near future.
In August 1995, the Company formed Airborne East Limited Partnership
("AELP"), Rhode Island limited partnership of which AE Management
Services, Inc., a wholly-owned subsidiary of Airborne for Men, Ltd.
serves as general partner. AELP intended to seek investors to purchase
limited partnership interests and then use the proceeds to acquire (1)
an Airborne for Men franchise and (2) the assets of the Company's East
Providence, Rhode Island location. As a result of the sale of the East
Providence location, AELP abandoned its efforts to seek investors.
Cash Used in Investing Activities: Net cash used for investing
activities was $1,434,753 for the nine months ended February 29, 1996,
compared to $2,153,489 for the prior year. Cash was invested in motion
pictures and other films (entertainment programming expansion) as
discussed above, in leasehold improvements and security systems for the
Airborne stores, and in duplicating and editing equipment for the
Company's California operations. During the fiscal year 1995, the
Company embarked on two new ventures through its Airborne for Men, Ltd.
("Airborne") retail and franchising subsidiary. At May 31, 1995, the
Company had opened three Airborne for Men retail stores. Each opening
of these company owned retail locations cost approximately $270,000 and
was financed through cash flow from Metro, Inc. Effective November 30,
1995, Airborne sold to Capital Video Corporation the stock of its
wholly owned subsidiaries, Eastern Sales, Inc., a Rhode Island
corporation, and Airoldco, Inc. (formerly known as Airborne East,
Inc.), a Rhode Island corporation. Effective January 31, 1996, Airborne
sold to Capital Video Corporation the stock of A.F.M. Limited, a Rhode
Island corporation.
In connection with the November 30, 1995 transaction, Capital
Video Corporation agreed to assume the indebtedness of Airborne to
Kenneth F. Guarino evidenced by the Promissory Note of Airborne dated
September 30, 1994 (the "Airborne Note"). At November 30, 1995, the
outstanding principal balance of the Airborne Note was $292,712.80, plus
accrued interest of $26,503.22. In addition, Capital Video Corporation
agreed to assume the indebtedness of Metro, Inc. to Metro Equipment
Company evidenced by the Promissory Note of North Star Distributors,
Inc. dated June 1, 1991 (the "1/1/92 North Star/MEC Note"). At November
30, 1995, the outstanding principal balance of the 1/1/92 North Star/MEC
Note was $97,323.26, plus accrued interest of $12,530.37. In addition,
Capital Video Corporation agreed to assume a portion of the indebtedness
of Metro, Inc. to Metro Equipment Company evidenced by the Promissory
Note of North Star Distributors, Inc. dated 6/1/91 (the "6/1/91 North
Star/MEC Note"). At November 30, 1995, the outstanding principal
balance of the 6/1/91 North Star/MEC Note that Capital Video Corporation
agreed to assume was $232,893.91, plus accrued interest of $64,623.80.
In connection with the January 31, 1996 transaction, Capital Video
Corporation agreed to assume the balance of indebtedness of Metro, Inc.
under the 6/1/91 North Star/MEC Note. At January 31, 1996, the
outstanding principal balance of the 6/1/91 North Star/MEC Note that
Capital Video Corporation agreed to assume was $337,736. In addition,
Capital Video Corporation agreed to assume a portion of the
indebtedness of Metro, Inc. to Metro Plus Company evidenced by the
Promissory Note of North Star Distributors, Inc. dated June 1,
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<PAGE> 6
1991 (the "6/1/91 North Star/MPC Note"). At January 31, 1996, the
outstanding principal balance of the 6/1/91 North Star/MPC Note that
Capital Video Corporation agreed to assume was $12,625.00.
In connection with the acquisition of two other Airborne for Men retail
stores in November 1995, Capital Video Corporation, which operates a
chain of 25 retail video and magazine stores throughout New England and
upstate New York, agreed to convert 4 of its existing stores into
Airborne for Men(TM) franchises, and Airborne for Men, Ltd. agreed to
waive the franchises, and Airborne for Men(TM) franchise fees. Because
of Capital Video's extensive retail experience in the industry,
Airborne anticipates that it will be required to provide less
management, inventory control and marketing services to Capital than it
would to a less experienced franchisee; accordingly, Airborne also
agreed to reduce by 50% its standard Airborne for Men(TM) royalty fees.
In connection with the acquisition of A.F.M. Limited, Capital Video
Corporation and Airborne for Men, Ltd. agreed that the store owned by
A.F.M. Limited would constitute the first of Capital's 4 conversion
stores, and that Capital would be permitted to satisfy its remaining
obligation either by converting existing Capital Video locations or
opening new Airborne for Men(TM) locations or before December 1996.
As a result of the transaction, Airborne for Men, Ltd. anticipates that
it will have a total of 7 franchisee-owned Airborne for Men (TM)
retail stores (of which six will be owned by Capital Video Corporation)
by December 1996. The transaction reflects Airborne's desire to shift
its focus from retail store management to franchise development,
thereby permitting the company to open Airborne for Men locations
without incurring the start-up expenses associated with completing the
store buildout and compiling an opening inventory. The transaction
will also improve the Company's overall cash flow because it
significantly reduced the Company's debt service requirements and
dramatically reduced the Company's debt-to-equity ratio.
During June, 1995, Metro, Inc. (formerly known as North Star
Distributors, Inc.) entered into a line of credit agreement with a
finance company. Under the agreement, Metro, Inc. may borrow up to 70%
of assigned accounts receivable less than 90 days old, up to a maximum
of $750,000. The balance due under the line of credit bears interest
at the prime rate plus 6% per annum. In addition, Metro, Inc. pays the
finance company a collateral management or notification fee equal to
3/4 of 1% of sales submitted to the finance company for inclusion in
the net security value of accounts receivable, but not more than $7,500
per month. The outstanding balance under the line is secured by
accounts receivable of Metro, Inc. and guaranties of the Company and
certain officers/shareholders. The line of credit expires during
June 1997. As of February 29, 1996, the balance on the line of credit
was $369,466.
Management is currently negotiating a new financing arrangement with
its line of credit lenders. Upon the completion of these negotiations,
the Company anticipates that it will have increased funds available for
its use at a lower cost.
Management believes that funds provided by operations, existing and new
lines of credit, are adequate to meet the anticipated short-term and
long-term capital needs. Management believes that inflation has not
had a material effect on its operations.
5
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METRO GLOBAL MEDIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 29 MAY 31
1996 1995
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 312,472 $ 67,057
Accounts receivable, net 3,278,988 2,748,713
Inventory 4,151,640 3,847,946
Prepaid expenses and other current assets 127,233 52,872
Deferred income taxes 107,036 273,211
------------- -------------
Total current assets 7,977,369 6,989,799
Motion pictures and other films at cost, less accumulated
amortization of $4,003,287 and $2,553,900 respectively 2,442,690 2,678,142
Property and equipment at cost, less accumulated depreciation and
amortization of $895,319 and $727,133 respectively 1,523,742 1,944,930
Other assets 326,098 327,372
------------- -------------
$ 12,269,899 $ 11,940,243
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of notes payable 456,785 $ 368,001
Current portion of capital lease obligations 120,013 120,980
Accounts payable and accrued expenses 3,483,005 3,990,354
Income taxes payable 192,544 272,799
------------- -------------
Total current liabilities 4,252,347 4,752,134
Long-term liabilities
Notes payable, less current portion 342,610 2,299,039
Capital lease obligations, less current portion 627,758 427,035
Deferred income taxes 128,749 94,741
------------- -------------
1,099,117 2,820,815
Shareholders' equity
Common stock, $.0001 par value; authorized 10,000,000 shares;
issued and outstanding, 3,468,034 and 2,344,884 shares respectively 347 234
Additional paid in capital 5,301,318 3,376,276
Unearned compensation (62,500) (118,750)
------------- -------------
Retained earnings 1,679,270 1,109,534
------------- -------------
6,918,435 4,367,294
$ 12,269,899 $ 11,940,243
============= =============
</TABLE>
F - 1
(See Notes to Consolidated Financial Statements)
<PAGE> 8
METRO GLOBAL MEDIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 4,034,143 $ 4,774,166 $ 14,246,384 $ 12,671,947
Cost of revenues including amortization
of motion pictures and other films 2,666,323 2,417,172 8,542,581 6,918,907
------------ ------------ ------------- -------------
1,367,820 2,356,994 5,703,803 5,753,040
Selling, general and administration expense 1,411,126 1,941,401 5,025,995 4,730,637
------------ ------------ ------------- -------------
Income (loss) from operations (43,306) 415,593 677,808 1,022,403
Other income (expense), net 242,693 (17,894) 159,583 (83,841)
Income before taxes 199,387 397,699 837,391 938,562
Income tax expense 54,003 149,532 267,655 373,181
Net income $ 145,384 $ 248,167 $ 569,736 $ 565,381
============ ============ ============= =============
Net income per common and common
equivalent share primary $ 0.04 $ 0.09 $ 0.21 $ 0.22
============ ============ ============= =============
Weighted average number of shares
outstanding 3,334,710 2,750,859 2,751,802 2,629,505
</TABLE>
F - 2
(See Notes to Consolidated Financial Statements)
<PAGE> 9
METRO GLOBAL MEDIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $ 569,736 $ 565,381
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,695,840 1,051,717
Amortization of unearned compensation 56,250 56,250
Consulting services for common stock 51,413 330,937
Gain on sale of assets (289,620) -
Allowance for bad debts 15,000 -
Allowance for inventory obsolesence 100,000 -
(Increase) decrease in assets
Accounts receivable (545,275) (239,843)
Inventory (403,694) (1,560,302)
Prepaid expenses and other current assets (74,361) 44,394
Other assets 1,274 8,761
Deferred income taxes 166,175 -
Increase (decrease) in liabilities
Accounts payable and accrued expenses (507,349) 1,433,103
Income taxes payable (80,225) 182,929
Deferred income taxes payable 34,008 (1,489)
Total adjustments 219,406 1,306,448
------------ ------------
Net cash provided by operating activities 789,142 1,871,829
Cash flows from financing activities
Proceeds from issuance of common stock 563,038 345,000
Increase in notes payable 411,466 -
Payments on notes payable (4,923) (151,280)
Payments on capital lease obligations (78,555) (77,653)
------------ ------------
Net cash provided by financing activities 891,026 116,067
Cash flows from investing activities
Collecting of notes receivable - 413,490
Investments in motion pictures and other films (1,213,995) (1,985,061)
Purchase of property and equipment (220,758) (581,918)
------------ ------------
Net cash used in investing activities (1,434,753) (2,153,489)
Increase (decrease) in cash 245,415 (165,593)
Cash, beginning of year 67,057 351,855
Cash, end of period $ 312,472 $ 186,262
============ ============
</TABLE>
F-3
(See Notes to Consolidated Financial Statements)
<PAGE> 10
METRO GLOBAL MEDIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28
1996 1995
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 124,634 $ 54,261
Income taxes 1,107 186,500
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations of $197,232 were incurred during the period
ended February 29, 1996, when the company entered into leases for office
equipment and machinery and equipment.
During the nine months ended February 29, 1996 the Company issued common
stock with a value of $1,095,866 to extinguish a note payable to an
affiliated company, of the same value. Also the company issued 50,000
shares at an average value of $3.00 per share in compensation for
services rendered by consultants, and in exchange for retirement of trade
accounts payable.
During the nine months ended February 29, 1996 the Company sold its
Airborne For Men stores to an affiliated company in exchange for
retirement of debt of $1,076,948 owed by two of its subsidiaries to other
affiliated companies and a major shareholder.
F-4
(See Notes to Consolidated Financial Statements)
<PAGE> 11
METRO GLOBAL MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Summary of Significant Accounting Policies to Consolidated Financial
Statements
Consolidation
The consolidated financial statements include the accounts of Metro
Global Media, Inc. and its wholly-owned subsidiaries (collectively the
"Company"). All intercompany balances and transactions have been
eliminated in consolidation.
Financial Statements
The interim financial statements are prepared pursuant to the
requirements for reporting on Form 10-QSB. The May 31, 1995 balance
sheet data was derived from audited financial statements but does not
include all disclosures required by generally accepted accounting
principals. The interim financial information included herein is
unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) that are, in the
opinion of management, necessary to a fair presentation of the
financial position, results of operations, and changes in financial
position for the interim periods. The interim financial statements and
notes thereto should be read in conjunction with the financial
statements and notes included in the Company's latest annual report on
Form 10-K. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The
current period results of operations are not necessarily indicative of
results which ultimately will be reported for the full fiscal year
ending May 31, 1996.
Earnings Per Share (EPS)
Earnings per common and common equivalent share are based on the
average number of common shares outstanding during each period,
assuming exercise of all options have exercise prices less than the
average market price of the common stock using the treasury stock
method. Fully diluted computations reflect the additional dilutive
effect of using period-end prices under the treasury stock method.
Notes Payable
During June, 1995, Metro, Inc. (formerly known as North Star
Distributors, Inc.) entered into a line of credit agreement with a
finance company. Under the agreement, Metro, Inc. may borrow up to 70%
of assigned accounts receivable less than 90 days old, up to a maximum
of $750,000. The balance due under the line of credit bears interest
at the prime rate plus 6% per annum.
F-5
<PAGE> 12
In addition, Metro, Inc. pays the finance company a collateral
management or notification fee equal to 3/4 of 1% of sales submitted to
the finance company for inclusion in the net security value of accounts
receivable, but not more than $7,500 per month. The outstanding
balance under the line is secured by accounts receivable of Metro, Inc.
and guaranties of the Company and certain officers/shareholders. The
line of credit expires during June 1997. As of February 29, 1996, the
balance on the line of credit was $369,466.
Shareholders' Equity
On June 8, 1995, the Board of Directors voted to issue options to
purchase 110,000 shares of common stock to a consultant to the
Company. The options were exercisable as to 60,000 shares at $6.00 a
share starting June 8, 1995 and an additional 50,000 shares at $6.50 a
share commencing September 1, 1995. The options expired on December
29, 1995. As of December 29, 1995, options to purchase 15,000 shares
were exercised at $6.00 a share and the remainder of the options
expired. In addition, on November 9, 1995, the Board of Directors
voted to issue additional options to purchase 50,000 shares of common
stock to this same consultant. The options are exercisable at $3.50 a
share and expired on March 31, 1996. As of February 29, 1996, options
to purchase 15,000 shares had been exercised at $3.50 a share. In
February 1996, the Company issued 22,000 shares to the same consultant
for services rendered.
During August 1995, the Company issued an aggregate 306,916 shares of
common stock upon the exercise of outstanding warrants and received
aggregate proceeds of $460,524 from the exercise of said warrants.
During the quarter ended May 31, 1995, Capital Video Corporation (a
related entity) advanced the Company $1,000,000 bearing interest at the
rate of 12% to be repaid on or before May 31, 1996. Effective June 1,
1995, Capital Video Corporation extended the loan to July 1, 1997 and
the interest rate was increased to 15%. Effective November 30, 1995,
the Company converted this note payable to Capital Video Corporation
plus accrued interest of $95,866 to 730,568 shares of common stock (a
conversion price of $1.50 per share). The debt to stock conversion was
approved by the Directors on December 7, 1995. The shares bear
restrictive legend but Capital has been provided with a registration
right exercisable upon demand for up to 250,000 shares. To date, none
of these shares have been registered.
Other Transactions
Effective January 31, 1996, Airborne for Men, Ltd. sold to Capital
Video Corporation the stock of its wholly owned subsidiary A.F.M.
Limited and effective November 30, 1995, Airborne for Men, Ltd. sold to
Capital Video Corporation the stock of its wholly owned subsidiaries,
Eastern Sales, Inc., a Rhode Island corporation, and Airoldco, Inc.
(formerly known as Airborne East, Inc.), a Rhode Island corporation.
In connection with the November 30, 1995 transaction, Capital Video
Corporation agreed to assume in indebtedness of Airborne to Kenneth F.
Guarino evidenced by the Promissory Note of Airborne dated September
30, 1994 (the "Airborne Note"). At November 30, 1995, the outstanding
principal balance of the Airborne Note was $292,712.80, plus accrued
interest of $26,503.22.
F-6
<PAGE> 13
In addition, Capital Video Corporation agreed to assume the
indebtedness of Metro, Inc. to Metro Equipment Company evidenced by the
Promissory Note of North Star Distributors, Inc. dated June 1, 1991
(the "1/1/92 North Star/MEC Note"). At November 30, 1995, the
outstanding principal balance of the 1/1/92 North Star/MEC Note was
$97,323.26, plus accrued interest of $12,530.37. In addition, Capital
Video Corporation agreed to assume a portion of the indebtedness of
Metro, Inc. to Metro Equipment Company evidenced by the Promissory Note
of North Star Distributors, Inc. dated 6/1/91 (the "6/1/91 North
Star/MEC Note"). At November 30, 1995, the outstanding principal
balance of the 6/1/91 North Star/MEC Note that Capital Video
Corporation agreed to assume was $232,893.91, plus accrued interest of
$64,623.80.
In connection with the January 31, 1996 transaction, Capital Video
Corporation agreed to assume the balance of indebtedness of Metro, Inc.
under the 6/1/91 North Star/MEC Note. At January 31, 1996, the
outstanding principal balance of the 6/1/91 North Star/MEC Note that
Capital Video Corporation agreed to assume was $337,736. In addition,
Capital Video Corporation agreed to assume a portion of the
indebtedness of Metro, Inc. to Metro Plus Company evidenced by the
Promissory Note of North Star Distributors, Inc. dated June 1, 1991
(the "6/1/91 North Star/MPC Note"). At January 31, 1996, the
outstanding principal balance of the 6/1/91 North Star/MPC Note that
Capital Video Corporation agreed to assume was $12,625.00.
F-7
<PAGE> 14
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 20, 1996, the holders of 1,967,613 shares of Common Stock,
representing 57.26% of the outstanding stock of the Issuer at January 23,
1996 (the record date) consented to the following action by written consent
without a meeting:
VOTED: That name of the Corporation be changed to "Metro Global Media,
Inc." and accordingly, that the first sentence of Article I of the
Articles of Incorporation of this Corporation be amended by deleting
the first sentence of said Article I in its entirety and be inserting
the following, such that, as amended, the first sentence of Article I
shall be and shall read as follows:
The name of the Corporation shall be: METRO GLOBAL MEDIA, INC.
VOTED: That the number of authorized shares of the Common Stock of the
Corporation be reduced from 75,000,000 to 10,000,000 and, accordingly,
the first sentence of Article III of the Articles of Incorporation of
this Corporation be amended by deleting the first sentence of said
Article III in its entirety and by inserting the following, such that,
as amended, the first sentence of Article III shall be and shall read
as follows:
The maximum number of shares of stock this corporation is
authorized to have outstanding at any time shall be TWELVE
MILLION (12,000,000) SHARES, of which (i) TEN MILLION
(10,000,000) SHARES of Common Stock at ONE TENTH MIL ($0.0001)
par value per share, (ii) and TWO MILLION (2,000,000) SHARES
OF PREFERRED STOCK at ONE TENTH MIL ($0.0001) par value per
share.
VOTED: That the officers of this Corporation, and each of them,
signing and acting singly, hereby are authorized and directed, for and
in the name of the Corporation, to execute and deliver such
instruments, documents, agreements, amendments and modifications as the
officer executing the same shall approve, all on such terms as such
officer shall approve, such officer's execution and delivery thereof to
constitute conclusive evidence of such approval, and to take such
further action as the officer taking the same shall deem necessary and
desirable to effect the transactions contemplated by the foregoing
consent.
6
<PAGE> 15
VOTED: That all actions of the Board of Directors and the officers of
the Corporation heretofore taken in connection with the transactions
contemplated by the foregoing consent are hereby ratified and approved.
ITEM 5. OTHER INFORMATION
Effective January 31, 1996, Airborne for Men, Ltd., a wholly-owned
retail and franchising subsidiary of the Registrant sold 100% of the
outstanding capital stock of A.F.M. Limited, a wholly-owned subsidiary which
operated an Airborne for Men(TM) retail store, to Capital Video Corporation for
an aggregate purchase price of $350,000, payable via assumption of existing
indebtedness. The store will remain an Airborne for Men(TM) franchise
location.
Airborne for Men(TM) stores are upscale, adult-oriented establishments
decorated in a aviation-theme motif, and represent a complete departure from
traditional outlets for adult entertainment products. In addition to selling
adult video and magazine products, each Airborne for Men(TM) store sells
nationally recognized name brand men's casual clothing and personal
accessories.
In connection with the acquisition of two other Airborne for Men retail
stores in November 1995, Capital Video Corporation, which operates a chain of
25 retail video and magazine stores throughout New England and upstate New
York, agreed to convert 4 of its existing stores into Airborne for Men(TM)
franchises, and Airborne for Men, Ltd. agreed to waive the franchises, and
Airborne for Men(TM) franchise fees. Because of Capital Video's extensive
retail experience in the industry, Airborne anticipates that it will be
required to provide less management, inventory control and marketing services
to Capital than it would to a less experienced franchisee; accordingly,
Airborne also agreed to reduce by 50% its standard Airborne for Men(TM) royalty
fees. In connection with the acquisition of A.F.M. Limited, Capital Video
Corporation and Airborne for Men, Ltd. agreed that the store owned by A.F.M.
Limited would constitute the first of Capital's 4 conversion stores, and that
Capital would be permitted to satisfy its remaining three store obligation
either by converting existing Capital Video locations or opening new Airborne
for Men(TM) locations or before December 1996.
As a result of the transaction, Airborne for Men, Ltd. anticipates that
it will have a total of 7 franchisee-owned Airborne for Men (TM) retail stores
(of which six will be owned by Capital Video Corporation) by December 1996.
The transaction reflects Airborne for Men, Ltd.'s desire to shift its focus
from retail store management to franchise development.
The purchase price for A.F.M. Limited was calculated based upon the
book value of assets, which approximates fair value, of the retail store owned
by A.F.M. Limited. The transaction was ratified by a majority of the
disinterested members of the Board of Directors on May 7, 1996.
A. Daniel Geribo, a Director of the Registrant, serves as the sole
officer and director of, and Kenneth F. Guarino, President and indirect
beneficial owner of more than 50% of the Registrant's outstanding Common Stock,
also serves as the operations manager and is 100% owner of, Capital Video
Corporation. Capital Video Corporation accounted for $5,625,047 (31%),
$4,639,194 (36%) and $5,314,786 (45%) of the net sales of the Registrant, for
the fiscal years ended May 31, 1995, 1994 and 1993 respectively.
7
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
* 10.1 Capital Stock Purchase Agreement dated as of February 29, 1996
between Capital Video Corporation and A.F.M. Limited.
* 21 Subsidiaries of the Registrant
* filed herewith
(b) REPORTS ON FORM 8-K
A Form 8-K report dated November 30, 1995 was filed with the Securities and
Exchange Commission on December 11, 1995 reporting (i) the sale by Airborne For
Men, Ltd., a wholly-owned subsidiary of the Registrant, of two of its
company-owned Airborne For Men(TM) retail stores to Capital Video Corporation
for an aggregate purchase price of $670,000, payable via assumption of existing
indebtedness and (ii) the conversion by Capital Video Corporation of an
aggregate $1,095,866.36 of indebtedness owed by the Registrant (which includes
accrued interest through November 30, 1995) into an aggregate 730,568 shares of
Common Stock.
8
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
METRO GLOBAL MEDIA, INC.
(formerly known as South Pointe
Enterprises, Inc.)
May 7, 1996 By: /s/ T. James Blair
-----------------------------------
T. James Blair, Treasurer
(duly authorized principal
financial and accounting officer)
<PAGE> 1
Exhibit 10.1
<PAGE> 2
CAPITAL STOCK PURCHASE AGREEMENT
THIS CAPITAL STOCK PURCHASE AGREEMENT, dated as of the 31st day of
January, 1996, by and among Airborne For Men, Ltd., a Rhode Island corporation
having a principal place of business at One Metro Park Drive, Cranston, RI
02910 ("Seller"), and Capital Video Corporation, having a mailing address of
288 Reservoir Avenue, Cranston, RI 02910 ("Buyer").
W I T N E S S E T H:
WHEREAS, Seller is the owner of all the issued and outstanding shares
of capital stock of A.F.M. Limited, a Rhode Island corporation ("AFM");
WHEREAS, Seller is a wholly owned subsidiary of Metro Global Media,
Inc., a Florida corporation ("MGMA");
WHEREAS, Metro, Inc., a Rhode Island corporation formerly known as
North Star Distributors, Inc. ("Metro"), is another wholly owned subsidiary of
MGMA;
WHEREAS, Buyer desires to acquire, and Seller is willing to sell 100 %
of the issued and outstanding shares of the capital stock of AFM effective as
of the date hereof, for the consideration and on the terms set forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
Purchase of Capital Stock; Closing, Consideration
Section 1.1 Purchase of Capital Stock
On the basis of the representations and warranties and subject to the
terms and conditions set forth in this Agreement, Buyer agrees to acquire from
Seller, and Seller agrees to sell to Buyer for the consideration specified in
Section 1.2 hereof, on the Closing Date referred to in Section 1.3 hereof but
effective as of January 31, 1996, 100 Shares of Common Stock, $1.00 par value
per share, of AFM (the "Purchased Stock"), which Purchased Stock shall,
immediately following such purchase represent 100% of the issued and
outstanding shares of common stock, and 100% of the shares of common stock
owned by Seller, of AFM.
<PAGE> 3
Section 1.2 Consideration to be Paid
The aggregate consideration to be paid by Buyer to Seller for the
Purchased Stock shall be Three Hundred Fifty Thousand, Three Hundred Sixty One
Dollars ($350,361) payable as follows:
$337,336.00 in the form of an assumption of the balance of the
indebtedness of Metro to Metro Equipment Company
pursuant to the Promissory Note of Metro dated June
1, 1991; and
$ 12,625.00 in the form of an assumption of the balance of the
indebtedness of Metro to Metro Plus Company pursuant
to the Promissory Note of Metro dated June 1, 1991.
Section 1.3 Date, Time and Place of Closing
The Closing under this Agreement shall take place at 5:00 p.m. local
time on May 7, 1996, effective as of January 31, 1996, or such other time and
date as the parties hereto may agree upon in writing (such date being herein
referred to as the "Closing Date" and such time on such date being referred to
as the "Closing Time") at the offices of James P. Redding & Associates, 170
Westminster Street, Providence, RI 02903 or such other place as the parties
shall agree.
Section 1.4 Action to be Taken at Closing Time
Subject to the terms and conditions set forth in this Agreement, it is
agreed that at the Closing Time:
(a) Seller will deliver to Buyer certificates representing the
Purchased Stock, with stock assignments with signatures
guaranteed for transfer, free and clear of any liens, claims
and encumbrances.
(b) Buyer will deliver to Seller the consideration to be paid as
set forth in Section 1.2(a) hereinabove;
(c) The parties will execute and deliver to each other as
appropriate the certificates, agreements, opinions, records
and other documents required by the terms of this Agreement to
be delivered at the Closing Time.
<PAGE> 4
ARTICLE II
Representations and Warranties of Seller
Seller does hereby represent and warrant to Buyer as follows:
Section 2.1 Corporate Matters
AFM is, and at the Closing Time will be, a corporation duly organized,
validly existing and in good standing under the laws of the State of Rhode
Island and has and at the Closing Time will have, the power and authority to
conduct all of the activities conducted by it and to own or lease all of the
assets owned or leased by it. AFM is qualified as a foreign corporation in all
states and jurisdictions in which such qualification is required. No changes to
AFM respective Articles of Incorporation or Bylaws will be made subsequent to
the date hereof and prior to the Closing Time, without the prior written
consent of Buyer.
Section 2.2 Capitalization
AFM has heretofore validly issued and has outstanding, and at the
Closing Time will each have outstanding, fully paid and nonassessable, the
shares of Purchased Stock. The number of shares of each class of capital stock
of AFM are as listed in Exhibit A. Subsequent to the date hereof, AFM will not
issue or acquire any shares of its capital stock without Buyer's written
consent. AFM does not have outstanding, and at the Closing Time will not have
outstanding, any options to purchase or any rights or warrants to subscribe
for, or any contracts or commitments to issue or sell, shares of its capital
stock or any such warrants, convertible securities or obligations. The
stockholders listed on Exhibit B are the record and beneficial owners of all of
the issued and outstanding capital stock of AFM and there are no other owners,
beneficial or of record, of any capital stock of AFM.
Section 2.3 Authority
Seller shall have the power and authority to execute and deliver this
Agreement, to consummate the transactions hereby contemplated and to take all
other actions required to be taken by them or each of them pursuant to the
provisions hereof; and this Agreement is valid and binding upon Seller in
accordance with its terms. Neither the execution and delivery of this
Agreement nor the consummation of the transactions hereby contemplated will
constitute any violation or breach of any provision of any contract or other
instrument to which either of AFM or Seller is a party or by which any of the
assets of AFM or Seller may be affected or secured, or any order, writ,
<PAGE> 5
injunction, decree, statute, rule or regulation or will result in the creation
of any lien, charge or encumbrance on any of the assets of AFM or Seller.
Section 2.4 No omissions
Neither this Agreement nor any statement, list or certificate
furnished or to be furnished to Buyer pursuant to or in connection with this
Agreement or any of the transactions hereby contemplated contains or will
contain any untrue statement of a material fact or omits or will omit to state
a material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances in which they are made, not misleading.
Section 2.5 Correct as of Closing Time
At the Closing Time, all of the representations and warranties of
Seller contained in this Article will be true and correct at and as of the
Closing Time with the same force and effect as though made at and as of the
Closing Time, except for changes contemplated or permitted by this Agreement.
Section 2.6 No Defaults
AFM is not in default with respect to any order of any court,
governmental authority or arbitration board or tribunal to which it is a party
or is subject, and AFM is not in violation of any laws, ordinances,
governmental rules or regulations to which it is subject. AFM has obtained all
licenses, permits and other authorizations and has taken all actions required
by applicable laws or governmental regulations in connection with its business
as now conducted.
Section 2.7 Records
The corporate minute books of AFM to be delivered to Buyer at the
Closing Date shall contain true and complete copies of their respective
Articles of Incorporation, as amended to the Closing Date, Bylaws, as amended
to the Closing Date, and the minutes of all meetings of directors and
shareholders and certificates reflecting all actions taken by the directors or
shareholders without a meeting, from the date of incorporation of AFM to the
Closing Date.
Section 2.8 Officers and Directors; Bank Accounts; Powers of Attorney;
Insurance.
The officers and directors of AFM are as set forth in Exhibit C.
Exhibit C also sets forth (i) the name of each bank,
<PAGE> 6
savings institution or other person with which AFM have an account or safe
deposit box and the names and identification of all persons authorized to drawn
thereon or to have access thereto, (ii) a list of all insurance policies owned
by AFM, together with a brief statement of the coverage thereof.
Section 2.9 Financial Statements.
The unaudited balance sheet and notes thereto of AFM Sales as of May
31, 1995 (the "Year End Balance Sheet") and the unaudited balance sheet and
notes thereto of AFM as of January 31, 1996 (the "Most Recent Balance Sheet"),
the unaudited statement of operations of AFM for the year ended May 31, 1995
(the "Year End Financial Statement") and the unaudited statement of operations
of AFM for the interim period ended January 31, 1996 (the "Most Recent
Financial Statement") (collectively the "Financial Statements") fully and
fairly set forth the financial condition of AFM as of the dates indicated, and
the results of its operations for the periods indicated, in accordance with
generally accepted accounting principles consistently applied, except as
otherwise stated therein.
Section 2.10 Undisclosed Liabilities
AFM has no liabilities or obligations whatsoever, either accrued,
absolute, contingent or otherwise, which are not reflected or provided for in
the Financial Statements except those arising after the date of its Most Recent
Balance Sheet which are in the ordinary course of business, in each case in
normal amounts and none of which is materially adverse.
Section 2.11 Absence of Certain Changes or Events Since the Date of the
Most Recent Balance Sheet.
Since the date of the Most Recent Balance Sheets, AFM has not:
(i) incurred any obligation or liability (fixed or contingent),
except normal trade or business obligations incurred in the ordinary
course of business and consistent with past practice, none of which is
materially adverse, and except in connection with this Agreement and
the transactions contemplated hereby;
(ii) discharged or satisfied any lien, security interest or
encumbrance or paid any obligation or liability (fixed or contingent),
other than in the ordinary course of business and consistent with past
practice;
(iii) mortgaged, pledged or subjected to any lien, security interest
or other encumbrance any of its assets or
<PAGE> 7
properties (other than mechanic's, materialman's and similar statutory
liens arising in the ordinary course of business and purchase money
security interests arising as a matter of law between the date of
delivery and payment);
(iv) transferred, leased or otherwise disposed of any of its assets
or properties except for a fair consideration in the ordinary course
of business and consistent with past practice or, except in the
ordinary course of business and consistent with past practice,
acquired any assets or properties;
(v) canceled or compromised any debt or claim, except in the ordinary
course of business and consistent with past practice;
(vi) waived or released any rights of material value;
(vii) transferred or granted any rights under any concessions, leases,
licenses, agreements, patents, inventions, trademarks, trade names,
service marks or copyrights or with respect to any know-how;
(viii) made or granted any wage or salary increase to any employee,
entered into any employment contract with, or made any loan to, or
entered into any material transaction of any other nature with, any
officer or employee of AFM;
(ix) entered into any material transaction, contract or commitment,
except (i) contracts listed on Exhibit E hereto and (ii) this
Agreement and the transactions contemplated hereby;
(x) suffered any casualty loss or damage (whether or not such loss or
damage shall have been covered by insurance) which affects in any
material respect its ability to conduct business; or
(xi) declared any dividends or bonuses, or authorized or affected any
amendment or restatement of the Articles of Incorporation or Bylaws of
AFM or taken any steps looking toward the dissolution or liquidation
of AFM.
Between the date of this Agreement and the Closing Date, the Seller will not
cause AFM to do, without the prior written consent of Buyer, any of the things
listed in subsections (i) through (xi) above.
<PAGE> 8
Section 2.12 Taxes
AFM (i) has duly and timely filed or caused to be filed all federal,
state, local and foreign tax returns (including, without limitation,
consolidated and/or combined tax returns) required to be filed by it prior to
the date of this Agreement which relate to it or with respect to which it or
its assets or properties are liable or otherwise in any way subject, (ii) has
paid or fully accrued for all taxes shown to be due and payable on such returns
(which taxes are all the taxes due and payable under the laws and regulations
pursuant to which such returns were filed), and (iii) has properly accrued for
all such taxes accrued in respect of it or its assets and properties for
periods subsequent to the periods covered by such returns. No deficiency in
payment of taxes for any period has been asserted by any taxing body and
remains unsettled at the date of this Agreement.
Section 2.13 Title to Shares
The Purchased Shares are duly authorized, validly issued, fully paid
and nonassessable and are owned by the Seller, free and clear of all liens,
encumbrances, charges, assessments and adverse claims. The Shares are subject
to no restrictions with respect to transferability to Buyer in accordance with
the terms of this Agreement. Upon transfer of the Purchased Shares by the
Seller, Buyer will, as a result, receive good and marketable title to all the
Purchased Shares, free and clear of all security interests, liens,
encumbrances, charges, assessments, restrictions and adverse claims.
Section 2.14 Title to Property and Assets.
AFM has good and marketable title to all of the properties and assets
used by it in the conduct of its business (including, without limitation, the
properties and assets reflected in the Financial Statements except any thereof
since disposed of for value in the ordinary course of business) and none of
such properties or assets is, except as disclosed in the Financial Statements,
subject to a contract of sale not in the ordinary course of business, or
subject to security interests, mortgages, encumbrances, liens or charges of any
kind or character.
Section 2.15 Condition of Personal Property
All tangible personal property, equipment, fixtures and inventories
included within the assets of AFM or required to be used in the ordinary course
of its business are in good, merchantable or in reasonably repairable condition
and are suitable for the purposes for which they are used. No value in excess
of applicable reserves has been given to any inventory with respect to obsolete
or discontinued products. All of the inventories and equipment, including
equipment leased to others, are well maintained and in good operating
condition.
<PAGE> 9
Section 2.16 Real Estate.
Exhibit D contains a list of all real property owned by AFM or in
which AFM has a leasehold or other interest and of any lien, charge or
encumbrance thereupon. Exhibit D also contains a substantially accurate
description identifying all such real property and the significant rental terms
(including rents, termination dates and renewal conditions). The improvements
upon such properties and use thereof by AFM conforms to all applicable lease
restrictions, zoning and other local ordinances.
Section 2.17 List of Contracts and Other Data.
Exhibit E sets forth the following:
(i) all computer software, patents and registrations for trademarks,
trade names, service marks and copyrights which are unexpired as of
the date of this Agreement and which are used in connection with the
operation of AFM, as well as all applications pending on said date for
patents or for trademark, trade name, service mark or copyright
registrations, and all other proprietary rights, owned or held by AFM
and which are reasonably necessary to, or used in connection with, the
business of AFM;
(ii) all licenses granted by or to AFM and all other agreements to
which AFM is a party and which relate, in whole or in part, to any
items of the categories mentioned in (i) above or to other proprietary
rights of AFM which are reasonably necessary to, or used in connection
with, the respective businesses of AFM;
(iii) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, profit-sharing
plans, deferred compensation agreements, employee pension or
retirement plans, employee stock purchase and stock option plans,
group life insurance, hospitalization insurance or other plans or
arrangements providing for benefits to employees of AFM;
(iv) all contracts, understandings and commitments (including, without
limitation, mortgages, indentures and loan agreements) to which AFM is
a party, or to which it or any of its assets or properties are subject
and which are not specifically referred to in subsections (i) through
(iii) above.
(v) the names and current annual compensation rates of all management
employees of AFM; and
(vi) all customer backlog which is represented by firm purchase
orders, identifying the customers, products and purchase prices.
<PAGE> 10
True and complete copies of all documents and complete descriptions of all oral
understandings, if any, referred to in this Section have been provided or made
available to Buyer and its counsel.
Section 2.18 Labor Controversies
AFM is not a party to any collective bargaining agreement. There are
not any controversies between AFM and any of its employees which might
reasonably be expected to materially adversely affect the conduct of its
business, or any unresolved labor union grievances or unfair labor practice or
labor arbitration proceedings pending or threatened relating to its business,
and there are not any organizational efforts presently being made or threatened
involving any of its employees. AFM has not received notice of any claim that
it has not complied with any laws relating to the employment of labor,
including any provisions thereof relating to wages, hours, collective
bargaining, the payment of social security and similar taxes, equal employment
opportunity, employment discrimination and employment safety, or that it is
liable for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing.
Section 2.19 Litigation
There are no actions, suits or proceedings with respect to Seller or
AFM involving claims by or against the Seller or AFM which are pending or
threatened against the Seller or AFM, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality. No basis for any action, suit or proceeding
exists, and there are no orders, judgments, injunctions or decrees of any court
or governmental agency with respect to which the Seller or AFM has been named
or to which the Seller or AFM is a party, which apply, in whole or in part, to
the business of AFM, or to any of the assets or properties or AFM or which
would result in any material adverse change in the business or prospects of
AFM.
ARTICLE III
Additional Agreements of Seller and Buyer
Section 3.1 Access to Books and Records
Seller covenants and agrees that Buyer and its representatives will be
permitted full access to, and will be permitted to make copies of or abstracts
from, all of the books and records of AFM, will have full access to the
premises and physical properties of AFM at all reasonable times upon reasonable
notice thereof to AFM and will be permitted to discuss the affairs, finances
and accounts of AFM with its directors, officers, counsel and accountants.
<PAGE> 11
Section 3.2 No Change in Business
Between the date of this Agreement and the Closing Date, the parties
agree that the business of AFM shall be conducted only in the ordinary course.
Seller shall use its best effort between the date of this Agreement and the
Closing Date to preserve AFM's business organization, to keep available the
services of AFM's present officers and employees, and to preserve the good will
of AFM's suppliers, customers and others having business relations with it.
Section 3.4 Conversion of Buyer's Stores
(a) Buyer and Seller agree that the retail stores currently
operated by AFM will remain an Airborne For Men(TM) retail store and that, as
soon as reasonably practical, Seller and AFM will enter into Seller's standard
Airborne For Men(TM) Franchise Agreement with respect to their respective
stores; provided, however, Seller agrees to waive the standard Airborne For
Men(TM) franchise fees and to reduce by 50% its standard Airborne For Men(TM)
royalty fees with respect to said stores.
(b) Buyer and Seller acknowledge that, pursuant to Section 3.4 of
the Capital Stock Purchase Agreement dated November 30, 1995, Buyer agreed to
convert 4 of its existing stores into Airborne For Men(TM) franchises as shall
be mutually agreed between Buyer and Seller. Buyer and Seller agree that the
Airborne For Men(TM) retail store owned by AFM shall constitute the first of
Buyer's four stores, and that Buyer shall be permitted to satisfy its remaining
obligation by either converting existing stores owned by Buyer into, or by
opening new, Airborne For Men(TM) retail stores on or before December 31, 1996.
Buyer and Seller agree to enter into Seller's standard Airborne For Men(TM)
Franchise Agreements with respect to each of said stores; provided, however,
Seller agrees to waive the standard Airborne For Men(TM) franchise fees and to
reduce by 50% its standard Airborne For Men(TM) royalty fees with respect to
said stores.
ARTICLE IV
Conditions to Obligations of Buyer
The obligations of Buyer to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the
Closing Time of each of the following conditions, any or all of which may be
waived in whole or in part by Buyer:
Section 4.1 Representations and Warranties True and Correct
The representations and warranties contained in Article II hereof
expressly made as of the Closing Time, and all of the other representations and
warranties contained in said Article II
<PAGE> 12
shall be true and correct in all material respects at and as of the Closing
Time as though such representations and warranties were made at and as of the
Closing Time.
Section 4.2 Compliance with All Agreements
AFM and Seller shall have performed and complied with all agreements
and conditions on their part required by this Agreement to be performed or
complied with prior to or at the Closing Time.
Section 4.3 Closing Certificate
Buyer shall have received:
(a) certificate of the Seller dated the Closing Date, certifying
to the fulfillment of the conditions specified in Sections 4.1
and 4.2 of Article IV (to the extent this Agreement is signed
prior to the Closing Time; and
(b) such other evidence with respect to the fulfillment of any
said conditions as Buyer may reasonably request upon
reasonable prior notice.
Section 4.4 No Action
There shall be no action, suit or other proceeding pending or
threatened before any court or before or by any governmental agency in which it
is sought to restrain, prohibit, invalidate or set aside in whole or in part
the consummation of this Agreement or the transactions contemplated hereby or
to obtain substantial damages in connection herewith.
Section 4.5 No Material Adverse Change
There shall have been no material adverse change since the date of the
Most Recent Balance Sheet of AFM in the financial condition, business or
affairs of AFM, AFM shall not have suffered any material loss (whether or not
insured) by reason of physical damage caused by fire, earthquake, accident or
other calamity which substantially affects the value of its assets, properties
or business, and Buyer shall have received a certificate of the Seller dated
the Closing Date to such effect.
Section 4.6 Required Certificates
Seller shall have delivered to Buyer Certificates of the Secretary of
State of Rhode Island and the Division of Taxation certifying as of a date
reasonably close to the Closing Date that AFM has filed all required reports,
paid all required fees and taxes, and is, as of such date, in good standing and
authorized to transact business as a domestic corporation.
<PAGE> 13
Section 4.7 Resignations
Seller shall have delivered the written resignations, effective on the
Closing Date, of the Board of Directors, officers and employees of AFM as may
be appropriate or reasonably required.
Section 4.8 Certificates and Transfer Powers
Seller shall have delivered to Buyer certificates and other
instruments representing the Shares to be purchased by Buyer, duly endorsed for
transfer or accompanied by appropriate stock powers, together with all other
documents necessary or appropriate to validly transfer the Purchased Shares to
Buyer free and clear of all security interests, liens, encumbrances and adverse
claims.
Section 4.9 Due Diligence
Neither any investigation of AFM nor the Schedules attached hereto or
any supplement thereto nor any other document delivered to Buyer as
contemplated by this Agreement, shall have revealed any facts or circumstances
which, in the sole and exclusive judgment of Buyer and regardless of the cause
thereof, reflect in an adverse way on AFM or its financial condition, assets,
liabilities (absolute, accrued, contingent or otherwise), reserves, business,
operations or prospects.
Section 4.10 Consents
The approval and all consents from third parties and governmental
agencies required to consummate the transactions contemplated hereby shall have
been obtained.
Section 4.11 Absence of Litigation
No suit, action, investigation, inquiry or other proceeding y any
governmental body or other person or legal or administrative proceeding shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby.
Section 4.12 No injunction
As of the Closing Date, there shall be no effective injunction,
writ, preliminary restraining order or any order of any nature issued by a
court of competent jurisdiction directing that the transactions provided for
herein or any of them not be consummated as so provided or imposing any
conditions on the consummation of the transactions contemplated hereby, which
is unduly burdensome on AFM.
<PAGE> 14
ARTICLE V
Conditions to Obligations of Seller
The obligations of Seller to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the
Closing Time of each of the following conditions, any or all of which may be
waived in whole or in part by Seller:
Section 5.1 Representations and Warranties True and Correct
All representations and warranties of Buyer contained in this
Agreement shall be true and correct at and as of the Closing Date, Buyer shall
have performed all agreements and covenants and satisfied all conditions on
its part to the performed or satisfied by the Closing Date pursuant to the
terms of this Agreement, and the Seller shall have received a certificate of
Buyer dated the Closing Date to such effect.
Section 5.2 Consents Received
The approval and all consents from third parties, including without
limitation the Board of Directors of Seller, MGMA and governmental agencies,
required to consummate the transactions contemplated hereby shall have been
obtained.
Section 5.3 No Litigation
No suit, action, investigation, inquiry or other proceeding by any
governmental body or other person or legal or administrative proceeding shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby.
Section 5.4 No Injunction
As of the Closing Date, there shall be no effective injunction, writ,
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction directing that the transactions provided for herein or
any of them not be consummated as so provided or imposing any conditions on the
consummation of the transactions contemplated hereby, which is unduly
burdensome on Buyer.
ARTICLE VI
Indemnity
Section 6.1 Indemnity
Seller agrees to indemnify and hold harmless Buyer and AFM against any
payment, loss, cost or expense (including reasonable attorney's fees) made or
incurred by or asserted against Buyer and/or AFM at any time after the Closing
Date in respect of any omission, misrepresentation, breach of warranty, or
<PAGE> 15
nonfulfillment of any term, provision, covenant or agreement on the part of
the Seller contained in this Agreement, or from any misrepresentation in, or
omission from, any certificate or other instrument furnished or to be
furnished pursuant to this Agreement.
ARTICLE VII
Other Agreements
Section 7.1 Survival of Representations.
All of the respective representations, warranties and agreements of
the parties hereto shall survive consummation of the transactions contemplated
by this Agreement.
ARTICLE VIII
General Provisions
Section 8.1 Extension or Waiver
The parties hereto may extend the time for or waive the performance of
any of the obligations of the other, waive any inaccuracies in the
representations or warranties of the other, or waive compliance by the other
with any of the covenants or conditions contained in this Agreement. Any such
extension or waiver shall be in writing and signed by a duly authorized
officer of the extending or waiving party.
Section 8.2 Notice
Any notice to a party hereto pursuant to this Agreement shall be given
by certified or registered mail or by hand, addressed to their respective
addresses set forth above, or to such other address as may be designated in
writing by either party from time to time in accordance herewith, and shall be
deemed delivered when placed in the mails so addressed, with postage prepaid.
Section 8.3 Agreement Not Assignable
This Agreement shall not be assignable, shall inure to the benefit of,
and be binding on and enforceable against the parties and their respective
successors and assigns,
Section 8.4 Duplicate Originals
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Section 8.5 Confidentiality
Any confidential information obtained by either party hereto from the
other shall not be disclosed or used by any such party should the transaction
not be effected and each party shall
<PAGE> 16
return to the other all documents and written information obtained from such
other party as such other party's counsel may request in writing.
Section 8.6
This Agreement shall be governed by and construed in accordance with
the law of the State of Rhode Island applicable to contracts made and to be
performed therein and cannot be changed or terminated orally, but only in
writing duly signed on behalf of both parties, as otherwise provided in this
Agreement.
Section 8.7
The parties shall bear their own expenses with respect to the
transactions contemplated by this Agreement.
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Airborne For Men, Ltd.
By:/s/ Dennis Nichols
- ------------------------- -------------------------
Witness Dennis Nichols, President
Capital Video Corporation
By:/s/ A. Daniel Geribo
- ------------------------- -------------------------
Witness A. Daniel Geribo, President
<PAGE> 18
List of Exhibits
A Capital Stock
B Shareholders
C Officers and Directors, Bank Accounts, etc.
D Real Estate
E Contracts and Other Data
<PAGE> 19
Exhibit A
Capital Stock
<TABLE>
<CAPTION>
No. of Shares
No. of Shares issued and
Class Authorized outstanding
- ----- ------------- ------------
<S> <C> <C>
Common Stock 8,000 100
$1.00 par value
</TABLE>
<PAGE> 20
Exhibit B
Shareholders
<TABLE>
<CAPTION>
Certificate No. Shareholder No. of Shares
- --------------- ----------- -------------
<S> <C> <C>
1 Airborne For Men, Ltd. 100
</TABLE>
<PAGE> 21
Exhibit C
Officers and Directors, Bank Accounts, etc.
Directors: Dennis Nichols
Officers:
President Dennis Nichols
Treasurer Thomas Blair
Secretary Dennis Nichols
Bank Accounts: previously provided
<PAGE> 22
Exhibit D
Real Estate
A.F.M. Limited leases approximately 6083 square feet of space at 15 Belmont
Street (Route 9), Northboro, MA pursuant to a Lease dated January, 1995 by and
between Michael Wade and Airborne Northboro, Inc. (know know as A.F.M.
Limited).
<PAGE> 23
Exhibit E
Contracts and Other Data
1. Lease dated January, 1995 by and between Michael Wade and Airborne
Northboro, Inc. (know know as A.F.M. Limited).
<PAGE> 1
Exhibit 21
<PAGE> 2
Exhibit 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name(s) Under Which
State of Subsidiary
Name of Subsidiary Incorp. Does Business
- ------------------ -------- -------------------
<S> <C> <C>
Airborne For Men, Ltd. RI Airborne For Men
Abos, Inc.(1) RI none (inactive)
Arcus Media Group, Inc. RI none (inactive)
AE Management Services, Inc.(2) RI none (inactive)
Metro, Inc. RI Metro Home Video
(formerly known as
North Star Distributors, Inc.)
Ultracolor Publications, Inc.(3) RI Ultracolor Publications
Madison Publications
</TABLE>
- -------------------
(1) Abos, Inc. is a wholly-owned subsidiary of Airborne For Men, Ltd.
(2) AE Management Services, Inc. is a wholly-owned subsidiary of Airborne
For Men, Ltd.
(3) Ultracolor Publications, Inc. is a wholly-owned subsidiary of North
Star Distributors, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 312,472
<SECURITIES> 0
<RECEIVABLES> 3,278,988
<ALLOWANCES> 0
<INVENTORY> 4,151,640
<CURRENT-ASSETS> 7,977,369
<PP&E> 1,523,742
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,269,899
<CURRENT-LIABILITIES> 4,252,347
<BONDS> 970,368
0
0
<COMMON> 347
<OTHER-SE> 6,918,088
<TOTAL-LIABILITY-AND-EQUITY> 12,269,899
<SALES> 14,246,384
<TOTAL-REVENUES> 14,246,384
<CGS> 8,542,581
<TOTAL-COSTS> 8,542,581
<OTHER-EXPENSES> (159,583)<F1>
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 224,314
<INCOME-PRETAX> 837,391
<INCOME-TAX> 267,655
<INCOME-CONTINUING> 569,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569,736
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<FN>
<F1>Other expenses is a net number includes interest expense
</FN>
</TABLE>
