SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
(Amendment No. 1)
Check the appropriate box:
[ X ] Preliminary Information Statement
[ ] Definitive Information Statement
PLAYORENA INC.
(Name of Registrant As Specified In Charter)
PLAYORENA INC.
(Name of Person(s) Filing the Information Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
[ X ] Fee computed on table below per Exchange Act Rules 14c-5(g) and
0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $.001 par value
Common Stock Purchase Warrants
2) Aggregate number of securities to which transaction applies:
12,762,910 shares of Common Stock
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
The transaction that is the subject of this Information Statement
contemplates the sale of substantially all of the assets of Playorena Inc. in
exchange for the transfer to Playorena Inc. of 1,041,800 shares of its common
stock (valued at $.04 per share based on the average high and low bid and asked
prices on November 30, 1995) and the assumption of liabilities totalling
approximately $446,360. The transaction is therefore valued at $488,032 and the
filing fee equals $97.61.
4) Proposed maximum aggregate value of transaction:
$488,032
[ X ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $97.61
2) Form, Schedule or Registration Statement No.: Schedule 14C
3) Filing Party: Playorena Inc.
4) Date Filed: December 15, 1995
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PLAYORENA INC.
Notice of Special Meeting of Shareholders
November __, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Playorena
Inc., a New York corporation (the "Company"), will be held at 10:00 A.M. on
November __, 1996 at the offices of Kreinik Aaron & Gersh, LLP, 780 Third
Avenue, New York, NY 10017, to consider and act upon the following matters:
1. Adopt and approve as a single transaction a proposal providing for
(a) the sale by the Company of substantially all of its assets to an entity
to be formed by Michael and Susan Astor, the only current executive
officers and directors of the Company, in exchange for the transfer to the
Company of 1,041,800 shares of Common Stock of Playorena representing all
of the capital stock of the Company owned by Mr. and Mrs. Astor, and the
assumption by the entity to be formed by Mr. and Mrs. Astor of certain
liabilities of the Company; (b) a twenty to one reverse split of the
outstanding shares of the Company's Common Stock; and (c) the election of
certain designated persons to serve as directors of the Company upon the
closing of the asset sale and the simultaneous resignation of Mr. and Mrs.
Astor as officers and directors of the Company.
2. Ratify the selection of Feldman Radin & Co., P.C. as the Company's
independent auditors.
3. Such other business as may properly come before the meeting or any
adjournment thereof.
Shareholders of record as of the close of business on October __, 1996 will
be entitled to notice of, and to vote at, the Special Meeting of Shareholders.
Each shareholder will be entitled to one vote for each share of Playorena Common
Stock held by him or her on that date.
Attached hereto for your review is an Information Statement relating to the
above-described proposal, audited financial statements for the fiscal year ended
November 30, 1995 and the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended May 31, 1996.
By Order of the Board of Directors,
Michael Astor,
Secretary
October __, 1996
Port Washington, New York
<PAGE>
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY -- PRELIMINARY COPY
PLAYORENA INC.
INFORMATION STATEMENT
This Information Statement, which is being mailed to shareholders on or
about November __, 1996, is furnished in accordance with the requirements of
Regulation 14C promulgated under the Securities Exchange Act of 1934, as
amended, by the management of Playorena Inc., a New York corporation (the
"Company" or "Playorena"), for use in connection with a Special Meeting of
Shareholders to be held on November __, 1996.
We Are Not Asking You for a Proxy and You are Requested Not To Send Us a Proxy.
The Special Meeting of Shareholders has been called for the purpose of
considering and voting upon as a single transaction a proposal (the "Proposal")
providing for (a) the sale by the Company of substantially all of its assets to
an entity to be formed by Michael and Susan Astor, the only current executive
officers and directors of the Company, in exchange for the transfer to the
Company of 1,041,800 shares of Common Stock of Playorena representing all of the
capital stock of the Company owned by Mr. and Mrs. Astor, and the assumption by
the entity to be formed by Mr. and Mrs. Astor of certain liabilities of the
Company (the "Asset Sale"); (b) a twenty to one reverse split of the outstanding
shares of common stock; and (c) the election of certain designated persons to
serve as directors of the Company upon the closing of the asset sale and the
simultaneous resignation of Mr. and Mrs. Astor as officers and directors of the
Company.
As noted, the Proposal is being presented to shareholders as a single
proposal and, consequently, none of its aspects will be approved unless the
entire Proposal is approved at the Special Meeting. The affirmative vote of
holders of sixty-six and two-thirds percent (66.66%) of all of the shares of
Playorena Common Stock outstanding on October __, 1996 (the "Record Date")
entitled to vote at the Special Meeting is required for approval of the
Proposal. As discussed herein, the holders of 9,370,186 shares of Common Stock
representing 73.4% of the outstanding shares of Common Stock have indicated
their intention to vote their shares in favor of the Proposal, thereby assuring
its approval. Shareholders will not have any appraisal or similar rights with
respect to the Asset Sale contemplated by the Proposal.
At the Special Meeting the shareholders will also be asked to ratify the
selection of Feldman Radin & Co., P.C. as the Company's independent auditors.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Board of Directors has fixed the close of business on the Record Date
as the record date for the determination of shareholders entitled to notice of
and to one vote for each share of Playorena Common Stock outstanding and held of
record at that date. On the Record Date, there were
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12,762,910 shares of Playorena Common Stock issued and outstanding, including
4,500,000 shares of Common Stock issued on September 6, 1996 pursuant to the
terms of a letter agreement dated November 18, 1994 between the Company and
certain investors, as amended by letter dated April 10, 1995. Persons indicated
in the following table controlling the right to vote an aggregate of 9,570,183
shares of Playorena Common Stock have indicated their intention to vote all such
shares (73.4% of the class) in favor of the Proposal, thereby assuring its
approval.
The following table sets forth, as of September 30, 1996, the beneficial
ownership of Common Stock by (i) each of the Company's current directors and
officers, (ii) all person who have committed to vote their shares in favor of
the Proposal; and (iii) the three persons nominated to become directors of the
Company upon the closing of the Asset Sale. For all purposes of the calculations
set forth in the following table, the 4,500,000 shares of Common Stock issued on
September ____, 1996 pursuant to the terms of a letter agreement dated November
18, 1994 between the Company and certain investors, as amended by letter dated
April 10, 1995 (see "Description of Business - Recent Events - Termination of
Plan of Reorganization, Issuance of Shares and Line of Credit") to Messrs. Jerry
Feldman (100,000), Stanley Kaplan (1,083,333), Lawrence E. Kaplan (1,083,333),
Robert M. Rubin (1,483,334) and Bernard Tessler (750,000), have been included as
issued and outstanding.
Amount and Nature
of Beneficial Percentage of Common
Name and Address Ownership(1) Stock Outstanding
- ---------------- ------------ -----------------
Fred Jaroslow 1,178,888 9.2%
22 Manhasset Avenue
Port Washington, NY 11050
Michael Astor 498,400 3.9%
22 Manhasset Avenue
Port Washington, NY 11050
Susan Astor 543,400 4.3%
22 Manhasset Avenue
Port Washington, NY 11050
Lawrence E. Kaplan (4) 1,094,444 8.6%
150 Motor Parkway
Suite 311
Hauppauge, NY 11788
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Amount and Nature
of Beneficial Percentage of Common
Name and Address Ownership(1) Stock Outstanding
- ---------------- ------------ -----------------
Robert M. Rubin (4) 2,923,334(2)(3) 22.9%
6060 Kings Gate Circle
Delray Beach, FL 33484
Alan Goldberg 643,638 5.0%
170 Fifth Avenue, 6th Flr.
New York, New York 10010
Stanley Kaplan 1,083,333 8.6%
150 Motor Parkway
Suite 311
Hauppauge, NY 11788
Mark Levine 643,638 5.0%
170 Fifth Avenue, 6th Flr.
New York, New York 10010
Bernard Tessler 750,000 5.9%
22 Manhasset Avenue
Port Washington, NY 11050
Alfred Romano (4) 11,111 .09%
4 Wagon Wheel Lane
Dix Hills, NY 11746
- ----------
(1) Except as otherwise indicated, the beneficial owners listed here have sole
voting and investment power, subject to community property laws where
applicable, as to all of the shares listed as beneficially owned by them.
As of the date of this Information Statement, there were 12,762,910 shares
of Common Stock outstanding. The numbers set forth in the table do not give
effect to the grant in March 1991 of options to purchase shares of the
Company's Common Stock pursuant to the Company's 1989 Incentive Stock
Option Plan. At such time, Mr. Jaroslow, Mr. Astor and Ms. Astor were
granted 100,000, 50,000 and 50,000 shares, respectively, of such options.
All such options became exercisable in December 1993 at $.8938 per share.
The number also does not give effect to the grant in January 1994 of
options, exercisable beginning in 1996,
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to purchase an aggregate of 362,500 shares to Messrs. Jaroslow and Astor,
and Ms. Astor was granted options to purchase 100,000 shares of Common
Stock at $.344 per share and Mr. Astor and Ms. Astor were each granted
options to purchase 131,250 shares of Common Stock as $.3125 per share. All
of such options granted shall terminate upon the closing at the Asset Sale.
(2) Includes 200,000 shares of Common Stock issued by the Company to Mr. Rubin
in consideration of a Loan Facility Agreement dated November 16, 1988, as
amended, under which Mr. Rubin agreed to loan the Company up to $500,000
until May 31, 1990, and 200,000 shares of Common Stock issued to Palmer &
Moore Ltd., a corporation controlled by Mr. Rubin, in consideration for
services to be performed by Palmer & Moore Ltd. under a Consulting
Agreement dated December 16, 1991.
(3) Includes 200,000 shares of Common Stock issued by the Company to Mr. Rubin
in consideration of his purchase of a Revolving 10% Promissory Note dated
January 19, 1994, under which (i) Mr. Rubin agreed to loan the Company
$100,000 and (ii) Mr. Rubin and the Company established a revolving line of
credit enabling the Company to borrow up to an additional $100,000 upon the
occurrence of certain events.
(4) Nominee to serve as a director upon the closing of the Asset Sale.
THE PROPOSAL
Despite the best efforts of management to reduce costs by significantly
decreasing the number of locations in operation, during the fiscal year ended
November 30, 1995, the Company sustained losses from operations of $368,000 and
such losses continued for the first two fiscal quarters of 1996 in the aggregate
amount of $24,434. As the Company has been unable to raise the required capital
to continue its business in its present form, the Company has decided to divest
all of its operations and has agreed to sell all of its assets. As a result, the
Company is accounting for the historical results of the business as discontinued
operations.
BACKGROUND
On April 14, 1995, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Michael Astor (who, along with his wife, Susan Astor,
comprise all of the current officers and members of the Board of Directors of
the Company), pursuant to which an entity to be formed by Mr. and Mrs. Astor
agreed to acquire all of the assets and properties of the Company, including,
without limitation, all copyrights, trademarks, trade names (including the name
"Playorena"),
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<PAGE>
accounts receivable, equipment, inventory, cash and cash equivalents, in
exchange for the assumption of certain liabilities of the Company and the
transfer to the Company of 1,041,800 shares of Common Stock of the Company,
representing all of the Common Stock of the Company owned by Mr. and Mrs. Astor.
The assets to be transferred and the liabilities to be assumed had an
approximate value of $276,000 and $478,000, respectively, at November 30, 1995
and $212,529 and $457,701 respectively at May 31, 1996. The Asset Purchase
Agreement is included as a part of this Information Statement as Exhibit 1
hereto. Obtaining the approval of the holders of not less than 66 2/3% of the
issued and outstanding shares of capital stock of the Company is a condition
precedent to the closing of the Asset Sale contemplated by the Agreement.
The terms of the Agreement were negotiated on behalf of the Company by
Robert M. Rubin commencing in April, 1995. Mr. Rubin owns 2,923,332 shares of
Common Stock of the Company, representing 22.9% of the issued and outstanding
shares of Common Stock. In addition, in consideration for a loan made to the
Company by Mr. Rubin in January 1994 and due in September 1995, Mr. Rubin was
granted a first priority security interest in all of the assets of the Company.
As the Company does not presently have the resources to repay the $200,000
principal amount of the secured loan to Mr. Rubin, since September 30, 1995 Mr.
Rubin has had the right to foreclose on his security interest in all of the
assets of the Company. (See "Description of Business - Recent Events - Loan to
the Company.") Pursuant to the terms of the Agreement, Mr. Rubin will be
required, as the Company's only secured creditor, to release his security
interest so that Mr. Astor, or his designee, will obtain title to the Company's
assets free and clear of any liens or encumbrances.
The Agreement specifically provides that the Company shall retain "all
claims for tax refunds, tax loss carry forwards or carrybacks or tax credits of
any kind" applicable to the Company's business prior to the closing of the Asset
Sale. As of November 30, 1995, the Company had net operating loss carry forwards
of approximately $4,900,000 that expire between 1998 and 2009, and investment
tax credit carry forwards of approximately $16,000, which expire in 1998.
Without future profits by the Company, such tax losses are of limited or no
value. The Agreement further specifies that the following liabilities will not
be assumed by the acquiring entity:
(i) liabilities owed to certain affiliates of the Company, including Mr.
Rubin, estimated to be $878,333 in the aggregate (including $143,333 loaned to
the Company since January 1995);
(ii) liabilities owed to Solomon & Moskowitz, P.C. and certain other
professionals who have provided services to the Company, estimated to be $40,000
aggregate;
(iii) amounts owed to the Company's transfer agent and to Standard and
Poors, estimated to be $6,600 in the aggregate;
(iv) claims made against the Company by shareholders of the Company, none
of which are presently pending or threatened;
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<PAGE>
(v) certain fees incurred in connection with compliance with applicable
securities laws, presently estimated to be approximately $20,000; and
(vi) all liabilities and obligations of the Company arising after the
closing of the Asset Sale.
The financial statements included in this Information Statement for the
fiscal quarter ended as of May 31, 1996 indicate that the Company had negative
working capital of $$1,361,817 as of such date and cash flows from operations of
$34,900 for such six month period. Based upon the proposed structure of the
transaction set forth in the Agreement, immediately following the closing of the
Asset Sale the Company will have no assets or business but will retain
liabilities estimated to be $875,333, plus possible liabilities with respect to
certain heretofore unasserted claims against the Company. In light of the fact
that subsequent to the closing the Company will not have any business or assets
with which to generate revenue, the Company will not have any means to satisfy
such liabilities or obligations unless and until the Company is able to raise
additional capital or acquire a profitable business. The Company does not
presently have any such plans and there can be no assurance that raising such
capital or acquiring a new business will be possible. If such capital should
become available or such a business should be offered to the Company, the
acquisition is likely to result in immediate and substantial dilution to the
shareholders of the Company.
Although the Agreement provides for the assumption by the acquiring entity
and, indirectly, by Mr. Astor personally, of significant liabilities of the
Company, the Company will remain contingently responsible for the satisfaction
of such liabilities and there can be no assurance that such liabilities will be
satisfied. The acquiring entity will be formed by Mr. and Mrs. Astor for the
purpose of acquiring the Playorena assets and continuing the business on a
significantly smaller scale. Neither the acquiring entity nor Mr. Astor will
have sufficient resources to satisfy all of the liabilities to be assumed.
In order to afford the Company the flexibility to attempt to raise
additional capital and/or acquire another business subsequent to the Asset Sale,
management believes that it would be in the Company's best interest to reverse
split the 15,000,000 shares of Common Stock to be outstanding immediately
subsequent to the Asset Sale (including 3,278,890 pre-split shares to be issued
to Messrs. Rubin, Kaplan, Kaplan and Jaroslow prior to the closing) on a 20
shares for one share basis so that the number of shares of Common Stock
outstanding immediately subsequent to the reverse stock split will be 750,000.
Increasing the number of authorized shares will insure that authorized but
unissued shares will be available for stock dividends or stock splits, possible
acquisitions, financings, stock option or purchase plans and other corporate
purposes in the future, without the necessity of further shareholder action at
the time. The Board of Directors will be authorized to issue the additional
shares of Common Stock without
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the further approval of the shareholders and upon such terms and at such times
as it may determine. Holders of the Common Stock have no preemptive rights to
subscribe to such shares. The Company has no present understandings, agreements,
plans or commitments that would involve the issuance of additional shares of
Common Stock.
The Board of Directors of the Company is presently comprised of Mr. Michael
Astor and Mrs. Susan Astor, husband and wife. As the Agreement contemplates the
resignation of Mr. and Mrs. Astor as officers and directors of the Company
effective upon the closing of the Asset Sale, the Board of Directors, in
consultation with Mr. Rubin, has nominated Messrs. Rubin, Lawrence E. Kaplan and
Alfred Romano as directors of the Company to serve from the date of the closing
of the Asset Sale until their successors shall be duly elected and qualified.
Messrs. Kaplan and Rubin were originally elected to the Board of Directors on
October 26, 1994 pursuant to the terms of a letter agreement concerning a
proposed merger of the Company. (See "Description of Business - Recent Events -
Termination of Plan of Reorganization, Issuance of Shares and Line of Credit.")
When the contemplated merger was subsequently abandoned, Messrs. Kaplan and
Rubin resigned as directors on March 27, 1995. Additional information about the
persons nominated to serve as directors of the Company is set forth under
"Management."
In light of its decision to divest all of its operations, the Company is
accounting for the historical results of the business as discontinued
operations. In this regard, in accordance with generally accepted accounting
principles, the Company has an unrecorded estimated gain on disposal at November
30, 1995 of approximately $95,000, representing the amount by which estimated
liabilities to be assumed exceed the aggregate of the estimated value at closing
of assets to be divested and the estimated losses through disposal date. At the
time that the Asset Sale is consummated, the Company will recognize the actual
dollar amount of this unrecorded gain.
In light of the fact that the Agreement concerns the sale of assets to an
entity controlled by the current directors of the Company, the Board of
Directors had originally relied upon Mr. Rubin, a controlling shareholder of the
Company, to negotiate the transaction on behalf of the Company and the
shareholders. The Board of Directors subsequently adopted a resolution ratifying
the actions of Mr. Rubin and authorizing the execution of the Agreement by Mr.
Astor, as Vice President, and the recommendation of the sale to the
shareholders. The Board of Directors has not retained an independent financial
advisor to pass upon the fairness of the Agreement. Consummation of the Asset
Sale does not require satisfaction of any Federal or state regulatory
requirements or for the Company to obtain any government approvals.
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<PAGE>
MARKET FOR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market. Price
quotations are available through the OTC Bulletin Board, an electronic
screen-based service of the National Association of Securities Dealers, Inc.
("NASD"). The quotation of the Common Stock on the OTC Bulletin Board does not
assure that a meaningful, consistent and liquid trading market for such
securities currently exists and, in fact, management believes that at the
present time such a market does not exist. The Asset Sale will not affect the
Company's inclusion on the OTC Bulletin Board.
The Company's Common Stock and Warrants were originally quoted on the
NASDAQ system (known as the "NASDAQ Stock Market") upon the closing of the
Initial Public Offering on March 30, 1990. However, beginning in December 1992,
such securities were no longer eligible for quotation on the NASDAQ Stock Market
due to the Company's inability to meet certain then newly established criteria
imposed by the NASD for continued inclusion in the NASDAQ Stock Market.
Specifically, the Company did not meet the requirement of shareholders' equity
of $1,000,000.
Upon the NASD's determination of the Company's ineligibility, the Company's
securities began quotation on the OTC Bulletin Board. Quotation on the OTC
Bulletin Board has had a substantial negative effect on the liquidity of the
market for the Company's securities and, consequently, the price at which such
securities are quoted. The Company's Warrants expired on January 16, 1996 and,
consequently, were delisted from the OTC Bulletin Board on February 20, 1996.
On September 24, 1996, the quoted bid price of the Company's Common Stock
was $.001 and the asked price was $.05 per share. On the day immediately
preceding the Company's public announcement of its intention to proceed with the
Asset Sale, the quoted bid price of the Company's Common Stock was $.001 and the
asked price was $.05 per share.
The following tables set forth the high and low closing bid and ask
quotations for the first two fiscal quarters of 1996 and for each fiscal quarter
of 1995, 1994 and 1993, with respect to the Common Stock and Warrants as
reported by NASD and quoted on the NASDAQ Stock Market. The prices shown in the
tables reflect inter-dealer prices, and do not include retail mark-up, mark-down
or commissions, and may not represent actual transactions. The Company has not
paid cash dividends on its Common Stock.
As of November 30, 1995, there were approximately 56 holders of record and
the Company believes that there are in excess of 700 beneficial holders of the
Common Stock.
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Common Stock,
.001 par value
Bid Ask
--------------- ---------------
Period High Low High Low
- ------ ---- --- ---- ---
1996
First Quarter $.001 $.001 $.05 $.05
(December 1995
through February)
Second Quarter $.001 $.001 $.05 $.05
(March through May)
1995
First Quarter .125 .01 .5 .06
(December 1994
through February)
Second Quarter .02 .01 .10 .06
(March through May)
Third Quarter .02 .01 .10 .05
(June through August)
Fourth Quarter
(September through
November)
1994
First Quarter .25 .01 .625 .25
(December 1993
though February)
Second Quarter .3125 .0625 .625 .375
(March through May)
Third Quarter .125 .0625 .625 .375
(June through August)
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Fourth Quarter .125 .0625 .5 .25
(September
through November)
1993
First Quarter* .625 .0625 1.5 .1875
(December 1992
through February)
Second Quarter .3125 .125 .625 .4375
(March through May)
Third Quarter .25 .0625 .625 .3125
(June through August)
Fourth Quarter .25 .0625 .625 .25
(September
through November)
- --------
* Reflects quotations on the NASDAQ Stock Market, for which the Company's
securities are no longer eligible for quotation. The Company's Common Stock is
currently quoted on the OTC Bulletin Board, resulting in a substantial negative
effect on the price at which such securities are quoted.
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Warrants
Closing Bid Closing Ask
--------------- ---------------
Period High Low High Low
- ------ ---- --- ---- ---
1996
First Quarter $.01 $.001 $.20 $.02
(December 1995
through
February 20, 1996)
1995
First Quarter
(December 1994
through February) .01 .001 .20 .02
Second Quarter .001 .001 .05 .02
(March through May)
Third Quarter .001 .001 .05 .02
(June through August)
1994
First Quarter
(December 1993
through February) .3125 .02 .21875 .10
Second Quarter .0625 .01 .52 .10
(March through May)
Third Quarter .03125 .005 .20 .10
(June through August)
Fourth Quarter .01 .005 .20 .05
(September through
November)
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1993
First Quarter* .0625 .01 .25 .10
(December 1992
through February)
Second Quarter .03125 .02 .21875 .10
(March through May)
Third Quarter .03125 .02 .21875 .10
(June through August)
Fourth Quarter .03125 .02 .21875 .10
(September
through November)
- --------
* Reflects quotations on the NASDAQ Stock Market, for which the Company's
securities are no longer eligible for quotation. The Company's securities are
currently quoted on the OTC Bulletin Board, resulting in a substantial negative
effect on the price at which such securities are quoted.
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CAPITALIZATION
The following table sets forth as of May 31, 1996, the capitalization of
the Company on a historical basis and as adjusted to reflect the sale of the
Company's assets and the recapitalization, all as if the closing of the Asset
Sale had taken place on May 31, 1996.
PLAYORENA INC.
PRO FORMA CAPITALIZATION
May 31, 1996 (unaudited)
ACTUAL PRO FORMA
---------- ----------
SHAREHOLDERS' DEFICIENCY
Common Stock, $.001 par value; 15,000,000
Shares Authorized, 8,262,910
Shares Outstanding (actual) and 750,000
Shares Outstanding (pro forma)
(1) (2) (4) (5) $ 8,263 $ 750
Additional Paid-in Capital (2) (3) (4) $4,089,783 $4,285,629
Accumulated Deficit (2) ($5,459,863) ($5,341,243)
Total Shareholders' Deficiency (6) ($1,361,817) ($1,054,864)
(1) 8,262,910 shares of common stock were outstanding as of May 31, 1996 and
750,000 shares of common stock will be outstanding after consummation of
the transactions referred to above giving effect to a reverse split
immediately subsequent to the asset sale of one share for every 20 shares
held.
(2) The "pro forma" amount gives effect to a $45,000 valuation of the 4,500,000
shares of common stock issued on September 6, 1996 pursuant to the Letter
Agreement dated November 18, 1994.
(3) The "pro forma" amount reflects the recognition of an unrecognized gain of
$163,620, which represents the amount the liabilities exceed the assets in
the Asset Sale.
(4) The "pro forma" amount is adjusted to reflect, as part of the closing, all
shares of common stock owned by Michael and Susan Astor.
(5) The "pro forma" amount is adjusted to reflect the issuance of 3,278,890
pre-split shares to be issued at the closing of the Asset Sale to those
individuals who infused capital into the Company from January 1995 to March
1995.
(6) Assumes that all of the liabilities to be assumed by the acquiring entity
will be satisfied, of which there can be no assurance. If such liabilities
are not satisfied, the Company will
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remain contingently responsible for such liabilities and the Total
Shareholders' Deficiency would be $1,512,565.
PRO FORMA BALANCE SHEET
The following Pro Forma Balance Sheet and explanatory notes are presented
to show the pro forma effect of the Asset Sale on the Company's historical
balance sheet as if the sale had taken place on May 31, 1996. It assumes that
all of the liabilities to be assumed by the acquiring entity will be satisfied,
of which there can be no assurance. If such liabilities are not satisfied, the
Company will remain contingently responsible for such liabilities and the
Current Liabilities would be $1,542,794 and the Total Shareholders' Deficiency
would be $1,512,565.
Current liabilities:
Current portion of loans payable $ 875,333
Accrued expenses $ 353,093
-----------
Total current liabilities $ 1,085,093
-----------
Shareholders' Deficiency:
Common Stock, $.001 par value;
15,000,000 Shares Authorized, 750,000 Shares
Issued and Outstanding $ 750
Additional Paid-in Capital $ 4,285,629
Accumulated Deficit ($5,341,243)
-----------
Total Shareholders' Deficiency ($1,054,864)
-----------
Total Liabilities and Shareholders' Deficiency $ 30,229
===========
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATION
In light of the fact that the Company has decided to divest all of its
operations and has agreed to sell all of its assets pursuant to the Agreement,
the Company is accounting for the historical results of the business as
discontinued operations. In this regard, the following discussion and analysis
presents a general, overall financial summary of the discontinued operations,
rather than a detailed discussion of the results of operations to be disposed of
in the near future. As presented in the Company's recast financial statements,
certain expenses, consisting of minimal general and administrative expenses and
debt service costs have been evaluated to be expenses attributable to the
continuing entity after consideration of the divestiture of operations.
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this
Information Statement.
Results of Operations -
Comparison of Fiscal 1995 and Fiscal 1994
During the fiscal year ended November 30, 1995, revenues of the
discontinued business decreased to $453,458 from $1,006,060 in fiscal 1994. This
represents a 55% decrease in revenues, and reflects the Company's closing of 42
centers between November 30, 1994 to November 30, 1995. Losses from discontinued
operations decreased from $728,000 to $368,000, reflecting the reduced cost
demands of the decreased level of the Company's activity.
The Company significantly decreased the number of locations for the Spring,
Summer and Fall 1995 sessions while actively seeking alternative outlets for its
programs. The Company operated only six locations in the Spring 1995 session and
nine locations in the Fall 1995 session and as result, registration fee income
decreased to $36,792 for the Spring 1995 session as compared to $237,990 for
Spring 1994.
Results of Operations -
Comparison of Fiscal 1994 and Fiscal 1993
During the fiscal year ended November 30, 1994, participant registration
fees decreased $435,226 or 32.1% to $919,170 from $1,354,396 in fiscal 1993.
Revenues for fiscal 1994 decreased $423,854 or 29.6% to $1,006,060 from
$1,429,914 for fiscal 1993. In fiscal 1994 the Company again attempted to reduce
its overhead costs while fees charged were increased. Notwithstanding this
effort, the Company's results of operations continued to be affected through
1993 and 1994 by the downturn in consumer confidence and attitude toward
spending generally which began to affect the Company's revenues in the fourth
quarter of fiscal 1991. During fiscal 1994 the Company continued its efforts to
control losses by reducing the number of Company-owned locations, marketing
expenses, personnel, and general and administrative overhead costs ("G&A").
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While direct center operating costs declined from $868,447 in 1993 to
$684,842 in 1994, the percentage of direct operating costs to revenue increased
from 60.7% in 1993 to 68.1% in 1994. This increase was largely a result of a
significant decline in enrollment in the Winter 1994 session due to repeated
snowfall. While management attempted additional cut backs and closed three
management areas for the Fall 1994 session, it was unable to compensate for the
unprecedented weather and consequent enrollment decline.
Although marketing costs were reduced by $39,225 from $336,887 in 1993 to
$297,662 in 1994, the percentage of marketing expense to revenue increased from
23.6% in 1993 to 29.6% in 1994. A large part of the marketing expense in 1994
was in direct mail for the Winter 1994 session. Due to the inclement weather
conditions, results were considerably weaker than projected.
During fiscal 1994, among other actions taken, management undertook to
improve profitability by additional closing of marginal centers and management
areas. Notwithstanding these efforts, however, the effects of the economic
recession (especially in the New York metropolitan area), unprecedented snowfall
and increased competition, had an overriding effect on the Company's result of
operations.
The Company significantly decreased the number of locations for the Spring,
Summer and Fall 1995 sessions while actively seeking alternative outlets for its
programs. The Company operated only six locations in the Spring 1995 session and
is now operating nine locations for the Fall 1995 session and as a result,
registration fee income decreased to $36,792 for the Spring 1995 session as
compared to $237,990 for Spring 1994. Management believes that the Playorena
program would function more profitably as part of a retail, day-care or other
environment that works with the same population, however, the Company has been
unable to secure a foothold in any such environment.
Results of Operations -
Comparison of Fiscal 1993 and Fiscal 1992
During the fiscal year ended November 30, 1993, participant registration
fees decreased $468,647 or 25.7% to $1,354,396 from $1,823,043 in fiscal 1992.
Revenues for fiscal 1993 decreased $564,171 or 28.3% to $1,429,914 from
$1,994,085 for fiscal 1992. In fiscal 1993 the Company attempted to reduce its
overhead costs while fees charged were increased. Notwithstanding this effort,
the Company's results of operations continued to be affected through 1992 and
1993 by the downturn in consumer confidence and attitude toward spending
generally which began to affect the Company's revenues in the fourth quarter of
fiscal 1991. During fiscal 1993 the Company continued its efforts to control
losses by reducing G&A.
During fiscal 1993, the total number of registrations was lower than fiscal
1992. Average enrollment per center continued to decline significantly. This
trend was evidenced during the Fall 1993 session during which average enrollment
per center was down to 53 from 65 during the Fall 1992 session. Direct center
operating costs represented approximately 64.1% of participant
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registration fees in fiscal 1993 compared to 67.6% in fiscal 1992. This decrease
was the result of eliminating weaker locations in addition to other cost cutting
measures.
In fiscals 1993 and 1992, the Company spent approximately 24.9% and 31.7%,
respectively, of participant registration fees on marketing, continuing a trend
of cost control begun in 1992.
G&A in fiscal 1993 decreased $204,919 or 20.5% to $793,683 from $998,602 in
fiscal 1992. Notwithstanding this significant decrease, G&A as a percentage of
total revenues increased from 50.1% in fiscal 1992 to 55.5% in fiscal 1993 due
to the decrease in total revenues.
During fiscal 1993, among other actions taken, management undertook to
improve profitability by closing additional marginal centers and by moving its
central offices to decrease rent and storage expense. Notwithstanding these
efforts, however, the effects of the economic recession (especially in the New
York metropolitan area) and increased competition, had an overriding negative
effect on the Company's result of operations.
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Liquidity and Capital Resources
At November 30, 1995, the Company had a working capital deficit of
$1,284,299 compared to $1,177,911 at November 30, 1994. In its operation of the
discontinued operations, management has attempted to reverse this downward trend
by significantly decreasing the number of Company owned centers in operation,
implementing staff reductions and seeking additional capital for the placement
of Playorena programs in alternative outlets. The Company has not been
successful in obtaining any additional capital.
Management's Plan of Operation
Current management, which has executed the Agreement to acquire the
Company's discontinued operations, continues to believe that the Playorena
program would operate more profitably within a different environment than it has
operated in the past. Specifically, management feels that operating the program
as part of an existing childrens retail outlet or day-care center would enable
the program to interface promotionally as well as providing mutually beneficial
services. With fixed and established locations providing a more conducive
environment and greater visibility, management believes that enrollments in the
Playorena program could be expanded with reduced operating and marketing costs.
Although management has actively sought such outlets, the program has not yet
been tested in any such environment and there can be no assurance that the
program would work as contemplated or that any such outlets would be interested
in participating.
DESCRIPTION OF BUSINESS
Playorena Inc. was incorporated in the State of New York in 1981 and owns
and operates centers that offer recreational play and exercise programs for
children between three months and four years of age. The Company was founded by
Susan Astor based upon a similar program developed, in substantial part, by Ms.
Astor at a community center in Marin County, California in 1974. The programs
bring together children and their parents in recreational activities organized
according to developmental stages providing children an opportunity to practice
age-appropriate skills through play and providing an opportunity for a positive
social experience for parents.
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Recent Events
Loan to the Company
On January 19, 1994, the Company executed and delivered to Robert M. Rubin
a Revolving 10% Promissory Note in the principal amount of $200,000 (the "Note")
pursuant to which the Company had borrowed as of February 18, 1994 the maximum
aggregate principal amount of $200,000. The loan is secured by a continuing
security interest in all of the assets of Playorena.
Advances made pursuant to the Note were due on September 30, 1995 and were
not paid . The Company does not at the present time have the resources to repay
the Note and Mr. Rubin has the right to foreclose on his security interest in
all of the assets of the Company. In consideration of the loan and credit
facility provided by Mr. Rubin, the Company issued 200,000 shares of the
Company's Common Stock to Mr. Rubin.
Private Placement of Equity and Debt
In May 1994, the Company commenced and completed a private placement of
five units, each unit consisting of 22,222 shares of the Company's Common Stock
and a promissory note in the principal amount of $50,000, bearing interest at
the rate of ten percent per annum, with principal and interest due on September
30, 1995. As each of the units were sold by the Company for $50,000, the Company
derived an aggregate of $250,000 from the private placement. With the exception
of one-half of one unit acquired by Lawrence E. Kaplan, a nominee to be elected
as director of the Company, all of the units were acquired by unaffiliated
persons. The promissory notes were not repaid and the Company does not at the
present time have the resources to repay the promissory notes.
Termination of Plan of Reorganization, Issuance of Shares and Line of
Credit
As a condition to Mr. Rubin's agreement to make the above described loan to
the Company, on April 13, 1994 the Company entered into an Agreement and Plan of
Reorganization (the "Reorganization Agreement") with Kids 'N Things, Inc., a
newly formed Delaware corporation wholly-owned by Mr. Rubin, Bernard Tessler and
Jerome Feldman and formed for the sole purpose of facilitating the merger ("Kids
'N Things"). In accordance with the terms of the Reorganization Agreement, Alan
Goldberg, Kent Q. Kreh, Mark Levine and Richard A. Samber resigned as directors
of the Company and Bernard Tessler, Philip Baird and Louis Horvitz were
appointed to the Board as designees of Kids 'N Things.
Pursuant to the terms of a letter agreement dated November 18, 1994 (the
"Letter Agreement") among the Company and each of Michael Astor, Susan Astor and
Fred Jaroslow, in their individual capacities, and Lawrence E. Kaplan, Stanley
Kaplan and Mr. Rubin (the "Investors"), the Company agreed to: (i) cause the
Board of Directors of each of the Company and Kid 'N Things to terminate the
Reorganization Agreement; (ii) issue 1,500,000 shares of Common
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Stock to Bernard Tessler in consideration of the payment of $2,000 and past
services rendered to the Company (reduced to 750,000 shares in April 1995);
(iii) elect each of Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan (the son
of Stanley Kaplan) to fill three vacancies on the Board of Directors caused by
the resignations of Messrs. Tessler, Baird and Horvitz; (iv) issue an aggregate
of 100,000 shares of Common Stock to Jerry Feldman in consideration of the
payment of $100 and past services rendered to the Company, (v) issue an
aggregate of 3,250,000 shares of Common Stock to Messrs. Andrew Kaplan (as
Stanley Kaplan's designee), Lawrence E. Kaplan and Rubin in consideration of the
payment of an aggregate of $4,200, past financial consulting services rendered
and the joint and several agreement among the Investors to make available to the
Company a $275,000 line of credit (the "Line of Credit"); and (vi) issue 400,000
shares of Common Stock to Mr. Rubin in consideration of the payment of $400 and
his agreement to waive any and all defaults by Playorena to make current
interest payments through the maturity date arising under the Note. Issuance of
the 4,500,000 shares required to be issued pursuant to the Letter Agreement will
result in substantial dilution of the interests of the current shareholders of
the Company.
On October 26, 1994, Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan
were elected to the Board of Directors. Each of Mr. and Mrs. Astor, the current
directors of the Company, agreed to vote to elect three designees of the
Investors to the Board of Directors of the Company until such time as the Line
of Credit is repaid or the Investors default on their obligations arising under
the Line of Credit. Each of the Investor's designees to serve on the Board of
Directors have agreed to resign upon the earlier of repayment of all outstanding
amounts of principal and accrued interest under the Line of Credit or a material
breach of the Line of Credit by any of the Investors, unless such designees have
previously been elected to the Board of Directors by vote of the Company's
shareholders. Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan subsequently
resigned as directors and no replacements have as yet been designated by the
Investors.
The Letter Agreement establishing the Line of Credit provides that the
outstanding principal amount drawn down shall bear interest at the rate of 10%
per annum, with principal and interest due on September 30, 1995. To date, the
Company has borrowed the full amount available under the Line of Credit
($275,000). The Line of Credit was not repaid and the Company does not at the
present time have the resources to repay the Line of Credit.
Management Agreement with Bernard Tessler
On November 9, 1993, the Company entered into a Management Agreement with
Bernard Tessler, as amended by a letter agreement dated January 20, 1994
(collectively, the "Management Agreement"), whereby the Company agreed to engage
Mr. Tessler to manage its business for a period of one year. In addition to the
fee payable to Mr. Tessler pursuant to the Management Agreement, the Company
agreed that in the event that the merger with Kids 'N Things was not completed
before February 28, 1995, the Company would issue an aggregate of 2,600,000
shares of Common Stock to Messrs. Tessler, Rubin and Feldman in recognition and
consideration of Mr.
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Tessler entering into and the services to be rendered pursuant to the Management
Agreement, the credit to be extended by Mr. Rubin pursuant to the Note and the
services to be rendered and costs to be incurred by Messrs. Tessler, Rubin and
Feldman in connection with the merger. Pursuant to the terms of the Letter
Agreement, the Company and Mr. Tessler agreed to terminate the Management
Agreement, thereby relieving the Company of any future obligation to issue any
shares thereunder. Mr. Tessler and the Company further agreed to enter into a
Consulting Agreement effective January 1, 1995, pursuant to which Mr. Tessler
agreed to provide consulting services during 75% of his full working time for a
fee of $75,000 per annum through February 28, 1995 and to provide consulting
services during 20% of his full working time for a fee of $25,000 per annum from
March 1, 1995 through December 31, 1997. In April 1995, Mr. Tessler agreed to
release the Company from all payment obligations arising under the Consulting
Agreement in consideration for a payment of $6,200.
Additional Loans from Affiliates of the Company
In February and March 1995, the Company received loans in the aggregate
amount of $143,333 from three investors and the father of a principal
shareholder of the Company: (i) Lawrence E. Kaplan - $20,416; (ii) Stanley
Kaplan (the father of Andrew Kaplan) - $20,416; (iii) Fred Jaroslow - $40,500;
and (iv) Robert Rubin - $62,000. The lenders have agreed to accept an aggregate
of 3,278,890 (163,945 shares subsequent to the reverse stock split) shares of
Common Stock as payment in full for such loans. Such shares will be issued
simultaneous upon receipt of the shares to be delivered to the Company by Mr.
and Mrs. Astor.
Operation to be Discontinued
The Playorena Centers
The Company opened its first two centers in 1982 and, as of November 30,
1995, operated nine centers in New York, a decrease of 42 centers from November
30, 1994. Revenues from classroom fees generated by Company-owned centers were
$410,743 in fiscal 1995, representing a decrease of $508,427 from classroom fees
generated in fiscal 1994.
In addition to the nine Company-operated centers, the Company began a
franchise sales program in December 1984 and has sold franchises for the
operation of 28 centers, 16 of which are now being operated by seven franchisees
- -- six in New York, five in New Jersey, four in Japan and one in Korea. Although
such franchisees have been granted licenses to operate 28 centers, there is no
assurance that they will operate that number. The initial franchise fee charged
by the Company ranged from $7,000 to $14,000 per center. Thereafter each
franchisee pays the Company a royalty fee equal to 6% of gross sales. In
addition, each franchisee may be required to pay additional amounts to the
Company for national advertising. In light of the Company's belief that it was
more economically advantageous to expand through Company-owned centers, in 1989
the Company elected not to renew its franchise registrations with the proper
government authorities and is therefore unable to offer additional franchises at
this time.
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During the past several months certain of the Company's current franchisees
have withheld required royalty payments asserting the Company has failed to
provide certain services. The Company estimates that the amounts being withheld
are between $10,000 and $15,000. Although management is discussing the
accusations with such franchisees in an attempt to resolve the dispute, the
Company does not believe that a significant amount of the royalty payments will
be collected. Upon the closing of the sale of the Company's assets to Mr. and
Mrs. Astor, the franchises will be transferred to the acquiring entity,
including the amounts owed to the Company by the franchisees.
The Playorena Program
The Playorena program is specifically designed to provide a positive
age-appropriate play and exercise environment for children from three months to
four years of age who are accompanied by a parent or guardian. Through a
combination of structured activities and play, each child's natural tendency to
explore and to develop physical and mental skills is encouraged. By providing
opportunities for successful experiences and adult approval, the Playorena
program is designed to foster self-esteem and a sense of accomplishment, and the
relaxed non-competitive atmosphere of the Playorena class can often serve as a
child's first socialization experience.
Each Playorena center appears as a brightly colored indoor playground and
is equipped with a variety of pieces of special, age-appropriate equipment such
as small slides, foam steps, barrels, tunnels, mini-climbers, bouncers, rocking
boats, mats, balls and foam inclines, all arranged in a pre-set format. Centers
are typically located in large rooms of at least 1,200 square feet rented from
religious organizations, community centers and other similar entities. The room
is typically rented on a per-diem basis and the equipment is stored on the
premises when not in use. As the Playorena program does not require any
renovations or improvements to be made to the room housing the center, and as
the rooms are typically rented on a per-diem basis, the Company has the ability
to relocate any center at a minimal cost. Historically, the Company has not
encountered any difficulties in locating suitable locations for its centers.
Each Playorena class is led and supervised by a "facilitator". Facilitators
are fully trained by the Company and are provided with a detailed manual which
describes each class for each developmental stage, includes a tape of songs used
in the program and sets forth other essential background material written and
reviewed specifically for the Playorena program. In addition, each child is
accompanied by a parent or guardian. As such, the centers also serve as a social
activity for parents who are sharing similar experiences. In addition to
affording parents the opportunity to provide their children with positive
attention, the centers provide parents, especially mothers with their first
child who have changed their life styles after having a baby, with contact with
peers who have similar interests and concerns.
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The Playorena program is sold by the Company as a series of 8 to 13 weekly
sessions which primarily operate in the Spring, Fall and Winter. All sessions
are paid for in advance upon enrollment and the Company accepts Visa and
MasterCard to facilitate payments. Classes are 45 minutes in length and each
center operates from one to three days per week, conducting between three and
eight classes per day. Class sizes are limited to a maximum of 20 children,
depending upon the size of the center, and are offered to four different
developmental stages at different class times. Each age group is offered
activities specifically designed to be appropriate for that stage of
development.
Since its inception, the Company and its franchisees have registered more
than 190,000 enrollments in its programs and during the fiscal year ended
November 30, 1994, the Company and its franchisees registered approximately
15,000 enrollments in its programs. During its last two sessions ( Winter 1995
and Spring 1995) the Company's selected 51 centers averaged an enrollment of
approximately 43 children per session, a decrease of 4 children per session from
1994 when the Company was operating 77 centers. An "enrollment" is one child's
participation in one 8 to 13 week session. Children who participate in more than
one session per year are counted as more than one "enrollment" during such year.
Since September 1991, the Company has experienced a decline in the average
number of enrollments per center and believes that such a decline is
attributable to the continuing economic downturn in the New York metropolitan
area and increased competition. The Company cannot predict how long this decline
will continue.
Marketing
In fiscal 1994, the Company spent 32.4% of participant registration fees on
marketing expenses. The majority of the amounts spent was for direct mail. Other
media efforts have included local newspaper advertisements. With respect to
fiscal 1995, in light of the discontinued operations accounting treatment as
presented in the Company's recast financial statements, only certain expenses,
consisting of minimal general and administrative expenses and debt service costs
have been evaluated. Such expenses have been evaluated as expenses attributable
to the continuing entity after consideration of the divestiture of operations.
Operating Controls and Procedures
For purposes of management and marketing, the Company had previously
implemented a system whereby the centers outside of the New York metropolitan
area were grouped in clusters of up to 8 centers, each of which was supervised
by a local manager. Franchisee-operated centers were not included in the
clusters. Local managers typically operated out of their homes using a telephone
installed at the Company's expense. Their primary responsibilities included
locating potential centers, hiring and training facilitators and processing
registrations which were forwarded to the main office. This program was
terminated in Spring 1995.
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Competition
The Company's major competitor in the exercise/play program market is
Gymboree Corp. ("Gymboree"), a publicly traded company. Although Playorena and
Gymboree evolved directly from the prototype developed, in substantial part, by
Ms. Astor, Gymboree has been operating for approximately five years longer than
the Company and is substantially larger with greater resources. Both Gymboree
and Playorena are similar in concept, purpose and pricing. Playorena's programs
are currently operating in several of the same markets in which Gymboree
operates. In addition, new indoor exercise/play centers have recently been
established by various operators which provide classes for a wider age range
than that for which the Company provides and allows participants to "drop in"
for individual programs without making a commitment for a full session. Such
centers have begun to create some competition for the Company. Other small
companies and local organizations such as YMCA programs, church-affiliated or
non-profit groups also compete with the Company as part of their overall
programs. Management believes that the Company competes by offering a trained
facilitator and a professionally-planned and specialized program in
well-equipped facilities.
Trademarks
The Company registered the trademarks "Playorena" in 1984 and "Playercise"
in 1986, in the principal register of the United States Patent and Trademark
Office. A federally-registered trademark is effective for 20 years and may be
renewed for additional terms of 20 years subject only to continued use by the
registrant. A federally-registered trademark provides presumption of ownership
of the mark by the registrant in connection with its goods and services and is
constructive notice throughout the United States of such ownership. The Company
has also received, or applied for, registrations of such trademarks for various
categories of uses in Japan.
Insurance
The Company's insurance coverage currently includes the following types of
policies: property; general liability and medical payments; excess umbrella
liability; workers compensation; New York disability benefits and group life and
medical. The liability policy includes a medical payment provision for accidents
which applies to each child enrolled in a program and is subject to various
limits. There can be no assurance that claims in excess of or not included
within the Company's coverage will not be asserted.
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Employees
In addition to the Company's two executive officers, the Company currently
employs a registrar and 14 part-time facilitators working at the Company's nine
centers.
Each class is conducted by a trained facilitator. Facilitators are
recruited through newspaper advertisements and are typically former teachers who
desire a part-time position. None of the Company's employees is represented by a
union or collective bargaining unit and the Company believes that its relations
with its employees are good.
Government Regulation
Although the Company's current exercise/play programs are not currently
subject to government regulations, it is possible that government regulations
will be enacted in the future that will subject the Company's present operations
to regulations or standards.
Initial Public Offering
On March 30, 1990, the Company completed an initial public offering (the
"Initial Public Offering") of 2,500,000 units, each unit consisting of one share
of Common Stock, par value $.001 per share, and one Common Stock Purchase
Warrant. (The Common Stock of the Company, par value $.001 per share, is
referred to herein as the "Common Stock" and the Common Stock Purchase Warrants
of the Company are referred to herein as the "Warrants"). The Warrants were
immediately separable and transferrable and originally entitled the registered
holder thereof to purchase one share of Common Stock at a price of $1.25 per
share from such date until January 16, 1993. The Company extended the expiration
date of the Warrants to January 16, 1996, at which time the Warrants expired.
The Company received approximately $2,085,305 of net proceeds resulting
from the offering. Such proceeds were used to open additional centers in 1990
and 1991 and were also applied to repayment of indebtedness, marketing,
merchandise inventory and expenses incurred in connection with the Initial
Public Offering.
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MANAGEMENT
The present directors of the Company and nominees for election to the Board
of Directors, their ages, position held and business experience during the past
five years are as follows:
Year First
Name Age Position Elected
---- --- -------- -------
Susan Astor (a) 46 President and Director 1981
Michael Astor (b) 51 Vice President, Chief 1983
Operating Officer, Chief
Financial Officer, Treasurer,
Secretary and Director
Lawrence E. Kaplan (c) 53 Nominee NA
Robert M. Rubin (d) 56 Nominee NA
Alfred Romano (e) 59 Nominee NA
(a) Susan Astor is one of the Company's co-founders and has been its President
since its organization in 1981. From 1974 to 1978 Ms. Astor developed
"kindergym", a parent/toddler program in Marin County, California, which
served as the prototype for the Company's program. In response to the
success of the "kindergym" program, in 1979 Ms. Astor co-authored a book
entitled "Gymboree: Giving Your Child Physical, Mental and Social
Confidence Through Play" with the founder of the Gymboree program. Ms.
Astor served as the Director of Preschool Camp at the Marin County Jewish
Community Center in 1974, taught at the Atypical Infant Center of Marin
County in 1973 and was Director of Outdoor Pre-School Programs at the Marin
County YMCA in 1972. Ms. Astor has been recognized as an innovator in the
toddler play program field, has made numerous appearances on national and
local television and has frequently been quoted on play programs in
newspaper and magazine articles. Ms. Astor was a director of the Company
from November, 1981 to October, 1990. Ms. Astor was again elected as a
director in August, 1993.
(b) Michael Astor is one of the Company's co-founders and became Chief
Operating Officer and Vice President of the Company in December 1983. Mr.
Astor, who is the husband of Susan Astor, was the principal owner and
President of Astor Sales, Inc., a company specializing in sales of private
label garment programs to clothing chain and department stores, from 1979
to 1984. From 1970 to 1979, Mr. Astor was a marriage, family and child
counselor in Marin
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County, California. Mr. Astor was a director of the Company from November,
1981 to October, 1990. Mr. Astor was again elected as a director in August,
1993.
(c) Lawrence E. Kaplan became a director of the Company in October 1994 as a
condition of the Letter Agreement and resigned as a director on March 27,
1995. Since 1987, Mr. Kaplan has been an officer, director and principal
shareholder of Gro-Vest, Inc., an investment banking firm located on Long
Island, New York. He is also a registered representative, officer, director
and principal shareholder of G-V Capital Corp., and since January 1993, he
has been an officer, director and principal shareholder of Gro-Vest
Management. Mr. Kaplan is also an officer and director of Saratoga
Standardbreds, Inc. ("Saratoga"), a company that was engaged in the
standardbred horse industry until it instituted in 1989 a Chapter 11
proceeding under the Federal Bankruptcy Act. Since the completion of the
Chapter 11 proceeding in 1990, Saratoga has had no business operations, but
has been looking to acquire a business. Mr. Kaplan is also a director of
American United Global, Inc., an original equipment manufacturer for the
automotive industry, and NFS Services, Inc., a subsidiary of Walnut Capital
Corporation. Finally, Mr. Kaplan also serves as a director of Andover
Equities and The Park Group Ltd, both of which are "blank check" companies.
(d) Robert M. Rubin became a director of the Company in October 1994 as a
condition of the Letter Agreement and resigned as a director on March 27,
1995. Mr. Rubin is also a director, Chairman and minority stockholder of
Universal Self Care, Inc., a public company engaged in the sale of products
used by diabetics. Mr. Rubin was the founder, President, Chief Executive
Officer and a director of Superior Care, Inc. ("SCI") from its inception in
1976 until May 1986. Mr. Rubin continued as a director of SCI, now known as
Olsten Corporation ("Olsten"), until the latter part of 1987. Olsten, an
American Stock Exchange listed company, is engaged in providing home care
and institutional staffing services and health care management services.
Mr. Rubin is also a director, Chairman and minority stockholder of American
United Global, Inc. ("AUG"), a public company which, through its public
company subsidiary Western Power & Equipment Corp. ("Western"), engaged in
the distribution of construction equipment principally manufactured by Case
Corporation and, through its subsidiaries ConnectSoft Holding Corp.
("ConnectSoft") and eXodus Technologies, Inc. ("eXodus") is engaged in
providing communications software applications and services relating to the
Internet. Mr. Rubin serves as Chairman of the Board of Directors of
Western, the Chairman, CEO and Director of eXodus, and as a Director of
ConnectSoft. Mr. Rubin is also a director, Chairman and minority
stockholder of Response USA, Inc., a public company engaged in the sale and
distribution of electronic security and personal emergency response
systems; and of Orthopedic Technology, Inc., a public company engaged in
the design and manufacture of custom and off-the-shelf orthotic products
primarily for the sports medicine market.
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Mr. Rubin is also a director of: United Vision Group, Inc., a public
company engaged in providing prepaid optical plans and the operation of
retail optical centers; Analytical Nursing Management Corp., a public home
health care deliverer in Baton Rouge, Louisiana; ERD Waste Technology,
Inc., a diversified waste management company specializing in the management
and disposal of municipal solid waste, industrial and commercial
non-hazardous waste and hazardous waste: Help at Home, Inc., a home health
care provider; Transcap Medical, Inc. an insurance development company and
Kaye Korrs Associates, Inc., a provider of tax preparation and assistance
services. Mr. Rubin is a former director and Vice Chairman, and is
currently a minority stockholder, of American Complex Care, Incorporated, a
public company formerly engaged in providing on-site health care services,
including intra-dermal infusion therapies. In March 1995, American Complex
Care, Incorporated's operating subsidiaries made assignments of their
assets for the benefit of creditors without resort to bankruptcy
proceedings.
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(e) Alfred Romano, a nominee to become a director, has been the President,
director and sole shareholder of Pope Liquors, Inc. since 1964. Pope
Liquors operates a store engaged in the retail sale of alcoholic beverages.
During the fiscal year ended November 30, 1995, the Board of Directors held
one meeting at which all of the directors were present. Directors do not receive
compensation for their services in such capacity. The Board of Directors does
not presently have, and has not in the past had, any committees.
Identification of Executive Officers
The executive officers of the Company, their ages, position held and
business experience during the past five years are as follows:
Year First
Name Age Position Elected
---- --- -------- -------
Susan Astor (a) 46 President 1981
Michael Astor (b) 51 Vice President, Chief 1983
Operating Officer, Chief
Financial Officer, Secretary
and Treasurer
(a) See note (a) on prior table.
(b) See note (b) on prior table.
None of the executive officers was selected as a result of any arrangement
or understanding with any person pursuant to which he or she was selected as an
executive officer.
Officers hold office until the first meeting of directors immediately
following the annual meeting of shareholders and until the successors are
appointed and qualified, subject to earlier removal by the Board.
29
<PAGE>
Pursuant to the Proposal and the terms of the Agreement, upon the closing
of the Asset Sale Mr. and Mrs. Astor will resign as officers and directors of
the Company and the newly elected Board of Directors will elect the following
persons to the offices set forth opposite their names:
Name Office
---- ------
Robert M. Rubin Chairman of the Board
Lawrence E. Kaplan President
Alfred Romano Secretary
EXECUTIVE COMPENSATION
Annual Compensation
- -------------------
The following table sets forth the cash compensation in each of the last
three completed fiscal years to the Company's then chief executive officer. Mr.
Jaroslow resigned as an officer and director of the Company effective March 27,
1995. Since Mr. Jaroslow's resignation, the Board of Directors of the Company
has not elected a successor Chief Executive Officer. While Susan Astor was the
President and Michael Astor was the Vice President, Chief Operating Officer,
Chief Financial Officer and Treasurer of the Company at November 30, 1995, the
table omits information as to their compensation because neither officer
received 1995 cash compensation in excess of $100,000.
30
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------
Other
Annual All Other
Name and Compensation Compensation
Principal Position Year Salary* Bonus($) ($) (Shares)
- ------------------ ---- ------- -------- ------------ --------
Fred Jaroslow, 1995 --
Former Chairman,
Chief Executive 1994 $12,946 -- -- --
Officer, Executive
Vice President and 1993 $24,077 -- -- --
Secretary*
- ----------
* This amount does not include prerequisites and other personal benefits,
securities or property because the aggregate amount thereof in each fiscal year
did not exceed $50,000 or 10% of the total annual salary and bonus reported for
the named executive officer.
During the last three completed fiscal years, the Company granted no
restricted stock awards or stock appreciation rights (whether freestanding or in
tandem with stock options). In January 1994, however, pursuant to the Company's
1989 Incentive Stock Option Plan, Mr. Jaroslow was granted options to purchase
100,000 shares of the Common Stock of the Company exercisable beginning in 1996
at $.344 per share.
Aggregate Option Exercises and Values
- -------------------------------------
The following table shows stock options exercised by executive officers
during 1995, including the aggregate value of any gains on the date of exercise.
In addition, this table includes the number of shares covered by both
exercisable and non-exercisable stock options as of November 30, 1995. Values
for the options are not reported because none of the exercisable options are
"in-the-money" options which represent the positive spread between the exercise
price of outstanding stock options and the year-end price of the Company's
Common Stock.
31
<PAGE>
AGGREGATE OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
No. of Securities
Underlying
Unexercised
Options at
11/30/95
Shares Acquired Value -----------------------------------
Name on Exercise Realized Exercisable(1) Not Exercisable(2)
- ---- ----------- -------- -------------- ------------------
Fred Jaroslow --- --- 100,000 100,000
Susan Astor --- --- 50,000 131,250
Michael Astor --- --- 50,000 131,250
- ------------
(1) Includes the grant in March 1991 pursuant to the Company's 1989 Incentive
Stock Option Plan of options to purchase shares of Common Stock exercisable
beginning in December 1993 at $.8938 per share.
(2) Includes the grant in January 1994 pursuant to the Company's 1989 Incentive
Stock Option Plan of options, exercisable beginning in 1996 to (i) Mr.
Jaroslow to purchase 100,000 shares of Common Stock at $.344 per share, and
(ii) each of Mr. Astor and Ms. Astor to purchase 131,250 shares of Common
Stock at $.3125 per share.
Employment Agreements
- ---------------------
In December 1988, the Company entered into separate five-year employment
agreements with Susan Astor and Michael Astor which became effective upon the
closing of the Initial Public Offering in March 1990. Pursuant to agreements
dated October 22, 1993, the employment agreements were amended to provide that
employment shall continue until December 31, 1996. The terms of such agreements
are renewable for one-year periods subject to the approval of the Board of
Directors of the Company. During the first two years of their agreements, the
officers were entitled to receive salaries at a combined rate of $245,000 and
each received ten percent increases during the third year. Thereafter, their
salaries were to be negotiated, in good faith, with the Board of Directors (with
such officers abstaining from any vote by the Board). Such employment agreements
provide for payments to the respective officers upon the termination of their
employment by the Company without cause and will terminate upon the closing of
the Asset Sale. While such officers are not currently receiving salaries at the
rate provided in the employment agreements, to
32
<PAGE>
the extent not paid, Mr. and Mrs. Astor's salaries are currently being accrued.
Mr. and Mrs. Astor have agreed to waive accrued vacation as of November 30,
1995. Such employment agreements will terminate upon the closing of the Asset
Sale and, to the extent not paid prior to the closing, all accrued salaries and
vacations shall be waived.
In addition, the Company has entered into a consulting agreement with Mr.
Jaroslow which became effective upon the termination of his service under his
employment agreement but which will terminate upon the closing of the Asset
Sale. The consulting agreement has a term of five years. In his first year of
the consulting agreement, Mr. Jaroslow's salary will be equal to $56,000. His
salary in successive years will be based upon a formula provided in the
consulting agreement and shall not exceed his salary for the first year of the
consulting agreement. During the term of the consulting agreement, Mr. Jaroslow
shall render services to the Company on a part-time basis not to exceed 50 days
per year. Mr. Jaroslow is not currently receiving any salary under this
agreement, and his compensation is not being accrued. Mr. Jaroslow has agreed to
waive all unpaid compensation under this agreement as of March 1995.
Pursuant to the terms of the Letter Agreement (see "Business of the Company
- - Recent Events - Termination of Plan of Reorganization, Issuance of Shares and
Line of Credit"), the Company agreed to enter into a consulting agreement with
Bernard Tessler, effective January 1, 1995 pursuant to which Mr. Tessler
provided consulting services to the Company encompassing 75% of his full working
time through February 28, 1995 and 20% of his full working time through December
31, 1997. In consideration therefore, the Company agreed to pay Mr. Tessler at
the rate of $75,000 per annum for the period from January 1, 1995 through
February 28, 1995 and $25,000 per annum for the period from March 1, 1995
through December 31, 1997. Pursuant to the terms of the amendment letter dated
April 10, 1995, the consulting agreement was terminated.
1989 Employee Incentive Stock Option Plan
The Company's 1989 Employee Incentive Stock Option Plan (the "Option Plan")
was adopted by the Board of Directors and approved by the shareholders as of
June 1, 1989. The Option Plan authorizes the Stock Option Plan Committee of the
Board of Directors ("Option Committee") to recommend that the Board grant to key
employees, officers and directors both "incentive stock options" within the
meaning of Section 422A of the Internal Revenue Code of 1986 and non-statutory
stock options. The Option Plan provides for the issuance of up to 600,000 shares
of Common Stock. Each option granted under the Option Plan has a term of up to
five years, is exercisable only at such times as the Board of Directors
determines at the time of grant for a price at least equal to the fair market
value of the Common Stock on the date the option is granted, will terminate
under certain circumstances if the holder ceases to be an employee of the
Company and requires that the exercise price be paid, in the discretion of the
Board of Directors, in cash, shares (valued at the fair market value thereof on
the date of exercise) or a combination thereof. The option exercise price of
"incentive stock options" granted to ten percent or greater shareholders of the
33
<PAGE>
Company must be equal to at least 110% of the fair market value of the Company's
shares of Common Stock on the date of grant.
Awards are granted in the discretion of the Option Committee. The Option
Committee awards options to key employees in order to provide an incentive for
them to expend maximum effort for the success of the Company's business. The
Committee uses no set criteria to determine amounts to be awarded under the
Plan. Factors used to determine awards in the past have included length of
service to the Company, job responsibility and achievement.
On March 7, 1991, the Board of Directors, acting upon the recommendation of
the Option Committee, authorized the grant of options to purchase an aggregate
of 267,500 shares of Common Stock under the Option Plan to eight employees of
the Company, including Mr. and Ms. Astor. Two of such employees have since left
the Company, upon which options with respect to 30,000 of such shares expired.
In addition, on January 31, 1994, the Board of Directors authorized the grant of
options to purchase an aggregate of 362,500 shares to Messrs. Jaroslow and
Astor, and Ms. Astor. All options granted shall vest from periods of one to five
years from the date of grant. However, all options granted shall terminate upon
the closing of the Asset Sale.
Compliance With Section 16(a) of the Securities and Exchange Act
- ----------------------------------------------------------------
Based solely upon a review its files, the Company was not furnished with
copies of Form 5 (Annual Statement of Beneficial Ownership of Securities) by any
officer, director or beneficial owner of more than ten percent of any class of
equity securities of the Company during or subsequent to its fiscal year ended
November 30, 1995.
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
In September 1994 Gerstein, Metelka, Minkow & Co. ("GMM") resigned as the
Company's independent accountants. In December 1994, the Company engaged its
current independent accountants, Eichler Bergsman & Co., LLP ("EB"). The
resignation of GMM was not a result of any disagreements with GMM on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure. On March 11, 1996, EB was dismissed as the
Company's independent accountant. For the year ended November 30, 1994, the
audit report of EB was qualified concerning the Company's ability to continue as
a going concern. During the Company's two most recent fiscal years and the
subsequent interim period up to the date of the change of accountants, the
Company did not have any disagreements with EB on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. By letter dated March 12, 1996, the Company engaged the firm of
Feldman Radin & Co., P.C., certified public accountants ("FRC"), to serve as its
new independent accountant to audit the Company's financial statements. Such
decision was made by the executive officers of the Company and approved by the
Board of Directors. At no time during the Company's two most recent fiscal years
has the Company (or anyone on its behalf) consulted FRC regarding the
application of accounting principles to a specified transaction, the type of
audit opinion that might be rendered on the
34
<PAGE>
Company's financial statements or any other matter. The Company does not
anticipate that representatives of either EB or FRC will be present at the
Special Meeting.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
In March 1992, the Company issued 600,000 shares of Common Stock to Mr.
Rubin in exchange for his investment of $100,000 in the Company.
In May 1992, Mr. and Mrs. Astor contributed to the Company a total of
500,000 shares of Common Stock owned by them.
In August 1991, the NASD promulgated revised requirements, effective March
2, 1992, for continued inclusion of an issuer's securities on the NASDAQ Stock
Market, including a requirement that the issuer maintain shareholders' equity of
at least $1,000,000 and have assets of at least $2,000,000. In order to meet
such requirements, certain members of the Board of Directors agreed to invest an
aggregate of $500,000 in the Company in exchange for $500,000 principal amount
of 10% Exchangeable Notes. The Notes were exchangeable for a series of
cumulative redeemable pre ferred stock, subject to, among other things, a
determination by a hearing panel of the NASD that issuance of such preferred
stock would enable the Company to maintain its NASDAQ listing. However, on July
30, 1992, following the determination of an NASD listing qualifications
committee that the issuance of such preferred stock would not enable the Company
to meet the net worth requirements of the NASD, the Company repaid the principal
of the outstanding 10% Exchangeable Notes in the aggregate amount of $500,000 by
the way of an investment by each of the noteholders in the Common Stock of the
Company. Each noteholder purchased the number of shares of Common Stock equal to
the principal amount of 10% Exchangeable Notes held by such noteholder at a
price of $1.00 per share. Such Common Stock was issued to the noteholders as
follows: Fred Jaroslow - 230,888 shares; Gro-Vest, Inc. (a corporation in which
Lawrence K. Fleischman, a former director of the Company, owns a 25% interest) -
19,236 shares; Alan Goldberg - 117,638 shares; Kent Q. Kreh - 5,000 shares; Mark
Levine - 117,638 shares; and Richard Samber - 9,600 shares.
On July 31, 1992, Fred Jaroslow and Michael Astor each purchased 97,500
shares of Common Stock of the Company at a price of $1.00 per share, for an
aggregate price of $195,000.
In January 1994, the Company issued 200,000 shares of its Common Stock to
Robert M. Rubin in consideration of loans made by Mr. Rubin pursuant to a
Revolving 10% Promissory Note under which the Company has borrowed an aggregate
principal amount of $200,000. See Item 1 "Recent Events - Loan to the Company" .
Pursuant to the terms of a letter agreement dated November 18, 1994 among
the Company and each of Michael Astor, Susan Astor and Fred Jaroslow, in their
individual capacities, and Lawrence E. Kaplan, Stanley Kaplan and Mr. Rubin, the
Company agreed to: (i) cause the Board of Directors of each of the Company and
Kid 'N Things to terminate the Reorganization Agreement;
35
<PAGE>
(ii) issue 1,500,000 shares of Common Stock to Bernard Tessler in consideration
of the payment of $2,000 and past services rendered to the Company; (iii) elect
each of Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan (the son of Stanley
Kaplan) to fill three vacancies on the Board of Directors caused by the
resignations of Messrs. Tessler, Baird and Horvitz; (iv) issue an aggregate of
100,000 shares of Common Stock to Jerry Feldman in consideration of the payment
of $100 and past services rendered to the Company, (v) issue an aggregate of
3,250,000 shares of Common Stock to Messrs. Andrew Kaplan (as Stanley Kaplan's
designee), Lawrence E. Kaplan and Rubin in consideration of the payment of an
aggregate of $4,200, past financial consulting services rendered and the joint
and several agreement among the Investors to make available to the Company a
$275,000 line of credit; and (vi) issue 400,000 shares of Common Stock to Mr.
Rubin in consideration of the payment of $400 and his agreement to waive any and
all defaults by Playorena to make current interest payments through the maturity
date arising under the Note. The number of shares of common stock to be issued
to Mr. Tessler was subsequently reduced by 750,000 shares pursuant to a letter
agreement dated April 10, 1995.
On October 26, 1994, Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan
were elected to the Board of Directors. Each of Mr. and Mrs. Astor, the current
directors of the Company, agreed to vote to elect three designees of the
Investors to the Board of Directors of the Company until such time as the Line
of Credit is repaid or the Investors default on their obligations arising under
the Line of Credit. Each of the Investor's designees to serve on the Board of
Directors have agreed to resign upon the earlier of repayment of all outstanding
amounts of principal and accrued interest under the Line of Credit or a material
breach of the Line of Credit by any of the Investors, unless such designees have
previously been elected to the Board of Directors by vote of the Company's
shareholders. Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan subsequently
resigned as directors and no replacements have as yet been designated by the
Investors.
The Letter Agreement establishing the Line of Credit provided that the
outstanding principal amount drawn down would bear interest at the rate of 10%
per annum, with principal and interest due at the earlier of the closing of any
debt or equity offering of the Company's securities, the gross proceeds of which
is not less than $1,500,000, or September 30, 1995. To date, the Company has
borrowed the maximum amount available under the Line of Credit ($275,000) and
does not have the resources to repay the Line of Credit.
Pursuant to the terms of the Letter Agreement, the Company and Mr. Tessler
agreed to terminate the Management Agreement, thereby relieving the Company of
any future obligation to issue any shares thereunder. Mr. Tessler and the
Company further agreed to enter into a Consulting Agreement effective January 1,
1995, pursuant to which Mr. Tessler agreed to provide consulting services during
75% of his full working time for a fee of $75,000 per annum through February 28,
1995 and to provide consulting services during 20% of his full working time for
a fee of $25,000 per annum from March 1, 1995 through December 31, 1997. Under
the amendment letter dated April 10, 1995, Mr. Tessler agreed, among other
things, to release the Company from all payment obligations arising under the
Consulting Agreement in consideration for a payment of $6,200.
36
<PAGE>
In May 1994, the Company commenced and completed a private placement of
five units, each unit consisting of 22,222 shares of the Company's Common Stock
and a promissory note in the principal amount of $50,000, bearing interest at
the rate of ten percent per annum, with principal and interest due at the
earlier of the closing of any debt or equity offering of the Company's
securities yielding gross proceeds in excess of $1,500,000 or September 30,
1995. As each of the units were sold by the Company for $50,000, the Company
derived an aggregate of $250,000 from the private placement. With the exception
of one-half of one unit acquired by Lawrence E. Kaplan, a nominee to be elected
as a director of the Company, all of the units were acquired by unaffiliated
persons. These notes are currently in default and the Company does not at the
present time have any avenue to offer its debt or equity securities, nor does
the Company have the resources to repay the promissory notes that became due on
September 30, 1995.
In February and March 1995, the Company received loans in the aggregate
amount of $143,333 from three investors and the father of a principal
shareholder of the Company: (i) Lawrence E. Kaplan - $20,416; (ii) Stanley
Kaplan (the father of Andew Kaplan) - $20,416; (iii) Fred Jaroslow - $40,500;
and (iv) Robert Rubin - $62,000. As the Company does not have the resources to
repay such loans, the lenders agreed to accept an aggregate of 3,278,890
(163,945 shares subsequent to the reverse stock split) shares of Common Stock to
be issued simultaneous with the closing as payment in full for such loans.
37
<PAGE>
FINANCIAL STATEMENTS
38
<PAGE>
PLAYORENA INC.
BALANCE SHEET
MAY 31, 1996
(UNAUDITED)
ASSETS
Cash $ 30,229
-----------
TOTAL ASSETS $ 30,229
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Notes payable $ 875,333
Accrued expenses 516,713
-----------
TOTAL CURRENT LIABILITIES 1,392,046
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, $ .001 par value;
15,000,000 shares authorized,
8,262,910 shares issued and outstanding 8,263
Additional paid-in-capital 4,089,783
Accumulated deficit (5,459,863)
-----------
TOTAL SHAREHOLDERS' DEFICIENCY (1,361,817)
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 30,229
===========
See notes to financial statements.
1
<PAGE>
PLAYORENA INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
May 31, May 31, May 31, May 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EXPENSES:
General and administrative $ 3,501 $ 1,503 $ 8,571 $ 6,573
Interest Expense 22,256 22,813 44,512 42,079
----------- ----------- ----------- -----------
TOTAL EXPENSES 25,757 24,316 53,083 48,652
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (25,757) (24,316) (53,083) (48,652)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 35,804 (70,069) (24,434) (250,627)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 10,047 $ (94,385) $ (77,517) $ (299,279)
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE:
Continuing operations $ 0.00 $ 0.00 $ (0.01) $ (0.01)
Discontinued operations 0.00 (0.01) 0.00 (0.03)
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER SHARE $ 0.00 $ (0.01) $ (0.01) $ (0.04)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION 8,262,910 8,580,454 8,262,910 8,313,306
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE>
PLAYORENA INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
---------------------------
May 31, May 31,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (77,517) $(299,279)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 30,646 31,375
Gain (loss) on sale of equipment -- (16,036)
Change in operating assets and liabilities 81,771 84,580
--------- ---------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 34,900 (199,360)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment -- 150
Proceeds from the sale of equipment -- 51,136
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -- 51,286
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) debt financing (6,000) 145,333
Decrease of capital lease obligations -- (3,153)
Proceeds from officer loans -- 3,500
--------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (6,000) 145,680
--------- ---------
NET INCREASE (DECREASE) IN CASH 28,900 (2,394)
CASH AT BEGINNING OF PERIOD 1,329 2,944
--------- ---------
CASH AT END OF PERIOD $ 30,229 $ 550
========= =========
</TABLE>
.See notes to financial statements.
3
<PAGE>
PLAYORENA INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited, but reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented. All such adjustments are of a normal and recurring nature.
The results of operations for any interim period are not necessarily indicative
of the results attainable for a full fiscal year.
2. LOSS PER SHARE
Per share information is computed based on the weighted average number of
shares outstanding during the period.
3. DISCONTINUED OPERATIONS
Assets and liabilities of the Company's discontinued operations consist of
the following at May 31, 1996:
Assets:
Accounts receivable $ 19,653
Prepaid expenses 823
Property and equipment 184,753
Intangible assets 7,300
Liabilities:
Accounts payable and accrued expenses (457,701)
---------
Net $(245,172)
=========
4
<PAGE>
The revenues of the discontinued business were $267,331 for the six month
period ended May 31, 1996 and $324,722 for the six month period ended May 31,
1995.
4. ACCRUED EXPENSES
Accrued expenses consist of the following at May 31, 1996:
Interest $166,400
Professional fees 97,641
Other 7,500
Estimated losses through estimated disposal date 81,552
Estimated gain on disposal not recognized 163,620
--------
$516,713
========
5
<PAGE>
OTHER BUSINESS
In accordance with the Company's By-Laws, the only matters that may be
brought before the meeting are those set forth in the accompanying notice of
Special Meeting and matters germane thereto.
SHAREHOLDER PROPOSALS
FOR NEXT ANNUAL MEETING
The meeting is a Special Meeting of Shareholders. Any proposals which a
shareholder wishes to have included in the Proxy Statement and proxy relating to
the 1996 Annual Meeting of Shareholders must be received by Playorena at its
executive offices no later than June 30, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-KSB for the fiscal year ended
November 30, 1995 is incorporated herein by reference. The Company will provide
a copy of its Annual Report without charge, upon request, by first-class mail
within one business day of receipt of such request. Such request should be
directed to Mr. Michael Astor, Secretary, Playorena Inc., 20 Manhasset Avenue,
Port Washington, New York 11050 (516-883-7529).
By Order of the Board of Directors
Michael Astor,
Secretary
October __, 1996
Port Washington, New York
