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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM...................... TO ........................
COMMISSION FILE NUMBER 0-18412
PLAYORENA INC.
(Name of small business issuer in its charter)
New York 11-2602120
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Vanderbilt Motor Parkway, Suite 311, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (516) 273-0058
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock $.001 Par Value
(Title of class)
Common Stock Purchase Warrants (Expired January 1996)
(Title of class)
Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes /X/ No / /
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $--.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of March 1, 1999 the average bid price of common stock was $.001 and
the average asked price was $.05.
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: As of March 15, 1999 the number of
shares of common stock outstanding was 9,198,679.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Playorena Inc. (the "Company") was incorporated in the State of New
York in 1981 and began its business operations providing recreational play and
exercise programs for children. Despite the best efforts of management to reduce
costs by significantly decreasing the number of locations in operation, the
Company sustained losses from operations. The Company was unable to raise the
required capital to continue operating and decided to divest all of its
operations. The Company consummated the sale of its assets on July 24, 1998 and
is operating as a public shell seeking the acquisition of, or merger with an
existing company. The Company has entered into agreements respecting a proposed
acquisition of several businesses and a related private placement of the
Company's securities. There can be no assurance that any such transaction will
be consummated pursuant to the current terms, if at all (see Proposed
Transactions below).
ASSET PURCHASE AGREEMENT WITH MICHAEL ASTOR
On April 14, 1995, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Michael Astor (who, along with his wife, Susan Astor,
comprised all of the then current officers and members of the Board of Directors
of the Company), pursuant to which an entity formed by Mr. and Mrs. Astor (the
"Purchaser") agreed to acquire all of the assets and properties of the Company
(the "Asset Sale"), including, without limitation, all copyrights, trademarks,
trade names (including the name "Playorena"), accounts receivable, equipment,
inventory, cash and cash equivalents (the "Playorena Assets"), in exchange for
the Purchaser's assumption of certain liabilities of the Company and the
transfer to the Company by Mr. and Mrs. Astor of 1,041,800 shares (prior to the
various reverse stock splits referred to herein) of common stock of the Company,
$.001 par value per share (the "Common Stock"), representing all of the Common
Stock of the Company owned by Mr. and Mrs. Astor.
At November 30, 1997 liabilities of the discontinued business
consisting of accounts payable and accrued expenses aggregated $496,583. As of
November 30, 1997 the Company's total liabilities were $1,827,395. As indicated
below, shareholder approval of the Agreement was obtained in February 1997 and
the Asset Sale was consummated on July 24, 1998. As a result thereof, as
previously approved by the shareholders, a reverse stock split of 1 for 20 was
effected on July 24, 1998. Shortly following the consummation of the Asset Sale,
8,612,624 shares (on a post-split basis following the one-for-twenty reverse
stock split effected in July 1998 (the "July Reverse Stock Split")) were issued
to certain creditors, including certain individuals and entities who purchased
securities of the Company in 1994, all of whom released their liens in exchange
for shares of Common Stock (see the reverse split described herein). A total of
7,853,777 of these shares were issued to Messrs. Andrew Kaplan (a major
shareholder), Lawrence Kaplan (a director and President), Robert Rubin (a
director and Chairman) and Alfred Romano (a director). See "Private Placement of
Equity and Debt" below. In addition, 597,466 additional shares of Common Stock
(on a post-July Reverse Stock Split basis) are expected to be purchased by
certain creditors who previously provided products or services to the Company
and agree to convert their debt into equity.
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The Agreement specifically provides that the Company shall retain "all
claims for tax refunds, tax loss carry forwards or carry backs or tax credits of
any kind" applicable to the Company's business prior to the closing of the Asset
Sale. Without future profits by the Company such tax losses are of limit or no
value. As of November 30, 1998, the Company had net operating loss carry
forwards of approximately $5,391,000 that expire between 1999 and 2011. 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 $875,333 in the aggregate (including $143,333 loaned
to the Company since January 1995) plus accrued interest, estimated at $296,956
at November 30, 1996 (these liabilities have been converted into equity of the
Company);
(ii) liabilities owed to certain professionals who have provided
services to the Company, plus other liabilities all aggregating approximately
$380,000 at November 30, 1998;
(iii) claims made against the Company by shareholders of the Company,
none of which are presently pending or, to the Company's knowledge, threatened;
(iv) certain fees incurred in connection with compliance of applicable
securities laws; and
(v) all liabilities and obligations of the Company arising after the
closing of the Asset Sale.
The financial statements included in this report indicate that the
Company has no assets or business. In light of the fact that the Company does
not have any business or assets with which to generate revenue, the Company will
not have any means to satisfy its liabilities or obligations unless and until
the Company is able to raise additional capital or acquire a profitable
business. 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
business should be offered to the Company, any such transaction is likely to
result in immediate and substantial dilution to the present shareholders of the
Company.
Liabilities of the discontinued business consist of accounts payable
and accrued expenses aggregating approximately $66,226. The Company will remain
contingently liable to the extent that assumed liabilities are not satisfied. In
this regard, the Company has not recognized any gain at November 30, 1998 for
the assumption of these liabilities. Revenues of discontinued business were
$117,866 in the fiscal year ended November 30, 1997.
Although the Agreement provides for the assumption by the Purchaser
and, indirectly, by Mr. and Mrs. 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
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such liabilities will be satisfied. The Purchaser was 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 Purchaser nor Mr. Astor
have sufficient resources to satisfy all of the liabilities to be assumed.
On February 7, 1997, a meeting of shareholders of the Company was held
at which the Agreement and the July Reverse Stock Split were approved by a vote
of the Company's shareholders. The aforementioned conditions to the Agreement
have been approved and ratified.
Consummation of the Asset Sale does not require the Company to satisfy
any Federal or state regulatory requirements or to obtain any government
approvals.
The Company consummated the Asset Sale on July 24, 1998. On that
date, Mr. and Mrs. Astor resigned as officers and directors of the Company and
Lawrence Kaplan became President and Secretary and Robert Rubin, Chairman.
Messrs. Kaplan, Rubin and Alfred Romano also became directors on that date.
NEW BUSINESS OPPORTUNITIES
The Company is seeking the acquisition or merger with an existing
company ("Potential Business Acquisitions"). Given the small amount of cash held
by the Company, the potential venture is likely to involve the acquisition of or
merger with a company that is not seeking immediate substantial amounts of cash
but one which desires to establish a public trading market for its shares. There
are numerous reasons why an existing privately-held company would seek to become
a public company through a merger or acquisition rather than doing its own
public offering. Such reasons include avoiding the time delays involved in a
public offering; retaining a larger share of voting control of the publicly-held
company; reducing the cost factors incurred in becoming a public company; and
avoiding any dilution requirements set forth under various state's securities or
blue sky laws or regulations.
The Company does not propose to restrict its search for Potential
Business Acquisitions to any particular industry or any particular geographic
area and may, therefore, engage in essentially any business to the extent of its
limited resources.
It is anticipated that knowledge of Potential Business Acquisitions
will be made known to the Company by various sources, including its officers and
directors, shareholders, professional advisors such as attorneys and
accountants, securities broker-dealers, venture capitalists, members of the
financial community, and others who may present unsolicited proposals. In
certain circumstances, the Company may agree to pay a finder's fee or to
otherwise compensate such persons for services rendered in bringing about a
transaction. However, no cash finder's fee shall be paid to any officer or
director of the Company or their affiliates or associates. The amount of any
such finder's fee or other compensation which may be paid to such persons for
services rendered in bringing about a transaction is subject to future
negotiation between the Company, the entity to be acquired and the finder.
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SELECTION OF OPPORTUNITIES
The analysis of new business opportunities has and will be undertaken
by or under the supervision of the officers and directors of the Company, none
of whom is a professional business analyst or has any previous training or
experience in business analysis or in selecting or hiring business analysts. The
Company has unrestricted flexibility in seeking, analyzing and participating in
Potential Business Opportunities. In its efforts to analyze potential
acquisition targets, the Company will consider the following kinds of factors:
(a) Potential for growth, indicated by new technology,
anticipated market expansion or new products;
(b) Competitive position as compared to other firms of similar
size and experience within the industry segment as well as
within the industry as a whole;
(c) Strength and diversity of management, either in place or
scheduled for recruitment;
(d) Capital requirements and anticipated availability of required
funds, to be provided by the Company or from operations,
through the sale of additional securities, through joint
ventures or similar arrangements or from other sources;
(e) The cost of participation by the Company as compared to the
perceived tangible and intangible values and potentials;
(f) The extent to which the business opportunity can be advanced;
(g) The accessibility of required management expertise, personnel,
raw materials, services, professional assistance and other
required items; and
(h) Other relevant factors.
In applying the foregoing criteria, no one of which will be
controlling, management will attempt to analyze all factors in the circumstances
and make a determination based upon reasonable investigative measures and
available data. Potentially available business opportunities may occur in many
different industries and at various stages of development, all of which will
make the task of comparative investigation and analysis of such business
opportunities extremely difficult and complex. Due to the Company's limited
capital available for investigation and management's limited experience in
business analysis, the Company may not discover or adequately evaluate adverse
facts about the opportunity to be acquired.
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FORM OF ACQUISITION
The manner in which the Company participates in an opportunity will
depend upon the nature of the opportunity, the respective needs and desires of
the Company and the promoters of the opportunity, and the relative negotiating
strength of the Company and such promoters.
It is likely that the Company will acquire its participation in a
business opportunity through the issuance of common stock or other securities of
the Company. Although the terms of any such transaction cannot be predicted, it
should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"),
depends upon the issuance to the shareholders of the acquired company of at
least 80 percent common stock of the combined entities immediately following the
reorganization. If a transaction were structured to take advantage of these
provisions rather than other "tax free" provisions provided under the Code, all
prior shareholders would in such circumstances retain 20% or less of the total
issued and outstanding shares. This could result in substantial additional
dilution to the equity of those who were shareholders of the Company prior to
such reorganization.
The present shareholders of the Company will likely not have control of
a majority of the voting shares of the Company following a reorganization
transaction. As part of such a transaction, all or a majority of the Company's
directors may resign and new directors may be appointed without any vote by
shareholders.
In the case of an acquisition, the transaction may be accomplished upon
the sole determination of management without any vote or approval by
shareholders. In the case of a statutory merger or consolidation, it will likely
be necessary to call a shareholders' meeting and obtain the approval of the
holders of a majority of the outstanding shares. The necessity to obtain such
shareholder approval may result in delay and additional expense in the
consummation of any proposed transaction and will also give rise to certain
appraisal rights to dissenting shareholders. Most likely, management will seek
to structure any such transaction so as not to require shareholder approval.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and substantial cost for accountants, attorneys
and others. If a decision is made not to participate in a specific business
opportunity, the costs theretofore incurred in the related investigation would
not be recoverable. Furthermore, even if an agreement is reached for the
participation in a specific business opportunity, the failure to consummate that
transaction may result in the loss to the Company of the related costs incurred.
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PROPOSED TRANSACTIONS
ACQUISITIONS OF SMARTLINK AND KING
The Company intends to acquire in two separate transactions the
businesses of SmartLink Development Network, Inc, a corporation organized under
the laws of Connecticut ("SmartLink"), and King Communications International
Limited, an Australian corporation ("King International"). SmartLink and King
International are providers of wireless voice and data products and systems to
the private two-way land mobile radio industry. The Company will acquire (the
"Acquisition") from King International in exchange for shares of Common Stock of
the Company, all of the outstanding capital stock of King International's two
wholly-owned operating subsidiaries, King Communications Australasia Pty Limited
("King Australasia") and King Communications U.S.A., Inc. ("King USA";
hereinafter, the businesses of King Australasia and King USA shall collectively
be referred to as "King"). Immediately thereafter, a wholly-owned subsidiary of
the Company will merge with and into SmartLink, in exchange for shares of Common
Stock of the Company, with SmartLink as the surviving corporation (the
"Merger"). Following the Acquisition and Merger (collectively, the
"Acquisitions"), each of SmartLink, King Australasia and King USA will be
wholly-owned subsidiaries of the Company.
The Company has entered into two separate agreements with respect to
the acquisition of the business of each of SmartLink and King. The Merger is
intended to be completed pursuant to the Agreement and Plan of Merger, dated as
of December 17, 1998 ("SmartLink Merger Agreement"), by and among the Company,
SmartLink, King International, and Todtman, Nachamie, Spizz & Johns, P.C., as
escrow agent, pursuant to which the Company's wholly-owned subsidiary formed for
such purposes will merge into SmartLink in a tax free reorganization within the
meaning of Sections 351 and/or 368 of the Internal Revenue Code of 1986, as
amended. Shareholders of SmartLink will exchange their shares in SmartLink for
an aggregate of 1,363,636 shares of Common Stock of the Company, following the
New Reverse Stock Split (as defined below) ("SmartLink Purchase Stock").
Consummation of the transactions contemplated by the SmartLink Merger Agreement
is subject to the approval of holders of a majority of the outstanding shares of
SmartLink.
Pursuant to the Asset Purchase and Sale Agreement ("King Asset Purchase
Agreement"), dated as of December 17, 1998, by and among the Company, SmartLink,
King International, Frank Eccles, Robert Geaghan, and Todtman, Nachamie, Spizz &
Johns, P.C., as escrow agent, the Company will acquire from King all of the
issued share capital of King Australasia and King USA in exchange for 1,517,045
shares of Common Stock of the Company, following the New Reverse Stock Split
("King Purchase Stock"). Consummation of the King Asset Purchase Agreement is
contingent upon, among other things, approval of (i) holders of at least 50% of
King International's issued share capital (which was obtained on December 31,
1998) and (ii) the Vancouver Stock Exchange, on which King International's
securities are traded.
The Acquisitions are subject to a number of conditions, including the
consummation of the Private Placement (as defined hereinafter), as to which the
Company has been informed of certain
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difficulties. There can be no assurance that the Acquisitions can be
consummated on their current terms, if at all.
See Item 12, "Certain Relationships and Related Transactions" below for
certain payments being made to directors and affiliates of the Company in
connection with the Acquisitions.
PROPOSED PRIVATE PLACEMENT
The consummation of the Acquisitions is contingent upon a proposed
private placement of Units by the Company, on a "best efforts" basis, raising at
least $10,000,000 ("Minimum Offering"), up to a maximum $11,500,000 ("Maximum
Offering"), in gross proceeds, giving effect to the conversion of certain debt
("Private Placement"). Each Unit is expected to consist of shares of the
Company's to-be-designated Series A 12% Convertible Preferred Stock, par value
$.001 per share ("Series A Preferred"), and warrants to purchase Common Stock.
The Company has been informed of certain difficulties in connection with the
proposed Private Placement, and believes that it is likely the structure of that
transaction will be changed, possibly resulting in amendments to the agreements
concerning the Acquisitions, or even the abandonment of the Acquisitions and
Private Placement.
ADDITIONAL PROPOSED REVERSE STOCK SPLIT
The consummation of the Acquisitions and the Private Placement is
contingent upon each share of Common Stock issued and outstanding, without any
action on the part of any holder thereof, being converted into .0106065 of a
share of Common Stock (the "New Reverse Stock Split"). Shareholders holding
shares of Common Stock in an amount not divisible by 0.0106065 will receive the
next highest whole number of shares.
The New Reverse Stock Split would apply to all shares of the Company's
Common Stock outstanding on the date immediately prior to the closing of the
Minimum Offering, but will not be effective until the consummation of the
Acquisitions and Private Placement. Giving effect to the consummation of the
Acquisitions and Private Placement, the holders of Common Stock will
collectively own 2% of the outstanding voting securities of the Company on a
diluted basis.
The principal purpose of the New Reverse Stock Split is to fulfill the
provisions and requirements of the SmartLink Merger Agreement, King Asset
Purchase Agreement and Private Placement. These agreements and the terms of the
Private Placement provide that the Company's currently outstanding Common Stock
on the Record Date be reduced to 113,647 and 119,274 shares of Common Stock in
the case of the Minimum Offering and Maximum Offering, respectively, which is 2%
of the outstanding voting securities of the Company, giving effect to the
Acquisitions and Private Placement, on a fully diluted basis.
The New Reverse Stock Split contemplates the Maximum Offering. Upon the
closing of the Minimum Offering, an aggregate of 5,627 shares of Common Stock
(the difference between 119,274 and 113,647) will be placed in escrow, to be
released on a proportionate basis upon additional
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closings amounting to gross proceeds in excess of the Minimum Offering. In the
event that the Company does not raise in excess of the Minimum Offering, then
the Common Stock held in escrow shall be canceled.
SHAREHOLDER'S MEETING; CURRENT STATUS
As contemplated in connection with the Acquisitions, a proxy statement
was mailed to shareholders of the Company on or about February 9, 1999, calling
a special meeting of shareholders for February 19, 1999 (the "Meeting") and
requesting approval by the Company's shareholders of the following, effective
upon consummation of the Acquisitions: (A) an amendment to the Company's
Certificate of Incorporation (i) to change the name of the Company to "SK Global
Technologies, Inc.", (ii) to recapitulate the purposes for which the Company was
formed; (iii) to change the location of the office of the Company; (iv) to
increase the authorized number of shares of Common Stock from 15,000,000 to
20,000,000 and; (iv) to change the address to which the Secretary of State of
New York shall mail a copy of any process against the Company served upon him;
(v) to effect the New Reverse Stock Split; (vi) to increase the authorized
number of shares of Common Stock from 15,000,000 to 20,000,000 and ; (vii) to
authorize the issuance, in one or more series, of an aggregate of 5,000,000
shares of Preferred Stock, $.001 par value per share, each such series having
the designation, relative rights, preferences or limitations, as shall be
determined by the Board of Directors and (B) approval of the adoption of the
Company's 1998 Stock Option Plan.
As a result of the above-referenced uncertainties concerning the
Acquisitions, on February 19, 1999, the Meeting was duly called to order, upon
which the shareholders of the Company voted to adjourn the Meeting until March
11, 1999. On March 11, 1999, the Meeting was called to order and the
shareholders voted to adjourn the Meeting to April 12, 1999.
The agreements concerning the Acquisitions permit the Company to
terminate these agreements if the Acquisitions are not consummated by March 31,
1999. The Company has not yet determined whether or not to exercise this right
after March 31, 1999, since it is likely that the Acquisitions will not be
consummated by such date. It remains unclear when or if the Acquisitions will be
consummated.
EMPLOYEES
The Company currently has no employees.
ITEM 2. DESCRIPTION OF PROPERTY.
In fiscal year 1997, the Company's executive offices were located in a
5,000 square foot space in Port Washington, New York that is leased from an
unaffiliated landlord. The leased premises were used by the Company for its
executive offices, storage and a training facility. The Company's annual rent
for such leased premises was an annual rental equal to $45,600 from October
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1, 1997 through September 30, 1998 and $4,800 from October 1, 1998 through
September 30, 1999. The Lease was assigned to the acquiring entity as part of
the Asset Sale.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently involved in any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In the fourth quarter of the fiscal year ended November 30, 1998, there
was no submission of matters to a vote of security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET FOR COMMON STOCK
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 did 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.
On March 1, 1999, the quoted bid price of the Company's Common Stock was
$.001 per share and the asked price was $.05 per share.
The following tables set forth the high and low closing bid and ask
quotations for each fiscal
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quarter of 1998 and for each fiscal quarter of 1997 and 1996, with respect to
the Common Stock and Warrants as reported by NASD. 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.
B. HOLDERS
As of March 1, 1999, there were approximately 100 holders of record and the
Company believes that there are in excess of 600 beneficial holders of the
Common Stock.
C. DIVIDENDS
The Company has not paid any cash dividends to date and does not
anticipate or contemplate paying dividends in the foreseeable future. It is the
present intention of management to utilize all available funds for the
development of the Registrant's business.
Common Stock,
$.001 par value
Bid Ask
Period High Low High Low
1998
- ----
First Quarter $.001 $.001 $.05 $.05
(December 1997
through February)
Second Quarter $.001 $.001 $.05 $.05
(March through May)
Third Quarter $.001 $.001 $.05 $.05
(June through August)
Fourth Quarter $.001 $.001 $.05 $.05
(September through
November)
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1997
- ----
First Quarter .001 .001 .05 .05
(December 1996
through February)
Second Quarter .001 .001 .05 .05
(March through May)
Third Quarter .001 .001 .05 .05
(June through August)
Fourth Quarter .001 .001 .05 .05
(September through
November)
1996
- ----
First Quarter $.001 $.001 $.05 $.05
(December 1995
through February)
Second Quarter $.001 $.001 $.05 $.05
(March through May)
Third Quarter $.01 $.001 $.05 $.05
(June through August)
Fourth Quarter $.001 $.001 $.05 $.05
September through
November)
Warrants
Closing Bid Closing Ask
Period High Low High Low
1998
- ----
Not applicable.
1997
- ------
Not applicable.
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1996
- ----
First Quarter $.01 $.001 $.20 $.02
(December 1995
through
February 20, 1996)
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company incurred a net loss of $308,538 for the year ended November
30, 1998. Combined with the fact that the Company has no working capital and an
accumulated deficit of $378,924, it is management's assertion that these
circumstances may hinder the Company's ability to continue as a going concern.
As of the date of this report, management has not developed at formal plan to
raise funds for the Company's short or long-term needs.
The Company continues to evaluate merger proposals.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1998, the Company had a working capital deficit of
$378,924, as compared to $1,827,395 at November 30, 1997.
MANAGEMENT'S PLAN OF OPERATION
The Company seeks to acquire or merge with another operating business if
it is unsuccessful in consummating the Acquisitions and the Private Placement.
There can be no assurance that the Company will be successful in its efforts.
Without such additional capital or an acquisition or merger, the Company will be
unable to fund any business activity.
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ITEM 7. FINANCIAL STATEMENTS
Independent Accountant's Report
Year ended November 30, 1998
Balance Sheets
Years ended November 30, 1998 and 1997
Statement of Stockholder's Equity
Years ended November 30, 1998 and 1997
Statement of Operations
Years ended November 30, 1998 and 1997
Statement of Cash Flows
Years ended November 30, 1998 and 1997
Notes to Financial Statements
Years ended November 30, 1998 and 1997
See financial statements attached hereto.
[Remainder of page intentionally left blank.]
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PLAYORENA, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Auditors' report on financial statements....................................F-2
Balance sheet as of November 30, 1998.......................................F-3
Statements of operations for the years
ended November 30, 1998 and 1997.........................................F-4
Statement of changes in shareholders'
equity (deficiency) for the years ended
November 30, 1998 and 1997...............................................F-5
Statements of cash flows for the years
ended November 30, 1998 and 1997.........................................F-6
Notes to financial statements...............................................F-7
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Playorena, Inc.
We have audited the accompanying balance sheet of Playorena, Inc. as of
November 30, 1998, and the related statements of operations, shareholders'
deficiency and cash flows for the years ended November 30, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Playorena, Inc. as
of November 30, 1998, and the results of its operations and cash flows for the
years ended November 30, 1998 and 1997, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Feldman Sherb Ehrlich & Co., P.C.
Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
New York, New York
March 8, 1999
F-2
<PAGE>
PLAYORENA
BALANCE SHEET
NOVEMBER 30, 1998
ASSETS
CASH $ 678
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable $ 85,000
Liabilities of discontinued operations 66,226
Accrued expenses 228,376
-----------
TOTAL CURRENT LIABILITIES 379,602
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.001 par value;
15,000,000 shares authorized,
9,198,679 shares issued and outstanding 9,199
Additional paid-in-capital 5,273,780
Accumulated deficit (5,661,903)
-----------
TOTAL SHAREHOLDERS' DEFICIENCY (378,924)
-----------
$ 678
-----------
-----------
See Notes to Financial Statements.
F-3
<PAGE>
PLAYORENA INC.
STATEMENTS OF OPERATIONS
Years ended November 30,
------------------------
1998 1997
---------- -----------
EXPENSES:
General and administrative $ 66,246 $ 27,241
Interest expense 55,573 87,536
---------- ---------
TOTAL EXPENSES 121,819 114,777
---------- ---------
LOSS FROM CONTINUING OPERATIONS (121,819) (114,777)
---------- ---------
INCOME FROM DISCONTINUED OPERATIONS:
Income from discontinued operations 430,357 5,756
---------- ---------
TOTAL INCOME FROM DISCONTINUED OPERATIONS 430,357 4,756
---------- ---------
NET INCOME (LOSS) $ 308,538 $(109,021)
---------- ---------
---------- ---------
NET INCOME (LOSS) PER SHARE:
Continuing operations $ (0.03) $ (0.24)
Discontinued operations 0.12 0.01
---------- ---------
NET INCOME (LOSS) PER SHARE: $ 0.09 $ (0.22)
---------- ---------
---------- ---------
WEIGHTED AVERAGE SHARES USED IN COMPUTATION 3,522,928 488,146
---------- ---------
---------- ---------
See Notes to Financial Statements.
F-4
<PAGE>
PLAYORENA INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Stock
-------------------- Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
-------------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1996 638,145 638 $4,142,408 $(5,861,420) $(1,718,374)
Net loss - - - (109,021) (109,021)
--------- ------ ---------- ----------- -----------
Balance, November 30, 1997 638,145 638 4,142,408 (5,970,441) (1,827,395)
Debt and other liabilities converted to
stock 8,612,624 8,613 1,131,320 - 1,139,933
Stock cancelled (52,090) (52) 52 - -
Net income - - - 308,538 308,538
--------- ------ ---------- ----------- -----------
Balance, November 30, 1998 9,198,679 $9,199 $5,273,780 $(5,661,903) $ (378,924)
--------- ------ ---------- ----------- -----------
--------- ------ ---------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
PLAYORENA INC.
STATEMENTS OF CASH FLOWS
Years Ended November 30,
------------------------
1998 1997
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 308,538 $(109,021)
Adjustments to reconcile net loss to net cash
used by operating activities:
Gain on liabilities extinguished (430,357) -
Change in operating assets and liabilities 86,321 109,021
---------- ---------
CASH USED IN OPERATING ACTIVITIES (35,498) -
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from officer's advances 36,176 -
---------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 36,176 -
---------- ---------
NET INCREASE IN CASH 678 -
CASH AT BEGINNING OF YEAR - -
---------- ---------
CASH AT END OF YEAR $ 678 $ -
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Non Cash Activity - See note 1 with respect to
conversion of debt to common stock.
See Notes to Financial Statements.
F-6
<PAGE>
PLAYORENA, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1998
1. DISCONTINUED OPERATIONS
Playorena, Inc. (the "Company") was incorporated on December 4, 1981,
under the laws of the State of New York. The Company formerly operated
recreational play and exercise programs specifically designed for
children between three months and four years of age. During the fiscal
year ended November 30, 1997, the Company discontinued those
operations.
On April 14, 1995, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Michael Astor (who, along with his wife, Susan
Astor, comprised all of the current officers and members of the Board
of Directors of the Company), pursuant to which an entity 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"), 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 Agreement was consummated on July 24, 1998.
In connection with the consummation of the asset sale, and as
previously approved by the Company's shareholders, a reverse stock
split of 1 for 20 was effected on July 24, 1998. All references in the
financial statements referring to shares, share price and per share
amounts have been retroactively restated to reflect this reverse split.
Shortly after the consummation of the Agreement, liabilities owed to
certain affiliates of the Company aggregating $790,333 and accrued
interest of $313,424 were converted into 8,612,624 shares of common
stock.
Following the closing of the Agreement the Company has no assets or
business and has liabilities aggregating $380,000 at November 30, 1998
plus possible liabilities with respect to certain heretofore unasserted
claims against the Company. Since the Company does not have any
business or assets with which to generate revenue and with the
exception of $75,000 of notes payable which will be converted into
common stock of the Company, the Company does 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.
There can be no assurance that raising such capital or acquiring a new
business will be possible.
F-7
<PAGE>
The Company has written off all the remaining assets of the
discontinued business, consisting mainly of the undepreciated cost of
play equipment, at November 30, 1998. Such write off totaled
approximately $430,000 and is included with the loss on disposal of the
discontinued operations. Liabilities of the discontinued business
consist of accounts payable and accrued expenses aggregating $66,226.
The Company will remain contingently liable to the extent that assumed
liabilities are not satisfied. In this regard, the Company has not
recognized any gain at November 30, 1998 for these liabilities.
Revenues of the discontinued business were $117,866 in the fiscal year
ended November 30, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation - Going Concern - The Company's
financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal
course of business.
The Company has no assets and has a workiing capital
deficiency of $379,000 at November 30, 1998. The Company's
viability as a going concern is dependent upon the
restructuring of its obligations and a return to
profitability. Accordingly, the financial statements do not
include any adjustments relating to the recoverability of
assets and classification of liabilities or any other
adjustments that might be necessary should the Company be
unable to continue as a going concern in its present form.
(b) Earnings (Loss) Per Share - The computation of earnings (loss)
per common share is based on the weighted average number of
common shares outstanding during the period. Contingently
issuable shares are included in the computation where the
effect is dilutive.
(c) Accounting Estimates - The preparation of financial statements
in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amount of
revenues and expenses during the period. Actual results could
differ from those estimates.
(d) Stock Based Compensation - The Company accounts for stock
transactions in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees". In accordance with
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation", the Company has
adopted the pro forma disclosure requirements of this
statement.
F-8
<PAGE>
4. NOTES PAYABLE
Following is a summary of the balance of notes payable at November 30,
1998:
a. Environmental Resources and Disposal, Ltd. $ 10,000
b. Private Placement 75,000
----------
$ 85,000
==========
a. The note originated November 18, 1993, bearing interest at 10% per
annum. The principal and interest were due on February 6, 1994,
and is currently in default. The note holder has not taken action
to enforce payment.
b. In May 1994, the Company commenced and completed a private
placement of five units, each unit costing $50,000 consisted of
a $50,000 promissory note and 22,222 shares of common stock
offered at $.001 per share. The terms of the promissory notes
are interest at 10% per annum with principal and interest due at
the earlier of (I) 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 (ii) September 30, 1995. The remaining
notes are currently in default and will be converted to common
stock of the Company subsequent to November 30, 1998.
5. INCOME TAXES
The Company has available net operating loss carry forwards for federal
income tax purposes of approximately $5,391,000 that expire from 1999
through 2011. The Company has applied a valuation allowance,
eliminating entirely only tax benefits or tax assets that may arise
from these favorable tax attributes.
Furthermore, annual utilization of net operating losses can be subject
to limitations due to "equity structure shifts" or "owner shifts"
involving 5% stockholders (as these terms are defined in Section 382 of
the Internal Revenue Code), which result in a more than 50% change in
ownership.
6. EMPLOYEE INCENTIVE STOCK OPTION PLAN
The Company's Employee Incentive Stock Option Plan was adopted and
approved as of June 1, 1989. The plan provides for the grant to key
employees, officers and directors of both "incentive stock options"
within the meaning of Section 422A of the Internal Revenue Code of 1986
and non-statutory stock options. The plan provides for the issuance of
up to 600,000 shares of common stock. Each option granted under the
plan has a term of up to five years, is exercisable only at such times
as the board of directors determine at the time of grant for a price at
least equal to the fair market value of the common stock on the date of
the option
F-9
<PAGE>
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 exercise price of "incentive
stock options" granted to 10% or greater shareholders of the 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. Any previously
granted options under the plan were terminated upon the closing of the
Asset sale.
7. POTENTIAL ACQUISITIONS
The Company has entered into two agreements for the acquisition of the
stock of two corporations who are providers of wireless voice and data
products and systems to the private two-way land mobile radio industry
in exchange for shares of the Company's common stock. The consummation
of the agreements are subject to the raising of capital and various
other conditions.
F-10
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Since March 12, 1996, the Company has engaged its current independent
accountants, Feldman, Sherb & Ehrlich & Co. ("FSE"). The Company's decision to
engage FSE was made by the executive officers of the Company and approved by the
Board of Directors. At no time during the Company's three most recent fiscal
years has the Company (or anyone on its behalf) consulted FSE regarding the
application of accounting principles to a specified transaction, the type of
audit opinion that might be rendered on the Company's financial statements or
any other matter.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
OFFICERS AND DIRECTORS
The present executive officers and directors of the Company, and Board
of Directors of the Company, as of November 30, 1998 are as follows:
Year
Name Age Position Elected
Lawrence E. Kaplan 55 Director 1998
Robert Rubin 58 Director 1998
Alfred Romano 60 Director 1998
Robert M. Rubin. Mr. Rubin has served as director of the Company and as
Chairman of Board of the Company since July 1998. Mr. Rubin has also served as
the Chairman of the Board Directors of American United Global, Inc. ("AUGI")
since May 1991, and was its Chief Executive Officer from May 1991 to January 1,
1994. Between October, 1990 and January 1, 1994, Mr. Rubin served as the
Chairman of the Board and Chief Executive Officer of AUGI and its subsidiaries;
from January 1, 1994 to January 19, 1996, he served only as Chairman of the
Board of AUGI and its subsidiaries. From January 19, 1996, Mr. Rubin has served
as Chairman of the Board and President and Chief Executive Officer of AUGI. Mr.
Rubin is Chairman of the Board, Chief Executive Officer and a stockholder of ERD
Waste Technology, Inc. ("ERD"), a diversified waste management public company
specializing in the management and disposal of municipal solid waste, industrial
and commercial non-hazardous waste and hazardous waste. In September 1997, ERD
filed for protection under the provisions of Chapter 11 of the federal
bankruptcy act. Mr. Rubin is a former director and Vice Chairman, and currently
a minority stockholder, of American Complex Care, Incorporated ("ACC"), a public
company formerly engaged in providing on-site health care services, including
intradermal infusion therapies. In April 1995, ACC's operating subsidiaries made
assignments of
15
<PAGE>
their assets for the benefit of creditors without resort to bankruptcy
proceedings. Mr. Rubin is also the Chairman of the Board of Western Power &
Equipment Corp. ("Western"). AUGI owns approximately 56.6% of the outstanding
common stock of Western. Mr. Rubin is also a director and a minority
stockholder of Response USA, Inc., a public company engaged in the sale and
distribution of personal emergency response systems; Diplomat Corporation, a
public company engaged in the manufacture and distribution of baby products;
and Medi-Merg, Inc., a Canadian management company for hospital emergency rooms
and out-patient facilities.
Lawrence E. Kaplan. Mr. Kaplan has served as director of the Company
since August 1998. Mr. Kaplan is a registered representative officer, director
and sole stockholder of G-V Capital Corp., an NASD-registered broker/dealer.
Mr. Kaplan has served as a director of AUGI since February 1993. He is also a
director of Morlex, Inc., a blank check company which is seeking merger
opportunities. He is also an officer and director of Osteoimplant Technology, a
manufacturer of orthopedic devices and total joint implants.
Alfred Romano. Alfred Romano 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, 1998, the Board of Directors
held no meetings. Directors do not receive compensation for their services in
such capacity. The Board of Directors does not presently have committees.
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, other than the directors of the Company acting
solely in their capacities as such.
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.
Upon the closing of the Asset Sale, Mr. and Mrs. Astor resigned as
officers and directors of the Company and the newly elected Board of Directors,
comprising of Lawrence E. Kaplan, Robert M. Rubin and Alfred Romano, elected
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
16
<PAGE>
Effective upon consummation of the proposed Acquisitions and Private
Placement, it is anticipated that each of the current directors and officers
will resign from their positions, to be replaced by nominees of SmartLink and
King International.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company was furnished with copies of Form 3 (Initial Statement of
Beneficial Ownership of Securities) by Robert Rubin, Lawrence Kaplan, Alfred
Romano and Andrew Kaplan, which were untimely filed.
ITEM 10. EXECUTIVE COMPENSATION.
The summary compensation table is omitted because no compensation for
services in all capacities to the Company was awarded, earned by or paid to the
President of the Company for the fiscal years ended November 30, 1998, 1997 or
1996 and no other executive officer of the Company received salary and bonus in
excess of $100,000 during the fiscal years ended November 30, 1998, 1997 or
1996.
On August 1, 1998, Robert Rubin, Lawrence Kaplan and Alfred Romano, all
current directors of the Company, purchased 3,049,944, 2,330,303 and 138,113
shares of Common Stock of the Company, respectively, for a purchase price equal
to the cancellation of all indebtedness owed to such individuals (and interest
thereon) and for all previous services rendered.
No director of the Company received any remuneration from the Company
as such. Directors do not currently receive fees or other remuneration from the
Company.
AGGREGATE OPTION EXERCISES
The aggregate option exercise table was omitted because no options were
exercised during fiscal years ended 1998 or 1997.
EMPLOYMENT AGREEMENTS
In December 1988, the Company entered into separate five-year
employment agreements with each of Fred Jaroslow, 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
of Michael Astor and Susan Astor were amended to provide that employment shall
continue until December 31, 1996. The terms of such agreements were 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 all three
officers abstaining from any vote by the Board). All of such employment
17
<PAGE>
agreements provide for payments to the respective officers upon the termination
of their employment by the Company without cause. Such employment agreements
were terminated upon the closing of the Asset Sale and, to the extent not paid
prior to the closing, all accrued salaries and vacations were waived.
In addition, the Company entered into a consulting agreement with Mr.
Jaroslow which became effective upon the termination of his service under his
employment agreement in March 1995, but which Mr. Jaroslow agreed to terminate
upon the closing of the Asset Sale. As of the fiscal year ended November 30,
1998, Mr. Jaroslow was not currently receiving any compensation under this
agreement, and his compensation was not being accrued.
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 nonstatutory
stock options. The Option Plan provided for the issuance of up to 600,000 shares
of Common Stock. Each option granted under the Option Plan had a term of up to
five years, was exercisable only at such times as the Board of Directors
determined 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 was granted, terminated under
certain circumstances if the holder ceases to be an employee of the Company and
required 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 10% or greater shareholders of the Company must have
been equal to at least 110% of the fair market value of the Company's shares of
Common Stock on the date of grant.
Awards were granted in the discretion of the Option Committee. The
Option Committee awarded 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 used no set criteria to determine amounts to be awarded
under the Plan. Factors used to determine awards in the past 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 Messrs. Jaroslow, Astor and Ms. Astor.
All of these 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 under the Option Plan to
purchase an aggregate of 362,500 shares to Messrs. Jaroslow and Astor, and Ms.
Astor.
18
<PAGE>
All options granted would have vested from periods of one to five years
from the date of grant. However, all options granted terminated upon the closing
of the Asset Sale.
In December 1998, the Board of Directors adopted the 1998 Stock Option
Plan of the Company, which will not be put into effect until approval of the
shareholders at the Meeting and the consummation of the Acquisitions.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of March 1, 1999, the beneficial
ownership of Common Stock by (i) each of the Company's directors and officers,
(ii) all directors and officers as a group (which ownership constitutes in the
aggregate approximately 62.4% of the outstanding Common Stock) and (iii) by
unaffiliated individuals who beneficially hold in the aggregate more than five
percent of the Common Stock.
Amount and Nature Percentage of
of Beneficial Common Stock
Name and Address Ownership(1)(2) Outstanding
Lawrence E. Kaplan(4) 2,385,025 25.9%
150 Vanderbilt Motor Parkway
Suite 311
Hauppauge, NY 11788
Robert M. Rubin(4) 3,386,110 36.8%
6060 Kings Gate Circle
Delray Beach, Florida 33484
Andrew Kaplan 2,389,583 25.9%
150 Vanderbilt Motor Parkway
Suite 311
Hauppauge, NY 11788
Alfred Romano(4) 138,668 1.5%
4 Wagon Wheel Road
Dix Hills, NY 11746
All directors and executive 5,909,803 64.24%
officers as a group (3 persons)
(1) A person is considered to be the "beneficial owner" of any securities
with respect to which he has or shares, directly or indirectly, or has
the right to acquire within 60 days, (1) voting power, which includes
the power to vote, or to direct the voting of, such security and/or (2)
investment power, which includes the power to dispose, or to direct the
disposition of, such security. Each person has both voting and
investment power and considers himself to be the beneficial owner of
the securities shown following his name except as otherwise indicated.
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 March 3, 1999, there were 9,198,679 shares of Common
Stock outstanding.
19
<PAGE>
Giving effect to the proposed consummation of the Acquisitions, the
Private Placement and the New Reverse Stock Split as presently structured, the
current shareholders of the Company will collectively own 2% of the outstanding
voting securities of the Company, on a diluted basis. Concurrent with the
closing of the Acquisitions and Private Placement, the incumbent officers and
directors of the Company will be replaced by the officers and directors of King
and SmartLink who, on a collective basis, are expected to beneficially own 52.0%
and 49.6% of the voting securities of the Company, on a diluted basis, giving
effect to the Minimum Offering and Maximum Offering, respectively, with the
balance of the outstanding voting securities of the Company being owned
principally by investors in the Private Placement, the Placement Agent in
connection with the Private Placement, and shareholders of SmartLink. There can
be no assurance, however, that the Acquisitions will be consummated on the terms
described herein, if at all.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Lawrence Kaplan and Robert Rubin, each a principal shareholder and
director of the Company, and Andrew Kaplan, a principal shareholder of the
Company, as well as another unaffiliated individual, in anticipation of the
consummation of the Acquisitions and Private Placement, have executed and
delivered that certain Assumption and Indemnification Agreement, dated December
17, 1998, pursuant to which each such individual agreed, jointly and severally
for a period of up to three years from the closing of the Acquisitions, to
indemnify and hold harmless the Company for all claims and liabilities with
respect to (i) virtually all pre-existing payables and liabilities of the
Company prior to the closing for the Minimum Offering (which liabilities they
will assume), (ii) any breach of a representation or warranty of the Company
(respecting matters no more than five years old) in any document respecting the
Acquisitions and Private Placement and (ii) any default by the Company with
respect to its obligations pursuant to the Acquisitions and Private Placement
prior to the Closing for the Minimum Offering. In consideration of the
foregoing, an amount in the aggregate of $300,000, less certain expenses of the
Acquisitions, will be paid at the Closing for the Minimum Offering to such
individuals.
On August 1, 1998, after giving effect to the July Reverse Stock Split
(but not the New Reverse Stock Split), Robert Rubin, Lawrence Kaplan, Alfred
Romano (members of the Company's Board of Directors) and Andrew Kaplan, a
principal shareholder of the Company, purchased 3,049,944, 2,330,303, 138,113
and 2,335,417, shares of Common Stock of the Company, respectively, for a
purchase price equal to the amounts owed for the cancellation of all
indebtedness (and interest thereon) and for all previous services rendered.
Effective upon consummation of the proposed Acquisitions and Private
Placement, it is
20
<PAGE>
anticipated that each of the current directors and officers will resign from
their positions, to be replaced by nominees of SmartLink and King International.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
3.1 Certificate of Incorporation, as amended - incorporated by
reference to Exhibit 3.1 to Registration Statement on Form S-18 (SEC File
No.33-29561-NY).
3.2 By-Laws - incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-18 (SEC File No.33-29561-NY).
3.3 Certificate of Amendment of Certificate of Incorporation
of Playorena Inc. (Filed with the State of New York Department of State on
January 25, 1999).
4.0 1989 Incentive Stock Option Plan - incorporated by
reference to Exhibit 4.3 to Registration Statement on Form S-18 (SEC File
No.33-29561-NY).
10.1 Letter Agreement dated November 18, 1994 (incorporated by
reference to the registrant's Annual Report on Form 10-KSB for fiscal year ended
11/30/94).
10.2 Amendment to Letter Agreement dated April 10, 1995
(incorporated by reference to the registrant's Annual Report on Form 10-KSB for
the fiscal year ended November 30, 1995.
10.3 Asset Purchase Agreement dated as of March 31, 1995
(incorporated by reference to the registrant's Quarterly Report on Form 10-QSB
for fiscal quarter ended February 28, 1995).
27.1 Financial Data Schedule
B. Reports on Form 8-K. No reports on Form 8-K were filed by the
Registrant during the fourth quarter of its last fiscal year.
21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PLAYORENA INC.
Dated: March 12, 1999
By: /s/ Lawrence Kaplan
Lawrence Kaplan, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Lawrence Kaplan President March 12, 1999
- ------------------- and Director
Lawrence Kaplan
/s/ Robert Rubin Director March 12, 1999
- ----------------
Robert Rubin
/s/ Alfred Romano Director March 12, 1999
- -----------------
Alfred Romano
22
<PAGE>
EXHIBIT INDEX
3.1 Certificate of Incorporation, as amended - incorporated
by reference to Exhibit 3.1 to Registration Statement on Form S-18 (SEC File
No.33-29561-NY).
3.2 By-Laws - incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-18 (SEC File No.33-29561-NY).
3.3 Certificate of Amendment of Certificate of Incorporation
of Playorena Inc. (Filed with the State of New York Department of State on
January 25,1999).
4.0 1989 Incentive Stock Option Plan - incorporated by
reference to Exhibit 4.3 to Registration Statement on Form S-18 (SEC File
No.33-29561-NY).
10.1 Letter Agreement dated November 18, 1994 (incorporated by
reference to the registrant's Annual Report on Form 10-KSB for fiscal year ended
11/30/94).
10.2 Amendment to Letter Agreement dated April 10, 1995
(incorporated by reference to the registrant's Annual Report on Form 10-KSB for
the fiscal year ended November 30, 1995.
10.3 Asset Purchase Agreement dated as of March 31, 1995
(incorporated by reference to the registrant's Quarterly Report on Form 10-QSB
for fiscal quarter ended February 28, 1995).
27.1 Financial Data Schedule
23
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PLAYORENA, INC.
Under Section 801 of the New York Business Corporation Law
Pursuant to the provisions of Section 801 of the New York Business
Corporation Law, the undersigned, Lawrence Kaplan, being both President and
Secretary of Playorena, Inc., a New York corporation (the "Corporation"), hereby
certifies:
FIRST: The name of the Corporation is Playorena, Inc.
SECOND: The Certificate of Incorporation of the Corporation
was filed by the Department of State, Albany, New York on the 4th day of
December, 1981.
THIRD: The amendment to the Certificate of Incorporation
effected by this Certificate of Amendment is as follows:
Article FOURTH of the Certificate of Incorporation, relating to the
aggregate number, class and par value of shares which the Corporation is
authorized to issue, is hereby amended to change the number of issued shares of
the Corporation. Article FOURTH, as amended hereby, shall delete the section
entitled Provisions Applicable to Common Stock and is hereby amended to read in
its entirety as follows:
Provisions Applicable to Common Stock.
Except as provided herein or by law, the holders of the Common Stock
shall possess full voting power for the election of directors and for all other
purposes, and each holder of record of shares of the Common Stock shall be
entitled to one vote for each share so held.
Effective July 31, 1998, the stated capital of the Corporation is
reduced from $ 11,721.11 to $ 586.055 by changing issued shares with par value
into a lesser number of shares with the same par value.
Issued Shares. This amendment provides for a change in the 11,721,110
authorized and issued shares of common stock, $.001 par value per share on July
31, 1998, into 586,055 shares of common stock, $.001 par value per share on July
31, 1998, in the ratio of one-twentieth of a share for each share of common
stock; provided however, that no fractional shares shall be issued as a result
of such change and any fractional shares shall be issued as a result of such
change and any fractional shares which would otherwise be issued as a result of
such change
1
<PAGE>
shall be rounded up or down, as the case may be, to the nearest whole number of
shares; and that after the effectiveness of such amendment, each holder of
record of one or more certificates representing shares of the common stock
theretofore issued shall be entitled to receive one or more certificates
representing the number of shares of common stock having a par value of $.001
per share issuable pursuant hereto in respect of such common stock theretofore
issued, such on surrender of his or her old certificate or certificates for
cancellation.
FOURTH: This amendment of the Certificate of Incorporation of
Playorena, Inc. was first authorized by the Shareholders of the Corporation at a
Special Meeting of Shareholders called for that and other purposes and held on
the 7th day of February, 1997, acting pursuant to Section 614 of the Business
Corporation Law of the State of New York. The filing of this amendment was
contingent upon the consummation of certain transactions which were consummated
on July 24, 1998.
IN WITNESS WHEREOF, I have subscribed this certificate this 25th day of
January, 1999 and I hereby affirm the statements contained herein as true under
the penalties of perjury.
PLAYORENA, INC.
By: /s/ Lawrence E. Kaplan
Lawrence E. Kaplan
President and Secretary
2
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<S> <C>
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<CASH> 678
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0
0
<OTHER-SE> (388,123)
<TOTAL-LIABILITY-AND-EQUITY> 678
<SALES> 0
<TOTAL-REVENUES> 0
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<INTEREST-EXPENSE> 55,573
<INCOME-PRETAX> 0
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<INCOME-CONTINUING> (121,819)
<DISCONTINUED> 430,357
<EXTRAORDINARY> 0
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<NET-INCOME> 308,538
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