SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
(X) Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act Of 1934.
For the period Ended June 30, 1997
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or
( ) Transition Report Pursuance to Section 13 or 15 (d) of the Securities
Exchange act of 1934.
For the transition period from ______________________ to ______________________
Commission File Number 0-24952
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PRENTICE CAPITAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1139554
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1499 WEST PALMETTO PARK ROAD, SUITE 304, BOCA RATON, FLORIDA 33486
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 416-0123
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Registrant's telephone number, including area code
NONE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- ------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicated by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15 (d) of the Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 30, 1997, Registrant had 11,628,889 shares of common stock, $.03 par
value, outstanding.
1
<PAGE>
ITEM 8. FINANCIAL INFORMATION
The financial statements are attached hereto as required by Rule 14(a)-
3(b)
(a) 1. Financial Statements
Page
Number
------
Consolidated Balance Sheets as of June 30, 1997
(Unaudited) and December 31, 1996 3
Consolidated Statements of Operations, for the Three
Months Ended June 30, 1997 and June 30, 1996 4
Consolidated Statements of Operations, for the Six
Months Ended June 30, 1997 and June 30, 1996 5
Consolidated Statements of Cash Flows, for the Three
Months Ended June 30, 1997 and June 30, 1996 6
Consolidated Statements of Cash Flows, for the Six
Months Ended June 30, 1997 and June 30, 1996 7
Consolidated Statements of Stockholders' Equity, for
the Six Months Ended June 30, 1997 8
Notes to Consolidated Financial Statements 9 - 14
(a) 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 15 - 18
(a) 3. OTHER INFORMATION 19
SIGNATURES 20
(Remainder of page left blank intentionally)
2
<PAGE>
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 100 $ 103
Accounts receivables, less allowance for
doubtful accounts of $-0- and $79,943 - 304,294
Other receivables 27,979 36,557
Due from related party 250,000 -
Note receivable - ECO2 Acquisition 87,000 -
Prepaid expenses 14,165 70,122
------------ -----------
Total current assets 379,244 411,076
------------ -----------
PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated
depreciation of $-0- and $19,870 - 178,139
------------ -----------
OTHER ASSETS
Note receivable - Eco2, Inc. 385,608 -
Investment in Eco2, Inc. stock 1,100,000 -
Investment in Mineral Rights 4,100,000
Organization costs, net of accumulated
amortization of $3,481 and $3,203 2,089 2,946
------------ -----------
Total other assets 5,587,697 2,946
------------ -----------
TOTAL ASSETS $ 5,966,941 $ 592,161
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 140,843 $ 36,204
Accrued expenses 35,000 5,413
Current portion of long-term debt - 4,737
Due to related party 66,123 84,884
------------ -----------
Total current liabilities 241,966 131,238
------------ -----------
LONG-TERM DEBT - 10,871
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STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value;
10,000,000 shares authorized, none issued - -
Common stock, $.03 par value; 500,000,000
shares authorized, 11,628,889 and 12,328,889
shares issued and outstanding 348,867 369,867
Additional paid-in capital 5,718,230 9,658,732
Receivable for stock issued ( 13,885) ( 8,250,000)
------------ -----------
6,053,212 1,778,599
Retained deficit ( 328,237) (1,328,547)
------------ -----------
Total stockholders' equity 5,724,975 450,052
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,966,941 $ 592,161
============ ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
REVENUE $ - $ 306,278
----------- ----------
COSTS AND EXPENSES
Accounting and Legal 31,583 46,018
Depreciation and Amortization 278 3,890
Consulting Services 116,667 147,701
Public company expenses - -
Salaries and benefits 35,000 284,057
General and Administrative 2,061 98,773
----------- ----------
Total costs and expenses 185,589 580,439
----------- ----------
LOSS FROM OPERATIONS ( 185,589) ( 274,161)
OTHER INCOME (EXPENSE)
Interest income 13,730 -
Interest expense ( 1,491) -
Net gain on disposition of subsidiaries ( 122,224) -
----------- ----------
Net other income (expense) ( 109,985) -
----------- ----------
NET LOSS $( 295,574) $( 274,161)
=========== ==========
NET LOSS PER SHARE OF
COMMON STOCK $( .04) $( .83)
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING (RESTATED) 8,288,230 328,889
=========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
REVENUE $ - $ 657,114
----------- ----------
COSTS AND EXPENSES
Accounting and Legal 48,438 45,255
Depreciation and Amortization 557 9,522
Consulting Services 133,334 176,101
Public company expenses - -
Salaries and benefits 75,000 423,379
General and Administrative 2,116 200,827
----------- ----------
Total costs and expenses 259,445 855,084
----------- ----------
LOSS FROM OPERATIONS ( 259,445) ( 197,970)
OTHER INCOME (EXPENSE)
Interest income 133,514 -
Interest expense ( 4,556) ( 1,550)
Net gain on disposition of subsidiaries 1,086,625 -
----------- ----------
Net other income (expense) 1,215,583 ( 1,550)
----------- ----------
NET INCOME (LOSS) $ 956,138 $( 199,520)
=========== ==========
NET LOSS PER SHARE OF
COMMON STOCK $ .17 $( .61)
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING (RESTATED) 5,773,400 328,889
=========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $( 295,574) $( 61,554)
Adjustments to reconcile net loss to net
cash used in operating activity 286,243 -
----------- ----------
Net cash used in operating activities ( 9,331) ( 61,554)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans from related parties - -
Purchase of fixed assets - ( 5,261)
Loan receivable ( 9,331) -
---------- ----------
Net cash used in investing activities ( 9,331) ( 5,261)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Due to and from related party - 88,062
---------- ----------
Net cash provided by financing activities - 88,062
---------- ----------
INCREASE (DECREASE) IN CASH ( - ) 88,062
CASH AT BEGINNING OF PERIOD 100 67,291
---------- ----------
CASH AT END OF PERIOD $ 100 $ 88,538
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
<PAGE>
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 956,138 $( 83,461)
Adjustments to reconcile net loss to net
cash used in operating activity ( 971,473) -
---------- ----------
Net cash used in operating activities ( 15,335) ( 83,461)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets ( 2,128) ( 5,261)
Loan receivable 8,578 -
---------- ----------
Net cash used in investing activities 6,450 ( 5,261)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Due to and from related party 10,467 177,260
Repayment of note payable ( 1,482) -
---------- ----------
Net cash provided by financing activities 8,985 177,260
---------- ----------
INCREASE (DECREASE) IN CASH 100 88,538
CASH AT BEGINNING OF PERIOD 103 -
---------- ----------
CASH AT END OF PERIOD $( 3) $ 88,538
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
7
<PAGE>
PRENTICE CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
(Restated)
Common Stock Additional Retained
----------------------- Paid-in Deficit
Shares Amount Capital Stage
---------- -------- ---------- -----------
<S> <C> <C> <C> <C>
STOCK ISSUANCES
BALANCE, December 31, 1996 12,328,889 $369,867 $1,408,732 $(1,328,547)
Cancellation of stock in
exchange for debts to
the company (7,800,000) (234,000) 67,315 -
Disposition of subsidiaries,
Casino International, and
the operations of Universal
Footcare Clinics - - 91,298 23,683
Net profit for the period - - - 1,149,977
-------- -------- ---------- -----------
BALANCE, March 31, 1997 4,528,889 135,867 1,567,345 ( 154,887)
Issuance of stock in exchange
for Chartwell International
mineral rights 2,000,000 60,000 3,940,000 -
Issuance of stock in exchange
for promissory notes 5,000,000 150,000 100,000 -
Issuance of stock in exchange
for consulting services 100,000 3,000 97,000 -
Adjustment for net equity
in disposal of subsidiaries - - - 122,224
Net profit for the period - - - ( 295,574)
---------- -------- ---------- -----------
BALANCE, June 30, 1997 11,628,889 $348,867 $5,704,345 $( 328,237)
========== ======== ========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
8
<PAGE>
PRENTICE CAPITAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Prentice Capital, Inc. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted as
allowed by such rules and regulations. Prentice Capital, Inc. believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
December 31, 1996 audited financial statements and the accompanying notes
thereto. While management believes the procedures followed in preparing these
financial statements are reasonable, the accuracy of the amounts are in some
respect dependent upon the facts that will exist, and procedures used by the
Company later in the year.
Management believes that the accompanying unaudited condensed consolidated
financial statements contain all adjustments, including normal recurring
adjustments, necessary to present fairly the financial position as well as the
operations and cash flows for the periods presented.
NOTE 2 PREFERRED STOCK
On April 15, 1996, the Company sold to Roscom, Ltd., and Vietri Investments,
Ltd., two unrelated entities 4,000,000 and 1,000,000 shares of the Company's
Series A Preferred Stock in exchange for their promissory notes in the amount of
$2,000,000 and $500,000 respectively. On March 17, 1997, the Company, Roscom,
Ltd., and Vietri Investments, Ltd. agreed to rescind the sale of preferred stock
by returning the preferred shares issued and by the cancellation of the
promissory notes. Therefore, the issuance of the preferred shares were not
recorded in the accompanying financial statements.
NOTE 3 COMMON STOCK
SALE OF STOCK TO MR. UNGER
On March 10, 1997, the Company and Lee J. Unger, president of the Company,
entered into an agreement (Agreement) pursuant to which the Company agreed to
sell to Mr. Unger 5,000,000 shares of its restricted common stock at a price of
$.05 per share to be effected by delivery to the Company an assignable
Promissory Note bearing interest at 6% per annum and due payable one year from
the date of the Agreement.
On May 28, 1997, the Company issued 5,000,000 shares of its common stock to Mr.
Unger in exchange for two non-recourse promissory notes in the amounts of
$200,000 and $50,000 respectively. The notes are due and payable on May 27,
1998, including accrued interest at the rate of 6% per annum. The notes are
secured with 5,000,000 shares of the Company common stock issued to Mr.
Unger.
9
<PAGE>
PRENTICE CAPITAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 3 COMMON STOCK (Continued)
On March 21, 1997 the Company agreed to issued Hunter Equities, Inc., an
independent consultant, 100,000 shares of the Company's common stock valued at
$2 per share, in exchange for Hunter Equity's efforts in connection with the
acquisition of certain mineral rights from Chartwell International, Inc.
In connection with the acquisition of certain mineral rights from Chartwell
International, Inc. (Note 5), the Company issued Chartwell International, Inc.
2,000,000 shares of the Company's common stock valued at $2 per share.
NOTE 4 CANCELLATION OF DEBTS
On June 6, 1996, the Company authorized the issuance of 10,000,000 shares of the
Company's common stock, 5,000,000 shares to Alan S. Lipstein, and 5,000,000
shares to Gerard Norton, former president and vice-president of the Company
respectively, in exchange for their promissory notes from Mr. Lipstein and Mr.
Norton in the amount of $2,500,000 each.
On March 17, 1997, Mr. Lipstein and Mr. Norton agreed to return 7,800,000 shares
of the Company's common stock in exchange for the cancellation of promissory
notes due and payable to the Company in the following amounts due by the
respective parties: Mr. Lipstein - $2,500,000; Dr. Gerard Norton - $2,500,000;
Roscom, Ltd. - $500,000; Vietri Investments, Ltd. - $500,000, and a liability
assumed by Mr. Lipstein of $2,250,000 in connection with the purchase of 75,000
shares of common stock on March 31, 1995.
NOTE 5 PURCHASE OF MINERAL RIGHTS
On March 17, 1997, the Company and Chartwell International, Inc., a Nevada
corporation (Chartwell) entered into a Purchase and Sale Agreement (Agreement)
pursuant to which the Company purchased certain gypsum mining property located
in Washington County, Utah, generally known as Riverview Placer Claims and New
Riverview Claims (Claims) in exchange for $4,000,000 in cash, cash equivalents
and restricted shares of the Company's Common Stock.
Under the terms of the Agreement, the Company delivered to Chartwell 1,000,000
shares of Common Stock of the Company (Closing Shares). According to the
Agreement, in the event that on April 1, 1997 (which date was subsequently
extended until April 15, 1997 by an Extension Agreement), the market value of
the Closing Shares is less than $4,000,000, then the Company would deliver to
Chartwell a sufficient number of additional shares of the Company's Common Stock
(Exchange Shares) having a market value equal to the difference between the
value of the closing shares on April 1, 1997 (extended until April 15, 1997) and
$4,000,000. Further, under the terms of an Amended Purchase Agreement dated
April 10, 1997 (Amended Agreement), for purposes of determining the market value
of the Common Stock under the Agreement the market value would be determined
based on the closing bid price of the Company's Common Stock on April 15, 1997.
10
<PAGE>
PRENTICE CAPITAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 5 PURCHASE OF MINERAL RIGHTS (Continued)
The Agreement also provided that in the event that on April 1, 1998, the date on
which all restrictions on the Closing Shares and the Exchange Shares are
removed, the market value of the combined shares is not equal to or in excess of
$4,000,000, then at the option of the Company, the Company will have the right
and obligation to issue Chartwell additional shares, or deliver to Chartwell
cash equal to the difference between the market value of the Closing Shares and
the Exchange Shares and $4,000,000, or, in lieu thereof, return to Chartwell the
Claims, with Chartwell retaining all shares of Common Stock previously issued to
it.
On April 2, 1997, the Company and Chartwell entered into an Extension Agreement
(Extension Agreement) pursuant to which each party agreed to extend the time
period established for valuing the market price of the Closing Shares from April
1, 1997 to April 15, 1997. Additionally, pursuant to the Extension Agreement,
the Company issued Chartwell 1,000,000 shares of the Company's Common Stock. The
parties also agreed that in the event that on April 15, 1997, the bid price of
the Company's Common Stock is $4.00 per share or greater, Chartwell shall return
to the Company the 1,000,000 shares referenced in the sentence above, or the
Exchange Shares such that the stock retained by Chartwell has a market value on
April 15, 1997 of $4,000,000. Further, pursuant to the Extension Agreement, the
Company paid Chartwell $100,000 on April 15, 1997, plus shares of the Company's
Common Stock (unrestricted) that together with the $100,000 will equal $500,000
based on the bid price on the day of delivery.
All shares of Company Common Stock under the Agreement are restricted securities
under the Securities Act of 1933 and will be legended with the normal Securities
Act of 1933 restrictive legend. Further, the Company has agreed to grant
Chartwell, on customary terms, piggyback registration rights on all shares of
common Stock granted pursuant to the Agreement.
NOTE 6 PURCHASE OF MRI BUSINESS
On June 3, 1997, the Company entered into a Stock Purchase Agreement (Agreement)
with U.S.A. Diagnostics, Inc., a Florida corporation (Diagnostics) and its sole
shareholder, Nate Hollander, for the acquisition of 100% of the capital stock of
Diagnostics and the assets of MRI Management Services, Inc. (MMS) and Bentley
Designers and Builders, Inc. (BDB) consisting of two Magnetic Resonance
Imagining (MRI) units. Mr. Hollander is the sole shareholder of MMS and BDB,
each of which owns one MRI unit with an estimated value of $500,000 each.
Diagnostics is in the business of magnetic resonance imaging and neurological
nerve conduction testing in the South Florida area.
The aggregate purchase price of Diagnostics and the two MRI units is $5,500,000
payable $4,000,000 in cash at the closing, and shares of restricted common stock
of the Company having a value of $1,500,000, determined by the average closing
bid price over the five trading day period preceding the date of the Agreement.
11
<PAGE>
PRENTICE CAPITAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 6 PURCHASE OF MRI BUSINESS (Continued)
Within 45 days of signing the Agreement, the Company was to deposit $1,750,000
into an escrow account, and within 75 days the Company would obtain a firm
commitment underwriting, represented by a letter of intent satisfactory to Mr.
Hollander, to raise net proceeds of at least $2,500,000 to be used for the
closing. According to the Agreement, if the Company fails to obtains a firm
commitment underwriting within 45 days or have an effective registration within
75 days, then the escrowed funds will be returned to the Company and the
Agreement will terminate.
The shares representing the $1,500,000 are to be paid 10% at the closing and the
remaining 90% on February 2, 1998. However, in the event closing does not occur
prior to February 2, 1998, then the entire 100% of the shares will be paid at
closing. As of June 30, 1997 no closing has occurred.
NOTE 7 CASINO INTERNATIONAL MERGER
On February 26, 1997, the Company, together with its wholly owned subsidiary
Casinos International, Inc. (Casinos) entered into an Agreement and Plan of
Reorganization with Eco2, Inc., a publicly traded company, its wholly owned
subsidiary, Eco2 Acquisition, Inc. whereby Casinos would be merged into Eco2
Acquisition, Inc. As a result of this merger contemplated by this agreement,
Prentice received 5,000,000 shares of Eco2, Inc. $.01 par value common stock and
a promissory note in the amount of $500,000 from Eco2 Acquisition, Inc.
Immediately after the merger the name of Eco2 Acquisition, Inc. was changed to
Casinos International, Inc.
The promissory note, including interest at the rate of 8% per annum, is payable
in sixty equal monthly installments of $10,138, the first installment being
payable on March 31, 1997. No payments have been received by the Company. The
promissory note is secured by 100 shares of common stock of Casinos held in
escrow in accordance with an Escrow and Disposition Agreement of even date.
On the effective date of the merger, the existing members of the Board of
Directors of Eco2, Inc. appointed Alan S. Lipstein, the president of the
Company, as director of Eco2, Inc., and immediately thereafter the former
members of the Board of Directors and Officers of Eco2, Inc. resigned.
Eco2, Inc. and Prentice jointly and severally agreed to indemnify Charles
Ledford, Vivian Ledford, and Raymond Ledford, all of the officers and directors
of Eco2, Inc., as well as Energy Systems, Inc., a company owned by the Ledfords,
(hereinafter collectively referred to as "Indemnitees") from and against any and
all damages, losses, obligations, deficiencies, liabilities, claims,
encumbrances, penalties, costs and expenses, including reasonable attorney's
fees, which the Indemnitees may suffer or incur, resulting from (a) their being
an officer or director of Eco2, Inc.; (b) the transaction contemplated under the
merger contemplated under this agreement;
12
<PAGE>
PRENTICE CAPITAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 7 CASINO INTERNATIONAL MERGER (Continued)
(c) misrepresentations, breach of warranty, or nonfulfillment of any of the
covenants or agreements of Casinos International in this agreement or from any
misrepresentation in or omission from any certificate or document furnished or
to be furnished to the Indemnitees hereunder, and; (d) any and all actions,
suits, investigations, proceedings, demands, assessments, audits, judgments, and
claims arising out of the foregoing.
NOTE 8 COMMITMENTS
OFFICE SPACE
Subsequent to the end of the year, the Company entered into a month to month
lease for its executive offices located in Coral Spring, Florida at $418 per
month until October 1997. After October 1997, the Company subleases office on a
month to month bases.
EMPLOYMENT AGREEMENT
On April 10, 1997, the Company entered into a one-year employment agreement
("Agreement") with Lee J. Unger, as the Company's president and Chief Executive
Officer in charge of administration. Under the terms of the Agreement, which
became effective March 10, 1997, Mr. Unger is to be paid 200,000 unrestricted
common shares of the Company, or $10,000 per month until such shares have been
delivered. The Agreement provides that in case of termination, the Company must
deliver to Mr. Unger the 200,000 shares of the Company's unrestricted common
stock plus the total cumulative monthly payments of $10,000 for the entire 12
month term.
On October 27, 1997, the Company entered into a Severance and Separation
Agreement with Lee J. Unger, whereby the Company agrees to pay Mr. Unger $90,000
as follows: $15,000 on October 27, 1997, $15,000 on November 19, 1997, $10,000
on January 2, 1998 and $50,000 on January 30, 1998. Simultaneously, Mr. Unger
will receive 200,000 shares of the Company's common stock as part of Mr. Unger's
previously committed employment agreement.
NOTE 9 SUBSEQUENT EVENTS
RESIGNATION/ELECTION OF PRESIDENT AND CEO
In connection with the Severance and Separation Agreement dated October 27,
1997, Mr. Lee J. Unger resigned as President and Director of the Company
effective October 28, 1997, and Mr. William L. Haynes was appointed President
and Director effective the same day. In connection with Mr. Unger's resignation,
the Company agreed to hold Mr. Unger harmless, and indemnify him against any and
all damages, losses, obligations, losses, obligations, liabilities, claims,
encumbrances, penalties, costs and expenses, including reasonable attorney's
fees, resulting from having been an officer and director of the Company.
13
<PAGE>
PRENTICE CAPITAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 9 SUBSEQUENT EVENTS (Continued)
RESIGNATION/ELECTION OF PRESIDENT AND CEO
On October 27, 1997, the Company entered into an Indemnification Agreement with
Mr. William L. Haynes, the newly elected president and director of the Company.
According to the Agreement, the Company agreed to hold Mr. Haynes harmless, and
indemnify him against any and all damages, losses, obligations, losses,
obligations, liabilities, claims, encumbrances, penalties, costs and expenses,
including reasonable attorney's fees, resulting from having been an director of
the Company.
SHARES OF STOCK
Mr. Unger purchased 5,000,000 shares of the company's common stock, being held
in escrow by Atlas, Pearlman, Trop & Borkson, P.A. pending the payment of Mr.
Unger of two promissory notes due to the Company in the aggregate amount of
$250,000. Under the Severance and Separation Agreement dated October 27, 1997,
the parties agreed that upon receipt by Mr. Unger of the final payment to be
made by January 30, 1998, 4,500,000 of such shares will be returned by to the
treasury and Mr. Unger will retain 500,000 of the referenced shares, which would
have piggyback registration fights, and the two promissory notes due from Mr.
Unger in the aggregate amount of $250,000 will be canceled.
CONSULTING AGREEMENT
On August 4, 1997, the Company entered into a one year Consulting and
Acquisition Management Agreement ("Agreement") with Hong Kong Trading, Ltd., a
BWI corporation, whereby Hong Kong Trading, Ltd. (Consultant) is to provide the
Company consulting services in order to identify, evaluate and structure
mergers, consolidations acquisitions, joint ventures and strategic alliances.
In exchange for such consulting services the Company issued the Consultant
300,000 shares of the Company's restricted common stock. The Company agreed to
provide the Consultant with registration rights for the shares in a registration
statement to be filed by the Company.
(Remainder of page left blank intentionally)
14
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Prentice Capital, Inc. ("Prentice") was organized as a Delaware corporation on
March 26, 1990, in order to evaluate, structure and complete a merger with, or
acquisition of, prospects consisting of private companies.
On August 14, 1991 the Prentice completed a public offering of 7,500,000 Units
at $.01 per Unit, for net proceeds of approximately $57,075 after payment of
offering expenses. Each Unit consisted of one (1) share of the Company's $.0001
par value common stock, 8 Class A, 8 Class B, 8 Class C Common Stock Purchase
Warrants. All of the Warrants expired on February 12, 1995.
Effective February 15, 1995, the Company established a Florida corporation,
Casinos International, Inc. as a wholly owned subsidiary in order to operate its
proposed gaming cruise ship.
Universal Footcare, Inc. ("Universal") was organized as a Florida corporation on
May 10, 1994 to investigate, acquire and operate podiatry clinics.
Effective March 26, 1997, Universal established a Florida corporation, Universal
Operations, Inc. as a wholly owned subsidiary in order to consummate the sale of
the assets of its Clinics to Footcare Centers of America, Inc.
Effective on September 6, 1994 Prentice acquired all of the issued and
outstanding common and preferred stock of Universal in exchange for which
Prentice issued to the shareholders of Universal 64,444 shares of Prentice's
$.03 par value common stock. The acquisition was accounted as a purchase. The
assets of Universal consisted primarily of $971,000 in cash, $11,000 in
receivables and $5,500 in organization costs. The accounts of Universal were
consolidated with those of Prentice as of September 6, 1994.
On February 10, 1995, Prentice Capital, Universal and Dameron Levy & Baker, P.A.
(the "Clinic") effectuated a "forward triangular merger", merging the Clinic
with and into Universal, at the conclusion of which Universal, remained the
surviving entity and the corporate existence of the Clinic terminated. The
issued and outstanding common shares of the Clinic, which were canceled and
voided, were converted into an aggregate of 316,332 shares (10,555 shares after
the reverse split of June 24, 1996) of Prentice Capital's common stock and in
addition the former shareholder of the Clinic were paid $100,002 in cash.
In addition to the concept of acquiring and operating podiatry clinics, the
Company has developed a plan to attract a core of 40-60 podiatry clinics to
which the Company will provide management services, including assistance with
practice development, centralized accounting, billing, advertising, space
utilization, etc. This concept was not developed by the Company. Up to the date
of disposition of the assets of the Clinics, the Company received letters of
intent from a number of these doctors, however, none of the management
agreements have been concluded.
15
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (Continued)
-------------------------------------
On February 26, 1997, the Company, along with its subsidiary Casino
International, Inc., entered into an Agreement and Plan of Reorganization with
Eco2, Inc., a publicly traded company, its wholly owned subsidiary, Eco2
Acquisition, Inc. whereby Casino International was merged into Eco2 Acquisition,
Inc. As a result of this merger Prentice received 5,000,000 shares of Eco2, Inc.
$.01 par value common stock and a promissory note in the amount of $500,000 from
Eco2 Acquisition, Inc.
On March 17, 1997, the Company and Chartwell International, Inc., a Nevada
corporation (Chartwell) entered into a Purchase and Sale Agreement (Agreement)
pursuant to which the Company purchased certain gypsum mining property located
in Washington County, Utah, generally known as Riverview Placer Claims and New
Riverview Claims (Claims) in exchange for 2,000,000 restricted shares of the
Company's common stock and $100,000 in cash.
On March 26, 1997, the Company, along with its subsidiary Universal Footcare,
Inc., and its wholly owned subsidiary Universal Operations, Inc. and Drs. Joel
M. Levy, D.P.M., James P. Dameron, D.P.M., and Steven Baker, D.P.M.
(Podiatrists) entered into an Agreement of Merger with Footcare Centers of
America, Inc. (FCA), its wholly owned subsidiary Footcare Acquisition, Inc.
(Acquisition) whereby the assets and liabilities of the Clinics were transferred
to Acquisition in exchange for the Company being relieved responsibility and
liability under the Original Merger to issued additional shares and/or to pay
the former shareholders of Clinic the difference in shares value and the agreed
price paid for the Clinic.
On June 3, 1997, the Company entered into an agreement with U.S.A. Diagnostics,
Inc., a Florida corporation and its sole shareholder, Nate Hollander, for the
acquisition of 100% of the capital stock of that company, and two Magnetic
Resonance Imagining (MRI) units owned by MRI Management Services, Inc. (MMS) and
Bentley Designers and Builders, Inc. (BDB). Mr. Hollander is the sole
shareholder of MMS and DBD, each of which owns one MRI unit.
The aggregate purchase price of Diagnostics and the two MRI units is $5,500,000
payable $4,000,000 in cash at the closing, and shares of restricted common stock
of the Company having a value of $1,500,000, determined by the average closing
bid price over the five trading day period preceding the date of the Agreement.
RESULTS OF OPERATIONS
The Company completed the merger with Dameron Levy & Baker, P.A. on February 10,
1995 in a transaction recorded as a purchase, and merged its operations as of
that date, therefore as of that date, the Company is no longer in the
development stage. Prior to that time, the Company had no revenues, other than
interest income. Subsequent to the merger of the Clinics with Footcare Centers
of America, Inc. on March 26, 1997, the Company was no longer an operating
company. The Company is in the process of targeting another operating company
for a possible merger or acquisition.
16
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (Continued)
-------------------------------------
Comparison of operations for the quarter ended June 30, 1997 with the quarter
- --------------------------------------------------------------------------------
ended June 30, 1996.
- --------------------
For the quarter ended June 30, 1997, net revenues from operations amounted to
$-0- compared to $306,278 for the quarter ended June 30, 1996.
For the quarter ended June 30, 1997, accounting and legal expenses decreased
from $31,583 to $46,018 for the quarter ended June 30, 1996 due to the
completion of the investigation of business opportunities relating to mineral
rights and merger negotiations of the Company's subsidiaries Casino
International and Universal Footcare, Inc.
Depreciation and amortization expense decreased from $3,890 in 1996 to $278 in
1997 reflecting the disposition operating assets of the footcare Clinics.
Consulting fees expense decreased from $147,701 in 1996 to $116,667 in 1997
reflecting the write off of previous commitment by the Company for banking
services and independent evaluation of business activity of the Clinic only
partially offset by a $100,000 fee paid in connection with the acquisition of
the Chartwell mineral rights.
Salaries expense decreased from $284,057 in 1996 to $35,000 in 1997 reflecting
the termination of the employment agreement with Alan S. Lipstein on February
28, 1997. The $35,000 reflects an employment agreement with its new president,
Mr. Lee J. Unger. The termination of the employment agreement with the
professional employees of the Clinic are not fully reflected in the accompanying
statements, since the Clinics were sold on March 26, 1997.
General and administrative expenses decreased from $98,773 for the quarter ended
June 30, 1997 to $2,061 during the same period in 1996 reflecting the level
activity of operations by the Company after the operations of the footcare
Clinics were disposed of during the first quarter.
Comparison of the major components of general and administrative expenses for
the quarter ended June 30, 1997 compared to June 30, 1996 were as follows:
insurance, $-0- in 1997, $15,497 in 1996; medical supplies, $-0- in 1997, $9,982
in 1996; office expenses, $150 in 1997, $7,911 in 1996; rent, $1,256 in 1997,
$15,838 in 1996; taxes, $-0- in 1997, $14,990 in 1996; telephone, $600 in 1997,
$5,248.
Comparison of operations for the six months ended June 30, 1997 with the six
- --------------------------------------------------------------------------------
months ended June 30, 1996.
- ---------------------------
For the six months ended June 30, 1997, net revenues from operations amounted to
$-0- compared to $657,114 for the six months ended June 30, 1996, reflecting the
disposal of the footcare Clinics.
Accounting and legal expenses increased from $45,255 in 1996 to $48,438 in 1997.
Expenses during the second quarter of 1997 was slightly higher due to (1) the
investigation of business opportunities relating to mineral rights, (2) the
negotiations and merger of the Company's subsidiaries Casino International and
Universal Footcare, Inc. and, (3) the filing with SEC for annual reports.
17
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (Continued)
-------------------------------------
Comparison of operations for the six months ended June 30, 1997 with the six
months ended June 30, 1996.
Depreciation and amortization expense decreased from $9,522 in 1996 to $557 in
1997 reflecting the disposal of the depreciable assets of the footcare Clinics.
Consulting fees expense decreased from $176,101 in 1996 to $133,334 in 1997
reflecting the write off of previous commitment by the Company for banking
services and independent evaluation of business activity of the Clinic.
Salaries expense decrease from $423,379 in 1996 to $75,000 in 1997 reflecting
the termination of the employment agreement with Alan S. Lipstein on February
28, 1997, and the termination of the employment agreement with the professional
employees of the Clinic are not fully reflected in the accompanying statements,
since the Clinics were sold on March 26, 1997.
General and administrative expenses for the six months ended June 30, 1997 were
$2,116 compared to $200,827 for the same period in 1996, reflecting the total
decrease level activity of operations by the Company after the disposal fo the
footcare Clinics.
Comparison of the major components of general and administrative expenses for
the six months period ended June 30, 1997 compared to June 30, 1996 were as
follows: contract labor, $-0- in 1997, $7,024 in 1996; insurance, $-0- in 1997,
$31,887 in 1996; medical supplies, $-0- in 1997, $9,880 in 1996; office
expenses, $150 in 1997, $13,097 in 1996; rent, $1,256 in 1997, $38,542 in 1996;
taxes, $-0- in 1997, $26,012 in 1996; telephone, $600 in 1997, $11,643 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company's capital is limited, management believes it has sufficient
resources to continue its current business operations and the evaluation of
business opportunities relating to the acquisition of MRI units and centers. The
Company anticipates operational costs will be limited until such time as the MRI
center is operational.
The Company anticipates securing the appropriate private placement financing to
close on the MRI center within the appropriate time period, and to fund future
mergers and acquisitions, and has been negotiating with various sources.
Additionally, the Company has also been negotiating with underwriters and
anticipates securing a firm commitment underwriting of at least $2,500,000
required to complete the closing on the MRI center.
The Company was successful in locating and/or negotiating terms advantageous to
the Company for gypsum mineral property rights, and anticipates raising capital
through the sale of securities for the mining of such property. Once mining
operation begins, the Company anticipates receiving title deed to the mining
property.
At June 30, 1997, the Company had no material commitments for capital
expenditures.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) None
(b) None
(c) None
Item 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
27 - Financial Data Schedule (Electronic filing only)
(Remainder of page left blank intentionally)
19
<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.
PRENTICE CAPITAL, INC.
Dated: 11/17/97 By /s/ Willian L. Haynes
-------------------- ----------------------------------
Mr. William L. Haynes, 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 Capacity Date
- -------------------------- -------------------------- ------------
/s/ William L. Haynes President, Chief Executive 11/17/97
- -------------------------- Officer, Chief Financial
William L. Haynes and Accounting Officer and
Director
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ML DIRECT INC. FOR THE SIX MONTHS ENDED JUNE 30, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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