U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee required)
For the fiscal year ended: June 27, 1998
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from ___________ to ___________.
Commission file number: 0-22638
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
(Exact name of Small Business Issuer in Its charter)
New Jersey 22-3219281
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
22 Meridian Road, Eatontown New Jersey 07724
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including
Area Code: (732)-380-0991
Securities registered under
section 12(b) of the Act: None
Securities registered under
section 12(g) of the Act: Common Stock, $.01 Par Value
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.
YES NO X .
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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: $2,230,922
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the closing sale price of such stock,
as of November 1, 1999 is $6,292,175.
Check whether issuer has filed all documents and reports required to be filed by
Section 12, 13, 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by the Court. Yes No X .
------ ------
As of November 1, 1999, the Issuer had 2,516,870 shares of Common Stock, $.01
par value, outstanding.
<PAGE>
Item 1. Business
Overview
The Company changed its focus in the year ended June 27, 1998 to concentrate on
the specialty retail sale of bulk candy. Previously, the Company operated
Starlog stores that included various science fiction and other products under
licensed names. The Company will continue to offer such merchandise as part of
its candy operation and not as a stand-alone business.
Effective July 9, 1998, the Company instituted a 1-for-10 reverse stock split,
which reduced its outstanding shares of common stock from 20,937,640 to
approximately 2,093,764 (including rounding up of fractional shares).
Subsequently, the Company issued approximately 423,000 shares pursuant to
private placements. Share numbers have been adjusted to reflect such reverse
stock split, unless stated to the contrary.
Candico
Candico, Inc. is a retail candy company currently operating 13 stores trading
under the name Candy Candy! or Candico (the "Candico Stores"). Several of these
stores have been successfully operating for more than 10 years.
The typical Candico store is between 600 and 800 square feet and is located in a
high traffic enclosed shopping mall. The Candico stores create visual excitement
with an array of colorful candy-filled towers. Candy is an impulse purchase and
this bright contemporary look creates a consumer magnetism. The stores are
professionally designed and utilize creative lighting effects and proprietary
acrylic fixtures to create an upbeat buying atmosphere. In-store sound systems
with continuous programmed music are also an integral part of the formula.
Because sales are directly proportional to mall foot traffic, prime retail
locations are critical.
The Candico stores sell approximately 300 bulk candy items displayed in acrylic
bins designed to ensure freshness and cleanliness. Bulk candy is sold with a
singular pricing strategy at $7.76 per pound in most stores. This pricing
formula enables the stores to enjoy a high gross margin targeted at almost 70%.
The one-price concept also allows the customer to randomly shop the store and
fill his bag with a wide variety of his favorite candies, promoting higher
average sales per customer.
There is no typical customer as the appeal of the Candico stores and product is
universal. Children and teens comprise the largest segment of the stores'
customer profile; however, adults of all ages frequent the stores. A wide
selection of sugar-free candies promotes destination shopping for health
conscious and diabetic customers.
In additon to the bulk candy items, the Candico stores stock approximately 125
"count goods" (individual wrapped novelties such as Pop Rocks, Pez and
Warheads). The typical layout includes two fixtures selling hand-made, specialty
lollipops (such as Mickey Mouse pops selling for several dollars each), two
fixtures selling gift and seasonal items, and a checkout counter offering a
large display of non-sports gaming and trading cards.
The Candico stores average about 100,000 transactions a year with the average
transaction averaging approximately $3.50. The stores are open 7 days a week (72
hours). A typical store is staffed by a manager, a lead, full time sales person,
working 30 hours a week and three part time workers who, among the three,
average an additional 32 hours a week. Additional staffing is required during
busy times such as Christmas and Easter. Generally there are two sales persons
at the store. The cost of a Candico store can range from $50,000 - $175,000 for
lease improvements and equipment. Initial inventories average between $12,000
and $15,000.
There are approximately 15 major distributors of bulk candy from whom the
Company can obtain product. The Company typically concentrates its purchases
between two suppliers to ensure good pricing.
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<PAGE>
Competition
The candy industry is a multi billion dollar industry with most retail sales
taking place in the mass markets. Specialty candy retailing is very fragmented.
It is basically divided into two segments: specialty chocolates and bulk
candies.
The chocolate retail segment is very regional with such names as See's (West
Coast) and Fannie Mae (Chicago, Philadelphia and Baltimore). Godiva Chocolatier,
a division of Campbell Soup, with its upscale specialty chocolates and elegant
packaging, operates a chain of company-owned stores located primarily in
regional malls. Escalating occupancy cost and wages have rendered the full
service chocolate business marginally profitable except in high traffic and high
volume locations.
The bulk self-service candy segment is even more fragmented than the chocolate
segment. The dominant mall retailer of bulk candy is Sweet Factory
(approximately 240 stores) headquartered in San Diego. Other active companies in
this field are Candy Express and Candy Headquarters. Candy Barrel, a similar
concept headquartered in Reno, NV, merchandises its product in wooden barrels,
rather than acrylic bins and consequently sells only wrapped and prepackaged
candies.
Plans for Expansion of Candico
The Company intends to expand its successful bulk candy operation and add to its
profitability by adding selected, fast-moving items from its science
fiction/fantasy/ memborabilia product line to the candy stores. The Company also
intends to develop Candy Carousels which will involve small, relatively
inexpensive, easy to assemble and transport, candy kiosks. These 400 square foot
octagonal "carousels" will be located in enclosed shopping malls and are
designed to allow the Company to expand its operations at a far lower per site
cost than traditional stores.
On November 24, 1998, Candy Candy Acquisition Corporation ("CCAC") purchased 8
additional candy stores which it contracted the Company to manage. CCAC is a
whole owned subsidiary of Hope Associates, LLC which owns more than 50% of the
Company's common stock. Hope has granted the Company an option to purchase these
stores at its cost as well as an agreement to management these stores. In July
1999 one of these stores was transferred back to the seller in settlement of a
dispute. (See Item 12. "Certain Relationships and Related Transactions" below)
Goal Post
Goal Post Distributors, Inc. ("Goal Post") is an international wholesale
distributor of sports, comics, science fiction, movie & television trading
cards, gaming cards, hobby supplies, collectibles and other toys. It also
produces a catalog that is mailed to over 8,500 accounts worldwide.
Goal Post was founded in 1991 to service the growing market of card, comics, and
collectibles shops and small to medium specialty store chains. Rapidly
expanding, first reaching $1,000,000 in annual sales in 1993, Goal Post grew to
service more than 4,000 existing customers and $5,000,000 in sales by 1996. The
Company acquired Goal Post at the end of June 1997.
Because the Goal Post Division was operating at a loss, effective June 27, 1998
the Company sold the Goal Post business and related assets back to Kevin
VanderKelen, who had originally sold this business to the Company. Under this
resale agreement, Mr. VanderKelen transferred back to the Company 330,000 of the
430,000 Company's shares originally received by Mr. VanderKelen and the Company
gave Mr. VanderKelen a promissory note for $50,000 (See Item 12. "Certain
Relationships and Related Transactions" below).
Stores
In October 1997, The Company entered into an agreement with KCK Corporation and
the U.S. Bankruptcy Court to manage and provide certain funding to acquire 14
KCK stores ("Candico") of which 1 store (Princeton Market) was closed in
December, 1997. The remaining 13 KCK stores are located throughout the Eastern
U.S. in
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<PAGE>
Connecticut, New Jersey, Maryland, Virginia, Georgia and Florida. Prior to the
acquisition of KCK, KCK filed a petition for chapter 11 bankruptcy. KCK
voluntarily emerged from bankruptcy in late March 1998 at which time the Company
assumed all the assets and liabilities of the newly emerged and reorganized KCK
Corporation. Thereafter, the Company merged KCK into Candico Entertainment,
Inc., thus changing its name. (See Item 2 "Properties" below for a listing of
these locations and certain lease terms).
In November 1998, a subsidiary of Hope Associates, LLC (which owns more than 50%
of the outstanding shares of the Company) purchased 8 more candy stores which it
granted the Company the right to manage and the option to purchase at Hope
Associates' cost. In July 1999 one of these stores was transferred back to the
seller in settlement of a dispute. (See Item 12. "Certain Relationships and
Related Transactions" below)
The Company at various times has opened 15 Starlog Stores and 6 Sumon/Hologram
Stores, all of which have been closed.
The ongoing operations of the Company is contingent on the Company's ability to
continue as a going concern, which should be appraised in conjunction with the
Company's history of operating losses and lack of working capital. See Item 6
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations". The Company filed a voluntary petition for relief under Chapter 11
of the United States Bankruptcy Code on November 13, 1995 and emerged from
bankruptcy on August 28, 1996. See Item 3 "Legal Proceedings".
Background / History
The founder of the Starlog Group, the publisher of several science fiction and
horror magazines, started The Company with one Starlog store in 1992. Its
original goal was to capitalize on the steadily growing niche market for science
fiction and fantasy literature, apparel and collectibles through a network of
stores. In November 1993 the Company raised $5.5 million through its initial
public offering. Following the offering, the Company's then management rapidly
expanded its operations, opening nine stores in 15 months.
Lacking experience in retail chain operations, the original management made,
what can now be seen as, several critical errors. First, the Company expanded
rapidly based on experience with only one store and without adequate research to
determine proper store size, inventory levels, occupancy factors and start-up
costs. As a result, stores opened during the first year proved to be too large,
with high start-up costs and annual rent commitments that were too high to
permit profitable operation. Additionally, the stores were too geographically
dispersed for efficient management control. As a result, during their first
fiscal year as a public company, losses were suffered totaling $3.2 million and
were continuing at a rate of approximately $800,000 a quarter.
Shortly after the Company's current Chief Executive Officer, Mr. John
Fitzgerald, joined the Company he recognized these problems and started taking
steps to reorganize the Company. In June 1995 Mr. Fitzgerald was appointed
President and Chief Operating Officer. In November 1995, the Company filed a
voluntary petition for Chapter 11 Bankruptcy. While in Bankruptcy the Company
was able to rid itself of its most expensive store leases. In an effort to
salvage some of the start-up expenses invested in the stores and to determine if
they could be profitable with more favorable lease terms, the Company
renegotiated much more favorable terms for the leases of eight of the stores and
attempted to operate them. The Company emerged from Chapter 11 in August 1996
and secured working capital from Hope Associates, LLC. ("Hope Associates"),
which in exchange, owned at that time approximately 90% of the Company's
outstanding Common Stock.
Subsequently, in November 1996 the Company's original executive management and
Board of Directors resigned and were replaced by a new Board formed by Hope
Associates' principals and Mr. Fitzgerald. Additionally, the founder of the
Company relinquished substantially, all of his stock in the Company.
Following the Chapter 11 reorganization, the Company acquired two new
businesses, KCK Corporation (now Candico, Inc.), effective March 28, 1998 (See
"Business-Candico" above) and, Goal Post Distributors, Inc. in June 1997 (See
"Business-Goal Post" above).
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<PAGE>
Elimination of Unprofitable Starlog and Hologram Stores.
After reviewing the results of the last six Starlog and remaining Hologram
Stores, the Company determined in April 1998 that these stores could not operate
profitably, even with the more favorably renegotiated lease terms. During the
period from October 1997 through January 1998, the six Starlog stores had been
suffering operating losses of more than $25,000 a month, greatly offsetting the
operating profits of the Company's other divisions.
As a result, the Company closed five of the last six unprofitable Starlog stores
and all of the remaining Hologram stores. The last Starlog store was closed in
October 1998. The leases for four of six Starlog stores and all of the Hologram
stores were expired and the Company had no on-going liability resulting from
such closings. In the case of two Starlog stores, the Company was able to
terminate the leases by making payments of $12,000 and $15,000 in October 1998.
Termination of License to Use Starlog Name.
On July 1, 1998, the Company was able to terminate its License Agreement with
Starlog Group, Inc. to use the "Starlog" trademark in return for making royalty
payments. The Company transferred to Starlog Group, Inc. certain assets worth an
immaterial amount in connection with such termination.
Financial Information about Industry Segments
From inception through the period ended June 27, 1998, the Company and its
subsidiaries have operated in the same industry segment.
Employees
As of November 1, 1999, the Company had 58 employees. This includes the
Company's President, General Merchandising Manager, CFO, 1 MIS Manager, 2
District Operations Managers, 1 Warehouse Manager, 1 Merchandising
Manager/Buyer, Financial Manager, an Administrative Assistant and 48 retail
store employees, of which 16 are full time and 32 are part time.
Item 2. Properties
On September 30, 1996 the Company's executive offices and distribution center
were relocated from Clearwater, Florida to a facility at 945 Brighton Street,
Union, New Jersey. This facility consisted of approximately 6,500 square feet
leased at a monthly rental of $3,000. This lease terminated on January 31, 1999
and was extended month to month until July 1999. In July 1999, the Company moved
its headquarters to it current address of 22 Meridian Road, Eatontown New
Jersey. This facility consists of approximately 9,300 square feet lease at a
monthly rental of $4,600. This lease terminates on October 31, 2004.
Candico Stores
The following table sets forth the locations of the 13 KCK stores where the
Company currently holds a leasehold interest.
<TABLE>
<CAPTION>
Location Retail Square Lease Termination Minimum Monthly
Footage Rent
<S> <C> <C> <C>
Harbor Place, Baltimore, MD 742 04/30/04 $5,874(1)
Crystal Mall, Waterford, CT 646 01/31/04 $4,166-4,583(2)
Bayside Marketplace, Miami, FL 636 09/10/00 $3,975(3)
Bridgewater Commons, Bridgewater, NJ 836 12/31/03 $6,667(4)
Tampa Bay Center, Tampa, FL 913 04/30/01 $1,140 (5)
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Rockaway Town Sq. Rockaway, NJ 535 10/31/06 $4,458-$4904(6)
Jacksonville Landing, Jacksonville, FL 563 02/28/00 $1,173(7)
Woodbridge Center, Woodbridge, NJ 889 Month-to-Month $3,334(8)
Macon Mall, Macon, GA 662 02/14/03 $2,917(9)
Pembroke Lakes Mall, Pembroke, FL 700 01/31/06 $4,000(10)
Coolsprings Galleria, Franklin, TN 893 03/15/02 $3,333(11)
Coliseum Mall, Hampton, VA 630 06/30/00 $1,837(12
The Avenues Mall, Jacksonville, FL 821 03/09/02 $3,417(13)
</TABLE>
(1) Plus 10% of annual Gross Sales over $704,900, plus an annual Merchant's
Association Contribution of $4,080.
(2) Plus 10% of annual Gross Sales over $500,000 for the period ending 1/31/99
and $550,000 for the balance of the lease term.
(3) Plus 8% of annual Gross Sales over a "breakpoint" which is $596,250 for the
last three years of the lease ending 9/10/99 plus CAM, taxes and extras.
(4) Plus 8% of annual Gross Revenues over $1,000,000.
(5) Plus 8% of annual Gross Sale over $25,000.
(6) Plus 10% of annual Gross Revenue, a $4,253 environment charge, a $802
promotional charge, both subject to adjustment.
(7) Plus 8% of annual Gross Sales in excess of $175,937, plus a Merchants'
Association Contribution Rate equal to the greater of 1% of Gross Sales or
$1,689 per annum.
(8) Plus 10% of annual Gross Sales over $333,375.
(9) Plus 8% of annual Gross Sales in excess of $437,500, plus tenant's pro rata
share of real estate taxes, Common Area Maintenance, Insurance, and
Merchant association advertising.
(10) Plus 8% of annual Gross Sales over $600,000.
(11) Plus 8% of annual Gross Sales in excess of $500,000 per annum.
(12) Plus 10% of annual Gross Receipts, plus tenants pro-rata share of Common
Area Charges and Insurance charges.
(13) Plus 8% of annual Gross Sales in excess of $468,750. Plus Merchants
Association Marketing Fund, Media Fund and General Promotional charges of
approximately $900 per month, subject to escalation.
At various times, the Company had 15 Starlog Stores and 6 Hologram stores, all
of which have been closed by fiscal year end June 27, 1998. Leases for all but 8
of the 15 Starlog Stores were rejected when the Company was in Chapter 11 (See
Item 3 "Legal Proceedings"). All but two of the remaining eight leases expired
pursuant to their terms. The Company was able to terminate the other two by
making payments of $12,000 and $15,000 in October 1998.
In the case of the various Sumon-Hologram Stores, all the leases were rejected
pursuant a Chapter 11 bankruptcy petition (See Item 3 "Legal Proceeding").
In addition to the foregoing, beginning in November 1998 the Company manages 7
stores owned by CCAC, a subsidiary of Hope Associates, LLC. Pursuant to its
agreement with Hope, the Company has the right to acquire these stores or CCAC
at Hope's cost. CCAC is in the process of obtaining approval of the assignment
of the leases to these stores from the respective landlords. No assurances can
be given that such consent will be given. (See Item 12. "Certain Relationships
and Related Transactions" below)
Item 3. Legal Proceedings
On November 13, 1995, the Company and its subsidiaries filed petitions for
voluntary reorganization under Chapter 11 of the United States Bankruptcy code
in the Bankruptcy Division of the District Court of the United States for the
Middle District of Florida. The Plan of Reorganization was filed on February 29,
1996, and subsequently amended on May 28, 1996. In July 1996 the Plan was
submitted to creditors and stockholders for their vote of approval and on August
28, 1996 the Court confirmed the Plan and the Company emerged from bankruptcy.
The major provisions of the Plan were as follows:
Hope Associates, LLC, the secured lender, reduced its secured claims against the
Company by $200,000 (leaving it a secured claim of $500,000, all of which was
post-petition financing) in exchange for 1,800,000 shares (post one-for-ten
reverse split) of the Common Stock of the Company. The 167,600 (post one-for-ten
reverse split) shares of
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<PAGE>
Common Stock of the Company whose voting rights had been assigned to the Company
in care of Jack Fitzgerald by the Company's founder and Chairman of the Board,
his son and former President of the Company and the former Chairman as Trustee
for his daughter as inducement for the secured lender, were canceled.
Holders of general unsecured claims received newly issued new warrants to
purchase shares of the Company's Common Stock at the rate of $2.50 (post
one-for-ten reverse split) per share, which were distributed at the rate of one
warrant for each $0.70 of claim. The remaining 30 percent of the claims of
unsecured creditors (totaling $390,000) is to be paid in equal monthly
installments over 60 months. Such payments were expected to commence during the
third fiscal quarter of 1998.
Common stock equity owners retained their stock but it was significantly
diluted. Hope Associates, the secured lender, owned approximately 90% of the
Company's outstanding stock before exercise of the creditor warrants and 86% if
such warrants were exercised. The equity ownership of the "old stockholders" of
the Company was diluted, after the Chapter 11, to slightly more than 9.3%. Such
amount was further diluted by the shares issued to the owner of Goal Post
Distributors in consideration of the Company's acquisition of that business in
June 1997.
During 1996, the Company and Hope Associates engaged in negotiations with
Charles Huttoe ("Huttoe") to provide financing to the Company and acquire the
ownership of the shares of the Company's Common Stock owned by Hope. In
September, 1996, pursuant to an agreement between Huttoe, Hope Associates and
its members, Huttoe provided working capital to the Company aggregating $650,000
prior to completion of any written agreement, and on October l7, 1996 an
associate of Huttoe caused a bank loan to Hope Associates in the amount of
$500,000 to be paid in full in alleged compliance with the Sales Agreement. On
November 7, 1996, the SEC filed a complaint in federal court against Huttoe and
others alleging unregistered distribution of the stock of Systems of Excellence,
Inc. and manipulation of its stock price. In November 1996, the Court issued a
temporary restraining order temporarily freezing assets and accounts of Huttoe
and various third party accounts into which payments were made from allegedly
Huttoe-controlled accounts. The SEC amended its complaint to include as "relief
defendants" the Company, Hope Associates and Hope's members and sought to
recover from the relief defendants the sums advanced by Huttoe as working
capital to the Company ($650,000) and the bank loan to Hope ($500,000). The SEC
made no allegations of wrongdoing as to the Company, Hope Associates or Hope's
owners. After negotiations with the SEC an agreement was reached and approved by
the Company whereby the Company agreed to repay $500,000 of the $650,000
received from Huttoe (plus interest computed at the rate of 5.55% per annum) in
four annual installments, the first three of which to be in the amount of
$114,916, and the fourth to comprise the remaining balance of principal and
interest. The first such annual installment was paid in April 1998. Hope
Associate's members have also agreed to personally guarantee $250,000 of the
$500,000 owed by the Company to the SEC.
The Company acquired SUMON, LLC, doing business as the Hologram Company and
Lazer Wizardry, on December 31, 1996 for a combination of cash and assumption of
liabilities valued at $50,000 and options to purchase common stock of the
Company. The operations acquired consisted of a six-store specialty retailer of
holographic artwork and gifts and a wholesale distributor of holographic artwork
and gifts. On February 3, 1997, the purchase price was adjusted down to zero
because of certain matters that were not disclosed by the seller. Subsequently
SUMON, LLC filed for Chapter 11 Reorganization in the Bankruptcy Court for the
Middle District of Florida. The bankruptcy was dismissed and the company was
basically liquidated. The only asset remaining was a store in Orlando, FL, which
has been closed.
The Company acquired KCK Corporation and subsequently merged KCK into Candico
Entertainment, Inc. (Candico) thus changing its name. The purchase price was $10
cash, plus $200,000 in cash loaned to KCK, and warrants to purchase 50,000
shares (after giving effect to the reverse stock split) at $2.50. As part of the
purchase agreement and Plan of Reorganization, the Company converted $100,000 of
it's loan into equity of the debtor thereby owning 1,000 shares of newly owned
stock in KCK (see Item 7. "Financial Statements" and notes thereto below). The
warrants expired unexercised after September 30, 1999.
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<PAGE>
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of the fiscal year ended June 27, 1998. The Plan of
Reorganization was submitted to the stockholders in July 1996 and subsequently
approved on August 28, 1996.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholders Matters
The Common Stock of the Company had previously been quoted on the NASDAQ Small
Cap Market under the symbol "SIFI". The stock was removed from their listing
upon the Company's filing for bankruptcy but continued to trade under that
symbol. Effective July 9, 1998, the Company amended its Articles of
Incorporation so as to change its name to its current name "Retail Entertainment
Group, Inc." and effected a one-for-ten reverse stock split. In September 1998,
the Company changed its trading symbol to "RETN".
The following table sets forth the high and low closing bid prices of the
Company's Common Stock from for the last two fiscal periods, as reported by
NASDAQ. Bid quotations represent high and low prices quoted between dealers, do
not reflect retail markup, markdown or commission, and do not necessarily
represent actual transactions. Prices prior to September 12, 1998 are based on
pre-reverse-split shares.
<TABLE>
<CAPTION>
Sales Prices
---------------------------
High Low
Fiscal Year 1997
- ----------------
<S> <C> <C>
Quarter ended September 30, 1996 ........................................ $ .9375 $ .050
Quarter ended December 31, 1996 ......................................... $ .5625 $ .125
Quarter ended March 31, 1997 ............................................ $ .3758 $ .125
Quarter ended June 28, 1997 ............................................. $ .5800 $ .130
<CAPTION>
Fiscal Year 1998
- ----------------
<S> <C> <C>
Quarter ended September 30, 1997 ........................................ $ .79 $ .33
Quarter ended December 31, 1997 ......................................... $ .65 $ .25
Quarter ended March 31, 1998 ............................................ $ .54 $ .20
Quarter ended June 27, 1998 ............................................. $ .49 $ .10
<CAPTION>
Fiscal Year 1999
- ----------------
<S> <C> <C>
Quarter ended September 30, 1998 $ 4.00 $1.100
Quarter ended December 31, 1998 $ 3.50 $1.125
Month ended January 31, 1999 $ 1.125 $1.125
</TABLE>
On November 1, 1999, the closing price of the Company's Common Stock was $ 2.50
per share. However, such price does not necessarily reflect the price that would
result upon the sale or purchase of a significant number of shares.
On November 1, 1999, the Company had approximately 107 holders of record of its
Common Stock. The Company reasonably believes that it has a significantly larger
number of beneficial holders of its Common Stock.
The Company has not paid any cash dividends on its Common Stock to date and does
not anticipate paying any in the foreseeable future. The Board of Directors
intends to retain earnings, if any, to support the growth of the Company's
business.
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<PAGE>
Item 6. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Report.
Results of Operations
The Company dramatically changed its focus in the fiscal year ended June 27,
1998 to concentrate on the specialty retail sale of bulk candy and to a lesser
extent on the wholesale distribution of sports, comics and related collectibles
and toys. Previously, the Company operated Starlog stores that included various
science fiction and other products under licensed names. These stores were
unprofitable and all but one were closed during Fiscal Year ended June 27, 1998,
resulting in materially improved results during the last quarter (13 weeks)
ended June 27, 1998. The results of operations in the Fiscal Quarter (13 weeks)
ended June 27, 1998 compared to the Fiscal Quarter ended June 28, 1997 are as
follows:
The Company's revenues for the Quarter ended June 27, 1998 ($1,041,703) were up
170% from revenues for the quarter ended June 28, 1997 ($384,981). The Company's
revenues for the quarter ended June 27, 1998 were from retail sales for its
Candico stores ($677,860), from Shuttlecart Enterprises ($109), from its Goal
Post subsidiary ($331,893) which was sold back to the original owner and from
retail sales from its Starlog and Hologram stores which were in the process of
being discontinued ($31,841). The Company's revenues for the Quarter ended June
28, 1997 were from retail sales for its Starlog stores ($384,981) and franchise
fees and royalties ($7,300).
The Company had a consolidated loss of $786,522 for the Quarter ended June 27,
1998. However, only $95,890 of this loss was from continuing operations. The
balance of $690,632 was from discontinued Starlog, Sumon and Goal Post
operations. The Company had a consolidated loss from continuing operations for
the Quarter ended June 28 1997 of $811,518. The fourth fiscal quarter is
historically the second slowest quarter for the Company's retail operations,
both in its current candy business and it's discontinued businesses.
The Fiscal Year (52 Weeks) ended June 27, 1998 ("1998"), compared to the Fiscal
Year (52 Weeks) ended June 28, 1997 ("1997") and Fiscal Year (52 Weeks) ended
June 29, 1996 ("1996") follow:
The Company's revenues for 1998, 1997 and 1996 were earned from several sources:
Retail sales for its Candy, Goal Post Distribution Company, Starlog and Hologram
Stores, franchise fees and royalties and sales of merchandise to its
franchisees. During the second quarter of 1998, the Company managed and operated
thirteen Candy Stores (after closing one store and reopening another). The
Company owned and operated six Starlog Stores for the first three fiscal
quarters of 1998 and closed all but one of these stores down by the fourth
fiscal quarter of 1998. (The last Starlog store was closed during October 1998).
The Company, owned and operated six Hologram Stores during part of 1998 and
closed all of them during the year. The Company acquired Goal Post Distributing,
Inc. in late June 1997 and sold the company at the end of June 1998. During
fiscal year ended June 28, 1997, the Company owned and operated six Starlog
Stores (after opening three and closing three). The Company operated eight
Starlog stores during fiscal year ended June 29, 1996.
Total revenues for 1998 increased by 104% to $4,831,947 from $2,367,722 for
1997. Total revenues for 1997 increased by 10% to $2,367,722 from $2,144,316 for
1996. There were sales of merchandise to four franchisees in 1997 and three
franchisees in 1996. There were no franchise stores during fiscal 1998. Net
sales for the Hologram stores totaled $458,757 since they were acquired on
December 31, 1996. All of the Hologram stores have been closed. All Starlog
stores were closed during fiscal year 1998, except for one store, which closed
in October 1998.
Franchise fees and royalties earned from franchisees for 1998, 1997 and 1996
were $ 0, $58,945 and $61,859, respectively. Sales of merchandise to franchisees
were $ 0 in 1998, $413,671 in 1997 and $356,789 in 1996.
Consolidated Cost of sales as a percentage of sales increased to 55% in 1998
compared with 41% in 1997 and 62% for 1996. The decreased gross profit margin in
1998 was due to the acquisition on a new trading card business
-8-
<PAGE>
(Goal Post) with lower margins and the liquidation of the Hologram and Starlog
store operations at distressed prices for merchandise sold. The gross profit
margin increase for 1997 is a direct result of increased margins on sales of
merchandise to franchisees, ample product for sale during the holiday season and
positive physical inventory counts as a direct result of selling inventory that
previously had been fully reserved due to anticipated obsolescence, but never
materialized.
Consolidated selling, general and administrative expenses (excluding
depreciation and amortization) increased in 1998 to $4,020,646 from $2,470,409
in 1997 and $2,544,629 for 1996. The 1998 period included approximately
$1,972,943 in S.G. & A. applicable to the newly acquired Goal Post and Candy
store operations. In 1997, $471,917 of additional S.G. & A. was attributable to
the SUMON/Hologram stores acquired on December 31, 1996. A decrease applicable
to the Starlog stores was due to a conscientious effort to reduce costs in the
1997 and 1996 periods. The Company's selling, general and administrative
expenses for 1998, 1997 and 1996 consisted primarily of salaries, rent,
franchise related selling expenses, travel, telephone and utilities,
professional fees, insurance, depreciation and amortization, and selling,
general and administrative expenses. Provision for bad debts increased in 1998
to approximately $100,000 from $5,000 in 1997, of which approximately $84,000
was due to Goal Post operations. Depreciation and amortization decreased to
$350,238 in 1998 from $443,093 in 1997 mainly due to write-offs of liquidated
Starlog and Hologram operations.
The Company showed a consolidated loss of $3,605,833, all but $385,343 related
to discontinued operations. The total 1998 loss included write-offs of $673,039
applicable to a loss on sale or abandonment of assets and $513,261 related to
reorganization value both related to discontinued operations. The Company showed
a consolidated loss of $1,286,771 for Fiscal year 1997 including income from
forgiveness of a debt of $250,000 was applicable to the period up to emergence
from bankruptcy. The Company incurred a loss of $2,360,493 for fiscal 1996.
The 1998 fiscal year reflects a provision for bad debts of approximately
$100,000 of which $84,000 is applicable to the Goal Post operation. The 1997
period reflects drawdowns in its previously established valuation reserves of
$50,000 applicable to inventory and $428,886 applicable to usage of lease
renegotiation and bankruptcy contingency reserves. This was partially offset by
additions of $62,112 to the allowance for bad debts required by the bankruptcy
of two franchisees in the United Kingdom. The net loss for 1996 includes a loss
on disposal of property and equipment of approximately $133,000 due to the
closing of two company stores and an increase of $76,000 in the provision for
inventory shortages.
Liquidity and Capital Resources
The Company had a working capital deficit at June 27, 1998 of $2,190,098
compared to a working capital deficit at June 28, 1997, of $972,488 and a
working capital deficit of $1,132,401 at June 29, 1996. The current ratio was
.073 to 1 in 1998, .51 to 1 in 1997 and .40 to 1 in 1996. The Company is seeking
to raise additional capital through private placements. Without such capital the
Company does not believe that it has sufficient capital to continue to operate
its business. There is no assurance that the Company will be successful in
raising such capital.
During Fiscal 1998, the Company had net cash used in operations of $1,125,579.
This resulted primarily from a net loss of $3,605,833 less approximately
$1,454,000 in non-cash expenses, gains and losses, including depreciation and
amortization, recording of Reorganization Value in Excess of Assets Allocated
applicable to KCK offset by the write-off of Reorganization Value applicable to
Starlog, less write-downs of Trade and other Claims from the emergence from
bankruptcy. Decreases in inventories and increases in accounts payable and
accruals and reserves for closed stores applicable to Starlog operations offset
the decrease in cash. The Company's expenditures for property and equipment for
Fiscal 1998 were approximately $98,000 (mainly new leasehold improvements
related to the renovation of one KCK store).
During Fiscal 1997, the Company had net cash used in operations of $1,506,541.
This resulted primarily from a net loss of $1,286,771 less approximately
$775,000 in non-cash expenses, including depreciation and amortization,
recording of Reorganization Value in Excess of Assets Allocated, less
write-downs of Trade and other Claims from the emergence from bankruptcy.
Increases in inventories and decreases in accounts payable and accruals added to
the decrease in cash. Net cash used in operating activities for the Fiscal 1996
period was $604,632 resulting
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<PAGE>
primarily from a net loss of $2,360,493 offset by positive operating activities.
The Company's expenditures for property and equipment for Fiscal 1997 were
$149,378 (mainly net assets acquired of SUMON) compared to $45,694 for Fiscal
1996.
On November 13, 1995, the Company's Starlog subsidiary (Debtor) filed petitions
for relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Middle District of Florida. Starlog emerged from
bankruptcy effective September 7, 1996. Under Chapter 11, certain claims against
the Debtor in existence prior to filing of the petitions for relief under the
federal bankruptcy laws are stayed while the Debtor continues business
operations as Debtor-in-possession. These claims were reflected in the
consolidated balance sheet as "liabilities subject to compromise." The debtor
received approval from the Bankruptcy Court to pay certain of its pre-petition
obligations, including employee wages. On February 3, 1997, the Company's
SUMON/Hologram subsidiary (Debtor) filed petitions for relief under Chapter 11
of the federal bankruptcy laws in the United States Bankruptcy Court for the
Middle District of Florida. Subsequently, the court disallowed the bankruptcy
and the SUMON/Hologram Company was basically liquidated. In March 1998 the
Company acquired KCK Corporation (which prior to the acquisition, KCK had filed
a Chapter 11 Bankruptcy Petition in the United States Bankruptcy Court for the
Middle District of North Carolina Winston-Salem Division). The Court approved
the Plan of Reorganization and KCK emerged from bankruptcy effective March 28,
1998, the effective date of acquisition.
As of the Confirmation Date, KCK adopted Fresh Start Reporting in accordance
with the American Institute of Certified Public Accountants Statement of
Position 90-7 (SOP 90-7) -- "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code."
The Reorganization Value (the approximate fair value) of the Company KCK is
based on the consideration of many factors and various valuation methods,
including discounted cash flows and price/earnings and other applicable ratios
and valuation techniques believed by management and its financial advisors to be
representative of the Company's business and industry. The excess of the
Reorganization Value over the fair value of net assets and liabilities is
reported as Reorganization Value in excess of allocated amounts and is amortized
over a fifteen-year period.
In April 1998, the Company decided to withdraw from the Starlog and
SUMON/Hologram retail store operations and concentrate on its candy store and
gift, and novelty business. By April 1998 the Company had closed all but one of
these stores. All remaining property, equipment and inventory have been either
sold, written-off or reserved to net realizable value.
The Company acquired Goal Post Distributing, Inc. on June 28, 1997, a wholesale
distributor of trading cards and collectibles for 430,000 (post one-for-ten
reverse split) shares of common stock of the Company included in the outstanding
shares at June 28, 1997. The former owner of Goal Post Distributing purchased
200,000 (post one-for-ten reverse split) shares of common stock of the Company
for $250,000 in October 1997 in a private placement.
KCK Corporation is a retailer that owned and operated 14 candy stores under the
trade name Candy Candy, and Candico. The Company acquired KCK Corporation, in
March 1998, in exchange for $10.00 cash, $200,000 super-priority financing, of
which $100,000 was converted to equity of KCK for all the shares of common
stock, and warrants to purchase 50,000 shares of common stock (40,000 shares at
a strike price of $2.50 per share if exercised by September 28, 1998 or for
$4.00 per share if exercised thereafter and 10,000 shares at a strike price of
$5.00 a share). All warrants expire on October 1, 1999. Prior to this
acquisition by the Company, KCK Corporation filed a Chapter 11 Bankruptcy
Petition in the Federal Bankruptcy Court for the Middle District of North
Carolina Winston-Salem Division. KCK emerged from Bankruptcy effective March 28,
1998, the effective date of acquisition.
The Independent Auditors Report, which accompanies and is part of the Company's
audited consolidated financial statements as of June 27, 1998 and June 28, 1997
and are included as part of this Annual Report, is qualified by the following
statement: "The accompanying consolidated financial statements have been
prepared assuming that Retail Entertainment Group, Inc. (formerly Starlog
Franchise Corporation) and Subsidiaries will continue as a
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<PAGE>
going concern. As discussed in Note 12 to the consolidated financial statements,
the Company has incurred recurring losses from operations. The Company has not
yet shown the ability to generate cash from operations, and as such, this raises
substantial doubt about the entity's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of reported asset amounts or the amounts and
classification of liabilities that might result from the outcome of these
uncertainties."
Item 7. Financial Statements
This information appears in a separate section of this Report following Part
III.
Item 8. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure.
None.
Part III
Item 9. Directors And Officers Of The Registrant
As of June 30, 1998, the Directors and officers of the Company were as follows:
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------------------------- ---------------- -----------------------------------------------
<S> <C> <C>
Herman Rush 70 Co-Chairman of Board of Directors
Michael Michaelson 76 Co-Chairman of Board of Directors
John (Jack) Fitzgerald 57 President, CEO and Director
Ray Markman 71 Director
Kevin M. VanderKelen(1) 32 Director
Allan R. Lyons 58 Director
Mark Savel(1) 45 Director
</TABLE>
Mr. VanderKelen resigned as a member of the Board in May 1999. Mr. Savel
resigned as a member of the Board in September 1998.
Herman Rush was appointed Chairman of the Board in November of 1995. Mr. Rush,
former Chairman and Chief Executive Officer of Coca-Cola Telecommunications,
Inc., Senior Vice President of the Entertainment Business Sector of the
Coca-Cola Company and a member of the Board of Directors of Columbia Pictures
Industries, Inc. and past Chief Operating Officer of Columbus Pictures
Television Group, has more than thirty years experience in executive, production
and marketing positions. In 1992, Mr. Rush formed Katz- Rush Entertainment whose
credits include "The Montel Williams Show" and "The Susan Powter Show." Mr. Rush
began his television career in 1951. Mr. Rush was instrumental in the television
packaging and network placement of such programs as "Voyage to the Bottom of the
Sea", "Lost in Space", "Time Tunnel" and "Land of the Giants".
Michael Michaelson was appointed to the Board of Directors in November of 1995.
Earning a BS degree at New York University in 1948, Mr. Michaelson's career has
been spent in magazine publishing and direct marketing. Mr. Michaelson currently
serves as a member of the Board of Directors of Allied Devices Inc., a publicly
held precision tool company. Mr. Michaelson began his career with Look Magazine.
He then joined Ziff-Davis where he was Vice President, Circulation Director and
a member of the board. In 1961 he became President of Franklin Square
Subscription Agency, where he created the first college student multi-magazine
subscription card, becoming the official agency of the National Association of
College Stores under the name of Campus Subscriptions. In 1979 Mr. Michaelson
sold Campus Subscriptions to Publishers Clearing House where he
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<PAGE>
became Senior Vice President, Marketing. He left there in 1980 to found GAMES
MAGAZINE with his partner Chip Block. GAMES was sold to PLAYBOY in 1982. He then
founded RAINWATER ENTERPRISES, a consulting firm that has served such clients as
Rodale Press, Hearst Magazines, Fairchild Publications, Meredith Publishing and
the Smithsonian. From 1986 to 1989 Mr. Michaelson was Chairman of the Council on
Economic Priorities. He served in the U.S. Army, 35th Infantry, 25th Division in
the South Pacific as a Company Commander from 1942 to 1946, receiving a Bronze
Star and Purple Heart. From 1986 to 1998, Mr. Michaelson is President and owner
of Rainwater Associates, Inc., providing publishing management and marketing
consultation services.
John (Jack) Fitzgerald was appointed President and Chief Operating Officer of
the Company effective June 1, 1995. Previously, Mr. Fitzgerald served as Vice
President and General Manager of the Company since July 1994. Prior thereto,
from 1990, he owned a consulting firm which developed and implemented retail
concepts such as Candy Candy Inc., The Candy Store in Baton Rouge, LA and
Shop-N-Stop (Sweet 99), the bulk candy concept for K-Mart Stores. Prior thereto,
from 1989, he was Chief Operating Officer and President of Candico Stores, a
bulk candy specialty concept. From 1984 to 1989 he was Executive Vice President
and Chief Operating Officer for J & D Brauner Butcher Block Stores. From 1974 to
1984 he was Vice President of Store Operations for Lechters.
Ray Markman was appointed to the Board of Directors of the Company in November
1995. Mr. Markman is a multi-faceted entrepreneur with a degree in journalism,
advertising and economics at the University of Missouri with postgraduate work
at the University of Chicago. Mr. Markman has lectured at the N.Y.U. School of
Management and the Kellogg Executive MBA Program at Northwestern University on
Strategic Planning. He was Executive Vice President at Encyclopaedia Britannica
and a senior executive at the Leo Burnett and McCann-Erickson (Division of
Interpublic Group of Companies) advertising agencies. Mr. Markman was a founder
of two companies that pioneered the distribution of pre-recorded videocassettes
to mass-market outlets for such companies as Disney, Hanna/Barbera and the
original Jane Fonda aerobic tapes. He is a member and lecturer at the Direct
Marketing Association and Chairman of the Echo Awards Committee (creative
marketing awards) and a contributing author for a book on direct marketing. Mr.
Markman founded FIND (Foundation for Inventions and New Developments), founded
FACT, an organization devoted to public economic education. He was a Director of
Chicago City Bank, founder and Director of Mayflower Life Insurance Co. and
Seago Real Estate Co., which companies he helped to take public. He is currently
President and founder of Life Planning Company that provides financial planning
services for high net worth individuals, corporations and pension plans.
Mark Savel was appointed to the Board of Directors in November of 1995. Mr.
Savel has been Director of Franchise Development since July 1994. Mr. Savel was
responsible for sales training and the marketing and sales of franchises,
nationally and internationally, for Starlog Franchise Corporation. Since 1978,
Mr. Savel, through his development company, Majic Development Corp., (later
Majic Franchise Development, LLC) was and is an area developer and franchise
sales consultant for a major automotive after market franchiser. Mr. Savel has
held the positions of operations manager, sales trainer, franchise area
development agent and franchise sales consultant. Mr. Savel is currently a
consultant to Lee Myles Associates Corporation and markets franchises for Lee
Myles Transmissions in the Arizona market. Mr. Savel owns two Lee Myles
Franchises in Arizona. Mr. Savel resigned as a director in September 1998.
Kevin M. VanderKelen earned a BA degree in marketing and finance in 2 1/2 years
from the University of Wisconsin. He started his career founding a screen
printing business Body Wraps, Inc. and selling it to employees. He worked for
Metropolitan Life, MetLife Securities, Inc. and VanderKelen Investment Company.
He started a position as a corresponding pricing analyst for several collectible
price guide magazines and includes several nationally published magazine
articles to his credit. He founded Goal Post Distributing in 1991 and developed
a wholesale distribution concept to service retail trading card, comic, and
collectible stores. Goal Post publishes a monthly wholesale catalog and services
an international base in excess of 8,000 customers that achieved sales of
approximately $5,000,000. Mr. VanderKelen resigned from the Company's Board of
Directors in March 1999.
Allan R. Lyons had been a director of the Company from August 1993 until his
resignation on November 15, 1995. The Board of Directors reelected Mr. Lyons to
serve as a director effective May 15, 1998. Allan R. Lyons, CPA, is a senior
member of the firm Piaker & Lyons in Vestal, New York, which he joined in 1964.
Mr. Lyons is an active
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<PAGE>
investor and has served on a number of Boards. He is currently a member of the
Board of Directors of Ambanc, Inc., Franklin Credit Management Corporation,
Officeland, Inc., and Scoreboard, Inc. Scoreboard, Inc. filed for Chapter 11
bankruptcy in March 1998. Mr. Lyons is a member of the American Institute of
CPAs, the New York State Society of CPA's and the International Association for
Financial Planning. Mr. Lyons was the Comptroller and Finance Director of the
Town of Vestal from 1970 to 1997 and is on the Board of Advisor-School of
Management -Binghamton University, Treasurer and Trustee of United Health
Services and a member of the Endowment Committee of the United Jewish Appeal of
Broome County, New York.
All directors hold office until the next annual meeting of shareholders and the
election and qualification of their successors. No fees have been paid or
accrued to directors as compensation for their acting in such capacity. The
Company has established an Audit Committee consisting of Allan Lyons and Michael
Michaelson and a Compensation Committee, consisting of Messrs. Michaelson, Rush
and Lyons. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by, or paid
for all services rendered to the Company during Fiscal 1998, Fiscal 1997 and
Fiscal 1996 by the Company's Executive Officers but does not include information
regarding Executive Officers with annual compensation under $100,000, except
current Chief Executive Officer.
Annual Compensation
<TABLE>
<CAPTION>
Name and Principal Other Annual
Compensation Year Salary $ Bonus $ Compensation $
- -------------------------------------- ------------------ ------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
John (Jack) Fitzgerald 1996 $90,525 -0-
President CEO, Director 1997 $110,000 -0- (1)
1998 $110,000 -0-
</TABLE>
(1) Does not include the cost to the Company of the use of automobiles leased
by the Company, or the cost to the Company of benefits, including premiums
for life and health insurance and any other personal benefits provided by
the Company to such persons in connection with the Company's business
since such amounts total less than (i) $50,000 or (ii) 10% of the
Executive Officer's disclosed compensation.
Contingent Stock Options Granted in Last Fiscal Year:
Option/SAR Grants in Last Fiscal Year-Individual Grant
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
% of Total Options
Number of Securities /SARs Granted to
Underlying Options Employees in Fiscal Exercise or Base Expiration
Name /SARs Granted (#) Year Price ($/Sh) Date
- ----------------------------- ----------------------- --------------------------- ---------------------- -------------
<S> <C> <C> <C> <C>
John (Jack) Fitzgerald
President-CEO 0(1) --% -- ---
</TABLE>
(1) On April 1, 1997, the Company granted Mr. Fitzgerald, President and CEO of
the Company an option to acquire 300,000 shares (post one-for-ten reverse
split) of the Company's common stock until March 31, 2003. The option to
acquire 100,000 (post one-for-ten reverse split) of such shares is
currently exercisable. The option to acquire the second 100,000 shares
(post one-for-ten reverse split) is exercisable only if the Company has
$500,000 of annual net profits, before interest, taxes, depreciation and
amortization ("EBITDA"), and the
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<PAGE>
option to acquire the remaining 100,000 shares (post one-for-ten reverse
split) will be exercisable only if the Company has $1,000,000 of annual
net profits EBITDA. This option was in replacement of other options
previously granted to Mr. Fitzgerald.
Mr. Kevin VanderKelen, who as the Vice President of the Company and founder of
Goal Post Distributing, Inc., in connection with the original acquisition of
Goal Post was granted an option to purchase up to 100,000 shares (post
one-for-ten reverse split) for prices ranging from $5.00 to $9.00 on a sliding
scale over the next five years provided that certain annual gross sale
projections from $5,000,000 to $9,000,000 were met. This option was terminated
when the Company sold Goal Post back to Mr. VanderKelen effective June 27, 1998.
None of the Company's outstanding options or warrants were exercised during the
Fiscal Year ended June 27, 1998 or since then, through November 1, 1999, by any
of the name Executive Officers or any other parties. The Company has no
long-term incentive plans.
No fees have been paid or accrued to any directors in consideration for them
acting as such.
Employment Agreements
The Company originally entered into an employment agreement with Jack Fitzgerald
commencing July 11, 1994. This agreement was subsequently amended as of August
15, 1996. As amended the agreement provides for a five- year term, and a salary
of $100,000 per year, increasing by $10,000 a year up to $140,000, plus other
benefits and a monthly car allowance of $500. In addition Mr. Fitzgerald is
eligible for a discretionary bonus of up to 50% of his base salary. Under the
1996 Agreement, Mr. Fitzgerald was to receive an option to purchase, for $.06
per share, such number of shares as equals 5% of the issued and outstanding
shares, each year for three years, subject to certain limitations. At the April
1, 1997 Board meeting, it was agreed to amend Mr. Fitzgerald's employment
agreement as follows: Mr. Fitzgerald's base salary will be increased from
$100,000 to $150,000 when the Company raises $500,000 or more in a currently
proposed private placement. Mr. Fitzgerald's previously granted stock option is
replaced with an option to purchase a total of 300,000 shares of the Company's
common stock (taking into account the reverse split) at $0.60 per shares for a
period of five years, ending March 31, 2003. Under this option, 100,000 of such
shares are immediately exercisable. The right to exercise the option with
respect to the second 100,000 shares will be exercisable only if and after the
Company achieves annual pre-tax profits of $500,000 before interest,
depreciation, taxes, and amortization ("EBITDA") and the right to exercise the
option with respect to the last 100,000 shares will be exercisable only if and
after the Company achieves annual pre-tax profits of $1,000,000 EBITDA.
In connection with the acquisition of Goal Post, the Company entered into an
employment agreement with its President, Mr. Kevin VanderKelen, dated June 29,
1997. This agreement had a term of five years and provides for annual base
salary of $100,000 for the first two years, $115,000 for year 3, $120,000 for
year 4 and $125,000 for year 5. This agreement also granted Mr. VanderKelen with
an option to purchase a total of up to 100,000 shares of the Company's Common
stock (after taking into effect the reverse stock split) as follows. Mr.
VanderKelen's options vest 20,000 shares per year, subject to the Goal Post
division reaching gross sales of $5,000,000 for the 1st measurement year ending
June 29, 1998, $6,000,000 for the 2nd measurement year ending June 29, 1999,
$7,000,000 for the 3rd measurement year ending June 29 2000, $8,000,000 for the
4th measurement year ending June 29, 2001 and $9,000,000 for the 5th measurement
year ending June 29, 2002. The option price ranged from $5.00 to $9.00 per share
for the 20,000 share increments that would have vested over that period.
Mr. VanderKelen's employment agreement and the related stock option was
terminated when the Company sold Goal Post back to Mr. VanderKelen effective
June 27, 1998. (See "Certain Relationships and Related Transactions" below)
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<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following tables sets forth certain information regarding the beneficial
ownership of the Company's common stock as of October 1, 1998 by (i) each person
known by the Company to own beneficially 5% or more of any class of the
Company's voting stock, (ii) each director and executive officer of the Company,
and (iii) all directors and executive officers of the Company as a group. All
percentages in this section were calculated on the basis of outstanding
securities plus securities deemed outstanding under Rule 13d-3 of the Exchange
Act. All shares are expressed post reverse stock split.
<TABLE>
<CAPTION>
Name and Address of Shares of Common Percentage of
Beneficial Owner Stock Held Shares Held
-----------------------------------------------------------------------------------------
<S> <C> <C>
Hope Associates, LLC(1)(2) 2,700,000 (2) 70.74%
c/o Michael Michaelson
135 E. 71st St., Apt. 3A
New York, NY 10021
Kevin VanderKelen(1)(3) 572,668 (3) 22.12%
Goal Post Distributing, Inc.
13949-9 W. Hillsborough
Tampa, FL 33634
</TABLE>
(1) Shares outstanding are calculated giving effect to a 1-for-10 reverse stock
split which occurred effective July 9, 1998.
(2) Hope Associates, LLC is a limited liability company. The percentage of Hope
Associates owned by Directors of the Company is as follows: Michael
Michaelson and Herman Rush each own approximately 25.83%; Ray Markman owns
approximately 17.22%; Kevin VanderKelen owns approximately 14.35%; Allan
Lyons owns 13.89% and Mark Savel owns approximately 2.87%. The 2,700,000
shares attributed to Hope Associates includes warrants to purchase 500,000
and 300,000 shares and an option to purchase 500,000 shares for $1.25 per
share. (See Item 12 Certain Relationships and Related Transactions" for a
description of the transactions in which the Company granted these warrants
and option to Hope Associates.)
(3) Includes 344,448 shares based on Mr. VanderKelen's ownership of 14.35% of
Hope Associates and a portion of the warrants and the option to purchase a
total of 1,300,000 shares which were granted by the Company in
consideration for certain transactions. Hope Associates holds 1,400,000
shares and Hope and/or its members hold warrants and an option to purchase
an additional 1,300,000 shares. (See Item 12 Certain Relationships and
Related Transactions")
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Shares of Common Percentage of
Name of Director or Executive Officer Stock Held Shares Held
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jack Fitzgerald(1)(2)
President, CEO, Director 100,000 3.87%
Kevin M. VanderKelen(1)(3)
Director 572,668 22.12%
Herman Rush(1)(4)
Co-Chairman of the Board 740,669 25.58%
</TABLE>
-15-
<PAGE>
<TABLE>
<S> <C> <C>
Michael Michaelson(1)(5)
Co-Chairman of the Board 740,448 25.58%
Mark Savel(1)(6)
Director of Franchise Development
and Director 54,530 2.15%
Ray Markman(1)(7)
Director 493,658 17.83%
Allan R Lyons(1)(8)
Director 448,149 16.47%
ALL DIRECTORS AND OFFICERS AS A GROUP
(EIGHT PERSONS) (9) 3,160,181 80.47%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All shares expressed after giving effect to a 1 for 10 Reverse Stock Split
which occurred effective July 9, 1998. Based on a total number of
outstanding shares of 2,516,870. Based on a total number of shares
outstanding and options and warrants that were exercisable on November 1,
1999. (See Item 12 "Certain Relationships and Related Transactions").
(2) Includes 100,000 shares pursuant to currently exercisable options.
(3) Includes 100,000 out of 430,000 shares received by Mr. VanderKelen in June
1997 in connection with the sale to the Company of the assets of Goal Post
Distributors, Inc. (330,000 of which were returned to the Company upon the
resale of Goal Post), 200,000 shares purchased by Mr. VanderKelen from the
Company for $250,000, and 344,448 shares based on Mr. VanderKelen's 14.35%
ownership interest in Hope Associates and a portion of the warrants and the
option to purchase a total of 1,300,000 shares which were granted by the
Company in consideration for certain transactions. Hope Associates holds
1,400,000 shares and Hope and/or its members hold warrants and an option to
purchase an additional 1,300,000 shares. (See "Certain Relationships and
Related Transactions" below.)
(4) Based on Mr. Rush's approximately 25.83% interest in Hope Associates and a
portion of the warrants and the option to purchase a total of 1,300,000
shares which were granted by the Company in consideration for certain
transactions. Hope Associates holds 1,400,000 shares and Hope and/or its
members hold warrants and an option to purchase an additional 1,300,000
shares. (See "Certain Relationships and Related Transactions" below.)
Includes warrants to purchase 181 shares held by Royal Animated Art, Inc of
which Mr. Rush owns 66 2/3% of the shares. Royal Animated Art received the
warrants in October 1997 along with the other creditors of Company as part
of the Chapter 11 proceedings.
(5) Based on Mr. Michaelson's approximately 25.83% interest in Hope Associates
and a portion of the warrants and the option to purchase a total of
1,300,000 shares which were granted by the Company in consideration for
certain transactions. Hope Associates holds 1,400,000 shares and Hope
and/or its members hold warrants and an option to purchase an additional
1,300,000 shares. (See "Certain Relationships and Related Transactions"
below.)
(6) Based on Mr. Savel's approximately 2.87% interest in Hope Associates and a
portion of the warrants and the option to purchase a total of 1,300,000
shares which were granted by the Company in consideration for certain
transactions. Hope Associates holds 1,400,000 shares and Hope and/or its
members hold warrants and an option to purchase an additional 1,300,000
shares. (See "Certain Relationships and Related Transactions" below.)
-16-
<PAGE>
(7) Based on Mr. Markman's approximately 17.22% interest in Hope Associates and
a portion of the warrants and the option to purchase a total of 1,300,000
shares which were granted by the Company in consideration for certain
transactions. Hope Associates holds 1,400,000 shares and Hope and/or its
members hold warrants and an option to purchase an additional 1,300,000
shares. (See "Certain Relationships and Related Transactions" below.)
(8) Based on Mr. Lyons' approximately 13.89% interest in Hope Associates and a
portion of the warrants and the option to purchase a total of 1,300,000
shares which were granted by the Company in consideration for certain
transactions. Hope Associates holds 1,400,000 shares and Hope and/or its
members hold warrants and an option to purchase an additional 1,300,000
shares. (See "Certain Relationships and Related Transactions" below.)
Additionally includes 20,000 shares held by Vestal Venture Capital and
30,000 shares held by Lyonshare Venture Capital, two investment
partnerships. Mr. Lyons is the Managing Partner of these entities and can
vote the shares of the Company held by them. However, he has no ownership
interest in such entities or the shares held by them.
(9) Based on shares held by Mr. VanderKelen, currently exercisable options held
by Mr. Fitzgerald and another director, the shares held by Hope Associates,
and warrants and an option Held by Hope Associate and or its members to
purchase 1,300,000 shares.
Item 12. Certain Relationships And Related Transactions
In connection with the bankruptcy reorganization of the Company, 1,800,000 (post
one-for-ten reverse split) shares of Common Stock were issued to Hope, resulting
in the beneficial ownership of a majority of the Company's Common Stock by
certain present officers and directors. Hope subsequently surrendered 200,000
(post one-for-ten reverse split) of its shares to the Company reducing its
holdings to 1,600,000 (post one-for-ten reverse split) shares effective July 9,
1998 (of which 200,000 have since been transferred).
In connection with the acquisition of the assets of Goal Post Distributing Inc.
in June 1997, 430,000 shares of Common Stock (after giving effect to the
1-for-10 reverse stock split) were issued to Kevin VanderKelen, and in
connection with an employment agreement with Mr. VanderKelen the Company granted
Mr. VanderKelen an option to acquire up to 100,000 additional shares (also after
giving effect to the reverse stock split), subject to the Goal Post Division
reaching certain revenue goals (See Item 11 "Security Ownership Of Certain
Beneficial Owners And Management"). Additionally, Mr. VanderKelen acquired an
additional 200,000 (post-reverse split) shares of the Company from the Company
at about the time of the Goal Post acquisition for $250,000.
Effective June 27, 1998, the Company sold the Goal Post business and assets back
to Mr. VanderKelen. In connection with this resale, Mr. VanderKelen transferred
to the Company 330,000 of the 430,000 (post one-for-ten reverse split) Company
shares which he had received when he sold Goal Post to the Company, and the
Company gave Mr. VanderKelen a promissory note for $50,000. Also in connection
with this transaction, Mr. VanderKelen agreed to the cancellation of his
employment agreement and the stock options granted under such agreement.
During fiscal year 1998, the Company borrowed $1,250,000 from BSB Bank in the
form of a note payable. The Company also renewed a previous note due to BSB Bank
in the amount of $500,000. Subsequently, the members of Hope Associates, LLC, a
majority stockholder, personally guaranteed the line of credit from BSB Bank &
Trust Co. to the Company in the amount of $1,750,000 and forgave an additional
$250,000 due to them by the Company. Hope Associates, LLC assumed the total
obligation for the BSB loan, so that the Company will not be a party to the
loan, nor will it have any guarantee or liability. The $2,000,000 was recorded
as additional paid-in-capital. In consideration for such assumption, the Company
will pay an investment fee to Hope Associates in the amount of $20,000 a month.
The Company also granted the members of Hope Associates a warrant to purchase,
until May 3, 2003, 500,000 shares of the Company's common stock (after giving
effect to a proposed reverse stock split) for $1.25 per share.
In April 1998, several of the Directors have made the Company bridge loans
totaling $128,090 as follows: Mr. Rush $39,974, Mr. Michaelson $39,974, Mr.
Lyons $21,492, and Mr. Markman $26,650. Such loans are
-17-
<PAGE>
evidenced by demand notes and bear 10% interest. It is intended that such loans
be repaid from the proceeds of a proposed private placement of the Company's
Common Stock. Additionally, Mr. Rush loaned the Company $100,000 in March 1997
which is still outstanding. Rainwater Enterprises Ltd., a company owned by Mr.
Michaelson, loaned the Company $100,000 in February 1997, which has been repaid.
Mr. VanderKelen also loaned the Company $60,174 pursuant to a demand note
bearing interest at 10%, which amount was forgiven following the fiscal year
1998.
Pursuant to an agreement dated November 24, 1998, Candy Candy Acquisition
Corporation ("CCAC") acquired eight candy stores (the "Jonford Stores") from
Jonford Corporation ("Jonford") for $549,000, of which $225,000 was payable at
the time of sale, and the balance of $324,000 which was in the form of a
promissory note, payable in 12 quarterly installments of $27,000. CCAC is a
wholly owned subsidiary of Hope Associates which owns over 50% of the Company's
shares, and was formed for the purpose of making this acquisition. Hope made
this acquisition because the Company did not have the funds or access to
sufficient credit to make the acquisition itself. However, in connection with
this acquisition, CCAC entered into a "Management and Option Agreement" (M&O
Agreement") with the Company. Pursuant to the M&O Agreement the Company was
retained to manage the eight Jonford Stores and the Company was granted an
option to acquire these stores exercisable until November 30, 2001 for the price
invested by Hope Associates in CCAC in making this acquisition and supplying
necessary working capital to run the Jonford Stores. The M&O Agreement provides
that in consideration for managing the stores, the Company will receive Six
percent (6%) of Gross Sales from the Jonford Stores and fifty percent (50%) of
the "Excess Margin" (amount by which cost of goods sold are less than 38% of
sales price). In consideration for the foregoing, the Company granted to those
members of Hope Associates who funded such acquisition a Warrant to purchase
500,000 shares at $1.25 a share, exercisable until November 30, 2002. At the
time of this acquisition, certain members of Hope loaned or caused to be loaned
to the Company $300,000 of working capital due upon demand, and received an
additional warrant to purchase 300,000 shares at $1.25 a share, exercisable
until November 30, 2002.
In July 1999, in order to settle certain disputes between CCAC and Jonford, the
parties entered an amendment of the Jonford Agreement whereby CCAC resold to
Jonford one of the eight Jonford Stores and paid Jonford approximately $14,000
and balance due on the Promissory Note was reduced from $298,000 to $108,000.
From time to time the Members of Hope Associates, LLC have made direct loans to
the Company or have personally guaranteed working capital loans by outside
banking facilities to the Company on terms no less favorable to the Company than
could have been obtained from unrelated third parties, if such funds would have
been available at all considering the Company's financial circumstances.
Compliance with 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers, Directors and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
Directors and ten percent shareholders are required by regulation to furnish the
Company with copies of all Section 16(a) forms that they file. Based solely on
the Company's copies of such forms received or written representations from
certain reporting persons that no Form 5's were required for those persons, the
Company believes that, during the time period November 10, 1993 to June 28,
1997, all filing requirements applicable to its Officers, Directors and greater
than ten percent beneficial owners were complied with.
Item 13. Exhibits, List And Reports On Form 8-K
(a) Exhibits
The following is a complete list of exhibits, which are incorporated herein, or
filed herewith as part of this Report.
-18-
<PAGE>
<TABLE>
<CAPTION>
Filed Herewith (X)
or Incorporated By
No. Exhibit Reference
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation of the Registrant. (1)
3.2 By-Laws of the Registrant, as amended. (1)
3.3 Amendment to Certificate of Incorporation of Registrant filed July 9, 1998. X
3.4 By-Laws of SF Stores, Inc. (1)
10.10 Employment Agreement dated as of July 1, 1994 between the Registrant and Jack (3)
Fitzgerald.
10.33 Notice of Confirmation of Plan of Reorganization dated August 28, 1996. (3)
10.34 Notices of Commencement of Case Under Chapter 11 of the Bankruptcy Code dated (3)
November 13, 1995.
10.35 Agreement of Asset Acquisition and Corporate Reorganization dated June 28, 1997 (4)
between the Registrant and Goal Post Distributing, Inc.
10.36 Employment Agreement made as of June 29, 1997 between the Registrant and Kevin (4)
M. VanderKelen
10.37 Employment Agreement made as of August 15, 1998 between the Registrant and John (4)
(Jack) J. Fitzgerald.
10.38 Purchase of Corporation through Stock Purchase, dated September 28, 1997 (4)
between the registrant and KCK Corporation
10.39 Orders dated November 26, 1997 of United States District Court for the District (4)
of Columbia, incorporating agreements relating to repayment of sums received
from Charles O. Huttoe
10.40 Form of Warrant to Purchase Shares X
10.41 Agreement of Asset Acquisition dated November 24, 1998 relating to certain X
stores owned by Jonford Corporation
10.42 Management and Option Agreement dated November 24, 1998 X
10.43 Sale Agreements relating to resale of Goal Post effective June 27, 1998 X
10.44 Assumption Agreement, as of April 1, 1998 X
22.1 Subsidiaries of Registrant X
</TABLE>
(1) Incorporated by reference from the Company's Registration Statement on
Form SB-2 for November 10, 1993 (No. 33-68692-NY).
(2) Incorporated by reference from the Company's Annual Report on Form 10K-
SB for the Fiscal year ended June 30, 1994.
(3) Incorporated by reference from the company's Annual Report on Form
10K-SB for the Fiscal year ended June 29, 1996.
(4) Incorporated by reference from the company's Annual Report on Form
10K-SB for the Fiscal year ended June 28, 1997
Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the period ended June
27, 1998.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: December 7, 1999
RETAIL ENTERTAINMENT GROUP, INC.
BY: /s/ John Fitzgerald December 7, 1999
----------------------------------
John (Jack) Fitzgerald Date
President, CEO & CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ John Fitzgerald President, Chief Executive Officer Date: December 7, 1999
- ---------------------------
John (Jack) Fitzgerald and Director
/s/ Michael Michaelson Director Date: December 7, 1999
- ---------------------------
Michael Michaelson
/s/ Herman Rush Director Date: December 7, 1999
- ---------------------------
Herman Rush
/s/ Ray Markman Director Date: December 7, 1999
- ---------------------------
Ray Markman
/s/ Allan R. Lyons Director Date: December 7, 1999
- ---------------------------
Allan R. Lyons
</TABLE>
-20-
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Consolidated Financial Statements
June 27, 1998 and June 28, 1997
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Retail Entertainment Group, Inc.
(Formerly Starlog Franchise Corporation):
We have audited the accompanying consolidated balance sheets of Retail
Entertainment Group, Inc. (formerly Starlog Franchise Corporation) and
Subsidiaries as of June 27, 1998 and June 28, 1997, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Retail
Entertainment Group, Inc. (formerly Starlog Franchise Corporation) and
Subsidiaries at June 27, 1998 and June 28, 1997, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Retail Entertainment Group, Inc. (formerly Starlog Franchise Corporation)
and Subsidiaries will continue as a going concern. As discussed in Note 12 to
the consolidated financial statements, the Company has incurred recurring losses
from operations. The Company has not yet shown the ability to generate cash from
operations, as such, this raises substantial doubt about the entity's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
reported asset amounts or the amounts and classification of liabilities that
might result from the outcome of these uncertainties.
November 19, 1999
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Consolidated Balance Sheets
June 27, 1998 and June 28, 1997
ASSETS
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 60,132 $ 131,720
Accounts receivable, net of allowance for
doubtful accounts of $100,000 and $7,000
for 1998 and 1997, respectively -- 50,461
Inventories, net of reserves of $12,500 and
$420,000 for 1998 and 1997, respectively 104,013 793,417
Prepaid expenses and other current assets 8,896 17,632
--------- ----------
Total current assets 173,041 993,230
Property and equipment, net 238,000 690,528
Reorganizational value in excess of amounts
allocated to identifiable assets, net 510,379 543,986
Other assets -- 13,875
--------- ----------
$ 921,420 $2,241,619
========= ==========
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Liabilities:
Current liabilities:
Accounts payable and accrued expenses $ 1,313,558 $ 596,466
Notes payable - affiliates 398,264 510,000
Note payable to bank -- 500,000
Current portion of long-term debt 346,677 152,820
Other liabilities, including restructuring reserves 304,640 206,432
----------- -----------
Total current liabilities 2,363,139 1,965,718
Long-term liabilities:
Trade and other miscellaneous claims -- 316,507
Long-term debt 890,900 653,180
----------- -----------
Total liabilities 3,254,039 2,935,405
----------- -----------
Stockholders' deficit:
Common stock, $.01 par value; authorized 6,000,000
shares, issued and outstanding 2,093,764 and 2,423,764
shares for 1998 and 1997, respectively 20,938 24,238
Additional paid-in capital 2,545,912 575,612
Accumulated deficit (4,899,469) (1,293,636)
----------- -----------
Net stockholders' deficit (2,332,619) (693,786)
----------- -----------
$ 921,420 $ 2,241,619
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Consolidated Statements of Operations
Years Ended June 27, 1998 and June 28, 1997
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Net sales $ 2,230,922 $ -
----------- -----------
Total revenues 2,230,922 -
Cost of sales 839,143 -
----------- -----------
Gross profit 1,391,779 -
Selling, general and administrative 1,570,740 -
----------- -----------
Loss from operations (178,961)
Other income (expense):
Interest and other income 8,839 13,691
Interest expense (215,221) (70,125)
Loss on asset disposal -- (114,163)
----------- -----------
Loss before reorganization items
and discontinued operations (385,343) (170,597)
Reorganization items -- 250,000
----------- -----------
Loss before discontinued operations
and extraordinary items (385,343) 79,403
Discontinued operations:
Loss from operations of discontinued operations (2,034,190) (1,516,174)
Loss on disposal of discontinued operations (1,186,300) --
----------- -----------
Loss before extraordinary items $(3,605,833) $(1,436,771)
</TABLE>
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Consolidated Statements of Operations - Continued
Years Ended June 27, 1998 and June 28, 1997
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Extraordinary items -
Gain on extinguishment of debt $ -- $ 150,000
----------- -----------
Net loss $(3,605,833) (1,286,771)
=========== ===========
Portion of income applicable to period up to
emergence from bankruptcy $ -- 6,865
Portion of loss applicable to period subsequent
to emergence from bankruptcy (3,605,833) (1,293,636)
Basic and diluted net income (loss) per share of common stock:
Before reorganization and discontinued operations (.16) (.07)
----------- -----------
Discontinued operations (1.33) (.62)
----------- -----------
Reorganization items -- .10
Extraordinary items -- .06
----------- -----------
Net income (loss) (1.49) (.53)
=========== ===========
Weighted number of common shares outstanding $ 2,422,859 $ 2,423,764
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Consolidated Statements of Stockholders' Deficit
Years Ended June 27, 1998 and June 28, 1997
<TABLE>
<CAPTION>
Common Stock
-------------------------
Par Additional Net
Number of Value Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
--------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at June 29, 1996 (Debtor-
in-Possession) 361,364 $ 3,614 $ 7,636,711 $(9,220,874) $(1,580,549)
Cancellation of founders' stock (167,600) (1,676) (4,606) -- (6,282)
Conversion of debt into stock 1,800,000 18,000 182,000 -- 200,000
Net income prior to emergence
from bankruptcy -- -- -- 6,865 6,865
Recapitalization at date of
emergence from bankruptcy -- -- (7,609,883) 9,214,009 1,604,126
Issuance of common stock at $.09/share
for Goal Post Distributing, Inc.
acquisition 430,000 4,300 371,390 -- 375,690
Net loss subsequent to emergence
from bankruptcy -- -- -- (1,293,636) (1,293,636)
---------- ---------- ----------- ----------- ----------
Balances at June 28, 1997 2,423,764 24,238 575,612 (1,293,636) (693,786)
Conversion of debt into additional
paid-in capital -- -- 2,000,000 -- 2,000,000
Consideration received and retirement
of treasury shares (330,000) (3,300) (29,700) -- (33,000)
Net loss -- -- -- (3,605,833) (3,605,833)
---------- ---------- ----------- ---------- ----------
Balances at June 27, 1998 2,093,764 $ 20,938 $ 2,545,912 $(4,899,469) $(2,332,619)
========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Consolidated Statements of Cash Flows
Years Ended June 27, 1998 and June 28, 1997
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,605,833) $(1,286,771)
Adjustments to reconcile net loss to net cash from
operating activities:
Net effects from purchase of Candico Entertainment, Inc.
and sale of Goal Post Distributors, Inc.:
Depreciation and amortization 237,103 443,093
Accretion of interest 30,800 --
(Gain) loss on disposal of property and equipment and
other assets 921,345 (114,163)
Loss on sale of Goal Post Distributors, Inc. 264,955 --
Changes in operating assets and liabilities:
Increase in accounts receivable (18,295) (50,440)
(Increase) decrease in inventories 652,538 (373,981)
Decrease in prepaid expenses and other current assets 13,224 3,997
(Decrease) increase in accounts payable and accrued expenses 596,883 (149,303)
(Decrease) increase other liabilities 98,208 (295,480)
Increase (decrease) in trade and other miscellaneous
claims (316,507) 316,507
------------ -----------
Net cash used in operating activities (1,125,579) (1,506,541)
------------ -----------
Cash flows from investing activities:
Business acquisitions, net of acquired cash (46,817) --
Purchases of property and equipment (98,101) (149,378)
(Increase) decrease in other assets 13,875 (2,888)
------------ -----------
Net cash used in investing activities (131,043) (152,266)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable - Post-petition -- 75,000
Proceeds from Huttoe financing -- 650,000
Proceeds from long-term borrowings - bank 1,250,000 500,000
Proceeds from notes payable - affiliates 188,264 260,000
Payments to unsecured creditors (70,000) --
Net payments on long-term debt (110,802) --
Payments to affiliates (100,000) --
Proceeds from long-term debt 27,572 --
------------ -----------
Net cash provided by financing activities $ 1,185,034 $ 1,485,000
------------ -----------
</TABLE>
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Consolidated Statements of Cash Flows - Continued
Years Ended June 27, 1998 and June 28, 1997
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Decrease in cash $ (71,588) (173,807)
Cash at beginning of year 131,720 305,527
----------- ---------
Cash at end of year $ 60,132 131,720
=========== =========
</TABLE>
Supplemental schedule of non-cash financing activities:
On June 27, 1998, the Company received 330,000 shares of its own common stock at
$.10 per share and issued a $50,000 note payable for the sale of Goal Post
Distributing, Inc.
Interest paid was approximately $188,100 and $73,000 for the years ended June
27, 1998 and June 28, 1997, respectively.
See accompanying notes to consolidated financial statements.
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
June 27, 1998 and June 28, 1997
(1) Summary of Significant Accounting Policies
(a) Principal Business Activity
The principal business activity of Retail Entertainment Group, Inc.
(Company) (formerly Starlog Franchise Corporation) is the retail
distribution of bulk candy under the name of "Candy Candy!" or
Candico (the "Candico Stores"). Previously, the Company operated
Starlog stores that included various science fiction and other
products. During fiscal year 1998, the Company changed its name from
Starlog Franchise Corporation to Retail Entertainment Group, Inc.
(b) Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Candico
Entertainment, Inc. (Candico), Goal Post Distributing, Inc., Sumon,
LLC and Shuttlecart Enterprises. All significant intercompany
transactions and balances have been eliminated in consolidation.
(c) Sale of Operations of Goal Post Distributors, Inc.
In April 1998, the Company's Board of Directors approved the sale of
substantially all of the net assets of Goal Post Distributing, Inc.
(Goal Post), a wholly-owned subsidiary, back to its original owner,
effective June 27, 1998. Under this resale agreement, the Company
received 330,000 shares of its own common stock (post 1-for-10
reverse split) in exchange for the net assets of Goal Post and a
$50,000 promissory note payable to the previous owner. The common
stock received was accounted for as treasury stock using the cost
method. Subsequently, the Company retired all of the common shares
held in treasury. The cost of the re-acquired shares in excess of
par value has been charged to additional paid-in capital. As a
result of the sale of Goal Post, certain warrants granted to
management of Goal Post have been canceled.
The Company incurred a loss as a result of the sale of Goal Post of
approximately $265,000, which has been reported in the accompanying
consolidated statements of operations as part of loss on disposal of
discontinued operations (see Note 3).
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(d) Discontinued Operations Reporting
1. Starlog Franchise Corporation, Sumon, LLC and Goal Post
Distributors, Inc.
On April 25, 1998, the Company's Board of Directors approved the
closing of the remaining Starlog and Hologram stores (Sumon,
LLC) and Goal Post Distributors, Inc. As a result, the Company
closed five of the remaining six Starlog stores by June 27, 1998
with the last store closing October 1998. The results of
operations of each company are reported in the accompanying
reclassified consolidated statements of operations and
accumulated deficit under discontinued operations. During fiscal
year 1998, the Company wrote down certain assets of the retail
operations to their net realizable values and the cost of
disposing these operations are also reported in the accompanying
reclassified consolidated statements of operations and
accumulated deficit under discontinued operations. In addition,
the leases of four of the six Starlog stores expired leaving the
Company with no ongoing liability resulting from such closings
and the remaining two leases were renegotiated resulting in a
liability of approximately $27,000 (see Note 3).
(e) Inventories
Inventories, consisting of finished goods, are stated at their net
realizable value using the lower of cost or market, and determined
by the first-in, first-out method (FIFO).
(f) Depreciation and Amortization
Depreciation and amortization of property and equipment is
calculated using the straight-line method over the estimated useful
lives of the related assets or life of the lease, whichever is
shorter.
(g) Revenue Recognition
The Company recognizes revenue when goods or services are provided.
(h) Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results may
differ from those estimates.
(i) Seasonality
The Company's sales are seasonal in nature based, in part, on gift
buying during holiday periods such as Halloween, Christmas and
Easter.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(j) Franchise Laws and Regulations
In the prior fiscal year, the Company had franchise operations of
which were subject to various franchise laws and regulations. The
Company did not operate any such franchises in fiscal year 1998.
(k) Reclassifications
Certain amounts in the 1997 consolidated financial statements have
been reclassified to conform with the 1998 presentation. Such
reclassifications had no effect on reported total net loss.
(l) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
(m) Earnings Per Share
In the fourth quarter of fiscal year 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, Earnings Per
Share, (SFAS 128). In February 1998, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 98 related to SFAS
128. SFAS 128 replaced the calculation for primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share exclude any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is similar to the previously reported
fully diluted earnings per share. The Company has no common stock
equivalents at June 27, 1998 and June 28, 1997, resulting in diluted
earnings per share. The Company's options and warrants were not
included in computing dilutive net loss per common share because
their effects were anti-dilutive.
(n) Income Taxes
The Company has adopted Statement of Financial Accounting Standards
(SFAS 109), Accounting for Income Taxes. Under the asset and
liability method of SFAS 109 deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Valuation allowances are established when necessary to reduce
deferred tax assets to amounts expected to be realized.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(o) Risks and Uncertainties
(1) Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
significant concentrations of credit risk, consist principally
of cash and cash equivalents. The carrying amounts reported in
the consolidated balance sheets for cash and cash equivalents
approximate their fair values. The balances, at times, may
exceed federally insured limits.
(2) Concentrations of Financial Risk
The Company is dependent upon funding of Hope Associates, LLC
(Hope Associates) which owns greater than 50% of the Company's
outstanding common stock.
(p) Recent Accounting Pronouncements
(1) Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive
Income (SFAS 130). Under SFAS 130 changes in net assets of an
entity resulting from transactions and other events and
circumstances from non-owner sources are reported in the
financial statements for the period in which they are
recognized. Because there were no such changes, adoption of
SFAS 130 did not impact the consolidated financial statements
of the Company.
(2) Segment Reporting
The Company adopted SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. The Company currently
operates as a single segment and will evaluate additional
segment disclosure requirements as it expands its operations.
(3) Derivative Instruments and Hedging Activities
In June 1998, SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, was released. The statement
requires the recognition of all derivatives as either assets or
liabilities in the balance sheet and the measurement of those
instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the planned use of the
derivative and the resulting designation. The Company is
required to implement the statement in the first quarter of
fiscal 2000. The Company has not used derivative instruments
and believes the impact of adoption of this statement will not
have a significant effect on the consolidated financial
statements.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(p) Recent Accounting Pronouncements - Continued
(4) Long-Lived Assets
The Company has adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, (SFAS 121). SFAS 121 requires that long-lived
assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. If the sum of the expected future cash
flows (undiscounted and without interest) is less than the
carrying amount of the asset, an impairment loss is recognized.
Measurement of that loss would be based on the fair value of
the asset. SFAS 121 also generally requires long-lived assets
and certain identifiable intangibles to be disposed of to be
reported at the lower of the carrying amount or the fair value
less cost to sell.
(5) Accounting for Stock-Based Compensation
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS 123).
Accordingly, no compensation costs have been recognized for the
Company's granted stock options and warrants. Had compensation
and other cost for the Company's granted stock options and
warrants been determined based on the fair value at the grant
date or issuance for awards in 1997 and 1998 consistent with
the provisions of SFAS 123, the impact on net loss would have
been immaterial.
(2) Management Agreement and Acquisition of Entity in Chapter 11
(a) Management Agreement and Funding
In October 1997, the Company entered into an agreement with KCK
Corporation (Debtor) and the U.S. Bankruptcy Court to manage and
provide certain funding while the debtor reorganized under the
federal bankruptcy laws. The Company was the debtor's approved
post-petition lender of an allowed secured super-priority
administrative claim of $200,000. KCK Corporation filed voluntary
petitions for relief under Chapter 11 of the Federal Bankruptcy Laws
in July 1997.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(b) Emergence and Acquisition
The United States Bankruptcy Court for the Middle District of North
Carolina, confirmed the Debtor's Plan of Reorganization (the Plan)
on March 26, 1998 (the Confirmation Date), allowing the debtor to
emerge from Chapter 11 Bankruptcy effective March 28, 1998 (the
Effective Date). On March 28, 1998, the Company acquired all of the
assets and liabilities of KCK Corporation and effectively owned KCK.
The debtor operated under the protection of Chapter 11 following a
voluntary petition for reorganization filed July 22, 1997 and
amended on March 19, 1998. The Company was the Debtor's approved
post-petition lender of an allowed secured, super-priority
administrative claim in the amount of $200,000 plus accrued, but
unpaid, interest. Pursuant to the Plan, the Company converted
$100,000 of its loan into equity of the Debtor and received 1,000
shares of newly issued stock in the Debtor which constituted 100% of
the Debtor's issued and outstanding stock. The remaining $100,000
obligation would be paid over a period not to exceed five years.
Arrangements satisfactory to the Debtor and the Company have been
made for the Debtor's substantial compliance of its obligations to
the Company under the Plan. The following are the major provisions
under the Plan:
1. Thomas W. Gray and Sidney A. Crawley reorganized note of $65,000
is a secured claim allowed by the court with interest of 10% per
year, payable in 60 equal monthly installments totaling
$2,655.89 per month. Payments will begin on the first day of the
month following the Effective Date, none of which has been paid.
2. All allowed administrative expenses shall be paid in full, in
cash, on the Effective Date. All administrative expenses were
paid except for approximately $36,000.
3. Allowed tax claims shall be paid over a period not exceeding six
years after the date of assessment of such claim, in quarterly
payments with interest at 7% per year amortized over that period
beginning on the effective date and ending on the date which is
six years after the date of assessment. The amount of these
claims was $10,000 and was paid prior to June 27, 1998.
4. NationsBank allowed secured claim of $147,542.46. NationsBank
shall receive a note in the amount of its allowed secured claim
payable in equal monthly installments amortized based over six
years with interest at 9%, due in three years. The monthly
payments are due on the first day of each month beginning with
the first month following the Effective date. Subsequent to the
approval of the plan, KCK's former owners paid the claim to
NationsBank, and, the Company agreed to pay the entire amount to
the original owners under the same terms. The amount is shown as
note payable to NB Services, Inc. in the accompanying
consolidated balance sheets.
5. Johnson County Bank allowed secured claim in the amount of
$211,464.67. Johnson County Bank shall receive a note in the
amount of its allowed secured claim which shall be payable in
equal monthly installments over six years at 9% interest, due in
three years. The monthly payments shall be due on the first day
of each month beginning with the first month following the
Effective Date. This claim has been fully guaranteed by KCK
Corporation's former owners.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(b) Emergence and Acquisition - Continued
6. Holders of general unsecured claims will receive $70,000 for pro
rata payment. The payment was made to an escrow agent. The same
unsecured creditors also received a reorganization note in the
total amount of $60,000, none of which has been paid.
Subsequently, the Court also approved a motion filed by the
debtor for a dividend distribution to unsecured creditors. No
dividend distributions have been made as of June 27, 1998.
7. The Company issued to Nick Tricarico, Thomas W. Gray and Sidney
A. Crawley, a total of 50,000 common stock warrants. Each
individual was offered 5,000 warrants (15,000) at a strike price
of $5.00 per share to be exercised prior to September 30, 1999
and the remaining warrants (35,000) issued at a strike price of
$2.50 per share if exercised prior to September 30, 1998 or at
$4.00 per share if exercised prior to September 30, 1999.
(c) Fresh Start Reporting
As of the Confirmation Date, the Debtor adopted Fresh Start
Reporting in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7 (SOP 90-7) --
"Financial Reporting by Entities in Reorganization under the
Bankruptcy Code."
The Reorganization Value (the approximate fair value) of the Debtor
was based on the consideration of many factors and various valuation
methods, including discounted cash flows and price/earnings and
other applicable ratios and valuation techniques believed by
management and its financial advisors to be representative of the
Debtor's business and industry. The excess of the Reorganization
Value over the fair value of net assets and liabilities are reported
as Reorganization Value in excess of allocated amounts and will be
amortized over a fifteen-year period. The balance of such assets at
the date of emergence from bankruptcy was approximately $519,000.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(c) Fresh Start Reporting - Continued
The restructured and acquired balance sheet as of March 28, 1998
(effective date of emergence) is as follows:
<TABLE>
<CAPTION>
Restructured and acquired
ASSETS Balance Sheet
------ -------------------------
Current assets:
<S> <C>
Cash $ 166,167
Due from affiliates 7,797
Inventories, net of reserves 205,715
Prepaid expenses and other assets 4,623
---------
Total current assets 384,302
Property and equipment, net 90,661
Reorganization value in excess of amounts allocable 519,030
---------
$ 993,993
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Post Petition Liabilities:
Current liabilities:
Accounts payable and accrued expenses 201,120
Other liabilities, including reserves 14,761
Notes payable - unsecured creditors 130,000
---------
Total current liabilities 345,881
Long-term liabilities:
Secured notes payable - Johnson County Bank 211,465
Secured notes payable - Gray & Crawley 65,000
Super priority note payable to SFC 100,000
Secured notes payable - NB Services, Inc. 147,542
---------
Total liabilities 869,888
Stockholders' deficit:
Common stock 10
Additional paid-in capital 124,095
---------
Net stockholders' equity 124,105
---------
$ 993,993
=========
</TABLE>
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(c) Fresh Start Reporting - Continued
During the current year, while under the Company's management and
prior to emergence from bankruptcy, KCK operations were as follows:
<TABLE>
<CAPTION>
KCK Operations for the
period October 1, 1997
through March 28, 1998
----------------------
<S> <C>
Revenue $ 1,551,879
Cost of sales 493,029
-----------
Gross profit 1,058,850
General and administrative expenses:
Rent 360,598
Depreciation and amortization 150,841
Office and salary expense 519,142
-----------
Total general and administrative expenses 1,030,581
-----------
Operating income 28,269
Other income (expense):
Other income 5,316
Interest expense (9,480)
-----------
Net other income (expense) (4,164)
-----------
Net income $ 24,105
===========
</TABLE>
These amounts are included in the Company's consolidated financial
statements for the year ended June 27, 1998.
(d) Merger
Effective June 17, 1998, KCK Corporation (KCK) merged with Candico
Entertainment, Inc. and subsequently changed its name to Candico
Entertainment, Inc. (Candico). Each of the 1,000 shares outstanding
of KCK was converted into one share of Candico.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(3) Discontinued Operations
The Company recorded a net loss of $2,034,190 as part of discontinued
operations in the accompanying consolidated statement of operations,
respectively. For financial reporting purposes, the assets, liabilities,
results of operations and cash flows of Starlog Franchise Corporation,
Sumon, LLC and Goal Post Distributors, Inc. are included in the Company's
consolidated financial statements. A summary of these assets and
liabilities as of June 27, 1998 and June 28, 1997 are as follows:
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 85 $ --
Accounts receivable, net -- 50,477
Inventory -- 793,416
Other current assets 29 14,475
Property, plant and equipment -- 561,236
----------- ----------
Total assets - discontinued operations $ 114 1,419,604
=========== ==========
Liabilities:
Accounts payable and accrued liabilities 393,206 318,512
Other current liabilities 421,462 146,530
Long-term liabilities -- 200,000
----------- ----------
Total liabilities - discontinued operations 814,668 665,042
----------- ----------
Net assets (liabilities) of discontinued
operations $ (814,554) $ 754,562
=========== ==========
</TABLE>
Certain amounts in 1997 have been reclassified for comparative purposes.
The remaining liabilities of discontinued operations are expected to be
renegotiated or paid in fiscal period ended January 31, 1999. The
repayment will come from cash from continuing operations or other
financing sources.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(4) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
June 27, 1998 June 28, 1997 Useful Life
------------- ------------- -----------
<S> <C> <C> <C>
Trade show exhibition displays $ 44,048 $ 45,207 3 years
Computer equipment and software 119,207 245,126 3-5 years
Furniture, fixtures and equipment 281,994 943,991 3-7 years
Leasehold improvements 91,463 328,251 Life of lease
--------- ---------- or 10 years
536,712 1,562,575
Less accumulated depreciation
and amortization (298,712) (872,047)
--------- ----------
$ 238,000 $ 690,528
========= ==========
</TABLE>
Depreciation and amortization related to property and equipment totaled
approximately $237,000 and $443,000 for the years ended June 27, 1998 and
June 28 1997, respectively.
Approximately $561,000 of net property and equipment reported in prior
year was disposed of in current year as part of discontinued operations
(see Note 3).
(5) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Accounts payable $ 1,001,631 $ 494,919
Accrued professional fees 95,000 44,000
Accrued payroll 39,788 43,798
Accrued taxes 59,367 8,685
Accrued interest 16,000 --
Accrued rents 83,727 --
Other 18,045 5,064
----------- ---------
$ 1,313,558 $ 596,466
=========== =========
</TABLE>
Approximately $465,000 of accounts payable and accrued expenses reported
in the prior year related to discontinued operations (see Note 3).
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(6) Notes Payable - Affiliates
During 1997, two members of Hope provided $200,000 working capital
financing to the Company. One of the members was repaid $100,000 during
fiscal year 1998.
On March 5, 1998, Hope Associates, LLC provided $60,000 of working
capital to the Company for operating needs. Interest accrues at the rate
of 10% per year payable with principal 90 days after issuance. Interest
after default shall be at the rate of 18% per year. At June 27, 1998,
none of the note has been repaid.
In April 1998, certain members of Hope provided funds totaling $188,264
which remained outstanding at June 27, 1998. All of the notes are due
upon demand and bear interest at 10% per year.
On June 27, 1998, the Company sold the remaining net assets of Goal Post
Distributing, Inc. (Goal Post) to its original owner (see Note 1). As
part of the terms of the sale, the Company agreed to pay $50,000 to the
former owner of Goal Post. The $50,000 is recorded as part of notes
payable - affiliates and is due upon demand.
(7) Long-Term Debt
Amounts due to unrelated entities at June 27, 1998 and June 28, 1997
consists of the following:
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Note payable to Securities Exchange Commission
due in annual installments through January
2002, with interest payable annually at 5.5%. $ 396,180 $ 500,000
Notes payable to unsecured creditors due in
monthly installments through June 2002 with
interest payable monthly at 12% (net
of unamortized portion imputed interest of $53,200). 336,800 306,000
Note payable to Johnson County Bank due in
monthly installments through May 2001 with
interest at 9%. This note is fully guaranteed
by Gray and Crawley. 218,765 --
Note payable to NB Services, Inc. due in monthly
installments through May 2001 with interest
at 9%. $ 160,832 $ --
</TABLE>
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(7) Long-Term Debt - Continued
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Note payable to Gray and Crawley due in monthly
installments through April 2003 with interest at 10%. $ 65,000 $ --
Notes payable to unsecured creditors due in monthly
installments through May 2003 with interest at 10%. $ 60,000 $ --
------------- -----------
Total 1,237,577 806,000
Less current installments of long-term debt 346,677 152,820
------------- -----------
Long-term debt, excluding current installments $ 890,900 $ 653,180
============= ===========
</TABLE>
The aggregate of future maturities of long-term indebtedness are as
follows:
Fiscal Year Ending June:
------------------------
1999 $ 346,677
2000 257,428
2001 475,066
2002 130,597
2003 27,809
-----------
$ 1,237,577
===========
During fiscal year 1998, the Company borrowed $1,250,000 from BSB Bank in
the form of a note payable. The Company also renewed a previous note due
to BSB Bank in the amount of $500,000. Subsequently, in September 1998,
Hope Associates, LLC, the majority stockholder, assumed the $1,750,000
notes payable to BSB Bank and forgave an additional $250,000 due to them
by the Company, all of which was recorded as a contribution to capital.
In consideration for such assumption and contribution, the Company will
pay a monthly fee to Hope Associates of approximately $20,000 per month.
Subsequently, Hope Associates agreed to waive certain monthly management
fees until the Company is able to operate profitably and obtain excess
cash flows. The Company also granted the members of Hope Associates a
warrant to purchase 500,000 shares of the Company's common stock at an
exercise price of $1.25 per share. The warrant expires May 3, 2003. The
warrants estimated at fair market value at date of issuance was not
material to the Company's financial statements.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(8) Income Taxes
The Plan of Reorganization of the Company was approved by the United
States Bankruptcy Court on August 28, 1996, provided for the issuance of
new common stock to satisfy the Company's indebtedness and resulted in an
"ownership change" under Section 382 of the United States Tax Code. As a
result, total usage of the Company's net operating loss carryforwards of
$7,900,000 that occurred prior to emergence from bankruptcy, noted below,
will be limited to approximately $20,000 annually or $300,000 over the
next 15 years. In addition, deferred deductions, described below, that
become deductible for tax purposes during the five year period following
the effective date of the bankruptcy are also subject to the annual
limitation. Net operating carryforwards (NOL) and future deductions
exceeding the annual limitation will expire unutilized. NOL's which
resulted subsequent to emergence from bankruptcy will not be fully
available for future utilization.
The Company accounts for income taxes pursuant to the Statement of
Financial Accounting Standards No. 109. The approximate amounts of
deferred assets at June 27, 1998 and June 28, 1997, respectively,
resulting from temporary differences and carryforwards were as follows:
<TABLE>
<CAPTION>
June 27, 1998 June 28, 1997
------------- -------------
<S> <C> <C>
Net operating loss carryforwards $ 9,300,000 $ 7,900,000
Expenses recognized for financial
reporting purposes not yet deductible:
Provision for inventory shortage -- 400,000
Other 100,000 200,000
----------- -----------
9,400,000 8,500,000
Effective federal and state tax rate 40% 40%
----------- -----------
Total deferred tax asset 3,760,000 3,400,000
Valuation allowance for deferred tax asset (3,760,000) (3,400,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
(9) Commitments and Contingencies
The Company has entered into various non-cancelable operating leases for
office, warehouse and retail store space expiring at various dates
through 2006. Certain of the leases provide for minimum annual rentals
plus additional rental payments based upon sales volume.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(9) Commitments and Contingencies - Continued
At June 27, 1998, aggregate approximate future minimum rental payments
required under operating leases are as follows:
Fiscal Year Ending June:
------------------------
1999 $ 637,301
2000 577,156
2001 437,078
2002 405,415
2003 307,165
Thereafter 411,350
-----------
$ 2,775,465
===========
Rent expense charged to operations for the years ended June 27, 1998 and
June 28, 1997 was approximately $1,116,000 and $721,000, respectively.
The Company entered into a trademark license agreement with Starlog
Communications International, Inc. (SCI), an entity related by common
ownership for the exclusive right to use the name, registered trademark
and logos "Starlog" and "Starlog: The Cosmic and Science Fiction
Universe." For the years ended June 27, 1998 and June 28, 1997, no
amounts were due under the terms of this agreement. On July 1, 1998, the
Company terminated its license agreement with SCI and transferred assets
worth an immaterial amount in connection with such termination.
The Company entered into an employment agreement with the President and
CEO commencing July 11, 1994 and subsequently amended August 15, 1996. As
amended, the agreement provided for a five-year term and a salary of
$100,000 per year, increasing by $10,000 a year up to $140,000, plus
other benefits including a discretionary bonus of up to 50% of his base
salary. In April 1998, the Board of Directors amended the employment
agreement to provide a base salary of $150,000 when the Company raises
$150,000 or more in a currently proposed private placement of common
stock. The employment agreement also granted certain other stock options
(see Note 11).
The Company is party to various claims and legal actions arising in the
ordinary course of business. Management does not believe that the outcome
of such claims and legal actions will have a material effect on financial
position or results of operations of the Company.
(10) Stockholders' Equity
On May 10, 1998, the Company's Board of Directors and shareholders
approved a one-for-ten reverse stock split of the outstanding shares of
Retail Entertainment Group, Inc. (formerly Starlog Franchise Corporation)
to shareholders of record on July 9, 1998. In addition to the reverse
split, the Company reduced the number of shares of common stock
authorized from 40,000,000, with a .001 par value, to 6,000,000 shares
with a .01 par value. Shareholders' equity has been restated to give
retroactive recognition to the reverse stock split in prior periods. The
total number of shares outstanding following the reverse split was
2,093,764 (see Note 15).
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(10) Stockholders' Equity - Continued
In September 1998, Hope Associates, LLC (Hope Associates), the Company's
majority shareholder, assumed $1,750,000 of debt owed by the Company to
BSB Bank and forgave $250,000 of debt owed to them by the Company. The
transaction resulted in a contribution of $2,000,000 to additional
paid-in-capital (see Note 7). Hope Associates personally guaranteed the
amounts owed to BSB Bank.
Effective June 27, 1998, the Company entered into an agreement for the
sale of Goal Post Distributors, Inc., a wholly owned subsidiary, back to
its original owner. The sale of Goal Post resulted in a loss of
approximately $265,000. In addition, in exchange for Goal Post, the
Company received as consideration 330,000 shares of the Company's own
common stock valued at $.10 per share. The shares were accounted for as
treasury shares and resulted in a charge to common stock and additional
paid-in-capital of approximately $33,000. The shares were subsequently
retired and accounted for using the cost method (see Note 1).
None of the Company's outstanding options or warrants have been exercised
during the fiscal year ended June 27, 1998.
(11) Stock Options and Warrants
On April 1, 1997, and subsequently revised in April 1998, the Company
granted the President and CEO an option to acquire 300,000 (post
one-for-ten reverse split) shares of the Company's common stock until
March 31, 2003. The option to acquire 100,000 (post one-for-ten reverse
split) of such shares is currently exercisable. The option to acquire the
second 100,000 (post one-for-ten reverse split) shares is exercisable
only if and after the Company has $500,000 of annual net profits, before
interest, taxes, depreciation and amortization (EBITDA) and the option to
acquire the remaining 100,000 shares will be exercisable only if and
after the Company has $1,000,000 of annual net profits EBITDA. This
option is in replacement of other options previously granted. None of the
options have been exercised. The Company has no other long-term incentive
plans.
Aggregate Stock Option Activity
The following tables summarize information about the aggregate stock
option and warrant activity (post one-for-ten reverse split) for the year
ended June 27, 1998:
<TABLE>
<CAPTION>
Weighted-
average
Number exercise
of shares price
--------- ---------
<S> <C> <C>
Outstanding, beginning of year 194,000 $ 1.52
Granted 550,000 1.53
Exercised -- --
Forfeited -- --
------- -------
Outstanding, end of year 744,000 1.53
------- -------
Options and warrants vested, end of year 744,000 $ 1.53
======= =======
</TABLE>
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(11) Stock Options and Warrants - Continued
<TABLE>
<CAPTION>
Options and Warrants Outstanding Options and Warrants Exercisable
----------------------------------- ----------------------------------
Weighted-
Weighted- average Weighted-
average remaining average
Average Number exercise contractual Number exercise
Exercise Price outstanding price life (years) exercisable price
-------------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$.60 - 2.50 194,000 $ 1.52 5 194,000 $ 1.52
1.25 - 5.00 550,000 1.53 3 550,000 1.53
------- ---- -- ------- ------
744,000 $1.53 8 744,000 $ 1.53
======= ==== == ======= ======
</TABLE>
These tables do not include options and warrants in which
certain events or contingencies must be met prior to grant.
The effect of options and warrants outstanding has not been included in
weighted average common and common equivalent shares outstanding in the
accompanying consolidated statements of operations and accumulated
deficit, as these options would have an antidilutive effect on net loss
per weighted average common and common equivalent share.
Accounting for Stock-Based Compensation
The Company accounts for its stock option plans under Accounting
Principles Board Opinion No. 25 (APB 25), under which no compensation
expense has been recognized. In October 1995, the FASB issued SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), which was
effective for fiscal years beginning after December 15, 1995. SFAS 123
allows companies to continue following the accounting guidance of APB
25, but requires pro forma disclosure of net income and earnings per
share for the effects on compensation expense had the accounting
guidance of SFAS 123 been adopted. The pro forma disclosures are
required only for options granted in fiscal years beginning after
December 15, 1994.
The Company adopted the disclosure-only provisions of SFAS 123 for the
years ended June 27, 1998 and June 28, 1997. Accordingly, no
compensation cost has been recognized for the Company's granted stock
options and warrants. Had compensation and other costs for the Company's
granted stock options and warrants been determined based on the fair
value at the grant date or issuance for awards in 1998 and 1997,
consistent with the provisions of SFAS 123, the impact on net loss would
have been immaterial.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(12) Going Concern
As shown in the accompanying consolidated financial statements, the
Company has incurred recurring losses from operations. These losses have
contributed to the Company's working capital deficiency and resulting
cash flow problems. Although the Company's cash flows during the holiday
season, it has not been profitable on a year round basis. The Company
has raised cash through various debt financing from affiliates, however,
its ability to continue as a going concern will require the attainment
of profitable operations for extended periods, conversion of debt into
permanent equity or obtaining additional permanent equity. The Company
is currently pursuing various debt and equity opportunities.
(13) Huttoe Financing
During the confirmation process, the Company and Hope engaged in
discussions with Charles Huttoe (Huttoe) to provide post confirmation
financing to the Company and to acquire the ownership of the 18,000,000
shares of the Company's common stock owned by Hope. In September, 1996,
Huttoe, Hope and its members, but not the Company, entered into an
agreement (Sales Agreement) pursuant to which, Huttoe was to make
certain payments to Hope's bank and to Hope's members and was to
purchase the membership interests in Hope from its members, thus
indirectly obtaining Hope's 18,000,000 shares into the Company. The
position of the Company, Hope and the members of Hope is that the
purchase of the Hope membership interests has not been consummated.
In September, 1996, Huttoe provided working capital to the Company
aggregating $650,000. There was no written agreement between the Company
and Huttoe regarding these funds. Subsequent to the above, David
Goldstein (Goldstein), who had been acting as the attorney for Huttoe
with respect to these matters, announced that the Sale Agreement had
been assigned to him. However, it is the position of Starlog, Hope and
its members that this purported assignment is legally ineffective. In
October 1996, a bank loan to Hope was paid in full from an account of
Goldstein's in alleged compliance with the Sale Agreement. In addition,
the sum of $200,000 has been deposited from Goldstein's account into
escrow with an attorney for Hope for payment to the members of Hope to
acquire their membership interests in alleged compliance with the Sale
Agreement.
In November 1996, the Securities and Exchange Commission (SEC) filed a
complaint in the U.S. District Court for the District of Columbia
(Court) against Huttoe and others, but not including Goldstein, alleging
"massive unregistered distribution" of the "stock of Systems of
Excellence, Inc. (SOE) and manipulation of the SOE stock price." In
November 1996, the Court issued a temporary restraining order
temporarily freezing assets and accounts of Huttoe and various third
party accounts into which payments were made from allegedly "Huttoe
controlled" accounts. The order specifically covered the Company's
account which received the $650,000 as well as the attorney escrow
account holding the aforementioned $200,000. The $200,000 has not been
paid to the members of Hope and the transfer of membership interest from
Hope has not occurred.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(13) Huttoe Financing - Continued
During fiscal year 1998, the Company and the SEC reached agreement for
the repayment of $500,000 of the $650,000 of funds provided by Huttoe.
The Company will repay this amount over five years with interest (see
Note 7). The $150,000 difference between the amount funded by Huttoe and
the amount to be repaid to the SEC is reflected in the Consolidated
Statements of Operations as gain on extinguishment of debt for the year
ended June 28, 1997.
(14) Year 2000 Issue (Unaudited)
The Company does not expect the Year 2000 issue to have a significant
effect on operations. Management of the Company does not expect major
vendors or customers to be unable to sell to, provide services to, or
purchase from the Company because of the Year 2000 issue.
(15) Subsequent Events
(a) Reverse Stock Split
On July 9, 1998, the Company effected a one-for-ten reverse stock
split of the outstanding shares of Retail Entertainment Group,
Inc. (formerly Starlog Franchise Corporation) to shareholders of
record on that date. In addition to the reverse stock split, the
Company reduced the number of shares authorized from 40,000,000 to
6,000,000 shares and increased the par value per share from $.001
to $.01. The reverse stock split reduced the number of shares
outstanding from 20,937,640 to 2,093,764 shares. All share and per
share data appearing in the consolidated financial statements and
notes thereto have been retroactively adjusted for the reverse
split.
(b) Stock Offering
In November 1998, the Company issued approximately 336,000 shares
of common stock at $1.25 per share pursuant to private placements
under Regulation D of U.S. Securities laws. The proceeds of
approximately $420,000 will be used to provide for working capital
and repay certain debts to affiliates.
(c) Management and Option Agreement
On November 24, 1998, the Company entered into a management and
option agreement with Hope Associates, LLC, (Hope Associates) a
related party, whereby the Company will manage certain retail
candy stores (Candy Candy Acquisition Corporation) belonging to
Hope Associates, and in exchange grant to Hope Associates 500,000
common stock warrants at $1.25 per share expiring in November
2002. The Company will receive quarterly compensation, based upon
a specified formula as noted in the agreement, for its services
with respect to the agreement. In addition, the Company has the
right and option to purchase, effective the date of the agreement
until November 30, 2001, all of the outstanding common stock of
Candy Candy Acquisition Corporation. The exercise price for the
option is equal to the outstanding balance of any Hope loans and
any additional capital contributions or loans made by Hope to
Candy Candy Acquisition Corporation.
(continued)
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
(Formerly Starlog Franchise Corporation)
Notes to Consolidated Financial Statements
(15) Subsequent Events - Continued
(d) Related Party Note Payable
In November 1998, Hope Associates, LLC (Hope Associates) loaned
the Company $300,000 in working capital to be used to purchase
inventories and pay current overhead expenses. The note will
accrue interest at 10% with interest payable monthly, and, the
note is due upon demand. In conjunction with the money received
from Hope Associates, the Company granted to the members of Hope
Associates 300,000 common stock warrants at an exercise price of
$1.25 expiring November 30, 2002.
Exhibit 3.3
CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION
OF
STARLOG FRANCHISE CORPORATION
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14:A-9-2(4) and Section 14A:9-4(3)
of the New Jersey Business Corporation Act, the undersigned corporation executes
the following certificate of Amendment to its Certificate of Incorporation;
1. Name of Corporation: STARLOG FRANCHISE CORPORATION
2. Corporation Number: Federal EIN Number 22-321981
3. Article First of the Corporation's Articles of Incorporation be
amended to read in its entirety as follows:
"FIRST: the name of the corporation (hereinafter called the
"corporation") is RETAIL ENTERTAINMENT GROUP, INC.";
4. Article Third of the Corporation's Articles of Incorporation be amended to
read in its entirety as follows:
"THIRD: The aggregate number of shares which the corporation shall have
authority to issue is SIX MILLION (6,000,000), all of which are a par
value of $.01 each, and all of which are the same class.
Simultaneously with the effective date of this amendment(the "Effective
Date"), each share of the Corporation's stock, par value $0.001 per
share, issued and outstanding immediately prior to the Effective Date
(the "Old Common Stock") shall automatically and without any action on
the part of the holder thereof be reclassified as and changed, pursuant
to a reverse stock split, into one-tenth of a share of the Company's
outstanding Common Stock, par value $0.01 per share (the "New Common
Stock") subject to the treatment of fractional share interests as
described below. Each holder of a certificate or certificates which
immediately prior to the Effective Date represented outstanding shares
of Old Common Stock (the "Old Certificates," whether one or more) shall
be entitled to receive upon surrender of such Old Certificates to the
Company's Transfer Agent for cancellation, a certificate or
certificates (the "New Certificates," whether one or more) representing
the number of whole shares of the New Common Stock into which and for
which the shares of the Old Common Stock formerly represented by such
Old Certificates so surrendered, are reclassified under the terms
hereof. From and after the Effective Date, Old Certificates shall
represent only the right to receive New Certificates pursuant to the
provisions hereof. No certificates or scrip representing fractional
share interests will entitle the holder thereof to vote, or to any
rights of a shareholder of the Company. Any fraction of a share of New
<PAGE>
Common Stock to which the holder would otherwise be entitled will be
adjusted upward to the nearest whole share. If more than one Old
Certificate shall be surrendered at one time for the account of the
same stockholder, the number of full shares of New Common Stock for
which New Certificates shall be issued shall be computed on the basis
of the aggregate number of shares represented by the Old Certificates
so surrendered. In the event that the Company's Transfer Agent
determines that a holder of Old Certificates has not tendered all his
certificates for exchange, the Transfer Agent shall carry forward any
fractional share until all certificates of that holder have been
presented for exchange such that payment for fractional shares to any
one person shall not exceed the value of one share. If any New
Certificate is to be issued in a name other than that in which the Old
Certificates surrendered for exchange are issued, the Old Certificates
so surrendered shall be properly endorsed and otherwise in proper form
for transfer, and the person or persons requesting such exchange shall
affix any requisite stock transfer tax stamps to the Old Certificates
surrendered, or provide funds for their purchase. From and after the
Effective Date the amount of capital represented by the shares of New
Common Stock into which and for which the shares of the Old Common
Stock are reclassified under the terms hereof shall be the same as the
amount of capital represented by the shares of Old Common Stock so
reclassified, until thereafter reduced or increased in accordance with
applicable law".
5. The total number of shares outstanding at the time of the adoption of the
amendment was TWENTY-FOUR MILLION, TWO-HUNDRED AND THIRTY SEVEN THOUSAND,
SIX-HUNDRED AND THIRTY-SIX (24,237,636). The total number of shares
entitled to vote thereon was TWENTY-FOUR MILLION, TWO-HUNDRED AND THIRTY
SEVEN THOUSAND, SIX-HUNDRED AND THIRTY-SIX (24,237,636).
6. The foregoing amendment was adopted by the written consent of Hope
Associates, L.L.C. and Kevin VanderKelen, two shareholders holding a
combined total of TWENTY-TWO MILLION FOUR-HUNDRED AND FIVE THOUSAND shares
(22,405,000) shares (NINETY-TWO percent (92%) ) of the issued and
outstanding shares of stock pursuant to Section 14:A:5-6 of the New Jersey
Business Corporation Act. No shareholders have voted against this
amendment. Notice of this shareholder action was provided to the
non-consenting shareholders for the attached Information Statement on June
17, 1998 pursuant to Section 14A5:6(2)(b) to shareholders of record on May
22, 1998.
Dated this 9th day of July 1998
STARLOG FRANCHISE CORPORATION
BY: /s/ Jack Fitzgerald
---------------------------------
Jack Fitzgerald President
Exhibit 10.40
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE
SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED.
No. WA-_____ Warrant to Purchase _______ Shares of Common
Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK, PAR VALUE $0.10 PER SHARE
of
Retail Entertainment Group, Inc.
Void after May 3, 2003
This certifies that, for value received, _________(the "Holder"), is
entitled, subject to the terms set forth below, to purchase from Retail
Entertainment, Inc., a New Jersey corporation (the "Company"), ____________
shares of the common stock, $0.01 par value per share ("Common Stock"), of the
Company, as constituted on the date hereof (the "Warrant Issue Date"), upon
surrender hereof, at the principal office of the Company referred to below, with
the Notice of Exercise form attached hereto as Annex I duly executed, and
simultaneous payment therefor in lawful money of the United States or otherwise
as hereinafter provided, at the "Exercise Price" as set forth in Section 2
below. The number, character of such shares of Common Stock are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant and any warrants delivered in substitution, replacement or exchange
therefor as provided herein.
This Warrant is issued in connection with the assumption by the Holder
of a portion of the $2,000,000 of the Company's debt to the BSB Bank and Trust
Co. The Company is issuing this warrants to issue a total of 500,000 shares to
the parties who have assumed such $2,000,000.
1. Term of Warrant. Subject to the terms and conditions set forth herein, this
Warrant shall be exercisable, in whole or in part, during the term commencing on
the date hereof and ending at 5:00 p.m., Eastern Standard Time, on May 3, 2003,
and shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be exercised
shall be at a price per share of Common Stock equal to $1.25.
3. Exercise of Warrant.
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<PAGE>
(a) The purchase rights represented by this Warrant are exercisable by
the Holder in whole or in part at any time, or from time to time, during the
term hereof as described in Section 1 above, by the surrender of this Warrant
and the Notice of Exercise attached as Annex I hereto duly completed and
executed on behalf of the Holder, at the principal office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company), upon payment (i) in cash payable to the Company, (ii) by compliance
with the provisions of ss.3(c) below or (iv) by some combination of (i), (ii)
and (iii), in each case, of the exercise price of the shares of Common Stock to
be purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company, at its expense, shall issue and deliver to the person
or persons entitled to receive the same, a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company, at its expense, shall execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
(c) the Warrant Holder may elect to exercise this Warrant in whole or
in part by receiving the number of shares of Common Stock equal to the value (as
determined below) of this Warrant, or any part hereof, upon surrender of the
warrant at the principal office of the Company together with notice of such
election in which event the Company shall issue to the Holder a number of shares
of Common Stock computed using the following formula:
X = Y(A-B)
A
Where:
X = the number of shares of Common
Stock to be issued to the Holder
Y = the number of shares of Common
Stock to be exercised under
this Warrant
A = the "current fair market value"
of one share of Common Stock
calculated as provided in ss.3(d)
below
B = the Exercise Price as provided
in ss.2 above.
(d) Current Fair Market Value Defined. As used herein, current fair
market value of Common Stock as of a specified date shall mean with respect to
each share of Common Stock the average of the closing prices of the Company's
Common Stock sold on all securities exchanges on which the Common Stock may at
the time be listed for the ten trading dates consisting of the specified date
and the nine previous business dates. If there have been no sales on any such
exchange on any such day, there shall instead be used the average of the highest
bid and lowest asked prices on all such exchanges at the end of such day, or, if
on such day
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<PAGE>
the Common Stock is not so listed, the average of the representative bid and
asked prices quoted in the NASDAQ System as of 4:00 p.m., New York City time,
or, if on such day the Common Stock is not quoted in the NASDAQ System, the
average of the representative bid and lowest asked price on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 10 days consisting of the day as of which the current fair
market value of Common Stock is being determined and the 9 consecutive Business
Days prior to such day. If on the date for which current fair market value is to
be determined the Common Stock is not listed on any securities exchange or
quoted in the NASDAQ System or the over-the-counter market, the current fair
market value of Common Stock shall be the highest price per share which the
Company could then obtain from a willing buyer (not a current employee or
director) for shares of Common Stock sold by the Company, from authorized by
unissued shares, as determined in good faith by the Board of Directors of the
Company, unless prior to such date the Company has become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the current fair market value of the Common Stock
shall be deemed to be the value received by the holders of the Company's Common
Stock for each share thereof pursuant to the Company's acquisition.
4. No Fractional Shares of Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of
any fractional share to which the Holder would otherwise be entitled, the
Company shall make a cash payment equal to the Exercise Price multiplied by such
fraction.
5. Replacement of Warrant. On receipt of evidence reasonable satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonable satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor and amount.
6. Rights of Stockholders. Subject to Sections 9 and 11 of this Warrant, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to not par value, consolidation, merger, conveyance,
or otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised as
provided herein.
7. Registration of Warrant; Securities Law Matters.
(a) Warrant Register. The Company shall maintain a register (the
"Warrant Register") containing the address of the Holder. The Holder may change
its address as shown on the Warrant Resister by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or
-3-
<PAGE>
given mail to such Holder as shown on the Warrant Register as the absolute owner
of this Warrant for all purposes, notwithstanding any notice to the contrary.
(b) Compliance with Securities Law. (i) The Holder of this Warrant, be
acceptance hereof, acknowledges that this Warrant is being acquired solely for
the Holder's own account and not as a nominee for any other party, and for
investment, and that the Holder shall not offer, sell or otherwise dispose of
this Warrant, except under circumstances that will not result in a violation of
the Act or any state securities laws. Upon exercise of this Warrant the Holder
shall, if reasonably requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
(ii) All shares of Common Stock issued upon exercise hereof shall be
stamped or imprinted with a legend in substantially the following form (in
addition to any legend required by state securities laws):
THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SHARES OF
COMMON STOCK REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD, TRANSFERRED,
EXCHANGED OR OTHERWISE DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE ACT,
AND THE RULES AND REGUALTIONS PROMULGATED THEREUNDER, AND ANY OTHER
APPLICABLE LAW, RULES AND REGULATIONS, INCLUDING, WITHOUT LIMITATION,
APPLICABLE STATE SECURITIES LAWS, RULES AND REGULATIONS.
8. Reservation of Stock.
The Company covenants that during the term that this Warrant is
exercisable, the Company shall reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of all or any portion of this Warrant and, from time to time,
shall take all steps necessary to amend its Certificate of Incorporation, as
amended (the "Certificate") to provide sufficient reserves of shares of Common
Stock issuable upon exercise of the Warrant. The Company further covenants that
all shares which may be issued upon the exercise of the rights represented by
this Warrant and payment of the Exercise Price, all as set forth herein, will be
free from all taxes, liens and charges I respect to the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant.
9. Certificates of Adjustment; Notices
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<PAGE>
(a) Whenever number of shares purchasable hereunder shall be adjusted
or readjusted pursuant to Section 11 hereof, the Company shall issue a
certificate signed by its Chief Financial Officer setting forth, in reasonable
detail, the event requiring the adjustment or readjustment, the amount of the
adjustment or readjustment, the method by which such adjustment was calculated
and the Minimum Exercise Price and number of shares purchasable hereunder after
giving effect to such adjustment the amount, if any, of other property that at
the time would be received upon exercise of the Warrant, all after giving effect
to such adjustment or readjustment. A copy of such certificate to be mailed to
the Holder of this Warrant in accordance with Section 13 hereof.
(b) In the event:
(i) that the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
of substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company shall mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (A) the date on which a record
is to be taken for the purposes of such dividend, distribution or right, and
stating the amount and character of such dividends, distribution or right, or
(b) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 20
days prior to the date therein specified for the occurrence of any of the
foregoing events.
(c) All such notices, advice and communications shall be
deemed to have been given in the manner set forth in Section 13 hereof.
10. Amendments
This Warrant or any term of provision hereof may not be amended without
the written consent of the Company and the Holder.
11. Adjustments. The Minimum Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
-5-
<PAGE>
11.1 Merger, Sale of Assets, etc. If at any time while this Warrant or
any portion hereof is outstanding and unexpired, there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity and by which the shares of the Company's
capital stock outstanding immediately prior to the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash, or otherwise, or (iii) a sale or transfer of the Company's properties and
assets as, or substantially as, an entirety to any other person, then, as a part
of such reorganization, merger, consolidation, sale or transfer, lawful
provision shall be made so that the holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the Exercise Price then in effect, the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer
which a holder of the shares deliverable upon exercise of this Warrant would
have been entitled to receive in such reorganization, consolidation, merger,
sale or transfer if this Warrant had been exercised immediately before such
reorganization, consolidation, merger, sale or transfer, all subject to further
adjustment as provided in this Section 11. The foregoing provisions of this
Section 11.1 shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the Holder for shares in
connection with any such transaction is in a form other than cash or marketable
securities, then the value of such consolidation shall be determined in good
faith by the Company's Board of Directors. In all events, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant with respect to the rights
and interest of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
11.2. Reclassification, etc. If the Company, at any time while this
Warrant or any portion hereof remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Minimum
Exercise Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 11.
11.3. Split, Subdivision or Combination of Shares. If the Company at
any time while this Warrant or any portion hereof remains outstanding and
unexpired, shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Minimum Exercise Price shall be proportionately decreased and
the number of shares of such securities for which this Warrant may be exercised
shall be proportionately increased, in the case of a split or subdivision, or
the Minimum Exercise Price for such securities shall be proportionately
increased and the number of shares of such
-6-
<PAGE>
securities for which this Warrant may be exercised shall be proportionately
decreased, in the case of a combination.
11.4. Adjustments for Dividends in Stock or Other Securities or
Property. If at any time while this Warrant or any portion hereof remains
outstanding and unexpired, the holders of the Common Stock or other securities
as to which purchase rights under this Warrant exist at the time shall have
become entitled to receive, without payment therefor, other or additional stock
or other securities or property (other than cash) of the Company by way of
dividend or other distribution, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other additional stock or
other securities or property (other than cash) of the Company that the Holder
would hold on the date of such exercise had it been the holder of record of the
security receivable upon exercise of this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by the provisions of this Section 11.
11.5. No Impairment. The company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but shall at all
times in good faith assist in the carrying out of all the provisions of this
Section 11 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
impairment.
12. Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of New Jersey.
13. Notices, etc. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed
(i) if to the Holder at _____________________, or at such other address as the
Holder shall have furnished to the Company in writing, or (ii) if to the
Company, to 22 Meridian Road, Eatontown, New Jersey 07724Attention: President.
Such notices or communications shall be deemed given if personally delivered, on
the date of delivery by hand or by messenger, or three (3) days after mailing if
send by mail as set forth herein.
14. Delays or Omissions. No delay or omission to exercise any right, power, or
remedy accruing to the Holder upon any breach or default therefore or thereafter
occurring. Any waiver, permit, consent, or approval of any kind or character on
the part of the Holder of any breach or default under this Warrant, or any
waiver on the part of any party of any provisions or conditions of this Warrant,
must be in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Warrant or by law or
otherwise afforded to the Holder shall be cumulative and not alternative.
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15. Severablility. If any provision of this Warrant is held to be unenforceable
under applicable law, then such provision shall be excluded and shall be
enforceable in accordance with its terms. A court of competent jurisdiction, in
its discretion, may substitute for the excluded provision an enforceable
provision which in economic substance reasonably approximates the excluded
provision.
16. Pronouns. All pronouns and any variations thereof refer to the masculine,
feminine, or neuter, singular, or plural, as the identity of the person or
persons may require.
Executed effective on this ________ day of ___________1998
Retail Entertainment Group, Inc.
By:______________________
Name:____________________
Title: ____________________
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ANNEX 1
NOTICE OF EXERCISE
To: RETAIL ENTERTAINMENT GROUP, INC.
(1) The undersigned hereby irrevocably elects to purchase _____ shares
of Common Stock of RETAIL ENTERTAINMENT GROUP, INC., a New Jersey corporation,
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the purchase price for such shares in full, unless the Holder elects to exercise
such Warrant in accordance with Section 3(c) thereof in lieu of making a cash
payment therefor.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued are being acquired
solely for the account of the undersigned and not as a nominee for any other
party, and for investment, and that the undersigned shall not offer, sell or
otherwise dispose of any such shares of Common Stock except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended,
or any state securities laws.
(3). The undersigned Holder elects to pay the aggregate exercise price
for such Shares (the "Exercise Shares") in the following manner (check and
complete if applicable):
<TABLE>
<CAPTION>
Method Check if
Applicable
<S> <C>
(a) by lawful money of the United States or the enclosed
certified check or postal or express money order payable in
United States dollars to the order of the company in the
amount of $________;
---------------
(b) by wire transfer of United States funds to the account of the
Company in the amount of $_______, which transfer has been
made before or simultaneously with the delivery of this
Exercise Form pursuant to the instructions of the Company
---------------
(c) receive Warrant Shares equal to the value of the warrant
calculated in accordance with Section 3(c) of the Warrant of
the Company. or
---------------
(e) the combination of the foregoing indicated above ---------------
(4). Please issue a stock certificate or certificates representing the
appropriate number of Warrant Shares in the name of the undersigned or in such
other names as is specified below:
</TABLE>
Name: ___________________________________
Address: ____________________________________________
-----------------------------------
Tax Identification No.:______________________________
HOLDER: ____________________________________________
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By: ___________________________________
Its: ___________________________________
Date: ___________________________________
Note: The signature of the Warrant Holder must conform in all respects to the
name of the Warrant Holder as specified on the face of the Warrant, without
alteration, enlargement or any change whatsoever.
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AGREEMENT OF ASSET ACQUISITION
This Agreement of Asset Acquisition (the "Agreement") dated November
24, 1998, by and between Candy Candy Acquisition Corporation, a New York
corporation with its principal offices located at c/o Michael Michaelson, 135 E.
71st Street. Apt. 3A, New York, NY 10021,, ("Buyer") and Jonford Corporation, a
North Carolina corporation with its principal offices located at 380 Knollwood
Street, Suite 410, Winton-Salem, NC 27103 ("Seller")
RECITALS
WHEREAS, Buyer desires to acquire certain of the assets of Seller, all
as more particularly set forth herein (the "Acquisition"); and
WHEREAS, the Acquisition shall be consummated pursuant to and in
accordance with the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
SECTION 1.
TRANSFER AND ACQUISITION OF CERTAIN ASSETS OF SELLER.
1.1 Acquisition of Assets. Subject to the terms and conditions of this
Agreement, Seller agrees to sell, convey, transfer, assign and deliver to Buyer,
and Buyer agrees to accept the transfer all of Seller's right, title and
interest in its assets, real, personal and mixed, tangible and intangible,
employed in the operations of Seller, including, without limitation, the
following items but excluding the items listed in Section 1.2 below
(collectively, the "Transferred Assets"):
(a) the leases (the "Leases") granting Seller a leasehold interests
relating to each of the eight retail candy stores further described in
EXHIBIT 1.1(a) hereto (the "Stores") used in connection with the retail
candy business of Seller (the "Business");
(b) all improvements and fixtures located at the Stores;
(c) all equipment, furniture and furnishings located at the Stores which
equipment furniture and fixtures is set forth in EXHIBIT 1.1(c) hereto,
including, without limitation, those taken into consideration in any
depreciation schedule of Seller;
(d) all supplies, forms, and inventory located at the Stores;
(e) any intangible assets, goodwill, and intellectual property, including
any service and/or trademark or names and logos (excluding specifically
the name "Jonford") used in connection with the Stores, including that
intellectual property set for in EXHIBIT 1.1(e) hereto;
(f) copies of all employment applications and other personnel records of
employees as selected by Buyer;
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(g) all interests in commitments, contracts, leases, and agreements
relating to the Business and the Transferred Assets, a list of which is
attached hereto as EXHIBIT 1.1(g);
(h) all files, lists, and records relating to the Business or the Stores;
(i) rights to telephone and fax numbers used by Seller at the Stores;
(j) all computers, other data processing equipment, and related software
located at the Stores; and
(k) all prepaid expenses, and miscellaneous deposits of Seller relating to
the Stores.
Seller shall convey good and marketable title to the Transferred Assets and all
parts thereof to Buyer free and clear of all liabilities, claims, assessments,
security interests, liens, restrictions and encumbrances, except as expressly
provided herein to the contrary.
1.2 Excluded Assets. The Transferred Assets shall not include and Buyer
shall not acquire from Seller the following items ("Excluded Assets"): cash and
cash equivalents or Accounts receivable.
1.3 Excluded Liabilities. Except for the leases for the Stores, Buyer
shall not be obligated to pay or assume, and none of the Transferred Assets
shall be or become liable for or subject to, any liability of Seller, including,
without limitation, the following, whether fixed or contingent, recorded or
unrecorded, known or unknown (collectively, the "Excluded Liabilities"): (i)
long, or short term indebtedness, liabilities and other obligations or
guarantees of Seller; (ii) federal, state or local tax liabilities or
liabilities of Seller relating to the operations of Seller for the period prior
to the Closing Date or resulting from the consummation of the transactions
contemplated herein, including, without limitation, any income or acquisitions,
tax, any franchise tax, and any other such tax; (iii) obligation or liability
for any and all claims by or on behalf of any employee of Seller relating to
periods prior to Closing; (iv) any liability, obligation, interest, sanctions,
or penalties arising out of or in connection with any claim or violation under
the Employee Retirement Income Security Act of 1974, as amended, and (v) any
liability or obligation arising out of or in connection with any act or omission
relating to the ownership or operations of the Business by Seller or the
Transferred Assets which occurred prior to Closing, including, but not limited
to any breach by Seller at any time of any contract or commitment, trade
payables relating to Transferred Assets or otherwise, or obligations under any
of the leases for any of the Stores to the extent accruing prior to December 1,
1998.
1.4 Transfer Price.
(a) The total transfer price (including interest) payable by Buyer to
Seller for the Transferred Assets ("Transfer Price"), shall be
Five Hundred and Forty-Nine Thousand Dollars ($549,000) payable as
follows: (i) $225,000 payable in cash at closing and (ii) 12
quarterly payments of principal and interest equal to $27,000 each
payable on the last day of each three month period commencing
February 28, 1999, which shall be evidenced by a promissory note
in the form of EXHIBIT 1.4(a) (the
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"Note"). The Note will provide that it is secured by a security
interest in Transferred Assets as provided in the language
relating thereto in Exhibit 1.4(a)
(b) In addition to the purchase price, on or before the "Closing Date"
as provided below, Buyer will pay Seller for that portion of the
rent paid for the Stores for that portion of the month of November
starting from and following the "Effective Date" as provided
below. EXHIBIT 1.4(b) hereto is a calculation of the amount
payable under this ss.1.4(b) assuming that the "Effective Date" is
November 25, 1998.
(c) Notwithstanding the foregoing, if, despite Buyer's efforts as
provided in ss.5.2 below, the Landlord of any of the Stores
refuses to approve the assignment of the Lease thereof to Buyer
and if Buyer does not enter into a new lease with the Landlord
within one year following the closing, then, at Seller's option,
either (i) take the action provided in ss.5.2(a)(i)and (ii); or
(ii) Seller will enter into an agreement as described in
ss.5.2(b).. In the event that Buyer causes any store to close
during the term of its current lease, Buyer will indemnify Seller
from any expenses incurred to landlord with respect to such lease.
(d) Buyer may offset the amount payable in 1.4(a) by amounts due under
1.4(c), amounts owed Buyer under the Management Agreement provided
in ss.1.5 or other amounts owed to Buyer by Seller.
1.5 Management Agreement.
(a) Simultaneously with the execution of this Agreement, the parties
shall enter into a Management Agreement in the form annexed hereto
as EXHIBIT 1.5(a) pursuant to which Buyer shall supervise the
construction of and manage the operation of Seller's store in
Grand Central Station (the "Grand Central Store").
1.6 Instruments of Conveyance and Transfer. At the Closing, Seller
shall deliver to Buyer such bills of acquisition, endorsements, assignments, and
other good and sufficient instruments of transfer, conveyance, and assignment
satisfactory to Buyer and its counsel as shall be effective to vest in and
warrant to Buyer good and marketable title to the Transferred Assets, free and
clear of all mortgages, security agreements, pledges, charges, claims, liens,
and encumbrances except for those provided in the Security Agreement provided in
ss.1.4(b). Simultaneously with such delivery, Seller shall take all steps as may
be required to put Buyer in actual possession and operating control of the
Transferred Assets and the Business. Seller shall use its best efforts to obtain
assignments to Buyer of the leases for the Stores.
1.7. Further Assurances. Seller shall from time to time at the request
of Buyer and without further consideration, execute and deliver such instruments
of transfer, conveyance, and assignment in addition to those delivered pursuant
to ss.1.6 and take such other action as Buyer may reasonably request to more
effectively transfer, convey and assign to and vest in Buyer, and to put Buyer
in possession of, all or any portion of the Transferred Assets. In the event
that any consent is required to transfer any contracts to be assumed by Buyer
has not been received by the Closing, and Buyer waives such nonreceipt and
proceeds to Closing, Seller shall be obligated
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<PAGE>
without further consideration to use its best efforts to secure for the Buyer
the benefits of such contracts.
SECTION 2.
CLOSING
2.1 Time and Place. Subject to the terms and conditions of this
Agreement the closing (the "Closing") shall take place at 10:00 a.m. on December
3, 1998, at the officers of Share & Blejec, P.C., 317 Madison Avenue, Suite
1421, New York, NY 10017, or at such other time, date, and/or place as the
parties may mutually agree or such later date as shall be deemed to be at least
10 days following compliance with Article 6 of the New York Uniform Commercial
Code. The date on which the Closing occurs is referred to as the "Closing Date."
On a date prior to the Closing Date, (the "Effective Date") Buyer shall deliver
to Seller's attorney to hold in escrow until the Closing date the cash payment
and Note (dated the Effective Date) as well as fully executed copies of all
other documents and certificates to be provided to Seller at the Closing and
Seller will deliver to Buyer fully executed copies of those documents and
certificates to be delivered at the Closing. The parties, by mutual consent, may
designate documents or certificates which need not be delivered on or before the
Effective Date.
2.2 Actions of Seller at Closing. At Closing and unless otherwise
waived in writing by Buyer, Seller shall deliver to Buyer the following:
(a) Assignments executed by Seller assigning to Buyer the
leasehold title to each Store, and evidencing the
requests for consents to the respective landlords thereto;
(b) A General Bill of Acquisition and Agreement, fully executed by
Seller, conveying to Buyer good and marketable title to all
tangible and intangible assets which are a part of the
Transferred Assets, free and clear of all liabilities, claims,
liens, security interests and restrictions:
(c) Copy of resolutions duly adopted by the board of directors and
the shareholders of Seller authorizing and approving Seller's
execution, delivery and performance of this Agreement and the
transactions contemplated hereby, certified as true and of
full force as of Closing, by an appropriate officer of Seller;
(d) Certificate of a duly authorized officer of Seller certifying
that each covenant and agreement of Seller to be performed
prior to Closing pursuant to this Agreement has been performed
in all material respects;
(e) Certificate of a duly authorized officer of Seller certifying
that each representation and warranty of Seller is true and
complete as of the date of this Agreement and as of the
Closing date;
(f) Certificate of existence and good standing of Seller from the
State of North Carolina, dated the most recent practical date
prior to Closing; and
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<PAGE>
(g) Such other instruments and documents required under this
Agreement or as Buyer reasonably deems necessary to effect the
transactions contemplated hereby and to otherwise consummate
the transactions described herein.
2.3 Actions of Buyer at Closing. At the closing and unless otherwise
waived in writing by Seller, Buyer shall deliver to Seller the following:
(a) Copy of the resolutions duly adopted by the board of
directors of Buyer, authorizing and approving Buyer's
execution, delivery and performance of this Agreement
and the transactions contemplated hereby, certified as true
and in full force as of Closing by an appropriate officer of
Buyer;
(b) Certificate of a duly authorized officer of Buyer
certifying that each covenant and agreement of Buyer to be
performed prior to Closing pursuant to this Agreement has been
performed in all material respects;
(c) Certificate of a duly authorized officer of Buyer
certifying that each representation and warranty of Buyer as
set forth herein is true and complete as of the date of the
Agreement and as of the Closing Date;
(d) The Note.
(e) Certificate of Good Standing of Buyer from the State of
New York.
2.4 Effective Date. From the Effective Date, through the Closing, Buyer
may manage the Stores for the Buyer's own benefit, provided that Buyer shall be
responsible for any risk of loss to any Store during such interim (provided that
any insurance proceeds relating to any such loss shall be deemed to be part of
the Transferred Assets) and provided further that no casualty or any other event
shall justify the Buyer in refusing to close the transaction and release the
escrowed funds and documents upon the passage of time necessary to comply with
Article 6 of the New York Uniform Commercial Code. During such interim Seller
shall retain title to (and possession of) the Transferred Assets.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF SELLER.
3.1 Seller's Representations and Warranties. Seller represent and
warrant to Buyer as follows:
(a) Ownership. Edward Crawford ("Crawford") is the legal and beneficial
owner of no less that seventy-five percent (75%) the issued and
outstanding voting securities of Seller.
(b) Leases for the Store. EXHIBIT 1.1(a) hereto contains a true and
complete list of each lease and each amendment thereto for each of
the Stores. Seller has delivered to buyer a true and complete copy
of each such lease and amendment certified to be true and complete
by the Owner. Seller has paid all rent due for all leased premises
for the month of November 1998. Attached hereto as part of EXHIBIT
1.1(a) is a
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schedule showing the actual rent paid for each of the eight Stores
for the one year period ended September 27, 1998. There are no
defaults or breaches of any of the leases or amendments thereto
listed in Exhibit 1.1(a) by either Seller or to Seller's knowledge,
by any Landlord, nor any circumstance which with the giving of
notice or the passage of time, or both, would constitute a default
or breach of any such lease or result in the termination, of,
result in the acceleration of performance of any of such leases.
(c) Employees Attached as EXHIBIT 3.1(c) is a schedule listing the
names and compensation of each employee of Seller involved in the
direct operation of any Store (but not including any accounting or
management personnel used to oversee the operations of the Stores
in general). All of Seller's employees listed in Exhibit 3.1(c) are
employed at will. Seller has no pension, health or other employee
benefit plan in effect other than as described and identified in
Exhibit 3.1(c) nor are any of such employees entitled to any
accrued vacation pay or any other fringe benefits except as
described in Exhibit 3.1(c).
(d) Transferred Assets. The Transferred Assets are all the assets of
Seller used or reasonably needed to operate the eight Stores
comprising the transferred Business. All of the Transferred Assets
are owned by Seller, free and clear of all liens and encumbrances,
except for (i) potential claims with respect to the trademarks
included as part of the Transferred Assets as described in EXHIBIT
1.1(e) and except for (ii) the existing Security Agreement and
uniform commercial code financing statement granted by Seller to
Atlantic Venture Company, Inc. a Virginia corporation ("Atlantic
Venture"). Atlantic Venture has agreed to enter into a Security
Subordination Agreement in the form of EXHIBIT 3.1(d) (the
"Security Subordination Agreement") whereby Atlantic consents to
the transaction provided in this Agreement and agrees that its
security interest in the Transferred Assets will be subordinate to
Buyer's title therein, provided that such security interest shall
remain in effect to the extent that Seller has rights in such
Transferred Assets pursuant to the terms of Security Agreement
provided inss.1.4(b) Therefore, taking the Security Subordination
Agreement into effect, when the transfer of the Transferred Assets
to Buyer at the Closing will vest complete and unencumbered title
in the Transferred Assets to Buyer, subject only to the Security
Agreement provided in ss.1.4(b).
(e) Organization and Good Standing. Seller is duly qualified as a North
Carolina corporation and is in good standing in any jurisdiction in
which the conduct of its business or the ownership of its assets
requires such qualification except where such non-qualification has
not had a material adverse effect on Seller.
(f) Subsidiaries. Seller has no subsidiaries.
(g) Authorization; Validity. The execution, delivery, and performance
of this Agreement by Seller has been duly and validly authorized by
all requisite corporate action. This Agreement has been duly and
validly executed and delivered by Seller, and is the legal, valid,
and binding obligation of Seller, enforceable in accordance with
its terms, except as limited by bankruptcy, insolvency, moratorium,
reorganization, and
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other laws of general application affecting the enforcement of
creditor's rights and by the availability of equitable remedies.
(h) Consents, etc. Other than as set forth on EXHIBIT 3.1.(h), no
approval, consent, waiver, or authorization of or filing or
registration with any governmental authority or third party is
required for the execution, delivery, or performance by Seller of
the transactions contemplated by this Agreement.
(i) Violations. The execution, delivery, or performance of this
Agreement does not and will not (i) with or without the giving of
notice or the passage of time, or both, constitute a default,
result in a breach of, result in the termination, of, result in the
acceleration of performance of, require any consent, approval, or
waiver (other than those identified on EXHIBIT 3.1(i)), or result
in the imposition of any lien or other encumbrance upon any
property or assets of Seller, under any agreement, lease, or other
instrument to which Seller is a party or by which any of the
property or assets of Seller is bound; (ii) violate any permit
license, or approval required by Seller to own the Transferred
Assets and operate the Business; (iii) violate any law, statute, or
regulation or any judgment, order, ruling, or other decision of any
governmental authority, court, or arbitrator; or (iv) violate any
provision of Seller's Articles of Incorporation or Bylaws.
(j) Bulk Sales Information. Attached hereto as Exhibit 3.1(j) is a list
of existing creditors, providing all of the information and in
compliance with the provisions of ss.6-104 of the New York Uniform
Commercial Code. Buyer shall be entitled to send the notice
provided in ss.6-107 to all such creditors and Seller will
cooperate with his Buyer doing so.
3.2 Survival of Representations and Warranties. Each of the
representations and warranties in Section 3 shall be deemed renewed and made
again by Seller at the Closing as if made as at that time, and shall survive the
Closing until the expiration of all applicable statute of limitation periods.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF BUYER.
4.1 Buyer's Representations and Warranties. As of the date hereof and
as of the Closing Date, Buyer represents and warrants to Seller the following:
(a) Corporate Capacity. Buyer is a for-profit corporation duly
organized and validly existing in good standing under the laws of
the State of New York. Buyer has the requisite power and authority
to enter into this Agreement, perform its obligations hereunder and
to conduct its business as now being conducted.
(b) Corporate Powers; Consents; Absence of Conflicts With Other
Agreements, Etc. The execution, delivery and performance of this
Agreement by Buyer and all other agreements referenced herein or
ancillary hereto to which Buyer is to be a party: (i) are within
Buyer's authority and powers, are not in contravention of law or of
the
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terms of Buyer's Certificate of Incorporation, By-laws or any
amendments thereto and have been duly authorized by all appropriate
corporate action; (ii) do not require any approval or consent of,
or filing with, any governmental agency or authority bearing on the
validity of this Agreement which is required by law or the
regulations of any such agency or authority; (iii) will neither
conflict with nor result in any material breach or contravention
of, or the creation of any lien under, any indenture, agreement,
lease, instrument or understanding to which Buyer is a party or by
which Buyer is bound; (iv) will not violate any statute, law, rule
or regulation of any governmental authority to which Buyer may be
subject; and (v) will not violate any judgment, order or decree of
any court or governmental authority to which Buyer may be subject.
(c) Binding Agreement. This Agreement and all other agreements to which
Buyer will become a party hereunder are and will constitute the
valid and legally binding obligations of Buyer and are and will be
enforceable against Buyer in accordance with the respective terms
hereof and thereof, except as enforceability against Buyer may be
restricted, limited or delayed by applicable bankruptcy or other
laws affecting creditors' rights generally and except as
enforceability may be subject to general principles of equity.
(d) Full Disclosure. The representations and warranties of Buyer herein
do not and will not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
made and to be made not misleading.
(e) Note. The Note is duly authorized and validly issued and represents
a binding obligation of Buyer enforceable in accordance with its
terms.
4.2 Survival of Representations and Warranties. Each of the
representations and warranties in Section 4 shall be deemed renewed and made
again by Buyer at the Closing as if made as at that time, and shall survive the
Closing until the expiration of all applicable statute of limitation periods.
SECTION 5
COVENANTS OF THE PARTIES.
5.1 By Seller Prior to the Closing Except as may otherwise be consented
to or approved in writing by Buyer, Seller agrees that from the date of this
Agreement and until the Closing:
(a) Conduct Pending Closing. (i) The Business shall be conducted only
in the ordinary course consistent with past practices; (ii) Seller
shall not declare any dividends, enter into any mergers, and shall
not engage in any borrowing, or hiring of new personnel.
(b) Access to Records. Seller shall provide Buyer and its
representatives access to all records of Seller that they may
reasonably request and provide access to the properties of Seller.
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(c) Solicitation. Seller agrees that it will not solicit, consider, or
negotiate any offers to acquire the shares or assets of Seller, or
to provide any information or to make available any management
personnel to third parties for such purposes.
(d) Enforcement of Agreements. For a period of twelve (12) months
following the Closing Date, Seller shall, upon Buyer's request,
cooperate with Buyer to provide for Buyer the benefits under any
contract or agreement, including any agreement with employees,
including, without limitation, enforcement of any and all rights
against the other party or parties.
(e) Employee Payments; Terminations and Rehirings. Seller shall pay all
employee compensation, benefits, vacations, sick time, and all
other payments due to its employees for the period up to and
including the Closing Date. Buyer shall, prior to or at the Closing
Date, notify Seller of which of the employees listed on Exhibit
3.1(c) Buyer wishes to employ. Seller shall, effective at Closing
terminate all such employees so that they may accept employment by
Buyer.
5.2 After Closing Regarding Assignment of Leases After the Closing,
Buyer will use reasonable efforts to obtain the consent by each landlord thereof
to the assignment of the leases provided in ss.1.1(a) above, provided that Buyer
may (but shall not be required to) instead enter into a new lease with the
Landlord. If the Landlord refuses such assignment and Buyer does not negotiate
and enter a new lease for any Store, then: at Seller's option, either
(a)(i) the purchase price provided in ss.1.4(a) shall be adjusted as
provided in EXHIBIT 5.2(a) above; and (ii) Buyer shall transfer back to
Seller all of the Transferred Assets relating to such Store, including,
but not limited to inventory similar in value to that in the Store in
question as indicated on EXHIBT 5.2; or
(b) Seller will enter into any agreement providing for Buyer to manage
the Stores on Seller's behalf, but under economic terms whereby Buyer
will obtain the same economic benefit, and have the same economic risks
(including, but not limited to Buyer, paying rent and other store
expenses), as if it owned the store in question.
5.3 After Closing Indemnification. Seller will indemnify Buyer or
Buyers successor in interest from any claim from any creditor of Seller relating
to Buyer purchasing the Transferred Assets, except for a claim from a landlord
under any lease for the Stores relating to the period after the effective date
of the Closing.
SECTION 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.
6.1 Conditions Precedent. Unless, at the Closing, each of the following
conditions is either satisfied or waived by Buyer in writing, Buyer shall not be
obligated to effect the transactions contemplated by this Agreement:
(a) Representations and Warranties. The representations and warranties of
Seller in this Agreement are true and correct at the date of this
Agreement and shall be true and correct as of the Closing as if each
were made again at that time.
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(b) Performance of Covenants. Seller shall have performed and complied in
all respects with the covenants and agreements required by this
Agreement.
(c) Items to be Delivered at Closing. Seller shall tendered for delivery to
Buyer the following:
(i) Consents, etc. Consents for each item listed on Schedule 3.1(h).
(h) Good Standing Certificate. A good standing certificate from Seller in
North Carolina.
(i) Corporate Action. A certified copy of the corporate action of Seller
authorizing and approving this
Agreement and the transactions contemplated by it.
(j) Transfer Documents. Deeds, bills of acquisition, assignments, consents
to assignments, and other instruments of transfer and consent necessary
to transfer to Buyer good and marketable title in and to all of the
Transferred Assets, free and clear of all liens, except as set forth in
this Agreement.
(i) Management Agreement Seller shall have executed and delivered
the Management Agreement in substantially the form provided in
Exhibit 1.5.
(ii) Security Subordination Agreement. Atlantic, and Seller shall
have executed the Security Subordination Agreement in the form
provided in 3.1(d); and
(iii) Crawford Certificate. Crawford shall have entered into a
certificate satisfactory to counsel for Buyer, certifying that
the representations and warranties of Seller are true and
correct.
(k) Proceedings and Instruments Satisfactory. All proceedings, corporate or
other, to be taken in connection with the transactions contemplated by
this Agreement, and all documents incident thereto, shall be
satisfactory in form and substance to Buyer and Buyer's counsel, whose
approval shall not be unreasonably withheld.
(l) Certificate. There shall be delivered to Buyer an officer's
certificate, signed by Seller, to the effect that all of the
representations and warranties of Seller set forth in this Agreement
are true and complete in all material respects as of the Closing Date,
and that Seller has complied in all material respects with its
covenants and agreements required to be complied with by the Closing.
SECTION 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.
7.1 Conditions Precedent. Unless, at the Closing, each of the following
conditions is either satisfied or waived by Seller in writing, Seller shall not
be obligated to effect the transactions contemplated by this Agreement.
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<PAGE>
(a) Representations and Warranties. The representations and warranties of
Buyer in this Agreement are true and correct at the date of this
Agreement and as of the Closing as if each were make again at that
time.
(b) Performance of Covenants. Buyer shall have performed and complied in
all respects with the covenants and agreements required by this
Agreement.
(c) Items to be Delivered at Closing. Buyer shall have tendered for
delivery to Seller the following:
(i) Good Standing Certificate. A Certificate of the New York
Department of State showing that Buyer is in good standing.
(ii) Corporate Action. A certified copy of the corporate action of
Buyer authorizing and approving this Agreement and the
transactions contemplated by it.
(iii) Cash Payment, Note, Security Agreement. Buyer shall have
delivered the payment and the executed Note provided in ss.
1.4(a) and the an executed copy of the Security Agreement
provided in ss.1.1(b) along with such signed forms UCC-1 as
Seller's counsel shall reasonably request.
(iv) Management Agreement. Buyer shall have executed and delivered
the Management Agreement in substantially the form provided in
Exhibit 1.5.
(v) Security Subordination Agreement. Buyer shall have executed
and delived the Security Subordination Agreement
(d) Proceedings and Instruments Satisfactory. All proceedings, corporate or
other, to be taken in connection with the transactions contemplated by
this Agreement, and all documents incident thereto, shall be
satisfactory in form and substance to Seller and Seller's counsel,
whose approval shall not be unreasonably withheld.
(e) Certificate. There shall be delivered to Seller an officer's
certificate, signed by Buyer, to the effect that all of the
representations and warranties of Buyer set forth in this Agreement are
true and complete in all material respects as of the Closing Date, and
that Buyer has complied in all material respects with its covenants and
agreements required to be complied with by the Closing.
SECTION 8.
NOTICES.
Any notice, request, demand, or communication required or permitted to
be given to any provision of this Agreement shall be deemed to have been
delivered, given, and received for all purposes if written and (i) if delivered
personally, by facsimile, or by courier or delivery service, at the time of such
delivery or (ii) if directed by registered or certified United States mail,
postage and charges prepaid, addressed to the intended recipient, at the address
specified below, two business days after such delivery to the United States
Postal Service.
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<PAGE>
If to Buyer at the address first provided above with a copy to:
Paul A Share, Esq.
317 Madison Ave.-Suite 1421
New York, NY 10017
If to Seller at the address first provided above with a copy to:
Norman L. Sloan, Esq.
Horton, Sloan & Gerber, PLLC
328 North Spring Street
Winston-Salem, North Carolina 27101
Any party may change the address to which notices are to be mailed by giving
notice as provided herein to all other parties.
SECTION 9.
MISCELLANEOUS.
9.1 Entire Agreement. This Agreement, the Exhibits, and the Schedules,
contain all of the terms and conditions agreed upon by the parties with
reference to the subject matter and supersede any and all previous agreements,
representations, and communications between the parties, whether written or
oral. This Agreement, including its Exhibits and Schedules, may not be modified
or changed except by written instrument signed by all of the parties, or their
respective successors or assigns.
9.2 Assignment. This Agreement shall not be assigned or assignable by
Seller or Buyer without the express written consent of the other party, except
that, as provided in the Note, Seller may assign the Note and related security
interest. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and assigns.
9.3 Captions. All section, schedule, and exhibit headings are inserted
for the convenience of the parties and shall not be used in any way to modify,
limit, construe, or otherwise affect this Agreement.
9.4 Counterparts; Facsimile Signatures. This Agreement may be executed
in several counterparts, each of which shall be deemed to be an original and
which together shall constitute one and the same instrument. Facsimile
signatures shall be of the same legal effect as if signed originally.
9.5 Waiver. Each of the parties may, by written notice to the other,
(i) extend the time for the performance of any of the obligations or other
actions of the other party; (ii) waive any inaccuracies in the representations
or warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement; (iii) waive compliance with any other
covenants of the other party contained in this Agreement; or (v) waive, in whole
or in part, performance of any of the obligations of the other party. No action
taken pursuant to this Agreement, including, but not limited to, the
consummation of the Closing or any knowledge of
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<PAGE>
or investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action, possessing such knowledge, or performing
such investigation or compliance with the representations, warranties,
covenants, and agreements contained herein. The waiver by any party of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent or similar breach.
9.6 Controlling Law. This Agreement has been entered into the State of
New York and shall be governed by and construed and enforced in accordance with
the laws of New York.
9.7 Gender. Whenever in this Agreement the context so requires,
references to the masculine shall be deemed to include the feminine and the
neuter, references to the neuter shall be deemed to include the masculine and
the feminine, and references to the plural shall be deemed to include the
singular and the singular to include the plural.
9.8 Further Assurances. Each of the parties shall use all reasonable
efforts to bring about the transactions contemplated by this Agreement as soon
as practicable, including the execution and delivery of all instruments,
assignments, and assurances, and shall take or cause to be taken such reasonable
further or other actions necessary or desirable in order to carry out the intent
and purposes of this Agreement.
9.9 Attorneys' Fees. In the event a lawsuit is brought to enforce or
interpret any part of this Agreement or the rights or obligations of any party
to this Agreement, the prevailing party shall be entitled to recover such
party's costs of suit and reasonable attorney's fees, through all appeals.
9.10 References to Agreement. The words "hereof," "herein,"
"hereunder," and other similar compounds of the word "here" shall mean and refer
to the entire Agreement and not to any particular section, article, provision,
annex, exhibit, schedule, or paragraph unless so required by the context.
9.11 Schedules and Exhibits. Schedules and Exhibits to this Agreement
(and any references to any part or parts of them) shall, in each instance,
include the Schedules or Exhibits (as the case may be) attached hereto as well
as any amendments thereto (in each such case). All such Schedules and Exhibits
shall be deemed an integral part hereof, and are incorporated herein by
reference.
9.12 Arbitration. Any dispute relating to this Agreement or the Note
shall be subject to binding arbitration in New York City, such arbitration to be
conducted by the American Arbitration Association ("AAA") pursuant to the AAA's
rules as in effect at that time All parties agree that the AAA in New York City
(and nowhere else) shall be the proper venue for all such disputes.
9.13 Severability. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant, and/or
provision. In the event that any provision of this Agreement shall finally be
determined to be unlawful, such provision shall be
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<PAGE>
deemed severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
9.14 Rights in Third Parties. Except as otherwise specifically
provided, nothing expressed or implied in this Agreement is intended, or shall
be construed, to confer upon or give any person, form, or corporation, other
than the parties hereto and their assigns, any rights or remedies under or be
reason of this Agreement.
9.15 Expenses. Each party shall pay its own expenses in connection with
the negotiation and consummation of the transactions contemplated by this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Candy Candy Acquisition Corporation
a New York corporation
By: /s/ Michael Michaelson
- --------------------------- ------------------------------------
Witness Michael Michaelson, President
Jonford Corporation
a North Carolina corporation
___________________________ By: /s/ Edward K Crawford
-----------------------------------
Witness Edward K. Crawford, President
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<PAGE>
LIST OF EXHIBITS
EXHIBIT NUMBER. DESCRIPTION
1.1(a) Description of the Eight Stores, and information provided
in ss.3.1(b) (annual rental for each Store for year ended
September 27, 1998
1.1(c) Schedule of equipment furniture and fixtures located at the
Stores
1.1(e) Description of intellectual property being transferred
1.1(g) List of all commitments, contracts, leases (other than those
provided in ss.1.1(a)) and agreements relating to the Business
and the Transferred Assets.
1.4(a) Form of the Note and Security Agreement
1.4(b) Calculation of Proration of Rent Assuming November 25
Effective Date
3.1(c) List of Employees and all pension, health or other employee
benefit plans or fringe benefits
3.1(d) Form of Security Subordination Agreement
3.1(h) List of Required Consents
3.1(I) Violations
3.1(j) List of Creditors
5.2(a) Schedule of Amount of Reduction of Purchase Price if Landlord
for each Store refused to Agreement to Assignment and the
Buyer does not enter a new lease
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<PAGE>
EXHIBIT 1.1(E)
DESCRIPTION OF INTELLECTUAL PROPERTY BEING TRANSFERRED
Included in the Transferred Assets is all right and title held by
Jonford in the Trademarks/Service Marks: "Candy Candy" and "Candico". Jonford
obtained the right to use these names in connection with the Stores at the time
of acquisition of the Stores from Specialty Retail Concepts, Inc. ("Specialty"),
Jonford believes that Specialty had filed for these trademarks with the United
States Patent Office. However Specialty is no longer in business and Jonford
believes that these filings have expired. Jonford has not received any claim
that its use of the "Candy Candy" or "Candico" trademarks violates the rights of
any third party, but given the foregoing history, cannot represent or warrant
that there might not be such a violation. The trademark "Park Avenue Sweets" is
currently being used at the -Hamilton Place, Tennessee Mall and is intended to
be used at the GCS Store. Jonford grants Buyer a non-exclusive perpetual license
to use such mark with respect to the Hamilton Place Store or any replacement
store located within 50 miles thereof, but retains ownership of such mark and
the right to use it for all purposes.
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<PAGE>
1.1(g)
None, other than the agreements for use of cash registers in the Stores
as follows:
[LIST CASH REGISTER AGREEMENTS]
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<PAGE>
3.1(d)
FORM OF SUBORDINATION AGREEMENT
[TO BE PROVIDED]
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<PAGE>
3.1(h)
LIST OF REQUIRED CONSENTS
NONE
- -Other than the Landlord's of the Stores with respect to the Assignment of the
Leases therefor
3.1(I)
VIOLATIONS:
NONE
-20-
<PAGE>
Certificate
Edward K. Crawford, the 75% shareholder of Jonford Corporation
("Jonford"), agrees to be jointly and severably liable for any breach by Jonford
of the representations and warranties of Jonford in Section 3 of Agreement of
Asset Acquisition dated November , 1998 between Candy Candy Acquisition
Corporation and Jonford Corporation.
Dated: November , 1998 ____________________________
Edward K. Crawford
-21-
Exhibit 10.42
MANAGEMENT AND OPTION AGREEMENT
Management and Option Agreement made as of the 24th day of November,
1998, by and among Retail Entertainment Group, Inc., a New Jersey corporation
("REG") with an address at 945 Brighton Street, Union New Jersey 07083, Candy
Candy Acquisition Corporation, a New York corporation ("Candy Corp") with an
address at c/o 945 Brighton Street, Union New Jersey 07083 and Hope Associates
LLC, a New Jersey Limited Liability company ("Hope") with an address at c/o 945
Brighton Street, Union New Jersey 07083.
Whereas, REG owns and operates through a subsidiary a number of retail
candy stores and would like to purchase certain assets of Jonford Inc.
("Jonford") relating to eight retail candy stores (the "Jonford Stores"), but
has not been able to raise the funds to do so and fears that opportunity to do
so will not remain unless such acquisition can be done quickly;
Whereas, Hope is the shareholder of over 60% of the issued and
outstanding shares of REG, and is willing to arrange for the purchase of Jonford
through Candy Corp, a newly formed subsidiary pursuant to an Agreement of
Acquisition dated as of November 24, 1998 between Candy and Jonford (the
"Acquisition Agreement") and grant REG the Option to purchase Candy Corp, all as
provided below; and
Whereas, As a condition of the foregoing, Hope wishes to receive an
option to purchase shares of REG and REG and Hope wish REG to manage to the
Jonford Stores to be acquired by Candy pursuant to the Acquisition Agreement and
the store at Grand Central Stations (the "GCS Store") which Candy has agreed to
manage pursuant to a Management Agreement dated as of November 24, 1998 between
Candy and Jonford (the "GCS Management Agreement")
Now Therefore, in consideration of the foregoing premises, the parties
agree as follows:
ARTICLE 1
JONFORD ACQUISITION
1.1. Hope has formed Candy Corp and Hope agrees to cause Candy Corp.
and Candy Corp agrees to enter into Acquisition Agreement. Pursuant to the
Acquisition Agreement, Candy Corp agrees to make a down payment of $250,000 and
enter into a promissory note (the "Jonford Note"). In order to pay the down
payment for Candy Corp and provide necessary working capital, Hope are lending
Candy Corp $300,000 (the "Hope Loans")
ARTICLE 2
MANAGEMENT OF STORES
2.1 Services. REG will provide the following services with respect of
the Jonford Stores and the GCS Store
Management and Option Agreement -1-
<PAGE>
(a) Management of Jonford Store. REG will be responsible to manage the day
to day operations of the Jonford Stores, merchandise the Jonford
Stores, cause to be hired and manage the staff of the Jonford Stores,
cause the Jonford Stores to open for business as required, make sure
that all bank deposits are deposited into the bank accounts set up by
Candy Corp., daily, provide appropriate records to Candy Corp, and
maintain a clean store, all according to the provisions of Schedule A
hereto, causing bills relating to the operations of the Jonford Stores
to be paid from the "Candy Corp Accounts" provided below; and securing
for the Jonford Stores such insurance as REG shall deem appropriate and
otherwise do such things as to reasonably maximize the profits of the
Jonford Stores.
(b) Reporting to Candy Corp. REG will provide Candy Corp. with regular
management reports regarding sales, cost of goods sold and other
expenses and inventory level. REG will provide Candy Corp. with notice
as to employees hired and fired and salary levels.
(c) Employees Candy Corp. shall approve all salary levels, raises, staffing
levels and hours and monthly payroll budgets that REG will provide to
Candy Corp.. All employees hired to work at the Jonford Stores will be
employees of Candy Corp..
(d) Invoices and Expenses. All invoices and expenses related to the Jonford
Stores will be made in the name of Candy Corp. (or such designee of
Candy Corp. as Candy Corp. may provide in writing) and mailed directly
to Jonford by the supplier. All such invoices shall be invoiced under
the Candy Corp. name and packing slips must be verified, marked with
received dates, and forwarded to Candy Corp.. Candy Corp. shall be
responsible to pay all invoices for suppliers to the Jonford Stores.
(e) Bank Account Candy Corp. will set up one or more depository accounts
(the Candy Corp. Accounts) in its name for the daily cash deposits of
receipts to the Jonford Stores. Candy Corp. agents will be the sole
signatories to this account and REG will have no access to these
accounts. To the extent that individuals who are officers or REG are
also appointed as agents of Candy Corp. for the purposes including the
acting as such signatories, it is agreed and understood that when
authorizing transactions to or from the Candy Corp. Accounts that they
will be acting as agents of and for the benefits of Candy Corp. and not
REG. REG will cause all cash at the GCS Store (less amounts needed to
start operations the next day) to be deposited into Candy Corp.'s
account daily and credit card receipts from the Jonford Store will be
automatically deposited into the Candy Corp. Accounts. All
correspondence, including monthly bank statement will be directly
mailed to Candy Corp., which will promptly cause a copy to be made and
sent to REG of all such statements relating to activity at the GCS
Store during the term of this Agreement.
Management and Option Agreement -2-
<PAGE>
(f) GCS Store. REG shall manage the GCS Store pursuant to the terms and
conditions of the Management Agreement between Candy Corp and Jonford
dated November 24. 1998.
2.2. Management Fee. As compensation to REG for its services under this
Agreement, Candy Corp shall pay REG the following amounts (the "Management
Fee"):
(a) Percentage of Sales Six percent (6%) of "Gross Sales" from the
Jonford Stores as defined below; and
(b) Percentage of Excess Margin fifty percent (50%) of "Excess
Margin" of the Jonford Stores as defined below; and
(c) Percentage of GCS Management Fee. 100% of the Management Fee
payable under the GCS Management Agreement; and
(d) Out-of-Pocket Expense. All out-of-pocket expenses related to
Candy Corp. including legal, accounting and travel.
2.3 Certain Definitions and Calculations As used herein:
(a) "Gross Sales" shall mean all sales at the Jonford Stores less
returns, cash shortages and discounts if any;
(b) "Excess Margin" shall mean the amount by which "Cost of Goods
Sold" for any period on an annualized basis is less than 38%
of Gross Sales.
(c) "Cost of Goods Sold" Shall mean amounts paid for inventory
sold in conformity with Generally Accepted Accounting
Principals on a "First in-First Out" basis;
(d) Calculation of Gross Sales and Excess Margin" Gross Sales
and Excess Margin will be calculated at the end of periods
(which will be three months long except for the period ended
February 28, 1999 which may be longer or shorter) ending the
last day of February, May, August, and November, with respect
to the just ended period, except that for the period ended on
the last day of November, there shall be an adjustment, if
necessary, to ensure that the calculation is accurate for the
preceding 12 month period.
2.3 Payment of Management Fee. The payment of amount due under 2.2(a),
(b) and (c) shall occur and be due with respect to a three month period as soon
after the completion of such period as REG is able to calculate such amounts.
2.4 Distributions from Management Account. Upon the request of Candy
Corp, or without such request, from time to time at REG's discretion, REG shall
distribute to Candy Corp, all amounts in the Management Account as are not
needed as a reserve against reasonably anticipated expenses of the Jonford
Stores.
Management and Option Agreement -3-
<PAGE>
2.5. Audits. Candy Corp shall be entitled to review or audit at its
expense all records reasonably relating to the management of the Jonford Stores
and the GCS Store
ARTICLE 3
OPTION TO REG
REG shall have the right and option (the "Option") from the date hereof
until November 30, 2001 to purchase all the outstanding stock (the "Stock") of
Candy Corp. The exercise price for the Option shall be equal to (i) the
outstanding balance of the Hope Loans and (ii) any additional capital
contributions or loans made by Hope to Candy Corp. The Option may be exercised
by 30 days written notice by REG to Candy Corp. At the closing of the exercise
of the Option Candy Corp shall deliver a certificate for the Stock duly endorsed
for transfer, and REG shall deliver a bank check for the cash portion of the
purchase price and an assumption agreement, reasonably satisfactory in form and
substance to Candy Corp, of the remaining payments of Candy Corp under its Note
to Jonford.
ARTICLE 4
OPTION TO HOPE
In consideration of all of the foregoing, REG hereby grants Hope an
option to purchase 500,000 shares of REG common stock for $1.25 per share. Such
option may be transferred by Hope to its members or other parties and may be
exercisable until November 30, 2002.
SECTION 6.
MISCELLANEOUS.
6.1 Entire Agreement. This Agreement, the Exhibits, and the Schedules,
contain all of the terms and conditions agreed upon by the parties with
reference to the subject matter and supersede any and all previous agreements,
representations, and communications between the parties, whether written or
oral. This Agreement, including its Exhibits and Schedules, may not be modified
or changed except by written instrument signed by all of the parties, or their
respective successors or assigns.
6.2 Assignment. This Agreement shall not be assigned or assignable by
any party, except as provided above without the express written consent of the
other party. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective successors and assigns.
6.3 Captions. All section, schedule, and exhibit headings are inserted
for the convenience of the parties and shall not be used in any way to modify,
limit, construe, or otherwise affect this Agreement.
6.4 Counterparts; Facsimile Signatures. This Agreement may be executed
in several counterparts, each of which shall be deemed to be an original and
which together
Management and Option Agreement -4-
<PAGE>
shall constitute one and the same instrument. Facsimile signatures shall be of
the same legal effect as if signed originally.
6.5 Waiver. Each of the parties may, by written notice to the other,
(i) extend the time for the performance of any of the obligations or other
actions of the other party; (ii) waive any inaccuracies in the representations
or warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement; (iii) waive compliance with any other
covenants of the other party contained in this Agreement; or (v) waive, in whole
or in part, performance of any of the obligations of the other party. No action
taken pursuant to this Agreement, including, but not limited to, the
consummation of the Closing or any knowledge of or investigation by or on behalf
of any party, shall be deemed to constitute a waiver by the party taking such
action, possessing such knowledge, or performing such investigation or
compliance with the representations, warranties, covenants, and agreements
contained herein. The waiver by any party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent or
similar breach.
6.6 Controlling Law. This Agreement has been entered into the State of
New York and shall be governed by and construed and enforced in accordance with
the laws of New Jersey.
6.7 Gender. Whenever in this Agreement the context so requires,
references to the masculine shall be deemed to include the feminine and the
neuter, references to the neuter shall be deemed to include the masculine and
the feminine, and references to the plural shall be deemed to include the
singular and the singular to include the plural.
6.8 Further Assurances. Each of the parties shall use all reasonable
efforts to bring about the transactions contemplated by this Agreement as soon
as practicable, including the execution and delivery of all instruments,
assignments, and assurances, and shall take or cause to be taken such reasonable
further or other actions necessary or desirable in order to carry out the intent
and purposes of this Agreement.
6.9 Attorneys' Fees. In the event a lawsuit is brought to enforce or
interpret any part of this Agreement or the rights or obligations of any party
to this Agreement, the prevailing party shall be entitled to recover such
party's costs of suit and reasonable attorney's fees, through all appeals.
6.10 References to Agreement. The words "hereof," "herein,"
"hereunder," and other similar compounds of the word "here" shall mean and refer
to the entire Agreement and not to any particular section, article, provision,
annex, exhibit, schedule, or paragraph unless so required by the context.
6.11 Notices. Any notice, request, demand, or communication required or
permitted to be given to any provision of this Agreement shall be deemed to have
been delivered, given, and received for all purposes if written and (i) if
delivered personally, by facsimile, or by courier or delivery service, at the
time of such delivery or (ii) if
Management and Option Agreement -5-
<PAGE>
directed by registered or certified United States mail, postage and charges
prepaid, addressed to the intended recipient, at the address specified below,
two business days after such delivery to the United States Postal Service.
If to REG: to the address provided above with a copy t
: Paul A Share, Esq.
317 Madison Ave.-Suite 1421
New York, NY 10017
If to Hope or Candy Corp to the address provided above with a copy to:
Michael Michaelson
----------------
________New Jersey
Any party may change the address to which notices are to be mailed by giving
notice as provided herein to all other parties.
6.12 Venue. Any litigation arising hereunder shall be instituted only
in New York County New York, the place where this Agreement was executed. All
parties agree that venue shall be proper in that county for all such legal or
equitable proceedings.
6.13 Severability. Each section, subsection and lesser section of this
Agreement constitutes a separate and distinct undertaking, covenant, and/or
provision. In the event that any provision of this Agreement shall finally be
determined to be unlawful, such provision shall be deemed severed from this
Agreement, but every other provision of this Agreement shall remain in full
force and effect.
6.14 Rights in Third Parties. Except as otherwise specifically
provided, nothing expressed or implied in this Agreement is intended, or shall
be construed, to confer upon or give any person, form, or corporation, other
than the parties and their respective stockholders or shareholders, any rights
or remedies under or be reason of this Agreement.
6.15 Expenses. Each party shall pay its own expenses in connection with
the negotiation and consummation of the transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Candy Candy Acquisition Corporation
___________________________ By: __________________________
Witness Michael Michaelson, President
Retail Entertainment Group, Inc.
-6-
<PAGE>
___________________________ By: /s/ Jack Fitzgerald .
-----------------------------------
Witness Jack Fitzgerald, President
Hope Associates, LLC
___________________________ By: /s/ Michael Michaelson .
------------------------------
Witness Michael Michaelson
Management and Option Agreement -7-
Exhibit 10.43
SALES AGREEMENT
Sales Agreement made effective June 27, 1998, by and between Starlog
Franchise Corporation (the "Company") and Kevin VanderKelen ("VanderKelen").
INTRODUCTION. In June 1997, the Company purchased certain assets and
liabilities of Goal Post Distributing from Kevin VanderKelen ("VanderKelen") in
exchange for 4,300,000 shares of the Company's common stock. Subsequently the
Company effected a 1 for 10 reverse stock split resulting the 4,300,000 shares
being 430,000 shares. Goal Post has not performed to the Company's expectations
and VanderKelen is dissatisfied with certain aspects of the Company's ownership
of Goal Post, the result of which is that the Company and Goal Post wish to
reverse the acquisition as of June 27, 1998, pursuant to the following terms and
conditions.
1. TRANSFER OF ASSETS. The Company effective June 27, 1998 transfers
all of its assets, real, personal and mixed, employed in the operation of the
Company's Goal Post Distributing division in Florida ("Goal Post"), including,
without limitation the following items (collectively, the "Assets""): (i) all
equipment, vehicles, furniture and furnishings, including without limitation,
those taken into consideration in any depreciation schedule of the Company; (ii)
any and all recorded or unrecorded leasehold interests to the real property
locations(s) used in connection with the business together with all improvements
and fixtures located thereon or therein; (iii) all usable supplies, forms,
brochures, inventory; (iv) any intangible assets, goodwill and intellectual
property, including any service and/or trademarks or names and logos (including
specifically the name "Goal Post Distributing, Inc."); (v) copies of all
employment applications and other personnel records of key employees as selected
by VanderKelen; (viii) rights to telephone and fax numbers used by the Company
with respect to Goal Post; (ix) all computers, other data processing equipment
and related software; (x) all prepaid expenses, miscellaneous deposits of the
Company related to Goal Post. (xi) commitments, contracts, leases, obligations
and agreements (collectively the Agreements") and all accounts receivable of
Goal Post
2. ASSUMPTION. VanderKelen agrees to assume the Assets and Agreements
of Goal Post arising prior or subsequent to the date hereof, and shall indemnity
and hold the Company harmless from and against any and all costs, expense,
liability, damages whatsoever arising out of or relating to the failure of
VanderKelen to perform all of the obligations of Goal Post arising prior to or
subsequent to the date hereof.
3. PROMISSORY NOTE. The Company will deliver to VanderKelen a
promissory note to pay VanderKelen $50,000 in 24 installments of $2,083.33,
commencing March 1, 1999.
4. TRANSFER BACK OF SHARES. VanderKelen, in consideration, transfers
to the Company 330,000 of the 430,000 shares (after taking into effect the
reverse stock split) which were originally issued to VanderKelen in connection
with the Company's purchase of Goal Post.
5. EMPLOYMENT AGREEMENT. Both the Company and VanderKelen agree to
terminate the Employment Contract entered into on June 29, 1997 by and between
the Company and VanderKelen, effective as of the date of this agreement.
1
<PAGE>
6. MISCELLANEOUS. This Agreement will be governed pursuant to the laws
of the State of New Jersey.
IN WITNESS WHEREOF, the parties have caused this agreement to be signed
effective as of the date hereof.
Starlog Franchise Corporation Kevin M. VanderKelen
BY: /s/ Jack Fitzgerald /s/ Kevin M. Vanderkelen
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Exhibit 10.44
ASSUMPTION AGREEMENT
Assumption Agreement, made as of the 1st day of April, 1998, by and
between Starlog Franchise Corporation (the "Company") and Hope Associates LLC
("Hope").
Introduction. Hope Associates is the largest shareholder of The
Company, owning over 75% of its issued and outstanding shares. The Company has a
$2,000,000 loan outstanding (the "Loan") with the BSB Bank & Trust Company in
Binghamton, New York (the "Bank"). Hope and its members are personal guarantors
of the Loan. The Company needs to raise additional capital to remain in
business. Unless it does so, it will not be able to repay the Loan and the Bank
will seek recovery from Hope and its members. The Company will not be able to
raise any additional capital while the Loan is on The Company's balance sheet,
causing The Company to have a large negative net asset value. Therefor, Hope and
its members have agree to assume the Loan and relieve The Company from the debt
of the Loan, under the following terms and conditions.
1. Assumption/Relief of The Company. Hope will assume and/or cause its
member to assume the debt under the Loan, and will cause The Company
to be relieved of such debt.
2. Consideration. In consideration for which, The Company will: (a) issue
Hope and/or its members, in such proportion as Hope shall instruct the
Company, warrants to purchase a total of 500,000 shares of the
Company's common stock (after taking into account the proposed 1 for
10 reverse stock split) at $1.25 per share, such warrants to expire on
November 30, 2002; and (b) the Company will pay Hope and/or its
members, an investment fee, while the Loan remains outstanding, equal
to $17,600 a per month.
In Witness Whereof, the parties have caused this agreement to be
executed effective the date first set forth above.
Starlog Franchise Group, Inc. Hope Associates, LLC
BY: /s/ Jack Fitzgerald BY: /s/Michael Michaelson
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Exhibit 22.1
Subsidiaries of Registrant:
Candico Entertainment Inc.
