Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
Quarterly or Transition Report
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the thirteen weeks ended April 30, 2000
[ ] TRANSITIONAL REPORT PURSUANT TO SECTION 13 or 15(d) of THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _______
Commission file number 0-22638
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Retail Entertainment Group, Inc.
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(Exact name of small business issuer as specified in its charter)
New Jersey 22-3219281
--------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
22 Meridian Road, Eatontown, NJ 07724
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(Address of principal executive offices including zip code)
(732) 380-0991
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(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X}
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuers classes of common
stock as of the latest practicable date. Common Stock, $.01 par value- 2,658,764
shares outstanding as of June 24, 2000
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Index
Page
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Part I. Financial Information
Item I. Financial Statements
Consolidated Balance Sheets- April 30, 2000 (Unaudited) and
January 31, 1999 (Audited) 3
Consolidated Statements of Operations (Unaudited) for the
Thirteen Weeks Ended April 30, 2000 and
May 2, 1999 4
Consolidated Statements of Cash Flows (Unaudited) for the
Thirteen Weeks Ended April 30, 2000 and
May 2, 1999 5
Consolidated Statements of Stockholders' Equity (Unaudited) 6
Notes to Consolidated Financial Statements - April 30, 2000 7
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Part II. Other Information 11
Item 1. Legal Proceedings 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
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<TABLE>
<CAPTION>
RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
April 30, January 30,
2000 2000
---- ----
ASSETS (Unaudited) (Audited)
----------- -----------
Current Assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 40,161 $ 45,487
Marketable securities - -
Accounts receivable, net of allowance for doubtful accounts
of $ 0 and $0 respectively - 5,460
Inventories, net of reserves of $0 and $0 respectively 5,203 101,499
Prepaid expenses and other current assets - 12,871
----------- -----------
Total Current Assets 45,364 165,317
Property and Equipment, net 73,311 80,393
Reorganization Value in Excess of Amounts Allocated to Identifiable Assets - -
Other Assets 2,534 2,534
----------- -----------
$ 121,209 $ 248,244
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,121,945 $ 1,289,113
Other liabilities, including reserves 38,926 (36,773)
Loans due to stockholders and affiliates 952,979 714,404
Current maturities of long-term debt 434,488 320,641
----------- -----------
Total Current Liabilities 2,548,338 2,287,385
Long-Term Liabilities:
Long-term debt 650,663 785,698
Liabilities subject to compromise - -
----------- -----------
Total Liabilities 3,199,001 3,073,083
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Stockholders' Equity (Deficit):
Common stock, $.01 par value; authorized 6,000,000 shares,
issued and outstanding 2,423,764 shares 26,588 26,588
Additional paid-in capital 3,246,512 3,246,512
Accumulated deficit (6,350,892) (6,097,939)
----------- -----------
Net Stockholders' Equity (3,077,792) (2,824,839)
----------- -----------
$ 121,209 $ 248,244
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS of OPERATIONS
(Unaudited)
Thirteen Weeks Thirteen Weeks
Ended Ended
April 30, May 2,
2000 1999
-------------- --------------
<S> <C> <C>
Operating Revenues:
Retail sales $ - $ -
Total Revenue - -
Costs and Expenses:
Cost of sales - -
Depreciation and amortization 1,030 24,328
Selling, general and administrative 232,336 219,459
----------- -----------
Total Costs and Expenses 233,366 243,787
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Profit (Loss) from Operations (233,366) (243,787)
Other Income (Expense):
Other Income - 32,117
Interest Expense (19,587) -
Loss on sale or abandonment - -
----------- -----------
Total Other Income (Expense) (19,587) 32,117
----------- -----------
Net Profit (Loss) before discontinued operations $ (252,953) $ (211,670)
=========== ===========
Discontinued operations:
Loss from discontinued operations $ - $ 13,146
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Net Gain(Loss) $ (252,953) $ (198,524)
=========== ===========
Net income (loss) per common share (0.095) (0.082)
=========== ===========
Weighted average number of common shares outstanding 2,658,764 2,429,870
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
Thirteen Weeks Thirteen Weeks
Ended Ended
April 30, May 2,
2000 1999
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Profit (Loss) $ (252,953) $ (198,524)
Adjustments to reconcile net loss to net cash used in operations
Depreciation and amortization 7,082 42,953
Write-off of organization costs - -
Loss on sale or abandonment of assets - -
Gains from extinguishment of debt - -
Loss on sale of Goal Post Distributors, Inc.
Changes in operating assets and liabilities:
(Increase) in accounts receivable 5,460 -
Increase in marketable securities - -
Decrease (increase) in inventories 96,296 (48,612)
(Increase) in prepaid expenses and other current assets 12,871 2,031
(Decrease) increase in accounts payable and accrued liabilities (167,168) 21,590
(Decrease) in reserves and other liabilities 75,699 (21,995)
Increase (decrease) in trade and other miscellaneous claims
(Increase) in other working capital (21,188) 257,074
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Net cash used in operating activities (243,901) 54,517
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Cash Flows From Investing Activities:
Purchases of property and equipment - (23,333)
Acquisition deposit - -
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Net cash used in investing activities - (23,333)
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Cash Flows From Financing Activities:
Proceeds from issuance of stock in private placement - -
Proceeds from loans from stockholders 238,575 -
Issuance of new unsecured notes, net of discount - -
Payments on loans from stockholders/debtors - (21,002)
Conversion of convertible debt into stock - -
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Net cash from financing activities 238,575 (21,002)
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Increase in cash and cash equivalents (5,326) 10,182
Cash at beginning of period 45,487 42,469
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Cash at end of period $ 40,161 $ 52,651
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</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
RETAIL ENTERTAINMENT GROUP, INC.
Consolidated Statements of Stockholders' Deficit
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 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)
Issuance of common stock 336,000 3,360 416,640 - 420,000
Net income - - - 230,095 230,095
----------- -----------
Balances at January 31, 1999 2,429,764 $ 24,298 $ ,962,552 $(4,669,374) $(1,682,524)
=========== =========== =========== =========== ===========
Issuance of common stock 229,000 2,290 283,960 - 286,250
Net income (1,428,566) (1,428,566)
----------- -----------
Balance at January 30, 2000 2,658,764 $ 26,588 $ 3,246,512 $(6,097,940) $(2,824,840)
=========== =========== =========== =========== ===========
Issuance of common stock - - - - -
Net income - - - (252,953) (252,953)
----------- -----------
Balance at January 30, 2000 2,658,764 $ 26,588 $ 3,246,512 $(6,350,893) $(3,077,793)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
April 30, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPAL BUSINESS ACTIVITY
The principal business activity of Retail Entertainment Group, Inc.
(Company) is the retail distribution of bulk candy. The Company in
1999 has operated stores under the name of "Candy Candy" and
"Candico"; all stores have or are in the process of closing.
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 subsidiary, Candico
Entertainment, Inc. (Candico). All significant intercompany
transactions and balances have been eliminated in consolidation.
These statements have been prepared by the Company and are unaudited.
Additionally, certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. It is
suggested that these consolidated financial statements are read in
connection with the financial statements and notes thereto included
in the Company's Annual report on Form 10-KSB for the fiscal year
ended January 30, 2000. There have been no changes of significant
accounting policies since January 30, 2000.
(c) DISCONTINUED OPERATIONS REPORTING
CANDICO ENTERTAINMENT, INC.
For the thirteen weeks ended April 30, 2000 and May 2, 1999, the
Company recorded a net loss of $0 and a gain of $13,146,
respectively, as part of discontinued operations in the accompanying
consolidated statement of operations. For financial reporting
purposes, the assets, liabilities, results of operations and cash
flows of Candico Entertainment are included in the Company's
consolidated financial statements. A summary of these assets and
liabilities as of April 30, 2000 and May 2, 1999 are as follows:
<TABLE>
<CAPTION>
April 30, 2000 May 2, 1999
-------------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 38,359 $ 48,388
Accounts receivable, net 5,400
Inventory 5,203 244,010
Other current assets 1,766 19,115
Property, plant and equipment 53,735 629,868
------------ -----------
Total assets - discontinued operations $ 99,063 $ 946,781
============ ===========
Liabilities:
Accounts payable and accrued liabilities $ 762,555 $ 488,496
Other current liabilities (21,631) 77,592
Long-term liabilities 282,313 357,027
------------ -----------
Total liabilities - discontinued operations 1,023,237 923,115
------------ -----------
Net assets (liabilities) of discontinued
operations $ (924,174) $ 23,666
============ ===========
</TABLE>
The liabilities of discontinued operations will be renegotiated and are
expected to be paid in fiscal period ended January 28, 2001. The
repayments will come from cash from continuing operations or other
financing sources.
7
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
(d) 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).
(e) 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.
(f) REVENUE RECOGNITION
The Company recognizes revenue when goods or services are provided.
(g) 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.
(h) SEASONALITY
The Company's sales are seasonal in nature based, in part, on gift
buying during holiday periods such as Halloween, Christmas, Easter
and Valentine's Day.
(i) RECLASSIFICATIONS
Certain amounts in the 1999 consolidated financial statements have
been reclassified to conform with the 2000 presentation. Such
reclassifications had no effect on reported total net loss.
(j) 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.
(k) 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 are similar to the previously reported
fully diluted earnings per share. The Company had options and
warrants at January 30, 2000, resulting in diluted earnings per
share. Certain of the Company's options and warrants were not
included in computing dilutive net income (loss) per common share
because their effects were anti-dilutive.
8
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
(l) 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.
(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.
(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.
(3) 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. All
managed stores have been closed.
(4) 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.
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.
9
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
(5) 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. 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.
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. The members of Hope Associates had
personally guaranteed the amounts due 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.
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.
None of the Company's outstanding options or warrants has been
exercised.
(6) 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
increase 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.
(7) SUBSEQUENT EVENTS
In February 1999, the Company granted an additional option to
purchase 50,000 shares of the Company's common stock at $1.25 per
share, expiring on February 9, 2004. Of these options granted, 10,000
would be currently vested and the remaining 40,000 will vest at
10,000 per year in subsequent years.
In July 1999, the Company issued approximately 87,000 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
$108,000 will be used to provide for working capital and repay
certain debts to affiliates.
In November 1999, the Company converted $100,000 of shareholder debt
to 80,000 shares of common stock at $1.25 per share. In addition the
Company issued approximately 62,000 shares of common stock at $1.25
per share pursuant to private placements under Regulation D of U.S.
Securities laws, primarily to Company Directors. The proceeds of
approximately $77,500 were used to provide for working capital.
10
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with the
enclosed consolidated financial statements and notes thereto appearing elsewhere
in this report.
Results of Operations
THIRTEEN WEEKS ENDED APRIL 30, 2000 ("2000") COMPARED TO THE THIRTEEN WEEKS
ENDED MAY 2, 1999 ("1999").
The Company began the process in the 1st quarter to close all of the candy
retail stores. The Company has evaluated its' Business Plan and will focus on
raising capital to acquire a retail operation. The Company has determined that
the new concept, which it feels, will return the Company to profitability does
not work with the current store size and format. As a result the Company has
decided to close all of it's current stores both owned and managed and
concentrate on raising the capital needed to acquire an existing retailer with
stores that will meet the new company format. If a retailer is not available the
Company plans on pursuing other retail locations, which it feels, will meet the
store size for the new concept. Adequate reserves were established at year-end
January 30, 2000 to account for the expenses from discontinued operations for
2000.
Selling, general and administrative expenses for 2000 were $233,366 versus
$243,787 for 1999. The deduction in operating expenses was primarily due to
reducing staff to concentrate on raising capital and pursuing the acquisition of
a bulk candy retailer.
Liquidity and Capital Resources
The Company's working capital deficit was $2,502,974 at April 30, 2000 compared
to a working capital deficit of $2,122,068 at May 2, 1999. The 2000 deficit was
due to loans due to stockholders and affiliates of approximately $952,979, and
current maturities of long term debt ($434,488). The current ratio was .02 to 1
in 2000 compared to .07 to 1 in 1999. The Company is seeking to raise additional
capital through private placements, without such capital the Company does not
have sufficient capital to continue to operate the business.
During the 2000 period, the Company had net cash used in operating activities of
$243,901 primarily as a result of a net loss of $252,953 and approximately
$169,168 as a direct result of decreased vendor support, increase in reserves.
The continuation of the business as a going concern will be contingent upon
obtaining additional working capital and permanent capital as required and the
ability to generate sufficient cash from operations and financing sources to
meet obligations as they come due.
Part II Other Information
Item 1. Legal Proceedings
There have been no significant changes in the legal matters reported in the
Company's Annual Report on form 10-KSB dated January 30, 2000.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
No exhibits
None
11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
RETAIL ENTERTAINMENT GROUP, INC.
Dated: June 27, 2000
By: /s/ JOHN FITZGERALD
----------------------------------
John (Jack) Fitzgerald
President
12
