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 twenty-six weeks ended July 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 of (I.R.S. Employer Identification No.)
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 [X] No [ ]
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 August 15, 2000
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
INDEX
PAGE
Part I. Financial Information
Item I. Financial Statements
Consolidated Balance Sheets- July 30, 2000 (Unaudited) and
January 31, 1999 (Audited) 3
Consolidated Statements of Operations (Unaudited) for the
Thirteen Weeks Ended May 1, 2000 and
July 30, 2000 4
Consolidated Statements of Operations (Unaudited) for the
Twenty-six Weeks Ended January 31, 2000 and
July 30, 2000 5
Consolidated Statements of Cash Flows (Unaudited) for the
Twenty-six Weeks Ended January 31, 2000 and
July 30, 2000 6
Consolidated Statements of Stockholders' Equity (Unaudited) 7
Notes to Consolidated Financial Statements - July 30, 2000 8
Item 2. Management's Discussion and Analysis or Plan of Operation 12
Part II. Other Information
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
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RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 30, January 30,
2000 2000
----------- -----------
ASSETS (Unaudited) (Audited)
------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ (6,332) $ 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 -- 101,499
Prepaid expenses and other current assets -- 12,871
----------- -----------
Total Current Assets (6,332) 165,317
Property and Equipment, net 20,225 80,393
Reorganization Value in Excess of Amounts Allocated to Identifiable Assets -- --
Other Assets 768 2,534
----------- -----------
$ 14,661 $ 248,244
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities:
Accounts payable and accrued liabilities $ 529,456 $ 1,289,113
Other liabilities, including reserves 2,097 (36,773)
Loans due to stockholders and affiliates 1,111,699 714,404
Current maturities of long-term debt 257,824 320,641
----------- -----------
Total Current Liabilities 1,901,076 2,287,385
Long-Term Liabilities:
Long-term debt -- 785,698
Liabilities subject to compromise -- --
----------- -----------
Total Liabilities 1,901,076 3,073,083
----------- -----------
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 (5,159,515) (6,097,939)
----------- -----------
Net Stockholders' Equity (1,886,415) (2,824,839)
----------- -----------
$ 14,661 $ 248,244
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Twenty-six Twenty-six
Weeks Ended Weeks Ended
July 30, August 1,
2000 1999
----------- -----------
Operating Revenues:
Retail sales $ -- $ --
Total Revenue -- --
Costs and Expenses:
Cost of sales -- --
Depreciation and amortization 1,374 24,329
Selling, general and administrative 478,188 428,705
----------- -----------
Total Costs and Expenses 479,562 453,034
----------- -----------
Profit (Loss) from Operations (479,562) (453,034)
Other Income (Expense):
Other Income 452,737 58,827
Interest Expense (199,026) (26,537)
Loss on sale or abandonment 140,101 --
----------- -----------
Total Other Income (Expense) 393,812 32,290
----------- -----------
Net Profit (Loss) before discontinued operations $ (85,750) $ (420,744)
=========== ===========
Discontinued operations:
Loss from discontinued operations $ 1,024,176 $ 20,115
----------- -----------
Net Gain(Loss) $ 938,426 $ (400,629)
=========== ===========
Net income (loss) per common share 0.353 (0.163)
=========== ===========
Weighted average number of common shares
outstanding 2,658,764 2,457,264
=========== ===========
See accompanying notes to consolidated financial statements.
4
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS of OPERATIONS
(Unaudited)
Thirteen Thirteen
Weeks Ended Weeks Ended
July 30, August 1,
2000 1999
----------- -----------
Operating Revenues:
Retail sales $ -- $ --
Total Revenue -- --
Costs and Expenses:
Cost of sales -- --
Depreciation and amortization 343 12,164
Selling, general and administrative 245,853 197,083
----------- -----------
Total Costs and Expenses 246,196 209,247
----------- -----------
Profit (Loss) from Operations (246,196) (209,247)
Other Income (Expense):
Other Income 452,737 25,932
Interest Expense (179,439) (9,000)
Loss on sale or abandonment 140,101 --
----------- -----------
Total Other Income (Expense) 413,399 16,932
----------- -----------
Net Profit (Loss) before discontinued operations $ 167,203 $ (192,315)
=========== ===========
Discontinued operations:
Gain/(Loss) from discontinued
operations $ 1,024,176 $ (9,791)
----------- -----------
Net Gain(Loss) $ 1,191,379 $ (202,106)
=========== ===========
Net income (loss) per common share 0.448 (0.083)
=========== ===========
Weighted average number of common shares
outstanding 2,658,764 2,429,870
=========== ===========
See accompanying notes to consolidated financial statements.
5
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
July 30, August 1,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Profit (Loss) $ 938,426 $ (400,629)
Adjustments to reconcile net loss to net cash used in operations
Depreciation and amortization 1,374 61,577
Write-off of organization costs -- --
Loss on sale or abandonment of assets -- --
Gains from extinguishment of debt -- --
Gain on Disposal of Discontinued Operations (1,024,176)
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 101,499 (41,876)
(Increase) in prepaid expenses and other current assets 12,871 5,133
(Decrease) increase in accounts payable and accrued liabilities (521,672) 245,013
(Decrease) in reserves and other liabilities 38,870 (32,961)
Increase (decrease) in trade and other miscellaneous claims --
(Increase) in other working capital (1,766) 77,481
----------- -----------
Net cash used in operating activities (449,114) (86,262)
----------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment -- 12,141
Acquisition deposit -- --
----------- -----------
Net cash used in investing activities -- 12,141
----------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of stock in private placement -- 68,750
Proceeds from loans from stockholders 397,295 --
Issuance of new unsecured notes, net of discount -- --
Payments on loans from stockholders/debtors -- (9,243)
Conversion of convertible debt into stock -- --
----------- -----------
Net cash from financing activities 397,295 59,507
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Increase in cash and cash equivalents (51,819) (14,614)
Cash at beginning of period 45,487 42,469
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Cash at end of period $ (6,332) $ 27,855
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Consolidated Statements of Stockholders' Deficit
<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 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 $ 2,962,552 $(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 938,426 938,426
----------- -----------
Balance at July 30, 2000 2,658,764 $ 26,588 $ 3,246,512 $(5,159,514) $(1,886,414)
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
July 30, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPAL BUSINESS ACTIVITY
The principal business activity of Retail Entertainment Group, Inc.
(Company) was the retail distribution of bulk candy. The Company in
2000 has closed all 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. 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.
As of the twenty-six weeks ended July 30, 2000 the Company has closed
all stores operating as Candico Entertainment, Inc. and as such Candico
Entertainment, Inc. has become a none operating entity. The gain from
discontinued operations in the accompanying consolidated statement of
operations reflects the write-off of Candico Entertainment, Inc.
(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.
8
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
(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.
(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.
9
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
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.
(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.
(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.
10
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
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.
11
<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
TWENTY-SIX WEEKS ENDED JULY 30, 2000 ("2000") COMPARED TO THE
TWENTY-SIX WEEKS ENDED AUGUST 1, 1999 ("1999").
The Company began the process in the 1st quarter to close all of the candy
retail stores, all stores were closed by the end of the 2nd quarter. 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 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.
Liquidity and Capital Resources
The Company's working capital deficit was $1,886,415 at July 30, 2000 compared
to a working capital deficit of $2,122,068 at January 30, 2000. The 2000 deficit
was due to loans due to stockholders and affiliates of approximately $1,111,699,
and other liabilities ($529,456). 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
$449,114.
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
12
<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: September 12, 2000
By: /s/ JOHN FITZGERALD
---------------------------
John (Jack) Fitzgerald
President
13
