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 thirty-nine weeks ended October 29, 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
RETAIL ENTERTAINMENT GROUP, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 22-3219281
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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- 3,103,694
shares outstanding as of December 15, 2000
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
INDEX
PAGE
Part I. Financial Information
Item I. Financial Statements
Consolidated Balance Sheets- October 29, 2000
(Unaudited) and January 31, 1999 (Audited) 3
Consolidated Statements of Operations (Unaudited)
for the Thirteen Weeks Ended July 31, 2000
and October 29, 2000 4
Consolidated Statements of Operations (Unaudited)
for the 5 Thirty-nine Weeks Ended January 31,
2000 and October 29, 2000 5
Consolidated Statements of Cash Flows (Unaudited)
for the Thirty-nine Weeks Ended January 31,
2000 and October 29, 2000 6 6
Consolidated Statements of Stockholders' Equity
(Unaudited) 7
Notes to Consolidated Financial Statements -
October 29, 2000 8
Item 2. Management's Discussion and Analysis or Plan of
Operation 11
Part II. Other Information
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
October 29, 2000 January 30, 2000
---------------- ----------------
ASSETS (Unaudited) (Audited)
----------------------------------------------------------------------- ------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 34,609 $ 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 34,609 165,317
------------------------------------
Property and Equipment, net 20,225 80,393
Reorganization Value in Excess of Amounts Allocated to Identifiable Assets -- --
Other Assets 768 2,534
------------------------------------
$ 55,602 $ 248,244
====================================
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 578,406 $ 1,289,113
Other liabilities, including reserves 2,097 (36,773)
Loans due to stockholders and affilities 1,129,695 714,404
Current maturities of long-term debt 257,824 320,641
------------------------------------
Total Current Liabilities 1,968,022 2,287,385
Long-Term Liabilities:
Long-term debt -- 785,698
Liabilities subject to compromise -- --
------------------------------------
Total Liabilities 1,968,022 3,073,083
------------------------------------
Stockholders' Equity (Deficit):
Common stock, $.01 par value; authorized 6,000,000 shares, issued
and outstanding 2,423,764 shares 31,037 26,588
Additional paid-in capital 3,339,947 3,246,512
Accumulated deficit (5,283,404) (6,097,939)
------------------------------------
Net Stockholders' Equity (1,912,420) (2,824,839)
------------------------------------
$ 55,602 $ 248,244
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirty-nine Weeks Thirty-nine Weeks
Ended Ended
October 29, 2000 October 31, 1999
----------------- -----------------
<S> <C> <C>
Operating Revenues:
Retail sales $ -- $ 1,774,430
Total Revenue -- 1,774,430
Costs and Expenses:
Cost of sales -- 578,636
Depreciation and amortization 1,374 80,202
Selling, general and administrative 602,092 1,721,064
--------------------------------------
Total Costs and Expenses 603,466 2,379,902
--------------------------------------
Profit (Loss) from Operations (603,466) (605,472)
Other Income (Expense):
Other Income 452,752 79,226
Interest Expense (199,026) (44,957)
Loss on sale or abandonment 140,101 --
--------------------------------------
Total Other Income (Expense) 393,827 34,269
--------------------------------------
Net Profit (Loss) before discontinued operations $ (209,639) $ (571,203)
======================================
Discontinued operations:
Loss from discontinued operations $ 1,024,176 $ 20,115
--------------------------------------
Net Gain (Loss) $ 814,537 $ (551,088)
======================================
Net income (loss) per common share 0.295 (0.223)
======================================
Weighted average number of common shares outstanding 2,757,517 2,467,931
======================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS of OPERATIONS
(Unaudited)
Thirty-nine Weeks Thirty-nine Weeks
Ended Ended
October 29, 2000 October 31, 1999
----------------- -----------------
<S> <C> <C>
Operating Revenues:
Retail sales $ -- $ 488,264
Total Revenue -- 488,264
Costs and Expenses:
Cost of sales -- 158,364
Depreciation and amortization -- 18,624
Selling, general and administrative 123,904 483,829
--------------------------------------
Total Costs and Expenses 123,904 660,817
--------------------------------------
Profit (Loss) from Operations (123,904) (172,553)
Other Income (Expense):
Other Income 15 20,399
Interest Expense -- (18,420)
Loss on sale or abandonment -- --
--------------------------------------
Total Other Income (Expense) 15 1,979
--------------------------------------
Net Profit (Loss) before discontinued operations $ (123,889) $ (170,574)
======================================
Discontinued operations:
Gain/(Loss) from discontinued operations $ -- $ --
--------------------------------------
Net Gain (Loss) $ (123,889) $ (170,574)
======================================
Net income (loss) per common share (0.042) (0.070)
======================================
Weighted average number of common shares outstanding 2,955,024 2,429,870
======================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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<TABLE>
<CAPTION>
RETAIL ENTERTAINMENT GROUP, INC.
CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
Thirty-nine Weeks Thirty-nine Weeks
Ended Ended
October 29, 2000 October 31, 1999
----------------- -----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Profit (Loss) $ 814,537 $ (571,203)
Adjustments to reconcile net loss to net cash used in operations
Depreciation and amortization 1,374 80,202
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 (8,780)
(Increase) in prepaid expenses and other current assets 12,871 6,434
(Decrease) increase in accounts payable and accrued liabilities (469,605) 395,316
(Decrease) in reserves and other liabilities (23,947) (64,103)
Increase (decrease) in trade and other miscellaneous claims --
(Increase) in other working capital 61,934 (69,157)
--------------------------------------
Net cash used in operating activities (520,053) (231,291)
--------------------------------------
Cash Flows From Investing Activities:
Purchases of property and equipment -- (21,361)
Acquisition deposit -- --
--------------------------------------
Net cash used in investing activities -- (21,361)
--------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of stock in private placement 93,884 108,750
Proceeds from loans from stockholders 415,291 156,316
Issuance of new unsecured notes, net of discount -- --
Payments on loans from stockholders/debtors -- --
Conversion of convertible debt into stock -- --
--------------------------------------
Net cash from financing activities 509,175 265,066
--------------------------------------
Increase in cash and cash equivalents (10,878) 12,414
Cash at beginning of period 45,487 60,132
--------------------------------------
Cash at end of period $ 34,609 $ 72,546
--------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<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 $ 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 444,930 4,449 93,435 -- 97,884
Net income 814,535 814,535
------------- -------------
SBalance at October 29, 2000 3,103,694 $ 31,037 $ 3,339,947 $ (5,283,405) $ (1,912,421)
=================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial
Statements October 29, 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 thirty-nine weeks ended October 29, 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.
(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.
9
<PAGE>
RETAIL ENTERTAINMENT GROUP, INC.
Notes to Consolidated Financial Statements
(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.
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 that raise substantial doubt about its
ability to continue as a going concern. 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
NONE
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
THIRTY-NINE WEEKS ENDED OCTOBER 29, 2000 ("2000") COMPARED TO THE THIRTY-NINE
WEEKS ENDED OCTOBER 31, 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 $1,933,413 at October 29, 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 $1,129,695, and other liabilities ($838,327). 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
$520,053.
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: December 18, 2000
By: /s/ JOHN FITZGERALD
----------------------
John (Jack) Fitzgerald
President
12
