U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB/A
AMENDMENT NO. 1 to FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended May 31, 1996
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from __________ to __________
Commission File Number 0-23138
AMERICAN CINEMASTORES INC.
(Name of small business issuer in its charter)
Delaware 95-4374952
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1543 Seventh Street,
Santa Monica, California 90401
(Address of Principal Executive Offices) (Zip Code)
(310) 394-6444
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value, and Redeemable Common Stock Purchase Warrants
(Title of Class)
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__
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. [ ]
The issuer's revenues from continuing operations for its fiscal year ended
May 31, 1996 were $683,888.
The aggregate market value of the Common Stock held by non-affiliates of
the issuer (based upon the closing bid price) on July 31, 1996 was approximately
$7,277,828.
As of July 31, 1996, 6,892,638 shares of Common Stock, par value $.001 per
share, were outstanding.
Transitional Small Business Disclosure Format
Yes _____ No X
DOCUMENTS INCORPORATED BY REFERENCE: None
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Part I
Item 1. Description of Business.
General
From May 1993, when Americana Cinema Stores Inc. (the "Company") commenced
operations, through May 31, 1996, the Company was engaged in the operation of
retail mini-stores offering movie-related merchandise, such as apparel,
posters, toys, compact discs and cassette tapes of movie sound tracks, and other
items. Initially, the Company's mini-stores were located in the lobbies of movie
theaters located in California, Florida, New Jersey, and New York. Beginning in
July 1994, the Company also opened temporary mini-stores in regional shopping
malls offering merchandise similar to that offered by the theater lobby
mini-stores. Because mini-store operations did not generate the revenues and
profits necessary to successfully operate the Company, in the period May 1995
through May 1996, the Company discontinued all retail operations.
During negotiations with the operators of various regional shopping malls,
the Company identified a market for fixtures for shopping malls and retail
stores (e.g., temporary retail stores, carts, kiosks, mall directory units and
other items). After investigation and analysis of this business opportunity, the
Company organized Sierra Fixture and Design, Inc. ("Sierra") in March 1995 as a
wholly-owned subsidiary to design, arrange for the manufacture of, market and
distribute mall fixtures to operators and developers of regional shopping malls
and retail stores. Sierra delivered its first significant order of carts in
August 1995. As used hereinafter in this report, the "Company" shall mean the
Company and its subsidiaries. The Company also acquired rights to reproduce on
garments, such as t-shirts and sweat shirts, certain graphic images associated
with certain television programs in production or proposed to be produced, under
license agreements with the owners of such rights and to market and distribute
such products. However, the Company decided not to pursue this opportunity, and
to concentrate its efforts on consummating proposed mergers (the "Mergers") with
Superior/Panoramic Hand Prints Inc. and Just Jackets Corporation (together, the
"Target Companies") pursuant to agreements of merger entered into by the
Company, certain subsidiaries of the Company, the Target Companies and certain
other persons in June 1996 (see Item 6, Management's Discussion and Analysis of
Financial Condition and Results of Operations and note 7 of the notes to the
consolidated financial statements of the Company) and expanding Sierra's
business.
The Target Companies design and produce value-added garments and other
textile products, such as beach and golf towels, for sale to distributors in the
advertising specialty industry and to retailers of souvenir and novelty
products. The Target Companies add value to blank or plain textile products,
such as t-shirts, sweatshirts, jackets and towels, by decorating them with the
logos, names or messages of the advertisers or other customers of the
advertising specialty distributors with whom they do business and the graphic
designs required by their retail customers. Just Jackets Corporation also
manufactures leather, leather and fabric and fabric only jackets and sells such
apparel to such distributors and retail outlets.
Operations of Sierra
Sierra, which commenced operations on March 1, 1995, is engaged in the
design, marketing and installation of fixtures used in retail shopping malls and
stores and mall service operations. Such fixtures consist of temporary retail
units, kiosks, carts and barricade units, some of which incorporate state of the
art electronics, computers and three-dimensional technologies (e.g., touch video
screens in mall directory units). Sierra has a standard product line of
approximately 30 items and also offers custom design services. Sierra does not
maintain an inventory of retail fixtures, except for five mobile units used for
sales demonstrations. Standard and custom units are produced for customers
solely on a "job order" basis, which means that units are produced only against
firm purchase orders received from customers which have been accepted by Sierra
in each instance.
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The Shopping Mall and Retail Fixtures Market
The shopping mall and retail fixture market is highly fragmented. Suppliers
of shopping mall and retail store fixtures range from small closely-held local
firms to corporations having national markets. Most suppliers operate on a local
or regional basis. The portion of the market serviced by Sierra consists of
operators of regional shopping malls, developers of shopping malls on a regional
and national basis and operators of retail outlets. The Company believes, based
on its knowledge of the industry, that the potential national market for its
products is approximately $150 million. Generally, the Company's products are
marketed locally to individual malls and retail outlets. The purchase decision
is typically made by mall employees in the marketing or temporary leasing
department of the mall's management. In some instances, however, management from
the corporate office of a multi-mall developer, such as The Hahn Company or
General Growth Properties, will acquire a number of units for distribution
throughout their mall network. Customers in the shopping mall market have highly
specialized needs. Accordingly, the suppliers in this market, including Sierra,
must often customize their products to meet specific needs of the customer.
Marketing and Sales
Sierra maintains a showroom at its offices in Newport Beach, California at
which it displays some of its products as well as drawings covering its product
line of approximately 30 items. Sierra's marketing and sales programs are
implemented by its president and four independent sales representatives. The
sales representatives receive commission income from Sierra based solely on
orders solicited by them which have been accepted by Sierra. None of such sales
representatives is engaged by Sierra on an exclusive basis or devotes
substantially all of his or her time to selling Sierra's products. Sales efforts
involve visits to customers, attendance at trade shows throughout the United
States, particularly those sponsored by the International Council of Shopping
Centers, and visits by customer representatives to Sierra's showroom.
Sierra's president and independent sales representatives, supported by
Sierra's one-person design department, develop retail merchandising and
advertising units tailored to the customer's specific needs. Products range from
permanent mall fixtures and information centers to mobile carts, customized to a
specific theme, color scheme or presentation purpose for the mall developer or
store operator.
Sierra's merchandising strategy is to offer a broad line of conventional
fixtures as well as custom designed fixtures so as to permit "one-stop" shopping
for its customers. When a custom design is required, Sierra's graphic art person
can usually produce a visual presentation of the product for customer approval
within five business days. The Company believes that Sierra has developed strong
customer relationships with large mall developers, such as General Growth
Properties and The Hahn Company, that have large budgets to support
modernization of their mall fixtures. These relationships allow Sierra to
identify and develop other customer relationships and to respond to customer
requirements in the early stages of a merchandising or on-site advertising
program.
During the 15 month period ended May 31, 1996, Sierra sold units to 10
customers, including General Growth Properties, The Hahn Company and Sales
Dynamics, Inc., and had net sales of approximately $698,000 and a net loss from
operations. Of such number of customers, Sales Dynamics, Inc., with 54%, and
General Growth Properties with 24%, accounted for 78% of such revenues.
Accordingly, the loss of either of such customers would have a material adverse
effect on the Company's mall and retail fixtures business.
The Company believes that conventional forms of on-site retail
merchandising and advertising units are rapidly evolving into forms utilizing
interactive video and other state of the art technologies and that such products
represent a low cost alternative to traditional retailing concepts which can be
used by mall developers and retailers to deliver specific messages to targeted
recipients. While the Company anticipates continued market acceptance of
Sierra's retail fixture designs, there can be no assurance that
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such designs will achieve broad market acceptance by mall developers and
retailers and thereby generate sufficient revenues to permit the Company to
achieve profitable operating results.
Product Development
Sierra's graphic designer and its president are involved in new product
development by assessing existing products and seeking to create "new looks"
through innovative design and artwork and providing samples and prototypes of
new styles and designs to customers in response to customer requirements. The
design of a new product can take from a few hours to several weeks depending on
the nature of the product and the number of units to be sold.
Production
Sierra is entirely dependent on third party manufacturers to supply the
finished products necessary to fulfill outstanding customer orders. All of the
manufacturers with whom Sierra does business are located in Southern California.
As of the date of this report, Sierra has no long-term agreements with any of
its manufacturers and there can be no assurance it would be able to enter into
any such agreements on terms favorable to it or on any terms.
While the Company believes that Sierra has good relationships with its
manufacturers, Sierra is subject to the risk that a manufacturer may terminate
its relationship with Sierra at any time or that an order may be received by it
at a time when its manufacturers are working at full capacity. In such case, the
Company may not be in a position to accept the order or risk cancellation of the
order because of its inability to make shipment on a timely basis.
The Company believes, based on its experience, that in the event a
manufacturer terminates its relationship with Sierra, or refuses to accept an
order from Sierra, it will be able to obtain alternative sources of supply that
will provide finished products in sufficient quantities, on a timely basis and
at acceptable prices to enable Sierra to satisfy customer requirements.
Seasonality
Sierra's business is seasonal. Sales are highest in the spring and summer
months. Mall and retail operators attempt to have all of their retail
merchandising units in place and tested prior to the onset of the Christmas
holiday season. Sales usually begin to decline in the fall of the year and do
not resurge until about March of the following year.
Backlog
As of July 31, 1996, Sierra had a backlog of firm orders of approximately
$400,000. The backlog consists primarily of merchandising units being produced
for The Walt Disney Company, Center Court Concierge Company and Cal-Mart. These
units are expected to be shipped during the current fiscal year. As of May 31,
1995, Sierra had a backlog of approximately $300,000, consisting of
merchandising units which were shipped during the first quarter of the fiscal
year ended May 31, 1996.
Competition
The shopping mall and retail fixtures business is extremely competitive.
The primary bases for competition are delivery, price, quality, customer
service, design and customization capabilities and product offerings. The
Company believes that Sierra competes effectively on the basis of quality
products, customer service, pricing and timely delivery. Although pricing is
important, the Company believes that product quality and timely delivery are
almost of equal importance. The Company believes that Sierra's
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relationships with its suppliers permit it to meet customer demand for quality
and timely delivery while being price competitive.
The Company believes, based on Sierra's knowledge of the shopping mall and
retail fixtures industry in the United States, that its principal competitors
are T.L. Horton, Creations of Dallas and Wagon Sellers. Each of these
competitors has its own manufacturing facility and some of the competitors may
have greater capital resources than Sierra. The prices of products sold by
competitors may be less than the prices of similar merchandise sold by Sierra,
and such price competition may have a material adverse effect on the revenues of
the Company as well as its ability to effectively compete with other such
companies.
There are no legal barriers to entry into the shopping mall and retail
fixtures business and, as a practical matter, no financial barriers either. Some
of the Company's competitors have substantially greater financial and other
resources. There are usually no proprietary rights which can be protected from
competition by patents, copyrights, or similar intellectual property. There can
be no assurance that Sierra will continue to be able to effectively compete
against existing and future competitors.
Employees
As of July 31, 1996, the Company had nine employees, three of whom are
executives, three of whom are administrative/clerical employees, one of whom
manages Sierra's operations, and one of whom constitutes Sierra's design
department. As of the closing date of the Mergers, Gill Champion, the Company's
Chief Executive Officer, has agreed to resign as an officer and director of the
Company.
Item 2. Description of Property.
The Company does not own any real property. The Company leases
approximately 500 square feet of office space in Santa Monica, California on a
month to month basis at a monthly rental of $1,000. If the Mergers are
consummated, the Company plans to terminate its existing lease and move its
executive offices to the space currently leased by the Target Companies in North
Hollywood, California. If the Mergers are not consummated, the Company intends
to relocate its corporate offices to space currently leased by Sierra. Sierra
currently leases approximately 1,500 square feet of office and showroom space in
Newport Beach, California at a monthly rental of $1,500 under a lease that
expires in June 1999.
Item 3. Legal Proceedings.
The Company is not aware of any legal proceedings to which it is a party,
to which any of its property is subject or to which any director, officer or
affiliate of the Company, or any owner of record or beneficial of more than five
percent of the Company's common stock (or any associates of such security
holder), is a party adverse to the Company or has material interest adverse to
the Company.
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Part II
Item 5. Market for Company Equity and Related Stockholder Matters.
The Company's common stock, par value $.001 per share ("Common Stock"), is
traded on the Nasdaq SmallCap Market under the Symbol ACSI.
The following table sets forth quarterly inter-dealer bid prices of the
Common Stock as reported by Nasdaq for the Company's fiscal years ended May 31,
1995 and 1996, respectively. These quotations are inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions. In August 1994, the Company distributed to holders of its
outstanding Common Stock a dividend of one share of Common Stock for each share
of Common Stock outstanding on August 1, 1994.
Bid Prices of Common Stock
Fiscal Year Ended May 31, High Low
1995 ----- -----
First Quarter:
From June 1 through $8.25 $8.00
July 31, 1994
From August 1 through 5.50 3.38
August 31, 1994
Second Quarter 5.00 3.13
Third Quarter 4.88 2.25
Fourth Quarter 2.63 0.88
Fiscal Year Ended May 31,
1996
First Quarter 2.81 2.69
Second Quarter 2.13 2.00
Third Quarter 3.19 2.75
Fourth Quarter 2.84 2.50
At July 31, 1996, the outstanding shares of Common Stock were held by
approximately 450 holders of record.
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Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
This discussion contains, in addition to historial information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, among others, those discussed below as well as those
discussed elsewhere in this Report on Form 10-KSB. The following discussion
should be read in conjunction with the consolidated financial statements and
notes thereto.
General
From inception through May 31, 1996, the Company incurred significant
losses in connection with implementation of its plan to operate mini-retail
stores in movie theater lobbies and shopping malls. The Company, having
determined that its retailing concepts were not viable, discontinued all retail
operations as of May 31, 1996. Since current revenue levels are not sufficient
to attain profitability, the Company has been attempting to increase revenues
and cash flow and attain profitability through implementation of a restructuring
plan involving the discontinuance of retail operations and reduction of
operating expenses, the consummation of the Mergers and expansion of its
shopping mall and retail fixtures business.
The Company's cash requirements continue to be significant and the Company
has been utilizing the proceeds of its 1994 public offering, together with its
limited operating revenues, to pay operating expenses. Such expenses include
expenditures necessary to support the operations of its shopping mall and retail
fixtures business, salaries of, and employee benefits for, its executive,
administrative and marketing personnel, rent and utilities.
The first step in the implementation of the Company's restructuring has
been the discontinuance of its retail operations. Although such termination has
reduced the Company's revenues, it has also significantly reduced operating
expenses. With the discontinuance of retail operations, the Company is devoting
a significant portion of its capital resources to the support of its shopping
mall and retail fixtures business, which is conducted through Sierra. In light
of Sierra's low overhead (when considered as a separate business unit), the
Company is currently seeking to determine the most efficient means to increase
Sierra's revenues. The final step in the implementation of the restructuring
plan has been the identification of the Target Companies by the Company as
suitable acquisition candidates. Toward that end, the Company formed two
wholly-owned subsidiaries which, together with the Company and certain other
persons, have entered into agreements of merger with the Target Companies
pursuant to which the Target Companies would be merged with and into such
subsidiaries upon the satisfaction of certain conditions precedent specified in
the merger agreements and, if the Mergers are effected, the Company would be
obligated to pay to the stockholders of the Target Companies an aggregate of
$2.04 million, to issue to such stockholders an aggregate of 1,025,000 shares of
Common Stock and provide at least $1 million of working capital to the
subsidiaries following the consummation of the Mergers. If the Mergers are
consummated, the Company will assume up to $1.6 million of institutional
indebtedness of the Target Companies. The Company is not obligated to proceed
with the Mergers unless it can raise net proceeds of $3.5 million through a
public or private sale of equity securities, but it has agreed to use reasonable
efforts to effectuate such a public or private sale. There can be no assurance
that the Company will be able to raise such funds or effectuate the Mergers. If
the Mergers are not effectuated by reason of the Company's failure to consummate
such sale of its securities, the Company will be responsible to pay the fees and
expenses incurred by the Target Companies, their stockholders and certain
affiliates of the Target Companies in connection with the Merger Agreements and
certain related agreements and transactions.
The Company is currently maintaining its rights under certain license
agreements which give the Company the right to market and distribute garments
and other textiles imprinted with graphic images associated with a television
series and a cartoon series currently in production. However, the Company has
decided not to exploit such rights at this time and instead to concentrate its
efforts on consummating the Mergers and expanding Sierra's operations.
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The following discussion should be read in conjunction with the Company's
audited consolidated financial statements for its fiscal years ended May 31,
1996, and 1995, respectively, including the notes thereto, appearing elsewhere
in this report.
Results of Operations
Fiscal Year Ended May 31, 1996 Compared to the Fiscal Year Ended
May 31, 1995
Net Sales
Net sales from continuing operations for the year ended May 31, 1996 were
$683,888. Sales from continuing operations for the year ended May 31, 1995 were
$14,418. Net sales from continuing operations consisted of sales generated by
Sierra. If sales of $742,895 from the discontinued retail operations were
included in the net sales for the year ended May 31, 1996, net sales for such
period would have been $1,416,728, as compared to net sales from all operations
of $841,146 for the year ended May 31, 1995. This increase was primarily
attributable to sales generated by Sierra.
Gross Profit
Gross profit from continuing operations for the year ended May 31, 1996 was
$273,799, or 40% of net sales. Gross profit from continuing operations is
primarily attributable to net sales generated by Sierra. Cost of goods sold from
the discontinued retail operations were $659,084, approximately 88% of net
sales. If the gross profit of $83,811 from discontinued retail operations were
included in the net sales for the year ended May 31, 1996, gross profit for such
period would have been $347,555 (or 25%), as compared to gross profit from all
operations of $103,205, or 12%, for the year ended May 31, 1995. The reason for
the improved gross profit was primarily the result of Sierra's lower cost of
sales.
Selling, General and Administrative Expenses
Selling expenses relating to continuing operations for the year ended May 31,
1996 were $97,600, consisting of commissions paid to outside sales personnel for
Sierra. There were no selling expenses attributable to continuing operations for
the year ended May 31, 1995. Selling expenses from discontinued operations for
the year ended May 31, 1996 were $638,928, as compared to $969,305 for the year
ended May 31, 1995. The reason for the decrease was a decrease in the retail
sales of the discontinued operations.
General and administrative expenses relating to continuing operations for the
year ended May 31, 1996 were $1,931,785, as compared to $1,277,270 for the year
ended May 31, 1995. The reason for such increase was higher office rent expense
and rent for additional warehouse space to store fixtures from closed retail
stores and, as the Company began to aggressively investigate possible merger
candidates, legal, audit and appraisal fees associated with pre-acquisition due
diligence.
Interest Income
Interest received from cash investments declined from $160,765 to $80,065 during
the year ended May 31, 1996, as compared to the year ended May 31, 1995. The
reason for this decrease in interest income is the result of cash being used for
working capital and consequently having decreasing amounts of cash available for
investment.
Net Loss
The Company incurred a net loss from all operations for the year ended May 31,
1996 of $2,510,148, or $0.36 per share. There was a net loss of $1,668,957, or
$0.24 per share, from continuing operations and a net loss of $841,190, or $0.12
per share from discontinued operations. Loss from discontinued operations
includes a loss on disposal of fixed assets of $450,139. The Company incurred a
net loss of $2,255,847, or $0.36 per share, for the year ended May 31, 1995.
Loss from continuing operations was
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$1,122,904, primarily attributed to start-up expenses for Sierra and licensed
product operations. Loss from discontinued operations was $1,132,943, of which
$136,813 related to a write-off of fixed assets.
Fiscal Year Ended May 31, 1995 Compared to Fiscal Year Ended
May 31, 1994
Net Sales
Net sales from continuing operations for the year ended May 31, 1995,
attributable solely to Sierra, were $14,418. There were no sales from continuing
operations for fiscal 1994. Sales from discontinued retail operations for the
fiscal year ended May 31, 1995 were $826,728, as compared to sales of $156,898
from discontinued retail operations for fiscal 1994. The increase was
attributable to expansion of the mini-store program in shopping mall and theater
locations which had been in operation for up to 12 months. In fiscal 1994, no
stores were operational for a 12 month period.
Gross Profit
Gross profit from continuing operations for the fiscal year ended May 31, 1995
was $7,610 (52.8% of net sales). There were no sales from continuing operations
in fiscal 1994. This relatively high gross profit is attributable to two sales
by Sierra of smaller units which have a higher gross margin. Usual gross margins
for Sierra are approximately 40%.
Gross profit from discontinued retail operations was $95,595 (11.6% of net
sales), as compared to a negative gross profit of $10,186 in fiscal 1994. Cost
of sales consists of the cost of product for resale, shipping costs and
inventory shrinkage amounts. The increase in gross profit from discontinued
operations is largely attributable to increased sales volume when compared to
fiscal 1994. Included in the fiscal 1995 cost of sales, is the booking of an
additional $80,000 reserve for obsolete inventory.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SGA expenses") from continuing
operations for the fiscal year ended May 31, 1995 were $1,277,270. There were no
SGA expenses attributable to continuing operations in fiscal 1994. The general
and administrative expenses from continuing operations for fiscal 1995 relate to
costs associated with operations, as well as start-up and management costs
associated with Sierra. SGA expenses attributable to discontinued operations for
fiscal 1995 were $1,091,725, as compared to $705,041 for fiscal 1994. This
increase is largely the result of expenses related to expanded retail operations
and staffing levels to accommodate such expanded operations. In the fiscal year
ended May 31, 1994, staffing levels including retail operations, did not
approach the level (up to 100 employees) experienced during fiscal 1995.
Net Loss
The Company had a net loss from continuing operations for the year ended May 31,
1995 of $1,122,904 or $0.18 per share. Such loss is primarily attributable to
start-up expenses for Sierra and the licensed product operations. The net loss
from discontinued operations for the fiscal year ended May 31, 1995 was
$1,132,943 or $0.18 per share, as compared to a net loss from discontinued
operations for fiscal 1994 of $715,227 or $0.20 per share. The net loss for
fiscal 1995 included a write-off of fixed assets in the amount of $136,813
related to the closure of three Florida and two California mini-stores. The net
loss from continuing and discontinued operations for the fiscal year ended May
31, 1995 was $2,255,847 or $0.36 per share.
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Liquidity and Capital Resources
Historically, the Company's primary cash requirements have been to support
retail operations. The Company has relied on the proceeds of its 1994 public
offering of Common Stock and cash flow from retail operations to fund its
working capital requirements. As of May 31, 1996, the Company had discontinued
all retail operations.
At May 31, 1996, the Company had working capital of $525,612, as compared
to working capital of $3,311,185 at May 31, 1995. The decrease in working
capital was primarily attributable to inventory write-downs and loss related to
discontinued retail operations and continuing operations.
Net cash used in operating activities was $1,852,923 for the year ended
May 31, 1996, as compared to net cash used in operating activities of $2,477,917
for the year ended May 31, 1995. The increase in cash used in operating
activities was primarily attributable to the net loss from continuing
operations.
As a result of the discontinuance of retail operations, the Company has
been devoting its resources to support the operations of Sierra and to
completing its due diligence investigation of the Target Companies, negotiating
the merger agreements (see note 7 to the notes to the consolidated financial
statements), and implementing its plan to raise funds to finance the acquisition
of the Target Companies and to provide working capital to them subsequent to the
completion of such Mergers.
The Company believes it will generate sufficient cash flows from
operations in fiscal 1997 to meet cash requirements for existing subsidiary
operations. In the event the Company consummates the merger agreements,
additional financing may be required to meet operational and cash necessities of
the new entity. However, no assurance can be given that such financing will be
obtained.
If the mergers are not effected, the Company intends to expand Sierra's
operations. The Company has also taken certain cost-cutting measures. Effective
September 1, 1996, the Company canceled its lease on the corporate office
facility, without penalty, and will merge the corporate office with Sierra's
office in Newport Beach, California. The Company plans to terminate corporate
personnel in areas where duplication of functions occurs.
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Statements of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed of
issued by the Financial Accounting Standards Board ("FASB") is effective for
financial statements for fiscal years beginning after December 15, 1995. The new
standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment, and certain identifiable
intangible assets, should be recognized and how impairment losses should be
measured. The Company does not expect adoption to have a material effect on its
financial position or results of operations.
Statements of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123") issued by FASB is effective for
specific transactions entered into after December 15, 1995, while the disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning no later than December 15, 1995. The new standard establishes a
fair value method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from non-employees in
exchange for equity instruments. At the present time, the Company has not
determined if it will change its accounting policy for stock based compensation
or only provide the required financial statement disclosures. As such, the
impact on the Company's financial position and results of operations is
currently unknown. The Company does not expect adoption to have a material
effect on its financial position or results of operations.
The Company provides for income taxes in accordance with Statement of
Financial Standards No. 109, Accounting for Income Taxes. Such net operating
loss carry-forwards result in deferred tax assets of $2.1 million (see note 5 of
the notes to the consolidated financial statements). The Company provides a
valuation allowance for deferred tax assets when it is more likely than not,
based upon available evidence, that some portion or all of the deferred tax
asset will not be realized. In management's opinion, it can not be determined if
it is more likely than not if the Company will generate sufficient taxable
income before the year 2012, two years after all net operating loss carry
forwards expire, to utilize all of the Company's deferred tax assets. As of May
31, 1996, a valuation allowance has been recognized for the full amount of the
deferred tax asset of $2.1 million.
Net Operating Loss Carry-Forwards
For federal income tax purposes, the Company has federal net operating loss
carry-forwards of $5,912,000 and state net operating loss carry-forwards of
$2,723,000 at May 31, 1996. These carry-forwards expire in the years 2008 to
2011. Federal tax rules impose limitations on the use of net operating losses
following certain changes in ownership. The Company experienced such a change in
March 1994, which will limit the use of the federal net operating loss
carryforward to $370,000 per year on a total of $985,000 incurred prior to the
change in ownership.
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The directors and executive officers of the Company and a significant
employee of the Company are as follows:
Name Age Position
---- --- --------
Gill Champion* 54 Chairman of the Board of
Directors, Chief Executive
Officer and Secretary
Steve Natale 41 President, Chief
Operating Officer,
Treasurer and a
Director
Christopher J. Ebert 45 Chief Financial
Officer and
Assistant
Secretary
Christopher D. Kelly 50 President of Sierra
- - ---------------
* Mr. Champion has agreed that if the Mergers are effected, he
will resign from all positions with the Company at such time.
Gill Champion has served as Chairman of the Board of Directors and
Secretary of the Company since the Company's inception in June 1992 and as its
Chief Executive Officer since October 1993. He served as Treasurer of the
Company from June 1993 to October 1993. From February 1992 to June 1992, he was
self-employed and engaged in developing the mini-store retail concept which
constituted the Company's initial business. From June 1989 to January 1992, Mr.
Champion was Chairman of the Board and Chief Executive Officer of, and then a
consultant to, Movie Music, Inc., a corporation organized to
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develop mini-stores for retail sales. Mr. Champion attended New York University
and Rutgers University from 1961 to 1963 and the American Academy of Dramatic
Arts from 1963 to 1965.
Steve Natale has served as President and a director of the Company since
June 1992 and Chief Operating Officer and Treasurer since October 1993. From
October 1991 to May 1992, he served as Vice President, Creative Services, for
JRS Records, a record company. From May 1988 to October 1991, Mr. Natale was
self-employed and engaged in developing the mini-store retail concept which
constituted the Company's initial business. Mr. Natale received an Associate of
Arts degree from Boston State College in 1974 and attended Boston College from
1974 to 1976.
Christopher J. Ebert has served as Chief Financial Officer of the Company
since September 1994. From May 1994 to September 1994, he served as Controller
of the Company. From December 1992 to April 1994, Mr. Ebert served as Director
of Finance and Accounting for the Virginia Department of Alcoholic Beverage
Control and from November 1988 to December 1992, as Treasurer and Chief
Financial Officer for Trio-Tech International, a manufacturer of semi-conductor
test equipment. Mr. Ebert received bachelor degrees in accounting and finance
and a master of business administration degree from Marquette University.
Christopher D. Kelly has served as President of Sierra since March 1995.
From 1987 to February 1995, Mr. Kelly served as a Vice-President of Mesa Verde
Fixture and Design, Inc., a shopping mall fixture and design manufacturing
company, which he co-founded. From 1969 to 1986, Mr. Kelly owned and operated
Rax Unlimited, a manufacturer of mall and retail store fixtures. Mr. Kelly
received a bachelor's degree in advertising and a master of business
administration degree from Woodbury University.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who beneficially own
more than 10 percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Commission.
Executive officers, directors and greater than 10 percent owners are required by
certain Commission regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on the Company's review of the copies of such forms received
by it, the Company believes that during the year ended May 31, 1996, filing
requirements applicable to its executive officers, directors and 10%
stockholders of Common Stock were complied with.
Item 10. Executive Compensation.
The following table discloses for the fiscal years ended May 31, 1996,
1995 and 1994, compensation for Mr. Gill Champion, Chairman of the Board and
Chief Executive Officer, and Mr. Steve Natale, President and Chief Operating
Officer, the only other executive officer whose annual compensation exceeded
$100,000 during the fiscal year ended May 31, 1996. Messrs. Champion and Natale
(the "Named Executives") received no additional compensation for serving on the
Board of Directors.
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Summary Compensation Table
Long Term
Compensation
-------------
Annual Compensation Awards
------------------------ -------------
Securities
Name and Fiscal Other Annual Underlying
Principal Position Year Salary Compensation(1) Options(2)
- - ------------------ ---- ------ --------------- ----------
($) ($) (#)
Gill Champion, 1996 126,875 7,657 --
Chief Executive Officer 1995 125,000 7,657 --
1994 125,000 7,657 60,000
Chairman of the Board
Steve Natale, 1996 101,500 5,796 --
President, and Chief 1995 100,000 5,796 --
Operating Officer 1994 100,000 5,055 140,000
- - -----------
(1) The amounts reported in this column represent the annual amounts paid as
an allowance for leasing and insuring automobiles for the Named Executives
and for reimbursement of automobile costs.
(2) In August 1994, the Company distributed a dividend of one share of Common
Stock for each share of Common Stock outstanding effective as of August 1,
1994. Share data has been retroactively adjusted to reflect such stock
dividend.
The following table sets forth information with respect to stock options
held by the Named Executives at May 31, 1996. No stock options were granted by
the Company to, or were exercised by, the Named Executives during such fiscal
year.
Fiscal Year End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at May 31, 1996 at May 31, 1996 (1)
----------------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ------------- ----------- -------------
Gill Champion 60,000 (2) -0- -0- -0-
Steve Natale 140,000(2) -0- -0- -0-
- - ---------------------------
(1) Options are "in-the-money" (at the date of such determination) if the fair
market value of a share of Common Stock at such date exceeds the exercise
prices of such options at such date. At May 31, 1996, the closing bid
price per share of the Common Stock as reported by Nasdaq was $2.50. No
options were "in-the-money" at May 31, 1996.
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(2) Incentive stock options granted under the Company's 1993 Stock Option
Plan, as amended, which become exercisable after one year from the date of
grant and expire upon the earlier of (i) four years from the date such
options became exercisable or (ii) 30 days after the termination of the
optionee's employment by the Company.
Employment and Termination Agreements
The Named Executives are employed under employment agreements expiring in
March 1997 if a party to the agreement gives the other notice of termination at
least 30 days prior to the expiration date (otherwise, the employment term will
expire in March 1998). Under such agreements, Mr. Natale currently receives base
compensation at the annual rate of $101,500 and Mr. Champion currently receives
base compensation at the annual rate of $126,875, subject in each case to annual
increases based on changes in the consumer price index.
Under the employment agreements, a Named Executive will be entitled to
terminate his employment for "good reason" (which includes a "change of
control," as defined in such employment agreements, limitation of an executive's
powers or removal of an executive from, or failure to elect an executive to, his
then current office), and the Company may terminate an executive's employment
for "cause" (as defined in such employment agreements). Upon termination of an
executive's employment by the Company (other by reason of death, disability or
for cause), or upon termination of the employment term by an executive for "good
reason" or by reason of the employer's breach of the employment agreement, the
employer is required to pay base compensation to the executive for a period
equal to the unexpired balance of the contract term. The employment agreements
also provide that each Named Executive is entitled to the use of an automobile,
(including reimbursement of expenses related to the operation and maintenance
thereof) and four weeks paid vacation and provides for non-disclosure by an
executive, during his employment term and, thereafter, of information deemed by
the Company to be confidential and for non-competition with the Company in the
continental United States for one year following the date of termination (but
not expiration) of his employment term.
Mr. Champion has agreed, pursuant to a letter agreement with the Company
dated June 25, 1996 (the "Letter Agreement") to resign as a director, Chairman
of the Board and Chief Executive Officer of the Company, effective as of the
effective time of the Mergers and to cooperate fully with the Company and its
officers to effect the Mergers. Under the Letter Agreement, the Company has
agreed to pay Mr. Champion his total unpaid salary and employment benefits
through March 15, 1997 (the expiration date of Mr. Champion's employment term),
which amount will be payable over the original term of Champion's employment
agreement. The Company also agreed to maintain in full force and effect its
currently existing director's and officer's liability policy with respect to Mr.
Champion.
Directors' Compensation
Directors receive no cash compensation for serving on the Board. However,
non-employee directors are eligible to be granted non-statutory stock options
under the Company's 1993 Stock Option Plan, as amended. Nonstatutory stock
options may be granted for up to 10 years from the date of grant at such
exercise prices as the Board of Directors may determine. There are no
non-employee directors currently serving on the Board of Directors.
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Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of September 1, 1996, with
respect to beneficial ownership of the Company's Common Stock by (i) each person
known by the Company to be a beneficial owner of more than 5% of the outstanding
shares of Common Stock; (ii) the Named Executives; and (iii) all directors and
executive officers as a group. Unless otherwise noted, the Company believes that
all of the persons named in the above table have sole voting and investment
power with respect to all shares of Common Stock beneficially owned by them.
Name and Address Amount and Nature of % of Beneficial
of Beneficial Owner Beneficial Ownership Ownership
- - ------------------- -------------------- ---------
Steve Natale(1) 1,277,345(2) 18.2
Gill Champion(1) 399,256(2) 5.7
All officers and
directors as a
group (three
persons) 1,891,601(3) 25.9
- - ----------
(1) The address for each of Messrs. Champion and Natale is c/o
American CinemaStores Inc., 1543 7th Street, Suite 400, Santa
Monica, California 90401.
(2) Includes for Mr. Natale, 140,000 shares issuable upon exercise of
immediately exercisable options, and for Mr. Champion, 60,000 shares of
Common Stock issuable upon the exercise of immediately exercisable
options.
(3) In addition to the options held by Messrs. Champion and Natale, includes
215,000 shares of Common Stock issuable upon exercise of immediately
exercisable options held by an executive officer of the Company.
Item 12. Certain Relationships and Related Transactions.
In June 1992, the Company issued 1,346,116 shares of Common Stock to Steve
Natale, its President, Chief Operating Officer, Treasurer and a director, for
$975, and 517,738 shares of Common Stock to Gill Champion, its Chairman of the
Board, Chief Executive Officer and Secretary, for $375.
In April 1993, the Company entered into a registration rights agreement
with all eight of its then current stockholders, including Messrs. Natale and
Champion, under which the Company granted to its stockholders the right to
request, on two occasions during the five-year period ending in April 1998, that
the Company register for sale under the Securities Act of 1933, as amended, the
shares of Common Stock owned by such stockholders, provided that the Company is
then eligible to use a Form S-3 registration statement. Such stockholders were
also granted, for a period currently in effect and expiring in April 2000,
certain piggyback registration rights with respect the shares of Common Stock
owned by them during a period expiring in April 2000. Of such eight persons,
only Messrs. Natale and Champion still hold shares of Common Stock.
In November 1993, the Company sold 1,208 shares of Common Stock to Steve
Natale and 518 shares of Common Stock to Gill Champion, at a price of $.005 per
share.
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In November 1993, certain affiliates of A.S Goldmen & Co., Inc., one of
the underwriters of the Company's 1994 public offering of Common Stock, sold to
Natale an aggregate of 140,000 shares of Common Stock and to Gill Champion an
aggregate of 60,000 shares of Common Stock, at a price of $.005 per share.
During the fiscal year ended May 31, 1996, the Company granted to
Christopher J. Ebert, its Chief Financial Officer, incentive stock options under
the Company's 1993 Stock Option Plan, as amended (the "Plan") to purchase up to
200,000 shares of Common Stock at an exercise price of $2.50 per share.
See Item 10, "Executive Compensation" for information as to the terms of
employment agreements between the Company and the Named Executives and a
termination agreement with Gill Champion, the Company's Chairman of the Board
and Chief Executive Officer, and as to options granted to the Named Executives
under the Plan.
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SIGNATURE
Pursuant to the requirements of Sections 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
American CinemaStores Inc.
By: ----------------------------
Christopher J. Ebert,
Chief Financial Officer
Dated: September 26, 1996
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