UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB-A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended
December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. [No Fee Required] For the
transition period from ___________ to ______________
Commission file number 0-26828
FOOD COURT ENTERTAINMENT NETWORK INC.
(Name of small business issuer in its charter)
Delaware 51-0338736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 East 42nd Street, 16th Floor,
New York, New York 10017
(212) 983-4500
(Address, Zip Code and telephone of Issuer)
Securities registered under Section 12(b)
of the Exchange Act: None
Securities registered under Section 12(g)
of the Exchange Act:
(Title of Class)
Units
Series A Common Stock, $.01 par value
Redeemable Class A Warrants
Redeemable Class B 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 [ ]
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 a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
<PAGE 1>
Issuer's revenues for its most recent fiscal year:
$20,000.
As of April 23, 1998, there were outstanding 13,642,082
shares of Series A Common Stock and 1,014,309 Shares of Series B
Common Stock. The aggregate market value of Series A Common
Stock held by non-affiliates was approximately $100,000.(1)
Series B Common Stock had no market value and must be converted
to Series A to be sold or transferred, except to prior
management.
________________
(1) The aggregate dollar amount of the voting stock
set forth equals the number of shares of the Company's Series A
Common Stock outstanding, reduced by the amount of Series A
Common Stock held by officers, directors, and shareholders owning
in excess of 10% of the Company's Series A Common Stock,
multiplied by the last reported sale price for the Company's
Series A Common Stock on April 20, 1998. The information
provided shall in no way be construed as an admission that any
officer, director or 10% shareholder in the Company may or may
not be deemed an affiliate of the Company or that he/it is the
beneficial owner of the shares reported as being held by him/it,
and any Such inference is hereby disclaimed. The information
provided herein is included solely for recordkeeping purposes of
the Securities and Exchange Commission.
PAGE 2
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
THE COMPANY
Organization
Food Court Entertainment Network, Inc. ("The Company")
was organized in February, 1992 to establish a national
television network to broadcast high quality television
programming called "Cafe USA" to large, enclosed shopping mall
food courts ("Food Courts") throughout the country. The
Company's concept of providing advertising through broadcast
directly into mall Food Courts was predicated on its belief that
shopping and product decisions by consumers are often made at the
point-of-purchase.
The Company was initially incorporated in the State of
Delaware on February 12, 1992 under the name Advanced Media, Inc.
In April, 1992, the Company changed its name to AppleBell
Communications, Inc. and then in October, 1993 to Food Court
Entertainment Network, Inc. The Company's executive offices are
located at 220 East 42nd Street, 16th Floor, New York, New York
10017 and its telephone number is (212) 983-4500.
On October 16, 1995, the Company closed on its initial
public offering (the "Public Offering") of 2,800,000 units
consisting of one share of Series A Common Stock, one Class A
Warrant and one Class B Warrant (the "IPO Units") to D.H. Blair
Investment Banking Corp. (the "Underwriter"). On November 9,
1995, the Company closed the offering of an additional 420,000
IPO Units to the Underwriter pursuant to the Underwriter's
overallotment option. On November 14, 1996, the Company closed a
private offering to accredited investors ("Private Offering") of
90 Units ("Private Units") for $100,000 per Private Unit, each
Private Unit consisting of 31,746 IPO Units. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Restructure of the Company
The Company, despite its best efforts, has been unable
to sell its Cafe USA advertising time to advertisers. The
Company has, during 1997 and through January 1998, sought a joint
venture partner or strategic investor to advance the business
concept. However, management was unable to attract a suitable
investor or partner.
Management began testing alternative methods of
salvaging the remaining value of the Company for its
shareholders. In order to retain value in the business
enterprise, the Company maintained the operation of its Cafe USA
network in 20 malls and continued to supply updated programming
<PAGE 3> to the malls each week. The Company sought a purchaser
for its assets and Cafe USA television network and concurrently
began to look for operating companies which were seeking a NASDAQ
listed, publicly traded company in which to operate, finance and
grow an existing operating business enterprise.
On April 23, 1998, the Company entered into a Purchase
and Sale Agreement with Prime Spot Media USA, Inc. ("Prime Spot
USA"), a wholly-owned subsidiary of Prime Spot Media, Inc., a
British Columbia Company, providing for the sale of substantially
all of the assets of the company for $450,000. Upon signing the
agreement, Prime Spot USA deposited the entire purchase price in
escrow with its legal counsel. Simultaneous with the execution
of the Purchase and Sale Agreement,Prime Spot USA and the Company
entered into a subcontract (the "Subcontract") which provides
that Prime Spot USA will, on behalf of the Company, operate its
Cafe USA network in all 20 Food Courts, maintain all equipment
and provide programming for the television network. In
consideration for Prime Spot USA management services, Prime Spot
is entitled to all net revenues from the sale of advertising less
payments to malls pursuant to the Company's contracts with each
individual mall. Closing will occur at such time as the Company
obtains necessary approval to transfer title to the assets.
The Company is presently seeking to acquire or merge
with an operating business which desires to be a publicly-held
company. There is no assurance that the Company will be
successful in completing such a transaction. On April 17, 1998,
the Company received a notice from NASDAQ, that because it failed
to meet several of the required NASDAQ minimum maintenance
standards, effective April 24, 1998, its securities would no
longer be listed on the NASDAQ Small Cap Market. The Company
appealed the delisting and, as a result of the appeal, the
delisting was automatically stayed. A hearing is scheduled for
May 28, 1998. If the Company fails to be successful in its
appeal, it will lose its NASDAQ Small Cap listing. Unless the
Company can negotiate a transaction with an operating company
prior to the date of the appeal hearing, it is likely the Company
will lose its NASDAQ listing. Even if the Company is successful
in concluding a transaction with an operating business prior to
the date of the appeal hearing, there is no assurance the Company
will be able to maintain its NASDAQ Small Cap listing.
In the event the Company is unable to acquire or merge
with an operating business, the Company will either be required
to seek protection from its creditors or negotiate its
outstanding liabilities and dissolve the company.
The Exchange Offer
On August 25, 1997, the Company offered to exchange
0.6 shares of Series A Common Stock for each issued and
outstanding Class A Warrant and 0.4 shares of Common Stock for
each issued and outstanding Class B Warrant (the "Exchange
Offer"). The Exchange Offer closed on October 27, 1997. As a
<PAGE 4> result of the Exchange Offer, 7,031,814 Class A Warrants
were exchanged for 4,219,088 shares of Series A Common Stock and
5,719,347 Class B Warrants were exchanged for 2,287,739 shares of
Series A Common Stock. The purpose of the Exchange Offer was to
decrease the dilutive effect of the large number of outstanding
Class A and Class B Warrants on the Company's capital structure,
which management believed was an impediment to obtaining
additional financing or entering into strategic alliances. The
Company believes that the conversion of Warrants to Common Stock
under the Exchange Offer has given the Company the opportunity to
restructure its business and possibly retain some value of the
investment of its shareholders. There remains issued and
outstanding 1,762,000 Class A Warrants and 1,382,000 Class B
Warrants.
Employees
The Company currently has 2 full time employees,
including 1 executive officer. The Company entered into an
employment contract for a term of three years effective
October 1, 1996 with its Chief Executive Officer. See
"Management - Employment Agreements."
ITEM 2 - PROPERTY
Effective April 30, 1998, the Company has terminated
its lease for office space for its executive and administrative
staff at the 220 East 42nd Street, 16th Floor, New York, New York
10017 but is remaining on the premises on a month-to-month basis,
as needed.
ITEM 3 - LEGAL PROCEEDINGS
An action has been filed against the Company by Blank
Rome Comisky & McCauley, LP for non-payment of legal fees in the
amount of $30,127.93. The liability is and has been reflected in
the Company's financial statement.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Series A Common Stock, Class A Warrants,
Class B Warrants and Units (one share of Series A Common Stock
one Class A Warrant and one Class B Warrant) have been included
on the NASDAQ Small Cap Market under the symbols FCENA, FCENW,
FCENZ, and FCENU, respectively, since October 11, 1995. The
Company's Series B Common Stock is not publicly traded and is
held exclusively by former management of the Company. As a
<PAGE 5> result of the completion of the Exchange Offer on
October 26, 1997, in which approximately 85% of the outstanding
Class A Warrants and Class B Warrants were exchanged for Series A
Common Stock, the trading volume in the Class A and Class B
Warrants was substantially reduced. The Company therefore
requested that NASDAQ delist its Class A Warrants (FCENW) and
Class B Warrants (FCENZ). Similarly, the number of Units
available to be traded was substantially reduced upon completion
of the Exchange Offer. As of April 16, 1998, the Company
requested that NASDAQ delist its Units (FCENU). Accordingly, as
of the date hereof, only shares of the Company's Series A Common
Stock (FCENA) are being traded on the NASDAQ Small Cap Market.
The following table sets forth the high asked and low bid
information for the Units, Series A Common Stock, Class A
Warrants and Class B Warrants as reported on the NASDAQ Small Cap
Market for the last quarter of 1995, each quarter of 1996 and
1997 and for the period from January 1, 1998 to March 31, 1998.
Market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
<TABLE>
<CAPTION>
Security High Low
<S> <C> <C>
Units
1998
First Quarter ............... $ 1/8 $ 1/64
1997
First Quarter ............... 6 7/8 2 1/4
Second Quarter .............. 4 5/8 2
Third Quarter ............... 2 3/32 5/8
Fourth Quarter .............. 5/8 1/64
1996
First Quarter ............... 6 3/4 5
Second Quarter .............. 9 5 1/8
Third Quarter ............... 9 1/2 3
Fourth Quarter .............. 6 9/16 3
1995
Fourth Quarter .............. 7 3/8 5
Series A Common Stock
1998
First Quarter ............... 1/16 1/64
1997
First Quarter ............... 4 3/16 1 1/8
Second Quarter .............. 1 3/4 7/8
Third Quarter ............... 1 5/16 1/4
Fourth Quarter .............. 5/16 1/64
1996
First Quarter ............... 4 1/2 2 1/2
Second Quarter .............. 5 7/8 2 3/4
Third Quarter ............... 5 3/4 2 1/2
Fourth Quarter .............. 3 5/8 1 1/2
1995 <PAGE 6>
Fourth Quarter .............. 5 2 1/2
Class A Warrants
1998
First Quarter ............... N/A N/A
1997
First Quarter ............... 1 3/4 1/2
Second Quarter .............. 1 15/32
Third Quarter ............... 19/32 1/8
Fourth Quarter .............. 1/8 1/32
1996
First Quarter ............... 1 7/8 1
Second Quarter .............. 2 3/4 1
Third Quarter ............... 2 3/4 1
Fourth Quarter .............. 2 7/8
1995
Fourth Quarter .............. 1 7/8 1 1/8
Class B Warrants
1998
First Quarter ............... N/A N/A
1997
First Quarter ............... 1 3/4 1/2
Second Quarter .............. 1 15/32
Third Quarter ............... 19/31 1/8
Fourth Quarter .............. 1/8 1/3
1996
First Quarter ............... 1 1/2 1/2
Second Quarter .............. 2 1/2
Third Quarter ............... 2 1/8 1 1/8
Fourth Quarter .............. 2 7/8
1995
Fourth Quarter .............. 1 1/2 1/2
</TABLE>
Holders
On May 1, 1998 there were 402, 28 and 24 holders of
record of Series A Common Stock, Class A Warrants and Class B
Warrants, respectively and 6 holders of Series B Common Stock.
Dividends
The Company has not paid dividends to its common
stockholders since its inception and does not anticipate paying
any dividends to its stockholders in the foreseeable future. The
Company currently intends to retain all earnings, if any, for use
in the preservation of the Company's assets.
<PAGE 7>
Recent Cancellations of Certain Warrants and Unit Purchase
Options
D.H. Blair Investment Banking Corp. ("D.H. Blair")
received as part of its compensation for investment banking
services provided to the Company in connection with its IPO on
October 15, 1995, options to purchase Units ("Unit Purchase
Options") at an exercise price of $6.50. D.H. Blair received an
additional 999,000 Unit Purchase Options with an exercise price
of $3.15 in connection with the Company's Private Placement of
Units on November 14, 1996. Effective December 30, 1997,
D.H. Blair canceled and terminated all of its Unit Purchase
Options.
On December 16, 1996, the Company entered into a
financial advisory agreement with Furman Selz LLC ("Furman
Selz"), a New York investment banking firm. Pursuant to the
agreement Furman Selz was to provide financial advisory services
to the Company for a period of approximately 18 months. Furman
Selz received warrants to purchase 401,321 shares of Series A
Common Stock, which is equal to five percent of the outstanding
shares of Series A and Series B Common Stock, at an exercise
price of $2.00 per share. On or about August 1, 1997, Furman
Selz canceled and terminated all of its Warrants.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion and analysis should be read in
conjunction with the financial statements and notes thereto
appearing elsewhere in this Report. Throughout 1997, the Company
expanded its network into nine new malls and continued to produce
new programming for the Cafe USA Network. At the end of 1997,
the Company continued with production of programming but ceased
further expansion. The Company, which had been a development
stage company, is no longer operating. Accordingly, the Company,
while maintaining the operation of its Cafe USA network in twenty
malls and continuing to supply updated programming to the malls
each week, sought a purchaser for its assets. On April 23, 1998
the Company entered into an agreement to sell substantially all
of its assets for $450,000.
As a result of the above, effective December 31, 1997,
the Company changed its basis of accounting from the going
concern basis to a liquidation basis. In connection with such a
change in accounting basis, the Company has reduced the carrying
value of its assets by approximately $2,017,000 to reflect their
sale price and has accrued an obligation of $263,000 under an
existing employment agreement. As a result, at December 31,
1997, the Company had net liabilities in liquidation of $305,000.
The Company had an accumulated deficit immediately preceding its
change in basis of accounting of $21,877,000.
<PAGE 8>
The Company has received only limited revenues. The
Company's principal expenses from its inception through
December 31, 1997 have been salaries and payments to consultants
($8,221,000), production costs for Cafe USA programming
($4,187,000) and advertising/marketing expenses ($1,513,000).
The Company invested approximately $4,013,000 in capital
equipment through December 31, 1997. Additional funds were spent
substantially on general and administrative costs and financing
fees and expenses. The Company's net liabilities in liquidation
have continued to increase.
The Company has entered into a Purchase and Sale of
Assets Agreement on April 23, 1998 to sell all of its assets in
connection with the Cafe USA Network to Prime Spot USA for
$450,000. The Company intends to close on the transaction at
such time as it obtains necessary corporate approval to do so.
The Company is seeking to merge with or acquire an operating
business which is seeking to become a publicly-held entity. If
it fails to do so, the Company will be required to seek
protection from its creditors or negotiate its outstanding
liabilities and dissolve the Company.
Liquidity and Capital Resources
As of December 31, 1997, the Company had net
liabilities in liquidation of $305,000. The Company had financed
its operation almost exclusively through three private placements
of securities, bank loans and a public offering, including
$2,292,500 through the Preferred Stock Unit Offering, the Bridge
Financing of $2,250,000 of Bridge Notes, bank loans of
approximately $1,086,000, the Public Offering of approximately
$16,800,000 and the Private Offering in November, 1996 of
$9,000,000.
The Company has an employment contract with one
executive officer which provides for salary in 1998 of
approximately $150,000. The Company has terminated its lease
agreement for its offices. The Company remains on a month-to-
month basis at a rental to be negotiated.
The Company has entered into a settlement agreement
with a former director and officer of the Company dated
October 12, 1993 regarding any claims he had or may have had with
respect to continued employment with the Company and rights to
acquire additional securities of the Company for $200,000. The
entire remaining unpaid balance of the $200,000 was due
December 1, 1997. Interest has accrued on such obligation at the
prime rate commencing January 1, 1996 and was to be paid
quarterly thereafter. The principal balance plus interest as of
March 31, 1998 was $240,000. In addition to the above, the
settlement agreement provided for the purchase by the former
director and officer from the Company of 11,250 shares of the
Company's Class B Common Stock at a price of $.01 per share and
the payment of consulting fees for services provided at the
request of the Company. <PAGE 9>
The Company has agreed not to solicit warrant exercises
other than through the Placement Agent. Upon any exercise of the
Class A or Class B Warrants the Company will pay the Placement
Agent a fee of 5% of the aggregate exercise price, if (i) the
market price of the Company's Series A Common Stock on the date
the warrant is exercised is greater than the then exercise price
of the warrants; (ii) the exercise of the warrant was solicited
by a member of the National Association of Securities Dealers,
Inc.; (iii) the warrantholder designates in writing that the
exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc. and designates in writing
the broker-dealer to receive compensation for such exercise;
(iv) the Warrant is not held in a discretionary account;
(v) disclosure of compensation arrangements was made both at the
time of the Private Offering and at the time of exercise of the
warrants; and (vi) the solicitation of exercise of the warrant
was not in violation of Rule 10b-6 promulgated under the Exchange
Act.
ITEM 7 - FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Food Court Entertainment Network, Inc.
Queens, New York
We have audited the accompanying statement of net liabilities in
liquidation of Food Court Entertainment Network, Inc. as of
December 31, 1997, and the related statement of changes in net
assets (liabilities) in liquidation (each on a liquidation basis)
on December 31, 1997. In addition, we have audited the
statements of operations, changes in stockholders' equity and
cash flows (each on a going concern basis), for the years ended
December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As discussed in Note A to the financial statements, subsequent to
December 31, 1997 the Company entered into an agreement pursuant
to which it will sell substantially all of its assets and has
ceased its operations. As a result, the Company has changed its
<PAGE 10> basis of accounting effective as of December 31, 1997
from a going concern basis to a liquidation basis.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the net liabilities in
liquidation of Food Court Entertainment Network, Inc. as of
December 31, 1997, the changes in its net assets (liabilities) in
liquidation on December 31, 1997 and the results of its
operations and its cash flows for the years ended December 31,
1997 and 1996 in conformity with generally accepted accounting
principles applied on the bases described in the preceding
paragraph.
Richard A. Eisner & Company, LLP
New York, New York
March 31, 1998
With respect to Note A
April 23, 1998
PAGE 11
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Statement of Net Liabilities in Liquidation
December 31, 1997
ASSETS
Cash and cash equivalents $ 284,000
Prepaid rent 21,000
Fixed assets, at realizable value 450,000
755,000
LIABILITIES
Accounts payable 144,000
Accrued payroll 75,000
Other accrued expenses 344,000
Due to former employee 234,000
Obligation under employment contract 263,000
Net (liabilities) in liquidation $ (305,000)
Statement of Changes in Net Assets (Liabilities)
in Liquidation On December 31, 1997
Net assets in liquidation - beginning $ 1,975,000
Write down of fixed assets to estimated
realizable value (2,017,000)
Accrual of obligation under employment contract (263,000)
Net (liabilities) in liquidation - end $ (305,000)
PAGE 12
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Statements of Operations
(going concern basis)
Year Ended December 31,
1997 1996
Advertising revenue $ 20,000 $ 122,000
Operating expenses:
Sales and marketing 601,000 561,000
Programming 1,227,000 1,314,000
Network costs 1,873,000 1,229,000
General and administrative
expenses 2,599,000 2,339,000
Development costs 1,104,000
6,300,000 6,547,000
Operating loss (6,280,000) (6,425,000)
Other (income) expenses:
Interest expense 16,000
Interest and other (income) (93,000) (171,000)
(93,000) (155,000)
Net loss $(6,187,000) $(6,270,000)
Net loss per share - basic and
diluted $ (.77) $ (1.32)
Number of common shares used in
computation 8,081,000 4,739,000
PAGE 13
<PAGE>
<TABLE>
<CAPTION>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Statements of Changes in Stockholders' Equity
(going concern basis)
Common Stock Additional Series B
Series A Series B Paid-in Accumulated Treasury Stock
Shares Amount Shares Amount Capital Deficit Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 3,794,000 $ 38,000 1,146,000 $11,000 $15,076,000 $ (9,420,000) (20,000) $0 $ 5,705,000
Common stock issued as
consideration for
programming 250,000 2,000 698,000 700,000
Issuance of stock and
warrants for cash in
October at $3.15 per share
in connection with private
placement (less expenses
of $1,341,000) 2,857,000 29,000 7,630,000 7,659,000
Conversion of B shares 13,000 (13,000) 0
Granting of common B shares
to former employee as a
form of settlement 28,000 10,000 28,000
Issuance of warrants as
consideration for
consulting services 328,000 328,000
Net loss for the year (6,270,000) (6,270,000)
Balance - December 31, 1996 6,914,000 69,000 1,133,000 11,000 23,760,000 (15,690,000) (10,000) 0 8,150,000
Exercise of warrants 3,000 15,000 15,000
Conversion of B shares 119,000 1,000 (119,000) (1,000) 0
Issuance of A shares as
consideration for
consulting services 100,000 1,000 149,000 150,000
Issuance of A shares in
connection with exchange
of Class A and B warrants 6,506,000 65,000 (65,000) 0
Cancellation of warrants (153,000) (153,000)
Net loss for the year (6,187,000) (6,187,000)
Balance - December 31, 1997 13,642,000 $136,000 1,014,000 $10,000 $23,706,000 $(21,877,000) (10,000) $0 $ 1,975,000
========== ======== ========= ======= =========== ============ ======= == ===========
</TABLE>
PAGE 14
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Statements of Cash Flows
(going concern basis)
Year Ended December 31,
1997 1996
Cash flows from operating
activities:
Net loss $(6,187,000) $(6,270,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 660,000 390,000
Loss on disposal of equipment 26,000
Write-off of transmission
system in progress 205,000
Common stock issued as
consideration for compensation 150,000 28,000
Common stock issued as
consideration for programming 700,000
Warrants issued as consideration
for compensation 161,000 10,000
Changes in:
Other assets 199,000 (211,000)
Accrued expenses and other
liabilities (500,000) 367,000
Net cash used in operating
activities (5,312,000) (4,960,000)
Cash flows from investing activities:
Purchase of equipment (918,000) (1,392,000)
Cash flows from financing activities:
Net proceeds from sale of units of
common stock and warrants 7,659,000
Proceeds from exercise of warrants 15,000
Net cash provided by
financing activities 15,000 7,659,000
Net increase (decrease) in cash and
cash equivalents (6,215,000) 1,307,000
Cash and cash equivalents at
beginning of period 6,499,000 5,192,000
Cash and cash equivalents at end
of period $ 284,000 $ 6,499,000
<PAGE 15>
Supplemental schedule of noncash
financing activities:
Warrants issued (canceled) in
connection with consulting
arrangement $ (153,000) $ 323,000
Warrants exchanged for common
shares 65,000
PAGE 16
<PAGE>
FOOD COURT ENTERTAINMENT NETWORK, INC.
Notes to Financial Statements
December 31, 1997
Note A - The Company and Basis of Presentation
Food Court Entertainment Network, Inc. (the "Company") is a
Delaware corporation which was incorporated on February 12, 1992.
The Company's plan was to establish a national television network
to broadcast a high quality television program called Cafe USA,
specifically to large, enclosed shopping mall food courts across
the United States. The Company's activities have consisted
primarily of designing, developing and producing its Cafe USA
programming, establishing contacts and entering into agreements
with potential advertisers and mall operators, producing and
evaluating market tests of its programming, developing a system
for delivery of programming into mall food courts, engaging
management, employees and consultants for operations, including
marketing, installing and operating Cafe USA in various mall food
courts.
The Company, which had been a development stage company, has been
unable to market its Cafe USA network to advertisers, has
incurred substantial losses and has been unable to obtain
additional financing. Accordingly, the Company, while
maintaining the operation of its Cafe USA network in twenty malls
and continuing to supply updated programming to the malls each
week, sought a purchaser for its assets and on April 23, 1998 the
Company entered into an agreement, which may be subject to
stockholder approval, to sell substantially all of its assets for
$450,000. As a result of the above, effective December 31, 1997,
the Company changed its basis of accounting from the going
concern basis to a liquidation basis. In connection therewith,
the Company has written down the carrying value of its assets
subject to the sales agreement to their selling price and has
also written off certain other assets and has accrued a liability
for an obligation under an existing employment agreement. These
adjustments are reflected in the statement of changes in net
assets (liabilities) in liquidation.
Note B - Summary of Significant Accounting Policies (Going
Concern Basis)
[1] Depreciation:
Depreciation has been provided using the straight-line
method over the five-year estimated useful life of the
assets.
<PAGE 17>
[2] Revenue recognition:
Revenue has been recognized by the Company when media
placements appeared.
[3] Development costs:
Development and start-up costs expended prior to
commencement of operations have been expensed as incurred.
[4] Programming costs:
The Company charges programming costs to expense as they are
incurred.
[5] Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
[6] Concentration of credit risk:
The Company maintains all of its cash and cash equivalents
in one commercial bank.
[7] Stock-based compensation:
The Company accounts for stock-based employee compensation
under Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations.
[8] Income taxes:
The Company accounts for income taxes using the liability
method as prescribed by SFAS No. 109, "Accounting for Income
Taxes." Deferred tax assets and liabilities are determined
based on differences between financial reporting and tax
bases of assets and liabilities, and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The measurement of
deferred tax assets is reduced, if necessary, by a valuation
allowance for any tax benefits which are not expected to be
realized. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that
such tax rate changes are enacted.
<PAGE 18>
[9] Loss per share:
The Company calculates its loss per share under the
provisions of SFAS No. 128, "Earnings Per Share." SFAS
No. 128 requires a dual presentation of "basic" and
"diluted" loss per share on the face of the statements of
operations. Basic loss per share is computed by dividing
the loss by the weighted average number of shares of common
stock outstanding during each period exclusive of the
Series B shares in escrow. Diluted loss per share does not
include the effect, if any, from the potential exercise of
stock options and warrants as the effect thereof is
antidilutive.
Note C - Income Taxes
At December 31, 1997, the Company has available net operating
loss carryforwards of approximately $15,300,000, which expire at
various dates through 2012. Under Section 382 of the Internal
Revenue Code of 1986, as amended, the Company is subject to an
annual limitation on the utilization of its net operating loss
carryforwards because an ownership change of more than 50% has
occurred.
Prior to the commencement of operations the Company was required
to treat certain costs as start-up costs for tax purposes.
Accordingly, development and general and administrative expenses
were not deducted for tax purposes until April 1996. The
Company's financial statements do not reflect a benefit from its
net operating loss carryforwards or from deductible temporary
differences, because a valuation allowance, which increased by
approximately $3,400,000 and $3,558,000 for the years ended
December 31, 1997 and 1996, respectively, has been provided
against the deferred tax asset. The valuation allowance has been
provided as it is more likely than not that the tax benefits will
not be utilized. In addition, the Company is subject to an
annual limitation under Section 382 of the Internal Revenue Code.
At December 31, 1997 the principal components of deferred tax
assets (liabilities) are as follows:
Net operating loss carryforwards $ 6,100,000
Start-up costs 2,600,000
Other 100,000
Write down of fixed assets 800,000
Obligation under employment contract 100,000
9,700,000
Valuation allowance (9,700,000)
Net deferred tax $ 0
<PAGE 19>
Note D - Stockholders' Equity
[1] Capital stock:
At December 31, 1997, there were 636,115 shares of
outstanding Series B common stock held in escrow to be
released based on meeting certain conditions. These
conditions will likely not be met, in which case the escrow
shares will be canceled or deposited in the Company's
treasury.
The holders of Series A shares are entitled to one vote per
share. The holders of the Series B shares are entitled to
five votes per share. The Series B stock is held by the
chairman of the Board and former management of the Company.
[2] Stock options:
(a) Consultants and advisors stock option plan:
During 1994, the Board of Directors and the
stockholders of the Company approved a stock option
plan (the "Plan") which provides for the granting of
options to purchase up to 100,000 shares of Series A
common stock. Consultants and advisors of the Company
are eligible to receive nonqualified options to
purchase shares under the Plan. Options granted under
the Plan are exercisable for a period of four years
from the date of grant at an exercise price as
determined by the Company's compensation committee, of
not less than $2.00 per share. At December 31, 1997
there were no options available to be granted under the
Plan.
(b) Employee stock option plan:
In August 1995, the Board of Directors and the
stockholders approved the Company's Employee Stock
Option Plan (the "Employee Plan"), for the benefit of
officers and key employees of the Company or any of its
current or future parents or subsidiaries. The
Employee Plan, as amended, provides that options to
purchase an aggregate of 2,000,000 shares of the
Company's Series A common stock may be granted pursuant
to the Employee Plan. Options granted under the
Employee Plan may be incentive stock options or
nonqualified stock options. The term, the exercise
price, and the rate at which options may be exercised
will be determined by the Company's Board of Directors
or by the compensation committee. Unexercised options
expire five to ten years after the date of grant.
During the year ended December 31, 1996 options to
purchase 100,000 shares previously granted under the
Employee Plan were canceled and options to purchase
<PAGE 20> 503,000 shares of the Company's Series A
common stock were granted to employees.
In October 1996 the Company agreed to issue options to
purchase 1,000,000 shares of Series A common stock in
connection with employment agreements with its chairman
and president and the resignation of its former
president. Options for all of these shares are subject
to vesting provisions, 900,000 of which are based on
the Company's attaining specified earnings thresholds.
There will be a charge to operations equal to the
difference between the exercise price and the fair
value of the stock on the date that these options vest.
During the year ended December 31, 1997, options to
purchase 308,000 shares of Series A common stock were
granted to employees under the Employee Plan.
(c) The Director Plan:
In July 1996, the stockholders of the Company approved
the Director Plan, pursuant to which the Company
granted to seven directors options to purchase all of
the 630,000 shares of Series A common stock available
under such plan at an exercise price of $5.00. In
October 1996, 180,000 options were forfeited due to the
resignation of two members of the Board of Directors.
During the year ended December 31, 1997 options to
purchase 90,000 shares of Series A common stock were
granted to a director.
(d) Other stock options:
The Company has outstanding options to purchase 120,000
shares of its Series A common stock which were granted
to directors prior to the adoption of its stock option
plans.
The Company applies APB No. 25 and related
interpretations in accounting for its options.
Accordingly, no compensation cost has been recognized
for its stock option grants to employees and directors.
However, the Company recognized compensation of
approximately $10,000 and $160,000 in 1996 and 1997,
respectively, related to options and warrants granted
to others.
As discussed in Note A, subsequent to December 31, 1997 the
Company entered into an agreement pursuant to which it will
sell substantially all of its assets and has ceased its
operations. Therefore the disclosures required by SFAS
No. 123 of net loss and net loss per share and the weighted
average fair value of options granted during each year, in
light of the Company's adoption of a liquidation basis of
accounting, are not deemed material to the Company's
<PAGE 21> financial statements. Accordingly, such items
have not been disclosed for either of the years presented.
A summary of the status of the Company's stock options as of
December 31, 1996 and 1997, and changes during the years
then ended is presented below:
1997 1996
Weighted- Weighted-
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
Outstanding at
beginning of year 2,093,000 $2.81 311,000 $3.42
Granted 398,000 2.57 2,363,000 3.03
Canceled (390,000) 3.64
Forfeited (418,000) 3.51 (191,000) 4.87
Outstanding at end
of year 2,073,000 2.62 2,093,000 2.81
Options exercisable
at year-end 899,000 2.93 778,000 2.92
The following table summarizes information about fixed stock
options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
at Remaining Average at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1997 Life Price 1997 Price
<S> <C> <C> <C> <C> <C>
$1.75 - $2.83 1,633,000 8 $2.03 609,000 $2.08
$3.87 - $5.00 440,000 8 4.81 290,000 4.71
2,073,000 8 $2.62 899,000 $2.93
</TABLE>
Upon a change in control of the Company, a significant
number of options which are outstanding, but unexercisable
at December 31, 1997 may become exercisable.
[3] Warrants:
Warrants outstanding and exercisable at December 31, 1997
are summarized as follows:
<PAGE 22>
Shares
Covered by Exercise
Warrants Price Expiration
Class A warrants (i) 1,762,000 $5.13 October 2000
Class B warrants 1,382,000 6.85 October 2000
Placement agent's warrants 124,212 2.00 January 1999
Warrants to mall developer 25,000 5.00 October 2000
(i) Upon the exercise of each Class A warrant, the holder will
receive a share of Series A common stock and a Class B
warrant.
In connection with the Company's initial public offering in
1995, the underwriter ("Blair") purchased, for nominal
consideration, an option to purchase up to 280,000 units,
each consisting of one share of Series A common stock, one
Class A warrant and one Class B warrant. In connection with
the Company's private placement in 1996, Blair received an
additional option to purchase up to 999,999 of such units.
Effective December 30, 1997 Blair canceled and terminated
these options.
Note E - Commitments and Other Matters
[1] Employment and consulting agreements:
During the year ended December 31, 1997 two officers
resigned and the employment agreement of one executive
expired. In addition, the Company terminated the employment
of three executives whose employment agreements provide for
severance payments aggregating $181,000, which has been
accrued for in the accompanying statement of operations for
the year ended December 31, 1997. The Company has one
outstanding employment agreement with an officer which
provides for annual compensation of approximately $150,000
and $113,000 in 1998 and 1999, respectively, plus increases
and bonuses as determined by the Board of Directors. The
agreement provides for severance equal to the remaining
payments through the term of the agreement. In addition,
this agreement provides for a three-year extension, at
$150,000 per year, from the date of a change in control of
the Company, as defined in the agreement.
The Company has accrued $263,000 in the accompanying
statement of net liabilities in liquidation as of
December 31, 1997 in connection with this agreement.
[2] Leases:
During the year ended December 31, 1997 the Company was
released from its office space lease obligation and
currently leases its office space on a month-to-month basis.
Rent expense was approximately $122,000 and $89,000 for the
years ended December 31, 1997 and 1996, respectively.
<PAGE 23>
[3] Employee settlement:
The Company reached an agreement with a former employee to
settle claims relating to continued employment and rights to
additional ownership interest in the Company. The agreement
requires the Company to pay the employee $200,000 plus
accrued interest from excess cash flow (as defined) of the
Company; the unpaid balance of the obligation was due on
December 31, 1997 and interest at the prime rate began
accruing on January 1, 1996. The balance of such obligation
at December 31, 1997 is $234,000.
[4] Other commitments:
In December 1996, the Company entered into a financial
advisory agreement with an investment banking firm (the
"Firm"). Pursuant to the agreement, the Firm was to provide
financial advisory services to the Company for a period of
18 months. In connection with the agreement, the Firm
received warrants to purchase 401,321 shares of Series A
common stock at an exercise price of $2.00 per share. The
Company determined the fair value of the warrants to be
$323,000 and recorded deferred consulting fees to be written
off over the 18 month period. In 1997 the agreement was
terminated, the warrants were canceled and the Company
charged the unamortized balance of deferred consulting fees
of $153,000 to additional paid-in capital.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not Applicable.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
Information regarding the directors and executive
officers of the Company as of March 31, 1997 is set forth below.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert H. Lenz 58 Chairman of the Board of Directors
James N. Perkins 64 President, Chief Executive Officer
and Director, Treasurer
<PAGE 24>
Gary D. Penisten 66 Director
James N. Galton 74 Director
Eric C. Mendelson 30 Secretary
</TABLE>
Robert H. Lenz,
Chairman of the Board of Directors
Mr. Lenz has served as the Company's Chairman since
May, 1993. From 1979 to 1991, Mr. Lenz was a principal, Creative
Director and co-founder with five partners of the advertising
firm of Backer & Spielvogel Inc. After the merger of Backer &
Spielvogel with Ted Bates, Inc. in 1988, Mr. Lenz was Chairman
and Creative Director of Backer Spielvogel Bates U.S. until 1991.
Subsequent to his departure from Backer Spielvogel Bates U.S. in
1991, Mr. Lenz has been pursuing personal interests including the
development of Cafe USA.
James N. Perkins,
President, Chief Executive Officer and Director
Mr. Perkins has served as President, Chief Executive
Officer and Director of the Company since October 1, 1996.
Mr. Perkins served as Executive Vice President and Chief
Operating Officer of the Company from February, 1996 to
October 1, 1996. From 1988 to 1996, Mr. Perkins was President of
US Tel, Inc., a telecommunications development company
specializing in new media. From 1985 to 1988, Mr. Perkins
organized and managed an interactive media research venture of
Citibank, NYNEX and RCA. From 1981 to 1985, Mr. Perkins
organized and managed the cable television programming venture of
Hearst Corporation and ABC that led to the development of the
Arts & Entertainment and Lifetime Networks. From 1980 to 1981,
Mr. Perkins created and produced "The Home Shopping Show," the
forerunner of The Home Shopping Network. Mr. Perkins is a
graduate of Dartmouth College and a former Captain in the U.S.
Air Force.
Gary D. Penisten,
Director
Mr. Penisten has been a director of the Company since
October, 1993. Mr. Penisten was employed with General Electric
from 1953 to 1974, including as Manager of Finance for General
Electric's Power Generation Group from 1972 to 1974. From 1974
to 1977 Mr. Penisten served as Assistant Secretary of the Navy,
Financial Management. In 1977 he joined Sterling Drug, Inc.
where he was Senior Vice President, CFO, and member of the Board
of Directors of Sterling until 1988. After Sterling Drug was
acquired by Eastman Kodak in 1988, Mr. Penisten remained with
Kodak for two years as CFO of the Health Group until he took
early retirement to pursue personal business interests in 1990.
Mr. Penisten was a minority owner and director of Network
<PAGE 25> Communications, Inc. which in December, 1990 filed a
petition pursuant to Chapter 11 of the Federal Bankruptcy laws.
Currently, Mr. Penisten is Chairman of the Board and a director
of Acme United Corporation and a Director of D.E. Foster
Partners, Inc.
James N. Galton,
Director
Mr. Galton has been a director since June 4, 1997. He
is presently retired. He was President and Chief Operating
Officer of Marvel Entertainment, Inc. ("Marvel") from 1974 to
1990. He then worked for Marvel as a consultant from 1991
through 1995.
Beneficial Ownership Reports
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and
persons who own more than ten percent of the Company's Common
Stock, to file with the Securities and Exchange Commission
("SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other securities of the Company.
Such persons are required by the SEC to furnish the Company with
copies of all Section 16(a) forms that they file.
To the Company's knowledge, during the year ended
December 31, 1997, based solely on a review of the copies of the
Section 16(a) reports furnished to the Company, except as set
forth below, all of the Company's directors, officers and ten
percent stockholders have complied with Section 16(a) of the
Exchange Act. On or about December 29, 1997, director James N.
Galton sold 38,427 shares of the Company's Series A Common Stock
to Eric Mendelson, the Company's secretary in a private sale at
then market value.
ITEM 10 - EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth information for each of
the three years ended December 31, 1997, concerning compensation
for services in all capacities awarded to, earned by or paid to
(i) each person serving as the chief executive officer, and
(ii) the other executive officers of the Company who earned more
than $ 100,000 during such period (collectively, the "Named
Executives"). There were no other executive officers for whom
disclosure would have been provided but for the fact that such
individuals were not serving at December 31, 1997.
PAGE 26
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards Payouts
Other Securities All
Annual Underlying Other
Compensa- Restricted Options/ LTIP Compen-
tion(1) Stock Awards SARs(2) Payouts sation
Name and Principal Position Year Salary ($) Bonus($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Lenz................ 1997 $ 70,833 $ N/A $ N/A $ N/A N/A $ N/A $ N/A
Chairman of the 1996 100,000 N/A N/A N/A 600,000 N/A N/A
Board and Director 1995 82,083 N/A N/A N/A N/A N/A N/A
James N. Perkins.............. 1997 135,000 N/A N/A N/A N/A N/A N/A
President and Chief 1996 151,667 N/A N/A N/A 500,000 N/A
Executive Officer 1995 N/A N/A N/A N/A N/A N/A N/A
Darren M. Sardoff............. 1997 56,827 N/A N/A N/A N/A N/A N/A
Chief Financial Officer 1996 155,000 N/A N/A N/A 100,000 N/A N/A
1995 29,583 N/A N/A N/A N/A N/A N/A
Stephen G. Bowen.............. 1997 N/A N/A N/A N/A N/A N/A N/A
Former President and 1996 175,000 N/A N/A N/A 100,000 N/A N/A
Chief Executive Officer 1995 165,208 N/A N/A N/A N/A N/A N/A
H. Scott Phillips............. 1997 135,000 N/A N/A N/A 150,000 N/A N/A
Executive Vice President,
Operations
Mark Chalom 1997 135,000 N/A N/A N/A N/A N/A N/A
Senior Vice President, 1996 N/A N/A N/A 50,000 N/A N/A
Programming & Production
_______________
</TABLE>
"N/A" indicates that the column is not applicable because no
compensation of the category required to be disclosed in the
column was received.
(1) The costs of certain perquisites and other personal benefits
are not included because they did not exceed, in the case of
each Named Executive, the lesser of $50,000 or 10% of the
total of annual salary and bonus reported in the columns
above.
(2) Indicates number of shares for which options were granted
during the applicable periods.
The following table sets forth information concerning grants
of stock options for the fiscal year ended December 31, 1997 to
the Named Executives.
<PAGE 27>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options/ Number of
Underlying SARs Shares/
Options/ Granted to Exercise
SARs Employees or Base
Granted in Fiscal Price(2) Expiration
(#)(1) Year ($/Sh) Date
<S> <C> <C> <C> <C>
H. Scott Phillips.... 150,000 150,000 $1.37 2/6/01
_______________
</TABLE>
(1) All amounts represent stock options to purchase shares of
Series A Common Stock granted under the terms of the 1995
Employee Stock Option Plan (the "Plan"). No SARs or SARs
granted in tandem with options were granted during 1997.
Options terminate three months (but not later than the
scheduled termination date) after the date on which
employment is terminated (whether such termination be
voluntary or involuntary) other than by reason of death or
disability. The option terminates one year from the date of
termination due to death or disability (but not later than
the scheduled termination date).
(2) Under the terms of the Plan, the exercise price per share
must equal the fair market value on the date the option is
granted. Certain options granted to Messrs. Perkins and
Sardoff were repriced. See " -- Compensation Committee
Report on Option Repricing," herein. The exercise price may
be paid in cash, in shares of Series A Common Stock valued
at fair market value on the date of exercise, or in any
combination of cash and shares of Series A Common Stock.
The following table sets forth information concerning
the exercise of options to purchase shares of Series A Common
Stock by the Named Executives during the fiscal year ended
December 31, 1997, as well as the number of securities underlying
unexercised options and potential value of unexercised options
(both options which are presently exercisable and options which
are not presently exercisable) as of December 31, 1997.
<PAGE 28>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Value(1)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Options/SARs at Options/SARs at
Fiscal Year-End Fiscal Year-End
(#) ($)(2)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise(#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Robert H. Lenz....... 0 $0 0/600,000 $0/0
James N. Perkins..... 0 0 200,000/300,000 0/0
H. Scott Phillips.... 0 0 100,000/250,000 0/0
Mark Chalom.......... 0 0 12,500/12,500 0/0
</TABLE>
_____________________
(1) All amounts represent stock options to purchase shares of
Series A Common Stock. No SARs or SARs granted in tandem
with stock options were either exercised during 1997 or
outstanding at fiscal year-end 1997.
(2) "In-the-money options" are stock options with respect to
which the market value of the underlying shares of Series A
Common Stock exceeded the exercise price at December 31,
1997. The value of such options is determined by
subtracting the aggregate exercise price for such options
from the aggregate fair market value of the underlying
shares of Series A Common Stock on December 31, 1997.
Employment Contracts, Termination of Employment and Change-in-
Control Arrangements
Effective October 1, 1996, Robert H. Lenz, the
Company's Chairman, entered into a three-year employment
agreement with the Company which provides for: (1) a base salary
of $100,000 per year, with increases in subsequent years as may
be determined in the discretion of the Board of Directors,
(2) bonus compensation as determined from time to time in the
discretion of the Board of Directors, (3) a special bonus
consisting of 3.75% of the fair market value of any strategic
alliance or merger or acquisition transaction, (4) options to
purchase 600,000 shares of Series A Common Stock at an exercise
price of $2.00 per share, with certain vesting provisions as
described below, (5) severance payments upon a change in control
of the Company, termination of employment or voluntary
resignation for "good reason" (as defined in the agreement) equal
to 2.99 times his then base compensation, and (6) benefits
provided to all other senior management employees of the Company.
On September 10, 1997, Mr. Lenz terminated his employment
contract with the Company but remained Chairman of the Board of
Directors.
<PAGE 29>
Effective October 1, 1996, James N. Perkins, President
and Chief Executive Officer, entered into an employment agreement
with the Company on substantially similar terms to that between
the Company and Mr. Lenz except that Mr. Perkins will receive
base compensation of $150,000 and options to purchase 500,000
shares of Series A Common Stock at an exercise price of $2.00 per
share, with certain vesting provisions as described below.
The options granted to Mr. Lenz and 300,000 of the
options granted to Mr. Perkins under their employment agreements
shall vest in three equal annual installments on November 14,
1997, 1998 and 1999 provided that (a) the first installment shall
vest if and only if the Company (i) reports positive earnings
before extraordinary items, interest, taxes, depreciation and
amortization for the fiscal year ending December 31, 1997, or
(ii) reports earnings (before extraordinary items) per primary
share ("EPS") of at least $0.35 for the fiscal year ending
December 31, 1998, or (iii) reports EPS of at least $0.60 for the
fiscal year ending December 31, 1999, or (iv) reports EPS of at
least $0.90 for the fiscal year ending December 31, 2000, (b) the
second installment shall vest if and only if the Company achieves
a target set forth in preceding sub-clauses (a)(ii), (a)(iii) or
(a)(iv), and (c) the third installment shall vest if and only if
the Company achieves a target set forth in sub-clause (a)(iii) or
(a)(iv).
On October 9, 1995, the Company entered into an
employment agreement with Darren M. Sardoff as the Senior Vice
President, Business Affairs and Chief Financial Officer of the
Company. On May 25, 1997, Mr. Sardoff terminated his employment
with the Company.
On October 24, 1996, the Company entered into a
severance agreement with Stephen Bowen, former President and
Chief Executive Officer of the Company. Under the severance
agreement, Mr. Bowen received severance pay of $175,000 which is
payable by the Company in 52 weekly installments from October 1,
1996 through September 30, 1997. In addition, Mr. Bowen was
granted options to purchase 100,000 shares of Series A Common
Stock which are fully vested and immediately exercisable at the
price of $2.00 per share.
Directors' Compensation
In 1997, non-employee directors of the Company who were
not also holders of Series B Common Stock and have not been
nominated pursuant to a contractual undertaking by the Company
receive a fee of $1,000 per meeting, $500 for each committee
meeting attended in conjunction with a Board meeting and $1,000
per committee meeting attended not in conjunction with a Board
meeting. In addition, in July 1997, the Company granted options
to purchase 90,000 shares of Series A Common Stock at an exercise
price of $1.625 to James N. Galton pursuant to the Company's
Director Stock Option Plan.
<PAGE 30>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of April 1, 1998,
the ownership of the Company's Common Stock by (i) each person
who is known by the Company to own, of record or beneficially,
more than five percent of the Company's Series A Common Stock or
Series B Common Stock, (ii) each of the Company's Directors and
Executive Officers, and (iii) all Directors and Executive
Officers as a group. Except as otherwise indicated, the
stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
<TABLE>
<CAPTION>
Shares of Percentage of Shares of Percentage of
Series A Series A Series B Series B
Common Stock Common Stock Common Stock Common Stock
Beneficially Beneficially Voting
Name(1) Owned(1) Owned Owned(1)(2)(3) Owned(4) Control
- -------------------------------- ------------ ------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Robert H. Lenz................. 703,772(5) 4.9% 440,748(6) 43.5% 13%
Stephen G. Bowen............... 234,615(7) 1.7% 206,545(8) 20.4% 5.6%
Joseph Mercaldo................ 158,787(9) 1.1% 158,787(8) 15.6% 4.2%
Gary Penisten.................. 90,000(10) * -0- -0- *
James Perkins.................. 234,427(10) 1.6% -0- -0- *
James E. Galton................ 30,000(11) * -0- -0- *
Eric Mendelson................. 38,427 * -0- -0- *
All Officers and Directors
as a Group (8 persons)....... 1,680,028(12) 10.7% 806,080 79.5% 23%
</TABLE>
_______________
* Denotes less than 1%
(1) The securities "beneficially owned" by an individual are
determined in accordance with the definition of "beneficial
ownership" set forth in the regulations of the Securities
and Exchange Commission. Accordingly, they may include
securities owned by or for, among others, the wife and/or
minor children of the individual and any other relative who
has the same home as such individual, as well as other
securities as to which the individual has or shares voting
or investment power or has the right to acquire under
outstanding stock options, warrants or convertible
securities within 60 days after the date of this table.
Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Certain holders of Series B Common Stock have placed a
portion of their shares of Series B Common Stock in escrow
<PAGE 31> and may vote such shares but not transfer them as
of this time ("Escrow Shares").
(3) Each share of Series B Common Stock is entitled to five
votes per share, is convertible into one share of Series A
Common Stock at the option of the holder, and will
automatically convert into an equivalent number of shares of
Series A Common Stock upon the sale or transfer by the
record holder to any person other than another holder of
Series B Common Stock.
(4) Excludes 10,135 shares of Series B Common Stock held in
treasury.
(5) Includes warrants to purchase 229,518 shares of Series A
Common Stock and 440,748 shares of Series A Common Stock
which may be acquired upon the conversion of Series B Common
Stock. Does not include 600,000 shares of Series A Common
Stock underlying unvested options.
(6) Includes 241,180 Escrow Shares.
(7) Includes 30,000 shares of Series A Common Stock underlying
currently exercisable warrants and (ii) 206,545 shares of
Series A Common Stock which may be acquired upon the
conversion of Series B Common Stock.
(8) Includes 106,545 Escrow Shares.
(9) Includes 158,787 shares of Series A Common Stock which may
be acquired upon the conversion of Series B Common Stock.
(10) Includes 200,000 shares of Series A Common Stock which may
be acquired upon the exercise of currently exercisable
options. Does not include [(i) 55,668 shares of Series A
Common Stock underlying warrants which are not exercisable
until November 14, 1997 ?] or (ii) 300,000 shares of
Series A Common Stock underlying unvested stock options. [?]
(11) Represents 30,000 shares of Series A Common Stock which may
be acquired upon exercise of currently exercisable options.
Does not include 60,000 shares of Series A Conversion Stock
underlying unvested options.
(12) Includes 764,518 shares of Series A Common Stock which may
be acquired upon the exercise of currently exercisable
options and warrants and 806,080 shares of Series A Common
Stock which may be acquired upon conversion of Series B
Common Stock.
<PAGE 32>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Director Robert J. Wussler resigned effective May 6,
1998.
PAGE 33
<PAGE>
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Title
2.1 Purchase and Sale Agreement between Company and Prime
Spot Media USA, Inc.
3.1 Amended and Restated Certificate of Incorporation of
the Company
3.2* Bylaws of the Company
4.1* Specimen Form of Series A Common Stock Certificate
4.2* Forms of Unit Purchase Options
4.3* Form of Warrant Agreement, with Specimen Form of
Class A and Class B Warrant Certificate attached
10.1* Stock Option Plan for Consultants and Advisers
10.4 Employment Agreement with Robert H. Lenz**
10.5 Employment Agreement with James N. Perkins**
10.9* Escrow Agreement
10.10* Employee Stock Option Plan**
10.11 Severance Agreement with Stephen G. Bowen.**
23 Consent of Richard A. Eisner & Company, LLP
27 Financial Data Schedule
____________
* Incorporated by reference from Amendment No. 1 to
Registration Statement on Form SB-2 (File No. 33-91054).
** Denotes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
None
PAGE 34
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FOOD COURT ENTERTAINMENT NETWORK,
INC.
By: /s/ James N. Perkins
James N. Perkins, President
and Chief Executive Officer
Date: June 15, 1998
In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the
Registrant and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ James N. Perkins President, Chief Executive June 15, 1998
James N. Perkins Officer, Director (Principal
Executive Officer)
/s/ Robert H. Lenz Chairman of the Board of June 15, 1998
Robert H. Lenz Directors
/s/ Gary D. Penisten Director June 15, 1998
Gary D. Penisten
/s/ James E. Galton Director June 15, 1998
James E. Galton
</TABLE>
PAGE 35
<PAGE>
EXHIBIT INDEX
Number Title
2.1 Purchase and Sale agreement between the Company and
Prime Spot Media USA, Inc.
3.1 Amended and Restated Certificate of Incorporation of
the Company
3.2* Bylaws of the Company
4.1* Specimen Form of Series A Common Stock Certificate
4.2* Forms of Unit Purchase Options
4.3* Form of Warrant Agreement, with Specimen Form of
Class A and Class B Warrant Certificate attached
10.1* Stock Option Plan for Consultants and Advisers
10.4 Employment Agreement with Robert H. Lenz**
10.5 Employment Agreement with James N. Perkins**
10.9* Escrow Agreement
10.10* Employee Stock Option Plan**
10.11 Severance Agreement with Stephen G. Bowen.**
23 Consent of Richard A. Eisner & Company, LLP
27 Financial Data Schedule
____________
* Incorporated by reference from Amendment No. 1 to
Registration Statement on Form SB-2 (File No. 33-91054).
** Denotes a management contract or compensatory plan or
arrangement. <PAGE 36>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the
Registration Statements on Form S-3 (Registration No. 333-21077)
and Form S-8 (Registration No. 333-30397) of our report dated
March 31, 1998 (April 23, 1998 with respect to Note A) on the
financial statements included int he annual report on Form 10-KSB
of Food Court Entertainment Network, Inc. as of and for the year
ended December 31, 1997.
/s/ Richard A. Eisner & Company, LLP
New York, New York
May 5, 1998
