SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number O-27542
FUN TYME CONCEPTS, INC.
(Exact Name of Company as Specified in its Charter)
New York 11-3157259
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
290 Wild Avenue, Staten Island, New York 10314
(Address of Principal Executive Offices)
(718) 761-6100
(Company's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Common Stock Purchase Warrants
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that Company 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 there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Company'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 [X].
The Company's revenues for its fiscal year ended March 31, 1998 were
$1,141,245.
The aggregate market value of the voting stock on July 7, 1998 (consisting
of Common Stock, par value $.001 per share) held by non-affiliates was
approximately $275,995, based upon the average bid and asked prices for such
Common Stock on said date ($0.15), as reported by a market maker. On such date,
there were 9,991,965 shares of Company's Common Stock outstanding.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
History
Fun Tyme Concepts, Inc. ("the Company") is a New York corporation which was
organized in April 1993. The Company commenced operations with the construction
of its first Fun Bubble play center in October 1994, in Staten Island, New York.
In May 1998 the Company acquired Play Co. Capital Corp., a Delaware corporation
("PCC"), which owns 50% of Prestige Fine Jewelry, L.L.C. ("Prestige"), a
Delaware limited liability company and the rights to purchase Cortina Valley Ski
Resort ("Cortina"). Unless the context requires, all references to the "Company"
include the Company's subsidiaries, PCC and Prestige and its rights to Cortina.
Corporate Overview
Prior to the consummation of its acquisition of PCC in May 1998, the
Company's business plan focused solely on developing, owning, and operating
entertainment facilities. Prior to December 1996 the Company focused on
children's educational and entertainment facilities, targeting children ages
twelve years old and under. In December 1996, the Company expanded its business
plan to develop state of the art entertainment centers for the whole family. The
Company in developing the design for its East Brunswick facility, expanded its
existing concept of children's educational and entertainment by adding the
concept of a high tech, theme restaurant and entertainment center catering to
children of all ages and to some extent adults. Centers to be opened under the
new "Planet Playdium" concept will focus on offering attractions which provide
entertainment to all age groups and all members of family groups. The Company
plans to incorporate this new concept within its East Brunswick facility, which
is currently under construction and if successful add to its existing facilities
and use as a format for the development of additional facilities.
In May 1998, upon the consummation of the acquisition of PCC the Company
expanded its focus and decided to diversify itself and its operations. Though
the Company shall continue to operate and develop its children's entertainment
facilities, it shall seek to diversify, investing in and acquiring additional
businesses, in which it believes there is the potential for greater returns, in
order to increase the profitability of the Company.
Acquisition of Play Co. Capital Corp.
Effective May 28, 1998, the Company entered into a stock purchase agreement
(the "Acquisition") with PCC, a Delaware corporation, BBS Holdings, LLC ("BBS
Holdings"), a limited liability company organized under the laws of the state of
Delaware, the members of BBS Holdings, Anthony DiMatteo, an individual residing
at 110H Dinsmore Street, Staten Island, New York 10341 ("DiMatteo") and LD
Trust, a trust formed under the laws of the state of Delaware, CAT L.L.C., a
limited liability company and RICH L.L.C., a limited liability company, whereby,
BBS Holdings acquired an aggregate of 8,152,000 shares or approximately 81.6% of
the Company's common stock, par value $.001 per share (the "Common Stock"), of
which the Company issued 7,230,000 shares directly to BBS Holdings in exchange
for all of the outstanding shares of Play Co. Capital Corp. ("PCC").
Simultaneously therewith, CAT L.L.C and RICH L.L.C transferred an aggregate of
922,000 shares of the Company's Common Stock to BBS Holdings for a 20% ownership
interest therein.
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PCC owns a 50% interest in Prestige Fine Jewelry, L.L.C., a Delaware
limited liability company and owns the right under a purchase agreement to
purchase Cortina Valley Ski Resort and all personal and real property included
therein.
Prior to the exchange of shares in the Acquisition, Daniel Catalfumo and
Richard Rosso each transferred 461,000 shares of the Company's Common Stock to
CAT L.L.C. and RICH L.L.C., respectively, companies formed by Daniel Catalfumo
and Richard Rosso, Officers of the Company, respectively.
As of June 30, 1998, inclusive of the shares issued in the acquisition,
there were 9,991,965 shares of the Company's Common Stock outstanding, of which
BBS Holdings owned 8,152,000 or approximately 81.6%, whereby, the Company has
become a subsidiary of BBS Holdings and PCC has become a wholly owned subsidiary
of the Company.
Since the Acquisition of PCC and certain other concurrent transactions
resulted in the transfer of an approximate 81.6% controlling interest in the
Company to BBS Holdings, Management believes that the Acquisition will be
treated as a purchase business combination, effective May 28, 1998, that will be
accounted for as a "reverse acquisition" in which the Company shall be the legal
acquirer and PCC will be accounting acquirer. Accordingly, the assets and
liabilities of PCC will be accounted for at their historical carrying values and
the assets and liabilities of the Company will be valued at their fair values
with the excess of BBS Holdings' cost over the fair value of the Company's
assets, if any, allocated to goodwill.
Reorganization of Fun Centers
In April 1998, in preparation for the Acquisition, the Company reorganized
its corporate structure. The Company formed a wholly-owned subsidiary, named
Planet Play-Dium, Inc. ("Planet"), a Delaware corporation, and transferred its
ownership in its three fun centers to Planet, whereby, each of Fun Tyme of
Edmonton, Inc ("FTE"), Fun Tyme of East Brunswick, Inc. ("FTEB") and newly
formed Fun Tyme of Staten Island, Inc. ("FTSI") are wholly-owned subsidiaries of
Planet.
Initial Public Offering
On August 15, 1996, through State Street Capital Markets Corp. ("State
Street"), the Company consummated an initial public offering ("IPO") of
1,250,000 units, each unit (the "Units") comprising one share of Common Stock,
par value $.001, and one redeemable Common Stock Purchase Warrant (the
"Warrants"), at a purchase price of $6.25 per unit, inclusive of 800,000 shares
of Common Stock sold by the Company, 200,000 shares of Common Stock sold by
certain security holders and 250,000 shares of Common Stock and 1,250,000
Warrants sold by a certain selling security holder. Net proceeds to the Company
from the IPO were approximately $3,102,000. The proceeds from the Company's IPO
were earmarked to enable the Company to open additional facilities, each of
which is expected to combine various elements of a children's entertainment
center along with indoor recreational and educational facilities and
specifically designed toddler programs. The Company has opened a new facility
called Congo Bongo Fun Centre, in Edmonton, Canada, and plans to open another
new facility called Planet Playdium, incorporating its new Planet Playdium
concept, in East Brunswick, New Jersey, in the autumn of 1998.
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In August 1996, State Street ceased operations and soon thereafter State
Street and the Company terminated its underwriting agreement and all other
agreements between the parties. The lack of market support by the Company's
underwriter and principal market maker limited the liquidity of the Company's
securities and decreased market quotations to a point whereby the units were
trading below $1.00. As a result of this continued low trading, though the
Company strove to keep its securities listed on the Nasdaq SmallCap Stock
Market, Nasdaq delisted the securities on April 7, 1997, at which time the
Company's securities began trading on the OTC Bulletin Board.
Family Entertainment Business
Background
In 1993, the founders of the Company began to research the children's
entertainment industry and, in doing so, joined the International Association of
Amusement Parks and Attractions. They attended trade shows and seminars and
visited many other children's entertainment facilities. They noticed that most
facilities had limited floor space and low ceilings which limited the space for
the larger children's play equipment and which gave most of the facilities a
closed-in feeling. After estimating the possibilities, the founders decided that
building a facility in an air supported dome with a 40 foot ceiling would create
an airy uncluttered environment, and, with the help of a manufacturer of
pneumatically inflated domes, in 1993, the Company designed a dome unit that
would have a 40 foot ceiling. In October 1994, the Company opened its first Fun
Bubble in Staten Island, New York. In August 1997, the Company's second
facility, Congo Bongo, was opened in Edmonton, Canada. See "Business - Staten
Island, New York Fun Bubble" and "Business - Edmonton, Canada Facility."
Outlook
Although the Company's current expansion plans are focused upon its new
acquisitions, the Company still plans to expand its business operations by
opening additional facilities, under the Planet Playdium concept, if same is
successful. These facilities may be under traditional building structures, not
the pneumatic domes used for the Company's Staten Island facility. In either
event, the Company will seek to incorporate high ceilings and unfettered open
space in keeping with its initial concept. The Company intends to open
facilities in or near locations that are family oriented, in areas that have
large populations of children, and/or in areas with higher than average
disposable income.
Industry Overview
The children's amusement industry is a highly competitive segment of the
family entertainment industry, which includes admissions-based, or pay for play,
recreational and soft play centers that target young children from toddlers to
pre-teens. The pay for play children's entertainment center industry is highly
fragmented and consists largely of local "mom and pop" stores, small regional
chains, and local non-profit organizations that provide pay for play indoor soft
play facilities. The children's amusement industry is subject to rapid
technological and innovative change. Competition from and among companies which
provide amusement centers and other arenas for the amusement of children is
characterized by continuous technological and innovative changes and advances.
There can be no assurance that the Company
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will be able to keep pace with the technological and innovative developments in
the industry or to implement changes in accordance with such developments.
Entertainment Concept
In its existing entertainment centers, the Company encourages the
participation of parents and/or guardians with their children and to this end
has designed a play maze and other play equipment which will allow children and
their parents and/or guardians to play together. In addition to the play maze
area, the facilities offer private party rooms, games of skill, video games,
redemption games, bumper cars, a train roller coaster ride, a bungee trampoline,
a separate toddler play area and a private sound proof parent's lounge.
Management believes that the facilities are designed to provide a fun, safe,
reliable, and interactive environment whereby children can exercise their bodies
and minds and acquire certain necessary skills. It is Management's intention
that each location provide such an environment. Each facility is geared toward
enhancing a child's (i) hand, eye, and muscle coordination; (ii) motor skills;
(iii) flexibility; and (iv) social skills. The Company plans to continuously
update its facilities to meet children's recreational and educational needs in a
stimulating, safe, and fun arena. See "Toddler and Pre-School Programs."
The Company's new Planet Playdium concept will incorporate the Company's
existing attractions and educational offering, with high tech games and a theme
restaurant atmosphere, catering to all members of family. The East Brunswick
location, as the initial prototype location will include a separate toddler play
area with an adjoining "Cyber Cafe" with computers available for the parents use
and a "Laser Tag" area hosting futuristic interactive laser gun games. Should
the Planet Playdium concept prove to be successful in East Brunswick, the
Company plans on expanding its existing facilities to incorporate this new
concept.
Staten Island, New York Fun Bubble
The Staten Island Fun Bubble, which opened in October 1994, is constructed
under a pneumatic translucent dome with 40 foot ceiling heights, similar to
those used for tennis courts. Although the Company intends to open additional
facilities under similar structures, it may also operate facilities in
traditional building structures. The Staten Island Fun Bubble charges an
admission fee of $6.95 per child; there is no admission fee for adults
accompanying children.
The Fun Bubble has (i) an environmentally controlled, supervised "Open Air
Atmosphere" which is climate controlled throughout the seasons; (ii) a party
play center for kids twelve years old and under, which includes athletic games
and games of skill; and (iii) a three level soft-sculptured modular foam play
maze. All activities are designed with safety in mind and are continuously
supervised by the Company's trained employees. The children purchase tokens to
play skill games and receive points at the end of each game. These points may be
redeemed at any time to receive a prize at the merchandise and concession
counter. See "Safety and Arcade Redemption Systems."
In addition to the foregoing, the facility also includes private party
rooms, a snack bar, and a sound proof television lounge for parents. The party
rooms can be reserved for birthdays and other group events. The Company offers a
variety of party packages which combine all aspects of a celebration. The
parents' lounge provides a quiet place for adults to retreat on occasion while
their children play: it includes a television and a large clear window for
viewing
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the play area.
In fiscal year 1997, the Staten Island Fun Bubble was remodeled in keeping
with the Company's desire to effect an outer space theme. Accordingly, all
equipment was redesigned with space and spaceships as the focus.
Edmonton, Canada Facility
In February 1997, the Company formed a wholly-owned subsidiary, Fun Tyme of
Edmonton, Inc. ("FTE"). FTE purchased the assets of a pre-existing children's
entertainment facility in Edmonton, Canada. This facility was in bankruptcy, and
the assets purchased by the Company was effected on May 20, 1997 by and between
FTE and Browning Smith Inc., trustee of the estate in bankruptcy.
On May 21, 1997, upon approval of Browning Smith Inc., FTE and the lessor
of the former facility executed a lease agreement for the premises. The Edmonton
facility commenced operations in August 1997, with a jungle theme, and operates
under the name "Congo Bongo."
The Company charges an admission fee of $6.50 Canadian per child; there
being no admission fee for adults accompanying children. The Edmonton facility
contains substantially the same attractions and programs as the original Staten
Island Fun Bubble.
East Brunswick, New Jersey Facility
In December 1996, the Company formed a wholly owned subsidiary, Fun Tyme of
East Brunswick, Inc. On January 21, 1997, FTEB executed a lease for an 18,000
square foot facility, formally a movie theatre, in the Miracle Mall in East
Brunswick, New Jersey. The Company is in the process of renovating the movie
theater within the Mall and plans to open a entertainment facility which can be
enjoyed by the whole family. The design of the facility incorporates areas for
the facility's theme restaurant, the Cyber Cafe, a Laser Tag section, and the
Solocoaster ride, in addition to the original Fun Bubble attractions, therein to
bring this area its largest children's entertainment facility. The Miracle Mall
is a 120,000 square foot landmark center in the heart of East Brunswick's most
active regional shopping area. This mall includes 18 centrally anchored stores
and is adjacent to Tices Lane on which an additional 700,000 square feet of
retail stores are situated. The movie theater was chosen because of its high
ceilings and existing layout, both of which will enable the Company to retrofit
the space into its Planet Playdium concept.
The Company has chosen a theme focusing on the future and Hollywood movies
for its East Brunswick location. The East Brunswick location is expected to open
in the fall of 1998.
Marketing
The Company has incurred marketing expenses in purchasing cable television
and radio advertising time, local newspaper and magazine print advertisements,
and brochures which it has disseminated at its Staten Island Fun Bubble and
Edmonton facility locations. As the Company expands to add additional locations,
it intends to increase its advertising and marketing activities: it expects to
contact local school systems, clubs, and religious organizations to organize
events for children and attract target groups of children to its facilities.
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Suppliers
Operation of the entertainment facilities is contingent upon the ability of
the Company to purchase and lease equipment from suppliers. Though the Company
intends to purchase most of the play equipment it requires for each facility, it
may lease certain pieces of equipment. The Company will purchase one play maze
(discussed above), at an estimated cost of $250,000 for each facility. The
Company believes that there are many vendors and suppliers of the games and
equipment it purchases and leases. The Company believes it will continue to be
able to purchase and lease equipment in the future at prices and on terms
similar to those at which it presently does so. As fads arise and certain games
or attractions become popular the Company's inability to obtain these items in a
timely manner, to meet demand may have and adverse affect on the Company's
operations.
Competition
The Company's facilities are directed at the highly competitive business of
children's indoor recreation and educational facilities. The Company's largest
competitor in the pay for play segment of the industry is the Discovery Zone.
While the Discovery Zone closed over 35% of its locations during its recent
bankruptcy, it has recently emerged from its Chapter 11 protection and remains a
competitor to the Company. New competitors may include The Walt Disney Company,
which has a family entertainment concept in two locations and has announced
plans to open additional store locations. The Company also competes with many
other small companies which have individual amusement center locations providing
basically the same services as the Company. The Company believes that many of
its competitors have (i) more extensive research and development and marketing
and customer support capabilities; and (ii) greater financial, technological,
and other resources than those of the Company. Further, the Company does not
believe there are any significant barriers to entry by new companies into this
industry.
The Company also competes to some extent against certain children's theme
restaurant chains, which provide ancillary entertainment offerings and
merchandise in addition to food and do not charge admission fees. Such
competitors include ShowBiz Pizza Time, Inc., the operator and franchiser of
approximately 300 "Chuck E. Cheese" restaurants in the United States, and, to a
lesser extent, certain franchisees of McDonald's Corporation that operate indoor
playgrounds at a number of locations. These restaurants differ from the
Company's locations in that they do not charge for admission and focus on food
as their primary attraction and source of revenue.
The Company expects additional entities to enter into the market in the
near future, some of which may have significantly greater resources than the
Company. The Company expects that its facilities will naturally compete with
other ventures similar to the Company's with respect to location, availability
of new and distinct product and service offerings, and cost per visit. In
addition to competing with other companies in the business of children's indoor
amusement and educational facilities, the Company will compete for dollars spent
on entertainment for children involving other types of amusement, sports,
recreation, and fitness services such as park district programs, amusement
parks, and specialty restaurants.
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Safety and Arcade Redemption Systems
The Company is very concerned about the safety of the children entering its
facilities. Accordingly, it has designed the Staten Island and Edmonton
locations, and intends to design all additional facilities, to guard against (i)
injuries to children using the facilities; (ii) children leaving the facilities
unaccompanied; and (iii) children leaving the facilities without the parent
and/or guardian with whom they entered. As additional precautions, the Company
will continue to purchase only the type of play equipment it deems safe and will
provide constant supervision over its young patrons in order to minimize
injuries.
Electronic Safety Systems
One measure the Company has taken to ensure the safety of children visiting
its facilities involves the use of a child safety alarm system. The goal of this
system is to prevent a child from leaving the facility without his supervising
adult. To accomplish this goal, the Company provides electronic tags for each
child entering the facility. These electronic tags are attached to the child's
clothing. When a child leaves the facility with his supervising adult, the
electronic tag is removed. At each exit of the facility, the Company has
installed electronic arches which sound an alarm if a child whose tag has not
been removed attempts to leave the location.
Wristband System
An additional safety concern of the Company is that a child only leave with
the adult who brought him to the facility. To achieve this goal, no adult is
admitted to a location unless he is accompanied by a child. In addition, the
Company provides individually numbered and bar coded wristbands which fasten
around the wrists of each adult and child who enter the facility. Each adult's
wristband number and bar code correspond with the wristband and bar code of each
child the adult is supervising. When an adult leaves the facility with a child,
the adult will only be allowed to take the child whose wristband number and bar
code correspond to the adult's. (These bar coded wrist bands are also used for
children to accrue points in order to receive prizes and memorabilia when
playing the skill games.) By following this procedure, the Company hopes to
prevent a child from leaving the facility without his supervising adult.
Toddler and Pre-School Programs
Mommy & Me
The Company, as part of the services it makes available to the public, has
developed, with its consultants, toddler programs called "Mommy & Me." Parents
with children ages twelve to eighteen months attend class together at the
facilities on a weekly basis for nine weeks, at a cost ranging from $168.00 to
$250.00 per child, depending on the number of hours per week parents and
children attend. In this program, children participate in activities which focus
on socializing, singing, exercising, and playing in the Company's specially
designed toddler play area. As children reach eighteen months, the classes
include creative arts and crafts programs. Children work with materials such as
paints, glue, and beads. After class ends each week, the children are invited to
play at the Fun Bubble with their parents. The Company offers Mommy & Me
programs for children up to the age of 4 1/2 years old. Each child who enrolls
will receive an identification card and during class hours will be required to
wear an electronic tag as part of the child safety alarm system. These programs
were designed primarily by two consultants to the
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Company, pursuant to the terms of a consulting agreement. These consultants have
been designing and instructing the Mommy & Me class for several years at other
locations.
Separation Classes
Another program the Company provides is a series of "Separation Classes."
These classes were designed by the same consultants who designed the Mommy & Me
classes. These classes are designed for children who soon will be experiencing
their first separation from their parents. The classes focus on topics such as
sharing, manners, food groups, recognizing letters and numbers, shapes and
colors, worksheets, play stations, creative arts and crafts projects, special
theme weeks, and holiday parties. The classes meet from one to two times a week
for 2 1/2 hours at a time for nine weeks, at a cost ranging from $110.00 to
$190.00 per child. The classes are open to children two to five years of age.
Each child who enrolls receives an identification card and, during class hours,
is required to wear an electronic tag as part of the child safety alarm system.
After class ends each week, the children are invited to stay at the facility and
play.
Day Camp
The Company also has developed a day camp called "Camp Fun Bubble" which
provides four different day camp programs for different age groups. The program
for children two to three years old is called the "playfull summer" camp and is
a two hour on premise program offered either two or three times per week during
either a four, six, or eight week period. This camp is an extension of the Mommy
and Me program, except that the parents choose whether or not to participate.
The "junior camp" is for children three to four years old and provides on
premises activities from either 9 a.m. to 12 p.m. or 1 p.m. to 4 p.m., three to
five days per week, for a four, six, or eight week period.
The "day camp" is for children two to fourteen years old and provides
activities, on and off premises, from 9 a.m. to 4 p.m., three to five days per
week, during either a four, six, or eight week period. The day camp is run by
board of education certified teachers and includes bus transportation, lunch,
and regular camp type activities including sports and crafts.
Seasonality
The Company believes that its business may be considered seasonal and that
a large portion of its revenues and profits will be derived during the fall and
winter months. The Company believes that outdoor amusement centers and theme
parks will take business away from the inside amusement centers during the
spring and summer months. Since the Company has been operating (since October
1994), it has observed that the busier months have been in the fall and winter:
the spring and summer months have shown a decline in revenues. Since Edmonton
experiences a very cold climate, with a long winter, the Company expects that
the summer decline in revenues at the Edmonton location to be less pronounced.
See "Business - Day Camp."
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Insurance
In view of the nature of the activities conducted in an amusement center,
there are inherent risks of exposure to certain personal injury liabilities
including product liability and negligence claims resulting from injury caused
by the use of, or items purchased in, the facilities. Accordingly, with respect
to the Staten Island Fun Bubble, the Company currently carries general liability
insurance in the amount of $1,000,000 and maintains an additional $1,000,000
umbrella policy. For the Edmonton, Canada facility, the Company carries a
$5,000,000 general liability policy. For the East Brunswick, New Jersey
facility, the Company maintains a $2,000,000 general liability policy and
carries an additional $1,000,000 umbrella policy. The Company believes its
insurance coverage is sufficient.
Government Regulations
The Company is subject to the provisions of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Product Safety Act, the latter
of which empowers the Consumer Products Safety Commission ("the Consumer
Commission") to protect children from hazardous toys and other articles used by
children. Any determination by the Consumer Commission outlawing the use of the
type of soft-sculpted modular foam or other toys provided for the children by
the Company in its facilities would adversely affect the Company's ability to
sustain its operations. Presently, the Company does not know of any alternative
products to the soft-sculpted modular foam it currently uses; therefore, any
restrictions on its use would significantly adversely affect the Company and its
operations. The Company also is required to comply with a wide range of other
state and local rules and regulations applicable to its business. The ability of
the Company to comply with the current and anticipated broad federal, state, and
local regulatory network is essential and may be costly. The failure to comply
with such regulations would have an adverse effect on the Company's operations.
Service Mark
The Company relies on common law service marks for use of its name "Fun
Bubble." The Company filed to register the Fun Bubble service mark in the United
States, and its application was approved on April 3, 1996.
Marketing Research
During the last several years, the Company's executive officers have spent
a large portion of their time on research and development of the indoor play
facility market, the equipment utilized therein, possibilities for new play
equipment, and new locations at which additional facilities may be opened. This
research led to an awareness that the offerings of the fun centers could be
combined with attractions which cater to older children and adults in order to
provide a destination which would appeal to the entire family, including
children of all ages. The recent success of theme restaurants, such as "Planet
Hollywood" and "Hard Rock Cafe," has evidenced the existing demand for family
entertainment.
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Cortina Valley Ski Resort
General
In May 1998, the Company, through its subsidiary PCC, acquired the rights
to purchase Cortina Valley Ski Resort in the Catskill Mountains. PCC owns all
the rights, title and interest of Cortina Mt. Partnership to a contract dated
January 24, 1998 between Cortina Mt. Partnership and Rainbow Operation, Inc. and
Toru Hamanaka to purchase the rights under a lease agreement and all buildings,
ski lifts, and other personal and real property incorporated in the ski resort,
known as Cortina Valley Ski Resort ("Cortina"). The contract originally
scheduled to close on or before July 1, 1998, has been extended until July 15,
1998.
The Resort
Cortina Valley Ski Resort is a 25 year old all season destination mountain
resort in the Catskill Mountains, with primary emphasis on the ski season. The
facility currently comprises a base lodge, including a 20 room motel building,
lodge/restaurant, ski school building, ski rental shops and other related
storage buildings, all of which comprise approximately 19,000 square feet. The
resort had operated until the 1996/1997 ski season, during which it was closed.
The total land area of the property involved is approximately 300 acres and
consists of a ski area containing 106.2 acres and adjacent land containing 193.8
acres. The ski area comprises 18 slopes/trails with a base elevation of 1,925
feet and a top elevation of 2,650 feet. There are two double chair lifts, one
tow rope and one poma lift. The resort has snow making capabilities for
approximately 90% of the ski area and lighting for approximately 80% of the ski
area for night skiing.
Industry Overview
The Catskill Mountains, approximately 705,000 acres, contains four ski
resorts, one of which is Cortina. Cortina is located approximately two hours
outside of New York City and one hour from Albany, New York, the capital of New
York state. The population within 100 miles of the resort is approximately
20,000,000 people. According to the Ski Areas of New York, Inc., New York state
has averaged 3.5 million skier visits (defined as any person acquiring a ticket
for any part of a day) per year over the last five years, making the state the
fourth busiest state in the nation for skier volume. Despite ranking fourth in
the nation, New York has more operable ski areas (approaching 60) than any other
state in the nation. Due to this large number of areas, New York has more
skiable acres under lights available for night skiing than any other state. New
York ski areas are a diverse offering of all types of resorts including national
destination resorts, regional destinations, and local "day" areas.
During the last decade, the industry began experiencing a shift in its
focus as the growth of snowboarding has caused snowboarding to become a major
segment of the industry. The preliminary results from the 1998 annual Kottke end
of season survey of the ski industry showed that snowboarding has continued its
impressive growth. Snowboarding represented 21.2 percent of total skier visits
this year, an increase of approximately 20 percent over last and a compound
annual rate of growth of 20.7 percent since 1994-95. A 1997 study by American
Sports Data indicated that snowboarding is the fastest growing sport in America,
up 33% from the previous year.
11
<PAGE>
The preliminary results from the Kottke survey showed that during the
1997-1998 season skier visits were up 2.5 percent nationally over the previous
year. The Northeast ranked second among the regions of the nation for percentage
increase with a growth of 5.86 percent over the previous season. Skiers continue
to be among the most affluent of any sport participants. A recent poll conducted
by the National Sporting Goods Association shows that two thirds of alpine
skiers have a household income of over $50,000.
Outlook
The Company plans on reopening the currently non-operating ski resort for
the 1998-1999 winter season. The Company has budgeted approximately $300,000 to
renovate and upgrade the resort for its re-opening, which funding it anticipates
obtaining from loans secured by the property.
In time the Company plans on redesigning the resort, turning the facility
into a year round full service, all amenities resort catering to families,
decreasing the emphasis on the ski season and adding entertainment facilities
for year round use. In addition to the traditional hotel, restaurant, nightclub,
and swimming pool, which the resort currently offers, the Company intends on
adding a family entertainment center, currently in the planning stages.
The Company plans on providing a variety of outdoor winter activities at
the Resort. In addition, the future plans for the resort are to expand the
available ski acreage and number of lifts. The resort, however, will focus on
catering to the snowboarding segment of the skiing industry. Snowboarding
currently constitutes a large portion of the skiing industry and its popularity
is growing, especially among children. In order to fill a need and to attract
families, the Company plans on developing a snowboarding park. In addition, the
Company plans on constructing a snow tubing park adjacent to the family
entertainment portion of the lodge and an outdoor ice skating rink.
The Company is exploring plans to expand its outdoor summer activities to
contain amusement attractions. The existing property also contains mountain
biking trails which the Company plans on providing for the use of its customers.
In addition to the hotel accommodations provided to guests, the Company plans on
expanding the partially completed campgrounds.
Competition
The Catskill Mountains, approximating 705,000 acres, encompasses 4 ski
resorts, including Cortina Valley Ski Resort, Hunter Mountain, Ski Windham
Resort and Belleayre Mountain Ski Center. In addition, there are numerous other
ski areas, totaling 60 within New York State some of which are in close
proximity. However, since Cortina Mountain is a small, family-oriented mountain
with its major advantage of being close to the New York City metropolitan area,
its major competition will be from other ski areas in the Catskill region.
Although these areas offer longer vertical drops, and more skiable acres than
Cortina, Cortina should be able to compete favorably with these mountains by
offering lower lift prices and family oriented services and entertainment.
During the 1996-1997 ski season, both Ski Windham and Hunter Mountain had annual
ticket sales of approximately 375,000 and adult lift ticket prices ranging from
$32 to $43. In addition, Belleayre had sales of 175,000 ticket prices around
$30.
12
<PAGE>
Prestige Fine Jewelry, LLC
General
The Company, through its subsidiary PCC, owns 50% of Prestige Fine Jewelry,
LLC, a Delaware limited liability company, ("Prestige") formed in March 1998 by
Anthony DiMatteo, the Company's Executive Vice President of Sales and Marketing
and a Director, and Zeki Kochisarli, the owner of Prestige Chain, Inc. ("PCI"),
a manufacturer of jewelry, primarily gold, located in Long Island City, New
York. Mr. Kochisarli continues to own 50% of Prestige and 100% of PCI.
Overview
Prestige was formed to be the exclusive sales and marketing arm for PCI,
whereby, substantially all jewelry manufactured by PCI is sold through Prestige.
Prestige's objective is to act as a wholesaler, selling the Company's products
directly to independent jewelry stores and large chain retailers which stock
gold chains. The Company shall also seek to directly market its products and
service to jewelry designers and department stores who sell jewelry under their
own labels. Additionally, the Company may seek to expand into retail sales, by
direct marketing avenues such as catalogs and television home shopping networks.
PCI has a unique manufacturing operation, which is one of only a few fully
automated precious metal, primarily gold, manufacturing operations in the world,
which processes the precious metal from 24 karat fine gold stages to a finished
product, providing a high quality product.
PCI is one of the only jewelry manufacturers in the United States who, in
addition to producing gold chain and castings, also produces the karat gold used
for the production of the jewelry from fine gold. Karat gold (commonly referred
to as 10 karat gold, 14 karat gold, etc.) is the raw material used in the making
of gold jewelry and is produced by mixing raw gold with an alloy in order to
harden the metal. PCI is a leading innovator in the automation of jewelry
manufacturing, attaining substantial reductions in labor requirements especially
skilled labor. The automation of the manufacturing process allows PCI to quickly
adapt its manufacturing process to copy the latest seasonal styles of the
industry.
This fully automated manufacturing process does not require extensive labor
to operate, though it does require continuous maintenance. The Company believes
that the manufacturing process is cost-effective and provides the Company with a
competitive advantage because (i) it requires limited labor to operate (ii) is
produced in the United States, which limits shipping costs and taxes (duty,
tariffs and sales) when compared to the costs associated with purchasing jewelry
from overseas and (iii) due to the automation and venue of production decreases
the time to market for the products when ordered.
Industry Overview
Although the United States provides a majority of the world's demand for
gold jewelry, the gold jewelry industry is dominated by oversees producers
located in the Mediterranean region, primarily Italy. The seasonal styles of the
industry are largely set by the Italian
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<PAGE>
manufacturers in the industry. In 1997 sales of gold jewelry reached $12.6
billion up from $12.3 billion from the prior year.
Starting in the late 1970's U.S. companies started to compete with Italian
manufacturers, however, in principal these manufacturers were not fully
integrated operations, which increased their cost structure. In addition, upon
the devaluation of the Italian Lira, U.S. companies were unable to compete with
the lower priced Italian products, causing many companies to fail.
Exclusive Sales Agreement
In April 1998, Prestige entered into an exclusive sales agreement with PCI,
whereby Prestige became the exclusive and sole sales and marketing arm for PCI.
Prestige commenced operations in May 1998, at which time it proceeded to obtain
purchase orders for PCI. In accordance with the agreement, Prestige and PCI have
negotiated pricing for the different types, styles and designs of jewelry
manufactured by PCI, notwithstanding the cost of the gold and other raw
materials used in the manufacturing process, which is paid on a cost basis or
purchased directly by Prestige.
Marketing and Sales
Prestige has entered in a sales agreement with J.K. Limited, Inc. ("JKLI"),
for the sale of jewelry, primarily gold to large chain store retailers. Under
the agreement JKLI is the exclusive sales representative for the accounts of 15
customers, including Wal-Mart, K-Mart, Service Merchandise, Target, Sam's
Wholesale, and Costco. The agreement is for an initial term of one year, and
provides for three annual extensions if JKLI meets the yearly sales production
requirements. The sales production requirement is $10,000,000 for the initial
year and increases annually by $8,000,000.
Competition
The Company competes, in the U.S. primarily with several companies which
manufacture gold jewelry, two of which purchase products from the Company to
supplement their offerings. They include; Amburst of Rhode Island, Excel of
Rhode Island, and Olef Creations of New York, New York. The Company also
competes with many other small companies which have machine shops producing gold
jewelry. The Company believes that many of its competitors have greater
marketing and customer support capabilities and greater financial resources than
those of the Company. The Company does not believe there are any significant
barriers to entry by new companies into this industry, as the machinery is
unique and the maintenance thereof require skilled and highly trained
technicians.
Financing
Prestige entered in an accounts receivable factoring agreement with
Prestige Capital Corporation ("Prestige Capital"), an unaffiliated entity for a
term ending January 15, 1999. The terms of the agreement provide that the
Company shall assign all of its receivables to Prestige Capital, whereby,
Prestige Capital shall pay to Prestige up to 80% of the face value of the
receivables, hold 10% as security for the receivables and pay out the remaining
portion on a sliding scale. If the receivables are paid within 30 days the
Company gets an additional 6%, within 45 days an additional 5%, 60 days an
additional 4% and 90 days or over an additional
14
<PAGE>
2%. Therefore, Prestige Capital's fee is based on time of collection and ranges
from a minimum of 4% to a maximum of 8% of the receivable.
Maintenance
Since the machinery is mostly automated, it requires continuous maintenance
by high skilled and trained individuals, such as Mr. Kochisarli. The inability
to maintain the machinery in working order or the perception thereof by the
jewelry industry could inhibit Prestige's ability to proceed with its business
plan. For this reason, management has decided to commence a slow and progressive
operation of obtaining and processing purchase orders.
Employees
As of March 31, 1998, the Company had five executive Officers and employed
approximately 6 full time employees and 25 part time employees. The Company has
hired two managers for its Edmonton facility and shall relocate two of its four
Staten Island Fun Bubble managers to the East Brunswick facility. None of the
employees of the Company is represented by a union. The Company considers
relations with its employees to be good. The Company continues to utilize
LaborChex Companies, a company located in Jackson, Missouri, to provide
screening of each applicant prior to employment. The screening process informs
the Company of the applicants' prior criminal histories, if any, their addresses
for the past five years, and their social security numbers.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 31,000 square feet at 290 Wild Avenue,
Staten Island, New York 10314, where the Staten Island Fun Bubble, approximately
10,000 square feet is located. The Company utilizes approximately 500 square
feet of such space for its executive offices. The lease extends for a period of
seven years, until June 30, 2000, at approximately $95,000 per annum, with
annual scheduled rent increases of 4%. The lease term may be extended for two
five year renewal terms, until June 30, 2010.
In the event the first renewal term option is exercised by the Company, the
rental payment shall be the greater of the fair market value and 104% of the
prior year's rental payment (a 4% increase over such previous year's rental
payment). In each year of the first renewal period, commencing on the second
year of the five year renewal period, the yearly rental payment shall increase
by 4% over the previous year's rent. In the event the second renewal term is
exercised, the Company will be required to pay the fair market value of leasing
the property for such renewal term.
On December 31, 1996, FTEB entered into a lease agreement for the rental of
approximately 15,200 square feet at the Miracle Mall located at Route 18 in East
Brunswick, New Jersey, for the location of its East Brunswick facility. The East
Brunswick lease extends for an initial term of ten years, said term commencing
90 days after issuance of the required building permits for the work,
improvements, and alterations required for the Company to open for business and
expiring February 28, 2007 unless renewed at the Company's option. The required
building permits were issued on April 17, 1998. In July 1998 the lease was
amended to increase the square footage leased by an additional approximately
1,700 square feet. The annual rent due under the lease is as follows: $202,800
for the first five years of the lease; $228,150 for the
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<PAGE>
second five years of the lease; $256,711 for the eleventh through fifteenth
years and $288,821 for the sixteenth through twentieth years.
Another wholly owned subsidiary of the Company, FTE, also entered into a
lease agreement for the rental of approximately 12,200 square feet of space for
the location of its Edmonton facility. The lease term extends for a period of
ten years, commencing April 1, 1997 and expiring March 31, 2007. The space is
leased at an annual rent of U.S. $52,704 for the first thirty months of the
lease term, U.S. $57,093 for the subsequent thirty months, U.S. $61,490 for the
succeeding thirty months, and U.S. $65,880 for the final thirty months.
In May 1998, the Company acquired all rights, title and interest to a
contract (the "Contract") to purchase a lease and certain real and personal
property incorporated in the Cortina Valley Ski Resort in Haines Falls, New
York, within the Catskill Mountains. The total land area of the property
involved is approximately 300 acres and consists of a ski area containing 106.2
acres and adjacent land containing 193.8 acres. The lease, covering portions of
the ski area, is for a term of 99 years, with the option to renew for an
additional 99 year at a rental rate of $500 per year. The lease commenced in
March 1964. The ski area contains 18 trails with varying degrees of difficulty
and two double chair lifts, one rope tow and one poma lift, all in working
condition. Approximately 90% of the ski trails are covered by existing
snowmaking equipment and approximately 80% of the trails are illuminated for
night skiing. Existing structures on the properties include a 20 room motel
building, a lodge and restaurant building, ski school building, ski rental
shops, and storage buildings.
ITEM 3. LEGAL PROCEEDINGS: None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None.
16
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Units were quoted on the Nasdaq SmallCap Stock Market until
April 7, 1997, at which time Nasdaq delisted the Company's securities. The
Company's Units are currently quoted on the OTC Bulletin Board. The following
table sets forth representative high and low closing bid quotes as reported by a
market maker for the Company's Units during the period which the Company's
securities were listed on the Nasdaq SmallCap Market (August 1, 1996 through
April 6, 1997) and representative high and low closing prices as reported by a
market maker for the Company's Units during the period which the Company's
securities were listed on the OTC Bulletin Board (April 7, 1997 through June 30,
1998). Bid and price quotations reflect prices between dealers, do not include
resale mark-ups, mark-downs, or other fees or commissions, and do not
necessarily represent actual transactions.
Units
Calendar Period Low High
- --------------- --- ----
08/01/96 - 09/30/96 1.00 11.75
10/01/96 - 12/31/96 .25 2.00
01/01/97 - 03/31/97 .19 .87
04/01/97 - 04/06/97(1) .69 .69
04/07/97 - 06/30/97(1) .25 .50
07/01/97 - 09/30/97 .06 .26
10/01/97 - 12/31/97 .09 .25
01/01/98 - 03/31/98 .16 .25
04/01/98 - 06/30/98 .15 .16
- ----------
(1) Effective April 7, 1997, Nasdaq delisted the Company's securities;
therefore, same have not been traded on Nasdaq since said date. As of April 7,
1997, the Company's securities have been traded on the OTC Bulletin Board.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at a price of $5.25 per share at any time through October 27,
2001. The Warrants are redeemable by the Company at any time, commencing on the
separation date, upon 30 days' notice at a redemption price of $.05 per Warrant,
provided that the closing bid quotation of the Common Stock for at least 30
consecutive trading days ending on the third day prior to the date on which the
Company gives notice has been at least 170% of the exercise price of the
Warrants being redeemed.
As of July 7, 1998, there were 109 holders of record of the Company's
Common Stock, and there are approximately 530 additional beneficial owners of
shares of Common Stock held in street name. As of July 7, 1998, the number of
outstanding shares of the Company's Common Stock was 9,991,965.
17
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of operations:
During the fiscal year ended March 31, 1998, total revenues were
approximately $1,141,000 as compared to $950,000 during fiscal 1997. The
increase of $191,000 was attributable mainly to an increase in revenues of
approximately $253,000 derived after the opening of the Edmonton, Canada
facility in August 1997 net of a decrease of approximately $48,000 in sales of
merchandise at the Staten Island facility.
Operating expenses for fiscal 1998 increased by approximately $495,000
compared to those for fiscal 1997. This increase was attributable mainly to
operating costs incurred at the new Edmonton facility of approximately $262,000
and a net increase in operating costs totaling approximately $233,000 incurred
at the Staten Island facility. The net increase in Staten Island costs was
attributable mainly to: insurance -- $50,000; depreciation -- $70,000; and other
operating costs -- $113,000.
Cost of merchandise sold amounted to approximately 97% of merchandise sales
during fiscal 1998 compared to 67% during fiscal 1997. The increase was
attributable mainly to inventory valuation adjustments.
Selling, general and administrative expenses for fiscal 1998 increased by
approximately $200,000 compared to fiscal 1997. This increase was attributable
mainly to expenses incurred at Edmonton and East Brunswick, the Company's new
facilities, of $57,000 and $26,000, respectively, and a net increase in costs
incurred at the Staten Island facility of approximately $117,000. The net
increase in Staten Island costs was attributable to increases in officers'
salaries of $24,000 and professional fees of $100,000, net of decreases in other
selling, general and administrative expenses of approximately $7,000.
During fiscal 1998, there was a net increase in other income of
approximately $42,000 mainly as a result of a nonrecurring realized gain from
the sale of marketable securities of approximately $53,000.
During fiscal 1998, the Company incurred a net loss of approximately
$985,000 (or $.39 per share) as compared with a net loss of approximately
$510,000 (or $.21 per share) during fiscal 1997. The increase in the net loss of
approximately $475,000 in fiscal 1998 reflects a net loss of approximately
$92,000 incurred at the Company's new facilities and the increases in operating
expenses, cost of merchandise sold and selling, general and administrative
expenses incurred at the Staten Island facility described above.
Financial condition:
During fiscal 1997, the Company received net proceeds of approximately
$3,102,000 from its initial public offering of units of common stock and
warrants. During fiscal 1998, net cash used in the Company's operating
activities totaled approximately $762,000 as compared to $592,000 during fiscal
1997. The increase in cash used in operating activities of approximately
$170,000 was primarily attributable to the losses incurred at the Company's
18
<PAGE>
new Edmonton facility and increases in operating and selling, general and
administrative expenses incurred at the Staten Island facility.
The Company acquired property and equipment at a cost of approximately
$404,000 and $303,000 during fiscal 1998 and 1997, respectively. It used
approximately $79,000 to pay capital lease obligations and $24,000 to purchase
treasury stock during fiscal 1998 and approximately $223,000 to pay capital
lease obligations and notes and $90,000 to purchase treasury stock during fiscal
1997.
At March 31, 1998, the Company had working capital of approximately
$849,000 and stockholders' equity of approximately $2,212,000. As explained in
Item 1 and Note 10 of the notes to the consolidated financial statements, on May
28, 1998, BBS Holdings obtained control of the Company by acquiring 8,152,000 of
the outstanding shares (or approximately 81.5%) of the Company's common stock,
including 7,230,000 shares issued directly to BBS Holdings in exchange for 100%
of the outstanding shares of the common stock of PCC. PCC owns a 50% interest in
Prestige, a newly-formed company that commenced jewelry marketing operations in
May 1998, and all rights, title and interest to the contract to purchase the
lease and certain real and personal property incorporated in the Cortina Valley
Ski Resort, which had been closed during the 1997/1998 ski season.
Management expects that the Company will need capital resources during
fiscal 1999 to fund significant currently planned activities as described below:
o Approximately $540,000 to purchase the Cortina lease rights and property
(management anticipates this purchase will be consummated in July 1998) and
approximately $300,000 for the improvements and working capital which will
be necessary to make the facility operational for the 1998/1999 ski season.
o Approximately $800,000 for the improvements and working capital which will
be necessary to make the East Brunswick, New Jersey "fun bubble"
operational (management anticipates this facility will be operational by
October 1998).
o Additional capital resources to fund the operations at the Staten Island
and Edmonton "fun bubbles" and the inventory purchasing and other working
capital needs of Prestige during fiscal 1999; however, management cannot
presently estimate the amounts that will be needed.
In addition to using the working capital available as of March 31, 1998,
management expects, but cannot assure, that the Company will be able to obtain
additional capital resources to meet its requirements during fiscal 1999 from
the sources described below:
o A loan facility with outstanding borrowings secured by the Cortina Mountain
Ski Resort.
o Borrowings under a factoring agreement secured by Prestige's accounts
receivable.
o Unsecured loan facilities.
o Equipment leasing transactions.
The Company's "fun bubble" operations have not, and management anticipates
that the Company's jewelry operations will not, involve sophisticated computer
applications; therefore, management does not expect that the Company will have
any significant costs or problems related to "Year 2000 Issues" (issues with
respect to possible errors or computer failures by or at the Year 2000). If the
Cortina lease rights are purchased, the Company will be operating a
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<PAGE>
20 room motel, a restaurant, a ski school and ski rental shops. Management has
not made any assessment of any Year 2000 Issues that may arise from future ski
resort operations.
Effects of acquisition of PCC and transfer of control of the Company:
Since the acquisition of PCC and certain other concurrent transactions
resulted in the transfer of an approximate 81.5% controlling interest in the
Company to BBS Holdings, the acquisition of PCC by the Company will be treated
as a purchase business combination, effective as of May 28, 1998, that
management believes will have to be accounted for as a "reverse acquisition" in
which the Company will be the legal acquirer and PCC will be the accounting
acquirer. Accordingly, the assets and liabilities of PCC will be accounted for
at their historical carrying values and the assets and liabilities of the
Company will be valued at their fair values as of May 28, 1998 with the excess
of BBS Holdings' cost over the fair value of the Company's assets, if any,
allocated to goodwill. In addition, the historical consolidated statements of
operations issued subsequent to May 28, 1998 will include the consolidated
results of operations of PCC and the Company for any portion of the period
subsequent to May 28, 1998, but only the consolidated results of operations of
PCC for any portion of the period prior to May 28, 1998; therefore, the
consolidated statements of operations in future reports may not be comparable to
those included in prior reports issued by the Company.
ITEM 7. FINANCIAL STATEMENTS
See attached financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 24, 1998, the Company and Richard A. Eisner & Company, LLP
mutually agreed that Richard A. Eisner & Company, LLP would no longer be the
Company's auditors. The dismissal of Richard A. Eisner & Company, LLP was not
due to any discrepancies or disagreements between the Company and Richard A.
Eisner & Company, LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, and Richard A.
Eisner & Company, LLP's report on the financial statements for the fiscal year
ended March 31, 1997, dated April 30 and May 21, 1997, did not contain any
adverse opinions or disclaimers of opinion. Nor was such report modified as to
uncertainty, audit scope, or accounting principles. During the two most recent
fiscal years and any subsequent interim period through the date of Richard A.
Eisner & Company, LLP's dismissal, the Company and Richard A. Eisner & Company,
LLP had no disagreements or "reportable events."
The Company's Board of Directors approved the acceptance of Richard A.
Eisner & Company, LLP's release.
On April 30, 1998, the Company's Board of Directors approved the engagement
of J.H. Cohn LLP as its principal accountant to audit its and its subsidiaries'
financial statements as of and for the fiscal year ended March 31, 1998.
20
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
Executive Officers and Directors
The executive Officers and Directors of the Company are as follows:
NAME AGE POSITION
---- --- --------
Herbert P. Marks 66 President, Chief Executive Officer,
and Director
Russell C. Murawski 49 Chief Financial Officer and Treasurer
Daniel Catalfumo 41 Chief Operating Officer and Director
Anthony DiMatteo 47 Executive Vice President of Sales
and Marketing and Director
Richard Rosso 41 Executive Vice President of Entertainment,
Secretary, and Director
All Directors hold office until the next annual meeting of stockholders or
until their successors are duly elected and qualified. The Executive Officers
are elected annually by the Board of Directors, serve at the discretion of the
Board of Directors, and hold office until their successors are duly elected and
qualified. Vacancies on the Board of Directors may be filled by the remaining
Directors.
Herbert P. Marks was elected as a Director and appointed as President and
Chief Executive Officer of the Company in May 1998. Since March 1997, Mr. Marks
has run The Marks Group, L.L.C. a firm created by Mr. Marks to offer consulting
services to lending institutions and businesses. The services offered by The
Marks Group, L.L.C. include financial and management consulting, loan
restructuring and placement, cash control, asset liquidation, collateral
evaluations, asset monitoring support, on-site field examinations, and the
liquidation of assets securing loans. From July 1993 to March 1997 Mr. Marks was
the Director of Marketing in charge of new business development for Century
Business Credit Corp. Mr. Marks shall devote 90% of his business time to the
affairs of the Company.
Russell C. Murawski was appointed Chief Financial Officer and Treasurer in
May 1998. Since 1993, Mr. Murawski has been President of Princeton Business
Consultants, Inc., a capital, banking, and financial consulting company, which
he founded. Mr. Murawski shall devote 90% of his business time to the affairs of
the Company.
Daniel Catalfumo has been a Director of the Company since its inception in
1993. From the Company's inception until May 1998, he was also the Company's
Chief Executive Officer
21
<PAGE>
and President. In May 1998, upon the appointment of Herbert P. Marks as
President, Mr. Catalfumo was named Chief Operating Officer and Executive Vice
President. From 1982 to November 1994, Mr. Catalfumo was the sole shareholder,
Officer, and Director of Professional Tile Contracting Co., a tile contracting
company located in Brooklyn, New York.
Anthony DiMatteo was elected as a director of the Company and appointed
Executive Vice President of Sales and Marketing in May 1998. Since 1972, Mr.
DiMatteo served as Executive Vice President of Sales and Marketing for Four
Color Litho, Inc., a lithograph plating facility servicing the financial and
commercial printing community of New York and New Jersey. From 1992 to 1995, Mr.
DiMatteo also served as a director of Leadville Milling & Mining Corp., a
Colorado based gold and silver mining company. Mr. DiMatteo voluntarily resigned
his directorship in 1995. Mr. DiMatteo shall devote 90% of his business time to
the affairs of the Company.
Richard Rosso has been the Secretary and a Director of the Company since
its inception in 1993. From the Company's inception until May 1998, he was also
Treasurer. In May 1998 he was appointed Executive Vice President of
Entertainment and Administrative Coordinator. From 1983 to November 1994, Mr.
Rosso was the owner of Dynamic Dental Labs located in Brooklyn, New York. Mr.
Rosso operated Dynamic Dental Labs, which serviced over 1,000 area dentists for
over ten years.
As permitted under the New York Business Corporations Law, the Company's
Certificate of Incorporation eliminates the personal liability of the Directors
to the Company or any of its shareholders for damages for breaches of their
fiduciary duties as Directors. As a result of the inclusion of such provision,
stockholders may be unable to recover damages against Directors for negligent or
grossly negligent actions which Directors may take or for Directors' actions
which violate their fiduciary duties. The inclusion of this provision in the
Company's Certificate of Incorporation may reduce the likelihood of derivative
litigation against Directors and other types of shareholder litigation.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Officers, Directors, and any persons who beneficially own more
than ten (10%) percent of a registered class of the Company's equity securities
to file reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission ("SEC"). Officers, Directors, and greater
than ten percent beneficial owners also are required by rules promulgated by the
SEC to furnish the Company with copies of all Section 16(a) forms they file. No
person who, during the year ended March 31, 1998, was a Director, Officer, or
beneficial owner of more than ten percent of the Company's Common Stock (which
is the only class of securities of the Company registered under Section 12 of
the Securities Exchange Act of 1934 ("the Act") failed to file on a timely basis
reports required by Section 16 of the Act during the most recent fiscal year or
prior years. The foregoing is based solely upon the Company's review, during the
most recent fiscal year, of (i) Forms 3 and 4 as furnished to the Company under
Rule 16a-3(d) under the Act; (ii) Forms 5 and amendments thereto furnished to
the Company with respect to its most recent fiscal year; and (iii) any
representation received by the Company from any reporting person that no Form 5
is required, except as described herein.
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ITEM 10. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and Non-Plan
(as defined in Item 402 (a)(6) of Regulation S-B) compensation awarded or paid
by the Company during the years ended March 31, 1998, 1997, and 1996 to each of
the named Executive Officers of the Company.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Restricted Shares
Name and Principal Year End Other Annual Stock underlying
Position March 31 Salary ($) Bonus ($) Compensation ($) Award(s)($) Options (#)
- -------- -------- ---------- --------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel Catalfumo 1998 121,000 $ 1,000(1) $12,000(2) $18,700(3) --
President and 1997 110,000 $ 1,000(1) $12,000(2) 30,000(4)
Director 1996 75,489
Richard Rosso 1998 121,000 $ 1,000(1) $12,000(2) $18,700(3) --
Vice President, Sec., 1997 110,000 $ 1,000(1) $12,000(2) 30,000(4)
Treas., and Director 1996 86,553
</TABLE>
- ----------
(1) In December 1996, and December 1997, the Company issued a $1,000 cash bonus
to each Officer. The Company did not meet the financial requirements for
bonuses to be issued under their employment agreements.
(2) The Company leases automobiles, at approximately $1,000 per month for
Messrs. Catalfumo and Rosso.
(3) On December 20, 1997, the Company granted Messrs. Catalfumo and Rosso
100,000 shares of restricted Common Stock. The value of such stock on that
date was ($.187), as reported by a market maker on December 17, 1997, the
most recent day prior to December 20th on which the Company's securities
traded.
(4) In December 1996, the Company granted Messrs. Catalfumo and Rosso options
each to purchase 5,000 shares of the Company's Common Stock at an exercise
price of $0.62 per share. In March 1997, the Company granted Messrs.
Catalfumo and Rosso options each to purchase 25,000 shares of the Company's
Common Stock at an exercise price of $0.69 per share. Such options were
voluntarily cancelled in June 1998.
23
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
===================================================================================================================
Individual Grants
===================================================================================================================
(a) (b) (c) (d) (e)
% of Total
# of Securities Options/SAR's
underlying Granted to Exercise or
Options/SAR's Granted Employees in Base Expiration Date
Name Fiscal Year Price ($/SH)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard Rosso 25,000(1) 50% $.69 03/31/02
5,000(1) $.62 12/30/01
===================================================================================================================
Daniel Catalfumo 25,000(1) 50% $.69 03/31/02
5,000(1) $.62 12/30/01
===================================================================================================================
</TABLE>
(1) In June 1998, these options were voluntarily cancelled.
The following table contains information with respect to employees of the
Corporation concerning options held as of March 31, 1997.
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
===================================================================================================================
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised In-The-Money
Options/SAR's at Options/SAR's
Shares Acquired on FY-End (#) at FY-End ($)
Exercise (#) Value Realized ($) Exerciseable/ Exerciseable/
Name Unexerciseable Unexerciseable (1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25,000/0(2) 0/0
Richard Rosso -- -- 5,000/0(2) 350/0
===================================================================================================================
25,000/0(2) 0/0
Daniel Catalfumo -- -- 5,000/0(2) 350/0
===================================================================================================================
</TABLE>
(1) Based upon the closing price for the Common Stock on March 31, 1997 ($.69),
as reported by a market maker.
(2) In June 1998, these options were voluntarily cancelled.
Employment and Consulting Agreements
In April 1995, the Company entered into employment agreements with both of
its Officers, Mr. Catalfumo and Mr. Rosso. Such Officers are employed full time
by the Company
24
<PAGE>
and pursuant to the terms of their agreements, shall receive compensation at a
rate of $100,000 annually, with yearly escalations during the term of the
agreement. The agreements are of five year duration and expire in April 2000.
Pursuant to the terms of the agreements, Messrs. Catalfumo and Rosso are to
receive yearly bonuses in an amount equal to (i) five percent (5%) of the
Company's first $200,000 of after-tax profit; (ii) seven and one half percent (7
1/2%) of the Company's next $200,000 to $400,000 of after-tax profit; and (iii)
ten percent (10%) of any after-tax profit over $400,000.
In December 1997, the Company entered into a consulting agreement with
Herbert P. Marks and Russell C. Murawski to provide financial and management
advice and counsel to the Company. Through June 15, 1998, the Company
compensated Messrs. Marks and Murawski $45,000 and $9,182, respectively, under
the agreement. Subsequent to the agreement, Messrs. Marks and Murawski were
named as Officers of the Company. Accordingly, the consulting agreement was
terminated in June 1998. Beginning July 1998, the Company will commence
compensating Messrs. Marks and Murawski for their services to the Company
through an annual salary.
1995 Senior Management Incentive Plan
In February 1995, the Board of Directors adopted the Senior Management
Incentive Plan ("the Management Plan") which was adopted by shareholder consent.
The Management Plan provides for the issuance of up to 150,000 shares of the
Corporation's Common Stock in connection with the issuance of stock options and
other stock purchase rights to executive Officers and other key employees of the
Company.
The adoption of the Management Plan was prompted by the Company's desire
(i) to attract and retain qualified personnel, whose performance is expected to
have a substantial impact on the Company's long-term profit and growth
potential, by encouraging those persons to acquire equity in the Corporation;
and (ii) to provide the Board with sufficient flexibility regarding the forms of
incentive compensation which the Company will have at its disposal in rewarding
executive Officers, key employees, and consultants without unnecessarily
depleting the Company's cash reserves. The Management Plan is designed to
augment the Company's existing compensation programs and is intended to enable
the Company to offer executives, key employees, and consultants a personal
interest in the Company's growth and success through the grant of stock options
and/or other rights pursuant to the Management Plan. It is contemplated that
only those executive management employees (generally the Chairman of the Board,
Vice Chairman, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, President, and Vice President of the Company), key employees, and
consultants who perform services of special importance to the Company will be
eligible to receive compensation under the Management Plan. As of the date
hereof, the Company's Officers and Directors number only five: Messrs.
Catalfumo, DiMatteo, Marks, Murowski, and Rosso.
A total of 150,000 shares of Common Stock had been reserved for issuance
under the Management Plan. Also pursuant to the Management Plan, options to
purchase an aggregate of 30,000 shares were granted to each of Messrs. Catalfumo
and Rosso in December 1996 and March 1997. In June 1998, these options were
voluntarily terminated. It is anticipated that awards made under the Management
Plan will be subject to three year vesting periods, although the vesting periods
are subject to the discretion of the Administrator.
25
<PAGE>
Unless otherwise indicated, the Management Plan is to be administered by
the Board of Directors or a committee of the Board, if such a committee is
appointed for this purpose (the Board or such committee, as the case may be,
shall be referred to in the following description as "the Administrator").
Subject to the specific provisions of the Management Plan, the Administrator
will have the discretion to determine (i) the recipients of the awards; (ii) the
nature of the awards to be granted; (iii) the dates such awards will be granted;
(iv) the terms and conditions of the awards; and (v) the interpretation of the
Management Plan, except that any award granted to any employee of the Company
who is also a Director of the Company shall also be subject - in the event the
persons serving as members of the Administrator of the Management Plan at the
time such award is proposed to be granted do not satisfy the requirements
regarding the participation of "disinterested persons" set forth in Rule 16b-3
("Rule 16b-3") promulgated under the Exchange Act - to the approval of an
auxiliary committee consisting of not less than two individuals who are
considered "disinterested persons" as defined under Rule 16b-3. As of the date
hereof, the Company has not yet determined who will serve on such auxiliary
committee, if one is required.
The Management Plan generally provides that, unless the Administrator
determines otherwise, each option or right granted shall become exerciseable in
full upon certain "change of control" events as described in the Management
Plan, or subject to any right or option granted under the Management Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure, or otherwise), the Administrator will make appropriate adjustments to
such plans and the classes, number of shares, and price per share of stock
subject to outstanding rights or options. Generally, the Management Plan may be
amended by action of the Board of Directors, except that any amendment which (i)
would increase the total number of shares subject to such plan; (ii) extend the
duration of such plan; (iii) materially increase the benefits accruing to
participants under such plan; or (iv) change the category of persons who can be
eligible for awards under such plan, must be approved by the affirmative vote of
a majority of the shareholders entitled to vote. The Management Plan permits
awards to be made thereunder until November 2004.
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan. The Management Plan provides
for four types of awards: stock options, incentive stock rights, stock
appreciation rights (including limited stock appreciation rights), and
restricted stock purchase agreements.
26
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information at June 30, 1998 with
respect to the beneficial ownership of Common Stock held by (i) each person
known by the Company to be the owner of 5% or more of the outstanding Common
Stock; (ii) by each Director; and (iii) by all Officers and Directors as a
group. Except as otherwise indicated below, each named beneficial owner has sole
voting and investment power with respect to the shares of Common Stock listed:
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature Percentage of
of Class of Beneficial Owner of Beneficial Ownership (1) Class (2)
- -------- ------------------- --------------------------- ---------
<S> <C> <C> <C>
common Daniel Catalfumo (3) 151,365 1.5%
stock c/o Fun Tyme Concepts, Inc.
290 Wild Avenue
Staten Island, New York 10314
common Richard Rosso (4) 6,278 *
stock c/o Fun Tyme Concepts, Inc.
290 Wild Avenue
Staten Island, New York 10314
common Herb Marks 0 *
stock c/o Fun Tyme Concepts, Inc.
290 Wild Avenue
Staten Island, New York 10314
common Anthony DiMatteo (5) 0 *
stock c/o Fun Tyme Concepts, Inc.
290 Wild Avenue
Staten Island, New York 10314
common BBS Holdings, LLC 8,152,000 81.6%
stock c/o Fun Tyme Concepts, Inc.
290 Wild Avenue
Staten Island, New York 10314
common All Officers and Directors 157,643 1.6%
stock as a group (5 persons) (3)-(5)
</TABLE>
* Less than 1%
(1) Unless otherwise noted, all of the shares shown are held by individuals or
entities possessing sole voting and investment power with respect to such
shares. Shares not outstanding but deemed beneficially owned by virtue of
the right of a person to acquire them within 60 days, whether by the
exercise of options or warrants, are deemed outstanding in determining the
number of shares beneficially owned by such person or group.
(2) The "Percentage Beneficially Owned" is calculated by dividing the "Number
of Shares Beneficially Owned" by the sum of (i) the total outstanding
shares of Common Stock of the Company, and (ii) the number of shares of
Common Stock that such person has the right to acquire within 60 days,
whether by exercise of options or warrants. The "Percentage Beneficially
Owned" does not reflect shares beneficially
27
<PAGE>
(footnotes continued from previous page)
owned by virtue of the right of any person, other than the person named and
affiliates of the person, to acquire them within 60 days, whether by
exercise of options or warrants.
(3) Includes an aggregate of 151,365 shares of Common Stock owned by members of
Mr. Catalfumo's family, of which Mr. Catalfumo disclaims beneficial
ownership. Does not include the shares owned by BBS Holdings, in which a
trust of which Mr.Catalfumo is the grantor and his family is the
beneficiary, owns a 10% interest.
(4) Includes 6,278 shares of Common Stock owned by Mr. Rosso's parents, of
which Mr. Rosso disclaims beneficial ownership. Does not include the shares
owned by BBS Holdings, in which a trust of which Mr. Rosso is the grantor
and his family is the beneficiary, owns a 10% interest.
(5) Mr. DiMatteo owns 20% of BBS Holdings, the majority stockholder of the
Company.
(6) Messrs. Catalfumo, Rosso & DiMatteo are managers of BBS Holdings, of which
Messrs. Catalfumo and Rosso represent trusts in which they are the
trustees.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1998, prior to the exchange of shares in the acquisition of Play Co.
Capital Corp., Daniel Catalfumo and Richard Rosso each transferred 461,000
shares of the Company's Common Stock to CAT L.L.C. and RICH L.L.C.,
respectively, companies formed by Daniel Catalfumo and Richard Rosso, Officers
of the Company. Additionally, trusts formed by Messrs. Catalfumo and Rosso each
acquired 10% of BBS Holdings, LLC upon consummation of the Acquisition and their
transfer of shares of the Company's Common Stock to BBS Holdings, LLC.
In December 1997, the Company issued 100,000 shares of Common Stock to each
of Messrs. Catalfumo and Rosso as a bonus.
In December 1996, the Company granted Messrs. Catalfumo and Rosso options
each to purchase 5,000 shares of the Company's Common Stock at an exercise price
of $0.62 per share. In addition, the Company issued $1,000 bonuses to each of
Messrs. Rosso and Catalfumo. In March 1997, the Company granted Messrs.
Catalfumo and Rosso each options to purchase 25,000 shares of the Company's
Common Stock at an exercise price of $0.69 per share. Both sets of options were
exerciseable for a period of five years commencing on the date of grant. In June
1998, both sets of options were voluntarily cancelled.
From February through April 1997, the Company repurchased an aggregate of
163,535 shares of its Common Stock at a total cost of $113,660.01. The shares
were returned to treasury as authorized but unissued.
For information on the Company's compensation arrangements, see "Employment
and Consulting Agreements."
28
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a Form 8-K on June 12, 1998 which was amended on July 8,
1998 detailing the Company's acquisition of PCC and the rights to purchase
Cortina.
All exhibits except those designated with an asterisk (*), which are filed
herewith, and those designated with two asterisks (**) which shall be filed via
Form SE, have previously been filed with the Commission in connection with (i)
the Company's Registration Statement on form SB-2 under File No. 33-80931-NY,
(ii) the Company's Form 10-KSB for the year ended March 31, 1997, and (iii) the
Company's Form 8-K filed on June 12, 1998 and as amended on July 8, 1998
pursuant to 17 C.F.R 230.411, and are incorporated by reference herein.
3.1 - Certificate of Incorporation of the Company filed April 19, 1993.
See (i) above.
3.2 - Certificate of Amendment to the Certificate of Incorporation of
the Company filed May 19, 1995. See (i) above.
3.2(a) - Certificate of Amendment to the Certificate of Incorporation of
the Company dated February 7, 1996. See (i) above.
3.3 - By-Laws of the Company. See (i) above.
4.1 - Specimen of Common Stock Certificate. See (i) above.
4.2 - Specimen of Common Stock Purchase Warrant Certificate. See (i)
above.
4.5 - Form of Common Stock Purchase Warrant Agreement. See (i) above.
10.2 - Employment Agreement of Daniel Catalfumo. See (i) above.
10.3 - Employment Agreement of Richard Rosso. See (i) above.
10.4 - Lease Agreement and amendments one through four thereto, between
the Company and Block 2467 Lot 1 Associates. See (i) above.
10.5 - The Company's Senior Management Incentive Plan. See (i) above.
10.22 - Lease Agreement by and between Manufacturer's Lease Company and
the Company and personal guarantees of the Company's officers.
(Previously filed as Exhibit 10.2 in the Company's Form 10-KSB
for the year ended March 31, 1997).
10.23 - Lease agreement for East Brunswick facility and Amendment
thereto. (Previously filed as Exhibit 10.3 in the Company's Form
10-KSB for the year ended March 31, 1997). 10.23(a)* - Amendment
to lease agreement for East Brunswick facility.
10.24 - Lease Agreement for Edmonton Canada facility. (Previously filed
as Exhibit 10.4 in the Company's Form 10-KSB for the year ended
March 31, 1997).
10.25 - Stock Purchase Agreement among Fun Tyme Concepts, Inc.; Play Co.
Capital Corp.; BBS Holdings, LLC; the Members of BBS Holdings,
LLC; Cat LLC; and Rich LLC. (Previously filed as Exhibit 10.5 in
the Company's Form 8-K filed June 12, 1998).
10.26 - Operating Agreement of Prestige Fine Jewelry LLC. (Previously
filed as Exhibit 10.6 in the Company's Form 8-K filed June 12,
1998).
10.27 - Exclusive Sales Agreement between Prestige Fine Jewelry LLC and
Prestige Chain, Inc. (Previously filed as Exhibit 10.7 in the
Company's Form 8-K/A filed July 8, 1998).
29
<PAGE>
10.28 - Sales Agreement between Prestige Fine Jewelry LLC and J.K.
Limited, Inc. (Previously filed as Exhibit 10.8 in the Company's
Form 8-K/A filed July 8, 1998).
10.29 - Contract to purchase Cortina Mountain Ski Resort. (Previously
filed as Exhibit 10.9 in the Company's Form 8-K/A filed July 8,
1998).
10.30 - Attorney representation confirming modification of Contract to
purchase Cortina Mountain Ski Resort. See (iii) above
10.31** - Factoring Agreement with Prestige Capital Corporation.
27.0* - Financial Data Schedule.
30
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
I N D E X
---------
PAGE
----
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS F-2/4
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998 F-5
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998 AND 1997 F-6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998 AND 1997 F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998 AND 1997 F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9/19
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Fun Tyme Concepts, Inc.
We have audited the accompanying consolidated balance sheet of FUN TYME
CONCEPTS, INC. AND SUBSIDIARIES as of March 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended. 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 audit. We did not audit the financial
statements of Fun Tyme of Edmonton, Inc., a wholly-owned consolidated
subsidiary, which statements reflect total assets of $336,320 as of March 31,
1998 and total revenues of $253,403 for the year then ended. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Fun Tyme of Edmonton,
Inc., is based solely on the report of the other auditors.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fun Tyme
Concepts, Inc. and Subsidiaries as of March 31, 1998, and their results of
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
J. H. COHN LLP
Roseland, New Jersey
June 11, 1998, except
for Note 10 as to which
the date is June 29, 1998
F-2
<PAGE>
AUDITORS' REPORT
To the Shareholders
Fun Tyme of Edmonton, Inc.
We have audited the balance sheet of FUN TYME OF EDMONTON, INC. as of March 31,
1998, and the statements of deficit, income and changes in financial position
for the eight months then ended. 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 audit.
We conducted our audit 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Fun Tyme of Edmonton, Inc. as of March 31,
1998, and the results of its operations and the changes in its financial
position for the eight months then ended in accordance with generally accepted
accounting principles.
GARDINER KARBANI AUDY & PARTNERS
CHARTERED ACCOUNTANTS
June 11, 1998
Edmonton, Alberta
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fun Tyme Concepts, Inc.
Staten Island, New York
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of Fun Tyme Concepts, Inc. and
subsidiaries for the year ended March 31, 1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated above present
fairly, in all material respects, the results of operations and cash flows of
Fun Tyme Concepts, Inc. and subsidiaries for the year ended March 31, 1997, in
conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
April 30, 1997, except as
to the second paragraph
of Note 1 as to which the
date is May 21, 1997
F-4
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 639,572
Certificate of deposit 267,267
Inventories 10,110
Other current assets 86,328
-----------
Total current assets 1,003,277
Property and equipment, net 1,263,821
Due from officers 57,200
Other assets 71,198
-----------
Total $ 2,395,496
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 114,045
Customer deposits 17,857
Current portion of capital lease obligations 22,602
-----------
Total current liabilities 154,504
Capital lease obligations, net of current portion 7,886
Deferred rent 20,908
-----------
Total liabilities 183,298
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share;
500,000 shares authorized; none issued
Common stock, par value $.001 per share, 10,000,000
shares authorized; 2,761,965 shares issued
and outstanding 2,762
Additional paid-in capital 3,954,552
Accumulated deficit (1,745,116)
-----------
Total stockholders' equity 2,212,198
-----------
Total $ 2,395,496
===========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998 AND 1997
1998 1997
---- ----
Revenues:
Operating $ 983,633 $ 744,196
Merchandise 157,612 205,714
----------- -----------
Totals 1,141,245 949,910
----------- -----------
Costs and expenses:
Operating expenses 1,440,052 944,906
Cost of merchandise sold 152,542 138,790
Selling, general and administrative
expenses 636,329 436,693
----------- -----------
Totals 2,228,923 1,520,389
----------- -----------
Loss from operations (1,087,678) (570,479)
----------- -----------
Other income (expense):
Interest income 76,750 88,403
Realized gain on sale of marketable
securities 53,233
Interest expense (7,423) (11,892)
Other expense (19,951) (15,725)
----------- -----------
Totals 102,609 60,786
----------- -----------
Net loss $ (985,069) $ (509,693)
=========== ===========
Basic net loss per share $ (.39) $ (.21)
=========== ===========
Basic weighted average common and common
equivalent shares outstanding 2,516,087 2,410,795
=========== ===========
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
--------------------- Paid-In Accumulated --------------------
Shares Amount Capital Deficit Shares Amount Total
------ ------ ------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1996 1,876,000 $ 1,876 $ 932,189 $ (250,354) $ 683,711
Issuance of units of
common stock and
warrants in initial
public offering,
net of registration
costs 800,000 800 3,101,109 3,101,909
Repurchase of units 133,045 $ (89,643) (89,643)
Net loss (509,693) (509,693)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 2,676,000 2,676 4,033,298 (760,047) 133,045 (89,643) 3,186,284
Repurchase of units 30,490 (24,016) (24,016)
Effects of issuance
of 249,500 shares to
employees as bonus 85,965 86 (78,746) (163,535) 113,659 34,999
Net loss (985,069) (985,069)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1998 2,761,965 $ 2,762 $ 3,954,552 $(1,745,116) -- $ -- $ 2,212,198
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $ (985,069) $ (509,693)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 188,708 113,236
Issuance of stock as compensation 34,999
Deferred officers' compensation (30,257)
Deferred rent (2,775) 1,123
Gain on sale of marketable equity securities (53,233)
Changes in operating assets and liabilities:
Inventories 21,910 (17,285)
Other current assets 5,866 (64,559)
Other assets (10,523) (32,084)
Accounts payable and accrued expenses 35,952 (53,364)
Customer deposits 1,827 1,022
----------- -----------
Net cash used in operating activities (762,338) (591,861)
----------- -----------
Investing activities:
(Increase) decrease in cash surrender value
of officers' life insurance 20,146 (26,664)
Purchase of property and equipment (404,399) (303,328)
Advances to officers (52,200) (5,000)
Purchases of marketable equity securities (76,660)
Proceeds from sales of marketable equity securities 129,893
Purchases of certificates of deposit (267,267)
----------- -----------
Net cash used in investing activities (650,487) (334,992)
----------- -----------
Financing activities:
Proceeds from issuances of common stock 3,328,242
Repayments of notes payable (200,000)
Repayments of capital lease obligations (79,047) (21,414)
Repayments of notes payable to stockholders (1,468)
Purchases of treasury stock (24,016) (89,643)
----------- -----------
Net cash provided by (used in)
financing activities (103,063) 3,015,717
----------- -----------
Net increase (decrease) in cash and cash
Equivalents (1,515,888) 2,088,864
Cash and cash equivalents, beginning of year 2,155,460 66,596
----------- -----------
Cash and cash equivalents, end of year $ 639,572 $ 2,155,460
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 7,423 $ 11,892
=========== ===========
Income taxes paid $ 15,849 $ 10,795
=========== ===========
Supplemental schedule of noncash investing
and financing activities:
Equipment acquired through capital leases $ 64,870
===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Business activities:
Fun Tyme Concepts, Inc. and its subsidiaries (the "Company") operate
children's entertainment centers in Staten Island, New York and Edmonton,
Alberta, Canada for children ages two through twelve under the trade name
"Fun Bubble." The Company also operates a day camp program during the
summer months which includes indoor and outdoor activities for children
ages three through fourteen.
In May 1997, a subsidiary of the Company entered into a lease agreement
with the landlord of a facility in Edmonton, Canada and acquired $36,000 of
assets for a children's entertainment center to be located at that
facility.
The Edmonton facility was opened in August 1997. As of March 31, 1998, the
Company was renovating a facility it is leasing in East Brunswick, New
Jersey which it expects to open during fiscal 1999.
Note 2 - Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Principles of consolidation:
The consolidated financial statements include the accounts of Fun Tyme
Concepts, Inc. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Cash equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when acquired to be cash equivalents.
Inventories:
Inventories, which consist of food, beverage and souvenir items sold at the
Company's entertainment centers, are valued at the lower of cost (first-in,
first-out basis) or market.
F-9
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Property and equipment:
Property and equipment are carried at cost. Depreciation is generally
provided using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized using the
straight-line method over the lesser of the lease term or the estimated
useful lives of the improvements.
Revenue recognition:
Customer deposits for parties are recorded as liabilities when received.
Revenue is recognized when the event occurs.
Advertising:
The Company expenses the cost of advertising and promotions as incurred.
Advertising costs charged to operations were not material during 1998 and
1997.
Income taxes:
The Company accounts for income taxes pursuant to the asset and liability
method which requires deferred income tax assets and liabilities to be
computed annually for temporary differences between the financial statement
and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. The
income tax provision or credit is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets
and liabilities.
Foreign currency translation and transactions:
The financial statements of the Company's foreign subsidiary are translated
into U.S. dollars using exchange rates in effect at the end of each period
for assets and liabilities and the weighted average exchange rate during
each period for revenue and expense accounts. If material, the resulting
translation adjustments are included as a separate component of
stockholders' equity. Net gains or losses resulting from foreign currency
transactions are included in the results of operations in the period in
which they are incurred. Cumulative translation adjustments as of March 31,
1998 and translation adjustments and transaction gains during 1998 were not
material.
F-10
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Stock options:
In accordance with the provisions of Accounting Principles Board Opinion
No. 25 ("APB 25"), Accounting for Stock Issued to Employees, the Company
will recognize compensation costs as a result of the issuance of stock
options to employees based on the excess, if any, of the fair value of the
underlying stock at the date of grant or award (or at an appropriate
subsequent measurement date) over the amount the employees must pay to
acquire the stock. Therefore, the Company will not be required to recognize
compensation expense as a result of any grants of stock options to
employees at an exercise price that is equivalent to or greater than fair
value. The Company will also make pro forma disclosures, as required by
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), of net income or loss as if a fair
value based method of accounting for stock options had been applied, if
such amounts differ materially from the historical amounts.
Earnings (loss) per share:
Effective March 31, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"),
which replaces the presentation of "primary" and "fully-diluted" earnings
(loss) per common share required under previously promulgated accounting
standards with the presentation of "basic" and "diluted" earnings (loss)
per common share.
Basic earnings (loss) per common share is calculated by dividing net income
or loss by the weighted average number of common shares outstanding during
the period. The calculation of diluted earnings (loss) per common share is
similar to that of basic earnings (loss) per common share, except that the
denominator is increased to include the number of additional common shares
that would have been outstanding if all potentially dilutive common shares,
principally those issuable upon the exercise of stock options and warrants,
were issued during the period.
F-11
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Earnings (loss) per share (concluded):
Since the Company had losses applicable to common stock in 1998 and 1997,
the assumed effects of the exercise of outstanding stock options and
warrants were anti-dilutive and, accordingly, dilutive per share amounts
have not been presented in the accompanying consolidated statements of
operations. In addition, the basic per share and weighted average share
amounts presented in the accompanying 1997 consolidated statement of
operations which were computed in accordance with SFAS 128 do not differ
from those computed under previously promulgated accounting standards.
In accordance with the rules promulgated by the Securities and Exchange
Commission, the weighted average number of common shares outstanding used
in the computation of basic loss per share in 1997 include all shares
issued during the period from April 1, 1996 to August 15, 1996, the date of
the consummation of the Company's initial public offering (the "IPO") as if
such shares had been outstanding as of April 1, 1996 (see Note 8).
Other recent accounting pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("SFAS 130"), and Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"), which could require the Company to make additional disclosures in
its financial statements no later than for the year ending March 31, 1999.
SFAS 130 defines comprehensive income, which includes items in addition to
those reported in the statement of operations, and requires disclosures
about its components. Management believes that the adoption of SFAS 130
will not have a material impact on the disclosures made by the Company.
SFAS 131 requires disclosures for each segment of a business and the
determination of segments based on its internal management structure.
Management is in the process of evaluating whether SFAS 131 will require
the Company to make any additional disclosures.
Reclassifications:
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the 1998 presentations.
F-12
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Property and equipment:
Property and equipment at March 31, 1998 consisted of the following:
Estimated
Useful
Lives Amount
----- ------
Buildings (air structures) 16 years $ 231,928
Equipment 3-5 years 813,629
Furniture and fixtures 7 years 29,317
Leasehold improvements (a) 15-16 years 623,892
----------
1,698,766
Less accumulated depreciation
and amortization 434,945
----------
Total $1,263,821
==========
(a) Includes approximately $148,000 attributable to the renovations in
progress at March 31, 1998 at the Company's East Brunswick facility.
Note 4 - Due from officers:
The balance of $57,200 due from officers at March 31, 1998 bears interest
at 6% and is payable on June 11, 2002. Interest earned by the Company on
these loans was not material in 1998 and 1997.
Note 5 - Credit facility:
At March 31, 1998, the Company was able to borrow up to $250,000 under an
unused line of credit provided by a financial institution pursuant to an
agreement that expires on August 1, 1998. Any future borrowings will bear
interest at the financial institution's prime rate and will be secured by
the Company's certificate of deposit which matures on October 17, 1998. The
certificate of deposit had a carrying value of $267,267 at March 31, 1998.
F-13
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Commitments and contingencies:
Leases:
The Company has operating leases for its children's entertainment centers
which expire at various dates through April 17, 2008, some of which have
renewal options. The Company is responsible for the costs of property
taxes, maintenance and insurance under the leases.
Future minimum lease payments, including expected renewal options, under
noncancelable operating lease agreements in years subsequent to March 31,
1998 are as follows:
Year Ending
March 31, Amount
--------- ------
1999 $ 288,621
2000 348,505
2001 356,222
2002 360,828
2003 370,073
Thereafter 4,827,775
----------
Total $6,552,024
==========
Rent expense for 1998 and 1997 was $165,758 and $98,603, respectively.
The Company also leases automobiles under capital leases. The Company's
obligations under such leases as of March 31, 1998 were immaterial.
Litigation:
During 1997, the Company accrued a liability of $75,000 in connection with
an action brought by a lessor. The action was settled without any
additional material effect in 1998.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and certificates
of deposit. The Company maintains its cash in bank deposit accounts the
balances of which, at times, may exceed Federally insured limits. Exposure
to credit risk is reduced by placing such deposits with and purchasing
certificates of deposit from high quality financial institutions.
F-14
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Income taxes:
At March 31, 1998, the Company had net operating loss carryforwards
available of approximately $1,856,000 for Federal, state and local income
tax purposes, which expire at various dates through 2012. The Internal
Revenue Code limits the amounts of net operating loss carryforwards
available to a corporation following a change of more than 50% in its
ownership over a three year period. As a result of the consummation of the
Company's initial public offering in fiscal 1997, its repurchases of common
stock in fiscal 1997 and 1998 and certain changes in its ownership in
fiscal 1999 (see Note 10), the Company may be subject to substantial
limitations on the utilization of its net operating loss carryforwards.
At March 31, 1998, the Company had net deferred tax assets of approximately
$875,000 attributable primarily to the potential benefits from its net
operating loss carryforwards. However, the net deferred tax assets have
been fully reserved as a result of the uncertainties as to their future use
arising from the possible limitations described above and the lack of a
historical taxable income stream.
As a result of the availability of the net operating loss carryforwards and
the uncertainties related to their utilization, the Company had no
provision or credit for income taxes in 1998 and 1997. A reconciliation of
the statutory Federal income tax rate to the Company's effective tax rate
follows:
1998 1997
---- ----
Credit at Federal statutory rate (34)% (34)%
Increase in taxes resulting from
increase in valuation reserve 34 34
--- ---
Totals -- % -- %
=== ===
F-15
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Stockholders' equity:
Private placement and initial public offering:
As of April 1, 1996, the Company had 1,500,000 warrants outstanding which
had been sold to a single securityholder (the "Original Warrantholder") as
part of a private placement of securities. On August 15, 1996, the Company
completed the IPO pursuant to which a total of 1,250,000 units were sold by
the Company and certain selling securityholders, with each unit comprised
of one share of common stock and one warrant to purchase one share of
common stock. Of the 1,250,000 shares of common stock sold through the IPO,
800,000 shares were sold by the Company. Net proceeds received by the
Company as a result of such sale totaled $3,101,909. All of the 1,250,000
warrants sold through the IPO were sold by the Original Warrantholder and
not the Company; as a result, 1,500,000 warrants remained outstanding after
the IPO.
Each warrant entitles the registered holder thereof to purchase one share
of common stock at a price of $5.25 per share at any time through October
27, 2001. The warrants are redeemable by the Company at any time upon 30
days' notice at a redemption price of $.05 per warrant, provided that the
closing bid quotation of the common stock for at least 30 consecutive
trading days ending on the third day prior to the date of which the Company
gives notice has been at least 170% of the exercise price of the warrants
being redeemed.
As a result of the repurchases of 133,045 and 30,500 units in 1998 and
1997, respectively, 1,336,455 shares of common stock were reserved for
issuance upon the exercise of the warrants that remained outstanding at
March 31, 1998 (see Note 10).
Senior Management Incentive Plan:
In 1995, the Board of Directors and stockholders of the Company approved
the Senior Management Incentive Plan (the "Management Plan") which provides
for the issuance of up to 150,000 shares of common stock through grants of
stock options and other stock purchase rights to executive officers and
other key employees of the Company and certain consultants to the Company.
F-16
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Stockholders' equity (concluded):
Senior Management Incentive Plan (concluded):
In December 1995, the Company awarded 15,000 restricted shares of common
stock, which became fully vested in fiscal 1998, to a consultant pursuant
to the Management Plan (the consultant, who was, at that time, also a
director of the Company, was not required to make any payment to the
Company for such shares).
The Company granted options to two executive officers to purchase a total
of 10,000 shares of common stock at $.62 per share on December 30, 1996 and
50,000 shares of common stock at $.69 per share on March 31, 1997 which are
exercisable at any time for a period of five years from the date of grant.
The exercise prices were equal to the fair market value on the date of
grant. At March 31, 1998, the options remained outstanding and exercisable
and had a weighted average exercise price of $.67 per share.
Since the Company has elected to continue to use the provisions of APB 25
in accounting for its stock options and the exercise price of all of the
options granted in 1997 were equal to the fair market value at the date of
grant, no earned or unearned compensation cost was recognized in the
accompanying consolidated statements of operations for the stock options
granted in 1997.
If compensation cost for the stock options granted in 1997 had been
determined based on the fair value of the options at the grant date under
the provisions of SFAS 123, the Company's pro forma net loss and net loss
per share would equal the historical amounts of $985,069 and $.39 per share
in 1998 and would have been $513,793 and $.21 compared to the historical
amounts of $509,693 and $.21 per share in 1997. The fair value of the
options granted during 1997 were estimated at $.07 on the dates of grant
using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0%; expected volatility of 75%, risk-free
interest rate of 6.04% and expected life of two years.
As of March 31, 1998, there were 60,000 shares of common stock reserved for
issuance upon the exercise of outstanding options and 75,000 shares
reserved for issuance based on additional awards that may be made under the
Management Plan (see Note 10).
F-17
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Foreign operations:
The consolidated financial statements include the following approximate
amounts applicable to the Company's Canadian subsidiary as of and for the
year ended March 31, 1998 (see Note 1):
Total assets $337,000
Total liabilities (403,000)
--------
Net liabilities $(66,000)
========
Total revenues $253,000
========
Net loss $(66,000)
========
Note 10- Subsequent events:
On May 28, 1998, BBS Holdings, LLC ("BBS Holdings") obtained control of the
Company by acquiring 8,152,000 of the outstanding shares (or approximately
81.5%) of the Company's common stock. The Company issued 7,230,000 shares
of its common stock directly to BBS Holdings in exchange for 100% of the
outstanding shares of the common stock of Play Co. Capital Corp. ("PCC").
PCC owns (i) a 50% interest in Prestige Fine Jewelry, LLC ("Prestige") and
(ii) all rights, title and interest to a contract (the "Contract") to
purchase a lease and certain real and personal property incorporated in the
Cortina Valley Ski Resort in Haines Falls, New York ("Cortina"). Prestige
was formed on April 6, 1998 to become the exclusive marketing
representative for a manufacturer of gold and certain other jewelry.
Cortina is a ski resort in upstate New York that had been operating but was
closed during the 1997/1998 ski season.
Since the acquisition of PCC and certain other concurrent transactions
resulted in the transfer of an approximate 81.5% controlling interest in
the Company to BBS Holdings, the acquisition of PCC by the Company will be
treated as a purchase business combination, effective as of May 28, 1998,
that management believes will have to be accounted for as a "reverse
acquisition" in which the Company will be the legal acquirer and PCC will
be the accounting acquirer. Accordingly, the assets and liabilities of PCC
will be accounted for at their historical carrying values
F-18
<PAGE>
FUN TYME CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10- Subsequent events (concluded):
and the assets and liabilities of the Company will be valued at their fair
values as of May 28, 1998 with the excess of BBS Holdings' cost over the
fair value of the Company's assets, if any, allocated to goodwill. In
addition, the historical consolidated statements of operations issued
subsequent to May 28, 1998 will include the consolidated results of
operations of PCC and the Company for any portion of the period subsequent
to May 28, 1998, but only the consolidated results of operations of PCC for
any portion of the period prior to May 28, 1998; therefore, the
consolidated statements of operations in future reports may not be
comparable to those included in prior reports issued by the Company.
As a result of the issuance of its shares in exchange for the shares of
PCC, the Company will not have a sufficient number of authorized shares to
enable it to issue additional shares upon the exercise of outstanding
options and warrants until its stockholders approve an increase in the
number of shares authorized for issuance. On June 29, 1998, the executive
officers of the Company that held options to purchase a total of 60,000
shares of the Company's common stock agreed to allow the Company to cancel
those options.
* * *
F-19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized this 8th day of July 1998.
FUN TYME CONCEPTS, INC.
By: /s/ Herbert P. Marks
-----------------------------------------------
Herbert P. Marks
President, Chief Executive Officer, and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
/s/ Herbert P. Marks President, Chief Executive Officer, 07/8/98
- -------------------------- and Director Date
Herbert P. Marks
/s/ Daniel Catalfumo Chief Operating Officer, Executive 07/8/98
- -------------------------- Vice President, and Director Date
Daniel Catalfumo
/s/ Russell Murowski Chief Financial Officer and Treasurer 07/8/98
- -------------------------- Date
Russell Murowski
/s/ Richard Rosso Executive Vice President, Secretary, 07/8/98
- -------------------------- and Director Date
Richard Rosso
/s/ Anthony DiMatteo Executive Vice President and Director 07/8/98
- --------------------------
Anthony DiMatteo Date
Exhibit 10.23(a)
Amendment to lease agreement for East Brunswick facility.
HARARY GROUP
275 ROUTE 18
EAST BRUNSWICK, N.J. 08816
(908) 238-3311
July 6, 1998
Fun Tyme of East Brunswick, Inc.
290 Wild Avenue
Staten Island, NY 10314
Attn: Dan Catalfumo
Re: Harary Group to Fun Tyme of East Brunswick, Inc.
M[i]racle [sic] Mall, Route 18, East Brunswick
Dear Dan:
As you know, the total square footage of the space leased by Fun Tyme of
East Brunswick at the Miracle Mall is 16,900, rather than the 15,270 sq. ft.
indicated in the Lease. Accordingly, the annual Basic Rent payable for the
premises should be amended to provide as follows:
ANNUAL RENT MONTHLY INSTALLMENT
----------- -------------------
Lease Years 1 through 5 $202,800.00 $16,900.00
Lease Years 6 through 10 $228,150.00 $19,012.50
Lease Years 11 though 15 $256,711.00 $21,392.50
Lease Years 16 through 20 $288,821.00 $24,068.40
The monthly rental payable during the first five years will be $14,991.25,
after giving Fun Tyme its monthly rent credit of $1,908.75. To this amount
should be added an estimated monthly CAM charge of $2,637., and a monthly tax
change of $3,210.72, for a total monthly rental of $20,838.97.
Based upon the these numbers, a balance of $5,568.97 is due from Fun Tyme
for the first month's rent, after giving Fun Tyme credit for the $15,270 payment
already made.
In addition, Fun Tyme's proportionate Share of Operating Expenses pursuant
to Section 3 of the Lease shall now be 18.32%, based on a shopping center
consisting of 92,240 sq. ft. of space.
After you review the above, please sign this letter and fax it back to me
to confirm you agreement to [the] Lease amendments.
Sincerely,
/s/ Joseph Harary
Joseph Harary
Fun Tyme of East Brunswick, Inc.
By: /s/ Daniel Catalfumo Dated: July__, 1998
---------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 639,572
<SECURITIES> 267,267
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 10,110
<CURRENT-ASSETS> 1,003,277
<PP&E> 1,698,766
<DEPRECIATION> 434,945
<TOTAL-ASSETS> 2,395,496
<CURRENT-LIABILITIES> 154,504
<BONDS> 0
2,762
0
<COMMON> 0
<OTHER-SE> 2,209,436
<TOTAL-LIABILITY-AND-EQUITY> 2,395,496
<SALES> 1,141,245
<TOTAL-REVENUES> 1,141,245
<CGS> 152,542
<TOTAL-COSTS> 2,228,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,423)
<INCOME-PRETAX> (985,069)
<INCOME-TAX> 0
<INCOME-CONTINUING> (985,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (985,069)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
