U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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
DIVERSICON HOLDINGS CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 11-3157259
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
290 Wild Avenue, Staten Island, New York 10314
(Address of Principal Executive Offices)
(718) 477-2733
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last
Report)
Check whether the Issuer (1) 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 registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares of each of the issuer's classes of common equity
outstanding as of the latest practicable date: Common Stock, $.01 par value:
3,379,000 shares outstanding as of March 11, 1999.
<PAGE>
DIVERSICON HOLDINGS CORP.
TABLE OF CONTENTS
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Balance Sheets as of December 31, 1998 and March 31, 1998. 2
Condensed Statements of Operations for the Three Months and Nine Months Ended 3
December 31, 1998 and 1997.
Condensed Consolidated Statement of Stockholders' Equity for the Nine Months 4
Ended December 31, 1998
Condensed Statements of Cash Flows for the Nine Months Ended December 31, 1998 5
and 1997.
Notes to condensed financial statements 6-12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 13-15
OPERATIONS
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 16
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 16
Item 3. DEFAULTS UPON SENIOR SECURITIES 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
Item 5. OTHER INFORMATION 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16
Signatures 17
</TABLE>
1
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1998 1998
- ------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,066 $ 639,572
Certificate of deposit 267,267
Notes receivable 49,000
Other current assets 137,904 96,438
----------- -----------
Total current assets 220,970 1,003,277
Property and equipment, net 6,620,019 1,263,821
Investment in equity investee 282,000
Advances to officers 31,287 57,200
Other assets 66,459 71,198
----------- -----------
Totals $ 7,220,735 $ 2,395,496
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 830,909 $ 136,647
Customer deposits 7,042 17,857
Notes payable - related parties 333,440
Notes payable - others 187,000
Other current liabilities 89,557
----------- -----------
Total current liabilities 1,447,948 154,504
Mortgage payable 600,000
Other liabilities 20,907 28,794
----------- -----------
Total liabilities 2,068,855 183,298
----------- -----------
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; 50,000,000 and
10,000,000 shares authorized; 2,497,991 and 2,761,965
shares issued and outstanding 2,498 2,762
Additional paid-in capital 8,463,816 3,954,552
Accumulated deficit (3,314,434) (1,745,116)
----------- -----------
Total stockholders' equity 5,151,880 2,212,198
----------- -----------
TOTALS $ 7,220,735 $ 2,395,496
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof
2
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 938,903 $ 806,945 $ 260,708 $ 296,247
----------- ----------- ----------- -----------
Costs and expenses:
Operating Expenses 1,312,927 1,137,251 520,851 377,481
Selling, General, and Administrative Exp 846,203 443,050 152,569 173,407
----------- ----------- ----------- -----------
TOTALS 2,159,130 1,580,301 673,420 550,888
----------- ----------- ----------- -----------
Loss from operations (1,220,227) (773,356) (412,712) (254,641)
----------- ----------- ----------- -----------
Other income (expense):
Interest Income 18,009 56,530 10,010
Interest Expense (40,100) (10,758) (28,900) (6,931)
Charge for officers' compensation
paid by parent company (327,000)
----------- ----------- ----------- -----------
TOTALS (349,091) 45,772 (28,900) 3,079
----------- ----------- ----------- -----------
Net loss $(1,569,318) $ (727,584) $ (441,612) $ (251,562)
=========== =========== =========== ===========
Basic net loss per share $ (0.74) $ (0.29) $ (0.18) $ (0.10)
Basic weighted average common and common
equivalent shares outstanding 2,123,346 2,513,463 2,497,991 2,512,465
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
3
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, April 1, 1998 2,761,965 $ 2,762 $ 3,954,552 $(1,745,116) $ 2,212,198
Issuance of shares to
acquire business 7,230,000 7,230 4,174,770 4,182,000
Contribution to capital
arising from officers'
compensation effectively
paid by parent company 327,000 327,000
Effects of 1 for 4 reverse
stock split (7,493,974) (7,494) 7,494
Net loss (1,569,318) (1,569,318)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 2,497,991 $ 2,498 $ 8,463,816 $(3,314,434) $ 5,151,880
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
4
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
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<CAPTION>
1998 1997
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Operating activities:
Net loss $(1,569,318) $ (727,584)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 152,601 134,572
Charge for officers' compensation paid by parent company 327,000
Changes in operating assets and liabilities:
Other current assets (40,842) 48,389
Other assets 4,739
Accounts payable and accrued expenses 694,262 (4,541)
Customer deposits (10,815) (8,776)
Other current liabilities 104,930
Other liabilities (7,887)
----------- -----------
Net cash used in operating activities (345,330) (557,940)
----------- -----------
Investing activities:
Redemption of certificate of deposit 267,267
Short-term loans (49,000)
Purchase of property and equipment (905,849) (517,802)
Payments in connection with the purchase of
ski resort business (537,950)
Advances to equity investee (624)
Repayment of advances to officers 25,913 (53,869)
----------- -----------
Net cash used in investing activities (1,200,243) (571,671)
----------- -----------
Financing activities:
Mortgage proceeds 600,000
Loans from related parties 333,440
Other loan 22,000
Repayments of capital lease obligations (15,373) (68,372)
Purchase of treasury stock (24,017)
----------- -----------
Net cash provided by (used in) financing activities 940,067 (92,389)
----------- -----------
Decrease in cash and cash equivalents (605,506) (1,222,000)
Cash and cash equivalents, beginning of period 639,572 2,155,460
----------- -----------
Cash and cash equivalents, end of period $ 34,066 $ 933,460
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 11,200 $ 10,758
=========== ===========
Income taxes paid $ 36,689
===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
5
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
Note 1- Business Activities:
As of December 31, 1998, Diversion Holdings Corporation (formerly Fun
Tyme Concepts, Inc.) and its subsidiaries (the "Company") were
operating two children's entertainment centers in Staten Island, New
York and Edmonton, Alberta, Canada for children, ages two through
twelve. The Company also operates a day camp program at its Staten
Island facility during the summer months, which includes indoor and
outdoor activities for children, ages three through fourteen. The
Edmonton facility was opened in August 1997.
In concurrent transactions during May 1998, the Company became an
81.6%-owned subsidiary of BBS Holdings, LLC ("BBS Holdings") and
acquired 100% of the outstanding shares of common stock of Resource
Marketing, Inc. ("RMI") from BBS Holdings. As of the date of
acquisition, RMI held a 50% interest in a company that had commenced
sales of jewelry in April 1998 and held an option to acquire the
facilities comprising an inactive ski resort known as the Cortina
Mountain Ski Resort ("Cortina"). On July 27, 1998, the Company
exercised the option and operations at Cortina commenced on December
25, 1998 (see Notes 4 and 5).
Note 2- Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary to present fairly the
financial position of the Company as of December 31, 1998, and its
results of operations for the nine and three months ended December 31,
1998 and 1997, changes in stockholders' equity for the nine months
ended December 31, 1998 and cash flows for the nine months ended
December 31, 1998 and 1997. Information included in the consolidated
balance sheet as of March 31, 1998 has been derived from the audited
balance sheet in the Company's Annual Report on Form 10-KSB for the
year ended March 31, 1998 (the "10-KSB") previously filed with the
Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in
conjunction with the financial statements, notes to financial
statements, and the other information in the 10-KSB.
The results of the Company's operations for the nine months ended
December 31, 1998 are not necessarily indicative of its results of
operations for the full year ending March 31, 1999.
6
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
Note 3- 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 requires the presentation of "basic" and
"diluted" earnings (loss) per common share, as further explained in
Note 2 of the notes to the audited consolidated financial statements
of the Company. SFAS 128 replaced the previously required reporting of
primary and fully diluted earning per share with basic and diluted
earning per share, respectively. Unlike the previously reported
primary earning per share, basic earning per share excludes the
dilutive effect of stock options. Diluted earning per share is similar
to the previously reported fully diluted earnings per share. Earnings
per share amounts for all periods presented have been calculated in
accordance with the requirement of SFAS 128.
Since the Company had losses applicable to common stock in the nine
and three months ended December 31, 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 unaudited condensed consolidated
statements of operations. In addition, the basic per share and
weighted average share amounts presented in the accompanying 1997
unaudited condensed consolidated statement of operations which were
computed in accordance with SFAS 128 do not differ from those computed
under previously promulgated accounting standards.
All references to numbers of shares and per share amounts in these
notes and, where appropriate, the accompanying financial statements
have been retroactively restated for a 1 for 4 reverse stock split,
approved by the Company's stockholders on August 18, 1998 (see Note
7).
Note 4- Acquisition of the Company by BBS Holdings and acquisition of RMI by
the Company:
The Company became an 81.6%-owned subsidiary of BBS Holdings and
acquired 100% of the outstanding shares of common stock of RMI from
BBS Holdings as a result of the transactions described below that took
place pursuant to the stock purchase agreement dated and effective as
of May 28, 1998 (the "Agreement").
o BBS Holdings received a total of 230,500 shares of common stock
of the Company, or approximately 33.4% of the Company's 690,500
common shares outstanding prior to the Agreement and the related
transactions on May 28, 1998, from two companies, each of which
was wholly-owned by two directorsf the Company, who also serve as
executive officers of the Company, in exchange for an aggregate
20% interest in BBS Holdings.
7
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
Note 4 - Acquisition of the Company by BBS Holdings and acquisition of RMI by
the Company: (Continued)
o The Company issued 1,807,500 shares of its common stock directly
to BBS Holdings in exchange for 100% of the outstanding shares of
the common stock of RMI, which increased the number of shares
held by BBS Holdings to 2,038,000 shares, or approximately 81.6%
of the 2,498,000 shares of the Company's common stock outstanding
after the transactions on May 28, 1998.
As of May 28, 1998, RMI owned (i) all rights, title, and interest to a
contract (the "Contract") to purchase lease rights and certain real
and personal property comprising Cortina for $540,000 and (ii) a 50%
interest in Prestige Fine Jewelry, LLC ("Prestige"). Those assets had
been transferred to BBS Holdings and RMI as initial capital
contributions by certain of their members and stockholders.
Cortina is located on approximately 300 acres in upstate New York. The
ski area, which occupies approximately 106 acres, has 18 slopes/trails
and a lodge with restaurant, motel, and other facilities. Cortina,
which had been operating for approximately 25 years, closed during the
1996/1997 ski season and remained closed for all of the 1997/1998 ski
season.
Prestige, which was organized as a limited liability company on March
31, 1998, commenced sales of jewelry primarily made of gold in April
1998 pursuant to an operating and sales agreements with Prestige
Chain, Inc. ("PCI"), an established manufacturer and wholesaler of
jewelry. Prestige was formed to sell jewelry exclusively to large
chain store retailers, a class of customers that PCI had not
previously serviced. On January 8, 1999, PCI cancelled the agreement
with Prestige. However, management intends to attempt reaching a new
agreement between PCI and Prestige.
The Company has accounted for the acquisition of RMI as a purchase.
The 1,807,500 shares of the Company's common stock issued to BBS
Holdings as consideration for the acquisition of RMI were valued at
$4,182,000 of which $3,900,000 was attributable to the interest in the
Contract and $282,000 was attributable to the interest in Prestige as
explained below:
8
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
Note 4- Acquisition of the Company by BBS Holdings and acquisition of RMI by
the Company: (Continued)
o The cost of the interest in the Contract is equal to the cost of
$4,065,000 incurred by the member of BBS Holdings to acquire the
Contract on February 12, 1998. The member contributed the
Contract to BBS Holdings and RMI on that date in exchange for its
initial 75% interest in BBS Holdings and the assumption by BBS
Holdings of a note payable in the principal amount of $165,000.
The balance of the note, which bears interest at 6%, was due in
June 1998 but remained unpaid as of December 31, 1998.
o The cost of the interest in Prestige is equal to the fair value
of 25% of the 1,807,500 shares of common stock of the Company,
issued to BBS Holdings for the 100% interest in RMI, based on the
fair market value of $.625 per share for the Company's common
stock on May 28, 1998. The member contributed its 50% interest in
Prestige to BBS Holdings and RMI on February 12, 1998 in exchange
for its initial 25% interest in BBS Holdings.
At the date of acquisition, RMI's only material assets and liabilities
were the interests in the Contract and Prestige and the note payable
related to the purchase of the Contract. The acquisition of RMI by the
Company in exchange for shares of common stock and the assumption of
the note was a noncash transaction that is not reflected in the
accompanying unaudited condensed consolidated statement of cash flows
for the nine months ended December 31, 1998.
The Company has accounted for its 50% interest in Prestige since the
acquisition pursuant to the equity method. Prestige generated
approximately $650,000 of sales and broke even for its initial six
months of operations through September 30, 1998. Prestige had no sales
or operations during the quarter ended December 31, 1998. Accordingly,
the Company's proportionate share of Prestige's results of operations
for the period from the date of acquisition to December 31, 1998 was
immaterial. Information as to the unaudited pro forma results of
operations of the Company and RMI, assuming the acquisition had been
consummated on April 1, 1997, has not been presented because such
information would not differ materially from the information in the
accompanying historical statements of operations of the Company for
the nine months ended December 31, 1998 and 1997.
9
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
Note 4- Acquisition of the Company by BBS Holdings and acquisition of RMI by
the Company: (Continued)
If the companies owned by the directors of the Company had retained
the 230,500 shares of common stock of the Company they owned prior to
the business combination and transferred in exchange for their 20%
interest in BBS Holdings, they would have owned 9.2% of the 2,498,000
outstanding shares of the Company immediately after the acquisition.
Instead, as a result of the transfer of the shares to BBS Holdings,
they acquired a 16.3% indirect interest in the Company as of the date
of the acquisition. Accordingly, the executive officers received a
premium for their shares of approximately 7% from BBS Holdings which
is deemed to be compensation paid by BBS Holdings on behalf of the
Company and a contribution to the Company's capital. As a result, the
Company recorded a noncash charge of $327,000 for officers'
compensation as of May 28, 1998, which is shown separately in the
accompanying unaudited condensed consolidated statement of operations
for the nine months ended December 31, 1998; the charge was equivalent
to approximately 7% of the fair value of the Company's outstanding
shares prior to the acquisition and the fair value of the assets
acquired.
Note 5 - Acquisition of Cortina:
On July 27, 1998, the Company exercised its rights under the Contract
and paid $538,000 to the owner of the Cortina facilities for the
Cortina lease, including ownership of certain real property included
therein (see Note 4). The Company has accounted for the acquisition of
Cortina's facilities and, effectively, its operations as a purchase.
The total cost of the acquisition was $4,602,950 which was comprised
of the $3,900,000 of consideration initially paid by BBS Holdings for
the option to acquire Cortina pursuant to the Contract, the $165,000
to be paid by the Company as a result of the assumption of the note
payable originally issued by BBS Holdings and the $538,000 paid on
July 27, 1998. The total cost of the acquisition was allocated to the
property and equipment acquired.
As explained in Notes 1 and 4, Cortina's ski operations had
closed during the 1996/1997 ski season and remained closed for
all of the 1997/1998 ski season. Information as to the
unaudited pro forma results of operations of the Company and
Cortina, assuming the acquisition had been consummated on
April 1, 1997, has not been presented because such information
would not differ materially from the information in the
accompanying historical statements of operations of the
Company for the nine and three months ended December 31, 1998
and 1997.
10
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
Note 5 - Acquisition of Cortina: (Continued)
On October 13, 1998, the Company purchased certain additional real
property underlying the Cortina lease, pursuant to an option contained
in the lease, for $150,000.
Note 6 - Notes and Mortgage Payable:
On May 28, 1998, the Company assumed a note payable in the principal
amount of $165,000 in connection with the acquisition of the Contract
for the purchase of Cortina (see Note 4). The note is unsecured, bears
interest at 6% and was due in June 1998, but remained unpaid as of
December 31, 1998.
In July 1998, the Company's subsidiary, ER of Tannersville, Inc.,
borrowed $273,440 from New York Printing & Publishing LLC, a company
partially owned by a director of the Company. The proceeds were used
as partial funding for the purchase of Cortina. The note is unsecured,
payable on demand and bears interest at 6% per annum.
Anthony DiMatteo, a director of the Company, made advances to the
Company of $60,000 during July 1998 to help fund the purchase of
Cortina. The note is unsecured, bears interest at 18% per annum, and
is payable on demand.
The Company also borrowed $22,000 from an unrelated individual in July
1998. The note is unsecured, bears interest at 6% per annum, and is
payable on demand.
On October 13, 1998, the Company borrowed $600,000 under a mortgage
secured by the Cortina facilities. The mortgage bears interest at an
annual rate of 13% that is payable monthly, and requires the repayment
of the principal balance on November 1, 2000.
Note 7 - Stockholders' Equity:
On August 18, 1998, the stockholders of the Company approved
amendments to the Company's Certificate of Incorporation that
increased the number of shares of common stock authorized for issuance
by the Company from 10,000,000 to 50,000,000 shares and changed the
Company's name from Fun Tyme Concepts, Inc. to Diversicon Holdings
Corp. They also approved the 1 for 4 reverse stock split of the
Company's outstanding shares of common stock and a redomicile of the
Company from the State of New York to the State of Delaware.
11
<PAGE>
DIVERSICON HOLDINGS CORPORATION AND SUBSIDIARIES
(Formerly Fun Tyme Concepts, Inc. and Subsidiaries)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(Unaudited)
Note 8 - Contingency:
The Company is currently in arrears on rental payments due under the
lease for the East Brunswick facilities. On January 20, 1999, the
landlord of the property entered a Judgment for Possession of the
property (See Part II - Item 1). Management intends to negotiate with
the landlord in an effort to avoid the landlord executing the Judgment
for Possession and evicting the Company's subsidiary, ER of East
Brunswick from the property. The Company's investment in improvements
at the East Brunswick facility totaled approximately $498,000 at
December 31, 1998. Management believes it will be successful in
resolving the matter and as such there is no provision for possible
loss in the accompanying consolidated financial statements. However,
as the final resolution of this issue is at the discretion of the
landlord, there can be no guarantee of an amicable solution.
Note 9 - Subsequent Events:
In February 1999, the Company issued an aggregate of 475,000 shares of
Common Stock as bonuses - in accordance with the Company's Senior
Management Incentive Plan (the "Plan," adopted in February 1995 by the
Board and thereafter by the shareholders at the Company's annual
meeting on August 18, 1998) - to certain members of the Company's
management, key employees, and consultants. Of the 475,000 shares,
150,000 shares were issued to each of the President and Treasurer of
the Company. The remainder were issued to key employees and
consultants of the Company.
Also in February 1999, the Company issued an aggregate of 206,000
shares of Common Stock pursuant to two agreements to convert an
aggregate of $87,000 in debt into equity. Of the 206,000 shares
issued, 150,000 shares were issued to satisfy $45,000 in debt due and
owing by the Company's subsidiary, ER of East Brunswick, Inc. The
remaining 56,000 shares were issued to satisfy $42,000 in debt due and
owing by the Company's subsidiary, ER of Tannersville, Inc.
Also in February 1999, pursuant to a private transaction, the Company
sold 100,000 shares of Common Stock for an aggregate of $50,000.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Diversicon Holdings Corp. (the "Company") operates two children's
entertainment centers, one in Staten Island, New York and another in Edmonton,
Canada. In addition the Company owns and operates a 300 acre ski resort in the
Catskill mountains in New York, which began operations on December 25, 1998.
In the opinion of management, the accompanying Unaudited Condensed
Consolidated Financial Statements of Diversicon Holdings Corp. include all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Company's financial position as of December 31, 1998, and the
results of operations for the nine months ended December 31, 1998. Due to
expenses related to the construction of the East Brunswick facility and the
Cortina Valley Ski Resort and other costs related to the Company's recent
acquisition and corporate restructuring, the results of operation for the nine
months ended December 31,1998 may not be indicative of the total results of
operation of the Company.
While the Company believes the disclosures presented are adequate to make
the information not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the Company's
financial statements included in the Company's Form 10-KSB.
For the three months ended December 31, 1998 compared to the three months ended
December 31, 1997
During the three months ended December 31, 1998, revenues of the Company
were $260,708 as compared with $296,247 during the three months ended December
31, 1997. This decrease of $35,539 was principally attributable to a decrease in
attendance at the Company's Staten Island facility due to unseasonable weather
conditions. The decrease was offset somewhat by revenues from the Company's
Cortina Valley Ski Resort.
During the three months ended December 31, 1998, operating expenses of the
Company were $520,851 as compared with $377,481 during the three months ended
December 31, 1997. This increase of $143,370 was partially attributable to the
opening of the Company's Cortina Valley ski resort, which was under construction
during that period.
During the three months ended December 31, 1998, selling, general, and
administrative expenses were $152,569 as compared with $173,407 during the three
months ended December 31, 1997.
For the nine months ended December 31, 1998 compared to the nine months ended
December 31, 1997
During the nine months ended December 31, 1998, revenues of the Company
were $938,903, as compared with $806,945 during the nine months ended December
31, 1997. This increase of $131,958 was partially attributable to the opening of
the Company's Cortina Valley
13
<PAGE>
Ski Resort and an increase in operating revenues from the Company's Edmonton
facility.
During the nine months ended December 31, 1998, operating expenses of the
Company were $1,312,927, as compared with $1,137,251 during the nine months
ended December 31, 1997. This increase of $175,676 was partially attributable to
the opening of the Company's Cortina Valley Ski Resort and an increase in
operating expenses at the Company's Edmonton facility, which opened in August
1997.
During the nine months ended December 31, 1998, selling, general and
administrative expenses were $846,203 as compared with $443,050 during the nine
months ended December 31, 1997. This increase of $403,153 was attributable to
consulting services provided by investment bankers, other special consulting
projects, additional professional fees, and expenses incurred at the Company's
Edmonton, East Brunswick and Cortina Valley Ski Resort.
Financial Condition
At December 31, 1998 the Company had a working capital deficiency of
$1,226,978 and stockholders equity of $5,151,880. Included in the working
capital deficiency is approximately $610,000 in short term debt incurred in the
financing of the Company's Cortina Valley ski resort. Also included in the
working capital deficiency are accounts payable and debt owed of for the capital
improvements to the Company's East Brunswick facility of approximately $830,909.
On October 13, 1998, the Company borrowed $600,000 and issued a mortgage
note that is secured by the Cortina property, bears interest at 13% per annum,
is payable monthly, and requires the repayment of the principal balance on
November 1, 2000. Simultaneously and in accordance with the terms of the note,
the Company purchased certain real property underlying the lease for $150,000.
The Company has made improvements to Cortina which opened on December 25, 1998.
The total expenses for the improvements were approximately $300,000.
Management expects that the Company will need capital resources of
$1,000,000 during the period from March 31, 1999 through September 30, 1999.
Included in the need for capital resources are approximately $500,000 for
accounts payable and $500,000 for working capital to fund the Company's various
operations. Management expects, but cannot assure, that the Company will be able
to obtain additional capital resources to meet its requirements during the
aforementioned period. The Company is exploring various means of financing,
including asset financing, private placement financing, and equipment financing.
The Company is also exploring the possibility of the issuance of a convertible
debenture to raise additional capital. Additionally, the Company is exploring
the option of selling its Staten Island Fun Bubble facility.
Year 2000
Management of the Company has determined that the year 2000 issues will not
have any material impact on the Company's business, accounting procedures,
disclosure procedures, or future plans. At the present time the Company runs two
children's entertainment centers and a ski resort in upstate New York. The
Cortina facilities currently do not operate on a point of sale computer system,
and in the past, the entertainment facilities have operated with their point of
sale computer system down with out any major problems to their operations
Although the Dac Easy general accounting programs used by the Company are fairly
complex, the Dac Easy
14
<PAGE>
technical support department has assured the Company that the Y2K issues will be
of no consequence. In the event of any problem with the accounting software due
to the year 2000 issue, the Company is prepared to purchase an upgrade of the
existing software at a cost estimated to be below $3,000.
Suppliers and vendors of the Company are small vendors of mainly perishable
items and the Company believes that in the event such suppliers are impacted by
Y2K issues, replacement suppliers would be available. Larger suppliers are used
so infrequently that even if impacted by Y2K issues, there would be no negative
impact on the Company. In the event of any problem with the accounting software
due to the year 2000 issue, the Company is prepared to purchase an upgrade of
the existing software at a cost estimated to be below $3,000.
15
<PAGE>
PART II
Item 1. Legal Proceedings:
On October 2, 1998, the Company's subsidiary, ER of East Brunswick, Inc.
(formerly Fun Tyme of East Brunswick, Inc.), was named as defendant in an action
for non-payment of rent commenced by the landlord of ER of East Brunswick's
facility, The Harary Group, in the Superior Court of New Jersey, Middlesex
County. The action sought damages in the amount of $31,962.01. On October 28,
1998, the Company entered into a Stipulation of Settlement with The Harary
Group. The Stipulation required that the Company (i) remit an initial payment of
$20,000 (which the Company paid prior to the date of the Stipulation); (ii)
remit an additional payment of $20,000 payable on or before November 20, 1998;
(iii) remit a payment of the balance of all rent due and payable through the
month of December 1998, in the total amount of $53,439.25, on or before December
20, 1998; (iv) discharge or bond the Notice of Unpaid Balance and Right to File
Lien Claim (in the amount of $23,955.75) filed by Bedrock Concrete Corporation
against the premises on or before January 15, 1999. The Stipulation also
provided that if the Company were to obtain financing prior to December 20,
1998, it would make all of the above payments within five days of the closing of
such financing. As part of the agreement, the Company consented to the entry of
a Judgment for Possession of the premises if it failed to comply with any of the
aforementioned terms. The Company failed to remit the payment due on or before
December 20, 1998 and consequently, the Harary Group, entered a Judgment for
Possession of the property on January 20, 1999. However, to date, the Harary
Group has not attempted to evict ER of East Brunswick.
Item 2. Changes in Securities and Use of Proceeds: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this Form 10-QSB for the quarter
ended December 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
- -------------------- -----------------------------------------------------------------------------------------------
3.5 Certificate of Incorporation of Diversicon Holdings Corp. filed September 24, 1998.
- -------------------- -----------------------------------------------------------------------------------------------
3.6 Certificate of Merger filed with the State of New York on October 23, 1998
- -------------------- -----------------------------------------------------------------------------------------------
27.01 Financial Data Schedule
- -------------------- -----------------------------------------------------------------------------------------------
</TABLE>
(b) During the quarter ended December 31, 1998, no reports on Form 8-K were
filed with the Securities and Exchange Commission.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 18th day of March 1999.
DIVERSICON HOLDINGS CORP.
By: /s/ Daniel Catalfumo
-------------------------------------
Daniel Catalfumo
President and Chief Executive Officer
By: /s/ Richard Rosso
-------------------------------------
Richard Rosso
Treasurer
17
Exhibit 3.5
CERTIFICATE OF INCORPORATION
OF
DIVERSICON HOLDINGS CORP.
FIRST: The name of the corporation is Diversicon Holdings Corp.
SECOND: The name and address of the Corporation's registered agent and the
address of the Corporation's registered office in Delaware are as follows:
Incorporating Services, Ltd., 15 East North Street, Dover, Delaware 19901,
County of Kent.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: Capital Stock
(A) Authorized Capital Stock. The total number of shares of all
classes of stock which this Corporation shall have authority to issue is
FIFTY MILLION THREE HUNDRED FIFTY THOUSAND (50,350,000) shares, comprised
of FIFTY MILLION (50,000,000) shares of common stock, par value $.001 per
share ("Common Stock"), and THREE HUNDRED FIFTY THOUSAND (350,000) shares
of preferred stock, par value $.01 per share ("Preferred Stock"), the
relative rights, preferences, and limitations of which Preferred Stock
shall be determined by the Board of Directors.
(B) Preferred Stock - Undesignated.
(i) Shares of Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the Board
of Directors. Each series shall be distinctly designated. The relative
rights, preferences, and limitations of shares of undesignated
Preferred Stock are as provided for in this Article FOURTH.
(ii) Undesignated Preferred Stock. Shares of Preferred Stock may
be issued from time to time in one or more series as may from time to
time be determined by the Board of Directors. Each series shall be
distinctly designated. All shares of any one series of the Preferred
Stock shall be alike in every particular event except that there may
be different dates from which dividends thereon, if any, shall be
cumulative, if made cumulative. The powers, preferences, and relative
participating, optional, and other rights of each series and the
qualifications, limitations, or restrictions thereof, if any, may
differ from those of any and all other series at any time outstanding.
Subject to the provisions of this Article FOURTH, the Board of
Directors of the Company is hereby expressly granted authority to fix
by resolution or resolutions adopted prior to the issuance of any
shares of each particular series of Preferred Stock, the designation,
powers, preferences, and relative participating, optional, and other
rights, and the qualifications, limitations,
18
<PAGE>
and restrictions thereof, if any, of such series, including, but
without limiting the generality of the foregoing, the following:
(a) the distinctive designation and the number of shares of
Preferred Stock which shall constitute the series, which number
may be increased (except as otherwise fixed by the Board of
Directors) or decreased (but not below the number of shares
thereof then outstanding) from time to time by action of the
Board of Directors;
(b) the rates and times at which, and the terms and
conditions upon which, dividends, if any, on shares of the series
shall be paid, the extent of preferences or relations, if any, of
such dividends to the dividends payable on any other class or
classes of stock of this Corporation, or on any series of
Preferred Stock or of any other class or classes of stock of this
Corporation, and whether such dividends shall be cumulative or
non-cumulative;
(c) the right, if any, of the holders of shares of the
series to convert the same into, or exchange the same for, shares
of any other class or classes of stock of this Corporation, or of
any series of Preferred Stock of this Corporation, and the terms
and conditions of such conversion or exchange;
(d) whether shares of the series shall be subject to
redemption, and the redemption price or prices including, without
limitation, a redemption price or prices payable in shares of the
Common Stock and the time or times at which, and the terms and
conditions upon which, shares of the series may be redeemed;
(e) the rights, if any, of the holders of shares of the
series upon voluntary or involuntary liquidation, merger,
consolidation, distribution or sale of assets, dissolution, or
winding up of this Corporation;
(f) the terms of the sinking fund or redemption or purchase
account, if any, to be provided for shares of the series; and
(g) the voting powers, if any, of the holders of shares of
the series which may, without limiting the generality of the
foregoing, include (i) the right to more or less than one vote
per share on any or all matters voted upon by the stockholders,
and (ii) the right to vote, as a series by itself or together
with other series of Preferred Stock or together with all series
of Preferred Stock as a class, upon such matters, under such
circumstances, and upon such conditions as the Board of Directors
may fix including, without limitation, the right, voting as a
series by itself or together with other series of Preferred Stock
or together with all series of Preferred Stock as a class, to
elect one or more Directors of this Corporation, or to elect a
majority of the members of the Board, under such circumstances
and upon such conditions as the Board may determine.
19
<PAGE>
(C) Common Stock.
(i) After the requirements with respect to voting rights on
Preferred Stock (fixed in accordance with provisions of this Article
FOURTH), if any, shall have been met and after this Corporation shall
have complied with all the requirements, if any, with respect to the
setting aside of sums as sinking funds or redemption or purchase
accounts, then, but not otherwise, the holders of Common Stock shall
be entitled to receive such dividends, if any, as may be declared from
time to time by the Board of Directors.
(ii) In the event of voluntary or involuntary liquidation,
distribution or sale of assets, dissolution, or winding-up of this
Corporation, the holders of the Common Stock shall be entitled to
receive all the remaining assets of this Corporation, tangible and
intangible, of whatever kind available for distribution to
stockholders, ratably in proportion to the number of shares of the
Common Stock held by each.
(iii) Except as otherwise be required by law, this Certificate of
Incorporation, or the provisions of the resolution or resolutions as
may be adopted by the Board of Directors pursuant to this Article
FOURTH, each holder of Common Stock shall have one vote in respect of
each share of Common Stock held by such holder on each matter voted
upon by the stockholders.
(D) Other Provisions.
(i) The relative powers, preferences, and rights of each series
of Preferred Stock in relation to the powers, preferences, and rights
of each other series of Preferred Stock shall, in each case, be as
fixed from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in this Article
FOURTH, and the consent, by class or series vote or otherwise, of the
holders of the Preferred Stock of such of the series of the Preferred
Stock as are from time to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of
Preferred Stock whether the powers, preferences, and rights of such
other series shall be fixed by the Board of Directors as senior to, or
on a parity with, the powers, preferences, and rights of such
outstanding series, or any of them, provided, however, that the Board
of Directors may provide in such resolution or resolutions adopted
with respect to any series of Preferred Stock that the consent of the
holders of a majority (or such greater proportion as shall be therein
fixed) of the outstanding shares of such series voting thereon shall
be required for the issuance of any or all other shares of Preferred
Stock.
(ii) Subject to the provisions of subparagraph (i) of this
paragraph, shares of any series of Preferred Stock may be issued from
time to time as the Board of Directors shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(iii) Shares of the Common Stock may be issued from time to time
as the Board of Directors shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.
20
<PAGE>
(iv) No holder of any of the shares of any class or series of
stock or of options, warrants, or other rights to purchase (a) shares
of any class or series of stock, or (b) other securities of the
Company shall have any preemptive right to purchase or subscribe for
any unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Company of any class or series, or
bonds, certificates of indebtedness, debentures, or other securities
convertible into or exchangeable for stock of the Company of any class
or series, or carrying any right to purchase stock of any class or
series.
FIFTH: The name and mailing address of the sole incorporator is Daniel
Catalfumo, 290 Wild Avenue, Staten Island, New York 10314.
SIXTH: The number of Directors of the Corporation shall be as from time to
time provided by or pursuant to the By-Laws of the Corporation but shall not be
less than two.
SEVENTH: The personal liability of Directors to the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of ss.102(b)(7) of
the General Corporation Law of the State of Delaware, as may be amended and
supplemented. Any repeal or modification of this Article SEVENTH shall not
adversely affect any right or protection of a Director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
I, being the sole incorporator herein named hereby sign this certificate
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware this 22nd day of September 1998.
-----------------------------
Daniel Catalfumo
Sole Incorporator
21
Exhibit 3.6
CERTIFICATE OF MERGER
OF
FUN TYME CONCEPTS, INC.
(a New York Corporation)
INTO
DIVERSICON HOLDINGS CORP.
(a Delaware Corporation)
(Pursuant to Section 907 of the Business Corporation Law)
The undersigned constituent corporations herein named do
certify as follows:
FIRST: The Board of Directors of each of the constituent corporations has
duly adopted a plan of merger setting forth the terms and conditions of the
merger of said corporations.
SECOND: The name of the foreign constituent corporation, which is to be the
surviving corporation, and which is hereinafter sometimes referred to as the
"surviving constituent corporation," is Diversicon Holdings Corp. The surviving
constituent corporation was incorporated as such on September 24, 1998 in the
State of Delaware. No application for authority to transact business as a
foreign corporation in the State of New York was filed, by the surviving
constituent corporation, with the New York Department of State, and the
surviving constituent corporation is not to do business in the State of New York
until an Application for Authority shall have been filed with the New York
Department of State. The name of the domestic constituent corporation is Fun
Tyme Concepts, Inc.: the domestic constituent corporation was incorporated as
such on April 19, 1993 in the State of New York.
THIRD: The domestic constituent corporation was incorporated as Fun Tyme
Concepts, Inc., in the State of New York, on April 19, 1993. It has not changed
its name since then. The foreign constituent corporation was incorporated as
Diversicon Holdings Corp., in the State of Delaware, on September 24, 1998. It
has not changed its name since then. The domestic constituent corporation (Fun
Tyme Concepts, Inc.) is merging into the surviving constituent corporation
(Diversicon Holdings Corp.).
FOURTH: As to each constituent corporation, the plan of merger sets forth
the designation and number of outstanding shares of each class and series, the
specification of the classes and series entitled to vote on the plan of merger,
and the specification of each class and series entitled to vote as a class on
the plan of merger, as follows:
22
<PAGE>
Diversicon Holdings Corp.
Designation of Number of Designation Classes and
Each outstanding outstanding of class and series entitled
Class and series shares of series entitled to vote as a
of shares each class to vote class
Common Stock 2,497,991 N/A
- --------------- ----------- --------------- ---------------
par value $.001
- ---------------- ----------- --------------- ---------------
Fun Tyme Concepts, Inc.
Designation of Number of Designation Classes and
Each outstanding outstanding of class and series entitled
Class and series shares of series entitled to vote as a
of shares each class to vote class
Common Stock 2,497,991 N/A
- ---------------- ----------- --------------- ---------------
par value $.001
- ---------------- ----------- --------------- ---------------
FIFTH: The merger herein certified was authorized in respect of the merged
constituent corporation by the vote of the holders of at least two-thirds of all
outstanding shares of the corporation's Common Stock, the only class entitled to
vote under the certificate of incorporation and under paragraph (a)(2) of
section 903 of the Business Corporation Law.
SIXTH: All taxes and fees accrued against the merged constituent
corporation have been paid, and an estimated cessation franchise tax report
through the anticipated date of merger has been filed, and the surviving
constituent corporation will file a final franchise tax report and any and all
taxes and fees due within thirty days of filing this Certificate of Merger.
SEVENTH: The merger herein certified is permitted by the laws of the
jurisdiction of incorporation of the surviving constituent corporation and is in
compliance with said laws.
EIGHTH: The surviving constituent corporation agrees that it may be served
with process in the State of New York in any action or special proceeding for
the enforcement of any liability or obligation of the merger constituent
corporation for which the surviving constituent corporation is previously
amenable to suit in the State of New York and for the enforcement, as provided
in the Business Corporation Law of the State of New York, of the right of
shareholders of the merged constituent corporation to receive payment for their
shares against the surviving constituent corporation.
NINTH: The surviving constituent corporation agrees that, subject to the
provisions of section 623 of the Business Corporation Law of the State of New
York, it will promptly pay to the shareholders of the merged constituent
corporation the amount, if any, to which they shall be
23
<PAGE>
entitled under the provisions of the Business Corporation Law of the State of
New York relating to the rights of shareholders to receive payment of their
shares.
TENTH: The surviving constituent corporation hereby designates the
Secretary of State of the State of New York as its agent upon whom process
against it may be served in the manner set forth in paragraph (b) of section 306
of the Business Corporation Law of the State of New York. The address to which
the said Secretary of State shall mail a copy of any process against the
surviving corporation served upon him is President, Diversicon Holdings Corp.,
290 Wild Avenue, Staten Island, New York 10314.
IN WITNESS WHEREOF, the undersigned have subscribed this document on the
date set forth below and do hereby affirm, under the penalty of perjury, that
the statements contained herein have been examined by us and are true and
correct.
Executed on this 22nd day October, 1998
Fun Tyme Concepts, Inc.
By:
-------------------------------
Daniel Catalfumo, President
By:
-------------------------------
Richard Rosso, Secretary
Diversicon Holdings Corp.
By:
-------------------------------
Daniel Catalfumo, President
By:
-------------------------------
Richard Rosso, Secretary
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statement of Cash Flows and Notes thereto
incorporated in Part 1, Item 1, of this Form 10-QSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 34,066
<SECURITIES> 0
<RECEIVABLES> 49,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 220,970
<PP&E> 7,207,565
<DEPRECIATION> 587,546
<TOTAL-ASSETS> 7,220,735
<CURRENT-LIABILITIES> 1,447,948
<BONDS> 0
2,498
0
<COMMON> 0
<OTHER-SE> 5,149,382
<TOTAL-LIABILITY-AND-EQUITY> 7,220,735
<SALES> 260,708
<TOTAL-REVENUES> 260,708
<CGS> 520,851
<TOTAL-COSTS> 673,420
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,900
<INCOME-PRETAX> (441,612)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (441,612)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
