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, 2000
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 0-26676
MULTIMEDIA CONCEPTS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
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<CAPTION>
<S> <C>
Delaware 13-3835325
----------------------------------------------------------------------- --------------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
</TABLE>
1385 Broadway, Suite 814, New York, New York 10018
(Address of Principal Executive Offices)
(212) 391-1111
(Registrant'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, $0.01 par value
(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 registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
The Registrant's revenues for its fiscal year ended March 31, 2000 were
$2,223,600.
The aggregate market value of the voting stock on July 28, 2000
(consisting of Common Stock, par value $0.01 per share) held by non-affiliates
was approximately $125,609 based upon the closing price for such Common Stock on
said date ($0.11), as reported by a market maker. On such date, there were
3,005,000 shares of Registrant's Common Stock outstanding.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
History
Multimedia Concepts International, Inc. (the "Company") is a Delaware
corporation which was organized in June 1994 under the name U.S. Food
Corporation. The Company changed its name to American Eagle Holdings Corporation
in April 1995 and then to its present name in June 1995. The Company was formed
initially as a holding company for the purpose of forming an integrated clothing
design, manufacturing, and distribution operation. It is currently, in
principle, a holding company for its wholly-owned operating subsidiary, U.S.
Apparel Corp. ("USAC"). The Company's other subsidiary, United Textiles & Toys
Corp. ("United Textiles") ceased all operating activities in 1998. The Company
and its subsidiary are hereinafter referred to in the aggregate as the "Company"
except as otherwise required for clarity.
Cessation of Business Operations
In June 1994, the Company acquired 55% of the outstanding shares of common
stock of American Eagle Industries Corp. ("American Eagle"), which acquired 100%
of the outstanding shares of Match II, Inc. ("Match II"). American Eagle
designed and manufactured a line of private label cotton "T-shirts" and "polo"
type tops predominantly for men. Match II, a wholly owned subsidiary of American
Eagle, sold its own brand name ladies knit tops and coordinates under the
trade-name "Match II". In June 1995, the Company acquired 34% of the outstanding
shares of common stock of Multi Media Publishing, Inc. ("MMP"). MMP was a
company which produced CD-ROM versions of medical clinical study books.
In January 1997, the Company, through vote of its stockholders, voted to
cease funding the operations of American Eagle, Match II, and MMP. The Company
terminated its relationship with American Eagle and MMP due to continued losses.
In February 1997, the Company formed a new subsidiary, USAC, to commence
operations as a designer and manufacturer of product lines similar to those of
American Eagle and Match II.
Ownership of the Company
At fiscal year end March 31, 2000, 1,863,100 (or 62%) of the Company's
shares of common stock were owned by U.S. Stores Corp. ("USSC"), a private
company of which the Company's president is the president and a director. USSC
is owned 100% by American Telecom PLC ("ATPLC"), a British public corporation,
which is owned approximately 80.0% by Europe American Capital Foundation
("EACF"), a Liechtenstein trust, which is the parent corporation also of
Frampton Industries, Ltd. ("Frampton") and ABC Fund, Ltd. ("ABC"), entities
affiliated with the Company under common control.
<PAGE>
The Company owns 3,571,429 (or 78.5%) of the shares of United Textiles
common stock and 100% of the shares of USAC.
The following chart depicts the Company's ownership structure:
Europe American Capital Foundation
/ / || \\
/ / \/ \\
Frampton Industries (100%) American Telecom PLC (80%) ABC Fund, Ltd. (100%)
(100%)
||
\/
U.S. Stores Corp.
(62.0%)
||
\/
Multimedia Concepts International, Inc.
(78.5%) \\
|| \\
\/ (100%)
United Textiles & Toys Corp. U.S. Apparel Corp.
Ownership of U.S. Apparel Corp. and United Textiles & Toys Corp.
U.S. Apparel Corp.
In February 1997, the Company formed a wholly-owned subsidiary, USAC -
a New York corporation of which the Company's president is the president and a
director - to design and manufacture a line of private label cotton "t-shirts"
and "polo" type tops predominantly for men and boys. See "-- Business of U.S.
Apparel Corp."
United Textiles & Toys Corp.
On January 2, 1998, the Company was issued 3,571,429 shares of common
stock of United Textiles, at a price of $0.28 per share ($0.01 above the closing
price on December 31, 1997) in repayment of a $1 million loan made by the
Company to United Textiles. United Textiles is a company of which the Company's
president is president and a director. As a result of the transaction, the
Company became the parent of United Textiles, owning 78.5% of the outstanding
shares of the common stock of same.
United Textiles is a Delaware corporation which was organized in March
1991 and commenced operations in October 1991. It formerly designed,
manufactured, and marketed a variety of lower priced women's dresses, gowns, and
separates (blouses, camisoles, jackets, skirts, and pants) for special occasions
and formal events. In April 1998, United Textiles ceased all operating
activities.
<PAGE>
Business of U.S. Apparel Corp.
USAC designs and manufactures a line of private label knit cotton tops
(such as T-shirts and polo shirts) for boys and men. USAC's garments consist of
original designs and modifications and copies of existing designs. Typically,
USAC's customers provide it with designs they desire to use which USAC forwards
to a subcontractor in Honduras. The subcontractor creates the pattern from the
design provided it and sews sample garments which it then delivers to USAC sales
personnel who then deliver same to USAC's customers for approval. Once the
samples are approved, customers place their orders with USAC, typically four
months in advance. USAC sends the orders to the subcontractor which manufactures
the final product and ships same LDP (i.e., land and duty paid) to a public
warehouse in Florida where USAC's customers retrieve the goods. USAC maintains a
showroom at 1385 Broadway in New York City and is continually seeking to design
and market new products.
Supplies and Inventory
USAC purchases all of its fabrics and non-fabric sub-materials
(zippers, buttons, and trimmings) directly from the subcontractor which sews the
garments and purchases only so much as is required to fill orders placed with
it. USAC has found that this process is the most cost-effective means of
operating its business and expects to continue its operations in this manner in
the future, though it may use other or additional manufacturers. Although
management of USAC is of the opinion that the fabrics and non-fabric
sub-materials it uses are readily available and that there are numerous
manufacturers for such goods who offer similar terms and prices, there can be no
assurance that management is correct in such belief. The unavailability of
fabrics or the absence of clothiers, or the availability of either at
unreasonable cost, could adversely affect the operations of USAC and, hence, the
Company.
Since USAC purchases only finished garments from the overseas
subcontractor, it does not buy or maintain an inventory of fabrics or
sub-materials. While USAC has not experienced difficulty in satisfying finished
garment requirements and considers its source of supply adequate, there can be
no assurance that such supply will continue to be available or that it will
continue to be available on terms or at prices USAC deems reasonable.
Quality Control
USAC conducts limited quality control in Honduras to ensure that
finished goods meet USAC's standards. A quality control person inspects samples
of garments on a random basis to ensure compliance with USAC's specifications.
<PAGE>
Marketing and Sales
Most of USAC's private label garments are sold through department
stores in the United States such as K-Mart, Conway, and Ross. Sales to K-Mart
accounted for approximately 100% and 92% of USAC's revenues for the years ended
March 31, 2000 and March 31, 1999, respectively. USAC bills its clients on a net
30-day basis. Late or non-payment could cause material adverse effects on USAC's
cash flow and operations, especially since a large portion of USAC's sales are
to one customer.
USAC does not sell on consignment and does not accept return of
products other than imperfect goods or goods shipped in error. Imperfect goods
are generally replaced with new, conforming goods. USAC believes that a key
feature of its business is its ability to design, manufacture, and sell low cost
garments which are similar in style and appearance to more expensive garments.
Work in Progress; Backlog
A significant portion of USAC's sales are generated from short term
purchase orders from customers who place orders on an as-needed basis. USAC
typically manufactures its products upon receipt of orders from its customers
and generally delivers goods within four weeks of receipt of an order. USAC
generally manufactures approximately 10% more goods than is ordered by customers
in anticipation of reorders from customers. Information relative to open
purchase orders at any date may be materially affected by, among other things,
the timing of recording of orders and shipments. Accordingly, the Company does
not believe that the amount of its unfilled orders at any time is meaningful. At
March 31, 1999, USAC had no unfilled purchase orders.
Financing
USAC bills its clients on a net 30-day basis. Although it is customary
in the garment industry to finance receivables through "factoring" (financing
secured by the accounts receivable of the borrower's customers), USAC does not
factor any of its receivables. Although USAC has no present intention to do so,
it may rely on factoring to finance future operations.
Competition
There is intense competition in the apparel industry. USAC designs,
manufactures, and markets a line of T-shirts and polo shirts to department
stores and competes with many other manufacturers in this market, many of which
are larger and have greater financial and other resources than USAC. There are
relatively insignificant barriers to entry in the business in which USAC is
engaged and numerous companies compete for the same customers. USAC is in direct
competition with local, regional, and national clothing manufacturers, many of
which have greater resources and more extensive distribution and marketing
capabilities than USAC. In addition, many large retailers have commenced sales
of "store brand" garments which compete with those sold by USAC. Management
believes that USAC's market share is insignificant in its product lines.
<PAGE>
Many of the national clothing manufacturers have extensive advertising
campaigns which develop and reinforce brand recognition. In addition, many of
such manufacturers have agreements with department stores and national retail
clothing chains to jointly advertise and market their products. It can be
expected that a retail shopper will buy a garment from a "brand name" entity
before that of an unknown entity, if all other factors are equal. Since USAC
advertises only via its showroom presentation, it has no agreements with
department stores or national retail chains to advertise any of its products.
Employees
As of July 28, 2000, the Company, including USAC, had three executive
officers and no employees.
Recent Developments
At March 31, 2000, United Textiles' percentage of ownership in Play Co.
was reduced to 21.69%. Accordingly, United Textiles has elected to deconsolidate
the accounts of Play Co., and account for its investment in Play Co. on the
equity method of accounting. Under the equity method, the original investment is
recorded at cost, and is adjusted periodically to recognize the investor's share
of the earnings or losses of the investee subsequent to the date of acquisition.
Under this method of accounting, the investment generally cannot be reduced
below zero, when the investee has operating losses that exceed the investment,
at which point the use of the equity method is suspended.
United Textiles will resume accounting for the investment in Play Co.
under the equity method when Play Co. subsequently reports net income and the
net income exceeds United Textiles' accumulated share of Play Co.'s net losses
not recognized during the period of discontinuance of the equity method.
ITEM 2. PROPERTIES
Until April 1998, the Company, along with United Textiles, subleased
20,000 square feet of industrial space at 448 West 16th Street, New York, New
York, at an approximate rent of $12,500 per annum. It is at this location that
the Company housed its administrative offices, factory, and warehouse. In April
1998, in connection with United Textiles' cessation of its textile operations,
the Company and United Textiles moved its administrative offices to 1410
Broadway, Suite 1602, New York, New York 10018 and vacated its former office,
factory, and warehouse space at 448 West 16th Street. The office space at this
location was leased to USAC, and pursuant to an oral agreement with USAC,
neither the Company nor United Textiles paid remuneration for their use of the
premises. The President of the Company is also the president of USSC and United
Textiles.
On July 1, 1999, the Company vacated 1410 Broadway and relocated, with
United Textiles and USAC (the named tenant on the lease), to 1385 Broadway,
Suite 814, New York, New York 10018. Pursuant to an oral agreement with USAC,
neither the Company nor United Textiles pays remuneration for its use of the
premises.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Neither the Company's officers, directors, affiliates, nor owners of
record or beneficially of more than five percent of any class of the Company's
Common Stock is a party to any material proceeding adverse to the Company or has
a material interest in any such proceeding adverse to the Company or its parent
or subsidiary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's securities were quoted on the Nasdaq SmallCap Stock
Market until they were delisted in March 1997. Since April 1997, the Company's
securities have been quoted on the OTC Bulletin Board. The following table sets
forth representative high and low bid quotes as reported by the OTC Bulletin
Board whereon the Company's securities are quoted, during the periods stated
below (quotes prior to April 1997 are reported by Nasdaq). Bid 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.
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Common Stock Public Warrants
---------------------------------- ------------------------------- -------------------------------
Calendar Period Low High Low High
---------------------------------- -------------- ------------- -------------- -------------
1997
<S> <C> <C> <C> <C>
01/01/97 - 03/31/97 5/8 3 1/8 1/16 17/32
04/01/97 - 06/30/97(1) 1/4 7/8
07/01/97 - 09/30/97 1/4 1
10/01/97 - 12/31/97 1/8 1/2
1998
01/01/98 - 03/31/98 1/8 7/16
04/01/98 - 06/30/98 5/64 9/16
07/01/98 - 09/30/98 0.26 0.34
10/01/98 - 12/31/98 0.125 0.26
1999
01/01/99 - 03/31/99 0.12 1.75
04/01/99 - 06/30/99 0.16 0.34
07/01/99 - 9/30/99 0.22 0.40
10/01/99 - 12/31/99 0.19 0.78
2000
01/01/00 - 03/31/00 0.38 1.38
04/01/00 - 07/28/00 0.11 0.69
</TABLE>
(1) There was no market for the Company's warrants from April 8, 1997
until their expiration on November 8, 1997, and no warrants were
exercised prior to expiration.
As of July 28, 2000, there were approximately 61 holders of record of
the Company's Common Stock, although the Company believes that there are
approximately 1,200 additional beneficial owners of shares of Common Stock held
in street name. As of July 28, 2000, the number of outstanding shares of the
Company's Common Stock was 3,005,000.
<PAGE>
Recent Sales of Unregistered Securities
The Company sold no unregistered securities during the fiscal year
ended March 31, 2000.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements contained in this report which are not historical facts may
be considered forward looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
Litigation Reform Act of 1995. These forward looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected.
The following table summarizes certain selected financial data and is
qualified in its entirety by the more detailed financial statements contained
elsewhere in this document:
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March 31, March 31,
2000 1999
Balance Sheet Data:
<S> <C> <C>
Working capital $ 1,370,681 $ 1,334,783
Total assets 3,638,850 3,327,079
Total current liabilities 1,080,462 813,366
Long-term obligations - -
Stockholders' equity 2,709,654 2,635,720
Operating data:
Net sales 2,168,534 3,420,191
Cost of sales 1,527,970 2,211,048
Total operating expenses 650,956 1,062,720
Net income (loss) 73,934 (25,314)
Income (loss) per common share .02 (.01)
Weighted average shares outstanding 3,005,000 3,005,000
------------------------------------------------
</TABLE>
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations
In May 1998, the Company's Board of Directors voted to change the end
of the Company's fiscal year from September 30th to March 31st.
The consolidated financial statements contained herein for the years
ended March 31, 2000 and the year ended March 31, 1999 in this document reflect
the operations of the Company's wholly-owned subsidiary, U.S. Apparel
Corporation ("USAC"), and the Company's 78.5% owned subsidiary United Textiles &
Toys Corp. ("United Textiles").
For the year ended March 31, 2000 compared to the year ended March 31, 1999
Consolidated net sales for the year ended March 31, 2000 were
$2,168,534. This represented a decrease of $1,251,657, or 36.6% over net sales
of $3,420,191 for the year ended March 31, 1999. The net decrease was due to
shrinkage in orders from the Company's principal customer.
Consolidated cost of sales was $1,527,970 for the year ended March 31,
2000 as compared to $2,211,048 for the year ended March 31, 1999. This
represented a decrease of $683,078 or 30.9%. The decrease can be attributed to
decreased sales volume.
Consolidated operating expenses (total operating expenses less
depreciation and amortization) were $650,311 for the year ended March 31, 2000
as compared to $1,062,015 for the year ended March 31, 1999. This represented a
decrease of $411,704 or 38.8%. The decrease can be attributed to management's
efforts to better control administrative expenses.
Depreciation and amortization expense in the year ended March 31, 2000
was $645 as compared to $705 in the year ended March 31, 1999. This represented
a decrease of $60 or 8.5%. The reason for this decrease was that the majority of
the fixed assets were fully depreciated by March 31,1999.
For the year ended March 31, 2000, subsequent to the adjustment for the
minority interest in the net loss of United Textiles, the Company reported
consolidated net income of $73,934 or $0.02 per common share. For the year ended
March 31, 1999, subsequent to the minority interest adjustment, the Company
reported a restated consolidated net loss of $25,314 or $.01 per common share.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
At March 31, 2000, consolidated working capital was $1,370,681 as
compared to a working capital of $1,334,783 as of March 31, 1999. This change in
consolidated working capital was largely due to a decrease in accounts
receivable and an increase in accrued expenses.
For the year ended March 31, 2000, consolidated operating activities
used $64,818 as compared to the year ended March 31, 1999 in which $136,259 was
used by operating activities. The decrease in the use of funds from operating
activities was due mainly to a reduction in advances to suppliers and the
reduction of inventories to zero.
The Company used $45,015 in investing activities for the year ended
March 31, 2000 as compared to a usage of $102,814 for the year ended March 31,
1999. The decrease is due primarily to a decrease in the investment in
subsidiary.
Consolidated financing activities generated funds of $234,000 during
the year ended March 31, 2000 as compared to a generation of $238,000 in funds
during the year ended March 31, 1999. The primary elements in the generation of
financing funds were net borrowings from affiliates.
As a result, consolidated net cash increased $124,167 from $984,999 at
March 31, 1999 to $1,109,166 at March 31, 2000.
Trends affecting Liquidity, Capital Resources and Operations
The Company's subsidiary, U.S. Apparel, is dependent on sales generated
from one principal customer (national retailer).
Year 2000
The Company in 1999 upgraded its computer system by installing a year
2000 upgrade to its software.
Although the Company has not experienced any problems related to the
year 2000 issues, the possibility still exists that such problems might arise
during the calendar year. However, the effect, if any, of year 2000 problems on
the Company's results of operations cannot be estimated with any degree of
certainty if the Company or its affiliated companies, or service providers are
not fully compliant.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
See attached Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
Officers and Directors
The following table sets forth the names, ages, and titles of all
directors and officers of the Company:
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Name Age Position
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Ilan Arbel 48 Chief Executive Officer, President, and Director
Rivka Arbel 47 Vice President and Director
Yair Arbel 52 Director
</TABLE>
All directors are elected at an annual meeting of the Company's
shareholders and hold office for a period of one year or until the next annual
meeting of stockholders or until their successors are duly elected and
qualified. Vacancies on the board of directors may be filled by the remaining
directors. Officers are appointed annually by, and serve at the discretion of,
the board of directors. There are no family relationships between or among any
officers or directors of the Company except that Rivka Arbel is the
sister-in-law of Ilan Arbel and Yair Arbel Mika is the brother of Ilan Arbel.
As permitted under the Delaware General Corporation Law, the Company's
Certificate of Incorporation eliminates the personal liability of the directors
to the Company or any of its shareholders for damages caused by breaches of said
directors' fiduciary duties. As a result of such provision, stockholders may be
unable to recover damages against directors for actions which constitute
negligence or gross negligence or are in violation of their fiduciary duties.
This provision in the Company's Certificate of Incorporation may reduce the
likelihood of derivative, and other types of shareholder, litigation against
directors.
Ilan Arbel was the president, secretary, and a director of the Company from
inception until June 12, 1995. He was reelected a director in August 1995 and
president in May 1996. Mr. Arbel has been the president, chief executive
officer, and a director of United Textiles since 1991. Mr. Arbel was the
president, chief executive officer, and a director of Atoys from February 1993
until July 1993 at which time he resigned as president thereof. In March 1995,
Mr. Arbel was reelected presdent of Atoys, a position he held, with his
directorship, until July 1996. Since its inception, in February 1997, Mr. Arbel
has been the president and a director of USAC. From May 1993 to April 1997, Mr.
Arbel was a director of Play Co. (from June 1994 until his April 1997
resignation, he was chairman). Since 1989, he has been the sole officer and
director of Europe America Capital Corp., a company involved in investments and
finance in the United States and Europe. Since 1993, he has been the president
of European Ventures Corp., a company involved in investments and finance in the
United States and Europe. Mr. Arbel is a graduate of the University Bar Ilan in
Israel and has B.A. degrees in Economics, Business, and Finance.
<PAGE>
Rivka Arbel has been a director of the Company since June 12, 1995 and was
elected as vice president of the Company in May 1996. In October 1996, Mrs.
Arbel resigned as an officer of the Company. Mrs. Arbel was re-elected as vice
president in May 1997. From 1992 to present, Mrs. Arbel has been a director of
United Textiles. Since 1986, Mrs. Arbel has been president and a director of
Amigal, Ltd., a producer of men's and women's wear in Israel. Mrs. Arbel is the
wife of Yair Arbel.
Yair Arbel has been a director of the Company since June 12, 1995. Mr.
Arbel is currently employed by Israeli Aircraft Industries, where he has been
employed since 1980. Yair Arbel is the husband of Rivka Arbel and the brother of
Ilan Arbel.
The Company has agreed to indemnify its officers and directors with respect
to certain liabilities including liabilities which may arise under the
Securities Act of 1933. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers, and controlling
persons of the Company pursuant to any charter, provision, by-law, contract,
arrangement, statute, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer, or controlling person of the Company in the successful
defense of any such action, suit, or proceeding) is asserted by such director,
officer, or controlling person of the Company in connection with the Securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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 persons who beneficially own more than
ten 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 (a "Reporting Person") who during the fiscal year ended March 31,
2000 was a director, officer, or beneficial owner of more than ten percent of
the Company's Common Stock or Series E Stock (which are the only classes of
equity securities of the Company registered under ss.12 of the Securities
Exchange Act of 1934), failed to file on a timely basis reports required by
ss.16 of the Act during the most recent fiscal year except as follows: all
officers and directors failed to file Forms 5 and USSC (and its parent
corporations) failed to file Forms 4. The foregoing is based solely upon a
review by the Company of (i) Forms 3 and 4 during the most recent fiscal year as
furnished to the Company under Rule 16a-3(e) 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.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
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)(ii) of Regulation S-B) compensation awarded
or paid by the Company during (i) the fiscal year ended March 31, 2000, (ii) the
fiscal year ended March 31, 1999, and (iii) the transition period October 1,
1997 through March 31, 1998 to each of the named executive officers of the
Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
Securities
Restricted Underlying All Other
Stock Award(s) Options/ LTIP Compen-sation
($) SARs Payouts ($)
Name and Principal Year Salary Bonus(#) ($) Other Annual
Position Compen-sation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ilan Arbel (3)
President, CEO,
And Director 2000 -- -- -- -- -- -- --
1999 -- -- -- -- -- -- --
1998 -- -- -- -- -- -- --
</TABLE>
----------------------
(1) Mr. Arbel does not receive any cash compensation as an officer of the
Company. Mr. Arbel entered into an employment agreement with the Company in May
1996. See "Employment Agreements."
(2) No bonuses were paid during the periods herein stated.
(3) See "Employment Agreements."
Employment and Consulting Agreements
On April 4, 1996, the board of directors authorized the Company to
enter into a compensation agreement with Ilan Arbel. Pursuant thereto, the
Company granted to Mr. Arbel an option to purchase 1,900,000 warrants at $0.04
per warrant, identical to the warrants sold by the Company in its initial public
offering. The option was exercisable at $7.00 per share. The warrants and shares
underlying the warrants were registered for resale pursuant to a Form S-8
registration statement. Mr. Arbel exercised this option in full and sold the
warrants in April 1996. In addition, the board of directors authorized the
Company to issue an additional option to Mr. Arbel to purchase 200,000 shares of
Common Stock at $3.70 per share. On April 19, 1996, the board of directors and
Mr. Arbel amended the compensation agreement and terminated the option to
purchase 200,000 shares of Common Stock and in lieu thereof issued an option to
purchase 1,000,000 warrants for a purchase price of $0.04 per warrant, the
warrants bearing an exercise price of $7.00 per share. The warrants were
registered for resale pursuant to an amendment to the Form S-8 registration
statement. Mr. Arbel exercised this option in full and sold the warrants.
<PAGE>
In May 1996, the Company entered into an employment agreement with Ilan
Arbel, for a period of five years. Pursuant thereto, Mr. Arbel became the
president and chief executive officer of the Company. At such time, the Company
and Mr. Arbel agreed to increase the option price to purchase the warrants to
$1.90 per warrant, payable either in cash or other securities, whereupon Mr.
Arbel owed the difference between the price he paid for warrants he had
purchased previously ($0.04) and this new purchase price ($1.90). In October
1997, the Company and Mr. Arbel agreed to increase the option price to purchase
the warrants to $2.50 per warrant, payable either in cash or other securities.
The term "securities" was defined as any debt or equity security or convertible
security, the underlying security of which is traded on either a national
securities exchange or on the Nasdaq Stock Market. The price for which the
securities could be exchanged to reduce the debt was 50% of the average bid
price of the securities or the underlying securities of a convertible security,
for a period of ninety days ending five days prior to the exchange. The
employment agreement provides that no other compensation or remuneration be paid
to Mr. Arbel during its term. As payment of the debt, Mr. Arbel, through certain
affiliates, transferred to the Company an aggregate of 803,070 shares of Play
Co. Series E preferred stock, each share of which is convertible into six shares
of Play Co. common stock at the option of the holder, subject to holding
periods.
In April 1999, USAC entered into a verbal consulting agreement with Yu
Jin International, Inc. ("Yu Jin") pursuant to which Yu Jin oversees the day to
day production of garments and operating activities of USAC's subcontractor. In
accordance with the terms of the aforesaid agreement, USAC remitted $171,800 to
Yu Jin during the fiscal year ended March 31, 2000.
1995 Senior Management Incentive Plan
In June 1995, the board of directors adopted the Senior Management
Incentive Plan (the "Management Plan"), which was adopted by stockholder
consent. The Management Plan provides for the issuance of up to 150,000 shares
of the Company's Common Stock in connection with the issuance of stock options
and other stock purchase rights to executive officers and other key employees.
The Management Plan was adopted to provide the board of directors with
sufficient flexibility regarding the forms of incentive compensation which the
Company will have at its disposal in rewarding executive officers and directors
who are also employees of either the Company or its subsidiary(ies) or who
render significant services to the Company or its subsidiary(ies). To enable the
Company to attract and retain qualified personnel without unnecessarily
depleting the Company's cash reserves, the board of directors intends to offer
key personnel equity ownership in the Company through the grant of stock options
and other rights pursuant to the Management Plan. The Management Plan is
designed to augment the Company's existing compensation programs and is intended
to enable the Company to offer executive officers and directors who are also
employees of the Company a personal interest in the Company's growth and success
through awards of either shares of Common Stock or rights to acquire shares of
Common Stock.
<PAGE>
The Management Plan is intended to help the Company attract and retain
key executive management personnel whose performance is expected to have a
substantial impact on the Company's long-term profit and growth potential by
encouraging and assisting those persons to acquire equity in the Company. It is
contemplated that only those executive management employees (generally the
chairman of the board, vice chairman, chief executive officer, chief operating
officer, president, and vice president of the Company) who perform services of
special importance to the Company will be eligible to participate under the
Management Plan. The Company does not presently have any intention to hire any
additional management employees and has not engaged in any solicitations or
negotiations with respect to the hiring of any management employees. 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 board of directors.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's outstanding Common Stock as of July 28, 2000, by (i)
each beneficial owner of 5% or more of the Company's Common Stock, (ii) each of
the Company's executive officers, directors, and key employees, and (iii) all
executive officers, directors, and key employees as a group:
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Common Stock
of Beneficial Owner Beneficially Owned1 Beneficially Owned2
------------------- ------------------ ------------------
------------------------------------------------------- ----------------------------------- ------------------------------------
<S> <C> <C>
U.S. Stores Corp.
1385 Broadway, Suite 814
New York, New York 10018 1,863,100 62%
------------------------------------------------------- ----------------------------------- ------------------------------------
Ilan Arbel (3)
c/o United Textiles & Toys Corp.
1385 Broadway, Suite 814 62%
New York, New York 10018 1,863,100
------------------------------------------------------- ----------------------------------- ------------------------------------
American Telecom, PLC (4)
8-13 Chiswell Street 62%
London EC 1Y 4UP 1,863,100
------------------------------------------------------- ----------------------------------- ------------------------------------
Europe American Capital Foundation (5)
Box 47
Tortola British Virgin Islands 1,863,100 62%
------------------------------------------------------- ----------------------------------- ------------------------------------
Yair Arbel
c/o United Textiles & Toys Corp.
1385 Broadway, Suite 814 -- --
New York, New York 10018
------------------------------------------------------- ----------------------------------- ------------------------------------
Rivka Arbel
c/o United Textiles & Toys Corp.
1385 Broadway, Suite 814 -- --
New York, New York 10018
------------------------------------------------------- ----------------------------------- ------------------------------------
Officers and Directors as a Group
4 persons) 1,863,100 62%
------------------------------------------------------- ----------------------------------- ------------------------------------
</TABLE>
(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 an individual or entity 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
entity.
(2) The "Percent of Common Stock 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 or entity has the right to acquire
within 60 days, whether by exercise of options or warrants. The "Percent of
Common Stock Beneficially Owned" does not reflect shares beneficially owned
by virtue of the right of any person, other than the person named and
affiliates of said person, to acquire them within 60 days, whether by
exercise of options or warrants.
<PAGE>
(3) Ilan Arbel is the president and a director of each of USSC, a private
company which is the parent of the Company (owning 62% of same), and United
Textiles, a publicly traded company which is a subsidiary of the Company
(owned 78.5% by same) and, therefore, can control the voting of the shares
held by such entities.
(4) ATPLC is a British corporation and the parent of USSC, owning 100% of same,
and accordingly is a beneficial owner of the shares of Common Stock owned
by USSC.
(5) EACF is a Liechtenstein trust and the parent of ATPLC, owning 80% of same,
and accordingly is a beneficial owner of the shares of Common Stock owned
by ATPLC.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 20, 1998, USSC, a company which was incorporated on
November 10, 1997, acquired 1,465,000 shares of the Company's Common Stock of
which 1,339,000 shares were acquired from European Ventures Corp., a company in
which Ilan Arbel is an officer and director, in a private sale. After this
transaction, USSC held an aggregate of 1,868,000 shares of the Company's Common
Stock, or 62.2% of the outstanding shares, effectively making the Company a
subsidiary of USSC. Since then, USSC has acquired an additional 165,155 shares
of the Company's Common Stock on the open market, rendering the Company a 67.7%
owned subsidiary of same.
In April 1998, American Telecom, exchanged all its outstanding common
shares and all of the outstanding shares of its wholly owned subsidiary USSC
with ATPLC, a publicly traded company in Great Britain. After this transaction,
both American Telecom and USSC became wholly owned subsidiaries of ATPLC.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements of the Company are included as Part
II, Item 8:
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountant F-1
Consolidated Balance Sheets as of March 31, 2000 and March 31, 1999 F-2
Consolidated Statements of Operations for the years ended March 31, 2000
and March 31, 1999 F-4
Consolidated Statement of Changes in Stockholders' Equity for the years
ended March 31, 2000 and March 31, 1999 F-5
Consolidated Statements of Cash Flows for the years ended March 31, 2000
and March 31, 1999 F-6
Notes to Financial Statements F-8
</TABLE>
(b) During its last fiscal 2000 quarter, the Company filed no Forms 8-K.
(c) All exhibits, except those designated with an asterisk (*) which are
filed herewith have previously been filed with the Commission either in
connection with the Company's Registration Statement on Form SB-2 or, as
indicated by the reference herein and pursuant to 17 C.F.R. ss.230.411, are
incorporated by reference herein. Exhibits previously filed but not as part of
the SB-2 Registration Statement are incorporated herein by reference to the
appropriate document.
<TABLE>
<CAPTION>
<S> <C>
3.1 Certificate of Incorporation of the Company
3.2 Amendment to Certificate of Incorporation of the Company, filed in May 1995
3.3 Second Amendment to Certificate of Incorporation of the Company, filed in June 1995
3.5 By-Laws of the Company
3.8(a) Second Amendment to Certificate of Incorporation of the Company, filed in June 1996
3.9 Certificate of Incorporation of U.S. Apparel Corp.
4.1 Specimen Common Stock Certificate.
10.1 The Company Senior Management Incentive Plan.
27.1* Financial Data Schedule
</TABLE>
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
March 31, 2000 and March 31, 1999
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountant F-1
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 and March 31, 1999 (restated) F-2
Consolidated Statements of Operations for the year ended March 31, 2000 and the
year ended March 31, 1999 (restated) F-4
Consolidated Statement of Changes in Stockholders' Equity for the year
ended March 31, 2000 and the year ended March 31, 1999 (restated) F-5
Consolidated Statements of Cash Flows for the year ended March 31, 2000 and the
year ended March 31, 1999 (restated) F-6
Notes to Financial Statements F-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors
Multimedia Concepts International, Inc.
We have audited the accompanying consolidated balance sheets of
Multimedia Concepts International, Inc. as of March 31, 2000 and March
31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the year ended March 31, 2000 and the year
ended March 31, 1999.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based upon our audits. We conducted our audits in
accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in Note 9, the Company restated its previously issued 1999
financial statements.
In our opinion, the financial statements referred to above present
fairly, in all material aspects, the financial position of Multimedia
Concepts International, Inc at March 31, 2000 and March 31, 1999, and
the result of its operations and its cash flows for the year ended
March 31, 2000 and the year ended March 31, 1999 in conformity with
generally accepted accounting principles.
Melville, New York
July 24, 2000
F-1
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2000 and March 31, 1999
<TABLE>
<CAPTION>
March. 31, March 31,
2000 1999
----------------- --------------
(Restated)
(Note 9)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Note 3c) $ 1,109,166 $ 984,999
Accounts receivable 556,591 593,990
Advances to supplier 737,145 474,572
Inventories (Note 3d) - 89,000
Prepaid expenses and other current assets 5,689 5,588
Investment in affiliates 42,552 -
---------- ---------
Total current assets 2,451,143 2,148,149
---------- ---------
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment 72,789 70,326
Accumulated depreciation on furniture, fixtures and equipment (68,861) (68,217)
---------- ---------
Furniture, fixtures and equipment - Net 3,928 2,109
---------- ---------
OTHER ASSETS:
Due from affiliates 1,014,818 1,014,818
Advances to equity affiliate 140,000 140,000
Deposits and other assets 28,961 22,003
---------- ---------
Total other assets 1,183,779 1,176,821
---------- ---------
Total assets $ 3,638,850 $ 3,327,079
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-2
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2000 and March 31, 1999
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
----------------- --------------
(Restated)
(Note 9)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 470,469 $ 480,794
Accrued expenses and other current liabilities 128,754 85,333
Due to affiliates 481,239 247,239
--------- -------
Total current liabilities 1,080,462 813,366
--------- -------
Total liabilities 1,080,462 813,366
--------- -------
MINORITY INTERST IN SUBSIDIARIES (151,266) (122,007)
--------- -------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 10,000,000 shares authorized; 3,005,000 shares
issued and outstanding at March 31, 2000 and
March 31, 1999 respectively 3.005 3,005
Additional paid-in capital 5,852,005 5,852,005
Retained earnings (Deficit) (3,145,356) (3,219,290)
--------- -------
Total stockholders' equity 2,709,654 2,635,720
--------- -------
Total liabilities and stockholders' equity $ 3,638,850 $ 3,327,079
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
March 31, March 31,
2000 1999
----------------- ------------------------
(Restated)
(Note 9)
<S> <C> <C>
Net sales $ 2,168,534 $ 3,420,191
------------ -------------
Cost of sales 1,527,970 2,211,048
------------ -------------
Gross profit 640,564 1,209,143
------------ -------------
Operating expenses:
Operating expenses 650,311 1,062,015
Depreciation and amortization 645 705
------------ -------------
Total operating expenses 650,956 1,062,720
------------ -------------
Operating income (loss) (10,392) 146,423
------------ -------------
Other income:
Interest and other income 55,066 90,242
Other expenses:
Loss on investment of subsidiary - (383,986)
------------ -------------
(Loss) before Minority interests 44,674 (147,321)
Minority interest in net (loss) of consolidated subsidiary (Note 5) 29,620 122,007
------------ -------------
Net (loss) $ 73,934 $ (25,314)
============ =============
Calculation of basic and diluted common share and share equivalents:
Basic and diluted loss per common share and share equivalents $ .02 $ (.01)
============ =============
Weighted average number of common shares outstanding 3,005,000 3,005,000
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARY
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended March 31, 1999 and
March 31, 2000
<TABLE>
<CAPTION>
Shares Common Stock Paid-in Accumulated
Outstanding Amount Capital Deficit
------------------ --------------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998 3,005,000 3,005 $5,852,005 (3,193,976)
Net loss for the year ended
March 31, 1999 (25,314)
------------------ --------------------- ---------------- ------------------
Balance, March 31, 1999 3,005,000 3,005 5,852,005 (3,219,290)
Net loss for the year ended
March 31, 2000
73,934
------------------ --------------------- ---------------- ------------------
Balance, March 31, 2000 3,005,000 $3,005 $5,852,005 $(3,145,356)
================== ===================== ================ ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------
March 31, March 31,
2000 1999
--------- ---------
(Restated)
(Note 9)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) ........................................................... $ 73,934 $ (25,314)
--------- ---------
Adjustments to reconcile net loss to cash (used) provided for operating
activities:
Depreciation and amortization ............................................ 645 705
Loss on investment of subsidiary ......................................... - 383,986
Minority interests in net losses of subsidiaries ......................... (29,260) (122,007)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ............................... 37,399 (268,296)
(Increase) decrease in advances to supplier .............................. (262,573) (474,572)
(Increase) decrease in Merchandise inventories ........................... 89,000 (32,743)
(Increase) decrease in prepaid expenses and other current assets ......... (101) -
(Increase) decrease in deposits and other assets ......................... (6,958) (14,733)
Increase (Decrease) in accounts payable .................................. (10,325) 476,095
Increase (Decrease) in accrued expenses and liabilities .................. 43,421 (59,380)
--------- ---------
Total adjustments ................................................. (138,752) (110,945)
--------- ---------
Net cash provided by operating activities ......................... (64,818) (136,259)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in property and equipment .......................................... (2,463) (2,814)
Investment in subsidiary .................................................... (42,552) (100,000)
--------- ---------
Net cash provided by (used for) investing activities .............. $ (45,015) $(102,814)
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Year Ended
---------------------------
March 31, March 31,
2000 1999
---------- ----------
(Restated)
(Note 9)
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Loans and advances-affiliates ................... $ 234,000 $ 238,000
---------- ----------
Net cash provided by financing activities 234,000 238,000
---------- ----------
NET INCREASE (DECREASE) IN CASH ................... 124,167 (1,073)
---------- ----------
Cash, beginning of period ......................... 984,999 986,072
---------- ----------
Cash, end of period ............................... $1,109,166 $ 984,999
========== ==========
Supplemental disclosure of cash flow information:
Interest paid ..................................... $ - $ -
========== ==========
Taxes paid ........................................ $ 11,432 $ 2,150
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF COMPANY:
Multimedia Concepts International, Inc. (the "Company") is a
Delaware corporation which was organized in June 1994 under the
name U.S. Food Corporation. The Company changed its name to
American Eagle Holding Corporation in April 1995 and then to its
present name in June 1995. The Company was initially formed as a
holding company for the purpose of forming an integrated clothing
design, manufacturing, and distribution operation. In June 1994,
the Company acquired 55% of the outstanding shares of the common
stock of American Eagle Industries Corp., which had acquired 100%
of the outstanding shares of Match II, Inc.
In January 1997, the Company terminated its financing and
business relationships with these subsidiaries. Both companies
had ceased operating activities in September 1996.
In February 1997, the Company formed a new wholly owned
subsidiary, U.S. Apparel Corp. ("U.S. Apparel"), which is engaged
in the design and manufacture of a line of T-shirts and other
tops, predominately for men. U.S. Apparel began operations in
January 1997.
In January 2, 1998, the Company acquired 3,571,429 shares of
the outstanding common stock of United Textiles and Toys Corp.
("United Textiles"), a company of which the Company's President
is also President, Chief Executive Officer, and a Director. The
issuance of these shares was at a price of $.28 per share ($.01
above the closing price on December 31, 1997) representing
payment for $1,000,000 loaned to United Textiles by the Company.
As a result of this transaction, the Company owns 78.5% of the
outstanding shares of common stock of United Textiles,
effectively making United Textiles a subsidiary of the Company.
United Textiles is a company that was engaged in the design,
manufacturing, and marketing of a variety of lower priced women's
dresses, gowns, and separates for special occasions and formal
events.
In March 1998, United Textiles, having sustained continuous
losses, discontinued operating activities.
F-8
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF COMPANY (continued):
Nature of Relationship with Affiliates:
As described in the following footnotes, the Company engages
in transactions with affiliated entities, many of which are under
common control. These entities and the nature of the affiliates
are as follows:
Affiliates Under Common Control
Name of Entity and Nature of Affiliation
U.S. Stores Corp. ("U.S. Stores"): A private company whose
president is Ilan Arbel, who is also a director. Parent company
of the Company.
European American Capital Foundation ("EACF"): Foundation of
which Ilan Arbel and/or his relatives is/are officer(s) and/or
director(s). EACF is the sole stockholder/beneficiary of Frampton
Industries, Ltd. and ABC Fund, Ltd., and the majority stockholder
of American Telecom, PLC.
European American Capital Corporation ("EACC"): Entity of
which Ilan Arbel and/or his relatives is/are officer(s) and/or
director(s).
Frampton Industries, Ltd. ("Frampton"): Entity which is
wholly owned by EACF.
American Telecom PLC: Entity which is 80% owned by EACF.
ABC Fund, Ltd. ("ABC"): Entity which is wholly owned by
EACF.
Other Affiliates
Name and Entity of Affiliation
ZD Group, L.L.C. ("ZD"): ZD is a New York limited liability
company, the beneficiary of which is a member of the family of
the Company's President.
European Ventures Corp. ("EVC"): Parent company of
Shopnet.com. Ilan Arbel is the president.
Shopnet.com ("Shopnet"): The Chairman of Play Co. (who is a
relative of the Company's President) is the President and a
Director of Shopnet.
F-9
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF COMPANY (continued):
Nature of Relationship with Affiliates (continued):
Breaking Waves, Inc. ("BWI"): This entity is the wholly
owned subsidiary of Shopnet and also owns 25% of Play Co.'s
Common Stock. The president of BWI is also the Chairman of
the Board of Play Co. and a relative of Ilan Arbel.
The following chart graphically depicts the Company's
ownership structure at March 31, 2000 for those entities
under common control:
Europe American Capital Foundation
/ / || \\
/ / \/ \\
Frampton Industries (100%) American Telecom PLC (80%) ABC Fund, Ltd. (100%)
(100%)
||
\/
U.S. Stores Corp.
(62.0%)
||
\/
Multimedia Concepts International, Inc.
(78.5%) \\
|| \\
\/ (100%)
United Textiles & Toys Corp. U.S. Apparel Corp.
NOTE 2. BASIS OF PRESENTATION:
In May 1998, the Company's Board of Directors voted to change
the end of the Company's fiscal year from September 30th to
March 31st.
F-10
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation:
The consolidated financial statements include the
accounts of the Company and its subsidiaries, U.S. Apparel
Corp., United Textiles and Toys Corp. All material
intercompany balances and transactions have been eliminated
in consolidation.
b. Uses of Estimates:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues, and
expenses and disclosure of contingent assets and liabilities
at the date of the financial statements. Actual amounts
could differ from those estimates.
c. Concentration of Credit Risk:
Financial instruments that potentially subject the
Company to concentration of credit risk consist primarily of
cash and accounts receivable.
The Company maintains, at times, deposits in federally
insured financial institutions in excess of federally
insured limits. Management attempts to monitor the soundness
of the financial institutions and believes the Company's
risk is negligible. Concentration with regard to accounts
receivable are limited due to the Company's large customer
base.
d. Merchandise Inventories:
Merchandise inventories are stated at the lower of cost
(first-in, first-out method - "FIFO") or market.
e. Fair Value of Financial Instruments:
The carrying amount of the Company's financial
instruments, consisting of cash, accounts receivable,
accounts payable, and borrowings approximate their fair
value.
F-11
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
f. Fixed Assets and Depreciation:
Property and equipment is recorded at cost.
Depreciation and amortization are provided using the
straight-line method over the estimated useful lives (3-15
years) of the related assets. Leasehold improvements are
amortized over the lesser of the related lease terms or the
estimated useful lives of the improvements. Maintenance and
repairs are charged to operations as incurred.
g. Statements of Cash Flows:
For the purpose of the statements of cash flows, the
Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
h. Revenue Recognition:
The Company and its subsidiaries recognize revenue upon
shipment of finished goods to customers. All sales are
pursuant to firm contracts, with no title to merchandise
passing at shipping. Sales returns and discounts are
reflected in net sales and historically have not been
significant.
i. Income Taxes:
The Company accounts for income taxes in accordance
with Statement of Financial Standards (SFAS) No. 109,
Accounting for Income Taxes. Deferred income taxes are
recognized based upon the differences between financial
statement and income tax bases of assets and liabilities
using enacted rates in effect for the year in which the
differences are expected to reverse. Valuation allowances
are established, when necessary, to reduce the deferred tax
assets to the amount expected to be realized. The provision
for income taxes represents the tax payable for the period
and the change during the period in deferred tax assets and
liabilities, including the effect of change in the valuation
allowance, if any.
F-12
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
j. Net Loss Per Share
During the three-month period ended December 31, 1997,
the Company adopted the provisions of SFAS No. 128, Earnings
Per Share, which requires the disclosure of "basic" and
"diluted" earnings (loss) per share. Basic earnings (loss)
per share is computed by dividing net income (loss), by the
weighted average number of common shares outstanding.
Diluted earnings (loss) per share is similar in calculation
except that the weighted average number of common shares is
increased to reflect the effects of potential additional
shares that would result from the exercise of stock options
or other convertible instruments. For the year ended March
31, 2000, there is no difference between basic and diluted
loss per common share.
k. Impairment of Long-Lived Assets:
SFAS No. 121, Accounting for the Impairment of
long-lived Assets and long-lived Assets to be Disposed Of,
requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity by reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an assets may not be
recoverable. The Company adopted SFAS No. 121 effective
April 1, 1997. There was no impact of such adoption on the
Company's financial condition and results of operations.
l. Effect of New Accounting Pronouncements:
In June 1997, the FSAB issued SFAS No. 130, Reporting
Comprehensive Income. This statement establishes standards
for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in an
entity's financial statements. This statement requires an
entity to classify items of other comprehensive income by
their nature in a financial statement and display the
accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the
equity section of a statement of financial position. This
pronouncement, which is effective for fiscal years beginning
after December 15, 1997, was adopted by the Company during
the fiscal year ending March 31, 1999 without impact to the
financial statements for either of the years ended March 31,
1999 or 1998.
F-14
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 4. INVESTMENT BY U.S. STORES CORP.:
On January 20, 1998, U.S. Stores acquired 1,465,000
shares of the Company's common stock. U.S. Stores was
incorporated on November 10, 1997. The Company's President
is also President and Director of U.S. Stores. After this
transaction, U.S. Stores held an aggregate of 1,868,000
shares of the Company's common stock or 63% of the
outstanding shares, effectively making the Company a
subsidiary of U.S. Stores.
On February 28, 1998, American Telecom Corporation
("American Telecom") acquired 100% of the outstanding common
shares of U.S. Stores. American Telecom was incorporated on
July 18, 1997. The Company's President is also President and
a Director of American Telecom. After this transaction,
American Telecom effectively obtained beneficial voting
control of the Company and its subsidiaries.
In April 1998, American Telecom exchanged all of its
outstanding common shares with American Telecom, PLC, a
publicly traded company in Great Britain. After this
transaction, American Telecom effectively became a
subsidiary of American Telecom, PLC. Additionally, as part
of this transaction, American Telecom, PLC acquired 100% of
the outstanding common shares of U.S. Stores, thereby
effectively making U.S. Stores a direct subsidiary of
American Telecom, PLC.
NOTE 5. MINORITY INTEREST IN SUBSIDIARIES:
The Company owns a majority interest (78.5%) in United
Textiles. The minority interest liability represents the
minority shareholders' portion (21.5%) of United Textiles'
equity at March 31, 2000.
NOTE 6. FIXED ASSETS:
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
-------------------- ---------------------
<S> <C> <C>
Furniture, fixtures and equipment $ 72,789 $ 70,326
Less: Accumulated depreciation 68,861 68,217
------ ------
Furniture, fixtures and equipment - Net $ 3,928 $ 2,109
====== ======
</TABLE>
F-14
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 7. INCOME TAXES
The Company has available at March 31, 2000, for
federal income tax purposes, a net operating loss
carryforward of approximately $5,300,000 and approximately
$5,200,000 for state income tax purposes. The Federal and
state NOLs are available to offset future taxable income and
expire at various times through September 30, 2009. For
Federal and state tax purposes, the Company's tax year ends
on September 30th.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Operating Leases:
The Company, until June 1999, occupied space at 1410
Broadway, New York, NY where it shared office space with
United Textiles and U.S. Apparel. It vacated these premises
and relocated along with United Textiles and U.S. Apparel to
1385 Broadway, New York, NY. U.S. Apparel is the prime
tenant on the lease and has allowed the Company and United
Textiles to occupy space on a rent-free basis.
Year 2000:
The Company in 1999 upgraded its computer system by
installing a year 2000 upgrade to its software.
Although the Company has not experienced any problems
related to the year 2000 issues, the possibility still
exists that such problems might arise during the calendar
year. However, the effect, if any, of year 2000 problems on
the Company's results of operations cannot be estimated with
any degree of certainty if the Company or its affiliated
companies, or service providers are not fully compliant.
F-15
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 9. RESTATEMENT OF AMOUNTS PREVIOUSLY REPORTED
The Financial statements for the year ended March 31,
1999 contain certain restatements of amounts previously
reported.
These restatements were the result of a decision by the
Company's subsidiary, United Textiles to deconsolidate the
accounts of Play Co. as of March 31, 2000. At March 31,
1999, United Textiles's percentage of ownership in Play Co.
was 45.2%. Although United Textiles at that date owned less
than 51% of Play Co.'s outstanding common stock, United
Textiles still exercised prerogative of control over Play
Co. and consolidated the accounts of Play Co. into United
Textiles.
F-16
<PAGE>
MULTIMEDIA CONCEPTS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 9. RESTATEMENT OF AMOUNTS PREVIOUSLY REPORTED (continued)
At March 31, 2000, United Textiles's percentage of
ownership in Play Co. was reduced to 21.69%. Accordingly,
United Textiles has elected to deconsolidate the accounts of
Play Co., and account for its investment in Play Co. on the
equity method of accounting. Under the equity method, the
original investment is recorded at cost, and is adjusted
periodically to recognize the investor's share of the
earnings or losses of the investee subsequent to the date of
acquisition. Under this method of accounting, the investment
generally cannot be reduced below zero, when the investee
has operating losses that exceed the investment, at which
point the use of the equity method is suspended.
United Textiles will resume accounting for the
investment in Play Co. under the equity method when Play co.
subsequently reports net income and the net income exceeds
United Textiles's accumulated share of Play Co.'s net losses
not recognized during the period of discontinuance of the
equity method.
United Textiles's investment in Play Co. at cost was
$383,986. United Textiles's allocable share of Play Co.'s
losses as of March 31, 1999 was $1,127,301. Accordingly, the
investment in Play Co. was reduced to zero on the restated
financial statements as of March 31, 1999. For the year
ended March 31, 2000, United Textiles's allocable share of
Play Co.'s net loss was $3,439,321.
F-17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, as
amended the Registrant has caused this report to be signed on its behalf,
thereunto duly authorized as of the 31st day of July 2000.
MULTIMEDIA CONCEPTS INTERNATIONAL, INC.
By: /s/ Ilan Arbel
---------------------------
Ilan Arbel, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Ilan Arbel President and Director 7/31/00
Ilan Arbel Date
/s/ Rivka Arbel Director 7/31/00
Rivka Arbel Date
/s/ Yair Arbel Director 7/31/00
Yair Arbel Date
</TABLE>
