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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: October 1, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from:
Commission File Number 33-95796
CORZON, Inc.
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(Name of small business issuer in its charter)
Texas 76-0406417
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1087 Broad Street, 4th Floor
Bridgeport, Connecticut 06604
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(Address of principal executive offices, including zip code)
Issuer's telephone number: (203) 333-6389
----------------------
(Former address, if changed since last report)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 73,494,998 shares, as of
November 9, 2000.
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TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION ......................... 3
Item 1. Financial Statements ...................... 3-8
Item 2. Management's Discussion and Analysis
or Plan of Operation .................... 9-10
PART II OTHER INFORMATION ............................ 11
Item 1. Legal Proceedings ......................... 11
Item 2. Changes in Securities and Use of Proceeds.. 12
Item 3. Defaults Upon Senior Securities ........... 12
Item 6. Exhibits and Reports on Form 8-K........... 13
SIGNATURES............................................. 14
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
----------------------------
Corzon, Inc.
Consolidated Balance Sheet as of October 1, 2000 (Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 192,036
Accounts receivable 126,970
Property and equipment held for sale 88,018
Prepaid expenses and other current assets 105,661
-----------
Total current assets 512,685
PROPERTY AND EQUIPMENT 45,130
DEPOSITS 7,320
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TOTAL ASSETS $ 565,135
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LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 327,994
Accrued expenses 1,036,567
Current portion of long-term debt
and notes in default 2,755,439
-----------
Total current liabilities 4,120,000
ACCOUNTS PAYABLE 118,059
NOTES PAYABLE OFFICERS 26,997
CONVERTIBLE DEBENTURES 4,553,652
-----------
TOTAL LIABILITIES: 8,818,708
STOCKHOLDERS' DEFICIT:
Preferred stock 1,207,296
Common stock, $.01 par value, 500 million
shares, authorized 71,812,741 issued
and outstanding 718,128
Deferred compensation (152,734)
Additional paid - capital (7,789,100)
Accumulated deficit (2,237,163)
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Total stockholders' deficit (8,253,573)
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$ 565,135
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See notes to unaudited financial statements.
3
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Corzon, Inc.
Consolidated Statements of Operations
For the 12 Weeks Ended
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October 1,2000 October 3,1999
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(Unaudited) (Unaudited)
Revenues $ 72,020 $ --
Costs and expenses 60,277 22,428
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Gross profit (loss) 11,743 (22,428)
Selling, general and administrative 172,575 28,314
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Loss from operations
before other expense (160,832) (50,742)
Other expense:
Interest expense 68,295 --
------------ -------------
Net loss $ (229,127) $ (50,742)
============ =============
Net loss per common share
- basic and diluted $ (0.00) $ (0.06)
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Weighted average common shares
Outstanding - basic and diluted 65,285,226 8,334,489
============ =============
See notes to unaudited financial statements.
4
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Corzon, Inc.
Consolidated Statements of Operations
For the 40 Weeks Ended
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October 1,2000 October 3, 1999
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(Unaudited) (Unaudited)
Revenues $ 90,970 $ --
Costs and expenses 99,290 22,428
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Gross profit (loss) (8,320) (22,428)
Selling, general & administrative 711,582 28,314
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Loss from operations before
other expense (719,902) (50,742)
Other expense:
Interest expense (1,586,179) --
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Loss from continuing operations
before extraordinary gain (2,306,081) (50,742)
Extraordinary gain on
debt extinguishment 197,000 --
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Net loss $ (2,109,081) $ (50,742)
============ ============
Net loss per common share - basic and diluted
Continuing operations $ (0.03) $ (0.15)
Extraordinary gain 0.00 --
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$ (0.03) $ (0.15)
============ ============
Weighted average common shares
Outstanding - basic and diluted 64,257,170 8,325,491
============ ============
See notes to unaudited financial statements.
5
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Corzon, Inc.
Consolidated Statements Cash Flows
For the 40 Weeks Ended
----------------------------
October 1,2000 October 3, 1999
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,109,081) $ (50,742)
----------- -----------
Adjustments to reconcile net loss
to net cash used in operating activities:
Beneficial conversion
feature 1,517,884 --
Extraordinary gain (197,000) --
Depreciation 791 --
Amortization of deferred compensation 6,641 --
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable (12,688) (12,602)
Increase in accounts payable
and accrued expenses 126,360 98,267
Increase in deposits (7,308) --
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1,434,680 85,665
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Net cash provided by (used in)
operating activities (674,401) 34,923
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (17,109) --
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Net cash used in investing (17,109) --
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of note payable - officer (17,157) --
Proceeds from convertible debentures 900,000 --
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Net cash provided by
financing activities 882,843 --
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Net increase in cash 191,333 34,923
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CASH, beginning of period 703 --
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CASH, end of period $ 192,036 $ 34,923
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Assumption of net liabilities for common stock:
Convertible debentures 3,653,652 --
Notes payable officer 45,454 --
See notes to unaudited financial statements.
6
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Corzon, Inc.
Notes To Consolidated Financial Statements as of October 1, 2000 (Unaudited)
1. Basis Of Preparation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, these financial statements do not include all of
the information and disclosures required for annual financial statements.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of October 1, 2000, and the results of operations and cash flows for
the periods ended October 1, 2000 and October 3, 1999 have been included.
The results of operations for the period ended October 1, 2000, are not
necessarily indicative of the results to be expected for the full year.
2. Acquisition
Effective May 31, 2000 (closing date June 2, 2000), the Company acquired
all of the common stock of Fone.com, Limited ("Fone.com"), a company organized
under the laws of England and Wales, in exchange for 40,000,000 shares of the
Company's common stock and the assumption of $3,453,652 of debt of DCI
Telecommunications, Inc. The acquisition has been accounted for as a reverse
acquisition under the purchase method for business combinations. Accordingly,
the combination of the two companies is recorded as a recapitalization of
Fone.com, pursuant to which Fone.com is treated as the continuing entity.
Following the acquisition, Fone.com was renamed B4B Communications, Limited
("B4B").
On June 7, 2000, the Company received a net investment of $900,000 in
exchange for 6% secured convertible debentures. The Company issued debentures in
an aggregate principal amount of $4,553,652, of which $4,353,652 were issued to
Sherman LLC ("Sherman") and $200,000 were issued to Triton Private Equities
Fund, LP ("Triton"). The debentures issued to Triton were issued to refinance
existing indebtedness owed to Triton. The debentures issued to Sherman were
issued in exchange for an investment of $900,000 by Sherman, the payment of
$200,000 of the Company's existing indebtedness by Sherman, and to refinance
another $3,653,652 of existing indebtedness owed by the Company.
The debentures issued to Sherman and Triton entitle the holder to convert
all or a portion of the debentures into shares of the Company's common stock at
a conversion price which is the lower of $.75 per share or a variable conversion
price of seventy-five percent (75%) of the average of the five lowest closing
prices of stock during the twenty preceding trading days immediately prior to
the date of conversion. The maximum number of shares of common stock into which
the holder of the debenture may convert is capped at 4.9% of the total number of
outstanding shares of common stock, as determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended subject to certain
specific exceptions . The holder of the debenture may convert into additional
shares of common stock only to the extent that previously converted shares are
sold in the open market, so that the amount beneficially owned by that holder
does not exceed 4.9% subject to certain specific exceptions. The debentures are
secured by all of the assets and property of the Company, including a pledge of
all outstanding shares of B4B, one of the Company's wholly owned subsidiaries.
In addition, the Company agreed to file, and has filed, a registration statement
with the SEC covering resale of the common stock issuable upon conversion of the
debentures. Subsequently, the Company has been given a 90-day extension to file
the aforementioned registration statement.
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3. Earnings Per Share
The following table represents the calculation of basic and diluted
earnings per share:
Corzon, Inc.
For the 12 Weeks For the 40 Weeks
Ended Ended
-------------------- --------------------
October 1 October 3 October 1 October 3
2000 1999 2000 1999
---------- --------- ---------- ---------
(Unaudited) (Unaudited) (Unaudited)(Unaudited)
Net loss $ (1,636,828) ($50,742) $(1,998,898) ($50,742)
Less:
Dividends on Series A (138,436) (138,436) (415,309) (415,308)
Preferred Stock
Dividends on Series D (154,595) (132,929) (476,525) (374,860)
Preferred Stock
Dividends on Series E (148,900) (137,069) (446,700) (427,527)
Preferred Stock
------------------
Net loss attributable
to common shareholder $(2,078,759)$(459,176)$(3,337,432)$(1,268,437)
Weighted average common
shares outstanding 65,285,226 8,334,489 64,257,170 8,325,491
4. Common Stock
In August, 2000 the Company issued 1,275,000 shares of common stock to
Morrow & Company and 1,275,000 shares to William Poudrier, an employee of Morrow
for services commencing September 1, 2000. These services are for a two year
period ending August 31, 2002, and are for Morrow to serve as an advisor with
respect to stock watch, investor relations, corporate governance and proxy
related matters. The shares were valued at $.0625 per share.
In September, 66,098 and 234,183 shares of common stock were issued to two
individuals resulting from their conversion of 1.5 and 6 shares of Series D
preferred stock.
Also in September, 2,105,263 shares of common stock were issued to Sysco
Food Services to complete a settlement agreement with Sysco that was previously
reported. The shares were valued at $.0475 per share.
8
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Item 2. Management's Discussion and Analysis or Plan of Operation
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The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein.
General
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Effective May 31, 2000, (closing date June 2, 2000), the Company acquired
all of the common stock of Fone.com, Limited ("Fone.com"), a company organized
under the laws of England and Wales that has been subsequently renamed B4B
Communications, Limited, from DCI Telecommunications, Inc. in exchange for
40,000,000 shares of the Company's common stock and the assumption of $3,453,652
of debt of DCI. The acquisition has been accounted for as a reverse acquisition
under the purchase method for business combinations. Accordingly, the
combination of the two companies is recorded as a recapitalization of B4B,
pursuant to which B4B is treated as the continuing entity. Accordingly, the
Statement of Operations reflects the activity of B4B since inception.
On June 7, 2000, the Company received a net investment of $900,000 in
exchange for 6% secured convertible debentures. Tanners Restaurant Group, Inc.,
now known as Corzon, Inc., issued the Debentures in an aggregate principal
amount of $4,553,652, of which $4,353,652 were issued to Sherman LLC ("Sherman")
and $200,000 were issued to Triton Private Equities Fund, LP ("Triton"). The
debentures issued to Triton were issued to refinance existing indebtedness owed
to Triton. The debentures issued to Sherman were issued in exchange for an
investment of $900,000 by Sherman, the payment of $200,000 of the Company's
existing indebtedness by Sherman, and to refinance another $3,653,652 of
existing indebtedness owed by the Company.
Results of Operations
---------------------
Revenues and costs and expenses for the 12 weeks ended October 1, 2000 were
$72,020 and $60,277 respectively, and $90,970 and $99,290 for the 40 week period
ended October 1, 2000 respectively. There were no revenues and minimal costs and
expenses for the comparable 1999 period.
Selling, general and administrative expenses for the 12 weeks ended October
1, 2000 were $165,934 and for the 40 weeks ended October 1, 2000 were $704,941.
For the 12 week period, SG&A consisted principally of legal and accounting fees
relating to the filing of an SB-2 Registration Statement and the legal fees
associated with the on-going negotiations and settlement of certain lawsuits
against the Company.
The Company recognized interest expense of $68,295 for the quarter as a
result of the beneficial conversion feature of the convertible debentures of
$4,553,652 assumed in the acquisition of B4B.
Liquidity and Capital Resources
-------------------------------
Cash used in operations for the period ended October 1, 2000 was $379,115,
principally as a result of the operating loss before non-cash items of $713,261.
At October 1, the Company's primary source of liquidity was $192,036 in
cash.
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Management believes that the Company's sources of working capital may be
insufficient to meet its ongoing financial obligations. As of October 1, 2000,
we had $192,036 in cash, but we had current liabilities of $4,120,000 as of that
date and generated revenues of only $90,970 during the 40 weeks ended on that
date. Our current liabilities are in addition to our long term debt. We hope to
renegotiate or restructure our outstanding debt on more favorable terms; but if
we cannot renegotiate our debt on more favorable terms, and if our revenues do
not grow with sufficient speed and magnitude, we may become unable to continue
as a going concern. Because we have pledged the outstanding stock of B4B to
Sherman and Triton as security for our outstanding indebtedness to them, any
default on that indebtedness will enable Sherman and Triton to take control of
B4B, and we could be left without any business with which to generate revenue.
Forward-Looking Statements
--------------------------
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to future economic performance,
plans and objectives of management for future operations and projections of
revenues and other financial items that are based on the beliefs of our
management, as well as assumptions made by, and information currently available
to, our management. The words "expect," "estimate," "anticipate," "believe" and
similar expressions are intended to identify forward-looking statements. Those
statements involve risks, uncertainties and assumptions, including industry and
economic conditions, competition and other factors discussed in this and our
other filings with the SEC. If one or more of these risks or uncertainties
materialize or underlying assumptions prove incorrect, actual outcomes may vary
materially form those indicated.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
We are a named party in the following legal proceedings:
On June 1, 1998, Harvest Restaurant Group, Inc. (now known as Corzon, Inc.)
was named as a defendant in a lawsuit filed in Texas in Nueces District Court by
Lin Chin Liu Ho and Chi Pen Ho (Case Number 98-2048-E). The Court has awarded
the plaintiffs a judgment against us in the amount of $75,000. In addition, the
Court awarded a post-judgment writ of garnishment against one of our bank
accounts. Settlement discussions are ongoing.
On August 12, 1998, Harvest was named as a defendant in a lawsuit filed in
Texas by Green Tree Vendor Services Co. in Bexar County Court (Case No. 247317),
seeking recovery of damages of $38,691 for Harvest's failure to make payments
under two equipment leases. The court awarded the plaintiffs a judgment in the
amount of $38,691.
On August 20, 1998, Harvest was named as a defendant in a lawsuit filed in
Texas by Toufic Khalife in Bexar County District Court in Case No. 98-CI-12200.
The Court entered a judgement in favor of the plaintiff for $87,500, plus court
costs and interest. We have settled this judgement with Mr. Khalife by paying
Mr. Khalife $50,000 in cash, issuing 925,926 shares of common stock to Mr.
Khalife, and agreeing to register the resale of such shares on a future
registration statement.
On April 14, 2000, Sysco Food Service of Atlanta, L.L.C. filed a complaint
against us in the Superior Court of Fulton County, Georgia. A settlement was
reached with Sysco whereby the Company paid Sysco $60,000 in cash and issued
2,105,263 shares of common stock to Sysco and agreed to register the resale of
such shares in a recently filed registration statement.
On June 22, 2000, the Company and certain of its affiliated companies
was named as a defendant in a lawsuit filed by FINOVA Mezzanine Capital, Inc.
The litigation arose out of certain guaranties executed by the Company and its
affiliated companies in connection with two promissory notes executed by Hartan,
Inc., a wholly-owned subsidiary of the Company, in January 1999 in connection
with the merger of TRC Acquisition Corporation with and into Hartan. The
Complaint sought a judgment against the Company and the affiliated companies in
the amount of $1,790,323.52 plus interest, costs and attorneys fees. We recently
settled this litigation by paying FINOVA Mezzanine Capital, Inc. $50,000 in
cash, issuing 1,700 shares of Series D convertible preferred stock to FINOVA
Mezzanine Capital, Inc., and agreeing to register the resale of the common stock
issuable upon conversion of such shares in a future registration statement. In
addition, we credited or waived the $.01 per share exercise price for the
warrant held by FINOVA Mezzanine Capital, Inc. against the amount owed by the
Company in connection with the settlement with respect to an exercise for
756,331 shares of common stock under such warrant.
We are involved in certain other claims arising in the normal course of
business. In our opinion, although the outcome of these other claims are
uncertain, in the aggregate they are not likely to have a material adverse
effect on us.
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Item 2. Changes in Securities and Use of Proceeds
-------------------------------------------------
We have issued the following unregistered securities in reliance on one or
more of the exemptions from registration provided by Sections 3(a)(9), 3(a)(11),
4(2) and 4(6) of the Securities Act, Regulation D and Rule 701, as promulgated
by the SEC under the Securities Act. Recipients of securities in these
transactions represented their intention to acquire the securities for
investment purposes only and not with a view to or for the sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates issued in such transactions. We believe that all recipients of
these securities had adequate information about us, either through their
relationships with us, or through information that we provided to them.
In May 2000, we issued 12,191,018 shares of common stock to certain holders
of our Series D preferred stock upon their conversions of 290.6 shares of our
Series D preferred stock.
Also in May 2000, we issued a convertible note in the principal amount of
$50,000 to Bonham Drive LLC. This note bears interest at a rate of 7% per annum,
is convertible into shares of common stock at a conversion price of $.03 per
share, and matures on December 31, 2000.
In June 2000, we issued 40,000,000 shares of our common stock to DCI
Telecommunications, Inc. in connection with our acquisition of B4B.
Also in June 2000, we issued two 6% Secured Convertible Debentures in an
aggregate principal amount of $4,553,652. These Debentures bear interest at a
rate of 6% per annum and will mature on June 7, 2002. These Debentures entitle
the holders thereof to convert all or a portion of the Debentures into shares of
our common stock at a conversion price which is the lower of (i) $.75 per share
or (ii) seventy-five percent of the average of the five lowest closing prices of
our common stock during the twenty preceding trading days immediately prior to
the date of conversion. The maximum number of shares of common stock into which
the holder of a Debenture may convert is capped at 4.9% of the total number of
outstanding shares of our common stock, as determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended subject to certain
specific exceptions. The holder of a Debenture may convert into additional
shares of common stock only to the extent that previously converted shares of
common stock have been sold in the open market, such that that total number of
shares beneficially owned by that holder does not exceed 4.9%, subject to
certain specific exceptions, of the outstanding shares of our common stock. The
Company may redeem the Debentures in whole or in part at redemption prices that
increase over time from 123.33% of the principal amount (during the 120 day
period following June 7, 2000) to 133.33% of the principal amount (at any time
more than 180 days after June 7, 2000). The Debentures are secured by all of the
assets and property of the Company, including a pledge of all of the outstanding
shares of B4B.
In August, 2000 we issued 1,275,000 shares of common stock to Morrow & Company
and 1,275,000 shares to William Poudrier, an employee of Morrow for services
commencing September 1, 2000. These services are for a two year period ending
August 31, 2002, and are for Morrow to serve as an advisor with respect to stock
watch, investor relations, corporate governance and proxy related matters. The
shares were valued at $.0625 per share.
In September, 66,098 and 234,183 shares of common stock were issued to two
individuals resulting from their conversion of 1.5 and 6 shares of Series D
preferred stock.
Also in September, 2,105,263 shares of common stock were issued to Sysco Food
Services to complete a settlement agreement with Sysco that was previously
reported. The shares were valued at $.0475 per share.
Item 3. Defaults Upon Senior Securities
---------------------------------------
Prior to the acquisition of B4B, the Company had sold its restaurant
business and had no assets or ongoing operations. Given that a number of its
liabilities remained outstanding during this period, we must assume that we and
our subsidiaries are in default under nearly all of the Company's
pre-acquisition obligations. In the aggregate, these obligations, some of which
are set forth below, total approximately $4.2 million.
12
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As of October 1, 2000, we believe that Hartan is in default under, among
other things, its $2,000,000 note to FINOVA Mezzanine Capital, Inc. We had
executed a guaranty of this note, of which a principal amount of approximately
$1,790,000 remains outstanding. As described above, a settlement was reached
with Finova subsequent to the end of the quarter.
We believe that certain of the affiliated Tanner's companies may be in default
under notes to: SECA VII, LLC, in the principal amount of approximately
$350,000; Ralph D'Iorio, in the principal amount of approximately $306,617;
Colonial Bank, in the principal amount of approximately $213,353; and First
Union National Bank, in the principal amount of approximately $92,469. To the
knowledge of the new management team, we have not been notified whether we or
our subsidiaries are in default under these obligations; accordingly, pursuant
to the instruction to Item 3(a) of Form 10-QSB, we have not provided all of the
information required by Item 3(a) of Form 10-QSB.
We have not paid dividends on our Series A preferred stock since June 1998,
and we are currently analyzing our alternatives for addressing these arrearages.
The amount of dividends that accrued on the Series A preferred stock during the
third quarter of 2000 was $138,436. As of October 1, 2000, the aggregate amount
of the dividends in arrears with respect to our Series A preferred stock was
$1,291,342.
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits - NONE -
(b) Reports on Form 8-K. During the third quarter we filed the
following report on Form 8-K/A:
(i) One August 14, 2000, we filed a report on Form 8-K/A to
amend a report on Form 8-K dated May 31, 2000 and filed
on June 19, 2000 describing the acquisition of Fone.com.
The purpose of the amendment was to provide interim
financial statements and pro forma financial information
as required by Regulation S-X.
13
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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.
CORZON, INC.
Date: November 20, 2000 By: /s/ Lawrence Shatsoff
-------------------------
Name: Lawrence Shatsoff
Title: President
14
