-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RsGFAKDr70KdVeNOj9dnINb35zoRsHZAh2X6hwrTlA5Hpjel0MP0U7GJdm6uAGSy cL7j/Zqf44k/MnWJdBJrdA== 0000912057-00-023960.txt : 20000515 0000912057-00-023960.hdr.sgml : 20000515 ACCESSION NUMBER: 0000912057-00-023960 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHOICES ENTERTAINMENT CORP CENTRAL INDEX KEY: 0000822935 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-VIDEO TAPE RENTAL [7841] IRS NUMBER: 521529536 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-17001 FILM NUMBER: 629630 BUSINESS ADDRESS: STREET 1: 2455 EAST SUNRISE BOULEVARD STREET 2: STE 313 CITY: FT LAUDERDALE STATE: FL ZIP: 33304 BUSINESS PHONE: 9547524289 MAIL ADDRESS: STREET 1: 2455 EAST SUNRISE BOULEVARD STREET 2: STE 313 CITY: FT LAUDERDALE STATE: FL ZIP: 33304 FORMER COMPANY: FORMER CONFORMED NAME: DATAVEND INC DATE OF NAME CHANGE: 19900401 10KSB40 1 10KSB40 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES 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 DECEMBER 31, 1999 / / 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 000-17001 -------------------------- CHOICES ENTERTAINMENT CORPORATION (Name of small business issuer in its charter) DELAWARE 52-1529536 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 121 VINE STREET, SUITE 1903 SEATTLE, WASHINGTON 98121-1456 (Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (206) 443-6948 -------------------------- Securities registered under Section 12(b) of the Exchange Act: NONE Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $.01 PER SHARE (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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of 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. /X/ Issuer's revenues for the year ended December 31, 1999: $0 Aggregate market value of the voting stock held by non-affiliates of the registrant based upon a price of $.32 per share, the closing price of the registrant's Common Stock at March 28, 2000: $7,447,794 For purposes of this calculation, all directors and officers of the registrant have been considered affiliates. Number of outstanding shares of Common Stock at March 28, 2000: 29,274,355 Transitional Small Business Disclosure Format (check one): Yes ____ No _X_ DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement (the "Definitive Proxy Statement") to be filed with the Securities and Exchange Commission relative to the Company's 2000 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORWARD LOOKING STATEMENTS This Annual Report on Form 10-KSB contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption "Risks Relating to Our Business," among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management. Such forward- looking statements represent management's current expectations and are inherently uncertain. Investors are warned that actual results may differ from management's expectations. PART I ITEM 1. DESCRIPTION OF BUSINESS OUR BUSINESS The Board of Directors (the "Board") of Choices Entertainment Corporation (the "Company" or "We") adopted a proposal on January 17, 2000 to change the business of the Company to that of a technology holding company. We are acquiring, investing in, and incubating companies engaged in Internet, computing and other technologies in various stages of development. WHAT WE HAVE DONE We have acquired securities issued by publicly traded Photochannel Networks Inc. In January 2000, the Company subscribed to a private placement of CAN$2,300,000 principal amount of Convertible Subordinated Redeemable 0% Debentures maturing April 30, 2000 (the "Debentures") issued by PhotoChannel Networks Inc., a British Columbia corporation ("Photochannel"). The subscription agreement calls for advances to Photochannel in exchange for the issuance of Debentures as follows: CAN$350,000 by January 31, 2000; CAN$750,000 by February 29, 2000; and CAN$1,200,000 by April 14, 2000. The Debentures are convertible into Photochannel common stock, no par value, ("Photochannel Stock") at the rate of 1 share of Photochannel Stock for each CAN$.50 in debenture principal amount. Also, the company was granted warrants pursuant to a vesting schedule to purchase additional shares of Photochannel Stock as follows: 140,000 warrants with an exercise price of CAN$.75; 300,000 warrants with an exercise price of CAN$1.00; and 480,000 warrants with an exercise price of CAN$1.25. Each warrant entitles the Company to purchase 1 share of Photochannel Stock at the exercise price, for cash. The warrants are presently fully vested and will expire June 30, 2000. As of the date of the filing of this report on Form 10KSB, the Company had completed its obligations under the subscription agreement. All of the securities acquired in this transaction as well as the securities into which the securities acquired are convertible or exercisable against are restricted securities ad must be held for the applicable holding period from the date of conversion or exercise, as the case may be. The applicable holding period in most cases will be 1 year. Photochannel is a late-stage development company engaged in E-commerce selling online photo-finishing services and digital and other cameras and photographic equipment. Photochannel's website may be viewed at WWW.PHOTOCHANNEL.COM. We have acquired securities of non-publicly traded Tridium Research, Inc. In March 2000, the Company paid $50,000 cash to acquire 250,000 shares of common stock of Tridium Research Inc., a Washington corporation ("Tridium") based in Kirkland, Washington. The 250,000 shares of common stock acquired represents approximately 5% of all Tridium common stock issued and outstanding. The Company has also obligated itself to provide an additional $200,000 to Tridium, upon terms and conditions to be determined. Tridium Research Inc. ("Tridium") is a development stage company that produces and sells a dual monitor video card featuring "dual direct draw" (on both screens) that plugs into the AGP (as opposed to the PCI) slot on a computer. The ability to run multiple monitors is particularly applicable to networked systems for businesses needing to display and provide user interface to multiple users. The cards also permit multiple monitor arrays of, for example, advertising displays, stock quoting systems, streaming video, and even wide-screen movies. One of the unique features of the Tridium video card is that it synchronizes the display of each monitor plugged into the card. This eliminates the constant periodic horizontal lines running down the computer screens as is experienced with existing dual monitor video cards. 1 Tridium has a patent application pending with respect to the hardware and the software that it has developed. Additional products under development involve multiple screen environment applications and added software for value added systems. Users of Tridium's technology include large and small businesses, governmental agencies, medical companies, schools, power users, and the entertainment industry. More information about Tridium can be obtained from its website at WWW.DUALMONITOR.COM. We are organizing a wholly owned subsidiary to be called Softuse Corp. ("Softuse"). Softuse has obtained a domain name as Softuse.com. Still in the early stages of organization and development, SoftUse.com(SM) will be developed as an application service provider or "ASP". The new subsidiary has developed a demonstration website still under construction, and is in the process of establishing strategic alliances with other companies engaged in providing services to ASP's. In deciding to change the direction of the Company, we decided to terminate a letter of intent to acquire the business plan of Republic Hotel Investors, Inc. (Republic"). The business plan called for the acquisition of a substantial hotel portfolio that would have resulted in turning the Company into a hotel properties holding company. On September 21, 1999, the Company announced entering into a letter of intent to acquire the business of privately held Republic Hotel Investors, Inc. of Seattle, Washington and Vancouver B.C. That letter of intent was intended to lead to an agreement which would have transferred to Choices all of Republic's assets in exchange for 144,789,382 shares of restricted Choices common stock. The details of the transaction are contained in a Form 8-K filed with the Securities and Exchange Commission on September 20, 1999. As a result of the termination of the letter of intent, Lorne Bradley has resigned as our Chairman and President. Also, we have issued 500,000 restricted shares of the Company's common stock to Republic or its nominee as a negotiated settlement with Mr. Bradley in connection with the termination of the letter of intent. The reasons the Board decided to terminate the Republic agreement included the then current state of the hotel financing market, the overbuilt and late stage status of the hotel industry and, most importantly, a lack of enthusiasm for financing the hotel business plan on the part of our existing shareholders. From June 1998 to September 1999, we focused on: (i) satisfying and compromising various claims and liabilities; (ii) defending and settling litigation, and paying professional fees, including substantial professional fees associated with such litigation; (iii) maintaining administrative functions (at present the Company has no employees); (iv) marshalling the books, documents and records of the Company and transferring them to the storage facilities in Coral Springs, Florida: (iv) retaining new independent public auditors to replace the Company's prior independent public auditors, who resigned; (v) actively engaging in discussions with various persons for the acquisition of a new business or business opportunity for the Company; and, (vi) continuing the status of the Company as a reporting registrant under the Securities Exchange Act of 1934 and a publicly traded company. OUR BUSINESS STRATEGY We intend to operate in four modalities: providing capital to public companies, providing capital to start-ups, acquiring operating companies, and incubating new businesses under the corporate umbrella. Our goal is to be the most profitable technology holding company in the group of publicly traded companies of similar business focus by successfully implementing our business plan and achieving our objectives. Our objectives are: - to maximize the rate of return on shareholders' equity and enhance shareholder value; 2 - to earn a rate of return over and above our cost of capital of not less than 2 times our cost of capital, including capital provided by debt (if any), equity and funds generated from business operations; - to grow total assets to $50,000,000 by the end of the year 2000 and thereafter to increase our assets until we experience decreasing rates of return on investment capital; - to generate revenues sufficient to cover our general and administrative expenses and to service debt (if any). Our strategies include: - to acquire by purchase or merger interests in companies focusing on commercially viable technological advances; - to incubate some companies which we believe have exceptionally good prospects for future commercial success but may not generate positive economic results in the near term while in a development stage; - to maximize the value of the companies we hold, in whole or in part, (our "clients") by assisting them in building business operations and opportunities having the potential to be highly profitable and becoming leaders I their particular industry or sub-industry; - to discontinue, sell, spin-off, offer for merger or acquisition, or otherwise dispose of those interests or companies which have matured to the point where the rate of return based on profitability to be expected from continued ownership is equal to our below our cost of capital. Our tactics include: - presently to focus on Internet and computer related technologies, however, nothing in our business plan limits us from taking positions or starting companies in other technological areas such as telecommunications, bio-medical, micro-scanning and other high-technology fields or industries; - to acquire and build a highly skilled, experienced and talented team of company executives and support people and to maximize their productivity through technology; - to raise capital at a cost which approaches market rates for companies engaged in similar businesses; - to maintain at relatively low levels our holding company general and administrative expense; - to build and expand business relationships between and among the companies we own, in whole or in part, as well as other participants in their respective industries or sub-industries, such that mutually reciprocal business advantage can be achieved and such that we achieve synergy in the mix of our corporate holdings. RISKS RELATING TO OUR BUSINESS WE MAY NOT HAVE OPERATING INCOME OR NET INCOME IN THE FUTURE. During the fiscal year ended December 31, 1999, we had an operating loss of approximately $840,789 and net income of approximately $(840,789). We may not have operating income or net income in the future. If we continue to operate at a loss, we may not have enough money to maintain or grow our business. 3 OUR OPERATING HISTORY UNDER THE NEW BUSINESS PLAN IS LIMITED. We have limited operating history. Our success cannot be guaranteed or accurately predicted. There can be no assurance that we will be able to acquire, incubate, own or operate Internet and other technologies profitably. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered in the establishment of a new company or line of business in a highly competitive market and industry. There is no assurance that we will be able to operate and manage our technology business on a profitable basis or that cash flow from operations will be sufficient to pay our operating costs. We anticipate the need to raise additional capital to finance our initial operations. We will seek, if necessary, additional financing through debt or equity financing. We cannot assure that additional financing, if needed, will be available to us, or that, if available, the financing will be on terms acceptable to the Company. There is no assurance that the our estimate of our reasonably anticipated liquidity needs is accurate or that new business developments or other unforeseen events will not occur resulting in the need to raise additional funds. In the event that we cannot raise needed capital, it will have a material adverse effect on the Company. We expect to incur significant operating losses and to generate negative cash flow from operating activities during the next several years. There can be no assurance that we will achieve or sustain profitability or positive cash flow from operating activities in the future or that it will generate sufficient cash flow to service any debt requirements. WE MAY HAVE PROBLEMS RAISING MONEY WE NEED IN THE FUTURE. In recent years, we have financed our operating losses in part with loans from shareholders and private placements of the Company's securities. This funding source may not be sufficient in the future, and we may need to obtain funding from outside sources. However, we may not be able to obtain funding from outside sources. In addition, even if we find outside funding sources, we may be required to issue securities to them with greater rights than those currently possessed by holders of shares of the Company's common and preferred stock. We may also be required to take other actions that may lessen the value of the Company's common and preferred stock, including borrowing money on terms that are not favorable to us. OUR GROWTH PLACES STRAINS ON OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES. Our rapid growth has placed, and is expected to continue to place, a significant strain on our managerial, operational and financial resources. Further, as the number of our subsidiaries, client companies, and other business partners grows, we will be required to manage multiple relationships with various strategic partners and other third parties. Further growth of our business will increase the strain on our managerial, operational and financial resources, which in turn will limit our ability to successfully implement our business plan. In addition, our success is dependent on our ability to attract, train, retain and motivate highly skilled people, especially for our management team. Our success also depends on our ability to attract, train, retain, and motivate other highly qualified technical and managerial personnel. Competition for people such as these is intense. In addition, our future success will depend on our ability to build a support organization commensurate with the growth of our business and the Internet. Currently, the Company only has two unpaid executive officers and no employees. 4 WE MAY INCUR SIGNIFICANT COSTS TO AVOID INVESTMENT COMPANY STATUS AND MAY SUFFER OTHER ADVERSE CONSEQUENCES IF DEEMED TO BE AN INVESTMENT COMPANY. We may incur significant costs to avoid investment company status and may suffer other adverse consequences if we are deemed to be an investment company under the Investment Company Act of 1940. We have made some equity investments in other businesses that may constitute investment securities under the 1940 Act. A company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of its total assets, subject to certain exclusions. Investment companies are subject to registration under, and compliance with, the 1940 Act unless a particular exclusion or Securities and Exchange Commission safe harbor applies. If we were to be deemed an investment company, we would become subject to the requirements of the 1940 Act. As a consequence, we would be prohibited from engaging in business or issuing our securities as we have in the past and we might be subject to civil and criminal penalties for noncompliance. In the future, contracts we enter into might be voidable, and a court-appointed receiver could take control of the Company and liquidate its business. Our investment securities currently comprise more than 40% of our assets in this interim start-up and organizational phase of our business. Unless an exclusion or safe harbor is available, we will have to attempt to reduce our investment securities as a percentage of our total assets. This reduction can be accomplished in a number of ways, including the disposition of investment securities and the acquisition of non-investment security assets. Our current business plan includes an emphasis on the latter method and we believe that during any relevant time period, we will not ultimately be deemed to be an investment company. If we are wrong, we will be required to sell investment securities sooner than we otherwise would. These sales may be at depressed prices and we may never realize anticipated benefits from, or may incur losses on, these investments. Some investments may not be sold due to contractual or legal restrictions or the inability to locate a suitable buyer. Moreover, we may incur tax liabilities when we sell assets. We may also be unable to purchase additional investment securities that may be important to our operating strategy. If we decide to acquire non-investment security assets, we may not be able to identify and acquire suitable assets and businesses upon acceptable terms. WE DEPEND ON CERTAIN IMPORTANT EXECUTIVE OFFICERS, AND THE LOSS OF ANY OF THEM MAY HARM OUR BUSINESS. Our performance is substantially dependent on the performance of our executive officers and, in particular, Tracy M. Shier, our President and Chief Executive Officer. His familiarity with the Internet industry and technology in general, investment methods and structures, financial markets, business organization, especially in a start-up phase, law, and other matters makes him especially important at this time to our success. The loss of the services of any of our executive officers or future key employees may harm our business. OUR STRATEGY OF EXPANDING OUR BUSINESS THROUGH ACQUISITIONS OF OTHER BUSINESSES AND TECHNOLOGIES PRESENTS SPECIAL RISKS. We intend to continue to expand our business through the acquisition of businesses, technologies, products and services from other businesses. Acquisitions involve a number of special problems, including, depending on the nature and structure of the acquisition, and not necessarily in the order of importance: difficulty integrating acquired technologies, operations, and people with the existing business; diversion of management attention in connection with both negotiating the acquisitions and integrating the acquired assets; potential issuance of securities in connection with the acquisition that may lessen the rights of holders of our currently outstanding securities; the need to incur additional debt; strain on managerial and operational resources as management tries to oversee the larger operations; the requirement to record additional amortization of good will and other intangible assets that could be significant; and, exposure to unforeseen liabilities of acquired companies. 5 We may not be able to successfully address these problems. Moreover, our future operating results will depend to a significant degree on our ability to successfully manage growth and integrate acquisitions. In addition, some of our investments are in early-stage companies with limited operating histories and limited or no revenues. We may not be able to successfully develop these young companies. IF THE UNITED STATES OR OTHER GOVERNMENTS REGULATE THE INTERNET MORE CLOSELY, OUR BUSINESS MAY BE HARMED. Because of the Internet's popularity and increasing use, new laws and regulations may be adopted. These laws and regulations may cover issues such as privacy, pricing and content. The enactment of any additional laws or regulations may impede the growth of the Internet and our Internet-related business and could place additional financial burdens on us. WE MUST BE ABLE TO RESPOND TO THE RAPID CHANGES IN TECHNOLOGY AND DISTRIBUTION CHANNELS RELATED TO THE INTERNET. Our success will depend on our ability to adapt to a rapidly evolving marketplace. We may not be able to adequately adapt our products and services or acquire new products and services that can compete successfully. In addition, we may not be able to establish and maintain effective distribution channels. WE ARE SUBJECT TO INTENSE COMPETITION. The market for Internet products and services is highly competitive. Moreover, the market for Internet products and services lacks significant barriers to entry, enabling new businesses to enter this market relatively easily. Competition in the market for Internet products and services may intensify in the future. Numerous well-established companies and smaller entrepreneurial companies are focusing significant resources on developing and marketing products and services that will compete with our products and services. In addition, many of our current and potential competitors have greater financial, technical, operational and marketing resources. We may not be able to compete successfully against these competitors. Competitive pressures may also force prices for Internet goods and services down and may reduce our revenues. OUR STRATEGY OF SELLING ASSETS OF, OR INVESTMENTS IN, THE COMPANIES THAT WE ACQUIRE AND DEVELOP PRESENTS RISKS. A significant element of our business plan involves selling, in public or private offerings, the companies, or portions of the companies, that we have acquired and developed. Market and other conditions largely beyond our control affect: our ability to engage in such sales; the timing of such sales; and the amount of proceeds from such sales. As a result, we may not be able to sell some of these assets. In addition, even if we are able to sell, we may not be able to sell at favorable prices. If we are unable to sell these assets at favorable prices, our business will be harmed. THE VALUE OF OUR BUSINESS MAY FLUCTUATE BECAUSE THE VALUE OF SOME OF OUR ASSETS FLUCTUATES. A portion of our assets includes the equity securities of both publicly traded and non-publicly traded companies. In particular, we own or have the right to own a significant number of shares of common stock of Photochannel Networks Inc., which is a publicly traded company. The market price and valuations of the securities that we hold in this and other companies may fluctuate due to market conditions and other conditions over which we have no control. Fluctuations in the market price and 6 valuations of the securities that we hold in other companies may result in fluctuations of the market price of our common stock and may reduce the amount of working capital available to us. OUR QUARTERLY RESULTS MAY FLUCTUATE WIDELY. Our operating results have fluctuated widely on a quarterly basis during the last several years, and we expect to experience significant fluctuation in future quarterly operating results. Many factors, some of which are beyond our control, have contributed to these quarterly fluctuations in the past and may continue to do so. These factors include: payment of costs associated with our acquisitions, timing and sales of assets; specific economic conditions in the industries in which we do business; and general economic conditions. The emerging nature of the commercial uses of the Internet makes predictions concerning our future revenues difficult. We believe that period-to-period comparisons of our results of operations will not necessarily be meaningful and should not be relied upon as indicative of our future performance. It is also possible that in some future fiscal quarters, our operating results will be below the expectations of securities analysts and investors. In such circumstances, the price of our common stock may decline. THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE. The market price of our common stock has been, and is likely to continue to be, volatile, experiencing wide fluctuations. In recent years, the stock market has experienced significant price and volume fluctuations that have particularly impacted the market prices of equity securities of many companies engaged in Internet-related businesses. Some of these fluctuations appear to be unrelated or disproportionate to the operating performance of such companies. Future market movements may adversely affect the market price of our common stock. OWNERSHIP OF OUR COMPANY IS CONCENTRATED. Our officers, directors and 5% or greater shareholders beneficially owned approximately 45% of our voting stock on a fully diluted basis as of March 30, 2000. As a result, this group possesses significant influence over the Company on matters including the election of directors. The concentration of ownership may: delay or prevent a change in control; impede a merger, consolidation, takeover or other business involving the Company; or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company. THE SUCCESS OF OUR CROSS-BORDER OPERATIONS IS SUBJECT TO SPECIAL RISKS AND COSTS. We intend to continue to make investments in and acquire businesses, technologies and operations outside of the United States. This international activity requires significant management attention and financial resources. Our ability to expand internationally will be limited by the general acceptance of the Internet and intranets in other countries. Accordingly, we expect to commit substantial time and development resources to selected international markets. We expect that the financial results of our international activities will be denominated in United States dollars. As a result, an increase in the value of the United States dollar relative to other currencies may make the financial results of our international activities result in gains or losses on foreign currency translations. 7 GENERAL DESCRIPTION--HISTORY On June 16, 1997, the Company sold substantially all of its assets and business to West Coast Entertainment Corporation ("West Coast"). Prior to the sale to West Coast (the "West Coast Transaction"), the Company operated a chain of retail video home entertainment stores, principally under the trade name CHOICES-Registered Trademark- MOVIES AND GAMES, which rented and sold videocassette tapes, video games and other video home entertainment products. The Company's home entertainment stores were located in Delaware, New Jersey and Pennsylvania. The Company was incorporated in Maryland in July 1985, under the name PPV Enterprises, Inc., and was reincorporated in Delaware under the name DataVend, Inc. in August 1987. In March 1990, the Company changed its name to "Choices Entertainment Corporation." ITEM 2. DESCRIPTION OF PROPERTY The Company's temporary executive offices are located at 121 Vine Street, Suite 1903, Seattle, Washington 98121-1456; its telephone number is (206) 443-6948. The executive offices are provided rent-free by Tracy M. Shier, President and Chief Executive Officer of the Company and Interim Chief Financial Officer. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant to the lawsuit Dion Signs & Service, Inc. vs. Choices Entertainment Corporation, Civil Action No. 91-6871. The case is now pending in the Providence County Superior Court, Providence, Rhode Island. Dion Signs & Service, Inc. alleges that it is owed approximately $33,000 plus interest, costs and reasonable attorney's fees for the failure by Choices Entertainment Corporation to pay for signage that was erected at various locations pursuant to a contract. The Company is advised that pre-judgment interest on the claim accrues from the date the cause of action arose and that the amount of pre-judgment interest could approximate the amount of the claim, or approximately $33,000. The Company is further advised that the case has not been set for trial, there has been very little discovery, and that it is not possible to determine the likelihood of the outcome of this case at this time. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8 PART II ITEM 5. MARKET FOR COMMON EQUITY STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is currently traded in the over-the-counter market on the Bulletin Board ("OTC-Bulletin Board") under the symbol CECS. The following table sets forth the high and low inside bid prices as reported by the Bulletin Board.
COMMON STOCK (CESC) ------------------- 1998 HIGH LOW - ---- -------- -------- First quarter............................................... .04 .02 Second quarter.............................................. .02 .02 Third quarter............................................... .02 .02 Fourth quarter.............................................. .01 .002 1999 - ------------------------------------------------------------ First quarter............................................... .01 .006 Second quarter.............................................. .03 .006 Third quarter............................................... .155 .01 Fourth quarter.............................................. .10 .045
On April 15, 2000, the closing price for the Company's common stock was $.19 as reported by the OTC-Bulletin Board. The quotations set forth above reflect inter-dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions. HOLDERS. As of March 30, 2000, approximately 533 holders of record held the outstanding shares of the Company's common stock and 33 holders of record held the outstanding shares of the Company's preferred stock. DIVIDENDS. The Company has not declared or paid any dividends on its common stock since its inception. The Board of Directors does not contemplate the payment of dividends in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following is management's discussion and analysis of certain significant factors that have affected the Company's financial condition, changes in financial condition and results of operations. It also includes a discussion of the Company's liquidity and capital resources at December 31, 1999, and later dated information, where practicable. This discussion should be read together with the Company's Financial Statements and the Notes thereto beginning on page F-1. 9 This schedule contains summary unaudited financial information taken from the financial statements of Choices Entertainment Corporation and is qualified in its entirety by reference to such financial statements.
1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Net Sales..................... $ -- $ -- $ -- $ -- $ 4,760,684 Cost of Sales................. -- -- -- -- 3,323,740 ----------- ----------- ----------- ----------- ----------- Gross Profit.................. -- -- -- -- 1,436,944 Operating Expenses............ 825,816 117,736 716,369 655,059 3,947,208 ----------- ----------- ----------- ----------- ----------- Income (Loss) From Operations.................. 825,816 (117,736) (716,369) (655,059) (2,510,264) Other Income (Expense)........ (14,973) 353,307 (37,081) (51,830) 370,937 ----------- ----------- ----------- ----------- ----------- Income (Loss) from Continuing Operations.................. $ (840,789) $ 235,571 $ (753,450) $ (706,889) $(2,139,327) =========== =========== =========== =========== =========== PER SHARE DATA: Continuing Operations......... $ (.03) $ .01 $ (.03) $ (.03) $ (.10) =========== =========== =========== =========== =========== Weighted Average Shares Outstanding (Basic)......... 24,489,327 22,004,000 22,004,000 22,004,000 21,652,000 =========== =========== =========== =========== =========== BALANCE SHEETS: Total Assets.................. 20,113 2,220 201,996 1,179,859 1,556,910 Total Liabilities............. 625,936 92,254 524,939 2,506,406 2,250,777 ----------- ----------- ----------- ----------- ----------- Stockholders' Equity.......... (605,823) (90,034) (322,943) (1,326,547) (693,867) =========== =========== =========== =========== ===========
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES On June 16, 1997, the Company sold substantially all of its assets and business to West Coast Entertainment Corporation ("West Coast"). Notwithstanding the sale of its operating business, the Company's financial statements included herein have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accounting affect of the sale of substantially all of the Company's assets and business to West Coast (the "West Coast Transaction") was a net loss of $2,663 for the year ended December 31, 1998, before extraordinary income of $303,799 relating to the affects of the West Coast Transaction. There was no material accounting effect on the financial statements of the Company due to the West Coast Transaction for the period ended December 31, 1999. As of December 31, 1999, the Company had a net working capital deficiency of approximately $531,442. As of April 20, 2000, the Company had approximate cash balances of $64,205 (unaudited). From June 1998 to August 1999, current directors of the Company have: (i) satisfied and compromised various claims and liabilities; (ii) defended and settled litigation, and paid professional fees, including substantial professional fees associated with such litigation; (iii) maintained administrative functions (at present the Company has no employs); (iv) marshaled the books, documents and records of the Company and transferred them to the Company's offices in Coral Springs, Florida: (iv) retained new independent public auditors to replace the Company's prior independent public auditors, who resigned; (v) actively engaged in discussions with various persons for the acquisition of a new business or business opportunity for the Company; and, (vi) attempted to continue the status of the Company as a reporting registrant under the Securities Exchange Act of 1934 and a publicly traded company. 10 The primary source of funds for the year ended December 31, 1999 was shareholder loans. The Company borrowed $300,000 at interest rates of 10% and 12%. The Company had no revenues. In February 2000, the Company closed a self-offered private offering of 390 of the Company's Series C Preferred Stock in the aggregate offering amount of $780,000. Offering expenses were less than $3,000. Each share of the Preferred Stock is convertible into 40,000 shares of the Company's common stock, par value $.01, the ("Common Stock") and carries the voting rights of the underlying Common Stock. The proceeds from this offering were used to retire all notes payable, to pay down the obligations of the Company to officers and directors of the Company, to pay down accounts payable to an immaterial amount, and to acquire minority interests in two companies. In the event the Company is not successful in securing needed capital in the near term, as to which no assurance can be given, the Company does not believe that there will be any amounts available for distribution to the Company's stockholders. CAPITAL EXPENDITURES The Company's capital expenditures were $0 during the year ended December 31, 1999. MATERIAL CHANGES IN FINANCIAL CONDITION The following material changes in financial condition reflect changes occurring during the period from December 31, 1998 through December 31, 1999. AS OF DECEMBER 31, 1999 AND 1998: Assets: Total assets increased by approximately $17,893 between December 31, 1998 and December 31, 1999, as the result of an increase in borrowing by the Company. Liabilities: Total liabilities increased by approximately $533,682 between December 31, 1998 and December 31, 1999, primarily due to the recognition by the Board of Directors of the Company of certain obligations to existing and former officers and directors to compensate them for services rendered to the Company and due to increased borrowing. Stockholders' Deficit: Between December 31, 1999 and December 31, 1998, the increase in stockholders' deficit was due to net loss of approximately $840,789 for the year ended December 31, 1999. Included in net loss was the cash and non-cash payment to existing and former officers of the Company of certain obligations owing to them. MATERIAL CHANGES IN RESULTS OF OPERATIONS The following material changes in results of operations occurred during the two-year period from January 1, 1998 through December 31, 1999. CONTINUING OPERATIONS: Losses from continuing operations were approximately $840,789 during 1999, compared to income of approximately $235,571 during 1998. The decrease of approximately $1,076,360 primarily related to an increase in the recognized expenses of the Company, increased business activity at the Company and the fact that the results for 1998 included the accounting affects of the West Coast Transaction. 11 DISCONTINUED OPERATIONS: There was a loss from discontinued operations of approximately $0 and $2,663 for the periods ending December 31, 1999 and December 31, 1998 respectively. NET LOSS: As a result of the foregoing, the Company had a net loss of approximately $840,789 during 1999, which included no extraordinary income compared to net income of approximately $232,908 in 1998, which included net income due to the West Coast Transaction of approximately $235,571. ITEM 7. FINANCIAL STATEMENTS The Company's Financial Statements and Notes thereto are filed together with this report starting at Page F-1. The Financial Statements and Notes for the period ending December 31, 1999 are audited by Miller and Co. LLP and are included herein based on their auditor's report dated April 28, 2000, except for Note J, for which the date is May 3, 2000. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The information called for by Items 9 - 12 of Form 10KSB are contained in the definitive proxy statement (the "Definitive Proxy Statement") to be filed with the Securities and Exchange Commission relative to the Company's 2000 Annual Meeting of Stockholders and is hereby incorporated by reference to the Definitive Proxy Statement, as filed. ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K (a) Exhibits: The exhibits are listed in the Index to Exhibits appearing on Page E-1. (b) Reports on Form 8-K: During the quarter ended December 31, 1999, the Company filed no reports on Form 8-K. 12 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report on Form 10KSB for the period ending December 31, 1999 to be signed on its behalf by the undersigned, thereunto duly authorized. CHOICES ENTERTAINMENT CORPORATION Date: May 12, 2000 By: /s/ TRACY M. SHIER -------------------------- ----------------------------------------- Tracy M. Shier CHIEF EXECUTIVE OFFICER Date: May 12, 2000 By: /s/ TRACY M. SHIER -------------------------- ----------------------------------------- Tracy M. Shier INTERIM CHIEF FINANCIAL OFFICER
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. /s/ JAMES D. SINK May 12, 2000 -------------------------------------------- James D. Sink Director /s/ TRACY M. SHIER May 12, 2000 -------------------------------------------- Tracy M. Shier Director /s/ THOMAS RENNA May 12, 2000 -------------------------------------------- Thomas Renna Director
13 INDEX TO FINANCIAL STATEMENTS
PAGE -------- Independent auditors' report................................ F-2 Balance Sheets.............................................. F-3 Statements of Income........................................ F-4 Statements of accumulated deficit........................... F-5 Statements of cash flows.................................... F-6 Notes to financial statements............................... F-7
F-1 [LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the shareholders Choices Entertainment Corporation Seattle, Washington We have audited the accompanying balance sheet of Choices Entertainment Corporation as of December 31, 1999, and the related statements of income and accumulated deficit, and cash flows for the years ended December 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1999 financial statements referred to above present fairly, in all material respects, the financial position of Choices Entertainment Corporation, as of December 31, 1999, and the results of its operations and its cash flows for the years ended December 31, 1999 and 1998 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company suffered recurring losses from operations and had a working capital deficiency at December 31, 1999. Those conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Miller and Co. LLP Certified Public Accountants Santa Monica, California April 28, 2000 except for Note J, for which the date is May 3, 2000 F-2 CHOICES ENTERTAINMENT CORPORATION BALANCE SHEETS DECEMBER 31, 1999 ASSETS CURRENT ASSETS Cash........................................................ $ 19,494 Accounts receivable......................................... -- ------------ TOTAL CURRENT ASSETS........................................ 19,494 OTHER ASSETS Other assets................................................ 619 ------------ TOTAL ASSETS................................................ $ 20,113 ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses....................... $ 375,936 Accrued merger and acquisition expenses..................... -- Notes payable--current...................................... 175,000 ------------ TOTAL CURRENT LIABILITIES................................... 550,936 ------------ LONG-TERM LIABILITIES Notes payable--noncurrent................................... 75,000 ------------ TOTAL LONG-TERM LIABILITIES................................. 75,000 ------------ TOTAL LIABILITIES........................................... 625,936 ------------ SHAREHOLDERS' EQUITY Preferred stock, par value $0.01 per share, authorized 5,000 shares, 109.1 shares issued and outstanding in 1999....... 1 Common stock, par value $0.01 per share, authorized 50,000,000 shares, issued and outstanding 28,504,395 shares in 1999............................................ 285,044 Additional paid-in capital.................................. 21,496,035 Accumulated deficit......................................... (22,386,903) ------------ TOTAL SHAREHOLDERS' EQUITY.................................. (605,823) ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 20,113 ============
F-3 CHOICES ENTERTAINMENT CORPORATION STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998 --------- ----------- (UNAUDITED) EXPENSES: Selling, general and administrative......................... $ 29,985 $ 65,587 Professional and consulting................................. 770,831 51,181 Acquisition termination..................................... 25,000 -- Depreciation and amortization............................... -- 968 TOTAL EXPENSES.............................................. 825,816 117,736 OTHER INCOME AND EXPENSES: Interest expense............................................ 14,973 -- Interest income............................................. -- 1,035 Other income................................................ -- 48,473 Reduction of accrued legal fees............................. -- 303,799 TOTAL OTHER INCOME AND EXPENSES............................. (14,973) 353,307 INCOME (LOSS) FROM CONTINUING OPERATIONS.................... (840,789) 235,571 DISCONTINUED OPERATIONS Income (loss) from discontinued operations.................. -- (2,663) INCOME (LOSS) FROM DISCOUNTINUED OPERATIONS................. -- (2,663) NET INCOME (LOSS)........................................... $(840,789) $232,908 ========= ======== NET INCOME (LOSS) PER SHARE OF COMMON STOCK BASIC INCOME (LOSS) PER SHARE: CONTINUING OPERATIONS....................................... $ (0.03) $ 0.01 DISCONTINUED OPERATIONS..................................... $ -- $ -- NET INCOME (LOSS)........................................... $ (0.03) $ 0.01 DILUTED INCOME (LOSS) PER SHARE: CONTINUING OPERATIONS....................................... $ (0.03) $ 0.01 DISCONTINUED OPERATIONS..................................... $ -- $ -- NET INCOME (LOSS)........................................... $ (0.03) $ 0.01
F-4 CHOICES ENTERTAINMENT CORPORATION STATEMENTS OF ACCUMULATED DEFICIT YEARS ENDED DECEMBER 31, 1999 AND 1998
PREFERRED ADDITIONAL STOCK COMMON STOCK PAID-IN ACCUMULATED SHARES SHARES AMOUNT CAPTIAL DEFICIT TOTAL --------- ------------- -------- ----------- ------------ --------- Balance at December 31, 1997........................ 109.1 22,004,395 $220,044 $21,236,035 $(21,779,022) (322,943) Net income for the year ended December 31, 1998........... -- -- -- -- 232,908 232,908 Balance at December 31, 1998........................ 109.1 22,004,395 220,044 21,236,035 (21,546,114) (90,035) Issuance of common stock in exchange for services....... 6,000,000 60,000 240,000 -- 300,000 Issuance of common stock in exchange for acquisition termination settlement...... -- 500,000 5,000 20,000 -- 25,000 Net income for the year ended December 31, 1999........... -- -- -- -- (716,451) (716,451) Balance at December 31, 1999........................ 109.1 28,504,395 $285,044 $21,496,035 $(22,386,903) $(605,823) ===== ========== ======== =========== ============ =========
F-5 CHOICES ENTERTAINMENT CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)........................................... $(840,789) $232,908 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization............................... -- 968 Loss on retirement of assets................................ -- 2,663 Issuance of stock in exchange for services.................. 325,000 -- Change in assets and liabilities: Change in accounts receivable............................... -- 1,123 Change in other assets...................................... (473) (21) Change in accounts payable.................................. (122,605) (21,253) Change in accrued merger and acquisition expenses........... (50,000) (303,799) Change in accrued professional fees......................... (30,403) (99,355) Change in accrued salaries.................................. -- (2,859) Change in other accrued expenses............................ 241,480 (5,418) --------- -------- TOTAL ADJUSTMENTS........................................... 608,209 (427,951) --------- -------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES......... (232,580) (195,043) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable................................. $ 300,000 $ -- Repayment of notes payable.................................. (50,000) -- --------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES................... 250,000 -- --------- -------- NET INCREASE (DECREASE) IN CASH............................. 17,420 (195,043) CASH AT BEGINNING OF YEAR................................... 2,074 197,117 CASH AT END OF YEAR......................................... $ 19,494 $ 2,074 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest...................... $ 3,800 $ --
F-6 CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE A--SUMMARY OF ACCOUNTING POLICIES BUSINESS ACTIVITY The Company was incorporated under the laws of the State of Maryland on July 11, 1985, as "PPV Enterprises, Inc." On August 18, 1987, the Company changed its name to "DataVend, Inc." and reincorporated under the laws of the State of Delaware. On March 14, 1990, the Company changed its name to Choices Entertainment Corporation. On June 16, 1997, the Company sold substantially all of its assets and business to West Coast Entertainment Corporation. On August 30, 1999 the Company entered into an agreement the effect of which would have been to change the company to a hotel properties holding and operating company. On January 16, 2000 the Company's Board of Directors adopted a plan to change the business of the Company to that of a technology holding company and terminated the plan to become a hotel company effective as of December 30, 1999. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATION In order to facilitate comparison of financial information, certain amounts reported in the prior year comparative totals have been reclassified to conform with the current year presentation. NOTE B--LIQUIDITY On June 16, 1997, the Company sold substantially all of its assets and business to West Coast Entertainment Corporation (the "West Coast Transaction"). Notwithstanding the sale of its operating business, the Company's financial statements included herein have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has net losses aggregating $22,386,903 and a working capital deficit of approximately $531,442 for the year ended December 31, 1999. Although the Company posted net losses in each year since its existence, after the sale of substantially all of the Company's assets and business to West Coast (the "West Coast Transaction"), the Company was able to show income in the amount of $232,908 for the year ended December 31, 1998. The West Coast Transaction had no material affect on the Company's financial statements for the year ended December 31, 1999. Under the terms of the West Coast Transaction, the purchase price of $2,430,000 was paid to the Company in cash on June 16, 1997, less $243,000 that was held by West Coast in escrow, pursuant to the terms of a escrow agreement between the Company and West Coast, to satisfy certain indemnity obligations of the Company, if any, to West Coast, and which was, subject to amounts withheld pursuant to any claims made by West Coast, to be released to the Company over a period of eighteen months. On December 22, 1997, the Company negotiated a compromise and full release of the escrow upon the payment by West Coast to the Company of $211,000 on that date. The release of the escrow F-7 CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE B--LIQUIDITY (CONTINUED) did not affect in any manner the Company's indemnity obligations to West Coast pursuant to the terms of the asset purchase agreement between the Company and West Coast. On September 8, 1997, a lawsuit was filed by the Company against a former officer, in the Superior Court of California, in which the Company sought repayment of a loan made by the Company to the former officer in 1995. A settlement of this lawsuit was concluded on February 25, 1998, pursuant to which the former officer agreed to pay the Company $40,000 in monthly installments beginning March 1, 1998 through September 1, 1998, which were paid on a timely basis. From the closing of the West Coast Transaction on June 16, 1997, to August 30, 1999, the Company has principally (i) satisfied and compromised various claims and liabilities; (ii) defended and settled litigation, and paid professional fees, including substantial fees associated with such litigation; (iii) maintained administrative functions (at present the Company has no employees); and (iv) attempted to identify and consider new business opportunities. The Company's former President and Chief Executive Officer, took a position with an unrelated company, effective October 6, 1997, but continued as the Company's Chairman, President and Chief Executive Officer, under a consulting agreement pursuant to which his compensation was reduced accordingly. The consulting agreement expired in accordance with its terms on April 30, 1998. As of December 31, 1997, claims and liabilities included but were not limited to professional fees billed in connection with the Company's discontinued acquisition program in the amount of $353,799, which was unpaid to a law firm retained in that connection. On February 9, 1999, the Company settled this obligation for $50,000. As of December 31, 1999, these claims and liabilities were $0. The primary source of funds for the year ended December 31, 1999 was shareholder loans. The Company borrowed $300,000 at interest rates of 10% and 12%. The Company had no revenues. As of the date of this report, the Company has approximately $19,494 in cash. The Company's viability in raising needed capital is seriously in question. In the event the Company is not successful in securing needed capital in the near term, as to which no assurance can be given, the Company does not believe that its viability as an ongoing business is assured. NOTE C--WEST COAST TRANSACTION AND DISCONTINUED OPERATIONS The Company recognized a net loss on the retirement of its assets of approximately $2,663, which has been reported in discontinued operations on the Statements of Income for the year ended December 31, 1998. NOTE D--NOTES PAYABLE As of December 31, 1999, the Company has notes payable outstanding in the amount of $250,000. The Company's 10% unsecured promissory notes in the principal amount of $75,000 will mature in mid 2001. The second set of unsecured notes in the amount of $175,000 at 12% interest rate are 90-day notes, which matured on December 29, 1999. See Note K--Subsequent Events. F-8 CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE E--DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE The Financial Accounting Standards Board issued in February 1997, SFAS no. 129 "Disclosure of Information about Capital Structure". SFAS 129 requires disclosure of descriptive information about securities, e.g. rights and privileges of the various securities outstanding, the number of shares issued upon conversion, exercise, or satisfaction or required conditions are the liquidation preference of preferred stock (Convertible Preferred Shares). 1. CONVERTIBLE PREFERRED SHARES:
AUTHORIZED ISSUED AND PREFERRED SHARES OUTSTANDING STOCK ---------- ----------- --------- Balance at December 31, 1997................................ 5,000 109.1 $ 1.09 Issuance of preferred stock in lieu of cash to investors.... -- -- -- Balance at December 31, 1998................................ 5,000 109.1 1.09 ----- ----- ------ Issuance of preferred stock in lieu of cash to investors.... -- -- -- ----- ----- ------ Balance at December 31, 1999................................ 5,000 109.1 $ 1.09 ===== ===== ======
Each share of Preferred Stock is entitled to vote on all matters submitted to a vote of the Company's stockholders together with the Common Stock and not as a separate class, unless otherwise required by law, with each share of Convertible Preferred Shares entitled to 40,000 votes. 2. COMMON STOCK:
ISSUED AUTHORIZED AND COMMON SHARES OUTSTANDING STOCK ---------- ----------- -------- Balance at December 31, 1997............................... 50,000,000 22,004,395 $220,044 Issuance................................................... -- -- -- ---------- ---------- -------- Balance at December 31, 1998............................... 50,000,000 22,004,395 $220,044 ---------- ---------- -------- Issuance of common stock in exchange for services.......... -- 6,000,000 60,000 ---------- ---------- -------- Issuance of common stock in exchange for acquisition termination settlement................................... -- 500,000 5,000 ---------- ---------- -------- Balance at December 31, 1999............................... 50,000,000 28,504,395 $285,044 ========== ========== ========
The Company's common stock is currently traded in the over-the-counter market on the OTC-Bulletin Board. On March 31, 2000 the last sale price was $.32 as reported by the OTC-Bulletin Board. The Company has not declared or paid any dividends on its preferred or common stock.The Board of Directors does not contemplate the payment of dividends in the foreseeable future,. In August 1999, the Company's Board of Directors passed a resolution expressly recognizing the obligation of the Company to compensate each of Jim Sink, George Pursglove, Thomas Renna and Tracy Shier for services rendered and to be rendered to the Company in connection with the change of F-9 CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE E--DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE (CONTINUED) control of the Company and the maintenance of it as an existing, reporting corporation. Pursuant to that resolution, the Board fixed the obligation to each of the named individuals at $120,000 and gave each the option to take some part or that entire amount in securities of the Company. On December 29, 1999 the Board of Directors of the Company passed a resolution instructing the Company's transfer agent to issue restricted shares of the Company's common stock to the named individuals, in an amount of shares and in exchange for release of an amount of the Company's obligation as follows: Jim Sink--2,400,000 shares--$120,000; George Pursglove--1,200,000 shares--$60,000; Thomas Renna--1,200,000 shares--$60,000; and Tracy Shier--1,200,000 shares--$60,000. At or about the time of the adoption of the December 29th resolution, the price of the stock was approximately $.05 per share. Included in the December 29(th) resolution was an instruction to the Company's transfer agent to issue 500,000 shares of the Company's common stock to Railex Republic Industrial Development LLC, an affiliate of Lorne Bradley and Republic Hotel Investors, Inc. This issuance of the Company's common stock related to the termination agreement by and between Republic Hotel Investors, Inc. and the Company pursuant to which the Company ended its plans to become a hotel property holding and operating company. RIGHTS AND PRIVILEGES: The holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefore at such times and in such amounts as the board may from time to time determine. The shares of Common Stock are neither redeemable nor convertible, and the holders thereof have no preemptive or subscription rights to purchase any securities of the Company. Upon liquidation, dissolution or winding up of the company, the holders of Common Stock are entitled to receive the assets of the company which are legally available for distribution, after payment of all debts, other liabilities and any liquidation preference of any outstanding preferred stock. Each outstanding share of Common Stock is entitled to one vote on all matters submitted to a vote of stockholders. There is no cumulative voting and no preemptive right. The Convertible Preferred Shares are the company's only authorized and outstanding series or class of preferred shares. The Convertible Preferred Shares have no liquidation preference. With respect to rights to participate in distributions or payments in the event of liquidation, dissolution or winding up of the company, the Convertible Preferred Shares ranks the same as the Company's Common Stock (defined above) and any other capital shares of the company which do not, by their terms, rank senior to or pari passu with the Convertible Preferred Shares. Dividends on the Convertible Preferred Shares are non-cumulative and will only be paid when, as and if declared by the Board of Directors of the Company, in its sole discretion, in an amount per share equal to the amount of the dividend declared on the Common Stock, if any. Convertible Preferred Shares are convertible, in whole or in part, at any time, at the option of the holder, into Common Stock at a ratio of 40,000 shares of the Company's Common Stock (as more fully described above) for each Convertible Preferred Share. Holders of the Convertible Preferred Shares are not entitled to any distributions unless declared by the Board of Directors as described above. F-10 CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE E--DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE (CONTINUED) The holders of Convertible Preferred Shares have voting rights equivalent to the rights of holders of the Common Stock. Each Convertible Preferred Share bears 40,000 votes on any matter brought before the stockholders such as the election of Directors and are entitled to notice of annual or special stockholder meetings. The Board of Directors of the Company is not prohibited from adopting and submitting to the Company's voting stockholders any proposed amendment to the Certificate of Incorporation of the Company or a Certificate of Designation which would create a class of preferred shares ranking senior to the Convertible Preferred Shares as to dividends and liquidation preference. Convertible Preferred Shares are not redeemable by the Company. Upon liquidation, dissolution or winding up of the Company, the holders of Convertible Preferred Shares will receive an amount equal to the amount, if any, received by holders of the Common Stock, in pari passu. NOTE F--STOCK OPTIONS OPTIONS The following table sets forth certain information regarding stock options granted by the Company, which were outstanding at December 31, 1999:
SHARES OF EXERCISE NUMBER COMMON STOCK PRICE EXPIRATION REGISTRATION DATE OF GRANT OF HOLDERS SUBJECT TO OPTION PER SHARE DATE RIGHTS - ------------- ---------- ----------------- --------- ---------------- ------------ January 31, 1991................... 2 510,000 $0.43 January 31, 2001 Registered TOTAL............................ 510,000 =======
STOCK OPTION AND APPRECIATION RIGHTS PLAN The Company has an unallocated reserve of 1,694,000 shares of its common stock for grant under its 1987 Stock Option and Appreciation Rights Plan (the "1987 Plan"). Pursuant to the 1987 Plan, the Company may grant either incentive stock options, intended to comply with the requirements of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options, as well as stock appreciation rights. All matters relating to the 1987 Plan are administered by a committee selected by the Company's Board of Directors, including selection of participants, allotment of shares, determination of price and other conditions of purchase. The exercise price of incentive stock options granted under the 1987 Plan may not be less than the fair market value of the common stock on the date of grant and the term of the option may not exceed ten years from the date of grant. In the case of incentive options granted to individuals who own more than 10% of the outstanding common stock of the Company, the exercise price may not be less than 110% of the fair market value of the common stock on the date of the 1987 Plan grant and the term of the option may not exceed five years from the date of grant. All options and stock appreciation rights granted under the 1987 Plan are non-transferable other than by will or by the laws of descent and distribution. F-11 CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE F--STOCK OPTIONS (CONTINUED) The following table sets forth information with respect to incentive stock options under the Plan for the two years ended December 31, 1999:
NUMBER OF SHARES UNDER PRICE PER OPTION(1) SHARE ------------ --------- Outstanding at December 31, 1998, and 1999............. -- --
- ------------------------ (1) Gives effect to the expiration of options due to termination of employment F-12 CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE F--STOCK OPTIONS (CONTINUED) NON-QUALIFIED MANAGEMENT INCENTIVE STOCK OPTIONS On January 31, 1991, the Board of Directors approved the grant of 4,750,000 1991 Management Options to four executive officers of the Company. One officer has subsequently retired and two other officers have left the Company. One ex-officer exercised his options in full, one ex-officer exercised 540,000 options leaving 510,000 options outstanding, and 1,000,000 options held by the second officer who has left the Company remains outstanding. All of the 1991 Management Options were issued at an exercise price of $.4325 per share, which represented the bid price for the Company's common stock on the date of the grant of such options. The 1991 Management Options vested fully as of August 2, 1991, and expire January 31, 2001. On February 9, 1994, the Board of Directors approved the grant of 915,000 1994 Management Options to three officers and one director of the Company at an exercise price of $.23 per share, which represented the bid price for the Company's common stock on the date of grant of such options. The 1994 Management Options vested fully as of April 7, 1994, and expire on January 31, 2001. Registration statements under the 1933 Act have been filed by the Company with respect to the 8,425,001 shares underlying the 1987 Stock Option and Appreciation Rights Plan (the "1987 Plan"), the outstanding Long-Term Management Incentive Options, the 1991 Management Options, and the 1994 Management Options, and an option held by a director. Of these options, 3,591,501 have either been cancelled, exercised or have expired and 1,694,500 options remained unissued under the 1987 SOP. Generally, such registration permits the immediate sale of the 3,139,500 vested shares upon exercise, subject to the volume limitations imposed by Rule 144. Holders of these options are afforded certain anti-dilution and piggyback rights under the 1933 Act with respect to the shares of common stock issuable upon exercise of said options. On September 27, 1995, the Company granted a five-year non-qualified stock option to purchase 100,000 shares of the Company's common stock to a director of the Company at an exercise price of $.19 per share, the average fair market value on that date. On February 13, 1997, the Board of Directors of the Company authorized the grant of non-qualified stock options to purchase 450,000 shares of the Company's common stock at $.05 per share, the fair market value of the common stock on that date, to three directors of the Company. The options became fully vested after six months from the date of grant. NOTE G--NET LOSS PER SHARE OF COMMON STOCK Basic income per share for the years ended December 31, 1999 and 1998, were computed by dividing the net income by the weighted average number of common shares outstanding during the periods. Diluted income per share for the years ended December 31, 1999 and 1998, were computed by dividing the net income by the weighted average number of common shares outstanding during the period, as well as, the number of common shares that would be outstanding as a result of the F-13 CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE G--NET LOSS PER SHARE OF COMMON STOCK (CONTINUED) conversion of the Company's Convertible Preferred Shares. The approximate number of shares used in the computation of income or loss per share amounts is as follows:
NUMBER OF SHARES YEAR ENDED DECEMBER 31, USED IN CALCULATION - ----------------------- ------------------- 1999 Basic..................................................... 24,489,387 Diluted................................................... 28,853,327 1998 Basic..................................................... 22,004,000 Diluted................................................... 26,364,395
The difference between basic and diluted weighted average number of shares is due to the Convertible Preferred Shares. NOTE H--INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires the liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured by applying enacted tax rates for the taxable years in which those differences are expected to reverse. Recognition of deferred tax assets is subject to a valuation allowance if it is more likely than not that some or all of a deferred tax asset will not be realized. As of December 31, 1999 the Company had approximately $18,735,000 of net operating loss carry-forwards for tax purposes which may be available to offset future federal income, if any, through 2010. The amount ultimately available, if any in future years, is subject to certain limitations. Should the Company operate profitably in future years, it may be subject to current tax expense in certain states for which no net operating loss carry-forwards are available. NOTE I--COMMITMENTS The Company currently has no material lease commitments. The Company's executive office is provided rent-free by the Company's President. Rent expenses for 1999 and 1998 were $ 0. NOTE J--PENDING LITIGATION The Company is a defendant to the lawsuit Dion Signs & Services, Inc. vs. Choices Entertainment Corporation, Civil Action No. 91-6871. The case is now pending in the Providence County Superior Court, Providence, Rhode Island. Dion Signs & Services, Inc. alleges that it is owed approximately $33,000 plus interest, costs and reasonable attorney's fees for the failure by Choices Entertainment Corporation to pay for signage that was erected at various locations pursuant to a contract. If the plaintiff is successful, the case has a potential verdict of approximately $33,000.00 plus close to 100% interest. In addition, Rhode Island statute would allow for the imposition of counsel fees because it's premised upon a contract action. Accordingly, the total exposure could be in the range of $70,000 to F-14 CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1999 AND 1998 NOTE J--PENDING LITIGATION (CONTINUED) $75,000. Since the case has not been set for trial, and very little discovery has been done, it is not possible to determine the likelihood of the outcome of the case at this time. NOTE K--SUBSEQUENT EVENTS In January 2000, the Company subscribed to a private placement of CAN$2,300,000 principal amount of Convertible Subordinated Redeemable 0% Debentures maturing April 30, 2000 (the "Debentures") issued by PhotoChannel Networks Inc., a British Columbia corporation ("Photochannel"). The subscription agreement calls for advances to Photochannel in exchange for the issuance of Debentures as follows: CAN$350,000 by January 31, 2000; CAN$750,000 by February 29, 2000; and CAN$1,200,000 by April 14, 2000. The Debentures are convertible into Photochannel common stock, no par value, ("Photochannel Stock") at the rate of 1 share of Photochannel Stock for each CAN$.50 in debenture principal amount. Also, the company was granted warrants pursuant to a vesting schedule to purchase additional shares of Photochannel Stock as follows: 140,000 warrants with an exercise price of CAN$.75; 300,000 warrants with an exercise price of CAN$1.00; and 480,000 warrants with an exercise price of CAN$1.25. Each warrant entitles the Company to purchase 1 share of Photochannel Stock at the exercise price, for cash. The warrants are presently fully vested and will expire June 30, 2000. As of the date of the filing of this report on Form 10KSB, the Company had completed its obligations under the subscription agreement. All of the securities acquired in this transaction as well as the securities into which the securities acquired are convertible or exercisable against are restricted securities and must be held for the applicable holding period from the date of conversion or exercise, as the case may be. The applicable holding period in most cases will be 1 year. In February 2000, the Company closed a self-offered private offering of 390 of the Company's Series C Preferred Stock in the aggregate offering amount of $780,000. Offering expenses were less than $3,000. Each share of the Preferred Stock is convertible into 40,000 shares of the Company's common stock, par value $.01, the ("Common Stock") and carries the voting rights of the underlying Common Stock. The proceeds from this offering were used to retire all notes payable, to pay down the obligations of the Company to officers and directors of the Company, to pay down accounts payable to an immaterial amount, and to acquire minority interests in two companies. Certain convertible debt were converted to Convertible Preferred Shares. In March 2000, the Company paid $50,000 cash to acquire 250,000 shares of common stock of Tridium Research Inc., a Washington corporation ("Tridium") based in Kirkland, Washington. The 250,000 shares of common stock acquired represents approximately 5% of all Tridium common stock issued and outstanding. The Company has also obligated itself to provide an additional $200,000 to Tridium, upon terms and conditions to be determined. F-15 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 3(a) Certificate of Incorporation, as amended(1) (b) Certificate of Designations of Series C Preferred Stock, as amended(2) (c) Amended and Restated By-Laws,(13) 4 Form of certificate evidencing shares of Common Stock(4) 10(a) Stock Option and Appreciation Rights Plan of 1987(4) (b) Form of Long-Term Management Incentive Stock Option Agreement(5) (c) Form of 1991 Management Option Agreement(5) (d) Consulting Agreement between Registrant and Ronald W. Martignoni(6) (e) Severance Benefits Agreement, as amended, between Registrant and Lorraine E. Cannon(7) (f) Form of 1994 Management Option Agreement(7) (g) Non-Employee Director Stock Option Agreement between Registrant and Fred E. Portner(8) (h) Non-Employee Director Stock Option Agreement between Registrant and Fred E. Portner(9) (i) Non-Employee Director Stock Option Agreement between Registrant and James D. Sink(9) (j) Asset Purchase Agreement, dated December 16, 1996, as amended, between West Coast Entertainment Corporation and Registrant(10) 10.99(a) Consulting Agreement between Registrant and Thomas Renna(11) (b) Letter of Intent to Acquire Republic Hotel Investors, Inc.(12) (c) Termination Contract with Republic Hotel Investors, Inc.(13) 23 Consent of Miller and Co.(13) 27 Financial Data Schedule(13)
- ------------------------ (1) Filed as an Exhibit to Registrant's Registration Statement on Form S-8 File No. 33-87016) and incorporated herein by reference. (2) Filed as an Exhibit to Registrant's 1996 Annual Report on Form 10-KSB, and incorporated herein by reference. (3) Filed as an Exhibit to Registrant's 1992 Annual Report on Form 10-K and incorporated herein by reference. (4) Filed as an Exhibit to Registrant's Registration Statement on Form S-1, inclusive of Post-Effective Amendment No. 1 thereto (File No.: 33-198983) and incorporated herein by reference. (5) Filed as an Exhibit to Registrant's Post-Effective Amendment No. 1 to Form S-1 Registration Statement (File No.: 33-32396), and incorporated herein by reference. (6) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended September 30, 1997, and incorporated herein by reference. (7) Filed as an Exhibit to Registrant's 1993 Annual Report on Form 10-K, and incorporated herein by reference. E-1 (8) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended March 31, 1996, and incorporated herein by reference. (9) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended March 31, 1997, and incorporated herein by reference. (10) Filed as an Exhibit to Registrant's definitive Proxy Statement, dated February 11, 1997, with regard to a Special Meeting of Stockholders held on March 12, 1997, as further amended by Second and Third Amendments thereto filed as Exhibits to Registrant's Forms 8-K, dated April 28, 1997, and May 29, 1997, all of which Exhibits are incorporated herein by reference. (11) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB, for the quarter ended June 30, 1999, and incorporated herein by reference. (12) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated August 30, 1999 and incorporated herein by reference. (13) Filed herewith. E-2 EX-3.(C) 2 EXHIBIT 3.(C) Exhibit 3(c) CHOICES ENTERTAINMENT CORPORATION * * * * * AMENDED AND RESTATED BY-LAWS * * * * * ARTICLE I OFFICES SECTION 1.1. The registered office shall be in the City of Wilmington, County of New Castle, and State of Delaware. SECTION 1.2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 2.1. All meetings of the stockholders for the election of directors shall be held in the City of Wilmington, State of Delaware, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2.2. Annual meetings of stockholders, commencing with the year 2000, shall be held on the 26th day of May, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 2:30 PM, or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. SECTION 2.3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. SECTION 2.4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 2.5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. SECTION 2.6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. SECTION 2.7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 2.8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 2.9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. SECTION 2.10. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted after eleven (11) months from its date, unless the proxy provides for a longer period and is coupled with an interest. SECTION 2.11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS SECTION 3.1. The number of directors which shall constitute the whole board shall be not less than three (3) nor more than twelve (12). The first board after the adoption of these bylaws shall consist of at least three (3) directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. SECTION 3.2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. SECTION 3.3. The business of the corporation shall be managed by or under the direction of its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS SECTION 3.4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. SECTION 3.5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. SECTION 3.6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. SECTION 3.7. Special meetings of the board may be called by the president on three (3) days' notice to each director, either personally or by mail or by facsimile communication; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the board consists of only one director; in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. SECTION 3.8. At all meetings of the board, a majority of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 3.9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. SECTION 3.10. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS SECTION 3.11. The board of directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. SECTION 3.11.A In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. SECTION 3.11.B Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of Delaware to be submitted to stockholders for approval or (ii) adopting, amending or repealing any by-law of the corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. SECTION 3.12. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS SECTION 3.13. Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix the compensation of non-employee directors. Directors who are also employees of the corporation shall serve without compensation except to the extent of re-imbursement of expenses pursuant to the policy of the corporation regarding such re-imbursement. Non-employee directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity except that of employee and receiving compensation therefor. Non-employee members of special or standing committees may be allowed like compensation for attending committee meetings. REMOVAL OF DIRECTORS SECTION 3.14. Unless otherwise restricted by the certificate of incorporation or by law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. ARTICLE IV NOTICES SECTION 4.1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by facsimile telecommunication. SECTION 4.2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS SECTION 5.1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a secretary and a treasurer. The board of directors may also choose vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. SECTION 5.2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, a secretary and a treasurer. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. SECTION 5.3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. SECTION 5.4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. SECTION 5.5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. The board of directors shall fill any vacancy occurring in any office of the corporation. THE PRESIDENT SECTION 5.6. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the stockholders and the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. SECTION 5.7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS SECTION 5.8. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY SECTION 5.9. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. SECTION 5.10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS SECTION 5.11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. SECTION 5.12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. SECTION 5.13. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. SECTION 5.14. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE VI CERTIFICATES FOR SHARES SECTION 6.1. The shares of the corporation shall be represented by a certificate or shall be uncertificated. The president or a vice-president, and the treasurer- or an assistant treasurer, or the secretary or an assistant secretary, of the corporation shall sign certificates representing the shares. SECTION 6.1.A If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 6.1.B Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the General Corporation Law of Delaware or a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 6.2. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES SECTION 6.3. The board of directors may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK SECTION 6.4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be cancelled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the corporation. FIXING RECORD DATE SECTION 6.5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting: provided, however, that the board of directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS SECTION 6.6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS SECTION 7.1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. SECTION 7.2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT SECTION 7.3. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS SECTION 7.4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR SECTION 7.5. The fiscal year of the corporation shall be the calendar year. SEAL SECTION 7.6. The corporation may adopt a corporate seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION SECTION 7.7. The corporation shall indemnify its officers, directors, employees and agents to the extent permitted by the General Corporation Law of Delaware, but nothing herein shall prevent the corporation from indemnifying its officers, directors, employees and agents by contract or otherwise. ARTICLE VIII AMENDMENTS SECTION 8.1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the board of directors by the certificate of incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. Approved and Adopted by the Board of Directors of Choices Entertainment Corporation by unanimous written consent this __ day of April, 2000. _/s/ _____________________________ James D. Sink, Director ___/s/ ___________________________ Tracy M. Shier, Director _____/s/ _________________________ Thomas Renna, Director EX-10.99(C) 3 EXHIBIT 10.99(C) Exhibit 10.99 (c) CONTRACT TERMINATION AGREEMENT THIS AGREEMENT made as of the 30th day of December 1999. BETWEEN: CHOICES ENTERTAINMENT CORPORATION, a Delaware corporation ("Choices") -And- Republic Hotel Investors, Inc., a Washington corporation ("RHII") WHEREAS Choices and RHII are the parties to a binding Letter of Intent the ("LOI") dated as of the 30th day of August, 1999 in respect of the acquisition of the business of RHII by Choices; AND WHEREAS the parties thereto have agreed to terminate the LOI; NOW THEREFORE for good and valuable consideration, the receipt and sufficiency of which are hereby irrevocably acknowledged by each of the parties hereto, the parties hereto hereby covenant and agree as follows: 1. RHII hereby accepts the sum of 500,000 shares of the common stock, par value $0.01 per share, of Choices in full and final settlement of any and all amounts owing by Choices to RHII or its officers, directors, shareholders or agents, pursuant to the LOI, which shares are hereby assigned over by RHII to Lorne Bradley and or his nominee, and such shares shall be delivered to RHII as soon as is reasonably practicable after the date of this Agreement but in any event no later than February 15, 2000. The shares of the common stock deliverable pursuant to this agreement shall be registered in the name of Railex Republic Industrial Development Corporation whose address is P.O. Box 2148, Vancouver, B.C., V6B 3T8, Canada. 2. The LOI is hereby terminated and has no further force and effect as of the date hereof. Choices hereby agrees to timely pay any amount owed Seattle Northwest Securities Corporation when, as and if such amount owing becomes a liquidated amount. 3. Lorne Bradley hereby tenders his resignation as Chairman of the Board of Directors, President and Chief Executive Officer of Choices which resignation is hereby accepted. 4. RHII does hereby release and forever discharge Choices and any directors, officers and employees of Choices of and from all manner of actions, causes of action, deeds, suits, proceedings, debts, dues, duties, accounts, interest, covenants, contracts, demands, damages sums of money, obligations, promises, guarantees and liabilities whatsoever, both in law an in equity, which RHII ever had, now has or hereafter can, shall or may have for or by reason of or in respect of any cause, act, matter or thing whatsoever existing up to and including the date hereof against Choices or any one of them, provided that nothing herein contained shall be construed so as to release Choices from their obligations and covenants arising out of or in respect of this Agreement. 5. Choices does hereby remise, release and forever discharge RHII of and from all manner of actions, causes of action, deeds, suits, proceedings, debts, dues, duties, accounts, interest, covenants, contracts, demands, damages, sums of money, obligations, promises, guarantees and liabilities whatsoever, both in law an in equity, which RHII and any officer, director, shareholder or agent thereof ever had, now has or hereafter can, shall or may have for or by reason of or in respect of any cause, act, matter or thing whatsoever existing up to and including the date hereof against RHII, provided that nothing herein contained shall be construed so as to release RHII from its obligations and covenants arising out of or in respect of this Agreement. 6. RHII will not, in any manner whatsoever, directly or indirectly, at any time or under any circumstances, use, impart, disclose, divulge or otherwise make available to any person, or obtain any benefit from, whether directly or indirectly, by any act or omission, any information concerning the property, business or affairs of Choices, without the express written consent of Choices, which consent may be unreasonably withheld. 7. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington, and venue shall lie in King County. 8. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 9. Time is of the essence of this agreement. [The Next page is the Signature Page} [SIGNATURE PAGE] IN WITNESS WHEREOF the parties hereto have duly executed this agreement as of the date first written above. Choices Entertainment Corporation, By: its Board of Directors, /s/ James D. Sink James D. Sink /s/ Thomas Renna Thomas Renna /s/ Tracy M. Shier Tracy M. Shier Republic Hotel Investors, Inc. By: /s/ Lorne Bradley Lorne Bradley, President As to the assignment by RHII over to Lorne Bradley or his nominee: Republic Hotel Investors, Inc. By: /s/ Tracy M. Shier Tracy M. Shier, Director EX-23 4 EXHIBIT 23 EX-23 EXHIBIT 23 [LETTERHEAD] The Board of Directors Choices Entertainment Corporation: We consent to incorporation by reference in the Registration Statements (Nos. 33-44343 and 33-87016) on Form S-8, of Choices Entertainment Corporation of our report dated April 28, 2000 relating to the balance sheet of Choices Entertainment Corporation as of December 31, 1999, and the related statements of income, accumulated deficit, and cash flows for the year ended December 31, 1999 and 1998, which report appears in the December 31, 1999 annual report on Form 10-KSB of Choices Entertainment Corporation. Our report contains an explanatory paragraph that states that the Company has suffered recurring losses from operations and has a net working capital deficiency. Those conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Miller and Co. Certified Public Accountants Santa Monica, California April 28, 2000 EX-27 5 EXHIBIT 27
5 12-MOS DEC-31-1999 DEC-31-1999 19,494 0 0 0 0 619 0 0 20,113 550,936 75,000 0 1 285,044 (890,868) 20,113 0 0 0 0 0 0 14,973 0 0 0 0 0 0 (840,789) (.03) (.03)
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