-----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, PJ7BE/vgg5yK3K22u9/E3FghJN4PNBvBf9BZqGIV0OsDe6oucSBEZNwFPA9oZL/E x27mSB5crDDlG6x9F16dTw== 0000950109-96-003026.txt : 19980423 0000950109-96-003026.hdr.sgml : 19980423 ACCESSION NUMBER: 0000950109-96-003026 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHOICES ENTERTAINMENT CORP CENTRAL INDEX KEY: 0000822935 STANDARD INDUSTRIAL CLASSIFICATION: 7841 IRS NUMBER: 521529536 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-17001 FILM NUMBER: 96563006 BUSINESS ADDRESS: STREET 1: 81 BIG OAK RD STREET 2: STE 205 CITY: MORRISVILLE STATE: PA ZIP: 19067 BUSINESS PHONE: 2154281000 MAIL ADDRESS: STREET 1: 81 BIG OAK RD SUITE 205 CITY: MORRISVILLE STATE: PA ZIP: 19067 FORMER COMPANY: FORMER CONFORMED NAME: DATAVEND INC DATE OF NAME CHANGE: 19900401 10QSB 1 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________ FORM 10-QSB (Mark One) [ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange --- Act of 1934 For the quarterly period ended March 31, 1996 ----------------- [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from _________ to _________ Commission file number 0-17001 ------- Choices Entertainment Corporation - - - -------------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Delaware 52-1529536 - - - ------------------------------------ -------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 220 Continental Drive, Suite 102, Newark, Delaware 19713 - - - ---------------------------------------------------- ------------------------ (Address of Principal Executive Offices) (Zip Code) Issuer's Telephone Number, Including Area Code (302) 366-8684 ------------------ - - - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ----- ----- State the number of shares outstanding of the issuer's Common Stock, as of May 10, 1996: 22,004,365 Transitional Small Business Disclosure Format (check one): Yes No X ----- ----- -1- PART I: FINANCIAL INFORMATION - - - ------------------------------ Item 1. Financial Statements CHOICES ENTERTAINMENT CORPORATION BALANCE SHEETS
March 31, 1996 December 31, 1995 -------------- ----------------- (Unaudited) (Audited) ASSETS - - - ------ Current assets: Cash................................ $ 130,631 $ 86,391 Accounts receivable................. 9,013 11,098 Merchandise inventories............. 137,141 138,149 Prepaid expenses.................... 18,301 28,236 ------------ ------------ Total current assets............... 295,086 263,874 Videocassette rental inventory, net.. 778,605 778,728 Equipment, net (Note 2).............. 155,360 186,990 Intangible assets, net............... 185,233 189,443 Other deferred costs................. 59,829 69,621 Other assets......................... 68,254 68,254 ------------ ------------ $ 1,542,367 $ 1,556,910 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT - - - ------------------------------------- Current liabilities: Notes payable....................... $ 184,691 $ 184,691 Accounts payable.................... 426,231 422,582 Accrued merger and acquisition...... expenses........................... 558,780 563,901 Accrued professional fees........... 150,918 186,243 Accrual for lease cancellation and litigation reserves................ 10,000 13,750 Accrued salaries.................... 69,075 52,603 Other accrued expenses.............. 157,740 147,007 ------------ ------------ Total current liabilities.......... 1,557,435 1,570,077 Notes payable........................ 680,000 680,000 ------------ ------------ Total liabilities.................. 2,237,435 2,250,777 ------------ ------------ Stockholders' deficit: Preferred stock, par value $.01 per share: Authorized 5,000 shares; 34 shares issued and outstanding in 1996 and 1995.......................... Common stock, par value $.01 per share: authorized 50,000,000 shares; issued and outstanding 22,004,395 shares in 1996 and 1995........... 220,044 220,044 Additional paid-in capital.......... 20,485,203 20,485,203 Accumulated deficit................. (21,400,315) (21,399,114) ------------ ------------ Total stockholders' deficit........ (695,068) (693,867) ------------ ------------ $ 1,542,367 $ 1,556,910 ============ ============
See accompanying notes to financial statements. -2- CHOICES ENTERTAINMENT CORPORATION STATEMENTS OF LOSS (Unaudited)
For the Three Months Ended March 31, -------------------------- Revenues: 1996 1995 ------------ ------------ Movie rentals......................... $1,107,481 $1,021,952 Merchandise sales..................... 251,624 260,503 ---------- ---------- 1,359,105 1,282,455 ---------- ---------- Operating costs and expenses: Cost of goods sold.................... 224,795 261,282 Cost of movie rentals................. 6,602 Store payroll......................... 252,854 281,105 Store rents........................... 228,853 244,962 Other store operating expenses........ 111,098 122,840 Selling and administrative expenses... 137,513 210,025 Professional and consulting expenses.. 40,200 52,550 Loss on disposal of videocassette rental inventory.................... 52,557 35,992 Merger and acquisition expenses....... 737,903 Depreciation and amortization......... 298,157 298,526 ---------- ---------- 1,346,027 2,251,787 ---------- ---------- Other income (expenses): Gain on settlement of debt............ 395,640 Interest expense, net................. (14,279) (2,898) ---------- ---------- (14,279) 392,742 ---------- ---------- Net loss................................ $ (1,201) $ (576,590) ========== ========== Net loss per share of common stock (Note 3).............................. $(0.00) $(0.03) ========== ==========
See accompanying notes to financial statements. -3- CHOICES ENTERTAINMENT CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY For the Three Months Ended March 31, 1995 and 1996 (Unaudited)
Preferred Common Stock Additional Stock ----------------- Paid-In Accumulated Shares Shares Amount Capital Deficit Total ------------- ---------- ----------- -------- ------------ ---------- Balance at December 31, 1994 18,654,934 $ 186,549 $18,631,441 $(19,259,787) $(441,797) Issuance of Common Stock for cash from exercise of stock options and warrants 1,797,000 17,970 728,453 746,423 Issuance of Common Stock for cash to two private foreign investors, net of related costs 900,000 9,000 387,000 396,000 Issuance of Common Stock to satisfy debt obligations 113,461 1,135 146,417 147,552 Issuance of Common Stock in conjunction with consult- ing services 150,000 1,500 137,250 138,750 Net Loss for the three months ended March 31, 1995 (576,590) (576,590) ----------- ----------- ----------- ------------ ----------- Balance at March 31, 1995 21,615,395 $ 216,154 $20,030,561 $(19,836,377) $ 410,338 =========== =========== =========== ============ =========== Balance at December 31, 1995 34 22,004,395 $ 220,044 $20,485,203 $(21,399,114) $ (693,867) Net Loss for the three months ended March 31, 1996 (1,201) (1,201) -- ----------- ----------- ----------- ------------ ----------- Balance at March 31, 1996 34 22,004,395 $ 220,044 $20,485,203 $(21,400,315) $ (695,068) == =========== =========== =========== ============ ===========
See accompanying notes to financial statements. -4- CHOICES ENTERTAINMENT CORPORATION STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31, ----------------------- 1996 1995 ------ ------ Cash flows from operating activities: Net loss............................................ $ (1,201) $ (576,590) --------- ---------- Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.................... 288,365 298,526 Gain on settlement of debt....................... (395,640) Cost of rental films sold........................... 100,005 53,951 Loss on disposal of rental films.................... 52,557 35,992 Videocassette and inventory reserves................ 5,847 Amortization of other deferred costs................ 9,792 17,344 Change in assets and liabilities: Decrease in accounts receivable................ 2 085 853 Decrease in merchandise inventories............ 1,008 173,334 Decrease in prepaid expenses................... 9,935 6,949 Increase in other deferred costs............... (11,000) Increase (decrease) in accounts payable........ 3,649 (31,237) Increase (decrease) in accrued merger and acquisition expenses......................... (5,121) 398,317 Decrease in accrued professional fees........ (35,325) (304,473) Increase in accrued salaries................... 16,472 14,339 Decrease in accrual for lease cancellation and litigation reserves...................... (3,750) (2,500) Increase (decrease) in other accrued expenses..................................... 10,734 (30,350) --------- ---------- Total adjustments................................... 456,253 224,405 --------- ---------- Net cash provided by (used in) operating activities....................................... 455,052 (352,186) --------- ---------- Cash flows from investing activities: Purchase of equipment, net........................ (2,206) (67,639) Purchase of videocassette rental films............ (408,606) (356,686) --------- ---------- Net cash used in investing activities............... (410,812) (424,325) --------- ---------- Cash flows from financing activities: Proceeds from issuance of common stock........... 1,142,423 Repayment of notes payable....................... (147,500) --------- ---------- Net cash provided by financing activities........... -0- 994,923 --------- ---------- Net increase in cash................................ 44,240 218,412 Cash at beginning of period......................... 86,391 129,389 --------- ---------- Cash at end of period............................... $ 130,631 $ 347,801 ========= ========== Supplementary disclosure of cash flow information: Cash paid during the year for interest........... $ 2,833 $ -0- ========= ==========
See accompanying notes to financial statements. -5- CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis Of Presentation And Significant Accounting Policies - - - ---------------------------------------------- The financial information included herein for the three-month periods ended March 31, 1996 and 1995 and as of March 31, 1996 are unaudited. In addition, the financial information does not include all disclosures required under generally accepted accounting principles because certain note information has been omitted; however, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results of the interim periods and such adjustments are of a normal recurring nature. The results of operations for the three-month period ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year. Note 2 - Equipment - - - ------------------ Equipment at March 31, 1996 is primarily comprised of furnishings, leaseholds, and computers related to the Company's retail stores. Note 3 - Loss Per Common Share - - - ------------------------------ Loss per common share for the three-month period ended March 31, 1996 and 1995 was computed by dividing the net loss by the weighted average number of common shares outstanding during the period.
Three Months Ended March 31, ------------------ 1996 1995 -------- -------- Number of shares used in calculations 22,004,000 20,803,000
Note 4 - Liquidity - - - ------------------ The financial statements 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 incurred net losses, aggregating $21,400,315 from inception through March 31, 1996, including a net loss of $1,201 for the three months ended March 31, 1996. -6- CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited) Note 4 - Liquidity (Continued) - - - ------------------------------ The Company is currently operating in a severely distressed financial condition. As of March 31, 1996, the Company had a net working capital deficiency of approximately $1,262,000. The Company is currently funding its business on a day-to-day basis from revenues generated from its ten store operations. Because of the timing of the payment of certain obligations, the Company has reported positive cashflow from operations for the three-month period ended March 31, 1996. However, as the revenues from the Company's existing ten stores are insufficient to insure timely payment of its obligations, the Company is in immediate need of financing to fund its short- term working capital needs. As previously reported, the Company is presently in default on three 10% promissory notes totalling $150,000 plus accrued interest. The principal amounts owing by the Company on said promissory notes were reduced to $150,000 from $180,000 as a result of a $30,000 payment made by the Company in November 1995, to the holder of two of such notes in the then total principal amount of $150,000. This payment was made following the filing of a lawsuit by the holder of said two notes seeking a judgment in the principal amount of $150,000 plus accrued interest of $15,548. The lawsuit was withdrawn following said $30,000 payment without prejudice to its being reinstated if the balance owing on said notes was not paid in full prior to March 15, 1996. No additional amounts have been paid by the Company to the holder, who has continued to demand payment. The Company is presently unable to satisfy the balance owing and there is no assurance that the Company will be able to satisfy a judgment in such amount if the lawsuit is reinstated and a judgment is entered against the Company. The entry and enforcement of such a judgment against the Company's assets would materially and adversely affect the Company's business. The Company is also delinquent and presently unable to satisfy various other liabilities, including amounts owing to vendors and landlords, as well as substantial professional fees owing in connection with its now discontinued acquisition program. As previously reported, on April 9, 1996 a lawsuit was filed against the Company by certain individuals who allegedly purchased or purchased and sold securities of the Company. Also named as defendants in the complaint are the members of the Board of Directors, a former director and certain others. Plaintiffs -7- Note 4 - Liquidity (Continued) - - - ------------------------------ are seeking monetary damages in an amount to be determined, but exceeding $25,000, plus attorney's fees, costs of suit and such other relief as the court deems just. The plaintiffs are primarily the same individuals who, as previously reported, had made a claim in excess of $325,000, exclusive of attorneys' fees, against the Company with regard to substantially the same allegations as now set forth in the complaint. The Company does not believe that there is any merit to the lawsuit filed against it and intends to contest it vigorously. However, if the Company is unsuccessful in defending the lawsuit, the Company would not presently be able to satisfy an award of damages in the amount claimed, which judgment would, if enforced, materially and adversely affect the Company's business. Furthermore, even if the Company is successful in defending the lawsuit, the cost alone in professional fees could materially and adversely affect the Company's business. The Company's viability for the foreseeable future is and will continue to be dependent upon its ability to secure needed capital, to extend the due dates of liabilities, or to otherwise conclude or settle existing liabilities and claims on a satisfactory basis. No assurance can be given that the Company will be successful in that regard. In the event the Company is not successful, the Company may be forced to seek protection under Chapter XI of the Federal Bankruptcy Laws. In such an event, the Company's ability to conduct its business could be severely hampered. Moreover, the value of the Company's equity would likely be greatly diminished, if not eliminated. Management believes that the Company will need to acquire or establish additional superstores in the future if the Company is to achieve the economies of scale necessary for it to become profitable. In that regard and because of its severely distressed financial condition, the Company is exploring a possible merger with one or more companies. However, there is no assurance the Company's efforts will be successful in that connection. In the event the Company is not successful in pursuing a potential merger, it is likely that it will continue to operate through the ten stores currently owned which have historically provided insufficient revenues to enable the Company to operate -8- CHOICES ENTERTAINMENT CORPORATION NOTES TO FINANCIAL STATEMENTS (Continued) (Unaudited) Note 4 - Liquidity (Continued) - - - ------------------------------ profitably. The Company may also explore the possibility of selling its video stores although no assurance can be given that it would be successful in that regard. Note 5 - Subsequent Events - - - -------------------------- As previously reported, on April 9, 1996 a lawsuit was filed against the Company. (See Note 4.) -9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following is Management's discussion and analysis of certain significant factors which have affected the Company's financial condition, changes in financial condition, and results of operations. The discussion also includes the Company's liquidity and capital resources at March 31, 1996 and later dated information, where practicable. Financial Condition, Liquidity and Capital Resources The Company is currently operating in a severely distressed financial condition. As of March 31, 1996, the Company had a net working capital deficiency of approximately $1,262,000. The Company is currently funding its business on a day-to-day basis from revenues generated from its ten store operations. Because of the timing of the payment of certain obligations, the Company has reported positive cashflow from operations for the three-month period ended March 31, 1996. However, as the revenues from the Company's existing ten stores are insufficient to insure timely payment of its obligations, the Company is in immediate need of financing to fund its short- term working capital needs. As previously reported, the Company is presently in default on three 10% promissory notes totalling $150,000 plus accrued interest. The principal amounts owing by the Company on said promissory notes were reduced to $150,000 from $180,000 as a result of a $30,000 payment made by the Company in November 1995, to the holder of two of such notes in the then total principal amount of $150,000. This payment was made following the filing of a lawsuit by the holder of said two notes seeking a judgment in the principal amount of $150,000 plus accrued interest of $15,548. The lawsuit was withdrawn following said $30,000 payment without prejudice to its being reinstated if the balance owing on said notes was not paid in full prior to March 15, 1996. No additional amounts have been paid by the Company to the holder, who has continued to demand payment. The Company is presently unable to satisfy the balance owing and there is no assurance that the Company will be able to satisfy a judgment in such amount if the lawsuit is reinstated and a judgment is entered against the Company. The entry and enforcement of such a judgment against the Company's assets would materially and adversely affect the Company's business. The Company is also delinquent and presently unable to satisfy various other liabilities, including amounts owing to vendors and landlords, as well as substantial professional fees owing in connection with its now discontinued acquisition program. -10- As previously reported, on April 9, 1996 a lawsuit was filed against the Company by certain individuals who allegedly purchased or purchased and sold securities of the Company. Also named as defendants in the complaint are the members of the Board of Directors, a former director and certain others. Plaintiffs are seeking monetary damages in an amount to be determined, but exceeding $25,000, plus attorney's fees, costs of suit and such other relief as the court deems just. The plaintiffs are primarily the same individuals who, as previously reported, had made a claim in excess of $325,000, exclusive of attorneys' fees, against the Company with regard to substantially the same allegations as now set forth in the complaint. The Company does not believe that there is any merit to the lawsuit filed against it and intends to contest it vigorously. However, if the Company is unsuccessful in defending the lawsuit, the Company would not presently be able to satisfy an award of damages in the amount claimed, which judgment would, if enforced, materially and adversely affect the Company's business. Furthermore, even if the Company is successful in defending the lawsuit, the cost alone in professional fees could materially and adversely affect the Company's business. The Company's viability for the foreseeable future is and will continue to be dependent upon its ability to secure needed capital, to extend the due dates of liabilities, or to otherwise conclude or settle existing liabilities and claims on a satisfactory basis. No assurance can be given that the Company will be successful in that regard. In the event the Company is not successful, the Company may be forced to seek protection under Chapter XI of the Federal Bankruptcy Laws. In such an event, the Company's ability to conduct its business could be severely hampered. Moreover, the value of the Company's equity would likely be greatly diminished, if not eliminated. Management believes that the Company will need to acquire or establish additional superstores in the future if the Company is to achieve the economies of scale necessary for it to become profitable. In that regard and because of its severely distressed financial condition, the Company is exploring a possible merger with one or more companies. However, there is no assurance the Company's efforts will be successful in that connection. In the event the Company is not successful in pursuing a potential merger, it is likely that it will continue to operate through the ten stores currently owned which have historically provided insufficient revenues to enable the Company to operate profitably. The Company may also explore the possibility of selling its video stores although no assurance can be given that it would be successful in that regard. -11- Capital Expenditures During the three-month period ended March 31, 1996, the Company's capital expenditures, relating to the purchase of videocassette rental films and furniture and fixtures, were, respectively, approximately $409,000 and $2,000 compared to $357,000 and $67,000, during the same period in 1995. The Company does not anticipate significant increases in capital expenditures for the remainder of the current year other than the replenishment of videocassette rental films during the normal course of business. Material Changes in Financial Condition Assets: Total assets decreased by approximately $15,000 between December 31, 1995 and March 31, 1996, primarily due to the effect of the amortization of assets in the normal course of business, which more than offset an increase in cash provided from store operations during the three-month period ended March 31, 1996. Liabilities: Total liabilities decreased approximately $13,000 between December 31, 1995 and March 31, 1996, primarily due to the payment of obligations in the normal course of business. Stockholders' Deficit: Between December 31, 1995 and March 31, 1996, the increase in stockholders' deficit was due to the loss of approximately $1,200 for the three-month period ended March 31, 1996. Material Changes in Results of Operations Rental revenues increased approximately $86,000, or 8%, during the comparative period ended March 31, 1996, when compared to the same period in 1995. The increase is primarily related to increased purchases of videocassette rental films and more favorable rental-weather conditions during the 1996 period. Merchandise sales decreased approximately $9,000, or 3%, during the comparative period ended March 31, 1996. The decrease is made up of (1) the loss of approximately $71,000 in revenue from music products no longer sold in 1996, and (2) from an increase in other merchandise sales of approximately $62,000, or 34%, from an increase in the sale of videocassette films during the 1996 period. -12- Additionally, there were only 10 stores in operation during the comparative period ended March 31, 1996, compared with 11 stores in operation during the same period of 1995. Cost of goods sold decreased approximately $36,000 or 11% as a percentage of merchandise sales during the comparative periods due primarily to lower merchandise inventory reserves during 1996. The Company completed the discontinuance of music product sales in its superstores during the three-month period ended March 31, 1995. Store payroll, store rents and other store operating expenses decreased approximately $28,000, $16,000 and $12,000, or 10%, 7% and 10%, respectively, during 1996 primarily related to the Company's continuing efforts to reduce operating costs in its superstores. Selling and administrative expenses decreased approximately $73,000 or 35% during the 1996 comparative period primarily due to the Company's continuing efforts to reduce overhead costs. Professional and consulting fee expenses decreased approximately $12,000 or 24% during the 1996 comparative period primarily due to lower legal fee costs. Merger and acquisition expenses decreased approximately $738,000 during the period ended March 31, 1996 due primarily to the termination of the Company's previously reported acquisition program during September 1995. Loss on disposal of videocassette rental inventory increased approximately $17,000 or 46% due primarily to the increase in the number of videocassette rental films sold at less than carrying value during the comparative period ended 1996 to provide additional cash flow for operations. The gain on settlement of debt of approximately $396,000 during the comparative period ended 1995 was primarily attributable to the discounted cash settlement of approximately $1,006,000 of debt. Interest expense increased approximately $11,000 during the comparative period ended 1996 primarily due to the interest expense relating to the increase in notes payable outstanding at March 31, 1996 when compared to March 31, 1995. As a result of the foregoing, the Company incurred a net loss of approximately $1,200 during the period ended March 31, 1996. -13- PART II - OTHER INFORMATION - - - --------------------------- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- The exhibits listed in the Index to Exhibits appearing on Page E-1. (b) Reports on Form 8-K ------------------- None. -14- SIGNATURES ---------- In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHOICES ENTERTAINMENT CORPORATION Date: May 10, 1996 By: /s/ Ronald W. Martignoni --------------------------------- Ronald W. Martignoni Chief Executive Officer Date: May 10, 1996 By: /s/ Lorraine E. Cannon ------------------------------- Lorraine E. Cannon Chief Financial Officer -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) By-Laws, as amended (3) 4(a) Form of Certificate Evidencing Shares of Common Stock (4) (b) Form of 5% Promissory Note (2) 10(a) Non-Employee Director Stock Option Agreement between Registrant and Fred E. Portner (5) (b) Bonus Plan for 1996, as amended (5) 27(a) Financial Data Schedule (5) ___________________________ (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 Quarterly Report on Form 10-QSB, for the quarter ended September 30, 1995 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 herewith. E-1 EX-10.A 2 STOCK OPTION AGREEMENT Exhibit 10(a) THIS OPTION HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH BOTH THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND THE RESTRICTIONS CONTAINED HEREIN. THIS OPTION HAS NOT BEEN REGISTERED UNDER THE ACT. STOCK OPTION AGREEMENT ---------------------- THIS STOCK OPTION AGREEMENT (hereinafter the "Agreement"), is entered into under seal as of this 27th day of September, 1995 by and between CHOICES ENTERTAINMENT CORPORATION, a Delaware Corporation (hereinafter the "Corporation"), and Fred E. Portner, a resident of the Commonwealth of Virginia (hereinafter the "Optionee"). R E C I T A L S - - - - - - - - WHEREAS, the Corporation now desires to provide for the grant to the Optionee of an option to purchase certain shares of the Common Stock of the Corporation, upon certain stated terms and conditions. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, and for other good and valuable consideration both the receipt and legal sufficiency of which are hereby acknowledged, the parties hereby specifically agree under seal as follows: 1. Grant of Option. In exchange for good and valuable consideration and --------------- Ten Dollars ($10.00) paid in hand by the Optionee to the Corporation, the Corporation hereby grants to the Optionee, subject to the provisions hereof, the right, privilege and option to purchase up to, but not exceeding, one hundred- thousand (100,000) shares of the Common Stock of the Corporation, par value One Cent ($.01) per share (hereinafter the "Option"), at a per share exercise price of $0.17. 2. Manner of Exercise. The Option granted pursuant to this Agreement may ------------------ be exercised by the Optionee at any time during the period of time commencing on the date one (1) year from the date of this Agreement and terminating at 5:00 p.m., prevailing New York time, on September 27, 2000 (hereinafter the "Expiration Date"). Said Option may be exercised from time to time prior to said Expiration Date, but in no instance for less than Two Thousand Five Hundred (2,500) shares of the Common Stock of the Corporation at any one (1) time (unless lesser number of shares then be the maximum number subject to exercise at that time and, if such is the case, the Optionee must exercise in toto, and -- ---- not in part, all such shares subject to exercise at that time). It is expressly understood that any and all Options not exercised prior to the Expiration Date shall expire immediately and automatically thereon and become null and void without any further act or deed whatsoever at that time. 3. Exercise of Option. The Option granted by this Agreement, to the ------------------ extent the same is exercisable in accordance with the provisions set forth in Section 2 hereof, may be exercised only by delivering to the Secretary of the Corporation written notice of exercise in the form of the Notice of Exercise, attached hereto as Exhibit A and incorporated by reference herein, together with payment in the form of cash, check, bank draft or money order payable to the Order of Corporation in an amount equal to the total exercise price as set forth in Section 1 hereof (hereinafter the "Exercise Price") for that number of shares purchased pursuant to said Notice of Exercise and a written statement that the shares are being purchased for the Optionee's own account, for investment only, and not with a view to distribution. This statement will not be required in the event that the offering of the securities pursuant to this Agreement is then registered under the federal Securities Act of 1933, as amended (hereinafter the "Act"), and any and all applicable similar state securities laws (hereinafter the "State Acts"). Within thirty (30) days after delivery of any Notice of Exercise as set forth hereinabove, the Corporation shall cause certificates for the number of shares of the Common Stock of the Corporation with respect to which such Option is exercised to be issued in the name of the Optionee. 4. Option Stock. Any shares issued upon the exercise of the Option ------------ granted hereby shall be either authorized but unissued or reacquired shares of the Corporation's common stock, par value One Cent ($.01) per share (any such shares issued pursuant to such exercise, hereinafter the "Option Stock"). 5. Option Transfer Restrictions. The Option granted pursuant to this ---------------------------- Agreement may not be transferred, assigned, pledged, sold, donated, hypothecated or otherwise disposed of in any way whatsoever, shall not be subject to attachment or similar process, and may be exercised, subject to the restrictions contained herein, only by the Optionee. Upon any attempt to transfer the Option granted pursuant thereto, or to assign, pledge, hypothecate, sell, donate or otherwise dispose of the same in any manner whatsoever, not in strict accordance with the provisions hereof, or upon the levy of any execution, attachment, or similar process upon such option, the Option shall immediately and automatically become null and void and without any force or effect whatsoever. 6. Optionee Not a Stockholder. The Optionee shall not be deemed for any -------------------------- purpose to be a stockholder of the Corporation with respect to any shares as to which the Option granted hereunder has not been exercised in strict accordance hereof, with payment of the Exercise Price and issuance of certificates made as provided herein. 7. Optionee's Representations & Warranties; Acknowledgement of Certain ------------------------------------------------------------------- Facts. - - - ----- (a) The Optionee acknowledges that any and all securities to be acquired pursuant to this Agreement have not been registered under either the Act or the State Acts. Accordingly, the Optionee represents and warrants that the Option granted hereby and any Option Stock acquired pursuant hereto will be acquired for its own account and without a view to, the offer, offer for sale, or any sale in connection with, the distribution of either such Option or the Option Stock represented by such Option. The Optionee further represents and warrants that it will hold such Option Stock indefinitely unless subsequently registered under the Act and the State Acts or unless exemption from such registration is available and an opinion of counsel for the Corporation, in form and substance satisfactory to the Corporation, is obtained to that effect. Consequently, all certificates representing shares of Option Stock issued upon the exercise of the Option, or part thereof, shall bear a conspicuous legend in substantially the following form: "The securities represented by this certificate have not been registered under the Federal Securities Act of 1933 (the "Act") or applicable state securities laws (the "State Acts") and shall not be sold, pledged, hypothecated, donated, or otherwise transferred (whether or not for consideration) by the holder except upon the issuance to the Corporation of a favorable opinion of its counsel and/or the submission to the Corporation of such other evidence as may be satisfactory to counsel for the Corporation, to the effect that any such transfer shall not be in violation of the Act and the State Acts." (b) The Optionee recognizes that the securities to be acquired pursuant to this Agreement are highly speculative and involve a high degree of risk. The Optionee further recognizes that the Option granted hereby is not transferable except as specifically set forth herein and that the transferability of shares of the Option Stock is significantly restricted. The Optionee acknowledges that it has sufficient financial means to be able to sustain the loss of the amount necessary to exercise the Option or part thereof, should it choose to do so. The Optionee expressly recognizes and specifically acknowledges that the percentage of the Corporation's equity represented by this Option is subject to substantial dilution in any one of a variety of means, including, but not limited to, by way of a future issuance of stock, stock split, reverse stock split, stock dividend or other distribution, reclassification of outstanding shares, recapitalization or otherwise. (c) The parties agree that if the Corporation shall be advised by its legal counsel that the issuance of securities or transfer of the Option pursuant to this Agreement is not permitted under the Act or the State Acts, the Corporation may, in its discretion, defer either the delivery of any Option Stock to the Optionee or the transfer of the Option until such time as the same would be permitted by the Act and the state Acts, including by effecting registration of the same. The Optionee shall have no right to demand or force the Corporation to effect such registration. (d) The Optionee hereby acknowledges that the Corporation has provided it with the most recent financial statements of the Corporation, all prepared by the independent certified public accountant engaged by the Corporation, and further acknowledges that the Corporation has provided it with an opportunity to ask questions of and to receive answers from a person authorized to act on behalf of the Corporation concerning any aspect of the Corporation's present or future financial or business status and prospects. At reasonable times prior to the exercise of the Option, or part thereof, the Optionee may request and the Corporation shall thereafter again provide the Optionee with a balance sheet, a profit and loss statement, and a statement of changes in capital of the Corporation for the preceding year, all prepared by the independent certified public accountant then engaged by the Corporation, and furthermore, shall again provide the Optionee with an opportunity to ask questions of and to receive answers from any person authorized to act on behalf of the Corporation concerning any aspect of the Corporation's present and future financial or business status. (e) The Optionee represents and warrants that it is knowledgeable in business affairs and is a sophisticated investor with significant investment experience and has had the opportunity to discuss the suitability of both the purchase of this Option and the acquisition of the shares of the Option Stock with both its legal counsel and financial accountant. 8. Further Assurances. The parties hereto hereby agree to do such ------------------ further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as either may at any time reasonably request in order to better assure and confirm unto each party their respective rights, powers and remedies conferred hereunder. 9. Specific Performance. The parties hereto hereby expressly recognize -------------------- and acknowledge that extensive and irreparable damage would result in the event that this Agreement is not specifically enforced. Therefore, their respective rights and obligations hereunder shall be enforceable in a court of equity by a decree of specific performance and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies and any and all other remedies provided for in this Agreement shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any party may have under this Agreement or otherwise. 10. Notices. Any notice, payment, demand or any other communication ------- required or permitted to be given hereunder shall be either in writing and mailed, telegraphed or delivered by hand to the applicable party or parties at the address(es) indicated below: If to the Corporation: Choices Entertainment Corporation 220 Continental Drive, Suite 102 Newark, DE 19713 Attn: Ronald W. Martignoni, President If to the Optionee: Fred E. Portner 121 Montgomery Place Alexandria, VA 22314 or, as to each party at such other address(es) as may be designated from time to time by such party or parties by like notice to the other parties, complying with this section. All such notices, payments, demands or other communications shall be deemed validly given and legally effective when: (a) deposited in the United States postal system, by either certified or registered mail, postage prepaid thereon and return receipt requested (in the case of notice via mail); --- (b) handed over, delivered, or otherwise deposited with the telegraph company for transmission (in the case of telegraphic notice); or (c) placed in the hands of a competent adult authorized to accept the same (in the case of notice via --- hand delivery). 11. Severability. If any term or provision of this Agreement is held or ------------ deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, this Agreement shall be ineffective only to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement. 12. Entire Agreement; Amendment. This Agreement constitutes the entire --------------------------- agreement of the parties with regard to the specific subject matter hereof and supersedes all prior written and/or oral understandings between the parties. As the final written expression of all of the agreements and understandings among the parties hereto, this Agreement is an exhaustive and complete expression of the parties' intent and therefore may be modified only by a writing signed by all of the parties. 13. Waiver. Any waiver by either party of a breach of any provision of ------ this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall neither be considered a waiver nor deprive that Party of any right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing and signed by the Party to be charged therewith. 14. Binding Effect. This Agreement shall be binding upon, and inure to -------------- the benefit of, the heirs, personal representatives, legal successors and assigns of the respective parties hereto. Neither party shall assign this Agreement without the written consent of the others and any attempted assignment without said consent shall be null, void and without any effect whatsoever ab -- initio. - - - ------ 15. Construction. This Agreement shall be governed, enforced, performed ------------ and construed in accordance with the laws of the State of Delaware (excepting those conflicts of laws provisions which would serve to defeat application of Delaware law). 16. Counterparts. Provided that all parties hereto execute a copy of this ------------ Agreement, this Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 17. Headings. The headings contained herein are included solely for ease -------- of reference and in no way shall limit, expand or otherwise affect either the substance or construction of the terms and conditions of this Agreement or the intent of the Parties hereto. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed under seal as of the day and year first above written. WITNESS/ATTEST: CORPORATION: CHOICES ENTERTAINMENT CORPORATION By: /s/ Lorraine E. Cannon By: /s/ Ronald W. Martignoni ---------------------------- ------------------------------ Lorraine E. Cannon Ronald W. Martignoni Secretary Chief Executive Officer OPTIONEE: /s/ Ronald W. Martignoni /s/ Fred E. Portner (SEAL) ------------------------------- --------------------------- EXHIBIT A --------- NOTICE OF EXERCISE TO: Secretary Choices Entertainment Corporation ___________________, 19___ RE: Exercise of Stock Option. ------------------------ The undersigned, pursuant to the provisions set forth in that certain _________________, 19___ Stock Option Agreement (hereinafter the "Agreement"), hereby exercises his option under said Agreement and subscribes for and purchases _________________________________ (___________) shares of the Common Stock, par value One Cent ($.01) per share, of Choices Entertainment Corporation (hereinafter the "Corporation"), and makes payment herewith in full therefore by the present delivery of its check, drawn in the amount of _____________ __________________________________ Dollars and ____________ Cents ($____________), representing the aggregate exercise price for the shares hereby purchased, as provided for in the Agreement. 1. In connection herewith, the undersigned hereby expressly represents, warrants and covenants under seal as follows: (i) That the shares of Common Stock obtained by the undersigned pursuant to this Notice of Exercise (hereinafter collectively the "Shares") are being acquired by the undersigned for his own account with the present intention of holding such Shares for purposes of investment, and that he has no intention of selling such securities in a public distribution or otherwise in violation of either the Federal securities laws or any applicable State securities laws. (ii) That the Shares will be held by the undersigned indefinitely unless subsequently registered under the Federal Securities Act of 1933, as amended (hereinafter the "Act"), and any and all applicable similar state securities acts (hereinafter the "State Acts"), or unless an exemption from such registration is available and an opinion of counsel which (to the Corporation's reasonable satisfaction) is knowledgeable in securities law matters is obtained to that effect and delivered to the Corporation. (iii) That the undersigned has made such investigations of the Corporation and has received all information and data that the undersigned has requested which he considers necessary in order to reach an informed decision as to the advisability of purchasing the Shares. (iv) That the undersigned is knowledgeable in business affairs and is a sophisticated investor with significant investment experience and has had the opportunity to discuss the suitability of the acquisition of the shares with both his legal counsel and financial accountant. 2. Also in connection herewith, the undersigned specifically acknowledges under seal as follows: (i) That the Corporation has provided the undersigned with the most recent Financial Statements of the Corporation, including but not limited to, a balance sheet, a profit and loss statement and a statement of changes in financial condition, all as at the end of the most recent fiscal year and prepared by the independent Certified Public Accountant engaged by the Corporation. (ii) That the Corporation has provided the undersigned with an opportunity to ask questions of and to receive answers from a person authorized to act on behalf of the Corporation concerning any aspect of the Corporation's financial or business status. (iii) That, if the Shares have not been registered under either the Act or the State Acts, the Shares cannot be resold unless subsequently registered under the Act and the State Acts unless an exemption from such registration is available and an opinion of counsel which (to the Corporation's reasonable satisfaction) is knowledgeable in securities law matters is obtained to that effect and delivered to the Corporation. (iv) That, the Shares issued, directly or indirectly, pursuant to this Notice of Exercise have not been registered under the Act and the State Acts, and the stock certificates of the Corporation that will evidence such Shares will be imprinted with a conspicuous legend in substantially the following form: The securities represented by this certificate have not been registered under the federal Securities Act of 1933, as amended (the "Act"), or applicable state securities laws (the "State Acts"), and shall not be sold, pledged, hypothecated, donated or otherwise transferred (whether or not for consideration) unless subsequently registered under the Act and all applicable State Acts, or unless an exemption from such registration is available and an opinion of counsel, such counsel to be satisfactory to the Corporation, is provided to that effect. IN WITNESS WHEREOF, the undersigned has executed, sealed and delivered this Notice of Exercise this ____ day of ___________, 19__. WITNESS: ______________________________ ______________________________ EX-10.B 3 BONUS PLAN Exhibit 10(b) CHOICES ENTERTAINMENT CORPORATION BONUS PLAN FOR FISCAL YEAR ENDING DECEMBER 31, 1996, AS AMENDED Choices Entertainment Corporation (the "Corporation") has adopted a Bonus Plan (the "Plan") with regard to certain key employees for the fiscal year ending December 31, 1996, as an inducement and incentive to their serving with increased efforts during the year then ending, upon and subject to the following terms and conditions: 1. Participants. Participation in the Plan shall be limited to the ------------ following key employees (the "Participants") of the Corporation: Ronald W. Martignoni, Lorraine E. Cannon, Brian Roach and Mark Wiltshire, and shall be in addition to any other compensation to which they may otherwise be entitled. The right of any Participant to receive a bonus under the Plan is subject to such Participant's continued employment by the Corporation through December 31, 1996, provided, however, that any Participant terminated without cause prior to December 31, 1996, shall be entitled to receive a pro rata portion of any bonus --- ---- such Participant would otherwise have received had such Participant remained employed by the Corporation through December 31, 1996. Notwithstanding the foregoing, nothing in this Plan shall grant to any Participant any right to continued employment by the Corporation, or create any employment obligation on behalf of the Corporation. 2. Bonus Pool. A bonus pool for distribution to Participants under the ---------- Plan shall consist of 50% of the positive Operating Cash Flow for the fiscal year ending December 31, 1996, plus those costs, if any, incurred during the fiscal year then ending in connection with the opening of new stores and in connection with any litigation, provided, however, that the bonus pool under Plan shall in no circumstances exceed $50,000.00 in the aggregate. For purposes of the Plan, Operating Cash Flow for the fiscal year ending December 31, 1996, shall mean operating income for such fiscal year, as determined in accordance with generally accepted accounting principles, plus non-cash expenses, such as film amortization, used film cost of goods sold, depreciation and interest not paid (which, by the terms of the obligation to which it relates, may be capitalized), less net film purchases. 3. Distributions. The Bonus Pool shall be equally divided among the ------------- Participants then employed by the Corporation on December 31, 1996, subject to any pro rata payments pursuant to Paragraph 1, and shall be paid, along with any --- ---- pro rata payments, in accordance with Paragraph 4 hereof. - - - --- ---- 4. Payment. Distributions, if any, under the Plan shall be paid following ------- the completion of the Corporation's audit for the fiscal year ending December 31, 1996, but in no event later than April 30, 1997, provided, however, that such distributions, if any, may be paid, in the discretion of the Corporation, in two equal payments, on April 15, 1997, and June 15, 1997. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF CHOICES ENTERTAINMENT CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 MAR-31-1996 130,631 0 9,013 0 137,141 295,086 5,216,515 4,282,550 1,542,367 1,557,435 0 0 0 220,044 (915,112) 1,542,367 1,359,105 1,359,105 224,795 224,795 1,121,232 0 14,279 0 0 0 0 0 0 (1,201) (0.00) (0.00)
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