FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ___________.
Commission file number 0-27219
FAMOUS FIXINS, INC.
(Exact name of registrant as specified in its charter)
New York 133865655
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
250 West 57th Street, Suite 2501, New York, New York 10107
(Address of principal executive offices)
(212) 245-7773
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of November 11, 1999,
the issuer had 10,462,624 shares of common stock, par value $.001 per share,
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
FAMOUS FIXINS, INC.
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1999
BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 4
SEPTEMBER 30, 1999
STATEMENTS OF OPERATIONS FOR THE NINE MONTHS AND 6
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS 7
ENDED SEPTEMBER 30, 1999
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED 8
SEPTEMBER 30, 1999 AND 1998
NOTES TO FINANCIAL STATEMENTS 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 12
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES 16
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1999
BALANCE SHEETS AS OF DECEMBER 31, 1998 AND
SEPTEMBER 30, 1999
STATEMENTS OF OPERATIONS FOR THE NINE MONTHS AND
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
FAMOUS FIXINS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
A S S E T S
------------
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 19,500 $ 343,648
Accounts receivable 13,613 641,000
Merchandise inventory 27,420 79,868
Prepaid expenses and other current assets 50,000 74,307
--------- -----------
TOTAL CURRENT ASSETS 110,533 1,138,823
--------- -----------
PLANT AND EQUIPMENT
- -------------------
Furniture and fixtures 9,309 9,309
Machinery and equipment 9,406 9,406
--------- -----------
18,715 18,715
Less: Accumulated depreciation 3,578 5,940
--------- -----------
NET PLANT AND EQUIPMENT 15,137 12,775
--------- -----------
OTHER ASSETS
- ------------
Security deposits 2,400 2,400
--------- -----------
$128,070 $ 1,153,998
========= ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
- -------------------
Current installments of long-term note
payable to bank $ 15,432 $ 16,893
Accounts payable and accrued expenses 134,138 772,121
Taxes payable - other than on income 1,643 3,165
Income taxes payable 625 625
Note payable to related party 134,303 -
Subscribers' deposits on common stock, net 12,500 -
--------- -----------
TOTAL CURRENT LIABILITIES 298,641 792,804
--------- -----------
LONG-TERM LIABILITY
- -------------------
Long-term note payable to bank, net of
current installments 25,253 22,247
--------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
- ------------------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
6,883,891 shares in 1998; 10,462,624
shares in 1999 6,883 10,462
Additional paid-in capital 662,937 1,357,299
Accumulated deficit (865,644) (975,064)
--------- -----------
(195,824) 392,697
Less: Common stock subscription receivable - 53,750
--------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (195,824) 338,947
--------- -----------
$ 128,070 $ 1,153,998
========= ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
FAMOUS FIXINS, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $2,178,859 $ 255,774 $ 981,673 $ 64,205
---------- ---------- ---------- ---------
COST OF GOODS SOLD
- ------------------
Merchandise inventory at beginning of period 27,420 61,186 71,545 49,324
Purchases 1,194,682 154,878 530,874 51,869
Other direct costs 95,241 2,956 26,107 -
---------- ---------- ---------- ---------
1,317,343 219,020 628,526 101,193
Less: Merchandise inventory at end
of period 79,868 46,342 79,868 46,342
---------- ---------- ---------- ---------
TOTAL COST OF GOODS SOLD 1,237,475 172,678 548,658 54,851
---------- ---------- ---------- ---------
GROSS PROFIT ON SALES 941,384 83,096 433,015 9,354
OTHER INCOME - Management
and distribution services - 29,176 - 14,176
---------- ---------- ---------- ---------
TOTAL INCOME 941,384 112,272 433,015 23,530
---------- ---------- ---------- ---------
OPERATING EXPENSES
- ------------------
Selling expenses 663,764 474,112 234,566 172,815
General and administrative expenses 380,489 140,743 157,386 57,712
Interest expense, net 5,217 9,053 1,815 1,146
---------- ---------- ---------- ---------
TOTAL OPERATING EXPENSES 1,049,470 623,908 393,767 231,673
---------- ---------- ---------- ---------
OPERATING INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (108,086) (511,636) 39,248 (208,143)
PROVISION FOR INCOME TAXES 1,334 669 - 44
---------- ---------- ---------- ---------
NET INCOME (LOSS) $ (109,420) $ (512,305) $ 39,248 $(208,187)
========== ========== ========== =========
Net income (loss) per common share, basic $(0.011) $(0.080) $0.004 $(0.031)
Net income (loss) per common share,
assuming full dilution $(0.010) $(0.080) $0.003 $(0.031)
Weighted average number of common shares
outstanding:
Basic 10,042,183 6,371,947 10,462,624 6,632,724
Assuming full dilution 10,683,401 6,374,443 11,477,963 6,637,219
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
FAMOUS FIXINS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (109,420) $(512,305)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Noncash items:
Depreciation 2,362 1,738
Value of common stock issued for services
received by the Company 121,826 138,500
Value of warrants issued for services received
by the Company 222,131 153,800
(Increase) decrease in assets:
Accounts receivable (627,387) (36,882)
Merchandise inventory (52,448) 14,844
Prepaid expenses and other current assets (24,307) (47,773)
Increase in security deposits - (2,400)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 637,983 1,896
Taxes payable - other than on income 1,522 1,053
---------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 172,262 (287,529)
---------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payments for plant and equipment additions - (2,102)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 287,734 327,937
Proceeds of long-term debt 35,000 -
Repayments of long-term debt (36,545) -
Payments of note payable to related party (134,303) (5,755)
Decrease in stockholders' loans - (11,154)
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 151,886 311,028
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 324,148 21,397
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,500 9,522
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 343,648 $ 30,919
========== =========
Supplemental information about cash payments is as follows:
Cash payments for interest $ 12,230 $ 8,844
Cash payments for income taxes $ 625 $ 625
Supplemental disclosure of noncash financing activities:
Common stock subscription received for common shares issued $ 53,750 $ -
Issuance of common stock in exchange for plant and equipment
acquired $ - $ 3,475
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
FAMOUS FIXINS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
ADDITIONAL
PAID-IN COMMON STOCK
COMMON STOCK CAPITAL ACCUMULATED SUBSCRIPTION
TOTAL SHARES AMOUNT (DEFICIT) DEFICIT RECEIVABLE
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 $(195,824) 6,883,891 $ 6,883 $ 662,937 $ (865,644) $ -
Issuance of common shares in
a securities offering in
February 1999 - net 300,234 2,433,233 2,433 351,551 - (53,750)
Issuance of common shares for
services received 121,826 1,145,500 1,146 120,680 - -
Issuance of warrants for
services received 222,131 - - 222,131 - -
Net loss - nine months ended
September 30, 1999 (109,420) - - - (109,420) -
--------- ---------- ---------- ---------- ----------- -----------
BALANCE - SEPTEMBER 30, 1999 $ 338,947 10,462,624 $ 10,462 $1,357,299 $ (975,064) $ (53,750)
========= ========== ========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
NOTE 1. STATEMENT OF INFORMATION FURNISHED
----------------------------------
The accompanying unaudited interim financial statements have been
prepared in accordance with Form 10-QSB instructions and in the opinion of
management contains all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of Famous
Fixins, Inc. as of September 30, 1999, the results of operations for the nine
and three months ended September 30, 1999, and the statements of cash flows
and stockholders' equity for the nine months ended September 30, 1999. These
results have been determined on the basis of generally accepted accounting
principles and practices and applied consistently with those used in the
preparation of the Company's 1998 financial statements.
Certain information and footnote disclosures normally included in the
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
the accompanying financial statements be read in conjunction with the
financial statements and notes thereto incorporated by reference in the
Company's 1998 financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY
----------------------------------
The Company is a promoter and marketer of celebrity endorsed food
products and related merchandise. In April 1999, the Company introduced its
cereal product lines which currently include those bearing the likenesses,
names and endorsements of: Cal Ripken, Jr.; Sammy Sosa; Jeff Bagwell, Ken
Caminitti and Craig Biggio; Alex Rodriguez; The New York Mets; Barry Bonds;
Jake Plummer; and, of several other celebrity athletes as to whom contracts
have been signed and additional product lines are in various stages of
development, including Derek Jeter, Alonzo Mourning, John Elway and Tim
Duncan. In addition, the Company continues to distribute the Olympia Dukakis
Greek salad dressings line. These products are sold directly by the Company,
and also through distribution agreements with third parties, to supermarket
chains in various parts of the United States.
In August 1998, the Company received approval to trade its common
shares on the "OTC Bulletin Board".
In 1999, the Company has issued an additional 3,578,733 shares of
common stock in exchange for cash and services aggregating $475,810 which as
at September 30, 1999 (a) $300,234 was collected by the Company; (b) $53,750
is receivable under a stock subscription agreement; and (c) $121,826 has been
provided in various services. The offerings are pursuant to the exemptions
from registration with the Securities and Exchange Commission (SEC) provided
by Section 4(2) of the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, including Regulation D, and under
applicable state laws, rules and regulations.
9
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY (CONTINUED)
----------------------------------
The Company accounts for warrants issued to purchase common shares
in connection with services rendered to the Company using the fair value
method prescribed in SFAS No. 123 "Accounting for Stock-Based Compensation".
Stock-based compensation cost charged to operations for the nine months ended
September 30, 1999 was $222,131.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
--------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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.
MERCHANDISE INVENTORY
---------------------
Merchandise inventory is stated at the lower of cost or market value
on a first-in, first- out basis.
PLANT AND EQUIPMENT
-------------------
Plant and equipment are stated at cost, less accumulated
depreciation. The cost of major improvements and betterments to existing
plant and equipment are capitalized, while maintenance and repairs are
charged to expense when incurred. Upon retirement or other disposal of plant
and equipment, the profit realized or loss sustained on such transaction is
reflected in income. Depreciation is computed on the cost of plant and
equipment on the straight-line method, based upon the estimated useful lives
of the assets.
EARNINGS PER SHARE
------------------
In accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", basic earnings
per share is computed by dividing net income or loss by the number of
weighted-average common shares outstanding during the period. Earnings per
share, assuming dilution, is computed by dividing net income or loss by the
number of weighted-average common shares and common stock equivalents
outstanding during the period.
10
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
NOTE 3. SUBSEQUENT EVENTS
-----------------
As of October 19, 1999 the Company entered into two Convertible
Debenture and Warrants Purchase Agreements pursuant to which certain
investors agreed to purchase (a) an aggregate of $550,000 principal amount of
5% Convertible Debentures (Debentures), convertible into common stock, due
October 19, 2002 and (b) Warrants to purchase shares of the Company's common
stock.
At the initial closing date, the Company received an aggregate of
$450,000 in connection with the sale of $450,000 principal amount of
Convertible Debentures. A second closing date for the sale of the remaining
$100,000 of Debentures is subject to the effective date of a registration
statement described in the agreements and other conditions.
In accordance with the agreements, the Company issued an aggregate
of 138,152 warrants for the purchase of the Company's common stock
exercisable between October 30, 1999 and October 30, 2004 at a purchase price
of $.494 per share (125% of the market price on the closing date). The
Debentures may be exchanged, at the Company's option, for Convertible
Preferred Stock.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
"FORWARD-LOOKING" INFORMATION
- -----------------------------
This report on Form 10QSB contains certain "forward-looking statements",
which represent the Company's expectations and beliefs, including, but not
limited to statements concerning the Company's expected growth. The words
"believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements, which speak only as of the
date such statement was made. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's
control, and actual results may differ materially depending on a variety of
important factors, including the Company's ability to sign new celebrities,
obtain additional capital, and customer acceptance of the Company's products.
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION
AND THE COMPANY'S RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN
THIS REPORT.
MANAGEMENT'S DISCSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations
The Company did not engage in any substantive business activity from
approximately April 6, 1996 to May 28, 1998. On May 28, 1998, the Company
acquired Famous Fixins, Inc., a privately-held New York corporation formed on
November 29, 1995 ("FFNY") in a transaction viewed as a reverse acquisition.
FFNY was a promoter and marketer of celebrity endorsed food products, which
commenced business activities in 1995 and began sales operations in March
25, 1997. Pursuant to the reorganization, certain FFNY shareholders became
the controlling shareholders of the Company, all of the officers and
directors of the Company resigned and elected the nominees of the FFNY
shareholders in their places, and FFNY became a majority-owned subsidiary of
the Company. The following discussion describes the historical operations of
FFNY, giving effect to its reorganization with the Company in May 1998.
The Company experienced losses in 1997 and 1998, its first two years of
operations, primarily due to start-up costs, slowly developed marketing and
distribution operations and the lack of sufficient licenses from celebrities
for the use of their names and reputations in promoting food products.
Further, the Company was hampered by an insufficient amount of credit and
financing. The Company's sales were lower in 1998 than in 1997. The Company
moved its emphasis to celebrity athletes in 1999, and the Company has been able
to obtain a number of valuable licenses pursuant to which it has produced
dramatic growth in its revenues, and it has improved its ability to obtain
credit and financing.
12
<PAGE>
The Company's initial year of operations, ended December 31, 1997,
resulted in limited sales of its initial line of celebrity endorsed food
products, yielding a loss that year of $211,682 on revenues of $358,791, for
the reasons discussed above as to the start-up costs, lack of sufficient
capital, and limited line of products.
The Company's operating revenues for the year ended December 31,
1998 were $276,006, a decrease of 23.1% as compared to 1997. This decrease
primarily resulted from the lack of sufficient capital to market the
Company's products. Operating expenses increased by 52.6% over the
same period, primarily due to increased administrative and selling expenses.
The following table sets forth, for the period indicated, the
relationship between total sales and certain expenses and earnings items:
<TABLE>
Nine Months Ended Three Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 2,178,859 $ 255,774 $ 981,673 $ 64,205
COST OF GOODS SOLD $ 1,237,475 $ 172,678 $ 548,658 $ 54,851
GROSS PROFIT ON SALES $ 941,384 $ 83,096 $ 433,015 $ 9,354
OTHER INCOME $ 0 $ 29,176 $ 0 $ 14,176
OPERATING EXPENSES $ 1,049,470 $ 623,908 $ 393,767 $ 231,673
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAX $ (108,086) $ (511,636) $ 39,248 $ (208,143)
PROVISION FOR INCOME TAXES $ 1,334 $ 669 $ 0 $ 44
NET INCOME (LOSS) $ (109,420) $ (512,305) $ 39,248 $ (208,187)
</TABLE>
Sales for the three months ended September 30, 1999 increased
approximately 1,429% as compared to the same period in 1998. Sales for the
nine months ended September 30, 1999 increased approximately 752% as compared
to the same period in 1998. This increase resulted from an increase in the
number of celebrity athletes who granted licenses to the Company in that
period, and the launch of two new cereal products in the six months ended
June 30, 1999 and an additional three new cereal products in the three
months ended September 30, 1999.
Cost of goods sold for the three months ended September 30, 1999 were
$548,658, or approximately 56% of sales, as compared to $54,851, or
approximately 85% of sales, for the comparable period in 1998. Cost of goods
sold for the nine months ended September 30, 1999 were $1,237,475, or
approximately 57% of sales, as compared to $172,678, or approximately 68% of
sales, for the comparable period in 1998. Total cost of goods sold are
expected to increase as more products are sold; however, cost of goods sold are
expected to continue to decrease as a percentage of total sales as the
Company's sales volume grows.
13
<PAGE>
For the three months ended September 30, 1999 as compared to the same
period in 1998, operating expenses increased to $393,767 from $231,673, which
represents a decrease to 40% of sales from 361% of sales. For the nine
months ended September 30, 1999 as compared to the same period in 1998,
operating expenses increased to $1,049,470 from $623,908, which represents a
decrease to 48% of sales from 244% of sales. The increase in 1999 is due
mainly to an increase in the Company's product offerings from its initial
product, a line of salad dressings, to include five new cereal products and
the royalties thereon, an increase in advertising and promotional expenses,
and to a lesser extent, an increase in personnel from one full-time employee
to three full-time employees.
The Company operated profitably in the three months ended September 30,
1999, earning $39,248, or $.004 per share basic and $.003 per share diluted,
as compared to a net loss of $208,187, or $.031 per share basic and diluted,
for the corresponding three month period in 1998. For the nine months ended
September 30, 1999, the Company had a net loss of $109,420, or $.011 per
share basic and $.010 per share diluted, as compared to a net loss of
$512,305, or $.080 per share basic and diluted, for the corresponding three
month period in 1998. The revenues for the first nine months of 1999 do not
include sales of four new products endorsed by celebrity athletes, whose
products became available beginning October 1999. The Company anticipates
continued significant increases in revenues and profitability for the
reminder of 1999. This trend of increased revenues and increased
profitability is expected to continue now that the Company has already
launched nine new products for nine new celebrity athletes this year, and
expects to launch four to six more new products for four to six more new
celebrities through the balance of this year. While the addition of new
product lines may also create liquidity issues and demands on the Company's
limited resources, it is anticipated that the increased revenues generated
this year by the new products will have a favorable impact on income and
liquidity.
The Company's food sales business is not seasonal in nature, although
the Company may experience fluctuations in sales of athlete endorse products
in connection with the respective athlete's professional season. Inflation
is not deemed to be a factor in the Company's operations.
Financial Condition or Liquidity and Capital Resources.
To date, the Company has funded its operations through a line of
credit, bank borrowings, and borrowings from, and issuances of warrants and
sales of securities to, stockholders, and from operating revenues. The
Company's inability to obtain sufficient credit and capital financing has
limited operations and growth from inception.
14
<PAGE>
During 1998, the Company received capital of $492,637 in cash
and services (net of costs of $61,278) from securities offerings by issuing
778,711 shares of its common stock. In 1999, through September 30, 1999, the
Company has issued an additional 3,578,733 shares of common stock in exchange
for cash and services aggregating approximately $475,000 which as at September
30, 1999 (a) $300,000 was collected by the Company; (b) $54,000 is receivable
under a stock subscription agreement; and (c) $121,000 has been provided in
various services. The Company used substantially all of the net proceeds for
general operating expenses.
Pursuant to a business revolving credit agreement with The Chase
Manhattan Bank (Bank), the Bank agreed to make loans to the Company up to a
maximum credit line amount (currently $100,000). The Bank notifies the
Company as to the amount of the available credit line from time to time. The
Company may borrow from the Bank incremental principal amounts of at least
$2,500. Borrowings bear interest at the Bank's prime rate plus 1/2%.
Principal is payable in monthly installments equal to 1/36 of the outstanding
principal amount of the loan as of the date of the last loan made prior to
the date of such installment. Repayment of the Company's loan is guaranteed
by certain stockholders of the Company. The outstanding balance of the
long-term note payable to the Bank, net of current installments, at December
31, 1998 was $25,253 and at September 30, 1999 was $22,247.
The Company believes that its future growth is dependent on the degree
of success of current operations in generating revenues, and borrowings under
its current credit facility, and the ability to obtain additional credit
facilities, although there can be no assurance that the Company will be able
to obtain any additional financing the Company may require. In October 1999,
the Company entered into agreements pursuant to which certain investors agreed
to purchase an aggregate of $550,000 principal amount of 5% convertible
debentures due October 19, 2002 and 138,152 warrants to purchase shares of
the Company's common stock. At the initial closing date, the Company received
an aggregate of $450,000, and is to receive the remaining $100,000 subject to
the effective date of a registration statement. The warrants are exercisable
between October 30, 1999 and October 30, 2004 at a purchase price of $.494 per
share (125% of the market price on the closing date). At the Company's option,
the convertible debentures may be exchanged into convertible preferred stock.
The Company believes that such sources of funds will be sufficient to fund its
operations for the next twelve months.
Year 2000 Compliance
As the year 2000 approaches, the Company recognizes the need to
ensure its operations will not be adversely impacted by Year 2000 software
failures. The Company primarily uses licensed software products in its
operations with a significant portion of processes and transactions
centralized in one particular software package. During 1999, management
upgraded its software so that the Company's accounting system is Year 2000
compliant. The cost of the upgrade was not material. Also during 1999,
attention will be focused on compliance attainment efforts of vendors and
others, including key system interfaces with customers and suppliers.
Although it is not possible to quantify the effects Year 2000 compliance
issues will have on customers and suppliers, the Company does not anticipate
related material adverse effects on its financial condition or results of
operations.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On September 9, 1999, the Company entered into an agreement with First
Atlanta Securities, LLC for financial consulting services. Under the
agreement, as modified, First Atlanta Securities, LLC received warrants to
purchase 100,000 shares of common stock which have piggyback registration
rights in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933, and is entitled to a cash payment of $25,000 in lieu
of 53,191 shares of unregistered and restricted common stock. The warrants
may be exercised at any time after the first date after which the bid price
per one share of common stock exceeds $1.00 per share, and expire on September
9, 2004.
The Company issued, pursuant to license agreements, an aggregate of
275,000 warrants to purchase the Company's common stock, exercisable at
prices of $.20 to $.25 per share and expiring in September 2004, in
transactions deemed to be exempt under Section 4(2) of the Securities Act of
1933. The holders of 225,000 warrants are entitled to piggyback registration
rights on the Company's next registration statement under the Securities Act
for the common stock underlying the warrants.
16
<PAGE>
ITEM 5. OTHER INFORMATION
The Company has a non-exclusive worldwide license with Tim Duncan, a
basketball player with the National Basketball League team San Antonio Spurs,
dated as of August 27, 1999, granting the Company the right to use
the name, photograph, characterization, likeness, voice, image, and
biographical data of Tim Duncan in connection with the development,
manufacture, distribution, promotion, and sale of a limited edition cereal
product and related merchandise. The Company is required to distribute,
promote, and sell the products, at a minimum, in the greater San Antonio,
Texas area, North Carolina, and the U.S. Virgin Islands, and to provide for
the sale and distribution of products on Tim Duncan's web site,
www.slamduncan.com. The Company is responsible for all costs and expenses in
connection with the development, promotion, manufacturing, packaging,
shipping, distribution, sales and promotion of the products. The Company has
all rights, titles, and interests in and to the cereal product, their
formulae and secret ingredients. Under the agreement, Mr. Duncan is to
appear for a one-hour press conference and launch party during which he is
obligated to autograph 50 personalized jerseys and 150 boxes of the cereal
product for the Company's use as promotional materials. The Company is
required to maintain general liability insurance coverage of at least two
million dollars that survives the term of the license and name Mr. Duncan as
an additional insured party. The agreement provides that the Company shall
protect, indemnify and hold Mr. Duncan, his agents and representatives,
harmless from and against any and all expenses, damages, claims, suits,
actions, judgments and costs arising out of any action or proceeding by any
third party based upon: any act, omission, or material or alleged breach by
the Company of the terms of the license; the Company's use of the material
produced under the agreement; the manufacture, marketing, sale or use of the
products; the Company's unauthorized use of any individual intellectual
property right, trademark, service mark, or copyright in connection with the
licensed subject matter; any materials supplied by the Company in connection
with the services provided by Mr. Duncan under the agreement; or the
enforcement of the Company's indemnification obligation. The remuneration
due to Mr. Duncan is subject to upward adjustment to provide the remuneration
that the Company pays any other celebrity licensor for the Company's products
having comparable quantities of products manufactured or sold the Company.
Interest on any late payments to Mr. Duncan will be the lesser four percent
per month or the maximum rate permissible by law. Either party may terminate
the agreement upon forty-five days written notice if the other party breaches
a material term and fails to remedy the breach within thirty days. Mr.
Duncan may also terminate the agreement upon forty-five days written notice
if: the Company becomes insolvent, files a petition in bankruptcy or has a
petition in bankruptcy filed against it which is not dismissed within fifteen
days; the Company discontinues production and distribution of the products;
the Company uses products and materials not approved by Mr. Duncan; or the
Company uses the licensed subject matter in connection with any product or
service for which the Company does not have license rights under the
agreement. The Company may also terminate the agreement if Mr. Duncan is
convicted, after all appeals, of a felony crime involving moral turpitude or
a crime involving use or possession of controlled substances. The license
terminates on the end of the 1999-2000 National Basketball Association
season. If certain sales goals are met, the license is automatically
extended through the 2000-2001 NBA basketball season.
17
<PAGE>
The Company has a promotional agreement, dated September 10, 1999, with
Sterling Doubleday Enterprises, L.P. ("SDE"), owner and operator of the New
York Mets National League Baseball team, for promotional rights during the
1999 and 2000 baseball seasons in connection with the sale and marketing of a
cereal product identified by the name and logos of the New York Mets. Under
the agreement, the Company must maintain in effect throughout the term of the
agreement a license agreement with the Major League Baseball Player's
Association permitting it to feature the images of eight or more Major
League Baseball players on the cereal product, and if the Company decides to
feature individual players or groups of less than eight players on the
cereal product, the parties will obtain the consent of each such player
featured. In the event that the parties decide to feature individual Mets
players or groups of less that eight players on the cereal, SDE will
cooperate in good faith with the Company's efforts to obtain the consent of
the players for the use of their names and likenesses on the cereal product.
The selection of the participating players shall be as mutually agreed upon
by the parties, with each party's approval not to be unreasonably withheld.
(The parties have agreed that at least one version of the product will
feature Mike Piazza alone, and that such version will be produced and
distributed during at least 12 months within the period from the date of the
agreement through December 31, 2000.) Any compensation required to be paid
to such individual players shall be the responsibility of SDE, provided that
it shall not be unreasonable for SDE to withhold its approval of any
participating player based on the fee required by such player. Under the
agreement, SDE will promote the sale of the cereal product in: one
15-second advertisement displayed on the Diamond Vision scoreboard at Shea
Stadium, which advertisement will be displayed during each Mets home game
from August 6, 1999 through the end of the regular season, and in the 2000
baseball season, the advertisement will be displayed during each regular
season home game at Shea Stadium; two appearances by Mr. Met in 1999 and six
appearances in 2000 at mutually agreed upon retail stores that sell the
cereal product; SDE will allow the Company to distribute product samples at
Shea Stadium turnstiles during three mutually agreed upon regular season home
games in 1999 and five mutually agreed upon regular season home games in
2000; the Company may place advertisements of the cereal product on the backs
of 100,000 Mets pocket schedules in 2000; the cereal product will be
advertised in the 2000 New York Mets Yearbook. Under the agreement, the
Company will receive: the use of a 15-person Diamond View Suite at the
Stadium on one mutually agreed upon game date in 1999, and on three mutually
agreed upon games dates in 2000; four tickets to each of ten mutually agreed
upon Mets regular season home games in 1999 (for a total of 40 regular season
tickets) and the right to purchase four tickets to each of the first three
Mets 1999 playoff games at the Stadium; four tickets to each of 30 mutually
agreed upon regular season Mets home games in 2000 (for a total of 120
tickets); the right to conduct and promote one contest in each of 1999 and
2000 and to award to retail purchasers of the cereal product one grand prize,
three second prizes, and five third prizes for each contest. The grand prize
for the 1999 season is a weekend (two nights) trip for two to Mets spring
training in Port St. Lucie, Florida for which the Company will provide, at
its own expense, round-trip airfare, and SDE will provide hotel
accommodations, a car rental in Port St. Lucie, and two tickets to one spring
training game. The second place prize for 1999 is a Mets jersey autographed
by one player that appears on the 1999 cereal product. The third place prize
for 1999 is four tickets to one Mets regular season home game and the
opportunity to attend that game's batting practice on the field. The grand
prize for 2000 is an opportunity to appear in a non-official Mets team
photograph. The second place prize for 2000 is a "honorary bat boy or bat
girl" for one day (an opportunity to dress in a Mets uniform and to attend
batting practice on the field). The third place prize for 2000 is a National
league baseball signed by a player that appears on the 2000 cereal product.
The agreement shall be automatically renewed on an annual basis unless SDE
elects to terminate the agreement by providing written notice of such
termination on or before December 31, 2000, or on or before any anniversary
thereof, provided that SDE shall provide the same or comparable promotional
support and cooperation during each year during which the agreement remains
in effect.
18
<PAGE>
The Company has an exclusive worldwide license with JAE Endorsements
Inc., dated as of September 21, 1999, to develop, manufacture, distribute,
promote, and sell a limited edition cereal product bearing the name and
likeness of John Elway, the former quarterback of the National Football
League team Denver Broncos. The Company has the right to use the name,
photograph, characterization, likeness, voice, image, and biographical data
of John Elway, and the trademarks, logos, copyrights and all other authorized
material owned or controlled by JAE Endorsements Inc. in connection with the
development, manufacture, distribution, promotion, and sale of the cereal
product. The Company will also produce and sell merchandise, t-shirts,
sweatshirts, and hats, related to the cereal product. The Company is
responsible for all costs and expenses in connection with the development,
promotion, manufacturing, packaging, shipping, distribution, sales and
promotion of the products. The Company is responsible for handling all
fulfillment (including all check, money order and credit card transactions)
and tracking responsibilities from the sale of related merchandise from the
back panel or elsewhere on the packaging or promotional materials of the
cereal product. The Company has all rights, titles, and interests in and to
the Products, their formulae and secret ingredients, and their packaging and
labeling. Under the license, John Elway is to personally autograph 25 flat
cereal boxes for Licensee to use as promotional giveaways. The Company is
required to name John Elway as an additional insured party in its eight
million product liability insurance to cover all of the products produced in
connection with this license bearing his name and likeness, and will maintain
a twenty million umbrella policy naming John Elway as an additional insured
party. The agreement can only be assigned with the prior written consent of
the other party, except that the Company may assign the assignment to a
wholly-owned subsidiary or to an entity owning or acquiring a substantial
portion of the Company's stock or assets. The agreement provides that the
parties shall indemnify the other parties for actions, claims, suits,
losses, judgments, penalties, liabilities, damages, costs, and expenses
arising out of a party's breach of the terms of the agreement, or through the
gross negligence or intentional acts of its officers, directors, employees,
or representatives. The Company is also obligated to indemnify JAE
Endorsements, Inc. and John Elway, except for their negligent acts or
intentional misconduct, from third party claims, actions, suits, demands,
loses, damages and costs and expenses in connection their good faith
performance of their obligations under the license, provided that Company
shall be given prompt notice thereof. The license may be sooner terminated
upon forty-five (45) days written notice if: (a) the Company breaches a
material term of the agreement; (b) JAE Enterprises Inc. breaches a material
term of the agreement and fails to remedy said breach within thirty (30) days
of its receipt of written notice of the breach; (c) a party becomes insolvent
or files a petition in bankruptcy; (d) the Company discontinues production
and distribution of the products; or (e) Mr. Elway becomes the subject of
public dispute or scandal that materially and adversely affects his image.
The license terminates on December 31, 2000, unless certain sales goals are
met, in which case the license is automatically extended to December 31,
2001.
19
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit Number Description of Exhibit
- --------------- ----------------------
10.1 License Agreement between Famous Fixins, Inc. and
Tim Duncan (1)*
10.2 Promotion Agreement between Famous Fixins, Inc.
and Sterling Doubleday Enterprises, L.P. (2)*
10.3 Financial Consulting Agreement between Famous
Fixins, Inc. and First Atlanta Securities, LLC (3)
10.4 License Agreement between Famous Fixins, Inc. and
JAE Endorsements Inc. (4)*
11 Statement Concerning Computation of Per Share
Earnings is hereby incorporated by reference to
"Financial Statements" of Part I, contained
in this Form 10QSB.
27 Financial Data Schedule
______
(1) Incorporated by reference to Exhibit 10.18 of the Company's 10-SB/A
filed on October 26, 1999.
(2) Incorporated by reference to Exhibit 10.19 of the Company's 10-SB/A
filed on October 26, 1999.
(3) Incorporated by reference to Exhibit 10.20 of the Company's 10-SB/A
filed on October 26, 1999.
(4) Incorporated by reference to Exhibit 10.21 of the Company's 10-SB/A
filed on October 26, 1999.
* Confidential treatment has been requested for certain confidential
portions of this exhibit pursuant to Rule 24(b)(2) under the Exchange Act.
In accordance with Rule 24(b)(2), these confidential portions have been
omitted from this exhibit and filed separately with the Commission.
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FAMOUS FIXINS, INC.
Date: November 11, 1999 /s/ Jason Bauer
-------------------------------------
Jason Bauer
President and Chief Executive Officer
Date: November 11, 1999 /s/ Michael Simon
-------------------------------------
Michael Simon
Vice President
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRCATED FROM FINANCIAL
STATEMENTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 343,648
<SECURITIES> 0
<RECEIVABLES> 641,000
<ALLOWANCES> 0
<INVENTORY> 79,869
<CURRENT-ASSETS> 1,138,823
<PP&E> 12,775
<DEPRECIATION> 2,362
<TOTAL-ASSETS> 1,153,998
<CURRENT-LIABILITIES> 792,804
<BONDS> 0
0
0
<COMMON> 10,462
<OTHER-SE> 328,485
<TOTAL-LIABILITY-AND-EQUITY> 1,153,998
<SALES> 2,178,859
<TOTAL-REVENUES> 2,178,859
<CGS> 1,237,475
<TOTAL-COSTS> 1,237,475
<OTHER-EXPENSES> 1,044,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,217
<INCOME-PRETAX> (108,086)
<INCOME-TAX> 1,334
<INCOME-CONTINUING> (109,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (109,420)
<EPS-BASIC> (0.011)
<EPS-DILUTED> (0.010)
</TABLE>
