FORM 10-QSB/A
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 March 31, 2000
[ ] 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 1112, 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 [X] No [ ]
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 May 8, 2000,
the issuer had 12,773,187 shares of common stock, par value $.001 per share,
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
FAMOUS FIXINS, INC.
AMENDMENT NO. 1 TO FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2000
BALANCE SHEETS AS OF MARCH 31, 2000 AND 4
DECEMBER 31, 1999
INTERIM STATEMENTS OF OPERATIONS FOR THE THREE MONTH 6
ENDED MARCH 31, 2000 AND 1999
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE 7
MONTHS ENDED MARCH 31, 2000
INTERIM STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS 8
ENDED MARCH 31, 2000 AND 1999
NOTES TO INTERIM 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 6. EXHIBITS AND REPORTS ON FORM 8-K 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1999
BALANCE SHEETS AS OF MARCH 31, 2000 AND
DECEMBER 31, 1999
INTERIM STATEMENTS OF OPERATIONS FOR THE THREE MONTH
ENDED MARCH 31, 2000 AND 1999
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE
MONTHS ENDED MARCH 31, 2000
INTERIM STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999
NOTES TO INTERIM FINANCIAL STATEMENTS
3
<PAGE>
FAMOUS FIXINS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
MARCH 31, DECEMBER 31,
---------- ----------
2000 1999
---------- ----------
<S> <C> <C>
A S S E T S
------------
CURRENT ASSETS
--------------
Cash and cash equivalents $1,149,901 $ 475,325
Investments in marketable equity trading
securities 108,866 101,961
Accounts receivable, net 81,728 176,475
Merchandise inventory 89,398 69,542
Prepaid expenses 56,004 59,081
Stock subscriptions receivable (all collected
by April, 2000) 41,250 47,500
---------- ----------
TOTAL CURRENT ASSETS 1,527,147 929,884
---------- ----------
PLANT AND EQUIPMENT
-------------------
Furniture and fixtures 15,804 15,804
Machinery and equipment 29,817 25,576
---------- ----------
45,621 41,380
Less: Accumulated depreciation 10,003 8,089
---------- ----------
NET PLANT AND EQUIPMENT 35,618 33,291
---------- ----------
OTHER ASSETS
------------
Deferred debenture issuance costs, net 116,689 42,500
Security deposits 6,482 6,482
---------- ----------
123,171 48,982
---------- ----------
$1,685,936 $1,012,157
========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
FAMOUS FIXINS, INC.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
MARCH 31, DECEMBER 31,
---------- ----------
2000 1999
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
-------------------
Accounts payable and accrued expenses $ 523,631 $ 508,341
Due to customers 190,365 190,038
Taxes payable - other than on income 9,980 9,544
Income taxes payable 625 625
---------- ----------
TOTAL CURRENT LIABILITIES 724,601 708,548
---------- ----------
LONG-TERM LIABILITIES
---------------------
5% convertible debentures (principal
amount: 1999 - $450,000; 2000 - $200,000
due October, 2002) 179,969 389,586
0% convertible debentures (principal
amount - $1,000,000 due March, 2005) 336,250 -
Deferred rent 10,295 -
---------- ----------
TOTAL LONG-TERM LIABILITIES 526,514 389,586
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
--------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
12,773,187 shares in 2000;
10,462,624 shares in 1999 12,773 10,462
Additional paid-in capital 3,298,015 1,557,337
Accumulated deficit (2,825,967) (1,603,776)
---------- ----------
484,821 (35,977)
Less: Unused advertising barter credits 50,000 50,000
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 434,821 (85,977)
---------- ----------
$1,685,936 $1,012,157
========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
FAMOUS FIXINS, INC.
INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
----------- ---------
<S> <C> <C>
NET SALES $ 261,043 $ 32,805
COST OF GOODS SOLD
------------------
Merchandise inventory at beginning of year 69,542 27,420
Purchases 183,718 58,581
Other direct costs 63,565 10,309
----------- ---------
316,825 96,310
Less: Merchandise inventory at end of period 89,398 75,896
----------- ---------
TOTAL COST OF GOODS SOLD 227,427 20,414
----------- ---------
GROSS PROFIT 33,616 12,391
----------- ---------
OPERATING EXPENSES
------------------
Selling expenses 653,518 175,671
General and administrative expenses 258,711 88,969
Interest expense, net 343,123 2,878
----------- ---------
TOTAL OPERATING EXPENSES 1,255,352 267,518
----------- ---------
OPERATING LOSS BEFORE PROVISION FOR INCOME TAXES (1,221,736) (255,127)
PROVISION FOR INCOME TAXES 455 1,336
----------- ---------
NET LOSS $(1,222,191) $(256,463)
=========== =========
Net loss per common share, basic and diluted $(0.10) $(0.03)
Weighted average number of common shares outstanding,
basic and diluted 11,735,566 9,201,302
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
FAMOUS FIXINS, INC.
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
COMMON STOCK ADDITIONAL UNUSED
PAID-IN ACCUMULATED ADVERTISING
TOTAL SHARES AMOUNT CAPITAL DEFICIT BARTER CREDITS
----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE (DEFICIT) - JANUARY 1, 2000 $ (85,977) 10,462,624 $ 10,462 $ 1,557,337 $(1,603,776) $ (50,000)
Issuance of common shares on conversion of
convertible debentures, net 282,729 1,810,563 1,811 280,918 - -
Issuance of common shares for services
received 212,924 500,000 500 212,424 - -
Issuance of warrants for services received 247,336 - - 247,336 - -
Issuance of warrants and beneficial
conversion feature in connection with
convertible debentures issued 1,000,000 - - 1,000,000 - -
Net loss - Three months ended
March 31, 2000 (1,222,191) - - - (1,222,191) -
----------- ----------- ----------- ----------- ----------- --------------
BALANCE (DEFICIT) - MARCH 31, 2000 $ 434,821 12,773,187 $ 12,773 $ 3,298,015 $(2,825,967) $ (50,000)
=========== =========== =========== =========== =========== ==============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
FAMOUS FIXINS, INC.
INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,222,191) $ (256,463)
Adjustments to reconcile net loss to net cash
used in operating activities:
Noncash items:
Depreciation 1,914 803
Amortization 16,243 -
Deferred rent expense 10,295 -
Interest expense paid by issuance of
common stock 3,930 -
Component of interest expense attributable
to beneficial conversion feature of
debentures issued 325,000 -
Value of common stock issued for services
received by the Company 212,924 121,826
Value of warrants issued for services
received by the Company 247,336 41,397
Unrealized gain on investments in
marketable equity trading securities (6,905) -
(Increase) decrease in assets:
Accounts receivable 94,747 9,479
Merchandise inventory (19,856) (48,476)
Prepaid expenses and other current assets 3,077 (10,125)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 15,290 (36,861)
Due to customers 327 -
Taxes payable - other than on income 436 867
----------- ----------
NET CASH USED IN OPERATING ACTIVITIES (317,433) (177,553)
----------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payments for plant and equipment additions (4,241) -
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible
debentures, net 990,000 -
Proceeds from issuance of common stock, net - 188,109
Proceeds of long-term debt from bank - 35,000
Repayments of long-term debt to bank - (3,732)
(Increase) decrease in subscribers' deposits on
common stock, net 6,250 (12,500)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 996,250 206,877
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 674,576 29,324
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 475,325 19,500
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,149,901 $ 48,824
=========== ==========
Supplemental information about cash payments is
as follows:
Cash payments for interest $ 10,705 $ 2,910
Cash payments for income taxes $ 1,334 $ 625
Supplemental disclosure of noncash financing
activities:
Issuance of warrants in connection with
convertible debentures issued by the Company $ 675,000 -
Conversion of debentures to common stock $ 282,729 -
Common stock subscriptions received for common
shares issued - $ 165,873
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
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 March 31, 2000, and the results of operations, and
statements of cash flows and stockholders' equity for the three months ended
March 31, 2000. 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 1999 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 1999 financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY
----------------------------------
The Company is a promoter and marketer of celebrity and athlete
endorsed food products for sale in supermarkets, other retailers and over the
Internet. The Company develops, markets and sells specialty food products
based on the diverse professional, cultural and ethnic backgrounds of various
celebrities. The Company enters into licensing agreements with high profile
athletes and other celebrities and creates food products which include a line
of breakfast cereals and a line of salad dressings endorsed by the licensors.
The Company utilizes a network of food brokers to distribute its products
throughout the United States. Third party manufacturers produce the Company's
various food products.
The Company's current roster of high profile celebrities and athletes
who endorse food products that it promotes and markets includes the following,
among others:
Sammy Sosa of the Chicago Cubs;
Cal Ripken, Jr. of the Baltimore Orioles;
Jeff Bagwell, Craig Biggio, and Ken Caminiti of the
Houston Astros;
Derek Jeter of the New York Yankees;
Alonzo Mourning of the Miami Heat;
Jake Plummer of the Arizona Cardinals;
Peyton Manning of the Indianapolis Colts;
Tim Duncan of the San Antonio Spurs;
The New York Mets baseball team; and
Academy Award Winner actress Olympia Dukakis.
9
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY (CONTINUED)
----------------------------------
In February 2000, the Company received the remaining balance of
$100,000 (of an aggregate of $550,000) pursuant to 5% Convertible Debenture
and Warrants Purchase Agreements. In addition, the Company issued 1,810,563
shares of its common stock upon conversion of $350,000 principal amount of
such debentures, resulting in $200,000 principal amount outstanding at March
31, 2000.
In February 2000, the Company received $1,000,000 proceeds under a 0%
Convertible Debenture and Warrant Purchase Agreement. Pursuant to the
Agreement, the investors agreed to purchase, for $1,000,000, an aggregate of
$1,000,000 principal amount of debentures due March 2005, currently
convertible into common stock at a conversion price of $.40 per share (market
value of the Company's common stock was $.74 on the date of purchase), and
warrants to purchase 2,500,000 shares of the Company's common stock
exercisable between March 2000 and March 2005 at an exercise price of $.75 per
share.
The beneficial conversion feature of the $1,000,000 debentures and
the fair market value of the warrants (both of which are accounted for as
additional paid-in capital) is limited to the $1,000,000 proceeds received.
The Company has allocated $325,000 to the beneficial conversion feature, all
of which is accounted for as a component of current interest expense. The
remaining $675,000 is accounted for as a bond discount and is reflected as a
reduction of the carrying amount of the debentures. The discount is amortized
as a component of interest expense over the term of the debentures.
In February and March 2000, the Company issued an aggregate of
500,000 shares of its common stock and 500,000 warrants to purchase common
stock to two consultants in connection with services rendered to the Company
in the amount of $327,000. Of such amount, $212,924 is attributable to the
common stock issued and $114,076 is attributable to the warrants.
The Company accounts for warrants issued to purchase common stock 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 three months ended March
31, 2000 was $247,336, including the $114,076 of services described above.
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.
10
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
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.
No effect has been given to the conversion of warrants and debentures
to common stock inasmuch as such conversions would be anti-dilutive.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. "FORWARD-LOOKING" INFORMATION
This report on Form 10-QSB contains certain "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934.
Generally, the words "anticipates," "expects," "believes," "intends," "could,"
"may," and similar expressions identify forward looking statements. Forward-
looking statements involve risks and uncertainties. We caution you that while
we believe any forward-looking statement are reasonable and made in good
faith, expectations almost always vary from actual results, and the
differences between our expectations and actual results may be significant.
The following discussion and analysis of our results of operations and
our financial condition should be read in conjunction with the information set
forth in the financial statements and notes thereto included elsewhere in this
report.
MANAGEMENT'S DISCSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations
We did not engage in any substantive business activity from
approximately April 6, 1996 to May 28, 1998. On May 28, 1998, we acquired
Famous Fixins, Inc., a New York corporation ("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,
the controlling FFNY shareholders became the controlling shareholders, the
officers and the directors of our company.
The following table sets forth, for the period indicated, the
relationship between total sales and certain expenses and earnings items:
<TABLE>
Three Months Ended
March 31,
2000 1999
----------- -----------
<S> <C> <C>
NET SALES $ 261,043 $ 32,805
COST OF GOODS SOLD $ 227,427 $ 20,414
GROSS PROFIT ON SALES $ 33,616 $ 12,391
OPERATING EXPENSES $ 1,255,352 $ 267,518
OPERATING LOSS BEFORE PROVISION
FOR INCOME TAX $(1,221,736) $ (255,127)
PROVISION FOR INCOME TAXES $ 455 $ 1,336
NET LOSS $(1,222,191) $ (256,463)
</TABLE>
Sales for the three months ended March 31, 2000 increased approximately
696% as compared to the same period in 1999. This increase resulted from an
increase in the number of celebrity athletes who granted licenses to Famous
Fixins in that period, and the launch of nine new cereal products after
March 31, 1999.
12
<PAGE>
Cost of goods sold for the three months ended March 31, 2000 was
$227,427, or approximately 87% of sales, as compared to $20,414, or
approximately 62% of sales, for the comparable period in 1999. We offered
nine more products in the three months ended March 31, 2000 than in the three
months ended March 31, 1999, resulting in higher cost of goods sold, which we
expect to increase further as more products are available for sale. Although
cost of goods sold as a percentage of sales increased in the three months
ended March 31, 2000 as compared to the three months ended March 31, 1999, we
expect cost of goods sold to decrease as a percentage of total sales as our
sales volume grows.
Gross profit on sales for the three months ended March 31, 2000 was
$33,616, an increase of 171% as compared to the three months ended March
31, 1999 of $12,391. The increase in gross profits is attributable to our
cereal product line which was introduced beginning in April 1999.
For the three months ended March 31, 2000, as compared to the three
months ended March 31, 1999, operating expenses increased to $1,255,352 from
$267,518, which represents a 369% increase in operation expenses, and which
represents a decrease to 481% of sales from 815% of sales. The increase
in our operating expenses in the three months ended March 31, 2000 is due
mainly to an expansion of our operations, creation of new product lines, and
licensing fees, including the related costs of stock warrants issued, in
connection with new celebrity licenses obtained by us, and to a lesser
extent, an increase in personnel from one full-time employee to three
full-time employees. Operating expenses are expected to increase as more
products are sold; however, operating expenses are expected to decrease as a
percentage of total sales as our sales volume grows.
Our gross profits on product sales of our celebrity endorsed products
are substantially in excess of the portion of the licensing costs which are
computed and payable at specified percentages of product sales. However, the
ultimate profitability to Famous Fixins from each particular individual
celebrity license is dependent on total sales volumes of the related license
products inasmuch as we are required to bear fixed charges to income for the
cost of stock warrants issued which do not require cash outlays by us. During
the three months ended March 31, 2000, charges to income for stock warrants
related to licensing costs were approximately $62,000.
We operated at a loss in the three months ended March 31, 2000, losing
$1,222,191, or $0.10 per share basic and diluted, as compared to a net loss
of $256,463, or $0.03 per share basic and diluted, for the three months ended
March 31, 1999. The revenues for the first three months of 1999 do not
include sales of nine new products endorsed by celebrity athletes, whose
products became available beginning in April 1999. We anticipate
increases in revenues and gross profit in the remainder of fiscal year 2000.
We expect to launch two to four more new products for two to four more new
celebrities in the spring of 2000. We may not experience profitability in
fiscal year 2000 because we expect our costs of goods sold and operating
expenses to also increase significantly in the 2000 fiscal year. While the
addition of new product lines may also create liquidity issues and demands on
our 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.
13
<PAGE>
Included in the net loss of $1,222,191 are several substantial non-cash
charges to income aggregating approximately $785,000 relating to (a) the
issuance of $1,000,000 principal amount of convertible debentures and (b)
stock warrants and common stock shares issued for services rendered. In
February, we issued $1,000,000 principal amount of 0% convertible debentures,
which may be converted into common stock on a current basis, at a conversion
price of $.40 per share, the market value at the date of issuance of the
debentures being $.74. The beneficial conversion feature attributable to the
debenture issuance is required to be recognized in income, currently. We
have allocated $325,000 to the debenture's beneficial conversion feature and
such amount is reflected as a component of current interest expense. We also
issued common stock and warrants to purchase common stock to two consultants
for services rendered to us during the period, in the aggregate amount of
$327,000. The accounts also reflect charges, in the amount of $133,260 for
the three month period ended March 31, 2000, representing the allocable
service costs of outstanding stock warrants issued in connection with royalty
and employment agreements. There is no assurance that additional warrants or
other securities will not be issued, or that additional charges will not be
incurred for similar future transactions. Our business is to license names
of celebrities for consumer products, and to issue warrants for our common
stock to such celebrities as part of the licensing fee arrangements.
Accordingly, we anticipate the continuance of these types of charges against
earnings when we make additional licensing transactions with celebrities
and celebrity athletes or when we enter service agreements.
Our food sales business is not seasonal in nature, although we may
experience fluctuations in sales of athlete endorsed products in connection
with the respective athlete's professional season. Inflation is not deemed to
be a factor in our operations.
Financial Condition or Liquidity and Capital Resources.
To date, we have funded our 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. Our
inability to obtain sufficient credit and capital financing has
limited operations and growth from inception.
During 1998, we received capital of $492,637 in cash and services, net
of costs of $61,278, from securities offerings by issuing 778,711 shares of
Famous Fixins' common stock. In 1999, we issued an additional 3,578,733
shares of common stock in exchange for cash and services aggregating
approximately $476,000. As of December 31, 1999:
- we collected $306,000;
- $48,000 is receivable under a stock subscription agreement; and
- $122,000 has been provided in various services.
We used substantially all of the net proceeds for general operating expenses.
Pursuant to a business revolving credit agreement with The Chase
Manhattan Bank, the bank agreed to make loans to us for up to a maximum credit
line amount, which currently is $100,000. The bank notifies us as to the
amount of the available credit line from time to time. We 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 loan is guaranteed by certain of our stockholders. The
outstanding balance of the long-term note payable to the bank, net of current
installments, at December 31, 1998 was $40,685 and was repaid prior to
December 31, 1999.
14
<PAGE>
In October 1999, we 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 139,152 warrants to purchase
shares of Famous Fixins' common stock. At the initial closing date, we
received gross proceeds of $450,000, and are to receive the remaining $100,000
when this registration statement becomes effective. The warrants are
exercisable between October 30, 1999 and October 30, 2004 at a purchase price
of $.494 per share, which was 125% of the market price on the closing date.
At our option, the convertible debentures may be exchanged into convertible
preferred stock. On about February 23, 2000, debenture holders of $150,000 in
principal amount converted the debentures into 1,000,000 shares of common
stock. On about February 24, 2000, a debenture holder of $76,240 in principal
amount with interest converted the debentures into 508,264 shares of common
stock. On about March 30, 2000, a debenture holder of $127,691 in principal
amount with interest converted the debentures into 302,299 shares of common
stock.
In March 2000, we entered into an agreement pursuant to which certain
investors agreed to purchase an aggregate of $1,000,000 principal amount of
convertible debentures due March 13, 2005 and warrants to purchase 2,500,000
shares of our common stock. We received gross proceeds of $1,000,000 from
the transaction. The holders of the convertible debentures are entitled to
convert the debentures into shares of common stock at a conversion price of
$.40 per share. The warrants are exercisable before March 13, 2005 at a
purchase price of $.75 per share. We believe that such sources of funds
will be sufficient to fund our operations for the next twelve months.
We believe that our future growth is dependent on the degree of success
of current operations in generating revenues, and borrowings under our current
credit facility, and the ability to obtain additional credit facilities,
although there can be no assurance that we will be able to obtain any
additional financing that we may require.
The auditors' report to our financial statements for the year ended
December 31, 1999 cites factors that raise substantial doubt about our ability
to continue as a going concern. The factors are that we have incurred
substantial operating losses since inception of operations and as at December
31, 1999 reflect a deficiency in stockholders' equity. The auditors'
report states that although our management believes that it can achieve
profitable operations in the future and that we can raise adequate capital
and financing as may be required, there can be no assurance that future
capital contributions or financing will be sufficient for Famous Fixins to
continue as a going concern or that we can achieve profitable operations in
the future. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
Year 2000 Compliance
Famous Fixins has recognized the need to ensure its operations will
not be adversely impacted by Year 2000 software failures. Famous Fixins
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 Famous Fixins' accounting system is Year 2000compliant.
The cost of the upgrade was not material. During 1999, attention was
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, Famous Fixins does not anticipate
related material adverse effects on its financial condition or results
of operations.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 8, 2000, pursuant to a consulting agreement with Matthew
Markin, we agreed to issue to him up to 250,000 shares of common stock and
options to purchase up to 250,000 shares of common stock in exchange for
business consulting services in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933. Options to purchase the first
125,000 shares of common stock are exercisable at $.1875 per share. Options
to purchase the other 125,000 shares of common stock are exercisable at $.25
per share. We filed a registration statement on Form S-8 for the resale of
the securities. Markin represented to us that he had the experience and
knowledge in business and financial matters to evaluate the risks and merits
of the transaction.
On February 8, 2000, pursuant to a consulting agreement with Edward
DeFudis, we agreed to issue to him up to 250,000 shares of common stock and
options to purchase up to 250,000 shares of common stock in exchange for
business consulting services in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933. Options to purchase the first
125,000 shares of common stock are exercisable at $.1875 per share. Options
to purchase the other 125,000 shares of common stock are exercisable at $.25
per share. We filed a registration statement on Form S-8 for the resale of
the securities. DeFudis represented to us that he had the experience and
knowledge in business and financial matters to evaluate the risks and merits
of the transaction.
We entered into agreements, dated as of March 7, 2000, for the sale of
convertible debentures with a principal amount of $1,000,000 and warrants to
purchase 2,500,000 shares of common stock to three accredited investors in
transactions deemed to be exempt under Section 4(2) of the Securities Act of
1933. We received gross proceeds of $1,000,000 from the sales. The
convertible debentures are due March 13, 2005. The holders of the
convertible debentures are entitled to convert the debentures into shares of
common stock at a conversion price of $.40 per share. However, the maximum
number of shares of common stock that may be received upon the conversion of
the debentures by any one holder is 9.9% of our then-outstanding common stock
after the conversion, including any other shares of common stock held by the
holder. The warrants are exercisable before March 13, 2005 at a purchase
price of $.75 per share. Under the agreements, we were obligated to prepare
and file a registration statement under the Securities Act of 1933 for shares
of common stock issuable upon the conversion of the convertible debentures and
the warrants within 15 days of our filing of our Form 10K-SB for the year
ended December 31, 1999. If the registration statement is not timely filed
with the SEC by the required filing date, the registration statement is not
declared effective by the SEC within 90 days of the required filing date
or five days of clearance by the SEC to request effectiveness, but in no event
later than July 15, 2000, the registration statement is not maintained as
effective by us for the requisite period, or the additional registration
statement is not filed within thirty days or declared effective within ninety
days, then we are to pay each holder of the convertible debentures and
warrants, as liquidated damages, one percent of the aggregate market value of
shares of common stock purchaseable or purchased from Famous Fixins and held
by the holder for the first month of such default, and two percent for each
month of default thereafter until such registration statement has been filed,
and in the event of late effectiveness or lapsed effectiveness, one percent of
the aggregate market value of shares of common stock purchaseable or purchased
from Famous Fixins and held by the holder for the first month of such default
and two percent for each month of default thereafter until such registration
statement has been declared effective. The liquidated damages are not to
exceed $50,000 per month. As of May 8, 2000, we have not yet filed such
registration statement. We have agreed with the holders that each will hold
harmless the other against any losses, claims, damages or liabilities, joint
or several, including all reasonable costs of defense and investigation and
all reasonable attorneys' fees and expenses, to which they may become subject
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement, prospectus, or based upon the
omission or alleged omission to state therein a material fact, unless the
misleading or omitted information was provided by the other in connection with
the preparation of the registration statement or prospectus.
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On March 31, 2000, we issued to Sokolow & Associates, Inc. warrants to
purchase 20,000 shares of our common stock, exercisable for three years at
$.001 per share in exchange for business consulting services in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of 1933.
On April 3, 2000, pursuant to an employment agreement with Jody
King-Cheifetz, we agreed to issue to her options to purchase up to 304,000
shares of common stock in a transaction deemed to be exempted under Section
4(2) of the Securities Act of 1933. Options to purchase 4,000 shares of
common stock at $0.15 per share vested as of April 5, 2000. Options to
purchase 60,000 shares of common stock shall vest on October 1, 2000, and the
remaining options shall vest in equal increments over the subsequent four
years on October 1. The exercise price of first 60,000 options shall be $.15
per share. The exercise price of the remaining 240,000 options shall be equal
to a 50% discount from the closing bid price of the common stock on the last
trading date immediately preceding each vesting. In the event that
King-Cheifetz no longer serves as an employee of Famous Fixins on a continuous
basis through each vesting period, the unvested options shall terminate
immediately upon the termination of her employment. All options to purchase
up to 304,000 shares of common stock described above expire on April 3, 2005,
or as otherwise provided in the stock option agreement or employment
agreement. We filed a registration statement on Form S-8 for the resale of
4,000 shares of common stock. King-Cheifetz represented to us that she had
the business, financial and investment knowledge, experience and
sophistication to make a fully informed investment decision in entering the
transaction.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit Number Description of Exhibit
--------------- ----------------------
11 Statement Concerning Computation of Per Share
Earnings is hereby incorporated by reference to
"Financial Statements" of Part I, contained
in this Form 10QSB.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FAMOUS FIXINS, INC.
Date: July 14, 2000 /s/ Jason Bauer
-------------------------------------
Jason Bauer
President and Chief Executive Officer
Date: July 14, 2000 /s/ Michael Simon
-------------------------------------
Michael Simon
Vice President
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