As filed with the Securities and Exchange Commission on December 15, 2000
Registration Statement No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FAMOUS FIXINS, INC.
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(Name of Small Business Issuer in its charter)
New York 5140 13-3865655
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(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
or organization) Code Number) Number)
250 W. 57th Street, Suite 1112
New York, New York 10107
(212) 245-7773
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Jason Bauer
Chief Executive Officer and President
Famous Fixins, Inc.
250 W. 57th Street, Suite 1112
New York, New York 10107
(212) 245-7773
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of communications to:
Dan Brecher, Esq.
Law Offices of Dan Brecher
99 Park Avenue, 16th Floor
New York New York 10016
(212) 286-0747
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
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Proposed Proposed
Title of each class Maximum Maximum Amount of
of securities Amount to be Offering Price Aggregate Registration
to Be Registered Registered Per Share(1) Offering Price Fee
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<S> <C> <C> <C> <C>
up to
common stock 200,000,000 $0.0225 $4,500,000 $1,188.00
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common stock underlying up to
warrants 100,500,000 $0.0225 $2,261,250 $ 596,70
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up to
Total 300,500,000 $0.0225 $6,761,250 $1,784.97
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</TABLE>
(1) This calculation is made solely for the purpose of determining the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, and is based upon the average of the high ask and low bid
prices of $0.025 and $0.02, respectively, reported by the OTC Bulletin
Board for the common stock on December 14, 2000.
<PAGE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED _______ __, 200_
PROSPECTUS
FAMOUS FIXINS, INC.
300,500,000 shares of common stock
This prospectus relates only to the resale of a total of up to 300,500,000
shares of common stock of Famous Fixins, Inc., a New York corporation.
All of the shares of common stock being sold are offered by the selling
stockholder. The shares of common stock that may be sold constitute up to 2,155%
of our issued and outstanding common stock as of December 12, 2000.
To the extent that our authorized capital is insufficient to permit the
issuance of the shares included in this prospectus, the shares are issuable
subject to shareholder approval authorizing an increase in our authorized
capital to permit issuance of the shares.
We will not receive any of the proceeds from the resale of the shares of
common stock by the selling stockholders. However, we will receive the sale
price of any common stock that we sell to Folkinburg Investments under the
common stock purchase agreement described in this prospectus or upon the
exercise for cash of the warrants exercisable for shares of common stock by
Folkinburg Investments. We will pay the costs of registering the shares under
this prospectus, including legal fees.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"FIXN". The last reported sales price of our common stock on the OTC Bulletin
Board on December 12, 2000 was $0.03 per share.
The selling stockholders may offer shares of our common stock on the OTC
Bulletin Board in negotiated transactions or otherwise, or by a combination of
these methods. The selling stockholders may sell the shares through
broker-dealers who may receive compensation from the selling shareholders in the
form of discounts or commissions. Folkinburg Investments is an "underwriter"
within the meaning of the Securities Act of 1933 in connection with its sales.
See "Risk Factors" beginning on page 3 for a discussion of certain factors
that should be considered by prospective investors.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of the disclosures in this Prospectus. Any representation
to the contrary is a criminal offense.
The date of this Prospectus is ______ ___, 200_.
-1-
<PAGE>
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Until ___________, 200_ (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
We have not authorized any dealer, salesperson or other person to give any
information or to represent anything not contained in this prospectus. You must
not rely upon any unauthorized information. This prospectus is not an offer to
sell these securities and it is not a solicitation of an offer to buy these
securities in any state where the offer or sale is not permitted. The
information in this prospectus is not complete and may be changed. You should
not assume that the information in this prospectus is correct at any time
subsequent to its date.
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FAMOUS FIXINS, INC.
300,500,000 shares of common stock
PROSPECTUS
______ ___, 200_
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TABLE OF CONTENTS
Page
Prospectus Summary 2
Risk Factors 3
Dilution 9
Use of Proceeds 9
Management's Discussion and Analysis of Financial Conditions
and Results of Operations 10
About Famous Fixins 19
Our Management 37
Executive Compensation 39
Ownership of Securities 45
Certain Relationships and Related Transactions 48
Selling Stockholder 53
Plan of Distribution 54
Description of Our Securities 59
Legal Matters 69
Experts 69
Indemnification 69
Where You Can Find More Information 70
Index to Financial Statements 70
<PAGE>
PROSPECTUS SUMMARY
ABOUT US
We are a New York corporation known as Famous Fixins, Inc. We are a
promoter and marketer of celebrity and athlete licensed consumer products for
sale in supermarkets, mass merchandisers, drug chains, specialty stores and over
the Internet. Our plan is to develop, market and sell specialty products based
on the diverse professional, cultural and ethnic backgrounds of various
celebrities. We create consumer products which include breakfast cereals
endorsed by sports teams, salad dressing, candy products, lip balm, and adhesive
bandages. We promote and market our products directly to supermarket chain
stores. We also operate an electronic commerce site from which our products may
be purchased. We utilize a nationwide network of brokers to distribute our
products in supermarket chains, mass-merchandisers, drug stores, restaurants and
specialty retail stores throughout the United States. We enlist third party
manufacturers to produce our consumer products.
Our executive office is located at 250 West 57th Street, Suite 1112, New
York, New York 10107. Our telephone number is 212-245-7773.
THE OFFERING
Total shares outstanding:
13,941,264 shares of common stock
Total shares offered for resale to the public:
Up to 300,500,000 shares of common stock consisting of:
- up to 200,000,000 shares offered by Folkinburg Investments
that it may purchase under the common stock purchase
agreement; and
- up to 100,500,000 shares offered by Folkinburg Investments
underlying common stock purchase warrants to be issued in
connection with drawdowns on the common stock purchase
agreement, including warrants presently exercisable to
purchase 500,000 shares.
To the extent that our authorized capital is insufficent to permit the
issuance of the shares included in this prospectus, the shares are
issuable subject to shareholder approval authorizing an increase in
our authorized capital to permit issuance of the share.
Price per share to the public:
Market price at the time of resale
Plan of distribution:
Sales may be made on the OTC Bulletin Board, in negotiated private
transactions, block trades, purchases by a broker or dealer for its
account under this prospectus, ordinary brokerage transactions and
transactions in which the broker solicits purchases, or in a
combination of these methods. Brokers or dealers engaged by the
selling stockholder may receive commissions or discounts from the
selling stockholders. Folkinburg Investments is an "underwriter"
within the meaning of the Securities Act of 1933 in connection with
such sales.
Proceeds from offering:
We will not receive any of the proceeds from the sale of the shares of
common stock offered by the selling stockholders. However, we will
receive the sale price of any common stock we sell to Folkinburg
Investments under the common stock purchase agreement described in
this propectus and upon the exercise of warrants held by the selling
stockholders that pay the exercise price in cash, which proceeds we
may use for working capital and other general corporate purposes.
Trading symbol for common stock:
FIXN
-2-
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment. Although the factors identified below are important factors, those
are not the only ones facing us. If any of the following risks actually occur,
our actual results could differ significantly, and the trading price of our
common stock could decline, and you may lose all or part of your investment. We
have identified all of the material risks which we believe may affect our
business and make an investment one of high risk, and the principal ways in
which we anticipate that they may affect our business or financial condition.
WE HAVE A DEFICIENCY IN STOCKHOLDERS' EQUITY AND WE MAY NOT BE PROFITABLE OR
GENERATE CASH FROM OPERATIONS IN THE FUTURE AS WE GROW OUR BUSINESS.
We began our sales operations in March 1997 and we have a limited operating
history upon which you can base an evaluation of our performance. 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.
As we grow our business and try to bring new products to market, we may
encounter substantial operating losses due to increased promotional and
marketing expenses and the payments of cash advances under license agreements.
During our first three years of operations, we have experienced losses 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 consumer products. We were also hampered by an
insufficient amount of credit and financing. As we enter into new licenses with
celebrities and promote new products, we expect to incur operating losses and
net losses as we incur additional costs associated with obtaining new celebrity
endorsements, development of new consumer products, entry into new markets, and
the expansion of our administrative, operational, marketing and sales
organizations. Because we intend to focus our future products on new lines of
consumer products that we have not previously developed, we do not know how our
financial condition will be affected. We cannot assure you that our revenues
will increase as a result of our increased spending. If revenues grow more
slowly than we anticipate, or if operating expenses exceed our expectations, we
may not become profitable. Even if we become profitable, we may be unable to
sustain our profitability.
-3-
<PAGE>
WE DEPEND ON CELEBRITY ENDORSEMENTS FOR THE DEVLOPMENT AND PROMOTION OF OUR
PRODUCTS.
Since we develop and market products utilizing the names and reputations of
various celebrities, attracting well-recognized celebrities with whom we can
develop consumer products for endorsement and promotion is essential to our
growth and success. If we cannot sign more celebrities, we cannot introduce new
consumer products and increase our breath of products, which will not see an
increase our revenues. We cannot assure you that we will be able to attract and
retain celebrities to endorse any of our products, or if retained, that the
reputations of various celebrities will not become untarnished or unfavorable in
the future.
Even with endorsement and promotion by celebrities, we cannot assure you
that we can successful develop and market such products. In addition, because we
enter short-term license arrangements with celebrities, we need to enter many
license arrangements with numerous celebrities to develop a range of product
offerings.
We expect to incur significant operating expenses associated with the
development and marketing of new products for new celebrities. We may enter
endorsement agreements with various celebrities that include issuance of our
securities, such as warrants to purchase our common stock, and up-front cash
payments. Because we depend on endorsement agreements, certain financial terms
that we agree to with various celebrities may be financially generous to certain
celebrities, and we may have to pay the financial arrangements even if we later
decide not to bring certain products to the market.
IF WE FAIL TO PROTECT PROPRIETARY RIGHTS, WE MAY FIND IT DIFFICULT TO ATTRACT
ENDORSERS FOR OUR PRODUCTS.
If we cannot secure and protect third party rights or consents, our ability
to market and promote our products will be greatly hampered. We seek to protect
our intellectual property rights and to limit access to our proprietary
information through a combination of copyrights, and nondisclosure and licensing
arrangements, all of which, even if available, afford only limited protection.
We cannot assure you that that the steps we take to protect our intellectual
property rights will be adequate to prevent misappropriation of our intellectual
property rights. We face certain risks because we are a licensee of the names
and likenesses of certain celebrities, and we are not the owner of certain
intellectual property rights. If we fail to use the name and likenesses of
celebrities properly under the terms of the applicable license agreements, those
celebrities and other potential celebrity endorser may not seek to conduct
business with us in the future.
OUR SUCCESS DEPENDS ON CONSUMER RECOGNITION OF OUR CELEBRITY ENDORSED PRODUCTS
AND THEIR ACCEPTANCE OF OUR PRODUCTS BECAUSE WE DO NOT CONDUCT LARGE MARKETING
CAMPAIGNS.
Consumer products that we develop and promote may be based on the
professional, personal and cultural background of celebrities, and there can be
no assurance that consumers will like our products, or that a significant market
will develop for any product line developed by us. In addition, consumers may
not be aware of our products because we do have not resources to conduct large
advertising campaigns. Our plans include marketing efforts intended to create
public awareness. These must be repeated often to build a base of loyal
consumers.
-4-
<PAGE>
OUR BUSINESS OF SELLING CONSUMER PRODUCTS COULD EXPOSE US TO TREMENDOUS
LIABILITY FOR WHICH WE MAY NEED TO INCREASE OUR INSURANCE COVERAGE.
The marketing and sales of consumer products could expose us to certain
types of litigation, including product liability claims allegedly resulting from
the use or consumption of such products, which might be made by consumers
against us, the manufacturer, the distributor or the stores which sell our
products. Such litigation claims could have a material adverse affect on our
business, prospects, financial condition or results of operations by reducing or
eliminating demand for our products. Under license agreements with celebrities,
we have agreed to maintain adequate liability insurance coverage. Our current
coverage is for $3 million. We have not faced a lawsuit related to our consumer
products, so we cannot assure you that the coverage will be adequate to protect
us against claims as we market more products, we will need to increase our
coverage. We cannot assure you that sufficient insurance coverage will be
available to us on acceptable terms.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADDITIONAL FINANCING MAY NOT BE
AVAILABLE.
We currently anticipate that our available cash resources combined with the
maximum drawdown under the stock purchase agreement with Folkinburg Investments
Limited will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next nine months. However, unless our
stock price and trading volume rise significantly from current levels, we will
not be able to draw down all $5 million under the common stock purchase
agreement and our available cash resources will meet our requirements for only
the next nine months. In addition, business and economic conditions may not make
it feasible to draw down under the common stock purchase agreement at every
opportunity, and drawdowns are available only every 29 trading days. We may need
to raise additional capital to fund more rapid expansion, to develop new and to
enhance existing services to respond to competitive pressures, and to acquire
complementary businesses or technologies.
The common stock purchase agreement with Folkinburg Investments restricts
us from raising investment capital during the term of the common stock purchase
agreement except under certain circumstances. If we need capital but are unable
to drawdown under the common stock purchase agreement for any reason, we will
need to separately negotiate with Folkinburg Investments to lift those
restrictions so we can obtain the capital from other sources. Our common stock
purchase agreement with Folkinburg Investments also limits our ability to sell
our securities for cash at a discount to the market price for up to 24 months
from the effective date of the registration statement of which this prospectus
is a part.
We may not be able to obtain additional financing on terms favorable to us,
if at all. If adequate funds are not available or are not available on terms
favorable to us, we may not be able to effectively execute our business plan.
-5-
<PAGE>
WE EXPECT TO SELL SHARES OF OUR COMMON STOCK IN THE FUTURE, INCLUDING SHARES
ISSUED PURSUANT TO THE EQUITY LINE OF CREDIT, AND THESE SALES MAY DILUTE THE
INTERESTS OF OTHER SECURITY HOLDERS AND DEPRESS THE PRICE OF OUR COMMON STOCK.
We have sold securities that will have a dilutive impact on our
stockholders. As of December 12, 2000, we had 13,941,264 shares of common stock
issued and outstanding. As of December 12, 2000, we also had outstanding options
and warrants to purchase approximately 7.2 million shares of our common stock,
without including shares underlying warrants included in this prospectus. There
are also 300,500,000 shares of common stock covered by this prospectus which are
issuable under the equity line of credit at a 17.5% discount and under the
warrants previously granted and which may be granted in the future to Folkinburg
Investments.
The net tangible book value of our common stock as of September 30, 2000
was $490,993, or approximately $0.03541 per share, based on 13,866,264 shares
outstanding on September 30, 2000. If, on September 30, 2000, we issued
200,000,000 shares to Folkinburg Investments under the equity line of credit
agreement and received proceeds of $0.02475 per share, which reflects Folkinburg
Investments' 17.5% discount as applied to the closing price of our common stock
on December 12, 2000 of $0.03 per share, then our pro forma net tangible book
value as of September 30, 2000 would have been $5,440,994, or $0.02544 per
share. This represents an immediate decrease in the net tangible book value of
$0.00997 per share to existing stockholders on September 30, 2000.
If Folkinburg Investments on September 30, 2000 then resold all 200,000,000
shares to the public using this prospectus at a price of $0.03 per share, then
the purchasers of common stock under this prospectus would realize an immediate
dilution in net tangible book value of approximately $0.00506 per share. The
actual dilution to the purchasers under this prospectus may be greater or less
than in this example, depending on the actual price they pay for shares and on
the actual prices at which we issue shares to Folkinburg Investments under the
equity line of credit agreement.
We also have outstanding 5% convertible debentures with a principal amount
totaling $38,975 due October 30, 2002 for which the conversion price is the
lower of 80% of the market price of our common stock or $0.55. We also have
outstanding 4% convertible debentures with a total principal amount of
$1,500,000 due August 7, 2001 for which the conversion price is the lesser of
$0.54 or 85% of the average of the 5 lowest closing bid prices during the 22
trading days preceding the applicable conversion date.
The issuance or even the potential issuance of shares under the equity line
of credit, in connection with any other additional financing, and upon exercise
of warrants, options or rights will have a dilutive impact on other stockholders
and could have a negative effect on the market price of our common stock. In
addition, the shares issuable to Folkinburg Investments under the equity line of
credit will be issued at a discount to the daily volume weighted average prices
of our common stock during the 22 trading days after notification of a drawdown.
This will further dilute the interests of other stockholders.
-6-
<PAGE>
AS FOLKINBURG INVESTMENTS AND OTHER CONVERTIBLE SECURITIES HOLDERS CONVERT
AND SELL THEIR COMMON STOCK, THE RESULTING DECREASE IN MARKET PRICE OF THE
COMMON STOCK MAY PERMIT THEM TO CONVERT DEBENTURES INTO A GREAT NUMBER OF
SHARES WHICH COULD FURTHER DECREASE THE MARKET PRICE.
As we sell shares of our common stock to Folkinburg Investments under the
equity line of credit and as other holders convert their securities into shares
of our common stock, and then they sell the common stock to third parties, our
common stock price may decrease due to the additional shares in the market.
If we decide to draw down on the equity line of credit as the price of our
common stock decreases, we will be required to issue more shares of our common
stock for any given dollar amount invested by Folkinburg Investments, subject to
the minimum selling price we specify. The more shares that are issued under the
equity line of credit, the more our shares will be diluted and the more our
stock price may decrease. This may encourage short sales, which could place
further downward pressure on the price of our common stock.
Similarly, the resulting decrease in the market price of our common stock
as the holders of convertible securities convert and sell their shares of common
stock could permit the selling stockholder to convert their securities into a
greater number of shares of common stock. This would likely cause a further
downward pressure on the price of the common stock. This downward pressure on
the common stock is likely to occur until substantially all of the convertible
securities are sold and converted.
THE DECREASE IN THE PRICE OF OUR COMMON STOCK AS FOLKINBURG INVESTMENTS
RESELLS THE DRAWDOWN SHARES AND AS HOLDERS OF CONVERTIBLE SECURITIES
CONVERT AND RESELL THEIR SHARES COULD ENCOURAGE SHORT SALES, WHICH COULD
RESULT IN FURTHER REDUCTIONS IN THE PRICE OF OUR COMMON STOCK.
As we draw down on the equity line of credit and Folkinburg Investments
resells the drawdown shares and as other holders of convertible securities elect
to convert and resell their shares of common stock, the downward pressure on the
price of the common stock could cause further reductions in the market price of
our common stock. Downward pressure on the price of our common stock could
encourage short sales of the stock by the selling stockholder or by other
stockholders. Material amounts of short selling could place further downward
pressure on the market price of the common stock. A short sale is a sale of
stock that is not owned by the seller. The seller borrows the stock for delivery
at the time of the short sale, and buys back the stock when it is necessary to
return the borrowed shares. If the price of the common stock declines between
the time the seller sells the stock and the time the seller subsequently
repurchases the common stock, the seller may realize a profit.
OUR DRAW DOWNS ON THE EQUITY LINE AND THE CONVERSION BY THE HOLDERS OF
CONVERTIBLE SECURITIES MAY RESULT IN SUBSTANTIAL DILUTION TO THE THIRD
PARTY HOLDERS OF OUR COMMON STOCK SINCE WE EXPECT IMMEDIATE RESELL OF SUCH
SHARES AND HOLDERS MAY ULTIMATELY CONVERT AND SELL THE FULL AMOUNT ISSUABLE
ON CONVERSION.
Future purchasers of our common stock and existing stockholders could
experience substantial dilution as we drawdown on the equity line and as the
debenture holders convert and sell the common stock. Because the shares issued
to Folkinburg Investments upon our drawdowns on the equity line of credit will
be substantially below the market value of the common stock, we expect
Folkinburg Investments to resell the common stock immediately after issuance.
Simiarly, because the conversion price of the debentures is substantially below
the market value of the common stock, we expect the debenture holder to
ultimately convert the entire principal amount and sell the common stock. The
issuance of shares of common stock upon the conversion of debentures will have a
dilutive impact on our common stock holders. As a result, our income per share
could be materially and adversely affected.
-7-
<PAGE>
WE DO NOT KNOW THE PRECISE NUMBER OF COMMON STOCK SHARES THAT WE MAY HAVE TO
ISSUE UPON OUR DRAWDOWNS UNDER THE EQUITY LINE OF CREDIT OR UPON THE CONVERSION
OF OTHER OUTSTANDING CONVERTIBLE SECURITIES BECAUSE THE DRAWDOWN OR CONVERTSION
PRICE IS LINKED TO THE FUTURE MARKET PRICE OF THE COMMON STOCK.
The shares issuable upon drawdowns under the Folkinburg Common Stock
Purchase Agreement, issuance and exercise of warrants under the Folkinburg
Common Stock Purchase Agreement, and upon the conversion of the 5% debentures
and 4% Debentures are linked to a percentage discount to the market price of our
common stock at the time of drawdown or conversion. Until then, we do not know
the precise maximum number of common stock shares that may be issued. The lower
the price of our common stock at the time of drawdown or conversion, the more
the shares of common stock that we will be required to issue upon drawdowns or e
conversion, which will further dilute holders of common stock and cause the
common stock price to decline further.
WE NEED TO SEEK SHAREHOLDER APPROVAL AUTHORIZING A SIGNIFICANT INCREASE IN OUR
AUTHORIZED CAPITAL, WHICH IF PASSED SIGNIFICANTLY DILUTE EXISTING SHAREHOLDERS
AND WHICH IF REJECTED COULD SUBJECT US TO LIABILITY UNDER FINANCING AGREEMENTS.
We presently do not have the authorized capital to permit the issuance of
shares under financing arrangements. Under the agreement for the purchase of 4%
convertible debentures, we have undertaken to cause within 150 days of the
closing date to have reserved, and to continue to reserve and keep available at
all times, sufficient shares of common stock for the purpose of issuing shares
of common stock upon the conversion of the debentures and exercise of the
warrants. If we do not have enough shares reserved to permit the issuance of
shares when the debentures become exercisable, we may be subject to claims of
breach of those agreements. We also need to increase our authorized capital to
permit the issuance of shares under the Folkinburg Common Stock Purchase
Agreement. As of December 12, 2000, we have 13,941,264 shares outstanding. We
may have to increase our authorized capital by approximately 400,000,000 million
shares to have the authorized capital to issue shares pursuant to the 4%
debentures and the equity line of credit. Our shareholders will be significantly
diluted if that number of shares are authorized and eventually issued, but if
our shareholders reject the proposal to increase our authorized capital by
approximately that amount, we may be in breach of our financing arrangements and
be subject to liability.
THE SALE OF SHARES OF COMON STOCK COVERED IN THIS PROSPECTUS COULD RESULT IN A
DE FACTO CHANGE OF CONTROL OF OUR COMPANY.
We have registered 300,500,000 shares of our common stock for resale by the
selling stockholders under the registration statement of which this prospectus
forms a part. Under the terms of our common stock purchase agreement with
Folkinburg Investments, we may not issue shares of our common stock to
Folkinburg Investments which would result in ownership by Folkinburg Investments
of more than 9.9% of our issued and outstanding common stock. However, if all
of the shares being registered are issued under the terms of the common stock
purchase agreement and resold by Folkinburg Investments, third party investors
would acquire approximately 2,155% of our common stock issued and outstanding as
of December 12, 2000. The acquisition by third party investors of a significant
percentage of our common stock could enable such investors to influence or
direct the policies, decisions and composition of our board of directors and
management. A potential change of control could involve a number of risks,
including the diversion of management attention and resources, the loss of key
employees, and changes in our business plan and operations. Any such events
could have a material adverse effect on our business and results of operations.
-8-
<PAGE>
DILUTION
The issuance of additional shares and the eligibility of issued shares for
resale will dilute our common stock and may lower the price of our common stock.
If you invest in our common stock, your interest will be diluted to the extent
of the difference between the price per share you pay for the common stock and
the pro forma net tangible book value per share of our common stock at the time
of sale. We calculate net tangible book value per share by calculating the total
assets less intangible assets and total liabilities, and dividing it by the
number of outstanding shares of common stock.
The net tangible book value of our common stock as of September 30, 2000
was $490,993, or approximately $0.03541 per share, based on 13,866,264 shares
outstanding on September 30, 2000. If, on September 30, 2000, we had issued
200,000,000 shares to Folkinburg Investments under the equity line of credit
agreement and had received proceeds of $0.02475 per share, which reflects
Folkinburg Investments' 17.5% discount as applied to the closing price of our
common stock on December 12, 2000 of $0.03 per share, then our pro forma net
tangible book value as of September 30, 2000 would have been $5,440,994, or
$0.02544 per share. This would have represented an immediate decrease in the net
tangible book value of $0.00997 per share to existing stockholders on September
30, 2000.
If Folkinburg Investments on September 30, 2000 had then resold all
200,000,000 shares to the public using this prospectus at a price of $0.03 per
share, then the purchasers of common stock under this prospectus would have
realized an immediate dilution in net tangible book value of approximately
$0.00506 per share. The actual dilution to the purchasers under this prospectus
may be greater or less than in this illustrative example, depending on the
actual price they pay for shares and on the actual prices at which we issue
shares to Folkinburg Investments under the equity line of credit agreement.
The example above does not include approximately 100,500,000 shares
issuable to Folkinburg Investments upon exercise of warrants under the equity
line of credit which may further dilute our net tangible book value. We have
other stock options and warrants presently outstanding to purchase approximately
7.2 million shares which may further dilute our net tangible book value.
USE OF PROCEEDS
We will not receive any proceeds from the resales of the shares of common
stock by any of the selling stockholders. However, we will receive the sale
price of any common stock we sell to Folkinburg Investments under the common
stock purchase agreement described in this prospectus and upon the exercise of
warrants held by the selling stockholders that pay the exercise price in cash.
We may use the proceeds of any such sales for working capital and other general
corporate purposes. We applied the net proceeds from the sale of the convertible
debentures described in this prospectus for working capital and other general
corporate purposes.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Forward-Looking" Information
This prospectus contains certain "forward-looking statements", which
represent our expectations and beliefs, including, but not limited to statements
concerning our 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 our control, and actual results may differ materially
depending on a variety of important factors, including our ability to sign new
celebrities, obtain additional capital, customer acceptance of our products, and
other risks described under "Risk Factors" in this prospectus.
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 audited financial statements and notes to financial statements for the
year ended December 31, 1999.
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 FFNY in a
transaction viewed as a reverse acquisition. FFNY was a promoter and marketer of
celebrity endorsed consumer products, which commenced business activities in
1995 and began sales operations on 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
discussion describes the historical operations of FFNY, giving effect to our
reorganization with us in May 1998.
The following tables sets forth, for the periods indicated, the
relationship between total sales and certain expenses and earnings items:
<TABLE>
YEAR ENDED THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------- -------------------- ------------------------
1999 1998 1997 2000 1999 2000 1999
---------- ---------- ---------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES $2,515,966 $ 276,006 $ 358,791 $ 337,687 $981,673 $ 1,724,617 $2,178,859
COST OF GOODS SOLD $1,590,438 $ 193,143 $ 194,701 222,428 548,658 1,020,496 1,237,475
GROSS PROFIT ON SALES $ 925,528 $ 82,863 $ 164,090 115,259 433,015 704,121 941,384
OPERATING EXPENSES $1,662,321 $ 748,184 $ 374,822 415,640 393,767 2,202,672 1,049,470
OPERATING INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES $ (736,793) $ (629,974) $ (210,732) (300,381) 39,248 (1,498,551) (108,086)
PROVISION FOR INCOME TAXES $ 1,339 $ 669 $ 950 - - 455 1,334
NET INCOME (LOSS) $ (738,132) $ (630,643) $ (211,682) $(300,381) $39,248 $(1,499,006) $ (109,420)
</TABLE>
-10-
<PAGE>
1999 v. 1998
Cost of goods sold for the year ended December 31, 1999 was $1,590,438, or
approximately 63% of sales, as compared to $193,143, or approximately 70% of
sales, for the year ended December 31, 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 our sales
volume grows.
Gross profit on sales for the year ended December 31, 1999 was $925,528,
an increase of 1,017% as compared to the year ended December 31, 1998 of
$82,863. The increase in gross profits is attributable to our new cereal product
line.
For the year ended December 31, 1999, as compared to the year ended
December 31, 1998, operating expenses increased to $1,662,321 from $748,184,
which represents a 122% increase in operation expenses, and which represents a
decrease to 66% of sales in 1999 from 271% of sales in 1998. The increase in
1999 in operating expenses 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. 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.
We operated at a loss in the year ended December 31, 1999, losing
$738,132, or $0.07 per share basic and $0.07 per share diluted, as compared to a
net loss of $630,643, or $0.10 per share basic and $0.10 per share diluted, for
the year ended December 31, 1998.
We anticipate significant increases in revenues and gross profit in fiscal
year 2000. This trend of increased revenues and gross profits is expected to
continue now that we have already launched nine new products for nine new
celebrity licenses in 1999, and 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.
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 years ended December
31, 1999 and 1998, charges to income for stock warrants related to licensing
costs were $162,038 and $124,342, respectively.
While the addition of new product lines may also create liquidity issues
and demands on our limited resources, we anticipate that the increased revenues
generated this year by the new products will have a favorable impact on income
and liquidity.
Our 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.
-11-
<PAGE>
1998 v. 1997
We experienced losses in 1997 and 1998, our 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 consumer products. Further, we were
hampered by an insufficient amount of credit and financing. Our sales were lower
in 1998 than in 1997. Our operating revenues for the year ended December 31,
1998 were $276,006, a decrease of 23.1% as compared to operating revenues for
the year ended 1997 of $358,791. This decrease primarily resulted from the lack
of sufficient capital to market our products.
Cost of goods sold for the year ended December 31, 1997, was $194,701, or
approximately 54% of sales, as compared to $193,143, or approximately 70% 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 decrease as a percentage of total sales as our sales volume grows.
Gross profit on sales for the year ended December 31, 1998 was $82,863, a
decrease of 49%, as compared to the gross profit on sales in the year ended
December 31, 1997 of $164,090. The decrease in gross profit is attributable to
the decrease in sales; however, our gross profit percentage on sales decreased
to 30% in 1998 compared to 45% in 1997.
For the year ended December 31, 1998 as compared to the year ended
December 31, 1997, operating expenses increased to $748,184 from $374,822, which
represents a 100% increase in operating expenses, and which represents an
increase as a percentage of sales to 271% of sales in 1998 from 104% of sales in
1997. The increase in operating expenses is primarily due to increased
administrative and selling expenses. 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.
We operated at a loss, for the reasons discussed above as to the start- up
costs, lack of sufficient capital, and limited line of products, in the year
ended December 31, 1998, losing $630,643, or $.10 per share basic and diluted,
as compared to a net loss for the year ended December 31, 1997 of $211,682, or
$.03 per share basic and diluted. We moved our emphasis to celebrity athletes in
1999, and we have been able to obtain a number of valuable licenses pursuant to
which we have produced dramatic growth in revenues, and it has improved our
ability to obtain credit and financing. We anticipate significant increases in
revenues, gross profits and profitability for the year ending December 31, 1999.
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 in 1999 by our new products will have a favorable impact on income and
liquidity.
Our 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.
-12-
<PAGE>
Three Months Ended September 30, 2000
Sales for the three months and nine months ended September 30, 2000
decreased approximately 66% and 21%, respectively, as compared to the same
period in 1999. The decrease in sales during the three month and nine month
periods resulted from the expiration of several licenses with celebrities for
six cereal products and related merchandise.
Cost of goods sold for the three months ended September 30, 2000 was
approximately 66% of sales, as compared to approximately 56% of sales for the
comparable period in 1999. Cost of goods sold for the nine months ended
September 30, 2000 was approximately 59% of sales, as compared to approximately
57% of sales for the comparable period in 1999. We offered five more products in
the three months ended September 30, 2000 and ten more products in the nine
months ended September 30, 2000, than in the three and nine months ended
September 30, 1999. We experienced an increase in cost of goods sold as a
percentage of sales for the three months and nine months ended September 30,
2000 in connection with the introduction of new products, and the expiration of
certain licenses and the discontinuation of six cereal product lines during the
nine months ended September 30, 2000. Although we expect our cost of goods sold
to increase as we make more diverse products available for sale, we expect cost
of goods sold to decrease as a percentage of total sales as our sales volume for
particular product lines grows.
Gross profit on sales for the three months ended September 30, 2000 was
$115,259, a decrease of 73% as compared to the three months ended September 30,
1999 of $433,015. Gross profit on sales for the nine months ended September 30,
2000 was $704,121, a decrease of 25% as compared to the nine months ended
September 30, 1999 of $941,384. The decrease in gross profit is attributable to
the expiration of certain licenses, the discontinuation of six cereal product
lines, and the introduction of ten new products beginning in January 2000.
For the three months ended September 30, 2000, as compared to the three
months ended September 30, 1999, operating expenses increased to $415,640 from
$393,767, which represents a 6% increase in operation expenses, and which
represents, as compared to the three months ended September 30, 1999, an
increase to 123% of sales from 40% of sales. For the nine months ended September
30, 2000, as compared to the comparable period in 1999, operating expenses
increased to $2,202,672 from $1,049,470, which represents a 110% increase in
operating expenses, and which represents, as compared to the comparable period
in 1999, an increase to 128% of sales from 48% of sales. The increase in our
operating expenses in the three months and nine months ended September 30, 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 new product lines are
created and as more products are sold; however, operating expenses are expected
to decrease as a percentage of total sales as our sales volume grows.
-13-
<PAGE>
For the three months ended September 30, 2000, we operated at a net loss of
$300,381, or $.022 per share basic and diluted, as compared to net income of
$39,248, or $.004 per share basic and $.003 per share diluted, for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
we operated at a loss of $1,499,006, or $0.117 per share basic and diluted, as
compared to a net loss of $109,420, or $0.011 per share basic and diluted, for
the nine months ended September 30, 1999, largely due to the related costs of
stock and warrants issued and the issuance of convertible debentures. We
anticipate increases in revenues in the remainder of fiscal year 2000, depending
on the success of six new products launched since May 2000. We may not
experience profitability in fiscal year 2000 because we have discontinued
several products in connection with the expiration of several licenses and
because we expect our cost 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 decreased revenues generated this year, due to the
expiration of certain licenses and discontinuation of certain products, may not
have a favorable impact on income and liquidity.
Included in the net loss of $1,499,006 for the nine month period ended
September 30, 2000 are several substantial non-cash charges to income
aggregating approximately $978,000 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 2000, 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. The accounts also reflect charges, in the
amount of approximately $653,000 for the nine month period ended September 30,
2000, representing the allocable service costs of outstanding stock and warrants
issued in connection with royalty, employment and other consulting 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. In October 2000, we entered into an agreement
to issue, and issued, 4% convertible debentures with a principal amount of
$1,500,000, pursuant to which the $1,000,000 principal amount of 0% convertible
debentures issued in February 2000 were surrendered. 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 or financing agreements.
Our food sales business is not seasonal in nature. Inflation is not deemed
to be a factor in our operations.
-14-
<PAGE>
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.
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 in February 2000, we received the remaining
$100,000 when the registration statement in connection with the resale of the
underlying common stock became 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.
Debenture holders have converted debentures into shares of common stock as
summarized below:
- on February 23, 2000, $150,000 in principal into 1,000,000
shares;
- on February 24, 2000, $76,240 in principal and interest into
508,264 shares;
- on March 30, 2000, $127,691 in principal and interest into
302,299 shares;
- on May 25, 2000, $72,042 in principal and interest into 227,620
shares;
- on June 29, 2000, $25,844 in principal and interest into 166,519
shares;
- on July 19, 2000, principal amount of $1,025 and accrued interest
of $37 into 8,676 shares;
- on August 8, 2000, principal amount of $20,000 and accrued
interest of $758 into 156,313 shares; and
- on September 26, 2000, principal amount of $45,000 and accrued
interest of $1,998 into 533,949 shares.
-15-
<PAGE>
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 0%
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. In October 2000, we entered into an agreement for the sale of
$1,500,000 principal amount of 4% convertible debentures pursuant to which the
outstanding principal amount of the 0% convertible debentures were surrendered.
In October 2000, we entered into an agreement pursuant to which certain
investors agreed to purchase an aggregate of $1,500,000 principal amount of 4%
convertible debentures due on August 7, 2001 and warrants to purchase 250,000
shares of common stock. The principal amount of the 4% convertible debentures of
$1,500,000, consists of principal in the amount of $500,000 and the surrender of
outstanding 0% convertible debentures with a principal amount of $1,000,000
issued in March 2000. The 4% convertible debentures are due in August 2001 with
a 5% premium on the principal and the accrued unpaid interest. The investors
have the right to convert the interest into shares of common stock based on the
average of the 5 lowest closing bid prices of the common stock over a 22 trading
day period immediately prior to the interest payment date. The warrants are
exercisable before November 7, 2003 at a purchase price per share of $0.0588. We
agreed to enter into an equity line of credit type of transaction within 10 days
of this transaction. If we are unable to pay the amounts due on the maturity
date but we can draw down on the equity line of credit, we are to draw down the
maximum amount each draw down period to pay the investors the full amount due.
On or after the maturity date, the investors may convert the 4% convertible
debentures into shares of common stock if a registration statement for the
equity line of credit is not effective on the maturity date or if we do not draw
down the maximum amount permitted each month under the equity line under an
effective equity line of credit registration statement. The conversion price
shall equal the lesser of $0.054 or 85% of the average of the 5 lowest closing
bid prices during the 22 trading days preceding the applicable conversion date.
At the investors' election, we shall redeem the 4% convertible debentures,
including interest and a redemption premium of 30%, using up to 50% of the net
proceeds received pursuant to the equity line of credit and any other equity
financing permitted under the agreement, and all proceeds received in an equity
financing not permitted under the future financing restrictions. At the closing
of the transaction, we received gross proceeds of $500,000, less payment to the
escrow agent of $10,000 for the investors' legal, administrative and escrow
costs, and less payment of a 10% placement agent fee. We also issued to the
placement agent 75,000 shares of restricted common stock and a warrant to
purchase 100,000 shares of common stock as part of the placement agent fee. The
warrants are exercisable before November 7, 2003 at a purchase price per share
of $0.0588. We believe that such sources of funds will be sufficient to fund our
operations for the next nine months.
-16-
<PAGE>
In October 2000, we entered into an agreement for the future issuance and
purchase of shares of our common stock which establishes what is sometimes
termed an equity line of credit or an equity drawdown facility. In general, the
drawdown facility operates as follows: the investor has committed to provide us
with up to $5 million as we request it over a 24 month period, in return for
shares of common stock we issue to the investor. Subject to a maximum of 16
draws, once every 29 trading days, we may request a draw of up to $5 million of
that money, however, no single draw can exceed $5 million. We must wait at least
7 trading days after each 22 trading day drawdown period before requesting
another drawdown. The maximum amount we actually can draw down upon each request
will be determined by 4.5% of the volume-weighted average daily price of our
common stock for the 3 month period prior to our request and the total trading
volume for the 3 months prior to our request. Each draw down must be for at
least $100,000. The number of shares registered under the registration statement
for the resale of the common stock upon each drawdown may limit the amount of
money we receive under the common stock purchase agreement. Moreover, the funds
we may receive could be further limited by a provision of the common stock
purchase agreement that prevents us from issuing shares to the investor to the
extent the investor would beneficially own more than 9.9% of our then
outstanding common stock. At the end of a 22-day trading period following the
drawdown request, the final drawdown amount is determined based on the
volume-weighted average stock price during that 22-day period. We then use the
formulas contained in the common stock purchase agreement to determine the
number of shares we will issue to the investor in return for that money. The per
share dollar amount the investor pays for our common stock for each drawdown
includes a 17.5% discount to the average daily market price of our common stock
for the 22-day period after our drawdown request, weighted by trading volume. We
will receive the amount of the drawdown less an escrow agent fee equal to $1,500
per drawdown and less a 10% placement fee. In lieu of making a commitment to the
investor to draw a minimum aggregate amount, on October 31, 2000, we issued to
the investor a stock purchase warrant to purchase up to 500,000 shares of our
common stock and we also agreed to issue additional warrants to purchase a
number of shares equal to 50% of the shares purchased by the investor on the
settlement date of each drawdown. The warrants to purchase 500,000 shares of
common stock have an exercise price of $0.0636 and expire on October 31, 2003.
The additional warrants issuable at each settlement date will be exercisable for
35 calendar days and have an exercise price equal to the weighted average of the
purchase prices of the common stock during the applicable settlement period. At
the closing we paid the escrow agent $10,000 for the investor's legal,
administrative and escrow costs. Until an effective registration statement is in
place, we cannot use and will not receive any funds from the equity line.
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.
-17-
<PAGE>
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.
-18-
<PAGE>
ABOUT FAMOUS FIXINS
OUR ORGANIZATION HISTORY
We are a New York corporation known as Famous Fixins, Inc. We were
originally incorporated on February 9, 1984 under the laws of the State of Utah
as Straw Dog, Inc. Pursuant to a registration with the Utah Securities Division
effective September 26, 1984, 1,000,000 shares of our common stock were sold to
the public at a price of $.02 per share. On November 4, 1985, we changed our
name to Tinderblock, Inc.
On July 31, 1995, we reincorporated under the laws of the State of Nevada
by merging with Spectrum Resources, Inc. Under the terms of the merger and
incorporation, all of the 7,666,666 outstanding shares of our common stock were
exchanged for shares of the common stock of Spectrum Resources, Inc. at the rate
of 1 share of Spectrum Resources for 3 of our shares. Following the
reincorporation, there were 2,555,887 shares of our common stock issued and
outstanding. On October 20, 1995, the Board of Directors approved a 1 for 10
reverse split of our stock, after which we had 255,588 shares of common stock
issued and outstanding.
On January 12, 1996, pursuant to a resolution of the Board of Directors,
we issued 354,930 shares of common stock to Phoenix Pacific Property Trust.
Those shares were valued at approximately $5,111 on the date of issuance. The
shares were given as consideration for services and costs that they incurred to
maintain our status as an active corporation and for providing business and
financing consulting advice to us. Our present management and Board of Directors
do not know how the securities issued to Phoenix Pacific Property Trust were
valued, but reasonably estimates a value of $5,111 based on a price of $.0144
per share, based on the following factors:
- the shares were restricted common stock;
- there was no active trading market at the time for the securities; -
there were no contemporaneous transactions of which our present
management and Board are aware of that were transacted at a greater
price per share; and
- we did not have active business operations or material net worth at
the time of issuance.
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 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
consumer products. It commenced business activities in 1995 and began sales
operations in March 25, 1997. Pursuant to a Plan and Agreement of
Reorganization, we issued 5,494,662 shares of common stock to Jason Bauer, as
trustee for certain shareholders of FFNY, in exchange for 97% of the outstanding
common stock of FFNY. Pursuant to the reorganization, the controlling
shareholders became our controlling shareholders and officers and directors.
FFNY became a majority-owned subsidiary of our company.
On June 8, 1998, we changed our name to Famous Fixins, Inc. under the
laws of the State of Nevada.
-19-
<PAGE>
On November 16, 1998, we reincorporated under the laws of the State of New
York by merging into our wholly-owned subsidiary, Famous Fixins Holding Company,
Inc., a corporation formed for the purpose of reincorporation. On November 20,
1998, we merged with our New York subsidiary, FFNY. On November 20, 1998, we
changed our name to Famous Fixins, Inc. under the laws of the State of New York.
We operate as a single entity under the laws of the State of New York.
As of December 12, 2000, we had 13,941,264 shares of our common stock
issued and outstanding.
We have not been subject to bankruptcy, receivership or any similar
proceedings.
OUR BUSINESS
We are a promoter and marketer of celebrity and athlete licensed consumer
products for sale in supermarkets, mass merchandisers, drug chains, specialty
stores and over the Internet. Our plan is to develop, market and sell licensed
consumer products based on the diverse professional, cultural and ethnic
backgrounds of various celebrities. We create consumer products which include
breakfast cereals endorsed by sports teams, salad dressing, candy products, lip
balm, and adhesive bandages. We promote and market our products directly to
supermarket chain stores, mass merchandisers, drugstore chains, and specialty
stores. We also operate an electronic commerce site from which our products may
be purchased. We utilize a nationwide network of consumer brokers to distribute
our products in supermarket chains, mass-merchandisers, drug stores, restaurants
and specialty retail stores throughout the United States. We enlist third party
manufacturers to produce our consumer products.
OUR PRINCIPAL PRODUCTS AND SERVICES
Breakfast Cereal
----------------
The cereal category is the largest category in the food industry, with
national sales exceeding seven billion dollars per year. There are more than 100
cereals nationally distributed, however, Famous Fixins' select cereals are
endorsed by well-known athletes, and therefore, require little advertising in
each marketplace.
Jeter's. We entered into an agreement with Turn 2, Inc. for the production
of a breakfast cereal called "Jeter's" featuring Derek Jeter, shortstop for the
World Series Champion New York Yankees. We launched this frosted flakes cereal
in October 1999 in the New York market. This cereal line will discontinue in the
last fiscal quarter of 2000.
Amazin' Mets Frosted Flakes. We have an agreement with Doubleday
Enterprises, L.P., owner and operator of the New York Mets National League
Baseball team, for promotional rights during the 1999 and 2000 baseball seasons
to produce and sell a cereal product identified by the name and logos of the
Mets. The cereal product may feature the images of eight or more Major League
Baseball players on the Mets, and at least one version of the cereal product
will feature Mets catcher Mike Piazza. We launched "Amazin' Mets Frosted Flakes"
cereal in New York in October 1999. This cereal line will discontinue in the
last fiscal quarter of 2000.
Boston Red Sox. Through our agreement with Major League Baseball, we are in
the developmental stages of a cereal featuring the Boston Red Sox. We launched
the cereal in the New England area in July 2000.
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<PAGE>
Consumer Goods
--------------
Britney Spears. We entered in an agreement Britney Brands, Inc. for the
rights to use the name and likeness of musical artist Britney Spears in
connection with the manufacture of a "Britney Spears CD Bubble Gum". We launched
bubble gum in May 2000.
Tony Stewart. We entered into an agreement with Redline Sports Marketing,
Inc. for the rights to use the name and likeness of Tony Stewart, the 1999
NASCAR Rookie of the Year. We launched "Tony Stewart Racecar Mints", a
racecar-shaped mint, in July 2000.
Dave Mirra. We entered into an agreement with Dave Mirra for the rights to
manufacture a shredded gum for sale to bike shops, toy stores and other
merchandisers. We launched "Mirracle Boy BMX Bubble Gum" in July 2000.
Major League Baseball. Through our agreement with Major League Baseball, we
are in the developmental stages of adhesive bandages bearing the logos of Major
League Baseball teams and team mascots. We launched the product in July 2000
throughout the United States.
'N Sync. We entered in an agreement with Winterland for the rights to use
the name and likeness of the musical group 'N SYNC in connection with the
manufacture and sale of lip balm featuring 'N SYNC group members. We launched
the product in September 2000.
FamousFixins.com
----------------
On April 7, 1999, we launched Internet sales of our products.
FamousFixins.com, our Internet marketing division intended to be an online
supermarket for celebrity endorsed consumer products. Through this web site,
consumers are able to purchase individual items. This electronic commerce
service allow us to reach consumers in regions of the United States where our
products are not carried in supermarkets.
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<PAGE>
MARKETING AND SALES PLANS
We intend to gain distribution of our products in supermarkets, drug
chains, mass merchandisers and specialty stores throughout the country. We plan
to use a combination of paid media advertising, newspaper articles, and
television appearances by celebrities and athletes who endorse our products to
generate awareness among consumers about our products and expand distribution of
our products nationally.
Our publicist generates consumer awareness of our products using
traditional marketing methods as well as innovative and industry specific
methods. Since 1997, over 2,000 newspapers and magazines have written articles
about us, our consumer products, and the charities that our celebrity endorsers
donate to. Our celebrity endorsers have also been on numerous nationally
televised TV shows promoting their products in addition to hundreds of mentions
on local radio stations.
DISTRIBUTION METHODS OF THE PRODUCTS AND SERVICES
We presently employ a direct method of distribution for most our sales,
whereby the product is shipped directly from the manufacturing facility to the
supermarket chain's warehouses. As a secondary form of distribution, in cases
where the direct distribution method is impracticable, we use a distributor,
whereby the product is shipped to independent distribution companies who bear
the responsibility for delivery to the retail stores. The latter method of
distribution increases the retail price to the consumer by approximately 30%.
STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
Not applicable.
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<PAGE>
COMPETITION
We face intense competition in our businesses against some large
corporations and smaller specialized businesses, that have the name recognition
to attract well-known celebrities and sell celebrity endorsed food products. We
face day-to-day competition from numerous competitors who produce and market
consumer products endorsed by celebrities. The range of competitors runs from
large corporations, such as General Mills, Coca-Cola, Frito Lays, and Johnson &
Johnson, to smaller competitors. Those corporations have far greater financial
resources and business experience than we do. The range of products runs across
the food category from sports drinks, soda, salad dressings to cereals, desserts
and candy bars. Any celebrity endorsed product similar to our products sold in
an ordinary supermarket is competition to us.
Because we are significantly smaller than our national competitors, we may
lack the financial resources needed to capture increased market share. Many of
our existing competitors and potential new competitors have:
- longer operating histories;
- greater name recognition;
- larger customer bases;
- more financial resources;
- more and larger facilities; and
- significantly greater financial, technical and marketing
resources.
If we compete with them for the same geographical markets, their financial
strength could prevent us from capturing those markets. Because of their
resources, our competitors may offer more attractive financial terms to
celebrities than we can to endorse products. They may also devote greater
resources than we can to the development, promotion and sale of their products.
They may develop products that are superior to or have greater market acceptance
than ours. Our competitors may also conduct more extensive research and
development, run more marketing campaigns, adopt more aggressive pricing
policies and provide more attractive services to our customers than we do.
Many other companies offer consumer products similar to ours. General
Mills, the maker of the cereal Wheaties, is one of the largest companies that
offer celebrity endorsed breakfast cereals. Johnson & Johnson makes one of the
best known adhensive bandages, Band-Aid. Many other companies in competition
with us have resources and experience far greater than we do. In addition,
additional companies may seek to enter this business if we succeed in developing
a successful business of developing and marking celebrity endorsed consumer
products.
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<PAGE>
LICENSE AGREEMENTS
Major League Baseball Properties, Inc.
--------------------------------------
We have a license with Major League Baseball Properties, Inc. granting us
the non-exclusive license to use the names, word marks, logos, uniform designs,
colors and color combinations, trade dress, characters, symbols, designs,
likenesses, visual representations, and such other similar or related
identifications of Major League Baseball Properties and certain teams in
connection with the manufacture, distribution, promotion, advertisement and sale
of our cereal products and adhesive bandages.
We are required to pay a minimum guaranteed compensation to Major League
Baseball Properties, against which royalties are credited, of $125,000 for the
rights granted under the agreement, of which $100,000 was paid on December 31,
1999, and $25,000 was paid on April 30, 2000. For our products, we are required
to pay royalties to Major League Baseball Properties in the amounts ranging from
one percent to seven percent of net sales.
Under the agreement, Major League Baseball Properties has agreed to
indemnify, defend and hold us and its owners, shareholders, directors, officers,
employees, agents, representatives, successors and assigns harmless from any
claims, suits, damages or costs arising from challenges to Major League Baseball
Properties' authority to license the rights granted to us or assertions to any
claim of right or interest in or to the rights granted to us and used on our
products, provided that we give prompt written notice, cooperates and assist in
any such claim or suit, and provided further that Major League Baseball
Properties has the option to undertake and conduct the defense of, and to
settle, any such suit at its sole discretion.
Under the agreement, we have agreed to indemnify, defend and hold Baseball
Properties, the Major League Baseball Clubs, the Leagues and the Office of the
Commissioner of Baseball and their respective owners, shareholders, directors,
officers, employees, agents, representatives, successors and assigns harmless
from any claims, suits, damages and costs arising out of:
- any unauthorized use of or infringement of any trademark, service
mark, copyright, patent, process, method or device by us in
connection with the licensed products;
- alleged defects or deficiencies in, or the use of, the licensed
products;
- false advertising, fraud, misrepresentation or other claims
related to the licensed products; the unauthorized use of the
licensed rights or any breach by us of the agreement;
- libel or slander against, or invasion of the right of privacy,
publicity or property of, or violation or misappropriation of any
other right of any third party; or
- agreements or alleged agreements made or entered into by us to
effectuate the terms of the agreement;
provided that Major League Baseball Properties gives us notice of the making of
any claim or the institution of any action. Major League Baseball Properties may
at its option participate in any action.
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<PAGE>
Major League Baseball Properties has the right to terminate the agreement
without any right to cure if:
- we fail to obtain or maintain liability insurance;
- any governmental agency or court of competent jurisdiction finds
that the licensed products are defective;
- we breach certain undertakings pursuant to the license; or
- we undergo a change in majority or controlling ownership.
Baseball Properties has the right to terminate the agreement if we default
on, and fail to cure within ten business days, the following occurrences:
- we fail to make timely payment;
- we fail to deliver an accounting statement or to give access to
our premises or license records;
- we are unable to pay our debts when due;
- we make any assignment for the benefit of creditors or an
arrangement pursuant to any bankruptcy law;
- we file or have filed against us any petition under the
bankruptcy or insolvency laws of any jurisdiction, county or
place;
- we shall have or suffer a receiver or trustee to be appointed for
our business or property;
- we are adjudicated a bankrupt or an insolvent;
- we fail to commence in good faith to manufacture, distribute and
sell each licensed product throughout the licensed territory
within any twelve month period;
- we discontinue our business as it is now conducted;
- we breach any term of the agreement; or
- our accounting statements furnished to Baseball Properties are
significantly or consistently understated.
The license period with expires on December 31, 2000. We have orally agreed
with Major League Baseball Properties to renew the license period for a two year
term on substantially similar terms as the current license agreement.
-25-
<PAGE>
Derek Jeter
-----------
We have an exclusive license with Turn 2, Inc., dated as of May 31, 1999,
to develop, manufacture, distribute, promote, and sell cereal products bearing
Jeter's name and likeness in the United States. We have the right to use Jeter's
name and likeness in connection with the advertisement and promotion by us of
the products in television, radio, print and point of purchase. We also have the
non-exclusive right to use Jeter's name and likeness in connection with certain
merchandise that may be featured on the back panel of the endorsed products
packaging, subject to the licensor's sole and exclusive discretion and approval.
The side panel of the products packaging shall feature a charity or other entity
of Jeter's sole choice.
As compensation, Turn 2 is entitled to eleven and one-half percent of the
invoice price of the cereal products shipped, and fifty percent of the gross
profits from the sale of related merchandise. We granted Turn 2 five year
options to purchase 50,000 shares of our common stock at $.15 per share. The
remuneration due to licensor is subject to upward adjustment to conform with the
highest then current remuneration paid by us to other Major League Baseball
players, with the exception of certain specified persons, under similar
licenses. All packaging costs shall be our sole responsibility.
If we, at any time or times during the license period, desire to register a
trademark or trademarks which include Jeter's name and likeness, or which relate
in any manner to Jeter, or to register us as a user thereof, all costs related
to any such trademarks shall be borne by us, and ownership of any such
trademarks shall rest solely in the name of Turn 2 or its designee. Upon
registration of any such trademark, Turn 2 shall grant to us a license for the
use of such registered trademark on or in connection with the advertisement,
promotion and sale of the products.
We may assign or transfer this agreement only with the prior written
consent of Turn 2. Turn 2 has the right to terminate the license term for up to
sixty days after it receives notice from us that we have merged or consolidated
with a third party.
The agreement provides that in no event shall Jeter or Turn 2 be liable to
us, or any party claiming through us, for any amount in excess of the royalties
actually received by Turn 2 under the license. The agreement provides that the
parties are not liable to each other for special, consequential, indirect,
exemplary or punitive damages, or for a loss of good will or business profits.
We are obligated to indemnify Turn 2, its agent, and Jeter from and against
all expenses, damages, claims, suits, actions, judgments and costs arising out
of the agreement, our breach of the agreement, or the negligence, actions,
errors or omissions of us or any claim or action for personal injury, death or
otherwise involving alleged defects in our products, provided that we are given
notice of any such action or claim.
The agreement may be terminated by the non-defaulting party if:
- the other party fails to make any payment of any sum of money
under the license and fails to cure within ten days of its
receipt of written notice of its default; or
- fails to observe or perform any of the terms of the agreement
other than the payment of money and fails to cure within thirty
days of its receipt of written notice of its default.
The right to cure applies only to a first-time default, and the agreement
may be terminated immediately for subsequent defaults. The license term, which
was to terminate on May 31, 2000, was orally extended through the 2000 Major
League Baseball season.
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<PAGE>
New York Mets
-------------
We have a promotional agreement, dated September 10, 1999, with Sterling
Doubleday Enterprises, L.P., 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, Sterling
Doubleday is obligated to inform Major League Baseball Properties of its
approval of our use of the Mets name and logos on our products.
We must maintain in effect throughout the term of the agreement a license
with the Major League Baseball Player's Association permitting us to feature the
images of eight or more Major League Baseball players on our cereal product. If
we decide to feature individual players or groups of less than eight players on
the cereal product, the parties are to obtain the consent of each such player
featured. If the parties decide to feature individual Mets players or groups of
less than eight players on the cereal, Sterling Doubleday is to cooperate in
good faith with our 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. Sterling Doubleday is responsible for any compensation paid
to any individual player.
Sterling Doubleday agreed to promote the sale of the cereal product:
- in one 15-second advertisement displayed on the Diamond Vision
scoreboard at Shea Stadium, which was to be displayed during each
Mets home game from August 6, 1999 through the end of the regular
season, and is to be displayed during each regular season home
game at Shea Stadium in the 2000 season;
- through two appearances by Mr. Met, the club mascot, in 1999 and
six appearances in 2000 at retail stores that sell the cereal
product;
- by allowing us to distribute product samples at Shea Stadium
turnstiles during three regular season home games in 1999 and
five regular season home games in the 2000 season;
- by allowing us to place advertisements of the cereal product on
the backs of 100,000 Mets pocket schedules in 2000;
- advertising the cereal product in the 2000 New York Mets
Yearbook.
Under the agreement, we received:
- the use of a 15-person Diamond View Suite at Shea Stadium on one
game date in 1999, and on three games dates in the 2000 season;
- four tickets to ten regular season home games in 1999 and the
right to purchase four tickets to the first three Mets 1999
playoff games at Shea Stadium;
- four tickets to 30 regular season Mets home games in 2000;
- the right to conduct and promote one contest in each of 1999 and
the 2000 seasons and to award prizes to retail purchasers of the
cereal product.
As compensation, we are to pay to Sterling Doubleday twelve and one-half
percent of net sales of all products covered by the agreement. The agreement
automatically renews on an annual basis unless Sterling Doubleday elects to
terminate the agreement. Sterling Doubleday is to provide comparable promotional
support and cooperation during each year the agreement remains in effect.
-27-
<PAGE>
Olympia Dukakis
---------------
We entered into an exclusive worldwide license agreement with Olympia
Dukakis as of March 1, 1997 to manufacture, distribute, promote and sell Greek
specialty food products bearing her name and likeness. Under the agreement, we
have the right to use the name, photograph, depiction, characterization,
likeness, voice, image and biographical data of Ms. Dukakis and the trademarks,
logos, copyrights and all other authorized material owned or controlled by Ms.
Dukakis.
We are responsible for all costs and expenses in connection with the
development, promotion, manufacturing, packaging, shipping, distribution, sales
and promotion of the product. We reserve all rights in the products, their
formulae and secret ingredients, or their packaging and labeling.
Ms. Dukakis is entitled to five percent of all monies received by us as
revenue derived from sale of the products. As additional compensation, we have
granted Ms. Dukakis warrants to purchase 100,000 shares of our common stock,
exercisable for five years at $1.00 per share.
The agreement can only be assigned with the prior written consent of the
other party. We are allowed to assign the agreement to a wholly-owned subsidiary
or to an entity owning at least 42.5% of our equity, in which event Ms. Dukakis
has the right to renegotiate the license terms.
The parties agreed to indemnify the other party 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 license may be terminated upon 45 days written notice if:
- a party breaches a material term of the agreement and fails to
remedy said breach within 30 days of its receipt of written
notice of the breach;
- a party becomes insolvent or files a petition in bankruptcy;
- we discontinue production and distribution of the products;
- Ms. Dukakis becomes the subject of public disrepute or scandal
that affects her image; or
- Ms. Dukakis dies or suffers any disability impairing her ability
to perform as an entertainer.
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<PAGE>
Britney Spears
--------------
We have a non-exclusive license with Britney Brands, Inc. to develop,
manufacture, package, advertise, promote and distribute bubble gum in plastic
CD-shaped cases throughout the world bearing Britney Spears' name, symbols,
logos, images, autographs, and approved likenesses. We are responsible for the
costs incurred in the manufacture, sale, distribution, or promotion of the
product.
Britney Brands reserves the right to manufacture, distribute, market and
sell similar or identical products for use in connection with premium sales,
promotional tie-ins, give-aways, home television sales, cable programs, vending
machines, electronic and Internet sales, direct mail and telephone sales,
in-theater sales, sales at theme parks, amusement parks, at concerts, shows and
other amusement or live entertainment attractions, radio sales, sales by or
through fan clubs and conventions, and fund-raisers.
As compensation, Britney Brands is entitled to royalty of 9% of net sales
on all units that we sell or that we distribute on for promotional, marketing or
goodwill purposes. If we provide a higher royalty rate to another pop musical
entertainment personality for a similar product, we will provide Britney Brands
with the same royalty rate. Britney Brands is entitled to an advance of
$150,000, of which $50,000 was paid at the signing of the license, $25,000 is
due by November 1, 2000 and $75,000 is due by July 31, 2002. Royalties are
credited against the advances. Britney Brands is entitled to a minimum royalty
guarantee of $150,000, including the advances. We agreed to make a
non-refundable payment of $10,000 to the Britney Spears Foundation. We issued to
Britney Brands warrants to purchase a total of 200,000 shares of our common
stock. The warrants are exercisable at $0.25 per share and terminate on November
22, 2004.
The intellectual property rights in the product and the marketing materials
that use the licensed subject matter are to vest with Britney Brands. Britney
Brands is permitted to withdraw some or all of the licensed subject matter from
the license if it determines that the exploitation may violate or infringe the
proprietary rights of third parties, or subject itself to any liability or
violate any law, court order, government regulation or other ruling of any
governmental agency.
Britney Brands is to indemnify, hold harmless and defend us and our
affiliates, officers, directors and employees against any claims, liabilities,
demands, and expenses arising solely out of our use of the licensed subject
matter. Britney Brands is not liable for any consequential damages or loss of
profits that we may suffer from the use of the licensed subject matter.
We are to indemnify and hold harmless Britney Brands and Signatures
Network, including their respective parents, subsidiaries, affiliates, officers,
directors, representatives, employees and agents from and against any and all
claims, liabilities, demands, causes of action, judgments, settlements and
expenses that arises in connection with:
- the design, manufacture, packaging, distribution, shipment,
advertising, promotion, sale, or exploitation of the Articles,
- our breach of any representation, warranty, or covenant, or
- our failure to perform any covenants or obligations contained in
the license.
-29-
<PAGE>
We may not assign the license unless otherwise previously agreed in writing
by Licensor.
Britney Brands has the right to immediately terminate the license upon
written notice if any of the following occurs:
- we make, sell, offer for sale, use or distribute any product
without prior written approval or continue to make, sell, offer
for sale, use or distribute any product after receipt of notice
withdrawing approval; or
- we become subject to any voluntary or involuntary order of any
government agency involving the recall of any of the products
because of safety, health or other hazard or risks to the public.
Britney Brands has the right to immediately terminate the license if we
fail to cure upon 7 days written notice if any of the following occurs:
- we fail to immediately discontinue the advertising, distribution
or sale of products which do not contain the appropriate legal
legend or notice;
- we breach any of the provisions of the license relating to the
unauthorized assertion of rights in the licensed subject matter;
- we fail to make timely royalty payments;
Britney Brands may terminate the license if we fail to cure a breach to its
satisfaction on 30 days prior written notice if:
- we fail to obtain or maintain insurance;
- we fail to distribute, ship and sell the product by June 1, 2000,
and to use best efforts in distribution, shipment and sale;
- we fail to timely submit preliminary samples of the product for
approval;
- a petition in bankruptcy is filed by or against us;
- we are adjudicated bankrupt or insolvent, or make an assignment
for the benefit of creditors or an arrangement pursuant to any
bankruptcy law;
- we discontinue our business;
- a receiver is appointed for us or our business and such receiver
is not discharged within 30 days;
- our corporation or any of our controlling shareholders, officers,
directors or employees take any actions in connection with the
manufacture, sale, distribution or advertising of the product
which damages or reflects adversely upon Britney Brands, Britney
Spears or the licensed subject matter; or
- we violate any of our other obligations or breach any of our
covenants, agreements, representations or warranties.
The license expires on October 29, 2002.
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<PAGE>
Dave Mirra
----------
We have an exclusive worldwide license with Dave Mirra, dated as of
December 22, 1999, to launch a line of chewing gun and a line of cereal products
bearing his name and likeness. We have the right to use the name, photograph,
characterization, likeness, voice, image, and biographical data of Dave Mirra,
and the right to use all other licenseable intellectual property rights held by
Mirra to his name, image or identity in connection with the development,
manufacture, distribution, promotion, and sale of the foods products. We have
all rights, titles, and interests in and to the products, their formulae and
secret ingredients, and their packaging and labeling.
Mirra is entitled to seven percent of revenues from the sale of the cereal
product. Mirra received three year warrants to purchase 25,000 shares of our
common stock at the purchase price of $.20 per share. We are responsible for all
costs and expenses in connection with the development, promotion, manufacturing,
packaging, shipping, distribution, sales and promotion of the products.
The agreement can only be assigned with the prior written consent of the
other party, except that we may assign the agreement to a wholly-owned
subsidiary or to an entity owning or acquiring a substantial portion of our
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 negligence or intentional acts of its officers,
directors, employees, or representatives, or including product liability. We
will indemnify Mirra for actions, claims, costs related to the products,
including damages allegedly caused by the products, the condition or quality of
the products, or the distribution of the products.
The license may be terminated upon 45 days written notice if:
- a party breaches a material term of the agreement and fails to
remedy said breach within 30 days of its receipt of written
notice of the breach;
- a party becomes insolvent or files a petition in bankruptcy;
- we fail to maintain quality standards;
- we discontinue production and distribution of the products;
- Mirra dies or retires from his occupation as an athlete; or
- Mirra becomes the subject of public disrepute or scandal that
affects his image.
The license terminates on December 31, 2002. At termination, we have the right
of first refusal to renew the license.
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<PAGE>
Tony Stewart
------------
We have a limited, non-transferable license with Redline Sports Marketing,
Inc. to manufacture, package, and ship mints bearing certain trademarks and
copyrights of Redline. The license grants us a non-exclusive right to use the
trademarks The Home Depot, Joe Gibbs Racing, Inc., #20, and Tony Stewart and the
copyrights for the name, likeness and signature of "Tony Stewart" and the
likeness of the #20 Joe Gibbs Racing Winston Cup Car in connection with the
mints. The license permits us to sell the mints in the United States and its
territories at race tracks or souvenir trailers or concenssionaires at racing
events.
As compensation, Redline is entitled to royalty of 15% of the net
wholesales price for each licensed product sold, without deducting manufacturing
or marketing costs. If we enter into any agreement to use the name or likenesses
of any other NASCAR team or personality which provides for a more favorable
royalty percentage, we agreed to give Redline the same higher royalty
percentage. Redline is to receive a minimum royalty guarantee of $5,000 against
which royalties are credited against.
We assigned and transferred to Redline the rights in the materials created
for the product, including the artwork and designs. We are responsible for all
costs in connection with the manufacture, packing, shipping, sale or other use
of the licensed products.
We agreed to hold harmless Redline from and against any and all loss,
expense, damage, or injury that Redline may sustain as a result of any claim for
damage or injury of any kind or nature arising out of the licensed products or
our actions or inactions in accordance with the license. Under the license,
except for defense of a claim and payment of accompanying damages to a claimant,
we agreed that Redline shall not be responsible for any damages or expenses
suffered by us as a result of the suspension or limitation of copyright or
trademark infringement, including consequential damages.
We may not to assign, sublicense, or subcontract without the prior approval
of Redline.
Either party may, by written notice, immediately terminate the license if
the other party shall:
- be dissolved, be adjudicated insolvent, bankrupt, or cease
operations, admit in writing its inability to pay its debts or
make a general assignment for the benefit of or enter into an
arrangement with creditors, or file for relief under any
insolvency law;
- apply for, or consent to the appointment of a receiver, trustee
or liquidator of all or a substantial part of its assets or
affairs, or authorize such application or consult to be commenced
against it which continues undismissed for 30 days; or
- be the subject of any other proceeding not defined above whereby
any substantial portion of the property or assets of such party
are or may be distributed among its creditors.
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<PAGE>
Redline has the right to terminate the license if:
- we fail to cure any payment due within 5 days;
- we fail to perform and cure any of the terms, conditions,
agreements or covenants in the license is agreement within 20
days of written notice.
- we undergo any substantial change in ownership or control;
- the Redline team undergoes substantial change, such as if the
sponsor withdraws or changes, if the driver changes teams, if the
car number changes or if the color scheme, logo scheme or make of
the car changes;
- we fail to maintain the insurance required;
- we do not introduce licensed products to the market within 90
days of execution of the license or continue to diligently pursue
sales;
- the quality of the licensed products is lower than the sample
products approved by Redline;
- we manufacture, sell, market or distribute any licensed products
or any promotional or packaging material, containers, cartons and
wrapping relating to the licensed products before obtaining
Redline's written approval of all required pre-production
submittals for each such item; or
- we use the licensed products or promotional or packaging material
relating to the licensed products without prior written approval
or continue to do so after notice of disapproval. At Redline's
discretion, we are obligated to pay Reline $5,000 per occurrence
for failing to follow proper approval procedures.
The license terminates on December 21, 2000.
'N SYNC
-------
We have a non-exclusive license with Winterland to manufacture, advertise,
distribute, and sell lip balm bearing 'N SYNC's name, symbols, emblems, designs,
service marks, trademarks, copyrights in graphic designs, logos, visual
representations, and likenesses of 'N SYNC in the United States and Canada.
Ownership of all intellectual property rights, including copyright, patent and
trademark rights, in the lip balm remain 'N SYNC's sole and complete property.
As compensation, Winterland is entitled to 9% of the wholesale selling
price on net sales of lip balms with a guaranteed minimum payment of $100,000.
We paid Winterland a non-refundable advance of $50,000 against royalties. We
will pay the balance of the guarantee as follows: $25,000 on or before November
1, 2000; and $25,000 on or before January 31, 2002. If we enter into a more
favorable license agreement with any third party for a similar product, we will
provide Winterland those favorable rates.
'N SYNC shall indemnify, hold harmless and defend us against any claims,
liabilities, demands, costs and expenses, including reasonable attorneys' fees,
arising out of any breach by 'N SYNC of any representation, warranty, or
agreement made.
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<PAGE>
We are to indemnify and hold 'N SYNC and its officers, directors and
shareholders harmless from:
- any claims or suits arising out of any alleged defects in the lip
balm;
- our unauthorized use of any patent, process, method, or device,
infringement of any copyright, trade name, patent, libel or
invasion of the rights of privacy or publicity or other property
rights;
- our failure to perform;
- our infringement or breach of any other personal or property
right of any person, firm, or corporation pursuant to contractual
agreement or any other relationship with us in connection with
the preparation, manufacture, distribution, advertising,
promotion or sale of lip balm or material relating to or naming
or referring to any performers, personnel, marks or elements.
We are to maintain a minimum insurance coverage of $1,000,000 combined,
single limit for each single occurrence for bodily injury and $100,000 for
property damage.
We may not assign the license unless otherwise previously agreed in
writing.
'N SYNC shall have the right to immediately terminate this Agreement upon
written notice to us upon the occurrence of any of the following:
- we manufacture, sell, offer for sale, use or distribute any lip
balm or advertising without having the prior written approval of
'N SYNC;
- we fail to place lip balm on sale to the general public on or
before the initial on-sale date, which is to be determined;
- we fail to actively manufacture, advertise, distribute, or sell
lip balm in all portions of the Licensed area;
- we fail to sell any lip balm during any calendar quarter;
- we fail to make any payment or furnish any statement in
accordance with the license agreement;
- we fail to comply with any other of our obligations, or in the
event a voluntary petition in bankruptcy is filed against us or
an involuntary petition in bankruptcy is filed against us and not
dismissed within 30 days thereafter or we take advantage of any
insolvency law;
then in any of such events, 'N SYNC shall have the right to:
- terminate this agreement; or
- delete from the operation of this agreement any element of the
lip balm or lip balm; or
- require immediate payment of all royalties then due or becoming
due, all upon written notice to us.
The license expires on April 30, 2002.
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<PAGE>
SOURCES AND AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS.
We engage third-party, private-label manufacturers to produce our products
according to the specifications and product formulas provided by us to such
manufacturer. We have not experienced and do not anticipate any difficulty in
meeting our current and anticipated sales objectives. Manufacturing facilities
are subject to regulations promulgated by the Food and Drug Administration. The
Food and Drug Administration and state regulatory agencies inspect the
facilities of manufacturers on a routine basis for regulatory compliance. We
cannot assure you that the third-party manufacturers can satisfy these
requirements. The table below lists the manufacturers that we utilize for our
products.
Manufacturer Location Consumer product
------------ -------- ----------------
Jasper Foods/Gilster-Mary-Lee Jasper, Missouri cereals
Marzetti Foods Canton, Ohio salad dressing
Amurol Confections Yorksville, Illinois bubble gum
Ragold Chicago, Illinois mints
Nutramax Products Glouchester, Massachusetts bandages
MAJOR CUSTOMERS
Although we target our products to a large number of supermarkets and upon
a broad customer base, to each of whom is sold relatively small quantities of
our products, in 1999, Safeway accounted for about 13% and Jewel Supermarkets
accounted for about 19% of our sales. These customers purchased products in
blocks and there is no on-going agreement for these customers to purchase our
products. We do not believe that loss of any one of these customers would have a
material adverse affect on our operations.
NEED FOR GOVERNMENT APPROVAL
Not applicable.
GOVERNMENT REGULATION
Not applicable.
RESEARCH AND DEVELOPMENT
Not applicable.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Not applicable.
EMPLOYEES
We have four full-time employees and one part-time employee.
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<PAGE>
OFFICE FACILITIES
We maintain our executive offices in approximately 1,341 square feet at New
York, New York, pursuant to a lease expiring on April 30, 2005, at a current
annual rent of $38,889 through August 2001. The annual rent will be $42,912 for
the term September 2001 through June 2003 and $42,935 for the term July 2003
through May 2005. We believe that our facility is suitable as our executive
offices and we have no present intentions to renovate or improve our facility or
seek new facilities. Our facility is adequately covered by insurance.
LEGAL PROCEEDINGS
We are not a party to, and none of our property is subject to, any pending
or threatened legal or governmental proceedings that will have a materially
adverse affect upon our financial condition or operation.
We are in a proceeding in which a consultant has instituted a suit seeking
damages of $19,700 in fees allegedly owed, plus interest, costs and attorneys'
fees, which we deny owing the consultant. We believe that resolution of this
litigation will not have a material adverse affect on our financial position. We
intend to vigorously defend the action, but we can give no assurance that we
will prevail in this litigation.
In October 2000, we commenced an action before the New York Supreme Court,
County of New York, against SKR Resources, Inc. alleging breach of contract and
conversion. On or about March 13, 2000, we entered into a contract with SKR
Resources in which we agreed to sell, indemnify, and transfer title to SKR
$457,104 worth of our products, and SKR agreed to establish a trade credit for
our benefit in the amount of $457,104. Additionally, SKR Resources promised to
place advertisements in several specific magazines, key to the launches of
several of our products. In the complaint, we alleged that SKR Resources failed
and neglected to perform the conditions of the contract by failing to establish
the trade credit for $457,104, and that SKR Resources also breached the contract
by not placing ads in several specific magazines. In the complaint, we also
alleged that SKR Resources converted the property by failing to establish a
trade credit in the amount of $457,104. In the proceeding, we seek a judgment
against SKR Resources in the sum of $457,104, together with interest from May
22, 2000, the costs and disbursements of the action, and for such other and
further relief. The complaint has only recently been served. We do not believe
that SKR Resources has any meritious defense to our claims despite the answer to
the statement of claims by SKR Resources denying all of our claims. The lawsuit
may or may not be resolved in the near future. We believe that the allegations
we made against SKR Resources have merit, and we expect that we may prevail in
the proceeding in whole or in part; however, we cannot be sure that we will
prevail, or that we will recover the relief sought, in whole or in part.
CHANGE IN ACCOUNTANTS
We did not have an independent certified accountant from April 30, 1996 to
May 28, 1998, during which time period we had no material operations. On May 28,
1998, we acquired FFNY, and the Board of Directors approved the election to
retain the services of FFNY's independent certified accountants, Freeman and
Davis LLP, who had served as FFNY's sole principal accountants since May 25,
1997.
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<PAGE>
OUR MANAGEMENT
The following persons are our present directors and executive officers.
Name Age Position
---- --- --------
Jason Bauer 30 Chairman of the Board, Chief Executive Officer,
President and Treasurer
Alex Weiderhorn 30 Director
Lisa Bauer 30 Director
Our directors are elected annually to serve for one year and hold office
until the next annual meeting of the shareholders and until their successors are
elected and qualified. Our officers are elected by the Board of Directors at the
first meeting after each annual meeting of our shareholders, and hold office
until their death, resignation or removal from office. Alex Weiderhorn became a
director on October 18, 2000.
None of the directors are directors of other reporting companies.
Family relationships that exist among our present officers and directors
are: Jason Bauer, our Chief Executive Officer, President and Chairman of the
Board of Directors, is the spouse of Lisa Bauer, a director.
None of our officers and directors have been involved in the past five
years in any of the following:
- bankruptcy proceedings;
- subject to criminal proceedings or convicted of a criminal act;
- subject to any order, judgment or decree entered by any court for
violating any laws relating to the business, securities or
banking activities; or
- subject to any order for violation of federal or state securities
laws or commodities laws.
Famous Fixins established an Audit Committee, which presently consists of
the following members of the Board of Directors: Jason Bauer and Alex
Weiderhorn. We formed the Audit Committee in fiscal year 2000, and the Audit
Committee did not meet in connection with the fiscal year ended December 31,
1999. The function of the Audit Committee includes reviewing internal financial
information, monitoring cash flow, budget variances and credit arrangements,
reviewing the audit program of Famous Fixins, reviewing with Famous Fixins's
independent accountants the results of all audits upon their completion,
annually selecting and recommending independent accountants, overseeing the
quarterly unaudited reporting process and taking such other action as may be
necessary to assure the adequacy and integrity of all financial information
distribution by Famous Fixins. The audit committee includes one non-employee
director whom Famous Fixins has determined is free of any relationship that
could influence his judgement as a committee member and is not associated with a
major vendor to, or a customer of, Famous Fixins.
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<PAGE>
MANAGEMENT PROFILES
JASON BAUER, Chief Executive Officer, President, Treasurer and Chairman of
the Board. Jason Bauer has served as our President, Treasurer and Chairman of
the Board since May 1998. In November 1995, he founded FFNY, which we acquired
in May 1998. From November 1995 to May 1998, he served as President and Chairman
of the Board of FFNY. He worked in the food and beverage industries throughout
his entire career. Before founding FFNY, from October 1994 through December
1996, Mr. Bauer was Regional Sales Manager for Krinos Foods, and from December
1996 through March 1997, he was National Sales Manager for Paradise Products, a
manufacturer and distributor of foods products in the United States. His
expertise includes new product introduction as well as implementation of sales
and marketing programs. From 1991 through 1994, Mr. Bauer was Sales Manager for
Tri-County Distributors, a beverage wholesaler, where he was responsible for
sales of over 100 beverage products. Mr. Bauer received a Bachelor of Science
degree in marketing and finance from Boston University in 1991.
ALEX WEIDERHORN, Director. Alex Weiderhorn became a director on October 18,
2000. From 1997 to the present, Alex Weiderhorn has been an account manager for
El Camino Resources International, Inc., in its Falls Church, Virginia office,
an information technology equipment leasing company. From 1995 to 1997, he was
the principal of Iver Financial Corp., a computer leasing consulting company
located in Washington, D.C. Weiderhorn received a Bachelor of Arts degree in
political science from Boston University in 1992 and a Masters of Business
Administration degree in finance from George Mason University in 1997.
LISA BAUER, Director. Lisa Bauer has served as our director since May 1998.
From 1997 to May 1998, she served as a director of FFNY. From July 1998 to the
present, she has worked at J.P. Morgan & Co. As a financial planner in its asset
management services area. From November 1997 to June 1998, she worked as an
investment manager at Circle Advisors, a financial planning and investment
advisory firm. From April through November 1997, she worked as an estate planner
for Smith Barney, and from February 1996 through March 1997, she worked as a
sales assistant for Lehman Brothers. From June 1993 through January 1996, she
worked as a sales assistant at J.P. Morgan.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation during our last three fiscal years, 1999, 1998 and 1997,
of our Chief Executive Officer and other of our most highly compensated
employees and all other officers and directors.
In reviewing the table below, also consider the following factors
concerning the presentation of the information:
- The compensation paid in fiscal year 1998 includes the operations
of FFNY prior to May 28, 1998. The compensation paid in fiscal
year 1997 refers to the operations of FFNY, a privately held
company at the time.
- The amount shown in the Other Annual Compensation column is the
dollar value of the lease payments for an automobile that we
provide for Jason Bauer.
- The amount shown in the All Other Compensation column is the
insurance premium under a life insurance policy that we provide
for Jason Bauer.
- Under an employment agreement, we granted Jason Bauer options to
purchase 1,500,000 shares of our common stock, valued at
approximately $522,450 at the time of grant. These options are
exercisable for five years at $.30 per share. These options are
to vest only after we achieve certain corporate milestones as
defined in his employment agreement. Options to purchase
1,200,000 are presently vested.
- The compensation for Michael Simon in fiscal year 1999 includes
$3,350 in compensation paid to him while he served as an
independent consultant to Famous Fixins.
- Michael Simon is entitled to as additional cash compensation,
reported in the Bonus column, an amount equal to five to ten
percent of royalties paid by us during the employment period to
certain celebrity licensors under license agreements.
- On June 2, 1998, we issued to Michael Simon 300,000 warrants to
purchase shares of our common stock, valued at $275,982. At that
time, Michael Simon served as an independent consultant to Famous
Fixins. The warrants are exercisable for six years at $1.00 per
share, subject to vesting at a rate of 60,000 per year.
Presently, 120,000 warrants are exercisable.
In reviewing the table below, the time when each person became, or resigned
as, a director or executive officer.
- Jason Bauer became a director and officer on May 28, 1998.
- Peter Zorich became a director and officer on May 28, 1998 and
resigned from those position on October 18, 2000.
- Lisa Bauer became a director and officer on May 28, 1998.
- Olympia Dukakis became a director and officer on May 28, 1998 and
resigned as a director on July 6, 1999.
- Michael Simon became a director and officer of Famous Fixins on
July 8, 1999 and resigned from this positions on October 18,
2000. He continues to serve as an employee of Famous Fixins
performing duties substantially similar to those required of him
when he held the title of Vice President.
- Alex Weiderhorn became a director on October 18, 2000 and is not
included in the compensation discussion in this prospectus.
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<PAGE>
Summary Compensation Table
<TABLE>
Long Term
Compensation
------------
Awards
------
Name and Other Securities
Principal Annual Underlying All Other
Position Year Salary Bonus Compensation Options/SARs Compensation
-------- ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jason Bauer 1999 $82,592 $ 0 $ 15,102 1,500,000 $ 610
President and Chairman 1998 $75,094 $ 0 $ 0 0 $ 0
of the Board 1997 $29,050 $ 0 $ 0 0 $ 0
Michael Simon 1999 $17,965 $20,596 $ 0 0 $ 0
Executive Vice President 1998 $ 0 $ 0 $ 0 0 $ 0
and Director 1997 $ 0 $ 0 $ 0 0 $ 0
Peter Zorich 1999 $ 0 $ 0 $ 0 0 $ 0
Executive Vice President, 1998 $ 0 $ 0 $ 0 0 $ 0
Treasurer, Secretary and 1997 $ 0 $ 0 $ 0 0 $ 0
Director
Lisa Bauer 1999 $ 0 $ 0 $ 0 0 $ 0
Director 1998 $ 0 $ 0 $ 0 0 $ 0
1997 $ 0 $ 0 $ 0 0 $ 0
Olympia Dukakis 1999 $ 0 $ 0 $ 0 0 $ 0
Director 1998 $ 0 $ 0 $ 0 0 $ 0
1997 $ 0 $ 0 $ 0 0 $ 0
</TABLE>
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<PAGE>
OPTION GRANTS
The table below sets forth information concerning options granted during
the 1999 fiscal year to those persons named in the preceding Summary
Compensation Table.
We granted a total of 1,500,000 options to one employee in the 1999 fiscal
year.
Under an employment agreement, we granted to Jason Bauer options to
purchase 1,500,000 shares of our common stock, valued at approximately $522,450
at the time of grant. These options are exercisable for five years at $.30 per
share. The options are to vest only after we achieve certain corporate
milestones as set forth in the employment agreement:
- options to purchase 600,000 shares are to vest following the
first fiscal year end in which we sign four new product
endorsement licenses or our earnings before interest, taxes,
depreciation and amortization exceeds $300,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more
new licenses or our earnings before interest, taxes, depreciation
and amortization exceeds $500,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more
new licenses or our earnings before interest, taxes, depreciation
and amortization exceeds $700,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more
new licenses or our earnings before interest, taxes, depreciation
and amortization exceeds $1,000,000.
These options are cumulative and are subject to anti-dilution rights. If
any of these milestones are achieved in the same year, all of the options vest
at the time the milestones are achieved. As of December 12, 2000, options to
purchase 1,200,000 shares of common stock have vested.
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
<TABLE>
Number of
Securities Percent of total
Underlying options/SARS granted Exercise or
Options/SARs to employees in base price Expiration
Name Granted (#) fiscal year ($/Sh) Date
---- ------------ -------------------- ----------- ----------
<S> <C> <C> <C> <C>
Jason Bauer 1,500,000 100% $.30 April 11, 2004
</TABLE>
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<PAGE>
OPTION EXERCISES AND VALUES FOR FISCAL 1999
The table below sets forth information concerning the value of unexercised
stock options as of December 31, 1999 for those individuals named in the Summary
Compensation Table.
The following factors should be considered when reviewing the table below:
- None of the options held by those individuals listed in the
Summary Compensation Table were exercised in fiscal year 1999.
- The dollar values were calculated by determining the difference
between the fair market value at fiscal year-end of the common
stock underlying the warrants and the exercise price of the
warrants. The last sale price of a share of our common stock on
December 31, 1999 as reported by OTC Bulletin Board was $0.25.
- The table reports that the options granted to Jason Bauer have
not vested. As of December 12, 2000, options to purchase
1,200,000 shares of common stock have vested.
- The options held by Michael Simon are exercisable at $1.00 per
share and therefore were not in-the-money as of December 31,
1999.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
Number of securities
Shares underlying unexercised Value of unexercised
Acquired Value Options/SARs in-the-money options/SARs
on Realized at FY-end (#) at FY-end ($)
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jason Bauer -- -- -- 1,500,000 -- $375,000
Michael Simon -- -- 60,000 240,000 -- --
</TABLE>
DIRECTOR COMPENSATION
We have never compensated members of the Board of Directors for their
services, and have never reimbursed directors for their reasonable out-of-pocket
expenses incurred in connection with their attendance at board meetings and for
other expenses incurred in their capacity as directors.
We presently do not have a defined compensation plan for members of our
Board of Directors. We reserve the right to compensate members of the Board of
Directors for their services on the Board at reasonable rates, including by
issuing stock options, and reimbursement of expenses for their attendance at
each Board meeting. Disclose resignation of Zorich On October 18, 2000, Peter
Zorich resigned as an executive officer and as a director of Famous Fixins.
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<PAGE>
EMPLOYMENT AGREEMENT WITH NAMED EXECUTIVE OFFICER
Jason Bauer, Chief Executive Officer, President
-----------------------------------------------
We have an employment agreement with Jason Bauer to serve as President and
Chief Executive Officer for a term of five years ending April 11, 2004. The
agreement provides for a current annual salary of $150,000, with cost-of- living
adjustments tied to the Consumer Price Index. Beginning in the third year of the
employment term, his base annual salary is to increase by an amount equal to one
percent of our earnings before interest, taxes, depreciation and amortization in
the most recent fiscal year.
He has been granted options to purchase 1,500,000 shares of our common
stock, valued at approximately $522,450 at the time of grant. These options are
exercisable for five years at $.30 per share and vest only
after we achieve certain corporate milestones as follows:
- options to purchase 600,000 shares are to vest following the
first fiscal year end in which we sign four new product
endorsement licenses or our earnings before interest, taxes,
depreciation and amortization exceeds $300,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more
new licenses or our earnings before interest, taxes, depreciation
and amortization exceeds $500,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more
new licenses or our earnings before interest, taxes, depreciation
and amortization exceeds $700,000;
- additional options to purchase 300,000 more shares are to vest
following the first fiscal year end in which we sign three more
new licenses or our earnings before interest, taxes, depreciation
and amortization exceeds $1,000,000.
These options are cumulative and are subject to anti-dilution rights. If any of
these milestones are achieved in the same year, all of the options vest at the
time the milestones are achieved. As of December 12, 2000, 1,200,000 options
have vested.
He is also to receive an annual performance bonus equal to up to fifty
percent of his base salary, or such other amount as the Board of Directors may
determine. He is also entitled to:
- death benefits of $100,000;
- medical and dental insurance;
- six weeks vacation;
- a fifteen year term life insurance policy with a face amount of
benefit of $1,000,000 and a beneficiary as designated by him; -
an automobile for his exclusive use;
- reimbursement for reasonable travel and other business related
expenses; and
- other bonuses to be determined by the Board of Directors.
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<PAGE>
If we undergo a change of control, he is to receive a golden parachute
payment equal to 290% of his base salary, and he has the right to terminate his
employment agreement. A change of control refers to any of the following
situations:
- a change in our ownership or management that would be required to
be reported in response to certain provisions of the Securities
Exchange Act of 1934;
- an acquisition by a person or entity, excluding us, of 25% or
more of our common stock or our then outstanding voting
securities;
- a change in a majority of the current Board of Directors, other
than in connection with an actual or threatened proxy contest;
- completion of a reorganization, merger, consolidation or sale of
all or substantially all of our assets; or
- the approval by our stockholders of our complete liquidation or
dissolution.
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<PAGE>
OWNERSHIP OF SECURITIES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth the shares of our common stock beneficially
owned by each officer, by each director, by all of our officers and directors as
a group, and by each person known to us to be the beneficial owner of more than
5% of the outstanding shares of common stock. All persons named in the table
have the sole voting and dispositive power, unless otherwise indicated, with
respect to common stock beneficially owned.
The following factors about the presentation of the table should also be
considered in reviewing the table:
- beneficial ownership is determined as of December 12, 2000, when
we had 13,941,264 shares of common stock outstanding;
- beneficial ownership of shares underlying outstanding options and
warrants that are exercisable are listed under the acquirable
within 60 days column;
- for purposes of calculating the percentage of beneficially owned
shares with respect to each owner, we have given effect to shares
acquirable within 60 days; and
- no effect is given to shares of common stock issuable pursuant to
this registration statement after its effectiveness as such
shares are issuable only under the terms of a common stock
purchase agreement and are not expected to be acquired within 60
days.
The following factors about the certain shareholders should also be
considered in reviewing the table:
- Jason Bauer owns 2,389,747 shares and has exercisable options to
acquire 1,200,000 shares. Peter Zorich owns 2,409,747 shares of
common stock. Jason Bauer and Peter Zorich are each deemed the
beneficial owner of the shares of common stock held by the other
pursuant to a voting agreement. Terms of the voting agreement are
more fully discussed under the section entitled Certain
Relationship and Related Transactions in this prospectus.
- Each of Roseworth Group, Austost Anstalt Schaan, Balmore Funds,
AMRO International, and Folkinburg Investments may not own more
than 9.9% of our common stock at any time. That 9.9% limit on
ownership is given effect for purposes of computing
ownership of AMRO International in the table below.
- AMRO International is deemed a beneficial owner of 101,202 shares
acquirable upon the exercise of common stock purchase warrants
and up to 1,278,983 shares acquirable upon the conversion of 5%
convertible debentures with a principal amount of $38,975,
assuming conversion at $0.03 per share, subject to a 9.9%
ownership limit. AMRO International can acquire up to 1,299,167
shares upon the conversion of the 5% convertible debentures,
assuming conversion at $0.03 per share, if the 9.9% limit does
not apply.
- Roseworth Group is deemed a beneficial owner of 1,250,000 shares
acquirable upon the exercise of common stock purchase warrants.
Roseworth Group could acquire up to an additional 21,666,667
shares upon the conversion of the 4% convertible debentures with
a principal amount of $650,000, assuming conversion at $0.03 per
share, if the 9.9% limit does not apply.
- Balmore Funds is deemed a beneficial owner of 893,975 shares
acquirable upon the exercise of common stock purchase warrants.
Balmore Funds could acquire up to an additional 15,833,333
shares upon the conversion of the 4% convertible debentures with
a principal amount of $475,000, assuming conversion at $0.03 per
share, if the 9.9% limit does not apply.
- Austost Anstalt Schaan is deemed a beneficial owner of 643,975
shares acquirable upon the exercise of common stock purchase
warrants. Austost Anstalt Schaan could acquire up to an
additional 12,500,000 shares upon the conversion of the 4%
convertible debentures with a principal amount of $375,000,
assuming conversion at $0.03 per share, if the 9.9% limit does
not apply.
- Folkinburg Investments is deemed a beneficial owner of 500,000
shares acquirable upon the exercise of common stock purchase
warrants. Folkinburg Investments could acquire up to an
additional 300,000,000 shares pursuant to drawdowns on a common
stock purchase agreement, assuming conversion at $0.05 per share,
if the 9.9% limit does not apply.
The address of each of the persons named in the table, unless otherwise
indicated, is Famous Fixins, Inc., 250 West 57th Street, Suite 1112, New York,
New York 10701.
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<PAGE>
<TABLE>
Name and Address Amount and Nature Shares Acquirable Percent
Title of Class of Beneficial Owner of Beneficial Owner within 60 days After Offering
-------------- ----------------------------- ------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Common Stock AMRO International, S.A. 0 1,380,185 9.9%
Grossmuensterplatz 6
Zurich, CH-8022, Switzerland
Common Stock Roseworth Group Ltd. 0 1,250,000 8.2%
Aeulestrasse 74
FL-9490 Vaduz, Liechtenstein
Common Stock Balmore Funds, S.A. 0 893,975 6.0%
Trident Chambers
Road Town, Tortola
British Virgin Islands
Common Stock Austost Anstalt Schaan 0 643,975 4.4%
Landstrasse 163
9494 Furstenweg
Vaduz, Liechtenstein
Common Stock Folkinburg Investments 0 500,000 3.5%
c/o Mischon deReya Solicitors
21 Southhampton Row
London WC1B5HS England
Common Stock Peter Zorich 4,799,494 1,200,000 39.6%
Common Stock Jason Bauer 4,799,494 1,200,000 39.6%
Common Stock Alex Weiderhorn 25,000 0 0.2%
Common Stock Lisa Bauer 0 0 0.0%
Common Stock All officers and directors 4,824,494 1,200,000 39.8%
as a group (3 persons)
</TABLE>
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<PAGE>
CHANGES IN CONTROL
There is no arrangement which may result in a change in control of Famous
Fixins.
Jason Bauer and Peter Zorich have been parties to a certain voting
agreement that provides which each of Bauer and Zorich shall vote his shares for
the election of the other as a director of Famous Fixins. For the election of
any additional director, Bauer and Peter Zorich shall vote his shares for the
election of each other's designee, provided that at least two directorships
shall need to be filled. The agreement also provided that they will vote for the
election of Jason Bauer as President and Chief Executive Officer and Peter
Zorich as Executive Vice President of Famous Fixins. The agreement expires on
June 30, 2001, unless earlier terminated by written agreement signed by both
parties. In connection with Zorich's resignation in October 2000, Zorich has
agreed to waive the terms of the voting agreement that require Bauer to vote his
shares to elect Zorich as a director and as Executive Vice President of Famous
Fixins. They also agreed not to offer to sell, sell, transfer, assign,
hypothecate, pledge or otherwise dispose of any beneficial interest in their
voting shares except subject to the terms of the voting agreement, unless prior
written consent is obtained from the other party that such shares shall not be
subject to the voting agreement or unless the shares are sold to an independent
third party in an arms'-length transaction for fair market value.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 28, 1998, we completed the acquisition of FFNY, a privately-held
New York corporation formed on November 29, 1995in a transaction viewed as a
reverse acquisition. Immediately prior to the acquisition, Jason Bauer was the
President, Chairman of the Board, and a principal of FFNY, and Peter Zorich was
the Executive Vice President, Secretary, a director, and a principal of FFNY.
Pursuant to a Plan and Agreement of Reorganization, we issued 5,494,662 shares
of common stock to certain shareholders of FFNY which included the controlling
shareholders of FFNY, Jason Bauer and Peter Zorich, in a transaction deemed to
be exempt under Section 4(2) of the Securities Act of 1933. Pursuant to the
reorganization, Jason Bauer, Peter Zorich, Michael Simon, and certain
non-affiliates of FFNY, exchanged their shares of FFNY for an aggregate of
5,494,662 shares of our common stock, on a pro-rata basis. Pursuant to the
acquisition, our officers and directors resigned and elected the FFNY nominees
in their places, and FFNY become a majority-owned subsidiary of Famous Fixins.
Jason Bauer, Peter Zorich, and Michael Simon had acquired their 95, 95 and 5
common shares, respectively, of FFNY on August 21, 1996 for a total cost of less
than $10. On October 29, 1997, FFNY authorized, and on January 23, 1998, FFNY
filed, a Certificate of Amendment of the Certificate of Incorporation to change
and increase the authorized capital stock of FFNY from 200 common shares, no par
value, into 20,000,000 shares of common stock, par value $.001. All the
shareholders of FFNY exchanged their collective 200 common shares with no par
value, proportionately, for a total of 4,000,000 shares of common stock, par
value $.001 per share, of FFNY. Pursuant to our acquisition of FFNY, Jason
Bauer, Peter Zorich, Michael Simon, and certain non-affiliates exchanged their
collective 4,104,328 shares of FFNY, representing approximately 97% of the
outstanding shares of FFNY, for an aggregate of 5,494,662 shares of Famous
Fixins.
On May 28, 1998, we exchanged all of the 246,828 warrants of FFNY
outstanding for 246,828 of our warrants on a one for one basis. As part of the
exchange of warrants, we issued to Olympia Dukakis 100,000 warrants, valued at
$91,994, to purchase shares of our common stock, exercisable for five years at
$1.00 per share, in exchange for her 100,000 five year warrants to purchase the
common stock of FFNY at $1.00 per share. She acquired her warrants pursuant to
license arrangements. At that time, she served on our Board of Directors, and
previously had been a director of FFNY. Olympia Dukakis resigned from our Board
of Directors on July 6, 1999.
On June 2, 1998, we issued 300,000 warrants to purchase shares of our
common stock to Michael Simon for publicity services valued at $275,982 to be
rendered to us over a five year period, in a transaction deemed to be exempt
under Section 4(2) of the Securities Act of 1933. Michael Simon was our Vice
President of Publicity, in a non-officer capacity, at the time of the issuance.
The warrants are exercisable for six years at $1.00 per share, subject to
vesting at a rate of 60,000 per year and subject to other conditions of
performance of services to us. On July 8, 1999, Michael Simon became an officer
and director of Famous Fixins.
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Jason Bauer and Peter Zorich have been parties to a certain voting
agreement that provides which each of Bauer and Zorich shall vote his shares for
the election of the other as a director of Famous Fixins. For the election of
any additional director, Bauer and Peter Zorich shall vote his shares for the
election of each other's designee, provided that at least two directorships
shall need to be filled. The agreement also provided that they will vote for the
election of Jason Bauer as President and Chief Executive Officer and Peter
Zorich as Executive Vice President of Famous Fixins. The agreement expires on
June 30, 2001, unless earlier terminated by written agreement signed by both
parties. In connection with Zorich's resignation in October 2000, Zorich has
agreed to waive the terms of the voting agreement that require Bauer to vote his
shares to elect Zorich as a director and as Executive Vice President of Famous
Fixins. They also agreed not to offer to sell, sell, transfer, assign,
hypothecate, pledge or otherwise dispose of any beneficial interest in their
voting shares except subject to the terms of the voting agreement, unless prior
written consent is obtained from the other party that such shares shall not be
subject to the voting agreement or unless the shares are sold to an independent
third party in an arms'-length transaction for fair market value.
On April 12, 1999, we granted Jason Bauer, pursuant to an employment
agreement to serve as President and Chief Executive Officer, 5-year options to
purchase up to 1,500,000 shares of our common stock, proportioned to vest only
after we achieve certain corporate milestones. The options are exercisable at
$.30 per share. These options are cumulative and are subject to anti-dilution
rights. If any milestones are achieved in the same year, all such options shall
vest at the time such milestone is achieved. These options were valued at
approximately $522,450 at the time of issuance. On April 3, 2000, options to
purchase up to 1,200,000 shares of common stock vested and those options can be
exercised beginning in October 2000.
On October 19, 1999, we entered into agreements with AMRO International,
S.A., Austost Anstalt Schaan and Balmore Funds, S.A. for the sale of a total of
$550,000 five percent convertible debentures and warrants to purchase 139,152
shares of common stock in transactions deemed to be exempt under Section 4(2) of
the Securities Act of 1933. We received gross proceeds of $450,000 in October
1999, and an additional $100,000 in February 2000. The interest on the
convertible debentures is payable quarterly and accrues from the date of
issuance on the principal amount of the convertible debentures. The convertible
debentures are due October 30, 2002. At our option, we may pay the interest on
the convertible debentures in cash or in registered shares of common stock. The
holders of the convertible debentures are entitled to convert the debentures
into shares of common stock at a conversion price equal to the lower of 80% of
the market price of the common stock or $0.55. If the conversion price of the
common stock is less than $0.20 per share on any conversion date, we may elect
to redeem the debentures in their entirety or to deliver to the holders either
cash or common stock or a combination of cash and common stock. The amount of
cash to be delivered upon such redemption or conversion shall equal the closing
ask price on the conversion date or the date we give notice of redemption
multiplied by the number of shares of common stock that would have been issued
at the conversion price upon such conversion or redemption. The warrants are
exercisable before October 30, 2004 at a purchase price of $.494 per share,
which is 125% of the market price of the common stock on the closing date. At
our expense, we filed a registration statement, which was declared effective on
February 8, 2000, under the Securities Act of 1933 for the resale of the shares
of common stock issuable upon the conversion of the debentures and the exercise
of the warrants. Debentures with a principal of $38,975 remain outstanding. None
of the warrants have been exercised.
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We entered into an agreement, dated as of March 7, 2000, with Roseworth
Group, Ltd., Austost Anstalt Schaan and Balmore Funds, S.A. for the sale of a
total of 0% convertible debentures, convertible at $0.40 per share, with a
principal amount of $1,000,000 due March 13, 2005 and warrants to purchase
2,500,000 shares of common stock 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 warrants are exercisable before March 13, 2005 at
a purchase price of $.75 per share. In October 2000, we entered into an
agreement for the sale of $1,500,000 principal amount of 4% convertible
debentures pursuant to which the outstanding principal amount of the 0%
convertible debentures were surrendered.
On March 13, 2000, Jason Bauer sold 15,000 shares at $0.60 per share and
5,000 shares at $0.61 per share in the open market.
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We entered into agreements, dated as of October 27, 2000, for the sale of
4% convertible debentures with a principal amount of $1,500,000 and warrants to
purchase 250,000 shares of common stock with Roseworth Group Ltd., Austost
Anstalt Schaan and Balmore S.A., in transactions deemed to be exempt under
Section 4(2) of the Securities Act of 1933. The transaction closed on November
7, 2000. We made a determination that the three investors were sophisticated
investors with enough knowledge and experience in business to evaluate the risks
and merits of the investment. The principal amount of the 4% convertible
debentures is $1,500,000, consisting of:
- principal in the amount of $500,000, of which $250,000 was
provided by Roseworth Group, $125,000 was provided by Austost
Anstalt Schaan, and $125,000 was provided by Balmore Funds; and
- the surrender of outstanding 0% convertible debentures with a
principal amount of $1,000,000, issued pursuant to the
Convertible Debenture and Warrants Purchase Agreement, dated
March 7, 2000, of which a principal amount of $400,000 was held
by Roseworth Group Ltd., a principal amount of $250,000 was held
by Austost Anstalt Schaan, and a principal amount of $350,000 was
held by Balmore Funds.
The 4% convertible debentures are due on August 7, 2001 with a 5% premium
on the principal and the accrued unpaid interest. We may not pay the principal
before the maturity date without the express written consent of the investors.
Semi-annual interest payments are due and payable on December 1 and June 1 of
each year, commencing with December 1, 2000. We entered into an equity line of
credit transaction on October 31, 2000, for which the shares issuable upon
drawdowns on the equity line are the subject of this registration statement. If
we are unable to pay the amounts due on the maturity date but we can draw down
on the equity line of credit, we are to draw down the maximum amount each draw
down period to pay the investors the full amount due. On or after the maturity
date, the investors may convert the 4% convertible debentures into shares of
common stock if this registration statement is not effective on the maturity
date or if we do not draw down the maximum amount permitted each drawdown period
under the equity line after this registration statement is effective. The
conversion price shall equal the lesser of $0.054 or 85% of the average of the 5
lowest closing bid prices during the 22 trading days preceding the applicable
conversion date. 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 to purchase 250,000 shares of
common stock are exercisable before November 7, 2003 at a purchase price of per
share of $0.0588. Of these warrants, Roseworth Group owns warrants to purchase
108,333 shares, Austost Anstalt Schaan owns warrants to purchase 62,500 shares,
and Balmore Funds owns warrants to purchase 79,167 shares. Under the agreements,
we agreed to prepare and file a registration statement under the Securities Act
for shares of common stock issuable upon the conversion of the convertible
debentures and the warrants within 45 days of the closing date of the
transaction. We agreed to use our best efforts to cause the registration
statement to become effective within 90 days of the closing date or 5 days of
SEC clearance to request acceleration of effectiveness. At the closing of the
transaction, we received gross proceeds of $500,000, less payment to the escrow
agent, Epstein Becker & Green P.C., of $10,000 for the investors' legal,
administrative and escrow costs, and less payment of a 10% placement agent fee
to Union Atlantic, L.C., which placement agent fee is net of payment to the
escrow agent, Epstein Becker & Green P.C., of $5,000 for the investors' legal,
administrative and escrow costs. We also issued to Union Atlantic, L.C. 75,000
shares of restricted common stock and a warrant to purchase 100,000 shares of
common stock as part of the placement agent fee. The warrants are exercisable
before November 7, 2003 at a purchase price per share of $0.0588. We agreed to
include such securities to the placement agent in the registration statement for
the resale of the common stock underlying the 4% convertible debentures and
warrants.
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We signed a common stock purchase agreement with Folkinburg Investments
Limited, dated as of October 31, 2000, for the future issuance and purchase of
shares of our common stock in a transaction deemed to be exempt under Section
4(2) of the Securities Act of 1933. We made a determination that Folkinburg
Investments was a sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment. The common stock
purchase agreement establishes what is sometimes termed an equity line of credit
or an equity drawdown facility. In general, the drawdown facility operates as
follows: the investor, Folkinburg Investments, has committed to provide us with
up to $5 million as we request it over a 24 month period, in return for shares
of common stock we issue to Folkinburg Investments. Subject to a maximum of 16
draws, once every 29 trading days, we may request a draw of up to $5 million of
that money, however, no single draw can exceed $5 million. We must wait at least
7 trading days after each 22 trading day drawdown period before requesting
another drawdown. The maximum amount we actually can draw down upon each request
will be determined by 4.5% of the volume-weighted average daily price of our
common stock for the 3 month period prior to our request and the total trading
volume for the 3 months prior to our request. Each draw down must be for at
least $100,000. At the end of a 22-day trading period following the drawdown
request, the final drawdown amount is determined based on the volume-weighted
average stock price during that 22-day period. We then use the formulas
contained in the common stock purchase agreement to determine the number of
shares we will issue to Folkinburg Investments in return for that money. The per
share dollar amount Folkinburg Investments pays for our common stock for each
drawdown includes a 17.5% discount to the average daily market price of our
common stock for the 22-day period after our drawdown request, weighted by
trading volume. We will receive the amount of the drawdown less an escrow agent
fee equal to $1,500 per drawdown and less a 10% placement fee payable to the
placement agent, Union Atlantic, L.C., which introduced Folkinburg Investments
to us. In lieu of making a commitment to Folkinburg Investments to draw a
minimum aggregate amount, on October 31, 2000, we issued to Folkinburg
Investments a stock purchase warrant to purchase up to 500,000 shares of our
common stock and we also agreed to issue additional warrants to purchase a
number of shares equal to 50% of the shares purchased by Folkinburg Investments
on the settlement date of each drawdown. The warrants to purchase 500,000 shares
of common stock have an exercise price per share of $0.0636, which equals 110%
of the volume-weighted average share price for the trading day prior to the date
the warrants were issued, and expire on October 31, 2003. The additional
warrants issuable at each settlement date will be exercisable for 35 calendar
days and have an exercise price equal to the weighted average of the purchase
prices of the common stock during the applicable settlement period. We agreed to
file file a registration statement under the Securities Act for shares of common
stock issuable under the equity line of credit, including shares underlying
warrants issued in connection with the equity line of credit, within 45 days of
the closing date of the transaction. We agreed to use our best efforts to cause
the registration statement to become effective within 90 days of the closing
date or 5 days of SEC clearance to request acceleration of effectiveness. At the
closing of the transaction, we paid the escrow agent, Epstein Becker & Green
P.C., $10,000 for Folkinburg Investments' legal, administrative and escrow
costs.
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SELLING STOCKHOLDER
Overview
The shares of our common stock registered for resale under this prospectus
constitute 2,155% of our issued and outstanding common shares as of December 7,
2000. The number of shares we are registering is based in part on:
- our good faith estimate of 200,000,000 shares as the maximum
number of shares we will issue to Folkinburg Investments under
the common stock purchase agreement; and
- our good faith estimate of 100,500,000 shares as the maximum
number of shares that we will issue to Folkinburg Investments
under common stock purchase warrants issued or issuable in
connection with drawdowns on the common stock purchase agreement.
Accordingly, the number of shares we are registering for issuance under the
common stock purchase agreement and the common stock purchase warrants may be
higher than the number we actually issue under the common stock purchase
agreement and the related common stock purchase warrants.
Folkinburg Investments Limited
Folkinburg Investments is engaged in the business of investing in publicly
traded equity securities for its own account. Folkinburg Investments' principal
offices are located at c/o Mischon deReya Solicitors, 21 Southhampton Row London
WC1B5HS England. Investment decisions for Folkinburg Investments are made by its
board of directors. Other than the stock purchase warrant we issued to
Folkinburg Investments in connection with closing the common stock purchase
agreement, Folkinburg Investments does not currently own any of our securities
as of the date of this prospectus. Other than its obligation to purchase shares
of our common stock under the common stock purchase agreement, it has no other
commitments or arrangements to purchase or sell any of our securities. There are
no business relationships between Folkinburg Investments and Famous Fixins other
than the common stock purchase agreement and the related common stock purchase
warrants, except that we agreed pursuant to the 4% convertible debentures
agreement that we entered into on October 27, 2000 to enter into an equity line
of credit agreement.
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PLAN OF DISTRIBUTION
General
Folkinburg Investments is offering the shares of common stock for its
account as statutory underwriter, and not for our account. We will not receive
any proceeds from the sale of common shares by Folkinburg Investments.
Folkinburg Investments may be offering for sale up to 300,500,000 shares of
common stock acquired or acuirable by it pursuant to the terms of the stock
purchase agreement, more fully described under the caption "Folkinburg Common
Stock Purchase Agreement" in the Description of Our Securities section, and the
stock purchase warrant we issued or will issue to Folkinburg Investments in
connection with the transaction. Folkinburg Investments has agreed to be named
as a statutory underwriter within the meaning of the Securities Act of 1933, as
amended, in connection with such sales of common stock and will be acting as an
underwriter in its resales of the shares of common stock under this prospectus.
Folkinburg Investments has, prior to any sales, agreed not to effect any offers
or sales of the common shares in any manner other than as specified in the
prospectus and not to purchase or induce others to purchase shares of common
stock in violation of any applicable state and federal securities laws, rules
and regulations and the rules and regulations of The National Association of
Securities Dealers.
To permit Folkinburg Investments to resell the common shares issued to it
under the stock purchase agreement, we agreed to register those shares and to
maintain that registration. To that end, we have agreed with Folkinburg
Investments that we will prepare and file such amendments and supplements to the
registration statement and the prospectus as may be necessary in accordance with
the Securities Act and the rules and regulations promulgated thereunder, to keep
it effective until the earliest of any of the following dates:
- the date after which all of the shares of common stock held by
Folkinburg Investments or its transferees that are covered by the
registration statement have been sold by Folkinburg Investments
or its transferees pursuant to such registration statement;
- the date after which all of the shares of common stock held by
Folkinburg Investments or its transferees that are covered by the
registration statement of which this prospectus is a part have
been sold under the provisions of Rule 144 under the Securities
Act;
- the date after which all of the shares of common stock held by
Folkinburg Investments or its transferees that are covered by the
registration statement have been transferred to persons who may
trade such shares without restriction under the Securities Act
and we have delivered new certificates or other evidences of
ownership of such common shares without any restrictive legend;
- the date after which all of the shares of common stock held by
Folkinburg Investments or its transferees that are covered by the
registration statement may be sold, in the opinion of our
counsel, without any time, volume or manner limitations under
Rule 144(k) or similar provision then in effect under the
Securities Act; or
- the date after which none of the shares of common stock held by
Folkinburg Investments that are covered by the registration
statement are or may become issued and outstanding.
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Shares of common stock offered through this prospectus may be sold from
time to time by Folkinburg Investments, or by pledgees, donees, transferees or
other successors in interest to Folkinburg Investments. We will supplement this
prospectus to disclose the names of any pledgees, donees, transferees or other
successors in interest that intend to offer common stock through this
prospectus.
Sales may be made on the OTC Bulletin Board, or otherwise at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated private transactions, or in a combination of these methods. The
selling stockholders will act independently of us in making decisions with
respect to the form, timing, manner and size of each sale. We have been informed
by the selling stockholders that there are no existing arrangements between any
selling stockholder and any other stockholder, broker, dealer, underwriter or
agent relating to the sale or distribution of shares of common stock which may
be sold by selling stockholders through this prospectus. Selling stockholders
may be deemed underwriters in connection with resales of their shares.
The shares of common stock may be sold in one or more of the following
manners:
- a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent, but may position and resell
a portion of the block as principal to facilitate the
transaction;
- purchases by a broker or dealer for its account under this
prospectus; or
- ordinary brokerage transactions and transactions in which the
broker solicits purchases.
In effecting sales, brokers or dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate. Except as disclosed in
a supplement to this prospectus, no broker-dealer will be paid more than a
customary brokerage commission in connection with any sale of shares of common
stock by the selling stockholders. Brokers or dealers may receive commissions,
discounts or other concessions from the selling stockholders in amounts to be
negotiated immediately prior to the sale. The compensation to a particular
broker-dealer may be in excess of customary commissions. Profits on any resale
of shares of common stock as a principal by such broker-dealers and any
commissions received by such broker-dealers may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended. Any
broker-dealer participating in such transactions as agent may receive
commissions from the selling stockholders, and, if they act as agent for the
purchaser of shares of common stock, from such purchaser.
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Broker-dealers may agree with the selling stockholders to sell a specified
number of shares of common stock at a stipulated price per share, and, to the
extent a broker dealer is unable to do so acting as agent for the selling
stockholders, to purchase as principal any unsold shares of common stock at a
price required to fulfill the broker-dealer commitment to the selling
stockholders. Broker-dealers who acquire shares of common stock as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
shares commissions computed as described above. Brokers or dealers who acquire
shares of common stock as principal and any other participating brokers or
dealers may be deemed to be underwriters in connection with resales of the
shares.
In addition, any shares of common stock covered by this prospectus which
qualify for sale pursuant to Rule 144, may be sold under Rule 144 rather than
pursuant to this prospectus. We will not receive any of the proceeds from the
sale of these shares, although we have paid the expenses of preparing this
prospectus and the related registration statement of which it is a part, and
have reimbursed Folkinburg Investments $10,000 for its legal, administrative and
escrow costs.
Folkinburg Investments and each of the other selling stockholders are
subject to the applicable provisions of the 1934 Securities Exchange Act,
including without limitation, Rule 10b-5 thereunder. Under applicable rules and
regulations under the Exchange Act, any person engaged in a distribution of
shares of common stock may not simultaneously engage in market making activities
with respect to such securities for a period beginning when such person becomes
a distribution participant and ending upon such person's completion of
participation in a distribution, including stabilization activities in the
shares to effect covering transactions, to impose penalty bids or to effect
passive market making bids. In addition, in connection with the transactions
involving shares of common stock, Folkinburg Investemtns and Famous Fixins will
be subject to applicable provisions of the Exchange Act and the rules and
regulations under that Act, including, without limitation, the rules set forth
above. These restrictions may affect the marketability of the shares.
The selling stockholders will pay all commissions and their own expenses,
if any, associated with the sale of shares of the common stock, other than the
expenses associated with preparing this prospectus and the registration
statement of which it is a part.
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Each time Folkinburg Investments purchases shares of our common stock under
the equity line of credit agreement, it will receive a substantial discount to
then current market price of our common stock. The price at which we will issue
the common shares to Folkinburg Investments under the stock purchase agreement
will be 82.5% of the volume-weighted average daily price traded on the OTC
Bulletin Board, for each day in the pricing period with respect to each drawdown
request. Assuming we receive $5,000,000 of financing available under the stock
purchase agreement using 18 drawdowns, and assuming we issue 200,000,000 shares
registered for issuance under the common stock purchase agreement, we will pay
underwriting compensation to and expenses for Folkinburg Investments, and other
offering expenses, as follows:
Underwriting Compensation and Expenses
Per Share Total
---------- ----------
Discount to Folkinburg $0.0043750 $ 875,000
Expenses payable on behalf of Folkinburg:
Escrow Fees $0.0001350 $ 27,000
Legal fees of Folkinburg $0.0000500 $ 10,000
Estimated offering expenses:
Placement agent fees $0.0025000 $ 500,000
SEC filing fee $0.0000109 $ 2,181
Accountants' fees and expenses $0.0000125 $ 2,500
Legal fees and expenses $0.0000500 $ 10,000
Total $0.0071334 $1,426,681
The warrants granted to Folkinburg Investments under the equity line of
credit, which are not included in the underwriting compensation table above,
will also be deemed to be underwriting commission under the Securities Act. We
issued to Folkinburg Investments warrants to purchase 500,000 shares of our
common stock at $0.0636 per share. The closing price of our common stock on
October 30, 2000 was $0.0578. The warrant expires on October 31, 2003. We may
grant Folkinburg Investments up to an additional 100,000,000 warrants at the
time of the drawdowns under the equity line of credit. The warrants issuable at
each settlement date will be exercisable for 35 calendar days and have an
exercise price equal to the weighted average of the purchase prices of the
common stock during the applicable settlement period. We estimate that the fair
market value of the initial 500,000 warrants using customary pricing models is
$25,187, and the fair value of the additional 100,000,000 drawdown warrants
will not be determinable until the exercise price is set in the future.
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Limited Grant of Registration Rights
We granted registration rights to Folkinburg Investments to enable it to
sell the common stock it purchases under the common stock purchase agreement. In
connection with any such registration, we will have no obligation:
- to assist or cooperate with Folkinburg Investments in the
offering or disposition of such shares;
- to indemnify or hold harmless the holders of any such shares,
other than Folkinburg Investments, or any underwriter designated
by such holders;
- to obtain a commitment from an underwriter relative to the sale
of any such shares; or
- to include such shares within any underwritten offering we do.
We will assume no obligation or responsibility whatsoever to determine a
method of disposition for such shares or to otherwise include such shares within
the confines of any registered offering other than the registration statement of
which this prospectus is a part.
We will use our best efforts to file, during any period during which we are
required to do so under our registration rights agreement with Folkinburg
Investments, one or more post-effective amendments to the registration statement
of which this prospectus is a part to describe any material information with
respect to the plan of distribution not previously disclosed in this prospectus
or any material change to such information in this prospectus. This obligation
may include, to the extent required under the Securities Act of 1933, as
amended, that a supplemental prospectus be filed, disclosing:
- the name of any broker-dealers;
- the number of common shares involved;
- the price at which the common shares are to be sold;
- the commissions paid or discounts or concessions allowed to
broker-dealers, where applicable;
- that broker-dealers did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus, as supplemented; and
- any other facts material to the transaction.
Our registration rights agreement with Folkinburg Investments permits us to
restrict the resale of the shares Folkinburg Investments has purchased from us
under the common stock purchase agreement for a period of time sufficient to
permit us to amend or supplement this prospectus to include material
information. If we restrict Folkinburg Investments for more than 30 consecutive
days and our stock price declines during the restriction period, we are required
to pay to Folkinburg Investments cash to compensate Folkinburg Investments for
its inability to sell shares during the restriction period. The amount we would
be required to pay would be the difference between the highest volume weight
average price during the suspension period and the volume weight average price
at the end of the suspension period, for each share held by Folkinburg
Investments during the restriction period that has been purchased under the
common stock purchase agreement.
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DESCRIPTION OF OUR SECURITIES
GENERAL
Our authorized capital stock consists of 25,000,000 shares of common stock,
par value $.001 per share. As of December 12, 2000, we had 13,941,264 shares of
common stock issued and outstanding.
We intend to conduct a shareholders' meeting to authorize an increase in
our authorized capital for purposes of allowing for the issuance and resale of
the shares included in this registration statement and to provide us flexibility
in connection with future financing needs.
The holders of the common stock are entitled to cast one vote for each
share held of record on all matters presented to stockholders. The holders of
common stock do not have cumulative voting rights, which means that the holders
of more than 50% of the outstanding shares voting for the election of our
directors can elect all of the directors, and in such an event, the holders of
the remaining shares will be unable to elect any of our directors.
The holders of the outstanding shares of common stock are entitled to
receive dividends out of assets legally available at such times and in such
amounts as the Board of Directors may from time to time determine, subject to
the rights of the holders of convertible debentures may have. Upon our
liquidation, dissolution, or winding up, our assets that are legally available
for distribution to the stockholders will be distributed equally among the
holders of the shares.
Our certificate of incorporation does not provide that the holders of
common stock have any preemptive right.
DIVIDENDS
We have not paid any cash dividends on our common stock and do not expect
to declare or pay any cash dividends in the near future. After paying interest
on the outstanding principal of 5% convertible debentures and 4% convertible
debentures at the debenture holder's option to receive cash instead of shares of
common stock, we intend to retain any future earnings for use in our business.
Future cash dividends, if any, will be at the discretion of our Board of
Directors and is subject to certain limitations imposed by the New York Business
Corporation Law. The timing, amount and form of dividends, if any, will depend,
among other things, on our results of operations, financial condition, cash
requirements and other factors deemed relevant by our board of directors.
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FOLKINBURG COMMON STOCK PURCHASE AGREEMENT
We signed a common stock purchase agreement with Folkinburg Investments
Limited, dated as of October 31, 2000, for the future issuance and purchase of
shares of our common stock. The transaction closed on October 31, 2000. The
common stock purchase agreement establishes what is sometimes termed an equity
line of credit or an equity drawdown facility.
In general, the drawdown facility operates as follows: the investor,
Folkinburg Investments, has committed to provide us with up to $5 million as we
request it over a 24 month period, in return for shares of common stock we issue
to Folkinburg Investments. Subject to a maximum of 18 draws, once every 29
trading days, we may request a draw of up to $5 million of that money, however,
no single draw can exceed $5 million. We must wait at least 7 trading days after
each 22 trading day drawdown period before requesting another drawdown. The
maximum amount we actually can draw down upon each request will be determined by
4.5% of the volume-weighted average daily price of our common stock for the 3
month period prior to our request and the total trading volume for the 3 months
prior to our request. Each draw down must be for at least $100,000.
At the end of a 22-day trading period following the drawdown request, the
final drawdown amount is determined based on the volume-weighted average stock
price during that 22-day period. We then use the formulas contained in the
common stock purchase agreement to determine the number of shares we will issue
to Folkinburg Investments in return for that money. We may make up to a maximum
of 18 draws; however, the aggregate total of all draws cannot exceed $5 million
and no single draw can exceed $5 million. Under the common stock purchase
agreement, we are under no obligation to request a draw for any period; however,
under the 4% convertible debentures agreement, we agreed to draw the maximum
amount each drawdown period to pay off the debentures.
The per share dollar amount Folkinburg Investments pays for our common
stock for each drawdown includes a 17.5% discount to the average daily market
price of our common stock for the 22-day period after our drawdown request,
weighted by trading volume. We will receive the amount of the drawdown less an
escrow agent fee equal to $1,500 per drawdown and less a 10% placement fee
payable to the placement agent, Union Atlantic, L.C., which introduced
Folkinburg Investments to us.
We did not make a commitment to Folkinburg Investments to draw a minimum
amount of funds under the common stock purchase agreement. In lieu of making a
commitment to Folkinburg Investments to draw a minimum aggregate amount, on
October 31, 2000, we issued to Folkinburg Investments a stock purchase warrant
to purchase up to 500,000 shares of our common stock and we also agreed to issue
additional warrants to purchase a number of shares equal to 50% of the shares
purchased by Folkinburg Investments on the settlement date of each drawdown. The
warrants to purchase 500,000 shares of common stock have an exercise price per
share of $0.0636 and expire on October 31, 2003. The additional warrants
issuable at each settlement date will be exercisable for 35 calendar days and
have an exercise price equal to the weighted average of the purchase prices of
the common stock during the applicable settlement period.
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The number of shares registered under the registration statement for the
resale of the common stock upon each drawdown may limit the amount of money we
receive under the common stock purchase agreement. Moreover, the funds we may
receive could be further limited by a provision of the common stock purchase
agreement that prevents us from issuing shares to Folkinburg Investments to the
extent Folkinburg Investments would beneficially own more than 9.9% of our then
outstanding common stock. Any resales of shares by Folkinburg Investments under
this prospectus would reduce the number of shares beneficially owned by
Folkinburg Investments, and would enable us to issue additional shares to
Folkinburg Investments without violating this condition. Folkinburg Investments
agreed not to exercise any of the warrants if the number of shares of common
stock it owns, plus the number of shares of common stock issuable upon exercise
of the warrant, would equal or exceed 9.9% of our outstanding shares of common
stock then issued and outstanding.
The Drawdown Procedure and the Stock Purchases
We may request a drawdown by faxing a drawdown notice to Folkinburg
Investments, stating the amount of the drawdown we wish to exercise and the
minimum threshold price, if any, at which we are willing to sell the shares. We
will set the threshold price by determining the price below which we are
unwilling to sell shares of our common stock.
Amount of the Draw
No draw may exceed the lesser of $5 million and the capped amount that is
derived from the following formula:
- the weighted average price for the common stock for the 3 month
period immediately prior to the date we give notice of the
drawdown,
- multiplied by the total trading volume for the 3 month period
trading days immediately prior to the date we give notice of the
drawdown,
- multiplied by 4.5%.
The lesser of our draw request and the capped amount is reduced by 1/22 for
every day in the 22 trading days after our drawdown request that the
volume-weighted average daily price for a trading day is below the threshold
price set by us in the request. If the daily price for a day is below the
threshold price we will not issue any shares and Folkinburg Investments will not
purchase any shares for that day. Thus, if we set a threshold price too high and
our stock price does not consistently meet that level during the 22 trading days
after our drawdown request, the amount we can draw and the number of shares we
can sell to Folkinburg Investments will be reduced. However, if we set a
threshold price too low and our stock price falls significantly but stays above
the threshold price, we will be able to draw the lesser of our draw request and
the capped amount, but we will have to issue a greater number of shares to
Folkinburg Investments at a reduced price. We cannot make another drawdown
request until expiration of the 22 trading days that follow a drawdown request
we have already made and until at least 7 trading days pass after each drawdown
period.
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Number of Shares
The 22 trading days immediately following the drawdown notice are also used
to determine the number of shares we will issue in return for the money provided
by Folkinburg Investments, and thus the price per share Folkinburg Investments
will pay for our shares. To determine the number of shares of common stock we
must issue in connection with a drawdown, take 1/22 of the drawdown amount
determined by the formulas above, and for each of the 22 trading days
immediately following the date we give notice of the drawdown, divide it by
82.5% of the volume-weighted average daily trading price of our common stock for
that day. The 82.5% accounts for Folkinburg Investments' 17.5% discount. The sum
of these 22 daily calculations produces the number of common shares we will
issue, unless the volume-weighted average daily price for any given trading day
is below the threshold amount, in which case that day is ignored in the
calculation. The price per share Folkinburg Investments ultimately pays is
determined by dividing the final drawdown amount by the number of shares we
issue Folkinburg Investments.
Sample Calculation of Stock Purchases
The following is an example of the calculation of the drawdown amount and
the number of shares we would issue to Folkinburg Investments in connection with
that drawdown based on hypothetical assumptions.
Sample drawdown amount calculation.
We provide a drawdown request notice to Folkinburg Investments. Suppose
that we specify in our drawdown notice a threshold price of $.40 per share,
below which we will not sell any shares to Folkinburg Investments during this
drawdown period.
Suppose further the average daily trading volume for the 3 month period
prior to our drawdown notice is 5,000,000 shares and that the average of the
volume-weighted average daily prices of our common stock for the 22 trading days
prior to the notice is $0.50. You can apply the formula to these hypothetical
numbers as follows:
- $0.50, the weighted average price for the common stock for the 3
month period immediately prior to the date we give notice of the
drawdown,
- multiplied by 5,000,000, the total trading volume for the 3 month
period trading days immediately prior to the date we give notice
of the drawdown,
- multiplied by 4.5%.
The maximum amount we can draw down under the formula is therefore capped
at $112,500, subject to further adjustments if the volume-weighted average
daily price of our common stock for any of the 22 trading days following the
drawdown notice is below the threshold price we set of $0.40 per share. For
example, if the volume-weighted average daily per share price of our common
stock is below $0.40 on one of those 22 days, the $112,500 would be reduced by
1/22 for each of those days and our draw down amount would be 21/22 of $112,500,
or $107,386.
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Sample Calculation of Number of Shares
Assume that we have made a drawdown request with a threshold price of $0.40
per share. Assume the maximum amount we can draw down is capped at $112,500
based on the formula above. Also, assume that the volume-weighted average daily
price for our common stock is as set forth in the table below. The number of
shares to be issued based on any trading day during the drawdown period is
calculated from the formula:
- 1/22 of the drawdown amount of $112,500,
- divided by
- 82.5% of the volume weighted average daily price.
For example, for the first trading day in the example in the table below,
the calculation is as follows: 1/22 of $112,500 is $5,113.64. Divide $5,113.64
by 82.5% of the volume-weighed average daily price for that day of $0.50 per
share, to get 12,397 shares. Perform this calculation for each of the 22
measuring days, excluding any days on which the volume-weighted average daily
price is below the $0.40 threshold price, and add the results to determine the
number of shares to be issued. In the table below, there is one day which must
be excluded: day 8.
After excluding the day that is below the threshold price, the amount of
our drawdown in this example would be $107,386.36, and the total number of
shares we would issue to Folkinburg Investments for this drawdown request would
be 213,086, as long as those shares would not cause Folkinburg Investments to
beneficially own more than 9.9% of our then outstanding common stock. Folkinburg
Investments would pay $0.504 per share for these shares.
Trading Day Volume-Weighted Average 1/22 of Requested Number of Shares of
Daily Stock Price* Draw Down Amount Common Stock to be
Issued for the
Trading Day
1 $0.50 $5,113.64 12,397
2 $0.55 $5,113.64 11,270
3 $0.60 $5,113.64 10,331
4 $0.70 $5,113.64 8,855
5 $0.75 $5,113.64 8,264
6 $0.80 $5,113.64 7,748
7 $0.90 $5,113.64 6,887
8 $0.35 ** **
9 $0.43 $5,113.64 14,415
10 $0.44 $5,113.64 14,087
11 $0.60 $5,113.64 10,331
12 $0.59 $5,113.64 10,506
13 $0.58 $5,113.64 10,687
14 $0.57 $5,113.64 10,874
15 $0.56 $5,113.64 11,068
16 $0.52 $5,113.64 11,920
17 $0.62 $5,113.64 9,997
18 $0.82 $5,113.64 7,559
19 $0.57 $5,113.64 10,874
20 $0.68 $5,113.64 9,115
21 $0.72 $5,113.64 8,609
22 $0.85 $5,113.64 7,292
Total $107,386.36 213,086
* The share prices are illustrative only and should not be interpreted as a
forecast of share prices or the expected or historical volatility of the
share prices of our common stock.
** Excluded because the volume-weighted average daily price is below the
threshold specified in our hypothetical draw down notice.
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We would receive $107,386.36, the amount of our drawdown less a 10% cash
fee paid to the placement agent of $10,738.63 less a $1,500 escrow fee, for net
proceeds to us of $95,147.73. The delivery of the requisite number of shares and
payment of the draw will take place through an escrow agent, Epstein, Becker &
Green, P.C. of New York, New York. The escrow agent pays 90% of the draw to
us-after subtracting its escrow fee-and 10% to Union Atlantic, L.L.C., our
placement agent, in satisfaction of placement agent fees.
Necessary Conditions Before Folkinburg is Obligated to Purchase our Shares
The following conditions must be satisfied before Folkinburg Investments is
obligated to purchase the common shares that we wish to sell from time to time:
- a registration statement for the shares must be declared
effective by the Securities and Exchange Commission and must
remain effective and available as of the draw down settlement
date for making resales of the common shares purchased by
Folkinburg Investments;
- there can be no material adverse change in our business,
operations, properties, prospects or financial condition that
would prohibit or materially interfere with our ability to
perform our obligations under this transaction;
- we must not have merged or consolidated with or into another
company or transferred all or substantially all of our assets to
another company, unless the acquiring company has agreed to honor
the common stock purchase agreement;
- no statute, rule, regulation, executive order, decree, ruling or
injunction may be in effect which prohibits consummation of the
transactions contemplated by the common stock purchase agreement;
- no litigation or proceeding nor any investigation by any
governmental authority can be pending or threatened against us or
Folkinburg Investments seeking to restrain, prevent or change the
transactions contemplated by the stock purchase agreement or
seeking damages in connection with such transactions; and
- trading in our common shares must not have been suspended by the
Securities and Exchange Commission or The OTC Bulletin Board, nor
shall minimum prices have been established on securities whose
trades are reported by The OTC Bulletin Board.
On each drawdown settlement date for the sale of common shares, we must deliver
an opinion from our counsel about these matters.
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Restrictions on Future Financings
The common stock purchase agreement provides that we must pay Folkinburg
Investments a $100,000 fee before we may raise money by selling our securities
for cash at a discount to the market price until the earlier of 24 months from
the effective date of the registration statement for the resale of the shares of
common stock or the date which is 60 days after Folkinburg Investments has
purchased the maximum of $5 million worth of common stock from us under the
common stock purchase agreement. We may sell securities without triggering the
liquidated damages payment under the following circumstances:
- in a registered public offering which is underwritten by one or
more established investment banks, and Folkinburg Investments has
the right of first refusal to participate in such transaction;
- in one or more private placements where the purchasers do not
have registration rights, and Folkinburg Investments has the
right of first refusal to participate in such transaction;
- a transaction to which Folkinburg Investments gives it written
approval, and Folkinburg Investments has the right of first
refusal to participate in such transaction;
- pursuant to any presently existing or future employee benefit
plan which plan has been or is approved by the our stockholders;
- pursuant to any compensatory plan for a full-time employee or key
consultant; and
- in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to
raise money.
Costs of Closing the Transaction
At the closing of the transaction on October 31, 2000, we paid the escrow
agent, Epstein Becker & Green P.C., $10,000 for Folkinburg Investments' legal,
administrative and escrow costs.
Termination of the Stock Purchase Agreement
Folkinburg Investments may terminate the equity draw down facility under
the common stock purchase agreement upon notice of 1 trading day if any of the
following events occur:
- a material adverse effect in our business, operations,
properties, prospects or financial condition that would prohibit
or materially interfere with our ability to perform our
obligations under this transaction occurs;
- our common shares are delisted from The OTC Bulletin Board unless
such delisting is in connection with the listing of such shares
on another stock exchange in the United States; or
- we file for protection from creditors.
We may terminate the common stock purchase agreement if Folkinburg
Investments fail to fund more than one drawdown within three trading days of the
date payment for such drawdown is due.
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Indemnification of Folkinburg
Folkinburg Investments is entitled to customary indemnification from us for
any losses or liabilities suffered by it based upon material misstatements or
omissions from the registration statement and the prospectus, except as they
relate to information supplied by Folkinburg Investments to us for inclusion in
the registration statement and prospectus.
Registration Rights
Under the transaction, we were obligated to prepare and file a registration
statement under the Securities Act for shares of common stock issuable upon each
draw down within 45 days of the closing date of the transaction. We agreed to
use our best efforts to cause the registration statement to become effective
within 90 days of the closing date or 5 days of SEC clearance to request
acceleration of effectiveness. We agreed to maintain the registration statement
or post-effective amendment effective until the earliest of (i) the date that
all the securities have been disposed of pursuant to the registration statement,
(ii) the date that all of the securities have been sold pursuant to the
registration statement, (iii) the date Folkinburg Investments receive an opinion
of our counsel that the securities may be sold under the provisions of Rule 144
without limitation as to volume, (iv) all securities have been otherwise
transferred to persons who may trade such shares without restriction under the
Securities Act, and we have delivered a new certificate or other evidence of
ownership for such securities not bearing a restrictive legend, or (v) all
securities may be sold without any time, volume or manner limitations pursuant
to Rule 144(k) or any similar provision then in effect under the Securities Act
in the opinion of our counsel.
We will incur all fees, disbursements and out-of-pocket expenses and costs
in connection with the preparation and filing of the registration statement and
in complying with applicable securities and blue sky laws. Folkinburg
Investments bears the cost of underwriting or brokerage discounts, fees and
commissions, if any, and the fees and expenses of their counsel.
If after the effectiveness of the registration statement, we notify
Folkinburg Investments in writing of a potential material event, the investors
shall not, during such suspension period, offer or sell any securities or engage
in any other transaction involving or relating to securities, until the
investors receive written notice from us that such potential material event has
been disclosed to the public or no longer constitutes a potential material
event. In such event, we must compensate the investors for any net decline in
the market value of any securities held by the investors at the beginning of any
suspended period, or committed to be purchased by the investors during such
suspension period, through the end of such suspension period. If a potential
material event occurs prior to the date the registration statement is filed,
then our obligation to file the registration statement is delayed without
penalty for not more than 30 calendar days.
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New York Law
Our Certificate of Incorporation and By-laws do not contain any provisions
that are designed to delay, defer or prevent a change in control of Famous
Fixins. The Board of Directors is not presently aware of any takeover attempts
and is not aware of any agreements that exist in the event of a change of
control. The Board is Directors does not have any current plans to propose any
changes to the charter documents or corporate structure that would have an
anti-takeover purpose or effect.
New York has enacted a business combination statute that is contained in
Section 912 of the New York Business Corporation Law. Section 912 provides,
among other things, that any person who acquires twenty percent or more of a
corporation's outstanding voting stock may not engage in a wide range of
business combinations with the corporation for a period of five years of the
control acquisition date unless the transaction was approved by the
corporation's board of directors prior to the control acquisition date.
A business combination is defined in the New York Business Corporation Law
to include:
- mergers or consolidations of a corporation with a shareholder
owning 20% of the voting stock;
- certain transactions with a shareholder owning 20% of the voting
stock that involves ten percent or more of the market value of
the corporation's assets;
- certain transactions with a shareholder owning 20% of the voting
stock that involves ten percent or more of the aggregate market
value of the corporation's outstanding stock;
- certain transactions with a shareholder owning 20% of the voting
stock that involves ten percent or more of the corporation's
earning power or net income;
- certain transactions involving a shareholder owning 20% of the
voting stock that results in that shareholder acquiring at least
five percent of the market value of the corporation's outstanding
stock;
- the adoption of any plan or proposal of a shareholder owning 20%
of the voting stock for the liquidation or dissolution of the
corporation;
- certain transactions resulting in increasing the proportionate
share of the voting stock of the corporation owned by a
shareholder owning 20% of the voting stock; or
- the receipt by a shareholder owning 20% of the voting stock of
the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation, unless
the benefit is given proportionately to all shareholders.
These restrictions do not apply under certain circumstances if the
corporation's certificate of incorporation or bylaws contain a provision
expressly electing not to be governed by Section 912. Our certificate of
incorporation and By-laws do not contain any provision electing not to be
governed by Section 912. Our Board of Directors believes that the provisions of
Section 912 will help ensure that a change in control of Famous Fixins does not
occur without the consent of the Board of Directors or the stockholders, or
both, and will encourage any person who seeks to acquire control of Famous
Fixins to do so by a negotiated transaction.
Transfer Agent
Continental Stock & Transfer Company, New York, New York, is our transfer
agent and registrar for our common stock.
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Market Information
Beginning on September 9, 1998, our common stock was quoted on the OTC
Bulletin Board under the symbol "FIXN". On about November 18, 1999, our common
stock was removed from quotation on the OTC Bulletin Board. On about December
20, 1999, our common stock was reinstated for quotation on the OTC Bulletin
Board. The table below sets forth for the periods indicated, the high and low
closing bid prices for the common stock as reported by the OTC Bulletin Board.
Fiscal Year Quarter Ended High Low
----------- ------------- ---- ---
1998 September 30, 1998 $1.75 $1.00
December 31, 1998 $1.25 $0.25
1999 March 31, 1999 $1.625 $0.375
June 30, 1999 $0.67 $0.350
September 30, 1999 $0.52 $0.34
December 31, 1999 $0.49 $0.25
2000 March 31, 2000 $0.6875 $0.1875
June 30, 2000 $0.51 $0.17
September 30, 2000 $0.203 $0.045
The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
Holders
The approximate number of holders of record of our common stock as of
December 12, 2000 was 86. We estimate that there were approximately 1,566
beneficial holders of our common stock as of that date.
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LEGAL MATTERS
Our counsel, Law Offices of Dan Brecher, New York, New York, is giving us
an opinion on the validity of the shares offered by this prospectus. Dan
Brecher, the sole principal of the law firm, owns 93,125 shares of our common
stock and warrants to purchase 69,552 shares of our common stock exercisable
until May 28, 2003 at $.90 per share. He is not a selling stockholder under this
prospectus.
EXPERTS
The financial statements of Famous Fixins for the year ended December 31,
1999, included in this prospectus have been audited by Freeman & Davis LLP,
independent auditors, as stated in their report appearing in this prospectus,
and are included in reliance upon such report given on the authority of said
firm as experts in accounting and auditing.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities, other than the payment by us
of expenses incurred or paid by any of our directors, officers or controlling
persons in the successful defense of any action, suit or proceeding, is asserted
by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any documents we file at the
SEC's public reference rooms in Washington, D.C. at 450 Fifth Street, N.W.,
Washington, D.C. 20549, in New York, New York at 7 World Trade Center, Suite
1300, New York, New York 10048, and in Chicago, Illinois at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available on the SEC's web site at http://www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
PAGE
Financial Statements for the Year Ended December 31, 1999:
Independent Auditors' Report F-1
Exhibit "A" - Balance Sheets F-2
Exhibit "B" - Statements Of Operations F-3
Exhibit "C" - Statements Of Cash Flows F-4
Exhibit "D" - Statements Of Stockholders' Equity (Deficit) F-5
Notes To Financial Statements F-6 - F-21
Financial Statements for the Quarter Ended March 31, 2000 (Unaudited):
Balance Sheets As Of September 30, 2000 And December 31, 1999 F2-1
Interim Statements Of Operations For The Three Months And F2-3
Nine Months Ended September 30, 2000 And 1999
Interim Statements Of Cash Flows For The Nine Months F2-4
Ended September 30, 2000 And 1999
Interim Statement Of Stockholders' Equity For The Nine F2-6
Months Ended September 30, 2000
Notes To Interim Financial Statements For The Nine Months F2-7
Ended September 30, 2000
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INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
Famous Fixins, Inc.:
We have audited the accompanying balance sheets of Famous Fixins, Inc. as
of December 31, 1999 and 1998, and the related statements of operations, cash
flows and stockholders' equity (deficit) for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Famous Fixins, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred substantial losses from
operations and has a deficiency in stockholders' equity at December 31, 1999,
which raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
/s/ FREEMAN & DAVIS LLP
New York, New York
February 29, 2000
F-1
<PAGE>
FAMOUS FIXINS, INC.
BALANCE SHEETS
<TABLE>
DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
--------------
Cash and cash equivalents $ 475,325 $ 19,500
Investments in marketable equity trading securities 101,961 -
Accounts receivable 176,475 13,613
Merchandise inventory 69,542 27,420
Prepaid expenses 59,081 -
Stock subscription receivable (collected in 2000) 47,500 -
---------- ----------
TOTAL CURRENT ASSETS 929,884 60,533
---------- ----------
PLANT AND EQUIPMENT
-------------------
Furniture and fixtures 15,804 9,309
Machinery and equipment 25,576 9,406
---------- ----------
41,380 18,715
Less: Accumulated depreciation 8,089 3,578
---------- ----------
NET PLANT AND EQUIPMENT 33,291 15,137
---------- ----------
OTHER ASSETS
------------
Deferred debenture issuance costs 42,500 -
Security deposits 6,482 2,400
---------- ----------
TOTAL OTHER ASSETS 48,982 2,400
---------- ----------
$1,012,157 $ 78,070
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
EXHIBIT "A"
<TABLE>
DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
-------------------
Accounts payable and accrued expenses $ 508,341 $ 134,138
Due to customers 190,038 -
Taxes payable - other than on income 9,544 1,643
Income taxes payable 625 625
Current installments of long-term note payable to bank - 15,432
Note payable to related party - 134,303
Subscribers' deposits on common stock, net - 12,500
---------- ----------
TOTAL CURRENT LIABILITIES 708,548 298,641
---------- ----------
LONG-TERM LIABILITIES
---------------------
5% convertible debentures (Principal amount - $450,000) 389,586 -
Long-term note payable to bank, net of current
installments - 25,253
---------- ----------
TOTAL LONG-TERM LIABILITIES 389,586 25,253
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
10,462,624 shares in 1999;
6,883,891 shares in 1998 10,462 6,883
Additional paid-in capital 1,557,337 662,937
Accumulated deficit (1,603,776) (865,644)
---------- ----------
(35,977) (195,824)
Less: Unused advertising barter credits (50,000) (50,000)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (85,977) (245,824)
---------- ----------
$1,012,157 $ 78,070
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2A
<PAGE>
EXHIBIT "B"
FAMOUS FIXINS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
NET SALES $2,515,966 $ 276,006
---------- ----------
COST OF GOODS SOLD
------------------
Merchandise inventory at beginning of year 27,420 61,186
Purchases 1,451,175 154,878
Other direct costs 181,385 4,499
---------- ----------
1,659,980 220,563
Less: Merchandise inventory at end of year 69,542 27,420
---------- ----------
TOTAL COST OF GOODS SOLD 1,590,438 193,143
---------- ----------
GROSS PROFIT ON SALES 925,528 82,863
OTHER INCOME - Management and distribution services - 35,347
---------- ----------
TOTAL INCOME 925,528 118,210
---------- ----------
OPERATING EXPENSES
------------------
Selling expenses 995,971 530,676
General and administrative expenses 657,781 203,482
Interest expense, net 8,569 14,026
---------- ----------
TOTAL OPERATING EXPENSES 1,662,321 748,184
---------- ----------
OPERATING LOSS BEFORE PROVISION
FOR INCOME TAXES (736,793) (629,974)
PROVISION FOR INCOME TAXES 1,339 669
---------- ----------
NET LOSS $ (738,132) $ (630,643)
========== ==========
Net loss per common share, basic $(0.07) $(0.10)
Net loss per common share, assuming full dilution $(0.07) $(0.10)
Weighted average number of common shares outstanding:
Basic 10,147,294 6,458,266
Assuming full dilution 10,147,294 6,458,266
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EXHIBIT "C"
FAMOUS FIXINS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (738,132) $ (630,643)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash items:
Depreciation 4,511 2,317
Amortization 6,054 -
Value of common stock issued for services
received by the Company 121,826 88,500
Value of warrants issued for services received
by the Company 358,203 176,173
Unrealized gain on investments in marketable
equity trading securities (1,961) -
Purchase of investments in marketable equity
trading securities (100,000) -
Changes in working capital 308,077 40,457
Increase in security deposits (4,082) (2,400)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (45,504) (325,596)
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payments for plant and equipment additions (22,665) (8,936)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debentures, net 405,000 -
Proceeds from issuance of common stock, net 306,482 365,437
Proceeds of long-term debt from bank - 50,000
Repayments of long-term debt to bank (40,685) (9,315)
Repayments of note payable to related party, net (134,303) (62,958)
Increase (decrease) in subscribers' deposits on
common stock, net (12,500) 12,500
Decrease in stockholders' loans - (11,154)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 523,994 344,510
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 455,825 9,978
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,500 9,522
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 475,325 $ 19,500
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EXHIBIT "D"
FAMOUS FIXINS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
TWO YEARS ENDED DECEMBER 31, 1999
<TABLE>
ADDITIONAL UNUSED
COMMON STOCK PAID-IN ADVERTISING
----------------------- CAPITAL ACCUMULATED BARTER
TOTAL SHARES AMOUNT (DEFICIT) DEFICIT CREDITS
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1998 $ (233,991) 6,105,180 $ 6,105 $ (5,095) $ (235,001) $ -
Issuance in June, 1998, of common shares on a
one for one basis for common shares sold in
January 1998 by the New York Subsidiary
in its securities offering 102,265 132,711 133 102,132 - -
Issuance of common shares for goods and
services received 91,975 141,000 140 141,835 - (50,000)
Issuance of common shares in a securities
offering in July, 1998 - net 211,953 255,000 255 211,698 - -
Issuance of common shares in a securities
offering in December 1998 - net 36,444 250,000 250 36,194 - -
Issuance of warrants for services received 176,173 - - 176,173 - -
Net loss for 1998 (630,643) - - - (630,643) -
---------- ---------- ---------- ---------- ----------- ----------
BALANCE - DECEMBER 31, 1998 (245,824) 6,883,891 6,883 662,937 (865,644) (50,000)
Issuance of common shares in a securities
offering in February 1999 - net 353,982 2,433,233 2,433 351,549 - -
Issuance of common shares for services received 121,826 1,145,500 1,146 120,680 - -
Issuance of warrants for services received 358,203 - - 358,203 - -
Issuance of warrants in connection with
convertible debentures issued 63,968 - - 63,968 - -
Net loss for 1999 (738,132) - - - (738,132) -
---------- ---------- ---------- ---------- ----------- ----------
BALANCE - DECEMBER 31, 1999 $ (85,977) 10,462,624 $ 10,462 $1,557,337 $(1,603,776) $ (50,000)
========== ========== ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS COMBINATION - PRINCIPLES OF PRESENTATION
-------------------------------------------------
The accompanying financial statements include the accounts of Famous
Fixins, Inc. (Company) and reflects certain transactions which are described
below.
Famous Fixins, Inc., a New York corporation (New York Subsidiary),
began its sales operations on March 25, 1997. On May 28, 1998, Spectrum
Resources, Inc., a Nevada corporation (Spectrum) (an inactive corporation with
no assets and liabilities), pursuant to a Plan and Agreement of Reorganization,
issued 5,494,662 shares of common stock in exchange for substantially all
(4,104,328) of the issued and outstanding common shares of New York Subsidiary.
In addition, in June 1998 Spectrum exchanged 132,711 shares of its common stock
for 132,711 shares of New York Subsidiary from shareholders who acquired such
shares in a private placement by New York Subsidiary in January, 1998. As a
result, Spectrum, became the parent of New York Subsidiary.
On June 19, 1998, Famous Fixins Holding Company (Holding) was
incorporated in the State of New York. On November 16, 1998, Spectrum merged
into Holding by exchanging its outstanding common shares for shares of Holding
on a one for one basis.
On November 20, 1998, New York Subsidiary merged into Holding and
Holding changed its name to Famous Fixins, Inc. (Company).
The aforementioned 1998 merger transactions have been accounted for
as a "reverse acquisition" because the former shareholders of New York
Subsidiary received the larger portion of the voting rights in the combined
companies and that; (i) for accounting purposes New York Subsidiary is deemed to
be the accounting acquirer, (ii) the historical financial statements presented
are that of New York Subsidiary and (iii) the guidance of APB 16 is applied in
the allocation of the purchase price to the accounting acquirees (Spectrum's)
net assets, the nature of which are described above.
All significant intercompany accounts and transactions are
eliminated.
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 nationwide network of food brokers to distribute its products
throughout the United States. Third party manufacturers produce the Company's
various food products.
F-6
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY (CONTINUED)
----------------------------------
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.
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 $475,808 which as at
December 31, 1999 (a) $306,482 was collected by the Company; (b) $47,500 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.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles which contemplates
continuation of the Company as a going concern. The Company has incurred
substantial operating losses since inception of operations and as at December
31, 1999 reflects a deficiency in stockholders' equity. These conditions
indicate that the Company may be unable to continue as a going concern.
Management believes that it can achieve profitable operations in the future and
that it can continue to raise adequate capital and financing as may be required.
However, there can be no assurance that future capital contributions and/or
financing will be sufficient for the Company to continue as a going concern or
that it can achieve profitable operations in the future. These financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
F-7
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
--------------------------------------------------
The preparation of financial statements in conformity with 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. Estimates
are made when accounting for uncollectible accounts receivable, instant winner
card obligations, advertising barter credits, depreciation and amortization,
income taxes, contingencies and valuation of warrants, among others. Estimates
and assumptions are reviewed periodically and the effects of revisions are
reflected in the financial statements in the period they are determined to be
necessary.
STOCK-BASED COMPENSATION - WARRANTS
-----------------------------------
The Company accounts for stock-based compensation using the fair-
value based method prescribed in SFAS No. 123 "Accounting for Stock-Based
Compensation". Compensation cost for all stock warrants issued by the Company is
(a) measured at the grant date based on the fair value of the warrants and (b)
recognized over the service period. See Note 8.
REVENUE RECOGNITION AND SALES RETURNS
-------------------------------------
Revenue from sales of celebrity and athlete endorsed food products
is recorded at the time the goods are shipped, with provision for uncollectible
accounts, when appropriate. Provision for sales returns and allowances are
recorded in the period in which the related revenue is recognized. When sales
returns and allowances are in excess of customer receivable balances, such
excess amount is reflected as a current liability under the category "Due To
Customers".
OTHER COMPREHENSIVE INCOME
--------------------------
Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income", established standards for reporting and
display of comprehensive income and its components in the financial statements.
Besides net income, SFAS No. 130 requires the reporting of other comprehensive
income, defined as revenues, expenses, gains and losses that under generally
accepted accounting principles are not included in net income. As at December
31, 1999 and 1998, the Company had no items of other comprehensive income and as
a result, no additional disclosure is included in the financial statements.
F-8
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
CONCENTRATIONS OF CREDIT RISK
-----------------------------
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by Statement of Financial Accounting
Standards No. 105, consist of cash and cash equivalents, investments in
marketable equity trading securities and trade accounts receivable.
A. CASH AND CASH EQUIVALENTS
-------------------------
The Company maintains its cash balances in one financial
institution located in New York, New York. The balances are insured by the
Federal Deposit Insurance Corporation up to $100,000. As at December 31, 1999,
the Company's bank statement balances in excess of such insurance were
approximately $409,000.
The Company invests excess cash in high quality short-term
liquid money market instruments with maturities of three months or less when
purchased. Investments are made only in instruments issued by or enhanced by
high quality financial institutions. The Company has not incurred losses related
to these investments.
B. MARKETABLE EQUITY TRADING SECURITIES
------------------------------------
The Company's marketable equity trading securities consist of
shares in a high quality mutual fund described in Note 2. The Company has not
incurred losses related to this investment.
C. ACCOUNTS RECEIVABLE
-------------------
The Company's customer base consists primarily of supermarkets
located in the United States. Credit limits, ongoing credit evaluations and
account monitoring procedures are utilized to minimize the risk of loss. The
Company does not generally require collateral. In 1999, approximately 32% (30%
in 1998) of the sales of the Company were derived from two customers. Although
the Company is directly affected by the well being of the retail food industry,
management does not believe significant credit risk exists at December 31, 1999.
F-9
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 1. 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 5 year useful life of the assets.
INCOME TAXES
------------
The Company has incurred net operating losses for federal income tax
purposes during the current and prior tax years. Such losses, in the approximate
amount of $487,000 are available through December 31, 2019 as deductions from
future income otherwise subject to income taxes.
The Company has adopted Statement of Financial Accounting Standards
No. 109, "Accounting For Income Taxes", which requires the recognition of
deferred tax assets and liabilities for future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. No deferred tax assets are
recognized in the balance sheets as at December 31, 1999 and 1998 in connection
with the Company's net operating losses inasmuch as a full valuation allowance
has been established by management.
F-10
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 2. INVESTMENTS IN MARKETABLE EQUITY TRADING SECURITIES
---------------------------------------------------
Marketable equity securities, classified as "trading securities",
are carried at market value and consist of the following at December 31, 1999:
NO. OF UNREALIZED MARKET
SHARES COST GAIN VALUE
------ ---- ---------- ------
Chase Vista Equity Growth
Class A Fund 8,525 $100,000 $1,961 $101,961
Trading securities are stated at fair value with unrealized gains
and losses reported in income. Realized gains and losses are determined on the
specific identification method and are reflected in income. The Company had no
gross realized gains and losses on sale of marketable equity trading securities
for the years ended December 31, 1999 and 1998.
NOTE 3. UNUSED ADVERTISING BARTER CREDITS
---------------------------------
In July 1998, the Company issued 125,000 shares of its common stock
in exchange for advertising services and credits to be provided in the current
and future periods. The exchange was accounted for on the basis of $1.00 per
share of common stock issued (the then prevailing price of the Company's shares)
for an aggregate of $125,000, such amount being equal to the value of the
advertising services and credits. Of such amount, $75,000 is charged to income
in 1998, for advertising services utilized by the Company in its operations. At
December 31, 1999 and 1998, $50,000 of unused advertising barter credits are
available in connection with specified future radio spot advertisements and is
reflected in the accounts as a contra to stockholders' equity. Such amount is
valued at the estimated cost of services to be received by the Company which are
usable without any additional cash payments.
F-11
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 4. 5% CONVERTIBLE DEBENTURES PAYABLE
---------------------------------
In October, 1999 the Company entered into two Convertible Debenture
and Warrants Purchase Agreements pursuant to which the investors agreed to
purchase, for $550,000, an aggregate of $550,000 principal amount of 5%
Convertible Debentures (Debentures) convertible into common stock (due October
19, 2002) and Warrants to purchase 139,152 shares of the Company's common stock.
At the initial closing date, the Company received $450,000 in
connection with the sale of $450,000 principal amount of Convertible Debentures
and Warrants. The Company incurred debt issuance costs of $45,000 which are
amortized as a component of interest expense over the term of the 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 and certain other
conditions as described in the agreements. (See Note 11, Events Subsequent as to
the issuance of the remaining Debentures.)
The Debenture holders are entitled to convert any portion of the
principal of the Debentures to common stock at a conversion price for each share
at the lower of (a) 80% of the market price at the conversion date or (b) $.55.
The Debentures include an option by the Company to exchange the Debentures for
Convertible Preferred Stock.
In accordance with the agreements, the Company issued an aggregate
of 139,152 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 fair value of the
Warrants in the amount of $63,968 is accounted for as additional paid-in capital
with the resulting discount 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.
These Debentures have an effective annualized interest rate of 13%
to the Company, including debt issuance and warrant costs.
The following summarizes the outstanding balance of the Debentures
at December 31, 1999:
Principal amount of Debentures $450,000
Discount for Warrants issued (63,968)
--------
386,032
Amortized discount for 1999 3,554
--------
CARRYING AMOUNT AT DECEMBER 31, 1999 $389,586
========
F-12
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 5. LONG-TERM NOTE PAYABLE TO BANK (1998 - $40,685)
-----------------------------------------------
Pursuant to a business revolving credit agreement with The Chase
Manhattan Bank (Bank), the Company may receive loan proceeds up to a maximum
credit line amount, which is currently set at $100,000. From time to time, the
Bank notifies the Company as to the current amount of the available credit line.
The Company may borrow incremental principal amounts of at least $2,500 with
interest computed at the Bank's prime rate plus 1/2%. The loan principal is
payable in monthly installments equal to 1/36 of the outstanding principal on
the date of the most recent bank loan advance. Repayment of the Company's loan
is guaranteed by certain principal stockholders of the Company.
There is no outstanding loan balance to the Bank at December 31,
1999. The balance due on the indebtedness at December 31, 1998 consists of
current maturities of $15,432 and installments due after one year of $25,253.
NOTE 6. ADVERTISING
-----------
The Company charges to expense all advertising costs as incurred.
The aggregate advertising expense incurred by the Company was approximately
$279,000 and $285,000 for the years ended December 31, 1999 and 1998,
respectively. See Note 3 for the details of unused advertising barter credits of
$50,000 which are included in the accounts as a contra to stockholders' equity
at December 31, 1999 and 1998.
F-13
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7. COMMITMENTS AND CONTINGENCIES
-----------------------------
A. ROYALTY CONTRACTS
-----------------
The Company has various celebrity licensing agreements which
generally cover worldwide sales of its products. One of the agreements is with a
related party and covers the Company's salad dressing line of products. The
contracts generally specify that the Company shall pay royalties based on net
annual merchandise sales and provide for certain minimum guarantees for the
licensors. Minimum aggregate royalty guarantees (including the unearned cost of
common stock warrants) are as follows:
YEAR
ENDING
DECEMBER 31,
------------
2000 $418,000
2001 59,000
2002 103,000
--------
TOTAL $580,000
========
Total royalty expense charged to operations (including the
recognized portion of the cost of common stock warrants as described in Note 1)
under the foregoing contracts are summarized as follows for the years ended
December 31, 1999 and 1998:
1999 1998
-------- --------
Unrelated parties $473,000 $ 33,000
Related party 5,000 103,000
-------- --------
$478,000 $136,000
======== ========
F-14
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------
B. REAL PROPERTY LEASE
-------------------
Rental commitments under a noncancellable operating lease for the
Company's office facilities located in New York, New York are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
----------- --------
2000 $ 38,889
2001 40,230
2002 42,912
2003 44,923
2004 46,935
2005 15,645
--------
TOTAL $229,534
========
Rent expense charged to operations was approximately $19,000 and
$8,000 for the years ended December 31, 1999 and 1998, respectively.
C. TRANSPORTATION EQUIPMENT LEASE
------------------------------
The Company is obligated under the terms of an operating lease for
transportation equipment utilized by it. Future minimum annual payments under
this noncancellable operating lease are as follows:
YEAR ENDING
DECEMBER 31,
-----------
2000 $ 9,683
2001 7,260
-------
TOTAL $16,943
=======
Total equipment lease expense charged to operations was
approximately $15,000 and $7,000 for the years ended December 31, 1999 and 1998,
respectively.
F-15
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------
D. PURCHASE COMMITMENTS
--------------------
The Company has an understanding with its principal manufacturer-
supplier to purchase certain minimum levels of merchandise. At December 31,
1999, the approximate future purchase commitments amount to $376,000.
E. AGREEMENT WITH EXECUTIVE OFFICER
--------------------------------
Pursuant to an agreement with the Company's chief executive officer,
if there is a "Change in Control" of the Company as defined in the agreement,
the officer shall have the right to terminate such agreement and shall be
entitled to a lump sum payment equal to 290% of his base amount as defined in
Section 280(G) of the Internal Revenue Code.
F. YEAR 2000 COMPLIANCE
--------------------
The Company recognizes the need to ensure its operations are not
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 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, the Company does not anticipate related
material adverse effects on its financial condition or results of operations.
G. OTHER CONTINGENCIES
-------------------
In the normal course of business, the Company has lawsuits, claims
and contingent liabilities. The Company does not expect that any sum it may have
to pay in connection with any of these matters would have a materially adverse
effect on its financial position or results of operations.
F-16
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 8. OUTSTANDING WARRANTS TO PURCHASE COMMON STOCK
---------------------------------------------
The Company has issued warrants to purchase shares of its common
stock to certain officers and nonemployees. The objectives of the issuance of
the warrants include attracting and retaining the best talent, providing for
additional performance incentives and promoting the success of the Company by
providing the opportunity to employees and nonemployees to acquire common stock.
Outstanding warrants have been granted at exercise prices ranging from $0.15 to
$2.25 and expire at various dates after the grant date.
The status of the Company's warrants is summarized below as of
December 31, 1999:
NUMBER OF OPTION
WARRANTS PRICE
---------- --------------
Outstanding at December 31, 1996 0 $ 0
Granted in 1997 104,328 .90
---------- --------------
Outstanding at December 31, 1997 104,328 .90
Granted in 1998 (*) 502,500 .90 - 2.25
---------- --------------
Outstanding at December 31, 1998 606,828 .90 - 2.25
Granted in 1999 (**) 2,844,152 .15 - 1.00
Expired in 1999 (20,000) 1.00 - 1.50
---------- --------------
Outstanding at December 31, 1999 3,430,980 $ .15 - $2.25
========= ==============
Weighted Average Fair Value of Options
Granted During 1999 $ .51
==============
(*) Includes 300,000 warrants issued to an officer, exercisable
subject to conditions of continued employment, at 60,000
warrants per year at an exercise price of $1.00 per share,
cumulatively, over a five year period, the initial exercise
date commencing in June 1999.
(**) Includes 1,500,000 warrants granted to the chief executive
officer for a period of five years at an exercise price of
$.30 per share. The warrants will vest based upon
corporate milestones including the receipt of a specified
number of new license agreements or the achievement of
specified levels of the Company's future annual earnings
determined before interest, taxes, depreciation and
amortization.
The Company accounts for stock-based compensation using the fair
value method prescribed in SFAS No. 123 "Accounting for Stock-Based
Compensation", under which compensation cost for all stock warrants issued (both
vested and non-vested) is measured at the grant date based on the fair value of
the warrants. Such cost is recognized over the service period (the contract
period).
F-17
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 8. OUTSTANDING WARRANTS TO PURCHASE COMMON STOCK (CONTINUED)
---------------------------------------------
The fair value of each warrant issued is estimated on the date of
grant using the Black- Scholes option pricing model with the following
weighted-average assumptions used for the warrants issued: dividend yield of 0%,
expected volatility of 150%, risk-free rate of 6%, and expected lives ranging
from 1 to 5 years.
Stock-based compensation cost charged to operations was $358,203 and
$176,173 for the years ended December 31, 1999 and 1998, respectively.
NOTE 9. NET LOSS PER COMMON SHARE
-------------------------
Basic net loss per common share is calculated by dividing the net
loss by the weighted average number of common shares outstanding.
The calculation of fully diluted net loss per common share assumes
conversion of warrants and debentures into common stock. Net loss and shares
used to compute net loss per share, basic and assuming full dilution, are
reconciled below:
1999 1998
---------- ---------
Net loss as reported $ (738,132) $(630,643)
========== =========
Net loss, basic $ (738,132) $(630,643)
Effect of dilutive securities, warrants and
debentures convertible to common stock (*) - -
---------- ---------
Net loss, assuming full dilution $ (738,132) $(630,643)
========== =========
Weighted average number of common shares,
basic 10,147,294 6,458,266
Effect of dilutive securities, warrants and
debentures convertible to common stock (*) - -
---------- ---------
Common shares, assuming full dilution 10,147,294 6,458,266
========== =========
(*) No effect has been given to the conversion of warrants and
debentures to common stock inasmuch as such conversions would
be anti-dilutive.
F-18
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 10. CASH FLOW DATA
--------------
Cash and cash equivalents include cash on hand and investments
with maturities of three months or less at the time of purchase. Working capital
changes on the statements of cash flows were as follows:
YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998
--------- --------
(Increase) decrease in assets:
Accounts receivable - net $(162,862) $ (194)
Merchandise inventory (42,122) 33,766
Prepaid expenses (59,081) 2,227
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 374,203 4,179
Due to customers 190,038 -
Taxes payable - other than on income 7,901 479
--------- --------
NET CHANGES IN WORKING CAPITAL $ 308,077 $ 40,457
========= ========
Supplemental information about cash payments
is as follows:
Cash payments for interest $ 10,273 $ 9,509
Cash payments for income taxes $ 1,334 $ 625
Supplemental disclosure of noncash financing
activities:
Common stock subscription received for
common shares issued $ 47,500 $ -
Issuance of warrants in connection with
convertible debentures issued by the
Company $ 63,968 $ -
Issuance of common stock in exchange for
plant and equipment acquired $ - $ 3,475
F-19
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 11. EVENTS SUBSEQUENT
-----------------
A. In February 2000, the Company entered into service agreements
with two consultants providing for the issuance of a maximum of 500,000 shares
of the Company's common stock and a maximum of 500,000 warrants to purchase
common stock.
B. In February 2000, the Company received the remaining balance of
$100,000 under the 5% Convertible Debenture and Warrants Purchase Agreements
described in Note 4 to the financial statements.
In addition, $225,000 of the outstanding $450,000 principal
amount of Debentures at December 31, 1999 were converted into 1,508,264 shares
of common stock pursuant to the aforementioned Agreements.
C. In March 2000, the Company entered into a Convertible Debenture
and Warrant Purchase Agreement pursuant to which the investors agreed to
purchase an aggregate of $1,000,000 principal amount of debentures, convertible
into common stock at a conversion price of $.40 per share, due March, 2005 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.
D. In March, 2000, the Company entered into an agreement to sell
approximately $457,000 of merchandise in exchange for a trade credit to purchase
future television, radio and other advertising mediums on a barter basis over a
maximum period of four years. This transaction satisfies a portion of the
Company's purchase commitments described in Note 7D to the financial statements.
F-20
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
NOTE 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------------------------
The estimate of the fair value of each class of financial
instruments for which it is practicable to estimate that value is based on the
following methods and assumptions:
CASH AND CASH EQUIVALENTS, INVESTMENTS IN MARKETABLE EQUITY TRADING
SECURITIES, ACCOUNTS RECEIVABLE, DUE TO CUSTOMERS, ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES:
The carrying amounts of these items are assumed to be a reasonable
estimate of their fair value due to their short-term nature.
LONG-TERM LIABILITIES - 5% CONVERTIBLE DEBENTURES:
There is no quoted market price for the Company's 5% Convertible
Debentures.
The Debentures, which were issued in October 1999, in the principal
amount of $450,000, are carried in the accounts at December 31, 1999 at $389,856
(net of $60,414 of discounts for unattached stock warrants less related
amortization thereof). Subsequent to December 31, 1999, as described in Note 11,
$225,000 of principal amount of the Debentures, representing one half of the
principal amount of the outstanding Debentures, were converted into 1,508,264
shares of the Company's common stock.
In view of the close proximity of the date of issuance of the
Debentures to year end dates and the conversion of a material portion thereof as
described above, management has determined that it is impractical and
excessively costly to obtain a valuation of the Debentures. Additional
information in connection with the Debentures are provided in Notes 4 and 11B.
F-21
<PAGE>
FAMOUS FIXINS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2000
BALANCE SHEETS
(UNAUDITED)
<TABLE>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------- ----------
<S> <C> <C>
A S S E T S
-----------
CURRENT ASSETS
--------------
Cash and cash equivalents $ 87,641 $ 475,325
Investments in marketable equity trading securities, net 47,459 101,961
Accounts receivable, net 197,217 176,475
Merchandise inventory 487,382 69,542
Unused barter credits - current portion 136,112 -
Prepaid expenses 78,935 59,081
Stock subscriptions receivable (all collected by April, 2000) - 47,500
---------- ----------
TOTAL CURRENT ASSETS $1,034,746 929,884
---------- ----------
PLANT AND EQUIPMENT
-------------------
Furniture and fixtures 15,804 15,804
Machinery and equipment 34,077 25,576
---------- ----------
49,881 41,380
Less: Accumulated depreciation 14,605 8,089
---------- ----------
NET PLANT AND EQUIPMENT 35,276 33,291
---------- ----------
OTHER ASSETS
------------
Deferred debenture issuance costs, net 89,755 42,500
Unused barter credits - noncurrent portion 136,112
Security deposits 6,460 6,482
---------- ----------
TOTAL OTHER ASSETS 232,327 48,982
---------- ----------
$1,302,349 $1,012,157
========== ==========
</TABLE>
See accompanying notes to financial statements.
F2-1
<PAGE>
FAMOUS FIXINS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2000
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
-------------------
Accounts payable and accrued expenses $ 289,370 $ 508,341
Due to customers 63,482 190,038
Taxes payable - other than on income 8,707 9,544
Income taxes payable 625 625
----------- -----------
TOTAL CURRENT LIABILITIES 362,184 708,548
----------- -----------
LONG-TERM LIABILITIES
---------------------
5% convertible debentures, due October, 2002 (principal
amount: 2000 - $38,975; 1999 - $450,000) 37,223 389,586
0% convertible debentures, due March, 2005 (principal
amount - $1,000,000) 403,750 -
Deferred rent 8,199 -
----------- -----------
TOTAL LONG-TERM LIABILITIES 449,172 389,586
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
13,866,264 shares in 2000; 10,462,624 shares in 1999 13,865 10,462
Additional paid-in capital 3,629,910 1,557,337
Accumulated deficit (3,102,782) (1,603,776)
----------- -----------
540,993 (35,977)
Less: Unused advertising barter credits issued in exchange
for common stock (50,000) (50,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 490,993 (85,977)
----------- -----------
$ 1,302,349 $ 1,012,157
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F2-2
<PAGE>
FAMOUS FIXINS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2000
INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 337,687 $ 981,673 $ 1,724,617 $ 2,178,859
------------ ------------ ------------ ------------
COST OF GOODS SOLD
------------------
Merchandise inventory at beginning of period 417,714 71,545 69,542 27,420
Purchases 248,326 530,874 1,268,962 1,194,682
Other direct costs 43,770 26,107 169,374 95,241
------------ ------------ ------------ ------------
709,810 628,526 1,507,878 1,317,343
Less: Merchandise inventory at end of period 487,382 79,868 487,382 79,868
------------ ------------ ------------ ------------
TOTAL COST OF GOODS SOLD 222,428 548,658 1,020,496 1,237,475
------------ ------------ ------------ ------------
GROSS PROFIT 115,259 433,015 704,121 941,384
------------ ------------ ------------ ------------
OPERATING EXPENSES
------------------
Selling expenses 126,897 234,566 951,859 663,764
General and administrative expenses 233,184 157,386 792,179 380,489
Interest expense, net 55,559 1,815 458,634 5,217
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 415,640 393,767 2,202,672 1,049,470
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (300,381) 39,248 (1,498,551) (108,086)
PROVISION FOR INCOME TAXES - - 455 1,334
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (300,381) $ 39,248 $ (1,499,006) $ (109,420)
============ ============ ============ ============
Net income (loss) per common share, basic $ (0.022) $ 0.004 $ (0.117) $ (0.011)
Net income (loss) per common share,
assuming full dilution $ (0.022) $ 0.003 $ (0.117) $ (0.011)
Weighted average number of common
shares outstanding,
basic 13,458,194 10,462,624 12,750,024 10,042,183
assuming full dilution 13,458,194 11,477,963 12,750,024 10,042,183
</TABLE>
See accompanying notes to financial statements.
F2-3
<PAGE>
FAMOUS FIXINS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2000
INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,499,006) $ (109,420)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Noncash items:
Depreciation 6,516 2,362
Amortization 102,885 -
Deferred rent expense 8,199 -
Interest expense paid by issuance of common stock 9,638 -
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 439,661 222,131
Unrealized loss on investments in marketable equity
trading securities 7,502 -
Unused barter credits (272,224) -
(Increase) decrease in assets:
Accounts receivable (20,742) (627,387)
Merchandise inventory (417,840) (52,448)
Prepaid expenses (19,854) (24,307)
Security deposits 22
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (218,971) 637,983
Due to customers (126,556) -
Taxes payable - other than on income (837) 1,522
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,463,683) 172,262
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from borrowing against investment in marketable
equity trading securities 47,000 -
Payments for plant and equipment additions (8,501) -
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 38,499 -
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debentures, net 990,000 -
Proceeds from issuance of common stock, net - 287,734
Proceeds of long-term debt from bank - 35,000
Repayments of long-term debt to bank - (36,545)
Proceeds of stock subscriptions receivable 47,500
Repayments of notes payable to related party - (134,303)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,037,500 151,886
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (387,684) 324,148
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 475,325 19,500
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 87,641 $ 343,648
=========== ===========
</TABLE>
(CONTINUED)
See accompanying notes to financial statements.
F2-4
<PAGE>
FAMOUS FIXINS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2000
INTERIM STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Supplemental information about cash payments is as follows:
Cash payments for interest $ - $ 12,230
Cash payments for income taxes $ 455 $ 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 $ 423,391 $ -
Common stock subscriptions received for common shares issued $ - $ 53,750
</TABLE>
See accompanying notes to financial statements.
F2-5
<PAGE>
FAMOUS FIXINS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 2000
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 423,391 2,903,640 2,903 420,488 - -
Issuance of common shares for services received 212,924 500,000 500 212,424 - -
Issuance of warrants for services received 439,661 - - 439,661 - -
Issuance of warrants and beneficial conversion
feature in connection with
convertible debentures issued 1,000,000 - - 1,000,000 - -
Net loss - Nine months ended September 30, 2000 (1,499,006) - - - (1,499,006) -
----------- ---------- -------- ----------- ----------- --------------
BALANCE (DEFICIT) - SEPTEMBER 30, 2000 $ 490,993 13,866,264 $ 13,865 $ 3,629,910 $(3,102,782) $ (50,000)
=========== ========== ======== =========== =========== ==============
</TABLE>
See accompanying notes to financial statements.
F2-6
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2000,
and the results of operations for the three months and nine months
ended September 30, 2000 and 1999, and the statements of cash flows
for the nine months ended September 30, 2000 and 1999, and the
statement of stockholders' equity for the nine months ended September
30, 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 licensed consumer products for sale in supermarkets,
other retailers and over the Internet. The Company develops,
markets and sells licensed consumer 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 consumer
products which include various product lines consisting of
breakfast cereals, salad dressings, candy products and adhesive
bandages endorsed by the licensors. The Company utilizes a
network of consumer brokers to distribute its products throughout
the United States. Third party manufacturers produce the
Company's various consumer products.
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.
Subsequently, the Company issued 2,903,640 shares of its common
stock upon conversion of $511,025 principal amount of such
debentures (and unpaid interest of $9,638), resulting in $38,975
principal amount outstanding at September 30, 2000.
F2-7
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY (CONTINUED)
----------------------------------
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 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.
In March, 2000, the Company entered into an agreement to
sell certain merchandise products in exchange for a $457,104
trade credit to purchase future television, radio, other
advertising mediums and various services such as warehousing,
hotel rooms, airline tickets and office equipment on a barter
basis over a maximum period of four years. In April 2000,
pursuant to the agreement, the Company delivered merchandise with
an estimated fair value of $302,472 to the barter company in
connection with the aforementioned trade credit commitment. The
Company has commenced a lawsuit in October 2000 against the
barter company in which, among other claims, it asserts that the
barter company failed to establish the $457,104 trade credit in
favor of the Company. The Company believes that the barter
company has no meritorious defenses to the claims, even though
the barter company is denying the claims. complaint. The amount
due from the barter company as at September 30, 2000 is carried
on the Company's accounts at the estimated fair value of the
transferred merchandise ($302,472) less an allowance ($30,248)
for estimated unrecoverable amounts, resulting in a net balance
due of $272,224. The balance sheet as at September 30, 2000
reflects $136,112 of the fair value of the barter credit as a
current asset (which is intended to be used within one year of
the balance sheet date) and the remaining balance is reported
under the category, "other assets".
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 nine months ended September 30, 2000 was
$439,661, including the $114,076 of services described above.
F2-8
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
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.
No effect has been given to the conversion of warrants and
debentures to common stock for the nine months ended September
30, 2000 and 1999 inasmuch as such conversion would be
anti-dilutive.
F2-9
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
NOTE 3. GOING CONCERN
-------------
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is
dependent upon obtaining financing and/or raising capital to continue
operations. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty. It is
management's plan to raise additional funds to continue operations.
NOTE 4. SUBSEQUENT EVENTS
-----------------
A. 4% CONVERTIBLE DEBENTURES
-------------------------
On October 27, 2000, the Company entered into an agreement
with three investors for the sale of 4% convertible debentures
and warrants for 250,000 shares of the Company's common stock.
The transaction closed on November 7, 2000.
Under the terms of the agreement, the principal amount of
the 4% debentures is $1,500,000, consisting of a new debenture of
$500,000 and the surrender of outstanding 0% $1,000,000 principal
amount of convertible debentures dated March 7, 2000. The 4%
$1,500,000 convertible debentures are due in August 2001, with a
5% premium on principal plus accrued interest. Interest is
payable semi-annually, commencing December 1, 2000 and is
convertible into common stock at the investors option. The
250,000 warrants are exercisable before November 7, 2003.
On or after the August 2001 maturity date, the holders of
the 4% convertible debentures may convert the debentures into
common shares under certain conditions, the maximum shares to be
received by any one debenture holder being no greater than 9.9%
of the then outstanding common stock, including other shares held
by the debenture holder. Among other provisions of the agreement,
including default, merger and common stock sale restrictions by
the Company, the investors may elect to cause the Company to
redeem the debentures including interest and a 30% redemption
premium, from up to 50% of the net proceeds received under an
equity drawdown facility (or other permitted financing) described
in item B, below.
The Company received net cash proceeds of $440,000 in
November 2000, consisting of 90% of the proceeds of $500,000 less
$10,000 for the investors legal, administrative and escrow costs.
The Company also issued as part of the placement fee, 75,000
shares of restricted common stock and a warrant to purchase
100,000 shares of common stock.
F2-10
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
NOTE 4. SUBSEQUENT EVENTS (CONTINUED)
-----------------
B. EQUITY DRAWDOWN FACILITY
------------------------
On October 31, 2000, the Company entered into an equity line
of credit type of agreement for the future issuance and sale of
shares of its common stock pursuant to which the investor has
committed to provide up to $5 million at the Company's request
over a 24 month period. The Company may request, at minimum
intervals of 29 trading days each, a minimum drawdown of $100,000
and a maximum amount based on 4.5% of the volume-weighted average
daily price of the Company's common stock for the 3 month period
prior to the drawdown request and the total trading volume for
the 3 months prior to the request. Such amounts as may be
received may be limited by a provision that prevents the Company
from issuing shares to the investor to the extent that the
investor would beneficially own more than 9.9% of the Company's
then outstanding common stock. The common stock issuable upon
each drawdown is to be included in a registration statement to be
filed for the resale of the common stock. Until the registration
statement is effective, the Company cannot use or receive any
funds from the equity line.
The per share amount to be received for the Company's common
stock for each drawdown shall include a 17.5% discount on the
market price of the shares (as defined) and the proceeds shall be
further reduced by certain charges and a 10% placement fee. In
connection with this agreement, the Company issued a stock
purchase warrant for up to 500,000 shares of common stock and the
Company has agreed to issue additional warrants for shares equal
to 50% of the shares purchased by the investor on each drawdown.
There are various other conditions to the agreement, including
the investor's right to terminate the agreement under specified
events. At the closing, the Company paid $10,000 for the
investor's legal and other expenses.
F2-11
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Our Certificate of Incorporation provides: the corporation shall, to the
fullest extent permitted by Article 7 of the Business Corporation Law, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said Article from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
Article, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which any person may be entitled under any
By-Law, resolution of shareholders, resolution of directors, agreement, or
otherwise, as permitted by said Article, as to action in any capacity in which
he served at the request of the corporation.
Article 7 of the New York Business Corporation Law provides the following:
Section 721. Nonexclusivity of statutory provisions for
indemnification of directors and officers. The indemnification and advancement
of expenses granted pursuant to, or provided by, this article shall not be
deemed exclusive of any other rights to which a director or officer seeking
indemnification or advancement of expenses may be entitled, whether contained in
the certificate of incorporation or the by-laws or, when authorized by such
certificate of incorporation or by-laws, (i) a resolution of shareholders, (ii)
a resolution of directors, or (iii) an agreement providing for such
indemnification, provided that no indemnification may be made to or on behalf of
any director or officer if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled. Nothing
contained in this article shall affect any rights to indemnification to which
corporate personnel other than directors and officers may be entitled by
contract or otherwise under law.
Section 722. Authorization for indemnification of directors and
officers.
(a) A corporation may indemnify any person made, or threatened to
be made, a party to an action or proceeding (other than one by or in the right
of the corporation to procure a judgment in its favor), whether civil or
criminal, including an action by or in the right of any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
<PAGE>
(b) The termination of any such civil or criminal action or
proceeding by judgment, settlement, conviction or upon a plea of nolo
contenders, or its equivalent, shall not in itself create a presumption that any
such director or officer did not act, in good faith, for a purpose which he
reasonably believed to be in, or, in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interest of the corporation or that
he had reasonable cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to
be made, a party to an action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he, his testator or intestate,
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of any other corporation of
any type or kind, domestic or foreign, of any partnership, joint venture, trust,
employee benefit plan or other enterprise, against amounts paid in settlement
and reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is settled
or otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and only
to the extent that the court in which the action was brought, or, if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be
deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the corporation also imposes duties
on, or otherwise involves services by, such person to the plan or participants
or beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to applicable law shall be considered fines;
and action taken or omitted by a person with respect to an employee benefit plan
in the performance of such person's duties for a purpose reasonably believed, by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
Section 723. Payment of indemnification other than by court award.
(a) A person who has been successful, on the merits or otherwise,
in the defense of a civil or criminal action or proceeding of the character
described in section 722 shall be entitled to indemnification as authorized in
such section.
(b) Except as provided in paragraph (a), any indemnification
under section 722 or otherwise permitted by section 721, unless ordered by a
court under section 724 (Indemnification of directors and officers by a court),
shall be made by the corporation, only if authorized in the specific case:
<PAGE>
(1) By the board acting by a quorum consisting of directors
who are not parties to such action or proceeding upon a finding that the
director or officer has met the standard of conduct set forth in section 722 or
established pursuant to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable
or, even if obtainable, a quorum of disinterested directors so directs;
(A) By the board upon the opinion in writing of
independent legal counsel that indemnification is proper in the circumstances
because the applicable standard of conduct set forth in such sections has been
met by such director or officer, or
(B) By the shareholders upon a finding that the
director or officer has met the applicable standard of conduct set forth in
such sections.
(C) Expenses incurred in defending a civil or criminal
action or proceeding may be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount as, and to the extent,
required by paragraph (a) of section 725.
Section 724. Indemnification of directors and officers by a
court.
(a) Notwithstanding the failure of a corporation to provide
indemnification, and despite and contrary resolution of the board or of the
shareholders in the specific case under section 723 (Payment of indemnification
other than by court award), indemnification shall be awarded by a court to the
extent authorized under section for indemnification of directors and officers),
722 (Authorization for indemnification of directors and officers) and paragraph
(a) of section 723. Application therefor may be made, in every case, either:
(1) In the civil action or proceeding in which the
expenses were incurred or other amounts were paid, or
(2) To the supreme court in a separate proceeding, in which
case the application shall set forth the disposition of any previous application
made to any court for the same or similar relief and also reasonable cause for
the failure to make application for such relief in the action or proceeding in
which the expenses were incurred or other amounts were paid.
(b) The application shall be made in such manner and form as may
be required by the applicable rules of court or, in the absence thereof, by
direction of a court to which it is made. Such application shall be upon notice
to the corporation. The court may also direct that notice be given at the
expense of the corporation to the shareholders and such other persons as it may
designate in such manner as it may require.
(c) Where indemnification is sought by judicial action, the court
may allow a person such reasonable expenses, including attorneys' fees, during
the pendency of the litigation as are necessary in connection with his defense
therein, if the court shall find that the defendant has by his pleadings or
during the course of the litigation raised genuine issues of fact or law.
<PAGE>
Section 725. Other provisions affecting indemnification of directors
and officers.
(a) All expenses incurred in defending a civil or criminal action
or proceeding which are advanced by the corporation under paragraph (c) of
section 723 (Payment of indemnification other than by court award) or allowed by
a court under paragraph (c) of section 724 (Indemnification of directors and
officers by a court) shall be repaid in case the person receiving such
advancement or allowance is ultimately found, under the procedure set forth in
this article, not to be entitled to indemnification or, where indemnification is
granted, to the extent the expenses so advanced by the corporation or allowed by
the court exceed the indemnification to which he is entitled.
(b) No indemnification, advancement or allowance shall be made
under this article in any circumstance where it appears:
(1) That the indemnification would be inconsistent with the
law of the jurisdiction of incorporation of a foreign corporation which
prohibits or otherwise limits such indemnification;
(2) That the indemnification would be inconsistent with a
provision of the certificate of incorporation, a by-law, a resolution of the
board or of the shareholders, an agreement or other proper corporate action, in
effect at the time of the accrual of the alleged cause of action asserted in the
threatened or pending action or proceeding in which the expenses were incurred
or other amounts were paid, which prohibits or otherwise limits indemnification;
or
(3) If there has been a settlement approved by the court, that
the indemnification would be inconsistent with any condition with respect to
indemnification expressly imposed by the court in approving the settlement.
(c) If any expenses or other amounts are paid by way of
indemnification, otherwise than by court order or action by the shareholders,
the corporation shall, not later than the next annual meeting of shareholders
unless such meeting is held within three months from the date of such payment,
and, in any event, within fifteen months from the date of such payment, mail to
its shareholders of record at the time entitled to vote for the election of
directors a statement specifying the persons paid, the amounts paid, and the
nature and status at the time of such payment of the litigation or threatened
litigation.
(d) If any action with respect to indemnification of directors
and officers is taken by way of amendment of the by-laws, resolution of
directors, or by agreement, then the corporation shall, not later than the next
annual meeting of shareholders, unless such meeting is held within three months
from the date of such action, and, in any event, within fifteen months from the
date of such action, mail to its shareholders of record at the time entitled to
vote for the election of directors a statement specifying the action taken.
(e) Any notification required to be made pursuant to the
foregoing paragraph (c) or (d) of this section by any domestic mutual insurer
shall be satisfied by compliance with the corresponding provisions of section
one thousand two hundred sixteen of the insurance law.
(f) The provisions of this article relating to indemnification of
directors and officers and insurance therefor shall apply to domestic
corporations and foreign corporations doing business in this state, except as
provided in section 1320 (Exemption from certain provisions).
<PAGE>
Section 726. Insurance for indemnification of directors and
officers.
(a) Subject to paragraph (b), a corporation shall have power to
purchase and maintain insurance:
(1) To indemnify the corporation for any obligation which it
incurs as a result of the indemnification of directors and officers under the
provisions of this article, and
(2) To indemnify directors and officers in instances in which
they may be indemnified by the corporation under the provisions of this article,
and
(3) To indemnify directors and officers in instances in which
they may not otherwise be indemnified by the corporation under the provisions of
this article provided the contract of insurance covering such directors and
officers provides, in a manner acceptable to the superintendent of insurance,
for a retention amount and for co-insurance.
(b) No insurance under paragraph (a) may provide for any payment,
other than cost of defense, to or on behalf of any director or officer:
(1) if a judgment or other final adjudication adverse to the
insured director or officer establishes that his acts of active and deliberate
dishonesty were material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled, or
(2) in relation to any risk the insurance of which is
prohibited under the insurance law of this state.
(c) Insurance under any or all subparagraphs of paragraph (a)
may be included in a single contract or supplement thereto. Retrospective
rated contracts are prohibited.
(d) The corporation shall, within the time and to the persons
provided in paragraph (c) of section 725 (Other provisions affecting
indemnification of directors or officers), mail a statement in respect of any
insurance it has purchased or renewed under this section, specifying the
insurance carrier, date of the contract, cost of the insurance, corporate
positions insured, and a statement explaining all sums, not previously reported
in a statement to shareholders, paid under any indemnification insurance
contract.
(e) This section is the public policy of this state to spread the
risk of corporate management, notwithstanding any other general or special law
of this state or of any other jurisdiction including the federal government.
Our Certificate of Incorporation further provides: personal liability of
the directors of the corporation is eliminated to the fullest extent permitted
by the provisions of paragraph (b) of Section 402 of the Business Corporation
Law, as the same may be amended and supplemented.
<PAGE>
Section 402(b) of the New York Business Corporation Law provides: the
certificate of incorporation may set forth a provision eliminating or limiting
the personal liability of directors to the corporation or its shareholders for
damages for any breach of duty in such capacity, provided that no such provision
shall eliminate or limit: (1) the liability of any director if a judgment or
other final adjudication adverse to him establishes that his acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation of
law or that he personally gained in fact a financial profit or other advantage
to which he was not legally entitled or that his acts violated Section 719, or
(2) the liability of any director for any act or omissions prior to the adoption
of a provision authorized by this paragraph.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Famous
Fixins pursuant to the foregoing provisions or otherwise, we are aware that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
The following is a statement of the expenses, all of which are estimated
other than the SEC registration fee, other than underwriting discounts and
commissions, to be incurred in connection with the distribution of the
securities registered under this registration statement.
AMOUNT
TO BE PAID
----------
SEC registration fee..........................................$ 1,784.97
Legal fees and expenses....................................... 10,000.00
Blue Sky fees and expenses.................................... 2,000.00
Accounting fees and expenses.................................. 2,500.00
Printing expenses............................................. 1,000.00
----------
Total.........................................................$17,284.97
==========
<PAGE>
Item 26. Recent Sales of Unregistered Securities
On May 28, 1998, we completed the acquisition of Famous Fixins, Inc.
("FFNY"), a privately-held New York corporation formed on November 29, 1995.
Pursuant to a Plan and Agreement of Reorganization, we issued 5,494,662 shares
of our common stock to certain shareholders of FFNY which included the
controlling shareholders of FFNY, Jason Bauer and Peter Zorich, in a transaction
deemed to be exempt under Section 4(2) of the Securities Act of 1933. Pursuant
to the reorganization, Jason Bauer, Peter Zorich, and certain non-affiliates
exchanged their collective shares of FFNY, on a pro-rata basis, for 2,409,747,
2,409,747, and 674,968 of our unregistered and restricted shares of common
stock, respectively. We made a determination that the shareholders were
sophisticated investors with enough knowledge and experience in business to
evaluate the risks and merits of the investment.
On May 28, 1998, we issued 246,828 warrants exercisable for five years to
purchase shares of our common stock to five holders of warrants of FFNY in
exchange for their aggregate of 246,828 warrants, valued at $227,664 at the
times of issuances, to purchase the common stock of FFNY in transactions deemed
to be exempt under Section 4(2) of the Securities Act of 1933. Dan Brecher has
69,552 warrants exercisable at $.90 per share. Fischbein Badillo Wagner Harding
has 34,776 warrants exercisable at $.90 per share. Erik Estrada has 35,000
warrants exercisable at $.90 per share. Olympia Dukakis has 100,000 warrants at
$1.00 per share. Diana Goldstein has 7,500 warrants exercisable at $1.00. We
made a determination that the warrant holders were sophisticated investors with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
On May 28, 1998, we issued 11,000 shares of common stock to Weinstein
Otterman in exchange for services, valued at $11,000, rendered to us, in
connection with a newspaper advertising design, in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933. We made a determination
that Winstein Otterman was an sophisticated investors with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
On June 2, 1998, we issued 300,000 warrants to purchase shares of our
common stock to Michael Simon for publicity services valued at $275,982, to be
rendered to Famous Fixins over a five year period, in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933. The warrants are
exercisable for six years at $1.00 per share, subject to vesting at a rate of
60,000 per year and subject to other conditions of performance of services to
us. We made a determination that he was an sophisticated investor with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
Between June 1998 and July 1998, we issued 255,000 shares of common stock
pursuant to a securities offering deemed to be exempt under Rule 504 of
Regulation D under the Securities Act of 1933, for a total of $255,000. The
securities offering was conducted by our officers and directors who were not
paid commissions or other forms of remuneration. No underwriters' fees or
commissions were paid in the transactions.
<PAGE>
In July 1998, we issued 132,711 shares of our common stock to the
shareholders of FFNY in exchange for 132,711 shares of common stock of FFNY,
which the shareholders of FFNY had purchased from FFNY for $.90 per share, and
which represented all of the outstanding and issued shares of FFNY not already
held by Famous Fixins, pursuant to transactions deemed to be exempt under Rule
504 of Regulation D under the Securities Act of 1933. The securities offering
was conducted by our officers and directors who were not paid commissions or
other forms of remuneration. No underwriters fees or commissions were paid in
the transactions.
On July 14, 1998, we issued 37,500 shares of our common stock to Marvin
Kaplan in exchange for services, related to magazine and radio advertising
valued at $37,500, rendered to us in a transaction deemed to be exempt under
Rule 504 of Regulation D under the Securities Act of 1933. We made a
determination that he was an sophisticated investor with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
On July 22, 1998, we issued to ATG Limited 87,500 shares of our common
stock and 40,000 warrants to purchase our common stock for services rendered to
us pursuant to a service agreement for print and radio advertising valued at
$110,057, in a transaction deemed to be exempt under Section 4(2) of the
Securities Act of 1933. The warrants, which have expired, were issued as
follows: 10,000 warrants were exercisable for one year at $1.50 per share;
10,000 warrants were exercisable for one year at $1.25; 10,000 warrants were
exercisable for two years at $2.00 per share; and 10,000 warrants are
exercisable for two years at $2.25 per share. We made a determination that ATG
Limited was an sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
Between July 1998 and August 1998, we issued 5,000 shares of common stock
in exchange for services, related to developing a cookbook, developing a radio
commercial and for office supplies, valued at $5,975, rendered to us in
transactions deemed to be exempt under Section 4(2) of the Securities Act of
1933. We made a determination that the person was an sophisticated investor with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
On October 8, 1998, we issued 20,000 warrants to purchase shares of common
stock to Brighton Venture Corp., exercisable at $1.00 per share and expiring on
January 1, 2003, in exchange for business development and consulting services
valued $22,377 rendered to us in a transaction deemed to be exempt under Section
4(2) of the Securities Act of 1933. We made a determination that Brighton
Venture Corp. was an sophisticated investor with enough knowledge and experience
in business to evaluate the risks and merits of the investment.
<PAGE>
Between December 1998 and April 1999, we sold 3,162,066 shares of common
stock, at prices ranging from $.10 to $.25 per share, pursuant to a securities
offering deemed to be exempt under Rule 504 of Regulation D under the Securities
Act of 1933, for a total of $428,310. The securities offering was conducted by
our officers and directors who were not paid commissions or other forms of
remuneration. No underwriters fees or commissions were paid in the transactions.
On February 10, 1999, we issued to Stockplayer.com 1,000,000 shares of our
common stock as consideration pursuant to a service agreement for promotional
services of Famous Fixins' business operations, valued at $100,000, in a
transaction deemed to be exempt under Rule 504 of Regulation D under the
Securities Act of 1933.
On April 12, 1999, we issued 10,000 warrants to purchase shares of common
stock to Brighton Venture Corp., exercisable at $1.00 per share and expiring on
January 1, 2003, in exchange for business development and consulting services,
valued at $3,535, rendered to us in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933. We made a determination that
Brighton Venture Corp. was an sophisticated investor with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
On April 12, 1999, we entered into an employment with Jason Bauer to serve
as our President and Chief Executive Officer for a term of five years ending
April 11, 2004. Under the agreement, Mr. Bauer has been granted five-year
options to purchase up to 1,500,000 shares of our common stock at $.30 per share
in a transaction deemed to be exempt under Section 4(2) of the Securities Act of
1933. The options are proportioned to vest only after we achieve certain
corporate milestones. Options to purchase 600,000 shares shall vest following
the first fiscal year end in which we obtain four or more new celebrity,
company, entity or athlete licenses similar in stature and structure to the
eight licenses that we presently have or in which our earnings before interest,
depreciation and amortization exceeds $300,000; additional options to purchase
300,000 additional shares at $.30 per share shall vest following the first
fiscal year end in which we obtain a further three new licenses or more or in
which our earnings before interest, depreciation and amortization exceeds
$500,000; additional options to purchase 300,000 additional shares shall vest
following the first fiscal year end in which we obtain a further three new
licenses or more or in which our earnings before interest, depreciation and
amortization exceeds $700,000; and additional options to purchase 300,000
additional shares shall vest following the first fiscal year end in which we
obtain a further three new licenses or more or in which our earnings before
interest, depreciation and amortization exceeds $1,000,000. These options are
cumulative and are subject to anti-dilution rights. If any milestones are
achieved in the same year, all such options shall vest at the time such
milestone is achieved. These options were valued at approximately $522,450 at
the time of issuance.
Between April 1, 1999 and September 21, 1999, we issued to the Tufton
Group, Sammy Sosa, Alex Rodriguez, Ken Caminiti, Craig Biggio, Jeff Bagwell,
Killer Bee, Inc. and a designated charity, Derek Jeter, Jake Plummer, Peyton
Manning, Alonzo Mourning, Tim Duncan, JAE Endorsements Inc. and Jeff Sperbeck,
pursuant to license agreements, an aggregate of 715,000 warrants and options to
purchase our common stock, exercisable for five years from date of issue at
prices of $.15 to $.50 per share, in transactions deemed to be exempt under
Section 4(2) of the Securities Act of 1933. These warrants were collectively
valued at approximately $285,709 at the times of issuances. We made a
determination that each warrant holder was an sophisticated investor with enough
knowledge and experience in business to evaluate the risks and merits of the
investment.
<PAGE>
On April 22, 1999, we issued to Albert Ferreira for photography services
rendered to us, valued at $3,434, 10,000 warrants to purchase our common stock
exercisable for five years at $.40 per share in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933. We made a determination
that he was an sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
On April 22, 1999, we issued to Michael Lewittes for publicity services
rendered to us, valued at $3,434, 10,000 warrants to purchase our common stock
exercisable for five years at $.40 per share in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933. We made a determination
that he was an sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
On April 22, 1999, we issued to Robert Zarem for publicity services
rendered to us, valued at $3,434, 10,000 warrants to purchase our common stock
exercisable for five years at $.40 per share in a transaction deemed to be
exempt under Section 4(2) of the Securities Act of 1933. We made a determination
that he was an sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
On September 2, 1999, pursuant to a consulting agreement, we issued
warrants to purchase up to 125,000 shares of common stock to Jaffoni & Collins
Incorporated in exchange for business consulting and corporate public relations
services, valued at $34,979, in a transaction deemed to be exempt under Section
4(2) of the Securities Act of 1933. The warrants are exercisable at $0.34 per
share. The warrants expire on February 8, 2003. We made a determination that
Jaffoni & Collins was an sophisticated investor with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
On September 9, 1999, we entered into an agreement with First Atlanta
Securities, LLC for financial consulting services. Under the agreement, First
Atlanta Securities was entitled to receive 53,191 shares of common stock and
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. The warrants may be exercised at $1.00 per share and
expire on September 9, 2004. The warrants were valued at approximately $41,513
on the date of the agreement. Subsequent to entering into the agreement, in
November 1999, we agreed to make a cash payment of $25,000 instead of issuing
53,191 shares of common stock to First Atlanta Securities. We made a
determination that he was an sophisticated investor with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
<PAGE>
We entered into agreements, dated as of October 19, 1999, for the sale of
5% convertible debentures with a principal amount of $550,000 and warrants to
purchase 139,152 shares of common stock to three accredited investors, AMRO
International, S.A., Austost Anstalt Schaan, and Balmore Funds, S.A. in
transactions deemed to be exempt under Section 4(2) of the Securities Act of
1933. We made a determination that each holder was an sophisticated investor
with enough knowledge and experience in business to evaluate the risks and
merits of the investment. We received gross proceeds of $550,000 from the sales.
The interest on the convertible debentures is payable quarterly and accrues from
the date of issuance on the principal amount of the convertible debentures. The
convertible debentures are due October 30, 2002. At our option, we may pay the
interest on the convertible debentures in cash or in registered shares of common
stock. The holders of the convertible debentures are entitled to convert the
debentures into shares of common stock at a conversion price equal to the lower
of 80% of the market price of the common stock or $0.55. 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. If
the conversion price is less than $0.20 per share on any conversion date, we may
redeem the debentures in their entirety in cash or common stock. The amount of
cash to be delivered upon such redemption or conversion shall equal the closing
ask price on the conversion date or the date we give notice of redemption
multiplied by the number of shares of common stock that would have been issued
at the conversion price upon such conversion or redemption. The warrants are
exercisable before October 30, 2004 at a purchase price of $.494 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. The
registration statement was declared effective on February 8, 2000.
Pursuant to a license agreement with Britney Brands, Inc., dated as of
November 22, 1999, we issued warrants to purchase an aggregate of 200,000 shares
of common stock, valued at $95,496, to Britney Spears, Signatures Network, Inc.,
Laurence H. Rudolph, Johnny Wright, Burt Paddell and Reggie Covington in a
transaction deemed to be exempt under Section 4(2) of the Securities Act of
1933. The warrants are exercisable at $0.25 per share and expire on November 22,
2004. We made a determination that each holder was an sophisticated investor
with enough knowledge and experience in business to evaluate the risks and
merits of the investment.
Pursuant to a license agreement, dated as of December 22, 1999, we issued
warrants to purchase 25,000 shares of common stock, valued at $6,719, to Dave
Mirra in a transaction deemed to be exempt under Section 4(2) of the Securities
Act of 1933. The warrants are exercisable at $0.20 per share and expire on
December 22, 2002. We made a determination that he was an sophisticated investor
with enough knowledge and experience in business to evaluate the risks and
merits of the investment.
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. We made a
determination that he was an sophisticated investor with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
<PAGE>
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. We made a
determination that he was an sophisticated investor with enough knowledge and
experience in business to evaluate the risks and merits of the investment.
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,
Roseworth Group Ltd., Austost Anstalt Schaan and Balmore S.A., in transactions
deemed to be exempt under Section 4(2) of the Securities Act of 1933. We made a
determination that each holder was an sophisticated investor with enough
knowledge and experience in business to evaluate the risks and merits of the
investment. 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 were 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 filed 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. In October 2000, we entered into
an agreement for the sale of $1,500,000 principal amount of 4% convertible
debentures pursuant to which the outstanding principal amount of the 0%
convertible debentures were surrendered.
<PAGE>
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. We made a
determination that Sokolow & Associates was an sophisticated investor with
enough knowledge and experience in business to evaluate the risks and merits of
the investment.
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 May 11, 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. We made a determination
that she was an sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
In October 2000, we granted Rich Seery, an employee of Famous Fixins,
warrants to purchase 160,000 shares of our common stock in a transaction deemed
to be exempted under Section 4(2) of the Securities Act of 1933. The warrants
expire on June 30, 2005 and are exercisable as follows:
- presently, to purchase up to 40,000 shares at $.10 per share;
- after June 30, 2001, to purchase up to an additional 30,000 shares at
a 50% discount to the average closing bid price of the Company's
common stock for the five consecutive business days ending on and
including June 30, 2001;
- after June 30, 2002, to purchase up to an additional 30,000 shares at
a 50% discount to the average closing bid price of the Company's
common stock for the five consecutive business days ending on and
including June 30, 2002;
- after June 30, 2003, to purchase up to an additional 30,000 shares at
a 50% discount to the average closing bid price of the Company's
common stock for the five consecutive business days ending on and
including June 30, 2003; and
- after June 30, 2004, to purchase up to an additional 30,000 shares at
a 50% discount to the average closing bid price of the Company's
common stock for the five consecutive business days ending on and
including June 30, 2004.
If Seery's employment with Famous Fixins is terminated, at any time, for
whatever reason, all unexercised warrants and all rights to such warrants, as of
the date of termination, shall be immediately forfeited. We made a determination
that Seery was a sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment.
<PAGE>
We entered into agreements, dated as of October 27, 2000, for the sale of
4% convertible debentures with a principal amount of $1,500,000 and warrants to
purchase 250,000 shares of common stock with Roseworth Group Ltd., Austost
Anstalt Schaan and Balmore S.A., in transactions deemed to be exempt under
Section 4(2) of the Securities Act of 1933. The transaction closed on November
7, 2000. We made a determination that the three investors were sophisticated
investors with enough knowledge and experience in business to evaluate the risks
and merits of the investment. The principal amount of the 4% convertible
debentures is $1,500,000, consisting of:
- principal in the amount of $500,000, of which $250,000 was
provided by Roseworth Group, $125,000 was provided by Austost
Anstalt Schaan, and $125,000 was provided by Balmore Funds; and
- the surrender of outstanding 0% convertible debentures with a
principal amount of $1,000,000, issued pursuant to the
Convertible Debenture and Warrants Purchase Agreement, dated
March 7, 2000, of which a principal amount of $400,000 was held
by Roseworth Group Ltd., a principal amount of $250,000 was held
by Austost Anstalt Schaan, and a principal amount of $350,000 was
held by Balmore Funds.
The 4% convertible debentures are due on August 7, 2001 with a 5% premium
on the principal and the accrued unpaid interest. We may not pay the principal
before the maturity date without the express written consent of the investors.
Semi-annual interest payments are due and payable on December 1 and June 1 of
each year, commencing with December 1, 2000. We entered into an equity line of
credit transaction on October 31, 2000, for which the shares issuable upon
drawdowns on the equity line are the subject of this registration statement. If
we are unable to pay the amounts due on the maturity date but we can draw down
on the equity line of credit, we are to draw down the maximum amount each draw
down period to pay the investors the full amount due. On or after the maturity
date, the investors may convert the 4% convertible debentures into shares of
common stock if this registration statement is not effective on the maturity
date or if we do not draw down the maximum amount permitted each drawdown period
under the equity line after this registration statement is effective. The
conversion price shall equal the lesser of $0.054 or 85% of the average of the 5
lowest closing bid prices during the 22 trading days preceding the applicable
conversion date. 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 to purchase 250,000 shares of
common stock are exercisable before November 7, 2003 at a purchase price of per
share of $0.0588. Of these warrants, Roseworth Group owns warrants to purchase
108,333 shares, Austost Anstalt Schaan owns warrants to purchase 62,500 shares,
and Balmore Funds owns warrants to purchase 79,167 shares. Under the agreements,
we agreed to prepare and file a registration statement under the Securities Act
for shares of common stock issuable upon the conversion of the convertible
debentures and the warrants within 45 days of the closing date of the
transaction. We agreed to use our best efforts to cause the registration
statement to become effective within 90 days of the closing date or 5 days of
SEC clearance to request acceleration of effectiveness. At the closing of the
transaction, we received gross proceeds of $500,000, less payment to the escrow
agent, Epstein Becker & Green P.C., of $10,000 for the investors' legal,
administrative and escrow costs, and less payment of a 10% placement agent fee
to Union Atlantic, L.C., which placement agent fee is net of payment to the
escrow agent, Epstein Becker & Green P.C., of $5,000 for the investors' legal,
administrative and escrow costs. We also issued to Union Atlantic, L.C. 75,000
shares of restricted common stock and a warrant to purchase 100,000 shares of
common stock as part of the placement agent fee. The warrants are exercisable
before November 7, 2003 at a purchase price per share of $0.0588. We agreed to
include such securities to the placement agent in the registration statement for
the resale of the common stock underlying the 4% convertible debentures and
warrants.
<PAGE>
We signed a common stock purchase agreement with Folkinburg Investments
Limited, dated as of October 31, 2000, for the future issuance and purchase of
shares of our common stock in a transaction deemed to be exempt under Section
4(2) of the Securities Act of 1933. We made a determination that Folkinburg
Investments was a sophisticated investor with enough knowledge and experience in
business to evaluate the risks and merits of the investment. The common stock
purchase agreement establishes what is sometimes termed an equity line of credit
or an equity drawdown facility. In general, the drawdown facility operates as
follows: the investor, Folkinburg Investments, has committed to provide us with
up to $5 million as we request it over a 24 month period, in return for shares
of common stock we issue to Folkinburg Investments. Subject to a maximum of 16
draws, once every 29 trading days, we may request a draw of up to $5 million of
that money, however, no single draw can exceed $5 million. We must wait at least
7 trading days after each 22 trading day drawdown period before requesting
another drawdown. The maximum amount we actually can draw down upon each request
will be determined by 4.5% of the volume-weighted average daily price of our
common stock for the 3 month period prior to our request and the total trading
volume for the 3 months prior to our request. Each draw down must be for at
least $100,000. At the end of a 22-day trading period following the drawdown
request, the final drawdown amount is determined based on the volume-weighted
average stock price during that 22-day period. We then use the formulas
contained in the common stock purchase agreement to determine the number of
shares we will issue to Folkinburg Investments in return for that money. The per
share dollar amount Folkinburg Investments pays for our common stock for each
drawdown includes a 17.5% discount to the average daily market price of our
common stock for the 22-day period after our drawdown request, weighted by
trading volume. We will receive the amount of the drawdown less an escrow agent
fee equal to $1,500 per drawdown and less a 10% placement fee payable to the
placement agent, Union Atlantic, L.C., which introduced Folkinburg Investments
to us. In lieu of making a commitment to Folkinburg Investments to draw a
minimum aggregate amount, on October 31, 2000, we issued to Folkinburg
Investments a stock purchase warrant to purchase up to 500,000 shares of our
common stock and we also agreed to issue additional warrants to purchase a
number of shares equal to 50% of the shares purchased by Folkinburg Investments
on the settlement date of each drawdown. The warrants to purchase 500,000 shares
of common stock have an exercise price per share of $0.0636, which equals 110%
of the volume-weighted average share price for the trading day prior to the date
the warrants were issued, and expire on October 31, 2003. The additional
warrants issuable at each settlement date will be exercisable for 35 calendar
days and have an exercise price equal to the weighted average of the purchase
prices of the common stock during the applicable settlement period. We agreed to
file file a registration statement under the Securities Act for shares of common
stock issuable under the equity line of credit, including shares underlying
warrants issued in connection with the equity line of credit, within 45 days of
the closing date of the transaction. We agreed to use our best efforts to cause
the registration statement to become effective within 90 days of the closing
date or 5 days of SEC clearance to request acceleration of effectiveness. At the
closing of the transaction, we paid the escrow agent, Epstein Becker & Green
P.C., $10,000 for Folkinburg Investments' legal, administrative and escrow
costs.
<PAGE>
Item 27. Exhibits
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
Exhibit Description
------- -----------
2.1 Plan and Agreement of Reorganization between Spectrum Resources, Inc.
and Famous Fixins, Inc. (Incorporated by reference to Exhibit 1 of
Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
2.2 Agreement and Plan of Merger between Famous Fixins, Inc., a Nevada
corporation, and Famous Fixins Holding Company, Inc., a New York
corporation (Incorporated by reference to Exhibit 2 of Registration
Statement on Form 10-SB/A (Amendment No. 3) filed on December 10,
1999.)
2.3 Agreement and Plan of Merger between Famous Fixins, Inc., a New York
corporation, and Famous Fixins Holding Company, Inc., a New York
corporation (Incorporated by reference to Exhibit 3 of Registration
Statement on Form 10-SB/A (Amendment No. 3) filed on December 10,
1999.)
3(i)(1) Articles of Incorporation of Spectrum Resources, Inc. (Incorporated by
reference to Exhibit 4 of Registration Statement on Form 10-SB/A
(Amendment No. 3) filed on December 10, 1999.)
3(i)(2) Certificate of Incorporation of Famous Fixins Holding Company, Inc.
(Incorporated by reference to Exhibit 5 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
3(i)(3) Articles of Merger for Famous Fixins, Inc., a Nevada corporation, and
Famous Fixins Holding Company, Inc., a New York corporation
(Incorporated by reference to Exhibit 6 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
3(i)(4) Certificate of Merger of Famous Fixins Holding Company, Inc., a New
York corporation, and Famous Fixins, Inc., a Nevada Corporation
(Incorporated by reference to Exhibit 7 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
3(i)(5) Certificate of Merger of Famous Fixins, Inc., a New York corporation,
and Famous Fixins Holding Company, Inc. (Incorporated by reference to
Exhibit 8 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
3(i)(6) Certificate of Amendment of the Certificate of Incorporation of Famous
Fixins Holding Company, Inc. (Incorporated by reference to Exhibit 9
of Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
3(ii) By-Laws (Incorporated by reference to Exhibit 10 of Registration
Statement on Form 10-SB/A (Amendment No. 3) filed on December 10,
1999.)
<PAGE>
4.1 Form of Warrant Certificate (Incorporated by reference to Exhibit 11
of Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
4.2 Warrant Certificate of Michael Simon (Incorporated by reference to
Exhibit 12 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
4.3 Form of Warrant Certificate (Incorporated by reference to Exhibit 13
of Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
4.4 Convertible Debenture and Warrants Purchase Agreement between Famous
Fixins, Inc. and AMRO International, S.A. dated as of October 19, 2000
(Incorporated by reference to Exhibit 14 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
4.5 Convertible Debenture and Warrants Purchase Agreement between Famous
Fixins, Inc. and Austost Anstalt Schaan and Balmore Funds, S.A. dated
as of October 19, 1999 (Incorporated by reference to Exhibit 15 of
Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
4.6 Convertible Debenture and Warrants Purchase Agreement between Famous
Fixins, Inc. and Roseworth Group Ltd., Austost Anstalt Schaan, and
Balmore Funds, S.A. dated as of March 7, 2000 Incorporated by
reference to Exhibit 4.6 of Annual Report on Form 10-KSB filed on
March 29, 2000.
4.7 Convertible Debenture and Warrants Purchase Agreement, dated
as of October 27, 2000, between Famous Fixins, Inc. and Roseworth
Group Ltd., Austost Anstalt Schaan and Balmore Funds, S.A.
(Incorporated by reference to Exhibit 10.1 of Quarterly Report on
Form 10-QSB/A filed on December 15, 2000.)
4.8 Common Stock Purchase Agreement, dated as of October 31, 2000,
between Famous Fixins, Inc. and Folkinburg Investments Limited
(Incorporated by reference to Exhibit 10.2 of Quarterly Report on
Form 10-QSB/A filed on December 15, 2000.)
5*** Opinion of Law Offices of Dan Brecher as to validity of Common Stock
being offered.
9 Voting Agreement between Jason Bauer and Peter Zorich (Incorporated by
reference to Exhibit 16 of Registration Statement on Form 10-SB/A
(Amendment No. 3) filed on December 10, 1999.)
<PAGE>
10.1 Employment Agreement for Jason Bauer (Incorporated by reference to
Exhibit 17 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
10.2 Lease Agreement (Incorporated by reference to Exhibit 18 of
Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
10.3 License Agreement with Olympia Dukakis (Incorporated by reference to
Exhibit 19 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
10.4 License Agreement with Major League Baseball Properties, Inc.
(Incorporated by reference to Exhibit 23 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
10.5*** Additional Exhibits to Major League Baseball Properties, Inc. License
Agreement
10.6 License Agreement with Turn 2, Inc. (Incorporated by reference to
Exhibit 28 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
10.7 Promotion Agreement with Sterling Doubleday Enterprises, L.P.
(Incorporated by reference to Exhibit 32 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
10.8 Consulting Agreement with Jaffoni & Collins (Incorporated by reference
to Exhibit 10.19 of Annual Report on Form 10-KSB filed on March 29,
2000.)
10.9 Merchandising License Agreement with Britney Brands, Inc.
(Incorporated by reference to Exhibit 10.20 of Annual Report on Form
10-KSB filed on March 29, 2000.)
10.10 Limited License Agreement with Redline Sports Marketing, Inc.
(Incorporated by reference to Exhibit 10.21 of Annual Report on Form
10-KSB filed on March 29, 2000.)
10.11 License Agreement between Famous Fixins, Inc. and Dave Mirra
(Incorporated by reference to Exhibit 10.22 of Annual Report on Form
10-KSB filed on March 29, 2000.)
10.12 Consulting Agreement with Matthew Markin (Incorporated by reference to
Exhibit 10.23 on Annual Report of Form 10-KSB filed on March 29,
2000.)
10.13 Consulting Agreement with Edward Defudis (Incorporated by reference to
Exhibit 10.24 on Annual Report of Form 10-KSB filed on March 29,
2000.)
10.14 Employment Agreement with Jody King-Cheifetz (Incorporated by
reference to Exhibit 10.15 of Registration Statement on Form SB-2
filed on July 20, 2000.)
10.15 License Agreement with 'N Sync (Incorporated by reference to Exhibit
10.16 of Registration Statement of Form SB-2 filed on July 20, 2000.)
10.16 Famous Fixins Corporation Media Trade Program Agreement (Incorporated
by reference to Exhibit 10 of Quarterly Report on Form 10-QSB filed on
August 11, 2000).
11 Statement Concerning Computation of Per Share Earnings is hereby
incorporated by reference to "Financial Statements" contained in this
Form SB-2.
23.1*** Consent of Freeman and Davis LLP
23.2*** Consent of Law Offices of Dan Brecher (filed as Exhibit 5 herein)
*** Filed herewith.
<PAGE>
Item 28. Undertakings.
(A) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(B) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(C) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted against the
registrant by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on December 15, 2000.
FAMOUS FIXINS, INC.
By: /s/ Jason Bauer
-------------------------------------
Jason Bauer
Chief Executive Officer and President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Jason Bauer Chairman of the Board, President, December 15, 2000
---------------------- Treasurer, Chief Executive
Jason Bauer Officer, Principal Financial
Officer and Principal Accounting
Officer
/s/ Alex Weiderhorn Director December 15, 2000
----------------------
Alex Weiderhorn
<PAGE>
INDEX OF EXHIBITS
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
Exhibit Description
------- -----------
2.1 Plan and Agreement of Reorganization between Spectrum Resources, Inc.
and Famous Fixins, Inc. (Incorporated by reference to Exhibit 1 of
Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
2.2 Agreement and Plan of Merger between Famous Fixins, Inc., a Nevada
corporation, and Famous Fixins Holding Company, Inc., a New York
corporation (Incorporated by reference to Exhibit 2 of Registration
Statement on Form 10-SB/A (Amendment No. 3) filed on December 10,
1999.)
2.3 Agreement and Plan of Merger between Famous Fixins, Inc., a New York
corporation, and Famous Fixins Holding Company, Inc., a New York
corporation (Incorporated by reference to Exhibit 3 of Registration
Statement on Form 10-SB/A (Amendment No. 3) filed on December 10,
1999.)
3(i)(1) Articles of Incorporation of Spectrum Resources, Inc. (Incorporated by
reference to Exhibit 4 of Registration Statement on Form 10-SB/A
(Amendment No. 3) filed on December 10, 1999.)
3(i)(2) Certificate of Incorporation of Famous Fixins Holding Company, Inc.
(Incorporated by reference to Exhibit 5 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
3(i)(3) Articles of Merger for Famous Fixins, Inc., a Nevada corporation, and
Famous Fixins Holding Company, Inc., a New York corporation
(Incorporated by reference to Exhibit 6 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
3(i)(4) Certificate of Merger of Famous Fixins Holding Company, Inc., a New
York corporation, and Famous Fixins, Inc., a Nevada Corporation
(Incorporated by reference to Exhibit 7 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
3(i)(5) Certificate of Merger of Famous Fixins, Inc., a New York corporation,
and Famous Fixins Holding Company, Inc. (Incorporated by reference to
Exhibit 8 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
3(i)(6) Certificate of Amendment of the Certificate of Incorporation of Famous
Fixins Holding Company, Inc. (Incorporated by reference to Exhibit 9
of Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
3(ii) By-Laws (Incorporated by reference to Exhibit 10 of Registration
Statement on Form 10-SB/A (Amendment No. 3) filed on December 10,
1999.)
<PAGE>
4.1 Form of Warrant Certificate (Incorporated by reference to Exhibit 11
of Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
4.2 Warrant Certificate of Michael Simon (Incorporated by reference to
Exhibit 12 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
4.3 Form of Warrant Certificate (Incorporated by reference to Exhibit 13
of Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
4.4 Convertible Debenture and Warrants Purchase Agreement between Famous
Fixins, Inc. and AMRO International, S.A. dated as of October 19, 2000
(Incorporated by reference to Exhibit 14 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
4.5 Convertible Debenture and Warrants Purchase Agreement between Famous
Fixins, Inc. and Austost Anstalt Schaan and Balmore Funds, S.A. dated
as of October 19, 1999 (Incorporated by reference to Exhibit 15 of
Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
4.6 Convertible Debenture and Warrants Purchase Agreement between Famous
Fixins, Inc. and Roseworth Group Ltd., Austost Anstalt Schaan, and
Balmore Funds, S.A. dated as of March 7, 2000 Incorporated by
reference to Exhibit 4.6 of Annual Report on Form 10-KSB filed on
March 29, 2000.
4.7 Convertible Debenture and Warrants Purchase Agreement, dated
as of October 27, 2000, between Famous Fixins, Inc. and Roseworth
Group Ltd., Austost Anstalt Schaan and Balmore Funds, S.A.
(Incorporated by reference to Exhibit 10.1 of Quarterly Report on
Form 10-QSB/A filed on December 15, 2000.)
4.8 Common Stock Purchase Agreement, dated as of October 31, 2000,
between Famous Fixins, Inc. and Folkinburg Investments Limited
(Incorporated by reference to Exhibit 10.2 of Quarterly Report on
Form 10-QSB/A filed on December 15, 2000.)
5*** Opinion of Law Offices of Dan Brecher as to validity of Common Stock
being offered.
9 Voting Agreement between Jason Bauer and Peter Zorich (Incorporated by
reference to Exhibit 16 of Registration Statement on Form 10-SB/A
(Amendment No. 3) filed on December 10, 1999.)
<PAGE>
10.1 Employment Agreement for Jason Bauer (Incorporated by reference to
Exhibit 17 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
10.2 Lease Agreement (Incorporated by reference to Exhibit 18 of
Registration Statement on Form 10-SB/A (Amendment No. 3) filed on
December 10, 1999.)
10.3 License Agreement with Olympia Dukakis (Incorporated by reference to
Exhibit 19 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
10.4 License Agreement with Major League Baseball Properties, Inc.
(Incorporated by reference to Exhibit 23 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
10.5*** Additional Exhibits to Major League Baseball Properties, Inc. License
Agreement
10.6 License Agreement with Turn 2, Inc. (Incorporated by reference to
Exhibit 28 of Registration Statement on Form 10-SB/A (Amendment No.
3) filed on December 10, 1999.)
10.7 Promotion Agreement with Sterling Doubleday Enterprises, L.P.
(Incorporated by reference to Exhibit 32 of Registration Statement on
Form 10-SB/A (Amendment No. 3) filed on December 10, 1999.)
10.8 Consulting Agreement with Jaffoni & Collins (Incorporated by reference
to Exhibit 10.19 of Annual Report on Form 10-KSB filed on March 29,
2000.)
10.9 Merchandising License Agreement with Britney Brands, Inc.
(Incorporated by reference to Exhibit 10.20 of Annual Report on Form
10-KSB filed on March 29, 2000.)
10.10 Limited License Agreement with Redline Sports Marketing, Inc.
(Incorporated by reference to Exhibit 10.21 of Annual Report on Form
10-KSB filed on March 29, 2000.)
10.11 License Agreement between Famous Fixins, Inc. and Dave Mirra
(Incorporated by reference to Exhibit 10.22 of Annual Report on Form
10-KSB filed on March 29, 2000.)
10.12 Consulting Agreement with Matthew Markin (Incorporated by reference to
Exhibit 10.23 on Annual Report of Form 10-KSB filed on March 29,
2000.)
10.13 Consulting Agreement with Edward Defudis (Incorporated by reference to
Exhibit 10.24 on Annual Report of Form 10-KSB filed on March 29,
2000.)
10.14 Employment Agreement with Jody King-Cheifetz (Incorporated by
reference to Exhibit 10.15 of Registration Statement on Form SB-2
filed on July 20, 2000.)
10.15 License Agreement with 'N Sync (Incorporated by reference to Exhibit
10.16 of Registration Statement of Form SB-2 filed on July 20, 2000.)
10.16 Famous Fixins Corporation Media Trade Program Agreement (Incorporated
by reference to Exhibit 10 of Quarterly Report on Form 10-QSB filed on
August 11, 2000).
11 Statement Concerning Computation of Per Share Earnings is hereby
incorporated by reference to "Financial Statements" contained in this
Form SB-2.
23.1*** Consent of Freeman and Davis LLP
23.2*** Consent of Law Offices of Dan Brecher (filed as Exhibit 5 herein)
*** Filed herewith.
