As filed with the Securities and Exchange Commission on ______ ___, 2000
Registration Statement No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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.[ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Title of each class Maximum Maximum Amount of
of securities Amount to be Offering Price Aggregate Registration
to Be Registered Registered Per Unit(1) Offering Price(1) Fee
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
common stock underlying 5%
convertible debentures,
principal amount $550,000 2,500,000 $0.19 $475,000 $127.30
--------------------------------------------------------------------------------------------------
common stock underlying
warrants 2,500,000 $0.19 $475,000 $127.30
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Total 5,000,000 $0.19 $950,000 $254.60
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</TABLE>
(1) This calculation is made solely for the purpose of determining the
registration fee pursuant to Rule 457(h) and 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 $.20 and $.18, respectively, for
the common stock on June 29, 2000.
(2) Pursuant to Rule 416 under the Securities Act, the
registrant is also registering such indeterminate number of shares of
common stock as may be issued from time to time upon conversion of the
debentures as a result of the anti-dilution protection of the
debentures. Pursuant to Rule 457(i), no registration fee is required
for these shares.
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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--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED _______ __, 2000
PROSPECTUS
FAMOUS FIXINS, INC.
2,500,000 shares of common stock underlying convertible debentures
2,500,000 shares of common stock underlying warrants
This prospectus relates only to the resale of a total of up to 5,000,000
shares of common stock of Famous Fixins, Inc., a New York corporation, of
which:
- 2,500,000 shares of common stock can be resold upon
conversion of convertible debentures with a $1,000,000
principal amount due March 13, 2005, and
- 2,500,000 shares of common stock can be resold upon exercise of
2,500,000 warrants.
We will not receive any of the proceeds from the resale of the shares
of common stock by the selling stockholders.
Our common stock is quoted on the OTC Bulletin Board under the
symbol "FIXN".
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 ______ ___, 2000.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary 2
Risk Factors 3
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 3
We sell many of our products in geographic markets associated with
the celebrity endorser and we may experience a limited market
for our consumer products 3
We depend on celebrity endorsements for the promotion of our
products 4
We depend on endorsement agreements with celebrities and need to
protect proprietary rights from infringement 4
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 4
We rely on third party distributors to directly ship our products
to retailers, and where direct distribution is not possible,
the costs of our products to consumers will be higher 5
We rely on third parties to manufacture our products 5
Our business of selling consumer products could expose us to
tremendous liability for which we may need to increase our
insurance coverage 5
We do not have an written employment agreement with Michael Simon,
our Vice President and we may not be able to retain his services 5
Our sale of debentures that are convertible into common stock at
below the market price of our common stock will have a dilutive
impact on our stockholders 6
As debenture 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 8
The decrease in the price of our common stock as debenture holders
convert could encourage short sales, which could result in
further reductions in the price of our common stock 8
The conversion of the debentures may result in substantial dilution
to the holders of common stock since the debenture holders may
ultimately convert and sell the full amount issuable on
conversion 9
We do not know the precise number of common stock shares issuable
upon conversion of the debentures because the conversion price
is linked to the future market price of the common stock 9
Use of Proceeds 10
Management's Discussion and Analysis of Financial Conditions
and Results of Operations 11
About Famous Fixins 18
Our Management 37
Executive Compensation 39
Ownership of Securities 44
Certain Relationships and Related Transactions 47
Selling Stockholders 50
Plan of Distribution 52
Description of Our Securities 54
Legal Matters 60
Experts 60
Indemnification 60
Where You Can Find More Information 61
Index to Financial Statements 61
===============================================================================
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.
===============================================================================
FAMOUS FIXINS, INC.
5,000,000 shares of common stock
(consisting of: 2,500,000 shares of common stock underlying
convertible debentures and 2,500,000 shares of common stock
underlying warrants)
PROSPECTUS
_______ ___, 2000
===============================================================================
<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
a line of breakfast cereals endorsed by high profile athletes and a line of
salad dressings. 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 13,167,326 shares of common stock
Common stock offered for resale
to the public 5,000,000 shares of common stock
Price per share to the public Market price at the time of resale
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.
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.
WE SELL MANY OF OUR PRODUCTS IN GEOGRAPHIC MARKETS ASSOCIATED WITH THE
CELEBRITY ENDORSER AND WE MAY EXERPIENCE A LIMITED MARKET FOR OUR CONSUMER
PRODUCTS.
To date, we have had limited sales of our consumer products as compared
to our national competitors. Poor sales of our products will decrease our
gross margins. We cannot assure you that an adequate market exists for our
products. For many of our cereal products, we sell the products only in the
markets where we believe a demand may exist. Even with the endorsements of
high profile athletes, if an adequate market were to develop, we cannot
assure you that we will be able to compete successfully in that market. If
such a market fails to develop, our products may be discontinued based upon
poor sales. Due to our limited operating history and limited lines of
products, some supermarket chains, especially in rural markets, may initially
choose not to carry our products until such products develop a certain market
share, which may further hinder our efforts to develop a market for our
products.
-3-
<PAGE>
WE DEPEND ON CELEBRITY ENDORSEMENTS FOR THE 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 DEPEND ON ENDORSEMENT AGREEMENTS WITH CELEBRITIES AND NEED TO PROTECT
PROPRIETARY RIGHTS FROM INFRINGEMENT.
Our future success depends in part upon our ability to use the names and
likenesses of 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. Many of our
agreements with celebrities are short-term in duration and have no guaranteed
renewal terms. 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. 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. If we
cannot secure and protect third party rights or consents, our ability to
market and promote our products will be greatly hampered.
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>
WE RELY ON THIRD PARTY DISTRIBUTORS TO DIRECTLY SHIP OUR PRODUCTS TO
RETAILERS, AND WHERE DIRECT DISTRIBUTION IS NOT POSSIBLE, THE COSTS OF OUR
PRODUCTS TO CONSUMERS WILL BE HIGHER.
We presently use direct distribution for most of our current business,
whereby our products are shipped directly from the manufacturing facility to
warehouses operated by various accounts. Where direct distribution cannot be
achieved, we intend to utilize a direct store delivery distribution method,
whereby we will have the product shipped to an independent distribution
company who will be responsible for delivery to stores. The indirect
distribution method will increase our distribution costs by about 30%, which
we will pass by increasing the retail price to the consumer. Any delays in
establishing efficient distribution of our products may have a material
adverse affect on our business operations.
WE RELY ON THIRD PARTIES TO MANUFACTURE OUR PRODUCTS.
We engage third-party manufacturers to produce our products according
to the specifications and product formulas provided by us. Manufacturing
facilities are subject to regulations promulgated by the FDA. The FDA and
state regulatory agencies inspect the facilities of manufacturers on a
routine basis for regulatory compliance. We cannot assure you that
third-party manufacturers can satisfy these requirements.
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 DO NOT HAVE AN WRITTEN EMPLOYMENT AGREEMENT WITH MICHAEL SIMON, OUR
VICE PRESIDENT AND WE MAY NOT BE ABLE TO RETAIN HIS SERVICES.
We are highly dependent on our present management to implement our
business strategies. We do not have a written employment agreements with
Michael Simon who serves as Vice President and a director of our
Company and we could lose his services at any time. Mr. Simon
previously has worked as a publicist for many actors. We rely on Mr. Simon's
contacts with the entertainment industry for promoting our products and for
developing relationships with celebrities. We will need more personnel in
management, sales and marketing positions as our operations increase.
Competition for qualified employees is intense. Consequently, we may not be
successful in attracting, training and retaining the people we need.
-5-
<PAGE>
OUR SALE OF DEBENTURES THAT ARE CONVERTIBLE INTO COMMON STOCK AT BELOW THE
MARKET PRICE OF OUR COMMON STOCK WILL HAVE A DILUTIVE IMPACT ON OUR
STOCKHOLDERS.
We have sold convertible debentures that will have a dilutive impact
on our stockholders. In October 1999, we sold 5% debentures with a principal
amount of $550,000 that are convertible into common stock at a discount to
the then-prevailing market price of our common stock. In March 2000,
we sold 0% debentures with a principal amount of $1,000,000 that are
convertible into common stock at a fixed conversion rate of $.40 per share.
We presently have 5% debentures with a principal amount of $105,000
outstanding. The conversion of the 5% debentures is set at the lower of 80%
of the market price of our common stock at the time of conversion or $.55.
As long as the market price of our common stock is $.6875 or lower, the
holders of 5% debentures are entitled to convert at a 20% discount. If the
market price of our common stock exceeds $.6875, the holders are entitled to
convert at $.55, which could represent a discount of substantially more than
20% depending on the prevailing market price of our common stock. Discounted
sales resulting from the conversion of the debentures could have an immediate
adverse effect on the market price of the common stock.
The table below assumes that we have 13,167,326 shares of common stock
presently outstanding in calculating the 9.9% and the percentage of class
after conversion.
The table below illustrates how the conversion would work for the
conversion of the 5% debentures with a principal amount of $105,000 held by
the debenture holder.
Shares Percentage
Principal 80% of Applicable Issuable at of Class
Debenture Market Market Conversion Conversion After
Amount Price Price Price Price Conversion
-------------------------------------------------------------------
$105,000 $.25 $.20 $.20 525,000 3.8%
$105,000 $.50 $.40 $.40 262,500 2.0%
$105,000 $.6875 $.55 $.55 190,909 1.4%
$105,000 $1.00 $.80 $.55 190,909 1.4%
The table illustrates that if the market price of our common stock is
$.6875 per share or more, the applicable conversion rate is $.55, since the
conversion rate must be the lower of the 80% of the market price or $.55. If
the market price is less than $.6875 per share, then the conversion price is
80% of the market price.
-6-
<PAGE>
We have outstanding 0% convertible debentures with a $1,000,000
principal amount due March 13, 2005. The three holders of the convertible
debentures are entitled to convert the debentures into shares of common stock.
The conversion price is $0.40 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.
The table below assumes that we have 13,167,326 shares of common stock
presently outstanding in calculating the 9.9% and the percentage of class
after conversion.
The table below illustrates how the conversion would work for the
conversion of the principal amount of:
- $250,000 debentures held by Austost Anstalt Schaan, assuming
ownership of 643,975 shares of common stock underlying warrants;
- $350,000 debentures held by Balmore Funds, S.A., assuming
ownership of 893,975 shares of common stock underlying
warrants; and
- $400,000 debentures held by Roseworth Group Ltd., assuming
ownership of 1,000,000 shares of common stock underlying
warrants.
Holder of Shares Number of Shares Percentage
Principal Issuable at Shares Issuable of Class
Debenture Conversion Owned Before at 9.9% After
Amount Price of $0.40 Conversion Limit Conversion
------------------------------------------------------------------------------
$250,000 625,000 643,975 643,105 9.9%
$350,000 875,000 893,975 393,105 9.9%
$400,000 1,000,000 1,000,000 287,080 9.9%
The table illustrates that at the conversion price of $0.40, the holder
of $350,000 debentures who already owns 893,975 shares of common stock would
be able to convert its debentures into only 393,105 shares rather than
875,000. This occurs because the maximum number of shares of common stock
that may be received upon conversion is 9.9% of our then-outstanding common
stock. However, if we had 20,000,000 shares of common stock outstanding, the
holder of the $350,000 debentures would be able to convert its debentures
into 875,000 shares of common stock since the holder would then own 1,768,975
shares of common stock or 8.8% of our common stock after the conversion.
-7-
<PAGE>
Under the agreements for the 0% convertible debentures, we were
obligated to prepare and file a registration statement under the Securities
Act of 1933 for shares of common stock issuable upon the conversion of the
convertible debentures and the warrants within 15 days of our filing of our
Form 10K-SB for the year ended December 31, 1999. If the registration
statement is not timely filed with the SEC by the required filing date, the
registration statement is not declared effective by the SEC within 90 days of
the required filing date or five days of clearance by the SEC to request
effectiveness, but in no event later than July 15, 2000, the registration
statement is not maintained as effective by us for the requisite period, or
the additional registration statement is not filed within thirty days or
declared effective within ninety days, then we are to pay each holder of the
convertible debentures and warrants, as liquidated damages, one percent of
the aggregate market value of shares of common stock purchaseable or
purchased from Famous Fixins and held by the holder for the first month of
such default, and two percent for each month of default thereafter until
such registration statement has been filed, and in the event of late
effectiveness or lapsed effectiveness, one percent of the aggregate market
value of shares of common stock purchaseable or purchased from Famous Fixins
and held by the holder for the first month of such default and two percent
for each month of default thereafter until such registration statement has
been declared effective. The liquidated damages are not to exceed $50,000
per month. We have agreed with the holders that each will hold harmless
the other against any losses, claims, damages or liabilities, joint or
several, including all reasonable costs of defense and investigation and
all reasonable attorneys' fees and expenses, to which they may become
subject based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement, prospectus, or based
upon the omission or alleged omission to state therein a material fact,
unless the misleading or omitted information was provided by the other in
connection with the preparation of the registration statement or prospectus.
AS DEBENTURE 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.
The resulting decrease in the market price of our common stock as the
holders of debentures convert and sell their shares of common stock could
permit the selling stockholder to convert their debentures into a greater
number of shares of common stock, as illustrated in the table above. As more
debentures are converted into common stock and sold, a further downward
pressure on the price of the common stock is likely to occur. This downward
pressure on the common stock is likely to occur until substantially all of the
debentures are sold and converted.
THE DECREASE IN THE PRICE OF OUR COMMON STOCK AS DEBENTURE HOLDERS CONVERT
COULD ENCOURAGE SHORT SALES, WHICH COULD RESULT IN FURTHER REDUCTIONS IN
THE PRICE OF OUR COMMON STOCK.
As debenture holders elect to convert and sell the 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.
-8-
<PAGE>
THE CONVERSION OF THE DEBENTURES MAY RESULT IN SUBSTANTIAL DILUTION TO THE
HOLDERS OF COMMON STOCK SINCE THE DEBENTURE HOLDERS MAY ULTIMATELY CONVERT
AND SELL THE FULL AMOUNT ISSUABLE ON CONVERSION.
The holders of common stock will experience substantial dilution as the
debenture holders convert and sell the common stock. Because the conversion
price of the 5% debentures is substantially below the market value of the
common stock, we expect the 5% debenture holder to ultimately convert the
entire principal amount and sell the common stock. Assuming a conversion
price of $.20 per share, we would have to issue up to 525,000 shares of
common stock if all of the outstanding 5% debentures with a principal amount
of $105,000 are converted, which would represent about 4% of our
outstanding common stock if conversion took effect today. In addition, we
have 0% debentures outstanding with the principal amount of $1,000,000
which can be converted at $.40 per share into 2,500,000 shares of common
stock, which would represented about 16% of our outstanding common stock if
conversion took effect today. 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.
WE DO NOT KNOW THE PRECISE NUMBER OF COMMON STOCK SHARES ISSUABLE UPON
CONVERSION OF THE 5% DEBENTURES BECAUSE THE CONVERSION PRICE IS LINKED TO
THE FUTURE MARKET PRICE OF THE COMMON STOCK.
The conversion of the 5% debentures is linked to a percentage discount
to the market price of our common stock at the time of conversion. Until
conversion occurs, we do not know the precise maximum number of common stock
shares that may be issued. The conversion is set at the lower of 80% of the
market price of our common stock at the time of conversion or $.55.
Accordingly, the conversion rate of the 5% debentures changes with the market
price of the common stock. Therefore, the lower the price of our common stock
at the time of conversion, the more the shares of common stock into which the
5% debentures are convertible, which will further dilute holders of common
stock and cause the common stock price to decline further.
-9-
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the resales of the shares of
common stock by the selling stockholders upon the conversion of the
convertible debentures or upon the exercise of the warrants. We applied
the net proceeds from the sale of convertible debentures and warrants for
general corporate purposes and working capital.
-10-
<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 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 in March 25, 1997. Pursuant to
the reorganization, the controlling FFNY shareholders became the controlling
shareholders, the officers and the directors of our company. The following
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 December 31, Three Months Ended
March 31, 2000
------------------------------------------ --------------------------
1999 1998 1997 2000 1999
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
NET SALES $2,515,966 $ 276,006 $ 358,791 $ 261,043 $ 32,805
COST OF GOODS SOLD $1,590,438 $ 193,143 $ 194,701 $ 227,427 $ 20,414
GROSS PROFIT ON SALES $ 925,528 $ 82,863 $ 164,090 $ 33,616 $ 12,391
OTHER INCOME $ 0 $ 35,347 $ 0 $ 0 $ 0
OPERATING EXPENSES $1,662,321 $ 748,184 $ 374,822 $ 1,255,352 $ 267,518
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAX $ (736,793) $ (629,974) $ (210,732) $(1,221,736) $ (255,127)
PROVISION FOR INCOME TAXES $ 1,339 $ 669 $ 950 $ 455 $ 1,336
NET INCOME (LOSS) $ (738,132) $ (630,643) $ (211,682) $(1,222,191) $ (256,463)
</TABLE>
-11-
<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.
-12-
<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.
-13-
<PAGE>
Three Months Ended March 31, 2000
Cost of goods sold for the three months ended March 31, 2000 was
$227,427, or approximately 87% of sales, as compared to $20,414, or
approximately 62% of sales, for the comparable period in 1999. We offered
nine more products in the three months ended March 31, 2000 than in the three
months ended March 31, 1999, resulting in higher cost of goods sold, which we
expect to increase further as more products are available for sale. Although
cost of goods sold as a percentage of sales increased in the three months
ended March 31, 2000 as compared to the three months ended March 31, 1999, we
expect cost of goods sold to decrease as a percentage of total sales as our
sales volume grows.
Gross profit on sales for the three months ended March 31, 2000 was
$33,616, an increase of 171% as compared to the three months ended March
31, 1999 of $12,391. The increase in gross profits is attributable to our
cereal product line which was introduced beginning in April 1999.
For the three months ended March 31, 2000, as compared to the three
months ended March 31, 1999, operating expenses increased to $1,255,352 from
$267,518, which represents a 369% increase in operation expenses, and which
represents a decrease to 481% of sales from 815% of sales. The increase
in our operating expenses in the three months ended March 31, 2000 is due
mainly to an expansion of our operations, creation of new product lines, and
licensing fees, including the related costs of stock warrants issued, in
connection with new celebrity licenses obtained by us, and to a lesser
extent, an increase in personnel from one full-time employee to three
full-time employees. Operating expenses are expected to increase as more
products are sold; however, operating expenses are expected to decrease as a
percentage of total sales as our sales volume grows.
Our gross profits on product sales of our celebrity endorsed products
are substantially in excess of the portion of the licensing costs which are
computed and payable at specified percentages of product sales. However, the
ultimate profitability to Famous Fixins from each particular individual
celebrity license is dependent on total sales volumes of the related license
products inasmuch as we are required to bear fixed charges to income for the
cost of stock warrants issued which do not require cash outlays by us. During
the three months ended March 31, 2000, charges to income for stock warrants
related to licensing costs were approximately $62,000.
We operated at a loss in the three months ended March 31, 2000, losing
$1,222,191, or $0.10 per share basic and diluted, as compared to a net loss
of $256,463, or $0.03 per share basic and diluted, for the three months ended
March 31, 1999. The revenues for the first three months of 1999 do not
include sales of nine new products endorsed by celebrity athletes, whose
products became available beginning in April 1999. We anticipate
increases in revenues and gross profit in the remainder of fiscal year 2000.
We expect to launch two to four more new products for two to four more new
celebrities in the summer of 2000. We may not experience profitability in
fiscal year 2000 because we expect our costs of goods sold and operating
expenses to also increase significantly in the 2000 fiscal year. While the
addition of new product lines may also create liquidity issues and demands on
our limited resources, it is anticipated that the increased revenues generated
this year by the new products will have a favorable impact on income and
liquidity.
-14-
<PAGE>
Included in the net loss of $1,222,191 are several substantial non-cash
charges to income aggregating approximately $785,000 relating to (a) the
issuance of $1,000,000 principal amount of convertible debentures and (b)
stock warrants and common stock shares issued for services rendered. In
February, we issued $1,000,000 principal amount of 0% convertible debentures,
which may be converted into common stock on a current basis, at a conversion
price of $.40 per share, the market value at the date of issuance of the
debentures being $.74. The beneficial conversion feature attributable to the
debenture issuance is required to be recognized in income, currently. We
have allocated $325,000 to the debenture's beneficial conversion feature and
such amount is reflected as a component of current interest expense. We also
issued common stock and warrants to purchase common stock to two consultants
for services rendered to us during the period, in the aggregate amount of
$327,000. The accounts also reflect charges, in the amount of $133,260 for
the three month period ended March 31, 2000, representing the allocable
service costs of outstanding stock warrants issued in connection with royalty
and employment agreements. There is no assurance that additional warrants or
other securities will not be issued, or that additional charges will not be
incurred for similar future transactions. Our business is to license names
of celebrities for consumer products, and to issue warrants for our common
stock to such celebrities as part of the licensing fee arrangements.
Accordingly, we anticipate the continuance of these types of charges against
earnings, when we make additional licensing transactions with celebrities
and celebrity athletes or when we enter service agreements.
Our 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.
-15-
<PAGE>
Financial Condition or Liquidity and Capital Resources
To date, we have funded our operations through a line of credit,
bank borrowings, borrowings from stockholders, issuances of warrants,
and sales of securities to stockholders and holders of notes, including those
as described in Notes 1, 4, 5 8 and 11 of the Notes to the 1999 Financial
Statements and in Notes 1, 3, 4, 7 and 10 of the Notes to the 1998 Financial
Statements, 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. The warrants are
exercisable between October 30, 1999 and October 30, 2004 at a purchase price
of $.494 per share, which was 125% of the market price on the closing date.
At our option, the convertible debentures may be exchanged into convertible
preferred stock. On about February 23, 2000, debenture holders of $150,000 in
principal amount converted the debentures into 1,000,000 shares of common
stock. On about February 24, 2000, a debenture holder of $76,240 in principal
amount with interest converted the debentures into 508,264 shares of common
stock. On about March 30, 2000, a debenture holder of $127,691 in principal
amount with interest converted the debentures into 302,299 shares of common
stock. On about May 25, 2000, a debenture holder converted debentures of
$72,042 in principal with interest into 227,620 shares of common stock.
On about June 29, 2000, a debenture holder converted debentures of
$25,844 in principal with interest into 166,519 shares of common stock.
In March 2000, we entered into an agreement pursuant to which certain
investors agreed to purchase an aggregate of $1,000,000 principal amount of
convertible debentures due March 13, 2005 and warrants to purchase 2,500,000
shares of our common stock. We received gross proceeds of $1,000,000 from
the transaction. The holders of the convertible debentures are entitled to
convert the debentures into shares of common stock at a conversion price of
$.40 per share. The warrants are exercisable before March 13, 2005 at a
purchase price of $.75 per share. We believe that such sources of funds
will be sufficient to fund our operations for the next twelve months.
-16-
<PAGE>
We believe that our future growth is dependent on the degree of success
of current operations in generating revenues, and borrowings under our current
credit facility, and the ability to obtain additional credit facilities,
although there can be no assurance that we will be able to obtain any
additional financing that we may require.
The auditors' report to our financial statements for the year ended
December 31, 1999 cites factors that raise substantial doubt about our ability
to continue as a going concern. The factors are that we have incurred
substantial operating losses since inception of operations and as at December
31, 1999 reflect a deficiency in stockholders' equity. The auditors'
report states that although our management believes that it can achieve
profitable operations in the future and that we can raise adequate capital
and financing as may be required, there can be no assurance that future
capital contributions or financing will be sufficient for Famous Fixins to
continue as a going concern or that we can achieve profitable operations in
the future. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
Year 2000 Compliance
To date, we have not encountered any Year 2000 problems which have
adversely affected our business or operations. We believe that Year 2000
issues would not materially impact our business operations as presently
conducted. We have conducted a review of our computer programs and have
reason to believe that there are no significant Year 2000 issues within
our internal systems or services. We did not incur any significant expense
in ensuring that our internal systems are Year 2000 compliant. We believe a
reasonable worst case Year 2000 scenario for our internal operations would be
that we may need to purchase new software programs for word processing and
accounting, which costs are not expected to exceed $500.
We utilize and rely upon the services of third parties to conduct our
operations. We have made written inquires of all key third parties that we
utilize, including third party manufacturers and distributors of our products,
as to their Year 2000 compliance status. We requested that such third parties
provide to us a written response no later than November 30, 1999. The vast
majority of such third parties did not respond to our request. Although we
have completed an investigation of our internal Year 2000 compliance status,
because of the failure of third parties to cooperate with our Year 2000
investigation, we did not consider our Year 2000 investigation to be complete.
Although the failure of third parties' software applications or internal
systems, none of which we control, to be Year 2000 compliant upon January 1,
2000 could have a material adverse affect on our business, financial condition
and results of operations, we do not believe that Year 2000 issues will have
materially adverse affects on our business operations. We envisioned that a
reasonable worst case scenario for third party operations would be the
inability to print and send purchase orders by electronic means, in which
event, purchase orders can be transmitted by telephone.
-17-
<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.
-18-
<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 July 12, 2000, we had 13,167,326 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 a line of breakfast cereals endorsed by high profile
athletes and a line of salad dressings, a line of candy products, and a line
of adhesive bandage. 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.
-19-
<PAGE>
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.
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.
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.
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.
-20-
<PAGE>
Salad Dressing
--------------
Olympia Dukakis' Greek Salad Dressings. Our initial product line was
Olympia Dukakis' Greek Salad Dressings, which we began selling in April 1997.
Developed exclusively for us, the Olympia Dukakis' Greek Salad Dressings are
based on Ms. Dukakis' family recipe passed down through many generations.
Made to enhance the traditional Greek salad, the Dukakis line of salad
dressings is unlike others currently on the market. The Dukakis line consists
of four salad dressings, all made with natural ingredients and containing no
preservatives: Greek, Light Greek, Creamy Feta and Light Creamy Feta. The
Greek and Light Greek dressings blend imported extra virgin olive oil with
special herbs and spices, and the Creamy Feta and Light Creamy Feta dressings
have the added touch of premium quality cheeses. The products also contain
extra virgin olive oil, which has seen a great resurgence in the marketplace,
on the strength of consumer sensitivity to healthy eating. The light versions
of the dressings contain half the fat and calories of the regular varieties.
Since the launch of the Olympia Dukakis' Greek Salad Dressings in April
1997, we have achieved distribution for the Dukakis line to over 2,000
supermarkets throughout the United States. We have been successful in having
articles written about Famous Fixins and our products in more than 150
newspapers and magazines across the country. We were the subject of an
article in the February 2, 1998 issue of Business Week magazine. In addition,
Ms. Dukakis has appeared and promoted the salad dressings on numerous
nationally broadcast television shows, including The Rosie O'Donnell Show and
Access Hollywood. These media vehicles have played an important role in
alerting consumers about our products.
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.
-21-
<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.
As an incentive for consumer purchase for certain cereals, we produce a
limited number of instant winner cards and seed these cards randomly in the
boxes of cereals. Holders of these cards can win various types of prizes,
including autographed memorabilia and a chance to meet the athlete endorsees.
In each market, we intend to provide the local supermarket chains with
various autographed memorabilia to be used for in-store promotions for
their consumers as well as incentives for store managers to put up displays
of our cereal products.
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
We are currently in the development stages of one new product.
'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 expect to launch the lip balm in fall 2000.
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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,
and Frito Lays, 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. 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.
-23-
<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, Inc. and certain teams
in connection with the manufacture, distribution, promotion, advertisement and
sale of our cereal products and the baseball trading cards contained in the
cereals.
We are required to pay a minimum guaranteed compensation to MLBP,
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 cereal products, we are required to pay
royalties to MLBP in the amounts ranging from the greater of one percent of
net sales or $.025 per cereal box sold to the greater of two and one-half
percent of net sales or $.0545 per cereal box sold.
Under the agreement, 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 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 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 Baseball Properties gives us notice of the making of any claim
or the institution of any action. Baseball Properties may at its option
participate in any action.
-24-
<PAGE>
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 agreement with Baseball Properties is a blanket agreement
that expired on about April 30, 2000. We have orally agreed with MLBP to
extend the license period through the calendar year 2000 for all of our
present and future baseball-themed products during the license period, and
the minimum compensation of $125,000 against which royalties are credited
are to be carried over through the calendar year 2000. The license
covers all of our baseball-themed products, including our products that we
offered after we entered into the Baseball Properties 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, has been orally extended through the
2000 Major League Baseball season .
-26-
<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 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.
-28-
<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.
We can sell the product to:
- jobbers, wholesalers, and distributors for sale and distribution
to retail stores and merchants;
- retail stores and merchants directly for sale and distribution to
the public;
- family-oriented, reputable, third party direct marketing
catalogue companies;
- through home shopping television channels; and
- directly to the ultimate consumer via our direct-to-consumer
programs.
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.
-29-
<PAGE>
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.
We may not assign the license unless otherwise previously agreed in
writing by Licensor.
The license expires on October 29, 2002. 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; or 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.
-30-
<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.
-31-
<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.
The license terminates on December 21, 2000. 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.
-32-
<PAGE>
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.
'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.
-33-
<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.
-34-
<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.
-35-
<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 $19,7000 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.
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.
-36-
<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
Peter Zorich 31 Director, Executive Vice President and Secretary
Michael Simon 31 Executive Vice President and 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. Michael Simon
became a director on July 8, 1999.
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.
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.
-37-
<PAGE>
PETER ZORICH, Executive Vice President, Secretary and Director. Peter
Zorich has served as our Executive Vice President, Secretary and a director
since May 1998. He was one of the founders of FFNY, which we acquired in May
1998, having served as Vice President and a director of FFNY from 1995 to May
1998. Mr. Zorich has extensive experience in the television industry as a
producer and as a programmer for national news and entertainment. From 1996
to the present, he has worked for the Fox New Channel in New York, New York as
a producer of the prime time news and the television talk show "Hannity &
Colmes". From 1994 to 1996, he was an associate producer at the business
cable network CNBC, where he produced segments on business, politics and
entertainment. From 1993 to 1994, he was an associate producer for the Fox
Network morning television show "Good Day New York", where he booked guests
for local news segments. Mr. Zorich is the son of Olympia Dukakis. Mr.
Zorich received a Bachelor of Arts degree in political science from Montclair
State University in 1990.
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.
MICHAEL SIMON, Executive Vice President and Director. Michael Simon has
served as our Executive Vice President and a director since July 8, 1999. He
served, on an independent contractor basis, as our Vice President of
Publicity, in a non-officer capacity, from May 28, 1998 to July 8, 1999. From
1997 to May 1998, he held the non-officer title of Vice President of Publicity
of FFNY. He has worked in the entertainment industry for the past eight
years. From August 1998 to June 1999, he worked as a publicist with the
public relations firm B/W/R located in New York, New York. While at B/W/R, he
worked with celebrity clients such as Cal Ripken, Jr., Sugar Ray Leonard,
Jason Alexander, Chris Rock and corporate clients D.A.R.E. America and
Playboy. From August 1997 to July 1998, he worked as a publicist with the
public relations firm Jason Weinberg and Associates located in New York, New
York, where he worked with clients such as Della Reese, Marlo Thomas, Kirstie
Alley and Michael Bergin. From July 1995 through July 1997, he was a Public
Relations Manager for Planet Hollywood International, Inc. where his duties
included promoting the Planet Hollywood restaurants and logo. He has
extensive relationships with national media outlets in radio, television and
print, and his primary role for Famous Fixins will be that of publicist. From
June 1991 through July 1995, Mr. Simon was a television talent agent for the
Los Angeles based talent agency, International Creative Management, where he
worked with clients such as Valerie Harper, Garry Marshall, Sugar Ray Leonard,
Bob Barker and Tori Spelling. Mr. Simon received a Bachelor of Arts degree
from Hunter College in 1991.
-38-
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation during our last three fiscal years of our Chief
Executive Officer and other of our most highly compensated employees and all
other officers and directors.
The following factors should be considered when reviewing the table
below:
- Jason Bauer, Peter Zorich, Lisa Bauer and Olympia Dukakis each
became a director or officer of Famous Fixins on May 28, 1998.
- Olympia Dukakis resigned as a director on July 6, 1999.
- 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.
- 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.
- Michael Simon became a director and officer of Famous Fixins on
July 8, 1999. 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,
60,000 warrants are exercisable. These warrants are included in
the Summary Compensation Table.
- 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.
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 $ 0 300,000 $ 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
Former Director 1998 $ 0 $ 0 $ 0 0 $ 0
1997 $ 0 $ 0 $ 0 0 $ 0
</TABLE>
-39-
<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 $1,000,000.
These options are cumulative and are subject to anti-dilution rights. If any
of these milestones are achieved in the same year, all of the options vest at
the time the milestones are achieved. As of April 3, 2000, options to
purchase 1,200,000 shares of common stock have vested.
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
<TABLE>
Number of
Securities Percent of total
Underlying options/SARS granted Exercise or
Options/SARs to employees in base price Expiration
Name Granted (#) fiscal year ($/Sh) Date
---- ------------ -------------------- ----------- ----------
<S> <C> <C> <C> <C>
Jason Bauer 1,500,000 100% $.30 April 11, 2004
Peter Zorich 0 0% -- --
Lisa Bauer 0 0% -- --
Michael Simon 0 0% -- --
Olympia Dukakis 0 0% -- --
</TABLE>
-40-
<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 April 3, 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
Peter Zorich -- -- -- -- -- --
Lisa Bauer -- -- -- -- -- --
Michael Simon -- -- 60,000 240,000 -- --
Olympia Dukakis -- -- -- -- -- --
Russell Ortman -- -- -- -- -- --
Leona Jamison -- -- -- -- -- --
</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.
-41-
<PAGE>
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
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. These options are to vest
only after we achieve certain corporate milestones:
- 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 April 3, 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.
-42-
<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.
Michael Simon, Vice President
-----------------------------
On June 2, 1998, we entered into an agreement with Michael Simon for his
services, on an independent contractor basis, to perform services as our
publicist. Under the arrangement, we issued to him 300,000 warrants, valued
at $275,982, to purchase shares of our common stock in a transaction deemed to
be exempt under Section 4(2) of the Securities Act of 1933. At the time of
issuance, he was our Vice President of Publicity, in a non-officer capacity.
The warrants granted to him are exercisable for six years at $1.00 per share,
subject to vesting at a rate of 60,000 warrants per year and subject to other
conditions of performance of publicity services, valued at $275,982 at the
time of grant, to be rendered to us over a five year period.
On July 8, 1999, Michael Simon became our Executive Vice President and
was elected to our Board of Directors. Pursuant to an oral agreement for an
at-will employment for a term not to exceed one year, he earned compensation
amounting to $50,000 annually. In November 1999, his salary was increased to
$60,000 annually. He also received as additional compensation an amount
equal to ten percent of royalties paid by us during the employment period to
certain celebrity licensors under license agreements, which was reduced to
five percent in November 1999.
We currently do not have a retirement, pension or profit sharing
program, but the Board of Directors may recommend one at a later date.
-43-
<PAGE>
OWNERSHIP OF SECURITIES
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth the shares of our common stock beneficially
owned by each person known to us to be the beneficial owner of more than 5% of
the outstanding shares of common stock, except that the security ownership of
management is provided in a separate table. Beneficial ownership and percent
of class are based upon 13,167,326 shares of common stock issued and
outstanding on July 12, 2000, as adjusted with respect to each person to
include shares of common stock that may be acquired within 60 days.
AMRO International, S.A. beneficially owns 392,869 shares of common
stock acquirable upon the exercise of warrants and the conversion of $105,000
principal amount of 5% debentures assuming conversion at $.36 per share.
AMRO International may not exercise the warrants or convert the debentures
into a number of shares of common stock so that it owns 9.9% or more of our
then-outstanding common stock. Because the applicable conversion rate of the
5% debentures adjusts with the market price of our common stock, AMRO
International could acquire more than 291,667 shares of our common stock if the
conversion price for the 5% debentures of less than $.36 per share. For
example, assuming a conversion price of $.15 per share, AMRO International
could acquire more than 700,000 shares of common stock upon the conversion of
the 5% debentures, provided that such conversion does not violate the 9.9%
limit.
Roseworth Group Ltd. beneficially owns 1,287,080 of our common stock
acquirable upon the exercise of 1,000,000 warrants and the conversion of
$400,000 principal amount of 0% debentures. Roseworth Group may not exercise
the warrants or convert the debentures into a number of shares of common
stock so that it owns 9.9% or more of our then-outstanding common stock.
Roseworth Group could acquire 1,000,000 shares of our common stock upon the
exercise of warrants and 1,000,000 shares of common stock upon the conversion
of 0% debentures, if the 9.9% is not violated.
Austost Anstalt Schaan beneficially owns 1,287,080 shares of common
stock acquirable upon the exercise of warrants and the conversion of $250,000
principal amount of 0% debentures Austost Anstalt Schaan may not exercise the
warrants or convert the debentures into a number of shares of common stock so
that it owns 9.9% or more of our then-outstanding common stock. Austost
Anstalt Schaan could acquire 18,975 shares of common stock upon the exercise
of warrants, 625,000 shares of common stock upon the exercise of 625,000
warrants, and 625,000 shares of common stock upon the conversion of
debentures, if the 9.9% is not violated.
Balmore Funds, S.A. beneficially owns 1,287,080 shares of common
stock acquirable upon the exercise of warrants and the conversion of $250,000
principal amount of 0% debentures. Balmore Funds, S.A. may not exercise the
warrants or convert the debentures into a number of shares of common stock so
that it owns 9.9% or more of our then-outstanding common stock. Balmore
Funds, S.A. could acquire 18,975 shares of common stock upon the exercise of
18,975 warrants, 875,000 shares of common stock upon the exercise of 875,000
warrants, and 875,000 shares of common stock upon the conversion of
debentures, if the 9.9% is not violated.
-44-
<PAGE>
<TABLE>
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Owner of Class
-------------- ------------------------------------------ ------------------- --------
<S> <C> <C> <C>
Common Stock AMRO International, S.A. 392,869 3.0%
Grossmuensterplatz 6
Zurich, CH-8022, Switzerland
Common Stock Roseworth Group Ltd. 1,287,080 9.9%
Aeulestrasse 74
FL-9490 Vaduz, Liechtenstein
Common Stock Austost Anstalt Schaan 1,287,080 9.9%
Landstrasse 163
9494 Furstenweg
Vaduz, Liechtenstein
Common Stock Balmore Funds, S.A. 1,287,080 9.9%
Trident Chambers
Road Town, Tortola, British Virgin Islands
</TABLE>
(b) SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth the shares of our common stock beneficially
owned by each officer, by each director, and by all of our officers and
directors as a group. All persons named in the table have the sole voting and
dispositive power, unless otherwise indicated, with respect to common stock
beneficially owned. Beneficial ownership and percent of class in the table
below is based upon 13,167,326 shares of common stock issued and outstanding
on July 12, 2000, as adjusted with respect to each person to include shares
of common stock acquirable within 60 days.
We granted to Jason Bauer options to purchase 1,500,000 shares of common
stock under an employment agreement. Jason Bauer may exercise options to
purchase up to 1,200,000 shares of common stock beginning in October 2000.
These options are not reported in the table below.
We granted to Michael Simon warrants to purchase shares of common
stock. Reported in the table below are warrants, and the remaining warrants
vest in increments of 60,000 warrants on June 2 of each year.
Jason Bauer owns 2,389,747 shares of common stock. Peter Zorich owns
2,409,747 shares of common stock. Jason Bauer and Peter Zorich are deemed the
beneficial owner of the shares of common stock held by each other due to a
voting agreement. The agreement provides that Jason Bauer and Peter Zorich
shall vote his shares for the election of the other as a director of Famous
Fixins. For the election of any additional director, Jason 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 provides 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.
-45-
<PAGE>
<TABLE>
Name and Address Amount and Nature Acquirable Percent
Title of Class of Beneficial Owner of Beneficial Owner within 60 days of Class
-------------- ------------------- ------------------- -------------- --------
<S> <C> <C> <C> <C>
Common Stock Jason Bauer 4,799,494 0 37%
Common Stock Peter Zorich 4,799,494 0 37%
Common Stock Michael Simon 327,650 60,000 2%
Common Stock Lisa Bauer 0 0 0%
Common Stock All officers and directors 5,127,144 60,000 39%
as a group (4 persons)
</TABLE>
The address of each of the persons named in the table above is Famous
Fixins, Inc., 250 West 57th Street, Suite 1112, New York, New York 10701.
(c) CHANGES IN CONTROL
There is no arrangement which may result in a change in control of
Famous Fixins.
Jason Bauer and Peter Zorich have an agreement to vote their respective
shares for the election of each other as a director of Famous Fixins. For the
election of any additional director, each of Bauer and 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 provides 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. 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. The agreement expires
on June 30, 2001, unless earlier terminated by written agreement signed by
both parties. Jason Bauer is our Chief Executive Officer, President,
Treasurer and Chairman of the Board of Directors. Peter Zorich is our Vice
President, Secretary and a director. Bauer and Zorich are our two largest
shareholders.
-46-
<PAGE>
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.
Jason Bauer and Peter Zorich have an agreement to vote their respective
shares for the election of each other as a director of Famous Fixins. For the
election of any additional director, each of Bauer and 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 provides 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. 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. The agreement expires
on June 30, 2001, unless earlier terminated by written agreement signed by
both parties.
-47-
<PAGE>
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. On
about February 23, 2000, Austost Anstalt Schaan converted its $75,000
debentures into 500,000 shares of common stock. On about February 23, 2000,
Balmore Funds converted its $75,000 debentures into 500,000 shares of common
stock. On about February 24, 2000, AMRO International converted debentures
of $76,240 in principal amount with interest into 508,264 shares of common
stock. On about March 30, 2000, AMRO International converted debentures of
$127,691 in principal with interest into 302,299 shares of common stock. On
about May 25, 2000, AMRO International converted debentures of $72,042 in
principal with interest into 227,620 shares of common stock. On about
June 29, 2000, AMRO International converted debentures of $25,844 in
principal with interest into 166,519 shares of common stock.
-48-
<PAGE>
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 with a principal amount of $1,000,000 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 convertible debentures are
due March 13, 2005. The holders of the convertible debentures are entitled to
convert the debentures into shares of common stock at a conversion price of
$.40 per share. However, the maximum number of shares of common stock that
may be received upon the conversion of the debentures by any one holder is
9.9% of our then-outstanding common stock after the conversion, including any
other shares of common stock held by the holder. The warrants are exercisable
before March 13, 2005 at a purchase price of $.75 per share. Under the
agreements, we were obligated to prepare and file a registration statement
under the Securities Act of 1933 for shares of common stock issuable upon the
conversion of the convertible debentures and the warrants within 15 days of
our filing of our Form 10K-SB for the year ended December 31, 1999. If the
registration statement is not timely filed with the SEC by the required filing
date, the registration statement is not declared effective by the SEC within
the 90 days of the required filing date or five days of clearance by the SEC
to request effectiveness, but in no event later than July 15, 2000, the
registration statement is not maintained as effective by us for the requisite
period, or the additional registration statement is not filed within thirty
days or declared effective within ninety days, then we are to pay each holder
of the convertible debentures and warrants, as liquidated damages, one percent
of the aggregate market value of shares of common stock purchaseable or
purchased from Famous Fixins and held by the holder for the first month of
such default, and two percent for each month of default thereafter until such
registration statement has been filed, and in the event of late effectiveness
or lapsed effectiveness, one percent of the aggregate market value of shares
of common stock purchaseable or purchased from Famous Fixins and held by the
holder for the first month of such default and two percent for each month of
default thereafter until such registration statement has been declared
effective. The liquidated damages are not to exceed $50,000 per month. We
have agreed with the holders that each will hold harmless the other against
any losses, claims, damages or liabilities, joint or several, including all
reasonable costs of defense and investigation and all reasonable attorneys'
fees and expenses, to which they may become subject based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement, prospectus, or based upon the omission or alleged
omission to state therein a material fact, unless the misleading or omitted
information was provided by the other in connection with the preparation of
the registration statement or prospectus.
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.
-49-
<PAGE>
SELLING STOCKHOLDERS
This prospectus relates to the resale of 5,000,000 shares of our
common stock, of which:
- 2,500,000 shares of common stock can be resold upon
conversion of convertible debentures with a $1,000,000
principal amount due March 13, 2005, and
- 2,500,000 shares of common stock can be resold upon exercise of
2,500,000 warrants.
The securities issued to the selling stockholders were issued in transactions
deemed to be exempt from registration under Section 4(2) of the Securities
Act.
Pursuant to the agreement for the purchase of convertible debentures
and warrants, we sold 0% convertible debentures with a $1,000,000 principal
amount due March 13, 2005 and warrants to purchase 2,500,000 shares of common
stock. The warrants are exercisable before March 13, 2005 at a purchase
price of $.75 per share. 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.
Under the agreements, we were obligated to prepare and file a
registration statement under the Securities Act of 1933 for shares of common
stock issuable upon the conversion of the convertible debentures and the
warrants within 15 days of our filing of our Form 10K-SB for the year ended
December 31, 1999. If the registration statement is not timely filed with
the SEC by the required filing date, the registration statement is not
declared effective by the SEC within 90 days of the required filing date or
five days of clearance by the SEC to request effectiveness, but in no event
later than July 15, 2000, the registration statement is not maintained as
effective by us for the requisite period, or the additional registration
statement is not filed within thirty days or declared effective within ninety
days, then we are to pay each holder of the convertible debentures and
warrants, as liquidated damages, one percent of the aggregate market value of
shares of common stock purchaseable or purchased from Famous Fixins and held
by the holder for the first month of such default, and two percent for each
month of default thereafter until such registration statement has been filed,
and in the event of late effectiveness or lapsed effectiveness, one percent
of the aggregate market value of shares of common stock purchaseable or
purchased from Famous Fixins and held by the holder for the first month of
such default and two percent for each month of default thereafter until such
registration statement has been declared effective. The liquidated damages
are not to exceed $50,000 per month.
We have agreed with the holders that each will hold harmless the other
against any losses, claims, damages or liabilities, joint or several,
including all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses, to which they may become subject
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement, prospectus, or based upon the
omission or alleged omission to state therein a material fact, unless the
misleading or omitted information was provided by the other in connection
with the preparation of the registration statement or prospectus.
-50-
<PAGE>
We have agreed with the holders that each will hold harmless the other
against any losses, claims, damages or liabilities, joint or several,
including all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses, to which they may become subject
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement, prospectus, or based upon the
omission or alleged omission to state therein a material fact, unless the
misleading or omitted information was provided by the other in connection
with the preparation of the registration statement or prospectus.
The table below sets forth:
- the names of the selling stockholders;
- the number of shares of common stock beneficially owned by
each of the selling stockholders before this offering;
- the number of shares of common stock being offered under this
prospectus by each of the selling stockholders;
- the number and percentage of shares of stock of common stock
owned by each of the selling stockholder after the completion of
the offering.
The table is based on 13,167,326 shares of common stock issued and
outstanding on July 12, 2000, as adjusted with respect to each selling
stockholder to include shares of common stock that are acquirable within 60
days, including those shares that are included in this registration statement;
Roseworth Group's reported ownership refers to 2,000,000 shares of
common stock underlying $400,000 debentures convertible at $.40 per share
into 1,000,000 shares of common stock and warrants to purchase 1,000,000
shares of common stock at $.75 per share.
Austost Anstalt Schaan's reported ownership refers to 1,269,975 shares
of common stock underlying $250,000 debentures convertible at $.40 per share
into 625,000 shares of common stock, warrants to purchase 625,000 shares of
common stock at $.75 per share, and warrants to purchase 18,975 shares of
common stock at $.494 per share.
Balmore Funds' reported ownership refers to ownership of 1,768,975
shares of common stock underlying $350,000 debentures convertible at $.40 per
share into 875,000 shares of common stock, warrants to purchase 875,000 shares
of common stock at $.75 per share, and warrants to purchase 18,975 shares of
common stock at $.494 per share.
The shares of common stock offered by this prospectus may be offered
from time to time by the selling stockholder. Our registration does not
necessarily mean that any selling stockholder will sell all or any of its
shares.
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent
Owned Prior Number of Shares Owned After Owned After
Name of Selling Stockholder to this Offering Being Offered this Offering Offering
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Roseworth Group Ltd. 2,000,000 2,000,000 0 0.0%
Austost Anstalt Schaan 1,268,975 1,250,000 18,975 0.6%
Balmore Funds, S.A. 1,768,975 1,750,000 18,975 0.6%
--------- --------- ------
TOTAL 5,037,950 5,000,000 37,950
========= ========= ======
</TABLE>
-51-
<PAGE>
PLAN OF DISTRIBUTION
The shares of common stock may be offered and sold from time to time by
the selling stockholders at various times in transactions:
- in the over-the-counter market;
- to purchasers directly;
- in ordinary brokerage transactions in which the broker solicits
purchasers;
- through purchases by a broker or dealer as principal and resale
by such broker or dealer for its own account pursuant to this
prospectus;
- block trades in which a broker-dealer so engaged will attempt
to sell the shares as agent but may take a position and resell
a portion of the block as principal to facilitate the
transaction;
- in connection with short sales; or
- in any combination of one or more of these methods.
Selling stockholders may sell their shares of common stock:
- at market prices prevailing at the time of sale;
- at prices related to such prevailing market prices;
- at negotiated prices, at fixed prices; or
- at a combination of such prices.
Selling stockholders may use dealers, agents or underwriters to
sell their shares. If this happens, the dealers, agents or underwriters may
receive compensation in the form of discounts or commissions from the selling
stockholder or from the purchasers of shares or from both, which
compensation to a particular broker might be in excess of customary
compensation.
Selling stockholder and any dealers, agents or underwriters that
participate with the selling stockholders in the distribution of the shares
may be deemed to be "underwriters" as this term is defined in the Securities
Act. Any commissions paid or any discounts or concessions allowed to any
such persons, and any profits received on the resale of such shares offered
by this prospectus, may be deemed to be underwriting commissions or discounts
under the Securities Act.
We may be required to file a supplemental prospectus in connection with
any activities involving a seller which may be deemed to be an
"underwriting." In that case, a supplement to this prospectus would contain:
- the name or names of the underwriters;
- whether the underwriters are acting as principals or agents;
- the compensation to be received by an underwriter; and
- the compensation to be received by any other broker-dealer, in
the event the compensation of such other broker-dealers is in
excess of usual and customary commissions.
Underwriters may be entitled under agreements with us to
indemnification by us against certain civil liabilities, including
liabilities under the Securities Act, or to contribution from us for payments
the underwriters may be required to make in connection with certain civil
liabilities. These underwriters may engage in transactions with, or perform
services for, us for customary compensation.
-52-
<PAGE>
We will pay for substantially all of the expenses incident to the offer
and sale of the shares of common stock offered by the selling stockholders
using this prospectus. The selling stockholders will pay applicable stock
transfer taxes, transfer fees and brokerage commissions or underwriting or
other discounts.
To comply with the securities laws of certain states, the shares of
common stock offered by this prospectus may need to be offered or sold in
such jurisdictions only through registered or licensed brokers or dealers.
The offering of the shares of common stock pursuant to this prospectus
will terminate on the earlier of the time when the shares of common stock:
- have been sold by the selling stockholders pursuant to this
prospectus;
- the time when all of the shares of common stock are eligible to
be sold pursuant to Rule 144(k) under the Securities Act; or
- this prospectus is no longer effective.
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<PAGE>
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 July 12, 2000, we had 13,167,326
shares of common stock issued and outstanding.
Common Stock
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.
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 $105,000 of outstanding principal of 5% convertible debentures,
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
will depend upon, among other things, our future operations and earnings,
capital requirements and surplus, general financial condition, contractual
restrictions, and such other factors as the Board of Directors may deem
relevant.
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 our preferred stock. 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.
We have never paid any cash dividends on the common stock. Future
cash dividends, if any, will be at the discretion of our Board of Directors
and will depend upon, among other things, our future operations and earnings,
capital requirements and surplus, general financial condition, contractual
restrictions, and such other factors as the Board of Directors may deem
relevant.
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<PAGE>
5% Convertible Debentures due October 30, 2002
We have outstanding 5% convertible debentures with a principal
amount totaling $105,000 due October 30, 2002.
The holder of the 5% convertible debentures are entitled to convert the
debentures and the interest on the debentures into shares of common stock.
The conversion price is the lower of 80% of the market price of our common
stock or $0.55. However, the maximum number of shares of common stock that
may be received upon the conversion of the 5% debentures by any one holder is
9.9% of our then-outstanding common stock.
The table below assumes that we have 13,167,326 shares of common stock
presently outstanding in calculating the 9.9% and the percentage of class
after conversion.
The table below illustrates how the conversion would work for the
conversion of the 5% debentures with a principal amount of $105,000 held by
the debenture holder.
Shares Percentage
Principal 80% of Applicable Issuable at of Class
Debenture Market Market Conversion Conversion After
Amount Price Price Price Price Conversion
-------------------------------------------------------------------
$105,000 $.25 $.20 $.20 525,000 3.8%
$105,000 $.50 $.40 $.40 262,500 2.0%
$105,000 $.6875 $.55 $.55 190,909 1.4%
$105,000 $1.00 $.80 $.55 190,909 1.4%
The table illustrates that if the market price of our common stock is
$.6875 per share or more, the applicable conversion rate is $.55, since the
conversion rate must be the lower of the 80% of the market price or $.55. If
the market price is less than $.6875 per share, then the conversion price is
80% of the market price.
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 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.
-55-
<PAGE>
0% Convertible Debentures due March 13, 2005
We have outstanding 0% convertible debentures with a total principal
amount of $1,000,000 due March 13, 2005.
The three holders of the convertible debentures are entitled to convert
the debentures into shares of common stock. The conversion price is $0.40 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.
The table below assumes that we have 13,167,326 shares of common stock
presently outstanding in calculating the 9.9% and the percentage of class
after conversion.
The table below illustrates how the conversion would work for the
conversion of the principal amount of:
- $250,000 debentures held by Austost Anstalt Schaan, assuming
ownership of 643,975 shares of common stock underlying warrants;
- $350,000 debentures held by Balmore Funds, S.A., assuming
ownership of 893,975 shares of common stock underlying
warrants; and
- $400,000 debentures held by Roseworth Group Ltd., assuming
ownership of 1,000,000 shares of common stock underlying
warrants.
Holder of Shares Number of Shares Percentage
Principal Issuable at Shares Issuable of Class
Debenture Conversion Owned Before at 9.9% After
Amount Price of $0.40 Conversion Limit Conversion
------------------------------------------------------------------------------
$250,000 625,000 643,975 643,105 9.9%
$350,000 875,000 893,975 393,105 9.9%
$400,000 1,000,000 1,000,000 287,080 9.9%
The table illustrates that at the conversion price of $0.40, the holder
of $350,000 debentures who already owns 893,975 shares of common stock would
be able to convert its debentures into only 393,105 shares rather than
875,000. This occurs because the maximum number of shares of common stock
that may be received upon conversion is 9.9% of our then-outstanding common
stock. However, if we had 20,000,000 shares of common stock outstanding, the
holder of the $350,000 debentures would be able to convert its debentures
into 875,000 shares of common stock since the holder would then own 1,768,975
shares of common stock or 8.8% of our common stock after the conversion.
-56-
<PAGE>
Under the agreements for the convertible debentures, we were obligated
to prepare and file a registration statement under the Securities Act of 1933
for shares of common stock issuable upon the conversion of the convertible
debentures and the warrants within 15 days of our filing of our Form 10K-SB
for the year ended December 31, 1999. If the registration statement is not
timely filed with the SEC by the required filing date, the registration
statement is not declared effective by the SEC within 90 days of the required
filing date or five days of clearance by the SEC to request effectiveness,
but in no event later than July 15, 2000, the registration statement is not
maintained as effective by us for the requisite period, or the additional
registration statement is not filed within thirty days or declared effective
within ninety days, then we are to pay each holder of the convertible
debentures and warrants, as liquidated damages, one percent of the aggregate
market value of shares of common stock purchaseable or purchased from Famous
Fixins and held by the holder for the first month of such default, and two
percent for each month of default thereafter until such registration
statement has been filed, and in the event of late effectiveness or lapsed
effectiveness, one percent of the aggregate market value of shares of common
stock purchaseable or purchased from Famous Fixins and held by the holder for
the first month of such default and two percent for each month of default
thereafter until such registration statement has been declared effective.
The liquidated damages are not to exceed $50,000 per month. We have agreed
with the holders that each will hold harmless the other against any losses,
claims, damages or liabilities, joint or several, including all reasonable
costs of defense and investigation and all reasonable attorneys' fees and
expenses, to which they may become subject based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement, prospectus, or based upon the omission or alleged omission to
state therein a material fact, unless the misleading or omitted information
was provided by the other in connection with the preparation of the
registration statement or prospectus.
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.
-57-
<PAGE>
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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<PAGE>
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
2000 June 30, 2000 $0.51 $0.17
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
July 12, 2000 was 85. We estimate that there were approximately 1,566
beneficial holders of our common stock as of that date.
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<PAGE>
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.
-60-
<PAGE>
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:
Balance Sheets as of March 31, 2000 and December 31, 1999 F2-2
Interim Statements of Operations for the Three Months Ended F2-4
March 31, 2000 and 1999
Interim Statement of Stockholders' Equity for the Three F2-5
Months Ended March 31, 2000
Interim Statements of Cash Flows for the Three Months Ended F2-6
March 31, 2000 and 1999
Notes to Interim Financial Statements F2-7
-61-
<PAGE>
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>
<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 "%. 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>
Financial Statements for the Quarter Ended March 31, 2000:
Balance Sheets as of March 31, 2000 and December 31, 1999 F2-2
Interim Statements of Operations for the Three Months Ended F2-4
March 31, 2000 and 1999
Interim Statement of Stockholders' Equity for the Three F2-5
Months Ended March 31, 2000
Interim Statements of Cash Flows for the Three Months Ended F2-6
March 31, 2000 and 1999
Notes to Interim Financial Statements F2-7
F2-1
<PAGE>
FAMOUS FIXINS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
MARCH 31, DECEMBER 31,
---------- ----------
2000 1999
---------- ----------
<S> <C> <C>
A S S E T S
------------
CURRENT ASSETS
--------------
Cash and cash equivalents $1,149,901 $ 475,325
Investments in marketable equity trading
securities 108,866 101,961
Accounts receivable, net 81,728 176,475
Merchandise inventory 89,398 69,542
Prepaid expenses 56,004 59,081
Stock subscriptions receivable (all collected
by April, 2000) 41,250 47,500
---------- ----------
TOTAL CURRENT ASSETS 1,527,147 929,884
---------- ----------
PLANT AND EQUIPMENT
-------------------
Furniture and fixtures 15,804 15,804
Machinery and equipment 29,817 25,576
---------- ----------
45,621 41,380
Less: Accumulated depreciation 10,003 8,089
---------- ----------
NET PLANT AND EQUIPMENT 35,618 33,291
---------- ----------
OTHER ASSETS
------------
Deferred debenture issuance costs, net 116,689 42,500
Security deposits 6,482 6,482
---------- ----------
123,171 48,982
---------- ----------
$1,685,936 $1,012,157
========== ==========
</TABLE>
See accompanying notes to financial statements.
F2-2
<PAGE>
FAMOUS FIXINS, INC.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
MARCH 31, DECEMBER 31,
---------- ----------
2000 1999
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
-------------------
Accounts payable and accrued expenses $ 523,631 $ 508,341
Due to customers 190,365 190,038
Taxes payable - other than on income 9,980 9,544
Income taxes payable 625 625
---------- ----------
TOTAL CURRENT LIABILITIES 724,601 708,548
---------- ----------
LONG-TERM LIABILITIES
---------------------
5% convertible debentures (principal
amount: 1999 - $450,000; 2000 - $200,000
due October, 2002) 179,969 389,586
0% convertible debentures (principal
amount - $1,000,000 due March, 2005) 336,250 -
Deferred rent 10,295 -
---------- ----------
TOTAL LONG-TERM LIABILITIES 526,514 389,586
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
--------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
12,773,187 shares in 2000;
10,462,624 shares in 1999 12,773 10,462
Additional paid-in capital 3,298,015 1,557,337
Accumulated deficit (2,825,967) (1,603,776)
---------- ----------
484,821 (35,977)
Less: Unused advertising barter credits 50,000 50,000
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 434,821 (85,977)
---------- ----------
$1,685,936 $1,012,157
========== ==========
</TABLE>
See accompanying notes to financial statements.
F2-3
<PAGE>
FAMOUS FIXINS, INC.
INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
----------- ---------
<S> <C> <C>
NET SALES $ 261,043 $ 32,805
COST OF GOODS SOLD
------------------
Merchandise inventory at beginning of year 69,542 27,420
Purchases 183,718 58,581
Other direct costs 63,565 10,309
----------- ---------
316,825 96,310
Less: Merchandise inventory at end of period 89,398 75,896
----------- ---------
TOTAL COST OF GOODS SOLD 227,427 20,414
----------- ---------
GROSS PROFIT 33,616 12,391
----------- ---------
OPERATING EXPENSES
------------------
Selling expenses 653,518 175,671
General and administrative expenses 258,711 88,969
Interest expense, net 343,123 2,878
----------- ---------
TOTAL OPERATING EXPENSES 1,255,352 267,518
----------- ---------
OPERATING LOSS BEFORE PROVISION FOR INCOME TAXES (1,221,736) (255,127)
PROVISION FOR INCOME TAXES 455 1,336
----------- ---------
NET LOSS $(1,222,191) $(256,463)
=========== =========
Net loss per common share, basic and diluted $(0.10) $(0.03)
Weighted average number of common shares outstanding,
basic and diluted 11,735,566 9,201,302
</TABLE>
See accompanying notes to financial statements.
F2-4
<PAGE>
FAMOUS FIXINS, INC.
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
COMMON STOCK ADDITIONAL UNUSED
PAID-IN ACCUMULATED ADVERTISING
TOTAL SHARES AMOUNT CAPITAL DEFICIT BARTER CREDITS
----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE (DEFICIT) - JANUARY 1, 2000 $ (85,977) 10,462,624 $ 10,462 $ 1,557,337 $(1,603,776) $ (50,000)
Issuance of common shares on conversion of
convertible debentures, net 282,729 1,810,563 1,811 280,918 - -
Issuance of common shares for services
received 212,924 500,000 500 212,424 - -
Issuance of warrants for services received 247,336 - - 247,336 - -
Issuance of warrants and beneficial
conversion feature in connection with
convertible debentures issued 1,000,000 - - 1,000,000 - -
Net loss - Three months ended
March 31, 2000 (1,222,191) - - - (1,222,191) -
----------- ----------- ----------- ----------- ----------- --------------
BALANCE (DEFICIT) - MARCH 31, 2000 $ 434,821 12,773,187 $ 12,773 $ 3,298,015 $(2,825,967) $ (50,000)
=========== =========== =========== =========== =========== ==============
</TABLE>
See accompanying notes to financial statements.
F2-5
<PAGE>
FAMOUS FIXINS, INC.
INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,222,191) $ (256,463)
Adjustments to reconcile net loss to net cash
used in operating activities:
Noncash items:
Depreciation 1,914 803
Amortization 16,243 -
Deferred rent expense 10,295 -
Interest expense paid by issuance of
common stock 3,930 -
Component of interest expense attributable
to beneficial conversion feature of
debentures issued 325,000 -
Value of common stock issued for services
received by the Company 212,924 121,826
Value of warrants issued for services
received by the Company 247,336 41,397
Unrealized gain on investments in
marketable equity trading securities (6,905) -
(Increase) decrease in assets:
Accounts receivable 94,747 9,479
Merchandise inventory (19,856) (48,476)
Prepaid expenses and other current assets 3,077 (10,125)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 15,290 (36,861)
Due to customers 327 -
Taxes payable - other than on income 436 867
----------- ----------
NET CASH USED IN OPERATING ACTIVITIES (317,433) (177,553)
----------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payments for plant and equipment additions (4,241) -
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible
debentures, net 990,000 -
Proceeds from issuance of common stock, net - 188,109
Proceeds of long-term debt from bank - 35,000
Repayments of long-term debt to bank - (3,732)
(Increase) decrease in subscribers' deposits on
common stock, net 6,250 (12,500)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 996,250 206,877
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 674,576 29,324
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 475,325 19,500
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,149,901 $ 48,824
=========== ==========
Supplemental information about cash payments is
as follows:
Cash payments for interest $ 10,705 $ 2,910
Cash payments for income taxes $ 1,334 $ 625
Supplemental disclosure of noncash financing
activities:
Issuance of warrants in connection with
convertible debentures issued by the Company $ 675,000 -
Conversion of debentures to common stock $ 282,729 -
Common stock subscriptions received for common
shares issued - $ 165,873
</TABLE>
See accompanying notes to financial statements.
F2-6
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 1. STATEMENT OF INFORMATION FURNISHED
----------------------------------
The accompanying unaudited interim financial statements have been
prepared in accordance with Form 10-QSB instructions and in the opinion of
management contains all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of Famous
Fixins, Inc. as of March 31, 2000, and the results of operations, and
statements of cash flows and stockholders' equity for the three months ended
March 31, 2000. These results have been determined on the basis of generally
accepted accounting principles and practices and applied consistently with
those used in the preparation of the Company's 1999 financial statements.
Certain information and footnote disclosures normally included in the
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
the accompanying financial statements be read in conjunction with the
financial statements and notes thereto incorporated by reference in the
Company's 1999 financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY
----------------------------------
The Company is a promoter and marketer of celebrity and athlete
endorsed food products for sale in supermarkets, other retailers and over the
Internet. The Company develops, markets and sells specialty food products
based on the diverse professional, cultural and ethnic backgrounds of various
celebrities. The Company enters into licensing agreements with high profile
athletes and other celebrities and creates food products which include a line
of breakfast cereals and a line of salad dressings endorsed by the licensors.
The Company utilizes a network of food brokers to distribute its products
throughout the United States. Third party manufacturers produce the Company's
various food products.
The Company's current roster of high profile celebrities and athletes
who endorse food products that it promotes and markets includes the following,
among others:
Sammy Sosa of the Chicago Cubs;
Cal Ripken, Jr. of the Baltimore Orioles;
Jeff Bagwell, Craig Biggio, and Ken Caminiti of the
Houston Astros;
Derek Jeter of the New York Yankees;
Alonzo Mourning of the Miami Heat;
Jake Plummer of the Arizona Cardinals;
Peyton Manning of the Indianapolis Colts;
Tim Duncan of the San Antonio Spurs;
The New York Mets baseball team; and
Academy Award Winner actress Olympia Dukakis.
F2-7
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY (CONTINUED)
----------------------------------
In February 2000, the Company received the remaining balance of
$100,000 (of an aggregate of $550,000) pursuant to 5% Convertible Debenture
and Warrants Purchase Agreements. In addition, the Company issued 1,810,563
shares of its common stock upon conversion of $350,000 principal amount of
such debentures, resulting in $200,000 principal amount outstanding at March
31, 2000.
In February 2000, the Company received $1,000,000 proceeds under a 0%
Convertible Debenture and Warrant Purchase Agreement. Pursuant to the
Agreement, the investors agreed to purchase, for $1,000,000, an aggregate of
$1,000,000 principal amount of debentures due March 2005, currently
convertible into common stock at a conversion price of $.40 per share (market
value of the Company's common stock was $.74 on the date of purchase), and
warrants to purchase 2,500,000 shares of the Company's common stock
exercisable between March 2000 and March 2005 at an exercise price of $.75 per
share.
The beneficial conversion feature of the $1,000,000 debentures and
the fair market value of the warrants (both of which are accounted for as
additional paid-in capital) is limited to the $1,000,000 proceeds received.
The Company has allocated $325,000 to the beneficial conversion feature, all
of which is accounted for as a component of current interest expense. The
remaining $675,000 is accounted for as a bond discount and is reflected as a
reduction of the carrying amount of the debentures. The discount is amortized
as a component of interest expense over the term of the debentures.
In February and March 2000, the Company issued an aggregate of
500,000 shares of its common stock and 500,000 warrants to purchase common
stock to two consultants in connection with services rendered to the Company
in the amount of $327,000. Of such amount, $212,924 is attributable to the
common stock issued and $114,076 is attributable to the warrants.
The Company accounts for warrants issued to purchase common stock in
connection with services rendered to the Company using the fair value method
prescribed in SFAS No. 123 "Accounting for Stock-Based Compensation". Stock-
based compensation cost charged to operations for the three months ended March
31, 2000 was $247,336, including the $114,076 of services described above.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
--------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F2-8
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
MERCHANDISE INVENTORY
---------------------
Merchandise inventory is stated at the lower of cost or market value
on a first-in, first- out basis.
PLANT AND EQUIPMENT
-------------------
Plant and equipment are stated at cost, less accumulated
depreciation. The cost of major improvements and betterments to existing
plant and equipment are capitalized, while maintenance and repairs are charged
to expense when incurred. Upon retirement or other disposal of plant and
equipment, the profit realized or loss sustained on such transaction is
reflected in income. Depreciation is computed on the cost of plant and
equipment on the straight-line method, based upon the estimated useful lives
of the assets.
EARNINGS PER SHARE
------------------
In accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", basic earnings
per share is computed by dividing net income or loss by the number of
weighted-average common shares outstanding during the period. Earnings per
share, assuming dilution, is computed by dividing net income or loss by the
number of weighted-average common shares and common stock equivalents
outstanding during the period.
No effect has been given to the conversion of warrants and debentures
to common stock inasmuch as such conversions would be anti-dilutive.
F2-9
<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.
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..........................................$ 254.60
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...................................................$15,254.60
==========
<PAGE>
Item 26. Recent Sales of Unregistered Securities
On May 28, 1998, we completed the acquisition of 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.
On May 28, 1998, we issued 246,828 warrants exercisable for five years
to purchase shares of our common stock to all of the 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.
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.
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.
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.
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.
<PAGE>
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.
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 were issued as follows: 10,000
warrants were exercisable for one year at $1.50 per share and have expired;
10,000 warrants were exercisable for one year at $1.25 and have expired;
10,000 warrants are exercisable for two years at $2.00 per share; and 10,000
warrants are exercisable for two years at $2.25 per share.
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.
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.
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.
<PAGE>
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. 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.
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.
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.
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.
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. Warrants to purchase 75,000 shares of common
stock have vested. Warrants to purchase an additional 25,000 shares vest on
May 31, 2000 and on August 31, 2000. The warrants expire on February 8, 2003.
<PAGE>
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 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 in
transactions deemed to be exempt under Section 4(2) of the Securities Act of
1933. 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. On about February 23,
2000, debentures with a principal amount of $150,000 were converted into
1,000,000 shares of common stock. On about February 24, 2000, debentures with
a principal amount of $75,000, with interest, were converted into 508,264
shares of common stock. On about March 30, 2000, debentures with a principal
amount of $125,000, with interest, were converted into 302,299 shares of
common stock. On about May 25, 2000, debentures of $72,042 in principal with
interest into 227,620 shares of common stock. On about June 29, 2000, a
debenture holder converted debentures of $25,844 in principal with interest
into 166,519 shares of common stock.
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.
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.
<PAGE>
On February 8, 2000, pursuant to a consulting agreement with Matthew
Markin, we agreed to issue to him up to 250,000 shares of common stock and
options to purchase up to 250,000 shares of common stock in exchange for
business consulting services in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933. Options to purchase the first
125,000 shares of common stock are exercisable at $.1875 per share. Options
to purchase the other 125,000 shares of common stock are exercisable at $.25
per share. We filed a registration statement on Form S-8 for the resale of
the securities. Markin represented to us that he had the experience and
knowledge in business and financial matters to evaluate the risks and merits
of the transaction.
On February 8, 2000, pursuant to a consulting agreement with Edward
DeFudis, we agreed to issue to him up to 250,000 shares of common stock and
options to purchase up to 250,000 shares of common stock in exchange for
business consulting services in a transaction deemed to be exempt under
Section 4(2) of the Securities Act of 1933. Options to purchase the first
125,000 shares of common stock are exercisable at $.1875 per share. Options
to purchase the other 125,000 shares of common stock are exercisable at $.25
per share. We filed a registration statement on Form S-8 for the resale of
the securities. DeFudis represented to us that he had the experience and
knowledge in business and financial matters to evaluate the risks and merits
of the transaction.
We entered into agreements, dated as of March 7, 2000, for the sale of
convertible debentures with a principal amount of $1,000,000 and warrants to
purchase 2,500,000 shares of common stock to three accredited investors in
transactions deemed to be exempt under Section 4(2) of the Securities Act of
1933. We received gross proceeds of $1,000,000 from the sales. The
convertible debentures are due March 13, 2005. The holders of the
convertible debentures are entitled to convert the debentures into shares of
common stock at a conversion price of $.40 per share. However, the maximum
number of shares of common stock that may be received upon the conversion of
the debentures by any one holder is 9.9% of our then-outstanding common stock
after the conversion, including any other shares of common stock held by the
holder. The warrants are exercisable before March 13, 2005 at a purchase
price of $.75 per share. Under the agreements, we were obligated to prepare
and file a registration statement under the Securities Act of 1933 for shares
of common stock issuable upon the conversion of the convertible debentures and
the warrants within 15 days of our filing of our Form 10K-SB for the year
ended December 31, 1999. If the registration statement is not timely filed
with the SEC by the required filing date, the registration statement is not
declared effective by the SEC within 90 days of the required filing date
or five days of clearance by the SEC to request effectiveness, but in no event
later than July 15, 2000, the registration statement is not maintained as
effective by us for the requisite period, or the additional registration
statement is not filed within thirty days or declared effective within ninety
days, then we are to pay each holder of the convertible debentures and
warrants, as liquidated damages, one percent of the aggregate market value of
shares of common stock purchaseable or purchased from Famous Fixins and held
by the holder for the first month of such default, and two percent for each
month of default thereafter until such registration statement has been filed,
and in the event of late effectiveness or lapsed effectiveness, one percent of
the aggregate market value of shares of common stock purchaseable or purchased
from Famous Fixins and held by the holder for the first month of such default
and two percent for each month of default thereafter until such registration
statement has been declared effective. The liquidated damages are not to
exceed $50,000 per month. We have agreed with the holders that each will hold
harmless the other against any losses, claims, damages or liabilities, joint
or several, including all reasonable costs of defense and investigation and
all reasonable attorneys' fees and expenses, to which they may become subject
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement, prospectus, or based upon the
omission or alleged omission to state therein a material fact, unless the
misleading or omitted information was provided by the other in connection with
the preparation of the registration statement or prospectus.
<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.
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. King-Cheifetz represented to us that she had
the business, financial and investment knowledge, experience and
sophistication to make a fully informed investment decision in entering the
transaction.
<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.
2.2* Agreement and Plan of Merger between Famous Fixins, Inc., a
Nevada corporation, and Famous Fixins Holding Company, Inc., a
New York corporation
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
3(i)(1)* Articles of Incorporation of Spectrum Resources, Inc.
3(i)(2)* Certificate of Incorporation of Famous Fixins Holding Company,
Inc.
3(i)(3)* Articles of Merger for Famous Fixins, Inc., a Nevada corporation,
and Famous Fixins Holding Company, Inc., a New York corporation
3(i)(4)* Certificate of Merger of Famous Fixins Holding Company, Inc., a
New York corporation, and Famous Fixins, Inc., a Nevada
corporation
3(i)(5)* Certificate of Merger of Famous Fixins, Inc., a New York
corporation, and Famous Fixins Holding Company, Inc.
3(i)(6)* Certificate of Amendment of the Certificate of Incorporation of
Famous Fixins Holding Company, Inc.
3(ii)* By-Laws
4.1* Form of Warrant Certificate
4.2* Warrant Certificate of Michael Simon
4.3* Form of Warrant Certificate
4.4* Convertible Debenture and Warrants Purchase Agreement between
Famous Fixins, Inc. and AMRO International, S.A. dated as of
October 19, 2000
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
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
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
10.1* Employment Agreement for Jason Bauer
10.2* Lease Agreement
10.3* License Agreement with Olympia Dukakis
10.4* License Agreement with Major League Baseball Properties, Inc.
10.5* License Agreement with Turn 2, Inc.
10.6* Major League Baseball Properties, Inc. License Agreement
<PAGE>
10.7* Promotion Agreement with Sterling Doubleday Enterprises, L.P.
10.8* Financial Consulting Agreement with First Atlanta Securities, LLC
10.9** Consulting Agreement with Jaffoni & Collins
10.10** Merchandising License Agreement with Britney Brands, Inc.
10.11** Limited License Agreement with Redline Sports Marketing, Inc.
10.12** License Agreement between Famous Fixins, Inc. and Dave Mirra
10.13** Consulting Agreement with Matthew Markin
10.14** Consulting Agreement with Edward Defudis
10.15*** Employment Agreement with Jody King-Cheifetz
10.16*** License Agreement with 'N Sync
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)
______
* Incorporated by reference to Registration Statement on Form 10-SB/A
(Amendment No. 3) filed on December 10, 1999.
** Incorporated by reference to Annual Report on Form 10-KSB filed on
March 29, 2000.
*** 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
July 14, 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.
<TABLE>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Jason Bauer Chairman of the Board, President, July 14, 2000
---------------------- Treasurer, Chief Executive
Jason Bauer Officer, Principal Financial
Officer and Principal Accounting
Officer
/s/ Peter Zorich Vice President, Secretary, July 14, 2000
---------------------- and Director
Peter Zorich
/s/ Michael Simon Vice President and Director July 14, 2000
----------------------
Michael Simon
</TABLE>
