As filed with the Securities and Exchange Commission on February 3, 2000
Registration Statement No. 333-93855
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
FAMOUS FIXINS, INC.
----------------------------------------------
(Name of Small Business Issuer in its charter)
New York 5140 13-3865655
-------- ----------------- ----------
(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>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<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(1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
common stock underlying 5%
convertible debentures,
principal amount $550,000 3,206,997(2) $.343 $1,110,000 $305.80
- --------------------------------------------------------------------------------------------------
common stock underlying
warrants 339,152 $.343 $ 116,329 $ 32.34
- --------------------------------------------------------------------------------------------------
Total 3,546,149 $.343 $1,216,329 $338.14
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act solely for
purposes of calculating the Registration Fee. The fee is based upon
the closing price for a share of common stock of the registrant $.343
on December 20, 1999.
(2) Such number represents 200% of the number of shares of common stock that
are issuable upon conversion of the debentures based upon a conversion
price of $.343. 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 3, 2000
PROSPECTUS
FAMOUS FIXINS, INC.
3,206,997 shares of common stock underlying convertible debentures
339,152 shares of common stock underlying warrants
This prospectus relates only to the resale of a total of up to 3,546,149
shares of common stock of Famous Fixins, Inc., a New York corporation, of
which:
- 3,206,997 shares of common stock can be resold upon
conversion of 5% convertible debentures with a $550,000
principal amount due October 30, 2002, and
- 339,152 shares of common stock can be resold upon exercise of
339,152 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 4 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 February 3, 2000.
-1-
<PAGE>
PROSPECTUS SUMMARY
ABOUT US
We are a promoter and marketer of celebrity and athlete
endorsed food products for sale in supermarkets and over the Internet. Our
plan is to develop, market and sell specialty food products based on the
diverse professional, cultural and ethnic backgrounds of various celebrities.
We represent celebrities and create food 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 chains.
We also operate an electronic commerce site from which our products may be
purchased. We utilize a nationwide network of food brokers to distribute our
products in supermarket chains, restaurants and specialty retail stores
throughout the United States. We enlist a third party manufacturer to produce
our food products.
We have recently significantly increased our roster of high
profile celebrities and athletes who endorse food products that we
promote and market. Our current roster includes:
- 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.
THE OFFERING
Total shares outstanding 10,462,624 shares of common stock
Common stock offered for resale
to the public 3,546,149 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>
TABLE OF CONTENTS
Page
Prospectus Summary 2
Risk Factors 4
We began operations in 1997 and we may not be profitable or
generate cash from operations in the future as we grow
our business 4
We sell many of our products in geographic markets associated with
the celebrity endorser and we may experience a limited market
for our food products 4
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 5
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 5
We rely on a third party distributor to directly ship our products
to supermarket, and where direct distribution is not possible,
the costs of our products to consumers will be higher 5
We rely on a third party to manufacture our products 5
Risk Of Liability And Adequacy Of Insurance Coverage 6
Our business of selling food products could expose us to tremendous
liability for which we may need to increase our insurance coverage 6
We have sold convertible debentures and we may need to obtain
additional capital to fund our proposed operations 6
We operate in very competitive markets against large food companies
that are able to attract well-known celebrities 6
Our management owns about 455 of our voting stock and controls
our company 7
We do not have written employment agreements with all of our key
employees and we may not be able to retain the key personnel we
need to succeed 7
Future sales of our common stock by our existing stockholders could
have adverse effects 8
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 8
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 8
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 8
You will not earn dividends on the common stock while we have
issued debentures that bear interest 8
Penny stock regulation 8
Year 2000 issues may affect us 9
Use of Proceeds 10
Management's Discussion and Analysis of Financial Conditions
and Results of Operations 11
About Famous Fixins 15
Our Management 30
Executive Compensation 32
Ownership of Securities 36
Certain Relationships and Related Transactions 38
Selling Stockholders 39
Plan of Distribution 41
Description of Our Securities 42
Legal Matters 44
Experts 44
Indemnification 44
Where You Can Find More Information 44
Index to Financial Statements 44
-3-
<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 BEGAN OPERATIONS IN 1997 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.
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.
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 food products. We were also
hampered by an insufficient amount of credit and financing. In 1999, we
expanded our product line to include breakfast cereals endorsed by several
professional athletes. As we enter into new licenses with celebrities and
promote new products, we expect to incur operating losses and net losses for
as we incur additional costs associated with obtaining new celebrity
endorsements, development of new food 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
food 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 FOOD
PRODUCTS.
To date, we have had limited sales of our food 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.
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 food products for endorsement and promotion is
essential to our growth and success. If we cannot sign more celebrities,
we cannot introduce new food 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.
-4-
<PAGE>
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 name and
likeness 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 an up-front cash payment. 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.
Food 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. All supermarket chains require a slotting fee to be
paid for authorizing our products for sale. There are no written agreements
with any supermarkets providing for a term certain or any other commitments
for sales of our products.
WE RELY ON A THIRD PARTY DISTRIBUTOR TO DIRECTLY SHIP OUR
PRODUCTS TO SUPERMARKET, 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 supermarket chains. Crown Prince, Inc. provides us
with services related to the distribution of our products. Under the
marketing agreement, Crown Prince manages the distribution of our food
products in supermarkets and specialty stores throughout the country. 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 A THIRD PARTY 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 the
third-party manufacturer can satisfy these requirements.
-5-
<PAGE>
OUR BUSINESS OF SELLING FOOD PRODUCTS COULD EXPOSE US TO TREMENDOUS
LIABILITY FOR WHICH WE MAY NEED TO INCREASE OUR INSURANCE COVERAGE.
The marketing and sales of food 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 $8 million. We have not
faced a lawsuit related to our food 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 HAVE SOLD CONVERTIBLE DEBENTURES AND WE MAY NEED TO OBTAIN ADDITIONAL
CAPITAL TO FUND OUR PROPOSED OPERATIONS.
Our capital resources are not substantial in relationship to other
companies in the industry. We may need to seek more capital to fund the
introduction of new food products which may increase our indebtedness.
In October 1999, we commenced a private placement offering of 5% convertible
debentures and warrants to obtain up to $550,000 to fund our operations. Our
indebtedness could make it difficult to make principal and interest payments
on the debentures, make it difficult to obtain necessary financing for
working capital, capital expenditures, debt service requirements or other
purposes, and limited our flexibility in planning for changes in our business.
We may not be able to meet our debt service obligations. If our cash flow is
inadequate to meet our obligations, we may face substantial liquidity
problems. If we are unable to generate sufficient cash flow or obtain funds
for required payments, or if we fail to comply with other covenants in our
indebtedness, we will be in default. This would permit our creditors to
accelerate the maturity of our indebtedness. Any financing that we obtain
may have a dilutive effect on stockholders and increase our indebtedness.
WE OPERATE IN VERY COMPETITIVE MARKETS AGAINST LARGE FOOD COMPANIES THAT
ARE ABLE TO ATTRACT WELL-KNOWN CELEBRITIES.
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 food 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.
-6-
<PAGE>
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.
OUR MANAGEMENT OWNS ABOUT 45% OF OUR VOTING STOCK AND CONTROLS OUR COMPANY.
Our officers and directors beneficially own about 45% of our presently
outstanding shares of common stock, after including 60,000 exercisable
options to purchase shares of our common stock and excluding 1,740,000
options subject to future vesting granted to management. Because our
Certificate of Incorporation does not provide for cumulative voting, our
officers and directors are in a position to elect all of the directors,
appoint the officers, and control our affairs and operations.
In addition, Jason Bauer and Peter Zorich, our two largest shareholders
who are also officers and directors, have a voting agreement that requires
them to vote shares for the election of each other as directors. For the
election of any additional director, they are required to vote their shares
for the election of each other's nominees for director as long as two other
director positions 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. The agreement
remains in effect until June 30, 2001.
WE DO NOT HAVE WRITTEN EMPLOYMENT AGREEMENTS WITH ALL OF OUR KEY EMPLOYEES AND
WE MAY NOT BE ABLE TO RETAIN THE KEY PERSONNEL WE NEED TO SUCCEED.
We are highly dependent on our present management to implement our
business strategies. But, since we elected not have employment agreements
with all of our officers or other employees, we could lose their services at
any time. We only have a written employment agreement with Jason Bauer, who
founded our predecessor, Famous Fixins, Inc. as a New York corporation in 1995
and served as our President and Chairman of the Board of Directors from its
inception until we acquired that company in 1998. He now is our Chief
Executive Officer, President and Chairman of the Board of Directors.
Michael Simon presently serves as Vice President and a director of our
company. We do not have a written employment agreement with him. 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.
-7-
<PAGE>
FUTURE SALES OF OUR COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD HAVE
ADVERSE EFFECTS ON THE MARKET PRICE OF OUR COMMON STOCK.
We have outstanding 10,462,624 shares of common stock as of February 3,
2000. As of February 3, 2000, 5,510,662 shares of our outstanding
10,462,624 shares of common stock were restricted securities. If the
conditions of Rule 144 have been met, beginning as of May 29, 1999, 5,505,662
shares of common stock, including 5,087,244 shares of common stock held by the
executive officers and directors of Famous Fixins became eligible for sale
under Rule 144, subject to the volume limitations imposed under Rule 144.
Beginning on July 22, 1999 to August 7, 1999, 5,000 additional shares of
common stock held by and acquired by three non-affiliates became eligible for
sale under Rule 144. These numbers do not include the shares of common stock
that may be sold under this prospectus upon the conversion of convertible
debentures and the exercise of warrants, and also excludes up to 2,377,676
shares of common stock reserved for issuance upon the exercise of other
options and warrants. Any sale of the shares being registered or any sales
under Rule 144 could cause the market price of our common stock to drop
significantly, even if our business is doing well.
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 entered into an agreement for the sale of $550,000 convertible
debentures that will have a dilutive impact on our stockholders. The
debentures are convertible into common stock at a discount to the then-
prevailing market price of our common stock. The conversion 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 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 illustrates how the conversion would work for the
conversion of the principal amount of:
- up to $400,000 debentures held by one selling stockholder, and
- an aggregate principal amount of $150,000 debentures held two
selling stockholders.
The table assumes that we have 10,462,624 shares of common stock presently
outstanding in calculating the 9.9% and the percentage of class after
conversion.
Shares Shares Percentage
Principal 80% of Applicable Issuable at Issuable of Class
Debenture Market Market Conversion Conversion at 9.9% After
Amount Price Price Price Price Limit Conversion
- ------------------------------------------------------------------------------
$150,000 $.25 $.20 $.20 750,000 750,000 6.7%
$150,000 $.50 $.40 $.40 375,000 375,000 3.5%
$150,000 $.6875 $.55 $.55 272,727 272,727 2.5%
$150,000 $1.00 $.80 $.55 272,727 272,727 2.5%
$400,000 $.25 $.20 $.20 2,000,000 1,035,800 9.9%
$400,000 $.50 $.40 $.40 1,000,000 1,000,000 8.7%
$400,000 $.6875 $.55 $.55 727,273 727,273 6.5%
$400,000 $1.00 $.80 $.55 727,273 727,273 6.5%
The table illustrates that as the market price of the common stock
decreases, the number of shares issuable upon conversion increases. However,
the maximum number of shares of common stock that may be received upon
conversion of the debentures by any one holder is 9.9% of our then-outstanding
common stock. For example, at the conversion price of $.20, the number of
shares issued upon conversion of $400,000 debentures would not be 1,500,000
shares but 1,035,800 shares applying the 9.9% limit. However, if we had
15,000,000 shares of common stock outstanding, all 1,500,000 shares would be
issued since it would represent only 9.1% of our outstanding common stock
after the conversion. Further, this limit does not prevent a selling
stockholder from converting a portion of its debenture into a number of shares
less than 9.9% of our common stock, then selling those shares, and then
converting the reminder of the debenture.
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.
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 is substantially below the market value of the common stock, we expect
the debenture holders to ultimately convert the entire $550,000 principal
amount and sell the common stock. Assuming a conversion price of $.20 per
share, we would have to issue up to 2,750,000 shares of common stock if
$550,000 debentures are converted, which would represent about 21% 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 DEBENTURES BECAUSE THE CONVERSION PRICE IS LINKED TO THE
FUTURE MARKET PRICE OF THE COMMON STOCK.
The conversion of the 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 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 debentures are convertible into more shares of
common stock, which will further dilute holders of common stock and cause the
common stock price to decline further.
YOU WILL NOT EARN DIVIDENDS ON THE COMMON STOCK WHILE WE HAVE ISSUED
DEBENTURES THAT BEAR INTEREST.
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 our outstanding convertible debentures, we intend to retain any
future earnings for use in our business.
-8-
<PAGE>
PENNY STOCK REGULATION.
Because the trading price of our common stock is less than $5.00 per
share, trading in the common stock is subject to the requirements of Rule
15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend
low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements. The
broker/dealer must make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction.
SEC regulations also require additional disclosure in connection with
any trades involving a stock defined as a "penny stock". Generally, a penny
stock is a stock with a market price of less than $5.00 per share. SEC
regulations requires the delivery of a disclosure schedule explaining the
penny stock market and its associated risks before any penny stock
transaction. Such requirements severely limit the liquidity of the common
stock in the secondary market because few broker or dealers are likely to
undertake such compliance activities.
YEAR 2000 ISSUES MAY AFFECT US.
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. Our internal use of
computer systems for our internal operations are limited to word processing
and bookkeeping software that were sold as being Year 2000 compliant. We do
not anticipate 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 by 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 have not responded 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 do not consider our Year 2000
investigation to be complete and no timetable can be give as to when such
investigation can be completed. We have developed a contingency plan with
respect to Year 2000 compliance which consisted of searching for different
third party manufacturers and distributors for our products. Upon further
inquiry, we deemed it impracticable to switch to new third party
manufacturers and distributors when we were unable to receive confirmation
that such new third parties are or would be Year 2000 compliant. 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 because significantly
all of our products are manufactured and distributed in large volumes at
selected times, instead of on an on-going basis where continuous and timely
manufacture and shipment is of importance. Although we are uncertain of the
effects that Year 2000 issues may have on our operations, we envision 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. We also envision
that there could be glitches in our web site, which is operated by a third
party, and that the insignificant number of sales orders that currently take
place through our web site will not be transacted properly. We continue to
make inquires into the Year 2000 compliance of the third parties that we
utilize and of potential third parties that we may seek to utilize.
-9-
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders. However, if all of the warrants are
exercised and sold, we anticipate the receipt of approximately $183,741 in
gross proceeds which will be used for general corporate purposes. The
warrants granted to First Atlanta Securities, Pey Dirt and Turn 2 were granted
in exchange for services for which we did not receive any proceeds. 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 FINANCIAL CONDITION
AND OUR RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH FAMOUS
FIXINS' FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN
THIS REGISTRATION STATEMENT.
RESULTS OF OPERATIONS
We did not engage in any substantive business activity from
approximately April 6, 1996 to May 28, 1998. On May 28, 1998, we acquired
Famous Fixins, Inc., a privately-held New York corporation formed on
November 29, 1995 ("FFNY") in a transaction viewed as a reverse acquisition.
FFNY was a promoter and marketer of celebrity endorsed food products, which
commenced business activities in 1995 and began sales operations in March
25, 1997. Pursuant to the reorganization, 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 table sets forth, for the period indicated, the
relationship between total sales and certain expenses and earnings items:
<TABLE>
Year Ended Nine Months Ended Three Months Ended
December 31, September 30, September 30,
1998 1997 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ 276,006 $ 358,791 $ 2,178,859 $ 255,774 $ 981,673 $ 64,205
COST OF GOODS SOLD $ 193,143 $ 194,701 $ 1,237,475 $ 172,678 $ 548,658 $ 54,851
GROSS PROFIT ON SALES $ 82,863 $ 164,090 $ 941,384 $ 83,096 $ 433,015 $ 9,354
OTHER INCOME $ 35,347 $ -- $ 0 $ 29,176 $ 0 $ 14,176
OPERATING EXPENSES $ 748,184 $ 374,822 $ 1,049,470 $ 623,908 $ 393,767 $ 231,673
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAX $ (629,974) $ (210,732) $ (108,086) $ (511,636) $ 39,248 $ (208,143)
PROVISION FOR INCOME TAXES $ 669 $ 950 $ 1,334 $ 669 $ 0 $ 44
NET INCOME (LOSS) $ (630,643) $ (211,682) $ (109,420) $ (512,305) $ 39,248 $ (208,187)
</TABLE>
-11-
<PAGE>
Results of Operations for Year Ended December 31, 1998
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 food 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 51%, 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 increased
to 45% in 1998 compared to 30% 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 margins 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 food sales business is not seasonal in nature, although we may
experience fluctuations in sales of athlete endorsed products in connection
with the respective athlete's professional season. Inflation is not deemed
to be a factor in our operations.
Results of Operations for Three and Nine Months Ended September 31, 1999
Operating revenue for the three months ended September 30, 1999 were
$981,673, an increase of 1,429% as compared to the same period in 1998 of
$64,205. Operating revenue for the first nine months of 1999 were
$2,178,859, an increase of 752% as compared to the first nine months revenue
of $255,774 in 1998. This increase in operating revenue resulted from an
increase in the number of celebrity athletes who granted licenses to Famous
Fixins in that period and expansion of our sales in various geographical
regions of the United States.
-12-
<PAGE>
Cost of goods sold for the three months ended September 30, 1999 were
$548,658, or approximately 56% of sales, as compared to $54,851, or
approximately 85% of sales, for the comparable period in 1998. Cost of goods
sold for the nine months ended September 30, 1999 were $1,237,475, or
approximately 57% of sales, as compared to $172,678, or approximately 68% of
sales, for the comparable period in 1998. Total cost of goods sold are
expected to increase as more products are sold; however, cost of goods sold are
expected to continue to decrease as a percentage of total sales as our sales
volume grows.
Gross profit on sales for the three months ended September 30, 1999
were $433,015, an increase of 4,529% as compared to the same period of 1998
of $9,354. Gross profit on sales for the nine months ended September 30,
1999 were $941,384, an increase of 1,033% as compared to the nine months
ended September 30, 1998 of $83,096. The increase in gross margins is
attributable to our new cereal product line.
For the three months ended September 30, 1999 as compared to the same
period in 1998, operating expenses increased to $393,767 from $231,673, which
represents a decrease to 40% of sales from 361% of sales. For the nine
months ended September 30, 1999 as compared to the same period in 1998,
operating expenses increased by 68% to $1,049,470 from $623,908, which
represents a decrease to 48% of sales from 244% of sales. The increase in
1999 is due mainly to an 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 profitably in the three months ended September 30, 1999,
earning $39,248, or $.004 per share basic and $.003 per share diluted, as
compared to a net loss of $208,187, or $.031 per share basic and diluted,
for the corresponding three month period in 1998. We operated at a loss of
$109,420 for the nine months ended September 30, 1999, or $.011 per share
basic and $.010 per share diluted, as compared to a net loss of $512,305,
or $.080 per share basic and diluted, for the corresponding nine month
period in 1998. The revenues for the first nine months of 1999 do not
include sales of four new products endorsed by celebrity athletes, whose
products became available for sale beginning October 1999.
We anticipate continued significant increases in revenues,
gross margins and profitability for the reminder of 1999. This trend of
increased revenues, gross margins and profitability is expected to
continue now that we have already launched nine new products for nine
new celebrity athletes this year, and expect to launch two to four more
new products for two to four more new celebrity athletes in the first quarter
of 2000.
Our gross margins 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 nine months ended September 30,
1999, charges to income for stock warrants was $222,131.
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 food sales business is not seasonal in nature, although we may
experience fluctuations in sales of athlete endorsed products in connection
with the respective athlete's professional season. Inflation is not deemed
to be a factor in our operations.
-13-
<PAGE>
FINANCIAL CONDITION OR LIQUIDITY AND CAPITAL RESOURCES
To date, we have funded our operations through a line of credit,
bank borrowings, and borrowings from, and issuances of warrants and
sales of securities to, stockholders as described 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, through September 30, 1999, we
issued an additional 3,578,733 shares of common stock in exchange for cash and
services aggregating approximately $475,000 which as at September 30, 1999:
- we collected $300,000;
- $54,000 is receivable under a stock subscription agreement; and
- $121,000 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 at September 30, 1999 was $39,140.
In October 1999, we entered into agreements pursuant to which certain
investors agreed to purchase an aggregate of $550,000 principal amount of
5% convertible debentures due October 19, 2002 and 139,152 warrants to
purchase shares of Famous Fixins' common stock. At the initial closing date,
we received gross proceeds of $450,000, and are to receive the remaining
$100,000 when this registration statement becomes effective. The warrants
are exercisable between October 30, 1999 and October 30, 2004 at a purchase
price of $.494 per share, which was 125% of the market price on the closing
date. At our option, the convertible debentures may be exchanged into
convertible preferred stock. We believe that such sources of funds will be
sufficient to fund our operations for the next twelve months.
We believe that our future growth is dependent on the degree of success
of current operations in generating revenues, and borrowings under our
current credit facility, and the ability to obtain additional credit
facilities, although there can be no assurance that we will be able to obtain
any additional financing that we may require.
The auditors' report to our financial statements for
the year ended December 31, 1998 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, 1998 reflect deficiencies in working capital and
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.
-14-
<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 food 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.
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 are now a single entity operating
under the laws of the State of New York as Famous Fixins, Inc.
As of February 3, 2000, 10,462,624 shares of our common stock were
issued and outstanding.
Information contained on our web site is not a part of this prospectus.
We have not been subject to bankruptcy, receivership or any similar
proceedings.
-15-
<PAGE>
OUR BUSINESS
We are a promoter and marketer of celebrity and athlete endorsed
food products for sale in supermarkets and over the Internet. Our
plan is to develop, market and sell specialty food products based on the
diverse professional, cultural and ethnic backgrounds of various celebrities.
We create food 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 chains. We also operate an electronic
commerce site from which our products may be purchased. We utilize a
nationwide network of food brokers to distribute our products in supermarket
chains, restaurants and specialty retail stores throughout the United States.
We enlist a third party manufacturer to produce our food products.
We have recently significantly increased our roster of high
profile celebrities and athletes who endorse food products that we promote
and market. Our current roster includes:
- 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.
Each of our athlete celebrities donates a portion of the
royalties that they receive back to the community. Below is the list of
charities and foundations that each athlete has chosen:
- Sammy Sosa The Sammy Sosa Charitable Foundation
- Cal Ripken, Jr. The Kelly & Cal Ripken, Jr. Foundation
- Jeff Bagwell, D.A.R.E.
Craig Biggio, and
Ken Caminiti
- Derek Jeter Turn 2 Foundation
- Jake Plummer The Jake Plummer Foundaiton
- Peyton Manning Pey Back Foundation
- Alonzo Mourning Zo's Summer Grove Charity
- Tim Duncan The Children's Shelter of San Antonio
- New York Mets Various charities selected by the Mets
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.
Sammy Sosa. We entered into a contract with Chicago Cubs baseball
player Sammy Sosa for the rights to produce a breakfast cereal. We launched
"Slammin' Sammy's Frosted Flakes" in June 1999 in a limited edition
collector's box commemorating Sammy's 66 home runs. This product was
launched mid-June, in the Chicago area initially, with national and
international distribution to follow. To date, we have shipped more than
$500,000 wholesale cost of the Slammin' Sammy's Frosted Flakes cereal to
accounts in the Chicago area.
-16-
<PAGE>
Cal Ripken, Jr. We have a contract with The Tufton Group for the
rights to manufacture and distribute a cereal bearing the name and
likeness of Baltimore Orioles baseball player Cal Ripken Jr., "Cal's
Classic O's", in the Baltimore area. In April 1999, we launched "Cal's
Classic O's," a honey-nut toasted oats cereal in a limited-edition
collector's box, for distribution in the Baltimore/Washington area. In the
first three weeks of distribution, we shipped $250,000 wholesale cost of
Cal's Classic O's cereal to supermarkets in that area.
Ken Caminiti, Jeff Bagwell, and Craig Biggio. We entered into a
contract with three Houston Astros baseball players, Jeff Bagwell, Craig
Biggio and Ken Caminiti, for the exclusive rights to manufacture and
distribute a cereal collectively bearing their names and likeness and
highlighting their baseball careers. We launched "Houston's Triple Play," a
honey-nut toasted oats cereal in a limited-edition collector's box in July
1999.
Derek Jeter. 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.
Alonzo Mourning. We have an agreement with Alonzo Mourning, the Miami
Heat basketball player and a four-time NBA All-Star for the rights to
manufacture and distribute a new cereal, "Zo's O's," in the Miami area in
January 2000. "Zo's O's" will be packaged in a limited edition
collector's cereal box, commemorating Mourning's outstanding 1999
NBA season. In the 1999 NBA season, Mourning led the league in blocks and
was named the league's Defensive Player of the Year.
Jake Plummer. We entered into a contract with Jake Plummer,
quarterback of the Arizona Cardinals, for the exclusive rights to manufacture
a breakfast bearing the name and likeness of Jake Plummer. We launched
"Jake's Flakes", a frosted flakes cereal in October 1999 in the Arizona and
Idaho markets.
Peyton Manning. We have an agreement with Pey Dirt, Inc. for
the exclusive rights to manufacture a breakfast cereal bearing the name and
likeness of Peyton Manning, quarterback of the Indianapolis Colts. We
launched "Peyton's O's", a honey-nut toasted oats cereal, in October 1999 in
the Indianapolis and Tennessee markets.
Tim Duncan. We entered into a contract with Tim Duncan, forward/center
of the 1998-1999 NBA champion San Antonio Spurs for the exclusive rights to
manufacture a breakfast bearing his name and likeness. We are in the final
stages of development of "Slam Duncan's" and is expected to launch this cereal
in January 2000 in the San Antonio, Texas market.
New York Mets. 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.
-17-
<PAGE>
Salad Dressing
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.
According to Information Resources Inc. of Chicago, Illinois, a market
research company, for the fifty-two weeks ending October 12, 1997, bottled
salad dressings had supermarket sales of $1.51 billion, which is a 2.9 %
increase over the previous year. During that time period, unit sales
increased by 2.4% to more than 585 million bottles. More than 250 companies
are active in this category, but there are very few Greek dressings
available. Of Greek salad dressings on the market, we are not aware of any
made with real feta cheese, extra virgin olive oil and red wine vinegar, as
are our dressings.
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.
celebrityfixins.com
On April 7, 1999, we launched "celebrityfixins.com", our Internet
marketing division intended to be an online supermarket for celebrity
endorsed food products. Celebrityfixins.com presently offers:
- "Olympia Dukakis Greek Salad Dressings";
- Sammy Sosa's "Slammin' Sammy's Frosted Flakes";
- Cal Ripken Jr.'s "Cal's Classic O's";
- "Houston's Triple Play Cereal";
- Derek Jeter's "Jeter's";
- Jake Plummer's "Jake's Flakes";
- Peyton Manning's "Peyton's O's";
- the New York Met's "Amazin' Mets Frost Flakes Cereal"; and
- various t-shirts and hats related to each cereal.
Through this web site, consumers are able to purchase individual items and
personalized gift baskets consisting of a variety of celebrity food products.
This electronic commerce service allow us to reach consumers in regions of
the United States where our products are not carried in supermarkets.
-18-
<PAGE>
MARKETING AND SALES PLANS
We intend to gain distribution of our products to approximately 6,000
supermarkets 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 1,000 newspapers and magazines have written articles
about us, our food 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%.
We have a marketing agreement with Crown Prince, Inc., dated December 7,
1998, under which Crown Prince, Inc. provides to us consultation and oversight
services, as well as administrative and marketing support, in connection with
the distribution of our products. Crown Prince is a national food company in
business for over 50 years with a national sales force and broker network.
Under the marketing agreement, Crown Prince is to manage the distribution of
Famous Fixins' current and future food products in supermarkets and specialty
stores throughout the country. Under the agreement, Crown Prince, Inc.
receives commissions on net sales at the rate of: seven percent for Olympia
Dukakis Green Salad Dressings, and at least three percent for all other
products lines. Under the agreement, we may be responsible for invoicing,
shipping and inventory management expenses and for miscellaneous costs
incurred by Crown Prince.
STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCT OR SERVICE
We are in the development stages of two new breakfast cereal products.
Upon development and approval of the licensors, we expect to launch Alonzo
Mourning's "Zo's O's," in the Miami area in January 2000, and Tim Duncan's
"Slam Duncan's" in January 2000 in the San Antonio, Texas market.
COMPETITION
Many other companies offer food 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 food products.
-19-
<PAGE>
LICENSE AGREEMENTS
Cal Ripken. We have a worldwide license with The Tufton Group
---------
, dated as of April 1, 1999, to launch a line of limited edition
cereal product entitled "Cal's Classic O's Honey Nut Toasted Oat Cereal" and
related merchandise bearing the name and likeness of Calvin E. Ripken, Jr.
Under the agreement, we have the non-exclusive right, license, and privilege
to utilize the name, picture, visual representation, biography, performance
statistics, facsimile signature, nickname and photographic image of
Ripken on our products. We donate one side panel of the cereal box for a
personal message from The Kelly & Cal Ripken, Jr. Foundation, with
information for the public to contact the foundation for additional
donations.
Upon expiration or termination of the agreement, we shall not use
or re-use the cereal product, advertising, or promotional materials without
the express written consent of Tufton Group. We are required to
indemnify Tufton Group and Ripken jointly and severally against any claims,
losses, suits, liabilities, obligations, costs and expenses arising out of
the agreement. We are required to maintain, at our own cost and expense,
general liability insurance protecting Tufton and Ripken from any claims
or suits arising out of the agreement in an amount of the greater of at least
one million dollars or our standard policy limit, and to name Tufton Group and
Ripken as additional insured parties.
We may terminate the agreement upon written notice for a material breach
of the agreement by Tufton and Tufton's failure to cure within five business
days after. Tufton may terminate the agreement upon written notice, and our
failure to cure within fifteen business days, if we:
- fail to make timely payment;
- fail to deliver quarterly sales statements;
- breach any material term of the agreement.
Tufton is entitled to five percent of gross sales, less slotting fees,
of the cereal product, and twenty five percent of the net profits of the
related merchandise. Tufton received five year warrants to
purchase 50,000 shares of our common stock at $.50 per share. The
agreement is for a term of one year, subject to automatic renewal for one
additional year if certain sales goals are met, in which event an additional
10,000 warrants shall be issued to Tufton.
Major League Baseball Players Association. Under a non-exclusive, non-
-----------------------------------------
transferable, non-assignable promotional license agreement with the Major
League Baseball Players Association, dated as of June 10, 1999, we
have group licensing rights to use
- the names, nicknames, likenesses, signatures, pictures, numbers,
playing records and biographical data of eight or more active
baseball players, and
- the logo, name and symbol of Major League Baseball Players
Association, and Major League Baseball Players Choice Logo
in connection with our cereal products. The license territory is the United
States, its possessions and territories, Canada and the Caribbean.
The license fee is $125,000. In addition, the Players Association is
entitled to receive a thirteen and one-half percent royalty on our baseball
trading cards inserted into the cereal boxes, and ten percent on other
promotional items using the rights granted under the license. Interest
accrues at one and one-half percent per month for any late payments made by us
to the Players Association.
We are obligated to defend, indemnify and hold harmless the Players
Assocation, its members, offices, directors, employees and agents from
and against any and all claims, demands, causes of action and judgments
arising out of or in connection with:
- our products using the rights granted under the license;
- our use of intellectual property rights claimed to be the
property of any Major League Baseball club or other entity
affiliated with any Major League Baseball club; and
- any defects in our products pursuant to this license.
We are required to obtain the prior written consent of the Player's Association
if it seeks to settle or compromise any claim covered by the
indemnification provision. The Player's Association and its members have
the right to defend themselves in any such action or proceeding with attorneys
of the Player's Association's selection. We are required to obtain and
maintain comprehensive general liability insurance naming the Player's
Association and its members as an additional insured parties in an amount
of at least two million dollars for each single occurrence.
The Player's Association has the right immediately to terminate the
agreement by giving written notice if we:
- manufacture, advertise, promote, ship, distribute or use any
material without the prior written approval of the Player's
Association;
- use any material after receipt of notice that the Player's
Association disapproves of the material;
- fail to carry on the materials the notices specified by the
Player's Assocation;
- become subject to any voluntary or involuntary order of any
governmental agency involving the recall of any of our
products because of safety, health or other hazards or risks to
the public;
- take any action in connection with our products that damages or
reflects adversely upon the Player's Association or its rights
and its trademarks;
- breach any provision of the agreement relating to the
unauthorized assertion of right in the rights or trademarks;
- fail to obtain or maintain insurance; or
- use the rights granted under the license in a manner
that is inconsistent with the agreement.
We may terminate the agreement upon giving written notice if the Player's
Association breaches and fails to cure within fifteen days a material
term of the agreement.
The license period ends on April 14, 2000. We intend to renew the group
licensing rights or enter into a similar agreement for an additional license
period beginning April 14, 2000, unless we discontinue the promotion and sale
of products featuring Major League Baseball players.
-20-
<PAGE>
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.,
- Baltimore Orioles,
- Chicago Cubs,
- Houston Astros,
- San Francisco Giants,
- Seattle Mariners, and
- New York Mets
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 is due on December 31, 1999, and
$25,000 is due 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. Interest at one
percent per month or the highest prime lending rate of Chase Manhattan Bank
accrue on late payments.
The license agreement with Baseball Properties is a blanket agreement
that expires on or about April 30, 2000, and it covers all of our
baseball-themed products, including our products that were offered after we
entered into the Baseball Properties license agreement. 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 against are to be carried over through the calendar year 2000.
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.
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.
-21-
<PAGE>
Sammy Sosa. We have an exclusive license with Sammy Sosa, dated as
----------
of April 12, 1999, to develop, manufacture, distribute, promote, and sell up
to two editions of a line of limited edition cereal products bearing his name
and likeness in North America and the Caribbean.
We have the right to use the name, photograph, characterization,
likeness, voice, image, and biographical data of Sosa. We have the right
to use the trademarks, logos, copyrights and all other authorized material
owned or controlled by Sosa.
We retain all rights, titles, and interests in and to the cereal
products, their formulae and secret ingredients, and their packaging and
labeling. We are responsible to pay all costs and expenses in connection with
the development, promotion, manufacturing, packaging, shipping, distribution,
sales and promotion of the cereal products and related merchandise. We are
required to maintain an eight million dollar product liability insurance which
cover all the products produced in connection with this license. The
agreement can only be assigned with the prior written consent of the other
party, except that we may assign the assignment 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 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; or
- Sosa becomes the subject of public disrepute or scandal
that affects his image.
Sosa is entitled to twelve and one-half percent of gross receipts
from the sale of the cereal product, and one hundred percent of gross sales
less twenty five percent of gross profits from the sale of related
merchandise. Sosa also received five year warrants to purchase 150,000
shares of our common stock, exercisable at $.15 per share.
The agreement terminates on April 14, 2000, subject to automatic renewal
for one additional year if certain sales goals are met.
-22-
<PAGE>
Ken Caminiti, Craig Biggio, and Jeff Bagwell. We have an exclusive
-------------------------------------------
worldwide license with Ken Caminiti, Craig Biggio, and Jeff Bagwell, dated as
of April 29, 1999, to launch a line of limited edition cereal products
bearing their names and likenesses, expiring on April 20, 2000. The agreement
is subject to automatic renewal until April 30, 2001 if certain sales goals
are met.
We have the right to use the name, photograph, characterization,
likeness, voice, image, and biographical data of the licensors, and the
trademarks, logos, copyrights and all other authorized material owned or
controlled by the licensors in connection with the development, manufacture,
distribution, promotion, and sale of the cereal and related merchandise.
Related merchandise includes hats and T-shirts bearing the name and logo of
the cereal, which may be sold only by way of direct sales through cereal
box redemption programs, mail order, Internet, or print advertising.
We are responsible for all costs and expenses in connection with the
development, promotion, manufacturing, packaging, shipping, distribution,
sales and promotion of the products. We have all rights, titles, and
interests in and to the products, their formulae and secret ingredients, and
their packaging and labeling. We are required to maintain an eight
million dollar product liability insurance which cover all the products
produced in connection with this license and to name the licensors as
additional insured parties on its general liability insurance policy. The
agreement can only be assigned with the prior written consent of the other
party, except that we may assign the assignment 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 gross negligence or intentional
acts of its officers, directors, employees, or representatives.
The license may be terminated upon 45days written notice if:
- a party breaches a material term of the agreement and fails
to remedy said breach within 30days 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; or
- any licensor becomes the subject of public disrepute or
scandal that affects the licensor's image.
As compensation, the licensors are to receive six and one-half percent
of all monies received less slotting fees from the sale of the cereal product,
and twenty-five percent of net sales of the related merchandise. The
licensors received a total of 30,000 warrants, exercisable for five years at
$.25 per share, and are entitled to an additional 30,000 warrants if the
license term is extended.
-23-
<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 his 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. All packaging costs shall be our sole
responsibility.
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.
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 are required to maintain a three million dollar product liability
insurance which cover all the products produced in connection with this
license and to name Turn 2, Turn 2's agent, and Jeter as additional insured
parties.
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 terminates on May 31, 2000.
-24-
<PAGE>
Jake Plummer. We have an exclusive worldwide license with Jake "The
------------
Snake" Enterprises, dated as of May 13, 1999, to launch 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 Jake Plummer, and the trademarks, logos, copyrights and all other
authorized material owned or controlled by him in connection with the
development, manufacture, distribution, promotion, and sale of the cereal
products and related merchandise. We have all rights, titles, and interests
in and to the products, their formulae and secret ingredients, and their
packaging and labeling.
The licensor is entitled to seven percent of revenues from the sale of
the cereal product, and fifty percent of net profits from the sale of related
merchandise. The licensor received a five year warrants to purchase 35,000
shares of our common stock at the purchase price of $.25 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. We are required to maintain an eight
million dollar product liability insurance which cover all the products
produced in connection with this license and name Plummer as an
additional insured party.
The agreement can only be assigned with the prior written consent of the
other party, except that we may assign the assignment 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 gross negligence or intentional
acts of its officers, directors, employees, or representatives, or including
product liability.
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; or
- Plummer becomes the subject of public disrepute or scandal
that affects his image.
Peyton Manning. We have an exclusive license with Pey Dirt, Inc.,
--------------
dated as of May 31, 1999, to develop, manufacture, distribute, promote, and
sell cereal products bearing Peyton Mannings' name and likeness in the
states of Indianapolis and Tennessee. We have the right to use Manning'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 Manning'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 Manning's sole choice. All packaging costs is our sole
responsibility.
As compensation, Pey Dirt is entitled to eight 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 Pey Dirt 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 National Football League quarterbacks, under similar regional licenses.
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 Pey Dirt or its
designee.
If we, at any time or times during the license period, desire to
register a trademark or trademarks which include Manning's name and likeness,
or which relate in any manner to Manning, or to register us as a user, 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 Pey Dirt or its designee.
Upon registration of any such trademark, Pey Dirt 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 are required to maintain a three million dollar product liability
insurance which cover all the products produced in connection with this
license and to name Pey Dirt, its agent, and Manning as additional
insured parties.
We may assign or transfer this agreement only with the prior written
consent of Pey Dirt. Pey Dirt 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 Manning or Pey Dirt be
liable to us, or any party claiming through us, for any amount in excess of
the royalties actually received by Pey Dirt 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 Pey Dirt, its agent
and
Manning 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 terminates on May 31, 2000.
-25-
<PAGE>
Alonzo Mourning. We have an exclusive worldwide license with Alonzo
---------------
Mourning, dated as of May 10, 1999, to develop, manufacture, distribute,
promote and sell a cereal product bearing his name and likeness. Under the
agreement, we have the right to use the name, approved photograph, likeness,
and biographical data of Mourning. Mourning retains all rights in
and to the licensed subject matter, and shall may use the licensed subject
matter in connection with the advertisement, promotion, or endorsement of
any product or service except for ready-to-eat cereal.
We are responsible for all costs and expenses in connection with the
development, promotion, manufacturing, packaging, shipping distribution, sales
and promotion of the cereal product. We have all rights, titles and interest
in and to the cereal product, the formulae and ingredients, and the packaging
and labeling.
We also have the right to produce, manufacture, distribute, and sell
certain t-shirts and hats bearing the logo "Zo's O's", provided that such
apparel products are manufactured by NIKE, Inc. We are responsible for any
and all costs associated with the manufacture, promotion, sale, advertisement,
or distribution of the apparel products.
We are required to maintain an eight million product liability insurance
which cover all the products produced in connection with this license and name
Mourning as an additional insured party.
The agreement can only be assigned with the prior written consent of
the other party, except that we may assign the assignment to a wholly-owned
subsidiary or to an entity owning or acquiring a majority of our stock or
assets.
The agreement provides that the parties shall indemnify the other
parties, and that we shall indemnify Falk Associates Management Enterprises,
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 indemnification
provision survives the termination or expiration of the agreement.
The license may be terminated upon thirty days written notice if:
- a party breaches a material term of the agreement and fails
to remedy said breach within 15 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;
- we fail to make any timely payments under the agreement; or
- Mourning is convicted of a felony involving moral turpitude.
The license agreement terminates on June 30, 2000.
As compensation, Mourning is entitled to five percent of all
revenues from the sale of the cereal product, and twenty five percent of net
profits from the sale of related merchandise. We issued to Mourning
warrants to purchase 50,000 shares of our common stock,
exercisable for five years at $.15 per share.
-26-
<PAGE>
Tim Duncan. We have a non-exclusive worldwide license with Tim Duncan,
----------
dated as of August 27, 1999, granting us the right to use the name,
photograph, characterization, likeness, voice, image, and biographical data
of Tim Duncan in connection with the development, manufacture, distribution,
promotion, and sale of a limited edition cereal product and related
merchandise.
We are required to distribute, promote, and sell the products,
at a minimum, in the greater San Antonio, Texas area, North Carolina, and the
U.S. Virgin Islands, and to provide for the sale and distribution of products
on Tim Duncan's web site, www.slamduncan.com. We are responsible for all
costs and expenses in connection with the development, promotion,
manufacturing, packaging, shipping, distribution, sales and promotion of the
products. We have all rights, titles, and interests in and to the cereal
product, their formulae and secret ingredients. Under the agreement,
Duncan is obligated to autograph 50 personalized jerseys and 150 boxes of
the cereal product for our use as promotional materials.
We are required to maintain general liability insurance coverage of at
least two million dollars that survives the term of the license and name
Duncan as an additional insured party.
The agreement provides that we shall protect, indemnify and
hold Duncan, his agents and representatives, harmless from and against
any and all expenses, damages, claims, suits, actions, judgments and costs
arising out of any action or proceeding by any third party based upon:
- any act, omission, or material or alleged breach by us of the
terms of the license;
- our use of the material produced under the agreement;
- the manufacture, marketing, sale or use of the products;
- our unauthorized use of any individual intellectual property
right, trademark, service mark, or copyright in connection with
the licensed subject matter;
- any materials supplied by us in connection with the services
provided by Duncan under the agreement; or
- the enforcement of our indemnification obligation.
The remuneration due to Duncan is seven percent of all gross revenues
from the sale of the cereal product, and fifty percent of all gross profit
from the sale of related merchandise, and is subject to upward adjustment to
provide the remuneration that we pay any other celebrity licensor for our
products having comparable quantities of products manufactured or sold us.
Interest on any late payments to Duncan will be the lesser four percent
per month or the maximum rate permissible by law. Mr. Duncan also received a
five year warrant to purchase 50,000 shares of our common stock, exercisable
at $.20 per share.
Either party may terminate the agreement upon forty-five
days written notice if the other party breaches a material term and fails to
remedy the breach within thirty days. Duncan may also terminate the
agreement upon forty-five days written notice if we:
- become insolvent,
- file a petition in bankruptcy or have a petition in bankruptcy
filed against us which is not dismissed within fifteen days;
- discontinue production and distribution of the products;
- use products and materials not approved by Duncan; or
- use the licensed subject matter in connection with any product
or service for which we do not have license rights under the
agreement.
We may also terminate the agreement if Duncan is convicted,
after all appeals, of a felony crime involving moral turpitude or a crime
involving use or possession of controlled substances.
The license terminates on the end of the 1999-2000 National Basketball
Association season. If certain sales goals are met, the license fees on the
cereal products increases by four percent of gross revenues, and the license
is automatically extended through the 2000-2001 NBA basketball season, in
which event, Duncan is to receive an additional warrant to purchase 30,000
shares of our common stock, exercisable at one-half the market value of the
common stock at that time.
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.
-27-
<PAGE>
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 rgular 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.
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>
SOURCES AND AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS.
We use Jasper Foods, located in Jasper, Missouri, as our cereal
manufacturer, and T. Marzetti Foods, located in Canton, Ohio, as our salad
dressing manufacturer. We engage a third-party, private-label manufacturer
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.
MAJOR CUSTOMERS
Although we target our products to a large number of supermarkets and
upon a broad customer base to whom it sells relatively small quantities of our
products, in 1998, two customers, Giant of Maryland and C&S Wholesale,
accounted for approximately thirty percent of its sales, and, in 1999, Jewel
Supermarkets accounted for more than ten percent of our sales to date. These
customers purchased products in blocks and there is no on-going agreement for
these customers to purchase our products; therefore, we do not believe that
loss of any one of these customers would have a material adverse affect on our
operations.
EMPLOYEES
We currently have three full-time employees, including two management
level employee.
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, which 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.
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.
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.
-29-
<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(1) 30 Executive Vice President and Director
Lisa Bauer 29 Director
(1) Became a director on July 8, 1999.
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.
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.
-30-
<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.
-31-
<PAGE>
EXECUTIVE COMPENSATION
The table below 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.
<TABLE>
Summary Compensation Table
Long Term
Compensation
------------
Annual Compensation Awards
---------------------------------------------- ------------
Name and Other Securities
Principal Annual Underlying All Other
Position Year(1) Salary Bonus Compensation Options/SARS Compensation
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jason Bauer(2) 1998 $ 75,094 $ 0 $ 0 0 $ 0
President and Chairman 1997(5) $ 29,050 $ 0 $ 0 0 $ 0
of the Board 1996 $ 0 $ 0 $ 0 0 $ 0
Peter Zorich(2) 1998 $ 0 $ 0 $ 0 0 $ 0
Executive Vice President, 1997 $ 0 $ 0 $ 0 0 $ 0
Treasurer, Secretary and 1996 $ 0 $ 0 $ 0 0 $ 0
Director
Lisa Bauer(2) 1998 $ 0 $ 0 $ 0 0 $ 0
Director 1997 $ 0 $ 0 $ 0 0 $ 0
1996 $ 0 $ 0 $ 0 0 $ 0
Michael Simon(3) 1998 $ 0 $ 0 $ 0 300,000(6) $ 0
Executive Vice President 1997 $ 0 $ 0 $ 0 0 $ 0
and Director 1996 $ 0 $ 0 $ 0 0 $ 0
Olympia Dukakis(2)(4) 1998 $ 0 $ 0 $ 0 0 $ 0
Director 1997 $ 0 $ 0 $ 0 0 $ 0
1996 $ 0 $ 0 $ 0 0 $ 0
Russell Ortman(5) 1998 $ 0 $ 0 $ 0 0 $ 0
Former President and 1997 $ 0 $ 0 $ 0 0 $ 0
Director 1996 $ 0 $ 0 $ 0 0 $ 0
Leona Jamison(5) 1998 $ 0 $ 0 $ 0 0 $ 0
Former Secretary and 1997 $ 0 $ 0 $ 0 0 $ 0
Director 1996 $ 0 $ 0 $ 0 0 $ 0
____________
</TABLE>
(1) The compensation paid in fiscal year 1998 includes the operations of
FFNY prior to May 28, 1998.
(2) Became a director or officer of Famous Fixins on May 28, 1998.
Excludes options to purchase 1,500,000 shares of common stock granted
in April 1999 under an employment agreement, which options vest upon
the achievement of certain corporate milestones. No options have
vested.
(3) Became a director and officer of Famous Fixins on July 8, 1999.
(4) Resigned as a director of Famous Fixins on July 6, 1999.
(5) Resigned as officer and director of Famous Fixins on May 28, 1998.
(6) On June 2, 1998, we issued 300,000 warrants to purchase
shares of our common stock to Michael Simon. The warrants are
exercisable for six years at $1.00 per share, subject to vesting at a
rate of 60,000 per year. Presently, 60,000 warrants are exercisable.
-32-
<PAGE>
The table below sets forth information concerning options granted
during the 1998 fiscal year to those persons named in the preceding Summary
Compensation Table:
<TABLE>
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
Number of
Securities Percent of total
Underlying options/SARS granted Exercise or
Options/SARs to employees in base price Expiration
Name Granted (#) fiscal year(1) ($/Sh) Date
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jason Bauer(2)(3) 0 0% -- --
Peter Zorich(2) 0 0% -- --
Lisa Bauer(2) 0 0% -- --
Michael Simon(4)(5) 300,000 100% 1.00 Jun-02-04
Olympia Dukakis(2)(6) 0 0% -- --
Russell Ortman(7) 0 0% -- --
Leona Jamison(7) 0 0% -- --
</TABLE>
______
(1) Based on the aggregate total of options and warrants granted to
officers, directors, and employees, without including any options
and warrants granted pursuant to license or other arrangements.
(2) Became a director or officer of Famous Fixins on May 28, 1998.
(3) Excludes 5-year options granted under an employment agreement in April
1999 to purchase up to 1,500,000 shares of our common stock.
The exercise price is $.30 per share. The options are to vest only
after we achieve certain corporate milestones as set forth
in the employment agreementThese 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. No options have vested.
(4) Became a director and officer of Famous Fixins on July 8, 1999.
(5) On June 2, 1998, we issued 300,000 warrants to purchase
shares of our common stock to Michael Simon. The warrants are
exercisable for six years at $1.00 per share, subject to vesting at a
rate of 60,000 per year. Presently, 60,000 warrants are exercisable.
(6) Resigned as a director of Famous Fixins on July 6, 1999.
(7) Resigned as a director of Famous Fixins on May 28, 1998.
-33-
<PAGE>
None of the options held by those individuals listed in the Summary
Compensation Table were exercised in fiscal year 1998. The following table
sets forth information concerning the value of unexercised stock options as
of December 31, 1998 for those individuals named in the Summary Compensation
Table.
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of securities
Shares underlying unexercised Value of unexercised
Acquired Value Options/SARs in-the-money options/SARs
on realized at FY-end (#) at FY-end ($)(a)
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jason Bauer(b) -- -- -- -- -- --
Peter Zorich -- -- -- -- -- --
Lisa Bauer -- -- -- -- -- --
Michael Simon -- -- -- 300,000(c) -- --
Olympia Dukakis -- -- -- -- -- --
Russell Ortman -- -- -- -- -- --
Leona Jamison -- -- -- -- -- --
</TABLE>
(a) 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, 1998 as
reported by OTC Bulletin Board was $0.25.
(b) Excludes options to purchase 1,500,000 shares of common stock,
exercisable at $.30 per share, granted in April 1999 under an
employment agreement, which options vest upon the achievement of
certain corporate milestones. No options have vested.
(c) Warrants to purchase 60,000 shares of our common stock became
exercisable on June 2, 1999 at $1.00 per share.
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.
-34-
<PAGE>
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
JASON BAUER. 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.
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.
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.
-35-
<PAGE>
MICHAEL SIMON. 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 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 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 is
to receive compensation amounting to $50,000 annually, and an amount equal to
ten percent of all royalties paid by us during the employment period
to celebrity licensors under license agreements.
We currently do not have a retirement, pension or profit sharing
program, but the Board of Directors may recommend one at a later date.
OWNERSHIP OF SECURITIES
The following table sets forth, as of February 3, 2000, the shares of
our common stock beneficially owned by each person known to us
to be the beneficial owner of more than five percent of the outstanding
shares of common stock, by each officer and 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.
-36-
<PAGE>
Name and Address Amount and Nature Percent of
of Beneficial Owner(1) of Beneficial Owner Class(2)
- ---------------------- ------------------- ----------
Jason Bauer(3) 4,819,494(5) 41.9%
Peter Zorich 4,819,494(5) 41.9%
Michael Simon(4) 327,750 2.9%
AMRO International, S.A. 1,035,800(6) 9.9%
All officers and 5,147,244(7) 44.8%
directors as a group
(1) Unless otherwise indicated, the address of each of these persons is
Famous Fixins, Inc., 250 West 57th Street, Suite 1112, New York, New
York 10701.
(2) Based upon 10,462,624 shares of common stock issued and outstanding on
February 3, 2000, as adjusted to include the conversion of debentures
held by AMRO International, S.A. into 1,035,800 shares of common stock,
and with respect to each holder of options exercisable within 60 days,
the shares represented by such options.
(3) Excludes options to purchase 1,500,000 shares of common stock granted
under an employment agreement in April 1999, which options vest upon
the achievement of certain corporate milestones. No options have
vested.
(4) Became a director and officer on July 8, 1999. Includes 60,000
warrants to purchase our common stock that are presently
exercisable, and excludes 240,000 warrants subject to future vesting.
(5) Includes beneficial ownership of 2,409,747 shares of common stock due
to a voting agreement between Jason Bauer and Peter Zorich. Each of
Messrs. Bauer and Zorich own 2,409,747 shares of common stock and are
deemed the beneficial owner of 2,409,747 shares of common stock held by
each other. The agreement provides that each of Messrs. Bauer and
Zorich shall 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. The agreement expires on June 30, 2001, unless earlier
terminated by written agreement signed by both parties.
(6) Assumes conversion of debentures held by AMRO International, S.A. into
1,035,800 shares of common stock. At a conversion price of $.343, AMRO
International can convert the debentures into 2,433,563 shares of common
stock. However, the debentures provide that AMRO International may not
convert the debentures into a number of shares of common stock so that
AMRO International owns 9.9% or more of our then-outstanding
common stock.
(7) Includes 2,409,747 shares of common stock held by each of Messrs. Bauer
and Zorich, and does not include beneficial ownership of an additional
2,409,747 shares of common stock held by each of Messrs. Bauer and
Zorich due to a voting agreement between Messrs. Bauer and Zorich.
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. Messrs. Bauer
and Zorich are our two largest shareholders.
-37-
<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, 1995
in 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.
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.
-38-
<PAGE>
SELLING STOCKHOLDERS
This prospectus relates to a total of up to 3,546,149 shares of our
common stock, par value $.001 per share, of which:
- 3,206,997 shares of common stock are issuable upon conversion
of 5% convertible debentures with a $550,000 principal amount
due October 30, 2002; and
- 339,152 shares of common stock are issuable upon exercise
of 339,152 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 of 1933.
Pursuant to agreements for the purchase of convertible debentures and
warrants, we sold 5% convertible debentures with a $550,000
principal amount due October 30, 2002. We issued convertible
debentures in the amount of $450,000 and 139,152 warrants. The warrants are
exercisable into shares of our common stock before October 30,
2004 at a purchase price of $.494 per share. The remaining $100,000
is due and payable five days after this registration statement is declared
effective, at which time we are obligated to issue $100,000
principal amount of 5% convertible debentures. 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 our 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
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.
Under a registration rights agreement with the purchasers of the
convertible debentures and warrants, we agreed to use our best efforts to
cause this registration statement to be filed within ten trading days after
the SEC has advised us that the SEC had no further comments on our
registration statement on Form 10-SB, as amended, to become effective within
ninety days from the required filing date, or, if earlier, within five
days of SEC clearance to request acceleration of effectiveness, but in any
event no later than February 1, 2000. If the number of shares registered is
not enough to register the resale of all of the common stock underlying the
convertible debentures and warrants, we are obligated to file, within thirty
days of notice from any holder, another registration statement registering
such remaining shares and shall use diligent best efforts to prosecute such
additional registration statement to effectiveness within ninety days of the
date of such notice.
If the registration statement related to this prospectus is not filed
with the SEC within thirty days from the required filing date, the
registration statement is not declared effective by the SEC within the
earlier of ninety days from the required filing date or five days of
clearance by the SEC to request effectiveness, but in no event later than
February 1, 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 us 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 us 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. As an alternative to paying
liquidated damages, we may repurchase the convertible debentures for one
hundred forty percent of their face amount if the registration statement is
not effective on or before February 1, 2000 by payment on or before February
15, 2000.
-39-
<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.
Pursuant to license and consulting agreements that include registration
rights provisions, we are registering the common stock underlying 200,000
warrants that are exercisable into 200,000 shares of our common stock.
The holders of the warrants are entitled to exercise each warrant into one
share of common stock as follows: 100,000 warrants are exercisable before
October 30, 2004 at $1.00 per share, and 100,000 warrants are exercisable
before June 30, 2004 at $.15 per share.
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 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(1) Offering(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMRO International, S.A. 2,433,563(3) 2,433,563(3) 0 *
Austost Anstalt Schaan 456,293(4) 456,293(4) 0 *
Balmore Funds, S.A. 456,293(4) 456,293(4) 0 *
First Atlanta Securities, LLC 100,000(5) 100,000 0 *
Pey Dirt, Inc. 50,000(5) 50,000 0 *
Turn 2, Inc. 50,000(5) 50,000 0 *
--------- --------- ---------
TOTAL 3,546,149 3,546,149 0
========= ========= =========
</TABLE>
______
(1) Based on 10,462,624 shares of common stock issued and outstanding on
February 3, 2000, as adjusted to include 3,546,149 shares of common
stock that may be issuable upon the conversion of the convertible
debentures and exercise of warrants included in this registration
statement.
(2) The symbol "*" indicates less than 1% ownership of Famous Fixins'
outstanding shares of common stock after this offering.
(3) Includes 2,332,361 shares of common stock underlying the convertible
debentures, based on 200% of the shares issuable upon conversion, at
the rate of $.343, of the convertible debentures in the principal
amount of $400,000. Includes 101,202 shares of common stock underlying
warrants.
(4) Includes 437,318 shares of common stock underlying the convertible
debentures, based on 200% of the shares issuable upon conversion, at
the rate of $.343, of the convertible debentures in the principal
amount of $75,000. Includes 18,975 shares of common stock underlying
warrants.
(5) Refers to the number of shares of common stock underlying warrants.
-40-
<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.
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.
-41-
<PAGE>
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.
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 February 3, 2000, we had 10,462,624
shares of common stock issued and outstanding. Without including the shares
of common stock underlying convertible debentures and warrants that are the
subject of this registration statement, we have reserved for issuance up to
2,516,828 shares of common stock issuable upon the exercise of outstanding
options and warrants.
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.
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.
5% Convertible Debentures
We have outstanding 5% convertible debentures with a $450,000 principal
amount due October 30, 2002. We will issue an additional $100,000 principal
amount of debentures within five days after this registration statement is
declared effective.
The holders of the convertible debentures are entitled to convert 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 debentures by any one holder is 9.9% of our then-outstanding common stock.
The table below illustrates how the conversion would work for the
conversion of the principal amount of:
- up to $400,000 debentures held by one selling stockholder, and
- an aggregate principal amount of $150,000 debentures held two
selling stockholders.
The table assumes that we have 10,462,624 shares of common stock presently
outstanding in calculating the 9.9% and the percentage of class after
conversion.
Shares Shares Percentage
Principal 80% of Applicable Issuable at Issuable of Class
Debenture Market Market Conversion Conversion at 9.9% After
Amount Price Price Price Price Limit Conversion
- ------------------------------------------------------------------------------
$150,000 $.25 $.20 $.20 750,000 750,000 6.7%
$150,000 $.50 $.40 $.40 375,000 375,000 3.5%
$150,000 $.6875 $.55 $.55 272,727 272,727 2.5%
$150,000 $1.00 $.80 $.55 272,727 272,727 2.5%
$400,000 $.25 $.20 $.20 2,000,000 1,035,800 9.9%
$400,000 $.50 $.40 $.40 1,000,000 1,000,000 8.7%
$400,000 $.6875 $.55 $.55 727,273 727,273 6.5%
$400,000 $1.00 $.80 $.55 727,273 727,273 6.5%
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.
The table illustrates that at the conversion price of $.20, the number
of shares issued upon conversion of $400,000 debentures would not be 1,500,000
shares but 1,035,800 shares. 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 15,000,000 shares of common
stock outstanding, all 1,500,000 shares would be issued since it would
represent only 9.1% of our outstanding common stock after the conversion.
Further, this limit does not prevent a selling stockholder from converting a
portion of its debenture into a number of shares less than 9.9% of our common
stock, then selling those shares, and then converting the remainder of the
debenture.
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.
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.
-42-
<PAGE>
New York has enacted a business combination statute that is contained
in Section 912 of the New York Business Corporation Law. Section 912
provides, among other things, that any person who acquires twenty percent or
more of a corporation's outstanding voting stock may not engage in a wide
range of business combinations with the corporation for a period of five
years of the control acquisition date unless the transaction was approved by
the corporation's board of directors prior to the control acquisition date.
A business combination is defined in the New York Business Corporation
Law to include:
- mergers or consolidations of a corporation with a shareholder
owning 20% of the voting stock;
- certain transactions with a shareholder owning 20% of the
voting stock that involves ten percent or more of the
market value of the corporation's assets,
- certain transactions with a shareholder owning 20% of the voting
stock that involves ten percent or more of the aggregate
market value of the corporation's outstanding stock
- certain transactions with a shareholder owning 20% of the voting
stock that involves ten percent or more of the corporation's
earning power or net income;
- certain transactions involving a shareholder owning 20% of the
voting stock that results in that shareholder acquiring at
least five percent of the market value of the corporation's
outstanding stock;
- the adoption of any plan or proposal of a shareholder owning
20% of the voting stock for the liquidation or
dissolution of the corporation;
- certain transactions resulting in increasing the proportionate
share of the voting stock of the corporation owned by a
shareholder owning 20% of the voting stock; or
- the receipt by a shareholder owning 20% of the voting stock
of the benefit of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation,
unless the benefit is given proportionately to all shareholders.
These restrictions do not apply under certain circumstances if the
corporation's certificate of incorporation or bylaws contain a provision
expressly electing not to be governed by Section 912. Our certificate of
incorporation and By-laws do not contain any provision electing not to be
governed by Section 912. Our Board of Directors believes that the provisions
of Section 912 will help ensure that a change in control of Famous Fixins does
not occur without the consent of the Board of Directors or the stockholders,
or both, and will encourage any person who seeks to acquire control of Famous
Fixins to do so by a negotiated transaction.
Transfer Agent
Continental Stock & Transfer Company, New York, New York, is our
transfer agent and registrar for our common stock.
Market Information
Beginning on September 9, 1998, our common stock was quoted on the OTC
Bulletin Board under the symbol "FIXN". The following table sets forth for
the periods indicated, the high and low closing bid prices for the common
stock as reported by the OTC Bulletin Board.
Quarter Ended High Low
- ------------------ ------ ------
September 30, 1998 $1.75 $1.00
December 31, 1998 $1.25 $0.25
March 31, 1999 $1.625 $0.375
June 30, 1999 $0.67 $0.350
September 30, 1999 $0.55 $0.34
December 31, 1999 $0.50 $0.25
The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
On 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.
Holders
The approximate number of holders of record of our common
stock at February 3, 2000 was 84, without including the beneficial owners of
shares of common stock held in street name. However, we estimate that there
were approximately 1,252 beneficial holders of our common stock as of that
date.
-43-
<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 common
stock and warrants to purchase 69,552 shares of our common stock.
He is not a selling stockholder under this prospectus.
EXPERTS
The financial statements of Famous Fixins for the year ended December
31, 1998, 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.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read
and copy any documents we file at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, NW, Washington, D.C. 20549.
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 Securities and
Exchange Commission's web site at http://www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
PAGE
Financial Report - Year Ended December 31, 1999 F-1
Financial Statements - Quarter Ended September 30, 1999 (Unaudited) F2-1
-44-
<PAGE>
FAMOUS FIXINS, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
-----------------
PAGE
----
FINANCIAL STATEMENTS:
INDEPENDENT AUDITORS' REPORT F-2
EXHIBIT "A" - BALANCE SHEETS F-3
EXHIBIT "B" - STATEMENTS OF OPERATIONS F-5
EXHIBIT "C" - STATEMENTS OF CASH FLOWS F-6
EXHIBIT "D" - STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) F-7
NOTES TO FINANCIAL STATEMENTS F-8 - F-19
F-1
<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, 1998 and 1997, 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, 1998 and 1997, 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 deficiencies in working capital and stockholders' equity,
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.
New York, New York /s/ Freeman & Davis LLP
July 29, 1999
F-2
<PAGE>
FAMOUS FIXINS, INC.
BALANCE SHEETS
<TABLE>
DECEMBER 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
A S S E T S
-----------
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 19,500 $ 9,522
Accounts receivable, less allowance for doubtful
accounts of $5,000 in 1997 13,613 13,419
Merchandise inventory 27,420 61,186
Prepaid expenses 2,227
--------- ---------
TOTAL CURRENT ASSETS 60,533 86,354
--------- ---------
PLANT AND EQUIPMENT
- -------------------
Furniture and fixtures 9,309
Machinery and equipment 9,406 6,304
--------- ---------
18,715 6,304
Less: Accumulated depreciation 3,578 1,261
--------- ---------
NET PLANT AND EQUIPMENT 15,137 5,043
--------- ---------
OTHER ASSETS
- ------------
Security deposits 2,400
Costs incurred in connection with a securities
offering in progress 14,775
--------- ---------
TOTAL OTHER ASSETS 2,400 14,775
--------- ---------
$ 78,070 $ 106,172
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EXHIBIT "A"
<TABLE>
DECEMBER 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
- -------------------
Current installments of long-term note payable to bank $ 15,432 $
Note payable to related party 134,303 197,261
Accounts payable and accrued expenses 134,138 129,959
Taxes payable - other than on income 1,643 1,164
Income taxes payable 625 625
Subscribers' deposits on common stock, net 12,500
Due to stockholders 11,154
--------- ---------
TOTAL CURRENT LIABILITIES 298,641 340,163
--------- ---------
LONG-TERM LIABILITY
- -------------------
Long-term note payable to bank, net of current installments 25,253
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
- ------------------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
6,883,891 shares in 1998; 6,105,180 shares in 1997 6,883 6,105
Additional paid-in capital (deficit) 662,937 (5,095)
Accumulated deficit (865,644) (235,001)
--------- ---------
(195,824) (233,991)
Less: Unused advertising barter credits (50,000)
--------- ---------
TOTAL STOCKHOLDRES' EQUITY (DEFICIT) (245,824) (233,991)
--------- ---------
$ 78,070 $ 106,172
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EXHIBIT "B"
FAMOUS FIXINS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
--------- ---------
AMOUNT AMOUNT
--------- ---------
<S> <C> <C>
NET SALES $ 276,006 $ 358,791
--------- ---------
COST OF GOODS SOLD
- ------------------
Merchandise inventory at beginning of year 61,186
Purchases 154,878 245,388
Other direct costs 4,499 10,499
--------- ---------
220,563 255,887
Less: Merchandise inventory at end of year 27,420 61,186
--------- ---------
TOTAL COST OF GOODS SOLD 193,143 194,701
--------- ---------
GROSS PROFIT ON SALES 82,863 164,090
OTHER INCOME - MANAGEMENT AND
DISTRIBUTION SERVICES 35,347
--------- ---------
TOTAL INCOME 118,210 164,090
--------- ---------
OPERATING EXPENSES
- ------------------
Selling expenses 530,676 305,416
General and administrative expenses 203,482 62,474
Interest expense, net 14,026 6,932
--------- ---------
TOTAL OPERATING EXPENSES 748,184 374,822
--------- ---------
OPERATING LOSS BEFORE PROVISION
FOR INCOME TAXES (629,974) (210,732)
PROVISION FOR INCOME TAXES 669 950
--------- ---------
NET LOSS $(630,643) $(211,682)
========= =========
Net loss per common share, basic $(0.10) $(0.03)
Net loss per common share, assuming full dilution $(0.10) $(0.03)
Weighted average number of common shares
outstanding:
Basic 6,458,266 6,105,180
Assuming full dilution 6,458,266 6,105,180
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EXHIBIT "C"
FAMOUS FIXINS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(630,643) $(211,682)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash items:
Depreciation 2,317 1,261
Value of common stock issued for services
received by the Company 88,500
Value of warrants issued for services
received by the Company 176,173
Changes in working capital 40,457 54,916
Increase in security deposits (2,400)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (325,596) (155,505)
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payments for plant and equipment additions (8,936) (6,304)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 365,437
Proceeds of long-term debt 50,000
Repayments of long-term debt (9,315)
Proceeds (payments) of note payable to related party - net (62,958) 177,708
Increase (decrease) in stockholders' loans (11,154) 7,350
Costs incurred in connection with a securities offering
in progress (13,775)
Subscribers' deposits on common stock, net 12,500
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 344,510 171,283
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,978 9,474
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,522 48
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,500 $ 9,522
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EXHIBIT "D"
FAMOUS FIXINS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
TWO YEARS ENDED DECEMBER 31, 1998
<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, 1997 $ 610,518 $ 611 $ (611) $ - $ -
Retroactive recognition to January 1,
1997 of May 28, 1998 reorganization
(reverse acquisition - Note 1)
whereby 5,494,662 common
shares were issued in exchange
for 4,104,328 common shares of
the New York Subsidiary (22,309) 5,494,662 5,494 (4,484) (23,319)
Net loss for 1997 (211,682) (211,682)
--------- --------- ----- -------- --------- -----------
BALANCE - DECEMBER 31, 1997,
AS ADJUSTED (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
rendered 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)
========== ========= ====== ======== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 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. The 1997 financial statements have been restated to furnish
comparative information with the 1998 presentation.
F-8
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY
----------------------------------
The Company is a promoter and marketer of celebrity endorsed
food products. The Company currently has a line of Olympia Dukakis Greek
salad dressings, which are sold to supermarket chains in the northeast United
States. In addition, the Company also provides management and distribution
services for food products owned by other celebrities. The Company has
launched additional food product lines bearing other celebrity names in 1999.
In August 1998, the Company received approval to trade its
common shares on the "OTC Bulletin Board".
During 1998, the Company received capital of $492,637 in cash
and services (net of costs of $61,278) from securities offerings by issuing
778,711 shares of its common stock. In 1999, through June 30, 1999 the
Company has issued an additional 3,578,733 shares of common stock in exchange
for cash and services aggregating approximately $475,000 which as at June 30,
1999 (a) $294,000 was collected by the Company; (b) $60,000 is receivable
under a stock subscription agreement; and (c) $121,000 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 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, 1998
reflects deficiencies in working capital and 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 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-9
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
--------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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 measured at the grant date based on the fair value of the warrant
and is recognized over the service period, which is usually the contract
period. See Note 7.
REVENUE RECOGNITION
--------------------------------------------------
Revenue from sales of celebrity endorsed food products is
recorded at the time the goods are shipped, with appropriate provision for
uncollectible accounts.
ACCOUNTING CHANGE
-----------------
In 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income", which 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, 1998 and 1997,
the Company had no items of other comprehensive income and as a result, no
additional disclosure is included in the financial statements.
F-10
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
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 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,
1998, all cash balances are covered by such insurance.
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. ACCOUNTS RECEIVABLE
-------------------
The Company's customer base consists primarily of
supermarkets located in the northeast 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
1998, approximately 30% of the sales of the Company are 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, 1998.
F-11
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
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 $240,000 are available through December 31, 2018 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 sheet as at December 31,
1998 in connection with the Company's net operating losses inasmuch as a full
valuation allowance has been established by management.
NOTE 2. 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, 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-12
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 3. NOTE PAYABLE TO RELATED PARTY ($134,303)
----------------------------------------
The Company has entered into a promissory note and agreement with
a related party pursuant to which such party agreed to make loans and extend
credit to the Company up to the sum of $200,000. The promissory note
requires the Company to pay interest only, at a variable rate (currently 10%
per annum), with the unpaid principal balance due and payable on August 1,
1999. The proceeds of the loan were derived from borrowings by the related
party under an arrangement with its bank. The Company and the related party
have informally agreed that the Company will make monthly payments of
principal and interest equal to the amounts due by the related party to its
bank. Repayment of the Company's loan is guaranteed by certain stockholders
of the Company.
The promissory note shall become due on demand if the Company
violates any of the covenants contained in the promissory note agreement. As
at December 31, 1998, the Company is in violation of one such covenant (as
described in Note 1 in connection with going concern matters).
NOTE 4. LONG-TERM NOTE PAYABLE TO BANK
------------------------------
Pursuant to a business revolving credit agreement with The Chase
Manhattan Bank (Bank), the Bank agreed to make loans to the Company up to a
maximum credit line amount (currently $100,000). The Bank notifies the
Company as to the amount of the available credit line from time to time. The
Company may borrow from the Bank incremental principal amounts of at least
$2,500. Borrowings bear interest at the Bank's prime rate plus 1/2%.
Principal is payable in monthly installments equal to 1/36 of the outstanding
principal amount of the loan as of the date of the last loan made prior to
the date of such installment. Repayment of the Company's loan is guaranteed
by certain stockholders of the Company.
The outstanding balance of the long-term note payable to the Bank at
December 31, 1998 is summarized as follows:
Current installments due with one year $15,432
Installments due after one year 25,253
-------
TOTAL LONG-TERM NOTE PAYABLE TO BANK $40,685
=======
F-13
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 5. ADVERTISING
-----------
The Company expenses all advertising costs as incurred. See Note
2 for details of unused advertising barter credits of $50,000 included in
the accounts as a contra to stockholders' equity at December 31, 1998.
Advertising expense was $285,315 and $39,063 for the years ended December 31,
1998 and 1997, respectively.
NOTE 6. COMMITMENTS AND CONTINGENCIES
-----------------------------
LICENSING AGREEMENT
-------------------
The Company has a celebrity licensing agreement with a related
party which covers the worldwide sale of its current major merchandise
product line. The contract specifies that the Company shall pay license fees
to the issuer based upon collections on merchandise sales of certain
speciality food products. There are no minimum sales or license fee
guarantees. Provisions are included in the agreement for termination by
either party in certain events.
License fees are charged to operations upon sale of the related
food products. Total license fees expense was approximately $11,000 for the
year ended December 31, 1998.
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
------------ -------
1999 $14,400
2000 14,400
2001 4,800
-------
$33,600
=======
Rent expense charged to operations was approximately $8,000 for
the year ended December 31, 1998.
F-14
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------
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,
------------
1999 $ 7,342
2000 4,283
-------
TOTAL $11,625
=======
Total equipment lease expense charged to operations for the
year ended December 31, 1998 was approximately $7,300.
YEAR 2000 COMPLIANCE
--------------------
As the year 2000 approaches, the Company recognizes the need to
ensure its operations will not be adversely impacted by Year 2000 software
failures. The Company primarily uses licensed software products in its
operations with a significant portion of processes and transactions
centralized in one particular software package. During 1999, management
plans to upgrade its software so that the Company's accounting system will be
Year 2000 compliant. The cost of the upgrade is not expected to be material.
Also during 1999, attention will be focused on compliance attainment efforts
of vendors and others, including key system interfaces with customers and
suppliers. Although it is not possible to quantify the effects Year 2000
compliance issues will have on customers and suppliers, the Company does not
anticipate related material adverse effects on its financial condition or
results of operations.
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-15
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 7. COMMON STOCK AND OUTSTANDING WARRANTS
-------------------------------------
The Company has issued warrants to purchase shares of its common
stock to certain officers and nonemployees. The objective 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. Warrants outstanding have been granted at exercise prices ranging
from $.90 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:
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
============ ============
Weighted Average Fair Value of Options $ .90
Granted During 1998 ============
(*) 300,000 warrants are exercisable subject to conditions
of continued employment, at 60,000 warrants per year,
cumulatively, over a five year period, the initial
exercise date commencing in June 1999.
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 warrant. Such cost is recognized over the service period, which
is the contract period.
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 for the year
ended December 31, 1998 was $176,173.
F-16
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 7. COMMON STOCK AND OUTSTANDING WARRANTS (CONTINUED)
-------------------------------------
Subsequent to year end, the Company issued additional warrants
to purchase 1,980,000 shares of the Company's common stock. Such warrants are
issued in connection with services and consist of 480,000 warrants issued to
non-employees and 1,500,000 to the Company's chief executive officer.
Substantially all of the 480,000 non-employee warrants are for
a period of five years and are exercisable at amounts between $.15 and $1.00
per share, all of which expire by June 30, 2004. The 1,500,000 warrants
granted to the chief executive officer are 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 licensee
agreements or the achievement of specified levels of the Company's future
annual earnings determined before interest, taxes, depreciation and
amortization.
NOTE 8. 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 into common stock. Net loss and shares used
to compute net loss per share, basic and assuming full dilution, are
reconciled below:
1998 1997
---------- ----------
Net loss as reported $(630,643) $(211,682)
========= =========
Net loss, basic $(630,643) $(211,682)
Effect of dilutive securities, warrants
convertible to common stock (*) - -
--------- ---------
Net loss, assuming full dilution $(630,643) $(211,682)
========= =========
Weighted average number of common shares,
basic 6,458,266 6,105,180
Effect of dilutive securities, warrants
convertible to common stock (*) - -
--------- ---------
Common shares, assuming full dilution 6,458,266 6,105,180
========= =========
(*) No effect has been given to the conversion of warrants to
common stock inasmuch as such conversion would be anti-
dilutive.
F-17
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 9. 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,
---------------------
1998 1997
--------- --------
(Increase) decrease in assets:
Accounts receivable - net $ (194) $(13,419)
Merchandise inventory 33,766 (61,186)
Prepaid expenses 2,227 (2,227)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 4,179 129,959
Taxes payable - other than on income 479 1,164
Income taxes payable 625
--------- --------
NET CHANGES IN WORKING CAPITAL $ 40,457 $ 54,916
========= ========
Supplemental information about cash
payments is as follows:
Cash payments for interest $ 9,509 $ 6,110
Cash payments for income taxes $ 625 $ 325
Supplemental disclosure of noncash
financing activities:
Issuance of common stock in exchange for
legal services incurred in connection with
a securities offering in progress $ 1,000
Issuance of common stock in exchange for
plant and equipment acquired $ 3,475
F-18
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 10. EVENTS SUBSEQUENT
-----------------
Subsequent to these financial statements the Company entered into
several contracts with celebrity athletes and related entities which provide
for the Company to pay royalties ranging from 2.5% to 12.5% of sales of
endorsed food products. Furthermore, the contracts generally provide for the
Company to pay a proportion of the gross profits (ranging from 25% to 75%)
from the sale of merchandise offered on the Company's food product packages
or other promotional materials for its food products.
As additional compensation in connection with these contracts, the
Company issued 480,000 warrants to purchase shares of its common stock at
exercise prices ranging from $.15 to $1.00 per share. Certain of the
contracts call for minimum annual royalty amounts, which aggregate $125,000
in 1999 and $125,000 in 2000.
The Company also entered into an employment agreement with its
chief executive officer which provides for an annual compensation package,
life insurance, death benefits and stock warrants exercisable by the officer
based on the Company achieving certain targets over a five year period.
Exercise of the warrants may have a dilutive effect.
See Note 7 for particulars with regard to the aforementioned
warrants.
NOTE 11. 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, ACCOUNTS RECEIVABLE, NOTE PAYABLE TO
RELATED PARTY, ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
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 DEBT:
The fair value of the Company's long-term debt is deemed to be
substantially equal to the carrying value. The outstanding
amount is not significant and obtaining quoted fair values for
comparable financial instruments is impractical.
F-19
<PAGE>
FAMOUS FIXINS, INC.
INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
UNAUDITED
TABLE OF CONTENTS
-----------------
PAGE
----
FINANCIAL STATEMENTS:
EXHIBIT "A" - BALANCE SHEET (UNAUDITED) F2-2
EXHIBIT "B" - STATEMENT OF OPERATIONS (UNAUDITED) F2-4
EXHIBIT "C" - STATEMENT OF CASH FLOWS (UNAUDITED) F2-5
EXHIBIT "D" - STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED) F2-6
NOTES TO INTERIM FINANCIAL STATEMENTS F2-7
F2-1
<PAGE>
FAMOUS FIXINS, INC.
INTERIM BALANCE SHEET
(UNAUDITED)
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
A S S E T S
-----------
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 343,648 $ 30,919
Accounts receivable 641,000 50,301
Merchandise inventory 79,868 46,342
Prepaid expenses 24,307
---------- --------
TOTAL CURRENT ASSETS 1,088,823 127,562
---------- --------
PLANT AND EQUIPMENT
- -------------------
Furniture and fixtures 9,309 2,475
Machinery and equipment 9,406 9,406
---------- --------
18,715 11,881
Less: Accumulated depreciation 5,940 2,999
---------- --------
NET PLANT AND EQUIPMENT 12,775 8,882
---------- --------
OTHER ASSETS
- ------------
Security deposits 2,400 2,400
---------- -------
$1,103,998 $138,844
========== ========
</TABLE>
See accompanying notes to financial statements.
F2-2
<PAGE>
EXHIBIT "A"
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------
CURRENT LIABILITIES
- -------------------
Current installments of long-term note payable to bank $ 16,893 $ 16,920
Accounts payable and accrued expenses 772,121 131,855
Taxes payable - other than on income 3,165 2,217
Income taxes payable 625 -
Note payable to related party - 145,734
---------- ---------
TOTAL CURRENT LIABILITIES 792,804 297,351
---------- ---------
LONG-TERM LIABILITY
- -------------------
Long-term note payable to bank, net of current installments 22,247 28,852
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
- --------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
10,462,624 shares in 1999; 6,633,891 shares in 1998 10,462 6,633
Additional paid-in capital 1,357,299 603,314
Accumulated deficit (975,064) (747,306)
---------- ---------
392,697 (137,359)
Less: Common stock subscription receivable (53,750) -
Unused advertising barter credits (50,000) (50,000)
---------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 288,947 (187,359)
---------- ---------
$1,103,998 $ 138,844
========== =========
</TABLE>
See accompanying notes to financial statements.
F2-3
<PAGE>
EXHIBIT "B"
FAMOUS FIXINS, INC.
INTERIM STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $2,178,859 $ 255,774 $ 981,673 $ 64,205
---------- ---------- ---------- ---------
COST OF GOODS SOLD
- ------------------
Merchandise inventory at beginning of period 27,420 61,186 71,545 49,324
Purchases 1,194,682 154,878 530,874 51,869
Other direct costs 95,241 2,956 26,107 -
---------- ---------- ---------- ---------
1,317,343 219,020 628,526 101,193
Less: Merchandise inventory at end
of period 79,868 46,342 79,868 46,342
---------- ---------- ---------- ---------
TOTAL COST OF GOODS SOLD 1,237,475 172,678 548,658 54,851
---------- ---------- ---------- ---------
GROSS PROFIT ON SALES 941,384 83,096 433,015 9,354
OTHER INCOME - Management
and distribution services - 29,176 - 14,176
---------- ---------- ---------- ---------
TOTAL INCOME 941,384 112,272 433,015 23,530
---------- ---------- ---------- ---------
OPERATING EXPENSES
- ------------------
Selling expenses 663,764 474,112 234,566 172,815
General and administrative expenses 380,489 140,743 157,386 57,712
Interest expense, net 5,217 9,053 1,815 1,146
---------- ---------- ---------- ---------
TOTAL OPERATING EXPENSES 1,049,470 623,908 393,767 231,673
---------- ---------- ---------- ---------
OPERATING INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (108,086) (511,636) 39,248 (208,143)
PROVISION FOR INCOME TAXES 1,334 669 - 44
---------- ---------- ---------- ---------
NET INCOME (LOSS) $ (109,420) $ (512,305) $ 39,248 $(208,187)
========== ========== ========== =========
Net income (loss) per common share, basic $(0.011) $(0.080) $0.004 $(0.031)
Net income (loss) per common share,
assuming full dilution $(0.010) $(0.080) $0.003 $(0.031)
Weighted average number of common shares
outstanding:
Basic 10,042,183 6,371,947 10,462,624 6,632,724
Assuming full dilution 10,683,401 6,374,443 11,477,963 6,637,219
</TABLE>
See accompanying notes to financial statements.
F2-4
<PAGE>
EXHIBIT "C"
FAMOUS FIXINS, INC.
INTERIM STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (109,420) $(512,305)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Noncash items:
Depreciation 2,362 1,738
Value of common stock issued for services
received by the Company 71,826 88,500
Value of warrants issued for services received
by the Company 222,131 153,800
(Increase) decrease in assets:
Accounts receivable (627,387) (36,882)
Merchandise inventory (52,448) 14,844
Prepaid expenses and other current assets 25,693 2,227
Increase in security deposits - (2,400)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 637,983 1,896
Taxes payable - other than on income 1,522 1,053
---------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 172,262 (287,529)
---------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payments for plant and equipment additions - (2,102)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 287,734 327,937
Proceeds of long-term debt 35,000 -
Repayments of long-term debt (36,545) -
Payments of note payable to related party (134,303) (5,755)
Decrease in stockholders' loans - (11,154)
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 151,886 311,028
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 324,148 21,397
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,500 9,522
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 343,648 $ 30,919
========== =========
Supplemental information about cash payments is as follows:
Cash payments for interest $ 12,230 $ 8,844
Cash payments for income taxes $ 625 $ 625
Supplemental disclosure of noncash financing activities:
Common stock subscription received for common shares issued $ 53,750 $ -
Issuance of common stock in exchange for plant and equipment
acquired $ - $ 3,475
</TABLE>
See accompanying notes to financial statements.
F2-5
<PAGE>
EXHIBIT "D"
FAMOUS FIXINS, INC.
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
ADDITIONAL UNUSED
PAID-IN COMMON STOCK ADVERTISING
COMMON STOCK CAPITAL ACCUMULATED SUBSCRIPTION BARTER
TOTAL SHARES AMOUNT (DEFICIT) DEFICIT RECEIVABLE CREDITS
--------- ---------- ---------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1999
- ------------------------------------
BALANCE (DEFICIT), JANUARY 1, 1999 $(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 300,234 2,433,233 2,433 351,551 - (53,750)
Issuance of common shares for
services received 121,826 1,145,500 1,146 120,680 - -
Issuance of warrants for
services received 222,131 - - 222,131 - -
Net loss - nine months ended
September 30, 1999 (109,420) - - - (109,420) -
--------- ---------- ---------- ---------- ----------- ----------- -----------
BALANCE - SEPTEMBER 30, 1999 $ 288,947 10,462,624 $ 10,462 $1,357,299 $ (975,064) $ (53,750) $ (50,000)
========= ========== ========== ========== =========== =========== ===========
NINE MONTHS ENDED SEPTEMBER 30, 1998
- ------------------------------------
BALANCE (DEFICIT) - 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 in a
securities offering in
July 1998 - net 210,897 255,000 255 210,642
Issuance of common shares for goods
and services received 91,975 141,000 140 141,835 (50,000)
Issuance of warrants for services
received 153,800 153,800
Net loss - Nine months ended
September 30, 1998 (512,305) (512,305)
--------- ---------- ---------- ---------- ----------- ----------- -----------
BALANCE (DEFICIT) - SEPTEMBER 30, 1998 $(187,359) 6,633,891 $ 6,633 $ 603,314 $ (747,306) $ $ (50,000)
========= ========== ========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F2-6
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
NOTE 1. STATEMENT OF INFORMATION FURNISHED
----------------------------------
The accompanying unaudited interim financial statements have been
prepared in accordance with Form SB-2 instructions and in the opinion of
management contains all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of Famous
Fixins, Inc. as of September 30, 1999, the results of operations for the nine
and three months ended September 30, 1999, and the statements of cash flows
and stockholders' equity for the nine months ended September 30, 1999. These
results have been determined on the basis of generally accepted accounting
principles and practices and applied consistently with those used in the
preparation of the Company's 1998 financial statements.
Certain information and footnote disclosures normally included in
the financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
the accompanying financial statements be read in conjunction with the
financial statements and notes thereto incorporated by reference in the
Company's 1998 financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY
----------------------------------
The Company is a promoter and marketer of celebrity endorsed
food products and related merchandise. In April 1999, the Company introduced
its cereal product lines which currently include those bearing the likenesses,
names and endorsements of: Cal Ripken, Jr.; Sammy Sosa; Jeff Bagwell, Ken
Caminiti and Craig Biggio; Alex Rodriguez; The New York Mets; Barry Bonds;
Jake Plummer; and, of several other celebrity athletes as to whom contracts
have been signed and additional product lines are in various stages of
development, including Derek Jeter, Alonzo Mourning, and Tim Duncan. In
addition, the Company continues to distribute the Olympia Dukakis Greek salad
dressings line. These products are sold directly by the Company, and also
through distribution agreements with third parties, to supermarket chains in
various parts of the United States.
In August 1998, the Company received approval to trade its
common shares on the "OTC Bulletin Board".
In 1999, the Company has issued an additional 3,578,733 shares
of common stock in exchange for cash and services aggregating $475,810 which
as at September 30, 1999 (a) $300,234 was collected by the Company; (b)
$53,750 is receivable under a stock subscription agreement; and (c) $121,826
has been provided in various services. The offerings are pursuant to the
exemptions from registration with the Securities and Exchange Commission (SEC)
provided by Section 4(2) of the Securities Act of 1933, as amended, the rules
and regulations promulgated thereunder, including Regulation D, and under
applicable state laws, rules and regulations.
The Company accounts for warrants issued to purchase common
shares in connection with services rendered to the Company using the fair
value method prescribed in SFAS NO. 123 "Accounting for Stock-Based
Compensation". Stock-based compensation cost charged to operations for the
nine months ended September 30, 1999 was $222,131.
F2-7
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
--------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
MERCHANDISE INVENTORY
---------------------
Merchandise inventory is stated at the lower of cost or market
value on a first-in, first-out basis.
PLANT AND EQUIPMENT
-------------------
Plant and equipment are stated at cost, less accumulated
depreciation. The cost of major improvements and betterments to existing
plant and equipment are capitalized, while maintenance and repairs are
charged to expense when incurred. Upon retirement or other disposal of plant
and equipment, the profit realized or loss sustained on such transaction is
reflected in income. Depreciation is computed on the cost of plant and
equipment on the straight-line method, based upon the estimated useful lives
of the assets.
EARNINGS PER SHARE
------------------
In accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", basic earnings
per share is computed by dividing net income or loss by the number of
weighted-average common shares outstanding during the period. Earnings per
share, assuming dilution, is computed by dividing net income or loss by the
number of weighted-average common shares and common stock equivalents
outstanding during the period.
F2-8
<PAGE>
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
NOTE 3. SUBSEQUENT EVENTS
-----------------
As of October 19, 1999, the Company entered into two Convertible
Debenture and Warrants Purchase Agreements pursuant to which certain
investors agreed to purchase (a) an aggregate of $550,000 principal amount of
5% Convertible Debentures (Debentures), convertible into common stock, due
October 19, 2002 and (b) Warrants to purchase shares of the Company's common
stock.
At the initial closing date, the Company received an aggregate of
$450,000 in connection with the sale of $450,000 principal amount of
Convertible Debentures. A second closing date for the sale of the remaining
$100,000 of Debentures is subject to the effective date of a registration
statement described in the agreements and other conditions.
In accordance with the agreements, the Company issued an aggregate
of 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
Debentures include an option by the Company to exchange the Debentures for
Convertible Preferred Stock.
F2-9
<PAGE>
===============================================================================
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.
3,546,149 shares of common stock
(consisting of: 3,206,997 shares of common stock underlying
convertible debentures and 339,152 shares of common stock
underlying warrants)
PROSPECTUS
February 3, 2000
<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..........................................$ 338.14
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...................................................$15,338.14
=========
<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.
<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 five percent convertible debentures and warrants to purchase
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 $450,000, and an additional $100,000 which is due five days
after this registration statement is declared effective. 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. Pursuant to the
agreements and receipt of gross proceeds of $450,000, we issued 139,152
warrants, 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 a subsequent closing for the $100,000, we intend to issue
$100,000 principal amount of five percent convertible debentures. We are
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 at our expense.
<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.
4.5* Convertible Debenture and Warrants Purchase Agreement between
Famous Fixins, Inc. and Austost Anstalt Schaan and Balmore
Funds, S.A.
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 between Famous Fixins, Inc. and Olympia Dukakis
10.4* Marketing Agreement between Crown Prince, Inc. and Famous Fixins,
Inc.
10.5* License Agreement between The Tufton Group and Famous Fixins, Inc.
10.6* License Agreement between Major League Baseball Properties, Inc.
and Famous Fixins, Inc.
10.7* License Agreement between Famous Fixins, Inc. and IMS and KKSM
F/S/O Sammy Sosa
10.9* License Agreement between Famous Fixins, Inc. and Ken Caminiti,
Craig Biggio and Jeff Bagwell
10.10* License Agreement between Famous Fixins, Inc. and Turn 2, Inc.
10.11* License Agreement between Famous Fixins, Inc. and Jake "The
Snake" Enterprises
10.12* License Agreement between Famous Fixins, Inc. and Pey Dirt, Inc.
10.13* License Agreement between Famous Fixins, Inc. and Alonzo Mourning
10.14* Promotional License Agreement between Famous Fixins, Inc. and
Major League baseball Players Association
10.15* Major League Baseball Properties, Inc. License Agreement
10.16* License Agreement between Famous Fixins, Inc. and Tim Duncan
10.17* Promotion Agreement between Famous Fixins, Inc. and Sterling
Doubleday Enterprises, L.P.
10.18* Financial Consulting Agreement between Famous Fixins, Inc. and
First Atlanta Securities, LLC
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.
** 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, as amended, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 3, 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, as amended, 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, February 3, 2000
- ---------------------- Treasurer and Chief Executive
Jason Bauer Officer
/s/ Peter Zorich Vice President, Secretary, February 3, 2000
- ---------------------- and Director
Peter Zorich
/s/ Michael Simon Vice President and Director February 3, 2000
- ----------------------
Michael Simon
</TABLE>
February 3, 2000
Famous Fixins, Inc.
250 West 57th Street, Suite 1112
New York, New York 10107
Ladies and Gentlemen:
We have acted as counsel to Famous Fixins, Inc., a New York
corporation (the "Company"), in connection with the registration of
shares of the Company's common stock, par value $.001 per share (the
"Shares") issuable upon (i) the conversion of debentures, which number of
common stock is indeterminable but estimated at up to 3,206,997 for purpose
of this registration statement (the "Conversion Shares") and (ii) the exercise
of 339,152 warrants to purchase 339,152 shares of common stock (the "Warrant
Shares"), pursuant to a Registration Statement on Form SB-2 (the "Registration
Statement"), to be filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, on or about the date of this letter. Such
Shares will be sold from time to time by the selling stockholders named in the
Registration Statement (the "Selling Stockholders").
As counsel for the Company, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials and other instruments as
we have deemed necessary for the purposes of rendering this opinion. In our
examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies. As to various
questions of fact material to such opinion, we have relied, to the extent we
deemed appropriate, upon representations, statements and certificates of
officers and representatives of the Company and others.
Based upon the foregoing, we are of the opinion that:
(1) when issued upon conversion of, or as interest on, the
convertible debentures, the Conversion Shares will be
validly issued, fully paid and nonassessable;
(2) when issued and paid for upon exercise of warrants, in
accordance with the terms and conditions of the warrants,
the Warrant Shares will be validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and we consent to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
/s/ Law Offices of Dan Brecher
Law Offices of Dan Brecher
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the inclusion in the Registration Statement on Form
SB-2, as amended, of Famous Fixins, Inc., of our report dated July 29, 1999
relating to the financial statements of Famous Fixins, Inc. for the year
ended December 31, 1998. We also hereby consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ Freeman and Davis LLP
FREEMAN AND DAVIS LLP
New York, New York
February 3, 2000
