FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission File Number 0-24829
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FTS APPAREL, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1416864
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
212 North Wahsatch, Suite 205, Colorado Springs, CO 80903
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(Address of principal executive office) (Zip Code)
(719) 630-0980
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The number of shares outstanding of each of Issuer's classes of common equity as
of November 13, 2000.
Common Stock, par value $.001 7,795,863
----------------------------- ------------------
Title of Class Number of Shares
Transitional Small Business Disclosure Format Yes No X
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FTS Apparel, Inc.
Index
Part I
Item 1. Financial Statements
Balance Sheet as of September 30, 2000 (unaudited) 1
Statements of Operations for the Three and Nine Months Ended
September 30, 2000 and 1999 2
Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 3
Notes to Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 6
Part II
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
ii
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FTS APPAREL, INC.
BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 249,938
Accounts receivable 981,912
Inventory 388,755
Prepaid expenses 412,686
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Total current assets 2,033,291
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PROPERTY AND EQUIPMENT, net of depreciation 57,306
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OTHER ASSETS
Prepaid rent 123,994
Prepaid personal services and expenses 210,543
Deposits 13,033
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Total other assets 347,570
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$ 2,438,167
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 160,563
Accrued expenses 27,146
Deferred income - trade agreements 7,188
Note payable 599,558
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Total current liabilities 794,455
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STOCKHOLDERS' EQUITY
10% Convertible preferred stock, Series A,
$0.01 par value, 150,000 shares authorized,
50,000 shares issued and outstanding 50,000
Preferred stock, $0.01 par value, 4,850,000
undesignated shares authorized, none issued
or outstanding -
Common stock, $0.001 par value, 25,000,000 shares
authorized, 7,795,863 shares issued
and outstanding 7,796
Additional paid in capital 4,258,653
Accumulated deficit (2,672,737)
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Total stockholders' equity 1,643,712
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$ 2,438,167
=================
The Notes to the Financial Statements are an integral part of these statements
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<TABLE>
FTS APPAREL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- --------------------------------
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 2000 30, 1999 30, 2000 30, 1999
--------------- --------------- ---------------- ---------------
REVENUES
<S> <C> <C> <C> <C>
Sales of merchandise, net of returns and allowances $ 1,089,184 $ 97,424 $ 1,221,940 $ 136,614
Advertising/Promotion income - - - 17,500
Trade agreements 3,430 23,830 29,390 53,473
Miscellaneous 127 10 170 1,530
--------------- --------------- ---------------- ---------------
1,092,741 121,264 1,251,500 209,117
--------------- --------------- ---------------- ---------------
COST OF GOODS SOLD 772,967 62,461 877,829 85,930
--------------- --------------- ---------------- ---------------
GROSS PROFIT 319,774 58,803 373,671 123,187
--------------- --------------- ---------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES 469,965 327,628 1,292,752 755,955
LOSS ON DISPOSAL OF ASSETS 2,849 - 2,849 -
--------------- --------------- ---------------- ---------------
(LOSS) FROM OPERATIONS (153,040) (268,825) (921,930) (632,768)
--------------- --------------- ---------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 4,654 1,069 8,772 6,371
Interest expense (9,663) (13) (12,514) (16)
--------------- --------------- ---------------- ---------------
(5,009) 1,056 (3,742) 6,355
--------------- --------------- ---------------- ---------------
NET (LOSS) (158,049) (267,769) (925,672) (626,413)
PREFERRED DIVIDENDS - - - -
--------------- --------------- ---------------- ---------------
NET (LOSS) APPLICABLE TO COMMON STOCK $ (158,049) $ (267,769) $ (925,672) $ (626,413)
=============== =============== ================ ===============
PER SHARE INFORMATION:
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED) 7,782,038 3,778,163 6,320,137 3,725,376
=============== =============== ================ ===============
NET (LOSS) PER COMMON SHARE (BASIC AND DILUTED) $ (0.02) $ (0.07) $ (0.15) $ (0.17)
=============== =============== ================ ===============
</TABLE>
The Notes to the Financial Statements are an integral part of these statements
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<TABLE>
FTS APPAREL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 2000 30, 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net cash flow from operating activities $ (1,324,631) $ (514,451)
INVESTING ACTIVITIES
Acquisition of fixed assets (44,074) (25,696)
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Net cash (used in) investing activities (44,074) (25,696)
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FINANCING ACTIVITIES
Common stock issued, net of offering costs 1,000,000 496,434
Preferred stock issued - -
Proceeds from note payable 78,393 -
Repayment of notes payable (64,995) -
Proceeds from line of credit 839,370 -
Repayment on line of credit (239,812) -
Preferred dividends paid - -
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Net cash provided by financing activities 1,612,956 496,434
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Net increase (decrease) in cash 244,251 (43,713)
CASH AT BEGINNING OF PERIOD 5,687 101,716
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CASH AT END OF PERIOD $ 249,938 $ 58,003
============= =============
Non-cash investing and financing transactions:
Common stock issued in conversion of notes: $ 55,398 $ -
Common stock issued in consideration of services rendered: $ 1,306,025 $ -
</TABLE>
The Notes to the Financial Statements are an integral part of these statements
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FTS APPAREL, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
(1) Basis Of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for
interim financial information and Item 310(b) of Regulation S-B. They do
not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. For further information, refer to
the audited financial statements of the Company as of December 31, 1999 and
for the two years then ended, including notes thereto, included in the
Company's Form 10-KSB.
The Company was a development stage company from inception through June 30,
2000. Effective July 1, 2000 the Company began operating as a fully
operating company.
(2) Earnings Per Share
The Company calculates net income (loss) per share as required by SFAS No.
128, "Earnings per Share." Basic earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share is calculated
by dividing net income (loss) by the weighted average number of common
shares and dilutive common stock equivalents outstanding. During the
periods presented, common stock equivalents were not considered as their
effect would be anti-dilutive
(3) Inventory
Inventories are stated at the lower of cost or market using the weighted
average method.
(4) Equity
The Company has authorized 30,000,000 shares of stock, of which 25,000,000
shares are $.001 par value common stock and 5,000,000 shares are $.01 par
value preferred stock. The Board of Directors is authorized to divide the
class of preferred shares into series and to fix and determine the relative
rights and preferences of those shares.
During the three month period ended March 31, 2000, the Company issued
133,535 shares of common stock at prices ranging from $.75 to $1.38 per
share for services. The value of the common shares corresponds to the fair
market value of the common stock on the date it was agreed to issue said
shares. The value of the shares was recorded as prepaid services and will
be charged to operations over the lives of the related agreements.
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During April, 2000 the Company issued 3,594,256 shares of its common stock
for cash of $1,000,000, rent for a two year tenancy of office space valued
at $193,744, office equipment valued at $32,192, and consulting services
for one year valued at $766,708 or approximately $0.55 per share. These
shares were valued by the Company at a negotiated discount price from the
trading price of $.75 per share at the date of the transaction, due to the
significant financial investment made, the thinly traded market for the
Company's stock, and the fact that the stock was restricted from resale at
the time of purchase. The value of the shares exchanged for rent and
consulting services will be charged to operations over the lives of the
related agreements.
During the three month period ended June 30, 2000, the Company issued
97,815 shares of common stock at prices ranging from $0.75 to $1.25 per
share for services. The value of the common shares corresponds to the fair
market value of the common stock on the date it was agreed to issue said
shares. The value of the shares was recorded as prepaid services and will
be charged to operations over the lives of the related agreements.
During the three month period ended September 30, 2000, the Company issued
50,535 shares of common stock at prices ranging from $0.51 to $0.82 per
share for services. The value of the common shares corresponds to the fair
market value of the common stock on the date it was agreed to issue said
shares. The value of the shares was recorded as prepaid services and will
be charged to operations over the lives of the related agreements.
(5) Related Party Transactions
The Company paid the outstanding balances of several promissory note
agreements with two members of the board of directors. Total amount paid
for principal and interest was $49,872.
(6) Product Concentration
The Company currently derives a majority of its merchandise revenue from
one customer. The Company expects that merchandise revenues to this vendor
will continue to account for the majority of the Company's merchandise
revenues for the foreseeable future. As a result, the Company's future
operating results are dependent upon continued acceptance of its
merchandise by this customers.
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Item 2. Management's Discussion and Analysis or Plan of Operations.
The following discussion and analysis covers material changes in the
Company's financial condition since December 31, 1999 and material changes in
the results of operations for the three and nine months ended September 30,
2000, as compared to the same periods in 1999. This discussion and analysis
should be read in conjunction with "Management's Discussion and Analysis and
Results of Operations" included in the Company's Form 10-KSB for the year ended
December 31, 1999.
Results of Operations
During the quarter ended September 30, 2000 and for the first time in its
history, FTS Apparel, Inc. (the "Company") realized significant revenue from
operations, and is no longer considered in the development stage for accounting
purposes. For the three months ended September 30, 2000, the Company recognized
total revenue of $1,092,741, an increase of $971,477 from the comparable period
of 1999. Nonetheless, the Company still realized a net loss of $158,049 for the
third quarter of 2000, as the gross profit from sales was insufficient to cover
general and administrative expenses. However, the net loss for the third quarter
of 2000 represents a decrease from the net loss of the third quarter of 1999 by
$109,720. For the nine months ended September 30, 2000, the Company realized a
net loss of $925,672, or $.15 per share, on total revenues of $1,251,500. This
compares to a net loss of $626,413, or $.17 per share, on total revenues of
$209,117 for the nine months ended September 30, 1999.
Revenue and gross profit for the three and nine month periods ended
September 30, 2000 increased significantly compared to the three and nine month
periods ended September 30, 1999. During 2000, revenue increased due to sales of
the fall line of merchandise, primarily to JC Penney Co. These increased sales
resulted in a revenue increase of $971,477 in the third quarter of 2000 from the
same fiscal quarter in the prior year. A small amount of the revenues during the
third quarter of 2000 were also realized from trade agreements, where the
Company trades the services of its contract athletes for services or merchandise
from third parties.
The gross profit increased significantly from the third quarter of 1999 to
2000, commensurate with the increase in sales. The gross profit of $319,774 for
the third quarter of 2000 was 29% of revenue, compared to $58,803, or 48% for
the comparable period of 1999. The decrease in the profit margin from 1999 to
2000 is attributable to the shift in product mix to higher quality merchandise
and the commensurately higher costs of production. Management expects that the
focus on higher quality merchandise will continue for the future.
The Company's gross profit during the third quarter of 2000 was still
insufficient to finance general and administrative expenses. These expenses for
the three months ended September 30, 2000 were $469,965, an increase of $142,337
from the comparable period of 1999. Similar expenses for the nine months ended
September 30, 2000 were $1,292,752, an increase of approximately $500,000 from
the nine months ended September 30, 1999. While certain expenses such as
advertising decreased in the nine month period ended 2000, other expenses such
as consulting fees, salaries and professional fees increased. The increase in
general and administrative expenses is primarily attributable to the additional
staff which has been hired to support the increase in sales.
During the third quarter 2000, the Company issued an aggregate of 50,535
shares of its common stock at prices ranging from $.51 to $.82 for services.
These stock issuances for services are reflected as a non-cash expense to the
Company.
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Management believes the Company's products are continuing to gain
marketplace acceptance and has increased the regional coverage of its product
distribution. Initially the Company's sales outlets were primarily in the
western states, however subsequent to the third quarter of 2000, the Company has
added sales outlets in several north-eastern and upper mid-western states.
Orders of the Company's excess fall 1999 and 2000 inventory were recently
shipped to 61 Elder-Beerman stores located in the upper mid-west. The Company
posted sales for a sizable order in the third quarter of 2000 to JC Penney Co.
However, management is of the opinion that the Company will continue to incur
losses until such time as the sale of its merchandise results in a sufficient
profit margin to cover general, administrative and other expenses.
Liquidity and Capital Resources
The Company's financial condition improved significantly from fiscal
quarter end June 30, 2000 and December 31, 1999. At September 30, 2000, the
Company had working capital of $1,238,836, an increase of $929,413 from the
prior fiscal year end. Current assets increased $1,584,867 from fiscal year end.
Accounts receivable showed the biggest increase in current assets, increasing
$899,463 from year end. This increase is due to the substantial increase in
sales realized by the Company in the third quarter. Cash also increased
substantially, primarily the result of a private placement of equity in the
second quarter. Inventory also increased by $226,976 and prepaid expenses
increased by $214,177 during this period. The increase in inventory is designed
to address expectations of higher sales in the current year.
The Company's total current liabilities also increased $655,454 from
December 31, 1999 to September 30, 2000. At fiscal year end 1999, liabilities
were $139,001, which increased to $794,455 at end of third quarter 2000.
Approximately $600,000 of this liability at September 30, 2000 is represented by
notes payable, which is represented by draws on the Company's line of credit
with Bank One. The entire line of credit was repaid subsequent to September 30,
2000.
Shareholders' equity increased significantly from year end to September 30,
2000, from $332,919 to $1,643,712. However, the number of shares outstanding
also significantly increased, from 3,939,722 at year end 1999 to 7,795,863
shares at September 30, 2000. A majority of these shares were issued in the
private placement in the second quarter.
Based upon the cash and working capital existing at September 30, 2000, as
well as current commitments, management believes that the Company has sufficient
working capital to meet its cash requirements until the end of this year.
However, the Company may require additional cash in 2001 to continue its
operations. The Company may have to raise additional cash from outside sources.
The Company anticipates renewing its line of credit for future orders. If the
line of credit is not renewed, the Company may be forced to borrow elsewhere or
sell equity securities to raise cash for inventory, to finance accounts
receivable and for general and administrative expenses.
Management is of the opinion that the Company remains dependent on receipt
of capital from outside sources to become profitable.
Cautionary Note Regarding Forward-Looking Statements
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally, whether in presentations, in
response to questions or otherwise. Factors that could cause actual results to
differ materially include, among others, the following: acceptability of the
Company's products in the retail market place, general economic conditions, and
the overall state of the retail clothing industry. Most of these factors are
7
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outside the control of the Company. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "will result", "are expected to", "will continue", "is
anticipated", "estimated", "projection" and "outlook") are not historical facts
and may be forward-looking and, accordingly, such statements involve estimates,
assumptions, and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements.
The Company cautions that actual results or outcomes could differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. Any forward-looking statement speaks only as of the date
on which such statement is made, and the Company undertakes no obligation to
update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for management to predict all of such factors. Further,
management cannot assess the impact of each such factor on the business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
8
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Part II: Other Information
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other information
None
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
27.1 Financial Data Schedule
B. Reports on Form 8-K
The Company filed a Current Report dated August 23, 2000
reporting a change of its name to FTS Apparel, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FULL TILT SPORTS, INC.
Date: November 13, 2000 By: /s/ Roger K. Burnett
---------------------------
Roger K. Burnett, President
(Principal Financial Officer)
