<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended April 3, 1999.
[ ] 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 333-61119-05
FANTASMA, LLC
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-3340245
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 GEORGE WASHINGTON HIGHWAY
SMITHFIELD, RI 02917
(Address of principal executive offices) (Zip code)
(410)231-3800
(Registrant's telephone number, including area code)
Indicate by checkmark 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: [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
TITLE OF EACH CLASS OUTSTANDING AT MAY 18, 1999
------------------- ---------------------------
None None
The registrant meets the conditions set forth in General Instruction H of Form
10-Q, as modified by grants of non-action relief to the registrant and unrelated
third parties, and is therefore filing this form with the reduced disclosure
format.
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FANTASMA, LLC
PART I. - FINANCIAL INFORMATION PAGE
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheets as of January 2, 1999 and
April 3, 1999 3
Condensed Statements of Operations for the three
months ended April 4, 1998 and April 3, 1999 4
Condensed Statements of Cash Flows for the three
months ended April 4, 1998 and April 3, 1999 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 2. Changes in Securities and Use of Proceeds 10
ITEM 3. Defaults Upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 12
2
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Fantasma, LLC
(A Mostly Owned Subsidiary of AAI.FosterGrant, Inc.)
Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
ASSETS
JANUARY 2, APRIL 3,
1999 1999
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 104 $ 12
Accounts receivable less reserves of approximately $373 and $532 5,088 1,896
Inventories 3,878 3,599
Prepaid expenses and other current assets 203 267
------- -------
Total current assets 9,273 5,774
------- -------
Property and equipment, net 24 21
Other assets, net 4,357 4,254
------- -------
Total assets $13,654 $10,049
======= =======
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Note payable to member $ 7,088 $ 5,946
Accounts payable and accrued liabilities 1,960 452
------- -------
Total current liabilities 9,048 6,398
Members' Equity 4,606 3,651
------- -------
Total liabilities and members' equity $13,654 $10,049
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
3
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Fantasma, LLC
(A Mostly Owned Subsidiary of AAI.FosterGrant, Inc.)
Condensed Statements of Operations
(In thousands)
THREE MONTHS ENDED
APRIL 4, APRIL 3,
1998 1999
(Unaudited)
NET SALES $3,031 $1,677
COST OF GOODS SOLD 1,672 1,532
------ ------
Gross profit 1,359 145
OPERATING EXPENSES:
Selling 648 686
General and administrative 591 360
------ ------
Income (loss) from operations 120 (901)
Interest expense (103) (84)
Other income, net -- 30
------ ------
Net income (loss) $ 17 $ (955)
====== ======
The accompanying notes are an integral part of these condensed financial
statements.
4
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Fantasma, LLC
(A Mostly Owned Subsidiary of AAI.FosterGrant, Inc.)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 4, APRIL 3,
1998 1999
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 17 $ (955)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 4 119
Changes in assets and liabilities -
Accounts receivable 2,469 3,192
Inventories 64 279
Prepaid expenses and other current assets (32) (64)
Accounts payable and accrued expenses (1,070) (1,508)
------- -------
Net cash provided by operating activities 1,452 1,063
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets -- (13)
Purchases of property and equipment (2) --
------- -------
Net cash used in investing activities (2) (13)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under note payable to member (3,764) --
Advances payable to member 2,076 (1,142)
------- -------
Net cash used in financing activities (1,688) (1,142)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(238) (92)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 238 104
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ 12
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 360 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
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FANTASMA, LLC
NOTES TO FINANCIAL STATEMENTS
Note 1 - Significant Accounting Policies
(a) Interim Condensed Financial Statements
The accompanying unaudited interim condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) for reporting on Form 10-Q.
Accordingly, certain information and footnote disclosure required for complete
financial statements are not included herein. It is recommended that these
financial statements be read in conjunction with the consolidated financial
statements and related notes of AAi.FosterGrant, Inc. ("AAi" or the "Company")
and Fantasma LLC for the year ended January 2, 1999 as reported in the Company's
Form 10-K filed with the SEC on April 2, 1999. In the opinion of management, all
adjustments (consisting of normal, recurring adjustments) considered necessary
for a fair presentation of financial position, results of operations and cash
flows at the dates and for the periods presented have been included. The
consolidated condensed balance sheet presented as of January 2, 1999 has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The results of operations for the
period ended April 3, 1999 may not be indicative of the results that may be
expected for the year ending January 1, 2000 or for any other future period.
(b) Organization and Business Activity
Fantasma LLC (Fantasma) was organized under the laws of the State of
Delaware on August 22, 1996 and began business operations on September 1, 1996.
Fantasma imports and wholesales licensed watches, clocks, and other novelties;
and grants credit to customers located throughout the United States.
Prior to September 1, 1996, Fantasma operated as a division of
Overdrive Capital Corp. (formerly known as Good Stuff Corp.). Overdrive Capital
Corp. (Overdrive) sold the division's operating assets to Fantasma LLC in
exchange for a two-year, $3,764,366 note. Overdrive maintained a 67% ownership
interest in Fantasma, with a former stockholder of Overdrive holding a 33%
ownership interest.
In June 1998, AAi acquired an 80% interest in Fantasma for
approximately $4.1 million in cash. The remaining 20% interest in Fantasma is
held by a previous member of Fantasma. As a result of the termination of the
employment of this member in April 1999, the Company has the obligation to
repurchase this interest for nominal consideration. Another employee of Fantasma
has options to acquire up to a 2% interest in Fantasma and up to an additional
2% interest if certain earnings targets for Fantasma are met in 1999 and 2000.
As of April
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FANTASMA, LLC
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3, 1999, the exercise price of options to purchase member interests in Fantasma
was equal to or greater than the fair market value; therefore no expense was
recorded.
(c) Inventory
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of finished goods for all years presented. Finished goods
inventory consists of material and overhead.
(d) Income Taxes
Fantasma is treated as a partnership for federal and state income tax
purposes, whereby the membership owners are taxed on their proportionate share
of Fantasma's income. As a result, Fantasma has not provided for Federal income
taxes. The provision for income taxes, if any, reflects New York City
unincorporated Business Tax and New York State filing fees.
Note 2 - Comprehensive Income
Comprehensive net income was the same as net income for the periods
presented.
NOTE 3 - Segment Reporting
Fantasma has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, in the 1998 fiscal year. SFAS No. 131
establishes standards for reporting information regarding operating segments in
annual financial statements and requires selected information for those segments
to be presented in interim financial reports issued to stockholders. SFAS No.
131 also establishes standards for related disclosures about products and
services and geographic areas. Operating segments are identified as components
of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision
making group, in making decisions now to allocate resources and assess
performance. To date, Fantasma has viewed its operations and manages its
business as principally one segment.
7
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FANTASMA, LLC
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion may contain "forward-looking" statements and
are subject to risks and uncertainties that could cause actual results to differ
significantly from expectations. In particular, statements contained in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section which are not historical facts, including, but not limited
to, statements regarding the anticipated adequacy of cash resources to meet
Fantasma's working capital and capital expenditure requirements and statements
regarding the anticipated proportion of revenues to be derived from a limited
number of customers, may constitute forward-looking statements. Although
Fantasma believes the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Important factors, which could cause actual results to differ
materially from such expectations, are disclosed in Fantasma's Form 10-K filed
with the SEC on April 2, 1999.
OVERVIEW
Fantasma designs, imports and wholesales licensed watches, clocks and other
novelties to customers located primarily throughout the United States. Customers
include mass merchandisers, department stores, chain drug stores, theme parks
and private labels. Fantasma distributes products under numerous licensed names,
including Winnie the Pooh(R), Sesame Street(R), the National Football League(R),
and Peanuts(R). Approximately 63% of total net sales are generated from seven
mass merchandisers during the first quarter of fiscal 1999.
Fantasma outsources manufacturing for virtually all of its products to
manufacturers in Asia with the remainder outsourced to independent domestic
manufacturers. Costs associated with Fantasma's numerous royalty agreements,
based on net sales, are classified in costs of goods sold. Accordingly, the two
principal elements comprising Fantasma's cost of goods sold are the price of
purchased manufactured goods and royalties. Fantasma believes outsourcing
manufacturing allows it to reliably deliver competitively priced products to the
retail market while retaining considerable flexibility in its cost structure.
Operating expenses are comprised primarily of payroll, occupancy costs related
to Fantasma's New York office and showroom, freight, depreciation and
amortization.
In June 1998, AAi acquired an 80% interest in Fantasma. The operating
agreement under which Fantasma is managed provides AAi with sole voting rights
on numerous significant matters.
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FANTASMA, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in Fantasma's Condensed
Statements of Operations:
THREE MONTHS ENDED
APRIL 4, APRIL 3,
1998 1999
Net sales 100.0% 100.0%
Cost of goods sold 55.2 91.3
----- -----
Gross profit 44.8 8.7
Operating expenses 40.8 62.4
----- -----
Income (loss) from operations 4.0 (53.7)
Interest expense,net 3.4 (3.2)
----- -----
Net income (loss) 0.6% (56.9)%
===== =====
THREE MONTHS ENDED APRIL 3, 1999 COMPARED TO APRIL 4, 1998
Net Sales. Net sales were $1.7 million for the three months ended April 3,
1999 as compared to $3.0 million for the three months ended April 4, 1998, a
decrease of 45% or $ 1.4 million. The decrease is primarily attributable to
decreased sales of certain licensed analog watches in the first quarter of
fiscal year ended 1998 as compared to the same period of the prior year.
Gross Profit. Gross profit was $145,000 for the three months ended April 3,
1999 as compared to $1.4 million for the three months ended April 4, 1998 a
decrease of $1.1 million. Gross profit as a percentage of net sales decreased to
9% for the three months ended April 3, 1999 from 45% for the three months ended
April 4, 1998. The decrease is primarily due to increased promotional sales and
increased royalty expenses due to a shift in product mix.
Operating Expenses. Operating expenses were $1.0 million for the three
months ended April 3, 1999 as compared to $1.2 million for the three months
ended April 4, 1998. The decrease in operating expenses is primarily
attributable to savings realized as a result of consolidating office and
warehouse facilities partially offset by the amortization of intangible assets.
9
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FANTASMA, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(CONTINUED)
Interest Expense. Interest expense was $84,000 for the three months ended
April 3, 1999 as compared to $103,000 for the three months ended April 4, 1998,
a decrease of 18.4% or $ 19,000. This decrease is a result of a lower interest
rate partially offset by a higher loan balance.
Net Income (Loss). As a result of the factors discussed above, net loss was
$955,000 for the three months ended April 3, 1999 as compared to net income of
$17,000 for the three months ended April 4, 1998, a decrease of $ 972,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction H of Form 10-Q (the Instructions).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Omitted pursuant to the Instructions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Omitted pursuant to the Instructions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to the Instructions.
ITEM 5. OTHER INFORMATION
In April 1999, Roger Dryer, former president of the registrant, ceased
his employment with FANTASMA.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EX-27.1 Financial Data Schedule
10
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FANTASMA, LLC
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(b) Reports on Form 8-K
The registrant filed no reports on form 8-K during the quarter ended
April 3, 1999
11
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FANTASMA, LLC
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Fantasma, LLC
(Registrant)
Dated: MAY 18, 1999 /s/ Duane M. DeSisto
------------------------------------------
Duane M. DeSisto
Assistant Secretary and
Chief Financial Officer
(Principal Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AS OF APRIL 3, 1999 (UNAUDITED) AND THE CONDENSED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 3, 1999 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED
IN FORM 10-K FOR THE TWELVE MONTHS ENDED JANUARY 2, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> APR-03-1999
<EXCHANGE-RATE> 1
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 2,428
<ALLOWANCES> 532
<INVENTORY> 3,599
<CURRENT-ASSETS> 5,774
<PP&E> 29
<DEPRECIATION> 8
<TOTAL-ASSETS> 10,049
<CURRENT-LIABILITIES> 6,398
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,651
<TOTAL-LIABILITY-AND-EQUITY> 10,049
<SALES> 1,677
<TOTAL-REVENUES> 1,677
<CGS> 1,532
<TOTAL-COSTS> 1,046
<OTHER-EXPENSES> (30)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> (955)
<INCOME-TAX> 0
<INCOME-CONTINUING> (955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (955)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
