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As filed with the Securities and Exchange Commission on ____________, 2000
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
COLLECTIBLE CONCEPTS GROUP, INC.
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(Name of Small Business Issuer in its charter)
Delaware 95-4026880
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1600 Lower State Road, Doylestown, PA 18901
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (215) 491-1075
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Securities to be registered under
Section 12(b) of the Act: None
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Securities to be registered under
Section 12(g) of the Act: Common Stock, $.001 par value
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COLLECTIBLE CONCEPTS GROUP, INC.
FORM 10-SB
TABLE OF CONTENTS
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PART I....................................................................................................5
ITEM 1 - DESCRIPTION OF BUSINESS..........................................................................5
(a) Business Development........................................................................5
(b) CCGR's Business.............................................................................6
o The Company's Current Product Lines.....................................................6
(b)(2) Marketing Strategy..........................................................................9
(b)(3) Status of any Publicly Announced New Products...............................................11
(b)(4) Competition.................................................................................11
(b)(5) Raw Materials...............................................................................11
(b)(6) Customers...................................................................................11
(b)(7) Patents, Trademarks, Licenses, etc..........................................................12
(b)(8) Governmental Approvals......................................................................12
(b)(9) Governmental Regulations....................................................................12
(b)(10) Research and Development....................................................................12
(b)(11) Environmental Laws..........................................................................12
(b)(12) Employees...................................................................................12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................................12
ITEM 3 - DESCRIPTION OF PROPERTY..........................................................................17
o Nature and Extent of Issuer's Facilities................................................17
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.................................................................18
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ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS..............................................................................19
(a) Directors and Officers......................................................................19
(b) Key Employees...............................................................................20
(c) Family Relationships........................................................................20
(d) Legal Proceedings...........................................................................20
ITEM 6 - EXECUTIVE COMPENSATION...........................................................................20
(a) Summary Compensation Table..................................................................20
(b) Options/SAR Grants..........................................................................21
(c) Aggregated Option/SAR Exercises and Fiscal
Year-End Option/SAR Value...................................................................21
(d) Long-Term Incentive Plans...................................................................21
(e) Compensation of Directors...................................................................21
(f) Employment Contracts and Termination of
Employment and Change in Control Arrangements...............................................22
(g) Report on Repricing of Options/SARS.........................................................22
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................22
ITEM 8 - DESCRIPTION OF SECURITIES........................................................................23
(a) Common Stock................................................................................23
(b) Convertible Debt............................................................................24
(c) Warrants, Options and Anti-Dilution Rights..................................................24
o Transfer Agent.........................................................................24
o Registration Rights....................................................................24
o Anti-Takeover Provisions...............................................................25
o Authorized but Unissued Shares.........................................................25
o No Cumulative Voting...................................................................25
o Report to Shareholders.................................................................25
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PART II...................................................................................................26
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS ..............................................................26
(a) Market Information..........................................................................26
(b) Holders.....................................................................................26
(c) Dividends...................................................................................26
ITEM 2 - LEGAL PROCEEDINGS................................................................................27
ITEM 3 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS.....................................................27
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES..........................................................27
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................................28
PART F/S - FINANCIAL STATEMENTS...........................................................................*
PART III - ITEM 1 - INDEX TO EXHIBITS.....................................................................29
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*Following the signature page
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
(a) Business Development
Background. Collectible Concepts Group, Inc. ("CCGR" or the "Company")
was originally formed on March 1, 1986 as "Amour Corporation". It changed its
name to "Bard Sports Corp." in September 1988, and changed its name again on
February 28, 1993 to "USA Sports Corp". The Company most recently changed its
name to "Collectible Concepts Group, Inc." on April 27, 1999. The Company is
incorporated under the laws of the State of Delaware.
The Company is focused on creating and distributing high-end and
novelty products related to both the entertainment and sports industries. During
fiscal 2000, the Company's revenues were primarily derived from the sale of
collectible products related to the Austin Powers films. In May 1999, the
Company was granted licensing rights by New Line Cinema to manufacture, sell and
distribute collectibles relating to the Austin Powers films. The Company has
shipped orders of Austin Powers merchandise to approximately 4,500 retailers
since
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production began in June 1999. In November, 1999 the Company was granted a
non-exclusive license by Marvel Characters, Inc. to sell and distribute
novelties and collectibles based upon certain X-Men character props as they
appear in the X-Men film scheduled to be released in July 2000. The Company also
has non-exclusive licenses to sell and distribute novelties and collectibles
based on props from the Terminator movies.
The Company sells its products through retailers, distributors,
department stores and catalogers. Currently CCGR has placed its products in over
4,500 retail locations including Spencer Gifts, Claire's Boutique, Electronic
Boutiques, We're Entertainment, Hot Topics, Halloween and costume shops, and a
growing list of retailers. CCGR has expanded its marketing horizons to Internet
E-commerce, with its websites: Austin Powers Collector's Club.com, Mini-V.com,
collectbaseball.com and soon to go online Terminator and X-MEN websites. In
addition, CCGR's products are sold on many significant E-commerce sites for this
type of merchandise, including Amazon.com, BigE.com, Newline.com, Toysrus.com,
iQVC.com, Moletown.com Eviewthis.com, Hollywood.com, Whatshotnow.com,
Musicland.com, Boscos.com, Anotheruniverse.com, Fandom.com, Galacticquest.com,
Nightflightcomics.com, and Wereentertainment.com. The Company believes that it
is respected for the quality and authenticity of its merchandise.
Prior Operations. The Company was incorporated in Delaware on March 1,
1986 to engage in the business of custom designing and importing sports
equipment and accessories. In 1991, the Company acquired the marketing rights to
All Sports Tattoos, a collection of removable tattoos licensed by the Collegiate
and National Football League. In October 1993, the Company acquired all of the
outstanding capital stock of Sports World Production, a corporation engaged in
the business of producing sports collectibles and organizing and promoting
sports autograph shows. In 1994, the Company established USA Tellcards, a new
division formed for the purpose of creating and marketing collectible and
promotional prepaid phone cards. In February 1995, the Company purchased an 80%
interest in USA Diversified Plastics, Inc., a corporation that was formed for
the purpose of manufacturing point-of-purchase plastic products and phone cards
for wholesale distribution. In 1996, the Company acquired the Atlantic City
Seagulls, a franchise purchased from the United States Basketball League. The
Company operated the franchise for one year as a general partner. The Company
discontinued operations in All Sports Tattoos, Sports World Production in 1995,
and USA Tellcards and USA Diversified Plastics in 1996. In 1995 and 1996, the
basketball team and other operations were discontinued because they were not
profitable, the Company lacked working capital to support them, and because
management had identified more promising opportunities.
The Company acquired its current management team in 1992. Since this
change in management, the Company has engaged in various business activities
relating to marketing of sports-related events and collectibles. As discussed in
greater detail below, the Company is now focused on creating and distributing
high-end and novelty products related to both the entertainment and sports
industries.
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(b) The Company's Business:
The Company's Current Product Lines.
The Company believes it has developed a successful process for identifying,
designing and marketing unique products for its target markets. The Company's
development process includes researching, developing and effectively
merchandising and packaging its products in a manner consistent with its product
image. The Company enhances its product development process by giving careful
attention to design and price points and through its proven method of testing
new products with selected retailers and consumers prior to introduction. The
Company believes that its close relationships with its suppliers, retailers and
customers allow it to quickly introduce new products, accurately estimate
consumer demand, promptly identify new product categories and trends regarding
existing lines, and substantially reduce development costs.
Stadium Collectibles. In the calendar year 1998, substantially all of
the Company's revenues were derived from the sale of the Company's Stadium
Collectibles product line. The Stadium Collectibles product line includes a
Yankee Stadium Lithograph, which contains an authentic piece of a bench that was
housed in Yankee Stadium in 1973, and smaller segments of the same Yankee
Stadium bench and authentic bricks from the Ebbets Field stadium rotunda. The
Company's target markets for its Stadium Collectibles product line are sports
fans and collectors. The Company intends to increase its efforts to reach the
target market for its Stadium Collectibles through Internet links and its own
website. The Company expects, but cannot guarantee, that the existing Stadium
Collectibles line of products (the Yankee Stadium Lithograph, bench and bricks)
will be expanded to include several additional products.
Austin Powers Collectibles. The Company's current business plan is to
concentrate most of its effort on cultivating business relationships with film
production companies that may lead to opportunities for the Company to purchase
licensing rights to market products that are based on motion pictures. To this
end, the Company entered into a Merchandise License Agreement with Time Warner's
New Line Cinema Division in May 1999 (the "New Line License" or "Agreement").
According to the New Line License, the Company was granted the exclusive right
to manufacture, sell and distribute in the United States and Canada certain
collectibles relating to the film "Austin Powers: International Man of Mystery"
and its sequel, "Austin Powers: The Spy Who Shagged Me," which was released in
theatres in the summer of 1999. The license with New Line Cinema relates only to
the manufacture, sale and distribution of the scaled models of props identified
in this section. In exchange, the Company has agreed to pay New Line a royalty
in an amount equal to ten percent (10%) of the Company's gross sales of the
Austin Powers product line. In addition, pursuant to the Agreement, the Company
has paid Thirty Thousand Dollars ($30,000) to New Line as a non-refundable
advance (the "Advance"). The Advance will be applied against royalties derived
from sales made by the Company pursuant to the New Line License. The Company
also guaranteed that the minimum aggregate amount of royalties paid to New Line
during the term of the Agreement (including the Advance) will be One Hundred
Thousand Dollars ($100,000). The Company received revenues of approximately
$273,000 from Austin Powers products in the year ended February 29, 2000,
constituting approximately ninety-two percent (92%) of its revenues. Through
February 29, 2000, the
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Company had paid New Line approximately Thirty Thousand Dollars ($30,000) in
royalties. The term of the agreement is through December 31, 2001. If the
Company has not paid $100,000 in royalties by that date, it will be required to
pay the shortfall to New Line.
The Company considers the New Line License to be a major marketing and
sales opportunity. The Company was granted the license to manufacture and market
a unique line of collectible merchandise to commemorate the Austin Powers films.
These collectibles include various props from the films, including replicas of
Dr. Evil's ring, the Jumbo Jet, the Male and Female Charm Symbols and the
Swinger License Plate.
The Company has also developed "The Bag of Shhh!," another collectible
based on the Austin Powers films. "The Bag of Shhh!," based on a phrase used by
Dr. Evil, a character in the films, is silver to match Dr. Evil's costume and
bears the Dr. Evil company logo. When the bag is squeezed, it responds with an
audible "shhh!." On October 1, 1999, the Company established "The Official
Austin Powers Collectors Club" as part of its marketing program. The Company has
established a website for this club at www.powersclub.com. For $19.95, the Club
offers prospective members a unique set of items, not available elsewhere, (e.g.
Dr. Evil's money clip, and Austin Powers computer wrist pad, etc) and a variety
of other exclusive items, including "inside info" about Austin Powers and other
film characters. The Club is promoted both on the Web (links and banners) and on
radio and TV spots. The Company's target markets for its Austin Powers product
line are fans of the Austin Powers films and collectors. The Company is
obligated, under the terms of the licenses for the above-referenced products to
pay a royalty to New Line Cinemas in connection with the sale of any products
described in this paragraph.
Verne Troyer License and Website. The Company has an agreement with
Verne Troyer, also known as "Mini V", who played Mini Me in the second Austin
Powers film. Under this agreement, the Company operates a Mini-V fan club and
website, and sells merchandise related to Mr. Troyer's character. Under the
terms of the agreement, the Company is obligated to pay Mr. Troyer, on a monthly
basis, two percent of the gross revenues from all Company internet sites, other
than the Mini-V site, relating to "Austin Powers." The Company is currently
working with Mr. Troyer to develop new products related to his Mini V character
to be sold on the website.
Planned New Product Line: X-Men Novelties and Collectibles. In November
1999, the Company signed a License Agreement with Marvel Characters, Inc., which
grants the Company the non-exclusive right to market and sell in the U.S. and
Canada novelties and collectibles based on certain X-Men comic character props
that appear in the new X-Men full-length Twentieth Century Fox motion picture.
The movie was released in July, 2000 and stars Patrick Stewart, Ian McKellan,
Rebecca Romijn-Stamos and Halle Berry. The licensed articles include the
following novelties: graduation rings, dog tags, pins and belt buckles. The
licensed articles also include collectible resin replicas of the black jet and
the team motorcycle, and resin or metal replicas of Cyclop's Visor, Magneto's
Helmet, Professor X's Computer and other products. The Company expects products
offered through this license will broaden its retail and e-commerce accounts.
The Company has also been licensed to create an X-Men Collector's Club, which
will be offered via website, direct mail brochures and display advertising in
record and video
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stores. The Company is obligated, under the terms of the licenses for the
above-referenced products to pay a royalty to Marvel Characters, Inc. in
connection with the sale of any products described in this paragraph.
The Marvel license has a term through December 31, 2002. The Company is
required to pay a royalty of ten percent (10%) on sales of licensed products,
with a minimum royalty of $45,000. The Company has paid $15,000 of the minimum
royalty and is required to pay the remainder by August 1, 2000.
Planned New Product Line: Terminator 1 and 2 Novelties and
Collectibles. The Company believes that there is strong demand for Terminator
merchandise in Europe based upon the interest in the Terminator 2 movie in
Europe. The Terminator 2 movie in Europe grossed $312,000,000 versus
$204,000,000 in the United States. In June 1999, the Company entered into
licensing agreements with Canal+ DA of France and Creative Licensing to market
products related to the films "Terminator" and "Terminator 2: Judgment Day,"
respectively. According to these licenses, the Company was granted rights to
manufacture, sell and distribute certain collectibles relating to these films
worldwide. In exchange, the Company has agreed to pay Canal+ DA and Creative
Licensing ten percent (10%) of the Company's gross sales of the Terminator
product lines under their respective licensing agreements. In addition, Canal+
DA and Creative Licensing each received a non-refundable $7,500 advance that
will be applied against royalties derived from sales made by the Company
pursuant to these license agreements. The Company also guaranteed that the
minimum aggregate amount of $15,000 in royalties will be paid to Canal+ DA and
$15,000 in royalties to Creative Licensing during the term of the licensing
agreements. The licensing agreements expire on December 31, 2001. The Company
has contracted the production of Terminator products, and the products are
expected to be available in September 2000. No products for this line have been
produced to date. The Company will begin distributing the product in September.
The Company expects, but cannot guarantee that there will be a strong demand for
the Terminator products. The Company further anticipates that the demand for
these products will increase upon the happening of the announcement of the next
Terminator film. The Company believes that it presently has the capital
resources to have the Terminator products manufactured and distributed.
Collectbaseball.com Website. In early May 2000, the Company launched
the collect baseball.com website, which is devoted to baseball fans and baseball
memorabilia collectors. While the website will offer memorabilia from different
baseball eras, it is targeted to the "Golden Age" of baseball, in the 1950's and
1960's. The products offered on this website include a proprietary product, the
Permagraph(TM), a product designed to preserve fragile autographs which are
otherwise highly likely to deteriorate over time. Each Permagraph(TM) includes
real autographs on enameled metal, mounted on an ebony-toned plaque. The
collectbaseball.com site will also include authentic memorabilia including
photos, autographs and artworks of such players as Hank Aaron, Mickey Mantle,
Nolan Ryan, Ken Griffey, Jr., Cal Ripkin and Roberto Alomar. The collection
offered on the site also includes signed baseballs, special lithographs of old
baseball stadiums, such as Ebbets Field, and other collectibles. This site began
producing a small amount of revenues for the Company shortly after its opening
in May 2000. The Company owns a portion of the collection offered for sale on
this site, and acts as a sales agent for those products it does not own.
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The Boys of Summer. The Company has entered into a contract with JMJ
Films ("JMJ") that entitles the Company to ten percent (10%) of JMJ's net
revenue in a movie project titled "The Boys of Summer." In exchange, the Company
loaned to JMJ an aggregate of $55,000 in consideration of the following rights.
Representatives of JMJ have assured the Company that it will be accorded favored
status with respect to licensing rights to market memorabilia if the film is
produced and distributed, however, the parties have not signed a formal written
commitment to this effect.
"The Boys of Summer" is based on a book by the same name that was
written by famed sportswriter Roger Kahn. The book was published by Harper
Collins and is now in its 42nd printing. Production of the film has not begun
and is contingent upon JMJ negotiating acceptable terms for financing and
distribution of the film. There can be no assurance that the movie will receive
adequate funding or that the Company's loan will be repaid. The Company has
fully reserved the loan in the Company's financial statements. In addition,
contracts relating to the financing and distribution of the film may restrict
the Company's right to market memorabilia based on the film.
S. D. Studios, Inc. In 1997, the Company entered into an Option
Agreement with S.D. Studios, Inc. ("SDS"). SDS is a manufacturer, distributor
and marketer of high-end replicas of props and weaponry for motion pictures and
television shows. SDS had obtained a license to manufacture collectibles based
on motion pictures depicting the characters James Bond and Judge Dredd. On
January 1, 1998, the Company exercised its Option and acquired a 51% ownership
interest in SDS, and, in exchange, the Company issued 1,200,000 shares of the
Company's Common Stock to SDS and agreed to make its best efforts to reduce
approximately Two Hundred and Fifty Thousand Dollars ($250,000) in debt incurred
by SDS (the "Indebtedness"). At the time of the Separation Agreement (as
discussed below), any unpaid balance remaining on the Indebtedness became the
responsibility of SDS. Later in 1998, the Company acquired an additional 16%
ownership interest in SDS in exchange for an additional 500,000 shares of Common
Stock of the Company.
Some time after its acquisition of ownership in SDS, the Company
encountered policy differences with SDS' management and decided that it would
shift its resources towards developing collectibles for a more youthful market.
To this end, the Company entered into a Business Separation Agreement with SDS
on April 28, 1999 (the "Separation Agreement"). Except as provided below, SDS
will be solely liable for all debts, obligations, undertakings, liabilities,
commitments or claims of SDS ("Obligations") incurred prior to January 1, 1998
and after April 28, 1999 pursuant to the Separation Agreement. In turn, the
Company will be solely liable for all obligations incurred between January 1,
1998 and April 28, 1999. Both the Company and SDS agreed to indemnify the other
against any liability or claims arising from their respective obligations.
Further, under the terms of the Separation Agreement, the officers and directors
of the Company agreed to resign from all positions they held as directors,
officers or employees of SDS and tender to SDS their shares of the SDS's Common
Stock. Similarly, the officers and directors of SDS agreed to resign from all
positions they held as directors, officers or employees of the Company and
tender to the Company their shares of the Company's Common Stock. The SDS Common
Stock that was
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ultimately relinquished by the Company's directors, officers or employees
according to the Separation Agreement included all of the SDS Common Stock that
was originally acquired by the Company pursuant to the Option Agreement.
Pursuant to the Separation Agreement, the Company and SDS have each
assumed a prorated amount of the outstanding balance owed by the Company and/or
SDS to a specific list of vendors that performed services relating to products
manufactured by SDS. In addition, SDS has agreed to manufacture forty-five
briefcases relating to the James Bond films, and the Company has agreed to pay
One Hundred Dollars ($100) for each briefcase. The Company retains the right to
sell these briefcases and collect all profits realized on their sale. In
addition, SDS will make a reasonable effort to sell sixty attaches relating to
the James Bond films, and the Company is entitled to receive a royalty payment
of One Hundred Dollars ($100) on the sale of each attache.
The Separation Agreement provides that the Company is entitled to
receive a five percent (5%) royalty payment on the first One Hundred Thousand
Dollars ($100,000) of sales made by SDS to any member of the client base
established through the Company's efforts. Upon receiving the first royalty
payment, the Company will be entitled to receive a six percent (6%) royalty
payment on the next One Hundred and Fifty Thousand Dollars ($150,000) of future
sales and another five percent (5%) on the next Two Hundred and Fifty Thousand
Dollars ($250,000) of future sales, with such entitlement to royalty payments
expiring five years from the date of the Separation Agreement.
Music Art. On June 5, 2000, the Company acquired Music Art Corporation
in exchange for cash and 1,000,000 shares of the common stock of the Company.
Through the transaction, Music Art became a wholly owned subsidiary of the
Company. The Company acquired the inventory of Music Art's music and
entertainment memorabilia, distribution channels and other assets. Included
within the assets acquired are licensing agreements for collectibles associated
with the Rolling Stones and Bruce Springsteen. The Company expects to market
Music Art products to retailers and on http://www.collectmusicart.com/.
(b)(2) Marketing Strategy:
The Company creates and markets unique collectible products for the
entertainment and sports markets. The Company is not a manufacturer, but rather
sources its products from a wide range of manufacturing partners throughout the
world.
The Company markets its products primarily through various distributors
and independent sales organizations that collectively cover all of North
America. The Company utilizes outside sales representatives calling on the toy,
gift, electronic, auto, novelty, Halloween costume, food and drug chains and
distributors. The Company also markets "clubs" and other merchandise directly to
consumers online on its own websites. The Company's independent representatives
call on mass merchandisers such as Target, Wal-Mart and K-Mart as well as
smaller chains and independently owned stores. The Company also sells products
directly to other e-commerce marketing such as Toysrus.com. As of May 5, 2000,
products from the Austin Powers product line were available in over 4,500 retail
locations.
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Of these 4,500 retail locations, approximately 2,000 were Claire's
Boutiques, approximately 650 were Spencer Gifts, approximately 75 were Tower
Records and approximately 55 were Electronic Boutiques. The balance of the
retail outlets were independent retailers.
The Company also plans to market its products internationally. The
Company's Terminator licenses permit worldwide distribution of the Company's
products. The Company's other licenses are generally only for U.S. and Canadian
distribution. The Company plans to request an expansion of its current licenses
for other products to include worldwide distribution of its products. This will
permit response to growing demand for the Company's products in the U.K.,
France, and a growing list of foreign markets.
The Company's marketing program is focused on: (1) the creation of
unique collectible products tied to well known licensed properties, (2) the
establishment of the Company as the premier firm in the creation and management
of web-based "Collectors Clubs" and (3) utilization of the Company's reputation
in authenticity of collectibles to establish "the Collectory" as an Internet
clearing house.
The Company plans to expand its product line to include more
entertainment-based collectibles and novelty products. It also plans to develop
and market more sports-related products and intensify its efforts to market its
existing sports collectibles product line. The Company intends to maximize and
expand its business through a variety of marketing efforts, including the
development of its own Internet website, participation in trade shows, and
posting of advertisements on the internet and at point-of-purchase retail
displays. Of course, this marketing strategy will require increased funding and
there is no assurance that the Company will obtain the necessary funding to
effect its marketing plan.
Exclusive Licensing Agent Agreement. In August 1998 the Company entered
into an Exclusive Licensing Agent Agreement with Building Q. At the initiation
of this Agreement, Building Q received 3,000,000 shares of the Company's common
stock. Building Q is entitled to a commission of 2% of all Company sales from
licenses negotiated, acquired or introduced during the term of the Agreement,
and is paid $2,500 per month as a consulting fee. The Agreement runs for terms
of one year, beginning with August 1, 1998, and can be terminated upon at least
60 days notice prior to the expiration of the current term.
Under the terms of the Agreement, Building Q will not represent any
other company that produces products in the high-end limited edition prop
replica category.
The Company has negotiated several licenses where it has not utilized
the services of Building Q. The Company is not obligated to pay Building Q a
commission on these licenses. The Company does expect that it will continue to
negotiate licenses on its own behalf, without utilizing the services of Building
Q. The licenses negotiated by the Company, without the services of Building Q,
generally are not as significant as the licenses negotiated, acquired or
introduced by or through Building Q.
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Required Financial Resources. In addition to posing substantial risks,
the Company's business plan requires substantial amounts of capital to begin,
and later to continue to expand, the Company's operations. The Company's plan of
operations is to make strategic acquisitions of vendors and companies that will
enhance the Company's operations. In addition, the Company expects that license
fees for the products it sells will cost the Company anywhere from $10,000 to
$20,000 per license. Of course, the actual amounts may be higher or lower.
Regardless, these figures do not include the development costs associated with
the Company's products. The Company's plan of operations likely will require
infusions of capital, as the Company will not likely have sufficient assets to
accomplish these acquisitions on its own. This likely will require additional
sales of the Company's securities, either in the form of common stock or debt.
In addition, the Company has substantial accrued expenses and loans
payable. The Company does not currently have sufficient financial resources to
meet these obligations and will depend on new outside financing to satisfy its
pending obligations. The Company also lacks adequate financial resources to
purchase inventory and meet all of the financial commitments necessary to enter
into new product ventures, and will depend on new outside financing to further
these efforts. There can be no assurance that the Company will obtain adequate
outside financing to purchase inventory, meet its current obligations or
continue to expand its operations.
Further, the Company's success in marketing products based upon motion
pictures is largely dependent upon the box office success of the films. Thus,
there can be no assurance that any licensing rights that the Company may obtain
will prove profitable.
(b)(3) Status of Publicly Announced New Products:
The Company's current planned new product lines, X-Men novelties and
collectibles, Terminator 1 and 2 novelties and collectibles and the
collectbaseball.com website are described above. The Company has designed and
contracted with manufacturers for the production of the various X-Men products.
As of May 16, 2000, the Company had received approximately $500,000 in purchase
orders for X-Men products, mostly from retail outlets. As of that date,
production had begun on all of the products for which the Company had orders,
and the Company expects to ship these products no later than the end of May
2000.
(b)(4) Competition:
The Company believes that direct competition for obtaining licenses in
its primary business line, reproductions and collectibles based on movie props,
is not a factor. Generally, the Company believes it will receive licenses in
most of the cases where it seeks them. However, most of these
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licenses will be non-exclusive. The Company is not aware of any exclusive
relationships between retailers and collectible product distributors, and
therefore, the Company and all other competitors are free to compete for the
shelf space and other resources of retailers. However, large nationally known
distributors of toys and other products may have more bargaining power to demand
shelf space. Generally, the Company does not believe that there are high
barriers to entry in the collectibles market, except for the high end limited
editions market where individual products tend to have retail purchases of $130
to $495. Even though these licenses are non-exclusive, the Company has not
experienced direct competition in the form of other companies licensing and
producing the same collectibles. The Company experiences its most significant
competition in obtaining shelf space in retail outlets for its products. For
example, a large toy company might offer products on a movie for which the
Company is selling prop replicas. Even though the large toy company's product is
not the same as the Company's product, a retail outlet may decide that it only
wants to allocate a certain amount of space to products based on that movie, and
may be more likely to give the shelf space to the large toy company that is its
regular supplier.
There are numerous outlets and venues for baseball collectors to obtain
the baseball memorabilia and collectibles offered by the Company. However, the
Company believes that some of its baseball products are unique and that the
collectbaseball.com website will provide a unique venue for sale of these
products. The Company's unique product includes the PermagraphTM, described
above under "The Company's Business - Collectbaseball.com Website." The Company
is unaware of any other product on the market similar to the permagraph. In
addition, the Company is unaware of any other company marketing Yankee Stadium
lithographs or Yankee Stadium or Ebbets Fields plaques with portions of bricks
or segments of benches from the stadiums attached.
(b)(5) Raw Materials:
The Company does not manufacture its own products, but relies on
outside manufacturers. Most of these outside manufacturers are in Hong Kong and
China. The Company believes that there are sufficient numbers of manufacturers
that it will not have to rely upon any single source and will be able to obtain
alternative manufacturing facilities if chosen manufacturers do not perform. The
Company generally enters into exclusive manufacturing agreements with its
manufacturers for a single product, but may use various manufacturers for all of
the products in a series. The main raw materials used by the Company's
manufacturers are plastics, pewter, resins and packaging material. The Company
does not believe that there is any significant risk of shortages in these raw
materials, nor is fluctuation and the price of these raw materials likely to
have an adverse impact on the Company's costs or profit margins. All of the
Company's manufacturing agreements are U.S. dollar denominated, so the Company
generally does not face exchange rate risks.
(b)(6) Customers: In the fiscal year 2000, 27.3 percent of the
Company's sales were to Spencer Gifts, 7.6 percent of the Company's sales were
to New Line Cinema (representing sales of Austin Powers merchandise that the
Company sold to New Line for New Line to use for promotional purposes) and 5.6
percent of sales were to Tower Records stores. The Company does not believe that
sales in fiscal 1999 were representative of its sales in 2000 or in the future.
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<PAGE>
(b)(7) Patents, Trademarks, Licenses, etc.: The Company has several key
licenses on which the continued success of its business is dependent. These
include the license with New Line for collectibles related to the Austin Powers
films and the licenses for planned new products including the license with
Marvel Characters for collectibles related to the X-Men film, the licenses with
Canal + DA and Creative Licensing for products related to the Terminator films.
(b)(8) Governmental Approvals: The Company's operations are not
dependent on any specific government approvals.
(b)(9) Governmental Regulations: The Company's operations are not
significantly impacted on any specific government regulations.
(b)(10) Research and Development: The Company has no significant
research and development activities.
(b)(11) Environmental Laws: The Company's operations are not
significantly affected by environmental regulations.
(b)(12) Employees: As of May 2, 2000, the Company had twelve full-time
employees, two part-time employees and three independent consultants. The
Company has not had any material employee relations problems or disputes.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company receives revenues from distributing high-end and novelty
products related to both the entertainment and sports industries and sells those
products through retailers, distributors, department stores, the internet and
catalogers. During the quarter ending May 31, 2000, a licensing agreement was
signed with IMS Properties and Titan Motorcycle Company of America for the
manufacture, sale and distribution of a limited edition replica of the Indy 500
Titan Motorcycle. Subsequent to May 31, 2000, the Company signed a licensing
agreement with Chicken Soup for the Soul Enterprises, Inc. for the manufacture,
sale and distribution of more than two dozen collectibles to be sold in
bookstores and other retail chains. The collectibles will include penholders,
nightlights and sports-related items such as tennis racket covers, all carrying
an inspirational phrase from a Chicken Soup book. Subsequent to May 31, 2000,
the Company signed a licensing agreement with Stan Lee Media, Inc. to develop
collectibles based on Stan Lee's signature style and global lifestyle brand, as
well as his latest project, the 7th Portal- a team of 21st Century Super Heroes
and Super Villains. The collectibles will include sculptures, lithograths, pins,
bookends, desk sets and fountain pens based on the image of Stan Lee, the image
of "Evil Stan" - the alter ego of Stan Lee and the 7th Portal. The license
agreement also includes rights to develop merchandise in connection with a
theatrical release of a "7th Portal" feature film during the term of the
agreement. The signing of these agreements was part of the Company's ongoing
plan to become a broad based, sports and entertainment products company.
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<PAGE>
During the quarter ending May 31, 1999, the Company's revenues were derived
exclusively from the sale of products related to the sports industry. Sales
during the quarter ending May 31, 2000 also included sales of the Company's
Austin Powers and X-Men product lines. Substantially all of the Company's
revenue from the most recently completed fiscal year was attributable to the
sales of products from the Austin Powers movies. During fiscal 1999 and prior
fiscal years, the Company's revenues were derived exclusively from the sale of
products related to the sports industry.
The Company believes there is a trend in the entertainment business
towards more films based on comic books, fantasy and action adventure. The
Company believes that this trend is favorable to it because of the interesting
props that are used in such films and the Company's ability to replicate those
props. While revenue from movie prop licenses is highest just before and after
the release of a movie, there are several factors that enable the Company to
receive revenues at times other than just before and after releases of a movie.
Sales increase during the holiday season and the Company expects significant
sales of products related to movies released during the year before the holiday
season, even if the releases occurred significantly earlier in the year. The
Company is also attempting to develop continuity clubs, such as the official
Austin Powers Collectors Club, which will enable it to continue marketing
products to the hard core fans of a film for the entire life of the Company's
license. The expectation or release of sequels to movies for which the Company
has already produced props tends to revive interest in those props. In addition,
we are currently seeking licenses not related to movie releases. While the X-Men
sales will follow the general trend of large sales before and after release of a
movie, the Company anticipates that demand for its X-Men products will continue
significantly beyond the release of the movies, because of Marvels comic book
distribution and a planned Saturday morning X-Men television series.
In the second quarter of fiscal year 2001, the Company began to ship to
its customers, products related to the X-Men movie that was released throughout
the United States on July 14, 2000, with worldwide distribution of the movie
continuing through November.
In addition to the sale of products provided for by the licensing
agreements, the Company has the right to operate official fan clubs associated
with these movies. During the second quarter of fiscal 2001, the Company started
the official X-Men Club website (www.X-MenClub.com) which has attracted over 600
paid members and approximately 6,000 signed up for the free club newsletter. As
of February 29, 2000, the Austin Powers internet fan club was fully functioning
and producing revenue for the Company.
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<PAGE>
Also, completed during the quarter ending May 31, 2000 was a website
devoted to the "Golden Age of Baseball" (www.collectbaseball.com) with Bill
Gilbert, a nationally known writer ("The Duke of Flatbush"), hosting a weekly
column. Subsequent to May 31, 2000 the Company announced the hiring of a
Managing Director of collectbaseball.com with more than 12 years experience in
the field of sports specialty merchandising and marketing and 7 years as
Director for the National Baseball Hall of Fame & Museum in Cooperstown, NY.
As a result of the Company's association with the Austin Powers movie,
in addition to the sale of related products, it has obtained the promotional
rights to Vern Troyer, the diminutive star who played "Mini-Me" in the Austin
Powers movie," Austin Powers: The Spy Who Shagged Me". The Company also has the
right to manage the Mini-V fan club, and market its products on the Mini-V
website.
Cost of sales for the quarter ending May 31, 2000 were comprised of
costs associated with the sale of the products related to the Austin Powers and
X-Men movies as well as sales from its sports memorabilia. Cost of sales in
fiscal year ended February 29, 2000 were predominately the costs associated with
the sale of the products related to the Austin Powers movies which include the
cost of the product and related freight and handling charges. Costs also include
the cost of the product and related freight and handling charges. These products
are contract manufactured for the Company by both domestic and foreign companies
to specifications developed by the Company and approved by the various
licensors. Even though the Company does not feel this places it at risk for
filling future orders on a timely basis, it has developed relationships with
alternate suppliers for most of its products. Several of its manufacturers will
also store and ship product directly to a customer, thereby reducing shipping
time and eliminating the costs the Company would incur if the product was first
shipped to its location. The Company also feels it is not at risk for any
currency fluctuations in its dealing with its foreign manufacturers since all
orders are based on U.S. dollars and the Company does not have any long term
purchase commitments.
Selling, general and administrative expense consists of payroll and
related fringes, royalties, commissions paid to manufacturers sales
representatives, advertising, rent, depreciation and other related fixed
overhead expenses. Also included in this category are the expenses related to
the replication of movie props to ready them for mass production by the contract
manufacturers, as well as the non-cash costs related to services satisfied by
the issuance of Company stock. The Company characterizes the development and
replication of movie props to ready them for mass production as a development
cost. The Company will capitalize these costs if the prop or novelty is
commercialized. The services provided were in direct support of the operations
of the Company on both an ongoing basis and in anticipation of the increased
business expected from the sales of product related to the X-Men movie. The
benefits to the Company
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<PAGE>
from these stock transactions are reduced use of cash which allowed the Company
to devote the maximum resources to expanding the business, increased awareness
of the Company which provides the opportunity for greater stock support and
created a positive relationship when price appreciation occurs. For recording
purposes, the Company valued these services at the fair market value of the
services rendered or the fair market value of the stock at time of issuance,
whichever is more readily determinable.
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<PAGE>
In it's continual search to even out the fluctuation in the Company's
revenue cycle, the Company made two acquisitions subsequent to May 31, 2000. On
June 5, 2000 the Company acquired Music Art Corporation, a company which has a
license from the Rolling Stones to distribute lithographs of signed album
covers. Music Art also has a license with Phil Ceccola, a photographer of many
rock bands, to distribute signed photographs of Bruce Springsteen . The Company
also plans to market Music Art products to retailers on it's recently launched
website, www.collectmusicart.com.
The Company, during the quarter ending May 31, 2000 continued to invest
in its infrastructure by hiring experienced professionals for three newly
created positions: Chief Operating Officer, National Sales Manger, and Director
of Purchasing and other staff as needed to support the acquisitions and
expanding websites.
The amount and timing of the revenue generated from the sales of movie
related products is not possible to accurately predict because of the length of
time it may take the project to be commercially successful, if at all. As a
result, the Company's revenues and net income may fluctuate significantly
between comparable periods. Additionally, since the Company's inception, it has
experienced significant operating and net losses that it has been able to fund
by obtaining private capital. The Company, therefore, can not predict if and
when it will generate income from operations and if it will be able to raise
sufficient capital necessary to fund future operations.
The Company has taken significant steps to ensure its fiscal viability
in the future and continues to pursue additional licenses to even out any
fluctuations in the revenue stream. It is also looking to acquire companies that
have licenses not only related to movies and entertainment industry but in the
sports area.
Results of Operations
Three Months Ended May 31, 2000 compared to Three Months Ended May 31, 1999.
Net revenues for the quarter ended May 31, 2000 were $9,630 comprised
mainly of revenues from the collectbaseball.com website and the Austin Powers
and X-Men movies compared to revenues of $7,226 for the quarter ended May
31,1999. Revenues for that period were predominantly from the sale of baseball
memorabilia.
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<PAGE>
Cost of sales for the quarter ended May 31, 2000 increased by $5,907
from the quarter ended May 31,1999. This increase was mainly attributable to the
increased volume of sales, primarily products related to the Austin Power and
X-Men movies and collectbaseball website.
Selling, general and administrative expenses for the quarter ended May
31, 2000 increased to $877,433 from $78,294 for the quarter ended May 31,1999.
For the quarter ended May 31, 2000 and 1999 the services obtained with the
issuance of stock included internal accounting and financial services, internet
website creation, marketing assistance, insurance program review, and general
management consulting. Shares were also issued to satisfy pre-existing
anti-dilution clauses with certain investors. Increases in selling, general and
administrative expenses related to payroll cost, royalties and product
pre-production cost. Staffing increased to thirteen full time and two part
consultants for marketing and licensing for the quarter ended May 31, 2000 as
compared to three full time and two part time employees for the quarter ended
May 31, 1999. As previously mentioned, the Company incurs charges to bring the
product to market. These charges relate to the cost for producing the samples as
well as the related package design cost for approval by the licensee prior to
full production runs of the product. For the quarter ended May 31, 2000 the
Company incurred charges of approximately $10,000 versus cost of approximately
$6,000 for the quarter ended May 31, 1999.
The Company incurred interest expense of approximately $167,000 for the
quarter ended May 31, 2000 as compared to approximately $3,000 for the quarter
ended May 31, 1999 due to increased borrowings and the beneficial conversion
calculation related to the application of EITF ("Emerging Issues Task Force")
Bulletin for accounting of convertible securities and notes and loans payable
with beneficial conversion features. The beneficial conversion calculation added
approximately $130,000 of interest expense for the quarter ended May 31, 2000.
As a result of the above, the Company had a net loss of $1,043,187 for
the quarter ended May 31, 2000 as compared to a net loss of $77,116 for the
quarter ended May 31, 1999.
Twelve Months Ended February 29, 2000 compared to Twelve Months Ended February
28, 1999.
Net revenues for the year ended February 29, 2000 of $296,261 increased
by $283,586 as compared to net revenues for the year ended February 28, 1999 of
$12,675. This increase in revenues was solely attributable to the sales of
product related to the Austin Powers movies. Revenues from Spencer Gifts
(approximately 27%), Tower Records (approximately 5.5%), and New Line Cinema
(approximately 7.5%) collectively accounted for approximately 40.5% of net
revenues for fiscal year 2000.
Cost of sales for fiscal year ended February 29, 2000 of $199,224
increased by $146,405 from fiscal year ended February 28, 1999 of $52,819. This
increase was mainly attributable to the increased volume of sales, primarily
products related to the Austin Power movies. In fiscal 2000, the Company's gross
margin was approximately 32% of sales. Comparisons to the previous year's gross
profit are not meaningful because of the significant difference in the
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<PAGE>
amount and type of sales. With the addition of sales of baseball related
products on its newly opened baseball website and the sale of products based
upon the X-Men movie to be released later this year, the Company expects an
improved gross margin if the expected sales are realized.
Selling, general and administrative expenses for fiscal year ended
February 29, 2000 increased to $3,064,285 or $2,809,559 from fiscal year ended
February 28, 1999 of $254,726. As previously mentioned, the Company has issued a
significant amount of stock for services, therefore, selling, general and
administrative charges include non-cash charges of $2,058,000 in fiscal year
ended February 29, 2000 and $143,750 for the fiscal year ended February 28,
1999. The services obtained with the issuance of stock included internal
accounting and financial services, internet website creation, marketing
assistance, insurance program review, and general management consulting. Shares
were also issued to satisfy pre-existing anti-dilution clauses with certain
investors. Increases in selling, general and administrative expenses related to
payroll cost, royalties and product pre-production cost. Staffing increased to
twelve full time and three part consultants for marketing and licensing for
fiscal year ended February 29, 2000 from two full time and one part time
employee for fiscal year ended February 28, 1999. Royalty expense increased to
approximately $36,600 for fiscal year ended February 29, 2000 as compared to $0
for fiscal year ended February 28, 1999. As previously mentioned, the Company
incurs charges to bring the product to market. These charges relate to the cost
for producing the samples as well as the related package design cost for
approval by the licensee prior to full production runs of the product. For
fiscal year ended February 29, 2000 the Company incurred charges of
approximately $72,000 versus cost of approximately $4,000 for fiscal year ended
February 28, 1999.
The Company incurred interest expense of approximately $248,000 for
fiscal year ended February 29, 2000 as compared to approximately $12,000 for
fiscal year ended February 28, 1999 due to increased borrowings and the
recognition of interest expense related to the issuance of convertible debt with
beneficial conversion features.
As a result of the above the Company had a net loss of $3,215,514 for
fiscal year ended February 29, 2000 as compared to a net loss of $307,205 for
fiscal year ended February 28, 1999.
Liquidity and Capital Resources
Quarter Ending May 31, 2000
As of May 31, 2000 the Company had a working capital deficiency of
approximately $537,000 compared to a deficit working capital of $870,000 as
February 29, 2000. The deficit working capital as of May 31, 2000 is a direct
result of the unprofitable operations for the quarter ended May 31, 2000 that
resulted in a cash loss of approximately $671,000. Even with this cash loss, the
Company had an ending cash balance of $354,747 principally due to the infusion
of approximately $868,000 in March and May 2000 from a previously mentioned
private placement.
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<PAGE>
During the quarter ended May 31, 2000 the Company purchased computer
equipment and a delivery van for approximately $51,000. The delivery van was
financed through the credit company associated with the manufacturer of the
vehicle. This note payable is approximately $27,000. The Company does not
foresee any significant capital expenditures needed in the next nine months
unless the result of a future acquisition.
The Company has financed its losses through private sales of equity and
debt securities, the issuance of stock for services, and deferrals of salary by
its President and certain other employees. During the quarter ended May 31, 2000
the Company received the following capital infusions; approximately $446,400 net
of fees from issuance of common stock and approximately $370,000 net of fees in
convertible debentures. Included in the conversion of the Company's demand notes
was a note from a venture capital organization who converted their demand note
of $30,000 into common stock and who also had an anti-dilution clause associated
with the note. Additionally, the Company received notice from the holders of
convertible debentures and demand notes of approximately $111,000 outstanding as
of February 29, 2000 and $10,000 convertible debentures issued and converted
during the quarter ending May 31, 2000 requesting conversion into 5,555,849
shares of common stock.
During the quarter ending May 31, 2000 the Company starting making
payments on approximately $54,000 of demand notes which will be paid off by
December 31, 2000.
As of May 31, 2000 the Company had $345,154 in outstanding notes and
loans payable and $192,991 in outstanding convertible debentures net of contra
discount of approximately $256,000 related to the 4,000,000 warrants issued with
the convertible debenture of $400,000 as mentioned in the preceding paragraph.
It also made approximately $7,500 of scheduled payments against the remaining
debt that matures at varying dates through February 2001. The Company feels its
cash flow will be sufficient to satisfy these debts given the expected success
of the X-Men movie and its baseball.com website that has already generated
positive results. In addition, the Company has been successful at renegotiating
the repayment terms on its debt in the past and feels that it would be able to
do so in the future if needed.
Fiscal Year Ended February 29, 2000
As of February 29, 2000, the Company had a working capital deficiency
of approximately $870,000 that was the direct result of the unprofitable
operations of the current year that resulted in a cash loss of approximately
$700,000. Even with this cash loss, the Company had an ending cash balance of
approximately $247,000, principally due to the infusion of $600,000 in February
2000 from a previously mentioned private placement.
During fiscal year ended February 29, 2000 the Company's purchase of
equipment was primarily computer equipment of approximately $23,000. The Company
does not foresee any
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<PAGE>
significant capital expenditures needed in the next twelve months except and
unless it is the result of a future acquisition.
The Company has financed its losses through private sales of equity and
debt securities, the issuance of stock for services, and deferrals of salary by
its President and certain other employees. During the fiscal year ended February
29, 2000 the Company received cash from loan borrowings of approximately
$205,000 less debt repayments of approximately $28,000. These borrowings were
unsecured and were in the form of notes and convertible debentures. During the
fiscal year ended February 29, 2000, approximately $56,000 of debt was converted
into approximately 4.5 million shares of common stock. In fiscal year ended
February 29, 2000 the company also received cash from the issuance of common
stock of approximately $783,000, net of approximately $101,000 in fees. The
Company utilized the proceeds from the sales of securities described in this
paragraph principally for working capital and to meet immediate financial
obligations.
The Company is a party to a "Purchase and Sale Agreement" with
Prestige Capital, a factor, whereby the Company was permitted to, but not
required to, sell certain accounts receivable to the factor subject to their
approval. The advance rate from the factor is 75% of the face value of the
accounts. There is no recourse to the Company in the event of insolvency, as
defined in the agreement, by the customer. There is recourse to the Company for
all other events of non-payment by the customer. At February 29, 2000 there were
no accounts/amounts outstanding under this agreement. The Company did not
utilize the agreement after December 1999. The agreement expired July 1, 2000.
In the opinion of management, the Company believes that it will be able
to obtain new licenses and thereby increase revenues, and will pursue an
aggressive acquisition strategy to acquire profitable companies. However, the
Company will require additional capital infusions during fiscal year ending
February 29, 2001 in order to continue to operate until such time as revenues
are sufficient to finance operations. The Company will also continue to pay for
services with equity, where appropriate, until it has achieved positive cash
flow. However there can be no assurance that the Company will be able to obtain
sufficient equity or debt capital to meet its operating needs. In early May
2000, the Company granted a security interest in substantially all of its assets
to a private investor group, which purchased $400,000 in convertible debentures.
For a description of the material provisions of the debentures, see Part II -
Item 4. Until the obligations related to these debentures are satisfied, the
Company will not be able to use its assets as security for other financings.
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As of February 29, 2000, the Company had $367,587 in outstanding notes
and loans payable and $70,000 in outstanding convertible debentures. As of May
1, 2000, the Company received notice from holders of $20,000 of the convertible
debentures requesting conversion into shares of Company common stock. It also
made approximately $12,000 of scheduled payments against the remaining debt that
matures at varying dates through February 2001. The Company feels its cash flow
will be sufficient to satisfy these debts given the expected success of the
X-Men movie and its baseball.com website that has already generated positive
results. In addition, the Company has been successful at renegotiating the
repayment terms on its debt in the past and feels that it would be able to do so
in the future if needed.
Sections of this Report contain forward looking statements, including
without limitation, statements concerning possible or assumed future results of
operations of the Company preceded by, followed by or that include the words
"believe," "expects," "anticipate," "estimates," "intends," "plans," or similar
expressions. Forward-looking statements are not guarantees of future
performance. They involve risks, uncertainties, and assumptions. Due to the fact
that the Company faces competition from other licensors for shelf space, the
ability of the Company to obtain additional licenses and the uncertainty of the
public's response to the Company's properties as well as uncertainty as to the
Company's ability to raise sufficient capital to fund losses from operations
actual results or outcomes may differ materially from any such forward-looking
statements.
ITEM 3 - DESCRIPTION OF PROPERTY
Nature and Extent of Issuer's Facilities:
The Company's executive and principal administrative offices are
located at 1600 Lower State Road, Doylestown, Pennsylvania 18901, where the
Company currently occupies approximately 2,600 square feet of office space
pursuant to a lease entered into with Hartsville Real Estate. The term of the
lease is three years, expiring in September 2001. The monthly
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rental payments under the lease are $1,680. The Company believes that this
facility is sufficient for its current and planned operations in the near
future. The Company stores some inventory at this location; other inventory is
held in outside storage facilities as well as by the manufacturers pending
delivery to customers.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 2, 2000 with
respect to the beneficial ownership of the Company's securities by officers and
directors, individually and as a group, and all holders of more than 5% of the
shares of any class of the Company's voting securities. Unless otherwise
indicated, all shares are beneficially owned and sole investment and voting
power is held by the beneficial owners indicated.
On May 2, 2000, there were 173,951,697 shares of Common Stock
outstanding.
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<TABLE>
<CAPTION>
======================================================================= ========================================================
Common Stock
Name and Address of Beneficial Owner --------------------------- ----------------------------
Number of Shares Percent of Class
----------------------------------------------------------------------- --------------------------- ----------------------------
<S> <C> <C>
(a) Officers and directors:
Paul S. Lipschutz 33,515,568 (1) 19.27%
1600 Lower State Road
Doylestown, PA 18901
----------------------------------------------------------------------- --------------------------- ----------------------------
Jeffrey Andrews 800,000 * %
1600 Lower State Road
Doylestown, PA 18901
----------------------------------------------------------------------- --------------------------- ----------------------------
Daryle Seidman 2,075,000 1.19%
1600 Lower State Road
Doylestown, PA 18901
----------------------------------------------------------------------- --------------------------------------------------------
Officers and Directors as a group (3 persons) 36,390,568 20.47%
----------------------------------------------------------------------- --------------------------------------------------------
(b) Other beneficial owners: N/A N/A
-----------------------------------------------------------------------
======================================================================= =========================== ============================
</TABLE>
-------------------
* Less than 1%
(1) Does not include 1,075,000 shares owned by Marilyn Lonker, as to which he
disclaims beneficial ownership. Includes 26,333 shares owned by the estate
of Harvey Benson, of which Mr. Lipschutz serves as Executor. Also includes
10,000,000 options issued on January 1, 1999 under an arrangement in which
the ratio of those options to the total shares outstanding when the options
were issued would always be maintained until all 10,000,000 options were
exercised. At the original issue date, this ratio was 11.52%. As of May 2,
2000, CCGR had issued 173,951,697 shares of common stock. As of that date,
Mr. Lipschutz was eligible to exercise options worth 11.52% of 173,951,697
shares. This equals options worth 20,039,235 of underlying common stock.
Also included are 500,000 options the Company issued to Mr. Lipschutz on
November 30, 1995. Mr. Lipschutz may exercise these options to purchase
500,000 shares of common stock for $.10 per share. The options expire on
December 1, 2005.
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ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Directors and Officers:
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
----------------------------------- ------------ -----------------------------------------------
Name Age Position
----------------------------------- ------------ -----------------------------------------------
<S> <C> <C>
Paul S. Lipschutz 53 Chief Executive Officer and Director
----------------------------------- ------------ -----------------------------------------------
Jeffrey Andrews 48 Chief Financial Officer and Director
----------------------------------- ------------ -----------------------------------------------
Daryle Seidman 33 President of Internet Division, Director
----------------------------------- ------------ -----------------------------------------------
</TABLE>
All directors hold office until the next annual meeting of stockholders
of the Company and until their successors have been elected and qualified. There
are no family relationships among the directors and officers.
Paul S. Lipschutz has served as Chief Executive Officer and director for the
Company since 1992. Mr. Lipschutz' experience includes strategic planning,
product development, operational systems development and sales management for
numerous companies. Mr. Lipschutz is also a recognized expert in the direct
response marketplace. Mr. Lipschutz is a 1967 graduate of The Wharton School of
Finance and Commerce of the University of Pennsylvania.
Jeffrey Andrews was appointed Chief Financial Officer for the Company in May
1999, and became a director since October, 1999. Mr. Andrews is a certified
public accountant and has extensive financial and accounting experience in the
private and public sectors. He has worked for several public companies and was
directly involved in the roll-up of a publicly held subsidiary into an IPO. From
May 1996 to March 1999, Mr. Andrews was the Chief Financial Officer and Vice
President of Strategic Planning for the Judge Group, a publicly traded staffing
company. Prior to joining the Judge Group, Mr. Andrews had his own consulting
firm from 1995 to May 1996 and worked for Ernst & Young from 1993 to 1995 in the
area of corporate finance. Mr. Andrews received a Bachelors of Arts degree from
Villanova University in 1974.
Daryle Seidman has served as a Director of the Company since 1996. On January
24, 2000, Mr. Seidman was appointed President of the Internet Division. From
January, 1999 until March 2000, Mr. Seidman was Global Account Director for
AT&T, where he led a team in the development of e-business strategies for AT&T's
large global accounts. Mr. Seidman was Mid-Atlantic Regional Director for
Teleport Communications Group's ("TCG") CERFnet internet and Advanced Data Group
form March 1998 until TCG was acquired by AT&T in December, 1999. From December
1996 to March 1998 he was Vice President of Sales & Marketing at US Online,
where he was responsible for developing and building that company's e-commerce
service offerings, marketing and support operations. From 1995 through 1996, Mr.
Seidman was Strategic Marketing Analyst for Chase Kettering Advertising, where
he assisted clients with conducting strategy sessions to identify product growth
areas, coordinated market segmentation and life-cycle studies, prepared analyses
of resources and strengths, advised clients regarding entry into new market
areas, and identified, researched, and developed new product introductions
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<PAGE>
and pilot programs. Mr. Seidman pursued a Bachelor of Arts degree in Marketing
Communications at Glassboro State College and attended the AT&T School of
Business.
There can be no assurance that these persons will remain affiliated with the
Company or that the scope of their involvement will not change.
(b) Key Employees: There are no key employees in addition to those
mentioned above.
(c) Family Relationships: There are no family relationships among the
directors and officers.
(d) Legal Proceedings: None of the directors and officers have been
involved in any bankruptcy proceeding, proceeding under the Federal or State
Securities Laws or Commodities Futures Law, any proceeding adverse to the
Company or any other legal proceeding material to their evaluation as an officer
or director.
ITEM 6 - EXECUTIVE COMPENSATION
(a) Summary Compensation Table: The following table describes the
compensation of the company's five most highly compensated officers:
<TABLE>
<CAPTION>
Summary Compensation Table
====================================================================================================================================
Long Term Compensation
-----------------------------------------------------------
Awards Payouts
Annual Compensation --------------------------- ---------------------------
-------------------------------------------- Restricted Securities LTIP All Other
Name and Year Salary Bonus Other Stock Underlying Payouts Compensation
Principal Position ($) ($) Annual Award(s) Options/SARs
Compensation ($) (#)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul S. Lipschutz 2000 108,000 (1) 503,250 8,650,000*
Chief Executive 1999 108,000 9,000 10,000,000
Officer
Jeffrey Andrews 2000 76,770 (2) 67,000
Chief Financial 1999
Officer
Daryle Seidman 2000 6,000 (3) 70,500
President, Internet 1999 2,750
Division
===================================================================================================================================
</TABLE>
* Mr. Lipschutz did not receive any option awards in fiscal year 2000.
However, he received an option for 10,000,000 shares in fiscal year 1999.
Pursuant to anti-dilution terms described below under "Employment Contracts
and Termination of Employment and Change In Control Arrangements," these
options became exercisable for an additional 8,650,000 shares in Fiscal
2000. As of May 2, 2000, these options were exercisable for 20,039,235
shares.
27
<PAGE>
(1) Mr. Lipschutz agreed to defer his $108,000 salary in each of fiscal
1999 and 2000 due to the financial condition of the Company and to
help the Company secure financing. In addition, Mr. Lipschutz received
an aggregate 4,950,000 shares of Common Stock as compensation for
services in fiscal 2000.
(2) Mr. Andrews received $52,770 in cash compensation from March 1, 1999
through February 29, 2000. He also deferred compensation in the amount
of $24,000 during that period, due to the financial condition of the
Company. In addition to his salary, Mr. Andrews also received a total
of 800,000 shares of Common Stock as compensation for services in
fiscal 2000.
(3) Mr. Seidman's salary is remuneration for his position as President of
the Internet Division, which commenced on January 24, 2000. In
addition to his salary, Mr. Seidman also received a total of 600,000
shares of Common Stock in fiscal 2000 as compensation for services.
The salary deferred by Mr. Lipschutz and Mr. Andrews has been accrued on
the Company's financial statements and will be paid when the Company has
sufficient cash flow. Mr. Andrews will receive a salary of $96,000 in
fiscal 2001, and Mr. Seidman will receive a salary of $78,000 in fiscal
2001.
(b) Options/SAR Grants: The only options granted to executive officers in
fiscal year 2000 were the options for an additional 8,650,000 shares
received by Mr. Lipschutz by virtue of anti-dilution rights in options
granted in fiscal 1999. No SARs were granted in fiscal 2000.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Number of % of Total
Securities Option/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date
---- ------------ ------------ ---------------- ---------------
Paul S. Lipschutz 8,650,000 100% $.01 1/1/04
</TABLE>
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value:
None.
(d) Long-Term Incentive Plans: None.
(e) Compensation of Directors: The Company issues to its directors 50,000
shares of common stock each quarter as a director's fee.
28
<PAGE>
(f) Employment Contracts and Termination of Employment and Change in
Control Arrangements:
Mr. Lipschutz has an Employment Agreement with the Company which became
effective on January 1, 1999 and which originally expired on January 1, 2004. At
each anniversary date of the Employment Agreement, the Employment Agreement will
extend for another year, unless either Mr. Lipschutz or the Company gives ninety
days prior notice of intent not to have the Agreement renewed. No notice was
given on January 1, 2000; therefore the Employment Agreement has been extended
to January 1, 2005. If no notice is given on January 1, 2001, the term of the
Employment Agreement will be extended to January 1, 2006.
Under the Employment Agreement, Mr. Lipschutz was also granted an
option originally exercisable for 10,000,000 shares of the Company's Common
Stock at a price of $.01 per share (the "Option"). The Option may be exercised
in whole or in part through January 1, 2004, but partial exercises of the Option
must be made in lots of 100,000 shares or greater. The Option will continue to
be exercisable for its original term after in the event of Mr. Lipschutz' death
or the termination of his employment with the Company. Under the Employment
Agreement, the number of shares for which the option is exercisable has
anti-dilution protection so that the option will always be exercisable for
11.52% of the Company's outstanding Common Stock. Currently, the option is
exercisable for 20,039,235 shares.
Mr. Lipschutz initial base salary under the Employment Agreement for
calendar year 1999 was $104,000. During the calendar year 2000 and for each year
thereafter, Mr. Lipschutz is entitled to an additional salary based on the gross
sales of the Company as follows:
------------------------------------ -------------------
Annual Revenues Additional Salaries
------------------------------------ -------------------
$1,000,000 to $1,999,999 $25,000
------------------------------------ -------------------
$2,000,000 to $2,999,999 $50,000
------------------------------------ -------------------
$3,000,000 to $4,999,999 $75,000
------------------------------------ -------------------
Each $1,000,000 increment thereafter $25,000
------------------------------------ -------------------
Beginning with the fiscal year 2001, Mr. Lipschutz's base salary will increase
by 15% of the sum of his previous year's base salary and additional salary under
the table above for the immediately preceding year.
There are no other employment agreements with any executive officer of
the Company.
(g) Report on Repricing of Options/SARS: Not Applicable.
29
<PAGE>
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company believes that the terms of the transactions described below
were as favorable to the Company as would have been obtained by the Company in
arms-length negotiations.
Beginning in fiscal year 1996, Mr. Lipschutz made various loans to the
Company to assist it with meeting its important expenditures. From that period
to the present, the Company repaid Mr. Lipschutz various amounts at unscheduled
times. Repayments and new loans were made during the same fiscal periods. The
aggregate outstanding principal balance of the loans have accrued interest at 10
% per annum, and continues to accrue interest at that rate. At February 28,
1998, the Company owed Mr. Lipschutz $83,464 in principal on the loan. In
addition, for that year the loan had accumulated $10,313 in interest, and the
loan had total accrued interest of $52,376 at February 28, 1998. The total
amount owed to Mr. Lipschutz, with interest and principal on the loan, at
February 28, 1998 was $135,840.
On April 28, 1999, pursuant to the Separation Agreement between the
Company and SDS, Mr. Lipshutz resigned from his position as an officer and
director of SDS. Mr. Lipshutz also tendered his equity interest in SDS to SDS
under the terms of the Separation Agreement. Mr. Lipshutz had acquired his
equity interest by transfer of the SDS shares the Company had received upon
exercise of an option to purchase SDS shares. This transaction is discussed in
the "Description of Business" section of this registration statement. Mr.
Lipshutz did not give any consideration to the Company for the SDS shares he
received in the transaction.
At February 28, 1999, the principal amount of Mr. Lipschutz's loan had
decreased to $67,101 through net repayments. The loan accumulated $7,528 in
interest during Fiscal Year 1999, and the loan had total accrued interest of
$59,904 at February 28, 1999. The total amount owed to Mr. Lipschutz, with
interest and principal on the loan, at February 28, 1999 was $127,005.
At February 29, 2000, the principal amount of Mr. Lipschutz's loan had
decreased to $50,376 through net repayments. The loan accumulated $5,890 in
interest during Fiscal Year 2000, and the loan had total accrued interest of
$65,794 at February 29, 2000. The total amount owed to Mr. Lipschutz, with
interest and principal on the loan, at February 29, 2000 was $116,170.
ITEM 8 - DESCRIPTION OF SECURITIES
(a) Common Stock
The Company is authorized to issue 350,000,000 shares of Common Stock,
$.001 par value per share. As of May 2, 2000, 173,951,697 shares were issued and
outstanding. Holders of Common Stock are entitled to one vote for each share of
Common Stock owned of record on all matters to be voted on by stockholders,
including the election of directors. The holders of Common Stock are entitled to
receive such dividends, if any, as may be declared from time to time by the
Board of Directors, in its discretion, from funds legally available therefor.
30
<PAGE>
The Common Stock has no preemptive or other subscription rights, and
there are no conversion rights or redemption provisions. All outstanding shares
of Common Stock are validly issued, fully paid, and nonassessable.
(b) Convertible Debt.
In May 2000, the Company issued $400,000 in convertible debentures.
These debentures are immediately convertible at an exercise price of the lesser
of $.04 per share or 50% of the market value at the time of exercise. The
debentures are due April 1, 2001, and bear interest at 10% per annum. Interest
is payable quarterly. Under certain circumstances, the Company has the option of
paying interest by issuing shares of common stock. Those circumstances include
having an effective registration statement covering the shares and having the
common stock listed on the OTC Bulletin Board (or Nasdaq). The Debentures will
be in default if, among other things, the Company experiences a change in
control or if, 150 days after the date of issuance of the debentures, there is
no registration statement effective covering the resale of the shares issuable
on conversion of the Debentures and exercise of certain warrants. The Company's
obligations to register the shares for resale, as well as the potential issuance
of an additional $400,000 in Convertible Debentures are described in Item
8-"Description of Securities-Registration Rights." The Debentures are secured by
substantially all of the Company's assets.
As of May 2, 2000 the Company has outstanding $90,000 in other debt
convertible into 2,300,000 shares of common stock on demand. Requests have been
received to convert $20,000 of this debt into 1,050,000 shares. This debt has
been issued to various holders and may be converted at various rates. The debt
is immediately convertible into common stock, and there is no expiration of the
right of any holder to convert such debt. No holder owns enough of the
convertible debt to convert into shares totaling in excess of 1% of the
Company's issued common stock.
(c) Warrants, Options and Anti-Dilution Rights.
In connection with the $400,000 convertible debentures referenced
above, the Company issued warrants exercisable for 4,000,000 shares of the
Company's Common Stock at $.17 per share. These warrants expire in 2005. The
documents governing these convertible debentures and warrants contain provisions
prohibiting conversion or exercise to the extent that such conversion or
exercise would cause the holder to beneficially own more than 4.999% of the
Company's outstanding common stock. This provision is waivable by the holder on
five days prior written notice to the Company.
The Company's President, Paul S. Lipschutz, has an option currently
exercisable for 20,039,235 shares of common stock at an exercise price of $.01
per share. This option is exercisable through January 1, 2004. The number of
shares for which the option is exercisable has anti-dilution protection so that
the option will always be exercisable for 11.52% of the Company's outstanding
Common Stock. Mr. Lipschutz also has an option exercisable for 500,000 shares at
$.10 per share, which expires on December 1, 2005. In January 2000, the Company
agreed to issue stock options at the rate of 50,000 per month for twelve months
in connection with obtaining the rights to the Mini-V Website. These options are
exercisable at $.01 per share and have no expiration date.
Under an agreement made in connection with a November 1999 investment
in the Company, an investor currently holding approximately 2,700,000 shares of
common stock has anti-dilution rights requiring the Company to issue additional
shares to the investor required from time to time so as to maintain the
investor's percentage of the Company's outstanding shares, assuming exercise of
all options and warrants and conversion of all convertible debt, at 1.238%.
Transfer Agent.
The Company's transfer agent is American Register & Transfer, 342 East
900 South, Salt Lake City, UT 84111.
31
<PAGE>
Registration Rights
The Company has agreed with the holders of the $400,000 convertible
debt and related warrants referenced above to file a Registration Statement
covering the sale of the shares issuable upon conversion of the convertible
debentures and exercise of the warrants, no later than August 1, 2000. At the
time the Registration Statement becomes effective, the holders of the
convertible debentures will have the right and the obligation to purchase an
additional $400,000 in convertible debentures (the "Additional Debentures"),
also convertible at the lesser of $.04 or 50% of the market value at the time of
conversion, and receive additional warrants for 4,000,000 shares of Common Stock
(the "Additional Warrants"). The shares issuable upon conversion of the
Additional Debentures and exercise of the Additional Warrants also will be
covered by the Registration Statement.
An aggregate of 25,000,000 shares of outstanding Common Stock have
"piggyback" registration rights. If the Company registers any of its securities
for sale pursuant to a Registration Statement under the Securities Act, the
Company will be required to offer the holders of those shares the opportunity to
register such shares without cost to the holders thereof, subject only to the
managing underwriter advising the Company that the inclusion of such shares of
Common Stock would not have a material adverse affect upon its ability to
consummate the sale of the securities proposed to be sold by the Company.
Anti-Takeover Provisions
Although the Board of Directors is not presently aware of any takeover
attempts, the Certificate of Incorporation and Bylaws of the Company and
Delaware law contain certain provisions which may be deemed to be
"anti-takeover" in nature in that such provisions may deter, discourage or make
more difficult the assumption of control of the Company by another corporation
or person through a tender offer, merger, proxy contest or similar transaction
or series of transactions. Potentially, the Company could issue shares of common
stock that would dilute the interests of shareholders attempting to wrest
control of the Company from management. Lack of cumulative voting also can be
considered an anti-takeover device because it impairs the ability of a minority
shareholder to elect a director of have a say in management.
Authorized but Unissued Shares: The authorized capital stock of the
Company includes 350,000,000 shares of Common Stock. These shares of capital
stock were authorized for the purpose of providing the Board of Directors of the
Company with as much flexibility as possible to issue additional shares for
proper corporate purposes, including equity financing, acquisitions, stock
dividends, stock splits, employee stock option plans, and other similar purposes
which could include public offerings or private placements.
No Cumulative Voting: Neither the Company's Articles of Incorporation
nor its Bylaws contain provisions for cumulative voting. Cumulative voting
entitles each stockholder to as many votes as equal the number of shares owned
by him multiplied by the number of directors to be elected. With cumulative
voting, a stockholder may cast all these votes for one candidate or distribute
them among any two or more candidates. Thus, cumulative voting for the election
of directors allows a stockholder or group of stockholders who hold less than
50% of the outstanding
32
<PAGE>
shares voting to elect one or more members of a board of directors. Without
cumulative voting for the election of directors, the vote of holders of a
plurality of the shares voting is required to elect any member of a board of
directors and would be sufficient to elect all the members of the board being
elected.
Report to Shareholders
The Company will distribute to its shareholders annual reports
containing audited financial statements prepared by independent certified public
accountants. In addition, the Company shall, from time to time, issue unaudited
financial statements and corporate reports.
33
<PAGE>
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
(a) Market Information
The Company's Common Stock was traded over-the-counter on the
electronic bulletin board operated by the National Association of Securities
Dealers under the symbol "CCGR". The following table sets forth the high and low
bid prices quoted for the Company's Common Stock as of May 2, 2000. The
Company's stock was removed from the bulletin board on May 2, 2000 for failure
to have this Registration Statement become effective. The Company's Common Stock
is currently trading on the "pink sheets" maintained by the National Quotation
Bureau.
High Low
---- ---
Calendar year 1999
First Quarter $.000 $.000
Second Quarter $.135 $.000
Third Quarter $.125 $.060
Fourth Quarter $.097 $.027
Calendar year 2000
First Quarter $.590 $.055
Second Quarter
(through May 2, 2000) $.590 $.030
The above quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
(b) Holders
As of May 1, 2000, there were approximately 661 record holders of the
Company's Common Stock.
(c) Dividends
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that all future earnings will be
retained by the Company to support its growth strategy. Accordingly, the Company
does not anticipate paying cash dividends on the Common Stock in the foreseeable
future. The payment of dividends on Common Stock will be at the discretion of
the Company's Board of Directors and will depend upon, among other things,
future earnings, operations, capital requirements, the general financial
condition of the Company, contractual restrictions and general business
conditions.
34
<PAGE>
ITEM 2 - LEGAL PROCEEDINGS
In December, 1999, the Company and Mr. Lipschutz were sued by Frederick
Davies in the Superior Court for Atlantic County, New Jersey. Mr. Davies claims
that he had an agreement with the Company under which he was entitled to receive
common stock and employment with the Company pursuant to a business transaction
that occurred in 1993. In his complaint, Mr. Davies alleges that he is entitled
to 400,000 shares of the Company, $750 per week for three years (together with
statutory interest), and $30,000 cash. While the Company did employ Mr. Davies,
the Company subsequently terminated him and believes that it had the right to
terminate him. The Company believes it provided Mr. Davies with all the
consideration to which he was entitled. The Company's counsel has communicated
to Mr. Davies counsel that company counsel believes there are significant legal
and factual deficiencies with the complaint. The plaintiff's counsel orally
informed the Company's counsel, in mid-March, 2000, that the plaintiff would
either withdraw or amend the complaint. Neither the Company nor its counsel has
heard from Mr. Davies counsel since that time. The Company does not believe it
has any significant exposure in this matter.
ITEM 3 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has not had any disagreements with its accountants or
changes in its accountants in the two years prior to the effective date of this
Registration Statement.
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
Fiscal year 1998
The Company issued the following shares of common stock:
On August 4, 1997, the Company issued 300,000 shares to one individual
in consideration of the conversion of $5,000 of existing indebtedness. This was
a negotiated transaction between and among the parties. The proceeds realized
from this transaction were utilized by the Company as working capital.
On January 23, 1998, the London Venture Capital Corp. fund received an
aggregate of 1,500,000 shares in exchange for the conversion of $182,096 in
existing indebtedness. This was a negotiated transaction between and among the
parties. The proceeds realized from the initial indebtedness were utilized by
the Company as working capital. The terms of the conversion feature of this
indebtedness were consistent with the results of exercise described above.
Also on January 23, 1998, the Company issued 3,500,000 shares to one
unaffiliated person in consideration of past and expected future services to the
Company. The price of the Company's securities and the value of the services
rendered, and expected to be rendered, were determined through the negotiations
between the Company and this person.
35
<PAGE>
During the course of the entire fiscal year, a total of 9,658,000
shares were purchased for cash by 47 non-affiliated persons for a total cash
payment of $168,380. No underwriters were utilized by the Company. There were no
underwriting discounts or commissions paid in connection with the offer and sale
of these securities. The shares were sold by the officers and directors of the
Company. The proceeds of these sales were utilized by the Company as working
capital. The securities referenced in this paragraph were issued by the Company
to the purchasers at various times throughout the fiscal year. Four persons
purchased shares on more than one occasion, but in no instance did any person
purchase shares on more than two occasions. In each instance, the purchaser was
known to an officer or director of the Company prior to purchase.
In consideration of services rendered to the Company, the Company
issued a total of 11,260,000 shares to 34 non-affiliates with a total market
value of $132,217. Shares of stock were issued in consideration of services to
the Company including, but not limited to: consulting, legal, administrative,
management, marketing, licensing, sales consulting, public relations, artwork,
financial, and accounting. The number of shares issued in consideration for the
services described above was negotiated in each instance between the Company and
the provider of the services. The Company believed that the value of the stock
issued was commensurate with the value of the services rendered in each
instance. The Company did not attempt to secure an independent fair market
valuation for any such transaction at the time it took place. Six persons
acquired the Company's common stock in consideration for services rendered to
the Company on more than one occasion, however, no person received shares of
common stock on more than four occasions. Furthermore, no person identified in
the preceding paragraph relating to sales of common stock in consideration of
cash payment were issued shares of common stock in consideration of services
rendered.
Officers and directors and family members (including, for purposes of
this Item 4, Marilyn Lonker) were issued 22,150,000 shares for services provided
to the Company, with a total fair market value of $214,000. Specifically,
20,700,000 shares were issued to Paul Lipshutz (1,400,000 of which were issued
to Marilyn Lonker). 50,000 shares were issued to Henry Lipshutz. 1,200,000
shares were issued to Daryle Seidman, and 200,000 were issued to Kenneth Rosner.
The Company did not obtain an independent valuation of the services rendered by
the officers and directors that served as the consideration for these shares.
Fiscal year 1999
The Company issued the following shares of common stock:
On March 31, 1998, the Company issued 1,500,000 shares to one
non-affiliated person for a total cash payment of $15,000. No underwriters were
utilized by the Company and there were no underwriting discounts or commissions
paid in connection with the offer and sale of these securities. The shares were
offered and sold by the officers and directors of the Company. The proceeds of
this sale were utilized by the Company as working capital. The purchaser was
known
36
<PAGE>
to an officer or director of the Company prior to purchase. This individual was
issued additional shares of the Company's stock during the fiscal year in
consideration of the restructuring of certain existing indebtedness. This
transaction is described below.
2,700,000 shares were issued to the shareholders of SD Studios, Inc.,
in connection with the acquisition of a 51% interest in S.D. Studios, Inc. by
the Company, pursuant to the Separation Agreement. Management valued these
shares at $27,000. The shares were issued on four separate days, March 31, 1998,
May 18, 1998, July 20, 1998, and September 21, 1998. Two shareholders of S.D.
Studios, Inc. previously had acquired shares of the Company in consideration of
services rendered to the Company. These transactions were described in the
section of this registration statement relating to sales of unregistered
securities during fiscal year 1998, shares issued in consideration of services.
On July 20, 1998, One individual received 1,965,000 shares in
consideration for conversion of $184,973 in indebtedness. The investor received
1,500,000 shares under the terms of the promissory note previously issued by the
Company and received another 465,000 shares in consideration of the interest
that accrued on the note. The conversion ratio for the note relating to the
1,500,000 shares was established at the time the note was issued. The holder of
the note later agreed to accept additional shares of the Company's stock in
consideration of the accrued interest as a result of negotiations with the
Company.
On October 19, 1998, a non-affiliated person to whom the Company was
indebted, agreed to extend the term of an existing $25,000 facility in
consideration of an additional 200,000 shares of common stock. This person
previously had purchased 1,500,000 shares of stock for a total cash payment of
$15,000.
Another non-affiliated individual was issued 100,000 shares of common
stock on January 13, 1999 in consideration of the making of a $10,000 loan to
the Company. This person purchased 60,000 shares of the Company's common stock
in the previous fiscal year for $540.
During the course of the fiscal year, 6,990,000 shares were purchased
for cash by 30 non-affiliated persons for a total consideration of $59,600.
There were no underwriting discounts or commissions paid in connection with the
offer and sale of these securities. The proceeds of these sales were utilized by
the Company as working capital. The securities referenced in this paragraph were
issued by the Company to persons at various times throughout the fiscal year. In
each instance, the purchaser was known to an officer or director of the Company
prior to purchase. Three persons purchased shares of the Company's common stock
on more than one occasion during the fiscal year. No person purchased shares of
common stock on more than four occasions. One person also purchased the shares
of the Company's common stock on multiple occasions in the previous fiscal year.
The aggregate purchases of this person, either as sole shareholder or as a
co-owner in fiscal year 1999 was 1,500,000 shares. This person purchased 200,000
shares in the preceding fiscal year.
37
<PAGE>
The Company issued an aggregate of 9,525,000 shares to 25
non-affiliated persons in consideration for services rendered to the Company,
with a total fair market value of $95,250. Shares of stock were issued in
consideration of services to the Company including, but not limited to:
accounting, business planning, consulting, financial, financial consulting,
Internet consulting, legal services, licensing, marketing, and public relations.
The number of shares issued in consideration for the services described above
was negotiated in each instance between the Company and the provider of the
services. The Company believed that the value of the stock issued was
commensurate with the value of the services rendered in each instance. The
Company did not attempt to secure an independent fair market valuation for any
such transaction at the time it took place. Five persons were issued shares of
the Company's common stock on more than one occasion in fiscal year 1999. Of
these transactions, only one person was issued shares on more than two
occasions. This person received a total of 2,250,000 shares of the Company's
common stock in consideration of marketing and general business consulting
services provided to the Company. In addition, two persons who were issued
shares of common stock in fiscal year 1999 also were issued shares in the
previous fiscal year in consideration of services rendered to the Company. One
person was issued 100,000 shares in consideration for the provision of legal
services. The total number of shares issued to this person during fiscal year
1998 and 1999 in consideration of the provision of legal services was 450,000.
The other person was issued a total of 350,000 shares in consideration of the
provision of financial consulting over the course of the two fiscal years.
Officers and directors and family members were issued 1,900,000 shares
(including, for purposes of this Item 4, Marilyn Lonker) with a total value of
$18,500, for services provided to the Company. Specifically, 1,675,000 shares
were issued to Paul Lipshutz (775,000 issued to Marilyn Lonker). 50,000 shares
were issued to Jay Lipshutz. 175,000 shares were issued to Daryle Seidman.
Other Debt
In fiscal 1999, the Company issued promissory notes to five individuals
for a total consideration of $41,750 in several transactions. One person who
already was a shareholder of the Company loaned the Company an additional
$25,000. The remaining persons each loaned the Company $5,000, except that one
person loaned the Company $1,750.
Fiscal year 2000
The Company issued the following shares of common stock:
11 (four of whom were related) individuals received a total of
4,529,183 shares in exchange for $56,002 in indebtedness.
38
<PAGE>
Nine individuals and one corporation received an aggregate 2,776,964
shares in exchange for other consideration, including making or restructuring
loans, and the effect of anti-dilution provisions. These shares had a total
market value of $134,950, and the Company accounted for these shares at a
discounted value of $109,257. The corporation was issued a total of 2,100,000
shares in consideration of the making of a $30,000 loan to the Company. Pursuant
to the terms of the loan facility, the corporation has the right to acquire
1,500,000 shares upon conversion. The corporation also had the right to acquire
additional shares in consideration of extending the maturity date of the
facility. The corporation acquired an additional 600,000 shares through
subsequent extensions of the facility. The corporation also called the facility
during the fiscal year.
During the course of the fiscal year, 23,532,232 shares were purchased
for cash by 59 persons who are not affiliates of the Company for a total
consideration of $284,818. There were no underwriting discounts or commissions
paid in connection with the offer and sale of these securities. The proceeds of
these sales were utilized by the Company as working capital. The securities
referenced in this paragraph were issued by the Company to persons at various
times throughout the fiscal year. In each instance, the purchaser was known to
an officer or director of the Company prior to purchase. 13 persons purchased
shares of the Company's common stock on more than one occasion, but no person
purchased on more than three occasions. Two persons described hereunder
purchased shares of the Company's common stock in fiscal year 1998. One person
also purchased shares of the Company's common stock in fiscal year 1999.
The Company issued 19,543,750 shares for services to 62 persons who are
not affiliated with the Company, with a total market value of $1,895,629 (the
Company has accounted for these shares at a discounted value of $1,489,843). The
discounted value was occasioned by the fact that after the Company's stock began
trading at values in excess of $0.1 (beginning in June 1999), the Company
believed it was appropriate to discount the value of the services by 20%. The
Company based this discount principally upon the fact that the securities issued
were subject to the holding periods of Rule 144. Shares of stock were issued in
consideration of services to the Company including, but not limited to:
consulting, legal, marketing, artwork, financial, licensing, public relations,
management, public relations and accounting. The Company believed that the
discounted value of the stock issued was commensurate with the value of the
services rendered in each instance. 11 persons were issued shares of common
stock on more than one occasion during the fiscal year. Of these 11 persons,
one, who agreed to accept 400,000 shares of stock in consideration of consulting
services, was issued a total of 2,250,00 shares in consideration of consulting
services rendered in 1999.
Officers, directors and their relatives were issued 6,600,000 shares
for services provided to the Company (including, for purposes of this Item 4,
Marilyn Lonker). No consideration was paid for these shares. Specifically,
4,950,000 shares were issued to Paul Lipshutz and 250,000 to Marilyn Lonker.
600,000 shares were issued to Daryle Seidman, and 800,000 shares were issued to
Jeffrey Andrews. The Company accounted for these shares at a discounted value of
$533,600, which was the fair market value of the services.
39
<PAGE>
Management recorded such shares at a discount of 20% be applied to the services
rendered by these officers, directors and relatives due to the restricted nature
of the shares.
Other Debt
In fiscal year 2000, the Company issued promissory notes, convertible
by their original terms, to eleven individuals for a total consideration of
$150,000 in indebtedness. Several of these facilities were converted after the
end of the fiscal year. The effect of this conversion is discussed in more
detail in the section entitled Post Fiscal Year-End, below. In fiscal 2000, the
Company issued other promissory notes to five individuals, for a total
consideration of $44,479 in indebtedness. In addition, in fiscal 2000, one
investor, together with members of his family and employees, loaned the Company
an aggregate $54,007 under certain promissory notes.
Post Fiscal Year-End
Since February 29, 2000, the Company has issued the following shares of
common stock:
Rule 504 Offering of Common Stock
The Company conducted an offering under Securities Act Rule 504 in
February 2000 and March 2000. In February 2000, three entities purchased a total
of 15,000,000 shares for a total price of $600,000. In March 2000, the same
three entities purchased an additional 10,000,000 shares for $400,000. The
Company paid consulting fees of an aggregate of $130,000 upon the receipt of the
proceeds of this offering. In addition, the Company paid an attorney fees of
$20,000 in cash and 60,000 shares of common stock in connection with making
certain introductions. The attorney was retained for the specific purpose of
providing said introductions. The terms of this engagement were presented to the
Company by the attorney. The Company has not utilized this attorney since this
transaction, and does not expect to utilize the services of this attorney in the
future.
55,000 shares of common stock were issued as hiring incentives to two
employees of the Company on April 10, 2000. The Company received no
consideration other than the employment of these two individuals for the shares
that were issued.
On April 19, 2000, one lender received 600,000 shares as consideration
for extension of the maturity date of certain existing indebtedness. Under the
term s of this facility, which originated in November 1999, the lender had the
option of extending the maturity date of the obligation in consideration of
600,000 Shares of the Company's common stock. This lender also was issued
1,500,000 shares upon termination of this facility.
40
<PAGE>
An additional 2,389,000 shares were issued to 15 individuals for an
aggregate cash purchase price of $86,200 through April 24, 2000. The proceeds of
these sales were utilized by the Company as working capital. The securities
referenced in this paragraph were issued by the Company to persons at various
times throughout the fiscal year. In each instance, the purchaser was known to
an officer or director of the Company prior to purchase.
After the Company's fiscal quarter ended May 31, 2000, and prior to
July 24, 2000, the Company received $262,000 in investment funds from seven
individuals who were all previously shareholders of the Company. The funds were
provided on terms to be negotiated. The Company and the investors have not
completed the negotiations, but the terms are expected to characterize this
investment as convertible debt. The proceeds were used primarily for working
capital.
Rule 506 Offering of Convertible Debentures and Warrants
On May 2, 2000, the Company issued an aggregate of $400,000 principal
amount of Convertible Debentures to three accredited investors. The debentures
are secured by substantially all of the Company's assets. The Debentures are
convertible to common stock at the lower of $.04 per share or 50% of the market
value per share at the time of conversion. The investors also received warrants
exercisable for 4,000,000 shares of common stock at $.17 per share. The warrants
are immediately exercisable and expire in April 2005. This transaction was
conducted pursuant to Securities Act Rule 506. The Company paid certain
consulting fees in an aggregate of $52,000 upon the receipt of the proceeds of
this offering. The consulting fees were paid by the Company to the NIR Group
pursuant to a consulting agreement between the Company and NIR. The proceeds of
the offering were utilized by the Company principally for X-Men inventory
purchases, and thereafter for general working capital. The Debentures are
immediately convertible into shares of common stock of the Company.
The debentures are due April 1, 2001, and bear interest at 10% per
annum. Interest is payable quarterly. Under certain circumstances, the Company
has the option of paying interest by issuing shares of common stock. Those
circumstances include having an effective registration statement covering the
shares and having the common stock listed on the OTC Bulletin Board (or Nasdaq).
The Debentures will be in default if, among other things, the Company
experiences a change in control or if, 150 days after the date of issuance of
the debentures, there is no registration statement effective covering the resale
of the shares issuable on conversion of the Debentures and exercise of the
warrants. The Company's obligations to register the shares for resale, as well
as the potential issuance of an additional $400,000 in Convertible Debentures
are described in Item 8-"Description of Securities-Registration Rights."
On June 5, 2000, the Company issued 1,000,000 shares of common stock in
connection with the Company's acquisition of Music Art. Also as part of this
transaction, the Company issued 20,000 shares to the attorney for Music Art in
satisfaction of a portion of his legal fees associated with the transaction. At
or about the same time, the Company issued 250,000 shares to Denny Somac, in
consideration of his employment as President of Music Art, a wholly owned
subsidiary of the Company. The Company also issued a total of 25,000 shares of
common stock to three employees of Music Art in consideration of their continued
employment with the Company.
41
<PAGE>
Securities Act Exemptions Relied Upon
Except as otherwise noted above and in connection with the offerings
under Rule 504 and Rule 506, the Company relied upon the exemption provided in
Section 4(2) of the Securities Act of 1933 in connection with the above
referenced transactions. The Company relied on Section 4(2) as no public
solicitation was employed, all of the shares were issued with restrictive
legends and the acquirers of the shares had access to the type of information
which would be contained in a registration statement and had sufficient
sophistication so as to not require the protection afforded by registration
under the Securities Act.
Each of the purchasers of the Company's securities was given the
opportunity to ask questions of and receive answers from Company management.
Except as otherwise noted in this section, no commissions or other remuneration
was paid or given in connection with the offer and sale of the Company's
securities. Unless otherwise expressly noted, the proceeds of each sale of the
Company's securities was utilized by the Company as working capital
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains a provision
permitted by the Delaware General Corporation Law ("DGCL") which eliminates the
personal liability of the Company's directors for monetary damages for breach of
their fiduciary duty of care which arises under state law. Although this does
not change the directors' duty of care, it limits legal remedies which are
available for breach of that duty to equitable remedies, such as an injunction
or rescission. The provision of the Company's Certificate of Incorporation has
no effect on directors' liability for: (1) breach of the directors' duty of
loyalty; (2) acts or omissions not in good faith or involving intentional
misconduct or known violations of law; and (3) approval of any transactions from
which the directors derive an improper personal benefit.
The DGCL empowers the Company to indemnify officers, directors, employees and
others from liability in certain circumstances such as where the person
successfully defended himself on the merits or acted in good faith in a manner
reasonably believed to be in the best interests of the corporation. The
Company's Bylaws require indemnification, to the fullest extent permitted by the
DGCL, of any person who is or was involved in any manner in any investigation,
claim or other proceeding by reason of the fact that such person is or was a
director or officer of the Company, or of another corporation serving at the
request of the Company, against all expenses and liability actually and
reasonably incurred by such person in connection with the investigation, claim
or other proceeding.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
42
<PAGE>
PART F/S
FINANCIAL STATEMENTS
The Index to Financial Statements and the Company's financial statements
required to be contained in this registration statement follow the signature
page of this report
PART III
ITEM 1 - INDEX TO EXHIBITS
Exhibit Description
3.1 Certificate of Incorporation
3.2 Bylaws.
4.1 Form of Debenture used in outstanding debt of approximately $70,000 as
of 2/29/00.
4.2 Form of Debentures Due April 2001 (aggregate $400,000)
4.3 Form of Warrants issued in connection with 4.2 (exercisable for an
aggregate 4,000,000 shares).
4.4 Form of Registration Rights Agreement with holders of 4.2 and 4.3.
10.1 Paul S. Lipschutz Employment Agreement
10.2 Exclusive Licensing Consultant Agreement with Building Q.
10.3 Merchandise License with New Line Productions, Inc. for Austin Powers
products.
10.4 Royalty Agreement with Galena Industries.
10.5 License Agreement with Creative Licensing Corporation for Terminator
Products.
10.6 License Agreement with Canal+ DA for Terminator 2 products.
10.7 Financial Consulting Agreement with NIR Group, LLC.
43
<PAGE>
10.8 License Agreement with Marvel Characters, Inc. for X-Men products.
10.9 Lease for 1600 Lower State Road.
10.10 Agreement with Verne Troyer and TC Ventures.
10.11 Secured Convertible Debenture Purchase Agreement
10.12 Security Agreement executed in connection with Exhibit 10.11.
10.13 Separation Agreement with S.D. Studios
27 Financial Data Schedule
44
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
COLLECTIBLE CONCEPTS GROUP, INC.
By: /s/Paul S. Lipschutz
---------------------
Paul S. Lipschutz,
Chief Executive Officer
Date: September 5, 2000
Pursuant to the requirement of the Securities and Exchange Act of 1934,
this Amendment to registration statement has been signed by the following
persons on behalf of the registrant and in the capacities and on the date
indicated.
Signatures Title Date
---------- ----- ----
/s/ Paul S. Lipschutz Chief Executive September 5, 2000
--------------------- Officer and Director
Paul S. Lipschutz
/s/ Jeffrey Andrews Chief Financial Officer September 5, 2000
------------------- and Director
Jeffrey Andrews
/s/ Daryle Seidman President Internet Division September 5, 2000
------------------ and Director
Daryle Seidman
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
YEARS ENDED
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
F-1
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
TABLE OF CONTENTS
PAGE(s)
------
INDEPENDENT AUDITORS' REPORT F-3
BALANCE SHEET F-4
STATEMENTS OF OPERATIONS F-5
STATEMENTS OF SHAREHOLDERS' DEFICIENCY F-6
STATEMENTS OF CASH FLOWS F-7
NOTES TO FINANCIAL STATEMENTS F-8-20
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Collectible Concepts Group, Inc.
Doylestown, Pennsylvania
We have audited the accompanying balance sheet of Collectible Concepts
Group, Inc. as of February 29, 2000 and the related statements of operations and
shareholders' deficiency and cash flows for each of the two years in the period
ended February 29, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 present fairly, in all material
respects, the financial position of Collectible Concepts Group, Inc. as of
February 29, 2000, and the results of their operations and their cash flows for
each of the two years in the period ended February 29, 2000 in conformity with
generally accepted accounting principles.
As described in Notes 5 and 6 to the financial statements, the Company's
financial statements have been adjusted to give proper accounting recognition to
beneficial conversion features relating to certain loans and notes payable and
subordinated debentures issued during the year ended February 29 2000.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and at February 29, 2000 has negative working capital and a shareholders'
deficiency. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Rudolph, Palitz, LLC
Blue Bell, Pennsylvania
May 8, 2000, except as to Note 12,
which is as of June 5, 2000 and August 2, 2000
F-3
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
BALANCE SHEET
FEBRUARY 29, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 247,491
Accounts receivable - trade and other
(net of allowance for doubtful accounts of $1,500) 12,386
Inventories 149,408
Prepaid royalties 28,821
-----------
Total current assets 438,106
-----------
PROPERTY AND EQUIPMENT 34,558
less - accumulated depreciation 16,772
-----------
Net property and equipment 17,786
-----------
Total assets $ 455,892
===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes and loans payable $ 367,587
Convertible debentures 70,000
Accounts payable and accrued expenses 369,537
Accrued payroll 405,708
Payroll taxes payable 11,015
Accrued interest 78,469
Accrued royalties 5,462
-----------
Total current liabilities 1,307,778
-----------
COMMITMENTS
SHAREHOLDERS' DEFICIENCY
Capital stock, $.001 par value,
350,000,000 shares authorized;
162,703,418 issued and outstanding 162,704
Additional paid-in capital 7,247,996
Accumulated deficit (8,193,286)
Deferred compensation/services (69,300)
-----------
Total shareholders' deficiency (851,886)
-----------
Total liabilities and shareholders' deficiency $ 455,892
===========
See Notes to Financial Statements.
F-4
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
2000 1999
---- ----
SALES $ 296,261 $ 12,675
COST OF SALES 199,224 52,819
----------- ----------
GROSS PROFIT (LOSS) 97,037 (40,144)
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (NOTE 7) 3,064,285 254,726
----------- ----------
LOSS FROM OPERATIONS (2,967,248) (294,870)
OTHER EXPENSE
Interest expense 248,266 12,335
----------- ----------
NET LOSS $(3,215,514) $ (307,205)
=========== ==========
NET LOSS PER SHARE:
BASIC AND DILUTED ($0.03) $0.00
=========== ==========
WEIGHTED AVERAGE SHARES USED IN NET
LOSS PER SHARE CALCULATIONS:
BASIC AND DILUTED 116,713,182 81,278,221
=========== ==========
See Notes to Financial Statements.
F-5
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
Common Stock Additional Deferred
------------------------- Paid-in Accumulated Compensation/
Shares Amount Capital Deficit Services Total
-------- -------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1998 $ 65,891,289 $ 65,892 $3,778,143 $(4,670,567) $ - $ (826,532)
Common stock issued for
cash and services rendered 22,865,000 22,865 195,485 - - 218,350
Conversion of convertible debentures, notes
and loans payable to common stock 1,965,000 1,965 183,008 - - 184,973
Net loss for the year ended
February 28, 1999 - - - (307,205) - (307,205)
----------- -------- ---------- ----------- -------- -----------
Balance, February 28, 1999 90,721,289 90,722 4,156,636 (4,977,772) - (730,414)
Common stock issued for
cash and services rendered 67,452,946 67,453 2,855,685 - (69,300) 2,853,838
Conversion of convertible debentures, notes
and loans payable to common stock 4,529,183 4,529 51,473 - - 56,002
Additional paid-in capital related to
convertible loans, notes and
subordinated debentures - - 184,202 - - 184,202
Net loss for the year ended
February 29, 2000 - - - (3,215,514) - (3,215,514)
----------- -------- ---------- ----------- -------- -----------
Balance, February 29, 2000 $162,703,418 $162,704 $7,247,996 $(8,193,286) $(69,300) $ (851,886)
============ ======== ========== =========== ======== ===========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
2000 1999
---- ----
OPERATING ACTIVITIES
Net loss $(3,215,514) $(307,205)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 5,885 1,163
Provision for doubtful accounts 6,077 -
Common stock issued for services rendered 2,070,520 143,750
Interest expense recorded on convertible
loans, notes and subordinated debentures 184,202 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (13,670) (4,793)
Inventories (140,532) 3,322
Prepaid royalties (28,821) -
Prepaid expenses and other 2,000 (2,000)
Increase in:
Accounts payable and accrued expenses 189,185 20,642
Accrued interest 28,219 16,192
Accrued payroll 201,441 26,667
Payroll taxes payable 10,892 123
Accrued royalties 5,462 -
----------- ---------
Net cash used in operating activities (694,654) (102,139)
----------- ---------
INVESTING ACTIVITIES
Net cash used in investing activities, purchase
of property and equipment (22,902) -
----------- ---------
FINANCING ACTIVITIES
Borrowings 205,161 48,084
Proceeds from issuance of common stock, net 783,318 74,600
Repayments of notes and loans payable (27,614) (16,363)
----------- ---------
Net cash provided by financing activities 960,865 106,321
----------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 243,309 4,182
CASH AND CASH EQUIVALENTS, BEGINNING 4,182 -
----------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 247,491 $ 4,182
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 34,033 $ -
=========== =========
See Notes to Financial Statements.
F-7
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
Collectible Concepts Group, Inc. (formerly USA Sports
Group, Inc.) (the "Company") distributes high-end and novelty
products related to both the entertainment and sports
industries. The Company sells its products through retailers,
distributors, department stores, the internet and catalogers.
Reissuance of Financial Statements
The 2000 financial statements have been adjusted and
reissued to give proper accounting recognition of beneficial
conversion features. As described in Notes 5 and 6 to the
financial statements, the Company issued certain loans and
notes payable and subordinated debentures in fiscal 2000 that
contained beneficial conversion features. As a result, the
Company recorded additional interest expense of $184,202 and a
corresponding increase in additional paid-in capital. This
adjustment resulted in an increase in the previously reported
net loss.
Accounts Receivable
The Company's trade accounts are unsecured with an
allowance for bad debts provided for those amounts whose
collectiability is uncertain.
Property and Equipment and Depreciation
Property and equipment consists principally of office
and computer equipment and are stated at cost. Upon sale or
retirement, the cost of the asset and the related accumulated
depreciation is removed from the accounts and the resultant
gain or loss, if any, is included in income. Depreciation is
computed using the straight-line method based on the estimated
useful lives of the related assets, principally five to seven
years. Depreciation expense amounted to $5,885 in 2000 and
$1,163 in 1999.
Inventories
Merchandise inventories are valued at lower of cost or
market on the first in, first out (FIFO) method. The Company
provides an allowance for obsolete merchandise, as deemed
necessary, with an allowance of approximately $25,000 recorded
as of February 29, 2000.
F-8
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in bank and
other short-term investments with original maturities of three
months or less.
The Company maintains cash balances at financial
institutions. These balances are insured by the Federal
Deposit Insurance Corporation up to $100,000 at each
institution.
Revenue Recognition
Revenues from the sale of products are recognized at
the time of shipment.
Advertising Expense
The Company participates in various advertising
programs. All costs related to advertising are expensed in the
period incurred. Advertising expense amounted to approximately
$25,000 in 2000 and $1,000 in 1999.
Fair Value of Financial Instruments
The estimated fair values of substantially all of the
Company's financial instruments are approximately equal to
their carrying values for all periods presented.
Income Taxes
Deferred taxes are accounted for in accordance with
Statement of Financial Accounting Standards ("Statement") No.
109 "Accounting for Income Taxes." The Statement requires the
use of the liability method to account for income taxes.
Deferred income taxes are provided for the difference between
the tax basis of an asset or liability and its reported amount
in the financial statements and at the tax rates that are
expected to be in effect when the taxes are actually paid or
recovered.
Deferred income taxes arise principally from
differences between financial and income tax reporting,
including amounts recorded for inventory, the allowance for
doubtful accounts, accrued expenses, the availability of net
operating loss carryforwards and certain other temporary
differences.
Deferred income tax assets are reduced by a valuation
allowance when, based on the weight of evidence available, it
is more likely than not that some portion or all of the
deferred tax assets will not be realized. The determination of
the requirement for a valuation allowance is an estimate which
is reasonably possible to change in the near term.
F-9
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Earnings (Loss) Per Share
The Company follows Statement of Financial Accounting
Standards No. 128 ("FAS No. 128") "Earnings Per Share". Basic
and fully diluted loss per share amounts are computed based on
net loss and divided by the weighted average number of shares
actually outstanding. The number of shares used in the
computation was 116,713,182 in 2000 and 81,278,221 in 1999.
The assumed conversion of convertible debt and exercise
of outstanding options to purchase shares of common stock were
not included in the computation of diluted earnings (loss) per
share in 2000 and 1999 because the assumed conversion and
exercise would be anti-dilutive due to net losses incurred in
both years.
Significant Customer
Approximately $81,000 (27%) of the Company's sales for
the year ended February 29, 2000 was to one customer.
Management Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that may affect
certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2. GOING CONCERN
The Company's financial statements have been prepared
in conformity with generally accepted accounting principles,
which contemplates the continuation of the Company as a going
concern. Since inception, the Company has not generated
sufficient revenues to meet its operating expenses and has
incurred significant operating losses and net losses. At
February 29, 2000, the Company has a shareholders' deficiency
of $851,886 and a working capital deficiency of $869,672.
These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in
existence.
F-10
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 2. GOING CONCERN (Continued)
To generate additional revenues and the working capital
needed to continue and expand operations, the Company has
accomplished the following:
o Signed a licensing agreement with Time Warner's New
Line Cinema Division in May 1999 for the right to
manufacture, sell and distribute in the United States
and Canada certain collectibles relating to the
Austin Powers films;
o Signed a licensing agreement with Marvel Characters
in November 1999 providing the right to manufacture,
sell and distribute in the United States and Canada
certain collectibles relating to the X-Men film
scheduled to be released in June 2000;
o Signed a licensing agreement with Creative Licensing
Corp and Canal+ DA for the right to manufacture, sell
and distribute worldwide certain collectibles
relating to the Terminator films;
o The Company entered into an internet site license
agreement on December 16, 1999 to use the website,
rights, logos, and customer base of www.mini-v.com
through December 31, 2001. The consideration was
400,000 shares of Company common stock. "Mini-V" is
actor Verne Troyer, a.k.a. Mini-Me, the diminutive
star of the Austin Powers sequel;
o The Company has developed and currently operates the
following websites in addition to the
CollectibleConcepts.com website:
o powersclub.com
o mini-v.com
o collectbaseball.com;
o The Company has reserved several additional website
names for future use, including the following:
o collectyankees.com
o terminatorclub.com
o x-menclub.com;
F-11
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 2. GOING CONCERN (Continued)
o The Company has signed an agreement with an
experienced management/consulting firm for the
purpose of raising $5,000,000 of additional capital
to fund future operations, including acquisitions. As
of February 29, 2000, the Company has received
$600,000 with $400,000 received subsequent to
year-end (in March 2000).
NOTE 3. ACCOUNTS RECEIVABLE - FACTORING AGREEMENT
The Company has entered into a "Purchase and Sale
Agreement" (the "agreement") with a factor whereby the Company
is permitted to, but not required to, sell certain accounts
receivable to the factor subject to approval by the factor.
The advance rate is 75% of the face value of the specific
accounts. There is no recourse to the Company in the event of
insolvency, as defined in the agreement, by the customer.
There is recourse to the Company for all other events of
non-payment by the customer. At February 29, 2000, there were
no accounts/amounts outstanding under this agreement. The
agreement expires July 1, 2000.
Subsequent to February 29, 2000, the Company terminated
the agreement in accordance with certain provisions in the
agreement.
NOTE 4. NOTE RECEIVABLE
During fiscal 1995, the Company loaned $55,000 to JMJ
Films, Inc. for the production of a motion picture. The terms
of the agreement require that the Company will be repaid from
the first revenues generated by the release of the picture.
The note agreement also stipulates the Company will receive a
10% profit participation on gross receipts. The note is
non-interest bearing and is secured by Jim and Joyce Music,
Inc. No progress has been made regarding the production of
this film and, accordingly, the Company has fully reserved the
$55,000.
NOTE 5. NOTES AND LOANS PAYABLE
At February 29, 2000, notes and loans payable consists
of various unsecured notes and loans payable to certain
individuals and investors. The notes and loans bear interest
at various rates ranging from 8.0% to 12.0% and mature during
the fiscal year ending February 28, 2001. Certain of the notes
and loans (approximately $76,000) are convertible into an
aggregate of 4,400,000 common shares of the Company at the
holder's option. In connection with the convertible feature,
the Company recorded additional interest expense of $104,202
in 2000 relating to beneficial conversion features and will
record $46,766 in fiscal 2001 relating to such beneficial
conversion features.
F-12
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 5. NOTES AND LOANS PAYABLE (Continued)
Included in notes and loans payable is $50,000 due to
the Company's President. During 2000 and 1999, the Company
accrued interest of approximately $6,000 and $7,500 relating
to these loans to its President and at February 29, 2000
approximately $66,000 in accrued interest was payable relating
to these loans which is recorded in "accrued interest" in the
accompanying balance sheet.
Subsequent to February 29, 2000, approximately $76,000
of notes and loans payable outstanding at February 29, 2000
were converted into 4,400,000 shares of Company common stock.
NOTE 6. CONVERTIBLE SUBORDINATED DEBENTURES
At February 29, 2000, the Company has outstanding
$70,000 of convertible debentures which mature at various
times through February 2001 and bear interest at 12% per
annum. Each $1,000 unit is convertible into between 10,000 and
50,000 shares of Company common stock. In connection with
issuance of the convertible debentures, the Company recorded
additional interest expense of $80,000 in 2000 relating to
beneficial conversion features.
Subsequent to February 29, 2000, an additional $20,000
of convertible subordinated debentures were issued with
substantially the same terms and conditions as the existing
debentures. In addition, during March 2000 holders of $25,000
of debentures outstanding at February 29, 2000 have requested
conversion of their debentures into 1,250,000 shares Company
common stock.
During the year ended February 28, 1999, the Company
issued a $25,000 secured convertible note payable to an
individual in July 2000 with interest at 10% per annum. This
note and related accrued interest was converted into 2,747,300
shares of Company common stock in February 2000. In addition,
the holder of $150,000 of convertible debentures issued in
March 1996 converted such debentures and related accrued
interest into 1,965,000 shares of Company common stock during
the year ended February 28, 1999.
F-13
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 7. COMMON STOCK
In 1995, the Company issued its president and majority
shareholder the option to purchase 500,000 shares of common
stock any time before December 1, 2005 for $.10 per share. In
January 1999, the Company issued an additional 10,000,000
options, which are immediately exercisable, at an exercise
price of $.01 per share with an expiration date of January
2004. The agreement also contains an anti-dilution provision
that has the effect of increasing the options by 8,650,000 as
of February 29, 2000. All additional options have the same
expiration date of January 2004. These options have not been
exercised and remain outstanding as of February 29, 2000.
In January 2000, the Company entered into an agreement
to issue 50,000 stock options per month for twelve months to a
non-employee for consulting services to be rendered. The
options are exercisable at $.01 per share and have no
expiration date. In accordance with SFAS No. 123, "Accounting
For Stock-Based Compensation" ("SFAS No. 123"), the Company
recorded an expense of $11,500 and an increase to additional
paid-in capital for such options issued in January 2000 and
February 2000. The method of determining the expense was based
on certain assumptions, including the past trading range of
the Company's stock, a risk free interest rate of 6.5%,
volatility of 100%, expected lives of options of 5 years and
no expected payments of dividends. The weighted-average
grant-date fair value of options granted during 2000 was $.125
per share.
The Company has adopted the disclosure-only provisions
of SFAS No. 123 but applies APB Opinion 25 ("Accounting for
Stock Issued to Employees") in accounting for stock options
issued to employees. Accordingly, no compensation has been
recognized in 1999. Compensation cost that would have been
recognized in accordance with the basis of fair value pursuant
to SFAS No. 123, if the Company had so elected, would have
been approximately $50,000 in 1999 and would not have affected
pro-forma net loss per share. The method of determining
proforma compensation costs was based on certain assumptions,
including the past trading range of the Company's stock, a
risk free interest rate of 6.5%, expected lives of options of
5 years and no expected payment of dividends. The
weighted-average grant-date fair value of options granted
during 1999 was $.01 per share.
During 2000 and 1999, the Company received $783,318
(net of $101,000 of financing costs) and $74,600,
respectively, from the issuance of 36,787,232 and 8,490,000
shares of common stock through private placements to various
investors, respectively.
F-14
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 7. COMMON STOCK (Continued)
From time to time, the Company has issued common stock
in exchange for the performance of services (internal
accounting and financial services, internet website creation,
marketing, insurance program review and general management
consulting) or as an alternative to the payment of interest on
outstanding debt. These transactions have been recorded at the
fair value of the services rendered or the fair value of the
common stock issued, whatever was more readily evident. For
transactions recorded by the fair value of the Company's
common stock issued, a 20% discount was applied due to certain
trading restrictions placed on such shares. The number of
shares of common stock issued in 2000 and 1999 was 30,665,714
and 14,375,000, respectively. The benefits to the Company from
these transactions are as follows:
o Reduced use of cash which allows it to devote the
maximum resources to expanding the business;
o Increased awareness of the Company which provides the
opportunity for greater stock support;
o Creates positive relationships as share price
appreciation occurs.
The dollar value of these activities included in the
selling, general and administrative expenses was approximately
$2,058,000 in 2000 and $144,000 in 1999.
NOTE 8. LEASE COMMITMENTS
The Company leases its offices and certain office
equipment under various operating lease agreements expiring
through February 2002.
The minimum annual lease payments due under these lease
agreements are as follows:
YEAR ENDING
FEBRUARY 28, AMOUNT
------------ ------
2001 $28,000
2002 20,000
-------
$48,000
=======
Rent expense was approximately $19,500 in 2000 and
$3,000 in 1999.
F-15
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE. 9. INCOME TAXES
The Company accounts for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes".
The Company incurred no income tax expense in 2000 or
1999 due to net operating losses incurred.
The net deferred tax asset at February 29, 2000
included the following:
Deferred tax asset $3,001,000
Valuation allowance (3,001,000)
----------
Net deferred tax asset, after
valuation allowance $ -
==========
The tax effects of major temporary differences that
gave rise to the Company's net deferred tax asset are as
follows:
Net operating loss carryforwards $2,842,000
Accrued expenses 148,000
Other 11,000
----------
$3,001,000
==========
The Company has experienced significant losses since
inception. As a result of various common stock transactions
over the years, certain of the accumulated net operating loss
carryforwards generated by these losses, which total
approximately $7,700,000, may be lost and/or substantially
limited. Notwithstanding such effect, any deferred tax asset
recorded as a result of potential net operating loss
carryforwards would be available to offset future taxable
income, would be offset by an equivalent valuation allowance,
since Management believes that is more likely than not that
such deferred tax asset will not be realized. These
carryforwards expire through 2020.
NOTE 10. COMMITMENTS
Employment Agreement
The Company has an employment contract (the
"agreement") with its President through January 1, 2005 which
provides for minimal annual salary and bonuses based on
Company revenues. The agreement also provides for one-year
extensions every January 1 unless notice is given by the
Company. In addition, the Company granted this person
10,000,000 stock options with anti-dilution provisions (see
Note 7).
F-16
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 10. COMMITMENTS (Continued)
Licensees
The Company has entered into various licensing
agreements (the "agreements") for the right to manufacture,
sell and distribute certain collectibles and novelties
relating to current and future movie characters. The
agreements expire at various dates through December 31, 2002
and generally require the Company pay a royalty of 10% of
sales, with certain minimum royalty payments required. The
total remaining minimum guaranteed royalty as of February 29,
2000 for all agreements is $140,000. As of February 29, 2000,
the Company has paid $30,000 in advances against this minimum.
Royalty expense amounted to approximately $37,000 in 2000.
Consulting Agreement
During 2000, the Company entered into a consulting
agreement with an investment advisor for the period March 2000
through February 2001 requiring monthly payments of $5,000.
NOTE 11. RELATED PARTY TRANSACTIONS
The Company has an employment agreement with its
President (see Note 10), who has elected to defer a portion of
his salary in support of the cash needs of the Company. At
February 29, 2000 and February 28, 1999, the amount of salary
deferred was $234,000 and $126,000, respectively.
Included in notes and loans payable (Note 5) is $50,000
due to the Company's President. During 2000 and 1999, the
Company accrued interest of approximately $6,000 and $7,500
relating to these loans to its President and at February 29,
2000 approximately $66,000 in accrued interest was payable
relating to these loans which is included in "accrued
interest" in the accompanying balance sheet.
During 2000 and 1999, the Company issued 6,600,000 and
1,900,000, respectively, shares of common stock to officers,
directors and family members for services rendered (Note 7).
F-17
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 12. SUBSEQUENT EVENTS
Subsequent to February 29, 2000, the following
occurred:
o The Company received $400,000 in financing from the
issuance of 10,000,000 common shares pursuant to a
Rule 504 Regulation D filing dated February 8, 2000.
The net proceeds to the Company were $340,000;
o The Company issued $20,000 in one-year subordinated
debentures in March 2000, convertible into 200,000
shares of the Company's stock and paying quarterly
interest at 12%;
o In March 2000, the Company received notice from
holders of $25,000 of debentures at February 29, 2000
requesting conversion into 1,250,000 shares of
Company common stock;
o In March/April 2000, the Company converted
approximately $76,000 of notes and loans payable (see
Note 5) into 4,400,000 shares of Company common
stock;
o The Company issued $400,000 of convertible debentures
in May 2000 for net cash proceeds of $348,000; the
debentures mature April 2001, are secured by
substantially all the Company's assets and bear
interest at 10% per annum payable quarterly; the
debentures are convertible into common stock at the
lessor of $.04 per share or 50% of market value (the
debt discount of $65,000 assigned to this beneficial
conversion feature will be recorded as additional
paid-in capital and debt discount and will be
amortized as interest expense over the period based
on the debenture's earliest conversion date); the
debentures also have warrants to purchase 4,000,000
shares of common stock at 110% of the market value on
the closing date - the warrants have a five-year life
and are exercisable immediately (using an option
pricing model, the warrants will be valued at
$280,000 using the following assumptions: no expected
payment of dividends, expected lives of warrants of
three years, a risk free rate of 6.5% and a
volatility in the 50-100% range) (the $280,000 will
be recorded as additional paid-in capital and a debt
discount will be amortized to interest expense over
the term of the related debentures); the debenture
holders also have certain rights in the event the
Company files a registration statement.
F-18
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 12. SUBSEQUENT EVENTS (Continued)
o On June 5, 2000, the Company acquired 100% of the
outstanding common shares of Music Art Corporation
("Music Art") for 1,000,000 shares of Company common
stock. Music Art is primarily engaged in the business
of creating, marketing and distributing limited
edition lithographs derived from artwork used on
music albums and other music collectibles. The
acquisition will be accounted for as a purchase. The
excess of acquisition cost over the fair value of net
assets, assumed to equal its book value, will be
amortized over seven years beginning in June 2000.
o On August 2, 2000, the Company, through a wholly
owned subsidiary, purchased the assets and
liabilities of Rooter Rattle, L.P. in exchange for
$965,000 of consideration, payable as $390,000 in
cash, a $30,000 note payable and 3,633,333 shares of
common stock to be issued by July 28, 2001 at a value
of $545,000. Rooter Rattle is primarily engaged in
the business of producing licensed sports novelties
with various league and team logos. The acquisition
will be accounted for as a purchase. The excess of
acquisition cost over the fair value of net assets,
assumed to equal it's book value, was approximately
$790,000, which will be amortized over seven years
beginning in August 2000. The Company also entered
into an employment agreement with a former officer of
Rooter Rattle, L.P. as part of this transaction.
The following unaudited pro-forma summary combined
the results of operations of the Company, Music Art
Corporation and Rooter Rattle, L.P. as if the
acquisitions had occurred on March 1, 1999 after
giving effect to certain adjustments, including
amortization of goodwill and increased interest
expense. The pro-forma information is presented for
informational purposes only and is not necessarily
indicative of what would have occurred if the
acquisition had been made as of that date. In
addition, the pro-forma information is not intended
to be a projection of future results.
Year Ended
February 29, 2000
-----------------
Revenues $ 1,824,000
===========
Net Loss ($3,552,000)
===========
Basic and diluted net
loss per share ($.03)
==========
F-19
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
NOTE 13. STATEMENT OF CASH FLOWS
During 2000 and 1999, the Company entered into the
following non-cash transactions:
o Converted approximately $56,000 and $185,000, -
respectively of notes and loans payable and related
accrued interest into 4,529,183 and 1,965,000 shares
of common stock.
o Issued common stock in 2000 for services to be
rendered during the year ending February 28, 2001
($69,300) (recorded as contra equity at February 29,
2000).
F-20
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
FOR THE QUARTERLY PERIOD
ENDED MAY 31, 2000
F-21
<PAGE>
TABLE OF CONTENTS
PAGE(s)
-------
BALANCE SHEET F-23
STATEMENTS OF OPERATIONS F-24
STATEMENT OF SHAREHOLDERS' DEFICIENCY F-25
STATEMENTS OF CASH FLOWS F-26
NOTES TO FINANCIAL STATEMENTS F-27-34
F-22
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
BALANCE SHEET
MAY 31, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 354,747
Accounts receivable - trade
(net of allowance for doubtful accounts of $1,500) 16,082
Inventories 393,424
Prepaid royalties 40,766
Prepaid expenses and other 48,967
---------
Total current assets 853,986
---------
PROPERTY AND EQUIPMENT 85,290
Less - accumulated depreciation 20,325
---------
Net property and equipment 64,965
---------
Total assets $ 918,951
=========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes and loans payable, current portion $ 323,865
Convertible debentures 192,991
Accounts payable and accrued expenses 422,091
Accrued payroll 286,556
Payroll taxes payable 76,767
Accrued interest 83,329
Accrued royalties 5,462
---------
Total current liabilities 1,391,061
---------
NOTES PAYABLE, NET OF CURRENT PORTION 21,289
---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIENCY
Capital stock, $.001 par value,
350,000,000 shares authorized;
187,280,167 issued and outstanding 187,281
Additional paid-in-capital 8,610,393
Accumulated deficit (9,236,473)
Deferred compensation/services (54,600)
---------
Total shareholders' deficiency (493,399)
---------
Total liabilities and shareholders' deficiency $ 918,951
=========
F-23
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 2000 AND MAY 31, 1999
2000 1999
---- ----
SALES $ 9,630 $ 7,226
COST OF SALES 8,689 2,782
------------ -----------
GROSS PROFIT 941 4,444
SELLING, GENERAL AND ADMINISTRATIVE 877,433 78,294
------------ -----------
LOSS FROM OPERATIONS (876,492) (73,850)
OTHER INCOME (EXPENSES)
Total other income (expense), interest expense (166,695) (3,266)
------------ -----------
NET LOSS $ (1,043,187) $ (77,116)
NET LOSS PER SHARE:
BASIC AND DILUTED ($0.01) ($0.00)
============ ===========
WEIGHTED AVERAGE SHARES USED IN NET
LOSS PER SHARE CALCULATIONS:
BASIC AND DILUTED 181,554,000 94,777,000
============ ===========
F-24
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
STATEMENT OF SHAREHOLDERS' DEFICIENCY
THREE MONTHS ENDED MAY 31, 2000
<TABLE>
<CAPTION>
Common Stock Additional Deferred
----------------------- Paid-in Accumulated Compensation/
Shares Amount Capital Deficit Services Total
-------- -------- --------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 1, 2000 162,703,418 $ 162,704 $ 7,247,996 $(8,193,286) $ (69,300) $ (851,886)
Common stock issued for
cash and services rendered 19,020,900 19,021 813,836 - - 832,857
Conversion of convertible debentures, notes
and loans payable to common stock 5,555,849 5,556 108,895 - - 114,451
Issuance of stock options and warrants - - 309,500 - - 309,500
Additional paid-in capital related to
convertible loans, notes and
subordinated debentures - - 130,166 - - 130,166
Amortization of unearned compensation - - - - 14,700 14,700
Net loss for the three months ended
May 31, 2000 - - - (1,043,187) - (1,043,187)
----------- ---------- ------------ ----------- --------- ----------
Balance, May 31, 2000 187,280,167 187,281 $ 8,610,393 $(9,236,473) $ (54,600) $ (493,399)
=========== ========= ============ =========== ========= ==========
</TABLE>
F-25
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MAY 31, 2000 AND MAY 31, 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,043,187) $ (77,116)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 7,886 850
Common stock issued for services rendered 383,655 52,120
Interest expense related to beneficial conversion of debt 130,166 -
Expense related to issuance of options and warrants 52,833 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (3,696) (1,996)
Inventories (244,016) (31,973)
Prepaid royalties (11,945) (10,000)
Other assets 13,400 1,800
Increase (decrease) in:
Accounts payable and accrued expenses 52,554 18,775
Accrued interest 4,860 (10,290)
Accrued payroll (79,152) (5,700)
Payroll taxes payable 65,752 2,379
----------- ---------
Net cash used in operating activities (670,890) (61,151)
----------- ---------
INVESTING ACTIVITIES
Net cash used in investing activities, purchase
of property and equipment (24,127) (6,367)
----------- ---------
FINANCING ACTIVITIES
Borrowings, net of financing fees 370,500 17,662
Proceeds from issuance of capital stock, net 446,407 46,575
Repayment of notes & loans (14,634) -
----------- ---------
Net cash provided by financing activities 802,273 64,237
----------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 107,256 (3,281)
CASH AND CASH EQUIVALENTS, BEGINNING 247,491 4,182
----------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 354,747 $ 901
=========== =========
</TABLE>
F-26
<PAGE>
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
Collectible Concepts Group, Inc. (the "Company")
distributes high-end and novelty products related to both the
entertainment and sports industries. The Company sells its
products through retailers, distributors, department stores,
the internet and catalogers.
Basis of Presentation
The financial statements as of May 31, 2000 and for the
three months ended May 31, 2000 and 1999 are unaudited;
however, in the opinion of management, such statements include
all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the results
for the periods presented.
The interim financial statements should be read in
conjunction with the financial statements for the fiscal year
ended February 29, 2000 and the notes thereto, included in the
Company's report on Form 10-KSB for the year ended February
29, 2000.
Risks, Uncertainties and Management Estimates
The results of operations for the interim periods are
not necessarily indicative of the results that might be
expected for future interim periods or for the full year
ending February 28, 2001.
The preparation of the Company's financial statements
in conformity with generally accepted accounting principles
requires management to make 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 reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Revenue Recognition
Revenue from the sale of products is recognized at the
time of shipment.
Earnings (Loss) Per Share
The Company follows Statement of Financial Accounting
Standards No. 128 ("FAS No. 128") "Earnings Per Share". Basic
and fully diluted earnings (loss) per share amounts are
computed based on net income (loss) and divided by the
weighted average
F-27
<PAGE>
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
number of shares actually outstanding. The number of shares
used in the computation were 181,554,000 in 2000 and
94,777,000 in 1999.
The assumed conversion of convertible debt and exercise
of outstanding options and warrants to purchase shares of
common stock were not included in the computation of diluted
earnings (loss) per share in both 2000 and 1999 because the
assumed conversion and exercise would be anti-dilutive due to
net losses incurred in both years.
NOTE 2. GOING CONCERN
The Company's financial statements have been prepared
in conformity with generally accepted accounting principles,
which contemplates the continuation of the Company as a going
concern. Since inception, the Company has not generated
sufficient revenues to meet its operating expenses and has
incurred significant operating losses and net losses. At May
31, 2000, the Company has a shareholder's deficiency of
$439,399 and a working capital deficiency of $ 537,075. These
factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the
event the Company cannot continue in existence.
To generate additional revenues and the working capital
needed to continue and expand operations, the Company has
accomplished the following.
During the quarter ending May 31, 2000, a licensing
agreement was signed with IMS Properties and Titan Motorcycle
Company of America for the manufacture, sale and distribution
of a limited edition replica of the Indy 500 Titan Motorcycle.
Subsequent to May 31, 2000, the Company signed a licensing
agreement with Chicken Soup for the Soul Enterprises, Inc. for
the manufacture, sale and distribution of more than two dozen
collectibles to be sold in bookstores and other retail chains.
The collectibles will include penholders, nightlights and
sports-related items such as tennis rackets covers, all
carrying an inspirational phrase from a Chicken Soup book.
Subsequent to May 31, 2000 the Company signed a licensing
agreement with Stan Lee Media, Inc. to develop collectibles
based on Stan Lee's signature style and global lifestyle
brand, as well as his latest project, the 7th Portal- a team
of 21st Century Super Heroes and Super Villains. The
collectibles will include sculptures, lithograths, pins,
bookends, desk sets and fountain pens based on the image of
Stan Lee, the image of "Evil Stan" - the alter ego of Stan Lee
and the 7th Portal. The license agreement also includes rights
to develop merchandise in connection with a theatrical release
of a "7th Portal" feature film during the term of the
agreement. The signing of these agreements was part of the
Company's ongoing plan to become a broad based, sports and
entertainment product company.
F-28
<PAGE>
NOTE 2. GOING CONCERN (continued)
In the second quarter of fiscal year 2001, the Company
began to ship to its retail customers, products related to the
X-Men movie that was released throughout the United States on
July 14, 2000, with worldwide distribution of the movie
expected to continue through November. During the second
quarter of fiscal 2001, the Company also started the official
X-Men Club website (www.X-MenClub.com) which has attracted
over 600 paid members and approximately 6,000 who signed up
for the free club newsletter.
Also, completed during the quarter ending May 31, 2000,
was a website devoted to the "Golden Age of Baseball"
(www.collectbaseball.com).
In it's continual search to even out the fluctuation in
the Company's revenue cycle, the Company made two acquisitions
subsequent to May 31, 2000. On June 7, 2000, the Company
acquired Music Art, which has a license from the Rolling
Stones to distribute lithographs of signed album covers. They
also have a license with Phil Ceccola, a published
photographer of many rock bands, to distribute signed
photographs of Bruce Springsteen. The Company plans to market
Music Art products to retailers on it's recently launched
website, www.collectmusicart.com.
On August 2, 2000, the Company announced the
acquisition of Rooter Rattle Sports Specialty Company. Rooter
Rattle produces licensed sports novelties with the league and
team logos of Major League Baseball, Minor League Baseball,
National Professional Soccer League, American Hockey League,
East Coast Hockey League, Class of 2000 and Arena Indoor
Football. To more accurately reflect the diverse nature of
their product line, the name was subsequently changed to Team
Sports Concepts.
The Company has signed an agreement with an experienced
management/consulting firm for the purpose of raising
$5,000,000 of additional capital to fund future operations,
including acquisitions. As of May 31, 2000, the Company has
received $1,022,500, with an additional $439,000 received
subsequent to year-end (in June 2000).
The Company has developed and currently operates the
following websites in addition to the CollectibleConcepts.com
website:
o powersclub.com
o mini-v.com
o x-menclub.com
o collectmusicart.com
F-29
<PAGE>
NOTE 2. GOING CONCERN (continued)
The Company has reserved several additional website
names for future use, including the following:
o collectyankees.com
o terminatorclub.com
NOTE 3. NOTES AND LOANS PAYABLE
At May 31, 2000, notes and loans payable consisted of
various unsecured notes and loans payable to certain
individuals, investors and an auto finance company. The notes
and loans bear interest at various rates ranging from 8.0% to
12.0% and have various maturities through February 28, 2006.
In connection with the conversion of certain notes payable,
the Company recorded additional interest expense of $46,766
for the three months ended May 31, 2000 relating to beneficial
conversion features.
Included in notes and loans payable is $50,000 due to
the Company's President. During the three months ended May 31,
2000, the Company accrued interest of approximately $1,270
relating to these loans to its President and at May 31, 2000
approximately $67,000 in accrued interest was payable relating
to these loans, which is recorded in "accrued interest" in the
accompanying balance sheet.
NOTE 4. CONVERTIBLE SUBORDINATED DEBENTURES
At May 31, 2000, the Company has outstanding $455,000
of convertible debentures which mature at various times
through February 2001 and bear interest at 12% per annum. The
debentures are offset by a net contra discount of
approximately $256,000 related to 4,000,000 warrants issued in
connection with the debentures issued to a group of investors
for $400,000. Each $1,000 unit is convertible into between
10,000 and 50,000 shares of Company common stock. In
connection with the issuance of the convertible debentures,
the Company recorded additional interest expense of $83,400
for the three months ended May 31, 2000 relating to beneficial
conversion features.
NOTE 5. COMMON STOCK
In January 2000, the Company entered into an agreement
to issue 50,000 stock options per month for twelve months to a
non-employee for consulting services to be rendered. The
options are exercisable at $.01 per share and have no
expiration date. In
F-30
<PAGE>
NOTE 5. COMMON STOCK (continued)
accordance with SFAS No. 123, "Accounting For Stock-Based
Compensation", the Company recorded an expense of $29,500 and
an increase to additional paid in capital for such options
issued in March, April and May 2000.
During the three months ended May 31, 2000, the Company
received $446,407 (net of $82,453 of financing costs) from the
issuance of 13,308,200 shares of common stock through private
placements to various investors.
The Company converted approximately $154,500 of
accounts payable, notes and loans payable and related accrued
interest into 5,555,849 shares of common stock.
In connection with the issuance of $400,000 of
debentures issued in May 2000, the Company issued warrants to
purchase 4,000,000 shares of common stock at 110% of the
market value on the closing date. Using an option pricing
model, the warrants were valued at $280,000 using the
following assumptions: no expected payment of dividends,
expected lives of warrants of three years, a risk free rate of
6.5% and a volatility in the 50 - 100% range. The $280,000 was
recorded as additional paid-in capital and a debt discount is
being amortized to interest expense over the term of the
related debenture.
From time to time, the Company has issued common stock
in exchange for the performance of services or as an
alternative to the payment of interest on outstanding debt,
internal accounting and financial services, internet website
creation, marketing, insurance program review and general
management consulting. The benefits to the Company from these
transactions are as follows:
o Reduced use of cash which allows it to devote the
maximum resources to expanding the business;
o Increased awareness of the Company which provides the
opportunity for greater stock support;
o Creates positive relationships as share price
appreciation occurs.
The dollar value of these activities included in the
selling, general and administrative expenses for the three
months ended May 31, 2000 was $ 382,300. These transactions
have been recorded at the fair value of the services rendered
or the fair value of the common stock issued, whatever was
more readily evident. For transactions recorded at the fair
value of the Company's common stock issued, a 20% discount was
applied due to certain trading restrictions placed on such
shares. The number of shares of common stock issued for
services performed for the three months ended May 31, 2000 was
5,712,700.
NOTE 6. INCOME TAXES
The Company accounts for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes". The Company
incurred no income tax expense for the three months ended May
31, 2000 due to net operating losses incurred.
NOTE 7. COMMITMENTS
Employment Agreement
The Company has an employment contract (the
"agreement") with its President through January 1, 2005 which
provides for minimal annual salary and bonuses based on
Company revenues. The agreement also provides for one-year
extensions every January 1 unless notice is given by the
Company.
F-31
<PAGE>
NOTE 7. COMMITMENTS (continued)
Licensees
The Company has entered into various licensing
agreements (the "agreements") for the right to manufacture,
sell and distribute certain collectibles and novelties
relating to current and future movie characters. The
agreements expire at various dates through December 31, 2002
and generally require the Company pay a royalty of 10% of
sales, with certain minimum royalty payments required.
Consulting Agreement
During 2000, the Company entered into a consulting
agreement with an investment advisor for the period March 2000
through February 2001 requiring monthly payments of $5,000.
NOTE 8. STATEMENT OF CASH FLOWS
During the three months ended May 31, 2000, the Company
entered into the following non-cash transactions:
Converted approximately $154,500 of accounts payable,
notes and loans payable and related accrued interest into
5,555,849 shares of common stock.
Issued a note payable for $40,000 to a shareholder as
consideration for waiving certain anti-dilution privileges.
NOTE 9. SUBSEQUENT EVENTS
Subsequent to May 31, 2000, the following occurred.
The company received advances from a significant
stockholder in the amount of $439,000 from June through August
2000.
F-32
<PAGE>
NOTE 9. SUBSEQUENT EVENTS (continued)
On June 5, 2000, the Company acquired 100% of the
outstanding common shares of Music Art Corporation ("Music
Art") for 1,000,000 shares of Company common stock (See Note
10).
On August 2, 2000, the Company, through a recently
formed wholly-owned subsidiary, Team Sport Specialties
Corporation, purchased the assets and liabilities of Rooter
Rattle, L.P. in exchange for $965,000 of consideration,
payable as $390,000 in cash, a $30,000 note payable and
3,633,333 shares of common stock issued at a value of $545,000
(Note 10).
NOTE 10. ACQUISITIONS
On June 5, 2000, the Company acquired 100% of the
outstanding common shares of Music Art Corporation ("Music
Art") for 1,000,000 shares of Company common stock. Music Art
is primarily engaged in the business of creating, marketing
and distributing limited edition lithographs derived from
artwork used on music albums and other music collectibles. The
acquisition will be accounted for as a purchase. The excess of
acquisition cost over the fair value of net assets, assumed to
equal it's book value, was approximately $377,000 which will
be amortized over seven years beginning in June 2000.
On August 2, 2000, a wholly owned subsidiary of the
Company, Team Sport Specialties Corporation, purchased the
assets and liabilities of Rooter Rattle, L.P. in exchange for
$965,000 of consideration, payable as $390,000 in cash, a
$30,000 note payable and 3,633,333 shares of common stock
issued at a value of $545,000. The acquisition will be
accounted for as a purchase. The excess of acquisition cost
over the fair value of net assets, assumed to equal it's book
value, was approximately $790,000, which will be amortized
over seven years beginning in August 2000. The Company also
entered into an employment agreement with a former officer of
Rooter Rattle, L.P. as part of this transaction.
The following unaudited pro forma summary combines the
results of operations of the Company, Music Art Corporation
and Rooter Rattle, L.P. as if the acquisition had occurred on
March 1, 2000, after giving effect to certain adjustments,
including amortization of intangible assets and increased
interest expense. The pro forma information is presented for
informational purposes only and is not necessarily indicative
of what would have occurred if the acquisition had been made
as of that date. In addition, the pro forma information is not
intended to be a projection of future results.
F-33
<PAGE>
NOTE 10. ACQUISITIONS (continued)
Three Months Ended
May 31, 2000
------------------
Revenues $ 226,727
===========
Net Loss $(1,061,891)
===========
Basic and diluted net
loss per share $ (.01)
===========
F-34
<PAGE>
MUSIC ART, LLC
YEAR ENDED
DECEMBER 31, 1999
F-35
<PAGE>
MUSIC ART, LLC
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PAGE(s)
INDEPENDENT AUDITOR'S REPORT F-37
BALANCE SHEET F-38
STATEMENT OF OPERATIONS AND MEMBER'S DEFICIENCY F-39
STATEMENT OF CASH FLOWS F-40
NOTES TO FINANCIAL STATEMENTS F-41-43
F-36
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Member
Music Art, LLC
Havertown, Pennsylvania
We have audited the accompanying balance sheet of Music Art, LLC (a
wholly-owned subsidiary of Music Expo, Inc.) as of December 31, 1999 and the
related statements of operations and member's deficiency and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides 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 Music Art, LLC as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
As discussed in Note 5 to the financial statements, on May 26, 2000 the
Company adopted a plan of complete liquidation and dissolution.
McGladrey & Pullen, LLP
Blue Bell, Pennsylvania
August 7, 2000
F-37
<PAGE>
MUSIC ART, LLC
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 859
Accounts receivable - trade and other
(net of allowance for doubtful accounts of $13,629) 1,265
Inventories (Note 4) 36,056
Prepaid royalties (Note 4) 37,718
Deposits 300
---------
Total current assets 76,198
---------
PROPERTY AND EQUIPMENT 2,959
Less - accumulated depreciation 1,243
---------
Net property and equipment 1,716
---------
Total assets $ 77,914
=========
LIABILITIES AND MEMBERS'S DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 4) $ 101,244
NON-CURRENT LIABILITIES
Loan payable - parent company (Note 2) 253,000
COMMITMENTS (Notes 3 and 4)
MEMBER'S DEFICIENCY (Note 5) (276,330)
---------
Total liabilities and member's deficiency $ 77,914
=========
See Notes to Financial Statements.
F-38
<PAGE>
MUSIC ART, LLC
STATEMENT OF OPERATIONS AND MEMBER'S DEFICIENCY
YEAR ENDED DECEMBER 31, 1999
SALES (Note 4) $ 697,919
COST OF SALES 227,503
---------
GROSS PROFIT 470,416
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 3) 660,619
---------
NET LOSS (190,203)
MEMBER'S DEFICIENCY, BEGINNING (86,127)
---------
MEMBER'S DEFICIENCY, ENDING $(276,330)
=========
See Notes to Financial Statements.
F-39
<PAGE>
MUSIC ART, LLC
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
OPERATING ACTIVITIES
Net loss $(190,203)
Adjustments to reconcile net loss to
net cash provided by activities:
Depreciation 835
Provision for doubtful accounts 13,629
Changes in operating assets and liabilities:
(Increase decrease in:
Accounts receivable 5,323
Inventories (5,509)
Prepaid royalties 103,945
Increase in:
Accounts payable and accrued expenses 77,252
---------
Net cash provided by operatiog activities 5,272
---------
INVESTING ACTIVITIES
Net cash used in investing activities, purchase
of property and equipment (925)
---------
FINANCING ACTIVTIES
Net cash used in financing activities,
repayments of loan payable (14,000)
---------
DECREASE IN CASH (9,653)
CASH, BEGINNING 10,512
---------
CASH, ENDING $ 859
=========
See Notes to Financial Statements.
F-40
<PAGE>
MUSIC ART, LLC
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
Music Art, LLC (the "Company"), a limited liability
company, is primarily engaged in the business of creating,
marketing and distributing limited edition lithographs derived
from artwork used on music albums and other music
collectibles. The Company sells its products principally at
concert venues and through mail order. The Company is a
wholly-owned subsidiary of Music Expo, Inc. (Notes 2 and 5)
Accounts Receivable
The Company's trade accounts are unsecured with an
allowance for bad debts provided for those amounts whose
collectability is uncertain.
Property and Equipment and Depreciation
Property and equipment consists principally of computer
equipment and is stated at cost. Upon sale or retirement, the
cost of the asset and the related accumulated depreciation is
removed from the accounts and the resultant gain or loss, if
any, is included in income. Depreciation is computed using the
straight-line method based on the estimated useful lives of
the related assets, principally five years. Depreciation
expense amounted to $835 in 1999.
Inventories
Merchandise inventories are valued at lower of cost or
market on the first in, first out (FIFO) method.
Cash
The Company maintains cash balances at financial
institutions. These balances are insured by the Federal
Deposit Insurance Corporation up to $100,000 at each
institution.
Revenue Recognition
Revenues from the sale of merchandise are recognized at
the time of shipment.
F-41
<PAGE>
MUSIC ART, LLC
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Income Taxes
The Company is treated as a partnership for federal
income tax purposes. Consequently, all tax effects of the
Company's income or loss are passed through to the sole
member.
Management Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that may affect
certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2. LOAN PAYABLE - PARENT COMPANY
From time to time, the Company borrows from its parent
company to fund operations and to pay license royalties.
Amounts advanced have no formal repayment terms and are
non-interest bearing. The amount outstanding at December 31,
1999 amounted to $253,000. Subsequent to December 31, 1999 and
in connection with the liquidation of the Company (Note 5),
such amounts owed by the Company to its parent were forgiven
by its parent.
NOTE 3. LEASE COMMITMENTS
The Company leases its administrative offices from an
officer of the Company, who is also the sole shareholder of
the Company's parent company. The lease is on a month-to-month
basis. Rent expense for these offices amounted to $18,000 in
1999.
The Company also leases warehouse storage facilities on
a month-to-month basis. Rent expense for these services
amounted to $6,000 in 1999.
F-42
<PAGE>
MUSIC ART, LLC
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
NOTE 4. COMMITMENTS
On October 1, 1997, the Company entered into a license
agreement (the "agreement") with a music merchandising company
to produce and sell a high-end line of tour poster art and
album cover art of the Rolling Stones containing original or
plate signatures on such products. The agreement requires a
minimum guarantee of royalties of $361,000. The Company has a
remaining payment of $75,000 due as of December 31, 1999,
which is included in "accounts payable and accrued expenses"
in the accompanying balance sheet. The agreement requires a
royalty of 25% of art sales, as defined in the agreement. The
agreement terminated on September 30, 1999 and allowed for an
inventory liquidation period to March 31, 2000. As of March
31, 2000, the Licensor has the ability to terminate the
agreement unilaterally and require the Company to return any
unsold inventory to the licensor. The licensor has not
indicated its intent to do so and the Company has continued to
operate under the agreement by continuing to sell product and
pay the required royalties due under the agreement.
Approximately 90% of the Company's 1999 sales were
Rolling Stones products relating to the aforementioned license
agreement.
NOTE 5. SUBSEQUENT EVENTS
On May 26, 2000, the Company, through its sole member,
adopted a plan of complete liquidation and dissolution. All of
the Company's assets and certain liabilities were distributed
to its member who simultaneously contributed such assets and
liabilities to a recently formed company, Music Art
Corporation, also wholly-owned by the Company's parent. The
loan payable by the Company to its parent company was forgiven
at this time.
On June 5, 2000, Music Expo, Inc. entered into an
Agreement for The Exchange of Shares ("Agreement") to exchange
100% of its outstanding common shares of stock of Music Art
Corporation for 1,000,000 shares of Collectible Concepts
Group, Inc. ("CCG") common stock. The agreement also provides
for an employment agreement with the former officer of the
Company.
F-43
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
Financial Statements, Pro-Forma Financial Information and Exhibits.
On June 5, 2000, Collectible Concepts Group, Inc. (the "Company")
acquired 100% of the outstanding common shares of Music Art Corporation ("Music
Art") for 1,000,000 shares of Company common stock. Music Art is primarily
engaged in the business of creating, marketing and distributing limited edition
lithographs derived from artwork used on music albums and other music
collectibles. The acquisition will be accounted for as a purchase. The Company
entered into an employment agreement with a former officer of Music Art.
Pro-Forma Financial Information
The following unaudited pro-forma consolidated financial
information presents the pro-forma consolidated balance sheet at May 31, 2000
and February 29, 2000 giving effect to the acquisition by the Company of all of
the material assets, subject to ordinary business liabilities, of Music Art as
if it had been consummated on those dates. Also presented are the pro-forma
consolidated statements of operations for the three months ended May 31, 2000
and the year ended February 29, 2000 giving effect to such assets, subject to
such liabilities, of Music Art as if the acquisition had been consummated as of
the beginning of the respective periods presented.
The Company's fiscal year ends on February 29 and Music Art's fiscal
year ends on December 31. The pro-forma consolidated balance sheet of May 31,
2000 combines the balance sheet of the Company as of May 31, 2000 and the
balance sheet of Music Art as of March 31, 2000. The pro-forma consolidated
balance sheet of February 29, 2000 combines the balance sheet of the Company as
of February 29, 2000 and the balance sheet of Music Art as of December 31, 1999.
The pro-forma consolidated statement of operations for the three months ended
May 31, 2000 combines results of the Company for the period with the statement
of operations for the three months ended March 31, 2000 of Music Art. The
pro-forma consolidated statement of operations for the year ended February 29,
2000 combines the results of the Company for its year ended February 29, 2000
and the results of Music Art for its year ended December 31, 1999.
F-44
<PAGE>
The pro-forma data is based on the historical combined statements of
the Company and Music Art giving effect to the purchase method of accounting and
to the assumptions and adjustments (which the Company believes to be reasonable)
described in the accompanying notes to the unaudited pro-forma consolidated
financial information.
Under the purchase method of accounting, assets acquired and
liabilities assumed will be recorded at their estimated fair value (which
approximates book value) at the date of acquisition. The pro-forma adjustments
set forth in the following unaudited pro-forma consolidated financial
information are estimated and may differ from the actual adjustments when they
become known. However, no material differences are anticipated by the Company.
The following unaudited pro-forma consolidated financial information
does not reflect certain cost savings that the Company believes may be realized
following the Music Art acquisition. Such cost savings are expected to be
realized primarily through the elimination of certain overhead expenses.
The pro-forma data is provided for comparative purposes only. It
does not purport to be indicative of the results that actually would have
occurred if such acquisition had been consummated on the dates indicated or that
may be obtained in the future. The unaudited pro-forma combined financial
information should be read in conjunction with the notes thereto, the audited
financial statements of Music Art for the year ended December 31, 1999 and the
Company's May 31, 2000 and February 29, 2000 financial statements and related
notes thereto.
The following are filed here within:
Unaudited Pro-Forma Consolidated Balance Sheet as of May 31, 2000
Unaudited Pro-Forma Consolidated Statement of Operations for the
Three Months Ended May 31, 2000
Unaudited Pro-Forma Consolidated Balance Sheet as of February 29,
2000
F-45
<PAGE>
Unaudited Pro-Forma Consolidated Statement of Operations for
the Year Ended February 29, 2000
Notes to Unaudited Pro-Forma Consolidated Financial Information for
the Three Months Ended May 31, 2000 and Year Ended February 29,
2000
Collectible Concepts Group, Inc.
Notes to Unaudited Pro-Forma Consolidated Financial Information for
the Three Months Ended May 31, 2000 and Year Ended February 29, 2000
The unaudited pro-forma consolidated balance sheet is based on the
individual balance sheets of the Company and Music Art, reflect the acquisition
of all of the material assets, subject to ordinary business liabilities, of
Music Art by the Company (which was completed on June 5, 2000) as if it had
taken place as of May 31, 2000 and February 29, 2000 after giving effect to
pro-forma adjustments to reflect the following:
The Company acquired 100% of the outstanding common shares of Music Art
for 1,000,000 shares of Company common stock. Music Art is primarily engaged in
the business of creating, marketing and distributing limited edition lithographs
derived from artwork used on music albums and other music collectibles. The
acquisition will be accounted for as a purchase. The excess of acquisition cost
over the fair value of net assets, assumed to equal it's book value, was
$377,055 which will be amortized over seven years.
The acquisition is reflected as a pro-forma adjustment to the
consolidated balance sheets as of May 31, 2000 and February 29, 2000 as an
increase to goodwill for $377,055 and an increase to common stock and additional
paid in capital for $1,045 and $304,580, respectively.
F-46
<PAGE>
The Company also recorded a pro-forma adjustment to eliminate a
non-current liability of Music Art in the amount of $253,000 that was forgiven
at the time of the acquisition.
To arrive at pro-forma net equity, the Company recorded a pro-forma
adjustment to the consolidated balance sheet as an increase to accounts payable
and accrued expense of $28,834 at May 31, 2000 and $48,100 at February 29, 2000.
The Company recorded a pro-forma adjustment to the consolidated
statement of operations to selling, general and administrative expenses for
amortization of goodwill for the three months ended May 31, 2000 and for the
year ended February 29, 2000 in the amounts of $13,460 and $53,865,
respectively.
F-47
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
PRO-FORMA CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
Historical Pro-forma
------------------------------------- ------------------------------
Collectible Concepts
Group, Inc. Music Art Pro-forma
ASSETS 02/29/00 12/31/1999 Adjustments Consolidated
----------------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 247,491 $ 859 $ - $ 248,350
Accounts receivable - trade, net 12,386 1,265 - 13,651
Inventories 149,408 36,056 - 185,464
Prepaid royalties 28,821 37,718 - 66,539
Prepaid expenses and other - 300 - 300
--------- -------- --------- ---------
Total current assets 438,106 76,198 - 514,304
--------- -------- --------- ---------
PROPERTY AND EQUIPMENT, NET 17,786 1,716 - 19,502
--------- -------- --------- ---------
GOODWILL - - 377,055 377,055
--------- -------- --------- ---------
Total assets $ 455,892 $ 77,914 $ 377,055 $ 910,861
========= ======== ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes and loans payable, current portion $ 367,587 $ - $ - $ 367,587
Convertible debentures 70,000 - - 70,000
Accounts payable and accrued expenses 369,537 101,244 48,100 518,881
Accrued payroll 405,708 - - 405,708
Payroll taxes payable 11,015 - - 11,015
Accrued interest 78,469 - - 78,469
Accrued royalties 5,462 - - 5,462
--------- -------- --------- ---------
Total current liabilities 1,307,778 101,244 48,100 1,457,122
--------- -------- --------- ---------
NON-CURRENT LIABILITIES - 253,000 (253,000) -
--------- -------- --------- ---------
SHAREHOLDERS' DEFICIENCY
Capital stock 162,704 - 1,045 163,749
Additional paid-in-capital 7,247,996 - 304,580 7,552,576
Accumulated deficit (8,193,286) (276,330) 276,330 (8,193,286)
Deferred compensation/services (69,300) - - (69,300)
--------- -------- --------- ---------
Total shareholders' deficiency (851,886) (276,330) 581,955 (546,261)
--------- -------- --------- ---------
Total liabilities and shareholders' deficiency $ 455,892 $ 77,914 $ 377,055 $ 910,861
========= ======== ========= =========
</TABLE>
F-48
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
PRO-FORMA CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Historical Pro-forma
--------------------------------------------- ---------------------------
Collectible Concepts
Group, Inc. Music Art
Twelve Months Ended Twelve Months Ended Pro-forma
02/29/00 12/31/1999 Adjustments Consolidated
----------------------- ------------------- ------------ ------------
<S> <C> <C> <C> <C>
SALES $ 296,261 $ 697,919 $ - $ 994,180
COST OF SALES 199,224 227,503 - 426,727
------------ ---------- --------- ------------
GROSS PROFIT 97,037 470,416 - 567,453
SELLING, GENERAL AND ADMINISTRATIVE 3,064,285 660,619 53,865 3,778,769
------------ ---------- --------- ------------
LOSS FROM OPERATIONS (2,967,248) (190,203) (53,865) (3,211,316)
OTHER INCOME (EXPENSES)
Total other income (expense), interest expense (248,266) - - (248,266)
------------ ---------- --------- ------------
NET LOSS $ (3,215,514) $ (190,203) $ (53,865) $ (3,459,582)
============ ========== ========= ============
NET LOSS PER SHARE:
BASIC AND DILUTED ($0.03) ($0.03)
============ ============
WEIGHTED AVERAGE SHARES USED IN NET
LOSS PER SHARE CALCULATIONS:
BASIC AND DILUTED 116,713,182 1,000,000 117,713,182
============ ========= ============
</TABLE>
F-49
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
PRO-FORMA CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
Historical Pro-forma
------------------------------------- ------------------------------
Collectible Concepts
Group, Inc. Music Art Pro-forma
ASSETS 05/31/00 3/31/00 Adjustments Consolidated
----------------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 354,747 $ (1,887) $ - $ 352,860
Accounts receivable - trade, net 16,082 210 - 16,292
Inventories 393,424 36,056 - 429,480
Prepaid royalties 40,766 33,845 - 74,611
Prepaid expenses and other 48,967 300 - 49,267
--------- -------- --------- ----------
Total current assets 853,986 68,524 - 922,510
--------- -------- --------- ----------
PROPERTY AND EQUIPMENT, NET 64,965 1,507 - 66,472
--------- -------- --------- ----------
GOODWILL - - 377,055 377,055
--------- -------- --------- ----------
Total assets $ 918,951 $ 70,031 $ 377,055 $1,366,037
========= ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Notes and loans payable, current portion $ 323,865 $ - $ - $ 323,865
Convertible debentures 192,991 - - 192,991
Accounts payable and accrued expenses 422,091 112,627 28,834 563,552
Accrued payroll 286,556 - - 286,556
Payroll taxes payable 76,767 - - 76,767
Accrued interest 83,329 - - 83,329
Accrued royalties 5,462 - - 5,462
--------- -------- --------- ----------
Total current liabilities 1,391,061 112,627 28,834 1,532,522
--------- -------- --------- ----------
NON-CURRENT LIABILITIES 21,289 253,000 (253,000) 21,289
--------- -------- --------- ----------
SHAREHOLDERS' DEFICIENCY
Capital stock 187,281 - 1,045 188,326
Additional paid-in-capital 8,610,393 - 304,580 8,914,973
Accumulated deficit (9,236,473) (295,596) 295,596 (9,236,473)
Deferred compensation/services (54,600) - - (54,600)
--------- -------- --------- ----------
Total shareholders' deficiency (493,399) (295,596) 601,221 (187,774)
--------- -------- --------- ----------
Total liabilities and shareholders' deficiency $ 918,951 $ 70,031 $ 377,055 $1,366,037
========= ======== ========= ==========
</TABLE>
F-50
<PAGE>
COLLECTIBLE CONCEPTS GROUP, INC.
PRO-FORMA CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Historical Pro-forma
--------------------------------------------- ---------------------------
Collectible Concepts
Group, Inc. Music Art
Three Months Ended Three Months Ended Pro-forma
5/31/00 3/31/00 Adjustments Consolidated
----------------------- ------------------- ------------ ------------
<S> <C> <C> <C> <C>
SALES $ 9,630 $ 23,051 $ - $ 32,681
COST OF SALES 8,689 7,411 - 16,100
------------ --------- --------- ------------
GROSS PROFIT 941 15,640 - 16,581
SELLING, GENERAL AND ADMINISTRATIVE 877,433 47,406 13,466 938,305
------------ --------- --------- ------------
LOSS FROM OPERATIONS (876,492) (31,766) (13,466) (921,724)
OTHER INCOME (EXPENSES)
Total other income (expense), interest expense (166,695) - - (166,695)
------------ --------- --------- ------------
NET LOSS $ (1,043,187) $ (31,766) $ (13,466) $ (1,088,419)
============ ========= ========= ============
NET LOSS PER SHARE:
BASIC AND DILUTED ($0.01) ($0.01)
============ ============
WEIGHTED AVERAGE SHARES USED IN NET
LOSS PER SHARE CALCULATIONS:
BASIC AND DILUTED 181,554,000 1,000,000 182,554,000
============ ========= ============
</TABLE>
F-51
