<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended May 31, 2000
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
---------------------- ---------------------
COMMISSION FILE NUMBER: 0-30703
COLLECTIBLE CONCEPTS GROUP, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4026880
------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1600 Lower State Road
Doylestown, PA 18901
(Address of principal executive offices)
215/491-1075
(Registrant's telephone number, including area code)
Not applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [ ] Yes [ X ] No (The Registrant has been subject to the
reporting requirements for less than 90 days).
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.001, was 189,508,292 as of September 7, 2000.
<PAGE>
JEREMY"S MICROBATCH ICE CREAMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
(a) Financial Statements of Collectible Concepts Group, Inc.
Balance Sheet -
May 31, 2000 ......................................................................... 3
Statements of Operations --
for the three month periods ended May 31, 2000
and 1999............................................................................... 4
Statement of Shareholders' Deficiency --
May 31, 2000........................................................................... 5
Statements of Cash Flows --
For the three-month periods ended May 31, 2000
And 1999............................................................................... 6
Notes to Financial Statements.......................................................... 7
(b) Financial Statements of Music Art, LLC, (Music Art, Inc. acquired by Collectible
Concepts Group, Inc. on June 5, 2000)
Independent Auditor's Report .......................................................... 16
Balance Sheet -
December 31, 1999 .................................................................... 17
Statements of Operations and Member's Deficiency
For the Year ended December 31, 1999 .................................................. 18
Statement of Cash Flows --
For the Year ended December 31, 1999................................................... 19
Notes to Financial Statements.......................................................... 20
(c) Collectible Concepts Group, Inc. Pro Forma Financial Information ...................... 23
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................... 31
PART II: OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 36
Item 2. Changes in Securities and Use of Proceeds.............................................. 36
Item 3. Defaults on Senior Securities.......................................................... 36
Item 4. Submission of Matters to vote of Securityholders....................................... 36
Item 5. Other Information...................................................................... 36
Signatures....................................................................................... 37
</TABLE>
2
<PAGE>
Item 1. Financial Information
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
=========
3
<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
============ ===========
4
<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>
5
<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>
6
<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
7
<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.
8
<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
9
<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
10
<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.
11
<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.
12
<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.
13
<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)
===========
14
<PAGE>
MUSIC ART, LLC
YEAR ENDED
DECEMBER 31, 1999
15
<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
16
<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.
17
<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.
18
<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.
19
<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.
20
<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.
21
<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.
22
<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.
23
<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
24
<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.
25
<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.
26
<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>
27
<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>
28
<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>
29
<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>
30
<PAGE>
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.
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.
31
<PAGE>
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.
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 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.
32
<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.
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.
33
<PAGE>
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.
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.
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.
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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.
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.
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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended May 31, 2000, no legal proceedings became
reportable and no material events occurred in any previously reported legal
proceeding.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults on Senior Securities
Not Applicable
Item 4. Submission of Matters to Vote of Security Holders.
Not Applicable
Item 5. Other Information
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/.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Exhibit Title
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the quarter ending May
31, 2000 or to report events which occurred during that quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on our behalf by the undersigned.
DATE: September 11, 2000
COLLECTIBLE CONCEPTS GROUP, INC.
By: /s/ Paul S. Lipschutz
--------------------------------------------
Paul S. Lipschutz, President
By: /s/ Jeffrey Andrews
--------------------------------------------
Jeffrey Andrews, Chief Financial Officer and
Principal Accounting Officer
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