FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
{X } Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal quarter ended
September 30, 1996 or
{ } Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
______________ to ________________________
Commission file number 0-11345
FANATICS ONLY, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1320541
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
7730 East Belleview, Suite 305, Englewood, CO 80111
(Address of principal executive offices) (Zip Code)
(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 to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES_____ NO X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
Common stock, no par value 8,926,876 Shares
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Report on Unaudited Financial Statements
Balance Sheets as of December 31, 1995 and September 30,
1996
Statement of Operations for Three Months Ended
September 30, 1996 the nine months ended September 30, 1996
and from Inception (October 10, 1995) to September 30, 1996
Statement of Cash Flows for Nine Months Ended
September 30, 1996 and from Inception (October 10, 1995) to
September 30, 1996
Balance Sheets
September 30, December 31,
1996 1995
(Unaudited)
Assets
Current assets
Cash $ 32,909 $407,892
Restricted cash 50,455 672,505
Accounts receivable 128,945 -
Inventory 46,784 -
Deferred participating kit costs - 120,375
Prepaid expenses and other 3,434 52,725
Total current assets 262,527 1,253,497
Property and equipment, net 22,785 14,531
Other asset
Deposit 96,761 -
Licensing rights, net 208,289 220,803
Goodwill, net 257,372 271,474
Organizational costs 9,583 12,084
Deferred offering costs - 74,785
Total other asset 572,005 579,146
Total assets $ 857,317 $ 1,847,174
Liabilities and Stockholders' Deficit
Current liabilities
Notes payable $ 580,000 $ -
Accounts payable and
accrued expenses 1,109,404 71,703
Revenue participation
contracts 3,075,000 3,075,000
Due to stockholder 8,303 8,303
Total current liabilities 4,772,707 3,155,006
Stockholders' deficit
Series A Preferred Stock,
no par value, 768,750 shares
authorized, no shares issued
and outstanding - -
Series B Preferred Stock, no
par value, 4,000,000 shares
authorized, no shares issued
and outstanding - -
Common stock subscribed 50,000 -
Common stock; no par value;
50,000,000 shares authorized;
8,071,400 (December 31, 1995)
and 8,926,876 (September 30,
1996 unaudited) shares issued
and outstanding 3,526,069 551,884
Deficit accumulated during
the development stage (7,491,459) (1,859,716)
(3,915,390) (1,307,832)
Total liabilities and
stockholders' deficit $ 857,317 $ 1,847,174
Statements of Operations
(Unaudited)
October 10,
For the Three For the Nine 1995
Months Ended Months Ended (Inception) to
September 30, September 30, March, 31
1996 1996 1996
Revenue
Sales $ 228,868 $ 338,322 $ 338,322
Other income 95,617 95,617 95,617
Interest income 5,977 5,977 5,977
Total 330,462 439,916 439,916
Costs and expenses
Costs of participation kits 82,500 1,457,570 1,457,570
General and administrative 164,693 1,604,394 2,474,241
Advertising and promotional expenses 894,685 3,009,695 3,999,564
1,141,878 6,071,659 7,931,375
Net loss $ (811,416) $ (5,631,743) $(7,491,459)
Net loss per common share $ (.09) $ (.65) $ (.88)
Weighted average shares outstanding 8,926,876 8,641,717 8,538,023
Statement of Cash Flows
(Unaudited)
For the Nine October10,
Months Ended (Inception) to
September 30, September 30,
1996 1996
Cash flows from operating activities
Net loss $ (5,631,743) $ (7,491,459)
Adjustments to reconcile net loss to
net cash used by operating activities -
Depreciation and amortization 30,803 39,080
Aborted offering costs 54,785 -
Changes in assets and liabilities -
Accounts receivable (128,945) (128,945)
Inventory (46,784) (46,784)
Prepaid expenses and other 49,291 (3,434)
Deferred participation kit costs 120,375 -
Accounts payable and accrued expenses 1,037,701 1,109,404
Due to stockholder - 8,303
1,117,226 977,624
Net cash used by operating activities (4,514,517) (6,513,835)
Cash flows from investing activities
Notes payable 580,000 580,000
Purchase of property and equipment (9,940) (25,776)
Organizational costs - (12,500)
Acquisition of licensing rights and goodwill - (498,833)
Deposits (96,761) (96,761)
Net cash provided (used) by
investing activities 473,299 (53,870)
Cash flows from financing activities
Revenue participation contracts - 3,075,000
Payment of offering costs - (20,000)
Proceeds from common stock and subscription 3,044,185 3,596,069
Net cash provided by financing activities 3,044,185 6,651,069
Net (decrease) increase in cash (997,033) 83,364
Cash - beginning of period 1,080,397 -
Cash - end of period $ 83,364 $ 83,364
Part I:
Summary of Accounting Policies
The summary of the Issuer's significant accounting policies are
incorporated by reference to the Company's annual report on Form
10KSB, at December 31, 1995.
The accompanying unaudited condensed financial statements reflect all
adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations, financial position
and cash flows. The results of the interim period are not
necessarily indicative of the results for the full year.
Management's Discussion and Analysis of Financial Condition and Plan
Operation:
Fanatics Only, Inc., a Colorado corporation, was formed to provide
interactive fantasy sports games for sports fans to compete as owners
of sports franchises. The Company, which was incorporated in
December of 1995, develops and operates fantasy sports games and
sells related merchandise.
The Company's initial product launches of Baseball and Football 1996
have been largely unsuccessful and resulted in significant losses for
the Company from inception to date. For this reason the Company has
made significant changes in business strategy which are discussed in
detail below.
Liquidity and Financial Resources - 12/31/95 as compared to 9/30/96
At December 31, 1995, the Company had current assets (mostly cash and
restricted cash) of $1,253,497. Subsequent to such date and before
9/30/96, the Company took in $2, 974,185 net proceeds from a private
placement of shares and warrants. By 6/30/96 substantial amounts of
said cash had been spent on advertising and operation of the
Company's Baseball game and by 9/30/96 all of this cash had been
spent. At 9/30/96 the Company's current assets were $262,257 but
current liabilities were $1,615,207. Additional financing from
equity sales or additional short term loans will be necessary for the
Company to liquidate its current accounts payable and short term debt
and to fund on-going operations, including funding for general and
administrative expenses and development and operation of new games.
Forward-Looking Statements
The foregoing and subsequent discussion contains certain forward-
looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, which are intended to be covered by the safe harbors created
thereby. These forward-looking statements include the plans and
objectives of management for future operations, including plans and
objectives relating to the development, marketing and sale of a free-
entry, mass-market games along with management and marketing of
related products and services. The forward-looking statements
included herein are based on current expectations that involve
numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to
predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no
assurance that the forward-looking statements included in this Form
10-QSB will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives
and plans of the Company will be achieved.
Results of operations from inception to 9/30/96 compared to the nine
months ended 9/30/96:
Costs and expenses from inception to 9/30/96 totaled $7,848,875 of
which $5,989,159 was incurred in the nine months ended 9/30/96. Such
expenses were primarily general and administrative costs or Fantasy
game inventory, operations and/or advertising for Baseball and
Football 1996.
As of 9/30/96, $439,916 of revenues have been recognized by the
Company for the nine months ended 9/30/96.
The Company's initial business plan provided for the development,
marketing and sale of Fantasy Game kits comprised of a $99.95 full-
service game, with extensive ability to trade players and check
results, with substantial prizes for winners. The initial game was
the Company's Baseball 1996 Fantasy Game which was marketed
extensively with Bob Uecker as a celebrity spokesperson. Baseball
1996 was followed with Football 1996. This business plan resulted in
sales which were only a fraction of those projected by Management.
The Company had a total of approximately 4,000 participants for its
Baseball 1996 Game and approximately 1,500 participants for its
Football 1996 game. Management believes that this lack of
performance in its Baseball 1996 game was due to a number of factors
including, but not limited to: (i) no national sponsor; (ii) the
Baseball 1996 game was apparently too complex a game for the
occasional fan, with every player needing to be counted at each
position on a daily basis, consequently becoming too time consuming;
(iii) a different media strategy involving gradual advertising
buildup and focus may have been more successful than the advertising
strategies employed; (iv) startup problems with the inbound order
taking process and fulfillment of those orders stemming from
inexperienced employees may have resulted in lost sales and refunds;
and (v) outside of specific venues, baseball has declined nationally
in favor as a spectator sport with revenues and attendance nationwide
down approximately 35% to 40%. The Company believes its Football
1996 game was not successful due primarily to the Company's
insufficient financial resources to advertise, market and operate the
game. Management had previously anticipated that Baseball 1996 would
provide sufficient revenue to fund operations for Football 1996.
Subsequent to 9/30/96 the Company has significantly reduced general
and administrative expense and dramatically refined its business plan
to emphasize mass-market, sponsorship-driven games instead of selling
$99.95 games through national media campaigns funded by the Company.
The Company has developed a unique version of the fantasy game
concept which is designed to run as a national turn-key promotion for
large national sponsors.
Corporate America knows the value of marketing through sports.
Millions of dollars a year are spent on sports related marketing,
event sponsorship and athlete endorsements. The Company has entered
into a strategic relationship with Integrated Sports International
("ISI), a marketing, consulting and athlete management firm. ISI
believes that Fanatics Only Fantasy Games provide a vehicle to match
Americans' interest in sports, games and sports personalities with
corporate America's desire to attract these potential customers.
With the assistance of ISI, the Company will likely include in the
marketing of its Fantasy Games a sports celebrity spokesperson for
each sport to create greater appeal amongst sports-minded Americans.
Through its relationship with ISI, the Company has focused its
direction on mass-market, sponsorship-driven Fantasy Games run in
conjunction wit large national corporate sponsors. In substance, the
Company's primary focus, with the assistance of ISI, will be to adapt
the Fantasy Games to allow the sports fans to play for free, or
perhaps at a greatly reduced price, with corporate America paying the
cost of distribution and using the advertising venue presented
thereby for three of the most sought after advertising presentations
in one promotional stratagem: (i) professional sports association,
(ii) celebrity marketing and (iii) an interactive game. While no
sponsors have yet been signed by the Company, ISI and Management of
the Company have made presentations to several large potential
corporate sponsors, and are currently in negotiations with several of
these sponsors.
The Company's shift in focus to the free-entry, mass-market games
represents a shift in its overall business strategy. In essence, the
focus of the business in database acquisition and then the effective
management and marketing of products and services to that database.
The Company believes that the broad nature and mass-market appeal of
the free-entry, sponsor-driven fantasy game concept should lead to
wide-spread national participation which could result in a database
of millions of sports-minded participants. Effective marketing of
related products and services to a database of that size could lead
to the long-term success of the Company.
Management believes that the Company may have potential revenues
through several sources as discussed in more detail below. These
additional sources include retail sales through the Companies
relationship with the Pro Plus retail outlets. Pro Plus currently
has three existing stores, two in California and one in Colorado,
which will be renamed "Fanatics Only" stores upon completion of the
acquisition of Pro Plus which will be completed upon funding of the
Company's proposed public offering. The Company has also commenced
opening new "Fanatics Only" stores pursuant to the terms of an
interim Joint Venture Agreement with Pro Plus. The first of these
new "Fanatics Only" stores opened in Orlando, Florida on September 1,
1996, the second store opened in St. Augustine, Florida on October
31, 1996, with a third store to open in Honolulu in mid November
1996. The Company anticipates opening additional stores, although
through can be no assurance that the Company will successfully do so
since financing is not currently available. The Company also
receives and may continue to receive revenues from upgrades to the
Fantasy Games including the Company's existing $9.95, $19.95 and
$99.95 games, which provide opportunities for customers of the
Fantasy Games to make "trades" during the season and participate in a
more full-service, transactional game that the mass-market game.
The Company has generated revenues and expects to continue to
generate revenues from sales of telephone calling cards through MCI.
In general, a telephone calling card is included with the Company's
upgraded Fantasy Games kits, a percentage of which are "recharged"
with the Company obtaining a profit percentage. The Company believes
that a source of revenue will be the sale of insertions and/or
coupons in Fantasy Game mailers and the sale of mailing list of
sports fans obtained through the marketing program. The broad nature
of the sponsorship-driven "free" games will provide the Company with
a substantial number of names of individuals who have interest in
sports and who could be of interest to advertisers.
In summary, the losses shown in the attached financial statements and
discussions above reflect results of the Company's efforts under its
previous business plan to develop, market and sell a $99.95 full-
service, transactional game and does not reflect the Company's new
business concept nor its partnership with Pro Retail. The previous
plan included expensive mass market advertising and substantial
research and development, which were not exceeded by sales obtained.
While there can be no assurance that the new business strategy will
be successful, the Company believes that prior results do not
accurately reflect the current business philosophy and objectives of
the Company.
PART II:
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities.
The Board of Directors of the Company has established Series A
Preferred Stock and Series B Preferred Stock within the class of
Preferred Stock.
Series A Preferred Stock. The Series A Preferred Stock has the
following rights, preferences and limitations:
There are reserved for issuance 768,750 shares of Preferred
Stock for issuance as shares of Series A Preferred Stock all of which
are outstanding with a face value of $3,075,500. Shares of Series A
Preferred Stock were issued in exchange for Revenue Participation
Contracts previously issued by the Company at the rate of one share
for each $4.00 of Revenue Participation Contract face value, pursuant
to that certain RPC Holders Agreement to Exchange Contracts for
Preferred Shares. There are reserved for issuance 768,750 shares of
Common Stock for issuance on conversion of the issued and outstanding
shares of Series A Preferred Stock. The Series A Preferred Stock
earns dividends at the rate of 10% per annum on the face value of the
Preferred Stock ($307,550 per annum with respect to the presently
issued and outstanding Series A Preferred Stock). Unpaid dividends
shall cumulate and be entitled to preferences in the event of
liquidation of the Company; after payment of such unpaid dividends as
a preference in the event of liquidation, the holders of the Series A
Preferred Stock shall share ratably with holders of shares of Common
Stock in the distribution of remaining assets of the Company.
Dividends shall be paid to holders of record of the Series A
Preferred Stock as of April 30 of each calendar year, starting in
1997.
Subject to reserve of cash needed for future operating capital
as determined by the board of directors, dividends shall be paid in
cash from net earnings after taxes, and cumulate if not paid. To the
extent dividends are not paid in cash, the board of directors may pay
dividends on the Series A Preferred Stock with newly issued, fully
paid and nonassessable shares of Common Stock, which have been
registered under the 1933 Act. Such payment of dividends with shares
of Common Stock shall be based on the average of the closing bid
price for the Common Stock for the 30 trading days prior to payment
of the dividend. Dividends on the Series A Preferred Stock which are
not paid in cash shall be deemed paid by the issuance of shares of
Common Stock as of the date of valuation of such Common Stock. Such
issuance of Common Stock in payment of dividends shall not be deemed
a distribution of property of the Company under Section 7-101-
40`1(13) of the Colorado Business Corporation Act.
Series A Preferred Stock has no voting rights except when
required pursuant to the provisions of the Colorado Business
Corporation Act.
Shares of Series A Preferred Stock shall be convertible to newly
issued shares of Common Stock registered by the Company under the
1933 Act, on a one-for-one basis, as follows:
(1) By the holders of the Series A Preferred Stock if the Common
Stock trades at a price of at least $8.00 per share for at least 20
out of 30 trading days. Such conversion by the holders shall be
possible for 30 calendar days after the date the notice of
convertibility is given to such holders by the Company.
(2) By the Company if (a) the Common Stock trades at a price of at
least $10.00 per share for at least 20 out of 30 trading days and (b)
the daily trading volume of the Common Stock during such 20 out of 30
days has been equal to at least 1% of the total outstanding shares of
Common Stock. Such conversion by the Company shall be effective as
of the date of notice thereof to such holders.
The Series A Preferred Stock and the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock have
piggyback registration rights in the event the Company undertakes a
registration of its shares.
Series B Preferred Stock. The Series B Preferred Stock has the
following rights, preferences and limitations:
(1) there are reserved for issuance 4,000,000 shares of Preferred
Stock for issuance as shares of Series B Preferred Stock. Certain
management and shareholders of the Company exchanged 4,000,000 shares
of Common Stock for 3,50,000 shares of Series B Preferred Stock. In
addition, a minimum of 135,000 shares and a maximum of 170,000 shares
of Series B Preferred Stock would be issued pursuant to this
Offering.
(2) No dividends shall be paid on the Series B Preferred Stock. The
Series B Preferred Stock shall not have any rights to assets or
proceeds from sale of assets of the Company in the event of
liquidation. The Series B Preferred Stock has no voting rights
except when required pursuant to the provisions of the Colorado
Business Corporation Act.
(3) There are reserved for issuance 4,000,000 shares of Common Stock
for issuance on conversion of issued and outstanding shares of Series
B Preferred Stock. Shares of Series B Preferred Stock shall be
convertible to newly issued shares of Common Stock, on a one-for-one
basis, as follows:
(4) All 3,600,000 issued and outstanding shares of Series B
Preferred Stock (assuming completion of the Maximum Offering) shall
be converted to shares of Common Stock if the Company has earned
after tax at least the following amounts per share fully diluted
(assuming conversion of all outstanding Series A and Series B
Item 3. Defaults on Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders. Not
applicable.
Item 5. Other information. Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Fanatics Only, Inc.
(Registrant)
/s/ Jeff Gehl
Jeff Gehl, President and Chief
Financial Officer
Date: November 22, 1996
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<CURRENT-ASSETS> 262,527 262,527
<PP&E> 25,776 25,776
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