Warning Management Services (WNMI) Inactive
Filed: 21 May 02, 12:00am
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)| [x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2002
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________.
Commission file number: 0-27219
FAMOUS FIXINS, INC.
(Name of small business issuer in its charter)
| New York (State or other jurisdiction of incorporation or organization) | 13-3865655 (I.R.S. Employer Identification No.) |
250 W. 57th St., Suite 1112, New York, NY 10107
(Address of principal executive offices)
(212) 245-7773
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 90 past days. YES [X] NO [ ]
As of March 31, 2002, the issuer had 20,360,179 shares of common stock, par value $.001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
FAMOUS FIXINS, INC.
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2002
TABLE OF CONTENTS
| Page | |||
| PART I. | FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 3 | |
| Balance Sheets As Of March 31, 2002 And December 31, 2001 | 3 | ||
| Interim Statements Of Operations For The Three Months Ended March 31, 2002 And March 31, 2001 | 5 | ||
| Interim Statements Of Cash Flows For The Three Months Ended March 31, 2002 And 2001 | 6 | ||
| Interim Statement Of Stockholders' Equity (Deficit) For The Three Months Ended March 31, 2002 | 8 | ||
| Notes To Interim Financial Statements For The Three Months Ended March 31, 2002 | 9 | ||
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 14 |
| PART II. | OTHER INFORMATION | ||
| Item 2. | Changes in Securities | 20 | |
| Item 5. | Other Information | 20 | |
| Item 6. | Exhibits and Reports on Form 8-K | 22 |
MARCH 31, DECEMBER 31,
2002 2001
--------- -----------
A S S E T S
-----------
CURRENT ASSETS
- --------------
Cash and cash equivalents $179,928 $233,906
Accounts receivable, less $5,000 allowance
for doubtful accounts 148,129 70,122
Due from factor 2,358 --
Merchandise inventory 106,660 145,255
Unused barter credits - current portion 124,960 124,960
Prepaid expenses 36,582 55,551
Due from officer/stockholder - noninterest bearing 21,570 21,570
-------- --------
TOTAL CURRENT ASSETS 620,187 651,364
-------- --------
PLANT AND EQUIPMENT
- -------------------
Furniture and fixtures 15,804 15,804
Machinery and equipment 28,777 28,777
-------- --------
44,581 44,581
Less: Accumulated depreciation 23,379 21,329
-------- --------
NET PLANT AND EQUIPMENT 21,202 23,252
-------- --------
OTHER ASSETS
- ------------
Deferred debenture issuance costs, net of accumulated
amortization ($3,377 in 2002; $3,331 in 2001) 21 33
Unused barter credits - noncurrent portion 20,226 20,226
Security deposits 6,482 6,482
-------- --------
TOTAL OTHER ASSETS 26,729 26,741
-------- --------
$668,118 $701,357
======== ========
See accompanying notes to financial statements.
MARCH 31, DECEMBER 31,
2002 2001
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
- -------------------
5% convertible debentures, due October, 2002
(principal amount - $33,975) $ 33,879 $ 33,850
10% demand notes payable 27,500 --
Accounts payable 334,680 226,473
Accrued expenses 76,266 112,501
Due to customers 4,394 30,772
Deferred officer's compensation payable 146,509 118,861
Income taxes payable 580 580
4% convertible debentures -- 1,575,000
----------- -----------
TOTAL CURRENT LIABILITIES 623,808 2,098,037
----------- -----------
LONG-TERM LIABILITIES
- ---------------------
4% convertible debentures 1,500,000 --
Deferred rent 12,726 3,160
----------- -----------
TOTAL LONG-TERM LIABILITIES 1,512,726 3,160
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
- ------------------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
20,360,179 shares in 2002;
14,197,903 shares in 2001 20,359 14,197
Additional paid-in capital 4,230,913 4,116,803
Accumulated deficit (5,650,688) (5,506,840)
----------- -----------
(1,399,416) (1,375,840)
Less: Unused advertising barter
credits issued in exchange
for common stock (24,000) (24,000)
Note receivable for common stock issued (45,000) --
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,468,416) (1,399,840)
----------- -----------
$ 668,118 $ 701,357
=========== ===========
See accompanying notes to financial statements.
THREE MONTHS ENDED
MARCH 31,
----------------------
2002 2001
--------- ---------
NET SALES $ 351,394 $ 427,824
--------- ---------
COST OF GOODS SOLD
Merchandise inventory at beginning of year 145,255 321,116
Purchases 188,292 168,764
Other direct costs 4,021 28,762
--------- ---------
337,568 518,642
Less: Merchandise inventory at end of period 106,660 247,647
--------- ---------
TOTAL COST OF GOODS SOLD 230,908 270,995
--------- ---------
GROSS PROFIT 120,486 156,829
--------- ---------
OPERATING EXPENSES
Selling expenses 41,276 68,890
General and administrative expenses 281,979 351,845
Loss on disposal of plant and equipment -- 883
--------- ---------
TOTAL OPERATING EXPENSES 323,255 421,618
--------- ---------
OPERATING LOSS (202,769) (264,789)
--------- ---------
OTHER INCOME (EXPENSE)
Interest income 425 76
Interest expense and financing costs (15,924) (17,026)
Waiver of bond premium on 4% debentures 75,000 --
Realized and unrealized loss on investments in
marketable equity trading securities -- (13,134)
--------- ---------
TOTAL OTHER INCOME (EXPENSE) 59,501 (30,084)
--------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES (143,268) (294,873)
PROVISION FOR INCOME TAXES 580 580
--------- ---------
NET LOSS $(143,848) $(295,453)
========= =========
BASIC NET LOSS PER COMMON SHARE $ (.009) $ (.021)
========= =========
See accompanying notes to financial statements.
THREE MONTHS ENDED
MARCH 31,
----------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(143,848) $(295,453)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash items:
Depreciation 2,050 2,278
Amortization and write-off of bond discounts and
finance costs 41 534
Deferred rent expense 9,566 (572)
Waiver of bond premium on 4% debentures (75,000) --
Value of common stock issued for services
received by the Company -- 360
Value of warrants issued and amortized for services
received by the Company 28,649 58,242
Realized and unrealized loss on investments in
marketable equity trading securities -- 13,134
Loss on disposal of plant and equipment -- 883
(Increase) decrease in assets:
Accounts receivable (78,007) (155,300)
Due from factor (2,358) --
Merchandise inventory 38,595 73,469
Prepaid expenses 18,969 (4,175)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 118,595 (26,813)
Due to customers (26,378) 24,239
Taxes payable - other than on income -- (11,335)
Deferred officer's compensation payable 27,648 1,770
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES
(CARRIED FORWARD) (81,478) (8,139)
--------- ---------
(CONTINUED)
See accompanying notes to financial statements.
NET CASH USED IN OPERATING ACTIVITIES
(BROUGHT FORWARD) $ (81,478) $ (8,139)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable equity trading securities -- 64,444
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of borrowing against investment in
marketable equity trading securities -- (46,385)
Proceeds of 10% demand notes payable 27,500 --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 27,500 (46,385)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (53,978) 9,920
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 233,906 343,164
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 179,928 $ 353,084
========= =========
Supplemental information about cash payments is as follows:
Cash payments for interest $ -- $ 1,005
Cash payments for income taxes $ 580 $ 580
Supplemental disclosure of noncash financing activities:
Conversion of accrued interest payable to common stock $ 46,623 $ --
Note receivable for common stock issued $ 45,000 $ --
See accompanying notes to financial statements.
NOTE
UNUSED RECEIVABLE
COMMON STOCK ADDITIONAL ADVERTISING FOR COMMON
------------ PAID-IN ACCUMULATED BARTER STOCK
TOTAL SHARES AMOUNT CAPITAL DEFICIT CREDITS ISSUED
----------- ---------- ------- ---------- ------------ -------- --------
BALANCE (DEFICIT) - $(1,399,840) 14,197,903 $14,197 $4,116,803 $(5,506,840) $(24,000) $ --
JANUARY 1, 2002
Value of warrants issued 28,649 -- -- 28,649 -- -- --
and amortized for services
received
Issuance of common shares 46,623 4,662,276 4,662 41,961 -- -- --
on conversion of accrued
interest payable on 4%
convertible debentures
Issuance of common shares -- 1,500,000 1,500 43,500 -- -- (45,000)
on exercise of warrants
Net loss - Three months (143,848) -- -- -- (143,848) -- --
ended March 31, 2002 ----------- ---------- ------- ---------- ------------ -------- --------
BALANCE (DEFICIT) - $(1,468,416) 20,360,179 $20,359 $4,230,913 $(5,650,688) $(24,000) $(45,000)
MARCH 31, 2002 =========== ========== ======= ========== ============ ======== ========
See accompanying notes to financial statements.
NOTE 1. STATEMENT OF INFORMATION FURNISHED
----------------------------------
The accompanying unaudited interim financial statements have been
prepared in accordance with Form 10-QSB instructions and in the
opinion of management contains all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the
financial position of Famous Fixins, Inc. as of March 31, 2002, the
results of operations for the three months ended March 31, 2002 and
2001, the statements of cash flows for the three months ended March
31, 2002 and 2001, and the statement of stockholders' equity (deficit)
for the three months ended March 31, 2002. These results have been
determined on the basis of accounting principles and practices
generally accepted in the United States and applied consistently with
those used in the preparation of the Company's 2001 financial
statements.
Certain information and footnote disclosures normally included in
the financial statements presented in accordance with accounting
principles generally accepted in the United States have been condensed
or omitted. It is suggested that the accompanying financial statements
be read in conjunction with the financial statements and notes thereto
incorporated by reference in the Company's 2001 financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY
----------------------------------
The Company is a promoter and marketer of celebrity licensed
consumer products for sale in supermarkets, other retailers and
over the Internet. The Company develops, markets and sells
licensed consumer products based on the diverse professional,
cultural and ethnic backgrounds of various celebrities. The
Company enters into licensing agreements with high profile
celebrities and creates consumer products which include various
product lines consisting of salad dressings, candy products,
cosmetic products, adhesive bandages and other novelty products
endorsed by the licensors. The Company sells directly to
customers and also utilizes a network of consumer products
brokers to distribute its products throughout the United States
and Canada. Third party manufacturers produce the Company's
various consumer products.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
--------------------------------------------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could
differ from those estimates. Estimates are made when accounting
for uncollectible accounts receivable, advertising barter
credits, depreciation and amortization, income taxes,
contingencies and valuation of warrants, among others. Estimates
and assumptions are reviewed periodically and the effects of
revisions are reflected in the financial statements in the period
they are determined to be necessary.
REVENUE RECOGNITION AND SALES RETURNS
-------------------------------------
Revenues are recognized when the earnings process is
complete. This generally occurs when products are shipped in
accordance with terms of agreements, title and risk of loss
transfer to customers, collection is probable and pricing is
fixed or determinable.
Provision for uncollectible accounts is recorded, when
appropriate. Provision for sales returns and allowances are
recorded in the period in which the related revenue is
recognized. When sales returns and allowances are in excess of
customer receivable balances, such excess amount is reflected as
a current liability under the category "Due To Customers".
STOCK-BASED COMPENSATION - WARRANTS
-----------------------------------
The Company accounts for warrants issued to purchase common
stock in connection with services rendered to the Company using
the fair value method prescribed in SFAS No. 123 "Accounting for
Stock-Based Compensation". Compensation cost for all stock
warrants issued by the Company is (a) measured at the grant date
based on the fair value of the warrants and (b) recognized over
the service period. Stock-based compensation cost charged to
operations for the three months ended March 31, 2002 was $28,649.
MERCHANDISE INVENTORY
---------------------
Merchandise inventory is stated at the lower of cost or
market value on a first-in, first-out basis.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
PLANT AND EQUIPMENT
-------------------
Plant and equipment are stated at cost, less accumulated
depreciation. The cost of major improvements and betterments to
existing plant and equipment are capitalized, while maintenance
and repairs are charged to expense when incurred. Upon retirement
or other disposal of plant and equipment, the profit realized or
loss sustained on such transaction is reflected in income.
Depreciation is computed on the cost of plant and equipment on
the straight-line method, based upon the estimated useful lives
of the assets.
IMPAIRMENT OF LONG-LIVED ASSETS
-------------------------------
The Company follows the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". SFAS No. 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those long-lived assets. Such
long-lived assets include barter credits.
Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of the
undiscounted future net cash flows expected to be generated by
the assets is less than the carrying amount of the assets, the
Company recognizes an impairment loss. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. When fair values, such as
quoted market prices, are not available, the Company estimates
fair value using the expected future cash flows discounted at a
rate commensurate with the risks associated with the recovery of
the assets. Assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell.
BARTER CREDITS
--------------
The Company entered into arrangements in 1998 and 2000,
pursuant to which it received barter credit entitlements. Such
credits generally relate to the Company's right to exchange its
credits for future television, radio and other types of
advertisements for its products. No additional payments of cash
or other property is required on exercise of the barter credits
and the value of the services to be received are deemed to be
comparable to the utilization charges to be made against the
barter credit. Upon utilization (receipt of services or goods in
exchange for barter credits) of part or all of the barter
credits, charges are made to income (substantially all to selling
expenses) for the recovered carrying amount of the barter
credits. The Company's policy for review of the barter credits
with respect to possible impairment, is described above.
RECLASSIFICATIONS
-----------------
Certain items have been reclassified in the 2001 financial
statements to conform to account groupings used for financial
reporting in 2002.
NOTE 3. NET LOSS PER COMMON SHARE
-------------------------
Net loss per common share was calculated under SFAS No. 128,
"Earnings per Share". Basic net loss per share is computed by dividing
the net loss by the weighted average outstanding shares of 16,251,995
and 13,957,264 for the three months ended March 31, 2002 and 2001,
respectively. No effect has been given to the conversion of warrants
and debentures to common stock inasmuch as such conversions would be
anti-dilutive.
NOTE 4. GOING CONCERN
-------------
The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The
Company has incurred substantial losses from operations and has
deficiencies in working capital and stockholders' equity at March 31,
2002 which raise substantial doubt about its ability to continue as a
going concern. The Company's ability to operate as a going concern is
dependent upon its ability to continue to raise adequate capital and
financing as may be required. The Company has entered into a
"Settlement of Debts and Asset Purchase Agreement" as described in
Note 5E and in connection therewith the bondholders of the Company's
4% convertible debentures have extended the maturity date to May 8,
2003 (See Note 5F). However, there can be no assurance that future
capital contributions and/or financing will be sufficient for the
Company to continue as a going concern or that it can achieve
profitable operations in the future. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
NOTE 5. SUMMARY OF SIGNIFICANT EVENTS OCCURRING DURING THE THREE MONTHS ENDED
---------------------------------------------------------------------
MARCH 31, 2002
--------------
The following is a summary of the significant events which
occurred during the three months ended March 31, 2002:
A. On January 28, 2002, the Company borrowed an aggregate of
$27,500 from two lenders and issued demand notes payable at
an interest rate of 10% per annum. The 10% notes are payable
on demand, on or after June 15, 2002. The lenders include a
party related to the holders of its 4% $1,500,000
convertible debentures and another unrelated party.
B. On February 13, 2002, the Company entered into an accounts
receivable factoring agreement subject to a minimum annual
fee of $5,000. Under the agreement, the Company may
selectively assign and sell part or all of its accounts
receivable, subject to approval by the factor. The
transactions with the factor have thus far been
insignificant. The balance due from the factor under this
arrangement is $2,358 at March 31, 2002.
C. On March 14, 2002 the Company issued 4,662,276 shares of its
common stock upon conversion of $46,623 of accrued interest
on its 4% convertible debentures.
D. On March 27, 2002, an officer/stockholder of the Company
exercised warrants to purchase 1,500,000 shares of common
stock at an exercise price of $.03 per share. In exchange
for the issuance of common stock, the Company accepted a
note receivable in the amount of $45,000, bearing interest
of 6% per annum, due January 1, 2003.
E. On March 29, 2002, the Company entered into a "Settlement of
Debts and Asset Purchase Agreement" pursuant to which the
Company agreed to divest all of its operations and sell
substantially all of its assets and certain specified
liabilities to Starbrand, LLC in exchange for cancellation
of $450,000 of its 4% $1,500,000 convertible debentures. The
members of Starbrand, LLC will include certain stockholders
of the Company. The Company expects to consummate this
transaction in the near future.
F. On March 29, 2002, the bondholders of the Company's 4%
$1,500,000 convertible debentures have agreed to extend the
maturity date to May 8, 2003. Accordingly, the Company has
reclassified the 4% $1,500,000 debentures as a long-term
liability in its balance sheet as at March 31, 2002. In
addition, the bondholders have agreed to waive a $75,000
bond premium payable in connection with the indebtedness.
This report on Form 10-QSB contains certain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. Generally, the words “anticipates,” “expects,” “believes,” “intends,” “could,” “may,” and similar expressions identify forward looking statements. Forward-looking statements involve risks and uncertainties. We caution you that while we believe any forward-looking statement are reasonable and made in good faith, expectations almost always vary from actual results, and the differences between our expectations and actual results may be significant.
The following discussion and analysis of our results of operations and our financial condition should be read in conjunction with the information set forth in the financial statements and notes thereto included elsewhere in this report.
Sales for the three months ended March 31, 2002 decreased approximately 18% to $351,394 from $427,824 for the three months ended March 31, 2001. The decrease in sales for the three months ended March 31, 2002 is attributable to the slowdown in sales in connection with the gradual discontinuation of several product lines that were offered in the three months ended March 31, 2001.
Cost of goods sold for the three months ended March 31, 2002 was $230,908, approximately 66% of sales, as compared to $270,995, approximately 63% of sales, for the comparable period in fiscal year 2001. The decrease in the amount of the cost of goods sold for the three months ended March 31, 2002 as compared to the three months ended March 31, 2001 is attributable to the discontinuation of several product lines that were offered for sale in the three months ended March 31, 2001. Total cost of goods sold are expected to increase in the next six months, because we will incur substantial costs in connection with the manufacturing, marketing and selling of up to two new product lines that are currently in the developmental stages and four new product lines that we introduced in the last quarter of 2001 and the first quarter of 2002.
Gross profit on sales for the three months ended March 31, 2002 was $120,486, a decrease of 23%, as compared to gross profit of $156,829 for the three months ended March 31, 2001. Gross profit was approximately 34% of sales for the three months ended March 31, 2002 as compared to gross profit as a percentage of sales for the three months ended March 31, 2001 of 37%. The decrease in the amount of gross profit is attributable to less sales resulting from the slowdown in sales in connection with the gradual discontinuation of several product lines that were offered in the three month period ended March 31, 2001.
For the three months ended March 31, 2002 as compared to the three months ended March 31, 2001, operating expenses decreased to $323,255 from $421,618, which represents a 23% decrease in operation expenses and an decrease to 92% of sales from 99% of sales. The decrease in our operating expenses for the three months ended March 31, 2002 is due mainly to a decrease in general and administrative expenses associated cost saving measures implemented by management. Operating expenses, particularly selling expenses, are expected to increase over the next six months as we introduce up to two new product lines that are currently in the developmental stages and we incur costs associated with the sales of four new product lines that we introduced in the last quarter of 2001 and the first quarter of 2002; however, operating expenses are expected to decrease as a percentage of total sales over time as our sales volume grows and as we incur less marketing and selling expenses as a percentage of sales for a particular product line.
For the three months ended March 31, 2002, we operated at a net loss of $(143,848), or a loss of $(0.009) per share basic, as compared to net loss of $(295,453), or a loss of $(0.021) per share basic for the three months ended March 31, 2001. The decrease in net loss for the three months ended March 31, 2002 as compared to the three months ended March 31, 2001 is mainly due to a decrease in operating expenses associated with the gradual discontinuation of several product lines.
In the year ended December 31, 2001, we entered into six new license agreements for the introduction of six new products. We introduced four new product lines in the last quarter of 2001 and the first quarter of 2002, and we intend to introduce two new product lines in the next three to nine months. In fiscal year 2001, we reorganized our company personnel and our product offerings, including discontinuance of four product lines. While the addition of new product lines may also create liquidity issues and demands on our limited resources, it is anticipated that our focus on products that have potentially broad territorial appeal and licenses with longer license periods may have a favorable impact on income and liquidity.
Our food sales business is not seasonal in nature.
Inflation is not deemed to be a factor in our operations.
Financing Activities
To date, we have funded our operations through a line of credit, bank borrowings, and borrowings from, and issuances of warrants and sales of securities to, stockholders, and from operating revenues. Our inability to obtain sufficient credit and capital financing has limited our operations and growth from inception.
In October 1999, we entered into agreements pursuant to which certain investors agreed to purchase an aggregate of $550,000 principal amount of 5% convertible debentures due October 19, 2002 and 139,152 warrants to purchase shares of our common stock. At the initial closing date, we received gross proceeds of $450,000, and in February 2000, we received the remaining $100,000 when a registration statement in connection with the resale of the underlying common stock became effective. The warrants are exercisable between October 30, 1999 and October 30, 2004 at a purchase price of $.494 per share, which was 125% of the market price on the closing date. Through March 31, 2002, debenture holders have converted debentures with an aggregate of $526,032 in principal and interest into 3,136,279 shares of common stock. Debentures with a principal of $33,975 and interest thereon remain outstanding. None of the warrants have been exercised.
In March 2000, we entered into an agreement pursuant to which certain investors agreed to purchase an aggregate of $1,000,000 principal amount of 0% convertible debentures due March 13, 2005 and warrants to purchase 2,500,000 shares of our common stock. We received gross proceeds of $1,000,000 from the transaction. The holders of the convertible debentures were entitled to convert the debentures into shares of common stock at a conversion price of $.40 per share. The warrants are exercisable before March 13, 2005 at a purchase price of $.75 per share. In October 2000, we entered into an agreement for the sale of $1,500,000 principal amount of 4% convertible debentures pursuant to which the outstanding principal amount of the 0% convertible debentures were surrendered.
In October 2000, we entered into an agreement pursuant to which certain investors agreed to purchase an aggregate of $1,500,000 principal amount of 4% convertible debentures and warrants to purchase 250,000 shares of common stock. The principal amount of the 4% convertible debentures of $1,500,000 consists of principal in the amount of $500,000 and the surrender of outstanding 0% convertible debentures with a principal amount of $1,000,000 issued in March 2000. The warrants are exercisable before November 7, 2003 at a purchase price per share of $0.0588. At the closing of the transaction, we received gross proceeds of $500,000, less payment to the escrow agent of $10,000 for the investors’ legal, administrative and escrow costs, and less payment of a 10% placement agent fee. We also issued to the placement agent 75,000 shares of restricted common stock and a warrant to purchase 100,000 shares of common stock as part of the placement agent fee. The warrants are exercisable before November 7, 2003 at a purchase price per share of $0.0588.
The 4% debenture holders have the right to convert the interest into shares of common stock based on the average of the 5 lowest closing bid prices of the common stock over a 22 trading day period immediately prior to the interest payment date. We agreed to enter into an equity line of credit type of transaction within 10 days of this transaction. If we are unable to pay the amounts due on the maturity date but we can draw down on the equity line of credit, we are to draw down the maximum amount each draw down period to pay the investors the full amount due. To date, we are unable to draw down upon the equity line of credit.
Since August 7, 2001, the 4% debenture holders may elect to convert the 4% convertible debentures into shares of common stock because a registration statement for the equity line of credit was not effective on the August 7, 2001 maturity date and because we are not able to draw down the maximum amount permitted each month under the equity line under an effective equity line of credit registration statement. The conversion price shall equal the lesser of $0.054 or 85% of the average of the 5 lowest closing bid prices during the 22 trading days preceding the applicable conversion date. At the 4% debenture holders’ election, we shall redeem the 4% convertible debentures, including interest and a redemption premium of 30%, using up to 50% of the net proceeds received pursuant to the equity line of credit and any other equity financing permitted under the agreement, and all proceeds received in an equity financing not permitted under the future financing restrictions.
The 4% convertible debentures matured unpaid on August 7, 2001 with a 5% premium on the principal and the accrued unpaid interest. In March 2002, the terms of the 4% convertible debentures were amended to extend the due date for the debentures until May 8, 2003 and to waive any premiums or penalties that may have been incurred in connection the original due date having passed. In March 2002, the 4% convertible debenture holders converted accrued interest with an aggregate amount of $46,623 into 4,662,276 shares. None of the principal amount or other accrued interest have been repaid or converted into shares of common stock, and none of the warrants have been exercised.
In October 2000, we entered into an agreement for the future issuance and purchase of shares of our common stock which establishes what is sometimes termed an equity line of credit or an equity drawdown facility. In general, the drawdown facility operates as follows: the investor has committed to provide us with up to $5 million as we request it over a 24 month period, in return for shares of common stock we issue to the investor.
Subject to a maximum of 16 draws, once every 29 trading days, we may request a draw of up to $5 million under the equity line, however, no single draw can exceed $5 million. We must wait at least 7 trading days after each 22 trading day drawdown period before requesting another drawdown. The maximum amount we actually can draw down upon each request will be determined by 4.5% of the volume-weighted average daily price of our common stock for the 3 month period prior to our request and the total trading volume for the 3 months prior to our request. Each draw down must be for at least $100,000.
The number of shares registered under the registration statement for the resale of the common stock upon each drawdown under the equity line may limit the amount of money we receive under the common stock purchase agreement. Moreover, the funds we may receive could be further limited by a provision of the common stock purchase agreement that prevents us from issuing shares to the investor to the extent the investor would beneficially own more than 9.9% of our then outstanding common stock.
At the end of a 22-day trading period following the drawdown request, the final drawdown amount is determined based on the volume-weighted average stock price during that 22-day period. We then use the formulas contained in the common stock purchase agreement to determine the number of shares we will issue to the investor in return for that money. The per share dollar amount the investor pays for our common stock for each drawdown includes a 17.5% discount to the average daily market price of our common stock for the 22-day period after our drawdown request, weighted by trading volume. We will receive the amount of the drawdown less an escrow agent fee equal to $1,500 per drawdown and less a 10% placement fee.
In lieu of making a commitment to the investor to draw a minimum aggregate amount, on October 31, 2000, we issued to the investor a stock purchase warrant to purchase up to 500,000 shares of our common stock and we also agreed to issue additional warrants to purchase a number of shares equal to 50% of the shares purchased by the investor on the settlement date of each drawdown. The warrants to purchase 500,000 shares of common stock have an exercise price of $0.0636 and expire on October 31, 2003. The additional warrants issuable at each settlement date will be exercisable for 35 calendar days and have an exercise price equal to the weighted average of the purchase prices of the common stock during the applicable settlement period. A registration statement for the shares underlying the equity line of credit is presently not effective. Until an effective registration statement is in place, we cannot use and will not receive any funds from the equity line.
In January 2002, we entered into promissory notes of $27,500 with interest at a rate of 10% per year to pay for current business expenses. Beginning June 15, 2002, the notes become payable on demand.
In February 2002, we entered into an accounts receivable factoring agreement subject to a minimum annual fee of $5,000. Under the agreement, we may selectively assign and sell part or all of its accounts receivable, subject to approval by the factor. At March 31, 2002, $2,358 is due from the factor under this arrangement.
Barter Credits
In 1998, we issued shares of our common stock for a barter credit with an initial amount of $125,000 in connection with future radio spot advertisements and other services. We recovered $75,000 of the barter credit in 2000. In 2001, we utilized $2,550 of the remaining barter credit balance of $50,000. We estimate that we will be unlikely to utilize a portion of the remaining balance of the credit. We recorded an impairment charge of $23,450 in 2001, representing the difference between the carrying amount and the fair value, based on management’s estimate of the discounted cash flows, of the remaining credit. The adjusted carrying amount of this credit as at March 31, 2002 is $24,000.
In March 2000, we entered into an agreement to sell certain merchandise products in exchange for a $457,104 trade credit to purchase future television, radio and other advertising mediums as well as such services as warehousing, hotel rooms, airline tickets and office equipment on a barter basis over a maximum period of four years. In April 2000, we delivered merchandise with an estimated fair value of $302,471 to the barter company in connection with the trade credit commitment. We recorded the credit on the basis of the $302,471 estimated fair value of the transferred merchandise. In the third quarter of 2001, we recorded an impairment charge of $157,285 to write-down the carrying amount of the unused barter credit to a net realizable value of $145,186 based upon management’s estimate of the expected future discounted cash flows. Through March 31, 2002, no portion of the credit entitlement was used. The credit agreement expires in March 2004, after giving effect to our option to extend the agreement for one year.
In October 2000, we commenced a lawsuit against the barter company in which, among other claims, we asserted that the barter company failed to establish the $457,104 trade credit in our favor. The barter company interposed an answer, and in early 2001, the parties discussed settlement of the action whereby the barter company stated its intention to provide the trade credit to which we are entitled. The current status of the litigation is that we agreed to hold further prosecution of our claims in the pending litigation in abeyance, while the parties seek to have the barter credits utilized, upon which usage in full, we intend to discontinue the litigation.
We believe we will be able to utilize all of these barter credits prior to their expiration, thereby realizing the benefit of the credits. We have obtained documentation from the barter company outlining various vendors who are participants in the barter program, a number of whom are expected to be utilized by us either for advertising or other programs. We assessed the viability of the barter company by: (a) calling the Better Business Bureau to check the barter company’s status; (b) obtaining comfort with management integrity through communications including confirmation of available balances; and (c) obtaining a Dun & Bradstreet Credit report on the barter company.
There have been discussions between the parties pursuant to which an advertising program of approximately $132,000 was being developed for utilization in 2002. We have been working with the barter company to make arrangements to use the credits over a period of the remaining contract period by placing ads with several publishing companies.
Going Concern Comment
The auditors’ report to our financial statements for the year ended December 31, 2001 cites factors that raise substantial doubt about our ability to continue as a going concern. The factors include that we have incurred substantial operating losses since inception of operations and as at December 31, 2001 reflect deficiencies in working capital and stockholders’ equity. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Management's Plan of Action
The primary issues management has focused on to address the going concern matter included:
| o | initiating negotiations to secure short term financing through promissory notes on an as needed basis; |
| o | initiating negotiations to secure short term financing through factoring of accounts receivables on an as needed basis; |
| o | working with the holders of convertible debentures on a restructuring of the debt they hold, by means of extension of maturity dates, modifying repayment terms, exchange of debentures to other forms of debts or otherwise, which would ease our debt burden and allow for the raising of additional capital. |
We earlier believed that the funds from the 4% convertible debentures, in conjunction with revenues from our operations, would be sufficient to fund our operations for several months in 2002, subject to our ability to resolve the repayments due on maturity of existing obligations, including the 4% convertible debentures with a principal amount of $1.5 million which matured on August 7, 2001 without repayment. Despite the best efforts of management to increase revenues and to reduce costs by significantly altering the product lines and by decreasing certain operating expenses during the fiscal year ended December 31, 2001, we sustained losses from operations during the year ended December 31, 2001 of $(1,020,966) and we had negative working capital of approximately $(1,447,000) as of year end 2001, and we sustained losses from operations during the three months ended March 31, 2002 of $(143,848) and we had negative working capital of approximately $(3,621) as of March 31, 2002.
We explored various options to obtain financing and to resolve our existing debt burden, including by means of merger, consolidation, sale of assets, reorganization or restructuring. In September 2001, we hired a financial advisor on an exclusive basis to assist us in strategic and financial planning matters. In January 2002, we entered into promissory notes to pay for immediate business needs. In February 2002, we entered into an accounts receivable factoring agreement.
Despite efforts by management, we were unable to raise the required additional capital to finance our operations in their present form, in part due to our debt burdens.
On March 29, 2002, we entered into a Settlement of Debts and Asset Purchase Agreement with Starbrand, LLC, pursuant to which Starbrand agreed to acquire substantially all of our assets, properties and business in exchange for the assumption of certain of our liabilities. The assets to be transferred and the liabilities to be assumed had an approximate value of $725,000, and $938,000, respectively, at December 31, 2001. Based upon the structure of the Settlement of Debts and Asset Purchase Agreement, immediately following the closing of the transfer, we will retain assets with an estimated value of $33 as of December 31, 2001 and no business operations and will retain liabilities estimated to be approximately $1,163,000 as of December 31, 2001, consisting mostly of certain outstanding debentures, plus possible liabilities with respect to certain unasserted claims against us. The Settlement of Debts and Asset Purchase Agreement specifically provides that we shall retain all claims for tax refunds, tax loss carry forwards or carrybacks or tax credits of any kind applicable to our business prior to the closing of the asset purchase agreement. As of December 31, 2001, we had net operating loss carry forwards of approximately $2,426,000, all of which expire by 2021. Without future profits, such tax losses are of limited or no value. The liabilities that will not be assumed by Starbrand consist primarily of: principal amount of $1,050,000 of our 4% convertible debentures, in the aggregate, owned by Roseworth Group Limited, Balmore Funds, S.A. and Austost Anstalt Schaan, including accrued interest on $1,500,000 of the debentures; principal amount of $33,975 of our 5% convertible debentures owned by AMRO International, S.A., including accrued interest; and promissory notes issued in 2002, as of March 31, 2002, totaling $27,500.
We anticipate the closing of the transaction to occur in the near future. Because, subsequent to the closing, we will not have any business or tangible assets with which to generate revenue, we will not have any means to satisfy our liabilities or obligations unless and until we are able to raise additional capital or acquire a business. Although the sale of assets provides for the assumption by Starbrand of significant operating liabilities of Famous Fixins, we will remain contingently responsible for the satisfaction of such liabilities and there can be no assurance that such liabilities will be satisfied.
After the closing of the transaction, we will be actively seeking to raise capital and acquire a new business. We do not presently have any such plans and there can be no assurance that raising such capital or acquiring a new business will be possible. If new capital should become available or we acquire a new business, the financing or acquisition is likely to result in immediate and substantial dilution to our presently existing shareholders.
In October 2000, we entered into agreements, dated as of October 27, 2000, for the sale of 4% convertible debentures with a principal amount of $1,500,000 and warrants to purchase 250,000 shares of common stock with Roseworth Group Ltd., Austost Anstalt Schaan and Balmore S.A. The transaction closed on November 7, 2000. The principal amount of the 4% convertible debentures was $1,500,000, consisting of: principal in the amount of $500,000, of which $250,000 was provided by Roseworth Group, $125,000 was provided by Austost Anstalt Schaan, and $125,000 was provided by Balmore Funds; and the surrender of outstanding 0% convertible debentures with a principal amount of $1,000,000, issued pursuant to the Convertible Debenture and Warrants Purchase Agreement, dated March 7, 2000, of which a principal amount of $400,000 was held by Roseworth Group Ltd., a principal amount of $250,000 was held by Austost Anstalt Schaan, and a principal amount of $350,000 was held by Balmore Funds. The investors have the right to convert the interest into shares of common stock based on the average of the 5 lowest closing bid prices of the common stock over a 22 trading day period immediately prior to the interest payment date. The warrants are exercisable before November 7, 2003 at a purchase price per share of $0.0588. We agreed to enter into an equity line of credit type of transaction within 10 days of this transaction. If we are unable to pay the amounts due on the maturity date but we can draw down on the equity line of credit, we are to draw down the maximum amount each draw down period to pay the investors the full amount due. To date, we are unable to draw down upon the equity line of credit. Beginning August 7, 2001, the investors may convert the 4% convertible debentures into shares of common stock because a registration statement for the equity line of credit was not effective on the maturity date and because we are not able to draw down the maximum amount permitted each month under the equity line under an effective equity line of credit registration statement. The conversion price shall equal the lesser of $0.054 or 85% of the average of the 5 lowest closing bid prices during the 22 trading days preceding the applicable conversion date. At the investors’ election, we shall redeem the 4% convertible debentures, including interest and a redemption premium of 30%, using up to 50% of the net proceeds received pursuant to the equity line of credit and any other equity financing permitted under the agreement, and all proceeds received in an equity financing not permitted under the future financing restrictions. At the closing of the transaction, we received gross proceeds of $500,000, less payment to the escrow agent of $10,000 for the investors’ legal, administrative and escrow costs, and less payment of a 10% placement agent fee. We also issued to the placement agent 75,000 shares of restricted common stock and a warrant to purchase 100,000 shares of common stock as part of the placement agent fee. The warrants are exercisable before November 7, 2003 at a purchase price per share of $0.0588. The 4% convertible debentures matured unpaid on August 7, 2001 with a 5% premium on the principal and the accrued unpaid interest. To date, we have not paid any accrued interest in cash. In March 2002, the agreements were amended to extend the due date for the debentures until May 8, 2003 and to waive any penalties incurred in connection the original due date for the debentures having occurred. In March 2002, debenture holders have converted accrued interest with an aggregate of $46,623 of accrued interest into 4,662,276 shares. None of the principal amount have been converted, and none of the warrants have been exercised.
On March 27, 2002, Jason Bauer exercised options to purchase 1,500,000 shares of common stock. The options were granted in March 2001, pursuant to an amended employment agreement, effective April 12, 2001, to serve as President and Chief Executive Officer. The exercise price was $.03 per share, and was paid for by a promissory note to Famous Fixins bearing interest at a rate of 6% per year. At the closing of the Settlement of Debts and Asset Purchase Agreement, the promissory note will be assumed by Starbrand.
In March 2002, the holders of a majority of the shares of our outstanding common stock approved in writing an amendment to our Certificate of Incorporation to increase our authorized capital from 25, 000,000 shares to 200,000,000 shares. We intend to file an amendment to our certificate of incorporation to reflect the shareholder action in the near future.
On March 29, 2002, we entered into a Settlement of Debts and Asset Purchase Agreement with Starbrand, LLC, pursuant to which Starbrand agreed to acquire substantially all of our assets, properties and business in exchange for the assumption of certain of our liabilities. The assets to be transferred and the liabilities to be assumed had an approximate value of $725,000, and $938,000, respectively, at December 31, 2001. We anticipate the closing to occur in the near future.
The Settlement of Debts and Asset Purchase Agreement specifically provides that we shall retain all claims for tax refunds, tax loss carry forwards or carrybacks or tax credits of any kind applicable to our business prior to the closing of the asset purchase agreement. As of December 31, 2001, we had net operating loss carry forwards of approximately $2,426,000, all of which expire by 2021. Without future profits, such tax losses are of limited or no value. The liabilities that will not be assumed by Starbrand consist primarily of:
| o | principal amount of $1,050,000 of our 4% convertible debentures, in the aggregate, owned by Roseworth Group Limited, Balmore Funds, S.A. and Austost Anstalt Schaan, including accrued interest on $1,500,000 of the debentures; |
| o | principal amount of $33,975 of our 5% convertible debentures owed by AMRO International, S.A.,including accrued interest; and |
| o | promissory notes issued in 2002, as of March 31, 2002, totaling $27,500. |
The increase in authorized capital and the transaction for the settlement of debts and the transfer of assets were approved in writing by the holders of a majority of the shares of our then outstanding common stock in accordance with the provisions of Section 615 of the New York Business Corporation Law. The names of these shareholders and the number of shares owned by them were as follows:
| o | Jason Bauer, 3,889,747 shares or 19.1% of the issued and outstanding shares; |
| o | Peter Zorich, 2,409,747 shares or 11.8% of the issued and outstanding shares; |
| o | Roseworth Group Ltd., 1,544,092 shares or 7.6% of the issued and outstanding shares; |
| o | Austost Anstalt Schaan, 1,544,092 shares or 7.6% of the issued and outstanding shares; and |
| o | Balmore Funds, S.A., 1,544,092 shares or 7.6% of the issued and outstanding shares. |
At the time of the approval, the aggregate of these shares constituted 53.7% of the then outstanding shares of common stock.
Starbrand, LLC is a newly formed Delaware entity with no current operations. Starbrand agreed to acquire substantially all of our assets, properties and business in exchange for the assumption of certain of our liabilities. The assets to be transferred and the liabilities to be assumed had an approximate value of $725,000, and $938,000, respectively, as at December 31, 2001. The liabilities assumed by Starbrand includes the principal amount of $450,000 of 4% convertible debentures issued by Famous Fixins. Jason Bauer, our current officer and director, intends to resign upon the closing of the transaction, and will initially manage Starbrand. Certain persons who voted in favor of this transaction have a beneficial or equity interest in Starbrand, including Bauer, Roseworth Group Ltd., Austost Anstalt Schaan, and Balmore Funds, S.A. Starbrand is seeking funding in order to continue the assumed business.
(a) Exhibits.
The following exhibits are filed with this report:
| Exhibit Number | Description of Exhibit |
| Exhibit 2 | Form of Settlement of Debt and Asset Purchase Agreement |
| Exhibit 11 | Statement Concerning Computation of Per Share Earnings is hereby incorporated by reference to “Financial Statements” of Part I - Financial Information, Item 1 – Financial Statements, contained in this Form 10-QSB. |
(b) Reports on Form 8-K.
None.
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FAMOUS FIXINS, INC. |
| Dated: May 21, 2002 | By: /s/ Jason Bauer Jason Bauer Chief Executive Officer and President |