FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ___________.
Commission file number 0-27219
FAMOUS FIXINS, INC.
(Exact name of registrant as specified in its charter)
New York 133865655
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
250 West 57th Street, Suite 1112, New York, New York 10107
(Address of principal executive offices)
(212) 245-7773
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of August 9, 2000,
the issuer had 13,332,315 shares of common stock, par value $.001 per share,
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
FAMOUS FIXINS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
Page No.
PART 1. FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 2000 3
BALANCE SHEETS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 4
INTERIM STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND 6
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
INTERIM STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED 7
JUNE 30, 2000 AND 1999
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX 9
MONTHS ENDED JUNE 30, 2000
NOTES TO INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS 10
ENDED JUNE 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 13
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 2000
BALANCE SHEETS AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
INTERIM STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 2000 AND 1999
INTERIM STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,
2000 AND 1999
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED
JUNE 30, 2000
NOTES TO INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE
30, 2000
3
FORM 10-QSB
FINANCIAL STATEMENTS
FAMOUS FIXINS, INC.
BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
A S S E T S
-----------
CURRENT ASSETS
- --------------
Cash and cash equivalents $ 260,461 $ 475,325
Investments in marketable equity trading securities 103,666 101,961
Accounts receivable, net 553,330 176,475
Merchandise inventory 417,714 69,542
Unused barter credits - current portion 151,236 -
Prepaid expenses 72,449 59,081
Stock subscriptions receivable (all collected by April, 2000) - 47,500
----------- -----------
TOTAL CURRENT ASSETS 1,558,856 929,884
----------- -----------
PLANT AND EQUIPMENT
- -------------------
Furniture and fixtures 15,804 15,804
Machinery and equipment 34,077 25,576
----------- -----------
49,881 41,380
Less: Accumulated depreciation 12,433 8,089
----------- -----------
NET PLANT AND EQUIPMENT 37,448 33,291
----------- -----------
OTHER ASSETS
- ------------
Deferred debenture issuance costs, net 101,148 42,500
Unused barter credits - noncurrent portion 151,236 -
Security deposits 6,460 6,482
----------- -----------
TOTAL OTHER ASSETS 258,844 48,982
----------- -----------
$ 1,855,148 $ 1,012,157
=========== ===========
See accompanying notes to financial statements.
4
FAMOUS FIXINS, INC.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $ 570,562 $ 508,341
Due to customers 128,205 190,038
Taxes payable - other than on income 15,814 9,544
Income taxes payable 625 625
----------- -----------
TOTAL CURRENT LIABILITIES 715,206 708,548
----------- -----------
LONG-TERM LIABILITIES
- ---------------------
5% convertible debentures (principal amount: 2000 - $105,000;
1999 - $450,000, due October, 2002) 96,009 389,586
0% convertible debentures (principal amount - $1,000,000,
due March, 2005) 370,000 -
Deferred rent 11,057 -
----------- -----------
TOTAL LONG-TERM LIABILITIES 477,066 389,586
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
- --------------------
Common stock, $.001 par value per share:
Authorized 25,000,000 shares
Issued and outstanding
13,167,326 shares in 2000; 10,462,624 shares in 1999 13,167 10,462
Additional paid-in capital 3,502,110 1,557,337
Accumulated deficit (2,802,401) (1,603,776)
----------- -----------
712,876 (35,977)
Less: Unused advertising barter credits issued in exchange
for common stock (50,000) (50,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 662,876 (85,977)
----------- -----------
$ 1,855,148 $ 1,012,157
=========== ===========
See accompanying notes to financial statements.
5
FAMOUS FIXINS, INC.
INTERIM STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- -----------------------------
2000 1999 2000 1999
---------- ---------- ----------- ----------
NET SALES $1,125,887 $1,164,381 $ 1,386,930 $1,197,186
---------- ---------- ----------- ----------
COST OF GOODS SOLD
- ------------------
Merchandise inventory at beginning of period 89,398 75,896 69,542 27,420
Purchases 836,918 605,227 1,020,636 663,808
Other direct costs 62,039 58,825 125,604 69,134
---------- ---------- ----------- ----------
988,355 739,948 1,215,782 760,362
Less: Merchandise inventory at end of period 417,714 71,545 417,714 71,545
---------- ---------- ----------- ----------
TOTAL COST OF GOODS SOLD 570,641 668,403 798,068 688,817
---------- ---------- ----------- ----------
GROSS PROFIT 555,246 495,978 588,862 508,369
---------- ---------- ----------- ----------
OPERATING EXPENSES
- ------------------
Selling expenses 171,444 253,527 824,962 429,198
General and administrative expenses 300,284 134,134 558,995 223,103
Interest expense, net 59,952 522 403,075 3,402
---------- ---------- ----------- ----------
TOTAL OPERATING EXPENSES 531,680 388,183 1,787,032 655,703
---------- ---------- ----------- ----------
OPERATING INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 23,566 107,795 (1,198,170) (147,334)
PROVISION FOR INCOME TAXES - - 455 1,334
---------- ---------- ----------- ----------
NET INCOME (LOSS) $ 23,566 $ 107,795 $(1,198,625) $ (148,668)
========== ========== =========== ==========
Net income (loss) per common share, basic $0.002 $0.010 $(0.097) $(0.016)
Net income (loss) per common share,
assuming full dilution $0.002 $0.009 $(0.097) $(0.016)
Weighted average number of common
shares outstanding,
basic 13,056,313 10,462,624 12,395,940 9,261,796
assuming full dilution 14,346,964 11,484,837 12,395,940 9,261,796
See accompanying notes to financial statements.
6
FAMOUS FIXINS, INC.
INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
2000 1999
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,198,625) $(148,668)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash items:
Depreciation 4,344 1,559
Amortization 62,567 -
Deferred rent expense 11,057 -
Interest expense paid by issuance of common stock 6,817 -
Component of interest expense attributable to beneficial
conversion feature of debentures issued 325,000 -
Value of common stock issued for services received by
the Company 212,924 121,827
Value of warrants issued for services received by the Company 367,945 132,217
Unrealized gain on investments in marketable equity
trading securities (1,705) -
Unused barter credits (302,472) -
(Increase) decrease in assets:
Accounts receivable (376,855) (638,120)
Merchandise inventory (348,172) (44,125)
Prepaid expenses (13,368) (10,125)
Decrease in security deposits 22 -
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 62,221 535,093
Due to customers (61,833) -
Taxes payable - other than on income 6,270 867
----------- ---------
NET CASH USED IN OPERATING ACTIVITIES (1,243,863) (49,475)
----------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Payments for plant and equipment additions (8,501) -
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debentures, net 990,000 -
Proceeds from issuance of common stock, net - 281,483
Proceeds of long-term debt from bank - 35,000
Repayments of long-term debt to bank - (10,668)
Proceeds of stock subscriptions receivable 47,500 -
Repayments of notes payable to related party (30,000)
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,037,500 275,815
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (214,864) 226,340
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 475,325 19,500
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 260,461 $ 245,840
=========== =========
(CONTINUED)
See accompanying notes to financial statements.
7
FAMOUS FIXINS, INC.
INTERIM STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
2000 1999
----------- ---------
Supplemental information about cash payments is as follows:
Cash payments for interest $ - $ 9,509
Cash payments for income taxes $ 455 $ 625
Supplemental disclosure of noncash financing activities:
Issuance of warrants in connection with convertible debentures
issued by the Company $ 675,000 $ -
Conversion of debentures to common stock $ 366,609 $ -
Common stock subscriptions received for common shares issued $ - $ 60,000
See accompanying notes to financial statements.
8
FAMOUS FIXINS, INC.
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000
COMMON STOCK ADDITIONAL UNUSED
-------------------- PAID-IN ACCUMULATED ADVERTISING
TOTAL SHARES AMOUNT CAPITAL DEFICIT BARTER CREDITS
----------- ---------- ------- ---------- ----------- ---------------
BALANCE (DEFICIT) - JANUARY 1, 2000 $ (85,977) 10,462,624 $10,462 $1,557,337 $(1,603,776) $ (50,000)
Issuance of common shares on
conversion of convertible
debentures, net 366,609 2,204,702 2,205 364,404 - -
Issuance of common shares for
services received 212,924 500,000 500 212,424 - -
Issuance of warrants for
services received 367,945 - - 367,945 - -
Issuance of warrants and beneficial
conversion feature in connection with
convertible debentures issued 1,000,000 - - 1,000,000 - -
Net loss - Six months ended June 30, 2000 (1,198,625) - - - (1,198,625) -
----------- ---------- ------- ---------- ----------- ---------------
BALANCE (DEFICIT) - JUNE 30, 2000 $ 682,876 13,167,326 $13,167 $3,502,110 $(2,802,401) $ (50,000)
=========== ========== ======= ========== =========== ===============
See accompanying notes to financial statements.
9
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
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 June 30, 2000, and the
results of operations for the three months and six months ended June
30, 2000 and 1999, and the statements of cash flows for the six months
ended June 30, 2000 and 1999, and the statement of stockholders'
equity for the six months ended June 30, 2000. These results have been
determined on the basis of generally accepted accounting principles
and practices and applied consistently with those used in the
preparation of the Company's 1999 financial statements.
Certain information and footnote disclosures normally included in
the financial statements presented in accordance with generally
accepted accounting principles 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 1999 financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY
----------------------------------
The Company is a promoter and marketer of celebrity and athlete
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 athletes and other
celebrities and creates consumer products which include various
product lines consisting of breakfast cereals, salad dressings, candy
products and adhesive bandages endorsed by the licensors. The Company
utilizes a network of consumer brokers to distribute its products
throughout the United States. Third party manufacturers produce the
Company's various consumer products.
In February 2000, the Company received the remaining balance of
$100,000 of an aggregate of $550,000 pursuant to 5% Convertible
Debenture and Warrants Purchase Agreements. Subsequently, the Company
issued 2,204,702 shares of its common stock upon conversion of
$445,000 principal amount of such debentures (including unpaid
interest of $6,817), resulting in $105,000 principal amount
outstanding at June 30, 2000.
10
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
BUSINESS ACTIVITIES OF THE COMPANY (CONTINUED)
----------------------------------
In February 2000, the Company received $1,000,000 proceeds under
a 0% Convertible Debenture and Warrant Purchase Agreement. Pursuant to
the Agreement, the investors agreed to purchase, for $1,000,000, an
aggregate of $1,000,000 principal amount of debentures due March 2005,
currently convertible into common stock at a conversion price of $.40
per share (market value of the Company's common stock was $.74 on the
date of purchase), and warrants to purchase 2,500,000 shares of the
Company's common stock exercisable between March 2000 and March 2005
at an exercise price of $.75 per share.
The beneficial conversion feature of the $1,000,000 debentures
and the fair market value of the warrants (both of which are accounted
for as additional paid-in capital) is limited to the $1,000,000
proceeds received. The Company has allocated $325,000 to the
beneficial conversion feature, all of which is accounted for as a
component of current interest expense. The remaining $675,000 is
accounted for as a bond discount and is reflected as a reduction of
the carrying amount of the debentures. The discount is amortized as a
component of interest expense over the term of the debentures.
In February and March 2000, the Company issued an aggregate of
500,000 shares of its common stock and 500,000 warrants to purchase
common stock to two consultants in connection with services rendered
to the Company in the amount of $327,000. Of such amount, $212,924 is
attributable to the common stock issued and $114,076 is attributable
to the warrants.
In March, 2000, the Company entered into an agreement to sell
certain merchandise products in exchange for a trade credit to
purchase future television, radio, other advertising mediums and
various services such as warehousing, hotel rooms, airline tickets and
office equipment on a barter basis over a maximum period of four
years. In April 2000, pursuant to the agreement, the Company delivered
such merchandise with an estimated fair value of $302,472 to the
barter company. The balance sheet as at June 30, 2000 reflects
$151,236 of the fair value of the barter credit as a current asset
(which is intended to be used within one year of the balance sheet
date) and the remaining balance is reported under the category "other
assets".
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". Stock-based compensation cost charged to operations for
the six months ended June 30, 2000 was $367,945, including the
$114,076 of services described above.
11
FAMOUS FIXINS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
--------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles 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 date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
MERCHANDISE INVENTORY
---------------------
Merchandise inventory is stated at the lower of cost or market
value on a first-in, first- out basis.
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.
EARNINGS PER SHARE
------------------
In accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share", basic
earnings per share is computed by dividing net income or loss by the
number of weighted-average common shares outstanding during the
period. Earnings per share, assuming dilution, is computed by dividing
net income or loss by the number of weighted-average common shares and
common stock equivalents outstanding during the period.
No effect has been given to the conversion of warrants and
debentures to common stock for the six months ended June 30, 2000 and
1999 inasmuch as such conversion would be anti-dilutive.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
"FORWARD-LOOKING" INFORMATION
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.
MANAGEMENT'S DISCSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations
We did not engage in any substantive business activity from
approximately April 6, 1996 to May 28, 1998. On May 28, 1998, we acquired
Famous Fixins, Inc., a New York corporation ("FFNY"), in a transaction
viewed as a reverse acquisition. FFNY was a promoter and marketer of
celebrity endorsed food products, which commenced business activities in 1995
and began sales operations in March 25, 1997. Pursuant to the reorganization,
the controlling FFNY shareholders became the controlling shareholders, the
officers and the directors of our company.
The following table sets forth, for the period indicated, the
relationship between total sales and certain expenses and earnings items:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- -----------------------------
2000 1999 2000 1999
---------- ---------- ----------- ----------
NET SALES $1,125,887 $1,164,381 $ 1,386,930 $1,197,186
COST OF GOODS SOLD 570,641 668,403 798,068 688,817
GROSS PROFIT ON SALES 555,246 495,978 588,862 508,369
OPERATING EXPENSES 531,680 388,183 1,787,032 655,703
OPERATING INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 23,566 107,795 (1,198,170) (147,334)
PROVISION FOR INCOME TAXES - - 455 1,334
NET INCOME (LOSS) $ 23,566 $ 107,795 $(1,198,625) $ (148,668)
Sales for the six months ended June 30, 2000 increased approximately
16% and for the three months ended June 30, 2000 decreased 3% as compared
to the same period in 1999. The increase in sales during the six month
period resulted from an increase in the number of celebrities who
granted licenses to Famous Fixins in that period, and the launch of several
new products after March 31, 1999. The decrease in sales during
the three month period resulted from the expiration of several licenses
for cereal products.
13
Cost of goods sold for the three months ended June 30, 2000 was
approximately 51% of sales, as compared to approximately 57% of sales for the
comparable period in 1999. Cost of goods sold for the six months ended June
30, 2000 was approximately 58% of sales, as compared to approximately 58% of
sales for the comparable period in 1999. We offered one more product in
the three months ended June 30, 2000 and five more products in the six months
ended June 30, 2000, than in the three and six months ended June 30, 1999.
We experienced a decrease in costs of goods sold as a percentage of sales for
the three months ended June 30, 2000 in connection with the expiration of
certain licenses and the discontinuation of certain cereal product lines.
Although we expect our cost of goods sold to increase as we make more diverse
products available for sale, we expect cost of goods sold to decrease as a
percentage of total sales as our sales volume grows.
Gross profit on sales for the three months ended June 30, 2000 was
$555,246, an increase of 12% as compared to the three months ended June 30,
1999 of $495,978. Gross profit on sales for the six months ended June 30,
2000 was $588,862, an increase of 16% as compared to the six months ended
June 30, 1999 of $508,369. The increase in gross profits is attributable to
our cereal product line which was introduced beginning in April 1999.
For the three months ended June 30, 2000, as compared to the three
months ended June 30, 1999, operating expenses increased to $531,680 from
$388,183, which represents a 37% increase in operation expenses, and which
represents an increase to 47% of sales from 33% of sales. For the six
months ended June 30, 2000, as compared to the comparable period in 1999,
operating expenses increased to $1,787,032 from $655,703, which represents a
173% increase in operation expenses, and which represents an increase to 129%
of sales from 55% of sales. The increase in our operating expenses in the
three months and six months ended June 30, 2000 is due mainly to an expansion
of our operations, creation of new product lines, and licensing fees,
including the related costs of stock warrants issued, in connection with new
celebrity licenses obtained by us, and to a lesser extent, an increase in
personnel from one full-time employee to three full-time employees.
Operating expenses are expected to increase as more products are sold;
however, operating expenses are expected to decrease as a percentage of
total sales as our sales volume grows.
We generated income in the three months ended June 30, 2000, earning
$23,566, or $.002 per share basic and diluted, as compared to income of
$107,795, or $.010 per share basic and $.009 per share diluted, for the
three months ended June 30, 1999. For the six months ended June 30, 2000,
we operated at a loss of $1,198,625, or $0.097 per share basic and diluted,
as compared to a net loss of $148,688, or $0.016 per share basic and diluted,
for the six months ended June 30, 1999, largely due to the related costs of
stock and warrants issued and the issuance of convertible debentures. We
anticipate increases in revenues in the remainder of fiscal year 2000,
depending on the launch and success of two to three more new products
in late 2000. We may not experience profitability in fiscal year 2000
because we expect our costs of goods sold and operating expenses to also
increase significantly in the 2000 fiscal year. While the addition of new
product lines may also create liquidity issues and demands on our limited
resources, it is anticipated that the increased revenues generated this
year by the new products will have a favorable impact on income and
liquidity.
14
Included in the net loss of $1,198,625 are several substantial non-cash
charges to income aggregating approximately $906,000 relating to (a) the
issuance of $1,000,000 principal amount of convertible debentures and (b)
stock warrants and common stock shares issued for services rendered. In
February, we issued $1,000,000 principal amount of 0% convertible debentures,
which may be converted into common stock on a current basis, at a conversion
price of $.40 per share, the market value at the date of issuance of the
debentures being $.74. The beneficial conversion feature attributable to the
debenture issuance is required to be recognized in income, currently. We
have allocated $325,000 to the debenture's beneficial conversion feature and
such amount is reflected as a component of current interest expense. We also
issued common stock and warrants to purchase common stock to two consultants
for services rendered to us during the period, in the aggregate amount of
$327,000. The accounts also reflect charges, in the amount of approximately
$254,000 for the six month period ended June 30, 2000, representing the
allocable service costs of outstanding stock warrants issued in connection
with royalty, employment and other consulting agreements. There is no
assurance that additional warrants or other securities will not be issued,
or that additional charges will not be incurred for similar future
transactions. Our business is to license names of celebrities for consumer
products, and to issue warrants for our common stock to such celebrities as
part of the licensing fee arrangements. Accordingly, we anticipate the
continuance of these types of charges against earnings when we make
additional licensing transactions with celebrities and celebrity athletes or
when we enter service agreements.
Our food sales business is not seasonal in nature, although we may
experience fluctuations in sales of athlete endorsed products in connection
with the respective athlete's professional season. Inflation is not deemed to
be a factor in our operations.
15
Financial Condition or Liquidity and Capital Resources.
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 operations and growth from inception.
Pursuant to a business revolving credit agreement with The Chase
Manhattan Bank, the bank agreed to make loans to us for up to a maximum credit
line amount, which currently is $100,000. The bank notifies us as to the
amount of the available credit line from time to time. We may borrow from the
bank incremental principal amounts of at least $2,500. Borrowings bear
interest at the Bank's prime rate plus 1/2%. Principal is payable in monthly
installments equal to 1/36 of the outstanding principal amount of the loan as
of the date of the last loan made prior to the date of such installment.
Repayment of the loan is guaranteed by certain of our stockholders. The
outstanding balance of the long-term note payable to the bank, net of current
installments, at December 31, 1998 was $40,685 and was repaid prior to
December 31, 1999.
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 Famous Fixins' common stock. At the initial closing date, we
received gross proceeds of $450,000, and are to receive the remaining $100,000
when this registration statement becomes 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.
At our option, the convertible debentures may be exchanged into convertible
preferred stock. Debenture holders have converted debentures into shares of
common stock as summarized below:
- on February 23, 2000, $150,000 in principal into 1,000,000
shares;
- on February 24, 2000, $76,240 in principal and interest into
508,264 shares;
- on March 30, 2000, $127,691 in principal and interest into
302,299 shares;
- on May 25, 2000, $72,042 in principal and interest into
227,620 shares;
- on June 29, 2000, $25,844 in principal and interest into
166,519 shares;
- on July 19, 2000, principal amount of $1,025 and accrued
interest of $37 into 8,676 shares; and
- on August 8, 2000, principal amount of $20,000 and accrued
interest of $758.33 into 156,313 shares.
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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
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 are 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. We believe that such sources of funds
will be sufficient to fund our operations for the next twelve months.
We believe that our future growth is dependent on the degree of success
of current operations in generating revenues, and borrowings under our current
credit facility, and the ability to obtain additional credit facilities,
although there can be no assurance that we will be able to obtain any
additional financing that we may require.
The auditors' report to our financial statements for the year ended
December 31, 1999 cites factors that raise substantial doubt about our ability
to continue as a going concern. The factors are that we have incurred
substantial operating losses since inception of operations and as at December
31, 1999 reflect a deficiency in stockholders' equity. The auditors'
report states that although our management believes that it can achieve
profitable operations in the future and that we can raise adequate capital
and financing as may be required, there can be no assurance that future
capital contributions or financing will be sufficient for Famous Fixins to
continue as a going concern or that we can achieve profitable operations in
the future. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
Year 2000 Compliance
Famous Fixins has recognized the need to ensure its operations will
not be adversely impacted by Year 2000 software failures. Famous Fixins
primarily uses licensed software products in its operations with a
significant portion of processes and transactions centralized in one
particular software package. During 1999, management upgraded its software
so that Famous Fixins' accounting system is Year 2000compliant.
The cost of the upgrade was not material. During 1999, attention was
focused on compliance attainment efforts of vendors and others, including
key system interfaces with customers and suppliers. Although it is not
possible to quantify the effects Year 2000 compliance issues will have on
customers and suppliers, Famous Fixins does not anticipate related material
adverse effects on its financial condition or results of operations.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to, and none of our property is subject to, any
pending or threatened legal or governmental proceedings that will have a
materially adverse affect upon our financial condition or operation. We
are in a proceeding in which a consultant has instituted a suit seeking
damages of $19,700 in fees allegedly owed, plus interest, costs and
attorneys' fees, which we deny owing the consultant. We believe that
resolution of this litigation will not have a material adverse affect on
our financial position. We intend to vigorously defend the action, but
we can give no assurance that we will prevail in this litigation.
ITEM 2. CHANGES IN SECURITIES
On April 3, 2000, pursuant to an employment agreement with Jody
King-Cheifetz, we agreed to issue to her options to purchase up to 304,000
shares of common stock in a transaction deemed to be exempted under Section
4(2) of the Securities Act of 1933. Options to purchase 4,000 shares of
common stock at $0.15 per share vested as of April 5, 2000. Options to
purchase 60,000 shares of common stock shall vest on October 1, 2000, and the
remaining options shall vest in equal increments over the subsequent four
years on October 1. The exercise price of first 60,000 options shall be $.15
per share. The exercise price of the remaining 240,000 options shall be equal
to a 50% discount from the closing bid price of the common stock on the last
trading date immediately preceding each vesting. In the event that
King-Cheifetz no longer serves as an employee of Famous Fixins on a continuous
basis through each vesting period, the unvested options shall terminate
immediately upon the termination of her employment. All options to purchase
up to 304,000 shares of common stock described above expire on April 3, 2005,
or as otherwise provided in the stock option agreement or employment
agreement. We filed a registration statement on Form S-8 for the resale of
4,000 shares of common stock. King-Cheifetz represented to us that she had
the business, financial and investment knowledge, experience and
sophistication to make a fully informed investment decision in entering the
transaction.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit Number Description of Exhibit
- --------------- ----------------------
10 Famous Fixins Corporation Media Trade Program Agreement
11 Statement Concerning Computation of Per Share
Earnings is hereby incorporated by reference to
"Financial Statements" of Part I, contained
in this Form 10QSB.
27 Financial Data Schedule
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SIGNATURES
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.
Date: August 11, 2000 /s/ Jason Bauer
-------------------------------------
Jason Bauer
President and Chief Executive Officer
Date: August 11, 2000 /s/ Michael Simon
-------------------------------------
Michael Simon
Vice President
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