-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M8shthvjAb4DzereGmtFRvHN3M3zkU/ngWqFjjcx8JZ3GOi2ZtbtgEiHWpXYPvz5 vJqwGH3FTosCxuQHUdUmCg== 0000950135-99-004135.txt : 19990818 0000950135-99-004135.hdr.sgml : 19990818 ACCESSION NUMBER: 0000950135-99-004135 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990703 FILED AS OF DATE: 19990817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FANTASMA LLC CENTRAL INDEX KEY: 0001067354 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-JEWELRY, WATCHES, PRECIOUS STONES & METALS [5094] STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-61119-05 FILM NUMBER: 99694742 BUSINESS ADDRESS: STREET 1: 500 GEORGE WASHINGTON HWY CITY: SMITHFIELD STATE: RI ZIP: 02917 BUSINESS PHONE: 4012313800 MAIL ADDRESS: STREET 1: 500 GEORGE WASHINGTON HWY CITY: SMITHFIELD STATE: RI ZIP: 02917 10-Q 1 FANTASMA, LLC 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended July 3, 1999. [ ] 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 333-61119-05 FANTASMA, LLC (Exact name of registrant as specified in its charter) Delaware 11-3340245 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 500 GEORGE WASHINGTON HIGHWAY SMITHFIELD, RI 02917 (Address of principal executive offices) (Zip code) (410)231-3800 (Registrant's telephone number, including area code) Indicate by checkmark 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: [X] NO: [ ] Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. OUTSTANDING AT TITLE OF EACH CLASS AUGUST 17, 1999 ------------------- --------------- None None The registrant meets the conditions set forth in General Instruction H(1)(A) and (B) of Form 10-Q and Form 10-QSB, as modified by grants of non-action relief to the registrant and unrelated third parties, and is therefore filing this form with the reduced disclosure format. 2 FANTASMA, LLC
PAGE ----- PART I. - FINANCIAL INFORMATION ITEM 1. Condensed Financial Statements Condensed Balance Sheets as of January 2, 1999 and July 3, 1999 3 Condensed Statements of Operations for the three and six months ended July 4, 1998 and July 3, 1999 4 Condensed Statements of Cash Flows for the six months ended July 4, 1998 and July 3, 1999 5 Notes to Condensed Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 10 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 10 ITEM 2. Changes in Securities and Use of Proceeds 11 ITEM 3. Defaults Upon Senior Securities 11 ITEM 4. Submission of Matters to a Vote of Security Holders 11 ITEM 5. Other Information 11 ITEM 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12
2 3 FANTASMA, LLC (A MOSTLY OWNED SUBSIDIARY OF AAI.FOSTERGRANT, INC.) CONDENSED BALANCE SHEETS (IN THOUSANDS)
JANUARY 2, JULY 3, 1999 1999 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 104 $ 17 Accounts receivable less reserves of approximately $373 and $206 5,088 1,817 Inventories 3,878 3,338 Prepaid expenses and other current assets 203 262 ------- ------- Total current assets 9,273 5,434 ------- ------- Property and equipment, net 24 19 Other assets, net 4,357 4,138 ------- ------- Total assets $13,654 $ 9,591 ======= ======= LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES: Note payable to member $ 7,088 $ 7,108 Accounts payable and accrued liabilities 1,960 521 ------- ------- Total current liabilities 9,048 7,629 Members' Equity 4,606 1,962 ------- ------- Total liabilities and members' equity $13,654 $ 9,591 ======= =======
The accompanying notes are an integral part of these condensed financial statements. 3 4 FANTASMA, LLC (A MOSTLY OWNED SUBSIDIARY OF AAI.FOSTERGRANT, INC.) CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JULY 4, JULY 3, JULY 4, JULY 3, 1998 1999 1998 1999 Net sales $1,810 $ 1,167 $ 4,841 $ 2,844 Cost of goods sold 1,682 1,478 3,354 3,010 ------ ------- ------- ------- Gross profit (loss) 128 (311) 1,487 (166) Operating Expenses: Selling 59 502 707 862 General and administrative 366 754 957 1,440 ------ ------- ------- ------- Loss from operations (297) (1,567) (177) (2,468) Interest expense (65) (69) (168) (153) Other expense, net -- (54) -- (24) ------ ------- ------- ------- Net loss $ (362) $(1,690) $ (345) $(2,645) ====== ======= ======= =======
The accompanying notes are an integral part of these condensed financial statements. 4 5 FANTASMA, LLC (A MOSTLY OWNED SUBSIDIARY OF AAI.FOSTERGRANT, INC.) CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JULY 4, JULY 3, 1998 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (345) $(2,645) Adjustments to reconcile net loss to net cash provided by (used in) operating activities- Depreciation and amortization 21 236 Write off of property and equipment 49 -- Changes in assets and liabilities - Accounts receivable 3,482 3,271 Inventories (469) 540 Prepaid expenses and other current assets (98) (59) Advance payable to member (1,661) 21 Accounts payable and accrued expenses (215) (1,439) ------- ------- Net cash provided by (used in) operating activities 764 (75) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease (increase) in other assets 3 (12) Purchases of property and equipment (2) -- ------- ------- Net cash provided by (used in) investing activities 1 (12) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under note payable to member 3,712 -- Repayments under note payable to member (3,764) -- Member distributions (531) -- ------- ------- Net cash used in financing activities (583) -- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 182 (87) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 238 104 ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 420 $ 17 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for- Interest $ -- $ -- ======= ======= Income taxes $ -- $ -- ======= ======= SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES Pushdown of purchase price related to Aai.FosterGrant's investment in Fantasma $ 4,627 $ ======= =======
The accompanying notes are an integral part of these condensed financial statements. 5 6 FANTASMA, LLC NOTES TO CONDENSED FINANCIAL STATEMENTS Note 1 - Significant Accounting Policies (a) Interim Consolidated Condensed Financial Statements The accompanying unaudited interim consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosure required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes of AAi.FosterGrant, Inc. ("AAi" or the "Company") and Fantasma LLC for the year ended January 2, 1999 as reported in the Company's Form 10-K filed with the SEC on April 2, 1999. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The consolidated condensed balance sheet presented as of January 2, 1999 has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The results of operations for the period ended July 3, 1999 may not be indicative of the results that may be expected for the year ending January 1, 2000 or for any other future period. (b) Organization and Business Activity Fantasma LLC (Fantasma) was organized under the laws of the State of Delaware on August 22, 1996 and began business operations on September 1, 1996. Fantasma imports and wholesales licensed watches, clocks, and other novelties; and grants credit to customers located throughout the United States. Prior to September 1, 1996, Fantasma operated as a division of Overdrive Capital Corp. (formerly known as Good Stuff Corp.). Overdrive Capital Corp. (Overdrive) sold the division's operating assets to Fantasma LLC in exchange for a two-year, $3,764,366 note. Overdrive maintained a 67% ownership interest in Fantasma, with a former stockholder of Overdrive holding a 33% ownership interest. In June 1998, AAi acquired an 80% interest in Fantasma for approximately $4.1 million in cash. The remaining 20% interest in Fantasma is held by a previous member of Fantasma. As a result of the termination of the employment of this member, in April 1999, the Company has the obligation to repurchase this interest for nominal consideration (based on the Company's calculations). This previous member has filed a lawsuit against the Company and fantasma asserting that his termination was wrongful and the Company has asserted counterclaims related to the Fantasma acquisition. See Part II, Item 1 - - Legal Proceedings. Another employee of Fantasma has options to acquire up to a 2% interest in Fantasma and up to an additional 2% interest if certain earnings targets for Fantasma are met in 1999 and 2000. As of July 3, 1999, 6 7 NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) the exercise price of the options to purchase member interests of Fantasma was equal to or greater than the fair market value; therefore no expense was recorded. (c) Inventory Inventories are stated at the lower of cost (first-in, first-out) or market and consist of finished goods for all years presented. Finished goods inventory consists of material and overhead. (d) Income Taxes Fantasma is treated as a partnership for federal and state income tax purposes, whereby the membership owners are taxed on their proportionate share of Fantasma's income. As a result, Fantasma has not provided for Federal income taxes. Note 2 - Comprehensive Loss Comprehensive loss was the same as net loss for the periods presented. NOTE 3 - Segment Reporting Fantasma has adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, in the 1998 fiscal year. SFAS No. 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions how to allocate resources and assess performance. To date, Fantasma has viewed its operations and manages its business as principally one segment. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion may contain "forward-looking" statements and are subject to risks and uncertainties that could cause actual results to differ significantly from expectations. In particular, statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section which are not historical facts, including, but not limited to, statements regarding the anticipated adequacy of cash resources to meet Fantasma's working capital and capital expenditure requirements and statements regarding the anticipated proportion of revenues to be derived from a limited number of customers, may constitute forward-looking statements. Although Fantasma believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors, which could cause actual results to differ materially from such expectations, are disclosed in Fantasma's Form 10-K filed with the SEC on April 2, 1999. OVERVIEW Fantasma designs, imports and wholesales licensed watches, clocks and other novelties to customers located primarily throughout the United States. Customers include mass merchandisers, department stores, chain drug stores, theme parks and private labels. Fantasma distributes products under numerous licensed names, including Winnie the Pooh(R), Sesame Street(R), the National Football League(R), and Peanuts(R). Approximately 58% of total net sales are generated from seven mass merchandisers. Fantasma outsources manufacturing for virtually all of its products to manufacturers in Asia with the remainder outsourced to independent domestic manufacturers. Costs associated with Fantasma's numerous royalty agreements, based on net sales, are classified in costs of goods sold. Accordingly, the two principal elements comprising Fantasma's cost of goods sold are the price of purchased manufactured goods and royalties. Fantasma believes outsourcing manufacturing allows it to reliably deliver competitively priced products to the retail market while retaining considerable flexibility in its cost structure. Operating expenses are comprised primarily of payroll, occupancy costs related to Fantasma's New York office and showroom, freight, depreciation and amortization. In June 1998, AAi acquired an 80% interest in Fantasma. The remaining 20% interest in Fantasma is held by a previous member of Fantasma. As a result of the termination of the employment of this member, in April 1999, the Company has the obligation to repurchase this interest for nominal consideration (based on the Company's calculations). This previous member has filed a lawsuit against the Company and Fantasma as more fully described in Part II, Item 1 - Legal Proceedings. Another employee of Fantasma has options to acquire up to a 2% interest in Fantasma and up to an additional 2% interest if certain earnings targets for Fantasma are met in 1999 and 2000. As of July 3, 1999, the exercise price of the options to purchase member interests of Fantasma was equal to or greater than the fair market value; therefore no expense was recorded. The operating agreement under which Fantasma is managed provides AAi with sole voting rights on numerous significant matters. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship to net sales of certain items included in Fantasma's Condensed Statements of Operations:
THREE MONTHS ENDED SIX MONTHS ENDED JULY 4, JULY 3, JULY 4, JULY 3, 1998 1999 1998 1999 Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 92.9 126.7 69.3 105.8 ----- ----- ----- ----- Gross profit (loss) 7.1 (26.7) 30.7 (5.8) Operating expenses 23.5 (107.6) 34.4 81.0 ----- ----- ----- ----- Loss from operations (16.4) (134.3) (3.7) (86.8) Interest expense (3.6) (5.9) (3.4) (5.4) Other expense, net -- (4.6) -- (0.8) ----- ----- ----- ----- Net Loss (20.0) (144.8) (7.1) (93.0)
THREE MONTHS ENDED JULY 3, 1999 COMPARED TO JULY 4, 1998 Net Sales. Net sales were $1.2 million for the three months ended July 3, 1999 as compared to $1.8 million for the three months ended July 4, 1998, a decrease of 35.5% or $643,000. The decrease is attributable to decreased sales of watches and clocks as a result of a general trend away from character merchandise. Gross Profit (Loss). Gross loss was $311,000 for the three months ended July 3, 1999 as compared to gross profit of $128,000 for the three months ended July 4, 1998 a decrease of $439,000. The Company incurred a loss primarily due to increased promotional sales and closeout sales in an effort to reduce inventory levels. The Company has evaluated the remaining inventory and has provided reserves to ensure it is stated at its net realizable value. Operating Expenses. Operating expenses were $1.3 million for the three months ended July 3, 1999 as compared to $425,000 for the three months ended July 4, 1998, an increase of $831,000. The increase in operating expenses is primarily attributable to additional design and selling expenditures for new non-licensed product development and additional payroll. Interest Expense. Interest expense was $69,000 for the three months ended July 3, 1999 as compared to $65,000 for the three months ended July 4, 1998, an increase of 6.2% or $4,000. This increase is a result of higher loan balances partially offset by a lower effective rate obtained subsequent to the acquisition. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Net Loss. As a result of the factors discussed above, net loss was $1.7 million for the six months ended July 3, 1999 as compared to a net loss of $362,000 for the six months ended July 4, 1998, an increase of $1.3 million. SIX MONTHS ENDED JULY 3, 1999 COMPARED TO JULY 4, 1998 Net Sales. Net sales were $2.8 million for the six months ended July 3, 1999 as compared to $4.8 million for the six months ended July 4, 1998, a decrease of 41.3% or $2.0 million. The decrease is attributable to decreased sales of certain licensed analog watches and a general trend away from character merchandise. Gross Profit (Loss). Gross loss was $166,000 for the six months ended July 3, 1999 as compared to gross profit of $1.5 million for the six months ended July 4, 1998, a decrease of $1.7 million. The Company incurred a loss primarily due to increased promotional sales and closeout sales in an effort to reduce inventory levels. The Company has evaluated the remaining inventory and has provided reserves to ensure it is stated at its net realizable value. Operating Expenses. Operating expenses were $2.3 million for the six months ended July 3, 1999 as compared to $1.7 million for the six months ended July 4, 1998, an increase of $638,000. The increase in operating expenses is primarily attributable to additional design and selling expenditures for new non-licensed product development and additional payroll. Interest Expense. Interest expense was $153,000 for the six months ended July 3, 1999 as compared to $168,000 for the six months ended July 4, 1998, a decrease of 8.9% or $15,000. This increase is a result of a favorable rate obtained subsequent to the acquisition partially offset by a slightly higher loan balance. Net Loss. As a result of the factors discussed above, net loss was $2.6 million for the six months ended July 3, 1999 as compared to a net loss of $345,000 for the six months ended July 4, 1998, an increase of $2.3 million. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Omitted pursuant to General Instruction H of Form 10-Q (the Instructions). 10 11 OTHER INFORMATION PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On June 14, 1999, Roger D. Dreyer and Houdini Capital Corporation filed a complaint in United States District Court for the District of Rhode Island against the Company and Fantasma, claiming $600,000 in damages for breach of Mr. Dreyer's employment contract, $350,000 as the balance of purchase price to Mr. Dreyer for the sale of his 13% interest in Fantasma, $13,500 as wages, damages for retention of artwork and to Mr. Dreyer's reputation, the value of Houdini's 20% interest in Fantasma, punitive damages and attorney's fees. On July 22, 1999 the Company and Fantasma answered the complaint by denying all claims (including the breach of employment contract claim), and by asserting defenses. In the answer, the Company also asserted counterclaims for $563,000 and for the transfer of Houdini's 20% interest in Fantasma. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Omitted pursuant to the Instructions. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Omitted pursuant to the Instructions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Omitted pursuant to the Instructions. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EX-27.1 Financial Data Schedule (b) Reports on Form 8-K The registrant filed no reports on form 8-K during the quarter ended July 3, 1999 11 12 FANTASMA, LLC 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 hereunto duly authorized. Fantasma, LLC (Registrant) Dated: AUGUST 17, 1999 /s/ Duane M. DeSisto ------------------------------------- Duane M. DeSisto Assistant Secretary and Chief Financial Officer (Principal Financial Officer) 12 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED BALANCE SHEET AS OF JULY 3, 1999 (UNAUDITED) AND THE CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 3, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN FORM 10-K FOR THE TWELVE MONTHS ENDED JANUARY 2, 1999. 0001067354 FANTASMA, LLC 1,000 U.S. DOLLARS 6-MOS JAN-01-2000 JAN-02-1999 JUL-03-1999 1 17 0 2,023 206 3,338 5,434 29 10 9,591 7,629 0 0 0 0 1,962 9,591 2,844 2,844 3,010 2,302 24 0 153 (2,645) 0 (2,645) 0 0 0 (2,645) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----