Sorry for this lengthy post but I couldn't find the link so I copied what I received from Equity Alert.
See about halfway down this excerpt:
"The Company, therefore, cannot predict if and when it will
generate income from operations and if it will be able to raise sufficient capital necessary to fund future operations.
As of August 31, 2000 the Company had an accumulated deficit of $10, 185,077. This deficit arose from operating losses and not any particular transaction or transactions. The Company has not generated sufficient revenues to meet its operating expenses. As a result, there is substantial doubt about the Company's ability to continue as a going concern. The added revenue generated by the acquisitions of Music Art and Rooter rattle, along with the release of the X-Men movie on videotape in November 2000 and the revenue generated from its new licenses, all are expected to improve this situation."
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Management`s Discussions: 10QSB, COLLECTIBLE CONCEPTS GROUP INC
(Edgar Online via COMTEX)
Company Name: COLLECTIBLE CONCEPTS GROUP INC
Management's Discussion and Analysis of Financial Condition and Results of
Operations General
The Company earns revenues from distributing high-end and novelty products
related to both the entertainment and sports industries and sells those products
through retailers, distributors, department stores, the Internet and catalogers.
During the six months ending August 31, 2000, a licensing agreement was signed
with IMS Properties and Titan Motorcycle Company of America for the manufacture,
sale and distribution of a limited edition replica of the Indy 500 Titan
Motorcycle. In the three month period ended August 31, 2001, the Company signed
a licensing agreement with Chicken Soup for the Soul Enterprises, Inc. for the
manufacture, sale and distribution of more than two-dozen collectibles to be
sold in bookstores and other retail chains. The collectibles will include
penholders, nightlights and sports-related items such as tennis rackets covers,
all carrying an inspirational phrase from a Chicken Soup book. Additionally, the
Company signed a licensing agreement with Stan Lee Media, Inc. to develop
collectibles based on Stan Lee's signature style and global lifestyle brand, as
well as his latest project, the 7th Portal- a team of 21st Century Super Heroes
and Super Villains. The collectibles will include sculptures, lithographs, pins,
bookends, desk sets and fountain pens based on the image of Stan Lee, the image
of "Evil Stan" - the alter ego of Stan Lee and the 7th Portal. The license
agreement also includes rights to develop merchandise in connection with a
theatrical release of a "7th Portal" feature film during the term of the
agreement.
In an effort to expand its revenue base, and become a broad based sports and
entertainment products company, subsequent to August 31, 2000, the Company
signed several additional licenses. The Company signed an agreement with master
artists Boris Vallejo and Julie Bell to extend their fine art mastery into the
Company's product line. Their work has graced movie posters, novel covers and
calendars. The first products of the series will be collectible wall scrolls
featuring digitally mastered images derived from hand painted fantasy art from
the "Master Touch" collection of Boris and Julie. These wall scrolls will be
available for distribution in early January of 2001. The company also signed a
licensing agreement with Marvel Enterprises, Inc. to create a variety of
merchandise based on well known characters within the Marvel Universe, including
Spider-Man, Captain America, Wolverine, Dr. Doom, Daredevil and Magneto. The
licensed articles will initially include replicas and wall scrolls. The Company
plans to release a line of desktop sculptures such as Helmets, Masks and Weapon
Replicas featuring these Marvel super heroes and villains. At the time of filing
this Report, the Company was awaiting approval of prototypes from Marvel and had
not definite when these products would be available for distribution. The
Company also signed a licensing agreement for the Company's Team Sport Division
to distribute the "Tattle Tail", which is a stylized cloth lanyard that serves
as a holder for remote controls. Initially, the Tattle Tails TM marketed by the
Company will contain licensed team logos including Major and Minor League
Baseball, the American and East Coast Hockey Leagues, Arena Football, select
universities and the National Professional Soccer League. A full-page
advertisement for these products appeared in the 2001 edition of Media File and
Media File on-line, the advertising specialty industry bible, published by the
Advertising Specialty Institute ("ASI").
The Company's fiscal year ends February 28 (or 29). References to fiscal years
mean fiscal years ending on February 28 (or 29) of that year. For example,
fiscal year 2000 is the twelve month period ended February 29, 2000.
Also, completed during the six months ending August 31, 2000 was a website
devoted to the "Golden Age of Baseball" (www.collectbaseball.com) with Bill
Gilbert, a nationally known writer ("The Duke of Flatbush"), hosting a weekly
column.
In it's continual search to even out the fluctuation in the Company's revenue
cycle, the Company made two acquisitions during the six months ended August 31,
2000. On June 5, 2000 the Company acquired Music Art Corporation, a company that
has a license from the Rolling Stones to distribute lithographs of signed album
covers. Music Art also has a license with Phil Ceccola, a photographer of many
rock bands, to distribute signed photographs of Bruce Springsteen. The Company
also plans to market Music Art products to retailers on its recently launched
website, www.collectmusicart.com.
The second of these acquisitions occurred on August 2, 2000, when the Company
acquired Rooter Rattle, L.P. in consideration of $965,000, payable as $390,000
in cash, a $30,000 note payable and $3,663,333 Shares of Common Stock issued at
a value of $545,000 based upon the trading price of the Company's common stock
on the acquisition date, which was $.15 per share. The acquisition was accounted
for as a purchase. Rooter Rattle markets novelties bearing the Logos of
professional and amateur sports teams under license from the teams. The excess
of acquisition costs over the fair value of net assets was approximately
$790,000, which will be amortized over seven (7) years beginning August, 2000.
The Company also entered into an Employment Agreement with a former officer of
Rooter Rattle, L.P. as part of the transaction.
The Company, during the six months ending August 31, 2000, continued to invest
in its infrastructure by hiring experienced professionals for three newly
created positions: Chief Operating Officer, National Sales Manger, and Director
of Purchasing and other staff as needed to support the acquisitions and
expanding websites.
Cost of sales for the six months ending August 31, 2000 were comprised of costs
associated with the sale of the products related to the Austin Powers and X-Men
movies as well as sales from its sports memorabilia. Costs also include the cost
of the product and related freight and handling charges. These products are
contract manufactured for the Company by both domestic and foreign companies to
specifications developed by the Company and approved by the various licensors.
Even though the Company does not feel this places it at risk for filling future
orders on a timely basis, it has developed relationships with alternate
suppliers for most of its products. Several of its manufacturers will also store
and ship product directly to a customer, thereby reducing shipping time and
eliminating the costs the Company would incur if the product was first shipped
to its location. The Company also feels it is not at risk for any currency
fluctuations in its dealing with its foreign manufacturers since all orders are
based on U. S. dollars and the Company does not have any long term purchase
commitments.
Selling, general and administrative expense consists of payroll and related
fringes, royalties, commissions paid to manufacturers sales representatives, and
advertising, rent, depreciation and other related fixed overhead expenses. Also
included in this category are the expenses related to the replication of movie
props to ready them for mass production by the contract manufacturers, as well
as the non-cash costs related to services satisfied by the issuance of Company
stock. The services provided were in direct support of the operations of the
Company on both an ongoing basis and in anticipation of the increased business
expected from the sales of product related to the X-Men movie. As the Company
grows, through acquisitions and the sales of current product, it anticipates it
will have to rely less on the issuance of stock for services due to increased
cash flow as well as its access to capital increases. The benefits to the
Company from these stock transactions are reduced use of cash which allowed the
Company to devote the maximum resources to expanding the business. For recording
purposes, the Company valued these services at the fair market value of the
services rendered or the fair market value of the stock at time of issuance,
whichever is more readily determinable. The Company capitalizes the tooling
costs of movie props. Only the tooling costs of a product to be made and sold
have been capitalized and no other development costs are capitalized. The
Company capitalized $23,304 in tooling costs in the six months (6) ended August
31, 2000, $9,524 of which occurred in the three (3) months ended August 31,
2000. All other pre-production costs are expensed. Other pre-production costs
include prototypes and samples of packaging, display and products. All expensed
pre-production costs, and the amortization of capitalized tooling costs, are
included within selling, general and administrative expenses. Costs of
manufacturing products for sale are included within costs of sales.
The amount and timing of the revenue generated from the sales of movie related
products is not possible to accurately predict because of the length of time it
may take the project to be commercially successful, if at all. As a result, the
Company's revenues and net income may fluctuate significantly between comparable
periods. Additionally, since the Company's inception, it has experienced
significant operating and net losses that it has been able to fund by obtaining
private capital. The Company, therefore, cannot predict if and when it will
generate income from operations and if it will be able to raise sufficient
capital necessary to fund future operations.
As of August 31, 2000 the Company had an accumulated deficit of $10, 185,077.
This deficit arose from operating losses and not any particular transaction or
transactions. The Company has not generated sufficient revenues to meet its
operating expenses. As a result, there is substantial doubt about the Company's
ability to continue as a going concern. The added revenue generated by the
acquisitions of Music Art and Rooter rattle, along with the release of the X-Men
movie on videotape in November 2000 and the revenue generated from its new
licenses, all are expected to improve this situation.
The Company has taken significant steps to ensure its fiscal viability in the
future and continues to pursue additional licenses to even out fluctuations in
the revenue stream. It is also looking to acquire companies that have licenses
not only related to movies and entertainment industry but in the sports area.
The Company shipped X-Men products with a sales price in excess of $400,000 as
of August 31, 2000. As of that date, the Company had additional orders for X-Men
products which, when delivered, will result in aggregate sales requiring royalty
payments in excess of the minimum required royalty for X-Men
products. The Company has not yet had any sales of Terminator products, and does
not anticipate to begin selling Terminator products until March of 2001. The
Company anticipates that another Terminator movie may be released in 2001. If a
new movie is released, the Company will be prepared with product and believes it
will able to sell enough product to justify its minimum royalty. The Company
also has not had sales of Austin Power products sufficient to pay the minimum
royalty at the contractual royalty rates. The Company believes that there will
be another Austin Powers movie released in 2002, and the Company will be
prepared with product upon that release and will generate significant sales of
Austin Power products. The Company's license for Austin Powers products expires
in 2001. However, the Company believes that both the term of the license and the
period in which it has to meet the minimum royalty will be extended through
2002. If new movies are not released, or if the Company does not realize
significant sales if new movies are released, the Company might be required to
use other sources of revenue to pay the remaining $15,000 in royalties on
Terminator products and the remaining $70,000 of minimum royalties on the Austin
Powers products.
Results of Operations
Three Months Ended August 31, 2000 compared to Three Months Ended August 31,
1999.
Net revenue for the quarter ended August 31, 2000 was $458,827, comprised of
sales of X-Men product of approximately $405,000, sales of plate-signed
lithographs from Rolling Stones album covers and tour art of approximately
$6,000, sales from the Team Sports product lines of approximately $42,000, sales
from the collectbaseball.com website of approximately $4,500, and the balance
from the sale of Austin Power products. Revenue for the quarter ended August
31,1999 was $156,324, comprised predominantly of sales of Austin Powers
products.
Cost of sales for the quarter ended August 31, 2000 increased by $237, 041 from
the quarter ended August 31,1999. This increase was mainly attributable to the
increased volume of sales, primarily products related to the X-Men movie, the
collectbaseball.com website, and the two acquisitions made during the quarter.
Cost of sales as a percentage of revenues increased to 70.5% for the quarter
ending August 31,2000 as compared to 55.2% for the same period last year. The
increase in cost of sales as a percent of revenues for the quarter ending August
31, 2000 is primarily due to a greater number of sales made to wholesalers who
are entitled to volume discounts.
Selling, general and administrative expenses for the quarter ended August 31,
2000 decreased to $933,944 from $1,429,722 for the quarter ended August 31,1999.
The decrease in SG&A expenses in the quarter ended August 31, 2000, as
compared to the similar period in the prior year, is due to the decrease in
charges for stock issued in consideration for services. For the quarters ended
August 31, 2000 and 1999, the services obtained with the issuance of stock were
approximately $81,800 and $813,000 respectively. SG&A expenses other than
charges attributable to the issuance of stock for services increased to $852,144
in the quarter ended August 31, 2000 from $616,722 in the three months ended
August 31, 1999. These services included internal accounting and financial
services, internet website creation, marketing assistance, insurance program
review, and general management consulting. Staffing increased to sixteen full
time and two part time consultants for marketing and licensing for the quarter
ended August 31, 2000 as compared to three full time and two part time employees
for the quarter ended August 31, 1999. As previously mentioned, the
Company incurs charges to bring products to market. These charges relate to the
cost for producing samples, as well as the related package design cost that must
be approved by the licensee prior to full production runs of the product. For
the quarter ended August 31, 2000 the Company incurred charges of approximately
$6,000 versus cost of approximately $20,613 for the quarter ended August 31,
1999. Also included in the selling, general and administrative expenses were
approximately $63,000 and $51,000, respectively, for the operations of Music Art
and Team Sports, two acquisitions completed during the quarter. As a result of
these acquisitions, the Company incurred additional costs related to the
amortization of goodwill during the quarter ending August 31, 2000 of
approximately $26,000 as compared to $0 for the quarter ending August 31, 1999.
The Company incurred interest expense of approximately $150,000 for the quarter
ended August 31, 2000 as compared to approximately $18,000 for the quarter ended
August 31, 1999 due to increased borrowings and the beneficial conversion
calculation related to the application of EITF ("Emerging Issues Task Force")
Bulletin for accounting of convertible securities and notes and loans payable
with beneficial conversion features. The beneficial conversion calculation added
approximately $59,000 of interest expense for the quarter ended August 31, 2000.
As a result of the above, the Company had a net loss of $948,604 for the quarter
ended August 31, 2000 as compared to a net loss of $1,398, 211 for the quarter
ended August 31, 1999.
Six Months Ended August 31, 2000 compared to Six Months Ended August 31, 1999.
Net revenues for the six months ended August 31, 2000 were $468,458 comprised of
revenues from the sale of X-Men product of approximately $410,000, sales of
plate-signed lithographs from Rolling Stones album covers and tour art of
approximately $6,000, sales from the Team Sports product lines of approximately
$42,000, sales from the collectbaseball.com website of approximately $5,000 and
the balance of the revenues from the sale of Austin Powers products Net revenues
for the three months ended August 31, 2000 greatly exceeded net revenues for the
prior three months as the X-Men movie was released in July and the Company began
shipping X-Men products in June. Revenues for the six months ended August
31,1999 were $163,550. Revenues for this period were predominantly from the sale
of Austin Powers products.
Cost of sales for the six months ended August 31, 2000 increased by $222,336
from the quarter ended August 31,1999. This increase was mainly attributable to
the increased volume of sales, primarily products related to the X-Men movies,
collectbaseball.com website and the two acquisitions made during the quarter.
Cost of sales as a percentage of revenues increased to 70.9% for the six months
ended August 31, 2000 as compared to 67.1% for the same period last year. The
increase in cost of sales as a percent of revenues for the quarter ending August
31, 2000 is primarily due to a greater number of sales made to wholesalers who
are entitled to volume discounts.
Selling, general and administrative expenses for the six months ended August 31,
2000 increased to $1,811,377 from $1,528,629 for the same period in the previous
year. For the six months ended August 31, 2000 and 1999 the services obtained
with the issuance of stock included internal accounting and financial services,
internet website creation, marketing assistance, insurance program review, and
general management consulting were approximately $468,000 and $1,179,000
respectively. Staffing increased to sixteen full time and two part consultants
for marketing and licensing for the six months ended August 31, 2000 as compared
to three full time and two part time employees for the same
period last year. As previously mentioned, the Company incurs charges to bring
the product to market. These charges relate to the cost for producing the
samples as well as the related package design cost that must be approved by the
licensee prior to full production runs of the product. For the six months ended
August 31, 2000, the Company incurred charges of approximately $6,200 versus
charges of approximately $20,613 for the same period last year. Also included in
the selling, general and administrative expenses were those of the two
acquisitions completed during the quarter. The Music Art and Team Sport
acquisitions contributed approximately $63,000 and $51,000 respectively of
selling, general and administrative expenses during the six months ending August
31, 2000. Due to acquisitions, the Company incurred charges related to the
amortization of goodwill during the six months ended August 31, 2000 of
approximately $26,000 as compared to $0 for the same period last year.
The Company incurred interest expense of approximately $317,000 for the six
months ended August 31, 2000 as compared to approximately $21, 000 for the same
period last year due to increased borrowings and the beneficial conversion
calculation related to the application of EITF ("Emerging Issues Task Force")
Bulletin for accounting of convertible securities and notes and loans payable
with beneficial conversion features. The beneficial conversion calculation added
approximately $189,000 of interest expense for the six months ended August 31,
2000.
As a result of the above, the Company had a net loss of $1,991,791 for the six
months ended August 31, 2000 as compared to a net loss of $1,475,327 for the
same period last year.
Liquidity and Capital Resources
As of August 31, 2000 the Company had a working capital deficiency of
approximately $1,363,000 compared to a deficit working capital of $870, 000 as
February 29, 2000. The deficit working capital as of August 31, 2000 is a direct
result of the unprofitable operations for the quarter ended August 31, 2000 that
resulted in a cash used in operating activities of approximately $1,273,000. The
Company had an ending cash balance of $3,914 at August 31, 2000.
During the six months ended August 31, 2000, the Company purchased computer
equipment and a delivery van, and incurred tooling cost for approximately
$76,000. The delivery van was financed through the credit company associated
with the manufacturer of the vehicle. This note payable is approximately
$26,000. The Company does not foresee any significant capital expenditures
needed in the next six months. On June 5, 2000, the Company acquired 100% of the
outstanding common shares of Music Art Corporation ("Music Art") for 1,000,000
shares of Company common stock. Music Art is primarily engaged in the business
of creating, marketing and distributing limited edition lithographs derived from
artwork used on music albums and other music collectibles. The acquisition was
accounted for as a purchase. The 1,000,000 shares of common stock issued to
acquire Music Art was valued at $300,000, based upon the Company's guarantee of
the fair market price of the Company's common stock one year from the issuance
date. The excess of acquisition cost over the fair value of net assets was
approximately $377,000, which is being amortized over seven years beginning in
June 2000.
The Company has financed its losses through private sales of equity and debt
securities and the issuance of stock for services. During the six months ending
August 31, 2000 the Company received the following capital infusions:
approximately $952,000 (net of fees) from issuance of common stock and
approximately $506,000 (net of fees) in convertible debentures and other
borrowings. Additionally, during this period the Company received notices
requesting conversion from the holders of convertible debentures and demand
notes of approximately $121,000. $10,000 of which was originally issued in this
period. These instruments were convertible into 5,555,849 shares of common
stock.
During the six months ended August 31, 2000, the Company started making payments
on approximately $54,000 of demand notes. These notes were originally scheduled
to be paid by December 31, 2000. Subsequent to August 31, 2000, the Company
ceased making payments on certain demand notes. In the past, the Company has
been successful in renegotiating terms on its debt. $19,312 in principal amount
of these notes was outstanding on August 31, 2000. The Company is confident that
it will be successful in renegotiating payment terms on these demand notes.
An event of default has occurred regarding the $400,000 in convertible
debentures in that the Company did not have an effective registration statement
within 150 days of the debenture sale. As a result of this default, the Company
is obligated to pay the debenture holders the principal amount of the debentures
together with interest and certain other amounts. The Company does not have the
capital resources to pay the amounts required under this agreement. Company's
financial advisor has informed the Company that the do not intend to take any
action at this time due to the default. The Company does not, however, have any
legally binding commitment from the debenture holders.
Subsequent to the six months ended August 31, 2000, the Company has received
approximately $110,700 of cash financing through the issuance of debt and stock.
As of August 31, 2000, the Company had $386,440 in outstanding notes and loans
payable and $336,394 in outstanding convertible debentures net of contra
discount of approximately $190,000 related to the 4,000, 000 warrants issued
with the convertible debenture of $400,000 as mentioned in the preceding
paragraph. The Company also made approximately $44,000 of scheduled payments
against the remaining debt that matures at varying dates through February 2001.
The Company believes it will be able to obtain new licenses and thereby increase
revenues, and will pursue an acquisition strategy to acquire profitable
companies. However, the Company will require additional capital infusions in
order to continue to operate until such time as revenues are sufficient to
finance operations. There is no assurance that the Company will be able to
obtain sufficient capital to meet its operating needs. In May, 2000, the Company
granted a security interest in substantially all of its assets to a private
investor group, which purchased $400,000 in convertible debentures. Until the
obligations related to these debentures are satisfied, the Company will not be
able to use these assets as security for other financings.
Forward Looking Statements
Sections of this Report contain forward looking statements, including without
limitation, statements concerning possible or assumed future results of
operations of the Company preceded by, followed by or that include the words
"believe," "expects," "anticipate," "estimates," "intends," "plans," or similar
expressions.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties, and assumptions. Due to the fact that the Company
faces competition from other licensors for shelf space, the ability of the
Company to obtain additional licenses and the uncertainty of the public's
response to the Company's properties as well as uncertainty as to the Company's
ability to raise sufficient capital to fund losses from operations actual
results or outcomes may differ materially from any such forward-looking
statements.
(c) 1995-1999 Cybernet Data Systems, Inc. All Rights Reserved.
Received by Edgar Online: Mar. 07, 2001
CIK Code: 0001106946
SEC Accession Number: 0000950116-01-000389 |
