As filed with the Securities and Exchange Commission on June 17, 1998
================================================================================
Registration No. 333-46947
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
RONNYBROOK FARM DAIRY, INC.
(Exact Name of Registrant as Specified in Its Charter)
-----------
New York 2026 22-3071022
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Identification Number)
Organization) Number)
Prospect Hill Road
Ancramdale, New York 12503
(518) 398-MILK
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Executive Offices)
-----------
RICHARD A. OSOFSKY
President and Chief Executive Officer
RONNYBROOK FARM DAIRY, INC.
Prospect Hill Road
Ancramdale, New York 12503
(518) 398-MILK
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code of Agent
for Service)
-----------
With a copy to:
JONATHAN D. MORSE SPENCER G. FELDMAN
Morse, Zelnick, Rose & Lander, LLP Greenberg Traurig Hoffman
450 Park Avenue Lipoff Rosen & Quentel
New York, New York 10022 200 Park Avenue, 15th Floor
(212) 838-1177 New York, New York 10166
(212) 838-9190 (Fax) (212) 801-9200
(212) 801-6400 (Fax)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box. | |
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. |_|
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JUNE 17, 1998
PROSPECTUS
600,000 Shares
RONNYBROOK FARM DAIRY, INC.
Common Stock
---------------
This Prospectus relates to the offering (the "Offering") of 360,000 shares
of common stock (the "Shares"), par value $.001 per share (the "Common Shares"),
of Ronnybrook Farm Dairy, Inc., a New York corporation (the "Company"). Prior to
this Offering, there has been no public market for the Common Shares.
Application has been made to list the Common Shares for quotation on the OTC
Bulletin Board (the "Bulletin Board") under the symbol "RONY." Even if the
Common Shares are quoted on the Bulletin Board, there can be no assurance that
an active and liquid trading market will develop or, if developed, that it will
be sustained. For a discussion of the factors considered in determining the
initial public offering price of the Shares, see "Underwriting."
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6
AND "DILUTION."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
================================================================================
Underwriting Proceeds to
Price to Public Discount (1) Company (2)
- - --------------------------------------------------------------------------------
Per Share......... $7.00 $.70 $6.30
Total (3)......... $2,520,000 $252,000 $2,268,000
================================================================================
(1) Does not include a non-accountable expense allowance payable by the
Company to National Securities Corporation, the underwriter (the
"Underwriter"), equal to 3% of the gross proceeds of the Offering, and the
value of five-year warrants (the "Underwriter's Warrants") to purchase up
to an aggregate of 36,000 Common Shares, at an exercise price of $8.40 per
share (120% of the initial public offering price). The Company has agreed
to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $430,000, including the Underwriter's non-accountable expense
allowance.
(3) The Company has granted the Underwriter the option, exercisable within 45
days after the date of this Prospectus, to purchase from the Company up to
an aggregate of 54,000 additional Common Shares, on the same terms as set
forth above, solely to cover over-allotments, if any (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$2,898,000, $289,800 and $2,608,200, respectively. See "Underwriting."
--------------------------------
The Shares are offered by the Underwriter, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters, and subject to certain
other conditions, including the right of the Underwriters to reject orders in
whole or in part. It is expected that delivery of the Shares will be made
against payment therefor at the office of National Securities Corporation in
Seattle, Washington on or about _____________, 1998.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1998
<PAGE>
[Photo of glass bottled milk]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE COMMON SHARES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
Ronnybrook(R) is a registered trademark of the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information contained in this Prospectus (i) assumes that the Over-Allotment
Option has not been exercised and (ii) reflects a 6,000-for-one split of each
outstanding Common Share prior to the completion of this Offering. See
"Capitalization--Recapitalization and Stock Split." The Shares offered hereby
involve a high degree of risk and investors should carefully consider the
information set forth under "Risk Factors" prior to making an investment in the
Shares.
THE COMPANY
Ronnybrook Farm Dairy, Inc. (the "Company") manufactures and markets
premium quality dairy products from "farm-fresh" raw milk under the
Ronnybrook(R) brand name in the New York metropolitan area, eastern Long Island,
northern New Jersey and in Columbia, Dutchess, Ulster, Rockland and Westchester
counties, New York. The Company's products include Creamline(R) whole milk and
skim milk, heavy cream and half-and-half packaged in traditional glass bottles,
butter, ice cream, yogurt and creme fraiche, and on a limited basis, assorted
cheeses, including mozzarella, farmer's cheese, cottage cheese and fromage
blanc. During the holiday season, the Company also produces eggnog. The Company
sells its products to (i) more than 150 supermarkets, specialty food stores and
gourmet delis, (ii) approximately 50 food service clients, including several of
the most highly-rated restaurants in New York City, (iii) the Culinary Institute
of America, and (iv) directly to the public at outdoor green markets, including
the Union Square green market in New York City, and at the Company's
distribution center at Chelsea Market in New York City.
The Company's business is based on management's belief that a growing
appreciation for freshness and concern over the purity and safety of food among
consumers has created a place in the agricultural landscape for local farm
dairies employing production techniques designed to yield high quality, better
tasting products which are distributed "fresh" to market. The Company believes
that Ronnybrook dairy products arrive to consumers in the Company's marketing
area fresher than most other dairy products. The raw milk used in Ronnybrook
products is supplied on an exclusive basis to the Company by Ronnybrook Farms in
Ancramdale, New York, a local dairy farm owned and operated by members of the
Osofsky family since its founding in 1941 (the "Osofsky Farm"). The brothers
"Rick," "Sid" and "Ronny" (the "Osofsky Brothers") are executive officers,
directors and principal shareholders of the Company. Most milk and other dairy
products commercially available in the Company's core market and throughout the
United States are mass produced by large regional dairies which purchase raw
milk principally from large farms and distribution cooperatives on a regional
basis. The Company believes that its Ronnybrook products are higher in quality
than most other commercially available dairy products because of the farming
techniques used in producing the raw milk it purchases, its production methods
and the freshness of its products when brought to market.
The Company's products routinely receive favorable reviews from local and
national newspapers and magazines. The New York Times (the "Times") described
Ronnybrook skim milk as "particularly rich-tasting" (July 24, 1991). Ronnybrook
whole chocolate flavored milk, described by the Times as the "Dom Perignon" of
chocolate flavored milk, was the only chocolate milk given the highest rating of
"excellent" in a Times survey of ready-to-drink chocolate flavored milk
(September 8, 1993). The Times, in addition, described Ronnybrook coffee milk as
tasting like "melted coffee ice cream"(May 26, 1993) and Ronnybrook
half-and-half as having a "richer fresh cream flavor" than most other brands
without containing the additives contained in many brands (August 2, 1995). The
Times labeled Ronnybrook eggnog a "rich, sumptuous indulgence" and "one of the
best commercial eggnogs" available (December 23, 1997). Ronnybrook sweet butter
was described by the Times as "very delicate" and Ronnybrook creme fraiche as
"thick and mildly tangy" (March 1, 1995). In March 1997, the Company introduced
its ice cream, which was selected by the NEW YORK PRESS as the best ice cream
available in New York City in its 1997 "Best of Manhattan" issue.
The Company believes that Ronnybrook products enjoy a reputation, among
those people who are familiar with its products, for being a high quality
product and arriving to consumers "fresh-off-the-farm." The Company believes
that this reputation has spread principally by word-of-mouth and also as a
result of favorable press coverage, as marketing efforts to date have been very
limited. Pursuant to its proposed marketing plan, the Company will seek to
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<PAGE>
build upon the reputation of Ronnybrook products and create a strong brand
identity, making its products more widely recognizable.
The Company's initial goal is to increase its sales to specialty food
stores and gourmet deli's, through outdoor green markets, and to restaurants and
other food service customers in the Company's existing markets through
implementation of its marketing plan, and then to extend its distribution to
contiguous markets with high population concentrations, such as the Boston,
Philadelphia and Hartford areas, with a view to becoming the principal supplier
of premium quality dairy products to both consumers and food service customers
in the Northeast. If the Company can successfully implement its growth strategy
in the Northeast, the Company will seek to enter other markets through joint
venture, licensing or other arrangements with local dairy farms which the
Company believes would benefit significantly from selling their raw milk to
newly established local dairies that will produce and sell Ronnybrook(R) brand
milk products in their local markets. The key elements of the Company's growth
strategy to reach its goal include:
o Broaden Customer Base. The Company seeks to broaden its customer
base by offering Ronnybrook fluid milk products for sale in
no-return containers designed to evoke the Ronnybrook signature
glass bottles (which are returnable for a $1.00 refund).
o Increase Sales of Solid Milk Products. The Company seeks to increase
its sales of solid milk products, such as yogurt, ice cream and
cheese, which have greater profit margins, significantly longer
shelf life and are more cost effective to distribute than fluid milk
products.
o Emphasize Local Production and Distribution. The Company's marketing
efforts will emphasize the local production and distribution of
Ronnybrook products, which begins with raising the milking herd on
the Osofsky Farm and results in premium quality products through the
efforts of the Osofsky Brothers. A significant portion of the
proceeds of this Offering will be used to fund the Company's
marketing efforts.
The Company was incorporated in New York in October 1990. The Company's
principal executive offices and dairy are located at Prospect Hill Road,
Ancramdale, New York 12503, and its telephone number is (518) 398-MILK.
THE OFFERING
Shares Offered......................... 360,000 Shares
Offering Price......................... $7.00 per Share
Common Shares Outstanding:
Before the Offering.............. 680,000 Common Shares
After the Offering............... 1,040,000 Common Shares (1)
Use of Proceeds........................ Development of no-return containers
for fluid dairy products; product
marketing, sales and distribution;
purchase of dairy plant equipment;
plant improvements; development of a
signature store and free-standing
kiosk to be located in Grand Central
Terminal in New York City; and the
balance for working capital and
general corporate purposes. See "Use
of Proceeds."
Risk Factors and Dilution.............. The purchase of the Shares offered
hereby involves a high degree of risk
and immediate and substantial
dilution. See "Risk Factors" and
"Dilution."
Proposed Bulletin Board Symbol for
the Common Shares................ RONY
- - ----------
(1) Does not include (i) 36,000 Common Shares reserved for issuance upon
exercise of the Underwriter's Warrants and (ii) 270,000 Common Shares
reserved for issuance pursuant to the Company's Stock Option Plan, of
which 150,000 shares are issuable upon the exercise of options granted as
of the effective date of this Offering at exercise prices ranging from the
initial public offering price per Share to 140% thereof. See "Management--
Stock Option Plan."
4
<PAGE>
SUMMARY FINANCIAL DATA
The summary statement of operations data for the years ended December 31,
1997 and 1996, and the balance sheet data as of December 31, 1997 are derived
from the Financial Statements of the Company included elsewhere in this
Prospectus, which have been audited by Arthur Andersen LLP, independent public
accountants. The summary balance sheet data as of December 31, 1996 is derived
from the financial statements of the Company which have been audited by Arthur
Andersen LLP, independent public accountants, but which is not included in this
Prospectus. The summary statement of operations data for the year ended December
31, 1995, is derived from the Company's unaudited financial statements, which
include all adjustments, consisting of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the results of operations
for the year then ended. The summary statement of operations data for the three
months ended March 31, 1998 and 1997, and the balance sheet data as of March 31,
1998 are derived from the Company's unaudited financial statements, which
include all adjustments, consisting of normal recurring adjustments, which the
Company considers necessary for a fair presentation of the financial position
and results of operations as of and for the periods then ended. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1998. The financial data set forth below is qualified by reference
to, and should be read in conjunction with, the Company's Financial Statements
and the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Statements of Operations Data: Years Ended December 31, Three Months Ended March 31,
------------------------------------- ----------------------------
1995 1996 1997 1997 1998
(unaudited) (audited) (audited) (unaudited) (unaudited)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales ............................ $ 933,646 $ 838,751 $ 842,734 $ 176,293 $ 202,972
Cost of sales ........................ 589,135 497,354 522,168 127,996 144,832
--------- --------- --------- --------- ---------
Gross Profit ......................... 344,511 341,397 320,566 48,297 58,140
Operating expenses ................... 351,385 400,843 407,956 93,170 110,335
--------- --------- --------- --------- ---------
Operating loss ....................... (6,874) (59,446) (87,390) (44,873) (52,195)
Other income (expense) ............... (8,430) (4,177) (27,782) (2,578) (15,058)
Loss from continuing operations ...... (15,304) (63,623) (115,172) (47,451) (67,253)
Benefit for income taxes (1) ......... -- -- -- -- --
--------- --------- --------- --------- ---------
Net loss ............................. $ (15,304) $ (63,623) $(115,172) $ (47,451) $ (67,253)
========= ========= ========= ========= =========
Basic net loss per share (2) ......... $ (0.03) $ (0.11) $ (0.19) $ (0.08) $ (0.11)
========= ========= ========= ========= =========
Weighted average Common Shares
outstanding .......................... 600,000 600,000 600,000 600,000 600,000
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data: December 31, 1997 March 31, 1998
----------------- ------------------------------------------------
(Unaudited) Pro Forma As
Actual Actual Pro Forma(3) Adjusted(3)(4)(5)
---------------- ---------- ------------ ----------------
<S> <C> <C> <C> <C>
Cash........................................ $ 285,581 $ 72,997 $ 72,997 $1,910,997
Working capital............................. 219,550 4,942 24,942 1,862,942
Total assets................................ 701,455 630,928 630,928 2,468,928
Total debt.................................. 670,705 660,758 260,758 260,758
Total shareholders' equity (deficit) ....... (180,575) (247,828) 172,172 2,010,172
</TABLE>
- - ----------
(1) Does not give pro forma effect to the Company's change in tax status from
a subchapter "S" to a subchapter "C" corporation immediately prior to the
closing of this Offering as the Company is not entitled to the future
benefit of losses incurred prior to this election.
(2) See Note 2 to the Company's Financial Statements.
(3) Gives pro forma effect to the conversion on June 1, 1998 of $400,000 of
long-term debt and accrued interest of $20,000, (through March 31,1998),
into 80,000 Common Shares and a non-cash charge to interest expense and
additional paid-in capital representing the difference between the
conversion price of $5.35 per share and the $7.00 per share price to the
public in this Offering. See Note 9 to the Company's Financial Statements.
(4) Gives effect to the sale of 360,000 Shares offered hereby and the
application of the estimated net proceeds thereof (after deducting the
underwriting discount and estimated expenses of this Offering). See "Use
of Proceeds."
(5) Gives pro forma effect to the Company's change in tax status from a
subchapter "S" to a subchapter "C" corporation immediately prior to the
closing of this Offering. See Note 8 to the Company's Financial
Statements.
5
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby is speculative and involves a
high degree of risk. In addition to the other information contained in this
Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Shares offered
hereby. Prospective investors should be in a position to risk the loss of their
entire investment.
Limited Operating History and Operating Losses; Retained Deficit;
Shareholders' Deficit. The Company has not yet commenced significant marketing
of its products and, accordingly, its operating history provides only a limited
basis upon which to evaluate its prospects. The Company's prospects must be
considered in light of the risks, expenses, difficulties and problems frequently
encountered in establishing a new business in an industry characterized by
intense competition. Since the dairy commenced operations in 1991, the Company
has had only limited sales. During the years ended December 31, 1996 and 1997
and the three months ended March 31, 1998, the Company had sales of $838,751,
$842,734 and $202,972, respectively. The Company's net losses for the years
ended December 31, 1996 and 1997 and the three months ended March 31, 1998 were
$63,623, $115,172 and $67,253 respectively. There can be no assurance that the
Company will operate profitably in the future. Inasmuch as the Company intends
to incur marketing and promotional expenditures following consummation of this
Offering, which will be expensed as incurred, the Company's losses may increase
and the Company will continue to incur losses until such time, if ever, as
product sales are sufficient to offset the Company's operating costs, including
the costs of marketing and promotion. The Company believes that the generation
of significant additional revenues is dependent upon, among other things, the
Company's ability to market its products effectively in its existing markets and
certain contiguous expansion markets. There can be no assurance that the Company
will be able to implement its marketing strategy successfully to generate
increased revenues or achieve profitable operations. At March 31, 1998, the
Company had a retained deficit of $275,828 and a total shareholders' deficit of
$247,828. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and "Consolidated Financial Statements."
Significant Liquidity Requirements; Dependence on Proceeds of this
Offering; Possible Need for Additional Financing. The Company's liquidity
requirements have been and will continue to be significant. The Company intends
to use approximately $500,000 (26.5%) of the net proceeds of this Offering for
its proposed marketing and promotional campaign, including the introduction of
no-return containers for its fluid milk products, and is dependent upon the
proceeds of this Offering to launch such campaign. The Company anticipates,
based on management's assumptions relating to its operations (including the
schedule of, and costs associated with, its proposed marketing and promotional
campaign), that the net proceeds of this Offering will be sufficient to satisfy
the Company's contemplated cash requirements for at least 12 months following
the consummation of this Offering. In the event that the Company's plans or
assumptions change, its assumptions prove to be inaccurate, or if the proceeds
of this Offering, other capital resources and cash flow otherwise prove to be
insufficient to fund operations (due to the possible lack of market acceptance,
other unanticipated expenses, delays, problems or otherwise), the Company would
be required to seek additional financing or may be required to curtail its
activities. The Company has no current arrangements with respect to, or sources
of, additional financing and there can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all. Any
inability to obtain additional financing could have a material adverse effect on
the Company, including requiring the Company to postpone, limit or cancel future
marketing activities or curtail or cease its operations. To the extent that any
such financing involves the sale of the Company's equity securities, the
interests of the Company's then existing shareholders could be substantially
diluted. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Limited Market; Uncertainty of Market Acceptance. The Company is currently
selling its products principally in the New York metropolitan area, eastern Long
Island, northern New Jersey and in Westchester, Dutchess, Rockland, Ulster, and
Columbia counties, New York. Achieving market acceptance for the Company's
products, particularly in new markets, will require substantial marketing
efforts and the expenditure of significant funds. There is substantial risk that
the marketplace may not accept or be receptive to the Company's products. Market
acceptance of the Company's current and proposed products will depend, in large
part, upon the ability of the Company to inform potential customers that the
distinctive characteristics of its products make them superior to competitive
products and justify their premium pricing. There can be no assurance that the
Company's current and proposed products will be accepted by consumers or that
any of the Company's current or proposed products will be
6
<PAGE>
able to compete effectively against other premium or non-premium dairy products.
Lack of market acceptance of the Company's products will have a material adverse
effect on the Company. See "Business--Competition" and "--Brand Development and
Marketing Strategy."
Introduction of No-Return Containers. There is no assurance that the
Company will be able to successfully design or develop no-return containers for
packaging its fluid milk products on a timely or cost effective basis, if at
all. The Company believes that the introduction of no-return containers will
broaden its customer base and result in increased sales of its products, but
there is no assurance that this will be the case. Poor public reception of the
containers could adversely effect the Company's image and brand identity and
jeopardize the overall success of the Company's proposed marketing plan. See
"Business--Brand Development and Marketing Strategy."
Changing Consumer Preferences. As is the case with other companies
marketing dairy products, the Company is subject to changing consumer
preferences and nutritional and health-related concerns. The Company believes
that minimal processing and the absence of preservatives, additives, artificial
sweeteners or artificial flavorings increases the attractiveness of its products
to consumers. The Company has not, however, sought to certify its products as
organic. The Company's business could be affected by certain consumer concerns
about dairy products, such as the fat, cholesterol, calorie, sodium and lactose
content of such products, as well as by a desire of certain consumers to
purchase certified organic products. The Company could become subject to
increased competition from companies whose products or marketing strategies
address these consumer concerns. See "Business--Products" and "--Competition."
Effect of Adverse Medical Research Relating to Milk and Demand for Milk.
Periodically, medical and other studies are released and announcements by
medical and other groups are made which raise concerns over the healthfulness of
cow's milk in the human diet. To date, the Company does not believe that any
such study has had a material effect on milk consumption rates. However, a study
may be published or an announcement made concerning the healthfulness of cow's
milk which may result in a decrease in demand for the Company's dairy products.
Limited Production Capacity. There is no assurance that the Company will
be able to increase its production capacity to a level sufficient to meet
anticipated increased demand for its products associated with its marketing and
promotional efforts. The Company currently manufactures dairy products at a rate
which utilizes approximately 15,000 pounds of raw milk per week. The Company
believes that it currently has the capacity, based on an assumed mix of
products, to manufacture dairy products at a rate which utilizes approximately
80,000 pounds of raw milk per week. Using the proceeds of this Offering, the
Company plans to purchase equipment and make improvements to its dairy plant
which, it believes, should increase its capacity to manufacture products to a
rate which utilizes approximately 250,000 pounds of raw milk per week. There is
no assurance, however, that the Company's contemplated improvements to its dairy
plant will increase production capacity to the level anticipated or that
production can be increased at a rate sufficient to meet anticipated increased
demand for its products. There can be no assurance, further, that the product
mix which the Company anticipates achieving and, therefore, which it has used in
determining the equipment requirements of its dairy plant will prove to be
accurate, making uncertain the future capacity of the dairy plant. Failure to
meet possible increased demand for its products, on a timely basis, could have a
material adverse effect on the Company's, business, operations and finances. See
"Business--Production."
Impact of Growth on Quality of Dairy Products. The Company's dairy
products are manufactured in small batches with milk from the Osofsky Farm. The
Company believes that the small batch production methods it employs and the
quality of the raw milk it uses contributes to the quality of its dairy
products. There can be no assurance that the quality of the Company's dairy
products will be maintained at increased levels of production. Increased
production levels may cause the Company to modify its current manufacturing
methods and will necessitate the use of milk from sources other than the Osofsky
Farm. A decline in the quality of the Company's products could have a material
adverse effect on the Company's business, operations and finances. See "--Supply
of Raw Milk" and "Business-Production."
Risks Associated with Perishable Food Production. Dairy products are
highly perishable and must be transported timely and efficiently within a
precise temperature range. As a result, the Company is always subject to risk of
spoilage or contamination of its dairy products. In addition, food producers,
such as the Company, may be subject to claims for damages if contaminated food
causes injury to consumers. See "--Potential Product liability." In addition,
the delivery of contaminated food could adversely effect the Company's
reputation and have an adverse material effect on the Company's business,
operations and finances.
7
<PAGE>
The Company's dairy products have a limited shelf life. Because it is not
practicable to hold excess inventory of perishable products, the Company's
results of operations are partly dependent on its ability to accurately forecast
its near-term sales in order to adjust its supply of products accordingly.
Failure to accurately forecast product demand could result in the Company either
being unable to meet higher than anticipated demand or producing excess
inventory that cannot be profitably sold. The inability of the Company to meet
higher than anticipated demand or excess production could have a material
adverse effect on the Company's business, operations and finances.
Limited Sales Force. The Company's principal sales person, Ronny Osofsky,
devotes only part of his time to the affairs of the Company since he also
manages the Osofsky Farm. Ronny Osofsky, had been the Company's only sales
person until February 1998, when the Company hired a second salesperson who
works on a full time basis. The Company anticipates hiring additional sales
people. There is no assurance that hiring additional sales people will result in
increased sales. The Company anticipates using independent dairy distributors to
sell and distribute its products in new contiguous expansion markets. The
Company cannot predict whether it will be able to obtain and maintain
satisfactory sales and distribution arrangements and the failure to do so could
have a material adverse effect on the Company's business, operations and
finances. See "Business--Sales and Distribution."
Limited Delivery Capacity; Delays in Delivery of Products. If sales
increase, there is no assurance that the Company will be able to deliver
increased product volumes on a timely and efficient basis. The Company currently
has two trucks for local deliveries in New York City (Manhattan and Brooklyn)
and on Long Island and anticipates purchasing additional trucks for distribution
in this area. Further, there can be no assurance that the Company will be able
to deliver its products "fresh" to customers on a consistent basis, especially
with increased product volumes, and a failure to do so could have a material
adverse effect on the Company's business, operations and finances. See "Business
- - --Risks Associated with Perishable Food Production" and "Business--Sales and
Distribution."
Supply of Raw Milk. The raw milk used in Ronnybrook products is supplied
exclusively to the Company by the Osofsky Farm under an exclusive output
contract. The Company is currently purchasing raw milk from the Osofsky Farm at
an annual rate of approximately 800,000 pounds. The Company believes that the
Osofsky Farm can more than double its production of raw milk to an annual rate
of approximately 1.75 million pounds. The Company further believes, however,
that this supply may not be sufficient to meet increased demand for its products
associated with its proposed marketing efforts. The Company has obtained
non-binding letters of intent with two neighboring family farms which
contemplate that the Company will be able to acquire the milk output of these
farms estimated at 5,000,000 pounds a year. See "Business--Supply of Raw Milk."
The Company believes that the combined supply of raw milk from the Osofsky Farm
and these two neighboring farms should satisfy the Company's requirements for
raw milk for at least the next 12 months. Though the Company has obtained
letters of intent with these two farms, such letters are not legally binding and
there is no assurance that the Company will be able to enter into definitive
agreements or that the terms of such agreements, including the price to be paid
for raw milk, will be as favorable as those contained in the Company's agreement
with the Osofsky Farm. Though the Company believes that approximately 50,000,000
pounds of additional raw milk is available locally, if needed, there is no
assurance that the Company will be able to enter into arrangements with the
producers of such milk on terms acceptable to the Company, if at all. An
inadequate supply of raw milk will have a material adverse effect on the
Company's business, operations and finances. See "--Impact of Growth on Quality
of Dairy Products" and "Business--Supply of Raw Milk."
Possible Volatility of Raw Milk Costs. U.S. dairy policy since the
mid-1980s has focused on gradually reducing federal government involvement in
the dairy industry and moving the industry in a more market oriented direction.
In order to accomplish these goals, the federal government has targeted the
federal milk marketing order system and the milk price support program for
reform. These reforms have resulted in the potential for greater price
volatility relative to past periods, as prices are more responsive to the
fundamental supply and demand of the market. These changes in U.S. dairy policy
could increase the risk of price volatility in the dairy industry. There can be
no assurance that a material volatility in milk prices will not occur or that
any such volatility would not have a material adverse effect on the Company's
business, operations and finances. See "Business--Government Regulation."
Geographic Concentration; Fluctuations in Regional Economic Conditions.
Nearly all of the Company's sales are concentrated in the New York metropolitan
area, eastern Long Island, northern New Jersey and in Westchester, Rockland,
Ulster, Dutchess and Columbia counties, New York. Accordingly, the Company is
susceptible to fluctuations in its business caused by adverse economic
conditions in this region. The Company's products are priced higher than
non-premium quality dairy products. Although the Company believes that the
quality, freshness, flavor and absence of artificial ingredients of Ronnybrook
products compensate for this price differential, there can be no assurance that
consumers will be willing to pay more for such products in unfavorable economic
8
<PAGE>
conditions, or at all. Difficult economic conditions in other geographic areas
into which the Company may expand may also adversely effect the Company's
business, operations and finances.
Dependence on Founders. The Company is highly dependent on the services of
Rick, Ronny and Sid Osofsky, and the loss of their services would have a
material adverse impact on the operations of the Company. The Osofsky Brothers
have been responsible for the development of the Company and the development and
marketing of its products. The Company has applied for key-man life insurance on
the lives of each of the Osofsky Brothers in the amount of $1,000,000.
Competition. The food business is highly competitive and, therefore, the
Company faces substantial competition in connection with the marketing and sale
of its products. In general, food products are price sensitive and affected by
many factors beyond the control of the Company, including changes in consumer
tastes, fluctuating commodity prices and changes in supply due to weather,
production, feed costs and natural disasters. The Company's products compete
with other premium quality dairy brands as well as less expensive, non-premium
brands. Ronnybrook milk faces competition from non-premium milk producers
distributing milk in the Company's marketing area; other milk producers
packaging their milk in glass bottles, including Meadowbrook, Chrone Dairy and
Juniper Farms, which serve portions of the Company's marketing area; and
certified organic milk producers, including the Organic Cow, based in Vermont,
and Horizon Organic Dairy, a national purveyor of organic milk and other dairy
products. Ronnybrook ice cream faces competition from Haagen-Dazs and Ben and
Jerry's, among other premium and non-premium brands. Ronnybrook yogurt faces
competition from Stonyfield Farms, Brown Cow and Horizon Dairy, among other
brands. Most of the Company's competitors are well established, have
substantially greater financial, marketing, personnel and other resources, have
been in business for longer periods of time than the Company, and have products
that have gained wide customer acceptance in the marketplace. The greater
financial resources of such competitors will permit them to procure supermarket
shelf space and to implement extensive marketing and promotional programs, both
generally and in direct response to advertising claims by the Company. The food
industry is also characterized by the frequent introduction of new products,
accompanied by substantial promotional campaigns. There can be no assurance that
the Company will be able to compete successfully or that competitors will not
develop products which will have superior qualities or which will gain wider
market acceptance than the Company's products. See "Business--Competition."
Consolidation of Dairy Industry. The Company established its dairy at a
time when local dairies were being consolidated into large regional dairies due
to excess capacity in the dairy industry. This consolidation trend is continuing
and the forces responsible for it, including increased efficiencies and
economies of scale that are present in large regional dairies, may put the
Company at a competitive disadvantage.
Potential Product Liability Associated with Perishable Food Products. The
Company faces the risk of liability in connection with the sale and consumption
of Ronnybrook products should the consumption of such products cause injury,
illness or death. Such risks may be particularly great in a company undergoing
rapid and significant growth. The Company currently maintains liability
insurance in the amount of $1,000,000 per occurrence and $2,000,000 in the
aggregate for any year and an umbrella policy in the amount of $1,000,000 per
occurrence and $1,000,000 in the aggregate for any year over and above the base
liability coverage. The Company intends to increase its umbrella policy coverage
to $10,000,000 per occurrence and $10,000,000 in the aggregate for any year. The
cost associated with this increased coverage is anticipated to be $7,750 per
year. There can be no assurance that such insurance will be sufficient to cover
potential claims or that the present level of coverage maintained by the Company
will be available in the future at a reasonable cost. A partially or completely
uninsured successful claim against the Company could have a material adverse
effect on the Company.
Government Regulation. The Company is subject to extensive regulation by
the United States Food and Drug Administration, the United States Department of
Agriculture, and by other state and local authorities in jurisdictions in which
the Company's products are processed or sold, regarding the processing,
packaging, storage, distribution and labeling of the Company's products.
Applicable statutes and regulations governing the Company's products include
nutritional labeling and serving size requirements; and general "Good
Manufacturing Practices" with respect to production processes. The Company's
processing facility and products are subject to periodic inspection by federal,
state and local authorities. The Company believes that it is currently in
substantial compliance with all material governmental laws and regulations and
maintains all material permits and licenses relating to its operations.
Nevertheless, there can be no assurance that the Company will continue to be in
substantial compliance with current laws and regulations, or whether the Company
will be able to comply with any future laws and regulations. To the
9
<PAGE>
extent that new regulations are adopted, the Company will be required to conform
its activities in order to comply with such regulations. Failure by the Company
to comply with applicable laws and regulations could subject the Company to
civil remedies, including fines, injunctions, recalls or seizures, as well as
potential criminal sanctions, which could have a material adverse effect on the
Company's business, operations and finances. See "Business--Government
Regulation."
Limited Trademark Protection. The Company has obtained trademark
registrations for the use of its oval logo with respect to its white milk,
chocolate milk and yogurt and for the use of "Creamline(R)" with respect to its
non-homogenized milk. The Company has applied to the United States Patent and
Trademark Office to expand the coverage of the trademark relating to its logo to
cover its use with respect to the Company's other products. The Company believes
these trademarks are important to the establishment of consumer recognition of
its products. However, there can be no assurance as to the breadth or degree of
protection that the trademarks may offer the Company, that the Company will have
the financial resources to defend the trademarks against any infringement, or
that such defense will be successful. Moreover, any events or conditions that
negatively impact the Company's trademarks could have a material adverse effect
on the Company's business, operations and finances.
Proprietary Knowledge and Absence of Patent Protection. The Company has no
patents covering its products or production processes and expects to rely
principally on know-how and the confidentiality of its formulae and production
processes for its products and its flavoring formulae in producing a competitive
product line. There is no assurance that any of these factors can be maintained
or that they will afford the Company a meaningful competitive advantage.
Broad Discretion by Management in use of a Substantial Portion of
Proceeds. The Company intends to use approximately $413,000 or 22.5% of the
estimated net proceeds of the Offering for general corporate purposes, including
working capital. Accordingly, the Company's management will retain broad
discretion as to the use of a substantial portion of the net proceeds of the
Offering. See "Use of Proceeds."
Continued Control by Management. Upon completion of this Offering the
directors and executive officers of the Company will beneficially own
approximately 39% of the Company's outstanding shares (46% if you assume the
exercise by the Osofsky Brothers of the options granted to them as of the
effective date of this Offering exercisable at prices ranging from the initial
public offering price to 140% thereof) and, accordingly, will be in a position
to effectively elect all of the Company's directors and control the affairs of
the Company. See "Principal Shareholders," "Description of Common Shares" and
"Management--Option Grants."
Immediate Substantial Dilution. Purchasers of the Common Shares offered
hereby will experience immediate and substantial dilution in net tangible book
value of $5.07 (72%) per Common Share from the initial public offering price of
$7.00 per share. See "Dilution."
Absence of Dividends. The Company does not expect to pay cash or stock
dividends on its Common Shares in the foreseeable future. See "Dividend Policy."
No Prior Public Market; Listing on Electronic Bulletin Board;
Determination of Offering Price; Possible Volatility of Share Price. Prior to
this Offering, there has been no public trading market for the Common Shares.
Consequently, the initial public offering price of the Common Shares has been
determined by negotiations between the Company and the Underwriter. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Common Shares will be quoted on the OTC
Bulletin Board (the "Bulletin Board"), a Nasdaq sponsored and operated
inter-dealer automated quotation system for equity securities. The Bulletin
Board was introduced seven years ago as an alternative to the NQB Pink Sheets
published by the National Quotation Bureau Incorporated for the trading of
over-the-counter securities. There can be no assurance that the Bulletin Board
will be recognized by the brokerage community as an acceptable alternative to
quotation on Nasdaq or in the NQB Pink Sheets. In the absence of such
recognition, the liquidity and price of the Shares in the secondary market may
be adversely affected, and there can be no assurance that a public market for
the Shares will develop or, if developed, that it will be sustained. The market
price of the Company's securities following this Offering also may be highly
volatile. There have been periods of extreme fluctuation in the stock market
that, in many cases, were unrelated to the operating performance of, or
announcements concerning, the issuers of the affected securities. Securities of
issuers having relatively limited capitalization or securities recently issued
in a public offering are particularly susceptible to fluctuation based on
short-term trading strategies of certain investors. Although the initial public
offering price of the
10
<PAGE>
Common Shares reflects the Company's and the Underwriter's assessment of current
market conditions, there can be no assurance that the price of the Company's
Common Shares will be maintained following the Offering. See "Underwriting."
Shares Eligible for Future Sale. Sale of a substantial number of the
Company's Common Shares in the public market after this Offering or the
perception that such sales may occur could adversely affect the market price of
the Common Shares. The 680,000 Common Shares presently outstanding are
"restricted" securities within the meaning of Rule 144 under the Securities Act
of 1933, as amended (the "Securities Act"), and may be sold under the conditions
of such rule, including satisfaction of certain holding period requirements.
Holders of these shares have executed or are expected to execute agreements
pursuant to which they may not sell or otherwise dispose of their shares for a
period of 13 months after the date of this Prospectus without the prior written
consent of the Underwriter (the "Lock-Up Agreements"). Without considering the
Lock-Up Agreements, 446,400 of the Common Shares presently outstanding will
become eligible for sale in the public market in reliance on Rule 144 beginning
90 days after the date of this Prospectus. The sale or availability for sale of
significant quantities of Common Shares could adversely affect the market price
of the Common Shares. See "Shares Eligible for Future Sale."
Issuance of Common Shares without Shareholder Approval. Following this
Offering, the Company will have 10,000,000 authorized Common Shares, of which
1,040,000 will be issued and outstanding. Management will have broad discretion
with respect to the issuance of the 8,960,000 authorized but unissued shares,
including discretion to issue such shares in compensatory and acquisition
transactions.
"Penny Stock" Regulations May Impose Certain Restrictions on Marketability
of Common Shares. The Commission has adopted regulations which generally define
"penny stock" to be any equity security that has a market price (as defined) of
less than $5.00 per share, subject to certain exceptions. Accordingly, the
Shares offered hereby may become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such Shares to persons other
than established customers and accredited investors (generally, those persons
with assets in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with their spouse). For transactions covered by these rules,
the broker-dealer must make a special suitability determination for the purchase
of the Shares and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
"penny stock", unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the Commission relating
to the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the "penny stock" held in the account
and information on the limited market in "penny stocks." Consequently, the
"penny stock" rules may restrict the ability of broker-dealers to sell the
Shares, severely limit the market price of the Shares and may affect the ability
of purchasers in this Offering to sell the Shares in the secondary market.
Stock Options Outstanding. Upon completion of this Offering, the Company
will have outstanding stock options to purchase an aggregate of 150,000 Common
Shares at exercise prices ranging from the initial public offering price to 140%
thereof. These options are likely to be exercised, if at all, at a time when the
Company otherwise could obtain a price for the sale of Common Shares which is
higher than the option exercise price per share. Such exercise or the
possibility of such exercise may impede the Company if it later seeks financing
through the sale of additional securities.
Underwriter's Warrants. Following completion of this Offering, the
Underwriter will hold Underwriter's Warrants to purchase 36,000 Common Shares.
The existence of the Underwriters' Warrants may prove to be a hindrance to
future financing by the Company. Further, the holders of such warrants may
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company and have the
opportunity to benefit from increases in the price of Common Shares without risk
of an equity investment. The Company has agreed to register under federal and
state securities laws the Common Shares underlying the Underwriter's Warrants
for resale at the request of the Underwriter at any time during the period in
which the Underwriter's Warrants are exercisable. Such registration rights could
involve substantial expense to the Company at a time when it could not afford
such expenditures and may adversely affect the terms upon which the Company may
obtain additional financing. See "Underwriting."
11
<PAGE>
Underwriter's Influence on the Market. A significant number of the Common
Shares offered hereby may be sold to customers of the Underwriter. Such
customers subsequently may engage in transactions for the sale or purchase of
such securities through or with the Underwriter. Although it has no obligation
to do so, the Underwriter intends to make a market in the Company's Common
Shares and may otherwise effect transactions in such securities. If it
participates in such market, the Underwriter may exert a dominating influence on
the market, if one develops, for the Common Shares. Such market-making activity
may be discontinued at any time. Moreover, if the Underwriter exercises the
Underwriter's Warrants, they may be required under the Securities Exchange Act
of 1934, as amended, to temporarily suspend its market-making activities. The
price and liquidity of the Common Shares may be significantly affected by the
degree, if any, of the Underwriter's participation in such market. See
"Underwriting."
Limitation of Liability of Officers and Directors. The Company's
Certificate of Incorporation includes provisions to eliminate, to the full
extent permitted by the New York Business Corporation Law as in effect from time
to time, the personal liability of directors of the Company for monetary damages
arising from a breach of their fiduciary duties as directors. The Certificate of
Incorporation also includes provisions to the effect that the Company shall, to
the maximum extent permitted from time to time under the law of the State of New
York, indemnify any director or officer to the extent that such indemnification
is permitted under such law, as it may from time to time be in effect.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 360,000 Shares
offered hereby, after deduction of the underwriting discount of $252,000 and
estimated offering expenses of $430,000, are estimated to be approximately
$1,838,000 ($2,166,860 if the Over-Allotment Option is exercised in full). The
Company intends to apply the net proceeds as follows:
Amount Percentage
------------ ------------
Purchase of dairy product manufacturing equipment $ 500,000 27.2%
Marketing, sales and distribution activities.... 500,000 27.2%
Plant improvements.............................. 175,000 9.5%
Development of no-return milk containers........ 150,000 8.2%
Development of signature store and
free-standing kiosk in Grand Central Terminal
and improvement of Chelsea Market facility..... 100,000 5.4%
General corporate purposes and working capital.. 413,000 22.5%
------------ ------------
$1,838,000 100.0%
============ ============
Dairy product manufacturing equipment includes holding vats, pasteurizers,
yogurt fillers and a continuous fill freezer for manufacturing ice cream.
Further, the Company intends to expand its dairy plant building in order to
house the additional equipment.
Marketing activities include redesigning packaging of non-fluid products
to better promote the Ronnybrook premium quality image, developing trade
materials, including four-color trade sell sheets and brochures, retail
advertising, including print and other media, and focused public relations
activities.
Sales and distribution activities include hiring additional sales people
for the greater New York metropolitan area and acquiring additional delivery
trucks to distribute products in this region, as well as contracting with dairy
distributors to sell and distribute products in new markets contiguous to the
Company's current markets.
The development of no-return milk containers involves either identifying
existing quart, pint and one-half pint sized containers suitable for use by the
Company and/or designing and manufacturing customized containers in these sizes.
The Company is evaluating containers made of glass, plastic and paperboard. If
the Company identifies existing containers, it would need to design appropriate
labeling which may either be printed on the containers or on a label which may
be affixed to the containers. Designing customized no-return glass or plastic
containers would involve having unit cavities fabricated for initial evaluation
and testing of the designs, having production-ready injection molds fabricated
and tooling production equipment.
The development of a signature store and free-standing kiosk at Grand
Central Terminal involves designing such facilities, including their signage,
and equipping the store. Improvement of the Chelsea Market facility includes
expansion and reconfiguration of the retail sales area as well as the
installation of a freezer.
The Company believes that the estimated net proceeds to be received by the
Company from this Offering will be sufficient to meet the Company's contemplated
cash requirements for a period of at least 12 months following the date
12
<PAGE>
of this Prospectus. Thereafter, if the Company has insufficient funds for its
needs, there can be no assurance that additional funds can be obtained on
acceptable terms, if at all. If necessary funds are not available, the Company's
business would be materially and adversely affected.
The Company's management will retain broad discretion as to the use of
proceeds allocated to general corporate purposes and working capital. Possible
uses for these proceeds include general and administrative expenses, funding of
expenses associated with anticipated growth of the Company's business, salaries
for new employees, and cash reserves for potential cost overruns associated with
(i) plant improvements, (ii) development of no-return milk containers, (iii)
establishment of the signature store and free-standing kiosk in Grand Central
Terminal and (iv) improvements to the Chelsea Market facility. The foregoing
possible uses may be subject to change. The Company's management does not expect
at this time, however, that proceeds allocated to general corporate purposes and
working capital for the uses set forth above will be reallocated to any other
uses.
Pending such uses as are described above, the net proceeds will be
invested in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common
Shares and does not anticipate paying any such dividends in the foreseeable
future. The Company intends to retain future earnings, if any, to fund ongoing
operations and future capital requirements of its business.
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
capitalization of the Company as of March 31, 1998 (i) on an actual basis, (ii)
on a pro forma basis, giving effect to the issuance on June 1, 1998 of 80,000
Common Shares in satisfaction of $400,000 of long term debt and $20,000 of
accrued interest thereon (through March 31, 1998), and a non-cash charge to
interest expense and additional paid-in capital representing the difference
between the conversion price of $5.35 per share and the $7.00 per share price to
the public in this Offering, and (iii) on a pro forma as adjusted basis, giving
effect to the issuance on June 1, 1998 of 80,000 Common Shares in satisfaction
of $400,000 of long term debt and $20,000 of accrued interest thereon (through
March 31, 1998), a non-cash charge to interest expense and additional paid-in
capital representing the difference between the conversion price of $5.35 per
share and the $7.00 per share price to the public in this Offering and the sale
of 360,000 Shares offered hereby at an initial public offering price of $7.00
per Share (after deduction of the underwriting discount and estimated expenses
of the Offering) and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds". This table should be read in conjunction with
the Company's financial statements and the notes thereto, included elsewhere in
this Prospectus.
March 31, 1998
-----------------------------------
Pro Forma
As
Actual Pro Forma(3) Adjusted(3)
--------- ------------ ------------
Current portion of long-term debt (1)... $ 49,747 $ 49,747 $ 49,747
--------- --------- -----------
Long-term debt (less current portion)... $ 611,011 $ 211,011 $ 211,011
--------- --------- -----------
Shareholders' equity (deficiency):
Common Shares, $.001, par value;
10,000,000 shares authorized;
600,000 issued and outstanding,
680,000 issued and outstanding,
pro forma and 1,040,000 issued
and outstanding, pro forma as
adjusted (2)....................... 600 680 1,040
Additional paid-in capital .......... 27,400 171,492 2,009,132
Retained deficit .................... (275,828) -- --
--------- ---------- ----------
Total shareholders' equity
(deficit)..................... (247,828) 172,172 2,010,172
--------- ---------- ----------
Total capitalization..... $ 363,183 $ 383,183 $2,221,183
========= ========== ==========
- - ----------
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and Note 4 to the
Company's Financial Statements.
(2) Does not include (i) 36,000 Common Shares reserved for issuance upon
exercise of the Underwriter's Warrants and (ii) 270,000 Common Shares
reserved for issuance pursuant to the Company's Stock Option Plan of which
150,000 shares are issuable upon the exercise of options granted as of the
effective date of this Offering at exercise prices ranging from the
initial public offering price per Share to 140% thereof. See
"Management - Stock Option Plan" and "Underwriting."
(3) Gives pro forma effect to the Company's change in tax status from a
subchapter "S" to a subchapter "C" corporation immediately prior to the
closing of this Offering. See Note 8 to the Company's Financial
Statements.
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<PAGE>
Recapitalization and Stock Split
On January 1, 1998 the shareholders approved an amendment to the Company's
Certificate of Incorporation increasing the Company's authorized capital stock
to 10,000,000 Common Shares, par value $.001 per share, and reclassifying and
changing each previously outstanding Common Share into 6,000 Common Shares. The
Company's Amended and Restated Certificate of Incorporation, which reflects such
authorized capital stock, will be filed prior to the closing of this Offering.
Unless otherwise indicated, all references to historical earnings per share, and
number and class of shares outstanding, are as adjusted for the aforesaid
recapitalization and stock split of the Company's capital stock.
DILUTION
The net tangible book value (deficit) of the Company as of March 31, 1998,
was approximately $(25,403)(2) or $(.04) per Common Share (after giving pro
forma effect to the Common Shares issued on June 1, 1998 in satisfaction of
certain indebtedness of the Company, as described in footnote (2) below). Net
tangible book value per share is equal to the Company's total tangible assets
less total liabilities, divided by the total number of Common Shares
outstanding. After giving effect to the sale of 360,000 Shares offered hereby at
an initial public offering price of $7.00 per Share (after deducting the
underwriting discount and estimated expenses of this Offering), the pro forma
net tangible book value of the Company as of March 31, 1998 would have been
approximately $2,010,172 or $1.93 per share. This represents an immediate
increase in pro forma net tangible book value of $1.97 per share to existing
shareholders and an immediate dilution of $5.07 per share (72%) to new
investors. Dilution is determined by subtracting (i) pro forma net tangible book
value per share after this Offering from (ii) the amount of cash paid by a new
investor for a Common Share. The following table illustrates this per share
dilution:
Proposed public offering price per Common Share...... $7.00
Net tangible book value per share before
Offering (2).................................... $(.04)
Increase in net tangible book value per share
attributable to new investors................... $1.97
-----
Pro forma net tangible book value per share after
Offering (1)....................................... $1.93
-----
Dilution to new investors............................ $5.07
=====
- - ----------
(1) Does not give effect to the issuance of (i) 270,000 Common Shares reserved
for issuance pursuant to the Company's Stock Option Plan, of which 150,000
shares are issuable upon the exercise of options granted as of the
effective date of this Offering at exercise prices equal to or exceeding
the initial public offering price per share; and (ii) 60,000 Common Shares
issuable upon exercise of the Underwriter's Warrants. See "Management -
Stock Option Plan" and "Underwriting."
(2) Gives pro forma effect to the conversion on June 1, 1998 of $400,000 of
long-term debt and accrued interest of $20,000, (through March 31, 1998)
into 80,000 Common Shares. See Note 9 of the Company's Financial
Statements.
The following table sets forth as of March 31, 1998, the number and
percentage of shares purchased, and the amount and percentage of consideration
paid, by existing shareholders for Common Shares purchased from the Company for
cash and by new investors at the initial public offering price of $7.00 per
share (before deduction of the underwriting discount and estimated offering
expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- ----------------------- Price
Number Percent Amount Percent Per Share
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders (1)(2).. 680,000 65% $ 448,000 15% $0.66
Public Investors (1).......... 360,000 35% 2,520,000 85% $7.00
--------- ---- ---------- ----
Total...................... 1,040,000 100% $2,968,000 100%
========= ==== ========== ====
</TABLE>
- - ----------
(1) Does not give effect to the exercise of the options and warrants described
in footnote (1) to the immediately preceding table.
(2) Gives pro forma effect to the conversion on June 1, 1998 of $400,000 of
long-term debt and accrued interest of $20,000 (through March 31, 1998)
into 80,000 Common Shares. See Note 9 of the Company's Financial
Statements.
14
<PAGE>
SELECTED FINANCIAL DATA
The selected statement of operations data for the years ended December 31,
1997 and 1996, and the balance sheet data as of December 31, 1997 are derived
from the Financial Statements of the Company included elsewhere in this
Prospectus, which have been audited by Arthur Andersen LLP, independent public
accountants. The selected balance sheet data as of December 31, 1996 is derived
from the financial statements of the Company which have been audited by Arthur
Andersen LLP, independent public accountants, but which is not included in this
Prospectus. The selected statement of operations data for the year ended
December 31, 1995, is derived from the Company's unaudited financial statements,
which include all adjustments, consisting of normal recurring adjustments, which
the Company considers necessary for a fair presentation of the results of
operations for the year then ended. The selected statement of operations data
for the three months ended March 31, 1998 and 1997, and the balance sheet data
as of March 31, 1998 are derived from the Company's unaudited financial
statements, which include all adjustments, consisting of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the financial position and results of operations as of and for the periods then
ended. The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1998. The financial data set forth below is qualified
by reference to, and should be read in conjunction with, the Company's Financial
Statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Statements of Operations Data: Years Ended December 31, March 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
(unaudited) (audited) (audited) (unaudited) (unaudited)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales ............................ $ 933,646 $ 838,751 $ 842,734 $ 176,293 $ 202,972
Cost of sales ........................ 589,135 497,354 522,168 127,996 144,832
--------- --------- --------- --------- ---------
Gross Profit ......................... 344,511 341,397 320,566 48,297 58,140
Operating expenses ................... 351,385 400,843 407,956 93,170 110,335
--------- --------- --------- --------- ---------
Operating loss ....................... (6,874) (59,446) (87,390) (44,873) (52,195)
Other income (expense) ............... (8,430) (4,177) (27,782) (2,578) (15,058)
--------- --------- --------- --------- ---------
Loss from continuing operations ...... (15,304) (63,623) (115,172) (47,451) (67,253)
Benefit for income taxes(1) .......... -- -- -- -- --
--------- --------- --------- --------- ---------
Net Loss ............................. $ (15,304) $ (63,623) $(115,172) $ (47,451) $ (67,253)
========= ========= ========= ========= =========
Basic net loss per share (2) ......... $ (0.03) $ (0.11) $ (0.19) $ (0.08) $ (0.11)
========= ========= ========= ========= =========
Weighted average Common
Shares outstanding ................ 600,000 600,000 600,000 600,000 600,000
<CAPTION>
Balance Sheet Data: At December 31,
--------------------------
1996 1997 At March 31, 1998
------------ ----------- ------------------------------------------
(unaudited)
Pro Forma As
Actual Actual Actual Pro Forma (3) Adjusted(3)(4)(5)
------------ ----------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash.............................. $ 1,118 $ 285,581 $ 72,997 $ 72,997 $1,910,997
Working capital (deficit)......... (84,311) 219,550 4,942 24,942 1,862,942
Total assets...................... 216,668 701,455 630,928 630,928 2,468,928
Total debt........................ 122,569 670,705 660,758 260,758 260,758
Total shareholders' equity
(deficit) ...................... (65,403) (180,575) (247,828) 172,172 2,010,172
</TABLE>
- - ----------
(1) Does not give pro forma effect to the Company's change in tax status from
a subchapter "S" to a subchapter "C" corporation immediately prior to the
closing of this Offering as the Company is not entitled to the future
benefit of losses incurred prior to this election.
(2) See Note 2 to the Company's Financial Statements.
(3) Gives pro forma effect to the conversion on June 1, 1998 of $400,000 of
long-term debt and accrued interest of 20,000 (through March 31, 1998)
into 80,000 Common Shares and a non-cash charge to interest expense and
additional paid-in capital representing the difference between the
conversion price of $5.35 per share and the $7.00 per share price
to the public in this Offering. See Note 9 to the Company's Financial
Statements.
(4) Gives effect to the sale of 360,000 Shares offered hereby and the
application of the estimated net proceeds thereof (after deducting the
underwriting discount and estimated expenses of this Offering). See "Use
of Proceeds."
(5) Gives pro forma effect to the Company's change in tax status from a
subchapter "S" to a subchapter "C" corporation immediately prior to the
closing of this Offering. See Note 8 to the Company's Financial
Statements.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto appearing elsewhere in this Prospectus.
In addition to the historical information contained herein, the discussion in
this Prospectus contains certain forward-looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as applicable to all forward-looking statements wherever they
appear in this Prospectus. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section and
in "Risk Factors."
Overview
The Company manufactures and markets premium quality dairy products from
"farm-fresh" raw milk under the Ronnybrook(R) brand name in the New York
metropolitan area, eastern Long Island, northern New Jersey and in Columbia,
Ulster, Rockland and Dutchess counties, New York. The Company's products include
Creamline(R) whole milk and skim milk, heavy cream and half-and-half packaged in
traditional glass bottles, butter, ice cream, yogurt and creme fraiche, and, on
a limited basis, assorted cheeses, including mozzarella, farmer's cheese,
cottage cheese and fromage blanc. During the holiday season, the Company also
produces eggnog. The Company sells its products to (i) more than 150
supermarkets, specialty food stores and gourmet delis, (ii) approximately 50
food service clients, including several of the most highly-rated restaurants in
New York City, (iii) the Culinary Institute of America, and (iv) directly to the
public at outdoor green markets, including the Union Square green market in New
York City, and at the Company's distribution center and retail outlet at Chelsea
Market in New York City.
Revenue on sales of bottled milk and other products is recognized upon
delivery to customers.
Results of Operations
Three months ended March 31, 1998 Compared to
Three months ended March 31, 1997
Net Sales
Net sales for the three months ended March 31, 1998, were $202,972, an
increase of 15.1% over net sales for the three months ended March 31, 1997 of
$176,293. Sales of solid milk products, principally ice cream, yogurt and
butter, increased from a total of $27,049 for the three months ended March 31,
1997, to a total of $69,315 for the three months ended March 31, 1998, an
increase of 156.3%. Partially offsetting this increase, sales of fluid milk
decreased by 9.6%, from $123,295 for the three months ended March 31, 1997 to
$111,430 for the three months ended March 31, 1998. The decrease in fluid milk
sales was a result of the Company's concentrating it efforts on increasing sales
of solid milk products, which have greater profit margins, significantly longer
shelf life and are more cost effective to distribute than fluid milk products.
During 1997, the Company established a warehouse and distribution facility
with an adjacent retail outlet at Chelsea Market in New York City to better
serve its customer base in the New York Metropolitan area. Retail sales at
Chelsea Market totaled $12,992 for the three months ended March 31, 1998. There
were no sales for the comparable 1997 period as the Chelsea Market facility had
not yet commenced its retail operations.
The Company sells its fluid milk products in glass bottles and requires a
deposit of $1.00 per bottle. Deposits for bottles which have not been returned
after a reasonable period are included in sales. Sales from deposits for
unreturned bottles decreased by 57.1% from $24,000 for the three months ended
March 31, 1997, to $10,305 for the three months ended March 31, 1998. The higher
number of unreturned bottles in the first quarter of 1997 reflects the increase
in retail customer outlets during that period, because new customers tend to
keep the first several bottles purchased for use as decorative items.
Gross Profit
Gross profit increased from $48,297 for the three months ended March 31,
1997, to $58,140 for the three months ended March 31, 1998, an increase of
20.4%. As a percent of net sales, gross profit increased from 27.4% for the
three months ended March 31, 1997 to 28.6% for the three months ended March 31,
1998. The increase in gross profit
16
<PAGE>
margin was due principally to the increase in sales of solid milk products and
retail sales to consumers at Chelsea Market offset, in part, by lower sales from
deposits for unreturned bottles and increases in direct labor and overhead.
Operating Expenses
The Company's operating expenses increased 18.4% to $110,335 or 54.4% of
net sales for the three months ended March 31, 1998, from $93,170 or 52.8% of
net sales for the three months ended March 31, 1997. This increase was due
principally to expenses related to the Company's distribution center and retail
outlet at Chelsea Market. Chelsea Market expenses totaled $20,997 for the three
months ended March 31, 1998, compared to $1,054 for the three months ended March
31, 1997 before the facility became fully operational. Also, in the first
quarter 1998, the Company added a salesman, increasing selling costs by $6,344.
These increased expenses were partially offset by a reduction in transportation
expense of $5,931, reflecting a cost saving from operating a distribution center
at Chelsea Market.
Operating Loss
The Company's operating loss increased from $44,873 or 25.5% of net sales
for the three months ended March 31, 1997, to $52,195 or 25.7% of net sales for
the three months ended March 31, 1998. The increased operating loss resulted
from increased operating expenses offset, in part, by increased gross profits.
Other Income (Expenses)
Interest expense increased from $2,578 or 1.5% of net sales for the three
months ended March 31, 1997, to $15,245 or 7.5% of net sales for the three
months ended March 31, 1998. The increase was primarily due to interest on
increased borrowings.
Net Loss
The Company reported a net loss of $47,451 or 26.9% of net sales for the
three months ended March 31, 1997, and a net loss of $67,253 or 33.1% of net
sales for the three months ended March 31, 1998. This increase was primarily due
to the interest on increased borrowings and increased operating expenses offset,
in part, by increased gross profits.
Year ended December 31, 1997 Compared to Year ended December 31, 1996
Net Sales
Net sales for the year ended December 31, 1997 were $842,734, a slight
increase over the net sales for the year ended December 31, 1996 of $838,751.
The mix of products sold shifted as the sale of fluid milk declined from 80.5%
of net sales in 1996 to 70.4% for 1997. The sale of ice cream rose from 2.8% of
net sales in 1996 to 9.7% in 1997. The sale of yogurt also increased from 0.5%
of net sales in 1996 to 3.2% in 1997. This shift in mix is consistent with the
Company's objective to increase its sales of solid milk products, which have
greater profit margins, significantly longer shelf life and are more cost
effective to distribute than its fluid milk products.
Cost of Goods Sold
Cost of goods sold as a percent of net sales increased from 59.3% in 1996
to 62.0% in 1997. Most of the additional costs were incurred in the rental of
additional facilities and hiring of additional labor to increase ice cream
production. In 1996, the Company began to implement its strategy of increasing
sales of higher margin solid milk products. The Company decided to increase its
sales of ice cream as the first of such products. During 1997, the Company was
in transition with regard to its ice cream business, having added the required
facilities and labor, but not yet having achieved the requisite sales volume to
generate the Company's targeted gross profit margin, which contributed to the
Company's increased cost of goods as a percentage of sales for that year.
Operating Expenses
The Company's operating expenses increased from 47.8% of net sales in 1996
to 48.4% of net sales in 1997. Most of the increase was due to increases in
compensation and advertising and promotion expenses related to the Company's
objective to increase its sales of ice cream. Increased compensation was for a
sales person and for a manager at the Company's facility at Chelsea Market in
New York City. Other operating expenses were approximately the same as in the
prior year.
17
<PAGE>
Operating Loss
The Company's operating loss increased from $59,446 or 7.1% of net sales
in 1996, to $87,390 or 10.4% of net sales in 1997. This increase resulted
primarily from the increases in cost of goods sold and operating expenses due to
the Company's investment in additional facilities and staff to support its
efforts to introduce its ice cream line.
Other Income (Expenses)
Other income of $5,479 in 1996 was derived primarily from subletting space
in the Company's rented ice cream production facility. This rental income will
not recur as the Company requires the space for ice cream production. Interest
expense increased from 1.2% of net sales in 1996 to 3.3% of net sales in 1997,
due to additional borrowing principally for working capital.
Net Income (Loss)
The Company reported a net loss of $63,623 or 7.6% of net sales in 1996,
and a net loss of $115,172 or 13.7% of net sales for 1997. This increase was
primarily due to the additional expenses related to the Company's efforts to
introduce its ice cream line.
Liquidity and Capital Resources
As of March 31, 1998, the Company had total liabilities of $878,756 and
total assets of $630,928, resulting in a negative net worth of $247,828. As of
such date, the Company's liabilities included indebtedness of $660,758,
consisting of $611,011 of long term debt and $49,747 representing the current
portion of long term debt. On June 1, 1998, a lender exchanged indebtedness of
$400,000 plus accrued interest thereon of $28,000 through June 1, 1998 (accrued
interest totaled $20,000 as of March 31, 1998) for 80,000 Common Shares. Had
this exchange occurred at March 31, 1998, the total outstanding indebtedness of
the Company at such date would have been $260,758, the Company would have
recorded a non-cash charge to interest expense and additional paid-in capital
(representing the difference between the exchange price of $5.35 per share and
the $7.00 per share price paid by the public in this Offering) and the Company's
net worth would have been $172,172.
Historically, the working capital needs of the Company have been met with
cash flow from operations along with capital and borrowings from the principal
shareholders and others. Net cash used in operations was $16,482 in the three
months ended March 31, 1997, and $75,862 for the three months ended March 31,
1998. Investment in plant and equipment was $19,818 in the three months ended
March 31, 1997, and $7,535 for the three months ended March 31, 1998. Cash flow
from financing activities was $12,464 for the three months ended March 31, 1997.
For the three months ended March 31, 1998, cash flow used in financing
activities was $129,187, primarily reflecting deferred offering costs related to
the planned initial public offering of the Company's Common Shares.
The Company has entered into several agreements which will increase
operating expenses in the future. In January 1998, the Company entered into
employment agreements with each of the Osofsky brothers. The agreement with
Richard Osofsky provides for a base salary at the annual rate of $30,000
commencing on the closing date of this Offering through December 31, 1998,
$75,000 for 1999 and $100,000 for 2000. The employment agreements with R. Sidney
and Ronald Osofsky provide for base salaries at the annual rate of $9,360 prior
to the close of this Offering, $30,000 commencing on the close of this Offering
through December 31, 1998, $75,000 for 1999 and $100,000 for 2000. See
"Management--Employment Agreements." In September 1997, the Company entered into
an Exclusive Output Agreement with the Osofsky Farm, pursuant to which the
Company purchases the raw milk it requires at a base price of $16 per
hundredweight through 1998 (the price paid by the Company in 1995-1997), $18 per
hundredweight in 1999 and $20 per hundredweight for the remainder of the
Agreement's 10-year term and any renewal term. See "Business--Supply of Raw
Milk." In January 1998, the Company entered into a 10-year lease for the
building in which its dairy facility is located, pursuant to which the annual
rent in 1998 is $20,000 and will increase by $15,000 in each of the years 1999
through 2001. The rent paid by the Company in 1995-1997 was $12,000 per annum.
See "Business--Properties." Unless product sales by the Company increase
sufficiently to offset these incremental expenses, the Company's operating
losses will increase, thereby reducing the Company's capital resources.
The Company believes that the net proceeds to be received from this
Offering, will be sufficient to satisfy the Company's contemplated cash
requirements for a period of at least 12 months. See also Notes 1 and 8 to the
Company's Financial Statements.
Although the Company incurred losses from operations for the three years
ended December 31, 1997, since the Company's tax status during those years was
that of a subchapter "S" corporation, the Company is not entitled to the
18
<PAGE>
future tax benefit of such losses. Upon confirmation of the change in the
Company's tax status to that of a subchapter "C" corporation, the Company's
retained deficit will be reclassified to additional paid-in capital.
Year 2000 Compliance
The Company is currently in the process of evaluating its information
technology for the Year 2000 compliance. The Company does not expect that the
cost to modify its information technology infrastructure to be Year 2000
compliant will be material to its financial condition or results of operations.
The Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance.
BUSINESS
Overview
The Company manufactures and markets premium quality dairy products from
"farm-fresh" raw milk under the Ronnybrook(R) brand name in the New York
metropolitan area, eastern Long Island, northern New Jersey and in Columbia,
Ulster, Rockland and Dutchess counties, New York. The Company's products include
Creamline(R) whole milk and skim milk, heavy cream and half-and-half packaged in
traditional glass bottles, butter, ice cream, yogurt and creme fraiche, and, on
a limited basis, assorted cheeses, including mozzarella, farmer's cheese,
cottage cheese and fromage blanc. During the holiday season, the Company also
produces eggnog. The Company sells its products to (i) more than 150
supermarkets, specialty food stores and gourmet delis, (ii) approximately 50
food service clients, including several of the most highly-rated restaurants in
New York City, (iii) the Culinary Institute of America, and (iv) directly to the
public at outdoor green markets, including the Union Square green market in New
York City, and at the Company's distribution center and retail outlet at Chelsea
Market in New York City.
The Company's business is based on management's belief that a growing
appreciation for freshness and concern over the purity and safety of food among
consumers has created a place in the agricultural landscape for local farm
dairies employing production techniques designed to yield high quality, better
tasting products which are distributed "fresh" to market. The Company believes
that Ronnybrook dairy products arrive to consumers in the Company's marketing
area fresher than most other dairy products. The raw milk used in Ronnybrook
products is supplied on an exclusive basis to the Company by Ronnybrook Farms in
Ancramdale, New York, a local dairy farm owned and operated by members of the
Osofsky family since its founding in 1941 (the "Osofsky Farm"). The brothers
"Rick," "Sid" and "Ronny" (the "Osofsky Brothers") are executive officers,
directors and principal shareholders of the Company. See "Management" and
"Principal Shareholders." Most milk and other dairy products commercially
available in the Company's core market and throughout the United States are mass
produced by large regional dairies which purchase raw milk principally from
large farms and distribution cooperatives on a regional basis. The Company
believes that its Ronnybrook products are higher in quality than most other
commercially available dairy products because of the farming techniques used in
producing its raw milk, its small batch production methods and the freshness of
its products when brought to market.
History and Philosophy of the Company
The Company opened its dairy and began manufacturing and selling its
Ronnybrook dairy products made with raw milk from the Osofsky Farm in 1991. The
Company commenced operations at a time when local dairies were being
consolidated into large regional dairies which obtained their milk principally
from large farms and milk cooperatives, often located at considerable distances
from the markets served by these regional dairies. In the past 15 years,
according to the Massachusetts Department of Food and Agricultural, the number
of dairy farms in New York State has halved, from 18,000 in 1983 to 9,000 today
(Newsday, February 9, 1998). As a result of these dairy closures, the Osofsky
Farm, as most dairy farms in New York State do today, sold its raw milk in bulk
to milk distribution cooperatives which then processed it for sale to large
regional dairies. As a result of this consolidation trend, most milk consumed in
the greater New York metropolitan area contains milk produced on farms located
throughout New York State, Pennsylvania and New Jersey. When prices paid for raw
milk by distribution cooperatives declined to levels which threatened the
viability of the Osofsky Farm, the Osofsky Brothers decided to open their own
dairy. They believed that the dairy's success would be driven by consumers'
growing appreciation for freshness and concern over the purity and safety of
food which, in turn, creates an opportunity in the agricultural landscape for
local farm dairies using production techniques designed to yield high quality
products which are distributed "fresh" to market. See "The Premium Quality Dairy
Industry."
19
<PAGE>
The Premium Quality Dairy Industry
Natural Foods. The Company's products are "natural foods." Natural foods
are foods which are minimally processed, free of artificial ingredients,
preservatives and other non-naturally occurring chemicals, and are as near to
their whole, natural state as possible. Retail sales in the natural products
market were estimated by Natural Foods Merchandiser at $11.5 billion in 1996
(including vitamin and mineral supplements, grocery products, produce and health
and beauty aids). The Company believes that this market is sustained by several
factors, including (i) consumer concern over the purity and safety of foods due
to the prevalence of artificial ingredients and other chemicals, (ii) consumer
awareness of the link between diet and health, and (iii) consumer awareness of
environmental issues. Independent research reveals that 62% of all adults are
highly concerned about food content and that 58% of all adults purchased at
least one natural food item in the last year. According to ACNielsen, natural
food consumers are generally better educated and more affluent than average
consumers, as well as brand-loyal. The proliferation of natural food
supermarkets, including Whole Foods and Wild Oats, are helping to fuel industry
growth.
Super Premium Ice Cream Market. The super premium ice cream segment of the
frozen dessert market has shown strong growth in recent years despite diet
conscious consumers. According to figures from the International Ice Cream
Association's Ice Cream Research Project, retail ice cream sales for the year
ended September 27, 1997 rose 7.8% to $2.6 billion and accounted for 83.5% of
the frozen dairy product market. Super premium ice cream showed the strongest
growth among ice cream price segments for the 52 weeks ended October 12, 1997,
with its market share growing to 9.35% of ice cream sales, an increase of 15.9%.
Super premium ice cream is generally characterized by a greater richness
and density than other kinds of ice cream. It has a butter fat content of at
least 16% and a volume which does not exceed the volume of ice cream mix used by
more than 50% ("overrun"). Super premium ice cream is generally sold at retail
for prices ranging from $2.90 to $4.50 per packaged pint. This category of ice
cream was created in 1959 by Haagen-Dazs and later expanded by Ben & Jerry's.
According to available information, Haagen-Dazs had annual sales in 1994
exceeding $900 million with Ben & Jerry's reporting sales in 1996 in excess of
$167 million.
Super premium ice cream is generally marketed by emphasizing quality,
flavor selection, texture and brand image. Other types of ice cream are largely
marketed on the basis of price.
Growth Strategy
The Company believes that Ronnybrook products enjoy a reputation, among
those people who are familiar with its products, for being a high quality
product and arriving to consumers "fresh-off-the-farm." The Company believes
that this reputation has spread principally by word-of-mouth and also as a
result of favorable press coverage, as marketing efforts to date have been very
limited. Pursuant to its proposed marketing plan, the Company will seek to build
upon the reputation of Ronnybrook products and create a strong brand identity,
making its products more widely recognizable.
The Company's initial goal is to increase its sales to specialty food
stores and gourmet deli's, through outdoor green markets, and to restaurants and
other food service customers in the Company's existing markets through
implementation of its marketing plan, and then to extend its distribution to
contiguous markets with high population concentrations, such as the Boston,
Philadelphia and Hartford areas, with a view to becoming the principal supplier
of premium quality dairy products to both consumers and food service customers
in the Northeast. If the Company can successfully implement its growth strategy
in the Northeast, the Company will seek to enter other markets through joint
venture, licensing or other arrangements with local dairy farms which the
Company believes would benefit significantly from selling their raw milk to
newly established local dairies that will produce and sell Ronnybrook(R) brand
milk products in their local markets. The key elements of the Company's growth
strategy to reach its goal include:
o Broaden Customer Base. The Company seeks to broaden its customer
base by offering Ronnybrook fluid milk products for sale in
no-return containers designed to evoke the Ronnybrook signature
glass bottles (which are returnable for a $1.00 refund).
o Increase Sales of Solid Milk Products. The Company seeks to increase
its sales of solid milk products, such as yogurt, ice cream and
cheese, which have greater profit margins, significantly longer
shelf life and are more cost effective to distribute than fluid milk
products.
20
<PAGE>
o Emphasize Local Production and Distribution. The Company's marketing
efforts will emphasize the local production and distribution of
Ronnybrook products, which begins with raising the milking herd on
the Osofsky Farm and results in premium quality products through the
efforts of the Osofsky Brothers.
See "Business--History and Philosophy of the Company," "--Production" and
"--Brand Development and Marketing Strategy." A significant portion of the
proceeds of this Offering will be used to fund the Company's marketing efforts.
See "Use of Proceeds."
Dairy Products
Product Mix. Milk sales account for the Company's single greatest source
of revenue. For the year ended December 31, 1997, approximately 75%+ of the
Company's revenues were derived from the sale of milk packaged in glass bottles.
The following table sets forth the revenues derived from the Company's products
for the year ended December 31, 1997:
Product Percentage of Revenues
------- ----------------------
Fluid milk 75%+
Ice cream 10%
Butter 7%
Yogurt 3%
Eggnog 2%
Creme fraiche 2%
Soft cheeses *
Heavy cream *
- - ----------
+ Includes revenues derived from unreturned glass bottles accounting for
approximately 9% of the Company's revenues in 1997.
* Less than 1%.
Creamline Milk. Ronnybrook Creamline milk is whole milk produced the "old
fashioned" way, pasteurized but not homogenized, so that the cream slowly rises
to the top. Ronnybrook Creamline milk is packaged in quart and one-half liter
sized returnable glass bottles which are sold at retail for an average price of
$1.95 and $1.50, respectively, plus $1 for the bottle.
Skim Milk. Ronnybrook skim milk is simply non-homogenized Creamline milk
with all the cream removed. The Times has described it as "particularly rich
tasting" (July 24, 1991). Ronnybrook skim milk is packaged in quart and one-half
liter sized returnable glass bottles which are sold at retail for an average
price of $1.95 and $1.50, respectively, plus $1 for the bottle.
Chocolate Milk. Ronnybrook chocolate milk has been described by the Times
as the Dom Perignon of chocolate milk and was the only chocolate milk to receive
the highest rating of "excellent" in a Times survey of ready-to-drink chocolate
milk (September 8, 1993). Ronnybrook chocolate milk, the Company believes, is
the only all-natural ready-to-drink chocolate milk available on the market. It
is made with natural cocoa (not processed with alkali), sugar, vanilla and
carrageenan, which is made from seaweed. Ronnybrook chocolate milk is available
as both a whole Creamline and as a skim milk product. It is packaged in quart
and one-half liter sized returnable glass bottles which are sold at retail for
an average price of $3.50 and $1.65, respectively, plus $1 for the bottle.
Coffee Milk. Ronnybrook coffee milk tastes more like melted coffee ice
cream than iced coffee, reports the Times (May 26, 1993). It is made from
decaffeinated Brazilian roast coffee, sucannat (which is an unrefined sugar) and
chicory root extract. It is made both with whole Creamline milk and skim milk.
Ronnybrook coffee milk is packaged in quart and one-half liter sized returnable
glass bottles which are sold at retail for an average price of $3.80 and $2.75,
respectively, plus $1 for the bottle.
Eggnog. During the holiday season, the Company offers for sale Ronnybrook
eggnog, which is made from Ronnybrook Creamline whole milk and other natural
ingredients. It is packaged in quart sized returnable glass bottles which are
sold at retail at prices ranging from $4.00 to $7.00 plus $1 for the bottle.
Heavy Cream. Ronnybrook heavy cream is separated from Ronnybrook Creamline
milk. The fat content of Ronnybrook heavy cream is approximately 43%, while that
of most commercial brands averages approximately
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38-40%. It is packaged in one-half liter sized returnable glass bottles which
are sold at retail at prices ranging from $3.75 to $5.00 plus $1 for the bottle.
Half-And-Half. The Times described Ronnybrook half-and-half, which is made
with a combination of milk and cream with 10 percent butterfat, as having a
"richer fresh cream flavor" than most other brands without containing the
additives contained in many brands (August 2, 1995). Ronnybrook half-and-half is
packaged in one-half liter sized returnable glass bottles which are sold at
retail for an average price of $2.75 plus $1 for the bottle.
Butter. Ronnybrook sweet butter was described by the Times as "very
delicate" (March 1, 1995). In addition to sweet butter, the Company makes
lightly salted butter, garlic butter and honey butter. Numerous top chefs in New
York City purchase Ronnybrook butter because it has a high butterfat content (it
is made from Ronnybrook cream), which, in addition to contributing to its taste,
enables it to be heated to higher temperatures without burning. Ronnybrook
butter is packaged for retail sale in eight ounce tubs which are sold for an
average price of $3.00.
Yogurt. Ronnybrook yogurt is European in style. It is made from whole
Creamline milk and a blend of four imported active yogurt cultures which
contribute to its taste and texture. It is available in plain, vanilla and
vanilla maple flavors. The Company plans to offer a non-fat version of its
yogurt made from Ronnybrook skim milk. Ronnybrook yogurt is packaged in eight
ounce cups which are sold at retail for an average price of $1.25.
Creme Fraiche. Ronnybrook creme fraiche is made with cultured Ronnybrook
heavy cream. It is similar to sour cream in both appearance and texture. It is
packaged in eight ounce containers which are sold at retail at prices ranging
from $3.00 to $4.00.
Assorted Cheeses. The Company currently produces, on a limited basis, soft
cheeses including mozzarella cheese, farmer's cheese, and cottage cheese. After
completion of this Offering and the application of a portion of the proceeds to
purchase certain dairy manufacturing equipment, the Company plans to increase
production of its soft cheeses.
Super Premium Ice Cream. Super premium ice cream is generally
characterized by a greater richness and density than other kinds of ice cream
with a butter fat content of at least 16% and overrun no greater than 50%.
Ronnybrook super premium ice cream has a butterfat content ranging from 16% to
18% and overrun of 40%. Each flavor is made separately from scratch and not from
a vanilla base like most other ice creams and has a butterfat content tailored
to produce a better tasting product. Ronnybrook ice cream was selected by the
New York Press as the best ice cream available in New York City in its 1997
"Best of Manhattan" issue. The "regular" flavors listed below are always
available, while feature flavors, often made with seasonal ingredients, are
available on a limited basis. The Company regularly introduces new flavors.
Ronnybrook ice cream is packaged in pint sized containers which are sold at
retail for prices ranging from $2.90 to $5.50.
Regular Flavors Feature Flavors
- - ---------------------------- ------------------------------------------------
Hudson Valley Vanilla Butter Pecan Millbrook Mocha
Columbia County Coffee Chocolate Raspberry Truffle Peach Melba
Coconut Crunch Coconut Mint Chocolate Chip Pumpkin Creme Brulee
Lola's Mint Chocolate Lace Eggnog Rum Raisin
Ronnyberry Ginger Creme Brulee Toasted Hazelnut Crunch
Sid's Chocolate Silk Ginger Snap Vanilla Chocolate Chip
Raspberry Honeydew Melon Vanilla Chocolate Lace
Butterscotch Pistachio
Sweet Cream Strawberry
Anticipated Low Fat Products. The Company anticipates, as part of its new
product development, to introduce low fat varieties of many of its dairy
products, including low fat mozzarella cheese, low fat ice cream and non fat
yogurt, during 1998.
Customers
The Company currently sells Ronnybrook dairy products throughout a
north/south corridor extending from Columbia County, New York in the north to
New York City in the south and from the New York/Connecticut border in the east
to Ulster and Rockland Counties in the west. The Company also sells its products
on eastern Long Island and in northern New Jersey. About 40% of its sales are
within 40 miles of the dairy and another 40% are in New York City.
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The remaining sales are distributed almost equally throughout the balance of
this market area. The Company sells its products to (i) more than 150 different
supermarkets, specialty food stores and gourmet deli's; (ii) approximately 50
food service clients, including several of the most highly-rated restaurants in
New York City; (iii) the Culinary Institute of America, and (iv) directly to the
public at outdoor green markets, including the Union Square green market in New
York City, and at the Company's distribution center and retail outlet at Chelsea
Market in New York City. Approximately 70% of the Company's product sales are
based on standing orders from retail outlets and food service clients. These
customers are generally contacted by the dairy on a weekly basis to confirm the
content and timing of their orders.
During 1997, product sales made directly to consumers at the Union Square
green market and Chelsea Market, both in New York City, accounted for
approximately 20% and 8% of the Company's revenues, respectively. The balance of
product sales during this period were made to retail outlets and food service
clients. During such period, no customer accounted for 5% or more of the
Company's revenues from product sales.
Production
All aspects of production of Ronnybrook products, from raising the dairy
herd to crafting the finished products, are based on traditional practices
designed to yield premium quality, wholesome and superior tasting foods.
Cattle Raising. Ronnybrook dairy products begin with the raw milk supplied
by the Osofsky Farm's herd of award winning Holsteins. The farming techniques
used on the Osofsky Farm and the care given to the milking herd, the Company
believes, contribute to the quality and taste of Ronnybrook milk. Ronny Osofsky
manages the Osofsky Farm. To promote their healthy development, Ronny keeps the
cows out-of-doors for as many hours during the day as possible, allowing them to
roam free and graze upon the farm's pastures. Cows at many commercial dairies,
in contrast, spend their entire lives standing on concrete floors. The cows are
brought indoors overnight and for milking and feeding. Indoors, they are kept in
separate "comfort" stalls and receive individual attention. Most larger farms
house cows in group stalls. While in their stalls, each cow is fed a total mix
ration, comprised of chopped corn, chopped grass and ear corn, with an
individually tailored top dress including natural sources of minerals and
proteins. The cows are also fed freshly baled hay which the cows use in the
production of cud, essential for the healthy functioning of a cow's digestive
tract. Many larger farms no longer feed their cows baled hay. The cows, in
addition, are regularly groomed and rubbed down to maintain their health and
comfort. The cows, further, produce their milk naturally, without the aid of
production enhancing hormones or chemicals. When cows are ill and being treated
with antibiotics, they are removed from the milking herd and their milk is not
utilized. Only when a cow has fully recovered and all antibiotics have been
flushed from its system, is the cow re-introduced into the herd.
The Company anticipates that the supply of raw milk from the Osofsky Farm
will not be sufficient to meet anticipated increased demand for Ronnybrook dairy
products resulting from its marketing, sales and distribution efforts. See
"Brand Development and Marketing Strategy" and "Sales and Distribution." To meet
this demand, the Company has signed non-binding letters of intent with two
neighboring family farms, which contemplate that the Company will be able to
acquire the milk output of these farms. The letters contemplate, further, that
the farms, if necessary to insure quality, will adjust their production
techniques to conform to those employed by the Osofsky Farm. The Company
anticipates that all raw milk to be used by the dairy as it grows will be
produced by small, local, family run farms which employ traditional farming
techniques similar to those used on the Osofsky Farm. The Company believes that
the milk to be obtained from these family farms is of similar quality to that
produced on the Osofsky Farm and will not adversely effect the quality of
Ronnybrook products. See "Risk Factors - Impact of Growth on Quality of Dairy
Products." See also "Business - Supply of Raw Milk" and "Risk Factors--Supply
of Raw Milk."
Milk Processing. The Company believes that through purchasing raw milk
locally and employing minimal processing techniques, it is able to preserve the
fresh taste of milk. The Company's dairy processes raw milk from the Osofsky
Farm within 24 to 36 hours after milking. Most large regional dairies, the
Company believes, process raw milk which is three to four days old. Milk
processed by conventional farms for sale to regional dairies is typically stored
at the farm for a minimum of two days, commonly spends a full day in transit to
the dairy facility, and is only processed the following day. Ronnybrook
Creamline milk is not homogenized. During homogenization, pressurized milk is
forced through openings smaller than the size of the fat globules present in
milk, breaking them into smaller
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particles. Thus treated, the milk fat remains suspended and does not separate
out in the form of cream. The Company believes that this process adversely
affects the taste and feel of milk. In addition, Ronnybrook milk is pasteurized
at the lowest temperatures allowed by law to avoid imparting to the milk a
cooked flavor. When the milk is clarified and the butterfat removed to yield
cream and skim milk, a process of cold separation is used, rather than the more
commonly employed hot separation which the Company believes adversely affects
the flavor of the milk.
Dairy Product Processing. Ronnybrook products are made in small batches
using minimal processing techniques to maintain freshness and allow maximum
flavor and nutrition retention. They are made with wholesome ingredients, many
of which are produced on the Osofsky Farm. No chemicals or additives are
employed. Because they are produced locally, Ronnybrook dairy products arrive to
consumers in the Company's marketing area sooner after production than most
other dairy products. See "Risk Factors--Limited Delivery Capacity; Delays in
Delivery of Products." To assure product quality, the beginning of each
production run is sampled for flavor, aroma, texture and appearance. In
addition, New York State conducts unannounced monthly spot-checks for bacteria
and butterfat content in the Company's products, as well as sanitary conditions
in the Company's dairy. See "--Government Regulation." The Company, further, on
a bi-weekly basis, conducts similar tests.
Facilities. All of the equipment used in the Company's dairy plant is
standard dairy equipment and can be adapted to produce most dairy products. Milk
processing involves two principal pieces of equipment (i) a separator, which is
used for both clarifying whole raw milk and for separating out cream and (ii) a
pasteurizer, which heats the milk to kill bacteria. With the exception of ice
cream, the Company's products are manufactured in the Company's dairy facility.
The Company manufactures ice cream mix in its dairy, but it is frozen and
finished at a rented off-site facility operated by the Company located 10 miles
from the dairy. After completion of this Offering, the Company intends to
purchase a continuous fill freezer for manufacturing ice cream which it will
locate at its dairy facility and discontinue the rental of the off-site ice
cream facility. See "Business--Property." The Company's dairy currently
processes approximately 15,000 pounds of raw milk per week. The Company believes
that it currently has the capacity, based on an assumed mix of products, to
manufacture dairy products at a rate which would utilize 80,000 pounds of raw
milk per week. The Company believes that purchasing additional milk processing
equipment, including a second pasteurizing unit with greater capacity, a milk
filler, additional holding vats, yogurt filling machines, and a continuous fill
freezer for manufacturing ice cream on site, should increase its capacity to
manufacture products to a rate which utilizes approximately 250,000 pounds of
raw milk per week. The Company intends to purchase this equipment with the
proceeds of this Offering. See "Risk Factors--Limitation in Production Capacity"
and "Use of Proceeds."
Development of No-Return Milk Containers. The development of no-return
milk containers, to complement the Company's line of traditional glass bottles,
involves either identifying existing quart, pint and one-half pint sized
containers suitable for use by the Company and/or designing and manufacturing
customized containers in these sizes. The Company is evaluating containers made
of glass, plastic and paperboard. If the Company identifies existing containers,
it would need to design appropriate labeling which may either be printed on the
containers or on a label which may be affixed to the containers. Designing
customized no-return glass or plastic containers would involve having unit
cavities fabricated for initial evaluation and testing of the designs, having
production-ready injection molds fabricated and tooling production equipment.
See "--Brand Development and Marketing."
Supply of Raw Milk
The raw milk used in Ronnybrook products is supplied exclusively to the
Company by the Osofsky Farm pursuant to an Exclusive Output Agreement. Pursuant
to the Agreement, the Company purchases the raw milk it requires from the
Osofsky Farm at a base price of $16 per hundredweight in 1997 and 1998, $18 per
hundredweight in 1999 and $20 per hundredweight for the remainder of the
Agreement term and any renewal term. In addition, the price paid for raw milk is
adjusted monthly, but never below the applicable base price, to reflect
increases in the monthly blend price for raw milk established by the Federal
milk order which fixes minimum prices paid by producers to dairy farmers for raw
milk. The Agreement is not assignable by the Osofsky Farm without the prior
written consent of the Company and the Company has the right of first refusal to
purchase the Farm's Assets (defined therein) prior to any sale to a third party.
Under the Agreement, the Company also has the right to approve the farming,
herding and milking techniques employed by the Osofsky Farm in order to insure
the quality of raw milk. The Agreement is for a term of 10 years and is
renewable, at the option of the Company, for two additional 10-year terms. The
Company
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believes that the terms of the Agreement are no less favorable than those that
could be obtained from unaffiliated parties. See "Certain Transactions."
The Company currently purchases raw milk from the Osofsky Farm at an
annual rate of approximately 800,000 pounds. The Osofsky Farm can more than
double production of raw milk to an annual rate of approximately 1.75 million
pounds. The Company recognizes, however, that this supply will not be sufficient
to meet the level of increased demand which the Company anticipates will develop
for its products as a result of its proposed marketing efforts. The Company has
signed letters of intent with two neighboring family farms which contemplate
that the Company will be able to acquire the milk output of these farms, which
is approximately 5,000,000 pounds a year. These farms currently employ
traditional production techniques similar to those used by the Osofsky Farm and
the letters of intent contemplate that the farms, if necessary to insure
quality, will modify their production techniques to conform to those employed by
the Osofsky Farm. The Osofsky Farm is located in Columbia county on the
Columbia/Dutchess county border. The Company's dairy facility is located in
Columbia county on land contiguous to the Osofsky Farm. The two neighboring
farms with which the Company has signed letters of intent are located in
Columbia and Dutchess counties, respectively, one within a five minute drive of
the Company's dairy and the other within a 15 minute drive. See "Production--
Raw Milk." The Company is also speaking with other local farms in an effort to
source additional raw milk as it is needed. See "Risk Factors--Supply of Raw
Milk."
Brand Development and Marketing
Brand Identity. The Company believes that Ronnybrook products enjoy a
reputation, among people who are familiar with its products, for being a high
quality product and arriving to consumers "fresh-off-the-farm." The Company
believes that this reputation has spread principally by word-of-mouth and also
as a result of favorable press coverage, as marketing efforts to date have been
very limited. The Company's proposed marketing plan is designed to build upon
the reputation of Ronnybrook products, strengthen their brand identity and make
Ronnybrook products more widely available to customers.
The Company's marketing will emphasize the local production and
distribution of Ronnybrook products, which begins with the dairy herd on the
Osofsky Farm and results in premium quality products through the efforts of the
Osofsky Brothers (the "Ronnybrook Story"). See "History and Philosophy of the
Company" and "Production." The Company believes that the Ronnybrook Story adds
legitimacy to its marketing claim that it produces farm fresh products and helps
to instill confidence in consumers as to the purity and wholesomeness of
Ronnybrook products.
The Company has sought to convey the Ronnybrook Story primarily through
the packaging it uses for its products. The Company believes that packaging its
fluid products in old-fashioned glass bottles has helped to identify Ronnybrook
products in the eyes of consumers as being of premium quality. Further, text on
packaging describes the Ronnybrook Story. Ronnybrook products have also received
marketing benefits from a considerable volume of favorable press in the Times
and other publications of mass circulation, including Gourmet Magazine and two
New York City oriented weekly events guides which have rated Ronnybrook products
highly. See "Products."
The Company's marketing and promotional efforts will include:
o Redesigning packaging of non-fluid products to promote a premium
quality image.
o Refining and targeting the Company's message, which to date has
largely been the product of word of mouth and product reviews.
o Developing trade material, including four-color trade sell sheets
and brochures.
o Further distinguishing Ronnybrook products from other dairy
products.
o Commencing retail advertising, including print advertising and
focused public relations.
In addition, for the purpose of building brand recognition, the Company
anticipates opening in the summer of 1998 a signature store and free-standing
ice cream kiosk in a food court being developed in Grand Central Terminal in New
York City. The store will seek to convey the Ronnybrook Story through mounted
photographs of the Osofsky Brothers and the Osofsky Farm, as well as through
informative text. Over 500,000 people pass through Grand Central Terminal every
day. The Company has received proposed lease terms and a draft lease for these
premises and will attempt to finalize a commitment subject to the completion of
this Offering.
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Broaden Customer Base through Introduction of No-Return Containers for
Fluid Products. The Company is developing design specifications and prospective
sources for no-return containers in quart, pint, and one-half pint sizes as
alternate packaging for its fluid products to complement its line of returnable
glass bottles. The Company believes that it can broaden the customer base for
and increase sales of its fluid products by offering them for sale in
non-returnable containers. Increased sales of fluid products should also result
in higher incremental sales of its solid milk products, as most customers who
purchase milk purchase other Ronnybrook products as well. See "--Focus Marketing
on Value Added Products." The Company believes that offering its fluid products
exclusively in returnable glass bottles has limited its market penetration in
its current markets and creates barriers to entry in new markets. The Company
has experienced that many consumers do not buy the Company's fluid products
because they do not want to pay $1.00 for the bottle or have the inconvenience
of returning the bottle for a $1.00 refund. Further, it has been the Company's
experience that many stores will not carry its fluid products because they do
not want the inconvenience of collecting and storing returned bottles. The
Company estimates that the introduction of no-return containers will result in
increased product sales in retail stores which currently sell Ronnybrook
products as well as an increase in the number of retail stores which carry
Ronnybrook products. Further, the Company believes that the introduction of
one-half pint single serving sized containers will increase its sales of
chocolate and coffee flavored milk. See "Risk Factors--Introduction of
No-Return Containers."
Focus Marketing on Value Added Products. The Company plans to focus its
marketing and sales efforts on its solid milk products, such as ice cream,
yogurt and cheese. The modest incremental processing required for these products
adds significant resale value above that of fluid products and, accordingly,
provides greater profit margins. Such non-fluid products also have significantly
longer shelf life and are more cost effective to distribute than bottled milk.
Sales and Distribution
Ronny Osofsky is the Company's principal sales person and has established
most of the relationships with the Company's retail store and food service
clients. See "Risk Factors--Limited Sales Force." The Company also meets
prospective food service clients at its New York City distribution center at
Chelsea Market, which features a pedestrian shopping concourse frequented by
retail and wholesale food buyers. See "Property." The Company believes that
tenants at Chelsea Market serve over 600 restaurants, hotels and stores. The
Company delivers Ronnybrook products using three delivery trucks which it owns.
The Company delivers Ronnybrook products in Columbia, Dutchess, Ulster, Rockland
and Westchester counties, New York and northern New Jersey from the dairy in
Ancramdale, New York and in New York City and Long Island from Chelsea Market.
Increase Sales and Distribution Capacity in New York Metropolitan Area.
The Company intends to hire additional sales personnel and purchase additional
delivery trucks to increase sales of Ronnybrook products in the New York
metropolitan area. See "Use of Proceeds."
Engage Dairy Distributors in New Markets. The Company intends to contract
with food product distributors to sell and deliver Ronnybrook products in
markets contiguous to its current markets, including the Boston, Philadelphia
and Hartford areas. The Boston and Hartford areas are each under a three hours'
drive from the Company's dairy and the drive to the Philadelphia area is under
five hours.
Establish Additional Local Dairies. The Company's initial goal is to
become the principal supplier of premium quality dairy products to both
consumers and food service customers in the Northeast. If the Company achieves
this goal, it will look to enter new, densely populated markets -- probably
initially in the Midwest--by establishing local dairies which will purchase raw
milk from local dairy farms. The Company will seek to enter these markets
through joint venture, licensing or other arrangements with local dairy farms
which have experienced the same economic pressures as the Osofsky Farm and,
therefore, can benefit by adopting the Company's approach of producing and
marketing premium branded milk products directly to local markets. In order to
insure the quality of the raw milk it purchases, the Company, as a condition of
entering into a supply contract with a dairy farm, would require that the
farming methods used conform to those employed by the Osofsky Farm. See
"Production." The Company believes that these arrangements will be very
attractive to dairy farms because the Company believes that it will be in a
position to pay more for raw milk than large regional dairies or dairy
cooperatives because of the premium pricing received for Ronnybrook products.
See "Government Regulation."
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Competition
General. The food business is highly competitive and, therefore, the
Company faces substantial competition in connection with the marketing and sale
of its products. The Company's products are positioned as premium products and,
accordingly, are generally priced higher than certain similar competitive
products. The Company believes that the principal competitive factors in
marketing its products are quality, taste, freshness, price and product
recognition. While the Company believes that it competes favorably in terms of
quality, taste and freshness, its products are more expensive and less well
known than other brands. The Company's premium products may be considered in
competition with non-premium quality dairy products for discretionary food
dollars. See "Risk Factors--Competition."
Fluid Dairy Products. Due to the perishability concerns and costs
associated with transporting fresh milk, competition in the dairy business with
respect to fluid products tends to be regional rather than national, with strong
brand identity, price, freshness and quality as the primary competitive factors.
The Company competes primarily on the basis of quality, taste and freshness. It
faces competition from non-premium milk producers distributing milk in the
Company's marketing area; other milk producers packaging their milk in glass
bottles, including Meadowbrook, Chrone Dairy and Juniper Farms, which serve
portions of the Company's marketing area; and certified organic milk producers,
including the Organic Cow, based in Vermont, and Horizon Organic Dairy, a
national purveyor of organic milk and other dairy products.
Super premium ice cream. The super-premium ice cream market is highly
competitive and the Company faces substantial competition in connection with the
marketing and sales of its Ronnybrook ice cream. Among its competitors are
Haagen-Dazs, owned by the Pillsbury Company, Ben & Jerry's and numerous regional
ice cream companies. Many of these competitors are well established and have
substantially greater financial and other resources than the Company.
Achieving wide distribution in the ice cream business is difficult due to
the substantial expense of a marketing program and the limitations on available
space in the freezer compartments of retailers. The Company's ice cream may be
considered in competition with all ice cream and other frozen desserts for
discretionary food dollars.
Yogurt. Ronnybrook yogurt faces competition from Stonyfield Farms, Brown
Cow and Horizon Dairy, among other brands.
Government Regulation
The Company is extensively regulated under both federal and state law. The
following information summarizes certain aspects of those regulations applicable
to the Company and is qualified in its entirety by reference to all particular
statutory or regulatory provisions.
Regulation at the federal, state and local levels is subject to change. To
date, compliance with governmental regulations has not had a material impact on
the Company's level of capital expenditures, earnings or competitive position,
but, because of the evolving nature of such regulations, management is unable to
predict the impact such regulation may have in the foreseeable future.
Public Health. As a manufacturer and distributor of food products, the
Company is subject to the Federal Food, Drug and Cosmetic Act and regulations
promulgated thereunder by the FDA. This comprehensive regulatory scheme governs
the manufacture (including composition and ingredients), labeling, packaging and
safety of food. The FDA regulates manufacturing practices, including quality
assurance programs, for foods through its current good manufacturing practices
regulations, specifies the standards of identity for certain foods, including
many of the products sold by the Company, prescribes the format and content of
certain nutrition information required to appear on food product labels and
approves and regulates claims of health benefits of food products.
In addition, the FDA enforces the Public Health Service Act and
regulations issued thereunder, which authorize regulatory activity necessary to
prevent the introduction, transmission or spread of communicable diseases. These
regulations require, for example, pasteurization of milk and milk products. The
Company and its products are also subject to state and local regulation through
such measures as the licensing of dairy manufacturing facilities,
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enforcement by state and local health agencies of state standards for the
Company's products, inspection of the Company's facilities and regulation of the
Company's trade practices in connection with the sale of dairy products.
Employee Safety Regulations. The Company is subject to certain health and
safety regulations, including regulations issued pursuant to the Occupational
Safety and Health Act. These regulations require the Company to comply with
certain manufacturing, health and safety standards.
Environmental Regulations. The Company is subject to certain federal,
state and local environmental regulations. These laws include, but are not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act,
as amended; the Federal Water Pollution Control Act, as amended; the Toxic
Substances control Act; the Clear Air Act; the Safe Drinking Water Act; the Oil
Pollution Act of 1990; the Occupational Safety and Health Act of 1970, as
amended; and their state and local counterparts and equivalents.
The Company maintains above-ground or underground petroleum storage tanks
at its dairy facility. These tanks are periodically inspected to determine
compliance with applicable regulations. The Company may be required to make
expenditures from time to time in order to remain in compliance with such
regulations. No such expenditure is expected to be material.
U.S. Dairy Support Program. The minimum price paid to farmers for milk in
the United States is established by federal milk marketing orders promulgated
under the Agriculture Marketing and Agreement Act of 1937. Under these marketing
orders, a Market Administrator fixes minimum prices for milk based on how it is
used. Each month the Market Administrator reviews the books of all processors
and ensures that farmers receive minimum prices. However, dairies often pay more
than the minimum price. Congress has recently passed legislation designed to
phase out support prices over a specified period.
Under the federal milk price support program, based on how raw milk is
used by a dairy, whether for the production of fluid or non-fluid milk products,
minimum pricing is enforced, in part, through the remittance or receipt by
non-farm dairies of "equalization" payments to or from a fund (the "pool fund")
administered by the Market Administrator. As a farm-dairy, the Company has not
been subject to these federal minimum price regulations and has not been
required to make payments to the pool fund. Once the Company is unable to
satisfy its raw milk requirements from the Osofsky Farm and commences purchasing
milk from other local dairy farms, the Company's status under these regulations
may change so that the Company may become subject to minimum pricing and may be
required to remit (or be entitled to receive) equalization payments from the
pool fund. The prices the Company currently pays the Osofsky Farm for raw milk
are higher than those set forth in the applicable federal milk marketing order
fixing minimum raw milk prices. The Company anticipates that the prices for raw
milk that it will pay to farms from which it may purchase raw milk in the future
to meet its anticipated supply requirements will also be higher than those set
forth in any applicable federal milk marketing order. Had the Company been
subject to these federal minimum price regulations in 1996 and 1997, the
Company's equalization payment obligation to the pool fund would have been
approximately $7,000 per annum. See "Risk Factors--Possible Volatility of Raw
Milk Costs."
Insurance
The Company maintains $290,000 of property insurance to cover the
Company's Dairy and Chelsea Market Facility. See "Business--Properties." The
Company currently maintains liability insurance in the amount of $1,000,000 per
occurrence and $2,000,000 in the aggregate for any year and an umbrella policy
in the amount of $1,000,000 per occurrence and $1,000,000 in the aggregate for
any year over and above the base liability coverage. The Company intends to
increase its umbrella policy coverage to $10,000,000 per occurrence and
$10,000,000 in the aggregate for any year. The cost associated with this
increased coverage is anticipated to be $7,750 per year. There can be no
assurance that such insurance will be sufficient to cover potential claims or
that the present level of coverage maintained by the Company will be available
in the future at a reasonable cost. See "Risk Factors--Potential Product
Liability."
Trademarks
The Company has obtained trademark registrations for the use of its oval
logo with respect to its white milk, chocolate milk and yogurt and for the use
of "Creamline" with respect to its non-homogenized milk. The Company
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has applied to the United States Patent and Trademark Office to expand the
coverage of the trademark relating to its logo to cover its use with respect to
the Company's other products. See "Risk Factors -- Limited Trademark
Protection."
Employees
As of March 31, 1998, the Company employed 11 people on a full-time basis,
two of whom are in management positions, and 20 people on a part-time basis. Of
the Company's full time employees, three work in production, two work in the
Company's executive offices, two load trucks and deliver products, one manages
the Company's facility at Chelsea Market and one manages the Company's sales
activities at green markets. Of the Company's part-time employees, 11 work in
production, one works in the Company's executive offices, two load trucks and
deliver products, three are retail clerks at Chelsea Market and three assist in
the Company's sales activities at green markets. None of the Company's employees
is covered by a collective bargaining agreement. The Company believes its
relationship with its employees is good.
Properties
The Company's dairy facility and executive offices occupy approximately
1,200 square feet in a cinderblock building located on property contiguous to
the Osofsky Farm, Prospect Hill Road, Ancramdale, New York 12503. The Company
leases the building from Prospect Hill Associates, a partnership among the
Osofsky Brothers and their cousin, Joel Osofsky, for an initial term expiring
December 31, 2008 at a current annual rent of $20,000. Pursuant to the terms of
the lease, the annual rent for the facility increases $15,000 per year during
the years 1999 through 2001. The lease is renewable, at the option of the
Company, for two additional 10-year terms at an annual rent of $65,000. The
Company also leases a 1,200 square foot facility in Amenia, New York,
approximately 10 miles from the Company's dairy, and uses 800 square feet of
such facility for freezing and packaging its ice cream. The lease is for a term
expiring August 1998 at a current annual rent, which includes the use by the
Company of ice cream freezing equipment, of $20,400. The Company also leases a
2,400 square foot distribution and retail facility at Chelsea Market, 88 Ninth
Avenue in New York City. The lease for this facility is for a term expiring
September 14, 2016 at a current annual rent of $13,680. The rent will increase
periodically through September 15, 2011, at which time the annual rent will
equal $47,979.
The Company intends to use part of the proceeds of this Offering to expand
its dairy facility to house additional dairy processing equipment. The Company
also intends to purchase a continuous fill freezer for manufacturing ice cream
which it will locate at its dairy facility and discontinue the rental of the ice
cream facility in Amenia, New York. See "Use of Proceeds" and "Business -
Production."
Legal Proceedings
The Company is not involved in any pending or threatened legal proceedings
that could have a material impact on the Company's financial statements.
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MANAGEMENT
Directors and Executive Officers
The Company's executive officers and directors, and their ages as of
June 1, 1998, are as follows:
Name Age Position
---- --- --------
Richard A. Osofsky ..... 53 President, Chief Executive Officer, Chief
Financial Officer and Director
R. Sidney Osofsky ...... 52 Vice President - Production, Chief
Operating Officer, Treasurer and Director
Ronald N. Osofsky ...... 56 Vice President - Sales and Distribution,
Secretary and Director
Kenneth W. Rothstein* .. 43 Vice President - Marketing
- - ----------
* Mr. Rothstein, the brother of Steven A. Rothstein, Chairman of the
Underwriter, will take office upon the closing of this Offering or,
at his election, within 30 days thereafter.
Richard A. Osofsky (Rick), a co-founder of the Company, was elected
President, Chief Executive Officer, Chief Financial Officer and a director on
January 1, 1998. For more than five years prior thereto, while devoting time to
the business and affairs of the Company, Rick practiced law and maintained law
offices in Pine Plains, New York, approximately three miles from the Osofsky
Farm and the Company's dairy. Rick has been involved in all aspects of the
Osofsky Farm for over 25 years and the Company's business since its inception.
He is a graduate of Wesleyan University and New York University School of Law.
Upon the closing of this Offering, Rick will devote his full time to the
Company's business.
R. Sidney Osofsky (Sid), a co-founder of the Company, has devoted his full
time to the Company since its inception. On January 1, 1998, Sid was elected
Vice President - Production, Chief Operating Officer, Treasurer and a director.
Sid is principally responsible for plant operations and new product development.
He is a graduate of Tufts University and has a Masters in Business
Administration from New York University.
Ronald N. Osofsky (Ronny), a co-founder of the Company, has divided his
time between the Company, since its inception, and managing the Osofsky Farm. On
January 1, 1998, Ronny was elected Vice President - Sales and Distribution,
Secretary and a director of the Company. Ronny is the Company's sole salesperson
and has forged most of the relationships with the Company's retail store and
food service clients. Ronny has managed the Osofsky Farm since 1962 and has
raised and marketed some of the most highly regarded Holstein dairy cows in the
dairy industry. Ronny will continue to divide his time after the completion of
this Offering between the Osofsky Farm and the Company. Ronny is a graduate of
the University of Rhode Island School of Agriculture.
Kenneth W. Rothstein will become Vice President - Marketing of the Company
upon the closing of this Offering or, at his election, within 30 days
thereafter. From 1991 until January 1997, Mr. Rothstein was Director of
Marketing for Shorewood Packaging Corporation, a designer and manufacturer of
paperboard packaging for consumer goods. Since leaving Shorewood, Mr. Rothstein
has acted as a marketing consultant to the Company.
Edward D. Anna has been elected to the Board of Directors, to take office
immediately following the completion of this Offering and the exercise or lapse
of the Over-Allotment Option. Upon taking office, Mr. Anna will serve as an
additional member of the Audit and Compensation Committees. Since 1989, Mr. Anna
has been a consultant for DDM Consultants, where he provides business
development services to, among other clients, agricultural communities seeking
to develop agricultural/tourism using value added food manufacturing as a tool
for economic development. Since 1996, Mr. Anna has been the Interim Executive
Director of the Cornell Cooperative Extension, an educational institution
focusing on community development and, in this capacity, has worked closely with
the Hudson Valley agricultural community. Mr. Anna is 58 years old.
Steven H. Adler has been elected to the Board of Directors, to take office
immediately following the completion of this Offering and the exercise or lapse
of the Over-Allotment Option. Upon taking office, Mr. Adler will serve as an
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additional member of the Audit and Compensation Committees. Mr. Adler has been
the president and founder of Vector Index Advisors, Inc., a company that manages
an equity mutual fund, for more than the past five years. He is a member of the
American Society of Pension Actuaries and holds the designations of Certified
Pension Consultant and Certified Investment Management Analyst. Mr. Adler is 60
years old.
All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Officers are elected
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed.
Committees of the Board of Directors
Following the completion of this Offering, the Company's Board of
Directors will appoint an Audit Committee to be comprised of Messrs. Anna and
Adler and R, Sidney Osofsky. The Audit Committee will recommend to the Board of
Directors the appointment of independent auditors, review and approve the scope
of the annual audit of the Company's financial statement reviews and approve any
non-audit services performed by the independent auditors and periodically review
and approve major accounting policies and significant internal accounting
control procedures.
Following the completion of this Offering, the Company's Board of
Directors will appoint a Compensation Committee to be comprised of Messrs. Anna
and Adler and Ronald N. Osofsky. The Compensation Committee will review and
recommend to the Board of Directors compensation arrangements for officers and
directors, administer stock option plans and review major personnel matters.
Director Compensation
Independent directors will be granted five-year options to purchase 7,500
Common Shares exercisable ratably over three years. The per share exercise price
of such options will be equal to the fair market value of a Common Share on the
date of grant.
Executive Compensation
No executive officer of the Company earned more than $100,000 in
compensation during the last completed fiscal year. The following table
summarizes the compensation earned for the years ended December 31, 1995, 1996
and 1997 by the Company's then President for services rendered in all capacities
to the Company.
Summary Compensation Table
Name and
Principal Position Year Annual Compensation
------------------ ---- -------------------
Other
Annual
Salary ($) Bonus ($) Compensation
----------- ----------- -------------
Ronald N. Osofsky* ...... 1997 $10,400 0 0
1996 $10,400 0 0
1995 $10,400 0 0
- - ----------
* On January 1, 1998, Ronald Osofsky stepped down as President of the
Company and became its Vice President-Sales and Distribution, and
Richard Osofsky was elected the Company's President and Chief Executive
Officer.
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Employment Agreements
On January 1, 1998, the Company entered into an employment agreement with
Richard Osofsky, providing for his employment as President and Chief Executive
Officer for a three-year term expiring on December 31, 2000. The agreement
provides for a base salary at the annual rate of $30,000, commencing on the
closing date of this Offering through December 31, 1998, $75,000 for 1999 and
$100,000 for 2000. The agreement also provides for participation in all employee
benefit plans, the use of an automobile and certain other fringe benefits.
On January 1, 1998, the Company entered into an employment agreement with
R. Sidney Osofsky, providing for his employment as Vice President-Production,
Chief Operating Officer and Treasurer for a three-year term expiring on December
31, 2000. The agreement provides for a base salary at the annual rate of $9,360
prior to the close of this Offering, $30,000 commencing on the close of this
Offering through December 31, 1998, $75,000 for 1999 and $100,000 for 2000. The
agreement also provides for participation in all employee benefit plans, the use
of an automobile and certain other fringe benefits.
On January 1, 1998, the Company entered into an employment agreement with
Ronald Osofsky, providing for his employment as Vice President-Sales and
Distribution and Secretary for a three-year term expiring on December 31, 2001.
The agreement provides for a base salary at the annual rate of $9,360 prior to
the close of this Offering, $30,000 commencing on the close of this Offering
through December 31, 1998, $75,000 for 1999 and $100,000 for 2000. The agreement
also provides for participation in all employee benefit plans, the use of an
automobile and certain other fringe benefits.
On December 15, 1997, the Company entered into an employment agreement
with Kenneth Rothstein, providing for his employment as Vice Presiden-Marketing
for a one year term. Pursuant to the terms of the agreement, Mr. Rothstein's
employment will commence upon the closing of this Offering or, at his election,
within 30 days thereafter. The agreement provides for a base salary at the
annual rate of $70,000 and for participation in all employee benefit plans and
certain other fringe benefits.
Stock Option Plan
In January 1998, in order to attract and retain qualified personnel
necessary for the success of the Company, the Company adopted a Stock Option
Plan (the "Stock Option Plan") covering up to 270,000 of the Company's Common
Shares, pursuant to which officers, directors and key employees of the Company
and consultants to the Company are eligible to receive incentive stock options
and non-qualified stock options. The Stock Option Plan, which expires on
December 31, 2007, is currently administered by the entire Board of Directors.
Upon the appointment of a Compensation Committee, the Stock Option Plan will be
administered by the Compensation Committee. The selection of participants, grant
of options, determination of price and other conditions relating to the exercise
of options is determined by the entire Board of Directors, and will be
determined by the Compensation Committee upon its appointment. The selection of
participants, grant of options, determination of price and other conditions
relating to the exercise of options is determined by the entire Board of
Directors, in its sole discretion, and will be determined by the Compensation
Committee, in its sole discretion, upon its appointment. Incentive and
non-qualified stock options granted under the Stock Option Plan are exercisable
for a period of up to 10 years from the date of grant at an exercise price which
is not less than the fair market value of the Common Shares on the date of the
grant, except that the term of an incentive stock option granted under the Stock
Option Plan to a shareholder owning more than 10% of the outstanding Common
Shares may not exceed five years and its exercise price may not be less than
110% of the fair market value of the Common Shares on the date of the grant.
Option Grants
In January 1998, the Board of Directors approved the grant, to be made on
the effective date of this Offering, of 50,000 stock options under the Stock
Option Plan to each of the Osofsky Brothers, exercisable one-third at the
initial public offering price per share, one-third at 120% of the initial public
offering price per share and one-third at 140% of the initial public offering
price per share. The options are for terms expiring five years after the date of
grant. No other options have been granted under the Stock Option Plan as of the
date of this Prospectus.
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Limitation of Directors' Liability and Indemnification
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty to
the Company. The effect of this provision is to eliminate the liability of
directors for monetary damages arising out of their failure, through negligent
or grossly negligent conduct, to satisfy their duty of care, which requires them
to exercise informed business judgment. The liability of directors under the
federal securities laws is not affected. A director may be liable for monetary
damages only if a claimant can show a breach of the individual director's duty
of loyalty to the Company, a failure to act in good faith, intentional
misconduct, a knowing violation of the law, an improper personal benefit or an
illegal dividend or stock purchase.
The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as a director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the New York Business Corporation Law, against all expense, liability and loss
(including attorneys fees, judgments, fines, Employee Retirement Income Security
Act excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of June 1, 1998
with respect to the beneficial ownership of the Company's Common Shares by each
shareholder known by the Company to be the beneficial owner of more than 5% of
its outstanding shares, by each director of the Company, by the executive
officer named in the Summary Compensation Table and by the directors and
executive officers as a group and after the Offering to reflect the issuance and
sale by the Company of the Shares offered hereby.
Commo Percentage of Class
Shares -------------------
Beneficially Before After
Name and Address (1) Owned the Offering the Offering
-------------------- ----- ------------ ------------
Richard A. Osofsky.............. 124,200 18.26% 15.98%(2)
R. Sidney Osofsky............... 124,200 18.26% 15.98%(2)
Ronald N. Osofsky............... 124,200 18.26% 15.98%(2)
Kenneth W. Rothstein (3)........ 29,400 4.32% 2.83%
Steven M. Rabinovici............ 82,350 12.11% 7.92%
David R. Jacaruso............... 59,400 8.74% 5.71%
FAI Overseas Investments
PTY Limited.................. 80,000 11.76% 7.69%
All Officers and Directors as
a Group (4).................. 402,000 59.12% 46.39%(5)
- - ----------
(1) The addresses of the persons named in this table are: Messrs. Richard A.
Osofsky, R. Sidney Osofsky and Ronald N. Osofsky, c/o Ronnybrook Farm
Dairy, Inc., Prospect Hill Road, Ancramdale, New York 12503; Steven M.
Rabinovici and David R. Jacaruso, c/o Complete Management Inc., 254 West
31st Street, New York, New York 10001; FAI Overseas Investments PTY
Limited, 185 Macquarie Street, Sydney, NSW 2000 Australia.
(2) Includes 50,000 shares subject to stock options granted as of the
effective date of this Offering (at prices equal to or exceeding the
initial public offering price per share) and exercisable within sixty (60)
days of such date. See "Management--Option Grants."
(3) Kenneth W. Rothstein will take office upon the closing of this Offering
or, at his election, within 30 days thereafter.
(4) Includes Kenneth W. Rothstein.
(5) Includes 150,000 shares subject to stock options exercisable within sixty
(60) days of the effective date of this Offering.
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<PAGE>
CERTAIN TRANSACTIONS
Since the Company commenced operations in 1991, it has purchased raw milk
for its dairy products from the Osofsky Farm. The Osofsky Farm is owned by a
partnership among the Osofsky Brothers, each of whom is a founder, executive
officer and principal shareholder of the Company. During 1996 and 1997, the
Company paid the Osofsky Farm $16 per hundredweight for its raw milk. On
September 30, 1997, the Company entered into an Exclusive Output Agreement with
the Osofsky Farm pursuant to which the Company purchases the raw milk it
requires from the Osofsky Farm at a base price of $16 per hundredweight in 1997
and 1998, $18 per hundredweight in 1999 and $20 per hundredweight for the
remainder of the Agreement term and any renewal term. In addition, the price
paid for raw milk is adjusted monthly, but never below the applicable base
price, to reflect increases in the monthly blend price for raw milk established
by the Federal milk order which fixes minimum prices paid by producers to dairy
farmers for raw milk. The Agreement is not assignable by the Osofsky Farm
without the prior written consent of the Company and the Company has the right
of first refusal to purchase the Farm's Assets (defined therein) prior to any
sale to a third party. Under the Agreement, the Company also has the right to
approve the farming, herding and milking techniques employed by the Osofsky Farm
in order to insure the quality of raw milk. The Agreement is for a term of 10
years and is renewable, at the option of the Company, for two additional 10-year
terms. The Company believes that the terms of the Agreement are no less
favorable than those that could be obtained from unaffiliated parties.
The Company rents the building in which its dairy facility and principal
executive offices are located from Prospect Hill Associates, a partnership among
the Osofsky Brothers and Joel Osofsky, their cousin. Pursuant to a 10-year lease
dated January 1, 1998, the annual rent for the building in 1998 is $20,000 and
will increase in $15,000 increments in each of the years 1999 through 2001. The
lease is renewable, at the option of the Company, for two additional 10-year
terms at a rental of $65,000 per annum. An earlier lease for these facilities
expired in November 1997, under which the annual rent in 1996 and 1997 was
$12,000.
During 1997, the Company borrowed approximately $66,000 from Richard
Osofsky, who was appointed President, Chief Executive Officer and Chief
Financial Officer of the Company in January 1998. This indebtedness is evidenced
by the Company's promissory note dated September 30, 1997, which provides for
interest at the rate of 8% per year and is due June 30, 1999.
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty to
the Company. The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as a director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the New York Business Corporation Law, against all expense, liability and loss
reasonably incurred or suffered by such person in connection therewith. See
"Management - Limitation of Directors' Liability and Indemnification."
Future transactions with affiliated parties will be approved by the
Company's Board of Directors only after the interest of any director or
affiliate is fully disclosed to the Board and it is established that such
transaction is fair and reasonable to the Company and is on terms no less
favorable than those that could be obtained from unaffiliated parties.
In October 1997, Kenneth W. Rothstein, Steven M. Rabinovici and David R.
Jacaruso, principal shareholders of the Company, and members of the law firm of
Morse, Zelnick, Rose & Lander, LLP, counsel for the Company, purchased from the
original shareholders of the Company, including a former shareholder, an
aggregate of 227,400 Common Shares for a total purchase price of $57,530, or
approximately $.25 per share. Such purchases were negotiated at arms-length
between the parties and their respective counsel. The purchase price was paid
in cash and constituted the entire consideration for such Common Shares.
None of such Common Shares was received for services of any kind.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Shares
The Company's authorized capitalization consists of 10,000,000 Common
Shares, par value $.001 per share, of which 680,000 shares are issued and
outstanding. All Common Shares are, and the Shares offered hereby when issued
will be, legally issued, fully paid and non-assessable. Holders of Common Shares
are entitled to one vote per share in the election of directors. The Common
Shares have no redemption, preemptive or sinking fund rights. Holders of the
Common Shares are entitled to dividends as and when declared by the Board of
Directors. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, holders of the Common Shares are entitled to share
ratably in all the remaining assets of the Company after satisfaction of the
liabilities of the Company.
Upon completion of this Offering, and without giving effect to the
exercise of the Underwriter's Warrants, the directors and executive officers of
the Company will beneficially own approximately 39% of the Company's outstanding
shares (46% if you assume the exercise by the Osofsky Brothers of the options
granted to them as of the effective date of this Offering) and accordingly will
be in a position to effectively elect all of the Company's directors and control
the affairs of the Company.
Underwriter's Warrants
In connection with this Offering, the Company has authorized the issuance
of the Underwriter's Warrants and has reserved 36,000 Common Shares for issuance
upon exercise of such warrants. The Underwriter's Warrants will entitle the
holders thereof to acquire 36,000 Common Shares at an exercise price of 120% of
the initial offering price per share of Common Stock ($8.40 per Common Shares
based on the initial public offering price of $7.00 per Common Share). The
Underwriter's Warrants will be exercisable at any time from the first
anniversary of the date of this Prospectus until the fifth anniversary of the
date of this Prospectus. The Underwriter's Warrants contain provisions that
protect the holders against dilution by adjustment of the exercise price. Such
adjustments will occur in the event, among others, that the Company makes
certain distributions to holders of its Common Shares. The Company is not
required to issue fractional shares upon the exercise of the Underwriter's
Warrants. The holders of Underwriter's Warrants will not possess any rights as
shareholders of the Company until a holder exercises the Underwriter's Warrants.
For the life of the Underwriter's Warrants, the holders thereof have the
opportunity to profit from a rise in the market price of the Common Shares
without assuming the risk of ownership of the Common Shares issuable upon the
exercise of the Underwriter's Warrants. These warrant holders may be expected to
exercise their warrants at a time when the Company would, in all likelihood, be
able to obtain any needed capital by an offering of Common Shares on terms more
favorable than those provided for by the warrants. Further, the terms on which
the Company could obtain additional capital during the life of the warrants may
be adversely affected.
The Underwriter's Warrants provide certain rights with respect to the
registration under the Securities Act of the 36,000 Common Shares issuable upon
exercise of the Underwriter's Warrants. The Company has agreed that during the
entire period between the first anniversary and fifth anniversary of the date of
this Prospectus it will register the issuance of such shares upon the exercise
of the Underwriter's Warrants (and, if necessary, their resale) so as to permit
their public resale without restriction. The holders of the Underwriter's
Warrants have, for a term of five years from the date of this Prospectus, the
right to demand two registrations by the Company of their shares (one
registration at the expense of the Company and the other at the expense of the
warrant holders) and for a term of seven years from the date of this Prospectus,
an unlimited number of incidental, or "piggyback," registration rights. These
registration rights could result in substantial future expense to the Company
and could adversely affect the Company's ability to complete future equity or
debt financing. Furthermore, the registration and sale of Common Shares of the
Company held by or issuable to the holders of registration rights, or even the
potential of such sales, could have an adverse effect on the market price of the
Shares offered hereby.
Inclusion on the OTC Bulletin Board
Application has been made to list the Common Shares on the OTC Bulletin
Board (the "Bulletin Board"). If the Company fails to meet listing standards for
the Bulletin Board, the Common Shares would be traded on the Pink
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<PAGE>
Sheets. An investor could find it difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's Common Shares. Further, if
the market price of the Common Shares falls below $5.00 per share, trading in
the Common Shares would be covered by Rule 15g-9 and related rules promulgated
under the Securities Exchange Act of 1934, as amended. Such rules require
additional disclosure by, and other requirements on, broker-dealers in
connection with any trades involving a stock defined as a penny stock. See "Risk
Factors - Penny Stock Regulations May Impose Certain Restrictions on
Marketability of Common Shares." The additional burdens imposed upon
broker-dealers by the additional disclosure may discourage them from effecting
transactions in the Common Shares, which could severely limit the liquidity of
the Common Shares and the ability of purchasers in this Offering to sell the
Common Shares in the secondary market.
Transfer Agent
The transfer agent for the Common Shares is OTC Corporate Transfer Service
Co., Hicksville, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Shares. The Company cannot predict the effect, if any, that sales of Common
Shares or the availability of such shares for sale will have on the market price
of the Common Shares prevailing from time-to-time. Future sales of substantial
amounts of Common Shares in the public market, including shares issued upon the
exercise of options to be granted pursuant to the Company's Stock Option Plan,
could adversely affect the prevailing market price of the Common Shares.
Upon completion of this Offering, the Company will have 1,040,000 Common
Shares outstanding, of which 360,000 shares will be freely transferable without
restriction under the Securities Act, except for any shares held by an
"affiliate" of the Company (as that term is defined by the rules and regulations
issued under the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. Without considering the
Lock-up Agreements described below, 446,400 of the Common Shares held by current
shareholders will be eligible for sale in the public market in reliance on Rule
144 under the Securities Act commencing 90 days following the Offering.
The Company and all current shareholders have executed or are expected to
execute Lock-up Agreements under which they agree not to offer, sell, contract
to sell or otherwise dispose of any Common Shares owned by them for a period
ending 13 months after the date of this Prospectus without the consent of the
Underwriter.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Offering, a person (or persons whose shares are aggregated) who beneficially
owns shares as to which at least one year has elapsed since the date of
acquisition in a transaction not involving a registered public offering is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of one percent of the then outstanding Common Shares
(1,040,000 shares immediately after this Offering) or the average weekly trading
volume of the Common Shares on over-the-counter market during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who
beneficially owns shares as to which at least one year has elapsed since the
later of the date of the acquisition of the securities from the Company or from
an affiliate of the Company, would be entitled to sell such shares under Rule
144 without regard to the volume limitations, manner-of-sale provisions, public
information requirements or notice requirements.
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UNDERWRITING
National Securities Corporation (the "Underwriter") has agreed, subject to
the terms and conditions of the Underwriting Agreement between the Company and
the Underwriter (the "Underwriting Agreement"), to purchase from the Company,
and the Company has agreed to sell to the Underwriter, the 360,000 Shares
offered hereby at the price set forth on the cover page of this Prospectus under
"Proceeds to Company."
The Underwriting Agreement provides that the obligations of the
Underwriter to purchase the Shares are subject to certain conditions. The
Underwriter is committed to purchase all the Shares offered by this Prospectus,
if any are purchased by the Underwriter.
The Underwriter has advised the Company that it proposes to offer the
Shares to the public at the initial public offering price set forth on the cover
page of this Prospectus, and to selected dealers at such price less a concession
not in excess of $___________ per share, and that the Underwriter and such
dealers may reallow a concession to other dealers, including the Underwriter,
not in excess of $__________ per Share. After the completion of the Offering,
the public offering price, the concessions to selected dealers and the
reallowance to their dealers may be changed by the Underwriter.
The Company has granted the Underwriter an option, expiring at the close
of business 45 days after the date of this Prospectus, to purchase up to an
aggregate of 54,000 additional Common Shares from the Company at the public
offering price set forth on the cover page of this Prospectus, less underwriting
discounts and the 3% non-accountable expense allowance. The Underwriter may
exercise the option (in whole or in part) only to cover over-allotments, if any,
incurred in the sale of the Shares.
The Underwriter has informed the Company that it does not expect to
confirm sales of the Shares offered by this Prospectus to any accounts over
which it exercises discretionary authority.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter and its respective controlling persons
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the Underwriter may be required to make in respect
thereof. The Company has agreed to pay the Underwriter a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds from the
sale of the Shares offered hereby.
The Company has agreed to sell to the Underwriter, for an aggregate of
$36, warrants to purchase from the Company up to 36,000 Common Shares at an
exercise price per share initially equal to 120% of the public offering price.
The Underwriter's Warrants are exercisable for a period of four years beginning
one year after the effective date of this Prospectus, and will be restricted
from sale, transfer, assignment or hypothecation for a period of one year from
the effective date of the Offering, except to officers or partners of the
Underwriter and members of the selling group. The Underwriter's Warrants
provide for adjustment in the exercise price of the Underwriter's Warrants in
the event of certain mergers, acquisitions, stock dividends and capital changes.
In addition, the Company has granted rights to the holders of the Underwriter's
Warrants to register the Common Shares underlying the Underwriter's Warrants
under the Securities Act.
The Company and its officers and directors and all shareholders have
agreed with the Underwriter that for a period of 13 months after the closing of
this Offering (the "Lock-up Period"), neither the Company nor any such persons
shall offer, issue, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of any securities of the Company without the consent of the
Underwriter. See "Description of Common Shares."
Certain persons participating in this Offering may engage in transactions,
including stabilizing bids, syndicate covering transactions or the imposition of
penalty bids, which may involve the purchase of Common Shares on the Bulletin
Board, or otherwise. Such transactions may stabilize or maintain the market
price of the Common Shares at a level above that which might otherwise prevail
in the open market and, if commenced, may be discontinued at any time.
The offering price set forth on the cover page of this Prospectus should
not be considered an indication of the actual value of the Common Shares. Such a
price is subject to change as a result of market conditions and other factors
and no assurance can be given that the Common Shares can be resold at the
offering price.
38
<PAGE>
Prior to this Offering, there has been no public market for the Common
Shares. Accordingly, the initial public offering price was determined by
negotiations between the Company and the Underwriter. The factors considered in
determining the initial public offering price were the history and the prospects
of the Company and the industry in which it operates, the past and present
operating results of the Company and the trends of such results, the previous
experience of the Company's executive officers and the general condition of the
securities markets at the time of the Offering.
Kenneth W. Rothstein, Vice-President-Marketing elect of the Company, is
the brother of Steven A. Rothstein, the Chairman of the Underwriter.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement, which are filed as exhibits to the registration
statement filed in connection with this Offering.
LEGAL MATTERS
The validity of the Shares being offered hereby will be passed upon for
the Company by Morse, Zelnick, Rose & Lander, LLP, New York, New York. Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, New York, New York, has acted as counsel
to the Underwriter in connection with this Offering. Partners, associates and
employees of Morse, Zelnick, Rose & Lander, LLP own, in the aggregate, 56,250
Common Shares.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act with the Commission with respect to the Shares offered hereby.
This Prospectus filed as a part of the Registration Statement does not contain
all of the information contained in the Registration Statement and the exhibits
thereto, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and the Shares offered hereby, reference is made to such
Registration Statement including the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other documents are not necessarily complete, and in each instance, reference is
made to such contract, agreement or other documents filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement and exhibits may be inspected without
charge and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the New York regional office of the Commission at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains an Internet web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission.
The address of that site is http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent certified public
accountants.
39
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this Prospectus contain forward-looking
statements regarding the plans and objectives of management for future
operations. Such statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. The
forward-looking statements made in this Prospectus are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based, in part, on assumptions involving the growth and
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements made in this Prospectus will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements made in
this Prospectus, particularly in view of the Company's early stage of
operations, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
40
<PAGE>
RONNYBROOK FARM DAIRY, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants ............................... F-2
Balance Sheets:
As of December 31, 1997
As of March 31, 1998 (unaudited) ..................................... F-3
Statements of Operations:
For the years ended December 31, 1997 and 1996
For the three months ended March 31, 1998 and 1997 (unaudited) ....... F-4
Statements of Shareholders' Equity:
For the years ended December 31, 1997 and 1996
For the three months ended March 31, 1998 and 1997 (unaudited) ....... F-5
Statements of Cash Flows:
For the years ended December 31, 1997 and 1996
For the three months ended March 31, 1998 and 1997 (unaudited) ....... F-6
Notes to Consolidated Financial Statements ............................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Ronnybrook Farm Dairy, Inc.:
We have audited the accompanying balance sheet of Ronnybrook Farm Dairy, Inc. (a
New York corporation) as of December 31, 1997, and the related statements of
operations, stockholders' deficit and cash flows for the years ended December
31, 1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ronnybrook Farm Dairy, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
New York, New York
February 26, 1998 (except for the
matters described in Note 9, as to
which the date is June 9, 1998)
ARTHUR ANDERSEN LLP
F-2
<PAGE>
RONNYBROOK FARM DAIRY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1997 1998
------------ ---------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash .................................................................... $ 285,581 $ 72,997
Accounts receivable, less allowance for doubtful accounts of $7,500 ..... 92,904 100,871
Related party receivable (Note 6) ....................................... 45,077 47,602
Inventory ............................................................... 28,659 22,817
--------- ---------
Total current assets ............................................. 452,221 244,287
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $189,643 (Note 3) ....................................... 183,765 180,917
DEFERRED REGISTRATION COSTS ............................................... 60,835 197,575
OTHER ASSETS .............................................................. 4,634 8,149
--------- ---------
TOTAL ASSETS ..................................................... $ 701,455 $ 630,928
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable ........................................................ $ 106,902 $ 106,441
Accrued expenses ........................................................ 76,022 83,157
Current portion of long-term debt (Note 4) .............................. 46,505 46,505
Current portion of capital lease obligations (Note 5) ................... 3,242 3,242
.......................................................................... --------- ---------
Total current liabilities ........................................ 232,671 239,345
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt (Note 4) ................................................. 607,900 597,903
Capital lease obligations (Note 5) ...................................... 13,058 13,108
Other liabilities ....................................................... 28,401 28,400
--------- ---------
Total long-term liabilities ...................................... 649,359 639,411
--------- ---------
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value; 10,000,000 shares authorized;
600,000 shares issued and outstanding ................................. 600 600
Additional paid-in capital .............................................. 27,400 27,400
Retained deficit ........................................................ (208,575) (275,828)
--------- ---------
Total stockholders' equity (deficit) ............................. (180,575) (247,828)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ............. $ 701,455 $ 630,928
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
RONNYBROOK FARM DAIRY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended For the Three Months Ended
December 31, March 31,
----------------------- -------------------------
1997 1996 1998 1997
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
NET SALES ..................................... $ 842,734 $ 838,751 $ 202,972 $ 176,293
COST OF GOODS SOLD ............................ 522,168 497,354 144,832 127,996
--------- --------- --------- ---------
GROSS PROFIT .............................. 320,566 341,397 58,140 48,297
OPERATING EXPENSES ............................ 407,956 400,843 110,335 93,170
--------- --------- --------- ---------
LOSS FROM OPERATIONS .......................... (87,390) (59,446) (52,195) (44,873)
--------- --------- --------- ---------
OTHER INCOME/(EXPENSE):
Other income ................................ -- 5,479 187 --
Interest expense ............................ (27,782) (9,656) (15,245) (2,578)
--------- --------- --------- ---------
.............................................. (27,782) (4,177) (15,058) (2,578)
--------- --------- --------- ---------
NET LOSS ...................................... $(115,172) $ (63,623) $ (67,253) $ (47,451)
========= ========= ========= =========
PER SHARE INFORMATION:
Basic net loss per common share ............. $ (.19) $ (.11) $ (.11) $ (.08)
========= ========= ========= =========
Weighted average common shares outstanding .. 600,000 600,000 600,000 600,000
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
RONNYBROOK FARM DAIRY, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
-----------------------
Number of Additional Retained
Shares Par Value Paid-in Capital Deficit Total
--------- --------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 .......... 600,000 $600 $27,400 $ (29,780) $ (1,780)
------- ---- ------- --------- ---------
Net loss ......................... -- -- -- (63,623) (63,623)
------- ---- ------- --------- ---------
BALANCE, December 31, 1996 .......... 600,000 600 27,400 (93,403) (65,403)
Net loss ......................... -- -- -- (115,172) (115,172)
------- ---- ------- --------- ---------
BALANCE, December 31, 1997 .......... 600,000 600 27,400 (208,575) (180,575)
Net loss (unaudited) ............. -- -- -- (67,253) (67,253)
------- ---- ------- --------- ---------
BALANCE, March 31, 1998
(unaudited) ...................... 600,000 $600 $27,400 $(275,828) $(247,828)
======= ==== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
RONNYBROOK FARM DAIRY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years For the Three Months
Ended December 31, Ended March 31,
-------------------------- ---------------------------
1997 1996 1998 1997
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................. $(115,172) $ (63,623) $ (67,253) $ (76,474)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization ............................. 38,287 41,196 10,383 10,866
Provision for allowance for doubtful accounts ............. 1,400 (3,900) -- --
Changes in assets and liabilities-
(Increase) decrease in accounts receivable .............. (37,654) 28,367 (7,967) 22,169
(Increase) in related party receivable .................. (45,077) -- (2,525) --
Increase (decrease) in inventory ........................ (20,140) (539) 5,842 44,568
Decrease (increase) in other assets ..................... 186 (1,311) (3,515) (5,315)
Increase (decrease) in accounts payable and
accrued expenses ...................................... 62,086 34,538 (10,827) (12,296)
(Decrease) in other liabilities ......................... (10,263) (12,355) -- --
--------- --------- --------- ---------
Net cash (used in) provided by operating activities ... (126,347) 22,373 (75,862) (16,482)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ................. (76,491) (27,348) (7,535) (19,818)
--------- --------- --------- ---------
Net cash used in investing activities ................. (76,491) (27,348) (7,535) (19,818)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) in deferred offering costs ..................... (60,835) -- (119,240) --
(Repayment of) proceeds from short-term debt .............. (30,264) 30,264 -- --
Repayment of capital lease obligations .................... (3,050) (1,789) -- --
Repayment of long-term debt ............................... (80,265) (64,272) (9,947) --
Proceeds from long-term debt .............................. 661,715 39,475 -- 12,464
--------- --------- --------- ---------
Net cash provided by (used in) financing activities ... 487,301 3,678 (129,187) 12,464
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH ............................. 284,463 (1,297) (212,584) (23,836)
CASH, beginning of period ................................... 1,118 2,415 285,581 1,118
--------- --------- --------- ---------
CASH, end of period ......................................... $ 285,581 $ 1,118 $ 72,997 $ (22,718)
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ...........
Cash paid for: ............................................
Interest ................................................ $ 14,760 $ 7,235 $ 3,245 $ 2,578
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH ..........................
INVESTING AND FINANCING ACTIVITIES: .......................
Capital lease obligations incurred ...................... $ -- $ 21,139 $ -- $ --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
RONNYBROOK FARM DAIRY, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
1. ORGANIZATION AND BUSINESS:
Ronnybrook Farm Dairy, Inc. (the "Company"), a New York Corporation,
manufactures premium quality dairy products from farm-fresh raw milk for sale
under the Ronnybrook(R) brand name in the New York metropolitan area, eastern
Long Island, northern New Jersey and in Columbia, Ulster, Rockland, Dutchess and
Westchester counties, New York. The Company's products include Creamline(R)
whole milk and skim milk, heavy cream and half-and-half packaged in traditional
glass bottles, butter, ice cream, yogurt and creme fraiche, and, on a limited
basis, assorted cheeses and eggnog. The Company sells its products to over 150
supermarkets, specialty food stores and gourmet delis and food service clients
and directly to the public at green markets, including the Union Square green
market in New York City, and at the Company's distribution center and retail
outlet at the Chelsea Market in New York City.
The Company has incurred net losses in the current and prior year, respectively,
and has a retained deficit as of December 31, 1997. In addition, the Company's
liquidity requirements have been and will continue to be significant. Management
has developed a detailed plan and taken certain actions in order to achieve
profitability and generate the funding necessary for the Company's operations.
Management plans to develop new products and improve the packaging of its
existing products in order to increase their market share in the highly
competitive market in which it operates. The Company has also hired a new
Vice-President of Marketing (Note 7) in order increase sales of its existing
products and to develop new markets for its products. The Company is also
pursuing an initial public offering of its common stock and in the event such
offering is not concluded, has obtained a real estate collateral agreement in
order to obtain financing, both to provide the necessary funding to continue and
increase its operations (Note 8). Management of the Company believes that these
plans and available collateral will be adequate to fund the Company's operations
at least through March 1999.
The Company's operations are dependent upon the availability of raw milk, which
is needed for its production. This raw milk is currently supplied exclusively to
the Company by Ronnybrook Farms (the "Farm"), which is owned and operated by
several of the Company's shareholders. There is no assurance that the Farm will
be able to supply the Company with the required quantity and quality of raw milk
necessary to meet its future demands; therefore, the Company has entered into
two non-binding letters of intent with other local farms for the supply of raw
milk in the event that the Farm is unable to meet the Company's demands. During
1997, the Company entered into an exclusive output agreement with the Farm for
the purchase of raw milk (Note 7).
2. SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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.
Revenue Recognition
Revenue on sales of bottled milk and other products is recognized upon delivery
to customers.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade receivables from sales of the Company's
products.
Inventory
Inventory is stated at the lower of cost or market, and cost is determined using
the first-in, first-out method. Inventory is comprised of finished goods and raw
materials.
F-7
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost. The equipment is
depreciated utilizing the straight-line method over the estimated useful lives
of 3 to 15 years. Equipment held under capital leases is amortized utilizing the
straight-line method over the lesser of the term of the lease or estimated
useful life of the asset in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 13 "Accounting for Leases".
Income Taxes
The Company has elected to be treated as an S Corporation for federal and state
income tax purposes and as a result, the earnings of the Company are taxable
directly to the shareholders. The Company remains liable for New York State
Subchapter S and New York City corporate income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled.
Net Loss Per Common Share
In March 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings Per Share". This statement establishes standards for computing
and presenting earnings per share ("EPS"), replacing the presentation of
currently required primary EPS with a presentation of Basic EPS. For entities
with complex capital structures, the statement requires the dual presentation of
both Basic EPS and Diluted EPS on the face of the statement of operations. Under
this new standard, Basic EPS is computed based on weighted average shares
outstanding and excludes any potential dilution. Diluted EPS reflects potential
dilution from the exercise or conversion of securities into common stock or from
other contracts to issue common stock and is similar to the currently required
fully diluted EPS. SFAS 128 became effective for financial statements issued for
periods ending after December 15, 1997. Upon adoption, the Company was required
to restate its EPS data for all prior periods presented, however, this adoption
had no effect on the Company's basic or diluted net loss per common share.
Basic net loss per common share is computed by dividing the Company's net loss
by the weighted average common shares outstanding for each year presented. The
Company's weighted average common shares outstanding for the years ended
December 31, 1997 and 1996 is equal to the Company's outstanding shares for each
year, as the Company did not issue any common stock during 1997 or 1996,
respectively. Diluted EPS is not presented as there are no outstanding dilutive
securities as of December 31, 1997 and for the years ended December 31, 1997 and
1996, respectively.
Stock Based Compensation
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
entities to adopt a fair value-based method of accounting for stock compensation
costs under pre-existing accounting pronouncements. If the fair value-based
method of accounting is not adopted, SFAS No. 123 requires pro-forma disclosures
of net income (loss) and earnings (loss) per share in the notes to the
consolidated financial statements. The Company has elected to continue the
accounting set forth in Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees" and to provide the necessary pro-forma disclosures.
There were no stock option grants or outstanding stock options as of December
31, 1997 and for the years ended December 31, 1997 and 1996, respectively.
Unaudited Interim Financial Information
The unaudited financial information included herein for the three months ended
March 31, 1998 and 1997 has been prepared in accordance with generally accepted
accounting principles for interim financial information. In the opinion of the
Company, these unaudited financial statements reflect all adjustments necessary,
consisting of normal recurring adjustments, for a fair presentation of such data
on a basis consistent with that of the audited data presented herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for a full year.
F-8
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are comprised of the following:
December 31, March 31,
1997 1998
------------ ----------
(unaudited)
Machinery and equipment ........................... $ 151,949 $ 152,832
Leasehold improvements ............................ 58,580 65,232
Vehicles .......................................... 98,917 98,917
Vehicles held under capital leases ................ 21,310 21,310
Furniture and fixtures ............................ 25,982 25,982
Crates and reusable containers .................... 16,670 16,670
--------- ---------
.................................................. 373,408 380,943
Less: Accumulated depreciation ................... (189,643) (200,026)
--------- ---------
Property, plant and equipment, net ................ $ 183,765 $ 180,917
========= =========
Depreciation aggregated $38,287 and $41,196, respectively, for the years ended
December 31, 1997 and 1996.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ---------
(Unaudited
<S> <C> <C>
Financing
Loan payable, bearing interest at 12%, interest payable semi-annually,
principal due in full on the earlier of the initial public offering
of the Company's common stock or April 30, 1999. ........................... $ 400,000 $ 400,000
Bank Financing
Loan payable to Hudson Valley Farm Credit Association, due in monthly
installments of $1,400, including a variable interest rate (9% at
December 31, 1997), secured by a mortgage held by a shareholder ............ 35,041 31,430
Various loans payable for vehicles, interest ranging from 9.25%-12.75%,
due in varying monthly installments, through June 2000 ..................... 39,023 32,637
Related Party Financing
Note payable to shareholder, bearing interest of 8%, principal and
interest due in full in June 1999 .......................................... 66,295 66,295
Note payable to related party, bearing interest of 8%, principal and
interest due in full in June 1999 .......................................... 2,456 2,456
Non-Related Financing
Note payable to non-related party, bearing interest of 8%, principal
and interest due in full in June 1999 ...................................... 17,249 17,249
Note payable to non-related party, bearing interest of 8% payment of
$20,000 due in June 1998 and the remaining principal plus interest
due in June 1999 ........................................................... 94,341 94,341
--------- ---------
Total ......................................................... 654,405 644,408
Less: current portion ....................................................... 46,505 46,505
--------- ---------
Long-term debt ............................................................... $ 607,900 $ 597,903
========= =========
</TABLE>
F-9
<PAGE>
Maturities of long-term debt outstanding as of the year ended December 31, 1997
are as follows:
1998 ...................... $ 46,505
1999 ...................... 588,273
2000 ...................... 14,850
2001 ...................... 4,777
---------
$ 654,405
=========
As of December 31, 1997, the Company had an available line of credit from a bank
in the amount of $10,000. There were no amounts outstanding on the line of
credit as of December 31, 1997.
5. CAPITAL LEASE OBLIGATIONS:
The Company leases a vehicle under a capital lease expiring in 2001. The asset
and liability under the capital lease are recorded at the lower of the present
value of minimum lease payments or the fair market value of the asset. The asset
is depreciated over its estimated useful life. The interest rate on the capital
lease is 15.61%.
Future minimum payments under the lease agreement are as follows:
Years Ended December 31,
1998 ....................................... $ 5,858
1999 ....................................... 5,858
2000 ....................................... 5,858
2001 ....................................... 5,858
----------
Total minimum lease payments ............ 23,432
Less: Amount representing interest ............ 7,132
----------
Present value of net minimum lease payments ... $ 16,300
==========
6. RELATED PARTY TRANSACTIONS:
The Company purchases the raw milk used to process its products from the Farm.
Purchases of raw milk from the Farm totaled approximately $213,000 and $194,000,
respectively, for the years ended December 31, 1997 and 1996. The Company is
reimbursed for all raw milk purchased from the Farm that is not used in
production. As of December 31, 1997, the Company had an outstanding receivable
from the Farm of $45,077. During 1997, the Company entered into an exclusive
output agreement with the Farm for the purchase of the raw milk (Note 7).
The Company leases certain land and improvements owned by a related party, on
which the production dairy is located. The lease for this property included
monthly payments of $1,000 with immaterial escalations through the end of the
lease. The lease expired during 1997 and was renewed by the Company and the
related party subsequent to December 31, 1997 (Note 8).
In October 1997, certain original shareholders of the Company, including a
former shareholder, sold an aggregate of 227,400 Common Shares for a total
purchase price of $57,530, or approximately $.25 per share, to investors,
including the Company's legal counsel. Management is of the opinion that such
purchases were negotiated at arms-length between the parties and their
respective counsel. The purchase price was paid in cash and constituted the
entire consideration for such Common Shares. None of such Common Shares was
received for services of any kind.
7. COMMITMENTS:
Leases
As of December 31, 1997, the Company has leased certain land and improvements
from a related party (Notes 6 and 8). In addition, the Company also leases
retail space, production space and equipment from other lessors.
Future minimum payments for operating leases at December 31, 1997 are as
follows:
Year Ended December 31,
1998 .................................... $ 25,638
1999 .................................... 22,035
2000 .................................... 27,918
2001 .................................... 34,806
2002 and thereafter ..................... 665,201
F-10
<PAGE>
Rental expense for the years ended December 31, 1997 and 1996 was approximately
$65,000 and $24,000, respectively.
Exclusive Output Agreement
On September 30, 1997, the Company entered into an Exclusive Output Agreement
(the "Output Agreement") with the Farm. Under the terms of the Output Agreement,
the Farm has agreed to sell all of the raw milk produced by the Farm to the
Company and the Company has agreed to purchase all of the raw milk required to
manufacture its dairy products, for a period of ten years, and renewable, at the
Company's election, for two additional ten-year terms. The Company will pay the
Farm a base price of $16 per hundredweight of raw milk in 1998, $18 per
hundredweight in 1999 and $20 per hundredweight year for the remainder of the
Output Agreement and any renewal term. In addition, the price paid for raw milk
can be adjusted monthly, but never below the applicable base price, by the
amount of any increase in the monthly Federal blend price for raw milk.
Employment Agreement
The Company has entered into an employment agreement with an individual,
providing for his employment as Vice President--Marketing. The agreement
commences on the close of the Company's proposed initial public offering (Note
8), or within thirty days of such close, for a term of one-year at a base salary
of $70,000 plus participation in all employee benefit plans.
8. SUBSEQUENT EVENTS:
Initial Public Offering
The Company is pursuing an initial public offering of its securities. The
offering contemplates the sale of 360,000 shares of common stock at an offering
price of $7.00 per share, before underwriting commissions and offering expenses.
Stock Split and Recapitalization
In January 1998, the Company approved an increase in the amount of authorized
common stock from 200 to 10,000,000 shares and a change in the common stock par
value from $.00 to $.001. Immediately thereafter, the Company authorized a 6,000
for 1 stock split on all common stock outstanding. All information in the
accompanying financial statements has been retroactively restated to give effect
to the stock split.
Change in Tax Status
Concurrent with this public offering, the Company will no longer qualify as a
subchapter "S" Corporation. The pro-forma effect of the Company's change in tax
status to a subchapter "C" Corporation would be a reclassification of the
Company's retained deficit of ($208,575) to additional paid-in capital in the
accompanying balance sheet and statement of shareholders' deficit as of December
31, 1997. There is no pro forma effect on the accompanying statement of
operations for the year ended December 31, 1997 and for the three months ended
March 31, 1998 (unaudited), as the Company is not entitled to the future benefit
of losses incurred prior to this election.
Employment Agreements
On January 1, 1998, the Company entered into an employment agreement with
Richard Osofsky, providing for his employment as President, Chief Executive
Officer and Chief Financial Officer for a three-year term expiring on December
31, 2000. The agreement provides base salaries of $30,000 for the first year of
the term, $75,000 for the second year and $100,000 for the third year of the
term. The agreement also provides for participation of all employee benefit
plans, the use of an automobile and certain other fringe benefits.
On January 1, 1998, the Company entered into an employment agreement with R.
Sidney Osofsky, providing for his employment as Vice President--Production,
Chief Operating Officer and Treasurer for a three-year term expiring on December
31, 2000. The agreement provides base salaries of $30,000 for the first year of
the term, $75,000 for the second year and $100,000 for the third year of the
term. The agreement also provides for participation in all employee benefit
plans, the use of an automobile and certain other fringe benefits.
F-11
<PAGE>
On January 1, 1998, the Company entered into an employment agreement with Ronald
Osofsky, providing for his employment as Vice President-Sales and Distribution
and Secretary for a three-year term expiring on December 31, 2000. The agreement
provides base salaries of $30,000 for the first year of the term, $75,000 for
the second year and $100,000 for the third year of the term. The agreement also
provides for participation in all employee benefit plans, the use of an
automobile and certain other fringe benefits.
Stock Option Plan
In January 1998, in order to attract and retain qualified personnel necessary
for the success of the Company, the Company adopted a Stock Option Plan (the
"Stock Option Plan") covering up to 270,000 of the Company's Common Shares,
pursuant to which officers, directors and key employees of the Company and
consultants to the Company are eligible to receive incentive stock options and
non-qualified stock options. The Board of Directors administers the Stock Option
Plan, which expires on December 31, 2007. Upon the appointment of a Compensation
Committee, the Compensation Committee will administer the Stock Option Plan.
Incentive stock options granted under the Stock Option Plan are exercisable for
a period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Common Shares on the date of the
grant, except that the term of an incentive stock option granted under the Stock
Option Plan to a shareholder owning more than 10% of the outstanding Common
Shares may not exceed five years and its exercise price may not be less than
110% of the fair market value of the Common Shares on the date of the grant.
The Company has granted pursuant to the Stock Option Plan, as of the effective
date of the Company's pending initial public offering, 50,000 stock options to
each of three executives, of which one-third of the options granted are
exercisable at the initial public offering price per share, one-third
exercisable at 120% of the initial public offering price per share and one-third
exercisable at 140% of the initial public offering price per share. No other
options have been granted under the Stock Option Plan.
Lease Agreement
On January 1, 1998, the Company entered into a new lease agreement with a
related party for land and improvements. The initial term of the new lease
expires in December 2008 and calls for monthly rent payments of $1,666 in the
first year with annual increases in the monthly rent payments of $1,250 in each
of the following three years. Thereafter, the Company has two ten-year renewal
options at an annual rent of $65,000.
Collateral Agreement
On February 18, 1998, the Company entered into a Real Estate Collateral
Agreement with several of its shareholders, whereby, the shareholders have
agreed to provide certain real estate, which they own, as collateral for any
future financing the Company may require. The agreement terminates on the
earlier of such time as when these shareholders are no longer, in the aggregate,
the majority owners of the Company's outstanding common stock or January 1,
2000. If the Company's proposed initial public offering is successfully
concluded, these shareholders will own less than a majority of the Company's
outstanding common stock and, accordingly, the agreement will terminate.
9. SUBSEQUENT CONVERSION OF LONG-TERM DEBT
On June 1, 1998, the Company converted $400,000 of outstanding long-term debt
plus $28,000 of accrued interest into 80,000 of the Company's Common Shares. In
conjunction with this transaction, the Company anticipates recording a non-cash
charge to interest expense and additional paid-in capital in the quarter ending
June 30, 1998 representing the difference between the conversion price of $5.35
per share and the price paid by the public in the Company's pending initial
public offering which is estimated at a price of $7.00 per share (see above).
F-12
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer of any securities other than the
securities to which it relates or an offer to any person in any jurisdiction in
which such an offer would be unlawful. Any material modification of the Offering
will be accomplished by means of an amendment to the registration statement. In
addition, the right is reserved by the Company to cancel any confirmation of
sale prior to the release of funds, if, in the opinion of the Company,
completion of such sale would violate federal or state securities laws or a rule
or policy of the National Association of Securities Dealers, Inc., Washington,
D.C. 20006.
TABLE OF CONTENTS
Page
----
Prospectus Summary................................. 3
Risk Factors....................................... 6
Use of Proceeds.................................... 12
Dividend Policy.................................... 13
Capitalization..................................... 13
Dilution........................................... 14
Selected Financial Data............................ 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations... 16
Business........................................... 19
Management......................................... 30
Principal Shareholders............................. 34
Certain Transactions............................... 35
Description of Capital Stock....................... 36
Shares Eligible for Future Sale.................... 37
Underwriting....................................... 38
Legal Matters...................................... 39
Experts............................................ 39
Available Information.............................. 39
Special Note Regarding
Forward-Looking Statements...................... 40
Index to Financial Statements...................... F-1
Until ____, 1998 (25 days after the date of this Prospectus), all broker-dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery is in addition to the obligations of dealers to deliver a
Prospectus when acting as underwriters, and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
360,000 Shares
Common Stock
[LOGO]
RONNYBROOK FARM DAIRY, INC.
--------------
PROSPECTUS
--------------
NATIONAL SECURITIES CORPORATION
____, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Sections 722 and 723 of the New York Business Corporation Law grant to the
Company the power to indemnify the officers and directors of the Company as
follows:
(a) A corporation may indemnify any person made, or threatened to be made,
a party to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type of
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or that he had reasonable
cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made,
a party to an action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interest of
the corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is settled
or otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and only
to the extent that the court on which the action was brought, or, if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
Payment of indemnification other than by court award is as follows:
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in section 722 shall be entitled to indemnification as authorized in such
section.
II-1
<PAGE>
(b) Except as provided in paragraph (a), any indemnification under section
722 or otherwise permitted by section 721, unless ordered by a court under
section 724 (Indemnification of directors and officers by a court), shall be
made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not
parties to such action or proceeding upon a finding that the director or officer
has met the standard of conduct set forth in section 722 or established pursuant
to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
(A) By the board upon the opinion in writing of independent legal counsel
that indemnification is proper in the circumstances because the applicable
standard of conduct set forth in such sections has been met by such director or
officer, or
(B) By the shareholders upon a finding that the director or officer has
met the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action or
proceeding may be paid by the corporation in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amounts as, and to the extent, required by
paragraph (a) of section 725.
The Company's certificate of incorporation provides as follows:
SIXTH: The personal liability of directors to the corporation or its
shareholders for damages for any breach of duty in such capacity is hereby
eliminated except that such personal liability shall not be eliminated if a
judgment or other final adjudication adverse to such director establishes that
his acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that he personally gained in fact a financial profit
or other advantage to which he was not legally entitled or that his acts
violated Section 719 of the Business Corporation Law.
* * *
EIGHTH: (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Business Corporation Law, as the same exists or may hereafter
be amended (but, in case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorney's fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the Business
Corporation Law requires, the payment of such expenses incurred by a director or
officer (in his or her capacity as a director or officer and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it
II-2
<PAGE>
shall ultimately be determined that such director or officer is not entitled to
be indemnified under this Section or otherwise. The Corporation may, by action
of its Board of Directors, provide indemnification to employees and agents of
the Corporation with the same scope and effect as the foregoing indemnification
of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Business Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Business Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the Business Corporation Law.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons, on the one hand, and the Underwriters
and their respective controlling persons, on the other hand, against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended.
Item 25. Other Expenses of Issuance and Distribution.
The following are the expenses of the issuance and distribution of the
securities being registered, other than underwriting commissions and expenses,
all of which will be paid by the Company. Other than the SEC registration fee
and the NASD filing fees all of such expenses are estimated.
Registration fee............................................... $ 1,573.53
NASD fee....................................................... $ 1,033.41
Printing and edgarization expenses............................. $ 35,000.00
Accounting fees and expenses................................... $100,000.00
Legal fees and expenses........................................ $155,000.00
State securities law fees and expenses......................... $ 20,000.00
Transfer agent and registrar fees and expenses................. $ 1,000.00
Miscellaneous.................................................. $ 40,793.06
------------
Total................................................. $354,400.00
============
Item 26. Recent Sales of Unregistered Securities
On June 1, 1998, the Company issued 80,000 Common Shares to FAI Overseas
Investments PTY Limited ("FAI"), an unaffiliated entity, in satisfaction and in
full payment of the principal and interest on a 12% unsecured promissory note
issued by the Company to FAI in November 1997. The principal amount of the note
was $400,000 and accrued interest thereon at June 1, 1998 was $28,000. The
shares were acquired by FAI for investment in a transaction exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) thereof.
II-3
<PAGE>
Item 27. Exhibits
(a) Exhibits:
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
1.1 Form of Underwriting Agreement
2.1 Form of Amendment to Certificate of Incorporation Authorizing
Stock Split (See Exhibit 3.1)
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate
4.2 Form of Underwriters' Warrants
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP*
10.1 Stock Option Plan
10.2 Employment Agreement between the Company and Richard A. Osofsky
10.3 Employment Agreement between the Company and R. Sidney Osofsky
10.4 Employment Agreement between the Company and Ronald N. Osofsky
10.5 Employment Agreement between the Company and Kenneth Rothstein
10.6 Lease between the Company and Prospect Hill Associates
10.7 Lease between the Company and CMC MIC Holding Company, L.L.C.
for the Chelsea Market Distribution Facility
10.8 Output Agreement between the Company and the Osofsky Farm
10.9 8% Note Payable to Richard A. Osofsky
10.10 Form of Letter of Intent for the Purchase of Raw Milk
11.1 Supplemental Loss Per Share Calculation
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1).
24. Power of Attorney (included in signature page).
99.1 Consents of Persons About to Become Directors
- - ----------
* Filed herewith
II-4
<PAGE>
Item 28. Certain Undertakings
A. The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the Securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remain unsold at the termination of the
Offering.
(4) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the Securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on June 17, 1998.
RONNYBROOK FARM DAIRY, INC.
by: /s/ Richard A. Osofsky
-----------------------------
Richard A. Osofsky, President
ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Richard A. Osofsky, R. Sidney Osofsky and Jonathan D.
Morse, or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all pre- or post-effective
amendments to this Registration Statement, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any one
of them, or their or his substitutes, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities indicated on June 17, 1998.
SIGNATURE TITLE
--------- -----
/s/ Richard A. Osofsky President, Chief Executive Officer,
- - --------------------------------- Chief Financial Officer and Director
Richard A. Osofsky
/s/ R. Sidney Osofsky Director
- - ---------------------------------
R. Sidney Osofsky
/s/ Ronald N. Osofsky Director
- - ---------------------------------
Ronald N. Osofsky
II-6
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
- - ------- ----------- ------------
1.1 Form of Underwriting Agreement
2.1 Form of Amendment to Certificate of Incorporation Authorizing
Stock Split (See Exhibit 3.1)
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate
4.2 Form of Underwriter's Warrants
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP*
10.1 Stock Option Plan
10.2 Employment Agreement between the Company and Richard A. Osofsky
10.3 Employment Agreement between the Company and R. Sidney Osofsky
10.4 Employment Agreement between the Company and Ronald N. Osofsky
10.5 Employment Agreement between the Company and Kenneth Rothstein
10.6 Lease between the Company and Prospect Hill Associates
10.7 Lease between the Company and CMC MIC Holding Company, L.L.C.
for the Chelsea Market Distribution Facility
10.8 Output Agreement between the Company and the Osofsky Farm
10.9 8% Note Payable to Richard A. Osofsky
10.10 Form of Letter of Intent for the Purchase of Raw Milk
11.1 Supplemental Loss Per Share Calculation
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in
Exhibit 5.1).
24. Power of Attorney (included in signature page).
99.1 Consents of Persons About to Become Directors
- - ----------
* Filed herewith
II-7
MORSE, ZELNICK, ROSE & LANDER, LLP
LETTERHEAD
June 17, 1998
Ronnybrook Farm Dairy, Inc.
Prospect Hill Road
Ancramdale, New York 12503
Dear Sirs:
We have acted as counsel to Ronnybrook Farm Dairy, Inc., a New York
corporation (the "Company"), in connection with the preparation of a
registration statement on Form SB-2 (the "Registration Statement") filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), to register the offering by the Company of (a) 360,000
Common Shares, $.001 par value per share (the "Common Shares") (414,000 Common
Shares if the over-allotment option is exercised in full), (b) Common Share
Purchase Warrants to be issued to the underwriter (the "Underwriters'
Warrants"), (c) 36,000 Common Shares underlying the Underwriters' Warrants and
(d) such additional Common Shares as may be offered by the Company and as may
underlie the Underwriter's Warrants covered by any additional registration
statement filed pursuant to Rule 462(b)(3) promulgated under the Act.
In this regard, we have reviewed the Certificate of Incorporation of the
Company, as amended and restated, resolutions adopted by the Company's Board of
Directors, the Registration Statement, the proposed form of the Underwriters'
Warrants, the other exhibits to the Registration Statement and such other
records, documents, statutes and decisions as we have deemed relevant in
rendering this opinion. Based upon the foregoing, we are of the opinion that:
Each Common Share being offered, the Underwriters' Warrants, and the
Common Shares underlying the Underwriters' Warrants have been duly and validly
authorized for issuance and when issued and sold as contemplated by the
Registration Statement or upon exercise of the Underwriters' Warrants will be
legally issued, fully paid and non-assessable.
Partners, associates and employees of this firm own, in the aggregate,
56,250 Common Shares.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such opinion, we do not hereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ MORSE, ZELNICK, ROSE & LANDER, LLP
--------------------------------------
Morse, Zelnick, Rose & Lander, LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 26, 1998 (except for the matters described in Note 9, as
to which the date is June 9, 1998) and to all references to our Firm included in
or made a part of this registration statement.
ARTHUR ANDERSEN LLP
New York, New York
June 17, 1998
