U.S. Securities and Exchange Commission
Washington, D. C. 20549
----------------------------------------
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
------------------
Commission file number 0-26155
ICY SPLASH FOOD & BEVERAGE, INC.
(Exact name of small business issuer as specified in its charter)
New York 11-3329510
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
9-15 166th Street, Suite 5-B
Whitestone, New York 11357
(Address of principal executive offices)
(718) 746-3585
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [x] No [ ]
The number of shares outstanding of the issuer's common stock
as of November 10, 1999 was 6,600,000
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) Balance Sheets as of September 30, 1999
and December 31, 1998.......................3
b) Statements of Operations for the
Three and Nine Months Ended
September 30, 1999 and 1998.................4
c) Statements of Cash Flows for the
Nine Months Ended September 30, 1999
and 1998....................................5
d) Notes to Financial Statements...............6 to 12
ITEM 2 . MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................13 to 15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS....................................16
ITEM 6. EXHIBITS AND REPORTS
ON FORM 8-K..........................................16
a) EXHIBITS....................................16
b) REPORTS ON FORM 8-K.........................16
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ICY SPLASH FOOD AND BEVERAGE, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- ASSETS -
September 30, December 31,
1999 1998
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 62,425 $ 20,314
Accounts receivable, net of allowance for doubtful accounts of
$6,108 and $4,163 for September 30 and December 31, respectively 141,727 69,833
Notes receivable (Note 3) 9,579 34,610
Inventory (Note 2d) 118,519 60,881
Prepaid expenses 3,000 3,000
--------- ---------
TOTAL CURRENT ASSETS 335,250 188,638
--------- ---------
FIXED ASSETS (Note 2c):
Warehouse equipment 5,000 5,000
Office equipment 12,279 9,394
--------- ---------
17,279 14,394
Less: accumulated depreciation 6,923 4,673
--------- ---------
10,356 9,721
--------- ---------
$ 345,606 $ 198,359
========= =========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Notes payable (Note 4) $ 65,000 $ 65,000
Accounts payable 106,071 53,900
Accrued expenses and other current liabilities 20,331 15,537
Income taxes payable 454 454
--------- ---------
TOTAL CURRENT LIABILITIES 191,856 134,891
--------- ---------
LONG-TERM LIABILITIES
Shareholders' loans 56,500 --
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Note 6):
Preferred stock, $.001 par value, 1,000,000 shares authorized,
zero shares issued and outstanding for 1999 and 1998 -- --
Common stock, $.001 par value, 50,000,000 shares authorized,
6,600,000 shares issued and outstanding 6,600 6,600
Additional paid-in capital 153,149 174,587
Accumulated deficit (62,499) (117,719)
--------- ---------
97,250 63,468
--------- ---------
$ 345,606 $ 198,359
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ICY SPLASH FOOD AND BEVERAGE, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Quarter Ended September 30, Ended September 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES (Note 5) $ 175,404 $ 43,754 $ 490,418 $ 225,650
COST OF SALES 117,466 26,188 326,703 132,321
--------- --------- --------- ---------
GROSS PROFIT 57,938 17,566 163,715 93,329
--------- --------- --------- ---------
OPERATING EXPENSES (Note 5):
Selling expenses - Schedule 1 21,255 24,903 56,714 52,415
General and administrative expenses - Schedule 2 18,673 12,259 47,194 38,109
--------- --------- --------- ---------
39,928 37,162 103,908 90,524
--------- --------- --------- ---------
INCOME FROM OPERATIONS 18,010 (19,596) 59,807 2,805
OTHER INCOME (EXPENSES):
Interest expense (657) (710) (3,907) (729)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE TAXES 17,353 (20,306) 55,900 2,076
Provision for income taxes (Note 2f) -- -- 680 712
--------- --------- --------- ---------
NET INCOME $ 17,353 $ (20,306) $ 55,220 $ 1,364
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE (Note 2k):
Basic $ -- $ -- $ 0.01 $ --
========= ========= ========= =========
Diluted $ -- $ -- $ 0.01 $ --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
ICY SPLASH FOOD AND BEVERAGE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $ 55,220 $ 1,364
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation 2,250 1,689
Provision for bad debts 11,799 15,907
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (73,943) 26,572
Increase in inventories (57,638) (8,362)
Increase in prepaid expenses -- (2,000)
Increase in accounts payable 52,171 1,394
Decrease in accrued expenses and other current liabilities (4,956) (2,532)
--------- ---------
Net cash provided (used) by operating activities (15,097) 34,032
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (2,885) (3,449)
Increase in note receivable -- (55,900)
Repayments of note receivable 25,031 38,850
--------- ---------
Net cash provided (used) in investing activities 22,146 (20,499)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- 32,700
Proceeds from short-term debt 65,000 100,000
Repayments of short-term debt (65,000) (25,000)
Net cost from issuance of common stock (21,438) (45,933)
Proceeds from shareholder loans 56,500 88,852
Repayments of shareholder loans -- (123,294)
Deferred offering costs -- 27,886
--------- ---------
Net cash provided by financing activities 35,062 55,211
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 42,111 68,744
Cash and cash equivalents, at beginning of period 20,314 --
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 62,425 $ 68,744
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash during the period for:
Income taxes paid $ 680 $ 1,392
Interest paid $ 657 $ 104
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ICY SPLASH FOOD AND BEVERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - NATURE OF BUSINESS:
Icy Splash Food and Beverage, Inc. (the "Company") is the
producer and distributor of an all natural, fruit flavored,
clear and colored, carbonated, refreshing soft drink. The
product line is currently supplied in a variety of flavors to
supermarkets, grocery stores and convenience stores in the
tri-state area. The Company was incorporated in the State of
New York on June 17, 1996.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies considered particularly significant.
(a) Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results
could differ from these estimates, management does not expect
such variances, if any, to have a material effect on the
financial statements.
(b) Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash.
The Company, from time-to-time, may maintain cash balances
which exceed the federal depository insurance coverage limit.
The Company performs periodic reviews of the relative credit
rating of its bank to lower its risk.
The carrying amounts of cash, accounts receivable, accounts
payable and accrued expenses approximate fair value due to the
short-term nature of these items.
(c) Fixed Assets and Depreciation:
Fixed assets are reflected at cost. Depreciation and
amortization are provided on a straight-line basis over the
following useful lives:
Warehouse equipment 5 years
Office equipment 5 years
Maintenance and repairs are charged to expense as incurred;
major renewals and betterments are capitalized.
6
<PAGE>
ICY SPLASH FOOD AND BEVERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Inventories:
Inventories are stated at the lower of cost or market (first-in
first-out method) and consist of only raw materials.
Inventory consists of the following:
September 30, December 31,
1999 1998
-------- -------
Finished product $ 15,351 $ --
Flavoring , bottles and packaging materials 103,168 60,881
-------- -------
$118,519 $60,881
======== =======
(e) Deferred Offering Costs:
Deferred offering costs were incurred by the Company in
conjunction with a private placement offering (see Note 6).
Although the exercise of warrants has not been completed these
costs were charged against additional paid-in capital upon the
completion of the offering.
(f) Income Taxes:
The Company utilizes Financial Accounting Standard Board
Statement No. 109, "Accounting for Income Taxes"("SFAS 109"),
which requires the use of the asset and liability approach of
providing for income taxes. SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method deferred tax
liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Under SFAS 109,
the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that
includes the enactment date.
The Company has a net operating loss carryforward as of its
year end, December 31, 1998, of approximately $100,000 which
may be applied against future taxable income, and which expires
in the year 2012. Since there is no assurance that the Company
will generate future taxable income to utilize the deferred tax
asset resulting from the net operating loss carryforward, the
Company has not recognized this asset.
(g) Statements of Cash Flows:
For purposes of the statement of cash flows, the Company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash
equivalents.
7
<PAGE>
ICY SPLASH FOOD AND BEVERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(h) Comprehensive Income:
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130 "Reporting Comprehensive Income"("SFAS 130"),
which prescribes standards for reporting comprehensive income
and its components. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Since the Company currently
does not have any items of comprehensive income, a statement of
comprehensive income is not yet required.
(i) Advertising Costs:
Advertising costs, which are included in selling expenses, are
expensed as incurred. For nine months ended September 30, 1999
and 1998 advertising costs, including promotion, aggregated
$25,567 and $20,452, respectively.
(j) Revenue Recognition:
The Company recognizes operating revenue upon shipment of goods
to customer.
(k) Earnings Per Share
The Company has adopted Financial Accounting Standards Board
Statement No. 128 "Earnings Per Share" ("SFAS 128"), which has
changed the method for calculating earnings per share. SFAS 128
requires the presentation of basic and diluted earnings per
share on the face of the statement of operations. Earnings per
common share is computed by dividing net income by the weighted
average number of common shares outstanding and for diluted
earnings per share, also common equivalent shares outstanding.
The following average shares were used for the computation of
basic and diluted earnings per share:
Nine months ended September 30, 1999 1998
----------- -----------
Basic 6,600,000 6,232,462
Diluted 7,550,000 6,458,038
(l) Stock Based Compensation
SFAS No. 123 "Accounting For Stock Based Compensation" requires
the Company to either record compensation expense or to provide
additional disclosure with respect to stock awards and stock
option grants made after December 31, 1994. The accompanying
notes to financial statements include the disclosure required
by SFAS No. 123.
8
<PAGE>
ICY SPLASH FOOD AND BEVERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - NOTES RECEIVABLE:
At September 30, 1999 and December 31, 1998 the Company was
owed $1,485 and $15,565, respectively, from a vendor who is a
co-packer of the Company's products. The vendor had agreed to
pay back the loan by providing services equal to $1,500 a month
for 12 months beginning June 1, 1998. At September 30, 1999 the
co-packer has provided services and made payments. Management
believes the remaining balance at September 30, 1999 is fully
collectible.
At September 30, 1999 and December 31, 1998 the company was
owed $24,344 and $25,544, respectively, by a customer
(distributor) for the Company's products. The customer has
agreed to pay at least $1,000 a month beginning August 15,
1998, with no interest if the entire balance is paid by June
1999 and 1.1% interest per month on the unpaid balance
thereafter. At September 30, 1999, the customer had paid
approximately six of fourteen payments due. A new agreement
with the customer for brokerage services should accelerate the
payments by providing services for payments. Although
Management is confident the balance due will ultimately be
paid, a collection allowance of $16,250 has been recorded
against this note.
NOTE 4 - NOTE PAYABLE:
On June 30, 1999, the Company received a bank loan aggregating
$65,000 with an annual interest rate of 4.5%, payable on
December 22, 1999. The bank loan is secured by certificates of
deposit belonging to two major shareholders. Proceeds from the
note were used to repay a $65,000 loan due on May 31, 1999 and
extended to June 30, 1999 by the lender at the request of the
Company.
NOTE 5 - RELATED PARTY TRANSACTIONS:
(a) During December 1998, the Company initiated sales of product to
a distributor. Certain members of management of the company
have personally agreed to provide financing and organizational
support to the distributor. In exchange for the financial
support the distributor agreed to provide experience, sales
representatives, contacts and a full-service operating
distribution business including a warehouse for, but not
limited to, the Company's product. The shareholders have not
received any form of compensation or other benefits for their
loans and managerial assistance. Management believes that all
transactions between the Company and the distributor are at
arm's length. For the nine months ended September 30, 1999,
approximate sales were $245,479 and accounts receivable were
$54,690 (see Note 7). At September 30, 1999, financing provided
to this distributor by members of management aggregated
approximately $160,000.
(b) On March 19, 1998, the Company entered into a consulting
agreement with an individual to act as the Company's Chief
Financial Officer. As part of the consideration for these
services, the Company would issue 20,000 shares of common stock
, at a value of $1,600. To date, the shares of stock have not
been issued, although the accompanying financial statements
reflect an accrual for compensation expense in 1998.
9
<PAGE>
ICY SPLASH FOOD AND BEVERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - STOCKHOLDERS' EQUITY:
Recapitalization:
On February 13, 1997, the stockholders and directors of the
Company adopted resolutions to amend the Certificate of
Incorporation to change the capitalization of the Company from
200 shares no par value to 50,000,000 shares at $.001 par value
and to restate the number of issued and outstanding shares to
6,100,000 shares.
Private Placement Offering:
During 1998, the Company commenced selling common stock through
a private placement memorandum. The offering is for the sale of
10,000 units at an offering price of $5.00 per unit, of which,
each unit consists of 50 shares of common stock and 95
redeemable common stock purchase warrants. The common stock and
warrants may be separately transferred at any time after
issuance, subject to restrictions contained in the private
placement memorandum. Each warrant entitles the holder to
purchase one share of the Company's common stock for $1. The
exercise price of the warrants and the number of shares
issuable upon exercise of the warrants are also subject to
adjustment to protect against dilution. The Company may also
redeem the warrants at a price of $.01 per warrant upon the
occurrence of certain market conditions. Unless extended by the
Company, the warrants will expire on January 20, 2000. As of
September 30, 1999, all 10,000 units have been sold. Costs in
excess of proceeds received aggregating $46,187 were reflected
as a reduction of shareholders' equity at September 30, 1999.
The common stock and warrants included in the unit have not
been registered, and are not required to be, under the
Securities Act of 1933 ("the Act"). These securities have been
offered in the absence of any registration under the Act
through the Company's intended compliance with Rule 504 under
Regulation D promulgated under the Act. Pursuant to Rule 504,
the shares are freely transferable subject to various state
securities laws.
NOTE 7 - ECONOMIC DEPENDENCY:
For the nine months ended September 30, 1999 sales to two
customers exceeded 10% of the Company's total sales. The
approximate sales to these customers were $245,479 and
$125,184, respectively. The corresponding accounts receivable
from these customers were $54,690 and $0, respectively.
For the nine months ended September 30, 1998 sales to two
customers exceeded 10% of the Company's total sales. The
approximate sales to these customers were $121,908 and $53,638,
respectively. The corresponding accounts receivable from these
customers were $0 and $0, respectively.
10
<PAGE>
ICY SPLASH FOOD AND BEVERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
Litigation:
The Company was a defendant in a lawsuit involving leasehold
property for which the plaintiff claims the Company is
responsible. A motion to dismiss was pending before the court.
The likelihood of a favorable outcome was anticipated by the
Company's counsel, therefore no provision has been made in the
financial statements relating to this matter. As of December
31, 1998 this lawsuit was dismissed.
The Company is a plaintiff in a lawsuit with a predecessor
company, "Icy Splash, Inc.," and a former shareholder of Icy
Splash, Inc. This case is presently pending in the Supreme
Court, Kings County. The Company has secured a preliminary
injunction against the defendants enjoining them from
misappropriating the Company's intellectual property rights,
including the use of the trademark "Icy Splash". The defendants
initially filed a notice of appeal relating to the injunction.
However, their time to perfect the appeal has expired. The case
to convert the preliminary injunction to a permanent injunction
is proceeding on the merits.
11
<PAGE>
ICY SPLASH FOOD AND BEVERAGE, INC.
SCHEDULES SUPPORTING STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SELLING EXPENSES - Schedule 1:
Freight and delivery $ 8,765 $ 1,895 $ 25,322 $ 9,985
Promotion 10,590 310 25,257 310
Slotting fees 115 21,176 827 21,176
Advertising 132 1,140 310 20,142
Other selling expenses 1,653 382 4,998 802
------------ ------------ ------------ ------------
TOTAL SELLING EXPENSES $ 21,255 $ 24,903 $ 56,714 $ 52,415
============ ============ ============ ============
GENERAL AND ADMINISTRATIVE EXPENSES-Schedule 2:
Automotive expenses $ 2,486 $ 2,587 $ 4,925 $ 5,783
Bad debt expense 3,354 5,837 11,799 15,907
Depreciation 750 589 2,250 1,689
Insurance 1,644 -- 7,011 754
Miscellaneous expense 362 107 511 597
Professional fees 5,551 -- 7,268 4,000
Rent -- -- 1,079 --
Repairs and maintenance -- -- 898 --
Office expense 356 889 894 920
Telephone 2,795 1,811 7,660 5,177
Travel and entertainment 1,375 439 2,889 3,282
------------ ------------ ------------ ------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES $ 18,673 $ 12,259 $ 47,184 $ 38,109
============ ============ ============ ============
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for Icy Splash Food & Beverage, Inc. (the "Company") increased 300.0%,
from $43,754 to $175,404, in the third quarter of 1999 and 117.3%, from $225,650
to $490,418, year to date versus comparable periods for 1998. The increase
reflects the introduction of a new line of products, Icy Splash - Second
Generation, at the end of December 1998. While the Company's original product,
Icy Splash - Clear, accounted for all beverage sales in the first three quarters
of 1998, it accounted for 29.9% of beverage sales for the third quarter and
32.5% year to date in 1999. Icy Splash - Second Generation sales are less
seasonal than Icy Splash - Clear, making the Company's sales volume less
susceptible to dramatic decreases in sales volume as in the third quarter of
1998.
The gross profit margin decreased to 33.0% in the third quarter of 1999, from
40.2% in the third quarter of 1998, and to 33.4% for the nine months ended
September 30, 1999, from 41.4% for the same period in 1998. The decrease in
profit margin for both periods was caused by the introduction of the lower
profit margin line of products, Icy Splash - Second Generation, into the sales
mix.
Selling expenses were $21,255 in the third quarter of 1999, compared with
$24,903 in the third quarter of 1998, 12.1% and 56.9% of sales, respectively.
For the first nine months of the year selling expenses were $56,714 in 1999,
compared with $52,415 for the same period in 1998, 11.6% and 23.2% of sales,
respectively. The increase in the dollar volume of selling expenses in 1999 is
due to the increase in sales volume, while the decrease in percentage of sales
is due to the lower selling costs associated with the new product line. During
the first nine months of 1999, $25,257 of promotion expenses (sales discounts
and giveaways) were expended predominately to promote sales of the Icy Splash -
Second Generation product line, compared with $310 to promote Icy Splash - Clear
in 1998. However, during the first nine months of 1998 there were advertising
expenditures of $20,142 for advertising media, including video, compared to $310
in 1999.
General and administrative expenses were $18,673 in the third quarter of 1999,
compared with $12,259 in the third quarter of 1998, 10.6% and 28.0% of sales,
respectively. For the first nine months of 1999, general and administrative
expenses were $47,194, compared with $38,109 for the same period in 1998, 9.6%
and 16.9% of sales, respectively. While the decrease of general and
administrative expenses as a percentage of sales demonstrates that growth of
sales has been accomplished without a corresponding growth of overhead expenses,
there has been a significant increase in insurance, due to more comprehensive
insurance coverage in 1999. Professional fees were $5,551 in the third quarter
of 1999, compared with none in the third quarter of 1998, 3.2% and 0% of sales,
respectively. For the first nine months of 1999 professional fees were $7,268,
compared with $4,000 for the same period in 1998, 1.5% and 1.8% of sales,
respectively. As the Company completes its 10-SB registration with the
Securities and Exchange Commission and continues filing quarterly and annual
reports, professional fees will probably continue to increase. Bad debt expense
was $11,799 for the first nine months of 1999 versus $15,907 for the same period
of 1998, 2.4% and 7.1% of sales, respectively. The Company anticipates
continuing lower bad debt expense as a percentage of sales for 1999 due to the
quality of its current distributors (customers). Other expenses with significant
differences as a percentage of sales between 1999 and 1998 are temporary, timing
differences.
13
<PAGE>
Income from operations for the third quarter of 1999 was $18,010, an increase of
$37,606 from the third quarter of 1998, with an operating margin of 10.3% for
1999 and (44.8%) for 1998, reflecting an increase in sales volume, an increase
in operating costs, lower gross profit margin for Icy Splash - Second Generation
and a seasonal fluctuation of sales volume in the third quarter of 1998. Income
from operations and operating margin for the nine months ended September 30,
1999 were $59,807 and 12.2%, compared to $2,805 and 1.2% for the nine months
ended September 30, 1998.
Interest expense increased from $729 to $3,907 year to date in 1999 versus the
comparable period in the prior year. There was an outstanding $65,000 note
payable for all nine months during 1999 and a $75,000 note payable for only one
month during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $89,647 from December 31, 1998 to September 30, 1999
because proceeds of profitable operations were used to fund inventory and
receivables.
Net cash flow used by operating activities was $15,097 for the nine months ended
September 30, 1999, while $34,032 was provided by operations during the same
period of 1998. During 1999, cash was predominately used to fund increases in
accounts receivable and inventory in order to facilitate increases in sales
volume. During 1998, sales volume suffered a dramatic seasonal downturn in the
third quarter, which decreased receivables and inventory, thereby providing
cash.
During the first nine months of 1999, $25,031 was collected against notes
receivable, while during the same nine months of 1998, $55,900 was loaned to a
vendor and $38,850 of the loaned amount was repaid. The Company made a loan to a
vendor to help fund capital improvements. Repayment was recorded as the vendor
performed services for the Company. The Company purchased $2,885 of fixed assets
during the three quarters ended September 30, 1999 and $3,449 for the same
period in 1998.
During the nine months ended September 30, 1999, a $65,000 note payable was
refinanced and $56,000 was borrowed from shareholders to fund the doubling of
accounts receivable and inventory caused by increased sales volume since
December 31, 1998. During the nine months ended September 30, 1998, the Company
received $32,700 of equity from a private placement and $88,852 from shareholder
loans. Also, during the third quarter of 1998, shareholder loans of $123,294
were repaid by a $100,000 third party note payable and funds provided by
operations and $25,000 of the third party loan was repaid prior to September 30,
1998. Costs of $21,438 and $18,047 were expended in the first three quarters of
1999 and 1998, respectively, for a private offering under Regulation D of the
Securities Act of 1933, as amended, and the anticipated secondary public
offering of shares of the Company's common stock.
14
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year ("Year 2000"). Consequently, such software has the
potential to recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculation causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company does not expect to be affected by Year 2000 as it does not rely
on date-sensitive software or affected hardware. The Company's current
accounting and other systems were purchased "off-the-shelf". The Company intends
to timely update its accounting and other systems which are determined to be
affected by Year 2000 by purchasing Year 2000 compliant software and hardware
available from retail vendors at reasonable cost.
To date, the Company has not devised a contingency plan for a worst case
scenario resulting from Year 2000. The Company does not intend to create a
contingency plan at this time since Management has determined that such a
contingency plan would not be cost beneficial to the Company where it only
relies on software and systems for internal accounting purposes.
Management has not yet contacted other companies on whose services the
Company depends to determine whether such companies' systems are Year 2000
compliant. If the systems of the companies or other companies on whose services
we depend, including the Company's customers, are not Year 2000 compliant, there
could be a material adverse effect on the Company's financial condition or
result of operations.
15
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 19,1997, the Company filed suit against Icy Splash, Inc., a
predecessor of the Company, and a former shareholder of Icy Splash, Inc. This
case is presently pending in the Supreme Court, Kings County. The Company
secured a preliminary injunction against the defendants enjoining them from
misappropriating the Company's intellectual property rights including the use of
the trademark "Icy Splash." The defendants initially filed a notice of appeal
relating to the injunction. However, their time to perfect the appeal has
expired. The case to convert the preliminary injunction to a permanent
injunction is proceeding on the merits. Management believes that this suit will
be resolved in favor of the Company, although there can be no assurance.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule.
b) The Registrant did not file any reports on Form 8-K
for events which occurred during the nine months ended
September 30, 1999.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ICY SPLASH FOOD & BEVERAGE, INC.
Dated: November 12, 1999 By: /s/ Joseph Aslan
----------------------------
Joseph Aslan,
President
Dated: November 12, 1999 By: /s/ Charlie Tokarz
----------------------------
Charlie Tokarz
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements for the nine months ended September 30, 1999 and is qualified in its
entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 62,425
<SECURITIES> 0
<RECEIVABLES> 173,664
<ALLOWANCES> 22,358
<INVENTORY> 118,519
<CURRENT-ASSETS> 335,250
<PP&E> 17,279
<DEPRECIATION> 6,923
<TOTAL-ASSETS> 345,606
<CURRENT-LIABILITIES> 191,856
<BONDS> 0
0
0
<COMMON> 6,600
<OTHER-SE> 90,650
<TOTAL-LIABILITY-AND-EQUITY> 345,606
<SALES> 490,418
<TOTAL-REVENUES> 490,418
<CGS> 326,703
<TOTAL-COSTS> 103,908
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,799
<INTEREST-EXPENSE> 3,907
<INCOME-PRETAX> 55,900
<INCOME-TAX> 680
<INCOME-CONTINUING> 55,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,220
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
