UNITED STATES
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 March 31, 2000
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
--------------------- -----------------------
COMMISSION FILE NUMBER: 001-15689
JEREMY'S MICROBATCH ICE CREAMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-3017648
- ------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3401 MARKET ST., SUITE 312
PHILADELPHIA, PA 19104
(Address of principal executive offices)
215/823-6885
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
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 Registrant has been subject to the
reporting requirements for less than 90 days).
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.01, was 3,000,000 as of April 25, 2000.
Page 1
<PAGE>
JEREMY"S MICROBATCH ICE CREAMS, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements - unaudited
Consolidated Balance Sheets --
March 31, 2000 and December 31, 1999 .................................................. 3
Consolidated Statements of Operations --
for the three month periods ended March 31, 2000
and 1999............................................................................... 4
Consolidated Statement of Stockholders' Equity (Deficiency) for
the three month Period ended March 31, 2000............................................ 5
Consolidated Statements of Cash Flows -- For the three-month
periods ended March 31, 2000
and 1999............................................................................... 6
Notes to Consolidated Financial Statements............................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................... 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 19
Item 2. Changes in Securities and Use of Proceeds.............................................. 19
Item 6. Exhibits and Reports on Form 8-k....................................................... 21
Signatures........................................................................................... 22
</TABLE>
Page 2
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current Assets
Cash ................................................................................. $ 1,925,376 3,473
Restricted cash (Notes 2 and 5) ...................................................... 660,000 --
Accounts receivable .................................................................. 109,475 164,510
Note receivable from officer (Note 4) ................................................ 50,000 --
Inventories .......................................................................... 132,861 67,171
Prepaid expenses ..................................................................... 94,503 6,124
----------- -----------
Total current assets ....................................................................... 2,972,215 241,278
----------- -----------
Property and equipment, net (Note3) ........................................................ 258,159 85,427
----------- -----------
Other assets
Deferred charges, net of accumulated amortization of $841,330 and $646,322 ......... 248,301 352,109
Deferred Offering Costs .............................................................. -- 273,479
Other ................................................................................ 1,269 5,400
----------- -----------
Total other assets ......................................................................... 249,570 630,988
----------- -----------
Total assets ............................................................................... $ 3,479,944 $ 957,693
=========== ===========
Liabilities and Stockholders' Equity (Deficiency)
Current Liabilities
Note payable, bank ................................................................... -- 299,980
Note payable, vendor ................................................................. -- 258,806
Accounts payable and accrued expenses ................................................ 800,104 1,781,902
Notes payable to related parties ..................................................... -- 325,000
Current maturities of capital leases (Note 5) ........................................ 33,732 14,109
----------- -----------
Total current liabilities .................................................................. 833,836 2,679,797
Capital leases, net of current maturities (Note 5) ......................................... 141,635 23,273
----------- -----------
Total liabilities .......................................................................... 975,471 2,703,070
=========== ===========
Commitments and Contingencies (Notes 5, 6 and 7)
Stockholders' equity (deficiency) (Notes 7 and 8)
Preferred stock: $0.01 par value
Authorized 500,000 shares
Issued and outstanding none .................................................... -- --
Common stock: $0.01 par value
Authorized 5,000,000 shares
Issued and outstanding 3,000,000 and 1,800,000 shares .......................... 30,000 18,000
Additional paid-in capital ........................................................... 8,866,414 2,991,857
Accumulated (deficit) ................................................................ (6,391,941) (4,755,234)
----------- -----------
Total stockholders' equity (deficiency) .................................................... 2,504,473 (1,745,377)
----------- -----------
Total liabilities and stockholders' equity (deficiency) .................................... $ 3,479,944 $ 957,693
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales ................................................................. $ 295,170 $ 281,839
Cost of sales ............................................................. 221,150 209,508
----------- -----------
Gross profit .............................................................. 74,020 72,331
----------- -----------
Operating expenses
Selling ............................................................. 950,523 199,471
Distribution ........................................................ 51,961 24,445
General and administrative .......................................... 524,989 239,914
Amortization of deferred charges .................................... 195,008 29,533
Depreciation ........................................................ 6,094 280
----------- -----------
Total operating expenses .................................................. 1,728,575 493,643
----------- -----------
(Loss) from operations .................................................... (1,654,555) (421,312)
----------- -----------
Other income (expense)
Other income ........................................................ -- 5,000
Interest income ..................................................... 77,321 --
Interest expense .................................................... (59,473) (1,500)
----------- -----------
Total other income ........................................................ 17,848 3,500
----------- -----------
Net (loss) ................................................................ $(1,636,707) $ (417,812)
=========== ===========
Basic and diluted loss per share .......................................... $ (0.69) $ (0.47)
=========== ===========
Basic and diluted weighted average number of common shares
outstanding ......................................................... $ 2,380,220 $ 880,269
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY(DEFICIENCY)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 1,800,000 $ 18,000 $ 2,991,857 $ (4,755,234) $ (1,745,377)
Issuance of common stock in
connection with the initial
public offering (Note 8) 1,200,000 12,000 5,874,557 5,886,557
Net loss (1,636,707) (1,636,707)
--------- --------- ----------- ------------ -----------
Balance, March 31, 2000 3,000,000 $ 30,000 $ 8,866,414 $ (6,391,941) $ 2,504,473
========= ========= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
------------------------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities
<S> <C> <C>
Net (loss) ................................................................. $(1,636,707) $ (417,812)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities
Depreciation ........................................................... 6,094 280
Amortization of deferred charges ....................................... 195,008 29,533
Changes in assets and liabilities
(Increase)decrease in assets
Accounts receivable ........................................... 55,035 (142,729)
Inventories ................................................... (65,690) 59,592
Prepaid expenses .............................................. (88,379) (41,090)
Other ......................................................... 4,131 7,090
Increase in liabilities
Accounts payable and accrued expenses ......................... (981,798) (7,408)
----------- -----------
Net cash (used in) operating activities .......................................... (2,512,306) (512,544)
----------- -----------
Cash flows from investing activities
Deferred charges ........................................................... (91,200) (213,712)
Restricted cash, capital lease ............................................. (160,000) --
Advance to officer ......................................................... (50,000) --
Purchase of property and equipment ......................................... (34,455) --
----------- -----------
Net cash (used in) investing activities .......................................... (335,655) (213,712)
----------- -----------
Cash flows from financing activities
Issuance of common stock ................................................... 6,226,431 300,000
Deferred offering costs .................................................... (66,395) --
Proceeds from note payable, bank ........................................... -- 299,977
Repayments of note payable, bank ........................................... (299,980) --
Repayment of notes payable to related parties .............................. (325,000) --
Repayment of long-term debt ................................................ (265,192) (50,000)
Restricted cash, letter of credit .......................................... (500,000) --
----------- -----------
Net cash provided by financing activities ........................................ 4,769,864 549,977
----------- -----------
Net increase (decrease) in cash .................................................. 1,921,903 (176,279)
Cash at beginning of period ...................................................... 3,473 179,730
----------- -----------
Cash at end of period ............................................................ $ 1,925,376 $ 3,451
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest ................................... $ 54,393 $ 1,500
=========== ===========
Non-cash financing activities
Property and equipment purchases through capital lease ..................... $ 144,371 $ --
=========== ===========
</TABLE>
See accompanying notes on consolidated financial statements.
Page 6
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Jeremy's Microbatch Ice Creams, Inc. and Subsidiary ("Jeremy's" or the
"Company") develops, markets and sells super-premium ice cream using
high-quality ingredients through its wholly owned subsidiary, Jeremy's
Microbatch Ice Creams, LLC (the "LLC"). Unique flavors of ice cream are offered
primarily in small, limited edition batches in pint size containers. Ice cream
products are sold mostly in supermarkets and grocery stores in New England,
Mid-Atlantic Region, Colorado, Minnesota, Florida, Texas and Arizona.
In February 2000, the Company completed its plan of reorganization (See
Note 7) and Initial Public Offering ("IPO") of 1,200,000 shares of its common
stock at $6.00 per share and received net proceeds of $5,886,557 (See Note 8).
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements give effect to the Company's Reorganization (Note
7) and include the accounts of Jeremy's Microbatch Ice Creams, Inc. and it's
wholly owned subsidiary Jeremy's Microbatch Ice Creams, LLC. Any intercompany
balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the fiscal year ended December 31, 2000.
The unaudited consolidated financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in the
company's form 10-KSB for the fiscal year ended December 31, 1999.
INCOME TAXES
The LLC has elected to be treated as a partnership under the Internal
Revenue Code and the tax regulations in the states in which it operates. As a
result, the LLC's loss is reported on the income tax returns of its members and,
accordingly, no corporate income taxes were imposed at the Company level.
Effective as of the date of the Company's Reorganization, the Company
Page 7
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
follows Statement of Financial Accounting Standards No. 109 which requires an
asset and liability approach to providing deferred income taxes and specifies
that all deferred tax balances be determined by using the tax rate expected to
be in effect when the taxes actually will be paid or refunds received.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and accounts receivable, trade.
The Company's policy is to limit the amount of credit exposure by placing
cash with financial institutions evaluated as being creditworthy. At times, the
Company's cash exceeds Federal Deposit Insurance Corporation insurance limits.
Uninsured balances approximated $1,919,000 as of March 31, 2000.
The Company attempts to minimize credit risk with respect to receivables by
reviewing customers' credit history before extending credit, and by monitoring
customers' credit exposure regularly. The Company does not generally require
collateral for its trade accounts receivable.
ADVERTISING
Advertising costs are expensed as incurred and are included in selling
expenses. Advertising expense for the three months ended March 31, 2000 and 1999
approximated $692,000 and $146,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash, accounts
receivable, note receivable from officer, accounts payable and accrued expenses
approximate fair value at March 31, 2000, because of the relatively short
maturity of these instruments. The carrying amount of capital leases also
approximate fair value because the Company's interest rates approximate current
interest rates.
Page 8
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Financial Instruments and for Hedging
Activities," ("SFAS 13 as amended by SFAS 137") SFAS 137 delays the effective
date of implementation of SFAS 133 by one year. SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. SFAS
133 is not anticipated to have a significant impact on the Company's operating
results or financial condition when adopted, because the Company currently does
not engage in derivative instruments.
2. TRANSACTIONS WITH MAJOR SUPPLIERS AND CUSTOMERS
During June 1999, the Company entered into a Co-Packing Agreement (the
"Agreement") whereby the Company agreed to purchase ice cream products from a
certain supplier. The term of the Agreement is the longer of two years or until
such time that the Company has purchased two million pints of ice cream. The
Company may elect to cancel this agreement on sixty days' notice at any time.
However, the Company is then required to purchase the manufacturer's entire
inventory and compensate the manufacturer for the amortized cost of its
equipment used in the production of the Company's product. A shareholder of the
Company guarantees these obligations.
In February 2000, the Company entered into a $500,000 irrevocable standby
letter of credit facility with a bank to guaranty payments under the Agreement.
This facility expires February 28, 2001. Any payments to the supplier under this
letter of credit will be facilitated by the
Page 9
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's $500,000 line of credit facility with the bank. The line of credit is
solely for the purpose of this Co-Packaging agreement. On February 29,2000, the
Company obtained this line of credit facility. Any amounts under the line of
credit will be payable upon demand and will bear interest at 7.8% per annum,
expires on February 28, 2001 and is collateralized by a $500,000 certificate of
deposit.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
Useful Life 2000 1999
----------- ---------- ------------
<S> <C> <C> <C>
Transportation equipment 5 years $164,018 $74,980
Equipment 3-5 years 101,381 11,594
Furniture 7 years 8,430 8,429
-------- -------
273,829 95,003
Less: Accumulated depreciation 15,670 9,576
-------- -------
$258,159 $85,427
======== =======
</TABLE>
Property and equipment of approximately $184,000 at March 31, 2000 is
covered by capitalized lease commitments.
4. NOTE RECEIVABLE FROM OFFICER
In February 2000, the Company advanced $50,000 to an officer of the
Company, which is evidenced by an unsecured promissory note. The advance bears
interest at 8% per annum and is payable by bi-weekly payroll deductions of $722
until, June 2000, where a balloon payment of $45,986 will be payable in full or
upon earlier termination of the officer's employment with the Company.
Page 10
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. CAPITAL LEASES
The Company leases certain equipment through capital lease agreements. The
Company makes minimum monthly payments of $1,568 to $3,837 including interest of
12.44% to 18%.
The total minimum capitalized lease commitments at March 31, 2000 is as
follows:
Year ended December 31, Amount
- ----------------------- ------
2000(nine months) $48,643
2001 64,857
2002 55,449
2003 54,821
-------
223,770
Less: Interest (48,403)
--------
175,367
Less: Current Portion (33,732)
--------
$141,635
========
In March 2000, the Company entered into a vehicle lease with a bank for six
vans. This lease requires minimum monthly payments of $3,837 including 12.44%
interest through March 2003 with a purchase option equal to 30% of the vehicles
cost. The Company also obtained an irrevocable letter of credit from the bank in
the amount of $160,000 to guaranty payments under the lease and posted a
$160,000 certificate of deposit with the bank to secure the obligations under
the vehicle lease.
6. LEGAL PROCEDURES
The Company is a party to various legal proceedings in the ordinary course
of its business. The Company believes that none of the outcomes from these
proceedings are material to its financial position, results of operations and
changes in cash flows.
Page 11
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. REORGANIZATION
In connection with the Company's Initial Public Offering of common stock
(see Note 8), certain events have occurred (the "Reorganization"). Prior to, or
simultaneously with the closing date of the offering, the Company, JMIC, Inc.
("Merger Sub"), the LLC, and the members of the LLC undertook a reorganization
transaction, pursuant to the Plan of Merger and Formation, dated as of December
1, 1999, among the members of the LLC, the LLC and Jeremy's Microbatch Ice
Creams, Inc. At the effective time of the merger, the Merger Sub merged with and
into the LLC, the separate corporate existence of the Merger Sub ceased and the
LLC became the surviving entity in the merger. At that time, all of the
membership interests in the LLC were converted automatically into 1,800,000
shares of Jeremy's Microbatch Ice Creams, Inc. common stock. As a result of the
Reorganization, Jeremy's Microbatch Ice Creams, Inc. owns all of the members'
respective LLC interests and the LLC became a wholly owned subsidiary of
Jeremy's Microbatch Ice Creams, Inc. (see Note 1).
The Reorganization also includes provisions whereby a certain stockholder
will have the right to acquire a certain number of shares at predetermined
prices from another stockholder. Some of these rights will vest only upon the
occurrence of defined triggering events which include: (1) a merger in which the
stockholders receive cash and/or securities of another entity; (2) the
acquisition of Jeremy's Microbatch Ice Creams, Inc. shares in one transaction or
a series of related transactions or (3) the sale of all or substantially all of
Jeremy's Microbatch Ice Creams, Inc. assets in one transaction or a series of
related transactions. These triggering events are predicated on the aggregate
cash and fair market value of securities received by Jeremy's Microbatch Ice
Creams, Inc. and/or its stockholders.
8. INITIAL PUBLIC OFFERING
In February 2000, the Company completed its initial public offering of
1,200,000 shares of common stock at $6.00 per share. The net proceeds to the
Company of the offering after underwriter's, discounts, commissions and expenses
were approximately $5,900,000. A portion of the net proceeds was used to pay
down accounts payable and notes payable to bank, vendor and related parties. In
connection with the IPO, the Company entered into employment agreements with two
key executive officers, the terms of which are expected to expire in December
2002. Such agreements will provide for minimum annual salary levels of $120,000
for each officer. In addition to each executive's salary, the agreements provide
for the granting to each officer employee stock options to purchase 10,000
shares of Jeremy's Microbatch Ice Creams, Inc.'s
Page 12
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
common stock in each of January 2000, 2001 and 2002. The stock options will have
an exercise price equal to the market price of Jeremy's Microbatch Ice Creams,
Inc. common stock as of the date of issuance. The Company is currently
contemplating the adoption of an employee stock option plan.
The employee stock options are expected to be exercisable for five
years after the date of issue and will be vested upon issuance. These options
have not yet been granted.
Page 13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
We have made statements under the captions "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in this Report
that are forward-looking statements. You can identify these statements by
forward-looking words such as "may", "will", "expect", "anticipate", "believe,"
"estimate," and similar terminology.
There may be events in the future that we are not able to accurately predict or
which we do not fully control that will cause actual results to differ
materially from those expressed or implied by our forward-looking statements.
Although we believe that our expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Our forward-looking statements are made
as of the date of this Report, and we assume we are under no duty to update them
or to explain why actual results may differ.
The following discussion and analysis should be read in conjunction with the
"Summary Financial Data" and our financial statements and related notes that are
included in this Report
Overview
In 1997, one of our principal members, Strive, Inc., developed, marketed and
sold super-premium ice cream under the Jeremy's Microbatch(R) Ice Creams brand.
Jeremy D. Kraus, our Chief Executive Officer and director, and Samuel V. Cohen,
our Chief Operating Officer and director, are shareholders, directors and
officers of Strive. In January 1998, Strive transferred the business to Jeremy's
Microbatch Ice Creams, LLC. Simultaneously with closing of our initial public
offering in February 2000, Jeremy's Microbatch Ice Creams, LLC, became a
subsidiary of Jeremy's Microbatch Ice Creams, Inc. Since we began operating, we
have derived our revenues primarily from the sale of our branded ice cream
products in pint and other containers in supermarkets, grocery stores and
similar retail outlets. We expect our revenues will continue to be primarily
from these sources. Our long-term plans include opening our own retail
establishments serving primarily our own product, but we do not expect to begin
work on retail stores in the next twelve months.
Throughout our short history, revenues have increased. However, we have not
achieved net cash flow from operations. We believe that promotional and
marketing activities funded by the proceeds of our Initial Public Offering will
allow us to continue to increase revenues. We also expect that our operating
expenses will decline as a percentage of sales. However, we cannot guarantee
that our sales will continue to grow or that we will be able to reduce expenses
as a percentage of sales.
Page 14
<PAGE>
Results of Operations
The following table presents selected consolidated financial data for the
periods indicated expressed as a percentage of net sales.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended Three Months Ended Three Months Ended
December 31,1999 March 31,2000 March 31,1999
---------------- ------------- -------------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales 100.00% 100.00% 100.00%
- ---------------------------------------------------------------------------------------------------------------------------
Cost of Sales 83.56 74.92 74.34
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 16.44 25.08 25.66
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
Selling 95.93 322.03 70.77
- ---------------------------------------------------------------------------------------------------------------------------
Distribution 12.20 17.60 8.67
- ---------------------------------------------------------------------------------------------------------------------------
G & A 88.53 177.86 85.12
- ---------------------------------------------------------------------------------------------------------------------------
Amortization of deferred costs 40.44 66.07 10.48
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation 0.61 2.06 0.10
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS 237.71 585.62 175.14
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING (LOSS) (221.27) (560.54) (149.48)
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
Other income 0.31 0.00 1.77
- ---------------------------------------------------------------------------------------------------------------------------
Loss on sale of property & equipment (1.18) 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------
Interest Income 0.00 26.20 0.00
Interest expense (3.83) (20.15) (0.53)
- ---------------------------------------------------------------------------------------------------------------------------
Net (loss) (225.97)% (554.50)% (148.24)%
----------- ----------- -----------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 15
<PAGE>
Comparison of Results Of Operations For Three-Month Periods Ended March 31, 2000
and March 31, 1999.
Net Sales. Our net sales for period ended March 31, 2000 vs. period ended March
31, 1999 remained consistent. The primary reason for our failure to increase
sales were inventory shortages in the first quarter of 2000 caused by
insufficient working capital in 1999..
Gross Profit. Our gross profit in 2000 was $74,020 as compared to $72,331 in
1999. Our gross profit as a percentage of sales was 25.08% in 2000 as compared
to 25.66% in 1999. Currently, our entire product is manufactured and packaged by
a single outside source. We do not plan to manufacture the product ourselves. We
believe that the use of a single source, or a small number of sources, will
reduce our cost due to the manufacturer's ability to plan production more
efficiently. We anticipate that as our production runs continue to increase,
that our volume will result in less waste per unit produce and generally
increase the economy in our purchases of the product.
Operating Expenses. Our total operating expenses increased by $1,234,932 in the
period ended March 31, 2000 as compared to the three months ended March 31,
1999. The three major components of operating expenses, include selling, general
and administrative expenses and amortization of deferred charges.
Selling expenses consist primarily of promotional activities, advertising,
salaries and commissions of sales and marketing personnel, brokers and
distributors. Selling expenses for the first quarter were approximately $950,000
of which approximately $750,000 was spent on marketing and advertising alone.
These marketing efforts were not expected to result in increased sales in the
first quarter, and did not have that result. We do not expect that these
marketing efforts will result in increased sales until late in the second
quarter of 2000. We expect that selling expenses will continue to increase in
absolute dollars for the foreseeable future as we increase expenditures for
sales, marketing, and brand promotion and we hire additional sales and marketing
personnel. We expect that sales and marketing expenses will follow the pattern
for a growth company, increasing initially and then decreasing as a percentage
of sales.
General and administrative expenses include salaries, and other costs for
general corporate functions such as finance, accounting, legal fees and other
professional service expenses. These expenses increased by $285,075 in the three
months ended March 31, 2000 as compared to the three months ended March 31,
1999. The increase in general and administrative expenses is primarily
attributable to increased salaries and related expenses associated with hiring
additional personnel and increased professional fees to support the growth of
our operations. We expect to incur no significant increases in the personnel
components of general and administrative expenses as most of our substantial
staffing needs have been met. Our general and administrative expenses have also
increased because of our becoming a publicly traded company, in areas such
directors and officers liability insurance, investor relations programs and
professional service fees. We began incurring those additional expenses in the
first quarter of 2000, but they may increase somewhat in the second quarter,
which will be our first full quarter as a public company. We believe that
general and administrative expenses will follow the pattern for a growth
company, increasing initially and then decreasing as a percentage of revenue.
Page 16
<PAGE>
The deferred charges represent certain product placement costs, also known as
slotting fees, paid to our retail customers to obtain and maintain shelf space
in retail outlets, generally over a twelve-month period. The payment of these
fees is common in most segments of the food industry.
These deferred charges are generally amortized evenly over a twelve-month
period. We anticipate that the deferred charges will decrease in the next few
quarters as most of our prior deferred charges have been amortized and we
currently have no commitments for significant additional product placement costs
at the time of filing of this report. We may, however, be required to pay
significant additional product placement costs in the future as we move into new
retail markets.
Other Income and Expenses: Our interest expense increased from approximately
$1,500 in March 1999 to approximately $59,000 in March 2000, due to additional
borrowings to finance growth. We expect that we will eliminate interest expense
entirely in the second, third and fourth quarters of 2000, and the first quarter
of 2001, due to the pay down of a substantial portion of our old debt with the
proceeds of our initial public offering. After that time, we expect that we will
obtain lines of credit consistent with our level of sales.
Seasonality
While our sales have fluctuated due to our rapid growth, our sales are generally
not expected to be seasonal. The market segment in which we compete, super
premium ice creams, does not experience significant seasonality. We do not
expect that our sales will be affected by significant seasonal fluctuations in
the future.
Industry Trends
The ice cream industry, and the super premium segment in particular, has
recently experienced significant changes. The consumer demand for ice cream has
shifted back to full fat ice creams, like those we produce, from low fat and
non-fat ice creams and yogurt products, which were popular in the 1980's and
early 1990's. We expect, based on our review of industry statistics that the
demand for full fat product, and super premium ice creams in particular, will
continue to grow rapidly. However, we also believe that competition in our
segment will increase. Competitors in the segment have helped to drive growth
and a reallocation of retail space to super premium products. Therefore, we
believe that the market segment in which we compete will continue to grow.
However, should industry trends change, and consumers once against focus on
lower fat products, our growth could be severely affected.
Page 17
<PAGE>
Liquidity and Capital Resources
On February 16, 2000 the company completed an IPO, which netted the company
approximately $5.9 million to fuel expansion via marketing and sales promotions
as well as pay off existing debt. From inception until February 15, 2000, we
financed our operations primarily through capital contributions of our
shareholders. Since inception through December 31, 1999, we received $2,700,000
in cash capital contributions from two of our shareholders. One of these
shareholders also converted a $50,000 note payable to equity during 1998. We
received an additional $100,000 from another shareholder in October 1999. We
also received working capital through an accounts receivable factoring
arrangement and a line of credit from Norwest Bank.
Net cash used in operating activities was $512,544 in the first three months of
1999, $ 1,153,179 in year ended December 31, 1999 and $2,512,306 in the first
three months of 2000. All of these negative cash flows were offset initially
through additional investments by our existing shareholders and currently
through the proceeds of the IPO.
Our arrangements with our manufacturer require us to post a letter of credit to
secure our obligations. The letter of credit we posted for this purpose in
February, 2000 requires us to maintain a $500,000 Certificate of Deposit as
security. We also posted a $160,000 Certificate of Deposit with First Union Bank
to secure our obligations under vehicle leases.
As we do not manufacture, store or distribute products ourselves, we do not
anticipate any significant capital requirements in the next 12 months. We
believe that the cash supplied by our initial public offering will be sufficient
to finance all of our needs through at least the first quarter of 2001. While
our ability to increase our revenues and obtain net cash flow from operations is
unproven, we believe that by the end of the first quarter of 2001, we will be
able to finance operations from cash flow. In the future, we may be able to
enter into receivables financing or line of credit arrangements. However, if our
revenues do not increase as quickly as anticipated, or the expenses we incur are
greater than anticipated, we may need to raise additional funds to fund more
aggressive brand promotion or more rapid expansion. We cannot be sure that any
required additional financing will be available on terms favorable to us, or
will be available at all. If additional funds are raised through the issuance of
equity securities, stockholders may experience dilution of their ownership
interest and the new securities may have rights superior to the holders of our
common stock. If additional funds are raised by the issuance of debt, we may be
subject to certain limitations on our operations and our ability to pay
dividends. If adequate funds are not available, or not available on acceptable
terms, we may be unable to fund our expansion, successfully promote our brand
name, develop or enhance our services, respond to competitive pressures or take
advantage of business opportunities. Any of these events could have a material
adverse effect on our business, results of operation or financial condition.
Pqge 18
<PAGE>
New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities." SFAS 133 was amended by SFAS 137. SFAS
137 delays the effectiveness of SFAS 133 by one year. SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measure at its
fair value. The statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge accounting criteria are
met. SFAS 133 is not anticipated to have a significant impact on the Company's
operating results or financial condition when adopted, because the Company
currently does not engage in derivative instruments.
Inflation
The impact of general inflation on our business has been insignificant to date.
Inflation may affect our raw materials prices, but we do not expect that it will
affect our gross profit.
Year 2000 Issues
We have completed our assessment of Year 2000 issues and believe that the
consequences of such issues will not have a material adverse effect on our
business, results of operations or financial condition, without taking into
account any efforts by us to avoid such consequences.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended March 31, 2000, no legal proceedings became
reportable and no material events occurred in any previously reported legal
proceeding.
Item 2. Changes in Securities and Use of Proceeds
(d) Use of Proceeds from Sales of Registered Securities
Our Registration Statement on Form SB-2 (Registration N0. 333-89625) became
effective February 14, 2000 (the "Registration Statement").
The offering pursuant to the Registration Statement (the "Offering")
commenced on February 16, 2000. The classes of securities registered were Common
Stock and Underwriters Warrants. The Managing Underwriter of the Offering was
First Montauk Securities Corp. (the "Underwriter").
Page 19
<PAGE>
The Offering has been terminated. All securities registered were sold with
the exception of (1) 180,000 shares of Common Stock registered for issuance upon
the exercise of the Underwriter's over allotment option, and (2) 120,000 shares
of Common Stock reserved for issuance upon the exercise of Underwriter's
Warrants.
The expenses incurred for the Company's account in connection with the issuance
and distribution of securities sold in the Offering were as follows:
<TABLE>
<S> <C> <C>
Underwriting discount and commissions - $ 720,000
Finder's Fees - 0
Expenses paid to or for the account of
Underwriter - $ 273,569
Other expenses (including legal, account-
ing, printing and transfer agent's expenses)* - $ 300,000
----------
Total expenses* $1,293,569
</TABLE>
* Approximation
None of the foregoing expenses ("Offering Expenses") represent payments to
our directors, officers or general partners, any associate of any such persons,
any person owning 10% or more of any class of our equity securities, or any of
our affiliates.
The net proceeds to the Company from the Offering (i.e., gross offering
proceeds of $7,200,120 less Offering Expenses of $1,293,569) were approximately
$5,906,551.
From the effective date of the Registration Statement through March 15,
2000, net Offering proceeds were applied as follows:
(1) Construction of plant, building
and facilities $ -0-
(2) Purchase and installation of
machinery and equipment -0-
(3) Purchase of real estate -0-
(4) Acquisition of other businesses -0-
(5) Repayment of debt* $1,165,000
(6) Working capital (including new inventory) ** $ 505,000
(7) Advertising and Promotion $ 750,000
(8) Retail Placement ("Slotting") Fees $ 91,000
----------
Total applied through 3/31/00 $2,420,000
==========
Page 20
<PAGE>
*Repayment of Debt includes the following:
o $400,000 owed to a bank
o $40,000 owed to our Chief Executive Office
o $5,000 owed to our Chief Financial Officer
o $60,000 owed to Strive, Inc., one of our principal shareholders
o Approximately $235,000 owed to our former marketing agency.
o $220,000 owed to a relative of our CEO for funds supplied to pay accrued
working capital items
o Approximately $205,000 to our former factoring company
** Includes approximately $205,000 paid to our former manufacturer.
The remaining funds have been temporarily invested in money market funds,
certificates of deposit, treasury notes and similar instruments
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Exhibit Title
------- -------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the quarter ending March 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on our behalf by the undersigned.
DATE: May ___, 2000
JEREMY'S MICROBATCH ICE CREAMS, INC.
By: /s/
-------------------------------
Jeremy D. Kraus
President and Chief Executive Officer
By: /s/
-------------------------------
Jeffrey S. Rosen
Chief Financial Officer
Page 21
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 1,925,376
<SECURITIES> 0
<RECEIVABLES> 109,475
<ALLOWANCES> 0
<INVENTORY> 132,861
<CURRENT-ASSETS> 2,972,215
<PP&E> 273,829
<DEPRECIATION> 15,670
<TOTAL-ASSETS> 3,479,944
<CURRENT-LIABILITIES> 833,836
<BONDS> 0
0
0
<COMMON> 30,000
<OTHER-SE> 2,474,473
<TOTAL-LIABILITY-AND-EQUITY> 3,479,944
<SALES> 295,170
<TOTAL-REVENUES> 295,170
<CGS> 221,150
<TOTAL-COSTS> 1,728,575
<OTHER-EXPENSES> 77,321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,473
<INCOME-PRETAX> (1,636,707)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,636,707)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,636,707)
<EPS-BASIC> (.64)
<EPS-DILUTED> (.64)
</TABLE>
