INITIAL PUBLIC OFFERING PROSPECTUS
[JEREMY'S MICROBATCH LOGO]
1,200,000 SHARES OF COMMON STOCK
We develop, market and distribute a super-premium ice cream under the brand
name Jeremy's Microbatch(R) Ice Creams.
We are offering 1,200,000 shares of our common stock through First Montauk
Securities Corp., our underwriter.
This is our initial public offering. The initial public offering price will
be $6.00 per share.
No market currently exists for our shares. We have applied for listing of
our common stock on the Nasdaq SmallcapSM Market under the symbol JMIC and the
Boston Stock Exchange under the symbol JMI.
------------------------------
The chart below shows the basic terms of the offering:
<TABLE>
<S> <C> <C>
| PER SHARE | TOTAL
Public Offering Price................................ | $6.00 | $7,200,000
Underwriting Discounts............................... | $ .60 | $ 720,000
Proceeds to Us Before Expenses of the Offering....... | $5.40 | $6,480,000
Proceeds to Us After Expenses of the Offering........ | $5.00 | $6,000,000
</TABLE>
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is February 15, 2000.
<PAGE>
PROSPECTUS SUMMARY
JEREMY'S MICROBATCH(R) AND ITS PRODUCTS
Jeremy's Microbatch Ice Creams, Inc. develops, markets and sells
super-premium ice cream using high-quality ingredients. Applying a successful
concept first developed by the microbrew industry, we offer unique flavors of
ice cream primarily in small, limited edition pint-size batches. Our ice cream
products are mostly sold to supermarkets and grocery stores. We also sell
products in convenience stores and food service outlets.
Our mailing address is: 3741 Walnut Street, Suite 423, Philadelphia, PA
19104. Our telephone number is 215/823-6885.
THE OFFERING AND JEREMY'S MICROBATCH(R)'S SECURITIES
<TABLE>
<S> <C>
Securities Offered................................... 1,200,000 shares of common stock.
Offering Price....................................... $6.00 per share
Shares of Common Stock Outstanding:
Prior to the Offering................................ 1,800,000 shares of common stock
After the Offering................................... 3,000,000 shares of common stock
Use of Proceeds...................................... We will use the proceeds of this offering
for advertising and promotions, retail
placement fees, repayment of debt,
inventory and working capital.
</TABLE>
o The underwriter has an option to sell an additional 180,000 shares to
cover over-allotments.
In addition to the 3,000,000 shares that will be outstanding after this
offering, we will have the following securities outstanding:
o Underwriter's warrants for 120,000 shares of common stock. These warrants
will have an exercise price equal to 165% of the public offering price.
o Options for an aggregate 20,000 shares held by two of our officers.
One of our principal shareholders intends to purchase 200,000 shares in the
offering.
MARKET FOR JEREMY'S MICROBATCH(R)'S SECURITIES
Before this offering, there was no market for any of our securities. We
cannot guarantee that a trading market will develop for our shares. We have
applied for listing on the Nasdaq SmallcapSM Market and the Boston Stock
Exchange. These listing applications have not yet been approved. Our
applications request that the following listing symbols be reserved for our
common stock:
Proposed Nasdaq Symbol............................... JMIC
Proposed Boston Exchange Symbol...................... JMI
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<PAGE>
SUMMARY FINANCIAL DATA
In the tables below:
o historic information for the period ended December 31, 1997, and
information as of and for the year ended December 31, 1998 is derived
from audited financial statements of Jeremy's Microbatch Ice Creams, LLC.
o All other historic information is derived from unaudited financial
statements of Jeremy's Microbatch Ice Creams, LLC..
STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS NINE MONTHS
DECEMBER 31, YEAR ENDED ENDED ENDED
1998 DECEMBER 31, 1997 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Net Sales........................ $ 415,671 $ 79,421 $ 1,197,698 $ 252,790
Cost of Sales.................... $ 299,868 $ 114,873 $ 876,136 $ 113,170
Gross Profit (Loss).............. $ 115,803 $ (35,452) $ 321,562 $ 139,620
Total Operating Expenses......... $1,066,747 $ 72,091 $ 2,376,009 $ 620,140
(Loss) from Operations........... $ (950,944) $(107,543) $(2,054,447) $(480,520)
Net (Loss)....................... $ (956,201) $(130,103) $(2,110,611) $(484,528)
Pro Forma basic and Diluted
(Loss) Per Share............... $ (1.67) $ (0.44) $ (1.70) $ (0.97)
Pro Forma basic and Diluted
Weighted Average Number of
Common Shares Outstanding...... 572,620 298,620 1,239,025 497,406
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30,
SEPTEMBER 30, 1999
SEPTEMBER 30, 1999 (PRO FORMA
DECEMBER 31, 1998 1999 (PRO FORMA) AS ADJUSTED)
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash................................. $179,730 $ 124,129 $ 209,129 $5,579,662
Current Assets....................... $377,504 $ 338,427 $ 423,427 $5,793,960
Total Assets......................... $421,894 $ 893,852 $ 978,852 $6,294,685
Current Liabilities.................. $306,476 $1,214,678 $1,199,678 $ 515,511
Long-Term Debt....................... $ 50,000 $ 24,367 $ 24,367 $ 24,367
Members' Capital (Deficiency)........ 65,418 (345,193) -- --
Stockholders' Equity (Deficiency).... $ -- $ -- $ (245,193) $5,754,807
</TABLE>
The "Pro Forma" balance sheet data reflects the following transactions:
o Events which occurred in the fourth quarter of 1999:
o Our borrowing of $40,000 from our chief executive officer and $5,000 from
our chief financial officer. These loan proceeds were used to repay a
$50,000 note owed to an unrelated third party.
o Additional purchase of membership interests for $100,000 made by a
member.
o Our borrowing of $50,000 from a related party.
o Our payment of $60,000 of a note payable to our former marketing agency.
o Our plan of reorganization whereby the total amount of Members' contributions
will be converted to 1,800,000 shares of common stock of Jeremy's Microbatch
Ice Creams, Inc.
The Pro Forma As Adjusted balance sheet data reflects the receipt of the
anticipated net proceeds of approximately $6,000,000 from the sale of the
1,200,000 shares of common stock offered in this offering, net of repayments of
notes payable in the amount of $630,000.
NOTICE TO CALIFORNIA INVESTORS: Each purchaser of our shares in California
must be an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D under the Securities Act of 1933, or satisfy one of the following
suitability standards:
o minimum annual gross income of $65,000 and a net worth (exclusive of
home, home furnishings and automobiles) of $250,000; or
o minimum net worth (exclusive of home, home furnishings and automobiles)
of $500,000.
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<PAGE>
RISK FACTORS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT. We
have a very limited operating history upon which you can evaluate our operations
and future prospects. The "Microbatch(R)" concept, which we believe
differentiates us from our competitors, is a new marketing concept. Our limited
history may not be sufficient to judge whether our "Microbatch(R)" concept will
sufficiently differentiate us from other premium ice creams to make us
successful.
BECAUSE OF OUR LACK OF FUNDS AND PAST LOSSES, OUR ACCOUNTANTS' AUDIT REPORT
INDICATES THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN. Without the proceeds of this offering, we will not have sufficient
funds for our operating needs after the end of the first quarter of 2000. We
will depend on the proceeds of this offering to fund our operations for
approximately 18-24 months after closing of the offering. In addition, we have
not been profitable. We have reported a net loss of approximately $2,100,000 for
the nine months ended September 30, 1999. We have accumulated losses of
approximately $3,255,000 since our inception. We expect to incur losses for the
remainder of 1999 and for at least a part of 2000. Because of our lack of funds
and our history of losses from operations, our independent certified public
accountants have included an explanatory paragraph in their report indicating
that there is substantial doubt about our ability to continue as a going
concern.
INVESTORS WILL EXPERIENCE IMMEDIATE SIGNIFICANT DILUTION IN THE BOOK VALUE
OF THEIR SHARES. Immediately after this offering the book value of your shares
will be approximately $1.78. This represents dilution of $4.22, or over 70%,
from the purchase price you will pay in the offering.
THE STRENGTH OF OUR COMPETITORS MAKES IT DIFFICULT TO COMPETE SUCCESSFULLY
IN THE ICE CREAM MARKET. Our business is highly competitive. There are several
other companies marketing super premium ice cream that compete with us,
including Haagen-Dazs, Inc., ("Haagen-Dazs") owned by The Pillsbury Company, Ben
& Jerry's Homemade, Inc. ("Ben & Jerry's") and numerous regional ice cream
companies. Our products also compete with non-premium ice creams as well as
other frozen desserts, and with hand dipped ice cream sold by ice cream shops.
Many companies that are or will be our competitors have well established brand
names and have much more money and other resources than we do. Additionally,
Haagen-Dazs and Ben & Jerry's manufacture their own ice cream, giving them more
control and flexibility in production than we have.
WE WILL NOT BE SUCCESSFUL UNLESS WE INCREASE FAVORABLE CONSUMER PERCEPTION
OF OUR BRAND. We believe that broader recognition and favorable consumer
perception of the Jeremy's Microbatch(R) Ice Creams brand are essential to our
future success. Accordingly, we will pursue an aggressive brand-recognition
strategy, which will include mass market and multimedia advertising, promotional
programs and public relations activities. Successful positioning of our brand
will largely depend on:
o the success of our advertising and promotional efforts; and
o provision of high quality product.
To increase awareness of the Jeremy's Microbatch(R) Ice Creams brand and
expand it to new flavors, we will need to spend significant amounts on
advertising and promotions. These expenditures may not result in a sufficient
increase in revenues to cover such advertising and promotions expenses. In
addition, even if brand recognition increases, the number of new customers may
not justify our advertising and promotional expenditures.
BECAUSE OF OUR LIMITED PRODUCTS AND FLAVORS, THE FAILURE OF ANY ONE FLAVOR
COULD SIGNIFICANTLY IMPACT OUR REVENUES AND PROFITS. Our revenues come from a
limited number of products. Because our only product is ice cream, and we have
only six to eight flavors available at any time, the failure of our flavors to
become popular could significantly affect our revenues.
OUR REVENUE GROWTH DEPENDS UPON OUR ABILITY TO DEVELOP NEW FLAVORS WHICH
ARE CONSISTENTLY ACCEPTED BY CONSUMERS. Our growth and success will depend, in
significant part, upon our ability to develop new and unique flavors. Each of
our product offerings must be responsive to customer tastes to successfully
achieve market acceptance. We will incur substantial expense and use significant
resources as we change our products from time to time. In addition, if
3
<PAGE>
we launch new products that are not favorably received by consumers, our
reputation and the value of our brand name could be damaged.
OUR DEPENDENCE ON OTHERS TO DISTRIBUTE OUR PRODUCTS COULD HARM OUR ABILITY
TO SELL OUR PRODUCTS. We depend upon independent ice cream distributors located
in various geographic markets to properly distribute and maintain our products
in the freezer shelves of retailers. In most geographic markets, there are a
limited number of distributors with the ability to properly handle the
distribution of ice cream. Some of these distributors also distribute our
competitors' products. We do not have contractual commitments from most of our
distributors. Because there are a limited number of qualified distributors, our
failure to maintain good relationships with these distributors could harm our
ability to sell product in specific geographic regions.
DEPENDENCE ON OUTSIDE MANUFACTURERS MAKES IT MORE DIFFICULT FOR US TO
CONTROL QUALITY AND PRODUCTION TIMES. While we develop formulations of our ice
cream flavors, we do not manufacture or package our own product. Currently, we
depend on a single source for the manufacture of our ice cream. Use of an
outside manufacturer gives us less control over the quality and scheduling of
production than if we had our own production facility. This lack of control
could potentially lead to occasions of product below our quality standards or
production scheduling which does not meet our needs. Although we would have
recourse against our manufacturing partner if this happened, these events could
substantially damage our reputation.
DIFFICULTY IN OBTAINING GROCERY RETAILER ACCEPTANCE FOR NEW PRODUCTS MAY
LIMIT OUR REVENUE. In order for us to introduce our products into new markets,
and to continue to sell those products, retail grocers must agree to allocate
freezer shelf space to our products. Retailers are not inclined to allocate
shelf space to new products when existing products are performing. If we cannot
convince retailers to allocate shelf space to our products, and to increase the
shelf space allocated to us, our business will not grow. Some retailers require
significant slotting fees before they will allocate shelf space or to continue
to allocate shelf space to a product. We may not be able to fund all of these
slotting fees, in which case we could fail to obtain shelf space in certain
markets or lose shelf space already obtained.
LOSS OF CERTAIN PERSONNEL WOULD SIGNIFICANTLY IMPACT OUR BUSINESS. We
believe that our success depends on the continued employment of our management
team. If one or more members of our executive management team were unable or
unwilling to continue in their present positions, our business could be
materially adversely affected. We do not presently carry life insurance on any
member of our executive management team. Our agreements with the underwriter
require us to obtain insurance on the lives of our President, Jeremy Kraus, and
our Chief Operating Officer, Samuel Cohen.
OUR PROFITABILITY IS SUBJECT TO FLUCTUATIONS IN DAIRY PRICES. The primary
raw materials used in our operation are dairy products. Prices for dairy
products fluctuate, and we cannot be certain that prices for dairy products will
not increase. If the price of raw materials increases and remains high
indefinitely and we are not able to pass such prices on to our customers, our
profitability will be damaged. Some of our competitors, by virtue of greater
buying power, may not have the same risks as we do.
OUR REVENUE GROWTH WILL BE LIMITED IF THE CURRENT CONSUMER TRENDS OF
INCREASING CONSUMPTION OF FULL FAT DAIRY PRODUCTS DOES NOT CONTINUE. Our
super-premium ice cream is a "full fat" product. Consumer trends could return to
a preference for lower fat dairy items, in which case we would be forced to
compete for a piece of a much smaller market. If this happens our growth will be
limited.
OUR BUSINESS MAY BE DISRUPTED IF OUR SUPPLIERS' OR CUSTOMERS' COMPUTER
SYSTEMS ARE NOT YEAR 2000 COMPLIANT. Failure of our suppliers' or customers'
computer systems to be Year 2000 compliant could result in our inability to
receive materials, services, orders or payments on a timely basis, and could
otherwise materially adversely affect our operations. We have received oral
assurances from our material suppliers that their systems are Year 2000
compliant, but do not have independent verification. We do not have any
information as to Year 2000 compliance of our customers' systems.
THE UNDERWRITER MAY HAVE SIGNIFICANT INFLUENCE OVER US AFTER THIS OFFERING.
After completion of this offering, First Montauk Securities Corp. will have the
right to have an observer
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<PAGE>
on our board of directors. In addition, First Montauk will have warrants for
120,000 shares of our common stock, and the right to demand that the shares
issuable on exercise of those warrants be registered for public sale. First
Montauk will also have an agreement with us to be our financial advisor for two
years. Through these mechanisms, First Montauk may have significant influence
over our affairs.
OUR CERTIFICATE OF INCORPORATION CONTAINS PROVISIONS LIMITING THE LIABILITY
OF OUR DIRECTORS TO US AND OUR STOCKHOLDERS. Our Certificate of Incorporation
contains provisions, authorized by Delaware law, which eliminate our directors'
liability for breach of fiduciary duty except under limited circumstances. These
provisions may limit our ability to have any remedy against a director who
breaches his fiduciary duty.
SINCE WE DO NOT EXPECT TO PAY DIVIDENDS, YOU CANNOT EXPECT TO RECEIVE
INCOME FROM THIS INVESTMENT. We expect to reinvest our income in our growth.
Therefore, an investor cannot expect to receive income from an investment in us.
BECAUSE THIS OFFERING WAS APPROVED IN CALIFORNIA IN THE BASIS OF A LIMITED
OFFERING QUALIFICATION, THERE WILL BE LIMITATIONS ON THE TRADING OF OUR COMMON
STOCK IN CALIFORNIA. This offering was approved in California on the basis of a
limited offering qualification. Under this qualification, we can only sell
common stock to investors who meet certain suitability standards described at
the end of the prospectus summary. Because of this, we were not required to
demonstrate compliance with some or all of the merit regulations of the
California Division of Corporations found in Title 10, California Code of
Regulations, Rule 260.140 and Rules following that Rule. Secondary trading for
common stock will not qualify for the exemption from registration usually
available to companies who fully register a public offering in California,
California Corporations Code Section 25104 (h). Therefore, other exemptions must
be found for any investor who wishes to sell his stock in California. While
there may be other exemptions available, such as exemptions for private sales,
an investor's ability to sell his shares in California will be limited for a
period of time.
SINCE WE ARE PAYING DEBT WITH THE PROCEEDS OF THIS OFFERING, WE HAVE LESS
FUNDS AVAILABLE TO IMPLEMENT OUR BUSINESS PLAN. Our use of proceeds from this
offering includes the payment of approximately $860,000 of existing debt. As a
result, we will have less funds available to use for other purposes, including
advertising and inventory.
WE HAVE BEEN GRANTED A TEMPORARY WAIVER FROM THE NASDAQ STOCK MARKET AND
CERTAIN STATE SECURITIES ADMINISTRATORS FOR THE REQUIREMENT FOR TWO INDEPENDENT
DIRECTORS AND THEREFORE OUR COMMON STOCK MAY BE DELISTED IF WE DO NOT TIMELY
COMPLY. We do not currently have two independent directors on our Board of
Directors. The Nasdaq Stock Market and certain state securities administrators
have granted us a temporary waiver for 90 days to provide us with an opportunity
to get two independent directors. In the event that we cannot attract
individuals to join our board, we may be subject to delisting from the Nasdaq
Stock Market. If our Common Stock is delisted, our common stock may be traded on
the over the counter market. Investors may have greater difficulty selling their
shares because of decreased liquidity in the over the counter market.
THE UNDERWRITER HAS A DISCIPLINARY HISTORY AND LIMITED EXPERIENCE IN PUBLIC
OFFERINGS. Although the underwriter was formed and registered as a broker
dealer in 1983, current management has operated the underwriter since 1986. The
underwriter has managed only two public offerings to date, although it has
participated in over 200 public offerings as a selling group member.
Since 1989, the underwriter has been subject to 13 regulatory actions. Two
of the more serious violations occurred in June 1997 and August 1989. In June
1997, the SEC entered an order against the underwriter for failure to supervise
the activities of certain registered persons at one of its branch offices, since
closed, failure to file certain reports and failure to comply with certain net
capital rules. The SEC order resulted in a censure of the underwriter, and
payment of fines. In August 1989, the National Association of Securities Dealers
and the underwriter settled an administrative action brought against the firm
and certain principals which alleged violations of NASD Rules regarding, among
other things, improper record keeping, failure to file proper reports, filing of
inaccurate reports and effecting sales of municipal securities at prices deemed
unfair.
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<PAGE>
FORWARD LOOKING STATEMENTS
Some of the statements under the "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievement expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plan," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
6
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USE OF PROCEEDS
The net proceeds we will receive from the sale of 1,200,000 shares in this
offering will be approximately $6 million. This is based upon an assumed initial
public offering price of $6 per share, after deducting estimated underwriting
fees and other expenses of the offering. We will receive additional net proceeds
of up to $939,000 if the underwriter exercises the option granted to it in
connection with this offering to purchase additional shares of our stock to
cover over-allotments.
Our Executive Management has Wide Discretion In the Application of Proceeds
from this Offering. Our management has discretion over the use and expenditure
of the proceeds of this offering. Approximately $1,115,000, or 18.58% of the
proceeds, is reserved for working capital. You may have less ability to judge
the likelihood of success of our business plan than if we had more specific uses
of the proceeds of this offering.
The following table summarizes our intended use of these proceeds:
<TABLE>
<CAPTION>
PERCENT OF
APPLICATION OF PROCEEDS AMOUNT PROCEEDS
----------------------- ---------- ----------
<S> <C> <C>
Advertising and Promotions.............................. $3,000,000 50.00%
Fees and Costs directly Related to Retail Placement, or
"Slotting," Fees...................................... 850,000 14.17
Repayment of Notes Payable.............................. 630,000 10.50
Repayment of Obligations to Former Manufacturer......... 230,000 3.83
New Inventory........................................... 175,000 2.92
Working Capital......................................... 1,115,000 18.58
---------- ------
Total................................................. $6,000,000 100.00%
========== ======
</TABLE>
Advertising and Promotions. We plan to engage in an aggressive marketing
campaign to establish the Jeremy's Microbatch(R) brand name and to obtain more
retail outlets. Marketing and promotions include marketing directly to retailers
through promotional programs and allowances, in store sampling and other
promotional programs. We will also engage in direct consumer marketing including
sponsorships of events and advertising activities such as print and broadcast
advertising and coupons.
Retail Placement, or "Slotting," Fees. These fees are required by certain
supermarkets, grocers and other retail customers for our product to obtain and
maintain shelf space in their freezers.
Repayment of Notes Payable. This amount includes the following:
o $300,000 owed to a bank
o $40,000 owed to our Chief Executive Officer
o $5,000 owed to our Chief Financial Officer
o $50,000 owed to Strive, Inc., one of our principal members
o approximately $235,000 owed to our former marketing agency
The bank debt is a line of credit from Norwest Bank. The borrowings on the
line of credit were used for working capital, including salaries and inventory.
This loan bears interest at 12.25% per annum.
The loans by the President and Chief Financial Officer were made in
October, 1999, to allow us to repay a debt owed to an unrelated party who had
made a $50,000 loan to us in December, 1998. The interest rate on the loans to
our officers is 10% per annum. The interest on the loan from the unrelated party
had been 14% per annum. These notes by their terms are not due until October,
2000, but we plan to repay them upon closing of this offering to avoid the
interest charges.
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The loan by Strive, Inc, was made in November, 1999 to fund the payment of
accounts payable. That note bears interest at 14% and is due in October, 2000
but we plan to repay it upon closing of the offering.
The debt to our former marketing agency consists of a note we issued to
that agency on November 19, 1999. That note represents amounts due for past
services and expenses of the marketing agency.
Repayment of Obligations to Former Manufacturer. Approximately $110,000 of
the amount owed to our former manufacturer is for finished product previously
delivered and approximately $90,000 is for ice cream ingredients and packaging
materials on hand at the time we terminated the manufacturer. The remaining
amounts represent interest and other costs. When we pay these amounts, we will
receive the packaging and ingredients. We expect to utilize a majority of those
materials and ingredients.
Working Capital. This amount will be used for costs and expenses until we
are able to fund these costs and expenses through operations. These costs and
expenses will be incurred or already have been incurred for salaries and
benefits for employees and management, including three new marketing employees
we recently hired, and other customary overhead expenses. These costs also
include lease expenses for our offices, computer and other related office
expenses. We expect that operations will fully fund our working capital costs
within twenty-four months of this offering.
The amounts in the table above are estimates developed by our management
based upon our current plans and current economic and industry conditions. Our
proposed use of proceeds may change if industry or economic conditions change or
if our financial condition changes. Management will also have the discretion to
change the amount of funds used for each purpose.
Pending use of the proceeds, as described above, funds will be held in
temporary investments in bank certificates of deposits and/or interest-bearing
insured savings accounts, United States government notes, bills and bonds and
money market funds. Any income derived from the short-term investments will be
used for working capital.
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DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
$(714,088) or $(0.40) per share. Our pro forma net tangible book value per share
is determined by subtracting the total amount of our liabilities from the total
amount our tangible assets and dividing the remainder by the weighted average
number of shares of our common stock outstanding.
The as adjusted pro forma net tangible book value per share after this
offering will be $1.78 based on an assumed initial public offering price of $6
per share. Therefore, purchasers of shares of common stock in this offering will
realize immediate dilution of $4.22 per share or over 70% of their investment.
The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $6.00
Pro forma net tangible book value per share as of September
30, 1999.................................................. $(0.40)
Increase in net tangible book value per share attributable
to new investors.......................................... 2.18
------
Pro forma net tangible book value per share after this
offering.................................................. 1.78
-----
Dilution per share to investors in this offering............ $4.22
=====
</TABLE>
The following table presents the following data as of September 30, 1999,
and assumes an initial public offering price of $6.00 per share for our new
investors:
o the number of shares of our common stock acquired from us (after giving
effect of the proposed plan of reorganization to effect a change from a
limited liability company to a corporation);
o the total cash consideration paid;
o the average price per share paid before deducting estimated underwriting
fees and our estimated offering expenses; and
o the average price per share paid by the existing holders of common stock.
<TABLE>
<CAPTION>
SHARES OF
COMMON CONSIDERATION
STOCK --------------------- AVERAGE PRICE
ACQUIRED AMOUNT PERCENT PER SHARE
--------- ----------- ------- -------------
<S> <C> <C> <C> <C>
Existing Shareholders...................... 1,800,000 $ 3,009,857 30% $1.67
New Investors.............................. 1,200,000 7,200,000 70 $6.00
--------- ----------- ---
Totals................................... 3,000,000 $10,209,857 100% $3.40
========= =========== ===
</TABLE>
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not anticipate paying cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and expansion of
our business.
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CAPITALIZATION
The following table presents our capitalization as of September 30, 1999.
The "Pro Forma" column in the table presents the capitalization as if the
following transactions had occurred on September 30, 1999:
o Events which occurred in the fourth quarter of 1999:
o borrowings of $40,000 from our chief executive officer and $5,000 from
our chief financial officer. These loan proceeds were used to repay a
$50,000 note owed to an unrelated individual. These loans bear interest
at 10% per annum.
o additional purchase of membership interest for $100,000 made by a member.
o borrowing of $50,000 from a related party at an interest rate of 14%.
o payment of $60,000 of the note payable, vendor.
o Our plan of reorganization whereby the Members' interests will be converted to
1,800,000 shares of common stock of Jeremy's Microbatch Ice Creams, Inc.
The "Pro Forma As Adjusted" column in the table presents the capitalization
taking into account the following as if they had occurred on September 30, 1999:
o the receipt of the proceeds from the issuance and sale of the 1,200,000
shares of common stock at an assumed initial offering price of $6.00
offered by us in this offering, net of estimated underwriters'
commissions and approximately $480,000 of offering expenses.
o the estimated use of proceeds from the sale of these shares as it relates
to the repayment of debt in the amount of $630,000.
The table does not take into account:
o the issuance of additional shares if the underwriter exercises its
over-allotment option; or
o any shares that may be issued on exercise of the warrants to purchase
shares that will be held by the underwriter.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------
(PRO FORMA
ACTUAL (PRO FORMA) AS ADJUSTED)
---------- ----------- ------------
<S> <C> <C> <C>
Short-term debt:
Note payable, bank.............................. $ 300,000 $ 300,000 $ --
Notes payable, officers......................... -- 45,000 --
Note payable, related party..................... -- 50,000 --
Note payable, vendor............................ 294,467 234,467 --
Current portion of obligations under capital
leases....................................... 13,681 13,681 13,681
Current portion of long-term debt............... 50,000 -- --
---------- ---------- ----------
Total short-term debt........................... 658,148 643,148 13,681
---------- ---------- ----------
Long-term debt:
Obligations under capital leases................ 24,367 24,367 24,367
---------- ---------- ----------
Members' (deficiency) and shareholders' equity
(deficiency):
Members' (deficiency)........................... (345,193) -- --
Preferred stock, $.01 par value -- authorized
500,000 shares, issued and outstanding --
none......................................... -- -- --
Common stock $.01 par value -- authorized
5,000,000 shares, issued and outstanding --
0, 1,800,000 and 3,000,000 shares,
respectively................................. -- 18,000 30,000
Additional paid-in capital...................... -- 2,991,857 8,979,857
Accumulated (deficit)........................... -- (3,255,050) (3,255,050)
---------- ---------- ----------
Total members' (deficiency) and shareholders'
equity (deficiency).......................... (345,193) (245,193) 5,754,807
---------- ---------- ----------
Total capitalization............................ $ 337,322 $ 422,322 $5,792,855
========== ========== ==========
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the "Summary Financial Data" and our financial statements and related notes that
are included in this prospectus.
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. This transfer of business has been treated as a
reverse merger for financial reporting purposes, and the operations of Strive
related to our business have been included for all periods presented.
Simultaneously with the closing of this offering, Jeremy's Microbatch Ice
Creams, LLC, will become 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, our revenues have increased steadily. Our
revenues in the first nine months of 1999 were more than double our revenues for
the entire year of 1998. However, we have not achieved net cash flow from
operations. If we effectively apply the proceeds of this offering to promotional
marketing activities and other applications, we believe that our revenues will
continue to rise. We also expect that our operating expenses will continue to
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.
All historical financial information in this prospectus is derived from the
financial statements of Jeremy's Microbatch Ice Creams, LLC. All financial
information in this prospectus labeled pro forma or pro forma as adjusted takes
into account Jeremy's Microbatch Ice Creams, LLC becoming a wholly owned
subsidiary of Jeremy's Microbatch Ice Creams, Inc. on the closing date.
References to shares refer to shares of Jeremy's Microbatch Ice Creams, Inc.
11
<PAGE>
RESULTS OF OPERATIONS
The following table presents selected financial data for the periods
indicated expressed as a percentage of net sales:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.00% 100.00% 100.00%
Cost of sales.......................... 72.1 144.64 73.15 44.77
------ ------- ------- -------
Gross profit (loss).................... 27.9 (44.64) 26.85 55.23
------ ------- ------- -------
Selling................................ 139.8 39.83 89.61 151.45
Distribution........................... 15.8 3.92 12.84 6.68
General and administrative............. 99.7 41.82 77.18 87.09
Amortization of deferred charges....... -- -- 18.23 --
Depreciation........................... 1.4 5.21 0.52 0.09
------ ------- ------- -------
Total operating expenses............... 256.7 90.78 198.38 215.31
------ ------- ------- -------
Operating (loss)....................... (228.8) (135.42) (171.53) (190.08)
Other income........................... 0.5 3.27 0.42 0.76
Loss on sale of property and
equipment............................ -- (31.22) (1.57) --
Interest expense....................... (1.7) (0.45) (3.54) (2.34)
------ ------- ------- -------
Net (loss)............................. (230.0)% (163.82)% (176.22)% (191.66)%
====== ======= ======= =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999
We experienced a net loss of approximately $1,200,000 in the third quarter
of 1999. This was greater than the loss for the two previous quarters combined.
The net loss for the quarter resulted from the combined effects of reduced
sales, decreased margins and increased selling and general and administrative
expenses.
Sales in the third quarter were approximately $343,000, which was
approximately $175,000 less than sales for the second quarter. The reduction in
sales was primarily caused by our decision to reduce the stock of our old
flavors in the distribution chain due to the introduction of new flavors.
Our gross margin was greatly reduced in the third quarter of 1999. The
reduction in the gross margin was partly due to a $50,000 charge relating to the
termination of our relationship with our former manufacturer and $40,000 in new
package design costs.
Third quarter selling expenses were more than selling expenses for the
prior two quarters combined. This was due to increased promotional expenses as
we sought to keep pace with competitors' promotional schedules and made efforts
to move retail stock of discontinued flavors and speed stocking of new flavors.
General and administrative expenses also increased significantly in the
third quarter as compared to the prior two quarters. The primary reasons for
this included increased marketing staff and the start-up costs related to the
new hires. In addition, we incurred approximately $40,000 in costs related to
our prior years' audits in that quarter.
12
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998
Net Sales. Our net sales increased by $944,908 to $1,197,698, or over 350%
in the first nine months of 1999 compared to sales in the first nine months of
1998 which were $252,790. This expansion can be attributed both to an increase
in the number of retail outlets carrying our products and an increase in the
revenues per outlet. We believe that this increase is a direct result of our
marketing and promotional efforts and expenditures.
Gross Profit. Our gross profit in the first nine months of 1999 was
$321,562, as compared to $139,620 for the similar period in 1998. Our gross
profit as a percentage of sales was 26.9% in the first nine months of 1999 as
compared to 55.2% in the similar 1998 period. The decrease in gross profit
percentage was partially a result of a $50,000 charge relating to the
termination of our relationship with our former manufacturer and costs
associated with significant changes in product and packaging in September 1999.
At that time we began discontinuing five flavors and introducing seven new
flavors. We also developed and implemented a new package design. The cost of the
new package design was approximately $40,000. Some of the increase was
attributable to increased costs of materials. In the future, we do not expect to
change as many flavors at the same time and do not expect more gradual changes
in flavors to significantly impact our margins. Currently, all of our 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, for product, reduces our cost due to the
manufacturer's ability to plan production more efficiently.
Operating Expenses. Our total operating expenses increased from $620,140
in the first nine months of 1998 to $2,376,009 in the first nine months of 1999.
The major components of operating expenses, our selling, distribution, general
and administrative expenses and amortization of deferred charges all increased
during this period. We believe that the increases in dollar amounts were
consistent with our growth. As a percentage of sales, operating expenses
decreased from more than 245% of sales to 198% of sales. This is primarily
attributable to increased sales and the fixed elements of some of those
expenses. Most components of operating expense have decreased as a percentage of
sales. However, distribution expense did increase as a percentage of sales from
less than 7% of sales to approximately 13% of sales due to our geographic
expansion and servicing of new accounts in Colorado, Texas, Arizona and other
areas outside of the Northeastern United States. We expect distribution costs to
increase as we enter new geographic markets. We expect that when we are able to
build sales volume in any particular area, distribution costs will decrease as a
percentage of sales.
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. We expect that the
deferred charges will continue to rise for a period of time and then decrease as
our brand becomes more established.
General and administrative expenses include rent, salaries, and other costs
for general corporate functions such as finance, accounting, legal fees and
other professional service expenses. 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 additional general and
administrative expenses as we hire additional personnel and additional costs
related to the growth of our business and operation as a public company. We
expect these expenses to include facilities expansion, directors and officers
liability insurance, investor relations programs and professional service fees.
Accordingly, we anticipate the general and administrative expenses will continue
to increase in absolute dollars. 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.
Selling expenses consist primarily of promotional activities, advertising,
salaries and commissions of sales and marketing personnel, brokers and
distributors. Selling expenses increased
13
<PAGE>
in absolute dollar amounts from the first nine months of 1998 to the first nine
months of 1999 due to increases in volume in the first two quarters of 1999,
which caused additional fees to brokers and distributors, as well as an increase
in advertising and other promotional activities. Some of these advertising and
promotional activities resulted from efforts to move retail stock of
discontinued flavors and introduce new flavors. 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. In September, 1999, we made a decision
to terminate our existing advertising relationship and hire additional marketing
personnel in-house. 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.
Other Income and Expenses. Our other income during 1999 consisted of a
one-time cash prize from our victory in the Mail Boxes, etc. "See Your Small
Business on the Superbowl" contest. Our loss on the sale of a fixed asset in
1999 resulted from our sale of a promotional vehicle. We do not expect that
either this type of income or expense will recur in the future. Our interest
expense increased from approximately $6,000 in 1998 to approximately $42,000 in
1999, due to additional borrowings to finance growth. We expect that we will
eliminate interest expense entirely for approximately the first 12 months after
this offering due to the availability of the proceeds of this offering. After
that time, we expect that we will obtain lines of credit consistent with our
level of sales. Interest expense also increased in 1999 due to the introduction
of a receivables factoring arrangement put into place during that period.
YEARS ENDED DECEMBER 31, 1998 AND 1997
The year ended December 31, 1998 was our first full operating period. In
the year ended December 31, 1998, we had net sales of approximately $416,000 and
our costs of sales were $299,868, approximately 72.1% of net sales. We had a
loss from operations of approximately $951,000 and a net loss of approximately
$956,000.
Our 1997 financial statements reflect the operation of our business for a
period of about 90 days at the end of that year. Because of the limited period
of operations in 1997, we do not believe that the operating results of 1997 and
1998 are comparable. During this period, net sales were approximately $79,000,
the business had a gross loss of approximately $35,000 and operating expenses of
approximately $72,000. As a result, the business suffered a loss from operations
of approximately $108,000 and a net loss of approximately $130,000.
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.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through capital
contributions of our members. Since inception through September 1999, we had
received $2,700,000 in cash capital contributions from two of our members, which
includes $650,000 received during the third quarter of 1999. One of these
members also converted a $50,000 note payable to equity during 1998. We received
an additional $100,000 from another member 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 $636,750 in the first nine months
of 1998, $928,835 in the year ended December 31, 1998, and $1,291,074 in the
first nine months of 1999. All of these negative cash flows were offset
primarily through additional investments by our existing members.
Our line of credit with Norwest Bank accrues interest at the rate of 12.25%
per annum. As of the date of this offering, we owed approximately $300,000 under
the line of credit. We intend to repay our outstanding obligations to Norwest
Bank with the proceeds of this offering.
In May 1999 we entered into a factoring agreement under which we agreed to
sell substantially all of our receivables to a finance company. We pay the
finance company a fee of 1.5% of the amount of receivables purchased. The total
unpaid receivables outstanding at any time under the factoring agreement may not
exceed $500,000. Under this agreement, we must repurchase a receivable if the
customer does not pay within a certain time period. We stopped using this
facility in September, 1999, as the factor no longer makes advances because of
the delinquency of our receivables. Since then, we have been collecting newly
generated receivables ourselves. We do not intend to utilize a receivable
factoring arrangement after the closing of this offering.
We increased our inventory levels at the end of 1999 and at the beginning
of 2000 as insurance against possible production delays due to year 2000
problems. Potential Year 2000 problems are discussed below under "Impact of the
Year 2000 Issues on Our Information Systems".
We believe that our existing cash balance together with our existing line
of credit and projected cash flow from operations will not be sufficient to fund
projected order flow, overhead and debt repayment for the quarter ending March
31, 2000. Accordingly, we must obtain additional financing in order to maintain
our current level of operations. If financing is not obtained in the immediate
future, then we will have to reduce operations to a level consistent with
available working capital. We expect to raise additional working capital through
this proposed initial public offering. There can be no assurances that any such
additional equity financing will be available on a timely basis and/or under
acceptable terms. We have experienced recurring operating losses since
inception. Our independent certified public accountants have included an
explanatory paragraph in their report indicating there is a substantial doubt
about our ability to continue as a going concern.
As we do not manufacture, store or distribute products ourselves, we do not
anticipate any significant capital requirements in the next 18-24 months, other
than the payment of increased slotting fees as we enter new markets and pay new
retail customers. We believe that the cash supplied by this offering will be
sufficient to finance all of our needs for at least 18-24 months. While our
ability to increase our revenues and obtain net cash flow from operations is
unproven, we believe that at the end of the 18-24 month period following
closing, we will be able to finance operations from cash flow. After closing, we
may be able to enter into receivables financing or line of credit arrangements
with lower cost than those presently in place. 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
15
<PAGE>
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.
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," which will be effective for fiscal year
2001. This Statement 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.
IMPACT OF THE YEAR 2000 ISSUE ON OUR INFORMATION SYSTEMS
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. 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 system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
We do not expect to be directly affected by the Year 2000 issue as we do
not rely on date-sensitive software or affected hardware. Our current accounting
and other systems were purchased "off-the-shelf". We intend to timely update our
accounting and other systems that are determined to be affected by the Year 2000
issue by purchasing Year 2000 compliant software and hardware available from
retail vendors at a reasonable cost.
We have contacted our primary vendors and are in the process of contacting
our primary customers to determine whether such companies' systems are Year 2000
compliant. If our systems or other companies on whose services we depend,
including our vendors, are not Year 2000 compliant, this could have a material
adverse effect on our business, results of operation or financial condition.
The significant risk of our distributors and retail customers having Year
2000 problems is that their ordering and stocking systems would stop
functioning. This would disrupt our order flow and delay our receipt of
revenues. Our competitors would be equally affected. Due to our current size, we
believe that we would quickly recognize any delay in orders form our major
customers, and would assist them in manual ordering and stocking.
Because we only buy finished goods from our manufacturer, any Year 2000
problem experienced by our manufacturer that caused spoilage of ingredients,
such as electric power or transportation problems, would not be an expense for
us. The significant risk is that we will experience production delays because
our manufacturer's systems are non-compliant, because of power problems, or
because the manufacturer's suppliers are delayed. We prepared for this
contingency by increasing our inventory of finished goods in the end of 1999 and
beginning of 2000.
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.
16
<PAGE>
OUR BUSINESS
BACKGROUND
We are a rapidly growing specialty developer, marketer and seller of
super-premium ice cream in unique, limited edition flavors. We entered the
premium ice cream industry with an innovative concept first introduced by the
microbrewing industry: combine super-premium ice cream with high-quality
ingredients to produce small, limited batches of delicious ice cream. We have
strengthened our brand name recognition by designing and implementing a vigorous
marketing campaign that emphasizes the youthful, entrepreneurial spirit of our
company and our current management team.
Our products are currently available in more than 3,200 stores in New
England, the Mid-Atlantic region, Colorado, Minnesota, Florida, Texas and
Arizona. We currently market flavors of our ice cream primarily in packaged
pints, for sale primarily in supermarkets, other grocery stores, convenience
stores and other retail food outlets.
We believe that we have maintained a reputation for producing
gourmet-quality ice cream, and for establishing and promoting a light-hearted,
youthful promotional campaign that fosters our image as an energetic and
creative company.
Our business has been operated by Jeremy's Microbatch Ice Creams, LLC. At
closing of this offering, Jeremy's Microbatch Ice Creams, LLC will become a
wholly owned subsidiary of Jeremy's Microbatch Ice Creams, Inc. Jeremy's
Microbatch Ice Creams, Inc. was formed in October 1999 for the sole purpose of
becoming Jeremy's Microbatch Ice Creams, LLC's corporate parent. When we use the
term "we," "our" or "Jeremy's" in this prospectus for periods or events before
the closing of this offering, we are referring to Jeremy's Microbatch Ice
Creams, LLC. When we use those terms for periods or events on or after the
closing of this offering, we are generally referring to Jeremy's Microbatch Ice
Creams, Inc. after it has acquired the business at closing of the offering.
THE ICE CREAM MARKET
The packaged ice cream industry includes economy, regular, premium, premium
plus and super-premium products. Super-premium ice cream is generally
characterized by a greater richness and density than other kinds of ice cream.
This higher quality ice cream generally costs more than other kinds and is
usually marketed by emphasizing quality, flavor selection, texture and brand
image. Other types of ice cream are largely marketed on the basis of price. Ice
cream is also part of the larger market for frozen desserts, which includes
products such as yogurts and sorbets. In addition to packaged ice cream, ice
cream is also sold hand dipped by ice cream shops. Some of our competitors have
their own ice cream shops, but many ice cream shops are owned and run by
independent operators.
Super-premium ice cream has become an important part of the frozen dessert
industry. Based on information provided by the International Dairy Food
Association, we believe that sales of super-premium ice cream grew 12% from 1997
to 1998, while sales of all full fat ice creams grew only 3%.
JEREMY'S MICROBATCH(R) ICE CREAMS
Our products are primarily sold in pint containers. The flavors we develop
generally have a high content of products mixed in with the ice cream, such as
nuts, chips, cookie pieces and swirls of other flavorings. The small container
size is part of our Microbatch(R) image.
Jeremy's ice cream has a high level of butter fat and low level of air
incorporation during the freezing process. The approximate fat content of our
ice cream is 16% excluding products mixed in. The approximate air incorporation
is 20%. These characteristics give our ice cream the rich taste and dense,
creamy texture that characterizes super-premium ice creams. The fat content of
our ice cream comes primarily from the butter fat in the cream, but also from
egg yolks. The ice cream mix consist of cream, sugar, non-fat milk solids, egg
yolks and natural stabilizers. Our products are
17
<PAGE>
made from the finest quality ingredients. To date, we have not experienced any
difficulty obtaining the dairy products used to make our ice cream. Various
flavorings and products mixed in are readily available from many suppliers
throughout the U.S.
Our business plan includes continual development of new products and
retiring older products unless they are super achievers. We believe this will
help stimulate sales by the interest in the new products and generally give us a
fresher image. Through the end of September, 1999 our flavors included:
o Cinnamon Bun;
o Chocolate Overload;
o Coffee Extravaganza;
o Fuzzy Navel;
o Chocolate Down Under; and
o Classic S'mores.
Consistent with our overall business plan, during the fourth quarter of
1999, we began gradually phasing out all the existing flavors other than
Cinnamon Bun and introduce the following new products:
o Revenge of Chocolate Overload (chocolate with chocolate covered almonds);
o Wired (vanilla ice cream with caffeine);
o Purple Passion Pills (purple ice cream with blue candies);
o Eve's Sinful Cider (apple cider flavor with chunks of apple);
o Welcome to Tiramisu (tiramisu flavored ice cream with honey covered lady
fingers);
o Triple Expresso (coffee flavor with chocolate covered expresso beans);
and
o Vanilla Cream Stout (vanilla bean ice cream with nonalcoholic beer swirl
and chocolate covered pretzels).
In developing new flavors, we generally explore different types of desserts
to determine which are not currently represented by ice cream flavors but could
be converted to ice cream flavors. Once we develop a concept, we develop several
test flavors and refine them to two or three potential flavors. We then test the
two or three potential flavors with both consumers and food experts.
Costs of particular ingredients included in a flavor are not generally
considered by us in determining whether or not to produce a new flavor. The
prices of our products are based upon average product cost.
OUR CUSTOMERS AND CONSUMER ORIENTED MARKETING
Our target market consists of 15-35 year olds and affluent educated
households, especially dual income young professionals without children, and
college students. Our consumer oriented marketing has consisted primarily of:
o Sponsorship of concerts, exhibits, fairs and other public amusements;
o Entering into relationships in which we obtain promotional consideration
such as mention on radio programs and in newspaper stories;
o The Jeremy's Microbatch(R) Secret Service "Guerilla Marketing Teams."
These are teams, generally made up of college students, which go to areas
of high concentration of our target customers and distribute coupons,
samples and other premiums to promote the brand.
In early 1998, we won the Mailboxes, Etc. "See Your Small Business on the
Superbowl" contest which gave us a free 30 second television spot during
Superbowl XXXIII and enabled us to promote the product in other ways, such as
appearance on television talk shows.
18
<PAGE>
Before this offering we did not spend significant funds on conventional
consumer advertising such as print, radio and television. We intend to use a
significant portion of the proceeds of this offering to begin that type of
direct consumer advertising. We now have in-house marketing staff to assist us
in these efforts.
OUR RETAIL CUSTOMERS
In order to successfully market our product, we must convince retailers to
allocate freezer shelf space to the product. Approximately 45 chains now carry
our ice cream in approximately 3,200 stores. Most of these customers are
regional grocery chains of significant size, such as Giant, Shop-Rite and Stop
'n Shop and independent grocery stores. We also sell through privately owed
gourmet grocery chains and convenience stores.
Approximately 80% of our sales are through regional grocery chains, and
less than 20% is through independent grocery stores.
In the nine months ended September 30, 1999, three distributors, C&S
Wholesaler Grocers, Inc., Edy's Grand Ice Cream of New York and Specialty Frozen
Products, each accounted for between 10% and 21% of our sales. We expect the
three distributors to continue to account for significant sales in the near
future.
We market to the grocery chains by offering lower introductory prices and
promotional programs and allowances. We also conduct in-store sampling and
provide promotional funds to chains. We have historically paid and expect to
continue to pay slotting fees for shelf space. During the nine months ended
September 30, 1999, we paid approximately $633,000 of slotting fees. These fees
are common in most segments of the food industry and vary from chain to chain.
Chains are generally reluctant to give up shelf space to new products when they
already have products which are performing.
We market directly to retail chains but are assisted by regional brokers.
MANUFACTURING ARRANGEMENTS
Our products are produced and packed by contractors who are in the business
of producing and packing ice cream. We currently have a single source for the
production and packing of our product, through a co-packing agreement with Roney
Oatman, Inc., of Illinois. Although we currently use only this single source,
our contract with Roney Oatman is not exclusive and we could use other sources
if that became advantageous. Under our contract with Roney Oatman, we pay the
manufacturer its actual cost for raw material such as butter, milk and packaging
materials, plus a fixed processing fee for each flavor. Therefore, the cost of
each production run may change if the cost of raw materials changes. We may
elect to cancel this agreement on sixty days' notice at any time. However, we
are then required to purchase all of the manufacturer's inventory related to our
product and compensate the manufacturer for the amortized cost of its equipment
used in the production of our product. We estimate the original cost of this
equipment would not exceed $50,000. Our obligations to the manufacturer are
guaranteed by Bluestem Capital Partners, II, L.P., our majority member.
DISTRIBUTION ARRANGEMENTS
Arrangements with experienced ice cream distributors are essential to the
success of our business. Generally, each geographic region has a limited number
of distributors with the ability to properly handle the distribution of ice
cream products. Establishing relationships with distributors and maintaining
those relationships is therefore crucial to our business. In order to obtain
favorable relationships with distributors, we expect that we will be required to
grant distributors exclusive rights within certain territories. Currently, we
have agreements with Delta Ice Cream covering Illinois and Melody Farms, LLC
covering Michigan. Both of these agreements grant the distributor rights to
distribute our products exclusively in the respective territories. These two
distributors currently account for a small portion of our overall sales. We do
not have agreements with the distributors that account for most of our sales.
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Our distributors are responsible for stocking our product on the shelves of
our retail customers. Independent brokers who maintain relationships with the
individual stores or chains usually assist the distributors in insuring that our
product is properly displayed and in maintaining promotional displays.
COMPETITION
The super-premium ice cream business is highly competitive, with the
distinction between the super-premium category and the "adjoining" premium and
premium plus categories more marked than in the past. Our principal competitors
are The Haagen-Dazs Company, Inc., Ben & Jerry's, Godiva, Starbucks and Edy's.
Edy's is marketed by Dreyers, Inc., an independent publicly owned company.
Starbucks and Godiva are distributed by Dreyer's. We believe Haagen-Dazs
controls approximately twenty percent (20%) of the super-premium market. Other
significant frozen dessert competitors are Dannon, Columbo, Healthy Choice, and
numerous other regional ice cream companies. Haagen-Dazs, an industry leader in
the super-premium ice cream market, is owned by The Pillsbury Company, which in
turn is owned by Diageo (previously known as Grand Metropolitan PLC), a British
food and liquor conglomerate. Diageo is a large, diversified company with
resources significantly greater than ours, and Haagen-Dazs has a significant
share of the markets that we have entered in recent years. Haagen-Dazs has also
entered foreign markets (including certain markets in Europe and the Pacific
Rim). Ben & Jerry's is an independent publicly-owned Company. Haagen-Dazs, Ben
and Jerry's and certain other competitors also market flavors using pieces of
cookies and candies as ingredients. In addition, unlike Jeremy's Microbatch(R),
Haagen-Dazs and Ben & Jerry's manufacture their own ice cream.
In addition to competition within the super-premium category, we also
compete for both retail shelf space and customer dollars with other types of ice
cream and other frozen desserts, such as frozen yogurt, low fat ice cream and
sorbet. Intense competition within the super-premium category, as well as the
proliferation of various types of frozen desserts, such as lower fat, lower
cholesterol products like frozen yogurt, low fat ice cream and sorbet, have
combined to make it more difficult to obtain shelf space and customer dollars.
The ability to introduce innovative new flavors and low fat offerings on a
periodic basis is also a significant competitive factor. We expect strong
competition to continue, including price/promotional competition and competition
for adequate distribution and limited shelf space within the frozen dessert
market generally and the super-premium category specifically.
Achieving wide distribution in the ice cream business is difficult due to
the substantial expense of a national marketing campaign and the limited
availability of space in the freezer compartments of retailers. Our ability to
increase our market share will be dependent upon several factors, including
consumer acceptance of our products, the quality and price of our products,
advertising, and the availability of sufficient capital to allow product
expansion.
PRICING
Pricing for our products varies by geographic region of the intended retail
sale. Generally, we seek to maintain prices similar to our major competitors at
the wholesale levels, and our suggested retail prices are generally similar to
those of our major competitors. Our wholesale prices are usually within 10% of
the prices charged by our major competitors. Retailers are free to set their own
prices, but we find they generally also charge a price for our product within
10% of the price they charge for our major competitors' products.
GOVERNMENT REGULATION
We are subject to regulation by various governmental agencies, including
the U.S. Food and Drug Administration and the U.S. Department of Agriculture. We
must also obtain licenses from certain states where Jeremy's Microbatch(R) Ice
Creams products are sold. We cannot predict the impact of possible changes that
we will be required to make in response to legislation, rules or inquiries made
from time to time by governmental agencies. FDA regulations may, in certain
instances, affect our ability, as well as others in the frozen dessert industry,
to develop and market
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new products. Nevertheless, we do not believe that these legislative and
administrative rules and regulations will have a significant impact on our
operations.
Our manufacturers must comply with federal and local environmental laws and
regulations relating to air quality, waste management and other related land use
matters. Our manufacturers must maintain waste water discharge permits and
pre-treat production affluent prior to discharge to the municipal treatment
facilities. We believe that our manufacturers are in compliance with all
required operational permits relating to environmental regulations.
The FDA and U.S. Department of Agriculture impose health and cleanliness
regulations on our manufacturer's facilities. Most of these regulations are
generally applicable to to all producers of food and beverages. The FDA also
regulates our finished product by requiring disclosure of ingredients and
nutritional information. The FDA can audit us or our manufacturer to determine
the accuracy of our disclosure.
Some state and local governments have various laws specifically applicable
to dairy products. For example, Colorado has specific taxes on dairy products.
New York regulates the size of containers in which our products may be sold.
State laws may also impose additional health and cleanliness regulations on our
manufacturers.
The use of outside sources to manufacture and distribute our product
results in our having less control over our product's compliance with
governmental regulations. For example, our manufacturer could incorrectly label
products. Liability for violation of rules relating to food quality could be
triggered because of the mistakes of our manufacturer or distributors. For
example, our distributors could mishandle product so that it becomes
adulterated. Our manufacturer's violation of FDA rules or local laws could delay
production of our products.
PROPRIETARY RIGHTS
We have registered the trademarks "Microbatch(R)" and "Jeremy's
Microbatch(R) Ice Creams". While we believe that we would obtain common law
protection on our flavor names through their use, we generally do not intend to
obtain federal registration of those trademarks given the expected limited
lifespan of each flavor. We rely on trade secret protection for the formulation
of our flavors. We generally require our employees and consultants to execute
confidentiality agreements. Other than the rights to the Jeremy's Microbatch(R)
Ice Cream name, we do not anticipate that proprietary rights will be extremely
important to our business.
We intend to rely primarily on trade secret and copyright protection and
non-disclosure agreements with our employees to establish and protect any ideas,
concepts and marketing or promotional materials used in our business. Trademark
protection of the Microbatch(R) name will also be important. These methods of
protecting our proprietary rights may not afford complete protection. Agreements
with employees may be breached and we may not have adequate remedies for any
breach. We may not have sufficient resources to prosecute any party which
infringes our trademark, or our other proprietary rights. Trade secrets do not
protect against independent development of any secret concepts or processes we
maintain. We cannot be sure that our trademark or any materials we develop in
the future will not infringe upon the rights of third parties. Any defense to
any infringement claim may require substantial resources which we may not have.
Therefore, any infringement on our proprietary rights, or any claim that we
infringe upon the rights of others, could have a material adverse effect on us.
We received a United States trademark registration for the "Microbatch(R)"
name in 1998. We are not aware of any claims of infringement or other challenges
on our right to use this trademark. However, this trademark is not yet
incontestable and we cannot be sure that a challenge will not be brought at some
time.
EMPLOYEES
As of December 1, 1999, we employed approximately 28 employees,
approximately 11 of whom were employed full-time. The remaining employees are
primarily part-time employees engaged in our "Secret Service" marketing teams.
Most of those employees are college students.
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We also employ additional personnel during peak selling periods. We consider our
relationship with our employees to be good.
INSURANCE
Our business exposes us to potential liability which is inherent in the
marketing and distribution of food products. We currently maintain $1,000,000 of
product liability insurance. We also maintain $1,000,000 of general and personal
injury insurance per occurrence and $2,000,000 in the aggregate. Any product
liability judgment entered against us which is not covered by insurance could
have a material adverse affect on our business, financial condition and results
of operations.
PROPERTIES
Our corporate headquarters are located in the University City Science
Center at 3401 Market Street, Philadelphia where we lease approximately 2,400
square feet for an aggregate monthly rental of approximately $3,000. Our lease
is on a month-to-month basis and can be terminated by either party on thirty
(30) days' notice. We anticipate that this space or similar space we may obtain
will be sufficient for our current needs and planned expansion. We are currently
negotiating an agreement for new office space. We do not anticipate requiring
any space other than office space, as we do not store any raw material, product
or packing materials.
LEGAL MATTERS
On January 31, 2000, Leonard F. Yablon and Yablon Enterprises sued us, our
shareholder Strive, Inc. and our President, Jeremy Kraus, in a state court in
Philadelphia, claiming compensation in connection with Bluestem Capital
Partners, II. L.P.'s investment in Jeremy's. The complaint alleges that Yablon
is entitled to 6 1/2% of the Common Stock of Jeremy's, a cash fee of $158,000
and a seat on Jeremy's Board of Directors. We believe that Yablon is not
entitled to any fee or compensation in connection with the Bluestem investment
because he did not introduce us to Bluestem. We were contacted directly by
Bluestem, and believe that the circumstances by which Bluestem became aware of
our interest in receiving investment were not the result of any activities which
entitles Yablon to any fee. Even if Mr. Yablon were successful in his claims, we
believe his stock entitlement would be at most 6 1/2% of our equity at the time
of the initial Bluestem investment, or 2.773% before this offering, or
approximately 49,914 shares.
In November, 1999, we were sued for payment of finder's fees by American
Maple Leaf Corporation, an entity with which we previously had a non-exclusive
finder's fee agreement. The complaint seeks a finders fee of $250,000 and shares
equal to 5% of our outstanding common stock. The complaint alleges that American
Maple Leaf would be entitled to this fee if we had received any financing during
the period of our agreement with American Maple Leaf, November 6, 1998 through
March 5, 1999. The Complaint alleges that we did receive financing during that
time period, but does not identify the alleged financing. The Complaint also
alleges that we rejected a financing source provided by American Maple Leaf and
used the services provided by American Maple Leaf to secure other financing
without paying a fee. We did not receive any financing during that time period,
or after that time period other than from existing principal shareholders, and,
therefore, have concluded the complaint is without merit and will seek to have
it dismissed.
In June of 1999, we terminated the employment of Thomas Shelton, who, at
that time, was a member of the Board of Managers of Jeremy's Microbatch Ice
Creams, LLC. At that time, Mr. Shelton was also a member of the Board of
Directors and a shareholder of Strive, Inc., one of our principal shareholders.
We subsequently received a demand by Mr. Shelton to provide him with certain
documents, and give him access to our books and records, in his capacity as a
manager of Jeremy's Microbatch Ice Creams, LLC. Our attorney subsequently
provided certain documents to Mr. Shelton's attorney. We have subsequently
removed Mr. Shelton as a manager of Jeremy's Microbatch Ice Creams, LLC. We do
not believe we owe Mr. Shelton any further duty.
On October 1, 1999, we terminated our relationship with our former
marketing agency, the Weightman Group, Inc.
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On November 19, 1999, we gave Weightman our promissory note in the amount
of $294,467, representing amounts owed to them for services and expenditures
prior to the date of this prospectus. We have paid $60,000 to Weightman under
this note, reducing the principal balance to $234,467. The note is payable in
full on the earlier of March 15, 2000 or three days after closing of this
offering. We will pay this note in full with the proceeds of this offering at
closing of this offering.
During the term of our relationship with Weightman, Weightman and its
subcontractors created certain artwork, packaging and other materials for us.
Weightman and its subcontractors may have the copyright in such materials and
may have the ability to prevent us from continuing to use such materials if we
default in our payments under the promissory note. Any claims that prevent us
from using these materials would have a material adverse effect on our business.
When we repay the debt, Weightman will have no claim to prevent us from using
these materials.
On December 9, 1999, we received notice from the Union of Orthodox Jewish
Congregations of America that we infringed their registered trademark symbol,
indicating their certification that our product was kosher, by using this symbol
after our recent change of manufacturers. Our former manufacturer's plant was
certified by this organization. We mistakenly believed that our new manufacturer
was also certified by this organization, but it is certified by a different
organization. To rectify this problem, on December 13, 1999, we informed the
Union of Orthodox Jewish Congregations that we would cover their symbol on all
of our product still in our manufacturer's warehouse and that no new product
will be packaged in containers bearing the symbol. The Union of Orthodox Jewish
Congregations indicated that if we took those steps, we could keep any product
on retail shelves at that time without alteration to the packaging. Because of
this method of rectifying the problem, we do not believe our potential violation
of this trademark will have a material affect on our business.
In January, 2000 we were served with a complaint filed in Erie County, New
York in December, 1999 by Perry's Ice Cream Company, our former manufacturer,
for approximately $220,000 plus interest and attorneys fees. Perry's claimed
that we owed this money for finished product shipped on our behalf and raw
materials and unique inventory purchased on our behalf. Although we disputed a
portion of this amount, we have agreed with Perry's to pay approximately
$230,000 on or before February 15, 2000 and to take delivery of the inventory.
Our member, Bluestem Capital Partners, II, L.P. guaranteed our obligations under
our contract with Perry's. Bluestem was sued in a separate action but the
settlement agreement also includes Bluestem. If we do not pay the required
amounts under the settlement agreement, and Bluestem is forced to pay, we will
owe Bluestem the money and Bluestem will have the right to file a judgment
against us to recover the payment.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and positions of our Directors,
Executive Officers and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jeremy D. Kraus...................... 23 President, Chief Executive Officer and Director
Samuel V. Cohen...................... 23 Chief Operating Officer, Secretary and Director
Jeffrey S. Rosen..................... 29 Chief Financial Officer
Jay H. Bern.......................... 48 Vice President of Business Development
Kristoffer J. Murphy................. 24 Promotions Manager
Paul Schock.......................... 41 Director
Steve Kirby.......................... 47 Director
</TABLE>
The underwriter will have the right to have a non-voting observer at all
board meetings.
Our members prior to this offering (after giving effect of the plan of
reorganization), who will continue to own more than 50% of our shares after this
offering, have agreed with each other to vote their shares to elect Mr. Kraus,
Mr. Cohen and two nominees of Bluestem Capital Partners, II, L.P. to our Board
of Directors through the end of 2003. Mr. Schock and Mr. Kirby will initially be
the nominees of Bluestem, but Bluestem will be entitled to change its nominees
at any election of directors.
We are required under the rules of the NASDAQ Stock Market to have two
independent directors. We have been granted a waiver by NASDAQ for a period of
90 days to obtain two independent directors. We anticipate expanding the Board
of Directors at such time as we obtain the independent directors.
A brief description of the backgrounds of the current Directors, Executive
Officers and key employees are set forth below:
EXECUTIVE OFFICERS
JEREMY D. KRAUS. Jeremy D. Kraus is the founder of our business and has
been Chief Executive since its inception. He received his Bachelor of Science
with a specialty in entrepreneurial management from the Wharton School of the
University of Pennsylvania in 1998. Jeremy has received many academic and
professional awards recognizing his entrepreneurial ability. While at Wharton he
was named a Berg Scholar and awarded both the Gloeckner Award and the Trilogy
Award for entrepreneurial excellence -- becoming the first student to win both
awards in the school's history. In addition, Governor Tom Ridge named him
Pennsylvania's Young Entrepreneur of the Year in 1997. In 1998, Jeremy was named
one of the top 40 marketers under 40 years of age by Brandweek magazine, as well
as one of Philadelphia's top 40 businessmen under 40 years of age by the
Philadelphia Business Journal.
Jeremy Kraus is also the President and a director and shareholder of one of
our principal members, Strive, Inc. Mr. Kraus devotes substantially all of his
time to the activities of Jeremy's.
SAMUEL V. COHEN. Samuel V. Cohen has served us in various capacities since
the inception of our business. He is experienced in areas of operations
management, information systems and project management. In recognition of his
work at Jeremy's Microbatch(R) Ice Creams, he was named one of Advertising Age's
Top 100 Marketers of 1998. He has done operations and technology consulting
projects for Rosenbluth International and Valley National Bank. He is a 1998
graduate of the Wharton School of the University of Pennsylvania, with a focus
on operations management. Through those and other experiences, as well as
academic coursework, Samuel has worked to develop unique solutions for supply
and distribution chain management, service process management, quality
control/assurance, and perishable inventory purchasing. In addition, he has been
integral in implementing these solutions through the creation of proprietary
technologies utilizing both continuous and discrete event simulation,
mathematical modeling, and interactive software. He has also worked as a
technical professional himself, serving as a technical support specialist and
assistant system administrator for a 100+ client intranet and internet
multi-webserver host network.
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Samuel Cohen is also the vice president and a director and shareholder of
our member, Strive, Inc. Mr. Cohen devotes substantially all of his time to the
activities of Jeremy's.
JEFFREY S. ROSEN. Mr. Rosen joined us in April, 1999. He is a graduate of
Rowan University with a Bachelors of Science degree in finance. Before joining
Jeremy's, Jeff was the assistant controller of Megasoft, a computer software
company, from 1997 to 1998. Megasoft filed for bankruptcy protection in 1998.
For four years prior to joining Megasoft, Mr. Rosen was an accountant with a
public accounting firm in New York City. He studied and practiced all facets of
accounting both as an auditor and a financial statement and tax preparer.
KEY EMPLOYEES.
JAY H. BERN. Jay H. Bern joined us as Vice President of Business
Development in July 1998. He is a seasoned sales professional in the ice cream
business. Jay has over twenty years of experience in broker management, direct
sales, distributor sales and sales management in the consumer packaged goods
industry. From 1997 to 1998, Jay served as a sales executive with Old Fashioned
Kitchen, which makes frozen foods. From 1996 to 1997 Jay was a sales executive
with New England Frozen Foods. From 1993 to 1996, Jay served as the Director of
Sales for Mr. Cookie Face. Jay has experience working with some of Jeremy's key
competitors, such as Edy's Grand Ice Creams as a Senior Account Executive from
1991 to 1993 where he sold Ben & Jerry's, as well as Haagen-Dazs where he served
as a Key Account Executive and Sales Manager from 1985 to 1987.
KRISTOFFER J. MURPHY. Kris Murphy joined us in 1999. He graduated from
Temple University in 1998 with a degree in radio, television and film. While
still in high school he produced a daily television show for a local cable
station. During his sophomore year at Temple, he began as a promotions assistant
for WPLY(Y100), a highly rated Philadelphia radio station. In his time there he
was promoted several times, eventually becoming the Sales Promotion Coordinator.
He began the Y100 Street Squad, a promotional team responsible for over 1200
events in the Philadelphia Metro in 1998. He was an intricate part in Y100 being
named the most promotionally active radio station on the East Coast by numerous
trade publications and the Philadelphia City Paper.
DIRECTORS
PAUL SCHOCK. Paul Schock is the co-fund manager of Bluestem Capital
Company, the general partner of Bluestem Capital Partners, II, L.P., and other
investment partnerships. He attended Stanford University and graduated in 1981
Magna Cum Laude from Augustana College with a degree in Business. Mr. Schock was
a commercial banker and manager for eight years with the First Bank Systems of
Minneapolis, Minnesota and left to become CFO of American Western Company, a
$150 million (sales) public manufacturing company in Sioux Falls, South Dakota.
In 1989, he left American Western Company and formed the predecessor to Bluestem
Capital Company.
STEVE KIRBY. Steve Kirby, is the co-fund manager of Bluestem Capital
Company. He is a graduate of Arizona State University with a BS Degree in
Political Science and a graduate of the University of South Dakota School of Law
with a Juris Doctorate Degree. Mr. Kirby was secretary and senior claim counsel
for Western Surety Company, a national surety bond company from 1977-1992. He
was also the 35th Lieutenant Governor of the State of South Dakota from 1993
through 1995.
COMPENSATION OF DIRECTORS
We do not currently pay our directors any compensation for their service as
directors. In the future, we plan to reimburse directors' expenses for
attendance at board meetings. We have agreed with the underwriter that the
underwriter's designee on the board will receive compensation appropriate for an
outside director. We do not anticipate paying any compensation to this designee
unless we also pay compensation to our other outside directors.
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EXECUTIVE COMPENSATION
COMPENSATION OF OFFICERS
The following table sets forth information concerning the compensation
earned by our officers for services rendered in all capacities to us in the
years ended December 31, 1998 and 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- ------- ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Jeremy D. Kraus............................. 1999 70,000 0 0 3,600
Chief Executive Officer 1998 48,000 0 0 3,600
Samuel V. Cohen............................. 1999 70,000 0 0 3,600
Chief Operations Officer 1998 36,000 0 0 3,600
Jay Bern.................................... 1999 80,000 0 0 8,400
Vice President-Business Development 1998 40,000 0 0 4,200
Jeffrey S. Rosen............................ 1999 37,000 0 0 3,375
Chief Financial Officer
</TABLE>
Our Chief Financial Officer, Jeffrey Rosen, joined us in April 1999. Prior
to Mr. Rosen joining us, Mr. Cohen acted as our Chief Financial Officer.
The figure under "All Other Compensation" for Mr. Kraus and Mr. Cohen
consists of a $300 monthly car allowance. The figure under "All Other
Compensation" for Mr. Bern consists of a $700 monthly car allowance. Mr. Rosen
receives a car allowance of $375 per month. From January 1, 1999 through the
date of this prospectus, Mr. Cohen and Mr. Kraus were each paid at a rate of
$70,000 per year. Mr. Cohen and Mr. Kraus will continue to receive compensation
at this rate through the closing of this offering. Mr. Kraus, Mr. Cohen, Mr.
Rosen and Mr. Bern will continue to receive their car allowances during 2000. As
discussed below, Mr. Kraus and Mr. Cohen will be receiving salary increases
after this offering closes. We anticipate that Mr. Bern will continue to receive
compensation at the rate of $80,000 per annum and Mr. Rosen will continue to
receive compensation at the rate of $55,000 per annum during 2000.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Jeremy D. Kraus and Samuel
V. Cohen which will become effective as of closing of our initial public
offering.
These agreements will provide for three-year terms with identical
compensation provisions for Mr. Kraus and Mr. Cohen. Under these agreements, Mr.
Kraus and Mr. Cohen will each receive the following compensation:
o Salary of $120,000 in the year 2000 increasing to $130,000 in 2001 and
$140,000 in 2002. The increases in 2001 and 2002 are contingent upon our
profitability in the prior year.
o Options issued at the beginning of each year under the contract to
purchase 10,000 shares at an exercise price equal to the market value of
the shares at the beginning of the year.
Under these agreements, Mr. Kraus and Mr. Cohen will be entitled to
participate in, and receive, standard employee benefits which we adopt for our
employees generally or executive officers specifically. The agreements will
provide that if we terminate Mr. Kraus or Mr. Cohen without cause, he will be
entitled to a severance payment in the amount equal to six months salary. Under
the employment agreements, cause will include:
o Continuing willful neglect of the employee's duties.
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o Willful disregard or violation of law or governmental rules which is
likely to subject us to loss.
o The employee's breach of his duty to us if it involves personal profit to
the employee or his family or the taking of an opportunity available to
us to our detriment.
o The conviction of the employee for certain crimes as well as violation of
securities laws or regulations.
o A material breach of the terms of the employment agreement.
o Any misappropriation of funds, theft or fraud by the employee involving
us or any of our affiliates, customers or suppliers.
Mr. Cohen and Mr. Kraus will be entitled to terminate their employment
agreements if we fail to timely pay cash compensation to them in an amount
exceeding $5,000. In the event that Mr. Kraus or Mr. Cohen terminates his
employment agreement for this reason, he will be entitled to six months
severance pay.
STOCK OPTION PLAN
We intend to adopt a stock option plan before the effective date of this
offering. The purpose of this plan will be to enable us to attract, retain and
motivate key employees, directors and consultants, by providing them with stock
options. We anticipate that we will benefit from the added interest which such
personnel will have in the success of Jeremy's as a result of their proprietary
interest.
If adopted, the plan will provide that options may or may not be incentive
stock options within the meaning of Section 422 of the Internal Revenue Code.
Only our employees would be eligible to receive incentive stock options.
Employees and non-employee directors, advisors and consultants would be eligible
to receive options which are not incentive stock options. Incentive stock
options receive favorable treatment under federal tax laws.
If the plan is adopted, we intend to reserve 300,000 shares of our common
stock for issuance under the stock option plan.
We anticipate that our board of directors would administer the plan or
establish a stock option committee consisting of at least two directors to
administer the stock option plan. The board or committee would have the power to
determine the terms of any options granted under the plan, including the
exercise price, the number of shares subject to the option and conditions of
exercise. Options granted under the plan generally would not be transferable and
would only be exercisable during the lifetime of the initial holder of the
option. The exercise price of all incentive stock options granted under the plan
would be at least equal to the fair market value of the shares of common stock
on the date the option is granted. For any participant who owns stock possessing
more than 10% of the voting power of all classes of our stock, the exercise
price of any incentive stock option must be equal to at least 110% of the fair
market value on the date the option is granted. The term of all incentive stock
options under the plan may not exceed ten years, or five years in the case of
10% owners.
POLICY ON ISSUANCE OF OPTIONS AND WARRANTS
We will not issue warrants or options at an exercise price of less than 85%
of fair market value of the common stock on the date the warrant or option is
issued.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, except for liability:
o For any breach of the directors duty of loyalty to Jeremy's or its
stockholders;
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o For acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
o Under Section 174 of the Delaware General Corporation Law relating to
unlawful dividends or stock redemptions; or
o For any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware Law.
Our by-laws provide that:
o We must indemnify our directors and officers to the fullest extent
permitted by Delaware Law, subject to very limited exceptions;
o We may indemnify our other employees and agents to the same extent that
we indemnify our officers and directors, unless otherwise required by
law, our certificate of incorporation, or our by-laws or other
agreements; and
o We must advance expenses as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
We intend to obtain directors and officers insurance for our directors,
officers and certain key employees for specific liabilities.
Limitation of liability and indemnification provisions in our certificate
of incorporation and by-laws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty. These provisions may also
have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though an action of this kind, if successful, might
otherwise benefit us and our stockholders. Furthermore, a stockholder's
investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers pursuant to these
indemnification provisions. However, we believe that these indemnification and
limitation of liability provisions are necessary to attract and retain qualified
directors and officers.
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PRINCIPAL SHAREHOLDERS
After this offering, affiliates of our present officers and directors will
still be able to elect our board of directors. Affiliates of our officers and
directors will, in the aggregate, beneficially own over 50% of our common stock
after this offering. These stockholders will be able to exercise control over
all matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. One of our
shareholders, Bluestem Capital Partners II, L.P., which is affiliated with two
of our directors, intends to purchase 200,000 shares in this offering. After
this offering, Bluestem will own over 51% of our common stock. This
concentration of ownership could prevent a change in control of Jeremy's
Microbatch(R), which could adversely affect our stock price.
The table presented below sets forth as of the date of the prospectus
(after giving effect of the plan of reorganization), information regarding the
beneficial ownership of our common stock by:
o our chief executive officer, other executive officers and directors;
o all directors and executive officers as a group; and
o each person known to us to own beneficially more than 5% of our
outstanding shares.
A person has beneficial ownership of shares if he or she has the power to
vote or dispose of the shares. This power can be exclusive or shared, direct or
indirect.
<TABLE>
<CAPTION>
ADJUSTMENTS FOR OFFERING
------------------------
BENEFICIAL OWNERSHIP OWNERSHIP ASSUMING THE
BEFORE OFFERING(1) SALE OF ALL SHARES
-------------------- ------------------------
NUMBER OF PERCENT NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(3) OF CLASS SHARES(1) PERCENTAGE
- ------------------------------------ --------- -------- ---------- -----------
<S> <C> <C> <C> <C>
(I) DIRECTORS AND EXECUTIVE OFFICERS
Jeremy D. Kraus(1).......................... 323,118 17.951% 323,118 10.77%
Samuel V. Cohen(1).......................... 323,118 17.951% 323,118 10.77%
Paul Schock(2).............................. 1,359,882 75.55% 1,559,882 51.99%
Stephen Kirby(2)............................ 1,359,882 75.55% 1,559,882 51.99%
All Officers and Directors as a Group....... 1,683,000 93.50% 1,883,000 62.77%
(II) OTHER BENEFICIAL OWNERS
Strive, Inc................................. 323,118 17.95% 323,118 10.77%
Bluestem Capital Partners, II, L.P.......... 1,359,882 75.55% 1,559,882 51.99%
</TABLE>
- ------------------
(1) The shares shown as beneficially owned by Mr. Kraus and Mr. Cohen are owned
of record by Strive, Inc., a Texas corporation. Mr. Kraus and Mr. Cohen are
directors and officers of Strive, Inc. Jeremy D. Kraus, our President,
Samuel V. Cohen, our Chief Operating Officer and Edward Kraus, Jeremy D.
Kraus' father, own in the aggregate more than 90% of the outstanding shares
of Strive, Inc. This does not include certain shares which Strive may
acquire from other current shareholders, as described under "Certain
Relationships and Related Transactions."
(2) The shares shown as beneficially owned by Mr. Schock and Mr. Kirby are owned
of record by Bluestem Capital Partners, II, L.P. Mr. Schock and Mr. Kirby
are the co-managers of Bluestem Capital Company, the general partner of
Bluestem Capital Partners, II, L.P.
(3) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of 1934.
Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the number and
percentage owned by each other person listed.
Mr. Kraus and Mr. Cohen's address is 3401 Market Street, Suite 312,
Philadelphia, PA 19104. The address for Mr. Schock, Mr. Kirby and Bluestem
Capital Partners, II, L.P. is 122 South Philips Avenue, Suite 300, Sioux Falls,
South Dakota 57104.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONVERSION OF JEREMY'S MICROBATCH(R) ICE CREAMS TO CORPORATE FORM. In
October, 1997, Jeremy's Microbatch Ice Creams, LLC was formed as a Delaware
limited liability company. At closing of this Offering, Jeremy's Microbatch Ice
Creams, LLC will become a wholly owned subsidiary of Jeremy's Microbatch Ice
Creams, Inc. In connection with that transaction, each of the members of
Jeremy's Microbatch Ice Creams, LLC will receive a portion of the initial
1,800,000 shares of Jeremy's Microbatch Ice Creams, Inc. equal to their
percentage interests in the limited liability company.
GUARANTEES BY BLUESTEM. Bluestem Capital Partners, II, L.P. guarantees our
obligations under our agreement with the primary manufacturer of our products.
These obligations include our obligation to pay for product produced and to pay
certain other amounts if we terminate the agreement. These obligations are
discussed in more detail under the heading "Manufacturing Arrangements" on page
18. Bluestem Capital Partners, II, L.P. also guarantees our obligations to
Norwest Bank under our unsecured line of credit from Norwest Bank. This line of
credit expires on January 31, 2000. As of the date of this offering, we expect
that we will have borrowed the maximum amount permitted under this line of
credit, $300,000. Bluestem Capital Partners, II, LP is a venture capital
investment firm that is our majority shareholder. Two of our directors, Mr.
Schock and Mr. Kirby, are principals of Bluestem Capital Partners, II, L.P.
OPERATION OF OUR BUSINESS BY STRIVE, INC. During 1997, one of our
principal members, Strive, Inc. tested several ice cream marketing concepts,
including the Jeremy's Microbatch(R) concept. Strive operated the Jeremy's
Microbatch(R) business on a limited basis during 1997 and as of January 1, 1998
transferred the business to Jeremy's Microbatch(R) Ice Creams, LLC. The transfer
of the business included our assumption of $43,937 in liabilities and Strive's
contribution of assets, principally account receivables with a book value of
$15,837.
AGREEMENTS BETWEEN STRIVE, INC. AND OTHER SHAREHOLDERS. In connection with
the anticipated conversion of Jeremy's Microbatch(R) Ice Creams to corporate
form, we and our principal members entered into a plan of reorganization. This
plan of reorganization contains certain provisions which grant Strive the right
to purchase a portion of the shares owned by Bluestem Capital Partners, II, L.P.
This agreement provides:
o Strive has the right to purchase 33,235 shares from Bluestem upon a sale
of Jeremy's if the aggregate cash and fair market value of securities
received by us or our shareholders is at least $10,000,000. The purchase
price for these shares will be $208,652 if the option is exercised on or
before April 23, 2003. On April 24, 2003 and on each April 24 thereafter,
the purchase price will increase by 20%.
o Strive has the right to purchase 66,470 shares from Bluestem in the event
of a sale of Jeremy's in which the aggregate cash and fair market value
of securities received by us or our shareholders is at least $20,000,000.
The purchase price for these shares will be $417,304 through April 23,
2003 and thereafter will increase by 20% per year.
o Strive has the right to purchase up to 256,464 shares from Bluestem at
any time prior to July 14, 2003. The purchase price will be $5.849 per
share through July 14, 2001, $7.798 per share after July 14, 2001 and
before July 14, 2002 and $9.743 per share after July 14, 2002.
o Strive has the right to purchase up to 61,857 shares from Bluestem at any
time prior to August 11, 2003. The purchase price will be $7.27 per share
through August 11, 2001, $9.70 per share after August 11, 2001 and on or
before August 11, 2002 and $12.12 per share after August 11, 2002.
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<PAGE>
LOANS BY EXECUTIVE OFFICERS AND MEMBERS. In October, 1999, Jeremy D.
Kraus, our President, loaned us $40,000 and Jeffrey Rosen, Chief Financial
Officer, loaned us $5,000. In exchange for these loans, we issued promissory
notes bearing interest at 10% per annum, due in full in October, 2000. We intend
to repay these notes with the proceeds of this offering. We borrowed these funds
to repay an obligation to an unrelated party which would have matured on June
11, 2000 and bore interest at 14% per annum. In November, 1999, Strive, Inc.,
one of our principal members, loaned us $50,000 to fund accounts payable. This
loan bears interest at 14% per annum and is due in November, 2000. We intend to
repay that loan with the proceeds of this offering. As the loans from our
President and Chief Financial Officer replaced a loan from an unaffiliated party
on which we paid a higher interest rate, we believe these loans were on terms as
favorable to us as those available from unaffiliated third parties.
PRIOR LEASE ARRANGEMENTS. From January 1, 1998 through April 1, 1999, we
operated in space leased from an unrelated third party by Jeremy D. Kraus. We
paid the monthly rent of approximately $2,000 directly to the landlord. As we
paid only the rent actually charged by the landlord, we believe this transaction
was on terms no less favorable to us than generally available from unaffiliated
third parties. At the time we entered into this lease, we did not have
sufficient disinterested directors to ratify this transaction.
All future affiliated material transactions and loans involving Jeremy's
will be made or entered into on terms that are no less favorable to us than
those that can be obtained from unaffiliated third parties. All future material
affiliated transactions and loans, and any forgiveness of loans, must be
approved by a majority of our independent directors who do not have an interest
in the transactions and who had access, at our expense, to our legal counsel or
independent legal counsel.
During the period in which we entered into the transactions described
above, we did not have independent directors, and therefore we lacked sufficient
disinterested directors to ratify or approve these transactions. Therefore, an
investor cannot be sure that any prior transactions between us and our officers,
directors or affiliates were favorable to us.
PURCHASE OF SHARES BY BLUESTEM. Bluestem Capital Partners II, L.P., one of
our principal shareholders, intends to purchase 200,000 shares in this offering.
The underwriter will be paid the same commission and expense allowance for the
sale to Bluestem as it is paid for all other sales in the offering. The
underwriting agreement provides that the underwriter may terminate the offering
if Bluestem does not purchase these shares. Assuming Bluestem purchases these
shares, after the offering, Bluestem will own in excess of 50% of our
outstanding common stock.
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<PAGE>
DESCRIPTION OF SECURITIES
As of the date of this prospectus, we have the authority to issue 5,000,000
shares of common stock, $.01 par value per share and 500,000 shares of preferred
stock, $.01 par value per share. There will be 1,800,000 shares of common stock
outstanding immediately prior to closing of this offering. We have agreed with
the underwriter that we will not issue any new shares of common stock or
preferred stock without the underwriter's consent for twelve (12) months
following the date of this prospectus, except under our proposed stock option
plan.
COMMON STOCK
o Holders of common stock are entitled to receive dividends only if
Jeremy's Microbatch(R) has funds legally available and the Board of
Directors declares a dividend.
o Holders of common stock do not have any rights to purchase additional
shares.
o Holders of common stock are entitled to one vote per share on all matters
requiring a vote of shareholders.
o Since the common stock does not have cumulative voting rights in electing
directors, the holders of more than a majority of the outstanding shares
of common stock can elect all of the directors whose terms expire that
year, if they choose to do so.
o There is no public market for our common stock at the present time.
VOTING REQUIREMENTS
Delaware corporate law and our by-laws require the approval of the holders
of a majority of our voting securities for most actions requiring shareholder
approval. These actions include:
o election of directors;
o mergers;
o sales of substantially all of our shares; and
o amendment to our certificate of incorporation.
There are no provisions in our Articles of Incorporation or by-laws that
would delay, defer or prevent a change in control of Jeremy's Microbatch(R),
except the undesignated preferred stock described below. Our shareholders prior
to this offering, who will continue to hold more than 50% of our outstanding
shares after this offering, have agreed with each other to vote their shares to
elect Mr. Kraus, Mr. Cohen and two nominees of Bluestem Capital Partners, II,
L.P., to our Board of Directors through the end of 2003.
UNDESIGNATED PREFERRED STOCK.
Our board of directors has the authority to issue up to 500,000 shares of
preferred stock in one or more series and fix the number of shares in any
series. The board has the right to issue shares of preferred stock and set the
terms of any series of preferred stock without shareholder approval. These terms
include the voting powers, liquidation and dividend preferences, dividend rates,
terms of mandatory or optional redemption, conversion rights and other rights
and preferences of the shares of preferred stock. For example, the board of
directors may issue a series of preferred stock which would have the right to
approve, as a class, any amendment to our certificate of incorporation or any
other proposed corporate action, including business combinations and other
transactions. These provisions could dilute and in other ways adversely affect
the rights of our common shareholders, and could be used in ways which could
make a takeover of Jeremy's more difficult. If we issue any preferred stock, the
issuance will be approved by a majority of our independent directors who do not
have an interest in the issuance or transactions related to the issuance, and
who have access, at our expense, to our legal counsel or independent legal
counsel.
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<PAGE>
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations, under certain circumstances, from engaging in a "business
combination" with:
o A stockholder who owns 15% or more of our outstanding voting stock (known
as an "interested stockholder");
o An affiliate of an interested stockholder; or
o An associate of an interested stockholder,
for three years following the date that the stockholder became an "interested
stockholder." A "business combination" includes a merger or sale of more than
10% of our assets.
However, the above provisions of Section 203 do not apply if:
o Our board approves the transaction that made the stockholder an
"interested stockholder," prior to the date of that transaction;
o After the completion of the transaction that resulted in the stockholder
becoming an "interested stockholder," the stockholder owned at least 85%
of our voting stock outstanding at the time the transaction began,
excluding shares owned by persons who are our officers and directors; or
o On or subsequent to the date of the transaction, the business combination
is approved by our board and authorized at a meeting of our stockholders
by an affirmative vote of at least 2/3 of the outstanding voting stock
not owned by the "interested stockholder."
The provisions of this statute could prohibit or delay mergers or other
change and control attempts, and thus may discourage attempts to acquire
Jeremy's.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Stocktrans, Inc.,
7 East Lancaster Avenue, Ardmore, PA 19003. Its telephone number is
610-649-7300.
WE CANNOT GUARANTEE THERE WILL BE A TRADING MARKET FOR OUR SECURITIES
There has been no prior public market for our shares. You cannot be certain
that a market will develop or be sustained.
THE MARKET PRICE OF OUR SECURITIES MAY NOT BE AS HIGH AS THE OFFERING PRICE
The offering price of our shares has been arbitrarily determined by
negotiation between Jeremy's Microbatch(R) and the underwriter. The offering
price is not related to our assets or book value or other accepted methods of
valuing a business. Since the price has been determined in this manner and not
by the market, the price at which the shares trade after the offering may
decrease.
RISK OF DELISTING FROM NASDAQ
If our shares are not listed on the Nasdaq Smallcap Market, there will be
less interest in the market place for our securities. This may result in lower
prices for our securities and make it more difficult for you to sell the shares.
We have applied for initial listing on the Nasdaq Smallcap Market upon the date
of this prospectus. We cannot guarantee that our listing application will be
approved. Even if our securities are approved for initial listing, we must
continue to meet certain maintenance requirements, such as minimum capital
levels and periodic reporting under SEC regulations, in order for our securities
to continue to be listed on Nasdaq. We may not be able to continue to meet such
requirements.
33
<PAGE>
THE MARKET PRICE FOR OUR SHARES IS LIKELY TO FLUCTUATE. Upon completion of
this offering, there may be limited trading and the market price of our shares
is likely to be highly volatile. The volatility may result from factors
including:
o fluctuations in our operating results;
o changes in stock market analysts' recommendations regarding our business,
similar companies in our industry or general market and economic
conditions;
o changes in market valuations of ice cream companies;
o announcements of technological innovations or new products by us or our
competitors;
o announcements of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
o additions or departures of key personnel.
The market prices for stocks following an initial public offering
frequently reach levels that bear no relationship to their operating
performance. Such market prices generally are not sustainable and are subject to
wide variations. If our shares trade to such levels following this offering, it
is likely they will later experience a material decline in share price.
INVESTORS MAY FACE ADDITIONAL RISKS RELATED TO PENNY STOCK REGULATIONS
If our common stock does not qualify for quotation on Nasdaq and fails to
maintain a price of $5.00 or more per share, our common stock would become
subject to the SEC's "penny stock" rules. These rules require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and its risks. In addition, broker/dealers who
recommend penny stocks to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. In the event our common stock became subject to these rules, it
may become difficult for broker/dealers to sell the common stock. Shareholders
might then have difficulty selling our common stock in the public market.
POSSIBLE NEGATIVE EFFECT OF UNDERWRITER'S WARRANTS ON MARKET FOR OUR STOCK AND
ABILITY TO OBTAIN ADDITIONAL FINANCING
We will issue to the underwriter, for a very small payment, underwriter's
warrants to purchase 120,000 shares. The underwriter's warrants will have an
exercise price of $9.90 per share, 165% of the initial offering price. Exercise
of the underwriter's warrants and subsequent sale of the shares could adversely
affect the market price of our common stock. The potential for exercise of these
underwriter's warrants may adversely affect the terms we can negotiate for new
financings.
34
<PAGE>
UNDERWRITING
First Montauk Securities Corp. has agreed, as underwriter, subject to the
terms and conditions of the underwriting agreement (a complete copy of which is
filed as an exhibit to the registration statement of which this prospectus is a
part), to purchase from us an aggregate of 1,200,000 shares of common stock.
The underwriting agreement provides that the underwriter is obligated to
purchase all of the shares being offered, if any are purchased, subject to
approval of legal matters by counsel.
Bluestem Capital Partners, II, L.P., one of our principal shareholders,
intends to purchase 200,000 shares in the offering. The underwriter will be paid
the same commission and expense allowance for the sale to Bluestem as it is paid
for all other sales in the offering. The underwriting agreement provides that
the underwriter may terminate the offering if Bluestem does not purchase these
shares.
The underwriter has advised us that it proposes to offer the shares to the
public at the public offering price per share set forth on the cover of this
prospectus, and to selected dealers who are members of the National Association
of Securities Dealers, Inc. at such price less a concession not exceeding $.36
per share. The underwriter may allow, and such dealers may reallow, concessions,
not in excess of $.18 per share. The underwriter has reserved the right to
reject orders, in whole or in part, in its sole discretion. After the completion
of the initial public offering, the offering price, the concessions and the
reallowance may be changed by the underwriter. The underwriter has advised us
that it does not expect any sales to accounts for which it exercises discretion
as to such sale.
We have granted to the underwriter a 45 day option to purchase from us up
to 180,000 additional shares at the price per share set forth on the cover page
of this prospectus, less the stated underwriting discounts and commissions. The
underwriter may exercise these options only for the purpose of covering
over-allotments, if any.
The underwriting agreement provides for reciprocal indemnification between
us and the underwriter against certain liabilities that may occur in connection
with the registration statement, including liabilities under the Securities Act.
We have been advised that, in the opinion of the SEC, indemnification for
liabilities under the Securities Act is against public policy as expressed in
the Securities Act and is unenforceable.
In addition to the 10% selling commission, we have agreed to pay the
underwriter a non-accountable expense allowance equal to 3% of the gross
proceeds of the offering, including any shares purchased pursuant to the
exercise of the underwriter's over-allotment options, of which $20,000 has been
paid on account.
We have agreed to retain the underwriter, for a period of two years
commencing upon the closing of this offering, to render financial consulting
services in consideration of an annual payment of $30,000, an aggregate of
$60,000, payable at the closing of this offering. In the event the underwriter
originates a financing or a merger, acquisition, joint venture or other
transaction to which we are a party, the underwriter will be entitled to receive
a finder's fee in consideration for origination of such transaction. The
underwriter has advised us that it does not presently have any such transaction
contemplated or arranged at this time. We have no current plan, understanding,
agreement or arrangement for any such transaction.
We have also agreed to sell to the underwriter warrants to purchase up to
120,000 shares of common stock at an exercise price of $9.90 per share, 165% of
the public offering price per share. The holders of the underwriter's warrants
will not have voting, dividend or other rights as our stockholders until such
warrants are exercised. The underwriter's warrants may be exercised commencing
one-year from the effective date of this prospectus to a date which is five
years from the effective date. The underwriter's warrants may not be sold,
transferred, assigned or hypothecated except to bona fide officers of the
underwriter and to dealers who are part of the selling group and/or their
officers or partners. The underwriter's warrants also have registration rights.
In summary, the underwriter will receive the following compensation from us:
o the 10% discount from the public offering price;
o the 3% expense allowance; and
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<PAGE>
o the underwriter's warrants.
For the term of the underwriter's warrants, the holders thereof will have
the opportunity to profit from a rise in the market value of our common stock,
with a resulting dilution in the interests of the other stockholders. The
holders of the underwriter's warrants can be expected to exercise them at a time
when we would, in all likelihood, be able to obtain any needed capital from an
offering of our common stock on terms more favorable to us than those provided
for in the underwriter's warrants. This may adversely affect the terms on which
we might be able to obtain additional financing. To the extent that the
underwriter realizes any gain from the resale of the underwriter's warrants
and/or the shares issuable upon exercise of the underwriter's warrants, such
gain may be deemed additional underwriting compensation.
Our executive officers and directors and our existing stockholders holding
at least 1,683,000 prior to the offering, have entered into an agreement with
the underwriter pursuant to which they have agreed not to sell any of such
shares owned by them, pursuant to Rule 144 under the Securities Act or
otherwise, without the underwriter's consent, for a period of 12 months from the
date of this prospectus except in private transactions in which the purchaser
agrees to be bound by such agreement. Additionally, commencing 12 months from
the date of this prospectus, such persons have agreed to sell only an amount as
they might be allowed to sell under Rule 144. The shares subject to this
agreement include shares our principal shareholder, Bluestem Capital Partners,
II, L.P. intends to purchase in this offering.
We have agreed with the underwriter not to issue any shares of common stock
or other equity securities or sell or grant any options or warrants or other
rights to purchase any equity securities without the underwriter's consent, for
a two year period following the closing of this offering, except that we may
issue:
o options under our option plan, provided that the exercise price of any
such options shall not be less that the market price per share of common
stock on the date of grant and recipients of such options shall enter
into a lock-up agreement with the underwriter. and
o securities in connection with an acquisition, merger or similar
transaction,
provided that such securities are not publicly registered and the acquirer of
the securities is not granted registration rights with respect thereto which may
be exercised prior to 24 months after closing of this offering.
We have also agreed that, for the 24-month period following the closing of
this offering, it will not, without the prior written consent of the
underwriter, file any registration statement relating to the offer of sale of
any of its securities, including any registration statement on Form S-8 or other
similar form.
The underwriting agreement provides that we are required to maintain, for a
period of three years following the offering a policy of life insurance on the
life of Samuel Cohen and Jeremy Kraus, our founders and principal executives.
The face amount of such policy must be at least $1,000,000 and we must be the
beneficiary.
Prior to this offering, there has been no public trading market for the
common stock. Consequently, the initial public offering price of the common
stock has been determined by negotiations between us and the underwriter. Among
the factors considered in determining these prices were:
our financial condition and its prospects,
market prices of, and demand for, similar securities of comparable
publicly-traded companies
the abilities of our management
the prospects for future growth and earnings; and
the general condition of the securities market.
In order to facilitate this offering, the underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock and impose penalty bids in accordance with Regulation M under the
Exchange Act. Specifically, the underwriter may over-allot in connection with
this offering, creating a short position in the common ctock for its own
account. In
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<PAGE>
addition, to cover over-allotments or to stabilize the price of the common
ctock, the underwriter may bid for, and repurchase, shares in the open market.
Penalty bids allow the underwriter to reclaim selling concessions allowed to a
dealer for distributing the shares in this offering, if the underwriter
repurchases previously distributed shares in transactions to cover short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriter is not required to engage in these activities,
and if undertaken, may end any of these activities at any time. The underwriter
has advised us that it cannot predict the effect that the transactions as
described above may have on the price of the common stock. It is anticipated
that the underwriter will make a market in the common stock after completion of
the offering but the underwriter is not obligated to make a market in the common
stock and it may discontinue such activities at any time.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market, or
the perception that these sales could occur, could adversely affect prevailing
market prices of our common stock. Those circumstances could also adversely
affect our ability to raise capital on favorable terms.
All of the shares issued in this offering will be freely tradable without
restriction or further registration under the Securities Act of 1933, except for
such shares which may be purchased by our affiliates. The term affiliates is
defined in Rule 144 of the Securities Act of 1933. All 1,800,000 of our shares
outstanding before this offering are restricted securities as that term is
defined in Rule 144. Restricted securities may be sold publicly only if
registered or if the sale qualifies for an exemption under Rule 144. Of these
1,800,000 shares, 1,683,300 shares are held by our affiliates.
Subject to the Lock-Up Agreements described below, and the provisions of
Rule 144, additional shares will be available for public sale, subject to volume
limitations, as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DATE NUMBER OF SHARES
- ---- ----------------
<S> <C>
Currently available........................... 889,000
March - September 2000........................ 889,000
October 2000.................................. 24,000
</TABLE>
LOCK-UP AGREEMENTS
The holders who hold at least 1,683,000 shares before the offering who will
hold 1,883,000 shares after the offering have agreed not to sell any shares of
our common stock for a period of 12 months after the date of this prospectus,
without the consent of the underwriter. These shareholders have also agreed that
during the twelve month period beginning one year after the date of this
prospectus, they will sell no more than 25% of their shares in each three month
period. Our shareholders who hold 1,683,000 shares before the offering and will
hold 1,883,000 shares after the offering, have entered into agreements further
restricting the sale of their shares, required by state securities agencies in
connection with this offering. Under those agreements, the shareholders may not
sell any shares for two years and are subject to limitations for the subsequent
two years. The shares subject to these lock-up agreements include the 200,000
shares to be purchased by Bluestem Capital Partners, II, L.P., in the offering.
Therefore, those shares will not immediately be available for resale in the
public market immediately after the offering.
RULE 144
Under Rule 144, a person who has beneficially owned restricted shares of
our common stock for at least one year can sell within any three month period a
number of shares that does not exceed the greater of:
o 1% of the shares of common stock then outstanding (in our case, 30,000
shares immediately after this offering)
o the average weekly trading volume during the four preceding weeks
RULE 144(K)
Under Rule 144(k), a person who has not been our affiliate for 90 days
preceding a sale can sell shares owned for at least two years without the volume
limitations referred to above.
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<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby is being passed upon for us
by Eckert Seamans Cherin & Mellott, LLC, 1515 Market Street, 9th Floor,
Philadelphia, PA 19102. Certain legal matters will be passed upon for the
Underwriter by Goldstein & DiGioia, LLP, 369 Lexington Avenue, New York, NY
10017.
EXPERTS
The financial statements included in this prospectus and in the
registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report, which contains an explanatory paragraph regarding the Company's
ability to continue as a going concern, appearing elsewhere herein and in the
registration statement, and are included in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC. This
prospectus, which forms a part of that registration statement, does not contain
all of the information included in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document, such references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contract or document. You may review a copy of the registration statement
at the SEC's public reference room in Washington, D.C., and at the SEC's
regional offices in Chicago, Illinois and New York, New York. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings and the registration statement can also be
reviewed by accessing the SEC's Internet site at http://www.sec.gov. As a result
of this offering, we will become subject to the information and reporting
requirements of the Securities Exchange Act and, in accordance therewith, will
file periodic reports, proxy statements and other information with the SEC.
38
<PAGE>
INDEX
TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.......... F-2
Financial Statements
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Members Capital (Deficiency)................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Jeremy's Microbatch Ice Creams, LLC
Philadelphia, Pennsylvania
We have audited the accompanying balance sheet of Jeremy's Microbatch Ice
Creams, LLC as of December 31, 1998 and the related statements of operations,
changes in members' capital, and cash flows for each of the two years in the
period ended December 31, 1998. 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 Jeremy's Microbatch Ice Creams,
LLC as of December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered losses from operations since
inception, including a net loss of $956,201 for the year ended December 31,
1998. The Company has also sustained recurring losses for the period subsequent
to December 31, 1998. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
Philadelphia, Pennsylvania
September 16, 1999,
F-2
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 179,730 $ 124,129
Accounts receivable....................................... 22,550 76,721
Inventories............................................... 175,224 111,945
Prepaid expenses.......................................... -- 25,632
---------- ----------
Total current assets........................................ 377,504 338,427
---------- ----------
Property and equipment, net (Note 4)........................ 36,032 76,280
---------- ----------
Other assets
Deferred charges, net of accumulated amortization of
$218,395............................................... -- 414,195
Deferred offering costs................................... -- 54,700
Other..................................................... 8,358 10,250
---------- ----------
Total other assets.......................................... 8,358 479,145
---------- ----------
Total assets................................................ $ 421,894 $ 893,852
========== ==========
LIABILITIES AND MEMBERS' CAPITAL (DEFICIENCY)
Current liabilities
Note payable, bank (Note 5)............................... $ -- $ 300,000
Note payable, vendor (Note 7)............................. -- 294,467
Accounts payable and accrued expenses..................... 256,476 430,014
Current maturities of long-term debt (Note 6)............. 50,000 63,681
Due to factor (Note 1).................................... -- 126,516
---------- ----------
Total current liabilities................................... 306,476 1,214,678
Long-term debt, net of current maturities (Note 6).......... 50,000 24,367
---------- ----------
Total liabilities........................................... 356,476 1,239,045
---------- ----------
Commitments and contingencies (Notes 3 and 7)
Members' capital (deficiency) (Note 9)...................... 65,418 (345,193)
---------- ----------
Total liabilities and members' capital (deficiency)......... $ 421,894 $ 893,852
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- ---------------------------
1998 1997 1999 1998
--------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales (Note 3).................... $ 415,671 $ 79,421 $ 1,197,698 $ 252,790
Cost of sales (Note 3)................ 299,868 114,873 876,136 113,170
--------- --------- ----------- ---------
Gross profit (loss)................... 115,803 (35,452) 321,562 139,620
--------- --------- ----------- ---------
Operating expenses
Selling............................. 581,086 31,630 1,073,300 382,853
Distribution........................ 65,584 3,110 153,742 16,899
General and administrative.......... 414,418 33,217 924,351 220,154
Amortization of deferred charges.... -- -- 218,395 --
Depreciation........................ 5,659 4,134 6,221 234
--------- --------- ----------- ---------
Total operating expenses.............. 1,066,747 72,091 2,376,009 620,140
--------- --------- ----------- ---------
(Loss) from operations................ (950,944) (107,543) (2,054,447) (480,520)
--------- --------- ----------- ---------
Other income (expense)
Other income........................ 1,914 2,595 5,000 1,913
Loss on sale of property and
equipment........................ -- (24,795) (18,816) --
Interest expense.................... (7,171) (360) (42,348) (5,921)
--------- --------- ----------- ---------
Total other (expense)................. (5,257) (22,560) (56,164) (4,008)
--------- --------- ----------- ---------
Net (loss)............................ $(956,201) $(130,103) $(2,110,611) $(484,528)
========= ========= =========== =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
STATEMENTS OF MEMBERS CAPITAL (DEFICIENCY)
TOTAL
----------
Balance, January 1, 1997.................................... $ 69,553
Members' contributions...................................... 32,169
Net loss.................................................... (130,103)
----------
Balance, December 31, 1997.................................. 351,345
Member contribution for conversion of note payable (Note
6)........................................................ 50,000
Members' contributions...................................... 1,000,000
Net loss.................................................... (956,201)
----------
Balance, December 31, 1998.................................. 65,418
Members' contributions (unaudited).......................... 1,700,000
Net loss (unaudited)........................................ (2,110,611)
----------
Balance, September 30, 1999 (unaudited)..................... $ (345,193)
==========
See accompanying notes to financial statements.
F-5
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -----------------------
1998 1997 1999 1998
---------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net (loss)............................................ $ (956,201) $(130,103) $(2,110,611) $(484,528)
Adjustments to reconcile net (loss) to net cash (used
in) provided by operating activities
Loss on sale of property and equipment.............. -- 24,795 18,816 --
Depreciation........................................ 5,659 4,134 6,221 234
Amortization of deferred charges.................... -- -- 218,395 --
Changes in assets and liabilities
(Increase) in assets
Accounts receivable............................ (6,713) (15,668) (54,171) (42,465)
Inventories.................................... (175,224) -- 63,279 (106,191)
Prepaid expenses............................... -- -- (25,632) (26,442)
Other.......................................... (8,535) 15,771 (1,892) (1,366)
Increase in liabilities
Accounts payable and accrued expenses.......... 212,179 44,201 468,005 24,008
Due to factor.................................. -- -- 126,516 --
---------- --------- ----------- ---------
Net cash (used in) operating activities................. (928,835) (56,870) (1,291,074) (636,750)
---------- --------- ----------- ---------
Cash flows from investing activities
Deferred charges...................................... -- -- (632,590) --
Proceeds from sale of property and equipment.......... -- -- 9,500 --
Purchase of property and equipment.................... (41,514) (2,000) (31,785) (41,280)
---------- --------- ----------- ---------
Net cash (used in) investing activities................. (41,514) (2,000) (654,875) (41,280)
---------- --------- ----------- ---------
Cash flows from financing activities
Members' contribution................................. 1,000,000 32,169 1,700,000 771,900
Deferred offering costs............................... -- -- (54,700) --
Proceeds from note payable, bank...................... -- -- 400,000 --
Repayments of note payable, bank...................... -- -- (100,000) --
Proceeds from long-term debt.......................... 50,000 100,000 -- --
Repayments of long-term debt.......................... -- -- (54,952) --
---------- --------- ----------- ---------
Net cash provided by financing activities............... 1,050,000 132,169 1,890,348 771,900
---------- --------- ----------- ---------
Net increase (decrease) in cash......................... 79,651 73,299 (55,601) 93,870
Cash at beginning of period............................. 100,079 26,780 179,730 100,079
---------- --------- ----------- ---------
Cash at end of period................................... $ 179,730 $ 100,079 $ 124,129 $ 193,949
========== ========= =========== =========
Supplemental disclosure of cash flow information
Cash paid during the period for interest.............. $ 7,531 $ -- $ 42,348 $ 5,921
========== ========= =========== =========
Noncash financing activities
Member's contributions for net liabilities assumed.... $ (28,100) $ -- $ -- $ (28,100)
========== ========= =========== =========
Property and equipment purchases through capital
lease............................................... $ -- $ -- $ 43,000 $ --
========== ========= =========== =========
Member's contributions for conversion of note
payable............................................. $ 50,000 $ -- $ -- $ 50,000
========== ========= =========== =========
Issuance of note payable for conversion of account
payable............................................. $ -- $ -- $ 294,467 $ --
========== ========= =========== =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Jeremy's Microbatch Ice Creams, LLC ("Jeremy's" or the "Company") develops,
markets and sells super-premium ice cream using high-quality ingredients. 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.
The Company is a successor to Strive, Inc. ("Strive"), which during 1997
focused primarily on developing, marketing and selling super-premium ice cream
using high quality ingredients under the name of Jeremy's Microbatch Ice Creams.
On January 1, 1998, Strive, Inc. contributed certain assets ($15,837) to and had
certain liabilities ($43,937) assumed by the Company in exchange for a 96.25%
membership interest in the Company. Such amounts were recorded by the Company at
Strive's historic cost. The above transaction was accounted for as a reverse
merger and the operations of Strive related to Jeremy's are included for all
periods presented.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared as if Strive's operations
related to Jeremy's, and the Company had operated as a single company since
inception. Any intercompany balances and transactions have been eliminated (see
Note 8).
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1999 and for the nine
months ended September 30, 1999 and 1998 are unaudited. In the opinion of
management, such statements reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the results of the
interim periods. The results of operations for the nine months ended September
30, 1999 are not necessarily indicative of the results for the entire year.
REVENUE RECOGNITION
Revenue is recognized when products are shipped to customers.
INVENTORIES
Inventories, consisting of finished goods, are stated at the lower of cost
or market, with cost determined by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
approximate five to seven years.
DEFERRED CHARGES
Deferred charges represent certain product introductory placement costs
(i.e., slotting fees) paid to customers which are incurred to develop new and
retain existing markets for products. The payment of such fees is common in the
industry. These costs are amortized using the straight-line method generally
over a 12-month period. Whenever events or changes in circumstances indicate
F-7
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
that the carrying amount of the deferred charge may not be recoverable, the
Company will recognize an impairment charge.
INCOME TAXES
The Company 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 Company's loss is reported on the income tax returns of the members
and, accordingly, no corporate income taxes were imposed at the Company level.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash, accounts receivable, trade and due from
factor.
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.
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.
On May 26, 1999, the Company entered into a Factoring and Security
Agreement with a finance company whereby the Company has agreed to sell with
recourse substantially all of its receivables up to a predetermined amount as
stipulated in the Factoring and Security Agreement. The maximum amount of total
outstanding purchased receivables at any given time is $500,000. The Company is
required to remit to the finance company a factoring fee of 1.5% of the
purchased receivables at the time of sale. The agreements will be accounted for
as financing arrangements and the factoring fee will be accounted for as
interest expense. During September 1999, the Company ceased utilizing the
facility. The Company is also in violation of the factoring and security
agreement as of September 30, 1999.
ADVERTISING
Advertising costs are expensed as incurred and are included in selling
expenses. Advertising expense for the years ended December 31, 1998 and 1997
approximated $301,000 and $27,000, respectively. Advertising expense for the
nine months ended September 30, 1999 and 1998 approximated $680,000 and
$220,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value at
December 31, 1998 and September 30, 1999, because of the relatively short
maturity of these instruments. The carrying amount of note payable, bank and
long-term debt also approximate fair value because the Company's interest rates
approximate current interest rates.
F-8
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
1. 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," which will be effective for fiscal year 2001. This Statement
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. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered losses from
operations since inception, including a net loss of $956,201 for the year ended
December 31, 1998. The Company has also sustained recurring losses for the
period subsequent to December 31, 1998. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
The Company's continued growth depends on additional financing.
Management's plans for the Company include raising additional working capital
through equity financing. The Company entered into a letter of intent with First
Montauk Securities Corp. ("Underwriter") relating to a proposed initial public
offering of its securities ("Initial Public Offering").
Subject to the Company's plan of reorganization (see Note 8), the proposed
Initial Public Offering ("IPO") provides for the public sale up to 1,200,000
shares of common stock at an anticipated price of $6 per share.
3. TRANSACTIONS WITH MAJOR SUPPLIERS AND CUSTOMERS
The Company purchased substantially all of its inventory from one vendor
from inception through September 1999. For the years ended December 31, 1998 and
1997, the Company had purchases from this vendor of approximately $475,000 and
$46,000, respectively. For the nine months ended September 30, 1999 and 1998,
total purchases from this vendor approximated $726,000 and $198,000,
respectively.
During June 1999, the Company entered into a Co-Packing Agreement (the
"Agreement") whereby the Company agreed to purchase ice cream products from a
different 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
F-9
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
3. TRANSACTIONS WITH MAJOR SUPPLIERS AND CUSTOMERS -- (CONTINUED)
at any time. However, the Company is then required to purchase all of the
manufacturer's inventory and compensate the manufacturer for the amortized cost
of its equipment used in the production of the Company's product. These
obligations are guaranteed by a member of the Company.
The following table shows the percentage of net sales to major customers:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------- ---------------
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Customer A............................ 15% --% 1% 12%
Customer B............................ 22 -- 21 34
Customer C............................ 11 -- -- 14
Customer D............................ 13 -- -- 14
Customer E............................ -- -- 15 --
Customer F............................ -- -- 13 --
Customer G............................ -- 37 -- --
Customer H............................ -- 25 -- --
Customer I............................ 5 24 -- 14
-- -- -- --
66% 86% 50% 88%
== == == ==
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
Automobile....................... 5 Years $33,284 $18,215
Equipment........................ 5 Years 8,230 56,370
Furniture........................ 7 Years -- 8,430
------- -------
41,514 83,015
Less accumulated depreciation.... 5,482 6,735
------- -------
$36,032 $76,280
======= =======
</TABLE>
5. NOTE PAYABLE, BANK
During February 1999, the Company secured a $300,000 line of credit with a
bank, which is due in full on January 31, 2000. Interest accrues on outstanding
balances at a rate of 12.25%. The line of credit is guaranteed by the Company's
majority member.
F-10
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
$50,000 note payable to a related party, due on
December 18, 1999, including interest at 10%. The
note is guaranteed by a member of the Company...... $ 50,000 $ --
$50,000 note payable to an individual, due September
11, 2000, including interest at 12% (increased to
14% on September 11, 1999). The note is guaranteed
by a member of the Company......................... 50,000 50,000
The Company leases certain equipment through capital
lease agreements. The Company makes minimum monthly
payments of $1,568 including interest of 18%....... -- 38,048
-------- -------
100,000 88,048
Less current maturities.............................. 50,000 63,681
-------- -------
$ 50,000 $24,367
======== =======
</TABLE>
In connection with the note payable to a related party above, the Company
gave a minimal percentage ownership interest to the note holder. This interest
was deemed to have a diminimus value, and, therefore, no amounts were assigned
to it.
In connection with a note payable of $50,000 issued in December 1997 to
another related party, the Company gave a minimal percentage ownership interest
to the note holder. This interest was deemed to have a diminimus value, and,
therefore, no amounts were assigned to it. On April 28, 1998, these notes were
converted for additional ownership interest in the Company.
In October 1999, the Company issued notes payable to its chief executive
officer and chief financial officer of $40,000 and $5,000, respectively. The
proceeds of these notes were used to repay a portion of the $50,000 note to an
individual (see above). The notes to the officers are due in October 2000 and
accrue interest at 10% per annum.
In November 1999, the Company issued a note payable to a related party in
the amount of $50,000. The proceeds of these notes were used to repay
outstanding accounts payable. The note is due in November 2000 and accrues
interest at 14% per annum.
The total minimum capitalized lease commitments at September 30, 1999 is as
follows:
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ -------
1999 (three months)............................... $ 4,704
2000.............................................. 18,816
2001.............................................. 18,816
2002.............................................. 9,408
-------
51,744
Less interest..................................... (13,696)
-------
$38,048
=======
F-11
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
6. LONG-TERM DEBT -- (CONTINUED)
Property and equipment of approximately $43,000 at September 30, 1999 is
covered by capitalized lease commitments.
7. COMMITMENTS AND CONTINGENCIES
Through April 1999, a member of the Company agreed to provide office space
to the Company on a month-to-month basis at a rate of approximately $2,000 per
month. On April 16, 1999, the Company entered into a new lease agreement with an
unrelated party whereby the Company leases office space on a month-to-month
basis at a monthly rate of approximately $3,000. Rent expense approximated
$23,000 and $6,900 for the years ended December 31, 1998 and 1997, respectively.
Rent expense for the nine months ended September 30, 1999 and 1998 approximated
$27,000 and $16,000, respectively.
During the term of the Company's relationship with its former marketing
agency, the agency and its subcontractors created certain artwork, packaging and
other materials for the Company. The agency and its subcontractors may have the
copyright in such materials and may have the ability to prevent the Company from
continuing to use such materials if the Company defaults in its obligations to
the marketing agency.
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.
8. REORGANIZATION
In connection with the Company's proposed Initial Public Offering of common
stock (see Note 2), certain events have occurred or will occur (the
"Reorganization"). Prior to, or simultaneously with the closing date of the
proposed offering, Jeremy's Microbatch Ice Creams, Inc., JMIC, Inc. ("Merger
Sub"), the Company (the "LLC"), and the members of the LLC will undertake 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
will merge with and into the LLC, the separate corporate existence of the Merger
Sub will cease and the LLC will be the surviving entity in the merger. At that
time, all of the membership interests in the LLC will be 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. will own all
of the members' respective LLC interests and the LLC will become a wholly owned
subsidiary of Jeremy's Microbatch Ice Creams, Inc. (see Note 1).
The proposed 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.
F-12
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
9. SUBSEQUENT EVENTS
In contemplation of 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. 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 employee stock options will be exercisable
for five years after the date of issue and will be vested upon issuance.
During October 1999, the Company sold a membership interest for $100,000 to
an existing member.
F-13
<PAGE>
================================================================================
A PROSPECTIVE INVESTOR SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS OR IN THE COMPANY'S REGISTRATION STATEMENT FILED WITH THE SEC. THE
COMPANY AND THE UNDERWRITER HAVE NOT AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU
WITH ANY OTHER INFORMATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY, ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
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TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 1
Summary Financial Data.................. 2
Risk Factors............................ 3
Forward Looking Statements.............. 6
Use of Proceeds......................... 7
Dilution................................ 9
Dividend Policy......................... 9
Capitalization.......................... 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 11
Our Business............................ 17
Management.............................. 24
Executive Compensation.................. 26
Principal Shareholders.................. 29
Certain Relationships and Related
Transactions.......................... 30
Description of Securities............... 32
Underwriting............................ 35
Shares Eligible for Future Sale......... 37
Legal Matters........................... 38
Experts................................. 38
Where You Can Get More Information...... 38
Index to Financial Statements........... F-1
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UNTIL _________, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,200,000 SHARES
$ PER SHARE
[LOGO]
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PROSPECTUS
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[LOGO]
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
, 2000
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