UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
-------------- --------------
COMMISSION FILE NUMBER: 001-15689
JEREMY'S MICROBATCH ICE CREAMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-3017648
------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3401 MARKET ST., SUITE 312
PHILADELPHIA, PA 19104
(Address of principal executive offices)
215/823-6885
(Registrant's telephone number, including area code)
Not applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [ ] Yes [ X ] No (The Registrant has
been subject to the reporting requirements for less than 90 days).
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.01, was 3,200,000 as of August 10, 2000.
Page 1 of 22
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JEREMY"S MICROBATCH ICE CREAMS, INC.
INDEX
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements - unaudited
Consolidated Balance Sheets --
June 30, 2000 and December 31, 1999 . . . . . . . . . . . . 3
Consolidated Statements of Operations --
for the six and three month periods ended June 30, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Stockholders'
Equity (Deficiency) for the six month
Period ended June 30, 2000
Consolidated Statements of Cash Flows --
For the six -month periods ended June 30, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 11
PART II: OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 20-21
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . 20-21
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 22
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Page 2 of 22
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<TABLE>
<CAPTION>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
------------ --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 317,066 $ 3,473
Restricted cash (Notes 2 and 5). . . . . . . . . . . . . . . . . . . . . . . . 535,000 -
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,527 164,510
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,465 67,171
Prepaid expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,108 6,124
------------ --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,541,166 241,278
------------ --------------
Property and equipment, net (Note3). . . . . . . . . . . . . . . . . . . . . . . 257,001 85,427
------------ --------------
Other assets
Deferred charges, net of accumulated amortization of $1,034,836 and $646,322. 160,784 352,109
Deferred Offering Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 273,479
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,331 5,400
------------ --------------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,115 630,988
------------ --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,964,282 $ 957,693
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Line of Credit, Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,146 $ -
Note payable, bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 299,980
Note payable, vendor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 258,806
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . . . 1,714,348 1,781,902
Notes payable to related parties . . . . . . . . . . . . . . . . . . . . . . . - 325,000
Current maturities of capital leases (Note 5). . . . . . . . . . . . . . . . . 44,808 14,109
------------ --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,816,302 2,679,797
Capital leases, net of current maturities (Note 5) . . . . . . . . . . . . . . . 127,168 23,273
------------ --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,943,470 2,703,070
------------ --------------
COMMITMENTS AND CONTINGENCIES (NOTES 5, 6, 7 AND 8)
STOCKHOLDERS' EQUITY (DEFICIENCY) (NOTES 7 AND 8)
Preferred stock: $0.01 par value
Authorized 500,000 shares
Issued and outstanding none. . . . . . . . . . . . . . . . . . . . . . . . . - -
Common stock: $0.01 par value
Authorized 5,000,000 shares
Issued and outstanding 3,000,000 and 1,800,000 shares. . . . . . . . . . . . 30,000 18,000
Additional paid-in capital.. . . . . . . . . . . . . . . . . . . . . . . . . . 8,866,414 2,991,857
Accumulated (deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,875,602) (4,755,234)
------------ --------------
Total stockholders' equity (deficiency). . . . . . . . . . . . . . . . . . . . . 20,812 (1,745,377)
------------ --------------
Total liabilities and stockholders' equity (deficiency). . . . . . . . . . . . . $ 1,964,282 $ 957,693
============ ==============
</TABLE>
See accompanying notes to consolidated financial statements
Page 3 of 22
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<TABLE>
<CAPTION>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended Three months ended
June 30, June 30,
-------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 784,175 $ 854,288 $ 489,005 $ 572,449
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 498,341 533,476 277,191 323,968
------------ ------------ ------------ -----------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . 285,834 320,812 211,814 248,481
------------ ------------ ------------ -----------
Operating expenses
Selling . . . . . . . . . . . . . . . . . . . . . . . . . 2,480,880 458,796 1,530,357 259,325
Distribution. . . . . . . . . . . . . . . . . . . . . . . 150,962 102,371 99,001 77,926
General and administrative. . . . . . . . . . . . . . . . 1,388,956 504,441 863,968 264,527
Amortization of deferred charges. . . . . . . . . . . . . 389,783 78,331 194,775 48,798
Depreciation. . . . . . . . . . . . . . . . . . . . . . . 20,054 1,704 13,960 1,424
------------ ------------ ------------ -----------
Total operating expenses. . . . . . . . . . . . . . . . . . 4,430,635 1,145,643 2,702,061 652,000
------------ ------------ ------------ -----------
(Loss) from operations. . . . . . . . . . . . . . . . . . . (4,144,801) (824,831) (2,490,247) (403,519)
------------ ------------ ------------ -----------
Other income (expense)
Other income. . . . . . . . . . . . . . . . . . . . . . . 64,464 5,000 64,464 -
Loss on sale of property and equipment. . . . . . . . . . - (18,816) - (18,816)
Interest income.. . . . . . . . . . . . . . . . . . . . . 29,591 - - -
Interest expense. . . . . . . . . . . . . . . . . . . . . (69,622) (19,349) (57,879) (17,849)
------------ ------------ ------------ -----------
Total other income(expense) . . . . . . . . . . . . . . . . 24,433 (33,165) 6,585 (36,665)
------------ ------------ ------------ -----------
Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . $(4,120,368) $ (857,996) $(2,483,662) $ (440,184)
============ ============ ============ ===========
Basic and diluted loss per share. . . . . . . . . . . . . . $ (1.53) $ (0.82) $ (0.83) $ (0.37)
============ ============ ============ ===========
Basic and diluted weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . 2,690,110 1,049,871 3,000,000 1,204,242
============ ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 22
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<TABLE>
<CAPTION>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY(DEFICIENCY)
(UNAUDITED)
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 1,800,000 $ 18,000 $2,991,857 $(4,755,234) $(1,745,377)
Issuance of common stock in
connection with the initial
public offering (Note 8) 1,200,000 12,000 5,874,557 5,886,557
Net loss (4,120,368) (4,120,368)
----------- ------------ ---------- ------------ ------------
Balance, June 30, 2000 3,000,000 $ 30,000 $8,866,414 $(8,875,602) $ 20,812
=========== ============ ========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
June 30,
------------ -----------
2000 1999
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(4,120,368) $ (857,996)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities
Loss on sale of equipment - 18,816
Depreciation 20,054 1,704
Amortization of deferred charges 389,783 78,331
Changes in assets and liabilities
(Increase)decrease in assets
Accounts receivable -Trade
Trade (73,017) (71,464)
Due from factor (43,144)
Inventories (275,294) (85,991)
Prepaid expenses (102,984) (43,808)
Other 69 (3,312)
Increase(decrease) in liabilities
Accounts payable and accrued expenses (67,554) 29,434
------------ -----------
Net cash (used in) operating activities (4,229,311) (977,430)
------------ -----------
Cash flows from investing activities
Deferred charges (198,458) (339,914)
Proceeds from the sale of property and equipment - 9,500
Restricted cash, capital lease (160,000) -
Advance to officer (50,000) -
Repayment of advance to officer 50,000 -
Purchase of property and equipment (47,257) (26,646)
------------ -----------
Net cash (used in) investing activities (405,715) (357,060)
------------ -----------
Cash flows from financing activities
Proceeds from issuance of common stock 6,226,431 1,050,000
Deferred offering costs (66,395) -
Proceeds from Note payable, Bank - 300,000
Proceeds from line of credit, bank 57,146 -
Repayments of note payable, bank (299,980) (100,000)
Repayment of notes payable to related parties (325,000) -
Repayment of long-term debt (268,583) (51,816)
Restricted cash, letter of credit (375,000) -
------------ -----------
Net cash provided by financing activities 4,948,619 1,198,184
------------ -----------
Net increase (decrease) in cash 313,593 (136,306)
Cash at beginning of period 3,473 179,730
------------ -----------
Cash at end of period $ 317,066 $ 43,424
============ ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 69,622 $ 19,349
============ ===========
Non-cash financing activities
Property and equipment purchases through capital lease $ 144,371 $ 43,000
============ ===========
</TABLE>
See accompanying notes on consolidated financial statements.
Page 5 of 22
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Jeremy's Microbatch Ice Creams, Inc. and Subsidiary ("Jeremy's" or the
"Company") develops, markets and sells super-premium ice cream using
high-quality ingredients through its wholly owned subsidiary, Jeremy's
Microbatch Ice Creams, LLC (the "LLC"). Unique flavors of ice cream are offered
primarily in small, limited edition batches in pint size containers. Ice cream
products are sold mostly in supermarkets and grocery stores in New England
and the Mid-Atlantic Region.
In February 2000, the Company completed its plan of reorganization (See
Note 7) and Initial Public Offering ("IPO") of 1,200,000 shares of its common
stock at $6.00 per share and received net proceeds of $5,886,557 (See Note 8).
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements give effect to the Company's Reorganization (Note
7) and include the accounts of Jeremy's Microbatch Ice Creams, Inc. and it's
wholly owned subsidiary Jeremy's Microbatch Ice Creams, LLC. Any intercompany
balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six and three months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the fiscal year ended
December 31, 2000. The unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements and footnotes
thereto included in the company's form 10-KSB for the fiscal year ended December
31, 1999.
INCOME TAXES
The LLC has elected to be treated as a partnership under the Internal
Revenue Code and the tax regulations in the states in which it operates. As a
result, the LLC's loss is reported on the income tax returns of its members and,
accordingly, no corporate income taxes were imposed at the Company level.
Effective as of the date of the Company's Reorganization, the Company
Page 6 of 22
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
follows Statement of Financial Accounting Standards No. 109 which requires an
asset and liability approach to providing deferred income taxes and specifies
that all deferred tax balances be determined by using the tax rate expected to
be in effect when the taxes actually will be paid or refunds received.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and accounts receivable, trade.
The Company's policy is to limit the amount of credit exposure by placing
cash with financial institutions evaluated as being creditworthy. At times, the
Company's cash exceeds Federal Deposit Insurance Corporation insurance limits.
The Company attempts to minimize credit risk with respect to receivables by
reviewing customers' credit history before extending credit, and by monitoring
customers' credit exposure regularly. The Company does not generally require
collateral for its trade accounts receivable.
ADVERTISING
Advertising costs are expensed as incurred and are included in selling
expenses. Advertising expense for the six and three months ended June 30, 2000
and 1999 approximated $2,400,000 and 1,708,000 and $326,000 and $180,000
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
June 30, 2000, because of the relatively short maturity of these instruments.
The carrying amounts of capital leases and the line of credit, bank also
approximate fair value because the Company's interest rates approximate current
interest rates.
Page 7 of 22
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JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Financial Instruments and for Hedging
Activities," ("SFAS 13 as amended by SFAS 137") SFAS 137 delays the effective
date of implementation of SFAS 133 by one year. SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. SFAS
133 is not anticipated to have a significant impact on the Company's operating
results or financial condition when adopted, because the Company currently does
not engage in derivative instruments.
2. TRANSACTIONS WITH MAJOR SUPPLIERS
During June 1999, the Company entered into a Co-Packing Agreement (the
"Agreement") whereby the Company agreed to purchase ice cream products from a
certain supplier. The term of the Agreement is the longer of two years or until
such time that the Company has purchased two million pints of ice cream. The
Company may elect to cancel this agreement on sixty days' notice at any time.
However, the Company is then required to purchase the manufacturer's entire
inventory and compensate the manufacturer for the amortized cost of its
equipment used in the production of the Company's product. A shareholder of the
Company guarantees these obligations.
In February 2000, the Company entered into a $500,000 irrevocable standby
letter of credit facility with a bank to guaranty payments under the Agreement.
In June 2000, this facility was amended to $375,000. This facility expires March
2, 2001. Any payments to the supplier under this letter of credit will be
facilitated by the
Page 8 of 22
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's $375,000 line of credit facility with the bank. The line of credit is
solely for the purpose of this Co-Packaging agreement. Any amounts outstanding
under the line of credit will be payable upon demand and will bear interest at
7.8% per annum, expires on March 2, 2001 and is collateralized by a $375,000
certificate of deposit.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
June 30, December 31,
Useful Life 2000 1999
----------- ---- ----
Transportation equipment 5 years $164,017 $74,980
Equipment 3-5 years 114,184 11,594
Furniture 7 years 8,430 8,429
--------- --------
286,631 95,003
Less: Accumulated depreciation 29,630 9,576
--------- --------
$257,001 $85,427
========= ========
Property and equipment of approximately $184,000 at June 30, 2000 is
covered by capitalized lease commitments.
4. NOTE RECIVABLE FROM OFFICER
In February 2000, the Company advanced $50,000 to an officer of the
Company, which was evidenced by an unsecured promissory note. The advance
beared interest at 8% per annum and was payable by bi-weekly payroll deductions
of $722 until June 2000. In June 2000, the remaining balance of the advance was
paid-in-full by the officer.
Page 9 of 22
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JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. CAPITAL LEASES
The Company leases certain equipment through capital lease agreements. The
Company makes minimum monthly payments of $1,568 to $3,837 including interest of
12.44% to 18%.
The total minimum capitalized lease commitments at June 30, 2000 is as
follows:
Year ended December 31, Amount
----------------------- ------
2000(six months) $44,808
2001 64,857
2002 55,449
2003 54,821
---------
219,935
Less: Interest (47,959)
---------
171,976
Less: Current Portion (44,808)
---------
$127,168
=========
In March 2000, the Company entered into a vehicle lease with a bank for six
vans. This lease requires minimum monthly payments of $3,837 including 12.44%
interest through March 2003 with a purchase option equal to 30% of the vehicles
cost. The Company also obtained an irrevocable letter of credit from the bank in
the amount of $160,000 to guaranty payments under the lease and posted a
$160,000 certificate of deposit with the bank to secure the obligations under
the vehicle lease.
6. LEGAL PROCEDURES
The Company is a party to various legal proceedings in the ordinary course
of its business. The Company believes that none of the outcomes from these
proceedings are material to its financial position, results of operations and
changes in cash flows.
Page 10 of 22
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. REORGANIZATION
In connection with the Company's Initial Public Offering of common stock
(see Note 8), certain events have occurred (the "Reorganization"). Prior to, or
simultaneously with the closing date of the offering, the Company, JMIC, Inc.
("Merger Sub"), the LLC, and the members of the LLC undertook a reorganization
transaction, pursuant to the Plan of Merger and Formation, dated as of December
1, 1999, among the members of the LLC, the LLC and Jeremy's Microbatch Ice
Creams, Inc. At the effective time of the merger, the Merger Sub merged with and
into the LLC, the separate corporate existence of the Merger Sub ceased and the
LLC became the surviving entity in the merger. At that time, all of the
membership interests in the LLC were converted automatically into 1,800,000
shares of Jeremy's Microbatch Ice Creams, Inc. common stock. As a result of the
Reorganization, Jeremy's Microbatch Ice Creams, Inc. owns all of the members'
respective LLC interests and the LLC became a wholly owned subsidiary of
Jeremy's Microbatch Ice Creams, Inc. (see Note 1).
The Reorganization also includes provisions whereby a certain stockholder
will have the right to acquire a certain number of shares at predetermined
prices from another stockholder. Some of these rights will vest only upon the
occurrence of defined triggering events which include: (1) a merger in which the
stockholders receive cash and/or securities of another entity; (2) the
acquisition of Jeremy's Microbatch Ice Creams, Inc. shares in one transaction or
a series of related transactions or (3) the sale of all or substantially all of
Jeremy's Microbatch Ice Creams, Inc. assets in one transaction or a series of
related transactions. These triggering events are predicated on the aggregate
cash and fair market value of securities received by Jeremy's Microbatch Ice
Creams, Inc. and/or its stockholders.
8. INITIAL PUBLIC OFFERING
In February 2000, the Company completed its initial public offering of
1,200,000 shares of common stock at $6.00 per share. The net proceeds to the
Company of the offering after underwriter's, discounts, commissions and expenses
were approximately $5,900,000. A portion of the net proceeds was used to pay
down accounts payable and notes payable to bank, vendor and related parties. In
connection with the IPO, the Company entered into employment agreements with two
key executive officers, the terms of which would have expired in December 2002.
Such agreements provided for minimum annual salary levels of $120,000 for each
officer. In July of 2000, the company terminated the contract of one of the
officers and entered in to a consulting agreement with the terminated officer
through June 2001 at $8,000 per month. In July 2000, the Company entered into a
new contract with the remaining officer which expires in June 2003. This new
agreement provides for annual compensation as follows:
Page 11 of 22
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Calendar Year Ending:
December 31, 2000 $120,000
December 31, 2001 $130,000
Thereafter $140,000
In addition, the Company entered into a new employment contract with a new
officer through June 30, 2003 at an annual salary of $200,000. In addition the
Company will grant this new officer employee stock options to purchase an
aggregate 200,000 shares of the Company's common stock. These options will be
issued in 50,000 share increments on a quarterly basis beginning July 7, 2000.
The stock options will have an exercise price equal to the market price of the
Company's common stock at the date of issuance and are exercisable for years
after the date of issue and will be vested upon issuance.
The employee stock options will be exercisable for five years after the
date of issue and will be vested upon issuance. The company is currently
completing the formation of an employee stock option plan. These options have
not yet been granted.
9. SUBSEQUENT EVENTS:
On July 13, 2000, a significant shareholder purchased an additional 200,000
shares of the Company's common stock at a price of $2.50 per share.
10. MANAGEMENT PLANS:
The Company anticipated in the beginning of the second quarter that there was a
need for significant capital requirements in order for the Company to
restructure its distribution from the supermarkets to the convenience stores and
alternative markets. In July 2000 the Company received $500,000 from Bluestem
Capital Partners for the purchase of 200,000 shares of common stock at $2.50.
The Company anticipated receiving an additional one million dollars for the
purchase of 400,000 shares of common stock at $2.50 from Bluestem Capital
Partners in the middle of August 2000. We believe that by the end of the first
quarter of 2002, we will be able to finance operations from cash flow. 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 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.
Page 12 of 22
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
We have made statements under the captions "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in this Report
that are forward-looking statements. You can identify these statements by
forward-looking words such as "may", "will", "expect", "anticipate", "believe,"
"estimate," and similar terminology.
There may be events in the future that we are not able to accurately predict or
which we do not fully control that will cause actual results to differ
materially from those expressed or implied by our forward-looking statements.
Although we believe that our expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Our forward-looking statements are made
as of the date of this Report, and we assume we are under no duty to update them
or to explain why actual results may differ.
The following discussion and analysis should be read in conjunction with the
"Summary Financial Data" and our financial statements and related notes that are
included in this Report
Overview
--------
In 1997, one of our principal shareholders, Strive, Inc., developed, marketed
and sold super-premium ice cream under the Jeremy's Microbatch(R) Ice Creams
brand. Jeremy D. Kraus, our former Chief Executive Officer and current Chairman
of the Board, and Samuel V. Cohen, our former Chief Operating Officer and
director, are shareholders, directors and officers of Strive. In January 1998,
Strive transferred the business to Jeremy's Microbatch Ice Creams, LLC.
Simultaneously with closing of our initial public offering in February 2000,
Jeremy's Microbatch Ice Creams, LLC, became a subsidiary of Jeremy's Microbatch
Ice Creams, Inc. Since we began operating, we have derived our revenues
primarily from the sale of our branded ice cream products in pint and other
containers in supermarkets, grocery stores and similar retail outlets. We expect
our revenues will continue to be primarily from these sources. Our long-term
plans include opening our own retail establishments and distributing our product
to alternative channels such as college campuses and convenience stores. On
July 6, 2000, the Company elected Joe Phillips as the President, Chief Executive
Officer and as Director.
Since inception, revenues have not increased as expected, and we have not
achieved net cash flow from operations. We believed that promotional and
marketing activities funded by the proceeds of our Initial Public Offering would
have allowed us to continue to increase revenues and that our operating expenses
would have declined as a percentage of sales. However, we cannot guarantee that
our sales will grow or that we will be able to reduce expenses as a percentage
of sales.
Page 13 of 22
<PAGE>
Results of Operations
-----------------------
The following table presents selected consolidated financial data for the
periods indicated expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30,1999
------------------- -----------------
<S> <C> <C>
Net Sales 100.00% 100.00%
Cost of sales 63.55 62.45
------------------- -----------------
Gross profit 36.45 37.55
------------------- -----------------
Selling 316.37 53.71
Distribution 19.25 11.98
G & A 177.12 59.05
Amortization of deferred costs 49.71 9.17
Depreciation 2.56 .20
------------------- -----------------
TOTAL OPERATING COSTS 565.01 134.11
------------------- -----------------
OPERATING (LOSS) (528.56) (96.55)
------------------- -----------------
Other income 8.22 .59
Loss on sale of property & equipment 0.00 (2.20)
Interest Income 3.77 0.00
Interest expense (8.88) (2.26)
Net (loss) (525.45) (100.42)
=================== =================
Three Months Ended Three Months Ended
June 30, 2000 June 30,1999
------------------- -----------------
Net Sales 100.00% 100.00%
Cost of sales 56.68 56.59
------------------- -----------------
Gross profit 43.32 43.41
------------------- -----------------
Selling 312.95 45.30
Distribution 20.25 13.61
G & A 176.68 46.21
Amortization of deferred costs 39.83 8.52
Depreciation 2.85 .25
------------------- -----------------
TOTAL OPERATING COSTS 552.56 113.89
------------------- -----------------
OPERATING (LOSS) (509.25) (70.49)
------------------- -----------------
Other income 13.18 0
Loss on sale of property & equipment 0.00 (3.29)
Interest Income (11.84) 0.00
Interest expense 0 (3.12)
Net (loss) (507.91) (76.90)
=================== =================
</TABLE>
Page 14 of 22
<PAGE>
Comparison of Results Of Operations For Six-Months Periods Ended June 30, 2000
--------------------------------------------------------------------------------
and June 30, 1999 .
-----------------------
NET SALES. Our sales for the six months ended June 30, 2000 vs. the six
months ended June 30, 1999 decreased 8% . The primary reason for our failure
to increase sales were inventory shortages in the first quarter of 2000 caused
by insufficient working capital in 1999 and the discontinuing of our product in
the west coast which accounted for 16% of our 1999 sales.
GROSS PROFIT. Our gross profit for the six months ended June 30, 2000 was
$285,834 as compared to $320,812 for the six months ended June 30, 1999. Our
gross profit as a percentage of sales was 36.45% in 2000 as compared to 37.55%
in 1999. Currently, our entire product is manufactured and packaged by a single
outside source. We do not plan to manufacture the product ourselves. We believe
that the use of a single source, or a small number of sources, will reduce our
cost due to the manufacturer's ability to plan production more efficiently. We
anticipate that as our production runs continue to increase, that our volume
will result in less waste per unit produced and generally increase the economy
in our purchases of the product.
OPERATING EXPENSES. Our total operating expenses increased by $3,284,992 in the
six months ended June 30, 2000 as compared to the six months ended June 30,
1999. The major components of operating expenses, include selling, general and
administrative expenses and amortization of deferred charges.
Selling expenses consist primarily of promotional activities, advertising,
salaries and commissions of sales and marketing personnel, brokers and
distributors. Selling expenses for the first six months were approximately
$2,480,000 of which approximately $2,400,000 was spent on marketing and
advertising alone. These marketing efforts were not expected to result in
increased sales in the first quarter and we did not have that result. We did
not expect that these marketing efforts would result in increased sales until
late in the second quarter of 2000. The sales have not increased as we expected
which is why the company is changing its marketing strategy and our methods of
distribution. We expect that selling expenses will decrease substantially in
the foreseeable future as we refocus the strategy of our ice-cream
distribution. The company is currently building new strategic alliances in the
convenience store markets that will enable us to cut costs dramatically with the
ability to market our product through alternative channels such as college
campuses and convenience stores where the cost of selling our ice cream will be
significantly reduced.
General and administrative expenses include salaries, and other costs for
general corporate functions such as finance, accounting, legal fees and other
professional service expenses. These expenses increased by $884,515 in the six
months ended June 30, 2000 as compared to the six months ended June 30, 1999.
The increase in general and administrative expenses is primarily attributable to
increased salaries and related expenses associated with hiring additional
personnel and increased professional fees to support the growth of our
operations. We expect to incur no significant increases in the personnel
components of general and administrative expenses as most of our substantial
staffing needs have been met either through recent layoffs as well as the hiring
of new key management. Our general and administrative expenses have also
increased because of our becoming a publicly traded company, in areas such
directors and officers liability insurance, investor relations programs and
professional service fees. We began incurring those additional expenses in the
first quarter of 2000 and expect no major expenses past the second quarter 2000,
We believe that general and administrative expenses will follow the pattern for
a growth company, increasing initially and then decreasing as a percentage of
revenue.
Page 15 of 22
<PAGE>
Interest expense for the six months ended June 30, 2000 compared to June 30,
1999 increased approximately $50,000 largely due the interest for late payments
of debt that was owed for the pay down of notes payables to banks and officers
and the assuming of a new long term capital lease for our company Microbatch
Mobiles with the proceeds from the IPO.
The deferred charges represent certain product placement costs, also known as
slotting fees, paid to our retail customers to obtain and maintain shelf space
in retail outlets, generally over a twelve-month period. The payment of these
fees is common in most segments of the food industry.
These deferred charges are generally amortized evenly over a twelve-month
period. We anticipate that the deferred charges will decrease in the next few
quarters as most of our prior deferred charges have been amortized and we
currently have no commitments for significant additional product placement
costs at the time of filing of this report. We may, however, be required to pay
significant additional product placement costs in the future as we move into new
retail markets.
Comparison of Results Of Operations For Three-Months Period Ended June 30, 2000
--------------------------------------------------------------------------------
and June 30, 1999.
-------------------
NET SALES. Our sales for the three months ended June 30, 2000 compared to. the
three months ended June 30, 1999 decreased 14% . The primary reason for this
decrease was the discontinuance of our products in the west coast, which
accounted for 16% of our 1999 sales.
GROSS PROFIT. Our gross profit for the three months ended June 30, 2000 was
$211,814 as compared to $248,481 for the three months ended June 30, 1999. Our
gross profit as a percentage of sales was approximately 43% in both three month
periods. 43.32% in 2000 as compared to 43.41% in 1999. We anticipate that as
the size of our production runs increase, that we will realize less waste per
unit produced and generally increase the economy in our purchases of the
product.
OPERATING EXPENSES. Our total operating expenses increased by $2,086,728 in the
three months ended June 30, 2000 as compared to the three months ended June 30,
1999.
Selling expenses consist primarily of promotional activities, advertising,
salaries and commissions of sales and marketing personnel, brokers and
distributors. Selling expenses for the three months ended June 30, 2000 were
approximately $1,530,000 of which approximately $1,400,000 was spent on
marketing and advertising. We did not expect that these marketing efforts
would result in increased sales activities until the latter part of the
quarter. The sales have not increased as we expected. As a result , the
company is changing its marketing strategy and our methods of distribution. We
expect that selling expenses will decrease substantially in the foreseeable
future as we refocus the strategy of our ice-cream distribution. The company
is currently building new strategic alliances in the convenience store markets
that will enable us to cut costs dramatically with the ability to market our
product through alternative channels such as college campuses and convenience
stores, where the cost of selling will be significantly reduced.
Page 16 of 22
<PAGE>
General and administrative increased by $265,527 in the three months ended June
30, 2000 as compared to the three months ended June 30, 1999. The increase in
general and administrative expenses is primarily attributable to increased
salaries and related expenses associated with hiring additional personnel and
increased professional fees to support the growth of our operations. Our
general and administrative expenses have also increased because of our becoming
a publicly traded company, in such areas as directors' and officers' liability
insurance, investor relations programs and professional service fees. We began
incurring those additional expenses in the first quarter of 2000 and expect no
major expenses past the second quarter 2000. Interest expense for the three
months ended June 30, 2000 compared to June 30, 1999 increased approximately
$40,000 largely due the interest for late payments of debt that was owed for
the pay down of notes payables to banks and officers and the assuming of a new
long term capital lease for our company Microbatch Mobiles with the proceeds
from the IPO.
The amortization of deferred charges for the 3 months ended June 30, 2000
compared to June 30, 1999 increased approximately 145,000. These costs represent
certain product placement costs, also known as slotting fees, paid to our retail
customers to obtain and maintain shelf space in retail outlets, generally over a
twelve-month period. The payment of these fees is common in most segments of the
food industry.
These deferred charges are generally amortized evenly over a twelve-month
period. We anticipate that the deferred charges will decrease in the next few
quarters as most of our prior deferred charges have been amortized and we
currently have no commitments for significant additional product placement
costs at the time of filing of this report. We may, however, be required to pay
significant additional product placement costs in the future as we move into new
retail markets.
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
Page 17 of 22
<PAGE>
demand for full fat product, and super premium ice creams in particular, will
continue to grow rapidly. However, we also believe that competition in our
segment will increase. Competitors in the segment have helped to drive growth
and a reallocation of retail space to super premium products. Therefore, we
believe that the market segment in which we compete will continue to grow.
However, should industry trends change, and consumers once against focus on
lower fat products, our growth could be severely affected.
Page 18 of 22
<PAGE>
Liquidity and Capital Resources
----------------------------------
On February 16, 2000 the company completed an IPO, which netted the company
approximately $5.9 million to fuel expansion via marketing and sales promotions
as well as pay off existing debt. From inception until February 15, 2000, we
financed our operations primarily through capital contributions of our
shareholders. Since inception through December 31, 1999, we received $2,700,000
in cash capital contributions from two of our shareholders. One of these
shareholders also converted a $50,000 note payable to equity during 1998. We
received an additional $100,000 from another shareholder in October 1999. We
also received working capital through an accounts receivable factoring
arrangement and a line of credit from Norwest Bank.
Net cash used in operating activities was $977,430 in the first six months of
1999, $ 1,153,179 in year ended December 31, 1999, $4,229,311 in the first six
months of 2000. All of these negative cash flows were offset initially through
additional investments by our existing shareholders and currently through the
proceeds of the IPO.
Our arrangements with our manufacturer require us to post a letter of credit to
secure our obligations. The letter of credit we posted for this purpose in
February, 2000 required us to maintain a $500, 000 Certificate of Deposit as
security. In June 2000 this letter of credit was lowered to $375,000. We also
posted a $160,000 Certificate of Deposit with First Union Bank to secure our
obligations under vehicle leases.
The Company anticipated in the beginning of the second quarter that there was a
need for significant capital requirements in order for the Company to
restructure its distribution from the supermarkets to the convenience stores and
alternative markets. In July 2000 the Company received $500,000 from Bluestem
Capital Partners for the purchase of 200,000 shares of common stock at $2.50.
We anticipate receiving an additional one million dollars for the purchase of
400,000 shares of common stock at $2.50 from Bluestem Capital Partners in the
middle of August 2000. We believe that by the end of the first quarter of 2002,
we will be able to finance operations from cash flow. However, if our revenues
do not increase as quickly as anticipated, or the expenses we incur are greater
than anticipated, we may need to raise additional funds to fund more aggressive
brand promotion or more rapid expansion. We cannot be sure that any required
additional financing will be available on terms favorable to us, or will be
available at all. If additional funds are raised through the issuance of equity
securities, stockholders may experience dilution of their ownership interest and
the new securities may have rights superior to the holders of our common stock.
If additional funds are raised by the issuance of debt, we may be subject to
certain limitations on our operations and our ability to pay dividends. If
adequate funds are not available, or not available on acceptable terms, we may
be unable to fund our expansion, successfully promote our brand name, develop or
enhance our services, respond to competitive pressures or take advantage of
business opportunities. Any of these events could have a material adverse effect
on our business, results of operation or financial condition.
Page 19 of 22
<PAGE>
New Accounting Pronouncements
-------------------------------
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities." SFAS 133 was amended by SFAS 137.
SFAS 137 delays the effectiveness of SFAS 133 by one year. SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measure at its
fair value. The statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge accounting criteria are
met. SFAS 133 is not anticipated to have a significant impact on the Company's
operating results or financial condition when adopted, because the Company
currently does not engage in derivative instruments.
Inflation
---------
The impact of general inflation on our business has been insignificant to date.
Inflation may affect our raw materials prices, but we do not expect that it will
affect our gross profit.
Year 2000 Issues
------------------
We have completed our assessment of Year 2000 issues and believe that the
consequences of such issues will not have a material adverse effect on our
business, results of operations or financial condition, without taking into
account any efforts by us to avoid such consequences.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended June 30, 2000, no legal proceedings became
reportable and no material events occurred in any previously reported legal
proceeding.
Item 2. Changes in Securities and Use of Proceeds
(d) Use of Proceeds from Sales of Registered Securities
Our Registration Statement on Form SB-2 (Registration N0. 333-89625) became
effective February 14, 2000 (the "Registration Statement").
The offering pursuant to the Registration Statement (the "Offering")
commenced on February 16, 2000. The classes of securities registered were
Common Stock and Underwriters Warrants. The Managing Underwriter of the
Offering was First Montauk Securities Corp. (the "Underwriter").
Page 20 of 22
<PAGE>
The Offering has been terminated. All securities registered were sold with
the exception of (1) 180,000 shares of Common Stock registered for issuance upon
the exercise of the Underwriter's over allotment option, and (2) 120,000 shares
of Common Stock reserved for issuance upon the exercise of Underwriter's
Warrants.
The expenses incurred for the Company's account in connection with the issuance
and distribution of securities sold in the Offering were as follows:
Underwriting discount and commissions - $720,000
Finder's Fees - 0
Expenses paid to or for the account of
Underwriter - 273,569
Other expenses (including legal, account-
ing, printing and transfer agent's expenses)* - 300,000
----------
Total expenses* $1,293,569
==========
* Approximation
None of the foregoing expenses ("Offering Expenses") represent payments to our
directors, officers or general partners, any associate of any such persons, any
person owning 10% or more of any class of our equity securities, or any of our
affiliates.
The net proceeds to the Company from the Offering (i.e., gross offering
proceeds of $7,200,120 less Offering Expenses of $1,293,569) were approximately
$5,906,551.
From the effective date of the Registration Statement through June 30,
2000, net Offering proceeds were applied as follows:
(1) Construction of plant, building
and facilities $ -0-
(2) Purchase and installation of
machinery and equipment -0-
(3) Purchase of real estate -0-
(4) Acquisition of other businesses -0-
(5) Repayment of debt* 1,165,000
(6) Working capital (including new inventory) ** 2,000,000
(7) Advertising and Promotion 2,480,000
(8) Retail Placement ("Slotting") Fees -- 171,000
----------
Total applied through 6/30/00 $5,816,000
==========
Page 21 of 22
<PAGE>
*Repayment of Debt includes the following:
- $400,000 owed to a bank
- $40,000 owed to our Chief Executive Office
- $5,000 owed to our Chief Financial Officer
- $60,000 owed to Strive, Inc., one of our principal
shareholders
- Approximately $235,000 owed to our former marketing
agency.
- $220,000 owed to a relative of our CEO for funds supplied
to pay accrued working capital items
- Approximately $205,000 to our former factoring company
**Includes approximately $205,000 paid to our former manufacturer.
The remaining funds have been temporarily invested in money market funds,
certificates of deposit, treasury notes and similar instruments
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Exhibit Title
------- --------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed in the quarter ending June
30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, we
have duly caused this report to be signed on our behalf by the undersigned.
DATE: August 9, 2000
JEREMY'S MICROBATCH ICE CREAMS, INC.
By: /s/ Joe Phillips
-------------------------------------
Joe Phillips
President and Chief Executive Officer
By: /s/ Jeffrey S. Rosen
-------------------------------------
Jeffrey S. Rosen
Chief Financial Officer
Page 22 of 22
<PAGE>
