UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended September 30, 1997
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from ______________to ________________
Commission File Number: 0-22431
MIKE'S ORIGINAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 11-3214529
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
131 Jericho Turnpike, Jericho, New York 11753
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(Address of principal executive offices)
Registrant's Telephone Number (516) 334-8500
Number of Shares Outstanding of Common Stock,
$.001 Par Value, at November 7, 1997 3,265,429
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ]
<PAGE>
MIKE'S ORIGINAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 838,064 $ 32,523
Accounts receivable, less allowance for
doubtful accounts of $20,751 9,130 61,219
Inventories 169.866 247,608
Prepaid expenses 34,076 16,589
---------- ---------
Total current assets $ 1,051,136 $ 357,939
========== =========
Fixed assets, net of accumulated depreciation
of $29,231 and $20,969 at September 30, 1997
and December 31, 1996 respectively 6,216 14,478
Trademarks and organization costs, net of
accumulated amortization of $14,565 and
$11,787 at September 30, 1997 and December
31, 1996 respectively 3,946 6,724
Security deposits 4,068 18,091
Other assets 1,000 1,000
Deferred offering cost 45,000
---------- ---------
TOTAL ASSETS $ 1,066,366 $ 443,232
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 577,069 $ 1,244,965
Notes payable to related parties 486,250 253,750
Notes payable-trade 177,519 980,821
Accrued interest-Related party notes 80,856 5,978
Line of credit 20.479 23,506
Subordinated notes payable-Stockholders 153,750
Notes payable-convertible 225,000
Obligations under capital lease 9,957
---------- ---------
Total current liabilities 1,342,173 2,897,727
Notes payable-trade 362,001
Notes payable to related parties 486,250
Accrued interest-Related party notes 52,055
Obligations under capital lease 3,611
---------- ----------
Total liabilities $ 1,704,174 $ 3,439,643
========== ==========
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 per value;
20,000,000 shares authorized; 3,265,429 and
1,892,641 shares issued and outstanding 3,264 1,892
Additional paid-in capital 10,087,326 4,000,700
Deferred financing costs (360,000)
Accumulated deficit (10,728,398) (6,639,003)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) $ (637,808) $ (2,996,411)
========== ==========
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,066,366 $ 443,232
========== ==========
</TABLE>
<PAGE>
Mike's Original, Inc.
Statement of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Sales $ 490,585 $ 2,158,486 $ 7,807 $ 611,072
less Sales returns $ 128,925 $ (8.052)
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Sales, net of returns $ 361,660 $ 2,158,486 $ 15,859 $ 611,072
Cost of sales $ 344,961 $ 1,271,064 $ 50,498 $ 384,190
Gross profit $ 16,699 $ 887,422 $ (34,639) $ 226,882
--------------------------------------------------------------------------
Operating expenses
Selling, marketing and
shipping $ 645,867 $ 2,369,214 $ 35,658 $ 788,440
Research and Development $ 21,138 $ 48,456 $ 2,030 $ 24,740
General and
administrative $ 1,943,330 $ 1,133,854 $ 431,139 $ 548,472
--------------------------------------------------------------------------
Total operating expenses $ 2,610,335 $ 3,551,524 $ 468,827 $ 1,361,652
--------------------------------------------------------------------------
Loss from operations $ (2,593,636) $ (2,664,102) $ (503,466) $ (1,134,770)
Interest expense (net) $ 1,495,759 $ 83,971 $ 87,453 $ 42,207
--------------------------------------------------------------------------
Net loss $ (4,089,395) $ (2,748,073) $ (590,919) $ (1,176,977)
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Weighted average common
shares outstanding 2,471,455 1,543,688 3,020,264 1 ,873,410
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Net loss per share ($1.65) ($1.78) ($0.20) ($0.63)
--------------------------------------------------------------------------
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(4,089,395) $(2,748,073)
Adjustments to reconcile net loss to net cash
used in operating activities
Imputed interest on stock issued $ 1,327,051
Depreciation and amortization $ 11,040 $ 10,933
Compensation expense attributable to the
issuance of common stock for services rendered $ 1,331,250 $ 150,000
Release of common stock from escrow account $ 265,000
Compensation attributable to the issuance of
stock options $ 34,000
Changes in operating assets and liabilities
accounts receivable $ 52,089 $ 36,209
inventories $ 77,742 $ (21,829)
prepaid expenses $ (17,487) $ (6,284)
accounts payable and accrued liabilities $ (244,839) $ 735,574
----------- -----------
Net cash used in operating activities $(1,552,549) $(1,544,470)
----------- -----------
Cash flows from investing activities
Security deposit $ 14,023
Other assets $ (1,000)
----------- -----------
Net cash provided by investing activities $ 14,023 $ (1,000)
----------- -----------
Cash flows from financing activities
Net proceeds of initial public offering, net of
underwriting and issuance costs of $997,556 $ 3,342,444
Net proceeds from the sale of common stock
to investors net of issuance costs of $330,437 $ 1,053,314
Proceeds from convertible note $ 100,000
Proceeds from interim notes payable $ 340,000
Repayment of interim notes payable $ (315,000)
Proceeds from notes payable to related parties $ 535,000
Repayment of notes payable to related parties $ (253,750)
Proceeds from subordinated note payable-
stockholders $ 153,750
Repayment of subordinated notes payable $ (123,750)
Repayment of note payable- Trade $ (729,282) $ (143,994)
Payment of line of credit $ (3,027) $ 24,134
Payment of capital lease obligation $ (13,568) $ (5,791)
----------- ----------
Net cash provided by financing activities $ 2,344,067 $ 1,616,413
----------- -----------
Net Increase in Cash $ 805,541 $ 70,943
Cash at beginning of period $ 32,523 $ 15,716
----------- -----------
Cash at end of period $ 838,064 $ 86,659
</TABLE>
----------- -----------
<PAGE>
Mike's Original, Inc.
Statement of Changes in Stockholders' Equity
For the Nine Months ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Common
Stock Stock
--------- ------ Additional Deferred Total
Number of paid in Financing Accumulated stockholders'
Shares Amount Capital Costs Deficit Deficit
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 1,892,641 $1,892 $4,000,700 ($360,000) ($6,639,003) ($2,996,411)
Amortization of imputed interest-
Convertible debt $360,000 $360,000
Conversion of debt into common
stock by creditor 320,288 $319 $455,937 $456,256
Imputed interest-convertible debt $426,715 $426,715
Issuance of common stock for
imputed interest 67,000 $67 $301,433 $301,500
Issuance of common stock for
services rendered 285,500 $286 $1,330,964 $1,331,250
Waiver of compensation payable
to founder $27,333 $27,333
imputed interest attributable to
warrants issued with loans $202,500 $202,500
Proceeds from Company's Initial
Public Offering on July 31,
1997. 700,000 units at
$6.20 per unit. Each unit
containing 1 common share
and 2 warrants to purchase
common stock, net of
underwriting and other
costs of the offering of
$997,556. 700,000 $700 $3,341,744 $3,342,444
Net loss ($4,089,395) ($4,089,395)
------------------------------------------------------------------------------
Balances September 30, 1997 3,265,429 $3,264 $10,087,326 $0 ($10,728,398) ($637,808)
------------------------------------------------------------------------------
</TABLE>
<PAGE>
MIKE'S ORIGINAL INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The balance sheet as of September 30, 1997 and the related statements of
operations for the nine and three-month periods ended September 30, 1997,
changes in stockholders' deficit for the period ended September 30, 1997 and
changes in cash flow for the nine month periods ended September 30, 1997 and
1996 and have been prepared by Mike's Original, Inc. (the "Company") without
audit. In the opinion of management, all adjustments (which include only normal,
recurring accrual adjustments) necessary to present fairly the financial
position as of September 30, 1997 and for all periods presented have been made.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Registration Statements filed on amendment No. 6 to Form SB-2/A.
Results of operations for the period ended September 30, 1997 are not
necessarily indicative of the operating results expected for the full year.
NOTE B - INITIAL PUBLIC OFFERING
On July 31, 1997. the Company completed its Initial Public Offering ("IPO") of
700,000 units of common stock and Class A Warrants to purchase Common Stock sold
to investors on the OTC Bulletin Board at $6.20 per unit for aggregate gross
proceeds of $4,340,000. Each unit contained one share of common stock and two
Class A warrants to purchase one share of Common Stock each at $5.00 per share.
The net proceeds to the Company from the sale of the Units of $3,342,444 after
deducting underwriting discounts of $434,000 and offering expenses of $563,556
including the representative's non-accountable expense allowance of 3% has been
credited to Stockholders' deficit as common stock and additional paid-in
capital.
NOTE C - USE OF PROCEEDS FROM PUBLIC OFFERING
With respect to the Company's IPO , the Company received $3,342,000 of net
proceeds. Through September 30, 1997, approximately $2,144,000 was used for the
repayment of indebtedness including trade payables. The remaining proceeds have
been added to the Company's working capital and have been invested in money
market funds.
NOTE D - NOTES PAYABLE
During May, June and July 1997, prior to the "IPO", the Company issued
promissory notes to investors bearing interest at the rate of 12% per annum in
the aggregate principal amount of $270,000. In connection with these
transactions, the Company issued an aggregate of 135,000 warrants, expiring July
31, 2000, to those investors to purchase an aggregate of 135,000 shares of the
Company's common stock at a price of $3.00 per share and issued 4,500 shares of
common stock to a broker. These shares were valued at $4.50 per share, their
then estimated fair market value. Accordingly, $20,250 was charged to operations
during the three month period ended September 30, 1997.
NOTE E - STOCKHOLDERS' EQUITY
During August 1997, the Company issued 10,000 shares of common stock to each
of the three outside members of the Board of Directors and 1,000 shares to an
employee which were valued at $ 6.00 per share, the estimated fair value of the
stock at the date of issuance and accordingly $ 186,000 is charged to operations
during the three month period ended September 30, 1997.
<PAGE>
NOTE F - SALES RETURNS
During August 1997, The Company agreed to accept the return of approximately
$137,000 of current product from its exclusive distributor and hold this
inventory for future sale to either the distributor or to other customers. These
returns were later reduced to $129,000.
NOTE G - PRODUCT DISTRIBUTION
On September 12, 1997, the Company received written notification from Kraft
Pizza Company that pursuant to its exclusive distribution agreement, Kraft will
be discontinuing acting as the Company's distributor effective November 11,
1997. Thereafter, the Company was actively seeking alternative sources of
distribution. In this regard, Kraft has informed the Company that it would work
with the Company to facilitate the transition to a new distributor or
distributors and, under certain circumstances, may be willing to continue its
distributorship relationship with the Company up to December 11, 1997, if
needed. On November 3, 1997, the Company obtained alternate sources of
distribution (see Note I).
NOTE H - COMMITMENT AND CONTINGENCIES
Lease Commitments
Future minimum payments under noncancellable operating leases for equipment and
vehicles, with initial terms of one or more years, consist of the following at
September 30, 1997:
<TABLE>
<CAPTION>
Capital Operating
Lease Leases
<S> <C> <C>
Twelve months ending December 31,
1997 (balance of year) $ 0 $ 3,960
1998 15,840
1999 11,031
2000 1,266
---- -------
Total minimum leases payments $ 0 $32,097
---- -------
</TABLE>
Capital lease was paid in full during August 1997
During the three months ended September 30, 1997, the lease for office space
expired and such office space is being rented on a month-to-month basis.
<PAGE>
Employment Contracts
The Company has employment agreements with the founder and another employee
which provide for annual base salaries of $125,000 and $40,000. respectively,
and expire, as amended, in June 2001 and June 1998, respectively. During April
1997, he voluntarily waived his rights to receive $27,333 of accrued salary
through February 28, 1997. Such waiver has been presented as a contribution to
the Company's additional paid-in capital.
In March of 1997, the Company entered into a two-year employment agreement with
its Vice-President - Finance which provides for an annual base salary of $95,000
for the first year and $105,000 for the second year.
Effective at the completion of the Initial Public Offering, the Company entered
into a one-year employment agreement with its Vice-President - Marketing and
Sales which provides for an annual base salary of $115,000 plus up to $25,000 in
travel expenses. In addition, the officer was granted options to purchase 66,667
shares of the Company's Common Stock at $1.50 per share.
Consulting Agreement
In November, 1996, the Company entered into a consulting agreement with an
investor providing for the payment of $125,000 annually for three years
commencing the later of January 1, 1997, or the effective date of the Company's
Initial Public Offering. In April 1997, this agreement was terminated and, in
consideration, the Company issued 150,000 shares of its common stock to the
consultant. At March 31, 1997, accrued compensation payable to this consultant
aggregated approximately $31, 000. In April 1997 the Company recognized a charge
to operations of approximately $644,000 based upon the estimated fair market
values of the shares issued to the consultant.
During the year ended December 31, 1996, the Company entered into a consulting
agreement with an entity that is providing sales and marketing advisory and
consulting services to the Company. This entity received an annual consulting
fee of $50,000 and has received options to purchase 133,333 shares of the
Company's common stock at $1.50 per share expiring October 15, 2006. One third
of such options become exercisable at the end of each successive six-month
period.
Legal Proceedings
The Company is subject to various legal proceedings, claims and liabilities
which arise in the ordinary course of its business. In the opinion of management
, the amount of ultimate liability with respect to these actions will not have a
material adverse effect on the Company's results of operations, cash flow or
financial position.
In addition, the Company was subject to an action in which the plaintiff
sought damages in the amount of $61,510 plus interest accrued, costs and
attorneys fees arising from advertising and promotion services which the
plaintiff claimed to have performed for the Company. Following its commencement,
the case was voluntarily dismissed by the plaintiff because the Federal Court in
Puerto Rico lacked subject matter jurisdiction of this matter.
<PAGE>
On August 22, 1997, the Company was served with a complaint in an action
pending in the Supreme Court of New York, Nassau County and seeks damages in the
amount of $ 87,062, arising from the Company's alleged failure to pay for
certain inventory purchased. The Company has filed an answer denying the
allegations and asserting several affirmative defenses.
Management believes that the amount of any additional liability in
connection with the aforementioned matters, in excess of amounts provided for in
the normal course of business, will not materially affect the Company.
NOTE I - SUBSEQUENT EVENTS
New Product Distribution
On November 3, 1997, the Company reached agreements, effective immediately, to
retain Mattus' Ice Cream Company to distribute its ice cream products in the New
York metropolitan area and West Pico Foods to distribute its ice cream products
in Southern California and Las Vegas, Nevada. These new distributors replace
Kraft Pizza Company (see Note G).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Results of Operations
Nine and Three Months Ended September 30, 1997 and September 30, 1996
The Company's sales for the nine and three month periods ended September
30, 1997 were $491,000 and $8,000, respectively, a decrease of 77% and 99%,
respectively from approximately $2,159,000 and $611,000 for the nine and three
month period ended September 30, 1996. These decreases resulted from the initial
fill of product into the distributor pipeline which occurred early in 1996, as
well as the Company's limited capital in 1997, which limited capital has
adversely impacted its ability to purchase product from its manufacturer to fill
existing customer orders and has limited its ability to engage in marketing and
advertising programs to promote additional sales. Net sales for the 1997 year
was further reduced by approximately $129,000, representing net returns from the
Company's exclusive distributor for the Northeastern and Western regions of the
United States, which the Company agreed in August 1997 to accept back. These
returns, which were recorded as of June 30, 1997 and included in the three
months then ended, have resulted in net sales for the nine months ended
September 30, 1997 of approximately $361,000. The substantial part of the
products returned by this distributor are current products which will be held
for future sale. Sales for the three months ended September 30, 1997 are
nominal, since, (i) the adverse financial conditions affecting the Company prior
to the Initial Public Offering ("IPO") continued until August 1997 when the
proceeds of the IPO were actually received by the Company and (ii) the
termination by Kraft of its distributorship of the Company's products has
adversely affected the Company's sales. Since the Company did not retain new
distributors until November 1997, it is anticipated that sales for the three
months ended December 31, 1997 will not be significant.
Gross profit for the nine and three month periods ended September 30, 1997
declined 95% and 103%, respectively, to $16,000, and ($34,000), taking into
account the return of product previously described. Gross profit as a percentage
of sales (before the effect of the sales returns) for the nine month period
ended September 30, 1997 declined to 12% of net sales compared to 41% and 37%
for the nine and three month periods ended September 30, 1996. The decrease in
gross profit dollars is primarily attributable to the decline in net sales and
gross profit percentage. Gross profit as a percentage of net sales declined
partly as a result of higher raw material costs associated with the manufacture
of the Company's ice cream products and reduced selling prices to certain area
retailers.
General and administrative expenses (G&A) for the nine and three month periods
ended September 30, 1997 and September 30, 1996 were approximately $1,943,000
and $431,000, $1,134,000 and $548,000, respectively. The major components of
these expenses for the nine and three month periods ended September 30, 1997
were payroll and related taxes of $306,000 and $115,000, respectively, legal and
accounting fees of $556,000 and $33,000, respectively (of which $450,000 was
paid in Common Stock during the nine month period) and consulting fees of
$935,000 and $234,000, respectively (of which $855,000 and $180,000,
respectively was paid in Common Stock). The major components of these expenses
for the nine and three month periods ending September 30, 1996 were payroll and
related taxes of $287,000 and $96,000, respectively, legal and accounting fees
of $186,000 and $48,000, respectively (of which $110,000 was paid in Common
Stock during the nine month period), and consulting fees of $448,000 and
$345,000, respectively (of which $339,000 and $299,000 was paid in Common Stock
respectively). The shares issued during the nine months ended September 30,
1997, though restricted securities, were valued by the Company at $1,311,000,
based upon 25% discounts from the; Initial Public Offering price on transactions
occurring prior to the IPO and the closing bid price on the date authorized for
transactions occurring after the IPO. The Company continues to incur significant
general and administrative expenses as a publicly reporting company and in
support of its efforts to introduce and market its products in the retail market
place and to gain market share.
<PAGE>
Selling and shipping expenses for the nine and three month periods ended
September 30, 1997 and September 30, 1996 were approximately $646,000 and
$36,000, and $2,369,000 and $788,000, respectively. The decreases for the
comparable nine and three month periods were primarily from decreases in retail
introductory programs from $602,000 and $15,000 to $131,000 and $0 and store and
media price reduction coupons and media events from $983,000 and $485,000 to
$314,000 and $30,000, as well as decreases in advertising programs with store
chains from $305,000 and $150,000 to $64,000 and $0. The Company continues to
incur selling and shipping expenses in support of its efforts to introduce and
market its products in the retail market place and to gain market share.
Interest expense, net of interest income for the nine and three month periods
ended September 30, 1997 and September 30, 1996 were $1,496,000 and $87,000, and
$84,000 and $42000, respectively. $169,000 of the net interest cost for the nine
months ended September 30, 1997 was attributable to the conversion of open
accounts payable into interest-bearing accounts, and additional borrowings from
related parties and other creditors. These additions to interest-bearing
obligations began in mid 1996 and continued in 1997 until completion of the
Company's Initial Public Offering. The remainder of interest charges for the
nine and three month periods ended September 30, 1997 resulted from non-cash
imputed interest charges of $1,327,000 and $34,000, respectively, primarily in
connection with the issuance of Common Stock to the Company's manufacturer, and
the issuance of convertible debt and/or warrants to lenders, including vendors.
The imputed interest charges attributable to the shares issued and issuable to
these various creditors in 1997 were charged to operations in the period the
shares or convertible securities were initially issued. The shares, though
restricted securities, were valued by the Company based upon a 25% discount from
the Initial Public Offering price.
Net loss for the nine and three month periods ended September 30, 1997
increased to $4,089,000 and $591,000, respectively, as compared to net a loss of
$2,748,000 and $1,177,000, respectively, for the nine and three month periods
ended September 30, 1996. The 1997 net loss is attributable to the above
referenced increase in general and administrative expenses, higher interest
expense, including the non-cash imputed interest charges, as well as
significantly lower net sales and gross profits as offset by the decrease in
selling and shipping expenses.
Liquidity and Capital Resources
The Company's cash requirements have been significantly exceeding its
resources due to the substantial promotional expenses incurred in connection
with the entry by the Company into new markets and expansion into new locations
in existing markets, which historically have not resulted in sales sufficient to
offset these expenditures. As a result of the Company's limited operating
resources, the Company also has been unable to participate in certain programs
which may have increased sales. In August 1997, the Company received net
proceeds of $3,342,000 from its Initial Public Offering. This offering is an
integral part of the Company's plans to meet its cash requirements. The Company
believes that based upon its current plans, its resources, including the
proceeds of this offering, will be sufficient to meet its cash requirements
through July 31, 1998. The Company also believes that certain long-term
indebtedness due on December 31, 1998 (approximately $362,000 plus accrued
interest thereon) will be payable from internally generated funds, if any, or
debt financing or from the sale of additional debt or equity securities. Other
than its Initial Public Offering, the Company has no commitments or arrangements
for any future financing and there can be no assurance that future financing can
otherwise be obtained on satisfactory terms, if at all.
<PAGE>
The Company has historically raised capital through the private equity
markets, and through debt financing and short-term loans, and will continue to
pursue these opportunities, if necessary. Prior transactions have involved
officers, directors, stockholders and affiliates of the Company, as may future
transactions.
From May through July 1997, the Company received $270,000 in short-term loans
evidenced by promissory notes. In connection therewith, each noteholder received
warrants to purchase shares of Common Stock at an exercise price of $3.00 per
share at the rate of one warrant for each $2 loaned.
In May and June 1997, the Company issued 13,307 shares of Common Stock to
three vendors in exchange for $39,921 of indebtedness.
In April and May 1997, the Company reached agreements with three vendors to
extend obligations totaling $347,550 until December 31, 1998. These obligations
are convertible, in whole or in part, into 115,850 shares of Common Stock.
In March 1997, the Company entered into a two-year exclusive manufacturing
agreement expiring in March 1999. The manufacturing agreement, dated as of March
20, 1997, provides that Fieldbrook shall be the exclusive supplier of all
products manufactured by Fieldbrook and distributed by the Company East of the
Mississippi river for a period of two years. As partial consideration for this
agreement, the Company has issued to Fieldbrook 35,000 shares of Common Stock.
While Fieldbrook is obligated to sell existing products to the Company, it is
not obligated to manufacture or sell new or different products. In the event
Fieldbrook declines to manufacture, sell or produce any new product, the Company
is free to obtain such product from another supplier. The manufacturing
agreement further provided for payment to Fieldbrook of $150,000 for open
accounts which, since not paid by April 30, 1997, caused the Company to issue an
additional 30,000 shares of Common Stock to Fieldbrook. The Company's credit
line with Fieldbrook, which was $250,000, is presently being redetermined by the
parties, taking into account that the total payable outstanding to Fieldbrook
was paid from the proceeds of the Company's Initial Public Offering.
In March 1997, the Company received a $50,000 short-term loan which was
evidenced by a promissory note in the principal amount of $50,000 and in
connection therewith, the Company issued 2,000 shares of Common Stock to the
noteholder. In April 1997, one-half of this loan was converted into 12,500
shares of Common Stock.
In December 1996 and January 1997, the Company issued two convertible
promissory notes to two investors bearing interest at the rate of 8% per annum
in the principal amount of $225,000 and $100,000, respectively, (individually,
"Convertible Note" or collectively, the "Convertible Notes"). The Convertible
Notes were payable in full the earlier of five days after the closing date of an
Initial Public Offering or December 31, 1997 and January 31, 1998, respectively.
In lieu of receiving payment, the investors had the right to convert the
Convertible Notes within five (5) days of the closing of such Initial Public
Offering into 200,000 and 78,431 shares of Common Stock, respectively. In April
1997, the Convertible Notes were converted into 278,431 shares of Common Stock.
In December 1996, the Company issued two additional promissory notes in the
aggregate amount of $56,680 in exchange for certain trade accounts payable.
<PAGE>
In October 1996, the Company issued 19,231 shares of Common Stock to two
consultants as payment for services rendered during the year ended December 31,
1996. These shares were valued at $3.00 per share, the estimated fair market
value of the Common Stock at the date of issuance.
On August 20, 1996, the Company issued a promissory note in the amount of
$289,482 in exchange for certain trade accounts payable and inventories. The
note, as amended, bears interest at the rate of 10% per annum. $134,283 with
accrued interest was paid from the proceeds of the Initial Public Offering. The
balance is payable in December 1998.
On August 28, 1996, the founder of the Company was issued a promissory note
in the principal amount of $206,250. The funds that the founder loaned the
Company were the proceeds of a sale by the founder to an investor of 183,333
shares of his Common Stock at a price of $1.12 per share. This loan bears
interest at a rate of 8% and initially was payable the earlier of (i) thirteen
months from the date of the loan, or (ii) the date the Company successfully
consummates an Initial Public Offering of securities of the Company, but only to
the extent that the over-allotment option is exercised in such offering and only
from the proceeds received by the Company from the exercise of the
over-allotment option. In September 1996, the maturity date of this promissory
note was revised to September 30, 1998. In addition, the revised promissory note
provides that one-half of the outstanding principal amount of the note will be
paid with accrued interest thereon in the event the Company successfully
consummates an Initial Public Offering of securities of the Company, but only to
the extent that the over-allotment option is exercised in such offering and only
from the proceeds received by the Company from the exercise of the
over-allotment option.
In August, September and October 1996, the Company received three loans
from the Company's largest stockholder aggregating $253,750. A portion of the
funds that this stockholder loaned the Company was a result of the stockholder
selling shares of his Common Stock to an investor. In August 1996, this
shareholder sold 38,889 shares of his Common Stock at a price of $1.12 per
share. In September 1996, this shareholder sold 23,333 shares of his Common
Stock at a price of $1.50 per share. These loans, which were consolidated into
one note in September 1996, were paid from the proceeds of the Initial Public
Offering.
In September 1996, the Company completed a private placement offering
pursuant to Rule 506 of the Securities Act of 1933, as amended (the "Securities
Act") consisting of the sale of 61.5 units (the "Second Private Placement
Units"), with each Second Private Placement Unit consisting of $2,500 principal
amount of 12% promissory notes due on the earlier of July 31, 1997 or the
closing date of an Initial Public Offering of securities of the Company
(provided that in the event of a default as defined therein, the entire sum will
be accelerated), and 7,500 shares of the Company's Common Stock at an offering
price of $25,000 per Second Private Placement Unit. As of September 30, 1996,
the Company issued a total of 461,250 shares of Common Stock and notes payable
of $153,750, for which it received proceeds of an aggregate of $1,537,500. In
April 1997, the holders of $30,000 of such notes converted the principal and
accrued interest into 16,050 shares of Common Stock. The remaining notes payable
of $123,750 were paid from the proceeds of the Initial Public Offering.
<PAGE>
On May 30, 1996, the Company received loans totaling $100,000 from two
stockholders. The loans bear interest at an annual rate of 10% and initially
were due on demand. In September 1996, the maturity date of these promissory
notes was revised to occur the earlier of (i) May 30, 1998 or (ii) the date the
Company successfully consummates an Initial Public Offering of securities of the
Company, but only to the extent that the over-allotment option is exercised in
such offering and only from the proceeds received by the Company from the
exercise of the over-allotment option.
On May 30, 1996, the Company issued 50,000 shares of its Common Stock to
certain individuals for services rendered on behalf of the Company. These shares
were valued at $3.00 per share, the fair market value of the Common Stock at the
date of issuance.
In April 1996, the Company issued a promissory note (the "Penn Note") in
exchange for certain trade accounts payable of $830,275. As of June 30, 1997,
this outstanding balance was $710,275. $595,000 together with accrued interest
was paid from the proceeds of the Initial Public Offering and the balance is
payable in December 1997. Interest on the Penn Note accrues at the prime rate
plus 1% per annum. The Penn Note is collateralized by all of the assets of the
Company.
In February 1996, the Company issued $325,000 of 12% convertible promissory
notes which were payable on the earlier of August 31, 1996 or upon the
consummation of an interim financing as contemplated by a Letter of Intent with
an investment banker for an Initial Public Offering of the Company's securities.
In June 1996, in lieu of receiving payment of such event, the holders of the
notes exchanged the notes, based on a conversion price determined by the notes,
into Second Private Placement Units.
----------------------------------------------------------------------
All statements other than statements of historical fact included in this
report regarding the Company's financial position, business strategy and plans
and objectives of management of the Company for future operations, are
forward-looking statements. When used in this report, words such as
"anticipate", "believe", "estimate", "expect", "intend" and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management, as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors, including but not limited to competitive factors and pricing pressures,
relationships with its manufacturers, distributors and vendors, legal and
regulatory requirements and general economic conditions. Such statements reflect
the current views of the Company with respect to future events and are subject
to these and other risks, uncertainties and assumptions relating to the
operations, results of operations, growth strategy and liquidity of the Company.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by this paragraph.
<PAGE>
MIKE'S ORIGINAL, INC.
PART II- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
Previously reported
ITEM 2 - CHANGES IN SECURITIES:
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5 - OTHER INFORMATION
None
ITEMS 6 - EXHIBITS AND REPORTS OF FORM 8-K
Exhibits:
None
Reports on Form 8-K
A Form 8-K was filed on September 17, 1997, which covered the resignation
of the Company's certifying accountant, Grant Thornton LLP.
<PAGE>
In accordance with the requirements of the Securities Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MIKE'S ORIGINAL, INC.
By: /s/Michael Rosen
-----------------
President, Chairman of the Board and CEO
(Chief Executive Officer)
/s/Frederic Heller
-------------------
Vice-President- Finance
(Principal Financial and Accounting Officer)
Date: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the nine months ended September 30, 1997 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 838,064
<SECURITIES> 0
<RECEIVABLES> 29,881
<ALLOWANCES> (20,751)
<INVENTORY> 169,866
<CURRENT-ASSETS> 1,051,136
<PP&E> 35,447
<DEPRECIATION> (29,231)
<TOTAL-ASSETS> 1,066,366
<CURRENT-LIABILITIES> 1,342,173
<BONDS> 0
0
0
<COMMON> 3,264
<OTHER-SE> (641,072)
<TOTAL-LIABILITY-AND-EQUITY> 1,066,366
<SALES> 361,660
<TOTAL-REVENUES> 490,585
<CGS> 344,961
<TOTAL-COSTS> 344,961
<OTHER-EXPENSES> 2,610,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,495,759
<INCOME-PRETAX> (4,089,395)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,089,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,089,395)
<EPS-PRIMARY> (1.65)
<EPS-DILUTED> (1.31)
</TABLE>
