<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended June 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.
- --------------------------------------------------------------------------------
(Exact name of small business as specified in its charter)
Delaware 11-3214529
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
131 Jericho Turnpike, Jericho, New York 11753
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Issuer's Telephone Number, including Area Code (516) 334-8500
Check whether the issuer: (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 [ ] No [X]
Number of Shares Outstanding of Common Stock,
$.001 Par Value, at September 17, 1997 3,269,929
Transitional Small Business Disclosure Format
Yes No X
-- -
1
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<TABLE>
<CAPTION>
MIKE'S ORIGINAL, INC.
BALANCE SHEETS
ASSETS JUNE 30, DECEMBER 31,
1997 1996
------------------------------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 9,577 $ 32,523
Accounts receivable, less allowance for doubtful accounts of $20,751 19,566 61,219
Inventories 153,458 247,608
Other receivables -- 16,589
------------------------------------
Total current assets 182,601 $ 357,939
Fixed Assets, Net 8,970 14,478
Other Assets
Deferred offering costs 473,767 45,000
Trademarks and organizational costs, net of accumulated
amortization of $ 13,639 and $12,713 at
June 30, 1997 and December 31, 1996, respectively 4,872 6,724
Security deposits 12,068 18,091
other -- 1,000
------------------------------------
$ 682,278 $ 443,232
====================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,077,622 $ 1,104,336
Accrued expenses and other liabilities 677,922 140,629
Notes payable to related parties 553,750 253,750
Subordinated notes payable - stockholders 123,750 153,750
Notes payable - convertible -- 225,000
Notes payable - trade 951,509 980,821
Notes payable 225,000
Accrued interest payable to related parties 89,649 5,978
Line of credit 23,430 23,506
Obligations under capital lease 6,953 9,957
------------------------------------
Total current liabilities 3,729,585 2,897,727
Obligations under capital lease 3,611
Notes Payable - Trade 362,026
Notes Payable to related parties 206,250 486,250
Accrued Interest payable to related parties 13,750 52,055
Commitments and Contingencies
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value, 500,000 shares authorized,
no shares issued or outstanding 0 0
Common stock, $.001 par value, 20,000,000 shares authorized;
2,529,929 and 1,892,641 shares issued and outstanding
at June 30, 1997 and December 31, 1996, respectively 2,528 1,892
Additional paid-in capital 6,505,618 4,000,700
Deferred financing costs (360,000)
Accumulated deficit (10,137,479) (6,639,003)
------------------------------------
(3,629,333) (2,996,411)
------------------------------------
$ 682,278 $ 443,232
====================================
2
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
MIKE'S ORIGINAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
------------------------------------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
------------------------------------------------------------------------------------
1997 1996 1997 1996
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 482,778 $ 1,547,414 $ 126,464 $ 1,004,240
less: Sales returns 136,977 0 136,977 $ --
------------------------------------------------------------------------------------
Sales, net of returns 345,801 $ 1,547,414 $ (10,513) $ 1,004,240
Cost of sales 336,730 1,035,417 31,366 654,729
------------------------------------------------------------------------------------
Gross profit 9,071 511,997 (41,879) 349,511
------------------------------------------------------------------------------------
Operating expenses
Selling and marketing 567,942 1,432,231 318,177 972,864
Research and Development 19,108 23,716 9,388 11,502
General and administrative 1,512,191 585,382 1,069,510 381,449
------------------------------------------------------------------------------------
Total operating expenses 2,099,241 2,041,329 1,397,075 1,365,815
------------------------------------------------------------------------------------
Loss from operations (2,090,170) (1,529,332) (1,438,954) (1,016,304)
Interest expense (net) 1,408,306 41,764 574,305 37,818
------------------------------------------------------------------------------------
Net loss $(3,498,476) $(1,571,096) $(2,013,259) $(1,054,122)
=====================================================================================
Weighted average common shares
outstanding 2,197,050 1,378,827 2,489,125 1,395,493
=====================================================================================
Net loss per share $ (1.59) $ (1.14) $ (0.81) $ (0.76)
=====================================================================================
3
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
MIKE'S ORIGINAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS'S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
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 250,000 $250 $1,124,750 $1,125,000
Waiver of compensation payable to founder $27,333 $27,333
Imputed interest attributable to warrants
issued with loans $168,750 $168,750
Net loss ($3,498,476) ($3,498,476)
---------------------------------------------------------------------------
Balances June 30, 1997 2,529,929 $2,528 $6,505,618 $0 ($10,137,479) ($3,629,333)
===========================================================================
4
</TABLE>
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<TABLE>
<CAPTION>
MIKE'S ORIGINAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
----------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss: $(3,498,476) $(1,571,096)
Adjustments to reconcile net loss to net cash
used in operating activities
Imputed interest on stock issued 1,293,301 0
Depreciation and amortization 7,360 7,289
Compensation expense attributable to the issuance of
common stock for services rendered 1,125,000 150,000
Changes in operating assets and liabilities
accounts receivable 41,653 (87,643)
inventories 94,150 (131,573)
other receivables 16,589 (32,210)
accounts payable 391,183 1,144,289
accrued expenses and other liabilities 202,292 131,988
Accrued consulting fees 0 58,335
----------------------------------------
Net cash used in operating activities $ (326,948) $ (330,621)
----------------------------------------
Cash flows from investing activities
Security deposit 6,023
Other assets 1,000
----------------------------------------
Net cash provided by investing activities $ 7,023 $ --
----------------------------------------
Cash flows from financing activities
Proceeds from notes payable to related parties 20,000
Proceeds from convertible note 100,000 100,000
Proceeds from note payable 250,000 325,000
Payments of note payable-Trade (45,263) (24,000)
Payment of line of credit (76)
Payment of capital lease obligation (6,615) (4,245)
Payment of deferred offering costs (21,067) (70,192)
----------------------------------------
$ 296,979 $ 326,563
----------------------------------------
NET INCREASE (DECREASE) IN CASH (22,946) (4,058)
Cash at beginning of period 32,523 15,716
----------------------------------------
Cash at end of period $ 9,577 $ 11,658
========================================
5
</TABLE>
<PAGE> 6
MIKE'S ORIGINAL INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The balance sheet as of June 30, 1997 and the related statements of
operations for the six - and three-month periods ended June 30, 1997, changes in
stockholders' deficit for the period ended June 30, 1997 and changes in cash
flow for the six-month periods ended June 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 June 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 June 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 was
$3,346,000 after deducting underwriting discounts of $434,000 and offering
expenses of approximately $560,000 including the representative's
non-accountable expense allowance of 3%.
Stockholders' deficit at June 30, 1997 after giving effect to the
Initial Public Offering is as follows:
<TABLE>
<CAPTION>
At June 30, After Giving effect
1997 to proceeds of "IPO"
-----------------------------------------
<S> <C> <C>
Common Stock
# of shares outstanding 2,529,929 3,279,929
------------ ------------
Amount $ 2,528 $ 3,230
Additional Paid in Capital $ 6,505,618 $ 9,850,916
Accumulated Deficit $(10,137,479) $(10,137,479)
------------ ------------
Total Stockholders' Deficit $ (3,629,333) $ (283,333)
------------ ------------
</TABLE>
6
<PAGE> 7
NOTE C - NOTES PAYABLE
During June and July 1997, the Company issued additional promissory
notes to investors bearing interest at the annual rate of 12% in the aggregate
principal amount of $120,000. In connection with these transactions, the Company
issued an aggregate of 60,000 warrants, expiring July 31, 2000, to those
investors to purchase an aggregate of 60,000 shares of the Company's common
stock at a price of $3.00 per share.
NOTE D - 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 will be charged to
operations during the 3 month period ending September 30, 1997.
NOTE E - 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.
NOTE F - COMMITMENT AND CONTINGENCIES
LEASE COMMITMENTS
Future minimum payments under a capital lease and noncancellable operating
leases for office space, equipment and vehicles, with initial terms of one or
more years, consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
Capital Operating
Lease Leases
---------------------------
<S> <C> <C>
Twelve months ending December 31,
1997 (balance of year) $ 6,953 $ 7,920
1998 15,840
1999 11,031
2000 1,266
--------- ---------
Total minimum leases payments $ 6,953 $ 36,057
==========================
</TABLE>
Capital lease was paid in full during August 1997
7
<PAGE> 8
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, the founder 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 AGREEMENTS
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
value 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 receives 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. Management believes that 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 is subject to an action in which the plaintiff seeks
damages in the amount of $61,510 plus interest accrued, costs and attorneys fees
arising from advertising and promotion services which the plaintiff claims to
have performed for the Company. Although no assurances can be given, the Company
believes it has meritorious defenses to this action and will defend its
vigorously.
8
<PAGE> 9
On August 22, 1997, the Company was served with a complaint in an action by a
former California manufacturer pending in the Supreme Court of New York, Nassau
County which seeks damages in the amount of $ 87,062, arising from the Company's
alleged failure to pay for certain inventory. The Company disputes the
allegations of the complaint and intends to file an answer and vigorously defend
against the allegations raised in the complaint.
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 G - SUBSEQUENT EVENTS
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. The Company is actively engaged in discussions with other distributors and
seeking alternative sources of distribution. In this regard, Kraft has informed
the Company that it will 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.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
RESULTS OF OPERATIONS
Six and Three Months Ended June 30, 1997 and June 30, 1996
The Company's net sales for the six and three month periods ended June
30, 1997 were $483,000 and $126,000, respectively, a decrease of 69% and 87%,
respectively from approximately $1,547,000 and $1,004,000 for the six and three
month periods ended June 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 $137,000, representing 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 resulted in net sales for the six months ended June 30, 1997 and the
three months ended June 30, 1997 of approximately $346,000 and ($10,000),
respectively. The products received back from this distributor are current
products which will be held for future sale. It is anticipated that sales for
the three months ended September 30, 1997 will be nominal, since the adverse
financial conditions affecting the Company for the six months ended June 30,
1997 have continued into this subsequent period in view of the public offering
proceeds not having been received until August 1997.
Gross profit for the six and three month periods ended June 30, 1997
declined 98% and 112%, respectively, to $9,000, and ($42,000), 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 six and three month
periods ended June 30, 1997 declined to 11% and 2%, respectively, of net sales
compared to 33% and 35% for the six and three month periods ended June 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 administrative expenses (G&A) for the six and three month
periods ended June 30, 1997 and June 30, 1996 were approximately $1,512,000 and
$1,070,000, $585,000 and $381,000, respectively. The major components of these
expenses for the six and three month periods ended June 30, 1997 were payroll
and related taxes of $200,000 and $110,000, respectively, legal and accounting
fees of $525,000 and $260,000, respectively (of which $450,000 and $225,000,
respectively was paid in Common Stock) and consulting fees of $700,000 and
$655,000, respectively (of which $675,000 and $644,000, respectively was paid in
Common Stock). The major components of these expenses for the six and three
month periods ending June 30, 1996 were payroll and related taxes of $200,000
and $100,000, respectively, legal and accounting fees of $140,000 and $125,000,
respectively (of which $110,000 was paid in Common Stock for both periods), and
consulting fees of $110,000 and $75,000, respectively (of which $40,000 was paid
in Common Stock for both periods). The shares issued during the six months ended
June 30, 1997, though restricted securities, were valued by the Company at
$450,000 and $675,000, respectively, based upon a 25% discount from the Initial
Public Offering price. 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.
10
<PAGE> 11
Selling and shipping expenses for the six and three month periods ended
June 30, 1997 and June 30, 1996 were approximately $568,000 and $318,000, and
$1,432,000 and $973,000, respectively. The decreases for the comparable six and
three month periods were primarily from decreases in retail introductory
programs from $587,000 and $351,000 to $131,000 and $81,000 and store and media
price reduction coupons and media events from $452,000 and $290,000 to $284,000
and $190,000, as well as decreases in advertising programs with store chains
from $155,000 and $145,000 to $74,000 and $8,000. 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 six and three month
periods ended June 30, 1997 and June 30, 1996 were $1,408,000 and $574,000, and
$42,000 and $38,000, respectively. $115,000 of the increase for the six months
ended June 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 six and three month periods
ended June 30, 1997 resulted from non-cash imputed interest charges of
$1,293,000 and $514,000, 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 six and three month periods ended June 30, 1997
increased to $3,498,000 and $2,013,000, respectively, as compared to net a loss
of $1,571,000 and $1,054,000, respectively, for the six and three month periods
ended June 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 $3,346,000 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) 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.
11
<PAGE> 12
The Company has historically raised capital through the private equity
markets, and through debt financing and short-term loans, and intends to
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 provides 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 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.
12
<PAGE> 13
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 8% interest bearing note in September 1997, 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.
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.
13
<PAGE> 14
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. 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.
14
<PAGE> 15
MIKE'S ORIGINAL, INC.
PART II- OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
On August 22, 1997, the Company was served with a complaint in an
action by a former California manufacturer pending in the Supreme Court of New
York, Nassau County which seeks damages in the amount of $ 87,062, arising from
the Company's alleged failure to pay for certain inventory. The Company disputes
the allegations of the complaint and intends to file an answer and vigorously
defend against the allegations raised in the complaint.
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
None
16
<PAGE> 16
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: September 17, 1997
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,577
<SECURITIES> 0
<RECEIVABLES> 40,317
<ALLOWANCES> (20,751)
<INVENTORY> 153,458
<CURRENT-ASSETS> 182,601
<PP&E> 35,447
<DEPRECIATION> (26,477)
<TOTAL-ASSETS> 682,278
<CURRENT-LIABILITIES> 3,729,585
<BONDS> 0
0
0
<COMMON> 2,528
<OTHER-SE> (3,631,861)
<TOTAL-LIABILITY-AND-EQUITY> 682,278
<SALES> 345,801
<TOTAL-REVENUES> 482,778
<CGS> 336,730
<TOTAL-COSTS> 336,730
<OTHER-EXPENSES> 2,099,241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,408,306
<INCOME-PRETAX> (3,498,476)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,498,476)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,498,476)
<EPS-PRIMARY> (1.59)
<EPS-DILUTED> (1.13)
</TABLE>
