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 June 30, 1998
[ ] 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 registrant as specified in its charter)
Delaware 11-3214529
- ----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
350 Theodore Fremd Avenue, Rye, New York 10580
- ----------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number (914) 925-3485
-------------
Number of Shares Outstanding of Common Stock,
$.001 Par Value, at August 1, 1998 3,295,429
-------------
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
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1998
-------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 1,366
Accounts receivable, less allowance for
doubtful accounts of $24,149 65,398
Inventories 89,332
Prepaid expenses & other current assets 56,685
--------
Total current assets 212,781
--------
Fixed assets, net of accumulated depreciation of
$33,846 3,114
Trademarks and organization costs, net of accumulated
amortization of $16,595 2,221
Security deposits 1,000
Other assets 63,000
--------
TOTAL ASSETS $282,116
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $684,140
Notes payable to related parties (NOTE D) 351,586
Notes payable-trade 520,243
Accrued interest-Related party notes 51,325
--------
Total current liabilities 1,607,294
STOCKHOLDERS' EQUITY (DEFICIT) (NOTES B and D)
Common stock, $.001 per value;
20,000,000 shares authorized; 3,295,429
shares issued and outstanding 3,295
Additional paid-in capital 10,176,097
Accumulated deficit (11,504,570)
----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,325,178)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 282,116
==========
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Sales, net $ 129,623 $ 345,801
Cost of sales 220,364 336,730
---------- ----------
Gross profit (90,741) 9,071
Operating expenses
Selling, marketing and shipping 99,376 567,942
Research and Development 13,754 19,108
General and administrative 358,757 1,512,191
---------- -----------
Total operating expenses 471,887 2,099,241
---------- -----------
Loss from operations (562,628) (2,090,170)
Interest expense (net) 17,176 1,408,306
---------- -----------
Net loss before extraordinary item (579,804) (3,498,476)
Extraordinary item - forgiveness of debt 216,882 -
----------- -----------
Net loss $ (362,922) $(3,498,476)
=========== ===========
Weighted average common
shares outstanding 3,285,429 2,197,050
=========== ===========
Basic loss per share before extraordinary item $ (.17) $ (1.59)
Basic income per share from extraordinary item .06 -
----------- -----------
Basic loss per share $ ( .11) $ (1.59)
=========== ===========
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Sales, net $ 80,613 $ (10,513)
Cost of sales 166,864 31,366
--------- ---------
Gross profit (86,251) (41,879)
Operating expenses
Selling, marketing and shipping (7,032) 318,177
Research and Development 6,000 9,388
General and administrative 116,656 1,069,510
--------- -----------
Total operating expenses 115,624 1,397,075
--------- -----------
Loss from operations (201,875) (1,438,954)
Interest expense (net) 10,097 574,305
--------- -----------
Net loss before extraordinary item (211,972) (2,013,259)
Extraordinary item - forgiveness of debt 216,882 -
--------- -----------
Net income (loss) $ 4,910 $(2,013,259)
========= ===========
Weighted average common
shares outstanding 3,295,429 2,197,050
========= ===========
Basic loss per share before extraordinary item $ (.06) $ (.80)
Basic income per share from extraordinary item .06 -
--------- -----------
Basic income (loss) per share $ NIL $ (.80)
========= ===========
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 4,910 $(2,013,259)
Adjustments to reconcile net loss to net cash
used in operating activities
Imputed interest on stock issued 513,861
Provision for doubtful accounts 8,233
Depreciation and amortization 1,469 3,680
Compensation expense attributable to the
issuance of common stock for services rendered 1,125,000
Forgiveness of related party debt (216,882)
Changes in operating assets and liabilities
Accounts receivable (60,416) 171,851
Inventories 2,297 (64,661)
Prepaid expenses & other current assets (9,684) -
Accounts payable and accrued liabilities 169,199 55,673
---------- ----------
Net cash used in operating activities (100,874) (207,855)
---------- ----------
Cash flows from investing activities
Security deposit 3,068
Other assets (62,000) -
---------- ----------
Net cash (used by) provided by investing activities (58,932) -
---------- ----------
Cash flows from financing activities
Proceeds from notes payable to related parties 35,000 20,000
Proceeds from notes payable 200,000
Payment of notes payable (5,000)
Payment of deferred offering costs (11,475)
Payment of line of credit 1,179
Payment of capital lease obligation (2,908)
---------- ----------
Net cash (used) provided by financing activities 35,000 201,796
---------- ----------
Net Increase (Decrease) in Cash (124,806) (6,059)
Cash at beginning of period 126,172 15,636
---------- ----------
Cash at end of period $ 1,366 $ 9,577
========== ==========
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $ (362,922) $(3,498,476)
Adjustments to reconcile net loss to net cash
used in operating activities
Imputed interest on stock issued 1,293,301
Provision for doubtful accounts 8,233
Depreciation and amortization 3,010 7,360
Compensation expense attributable to the
issuance of common stock for services rendered 88,800 1,125,000
Forgiveness of related party debt (216,882)
Changes in operating assets and liabilities
Accounts receivable (61,031) 41,653
Inventories 54,567 94,150
Prepaid expenses & other current assets (39,382) 16,589
Accounts payable and accrued liabilities 123,822 593,475
---------- ----------
Net cash used in operating activities (401,785) (326,948)
---------- ----------
Cash flows from investing activities
Purchases of office equipment (1,513)
Security deposit 3,068 6,023
Other assets (62,306) 1,000
---------- ----------
Net cash (used by) provided by investing activities (60,751) 7.023
---------- ----------
Cash flows from financing activities
Proceeds from notes payable to related parties 35,000 20,000
Proceeds from convertible note 100,000
Proceeds from notes payable 250,000
Payment of notes payable (45,263)
Payment of deferred offering costs (21,067)
Payment of line of credit (9,375) (76)
Payment of capital lease obligation (6,615)
---------- ----------
Net cash (used) provided by financing activities 25,625 296,979
---------- ----------
Net Increase (Decrease) in Cash (436,911) (22,946)
Cash at beginning of period 438,277 32,523
---------- ----------
Cash at end of period $ 1,366 $ 9,577
========== ==========
</TABLE>
<PAGE>
MIKE'S ORIGINAL INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The balance sheet as of June 30, 1998 and the related statements of
operations for the three-month and six month periods ended June 30, 1998 and
1997 and changes in cash flow for the three month and six month periods ended
June 30, 1998 and 1997 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, 1998 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 Annual Report filed on Form 10-KSB. Results of operations for the
period ended June 30, 1998 are not necessarily indicative of the operating
results expected for the full year.
NOTE B STOCKHOLDERS' EQUITY
During February 1998, the Company issued 30,000 shares of common stock
to one of its marketing consultants in exchange for services to be performed
during 1998. These shares were valued at $ 2.96 per share, the estimated fair
value of the stock at the date of issuance and accordingly $ 88,800 is charged
to operations during the six month period ended June 30, 1998.
NOTE C - COMMITMENT AND CONTINGENCIES
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.
The Company has entered into a settlement with Darigold, Inc. in the
amount of $33,574 plus interest payable in equal monthly installments of
$4,125.45 commencing in April, 1998 after the Company made an initial payment of
$10,000. In July , 1998 the Company defaulted and the unpaid balance of
approximately $14,000 was demanded by Darigold, Inc.. The Company is currently
negotiating to make a final payment in full settlement of all amounts due.
On April 2, 1998, 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 $82,037, arising from the Company's alleged failure to pay for certain
inventory purchased. The Company disputes the allegations of the complaint and
intends to file an answer and vigorously defend against the allegations raised
in the complaint.
<PAGE>
In the opinion of management, 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 D - NOTES PAYABLE TO RELATED PARTIES
Effective May 1, 1998, the Company entered into an agreement with
Michael Rosen and Rachelle Rosen and certain other family members. Pursuant to
the agreement, Michael Rosen resigned as Chairman of the Board and President of
the Company and Rachelle Rosen as Secretary and Treasurer. Michael Rosen and his
father-in-law, Martin Pilossoph, also resigned as directors of the Company. The
agreement provides, among other things, for the termination of Mr. Rosen's
employment agreement, which would otherwise have expired May 31, 2001 and which
provided for an annual base salary of $125,000 together with pre-tax incentives.
The agreement further provides that the outstanding indebtedness to Michael
Rosen and Rachelle Rosen in the approximate sum of $280,000 is reduced to
$130,336. In addition, $25,000 of indebtedness due to Elizabeth Pilossoph, Mr.
Rosen's mother-in-law, is reduced to $6,250. The Company recorded extraordinary
income of approximately $217,000 in the quarter ended June 30, 1998 as a result
of the aforementioned forgiveness of debt.
On May 22, 1998, a shareholder advanced the Company $35,000 for working
capital. This advance bears interest at the rate of 10% and is due on demand.
The shareholder has the option to convert this debt into units, or fractions of
units, associated with the private placement (See Subsequent Events). In July,
1998 this same shareholder advanced the Company an additional $5,000 bringing
the total demand loan to $40,000.
NOTE E - SUBSEQUENT EVENTS
On July 27, 1998, the Company commenced a private placement of its
securities to provide gross proceeds of up to $500,000. The securities are being
offered in units consisting of $50,000 12% Notes due on December 1, 1999 and
200,000 shares of common stock. This offering expires on September 1, 1998,
unless extended by the Company, and is being offered through Millennium
Securities Corp. As of August 14, 1998, $75,000 has been received by the Company
representing the sale of one and one-half units. This private placement states
that the Company plans to make a secondary offering of its securities of at
least $3,000,000 of gross proceeds in the fall of 1998. Although the Company
feels such an offering can be accomplished, there is no assurance that such an
offering will be consummated.
In July, 1998, the Company acquired, from Multi Venture Partners Ltd.,
an unrelated third party, the rights to purchase the assets of New Yorker Ice
Cream Corp. and Jerry's Ice Cream Co., Inc. in exchange for $50,000 in cash
(which will be credited to the purchase price of the acquired entities at
closing), 1,500,000 shares of the Company's common stock and 750,000 options to
purchase additional shares of the Company's common stock at an exercise price of
$1.00. The agreements, previously executed to acquire these entities expired in
April, 1998 and were extended to June 30, 1998 when they were terminated. The
terms of the acquisitions are similar to the original agreements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Results of Operations
Quarter Ended June 30, 1998 Compared to June 30, 1997
The Company's sales for the quarter ended June 30, 1998 and 1997 were
$80,613 and $(10,513) respectively. The prior year negative sales resulted from
the Company accepting returns back from its primary distributor who subsequently
terminated the relationship. The limited volume for the current year was
primarily due to insufficient working capital and the limited usage of the
Mike's Original brand. The Company plans to expand its sales by the acquisition
of strategic distributors, primarily in the New York Metropolitan area. In June,
1998 the Company began selling Veryfine frozen juice bars under its license
agreement.
Gross profit for the quarter ended June 30, 1998 was $(86,251) and
$(41,879) for the comparable quarter ended June 30, 1997. The decrease and
elimination of gross profit dollars is primarily attributable to the lack of
sales due to limited operations and the limited usage of the Mike's Original
brand. Remaining finished goods inventories were sold at significantly reduced
prices.
General and administrative expenses (G&A) for the quarters ended June
30, 1998 and June 30, 1997 were approximately $116,700 and $1,069,500
respectively. The decrease was primarily due to a reduction in other
professional fees including accounting ($500,000), legal expenses ($400,000) and
salaries ($100,000).
Selling, marketing and shipping expenses for the quarters ended June 30,
1998 and June 30, 1997 were approximately $(7,000) and $318,200 respectively.
The sharp decline for the 1998 period was primarily from decreases in retail
introductory programs, advertising, and in store promotions as a result of
limited operations.
Interest expense, net of interest income for the quarters ended June 30,
1998 and June 30, 1997 were approximately $10,100 and $574,300 respectively. The
reduction in the amount charged to profit and loss was created by the conversion
of debt in 1997 to equity and the reduction of other interest bearing debt
through the application of proceeds from the initial public offering.
Net income for the quarter ended June 30, 1998 was $ 4,910 as compared
to a net loss in the amount of $2,013,259 for the comparable prior year period.
Net income was achieved in 1998 as a direct result of the forgiveness of debt by
the Rosens and other related parties in the amount of $216,882. The net loss in
1997 was attributable to the high cost of debt prior to the initial public
offering and the lack of volume.
<PAGE>
Six Months Ended June 30, 1998 Compared to June 30, 1997
The Company's sales for the six months ended June 30, 1998 and 1997 were
$129,623 and $345,801 respectively. The limited volume for the current year was
primarily due to insufficient working capital and the limited usage of the
Mike's Original brand. The Company plans to expand its sales by the acquisition
of strategic distributors, primarily in the New York Metropolitan area. In June,
1998 the Company began selling Veryfine frozen juice bars under its license
agreement.
Gross profit for the six months ended June 30, 1998 was $(90,741) and
$9,071 for the comparable six months ended June 30, 1997. The decrease and
elimination of gross profit dollars is primarily attributable to the lack of
sales due to limited operations and the limited usage of the Mike's Original
brand. Remaining finished goods inventories were sold at significantly reduced
prices in the second quarter.
General and administrative expenses (G&A) for the six months ended June
30, 1998 and June 30, 1997 were approximately $358,800 and $1,512,200
respectively. The decrease was primarily due to a reduction in other
professional fees including accounting ($640,000), legal expenses ($460,000) and
salaries ($100,000).
Selling, marketing and shipping expenses for the six months ended June
30, 1998 and June 30, 1997 were approximately $99,400 and $567,900 respectively.
The sharp decline for the 1998 period was primarily from decreases in retail
introductory programs, advertising, and in store promotions as a result of
limited operations.
Interest expense, net of interest income for the six months ended June
30, 1998 and June 30, 1997 were approximately $17,200 and $1,408,300
respectively. The reduction in the amount charged to profit and loss was created
by the conversion of debt in 1997 to equity and the reduction of other interest
bearing debt through the application of proceeds from the initial public
offering.
Net loss for the six months ended June 30, 1998 was $ 362,922 as
compared to $3,498,476 for the comparable prior year period. The net loss in
1998 was offset by the forgiveness of debt by the Rosens and other related
parties in the amount of $216,882. The net loss in 1997 was attributable to the
high cost of debt prior to the initial public offering and the lack of volume.
<PAGE>
Liquidity and Capital Resources
The Company's cash requirements have been significantly exceeding its
resources due to the limited operations of the Company. At June 30, 1998 the
Company had a working capital deficit of $1,394,513. In addition, the cash
balance of $1,366 and collection of recievables is anticipated to fund the
Company until proceeds from the private placement is received. The private
placement is anticipated to raise up to $500,000 and as of August 14, 1998
$75,000 has been received. It is anticipated that these proceeds should sustain
the Company until an additional offering of securities can be accomplished.
There are no assurances that this private placement will generate proceeds in
excess of the $75,000 already received. The Company also anticipates engaging in
an underwritten public offering expected to generate $3,000,000 in gross
proceeds. There are no assurances that such an offering can be accomplished. If
the aforementioned capital can be raised, the Company plans to close the
acquisitions currently assigned to the Company and to seek out additional
acquisitions to shift the Company's business to more of a distributorship rather
than a manufacturer. These acquisitions and additional financings are
anticipated to generate sufficient cash flow to meet the Company's needs for the
balance of the year.
- ----------------------------------------------------------------------
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:
None
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
<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/ Arthur Rosenberg
----------------------------------------
Arthur Rosenberg, President
(Chief Executive Officer)
Date: August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the six months ended June 30, 1998 and is qualified in
its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,366
<SECURITIES> 0
<RECEIVABLES> 65,398
<ALLOWANCES> (24,149)
<INVENTORY> 89,332
<CURRENT-ASSETS> 212,781
<PP&E> 3,114
<DEPRECIATION> (33,846)
<TOTAL-ASSETS> 282,116
<CURRENT-LIABILITIES> 1,607,294
<BONDS> 0
0
0
<COMMON> 3,295
<OTHER-SE> (1,328,473)
<TOTAL-LIABILITY-AND-EQUITY> (1,325,178)
<SALES> 129,623
<TOTAL-REVENUES> 129,623
<CGS> 220,364
<TOTAL-COSTS> 220,364
<OTHER-EXPENSES> 471,887
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,176
<INCOME-PRETAX> (579,804)
<INCOME-TAX> 0
<INCOME-CONTINUING> (579,804)
<DISCONTINUED> 0
<EXTRAORDINARY> (216,882)
<CHANGES> 0
<NET-INCOME> (362,922)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
