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 March 31, 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.
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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
incorporation or organization) Number)
350 Theodore Fremd Avenue, Rye, New York 10580
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(Address of principal executive offices)
Registrant's Telephone Number (914) 925-3485
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Number of Shares Outstanding of Common Stock,
$.001 Par Value, at May 1, 1998 3,295,429
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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>
March 31, 1998
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<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 126,172
Accounts receivable, less allowance for
doubtful accounts of $15,916 13,215
Inventories 91,629
Prepaid expenses 47,001
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Total current assets 278,017
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Fixed assets, net of accumulated depreciation of $32,945 4,016
Trademarks and organization costs, net of accumulated
amortization of $16,027 2,789
Security deposits 4,068
Other assets 1,000
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TOTAL ASSETS $ 289,890
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $513,429
Notes payable to related parties 486,250
Notes payable-trade 520,243
Accrued interest-Related party notes 100,056
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Total current liabilities 1,619,978
COMMITMENTS AND CONTINGENCIES (NOTES C AND D)
STOCKHOLDERS' EQUITY (DEFICIT) (NOTE B)
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 (11,509,480)
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,330,088)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 289,890
==========
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1998 1997
---- ----
<S> <C> <C>
Sales,net $ 49,010 $ 356,314
Cost of sales 53,500 305,364
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Gross profit (loss) (4,490) 50,950
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Operating expenses
Selling, marketing and shipping 106,408 249,765
Research and development 7,754 9,720
General and administrative 242,101 442,681
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Total operating expenses 356,263 702,166
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Loss from operations (360,753) (651,216)
Interest expense (net) 7,079 834,001
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Net loss $ (367,832) $(1,485,217)
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Weighted average common
shares outstanding 3,280,429 2,774,113
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Basic loss per share $ (.11) $ (.54)
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</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities
Net loss $(367,832) $(1,485,217)
Adjustments to reconcile net loss to net cash
used in operating activities
Imputed interest on stock issued 779,440
Depreciation and amortization 1,541 3,680
Compensation expense attributable to the
issuance of common stock for services rendered 88,800
Changes in operating assets and liabilities
Accounts receivable (615) (130,198)
Inventories 52,270 158,811
Prepaid expenses and other current assets (29,698) 16,589
Accounts payable and accrued liabilities (45,377) 537,802
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Net cash used in operating activities (300,911) (119,093)
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Cash flows from investing activities
Purchases of office equipment (1,513)
Security deposit 6,023
Other assets (306) 1,000
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Net cash (used by) provided by investing activities (1,819) 7,023
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Cash flows from financing activities
Proceeds from convertible note 100,000
Proceeds from notes payable 50,000
Payment of notes payable (40,263)
Payment of deferred offering costs (9,592)
Payment of line of credit (9,375) (1,255)
Payment of capital lease obligation (3,707)
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Net cash (used) provided by financing activities (9,375) 95,183
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Net Increase (Decrease) in Cash (312,105) (16,887)
Cash at beginning of period 438,277 32,523
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Cash at end of period $ 126,172 $ 15,636
========= =========
</TABLE>
<PAGE>
Mike's Original, Inc.
Statement of Changes in Stockholders' Equity
For the Three Months ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Common
Stock Stock
--------- ------- Additional Total
Number of paid in Accumulated stockholders'
Shares Amount Capital Deficit Deficit
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<S> <C> <C> <C> <C> <C>
Balances at January 1, 1998 3,265,429 $3,265 $10,087,327 $(11,141,648) ($1,051,056)
Issuance of common stock for
services rendered 30,000 30 88,770 88,800
Net loss (367,832) (367,832)
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Balances March 31, 1998 3,295,429 $3,295 $10,176,097 ($11,509,480) ($1,330,088)
============================================================================
</TABLE>
<PAGE>
MIKE'S ORIGINAL INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The balance sheet as of March 31, 1998 and the related statements of
operations for the three-month periods ended March 31, 1998 and 1997, changes in
stockholders' deficit for the period ended March 31, 1998 and changes in cash
flow for the three month periods ended March 31, 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 March 31,
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 for the year ended December 31,
1997. Results of operations for the period ended March 31, 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 three month period ended March 31, 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.
The Company has provided for this settlement in its financial statements.
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 - SUBSEQUENT EVENTS
On April 2, 1998, the Company was served with a complaint in an action
pending in the Supreme Court of New York, Nassau County whereby the plaintiff
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>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Results of Operations
Quarter Ended March 31, 1998 Compared to March 31, 1997
The Company's sales for the quarter ended March 31, 1998 and 1997 were
$49,010 and $356,314, respectively, a decrease of 86%. This decrease resulted
from the Company having limited operations due to the termination of its primary
distributor and insufficient working capital. which has limited its ability to
engage in marketing and advertising programs to promote additional sales. The
Company plans to expand its sales by the acquisition of strategic distributors,
primarily in the New York Metropolitan area.
Gross profit for the quarter ended March 31, 1998 was (9.2%) and 14.3% for
the comparable quarter ended March 31, 1997. The decrease and elimination of
gross profit dollars is primarily attributable to the lack of sales due to
limited operations.
General and administrative expenses (G&A) for the quarters ended March 31,
1998 and March 31, 1997 were approximately $242,100 and $442,700 respectively.
The decrease was primarily due to a reduction in legal expenses in the amount of
$213,500. Major components of the remaining $225,000 of expenses for the quarter
ended March 31, 1998 were professional fees (including accounting) of $70,300,
payroll costs of $80,900 and insurance,rent and office expense totalling
$36,200. The primary components of general and administrative expenses for the
quarter ended March 31, 1997, other than legal costs were payroll costs of
$90,500, professional fees (including accounting) of $78,100 and rent and office
expense of $17,700.
Selling, marketing and shipping expenses for the quarters ended March 31,
1998 and March 31, 1997 were approximately $106,400 and $249,800 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 March 31,
1998 and March 31, 1997 were $7,100 and $834,000 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 Company's initial public offering.
Net loss for the quarters ended March 31, 1998 and 1997 amounted to
$367,832 and $1,485,217 respectively. The primary reason for the net loss in
1998 was due to the lack of volume from the absence of distributors and the lack
of cash flow. 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 March 31, 1998 the
Company had a working capital deficit of $1,341,961. In addition, the cash
balance of $126,172 is anticipated to last the Company approximately ninety
days. It is the plan of the Company to arrange for private interim financing to
sustain the Company until an additional offering of securities can be
accomplished. There are no assurances that this interim financing can be
obtained or that an additional sale of securities can be accomplished. However,
if the aforementioned capital can be raised, the Company plans to close on
certain acquisitions currently under contract 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.
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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:
27 Financial Data Schedule
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 G. Rosenberg
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Arthur G. Rosenberg
Authorized Signatory
Date: May 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the three months ended March 31, 1998 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 126,172
<SECURITIES> 0
<RECEIVABLES> 29,131
<ALLOWANCES> 15,916
<INVENTORY> 91,629
<CURRENT-ASSETS> 278,017
<PP&E> 36,961
<DEPRECIATION> 32,945
<TOTAL-ASSETS> 289,890
<CURRENT-LIABILITIES> 1,619,978
<BONDS> 0
0
0
<COMMON> 3,294
<OTHER-SE> (1,333,382)
<TOTAL-LIABILITY-AND-EQUITY> 289,890
<SALES> 49,010
<TOTAL-REVENUES> 49,010
<CGS> 53,500
<TOTAL-COSTS> 53,500
<OTHER-EXPENSES> 356,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,079
<INCOME-PRETAX> (367,832)
<INCOME-TAX> 0
<INCOME-CONTINUING> (367,832)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (367,832)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
