- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Form 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1998
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the transition period from _____ to
_____
Commission file number 0-22431
NEW YORKER MARKETING CORP.
(FORMERLY: MIKE'S ORIGINAL, INC.)
(Name of Small Business Issuer in its Charter)
Delaware 11-3214529
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
366 N. Broadway, Jericho, New York 11753
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (516) 942-8068
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [x]
Issuer's revenue for its most recent fiscal year: $103,410
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 26, 1999 based on the average price on that date was
$4,938,741. At January 31, 1999, the number of shares outstanding of the
issuer's common stock was 5,152,908.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format Yes [ ] No [ x ]
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
According to the International Ice Cream Association, ice cream was part of
a $10.5 billion nationwide frozen dessert industry in 1995 and has wide appeal,
with over 93% of households in the United States consuming these products. From
its inception, New Yorker marketed, sold and distributed Mike's Original
Cheesecake Ice Cream, an all natural blend of ice cream with cheesecake
ingredients. This product line was offered in a variety of flavors mainly to
supermarkets and grocery stores and also, to a lesser extent, to convenience
stores and food service outlets. Since March 1998, sales of Mike's Original
Cheesecake Ice Cream have been nominal. In June 1998, New Yorker curtailed the
sale of its ice cream and began distributing Veryfine Frozen Juice Bars under an
agreement with Veryfine.
Initially, New Yorker manufactured, marketed and distributed its own line
of ice cream products. New Yorker wants to change its operations to marketing
and distributing a variety of ice cream products and other frozen desserts,
including nationally known brands of super-premium ice cream products and
possibly its own ice cream products. New Yorker plans to change its operations
by buying distribution companies in large metropolitan areas. New Yorker expects
these purchases to provide new brands and customers, distribution expertise and
an operations center that can absorb any future acquisitions. As part of this
plan, New Yorker recently acquired the rights to purchase the assets of New
Yorker Ice Cream Corp. and Jerry's Ice Cream Co., Inc. New Yorker Ice Cream and
Jerry's Ice Cream distribute and market ice cream and frozen novelties including
Haagen-Dazs, Good Humor, and Edy's. These companies had combined 1998 revenues
of approximately $6,500,000 . New Yorker intends to use part of the proceeds of
a recently filed proposed public offering to buy these assets.
New Yorker was incorporated in New York in March 1993, reincorporated in
Delaware in May 1994 and changed its name from Mike's Original, Inc. to New
Yorker Marketing Corp. in March 1999. It maintains its principal offices at 366
N. Broadway, Jericho, New York 11753 and its telephone number is (516) 942-
8068.
Agreement with Veryfine Products
New Yorker entered into a license agreement with Veryfine Products, Inc.
effective April 1, 1998 for the sale of Veryfine Frozen Juice Bars. The
agreement grants New Yorker's wholly-owned subsidiary, New Yorker Frozen
Desserts, Inc., an exclusive license to manufacture and sell frozen juice bars
in certain flavors, sizes and packaging for a two year period in the New York
Metropolitan area, including Nassau, Suffolk, Westchester, Putnam and Rockland
counties, and certain counties in New Jersey and in the State of Connecticut.
New Yorker has the right to manufacture these products at facilities it
designates under quality assurance procedures established by Veryfine. These
products have been manufactured in the Fieldbrook facility in Buffalo, New York
and New Yorker has been selling these products since June 1998. The license
agreement also prohibits New Yorker from manufacturing or selling any other
branded frozen juice bar.
<PAGE>
Proposed Acquisition of Distributors
New Yorker will be using a portion of the proceeds of its proposed offering
to purchase the assets of New Yorker Ice Cream and Jerry's Ice Cream, two full
service distributors and marketers of ice cream and frozen novelties. In July
1998, Multi Venture Partners Ltd. assigned to New Yorker all of its right, title
and interest under certain purchase agreements to acquire the assets of New
Yorker and Jerry's. These agreements, which have since been amended, provide for
an aggregate purchase price of approximately $2,500,000, of which
-- $970,000 is payable in cash at closing,
-- $820,000 is payable in restricted common stock at closing,
-- $200,000 is payable over six months at an 8% annual interest rate; and
-- $495,000 is payable over four years at an 8% annual interest rate.
Each agreement further provides: (i) for a price guarantee on the common
stock issued at closing which is exercisable by the purchaser eighteen months
from the closing date; and (ii) that New Yorker can call all or part of such
common stock at any time during such eighteen month period, at the closing price
of the common stock on the closing date of the acquisition.
At closing Mr. Ted Ketsoglou, the principal of New Yorker Ice Cream and Mr.
Gerald Schneider, the principal of Jerry's Ice Cream, will become directors and
officers of New Yorker and will be employed by New Yorker pursuant to written
employment agreements. See "Management - Proposed Employment Agreements."
Some of the products currently being distributed by New Yorker Ice Cream
and Jerry's Ice Cream are Haagen Dazs, Good Humor, Baskin Robbins, Snickers,
Edy's, Veryfine Juice Bars and American Classics. New Yorker Ice Cream and
Jerry's Ice Cream own in the aggregate approximately 2,000 freezers which they
have placed in approximately 1,500 locations throughout the New York
Metropolitan area, including Connecticut and New Jersey. The institutions
serviced by these companies include grocery stores, bodegas, restaurants,
delicatessens, supermarkets, parks, beaches and airports. Their combined
revenues for the year ended December 31, 1998 were approximately $6,500,000.
Principal Supplier
For the years ended December 31, 1998 and 1997 approximately 30% of the
combined revenues of New Yorker Ice Cream and Jerry's Ice Cream were from the
sale of Haagen-Dazs products. While these companies enjoy long term
relationships with Haagen-Dazs, the loss of this company as a supplier could
have a material adverse effect upon the business of New Yorker and Jerry's.
Manufacturing
New Yorker's products are presently manufactured by Fieldbrook Farms, an
independent FDA approved facility located in Buffalo, New York, under 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
New Yorker east of the Mississippi River for a period of two years.
<PAGE>
The products distributed by New Yorker Ice Cream and Jerry's Ice Cream are
manufactured either by the ice cream company themselves, i.e., Haagen Dazs, or
by third party manufacturers, and sold to New Yorker and Jerry's.
Distribution and Marketing
New Yorker, through its officers, consultants and other representatives,
currently markets the Mike's Original products on a very limited basis through
supermarkets, grocery stores, convenience stores and food service outlets. While
New Yorker incurred substantial promotional expenses for freezer space in
connection with entering new markets, maintaining existing markets, entering new
retailers and maintaining shelf space in existing retailers, it has received no
assurance that these retailers will continue to allocate freezer space for New
Yorker's products even after the payment of these fees and, in fact,
substantially all of the supermarkets have discontinued selling New Yorker's
products.
New Yorker Ice Cream and Jerry's Ice Cream employees primarily distribute
their products to grocery stores, bodegas and restaurants in their own trucks.
New Yorker Ice Cream and Jerry's Ice Cream have placed their own freezers at
these locations at no expense to the store owner. New Yorker Ice Cream and
Jerry's Ice Cream currently have placed approximately 2,000 freezers in
approximately 1,500 locations in the New York City Metropolitan area.
Competition
In the distribution of products, New Yorker Ice Cream and Jerry's Ice Cream
compete with many distributors in the New York City Metropolitan area, several
of which have greater financial and other resources. In order to maintain and
increase its market position, New Yorker and Jerry's must maintain the condition
of their freezers, effectively compete in the selling price of their products,
and seek additional locations for freezers.
Government Regulation
New Yorker is subject to regulation by various governmental agencies
regarding the distribution and sale of food products, including the FDA and
various state agencies. New Yorker believes that its marketing and distributing
operations comply with all existing applicable laws and regulations.
New Yorker cannot predict the impact of possible changes that may be
required in response to future legislation, rules or inquiries made from time to
time by governmental agencies. FDA regulations may, in certain circumstances,
affect the ability of New Yorker, as well as others in the industry, to develop
and market new products. However, New Yorker does not presently believe that
existing applicable legislative and administrative rules and regulations will
have a significant impact on its operations.
Trademarks and Patents
New Yorker owns registered trademarks and service marks under the names
"Mike's Original ", "GRAMWICH " and "Graham Cracker Delight ". New Yorker has
common law trademarks for "Strawberry Fantasy ", "Chocolate Tidbits ", Sorbet
Blends , Raspberry Romance and Lemon Lace . New Yorker does not believe that any
of these trademarks are material, either individually or collectively, to New
Yorker's planned operations.
<PAGE>
All trademarks and service marks appearing in this prospectus that do not
relate to New Yorker products are the property of their respective holders.
Insurance
New Yorker's business exposes it to potential liability which is inherent
in the marketing and distribution of food products. New Yorker currently
maintains $2,000,000 of product liability insurance. New Yorker also maintains
$1,000,000 of general and personal injury insurance per occurrence and
$5,000,000 in the aggregate. Any product liability judgement against New Yorker
which is not covered by insurance could have a material adverse effect on New
Yorker's business and prospects.
Employees
New Yorker currently employs two part-time persons, who serve in
administrative capacities. New Yorker Ice Cream and Jerry's Ice Cream employ an
aggregate of approximately 30 full-time persons, of whom approximately 5 are in
executive and administrative operations and approximately 25 in warehouse,
selling and distribution. None of the employees are represented by a labor
union. New Yorker, New Yorker Ice Cream and Jerry's Ice Cream consider their
relationships with their employees to be satisfactory.
Seasonality
The ice cream industry generally experiences its highest volume during the
spring and summer months and the lowest volume in the winter months. In this
regard, according to statistics published by the International Ice Cream
Association, 35.5% of sales of novelty ice cream products and 29.5% of sales of
packaged ice cream products were made during the third quarter (July -
September) of calendar 1996 while only 18.0% of sales of novelty ice cream
products and 22.4% of sales of packaged ice cream were made during the first
quarter (January - March) of calendar 1996.
ITEM 2. DESCRIPTION OF PROPERTY
On October 1, 1998, New Yorker signed a month-to-month lease for office
space in Jericho, New York at a monthly rental of $650. This office will serve
as the corporate office of New Yorker until such time as New Yorker and the
planned acquisitions can be relocated to an appropriate facility.
ITEM 3. LEGAL PROCEEDINGS
J.W. Messner, Inc. v. New Yorker Marketing Corp. On May 22, 1997, the
parties entered into a stipulation of settlement in this action pending in the
Supreme Court of New York, Nassau County, wherein New Yorker agreed to pay J. W.
Messner, New Yorker's former advertising agent, the sum of $125,936, in three
installments as follows: $40,000 on June 30, 1997; $42,968, plus accrued
interest, on or before June 30, 1998; and $42,968, plus accrued interest, on or
before December 31, 1998. Only the $40,000 due on June 30, 1997 has been paid.
On January 30, 1999, a default judgment in the amount of $97,688 was entered
against New Yorker.
<PAGE>
Universal Folding Box Co., Inc. v. New Yorker Marketing Corp., et al. On
April 2, 1998, New Yorker 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 New Yorker's alleged failure to pay for certain inventory
purchased. New Yorker has filed an answer in this action. In December, 1998, the
parties submitted the case to non-binding arbitration in which the arbitrator
recommended that New Yorker pay Universal Folding $30,000. New Yorker disputes
the non-binding arbitrator's recommendation and has filed a request for trial.
Lee's Marketing Services, Inc. v. New Yorker Marketing Corp. On December
16, 1998, Lee's Marketing commenced an action against New Yorker in the Circuit
Court, Jo Daviess County, Illinois, seeking $128,354 arising from coupon
processing services allegedly performed for New Yorker in 1996. New Yorker
intends to deny the allegations in the complaint and to vigorously defend this
action and intends to file an answer in March 1999.
Except as set forth above, New Yorker is not involved in any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant held its Annual Meeting of Stockholders on December 28,
1998.
Three directors were elected at the Annual Meeting. The names of these
directors and votes cast in favor of their election and shares withheld are as
follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- ---------------
<S> <C> <C>
Myron Levy (to serve until the
Annual Meeting of Stockholders in 1999) 2,949,314 18,598
Frederic D. Heller (to serve until the
Annual Meeting of Stockholders in 2000) 2,949,314 18,598
Arthur G. Rosenberg (to serve until the
Annual Meeting of Stockholders in 2001) 2,949,314 18,598
</TABLE>
In addition to the election of directors, the stockholders approved the
following:
(a) a proposal to amend New Yorker's Certificate of Incorporation to change
the name to "New Yorker Marketing Corp." - 2,939,268 shares were voted in favor
of this proposal, 19,804 shares against and 8,840 shares abstained;
(b) a proposal to amend New Yorker's Certificate of Incorporation to
authorize, subject to Board of Director's discretion, a one-for-four reverse
stock split of New Yorker's Common Stock. - 2,890,174 shares were voted in favor
of this proposal, 59,856 shares against and 17,881 shares abstained;
(c) a proposal to amend New Yorker's Certificate of Incorporation to
authorize, subject to Board of Director's discretion, a one-for-five reverse
stock split of New Yorker's Common Stock. - 2,890,174 shares were voted in favor
of this proposal, 59,856 shares against and 17,881 shares abstained.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
New Yorker's common stock has traded on the OTC Bulletin Board under the
symbol "MIKS" since July 31, 1997. The following table sets forth the high and
low closing prices for the common stock for the periods indicated.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1999
First Quarter (through February 26, 1999) 1 1/8 3/8
1998
Fourth Quarter. . . . . . . . . . . . 1 3/8
Third Quarter . . . . . . . . . . . . 1 5/32 5/8
Second Quarter. . . . . . . . . . . . 2 5/8 3/4
First Quarter . . . . . . . . . . . . 4 2 1/4
1997
Fourth Quarter. . . . . . . . . . . . 5 11/16 2 9/16
Third Quarter . . . . . . . . . . . . 12 5 1/8
</TABLE>
As of February 26, 1999, there were approximately 195 holders of record of
the common stock. On February 26, 1999, the closing sales price of New Yorker
common stock was $1.00 per share.
New Yorker has not paid any dividends on its Common Stock and does not
presently intend to do so. Future dividend policy will be determined by its
Board of Directors on the basis of New Yorker's earnings, capital requirements,
financial condition and other factors deemed relevant.
The transfer agent and registrar of New Yorker's Common Stock is American
Stock Transfer and Trust Co., 40 Wall Street, New York, New York 10005.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Years Ended December 31, 1998 and December 31, 1997
New Yorker's sales for the years ended December 31, 1998 and 1997 were
$103,410 and $384,348 respectively, a decrease of 73%. This decrease resulted
from the limited operations of New Yorker and limited capital. In May 1998 New
Yorker introduced Veryfine frozen juice bars and sales did not meet
expectations. The limited available capital created difficulty in getting the
product introduced into the marketplace.
New Yorker experienced a gross loss in the years ended December 31, 1998
and 1997. For the year ended December 31, 1998 the loss increased to $333,047
from the 1997 level of $66,850 primarily due to raw ingredients and excess
packaging that had to be discarded. 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 and the very limited volume.
General and administrative expenses (G&A) for the years ended December 31,
1998 and December 31, 1997 were approximately $760,000 and $2,177,000
respectively. The major components of these expenses for the year ended December
31, 1998 were payroll and related taxes of $139,000, professional fees of
$183,000, director's expense of $144,000 (of which $128,000 was paid in Common
Stock) and legal fees of $84,000. The major components of these expenses for the
year ended December 31, 1997 were payroll and related taxes of $399,000, legal
and accounting fees of $597,000 and consulting fees of $948,000 (of which
$855,000 was paid in Common Stock). The shares issued during the year ended
December 31, 1997, though restricted securities, were valued by New Yorker 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.
Selling and shipping expenses for the years ended December 31, 1998 and
December 31, 1997 were approximately $32,000 and $724,000 and respectively. The
sharp decline for the 1998 period was primarily due to New Yorker's limited
operations and low volume.
Interest expense, net of interest income for the years ended December 31,
1998 and December 31, 1997 were $167,000 and $1,506,000 respectively. The
primary expense in 1998 was associated with the issuance of private placement
notes. The notes were part of a sale of units with each unit consisting of a
$50,000 12% note and 200,000 shares of Common Stock. In the year ended December
31, 1997, $169,000 of the net interest cost 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 New Yorker's Initial Public Offering. The remainder of interest
charges for the years December 31, 1997 resulted from non-cash imputed interest
charges of $1,327,000 primarily in connection with the issuance of Common Stock
to New Yorker'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 New Yorker based upon a 25% discount from the Initial Public Offering
price.
<PAGE>
Net loss for the years December 31, 1998 and 1997 amounted to $1,113,000
and $4,503,000 respectively. The primary reason for the net loss in 1998 was the
low volume created by the limited operations. The primary reason for the net
loss in 1997 was due to the lack of volume from the absence of distributors, the
lack of cash flow through the date of the initial public offering and the high
interest cost associated with the high debt levels prior to the offering.
Seasonality
New Yorker typically experiences more demand for its products during the
summer than during the winter.
The ice cream industry generally experiences its highest volume during the
spring and summer months and the lowest volume in the winter months. In this
regard, according to statistics published by the International Ice Cream
Association, 35.5% of sales of novelty ice cream products and 29.5% of sales of
packaged ice cream products were made during the third quarter (July -
September) of calendar 1996 while only 18.0% of sales of novelty ice cream
products and 22.4% of sales of packaged ice cream were made during the first
quarter (January - March) of calendar 1996.
<PAGE>
Liquidity and Capital Resources
New Yorker's cash requirements have been significantly exceeding its
resources due to the limited operations of New Yorker. At December 31, 1998 New
Yorker had a working capital deficit of $1,974,550. It is anticipated that the
collection of receivables and the net proceeds of $355,000 from New Yorker's
recent private placement should sustain New Yorker until an additional offering
of securities can be accomplished. While New Yorker has filed a registration
statement with the Securities and Exchange Commission covering a secondary
offering of securities, there are no assurances that such additional offering of
securities can be accomplished. If the offering of additional securities is
successful, New Yorker plans to consummate the two acquisitions currently under
contract with New Yorker and may seek additional acquisitions to continue the
shift of New Yorker's business to more of a distributorship rather than a
manufacturer. These acquisitions and additional financing are anticipated to
generate sufficient cash flow to meet New Yorker's needs for the balance of the
year. The failure of New Yorker to complete this secondary offering would
require New Yorker to seek other financing in order to continue as a going
concern and New Yorker has no alternative plans for financing.
Impact of the Year 2000 on Information Systems
The Year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year. Consequently, such software has the potential to
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
New Yorker is not expected to be affected by Year 2000 as it does not rely
on date-sensitive software or affected hardware. New Yorker's current accounting
and other systems were purchased "off-the-shelf". New Yorker intends to timely
update its accounting and other systems which are determined to be affected by
Year 2000 by purchasing Year 2000 compliant software and hardware available from
retail vendors at reasonable cost.
New Yorker has not yet contacted other companies on whose services New
Yorker depends to determine whether such companies' systems are Year 2000
compliant. If the systems of New Yorker or other companies on whose services New
Yorker depends, including New Yorker's customers, are not Year 2000 compliant,
there could be a material adverse effect on New Yorker's financial condition or
results of operations.
Except for historical information contained in this Report, the matters
discussed are forward-looking statements that involve risks and uncertainties.
Among the factors that could cause actual results to differ materially are the
following: the inability of New Yorker to complete its proposed secondary
offering; the effect of business and economic conditions; the impact of
competitive products and pricing; capacity and supply constraints or
difficulties; product development, commercialization or technological
difficulties; and the regulatory and trade environment.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The following selected financial data has been derived from the audited
financial statements of New Yorker and should be read in conjunction with, the
financial statements and related notes appearing elsewhere in this Form 10-KSB.
Statement of Operations Data:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $103,410 $384,348
Net loss (1,113,155) (4,502,645)
Loss per Common Share $(.31) $ (1.69)
Weighted Average Common
Shares Outstanding 3,627,133 2,662,013
Balance Sheet Data:
As of December 31, 1998
-----------------------
Actual
------
Total assets $ 311,893
Current liabilities 2,084,507
Long-term liabilities net of current
portion
Stockholders' equity (deficit) (1,772,614)
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
<PAGE>
PART III
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS, COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT
New Yorker's directors and executive officers as of January 31, 1999 were
as follows:
Name Age Position(s) with New Yorker
---- --- ---------------------------
Arthur G. Rosenberg 61 President and Director
Marc P. Palker 47 Secretary
Frederic D. Heller 60 Director
Myron Levy 56 Director
Arthur G. Rosenberg, Esq. has been a director of New Yorker since September
1995 and President since September 1, 1998. Mr. Rosenberg has been the Vice
President of Acquisitions for The Associated Companies, a real estate developer,
in Bethesda, Maryland since June 1987 and is a principal of Millennium
Development Group, LLC, a real estate developer in Frederick, Maryland. Mr.
Rosenberg is an attorney admitted to practice in the State of New York and has
practiced law for over 30 years. Mr. Rosenberg is a director of Phar-mor Inc.,
which operates a chain of retail drug stores.
Marc P. Palker has been a financial consultant to New Yorker since
December, 1997 and Secretary of New Yorker since September 1, 1998. From
January, 1997 to the present, Mr. Palker has been an independent financial
consultant. From February, 1989 through December, 1996 Mr. Palker was Chief
Financial Officer of Firetector Inc. a publicly owned business involved in the
design, manufacture and service of life safety communications equipment. From
1994 through 1995, Mr. Palker served as National Vice President of the Institute
of Management Accountants. Mr. Palker is a Certified Management Accountant.
Frederic D. Heller was Vice President of Finance and director of New Yorker
from January 1997 until November 14, 1997 when he resigned as an officer of New
Yorker. Since November 1997, Mr. Heller has been Chief Financial Officer of J &
W Management Corp., a commercial real estate management company. Mr. Heller is a
CPA licensed in the State of New York for over the last ten years. Prior to
joining New Yorker, from November 1994 through January 1997, he practiced as an
independent financial consultant including rendering such services to New Yorker
in that capacity from August 1996 to January 1997. From September 1992 through
October 1994, Mr. Heller was Vice President of Finance and director of
Vasomedical, Inc., formerly Future Medical Products, Inc., a publicly owned
business involved in the merchandising of certain medical technology. From
October 1990 through September 1992, Mr. Heller was president and chief
operating officer of FDH Enterprises, Inc., a company rendering financial
consulting services to business clients.
Myron Levy has been a director of New Yorker since July 1997. Since June
1993, Mr. Levy has been President of Herley Industries, Inc., a publicly owned
designer and manufacturer of flight instrumentation products. From May 1991 to
June 1993, Mr. Levy served as Executive Vice President and Treasurer of Herley
Industries, Inc. Mr. Levy also has been a director of Herley since 1992.
<PAGE>
New Yorker's Board of Directors is classified into three classes. The
directors in each class serve for three-year terms. Arthur G. Rosenberg is a
member of Class I which serves until New Yorker's 2001 Annual Meeting of
Stockholders. Myron Levy is a member of Class II which serves until New Yorker's
1999 Annual Meeting of Stockholders. Frederic D. Heller is a member of Class III
which serves until New Yorker'S 2000 Annual Meeting of Stockholders. Directors
who are not employees of New Yorker receive no cash compensation for their
services to New Yorker as directors, but are reimbursed for expenses actually
incurred in connection with attending meetings of the Board of Directors. All
members of the Board of Directors are eligible to participate in New Yorker's
stock option plans. Each director attended or participated in at least 75% of
the meetings of the Board of Directors during his tenure in fiscal 1998.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid or
accrued by New Yorker during the year ended December 31, 1998 and 1997 to New
Yorker's Chief Executive Officer. Michael Rosen ceased to be New Yorker's Chief
Executive Officer effective in May 1998. No other executive officer earned over
$100,000 in any fiscal year.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(2) Options Compensation
- ------------------ ---- ------ ----- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Michael Rosen 1998 $36,458 - - - -
Chairman of the Board, 1997 98,083 - - 50,000(3) -
President, Chief 1996 112,250(1) - - 200,000(3) -
Executive Officer
<FN>
(1) Does not include an aggregate of $89,565 of salary which was accrued
and not paid to Mr. Rosen during the period from inception through
September 30, 1996, to which Mr. Rosen has waived all rights.
(2) The value of all perquisites provided to New Yorker's officers did not
exceed the lesser of $50,000 or 10% of the officer's salary and bonus.
(3) Represents ten-year options granted in May 1996 and September 1996
pursuant to New Yorker's 1995 Long Term Incentive Plan.
</FN>
</TABLE>
<PAGE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth all stock options granted to the executive
officers named in the Executive Compensation table during the fiscal year ended
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------
Number of % of Total
Securities Options/SARS
Underlying Granted to Exercise or
Options/SARS Employees in Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Michael Rosen 50,000 42.9% $1.50 May 1, 2007(1)
- ------
<FN>
(1) Represents ten year options granted in May 1997 pursuant to New Yorker's
1995 Long Term Incentive Plan. Options became fully vested on November 1,
1997.
</FN>
</TABLE>
Consulting Agreements
In October 1998, New Yorker entered into a five-year consulting agreement
with its President, Arthur G. Rosenberg which becomes effective upon the
acquisition of New Yorker Ice Cream and Jerry's Ice Cream, at which time Mr.
Rosenberg will be resigning as President of New Yorker and continuing in his
position as Chief Executive Officer. Mr. Rosenberg is to provide management,
sales and marketing services to New Yorker for a monthly fee of $5,000.
New Yorker has entered into a consulting agreement with Alma Management
Corp. ("Alma"), as of November 1, 1996. Under this agreement, which ended
October 31, 1998, Alma agreed to cause its two principals, to provide sales and
marketing advisory and consulting services to New Yorker. Alma received an
annual consulting fee of $50,000 payable at New Yorker's option in either cash
or common stock. In addition, Alma has received 30,000 shares of common stock
and options to purchase 133,333 shares of common stock at an exercise price of
$1.50 per share.
Proposed Employment Agreements
Ted Ketsoglou has entered into a five year employment agreement, commencing
on the closing of the New Yorker Ice Cream acquisition, wherein he has agreed to
serve as President of New Yorker Ice Cream. The term of the agreement may be
extended for an additional five year period at the sole option of New Yorker. As
compensation for his services, Mr. Ketsoglou is to receive $126,000 annually and
an annual bonus equal to 2% of New Yorker pretax profits. He is also to receive
annual salary increases of 5% during the initial five year term and 10%
thereafter. Upon the effectiveness of the agreement, New Yorker will issue to
Mr. Ketsoglou 200,000 shares of its common stock, of which half shall vest on
January 15, 1999 and half on January 15, 2000. His employment agreement also
provides that New Yorker will grant certain options on closing future
acquisitions and for certain payments following death or disability. During the
term of his employment, New Yorker has also agreed to use reasonable efforts to
cause Mr. Ketsoglou's appointment or election to New Yorker's Board of
Directors. For more than the past five years, Mr. Ketsoglou has been President
of New Yorker Ice Cream.
<PAGE>
Gerald Schneider has entered into a five year employment agreement,
commencing on the closing of the Jerry's Ice Cream acquisition, wherein he has
agreed to serve as Vice President of Sales of New Yorker. The term of the
agreement may be extended for an additional five year period at the sole option
of New Yorker. As compensation for his services, Mr. Schneider is to receive
$115,500 annually and an annual bonus equal to 2% of New Yorker pretax profits.
He is also to receive annual salary increments of 5% during the initial five
year term and 10% thereafter. Upon the effectiveness of the agreement, New
Yorker will issue to Mr. Schneider 200,000 shares of its common stock on which
half shall vest on January 15, 1999 and half on January 15, 2000. His employment
agreement also provides that New Yorker will grant certain options on closing
future acquisitions and for certain payments following death or disability.
During the term of his employment, New Yorker has also agreed to use reasonable
efforts to cause Mr. Schneider's appointment or election to New Yorker's Board
of Directors. For more than the past five years, Mr. Schneider has been
President of Jerry's Ice Cream.
Stock Plans
1995 Long Term Incentive Plan
In August 1995, New Yorker adopted a 1995 Long Term Incentive Plan (the
"1995 Incentive Plan") in order to motivate qualified employees of New Yorker,
to assist New Yorker in attracting employees and to align the interests of such
persons with those of New Yorker stockholders.
The 1995 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of the Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers, key employees, consultants and independent
contractors of New Yorker and its affiliates.
The 1995 Incentive Plan, which is administered by the Board of Directors,
authorizes the issuance of a maximum of 433,333 shares of common stock. If any
award under the 1995 Incentive Plan terminates, expires unexercised, or is
canceled, the common stock that would otherwise have been issuable pursuant
thereto will be available for issuance pursuant to the grant of new awards. To
date, New Yorker has granted an aggregate of 306,667 options to purchase common
stock under the 1995 Incentive Plan, of which 250,000 options have been granted
to Michael Rosen, New Yorker's former Chairman of the Board and Chief Executive
Officer. 33,333 of these options are exercisable for ten years from the date of
grant at a price of $3.00 per share and 216,667 of these options are exercisable
for ten years from the date of grant at a price of $1.50 per share. Another
56,667 options have been granted to Steven A. Cantor. Each of the options
granted to Mr. Cantor are exercisable for a ten year term at a price of $1.50
per share. As of December 31, 1998, none of these options had been exercised.
1996 Non-Qualified Stock Option Plan
In October 1996, New Yorker's Board of Directors approved a 1996
Non-Qualified Stock Option Plan (the "Non-Qualified Plan") which covers 500,000
shares of New Yorker's common stock. The options become exercisable in
installments as determined at the time of grant by the Board of Directors. As of
<PAGE>
the date of this registration statement, New Yorker had granted 478,332 options
to purchase shares of common stock under the Non-Qualified Plan at an exercise
price of $1.50 per share. Arthur G. Rosenberg, Martin Pilossoph and Myron Levy
have been granted options to purchase 23,333 shares of common stock each at the
exercise price of $1.50 per share pursuant to the Non-Qualified Plan. Frederic
D. Heller has been granted options to purchase 58,333 shares of common stock at
the exercise price of $1.50 per share pursuant to the Non-Qualified Plan. Alma
has been granted options to purchase 133,333 shares of common stock at an
exercise price of $1.50 per share pursuant to the Non-Qualified Plan. Steven A.
Cantor has been granted options to purchase 76,667 shares of common stock at an
exercise price of $1.50 per share. As of December 31, 1998, none of these
options had been exercised.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of voting
stock of New Yorker, as of December 31, 1998, of (i) each person known by New
Yorker to beneficially own 5% or more of the shares of outstanding common stock,
based solely on filings with the SEC, (ii) each of New Yorker's executive
officers and directors and (iii) all of New Yorker's executive officers and
directors as a group. Except as otherwise indicated, all shares are beneficially
owned, and investment and voting power is held by, the persons named as owners.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Shares Percentage
Beneficial Owner Beneficially Owned Ownership
- --------------------- ------------------- -----------
<S> <C> <C>
Steven A. Cantor (1) 283,333 (2) 5.4%
Annette Cantor (1) 298,650 5.8%
Arthur G. Rosenberg (1) 33,333 (3) *
Frederic D. Heller (1) 160,000 (4) 3.1%
Myron Levy (1) 125,833 (3) 2.4%
All officers and directors
as a group (3 persons) 319,166 (5) 6.1%
<FN>
* less than one percent (1%) unless otherwise indicated.
(1) The address for each of these persons is 366 N. Broadway, Jericho, NY 11753
(2) Includes options to purchase 56,667 shares of common stock granted
under the 1995 Long-Term Incentive Plan and options to purchase 76,667
shares of common stock granted under the 1996 Non-Qualified Plan.
(3) Includes options to purchase 23,333 shares of common stock granted under
the 1996 Non-Qualified Plan.
(4) Includes options to purchase 58,333 shares of common stock granted under
the 1996 Non-Qualified Plan.
(5) Includes 104,999 shares issuable upon the exercise of options granted
pursuant to New Yorker stock option plans.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1998, New Yorker authorized the issuance of 475,000 shares of
common stock to Arthur G. Rosenberg, which shares are issuable upon the closing
of New Yorker Ice Cream and Jerry's Ice Cream, in consideration for prior
management services, including negotiating the acquisition agreements with New
Yorker Ice Cream and Jerry's Ice Cream, overseeing the operations of New Yorker
and providing financial advice to New Yorker. These services were performed in
1998. 85,000 shares were issued at such time to each of Myron Levy and Frederic
D. Heller as directors' compensation.
<PAGE>
In August 1998, New Yorker issued 97,500 shares of common stock to Marc P.
Palker in consideration for financial consulting services rendered for New
Yorker through July 1998.
In May 1998, New Yorker entered into a settlement and general release with
Michael Rosen, its then Chairman of the Board and President, Rachelle Rosen, its
then Secretary and Treasurer, Martin Pilossoph, the father of Rachelle Rosen and
father-in-law of Michael Rosen and then a director and Elizabeth Pilossoph, the
mother of Rachelle Rosen and mother-in-law of Michael Rosen. Pursuant to the
terms of the Settlement Agreement, (i) Michael Rosen, Rachelle Rosen and Martin
Pilossoph voluntarily resigned as officers and directors of New Yorker, (ii) the
employment agreements of each of Michael Rosen and Rachelle Rosen, providing for
annual compensation of $125,000 and $40,000 respectively through May 31, 2001,
were terminated, (iii) New Yorker agreed to repay certain outstanding
indebtedness aggregating $305,000 to Michael Rosen and Elizabeth Pilossoph and
(iv) each of New Yorker on the one hand, and the Rosens and Pilossophs on the
other hand, gave the other a general release.
In April 1997, New Yorker issued 150,000 shares of common stock to Steven
A. Cantor as consideration for the termination of his three year consulting
agreement providing for payments of $125,000 annually, which would have
commenced on New Yorker initial public offering in July, 1997.
In October 1996, New Yorker issued 16,667 shares of common stock to
Frederic D. Heller, New Yorker former Vice President-Finance, Treasurer and a
director, 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 28, 1996, Michael Rosen was issued a promissory note in the
principal amount of $206,250. The funds that Mr. Rosen loaned New Yorker were
the proceeds of a sale by Mr. Rosen to investors 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 (13) months from the date
of the loan, or (ii) the date New Yorker successfully consummates an initial
public offering of securities of New Yorker, but only to the extent that the
over-allotment option is exercised in such offering and only from the proceeds
received by New Yorker 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 New Yorker successfully consummates an
initial public offering of securities of New Yorker, but only to the extent that
the over-allotment option was exercised in such offering and only from the
proceeds received by New Yorker from the exercise of the over-allotment option.
This loan was part of the May 1998 settlement agreement with Mr. Rosen.
In August, September and October 1996, New Yorker received three loans from
Steven A. Cantor aggregating $253,750. A portion of the funds that this
stockholder loaned New Yorker was a result of the stockholder selling shares of
his common stock to an investor. In August 1996, this stockholder sold 38,889
shares of his common stock at a price of $1.12 per share. In September 1996,
this stockholder sold 23,333 shares of his common stock at a price of $1.50 per
<PAGE>
share. These loans, which were consolidated into one note in September 1997,
bear interest at a rate of 8% and are payable the earlier of (i) June 1, 1997,
or (ii) with respect to $123,750 of the principal amount, the date New Yorker
successfully consummates an initial public offering of securities of New Yorker,
but only to the extent that either the over-allotment option is exercised in
such offering or within ninety (90) days after the underwriter elects not to
exercise the over-allotment option. This loan was repaid in 1997.
As a general rule, all transactions among New Yorker and its officers,
directors or stockholders have been, and in the future will be, made on terms no
less favorable to New Yorker than those available from unaffiliated parties.
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3.1 Restated Certificate of Incorporation of the Registrant (*).
3.2 By-laws of the Registrant (*).
10.1 1995 Long Term Incentive Plan (*).
10.2 1996 Non-Qualified Stock Option Plan (*).
10.3 Employment Agreement dated June 1, 1995 between the Registrant and
Michael Rosen, as amended (*). 10.4 Consulting Agreement dated
November 1, 1996 between the Registrant and Alma Management Corp. (*)
10.5 Form of Second Private Placement Note (*).
10.6 Form of Second Private Placement Unit Subscription Agreement (*).
10.7 Form of Indemnification Agreement between the Registrant and its
officers and directors (*).
10.8 Credit Agreement dated April 10, 1996, as amended, between the
Registrant and The Penn Traffic Company (*).
10.9 Manufacturing, Delivery & Pricing Agreement dated as of September 11,
1996 between the Registrant and Fieldbrook Farms (*).
10.10 Credit Agreement with Fieldbrook Farms dated March 20, 1997 (*).
10.11 Modification Agreement with The Penn Traffic Company dated April 15,
1997 (*).
10.12 Asset Purchase Agreement among New Yorker Ice Cream Corp., Kerry
Group Ltd., Ted Ketsoglou and the Registrant dated as of July 20,
1998.**
10.13 Asset Purchase Agreement between Jerry's Ice Cream, Inc. and the
Registrant dated as of July 20, 1998.**
10.14 Proposed Employment Agreement with Ted Ketsoglou.**
10.15 Proposed Employment Agreement with Gerald Schneider.**
10.16 Test Market License Agreement for Veryfine Frozen Juice Bar
dated April 1, 1998.**
10.17 Consulting Agreement between Registrant and Arthur G. Rosenberg.**
10.18 Form of Promissory Note dated July 20, 1998 between Registrant and
New Yorker Ice Cream Corp.**
10.19 Form of Promissory Note dated July 20, 1998 between Registrant and
Jerry's Ice Cream Co., Inc.**
10.20 Security Agreement dated as of July 20, 1998 between Registrant
and New Yorker Ice Cream Corp.**
10.21 Security Agreement dated as of July 20, 1998 between Registrant
and Jerry's Ice Cream Co., Inc.**
10.22 Settlement and General Release dated May 15, 1988 among Michael Rosen,
Rachelle Rosen, Elizabeth Pilossoph, Martin Pilossoph and Registrant.**
21 Subsidiaries of Registrant
Name State of Incorporation
---- ----------------------
New York Frozen Desserts, Inc. New York
Natco Brands, Inc. New York
27 Financial Data Schedule
(*) Incorporated by reference to registration statement on Form SB-2
(No. 333-21575) filed July 23, 1997.
(**) Incorporated by reference to registration statement on Form SB-2
(No. 333-67227) filed November 13, 1998.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1933, New Yorker Marketing Corp. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 2nd day of
March, 1999.
NEW YORKER MARKETING CORP.
By: /s/ Arthur Rosenberg
____________________________________
Arthur G. Rosenberg
President (Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 2, 1999 by the following persons in the
capacities indicated:
Signature Title
--------- -----
/s/ Arthur G. Rosenberg President, Chief Executive Officer,
Arthur G. Rosenberg Chief Financial Officer, Director
/s/ Frederic D. Heller Director
Frederic D. Heller
/s/ Myron Levy Director
Myron Levy
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
--------
Report of Independent Certified Public Accountants F - 2
Financial Statements:
Balance Sheets F - 3
Statements of Operations F - 4
Statement of Changes in Stockholders' Deficit F - 5
Statements of Cash Flows F - 6
Notes to Financial Statements F - 7
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
New Yorker Marketing Corp.
We have audited the balance sheets of New Yorker Marketing Corp., formerly
Mike's Original, Inc., (a Delaware corporation) as of December 31, 1998 and
1997, and the related statements of operations, changes in stockholders'
deficit, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Yorker Marketing Corp., as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred net losses of $1,113,155 and
$4,502,645 for the years ended December 31, 1998 and 1997, respectively, current
liabilities exceeded current assets by $1,974,550 and $1,062,651, as of December
31, 1998 and 1997, respectively and the stockholders' deficit aggregated
$1,772,614 and $1,051,056, as of December 31, 1998 and 1997, respectively. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans regarding these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
LAZAR LEVINE & FELIX LLP
New York, New York
February 15, 1999
F - 2
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
BALANCE SHEETS
--------------
AS OF DECEMBER 31, 1998 AND 1997
--------------------------------
- ASSETS (Note 8) -
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 19,166 $ 438,277
Accounts receivable, less allowance for doubtful
accounts of $-0- and $15,916 for 1998 and 1997,
respectively 13,372 12,600
Inventories (Notes 3b and 4) 55,371 143,899
Prepaid expenses 22,048 17,303
----------- -----------
TOTAL CURRENT ASSETS 109,957 612,079
----------- -----------
FIXED ASSETS - NET (Notes 3c and 5) 1,210 3,505
----------- -----------
OTHER ASSETS:
Trademarks and organization costs, net of accumulated amortization of
$17,701 and $15,489 for 1998 and 1997, respectively (Note 3d) 1,115 3,022
Security deposits and other assets (Note 13f) 188,154 5,068
Deferred offering costs 11,457 -
----------- -----------
200,726 8,090
----------- -----------
$ 311,893 $ 623,674
=========== ===========
</TABLE>
- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) -
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 670,205 $ 500,453
Accrued payroll and payroll taxes - 20,587
Other accrued liabilities (Note 6) 157,473 137,822
Notes payable - related parties (Note 7) 346,586 486,250
Notes payable - other (Notes 8 and 13d) 910,243 529,618
----------- -----------
TOTAL CURRENT LIABILITIES 2,084,507 1,674,730
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 12, 13 and 14)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 10 and 11):
Preferred stock, $.01 par value; 500,000 shares authorized;
none issued or outstanding - -
Common stock, $.001 par value; 20,000,000 shares authorized;
5,152,908 and 3,265,429 shares issued and outstanding for
1998 and 1997, respectively 5,153 3,265
Additional paid-in capital 11,506,636 10,087,327
Deferred financing costs (1,029,600) -
Accumulated deficit (12,254,803)(11,141,648)
----------- -----------
(1,772,614) (1,051,056)
----------- -----------
$ 311,893 $ 623,674
=========== ===========
</TABLE>
See accompanying notes
F - 3
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
SALES - NET (Notes 3e) $ 103,410 $ 384,348
COST OF SALES 436,457 451,198
----------- -----------
GROSS PROFIT (LOSS) (333,047) (66,850)
----------- -----------
OPERATING EXPENSES:
Selling, marketing and shipping (Note 3f) 31,878 723,861
General and administrative 759,928 2,177,698
Research and development (Note 3h) 7,754 28,594
----------- -----------
799,560 2,930,153
----------- -----------
LOSS FROM OPERATIONS (1,132,607) (2,997,003)
----------- -----------
OTHER INCOME (EXPENSE):
Forgiveness of debt (Note 7) 186,221 -
Interest expense - net of interest income of $3,698
and $30,744 for 1998 and 1997, respectively (166,769) (1,505,642)
----------- -----------
19,452 (1,505,642)
----------- -----------
LOSS BEFORE INCOME TAXES (1,113,155) (4,502,645)
Provision for income taxes (Notes 3i and 9) - -
----------- -----------
NET LOSS $(1,113,155) $(4,502,645)
=========== ===========
BASIC LOSS PER SHARE (Note 3j) $(0.31) $(1.69)
====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 3j) 3,627,133 2,662,013
=========== ===========
</TABLE>
See accompanying notes
F - 4
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
---------------------------------------------
<TABLE>
<CAPTION>
Additional Deferred Total
Common Common Paid-in Financing Accumulated Stockholders'
Shares Amount Capital Costs Deficit Deficit
--------- ------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 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 320,288 320 455,938 - - 456,258
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 and loans - - 202,500 - - 202,500
Proceeds from Company's initial
public offering 700,000 700 3,341,744 - - 3,342,444
Net loss - - - - (4,502,645) (4,502,645)
--------- ------ ----------- ----------- ------------ ------------
Balance at December 31, 1997 3,265,429 3,265 10,087,327 - (11,141,648) (1,051,056)
Issuance of common stock for
services rendered 327,479 328 285,869 - - 286,197
Shares issued in private offering
of securities 1,560,000 1,560 1,168,440 (1,170,000) - -
Costs associated with offering
of securities - - (35,000) - - (35,000)
Amortization of interest - private
offering - - - 140,400 - 140,400
Net loss - - - - (1,113,155) (1,113,155)
---------- ------ ----------- ----------- ------------ -----------
BALANCE AT DECEMBER 31,
1998 5,152,908 $5,153 $11,506,636 $(1,029,600) $(12,254,803) $(1,772,614)
========= ====== =========== =========== ============ ===========
</TABLE>
See accompanying notes
F - 5
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,113,155) $(4,502,645)
Adjustments to reconcile net
loss to net cash used in operating activities:
Depreciation and amortization 6,020 14,675
Allowance for doubtful accounts (15,916) (4,835)
Imputed interest 140,400 1,327,051
Compensation expense attributable to issuance of common
stock for services rendered 286,197 1,325,250
Compensation expense attributable to issuance of common
stock and stock options - 6,000
Forgiveness of debt (186,221) -
Changes in operating assets and liabilities:
Decrease in accounts receivable 15,144 53,454
Decrease in inventories 88,528 103,709
(Increase) in prepaid expenses and other current assets (4,745) (714)
Increase (decrease) in accounts payable 175,501 (130,986)
Increase (decrease) in accrued expenses and other liabilities 84,871 (12,920)
---------- -----------
Net cash used in operating activities (523,376) (1,821,961)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Refund of security deposits 3,788 14,023
Purchases of fixed assets (1,513) -
Deposits and costs relating to potential acquisition (187,179) -
---------- -----------
Net cash (used in) provided by investing activities (184,904) 14,023
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of stockholders notes - (123,750)
Net proceeds from issuance of common stock - 3,387,444
Costs associated with offering of securities (46,457) -
Payment of notes payable to related parties (45,000) (253,750)
Payment of capital lease obligations - (13,568)
Payment of line of credit (9,374) (14,130)
Proceeds from short-term loans 390,000 440,000
Repayment of short-term loans - (315,000)
Repayment of notes payable - trade creditors - (893,554)
---------- -----------
Net cash provided by financing activities 289,169 2,213,692
---------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (419,111) 405,754
Cash and cash equivalents, at beginning of year 438,277 32,523
---------- -----------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 19,166 $ 438,277
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
(a) Interest paid $ - $267,369
Taxes paid - -
(b) During 1997, the Company converted $432,077 of trade
accounts payable to notes payable, respectively.
During 1997, the Company also converted $39,920
of accounts payable and $380,000 of notes payable
into common stock.
</TABLE>
See accompanying notes
F - 6
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 1 - ORGANIZATION:
New Yorker Marketing Corp., formerly Mike's Original, Inc., (the "Company")
was incorporated in Delaware in May 1994 as successor to Melanie Lane
Farms, Inc. ("Melanie Farms"), a New York corporation formed in 1993. In
June 1994, Melanie Farms was merged into the Company. As both entities were
under common control, the merger was accounted for in a manner similar to a
pooling of interests. On December 18, 1997, a new entity, New Yorker Frozen
Desserts, Inc., was incorporated in New York, as a wholly-owned subsidiary
of the Company, for the purpose of making acquisitions. On March 4, 1998,
the Company formed NATCO Brands Inc. for the purpose of operating licensing
agreements for the manufacture and distribution of branded desserts. Both
of these subsidiaries are currently inactive. In February 1999, subsequent
to the year end, the Company changed its name to New Yorker Marketing
Corp., approved by a shareholder vote in December 1998.
Effective December 31, 1995, the Company changed its fiscal year-end from
March 31 to December 31.
Since April 1, 1993, the Company has been engaged in the marketing and
distribution of super- premium ice cream products and licensed frozen
desserts. The Company initially marketed, sold and distributed Mike's
Original Cheesecake Ice Cream, a blend of ice cream and cheesecake
ingredients. This product line was offered in a variety of flavors mainly
to supermarkets and grocery stores and also, to a lesser extent, to
convenience stores, food service outlets and warehouse clubs. Since March
1998, sales of Mike's ice cream have been nominal. In June 1998, sales of
Mike's ice cream were reduced and the Company began distributing Veryfine
Frozen Juice Bars under an agreement between Veryfine and the Company's
subsidiary - New Yorker Frozen Desserts, Inc. See also Note 13f.
NOTE 2 - BASIS OF PRESENTATION:
The Company has incurred losses from operations since its inception in 1993
and, at December 31, 1998, has a stockholders' deficit and a working
capital deficit of $1,772,614 and $1,974,550, respectively. At December 31,
1997, the Company had a stockholders' deficit and a working capital deficit
of $1,051,056 and $1,062,651 respectively. Further, the Company is
continuing to incur operating losses from its limited operations
The circumstances described above raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in
regard to this matter are to change the emphasis of the Company's
operations from marketing and distributing super-premium ice cream products
to marketing and distributing frozen desserts that will include a line or
lines of super- premium ice cream products. Management hopes to accomplish
this plan through the strategic acquisition of distribution companies,
concentrated in large metropolitan areas, which will provide new brands and
customers, distribution expertise and an operations center that can absorb
future acquisitions. On December 18, 1997, and amended through July 20,
1998, the Company entered into agreements to acquire two such distributors.
The Company is engaged in discussions with nationally known companies to
obtain licenses to market and distribute product bearing the name of the
licensor. See Note 13f.
F - 7
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 2 - BASIS OF PRESENTATION (Continued):
These acquisitions and distribution licenses would be financed from an
additional offering of securities filed with the Securities and Exchange
Commission on November 13, 1998 and amended on January 22, 1999 (see Note
14). It is anticipated that the offering will close in the first quarter of
1999. If an offering cannot be consummated or other financing obtained, the
Company would not be able to continue operations. The Company does not have
sufficient cash on hand to meet its current obligations. The financial
statements do not include any adjustments that might result from this
uncertainty.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Use of Estimates in Financial Statement Presentation:
The preparation of these financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the amounts reported in these financial
statements and related notes. Actual results could differ from these
estimates.
(b) Inventories:
Inventories are stated at the lower of cost or market value, with cost
determined on a first-in, first out basis.
(c) Fixed Assets:
Fixed assets are stated at cost less accumulated depreciation. Depreciation
of fixed assets is recorded on a straight-line basis over their estimated
useful lives ranging from three to five years. Certain leased computer
equipment with rental payments for periods through 1998 have been
capitalized. These amounts are included in fixed assets within the
accompanying balance sheets and are being depreciated over the estimated
useful life of the equipment or term of the lease, whichever is shorter.
(d) Other Assets:
Costs related to trademark and organizational expenditures have been
deferred and are being amortized on a straight-line basis over five years.
(e) Revenue Recognition:
Revenue from the sale of products is recognized upon shipment. Sales are
presented net of distribution fees of $95,679 for the year ended December
31, 1997. In the year ended December 31, 1997 a significant portion of the
Company's sales was made to one distributor pursuant to a distribution
agreement which provides for the payment of distribution fees based upon a
percentage of sales, price protection and certain rights of return on
product unused by third parties. A provision for such costs is made as
revenue is recognized; however, costs relating to price protection have not
been material to date. This distribution agreement was terminated by the
distributor in September 1997.
F - 8
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) Advertising:
Advertising costs are charged to operations when incurred. Advertising
costs charged to operations were $2,000 and $93,000 for the years ended
December 31, 1998 and 1997, respectively.
(g) Introductory Programs:
Payments for introductory programs are made to certain customers
(supermarkets and other food chain retailers) in exchange for the Company
obtaining retail shelf space and are charged to operations when the Company
initially ships products to customers under such agreement. No costs of
introductory programs are deferred as of December 31, 1998 and 1997.
(h) Research & Development:
Research & development expenditures, primarily for product development, are
expensed as incurred.
(i) Income Taxes:
Deferred income taxes are recognized for temporary differences between the
financial statement and income tax bases of assets and liabilities and loss
carryforwards for which income tax benefits are expected to be realized in
future years. A valuation allowance has been established to offset the
deferred tax assets since it is not "more likely than not" that such
deferred tax assets will be realized. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(j) Income Per Common Share:
The Company has adopted SFAS 128 "Earnings Per Share" ("SFAS 128"), which
has changed the method of calculating earnings per share. SFAS 128 requires
the presentation of "basic" and "diluted" earnings per share on the face of
the income statement. Loss per common share is computed by dividing the net
loss by the weighted average number of common shares and common equivalent
shares outstanding during each period.
(k) Statements of Cash Flows:
For the purpose of the statements of cash flows, the Company considers all
highly liquid investments purchased with a remaining maturity of three
months or less to be cash equivalents.
F - 9
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(l) New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" is effective for years beginning
after December 15, 1997. This statement prescribes standards for reporting
comprehensive income and its components. Since the Company currently does
not have any items of other comprehensive income, a statement of
comprehensive income is not yet required.
SFAS 131 "Disclosures About Segments of an Enterprise and Related
Information", is effective for years beginning after December 15, 1997. The
Company does not presently believe that it operates in more than one
identifiable segment.
(m) Impact of the Year 2000 Issue:
The year 2000 issue ("Y2K") is the result of computer programs being
written using two digits rather than four to define the applicable year.
Any of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could potentially result in a system failure or miscalculations
causing disruption of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage in
other similar normal business activities. The Company's current accounting
system was purchased "off-the-shelf,""and this will be replaced, if
necessary, by Y2K compliant software and hardware available from retail
vendors at reasonable cost. The Company has not yet contacted other
companies on whose services it depends to determine whether such companies'
systems are Y2K compliant.
NOTE 4 - INVENTORIES:
Inventories consist of the following as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Finished goods $37,255 $143,899
Raw materials 18,116 -
------- --------
$55,371 $143,899
======= ========
</TABLE>
F - 10
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 5 - FIXED ASSETS:
Fixed assets consist of the following as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Computer equipment $29,447 $29,447
Office equipment 7,513 6,000
36,960 35,447
Less: accumulated depreciation 35,750 31,942
------- -------
$ 1,210 $ 3,505
======= =======
</TABLE>
NOTE 6 - OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following as of December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Accrued distribution fee $ - 1,499
Accrued interest payable
(Notes 7 and 8) 143,998 124,288
Other accrued expenses 13,475 12,035
-------- --------
$157,473 $137,822
======== ========
</TABLE>
NOTE 7 - NOTES PAYABLE TO RELATED PARTIES:
During the fiscal year ended March 31, 1994, the Company borrowed $100,000
from a shareholder of the Company. This loan, which was originally due on
demand, was formalized in the form of a promissory note during September
1995. In April 1996, the maturity date of the $100,000 obligation was
revised to occur subsequent to the repayment of the promissory note issued
in April 1996 as further described in Note 8. The loan was non-interest
bearing through April 1994. From May 1994 through maturity, interest
accrues at an annual rate of 6% and is payable upon maturity. In September
1996, the maturity date of this promissory note was revised to occur the
earlier of: (i) February 1, 1998 or (ii) upon the occurrence of events
defined by the note as a "Change in Control." The Company has not repaid
this note and is currently negotiating to satisfy this liability with a
payment of $25,000. Accrued interest payable related to this note amounted
to $33,491 at December 31, 1998.
F - 11
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 7 - NOTES PAYABLE TO RELATED PARTIES (Continued):
During the fiscal year ended March 31, 1995, the Company issued two
promissory notes of $25,000 each to an investor, who is related to the
founder of the Company, which were originally due in November and December
1998, respectively. The Company repaid $25,000 of these notes in April
1995. In September 1995, the maturity date of the outstanding promissory
note was revised to occur the earlier of the Company receiving proceeds
from a securities offering or June 1, 1996. In April 1996, the maturity
date of the outstanding promissory note was revised to occur subsequent to
the repayment of the promissory note issued in April 1996 as further
described in Note 8. In September 1996, the maturity date of this
promissory note was revised to occur the earlier of: (i) February 1, 1998
or (ii) upon the occurrence of events defined by the note as a "Change in
Control." Interest accrues at an annual rate of 6% and is payable at the
maturity date of the note. On May 1, 1998, these notes along with accrued
interest were reduced to $11,250 and fixed at that amount with $6,250 to be
paid at the closing of the offering of securities contemplated in 1999. The
other $5,000 is to be paid from the proceeds of additional offerings of
securities closed prior to April 30, 2001. This forgiveness of debt is part
of a settlement reached with the founder.
On May 30, 1996, the Company received loans aggregating $100,000 from two
stockholders. The loans were originally due on demand bearing interest at a
rate of 10%. In September 1996, the maturity date of these promissory notes
was revised to occur the earlier of: (i) twenty-four months from the date
of the loans, 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. These notes are still outstanding at December 31,
1998. Accrued interest payable related to these notes amounts to $25,833
and $15,833 at December 31, 1998 and 1997, respectively.
During the fiscal year ended March 31, 1994, the Company obtained loans
from the founder of the Company, and issued promissory notes of $40,000 and
$15,000 which were payable in May and June 1998, respectively. Interest
accrued at an annual rate of 8% and was payable at the maturity date of the
notes. On August 28, 1996, the founder of the Company was issued an
additional promissory note of $206,250. The funds that the founder lent the
Company were a result of the founder selling 183,333 shares of his stock to
an investor at a price of $1.12 per share. This loan bears interest at an
annual rate of 8% and was originally payable the earlier of: (i) thirteen
months from the date of the loan, or (ii) the successful consummation of 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 occur twenty-four months from September 30,
1996. In addition, the revised promissory note provides that one-half of
the note will be paid with accrued interest 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. On May 1, 1998, these two notes
along with accrued interest were reduced to $180,386 and fixed at that
F - 12
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 7 - NOTES PAYABLE TO RELATED PARTIES (Continued):
amount with $70,336 to be paid at the closing of the offering of securities
contemplated in 1999 and 12 monthly payments of $5,000 effective May 1998.
The other $50,000 is to be paid from the proceeds of additional offerings
of securities closed prior to April 30, 2001. This forgiveness of debt is
part of a settlement agreement reached with the founder. The Company is
current in its monthly payments of $5,000, and at December 31, 1998, the
outstanding balance was $135,336.
In August and September 1996, the Company received three loans from a
stockholder aggregating $253,750. A portion of the funds that this
shareholder lent the Company was a result of the shareholder selling shares
of his stock to investors. In August 1996, this shareholder sold 38,889
shares of his stock at a price of $1.12 per share. In September 1996, the
shareholder sold 23,333 shares of his stock at a price of $1.50 per share.
During 1997 the Company repaid the entire balance of $253,750 plus interest
accrued (at an annual rate of 8%), to the date of repayment of $18,162.
As of December 31, 1998 and 1997, loans payable to related parties
aggregated $346,586 and $486,250, respectively. Interest accrued and unpaid
at December 31, 1998 and 1997 aggregated $59,324 and $90,455, respectively.
NOTE 8 - NOTES PAYABLE - OTHER:
In April 1996, the Company issued a promissory note in the amount of
$830,275 in exchange for certain trade accounts payable. The Company was
required to make payments in monthly installments beginning May 1996
consisting of: (i) accrued interest, and (ii) principal in the amount of
$12,000. In addition to these monthly installments, the Company was
required to pay additional amounts upon the occurrence of certain events.
In the event the Company did not complete an initial public offering, the
note was due in full on December 31, 1996. Interest on the promissory note
accrues at the prime rate plus 1% per annum. This note is collateralized by
substantially all of the assets of the Company. The balance of this note
was $710,275 at December 31, 1996. Accrued interest payable related to this
note amounted to $2,738 at December 31, 1996. In April 1997, the terms of
the note were amended to provide for payments to the lender, from the
proceeds of the Company's initial public offering, in the amount of
$575,000 with the balance of $135,275 payable on December 31, 1997. In the
event that the initial public offering was not completed by June 1, 1997,
all amounts outstanding will then become immediately due and payable in
full. Further, in April 1997, the Company issued a $221,550 convertible
note due December 31, 1998 in exchange for a like amount of trade payables.
The convertible note bears interest at 10% per annum, payable at maturity,
and is convertible by the holder into the Company's common stock at a
conversion rate of $3.00 principal amount for each share of common stock at
the option of the holder at any time prior to maturity. In June 1997, the
Company renegotiated the terms of this agreement. The renegotiated terms
provide that if the Company's initial public offering is not completed by
July 15, 1997, all amounts will then become immediately due and payable in
full. In addition, the balance due to the lender from the proceeds of the
Company's initial public offering was increased from $575,000 to $595,000
and the principal balance of the convertible note due December 31, 1998 was
reduced to $201,000. On August 8, 1997, at the closing of the initial
F - 13
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 8 - NOTES PAYABLE - OTHER (Continued):
public offering, the principal amount plus all accrued interest was paid.
At December 31, 1998, $115,275 plus accrued interest of $15,280 of the
convertible note remain unpaid. During 1997, the Company issued an
additional 10% promissory note to this vendor in the amount of $193,033 in
exchange for a like amount of trade payables, which amount is still
outstanding at December 31, 1998, plus accrued interest of $28,955. The
creditor has agreed to accept payment of $190,000, to satisfy these notes
plus accrued interest, if such payment is made by April 10, 1999. The
Company plans to make that payment from the proceeds of the proposed
offering (see Note 14).
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 bears interest at a rate of 10% per annum and was payable on or
before November 15, 1996. The balance of this note was $210,283 at December
31, 1996. On December 31, 1996, the Company was not in compliance with the
terms of the note, however, the vendor amended the agreement to permit the
Company to be in compliance with such terms at December 31, 1996. In
February 1997, the Company issued a second promissory note in the amount of
$20,000 in exchange for a like amount of trade payables. In April 1997, the
lender agreed to extend the due date of such notes to the earlier of June
1, 1997 or the closing of the Company's initial public offering. In the
event the Company completed its initial public offering by June 1, 1997,
the lender agreed to extend the due date of the then outstanding $96,000 of
principal to December 31, 1998. If such amount is extended, the lender has
the right to convert such amount into 32,000 shares of the Company's common
stock at any time prior to maturity. At December 31, 1998, $96,000 of the
convertible note plus accrued interest of $11,394 remain unpaid.
In December 1996, the Company issued a $225,000 promissory note to an
investor bearing interest at the rate of 8% per annum. This note was
payable in full the earlier of: (i) December 31, 1997 or (ii) five days
after the closing date of an initial public offering. In lieu of receiving
payment, the investor had the right to convert this promissory note within
five days of the closing of such initial public offering into 200,000
shares of common stock of the Company, par value $.001 per share. Imputed
interest resulting from the difference between the estimated fair value of
the Company's common stock and the conversion price has been provided for
and was charged to operations over the period this note first became
convertible. Interest expense of $360,000 was recognized by the Company
during the three months ended March 31, 1997, which represented the
amortization of the imputed interest associated with this transaction. In
April 1997, the investor elected to convert this note.
In January 1997, the Company issued a convertible promissory note to an
investor bearing interest at the rate of 8% per annum, in the principal
amount of $100,000. This convertible note is to be paid in full the earlier
of five days after the closing of an initial public offering or January 31,
1998. In April 1997, the investor converted the note into 78,431 shares of
the Company's common stock. Interest expense of $252,940 representing the
difference between the estimated fair value of the Company's common stock
and the conversion price was recognized during the three months ended March
31, 1997.
F - 14
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 8 - NOTES PAYABLE (Continued):
In March 1997, the Company issued a $50,000 promissory note to an investor
bearing interest at the rate of 10% per annum. This note is payable on
demand on or after May 12, 1997. As additional consideration for this loan,
the Company issued the lender 2,000 shares of its common stock. These
shares were valued at $4.50 per share, the estimated fair market value of
the stock at the date of issuance. On April 3, 1997, the lender converted
$25,000 of the outstanding note balance into 12,500 shares of the Company's
common stock. An interest charge of $31,000 representing the difference
between the estimated fair value of the Company's common stock and the
value the Company ascribed to these shares on the date of issuance was
recognized by the Company upon conversion. In June 1997, the lender agreed
to extend the maturity date of the outstanding note balance to the earlier
of July 31, 1997 or the completion of the Company's initial public
offering. This note was fully repaid in August 1997, together with interest
accrued to the date of payment.
In May 1997, the Company negotiated with a creditor in connection with
trade accounts payable balances owed to this creditor aggregating $60,000.
The creditor agreed that the Company would repay $30,000 of this balance
upon completion of an initial public offering. The Company issued a
convertible promissory note for the remaining outstanding balance of
$30,000 bearing interest at the rate of 10% per annum. The note was payable
in full on December 31, 1998. As of December 31, 1998, $30,000 plus accrued
interest of $5,000 remained unpaid. In lieu of receiving payment, the
creditor has the right to convert this promissory note, at any time prior
to the maturity date, into 10,000 shares of common stock of the Company.
In May and June 1997, the Company issued three promissory notes to
investors bearing interest at the rate of 12% per annum in the aggregate
principal amount of $150,000. These notes are payable in full the earlier
of: (i) July 31, 1997 or (ii) on the date of an initial public offering. In
connection with these transactions, the Company issued an aggregate of
75,000 warrants, expiring July 31, 2000, to these investors to purchase
75,000 shares of the Company's common stock at a price of $3.00 per share.
These notes were paid in full in August 1997, together with interest
accrued to the date of payment.
From July through November 1998, the Company issued an aggregate of 7.8
private placement units, each unit consisting of $50,000 principal amount
of private placement notes and 200,000 shares of the Company's common
stock. The notes, aggregating $390,000, bear interest at the rate of 12%
per annum and are payable on the earlier of December 1, 1999 or the closing
of the proposed offering. Accrued interest at December 31, 1998 amounted to
$12,444 (see also Note 10).
F - 15
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 9 - INCOME TAXES:
A reconciliation between the actual income tax (benefit) and
the amount computed by applying the statutory Federal income tax rate
to the loss before taxes is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ------------
<S> <C> <C>
Tax expense (benefit) at statutory Federal
income tax $(378,000) $(1,532,000)
Nondeductible compensation 98,000 450,000
Net operating loss not currently utilizable 280,000 1,082,000
--------- -----------
$ - $ -
========= ===========
The tax effects of temporary differences and loss carryforwards giving
rise to deferred tax assets and liabilities are as follows:
1998 1997
---------- ------------
Net operating loss and other carryforwards $3,268,000 $ 2,890,000
Bad debts - 5,000
Depreciation/amortization - 1,000
Deferred compensation 350,000 276,000
----------- -----------
3,618,000 3,172,000
Valuation allowance (3,618,000) (3,172,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The Company anticipates that for the foreseeable future it will continue to
be required to provide a 100% valuation allowance for the tax benefit of
its net operating loss carryforward and temporary differences as the
Company cannot presently predict when it will generate sufficient taxable
income to utilize such deferred tax assets.
At December 31, 1998 and 1997, Company had net operating losses available
to carry forward of approximately $9,300,000 and $8,500,000 respectively,
for tax purposes. Such net operating loss carryforwards expire through the
year ending 2014. No benefit has been recorded for such loss carryforwards
since realization cannot be assured. The Company's use of its net operating
loss carryforwards is limited as the Company is deemed to have undergone an
ownership change as defined in Internal Revenue Code Section 382.
NOTE 10 - STOCKHOLDERS' EQUITY:
On May 30, 1996, the Board of Directors authorized a reverse stock split in
the ratio of one common share for every six and one-half common shares
outstanding as of that date. In addition, on such date, the Board of
Directors approved an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of the Company's
common stock from 3,076,923 to 20,000,000 shares. On February 6, 1997, the
Board of Directors authorized a reverse stock split in the ratio of two
common shares for every three common shares outstanding as of February 7,
1997. The reverse splits and changes in authorized capital have been
retroactively reflected for all periods presented.
F - 16
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 10 - STOCKHOLDERS' EQUITY (Continued):
During June 1996 through September 1996, the Company completed a Private
Placement Offering pursuant to Rule 506 of the Securities Act of 1933
consisting of the sale of 61.5 units (the "Second Private Placement"). Each
unit consisted of a $2,500, 12% subordinated promissory note and 7,500
shares of common stock at an offering price of $25,000 per unit. The note
balance at December 31, 1996 which resulted from this Second Private
Placement was $153,750. These notes mature on the earlier of: (i) July 31,
1997, or (ii) the closing date of the initial public offering. Accrued
interest payable related to these notes amounted to $7,688 at December 31,
1996. In April 1997, $30,000 of such notes, as well as $2,100 of accrued
interest, were converted to 16,050 shares of the Company's common stock.
The balance was repaid upon the successful completion of the Company's IPO
in July 1997.
In March 1997, the Company in connection with entering into a two-year
exclusive East coast manufacturing agreement, issued 35,000 shares of its
common stock. These shares were valued at $4.50 per share, the estimated
fair market value of the stock at the date of issuance. Pursuant to the
agreement, the manufacturer agreed to provide $250,000 of 21-day credit
terms. Further, the Company was obligated to pay the manufacturer $150,000
against existing amounts owed by April 30, 1997. In the event such amount
was not paid, the Company was obligated to issue an additional 30,000
shares of its common stock to the manufacturer. These additional shares
were issued to the manufacturer in May 1997.
In May 1997, the Company issued 100,000 shares of its common stock to its
legal counsel for services rendered during March and April of 1997. These
shares were valued at $4.50 per share, the estimated fair value of the
stock at the date of issuance and, accordingly, $450,000 was charged to
operations during the year ended December 31, 1997.
In June 1997, the Company issued 13,307 shares of its common stock to
certain individuals in settlement of amounts owed to these individuals
aggregating $39,921. An interest charge of $19,961 representing the
difference between the estimated fair value of the Company's common stock
and the value the Company ascribed to these shares on the date of issuance
was recognized by the Company in the year ended December 31, 1997.
On July 31, 1997, the Company completed its Initial Public Offering ("IPO")
of 700,000 units 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 Company realized net proceeds of
$3,342,444.
In August 1997, the Company issued 35,500 shares of common stock as
compensation for professional fees rendered aggregating $206,250.
F - 17
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 10 - STOCKHOLDERS' EQUITY (Continued):
In February 1998, the Company issued 30,000 shares of non-restricted common
stock as compensation for consulting services to be rendered in 1998. The
Company charged $88,800 to operations based upon the market value of the
stock at the time of issuance. The Company also issued 29,979 shares of
common stock to this consultant in lieu of monthly payments aggregating
$33,333, due under an agreement. In August 1998, the Company issued 97,500
shares of restricted common stock as compensation for professional services
rendered. These shares were valued at 50% of the market price at the time
of issuance and, accordingly, $36,564 was charged to operations.
In October 1998, the Company issued 170,000 shares of common stock (valued
at 75% of the proposed public offering price - see Note 14), to two
directors as compensation for prior services rendered. The Company charged
$127,500 to operations.
In November 1998, the Company issued 1,560,000 shares of common stock,
valued at $0.75 per share, as additional interest in connection with the
private placement notes (see Note 8). The aggregate value of $1,170,000,
was deemed a financing charge, and is being amortized over the term of the
notes, one year. Amortization expense for the year ended December 31, 1998,
aggregated $140,400.
NOTE 11 - STOCK OPTION PLANS:
At December 31, 1997, the Company has two stock-based compensation plans,
which are described below. The Company utilizes APB Opinion 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting
for stock options issued to employees. The Company applies Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation," in accounting for stock options issued to
non-employees. No options were granted under these plans during 1998 or
1997.
Had compensation cost for employees been determined based on the fair value
at the grant dates consistent with the methodology of SFAS No. 123
(Black-Scholes option valuation model), the Company's net loss and net loss
per share would have been increased to the pro forma amounts indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Net loss:
As reported $(1,113,155) $(4,502,645)
Pro forma (1,146,550) (4,732,943)
Net loss per share:
As reported $(.31) $(1.69)
Pro forma (.32) (1.78)
</TABLE>
F - 18
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 11 - STOCK OPTION PLANS (Continued):
In August 1995, the Company formally adopted a Long-Term Incentive Plan
(the "1995 Plan"), which provides that the Company may grant certain key
employees or consultants either stock options, stock appreciation rights,
restricted stock, performance grants or other Company securities (the
"Awards"). The 1995 Plan, as amended, authorizes the issuance of a maximum
of 433,333 shares of common stock. As of December 31, 1998, the Company has
granted an aggregate of 306,667 options to purchase common stock with
exercise prices ranging from $1.50 to $3.00 under this Plan. At December
31, 1998 and 1997, options exercisable under this plan were 306,667. None
of these options have been exercised to date. Options granted under this
plan are exercisable six months from date of grant and expire 10 years from
date of grant.
On October 15, 1996, the Company's Board of Directors approved a 1996
Non-qualified Stock Option Plan ("Non-qualified Plan") for officers,
directors, employees and consultants of the Company. The Plan, as amended,
authorizes the issuance of up to 500,000 shares of common stock. As of
December 31, 1998, the Company has granted 478,332 options to purchase
shares of common stock under the Non-qualified Plan at an exercise price of
$1.50. None of the stock options granted have been exercised to date.
Options granted under this plan are exercisable six months from date of
grant and expire 10 years from date of grant.
A summary of stock option activity related to the Company's Plans is as
follows:
<TABLE>
<CAPTION>
Weighted
Average 1996
1995 Plan Exercise Non-qualified Plan
Shares Price Range Price Shares Price Range
------ ----------- -------- ------ -----------
<S> <C> <C> <C> <C> <C>
Outstanding at January 1, 1996 - -
Granted during 1996 256,667 $1.50 - $3.00 $1.69 396,666 $1.50
------- -------
Outstanding at December 31, 1996 256,667 $1.50 - $3.00 $1.69 396,666 $1.50
Granted during 1997 50,000 $1.50 $1.50 81,666 $1.50
------ ------
Outstanding at December 31, 1997
and 1998 306,667 $1.66 478,332 $1.50
======= =======
Exercisable at December 31, 1997
and 1998 306,667 $1.50 - $3.00 $1.69 478,332 $1.50
======= =======
</TABLE>
F - 19
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK:
The carrying amounts of cash, accounts receivable, accounts payable and
other accrued liabilities are estimated to approximate their fair value.
The Company believes that it is not practicable to estimate the value of
its debt obligations due to its current financial condition.
Concentration of credit risk with respect to trade accounts receivable
exists as the Company sells products primarily to one distributor. The
Company performs periodic credit evaluations of its customers' financial
condition and does not require collateral or other security. The
distributor referred to in Note 3e accounted for approximately 91% of the
Company's sales for the year ended December 31, 1997. As of December 31,
1997, the Company no longer sells to this distributor and there are no
amounts uncollected.
The Company's products have historically been manufactured by independent
facilities. These facilities have ceased manufacturing on behalf of the
Company due to the fact that these facilities are owed substantial sums of
money by the Company.
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
(a) Lease Commitments:
The Company is currently renting office space on a month to month basis.
The monthly rent expense is $650. Rent expense for the years ended December
31, 1998 and 1997 aggregated $27,049 and $32,160, respectively.
(b) Employment Contracts:
The Company had employment agreements with the founder and another employee
which provided for annual base salaries of $125,000 and $40,000,
respectively, and expire, as amended, in June 2001 and June 1998,
respectively. During the year ended December 31, 1996, these individuals
voluntarily waived all rights to receive the accrued salaries payable to
them aggregating $110,565 and, accordingly, such amount was recorded as a
contribution to the Company's additional paid-in capital. Further, in April
1997, the founder agreed to waive an additional $27,333 of accrued salary
through February 28, 1997. In December 1997 the employee whose contract
expired in June 1998, agreed to modify the agreement and be compensated on
an hourly basis which is anticipated to produce substantially lower
compensation. The agreements with the founder and another employee have
been terminated as part of a settlement agreement which includes the
repayment of debt by the Company (See Note 7). Under the terms of the
settlement dated May 1, 1998, the Company agreed to repay debt as
previously discussed, along with an auto lease and health insurance.
F - 20
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):
(b) Employment Contracts (continued):
In March 1997, the Company entered into a two-year employment agreement
with its Vice- President - Finance which provided for an annual base salary
of $95,000 for the first year and $105,000 for the second year. In November
1997, this employee resigned, however remained as a member of the Board of
Directors.
On July 16, 1997, the Company entered into an employment agreement with its
Vice-President Marketing. The agreement provided for an annual base salary
of $115,000, plus an incentive bonus. This agreement was for an initial
term of one year from the effective date of the initial public offering of
the Company's securities. Options were granted to purchase 66,667 shares of
the Company's common stock at an exercise price of $1.50 per share. The
Company was responsible for up to $25,000 of expenses related to the
employee traveling to and from Buffalo, NY, temporary living and other such
amounts necessary for the employee to devote his full time employment to
the Company. The agreement also provided for an automobile allowance of
$650 per month. On September 15, 1998, this employee was terminated due to
the limited operations of the Company.
(c) Consulting Agreements:
On March 1, 1994, the Company entered into a consulting agreement with an
investor (the "Investor"), whereby the Company shall pay the Investor
$75,000 for the first year ended March 31, 1995, $100,000 for the second
year and $125,000 for the third year. The Company recorded accrued
consulting expense of $89,585 during the year ended December 31, 1996. In
September 1996, this investor voluntarily waived all rights to receive the
consulting fee payable to him and accordingly, the aggregate amount waived,
$247,917 has been reflected as a contribution to additional paid-in
capital.
In November 1996, this consulting agreement was superseded by a new
agreement. The new agreement provides that beginning January 1, 1997, the
Company will pay consulting fees to the Investor at the rate of $125,000
per annum for a three-year period. However, no monies will be paid to this
Investor until such time as the Company shall consummate a private or
public offering of its securities for not less than $2,000,000 in gross
proceeds.
In April 1997, the November 1996 consulting agreement was terminated and,
in consideration for such termination, 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 will provide sales and marketing
advisory and consulting services to the Company. This entity will receive
30,000 shares of common stock (see Note 10), 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. At December 31, 1997, options to purchase 88,889 common
shares were exercisable.
F - 21
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):
(c) Consulting Agreements (continued):
In August 1998, the Company entered into a consulting agreement with an
individual to provide financial services. This agreement calls for weekly
payments of $1,850 plus reasonable expenses and the issuance of 97,500
shares of the Company's common stock. The Company recorded an expense of
$36,564 in connection with the issuance of those shares.
(d) Line of Credit:
In December 1995, the Company obtained an unsecured line of credit for
$25,000. Borrowings under this line bear interest at 15% per annum.
Borrowings outstanding under this line at December 31, 1997 were $9,374,
which amount was repaid during 1998.
(e) Legal Proceedings:
The Company is subject to various legal proceedings, claims and liabilities
which have arisen as a result of the Company's inability to satisfy its
liabilities. In the opinion of management, the amount of such liabilities,
including applicable interest, has been provided for with respect to these
actions, in the aggregate of $160,000. In addition, the Company is subject
to two additional actions brought by (i) Darigold, Inc., which seeks
damages in the amount of $59,379 arising from the Company's alleged failure
to accept return of product and (ii) Lee's Marketing which seeks $128,354
for services allegedly performed in 1996. The Company intends to deny these
allegations and to vigorously defend these actions. The Company has not
recorded any potential liability arising from these two actions.
(f) Acquisitions:
On July 20, 1998, the Company entered into two agreements to acquire
companies engaged in the full service distribution of ice cream in the New
York Metropolitan area. In exchange for all the assets of New Yorker Ice
Cream Corp., the Company will pay (i) $515,000 at closing, (ii) $150,000
payable in six months with interest at 8% per annum, (iii) issuance of
650,000 shares of the Company's common stock and (iv) will assume an
existing obligation of $695,000, paying $200,000 at closing, and the
remaining $495,000 over four years with interest at 8% per annum. In
exchange for all the assets of Jerry's Ice Cream Co., Inc., the Company
will pay $255,000 at closing, $50,000 payable in six months with interest
at 8% per annum and 170,000 shares of the Company's common stock.
In connection with these acquisitions, the Company entered into an
agreement with an unrelated third party that provides for a finder's fee in
the amount of 1,500,000 shares of the Company's common stock and 750,000
options to purchase additional shares at an exercise price of $1.50, which
amounts are payable upon the closing of the acquisitions. All future
acquisitions introduced by this third party, will involve similar fee
arrangements to be negotiated prior to the closing of each transaction.
F - 22
<PAGE>
NEW YORKER MARKETING CORP.
--------------------------
(formerly Mike's Original, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued):
(f) Acquisitions (continued):
As of December 31, 1998, the Company had (i) made payments to the sellers
aggregating $90,000 as required per the terms of the agreements, (ii)
deposited $38,243 towards the purchase of new equipment and (iii) incurred
$58,936 of costs associated with these acquisitions.
The Company has also entered into five-year employment agreements with two
individuals to serve as President and Vice-President, which become
effective upon the closing of these acquisitions. These agreements provide
for annual payments of $126,000 and $115,500, respectively, issuance of
shares of common stock and bonus arrangements. The current President of the
Company will resign upon the closing of these acquisitions, and a
consulting agreement which provides for monthly payments of $5,000, will
then become effective.
(g) Government Regulation:
The Company is subject to regulation by various governmental agencies
regarding the distribution and sale of food products, including the FDA and
various state agencies. The Company believes that its marketing and
distributing operations comply with all existing applicable laws and
regulations.
(h) Insurance:
The Company's business exposes it to potential liability which is inherent
in the marketing and distribution of food products. The Company currently
maintains $2,000,000 of product liability insurance. The Company also
maintains $1,000,000 of general and personal injury insurance per
occurrence and $5,000,000 in the aggregate. If any product liability claim
is made and sustained against the Company and is not covered by insurance,
the Company's business and prospects could be materially adversely
affected.
NOTE 14 - PROPOSED PUBLIC OFFERING:
The Company has filed a Registration Statement with the Securities and
Exchange Commission to register 3,500,000 shares of common stock
(pre-split), at a price of $1.00 per share, or an aggregate of
approximately $2,800,000 of net proceeds. Proceeds from this offering will
be used to repay existing debt, including the promissory notes from the
private offering (see Note 8), acquire certain operating assets (see Note
13f) and for general working capital.
The proposed offering also covers the sale of 1,560,000 shares of common
stock held by certain shareholders. The Company will not receive any of the
proceeds from the sale of these shares.
In December 1998, the stockholders approved a reverse stock split in the
ratio of one common share for every five common shares outstanding. Such
reverse split will take effect upon the consummation of the Company's
proposed public offering.
F - 23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements for the year ended December 31, 1998 and is qualified in its entirety
by reference to such statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,166
<SECURITIES> 0
<RECEIVABLES> 13,372
<ALLOWANCES> 0
<INVENTORY> 55,371
<CURRENT-ASSETS> 109,957
<PP&E> 36,960
<DEPRECIATION> 35,750
<TOTAL-ASSETS> 311,893
<CURRENT-LIABILITIES> 2,084,507
<BONDS> 0
0
0
<COMMON> 5,153
<OTHER-SE> (1,777,767)
<TOTAL-LIABILITY-AND-EQUITY> 311,893
<SALES> 103,410
<TOTAL-REVENUES> 103,410
<CGS> 436,457
<TOTAL-COSTS> 436,457
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 166,769
<INCOME-PRETAX> (1,113,155)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,113,155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,113,155)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>