UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A
[X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended September 30, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from ______________to ________________
Commission File Number: 0-22431
MIKE'S ORIGINAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 11-3214529
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
366 N. Broadway, Jericho, New York 11753
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(Address of principal executive offices)
Registrant's Telephone Number (516) 942-8068
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Number of Shares Outstanding of Common Stock,
$.001 Par Value, at November 1, 1998 4,222,908
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Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
<PAGE>
MIKE'S ORIGINAL, INC.
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 7,979
Accounts receivable, less allowance for
doubtful accounts of $ -0- 24,218
Inventories 62,454
Prepaid expenses & other current assets 555,579
---------
Total current assets 650,230
Fixed assets, net of accumulated depreciation of
$34,874 2,086
Trademarks and organization costs, net of accumulated
amortization of $17,148 1,668
Security deposits 1,975
Other assets 109,504
---------
TOTAL ASSETS $ 765,463
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $569,179
Notes payable to related parties (NOTE - D) 331,586
Notes payable - other (NOTE - B) 180,000
Notes payable-trade 520,244
Accrued interest-Related party notes 55,325
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Total current liabilities 1,656,334
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 per value;
20,000,000 shares authorized; 4,222,908
shares issued and outstanding 4,222
Additional paid-in capital 10,829,066
Accumulated deficit (11,724,159)
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 890,871)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 765,463
==========
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Sales, net $ 780 $ 15,859
Cost of sales 36,411 50,498
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Gross profit (35,631) (34,639)
Operating expenses
Selling, marketing and shipping 90,979 35,658
Research and Development (1,500) 2,030
General and administrative 22,422 431,139
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Total operating expenses 111,901 468,827
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Loss from operations (147,532) (503,466)
Interest expense (net) 77,806 87,453
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Net loss before extraordinary item (225,338) (590,919)
Extraordinary item - forgiveness of debt 5,749 -
---------- ----------
Net income (loss) $ (219,589) $ (590,919)
========== ==========
Weighted average common
shares outstanding 3,676,674 3,020,264
========== ==========
Basic loss per share before extraordinary item $ (.06) $ ( .20)
Basic income per share from extraordinary item - -
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Basic income (loss) per share $ (.06) $ ( .20)
========== ==========
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1998 1997
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<S> <C> <C>
Sales, net $ 130,403 $ 361,660
Cost of sales 256,775 344,961
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Gross profit (126,372) 16,699
Operating expenses
Selling, marketing and shipping 190,355 645,867
Research and Development 12,254 21,138
General and administrative 381,179 1,943,330
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Total operating expenses 583,788 2,610,335
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Loss from operations (710,160) (2,593,636)
Interest expense (net) 94,982 1,495,759
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Net loss before extraordinary item (805,142) (4,089,395)
Extraordinary item - forgiveness of debt 222,631 -
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Net loss $ (582,511) $(4,089,395)
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Weighted average common
shares outstanding 3,441,927 2,471,455
========== ===========
Basic loss per share before extraordinary item $ (.23) $ (1.65)
Basic income per share from extraordinary item .06 -
---------- ----------
Basic loss per share $ ( .17) $ (1.65)
========== ==========
</TABLE>
<PAGE>
MIKE'S ORIGINAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $ (582,511) $(4,089,395)
Adjustments to reconcile net loss to net cash
used in operating activities
Imputed interest on stock issued 75,000 1,327,051
Provision for doubtful accounts (24,185)
Depreciation and amortization 4,591 11,040
Compensation expense attributable to the
issuance of common stock for services rendered 158,696 1,331,250
Forgiveness of debt (222,631)
Changes in operating assets and liabilities
Accounts receivable (11,618) 52,089
Inventories 81,445 77,742
Prepaid expenses & other current assets (13,276) (17,487)
Accounts payable and accrued liabilities 48,139 (244,839)
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Net cash used in operating activities (486,350) (1,552,549)
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Cash flows from investing activities
Purchases of office equipment (1,513)
Security deposit 3,093 14,023
Other assets (111,154)
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Net cash (used by) provided by investing activities (109,574) 14,023
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Cash flows from financing activities
Proceeds from notes payable to related parties 20,000
Proceeds from initial public offering 3,342,444
Proceeds from convertible note 100,000
Proceeds from notes payable 180,000 (853,032)
Proceeds of interim notes payable 340,000
Payment of interim notes payable (315,000)
Payment of related party debt (25,000) (253,750)
Payment of line of credit (9,374) (3,027)
Payment of capital lease obligation (13,568)
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Net cash (used) provided by financing activities 165,626 2,344,067
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Net Increase (Decrease) in Cash (430,298) 805,541
Cash at beginning of period 438,277 32,523
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Cash at end of period $ 7,979 $ 838,064
========= ===========
</TABLE>
<PAGE>
MIKE'S ORIGINAL INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The balance sheet as of September 30, 1998 and the related statements of
operations for the three-month and six month periods ended September 30, 1998
and 1997 and changes in cash flow for the six month period ended September 30,
1998 and 1997 and have been prepared by Mike's Original, Inc. (the "Company")
without audit. In the opinion of management, all adjustments (which include only
normal, recurring accrual adjustments) necessary to present fairly the financial
position as of September 30, 1998 and for all periods presented have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report filed on Form 10-KSB. Results of operations for the
period ended September 30, 1998 are not necessarily indicative of the operating
results expected for the full year.
NOTE B STOCKHOLDERS' EQUITY
During February 1998, the Company issued 30,000 shares of common stock to
one of its marketing consultants in exchange for services to be performed during
1998. These shares were valued at $ 2.96 per share, the estimated fair value of
the stock at the date of issuance and accordingly $ 88,800 is charged to
operations during the nine month period ended September 30, 1998.
During August 1998, the Company issued 97,500 shares of common stock to one
of its financial consultants in exchange for services performed through July,
1998. These shares were valued at $ .38 per share, the estimated fair value of
the stock at the date of issuance and accordingly $ 36,563 is charged to
operations during the nine month period ended September 30, 1998.
The Company commenced a private placement in July, 1998 of units, each unit
consisting of one $50,000 principal amount of 12% promissory note and 200,000
shares of Common Stock. As of September 30, 1998 the Company sold four units to
seven people (.4 units to a related party). The 800,000 shares of Common Stock
issued was accounted for as additional interest at a price of $.75 per share.
The notes are due in December, 1999 or at the closing of a secondary offering of
securities with gross proceeds of at least $3,000,000. The additional interest
is being amortized over the remaining period unless a qualifying offering is
closed at which time any remaining balance will be written off.
In July, 1998, the Company acquired, from Multi Venture Partners Ltd., an
unrelated third party, the rights to purchase the assets of New Yorker Ice Cream
Corp. and Jerry's Ice Cream Co., Inc. in exchange for $50,000 in cash, 1,500,000
shares of the Company's common stock and 750,000 options to purchase additional
shares of the Company's common stock at an exercise price of $1.50 The
agreements, previously executed to acquire these entities expired in April, 1998
and were extended to September 30, 1998 when they were terminated. The terms of
the acquisitions are substantially the same as existed in the original
agreements. The cash will be credited at closing which is when the shares will
be issued.
<PAGE>
NOTE C - COMMITMENT AND CONTINGENCIES
Legal Proceedings
The Company is subject to various legal proceedings, claims and liabilities
which arise in the ordinary course of its business. In the opinion of management
, the amount of ultimate liability with respect to these actions will not have a
material adverse effect on the Company's results of operations, cash flow or
financial position.
The Company has entered into a settlement with Darigold, Inc. in the amount
of $33,574 plus interest payable in equal monthly installments of $4,125.45
commencing in April, 1998 after the Company made an initial payment of $10,000.
In July , 1998 the Company defaulted and the unpaid balance of approximately
$14,000 was demanded by Darigold, Inc.. The Company negotiated to make a final
payment of $10,000 in full settlement of all amounts due which was paid in
August, 1998.
On April 2, 1998, the Company was served with a complaint in an action
pending in the Supreme Court of New York, Nassau County and seeks damages in the
amount of $82,037, arising from the Company's alleged failure to pay for certain
inventory purchased. The Company disputes the allegations of the complaint and
intends to file an answer and vigorously defend against the allegations raised
in the complaint.
In the opinion of management, the amount of any additional liability in
connection with the aforementioned matters, in excess of amounts provided for in
the normal course of business, will not materially affect the Company.
NOTE D - NOTES PAYABLE TO RELATED PARTIES
Effective May 1, 1998, the Company entered into an agreement with Michael
Rosen and Rachelle Rosen and certain other family members. Pursuant to the
agreement, Michael Rosen resigned as Chairman of the Board and President of the
Company and Rachelle Rosen as Secretary and Treasurer. Michael Rosen and his
father-in-law, Martin Pilossoph, also resigned as directors of the Company. The
agreement provides, among other things, for the termination of Mr. Rosen's
employment agreement, which would otherwise have expired May 31, 2001 and which
provided for an annual base salary of $125,000 together with pre-tax incentives.
The agreement further provides that the outstanding indebtedness to Michael
Rosen and Rachelle Rosen in the approximate sum of $280,000 is reduced to
$130,336. In addition, $25,000 of indebtedness due to Elizabeth Pilossoph, Mr.
Rosen's mother-in-law, is reduced to $6,250. The Company recorded extraordinary
income of approximately $217,000 in the quarter ended September 30, 1998 as a
result of the aforementioned forgiveness of debt.
On May 22, 1998, a shareholder advanced the Company $35,000 for working
capital. This advance bears interest at the rate of 10% and is due on demand.
The shareholder has the option to convert this debt into units, or fractions of
units, associated with the private placement (See - NOTE B). In July, 1998 this
same shareholder advanced the Company an additional $5,000 bringing the total
demand loan to $40,000. On August 14, 1998 the entire amount was converted to .8
units of the private placement with half being transferred to an unrelated third
party.
<PAGE>
NOTE E - SUBSEQUENT EVENTS
On July 27, 1998, the Company commenced a private placement, through
Millennium Securities Corp., of its securities to provide gross proceeds of up
to $500,000. The securities are being offered in units consisting of $50,000 12%
Notes due on December 1, 1999 and 200,000 shares of common stock. This offering
terminated on November 11,1998, with gross proceeds of $390,000 received by the
Company representing the sale of 7.8 units. This private placement states that
the Company plans to make a secondary offering of its securities of at least
$3,000,000 of gross proceeds in the fall of 1998. Although the Company feels
such an offering can be accomplished, there is no assurance that such an
offering will be consummated.
In October, 1998 the Company issued 85,000 shares of its Common Stock to
each of its outside directors, Myron Levy and Frederic Heller, and granted
475,000 shares to Arthur G. Rosenberg, to be issued at the closing of the
acquisitions, for prior management services covering the last eighteen months.
In addition, the Company issued 29,979 shares to a marketing consultant in lieu
of cash as provided for in their consulting agreement.
On November 13, 1998, the Company filed a registration statement with the
Securities and Exchange Commission on Form SB-2. A total of 5,060,000 shares of
the Company's Common Stock were registered for sale, 3,500,000 by the Company
and 1,560,000 by the purchasers of private placement units. It is anticipated
that the gross proceeds to the Company will be $3,500,000 and that the Company
will not receive any proceeds from the sales by shareholders.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
Results of Operations
Quarter Ended September 30, 1998 Compared to September 30, 1997
The Company's sales for the quarter ended September 30, 1998 and 1997 were
$780 and $15,859 respectively. The limited volume for the current year was
primarily due to shipments of Veryfine frozen juice bars in the second quarter
being sufficient to sustain distributors through the third quarter and the
limited usage of the Mike's Original brand, which has now been curtailed.
Management has changed the Company's operations from manufacturing, marketing
and distributing its own line of ice cream products to marketing and
distributing a variety of ice cream products and other frozen desserts,
Management intends to accomplish this plan by acquiring distribution companies
with new brands and customers, distribution expertise and an operations center
that can absorb any future acquisitions. As part of this plan, the Company has
recently acquired the rights to purchase the assets of New Yorker Ice Cream
Corp. ("NYIC") and Jerry's Ice Cream Co., Inc. ("Jerry's"). NYIC and Jerry's
provide full service distribution and marketing services of ice cream and frozen
novelties. These companies had combined 1997 revenues of approximately
$6,800,000.
Gross profit for the quarter ended September 30, 1998 was $(35,631) and
$(34,639) for the comparable quarter ended September 30, 1997. The elimination
of gross profit dollars is primarily attributable to the lack of sales due to
limited operations and the limited use of the Mike's Original brand.
General and administrative expenses (G&A) for the quarters ended September
30, 1998 and September 30, 1997 were approximately $22,400 and $431,100
respectively. The decrease was primarily due to a reduction in salaries of
$115,000 and a reduction of other professional fees including accounting of
$289,000.
Selling, marketing and shipping expenses for the quarters ended September
30, 1998 and September 30, 1997 were approximately $90,979 and $35,658
respectively. The increase for the 1998 period was primarily from increased
salaries and promotional expense associated with the introduction of the
Veryfine product.
Interest expense, net of interest income for the quarters ended September
30, 1998 and September 30, 1997 were approximately $77,800 and $87,500
respectively. The slight reduction in the amount charged to profit and loss was
a result of the elimination through forgiveness of certain related party debt.
Net loss for the quarter ended September 30, 1998 was $ 219,589 as compared
to a net loss in the amount of $590,919 for the comparable prior year period.
The net loss in the 1998 period was a result of nominal sales and the interest
expense associated with the private placement. The net loss in 1997 was
attributable to the high cost of debt, prior to the initial public offering and
the lack of volume.
<PAGE>
Nine Months Ended September 30, 1998 Compared to September 30, 1997
The Company's sales for the nine months ended September 30, 1998 and 1997 were
$130,403 and $361,660 respectively. The limited volume for the current year was
primarily due to insufficient working capital and the limited usage of the
Mike's Original brand. Management has changed the Company's operations from
manufacturing, marketing and distributing its own line of ice cream products to
marketing and distributing a variety of ice cream products and other frozen
desserts, Management intends to accomplish this plan by acquiring distribution
companies with new brands and customers, distribution expertise and an
operations center that can absorb any future acquisitions. As part of this plan,
the Company has recently acquired the rights to purchase the assets of New
Yorker Ice Cream Corp. ("NYIC") and Jerry's Ice Cream Co., Inc. ("Jerry's").
NYIC and Jerry's provide full service distribution and marketing services of ice
cream and frozen novelties. These companies had combined 1997 revenues of
approximately $6,800,000.
Gross profit for the nine months ended September 30, 1998 was $(126,372)
and $16,699 for the comparable nine months ended September 30, 1997. The
decrease and elimination of gross profit dollars is primarily attributable to
the lack of sales due to limited operations and the limited usage of the Mike's
Original brand. Remaining finished goods inventories were sold at significantly
reduced prices over the nine month period.
General and administrative expenses (G&A) for the nine months ended
September 30, 1998 and September 30, 1997 were approximately $381,200 and
$1,943,300 respectively. The decrease was primarily due to a reduction in legal
expenses in the amount of $444,000. Other decreases resulted from salary
reductions ($280,000) and a decrease in other professional fees including
accounting($785,000).
Selling, marketing and shipping expenses for the nine months ended
September 30, 1998 and September 30, 1997 were approximately $190,400 and
$645,900 respectively. The sharp decline for the 1998 period was primarily from
decreases in retail introductory programs, advertising, and in store promotions
as a result of limited operations.
Interest expense, net of interest income for the nine months ended
September 30, 1998 and September 30, 1997 were approximately $95,000 and
$1,495,800 respectively. The reduction in the amount charged to profit and loss
was created by the conversion of debt in 1997 to equity and the reduction of
other interest bearing debt through the application of proceeds from the initial
public offering.
Net loss for the nine months ended September 30, 1998 was $ 582,511 as
compared to $4,089,395 for the comparable prior year period. The net loss in
1998 was offset by the forgiveness of debt by the Rosens and other related
parties in the amount of $216,882. The net loss in 1997 was attributable to the
high cost of debt, prior to the initial public offering and the lack of volume.
<PAGE>
Liquidity and Capital Resources
The Company's cash requirements have been significantly exceeding its
resources due to the limited operations of the Company. At September 30, 1998
the Company had a working capital deficit of $1,006,104. It is anticipated that
the cash balance of $7,979, collection of recievables and the net proceeds of
$355,000 from the Company's recent private placement should sustain the Company
until an additional offering of securities can be accomplished. While the
Company 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, the Company plans to close the two
acquisitions currently under contract with the Company and may seek additional
acquisitions to continue the shift of the Company'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 the Company's
needs for the balance of the year. The failure of the Company to complete this
secondary offering would require the Company to seek other financing in order to
continue as a going concern and the Company has no alternative plans for
financing.
- ----------------------------------------------------------------------
All statements other than statements of historical fact included in this report
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations, are
forward-looking statements. When used in this report, words such as
"anticipate", "believe", "estimate", "expect", "intend" and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management, as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors, including but not limited to competitive factors and pricing pressures,
relationships with its manufacturers, distributors and vendors, legal and
regulatory requirements and general economic conditions. Such statements reflect
the current views of the Company with respect to future events and are subject
to these and other risks, uncertainties and assumptions relating to the
operations, results of operations, growth strategy and liquidity of the Company.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by this paragraph.
<PAGE>
MIKE'S ORIGINAL, INC.
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PART II- OTHER INFORMATION
--------------------------
ITEM 1 - LEGAL PROCEEDINGS:
None
ITEM 2 - CHANGES IN SECURITIES:
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5 - OTHER INFORMATION
None
ITEMS 6 - EXHIBITS AND REPORTS OF FORM 8-K
Exhibits:
None
Reports on Form 8-K
None
<PAGE>
In accordance with the requirements of the Securities Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MIKE'S ORIGINAL, INC.
By: /s/Arthur G. Rosenberg
----------------------------------------
Arthur G. Rosenberg
President, Chairman of the Board and CEO
(Chief Executive Officer)
Date: November 19, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the six months ended September 30, 1998 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,979
<SECURITIES> 0
<RECEIVABLES> 24,218
<ALLOWANCES> 0
<INVENTORY> 62,454
<CURRENT-ASSETS> 650,230
<PP&E> 2,068
<DEPRECIATION> (34,874)
<TOTAL-ASSETS> 765,463
<CURRENT-LIABILITIES> 1,656,334
<BONDS> 0
0
0
<COMMON> 4,222
<OTHER-SE> (895,093)
<TOTAL-LIABILITY-AND-EQUITY> 765,463
<SALES> 130,403
<TOTAL-REVENUES> 130,403
<CGS> 256,775
<TOTAL-COSTS> 256,775
<OTHER-EXPENSES> 583,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,982
<INCOME-PRETAX> (805,142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (805,142)
<DISCONTINUED> 0
<EXTRAORDINARY> (222,631)
<CHANGES> 0
<NET-INCOME> (582,511)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
