Gelateria_Naia.mp3 (42m 32s) 3 speakers (Speaker 1, Chris Tan, Trevor Morris)

[0:00:01] Speaker 1: All right. Let's get started. Maybe we can start with both
of you guys just introducing yourselves and the roles that you play at
Gelateria Naia.

[0:00:12] Chris Tan: Sounds good. I'm Chris. I'm Chris Tan. I'm currently the
CEO and president of Naia. Started the company with two other friends, Bobby
and Rick, both of them live in Canada, back in 2002. Originally, we thought to
open the doors to the Gelateria. We had our own scoop shop in downtown
Berkeley, and we were instantly successful. People were streaming through the
doors, and things seemed really busy. We had to sort out a lot of problems
immediately because of that success, but about a year later, we found Trevor.
Trevor is our vice president of operations and another person who has been key
to the company in the sense that very early on, we had to rebrand. We were
known as a different name before, and he helped us found Naia. We officially
sort of took the wraps off our scoop shop on January 1, 2014. 2004, sorry.
2004.

[0:01:20] Speaker 1: 2004?

[0:01:24] Chris Tan: 2004, yeah.

[0:01:24] Speaker 1: I thought you said you started in downtown Berkeley in
2012.

[0:01:28] Chris Tan: 2002.

[0:01:28] Speaker 1: Oh, I'm sorry. 2002, sorry. Then, Trevor came on 2003,
correct?

[0:01:34] Chris Tan: Mm-hmm (affirmative).

[0:01:34] Speaker 1: Okay.

[0:01:38] Chris Tan: Trevor?

[0:01:38] Trevor Morris: Well, you introduced me, so Trevor Morris. I started
2003, and I'm a restaurant and food veteran. That's all I've done all my life
....

[0:01:46] Speaker 1: Cool.

[0:01:46] Trevor Morris: ... And actually grew up on a dairy in Idaho milking
cows.

[0:01:50] Speaker 1: Cool. You said in 2002, you opened a scoop shop, so what
was ... In 2004 was the rebranding?

[0:02:00] Chris Tan: Rebranding. Okay. Yeah.

[0:02:00] Speaker 1: Maybe you could talk very briefly through the history of
Naia. From rebranding and opening up in 2004, 14 years later in 2018, where has
that journey taken you?

[0:02:12] Chris Tan: You want to take the first answer?

[0:02:14] Trevor Morris: Sure. We started out as a scoop shop. We made gelato
in the back and sold it out the front. We did quite well at that. So well, in
fact, that a lot of people started doing what we were doing. When we started
out, we were just one of four in the city of Berkeley that was making ice
cream. We were, in fact, the only people who were making it from scratch in
that manner. 10 years later when our lease was up in Berkeley, we were one of
22 businesses doing either frozen yogurt or ice cream or gelato. We're pretty
proud that we helped changed that landscape, but when that 10 years was up, it
was time for us to move on. In the intervening years, we started working with
people like Whole Foods, selling our gelato in their stores, meaning that a
shopper at Whole Foods could get a scoop of our gelato in their stores. It
would actually be scooped out to you, and you'd walk around in a cup and eat
it. But as things changed at Whole Foods, they stopped putting in scoop shops
in their stores, and they needed something different from us. So, we decided
instead of doing a pint, which we saw as a very crowded market, that we would
do a novelty, and that's how we came out with Bar Gelato. Bar Gelato for us was
  another instant hit, and-

[0:03:42] Speaker 1: Now, when was that?

[0:03:43] Trevor Morris: That was in 2011.

[0:03:44] Speaker 1: Okay.

[0:03:46] Trevor Morris: At one point, we were at five stores, so we had five
shops.

[0:03:50] Speaker 1: Five Whole Foods stores?

[0:03:51] Trevor Morris: Five Gelaterias-

[0:03:52] Speaker 1: Got it.

[0:03:52] Trevor Morris: ... Of our own. Then, we grew to where we were in four
Whole Foods with our bars. They told us if we could reach a certain sales level
within a year, they would call it a success, and we reached that yearly sales
level in one month.

[0:04:08] Speaker 1: Wow.

[0:04:09] Trevor Morris: Then, they put us in all the Whole Foods in Northern
California, and we had to become a pretty good delivery company to deliver to
all the Whole Foods in Northern California. Then as we grew, we started adding
accounts besides Whole Foods. Today, we're at about 275 accounts where we sell
Bar Gelato to.

[0:04:32] Speaker 1: Is that throughout California or

[0:04:35] Trevor Morris: All Northern California.

[0:04:37] Speaker 1: Northern California.

[0:04:39] Trevor Morris: Northern California, yep. We also became a pretty good
delivery company and decided that, to help make those trucks make a little
money, that we would also start distributing other people's products. If we
were already going to these stores, carrying our product, we should carry
someone else's as well. So, we distributed products like McConnell's Ice Cream,
Humphry Slocombe, Clover Ice Cream, and Double Rainbow.

[0:05:10] Speaker 1: Is that a potential competition, to be distributing other
ice cream?

[0:05:18] Trevor Morris: While it seems like it is, we can't stop grocery
stores from selling other people's product. What we can do though is make a
little money selling their product into that store and helping defray the cost
from our own distribution. Once our competitors' products are on our truck
though, we treat them as if they're our own because it is a ... It's a very
competitive business, but you'd be surprised how many people in the ice cream
business help each other out.

[0:05:51] Speaker 1: What percentage of revenue comes from you selling to those
275 accounts versus the distribution of other ice cream products, and are there
other revenue streams as well?

[0:06:02] Chris Tan: Mm-hmm (affirmative). We do have the financials to give
you an exact number, but I think it's better to just talk in, for the purposes
of this-

[0:06:08] Speaker 1: Right.

[0:06:09] Chris Tan: Just kind of vague? No.

[0:06:11] Speaker 1: Yeah. General Yeah.

[0:06:16] Chris Tan: Because our annual revenues are about 2.8 to .9 million, I
would say that about a million of that is coming from the distribution of
third-party products. One over three, basically.

[0:06:30] Speaker 1: Got it. How's that 2.8 million trended over time?

[0:06:37] Chris Tan: Because we have ... One piece of Naia's history that
Trevor missed too was that once we launched the Bar Gelato ... Again, we
launched this because it was, I would say, different from other ice creams. It
wasn't another pint on the shelf. If you go into Whole Foods, you're going to
see like 50 brands on a shelf of pints, everything from Three Twins to Double
Rainbow to Breyers to Dreyer's. We thought, "If we have this bunker here, and
we have single-serve gelato on a stick, it's very unique ..." We were
thankfully kind of right. Clover Sonoma, Clover Stornetta back then, is a local
dairy out of Petaluma. Very large local dairy, and they approached us. They
said, "Look, we really like your bars." I mean, these are flavors that ... I
hope Trevor brought something. I'm not sure what ... What did you bring? Some
bars?

[0:07:34] Trevor Morris: Yeah.

[0:07:38] Chris Tan: Yeah, okay. They have a unique flavor in part because for
15 years, we've been working with a lot of local producers in Northern
California. We're just really fortunate enough that we can get fruits,
everything from cherries to blood oranges to tangelos to ... Then, coffee
roasters. I mean, we work with Blue Bottle and Ritual Roasters. We've worked
with Philz and pistachios grown in California, so we've got some really, really
great fruits, nuts, and dairies in the region. I think that that does add to a
fresher product. Even though all ice cream is relatively fresh because it's
frozen, but when you actually churn in products from these local food artisans
and food farmers, it tastes a little bit different. At least, that's what
Clover told us. They said, "Can you take our milk, and could you make an ice
cream from it?" So, that sort of encapsulated for us that, even though we had
our Naia product that we were selling and distributing, we really broke out
what it is that we do as a company after this 12 years at the time, which was
we do R&D. We do development. We formulate flavors. As Trevor said, when we
started, no one else made their product from scratch. We did it out of
necessity, but in doing that, we had to learn the science behind it. We had to
learn the art behind it. Unfortunately, a lot of people have this impression
that gelato is a very romantic food in Italy, and it's kind of one of those
things that's really far from the truth in the sense that it's a multi-billion
Euro industry out there. Their vision a lot in Italy is that every 7-Eleven,
any mom-and-pop shop, should be able to buy a bag of powder, add some water,
put it into a magic machine, and press for gelato. For us, it's always been
more let's work with ... Let's be regional like the Italians. Let's get local
pistachios or local tangelos and local chocolate from TCHO or Guittard. All
these folks are very local to us. Let's freeze it and capture it in a frozen
form. So, we do need to do the R&D. A second stage ... That's the first stage.
The second stage would be the manufacturing. We have our pilot plant up in
Hercules, and then the third part is distribution. We started realizing, well,
this is all you really need to come up with a jummy ice cream, and Clover saw
the same thing. They said, "Look, you do the R&D. Can you figure out the
manufacturing for us? Can you do the ... Can you do the distribution for us?
Can you be our exclusive distributor for the product?" We started doing that.
So, it wasn't under the Naia brand. It was under the Clover brand.

[0:10:36] Speaker 1: Got it.

[0:10:37] Chris Tan: But again, because we have the know-how, we have our
manufacturing facility, we have our distribution, have a side business unit, we
could then provide these services and help defray some of our overhead.

[0:10:50] Speaker 1: But that's all done through the Naia C corp?

[0:10:55] Chris Tan: Yes, exactly. Yeah, you're buying into the whole ...

[0:10:57] Speaker 1: Shebang. But it's branded as Clover Sonoma ice cream?

[0:11:02] Chris Tan: The ice cream itself is Clover Sonoma. They sort of put up
the capital and the marketing and the packaging, and then we would take care of
the rest. Then, we did that not only with Clover, but we did that with an
almond milk.

[0:11:16] Speaker 1: When did this ... When did Clover approach you, and when
did that happen?

[0:11:20] Chris Tan: It was like 2013

[0:11:21] Speaker 1: Okay, and that's continuing today?

[0:11:27] Chris Tan: The product that we developed for them, they have gone in
a different direction. That product was on the market for two or three years,
but we still maintain the distribution relationship. Then, they're still
looking at launching a different product. The product that we developed for
them was an organic product because we are a certified organic facility, and
we've got good, organic features. But now their focus is much more on value, so
they're focusing on a conventional product.

[0:11:57] Speaker 1: Value, you mean, kind of low priced?

[0:11:59] Chris Tan: Lower priced, right.

[0:12:01] Speaker 1: Are you still doing that, would you call it, white
labeling? Are you still ... Is that still a part of that 2.8 million?

[0:12:08] Chris Tan: Yeah, yeah. It's a big piece of it.

[0:12:12] Speaker 1: But other companies other than Clover.

[0:12:14] Chris Tan: Exactly. As an example, Bellwether Farms is another local
creamery in Petaluma. They do sheep's milk ricotta and excellent sheep's milk
yogurt, too. They were thinking, "Could we do a sheep's milk ice cream?" So,
the same sort of thing applied in terms of us being developer, manufacturer,
and a distributor. I think what we started finding was that the weak piece for
us, and the reason why we're looking for, in part, the 2.8 million, is just
that when we look at the services that we can provide, R&D, manufacturing,
distribution, the manufacturing piece of it was where we were meeting up
against capacity. Partly because we're getting busy for our Naia products, but
partly because we also have other folks who want to have a craft product that
is made in a clean fashion and made in a competent fashion. The unique piece of
.... The unique opportunity for us is that our neighbor in Hercules were
retiring. So, they were like, "Could we Could we offer this property to you
before we go to market

[0:13:31] Speaker 1: Just before we get to that phase ... 2.8 million total
revenue. You said one million coming from distribution. The remaining 1.8
million, how does that break down between Naia products and the white labeling
of, like, Bellwether Farms and other brands?

[0:13:48] Chris Tan: Sure. One million down in the third-party distribution.
Probably about 200, 300,000 in the R&D formulation. Right now, we just don't
have capacity to take them on for manufacturing, so we've had to actually pass
them on to friends of ours.

[0:14:03] Speaker 1: Got it. So then, one and a half million or so for Naia-

[0:14:07] Chris Tan: Yes.

[0:14:07] Speaker 1: ... The brand.

[0:14:08] Chris Tan: Exactly.

[0:14:09] Speaker 1: Is that one and a half million ... Is that all in the Bar
Gelato, or are there other products? How does that break down?

[0:14:14] Chris Tan: Many business units. Yeah, so we actually have been
closing and have now successfully closed our North Beach store. So, there was
probably-

[0:14:24] Speaker 1: Was that the last one?

[0:14:24] Chris Tan: That was the last one of the five. Yep. That was running
between 200, 300,000 a year. Then, Bar Gelato is the bulk of it. That is our
flagship product, 800 to 900,000 right now. Then, the rest of it, we actually
do tubs. Trevor, did you bring just bars?

[0:14:46] Trevor Morris: Just bars.

[0:14:47] Chris Tan: Okay. We have tubs and pints.

[0:14:51] Speaker 1: Okay. Cool.

[0:14:58] Trevor Morris: Need to paraphrase. The money raised will allow us to
expand the kitchen so that we can co-pack more of the products that we're doing
research and development for. Then, we'll also be able to help other
entrepreneurs get up off the ground. The ice cream business is becoming more
regulated. It's going to be harder for people to start their own ice cream
business because of the high overhead involved with the kitchen requirements
that are much stricter than a normal community kitchen. This kitchen will allow
us to bring people in and make their products for them.

[0:15:32] Speaker 1: You guys are very collaborative on the distribution and
then also helping these future competitors get off the ground. What would you
say to that? Do you see what I mean?

[0:15:45] Trevor Morris: Sure. Again, it's we can't stop people from competing
against us, but what we can do is try and earn some money while they're trying
to make money on their own. Certainly, we got help from other people when we
got started, and together, we can all make better products, which is important.

[0:16:08] Chris Tan: I think also it's we have, through the school of hard
knocks, learned that Northern California is a pretty special ecosphere for food
businesses and that it is definitely possible for us to even incubate some
brands here that will do well nationally, and we can do well nationally. I
mean, if you go to whatever supermarket that you go to, you're going to ...
There's zero probability that when you go the freezer elements, you have one
brand of ice cream. They need to have more brands as well. It doesn't mean that
we aren't cognizant of direct competitors. There have been folks who have come
to us

[0:16:54] Trevor Morris: We do turn businesses away that

[0:16:56] Chris Tan: Yeah, because we ... It's funny because sometimes they're
surprised. They're like, "Oh, really, we compete?" We're like, "Actually, you
do," because after 16 years, you get a feel for what it is that is our edge and
  what it is that we are competitive for. Then, there are folks who look like
  they're doing exactly the same thing. Bellwether Farms wanted to call their
  product gelato. We didn't have problem with it.

[0:17:21] Speaker 1: So

[0:17:25] Chris Tan: Okay. Just that we have to tread carefully, but at the
same time, there is a lot of overhead that can be resolved with partnership and
collaboration.

[0:17:37] Speaker 1: On that topic of your kind of unique differentiator in a
crowded sector, what is that for Naia? What is that that you guys have that
makes you unique?

[0:17:56] Trevor Morris: One those things is just product innovation, trying to
do products that people haven't done before. But also, our focus is really just
  on quality, making products that taste really great. It's very seductive to
  try and chase this idea of making the most unique flavors and the wackiest
  flavors and the craziest products out there. Those get a lot of attention,
  but in the long run, they don't sell quite as well as just doing products
  that taste really good. There's some products that are hitting the shelves in
  some of the grocery stores we know about that get a lot of excitement, and
  people talk about it, and then our gelato bars are just very quietly
  outselling them because it's a good product.

[0:18:43] Speaker 1: Love it. So, quality and innovation. On the innovation
side, the Bar Gelato was innovative back in 2013, I think you said.

[0:18:54] Chris Tan: 2011.

[0:18:54] Speaker 1: 2011, sorry. What are the other innovations? Is it mostly
around flavors then, or ...

[0:19:00] Trevor Morris: Doing different flavors, but also ... Ice cream at its
purest is a novelty in itself, so we're always having to come out with new
ideas and also just improving on things that are already out there. Currently,
we're working on an ice cream cake or a gelato cake that is simply better than
just something that's available, and then also gelato sandwiches which are
simply better than ones that are already available.

[0:19:32] Speaker 1: I like that. Simply better is ... Yeah. Sorry, Chris.

[0:19:37] Chris Tan: I was just going to say that, just to explain two phrases.
One is our mission statement, and one is our sort of tagline. Our mission
statement is that Naia is all about real good ice cream. For us, all is we are
fairly unique that we do this sort of vertical integration to the approach. I
mean, a lot of food businesses in this era are a couple MBAs, you find
co-packer, and really focus on brand mechanics. Nothing wrong with that. Brand
mechanics are important. But where we can really generate ... Rather than going
to a factory and just trying to figure out, like edge cases in a factory that
sort of differentiate the product ... When you start from the ground up and
made it your own product, and you understand everything about freezing point
depression and overrun and all the technical things, you really can come up
with better ways to integrate the local food shed that we have here. Just one
example would be Bellwether Farms. They make a great sheep's milk yogurt. This
might not be something that you want transcribed, but it's that they said, "How
do we make sheep's milk yogurt frozen? Can we just put it in a freezer with
  some jam? I mean, that seems good." You could start with that. That's a good
  idea, but why don't we do this? Why don't we do something that's never been
  done before? We are going to come up with a legal, safe way to take your
  yogurt and preserve the probiotics in it so that we will never heat up the
  probiotics. It's never been done in the industry. Breyer's doesn't do it.
  Dreyer's doesn't do it. Partly because they don't understand the value of
  that. We understand it because we're consumers in Northern California, and so
  we understand people kind of like to keep the probiotics alive. So, we came
  up with a very different technique that no one had seen before, where we keep
  those probiotics alive. We basically add their yogurt in a very simple and
  natural way, and the product tastes outstanding.

[0:21:56] Speaker 1: I love that. It is a great ... We definitely should
transcribe that. I think the specific example would be great, the illustration
of the general point which is that when you are in the full, from R&D to
manufacturing all the way through distribution you try and control quality
throughout the lifecycle. This is a dumb question that I should have asked at
the start, but what is the difference ... Is there a difference between gelato
and ice cream?

[0:22:21] Trevor Morris: Yes. Sure. In the United States, products like ice
cream are heavily regulated. There has to be a certain percentage of butterfat
and a certain percentage of overrun, meaning the air that's in there, for it to
qualify as ice cream. Where ice cream has to be 10% butterfat, true gelato like
ours would be under 10%, and ours is about 6.5% butterfat. Our overrun, which
is the amount of air that's in there, is much lower, which means the product's
more dense. Milk comes out of the cow at about 4.5% butterfat, and then a Ben &
Jerry's would be somewhere on the order of 14 to 16% butterfat. So, you can see
how much different 6.5 is from 16. Our mouth loves the feel of butterfat.
That's one of the reasons everyone likes ice cream, but with gelato, with lower
butterfat, it's much more about the flavor because that butterfat will also
mask flavors. It's one of the reasons products like Ben & Jerry's focus on
inclusions or chunky stuff in there, whereas we can focus on more subtle
flavors that'll really shine through in our product rather than a
high-butterfat product.

[0:23:37] Speaker 1: And that means that gelato is healthy?

[0:23:41] Trevor Morris: It's certainly not health food, but yeah, it does have
less fat in it. Because of that, we can also put in less sugar. Sugar's a
function. You need that sugar to balance out the fat. If you don't have so much
fat, you don't have to have so much sugar.

[0:23:54] Speaker 1: Cool. Thank you.

[0:23:55] Trevor Morris: Yep.

[0:23:56] Chris Tan: The reason the Italians do it is not to be on diet food,
but because for them, if you're going to have a pistachio gelato ... If you
have a pistachio ice cream, like a Ben & Jerry's pistachio ice cream, it's
basically like this white ice cream with only a few pistachios that you're,
"Okay, yeah, that's pistachio. I get it," but the Italians ... They really want
you to feel that you're eating pistachios, and so because that butterfat's not
there, you're getting very, very ... It becomes a key ingredient rather than
just sort of a flavor added, so that it's ... Then, we've been able to innovate
on that front, too, because people taste the product. They're like, "Well, this
doesn't taste like normal pistachio ice cream. This is different."

[0:24:37] Speaker 1: It actually tastes like pistachio.

[0:24:41] Chris Tan: Exactly.

[0:24:41] Speaker 1: Maybe we should transition to talking about the brand, the
Naia brand, and obviously there's other components of your revenues and
business, but for the ... You mentioned one and a half million or so of Naia.
Talk to us about the brand, and I guess relate it to your consumers.

[0:25:04] Chris Tan: Sure. The motto, actually the tagline I wanted to share
with you-

[0:25:09] Speaker 1: Oh, sorry. Yeah.

[0:25:10] Chris Tan: It actually dovetails really nicely. It's Truth in Flavor.
Part of that is because the nature of gelato, but part of that is because we're
just very proud of our relationship with our chocolate folks and with our
coffee folks. It turns out that gelato can be a little bit of a switchboard to
all of these flavors coming together, and so we'll often have these ... We've
had events in the past where we'll actually bring the founder of with the
founder of Scharffen Berger Chocolate with the founder at St. George Spirits,
which is a craft distillery in Alameda. Just, again, very fortunate to have
access locally with so many great people who are good in their own right and
then just try to express their product in gelato form. Do you want to speak
more to the brand, Trevor?

[0:26:10] Trevor Morris: As a brand, like Chris said, we're just about trying
to make great products. That's really our focus. We're not so much about
selling ourselves as people or-

[0:26:23] Chris Tan: Pedigree.

[0:26:24] Trevor Morris: ... Or that we're famous chefs. We just focus on
making great product

[0:26:30] Speaker 1: How do you guys ... On the shelf, for the pints, just
because it's easier to compare ... How does the price point stack up against
like a Ben & Jerry's?

[0:26:42] Trevor Morris: The company ... Because we also distribute other
people's products, our knowledge of pricing is a lot deeper because we don't
just know pricing on our products. We get to see behind the scenes on how other
products do, whether they're higher priced or lower priced. Sometimes a product
that's higher priced will sell more simply because it is higher priced. People
want to check it out and try it. We've been able to gain a lot of knowledge
just through experience in that regard.

[0:27:13] Chris Tan: To answer your question more directly, we've tried pricing
as a message, and we've tried value for consumers, and we've tried everywhere
in between

[0:27:24] Speaker 1: When you said pricing as a message, you mean like-

[0:27:26] Chris Tan: Premium price

[0:27:28] Speaker 1: quality.

[0:27:29] Chris Tan: That's usually the motto of a brand who wants to sell
their pint for 9.99 and just-

[0:27:36] Trevor Morris: Or 12.99.

[0:27:37] Chris Tan: Or 12.99 and be proud of it. It's like, it will sell. I
mean, I think there's a novelty factor to that high-priced product, but
eventually ... It's not enough just to get it off the shelf once. I mean, we
feel that the strength of CPG to a certain extent is getting off the shelf
multiple times, and I think ... And also understanding that we are unique in
that we're on Church Street in San Francisco. People here might pay for 9.99 on
a pint, but I mean, it's also got to sell in Kansas. Our vision is to scale,
and our vision is that we've got pay our coffee roaster and our chocolatier and
everyone else. There's the right price, but we don't think it should be so
inaccessible. That is a strong reason for the raise with the enhanced kitchen,
the enhanced plant. We can dramatically decrease our cost of goods.

[0:28:43] Speaker 1: Through economies of scale

[0:28:43] Chris Tan: Through economies of scale, exactly. For us, it's also the
machinery, too. It's more of automatic machinery rather than a manual ... A
batch machinery. It's a continuous machinery. For us, the target for a pint
would be between 4.99 and 5.99. That is not cheap, but it's not 9.99, which is
where we sort of ... Nine to 12.99 is sort of like that really high-end stuff.
We also believe very strongly in the power of TPRs, temporary price reductions,
which is whenever you go to the supermarket and you see the yellow tag. Some
people get driven by that, myself included, so we would discount much further
down from that.

[0:29:34] Speaker 1: What gross margins are you making on the full price?

[0:29:40] Chris Tan: Projected with the plant or current-

[0:29:42] Speaker 1: Both.

[0:29:43] Chris Tan: Currently, we're probably fortunate that Trevor's team and
his background in operations is that he can take a labor force and squeeze
pretty good capacity out of them. So, I wouldn't be uncomfortable saying that
it is currently at a 50 margin, but I think we can do much better with get down
to 35, although that's ... I'm not sure I want to publish that, again, but
that's where we're thinking.

[0:30:21] Speaker 1: 35 ...

[0:30:21] Chris Tan: The cost of 35

[0:30:22] Speaker 1: Cents on the dollar 65.

[0:30:24] Chris Tan: Yeah, exactly.

[0:30:25] Speaker 1: Got it. Yeah, and we can ... Obviously, we'll decide what
you want to kind of say so the

[0:30:34] Chris Tan: Yeah. I mean, we do think about it a lot, and for us to
get the bank loan, we had to nail it down. It's just sometimes we just want to
make sure that we disclose appropriately.

[0:30:47] Speaker 1: Right, yeah. Cool. You mentioned 2.8 million in revenue
last year. Are you guys profitable? Like net profit?

[0:30:59] Chris Tan: In terms of ... It was like 2.88 2.9 million.

[0:31:00] Speaker 1: Oh.

[0:31:00] Chris Tan: It was like an EBITDA of $36,000, so it was like ...

[0:31:11] Speaker 1: The profit was 36,000?

[0:31:13] Chris Tan: I'm sorry, earnings before interest, taxes, depreciation,
and amortization

[0:31:16] Speaker 1: Got it.

[0:31:18] Chris Tan: So, when you took a look at the cashflow of the business,
it was negative without going to various vehicles like the high-interest loans
that we incurred. So, part of what this loan is doing, too, is it's wiping out
that high-payment debt and sort of really addressing it in a very positive
manner.

[0:31:46] Speaker 1: So, the-

[0:31:47] Chris Tan: Borderline EBITDA is the answer to your question.

[0:31:49] Speaker 1: Got it. But obviously with the investment, then you've
mentioned kind of several bullet points about how that can increase that
profit.

[0:32:01] Chris Tan: Yep, exactly. So, the cashflow on this profitability, the
loan, refinances all ... Actually, it refinances all of our debt. Some of the
debt in the past has been SBA loans, which is decent debt. Some of the debt has
been leases and vehicle leases, especially if you extended our distribution
where they're just really high payments. They probably are fined, like, 12%,
which is kind of high for loans. Then, we have also the ... We just need to
make payroll, and so we'll just pull it from this credit card, and now it's at
28%. That's bad. So, we have this whole spectrum of debt. They just wipe it out
and stretch it out over 25 years, which gives us the cashflow that ... Instead
of making 28,000 in monthly payments, we would be making 13,000 in monthly
payments and have the benefit of lower cost because of the improved
manufacturing facility.

[0:33:03] Speaker 1: Yeah, and it's kind of economies of scale and the
sourcing, and then increased production, and you're making good margins

[0:33:09] Chris Tan: Yeah, and it also includes working capital to address the
inventory for economies of scale, so it's a very ... It's a pretty
sophisticated loan for it to be an SBA loan, which is a very happy loan for
businesses. Yeah, we're really fortunate.

[0:33:27] Speaker 1: Just for the transcription, so can you just ... You
mentioned this on the phone that it's two million dollars alone, and then
you're looking at raising around a half million in equity.

[0:33:41] Chris Tan: Exactly. That's the rough amount. It's 1.9 and 450, but I
think it's ... I think probably what we should do is shift up and take two
million and half a million, which is Right?

[0:33:55] Speaker 1: You mentioned you have a team of 30 people. How does that
break down?

[0:34:01] Chris Tan: Sure. Trevor and I are the founders on the ground. I'd
like to mention the other two fellows are up in Canada. Then, we've got a good
management team-

[0:34:14] Trevor Morris: Go ahead.

[0:34:15] Chris Tan: No, Trevor. You go ahead.

[0:34:16] Trevor Morris: No, because I'm trying to count.

[0:34:20] Chris Tan: Okay. Well, we'll go with the rambler. We have a ... We've
got a sales manager, Craig. We've got a distribution manager We've got a-

[0:34:35] Trevor Morris: Production manager.

[0:34:35] Chris Tan: ... Production manager, and we've got an account manager.
Those are the four teams that break out. Then from there, I would say that the
driver team is six people now, and the production team is-

[0:34:49] Trevor Morris: Six also.

[0:34:50] Chris Tan: ... Six also. Then, accounting team has-

[0:34:53] Trevor Morris: Three.

[0:34:54] Chris Tan: ... Three there.

[0:34:55] Speaker 1: And the sales?

[0:34:56] Chris Tan: Sales? We sort of contract. We found that we can outsource
that if we need to. Right now, he's- He's just had ... He's got 30 years'
experience in Northern California with retailers, like everyone from Safeway,
down to down to He knows a lot of the scene. He's pretty ably handling it. When
we scale out of Northern California, that's where we'll ...

[0:35:26] Speaker 1: Great. That was the last question that I had, and then if
you guys want to add anything at the end. In terms of plans, what's next?
You've talked about Kansas and other kind of geographic

[0:35:43] Chris Tan: We're not going to go straight to Kansas.

[0:35:43] Speaker 1: We're going to bypass the states in the middle, go
straight from Northern California to Kansas.

[0:35:47] Chris Tan: Exactly. Forget about L.A. And Those guys Trevor, can you
just show what the product looks like?

[0:35:55] Trevor Morris: For us, our gelato is going to be the real product
that we're going to push out. Bar Gelato's already done so well for us here in
Northern California, but how we're selling it now out of the freezer, the grab
and go ... It's great for sales, but it's very hard to distribute that product
in other places.

[0:36:14] Chris Tan: This is the right here.

[0:36:17] Trevor Morris: What we're going to do is put our bars into boxes and
put them on the shelf in more of a traditional format, but we've been waiting
to figure out a way to do this that, like we said, speaks to our brand, how we
do things that are innovative. One of the things that we've learned over the
  years from ice cream veterans is that, while people like variety, if there's
  one flavor in a variety box that they don't want, they won't buy the box. So,
  it's always a real challenge for producers to figure out how to do multiple
  flavors in boxes. What they generally tend to do is not do varieties, so each
  box is one flavor. Consumers prefer multiple flavors.

[0:36:55] Speaker 1: Interesting.

[0:36:56] Trevor Morris: One of the ideas that we had was to make multiple
flavors but on the same theme.

[0:37:02] Speaker 1: Oh, cool.

[0:37:02] Trevor Morris: So, if you like coffee, there are going to be three
different kinds of coffee bars. If you like chocolate, there are going to be
three different kinds of chocolate bars citrus.

[0:37:11] Speaker 1: That's really cool.

[0:37:11] Trevor Morris: Then that way, we can produce a limited amount of
SKUs, a limited amount of boxes, but those boxes will each have variety in
them. We've already gotten a lot of feedback on this, and people are very
excited for us to get this going, including Safeway. This is where-

[0:37:29] Speaker 1: Are you in Safeway today?

[0:37:31] Trevor Morris: Currently we are, yes. But they're also looking for a
way to scale us because they know their freezers don't scale very well either.

[0:37:39] Speaker 1: Scale you in kind of larger geographic distribution?

[0:37:42] Trevor Morris: Mm-hmm (affirmative). Yeah.

[0:37:43] Chris Tan: More sort of storage

[0:37:43] Trevor Morris: Having this new kitchen will allow us to meet this
capacity easier. Right now, we can do product in pints, or we can do product in
bars. We can't do both products in the same day. We just don't have the-

[0:38:02] Speaker 1: Now you will be able to?

[0:38:03] Trevor Morris: With the new kitchen, we'll be able to. Yeah.

[0:38:04] Speaker 1: Ah. What percentage increase in your volume does the new
kitchen give you?

[0:38:14] Trevor Morris: Right now, we're doing bars about a hundred ... Or no,
about 80 days out of the year. Then, this will allow us to do it year round, so
whenever-

[0:38:27] Chris Tan: Four X.

[0:38:28] Trevor Morris: Four X, yeah.

[0:38:29] Chris Tan: More importantly, too, is the pints themselves. That will
certainly ... Right now, Trevor's team in a day could do

[0:38:38] Trevor Morris: Oh, gosh. We could do 110 cases maybe? This'll allow
us to do like 600 cases.

[0:38:43] Speaker 1: Oh, wow, so that's a huge ... I didn't realize it was that
big of an increase in capacity.

[0:38:48] Trevor Morris: Because this'll use the same technology we use now,
which is very reliable. But this will go from making product in batches, one
batch at a time, to making it continuously, meaning the machine will run all
day. There will be no batches that we have to keep starting over again. That's
key to really ... I mean, it'll use the same amount of people. We'll be hiring
people for the kitchen in general, but this allows us to make the product less
expensive as well because this maintains the same amount people to operate this
machinery and do five, six times as much.

[0:39:22] Speaker 1: That's a huge increase in the quantity that you can
produce. How confident are you that you'll have the demand to meet the supply?

[0:39:32] Trevor Morris: We already have that problem now in terms of some of
the people we've talked about doing research and development for ... We've
created products for some of our companies that work for us, and we've
immediately had to outsource them to other co-packers because we couldn't make
their product. Having one or two of these brands will allow us to fill in that
space very quickly. Depending on how products are selling, we'll just be able
to pick and choose what will help us. Maybe we'll have a product that we make a
lot of. Or, as our business grows, maybe we would pass them on to someone else
and fill in our gaps with a product that doesn't sell as well, but that way,
we'll always have a full kitchen.

[0:40:14] Chris Tan: I think it ties together your earlier question about
enabling competitors and helping ourselves. For here, it really ... A very,
very typical crisis story for a food company is sort of Field of Dreams, build
it and just hope that you're going to ... Because immediately, the day that you
build it, you've got the overhead the revenue. So for us, it's really being
able to say, "Well gosh, we already know three people who are pretty intimate
with us." It's not just pie in the sky, but rather ... We know Bellwether
Farms, and then we know that they ... If anything, the early reaction to the
product has been very positive, so we can just see that that will really help
us right at the start so that we can start out with other products to make.
Then, as our product grows in demand, we can slowly control that migration a
little bit better for ourselves.

[0:41:17] Trevor Morris: Although we don't have plans to expand our
distribution ... We're going to keep our distribution very small, but because
we have that distribution piece, when we go to make someone's product, we can
instantly get it on shelves because we're the distributor as well. As long as
there's some stores that want it, even if it's only five stores on the first
day ... Other distributors would say, "You only have five stores. We're not
interested," but we're already going to those stores, so we could start selling
it on day one.

[0:41:46] Speaker 1: Great. That's all the questions I have. Is there anything
else that you guys would want to make sure you definitely get across?

[0:41:55] Chris Tan: Just going through the deck. I think that covers the main
points, right Trevor? I mean-

[0:42:19] Trevor Morris: Mm-hmm (affirmative).

[0:42:20] Chris Tan: There's all this supporting stuff, and we've been around
for 16 years, but I think in the interest of brevity and ...

[0:42:30] Speaker 1: All right. Let's wrap it up.  [0:42:31]