Lemonis youve made up numbers the whole time since i met you. This Cookie Company will crumble. Rachel [ voice breaking ] this is too much pressure. Lemonis my name is marcus lemonis, and i risk my own money to save struggling businesses. Were not gonna wake up every morning wondering if we have a job. Were gonna wake up every morning wondering how many jobs we have to do. Its not always pretty. Everythings gonna change. Everything. But i do it to save jobs, and i do it to make money. This. Lets go to work. Is the profit. Im headed to compton, california, to the manufacturing facility. And after watching her video application. Rachel hi. Im rachel galant, and im the owner and c. E. O. Of jackies cookie connection. Lemonis . Finding out how successful jackies cookies have been in the past. Rachel my mom, whos jackie, opened up cookie stores. These were her original recipes. She was voted Family Circle best cookie. Lemonis . Im excited to taste the cookies. Hi. How are you . Michael hey. How you doing . Michael good. How are you . Lemonis im marcus. Michael marcus, im mike. Nice to meet you. Lemonis mike . Nice to meet you. What do you do here . Michael im just helping my cousin rachel out. Lemonis oh, very cool. Michael just giving her some advice on some financial stuff. Lemonis how you doing, sir . Im marcus. David hello. Nice to meet you. Lemonis nice to meet you. What do you do here . David i handle the sales and marketing for the company. Lemonis okay. How many different varieties are there . David weve got nine traditional varieties and five glutenfree, vegan varieties. Lemonis okay. Rachel hi. Lemonis how are you . Im marcus. Rachel good im so happy to see you. Lemonis nice to meet you. Now, is this the assortment . Rachel yes. Our top seller is chocolate chip. Have you tried the cookies . Lemonis i havent. Rachel oh. Lemonis i love that theyre crunchy. Rachel yeah, its a crunchy so its a sixmonth shelf life. Lemonis okay. Rachel but this is our snickerdoodle. Lemonis that ones good. Rachel yeah. Do you like Double Chocolate . Do you like peppermint . Lemonis yes. Thats my favorite. Rachel isnt that amazing . Lemonis these are actually pretty spectacular. Michael boysenberry chocolate chip. Rachel which is not a its a seasonal. Lemonis this actually just moved up into number two. Is everything mini . David everything is approximately that size. Lemonis everything . David well, we do still have our little bakery in santa monica, where we still make the original cookies that rachels mom, jackie, made. Lemonis okay. And what is this . Rachel thats my bakery. Thats the one i opened up in santa monica. Lemonis you mean a storefront . Rachel storefront with a kitchen. Lemonis oh, so this is what the first step was. Rachel this was the first step. David we had been old friends. He was working for another project in marketing. I said, do you want to help me market it . And so, as we were growing this business, we decided to sell to stores. So i came up with the babies and lemonis babies being rachel the babies. These. Im sorry. This is the baby. Lemonis not your kid not your babies. Rachel not my babies. The babies. Lemonis okay. Okay. Rachel and that was the pivotal turn i made. Lemonis i love the size. Love the size. I think the packagings very clever, cause i can see the product, and i know what it is, so. I think the cookies are amazing. Rachel thank you. Lemonis can we see the factory . Probably need to put a hair net or something. Rachel yeah, and ill give you a coat. Lemonis okay, listen, if i learned anything throughout my entire time with jackies cookies, its how not to wear a hair net. Okay . So that it doesnt look like the pillsbury doughboy wore a hair net, and all of a sudden, it was a poof on my head. Im cool, too. So, ive kind of figured out you got to roll it back, and then you got to pull it down. Push back, pull down. Say it with me now. Should we make that a song . Push back, pull down. Push back, pull down. So, if i ever go into a Food Manufacturing facility, im gonna sing this song. Push back, pull down. Remember that next time you go into a kitchen. Rachel so, its a 20,000squarefoot facility. Lemonis wow. As i enter the manufacturing space, im shocked by how big it is. But whats odd for me is i look at where the Raw Materials are, and it looks like the stores out of food. Like, theres literally nothing to make any product. Rachel so, this flour. Lemonis like, i do have to ask like, theres no inventory here. Rachel no. Its horrible. Im telling you, every day, i go to costco and buy my ingredients, and i have him deliver it, and i had him drive his car to arizona to pick up butter to bring it back here. Lemonis well, why do you have to buy it there . Why cant you buy it here . Rachel cause you got to find it on sale. Lemonis wait, you mean at the Grocery Store . David right. Lemonis come on. David im going in the car tomorrow. You can take a ride with me. Lemonis no. Rachel so, its like, nuts. Lemonis but what about from a distributor . Rachel if i want to get my butter from the distributor for a lower price, then i have to buy 5,000 pounds of it at a time, which is lemonis you have the space for it, not the money for it. Rachel right. Lemonis okay. As i go through the factory, im really starting to get nervous about what the actual overhead could be. I mean, how does all this get paid for . So, how much is your total revenue . Michael so, if you look at last year, we did 700,000 in revenue. And thats through supply chain restraint. Lemonis and people waiting for their orders. Michael waiting for orders, canceling orders. Lemonis and so, when i see all of this, im like, the revenue sounds like it should be infinitely bigger. David we absolutely could have done 2 million. Lemonis could it have done 2 million . Michael no. This year, weve already lost over 1 million, and itll likely lose another couple hundred thousand in the next few weeks. Lemonis what do you think the breakeven is right now . What does it need to do to break even . Michael somewhere around 400,000 to 500,000 a month in revenue. Lemonis why is that number so high . Michael running the operations here without her taking salary or anything like that is over 100,000 a month. Lemonis thats rent, the employees, not including cogs. Michael not including cogs. Its including the equipment, right, which is all leased, the rent. Lemonis the company is bleeding money because the overhead established for the revenue, you cant outrun it. What i wouldve expected rachel to do through the process is start out, probably, making cookies at home and then go commercial kitchen, where other people can actually share the expense. If she outgrew the commercial kitchen, she would start making phone calls to copackers. Its a way to increase production and not have to take on the burden of expense. The next thing i would expect her to do is start to research the idea of manufacturing herself. And then at some point, when shes 20 million or 25 million, she would build her own factory. Heres the problem the middle steps, she just leapfrogged over and went right to thinking she was betty crocker. So, how much equity do you have today . Rachel i have 90 . Lemonis who has the other 10 . Rachel friends and family gave me 100,000. Lemonis okay. Rachel but i put in most of the money. Lemonis so, you got the facility. Rachel right. Thats when i had to i needed more money. Lemonis and how much did it cost you to make the place look like this . Rachel 780,000. Lemonis 780,000 . Where did that money come from . Rachel these guys came to help me with finances. That was the investors. Lemonis you had people come in . Rachel yeah, and they gave me debt. And i said, i know im gonna need more for working capital, so now i have like 1 million in debt. Lemonis in addition to the 780,000 . Rachel yeah. Lemonis and is there any other debt in addition to that . Rachel yeah, a little bit well, not a little bit. Michael theres some Credit Card Debt of about 100,000, and then on top of all of that, theres some loans from different commercial entities for another 100,000. Lemonis the company has a ton of debt. Im stunned by how much debt they have. Can i spend a minute with her by myself, guys . David yes. Lemonis yeah, thanks. What is your relationship with those two . Rachel so, michael is my cousin. Lemonis okay. Rachel he went through my books and my numbers. Lemonis did you pay him . Rachel no. Lemonis okay. Rachel and then, david has worked for me forever, and hes an unbelievable marketing lemonis does he work for free, too . Rachel almost. Hes with me, so were together now, so. Lemonis oh, you guys are dating . Okay. Rachel i have so many people that are, like, counting on me to make this not to have made a bad decision. Lemonis you feel like youre closer to closing than people realize . Rachel if you look at my books, i am. Lemonis so, why did you start this business . Rachel you know, i have two children, and my husband worked, and i wanted to do something. And thank god i did, because my husband passed away, so, it was, like, a crazy, outofnowhere, so. Lemonis really . Rachel yeah. Lemonis how old was he . Rachel he was 47 and just dropped dead, so. He was a great dad, and it was a real, real rocky, crazy lemonis how did he end up passing . I mean, what rachel we think it was a heart attack. I had a call on the freeway that pull over. I have something to tell you. I think that first year, i was in a blur. I have two kids. They had to start school in a week. Just had to go. Lemonis you just have to go into survival mode, right . I have to take care of my kids, and i have to, like rachel its just wild. Lemonis im really sorry, by the way. Rachel yeah, thank you. Lemonis i really respect rachel and the fact that she lost her husband, shes raising kids, and shes running a business, and it shows me that shes willing to do whatever it takes. And for me, thats enough to actually dig in. So, the Balance Sheets pretty interesting. When you go to the revenue 2016, 230,000. But then you go to cogs. Rachel right, its a lot. Lemonis . And 484,000 means it was costing you more to make the product than you generated. Rachel right, yes. Lemonis in 2017, 701,000, and it was costing you more to make the product than you generated, which is why the business loses money. Rachel right. Lemonis you have a really bad cost of goods problem. Really bad. Like, you dont have any margin. Like zero. Rachel right. Lemonis if the margin was 50 , you still wouldve lost 700 grand. So you have a cogs problem and a revenue problem. Since you opened in 2016, the business has lost 3. 6 million. Rachel right. Right. Lemonis how much money have you put into the business . Rachel 1. 6 million. Lemonis and where did that come from . Rachel my husband. When he was around, he had done well, and so we had money. But when he passed, then we really didnt. And thats when we got the investors. Lemonis so, the company between credit cards, payables, po financing, commercial notes, loans for the realestate deposit, the investor loans the company has 2 million of liabilities that are substantial. About 2 million has come in, and its all considered debt, so im not sure why rachel keeps referring to them as investors. Theyre lenders. And then when you go on the asset side of things, 112,000 of cash, very little accounts receivable, which is why are the accounts receivable so low . Rachel i have all these pos that i cant fill. David we have a variety of Retail Partners that are lining up, that are filling the pipeline. My getting more sales in the door is not a problem. Turning this into a business thats got 10 million, 20 million, 50 million a year of revenue, thats not a problem. The problem is, is we cant get the plane off the runway. Lemonis have you been out there, trying to raise money . Rachel yes, nonstop. Originally, i thought that the people that were my investors were going to help me. Lemonis did they tell you they were going to . Rachel yes. Michael some of them are fairly confrontational, and its lemonis in what sense . Give me an example. Michael theyve sent these guys letters and emails that are. More than just sort of your standard, youre in default of our loan. Lemonis whats the Interest Rate that theyre charging you . Michael the cheapest is 12 . Some of it is, call it 36 , because it was intended to be like a 30day loan. Lemonis fastmoney loan, yeah. As an investor in a business, i dont want to invest into a black hole. Michael well, she got the email. 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Id like to invest into jackies cookies with a copacker with his sales ability, with you telling us if were making money or not. If you sat down, and you showed anybody your balance sheet, theyd be like, uhoh. Rachel right. Lemonis i dont want to pay them off, so then i hold the bag. What i wanted to do is change my role in this particular business in the short term to more of a mediator and a negotiator rather than an investor just yet. You say to everybody thats got debt in the capital structure, youre converting to equity, and were pivoting to a copacker, because, while youve done an amazing job i mean, like wonder woman it isnt your core competency. Rachel no. Lemonis so what you to sit down and say to them is, marcus wont put money in the Company Unless you convert all of your debt to equity. If not, we dont have a deal with him. Michael right. Lemonis its literally that simple. Okay, guys. Rachel thank you. David thank you very much. Lemonis thank you. Really nice meeting you. Michael yep, absolutely. Lemonis nice meeting you. Thank you, guys. Rachel thank you. Lemonis so, let me tell you why im bringing you here first. The young lady that owns the place, her name is athena, and athena really understands the process. All right, lets head in. Rachel all right. Great. Lemonis while were waiting to hear if the lenders are willing to turn the debt into equity, i want to make sure that rachel gets focused on how to manufacture and how to do it for less. In my opinion, going to a copacker like this is the perfect solution. Rachel im rachel. Athena im athena. Rachel nice to meet you. Athena nice to meet you, too. Rachel this is david. David hi. Im david. Hello. Athena hi, david. Lemonis the goal here was to have athena take rachel through the commercial baking process, for her to see the efficiency and how the cost could be lower. But instead of rachel having an open mind and learning. Rachel i use fresh eggs, so i dont know if you athena eggs come pasteurized in boxes. Rachel oh, oh, no. So, we use the fresh, and we have a machine that cracks them all. Lemonis . Shes arguing about the eggs. Rachel i have tried those eggs, and they dont taste as good. Athena no one will taste the difference. Rachel all right. Well see. Well see. Lemonis . And the butter. Rachel i use salted butter, by the way. Athena you do salted butter . Were gonna get rid of that. Rachel no, it makes it so good, im telling you. Athena but you dont want to add that to you can control it. Rachel i know i add it, too. I add salt, too. Lemonis . Which doesnt sound very constructive to me. Athena were gonna do two versions of this. Lemonis were gonna do her version and your version. Athena yes. Lemonis she assumed you wouldnt have bleached flour. Athena no, we dont. Lemonis . And real eggs. Athena . cause then you have to declare bleach on your label. Lemonis oh, did you know that . Rachel yeah. Lemonis do you declare bleach on your label . Rachel yeah. Athena no, they dont. I looked. Your label is illegal right now. David no, no, no, it works in the other direction. Rachel if its bleached, its okay. If its unbleached athena no, the other way. The other way. Rachel thats the way we david when i read the fda rules, it said, if you are using unbleached flour, you have to list that. Athena im surprised that costco allows that. cause thats totally illegal. Rachel no, see, weve checked with the fda, so i dont know. Athena sweetie, im telling you, its illegal. David we will check again. Rachel yes, we will check again. Lemonis the first thing i noticed is that rachels asking david, whos the salesperson, about labeling and compliance. News flash its not a sales question. David it says, when any optional bleaching ingredient is used, the word bleached shall immediately and conspicuously precede or follow such name of product. Rachel all right, well athena thank you rachel so now we need to put that on there. Lemonis and second, david gave her incorrect information, and rachel just blindly accepted it. You can turn around. Okay. Rachel mmhmm. Lemonis both good . Rachel yeah. The second one seems maybe more mine. Lemonis that last cookie was not yours. Rachel but its not a huge difference. Lemonis you couldnt tell. Rachel no. Lemonis i like the fact that youve been openminded to go through this process. In this environment, with the business being under attack, if you had to change things, you could, and i think you demonstrated for me that you were open to it. Did this process at least make you feel more comfortable that its possible . Rachel yes. Completely. Lemonis thank you so much were excited to start. Rachel i appreciate it. David appreciate it. Thank you. Lemonis so, i asked rachel to meet me over at her bakery in santa monica. Part of my goal of visiting this location was primarily to c