<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
Commission file No. 0-15320
The Fresh Juice Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2771046
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
35 Walnut Avenue, Suite 4
Clark, New Jersey 07066
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (732) 396-1112
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 / /
The number of shares of $.01 par value Common Stock outstanding as of October
14, 1997 was 6,467,731.
<PAGE> 2
Part I
Item 1. Financial Statements
THE FRESH JUICE COMPANY, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 866,091 $ 133,768
Trade accounts receivable 3,448,061 2,236,781
Inventories 3,294,093 1,759,200
Current portion of notes receivable - stockholders 15,640 --
Prepaid and other current assets 333,930 296,007
----------- -----------
Total Current Assets 7,957,815 4,425,756
Property, Plant and Equipment, at Cost:
Land 30,000 30,000
Building and leasehold improvements 3,014,546 1,740,229
Equipment 5,734,453 3,137,411
Molds 279,354 224,333
Vehicles 306,878 143,358
----------- -----------
9,365,231 5,275,331
Less accumulated depreciation and amortization 3,100,728 820,646
----------- -----------
Net Property, Plant and Equipment 6,264,503 4,454,685
Excess Cost Over Fair Values of Net Assets Acquired, Net of Accumulated Amortization
of $431,909 at August 31, 1997 and $126,748 at November 30, 1996 7,676,577 6,110,947
Trademarks, Patents and Other Intangibles, Net of Accumulated Amortization of
$72,312 at August 31, 1997 and $23,108 at November 30, 1996 479,583 140,084
Notes Receivable - Stockholders, Net of Current Portion 164,800 --
Other Assets 65,995 150,000
----------- -----------
TOTAL ASSETS $22,609,273 $15,281,472
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 1,200,000 $ 705,000
Current installments of obligations under capital lease 23,604 --
Current installments of long-term debt 1,012,843 260,070
Accounts payable and accrued expenses 3,584,503 2,836,582
Current installments of notes payable - related parties 171,403 --
Income taxes payable 457,868 --
----------- -----------
Total Current Liabilities 6,450,221 3,801,652
Obligations Under Capital Lease, Net of Current Installments 58,362 --
Long-Term Debt, Net of Current Installments 1,416,364 1,524,562
Notes Payable - Related Parties, Net of Current Installments 2,276,099 --
Deferred Income Taxes 97,228 34,000
Deferred Building Rent 142,816 --
Shareholders' Equity:
Series preferred stock, par value $10; authorized 7,000,000 shares; none issued -- --
Common stock, par value $.01; authorized 30,000,000 shares; issued
6,679,669 shares at August 31, 1997 and 6,062,000 shares at November 30,
1996; outstanding 6,467,731 shares at August 31, 1997 and 5,850,062
shares at November 30, 1996 66,797 60,620
Additional paid-in capital 9,333,958 8,583,490
Retained earnings 3,050,721 1,560,441
----------- -----------
12,451,476 10,204,551
Less cost of common shares held in treasury: 211,938 shares
at August 31, 1997 and November 30, 1996 283,293 283,293
----------- -----------
Total Shareholders' Equity 12,168,183 9,921,258
----------- -----------
Commitments and Contingency
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $22,609,273 $15,281,472
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
THE FRESH JUICE COMPANY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED AUGUST 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Sales $ 31,491,349 $13,350,162
Cost of Goods Sold 22,639,803 9,856,841
------------ -----------
Gross Profit 8,851,546 3,493,321
Selling, General and Administrative Expenses 6,481,003 3,149,501
Merger and Acquisition Expenses -- 249,305
------------ -----------
Earnings From Operations 2,370,543 94,515
Interest Income 20,611 38,733
Interest Expense (401,345) (96,462)
Other Income 19,267 8,410
------------ -----------
Earnings Before Income Taxes 2,009,076 45,196
Income Taxes 518,796 49,500
------------ -----------
Net Earnings (Loss) 1,490,280 (4,304)
Retained Earnings, Beginning of Period 1,560,441 2,489,484
------------ -----------
Retained Earnings, End of Period $ 3,050,721 $ 2,485,180
============ ===========
Net Earnings Per Common Share $ .23 $ .00
============ ===========
Weighted Average Number of Common and Common
Equivalent Shares Outstanding 6,542,571 4,184,316
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
THE FRESH JUICE COMPANY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Sales $10,654,840 $ 5,570,523
Cost of Goods Sold 7,943,653 4,207,626
----------- -----------
Gross Profit 2,711,187 1,362,897
Selling, General and Administrative Expenses 2,083,483 1,322,218
Merger and Acquisition Expenses -- 170,465
----------- -----------
Earnings (Loss) From Operations 627,704 (129,786)
Interest Income 6,488 10,757
Interest Expense (125,994) (31,177)
Other Income (Expense) (12,412) 3,448
----------- -----------
Earnings (Loss) Before Income Taxes 495,786 (146,758)
Income Taxes (Benefit) 238,321 (31,500)
----------- -----------
Net Earnings (Loss) 257,465 (115,258)
Retained Earnings, Beginning of Period 2,793,256 2,600,438
----------- -----------
Retained Earnings, End of Period $ 3,050,721 $ 2,485,180
=========== ===========
Net Earnings (Loss) Per Common Share $ .04 $ (.02)
=========== ===========
Weighted Average Number of Common and Common
Equivalent Shares Outstanding 6,615,361 4,690,062
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
THE FRESH JUICE COMPANY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED AUGUST 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings (loss) $ 1,490,280 $ (4,304)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,086,638 279,615
Loss on disposal of property, plant and equipment 1,104 --
Noncash income tax charge 51,261 --
Deferred building rent 4,314 --
Changes in assets and liabilities, net of assets acquired and liabilities
assumed:
Trade accounts receivable (400,427) (397,322)
Inventories (1,042,593) (456,498)
Prepaid and other current assets 2,694 (122,420)
Other assets 128,349 --
Accounts payable and accrued expenses (676,848) 354,847
Income taxes payable 457,868 (42,318)
----------- -----------
Net Cash Provided By (Used In) Operating Activities 1,102,640 (388,400)
Cash Flows From Investing Activities:
Installments from notes receivable - Ultimate Juice -- 30,000
Increase in advances to Clear Springs Citrus -- (393,932)
Decrease in notes receivable - stockholders 47,560 --
Acquisitions of property, plant and equipment (293,274) (1,295,719)
Acquisitions of trademarks and patents -- (61,215)
Acquisition of Hansen's Juices, Inc., net of cash acquired (37,756) --
Cash acquired in Ultimate Juice merger -- 70,936
----------- -----------
Net Cash Used In Investing Activities (283,470) (1,649,930)
Cash Flows From Financing Activities:
Proceeds from notes payable to bank 586,000 405,000
Repayment of notes payable to bank (91,000) --
Repayment of long-term debt (459,856) --
Repayment of capital lease obligations (26,472) --
Repayment of notes payable - related parties (95,519) (22,000)
----------- -----------
Net Cash Provided By (Used In) Financing Activities (86,847) 383,000
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 732,323 (1,655,330)
Cash and Cash Equivalents at Beginning of Period 133,768 1,998,063
----------- -----------
Cash and Cash Equivalents at End of Period $ 866,091 $ 342,733
=========== ===========
SUPPLEMENTAL CASH FLOW AND NONCASH INVESTING AND FINANCING ACTIVITIES
INFORMATION:
Income taxes paid $ 174,753 $ 96,462
Interest paid $ 399,828 $ 94,063
Fair value of assets acquired $ 6,139,034 $ 4,437,535
Debt and liabilities assumed 5,382,308 590,035
----------- -----------
Fair value of common stock issued $ 756,726 $ 3,847,500
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
THE FRESH JUICE COMPANY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
(UNAUDITED)
(1) The consolidated financial information of The Fresh Juice Company, Inc. and
Subsidiaries (the Company), included herein has been prepared by the
Company and is unaudited; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement of the
financial position, results of operations, and cash flows for the interim
periods to which the report relates. The results of operations for the
periods ended August 31, 1997 are not necessarily indicative of the
operating results which may be achieved for the full year. All material
intercompany accounts and transactions have been eliminated in
consolidation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's November 30, 1996 consolidated financial statements.
(2) Inventories at August 31, 1997 and November 30, 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw Materials $ 999,426 $ 375,351
Finished Goods 2,294,667 1,383,849
---------- ----------
$3,294,093 $1,759,200
========== ==========
</TABLE>
(3) Hansen's Juices, Inc. (Hansen's) which the Company acquired as of December
2, 1996 (see Note 4), has been named as one of many defendants in a lawsuit
filed by the Franchise Holders of Southland Corporation (Southland),
against Southland and a large number of the purveyors to the Franchisees of
Southland, i.e., 7-Eleven stores. Hansen's was one of the purveyors that
has been sued under that lawsuit. However, there is only one cause of
action which pertains to Hansen's, and Hansen's is coupled in that count
with Southland, the Coca-Cola Company and Pepsi-Cola Company. The basis of
the cause of action is that each of the named purveyors conspired to fix
prices on soft drinks by trying to set the Franchisees' retail price of
their respective products in order for the Franchisee(s) to obtain a
discount off the wholesale price. In the count in which Hansen's was named,
the plaintiffs seek total damages in excess of $50,000. The case was filed
in September 1993 and is venued in the Superior Court of the State of
California for the County of Alameda. On March 12, 1997, the Superior Court
of the State of California for the County of Alameda entered an Order
Granting Summary Adjudication in favor of Hansen's. On June 19, 1997, the
Franchise Holders of Southland filed an appeal seeking to overturn the
Order Granting Summary Adjudication in favor of Hansen's. The appeal is
presently pending and is in the briefing phase. Management of the Company
intends to vigorously oppose the appeal and believes that the defense of
the action as well as the ultimate resolution of this matter will not have
a material impact on the results of operations, liquidity or financial
condition of the Company.
On or about May 12, 1997, Parley R. Blackwelder, a former employee of Clear
Springs, filed a lawsuit against Clear Springs, alleging a breach of his
employment agreement with Clear Springs and seeking in excess of $50,000 in
damages. The case is venued in The Circuit Court of The Tenth Judicial
Circuit In and For Polk County, Florida and has recently been amended to
name Clear Springs' successor by merger, The Fresh Juice Company of
Florida, Inc., as a party defendant. The case is presently in the discovery
phase. Management of the Company intends to vigorously defend against this
lawsuit and believes that the defense of the action as well as the ultimate
resolution of this matter will not have a material impact on the results of
operations, liquidity or financial condition of the Company.
(4) During the fourth quarter of fiscal 1996, the Company made adjustments to
its original purchase accounting relative to the Ultimate Juice merger,
recorded during the second quarter of fiscal 1996. These adjustments were:
(a) reducing the value of the Company's common stock exchanged for the
stock of Ultimate Juice and (b) capitalizing as acquisition costs certain
previously expensed items such as professional fees, etc. The following
pro-forma table reflects the effect of these adjustments on the previously
reported three month and nine month periods ending August 31 of fiscal
1996:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
August 31, 1996 August 31, 1996
--------------- ---------------
(Pro-forma) (Pro-forma)
<S> <C> <C>
Earnings From Operations $ 46,780 $354,657
Net (Loss) Earnings $(26,975) $149,850
Net (Loss) Earnings Per Common Share (.01) .04
</TABLE>
The Company finalized their purchase accounting relative to the Ultimate
merger during the second quarter of fiscal 1997 with no additional
adjustments from that reflected in the Company's November 30, 1996 10-KSB.
Effective December 2, 1996, the Company acquired all of the outstanding
capital stock of Hansen's in exchange for $90,000 in cash, 597,443 shares of
the Company's common stock, warrants to purchase 300,000 shares of the
Company's common stock for $3.00 per share and assumption of debt. This
merger has been accounted for as a purchase. Simultaneously with the merger,
the Company also restructured a portion of Hansen's existing debt
obligations owed to former Hansen's stockholders and in connection therewith
delivered $60,000 in cash and 20,226 shares of the Company's common stock to
a former Hansen's stockholder.
<PAGE> 7
THE FRESH JUICE COMPANY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
(UNAUDITED)
The estimated fair value of Hansen's assets and liabilities at the date of
acquisition is presented as follows:
<TABLE>
<S> <C>
Cash $ 112,244
Trade accounts receivable 810,853
Inventory 492,300
Prepaid expenses 40,617
Notes receivable - stockholders 228,000
Property, plant and equipment 2,249,937
Goodwill, representing excess of cost over
estimated fair values of net assets acquired 1,922,036
Intangible assets 388,703
Other assets 44,344
Long-term debt (1,104,431)
Accounts payable and accrued expenses (1,424,688)
Obligations under capital lease (108,438)
Notes payable - related parties (2,543,021)
Deferred income taxes (63,228)
Deferred building rent (138,502)
----------
Total Purchase Price $ 906,726
==========
</TABLE>
In the above acquisition, the common stock delivered as consideration is
unregistered and contains certain restrictions as well as having several
large blocks of stock being issued to certain sellers in the transactions.
Management is in the process of evaluating the fair values of the assets
acquired and liabilities assumed, and has made preliminary assessments of
the fair values of assets acquired and liabilities assumed in connection
with the Hansen's merger. Management of the Company upon receiving advice
from its investment banker, has made an assessment of the fair value of the
common stock issued in connection with the Hansen's acquisition at the
approximate date of the merger agreement which fair value approximates 70%
of the publicly traded market prices.
In connection with the Hansen's merger, management's preliminary
assessments of fair values for assets acquired and liabilities assumed to
date result in tentative allocations of amounts to the excess of costs over
the fair values of net assets acquired. Management continues to be in a
discovery and assessment period, and is evaluating the possible existence
of other identifiable intangible assets that may exist. No adjustments have
been made to the consolidated financial statements with respect to a final
determination as to the existence and fair values of other identifiable
intangible assets, should any exist.
In connection with the Hansen's merger, the Company issued warrants as part
of the merger consideration to sellers, and certain bank debt and debt to
former shareholders was assumed. Management is in the process of evaluating
the fair value of the warrants issued and debt assumed. No adjustments have
been included in the consolidated financial statements for these matters.
The following table presents selected financial information (unaudited) for
the Company and Ultimate, Clear Springs and Hansen's on a pro-forma basis
assuming the four companies had been combined for the nine months ended
August 31, 1996. Pro-forma results for the nine months include the results
of the Company for the nine months ended August 31, 1996 combined with the
results of Ultimate for the four month period December 1, 1995 to March 31,
1996, the results of Clear Springs for the nine month period October 1,
1995 to June 30, 1996 and the results of Hansen's for the nine month period
ended September 30, 1996, which are periods prior to their acquisition by
the Company. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the Company,
Ultimate, Clear Springs and Hansen's constituted a single entity during
such period. Pro-forma results include necessary pro-forma adjustments:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
AUGUST 31, 1996
-----------------
(Pro-forma)
<S> <C>
Net Sales $31,910,394
Net (Loss) Earnings $ (182,067)
Net (Loss) Earnings Per Common Share $ (.03)
</TABLE>
Such pro-forma data reflects certain preliminary adjustments to the fair
value of the Clear Springs and Hansen's assets purchased since, as
indicated above, the Company has not had an opportunity to obtain all of
the independent verifications of the fair value of the assets purchased.
<PAGE> 8
THE FRESH JUICE COMPANY, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
(UNAUDITED)
(5) The Financial Accounting Standards Board issued Statement No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). Under this new
standard, a new fair value based method of accounting for stock-based
compensation arrangements with employees is established. Entities may
continue to use the Opinion 25 method or adopt the SFAS No. 123 fair value
based method. The Company adopted this standard effective December 1, 1996.
As a result, the Company has and will continue to use the Opinion 25
method, and therefore SFAS No. 123 requires footnote disclosure in the
annual financial statements of proforma net income and earnings per share
information as if the fair value based method had been adopted.
The Financial Accounting Standards Board issued Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed (SFAS No. 121). This new standard requires the
assessment of the recoverability of long-lived assets and certain
intangibles and related goodwill and recognition of any impairment losses.
The Company adopted this statement effective December 1, 1996. The adoption
of this standard did not have a material effect on the Company's
consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings per Share," and SFAS 129, "Disclosure of Information about
Capital Structure." SFAS 128, which is effective for fiscal years ending
after December 15, 1997, including interim periods, requires the
presentation of basic and diluted earnings per share ("EPS"). Basic EPS,
which replaces primary EPS, excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity. Diluted EPS is computed similarly to fully diluted EPS under
the existing rules. SFAS 128 requires restatement of all prior period EPS
amounts presented after the effective date. The Company will adopt the
provisions of SFAS 128 in fiscal 1998; however, the impact of adoption has
not yet been determined. SFAS 129, which is also effective for fiscal years
ending after December 15, 1997, establishes standards for disclosing
information about an entity's capital structure. The Company will adopt the
disclosure requirements of SFAS 129 during the fiscal year ending November
30, 1998.
(6) The Company's provision for income taxes for the nine months ended August
31, 1997 reflects the benefits of a reduction in its deferred tax asset
valuation account of approximately $393,000, resulting from the utilization
of net operating losses in effect as of November 30, 1996. As of November
30, 1996, these net operating loss carryforwards were fully offset by a
valuation allowance. In addition, the tax benefit of pre-acquisition net
operating losses pertaining to Clear Springs, which have been utilized
during the nine months ended August 31, 1997, has been credited to excess
cost of fair values of net assets in the amount of $51,261.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
As more fully discussed in Item 1 of the Annual Report on Form 10-KSB,
the Company acquired both The Ultimate Juice Company, Inc. ("Ultimate") and
Clear Spring Citrus, Inc. ("Clear Springs") during the year ended November 30,
1996. In addition, as more fully discussed in Note 4 to the Company's
Consolidated Financial Statements contained in this Quarterly Report on Form
10-QSB, the Company acquired Hansen's Juices, Inc. ("Hansen's") by merger during
the quarter ended February 28, 1997. The merger with Ultimate (the "Ultimate
Merger") became effective on April 1, 1996; the merger with Clear Springs (the
"Clear Springs Merger") became effective on September 1, 1996; and the merger
with Hansen's (the "Hansen's Merger") became effective on December 2, 1996.
Since (a) the Clear Springs Merger and the Hansen's Merger each became effective
subsequent to August 31, 1996 and (b) the Ultimate Merger became effective after
the fourth month of the fiscal year to date period ended August 31, 1996, the
Company's consolidated statements of operations for the quarter ended August 31,
1996 and the year to date period ended August 31, 1996 consist of the Company's
activities, including the operations of Ultimate for three months and five
months, respectively, and excluding the operations of Clear Springs and
Hansen's. By contrast, the Company's consolidated statements of operations for
the quarter ended and year to date period ended August 31, 1997 consist of the
Company's activities, inclusive of the operations of each of the acquired
entities described above.
Primarily as a result of the Ultimate Merger, the Clear Springs Merger,
the Hansen's Merger (hereinafter the "Acquisitions") and an increase in the
Company's warehouse club business, the Company's net sales have increased to
$31,491,349 for the nine months ended August 31, 1997, representing a 136%
increase over the Company's net sales of $13,350,162 for the nine months ended
August 31, 1996. For the quarter ended August 31, 1997, net sales have increased
to $10,654,840 or 91% over net sales of $5,570,523 for the corresponding quarter
of the previous year.
As a result of the increase in net sales, gross profit has increased to
$8,851,546 for the nine months ended August 31, 1997, representing a 153%
increase over the Company's gross profit of $3,493,321 for the nine months ended
August 31, 1996. For the quarter ended August 31, 1997, gross profit increased
to $2,711,187 from $1,362,897 for the corresponding quarter of the previous
year, representing a 99% increase.
In addition to a proportionate increase in cost of goods sold relating
to increased sales, cost of goods sold also increased due to a change in the
product mix sold by the Company. Prior to April 1, 1996, the Company was
primarily a distributor of frozen fresh squeezed juices. However, as a result of
the Acquisitions and the Company's acquisition and renovation of its production
facility in Winter Haven, Florida (the "Florida Plant"), the Company's revenue
mix has changed, and the Company is now a manufacturer and distributor of fresh
squeezed frozen and non-frozen juices and other juice and non carbonated
beverages, with the majority of the Company's revenues derived from the sale of
fresh, non-frozen juices.
The Company's selling, general and administrative expenses have also
increased as a result of the Acquisitions and the operation of the Florida Plant
and Hansen's California facilities. Selling, general and administrative
expenses, have increased to $6,481,003 for the
<PAGE> 10
nine months ended August 31, 1997, representing a 106% increase over the
Company's selling, general and administrative expenses of $3,149,501 for the
nine months ended August 31, 1996. For the quarter ended August 31, 1997, the
Company's selling, general and administrative expenses increased to $2,083,483
from $1,322,218 for the corresponding quarter of the previous year, representing
a 58% increase.
The interest paid on the outside financing obtained in connection with
equipping the Florida Plant, the assumption of debt from the Hansen's Merger, as
well as the amounts drawn on the Company's $2,500,000 line of credit, has caused
interest expense to increase by $304,883 to $401,345 for the nine months ended
August 31, 1997, as compared to $96,462 for the nine months ended August 31,
1996. For the quarter ended August 31, 1997, interest expense increased $94,817
to $125,994 as compared to $31,177 for the quarter ended August 31, 1996.
FINANCIAL CONDITION
As a result of the Hansen's Merger, increased sales and completion of
the season in which the Company manufactures and builds up its fresh-frozen
inventory, both the current and total assets of the Company have increased to
$7,957,815 and $22,609,273, respectively, as of August 31, 1997, as compared to
$4,425,756 and $15,281,472, respectively, as of November 30, 1996. Specifically,
the Company's trade accounts receivable and inventories have increased to
$3,448,061 and $3,294,093, respectively, as of August 31, 1997, as compared to
$2,236,781 and $1,759,200, respectively, as of November 30, 1996.
Primarily as a result of the Hansen's Merger, the Company's balances
for property, plant and equipment have increased to $6,264,503 as of August 31,
1997, as compared to $4,454,685 as of November 30, 1996.
Similarly, the Hansen's Merger has resulted in an increase in excess
cost over fair values of net assets acquired, net of accumulated amortization,
to $7,676,577 as of August 31, 1997, as compared to $6,110,947 as of November
30, 1996, as well as an increase in trademarks, patents and other intangibles,
net of accumulated amortization, to $479,583 as of August 31, 1997, as compared
to $140,084 as of November 30, 1996.
Accounts payable and accrued expenses have increased to $3,584,503 as
of August 31, 1997, as compared to $2,836,582 as of November 30, 1996. This
increase results from the consolidation of the Hansen's accounts payable and
accrued expenses into the Company's financial statements. The Hansen's Merger,
the assumption of the Hansen's debt associated therewith and a balloon payment
due on the mortgage on the Florida Plant have resulted in an increase in current
installments of long term debt to $1,012,843 as of August 31, 1997, as compared
to $260,070 as of November 30, 1996. The Hansen's Merger and the assumption of
the Hansen's debt associated therewith have also resulted in an increase in
notes payable-related parties to $2,447,502 as of August 31, 1997, as compared
to $0 as of November 30, 1996. Additional draws on the Company's line of credit,
used to finance its operations and pay off existing debts of its subsidiaries,
have resulted in an increase in notes payable to bank to $1,200,000 as of August
31, 1997, as compared to $705,000 as of November 30, 1996.
The Hansen's merger and the issuance of additional shares of the
Company's common stock in connection therewith have resulted in an increase in
paid-in capital to $9,333,958 as of August 31, 1997, as compared to $8,583,490
as of November 30, 1996.
<PAGE> 11
LIQUIDITY
The Company has working capital of $1,507,594 at August 31, 1997, as
compared to $624,104 at November 30, 1996. The Company requires capital to
support its capital improvements and the level of inventory required to meet
current demand, as well as expected future increases in demand for its products.
To provide additional liquidity, in August 1996, the Company obtained a
$2,500,000 line of credit with Fleet Bank, N.A.. At August 31, 1997, the amount
drawn on the line was $1,200,000, leaving $1,300,000 available as of such date.
Due to repayments on the line of credit since August 31, 1997, as of October 14,
1997, $1,500,000 of the line of credit is available, depending upon qualified
levels of accounts receivable and inventories as defined in the Loan Agreement.
The Company typically invests approximately $2.5 million from January through
June to replenish its yearly fresh-frozen juice inventory. The Company has
substantially completed building its fresh-frozen inventory for this year and
believes that it presently has sufficient liquidity to conduct its business and
to maintain sufficient levels of inventory to meet the Company's current
customers' demand for its products. The Company also believes that the results
of its operations will be sufficient to meet its debt obligations, including
those assumed in connection with the Hansen's Merger. A lack of availability of
quality fruit and higher cost of citrus would hamper the Company's ability to
maintain its rate of growth and its current gross profit level and may affect
liquidity.
As a result of the Hansen's Merger and the Company's operating results
for the fourth fiscal quarter of the year ended November 30, 1996, at August 31,
1997, the Company was in violation of the Debt to Worth Ratio financial covenant
in its new credit facility with Fleet Bank, N.A. In October, the Company
obtained from Fleet Bank, N.A. a waiver of such covenant until the test date at
the end of the fourth fiscal quarter. Management is presently working with Fleet
Bank, N.A. to permanently amend such covenant to bring the Company into
compliance. The Company's ability to meet its financial covenants in the future
is dependent upon future operating results.
<PAGE> 12
PART II - OTHER INFORMATION
LEGAL PROCEEDINGS
As previously disclosed in the Company's Annual Report on Form
10-KSB, the Company's subsidiary, The Fresh Juice Company of California, Inc.
(Hansen's), has been named as one of many defendants in a lawsuit filed by the
Franchise Holders of Southland Corporation ("Southland") against Southland and a
large number of the purveyors to the franchisees of Southland, i.e., 7-Eleven
stores. Hansen's was one of the purveyors that has been sued in connection with
that lawsuit. However, there is only one cause of action which pertains to
Hansen's, and Hansen's is coupled in that count with Southland, The Coca-Cola
Company and Pepsi-Cola Company. The basis of the cause of action is that each of
the named purveyors conspired to fix prices on soft drinks by trying to set the
franchisees' retail price of their respective products in order for the
franchisee(s) to obtain a discount off the wholesale price. In the count in
which Hansen's was named, the plaintiffs seek total damages in excess of
$50,000.00. The case was filed in September, 1993 and is venued in the Superior
Court of the State of California for the County of Alameda. On March 12, 1997,
the Superior Court of the State of California for the County of Alameda entered
an Order Granting Summary Adjudication in favor of Hansen's. On June 19, 1997,
the Franchise Holders of Southland filed an appeal seeking to overturn the Order
Granting Summary Adjudication in favor of Hansen's. The appeal is presently
pending and is in the briefing phase. Management of the Company intends to
vigorously oppose the appeal and believes that the defense of the action as well
as the ultimate resolution of this matter will not have a material impact on the
results of operations, liquidity or financial condition of the Company.
On or about May 12, 1997, Parley R. Blackwelder, a former
employee of Clear Springs, filed a lawsuit against Clear Springs, alleging a
breach of his employment agreement with Clear Springs and seeking in excess of
$50,000 in damages. The case is venued in The Circuit Court of The Tenth
Judicial Circuit In and For Polk County, Florida and has recently been amended
to name Clear Springs' successor by merger, The Fresh Juice Company of Florida,
Inc., as a party defendant. The case is presently in the discovery phase.
Management of the Company intends to vigorously defend against this lawsuit and
believes that the defense of the action as well as the ultimate resolution of
this matter will not have a material impact on the results of operations,
liquidity or financial condition of the Company.
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On July 8, 1997, the Company filed a Current Report on
Form 8-K reporting that (a) the Company had approved an amendment to its By-laws
to increase the size of the Company's Board of Directors from four to five
members; and (b) Jeffrey Heavirland, the President and Chief Executive Officer
of the Company's wholly owned subsidiary, The Fresh Juice Company of California,
Inc., had been elected to fill the newly-created directorship. No financial
statements were filed in connection with the Current Report on Form 8-K
described above.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE FRESH JUICE COMPANY, INC.
Dated: October 15, 1997 By: /s/ Steven M. Bogen
--------------------
Steven M. Bogen
Co-Chairman of the Board and
Chief Executive Officer
(principal executive officer)
Dated: October 15, 1997 By: /s/ Mark Feldman
-----------------
Mark Feldman, Chief Financial
Officer (principal financial officer
and principal accounting officer)
<PAGE> 15
EXHIBIT INDEX
Exhibit
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 866,091
<SECURITIES> 0
<RECEIVABLES> 3,448,061
<ALLOWANCES> 0
<INVENTORY> 3,294,093
<CURRENT-ASSETS> 7,957,815
<PP&E> 9,365,231
<DEPRECIATION> 3,100,728
<TOTAL-ASSETS> 22,609,273
<CURRENT-LIABILITIES> 6,450,221
<BONDS> 0
0
0
<COMMON> 66,797
<OTHER-SE> 12,168,183
<TOTAL-LIABILITY-AND-EQUITY> 22,609,273
<SALES> 31,491,349
<TOTAL-REVENUES> 31,531,227
<CGS> 22,639,803
<TOTAL-COSTS> 29,120,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401,345
<INCOME-PRETAX> 2,009,076
<INCOME-TAX> 518,796
<INCOME-CONTINUING> 1,490,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,490,280
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
