U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[x]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
Commission file number 0-19721
SARATOGA BRANDS INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3413467
(State or other jurisdiction (IRS Employer
of incorporation or organization) identification no.)
1835 Swarthmore Avenue, Lakewood, New Jersey 08701
(Address of principal executive offices)
(732) 363-3800
(Issuer's telephone number)
---------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ...X.. No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d)of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes .......No .......
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding of each of the issuer's classes of common equity as
of April 30, 1999
Title of Each
Class Number of Shares Outstanding
Common Stock, $.001 par value per share 5,046,661
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
SARATOGA BRANDS INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
March 31, 1999
ASSETS
Current Assets:
Cash and cash equivalents $223,307
Accounts receivable-net of allowance for doubtful accounts
of $ 89,555 953,434
Inventories 492,346
Prepaid expenses and other current assets 147,114
------------------
Total current assets 1,816,201
Fixed Assets - net 3,075,979
Other assets 614,636
Intangible assets - net 1,144,046
Excess of cost over fair value of assets acquired - net 240,000
------------------
TOTAL ASSETS $6,890,862
==================
See notes to the consolidated financial statements (unaudited).
2
<PAGE>
SARATOGA BRANDS INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited) (continued)
March 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $1,327,434
Current portion of long-term debt 646,800
Current portion of capital leases obligations 86,102
------------------
Total current liabilities 2,060,336
Long-term debt 734,200
Capital lease obligations 290,261
------------------
Total liabilities 3,084,797
------------------
STOCKHOLDERS' EQUITY
Preferred stock 397,898
Class A participating convertible preferred shares, $1 par value,
stated at liquidation value, authorized 200 shares of which 16.5
shares are issued and outstanding.
Common stock 5,047
Par value $.001 - 25,000,000 shares authorized, 5,046,661 shares
issued and outstanding
Additional paid-in-capital 521,076
Retained Earnings Since April 1, 1997 2,882,044
------------------
Total Stockholders' Equity 3,806,065
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,890,862
==================
See notes to the consolidated financial statements (Unaudited).
3
<PAGE>
SARATOGA BRANDS INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For the Three Months Ended
March 31,
1999 1998
---------------------------------------
Net sales $2,762,182 $2,916,515
Cost of sales 1,940,595 2,151,715
-----------------------------------
Gross profit 821,587 764,800
Selling, general and administrative expenses 618,478 584,031
Loss on abandoned operation 52,866 -
---------------------------------------
Income from Operations 150,243 180,769
Interest expense - net 63,145 47,918
---------------------------------------
Income before taxes 87,098 132,851
Income tax provision 8,500 -
---------------------------------------
Net Income $78,598 $132,851
=======================================
EARNINGS PER COMMON SHARE
BASIC & DILUTED
Net Income $0.02 $0.03
=======================================
Basic weighted average shares used in computation 5,046,661 4,800,589
Diluted weighted average shares used in computation 5,046,661 5,299,552
See notes to the consolidated financial statements (Unaudited).
4
<PAGE>
SARATOGA BRANDS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended
March 31,
--------------------------
1999 1998
--------------------------
Cash Flows from operating activities:
Net income $78,598 $132,851
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 117,908 97,982
Provision for losses on accounts receivable 9,000 4,375
(Increase) in current portion mortgage receivable 0 (64)
Decrease in accounts receivable (45,035) 13,179
(Increase) decrease in inventories 492 (126,018)
Decrease in other assets (27,223) 17,920
(Increase) decrease in prepaid expenses (71,651) (85,850)
Increase in accounts payable and accrued expenses (35,279) 192,436
--------------------------
Net cash provided by (used in) operating activities 26,810 246,811
--------------------------
Cash flows from investing activities:
Purchase of fixed assets (54,353) (49,705)
Redemption of investment 80,285
Purchase of Intangible Assets (routes) (10,502)
--------------------------
Net cash provided by (used in) investing activities (54,353) 20,078
--------------------------
Cash flows from financing activities:
Proceeds of long-term debt 200,000 0
Repayment of long-term debt (243,356) (194,027)
Proceeds of capital leases 200,000 0
Repayment of capital leases (14,151) (4,311)
--------------------------
Net cash provided by financing activities 142,493 (198,338)
--------------------------
Increase (decrease) in cash 114,950 68,551
Cash at beginning of period 108,357 228,945
--------------------------
Cash at end of period $223,307 $297,496
==========================
Supplemental disclosure of cash flows information:
Interest paid $59,753 $48,221
Income taxes paid $2,500 $600
See notes to the consolidated financial statements (Unaudited).
5
<PAGE>
SARATOGA BRANDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 --ORGANIZATION AND BASIS OF PRESENTATION
Saratoga Brands Inc., ("the Company"), through its Cucina Classica
Italiana, Inc. ("CCI") subsidiary, located in Lakewood, New Jersey, imports and
produces under license Italian specialty cheese and other premium specialty
foods and distributes them nationwide. The Company's Mobile Caterers, Inc.
("MOBILE") subsidiary, located in West Warwick, Rhode Island, is a food
processor and distributor that services mobile caterers, commissaries and
vending accounts throughout New England.
The unaudited consolidated financial statements included herein have been
prepared by the Company in accordance with the same accounting principles
followed in the presentation of the Company's annual financial statements for
the year ended December 31, 1998, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments that are of a normal and recurring nature and are necessary to
fairly present the results of operations, the financial position and cash flows
of the Company have been made on a consistent basis. This report should be read
in conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB Annual Report for the year ended December 31, 1998.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. In consolidation all material inter company
balances are eliminated.
Income taxes for the interim period are based on the estimated effective
tax rate expected to be applicable for the full fiscal year. The Company has
recorded a full valuation allowance related to the deferred tax asset at March
31, 1999.
NOTE 2 -FIXED ASSETS
Depreciation and amortization is computed utilizing the straight-line
method over the estimated useful lives of the related assets as follows:
Fixed Assets 5 to 37.5 years
Identifiable Intangible Assets 5 to 15 years
The Company will assess the recoverability of fixed assets and intangible
assets based on existing facts and circumstances and projected earnings before
interest, depreciation and amortization on an undiscounted basis. Should the
Company's assessment indicate impairment an appropriate write-down will be
recorded.
The Company assesses the recoverability of goodwill at each reporting
period based on existing facts and circumstances and projected earnings before
interest, depreciation and amortization on an undiscounted basis. Should the
Company's assessment indicate an impairment, an appropriate write-down will be
recorded.
6
<PAGE>
SARATOGA BRANDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Fixed assets consists of the following at March 31, 1999:
Useful Life
--------------
Land $611,007
Buildings 1,394,402 37..5 years
Furniture & equipment 970,755 5 - 10 years
Vehicles 501,419 5 - 7 years
Leasehold improvements 45,401 5 years
Capital leases 339,417
--------------
Total Cost 3,862,401
Less accumulated depreciation
and amortization (786,422)
==============
Fixed assets - net $3,075,979
==============
NOTE 3 -- LONG-TERM DEBT
Long term debt consists of the following at March 31, 1999:
Bank - unsecured loan payable in six equal monthly
principal installments plus accrued interest beginning
June 15, 1999; bearing interest at prime plus 1%.
Prime was 7.75% at March 31, 1999 $400,000
Term Loan - payable in installments through 2000.
Interest at prime plus 1%. Secured by accounts receivable,
inventories and fixed assets 88,500
Term Loan - payable $37,500 annually through 2002,
With a balloon payment in 2003. Interest at 8%.
Secured by building. 731,250
Note payable, unsecured - payable in monthly
installments of $9,375. Interest at prime plus 1%. 131,250
Other 30,000
------------
Subtotal 1,381,000
Less Current Maturities 646,800
------------
Long -term debt $734,200
============
7
<PAGE>
Maturities of Long Term Debt are as follows:
1999 $ 585,600
2000 129,775
2001 37,500
2002 37,500
2003 590,625
---------------
$ 1,381,000
===============
Note 4 -- SEGMENT REPORTING
The Company adopted Statement Financial Accounting Standard No.131,
Disclosures about Segments of an Enterprise and Related Information ("FAS 131"),
in 1998. This statement establishes standards for reporting information about
operating segments in annual financial statements and selected information in
interim financial statements. It also establishes standards for related
disclosures about products and services and geographic areas. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision-maker is the Chief Executive
Officer.
There are no material inter-segment sales or transfers. Substantially all
revenues are generated within the United States and all revenue producing assets
are located therein.
Industry segment information at March 31, 1999 is summarized as follows:
Total Operating
Revenues Profits
---------------------------------
CCI $ 1,962,450 $389,297
Mobile 776,721 (121,602)
---------------------------------
Total Segment 2,739,171 267,695
Eliminations and other
corporate income(expenses) 23,011 (117,452)
---------------------------------
Consolidated $ 2,762,182 150,243
=================================
Interest expense 63,145
--------------
Consolidated income before
income taxes $ 87,098
8
<PAGE>
Note 4 -- SEGMENT REPORTING (Continued)
Depreciation
Capital and Amortization Identifiable
Expenditures Expense Assets
--------------------------------------------------
CCI $ 49,421 $ 42,008 $ 1,910,774
Mobile 4,932 68,400 4,268,346
Corporate - 7,500 711,742
=================================================
Consolidated $ 54,353 $ 117,908 $ 6,890,862
=================================================
9
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Consolidated Unaudited
Financial Statements and related notes which are contained in Item 1 herein.
Results of Operations for the Three Months Ended March 31, 1999 and 1998
Net sales for the three months ended March 31, 1999 were $2,762,182
compared with $2,916,515 in the same period in 1998, a decrease of $154,333, or
5.6%. This decrease is primarily a result of the abandonment of the Direct Store
Delivery ("DSD") operation at Mobile Caterers, Inc. ("Mobile") in the fourth
quarter of 1998. The Company generated gross profit of $821,587 or 29.7 in 1999,
versus $764,800 or 26.2% in 1998. The increase in gross profit margin was the
result of the elimination of product returns at Mobile, and reduction in direct
costs attributable to the abandoned operation as well as an improvement in the
product mix at CCI during the quarter.
Selling, general and administrative expenses were $618,478 and $584,031 in
1999 and 1998, respectively. This represents an increase of $34,447 or 5.9%.
This increase is the result of the addition of a Vice President-Sales &
Marketing at CCI, and the undertaking of an aggressive new marketing effort at
CCI, including start-up costs relating to the development of a new fully
integrated E-Commerce Web Site which will become operational by the end of the
second quarter of 1999.
Management expects gross margins to improve as the Company begins to regain
sales volume lost by the abandonment of the DSD operation, and with the full
rollout of CCI's new E-Commerce Web Site. However, there can be no assurance
that any such improvements in the margins will be achieved. To this end, the
Company's Mobile subsidiary is seeking additional wholesale customers, as well
as developing products for sale through mass merchants. The Company reported no
provision for Federal income taxes for the three months ended March 31, 1999 and
1998, as the Company's taxable operating earnings were offset by net operating
loss carryforwards. The Company reported a provision for state income taxes of
$8,500 and $0 for the three-month period ended March 31, 1999 and 1998
respectively.
Income for the three month period ended March 31, 1999 was $78,598 versus
$132,851 in 1998 or $0.02 and $0.03 per share on diluted weighted average shares
of 5,046,661 and 5,299,552 respectively. This represents a reduction of $54,253
of which $52,866 resulted from additional costs attributable to the abandoned
DSD operation.
10
<PAGE>
Liquidity and Capital Resources
The Company's sources of capital include, but are not limited to, the
issuance of public or private debt, the issuance of equity securities, bank
borrowings and capital lease financing.
At March 31, 1999 the Company had a net worth of $3,806,065 compared with
$3,842,228 at March 31, 1998.
The Company has a limited requirement for capital expenditures in the
immediate future. CCI's factoring arrangement with Bank of New York Financial
Corporation has adequate availability to provide working capital to support
sales growth in that division. Mobile owns real estate with a market value of
approximately $1,200,000 against which there exists a mortgage in the amount of
$731,250. The asset provides adequate collateral to support borrowing for
working capital needs in that subsidiary.
Additionally, the Company has a loan outstanding with a bank, with a
current balance of $400,000 at the prime rate plus 1 percent. This loan is to be
repaid during the next 12 months.
The Company has entered into a capital lease transaction in the amount of
$200,000 to fund the acquisition and construction of a new state of the art
cheese drying facility to be used in conjunction with its cheese grating and
shredding operation.
Management believes that the Company has sufficient working capital to meet
the needs of its current level of operations.
Anticipated Future Growth
Management believes that the future growth of the Company will be the
result of four efforts; (1) acquisition of other companies in the food and food
related industries, (2) increasing sales to existing customers by offering new
products and product lines, (3) obtaining new customers in the existing markets
and developing new markets via current marketing channels and the internet
through CCI's new E-Commerce Web Site, and (4) controlling and containing
production, operating and administrative costs.
11
<PAGE>
Year 2000 Readiness
This disclosure is a year 2000 ("Year 2000") Readiness Disclosure within
the meaning of the Year 2000 Information and Readiness Disclosure Act of 1998 to
the extent that the disclosure relates to the Year 2000 processing of the
Company.
The Company has implemented a program to assess, mitigate and remediate the
potential impact of the Year 2000 problem throughout the Company. A Year 2000
problem will occur where date-sensitive software uses two digit date fields,
sorting the Year 2000 ("00") before the year 1999 ("99"). The Year 2000 problem
can arise in hardware, software, or any other equipment or process that uses
embedded software or other technology. The failure of such systems to properly
recognize dates after December 31, 1999 could result in data corruption and
processing errors.
Management has reviewed the possible effects of the Year 2000 problem in so
far as it relates to the Company; and has determined that the Company is
currently utilizing Year 2000 compatible equipment and software. The Year 2000
problem is not expected to have a material adverse effect on the operations of
the Company.
In addition, the Company has implemented a program to determine the Year
2000 compliance status of its material vendors, suppliers, service providers and
customers, and based on currently available information does not anticipate any
material impact to the Company based on the failure of such third parties to be
Year 2000 compliant. However, the process of evaluating the Year 2000 compliance
status of material third parties is continually ongoing and, therefore, no
guaranty or warranty can be made as to such third parties' future compliance
status and its potential effect on the Company. The Company believes there
exists a sufficient number of suppliers of raw material for its business so that
if any supplier is unable to deliver raw materials due to Year 2000 problems,
alternate sources will be available and that any supply interruption will not be
material to the Company's operations. There can be no assurances, however, that
the Company would be able to obtain all of its supply requirements from such
alternate sources in a timely way or on terms comparable with that of its
current suppliers.
The information set forth in the preceding three paragraphs constitutes a
"Year 2000 Readiness Disclosure" pursuant to the Year 2000 Information and
Readiness Disclosure Act. (P.L. 105-271 signed into law October 19, 1998).
12
<PAGE>
The preceding Year 2000 discussion contains various forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 and the Section 27A Securities Act of 1933. These forward-looking
statements represent the Company's beliefs or expectations regarding future
events. When used in the Year 2000 discussion, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Forward-looking statements include without limitation the Company's
belief that its internal systems are Year 2000 compliant. All forward-looking
statements involve a number of risks and uncertainties that could cause the
actual results to differ materially from the projected results. Factors that may
cause these differences include, but are not limited to, the availability of
qualified personnel and other information technology resources; the ability to
identify and remediate all date-sensitive lines of computer code or to replace
embedded computer chips in affected systems or equipment; and the actions of
governmental agencies or other third parties with respect to Year 2000 problems.
Forward Looking Statements
The matters discussed in this Item 2 may contain forward-looking statements
that involve risk and uncertainties. The forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially due to a variety of
factors, including without limitation the presence of competitors with broader
product lines and greater financial resources; intellectual property rights and
litigation, needs of liquidity; and the other risks detailed from time to time
in the company's reports filed with the Securities and Exchange Commission.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
None
(b) Reports filed on Form 8K
None
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf the
undersigned thereunto duly authorized
SARATOGA BRANDS INC.
(Registrant)
Date: May 17, 1999 By: /s/ Scott G. Halperin
---------------------
Scott G. Halperin
Chairman
Chief Executive Officer
Date: May 17, 1999 By: /s/ Bernard F. Lillis, Jr.
--------------------------
Bernard F. Lillis, Jr.
Chief Financial Officer
Principal Accounting Officer
Treasurer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This shedule contains summary financial information extracted from Consolidated
Audited Financial Statements contained in Form 10KSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 223,307
<SECURITIES> 0
<RECEIVABLES> 1,042,989
<ALLOWANCES> (89,555)
<INVENTORY> 492,346
<CURRENT-ASSETS> 1,816,201
<PP&E> 3,862,401
<DEPRECIATION> (786,422)
<TOTAL-ASSETS> 6,890,862
<CURRENT-LIABILITIES> 2,060,336
<BONDS> 0
0
397,898
<COMMON> 5,047
<OTHER-SE> 3,403,120
<TOTAL-LIABILITY-AND-EQUITY> 6,890,862
<SALES> 2,762,182
<TOTAL-REVENUES> 2,762,182
<CGS> 1,940,595
<TOTAL-COSTS> 2,611,939
<OTHER-EXPENSES> 71,645
<LOSS-PROVISION> 9,000
<INTEREST-EXPENSE> 63,145
<INCOME-PRETAX> 87,098
<INCOME-TAX> 8,500
<INCOME-CONTINUING> 87,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,598
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
