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 quarter ended March 31, 1997 Commission File Number 33-53748C
BEV-TYME, INC. AND SUBSIDIARIES
(Exact name of registrant as specified in its charter)
Delaware 36-3769323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
134 Morgan Avenue
Brooklyn, New York 11237
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (718) 894-4300
----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities and 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 15, 1997, was 4,202,125
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BEV-TYME, INC. AND SUBSIDIARIES
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page to Page
Part I: Financial Information
Item 1: Financial Statements
Consolidated Balance Sheet as of March 31, 1997 [Unaudited]... 1...... 2
Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1996 [Unaudited]........................... 3......
Consolidated Statement of Stockholders' Equity for the three months
ended March 31, 1997 [Unaudited].............................. 4......
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 [Unaudited]........................... 5...... 7
Notes to Consolidated Financial Statements [Unaudited]........ 8...... 19
Item 2: Management's Discussion and Analysis of Financial
Condition And Results of Operations.....................20...... 23
Signature.......................................................24......
. . . . . . . . . . . . . . .
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Part I:Financial Information
Item 1:Financial Statements
BEV-TYME, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997.
[UNAUDITED]
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Assets:
Current Assets:
Cash $ 1,301,771
Accounts Receivable - Net 578,323
Inventory 605,506
Prepaid Expenses 159,605
Other Current Assets 13,877
-----------
Total Current Assets 2,659,082
Property and Equipment - Net 783,609
-----------
Other Assets:
Security Deposits 8,133
Intangibles - Net 217,513
Goodwill - Net 434,456
-----------
Total Other Assets 660,102
Total Assets $ 4,102,793
===========
The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements.
1
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BEV-TYME, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997.
[UNAUDITED]
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Liabilities and Stockholders' Equity [Deficit]:
Current Liabilities:
Accounts Payable $ 2,208,823
Accrued Expenses 312,468
Payroll Taxes Payable 43,422
Notes Payable [Net of Discount of $84,922] 234,627
-----------
Total Current Liabilities 2,799,340
Long-Term Debt:
Notes Payable 142,959
Commitments and Contingencies --
Minority Interest 1,425,502
Stockholders' Equity [Deficit]:
Series C Convertible Preferred Stock - Authorized 5,800,000
Shares, Par Value of $.0001, 2,502,225 Shares Issued and
2,102,225 Outstanding 250
Common Stock - Authorized 75,000,000 Shares, Par Value of
$.0001, 4,202,125 Shares, Issued and Outstanding 420
Additional Paid-in Capital 24,086,681
Accumulated [Deficit] (20,357,109)
Total 3,730,242
Less:Preferred Stock of Parent Held by Subsidiary 2,000,000
Deferred Compensation 1,995,250
Total Stockholders' Equity [Deficit] (265,008)
Total Liabilities and Stockholders' Equity [Deficit] $ 4,102,793
===========
The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements.
2
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BEV-TYME, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
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Three months ended
March 31,
1 9 9 7 1 9 9 6
------- -------
Sales - Net $2,322,505 $ 2,397,908
Total Cost of Goods Sold 2,109,935 1,912,337
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Gross Profit 212,570 485,571
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Selling, General and Administrative Expenses:
Selling, Advertising and Promotion 210,209 384,492
General and Administrative Expenses 586,181 386,047
Amortization of Goodwill 53,723 104,459
Amortization of Deferred Compensation 787,250 289,000
Amortization of Distribution Rights 8,670 --
Amortization of Financing Costs 36,395 --
---------- -----------
Total Selling, General and Administrative Expenses 1,682,428 1,163,998
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[Loss] from Operations (1,469,858) (678,427)
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Minority Interest in Net Loss of Subsidiary 158,282 --
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Other [Income] Expense:
Interest Expense 8,874 10,303
Interest Income (5,766) --
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Other Expense - Net 3,108 10,303
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[Loss] Before Provision for Income Taxes (1,314,684) (688,730)
Provision for Income Taxes 16,614 --
---------- -----------
Net [Loss] $(1,331,298) $ (688,730)
=========== ===========
Net [Loss] Per Share $ (0.32) $ (0.08)
========== ===========
Weighted Average Number of Shares 4,202,125 8,117,209
========== ===========
The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements.
3
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BEV-TYME, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [DEFICIT]
[UNAUDITED]
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<TABLE>
Preferred Total
Series C Convertible Additional Stock of Parent Stockholders'
Common Stock Preferred Stock Paid-in Accumulated Held by Deferred Equity
Shares Amount Shares Amount Capital [Deficit] Subsidiary Compensation [Deficit]
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 924,221 $ 92 2,502,225 $ 250 $22,652,924 $(17,591,726)(2,000,000)(2,645,000 416,540
Common Stock Dividend to Holders
of Series C Preferred Stock -
January 1997 [9L] 3,277,904 328 -- -- 1,433,757 (1,434,085) -- -- --
Amortization of Deferred
Compensation Costs -- -- -- -- -- -- 649,750 649,750
Net [Loss] for the three months
ended March 31, 1997 -- -- -- -- (1,331,298) -- (1,331,298)
------- -------- -------- ------ -------- ---------- ---------- --------- -----------
Balance - March 31, 1997 4,202,12$ 420 2,502,225 $ 250 $24,086,681 $(20,357,109) (2,000,000)(1,995,250) (265,008)
========= ======= ========= ====== =========== ============== ========== ========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements.
4
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BEV-TYME, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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Three months ended
March 31,
1 9 9 7 1 9 9 6
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Net Cash - Operating Activities $ (371,856) $(1,148,049)
----------- -----------
Investing Activities:
Disposal of Equipment 19,977 --
Equipment Acquisitions (19,042) (43,708)
Purchase of Subsidiaries - Net of Assets Acquired (93,082) (150,000)
Development of Label Design (65,000) --
Restricted Cash 9,700 --
----------- ----------
Net Cash - Investing Activities (147,447) (193,708)
----------- ----------
Financing Activities:
Proceeds from Loan Payable -- 90,000
Repayment of Debt (82,152) (33,122)
Repayment of Shareholder - Loan Payable -- (259,000)
Proceeds from Exercise of Options -- 1,650,000
Proceeds from Sale of Stock -- 45,200
----------- ----------
Net Cash - Financing Activities (82,152) 1,493,078
----------- ----------
Net [Decrease] Increase in Cash (601,455) 151,321
Cash - Beginning of Periods 1,903,226 153,714
----------- ----------
Cash - End of Periods $ 1,301,771 $ 305,035
=========== ==========
The Accompanying Notes are an Integral Part of These Consolidated
Financial Statements.
5
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BEV-TYME, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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Three months ended
March 31,
1 9 9 7 1 9 9 6
------- -------
Supplemental Disclosures of Cash Flow Information:
Cash paid for the periods for:
Interest $ 6,424 $ 10,303
Income Taxes $ 16,614 $ --
Supplemental Schedule of Non-Cash Investing and Financing Activities:
In May 1995, the Company granted 525,000 Series C Preferred Stock Options to
directors, officers and employees of the Company at an exercise price of $2.00
per share and, accordingly, has recorded an expense of $1,076,250. In October
1995, the directors, officers and employees of the Company exercised the 525,000
Series C Preferred Stock Options and as a result, the Company recorded a stock
subscription receivable for $1,050,000, which was collected in January and
February 1996.
On January 2, 1996, the Company issued to the holders of record of the Series
C Preferred Stock as of December 24, 1995 a dividend of two shares of the
Company's common stock.
In February of 1996, the Company issued options to purchase 300,000 shares of
the Company's Series C Preferred Stock at an exercise price of $2.00 per share
to a consultant to assist the Company in connection with acquisitions,
divestitures, joint ventures, and other strategic business initiatives. The
Company recorded a deferred consulting cost of $765,000. These options were
exercised for $600,000 in 1996.
On March 29, 1996, the Company acquired 500,000 shares of convertible Class A
Preferred Stock and 7,000,000 shares of non-convertible Class B Preferred Stock
of Perry's Majestic Beer, Inc. ["Perry's"] [valued at $2,000,000] in exchange
for 400,000 shares of the Company's Series C Preferred Stock and $150,000.
However, in October of 1996, the Company sold the 500,000 shares of Perry's
convertible Class A Preferred Stock for $250,000 and reduced its investment
accordingly. Each share of Class B Preferred Stock has attached to it the right
to vote on all matters submitted to the Company. Perry's filed a registration
statement for 583,335 shares of common stock at $6.00 per share. The proceeds
from this offering were approximately $2,500,000.
Also on March 29, 1996, Perry's entered into an agreement to acquire all of
the stock of Riverosa Company, Inc. for $250,000 of which $150,000 in cash was
put into escrow as of March 31, 1996 and a note payable was issued for $100,000.
The note was payable with interest of 8% was paid in August of 1996 with
proceeds from the Company's initial public offering.
On March 29, 1996, in conjunction with the acquisition agreement with
Perry's, the Company entered into a two year consulting agreement with the
former principal of Perry's to assist in developing and enhancing the
distribution of other beers and ales. As a part of the consulting agreement he
was issued 35,000 shares of the Company's common stock on April 11, 1996. A
deferred compensation cost of $33,000 was recorded in April of 1996 for the
estimated fair value of these shares.
On April 5, 1996, the Company entered into a two year agreement with a
consultant to assist the expansion of the distribution of its products to
restaurants and the food service industry by issuing 40,000 shares of Company's
common stock. A deferred compensation cost of $25,000 was recorded in April of
1996 for the estimated fair value of these shares.
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
6
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BEV-TYME, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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Supplemental Schedule of Non-Cash Investing and Financing Activities[Continued]:
On April 23, 1996, the Company received a $150,000 loan from an individual
whereby the Company issued 40,000 shares of the Company's common stock. The loan
was repaid in May of 1996. A deferred financing cost of $25,000 was recorded and
expensed for the estimated fair value of these shares in 1996.
In August 1996, the Company issued to certain officers and directors options
to purchase an aggregate of 630,000 shares of Series C Preferred Stock at an
exercise price of $1.00 per share and 700,000 shares of common stock at an
exercise price of $.25 per share for services to be rendered in 1997. The
Company recorded deferred compensation cost of $2,187,500 in August of 1996 for
the excess of the estimated fair value of these options over the exercise price
and will record the expense over one year. None of such options have been
exercised.
In January of 1997, the Board of Directors declared a dividend of 1.31 common
shares of stock for each share of Series C Preferred Stock outstanding as of
December 27, 1996.
During the first quarter of 1997, Perry's issued a total of 400,000 shares of
Perry's common stock to two officers as consideration for extending their
employment agreements for five years. Deferred compensation of $2,000,000 was
recorded and will be amortized over five years as compensation expense.
Compensation expense of $100,000 was recorded for the three months ended March
31, 1997 for this transaction. In addition, an additional 200,000 shares of
Perry's common stock were issued for a three year consulting agreement for
services valued at $450,000. The Company recorded $37,500 for the amortization
of the deferred consulting services under this agreement.
During the first quarter of 1997, Perry's also issued 25,000 shares of common
stock valued at approximately $214,000 as additional consideration for the
purchase of Old Marlborough Brewing Co., Inc.'s Post Road brand.
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
7
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BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
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[1] General Information and Summary of Significant Accounting Policies
General and Organization - New Day Beverage Co. was an Illinois corporation
originally established in April 1991 and maintained its principal place of
business in Chicago, Illinois. In August of 1992, New Day Beverage Co. changed
its name to New Day Beverage, Inc. and changed its state of incorporation to
Delaware and in February 1994, relocated its principal place of business to
Brooklyn, New York. On January 11, 1996, the Company changed its name to
Bev-Tyme, Inc.
Bev-Tyme, Inc. ["Bev-Tyme"], is engaged in the business of distributing and
selling beverage and snack products to grocery stores, supermarket chains,
restaurants and corporate cafeterias. In 1995, the Company also commenced
distributing beer and other malt beverages. The Company markets beverages and
snack products to retail grocery stores, supermarket chains, restaurants,
corporate cafeterias and wholesale distributors, a substantial portion of which
is concentrated in the New York City metropolitan area.
Basis of Reporting - The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such statements include all
adjustments which are considered necessary in order to make the interim
financial statements not misleading.
Principles of Consolidation - The consolidated financial statements include the
accounts of Bev-Tyme and each of its wholly-owned and majority-owned
subsidiaries [the "Company"]. Material intercompany transactions and balances
have been eliminated in consolidation. See Note 2 entitled "Acquisitions" for
further information. The minority interest represents the separate public
ownership of Perry's Majestic Beer, Inc.
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid debt investments with a maturity of three months or less when purchased.
At March 31, 1997, there were no cash equivalents.
Inventories - Inventories are stated at the lower of cost or market. Cost, which
includes purchases, freight, raw materials, direct labor and factory overhead,
is determined on the first-in, first-out basis.
Property and Equipment - Property and equipment are stated at cost and are
depreciated over its estimated useful life of 5 to 10 years. Depreciation is
calculated using the straight-line method.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financing Costs - For the three months ended March 31, 1997 and 1996, the
Company charged to operations $36,395 and $-0- for amortization of financing
costs. The financing costs are being amortized over the life of the loans, or
twelve months under the straight-line method [See Note 5].
Advertising and Promotion Expense - Advertising and promotion costs are expensed
as incurred. For the three months ended March 31, 1997 and 1996, advertising and
promotion costs were approximately $19,891 and $16,346, respectively.
Goodwill - Amounts paid for securities of newly-acquired subsidiaries in excess
of the fair value of the net assets of such subsidiaries have been charged to
goodwill. Goodwill is related to revenues the Company anticipates realizing in
future years. The Company amortizes its goodwill over a period of up to five
years under the straight-line method. Accumulated amortization at March 31, 1997
and 1996 was $53,723 and $104,459, respectively.
8
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BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
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[1] General Information and Summary of Significant Accounting Policies
[Continued]
Goodwill [Continued] - During the last quarter of 1996, the Company recorded an
impairment loss of $2,578,485 from writing down goodwill. Facts and
circumstances leading to the impairment loss in 1996 were operating and cash
flow losses that did not justify the carrying value of the goodwill. The
impairment loss recorded is the goodwill allocated to the Mooch & Muck, Inc. and
Sclafani Beer & Soda Distributors, Inc. purchase. Fair value of goodwill was
based on the present value of estimated expected future cash flows from the
related assets.
Intangibles - The Company acquired various distribution rights totaling
approximately $100,000. The Company amortizes these rights over 5 years on the
straight-line method.
Risk Concentrations - Financial instruments that potentially subject the Company
to concentrations of credit risk include cash and cash equivalents and accounts
receivable arising from its normal business activities. The Company places its
cash and cash equivalents with high credit quality financial institutions
located in the New York metropolitan area.
The Company maintains cash balances at a financial institution in New York.
Accounts at this institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At March 31, 1997, the Company's uninsured cash
balance totaled $1,201,771.
The Company performs certain credit evaluation procedures and does not require
collateral. The Company believes that credit risk is limited due to the large
number of entities comprising the Company's customer base. In addition, the
Company routinely assesses the financial strength of its customers, and based
upon factors surrounding the credit risk of its customers, establishes an
allowance for uncollectible accounts and, as a consequence, believes that its
accounts receivable credit risk exposure beyond such allowances is limited. The
Company established an allowance for doubtful accounts at March 31, 1997 of
$109,473. The Company believes any credit risk beyond this amount would be
negligible.
With respect to purchases of inventory for each of the three months ended March
31, 1997 and 1996, the Company purchased inventory from three suppliers in 1997
and two suppliers in 1996 which comprised approximately 52% and 49%,
respectively, of the Company's total cost of sales. The Company believes there
are other suppliers available to meet the Company's needs.
The Company has minimum volume commitments on several of their distribution
contracts with vendors, whereby the vendor has the option to terminate an
agreement if certain volume targets are not met.
Stock Options Issued to Employees - The Company adopted Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation"
on January 1, 1996 for financial note disclosure purposes and will continue to
apply the intrinsic value method of Accounting Principles Board ["APB"] Opinion
No. 25, "Accounting for Stock Issued to Employees" for financial reporting
purposes.
Revenue Recognition - Revenue is recognized at the time products are shipped and
title passes.
Net [Loss] Per Share - The net loss per share is computed by dividing the net
loss by the weighted average number of shares outstanding during the period.
Shares issuable upon the exercise of stock options granted and the effect of
convertible securities are excluded from the computation because the effect on
the net loss per common share would be anti-dilutive. All share data have been
adjusted to reflect the one-for-ten- reverse stock split in July 1996.
9
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BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[UNAUDITED]
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[1] General Information and Summary of Significant Accounting Policies
[Continued]
Stock Transaction of Subsidiary - Changes in the proportionate share of
subsidiary equity are accounted for as equity transactions and either increase
or decrease the Company's investment in the subsidiary.
Impairment - Certain long-term assets of the Company are reviewed at least
annually as to whether their carrying value has become impaired, pursuant to
guidance established in Statement of Financial Standards ["SFAS"] No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations
[undiscounted and without interest charges]. If impairment is deemed to exist,
the assets will be written down to fair value or projected discounted cash flows
from related operations. Management also re-evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. During 1996, the Company determined an
impairment of goodwill existed [See Notes 2A and 2B].
[2] Acquisitions
[A] Mootch & Muck, Inc. ["Mootch"] - In March 1994, the Company acquired the
remaining 49% interest in Mootch & Muck, Inc., subject to obtaining certain
governmental approvals, in exchange for 60,000 newly issued shares of common
stock and $250,000 payable at the Company's option in cash or common stock over
a period of sixteen [16] months.
In addition, the seller was entitled to receive an additional 20,000 shares of
common stock if the subsidiaries reported positive earnings before the payment
of taxes for the year ended December 31, 1994, and an additional 20,000 shares
of common stock if the Company reported not less than $100,000 in earnings
before the payment of taxes for the year ended December 31, 1995. On October 28,
1994, the Company issued 5,068 shares of common stock as payment of $150,000 due
and owing under the debt to the seller, a director of the Company. Under the
terms of the original agreement, in the event that the seller sold such shares
and received less than $150,000 from the proceeds therefrom, the Company was
obligated to issue the seller a sufficient number of additional shares of common
stock so that the aggregate proceeds from both sales was not less than $150,000.
On February 13, 1995, the Company and the seller amended their agreement so that
the seller would receive shares of Series C Preferred Stock and the Company
would be relieved from all of its obligations to make future payments to the
seller. Under the amended agreement, the Company issued to the seller 83,333
shares of Series C Preferred Stock and the seller released the Company from all
of its obligations to make payments in the future. Further, in the event that
the seller received within two years following the effective date aggregate, net
proceeds in excess of $250,000, the seller would deliver such amount in excess
of $250,000 to the Company and surrender for cancellation all of the remaining
shares held thereby, if any. In connection with the Company acquiring the
remaining 49% interest in the subsidiaries, the Company was obligated to pay the
seller $250,000 at the Company's option in cash or common stock over a period of
16 months. There was approximately $1,870,000 of goodwill recorded as a result
of this transaction. As of December 31, 1996, the unamortized balance of
goodwill was written-off [See Note 1].
[B] Sclafani Beer & Soda Distributors, Inc. ["SB&S"] - On June 2, 1995, the
Company purchased the assets and assumed certain liabilities of Sclafani Beer &
Soda Distributors, Inc. ["SBS"] for $500,000 in cash, 20,000 shares of the
Company's common stock valued at market value or $31,250, and options to
purchase 7,500 shares of the Company's common stock valued at $11,720. Goodwill
of approximately $450,000 was recognized for this acquisition. As of December
31, 1996, the unamortized balance of goodwill was written-off [See Note 1].
10
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BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
- ------------------------------------------------------------------------------
[2] Acquisitions [Continued]
[C] Perry's Majestic Beer, Inc. - On March 29, 1996, the Company acquired
500,000 shares of convertible Class A Preferred Stock and 7,000,000 shares of
non-convertible Class B Preferred Stock of Perry's Majestic Beer, Inc.
["Perry's"] [valued at $2,000,000] in exchange for 400,000 shares of the
Company's Series C Preferred Stock and $150,000. However, in October of 1996,
the Company sold the 500,000 shares of convertible Class A Preferred Stock for
$250,000 and reduced its investment accordingly. Each share of Class A Preferred
Stock was convertible by the Company into one [1] share of Common Stock. Each
share of Class B Preferred Stock has attached to it the right to vote on all
matters submitted to the Company. Perry's filed a registration statement for
583,335 shares of common stock at $6.00 per share. The proceeds from this
offering were approximately $2,500,000. The bridge lenders waived their rights
to warrants for 3,000,000 shares of common stock as recorded in their original
agreement with Perry's.
Also on March 29, 1996, Perry's entered into an agreement to acquire all of the
stock of Riverosa Company, Inc. for $250,000 of which $150,000 in cash was put
into escrow as of March 31, 1996 and a note payable was issued for $100,000. The
note was payable with interest of 8% was paid in August of 1996 with proceeds
from the Company's initial public offering.
On March 31, 1996, Perry's borrowed an aggregate of $150,000 from seven [7]
unaffiliated lenders [the "Bridge Lenders"]. In exchange for making loans to the
Company, each Bridge Lender received a promissory note [the "Bridge Note"]. Each
of the Bridge Notes bears interest at the rate of eight percent [8%] per annum.
The Bridge Notes were paid at the closing of the initial public offering of the
Company's securities in August of 1996. As of March 31, 1996, $90,000 was
received in cash from the bridge loan and $60,000 was received April 4, 1996.
The principal balance of $150,000 and interest for $4,208 was paid August 5,
1996.
In August of 1996, Perry's entered into a letter of intent to acquire a brewery.
In September 1996, the Company finalized its acquisition of the Old Marlborough
Brewing Co., Inc. The total purchase price was $160,513 of which $35,513 was for
inventory and equipment and $75,000 was to repurchase distribution rights in
Massachusetts. During the first quarter of 1997, Perry's also issued 25,000
shares of common stock valued at approximately $214,000 as additional
consideration for the purchase of Old Marlborough Brewing Co., Inc.'s Post Road
brand.
[D] Asset Acquisition - On April 29, 1996, the Company entered into an agreement
to acquire certain assets, including twenty-two trucks, and assume five related
truck leases. Simultaneously with this transaction, the Company entered into an
agreement with a company to be an exclusive distributor of Citiclub soda. The
Company issued 30,000 shares of the Company's common stock at an estimated fair
value of $18,300 and paid cash of $200,000 for this agreement. The Company also
entered into two employment agreements and one consulting agreement whereby the
three individuals were issued a total of 50,000 shares of the Company's common
stock and options for 300,000 Series C Preferred Stock, subject to an increasing
number of shares under certain circumstances, exercisable at $1.50 per share. A
total of $850,000 was recorded as a deferred compensation cost in April of 1996
for the fair value of the 80,000 shares of common stock and the 300,000 Series C
Preferred Stock Options. In October, the Company discontinued distributing
CitiClub sodas due to a dispute regarding a breach of the distribution agreement
and sold the acquired trucks. As a result, the Company has written-off the
entire balance of distribution rights of $180,000 and the related balance of
deferred compensation of $566,667 for the year ended December 31, 1996 [See Note
14].
[E] 1997 Acquisition - In March 1997, Perry's entered into an agreement to
acquire all of the stock of Orchard Annie, Inc., an all natural apple sauce
company for approximately $66,000 cash. Additionally, Perry's agreed to issue
50,000 shares of Perry's common stock in the second quarter of 1997 and to pay
an officer of the Company who is also the sole shareholder of Orchard Annie,
Inc. a royalty payment of $0.50 per case for each of the first 500,000 cases
sold and $0.25 per case thereafter.
11
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[UNAUDITED]
- ------------------------------------------------------------------------------
[3] Inventories
The Company's inventory consists primarily of finished goods of $605,506.
[4] Plant and Equipment and Depreciation and Amortization
Plant and equipment and accumulated depreciation and amortization are as
follows:
March 31,
1 9 9 7
Warehouse Equipment $ 229,928
Office Equipment 275,437
Leasehold Improvements 41,046
Transportation Equipment 633,281
----------
Total - At Cost 1,179,692
Less: Accumulated Depreciation 396,083
Net $ 783,609
--- ==========
Depreciation expense for the three months ended March 31, 1997 and 1996 was
$30,952 and $30,000, respectively.
[5] Debt
Debt as of March 31, 1997 consisted of the following:
Note Payable - due in October of 1997 with interest at
10% per annum [a] [c] $ 98,000
Bank notes payable in monthly installments of principal and interest at rates
ranging from 8.5% to 13.9% per annum,
maturing August 1998 through September 2000 [b] 279,586
---------
Total 377,586
Less: Current Portion 234,627
Non-Current Portion $ 142,959
------------------- =========
[a] Collateralized by the assets of the company.
[b] Collateralized by transportation equipment.
Maturities of the notes payable as of March 31, 1997 are as follows:
March 31,
1997 $ 198,232
1998 95,911
1999 76,599
2000 6,844
---------
Total $ 377,586
----- =========
On April 23, 1996, the Company received a $150,000 loan from an individual
whereby the Company issued 40,000 shares of the Company's common stock. The loan
was repaid in May of 1996. A deferred financing cost of $25,000 was recorded and
expensed in the second quarter of 1996 for the estimated fair value of these
shares.
12
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[UNAUDITED]
- ------------------------------------------------------------------------------
[5] Debt [Continued]
[c]In October of 1996, the Company received a $250,000 loan with 10% interest
from an unaffiliated party. This loan is due in one year. The lender received
warrants for 100,000 shares of the Company's common stock and warrants for
100,000 shares of Series C Preferred stock. A deferred financing cost of
$145,580 was recorded for the estimated fair value of these warrants. As of
December 31, 1996 the outstanding balance is $98,000. The assets of the
Company are pledged as collateral.
[6] Income Taxes
Income taxes are provided based on the asset and liability method of accounting
pursuant to Statement of Financial Accounting Standards ["SFAS"] No. 109,
"Accounting for Income Taxes." Since its inception, the Company has net
operating loss carryforwards of approximately $12,350,000 which expire in 2007
through 2011. SFAS No. 109 requires the establishment of a deferred tax asset
for all deductible temporary differences and operating loss carryforwards. The
deferred tax asset attributable to operating loss carryforwards amounted to
approximately $4,322,000 at December 31, 1996. Because of the Company's
cumulative losses since inception, however, any deferred tax asset established
for utilization of the Company's tax loss carryforwards world correspondingly
require a valuation allowance of the same amount pursuant to SFAS No. 109.
Accordingly, no deferred tax asset is reflected in these financial statements.
[7] Stock Option Plans, Stock Options and Warrants
[A] In August 1996, the Company issued to certain officers and directors options
to purchase an aggregate of 630,000 shares of Series C Preferred Stock at an
exercise price of $1.00 per share and 700,000 shares of common stock at an
exercise price of $.25 per share for services to be rendered in 1997. The
Company recorded deferred compensation cost of $2,187,500 in August of 1996 for
the excess of the estimated fair value of these options over the exercise price
pursuant to APB Opinion No. 25 and recorded $546,875 of compensation expense for
the three months ended March 31, 1997. None of these options were exercised in
1997 or 1996.
[B] As of March 31, 1997, 52,500 common stock options that were issued in 1994
were outstanding and have vested to directors, officers and employees of the
Company at an exercise price of $0.07 per share. The Company also issued in
1995, 3,000 common stock options that vested in May of 1996 to directors and
officers of the Company at an exercise price of $0.20 per share.
[C] As of March 31, 1997, 1,420,000 Series C Warrants were outstanding which
entitled the holders to acquire shares of Series C Preferred Stock at a price of
$6.00 per share for a period of four years commencing May 15, 1996 and 100,000
Series C Warrants were outstanding at a price of $6.00 per share for a period of
five years.
[D] In November 1995, the Company issued an additional 525,000 options for the
Company's Series C Preferred Stock to seven directors exercisable at $2.00 per
share for services to be rendered in 1996. The Company recorded a deferred cost
of $1,155,000 which represented the fair market value of the options and
amortized the full balance in 1996 as compensation expense. 450,000 of these
options were exercised in 1996 for $900,000 and no options were exercised in
1997.
[E] Options to Underwriter - In June 1993, for a purchase price of $500, the
underwriters of the public offering acquired an option to purchase up to an
aggregate of 5,000 units for a five-year period which will expire in February
1998. The Company has agreed to register, at its expense, under the Securities
Act, on one occasion, the option and/or the underlying securities covered by the
option upon certain conditions.
13
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
[UNAUDITED]
- ------------------------------------------------------------------------------
[7] Stock Option Plans, Stock Options and Warrants [Continued]
[F] Stock Option Plan - In November of 1992, the Company adopted the "Incentive
Stock Option Plan". The total number of shares that may be granted under this
plan is 7,500 shares. The Company issued incentive options to purchase an
aggregate of 6,000 shares of common stock exercisable at $1.00 per share for a
period of four years commencing in August 1994. The options are fully
exercisable when granted.
Also in November of 1992, the Company adopted the "Non-Qualified Stock Option
Plan". The total number of shares that may be granted under this plan is 12,500
shares. In August of 1994, the Company issued an aggregate of 2,500
non-qualified options that are exercisable at $1.00 per share for a period of
four years commencing in August 1994. No additional non-qualified options were
issued through December 31, 1996. The options are fully exercisable when
granted.
The Plan is administered by the Board of Directors or a committee which has the
power to determine eligibility to receive options and the terms of any options
granted, including the exercise or purchase price, the number of shares subject
to the options, the vesting schedule, and the exercise period.
The Plan will terminate in August 1998, four years after the date it was first
approved though awards made prior to termination may expire after that date,
depending on when granted.
A summary of stock option activity under all plans is as follows:
1 9 9 7 1 9 9 6
--------------------------------- --------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
Preferred Common PreferredCommonPreferred Common PFDd Common
Stock Stock Stock Stock Stock Stock Stock Stock
Outstanding on
January 1, 1,050,000 755,500 $1.22 $ 0.24 525,000 55,500 $2.00 $0.07
Granted -- -- -- -- 1,230,000 700,000 1.36 0.25
Exercised -- -- -- -- 750,000 -- 2.00 --
Forfeited/Expired -- -- -- -- -- -- -- --
--------- -------- ----- ----- ------- ------- ---- ----
Outstanding
and Exercisable
on March 31,
1997 and
December 31,
1996 1,005,000 755,500 $1.22 $ 0.24 1,005,000 755,500 $1.22 $0.24
---- ===============================================================
The following table summarizes information about stock options outstanding and
exercisable at March 31, 1997. The common stock options and preferred stock
options do not expire and may be exercised at anytime [See Note 17].
Common Stock Preferred Stock
Exercise Prices Shares Exercise Prices Shares
$ 0.25 700,000 $ 1.50 300,000
$ 0.07 52,500 $ 1.00 630,000
$ 0.20 3,000 $ 2.00 75,000
-------- ---------
Totals 755,500 1,005,000
------ ======== =========
14
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[UNAUDITED]
- ------------------------------------------------------------------------------
[8] Bridge Financing
On November 30, 1994, the Company borrowed an aggregate of $200,000. In exchange
for making a loan to the Company, the bridge lenders received two promissory
notes: one note in the aggregate principal amount of $180,000 and the other note
in the aggregate principal amount of $20,000. Each of the bridge notes bore
interest at the rate of eight percent [8%] per annum. The $180,000 bridge loans
were due and payable upon the earlier of (i) May 1, 1995, or (ii) the closing of
the proposed public offering of the Company's securities. The $20,000 bridge
loans were due on December 1, 1995. In addition, each bridge lender had the
right to convert a convertible bridge note into a number of units ["preferred
bridge units"] equal to the total dollar amount loaned to the Company by such
bridge lender; provided, however, that one bridge lender may convert his
convertible bridge note into the total dollar amount loaned to the Company plus
an additional 50,000 preferred bridge units because such bridge lender
surrendered 100,000 warrants exercisable for 100,000 shares of common stock. In
February 1995, the bridge lenders converted the convertible bridge notes into an
aggregate of 250,000 preferred bridge units. Each unit was identical to the
units being offered in the public offering. One bridge lender who loaned $65,000
to the Company rescinded 100,000 warrants that were received in a private
placement on February 2, 1994. Further, the Company agreed to register such
units in the first registration statement filed by the Company following the
date of the loan. The cost of obtaining this bridge financing was $580,000,
which represents the fair value for the bridge units issued. As a result, the
Company expensed $386,650 in 1995 as bridge financing costs. In May of 1995, the
Company was granted an extension for the maturity of the principal bridge notes
until the earlier of (i) June 15, 1995 or (ii) the closing of the public
offering. These bridge notes were repaid on May 23, 1995, the date of the
closing of the public offering [See Note 9A].
[9] Stockholders' Equity
[A] Registration Statement for Units - Series C Redeemable Preferred Stock - On
May 15, 1995, the Company completed a secondary public offering for sale 460,000
units, each consisting of one share of Series C Convertible Preferred Stock, par
value $.0001 per share and two Series C Redeemable Preferred Stock purchase
warrants. Each share of Series A Preferred Stock is convertible at the option of
the holder, at any time after May 15, 1996, into 18 shares of the Company's
common stock. The Series C Warrants entitle the holder to purchase one share of
Series C Preferred Stock at an exercise price of $6.00 per share through May 15,
2000 and may be redeemed by the Company under certain conditions. To date, none
of the Preferred Stock Warrants have been exercised or redeemed. The Company
realized net proceeds of $1,688,787 after deducting, the underwriters discount
and other costs of the offering.
[B] Debt to Equity Conversions - In February 1995, the bridge lenders converted
the convertible bridge notes into an aggregate of 250,000 preferred bridge
units.
In February 1995, the Company issued 117,225 shares of Series C Preferred Stock
to a stockholder in exchange for his cancellation of certain indebtedness of the
Company in the aggregate principal amount of $201,675. This stockholder is also
an officer and director of the Company.
[C] Authorized Shares - In November of 1995, stockholders of the Company adopted
an amendment to the Company's certificate of incorporation authorizing the
increase of the number of authorized shares of Preferred Stock from 3,000,000
shares to 6,000,000 shares, of which 5,800,000 shares are the Series C Preferred
Stock. In November 1995, the stockholders also approved and consented to amend
the Company's certificate of incorporation by increasing the number of
authorized shares of common stock from 15,000,000 shares to 75,000,000 shares.
[D] Consulting Agreements - In March 1995, the Company entered into three
one-year consulting agreements with three unaffiliated individuals and issued a
total of 70,000 shares of the Company's common stock. In 1995, the Company
recorded an expense of $196,000 for these consulting agreements, which
approximates the fair value of the stock issued.
15
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
[UNAUDITED]
- ------------------------------------------------------------------------------
[9] Stockholders' Equity [Continued]
[E] Series C Preferred Stock - In May 1995, the Company granted 525,000 Series C
Preferred Stock options to directors, officers and employees of the Company at
an exercise price of $2.00 per share and, accordingly, recorded an expense of
$1,076,250. In October 1995, 525,000 Series C Preferred Stock options were
exercised and the Company recorded a stock subscription receivable of
$1,050,000, which was paid in January and February of 1996.
In November 1995, the Company issued an additional 525,000 options for the
Company's Series C Preferred Stock to seven directors exercisable at $2.00 per
share for services to be rendered in 1996. The Company recorded a deferred cost
of $1,155,000 which represents the fair market value of the options and
amortized the full balance as of December 31, 1996 as compensation to the
directors. 450,000 of these options were exercised in 1996 for proceeds of
$900,000.
[F] Consulting Agreement - In February of 1996, the Company issued options to
purchase 300,000 shares of the Company's Series C Preferred Stock at an exercise
price of $2.00 per share to a consultant to assist the Company in connection
with acquisitions, divestitures, joint ventures, and other strategic business
initiatives. The Company recorded a deferred consulting cost of $765,000, which
represents the estimated fair value of the preferred stock at the time of grant
to account for these future services. As of December 31 1996, these options were
exercised with the Company receiving proceeds of $600,000. The Company recorded
compensation expense of $293,000 for the year ended December 31, 1996 and
$95,625 for the three months ended March 31, 1997.
[G] Stock Dividend - On January 2, 1996, the Company issued to the holders of
record of the Series C Preferred Stock as of December 24, 1995 a dividend of two
shares of the Company's common stock.
[H] Consulting Fees - Stock Issuance - On March 29, 1996, in conjunction with
the acquisition agreement with Perry's, the Company entered into a two year
consulting agreement with the former principal of Perry's to assist in
developing and enhancing the distribution of other beers and ales. As a part of
the consulting agreement he was issued 35,000 shares of the Company's common
stock on April 11, 1996. A deferred compensation cost of $33,000 was recorded in
April of 1996 for the estimated fair value of these shares. Compensation expense
of $12,375 was recorded for the year ended December 31, 1996 and $4,125 for the
three months ended March 31, 1997.
[I] Consulting Agreement - On April 5, 1996, the Company entered into a two year
agreement with a consultant to assist the expansion of the distribution of its
products to restaurants and the food service industry by issuing 40,000 shares
of Company's common stock. A deferred compensation cost of $25,000 was recorded
in April of 1996 for the estimated fair value of these shares and compensation
expense of $9,375 was recorded for the year ended December 31, 1996 and $3,125
for the three months ended March 31, 1997.
[J] Reverse Stock Split - On July 16, 1996, the Company's common stockholders
approved a one-for-ten reverse stock split. The financial statements have been
adjusted retroactively for the reverse stock split.
[K] Loan - On April 23, 1996, the Company received a $150,000 loan from an
individual whereby the Company issued 40,000 shares of the Company's common
stock. The loan was repaid in May of 1996. A deferred financing cost of $25,000
was recorded and expensed for the estimated fair value of these shares.
16
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
[UNAUDITED]
- ------------------------------------------------------------------------------
[9] Stockholders' Equity [Continued]
[L] Stock Dividends - In January of 1997, the Board of Directors declared a
dividend of 1.31 common shares of stock for each share of Series C Preferred
Stock outstanding as of December 27, 1996.
[M] Stock for Consulting Services - In February of 1997, the Company entered
into a consulting agreement for future services valued at $450,000 for three
years and issued 200,000 shares of Perry's common stock in payment on this
agreement. Compensation expense of $37,500 was recorded for the three months
ended March 31, 1997.
[10] Related Party Transactions
Loan Payable- Stockholder - In February 1995, the Company received $45,000 from
a related party. This loan was repaid in June 1995. In December of 1995, the
Company received an additional $309,000 from the related party, of which $50,000
was repaid in 1995 and the balance of $259,000 was repaid in January 1996 with
interest at 5.75%.
[11] Employment Agreements
As of December 31, 1996, the Company has four employment agreements with senior
executives of the Company that expire between the years 1999 through 2009. The
annual commitments for compensation aggregate between $200,000 to $400,000
annually for these years and are subject to certain adjustments. In addition,
bonuses of qualified options for Series C Preferred Stock and common stock may
be granted. During the three months ended March 31, 1997, the Company extended
two of these agreements and issued a total of 400,000 shares of Perry's common
stock to two officers. Deferred compensation expense of $2,000,000 was recorded
for this transaction and $100,000 was recorded as compensation expense for the
three months ended March 31, 1997.
[12] Commitments and Contingencies
[A] The Company has entered into various operating lease agreements to lease
office space and warehouse space with initial terms ranging up to five years.
The warehouse lease expired in February of 1996. Commencing March of 1996, the
Company revised the nature of this agreement to a month-to-month arrangement for
$20,500 a month. In addition, the Company forfeited its security deposit and has
included this cost as additional rent expense. The Company also leases on a
month-to-month basis office space in Manhattan for $600 per month. Rent expense
for the office and warehouse space for the three months ended March 31, 1997 and
1996 was $64,325 and $74,227, respectively.
In addition, the Company has non-cancelable operating leases for office and
warehouse equipment. Obligations under these leases for the periods through 2001
are as follows:
1998 $ 44,982
1999 24,053
2000 16,545
2001 5,630
----------
Total $ 91,210
----- ==========
17
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
[UNAUDITED]
- ------------------------------------------------------------------------------
[12] Commitments and Contingencies [Continued]
[B] Brewing Agreement - In November 1996, Perry's stockholders entered into an
agreement, on behalf of Perry's, with a brewery to brew and bottle beer under
the private label of "Perry's Majestic." As part of the agreement, Perry's
agrees to provide the brewery, at Perry's own expense, all the necessary
packaging materials to allow the brewer to manufacture the product in accordance
with federal and state regulations.
The agreement automatically renews annually. Either party may terminate the
agreement by giving four month prior written notice to the other party.
[13] Going Concern
The accompany financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business.
As shown in the accompanying financial statements, the Company incurred net
losses and utilized cash for operations for the years ended December 31, 1996
and 1995. These factors create an uncertainty about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern. The Company intends to pursue additional equity financing as a
vehicle for financing future operations and to secure debt financing from
related and unrelated entities. In addition at the end of 1996, the Company
implemented a cost cutting program to help improve operations. The continuation
of the Company as a going concern is dependent upon the success of these plans.
There can be no assurances that management's plans to reduce operating losses
and to obtain additional financing to fund operations will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
[14] Litigation
The Company is currently a defendant in a lawsuit filed by Premium Beverage
Packers, Inc. for alleged breach of a distribution agreement and a default on a
promissory note. The suit asks for damages in the amount of approximately
$403,000 plus costs and expenses. The Company filed an Answer denying all these
claims and a Counterclaim in December 1996. The Counterclaim alleges the
plaintiff breached both the distribution agreement and the promissory note. The
Company also alleges damages in the amount of $86,664.64, plus cost and
expenses.
In October 1996, a former employee brought suit against Mootch & Muck, Inc. The
Complaint alleges that the Company breached an employment agreement with
plaintiff. Plaintiff also alleges damages in the amount of $1,500,000, plus
costs and expenses. The Company filed an answer denying all these claims in
November 1996.
The Company believes that there are substantial defenses to these claims and
intends to vigorously defend its position. No settlement discussions have
occurred regarding either of these actions. The Company's counsel is not able to
render an opinion as to the resolution of either matter. A material adverse
decision on either of these lawsuits could have a material adverse effect on the
Company.
18
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
[UNAUDITED]
- ------------------------------------------------------------------------------
[15] New Authoritative Pronouncement
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial AccountingStandards ["SFAS"] No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No.
125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. Earlier
application is not allowed. The provisions of SFAS No. 125 must be applied
prospectively; retroactive application is prohibited. Adoption on
January 1, 1997 is not expected to have a material impact on the Company.
The FASB deferred some provisions of SFAS No. 125, which are not expected to be
relevant to the Company.
The FASB issued SFAS No. 128, "Earnings Per Share," and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS No.
128 simplifies the earnings per share ["EPS"] calculations required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no 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 of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented; however, the Company has not sufficiently analyzed SFAS No. 128 to
determine what effect SFAS No. 128 will have on its historically reported EPS
amounts.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
[16] Fair Value of Financial Instruments
In assessing the fair value of financial instruments, the Company used a variety
of methods and assumptions, which were based on estimates of market conditions
and risks existing at that time. For certain instruments, including cash and
cash equivalents, trade receivables, related party payables, and trade payables,
it was assumed that the carrying amount approximated fair value for the majority
of these instruments because of their short maturities. The fair value of
long-term debt is estimated based on rates at which the Company could borrow
funds with similar remaining maturities. The fair value of the Company's debt
approximates its carrying value.
[17] Subsequent Event
Additional Loan Proceeds - In April of 1997, the Company received $100,000 from
Perry's in the form of a convertible note. The note is due in one year with 8%
annual interest. The loan can be repaid at the option of Perry's by either the
payment of principal and accrued interest or by the Company returning the
7,000,000 shares of non-convertible Class B Preferred Stock of Perry's that were
issued in March of 1996.
. . . . . . . . . . . . . . . . . . .
19
<PAGE>
Item 2:
BEV-TYME, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
For the three months ended March 31, 1997 compared with the three months ended
March 31, 1996
The following discussion of the Company's financial condition as of March 31,
1997 and results of operations for the three months ended March 31, 1997 and
1996, includes Bev-Tyme, Inc. and its subsidiaries [collectively, the "Company"]
and should be read in conjunction with the Consolidated Financial Statements and
Notes appearing elsewhere in this 10-QSB.
Business Structure
Bev-Tyme, Inc. ["Bev-Tyme"], is engaged in the business of distributing and
selling beverage and snack products to grocery stores, supermarket chains,
restaurants and corporate cafeterias. In 1995, the Company also commenced
distributing beer and other malt beverages. Because of increased competition in
the "New Age" beverage market and continuing operating losses related to the
sale of its SunSprings(TM) beverage products, the Company increased its focus on
its beverage and snack food distribution.
In June 1995, the Company purchased the net assets of SB&S, another beverage
distributor to commence distribution of beer and other malt beverages. The
Company acquired the net assets of SB&S for $500,000 in cash, 20,000 shares of
the Company's common stock valued at $31,250 and options to purchase 7,500
shares of the Company's common stock.
On March 29, 1996, the Company acquired 500,000 shares of convertible Class A
Preferred Stock and 7,000,000 shares of non-convertible Class B Preferred Stock
of Perry's Majestic Beer, Inc. ["Perry's"] [valued at $2,000,000] in exchange
for 400,000 shares of the Company's Series C Preferred Stock and $150,000.
However, in October of 1996, the Company sold the Class A Preferred Stock for
$250,000. Each share of Class A Preferred Stock and Class B Preferred Stock has
attached to it the right to vote on all matters submitted to the Company.
Perry's filed a registration statement for 583,335 shares of common stock at
$6.00 per share. The proceeds from this offering were approximately $2,500,000.
Also on March 29, 1996, Perry's entered into an agreement to acquire all of the
stock of Riverosa Company, Inc. for $250,000 of which $150,000 in cash was put
into escrow as of March 31, 1996 and a note payable was issued for $100,000. The
note was payable with interest of 8% was paid in August of 1996 with proceeds
from the Company's initial public offering.
In August of 1996, Perry's entered into a letter of intent to acquire a Micro
Beer. In September 1996, the Company finalized its acquisition of the Old
Marlborough Brewing Co., Inc. The total purchase price was $160,513 of which
$35,513 was for inventory and equipment and $75,000 was to repurchase
distribution rights to Post Road Beer in Massachusetts. During the first quarter
of 1997, Perry's also issued 25,000 shares of common stock valued at
approximately $214,000 as additional consideration for the purchase of Old
Marlborough Brewing Co., Inc.'s Post Road brand.
In March 1997, Perry's entered into an agreement to acquire all of the stock of
Orchard Annie, Inc., an all natural apple sauce company for approximately
$66,000 cash. Additionally, Perry's agreed to issue 50,000 shares of Perry's
common stock in the second quarter of 1997 and to pay an officer of the Company
who is also the sole shareholder of Orchard Annie, Inc. a royalty payment of
$0.50 per case for each of the first 500,000 cases sold and $0.25 per case
thereafter.
As a result of the Company's recurring losses and utilization of cash for
operations, the Company's auditors believed there was substantial doubt about
the Company's ability to continue as a going concern at December 31, 1996 and
issued a going concern qualification to their report dated March 26, 1997.
20
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
For the three months ended March 31, 1997 compared with the three months ended
March 31, 1996
Results of Operations
For the three months ended March 31, 1997, the Company had a loss from
operations of $1,469,858 and a net loss of $1,331,298 as compared to a loss from
operations of $678,427 and a net loss of $688,730 for the three months ended
March 31, 1996. The increase in the net loss of approximately $600,000 is
primarily the result of an increase in deferred compensation expense recorded
from stock options issued in 1996 and 1997 and the reduced gross profit realized
in 1997.
For the three months ended March 31, 1997 and 1996, the Company's net sales were
$2,322,505 and $2,397,908, respectively. This represents a decrease of
approximately $75,000. This decrease is primarily the result of a decrease in
net sales of Mootch for the three months ended March 31, 1997 of approximately
$375,000 compared to March 31, 1996, offset by net sales of Perry's of
approximately $300,000 in the first quarter of 1997. The decrease in sales by
Mootch results from the loss of one vendor and stock-outs resulting from cash
shortages.
For the three months ended March 31, 1997, the Company's gross profit was
$212,570 or 9% as compared to $485,571 or 20% in 1996. The reduction in the
gross profit percentage for the three months ended March 1997 of 11% was
attributable to fixed expenses being allocated over a lower sales volume in 1997
than in 1996. In addition, Perry's expensed certain packaging and material costs
during the three months ended March 31, 1997.
Selling, advertising and promotion expense for the three months ended March 31,
1997 and 1996 amounted to $210,209 and $384,492, respectively, and primarily
consisted of salesmen's salaries, commissions and related expenses of the
companies' distribution sales force.
General and administrative expenses for the three months ended March 31, 1997
were $586,181 or 25% of net sales as compared to $386,047 or 16% of net sales in
1996. The Company incurred amortization of deferred costs for the three months
ended March 31, 1997 of $787,250. This is the result of the Company compensating
consultants with stock and options instead of cash payments. As of March 31,
1997, the unamortized balance resulting from all options and shares granted for
services is approximately $2,000,000. This will be amortized in future periods
and will reduce the future earnings of the Company. A write down of
approximately $567,000 was also incurred in 1996 due to the termination of two
employment and one consulting agreements during 1996.
Liquidity and Capital Resources
For the three months ended March 31, 1997, the Company utilized $371,856 for
operating activities. This utilization was primarily attributable to the net
loss of approximately $1,331,000 adjusted by non-cash items of approximately
$900,000.
The Company utilized $147,447 for investing activities for the three months
ended March 31, 1997. This was primarily attributable to the purchase of
subsidiaries.
The Company utilized approximately $82,152 for financing activities for the
three months ended March 31, 1997. This was primarily attributable to payments
on debt obligations.
At March 31, 1997, the Company had a working capital deficit of $(140,258)
reflecting primarily the excess accounts payable and accrued expenses over cash,
accounts receivable and inventory. The Company's cash balance at March 31, 1997
was $1,301,771.
21
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
For the three months ended March 31, 1997 compared with the three months ended
March 31, 1996
Liquidity and Capital Resources [Continued]
For the three months ended March 31, 1996, the Company utilized $1,148,049 in
operating activities, and $193,708 in investing activities and generated
$1,493,078 in financing activities.
In November 1995, the Company issued to the directors of the Company options to
purchase an aggregate of 525,000 additional shares of Series C Preferred Stock
at an exercise price of $2.00 per share. 450,000 of these options were exercised
in 1996 for $900,000.
In February 1996, the Company engaged a consultant to assist the Company in
connection with acquisitions, divestitures, joint ventures and other strategic
business initiatives. In exchange for services to be performed by the
consultant, the Company issued options to purchase an aggregate of 300,000
shares of Series C Preferred Stock at an exercise price of $2.00 per share.
These options were exercised in 1996, which resulted in net proceeds to the
Company of $600,000.
On March 29, 1996, the Company acquired 500,000 shares of convertible Class A
Preferred Stock and 7,000,000 shares of non-convertible Class B Preferred Stock
of Perry's Majestic Beer, Inc. ["Perry's"] [valued at $2,000,000] in exchange
for 400,000 shares of the Company's Series C Preferred Stock and $150,000.
However, in October of 1996, the Company sold the 500,000 shares of convertible
Class A Preferred Stock for $250,000 and reduced its investment accordingly.
Each share of Class B Preferred Stock has attached to it the right to vote on
all matters submitted to the Company. In August of 1996, Perry's filed a
registration statement on Form SB-2 which was declared effective by the
Securities and Exchange Commission. Perry's realized net proceeds of
approximately $2,500,000 in August of 1996.
Also on March 29, 1996, Perry's entered into an agreement to acquire all of the
stock of Riverosa Company, Inc. for $250,000 of which $150,000 in cash was put
into escrow as of March 31, 1996 and a note payable was issued for $100,000. The
note was payable with interest of 8% and was paid at the closing of the Perry's
initial public offering.
On April 23, 1996, the Company received a $150,000 loan from an individual
whereby the Company issued 40,000 shares of the Company's common stock. The loan
was repaid in May of 1996. A deferred financing cost of $25,000 was recorded and
expensed for the estimated fair value of these shares.
In August 1996, the Company issued to certain officers, directors and employees
options to purchase an aggregate of 630,000 shares of Series C Preferred Stock
at an exercise price of $1.00 per share and 700,000 shares of common stock at an
exercise price of $.25 per share for services to be rendered in 1997. None of
such options have been exercised. A deferred compensation cost for the excess of
the fair value of the shares over the exercise price of $2,187,500 was recorded
for the year ended December 31, 1996.
In October of 1996, the Company received a $250,000 loan with 8% interest from
an unaffiliated party. This loan is due in one year. The lender received
warrants for 100,000 shares of the Company's common stock and warrants for
100,000 shares of Series C Preferred Stock.
In April of 1997, the Company received $100,000 from Perry's in the form of a
convertible note. The note is due in one year with 8% annual interest. The loan
can be repaid at the option of Perry's by either the payment of principal and
accrued interest or by the Company returning the 7,000,000 shares of
non-convertible Class B Preferred Stock of Perry's that were issued in March of
1996.
22
<PAGE>
BEV-TYME, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
For the three months ended March 31, 1997 compared with the three months ended
March 31, 1996
Liquidity and Capital Resources [Continued]
The Company intends to pursue outside financing as a vehicle to meet its
short-term working capital requirements. This pursuit may include loan
negotiations with lending institutions and negotiations with receivable factors
for the financing of the Company's accounts receivable. The Company has not
established any sources of financings and has no lines of credit available. The
Company's cash requirements have been and will continue to be significant. The
Company anticipates, based on its current plans to expand its distribution
business. In the event that these plans change or costs of operations prove
greater than anticipated, the Company could be required to modify its operations
or seek additional financing sooner than anticipated. However, there can be no
assurance that additional financing will be available to the Company. The
absence of such additional financing or the lack of availability of funds on
terms favorable to the Company could have a material adverse effect on the
business and operations of the Company. Due to the low current fair market value
of the shares of common stock, it most likely will be difficult for the Company
to attract purchasers of such shares.
The Company's long-term liquidity requirements may be significant in order to
continue to implement its business plan, expand its product base and establish a
distribution network. In the event that those plans change, or the costs or
development of operations prove greater than anticipated, the Company could be
required to modify its operations, liquidate inventory or seek additional
financing. The Company has no current arrangements with respect to such
additional financing, and there can be no assurance that such additional
financing, if available, will be on terms acceptable to the Company.
New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. Earlier application is not
allowed. The provisions of SFAS No. 125 must be applied prospectively;
retroactive application is prohibited. Adoption on January 1, 1997 is not
expected to have a material impact on the Company. The FASB deferred some
provisions of SFAS No. 125, which are not expected to be relevant to the
Company.
The FASB issued SFAS No. 128, "Earnings Per Share," and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS No.
128 simplifies the earnings per share ["EPS"] calculations required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no 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 of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented; however, the Company has not sufficiently analyzed SFAS No. 128 to
determine what effect SFAS No. 128 will have on its historically reported EPS
amounts.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
Impact of Inflation
The Company does not believe that inflation has had a material adverse effect on
sales or income during the past periods. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.
23
<PAGE>
SIGNATURE
- ------------------------------------------------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-QSB to be signed on its behalf
by the undersigned thereon duly authorized.
BEV-TYME, INC.
By: /s/ Robert J. Sipper
Robert J. Sipper,
Chairman of the Board and Chief Executive
Officer
May 20, 1997
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
10qsb for first quarter 1997 selected data rom consolidated balance sheet
consolidated statement of operations
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> mar-31-1997
<CASH> 1,301,771
<SECURITIES> 0
<RECEIVABLES> 578,323
<ALLOWANCES> 0
<INVENTORY> 605,506
<CURRENT-ASSETS> 2,659,082
<PP&E> 783,609
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,102,793
<CURRENT-LIABILITIES> 2,799,340
<BONDS> 0
0
250
<COMMON> 420
<OTHER-SE> (265,678)
<TOTAL-LIABILITY-AND-EQUITY> 4,102,793
<SALES> 2,322,505
<TOTAL-REVENUES> 2,322,505
<CGS> 2,109,935
<TOTAL-COSTS> 1,682,428
<OTHER-EXPENSES> 5,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,874
<INCOME-PRETAX> (1,314,684)
<INCOME-TAX> 16,614
<INCOME-CONTINUING> (1,331,298)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,314,684)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
