<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
( )TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ____TO ___
COMMISSION FILE NUMBER 33-62038NY
----------
SARATOGA BEVERAGE GROUP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 14-1749554
-------- ----------
(STATE OR OTHER JURISDICTION (IRS EMPLOYER ID NUMBER)
OF INCORPORATION OR ORGANIZATION)
11 GEYSER ROAD, SARATOGA SPRINGS, NEW YORK 12866
------------------------------------------------
(Address of principal place of business)
(518) 584-6363
--------------
(issuer's telephone number)
CHECK WHETHER ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR
15(d) FOR 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
--- ---
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY, AS OF THE LATEST PRACTICABLE DATE:
COMMONSTOCK - 4,809,692 SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE,
AND 522,955 SHARES OF CLASS B COMMON STOCK, $.01 PAR VALUE,
WERE OUTSTANDING AS OF SEPTEMBER 30, 1999
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
--- ---
THIS DOCUMENT CONTAINS 17 PAGES
<PAGE>
<TABLE>
<CAPTION>
FORM 10-QSB
INDEX
PAGE NUMBER
PART I - FINANCIAL INFORMATION -----------
<S> <C> <C>
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999 (UNAUDITED) AND AS OF 1
DECEMBER 31, 1998
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT FOR 2
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 3
1999 AND 1998 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4-6
ITEM 2 MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 7-12
OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 13
ITEM 2 CHANGES IN SECURITIES 13
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4 SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS 13
ITEM 5 OTHER INFORMATION 13
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 14-16
SIGNATURES 17
</TABLE>
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $825,872 $2,576,873
Accounts receivable, net of allowance for doubtful
accounts of $238,874 in 1999 and $12,955 in 1998 5,234,891 874,821
Inventories 4,027,199 473,265
Income taxes receivable 644,427
Prepaid expenses and other current assets 586,604 32,471
-------------------- --------------------
Total current assets 11,318,993 3,957,430
Property, plant and equipment, net 7,326,795 1,501,953
Note receivable 353,121
Deferred financing costs, net 809,115 911,607
Deferred acquisition costs 762,890
Goodwill, net of accumulated amortization 18,149,501
Other intangibles, net of accumulated amortization 226,900
Other assets, net 193,083 365,339
-------------------- --------------------
TOTAL ASSETS $38,377,508 $7,499,219
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable and accrued liabilities $5,584,445 $1,539,060
Short-term debt and current portion of obligation under capital lease 196,029 15,533
Other current liabilities 16,136
-------------------- --------------------
Total current liabilities 5,796,610 1,554,593
Long-term debt, net of current installments 19,749,792 54,556
Other liabilities 484,477
5% subordinated convertible note 1,500,000 1,500,000
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value; 5,000,000 shares authorized,
no shares issued and outstanding
Class A common stock, $.01 par value; 50,000,000 shares authorized;
4,809,692 and 2,646,139 shares issued and
outstanding in 1999 and 1998, respectively 48,097 26,761
Class B common stock, $.01 par value; 2,000,000 shares
authorized; 522,955 and 522,955 shares issued and
outstanding in 1999 and 1998, respectively 5,230 5,230
Paid-in capital 15,266,065 9,953,522
Accumulated deficit (4,472,763) (5,595,443)
-------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 10,846,629 4,390,070
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,377,508 $7,499,219
==================== ====================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
1
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------- --------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
TOTAL REVENUE $13,402,169 $2,825,372 $38,521,653 $7,359,818
COST OF GOODS SOLD, EXCLUSIVE OF
DEPRECIATION, AMORTIZATION AND EQUIPMENT
LEASE EXPENSE SHOWN SEPARATELY BELOW 10,474,342 1,692,605 29,232,379 4,469,732
---------------- ---------------- ---------------- ------------------
GROSS PROFIT 2,927,827 1,132,767 9,289,274 2,890,086
---------------- ---------------- ---------------- ------------------
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 1,837,544 497,658 5,772,605 1,345,454
DEPRECIATION, AMORTIZATION, AND
EQUIPMENT LEASE EXPENSE 363,859 142,388 1,198,802 419,783
---------------- ---------------- ---------------- ------------------
2,201,403 640,046 6,971,407 1,765,237
---------------- ---------------- ---------------- ------------------
OPERATING INCOME 726,424 492,721 2,317,867 1,124,849
OTHER INCOME (EXPENSE):
INTEREST INCOME 7,522 36,983 56,211 128,332
INTEREST EXPENSE (468,225) (19,838) (1,212,504) (59,194)
NET GAIN (LOSS) ON DISPOSAL OF 252 14,987
EQUIPMENT
OTHER INCOME (EXPENSE) 23,987 35,138 36,119 89,660
----------------- ---------------- ---------------- ------------------
OTHER INCOME (EXPENSE), NET (436,464) 52,283 (1,105,187) 158,798
----------------- ---------------- ---------------- ------------------
INCOME BEFORE INCOME TAXES 289,960 545,004 1,212,680 1,283,647
PROVISION FOR INCOME TAXES 30,000 11,469 90,000 17,600
---------------- ---------------- ---------------- ------------------
NET INCOME 259,960 533,535 1,122,680 1,266,047
ACCUMULATED DEFICIT:
BEGINNING OF PERIOD (4,732,723) (5,730,077) (5,595,443) (6,462,589)
---------------- ---------------- ---------------- ------------------
END OF PERIOD $(4,472,763) $(5,196,542) $(4,472,763) $(5,196,542)
================ ================ ================ ==================
PER SHARE INFORMATION:
BASIC EPS $0.05 $0.17 $0.22 $0.40
DILUTED EPS $0.05 $0.15 $0.21 $0.36
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,122,680 $1,266,047
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 1,135,691 321,718
Provision for doubtful accounts 91,783 (30,902)
Gain on disposal of fixed asset (14,735)
Changes in operating assets and liabilities:
Accounts receivable 55,037 (394,664)
Inventories (874,689) (343,436)
Prepaid expenses and other current assets (472,336) (27,532)
Accounts payable and accrued liabilities (2,841,594) (633,825)
-------------------- --------------------
Net cash (used in) provided by operating activities (1,798,163) 157,406
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition, net of cash acquired (13,689,278)
Sale of trademark 343,750
Maturity of short term investments 556,856
Issuance of note receivable 200,280 (100,000)
Purchase of property, plant and equipment (959,391) (170,058)
(Increase) in intangibles and other assets (156,154) (521,656)
-------------------- --------------------
Net cash used in investing activities (14,260,793) (234,858)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 19,544,053
Principal payments of debt (5,236,098) (250,000)
Principal reductions on capital lease obligation (6,754)
Proceeds from issuance of Class A common stock 1,012,500
(Purchase) issuance of treasury stock, at cost (499,500)
-------------------- --------------------
Net cash provided by financing activities 14,307,955 256,246
-------------------- --------------------
(Decrease) increase in cash and cash equivalents (1,751,001) 178,794
Cash and cash equivalents at beginning of period 2,576,873 1,567,973
-------------------- --------------------
Cash and cash equivalents at end of period $825,872 $1,746,767
==================== ====================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Receipt of note for sale of trademark $373,472
Acquisition of equipment under capital lease $43,840
Deferred acquisition costs $330,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. 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, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the
three-month period and nine-month periods ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
The accompanying 1999 financial statements include the Company and its
wholly-owned subsidiary, The Fresh Juice Company, Inc. ("Fresh Juice") which was
acquired on January 29, 1999. The 1999 financial statements include nine months
of financial information for Saratoga and eight months of financial information
for Fresh Juice. All significant inter-company accounts have been eliminated in
consolidation.
PER SHARE DATA
Earnings per share is computed using the weighted average number of shares of
Class A and Class B common stock outstanding during each year. Diluted net
income per share includes the effect of all potentially dilutive securities.
RECLASSIFICATION
Certain 1998 amounts have been reclassified to conform with the 1999
presentation.
4
<PAGE>
2. EARNINGS PER SHARE
The calculation of earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NUMERATOR:
Net income $256,960 $533,535 Basic $1,122,680 $1,266,047
Impact of potential common
shares:
Interest expense on 5%
subordinated convertible
note 18,750 18,750 56,250 56,250
--------- --------- ---------- ----------
$278,710 $552,285 Diluted $1,178,932 $1,322,297
========= ========= ========== ==========
DENOMINATOR:
Weighted-average
outstanding shares 5,332,647 3,169,094 Basic 5,106,006 3,164,515
Impact of potential
common shares:
Warrants
Stock options (1) 166,553 84,116 42,526 103,070
Convertible debt 428,571 428,571 428,571 428,571
--------- --------- ---------- ----------
5,927,771 3,681,781 Diluted 5,577,103 3,696,156
========= ========= ========== ==========
</TABLE>
(1) Outstanding warrants and options for 214,158 and 552,158 shares of stock
for the three and nine months ended September 30, 1999 were not included in
the calculation of earnings per share because they were considered to be
anti-dilutive. Outstanding warrants and options for 225,278 and 144,278
shares of stock were considered to be anti-dilutive at September 30, 1998.
3. INCOME TAX
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109 (SFAS 109). SFAS 109 requires the use of
the asset and liability method of accounting for income taxes. Under this
method, deferred taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates applicable to future years
for the differences between the financial statement and tax basis of existing
assets and liabilities.
In the nine months ended September 30, 1999 the Company offset
substantially all income taxes through the use of net operating loss
carryforwards. A full valuation allowance has been established against the
Company's net deferred tax assets.
5
<PAGE>
4. ACQUISITION
On January 29, 1999, the Company consummated the acquisition of The Fresh
Juice Company, Inc. ("Fresh Juice"). For financial statement purposes the
acquisition was accounted for as a purchase and, accordingly, Fresh Juice's
results are in the consolidated financial statements since the date of
acquisition. The aggregate purchase price was approximately $21,000,000, which
includes costs of acquisition. The aggregate purchase price, which was financed
through a term loan and revolving credit facility, has been allocated to the
assets of the Company, based upon their respective fair market values. The
excess of the purchase price over the fair value of assets acquired approximated
$18,500,000 and is being amortized over 30 years. Final allocations to assets
and liabilities will be made as additional information is received.
The following summarized unaudited proforma financial information for nine
months ended September 30, 1999 and 1998 assumes the acquisition had occurred on
January 1 of each year:
PRO FORMA QUARTER ENDED
(in thousands, except per share data) September 30, 1999 September 30, 1998
- --------------------------------------------------------------------------------
Net sales $41,757 $36,010
Net income 1,493 221
Net income (loss) per share
Basic and fully diluted EPS $ .28 $.04
- --------------------------------------------------------------------------------
The pro forma consolidated results do not purport to be indicative of results
that would have occurred had the acquisitions been in effect for the period
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
5. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standard No. 133, Accounting for Derivative Instruments and
Hedging Activities. The standard establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires that a
company recognize derivatives as assets or liabilities measured at fair value.
This standard is effective in 2001. Management has not yet determined the impact
of adoption of this accounting standard.
Effective for the year ended December 31, 1999, the Company adopted SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 supersedes previously issued segment reporting disclosure rules and
requires reporting of segment information that is consistent with the way in
which management operates the Company.
The Company's products include spring and mineral water products, fresh
juice and fresh frozen juice products, and smoothies, a blend of juices,
berries, and fruit purees. The Company manages its nationwide beverage business
as one segment engaged in the bottling, marketing, and distribution of its
products.
6
<PAGE>
SARATOGA BEVERAGE GROUP, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
BUSINESS
- --------
GENERAL
Prior to January 29, 1999 the Company was primarily engaged in the bottling,
marketing and distribution of spring and mineral water products and in packaging
products for others ("co-packing"). The Company's water product line includes:
sparkling spring water, sparkling essence-flavored spring water products,
non-carbonated spring water and non-carbonated spring water with fruit flavors.
All of the Company's water products are marketed as premium domestic bottled
water primarily under the proprietary brand name "Saratoga." The Saratoga brand
name has been in existence for 127 years.
The Company had been owned over the years by Anheuser-Busch and, most recently,
Evian Waters of France, a division of BSN, S.A. In 1992 the Company was
organized and acquired the assets of its business from BSN, S.A. Since that
time, the Company has undertaken the task of rebuilding a distribution network
and customer base for the Saratoga brand beverage products.
Since the end of the 1980s, the bottled water industry has experienced rapid
growth. The industry is divided into non-carbonated water and sparkling
(carbonated) water. The Company believes that non-carbonated water is becoming
an alternative for municipal tap water and that it is perceived by consumers as
a healthy and refreshing alternative to soft drinks, coffee, and other
beverages. The Company also believes that sparkling water is perceived as a
healthy and refreshing beverage alternative to beer, liquor and wine. The
Company anticipates that sales in the bottled water industry will continue to
grow as consumer trends involving increased health and fitness consciousness,
alcohol moderation, and caffeine and sodium avoidance continue to develop and
grow. The Company believes that it is well-positioned to take advantage of the
anticipated future growth of the bottled water industry.
On January 29, 1999, the Company consummated the acquisition of The Fresh Juice
Company, Inc. ("Fresh Juice"). Fresh Juice manufactures, markets and distributes
fresh squeezed and frozen fresh squeezed citrus juices, fresh squeezed organic
juices, fresh fruit smoothies (blends of juices and purees) and other
non-carbonated beverages marketed under the labels "Fresh Pik't," "the Fresh
Juice Company," "Hansen's," "The Ultimate Juice" and "Just Pik't."
In the merger, each holder of a share of Fresh Juice common stock was exchanged
for $2.244 per share in cash and 0.33 shares of Class A common stock of the
Company. In the aggregate, the stockholders of Fresh Juice received
approximately $14.3 million in cash and approximately 2.14 million shares of
Class A common stock of the Company valued at $2.50 per share for a total
purchase price of approximately $20.8 million including acquisition costs.
The transaction was accounted for as a purchase. The cash payment was financed
through a credit agreement consummated with NationsBank, N.A., which included an
$8 million term loan and a $14 million revolving credit facility. The excess
purchase price over the fair value of net assets acquired in the amount of $18.5
million is being amortized on a straight-line basis over 30 years.
The majority of the juice produced by Fresh Juice is fresh squeezed orange
juice. The only ingredient used to produce "Just Pik't", "Fresh Pik't", Florida
Pik't", "Ultimate" and "Hansen's" orange and grapefruit juice is fresh citrus
fruit. Similarly, "Hansen's" and "Just Pik't" smoothies are made with a blend of
orange juice, apple juice, bananas, berries and other fruit purees. The Company
is uniquely positioned as one of the only national fresh juice companies with
bi-coastal facilities (California and Florida).
7
<PAGE>
The market for orange juice and fruit beverages is highly competitive and is
dominated by major companies such as PepsiCo Inc.("Tropicana") and The Coca-Cola
Company ("Minute Maid"). Presently the major orange juice companies are
primarily involved in the production of chilled pasteurized juice and frozen or
reconstituted concentrate juice. The Company views its niche in the fruit
beverage industry as a producer, distributor and marketer of fresh squeezed,
minimally processed juices and juice-based beverages. The Company's largest
competitors are Odwalla, Inc. and California Day Fresh, a subsidiary of
Chiquita. The Company anticipates that sales in the fresh juice industry will
grow as a result of consumer trends towards natural products, increased health
and fitness consciousness. The Company believes it can continue to grow its
natural and organic juice business.
PRODUCTS
The Company is the largest national producer of fresh squeezed orange juice. The
fresh squeezed juices are marketed under the label "The Ultimate Juice". The
Company also produces a fresh squeezed frozen juice ("Just Pik't") and a fruit
smoothie line on the west coast marketed under the Hansen's name as a licensee
pursuant to the Hansen Trust Agreement and as a licensee. On September 27, 1999
the Company entered into an agreement to discontinue use of the "Hansen's"
trademark over the next five years. This agreement was a settlement of an
arbitration including Hansen Beverage Company, the Hansen's Trust, Hansen's
Juices, Inc., the Fresh Smoothie Company, Hansen's Juice Creations, and The
Fresh Juice Company of California, Inc. related to use of the "Hansen's"
trademark. The Company received an initial payment of $343,750 and has recorded
a discounted note receivable in the amount of $373,472 payable over three years.
In May the Company launched a new smoothie line on the east coast called
"Saratoga Smoothie's" and a vitamin enhanced line, "Fruit for Thought". The
Company intends to develop this national brand on the west coast over the next
five years. The main product lines sold under the Saratoga label include various
types of bottled water: sparkling spring water, sparkling essence-flavored
spring water, and natural non-carbonated spring water. The Company's bottled
water is sold in both PET recyclable bottles in sizes ranging from one-half
liter to 5 gallon, and cobalt glass bottles in 12 ounce and 28 ounce sizes.
The company also markets a line of flavored spring water beverages under the
name Saratoga Splash. Saratoga Splash is a non-carbonated fruit flavored spring
water product. It currently is available in six flavors: Lemon Frost, Orange
Twist, Strawberry Mist, Blueberry Burst, Grapes Galore, and Raspberry Rush. The
Company recently commenced operations in the home and office 5 gallon business.
On June 30, 1997, the Company entered into an agreement with Mistic Brands, Inc.
("Mistic") that granted the Company the non-exclusive right to use the
formulations and the exclusive right to use the graphic designs utilized by
Mistic in connection with beverages sold under the Saratoga Splash trademark
pursuant to the original agreement. The Company pays Mistic a royalty for cases
sold under the Saratoga Splash trademark.
The fresh juice products include fresh squeezed and frozen fresh squeezed citrus
juices, organic fresh squeezed juices, fresh fruit smoothies, vitamin and herb
fortified smoothies, and other non-carbonated beverages. The juice product lines
are sold in a variety of sizes ranging from 8 ounces to one gallon. Smoothies
are sold primarily in 16 ounce sizes.
GOVERNMENT REGULATIONS
The Company and its subsidiaries are subject to certain regulations of federal,
state and local government authorities regarding distribution and sale of food
products. From time to time various proposals are made for new laws and
regulations impacting the Company's industry as a whole. It is impossible to
predict whether any such proposals will be adopted and the impact, if any, of
such adoption on the business of the Company. The Company believes that it
currently is in compliance with all applicable federal, state and local
government regulations.
RESULTS OF OPERATIONS
- ---------------------
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results for the three and nine month periods ended September 30, 1999 and 1998.
8
<PAGE>
REVENUE
Revenue for the nine month period ended September 30, 1999 increased 424% to
$38,521,653 an increase of $31,161,835 from revenue of $7,359,818 for the
comparable period in 1998. Revenue from the acquisition of Fresh Juice was
$10,600,034 and $30,599,954 for the three and nine month periods ended September
30, 1999. The increase in revenue exclusive of the acquisition was primarily
attributable to an increase in branded product sales.
GROSS PROFIT MARGINS
The gross profit margin was 22% and 24%, respectively, for the three and nine
month periods ended September 30, 1999 and 40% and 39% for the comparable
periods ended September 30, 1998. The overall decrease in gross profit margin is
attributable to Fresh Juice which incurs higher cost of goods as a result of the
raw material costs associated with production of fresh juice.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $1,837,544, representing 13.7%
of revenue, and $5,772,605, or 15.0% of revenue for the three and nine month
periods ending September 30, 1999 as compared with $497,658 or 17.6% and
$1,345,454 or 18.3% for the same periods in 1998. Selling, general and
administrative expenses related to the acquisition of Fresh Juice from January
29, 1999 through June 30, 1999 were approximately $3,000,000 and approximately
$1,400,000 from Julyl 1, 1999 through September 30, 1999. The remaining increase
in selling, general and administrative expenses was due to increased resources
utilized to grow the business, including increased customer promotions and
incentive sales programs.
OTHER INCOME (EXPENSE)
For the three month period ended September 30, 1999, the Company reported other
expense, net of $436,464 as compared to other income, net of $52,283 reported
for the three months ended September 30, 1998. For the nine month period ended
September 30, 1999, the Company reported other expense, net of $1,105,187 as
compared to other income, net of $158,795 reported for the nine months ended
September 30, 1998. Interest income decreased primarily due to a reduction in
cash used in connection with the Fresh Juice acquisition. Interest expense
increased due to increased interest expense associated with the debt financing
associated with the acquisition.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company's working capital was $5,522,383,
including cash and cash equivalents of $825,872. For the nine months ended
September 30, 1999 and 1998, cash flows (used in) provided by operations were
($1,798,163) and $157,406, respectively.
In connection with the merger, the Company consummated financing with
NationsBank, N.A., which included an $8 million term loan and a $14 million
revolving credit facility. The financing constituted the source of the funds for
the acquisition. Availability under the Revolver shall be reduced in $750,000
amounts, the first such reduction occurring on the last business day of the 27th
month after January 29, 1999 and each quarterly anniversary thereafter until the
revolver maturity date. The revolver will terminate and all amounts outstanding
thereunder will be due and payable five years following closing. The term loan
facility reduces with eight equal quarterly payments of $1,000,000 the first
such payment being due on the last business day of the 63rd month following
January 29, 1999 and subsequent payments due on each succeeding quarterly
anniversary. The term loan will terminate seven years following closing. The
interest rate on the revolving credit facility may be elected from two interest
rate bases: Floating rate (Federal Funds rate plus 50 basis points or prime
rate) or reserve-adjusted Eurodollar rate. The Eurodollar rate will be
determined by adding a margin of 100 basis points to the floating rate or 250
basis points to the Eurodollar rate, in both instances using a 360 day basis. At
all
9
<PAGE>
times the interest rate on the term loan will be calculated as the Eurodollar
rate plus 350 basis points, using a 360 day basis. Within one year from January
29, 1999 the Company is required to enter into interest rate hedging agreements
to fix or limit its interest rate risk exposure on not less than forty percent
of the drawn amount of the facilities and for a term of not less than 3 years.
The debt agreement includes administrative and financial covenants, including
consolidated leverage ratio, consolidated fixed charge ratio and consolidated
interest charge ratio, all as defined.
The Company has also entered into three swap agreements with NationsBank N.A. On
September 1, 1999, a swap for $3,000,000 at a fixed 90-day Libor rate of 5.405%
was initiated. Fixed interest is $40,987,92 compared to a variable rate of
5.50250% with interest of $41,727.29. A second swap agreement with NationsBank
N.A. in the amount of $3,000,000 was entered into on July 28, 1999 at a fixed
Libor rate of 5.42% with interest of $41,553.33, compared with a variable rate
of 5.31% with interest of $40,719.58. A third swap agreement with NationsBank
N.A. in the amount of $1,400,000 was entered into on October 19, 1999 at a fixed
Libor rate of 6.495% with interest of $23,237.67, compared with a variable rate
of 6.1925% with interest of $22,155.39.
At September 30, 1999, debt consists primarily of $11,000,000 borrowed under the
revolving credit line using the 90-day reserve-adjusted Eurodollar rates plus
250 basis points, ranging from 7.73% to 8.100%, $416,053 borrowed under the
revolving credit line based on prime plus 100 basis points at a rate of 9.25%,
$8,000,000 term loan at a Eurodollar rate plus 350 basis points at a rate of
8.98%, and a 5% subordinated convertible note. Current liabilities include
accounts payable and accrued liabilities of $5,584,445 and $196,029 short-term
debt and current portion of obligations under capital leases..
On June 12, 1997, the Company issued $1,500,000 principal amount of the
Company's 5% Subordinated Convertible Note due 2000 (the "Note") for an
aggregate purchase price of $1,500,000 in a private placement effected under
Section 4(2) of the Securities Act of 1933. Interest on the unpaid principal
amount accrues from the date of issuance at a rate of 5% per annum. Interest
becomes due and payable on each of the first, second and third anniversaries.
The principal amount of the Note is due and payable on the third anniversary of
the Note and is convertible at the option of the holder into shares of Class A
common stock at a conversion price of $3.50 principal amount per share. The Note
is mandatorily convertible into shares of Class A common stock in the event that
the closing price of Class A common stock exceeds $5.25 for three consecutive
trading days.
The Company installed a new bottling line in 1998. This line was financed by a
seven year operating lease entered into December 1997. The lease contains a
purchase option after 72 months.
The Company will continue to upgrade the facilities and equipment as dictated by
the growth of the business. While the Company will continue to incur costs to
develop and introduce new products, it will strive to limit such costs by using
innovative, cost effective targeted marketing techniques.
PRO FORMA INFORMATION
On January 29, 1999, the Company consummated the acquisition of The Fresh Juice
Company, Inc. ("Fresh Juice"). For financial statement purposes the acquisition
was accounted for as a purchase and, accordingly, Fresh Juice's results are in
the consolidated financial statements since the date of acquisition. The
aggregate purchase price was approximately $21,000,000, which includes costs of
acquisition. The aggregate purchase price, which was financed though a term loan
and revolving credit facility, has been allocated to the assets of the Company,
based upon their respective fair market values. The excess of the purchase price
over the fair value of assets acquired approximated $18,500,000 and is being
amortized 30 years. Final allocations to assets and liabilities will be made as
additional information is received.
10
<PAGE>
The following summarized unaudited proforma financial information for the nine
months ended September 30, 1999 and 1998 assumes the acquisition had occurred on
January 1 of each year:
PRO FORMA QUARTER ENDED
(in thousands, except per share data) September 30, 1999 September 30, 1998
- -------------------------------------------------------------------------------
Net sales $41,757 $36,010
Net income 1,493 221
Net income (loss) per share
Basic and fully diluted EPS $ .28 $ .04
- -------------------------------------------------------------------------------
The pro forma consolidated results do not purport to be indicative of results
that would have occurred had the acquisitions been in effect for the period
presented, nor do they purport to be indicative of the results that will be
obtained in the future.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
State of Readiness
The Company relies on systems developed by other parties in regard to its
business, accounting and operational software. The Company believes that its
significant business, accounting and operations software are not year 2000
compliant. Additionally, the Company has assessed the impact of this issue on
its production equipment. The new bottling line installed in 1998 is certified
year 2000 compliant by the equipment manufacturer. Older manufacturing equipment
is relay controlled and is not believed to be affected by the year 2000 problem.
Cost
The Company has evaluated its management information systems (including
information technology ("IT") and non-IT computerized systems and has prepared a
plan for year 2000 compliance. The Company estimates that the cost to modify its
management information systems to become year 2000 compliant and to rebuild its
network systems will be approximately $100,000. Such modification is expected to
be completed and tested prior to December 31, 1999.
Risk
The Company relies on third party suppliers for raw materials, transportation,
utilities, and other critical services. Company operations could be affected by
the interruption of significant suppliers. The Company has initiated efforts to
evaluate the status of suppliers' compliance with year 2000 issues and are in
the process of determining alternatives and contingency plan requirements. In
the event that its current vendors are unable to certify that they will be year
2000 compliant or if such suppliers are unable to certify that their failure to
be year 2000 compliant will not adversely affect the Company, the Company will
be reviewing its alternatives with respect to other vendors. There can be no
assurance that the Company will be able to find suppliers which are acceptable
to the Company. Another option could include the accumulation of inventory to
assure production capability if warranted. These efforts are intended to
minimize risk, but cannot eliminate the potential for disruption due to third
party failures to be year 2000 compliant.
The Company also is dependent on customers for sales and for cashflow.
Interruptions in our customers' operations due to year 2000 could result in
decreased revenue, increased inventory and cash flow reductions. The Company is
in the process of evaluating its customers' year 2000 risks, as well as
developing alternative sales strategies. The cost of this evaluation is expected
to be nominal.
11
<PAGE>
Despite the Company's efforts in regard to the year 2000 issue, the Company's
business, financial condition or results of operations could be materially
adversely affected by the failure of its systems and applications or those
operated by other parties to properly manage dates beyond 1999.
Contingency Plans
Given that modification to its management information systems (MIS) is expected
to be completed and tested by December 31, 1999, the Company has not prepared a
contingency plan pertaining to its information systems. We have been advised
that (MIS) can be brought into compliance by purchasing software "patches" in
the event that the Company has not completed the modification of its MIS to
become year 2000 compliant by December 31, 1999. The Company is in the process
of developing a contingency plan based on its evaluation of significant
suppliers and customers in regard to year 2000 compliance. The contingency plan
includes the identification of backup suppliers and broadening the customer
base.
OPERATING SEGMENTS and GEOGRAPHIC AREAS
Effective for the year ending December 31, 1999, the Company adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 supersedes previously issued segment reporting disclosure rules and
requires reporting of segment information that is consistent with the way in
which management operates the Company.
The Company's products include spring and mineral water products, fresh juice
and fresh frozen juice products, and smoothies, a blend of juices, berries, and
fruit purees. The Company's manages its nationwide beverage business as one
segment engaged in the bottling, marketing, and distribution of its products.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has also issued Statement of Financial
Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging
Activities. The standard establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that a company
recognize derivatives as assets or liabilities measured at fair value. This
standard is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Management has not yet determined the impact of adoption of this
accounting standard.
SAFE HARBOR STATEMENT
The Company has made, and may continue to make, various forward-looking
statements with respect to its financial position, business strategy, and plans
and objectives of management. Such forward-looking statements are identified by
the use of forward-looking words or phrases such as "anticipates," intends,"
"expects," "plans," "believe," "estimates," or words or phrases of similar
import. These forward-looking statements are subject to numerous assumptions,
risks, and uncertainties, and the statements looking forward beyond 1999 are
subject to greater uncertainty because of the increased likelihood of changes in
underlying factors and assumptions. Actual results could differ materially from
those anticipated by the forward-looking statements.
The Company's forward-looking statements represent its judgment only on the
dates such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed, or unanticipated
events or circumstances.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
NONE.
ITEM 2 - CHANGES IN SECURITIES
NONE.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
NONE.
ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION
NONE.
13
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Exhibits included herein:
a) Exhibits and Index
Exhibit No.
<TABLE>
<CAPTION>
<S> <C> <C>
2.1(1) (P) Agreement and Plan of Merger
3.1(1) (P) Restated Certificate of Incorporation of the Company
3.2(1) (P) By-Laws of the Company
3.3(09) Amendment to By-Laws of the Company
4.1(1) (P) Specimen of Class A Common Stock Certificate
9.1(10) Restated Voting, Standstill and Proxy Agreement dated as of October 13, 1998
10.2(1)+ (P) Form of the Saratoga Spring Water Company 1993 Stock Option Plan
10.4(1)+ (P) Letter Agreement between the Company and Owens-Brockway Glass Containers
10.3(2)+ (P) Consulting Agreement entered into by the Company and Leonard Toboroff
10.1(11)+ Employment Agreement entered into by the Company and Robin Prever dated January 28, 1999
10.7(2) (P) Distribution Agreement, dated March 25, 1993, by and between Joseph Victori Wines, Inc. and
JNJ Distributors, Inc.
10.5(2) (P) Partnership Agreement, dated July 21, 1993, by and between JNJ Distributors, Inc. and
Saratoga Springs Distribution Corp., as amended by Amendment of Partnership Agreement
hereto dated November 9, 1993
10.6(2) (P) Stock Agreement, dated July 21, 1993, by and between JNJ Distributors, Inc. and Saratoga
Spring Water Company
10.8(3) (P) Cott Co-pack Agreement dated as of June 8, 1995
10.9(4) Manufacturing and Distribution Agreement, dated as of July 23, 1996, by and between the
Company and Mistic Brands, Inc.
10.10(5) Bottling Agreement, dated April 16, 1997, by and among the Company, Hype Corporation, Hype
Beverage Corporation, World Wide Beverage Inc., Hype Water Company, Inc., Hyperholics Inc.,
R.J.Barry Cox and Nigel Sprio
10.11(6) Saratoga Splash Agreement, dated as of June 30, 1997, by and between the Company and Mistic
Brands, Inc.
10.12(6) Master Distribution Agreement dated as of June 16, 1997 by and among the Company, Hype
Corporation, World Wide Beverage Inc., Global Brands AG, Hype Water Company, Inc., and
Hyperholics Inc.
10.13(7) Loan Agreement, Securities Purchase Agreement, Secured Promissory Note, and Warrants for
Messrs. Holliday, Merhi and Barr in connection with the loan to Onyx Management Services,
LLC
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.14(8)+ Securities Purchase Agreement dated February 12, 1998 between the Company and Carl T. Wolf
10.15(8)+ Stock Option Agreement dated February 25, 1998 between the Company and Steel Partners II, L.P.
10.16(8)+ Securities Purchase Agreement dated February 25, 1998 between the Company and Carl T. Wolf
10.17(8) Option Agreement dated March 16, 1998 between the Company and Steven Smith
10.18(8) Letter agreement dated March 29, 1998 between the Company and The Fresh Juice Company, Inc.
10.19(8)+ Amended and Restated Stock Option Agreement dated April 17, 1998 between the Company and
Carl T. Wolf
10.20 (8) Letter agreement dated April 24, 1998 between the Company and The Fresh Juice Company, Inc.
10.21(10)+ Form of the Saratoga Beverage Group, Inc. 1998 Stock Option Plan
10.22(10) Restated Agreement and Plan of Merger dated as of October 13, 1998 by and among the
Company, Rowale Corp. and The Fresh Juice Company, Inc.
10.23(11) Employment Agreement dated October 13, 1998 between Saratoga and Jeffrey Heavirland
10.24(10)+ Stockholder Agreement dated October 13, 1998 among the Company, Robin Prever, Anthony
Malatino and Steven Bogen
10.25(10) Letter agreement dated October 13, 1998 between the Company and Steven Smith amending the
agreement set forth in Exhibit 10.28(11) hereof)
10.26(11)+ Letter agreements dated December 2, 1998 between the Company and Steven Bogen (amending the
agreement set forth in Exhibit 10.29(11) hereof)
10.27(11)+ Letter agreement dated December 2, 1998 among Saratoga, Fresh Juice and Jeffrey Heavirland
10.28(11) Employment Agreement effective April 1, 1996 between The Fresh Juice Company, Inc. and
Steve Smith
10.29(11) Employment Agreement effective April 1,1996 between The Fresh Juice Company, Inc. and
Steven M. Bogen
10.30(11) Supply Agreement dated March 31, 1996 between The Fresh Juice Company, Inc. and Natural
Juice Company, Inc.
10.31(11) Agreement of Lease dated November 24, 1997 between The Fresh Juice Company of New York,
Inc. and 280 Wilson Avenue Associates, L.L.C. and guaranteed the The Fresh Juice Company,
Inc.
10.32(11) Industrial Real Estate Lease dated June 1, 1992 between Hansen's Juices, Inc. and Pruco
Life Insurance Company
10.33 (11) Credit Agreement by and among Saratoga, as Borrower, NationsBank, National Association, as
Agent and Lender and the Lenders party thereto dated January 29, 1999
27.1 (12) Financial data schedule
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Incorporated herein by reference to the Company's
Registration Statement on Form SB-2 filed with the
Commission on June 16, 1993 (Registration No.
33-62038NY)
(2) Incorporated herein by reference to the Company's
Form 10-KSB filed with the Commission on March 30,
1994
(3) Incorporated herein by reference to the Company's
Form 10-KSB filed with the Commission on March 29,
1996
(4) Incorporated herein by reference to the Company's
Form 10-QSB filed with the Commission on November
12, 1996
(5) Incorporated herein by reference to the Company's
Form 10-QSB filed with the Commission on May 13,
1997
(6) Incorporated herein by reference to the Company's
Form 10-QSB filed with the Commission on August 8,
1997
(7) Incorporated herein by reference to the Company's
Form 10-QSB filed with the Commission on March 20,
1998
(8) Incorporated herein by reference to the Company's
Form 10-QSB filed with the Commission on May 11,
1998
(9) Incorporated herein by reference to the Company's
Form 10-QSB filed with the Commission on August 5,
1998
(10) Incorporated herein by reference to the Company's
Form 10-QSB filed with the Commission on November
5, 1998
(11) Incorporated herein by reference to the Company's
Form 10KSB filed with the Commission on March 31,
1999
(12) Filed herewith
(+) Management Agreement
(P) Paper filing
(b) Reports on Form 8-K: None.
</TABLE>
16
<PAGE>
SIGNATURES
----------
IN ACCORDANCE WITH THE REQUIREMENTS OF THE EXCHANGE ACT, THE REGISTRANT CAUSED
THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREINTO DULY
AUTHORIZED.
SARATOGA BEVERAGE GROUP, INC.
-----------------------------
(REGISTRANT)
DATE: NOVEMBER 8, 1999 BY: /S/ ROBIN PREVER
--------------------- ------------------------------
ROBIN PREVER
CHIEF EXECUTIVE OFFICER
DATE: NOVEMBER 8, 1999 BY: /S/ KIM JAMES
--------------------- ------------------------------
KIM JAMES
CHIEF FINANCIAL OFFICER
DATE: NOVEMBER 8, 1999 BY: /S/ GAYLE HENDERSON
---------------- ------------------------------
GAYLE HENDERSON
CHIEF ACCOUNTING OFFICER
17
<PAGE>
INDEX TO EXHIBITIS
EXHIBIT NO.
- ------- ---
Financial data schedule 27.1(12)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1999 Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 825,872
<SECURITIES> 0
<RECEIVABLES> 5,234,891
<ALLOWANCES> 238,874
<INVENTORY> 4,027,199
<CURRENT-ASSETS> 11,318,993
<PP&E> 9,906,698
<DEPRECIATION> 2,579,903
<TOTAL-ASSETS> 38,377,508
<CURRENT-LIABILITIES> 5,796,610
<BONDS> 19,749,792
0
0
<COMMON> 53,327
<OTHER-SE> 10,793,302
<TOTAL-LIABILITY-AND-EQUITY> 38,377,508
<SALES> 38,521,653
<TOTAL-REVENUES> 38,521,653
<CGS> 29,232,379
<TOTAL-COSTS> 29,232,379
<OTHER-EXPENSES> 6,971,407
<LOSS-PROVISION> 91,783
<INTEREST-EXPENSE> 1,212,504
<INCOME-PRETAX> 1,212,682
<INCOME-TAX> 90,000
<INCOME-CONTINUING> 1,122,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,122,682
<EPS-BASIC> .21<F1>
<EPS-DILUTED> .22
<FN>
<F1> The amount is reported as EPS basic, not EPS primary.
</FN>
</TABLE>
