<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported): November 22, 1999
SARATOGA BEVERAGE GROUP, INC.
(Exact name of registrant as specified in its charter)
- ---------------------------- ------------------------ ---------------------
DELAWARE 33-62038NY 14-1749554
- ---------------------------- ------------------------ ---------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
- ---------------------------- ------------------------ ---------------------
- ------------------------------------------------------ ---------------------
11 GEYSER ROAD
SARATOGA SPRINGS, NEW YORK 12866
(Address of principal executive offices) (Zip Code)
- ------------------------------------------------------ ---------------------
(518) 584-6363
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS.
On January 29, 1999, Saratoga Beverage Group, Inc. (the "Registrant")
consummated the acquisition by merger of The Fresh Juice Company, Inc. ("Fresh
Juice").
On February 5, 1999, the Registrant filed a Current Report on Form 8-K
describing the consummation of the merger with Fresh Juice and, pursuant to
General Instruction B.3. of Form 8-K, incorporating by reference to the
Registrant's Registration Statement on Form S-4 filed with the SEC on December
24, 1998 (File No. 333-69707) the financial statements of Fresh Juice required
by Item 7(a) hereof and the pro forma information of Fresh Juice required by
Item 7(b) hereof.
On or about November 22, 1999, the Registrant completed an audit of the
Fresh Juice financial statements for the year ended November 30, 1998. The
audited financial statements are included herein as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable
(c) Exhibits.
EXHIBIT NO. DESCRIPTION
23.1 Consent of Independent Auditors
99.1 Consolidated Financial Statements of The Fresh Juice
Company, Inc. for the year ended November 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SARATOGA BEVERAGE GROUP, INC.
By: /s/ Kim James
-------------------------
Kim James
Chief Financial Officer
Date: January 20, 2000
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
23.1 Consent of Independent Auditors
99.1 Consolidated Financial Statements of The Fresh Juice
Company, Inc. for the year ended November 30, 1998.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in the Form 8-K of Saratoga Beverage Group, Inc. our
report dated November 22, 1999, on the consolidated financial statements of The
Fresh Juice Company, Inc. and Subsidiaries as of November 30, 1998 and for the
year then ended, which consolidated financial statements appear in the Form 8-K.
Withum, Smith & Brown
New Brunswick, New Jersey
January 21, 2000
<PAGE>
[THE FRESH JUICE COMPANY LOGO]
INC., AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report 1
Consolidated Balance Sheet
November 30, 1998 2-3
Consolidated Statements of Operations
For the Year Ended November 30, 1998 4
Consolidated Statement of Shareholders' Equity
For the Year Ended November 30, 1998 5
Consolidated Statement of Cash Flows
For the Year Ended November 30, 1998 6
Notes to Consolidated Financial Statements 7-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Fresh Juice Company, Inc. and Subsidiaries:
We have audited the consolidated balance sheet of The Fresh Juice Company, Inc.
and subsidiaries as of November 30, 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Fresh
Juice Company, Inc. and Subsidiaries as of November 30, 1998, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Withum, Smith & Brown
New Brunswick, New Jersey
November 22, 1999
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 90,375
Trade accounts receivable, net of allowance for doubtful
accounts of $255,265 3,456,295
Inventories 2,953,349
Current portion of notes receivable 293,777
Prepaid income tax 210,902
Deferred income taxes 406,504
Prepaid and other current assets 277,811
-----------
Total Current Assets 7,689,013
Property, Plant and Equipment, at Cost:
Land 30,000
Building and improvements 2,964,159
Equipment 5,839,567
Molds 264,333
Automobiles 256,648
-----------
9,354,707
Less accumulated depreciation 2,602,447
-----------
Property, Plant and Equipment, Net 6,752,260
Notes Receivable, Net of Current Portion 180,000
Excess of Cost Over Estimated Fair Values of Net Assets
Acquired, Net of Accumulated Amortization of $865,979 6,526,351
Trademarks, Patents, and Other Intangibles, Net of
Accumulated Amortization of $247,349 931,431
Other Assets 160,519
-----------
TOTAL ASSETS $22,239,574
===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
2
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current Liabilities:
Note payable $ 2,095,000
Current maturities of long-term debt 1,566,904
Accounts payable and accrued expenses 3,245,248
-----------
Total Current Liabilities 6,907,152
Long-Term Debt and Obligations Under Capital Lease,
Net of Current Maturities 2,125,233
Deferred Rent 130,194
Deferred Income Taxes 809,173
-----------
Total Liabilities 9,971,752
-----------
Shareholders' Equity:
Series preferred stock par value $10, authorized 7,000,000
shares; none issued --
Common stock, par value $.01, authorized 30,000,000
shares; issued 6,679,669 shares 66,797
Additional paid-in capital 9,453,958
Retained earnings 3,032,329
-----------
12,553,084
Less cost of common shares held in treasury: 212,938
shares 285,262
-----------
Total Shareholders' Equity 12,267,822
-----------
Commitments and Contingencies (Notes 4 and 7)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $22,239,574
===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
3
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Net Sales $37,606,498
Cost of Goods Sold 28,275,685
-----------
Gross Margin 9,330,813
Selling, General and Administrative Expenses 8,789,046
-----------
Earnings from Operations 541,767
Interest and Other Income, Net 133,266
Interest Expense (484,236)
-----------
Earnings Before Provision for Income Taxes 190,797
Provision for Income Taxes 86,232
-----------
Net Earnings $ 104,565
===========
Basis and Diluted Net Earnings Per Common Share $ .02
===========
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 6,679,669
===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
4
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Treasury Shareholders'
Shares Amount Capital Earnings Stock Equity
------ ------ ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1997 6,679,669 $66,797 $9,453,958 $2,927,764 $(285,262) $12,163,257
Net earnings for the year ended
November 30, 1998 -- -- -- 104,565 -- 104,565
--------- ------- ---------- ---------- --------- -----------
Balance at November 30, 1998 6,679,669 $66,797 $9,453,958 $3,032,329 $(285,262) $12,267,822
========= ======= ========== ========== ========= ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
5
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net earnings $ 104,565
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,344,771
Deferred income taxes (225,616)
Gain on disposal of assets (19,419)
Changes in operating assets and liabilities:
Trade accounts receivable (299,402)
Inventories (315,266)
Prepaid and other current assets (76,742)
Notes receivable and other assets 56,522
Accounts payable and accrued expenses 82,086
Income taxes (466,508)
-----------
Net Cash Provided By Operating Activities 184,991
-----------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (633,351)
Proceeds from disposal of assets 43,400
-----------
Net Cash Used in Investing Activities (589,951)
-----------
Cash Flows from Financing Activities:
Proceeds from note payable 1,295,000
Payments on long-term debt (1,253,009)
-----------
Net Cash Provided by Financing Activities 41,991
-----------
Net Decrease in Cash and Cash Equivalents (362,969)
Cash and Cash Equivalents at Beginning of Year 453,344
-----------
Cash and Cash Equivalents at End of Year $ 90,375
===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
6
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
The Fresh Juice Company, Inc. (the Company), manufactures, markets and
distributes fresh 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."
The majority of the juice produced by the Company 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 market for orange juice and fruit beverages is highly competitive
and is dominated by major companies. 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.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and other securities
with a maturity at time of purchase of three months or less.
FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, trade accounts
receivable, accounts payable, notes payable and other current assets
and liabilities approximates fair value due to the short-term maturity
of those instruments. Management estimates that the Company's long-term
debt approximates fair value at November 30, 1998, determined through a
combination of estimates, information obtained from independent third
parties and the variable rate of interest on certain debt.
7
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
INVENTORIES
Inventories are stated at the lower of cost or market, with cost
determined by using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT AT COST
Property, plant and equipment is recorded at cost, less accumulated
depreciation. Depreciation is provided over the estimated useful lives
of the respective assets: three to ten years for the equipment and
molds, three to five years for the automobiles and 25-39 years for the
building and building improvements using the straight-line method.
Leasehold improvements are depreciated over the shorter of the useful
life or the remaining term of the lease.
INTANGIBLE ASSETS
Excess of cost over the estimated fair values of net assets acquired
(goodwill) is being amortized using the straight-line method over 20
years. Trademarks, patents and other intangibles (primarily customer
lists and covenants not to complete) are being amortized using the
straight-line method over periods of three to fifteen years.
The carrying value of intangible assets is periodically reviewed by the
Company and impairments are recognized when the estimated future cash
flows derived from such intangible assets are less than their carrying
value. Measurement of the impairment, if any, is based upon the excess
of the carrying value over the fair value of such assets.
LONG-LIVED ASSETS
The Company adopted the provision of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed,"
on December 1, 1996. This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this statement did not have a material impact on
the Company's financial position, results of operations, or liquidity.
8
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
STOCK OPTION PLAN
Prior to December 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On December 1, 1996, the
Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings (loss) per share disclosures for employee
stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
NET EARNINGS PER COMMON SHARE
Basic earnings per common share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings
per common share is computed using the combination of dilutive common
share equivalents and the weighted average number of common shares
outstanding during the period. Diluted income per common share is based
only on the weighted average number of common shares outstanding during
the period, as the inclusion of common share equivalents, such as
options and warrants, would have been antidilutive.
INCOME TAXES
Income taxes are accounted for under the asset and liability method
prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and
the tax basis of assets and liabilities. Deferred tax assets and
liabilities reflect the tax rates expected to be in effect for the
years in which the differences are expected to reverse. A valuation
allowance is provided if it is more likely than not that some or all of
the deferred tax asset will not be realized.
USE OF ESTIMATES
In conformity with generally accepted accounting principles, the
preparation of financial statements 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.
9
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RISKS AND UNCERTAINTIES
The Company's revenues are dependent on the continued operation of
its manufacturing facility and its various distribution centers and
the ready source of supply of harvested fresh fruits and juice
supplies. The operation of these facilities involves many risks,
including the breakdown, failure or substandard performance of
equipment, natural disasters and the need to comply with directives
of governmental agencies. The occurrence of material operational
problems, including but not limited to the above events, may have a
material adverse effect on the productivity and profitability of a
particular facility or the Company as a whole, or with respect to
certain facilities during the period of such operational difficulty.
A lack of availability of quality fruit and higher costs of citrus
would hamper the Company's ability to maintain its rate of growth and
its current gross profit level.
The Company maintains cash balances at times, with financial
institutions in excess of amounts insured by the Federal Deposit
Insurance Corporation. Management monitors the soundness of these
institutions and considers the Company's risk negligible.
None of the Company's customers accounted for more than 10% of the
net sales. The Company estimates an allowance for doubtful accounts
based on the creditworthiness of its customers as well as general
economic conditions. The Company as a policy, does not require
collateral from its customers.
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. It is not possible to predict whether any such
proposals will be adopted and the impact, if any, on the operations
of the Company. Although the Company believes that it currently has
all material government permits, licenses, qualifications and
approvals for its operations, there can be no assurance that the
Company will be able to continue to comply with or maintain the same.
On August 28, 1997, after completing its review of the materials
presented in connection with a public hearing conducted in December
1996, the FDA published its proposed strategy for ensuring juice
safety which involves a three-prong approach that includes phasing in
a mandatory Hazard Analysis and Critical Control Point (HACCP)
program for some or all juices, label warning statements, and
educational programs targeted at sanitation education for industry
and consumers. In so doing, the agency rejected proposals to mandate
pasteurization.
10
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RISKS AND UNCERTAINTIES (CONTINUED)
The Company's current manufacturing practices comprise a fully
implemented HACCP program instituted as a requirement for the
manufacture of fresh orange juice in the State of Florida; although
it can give no assurance, the Company believes that the warning label
requirement, when promulgated, will not be applicable to its
products. Although it can give no assurance, the Company believes
that the final HACCP requirements for fresh juice likely to be
required by the FDA will be no more stringent than those presently in
place at the Company, so that these regulations, when made final,
will not have a material impact on the Company's operations. In the
event that the final HACCP requirements and regulations are more
stringent than those in place at the Company at such time, certain
adjustments to the production process may be required and the costs
and timing of the implementation of such adjustments could have a
material impact on the Company's operations and financial position.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed for or Obtained for Internal Use." The
SOP is effective for the Company beginning in fiscal 2000. After the
date of adoption, the SOP will require the capitalization of certain
costs to develop or obtain software for internal use that the Company
currently expenses as incurred and will require expensing certain
costs that the company now capitalizes. The Company does not
anticipate that the adoption of this SOP will have a material impact
on the Company's consolidated financial statements.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 130, Reporting Comprehensive
Income. This standard requires companies to disclose certain
information regarding comprehensive income and its components
(revenues, expenses, gains, and losses) and is required to first be
disclosed in annual financial statements for fiscal years beginning
after December 15, 1997. The Company anticipates no additional
disclosure under this standard for the year ended November 30, 1999.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 131, Disclosures about Segments of
an Enterprise and Related Information. This standard requires
companies to disclose certain information regarding operating
segments in interim and annual financial statements, and is required
to first be disclosed in annual financial statements for fiscal years
beginning after December 15, 1997. The Company anticipates no
additional disclosure under this standard for the year ended November
30, 1999 because management operates the business as one segment.
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.
11
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - INVENTORIES:
Inventories consist of the following:
Raw materials $ 612,196
Finished goods 2,341,153
----------
Total $2,953,349
==========
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
Accounts payable and accrued expenses $2,904,717
Compensation 161,597
Professional fees 178,934
----------
$3,245,248
==========
NOTE 4 - NOTE PAYABLE AND LONG-TERM DEBT:
In August 1996, the Company entered into a $2,500,000 revolving credit
loan with a bank expiring August 1998, of which $2,095,000 was
outstanding at November 30, 1998. Interest is at a floating rate equal
to the bank's prime rate, which floating rate, at the Company's
election, may be fixed, for one to three month periods throughout the
term, based on current LIBOR plus 150 basis points (7.19% at November
30, 1998). The Company can borrow against the revolving credit loan
based on the allowable borrowing base, defined in the loan agreement as
80% of eligible accounts receivable plus the lesser of $1,500,000 or
50% of eligible inventory. Available amounts under the revolving credit
loan amounted to approximately $405,000 at November 30, 1998.
At November 30, 1998, long-term debt, including capital leases,
consists of the following:
$1,100,000 term loan with a bank, due in monthly
principal installments of $18,333 commencing April
1, 1998 through March 1, 2002 with interest at
either LIBOR plus 175 basis points (ranging from
6.72% to 8% at November 30, 1998) or the bank's
prime rate $ 733,333
$750,000 note payable with a bank, with principal
and interest at 9.25%, payable in monthly
installments of $15,771, due May 2001. Note is
collateralized by the receivables, inventory,
equipment and vehicles of the California Plant 416,649
Notes payable to related parties, interest only
payable monthly at a weighted average interest rate
of 8.9% at November 30, 1998. Principal amounts due
February 2001 through August 2002 1,673,172
----------
Subtotal $2,823,154
12
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED):
Subtotal, Carried Forward $2,823,154
Notes payable to related parties with a weighted
average interest rate of 10.5%. Principal and
interest payable in monthly installments of $20,983
due at various intervals between November 2000 and
December 2001 547,560
Lease obligation payable in installments through
February 2000 with a weighted average interest rate
of 9.6% at November 30, 1998 50,256
Various notes payable due in installments through
April 2000 with a weighted average interest rate of
9.1% at November 30, 1998 271,167
----------
Total long-term debt, including capital leases 3,692,137
Less current maturities 1,566,904
----------
Long-term debt and obligations under capital lease,
excluding current maturities $2,125,233
==========
The revolving credit loan and term loan contain certain covenants
including financial covenants (tangible net worth and minimum debt
revenue coverage ratios). The Company is in technical default with such
covenants at November 30, 1998. In connection with the acquisition of
the Company in January 1999 by Saratoga Beverage Group (see Note 12),
the revolving credit loan and term loans were refinanced with new
long-term debt. Therefore, $513,333 of the term loan is classified as
long-term at November 30, 1998. The loans are secured by substantially
all of the assets of the Company. The aggregate fair value of the
Company's debt approximates its carrying value due to the variable
nature and frequent repricing of the debt which is based on market
conditions.
The approximate aggregate annual maturities of long-term debt for each
of the next five years ended November 30 are as follows: 1999,
$1,567,000; 2,000 - $692,000; 2001 - $1,074,000; 2002 - $321,000;
2002- $38,000.
13
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES:
Components of income tax expense are as follows:
Current:
Federal $ 211,155
State 100,693
---------
Total 311,848
---------
Deferred:
Federal (191,774)
State (33,842)
---------
Total (225,616)
---------
Total Income Tax Provision (Benefit) $ 86,232
=========
The temporary differences which give rise to deferred tax assets and
liabilities are as follows:
Deferred tax assets:
Accounts and notes receivable $ 169,410
Inventory 140,042
Accrued expenses 97,052
Net operating loss carryforwards --
---------
Gross deferred tax assets 406,504
Valuation allowance --
Net deferred tax assets 406,504
---------
Deferred tax liability, property, plant and equipment (809,173)
---------
Net deferred income taxes $(402,669)
=========
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The reconciliation of the Company's effective income tax rate and the
Federal statutory rate is as follows:
Federal statutory rate 34%
State taxes, net of federal benefit 35
Amortization of goodwill 66
Overaccrual of prior years taxes (32)
Benefit if net operating loss carryforwards (16)
Other, net (42)
----
45%
====
14
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INCENTIVE STOCK OPTIONS:
In 1996, the Company adopted The Fresh Juice Company, Inc. Incentive
Stock Option Plan (the 1996 Stock Plan). The number of shares of common
stock with respect to which grants may be made under the 1996 Stock
Plan is 500,000. The shares issuable under the 1996 Stock Plan may be
drawn from either authorized but previously unissued shares of common
stock or from reacquired shares of common stock, including shares
purchased by the Company on the open market or held as Treasury shares.
Under the 1996 Stock Plan, key salaried employees, including officers,
of the Company are eligible to receive options. The Board of Directors
has the sole discretion to determine the amount of grant and to
establish such vesting periods and/or performance based goals that must
be attained in order for the participant to be able to exercise any
stock option.
The following table summarizes the transactions of the Company's stock
option plans:
Weighted
Average
Exercise
Shares Price
------ --------
Options outstanding at beginning of year 275,000 2.88
Granted -- --
Expired (50,000) (3.13)
------- -----
Options outstanding at end of year 225,000 2.81
======= =====
Options exercisable at end of year 210,000 2.80
======= =====
Weighted average fair value of options
granted during the year --
=====
At November 30, 1998, the Company had outstanding warrants of 350,000,
with weighted average exercise prices of $2.99. Warrants issued in 1996
were exercisable beginning June 1997 and expire June 2001. Warrants
issued in 1997 were exercisable beginning December 1996 and expire
November 2001.
15
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
The Company is obligated under various operating leases covering its
office space, warehouse and vehicles. Rent expense for the year ended
November 30, 1998 was $790,469. The aggregate future minimum lease
commitments under leases that have initial or remaining noncancelable
lease terms in excess of one year are as follows:
1999 $ 596,000
2000 490,000
2001 438,000
2002 385,000
2003 304,000
Thereafter 875,000
----------
Total $3,088,000
==========
The Company continues to guarantee certain lease obligations entered
into by a former affiliate of Hansen's. Minimum lease payments under
such agreements average approximately $146,000 per year through
November 2003, and $64,000 per year thereafter until May 2006. The
Company knows of no event of default that would require it to satisfy
these guarantees as of November 30, 1998. The Company does not believe
the ultimate disposition of these guarantees will have a material
adverse effect on the Company's financial position, liquidity or
results of operations.
On April 1, 1996, the Company entered into three year employment
agreements with two of its executive officers. Each agreement provides
for, among other things, annual compensation aggregating a minimum
salary of $360,000 ($720,000 on a combined basis), subject to annual
increases. The agreement provides that the parties may extend the
agreement for up to a total of six additional years.
On November 18, 1996, the Company entered into employment agreements
with three of its employees with terms ranging from 2 to 3 years. Each
agreement provides for, among other things, annual compensation
aggregating a minimum salary ranging from $67,000 to $150,000 ($292,000
on a combined basis), subject to annual increases.
On March 31, 1996, the Company entered into a supply, distribution and
requirements agreement (the Agreement) with Natural Juice Company,
which corporation is controlled by a director of the Company. The
agreement has an initial term of five years with two five year renewals
at Natural Juice Company's option. Refer to Note 11 for related party
transactions.
16
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
The Company formerly reported the existence of 175,000 stock options
granted to key employees under the Fresh Juice Company, Inc. 1988
Incentive Stock Option Plan (the Plan). Based upon a review commenced
by the Company and its attorneys in the fourth quarter of 1997, it
appears that the stockholders of the Company never approved the Plan
and that a proposal to approve the Plan was never presented to the
stockholders of the Company for a vote. As a result, the condition to
both the effectiveness of the Plan and the grant of the options under
the Plan, as defined, was never met. Based upon this information, the
Company has determined that these options technically do not exist.
Such amounts are not reflected in the summary of transactions included
in Note 6. There is a possibility that the key employees may assert a
claim as to the existence of such stock options. The Company believes
that the ultimate outcome of this matter will not have a material
adverse effect on the Company's financial position, liquidity or
results of operations.
The Company's subsidiary, The Fresh Juice Company of California, Inc.
(Hansen's), has been named as one of many defendants in a lawsuit filed
by the Franchise Holders of Southland Corporation (Southland), against
Southland and a large number of the purveyors to the Franchisees of
Southland, i.e., 7-Eleven stores. Hansen's was one of the purveyors
that has been named as a defendant. However, there is only one cause of
action which pertains to Hansen's, and Hansen's is joined in that count
with Southland, The Coca-Cola Company and Pepsi-Cola Company. The basis
of that cause of action is that each of the named purveyors conspired
to fix prices on soft drinks by trying to set the Franchisees' retail
price of their respective products in order for the Franchisee(s) to
obtain a discount off the wholesale price. In the count in which
Hansen's was named, the plaintiffs seek total damages in excess of
$50,000. The case is captioned 7 Eleven Owners For Fair Franchising et
al. v. The Southland Corporation, et al; is venued in the Superior
Court of the State of California for the County of Alameda and bears
case no. 722272-6. The case was filed in September, 1993. Hansen's and
the plaintiffs in this action have executed a settlement agreement
pursuant to which plaintiffs have agreed to dismiss their action
against Hansen's, with prejudice, and Hansen's has agreed to bear its
own costs incurred in the litigation. The settlement was approved by
the Court and a final judgment entered. However, there is dissent among
plaintiff's counsel regarding allocation of fees. One of the factions
timely appealed the judgment. This appeal is not anticipated to effect
the Company's position. As a result of the settlement and impending
final dismissal of the proceedings, management of the Company believes
that the ultimate resolution of this matter will not have a material
impact on the Company's results of operations, liquidity or financial
position.
17
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
Many existing computer programs use only two digits rather than four to
specify a year in the date field. These programs were designed and
developed without considering the impact of the upcoming change in the
century. If not corrected, many computer applications could fail or
create erroneous results by or at the Year 2000. The Company utilizes
software and related computer technologies essential to its operation
that will be affected by the Year 2000 issue. The Company has
undertaken a systems' readiness program, which is designed to mitigate
the risks associated with the Year 2000 issue. This program involves an
analysis of systems to determine those that are not presently Year 2000
compliant, the establishment of a plan to either modify or replace
those systems and the modification and procurement of systems to make
them Year 2000 compliant. Although the Company is endeavoring to ensure
that the Year 2000 readiness program is comprehensive, it can make no
assurance that the program will address all Year 2000 compliance issues
in a timely manner. If such modifications and procurements are not
completed or if problems are not discovered and rectified on a timely
basis, the Year 2000 issue may have a material impact on the operations
of the Company. The Company has identified, replaced and modified some
of these systems during fiscal year 1997 and, for reasons other than
Year 2000 issues, replaced its network systems for its Northeast and
Florida operations during fiscal 1998.
From time to time, the Company is party to legal action arising in the
ordinary course of business. Management believes that such litigation
and claims will be resolved without material impact on the Company's
results of operations, liquidity or financial position.
NOTE 8 - COMMON STOCK AND SERIES PREFERRED STOCK:
The Company's Board of Directors may, without further action by the
Company's shareholders, from time to time direct the issuance of
preferred stock in series and, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any
dividend preferences of outstanding preferred stock would reduce the
amount of funds available for the payment of dividends on common stock.
Also, holders of preferred stock would normally be entitled to receive
a preference payment in the event of any liquidation, dissolution or
winding-up of the Company before any payment is made to the holders of
common stock.
NOTE 9 - SUPPLEMENTAL CASH FLOW AND NONCASH INVESTING AND FINANCING ACTIVITIES
INFORMATION:
Income taxes paid $794,580
========
Interest paid $484,236
========
Noncash investing and financing activities:
Acquired property, plant and equipment
and assumption of long-term debt $145,921
Sale of intangible asset and assumption
of note receivable $ 91,000
18
<PAGE>
THE FRESH JUICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - BENEFIT PLANS:
The Company maintained a simplified employee pension (S.E.P.) plan
covering certain of its employees. Contributions to the plan, which are
discretionary, cannot exceed 15% of the covered employee's salary.
Ultimate maintained a defined contribution 401(k) Plan for its
employees with discretionary contributions by the Company. During 1998,
the Company adopted the 401(k) Plan for all of its employees and then
terminated the simplified employee pension plan described above.
Pension expense for all of the Company's plans was $41,182.
NOTE 11 - RELATED PARTY TRANSACTIONS:
During 1998, the Company sold approximately $1,296,000 of product to
Natural Juice Company, which is controlled by a director of the
Company.
NOTE 12 - SUBSEQUENT EVENTS (UNAUDITED):
On January 29, 1999, the Saratoga Beverage Group, Inc. acquired all of
the outstanding shares of the Company. The purchase price of $21.8
million was comprised of cash of approximately $14.3 million and
2,133,553 shares of Saratoga Class A common stock.
19
