ATLANTIC BEVERAGE CO INC, 10-K/A, 1997-01-10

ATLANTIC BEVERAGE CO INC
10-K/A, 1997-01-10
GROCERIES & RELATED PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1995 Commission file number: 0-22614

ATLANTIC BEVERAGE COMPANY, INC.
(Exact name of registrant as specified in its charter)
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Delaware 36-3761400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

1587 Sulphur Spring Road, Baltimore Maryland 21227
(Address of principal executive offices)

Registrant's telephone number including area code: (410) 247-5857
------------

Securities registered pursuant to Section 12(b) of the Act:

None None
(Title of class) (Name of each exchange on which registered:)

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. |X| Yes |_| No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |_|

The aggregate market value of Common Stock held by non-affiliates of
Registrant is $6,028,435.50 (based upon the last sale price of the Common Stock
as reported on the NASDAQ National Market System on March 28, 1996). The number
of shares of Common Stock outstanding as of March 29, 1996 was 5,740,984.

DOCUMENTS INCORPORATED BY REFERENCE

Certain exhibits to the Registrant's Registration Statement on Form S-1, as
amended (File No. 33-69438) are incorporated by reference as Exhibits in Part IV
of this Report.

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PART I

ITEM 1. BUSINESS.

OVERVIEW

Atlantic Beverage Company, Inc. (the "Company") together with
its subsidiaries is engaged in the distribution of specialty beverages in
the Baltimore and Washington D.C. metropolitan areas and in the
manufacturing, marketing and distribution of meat products in several Texas
markets including Houston, Dallas, Austin and San Antonio.

The Company is a leading independent wholesale distributor of specialty
non-alcoholic beverages to the retail trade in the greater Baltimore and
Washington, D.C. metropolitan area and surrounding counties. The Company
currently has exclusive distribution rights in its territory for ready-to-drink
teas, natural sodas, sparkling waters with juice, fruit juices, juice drinks and
still and sparkling waters. Brand name products distributed by the Company under
these exclusive distribution rights include Royal Mistic(R), Elliott's Amazing
Juices(TM), Crystal Geyser(R), Sunlike Juices and 16-ounce size bottled Boku(R).
The Company's product line generally consists of beverages that appeal to
consumers seeking an alternative to traditional soft drinks. These beverages
typically have no artificial ingredients or artificial flavors, and are marketed
as premium products, primarily in a single-serve format. Sales of Royal
Mistic(R) products accounted for approximately 60% of the Company's total case
sales in 1995.

The Company distributes its specialty beverage products to over 6,000
customers, including independent retail outlets such as independent grocery
stores, delicatessens and restaurants, as well as large grocery and convenience
store chains and their independent franchisees. All of the Company's beverage
customers are located within 75 miles of the Company's warehouse facility in
Baltimore, Maryland. The Company's current beverage distribution territory of
the greater Baltimore and Washington, D.C. metropolitan area has a population of
over six million people, making it the fifth largest metropolitan area in the
United States.

Through its Prefco subsidiary, the Company is engaged in the wholesale
distribution of branded and unbranded meats to the retail grocery trade. The
Company markets and distributes its own branded, processed meat products under
the brand name Bum's Favorite Blue Ribbon(R). These products, which include
smoked sausages, bacon and packaged, sliced luncheon meats, account for
approximately 15% of the sales of the Prefco subsidiary and are manufactured by
the Company's Carlton subsidiary as well as by third party contract
manufacturing companies. Blue Ribbon is currently the best selling brand of
bacon and smoked sausage in the Houston market. In addition to marketing its own
branded products, the company is also a leading regional distributor of
unbranded products including boxed beef, pork, chicken and related items.

Through its Carlton subsidiary, the Company manufactures a variety of
smoked sausage products. Approximately 50% of total volume manufactured reflects
product sold through the Prefco subsidiary under the Blue Ribbon brand name. Of
the balance, approximately 20% of total volume reflects private label
manufacturing for other regional sausage brands and selected chain supermarket
house brands, and approximately 30% of total volume is sold by the Carlton
subsidiary under the brand names Carlton and Country Boy. These branded products
are marketed on a regional basis, principally in the Austin, San Antonio and
Dallas markets.

CORPORATE HISTORY

In April 1991, MB Acquisition Corp. ("MB Acquisition"), a corporation
formed by a group of individuals including the Company's Chairman of the Board
and certain of the Company's directors and stockholders, acquired the business
of the Company from a company now known as S&B Ventures, Inc. (the
"Predecessor") for a purchase price of $1,158,000 (the "Acquisition"). In
connection with the Acquisition, MB Acquisition also assumed certain obligations
to pay the owners of the Predecessor $2,000,000 pursuant to a non-compete
agreement and $829,000 pursuant to consulting agreements. MB Acquisition
financed the Acquisition through a bridge loan provided by nine of its current
stockholders, including an officer and certain directors. In September 1991,
Maryland Beverage, L.P. (the "Partnership") was formed with the Company and
Strategic Investment Corporation ("Strategic"), a wholly owned subsidiary of T.
Rowe Price Strategic Partners Fund, L.P., as its sole partners, and MB
Acquisition was merged with and into the Company, and its assets and liabilities
were contributed to the Partnership. In September

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1993 the Company was reincorporated in Delaware and adopted the name
"Atlantic Beverage Company, Inc." In November 1993, in connection with
the Company's initial public offering, Strategic (whose only asset was
its partnership interest in the Partnership) merged with and into the
Company. Subsequently, the Partnership was dissolved and the Company succeeded
to the Partnership's assets and liabilities.

On April 27, 1994, the Company entered into and consummated an
agreement to acquire certain assets and marketing rights from Flying Fruit
Fantasy, USA, Inc. ("FFF") for total consideration of approximately $1.2
million. Under the terms of this agreement, the Company obtained worldwide
marketing and distribution rights to a frozen beverage served through automated
dispensing machines. In December 1995, the Company adopted a plan to discontinue
this division of business. As a result, the Company recognized a one-time charge
of approximately $2.4 million in the fourth quarter of 1995 which reflected the
write-off of $1.1 million in equipment and $0.9 million in intangible assets,
and costs of approximately $0.4 million associated with discontinuing the
operation.

In the first quarter of 1996, a newly formed, wholly-owned subsidiary
of the Company acquired the outstanding common stock of Prefco, Inc. ("Prefco").
Prefco, based in Houston, Texas, markets and distributes its own branded meat
products as well as unbranded meat products to the retail grocery trade in
Texas. Also in the first quarter of 1996, Carlton Foods, Inc.("Carlton") was
merged into another newly formed, wholly-owned subsidiary of the Company.
Carlton, based in New Braunfels, Texas, is a manufacturer of branded and private
label meat products. The combined purchase price for these entities was
approximately $11 million, which included approximately $3.0 million in Carlton
refinanced and assumed debt.

INDUSTRY

Beverage Industry

The beverage distribution industry is divided generally into two
different types of distributors: bottler/distributors and independent
distributors. The largest soft drink manufacturers generally have a network of
companies (which include both independent and company-owned businesses) that
serve as bottler/distributors for their products. Smaller beverage companies,
however, typically engage contract bottlers to produce their products, and rely
on independent companies that function solely as distributors to distribute
their products to consumers.

The Company offers suppliers the ability to distribute their products
to over 6,000 actively serviced customers. Both bottler/distributors and
distributors maintain inventory in their own warehouses, sell products using
their own sales force and deliver products using their own trucks. However,
subject to restrictions contained in distribution contracts, independent
distributors like the Company have the flexibility to select a mix of products
to carry without being primarily dedicated to the large, traditional soft drink
brands that bottler/distributors must support.

Specialty beverage products and branded bottled water products have
been well received not only by the consumer but also by the retail trade. In
general, these products sell at a premium to traditional soft drinks, generating
higher gross profits per transaction for the retail trade. By contrast,
traditional soft drinks compete largely on the basis of pricing and promotion
and generate relatively lower unit profits.

Although the domestic beverage distribution industry is characterized
by the relative absence of technological risk and relatively minor initial
capital investment requirements, there exist significant barriers to entry
primarily due to geographic exclusivity agreements with suppliers and
established relationships with customers. In addition, because of the relatively
substantial weight of bottled beverages and resulting expense of transportation,
competition at the distribution level occurs primarily on a regional basis.

Food Industry

Through its Carlton and Prefco subsidiaries, the Company participates
in three general segments of the food industry: processing, distribution, and
branded product marketing.

The meat processing segment which includes cooking, slicing, mixing,
grinding and similar functions is generally capital intensive. Unbranded raw
material typically comes from packing companies. In some instances, packing and
processing are vertically integrated. In other instances, as is the case with
the Company, processing and

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marketing are vertically integrated. The Company's Carlton subsidiary
manufactures the Company's own branded products as well as those of other
branded meat companies and supermarkets on a private label basis. Because of
the cost of transportation and shelf life of product, processing facilities
tend to serve a regional clientele. Large, integrated national meat companies
therefore tend to establish strategically located processing facilities
in different geographic regions.

The meat distribution segment which serves several different classes of
trade including retail, restaurant and institutional customers is generally not
capital intensive but features very low gross margins and is subject to intense
price competition. Product is invoiced and priced according to weight.
Successful distributors typically distinguish themselves through customer
service and low cost position. Price, product selection, reliability, in-stock
rate, promptness of delivery and weekend delivery options are among the benefits
which are most highly valued. It is not uncommon for a grocery retailer to have
one primary supplier in addition to one or more secondary suppliers. Meat
distribution companies typically serve a local or regional clientele.

The branded meat product business is generally not capital intensive.
Strong retail brands can exist as local, regional or national phenomena and
include bacon, hot dogs, cooked and uncooked sausage, cooked hams, chicken and
turkey products. Advertising and promotion is generally critical to the
maintenance of brand equity. Companies which market branded meat products can
exist on a stand-alone basis as well as vertically integrated with processing
and / or distribution. The Company reflects, to a limited extent, both forms of
vertical integration.

STRATEGY

Beverage Strategy

The Company's success in the beverage distribution business has been
based in large part on its ability to serve independent grocery stores,
delicatessens and restaurants, as well as institutional buyers, such as hotels
and universities, which traditionally sell cold, single-serve, bottled beverages
to consumers. The Company believes that these customers are drawn to the
specialty products carried by the Company because of the larger unit profits
they provide relative to traditional soft drinks. These customers represented
approximately 60% of the Company's total beverage sales in 1995. The significant
exposure that results from so many smaller customers carrying the Company's line
of beverages helps to create a broad-based demand for the products, and, the
Company believes, will demonstrate the strong consumer demand necessary for
larger retail outlets to consider stocking those beverages.

Operating Strategy. The Company's operating strategy in its current
territory is to continue to focus on the distribution of non-alcoholic
beverages, with primary emphasis on specialty beverages, and to maximize market
penetration for the products it carries. Key elements of the Company's operating
strategy include the following:

(i) increasing distribution to existing customers, in both the variety
of brands carried and the number of cases sold, by co-sponsoring sales contests
and providing incentive pricing to encourage retailers to increase their sales
volume and broaden the variety of products they carry to include other beverages
distributed by the Company; (ii) adding new customers each year within the
Company's geographic territory; and (iii) identifying and acquiring exclusive
distribution rights to products not currently distributed by the Company.

Proprietary Brands. The Company is evaluating opportunities to develop
or acquire proprietary beverage brands which it would then seek to market both
through its distribution system as well as on a multi-regional or national basis
through other distributors. By utilizing its distribution system and by selling
through other distributors, the Company believes that it would be well
positioned to introduce proprietary brands into the specialty beverage market
that do not directly compete with beverages the Company currently distributes.
There can be no assurance, however, that the Company will be able to acquire any
proprietary brands, or that any such acquisition will be successful.

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Food Strategy

Operating Strategy. The Company's operating strategy with respect to
its newly acquired food businesses, will be to grow both the Prefco and Carlton
subsidiaries profitably, while identifying and exploiting synergy between the
two. Key elements of this operating strategy include increasing sales to
existing customers, adding new customers, and identifying opportunities to add
new products.

Corporate Growth Strategy. The Company has identified potential
strategies that will use the combination of its Carlton and Prefco subsidiaries
as a platform for additional corporate growth. These potential strategies may
include the review of acquisition opportunities that appear to compliment the
subsidiaries' businesses.

PRODUCTS

The Company distributes a wide variety of beverages, including
ready-to-drink teas, natural sodas, sparkling waters with juice, fruit juices,
juice drinks, still and sparkling waters and sports drinks. Brand name products
distributed by the Company include Royal Mistic(R), Elliott's Amazing Juices and
Drinks(TM), Crystal Geyser(R), bottled, single-serve Boku(R), Stewart's Root
Beer(R), Soho Natural Sodas(R), Jolt Cola(R), Vernor's Ginger Ale(R) and Sunlike
Juices. The Company reviews hundreds of products each year, and continuously
evaluates the mix of products it distributes. The Company actively seeks to
acquire distribution rights for products it believes show strong growth
potential. For 1994 and 1995, approximately 62% and 60%, respectively, of the
Company's total beverage case sales represented Royal Mistic(R) products, and
13% and 11%, respectively, represented Elliott's(TM) products. None of the
Company's other suppliers accounted for more than 10% of the Company's total
beverage case sales during such periods.

Through its Prefco subsidiary, the Company distributes a wide variety
of unbranded, boxed meat products. The Company maintains an inventory of over
200 different stock keeping units of unbranded product, which include beef,
turkey, pork and chicken. Product is stored in the Company's two refrigerated
warehouses in Houston and delivered on refrigerated vehicles to several hundred
customers including chain and independent supermarkets and discount clubs. The
Company purchases product from approximately one dozen meat packing companies.
Purchases of the same product may be spread among several suppliers over the
course of a year, and purchasing decisions are frequently driven by price and
availability, both of which are likely to vary. Three suppliers accounted for
approximately 18%, 17% and 13% of the Company's boxed meat purchases during 1995
and 12%, 15% and 10% of such purchases during 1994. No other supplier accounted
for more than 10% of such purchases during either year.

Also through its Prefco subsidiary, the Company markets and distributes
its own branded sausage, bacon and packaged, sliced luncheon meats. These
products are stored in the Company's two refrigerated warehouses. Product is
delivered on the Company's refrigerated trucks, and customers typically include
the same retail establishments that purchase the Company's unbranded meat
products. The majority of Blue Ribbon sausage product is manufactured by the
Company's Carlton subsidiary. The balance of the sausage product as well as the
bacon and luncheon meats are purchased from four other contract food processing
companies.

In addition to manufacturing product for the Prefco subsidiary, the
Company's Carlton subsidiary manufactures and markets its own branded smoked
sausage products for the retail grocery trade. The Company manufactures similar
products on a private label for other branded food companies.

SUPPLIER CONTRACTS

The Company does not currently have contracts with any of its food
suppliers. Many of the Company's major beverage brands, however, are distributed
on an exclusive basis under distribution contracts within the Company's
territory. The terms of the contracts, including their lengths, vary by
supplier. As of December 31, 1995, the Company had 14 beverage suppliers.

The Company's contract with Mistic Brands, Inc. ("MBI"), supplier of
Royal Mistic(R), expires on December 31, 2000. The Company has been the
exclusive distributor of Royal Mistic(R) in the greater Baltimore and
Washington, D.C. metropolitan area since the product was first introduced in
this territory in 1990. Under the terms of the Royal Mistic(R) contract, the
Company is obligated to distribute Royal Mistic(R) products to 80% of the retail
accounts that would carry on a regular basis cold, single-serve, bottled
specialty beverage products, excluding the

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restaurant and bar trade. Unless such percentage is obtained by the Company to
MBI's satisfaction, MBI has the right to suspend shipments or cancel the
contract. MBI also retains the right to sell to certain national buying chains
that require servicing by one national vendor. The contract also provides that,
unless MBI agrees in writing to the sale of a product that MBI considers, in its
sole discretion, to be a direct competitor of its products, the Company cannot
sell to anyone within its territory any product that would, in the sole
discretion of MBI, compete with Royal Mistic(R) or be likely to cause
confusion in the minds of the public as to the Royal Mistic(R) products. The
Company specifically cannot sell Snapple(R) or Clearly Canadian(R) products.
However, the Company is not prohibited or restricted from selling any beverages
which were carried by the Company as of September 14, 1993, the date the last
amendment to the contract was signed, and the contract does not prohibit
or restrict the Company from selling any non-Royal Mistic(R) products outside
its current territory. The Royal Mistic(R) contract is not assignable in the
event of a sale of a majority of the stock of the Company other than sales in
the public markets. The Company believes that it is in compliance in all
material respects with the terms of the Royal Mistic(R) contract.

The Company's contract with Ginger Group, Ltd. ("Ginger"), supplier of
Elliott's Amazing Fruit Juices and Drinks(TM) and Elliott's Teas(TM), expires on
December 31, 1996, and may be extended for one additional three-year period and
successive two-year periods thereafter by written agreement between Ginger and
the Company. The contract was modified in March 1994 to permit the Company to
carry single-serve juice products, tea or juice drink lines other than those
carried by the Company as of September 17, 1993, which was not permitted prior
thereto without the consent of Ginger. The Company believes that it is in
compliance in all material respects with the terms of the Ginger contract.

Other distribution contracts place similar restrictions and
requirements on the Company. The Company believes that the terms of its
distribution contracts are similar to those employed throughout the industry. In
addition, the Company has oral distribution agreements for other beverage
products.

SALES, MARKETING AND DISTRIBUTION

The Company has a beverage distribution sales force of 30 persons who
service existing customers and pursue new customers. The Company periodically
sets sales quotas for its salespersons, and promotes fulfillment of these quotas
through sales contests and specific monetary incentives. Demand for the
Company's beverage products tends to be greater during warmer months.
Accordingly, sales are generally highest in the second and third calendar
quarters.

Most beverage distribution customers are visited on a weekly or
biweekly basis by a salesperson from the Company. When a customer orders a
product, the salesperson enters all information into a hand-held computer
terminal. At the end of the day the salesperson is responsible for transmitting
this information by telephone to the Company's computer system. Invoicing,
loading and routing are then handled by the warehouse in preparation for
delivery the following day. The Company's computer system generates invoices and
assists in managing the loading and routing functions. The majority of orders
are filled from the Company's warehouse within 24 hours. The Company generally
delivers products directly to the retail outlets, where Company drivers usually
stock displays and collect payments. Deliveries are made by the Company's fleet
of leased vehicles, which includes 30 beverage delivery trucks and vans.

A variety of methods are used by the Company's beverage suppliers to
promote their products directly to the consumer, including advertising based on
product features such as ingredients, quality and taste as well as a variety of
themes including health, lifestyle, convenience, and physical fitness. Price
promotions, taste tests and event sponsorship are also common. In some
instances, under promotional arrangements with suppliers, the Company may place
refrigerated coolers with retail customers to display the Company's product
lines. The Company must bear some or all of the expense of these promotional
activities within its territory.

Two beverage customers accounted for approximately 9.5% and 6.7% of
total beverage case sales during 1994 and approximately 6.6% and 5.7% of total
beverage case sales during 1995. No other customer accounted for more than 5% of
the Company's beverage sales during either year.

The Company's Prefco subsidiary distributes unbranded boxed beef, pork,
and poultry to chain and independent retail grocery customers, most of whom are
located in the Houston metropolitan area, and all of whom are within a 400-mile
radius of the Company's distribution facilities. The Company serves several
hundred such

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customers as either their primary or secondary fresh meat supplier. Prefco's
direct sales force contacts its customers on a daily basis. The Company delivers
product using 16 refrigerated trucks, generally within one to three days of
receiving an order.

The Company's Prefco subsidiary also markets and distributes its own
Blue Ribbon bacon, sausage and sliced luncheon meats to the retail grocery
trade. Orders are received on a pre-sell basis by the direct sales force
mentioned above as well as on a route-sales basis by a separate group of sales
people, each of whom is responsible for a route sales vehicle. The business has
historically engaged in significant radio and television advertising in the
Houston market.

The Company's Carlton subsidiary solicits and receives customer orders
for branded product through two direct sales people as well as through
third-party food brokers and by telephone and facsimile transmission. The
Company engages in a limited amount of advertising for such products, primarily
through weekly chain supermarket flyers. Relationships with private label
customers are generally established at the senior management level, although
recurring orders from such customers are normally received over the telephone or
facsimile machine by clerical staff. Branded and private label orders are
generally filled within one to seven days and are either delivered on one of the
Carlton Subsidiary's three refrigerated vehicles or by common carrier, or are
picked up by customers.

Four food customers accounted for approximately 42%, 8%, 8% and 8% of
the Company's total food sales during 1995 and for 10%, 10%, 31% and 6% of such
sales during 1994. No other customer accounted for more than 5% of total food
sales during either year.

ASSET MANAGEMENT

Accounts Receivable. Approximately 40% of the Company's beverage sales
are made on a cash basis. Beverage accounts receivable typically average
approximately 20 to 25 days of total sales or 30 to 40 days of sales made on
account.

Food sales are made almost exclusively on account, and food accounts
receivable typically average 15 to 20 days.

Inventory. The Company maintains all of its beverage inventory at the
Company's warehouse in Baltimore. The Company generally maintains an average of
approximately 20 days of beverage inventory on hand. The Company performs a
physical count of its beverage inventory twice a month. On an annual basis,
cumulative adjustments to such inventory have been less than 1% of total
purchases during each of the last three years. The Company turns its beverage
inventory approximately 18 times per year. The Company typically places purchase
orders to its suppliers by telephone and by facsimile on a daily basis. Once
placed, these orders are usually filled within three to five days and the
products are transported to the Company's warehouse by common carrier.

The Company maintains its food inventory at the manufacturing facility
operated by its Carlton subsidiary in New Braunfels, Texas and at two
distribution facilities operated by its Prefco subsidiary in Houston, Texas. The
Company generally maintains an average of eight days of food inventory on hand
which reflects approximately six to seven days of inventory at its Prefco
subsidiary and approximately 30 days of inventory at its Carlton subsidiary. The
Company typically places purchase orders to its suppliers by telephone and by
facsimile on a daily basis. Orders are placed both on an as-needed basis and on
a scheduled basis in anticipation of future demand. Orders are usually filled
within one to ten days, and products are transported to the Company's warehouse
by common carrier.

COMPETITION

Competition in the Beverage Industry

In the greater Baltimore and Washington, D.C. metropolitan area,
beverage suppliers have limited choices in securing distribution of their
products in the entire territory by a single distributor. The two largest
bottler/distributors, Mid Atlantic Coca-Cola Bottling Co., Inc. and Pepsi-Cola
Company, are affiliated with The Coca-Cola Company and PepsiCo Inc.,
respectively, and the Company believes that they do not carry products from
other sources. The other major bottler/distributor, Canada Dry - Potomac
Corporation, distributes a variety of specialty beverage brands and competes
directly with the Company. Mid Atlantic Coca-Cola, Pepsi-Cola and Canada Dry are
larger and have greater financial resources than the Company. The Company also
competes with specialty

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grocery distributors, beer and wine distributors and other independent
beverage distributors. In general, the major bottlers in the Company's
territory are focused on distributing their own brands, while beer and wine
distributors are fragmented and service fewer non-alcoholic customers.

The Company believes that it is the largest distributor to focus
primarily on specialty beverage products and branded bottled water within its
territory. A principal component of the Company's success is its willingness to
service smaller retailers as well as large customers, which the Company believes
helps develop a broad-based consumer interest in the products it carries. The
Company competes primarily on the basis of its product line and service. The
product line includes highly visible, exclusive, niche products. The principal
methods of competition in the premium beverage industry include product quality
and taste, packaging, brand advertising, trade and consumer promotions, pricing,
and the development of new products, while traditional soft-drink products
compete on the basis of all of the foregoing factors but with a greater emphasis
on pricing and advertising.

Competitors may have a significant competitive advantage over the
Company if consumer choice favors products not distributed by the Company, and
the Company is unable to secure distribution rights to the favored products. A
significant shift in consumer demand away from specialty beverage products
generally would have a material adverse effect on the Company's business. There
can be no assurance that the Company will be able to compete successfully with
other distributors to obtain new product distribution agreements or that the
Company's current distribution agreements will be renewed on terms acceptable to
the Company.

Competition in the Food Business

Boxed Meat Distribution. Through its Prefco subsidiary, the Company
believes that it is the second largest of four major boxed meat distributors in
the Houston market. Although this segment of the food industry is extremely
competitive, the Company has generally succeeded in distinguishing itself
through a high level of customer service.

Branded Meat Products. Through its Prefco and Carlton subsidiaries, the
Company competes with dozens of branded meat companies, and its brands compete
with a wide variety of both regional and national trademarks. Among the
competitive brands are Decker, J. Bar B., Hilshire Farms, Hormel and Bryan. The
Company's Carlton and Country Boy brands of smoked sausage are sold principally
in the Dallas, San Antonio and Austin markets and currently have limited market
share. The Company's Blue Ribbon brand currently represents the best selling
brand of bacon and sausage in the Houston market and a top ten brand for both
categories in the San Antonio / Austin market. These products have also been
recently introduced to the Dallas market, where their market share is limited.
The Company's packaged, sliced luncheon meats, also sold under the Blue Ribbon
trademark, were introduced to the Houston market in 1995 and have limited market
share.

Private Label Manufacturing. Through its Carlton subsidiary, the
Company manufactures smoked sausage and meat products on a private label basis
for other branded food companies and, on a limited basis, for supermarkets and
restaurants. The Company believes that it enjoys a strong reputation for
innovation and responsiveness in creating original recipes for such customers.
The Company competes with a wide variety of manufacturers, many of whom are
significantly larger and may have greater manufacturing capacity and capital.

GOVERNMENT REGULATION

The Company is subject to various federal, state and local statutes,
including federal, Maryland, and Texas occupational safety and health laws.
Furthermore, the Company and its suppliers may be subject to various rules and
regulations including those of the United States Department of Agriculture, the
United States Food and Drug Administration and similar state agencies that
relate to manufacturing, nutritional disclosure, labeling requirements and
product names.

While the Company presently does not sell products in any state that
requires deposits on containers, federal and state proposals for container
deposit laws could significantly affect the Company's operating costs if any
such proposal were to be implemented. Although the Company would seek to pass on
any additional costs to its customers, there can be no assurance that the
Company would be able to do so.

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PRODUCT LIABILITY AND INSURANCE

The Company has purchased product liability insurance in the amount of
$1,000,000 per occurrence and $2,000,000 in the aggregate. The Company also has
a $10,000,000 umbrella policy. The Company believes that its present insurance
coverage is sufficient for its current level of business operations, although
there is no assurance that the present level of coverage will be available in
the future or at a reasonable cost. Further, there can be no assurance that such
insurance will be available in the future as the Company expands its operations,
that insurance, if available, will be sufficient to cover one or more large
claims, or that the applicable insurer will be solvent at the time of any
covered loss.

EMPLOYEES

The Company currently has approximately 90 full time employees in its
beverage distribution business, approximately 63 full time employees in its
Prefco subsidiary and approximately 60 full time employees in its Carlton
subsidiary. The Company uses temporary employees from time to time.

The Company believes that its relations with employees are good. The
Company has never suffered a material work stoppage or slow down.

EXECUTIVE OFFICERS

The executive officers and certain other significant employees of the
Company are as follows:

Name Age Position
---- --- --------
Eric D. Becker 33 Chairman of the Board; Director
Merrick M. Elfman 37 Vice Chairman; Director
Alan F. Sussna 39 Chief Executive Officer
William E. O'Leary 48 President -- Beverage Division; Director
Franklin Roth 55 President -- Prefco Subsidiary
Bill Campbell 60 President -- Carlton Subsidiary
John F. Izzo 45 Vice President -- Finance, Controller and Treasurer
Anthony J. Brocato 47 Vice President -- Sales and General Manager, Beverage
Division

Eric D. Becker is Chairman of the Board and a director of the
Company. He has held these positions since April 1991 when the Company's
business was purchased from a predecessor. Mr. Becker is also a co-founder
and Managing Principal of Sterling Capital, Ltd. ("Sterling Capital"), a
private investment firm which was founded in 1984. Since 1984, Mr. Becker
has been Chairman and Vice President of Sterling Group, Inc., an
affiliate of Sterling Capital ("Sterling Group"). Mr. Becker is also a
director of Omega Acquisition Corporation ("Omega"), a privately held
photographic products company. From March 1988 until December 1992, Mr.
Becker served as the Chairman and director of Castle Food Products Corp.
("Castle"), a Maryland food distribution company which commenced Chapter 7
liquidation proceedings in March 1993. Mr. Becker is a member of the Audit
Committee.

Merrick M. Elfman is Vice Chairman of the Company, a position he has
held since February 1996, and has been a director of the Company since 1991. He
is also the founder of Elfman Venture Partners, Inc. and serves as Chairman of
Gray Supply Company, Inc. Prior to joining Sterling in 1987, he worked in
institutional sales at Goldman Sachs. Prior to Goldman Sachs, he owned and
operated a chain of pharmacies in Boston.

Alan F. Sussna is Chief Executive Officer, a position he has held since
March 15, 1996. As a partner in the consulting firms of McKinsey & Company and
Bain & Company, he has opened offices as well as led those firms' Consumer Goods
practices. Mr. Sussna has also held industry positions as Executive Vice
President - Sales and Marketing for Jim Beam Brands and in product management at
Frito-Lay, Inc.

William E. O'Leary is President of the Beverage Division and prior to
the Acquisitions, served as President of the Company, a position he has held
since July 1993. He has served as a director of the Company since September

-8-

<PAGE>

1993. Mr. O'Leary served as the Company's Vice President - Sales from February
1992 until May 1992, and as the Company's Vice President and General Manager
from May 1992 until July 1993. Prior to joining the Company, Mr. O'Leary spent
11 years with Convergent Dealership Systems, a division of Unisys, in various
capacities, most recently as Vice President - Sales.

Franklin Roth is President of the Prefco subsidiary of the Company. He
founded Prefco in July 1986 and served as its President from its inception to
its acquisition by the Company. Prior to that, he held various positions in the
senior management of Blue Ribbon, the predecessor to Prefco.

Bill Campbell is the President of the Carlton subsidiary. He served as
President of Carlton from 1992 to its acquisition by the Company. In this
capacity, he has supervised all sales, purchasing and manufacturing operations.
From 1983 to 1992, he was General Manager of the company. Prior to joining
Carlton, he held several other positions in the processed meat industry,
including five years with Braunfels, Inc. and seven years with Jimmy Dean Meat
Company.

John F. Izzo is Vice President -- Finance and Treasurer of the Company,
positions he has held since September 1993. Mr. Izzo has also served as the
Controller of the Company since April 1991. Prior to joining the Company, Mr.
Izzo served as the Controller of the Predecessor since 1987.

Anthony J. Brocato is Vice President -- Sales and General Manager of
the Beverage Division. He has held these positions since October 1994, prior to
which he was Director of Sales and Marketing for Pepsi-Cola of Salisbury, a
position he had held for 12 years.

ITEM 2. PROPERTIES.

Beverage Operations. The Company operates from a 44,000 square foot
leased facility in Baltimore, Maryland. The Company's lease expires in March 1,
1997, subject to a one-year automatic renewal unless the tenant or landlord
gives required prior notice of its intention not to renew the lease. The Company
believes that alternative facilities are available on economically advantageous
terms. The Company believes that these current facilities will be adequate to
meet its needs for the next two years; however, the Company may lease additional
space on a short-term basis, as it has in the past, to take advantage of
favorable buying opportunities and to help ensure a constant supply of product.
In addition, if required for growth, the Company might need to lease or acquire
additional warehouse space.

Prefco Subsidiary. The Company leases two refrigerated warehouses in
Houston. One warehouse facility, which includes offices and serves as the
subsidiary's headquarters, has a total of 20,000 square feet. The lease for this
facility expires in 2003. The second facility has a total of 5,300 square feet.
The lease for this facility expires in May 1996. In addition to the foregoing,
the subsidiary also leases two small offices, with a total of approximately
2,500 square feet of space.

Carlton Subsidiary. The Company leases a 20,000 square foot
manufacturing facility and a 2,000 square foot office facility in New Braunfels,
Texas. The lease on the manufacturing facility expires in September 1, 2000,
with two five-year renewal options, and the lease on the office facility expires
in October 1, 1997 with a two-year renewal option.

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<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

The Company is a defendant in two lawsuits filed by former suppliers to
its discontinued frozen beverage division. The Company believes that it has
substantial defenses and intends to vigorously defend such claims. In addition,
the Company believes that the ultimate resolution of such claims will not have a
material adverse impact on the financial position or results of operations of
the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None to report.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Atlantic Beverage Company, Inc.'s Common Stock is principally traded on
the NASDAQ Small Cap Market under the symbol ABEV. The following table sets
forth, for the periods indicated, the high and low sale prices of the Company's
Common Stock as reported by NASDAQ.

STOCK PRICES STOCK PRICES
High Low High Low
1994 1995
1st Quarter 7 4 1st Quarter 3 5/8 2 3/4
2nd Quarter 5 1/2 3 3/4 2nd Quarter 3 1/4 2 3/8
3rd Quarter 5 3 1/2 3rd Quarter 2 3/4 1 1/16
4th Quarter 4 2 5/8 4th Quarter 1 7/8 1 1/4

As of March 29, 1996, there were approximately 90 shareholders of
record of the Company's Common Stock. The Company has not paid any cash
dividends since its initial public offering. The Company anticipates that
earnings, if any, will be retained for use in the business or for other
corporate purposes, and it is not anticipated that any cash dividends on the
common stock will be paid in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data for the Company are based on the
consolidated financial statements of the Company. The amounts provided as
statement of operations data and balance sheet data for the periods prior to
reorganization have not been adjusted to give effect to the Reorganization. The
Company's financial statements as of December 31, 1994 and 1995 and for each of
the three years in the period ended December 31, 1995, including the notes
thereto and the related report of Arthur Andersen LLP, independent public
accounts, are included on pages F-1 through F-18 herein.

The acquisition of the business of the Predecessor was accounted for
under the purchase method of accounting and a new accounting basis was
established for the Company beginning April 24, 1991. Accordingly, results of
operations for the period prior to April 24, 1991 are not comparable to results
for subsequent periods.

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<PAGE>

The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company contained elsewhere
herein.

<TABLE>
<CAPTION>
(In thousands, except per share information)
Predecessor Company
----------- ----------------------------------------------------------------------
January 1, April 24,
1991 to 1991 to Year Ended Year Ended Year Ended Year Ended
April 23 December 31, December 31, December 31, December 31, December
31,
------------- -------------- ------------- ------------- -------------- ------------
1991 1991 1992 1993 1994 1995
================================ ============= ============== ============= ============= ============== ============
<S> <C>
Statement of Operations
Net Sales $5,858 $16,934 $22,807 $26,296 $24,152 $20,596
Gross profit, exclusive of
depreciation 1,609 4,324 6,027 6,782 6,365 5,853

Income (Loss) from operations 406 5 384 1,216 278 (138)
Interest expense 10 359 721 765 8 25
Interest income 11 4 - 6 32 12
Other expenses - 119 533 1,311 52 -
Income (Loss) before minority
interest, income tax
(provision) benefit 407 (469) (870) (853) 249 (152)
Minority interest in income
(loss) before income tax
(provision) benefit - (117) (217) 108 - -
Income (Loss) before income
tax (provision) benefit 407 (352) (653) (961) 249 (152)
Income tax (provision) benefit (163) - - 350 15 -
Net income (loss) from
continuing operations 244 (352) (653) (611) 264 (152)
Loss from discontinued
operations - - - - (302) (528)
Loss on disposal of
discontinued operations - - - - - (2,410)
Net income (loss) $ 244 $ (352) $ (653) $ (611) $ (38) $(3,091)
Net income (loss) per share - - (1.18) (.48) (.02) (1.22)
================================ ============= ============== ============= ============= ============== ============
Balance Sheet Data
Cash $1,835 $ 7 $ 38 $ 1,065 $ 142 $ -
Working capital (deficit) 854 (913) (576) 2,590 963 (758)
Total assets 3,163 4,878 4,410 4,940 5,175 2,921
Long-term debt 695 2,239 2,630 15 - -
Deferred compensation - 547 553 - - -
Other liabilities - 851 932 - - -
Minority interest - 333 115 - - -
Accumulated earnings (deficit) 289 (352) (1,017) (934) (979) (4,079)
Total stockholders' equity $ 301 $(1,262) $(1,927) $ 3,886 $ 4,073 $ 562
(deficit)
================================ ============= ============== ============= ============= ============== ============
</TABLE>

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<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

General

In November 1993, the Company completed an initial public offering of
1,173,150 shares of common stock at $6.50 per share (the "Offering"). Following
the Offering, the Company repaid approximately $4.2 million in debt and recorded
a net non-cash charge of approximately $1.3 million in connection with the
repayment of debt and the write-off of certain intangible assets.

On April 27, 1994, the Company entered into and consummated an
agreement to acquire certain assets and marketing rights from Flying Fruit
Fantasy, USA, Inc. ("FFF") for total consideration of approximately $1.2
million. Under the terms of this agreement, the Company obtained worldwide
marketing and distribution rights to a frozen beverage served through automated
dispensing machines. In December 1995, the Company adopted a plan to discontinue
this division. As a result, in the fourth quarter of 1995, the Company
recognized a one-time charge of approximately $2.4 million which reflected the
write-off of $1.1 million in equipment and $0.9 million in intangible assets,
and costs of approximately $0.4 million associated with discontinuing the
operation.

In connection with such transactions, the Company issued approximately
650,000 shares of common stock to the former stockholders of Carlton and Prefco
and issued at a price of $1.05 per share approximately 2.7 million shares of
common stock in a private placement to a limited number of purchasers. The
Company also entered into a loan agreement with LaSalle National Bank (the
"LaSalle Facility") which provided a $4.5 million term loan and a $6.5 million
revolving line of credit. The Company also issued a subordinated promissory note
to the former shareholders of Prefco in the amount of $1.4 million. The note
bears interest at 9% per annum and is payable in quarterly installments of
interest, with a final payment of all outstanding interest and principal on
March 15, 2001.

Results of Operations

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Net Sales. Net sales decreased by approximately $3.6 million or 14.7%
from approximately $24.2 million for the year ended December 31, 1994 to
approximately $20.6 million for the year ended December 31, 1995. This decrease
reflects a decrease in case sales resulting from increased competition during
the year.

Gross Profit. Gross profit decreased by approximately $0.5 million or
8.0% from approximately $6.4 million for the year ended December 31, 1994 to
approximately $5.9 million for the year ended December 31, 1995, reflecting
lower net sales. Gross profit as a percentage of net sales increased from 26.4%
to 28.4%. This increase was primarily the result of a shift toward higher margin
products and selected price increases.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately $0.1 million or 1.6% from
approximately $6.1 million for the year ended December 31, 1994 to approximately
$6.0 million for the year ended December 31, 1995. As a percentage of net sales,
selling, general and

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<PAGE>

administrative expenses increased from 25.2% to 29.1%. This increase was
primarily the result of the decline in net sales.

Income (Loss) from Operations. Income (loss) from operations decreased
approximately $0.4 million from income of approximately $0.3 million for the
year ended December 31, 1994 to a loss of approximately $0.1 million for the
year ended December 31, 1995. This decrease was primarily due to the decline in
net sales.

Net Income (Loss) from Continuing Operations. Net income (loss) from
continuing operations decreased approximately $0.4 million from income of
approximately $0.3 million for the year ended December 31, 1994 to a loss of
approximately $0.1 million for the year ended December 31, 1995. This decrease
was primarily due to the decline in net sales.

Loss from Discontinued Operations. Loss from discontinued operations
increased approximately $0.2 million from approximately $0.3 million for the
year ended December 31, 1994 to approximately $0.5 million for the year ended
December 31, 1995. These losses represent the results of the Company's
discontinued frozen beverage division. The Company operated the division for
approximately eight months in 1994 and for 12 months in 1995.

Loss on Disposal of Discontinued Operations. On December 31, 1995 the
Company recognized a charge of approximately $2.4 million in connection with its
decision to discontinue its frozen beverage division as described above.

Net Loss. Net loss increased approximately $3.1 million from
approximately $38,000 for the year ended December 31, 1994 to approximately $3.1
million for the year ended December 31, 1995. This increase reflects the impact
of the decline in Net Sales as well as the increase in loss from discontinued
operations and the loss on disposal of discontinued operations.

Year Ended December 31, 1994 Compared to Year Ended December 31, 1993

Net Sales. Net sales decreased by approximately $2.1 million or 8.2%
from approximately $26.3 million for the year ended December 31, 1993 to
approximately $24.2 million for the year ended December 31, 1994. This decrease
resulted from decreased case sales in the Company's distribution business which
reflected the combined impact of weather and increased competition during the
year.

Gross Profit. Gross profit decreased by approximately $0.4 million or
6.2% from approximately $6.8 million for the year ended December 31, 1993 to
approximately $6.4 million for the year ended December 31, 1994. This decrease
resulted primarily from a decrease in net sales. Gross profit as a percentage of
net sales increased from 25.8% to 26.4%. This increase was primarily the result
of a shift toward higher margin products in the Company's distribution business
and an increase in purchase discounts.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $0.5 million or 9.4% from
approximately $5.6 million for the year ended December 31, 1993 to approximately
$6.1 million for the year ended December 31, 1994. As a percentage of net sales,
selling, general and administrative expenses increased from 21.1% to 25.2%. The
increase in selling, general and administrative expenses reflected increases in
sales and marketing expenses and an increase in administrative expenses as a
result of the company's being publicly traded.

Income from Operations. Income from operations decreased approximately
$0.9 million or 77.2% from approximately $1.2 million for the year ended
December 31, 1993 to approximately $0.3 million for the year ended December 31,
1994. This decrease is primarily due to the factors discussed in net sales and
selling, general and administrative expenses. As a percentage of net sales,
income from operations decreased from 4.6% to 1.2%.

Interest Expense. Interest expense decreased approximately $0.8 million
or 98.9% from approximately $0.8 million to approximately $8,000. This decrease
resulted primarily from the application of proceeds from the Offering to the
repayment of indebtedness.

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<PAGE>

Other Expenses. Other expenses decreased approximately $1.3 from $1.3
million for the year ended December 31, 1993 to approximately $52,000 for the
year ended December 31, 1994. During 1993, the Company incurred, in connection
with the repayment of indebtedness following its initial public offering, other
expenses of approximately $1.3 million resulting from: (i) a charge of
approximately $0.3 million representing the write-off of capitalized transaction
costs related to such debt; (ii) a gain of approximately $0.1 million in
connection with the prepayment of obligations due the owners of the Predecessor;
and (iii) a charge of approximately $1.1 million related to the release of the
owners of the Predecessor from a non-compete agreement upon such prepayment.
During 1994, other expenses totaled approximately $52,000 which reflected a
charge of approximately $40,000 resulting form the write-off of a consulting
agreement with Hamilton Investments, Inc. and a charge of approximately $12,000
resulting from the settlement of a lawsuit with one of the Company's former
vendors.

Minority Interest in Income Before Income Tax Provision. Minority
interest in income before income tax provision decreased from approximately $0.1
million for the year ended December 31, 1993 to zero for the year ended December
31, 1994. Prior to the merger of Strategic Investment Corporation ("Strategic")
into the Company (the "Reorganization"), minority interest in income before
income tax provision reflected Strategic's 25% interest in the income of
Maryland Beverage L.P.

Income Tax Benefit. Income tax benefit decreased from $350,000 for
the year ended December 31, 1993 to $15,000 for the year ended December 31,
1994.

Net Income (Loss) from Continuing Operations. Net income (loss) from
continuing operations increased approximately $1.2 million from a loss of
approximately $1.0 million for the year ended December 31, 1993 to income of
approximately $0.2 million for the year ended December 31, 1994. This increase
primarily reflects factors discussed in interest expense and other expenses
offset by those discussed in net sales and selling general and administrative
expenses.

Loss from Discontinued Operations. Loss from discontinued operations
increased approximately $0.3 million from zero for the year ended December 31,
1993 to approximately $0.3 million for the year ended December 31, 1994. This
loss reflects the results of the Company's discontinued frozen beverage
division. The Company operated the division for approximately eight months in
1994.

Net Loss. Net loss decreased approximately $0.6 million from
approximately $0.6 million for the year ended December 31, 1993 to approximately
$40,000 for the year ended December 31, 1994. This decrease primarily reflects
factors discussed in interest expense and other expenses offset by those
discussed in net sales, selling general and administrative expenses, and loss
from discontinued operations.

Liquidity and Capital Resources

Cash flow from operating activities for the year ended December 31,
1995 was approximately $0.1 million. This amount was principally affected by a
net loss, the add-back of depreciation and amortization, loss from discontinued
operations and the loss on disposal of discontinued operations, an increase in
accounts payable and a decrease in accounts receivable. Cash used in investing
activities for the year ended December 31, 1995 was approximately $0.6 million
and primarily reflected capital expenditures. Cash provided by financing
activities was approximately $0.3 million and was principally affected by the
repurchase of approximately $0.4 million of common stock, by net borrowings on
the Company's revolving line of credit of approximately $0.4 million and by an
increase in bank overdrafts of approximately $0.3 million. Net cash used during
the period was approximately $0.1 million.

Under an open-market stock repurchase plan authorized by the Company's
board of directors, the Company repurchased 2,500 shares in the fourth quarter
of 1994, 20,500 shares during the third quarter of 1995 and 9,606 shares during
the fourth quarter of 1995. Under the terms of the LaSalle Facility, the Company
is prohibited from repurchasing its stock and has therefore terminated its
open-market stock repurchase plan. In addition to repurchasing shares in the
open market, the Company repurchased 375,432 shares in a private transaction
from a single holder during the third quarter of 1995.

The Company believes that cash generated from operations and bank
borrowings will be sufficient to fund its working capital requirements and
capital expenditures as currently contemplated for the next year. This belief is

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<PAGE>

based on projections of operating results which necessarily involve uncertainty.
Actual results may differ materially from projections. The LaSalle Facility
contains certain covenants, compliance with which is a condition to all
borrowings. No assurance can be given that the Company will remain in compliance
with such covenants throughout the term of the LaSalle Facility.

The Company has recorded a tax asset of $365,000. A valuation allowance
exists as of December 31, 1995 because, based on the weight of all available
evidence, management believes it is more likely than not that the remaining
deferred tax asset will not be fully realized. To the extent that the Company
reports taxable income in future periods, or events occur which indicate that
the remaining deferred tax asset will more than likely not be realized, the
valuation allowance may be further adjusted resulting in a lower effective tax
rate in those periods.

The Company, from time to time, reviews the possible acquisition of
other businesses.

Seasonality

Consumer demand for beverage products distributed by the Company tends
to be greater during warmer months. Accordingly, the Company's beverage sales
and profits are generally highest in the second and third calendar quarters.
Management believes that this phenomenon will be mitigated by the results of its
food operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company's 1995 Financial Statements and the Report of Independent
Auditors thereon are set forth on pages F-1 through F-18 of this Form 10-K/A.

Supplementary data regarding quarterly results of operations have been
omitted since it is not applicable.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Class III - Directors elected at the 1996 Annual Meeting:

Alan F. Sussna. Mr. Sussna is Chief Executive Officer, a position he
has held since March 15, 1996. As a partner in the consulting firms of McKinsey
& Company and Bain & Company, he has opened offices as well as led those firms'
Consumer Goods practices. Mr. Sussna has also held industry positions as
Executive Vice President - Sales and Marketing for Jim Beam Brands and in
product management at Frito-Lay, Inc.

Rick Inatome. Mr. Inatome has served as a director of the
Corporation since September 1993. Since 1976, Mr. Inatome, age 42, has
served as the Chairman of Inacom, a computer services firm.

John A. Miller. Mr. Miller has served as a director of the
Corporation since September 1993. Mr. Miller, age 42, has served as
President and a director of North American Paper Company since 1987. Mr.
Miller is a member of the Audit Committee and the Compensation Committee.

Members of Board of Directors Continuing in Office Following 1996 Annual Meeting

Class I - Directors Serving Until 1997 Annual Meeting:

Eric D. Becker. Mr. Becker is Chairman of the Board and a director
of the Company. He has held these positions since April 1991 when the
Company's business was purchased from a predecessor. Mr. Becker is also a

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<PAGE>

co-founder and Managing Principal of Sterling Capital, Ltd. ("Sterling
Capital"), a private investment firm which was founded in 1984. Since 1984,
Mr. Becker has been Chairman and Vice President of Sterling Group, Inc., an
affiliate of Sterling Capital ("Sterling Group") and the general partner of
Sterling Advisors, LP ("Sterling Advisors"). From March 1988 until December
1992, Mr. Becker served as the Chairman and director of Castle Food Products
Corp., a Maryland food distribution company which commenced Chapter 7
liquidation proceedings in March 1993. Mr. Becker is a member of the Audit
Committee.

William E. O'Leary. Mr. O'Leary is President of the Corporation, a
position he has held since July 1993, and has served as a director of the
Corporation since September 1993. Mr. O'Leary, age 49, served as the
Corporation's Vice President - Sales from February 1992 until May 1992, and as
the Corporation's Vice President and General Manager from May 1992 until July
1993. Prior to joining the Corporation, Mr. O'Leary spent 11 years with
Convergent Dealership Systems, a division of Unisys, in various capacities, most
recently as Vice President - Sales.

G. Cook Jordan, Jr. Mr. Jordan has served as a director of the
Corporation since September 1993. Since 1988, Mr. Jordan has served as a
Manager of Allstate Venture Capital, which is affiliated with Allstate
Insurance Company. Mr. Jordan, age 44, is a director of Sylvan Learning
Systems, Inc., a leading provider of educational services in North America
through franchised and company-owned learning centers. Mr. Jordan is a
member of the Audit Committee and the Compensation Committee.

Class II - Directors Serving Until 1998 Annual Meeting:

Steven M. Taslitz. Mr. Taslitz has served as a director of the
Corporation since November 1991. Mr. Taslitz is a co-founder and Managing
Principal of Sterling Capital and Sterling Group. Mr. Taslitz has served as the
President of Sterling Group since 1984. Mr. Taslitz, age 36, is a director
of Resource Media, Inc., a privately-held radio broadcast company, and is
president and a director of Arizona City Broadcasting Corporation, a Delaware
corporation which filed a petition under the Federal bankruptcy laws in January
1995.

Merrick M. Elfman. Mr. Elfman is Vice Chairman of the Company, a
position he has held since February 1996, and has been a director of the
Company since 1991. He is also the founder of Elfman Venture Partners, Inc.
and serves as Chairman of Gray Supply Company, Inc.

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<PAGE>

Board Committees

The Board of Directors has established an Audit Committee and a
Compensation Committee and has no nominating committee. Selection of nominees
for the Board is made by the entire Board of Directors.

The Audit Committee is composed of Mr. Becker, Mr. Jordan and Mr.
Miller. The Audit Committee is responsible for reviewing the internal accounting
procedures of the Corporation and the results and scope of the audit and other
services provided by the Corporation's independent auditors, consulting with the
Corporation's independent auditors and recommending the appointment of
independent auditors to the Board of Directors. The Audit Committee met three
times during the year ended December 31, 1995; each member of the Audit
Committee attended each meeting.

The Compensation Committee is composed of Mr. Jordan and Mr. Miller.
The Compensation Committee has the authority and performs all of the duties
related to the compensation of management of the Corporation, including
determining policies and practices, changes in compensation and benefits for
management, determination of employee benefits and all other matters relating to
employee compensation, including matters relating to the administration of the
Corporation's Stock Option Plan (the "Plan"). The Compensation Committee met one
time during the year ended December 31, 1995; each member of the Compensation
Committee attended that meeting.

Attendance at Meetings

During the year ended December 31, 1995, the Board of Directors held
six meetings. All directors attended more than 75% of the meetings of the Board
of Directors.

Directors' Fees

The Corporation has adopted a policy of paying fees to non-employee
directors (other than Mr. Becker) in the amount of $7,500 per year, plus $500
for each meeting of the Board attended and $250 for each meeting of each
committee thereof attended. Non-employee directors have also received options to
purchase an aggregate of 15,000 shares of Common Stock under the Company's Stock
Option Plan (the "Plan"). Assuming the adoption by shareholders at this annual
meeting of the Directors' Stock Option Plan described in Proposal Three and
attached hereto as Appendix A, non-employee directors will receive, in lieu of
cash directors' fees, options to purchase 10,000 shares following each annual
meeting beginning with the 1996 annual meeting. See Proposal Three, Directors'
Stock Option Plan.

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<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

Executive Compensation

The following table sets forth annual and long-term compensation for
the fiscal years ended December 31, 1993, 1994 and 1995 for services in all
capacities to the Corporation of (i) the Chief Executive Officer and (ii) the
Corporation's other executive officers whose total annual salary and bonus
exceeded $100,000 during such periods (the "Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
--------------------------------- -------------------------------------
Securities
Underlying All Other
Name and Position(1) Year Salary($) Bonus($) Options/SAR's Compensation($)(5)
- --------------------------- ---- ---------- -------- ------------- ------------------
<S> <C>
Eric D. Becker, 1995 -- -- -- --
Chairman of the Board(2) 1994 -- -- -- --
1993 -- -- -- --

William E. O'Leary, 1995 166,126 -- 25,000 3,000
President(3) 1994 160,680 -- -- --
1993 156,000 78,966 125,086 2,937

Anthony J. Brocato, Jr.(4), 1995 100,000 22,433 -- 2,000
Vice President, Sales and 1994 100,000 -- -- --
General Manager-Beverage 1993 -- -- -- --
Division
</TABLE>

- ------------
(1) This table presents information concerning the Company's Chief Executive
Officer and its three other most highly compensated executive officers
(determined by reference to total annual salary and bonuses earned by
such officers) for the fiscal year ended December 31, 1995. Mr. Franklin
Roth and Mr. Alan Pauly joined the Company as executive officers in March
1996. Mr. Roth receives an annual salary of $125,000, and Mr. Pauly
currently receives an annual salary of $100,000. These executives would
have been included in this table had they been with the Company during
the fiscal year ended December 31, 1995.
(2) Although Mr. Becker received no compensation from the Corporation
during 1993, 1994 and 1995, the Corporation paid Sterling Group
$101,041, $144,200 and 148,526 in 1993, 1994 and 1995, respectively,
for certain consulting services, including the services of Mr.
Becker. See "Certain Transactions with Management." The Corporation
entered into a five-year Consulting Agreement with Sterling Group
(assigned by Sterling Group to Sterling Advisors), effective November
29, 1993, pursuant to which Sterling Group agreed to provide
consulting services to the Corporation, including the services of Mr.
Becker, and will receive fees of $144,200 per annum, increasing by
3% on January 1 of each year the agreement is in effect. Effective
March 15, 1996, the Consulting Agreement was terminated and
replaced with a new Consulting Agreement pursuant to which Sterling
Group and Elfman Venture Partners, Inc. will provide consulting
services to the Corporation for fees in the aggregate of $300,000 per
annum, increasing 5% on January 1 of each year the agreement is in
effect. See "Consulting and Employment Agreements."
(3) On March 15, 1996 and Mr. Sussna was named Chief Executive Officer of
the Company. Mr. O'Leary continues his duties as President.
(4) Mr. Brocato assumed his position in October 1994 and his salary for
1994 is presented on an annualized basis.
(5) Includes contributions by the Corporation in the amount of $1,371, $1,391
and $1,400 to its 401(k) Plan on behalf of Mr. O'Leary in 1993, 1994 and
1995, respectively. Includes contributions by the Corporation in the
amount of $1,000 to its 401(k) Plan on behalf of Mr. Brocato in 1995.
Also includes life insurance premiums paid by the Corporation in the
amount of $1,566 on behalf of Mr. O'Leary in each of 1993 and 1994 and

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<PAGE>

$1,600 in 1995 and life insurance premiums paid by the Corporation in the
amount of $1,000 on behalf of Mr. Brocato in 1995.

Option Grants

There were options to purchase 25,000 shares at an exercise price of
$2.75 per share granted to Mr. O'Leary during the year ended December 31, 1995.
There were no options granted to the Named Officers during the fiscal year ended
December 31, 1995. In March 1996, the Corporation granted options to purchase
10,000 shares of Common Stock to Mr. E. Becker at an exercise price of $1.05,
determined by the Board of Directors to be the fair market value of the options
on the date of the grant. These options are subject to stockholder approval of
Proposal Two herein relating to an increase in the number of shares that may be
issued under the Corporation's Stock Option Plan.

Option Fiscal Year-End Values

Shown below is information with respect to the unexercised options to
purchase the Corporation's Common Stock granted in 1995 under the Plan. Neither
the Corporation's Chief Executive Officer nor the Named Officers exercised any
stock options during the year ended December 31, 1995.

<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Held at December 31, 1995(#) at December 31, 1995($)
----------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C>
Eric D. Becker(1) -- -- -- --
William E. O'Leary 100,052 50,034 $0.00 $0.00
Anthony Brocato -- -- -- --
</TABLE>

(1) Options to purchase 10,000 shares of Common Stock were granted to Mr. Becker
in March 1996 at an exercise price of $1.05 per share. These options are
subject to stockholder approval.

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<PAGE>

Compensation Committee Report on Executive Compensation

The Compensation Committee of the Board of Directors has furnished the
following report on its policies with respect to the compensation of executive
officers. The report is not deemed to be "soliciting material" or to be "filed"
with the SEC or subject to the SEC's proxy rules or to the liabilities of
Section 18 of the 1934 Act, and the report shall not be deemed to be
incorporated by reference into any prior or subsequent filing by the Corporation
under the Securities Act of 1933 or the 1934 Act.

The Corporation's Board of Directors established the Compensation
Committee at the end of 1993, and the Committee will determine and act upon
compensation decisions as described below in 1996 and future years. Decisions on
compensation of the Corporation's executives officers generally will be made by
the Compensation Committee of the Board of Directors. No member of the
Compensation Committee is an employee of the Corporation. During 1995, the
Committee consisted of Mr. Miller and Mr. Jordan. All decisions by the
Compensation Committee relating to the compensation of the Corporation's
executive officers will be reviewed by its full Board, except for decisions
concerning grants under the Plan, if approved, which will be made solely by the
Committee in order for the grants to satisfy certain requirements under the 1934
Act.

Compensation Policies Toward Executive Officers

The Corporation's executive compensation policies are intended to
provide competitive levels of compensation that reflect the Corporation's annual
and long-term performance goals, reward superior corporate performance, and
assist the Corporation in attracting and retaining qualified executives. Total
compensation for the Named Officers as well as the other senior executives is
comprised of three principal components: base salary, annual incentive
compensation and grants of options to purchase the Corporation's Common Stock.
The base salaries are fixed at levels which the Compensation Committee believes
are comparable to those of executives of similar status in the beverage
distribution industry. In addition to base salary, each executive officer is
eligible to receive an annual bonus tied to the Corporation's success in
achieving certain annual performance measures, as well as individual
performance. The Board of Directors and the Compensation Committee also believe
that longer-term incentives are appropriate to motivate and retain key personnel
and that stock ownership by management is beneficial in aligning management's
and stockholders' interests in the enhancement of stockholder value.
Accordingly, the Compensation Committee intends to consider annual grants of
stock options to executive officers and other employees under the Plan.

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<PAGE>

The following describes in more specific terms the three elements of
compensation that implement the Committee's compensation reported for 1995:

Base Salary. Each year the Chief Executive Officer recommends to the
Committee a base salary level for senior executives whose salaries are not fixed
by contract. In this regard, Messrs. O'Leary, Brocato and Izzo's base salaries
are fixed by contract, and Mr. Becker is not directly compensated by the
Corporation. In formulating such recommendations, the Chief Executive Officer
considers local salary levels for comparable positions, informal information
regarding industry standards and performance judgments as to the past and
expected future contributions of the individual senior executives. The Committee
will review the recommendations and fix the base salaries of each of these
executive officers based on available competitive compensation data and the
Committee's assessment of each officer's past performance and its expectation as
to future contributions.

Annual Incentive Bonus. Annual incentive bonuses are primarily based
upon the achievement of measurable pre-tax earnings performance goals
established at the beginning of the fiscal year. In the case of Mr. O'Leary, a
bonus opportunity of up to 50% of base salary is based on achieving 100% of the
pre-tax earnings goal. For John Izzo, Vice President Finance, Controller and
Treasurer, a bonus opportunity of up to 22.5% of base salary is based on this
pre-tax earnings goal, and for Mr. Brocato, a bonus opportunity of $7,500 per
quarter based on the achievement of certain case sales.

In addition to the executive officers, some level of annual incentive
bonus may currently be earned by the Corporation's salaried employees based on
the recommendation of the President.

Long-Term Stock Option Incentives. Stock options provide executives
with the opportunity to buy an equity interest in the Corporation and to share
in the appreciation of the value of the Corporation's Common Stock. Stock
options are granted at the fair market value price of the Common Stock on the
date of grant, are subject to vesting over time and only have future value for
the executives if the stock price appreciates from the date of grant. Factors
influencing stock option grants to executive officers include performance of the
Corporation, relative levels of responsibility, contributions to the business of
the Corporation and competitiveness with other growth oriented companies. Stock
options granted to executive officers and other management employees are
approved by the Compensation Committee. In 1993, Mr. O'Leary was granted options
to purchase 125,086 shares of stock at an exercise price of $6.50 per share, 20%
of which options vested upon stockholder approval of the Plan and 20% of which
vested or are to vest on the first through fourth anniversary dates of such
grant. In April 1995, the Board of Directors determined to reprice the unvested
options. The new exercise price for the unvested options is the fair market
value of the Common Stock on the date on which the options vest. In addition,
there were options to purchase 25,000 at an exercise price of $2.75 per share
granted to the Chief Executive Officer during the year ended December 31, 1995.
There were no options granted to the Named Officers during the fiscal year ended
December 31, 1995.

Other Compensation Plans. The Corporation maintains a defined
contribution plan (the "401(k) Plan") which is intended to satisfy the tax
qualification requirements of Sections 401(a), 401(k) and 401(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Corporation's senior
executives are eligible to participate in the 401(k) Plan and are permitted to
contribute up to the maximum percentage allowable not to exceed the limits of
Code Sections 401(k), 404 and 415 (i.e., $9,240 in 1995). All amounts deferred
under the 401(k) Plan's salary reduction feature by a participant vest
immediately in the participant's account while contributions made by the
Corporation vest over a seven year period in the participant's account. The
Corporation will make a matching contribution to the 401(k) Plan equal to 25% of
each participant's contribution, up to a maximum of 6% of the participant's
salary. The Corporation may make additional discretionary contributions.

Benefits. Benefits offered to key executives are largely those that
are offered to the general employee population, such as group health and life
insurance coverage and participation in the Company's 401(k) Plan. In
addition, Mr. O'Leary is provided a Corporation automobile. Benefits
are not tied directly to corporate performance.

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<PAGE>

Mr. Becker's Compensation.

Although Mr. Becker received no compensation from the Corporation
during 1995, the Corporation paid Sterling Group $148,526 in 1995 for
certain consulting services, including the services of Mr. Becker. See
"Certain Transactions with Management" and "Consulting and Employment
Agreements."

The Compensation Committee believes that the Corporation's executive
compensation policies and programs serve the interests of the Corporation and
its stockholders. Total compensation to the executives is linked to Corporation
performance.

Submitted by the Members of the Compensation Committee:

John A. Miller
G. Cook Jordan, Jr.

Consulting and Employment Agreements

The Corporation entered into a Consulting Agreement (the "Consulting
Agreement") with Mr. Becker and Sterling Group (assigned by Sterling Group to
Sterling Advisors), effective November 29, 1993, pursuant to which Mr. Becker
acted as a part-time consultant to the Corporation and served as the
Corporation's Chairman of the Board and a director. The initial term of this
Consulting Agreement was from November 29, 1993 until December 31, 1998. The
term of the agreement was to extend for additional one year periods commencing
on January 1, 1999, and each January 1 thereafter, unless and until terminated
by written notice given by either party to the other 12 months prior to each
applicable termination date. The Consulting Agreement provided that the
Corporation shall pay Sterling Advisors a base fee of $140,000 per year, which
base fee shall increase by 3% on January 1 for each year the agreement remains
in effect.

The Corporation, Sterling Group and Messrs. Becker, Taslitz, D. Becker
and C. Hoehn-Saric entered into a Non-Compete and Non-Disclosure Agreement
containing certain non-competition and confidentiality provisions pursuant to
which Sterling Group and Messrs. Becker, Taslitz, D. Becker and C. Hoehn-Saric
have agreed not to compete with the Corporation for a period ending one year
after Sterling Group's consulting relationship with the Corporation is
terminated, nor will they solicit for employment any director, stockholder or
certain employees of the Corporation during such period. Such agreement also
provides that neither Sterling Group nor such persons will disclose any
confidential information concerning the Corporation and its business to any
other person or entity except as may be required by law.

Effective March 15, 1996, the Consulting Agreement was terminated and
replaced with a new Consulting Agreement (the "New Consulting Agreement")
pursuant to which Sterling Advisors and Elfman Venture Partners, Inc. will
provide consulting services to the Corporation for base consulting fees in the
aggregate of $300,000 per year, increasing 5% on January 1 of each year the
agreement is in effect. The New Consulting Agreement also provides for the
reimbursement of certain expenses incurred by Sterling Advisors and Elfman
Venture Partners, Inc. on behalf of the Corporation. Mr. Becker acts as a
consultant to the Corporation and serves as the Corporation's Chairman of the
Board pursuant to the New Consulting Agreement. The New Consulting Agreement
provides that the Chairman is entitled to participate in any profit sharing
plan, retirement plan, group life insurance plan or other insurance plan or
medical insurance plan maintained by the Corporation for its non-employee
directors, and reimbursement for certain fees of professional organizations. The
term of the New Consulting Agreement is from March 15, 1996 until December 31,
2001. The term of the agreement extends for additional one year periods
commencing January 1, 2002, and each January 1 thereafter, unless and until
terminated by written notice given by either party to the other 12 months prior
to each applicable termination date. In addition to the base consulting fees, a
financing fee equal to the greater of 2.5% of the total consideration paid by
the Company in an acquisition shall be paid to Sterling Advisors and Elfman
Venture Partners, Inc. The New Consulting Agreement provides that Sterling
Advisors and Elfman Venture Partners, Inc. (or their respective principals) will
receive in the aggregate options to purchase 25,000 shares of Common Stock
during each year in which the New Consulting Agreement is in effect. Such
options vest on each December 31 at an exercise price equal to 70% of the fair
market value of the Common

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<PAGE>

Stock on the preceding January 1. All compensation payable by the Corporation
under the New Consulting Agreement is payable 80% to Sterling Advisors and 20%
to Elfman Venture Partners, Inc.

The Corporation entered into an Employment Agreement with Mr. O'Leary
in September 1993, pursuant to which Mr. O'Leary will serve as the President of
the Corporation. The initial term of the agreement is from November 29, 1993 and
continues until December 31, 1996. The term of the agreement is to extend for
additional one year periods commencing on January 1, 1997, and each January 1
thereafter, unless and until terminated by written notice given by either party
to the other three months prior to each applicable termination date. The
agreement provides that the Corporation shall pay Mr. O'Leary base compensation
of $156,000 per year, which base compensation shall increase by 3% on March 1
for each year the agreement remains in effect. Commencing in 1994, Mr. O'Leary
is also eligible to receive a bonus each year equal to one-half of his base
salary for such year provided (i) Mr. O'Leary was a full-time employee of the
Corporation during such year and (ii) the Corporation achieved 100% of pre-tax
earnings as set forth in the annual budget submitted by Mr. O'Leary and approved
by the Board of Directors of the Corporation. Pursuant to the terms of the
agreement, Mr. O'Leary received options on November 29, 1993 to acquire 125,086
shares of the Common Stock of the Corporation, 20% of which options vested upon
stockholder approval of the Plan and 20% of which vested or are to vest on the
first through fourth anniversary dates of such grant. The exercise price of such
options is equal to $6.50 per share for options that vested before 1995 and is
equal to the fair market value of the Common Stock on the date of vesting for
the remainder of the options. The Corporation has registered under the
Securities Act on Form S-8 the shares issuable under such options. In addition,
during 1995, Mr. O'Leary received options to purchase an additional 25,000
shares at an exercise price of $2.75 per share which options were immediately
vested.

The Corporation also entered into an Employment Agreement with Mr. Izzo
in September 1993, pursuant to which Mr. Izzo is to serve as Vice
President-Finance, Controller and Treasurer of the Company. The initial term of
the agreement is from November 29, 1993 until December 31, 1996. The term of the
agreement is to extend for additional one year periods commencing on January 1,
1997, and each January 1 thereafter, unless and until terminated by written
notice given by either party to the other six months prior to each applicable
termination date. The agreement provides that the Corporation shall pay Mr. Izzo
a base salary of $47,000 per year. On March 15, 1996, Mr. Izzo's base salary was
increased to $60,000 per year.

Mr. O'Leary's and Mr. Izzo's employment agreements also contain certain
non-competition and confidentiality provisions pursuant to which Mr. O'Leary and
Mr. Izzo have each agreed not to compete with the Corporation for a period of
eighteen months following termination of their employment with the Corporation,
nor will they solicit for employment any director, stockholder or certain
employees of the Corporation during such period. The agreement also provides
that Mr. O'Leary and Mr. Izzo will not disclose any confidential information
concerning the Corporation and its business to any other person or entity except
as may be required by law.

Mr. Robert E. Groth, who was a party to a Consulting Agreement with the
Corporation dated April 27, 1994 pursuant to which Mr. Groth acted as President
of the Corporation's Flying Fruit Fantasy Division, resigned from the
Corporation's Board of Directors in March 1996 in connection with the
Corporation's sale to Mr. Groth and related parties of certain equipment for a
purchase price of $80,000 following the Corporation's decision to discontinue
the Flying Fruit Fantasy Division.

The Corporation entered into an Employment Agreement with Mr. Brocato,
in April 1995, pursuant to which Mr. Brocato agreed to serve as Vice President,
Sales and General Manager/Beverage Division. The term of the agreement is from
April 24, 1995 and continues until December 31, 1996. The term of the agreement
is to extend for additional one year periods commencing on January 1, 1997, and
each January 1 thereafter, unless and until terminated by written notice given
by either party to the other three months prior to each applicable termination
date. The agreement provides that the Company shall pay Mr. Brocato base
compensation of $100,000 per year. Mr. Brocato is eligible to receive a bonus
each quarter of $7,500 provided (i) Mr. Brocato was a full-time employee of the
Company during the preceding quarter and (ii) the Company achieve 100% of the
case sales' budget as determined by the Company's CEO and approved by the Board
of Directors in conjunction with the annual budget. The bonus for the first
three quarters of Mr. Brocato's employment was paid regardless of achievement of
case sales budget. Pursuant to the terms of the agreement, Mr. Brocato received
options to purchase 7,000 shares on January 1, 1996 and will receive options to
purchase an additional 7,000 shares on January 1, 1997 and 1998. The options
become vested three years from the date of grant and have an exercise price
equal to the closing price on NASDAQ on the day before the options are granted.

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<PAGE>

Compliance with Section 16 of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires the Corporation's officers, directors and certain
beneficial holders of common stock to file reports about their beneficial
ownership of the Corporation's common stock. Based solely on its review of the
copies of such reports furnished to the Corporation by its directors and
officers during and with respect to the year 1995, the Corporation believes that
none of its directors and officers failed to file on a timely basis any reports
required by Section 16(a) of the 1934 Act.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information regarding the
ownership of Common Stock as of April 15, 1996, by each person known by the
Corporation to be the beneficial owner of more than five percent (5%) of the
outstanding shares of Common Stock, each director of the Corporation, each Named
Officer (as defined below), and all executive officers and directors as a group.
The information presented in the table is based upon the most recent filings
with the Securities and Exchange Commission by such persons or upon information
otherwise provided by such persons to the Corporation.

Shared Beneficially
Names of Beneficial Owners Owned(1) Percentage Owned
-------------------------------- ------------------- ----------------

Douglas Becker.................... 352,293(4) 6.13%
Eric D. Becker.................... 402,293(4)(6) 7.00%
Merrick M. Elfman................. 417,394(3)(4) 7.25%
Philip L. Glass................... 370,265(8) 6.45%
Bruce Goldman..................... 613,411(2) 10.68%
Rudolf Christopher Hoehn-Saric.... 383,035(4)(7) 6.66%
Rick Inatome...................... 98,240(4) 1.71%
G. Cook Jordan, Jr................ 18,000(4) *
William E. O'Leary................ 150,052(9) 2.57%
John A. Miller.................... 100,240(4) 1.75%
Alan F. Sussna.................... 152,900 2.66%
Steven M. Taslitz................. 408,269(4)(5) 7.10%
Anthony Brocato................... 5,000 *
All directors and executive officers
as a group (12 persons)........... 1,886,779 31.89%

*Less than one percent

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable
within 60 days are deemed outstanding for purposes of computing the
percentage ownership of the person holding such option or warrant but
are not deemed outstanding for purposes of computing the percentage
ownership of any other person. Except where indicated otherwise, and
subject to community property laws where applicable, the persons named
in the table above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them.
(2) Includes 250,346 shares of Common Stock of the Corporation held by KJT
Gift Trust dated 1/11/94, of which Mr. Goldman is a co-trustee. Mr.
Goldman disclaims beneficial ownership of the shares held by the KJT
Gift Trust.
(3) Mr. Elfman shares beneficial ownership of such shares with his wife,
Therese L. Wareham.

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<PAGE>

(4) Includes shares that may be acquired upon the exercise of options
granted under the Plan. With respect to Messrs. D. Becker, E. Becker,
Hoehn-Saric, Inatome and Taslitz, also includes options to purchase
10,000 shares granted to each of them in March 1996 at an exercise
price of $1.05 per share, the fair market value of the Common Stock on
the date of the option grants. These options are subject to
shareholder approval of an increase in the number of shares that may be
issued under the Corporation's Stock Option Plan.
(5) Mr. Taslitz shares beneficial ownership of the shares with his wife,
Kathy J. Taslitz.
(6) Mr. Becker shares beneficial ownership of such shares with his wife,
Jill E. Becker, the registered holder of such shares.
(7) Mr. Hoehn-Saric beneficially owns these shares directly and indirectly as
custodian for Gabriella Hoehn-Saric and Rudolf Christopher Hoehn-Saric,
Jr.
(8) Philip L. Glass shares beneficial ownership of such shares with his
wife, Ellen V. Glass. Of the 370,265 shares of Common Stock
attributable to the beneficial ownership of Mr. and Mrs. Glass, 84,770
shares are held by the Glass International Ltd. Profit Sharing Plan
and Trust dated 7/1/83 (the "Trust"). Mr. and Mrs. Glass are
co-trustees and also beneficiaries of the Trust. The balance of such
shares of Common Stock of the Corporation are held by the Mr. and Mrs.
Glass jointly, either as joint tenants or tenants in common.
(9) Includes 100,052 shares that may be acquired upon the exercise of options
granted under the Plan.

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<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Corporation and Sterling Group entered into a Management Agreement
in September 1991 ("Management Agreement") pursuant to which the Corporation
agreed to pay Sterling Group a management fee (the "Management Fee") for
providing certain management services. The Corporation also agreed to pay
Sterling Group a one-time financing fee, payable over eighteen months (the
"Financing Fee") in connection with the acquisition of the assets of the
Corporation from its predecessor's owners and the financing thereof. During
1995, the Corporation paid $148,526 in Management Fees. The Management Agreement
was terminated in connection with the initial public offering. The Corporation
also entered into a Consulting Agreement with Sterling Group. See "Consulting
and Employment Agreements."

In December 1995, the Corporation discontinued its Flying Fruit Fantasy
Division and sold assets in March 1996 related thereto to Mr. Groth and related
parties for a purchase price of $80,000. The Corporation established its Flying
Fruit Fantasy Division in May 1994 through the acquisition of assets for
$500,000 in cash and 23,077 shares of the Corporation's Common Stock. In
addition, pursuant to the terms of the asset purchase agreement, the Corporation
was required to pay $5,000 per month for 24 consecutive months from the May 1994
closing. In addition, the Sellers received one share of the Corporation's Series
A Non-Voting Convertible Preferred Stock which converted on October 27, 1996
into $150,000 worth of the Corporation's common stock (based on the average
closing price on the five days preceding October 27, 1996 valued at $5 per
share).

In March 1996, a Financing Fee of $300,000 was paid to Sterling
Advisors and Elfman Venture Partners, Inc. in connection with the acquisition
of Carlton Foods Corp. and Prefco Inc., described below.

On January 25, 1996, the Company, Carlton Foods Corp., and Carlton
Foods, Inc. executed an Agreement and Plan of Merger under which Carlton was
merged into Carlton Foods Corp., a wholly owned subsidiary of the Company. Prior
to the March 15, 1996 closing date of the transaction, certain of the Company's
shareholders collectively owned approximately 40.7% of Carlton Foods, Inc.
Carlton was merged with and into a wholly-owned subsidiary of the Company in
consideration of the issuance of 400,001 shares of the Company's common stock.
The Company also refinanced and assumed certain indebtedness of Carlton in the
amount of approximately $3,000,000, which included approximately $300,000 in
principal and accrued interest owed by Carlton to certain of its stockholders.

On March 15, 1996, the Atlantic Beverage Company, Inc. (the "Company")
finalized a transaction by which ABEV Acquisition Corp., a wholly-owned
subsidiary of the Company, acquired all of the capital stock of Prefco, Inc.
("Prefco"). Prefco, based in Houston, Texas, markets and distributes its own
branded meat products as well as unbranded meat products to the retail grocery
trade in Texas. Simultaneously with the acquisition of Prefco's stock, the
Company merged Carlton Foods, Inc. ("Carlton") into a separate wholly-owned
subsidiary of the Company. Carlton, based in New Braunfels, Texas, is a
manufacturer of branded and private label meat products. The newly acquired
business operate as separate, wholly-owned subsidiaries of the Company under the
names Prefco Corp. and Carlton Foods Corp. Under the terms of the Stock Purchase
Agreement executed on January 23, 1996, among the Company, ABEV, and Franklin
Roth and Allen Pauly (collectively, the "Selling Shareholders"), ABEV acquired
all of the outstanding capital stock of Prefco. Immediately after the
acquisition of Prefco, it was merged into ABEV which subsequently changed its
name to Prefco Corp. The purchase price under the Stock Purchase Agreement was
$7,400,000, of which $6,000,000 was paid in cash at the March 15, 1996 closing
and $1,400,000 will be paid under a subordinated note. The note will bear
interest at 9% per annum and will be payable in quarterly installments of
interest, with the final payment of all outstanding interest and principal
payable on March 15, 2001, the fifth anniversary of the closing date. In
addition to the amounts paid in cash and under the note, the Selling
Shareholders each received 25,000 shares of the Company's Common Stock. The
Company will also, under certain conditions based primarily upon the growth in
annual income, deliver to the Selling Shareholders options to purchase
additional shares of the Company during each of the four fiscal years after
closing. In addition to the assumed debt and the issuance of a $1,400,000
subordinated note to the Selling Shareholders of Prefco, the Company financed
the acquisitions and merger through (i) a loan agreement with LaSalle National
Bank which provided a $4,500,000 term loan and a $6,500,000 revolving line of
credit and (ii) a $2,800,000 private placement of approximately 2,700,000 shares
of the Company's unregistered common stock.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements

Atlantic Beverage Company, Inc. has set forth on pages F-1 through F-18
of this Form 10-K the following financial statements of the Company:

ATLANTIC BEVERAGE
COMPANY, INC.: Page(s)

Report of Independent Public
Accountants F-2

Consolidated Balance Sheets as of
December 31, 1994 and 1995 F-3

Consolidated Statements of
Operations For the Years Ended
December 31, 1993, 1994 and 1995 F-4

Consolidated Statements of Stockholders'
(Deficit) Equity For the Years Ended
December 31, 1993, 1994 and 1995 F-5

Consolidated Statements of Cash Flows For
The Years Ended December 31, 1993,
1994 and 1995 F-6

Notes to Consolidated Financial
Statements F-8

(a)(2) Financial Statement Schedules

Financial statement schedules have been omitted since they are either
not required, not applicable, or the information is otherwise included.

(a)(3) Exhibits

The following exhibits are filed with this Form 10-K or incorporated
herein by reference to the document set forth next to the exhibits listed below:

Exhibit
Number Description
------- -----------
2.01 Agreement and Plan of Merger dated as of September 15, 1993 ("Merger
Agreement") among the Company, Strategic Investment Corporation and
T. Rowe Price Strategic Partners Fund, L.P. ("Strategic Fund").

2.02 Form of Amendment to Merger Agreement.

Exhibit
Number Description
------- -----------
3.01 Certificate of Incorporation of the Company, including all
amendments thereto.

3.02 By-Laws of the Company.

3.03 Certificate of Designation of the Series A Non-Voting Convertible
Preferred Stock of the Company (filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 30,
1994 and incorporated herein by reference)

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<PAGE>

4.01 Specimen Stock Certificate.

4.02 Registration Rights Agreement between Strategic Fund and the
Company.

4.03 Stock Option Plan.

10.01 Distribution Agreement dated as of November 25, 1992 between Joseph
Victori Wines, Inc. and Maryland Beverage, L.P., as amended.(**)

10.02 Letter dated March 21, 1994 from the Company to Ginger Group, Ltd.
(filed as an exhibit to the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year ended
December 31, 1993.)

10.03 Distribution Agreement dated April 12, 1991 between Ginger Group,
Ltd. and Castle Food Products Corporation, as amended.(**)

10.04 Non-Compete and Non-Disclosure Agreement dated September 24, 1993
among the Company, Sterling Group, Inc., Eric D. Becker, Steven M.
Taslitz, Douglas L. Becker and R. Christopher Hoehn-Saric.

10.05 Employment Agreement dated September 24, 1993 between the Company
and William E. O'Leary.

10.06 Employment Agreement dated September 24, 1993 between the Company
and John F. Izzo.

10.07 Warehouse Lease dated August 5, 1988 between Hill Management
Services, Inc. and Maryland Beverage Company, Inc., as amended.

10.08 Consulting Agreement dated September 24, 1993 among the Company,
Eric D. Becker and Sterling Group, Inc.

10.09 Assignment of Consulting Agreement dated December 31, 1993 among the
Company, Sterling Group, Inc. and Sterling Advisors, L.P. (filed as
an exhibit to the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December
31, 1993.)

10.10 Form of Tax Indemnification Agreement.

10.11 Amendment to Employment Agreement dated September 24, 1993 between
the Company and William E. O'Leary.

10.12 Asset Purchase Agreement, dated April 7, 1994, among the Company,
Flying Fruit Fantasy, U.S.A., Inc., Groth Industries, Inc. and
Robert E. Groth and Georgia B. Groth (filed as an exhibit to the
Company's Form 8-K filed with the Securities and Exchange Commission
on July 11, 1994 and incorporated herein by reference)

10.13 Agreement for License, dated as of April 27, 1994, between Groth
Industries, Inc. as the Beverage Company (filed as an exhibit to the
Company's Form 8-K filed with the Securities and Exchange Commission
on July 11, 1994 and incorporated herein by reference)

10.14 Consulting Agreement, dated April 27, 1994, between the Company and
Robert E. Groth (filed as an exhibit to the Company's Form 8-K filed
with the Securities and Exchange Commission on July 11, 1994 and
incorporated herein by reference)

10.15+ Stock Purchase Agreement dated as of January 23, 1996, between the
among the Company, ABEV Acquisition Corp., Franklin Roth and Allen
Pauly (filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference)

10.16+ Employment Agreement dated March 15, 1996 between ABEV Acquisition
Corp. and Franklin Roth (filed as an exhibit to the Company's Form
8-K filed with the Securities and Exchange Commission on April 1,
1996 and incorporated herein by reference)

10.17+ Agreement and Plan of Merger Dated as of January 25, 1996 among the
Company, Carlton Foods Corp., and Carlton Foods, Inc. (filed as an
exhibit to the Company's Form 8-K filed with the Securities and
Exchange Commission on April 1, 1996 and incorporated herein by
reference)

10.18+ $1.4 Million Subordinated Note made by ABEV Acquisition Corp. in
favor of Franklin Roth and Allen Pauley (filed as an exhibit to the
Company's Form 8-K filed with the Securities and Exchange Commission
on April 1, 1996 and incorporated herein by reference)

Exhibit
Number Description
------- -----------
10.19+ Loan and Security Agreement dated as of March 15, 1996 among
Atlantic Beverage Company, Inc., Carlton Foods Corp. and ABEV
Acquisition Corp., as borrowers, and LaSalle National Bank, as the
Lender (filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference)

10.20+ Stock Purchase Agreement dated as of March 15, 1996 among the
Company and Purchasers under the $2.8 million Private Placement
(filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference)

11.01 Statement Regarding Computation of Pro Forma Per Share Earnings.(*)

-28-

<PAGE>

11.02 Statement Regarding Computation of Historical Weighted Average
Common Shares.(*)

23.01 Consent of Independent Public Accountants(*)

99.01 Limited Partnership Agreement of Maryland Beverage L.P.

- --------------
** Confidential treatment was afforded for certain portions of these
agreements.

* Filed with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995. Unless otherwise noted, all other
Exhibits have either been previously filed or incorporated by reference as an
exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-68522).

+ Filed as an exhibit to the Company's Form 8-K filed with
the Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference.

(b) Report on Form 8-K

Atlantic Beverage Company, Inc. Form 8-K filed April 1, 1996

-29-

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized on January
10, 1997.

ATLANTIC BEVERAGE COMPANY, INC.

By: /S/ Merrick M. Elfman
----------------------------------
Chairman of the Board and Director

-30-

<PAGE>

ATLANTIC BEVERAGE COMPANY, INC.

FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1995
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS

<PAGE>

ATLANTIC BEVERAGE COMPANY, INC.

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Public Accountants F-2

Consolidated Balance Sheets - as of December 31, 1994
and 1995 F-3

Consolidated Statements of Operations -
for the years ended December 31, 1993, 1994 and 1995 F-4

Consolidated Statements of Stockholders' (Deficit) Equity -
for the years ended December 31, 1993, 1994 and 1995 F-5

Consolidated Statements of Cash Flows -
for the years ended December 31, 1993, 1994 and 1995 F-6

Notes to Consolidated Financial Statements F-8

F-1

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Atlantic Beverage Company, Inc.:

We have audited the accompanying consolidated balance sheets of Atlantic
Beverage Company, Inc. (a Delaware corporation, successor to Maryland Beverage
Company, Inc., a Maryland corporation) and its wholly-owned (majority-owned
through November 29, 1993) limited partnership as of December 31, 1994 and 1995,
and the related consolidated statements of operations, stockholders' (deficit)
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Atlantic Beverage Company, Inc.
as of December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995.

Baltimore, Maryland,
March 15, 1996

F-2

<PAGE>

ATLANTIC BEVERAGE COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1995
--------------- --------------
<S> <C>
ASSETS

CURRENT ASSETS:
Cash $ 142,395 $ -
Accounts receivable, net of allowance for doubtful accounts
of $71,000 and $35,000, respectively 1,000,329 798,385
Inventory 692,969 630,968
Prepaid expenses and other 229,251 171,467
-------------- --------------

Total current assets 2,064,944 1,600,820

EQUIPMENT, net (Note 2) 521,491 706,518

NONCOMPETE AGREEMENTS, net (Note 3) 156,000 116,000
DEFERRED TAX ASSET, net (Note 6) 365,000 365,000

GOODWILL, net (Note 1) 146,365 30,666
OTHER ASSETS, net (Note 4) 32,748 102,143
NET NON-CURRENT ASSETS OF DISCONTINUED
OPERATIONS (Note 14) 1,888,291 -
-------------- -------------

Total Assets $ 5,174,839 $ 2,921,147
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Bank overdraft $ - $ 297,458
Line of credit (Note 7) - 440,000
Current portion of notes payable 6,932 788
Accounts payable 658,139 855,846
Accrued expenses 83,712 42,528
Net current liabilities of discontinued operations (Note 14) 353,546 722,173
-------------- --------------

Total current liabilities 1,102,329 2,358,793
-------------- --------------

COMMITMENTS AND CONTINGENCIES (Notes 9 and 15)

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued - -
Series A nonvoting convertible preferred stock, $.01 par value;
1 share authorized, issued and outstanding in 1994 140,357 -
Common stock, $.01 par value; 30,000,000 shares authorized;
2,697,955 and 2,727,955 shares issued in 1994 and 1995,
respectively 26,980 27,280
Additional paid-in capital 4,891,552 5,041,252
Accumulated deficit (978,879) (4,079,108)
Less: Treasury stock, at cost, 2,500 and 408,038 shares,
respectively (7,500) (427,070)
-------------- --------------

Total Stockholders' Equity 4,072,510 562,354
-------------- --------------

Total Liabilities and Stockholders' Equity $ 5,174,839 $ 2,921,147
============== ==============
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3

<PAGE>

ATLANTIC BEVERAGE COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1993 1994 1995
--------------- --------------- --------------
<S> <C>
NET SALES $ 26,295,942 $ 24,151,796 $ 20,596,436
COST OF GOODS SOLD, exclusive of depreciation
shown below 19,513,667 17,787,253 14,743,435
-------------- -------------- --------------

Gross profit 6,782,275 6,364,543 5,853,001
-------------- -------------- --------------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Salaries and benefits 2,930,301 3,234,935 3,087,421
Other operating expenses 1,798,196 2,313,401 2,367,239
Depreciation and amortization (Notes 2, 3 and 4) 736,309 394,261 388,321
Management and consulting fees to related
parties (Note 11) 101,041 144,200 148,200
-------------- -------------- --------------
Total selling, general and administrative
expenses 5,565,847 6,086,797 5,991,181
-------------- -------------- --------------

Income (loss) from operations 1,216,428 277,746 (138,180)

INTEREST INCOME 5,800 31,836 11,654

INTEREST EXPENSE:
Related parties 654,421 - -
Other (Notes 4 and 7) 110,337 8,350 25,394

OTHER EXPENSES, net (Note 12) 1,310,824 51,764 -
-------------- -------------- --------------
Loss before minority interest and
income tax benefit (853,354) 249,468 (151,920)
MINORITY INTEREST IN LOSS BEFORE
INCOME TAX BENEFIT 107,631 - -
-------------- -------------- --------------

(Loss) income before income tax benefit (960,985) 249,468 (151,920)

INCOME TAX BENEFIT (Note 6) 350,000 15,000 -
-------------- -------------- --------------

Net (loss) income from continuing operations (610,985) 264,468 (151,920)
LOSS FROM DISCONTINUED OPERATIONS
(Note 14) - (302,203) (528,466)
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS (Note 14) - - (2,410,200)
-------------- -------------- --------------

NET LOSS $ (610,985) $ (37,735) $ (3,090,586)
============== ============== ==============
NET (LOSS) INCOME FROM CONTINUING
OPERATIONS AFTER ACCRETION OF
PREFERRED STOCK $ (610,985) $ 257,202 $ (161,563)
============== ============== ==============

(LOSS) INCOME PER COMMON SHARE DATA:
NET (LOSS) INCOME FROM CONTINUING
OPERATIONS $ (.48) $ .09 $ (.06)
LOSS FROM DISCONTINUED OPERATIONS,
INCLUDING LOSS ON DISPOSAL - (.11) (1.16)
-------------- -------------- --------------
NET LOSS $ (.48) $ (.02) $ (1.22)
============== ============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,261,495 2,710,950 2,528,532
============== ============== ==============
</TABLE>

The accompanying notes are an integral part of these statements.

F-4

<PAGE>

ATLANTIC BEVERAGE COMPANY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Series A Nonvoting
Convertible
Preferred Stock Common Stock
--------------------------------------------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ---------------
<S> <C>
BALANCE, December 31, 1992 - $ - 1,126,296 $ 11,263
Final distributions to
shareholders resulting from
"S" Corporation termination - - - -
Termination of "S" Corporation
status - - - -
Issuance of common stock for
minority interest in
partnership - - 375,432 3,754
Issuance of common stock in
connection with initial public
offering, net of expenses - - 1,173,150 11,732
Net loss - - - -
-------------- -------------- -------------- --------------

BALANCE, December 31, 1993 - - 2,674,878 26,749
Issuance of common stock - - 23,077 231
Issuance of preferred stock 1 133,091 - -
Accretion of preferred stock - 7,266 - -
Purchase of treasury stock - - - -
Other - - - -
Net loss - - - -
-------------- -------------- -------------- --------------

BALANCE, December 31, 1994 1 140,357 2,697,955 26,980
Purchase of treasury stock - - - -
Accretion of preferred stock - 9,643 - -
Conversion of preferred stock
to common stock (1) (150,000) 30,000 300
Net loss - - - -
-------------- -------------- -------------- --------------

BALANCE, December 31, 1995 - $ - 2,727,955 $ 27,280
============== ============== ============== ==============
</TABLE>

<TABLE>
<CAPTION>
Additional Treasury Stock Total
Paid-in Accumulated --------------------------------- Stockholders'
Capital Deficit Shares Amount Equity (Deficit)
------------------ ---------------- --------------- --------------- ----------------
<S> <C>
BALANCE, December 31, 1992 $ (921,197) $ (1,016,927) - $ - $ (1,926,861)
Final distributions to
shareholders resulting from
"S" Corporation termination - (160,000) - - (160,000)
Termination of "S" Corporation
status (854,034) 854,034 - - -
Issuance of common stock for
minority interest in
partnership 218,937 - - - 222,691
Issuance of common stock in
connection with initial public
offering, net of expenses 6,349,895 - - - 6,361,627
Net loss - (610,985) - - (610,985)
--------------- --------------- -------------- -------------- ---------------

BALANCE, December 31, 1993 4,793,601 (933,878) - - 3,886,472
Issuance of common stock 103,623 - - - 103,854
Issuance of preferred stock - - - - 133,091
Accretion of preferred stock - (7,266) - - -
Purchase of treasury stock - - 2,500 (7,500) (7,500)
Other (5,672) - - - (5,672)
Net loss - (37,735) - - (37,735)
--------------- --------------- -------------- -------------- ---------------

BALANCE, December 31, 1994 4,891,552 (978,879) 2,500 (7,500) 4,072,510
Purchase of treasury stock - - 405,538 (419,570) (419,570)
Accretion of preferred stock - (9,643) - - -
Conversion of preferred stock
to common stock 149,700 - - - -
Net loss - (3,090,586) - - (3,090,586)
--------------- --------------- -------------- -------------- ---------------

BALANCE, December 31, 1995 $ 5,041,252 $ (4,079,108) 408,038 $ (427,070) $ 562,354
============= ============= ============== ============== =============
</TABLE>

The accompanying notes are an integral part of these statements.

F-5 F-6

<PAGE>

Page 1 of 2

ATLANTIC BEVERAGE COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1993 1994 1995
--------------- --------------- ---------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (610,985) $ (37,735) $ (3,090,586)
Adjustments to reconcile net loss to cash flows
provided by operating activities-
Loss on disposal of discontinued operations - - 2,410,200
Loss from discontinued operations - 302,203 528,466
Depreciation and amortization 852,157 397,823 398,441
Deferred income tax benefit (350,000) (15,000) -
Minority interest in net loss 107,631 - -
Write-off of deferred financing costs 311,364 - -
Write-off of non-compete agreement 1,138,888 - -
Write-off of consulting agreement - 39,800 -
Gain from repayment of debt (139,428) - -
Gain on disposal of assets (6,547) - -
(Increase) decrease in accounts receivable, net (315,539) 325,906 201,944
(Increase) decrease in inventory (693,116) 440,226 62,001
(Increase) decrease in prepaid expenses and
other assets (61,990) (124,252) 57,784
(Decrease) increase in accounts payable 537,974 (260,579) 197,707
Increase (decrease) in accrued expenses (226,600) (18,598) (41,184)
Payment of deferred compensation (432,404) - -
-------------- -------------- -------------
Net cash flows provided by (used in)
operating activities of-
Continuing operations 111,405 1,049,794 724,773
Discontinued operations - (178,157) (597,626)
-------------- -------------- --------------

Net cash flows provided by operating
activities 111,405 871,637 127,147
-------------- -------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (107,736) (853,131) (493,805)
Proceeds from sale of equipment 14,399 - 533
Cash paid for Flying Fruit Fantasy acquisition - (578,939) -
Payment of transaction costs related to
Flying Fruit Fantasy acquisition - (217,030) -
Purchase of distribution rights (25,000) (50,000) -
Payment in consideration of noncompete
agreement (200,000) - -
Payment in consideration of consulting agreement (60,000) - -
Deferred acquisition costs (Note 16) - - (88,014)
-------------- -------------- --------------

Net cash flows used in investing
activities (378,337) (1,699,100) (581,286)
-------------- -------------- --------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-7

<PAGE>

Page 2 of 2

ATLANTIC BEVERAGE COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1993 1994 1995
--------------- --------------- -----------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft $ (338,375) $ - $ 297,458
Net borrowings (repayments) under line of credit (889,253) - 440,000
Repayments of notes payable to related parties (2,600,000) - -
Repayments of notes payable (42,852) (60,671) (6,144)
Payment of exclusivity fees (300,000) - -
Payments of deferred financing costs (84,971) (21,374) -
Issuance of common stock, net 6,361,627 - -
Purchase of treasury stock - (7,500) (419,570)
Dividends and other distributions to shareholders (812,211) - -
Other - (5,665) -
-------------- -------------- --------------

Net cash flows provided by (used in)
financing activities 1,293,965 (95,210) 311,744
-------------- -------------- --------------

NET INCREASE (DECREASE) IN CASH 1,027,033 (922,673) (142,395)

CASH, beginning of period 38,035 1,065,068 142,395
-------------- -------------- --------------

CASH, end of period $ 1,065,068 $ 142,395 $ -
============== ============== ==============
</TABLE>

The accompanying notes are an integral part of these statements.

F-8

<PAGE>

ATLANTIC BEVERAGE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation - Company

The accompanying consolidated financial statements present the accounts of
Atlantic Beverage Company, Inc. (previously known as Maryland Beverage Company,
Inc.) and its wholly-owned (majority-owned through November 29, 1993) limited
partnership, Maryland Beverage L.P. (the "Partnership"). The entities are
collectively referred to herein as the "Company". All significant intercompany
transactions have been eliminated in consolidation. 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 as of
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.

Through November 29, 1993, Atlantic Beverage Company, Inc. owned a 75%
partnership interest in the Partnership, was the sole general partner, exercised
significant control and the Partnership represented the only operating activity
for Atlantic Beverage Company, Inc. As a result, the accounts of the Partnership
were fully consolidated with Atlantic Beverage Company, Inc. with a minority
interest recorded for the 25% interest owned by a separate entity. Effective
November 29, 1993, Strategic (whose only asset was its partnership interest in
the Partnership) was merged with and into the Company. The sole stockholder of
Strategic received 375,432 shares of common stock (representing a 25% interest)
of the Company in exchange for Strategic's interest in the Partnership. In July
1995, the Company purchased 100% of Strategic's interest for $375,432. This
repurchase is accounted for as treasury stock in the accompanying consolidated
balance sheet.

Company Background

On April 23, 1991, MB Acquisition Corp. (an Illinois corporation) acquired
substantially all of the assets and assumed certain liabilities of a Maryland
corporation now known as S&B Ventures, Inc. (the "Predecessor") for $1,000,000,
subject to certain adjustments as defined within the Asset Purchase Agreement
(which resulted in an adjusted purchase price of approximately $1,158,000). The
Asset Purchase Agreement also provided for additional payments to the
shareholders of the Predecessor for the following: (i) noncompete agreement (see
Note 3); (ii) "Exclusivity Fee" in consideration for dealing exclusively with
the acquirer for a certain period of time; and (iii) performance of certain
consulting duties and a deferred compensation agreement.

The acquisition made by MB Acquisition Corp. was accounted for by the purchase
method. Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition. The excess of purchase price over the fair value of assets acquired
is accounted for as goodwill.

F-9

<PAGE>

In addition, the Company paid $2,000,000 for a noncompete agreement (see Note
3).

Substantially all financing for the acquisition was originally provided by
certain stockholders of MB Acquisition Corp. as a $3,000,000 bridge loan to MB
Acquisition Corp. The bridge loan was retired during 1991 through the issuance
of subordinated promissory notes payable to stockholders and the minority
interest shareholder and with cash generated by operations.

Effective September 19, 1991, MB Acquisition Corp. merged its net assets into
Atlantic Beverage Company, Inc. which then contributed its net assets (which
consisted solely of those acquired from MB Acquisition Corp.) to the Partnership
in exchange for a 75% ownership interest. The remaining 25% ownership interest
was purchased by Strategic (a wholly-owned subsidiary of T. Rowe Price Strategic
Partners Fund, L.P.), previously an unrelated investor, for $450,000.

The contribution of the net assets of Atlantic Beverage Company, Inc. to the
Partnership was recorded at the net book value of the assets.

The Company is an independent wholesale distributor of specialty nonalcoholic
beverages to the retail trade in the greater Baltimore and Washington, D.C.
metropolitan area and surrounding counties.

Reincorporation/Change in Name

In September 1993, Maryland Beverage Company, Inc., a Maryland corporation,
reincorporated as a Delaware corporation under the name of Atlantic Beverage
Company, Inc. All references within the accompanying financial statements
reflect the change in name for all periods presented.

In connection with the reincorporation, a 24-for-one exchange of the common
stock was affected, increasing the number of shares issued and outstanding from
46,929 to 1,126,296. All references in the accompanying financial statements and
related notes with respect to common stock and per share amounts have been
retroactively adjusted for the exchange.

Acquisition of Flying Fruit Fantasy

On April 27, 1994, the Company acquired substantially all of the assets and
assumed certain liabilities of Flying Fruit Fantasy, USA, Inc. for approximately
$580,000 in cash and 23,077 shares of common stock of the Company with a market
value of approximately $104,000 at closing, one share of Series A nonvoting
preferred stock convertible into $150,000 worth of common stock on October 18,
1995, valued at no less than $5.00 per share, and $5,000 in cash per month for
24 months after closing. The convertible preferred stock on April 27, 1994, was
valued at $133,091 and was accreted through the conversion date up to the
estimated fair value at conversion. On October 18, 1995, the preferred stock was
converted into 30,000 shares of common stock.

F-10

<PAGE>

The acquisition was accounted for using the purchase method of accounting,
whereby the purchase price is allocated to the assets acquired and liabilities
assumed based on fair value. The resulting goodwill was determined as follows:

Cash consideration provided at closing $ 578,939
Consideration paid through the issuance of note to the Seller 110,553
Consideration paid through the issuance of the Company's
Common Stock 103,923
Consideration paid through the issuance of the Company's
Preferred Stock 133,091

Acquisition costs 252,250
---------
1,178,756

Fair value of net assets acquired (122,051)
---------

Goodwill $1,056,705
=========

During 1995, the Company decided to discontinue the Flying Fruit Fantasy
Division (see Note 14).

Revenue Recognition

The Company records sales when product is delivered to the customers. Discounts
provided, principally volume, are accrued at the time of the sale.

Inventory

Inventory is stated at the lower of cost or market and is comprised solely of
finished goods. Cost is determined using the first-in, first-out (FIFO) method.

Equipment

Equipment consists of office and warehouse equipment and delivery vehicles and
is stated at cost. Depreciation is provided for on the straight-line method
over the five year and ten year estimated useful lives of the assets.

Reclassifications

Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the current year's presentation.

Other Assets

Other assets consist of costs associated with the acquisitions described
(distribution and license agreements), deferred financing costs and a consulting
agreement. These assets are being amortized using the straight-line method over
the following useful lives:

Distribution and license agreements 2-3 years
Deferred financing costs 2 years

F-11

<PAGE>

Goodwill

Goodwill was recorded with the acquisition of the Predecessor and is being
amortized using the straight-line method over 5 years . Amortization expense
for each of the years ended December 31, 1993, 1994 and 1995 was $115,699.
Accumulated amortization as of December 31, 1994 and 1995 was $432,130 and
$547,829, respectively.

Income Taxes

Prior to the Company's initial public offering (see Note 13), the Company and
its stockholders elected to be treated as an S corporation under Subchapter S of
the Internal Revenue Code. As such, the Company's taxable income or loss for the
periods was included in the individual income tax returns of its stockholders
for federal and state income tax purposes. As a result, no provision for income
taxes has been included in the accompanying statements of operations for the
period from January 1, 1993 to November 23, 1993.

In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." SFAS 109 requires deferred income taxes to be recorded under the
liability method and restricts the conditions under which a deferred asset may
be recorded.

Supplemental Cash Flow Information

Cash Paid Cash Paid
for Taxes for Interest
--------------- --------------
Year ended December 31, 1993
Related parties $ - $ 662,350
Other - 114,602
Year ended December 31, 1994
Related parties - 5,090
Other 29,500 4,788
Year ended December 31, 1995
Related parties - 4,026
Other - 15,274

2. EQUIPMENT:

Equipment as of December 31, 1994 and 1995 are summarized as follows:

1994 1995
-------------- ---------

Equipment and vehicles $ 959,053 $ 1,369,010

Less - Accumulated depreciation (437,562) (662,492)
-------------- --------------

Property and equipment, net $ 521,491 $ 706,518
============== ==============

F-12

<PAGE>

Depreciation expense for the years ended December 31, 1993, 1994 and 1995 was
$116,663, $170,869 and $224,930, respectively.

3. NONCOMPETE AGREEMENTS:

In connection with the execution of the Asset Purchase Agreement for the
Predecessor, described in Note 1, a noncompete agreement was entered into with
the shareholders of the Predecessor. Concurrent with the payment, at a discount,
of the amounts due to the Predecessor shareholders, the Company released the
Predecessor shareholders from their noncompete agreements. The net unamortized
balance of $1,138,888 was written off and included within "other expenses" in
the accompanying consolidated statement of operations for the year ended
December 31, 1993 (see Note 12).

The Company, Sterling Group, Inc. (Sterling Group) and Sterling Group's
principals have entered into a noncompete and nondisclosure agreement, effective
November 29, 1993 (the closing date of the Company's initial public offering),
containing certain noncompetition and confidentiality provisions. The agreement
provides that Sterling Group and its principals agree not to compete with the
Company for a period of five years from the closing date, nor will they solicit
for employment any director, stockholder or certain employees of the Company.
Such agreement also provides that Sterling Group and its principals will not
disclose any confidential information concerning the Company and its business to
any other person or entity except as may be required by law. The Company paid
Sterling Group a fee of $200,000 at closing in consideration of such agreement.

Amortization expense for the years ended December 31, 1993, 1994 and 1995, was
$309,557, $40,000 and $40,000, respectively. Accumulated amortization as of
December 31, 1994 and 1995 was $44,000 and $84,000, respectively.

4. OTHER ASSETS:

Other assets are comprised of the following as of December 31, 1994 and 1995:

1994 1995
-------------- --------------

Distribution agreements $ 634,000 $ 25,000

Deferred financing costs 21,374 21,374

Deferred acquisition costs (see Note 16) - 88,014
-------------- --------------

655,374 134,388

Less - Accumulated amortization (622,626) (32,245)
-------------- --------------

Other assets, net $ 32,748 $ 102,143
============== ==============

Amortization expense applicable to distribution, license and consulting
agreements for years ended December 31, 1993, 1994 and 1995, was $194,389,
$36,025 and $7,692, respectively, and is included within depreciation and
amortization expenses in the accompanying consolidated statements of operations.
Amortization of deferred financing costs of $115,848, $3,562 and $10,120,
respectively, has been included within interest expense in the accompanying
consolidated statements of operations for the years ended December 31, 1993,
1994 and 1995, respectively.

F-13

<PAGE>

5. SIGNIFICANT SUPPLIERS:

For the years ended December 31, 1993, 1994 and 1995, approximately 62%, 62% and
60%, respectively, of the Company's sales, based on cases sold or amounts
purchased, represented Royal Mistic products. Further, 14%, 13% and 11%,
respectively, represented Elliott's Amazing Juices products. No other suppliers
accounted for more than 5% of the Company's sales during such periods. The Royal
Mistic exclusive distribution agreement expires in December 2000, while
Elliott's Amazing Juices distribution agreement expires in December 1996. There
can be no assurance that these distribution agreements will be renewed.

6. INCOME TAXES AND "S" CORPORATION SHAREHOLDER DISTRIBUTIONS:

"S" Corporation Shareholder Distributions

The Company made distributions to its shareholders during 1993 to enable them to
pay estimated taxes on their respective share of the Company's taxable income.

Income Taxes

Effective November 23, 1993, the Company terminated its "S" Corporation status
and became a "C" Corporation for income tax purposes.

The Company has incurred significant tax losses and has generated timing
differences which would give rise to deferred taxes. Based upon available
evidence, management believes that, it is more likely than not, that a portion
of these losses and future deductions will be realized in future periods and has
recorded a tax benefit and deferred tax asset, net of an applicable valuation
allowance as required by Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." In connection with the loss on disposal of
discontinued operations, no benefit for income taxes was recorded.

A provision for current income taxes has not been provided in 1994 due to
utilization of loss carryforwards. The benefit from deferred income taxes on
continuing operations for the years ended December 31, 1993, 1994 and 1995,
included amounts summarized as follows:

1993 1994 1995
--------------- --------------- --------------
Federal $ 419,000 $ 13,000 $ 180,000
State 56,000 2,000 24,000
-------------- -------------- --------------

475,000 15,000 204,000

Valuation allowance (125,000) - (204,000)
-------------- -------------- --------------

Total tax benefit $ 350,000 $ 15,000 $ -
============== ============== ==============

F-14

<PAGE>

Deferred tax assets are comprised of the following at December 31:

1994 1995
--------------- ----------

Net operating loss carryforwards $ 465,000 $ 609,000
Assets and liabilities of discontinued
operations - 819,500
Other 25,000 85,000
-------------- --------------

490,000 1,513,500

Valuation allowance (125,000) (1,148,500)
-------------- --------------

Deferred tax asset $ 365,000 $ 365,000
============== ==============

Temporary differences between the financial reporting carrying amounts and tax
basis of assets and liabilities and net losses give rise to deferred taxes. The
principal sources of temporary differences include net operating loss
carryforwards from depreciation and amortization and bad debt reserves.

The statutory federal income tax rate, reconciled to the effective income tax
rate benefit is as follows:

1994 1995
--------------- ----------------

Statutory federal income tax rate 34.0% 34.0%
State income taxes, net of federal income
tax effect 4.6 4.6
Nondeductible amortization of goodwill (84.7) (75.6)
Utilization of loss carryforwards 84.9 -
Valuation allowance - 37.0
Other (10.4) -
----------- -----------

Total 28.4% - %
=========== ===========

Income Taxes - Company, Pro Forma (Unaudited)

For the period from January 1, 1993 to November 23, 1993, the provision for
federal and state income taxes, equal to approximately $160,000, would be offset
through the utilization of net operating loss carryforwards.

7. BORROWINGS UNDER LINE OF CREDIT:

In August 1994, the Company entered into a new line of credit agreement with a
bank through August 1996. Under the terms of the agreement, the Company is
permitted to borrow up to $2,500,000, subject to advance formulas based on
accounts receivable and inventory. Amounts borrowed are due on demand and bear
interest at the bank's prime rate plus an additional rate ranging from 0% to
.50%, depending upon certain financial ratios. The Company is also subject to an
unused credit line fee equal to 1/4% per annum of the average daily unused and
undisbursed portion of the revolving credit amount, but is not subject to any
prepayment penalties. Amounts borrowed are payable monthly and are secured by
all assets of the Company. At December 31, 1995, the Company had amounts
outstanding of $440,000 (see Note 16 for refinancing).

F-15

<PAGE>

Information related to the line of credit for the years ended December 31, 1993,
1994 and 1995 is as follows:

Weighted Average
------------------------------- Maximum
Month-end Interest Amount
Balance Rate Outstanding
-------------- -------- -----------
1993 $ 689,644 8.3% $ 889,253
1994 323,544 7.8 750,922
1995 88,417 8.75 575,000

8. STOCK OPTIONS:

The Company has a non-incentive stock option plan (the Plan) which authorizes
the Company to grant, to eligible individuals, options for the purchase of
shares of the Company's $.01 par value common stock. The Company accounts for
this plan in accordance with APB Opinion No. 25 "Accounting for Stock Issued to
Employees."

Under the terms of the Plan, the Company may issue up to 250,000 options to its
full time or all employees. The option exercise price equals the stock's market
price on the date of grant and options vest after three years. The issuance of
options to employees during 1994 and 1995 had no impact on the accompanying
consolidated financial statements.

In addition to options issued under the Plan, the Company granted options to
purchase 152,586 and 40,000 shares of the Company's common stock to certain
executives, officers and directors during 1993 and 1995, respectively, at
exercise prices of $6.50 and $2.75. These options were exercisable on the date
of grant.

<TABLE>
<CAPTION>
1993 1994 1995
-------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> -------------------------------------------------------------------------------------------
Outstanding, beginning of year - $ - 152,586 $ 6.50 170,036 $ 6.31
Granted 152,586 6.50 21,300 4.63 67,700 2.75
Exercised - - - - - -
Forfeited - - (3,850) 4.63 (4,600) 3.49
Expired - - - - - -
Outstanding, end of year 152,586 6.50 170,036 6.31 233,136 5.47
Exercisable, end of year 37,517 6.50 70,034 6.50 142,552 5.45
</TABLE>

Options granted were deemed to have no fair market value as of the December 31,
1993, 1994 and 1995.

F-16

<PAGE>

9. OPERATING LEASE COMMITMENTS:

The Company leases its warehouse, office building and most of its delivery
vehicles under operating leases. These leases have remaining terms from one to
five years. Rental expense under these leases for the years ended December 31,
1993, 1994 and 1995 was $563,667, $618,543 and $594,010, respectively. The
delivery vehicle leases include options to cancel up to three of the leases in
the event of an economic slowdown. As of December 31, 1995, future minimum lease
payments under these operating leases are as follows:

1996 $ 527,640
1997 361,956
1998 313,023
1999 150,037
2000 132,600
2001 and thereafter 213,186
--------------
$ 1,698,442
==============
10. REPURCHASE OF COMMON STOCK:

Throughout 1995, the Company repurchased 405,538 shares of its outstanding
common stock at an average per share cost of $1.03. The Company accounted for
these transactions as treasury stock, utilizing the cost method.

11. RELATED PARTY TRANSACTIONS:

The accompanying consolidated statements of operations include interest related
to certain notes payable to related parties (including amortization of deferred
financing costs) and other liabilities to stockholders of approximately $654,000
and $5,100 for the years ended December 31, 1993 and 1994, respectively.

Effective November 29, 1993, the Company revised its Consulting Agreement (the
Agreement) between the Company and Sterling Group, a company in which certain of
the stockholders have a controlling interest. The initial term of the Agreement
is through December 31, 1998. The Agreement provides that the Company shall pay
a base fee of $140,000 per year, which shall increase by 3% for each year the
Agreement remains in effect. On December 31, 1993, Sterling Group assigned the
Agreement to Sterling Advisors, L.P., a partnership owned by the stockholders of
Sterling Group.

The accompanying consolidated statements of operations include approximately
$101,000, $144,000 and $148,000 for the years ended December 31, 1993, 1994 and
1995, respectively, for management and consulting services that were paid to
certain stockholders and to Sterling Group.

F-17

<PAGE>

12. OTHER EXPENSES, NET:

Other expenses (income) for the years ended December 31, 1993 and 1994 consist
of the following:

1993 1994
--------------- --------------

Write-off of consulting agreement $ - $ 39,800
Write-off of deferred financing costs 311,364 -
Write-off of noncompete agreement (Note 3) 1,138,888 -
Net gain from repayment of liabilities to
shareholders of the predecessor (139,428) -

Other - 11,964
-------------- --------------

Total Other Expenses $ 1,310,824 $ 51,764
============== ==============

13. INITIAL PUBLIC OFFERING:

Effective November 29, 1993, the Company completed its initial public offering
of 1,100,000 shares of its common stock. The offering price to the public was
$6.50 per share. Effective December 22, 1993, the Company sold an additional
73,150 shares at $6.50 per share as a result of the exercise of the
over-allotment option granted to the Company's underwriters. Total net proceeds
from the offering were $6,361,627.

14. DISCONTINUATION OF THE FLYING FRUIT FANTASY DIVISION:

In December 1995, the Company adopted a plan to dispose of its Flying Fruit
Fantasy division. As a result, the Company recognized a one-time charge of
$2,410,200, which was determined as follows:

Write-off of equipment $ 1,085,112
Write-off of goodwill 744,310
Write-off of noncompete agreements
and other assets 215,703
Other costs to discontinue operations 365,075
--------------
$ 2,410,200
==============

This net loss has been reflected in the accompanying consolidated statements of
operations under Loss on Disposal of Discontinued Operations.

The results of the Flying Fruit Fantasy division have been reported separately
as discontinued operations in the consolidated statements of operations for the
years ended December 31, 1994 and 1995. Revenues from the Flying Fruit Fantasy
division were $549,500 for the year ended December 31, 1995, and $475,478 for
the year ended December 31, 1994. No benefit for income taxes has been recorded
in connection with these losses due to the uncertainty that the Company will be
able to offset the losses against future taxable income.

F-18

<PAGE>

The assets and liabilities as of December 31, 1994 and 1995, have been presented
separately in the accompanying consolidated balance sheets. A summary of the
net assets (liabilities) of the Flying Fruit Fantasy division as of December 31,
1994 and 1995 is as follows:

1994 1995
-------------- --------------

Current:
Accounts receivable, net $ 57,588 $ -
Inventory 79,444 -
Prepaid expenses 2,500 -
Accounts payable and accrued expenses (417,435) (702,504)
Deferred purchase costs (75,643) (19,669)
-------------- --------------

Net current liabilities (353,546) (722,173)
-------------- --------------

Non-Current:
Property and equipment, net 837,086 -
Intangible assets, net 1,051,205 -
-------------- --------------

Net noncurrent assets 1,888,291 -
-------------- --------------

Net assets and liabilities $ 1,534,745 $ (722,173)
============== ==============

15. CONTINGENCIES:

Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.

16. SUBSEQUENT EVENTS:

On March 15, 1996, newly formed wholly-owned subsidiaries of the Company
acquired the outstanding common stock of Prefco, Inc. (Prefco) and merged with
Carlton Foods, Inc. (Carlton). Prefco is a distributor of its own meat products
to the retail grocery trade in Texas and Carlton is a manufacturer of branded
and private label meat products located in Texas. Certain of the Company's
shareholders collectively owned approximately 40.7% of Carlton prior to March
15, 1996. The Prefco acquisition was effective January 1, 1996. The combined
purchase price for these acquisitions was approximately $11 million, which
included approximately $3 million in Carlton debt which was refinanced and
assumed by the Company. In addition to the assumed debt, the Company has funded
the acquisitions through additional borrowings from a commercial bank, the
issuance of a $1.4 million subordinated note to the former stockholders of
Prefco, the issuance of approximately 650,000 shares of common stock to the
former stockholders of Prefco and Carlton and a $2.8 million private placement
of approximately 2.7 million shares of the Company's unregistered common stock.
In connection with these acquisitions, the Company had incurred $88,014 of
expenses as of December 31, 1995, which has been recorded as deferred
acquisition costs within other assets on the consolidated balance sheet.

Also, in connection with the funding of these acquisitions, the Company
refinanced its line of credit, which is described in Note 7.

F-19

<PAGE>

EXHIBIT INDEX

2.02 Form of Amendment to Merger Agreement.

2.03+ Stock Purchase Agreement dated as of January 23, 1996, between the
among the Company, ABEV Acquisition Corp., Franklin Roth and Allen
Pauly (filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference)

2.04+ $1.4 Million Subordinated Note made by ABEV Acquisition Corp. in
favor of Franklin Roth and Allen Pauley (filed as an exhibit to the
Company's Form 8-K filed with the Securities and Exchange Commission
on April 1, 1996 and incorporated herein by reference)

2.05+ Agreement and Plan of Merger Dated as of January 25, 1996 among the
Company, Carlton Foods Corp., and Carlton Foods, Inc. (filed as an
exhibit to the Company's Form 8-K filed with the Securities and
Exchange Commission on April 1, 1996 and incorporated herein by
reference)

2.06+ Loan and Security Agreement dated as of March 15, 1996 among
Atlantic Beverage Company, Inc., Carlton Foods Corp. and ABEV
Acquisition Corp., as borrowers, and LaSalle National Bank, as the
Lender (filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference)

2.07+ Stock Purchase Agreement dated as of March 15, 1996 among the
Company and Purchasers under the $2.8 million Private Placement
(filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference)

3.01 Certificate of Incorporation of the Company, including all
amendments thereto.

3.02 By-Laws of the Company.
3.03 Certificate of Designation of the Series A Non-Voting Convertible
Preferred Stock of the Company (filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1994 and incorporated herein by reference)

4.01 Specimen Stock Certificate.
4.02 Registration Rights Agreement between Strategic Fund and the
Company.

4.03 Stock Option Plan.

10.01 Distribution Agreement dated as of November 25, 1992 between Joseph
Victori Wines, Inc. and Maryland Beverage, L.P., as amended.(**)

10.03 Distribution Agreement dated April 12, 1991 between Ginger Group,
Ltd. and Castle Food Products Corporation, as amended.(**)

10.04 Non-Compete and Non-Disclosure Agreement dated September 24, 1993
among the Company, Sterling Group, Inc., Eric D. Becker, Steven M.
Taslitz, Douglas L. Becker and R. Christopher Hoehn-Saric.

10.05 Employment Agreement dated September 24, 1993 between the Company
and William E. O'Leary.

10.06 Employment Agreement dated September 24, 1993 between the Company
and John F. Izzo.

10.07 Warehouse Lease dated August 5, 1988 between Hill Management
Services, Inc. and Maryland Beverage Company, Inc., as amended.

<PAGE>

Exhibit
Number Description
------- -----------
10.08 Consulting Agreement dated September 24, 1993 among the Company,
Eric D. Becker and Sterling Group, Inc.

10.10 Form of Tax Indemnification Agreement.

10.11 Amendment to Employment Agreement dated September 24, 1993 between
the Company and William E. O'Leary.

10.15+ Employment Agreement dated March 15, 1996 between ABEV Acquisition
Corp. and Franklin Roth (filed as an exhibit to the Company's Form
8-K filed with the Securities and Exchange Commission on April 1,
1996 and incorporated herein by reference)

11.01 Statement Regarding Computation of Pro Forma Per Share Earnings

11.02 Statement Regarding Computation of Historical Weighted Average
Common Shares.(*)

23.01 Consent of Independent Public Accountants*

99.01 Limited Partnership Agreement of Maryland Beverage L.P.

** Confidential treatment was afforded for certain portions of these
agreements.

* Filed with the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995. Unless otherwise noted, all other Exhibits have
either been previously filed or incorporated by reference as an exhibit to the
Company's Registration Statement on Form S-1 (No. 33-68522).

+ Filed as an exhibit to the Company's Form 8-K filed with
the Securities and Exchange Commission on April 1, 1996 and incorporated
herein by reference.