TODHUNTER INTERNATIONAL INC, 10-K, 1997-12-22

TODHUNTER INTERNATIONAL INC
10-K, 1997-12-22
MALT BEVERAGES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

___________

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER 1-13453

___________

TODHUNTER INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

DELAWARE 59-1284057
(State of Incorporation) (IRS Employer
Identification Number)

222 LAKEVIEW AVENUE, SUITE 1500, WEST PALM BEACH, FL 33401
(Address of principal executive office) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 655-8977

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON
STOCK, $.01 PAR VALUE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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, as amended, during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K Section 229.405 of Title 17, Code of Federal Regulations
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 the voting stock held by non-affiliates of
the registrant as of December 1, 1997 (computed by reference to the last
reported sale price of registrant's common stock on AMEX on such date):
$29,087,819

The number of shares outstanding of registrant's Common Stock, $.01 par
value per share, as of December 1, 1997, was 4,949,714.

There were no shares of Preferred Stock outstanding as of December 1, 1997.

Documents Incorporated by Reference: Part III - Portions of the
registrant's definitive proxy statement to be filed within 120 days of the end
of the registrant's fiscal year in conjunction with the registrant's 1998 annual
stockholders' meeting.

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PART I

ITEM 1. BUSINESS
GENERAL OVERVIEW

Todhunter International, Inc. (the "Company") produces citrus-based brandy,
distilled spirits, rum and fortified wine used as ingredients by producers of
beverage alcohol; bottles coolers, prepared cocktails and other beverages on a
contract basis; and produces a complete line of spirits. The Company also
imports and markets beverage alcohol and produces vinegar, cooking wine and
other alcohol-related products. The Company is a Delaware corporation organized
in 1970 as a successor to a business founded in the Bahamas in 1964.

EXPANSION OF FACILITIES

During 1997, the Company expanded the vinegar production capacity at its
facility in Louisville, Kentucky by 1.5 million grain gallons. The Company
began producing red wine vinegar at this facility in September 1997.

During 1996, the Company invested $1.3 million in polyethylene
terephthalate ("P.E.T.") bottle manufacturing equipment which has the capacity
to produce 15 million P.E.T. bottles per year. Where possible, the Company plans
to utilize P.E.T. bottles to replace glass bottles in its case goods spirits and
contract bottling businesses to reduce material and freight costs. The Company
began manufacturing P.E.T. bottles in June 1996, and is presently manufacturing
at a rate of approximately 4.5 million bottles per year.

During 1995, the Company expanded the rum production capacity at its
facilities in St. Croix, United States Virgin Islands by 40%. These facilities
now have a capacity to distill 25,000 proof gallons of rum per day. The Company
has transferred a substantial part of its domestic rum production to the Virgin
Islands for cost savings and other competitive reasons. Also during 1995, the
Company completed the construction of a vinegar production facility in
Louisville, Kentucky. This state-of-the-art facility has more than doubled the
Company's previous vinegar production capacity. Shipments from the Kentucky
facility commenced in August 1995.

DISCONTINUED OPERATIONS

In August 1994, the Company acquired Blair Importers, Ltd., now known as
Todhunter Imports, Ltd. ("Blair"), a national importer of wine and spirits. At
that time, Management believed the acquisition of Blair would enhance the
Company's national sales capabilities and provide entry into the imported wine
and spirits segment of the beverage alcohol market. However, the performance of
Blair was below expectations. In order to eliminate losses, the Company adopted
a plan to discontinue the operations of Blair. In accordance with this plan,
the Company sold substantially all of the assets of Blair to David Sherman
Corporation on September 21, 1995. See Item 3. Legal Proceedings, Item 7.
Management's Discussion and Analysis and Note 15 to the Company's consolidated
financial statements for additional information concerning discontinued
operations.

PRODUCTS AND SERVICES

Prior to March 31, 1997, the Company classified its sales of bulk alcohol
products and case goods spirits as beverage ingredients and popular price
spirits, respectively. The Company feels that the new terms for these lines of
business are more meaningful to an understanding of the nature of its products.

BULK ALCOHOL PRODUCTS. The Company distills citrus brandy, citrus and cane
spirits and rum, produces fortified citrus wine, and sells these products to
over 30 producers of beverage alcohol in the United States and other foreign
countries. The Company also sells bulk grain alcohol, primarily to export
customers. Grain alcohol is purchased from several suppliers located in the
Midwest. Citrus brandy and spirits are distilled from citrus juice byproducts
purchased from manufacturers of citrus juice concentrate. The Company's citrus
brandy is used primarily as an ingredient in flavored brandies. Citrus spirits
are used primarily as a fortifying ingredient to increase the alcohol content of
the Company's citrus wine and the wine of other manufacturers. The Company's
citrus wine is fermented from citrus juice and fortified to increase its alcohol
content to approximately 20% by volume. Known as fortified citrus wine, this
product is used primarily as an ingredient in cordials, whiskies and other
beverage alcohol. Rum and cane spirits are distilled from sugar cane molasses
and are sold to other bottlers of rum, producers of beverage alcohol, food
companies and flavor manufacturers. Rum is also used in the Company's spirits
line.

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Management believes that its proximity to raw materials and its use of
citrus byproducts in the production of bulk alcohol provide it with cost
advantages over competing products. Because end products are taxed on a blended
rate based upon the ingredients used rather than on the resulting alcohol
content of the end product, beverage alcohol producers can lower excise taxes on
their products by substituting fortified citrus wine for distilled spirits
alternatives. This cost savings arises because fortified citrus wine is
currently subject to federal excise taxes of $1.57 per gallon, whereas distilled
spirits are taxed at $13.50 per proof gallon (one proof gallon is approximately
equivalent in alcohol content to two and one-half gallons of fortified citrus
wine). The ability of beverage alcohol producers to substitute fortified citrus
wine for distilled spirits varies by end product according to government
regulations. For example, fortified citrus wine may contribute up to 49% of the
alcohol content of cordials and liqueurs, and up to approximately 10% of the
alcohol content of Canadian whiskey. In addition, small quantities of fortified
citrus wine may be used in blended whiskey, rum, brandy and other types of
beverage alcohol.

In 1997, the Company sold 11.3 million proof gallons of distilled products
(citrus brandy, citrus and cane spirits, rum and grain alcohol) and 6.4 million
gallons of fortified citrus wine. The total annual capacity of distilled
products and fortified citrus wine for the Company's production facilities is
approximately 23 million proof gallons and 20 million gallons, respectively.

CASE GOODS SPIRITS. The Company produces, bottles and sells a complete
line of spirits under its own proprietary labels and under the private labels
of major retailers of liquor located in the Southeast. These products currently
include rum, gin, vodka, tequila, cordials and various whiskies, and the Company
continues to add additional products to this line. Since the acquisition of the
Virgin Islands operations in 1994, the Company also produces and sells case
goods spirits in the U.S. Virgin Islands under the Cruzan Rum label. The
Company's proprietary labels include Cruzan Estate Rums, Cruzan Rums, Ron Carlos
Rums, Conch Republic Rums and "James's Harbor" (gin, rum and vodka). The
Company distills its own rum, but generally produces its other spirits from
grain alcohol purchased from third parties. Depending on the particular formula
for a product, the Company adds flavoring and/or sugar, reduces the product's
proof and then filters and bottles the finished product. Also, the Company began
in 1996 to import and market Cruzan Rum, Porfidio Tequila and several brands
from the former Blair product line which was discontinued in 1995. Management's
strategy has been to focus on marketing and building premium brands in its case
goods spirits business with an initial emphasis on the rum and tequila
categories. The Company sold approximately 1.1 million cases of spirits in
1997.

CONTRACT BOTTLING. The Company bottles coolers, prepared cocktails and
other beverage alcohol on a contract basis for other producers. The Company also
bottles non-alcohol beverage on a contract basis including fruit juices,
carbonated and non-carbonated fruit flavored beverages, flavored sparkling water
and ready-to-drink brewed iced teas. In 1997, the Company bottled approximately
4.5 million cases for third parties. The Company's bottling capacity is
approximately 10 million cases per year. The Company presently bottles
approximately 5.8 million cases per year in its contract bottling, case goods
spirits, vinegar and cooking wine businesses. The Company is actively seeking to
utilize its remaining capacity by bottling additional types of beverages with
new and existing customers.

VINEGAR AND COOKING WINE. To complement its distilling, winery and
bottling operations, the Company produces vinegar and cooking wine for sale to
condiment manufacturers, food service distributors and major retailers. The
Company's sales to retailers are sold under its own proprietary labels and under
the private labels of major retailers in the Southeast.

BAHAMIAN OPERATIONS. The Company engages in operations in the Bahamas
through its Bahamian subsidiary, Todhunter Bahamas Limited. The Bahamian
operations include retail businesses and certain real estate holdings. See Notes
5, 8 and 12 to the Company's consolidated financial statements for additional
information on the Bahamian operations.

OTHER BUSINESS ACTIVITIES. The Company's distilling operations produce
residuum, a byproduct, which is sold as animal feed. The Company also sells
industrial alcohol to hospitals, universities, fragrance producers and other
manufacturers.

DEPENDENCE ON MAJOR CUSTOMERS

The Company sells its bulk alcohol products to over 30 producers of
beverage alcohol in the United States and other foreign countries. The
Company's private label case goods spirits and contract bottling services are
sold to a limited number of customers. The Company's vinegar and cooking wine
are sold to over 100 condiment manufacturers, food service distributors and
retailers. During 1997, one contract bottling customer accounted for

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approximately 9% of the Company's net sales. The Company has major customers in
its bulk alcohol products, private label case goods spirits and contract
bottling businesses. The loss of one or more of the Company's major customers
could have a material adverse effect on the Company's liquidity and results of
operations. See Note 12 to the Company's consolidated financial statements for
additional information on major customers.

PRODUCTION

The Company's principal domestic production facilities are located in Lake
Alfred and Auburndale, Florida, both near Orlando and central to Florida's
citrus growing region. The two plants have similar distilling, bottling and
winery operations, allowing the Company to shift production from one plant to
the other. The Lake Alfred plant also has a vinegar production facility. Both
plants are near major highways and are serviced by a railroad, providing good
transportation access. The Company has a cold storage, warehousing and P.E.T.
bottle manufacturing facility in Winter Haven, Florida. The Company also
operates a winery and vinegar production facility in Louisville, Kentucky. The
Company's offshore rum production facilities are located in St. Croix, United
States Virgin Islands.

DISTILLING. The Company begins its distilling process with citrus or cane
molasses, which is fermented for approximately two to seven days. Once
fermented, the product has an average alcohol content of 4% by volume, which is
increased to approximately 95% through distillation. The alcohol is then
processed through rectifying columns and further refined. The finished product
is stored in stainless steel tanks, except rum, which is generally stored in
wooden barrels for aging purposes. The Lake Alfred, Auburndale and Virgin
Islands facilities each have the capacity to distill 25,000 proof gallons per
day.

WINERY. Wine is produced by the fermentation of citrus or grape juice.
After fermentation, the wine is fortified by the addition of distilled citrus
spirits to raise its alcohol content to approximately 20% by volume. Fortified
citrus wine is sold to producers of beverage alcohol. The wineries are
physically segregated from the distilling operations and have their own set of
fermenting and storage tanks. The Lake Alfred, Auburndale and Louisville
facilities can produce, on a combined basis, up to 20 million gallons of wine
per year.

BOTTLING. The Lake Alfred and Auburndale plants both have automated,
high-speed bottling lines capable of filling up to 600 12-ounce containers per
minute. Lake Alfred has two lines that are used primarily to bottle coolers and
prepared cocktails, three lines that are used to bottle the Company's case goods
spirits and one line to bottle vinegar. Auburndale has two lines that are
dedicated to bottling coolers and prepared cocktails, three lines that bottle
case goods spirits and one line to bottle cooking wine. The Company's warehouse
storage areas can accommodate up to 800,000 cases. The Company's plant in the
Virgin Islands has one line capable of bottling up to 250,000 cases of distilled
spirits per year.

VINEGAR AND COOKING WINE. Vinegar is produced by converting alcohol into
acetic acid. Several varieties of vinegar, including white distilled, red wine,
white wine, corn, rice wine, balsamic, tarragon and apple cider, are produced at
the Lake Alfred and Louisville facilities which have a combined capacity of 7.5
million grain gallons per year. Cooking wine is produced by the controlled
fermentation of red or white grape juice into wine. Several varieties of
cooking wine, including red, white, sherry, golden, marsala and chablis, are
produced at the Auburndale and the Louisville facilities.

QUALITY CONTROL. Each of the Company's facilities is equipped with a
quality control laboratory. The Company employs several chemists who continually
test to ensure the quality of its raw materials and end products.

RAW MATERIALS. The principal raw materials used in the Company's
distilling operations are citrus molasses, a byproduct of citrus juice
production, and cane molasses, a byproduct of sugar production. Citrus molasses,
which is used in the production of citrus brandy and citrus spirits, accounted
for approximately 55% of the raw materials used in the Company's distilling
operations in 1997. Cane molasses, which is used in the production of rum and
cane spirits, accounts for the remaining 45%. Citrus juice concentrate is the
primary raw material used in the Company's winery operations. The Company
purchases such raw materials from a variety of suppliers. The Company purchases
grain alcohol, used in its bulk alcohol products, case goods spirits, contract
bottling and industrial alcohol businesses from several suppliers located in the
Midwest. Glass bottles and other materials, such as caps, labels and cases, are
used in bottling and packaging and are available from numerous suppliers. Grape
juice concentrate is the primary raw material used in the Company's vinegar and
cooking wine operations. No supplier accounts for more than 10% of the Company's
raw material purchases. The cost of raw materials fluctuates depending upon a
number of factors, including crop conditions, weather, governmental programs and
purchases by foreign governments.

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FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY

The Company has a limited number of customers, and these customers often
purchase bulk alcohol products in significant quantities or place significant
orders for contract bottling services. Accordingly, the size and timing of
purchase orders and product shipments can cause operating results to fluctuate
significantly from quarter to quarter. Additionally, some Company products
generate higher profit margins than others, and changes in the Company's product
mix will cause gross margins to fluctuate. Certain aspects of the Company's
business are also seasonal, with increased demand for the Company's contract
bottling services from April to October and increased production of the
Company's bulk alcohol products during the months from October to June,
corresponding to the Florida citrus-growing season. As a result of these
factors, the Company's operating results vary significantly from quarter to
quarter.

MARKETING AND DISTRIBUTION

Bulk alcohol products are sold primarily in large quantities through the
Company's salespeople. The Company's marketing strategy emphasizes the cost
advantages of these products over other ingredients available to end producers.
Bulk alcohol products are sold primarily to other bottlers, distillers and end
producers located throughout the United States and Canada.

The Company sells value-priced case goods spirits to wholesalers for
distribution primarily in the Southeast. The Company's marketing strategy for
these products places primary emphasis upon promotional programs emphasizing the
Company's cost advantages, directed at wholesalers and retailers, rather than
consumers. Wholesalers and retailers market these products to retailers and
directly to consumers, respectively. The Company also produces value-priced case
goods spirits for private label retailers. Although competition for retail shelf
space in the beverage alcohol industry is significant, wholesalers of such
products, and not the Company, generally must address such competition, although
the Company's promotional programs may have a beneficial effect upon the
allocation of retail shelf space for its products. The Company also produces,
imports, markets and sells premium brand case goods spirits to wholesalers on a
national basis. The Company's marketing and promotional programs for its
premium brands are directed at consumers, rather than wholesalers and retailers.
Sales of the Company's case goods spirits are generally made FOB (free on board)
at the Company's facilities and, accordingly, the purchasers of such products
are responsible for the risk of loss and transportation costs. In addition to
its salespeople, the Company works through various brokers to develop and
service its sales to wholesalers and retailers.

The Company's marketing strategy with respect to its contract bottling
operations emphasizes the cost advantages and quality of the Company's services.
Arrangements with bottling customers are typically negotiated by the Company's
executive officers.

Vinegar and cooking wine are sold primarily in large quantities to
manufacturers, distributors and retailers through the Company's salespeople.
These products are also sold through wholesalers and directly to retailers under
the Company's proprietary labels and under the private labels of retailers.

COMPETITION

The areas of the beverage alcohol industry in which the Company does
business are highly competitive with respect to price, service and product
quality, and there are several companies with substantially greater financial
and other resources than the Company. The Company's citrus-based bulk alcohol
products compete primarily with producers of grape-based products. While the
Company is aware of only two other domestic producers of citrus brandy and
spirits, there exist several producers of grape-based distilled products. The
Company's case goods spirits compete on a regional and national basis against
other distilled spirits products, including premium labels, mid-price and
value-price products. The case goods spirits produced by the Company compete
with those of companies for whom the Company performs contract bottling
services and to whom the Company sells its bulk alcohol products. The Company
believes that its relationships with such customers are good and has not
experienced any adverse effects, such as termination or non-renewal of
ongoing contracts as a result of such competition. Based upon its historical
experience and customer relationships, the Company does not expect to
experience any adverse effects from such competition in the foreseeable
future, even as it attempts to increase its market share of case goods
spirits. Contract bottling operations compete against other bottlers located
throughout the Southeast. The Company experiences similar competition in its
vinegar and cooking wine operations. While Management believes that it has
achieved a strong competitive position in the markets it serves, there can be
no assurance that the Company will be able to maintain its competitive
position in the future.

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REGULATION AND TAXATION

The production, importing and sale of wine and spirits is subject to
extensive regulation by certain federal and state agencies, and the Company is
required to obtain various permits, bonds and licenses to comply with
regulations. Pursuant to federal and state environmental requirements, the
Company is required to obtain permits and licenses to operate certain
facilities, and to treat and remove effluents discharged from its distilling,
winery and bottling operations. Management believes it is presently in material
compliance with all applicable federal and state regulations.

Beverage alcohol produced and bottled by the Company is subject to
substantial federal excise taxes. Excise taxes are imposed at flat rates of
$13.50 per proof gallon for distilled spirits and $1.57 per gallon for fortified
citrus wine. Tax rates on spirits were increased from $12.50 to $13.50 per proof
gallon effective January 1, 1991. Effective at the same time, tax rates on
fortified wines were increased by $.90 per gallon. Where necessary and
competitively feasible, the Company has increased its prices to offset tax
increases. Management believes that such tax increases have adversely affected
the total unit volume of beverage alcohol sold industry-wide.

The Company's fortified wine products, as an ingredient of beverage
alcohol, have a cost advantage under the component method of taxation, which
taxes wine at a lower rate than distilled spirits. Changes in, or the
elimination of, the component method of taxation, as it relates to wine, would
have a material adverse effect on the Company's results of operations.

EMPLOYEES

As of September 30, 1997, the Company had approximately 365 full-time
employees. Additional workers are generally employed at the Company's bottling
facilities during the summer months when the bulk of contract bottling takes
place. None of the Company's employees are members of any labor union nor are
there any collective bargaining agreements between the Company and its
employees, with the exception of the Company's Virgin Islands employees. The
Virgin Islands operation, consisting of approximately 60 employees, is fully
unionized. Management believes that its relations with its employees are good.

INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

The Company has domestic facilities in Florida and Kentucky for the
production of its bulk alcohol products, case goods spirits, contract bottling
services, vinegar, cooking wine and other alcohol-related businesses. The
Company sells its domestically produced products and services primarily to
customers in the United States but also exports certain products to foreign
countries, primarily Eastern Europe and the Caribbean. The Company's rum
production facilities are located in St. Croix, United States Virgin Islands.
Rum produced in the Virgin Islands is sold primarily to other bottlers of rum,
producers of beverage alcohol, food companies and flavor manufacturers located
in the United States but is also sold to other foreign countries in the
Caribbean, South America and Europe. The Company's businesses in the Bahamas
relate to retail businesses and real estate rentals. See Note 12 to the
Company's consolidated financial statements for additional information about the
Company's foreign and domestic operations and export sales.

FORWARD-LOOKING STATEMENTS

From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, new products and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements. In
order to comply with the terms of the safe harbor, the Company notes that a
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the Company's forward-looking statements. The following is a list of factors,
among others, that could cause actual results to differ materially from the
forward-looking statements: business conditions and growth in certain market
segments and industries and the general economy; competitive factors including
increased competition and price pressures; availability of third party component
products at reasonable prices; increased excise taxes; foreign currency
exposure; changes in product mix between and among product lines; lower than
expected customer orders and quarterly seasonal fluctuation of those orders; and
product shipment interruptions. See "Risk Factors" in previous filings with the
Securities and Exchange Commission.

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ITEM 2. PROPERTIES

The Company owns all of its principal production facilities, including all
related land, buildings, and equipment. The Lake Alfred facility consists of
four principal buildings with approximately 250,000 square feet on 32 acres. The
Auburndale facility consists of three principal buildings with approximately
250,000 square feet on 16 acres. The Louisville facility consists of three
principal buildings with approximately 60,000 square feet on 27.5 acres. The
Winter Haven facility consists of three principal buildings with approximately
140,000 square feet on 30 acres. The Virgin Islands facility consists of seven
principal buildings with approximately 200,000 square feet on 30 acres. The
Company's facilities in the Bahamas consist of seven principal buildings with
approximately 70,000 square feet on 10 acres. The Company leases approximately
10,000 square feet of office space in West Palm Beach, Florida for its executive
offices. Management believes that all of its facilities, both owned and leased,
are adequate and suitable for operations in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

There are no material legal proceedings pending, or, to the knowledge of
management, threatened against the Company, except as set forth below.

ARBITRATION DEMAND AGAINST BLAIR IMPORTERS, LTD.

On November 13, 1995, the Company filed an Arbitration Demand against the
former stockholders of Blair arising out of the Company's acquisition of Blair
pursuant to an Agreement and Plan of Merger dated April 22, 1994, as amended
(the "Merger Agreement"). In the arbitration proceeding, the Company alleges
fraud and misrepresentation against the respondents in connection with the
Merger Agreement and seeks damages in the amount of $11 million.

On August 2, 1996, the selling Blair stockholders filed a counterclaim
against the Company in the arbitration proceeding. The counterclaim alleges
that the Company violated the Merger Agreement in various respects and seeks
unspecified damages.

The Company's claims in arbitration and counterclaims of the respondents in
the arbitration have not yet been heard by an arbitration panel. The parties
have not completed discovery on their claims. On December 4, 1997, pursuant to
the Settlement (as defined below), the parties agreed to a temporary stay of
discovery and to enter into non-binding mediation of their claims. Because
discovery is not complete, the Company cannot presently evaluate the likely
outcome of this arbitration proceeding, but it intends to vigorously pursue its
claims and believes that it has substantial defenses to any claims asserted
against it.

BLAIR LITIGATION

On November 21, 1995, the former Blair stockholders and Charmer Industries,
Inc. ("Charmer") commenced a proceeding against the Company and Blair in the
Supreme Court of the State of New York, County of New York, alleging that the
sale of certain assets of Blair to David Sherman Corp. constituted an "Early
Payment Event," accelerating all remaining payments under the Note. Plaintiffs
in this action seek judgment for the balance (with interest) remaining under a
note in the principal amount of $4,844,361 executed by Blair and guaranteed by
the Company, which was payable to the former Blair stockholders and Charmer in
connection with the acquisition of Blair.

On December 4, 1997, the parties agreed to a settlement of this action (the
"Settlement") pursuant to which the Company would make an initial payment of
principal of $1,130,351 and monthly installment payments through August 1999 of
principal in the aggregate amount of approximately $1,695,526, all with interest
at the rate of 7.5% per year. In accordance with this Settlement, the parties
to the Arbitration Demand, the Loewenwarter Litigation (set forth below) and the
Charmer Litigation (set forth below) also agreed to a temporary stay of all
proceedings in such related actions, in order to provide an opportunity for the
parties to settle their claims through non-binding mediation.

LOEWENWARTER LITIGATION

The Company has brought suit in the Supreme Court of the State of New York,
County of New York, against the accounting firm of Ernest D. Loewenwarter & Co.
alleging accounting malpractice and fraud arising out

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of the acquisition of Blair. The Company seeks $10 million in damages. The
defendant has filed an answer dated February 21, 1997 and discovery has
commenced. On December 4, 1997, as a part of the Settlement, the parties
agreed to a temporary stay of discovery until March 30, 1998 in order to
provide an opportunity for private, non-binding mediation of their claims.

CHARMER LITIGATION

On April 10, 1997, the Company filed suit in the Supreme Court of New York,
County of New York, against Charmer and Andrew M. Crisses, a former director of
the Company and former legal counsel to Blair. The Company's suit alleges,
among other things, breach of fiduciary duty, negligent misrepresentation and
fraud against Crisses, and negligent misrepresentation and fraud against
Charmer. The Company seeks unspecified monetary damages in excess of $11
million. The defendants have not responded to this complaint. On October 16,
1997, the Court stayed the proceedings of this litigation pending the outcome of
the Arbitration Demand.

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

No matter was submitted to security holders during the fourth quarter of
the fiscal year ended September 30, 1997.

PART II

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

The Company's common stock was traded in the over the counter market since
the Company's initial public offering on October 13, 1992, through October 7,
1997. During that time the Company's common stock was listed in the Nasdaq
National Market System under the symbol "TODH." Since October 8, 1997, the
Company's common stock began trading on the American Stock Exchange under the
symbol "THT." The following table sets forth the high and low closing
quotations of the Company's common stock for each quarter during the past two
fiscal years as reported by Nasdaq.

PERIOD HIGH LOW
------ ---- ---
Fiscal 1996
First quarter $8 1/2 $6
Second quarter 8 3/8 7 1/2
Third quarter 9 7/8 7 1/2
Fourth quarter 9 1/2 8 1/8
Fiscal 1997
First quarter 9 5/8 7 7/8
Second quarter 9 6 7/8
Third quarter 8 6 7/8
Fourth quarter 10 1/4 7 1/4

The number of stockholders of record as of December 1, 1997 was 78. In
addition, the number of beneficial owners as of March 21, 1997, the last date
upon which the Company received a list of beneficial owners, was approximately
1,178.

No dividend was paid to stockholders during the fiscal years ended
September 30, 1996 and 1997. The Company intends to continue to retain earnings
for use in the business of the Company and therefore does not anticipate
declaring or paying cash dividends in the immediate future. In addition, the
payment of cash dividends requires the consent of the Company's lenders.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data are derived from the Company's
audited consolidated financial statements. The following data are qualified by
reference to, and should be read in conjunction with, the consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales $77,938 $78,197 $ 70,191 $ 73,316 $67,125
Cost of goods sold 56,493 58,428 54,564 55,972 52,535
------- ------- -------- -------- -------
Gross profit 21,445 19,769 15,627 17,344 14,590
Selling, general and administrative
expenses 13,126 11,483 11,599 9,619 8,176
------- ------- -------- -------- -------
Operating income 8,319 8,286 4,028 7,725 6,414
Other income (expense):
Interest income 840 1,036 740 403 282
Interest expense (4,146) (4,351) (4,015) (2,543) (1,886)
Other, net 931 766 252 2,900 2,147
------- ------- -------- -------- -------
Income from continuing operations
before income taxes 5,944 5,737 1,005 8,485 6,957
Income tax expense 1,259 1,192 1,060 1,871 2,237
------- ------- -------- -------- -------
Income (loss) from continuing
operations 4,685 4,545 (55) 6,614 4,720
Discontinued operations, net of
income tax benefit -- -- (10,740) 11 --
------- ------- -------- -------- -------
Income (loss) before extraordinary
item 4,685 4,545 (10,795) 6,625 4,720
Extraordinary item, net of income
tax benefit -- -- (468) -- --
------- ------- -------- -------- -------
Net income (loss) $ 4,685 $ 4,545 $(11,263) $ 6,625 $ 4,720
------- ------- -------- -------- -------
------- ------- -------- -------- -------

Net income per share
Primary
Income (loss) from continuing
operations $ 0.94 $ 0.92 $ (0.01) $ 1.40 $ 1.05
(Loss) from discontinued
operations -- -- (2.19) -- --
Extraordinary item -- -- (0.10) -- --
------- ------- -------- -------- -------
Net income (loss) $ 0.94 $ 0.92 $ (2.30) $ 1.40 $ 1.05
------- ------- -------- -------- -------
------- ------- -------- -------- -------
Fully diluted
Income (loss) from continuing
operations $ 0.94 $ 0.91 $ (0.01) $ 1.39 $ 1.04
(Loss) from discontinued
operations -- -- (2.19) -- --
Extraordinary item -- -- (0.10) -- --
------- ------- -------- -------- -------
Net income (loss) $ 0.94 $ 0.91 $ (2.30) $ 1.39 $ 1.04
------- ------- -------- -------- -------
------- ------- -------- -------- -------
Cash dividends per share -- -- -- -- --
Weighted average shares outstanding
Primary 4,966 4,955 4,906 4,746 4,487
Fully diluted 4,995 4,969 4,906 4,761 4,522
BALANCE SHEET DATA (AT PERIOD END):
Working capital $31,640 $33,517 $ 35,435 $ 32,526 $20,650
Total assets 95,618 98,859 103,787 104,134 61,727
Short-term debt 2,938 2,152 2,264 2,289 4,620
Long-term debt 43,135 51,293 57,759 49,740 23,324
Stockholders' equity 36,290 31,448 26,865 37,919 26,074
</TABLE>
8

<PAGE>

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

The following tables set forth statement of operations items as a
percentage of net sales and information on net sales of certain Company
products.

YEAR ENDED SEPTEMBER 30,
------------------------
1997 1996 1995
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 72.5 74.7 77.7
----- ----- -----
Gross margin 27.5 25.3 22.3
Selling, general and
administrative expenses 16.8 14.7 16.6
----- ----- -----
Operating income 10.7 10.6 5.7
Other income (expense), net (3.1) (3.3) (4.3)
----- ----- -----
Income from continuing
operations before income
taxes 7.6 7.3 1.4
Income tax expense 1.6 1.5 1.5
----- ----- -----
Income (loss) from
continuing operations 6.0% 5.8% (0.1)%
----- ----- -----
----- ----- -----

YEAR ENDED SEPTEMBER 30, % CHANGE
------------------------ -------------
1997 1996 1995 97/96 96/95
---- ---- ---- ----- -----
(IN THOUSANDS)
Bulk alcohol products $29,729 $29,404 $25,905 1.1 13.5
Case goods spirits 19,966 16,385 12,766 21.9 28.3
Contract bottling 13,089 19,267 19,840 (32.1) (2.9)
Vinegar and cooking wine 9,403 7,625 5,190 23.3 46.9
Bahamian operations 2,439 2,525 1,959 (3.4) 28.8
Other 3,312 2,991 4,531 10.7 (34.0)
------- ------- ------- ----- -----
$77,938 $78,197 $70,191 (0.3) 11.4
------- ------- ------- ----- -----
------- ------- ------- ----- -----

The following table provides unit sales volume data for certain Company
products.

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, % CHANGE
------------------------ ---------------
1997 1996 1995 97/96 96/95
---- ---- ---- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Bulk alcohol products:
Distilled products, in proof gallons
Citrus brandy 1,805 1,922 2,000 (6.1) (3.9)
Citrus spirits 1,062 872 671 21.8 29.8
Rum 4,380 4,562 4,363 (4.0) 4.6
Cane spirits 542 509 536 6.6 (5.1)
Grain alcohol 3,499 2,018 970 73.3 108.0
Fortified citrus wine, in gallons 6,439 7,128 6,409 (9.7) 11.2
Case goods spirits, in cases 1,119 1,181 1,137 (5.3) 3.9
Contract bottling, in cases 4,547 5,099 5,048 (10.8) 1.0
Vinegar
Bulk, in 100 grain gallons 4,510 4,205 1,460 7.3 187.9
Cases, in cases 562 403 308 39.7 30.8
Drums, in 100 grain gallons 476 542 366 (12.1) 48.1
Cooking Wine
Bulk, in gallons 44 35 155 28.3 (77.6)
Cases, in cases 207 157 101 32.2 56.0
</TABLE>
9
<PAGE>

The Company produces citrus-based brandy, distilled spirits, rum and
fortified wine used as ingredients by producers of beverage alcohol; bottles
coolers, prepared cocktails and other beverages on a contract basis; and
produces a complete line of spirits. The Company also imports and markets
beverage alcohol and produces vinegar, cooking wine and other alcohol-related
products.

CASE GOODS SPIRITS. The Company produces, bottles and sells a complete
line of spirits under its own proprietary labels and under the private labels
of major retailers of liquor located in the Southeast. These products
currently include rum, gin, vodka, tequila, cordials and various whiskies,
and the Company continues to add additional products to this line. Since the
acquisition of the Virgin Islands operations in 1994, the Company also
produces and sells case goods spirits in the U.S. Virgin Islands under the
Cruzan Rum label. The Company's proprietary labels include Cruzan Estate
Rums, Cruzan Rums, Ron Carlos Rums, Conch Republic Rums and "James's Harbor"
(gin, rum and vodka). The Company distills its own rum, but generally
produces its other spirits from grain alcohol purchased from third parties.
Depending on the particular formula for a product, the Company adds flavoring
and/or sugar, reduces the product's proof and then filters and bottles the
finished product. Also, the Company began in 1996 to import and market Cruzan
Rum, Porfidio Tequila and several brands from the former Blair product line
which was discontinued in 1995. Management's strategy has been to focus on
marketing and building premium brands in its case goods spirits business with
an initial emphasis on the rum and tequila categories.

During the quarter ended September 30, 1995, the Company discontinued the
operations of Blair, sold substantially all of its assets, terminated its
employees, closed its facilities and began liquidating its remaining assets. The
Company acquired Blair in August 1994. At that time management believed that
Blair would enhance the Company's national sales capabilities and provide an
entry to the imported wine and spirits segment of the beverage alcohol market.
However, beginning in January 1995, Blair incurred substantial operating losses.
In 1995, the losses from Blair amounted to $10,740,124 (net of tax benefit of
$935,883), including operating losses during the phase out period of $1,871,173.
These losses resulted from, among other things, the failure to meet exaggerated
sales and gross profit projections furnished to the Company, unrecorded
liabilities, surplus inventories, and inadequate reserves for uncollectible
receivables, all of which were uncovered subsequent to the acquisition. The
Company is reserving all rights that it has to indemnification from the selling
shareholders of Blair under the merger agreement relating to the acquisition.
See Item 3. Legal Proceedings and Note 15 to the Company's consolidated
financial statements for additional information on the discontinued operations.

10
<PAGE>

The Company's net sales and gross margins (gross profit as a percentage of
net sales) vary depending on the mix of business among the Company's products.
Historically, gross margins have been highest in bulk alcohol products and lower
in case goods spirits, contract bottling, vinegar and cooking wine operations.
Within its contract bottling operations, sales and gross margins have varied
substantially based upon the mix of business from the Company's "Type A" and
"Type B" bottling customers. Type A bottling customers pay the Company to
purchase their raw materials and these costs are passed through to the customer.
Type B bottling customers supply their own raw materials and are only charged
for bottling charges. Although gross profit per case for the Company's Type A
and Type B bottling customers is approximately equal, given the same case
volume, net sales and cost of goods sold with respect to products bottled for
Type A bottling customers are higher, and gross margins are lower, than for Type
B bottling customers. As a result, significant fluctuations in volume of Type A
bottling customers can distort the Company's gross margin.

Net sales represent the Company's gross sales less excise taxes. Excise
taxes are generally payable on products bottled by the Company. In addition,
excise taxes are payable on sales of industrial alcohol to certain customers.
Accordingly, excise taxes vary from period to period depending upon the
Company's product and customer mix.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share"
(EPS), which simplifies existing computational guidelines, revises disclosure
requirements, and increases the comparability of earnings per share on an
international basis. Management does not believe there will be a material
effect on the Company's EPS, based on the application of this pronouncement.
SFAS No. 128 is effective for periods ending after December 15, 1997 and
requires restatement of all prior period EPS data presented. The Company will
adopt SFAS No. 128 in its first quarter of fiscal year 1998.

In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers, and the material countries in
which the entity holds assets and reports revenue. Management has not yet
evaluated the effects of these changes on its reporting of segment information.
The Company will adopt SFAS No. 131 in its fiscal year 1999.

YEAR 2000 COMPLIANCE

Management has initiated a program to prepare the Company's information
systems for the year 2000, and to upgrade its information systems generally.
The Company is assessing the impact of the year 2000 issue on its operations,
including the extent and cost of programming changes required to address this
issue. At the present time, it is not expected that the costs to prepare the
Company's information systems for the year 2000 will have any material adverse
impact on the Company's liquidity or results of operations.

FORWARD-LOOKING STATEMENTS

Management's Discussion and Analysis of Financial Condition and Results of
Operations contains, among other things, information regarding revenue growth,
expenditure levels and plans for development. These statements could be
considered forward-looking statements that involve a number of risks and
uncertainties. The following is a

11
<PAGE>

list of factors, among others, that could cause actual results to differ
materially from the forward-looking statements; business conditions and growth
in certain market segments and industries and the general economy; competitive
factors including increased competition and price pressures; availability of
third party component products at reasonable prices; excise taxes; foreign
currency exposure; changes in product mix; lower than expected customer orders
and quarterly seasonal fluctuation of those orders; and product shipment
interruptions.

Amounts presented in this Item 7 have generally been rounded to the nearest
thousand and hundred thousand, as applicable, but the percentages calculated are
based on actual amounts without rounding.

FISCAL 1997 COMPARED TO FISCAL 1996

NET SALES. Net sales were $77.9 million in 1997, a decrease of .3% from
net sales of $78.2 million in 1996.

Net sales of bulk alcohol products were $29.7 million in 1997, an increase
of 1.1% from net sales of $29.4 million in 1996. Bulk alcohol products produced
by the Company include citrus brandy, citrus and cane spirits, rum and fortified
citrus wine. The Company also buys grain alcohol which it resells, primarily to
export customers. Unit sales of citrus brandy decreased 6.1% in 1997 and 3.9%
in 1996. The Company's citrus brandy is used primarily as an ingredient in
flavored brandies. Unit sales of citrus brandy have declined as a result of a
decline in demand for brandy products which management believes is due to
changing demographics. Management expects this trend to continue in the future.
Unit sales of citrus spirits increased 21.8% in 1997 and 29.8% in 1996. Citrus
spirits are used primarily as a fortifying ingredient to increase the alcohol
content of citrus wine. The increase in sales of citrus spirits was primarily
due to increases in sales to other manufacturers of fortified citrus wine. Unit
sales of cane spirits increased 6.6% in 1997 after a 5.1% decrease in 1996.
Cane spirits are sold to flavor manufacturers. Unit sales of rum decreased 4.0%
in 1997 after a 4.6% increase in 1996. The fluctuations in rum shipments are
attributable to the timing of customer orders. Unit sales of grain alcohol
increased 73.3% in 1997 and 108.0% in 1996. Grain alcohol is purchased from
several suppliers located in the Midwest and resold primarily to export
customers, the largest of which are in Eastern Europe and Russia. Unit sales of
fortified citrus wine decreased 9.7% in 1997 after an increase of 11.2% in
1996. Fortified citrus wine is used as an ingredient in cordials, whiskies and
other beverage alcohol. Shipments of fortified citrus wine decreased in 1997
due to weak demand for certain products of one of the Company's largest wine
customers as well as increased competition from other wine manufacturers.

Net sales of case goods spirits were $20.0 million in 1997, an increase of
21.9% from net sales of $16.4 million in 1996. Beginning in 1996, management's
strategy has been to focus on marketing and building premium brands in its case
goods spirits business with an initial emphasis on the rum and tequila
categories. However, the Company experienced a volume decrease in unit sales of
case goods spirits of 5.3% in 1997. The volume decrease in case goods spirits
is attributable to the value-priced and private label component of this category
which has a lower gross margin. The decrease in volume of value-priced and
private label business was partially offset by an increase in the Company's
premium Cruzan Rum business as well as an increase in super premium tequila.
The change in product mix in this category resulted in an increase in the
average price per case of 28.6% in 1997.

Net sales of contract bottling services were $13.1 million in 1997, a
decrease of 32.1% from net sales of $19.3 million in 1996. The Company's
contract bottling volume decreased 10.8% in 1997 after increasing 1.0% in 1996.
The decrease in volume is primarily attributable to a decrease in business with
one of the Company's largest bottling customers. The Company continues to
provide a significant amount of contract bottling services to this customer even
as this customer continues with its plan to transfer production to its own
facility. The Company also experienced a decrease in contract bottling services
to export customers, primarily in Eastern Europe and Russia, as these customers
increased their purchases of bulk grain alcohol. The decreases in contract
bottling volume discussed above were partially offset by increased volume with
existing and new customers.

Net sales of vinegar and cooking wine were $9.4 million in 1997, an
increase of 23.3% from net sales of $7.6 million in 1996. The increase in net
sales of vinegar and cooking wine was due to increased manufacturing
efficiencies, new customers and an improved product mix.

GROSS PROFIT. Gross profit was $21.4 million in 1997, an increase of 8.5 %
from gross profit of $19.8 million in 1996. Gross margin increased to 27.5% in
1997 from 25.3% in 1996. The improvement in gross margin is primarily
attributable to increased gross margins of the Company's bulk rum products in
the Virgin Islands, reduced raw material costs in the Company's domestic
distilling operations and a decrease in contract bottling volume with a large
Type A bottling customer.

<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $13.1 million in 1997, an increase of 14.3% from
$11.5 million in 1996. Selling, general and administrative expenses were 16.8%
of net sales in 1997 and 14.7% in 1996. The increase in selling, general and
administrative expenses in 1997 is primarily attributable to the Company's
increased emphasis on marketing its premium brands and imported products and
legal fees relating to the lawsuit against the former Blair stockholders. See
Item 3. Legal Proceedings.

INTEREST EXPENSE. Interest expense was $4.1 million in 1997 and $4.4
million in 1996. The decrease in interest expense was due to lower levels of
debt outstanding during 1997.

INTEREST AND OTHER INCOME. Interest income decreased to $.8 million in
1997 from $1.0 million in 1996 due to lower levels of cash, cash equivalents and
notes receivable. The notes receivable relate primarily to the sale of assets
in the Bahamas and the discontinued operations. Also included in other income
is rental income from the Bahamian subsidiary and a gain of $.25 million in 1997
and $.15 million in 1996 relating to insured hurricane damage.

INCOME TAX EXPENSE. The Company's effective income tax rate was 21% in
1997 and 1996. The low tax rate is attributable to the Virgin Islands
operations which has a 90% exemption from income taxes.

FISCAL 1996 COMPARED TO FISCAL 1995

NET SALES. Net Sales were $78.2 million in 1996, an 11% increase from net
sales of $70.2 million in 1995.

Net sales of bulk alcohol products increased 14% in 1996 due to volume
increases in both distilled products and fortified citrus wine. Distilled
products volume increased 16% and fortified citrus wine volume increased 11%.
The increase in distilled products volume was due to a 108% increase in export
sales of grain alcohol, a 5% increase in sales of rum, and a 37% increase in
sales of citrus spirits. These increases were offset by a 6% decrease in sales
of citrus brandy. The increase in citrus wine volume was due to increased sales
to new and existing customers. The average unit price for distilled products
decreased 2% due to the increase in export sales of grain alcohol which have a
lower unit price than other distilled products. The average unit price for
fortified citrus wine increased 3%.

Net sales of case goods spirits increased 28%. The increase in net sales was
due to the Company's new business of importing and marketing branded beverage
alcohol, including its own Cruzan Rum. Net sales of case goods spirits without
the branded beverages decreased 9%. The decrease was due to soft demand in the
Southeast and a decrease in tourism in the Virgin Islands.

In the Company's contract bottling operations, net sales decreased 3%. The
net decrease in sales was due to the loss of a Type A bottling customer which
was partially offset by increases in sales to new and existing customers.

Net sales of vinegar and cooking wine increased 47%. The increase in net
sales was due to the construction of a new facility in Kentucky which began
shipping vinegar at the end of 1995.

GROSS PROFIT. Gross profit in 1996 was $19.8 million compared to $15.6
million in 1995. Gross margin increased to 25.3% in 1996 from 22.3% in 1995.
The increase in gross margin was due to improved margins for most of the
Company's products as well as a change in product and customer mix.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in 1996 were $11.5 million compared to $11.6 million in
1995, and as a percentage of net sales, were 14.7% in 1996 compared to 16.6% in
1995. Selling, general and administrative expenses in 1996 increased $1.5
million due to marketing expenses related to the new business of importing and
marketing branded beverage alcohol. This increase was offset by the fact that
$1.6 million of selling, general and administrative expenses in 1995 were
non-recurring professional fees, litigation costs and write-offs of
intangibles and bad debts.

INTEREST EXPENSE. The Company's total interest expense decreased in 1996
by approximately $767,000 due to the Company paying down debt and entering into
an interest rate swap on the Company's bank note in the Virgin Islands which
reduced the Company's interest rate to a fixed rate of 8.46% from prime plus
one. However, due to the Company allocating approximately $1,102,000 of
interest expense from continuing operations to discontinued operations in 1995,
interest expense from continuing operations increased approximately $336,000 in
1996.

13
<PAGE>

INCOME TAX EXPENSE. The Company's effective income tax rate was 21% in
1996 and 105% in 1995. The low tax rate in 1996 is due to income from the
Virgin Islands operations which has a 90% exemption from income taxes. In 1995,
the Company incurred additional income tax expense from the repatriation of
previously undistributed earnings of its Bahamian subsidiary.

EXTRAORDINARY ITEM. During 1995, the Company recognized an extraordinary
loss of $467,862, net of income tax benefit of $251,927 on its early
extinguishment of debt. This loss relates to the write-off of unamortized
deferred financing costs due to the refinancing of long-term debt.

LIQUIDITY AND CAPITAL RESOURCES

YEAR ENDED SEPTEMBER 30,
------------------------
1997 1996 1995
---- ---- ----
(in thousands)

Working capital $31,640 $33,517 $35,435
Cash and cash investments 4,905 7,089 6,585
Capital expenditures 3,775 4,902 7,156
Total debt 46,073 53,445 60,023
Cash provided by (used in)
operating activities 7,613 10,633 (2,046)
Cash provided by (used in)
investing activities 1,912 (3,500) (10,643)
Cash provided by (used in)
financing activities (7,214) (6,539) 7,744

Working capital decreased in both 1997 and 1996. In 1996, the decrease was
primarily due to the discontinued operations of Blair and the use of net
operating losses which reduced deferred income tax assets. In 1997, the
decrease was primarily due to the Company using excess cash and cash investments
to pay down debt and the use of net operating losses which reduced deferred
income tax assets. Although working capital decreased in 1997 and 1996 as
described above, receivables and inventories relating to the Company's case
goods spirits, distilling (bulk alcohol products) and vinegar businesses
increased. Within the Company's case goods spirits business, inventory of
value-priced case goods decreased while inventory of the Company's premium
brands increased. The changes in inventory of case goods spirits relate to
increases in sales of the Company's premium brands, the introduction of new
premium brands and a decrease in value-priced and private label business.
Inventory of distilled bulk alcohol products increased due to increased
production and relatively flat sales. Inventory in the vinegar operations
increased due to increased capacity and sales.

In 1997, the Company's cash from operating activities was lower than in
1996, due to the liquidation of the assets of discontinued operations in 1996.
In 1996, cash from operating activities was higher than in 1995, due to a net
loss from discontinued operations in 1995.

Cash used in investing activities, exclusive of purchases and redemptions
of certificates of deposit, decreased in 1997 and 1996 from the corresponding
prior year periods due to reduced capital expenditures.

Cash used in financing activities increased in 1997 and 1996 from the
corresponding prior year periods due to the Company paying down debt with cash
from operations and cash investments.

At September 30, 1997, the Company had an unsecured bank line of credit of
$20,000,000, which expires November 1, 1999. The first $5 million of borrowings
bear interest at 1.5% above the one-month LIBOR rate, borrowings in excess of $5
million bear interest at the prime rate. The borrowings under this line were
$4,246,947 at September 30, 1997. The amount which can be borrowed on the line
is based on the borrowing base, as defined in the agreement. The agreement
requires the Company to maintain a tangible net worth, as defined, a maximum
leverage ratio and a minimum fixed charge, interest coverage and current ratio.
In addition, the agreement prohibits the payment of cash dividends. The Company
was in compliance with these covenants at September 30, 1997.

The Company's total debt was $46.1 million as of September 30, 1997, and
its ratio of debt to equity was 1.3 to 1.

14
<PAGE>

The Company has operated in the Bahamas since 1964. Under Bahamian law, the
Company pays no taxes on the profits from these operations, and such profits
have generally been retained in the Bahamas. In addition, the Company has
generally not paid United States federal income taxes on such profits.
Repatriation of these profits could result in a significant United States
federal income tax liability to the Company (see Note 8 to the consolidated
financial statements).

Based on current plans and business conditions, management expects that its
cash and cash equivalents, together with any amounts generated from operations
and available borrowings, will be sufficient to meet the Company's cash
requirements for at least the next 12 months.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and financial statement schedule of
the Company and its subsidiaries, and the report of independent auditors are
listed at Item 14.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding directors and executive officers required by Item
10 is incorporated by reference from the Company's definitive proxy statement
for its 1998 annual stockholders' meeting.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its 1998 annual stockholders' meeting.

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

The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its 1998 annual stockholders' meeting.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its 1998 annual stockholders' meeting.

15
<PAGE>

PART IV

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

(a) Financial Statements and Schedules

See "Index to Financial Statements and Financial Statement Schedules".

(b) Exhibits

See "Index to Exhibits".

No reports on Form 8-K were filed during the quarter ended September 30,
1997.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of West
Palm Beach, State of Florida, on the 19th day of December, 1997.

TODHUNTER INTERNATIONAL, INC.

By: /s/ A. Kenneth Pincourt, Jr.
---------------------------------------
A. Kenneth Pincourt, Jr., Chairman of the
Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated.

/s/ A. Kenneth Pincourt, Jr. Chairman of the Board
- ---------------------------- and Chief Executive Officer December 19th, 1997
A. Kenneth Pincourt, Jr. (Principal Executive Officer)

* Treasurer and Chief Financial
- ---------------------------- Officer (Principal Financial December 19th, 1997
Troy Edwards and Accounting Officer)

*
- --------------------------- Director December 19th, 1997
Thomas A. Valdes

*
- --------------------------- Director December 19th, 1997
Jay S. Maltby

*
- --------------------------- Director December 19th, 1997
D. Chris Mitchell

*
- --------------------------- Director December 19th, 1997
Leonard G. Rogers

*
- --------------------------- Director December 19th, 1997
W. Gregory Robertson

*By: /s/ A. Kenneth Pincourt, Jr.
-----------------------------
A. Kenneth Pincourt, Jr.
Attorney-in-Fact

<PAGE>

TODHUNTER INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

PAGE
----

(a) Financial Statements

Independent Auditor's Report 19

Consolidated balance sheets as of September 30, 1997 and 1996 20

Consolidated statements of operations for the years ended
September 30, 1997, 1996 and 1995 22

Consolidated statements of stockholders' equity for the years ended
September 30, 1997, 1996 and 1995 24

Consolidated statements of cash flows for the years ended
September 30, 1997, 1996 and 1995 25

Notes to consolidated financial statements 27

(b) Financial Statement Schedules

Independent Auditors Report on Financial Statement Schedule 43

Schedule II Valuation and Qualifying Accounts 44

All of the other schedules have been omitted as not required, not
applicable, not deemed material or because the information is included in the
notes to the registrant's consolidated financial statements.

<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders
Todhunter International, Inc. and Subsidiaries
West Palm Beach, Florida

We have audited the accompanying consolidated balance sheets of Todhunter
International, Inc. and subsidiaries as of September 30, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30,
1997. 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 audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Todhunter
International, Inc. and subsidiaries as of September 30, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.

McGLADREY & PULLEN, LLP

West Palm Beach, Florida
December 2, 1997, except for
Note 10 as to which the date is
December 4, 1997

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996

ASSETS 1997 1996
- -------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 4,904,804 $ 2,594,246
Certificates of deposit -- 4,494,375
Trade receivables 11,051,085 11,232,609
Other receivables 2,116,110 1,573,864
Inventories 20,086,901 18,614,304
Notes receivable, current maturities 1,435,868 1,510,389
Deferred income taxes 1,162,000 2,156,000
Other current assets 1,580,034 1,358,434
Assets of discontinued operations -- 544,719
-------------------------------
TOTAL CURRENT ASSETS 42,336,802 44,078,940

Long-Term Notes Receivable, less
current maturities 6,369,986 7,768,504

Property and Equipment, less accumulated
depreciation 1997 $28,236,376; 1996 $24,705,488 42,943,754 43,122,543

Property Held for Lease, less accumulated
depreciation 1997 $998,882; 1996 $871,330 1,429,177 1,445,845

Goodwill, less accumulated amortization
1997 $670,351; 1996 $637,606 422,168 454,913

Other Assets 2,116,568 1,988,051
-------------------------------

$ 95,618,455 $ 98,858,796
-------------------------------
-------------------------------

See Notes to Consolidated Financial Statements.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996

LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- -------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt $ 2,937,744 $ 2,152,206
Accounts payable 5,039,252 5,053,661
Accrued interest expense 1,404,444 1,261,542
Other accrued expenses 1,315,600 1,674,539
Liabilities of discontinued operations -- 419,933
-----------------------------

TOTAL CURRENT LIABILITIES 10,697,040 10,561,881

Long-Term Debt, less current maturities 43,135,080 51,292,490

Deferred Income Taxes 4,852,000 4,784,000

Other Liabilities 225,713 354,330
-----------------------------
58,909,833 66,992,701
-----------------------------
Minority Interest 418,249 417,784
-----------------------------

Commitments and Contingencies

Stockholders' Equity
Preferred stock, par value $.01 per share;
authorized 2,500,000 shares, no shares issued -- --
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued and
outstanding 1997 4,949,714; 1996 4,923,464 49,497 49,235
Additional paid-in capital 11,945,777 11,788,539
Retained earnings 24,295,099 19,610,537
-----------------------------
36,290,373 31,448,311
-----------------------------
$ 95,618,455 $ 98,858,796
-----------------------------
-----------------------------

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

1997 1996 1995
- --------------------------------------------------------------------------------

Sales $116,605,935 $121,066,640 $118,585,016
Less excise taxes 38,667,686 42,870,108 48,393,855
------------------------------------------
NET SALES 77,938,249 78,196,532 70,191,161
Cost of goods sold 56,493,174 58,427,344 54,564,214
------------------------------------------
GROSS PROFIT 21,445,075 19,769,188 15,626,947
Selling, general and administrative
expenses 13,126,309 11,482,737 11,598,922
------------------------------------------
OPERATING INCOME 8,318,766 8,286,451 4,028,025
------------------------------------------
Other income (expense):
Interest income 840,016 1,035,811 740,036
Interest expense (4,146,322) (4,350,791) (4,014,878)
Other, net 931,394 765,592 252,013
------------------------------------------
(2,374,912) (2,549,388) (3,022,829)
------------------------------------------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 5,943,854 5,737,063 1,005,196
------------------------------------------
Income tax expense:
Current 197,292 136,265 452,809
Deferred 1,062,000 1,056,000 607,883
------------------------------------------
1,259,292 1,192,265 1,060,692
------------------------------------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS 4,684,562 4,544,798 (55,496)
------------------------------------------
Discontinued operations:
(Loss) from operations, net of
income tax benefit of $205,593
in 1995 -- -- (490,407)
(Loss) on disposal of discontinued
operations including provision
of $1,871,173 for operating
losses during phase out period,
net of income tax benefit of
$730,290 -- -- (10,249,717)
------------------------------------------
-- -- (10,740,124)
------------------------------------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 4,684,562 4,544,798 (10,795,620)
Extraordinary item, expenses
related to early extinguishment
of debt, net of income tax
benefit of $251,927 in 1995 -- -- (467,862)
------------------------------------------
NET INCOME (LOSS) $ 4,684,562 $ 4,544,798 $(11,263,482)
------------------------------------------
------------------------------------------
(Continued)

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

1997 1996 1995
- --------------------------------------------------------------------------------
Earnings per common share:
Primary:
Income (loss) from continuing
operations $ 0.94 $ 0.92 $ (0.01)
(Loss) from discontinued
operations -- -- (2.19)
Extraordinary item -- -- (0.10)
------------------------------------------
NET INCOME (LOSS) $ 0.94 $ 0.92 $ (2.30)
------------------------------------------
------------------------------------------

Fully diluted:
Income (loss) from continuing
operations $ 0.94 $ 0.91 $ (0.01)
(Loss) from discontinued
operations -- -- (2.19)
Extraordinary item -- -- (0.10)
------------------------------------------
NET INCOME (LOSS) $ 0.94 $ 0.91 $ (2.30)
------------------------------------------
------------------------------------------
Common shares and equivalents
outstanding:
Primary 4,966,165 4,955,088 4,905,998
------------------------------------------
------------------------------------------
Fully diluted 4,994,938 4,969,436 4,905,998
------------------------------------------
------------------------------------------

See Notes to Consolidated Financial Statements.

23
<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
Common Stock
----------------- Additional Total
Shares Paid-in Retained Stockholders'
Issued Amount Capital Earnings Equity
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1994 4,882,214 $48,822 $11,541,452 $ 26,329,221 $ 37,919,495
Issuance of common stock
in connection with
employee stock options 34,750 348 208,152 -- 208,500
Net (loss) -- -- -- (11,263,482) (11,263,482)
-------------------------------------------------------------
Balance, September 30, 1995 4,916,964 9,170 11,749,604 15,065,739 26,864,513
Issuance of common stock
in connection with
employee stock options 6,500 65 38,935 -- 39,000
Net income -- -- -- 4,544,798 4,544,798
-------------------------------------------------------------
Balance, September 30, 1996 4,923,464 49,235 11,788,539 19,610,537 31,448,311
Issuance of common stock
in connection with
employee stock options 26,250 262 157,238 -- 157,500
Net income -- -- -- 4,684,562 4,684,562
-------------------------------------------------------------
Balance, September 30, 1997 4,949,714 $49,497 $11,945,777 $ 24,295,099 $ 36,290,373
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 4,684,562 $ 4,544,798 $(11,263,482)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:

Depreciation 3,930,933 3,837,646 3,459,317
Amortization 229,190 210,479 1,252,974
Loss on impairment of assets - - 4,466,478
(Gain) loss on sale of Bahamian
liquor operations - - 350,054
Deferred income taxes 1,062,000 1,056,000 (328,000)
Other (4,249) (31,465) (35,654)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables (360,722) (1,143,144) 3,477,892
Inventories (1,472,597) (1,249,730) 1,121,564
Other assets (221,600) 961,556 1,240,734
Increase (decrease) in:
Accounts payable (14,409) 398,848 (4,776,401)
Accrued interest expense 142,902 (20,194) 1,281,736
Other accrued expenses (358,939) (526,050) 360,142
Other liabilities (128,617) (134,493) 199,683
Discontinued operations, net of $207,057
of property and equipment in 1995 124,786 2,728,277 (2,853,063)
------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 7,613,240 10,632,528 (2,046,026)
------------------------------------------

(Continued)

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Investing Activities
Proceeds from sale of property and equipment $ 63,565 $ 76,762 $ 44,774
Principal payments received on
notes receivable 1,525,539 1,576,164 939,287
Purchase of property and equipment (3,775,112) (4,901,705) (7,155,626)
Disbursements for notes receivable (52,500) (62,070) (42,670)
Purchase of certificates of deposit -- (4,565,381) (4,584,434)
Redemption of certificates of deposit 4,494,375 4,655,440 --
(Increase) decrease in other assets (344,177) (279,190) 155,523
-----------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,911,690 (3,499,980) (10,643,146)
-----------------------------------------------
Cash Flows From Financing Activities
Net borrowings (payments) under line of
credit arrangements (5,438,538) (4,064,324) 10,124,244
Proceeds from issuance of common stock 157,500 39,000 208,500
Principal payments on long-term borrowings (1,933,334) (2,513,559) (2,130,571)
Disbursements for loan closing costs -- -- (458,382)
-----------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (7,214,372) (6,538,883) 7,743,791
-----------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,310,558 593,665 (4,945,381)
Cash and cash equivalents:
Beginning 2,594,246 2,000,581 6,945,962
-----------------------------------------------
Ending $ 4,904,804 $ 2,594,246 $ 2,000,581
-----------------------------------------------
-----------------------------------------------

Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest $ 4,003,420 $ 4,370,985 $ 3,699,296
-----------------------------------------------
-----------------------------------------------
Income taxes $ 344,347 $ 140,181 $ 1,090,897
-----------------------------------------------
-----------------------------------------------
Supplemental Schedule of Noncash Investing
and Financing Activities
Refinancing of long-term debt $ -- $ -- $ 34,000,000
-----------------------------------------------
-----------------------------------------------
Intangible assets exchanged for note
receivable $ -- $ -- $ 6,000,000
-----------------------------------------------
-----------------------------------------------

</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS: Todhunter International, Inc. and subsidiaries (the
"Company") produces citrus-based brandy, distilled spirits, rum and fortified
wine used as ingredients by producers of beverage alcohol; bottles coolers
and prepared cocktails and other beverages on a contract basis; and produces
a complete line of spirits. The Company also imports and markets beverage
alcohol and produces vinegar, cooking wine and other alcohol related
products. The Company sells its products throughout the United States and in
several foreign countries (See Note 12).

A summary of the Company's significant accounting policies follows:

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Todhunter International, Inc. and all of its
majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Investments in
business entities in which the Company does not have control, but has the
ability to exercise significant influence over operating and financial
policies (generally 20-50% ownership), are accounted for by the equity
method.

ACCOUNTING ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

REVENUE RECOGNITION: The Company recognizes revenue when its product is
shipped, at which time title passes to the customer. Revenues from
contract bottling services are recognized at the time the bottling process
is completed. Excise taxes on products sold are billed directly to
customers and are included in sales at the same time the product sold is
recognized as revenue.

CASH EQUIVALENTS: The Company considers certificates of deposit with an
original maturity of three months or less to be cash equivalents. The
Company maintains depository accounts in excess of FDIC insured limits.
The Company has not experienced any credit losses in such accounts and
does not anticipate any losses.

INVENTORIES: Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.

PROPERTY AND EQUIPMENT AND PROPERTY HELD FOR LEASE: Property and
equipment and property held for lease are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives of
the various classes of depreciable assets. Estimated lives are as follows:

YEARS
---------
Land improvements 3 to 20
Buildings and improvements 3 to 40
Machinery and equipment 3 to 33

FINANCIAL INSTRUMENTS: The Company utilizes derivative financial
instruments to change the fixed/variable interest rate mix of the debt
portfolio to reduce the Company's aggregate risk to movements in interest
rates. The derivative instruments consist of interest rate swap
agreements with banks. Gains and losses relating to qualified hedges are
deferred and included in the measurement of the related transaction, when
the hedged transaction occurs. Realized and unrealized changes in the
fair value of the remaining derivative financial instruments are
recognized in income in the period in which the change occurs. The
Company's policy is not to hold or issue derivative financial instruments
for trading purposes.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

AMORTIZATION: Amortization is computed on the straight-line basis over the
estimated lives of the capitalized assets. Estimated lives are as follows:

YEARS
---------
Goodwill 20 - 40
Trademarks 20 - 40
Other 3 - 12

IMPAIRMENT OF LONG-LIVED ASSETS: In accordance with FASB Statement No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF, the Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amounts of those assets.

INCOME TAXES: Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.

NET INCOME (LOSS) PER COMMON SHARE: The net income (loss) per common share
amounts are computed using the weighted average number of common shares
outstanding and dilutive common stock equivalents during the period.

PREFERRED STOCK: The Company has authorized 2,500,000 shares of $.01 par
value preferred stock. No terms are stated as to dividend, liquidation or
other rights applicable to these shares.

NOTE 2. INVENTORIES

The major components of inventories as of September 30, 1997 and 1996 are:

1997 1996
---------------------------
Finished goods $ 12,318,664 $ 12,032,447
Work in process 1,639,970 549,673
Raw materials and supplies 6,128,267 6,032,184
---------------------------
$ 20,086,901 $ 18,614,304
---------------------------
---------------------------

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. NOTES RECEIVABLE

Notes receivable consist of the following as of September 30, 1997 and 1996:

1997 1996
--------------------------

6% note, collateralized by general intangibles,
mortgage and security agreement, monthly payments
of $83,333 plus interest through September 2001 $ 3,916,667 $ 4,916,667

7% note, collateralized by property and equipment,
monthly principal and interest payments of
$47,202 through September 1999, unpaid principal
balance of $3,000,000 due in October 1999 3,663,393 3,961,936

7% - 10% notes, unsecured, maturities through
October 1998 121,142 318,141

Other 104,652 82,149
--------------------------
7,805,854 9,278,893

Less current maturities 1,435,868 1,510,389
--------------------------
$ 6,369,986 $ 7,768,504
--------------------------
--------------------------

NOTE 4. PROPERTY AND EQUIPMENT

The major classifications of property and equipment as of September 30, 1997
and 1996 are:

1997 1996
--------------------------
Land $ 4,757,587 $ 4,757,587
Land improvements 1,058,051 1,039,720
Buildings and improvements 15,287,175 14,184,693
Machinery and equipment 50,077,317 47,846,031
--------------------------
71,180,130 67,828,031
Less accumulated depreciation 28,236,376 24,705,488
--------------------------
$42,943,754 $43,122,543
--------------------------
--------------------------

NOTE. 5 PROPERTY HELD FOR LEASE

The major classifications of property held for lease as of September 30, 1997
and 1996 are:

1997 1996
--------------------------
Land $ 191,318 $ 191,318
Buildings 2,143,605 2,032,721
Furniture and equipment 93,136 93,136
--------------------------
2,428,059 2,317,175
Less accumulated depreciation 998,882 871,330
--------------------------
$ 1,429,177 $ 1,445,845
--------------------------
--------------------------

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 5. PROPERTY HELD FOR LEASE (CONTINUED)

Property held for lease consists of two commercial shopping centers and five
residential townhomes in the Bahamas. The properties are leased on a
month-to-month basis. Total rental income was $236,193, $234,882, and
$276,375 for the years ended September 30, 1997, 1996 and 1995, respectively.

NOTE 6. OTHER ASSETS

Other assets, net of accumulated amortization, consist of the following as of
September 30, 1997 and 1996:

1997 1996
----------------------------
Trademarks $ 1,076,048 $ 1,116,248
Other 1,040,520 871,803
----------------------------
$ 2,116,568 $ 1,988,051
----------------------------
----------------------------

NOTE 7. FINANCING ARRANGEMENTS

Long-term debt consists of the following as of September 30, 1997 and 1996:

1997 1996
----------------------------
Senior notes, interest payable semiannually
at 8.905%, principal payments of $6,800,000
on October 30, 1999, $7,933,333 on October 30,
2000 and 2001, $4,533,334 on October 30, 2002
and $3,400,000 on October 30, 2003 and 2004,
unsecured (1) $ 34,000,000 $ 34,000,000
Revolving credit note of $20,000,000, interest
payable monthly at the prime rate for domestic
loans and at 1.50% above the one month London
Interbank Offered Rate ("LIBOR") for Eurodollar
loans, principal is due in full November 1,
1999. The maximum amount which can be drawn on
the revolving note is based on the borrowing
base as specified in the agreement, unsecured 4,246,947 9,685,485
Bank note payable, interest is calculated based
upon a floating rate of 2.50% above the one
month LIBOR rate, quarterly principal payments
of $250,000 collateralized by real property,
equipment, machinery and trade receivables in
the Virgin Islands (2) 5,000,000 6,750,000
Note payable, interest at 6%, principal and
interest payments required through 1999 2,825,877 2,825,877
Note payable, interest at the prime rate,
monthly principal payments of $16,667 - 183,334
----------------------------
46,072,824 53,444,696
Less current maturities 2,937,744 2,152,206
----------------------------
$ 43,135,080 $ 51,292,490
----------------------------
----------------------------

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 7. FINANCING ARRANGEMENTS (CONTINUED)

Maturities of long-term debt as of September 30, 1997 are as follows:

Year Ending
September 30, Amount
- ----------------------------------------------------------------------------
1998 $ 2,937,744
1999 8,688,133
2000 13,180,280
2001 9,933,333
2002 4,533,334
Thereafter 6,800,000
-------------
$ 46,072,824
-------------
-------------

The Company uses interest rate swap agreements to change the fixed/variable
interest rate mix of the debt portfolio to reduce the Company's aggregate
risk to movements in interest rates. Amounts paid or received under interest
rate swap agreements are accrued as interest rates change and are recognized
over the life of the swap agreements as an adjustment to interest expense.
The related amounts payable to, or receivable from, the counterparties are
included in accrued interest expense. The fair value of the swap agreement
noted in (2) below was not recognized in the consolidated financial
statements since it is accounted for as hedge. The criteria required to be
met for hedge accounting is that a) the item to be hedged exposes the Company
to interest rate risk and b) the interest rate swap reduces that exposure and
is designated a hedge. The fair value and the related change in fair value
of the agreement noted in (1) below is not significant to the financial
statements. A summary of the interest rate swaps is as follows:

(1) The Company has entered into an interest rate swap agreement with a bank
calling for the Company to exchange, as of May 1 and November 1 through
2004, interest payment streams calculated on a principal balance
starting at $4,000,000 and reducing starting in November 1999. The
Company's interest is calculated based upon a floating rate of 1.06%
above the six-month LIBOR rate. The bank's rate is 8.905%. During 1997
and 1996, the Company received payments of $88,898 and $100,444,
respectively, related to this agreement, and reduced interest expense
accordingly.

(2) The Company has entered into an interest rate swap agreement accounted for
as a hedge with a bank. The agreement calls for the Company to
exchange, as of January 1, April 1, July 1, and October 1, through 2002,
interest payment streams calculated on a notional balance equal to the
principal balance of the bank note payable. The Company's rate is fixed
at 8.46%. During 1997 and 1996, the Company made payments of $27,327
and $27,332, respectively, related to this agreement, and increased
interest expense accordingly.

The long-term debt contains various restrictive covenants related to
fixed-charge coverage, interest expense coverage, net worth and debt
limitation. All covenants have been met as of and for the year ended
September 30, 1997.

During 1995, the Company recognized an extraordinary loss of $467,862, net of
income tax benefit of $251,927 on its early extinguishment of debt. This
loss relates to the write-off of unamortized deferred financing costs due to
the refinancing of long-term debt.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 8. INCOME TAXES

Income tax expense on income from continuing operations consists of the
following for the years ended September 30, 1997, 1996 and 1995:

1997 1996 1995
----------------------------------------
Current income tax expense (benefit):
Federal $ 224,764 $ 116,265 $ 485,636
State (27,472) 20,000 (32,827)
----------------------------------------
197,292 136,265 452,809
----------------------------------------
Deferred income tax expense:
Federal 926,000 978,000 586,883
State 136,000 78,000 21,000
----------------------------------------
1,062,000 1,056,000 607,883
----------------------------------------
Total income tax expense on income
from continuing operations $ 1,259,292 $ 1,192,265 $ 1,060,692
----------------------------------------
----------------------------------------

Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the deferred tax assets and liabilities relate to the following as of
September 30, 1997 and 1996:

1997 1996
--------------------------
Deferred tax liabilities:
Property and equipment, principally due
to differences in depreciation $ 3,627,000 $ 3,290,000
Installment sale 1,190,000 1,459,000
Other 35,000 35,000
--------------------------
4,852,000 4,784,000
--------------------------
Deferred tax assets:
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 620,000 531,000
Difference related to anticipated future
expenses and allowances 231,000 389,000
Net operating loss carryforwards 157,000 1,117,000
Other 154,000 119,000
--------------------------
1,162,000 2,156,000
--------------------------
Net deferred income tax liability $ 3,690,000 $ 2,628,000
--------------------------
--------------------------

No valuation allowance has been recorded as of September 30, 1997 and 1996.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------

NOTE 8. INCOME TAXES (CONTINUED)

Total income tax expense differed from the amounts computed by applying the
statutory United States federal income tax rate to income from continuing
operations before income taxes as a result of the following for the years ended
September 30, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 2,020,910 $ 1,950,602 $ 351,818
(Nontaxable) taxable income and dividends from
Bahamian subsidiary 80,881 (5,918) 777,455
Effect of income tax subsidy on earnings of
Virgin Islands operations (1,025,698) (767,571) (317,520)
Effect of state taxes 9,340 (6,800) 20,000
Other 173,859 21,952 228,939
--------------------------------------
Total income tax expense on income
from continuing operations $ 1,259,292 $ 1,192,265 $ 1,060,692
--------------------------------------
--------------------------------------

</TABLE>

Generally, the Bahamian subsidiary is not subject to United States income
taxes and there are no income taxes in the Commonwealth of the Bahamas.
Certain passive income of the Bahamian subsidiary is subject to United States
income taxes. In addition, the Internal Revenue Code provides for the
taxation of previously untaxed accumulated earnings and profits of foreign
corporations with excess passive assets earned during years ended September
30, 1994 through 1996. This law has been repealed effective for tax years
ending after September 30, 1996. Accordingly, the tax effect of income from
the Bahamian subsidiary reflected above and the undistributed earnings of the
Bahamian subsidiary have been reduced by the taxable amount. The Company's
share of the undistributed earnings of the Bahamian subsidiary was
approximately $8,500,000 as of September 30, 1997.

The Virgin Islands subsidiary, through the Industrial Development Commission
of the Government of the Virgin Islands of the United States, has received a
90% exemption from income taxes. This exemption is effective through January
31, 2002. The per share effect of this exemption on earnings was $0.20,
$0.15, and $0.06, for the years ended September 30, 1997, 1996 and 1995,
respectively.

With respect to the Bahamian and Virgin Islands subsidiary, no provision has
been made for taxes which would result from the remittance of such
undistributed earnings as the Company intends to reinvest these earnings
indefinitely.

The Company has available for tax reporting purposes net operating loss
carryforwards of approximately $415,000, which expire in 2010.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------

NOTE 9. LEASES

The Company occupies office space under noncancelable operating leases which
expire in 2006. Initial base rent is $31,069 through 2000 and increases to
$31,956, thereafter, payable monthly. The leases contain two renewal options
of five years each.

Future minimum lease payments under noncancelable operating leases as of
September 30, 1997 are as follows:

Year Ending
September 30, Amount
- -------------------------------------------------------------------------
1998 $ 383,473
1999 484,906
2000 443,185
2001 372,824
2002 380,811
Thereafter 1,656,017
------------
$ 3,721,216
------------
------------

Rent expense for office space (including the Company's share of common area
expenses, real estate and sales taxes) amounted to $324,005, $470,080, and
$504,432 for the years ended September 30, 1997, 1996 and 1995, respectively.

NOTE 10. LEGAL PROCEEDINGS

There are no material legal proceedings pending, or, to the knowledge of
management, threatened against the Company, except as set forth below.

ARBITRATION DEMAND AGAINST BLAIR IMPORTERS, LTD.: On November 13, 1995, the
Company filed an Arbitration Demand against the former stockholders of Blair
Importers, Ltd. ("Blair") arising out of the Company's acquisition of Blair
pursuant to an Agreement and Plan of Merger dated April 22, 1994, as amended
(the "Merger Agreement"). In the arbitration proceeding, the Company alleges
fraud and misrepresentation against the Respondents in connection with the
Merger Agreement and seeks damages in the amount of $11 million.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------

NOTE 10. LEGAL PROCEEDINGS (CONTINUED)

The Company's claims in arbitration and counterclaims of the respondents in
the arbitration have not yet been heard by an arbitration panel. The parties
have not completed discovery on their claims. On December 4, 1997, pursuant
to the Settlement (as defined below), the parties agreed to a temporary stay
of discovery and to enter into non-binding mediation of their claims.
Because discovery is not complete, the Company cannot presently evaluate the
likely outcome of this arbitration proceeding, but it intends to vigorously
pursue its claims and believes that it has substantial defenses to any claims
asserted against it.

BLAIR LITIGATION: On November 21, 1995, the former Blair stockholders and
Charmer Industries, Inc. ("Charmer") commenced a proceeding against the
Company and Blair in the Supreme Court of the State of New York, County of
New York, alleging that the sale of certain assets of Blair to David Sherman
Corp. constituted an "Early Payment Event," accelerating all remaining
payments under the Note. Plaintiffs in this action seek judgment for the
balance (with interest) remaining under a note in the principal amount of
$4,844,361 executed by Blair and guaranteed by the Company, which was payable
to the former Blair stockholders and Charmer in connection with the
acquisition of Blair.

On December 4, 1997, the parties agreed to a settlement of this action (the
"Settlement") pursuant to which the Company would make an initial payment of
principal of $1,130,351 and monthly installment payments through August 1999
of principal in the aggregate amount of approximately $1,695,526, all with
interest at the rate of 7.5% per year. In accordance with this Settlement,
the parties to the Arbitration Demand, the Loewenwarter Litigation (set forth
below) and the Charmer Litigation (set forth below) also agreed to a
temporary stay of all proceedings in such related actions, in order to
provide an opportunity for the parties to settle their claims through
non-binding mediation.

LOEWENWARTER LITIGATION: The Company has brought suit in the Supreme Court
of the State of New York, County of New York, against the accounting firm of
Ernest D. Loewenwarter & Co. alleging accounting malpractice and fraud
arising out of the acquisition of Blair. The Company seeks $10 million in
damages. The defendant has filed an answer dated February 21, 1997 and
discovery has commenced. On December 4, 1997, as part of the Settlement, the
parties agreed to a temporary stay of discovery until March 30, 1998.

CHARMER LITIGATION: On April 10, 1997, the Company filed suit in the Supreme
Court of New York, County of New York, against Charmer and Andrew M. Crisses,
a former director of the Company and former legal counsel to Blair. The
Company's suit alleges, among other things, breach of fiduciary duty,
negligent misrepresentation and fraud against Crisses, and negligent
misrepresentation and fraud against Charmer. The Company seeks unspecified
monetary damages in excess of $11 million. The defendants have not responded
to this complaint. On October 16, 1997, the Court stayed the proceedings of
this litigation pending the outcome of the Arbitration Demand.

Management does not believe that the outcome of the pending legal proceedings
will have a material adverse effect on the Company's financial statements
taken as a whole.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. STOCK OPTION PLAN

On August 11, 1992, the Company adopted a stock option plan for the grant of
options to key employees. Option prices may not be less than 85% for the
nonqualified options or 100% for the qualified stock options of the fair
market value at the date of the grant. As of September 30, 1997, 1,400,000
shares are authorized for issuance under the option plan. Options granted
under this plan have vesting periods ranging from 3 to 5 years. During the
years ended September 30, 1997, 1996 and 1995, the Company received a total
of $157,500, $39,000, and $208,500 upon the exercise of stock options for
26,250, 6,500, and 34,750 shares, respectively.

The Company applies Accounting Principles Board Opinion Number 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related Interpretations in
accounting for this plan which requires compensation expense for the
Company's options to be recognized only if the market price of the underlying
stock exceeds the exercise price on the date of grant. Accordingly, the
Company has not recognized compensation expense for its options granted in
1995, 1996, and 1997. SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
issued in October 1995, requires pro forma disclosures for option grants made
after December 31, 1994, when accounting for stock-based compensation plans
in accordance with APB 25.

If the Company had elected, beginning in fiscal 1996, to recognize
compensation cost based on the fair value of the options granted at grant
date as prescribed by SFAS No. 123, net income and earnings per common share
would have been reduced to the pro forma amounts shown below:

1997 1996
- --------------------------------------------------------------------------------
Net income - as reported $ 4,684,562 $ 4,544,798
Net income - pro forma 4,602,805 4,463,041
Earnings per common share - as reported (Fully diluted) 0.94 0.91
Earnings per common share - pro forma (Fully diluted) 0.92 0.89

The pro forma effects are determined as if compensation costs were recognized
using the fair value based accounting method. The fair value of each option
grant during 1996 was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk free interest rate
of 6.3%; expected lives of 10 years; expected volatility of 31%; and a zero
percent dividend yield.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. STOCK OPTION PLAN (CONTINUED)

A reconciliation of the Company's stock option activity, and related
information, for the years ended September 30 follows:

1997 1996 1995
------------------------------------------------------------------
EXERCISE Exercise Exercise
NUMBER PRICE Number Price Number Price
OF WEIGHTED of Weighted of Weighted
OPTIONS AVERAGE Options Average Options Average
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 402,750 $ 9.57 321,750 $ 9.89 356,500 $ 9.51
Granted - - 87,500 8.13 - -
Exercised (26,250) 6.00 (6,500) 6.00 (34,750) -
Forfeited (84,500) 10.81 - - - -
------------------------------------------------------------------
Outstanding, end of year 292,000 $ 9.53 402,750 $ 9.57 321,750 $ 9.89
------------------------------------------------------------------
------------------------------------------------------------------
Exercisable at end of year 239,500 $ 9.83 216,084 $ 10.03 88,417 $ 10.71
------------------------------------------------------------------
------------------------------------------------------------------

</TABLE>

The following table summarizes information about the stock options at
September 30, 1997:

NUMBER NUMBER
OUTSTANDING AT EXERCISABLE AT
SEPTEMBER 30, SEPTEMBER 30, EXPIRATION
EXERCISE PRICE 1997 1997 DATE
- --------------------------------------------------------------------------------
$ 6.000 69,500 69,500 November 2002
12.250 135,000 135,000 April 2004
8.125 87,500 35,000 February 2006
------------------------------------
292,000 239,500
------------------------------------
------------------------------------

NOTE 12. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

The Company has made net sales of approximately $6,950,000, $11,060,000, and
$12,100,000 to a certain customer for the years ended September 30, 1997,
1996 and 1995, respectively. Included in trade receivables was $216,000 from
this customer as of September 30, 1997.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (CONTINUED)

Sales and operating income from continuing operations for the years ended
September 30, 1997, 1996, and 1995 and identifiable assets from continuing
operations as of the end of each period classified by geographic area, were
as follows:

U.S. VIRGIN
ISLANDS AND
UNITED STATES THE BAHAMAS CONSOLIDATED
------------------------------------------------------
September 30, 1997:
Net sales $ 64,865,688 $ 13,072,561 $ 77,938,249
Operating income 5,350,994 2,967,772 8,318,766
Identifiable assets 63,300,335 32,318,120 95,618,455

September 30, 1996:
Net sales 66,052,948 12,143,584 78,196,532
Operating income 5,673,351 2,613,100 8,286,451
Identifiable assets 64,030,346 34,283,731 98,314,077

September 30, 1995:
Net sales 60,713,673 9,477,488 70,191,161
Operating income 1,769,150 2,258,875 4,028,025
Identifiable assets 65,909,593 31,876,124 97,785,717

Included in net sales for the United States are export sales, primarily to
Eastern Europe and the Carribean, totaling approximately $8,900,000,
$7,200,000 and $6,500,000 for the years ended September 30, 1997, 1996 and
1995.

NOTE 13. PENSION PLAN

The Company has a defined contribution retirement plan which covers
substantially all U. S. employees. Contributions to the plan were
approximately $508,000, $456,000, and $462,000 for the years ended September
30, 1997, 1996 and 1995, respectively. The Company contributes 6.0% of an
employee's total compensation, plus 5.5% of compensation in excess of the
social security tax wage base. Employee's compensation in excess of $150,000
shall be disregarded in determining the Company's contribution. Generally,
contributions to the plan begin to vest to the benefit of the participant
after three years of service. Participants are entitled, upon retirement, to
their vested portion of the retirement fund assets, which are held by a
corporate trustee.

NOTE 14. INVESTMENT IN PREMIER WINE & SPIRITS, LTD.

In 1997, the Company acquired a 45% interest in Premier Wine & Spirits, Ltd.,
a newly formed wholesale liquor distributor in the United States Virgin
Islands, for $450,000. This investment is being accounted for using the
equity method. The Company had sales to Premier of approximately $296,000 for
the year ended September 30, 1997. This amount is included in trade
receivables as of September 30, 1997.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 15. DISCONTINUED OPERATIONS

During July 1995, the Company decided to discontinue the operations of
Todhunter Imports, Ltd., formerly known as Blair Importers, Ltd. and sold
assets consisting of certain trademarks and inventory in September 1995. In
1997, the operations of Todhunter Imports, Ltd. were completely discontinued.

Revenues and interest expense allocated to the discontinued operations were
as follows:

Year Ended Interest
September 30, Revenues Expense
- -------------------------------------------------------------------------------
1997 $ 424,990 $ --
1996 493,994 201,605
1995 22,352,924 1,102,413

Interest expense was allocated based on financed inventory and receivable
balances.

Included in the loss on disposal of discontinued operations for 1995 is a
$4,466,478 loss on impairment of assets, which relates to goodwill written
off as a result of the discontinued operations. Also, included in the loss
on disposal of discontinued operations is a gain on sale of intangible assets
of $119,844, resulting from the sale of trademarks of the discontinued
operations.

NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:

The carrying amounts approximate fair values as of September 30, 1997 and
1996 for cash and cash equivalents, certificates of deposit, trade
receivables, other receivables and accounts payable because of the
short-term maturities of those instruments.

NOTES RECEIVABLE: The fair value of the Company's notes receivable has
been determined based on available market information and management's
estimate of current market conditions of similar instruments.

LONG-TERM DEBT: The fair value of the Company's long-term debt is
estimated based on the current rates offered to the Company for debt of
the same remaining maturities with similar collateral requirements.

Carrying Amount Fair Value
1997 1996 1997 1996
---------------------------------------------------
Financial assets:
Notes receivable $ 7,805,854 $ 9,278,893 $ 7,650,596 $ 9,161,449
Financial liabilities:
Long-term debt, including
interest rate swaps 46,072,824 53,444,696 47,958,078 55,628,630

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 17. EARNINGS (LOSS) PER COMMON SHARE

Primary earnings per common share are calculated by dividing net income
(loss) by the average common stock outstanding and common stock equivalents
assuming the exercise of stock options at an average market price. On a
fully diluted basis, shares outstanding are adjusted to assume the exercise
of stock options at the higher of average or ending market price.

1997 1996 1995
---------------------------------------------
Net income (loss) $ 4,684,562 $ 4,544,798 $(11,263,482)
---------------------------------------------
---------------------------------------------
Determination of shares:
Weighted average number of
common shares outstanding 4,943,169 4,919,060 4,905,998
Shares issuable on exercise of
stock options, net of shares
assumed to be repurchased 51,769 50,376 *
---------------------------------------------
Average common shares outstanding
for fully diluted computation 4,994,938 4,969,436 4,905,998
---------------------------------------------
---------------------------------------------
Earnings (loss) per common share:
Primary $ 0.94 $ 0.92 $ (2.30)
Fully diluted 0.94 0.91 (2.30)

*Shares not included in computation since effect is anti-dilutive.

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarter First Second Third Fourth
- -------------------------------------------------------------------------------
(In thousands, except per share and gross margin data)
1997
Net sales $ 18,915 $ 17,437 $ 22,123 $ 19,463
Gross profit 4,954 5,116 6,085 5,290
Gross margin 26.2 % 29.3 % 27.5 % 27.2 %
Net income 1,261 923 1,487 1,014
Net income per share,
fully diluted 0.25 0.19 0.30 0.20
1996
Net sales $ 19,027 $ 19,638 $ 19,189 $ 20,343
Gross profit 5,089 5,587 4,962 4,131
Gross margin 26.7 % 28.4 % 25.9 % 20.3 %
Net income 1,491 1,382 1,169 503
Net income per share,
fully diluted 0.30 0.28 0.24 0.09
1995
Net sales $ 16,687 $ 15,065 $ 20,530 $ 17,909
Gross profit 4,484 4,464 4,622 2,057
Gross margin 26.9 % 29.6 % 22.5 % 11.5 %
Income (loss) from
continuing operations 1,062 1,125 1,034 (3,276)
Net income (loss) 1,500 895 368 (14,026)
Per share data, fully diluted:
Income (loss) from
continuing operations 0.21 0.23 0.20 (0.65)
Net income (loss) 0.30 0.18 0.07 (2.85)

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 19. INTERNAL REVENUE SERVICE EXAMINATION

The Company's 1992 through 1994 Federal Income tax returns are currently
under examination by the Internal Revenue Service. No accrual has been made
in the financial statements since any ultimate liability cannot be reasonably
estimated. Any ultimate liability is not expected to be material to the
Company's financial statements.

NOTE 20. RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 128, EARNINGS PER
SHARE ("EPS"), which simplifies existing computational guidelines, revises
disclosure requirements, and increases the comparability of earnings per
share on an international basis. Management does not believe there will be a
material effect on the Company's EPS, based on the application of this
pronouncement. SFAS No. 128 is effective for periods ending after December
15, 1997 and requires restatement of all prior period EPS data presented.
The Company will adopt SFAS No. 128 in its first quarter of fiscal year 1998.

In June 1997, the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on
the management approach to segment reporting, establishes requirements to
report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenue. Management
has not yet evaluated the effects of this changes on its reporting of segment
information. The Company will adopt SFAS No. 131 in its fiscal year 1999.

<PAGE>

INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
Todhunter International, Inc.
West Palm Beach, Florida

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
financial statement schedule II for the years ended September 30, 1997, 1996,
and 1995 is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.

McGLADREY & PULLEN, LLP

West Palm Beach, Florida
December 2, 1997, except for
Note 10 as to which the date is
December 4, 1997

<PAGE>

TODHUNTER INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DISCONTINUED OPERATIONS

YEAR ENDED SEPTEMBER 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of period . . . . . . . . . . $ 680,744 $ 2,250,000 $ --
Additional charged to expense. . . . . . . . . -- -- 2,250,000
Deductions resulting from realization of
losses and expenses for discontinued
operations which were previously
charged to expense . . . . . . . . . . . . . (680,744) (1,569,256) --
------------ ------------ ------------
Balance, end of period . . . . . . . . . . . . . $ -- $ 680,744 $ 2,250,000
------------ ------------ ------------
------------ ------------ ------------

</TABLE>

<PAGE>

TODHUNTER INTERNATIONAL, INC.
INDEX TO EXHIBITS

2.1 Subscription Agreement dated as of January 5, 1994 between
Todhunter International, Inc. and Virgin Islands Rum Industries,
Ltd. (2)
2.2 Stock Purchase Agreement dated as of January 5, 1994 between
Virgin Islands Rum Industries, Ltd. and VI Acquisition
Partnership (2)
2.3 Agreement and Plan of Merger dated as of April 22, 1994 by and
among Todhunter International, Inc., Todhunter Acquisition, Inc.,
Blair Importers, Ltd. and the Stockholders of Blair Importers,
Ltd. (3)
2.4 Agreement dated August 31, 1994 between Todhunter-Mitchell and
Company Limited and Todhunter-Mitchell Distilleries Limited. (4)
2.5 Agreement of Purchase and Sale of Assets dated September 21, 1995
between Todhunter International, Inc. and David Sherman
Corporation (11)
3.1 Amended and Restated Certificate of Incorporation of Todhunter
International, Inc. (1)
3.2 Amended and Restated By-Laws of Todhunter International, Inc. (17)
4.1 Form of Todhunter International, Inc. Common Stock Certificate (1)
10.1 Amended and Restated Loan Agreement, dated as of November 22,
1991, among Todhunter International, Inc., First Union Commercial
Corporation, First Union National Bank of Florida and Sun
Bank/South Florida, National Association (1)
10.1(a) Second Amended and Restated Loan Agreement between Todhunter
International, Inc. and First Union National Bank of Florida
dated as of October 13, 1993 (5)
10.1(b) First Amendment to Second Amended and Restated Loan Agreement
dated as of January 31, 1994, among Todhunter International,
Inc., A. Kenneth Pincourt, Jr. and First Union National Bank of
Florida (6)
10.1(c) Second Amendment to Second Amended and Restated Loan Agreement
dated as of August 4, 1994, among Todhunter International, Inc.,
A. Kenneth Pincourt, Jr. and First Union Bank of Florida (7)
10.1(d) Third Amendment to Second Amended and Restated Loan Agreement
dated as of September 26, 1994, among Todhunter International,
Inc., A. Kenneth Pincourt, Jr. and First Union Bank of Florida (8)
10.2 Bulk Malt Purchase Agreement, dated as of September 25, 1991,
between Todhunter International, Inc. and Joseph E. Seagram &
Sons, Inc. (1)
10.3 Cooler Production Agreement dated as of October 15, 1987, between
Todhunter International, Inc. and Joseph E. Seagram & Sons, Inc.,
as amended May 1, 1990 and August 27, 1991 (1)
10.4 Agreement, dated October 1, 1990, among Todhunter International,
Inc., Bacardi Imports, Inc. and Castleton Beverage Corporation,
as amended by an Amendment dated December 12, 1991 (1)
10.5 Letter Agreement, dated August 11, 1992, between Todhunter
International, Inc. and A. Kenneth Pincourt, Jr. (1)
10.6 Todhunter International, Inc. 1992 Stock Option Plan, as amended (19)
10.7 Todhunter International, Inc. Defined Contribution Pension Plan (1)
10.8 Lease, dated March 24, 1988, as amended, between Todhunter
International, Inc. and Especially West Palm Beach, Inc. (1)
10.9 Sublease dated June 6, 1994, between SunBank/South Florida,
National Association and Todhunter International, Inc. (8)
10.10 Loan Agreement dated as of January 31, 1994, between Virgin
Islands Rum Industries, Ltd. and First Union National Bank of
Florida (8)
10.10(a) Modification of Loan Agreement dated as of January 5, 1996,
amending Loan Agreement dated January 31, 1994 (13)
10.11 Loan Agreement dated as of August 4, 1994, among Todhunter
International, Inc., Blair Importers, Ltd. and certain banks (8)
10.12 Guaranteed Subordinated Note Agreement dated as of August 4,
1994, among Todhunter International, Inc., Blair Importers, Ltd.,
Charmer Industries, Inc. and certain shareholders thereof (3)
10.13 Note Purchase Agreement dated as of October 30, 1994, among
Todhunter International, Inc., Blair Importers, Ltd. and certain
purchasers (8)
10.13(a) First Amendment Agreement and Waiver dated as of February 1,
1996, amending Note Purchase Agreement dated as of October 30,
1994 (14)
10.14 Loan Agreement dated as of November 22, 1994, among Todhunter
International, Inc., Blair Importers, Ltd. and First Union
National Bank of Florida (8)

<PAGE>

10.14(a) Modification of Loan Agreement dated as of February 26, 1996,
amending Loan Agreement dated as of November 22, 1994 (14)
10.14(b) Modification of Loan Agreement dated as of August 19, 1996,
amending Loan Agreement dated as of November 22, 1994, as amended
(15)
10.14(c) Third Modification of Loan Agreement dated as of December 18,
1996, amending Loan Agreement dated as of November 22, 1994, as
amended (16)
10.15 Note dated December 30, 1994, between Todhunter International,
Inc. and First Union National Bank of Florida (9)
10.16 Note dated April 28, 1995, between Todhunter International, Inc.
and First Union National Bank of Florida (10)
10.17 Amended and Restated Employment Agreement dated as of July 31,
1995, between Todhunter International, Inc. and Jay S. Maltby (12)
11.1 Statement of Computation of Per Share Earnings (18)
21.1 Subsidiaries of Todhunter International, Inc. (12)
23.1 Consent of McGladrey & Pullen, LLP (19)
24.1 Powers of Attorney (19)
27.1 Financial Data Schedule (19)

(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (File No. 33-50848).

(2) Incorporated herein by reference to the Company's Current Report on
Form 8-K for February 4, 1994, as amended.

(3) Incorporated herein by reference to the Company's Current Report on
Form 8-K for August 5, 1994, as amended.

(4) Incorporated herein by reference to the Company's Current Report on
Form 8-K for August 31, 1994, as amended.

(5) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for quarter ended December 31, 1993, as amended.

(6) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for quarter ended March 31, 1994, as amended.

(7) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for quarter ended June 30, 1994, as amended.

(8) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1994.

(9) Incorporated herein by reference to the Company Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995.
(10) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.

(11) Incorporated herein by reference to the Company's Current Report on
Form 8-K for September 21, 1995.

(12) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1995.

(13) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1995.

<PAGE>

(14) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.

(15) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the quarter ended March 31, 1996.
(16) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996.

(17) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.

(18) Filed herewith and incorporated herein by reference to Note 18 of
notes to consolidated financial statements, included in Item 14 of the
Company's Annual Report on Form 10-K for the year ended September 30,
1997.

(19) Filed herewith.

<PAGE>

TODHUNTER INTERNATIONAL, INC.
1992 EMPLOYEE STOCK OPTION PLAN, AS AMENDED

1. PURPOSE. This 1992 Employee Stock Option Plan (the "Plan") is
intended to provide incentives: (a) to the officers and other employees
(including officers and employees that may be directors) of TODHUNTER
INTERNATIONAL, INC. (the "Company"), and any present or future subsidiaries of
the Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code") ("ISO" and "ISOs");
(b) to officers, employees (including officers and employees that may be
directors) and consultants of the Company and Related Corporations by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which do not qualify as ISOs ("Non-Qualified Option" or
"Non-Qualified Options"); and (c) to officers, employees (including officers
and employees that may be directors) and consultants of the Company and Related
Corporations by providing them with stock appreciation rights with respect to
options granted hereunder ("Stock Appreciation Rights"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options". Options and Stock Appreciation Rights are referred
to hereafter collectively as "Stock Rights". As used herein, the terms "parent"
and "subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.

2. ADMINISTRATION OF THE PLAN.

A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered by
the Board of Directors of the Company (the "Board") or by a committee appointed
by the Board (the "Committee"); PROVIDED, that to the extent required by Rule
16b-3 of the Securities and Exchange Commission ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect
to specific grants of Stock Rights approved by a committee of the Board of
Directors, such committee shall be comprised solely of two or more Non-Employee
Directors, as defined in paragraph 2.C. hereof. Hereinafter, all references in
this Plan to the "Committee" shall mean the Board if no Committee has been
appointed. Subject to ratification of the grant or authorization of each Stock
Right by the Board (if so required by applicable law), and subject to the terms
of the Plan, the Committee shall have the authority to (i) determine the
employees of the Company and Related Corporations (from among the class of
employees eligible under paragraph 3 to receive ISOs) to whom ISOs may be
granted, and to determine (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options and Stock
Appreciation Rights) to whom Non-Qualified Options, may be granted; (ii)
determine the time or times at which Stock Rights may be granted; (iii)
determine the option price of shares subject to each Option, which price shall
not be less than the minimum price specified in paragraph 6; (iv) determine
whether each Option granted shall be an ISO or a Non-Qualified Option; (v)
determine (subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi) determine
whether

<PAGE>

restrictions such as repurchase options are to be imposed on shares subject to
Options and the nature of such restrictions, if any, and (vii) interpret the
Plan and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO.
The interpretation and construction by the Committee of any provisions of the
Plan or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem necessary or
desirable. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Stock Right granted under it.

B. COMMITTEE ACTIONS. The Committee, if appointed, shall consist solely
of two or more Non-Employee Directors. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and places as it
may determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. From time to time the Board may increase the size
of the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.

C. NON-EMPLOYEE DIRECTORS. For purposes of the Plan, "Non-Employee
Director" shall be defined as any director of the Company who (i) is not
currently an officer of the Company or any of its parents or any Related
Corporation, or otherwise is not currently employed by the Company or any of its
parents or any Related Corporation; (ii) does not receive compensation, either
directly or indirectly, from the Company or any of its parents or any Related
Corporation, for services rendered as a consultant or in any capacity other than
as a director, except for an amount that does not exceed the dollar amount for
which disclosure would be required pursuant to Item 404(a) of Regulation S-K
promulgated under the Exchange Act; (iii) does not possess an interest in any
other transaction for which disclosure would be required pursuant to Item 404(a)
of Regulation S-K promulgated under the Exchange Act; and (iv) is not engaged in
a business relationship for which disclosure would be required pursuant to Item
404(b) of Regulation S-K promulgated under the Exchange Act.

3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any employee or officer (whether or not also a director) or
consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.

4. STOCK. The stock subject to Options shall be authorized but unissued
shares of Common Stock of the Company, par value $.01 per share (the "Common
Stock"), or shares of

<PAGE>

Common Stock reacquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan is 1,400,000, subject to
adjustment as provided in paragraph 13. Any such shares may be issued as ISOs
or Non-Qualified Options, or to persons or entities making Purchases, so long
as the number of shares so issued does not exceed such number, as adjusted. If
any Option granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject to such Options
shall again be available for grants of Stock Rights under the Plan.

5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time after the effective date of the Registration Statement relating to
the Company's public offering to be completed in October 1992 (the "Public
Offering") and prior to August 10, 2002. The date of grant of a Stock Right
under the Plan will be the date specified by the Committee at the time it grants
the Stock Right; provided, however, that such date shall not be prior to the
date on which the Committee acts to approve the grant. The Committee shall have
the right, with the consent of the optionee, to convert an ISO granted under the
Plan to a Non-Qualified Option pursuant to paragraph 16.

6. MINIMUM OPTION PRICE; ISO LIMITATIONS; OPTIONS GRANTED TO DIRECTORS.

A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted under
the Plan shall in no event be less than the greater of (i) Eighty-five percent
(85%) of the fair market value per share of Common Stock on the date of such
grant, or if such Option is granted prior to October 1, 1995, (ii) the public
offering price per share of the Common Stock in the Public Offering (the "Public
Offering Price").

B. PRICE FOR ISOS The exercise price per share specified in the agreement
relating to each ISO granted under the Plan shall not be less than the greater
of (i) fair market value per share of Common Stock on the date of such grant or,
if such Option is granted prior to October 1, 1995, (ii) the Public Offering
Price. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Related Corporation, the price per share
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock on
the date of grant.

C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related Corporation, such
ISOs do not become exercisable for the first time by such employee during any
calendar year in a manner which would entitle the employee to purchase more than
$100,000 in fair market value (determined at the time the ISOs were granted) of
Common Stock in that year. Any options granted to an employee in excess of such
amount will be granted as Non-Qualified Options.

D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
granted under the

<PAGE>

Plan, the Company's Common Stock is publicly traded, "fair market value" shall
be determined as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such Option is
granted and shall mean (i) the average (on that date) of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market List, if the Common
Stock is not then traded on a national securities exchange; or (iii) the
closing bid price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ National Market List. However, if the
Common Stock is not publicly traded at the time an Option is granted under the
Plan, "fair market value" shall be deemed to be the fair value of the Common
Stock as determined by the Committee after taking into consideration all
factors which it deems appropriate, including, without limitation, recent sale
and offer prices of the Common Stock in private transactions negotiated at
arm's length.

7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 6, 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 6, 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.

8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:

A. VESTING. The Option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify.

B. Full Vesting of Installments. Once an installment becomes exercisable
it shall remain exercisable until expiration or termination of the Option,
unless otherwise specified by the Committee.

C. Partial Exercise. Each Option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable.

D. Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise of any installment of any Option; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any Option granted to any employee as an
ISO (and not previously converted into a Non-Qualified Option pursuant to
paragraph 16) if such acceleration would violate the annual vesting limitation
contained in

<PAGE>

Section 422(d) of the Code, as described in paragraph 6(C).

9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.

10. DEATH; DISABILITY.

A. DEATH. If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he could
have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the earlier of the specified
expiration date of the ISO or 180 days from the date of the optionee's death.

B. DISABILITY. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his disability, he shall have the
right to exercise any ISO held by him on the date of termination of employment,
to the extent of the number of shares with respect to which he could have
exercised it on that date, at any time prior to the earlier of the specified
expiration date of the ISO or 180 days from the date of the termination of the
optionee's employment. For the purposes of the Plan, the term "disability" shall
mean "permanent and total disability" as defined in Section 22(e)(3) of the Code
or successor statute.

11. ASSIGNABILITY. No Option shall be assignable or transferable by the
optionee except (a) by will or by the laws of descent and distribution,
(b) pursuant to a qualified domestic relations order as defined by the Code or
rules promulgated thereunder, or (c) pursuant to Title I of the Employment
Retirement Income Security Act of 1974, as amended or rules promulgated
thereunder. During the lifetime of the optionee, each Option shall be
exercisable only by him or by his permitted assignee.

12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which

<PAGE>

need not be identical) in such forms as the Committee may from time to time
approve. Such instruments shall conform to the terms and conditions set forth
in paragraphs 6 through 11 hereof and may contain such other provisions as the
Committee deems advisable which are not inconsistent with the Plan, including
restrictions applicable to shares of Common Stock issuable upon exercise of
Options. In granting any Non-Qualified Option, the Committee may specify that
such Non-Qualified Option shall be subject to the restrictions set forth herein
with respect to ISOs, or to such other termination and cancellation provisions
as the Committee may determine. The Committee may from time to time confer
authority and responsibility on one or more of its own members and/or one or
more officers of the Company to execute and deliver such instruments. The
proper officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of such
instruments.

13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:

A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.

B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated with
or acquired by another entity, in a merger, reverse merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board") shall, with respect to outstanding
Options, take one or more of the following actions: (i) make appropriate
provision for the continuation of such Options by substituting on an equitable
basis for the shares then subject to such Options the consideration payable with
respect to the outstanding shares of Common Stock in connection with the
Acquisition; (ii) accelerate the date of exercise of such Options or of any
installment of any such Options; (iii) upon written notice to the optionees,
provide that all Options must be exercised, to the extent then exercisable,
within a specified number of days of the date of such notice, at the end of
which period the Options shall terminate; or (iv) terminate all Options in
exchange for a cash payment equal to the excess of the fair market value of the
shares subject to such Options (to the extent then exercisable) over the
exercise price thereof. In the event an Optionee's employment is terminated
within twelve (12) months of a consolidation or merger, the Committee or the
Board of Directors of any entity assuming the obligations of the Company
hereunder may provide for the automatic vesting of any cash payment program
implemented in replacement of such Option.

C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to

<PAGE>

the outstanding shares of Common Stock, an optionee upon exercising an Option
shall be entitled to receive for the purchase price paid upon such exercise the
securities he would have received if he had exercised his Option prior to such
recapitalization or reorganization.

D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only
after the Committee, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs (as that
term is defined in Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification of such
ISOs, it may refrain from making such adjustments.

E. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, each Option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.

F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.

G. FRACTIONAL SHARES. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.

H. ADJUSTMENTS. Upon the happening of any of the foregoing events
described in subparagraphs A, B or C above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.

If any person or entity owning restricted Common Stock obtained by exercise of a
Stock Right made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such restricted Common Stock, such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or cash
were issued, unless otherwise determined by the Committee or the Successor
Board.

14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price

<PAGE>

therefor either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having
a fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right, or (c) at the discretion of the Committee, by
delivery of the grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Code, or (d) at the discretion of the
Committee, by any combination of (a), (b) and (c) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c), or (d) of the preceding
sentence, such discretion shall be exercised in writing at the time of the
grant of the ISO in question. The holder of a Stock Right shall not have the
rights of a shareholder with respect to the shares covered by his Stock Right
until the date of issuance of a stock certificate to him for such shares.
Except as expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends
or similar rights for which the record date is before the date such stock
certificate is issued.

15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board and
stockholders of the Company on August 11, 1992. The Plan shall expire on
August 11, 2002 (except as to Options outstanding on that date). Except as
provided for in paragraph 6(E) above, the Board may terminate or amend the Plan
in any respect at any time, except that, without the approval of the
stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the benefits accruing
to participants under the Plan may not be materially increased, including
modification of the provisions of paragraph 6(B) regarding the exercise price at
which shares may be offered pursuant to ISOs (except by adjustment pursuant to
paragraph 13); (b) the total number of shares that may be issued under the Plan
may not be materially increased (except by adjustment pursuant to paragraph 13);
(c) the provisions of paragraph 3 regarding eligibility for grants of ISOs may
not be materially modified; and (d) the expiration date of the Plan may not be
extended. Except as otherwise provided in this paragraph 15, in no event may
action of the Board or stockholders alter or impair the rights of a grantee,
without his consent, under any Stock Right previously granted to him.

16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the Optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.

<PAGE>

17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.

18. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.

19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the exercise of a Stock Appreciation Right, the making of
a Disqualifying Disposition (as defined in paragraph 20) or the vesting of
restricted Common Stock acquired on the exercise of a Stock Right hereunder, the
Company, in accordance with Section 3402(a) of the Code, may require the
optionee, Award recipient or purchaser to pay additional withholding taxes in
respect of the amount, that is considered compensation includable in such
person's gross income. The Committee in its discretion may condition (i) the
exercise of an Option, (ii) the grant of an Award, (iii) the making of a
Purchase of Common Stock for less than its fair market value, or (iv) the
vesting of restricted Common Stock, acquired by exercising a Stock Right, on the
grantee's payment of such additional withholding taxes.

20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of
(a) two years after the date the employee was granted the ISO, or (b) one year
after the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.

21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of the state of Delaware without regard to principles of conflicts of law. In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the December 16,
1993 Registration Statement on Form S-8 (Registration No. 33-73018) and in
the July 9, 1996 Registration Statement on Form S-8 (Registration No.
333-07827) of our report, dated December 2, 1997, except for Note 10 as to
which the date is December 4, 1997, which appears in the annual report on
Form 10-K of Todhunter International, Inc. for the year ended September 30,
1997.

McGLADREY & PULLEN, LLP

West Palm Beach, Florida
December 19, 1997

<PAGE>
EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL THESE MEN BY THESE PRESENTS, that Thomas A. Valdes hereby
constitutes and appoints A. Kenneth Pincourt, Jr. as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, in his name, place and stead, and in any and all capacities,
to sign Todhunter International, Inc.'s Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 to be filed with the United States
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitutes, may
lawfully do or cause to be done by virtue hereof.

December 15, 1997

Signature: /s/Thomas A. Valdes
--------------------------
Thomas A. Valdes, Director

<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL THESE MEN BY THESE PRESENTS, that Troy Edwards hereby
constitutes and appoints A. Kenneth Pincourt, Jr. as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, in his name, place and stead, and in any and all capacities,
to sign Todhunter International, Inc.'s Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 to be filed with the United States
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitutes, may
lawfully do or cause to be done by virtue hereof.

December 15, 1997

Signature: /s/Troy Edwards
--------------------
Troy Edwards, Treasurer and
Chief Financial Officer

<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL THESE MEN BY THESE PRESENTS, that D. Chris Mitchell hereby
constitutes and appoints A. Kenneth Pincourt, Jr. as his true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, in his name, place and stead, and in any and all capacities,
to sign Todhunter International, Inc.'s Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 to be filed with the United States
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitutes, may
lawfully do or cause to be done by virtue hereof.

December 15, 1997

Signature: /s/D. Chris Mitchell
-------------------------
D. Chris Mitchell, Director

<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL THESE MEN BY THESE PRESENTS, that Jay S. Maltby hereby constitutes
and appoints A. Kenneth Pincourt, Jr. as his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, in his name,
place and stead, and in any and all capacities, to sign Todhunter International,
Inc.'s Annual Report on Form 10-K for the fiscal year ended September 30, 1997
to be filed with the United States Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitutes, may lawfully do or cause to be done by virtue hereof.

December 15, 1997

Signature: /s/Jay S. Maltby
-------------------
Jay S. Maltby, Director

<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL THESE MEN BY THESE PRESENTS, that Leonard G. Rogers hereby
constitutes and appoints A. Kenneth Pincourt, Jr. as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
in his name, place and stead, and in any and all capacities, to sign Todhunter
International, Inc.'s Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 to be filed with the United States Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitutes, may lawfully do or cause to be
done by virtue hereof.

December 15, 1997

Signature: /s/Leonard G. Rogers
------------------------
Leonard G. Rogers, Director

<PAGE>

EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL THESE MEN BY THESE PRESENTS, that W. Gregory Robertson hereby
constitutes and appoints A. Kenneth Pincourt, Jr. as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
in his name, place and stead, and in any and all capacities, to sign Todhunter
International, Inc.'s Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 to be filed with the United States Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitutes, may lawfully do or cause to be
done by virtue hereof.

December 15, 1997

Signature: /s/W. Gregory Robertson
---------------------------
W. Gregory Robertson, Director

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TODHUNTER INTERNATIONAL, INC'S CONSOLIDATED FINANCIAL STATEMENTS FOR
ITS YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,904,804
<SECURITIES> 0
<RECEIVABLES> 13,167,195
<ALLOWANCES> 0
<INVENTORY> 20,086,901
<CURRENT-ASSETS> 42,336,802
<PP&E> 73,608,189
<DEPRECIATION> 29,235,258
<TOTAL-ASSETS> 95,618,455
<CURRENT-LIABILITIES> 10,697,040
<BONDS> 43,135,080
0
0
<COMMON> 49,497
<OTHER-SE> 36,240,876
<TOTAL-LIABILITY-AND-EQUITY> 95,618,455
<SALES> 77,938,249
<TOTAL-REVENUES> 77,938,249
<CGS> 56,493,174
<TOTAL-COSTS> 56,493,174
<OTHER-EXPENSES> 11,354,899
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,146,322
<INCOME-PRETAX> 5,943,854
<INCOME-TAX> 1,259,292
<INCOME-CONTINUING> 4,684,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,684,562
<EPS-PRIMARY> .94
<EPS-DILUTED> .94

</TABLE>