-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LvYipuCafRMhWYV2OifiAB8Jq1/+Pbf+M8/C2DuQmQV7r0pFAW7QgA/csGYafRx7 cubRoZjcTM2/iLFBmlvpVQ== 0000881590-99-000013.txt : 19990518 0000881590-99-000013.hdr.sgml : 19990518 ACCESSION NUMBER: 0000881590-99-000013 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SARATOGA BRANDS INC CENTRAL INDEX KEY: 0000868075 STANDARD INDUSTRIAL CLASSIFICATION: DAIRY PRODUCTS [2020] IRS NUMBER: 133413467 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19721 FILM NUMBER: 99626318 BUSINESS ADDRESS: STREET 1: 1835 SWARTHMORE AVENUE CITY: LAKEWOOD STATE: NJ ZIP: 08701 BUSINESS PHONE: 3103154979 MAIL ADDRESS: STREET 1: 1835 SWARTHMORE AVE CITY: LAKEWOOD STATE: NJ ZIP: 08701 FORMER COMPANY: FORMER CONFORMED NAME: EMPIRE SPECIALTY FOODS INC /NY/ DATE OF NAME CHANGE: 19600201 10QSB 1 FORM 10QSB FOR 03/31/99 U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB (Mark One) [x]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 Commission file number 0-19721 SARATOGA BRANDS INC. (Exact name of small business issuer as specified in its charter) New York 13-3413467 (State or other jurisdiction (IRS Employer of incorporation or organization) identification no.) 1835 Swarthmore Avenue, Lakewood, New Jersey 08701 (Address of principal executive offices) (732) 363-3800 (Issuer's telephone number) --------------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ...X.. No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d)of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes .......No ....... APPLICABLE ONLY TO CORPORATE ISSUERS Number of shares outstanding of each of the issuer's classes of common equity as of April 30, 1999 Title of Each Class Number of Shares Outstanding Common Stock, $.001 par value per share 5,046,661 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements SARATOGA BRANDS INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) March 31, 1999 ASSETS Current Assets: Cash and cash equivalents $223,307 Accounts receivable-net of allowance for doubtful accounts of $ 89,555 953,434 Inventories 492,346 Prepaid expenses and other current assets 147,114 ------------------ Total current assets 1,816,201 Fixed Assets - net 3,075,979 Other assets 614,636 Intangible assets - net 1,144,046 Excess of cost over fair value of assets acquired - net 240,000 ------------------ TOTAL ASSETS $6,890,862 ================== See notes to the consolidated financial statements (unaudited). 2 SARATOGA BRANDS INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) (continued) March 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Current Liabilities: Accounts payable and accrued expenses $1,327,434 Current portion of long-term debt 646,800 Current portion of capital leases obligations 86,102 ------------------ Total current liabilities 2,060,336 Long-term debt 734,200 Capital lease obligations 290,261 ------------------ Total liabilities 3,084,797 ------------------ STOCKHOLDERS' EQUITY Preferred stock 397,898 Class A participating convertible preferred shares, $1 par value, stated at liquidation value, authorized 200 shares of which 16.5 shares are issued and outstanding. Common stock 5,047 Par value $.001 - 25,000,000 shares authorized, 5,046,661 shares issued and outstanding Additional paid-in-capital 521,076 Retained Earnings Since April 1, 1997 2,882,044 ------------------ Total Stockholders' Equity 3,806,065 ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,890,862 ================== See notes to the consolidated financial statements (Unaudited). 3 SARATOGA BRANDS INC. AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) For the Three Months Ended March 31, 1999 1998 --------------------------------------- Net sales $2,762,182 $2,916,515 Cost of sales 1,940,595 2,151,715 ----------------------------------- Gross profit 821,587 764,800 Selling, general and administrative expenses 618,478 584,031 Loss on abandoned operation 52,866 - --------------------------------------- Income from Operations 150,243 180,769 Interest expense - net 63,145 47,918 --------------------------------------- Income before taxes 87,098 132,851 Income tax provision 8,500 - --------------------------------------- Net Income $78,598 $132,851 ======================================= EARNINGS PER COMMON SHARE BASIC & DILUTED Net Income $0.02 $0.03 ======================================= Basic weighted average shares used in computation 5,046,661 4,800,589 Diluted weighted average shares used in computation 5,046,661 5,299,552 See notes to the consolidated financial statements (Unaudited). 4 SARATOGA BRANDS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, -------------------------- 1999 1998 -------------------------- Cash Flows from operating activities: Net income $78,598 $132,851 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 117,908 97,982 Provision for losses on accounts receivable 9,000 4,375 (Increase) in current portion mortgage receivable 0 (64) Decrease in accounts receivable (45,035) 13,179 (Increase) decrease in inventories 492 (126,018) Decrease in other assets (27,223) 17,920 (Increase) decrease in prepaid expenses (71,651) (85,850) Increase in accounts payable and accrued expenses (35,279) 192,436 -------------------------- Net cash provided by (used in) operating activities 26,810 246,811 -------------------------- Cash flows from investing activities: Purchase of fixed assets (54,353) (49,705) Redemption of investment 80,285 Purchase of Intangible Assets (routes) (10,502) -------------------------- Net cash provided by (used in) investing activities (54,353) 20,078 -------------------------- Cash flows from financing activities: Proceeds of long-term debt 200,000 0 Repayment of long-term debt (243,356) (194,027) Proceeds of capital leases 200,000 0 Repayment of capital leases (14,151) (4,311) -------------------------- Net cash provided by financing activities 142,493 (198,338) -------------------------- Increase (decrease) in cash 114,950 68,551 Cash at beginning of period 108,357 228,945 -------------------------- Cash at end of period $223,307 $297,496 ========================== Supplemental disclosure of cash flows information: Interest paid $59,753 $48,221 Income taxes paid $2,500 $600 See notes to the consolidated financial statements (Unaudited). 5 SARATOGA BRANDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 --ORGANIZATION AND BASIS OF PRESENTATION Saratoga Brands Inc., ("the Company"), through its Cucina Classica Italiana, Inc. ("CCI") subsidiary, located in Lakewood, New Jersey, imports and produces under license Italian specialty cheese and other premium specialty foods and distributes them nationwide. The Company's Mobile Caterers, Inc. ("MOBILE") subsidiary, located in West Warwick, Rhode Island, is a food processor and distributor that services mobile caterers, commissaries and vending accounts throughout New England. The unaudited consolidated financial statements included herein have been prepared by the Company in accordance with the same accounting principles followed in the presentation of the Company's annual financial statements for the year ended December 31, 1998, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments that are of a normal and recurring nature and are necessary to fairly present the results of operations, the financial position and cash flows of the Company have been made on a consistent basis. This report should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-KSB Annual Report for the year ended December 31, 1998. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. In consolidation all material inter company balances are eliminated. Income taxes for the interim period are based on the estimated effective tax rate expected to be applicable for the full fiscal year. The Company has recorded a full valuation allowance related to the deferred tax asset at March 31, 1999. NOTE 2 -FIXED ASSETS Depreciation and amortization is computed utilizing the straight-line method over the estimated useful lives of the related assets as follows: Fixed Assets 5 to 37.5 years Identifiable Intangible Assets 5 to 15 years The Company will assess the recoverability of fixed assets and intangible assets based on existing facts and circumstances and projected earnings before interest, depreciation and amortization on an undiscounted basis. Should the Company's assessment indicate impairment an appropriate write-down will be recorded. The Company assesses the recoverability of goodwill at each reporting period based on existing facts and circumstances and projected earnings before interest, depreciation and amortization on an undiscounted basis. Should the Company's assessment indicate an impairment, an appropriate write-down will be recorded. 6 SARATOGA BRANDS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Fixed assets consists of the following at March 31, 1999: Useful Life -------------- Land $611,007 Buildings 1,394,402 37..5 years Furniture & equipment 970,755 5 - 10 years Vehicles 501,419 5 - 7 years Leasehold improvements 45,401 5 years Capital leases 339,417 -------------- Total Cost 3,862,401 Less accumulated depreciation and amortization (786,422) ============== Fixed assets - net $3,075,979 ============== NOTE 3 -- LONG-TERM DEBT Long term debt consists of the following at March 31, 1999: Bank - unsecured loan payable in six equal monthly principal installments plus accrued interest beginning June 15, 1999; bearing interest at prime plus 1%. Prime was 7.75% at March 31, 1999 $400,000 Term Loan - payable in installments through 2000. Interest at prime plus 1%. Secured by accounts receivable, inventories and fixed assets 88,500 Term Loan - payable $37,500 annually through 2002, With a balloon payment in 2003. Interest at 8%. Secured by building. 731,250 Note payable, unsecured - payable in monthly installments of $9,375. Interest at prime plus 1%. 131,250 Other 30,000 ------------ Subtotal 1,381,000 Less Current Maturities 646,800 ------------ Long -term debt $734,200 ============ 7 Maturities of Long Term Debt are as follows: 1999 $ 585,600 2000 129,775 2001 37,500 2002 37,500 2003 590,625 --------------- $ 1,381,000 =============== Note 4 -- SEGMENT REPORTING The Company adopted Statement Financial Accounting Standard No.131, Disclosures about Segments of an Enterprise and Related Information ("FAS 131"), in 1998. This statement establishes standards for reporting information about operating segments in annual financial statements and selected information in interim financial statements. It also establishes standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's chief operating decision-maker is the Chief Executive Officer. There are no material inter-segment sales or transfers. Substantially all revenues are generated within the United States and all revenue producing assets are located therein. Industry segment information at March 31, 1999 is summarized as follows: Total Operating Revenues Profits --------------------------------- CCI $ 1,962,450 $389,297 Mobile 776,721 (121,602) --------------------------------- Total Segment 2,739,171 267,695 Eliminations and other corporate income(expenses) 23,011 (117,452) --------------------------------- Consolidated $ 2,762,182 150,243 ================================= Interest expense 63,145 -------------- Consolidated income before income taxes $ 87,098 8 Note 4 -- SEGMENT REPORTING (Continued) Depreciation Capital and Amortization Identifiable Expenditures Expense Assets -------------------------------------------------- CCI $ 49,421 $ 42,008 $ 1,910,774 Mobile 4,932 68,400 4,268,346 Corporate - 7,500 711,742 ================================================= Consolidated $ 54,353 $ 117,908 $ 6,890,862 ================================================= 9 Item 2. Management's Discussion and Analysis or Plan of Operation Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Unaudited Financial Statements and related notes which are contained in Item 1 herein. Results of Operations for the Three Months Ended March 31, 1999 and 1998 Net sales for the three months ended March 31, 1999 were $2,762,182 compared with $2,916,515 in the same period in 1998, a decrease of $154,333, or 5.6%. This decrease is primarily a result of the abandonment of the Direct Store Delivery ("DSD") operation at Mobile Caterers, Inc. ("Mobile") in the fourth quarter of 1998. The Company generated gross profit of $821,587 or 29.7 in 1999, versus $764,800 or 26.2% in 1998. The increase in gross profit margin was the result of the elimination of product returns at Mobile, and reduction in direct costs attributable to the abandoned operation as well as an improvement in the product mix at CCI during the quarter. Selling, general and administrative expenses were $618,478 and $584,031 in 1999 and 1998, respectively. This represents an increase of $34,447 or 5.9%. This increase is the result of the addition of a Vice President-Sales & Marketing at CCI, and the undertaking of an aggressive new marketing effort at CCI, including start-up costs relating to the development of a new fully integrated E-Commerce Web Site which will become operational by the end of the second quarter of 1999. Management expects gross margins to improve as the Company begins to regain sales volume lost by the abandonment of the DSD operation, and with the full rollout of CCI's new E-Commerce Web Site. However, there can be no assurance that any such improvements in the margins will be achieved. To this end, the Company's Mobile subsidiary is seeking additional wholesale customers, as well as developing products for sale through mass merchants. The Company reported no provision for Federal income taxes for the three months ended March 31, 1999 and 1998, as the Company's taxable operating earnings were offset by net operating loss carryforwards. The Company reported a provision for state income taxes of $8,500 and $0 for the three-month period ended March 31, 1999 and 1998 respectively. Income for the three month period ended March 31, 1999 was $78,598 versus $132,851 in 1998 or $0.02 and $0.03 per share on diluted weighted average shares of 5,046,661 and 5,299,552 respectively. This represents a reduction of $54,253 of which $52,866 resulted from additional costs attributable to the abandoned DSD operation. 10 Liquidity and Capital Resources The Company's sources of capital include, but are not limited to, the issuance of public or private debt, the issuance of equity securities, bank borrowings and capital lease financing. At March 31, 1999 the Company had a net worth of $3,806,065 compared with $3,842,228 at March 31, 1998. The Company has a limited requirement for capital expenditures in the immediate future. CCI's factoring arrangement with Bank of New York Financial Corporation has adequate availability to provide working capital to support sales growth in that division. Mobile owns real estate with a market value of approximately $1,200,000 against which there exists a mortgage in the amount of $731,250. The asset provides adequate collateral to support borrowing for working capital needs in that subsidiary. Additionally, the Company has a loan outstanding with a bank, with a current balance of $400,000 at the prime rate plus 1 percent. This loan is to be repaid during the next 12 months. The Company has entered into a capital lease transaction in the amount of $200,000 to fund the acquisition and construction of a new state of the art cheese drying facility to be used in conjunction with its cheese grating and shredding operation. Management believes that the Company has sufficient working capital to meet the needs of its current level of operations. Anticipated Future Growth Management believes that the future growth of the Company will be the result of four efforts; (1) acquisition of other companies in the food and food related industries, (2) increasing sales to existing customers by offering new products and product lines, (3) obtaining new customers in the existing markets and developing new markets via current marketing channels and the internet through CCI's new E-Commerce Web Site, and (4) controlling and containing production, operating and administrative costs. 11 Year 2000 Readiness This disclosure is a year 2000 ("Year 2000") Readiness Disclosure within the meaning of the Year 2000 Information and Readiness Disclosure Act of 1998 to the extent that the disclosure relates to the Year 2000 processing of the Company. The Company has implemented a program to assess, mitigate and remediate the potential impact of the Year 2000 problem throughout the Company. A Year 2000 problem will occur where date-sensitive software uses two digit date fields, sorting the Year 2000 ("00") before the year 1999 ("99"). The Year 2000 problem can arise in hardware, software, or any other equipment or process that uses embedded software or other technology. The failure of such systems to properly recognize dates after December 31, 1999 could result in data corruption and processing errors. Management has reviewed the possible effects of the Year 2000 problem in so far as it relates to the Company; and has determined that the Company is currently utilizing Year 2000 compatible equipment and software. The Year 2000 problem is not expected to have a material adverse effect on the operations of the Company. In addition, the Company has implemented a program to determine the Year 2000 compliance status of its material vendors, suppliers, service providers and customers, and based on currently available information does not anticipate any material impact to the Company based on the failure of such third parties to be Year 2000 compliant. However, the process of evaluating the Year 2000 compliance status of material third parties is continually ongoing and, therefore, no guaranty or warranty can be made as to such third parties' future compliance status and its potential effect on the Company. The Company believes there exists a sufficient number of suppliers of raw material for its business so that if any supplier is unable to deliver raw materials due to Year 2000 problems, alternate sources will be available and that any supply interruption will not be material to the Company's operations. There can be no assurances, however, that the Company would be able to obtain all of its supply requirements from such alternate sources in a timely way or on terms comparable with that of its current suppliers. The information set forth in the preceding three paragraphs constitutes a "Year 2000 Readiness Disclosure" pursuant to the Year 2000 Information and Readiness Disclosure Act. (P.L. 105-271 signed into law October 19, 1998). 12 The preceding Year 2000 discussion contains various forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Section 27A Securities Act of 1933. These forward-looking statements represent the Company's beliefs or expectations regarding future events. When used in the Year 2000 discussion, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include without limitation the Company's belief that its internal systems are Year 2000 compliant. All forward-looking statements involve a number of risks and uncertainties that could cause the actual results to differ materially from the projected results. Factors that may cause these differences include, but are not limited to, the availability of qualified personnel and other information technology resources; the ability to identify and remediate all date-sensitive lines of computer code or to replace embedded computer chips in affected systems or equipment; and the actions of governmental agencies or other third parties with respect to Year 2000 problems. Forward Looking Statements The matters discussed in this Item 2 may contain forward-looking statements that involve risk and uncertainties. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of factors, including without limitation the presence of competitors with broader product lines and greater financial resources; intellectual property rights and litigation, needs of liquidity; and the other risks detailed from time to time in the company's reports filed with the Securities and Exchange Commission. 13 PART II - OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K (a) Exhibits None (b) Reports filed on Form 8K None 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf the undersigned thereunto duly authorized SARATOGA BRANDS INC. (Registrant) Date: May 17, 1999 By: /s/ Scott G. Halperin --------------------- Scott G. Halperin Chairman Chief Executive Officer Date: May 17, 1999 By: /s/ Bernard F. Lillis, Jr. -------------------------- Bernard F. Lillis, Jr. Chief Financial Officer Principal Accounting Officer Treasurer 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 This shedule contains summary financial information extracted from Consolidated Audited Financial Statements contained in Form 10KSB and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1999 JAN-1-1999 MAR-31-1999 223,307 0 1,042,989 (89,555) 492,346 1,816,201 3,862,401 (786,422) 6,890,862 2,060,336 0 0 397,898 5,047 3,403,120 6,890,862 2,762,182 2,762,182 1,940,595 2,611,939 71,645 9,000 63,145 87,098 8,500 87,098 0 0 0 78,598 .02 .02
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