1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8 - K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 29, 1996
SARATOGA BRANDS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK O-19721 13-3413467
(STATE OR JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1835 SWARTHMORE AVENUE, LAKEWOOD, NEW JERSEY 08701
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (908) 363-3800
2
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
a. On April 29, 1996 ("the closing date"), Saratoga Brands, Inc.,
("Saratoga" or "the Company") acquired DELI KING, INC. ("Deli King"), a Rhode
Island Corporation located at one LaCroix Drive, West Warwick, Rhode Island.
Prior to the closing, all of the outstanding common shares of Deli
King were held by ROY LACROIX ("LaCroix") of Cranston, Rhode Island, the sole
shareholder, and at closing were converted into shares of Saratoga common stock
with an aggregate market value of $1,500,000 based upon the average of
Saratoga's closing bid and asked price as reported on the NASDAQ Small Cap
Market during the five day period prior to the Closing Date.
Upon the transfer of the Saratoga shares to LaCroix, Deli King
became a wholly owned subsidiary of Saratoga.
There was no material relationship between LaCroix and Saratoga or
any of its affiliates, any director or officer of Saratoga, or any associate of
any such director or officer.
Consideration for the acquisition was solely in the form of a
stock for stock exchange.
b. On the Closing Date, Saratoga also acquired, from LaCroix, real
property known as One LaCroix Drive, West Warwick, Rhode Island, 02893. This
property is used in the operation of Deli King's business. Deli King is a food
processor, distributor and mobile catering business serving Rhode Island,
eastern Connecticut, and southeastern Massachusetts. The real estate consists of
a commissary, which houses a kitchen, bakery, warehouse, inside (truck) loading
area, and truck repair facility. Deli King will continue to use the facility in
its business.
The real estate was acquired for a total purchase price of
$1,750,000, consisting of a cash payment of $1,300,000 and a promissory note to
LaCroix in the principal amount of $450,000 bearing interest at the rate of
prime plus one percent. The note is payable in forty-eight equal monthly
installments of principal, together with accrued interest.
3
Item 7(a). FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Following are the audited financial statement of Deli King, Inc. d/b/a
LaCroix Food Services, Inc. for the years ended December 31, 1995 & 1994:
DELI KING, INC.
D/B/A LACROIX FOOD SERVICE, INC.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1995
4
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Financial Statements
C O N T E N T S PAGE
--------------- ----
Independent Auditors' Report 1
Balance Sheet as of December 31, 1995 2-3
Statement of Operations for the Year
Ended December 31, 1995 4
Statement of Retained Earnings for the Year
Ended December 31, 1995 5
Statement of Cash Flows for the
Year Ended December 31, 1995 6
Notes to the Financial Statements 7-14
Supplemental Information:
Independent Auditors' Report on
Supplemental Information 15
Schedule of Operating Expenses 16
5
(Auditors' Letterhead)
(D. E. Rodrigues & Company, Inc.)
(Certified Public Accountants)
(218 South Main Street)
(P.O. Box 3634)
(Fall River, MA 02722-3634)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Deli King, Inc. d/b/a LaCroix Food Services, LTD.:
We have audited the accompanying balance sheet of the Deli King, Inc. d/b/a
LaCroix Food Services, LTD., (a Rhode Island corporation) as of December 31,
1995, the related statement of operations, statement of retained earnings and
statement of cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Deli King, Inc. d/b/a
LaCroix Food Services, LTD., as of December 31, 1995, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
D.E. Rodrigues & Company, Inc.,
Certified Public Accountants
Fall River, Massachusetts
May 30, 1996
6
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Balance Sheet
December 31, 1995
ASSETS
CURRENT ASSETS
Cash (Note C) $ 7,381
Accounts receivable, net of allowance
for doubtful accounts amounting to $ 87,581 32,784
Inventories 219,157
Current portion of notes receivable (Note D) 20,891
Loans receivable - stockholders (Note E) 211,635
Loans receivable - affiliate (Note E) 331,196
Prepaid expenses (Note F) 36,307
----------
Total current assets 859,351
----------
FIXED ASSETS
Machinery and equipment 975,353
Vehicles 521,425
Leasehold improvements 319,977
----------
1,816,755
Less: accumulated depreciation 1,155,538
----------
Net fixed assets 661,217
----------
OTHER ASSETS
Notes receivable, net of current
portion (Note D) 8,700
Acquisition costs, net of offsets -
Unamortized routes, net of accumulated
amortization of $ 22,706 (Note G) 30,803
----------
Total other assets 39,503
----------
Total assets $1,560,071
==========
The accompanying notes are an integral part of these statements.
Page 2
7
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Balance Sheet
(continued)
December 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 303,177
Current portion long term debt (Note H) 137,212
Accrued expenses (Note I) 107,589
Dividend payable 517,803
----------
Total current liabilities 1,065,781
----------
LONG-TERM LIABILITIES
Notes payable, net of current portion (Note H) 58,728
----------
Total long-term liabilities 58,728
----------
STOCKHOLDERS' EQUITY
Common stock, no par, 600 shares authorized,
100 shares issued and outstanding 45,000
Retained earnings 390,562
----------
Total stockholders' equity 435,562
----------
Total liabilities and stockholders'
equity $1,560,071
==========
The accompanying notes are an integral part of these statements.
Page 3
8
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Statement of Operations
For the Year Ended December 31, 1995
SALES
Sales $ 4,550,539
COST OF SALES
Beginning Inventory 228,911
Purchases 3,147,911
Freight 688
Direct Labor 247,621
Shop Supplies 8,925
Commissions 4,373
-----------
Total available 3,638,429
LESS: ending inventory 219,157
-----------
Total cost of sales 3,419,272
Gross Profit 1,131,267
OPERATING EXPENSES 1,213,585
-----------
Net Operating Loss (82,318)
-----------
OTHER INCOME (EXPENSE)
Interest income 4,078
Gain on sale of assets 23,590
Interest expense (18,260)
Loss on Micro Fresh Division (Note K) (43,192)
-----------
Total Other Income (Expense) (33,784)
Loss from Continuing Operations Before Taxes (116,102)
Provision for state income taxes 250
-----------
Loss from Continuing Operations (116,352)
Discontinued Operations
Loss on Disposal of Micro Fresh (Note K) (67,693)
-----------
Net Loss $ (184,045)
===========
The accompanying notes are an integral part of these statements.
Page 4
9
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Statement of Retained Earnings
For the Year Ended December 31, 1995
Retained earnings at beginning of year,
before prior period adjustment (Note N) $1,192,179
Prior period adjustment (Note N) (28,056)
----------
Retained earnings at beginning of year,
as adjusted $1,164,123
Net loss for year (184,045)
Dividend payable recorded at year end (517,803)
Shareholder distribution (71,713)
----------
Retained earnings at end of year $ 390,562
==========
The accompanying notes are an integral part of these statements.
Page 5
10
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Statement Cash Flows
For the Year Ended December 31, 1995
Cash flows from operating activties:
Net Loss $(184,045)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization 101,031
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts receivable 7,203
Loan receivables (9,730)
Inventory and prepaid expenses (366)
Other assets (38,063)
Increase (Decrease) in:
Accounts payable 53,685
Accrued expenses 44,380
Other liabilities 542,779
---------
Net cash provided by operations 516,874
---------
Cash flows from investing activities:
Disposal of fixed assets 99,678
Increase in accumulated depreciation and
amortization (78,301)
---------
Net cash provided by investing activities 21,377
---------
Cash flows from financing and other activities:
Increase (Decrease) in:
Short term debt 77,962
Long term debt (13,404)
Changes in equity due to adjustments (617,572)
---------
Net cash used for financing and other activities (553,014)
---------
Net decrease in cash (14,763)
Cash, beginning of year 22,144
---------
Cash, end of year $ 7,381
=========
The accompanying notes are an integral part of these statements.
Page 6
11
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
For the Year Ended December 31, 1995
NOTE A - NATURE OF BUSINESS
The Company's primary business activities consist of the wholesaling of food
products and services to industrial caterers, the ownership and rental of
catering trucks and established catering routes, and also providing office
coffee and vending machine services to businesses in the Southeastern New
England area.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable/Uncollectible Policies
The company provides for uncollectible accounts using the reserve method for
financial reporting and direct write off method for income tax reporting
purposes.
Inventories
The inventories were valued at the lower of cost, determined on a first-in,
first-out (FIFO) basis, or market value and consist primarily of goods for
resale.
Fixed Assets
Fixed assets are stated at cost. Repairs and maintenance, including replacement
of minor items of physical properties, are charged to current operations while
major additions are capitalized.
Depreciation
For financial reporting purposes, depreciation is calculated using the
straight-line method over the estimated useful lives of the respective classes
of assets. Estimated useful lives are as follows:
Machinery and equipment 9-15 years
Automotive equipment held for rental 4 years
Vehicles 4 years
Leasehold improvements 10-35 years
See Independent Auditors' Report
Page 7
12
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1995
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
(continued)
For income tax reporting purposes, depreciation on fixed assets placed in
service after 1980 is calculated using accelerated methods.
Leases
The Company accounts for leases in accordance with the provisions of Statement
of Financial Accounting Standards No. 13 (SFAS No. 13). In accordance with SFAS
No. 13, the Company charges payments under its operating type leases to current
operations while leases which are in essence financing arrangements are
capitalized and treated as installment purchases. Refer to Notes E and H for
further information.
Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of Corporation income
taxes, the stockholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability for
income taxes has been included in these financial statements.
NOTE C - CONCENTRATION OF CREDIT RISKS
Financial instruments which potentially subject the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards Number
105, consist of cash and trade accounts receivable.
The Company maintains its cash balances in one bank located in Rhode Island. The
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of December 31, 1995, there were no uninsured portions of those
balances held at the bank.
The Company extends credit to its customers who are located primarily in
Southern New England. Management does not
See Independent Auditors' Report
Page 8
13
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1995
NOTE C - CONCENTRATION OF CREDIT RISKS
(continued)
believe significant credit risk exists at December 31, 1995, due to the
diversity and large size of its customer base, which results in a relatively
small average outstanding balance based on individual accounts. Therefore,
management believes there are no required disclosures of any certain significant
risks and uncertainties as required under the AICPA Statement of Position (SOP)
94-6.
NOTE D - NOTES RECEIVABLE - SUBCONTRACTORS
Notes receivable - subcontractors are primarily a result of the Company's sales
of mobile catering vehicles to self-employed contract industrial mobile caterers
who operate from the Company's facilities. The notes are for terms of twelve to
twenty-four months and bear interest at 18% per annum. The Company retains title
to the vehicles until the notes are paid in full.
NOTE E - RELATED PARTY TRANSACTIONS
Rent
The Company leases its office and manufacturing facilities from the
shareholders. Rent expense was $ 180,000 for the twelve months ending December
31, 1995.
Loans receivable - stockholders
The loans receivable - stockholders consist of unsecured, non-interest bearing
notes which are expected to be paid within one year.
Loans receivable - affiliate
The loans receivable affiliate consist of unsecured, non-interest bearing notes
from Roger Williams Auto Dealership which are expected to be paid within one
year.
See Independent Auditors' Report
Page 9
14
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1995
NOTE F - PREPAID EXPENSES
Prepaid expenses consist of $ 22,129 of automotive parts and supplies and $
14,178 of unexpired insurance.
NOTE G - ROUTES
The Company purchased the exclusive rights to sell its products on an
established Route. The cost of this Route is amortized over its estimated
economic life of five years. Amortization expense was $ 13,617 for the year
ended December 31, 1995. The Company also owns approximately twenty four
additional Routes that were internally developed by the Company. Because of
historical cost accounting method, these Routes are not recorded on the
Company's books.
NOTE H - NOTES PAYABLE
Notes payable consist of the following at
December 31, 1995: Balance
Eleven $ 10,000 various thirty-six month bank
notes dated between August 1991 and September
1994; original amounts totaling $ 110,000,
monthly installments are now amounting to
$ 3,530.32, including principal and interest;
interest rates range between 8.25 and 10.25%
payable through September 1997. The loans
are secured by Company vehicles held for use
and rental amounting to approximately
$ 135,000. $ 66,593
Ford Motor Credit loan payable in 48 monthly
payments dated January 13, 1993, original
amount totaling $ 26,805. Monthly installments
of $ 657.53, including principal and interest
at 8.25%; maturing in December 1996. 7,548
Boatman's loan payable in 24 monthly payments
dated April 10, 1995, original amount totaling
$ 5,418.16. Monthly installments of $258,
including principal and interest at 13.14%;
maturing in April 1997. 3,586
See Independent Auditors' Report
Page 10
15
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1995
NOTE H - NOTES PAYABLE Balance
(continued)
Boatman's loan payable in 24 monthly payments
dated April 20, 1995, original amount totaling
$ 2,759.06. Monthly installments of $ 126,
including principal and interest at 8.95%;
maturing in April 1997. $ 1,839
Firestone loan payable in 24 monthly payments
dated December 20, 1995, original amount totaling
$ 5,797.36. Monthly installments of $ 283.18,
including principal and interest at 17.2%;
maturing in November 1997. 5,514
Firestone loan payable in 24 monthly payments
dated December 29, 1995, original amount totaling
$ 3,444.43. Monthly installments of $ 167.43,
including principal and interest at 15.26%;
maturing in December 1997. 3,370
Firestone loan payable in 12 monthly payments
dated December 29, 1995, original amount totaling
$ 2,534.93. Monthly installments of $ 228.53,
including principal and interest at 14.76%;
maturing in December 1997. 2,535
Note payable, bank, working capital demand loan
dated March 8, 1995, original amount totaling
$ 100,000, monthly installments of interest
only at 9.00%; $50,000 was paid down during 1995. 50,000
Notes payable to U.S.I. Financial Services,
with interest ranging from 12% to 18%; due in
monthly installments through 1998; secured by
various assets of the Company. 38,955
Non-interest bearing note payable to Raymond
Gentile in 32 weekly payments of $ 500, original
amount totaling $ 16,000. 16,000
--------
195,940
Less: current portion 137,212
--------
$ 58,728
========
See Independent Auditors' Report
Page 11
16
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1995
NOTE H - NOTES PAYABLE
(continued)
The aggregate long-term debt maturing within each of the next five years is
approximately as follows:
1996 - $137,712; 1997 - $29,023
1998 - $ 29,205; 1999 - $ -0-
2000 - $ -0-
NOTE I - ACCRUED EXPENSES
Accrued expenses consists of $ 12,323 in accrued real estate taxes, accrued
payroll of $ 9,806, vacation pay accrual of $ 12,411, sales tax accrual of $
3,135, property tax accrual of $ 59,914, and accrued professional fees of $
10,000.
NOTE J - MICRO FRESH DIVISION
During the month of July 1995 the Micro Fresh Division was discontinued and its
related asset were disposed of at that time. The operating results of the
division up to July 1995 have been included in the Deli King, Inc. income
statement as of December 31, 1995. The specific break down of the individual
components is as follows:
SALES $30,998
Development and operational expenses:
Salaries and wages 21,383
Promotional and selling expenses 2,998
Purchases and sample expense 36,652
Office and shop supplies 731
Depreciation 1,297
Equipment rental 7,200
Payroll taxes and insurance 3,275
Licenses and fees 97
Telephone 557
-------
Total development and operational expenses 74,190
-------
Net Loss $43,192
=======
See Independent Auditors' Report
Page 12
17
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1995
NOTE K - DISCONTINUED OPERATIONS
During the month of July 1995 the Micro Fresh Division was discontinued and its
related assets were disposed of at that time. Equipment relating to the
company's operations was sold resulting in a loss of $ 12,625. Inventory that
was held for the Micro Fresh Division was disposed of without any remuneration
resulting in a loss of $ 55,068.
NOTE L - PROFIT SHARING PLAN
The Company provides a 401 (K) profit sharing plan covering substantially all of
its employees who meet minimum age and length of service requirements.
Contributions to the plan are discretionary and determined by the Company's
Board of Directors. Profit-sharing expense was zero for the year ending December
31, 1995.
NOTE M - SUBSEQUENT EVENTS
On April 29, 1996 Roy A. LaCroix, Sr., (the sole shareholder of Deli King, Inc.)
closed on the sale of 100% of his capital stock to Saratoga Brands, Inc.
(NASDAQ; STGA) of Lakewood, N.J. The total purchase price of $ 3.25 million
consisted of $ 1.3 million in cash, $ 1.5 million in restricted Saratoga Brands,
Inc. common stock, and a $ 450,000 note payable over a four year period.
NOTE N - PRIOR PERIOD ADJUSTMENT
Beginning retained earnings have been restated to deduct the following January
1, 1995, accrued expenses not previously recorded.
Accrued vacation pay $(12,411)
Accrued property taxes to the town
of West Warwick which is one full
year owed (15,645)
--------
Total prior period adjustment $(28,056)
========
See Independent Auditors' Report
Page 13
18
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1995
NOTE O - CASH FLOW SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest $ 18,260
State income taxes 250
See Independent Auditors' Report
Page 14
19
SUPPLEMENTAL INFORMATION
20
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION
Deli King, Inc. d/b/a LaCroix Food Services, LTD.:
Our audit and report thereon was made for the purpose of forming an opinion on
the financial statements taken as a whole of Deli King, Inc. d/b/a LaCroix Food
Services, LTD. for the year ended December 31, 1995, which are presented in the
preceding section of this report. The supplemental information presented
hereinafter is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has not been
subjected to the auditing procedures applied to the basic financial statements
and, in or opinion, is fairly stated in all material respects in relation to the
basic financial statement taken as a whole.
D. E. Rodrigues & Company, Inc.
Certified Public Accountants
Fall River, Massachusetts
May 30, 1996
Page 15
21
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Schedule of Operating Expenses
For the Year Ended December 31, 1995
Rent (Note E) $ 180,000
Payroll taxes 63,932
Property taxes 62,110
Electricity 45,621
Water 20,807
Propane 16,977
Bad debts 56,673
Advertising 2,732
Travel and entertainment 8,401
Truck expense 110,216
Rubbish removal 23,310
License and fees 11,015
Sales taxes 15,250
Executive wages 74,051
Office wages 114,983
Payroll route manager 49,019
Payroll mechanics 39,367
Health insurance 29,808
Contributions 2,973
Office expenses 16,847
Professional fees 29,228
Repairs and maintenance 17,689
Telephone 8,550
Miscellaneous 2,147
Insurance 99,724
Building repairs 2,846
Equipment repairs 8,278
Depreciations 87,414
Amortization (Note G) 13,617
----------
$1,213,585
==========
See Independent Auditors' Report on Schedules
Page 16
22
DELI KING, INC.
D/B/A LACROIX FOOD SERVICE, INC.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1994
23
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Financial Statements
C O N T E N T S PAGE
--------------- ----
Independent Auditors' Report 1
Balance Sheet as of December 31, 1994 2-3
Statement of Operations and Retained Earnings
for the Year Ended December 31, 1994 4
Statement of Cash Flows for the
Year Ended December 31, 1994 5
Notes to the Financial Statements 6-12
Supplemental Information:
Independent Auditors' Report on
Supplemental Information 13
Schedule of Operating Expenses 14
24
(Auditors' Letterhead)
(D. E. Rodrigues & Company, Inc.)
(Certified Public Accountants)
(218 South Main Street)
(P.O. Box 3634)
(Fall River, MA 02722-3634)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Deli King, Inc. d/b/a LaCroix Food Services, LTD.:
We have audited the accompanying balance sheet of the Deli King, Inc. d/b/a
LaCroix Food Services, LTD., (a Rhode Island corporation) as of December 31,
1994, the related statement of operations and retained earnings and statement of
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Deli King, Inc. d/b/a
LaCroix Food Services, LTD., as of December 31, 1994, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
D.E. Rodrigues & Company, Inc.
Certified Public Accountants
Fall River, Massachusetts
May 30, 1996
25
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Balance Sheet
December 31, 1994
ASSETS
CURRENT ASSETS
Cash (Note C) $ 22,144
Accounts receivable, net of allowance
for doubtful accounts amounting to $ 33,426 39,987
Inventories 228,911
Current portion of notes receivable (Note D) 34,104
Loans receivable - stockholders (Note E) 203,050
Loans receivable - affiliate (Note E) 316,838
Prepaid expenses (Note F) 26,187
----------
Total current assets 871,221
----------
FIXED ASSETS
Machinery and equipment 1,028,375
Vehicles 568,081
Leasehold improvements 319,977
----------
1,916,433
Less: accumulated depreciation 1,132,808
----------
Net fixed assets 783,625
----------
OTHER ASSETS
Notes receivable, net of current
portion (Note D) 496
Unamortized routes, net of accumulated
amortization of $ 25,194 (Note G) 25,920
----------
Total other assets 26,416
----------
Total assets $1,681,262
==========
The Accompanying notes are an integral part of these statements
Page 2
26
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Balance Sheet
(continued)
December 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 249,492
Current portion long term debt (Note H) 59,250
Accrued expenses (Note I) 63,209
----------
Total current liabilities 371,951
----------
LONG-TERM LIABILITIES
Notes payable, net of current portion (Note H) 72,132
----------
Total long-term liabilities 72,132
----------
STOCKHOLDERS' EQUITY
Common stock, no par, 600 shares authorized,
100 shares issued and outstanding 45,000
Retained earnings 1,192,179
----------
Total stockholders' equity 1,237,179
----------
Total liabilities and stockholders'
equity $1,681,262
==========
The Accompanying notes are an integral part of these statements
Page 3
27
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Statement of Operations and Retained Earnings
For the Year Ended December 31, 1994
SALES
Sales $ 4,471,680
Service charge income 83,610
Fleet rental income 308,133
-----------
Total sales 4,863,423
COST OF SALES
Beginning Inventory 221,941
Purchases 3,130,287
Direct Labor 250,713
Shop Supplies 10,431
Commissions 3,296
Driver rebates 17,411
-----------
Total available 3,634,079
LESS: ending inventory 228,911
-----------
Total cost of sales 3,405,168
Gross Profit 1,458,255
OPERATING EXPENSES 1,204,820
-----------
Net Operating Loss 253,435
-----------
OTHER INCOME (EXPENSE)
Interest income 6,954
Gain on sale of assets 11,025
Interest expense (8,230)
Loss on Micro Fresh Division (Note K) (191,268)
-----------
Total Other Income (Expense) (181,519)
-----------
Net Income 71,916
Retained Earnings, beginning of year 1,120,263
-----------
Retained Earnings, end of year $ 1,192,179
===========
The Accompanying notes are an integral part of these statements
Page 4
28
DELI KING, INC.
d/b/a LACROIX FOODS SERVICES, LTD.
Statement of Cash Flows
For the Year Ended December 31, 1994
Cash flows from operating activties:
Net Loss $(184,045)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization 101,031
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts receivable 7,203
Loan receivables (9,730)
Inventory and prepaid expenses (366)
Other assets (38,063)
Increase (Decrease) in:
Accounts payable 53,685
Accrued expenses 44,380
Other liabilities 542,779
---------
Net cash provided by operations 516,874
---------
Cash flows from investing activities:
Disposal of fixed assets 99,678
Increase in accumulated depreciation and
amortization (78,301)
---------
Net cash provided by investing activities 21,377
---------
Cash flows from financing and other activities:
Increase (Decrease) in:
Short term debt 77,962
Long term debt (13,404)
Changes in equity due to adjustments (617,572)
---------
Net cash used for financing and other activities (553,014)
---------
Net decrease in cash (14,763)
Cash, beginning of year 22,144
---------
Cash, end of year $ 7,381
=========
The Accompanying notes are an integral part of these statements
Page 5
29
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
For the Year Ended December 31, 1994
NOTE A - NATURE OF BUSINESS
The Company's primary business activities consist of the wholesaling of food
products and services to industrial caterers, the ownership and rental of
catering trucks and established catering routes, and also providing office
coffee and vending machine services to businesses in the Southeastern New
England area.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable/Uncollectible Policies
The company provides for uncollectible accounts using the reserve method for
financial reporting and direct write off method for income tax reporting
purposes.
Inventories
The inventories were valued at the lower of cost, determined on a first-in,
first-out (FIFO) basis, or market value and consist primarily of goods for
resale.
Fixed Assets
Fixed assets are stated at cost. Repairs and maintenance, including replacement
of minor items of physical properties, are charged to current operations while
major additions are capitalized.
Depreciation
For financial reporting purposes, depreciation is calculated using the
straight-line method over the estimated useful lives of the respective classes
of assets. Estimated useful lives are as follows:
Machinery and equipment 9-15 years
Automotive equipment held for rental 4 years
Vehicles 4 years
Leasehold improvements 10-35 years
See Independent Auditors' Report
Page 6
30
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
continued
For the Year Ended December 31, 1994
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
(continued)
For income tax reporting purposes, depreciation on fixed assets placed in
service after 1980 is calculated using accelerated methods.
Leases
The Company accounts for leases in accordance with the provisions of Statement
of Financial Accounting Standards No. 13 (SFAS No. 13). In accordance with SFAS
No. 13, the Company charges payments under its operating type leases to current
operations while leases which are in essence financing arrangements are
capitalized and treated as installment purchases.
Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of Corporation income
taxes, the stockholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability for
income taxes has been included in these financial statements.
NOTE C - CONCENTRATION OF CREDIT RISKS
Financial instruments which potentially subject the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards Number
105, consist of cash and trade accounts receivable.
The Company maintains its cash balances in one bank located in Rhode Island. The
balances are insured by the Federal Deposit Insurance Corporation up to $
100,000. As of December 31, 1994, there were no uninsured portions of those
balances held at the bank.
The Company extends credit to its customers who are located primarily in
Southern New England. Management does not believe significant credit risk exists
at December 31, 1994, due to the diversity and large size of its customer base,
See Independent Auditors' Report
Page 7
31
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1994
NOTE C - CONCENTRATION OF CREDIT RISKS
(continued)
which results in a relatively small average outstanding balance based on
individual accounts. Therefore, management believes there are no required
disclosures of any certain significant risks and uncertainties as required under
the AICPA Statement of Position (SOP) 94-6.
NOTE D - NOTES RECEIVABLE - SUBCONTRACTORS
Notes receivable - subcontractors are primarily a result of the Company's sales
of mobile catering vehicles to self-employed contract industrial mobile caterers
who operate from the Company's facilities. The notes are for terms of twelve to
twenty-four months and bear interest at 18% per annum. The Company retains title
to the vehicles until the notes are paid in full.
NOTE E - RELATED PARTY TRANSACTIONS
Rent
The Company leases its office and manufacturing facilities from the
shareholders. Rent expense was $ 180,011 for the twelve months ending December
31, 1994.
Loans receivable - stockholders
The loans receivable - stockholders consist of unsecured, non-interest bearing
notes which are expected to be paid within one year.
Loans receivable - affiliate
The loans receivable affiliate consist of unsecured, non-interest bearing notes
which from Roger Williams Auto Dealership which are expected to be paid within
one year.
See Independent Auditors' Report
Page 8
32
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1994
NOTE F - PREPAID EXPENSES
Prepaid expenses consist of $ 26,187 of automotive parts and supplies used for
regular repairs and maintenance of the vehicles owned by Deli King.
NOTE G - ROUTES
The Company purchased the exclusive rights to sell its products on an
established Route. The cost of this Route is amortized over its estimated
economic life of five years. Amortization expense was $ 12,608 for the year
ended December 31, 1994. The Company also owns approximately twenty four
additional Routes that were internally developed by the Company. Because of
historical cost accounting method, these Routes are not recorded on the
Company's books.
NOTE H - NOTES PAYABLE
Notes payable consist of the following at
December 31, 1994: Balance
Eleven $ 10,000 various thirty-six month bank
notes dated between August 1991 and September
1994; original amounts totaling $ 110,000,
monthly installments are now amounting to
$ 3,530.32, including principal and interest;
interest rates range between 8.25 and 10.25%
payable through September 1997. The loans
are secured by Company vehicles held for use
and rental amounting to approximately
$ 135,000. $ 100,760
Ford Motor Credit loan payable in 48 monthly
payments dated January 13, 1993, original
amount totaling $ 26,805. Monthly installments
of $ 657.53 including principal and interest
at 8.25%; maturing in December 1996. 14,502
See Independent Auditors' Report
Page 9
33
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1994
NOTE H - NOTES PAYABLE
(continued)
Notes payable to U.S.I. Financial Services,
with interest ranging from 12% to 18%; due in
monthly installments through 1998; secured by
various assets of the Company. $ 16,120
--------
131,382
Less: current portion 59,250
--------
$ 72,132
========
The aggregate long-term debt maturing within each of the next five years is
approximately as follows:
1995 - $ 59,250; 1996 - $ 49,392
1997 - $ 22,740; 1998 - $ -0-
1999 - $ -0-
NOTE I - ACCRUED EXPENSES
Accrued expenses consists of $ 26,956 in accrued real estate taxes, accrued
payroll of $ 32,753, and accrued professional fees of $ 3,500.
NOTE J - PROFIT SHARING PLAN
The Company provides a 401 (K) profit sharing plan covering substantially all of
its employees who meet minimum age and length of service requirements.
Contributions to the plan are discretionary and determined by the Company's
Board of Directors. Profit-sharing expense was zero for the year ending December
31, 1994.
NOTE K - MICRO FRESH DIVISION
The operating results of the Micro Fresh Division have been included in the Deli
King, Inc. income statement as of December 31, 1994.
See Independent Auditors' Report
Page 10
34
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1994
NOTE K - MICRO FRESH DIVISION
(continued)
The specific break down of the individual components is as follows:
Sales $ 23,874
Development and operational expenses:
Salaries and wages 28,109
Promotional and selling expenses 52,190
Purchases and sample expenses 60,736
Office and shop supplies 10,112
Professional fees 4,756
Depreciation 20,050
Equipment rental 13,700
Payroll taxes and insurance 10,107
Licenses and fees 111
Advertising 11,682
Travel 3,589
---------
Total development and operational expenses 215,142
---------
Net Loss $(191,268)
=========
NOTE L - SUBSEQUENT EVENTS
On April 29, 1996, Roy A. LaCroix, Sr., (the sole shareholder of Deli King,
Inc.) closed on the sale of 100% of his capital stock to Saratoga Brands, Inc.
(NASDAQ; STGA) of Lakewood, N.J. The total purchase price of $ 3.25 million
consisted of $ 1.3 million in cash, $ 1.5 million in restricted Saratoga Brands,
Inc. common stock, and a $ 450,000 note payable over a four year period.
See Independent Auditors' Report
Page 11
35
DELI KING, INC.
d/b/a LACROIX FOOD SERVICES, LTD.
Notes to the Financial Statements
(continued)
For the Year Ended December 31, 1994
NOTE M - CASH FLOW SUPPLEMENTAL DISCLOSURE
Cash paid for :
Interest $ 8,230
State income taxes -
See Independent Auditors' Report
Page 12
36
SUPPLEMENTAL INFORMATION
37
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION
Deli King, Inc. d/b/a LaCroix Food Services, LTD.:
Our audit and report thereon was made for the purpose of forming an opinion on
the financial statements taken as a whole of Deli King, Inc. d/b/a LaCroix Food
Services, LTD. for the year ended December 31, 1994, which are presented in the
preceding section of this report. The supplemental information presented
hereinafter is presented for the purposes of additional analysis and is not a
required part of the basic financial statements. Such information has not been
subjected to the auditing procedures applied to the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
D. E. Rodrigues & Company, Inc.
Certified Public Accountants
Fall River, Massachusetts
May 30, 1996
Page 13
38
DELI KING,INC.
d/b/a LACROIX FOODS SERVICES, INC.
Schedule of Operating Expenses
For the Year Ended December 31, 1994
Rent (Note E) $180,011
Payroll taxes 43,723
Property taxes 56,485
Electricity 44,651
Insurance 119,478
Propane 10,237
Bad debts 30,910
Advertising 3,746
Travel and entertainment 22,996
Truck expense 110,169
Rubbish removal 27,372
Licenses and fees 4,776
Sales taxes 17,414
Executive wages 94,806
Office wages 85,101
Payroll route managers 47,334
Payroll mechanics 26,567
Payroll warehouse 5,815
Telephone 8,203
Legal and accounting 9,933
Contributions 3,740
Dues and subscriptions 1,033
Office expenses 26,462
Uniforms 2,224
Repairs and maintenance 36,565
Employee benefits 35,919
See Independent Auditors' Report on Supplemental Information
Page 14
39
Item 7(b). PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information presents the effects of
the acquisition of Deli King, inc. ("Deli King") by the registrant as if the
acquisition had been completed as of December 31, 1995. The unaudited pro forma
financial information has been compiled by management. The pro forma
consolidated income statement is based upon the average monthly activity for the
24 months ended December 31, 1995.
The pro forma financial information is not necessarily indicative of
the realists of operations and financial position which will be attained in the
future. The pro forma information should be read in conjunction with the
historical consolidated financial statements of Saratoga Brands, Inc. as
reported on Forms 10KSB and 10QSB for the year and the three months ended
December 31, 1995 and March 31, 1996 respectively.
40
SARATOGA BRANDS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 1995
COMPANY DELI
BEFORE KING, PRO FORMA
ACQUISITION INC. CONSOLIDATED
-------------------------------------------------------
ASSETS
Current Assets:
Cash $ 3,678 $ 7,381 $ 11,059
Accounts Receivable 1,101,225 32,784 1,134,009
Notes Receivable 710,115 563,722 1,273,837
Inventories 924,388 219,157 1,143,545
Prepaid Expenses and Other Current Assets 690,708 36,307 727,015
-------------------------------------------------------
Total Current Assets 3,430,114 859,351 4,289,465
Property and equipment 1,037,028 661,217(b) 3,464,252
Other Assets 134,266 8,700 142,966
Intangible assets 286,334 30,803(a) 660,075
Excess of cost over fair market value of assets acquired 8,202,410 8,202,410
-------------------------------------------------------
TOTAL ASSETS $ 13,090,152 $ 1,560,071 $ 16,759,168
=======================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Loans Payable $ 16,871 0 $ 16,871
Accounts Payable and Accrued Expenses 2,947,251 410,766(b) 3,366,927
Current Portion of Capital Leases Payable 56,146 0 56,146
Dividend Payable 517,803 517,803
Current Portion of long-term debt 376,800 137,212(b) 589,012
Total Current Liabilities 3,397,068 1,065,781 4,546,759
Long-term debt 3,295,628 58,728(b) 5,036,453
Long-term notes payable-related party 475,000 475,000
Capital leases payable 141,955 141,955
-------------------------------------------------------
TOTAL LIABILITIES 7,309,651 1,124,509 10,200,167
-------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred Stock 566,703 566,703
Common Stock 25,637 45,000(a) 30,679
Treasury Stock (645) (645)
Additional Paid-in Capital 17,317,647 (a) 18,091,105
Retained Earnings (Accumulated Deficit) (12,128,841) 390,562(b) (12,128,841)
-------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 5,780,501 435,562 6,559,001
-------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,090,152 $ 1,560,071 $ 16,759,168
=======================================================
(a) To eliminate Deli King, Inc. equity and record step-up of intangible assets.
(b) To record purchase of real estate from LaCroix at closing.
41
Item 7(b). PRO FORMA FINANCIAL INFORMATION (CONTINUED)
SARATOGA BRANDS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
COMPANY
BEFORE
PRO FORMA DELI KING PRO FORMA
ADJUSTMENTS INC. CONSOLIDATED
-----------------------------------------------
Net Sales $11,009,018 $ 4,706,981 $15,715,999
Cost of Sales 7,960,328 3,412,220 11,372,548
----------------------------------------------
Gross Profit 3,048,690 1,294,761 4,343,451
Selling, General and Administrative Expense 2,169,197 1,192,020 3,361,217
Amortization of Excess of Cost Over Fair Value of Assets Acquired 211,923 -- 211,923
Interest Expense - Net 488,317 7,729 496,046
----------------------------------------------
Net Earnings From Operations 179,253 95,012 274,265
Earnings (Loss) from Discontinued Businesses 269,478 -- 269,478
----------------------------------------------
Net Earnings (Loss) $ 448,731 $ 95,012 $ 543,743
===============================================
EARNINGS (LOSS) PER COMMON SHARE
Earnings (Loss) From Continuing Operations $ 0.07 $ 0.04 $ 0.11
Earnings (Loss) From Discontinued Operations $ 0.11 $ -- $ 0.11
----------------------------------------------
Total Earnings (Loss) Per Share $ 0.18 $ 0.04 $ 0.22
===============================================
Weighted Average Shares Used in Computation (Note) 2,503,974 2,503,974 2,503,974
===============================================
Note: Weighted Average Shares Used in Computation:
Number of shares used in 1995 10KSB 1,999,772
Number of shares issued for acquisition 504,202
-----------
Weighted Average Shares Used in Computation 2,503,974
===========
42
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: August 7, 1996 By:/s/ Scott G. Halperin
---------------------
Scott G. Halperin
Chief Executive Officer
Treasurer
August 7, 1996 By:/s/ Bernard F. Lillis, Jr.
---------------------------
Bernard F. Lillis, Jr.
Chief Financial Officer