Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended March 31, 1996
OR
|_| Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number: 0-22614
Atlantic Beverage Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3761400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1587 Sulphur Spring Road
Baltimore, Maryland 21227
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 247-5857
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
As of March 31, 1996, there were outstanding 5,740,954 shares of Common Stock,
par value $.01 per share, of the Registrant.
ATLANTIC BEVERAGE COMPANY, INC.
INDEX
FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
March 31, 1996 (Unaudited) and December 31, 1995................................. 3
Consolidated Statements of Operations
for the three months ended March 31, 1996
and 1995 (Unaudited)............................................................. 4
Consolidated Statements of Cash
Flows for the three months ended
March 31, 1996 and 1995 (Unaudited).............................................. 5
Notes to Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................... 10
PART II - OTHER INFORMATION
Item 1-6. Exhibits and Reports on Form 8-K.................................................... 13
SIGNATURES .................................................................................. 14
INDEX TO EXHIBITS .................................................................................. 15
2
Item 1. Consolidated Financial Statements.
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, March 31,
1995 1996
ASSETS
CURRENT ASSETS:
Cash $ - $ 415,538
Short-term investments - 1,120,956
Accounts receivable, net 798,385 6,657,167
Inventory 630,968 2,631,166
Prepaid expenses and other 171,467 353,376
----------------- -----------------
Total current assets 1,600,820 11,178,203
EQUIPMENT, net 706,518 2,086,369
NONCOMPETE AGREEMENT, net 116,000 106,000
DEFERRED TAX ASSET 365,000 365,000
GOODWILL 30,666 8,838,089
OTHER ASSETS, net 102,143 644,228
----------------- -----------------
Total Assets $ 2,921,147 $ 23,217,889
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 297,458 $ 2,748,117
Line of credit 440,000 2,729,992
Current portion of notes payable 788 804,776
Accounts payable 855,846 5,556,789
Accrued expenses 42,528 810,570
Net current liabilities of discontinued operations 722,173 264,646
----------------- -----------------
Total current liabilities 2,358,793 12,914,890
NOTES PAYABLE, net of current portion - 5,443,813
OBLIGATIONS UNDER CAPITAL LEASE, net of current portion - 140,818
DEFERRED TAX LIABILITY - 167,000
----------------- -----------------
Total Liabilities 2,358,793 18,666,521
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued - -
Series A nonvoting convertible preferred stock, $.01
par value; 1 share authorized, none issued - -
Common stock, $.01 par value; 30,000,000 shares authorized;
2,727,955 and 6,148,992 shares issued in 1995 and 1996,
respectively 27,280 61,490
Additional paid-in capital 5,041,252 8,772,701
Accumulated deficit (4,079,108) (3,855,753)
Less:
Treasury stock, at cost, 408,038 shares (427,070) (427,070)
----------------- -----------------
Total Stockholders' Equity 562,354 4,551,368
----------------- -----------------
Total Liabilities and Stockholders' Equity $ 2,921,147 $ 23,217,889
================ ===============
The accompanying notes are an integral part of these balance sheets.
3
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1995 1996
-------------- ---------
NET SALES $ 4,871,650 $ 34,215,448
COST OF GOODS SOLD 3,484,029 30,208,117
-------------- --------------
Gross Profit 1,387,621 4,007,331
-------------- --------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Salaries and benefits 755,690 1,791,905
Other operating expenses 531,976 1,869,787
Depreciation and amortization 75,924 233,207
-------------- --------------
Total selling, general and 1,363,590 3,894,899
administrative expenses -------------- --------------
Income from operations 24,031 112,432
INTEREST EXPENSE 1,806 277,464
INTEREST INCOME 4,201 -
OTHER INCOME - 388,387
-------------- --------------
Income before income tax provision 26,426 223,355
INCOME TAX PROVISION - -
-------------- -------------
Net income from continuing operations 26,426 223,355
LOSS FROM DISCONTINUED OPERATIONS (142,661) -
-------------- -------------
Net (loss) income (116,235) 223,355
-------------- --------------
Net income from continuing operations
after accretion of preferred stock $ 23,600 $ 223,355
============== ==============
INCOME (LOSS) PER COMMON SHARE DATA:
Net income from continuing operations $ .01 $ .08
Loss from discontinued operations (.05) -
------------- -------------
Net (loss) income $ (.04) $ .08
============== =============
Weighted average common shares outstanding 2,725,455 2,950,423
============== ==============
The accompanying notes are an integral part of these statements.
4
ATLANTIC BEVERAGE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1995 1996
-------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (116,235) $ 223,355
Adjustments to reconcile net income to cash flows provided
by operating activities, net of non-cash items and
acquisitions:
Depreciation and amortization 75,924 252,950
Increase in accounts receivable, net (159,524) (357,310)
(Increase) decrease in inventory (58,863) 194,674
Increase in other assets - (41,745)
Decrease in prepaid expenses and other 35,706 54,719
Increase (decrease) in accounts payable 664,238 (453,811)
Increase (decrease) in accrued expenses 39,735 100,957
Net cash flow provided by (used in) operating
activities of-
Continuing operations 480,981 (26,211)
Discontinued operations (205,389) (457,527)
-------------- --------------
Net cash provided by operating activities 275,592 (483,738)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (26,921) (1,049)
Cash paid for acquisition of Prefco - (6,000,000)
Cash paid for acquisition fees - (458,704)
-------------- --------------
Net cash used in investing activities (26,921) (6,459,753)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank overdraft, net - (633,040)
Repayment of notes payable (2,008) (888,560)
Cash paid for financing fees - (394,853)
Borrowings under line of credit - 1,993,098
Borrowings under term loan - 4,500,000
Proceeds from private placement of common stock, net - 2,782,384
-------------- --------------
Net cash flows (used in) financing activities (2,008) 7,359,029
-------------- --------------
NET INCREASE (DECREASE) IN CASH 246,663 415,538
CASH, beginning of period 142,395 -
-------------- -------------
CASH, end of period $ 389,058 $ 415,538
============== ==============
The accompanying notes are an integral part of these statements.
5
ATLANTIC BEVERAGE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995 AND 1996
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements present the accounts of
Atlantic Beverage Company, Inc. (the "Company") and its wholly-owned
subsidiaries. The Company, together with its subsidiaries, is engaged in the
distribution of specialty beverages in the Baltimore and Washington, D.C.
metropolitan areas and, effective January 1, 1996, engaged in the manufacturing,
marketing and distribution of meat products in several Texas markets including
Houston, Dallas, Austin and San Antonio (see Note 3).
The consolidated financial statements included herein for Atlantic Beverage
Company, Inc. have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. In management's
opinion, the interim financial data presented includes all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation.
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
understand the information presented. The results of operations for the three
months March 31, 1996, are not necessarily indicative of the operating results
expected for the entire year. It is suggested that these consolidated financial
statements be read in conjunction with the Company's December 31, 1995
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K dated March 31, 1996.
Revenue Recognition
The Company records sales when product is delivered to the customers. Discounts
provided, principally volume, are accrued at the time of the sale.
Inventory
Inventory is stated at the lower of cost or market. It is comprised of raw
materials, finished goods and inventory supplies. Cost is determined using the
first-in, first-out method (FIFO).
6
Equipment
Equipment consists of machinery and equipment, furniture and fixtures, leasehold
improvements and delivery vehicles and are stated at cost. Depreciation is
provided using the straight-line method over following useful lives.
Machinery and equipment 5-10 years
Furniture and fixtures 5 years
Leasehold improvements 5 years
Vehicles 5-10 years
Other Assets
Other assets consist of costs associated with the acquisitions described and
includes distribution and license agreements and deferred financing costs.
Distribution and license agreements are being amortized over 2-3 years using the
straight-line method, while the deferred financing costs are being amortized
over 5 years using the effective interest method.
Goodwill
Goodwill was recorded with the acquisitions of the Predecessor, Prefco, Inc. and
Carlton Foods, Inc. (see Note 3) and is being amortized using the straight-line
method over 5 to 40 years.
2. LINE OF CREDIT:
In March 1996, the Company entered into a new line of credit agreement with a
bank through March 2001. Under the terms of the agreement, the Company is
permitted to borrow up to $6,500,000, subject to advance formulas based on
accounts receivable and inventory. Amounts borrowed are due on demand and bear
interest at the bank's prime rate plus an additional rate of 1%. Amounts
borrowed are payable monthly and are secured by all assets of the Company.
3. ACQUISITION OF PREFCO AND MERGER OF CARLTON FOODS:
As of January 1, 1996, a newly formed wholly-owned subsidiary of the Company
acquired the outstanding common stock of Prefco, Inc. (Prefco). Also as of
January 1, 1996, Carlton Foods, Inc. (Carlton) was merged into another newly
formed, wholly-owned subsidiary of the Company. The acquisitions were accounted
for using the purchase method of accounting, whereby the purchase price is
allocated to the assets acquired and liabilities assumed based upon fair value.
The resulting goodwill was determined as follows:
Prefco Carlton
Cash consideration provided at closing $ 6,000,000 $ -
Consideration paid through the issuance of note to the Seller 1,400,000 -
Consideration paid through the issuance of the Company's
common stock 75,000 600,002
Debt assumed by the Company - 3,046,231
Acquisition costs 230,852 227,852
-------------- --------------
Total purchase price $ 7,705,852 $ 3,874,085
============== ==============
7
Prefco Carlton
Cash $ 2,445,210 $ 22,959
Accounts receivable 5,037,027 464,445
Inventory 1,776,325 418,547
Prepaid expenses and other assets 152,059 84,569
Property, plant and equipment 222,450 1,301,062
-------------- --------------
Total assets acquired 9,633,071 2,291,582
-------------- --------------
Bank overdrafts 2,821,156 262,543
Accounts payable 4,908,042 246,712
Accrued expenses 261,873 405,212
Deferred tax liability - 167,000
Obligations under capital lease - 151,085
-------------- --------------
Total liabilities assumed 7,991,071 1,232,552
-------------- --------------
Net assets acquired 1,642,000 1,059,030
-------------- --------------
Goodwill $ 6,063,852 $ 2,815,055
============== ==============
In connection with these transactions, the Company issued approximately 650,000
shares of common stock to the former stockholders of Carlton and Prefco and
issued at a price of $1.05 per share approximately $2.7 million shares of common
stock in a private placement to a limited number of purchasers. In connection
with the private placement, the Company incurred costs of approximately
$121,000. The Company also entered into a loan agreement with a commercial bank
which provided a $4.5 million term loan and a $6.5 million revolving line of
credit (see Note 2). The Company also issued a subordinated promissory note to
the former shareholders of Prefco in the amount of $1.4 million. The note bears
interest at 9% per annum and is payable in quarterly installments of interest,
with a final payment of all outstanding interest and principal on March 15,
2001.
4. DISCONTINUATION OF THE FLYING FRUIT FANTASY DIVISION:
In December 1995, the Company adopted a plan to dispose of its Flying Fruit
Fantasy division. As a result, the Company recognized a one-time charge of
$2,410,200, in the fourth quarter of 1995. The net liabilities of the Flying
Fruit Fantasy division have been presented separately in the accompanying
December 31, 1995 and March 31, 1996, consolidated balance sheets. The result of
operations for the three months ended March 31, 1995, are presented separately
in the statement of operations as a loss from discontinued operations.
5. TERMINATION SETTLEMENT:
During the first quarter of 1996, Atlantic Beverage and one of its former
suppliers agreed to terminate their distribution agreement. As part of the
settlement, the former supplier agreed to pay Atlantic Beverage $250,000 in
consideration. The consideration received is included in other income on the
consolidated statements of operations. During 1995, approximately 4% of the
total cases sold represented cases supplied by this former supplier.
8
6. CONTINGENCIES:
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages and
no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position or results of operations.
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
General
In November 1993, the Company completed an initial public offering of
1,173,150 shares of common stock at $6.50 per share (the "Offering"). Following
the Offering, the Company repaid approximately $4.2 million in debt and recorded
a net non-cash charge of approximately $1.3 million in connection with the
repayment of debt and the write-off of certain intangible assets.
On April 27, 1994, the Company entered into and consummated an
agreement to acquire certain assets and marketing rights from Flying Fruit
Fantasy, USA, Inc. ("FFF") for total consideration of approximately $1.2
million. Under the terms of this agreement, the Company obtained worldwide
marketing and distribution rights to a frozen beverage served through automated
dispensing machines. In December 1995, the Company adopted a plan to discontinue
this division. As a result, in the fourth quarter of 1995, the Company
recognized a one-time charge of approximately $2.4 million which reflected the
write-off of $1.1 million in equipment and $0.9 million in intangible assets,
and costs of approximately $0.4 million associated with discontinuing the
operation.
In the first quarter of 1996, a newly formed, wholly-owned subsidiary
of the Company acquired the outstanding common stock of Prefco, Inc. ("Prefco").
Prefco, based in Houston, Texas, markets and distributes its own branded meat
products as well as unbranded meat products to the retail grocery trade in
Texas. Also in the first quarter of 1996, Carlton Foods, Inc.("Carlton") was
merged into another newly formed, wholly-owned subsidiary of the Company.
Carlton, based in New Braunfels, Texas, is a manufacturer of branded and private
label meat products. The combined purchase price for these entities was
approximately $11 million, which included approximately $3.0 million in Carlton
refinanced and assumed debt. In connection with these transactions and the
financing thereof, the Company incurred transaction costs of approximately $0.9
million, which will be reflected as an asset on the Company's balance sheet.
In connection with such transactions, the Company issued approximately
650,000 shares of common stock to the former stockholders of Carlton and Prefco
and issued at a price of $1.05 per share approximately 2.7 million shares of
common stock in a private placement to a limited number of purchasers. The
Company incurred transaction costs of approximately $0.1 million in connection
with the private placement. The Company also entered into a loan agreement with
LaSalle National Bank (the "LaSalle Facility") which provided a $4.5 million
term loan and a $6.5 million revolving line of credit. The Company also issued a
subordinated promissory note to the former shareholders of Prefco in the amount
of $1.4 million. The note bears interest at 9% per annum and is payable in
quarterly installments of interest, with a final payment of all outstanding
interest and principal on March 15, 2001.
Results of Operations
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
Net Sales. Net sales increased by approximately $29.3 million or 602%
from approximately $4.9 million for the quarter ended March 31, 1995 to
approximately $34.2 million for the quarter ended March 31, 1996. This increase
reflects the acquisition of Carlton and Prefco. Sales attributable to the
Company's beverage business declined approximately 22%.
Gross Profit. Gross profit increased by approximately $2.6 million or
189% from approximately $1.4 million for the quarter ended March 31, 1995 to
approximately $4.0 million for the quarter ended March 31, 1996. This increase
reflects the acquisition of Carlton and Prefco. Gross
10
profit as a percentage of net sales decreased from 28.5% to 11.7% reflecting the
lower gross profit margin associated with the Company's food operations. Gross
profit from beverage sales did increase, however, from 28.5% of sales to 30.3%
of sales reflecting lower product costs and higher selling prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $2.5 million or 186% from
approximately $1.4 million for the quarter ended March 31, 1995 to approximately
$3.9 million for the quarter ended March 31, 1996. This increase reflects the
acquisition of Carlton and Prefco. As a percentage of net sales, selling,
general and administrative expenses decreased from 27.9% to 11.4%. This decrease
reflects the fact that expenses as a percentage of sales are significantly lower
in the Company's food operations than in its beverage operations.
Income from Operations. Income from operations increased approximately
$0.1 million or 329% from approximately $24,000 for the quarter ended March 31,
1995 to approximately $0.1 million for the quarter ended March 31, 1996. This
increase is primarily attributable to the Company's newly acquired food
businesses.
Interest Expense. Interest expense increased approximately $0.3 million
from approximately $2,000 for the quarter ended March 31, 1995 to approximately
$0.3 million for the quarter ended March 31, 1996. This increase was
attributable to debt that the Company incurred in connection with the
acquisitions of Carlton and Prefco, including $4.5 million in bank term debt and
$1.7 million owed to former owners of Carlton and Prefco, in addition to amounts
outstanding under the Company's line of credit.
Other Income. Other income increased approximately $0.4 million from
zero for the quarter ended March 31, 1995 to approximately $0.4 million for the
quarter ended March 31, 1996. This increase was primarily the result of a
one-time settlement payment of approximately $0.3 million that the Company
received from a former beverage supplier.
Net Income (Loss) from Continuing Operations. Net income (loss) from
continuing operations increased approximately $0.2 million from approximately
$26,000 for the quarter ended March 31, 1995 to approximately $0.2 million for
the quarter ended March 31, 1996. This increase reflects factors discussed above
in income from operations, interest expense, and other income.
Loss from Discontinued Operations. Loss from discontinued operations
decreased approximately $0.1 million from approximately $0.1 million for the
quarter ended March 31, 1995 to zero for the quarter ended March 31, 1996. The
loss in 1995 represents the results of the Company's discontinued frozen
beverage division.
Net Income (Loss). Net income (loss) increased approximately $0.3
million from a loss of approximately $0.1 million for the quarter ended March
31, 1995 to income of approximately $0.2 million for the quarter ended March 31,
1996.
Liquidity and Capital Resources
Cash used in operating activities for the quarter ended March 31, 1996
was approximately $0.5 million. This amount was principally affected by net
income, the add-back of depreciation and amortization, loss from discontinued
operations, a decrease in accounts payable and a decrease in accounts
receivable. Cash used in investing activities for the quarter ended March 31,
1996 was approximately $6.5 million and primarily reflected the acquisition of
Carlton and Prefco. Cash provided by financing activities was approximately $7.4
million and was principally affected by debt incurred in connection with the
acquisition of Carlton and Prefco. Net cash increase during the period was
approximately $0.4 million.
11
The Company believes that cash generated from operations and bank
borrowings will be sufficient to fund its working capital requirements and
capital expenditures as currently contemplated for the next quarter. This belief
is based on projections of operating results which necessarily involve
uncertainty. Actual results may differ materially from projections. The LaSalle
Facility contains certain covenants, compliance with which is a condition to all
borrowings. No assurance can be given that the Company will remain in compliance
with such covenants throughout the term of the LaSalle Facility.
The Company, from time to time, reviews the possible acquisition of
other businesses.
Seasonality
Consumer demand for beverage products distributed by the Company tends
to be greater during warmer months. Accordingly, the Company's beverage sales
and profits are generally highest in the second and third calendar quarters.
Management believes that this phenomenon will be mitigated by the results of its
food operations.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matter to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following are annexed as Exhibits:
Exhibit Number Description
10.08B Consulting Agreement dated March 15, 1996
by and between the Company, Sterling Advisors,
L.P. and Elfman Venture Partners, Inc.
11.1 Statement Regarding Computation of Per
Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K filed April 1, 1996.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC BEVERAGE COMPANY, INC.
Date: May 15, 1996 By: /s/ John F. Izzo
------------------------------------
John F. Izzo, Vice President-Finance
Controller and Treasurer
(On behalf of Registrant and as
Chief Accounting Officer)
14
INDEX TO EXHIBITS
Exhibit Number Description Page
10.08B Consulting Agreement dated March 15, 1996
by and between the Company, Sterling
Advisors, L.P. and Elfman Venture Partners, Inc. 16
11.1 Statement Regarding Computation of Per 22
Share Earnings
27.1 Financial Data Schedule
15