-----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, U29guQRGWKzQ0SmzcO46vqP19Az4k6lFKHGOj1C+62BXJMpJO4hzjND9QHlAoYdH 7B+F5R3v0Clhw3fS+SWdRg== 0000865752-00-000022.txt : 20001205 0000865752-00-000022.hdr.sgml : 20001205 ACCESSION NUMBER: 0000865752-00-000022 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001204 ITEM INFORMATION: FILED AS OF DATE: 20001204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANSEN NATURAL CORP CENTRAL INDEX KEY: 0000865752 STANDARD INDUSTRIAL CLASSIFICATION: BOTTLED & CANNED SOFT DRINKS CARBONATED WATERS [2086] IRS NUMBER: 391679918 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-18761 FILM NUMBER: 782915 BUSINESS ADDRESS: STREET 1: 2401 E KATELLA AVE STE 650 CITY: ANAHEIM STATE: CA ZIP: 92806 BUSINESS PHONE: 7146344200 MAIL ADDRESS: STREET 1: 2401 EAST KATELLA AVE CITY: ANAHEIM STATE: CA ZIP: 92806 FORMER COMPANY: FORMER CONFORMED NAME: UNIPAC CORP DATE OF NAME CHANGE: 19600201 8-K/A 1 0001.txt FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): September 20, 2000 HANSEN NATURAL CORPORATION (Exact name of registrant as specified in charter) DELAWARE 0-18761 39-1679918 (State or other jurisdiction of (Commission (IRS employer incorporation) file number) identification no.) 1010 Railroad Street 92882 Corona, California (Zip Code) (Address of principal executive offices) (909) 739-6200 (Registrant's telephone number, including area code) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On October 4, 2000, Hansen Natural Corporation ( the "Company" or "Registrant") filed a Current Report on Form 8-K to report that on September 20, 2000 the Company acquired, through its indirect subsidiary Blue Sky Natural Beverage Co., a Delaware corporation ("BSNBC"), certain assets of Blue Sky Natural Beverage Co., a New Mexico corporation ("BSNB-NM"), including its natural carbonated sodas and seltzer business, for a purchase price of $6.5 million (the "Acquisition"). Pursuant to Item 7 of Form 8-K, the Company indicated that it would file certain financial information no later than the date required by Item 7 of Form 8-K. This Form 8-K/A is being filed to provide the required financial information. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired The financial statements of BSNB-NM required by Item 7 of Form 8-K are included herein as exhibits 99.1 and 99.2. (b) Pro Forma Financial Information The pro forma financial statements required by paragraphs (b)(2) and (a)(4) of Item 7 of Form 8-K are included herein. Unaudited pro forma combined statement of income for the year ended December 31, 1999; Unaudited pro forma combined statement of income for the nine-months ended September 30, 2000; Unaudited pro forma combined condensed balance sheet data as of September 30, 2000; and Note to unaudited pro forma combined statements of income and combined condensed balance sheet data. The following unaudited pro forma combined financial statements are presented for information purposes only in response to Securities and Exchange Commission ("SEC") requirements and are not necessarily indicative of the combined financial position or results of operations for future periods or the financial position or results of operations that would actually have been realized had the Company and BSNB-NM been a combined company during the specified periods. The unaudited pro forma combined financial statements, including the related note, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements and related notes thereto of the Company, included in its Form 10-K and Form 10-Q, filed with the SEC on March 30, 2000 and November 9, 2000, respectively; and BSNB-NM's audited financial statements and related notes thereto for 1999 and its unaudited balance sheet and statement of operations for the nine-month period ending September 30, 2000, each of which are included in this Form 8-K/A. 2 The following unaudited pro forma combined financial statements give effect to the Acquisition using the purchase method of accounting. The pro forma combined financial statements are based on the respective historical audited and unaudited consolidated financial statements and related notes of the Company and BSNB-NM, respectively. The pro forma adjustments are preliminary and are based on management's estimates of the value of the tangible and intangible assets acquired. The pro forma combined statement of income for the year ended December 31, 1999 assumes that the Acquisition took place as of January 1, 1999 and combines the Company's audited consolidated statement of income for the year ended December 31, 1999 with BSNB-NM's audited statement of operations for the year ended December 31, 1999. The pro forma combined statement of income for the nine months ended September 30, 2000 assumes that the Acquisition took place as of January 1, 2000 and combines the Company's unaudited consolidated statement of income for the nine months ended September 30, 2000 with BSNB-NM's unaudited statement of operations for the nine months ended September 30, 2000. The operating results of the acquired business since the date of the Acquisition are included in the Company's unaudited consolidated statement of income for the nine-months ended September 30, 2000. The pro forma historical condensed balance sheet data of the Company and BSNB-NM as of September 30, 2000 have been adjusted to eliminate the effects of the Acquisition. The pro forma adjustments to the historical condensed balance sheet data of the Company and BSNB-NM as of September 30, 2000 gives effect to the Acquisition. The combined condensed balance sheet data reports the actual balances of the Company as reported in the Company's Form 10-Q for the period ended September 30, 2000. 3 HANSEN NATURAL CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR ENDED: - -------------------------------------------------------------------------------- December 31, 1999 ---------------------------------------------------------------------- Historical Pro forma -------------------------------- ----------------------------------- Company BSNB-NM Adjustments Combined -------------- --------------- --------------- --------------- NET SALES $ 72,303,186 $ 6,417,295 $ $ 78,720,481 COST OF SALES 38,776,532 4,570,070 43,346,602 -------------- --------------- --------------- --------------- GROSS PROFIT 33,526,654 1,847,225 35,373,879 OPERATING EXPENSES: Selling, general and administrative 25,337,374 1,661,929 26,999,303 Amortization of trademark license and trademarks 307,823 162,500 (1) 470,323 Other expenses 380,378 380,378 -------------- --------------- --------------- --------------- Total operating expenses 26,025,575 1,661,929 162,500 27,850,004 -------------- --------------- --------------- --------------- OPERATING INCOME 7,501,079 185,296 (162,500) 7,523,875 NONOPERATING EXPENSE (INCOME) Interest and financing expense 170,506 148,971 588,110 (2) 907,587 Interest income (118,413) (6,749) (125,162) Gain on sale -------------- --------------- --------------- --------------- Net nonoperating expense (income) 52,093 142,222 588,110 782,425 INCOME BEFORE PROVISION FOR INCOME TAXES 7,448,986 43,074 (750,610) 6,741,450 PROVISION FOR INCOME TAXES 2,971,118 (300,244)(4) 2,670,874 -------------- --------------- --------------- --------------- NET INCOME $ 4,477,868 $ 43,074 $ (450,366) $ 4,070,576 ============== =============== =============== =============== NET INCOME PER COMMON SHARE: Basic $ 0.45 $ 0.41 ============== =============== Diluted $ 0.43 $ 0.39 ============== =============== NUMBER OF COMMON SHARES USED IN PER SHARE COMPUTATIONS: Basic 9,964,778 9,964,778 ============== =============== Diluted 10,510,604 10,510,604 ============== =============== See accompanying note to unaudited pro forma combined statements of income and combined condensed balance sheet data.
4 HANSEN NATURAL CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE NINE-MONTHS ENDED: - -------------------------------------------------------------------------------- September 30, 2000 ---------------------------------------------------------------------- Historical Pro forma -------------------------------- ----------------------------------- Company BSNB-NM Adjustments Combined -------------- --------------- --------------- --------------- NET SALES $ 61,346,401 $ 5,156,185 $ $ 66,502,586 COST OF SALES 32,472,187 3,643,876 36,116,063 -------------- --------------- --------------- --------------- GROSS PROFIT 28,874,214 1,512,309 30,386,523 OPERATING EXPENSES: Selling, general and administrative 22,322,793 1,603,561 23,926,354 Amortization of trademark license and trademarks 247,935 121,875 (1) 369,810 Other expenses -------------- --------------- --------------- --------------- Total operating expenses 22,570,728 1,603,561 121,875 24,296,164 -------------- --------------- --------------- --------------- OPERATING INCOME 6,303,486 (91,252) (121,875) 6,090,359 NONOPERATING EXPENSE (INCOME) Interest and financing expense 169,059 101,646 447,222 (2) 717,927 Interest income and other (11,467) (314,335) (325,802) Gain on sale of assets (6,402,838) 6,402,838 (3) - -------------- --------------- --------------- --------------- Net nonoperating expense (income) 157,592 (6,615,527) 6,850,060 392,125 INCOME BEFORE PROVISION FOR INCOME TAXES 6,145,894 6,524,275 (6,971,935) 5,698,234 PROVISION FOR INCOME TAXES 2,440,516 (227,639)(4) 2,212,877 -------------- --------------- --------------- --------------- NET INCOME $ 3,705,378 $ 6,524,275 $ (6,744,296) $ 3,485,357 ============== =============== =============== =============== NET INCOME PER COMMON SHARE: Basic $ 0.37 $ 0.35 ============== =============== Diluted $ 0.35 $ 0.33 ============== =============== NUMBER OF COMMON SHARES USED IN PER SHARE COMPUTATIONS: Basic 9,959,592 9,959,592 ============== =============== Diluted 10,440,377 10,440,377 ============== =============== See accompanying note to unaudited pro forma combined statements of income and combined condensed balance sheet data.
5 HANSEN NATURAL CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA - -------------------------------------------------------------------------------- September 30, 2000 -------------------------------------------------------------------- Pro forma ------------------------------------------------ Company (7) BSNB-NM (7) Adjustments Combined -------------- --------------- --------------- --------------- Working Capital $ 12,654,561 $ (595,300) $ 648,300 (5) $ 12,707,561 Net trade accounts receivable 7,361,309 221,678 (221,678)(6) 7,361,309 Inventories 10,737,659 40,000 10,777,659 Total assets 32,669,002 484,598 6,058,451 (5) 39,212,051 Long-term debt 2,303,671 1,612,790 4,887,210 (5) 8,803,671 Deferred income tax liability 1,225,271 1,225,271 Shareholders' equity (deficit) 21,857,395 (1,784,872) 1,784,872 (6) 21,857,395 See accompanying note to unaudited pro forma combined statements of income and combined condensed balance sheet data.
6 HANSEN NATURAL CORPORATION AND SUBSIDIARIES NOTE TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME AND COMBINED CONDENSED BALANCE SHEET DATA On September 20, 2000, the Company acquired , through its indirect subsidiary Blue Sky Natural Beverage Co., a Delaware corporation ("BSNBC"), certain assets of Blue Sky Natural Beverage Co., a New Mexico corporation ("BSNB-NM"), including the Blue Sky trademarks and certain other assets for a purchase price of $6.5 million (the "Acquisition"). The Blue Sky(R) products include a range of all-natural carbonated sodas and seltzers that are marketed throughout the United States and in certain international markets, principally to the health food trade. The Acquisition has been accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations." Accordingly, the purchase price inclusive of certain acquisition costs, was allocated to the tangible and intangible assets acquired based on their respective fair values at the date of the Acquisition. The purchase price, inclusive of certain acquisition costs, was financed through the Company's modified line of credit. The purchase price was allocated as follows: Cash paid to BSNB-NM $6,500,000 Additional costs 43,049 ---------- Total purchase price $6,543,049 ========== Trademarks $6,478,049 Inventories 40,000 Prepaid expenses 13,000 Fixed assets 12,000 ---------- Net assets acquired $6,543,049 ==========
Trademarks acquired will be amortized on a straight-line basis over forty years. The operating results of BSNBC since the date of the Acquisition are included in the Company's results of operations. The unaudited pro forma combined statements of income give effect to the Acquisition as if it had occurred at the beginning of the period presented. The following adjustments have been reflected in the unaudited pro forma combined statements of income and unaudited pro forma condensed balance sheet data: (1) To record additional amortization of trademarks and trademark license of $162,500 and $121,875 for the twelve-months and nine-months presented, respectively. (2) To record additional interest expense of $588,110 and $447,222 for the twelve-months and nine-months presented, respectively, in respect of the increase in total debt incurred in connection with the Acquisition. (3) To record elimination of gain realized by BSNB-NM in connection with the Acquisition. (4) To record tax effect of pro forma adjustments. (5) To record acquisition of BSNB-NM's business and certain assets and related increase in long-term debt. 7 HANSEN NATURAL CORPORATION AND SUBSIDIARIES NOTE TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME AND COMBINED CONDENSED BALANCE SHEET DATA (6) To record the elimination of certain assets, liabilities and shareholders' equity not acquired from BSNB-NM. (7) The historical condensed balance sheet data presented are based of the balance sheets of the Company and BSNB-NM at September 30, 2000 adjusted to eliminate the effects of the Acquisition. In 1997, the Company's wholly-owned subsidiary, Hansen Beverage Company, obtained a credit facility from Comerica-Bank California ("Comerica"), consisting of a revolving line of credit of up to $3 million in the aggregate at any time outstanding and a term loan of $4 million (the "Credit Facility"). The Credit Facility was subsequently modified from time to time. In the third quarter ended September 30, 2000, the Company entered into a modification agreement with Comerica to further amend the Credit Facility in order to finance the Acquisition, payoff the term loan, and provide additional working capital (the "Modification Agreement"). Pursuant to the Modification Agreement, the revolving line of credit was increased to $12.0 million, reducing to $6.0 million by September 2004. The revolving line of credit remains in full force and effect through September 2005. Further, the rate of interest payable by the Company on advances under the line of credit are based on the bank's base (prime) rate, plus an additional amount of up to .5% or the bank's LIBOR rate, plus an additional amount of up to 2.5%, depending upon certain financial ratios of the Company from time to time. The initial use of proceeds under the Modification Agreement was to pay $6.5 million to BSNB-NM in connection with the Acquisition, to payoff the remaining $807,000 balance due under the term loan and to finance working capital. The Company's borrowings on the line of credit at September 30, 2000 were $8,286,000. The Modification Agreement contains financial covenants that require the Company to maintain certain financial ratios and achieve certain levels of annual income. The Modification Agreement also contains certain non-financial covenants. At September 30, 2000, the Company was in compliance with all covenants. 8 (c) Exhibits Exhibit Number Description -------------- ----------- 99.1 Audited Financial Statements of Blue Sky Natural Beverage, a New Mexico corporation ("BSNB-NM") for 1999 and 1998. 99.2 Unaudited Balance Sheet at September 30, 2000 for BSNB-NM and Unaudited Statement of Operations for the nine-months then ended. 9 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: December 4, 2000 HANSEN NATURAL CORPORATION By: /s/ Rodney C. Sacks Rodney C. Sacks Chairman of the Board and Chief Executive Officer 10 EX-99.1 2 0002.txt EXHIBIT 99.1 BLUE SKY NATURAL BEVERAGE CO. Financial Statements As of December 31, 1999 and 1998 Together with Report of Independent Public Accountants TABLE OF CONTENTS - ----------------- Page ---- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 FINANCIAL STATEMENTS: Balance Sheets 2 Statements of Operations 3 Statements of Stockholders' Deficit 4 Statements of Cash Flows 5 Notes to Financial Statements 6 - 10 SUPPLEMENTAL SCHEDULES: Cost of Sales 11 Selling Expenses 12 General and Administrative Expenses 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Blue Sky Natural Beverage Co.: We have audited the accompanying balance sheets of BLUE SKY NATURAL BEVERAGE CO., as of December 31, 1999 and 1998 and the related statements of operations, stockholders' deficit and cash flows for the years then ended. These financial statements and the accompanying supplemental schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the accompanying supplemental schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Blue Sky Natural Beverage Co., as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in our audits of 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. /s/ Arthur Andersen LLP Albuquerque, New Mexico May 24, 2000 1 BLUE SKY NATURAL BEVERAGE CO. Balance Sheets - December 31, 1999 and 1998 1999 1998 ---- ---- Assets ------ Current Assets: Cash $ 5,049 $ 37,066 Trade accounts receivable, net of allowance for doubtful accounts of $65,886 and $82,417 for 1999 and 1998 458,163 221,234 Inventories 22,070 16,176 Note receivable from stockholder, current portion 5,213 4,190 Prepaid expenses and other 7,935 4,321 ------------------ ------------------ Total current assets 498,430 282,987 Note receivable from stockholder, net of current portion 6,932 6,932 Furniture, fixtures and equipment, net 40,594 52,419 Intangible assets net of amortization 61,577 22,500 ------------------ ------------------ Total assets $ 607,533 $ 364,838 =================== =================== Liabilities and Stockholders' Deficit ------------------------------------- Current Liabilities Accounts payable $ 712,658 $ 449,102 Accrued expenses 58,175 52,024 Current portion of long-term debt 419,070 264,630 ------------------ ------------------ Total current liabilities 1,189,903 765,756 Long-term debt, net of current portion 1,109,015 1,333,541 ------------------ ------------------ Total liabilities 2,298,918 2,099,297 ------------------ ------------------ Stockholders' Deficit Common stock - $.0001 par value; 3,000,000 shares authorized; 600,000 issued and outstanding 600 600 Accumulated deficit (1,691,985) (1,735,059) ------------------ ------------------ Total stockholders' deficit (1,691,385) (1,734,459) ------------------ ------------------ Total liabilities and stockholders' deficit $ 607,533 $ 364,838 ================== ================== The accompanying notes to financial statements are an integral part of these balance sheets.
2 BLUE SKY NATURAL BEVERAGE CO. Statements of Operations For the Years Ended December 31, 1999 and 1998 1999 1998 ---- ---- Net Sales $ 6,417,295 $ 6,691,294 Cost of Sales 4,570,070 5,202,577 -------------------- -------------------- Gross profit 1,847,225 1,488,717 Selling Expenses 966,337 1,136,152 General and Administrative Expenses 695,592 956,068 -------------------- -------------------- Operating income (loss) 185,296 (603,503) Interest and other Non-Operating Income 6,749 17,875 Interest Expense (148,971) (146,644) -------------------- -------------------- Income (loss) before income taxes 43,074 (732,272) Income Taxes: Effect of change to Subchapter S Corporation - 22,704 -------------------- -------------------- Net income (loss) $ 43,074 $ (754,976) ==================== ==================== The accompanying notes to financial statements are an integral part of these statements.
3 BLUE SKY NATURAL BEVERAGE CO. Statements of Stockholders' Deficit For the Years Ended December 31,1999 and 1998 Common Stock -------------------------------- Accumulated Shares Amount Deficit Total ------ ------ ------------ ----- Balance at December 31, 1997 600,000 $ 600 $ (980,083) $ (979,483) Net loss - - (754,976) (754,976) -------------- -------------- ---------------- -------------- Balance at December 31, 1998 600,000 600 (1,735,059) (1,734,459) Net income - - 43,074 43,074 Balance at December 31, 1999 600,000 $ 600 $ (1,691,985) $ (1,691,385) ============== ============== ================ ============== The accompanying notes to financial statements are an integral part of these statements.
4 BLUE SKY NATURAL BEVERAGE CO. Statements of Cash Flow For the Years Ended December 31,1999 and 1998 1999 1998 ---- ---- Cash Flows from Operating Activities: Net income (loss) $ 43,074 $ (754,976) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 42,334 23,347 Bad debt expense 21,579 92,563 Changes in operating assets and liabilities: Trade accounts receivable (258,508) (3,555) Inventories (5,894) 68,672 Notes receivable from stockholder (1,023) 2,533 Income taxes receivable 47,091 Deferred income taxes 22,704 Prepaid expenses and other (3,614) 9,550 Accounts payable 263,556 229,811 Accrued expenses 6,151 (103,830) ---------------- ---------------- Net cash provided by (used for) operating activities 107,655 (366,090) ---------------- ---------------- Cash Flows from Investing Activities: Purchase of intangible assets (60,066) Purchase of furniture, fixtures and equipment (9,520) (13,775) ---------------- ---------------- Net cash used in investing activities (69,586) (13,775) ---------------- ---------------- Cash Flows from Financing Activities: Principal payments on long-term debt (446,589) (183,723) Borrowings on long-term debt 376,503 406,256 ---------------- ---------------- Net cash (used for) provided by financing activities (70,086) 222,533 ---------------- ---------------- Net Decrease in cash (32,017) (157,332) Cash, beginning of year 37,066 194,398 ---------------- ---------------- Cash, end of year $ 5,049 $ 37,066 ================ ================ Supplemental Cash Flow Information: Cash paid during the year for interest $ 102,781 $ 146,644 ================ ================ The accompanying notes to financial statements are an integral part of these statements.
5 BLUE SKY NATURAL BEVERAGE CO. Notes to Financial Statements December 31, 1998 and 1999 - ------------------------------------------------------------------------- 1. Nature of Operations and Organization Blue Sky Natural Beverage Co. (the "Company") was formed in 1980. Its principal business activities consist of marketing, development and distribution of natural beverages. The Company is located in Santa Fe, New Mexico, and distributes flavored beverages throughout the U.S. and in select international markets. The Company creates flavors to its specifications, and contracts for the manufacturing and distribution of its beverages. As reflected in the accompanying financial statements at December 31, 1999 and 1998, the Company has a significant accumulated deficit in stockholders' equity and current liabilities exceed current assets, which raises concern about the Company's ability to satisfy its obligations. The losses in 1998 were primarily from a production process failure for one new product and the related product recall and discontinuation. The Company absorbed all the costs of this product recall and discontinuation during 1998. The Company is continuing to pursue legal action against the outsourced providers they believe to be at fault. At this time, the outcome of these proceedings is undeterminable. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. Management's plans in regard to these matters include the sale of substantially all of the Company's assets, as discussed below. On May 23, 2000 the Company received a Letter of Intent from a party summarizing a proposed purchase transaction in which the party would purchase substantially all of the assets of the Company for a purchase price of $7.6 million. The target date of the closing of the transaction is August 15, 2000. The financial statements do not include any adjustments that might result from the outcome of this proposed transaction. 2. Significant Accounting Policies a. Basis of Accounting The accounting and reporting policies of the Company conform with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. b. Inventories Inventories are carried at the lower of cost or market value on a first-in, first-out basis. 6 c. Property, Plant and Equipment Property, plant and equipment are recorded at cost. The Company depreciates these assets over their estimated useful lives on a straight-line basis as follows: Furniture, fixtures and equipment 5 to 7 Years Automobiles 5 Years Expenditures for maintenance and repairs are charged to operations as incurred. d. Intangible Assets Intangible assets, which are recorded at cost, include the Company's trademark and other product development costs. The trademark is being amortized over 5 years and the other product development costs are being amortized over one year. e. Revenue Recognition The Company recognizes revenue net of sales and volume discounts when products are shipped. Returned products and discounts are recorded as a reduction of sales in the accompanying statements of operations. f. Advertising and Promotion Costs Advertising and promotion costs are expensed as incurred as part of selling expenses. g. Income Taxes Effective January 1, 1998, the Company changed its taxable status under the Internal Revenue Code (IRC) from a C corporation to a Subchapter S corporation. As a result all income taxes are passed through to the stockholders. Any deferred tax assets existing at the election date not expected to be realized within certain time limits specified by the IRC were removed from the books in 1998. Accordingly, subsequent to December 31, 1997, the only current income tax expense recorded is attributable to the removal of certain deferred tax assets. The Company recognized a net expense of $22,704 as an effect of change to Subchapter S Corporation in 1998. h. Stock Split On August 12, 1999 the Board of Directors of the Company approved a common stock split in the amount of 1,000 common shares to 1 common share. The effects of the stock split have been shown retroactively for comparative purposes. 7 3. Inventories Inventories consist of the following at December 31: 1999 1998 ----------------------- ----------------------- Sodas (12 oz., 12 pack, 1 liter and 2 liter) $ 13,547 $ 4,010 Concentrate flavoring 10,440 10,371 Bag in box 2,777 2,651 20 oz. Water 2,730 ----------------------- ----------------------- 26,764 19,762 Less: Allowance for spoilage 4,694 3,586 ----------------------- ----------------------- $ 22,070 $ 16,176 ======================= =======================
4. Note Receivable from Stockholder The note receivable from stockholder bears interest at the rate of 5.88% with principal being amortized through November 2000. 5. Furniture, Fixtures and Equipment Furniture, fixtures and equipment consist of the following at December 31: 1999 1998 ----------------------- ----------------------- Furniture, fixtures and equipment $ 204,073 $ 194,553 Automobile 16,033 16,033 ----------------------- ----------------------- 220,106 210,586 Less: Accumulated depreciation 179,512 158,617 ----------------------- ----------------------- $ 40,594 $ 52,419 ======================= =======================
6. Defined Benefit Pension Plan The Company had a defined benefit pension plan (the "Plan") which covered all employees meeting minimum age and length of service requirements. The Plan provided retirement benefits, which were based on a fixed percentage of the average three highest annual salaries earned during eligible years of employment. The Company was required to fund contributions in a range established actuarially in compliance with statutory Employee Retirement Income Security Act of 1974 ("ERISA") requirements. Miring 1998, the Plan was terminated and Plan assets were distributed to participants prior to December 31,1998. 8 7. Debt Debt consists of the following at December 31: 1999 1998 ----------------------- ----------------------- Note payable to a bank, prime plus 1%, (9.5% and 8.75% at December 31. 1999 and 1998, respectively) self amortizing through June 2003, collateralized by all furniture, fixtures, equipment, inventory, accounts receivable, tangibles and intangibles, and outstanding Company stock $ 865,785 $ 1,071,915 Revolving $200,000 credit line note payable to a bank, prime plus 1%, (9.5% and 8.75% at December 31, 1999 and 1998, respectively), due June 2000, collateralized by the same assets as those collateralized for the note payable above 200,000 56,256 Revolving $600,000 credit line note payable to a stockholder, 10% fixed, due February 2001, unsecured 462,300 470,000 ----------------------- ----------------------- 1,528,085 1,598,171 Less: current maturities 419,070 264,630 ----------------------- ----------------------- $1,109,015 $ 1,333,541 ======================= =======================
At December 31, 1999 the long-term debt matures as follows: 2000 $ 419,070 2001 703,748 2002 266,070 2003 139,197 ---------------- $ 1,528,085 ================ The note payable and revolving line-of-credit to a bank requires the Company to comply with certain debt covenants including, but not limited to restrictions on certain indebtedness, and restrictions on the Company's ability to dispose of all or substantially all assets or assign certain assets. The agreements also contain subjective acceleration provisions that permit the bank to declare the debt immediately due and payable if the Company's legal status, financial condition or actions are such that the bank believes the Company's ongoing existence is questionable. Management believes that the Company is in compliance with all debt requirements at December 31, 1999. Management also believes that the Company will be able to comply with all covenants in future periods. 8. Incentive Stock Option Plan On August 12, 1999 the Board of Directors of the Company approved an Incentive Stock Option Plan under which options to purchase the Company's common stock may be granted to employees through August 12, 2009. Stock options vest ratably based on gross sales goals determined by the Board of Directors. Unexercised options expire ten years from the date of grant. All options are granted at the estimated fair value of the stock at the date of grant. A total of 200,000 shares of common stock were initially reserved for options. Terminated option shares are available for future grant under the Plan. As of December 31, 1999 the Company had granted all 200,000 options at an exercise price of $ 2.96 per share, and no options have been vested or exercised. The effect on income of these options calculated in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", was immaterial in fiscal year 1999. 9 9. Commitments The Company has non-cancelable operating leases relating to two equipment leases. The future minimum monthly payments under these operating leases at December 31, 1999 are as follows: 2000 $ 4,324 2001 4,324 2002 4,324 2003 4,343 --------------- $ 15,315 =============== 10. Significant Customers For the years ended December 31, 1999 and 1998, sales to two customers approximated 27% of total net sales. Trade accounts receivable due from these two customers totaled approximately $54,992 and $29,700, at December 31, 1999 and 1998, respectively. 10 BLUE SKY NATURAL BEVERAGE CO. Supplemental Schedule of Cost of Sales For the Years Ended December 31,1999 and 1998 1999 1998 ---------------------------- ---------------------------- Direct Materials $ 4,042,347 $ 4,588,538 Freight 411,259 450,254 Storage and access 6,366 54,545 Production costs - 894 Other direct costs 110,098 108,346 ---------------------------- ---------------------------- $ 4,570,070 $ 5,202,577 ============================ ============================
11 BLUE SKY NATURAL BEVERAGE CO. Supplemerital Schedule of Selling Expenses For the Years Ended December 31, 1999 and 1998 1999 1998 ---------------------------- ---------------------------- Advertising and promotion $ 221,247 $ 345,889 Sales salaries 327,134 306,766 Sales commissions 267,134 225,538 Travel 98,287 126,016 Bad debt 21,579 92,563 Shipping 16,467 22,083 Other 14,489 17,297 ---------------------------- ---------------------------- $ 966,337 $ 1,136,152 ============================ ============================
12 BLUE SKY NATURAL BEVERAGE CO. Supplemental Schedule of General and Administrative Expenses For the Years Ended December 31, 1999 and 1998 1999 1998 ---------------------------- ---------------------------- Salaries: General office employees $ 190,020 $ 172,352 Officers and executives 165,906 298,444 Contributions 28,293 95,773 Professional fees 60,728 63,749 Travel, entertainment and meals 46,149 52,368 Rent 37,239 38,578 Telephone 40,726 36,452 Product development - 26,197 Insurance 13,933 25,463 Depreciation and amortization 42,334 23,347 Repairs and maintenance 24,010 18,703 Other 46,254 104,642 ---------------------------- ---------------------------- $ 695,592 $ 956,068 ============================ ============================
13 EX-99.2 3 0003.txt EXHIBIT 99.2 BLUE SKY NATURAL BEVERAGE CO. BALANCE SHEET SEPTEMBER 30, 2000 (Unaudited) - -------------------------------------------------------------------------------- September 30, 2000 ------------- ASSETS CURRENT ASSETS: Cash $ 5,024,998 Trade accounts receivable, net of allowance for doubtful accounts of $41,108 221,678 Note receivable from stockholder, current portion 5,638 ------------------ 5,252,314 NOTE RECEIVABLE FROM STOCKHOLDER, NET OF CURRENT PORTION 6,932 FURNITURE, FIXTURES AND EQUIPMENT, NET 15,400 ------------------ $ 5,274,646 ================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 576,900 Accrued expenses 79,780 Current portion of long-term debt ------------------ 656,680 STOCKHOLDERS' EQUITY Common stock - $.0001 par value; 3,000,000 shares authorized; 600,000 issued and outstanding 600 Retained earnings 4,617,366 ------------------ Total stockholders' equity 4,617,966 ------------------ Total liabilities and stockholders' equity $ 5,274,646 ==================
BLUE SKY NATURAL BEVERAGE CO. STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (Unaudited) - -------------------------------------------------------------------------------- 2000 ---- NET SALES $ 5,156,185 COST OF SALES 3,643,876 ------------------- GROSS PROFIT 1,512,309 SELLING EXPENSES 598,968 GENERAL AND ADMINISTRATIVE EXPENSES 1,004,593 ------------------- OPERATING LOSS (91,252) INTEREST INCOME AND OTHER 314,335 GAIN ON SALE OF ASSETS 6,402,838 INTEREST EXPENSE (101,646) ------------------- NET INCOME $ 6,524,275 ===================
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