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
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
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
===================
