<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-KSB
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-12599
VITA FOOD PRODUCTS, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)
NEVADA #36-3171548
------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2222 WEST LAKE STREET
CHICAGO, ILLINOIS (312) 738-4500 60612
------------------------ ---------------------- -----
(Address of principal Registrant's telephone number (Zip Code)
executive offices) including area code
Securities registered pursuant to Section 12(b) of the Exchange Act:
<TABLE>
<S> <C>
Title of Each Class Name of Each Exchange On Which Registered
- - ------------------------------- ------------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE AMERICAN STOCK EXCHANGE & CHICAGO STOCK EXCHANGE
REDEEMABLE COMMON STOCK PURCHASE WARRANTS AMERICAN STOCK EXCHANGE & CHICAGO STOCK EXCHANGE
</TABLE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ____
State issuer's revenues for the most recent fiscal year. $21,949,884
Shares of common stock, par value $.01 outstanding at March 20, 1998 -
3,700,000. Aggregate market value of such shares held by non-affiliates as of
that date - $2,681,769.
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company has been engaged in the sale of specialty food products under
the VITA brand name for over 65 years. The Company believes that its long
history of producing and marketing quality products has created a strong
recognition of the VITA brand name among consumers and has enabled the Company
to build an extensive national distribution network of established food brokers
for the sale of its products to supermarket chains and wholesale clubs
(collectively "Supermarkets") and to institutional/food service operations,
such as restaurant chains, hotels, country clubs, cruise lines and other bulk
purchasers (collectively "Institutional Purchasers"). Historically, the Company
has increased its sales through acquisitions which have enabled the Company to
add new product lines and expand its existing product lines. The Company
believes that "VITA" with its accompanying logo is the most widely recognized,
and the only nationally recognized, brand name in herring products and cured
and smoked salmon products. The Company is one of the leading processors of
herring products, and cured and smoked salmon products in the United States and
has been producing and selling herring products for over 65 years and cured and
smoked salmon products for over 25 years. The Company's products include a
variety of cuts of pickled herring in cream and wine based sauces, and lox and
nova salmon. The Company markets other complementary specialty food products,
such as cream cheese with salmon, shrimp cocktail, hommus products, horseradish
products, and cocktail and tartar sauces, that it purchases from third party
food producers and markets under the VITA brand name pursuant to co-packing
arrangements. The Company markets and, in some cases, also produces related
specialty food products under other brand names, some of which are recognized
regional brand names, in certain regions of the country, that have been
licensed to the Company.
COMPANY BACKGROUND
Although it had been selling herring products for a number of years prior
to its incorporation, the Company was originally incorporated as Vita Food
Products, Inc. in 1928. In 1968, Brown and Williamson Tobacco Company, a
British company, purchased the Company. The Company was then acquired by Dean
Foods Company in 1978. In 1982, Mr. Stephen D. Rubin and Mr. Clark L. Feldman,
on behalf of an investor group (the "Investors"), negotiated the acquisition of
the Company from Dean Foods Company and became the Company's largest
shareholders. On September 20, 1996, the Company reincorporated in the State of
Nevada through a merger of Vita Food Products, Inc., an Illinois corporation
("Vita-Illinois"), and V-F Acquisition, Inc., an Illinois corporation that was
the largest shareholder of Vita-Illinois, into the Company, a Nevada
corporation formed for the purpose of effecting the reincorporation. On
January 23, 1997, the Company completed an initial public offering of shares of
its common stock and redeemable common stock purchase warrants resulting in net
proceeds before expenses of approximately $4.1 million (the "Initial Public
Offering").
GROWTH STRATEGY
The Company's long-term growth strategy is to focus on acquisitions and
capitalize on the goodwill associated with the VITA brand name and the strength
of its national distribution network to increase its market share for its
existing products and to introduce and market complementary new specialty food
products, which will be sold under either the VITA brand name or other brand
names purchased or licensed from third parties. The Company intends to
implement its growth strategy through acquiring, or entering into joint
ventures with, companies producing complementary specialty food products,
introducing and developing new products and increasing its marketing efforts.
The Company's production facility often operates at full capacity and the
Company, in order to accommodate its anticipated growth, intends to construct a
new facility (the "Improved Facility").
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PRODUCTS
The Company's products include herring products and cured and smoked
salmon products and a variety of related ready to eat specialty food products.
Most of the Company's products are refrigerated and can be located in either
the dairy department, meat and fish department or deli department of
Supermarkets. Many of the Company's products are also sold in bulk to
Institutional Purchasers. The Company believes that, although the market for
herring products has been and is expected to remain constant, the market for
salmon products and other specialty products is increasing. Consumption of
fresh and frozen seafood in the United States is increasing, especially
consumption of salmon. This increase contrasts with the consumption of beef
and pork which is declining and has been declining for at least the last five
years. All of the Company's salmon and herring products and most of its other
specialty food products are kosher and receive the symbol of certification from
the Orthodox Union. The Company also receives the symbol of certification for
the use of many of its products for Passover from the Orthodox Union. The
Company believes that the market for kosher foods will grow in the next few
years and that this represents a significant opportunity for the Company. The
increase in consumption of kosher food products is at least partially the
result of (i) the perception by certain consumers who are not bound by
Judaism's religious dietary restrictions that kosher certification indicates a
superior product, and (ii) an increase in the population of members of other
religious groups such as Islam, Hinduism and some branches of Christianity that
observe dietary restrictions similar to many Jewish people.
HERRING
The Company, generally using the best available grade of ocean herring,
cures the herring and mixes the cured herring with a variety of high quality
spices, wines and other ingredients according to the Company's proprietary
formulations to produce a number of herring products. These products are then
either packaged in vacuum-sealed glass jars to preserve flavor for sale to
Supermarkets or packaged in bulk containers for sale to Institutional
Purchasers. Herring is a traditional Eastern European and Scandinavian staple,
being one of the most widely consumed fish in the world. In the United States,
however, herring is more of a specialty product that is served at parties or
holiday gatherings. Herring products are often served as appetizers, part of a
buffet, between-meal snacks or an ingredient in salads. The Company's most
popular herring products are its "VITA Herring Party Snacks" and "VITA Herring
in Sour Cream." The Company also sells a variety of other herring products
under the VITA and ELF brand names.
SALMON
The Company, using only premium and quality grades of salmon primarily
from Southeastern Alaska and Canada, cures, smokes, and slices the salmon for
most of its salmon products. The Company's retail salmon products are packaged
and sold either refrigerated or frozen to Supermarkets. The institutional
cured and smoked salmon products are packaged in bulk containers, including
three pound trays, and sold refrigerated or frozen to Institutional Purchasers.
Salmon consumption has been increasing over the past five years and salmon now
represents the fourth most popular type of seafood consumed in the United
States. The Company's salmon products are generally served as part of buffets
at parties, particularly during the Christmas holiday season, or as a
traditional brunch item with bagels. The salmon products are also served as
appetizers at formal parties and are being more frequently used as light meals.
The Company's salmon products include "VITA Lox Salmon," "VITA Nova Salmon,"
and "VITA Pastrami Salmon." The Company also distributes imported Scottish
smoked salmon under the "ROYAL HIGHLAND" and "HIGHLAND CREST" licensed brand
names. Other products sold under the VITA label include the VITA LEAN Salmon
Burger, VITA Salmon Nuggets, and VITA Salmon Spread.
OTHER SPECIALTY PRODUCTS
The Company sells a number of spreads and condiments, including
horseradish products, cream cheese with smoked salmon, cocktail and tartar
sauces, shrimp cocktail and hommus products. These products are used as
appetizers, snacks, and condiments to accompany light meals and holiday trays.
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These products are marketed by the Company under the VITA brand name, but
produced by third parties pursuant to co-packing arrangements.
NEW PRODUCTS
The Company's new products are either products developed by the Company,
products acquired through acquisitions of other companies, or products marketed
under co-packing arrangements or distribution agreements. The Company
introduced "VITA HEAVENLY HOMMUS!" in September, 1996, the "VITA LEAN SALMON
BURGER" in November, 1996, and "VITA SALMON NUGGETS" in September, 1997. The
salmon burger and salmon nugget products were developed by the Company while
the hommus products are marketed under a co-packing arrangement. The Company
intends to capitalize on its national distribution network and the strong
recognition of the VITA brand name to generate sales of these products. In
order to introduce these products, the Company incurs costs for development and
distribution which are significant relative to current sales levels. It is
expected that as sales of these products grow, the development and distribution
costs will decline on a relative basis. The Company believes that through the
introduction of new non-seasonal products, it can, over time, reduce the
variability in its quarterly operating results by increasing sales during the
second and third quarters of each year.
PRODUCT DISTRIBUTION AND SALES
The Company's specialty food products are currently sold through a
national distribution network of approximately 60 established retail and
institutional/food service brokers. The Company believes that it is the only
processor of herring products and cured and smoked salmon products that has
established such an extensive national distribution network. The Company
believes it has been successful in developing this network for a number of
reasons, including the recognition of the VITA brand name and the Company's
reputation for producing quality products. The Company has also been able to
develop and strengthen its distribution network by providing adequate shelf
space for its products. The Company's current marketing efforts and its
long-term relationship with many of the food brokers has also contributed to
the strength of this network. The Company, through its marketing efforts,
attempts to maintain good relationships with the Supermarkets and Institutional
Purchasers that purchase its products. The Company believes that its national
distribution network has, in turn, helped strengthen the VITA brand name and
has been a important factor in the Company's ability to introduce new products
into the marketplace.
The Company's regional sales managers oversee its national distribution
network. The Company employs five full-time regional sales managers who
maintain contact with the food brokers in their region and monitor their
performance. The regional sales managers also assist the food brokers in their
selling efforts by, among other things, accompanying the food brokers on local
sales calls. The Company believes that it is one of the few companies in its
market niche to employ regional sales managers and that the presence of the
regional sales managers has solidified the Company's relationship with its
national distribution network.
The Company enters into an agreement with each food broker which grants
the food broker an exclusive territory in which to sell VITA products and sets
forth the amount of commissions to be paid on such sales by the Company. Such
agreements do not permit the Company to make sales directly to Supermarkets
located in a food broker's exclusive territory unless the Company pays the food
broker the commission which it would have earned. The agreements are terminable
by either party upon 30 days' notice. The Company believes such terms are
standard in the Company's industry. The food brokers sell the Company's
products in both the retail and institutional/food service markets. The retail
market, consisting of Supermarkets has generally accounted for approximately
80% of the Company's net sales while Institutional Purchasers have accounted
for the remaining 20% of net sales. Approximately 90% of the Company's net
sales to Supermarkets are made through food brokers while the remaining 10% of
net sales to Supermarkets are made directly by the Company. Products purchased
through food brokers by Supermarkets that are shipped directly to the
Supermarkets' warehouses have generally accounted for 65% of the 90% of net
sales to the
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retail market. Products purchased through food brokers by food
distributors for resale to Supermarkets have accounted for 35% of the 90% of
net sales to the retail market. Approximately 90% of the Company's net sales
to Institutional Purchasers are made through food brokers, including
international distributors, while the remaining 10% of net sales are made to
Institutional Purchasers directly by the Company.
CUSTOMERS/SALES BY REGION
The Company's customers include large regional supermarket chains and
wholesale clubs throughout the country. The Company's products sold under the
VITA brand name are particularly well known in New York City and the
surrounding metropolitan area ("NYC"). Approximately 11% of the Company's 1997
net sales were to customers located in NYC, including Waldbaum's, A & P,
Shop-Rite and Supermarket General. Approximately 19% of the Company's 1997 net
sales were to customers located in the Northeast, excluding NYC, including Stop
& Shop, Shaw's and Wegman's. Approximately 21% of the Company's 1997 net sales
were to customers in the Southeast, including Publix and Winn-Dixie.
Approximately 35% of the Company's 1997 net sales, including sales of the ELF
brand of herring, were to customers located in the Midwest, including Super
Valu, Jewel, Dominick's and Meijer's. Approximately 13% of the Company's 1997
net sales were to customers located in the West, including Safeway, Fred Meyer
and Albertson's. Approximately 1% of the Company's 1997 net sales were to
customers located outside the U.S.
The Company's largest customer represented more than 10% of its net sales
in 1996, but not more than 10% of its net sales in 1997. This customer is a
large supermarket chain with five regional divisions located in the Southeast.
The purchasing decisions of each regional division are made independently. The
Company does not have a long-term contractual relationship with this customer.
The Company believes the loss of this customer would have a material adverse
affect on the Company's business, financial condition and results of
operations. However, the Company believes the loss of this customer is
unlikely. In addition, because each regional division makes its purchasing
decisions independently, the Company believes that it is not likely to lose all
of the divisions even if it were to lose one or more of such divisions.
The Company is aware that its customers are continually reviewing their
purchasing decisions which may result in such customers changing their current
orders from higher margin to lower margin products or reducing the amount of a
product or products purchased. Any material change in orders or reduction in
the amount of a product or products purchased by one or more significant
customers could adversely affect the Company's business, financial condition
and results of operations.
PRODUCT RETURN POLICY
The Company guarantees the sale of most of its products sold in
Supermarkets, which sales represent approximately 80% of all the Company's
sales. This guarantee helps ensure that consumers receive fresh products. Under
the guarantee, products not sold before their expiration date are either
returned to the Company through its food brokers or are disposed of by the
Supermarkets or food distributor. A credit is then issued to the Supermarket or
food distributor. The Company has established a reserve to be used for credits
for product returns and believes, based on its historical return rates which
have been fairly consistent over the past several years, that this reserve is
adequate to fund all foreseeable product return credits.
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PRODUCTION
PRODUCTION FACILITY
The Company produces, packages, stores, and distributes its herring and
salmon products at the Company-owned facility located in Chicago, Illinois.
The Company's facility is located on 125,600 square feet of contiguous land.
The facility contains approximately 82,200 square feet of space, including
approximately 65,000 square feet of production space, approximately 13,900
square feet of refrigerated storage space, and approximately 3,300 square feet
of office space. The Company stores and distributes its products through over
30 warehouse facilities owned by third parties which are located throughout the
United States.
As of March 20, 1998, the Company anticipates constructing the Improved
Facility during the next 6 to 12 months. The Company believes the Improved
Facility is necessary to implement the Company's growth strategy and will
result in increased production capacity, increased production efficiencies, and
other overall cost savings. There can be no assurance that the Company will not
encounter quality or capacity difficulties, or experience production delays, in
connection with the anticipated construction of the Improved Facility. These
factors could have an adverse short-term effect on the Company's results of
operations. The Company intends to finance the construction of the Improved
Facility, currently projected to cost $6,000,000 - $8,000,000, through the use
of one or more financing options, which may include, among others, industrial
revenue bond financing and conventional bank financing.
SUPPLIERS
The Company relies on outside suppliers for its herring and salmon
requirements. The Company currently purchases most of its herring from Cold
Ocean Inc. (formerly known as Barry's Limited) (the "Supplier"), a specialty
herring harvester and processor located in Canada, pursuant to a supply
agreement. The Company has been purchasing herring from the Supplier since the
Company began operations over 65 years ago. Under the agreement, the Supplier
has the option to supply 90% of the Company's annual requirements for herring,
provided it sells the herring at the same prices which the Company would pay if
it purchased herring elsewhere. The Supplier guarantees the first priority of
supply of herring to the Company, in an amount necessary to satisfy the
Company's requirements. The Company currently purchases its salmon from a
number of sources. The Company believes that there are other suppliers of
herring and salmon from which the Company could meet its requirements, if
necessary. Pursuant to a distributorship agreement, the Company distributes
imported Scottish smoked salmon under the licensed brand names ROYAL HIGHLAND
and HIGHLAND CREST.
QUALITY CONTROL
The Company believes that it was one of the first processors of herring
products and cured and smoked salmon products to institute quality control
procedures and that its quality control procedures are among the most stringent
in this market. The Company has two full-time employees in its Quality Control
Department. The primary responsibility of these employees is to insure the
quality of its products by overseeing the production process and by frequently
testing the consistency of the products as they are produced. The products
produced through co-packing arrangements are subject to both the quality
control procedures of the co-packing company and the same frequent product
testing that is required of the Company's products under its quality control
procedures.
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COMPETITION
The market for the Company's products is highly competitive. The Company
believes that consumers choose herring products and salmon products as well as
its other specialty products based primarily on product quality and price.
Although the Company's competitors are primarily small, regional food
processors and producers, certain of the Company's competitors may have greater
financial and other resources than the Company and may offer lower prices on
comparable products. Since a key competitive factor among producers of cured
and smoked salmon products and herring products is price, even smaller regional
companies may be able to compete effectively against the Company due to reduced
shipping costs. While the Company believes its prices are competitive for the
quality level of its products, the Company relies primarily on the recognition
of the VITA brand name, its reputation for selling quality products, and the
strength of its distribution network. The Company's main competitors in the
herring product and cured and smoked salmon product market are Lassco, Mama's
and Nathan's, among others. The Company believes it is the only independent
company with national distribution capabilities in this market.
ENVIRONMENTAL MATTERS
In the ordinary course of its production process, spillage and cleaning
results in a high concentration of sugars and vinegars, which create Biological
Oxygen Demands ("BODs") as well as fats, oils and greases ("FOGs"), both of
which enter the waste water treatment system. The Company is assessed a user
charge by the Metropolitan Water Reclamation District (the "District"), based
in part on the costs of treating this waste water. If the level of FOGs
entering the waste water treatment system exceed a specified level over a
specified period of time, the District, following certain procedural
requirements, has the authority to fine the Company or to temporarily close the
Company's production facility. The level of FOGs resulting from the Company's
production process has occasionally exceeded this specified level in the past
on a temporary basis but not for any extended period of time. The Company has
no reason to believe that this level will be exceeded for any extended period
of time in the future. The District has not initiated or threatened to initiate
proceedings against the Company for violating specified levels for FOGs. The
Company expects the improved facility will significantly decrease or eliminate
BODs and FOGs and therefore, reduce user charges.
Compliance with Federal, state or local provisions relating to protection
of the environment is not expected to have a material effect on the Company's
capital expenditures, earnings or competitive position.
INTELLECTUAL PROPERTY
Trademarks and trade names are of critical importance to producers of food
products. A recognized trademark or trade name allows the consumer to
immediately identify the source of a product, even if the product is new to the
marketplace. The Company owns the federally registered trademark "VITA" (with
accompanying design). The Company believes that this mark is widely recognized,
and provides immediate identification of the source of its products to
consumers. Based upon its ability to maintain a significant share of the
national market for refrigerated herring products and cured and smoked salmon
products, the Company believes the "VITA" brand name and trademark has a
substantial amount of goodwill associated with it. The Company believes the
VITA mark and its accompanying design are critical to its ability to market new
products and to its marketing strategy in general.
The Company has also licensed certain brand names, such as ELF, ROYAL
HIGHLAND and HIGHLAND CREST. Based on sales of the herring products marketed
under the "ELF" trademark, the Company believes there is widespread consumer
recognition of that brand name in the Midwest region of the country. The
Company obtained all of Lyon Food's rights to the "ELF" trademark in connection
with herring products from Food Marketing Corp. pursuant to the terms of a
letter agreement (the "Letter Agreement"). Ownership of the "ELF" trademark
was transferred by Food Marketing Corp. to SuperValu, Inc., which affirmed Lyon
Food's
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right to use the mark as set forth in the Letter Agreement and consented
to the right to use the trademark in connection with smoked fish products. The
Letter Agreement is terminable upon six months notice to the Company. The
Company has licensed the ROYAL HIGHLAND and HIGHLAND CREST brand names, under
which the Company distributes imported Scottish smoked salmon. The Company
believes that these brand names will develop substantial goodwill over time.
The Company has the right to use the HIGHLAND CREST and ROYAL HIGHLAND brand
names under the terms of an exclusive distributorship agreement that expires in
December, 1999, but is renewable for successive 5-year intervals upon written
agreement of both parties. The Company sells its hommus products under the
recently applied for federal trademark "HEAVENLY HOMMUS!," sells its salmon
burger under the registered federal trademark "VITA LEAN," and has applied for
registration of the trademark "SALMON SLAMMERS" for use in marketing its salmon
nugget products to Institutional Purchasers. The Company is not aware of any
names or marks which infringe any of those the Company uses. Although the
Company sells products under a number of other brand and trade names, such
other brand or trade names are not material to the Company's marketing
strategy. The Company also uses various recipes and proprietary formulations in
its products which it maintains as trade secrets. The Company does not believe
its business is otherwise dependent upon any patent, license, trademark,
service mark or copyright.
PRODUCT LIABILITY INSURANCE
The Company currently maintains product liability insurance for its
products with limits of $1,000,000 per ccurrence and $10,000,000 in the
aggregate, per annum. There can be no assurance that the Company's insurance
will be adequate to cover future product liability claims, or that the Company
will be able to maintain adequate product liability insurance at commercially
reasonable rates.
EMPLOYEES
At February 24, 1998, the Company had 120 full-time employees.
Additionally, approximately up to 80 workers are hired on a temporary basis
each year to meet seasonal production demands. Except for supervisors, all
production employees are represented by the Local 546 United Food & Commercial
Workers, International Union and maintenance employees are represented by the
Local 399 International Union of Operating Engineers. The Company has not
experienced any work stoppages since the Company was acquired by the Investors
in 1982. The Company considers its relations with its employees to be good.
GOVERNMENT REGULATION
The manufacture, processing, packaging, storage, distribution and labeling
of food products are subject to extensive federal and state laws and
regulations. In the United States, the Company's business is subject to
regulation by the Food and Drug Administration (the "FDA"). Applicable
statutes and regulations governing food products include "standards of
identity" for the content of specific types of foods, nutritional labeling and
serving size requirements. The Company believes that its current products
satisfy, and its new products will satisfy, all applicable regulations and that
all of the ingredients used in its products are "generally recognized as safe"
by the FDA for the intended purposes for which they will be used.
ITEM 2. PROPERTIES
The Company's facility is located on 125,600 square feet of contiguous
land. The facility contains approximately 82,200 square feet of space,
including approximately 65,000 square feet of production space, approximately
13,900 square feet of refrigerated storage space, and approximately 3,300
square feet of office space. American National Bank and Trust Company of
Chicago ("ANB") has a mortgage on this facility. The Company intends to
construct the Improved Facility in the next six to twelve months. See the
section captioned " Production-Production Facility" In Item I of this Report.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material pending legal
proceedings and is not aware of any material legal proceedings threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKETS FOR REGISTRANT'S COMMON STOCK, WARRANTS AND RELATED
STOCKHOLDER MATTERS
The shares of Common Stock and Redeemable Common Stock Purchase Warrants
began trading on the Chicago Stock Exchange on January 17, 1997, and on the
American Stock Exchange on May 12, 1997. The Company's Common Stock is traded
on the American Stock Exchange and Chicago Stock Exchange under the symbol
"VSF". The Company's Warrants are traded on the American Stock Exchange and
Chicago Stock Exchange under the symbol "VSF.WS." The Company believes that as
of March 17, 1998 there were 39 holders of record of the Company's Common Stock
and 10 holders of record of the Company's Warrants.
The Company has never paid a cash dividend on its common stock and
currently anticipates that all of its earnings will be retained for use in the
operation and expansion of its business.
The following table set forth the composite market price per share for the
Common Stock and Warrants of the Company.
<TABLE>
<CAPTION>
Common Stock Market Price
High Low
------------------------------------------------------------
<S> <C> <C>
1997
----
1st Quarter (from January 17) 6 4 3/8
2nd Quarter 6 3 3/8
3rd Quarter 3 1/2 2 3/4
4th Quarter 2 7/8 1 1/4
<CAPTION>
Warrant Market Price
High Low
-----------------------------------------------------------
1997
----
1st Quarter (from January 17) 3/4 1/8
2nd Quarter 7/16 1/4
3rd Quarter 3/8 1/8
4th Quarter 3/8 1/8
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data with respect to the Company's statements of
operations for each of the years in the two year period ended December 31, 1997
and the balance sheet data as of December 31, 1997 and 1996 are derived from
the Company's audited financial statements. The financial data should be read
in conjunction with the financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------------
STATEMENT OF INCOME DATA: 1996 1997
--------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net sales..................................... $22,688 $21,950
Cost of goods sold............................ 15,588 16,075
--------- ---------
Gross margin.................................. 7,100 5,875
Selling, marketing and administrative expenses 5,883 6,561
--------- ---------
Operating profit (loss)....................... 1,217 (686)
Interest and other, net....................... 464 392
--------- ---------
Income (loss) before income tax benefit....... 753 (1,078)
Income tax benefit............................ (65) (150)
--------- ---------
Net income (loss)............................. $ 818 $ (928)
========= =========
Basic and diluted earnings
(loss) per common share..................... $ 0.28 $ (0.25)
Weighted average number of common
shares outstanding............................ 2,960,000 3,667,100
========= =========
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------------
STATEMENT OF INCOME DATA: 1996 1997
--------- -----------
Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 68.7 73.2
--------- ---------
Gross margin................................. 31.3 26.8
Selling, marketing and administrative
expenses................................... 25.9 29.9
--------- ---------
Operating profit (loss)...................... 5.4 (3.1)
Interest and other, net...................... 2.1 1.8
--------- ---------
Income (loss) before income tax benefit...... 3.3 (4.9)
--------- ---------
Income tax benefit........................... (0.3) (0.7)
--------- ---------
Net income (loss)............................ 3.6% (4.2)%
========= =========
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------------
BALANCE SHEET DATA: 1996 1997
--------- -----------
(IN THOUSANDS)
Working capital............................... $ 3,228 $ 5,307
Total assets.................................. 11,340 11,148
Current liabilities........................... 5,335 3,377
Long-term debt................................ 5,419 4,953
Shareholders' equity.......................... 586 2,818
</TABLE>
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
REVENUES. Net sales for the year ended December 31, 1997 were $21,950,000
compared to $22,688,000 for the year ended December 31, 1996, a decrease of
$738,000 or 3%. The decrease was primarily attributable to the timing of
unusually large orders placed in the fourth quarter of 1996 which resulted in
lower first quarter 1997 orders. Increases from sales of newer products,
including hommus, salmon burgers, and salmon nuggets, offset a 3% decrease in
sales of core herring and salmon products. New product sales accounted for
approximately 3% of sales in 1997 compared to 0% in 1996.
GROSS MARGIN. Gross margin for the year ended December 31, 1997 was $5,875,000
compared to $7,100,000 for the year ended December 31, 1996, a decrease of
$1,225,000 or 17%. As a percentage of net sales, gross margin was 26.8% in the
year versus 31.3% in 1996. The decrease in the gross margin percentage was
largely attributable to several factors, including: 1) lower volume sales to a
major customer at a lower negotiated price; 2) a combination of pricing
pressures from customers and higher production costs; and 3) promotional
discounts required to introduce the Company's newer products and to introduce
the Company to new geographic (primarily western U.S.) markets.
OPERATING EXPENSES. Selling, marketing and administrative expenses for the
year ended December 31, 1997 were $6,561,000 compared to $5,883,000 for the
year ended December 31, 1996, an increase of $678,000 or 12%. The increase was
primarily attributable to higher marketing and selling expenses incurred to
increase distribution of the Company's newer products and to develop or further
develop newer products, higher overall levels of promotion for core products,
and increases in administrative expenses incurred as a result of operating as a
public company. As a percentage of net sales, selling, marketing and
administrative expenses increased to 29.9% from 25.9% for the same period in
1996.
INTEREST AND OTHER EXPENSE. Interest and other expense, net, for the year
ended December 31, 1997 was $391,000 compared to $464,000 for the year ended
December 31, 1996, a decrease of $73,000 or 16%. This decrease was primarily
attributable to a decrease in interest expense resulting from the payments
under the Company's bank credit facilities with proceeds from the Company's
initial public offering in January, 1997, and was partially offset by a
decrease in non-recurring other income of $83,000.
INCOME TAXES. The Company provided for an income tax benefit of $150,000 for
the year ended December 31, 1997, compared to an income tax benefit of $65,000
for the year ended December 31, 1996. Based on its projected pretax income for
the year ended December 31, 1998, which would allow the Company to partially
utilize its net operating loss carryforwards, the Company determined that a
partial recognition of the deferred tax asset valuation allowance was
appropriate. The Company determined, as of December 31, 1997, that it was more
likely than not that it would not be able to fully realize the remaining net
deferred tax assets. The Company based this determination on the uncertainty
of the effects on future pretax income of the Company's acquisition strategy
and its planned construction of the Improved Facility. The 1997 income tax
benefit is comprised of $412,000 of expected future income tax benefits
resulting from the loss incurred, offset by an increase in the deferred tax
asset valuation allowance of $262,000. The 1996 income tax benefit is comprised
of $235,000 of income tax expense resulting from the income incurred, offset by
a decrease in the deferred tax asset valuation allowance of $300,000. The
deferred tax asset valuation allowance was $396,000 at December 31, 1997 and
was $134,000 at December 31, 1996.
10
<PAGE> 12
NET INCOME (LOSS). Net loss for the year ended December 31, 1997 was $928,000
or a basic and diluted loss of $0.25 per share, compared to net income of
$818,000 or basic and diluted earnings of $0.28 per share for the year ended
December 31, 1996, a decrease of $1,746,000 or $0.53 per share.
SEASONALITY; QUARTERLY RESULTS
The following table sets forth net sales information for each of the
Company's last 20 quarters. This unaudited net sales information has been
prepared on the same basis as the annual information presented elsewhere in
this Form 10-KSB and, in the opinion of management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented. Net sales for any quarter are not necessarily
indicative of sales for any future period.
<TABLE>
<CAPTION>
NET SALES
----------------------------------
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
- - ---- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
1993 ..................... $4,145 $2,749 $3,858 $6,019
1994 ..................... 4,285 3,108 3,892 6,508
1995 ..................... 4,454 4,011 4,580 8,365
1996 ..................... 5,516 3,692 4,761 8,719
1997 ..................... 4,722 4,013 5,169 8,046
</TABLE>
The following table sets forth net income (loss) information for each of
the Company's last 20 quarters. This unaudited net income information has been
prepared on the same basis as the annual information presented elsewhere in
this Form 10-KSB and, in the opinion of the management, reflects all
adjustments (consisting of normal recurring entries) necessary for a fair
presentation of the information presented. Net income (loss) for any quarter
is not necessarily indicative of net income (loss) for any future period.
<TABLE>
<CAPTION>
NET INCOME (LOSS) (3)
------------------------------------
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
- - ---- ------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
1993 ..................... $(91) $(577) $141 $626
1994 ..................... 10 (427) (121) 810
1995(1) .................. 63 (270) (548)(2) 886
1996 ..................... 69 (100) 3 846
1997 ..................... (162) (219) (307) (240)(4)
</TABLE>
________________________
(1) The Company incurred, non-recurring unusual, expenses in 1995 which
consisted of an Arbitration Award of $356,000, expenses of $110,000
incurred in consolidating the herring production line operations of Lyon
Food with the Company's existing production facilities, expenses of
$83,000 incurred in establishing the Bank Credit Facilities and legal fees
and expenses totaling $62,000 paid to Company counsel in connection with
the Arbitration.
(2) The Arbitration Award of $356,000 was paid in the third quarter of 1995.
(3) Income taxes (benefit) are not presented in 1993, 1994 and 1995 due to
the Company's utilization of net operating loss carryforwards to offset
taxable income and due to the 100% valuation allowance applied against the
deferred tax asset. In 1996, the Company recognized $316,000 of the prior
year's deferred tax asset valuation allowance. In 1997, the Company
increased the valuation allowance by $262,000.
11
<PAGE> 13
(4) The 1997 fourth quarter loss is not typical for the Company's historical
fourth quarter financial performance. The loss in the fourth quarter of
1997 was due, in part, to several factors including lower sales and profit
margins, increased promotional activity for the Company's newer products
and new geographic markets, and non-recurring production expenses from
products which did not meet our quality specifications. Management has
taken and will take steps, including the construction of the Improved
Facility, to try to return the Company's future fourth quarter performance
to historical levels.
The Company has in the past and expects in the future to experience
significant fluctuation in quarterly operating results. As the tables indicate,
historically the Company's net sales and net income have typically been the
highest in the fourth quarter of each year. The Company's business is seasonal
because its sales volume increases significantly during the Christmas holiday
season and, to a lesser extent, during other holidays in the Fall and Spring
and periods of colder weather in certain sections of the country. Certain of
these holidays, including Passover, Easter, Yom Kippur and Rosh Hashanah, may
fall in different quarters in different years and could cause the Company's
quarterly operating results to fluctuate in the future.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $5,307,000 in working capital,
compared to $3,228,000 at December 31, 1996. Working capital was favorably
impacted by the funds from the initial public offering in January, 1997.
At December 31, 1997, the Company had $108,000 in cash, and a revolving
credit facility of $5,250,000 and term facility of $1,500,000 with ANB which
expire on April 30, 1999. Amounts outstanding under these facilities at
December 31, 1997 were $3,900,000 and $1,002,000, respectively. The rate of
interest on both facilities is the lender's prime rate. The facilities contain
customary representations, warranties, and covenants. At December 31, 1997 the
Company was in compliance with the covenants under the Bank Agreement.
As of March 20, 1998, the Company anticipates constructing the Improved
Facility during the next 6 to 12 months. The Company currently anticipates
obtaining most of required funds through the use of one or more financing
options which may include, among others, industrial revenue bond financing and
conventional bank financing. See the section captioned "Production-Production
Facility" in Item 1 of this Report. Based on currently proposed plans and
assumptions relating to its operations, the Company believes it has sufficient
capital resources with its current bank facilities and the expected financing
for the Improved Facility to meet its operating requirements in the foreseeable
future.
Since December 31, 1996, the Company's key liquidity and capitalization
ratios have improved. As of December 31, 1997, the current ratio increased to
2.6 from 1.6. The ratio of long-term debt-to-total capitalization decreased
from 0.9 to 0.6.
12
<PAGE> 14
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES. Net cash used in operating
activities was $2,793,000 for the year ended December 31, 1997, compared to net
cash provided by operating activities of $1,014,000 for the year ended December
31, 1996. This difference was primarily attributable to a decrease in net
income in 1997, decreased collections of accounts receivable in 1997 compared
to 1996, increased payments of the Company's accounts payable, and a decrease
in income taxes payable, offset by a decrease in inventories. The decreased
collections of accounts receivable was largely attributable to the higher
amount of receivables outstanding at the end of 1995 which were collected in
following months in 1996. The increased payments of the Company's accounts
payable was primarily attributable to the Company's delay in 1996 in making
payments in order to conserve cash, as well as the Company's taking advantage
of purchase price discounts in 1997. Due to the improved financial condition in
1997, no delay in making such payments was deemed necessary. The decrease in
income taxes payable was attributable to the payment of income taxes in the
first quarter of 1997 for the 1996 fiscal year. In the first quarter of 1996,
no payment for federal income taxes was due because federal income tax
carryforwards offset taxable income for the 1995 fiscal year. The decrease in
inventories was attributable to the lower sales activity and the Company's
increased efforts in controlling inventory levels.
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES. Net cash used in investing
activities was $449,000 for the year ended December 31, 1997, compared to
$456,000 for the year ended December 31, 1996.
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES. Net cash provided by financing
activities was $3,262,000 for the year ended December 31, 1997, compared to net
cash used of $515,000 for the year ended December 31, 1996. The increase in net
cash provided by financing activities was attributable to the net proceeds from
the Company's initial public offering, offset by payments under the Company's
bank credit facilities.
INFLATION
Inflation has historically not had a material effect on the Company's
operations.
YEAR 2000
In prior years, certain computer programs were written using two digits
rather than four to define the applicable year. These programs were written
without considering the impact of the upcoming change in the century and may
experience problems handling dates beyond the year 1999. This could cause
computer applications to fail or to create erroneous results unless corrective
measures are taken. Incomplete or untimely resolution of the Year 2000 issue
could have a material adverse impact on the Company's business, operations or
financial condition in the future.
The Company has been assessing the impact that the Year 2000 issue will
have on its computer system. The Company plans to implement and test solutions
to any Year 2000 deficiencies prior to any impact on the Company's systems. The
Company is also surveying critical suppliers and customers to determine the
status of their Year 2000 compliance programs. Based on our work to date, and
assuming that our plans to solve any Year 2000 deficiencies, which continue to
evolve, can be implemented as planned, we believe future costs relating to the
Year 2000 issue will not have a material impact on the Company's financial
position, results of operations or cash flows.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March, 1997, the FASB issued SFAS 128, "Earnings Per Share." The new
standard simplifies the standards for computing earnings per share and requires
presentation of two new amounts, basic and diluted earnings per share. The
Company adopted this standard for the fiscal year ended December 31, 1997.
13
<PAGE> 15
In June 1997, the Financial Accounting Standards Board ("FASB") issued two new
disclosure standards, SFAS No. 130, "Reporting Comprehensive Income," and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. This standard is effective
for the Company's financial statements commencing in 1998.
SFAS No. 131 supercedes SFAS No. 14, "Financial Reporting for Segments of
Business Enterprise," and establishes standards for the way that public
enterprises report information about operating segments in financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. This standard is
effective for the Company's financial statements in 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
is effective for the financial statements for periods beginning after December
15, 1997 and require comparative information for earlier years to be restated.
SFAS No.'s 130, 131, and 132 currently do not apply to the Company.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-KSB, including "Business," "Properties,"
"Legal Proceedings" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements within
the meaning of the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are based on management's
current expectations and are subject to a number of factors and uncertainties
which could cause actual results to differ materially from those described in
the forward-looking statements. Such factors and uncertainties include, but
are not limited to: (i) the impact of the level of the Company's indebtedness;
(ii) restrictive covenants contained in the Company's various debt documents;
(iii) general economic conditions and conditions in the retail environment;
(iv) the Company's dependence on a few large customers; (v) price fluctuations
in the raw materials used by the Company, particularly herring and salmon; (vi)
competitive conditions in the Company's markets; (vii) the seasonal nature of
the Company's business; (viii) the Company's ability to execute its acquisition
strategy; (ix) fluctuations in the stock market; (x) the extent to which the
Company is able to retain and attract key personnel; (xi) relationships with
retailers; (xii) relationships with key vendors; and (xiii) the impact of
federal, state and local environmental requirements (including the impact of
current or future environmental claims against the Company). As a result, the
Company's operating results may fluctuate, especially when measured on a
quarterly basis.
The Company's business strategy contemplates that the Company will pursue
potential acquisitions. The Company currently has no agreements or
understandings with respect to any acquisitions and there can be no assurance
that the Company will be successful in pursuing other potential acquisitions.
However, the costs associated with this strategy, means of financing any
potential acquisitions, and consummation and integration of any potential
acquisitions could significantly impact the Company's financial and operating
performance.
14
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS
Listed below are the financial statements and supplementary data included
in this part of the Annual Report on Form 10-KSB:
(a) Financial Statements Page No.
-------------------- --------
Report of Independent 16
Certified Public Accountants
Balance Sheets at December 31, 1996 17 - 18
and at December 31, 1997
Statements of Operations for the years ended 19
December 31, 1996 and 1997
Statements of Shareholders' Equity for 20
the years ended December 31, 1996 and 1997
Statements of Cash Flow for the years ended 21
December 31, 1996 and 1997
Notes to Financial Statements 22 - 32
15
<PAGE> 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Vita Food Products, Inc.
We have audited the accompanying balance sheets of Vita Food Products, Inc. as
of December 31, 1996 and 1997, and the related statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe 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 Vita Food Products, Inc. at
December 31, 1996 and 1997, and the results of its operations and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Chicago, Illinois
February 28, 1998
16
<PAGE> 18
VITA FOOD PRODUCTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 1997
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Note 3)
Current Assets
Cash $ 88,221 $ 107,933
Accounts receivable - trade, net of allowance for returns and
doubtful accounts of $190,000 and $322,000 in 1996 and 1997 3,212,157 3,560,519
Income tax receivable - 250,000
Inventories
Raw materials and supplies 3,167,911 2,650,805
Work in process 168,604 135,157
Finished goods 1,473,172 1,516,246
Prepaid expenses and other current assets 152,845 262,533
Deferred income taxes (Note 4) 300,000 200,000
- - -----------------------------------------------------------------------------------------------------------------
Total Current Assets 8,562,910 8,683,193
- - -----------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Building and improvements 1,379,056 1,399,077
Machinery and office equipment 3,984,517 4,473,138
- - -----------------------------------------------------------------------------------------------------------------
5,363,573 5,872,215
Less accumulated depreciation and amortization 3,337,129 3,657,788
- - -----------------------------------------------------------------------------------------------------------------
2,026,444 2,214,427
Land 35,000 35,000
- - -----------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 2,061,444 2,249,427
- - -----------------------------------------------------------------------------------------------------------------
Other Assets (including deferred public offering costs of
$613,028 in 1996) (Note 9) 715,677 215,444
- - -----------------------------------------------------------------------------------------------------------------
$ 11,340,031 $ 11,148,064
=================================================================================================================
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 19
VITA FOOD PRODUCTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations (Note 3) $ 307,403 $ 322,076
Accounts payable 3,455,681 1,488,241
Accrued expenses (Notes 2 and 5) 1,322,171 1,566,182
Income taxes payable 249,482 -
- - ----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 5,334,737 3,376,499
- - ----------------------------------------------------------------------------------------------------------------
Long-Term Obligations, less current maturities (Note 3) 5,419,159 4,953,242
- - ----------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 5, 6, and 10)
Shareholders' Equity (Notes 8 and 9)
Preferred stock, $.01 par value, authorized 1,000,000 shares;
none issued - -
Common stock, $.01 par value; authorized 10,000,000 shares;
issued and outstanding 2,950,000 and 3,700,000 shares 29,500 37,000
Additional paid-in capital 196,000 3,348,273
Retained earnings (deficit) 360,635 (566,950)
- - ----------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 586,135 2,818,323
- - ----------------------------------------------------------------------------------------------------------------
$ 11,340,031 $ 11,148,064
================================================================================================================
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 20
VITA FOOD PRODUCTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales (Note 7) $ 22,687,765 $ 21,949,884
Cost of Goods Sold (Note 5) 15,587,552 16,075,084
- - -------------------------------------------------------------------------------------
Gross margin 7,100,213 5,874,800
- - -------------------------------------------------------------------------------------
Selling, Marketing and Administrative Expenses
Selling and marketing 4,343,053 4,767,095
Administrative 1,540,426 1,793,830
- - -------------------------------------------------------------------------------------
5,883,479 6,560,925
- - -------------------------------------------------------------------------------------
Operating profit (loss) 1,216,734 (686,125)
- - -------------------------------------------------------------------------------------
Other (Income) Expense
Other income (82,898) -
Interest 546,678 391,460
- - -------------------------------------------------------------------------------------
Income (loss) before income tax benefit 752,954 (1,077,585)
Income Tax Benefit (Note 4) (65,000) (150,000)
- - -------------------------------------------------------------------------------------
Net Income (Loss) $ 817,954 $ (927,585)
=====================================================================================
Basic and Diluted Earnings (Loss) Per Common Share $ 0.28 $ (0.25)
=====================================================================================
Weighted Average Common Shares Outstanding 2,960,000 3,667,100
=====================================================================================
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 21
VITA FOOD PRODUCTS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------- ADDITIONAL RETAINED
SHARES AMOUNT PAID-IN EARNINGS TOTAL
CAPITAL (DEFICIT)
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, at January 1, 1996 2,950,000 $ 29,500 $ 196,000 $ (457,319) $ (231,819)
Net income - - - 817,954 817,954
- - ---------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1996 2,950,000 29,500 196,000 360,635 586,135
Net proceeds from initial public
offering (Note 9) 750,000 7,500 3,152,273 3,159,773
Net loss - - - (927,585) (927,585)
- - ---------------------------------------------------------------------------------------------------------------
Balance, at December 31, 1997 3,700,000 $ 37,000 $ 3,348,273 $ (566,950) $ 2,818,323
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 22
VITA FOOD PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 817,954 $ (927,585)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation and amortization 293,708 322,623
Deferred income taxes (300,000) 100,000
Changes in assets and liabilities
Decrease (increase) in accounts receivable 586,490 (348,362)
(Increase) decrease in inventories (334,833) 507,479
Increase in income tax receivable - (250,000)
Increase in prepaid expenses and other assets (58,277) (224,447)
Decrease in accounts payable (481,178) (1,967,440)
Increase in accrued expenses 240,840 244,011
Increase (decrease) in income taxes payable 249,482 (249,482)
- - ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,014,186 (2,793,203)
- - ----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Capital expenditures (456,169) (449,131)
- - ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (456,169) (449,131)
- - ----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Public offering costs (613,028) -
Net public offering proceeds - 3,772,801
Net borrowings (payments) under revolving loan facility 269,536 (162,817)
Term loan facility proceeds 122,168 -
Payments on term loan facility (285,511) (330,451)
Payments of capital lease obligations (8,255) (17,487)
- - ----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (515,090) 3,262,046
- - ----------------------------------------------------------------------------------------------------------------
Net Increase in Cash 42,927 19,712
Cash, at beginning of year 45,294 88,221
- - ----------------------------------------------------------------------------------------------------------------
Cash, at end of year $ 88,221 $ 107,933
================================================================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 530,639 $ 490,658
Income taxes paid 550 261,000
Noncash Investing and Financing Activities
Capital lease obligation - 59,511
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 23
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
A summary of the significant accounting
1. SUMMARY OF policies utilized in the preparation of
SIGNIFICANT ACCOUNTING the accompanying financial statements
POLICIES follows.
INDUSTRY The Company processes and sells various
herring, and cured and smoked salmon
products. In addition, the Company sells
other complementary specialty food
products.
CONCENTRATION OF Financial instruments that potentially
CREDIT RISK subject the Company to significant
concentrations of credit risk consist
principally of trade accounts receivable.
The Company primarily provides credit in
the normal course of business. The
Company performs ongoing credit
evaluations of its customers and
maintains allowances for potential credit
losses, if necessary.
MERCHANDISE RETURNS In accordance with industry practices,
inventory is sold to customers often with
the right to return if the merchandise is
not sold prior to the expiration of its
shelf life. Sales are reduced by a
provision for estimated future returns.
INVENTORIES Inventories are stated at the lower of
cost or market. Costs are determined by
the first-in, first-out ("FIFO") method.
PROPERTY, PLANT Property, plant and equipment are stated
AND EQUIPMENT at cost. Depreciation and amortization
are being provided, on accelerated and
straight-line methods, over the estimated
useful lives of the assets. Leasehold
improvements are being amortized on a
straight-line basis over the lives of the
respective leases or the service lives of
the improvements, whichever is shorter.
Repair and maintenance items are expensed
as incurred.
LONG-LIVED The Company reviews the carrying values
ASSETS of its long-lived and identifiable
intangible assets for possible impairment
whenever events or changes in
circumstances indicate that the carrying
amount of the assets may not be
recoverable. Any long-lived assets held
for disposal are reported at the lower of
their carrying amounts or fair value less
cost to sell.
DEFERRED PUBLIC Fees, costs and expenses related to the
OFFERING COSTS proposed public offering were charged
against the proceeds therefrom.
ESTIMATES The accompanying financial statements
include estimated amounts and disclosures
based on management's assumptions about
future events. Actual results may differ
from those estimates.
22
<PAGE> 24
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
ADVERTISING Advertising costs are expensed as
incurred and included in "selling and
marketing expenses." Advertising expenses
amounted to approximately $752,000 and
$820,000 in 1996 and 1997, respectively.
INCOME TAXES The Company recognizes deferred tax
assets and liabilities for the expected
future tax consequences of temporary
differences between the tax basis and
financial reporting basis of certain
assets and liabilities based upon
currently enacted tax rates expected to
be in effect when such amounts are
realized or settled.
BASIC AND DILUTED
EARNINGS (LOSS) PER
COMMON SHARE
The Company adopted SFAS 128, "Earnings
Per Share", which simplified the standard
for computing earnings per share and
requires presentation of two new amounts,
basic and diluted earnings per share.
Basic earnings per share is computed by
dividing income available to common
shareholders by the weighted-average
number of common shares outstanding.
Diluted earnings per share follows the
computation of basic earnings per share
and gives effect to all dilutive
potential common shares that were
outstanding during the year.
Options outstanding during both year ends
were not included in the computation of
diluted earnings per share because the
options' exercise price was greater than
the average market price of the common
shares.
2. ACCRUED EXPENSES Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 1997
- - ------------------------------------------------------------------------
<S> <C> <C>
Promotion accrual $ 647,500 $ 820,754
Metropolitan Water Reclamation
District user charges 359,000 293,816
Accrued interest 137,252 38,054
Accrued salaries and bonuses 108,050 260,937
Other 70,369 152,621
- - -------------------------------------------------------------------------
$1,322,171 $1,566,182
=========================================================================
</TABLE>
23
<PAGE> 25
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
3. LONG-TERM
OBLIGATIONS Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 1997
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving loan facility due in April $ 4,063,202 $ 3,900,385
1999. Interest at prime (8.25% in 1996) plus
5/8% through January 16, 1997, and thereafter
at prime (8.5% in 1997)(a).
Term loan facility payable in monthly 1,332,947 1,002,496
Installments of $24,760 in 1996 and 1997 plus
interest at prime plus 5/8% through January 16,
1997, and thereafter at prime through March
1999. Final payment of principal and interest
due in April 1999 (a).
10% unsecured and 8% secured 315,154 315,154
subordinated notes payable to the shareholders
of the Company. The notes are subordinated to
the advances under the loan and security
agreement. Interest is payable each November 1
and the principal is payable February 1, 2000
and December 31, 1998, respectively.
Capitalized lease obligations 15,259 57,283
- - --------------------------------------------------------------------------------------------------------------
5,726,562 5,275,318
Less current maturities 307,403 322,076
- - --------------------------------------------------------------------------------------------------------------
$ 5,419,159 $ 4,953,242
==============================================================================================================
</TABLE>
(a) The Company has a loan and security agreement (the "Agreement") with a
bank consisting of a revolving loan facility and a term loan facility,
with maximum borrowing limits of $5,250,000 and $1,500,000, respectively.
All assets of the Company are pledged as collateral for all borrowings
under the Agreement. The Agreement provides that the Company must meet
certain covenants including a current ratio of at least 0.75 to 1 and an
annual limit for capital expenditures, and provides for restrictions on
the payment of dividends. At December 31, 1997, the Company was in
compliance with these covenants.
24
<PAGE> 26
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
Scheduled annual maturities of long-term obligations as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- - -------------------------------------------------------
<S> <C>
1998 $ 322,076
1999 4,698,429
2000 238,297
2001 16,516
- - -------------------------------------------------------
$ 5,275,318
=======================================================
</TABLE>
The Company incurred interest expense with related parties of
$44,500 and $33,400 for the years ended December 31, 1996 and
1997, respectively.
The Company leases certain equipment under capitalized lease
agreements. The leases are noncancellable and expire in 2001.
The following is a schedule of future minimum payments under the
capital leases as of December 31, 1997, together with the present
value of net minimum lease payments:
<TABLE>
<CAPTION>
Year ending December 31,
- - ---------------------------------------------------
<S> <C>
1998 $ 24,181
1999 18,182
2000 18,182
2001 18,182
- - ---------------------------------------------------
Net minimum lease payments 78,727
Less amount representing interest 21,444
- - ---------------------------------------------------
Present value of net minimum lease payment $ 57,283
===================================================
</TABLE>
25
<PAGE> 27
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
The equipment which is leased under the
capitalized lease agreements and classified as
machinery and office equipment in the accompanying
balance sheets is as follows:
<TABLE>
<CAPTION>
December 31, 1996 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost $ 26,977 $ 86,488
Accumulated amortization 5,781 13,880
--------------------------------------------------------------------------------------------------
$ 21,196 $ 72,608
==================================================================================================
</TABLE>
4. INCOME Deferred income taxes reflect the net tax effects of
TAXES temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The tax
effects of existing temporary differences that give
rise to significant portions of the net deferred tax
assets are as follows:
<TABLE>
<CAPTION>
December 31, 1996 1997
-----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Allowance for doubtful receivables and
product returns $ 308,000 $ 143,000
Uniform inventory capitalization 38,000 36,000
Accrued liabilities 144,000 40,000
Net operating loss carryforwards - 488,000
-----------------------------------------------------------------------------------------
490,000 707,000
Deferred tax liability
Depreciation (56,000) (111,000)
-----------------------------------------------------------------------------------------
434,000 596,000
Less valuation allowance (134,000) (396,000)
-----------------------------------------------------------------------------------------
Net deferred tax asset $ 300,000 $ 200,000
=========================================================================================
</TABLE>
The valuation allowance decreased by $316,000 in 1996
and increased by $262,000 in 1997.
26
<PAGE> 28
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
Based on its projected pretax income for the year ended
December 31, 1998, which would allow the Company to
partially utilize its net operating loss carryforwards, the
Company determined that a partial recognition of the
deferred tax asset valuation allowance was appropriate.
The Company determined, as of December 31, 1997, that it
was more likely than not that it would not be able to fully
realize the remaining net deferred tax assets. The Company
based this determination on the uncertainty of the effects
on future pretax income of the Company's acquisition
strategy and its planned construction of an improved
facility. During the year ended December 31, 1996, the
Company utilized approximately $175,000 of net operating
loss carryforwards.
Income tax benefit at December 31, 1996 and 1997 consists of
the following:
27
<PAGE> 29
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Current $ 294,500 $ (250,000)
Utilization of net operating loss
Carryforward (59,500) -
Deferred 16,000 (162,000)
Adjustment of valuation allowance (316,000) 262,000
------------------------------------------------------------------------------------------------
Income tax benefit $ (65,000) $ (150,000)
================================================================================================
</TABLE>
The reconciliation of income tax computed at the
United States federal statutory tax rate of 34% to
income tax benefit is as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Tax at federal statutory rate $ 256,000 $ (366,000)
Deferred tax valuation allowance (316,000) 262,000
Other (5,000) (46,000)
------------------------------------------------------------------------------------------------
Income tax benefit $ (65,000) $ (150,000)
================================================================================================
</TABLE>
5. COMMITMENTS AND In the ordinary course of business, the Company
CONTINGENCIES enters into purchase commitments for raw materials and
does not anticipate any losses. The Company purchases
a majority of its herring from one supplier. The
supplier has the option to supply up to 90% of the
Company's annual requirements for herring, provided
that the supplier agrees to supply the herring at
competitive prices
At December 31, 1997, the Company is required to
purchase approximately $800,000 under one of these
agreements.
The Company is contesting the amount of user
charges assessed by the Metropolitan Water Reclamation
District for 1997, 1996, 1995 and 1994. The Company
has provided accruals of approximately $294,000 as of
December 31, 1997 for user charges. These accruals are
based upon an estimate provided by an independent
consultant. If the Company is not successful in its
protest, the Company would be required to pay an
additional $184,000. However, the Company believes
that any potential additional liability will not have a
material adverse effect on the Company's business,
financial condition or results of operations. The
Company further believes that the eventual liability
will not materially exceed its presently established
accruals.
28
<PAGE> 30
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
In the ordinary course of business, the
Company becomes involved in litigation as a defendant
in various lawsuits. In the opinion of management,
after considering the advice of counsel, the ultimate
resolution of these legal proceedings will not have a
material effect on the financial statements taken as a
whole and thus no provision has been made in the
financial statements for any loss contingencies.
6. EMPLOYEE BENEFIT The Company has established a qualified profit
PLANS sharing plan covering its nonunion employees.
Participants may elect to defer a portion of annual
compensation. The Company may contribute amounts
at the discretion of the board of directors.
The Company made no contribution in 1996 and 1997.
Additionally, the Company participates in two
multiemployer plans that provide benefits to the
Company's union employees. Contributions to the plans
for the years ended December 31, 1996 and 1997 were
$32,300 and $40,400, respectively.
7. MAJOR CUSTOMER The Company had sales to one customer in 1996
representing 10% of net sales. In 1997, the Company
did not have sales to any customers that exceeded 10%
of net sales.
8. CAPITAL In September 1996, the Company reincorporated in
the State of Nevada via a merger of the Illinois
corporation into the Company, which was a Nevada
corporation formed in September 1996. The ratio of
shares of the Illinois corporation to the Nevada
corporation is 5,412.745:1 and the ratio of shares of
V-F Acquisition, Inc., an investor group of the
Illinois corporation, to the Nevada corporation is
54.12745:1. The shares of the Illinois corporation
held by V-F Acquisition, Inc., the Illinois
corporation's largest shareholder, were canceled in the
merger. Further, the Nevada corporation changed its
name to Vita Food Products, Inc. upon completion of the
merger. After the merger there were 2,950,000 shares
of common stock of the Company issued and outstanding.
29
<PAGE> 31
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
On September 11, 1996, the Company adopted the Vita
Food Products, Inc. 1996 Stock Option Plan (the "Plan")
pursuant to which 325,000 shares of common stock have been
reserved for issuance upon the exercise of options designated
as either an "incentive stock option" or as a "nonqualified
stock option." These options may be granted to employees or
other constituencies of the Company, including members of the
board of directors who are employees. On September 11, 1996,
the Company also adopted the Vita Food Products, Inc. 1996
Stock Option Plan for Non-Employee Directors (the "Director
Plan") pursuant to which 75,000 shares of common stock have
been reserved for issuance upon the exercise of options
designated as a "nonqualified stock option." These options
may be granted to directors who are not employees of the
Company. Further, in September 1996, the Company adopted the
1996 Employee Stock Purchase Plan pursuant to which 150,000
shares of common stock have been reserved for issuance.
Information with respect to the stock option plans follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997
---------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at beginning of year - 80,000
Options granted 80,000 180,500
Options cancelled - 80,000
============================================================================================
Options outstanding at end of year 80,000 180,500
============================================================================================
Options prices per share granted $5.22 $ 3.50 - 4.88
============================================================================================
Weighted Average Exercise Price
Options Granted $5.22 $3.58
Options Cancelled - $5.22
============================================================================================
</TABLE>
30
<PAGE> 32
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its Plan, Director
Plan and Employee Stock Purchase Plan.
The weighted-average, grant date fair value of stock
options granted to employees during the year and the
weighted-average significant assumptions used to determine
those fair values, using a modified Black-Sholes option
pricing model, and the pro forma effect on earnings of the
fair value accounting for stock options under Statement of
Financial Accounting Standards No. 123, are as follows:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Weighted average fair value per options $2.55 $0.46
Granted
Significant assumptions (weighted average)
Risk-free interest rate at grant date 6.7% 6.2%
Expected stock price volatility 0.25 0.25
Expected dividend payout -0- -0-
Expected option life (years) 5 5
Net Income (loss)
As reported $817,954 ($927,585)
Pro forma $812,854 ($934,132)
Net earnings (loss) per share
As reported $0.28 ($0.25)
Pro forma $0.27 ($0.25)
</TABLE>
9. INITIAL In January 1997, the Company completed a public offering
PUBLIC of 750,000 new shares of its common stock and 750,000
OFFERING redeemable common stock purchase warrants. Pursuant to the
underwriters' exercise of a portion of the over-allotment
option, the Company issued an additional 96,500 redeemable
common stock purchase warrants in February 1997. The Company
received aggregate proceeds net of underwriting commissions
and expenses of approximately $3.2 million from this offering.
31
<PAGE> 33
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
10. EMPLOYMENT The Company has employment agreements with
CONTRACTS three officers of the Company, with two extending
through January 2000 and the other through January
1999. Under the terms of these agreements, two
officers are entitled to be paid a salary of $215,000
annually and one officer a salary of $110,000 annually
(adjusted annually for increases in the cost of living
index), plus bonuses, if any, and certain perquisites.
11. FOURTH QUARTER, The fourth quarter loss is not typical
1997 PERFORMANCE for the Company's historical fourth quarter financial
performance. The lower profitability in the fourth
quarter of 1997 was due, in part, to several factors
including lower sales and profit margins, increased
promotional activity for the Company's newer products
and new geographic markets, and approximately $250,000
of non-recurring production expenses. Management is
taking steps, including the construction of the
Improved Facility, to return the Company's fourth
quarter performance 11. FOURTH to historical levels.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS, AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a) OF
EXCHANGE ACT.
The directors and executive officers of the Company, and their respective
ages and principal positions as of March 20, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- - ---- --- -------------------------
<S> <C> <C>
Stephen D. Rubin........................... 58 President
Clark L. Feldman............................ 63 Executive Vice
President, Secretary and
Director
Jay H. Dembsky............................ 37 Vice President, Chief
Financial, Officer and
Treasurer
Sam Gorenstein(2)........................ 50 Director
Jeffrey Rubenstein(1,2)................. 56 Director
Neal Jansen(1,2)........................... 60 Director
Michael Horn(2)............................. 61 Director
Steve Rothstein(2)........................ 47 Director
</TABLE>
- - ------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
32
<PAGE> 34
MR. RUBIN has served as President of the Company since 1982. Mr. Rubin is
responsible for the overall operations of the Company with an emphasis on
production and quality control. Previously, Mr. Rubin was the owner and chief
operating officer of several other companies which included food, manufacturing
and industrial companies. Mr. Rubin received a B.B.A. from the University of
Wisconsin and a J.D. from the University of Wisconsin Law School.
MR. FELDMAN has served as a director and Executive Vice President and
Secretary of the Company since the Company was acquired in 1982. Mr. Feldman
has an extensive background in strategic financial planning and marketing and
is responsible for all sales personnel, including brokers. Mr. Feldman
received a B.S. from Indiana University.
MR. DEMBSKY became Vice President, Chief Financial Officer and Treasurer
of the Company in October, 1996 and is responsible for all financial matters
for the Company. From 1988 until joining the Company in 1996, Mr. Dembsky held
a number of positions with Duff & Phelps, LLC, a corporation valuation advisory
and investment banking firm. Mr. Dembsky served as a Vice President of Duff &
Phelps, LLC, from 1992 to 1996. Mr. Dembsky has a 13-year background in
corporate finance, accounting, and strategic and financial planning and
received his CPA certification in 1984 and CFA certification in 1991. Mr.
Dembsky received a M.M. from the J.L. Kellogg Graduate School of Management at
Northwestern and a B.S. from the Wharton School of the University of
Pennsylvania.
MR. GORENSTEIN has served as a director of the Company since February,
1990. For the past 20 years, Mr. Gorenstein has served as Secretary of Three G
Care Management, Inc., a nursing home management company. Mr. Gorenstein is
also a major shareholder of Three G Care Management, Inc. Mr. Gorenstein
attended the University of Manitoba in Winnipeg, Canada.
MR. RUBENSTEIN has served as a director of the Company since November,
1984. For the past five years Mr. Rubenstein has been a principal in the law
firm of Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C. Mr.
Rubenstein is also currently a director of Miller Building Systems, Inc. and
Home Products International, Inc. Mr. Rubenstein received an A.B. and a J.D.
from the University of Michigan and an L.L.M in taxation from John Marshall Law
School.
MR. JANSEN has served as a director of the Company since April, 1983. Mr.
Jansen is currently CEO and Chairman of Farm Fresh Catfish Co. From 1986
to 1996, he served as President and CEO of Pies, Inc. and was a major
shareholder until it was sold to Flowers Industries in 1991. Prior to 1986 he
was President of Gordon Fleming and Associates, a food brokerage company in
Minnesota, and a Senior Vice President of Red Owl Stores, Inc., a large
Midwestern supermarket chain. Mr. Jansen received a B.A. from St. Norbert
College and an M.B.A. from Michigan State University.
MR. HORN has served as a director of the Company since April, 1983. For
the past six years, Mr. Horn, as the largest shareholder of Save More Foods
Supermarkets and a significant shareholder of Performance Foods of Wisconsin,
Inc., has acted in a management advisory role to both companies. Prior to that
Mr. Horn was president of the Green Bay Division of Super Valu Stores, Inc., a
national grocery food wholesaler and distributor. Mr. Horn is also a Vice
President and a director on the Executive Committee of the Green Bay Packer
Hall of Fame. Mr. Horn has a B.A. degree in business from the University of
Minnesota at Duluth.
MR. ROTHSTEIN has served as a director of the Company since May 1, 1997.
Mr. Rothstein has been Chairman of the Board of National Securities
Corporation, a securities broker-dealer and a Representative of the
Underwriters, since 1995. From 1994 to 1995, Mr. Rothstein was employed by
H.J. Meyers & Co., a securities broker-dealer, and from 1992 to 1994, he was
employed by Rodman and Renshaw, a securities broker-dealer, in both cases as a
Managing Director. From 1989 to 1992, Mr. Rothstein served as a Managing
Director of Oppenheimer & Co., a securities broker-dealer. From 1979 to 1989,
Mr. Rothstein was a limited partner of Bear Stearns & Co., a securities
broker-dealer. Mr. Rothstein currently is a director of SigmaTron
International, Inc. and New World Coffee, Inc., both of which are publicly held
companies. Mr. Rothstein received an A.B. from Brown University in Providence,
Rhode Island.
33
<PAGE> 35
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the 1934 Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of common stock and other
equity securities of the Company. Executive officers, directors, and greater
than ten-percent shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely upon the Company's review of the copies of such reports
furnished to the Company or written representations that no other reports were
required, the Company believes that during the 1997 fiscal year, all Section
16(a) filling requirements applicable to its executive officers, directors and
greater than ten-percent beneficial owners were complied with, except that (i)
Steven A. Rothstein inadvertently failed to timely file a Form 3 upon becoming
a director in May, 1997, (ii) Steven A. Rothstein inadvertently failed to
timely file a Form 4 with respect to warrants to purchase 222,777 shares of
Common Stock purchased in November, 1997 and (iii) Neal Jansen inadvertently
failed to timely file a Form 4 with respect to 3,000 shares of Common Stock and
warrants to purchase 3,000 shares of Common Stock purchased in January, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to the chief
executive officer and each other executive officer of the Company where
aggregate compensation for services in all capacities rendered during the year
ended December 31, 1997 exceeded $100,000 (the "Named Executive Officers.").
Mr. Rubin became President of the Company in March, 1982. Mr. Feldman became
Executive Vice President and Secretary of the Company in March, 1982. Mr.
Dembsky became Treasurer of the Company in October, 1996. The compensation
paid to Mr. Dembsky in 1996 is not required to be disclosed in this table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-----------------------------------
ANNUAL COMPENSATION
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- - --------------------------- ---- -------- ------ ---------------
<S> <C> <C> <C> <C>
Stephen D. Rubin 1997 $212,070 - $28,712
President, Treasurer and 1996 $212,934 $15,000 $29,447
Director 1995 $207,001 $15,000 $24,154
Clark L. Feldman 1997 $213,172 - -
Executive Vice President 1996 $226,523 $15,000 -
Secretary and Director 1995 $218,068 $15,000 -
Jay H. Dembsky
Treasurer and Chief Financial
Officer 1997 $110,044 $40,000 -
</TABLE>
- - ------------------
(1) This column reflects perquisite compensation if such compensation exceeds
the lesser of $50,000 or 10% of the Named Executive Officer's total salary and
bonus. For fiscal years ended December 31, 1996, and 1995, respectively, Mr.
Rubin's perquisites included $8,505 and $11,042 for lease payments for a car
which were paid by the Company. For the fiscal year ended December 31, 1996 and
1995, respectively, Mr. Rubin's perquisites included $10,922 for payments for
club dues and $7,644 for health insurance payments for Mr. Rubin's family
members which were paid by the Company. For the fiscal year ended December 31,
1997, no one item represented more than 25% of "Other Annual Compensation" for
Mr. Rubin.
34
<PAGE> 36
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises in fiscal
1997 by the Named Executive Officers and the value of such officers'
unexercised options at December 31, 1997.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised in the
Options at Money Option at
December 31, 1997 December 31, 1997 ($)
----------------------------------------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jay H. Dembsky -- -- -- 80,000 -- --
</TABLE>
TEN-YEAR OPTION REPRICINGS
During 1997, the Company's Board of Directors canceled options to purchase
80,000 shares of Common Stock held by Jay H. Dembsky at an exercise price of
$5.22 per share and issued replacement options to purchase the same number of
shares of Common Stock at an exercise price of $3.50 per share which exceeded
the fair market value, as defined in the 1996 Stock Option Plan on the date of
grant. The options were canceled and repriced to provide a more realistic and
attainable incentive based on the market price of the Common Stock ($2.25) on
the date of grant.
EMPLOYMENT AGREEMENTS
On January 16, 1997, the Company entered into a three-year employment
agreement with both Mr. Stephen D. Rubin and Mr. Clark L. Feldman (the
"Employment Agreements"). The terms of the Employment Agreements are identical
except for the capacity in which Mr. Rubin and Mr. Feldman are employed. Under
the Employment Agreements, the Company agrees to employ Mr. Rubin as its
President and Mr. Feldman as its Executive Vice President, each at a salary of
$215,000 per year (adjusted for cost of living increases) plus certain
additional perquisites, not to exceed $30,000 per year, including, among other
things, a car payment allowance, reimbursement of country club or health club
membership dues and expenses, the right to designate a charitable contribution
to be paid by the Company and a non-accountable business expense allowance.
The Employment Agreements also provide that Mr. Rubin and Mr. Feldman may
receive an annual bonus based on Company and individual performance as
determined by the Board of Directors and the Compensation Committee and a
special bonus for any consulting work developed by Mr. Rubin or Mr. Feldman as
determined by the Board of Directors. The Employment Agreements provide for
termination of Mr. Rubin or Mr. Feldman (i) for "cause" as defined in the
Employment Agreements, (ii) upon Mr. Rubin's or Mr. Feldman's death or "total
disability," as defined in the Employment Agreements, or (iii) if Mr. Rubin or
Mr. Feldman terminates his employment because of a breach of the Employment
Agreements by the Company. The Employment Agreements contain provisions that
restrict Mr. Rubin's and Mr. Feldman's ability to compete with the Company or
solicit its employees or customers for a specified period following the
termination of their employment.
On January 16, 1997, the Company and Mr. Jay H. Dembsky, in connection
with his employment as the Company's Chief Financial Officer, entered into a
two-year employment agreement containing provisions which are substantially
similar to the provisions of the Employment Agreements of Mr. Rubin and Mr.
Feldman except that Mr. Dembsky will receive: (i) a salary of $110,000 per year
(adjusted for cost of living expenses) with a guaranteed bonus of $20,000 in
1997; (ii) options to purchase 80,000 shares of Common Stock at the initial
public offering price per share less the underwriting discount and pro rata
portion of the non-accountable expense allowance per share which were to vest
in 20% increments over a 5-year period; such options were cancelled and
replaced in November, 1997 by a grant of options to purchase the same number of
shares of Common Stock at $3.50 per share and the new options will vest over a
new 5-year period; and (iii) will receive a payment in an amount equal to twice
his salary and bonus for the previous fiscal year in the event of change in
control of the Company.
35
<PAGE> 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 20, 1998, with
respect to the beneficial ownership of the Company's outstanding shares of
Common Stock by each stockholder known by the Company to be the beneficial
owner of more than 5% of its Common Stock, each director, each executive
officer named in the Summary Compensation Table and all the directors and
executive officer of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER(2) PERCENT
- - --------------------------- --------- -------
<S> <C> <C>
Stephen D. Rubin........... 1,213,742 32.8%
Clark L. Feldman........... 623,303 16.8
Sam Gorenstein(3).......... 503,707 13.6
J.B.F. Enterprises(4)...... 477,783 12.9
James Rubin(5)............. 282,870 7.6
Jeffrey C. Rubenstein(6)... 98,239 2.7
Michael Horn(7)............ 2,000 *
Neal Jansen(8)............. 8,000 *
Steve Rothstein(9)......... 224,777 5.7
All directors, and
executive officers as a
group (8 persons)(10)...... 2,673,768 67.9%
</TABLE>
* Less than 1% of the outstanding shares of Common Stock
(1) The address of each of the executive officers and directors, unless noted
otherwise in the footnotes, is c/o Vita Food Products, Inc., 2222 West
Lake Street, Chicago, Illinois 60612.
(2) Includes, when applicable, shares owned of record by such person's minor
children and spouse and by other related individuals and entities over
whose shares of Common Stock such person has custody, voting control, or
power of disposition.
(3) Includes 477,783 shares of Common Stock held by J.B.F. Enterprises, an
Illinois general partnership ("J.B.F."), which are also listed as being
beneficially owned by J.B.F. Mr. Sam Gorenstein and his brother, David
Gorenstein, are general partners of J.B.F. The address of Mr. Sam
Gorenstein is 6770 North Lincoln Avenue, Suite 200, Lincolnwood, Illinois
60046. Includes shares of Common Stock issuable upon exercise of options
to purchase 2,000 shares of Common Stock which are exercisable within 60
days.
(4) Mr. Sam Gorenstein, a director of the Company, and Mr. David Gorenstein,
the brother of Mr. Sam Gorenstein, are partners of J.B.F. The address of
J.B.F. is 6770 North Lincoln Avenue, Suite 200, Lincolnwood, Illinois
60046. These shares are also included in the number of shares beneficially
owned by Mr. Sam Gorenstein.
(5) James Rubin is the brother of Stephen D. Rubin. The address of James
Rubin is 719 Sycamore Lane, Glencoe, Illinois 60022. Includes shares of
Common Stock issuable upon exercise of options to purchase 2,000 shares of
Common Stock which are exercisable within 60 days.
(6) Mr. Rubenstein's address is 200 North LaSalle Street, Suite 2100,
Chicago, Illinois 60601. Includes shares of Common Stock issuable upon
exercise of options to purchase 2,000 shares of Common Stock which are
exercisable within 60 days.
(7) Mr. Horn's address is 835 Potts Avenue, Green Bay, Wisconsin 54303.
Includes shares of Common Stock issuable upon exercise of options to
purchase 2,000 shares of Common Stock which are exercisable within 60
days.
(8) Mr. Jansen's address is 6216 St. Albans Circle, Edina, Minnesota 55439.
Includes shares of Common Stock issuable upon exercise of options to
purchase 2,000 shares of Common Stock and warrants to buy 3,000 shares of
Common Stock which are exercisable within 60 days.
(9) Mr. Rothstein's address is 875 North Michigan Avemue, Suite 1560,
Chicago, Illinois 60611. Includes shares of Common Stock issuable upon
exercise of options to purchase 2,000 shares of Common Stock and warrants
to buy 222,777 shares of Common Stock which are exercisable within 60
days.
(10) Includes 477,783 shares of Common Stock beneficially owned by J.B.F.
which are also deemed to be beneficially owned by Mr. Sam Gorenstein,
shares of Common Stock issuable upon exercise of options to purchase
10,000 shares of Common Stock which are exercisable within 60 days and
shares of Common Stock issuable upon exercise of warrants to buy 225,777
shares of Common Stock which are exercisable within 60 days.
36
<PAGE> 38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the initial purchase of the Company from Dean Foods in 1982,
the Company borrowed money at an interest rate of 10% per annum from certain
officers, directors and Company shareholders, evidenced by ten year unsecured
promissory notes entered into in March, 1982 (the "Original Notes") in the
following original principal amounts: (i) Stephen D. Rubin - $98,591; (ii)
Clark L. Feldman - $49,483; (iii) Sam Gorenstein - $20,894; (iv) David
Gorenstein - $20,894; (v) James Rubin - $24,741; (vi) Edward Levine - $9,897;
and (vii) Sachnoff Weaver & Rubenstein, Ltd. - $11,842. The principal amounts
of all Original Notes remain outstanding except for the Original Note to
Sachnoff Weaver & Rubenstein, Ltd. which has been repaid. The scheduled
maturity of the Original Notes was extended for five years to February, 1997 by
a resolution of the Board of Directors in February, 1992 and was extended an
additional three years to February, 2000 by a resolution of the Board of
Directors in September, 1996. The Company borrowed additional amounts at an
interest rate of 8% per annum, evidenced by promissory notes dated February 1,
1993 (the "1993 Notes") in the following original principal amounts: (i)
Stephen D. Rubin - $52,500; (ii) Clark L. Feldman - $26,250; (iii) Sam
Gorenstein - $11,037; (iv) David Gorenstein - $11,037; (v) Edward Levine -
$5,225; and (vi) Jeffrey C. Rubenstein - $3,750; (vii) Arnold Pagniucci - $460;
and (viii) Philip Wong - $200. The principal amounts of the 1993 Notes remain
outstanding except the 1993 Notes to Mr. Pagniucci and Mr. Wong which have been
repaid and the 1993 Note to Mr. Feldman which was partially repaid and has a
remaining balance of $7,105. The scheduled maturity of the 1993 Notes is
December 31, 1998. Interest on the Original Notes and the 1993 Notes is
currently being paid by the Company. The Bank Agreement required those
officers, directors and shareholders owning the 1993 Notes (the "1993
Noteholders") to enter into Subordination Agreements dated March 20, 1995 (the
"Subordination Agreements") subordinating the 1993 Notes to any amounts which
the Company owes to ANB under the Bank Agreement. The Subordination Agreements
allow the Company to pay the 1993 Noteholders currently accruing interest as
long as the Company is not in default under the Bank Agreement. The 1993
Noteholders also have a security interest in Company property, pursuant to a
Security Agreement dated March 20, 1995 provided, however, that the security
interest of the 1993 Noteholders is subordinated to the security interest of
ANB.
On February 26, 1990, David Gorenstein, Sam Gorenstein, Sid Gorenstein and
J.B.F. Enterprises (the "Gorensteins") entered into a Settlement Agreement and
General Release (the "Settlement Agreement") with the Company, Stephen Rubin,
Clark Feldman, Jeffrey Rubenstein, Neal Jansen, Michael Horn and V-F
Acquisition, Inc. ("V-F Acquisition"). The Settlement Agreement released
various complaints and actions brought by the Gorensteins against the Company
and the other named parties and other claims that the Gorensteins and the
Company may have against one another through the date of the settlement. The
Settlement Agreement also required that Mr. Rubin, Mr. Feldman and V-F
Acquisition enter into a voting agreement with Sam Gorenstein and J.B.F.
Enterprises (the "Voting Agreement") that required each party to vote their
shares of Common Stock for the election of Sam Gorenstein, Stephen D. Rubin and
Clark L. Feldman as directors of the Company. The Voting Agreement terminated
on January 16, 1997. The Settlement Agreement also contains limits on the
maximum compensation including bonuses and amounts paid to family members that
can be paid to Mr. Rubin and Mr. Feldman. The maximum compensation allowable
for the fiscal year ending August 31, 1990 was $215,000 and increases each year
by an amount tied to the Consumer Price Index or five percent, whichever is
greater. In 1997, the maximum compensation limit was not exceeded. If
salaries are paid in excess of the limit, then pro-rata dividends must be paid
to the shareholders of the Company. In addition, Consulting Agreements,
required by the Settlement Agreement, provided for payments of consulting fees
to Sam and David Gorenstein in the annual amount of $12,500 through February,
1995, with fees paid quarterly. The Settlement Agreement also provides that
the Company will not attempt to force the Gorensteins to relinquish ownership
through any type of "freeze out" transaction, except under defined
circumstances.
Mr. Jeffrey C. Rubenstein, a director of the Company, is a partner with
the law firm of Much Shelist Freed Denenberg Ament Bell & Rubenstein P.C. which
is the Company's general counsel.
Except as described above, the Company is not a party to any other
material transactions of the type required to be described herein.
37
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Listed below are the exhibits included in this part of the Annual
Report on Form 10-KSB:
(a) REPORTS FILED ON FORM 8-K
None
(b) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-B)
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- --------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of the Company (Ex. 3.1)
3.2 By-laws of the Company (Ex. 3.2)
4.1 Form of Common Stock Certificate (Ex. 4.1)
4.2 Form of Representatives' Warrant Agreement between
the Company and National Securities Corporation and Access
Financial Group, Inc., as representative of the several
Underwriters (the "Representatives"), including Form of
Representatives' Warrant (Ex. 4.2)
4.3 Form of Warrant Agreement between the Company and
American Stock Transfer & Trust Company and the
Representative, including form of Warrant Certificate (Ex.
4.3)
10.1 Loan and Security Agreement dated as of March 20,
1995 by and between the Company and NBD Bank, as amended (Ex.
10.3)
*10.1.1 Second Amendment to Loan and Security Agreement
*10.1.2 Third Amendment to Loan and Security Agreement
*10.1.3 Form of Fourth Amendment to Loan and Security Agreement
10.2 Form of 1996 Employee Stock Option Plan (Ex. 10.4)x
10.3 Form of 1996 Stock Option Plan for Non-Employee Directors
(Ex. 10.5)x
10.4 Form of Employment Agreement between the Company and
Stephen D. Rubin (Ex. 10.7)x
10.5 Form of Employment Agreement between the Company and Clark
L. Feldman (Ex. 10.8)x
10.6 Long Term Supply/Purchase Agreement dated as of September
1, 1992 by and between the Company and Barry's Limited
(Ex. 10.9)
</TABLE>
38
<PAGE> 40
10.7 Exclusive Distributorship Agreement dated as of
December 1, 1994 by and between the Company and Brookside
Products, Ltd. (Ex. 10.10)
*10.8 Employment Agreement between the Company and Jay
H. Dembskyx
10.9 Gorenstein Agreement dated September 20, 1996 by
and among the Company, Stephen D. Rubin, Clark L. Feldman,
Sam Gorenstein, David Gorenstein and J.B.F. Enterprises (Ex.
10.26)
*27.1 Financial Data Schedule.
______________________________
*Filed herewith, exhibits not marked with an asterisk were filed as part
of the Form SB-2 Registration Statement, as amended (File No. 333-5738) , filed
with the Securities and Exchange Commission on September 23, 1996. Form SB-2
Exhibit Number is included in parenthesis following the title of the Exhibit.
x Indicates an employee benefit plan, management contract or compensatory plan
or arrangement in which a named executive officer participates.
39
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VITA FOOD PRODUCTS, INC.
By: //Stephen D. Rubin//
--------------------------
Stephen D. Rubin
President
Date: March 20, 1998
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant in the following capacities
on March 20, 1998.
<TABLE>
<CAPTION>
Signatures Title
<S> <C>
//Stephen D. Rubin// Director and President
- - -------------------- (Principal Executive Officer)
Stephen D. Rubin
//Clark L. Feldman// Director, Executive Vice President and
- - -------------------- Secretary
Clark L. Feldman
//Jay H. Dembsky// Vice President, Chief Financial Officer
- - ------------------ and Treasurer
Jay H. Dembsky (Principal Financial and Accounting Officer)
//Sam Gorenstein// Director
- - ------------------
Sam Gorenstein
//Michael Horn// Director
- - ----------------
Michael Horn
//Jeffrey C. Rubenstein// Director
- - -------------------------
Jeffrey C. Rubenstein
//Steven A. Rothstein// Director
- - -----------------------
Steven A. Rothstein
</TABLE>
40
<PAGE> 1
EXHIBIT 10.1.1
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is made as of January 16, 1997, by and between AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, SUCCESSOR IN INTEREST TO NBD BANK (the "Lender") and VITA
FOOD PRODUCTS, INC., a Nevada corporation ("the Borrower").
W I T N E S S E T H:
--------------------
WHEREAS, Borrower (by reason of merger) and Lender entered into a Loan and
Security Agreement dated as of March 20, 1995 (the "Agreement"); and
WHEREAS, Borrower has requested that the maturity date of the Agreement
be extended to April 30, 1998; and
WHEREAS, Lender is willing to grant such extension on the terms and
conditions contained herein;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
is acknowledged by the parties hereto, it is hereby agreed as follows:
1. The recitals hereinabove contained shall form a part of this Amendment
and this Amendment shall be construed in the light thereof. All capitalized
terms contained herein and not otherwise defined shall have the same meaning as
contained in the Agreement.
2. Section 1.64 of the Agreement is hereby amended to read as follows:
"Termination Date" shall mean April 30, 1998.
3. The first four lines of Section 2.6 are deleted and in lieu thereof is
inserted the following:
"Effective with the date of this Amendment, Borrower shall pay Lender
interest on the outstanding principal balance of the Revolving Loans
at a pre-Default rate per annum equal to the Prime Rate (the
"Revolving Note Rate"),"
4. Section 10.2(L) is hereby amended as follows:
Make Capital Expenditures in any fiscal year subsequent to the
year ending December 31, 1995 that exceed in the aggregate,
$1,250,000; provided, however, that Capital expenditures incurred in
connection with the rehabilitation of, alteration or addition to, or
purchase of, real estate occupied by the Borrower shall
<PAGE> 2
not be included in the definition of Capital Expenditures;
5. Section 10.2(N) of the Agreement is hereby deleted and in lieu
thereof is inserted the following:
Adopt or agree to contribute to any funded tax
qualified employee pension benefit plan (as defined in
ERISA); provided, however, that nothing herein contained
shall prohibit contributions to a tax qualified profit
sharing plan;
6. Section 10.2(W) is hereby amended by modifying the numbers in the
Minimum Net income column as follows:
PERIOD MINIMUM NET INCOME
------ ------------------
January 1 through March 31 negative $400,000
January 1 through June 30 negative $800,000
January 1 through September 30 negative $700,000
January 1 through December 31 positive $250,000
7. Section 10.2(X) of the Agreement is hereby deleted and in lieu
thereof is inserted the following:
Permit Tangible Net worth to be less than (i) as of
December 31, 1995, negative $750,000 (ii) as of December
31, 1996, and thereafter (ii) negative $750,000, plus the
cumulative aggregate net cash proceeds arising from the
issuance of any capital stock after January 1, 1997.
8. Concurrently with the execution of this Amendment, Borrower shall
pay Lender a fee of $35,000, which is deemed fully earned upon the execution of
this Amendment.
9. Borrower agrees to execute such additional documents, including
financing statements, as may be necessary to effectuate the purpose of this
agreement.
10. Borrower shall pay to Lender the reasonable legal fees and
expenses of counsel incurred in connection with the preparation of this
Amendment and related documentation.
11. Borrower expressly acknowledges and agrees that all collateral,
security interests, liens, pledges, and mortgages heretofore, under this
Amendment, or hereafter granted to Lender, including, without limitation, such
collateral, security interests, liens, pledges and mortgages granted under the
Agreement, and all other supplements to the Agreement, extend to and cover all
of the obligations of Borrower to Lender, now existing or hereafter arising
including, without limitation,
2
<PAGE> 3
those arising in connection with the Agreement, as amended by this
Amendment, upon the terms set forth in such agreements, all of which security
interests, liens, pledges, and mortgages are hereby ratified, reaffirmed,
confirmed and approved.
12. Borrower represents and warrants to Lender that (i) it has all
necessary power and authority to execute and deliver this Amendment and perform
its obligations hereunder, (ii) this Amendment and the Agreement, as amended
hereby, constitute the legal, valid and binding obligations of Borrower and
are enforceable against Borrower in accordance with their terms, and (iii) all
representations and warranties of Borrower contained in the Agreement, as
amended, and all other agreements, instruments and other writings relating
thereto, are true, correct and complete as of the date hereof.
13. The parties hereto acknowledge and agree that the terms and
provisions of this Amendment amend, add to and constitute a part of the
Agreement. Except as expressly modified and amended by the terms of this
Amendment, all of the other terms and conditions of the Agreement and all
documents executed in connection therewith or referred to or incorporated
therein remain in full force and effect and are hereby ratified, reaffirmed,
confirmed and approved.
14. If there is an express conflict between the terms of this Amendment
and the terms of the Agreement, or any of the other agreements or documents
executed in connection therewith or referred to or incorporated therein, the
terms of this Amendment shall govern and control.
15. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original.
16. This Amendment was executed and delivered in Skokie, Illinois and
shall be governed by and construed in accordance with the internal laws (as
opposed to conflicts of law provisions) of the State of Illinois.
3
<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year specified at the beginning hereof.
ATTEST: VITA FOOD PRODUCTS, INC.,
a Nevada corporation
Clark L. Feldman By: /s/ Jay H. Dembsky
- - ----------------- ---------------------------
Secretary Title: Chief Financial Officer
------------------------
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO,
successor in interest to
NBD BANK
By: /s/ Gregory H. Bork
---------------------------
Title: 1st Vice President
-----------------------
4
<PAGE> 1
EXHIBIT 10.1.2
THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is
made as of November 5, 1997, by and between AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, SUCCESSOR IN INTEREST TO NBD BANK (the "Lender") and VITA
FOOD PRODUCTS, INC., a Nevada corporation (the "Borrower").
W I T N E S S E T H:
--------------------
WHEREAS, Borrower (by reason of merger) and Lender entered into a Loan
and Security Agreement dated as of March 20, 1995 (the "Agreement"); and
WHEREAS, Borrower has requested certain modifications to the Agreement; and
WHEREAS, Lender is willing to grant such modifications on the terms and
conditions contained herein;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
is acknowledged by the parties hereto, it is hereby agreed as follows:
1. The recitals hereinabove contained shall form a part of this Amendment
and this Amendment shall be construed in the light thereof. All capitalized
terms contained herein and not otherwise defined shall have the same meaning as
contained in the Agreement.
2. Section 10.2(X) is hereby deleted and in lieu thereof is inserted the
following:
Permit Tangible Net Worth to be less than (i) as of each
December 31 hereafter $2,233,131, (ii) as of each March
31 hereafter, $1,833,131, (iii) as of June 30 hereafter,
$1,433,131, and (iv) as of September 30 hereafter,
$1,533,131.
3. Borrower agrees to execute such additional documents, including
financing statements, as may be necessary to effectuate the purpose of this
agreement.
<PAGE> 2
4. Borrower shall pay to Lender the reasonable legal fees and expenses
of counsel incurred in connection with the preparation of this Amendment and
related documentation.
5. Borrower expressly acknowledges and agrees that all collateral,
security interests, liens, pledges, and mortgages heretofore, under this
Amendment, or hereafter granted to Lender, including, without limitation, such
collateral, security interests, liens, pledges and mortgages granted under the
Agreement, and all other supplements to the Agreement, extend to and cover all
of the obligations of Borrower to Lender, now existing or hereafter arising
including, without limitation, those arising in connection with the Agreement,
as amended by this Amendment, upon the terms set forth in such agreements, all
of which security interests, liens, pledges, and mortgages are hereby ratified,
reaffirmed, confirmed and approved.
6. Borrower represents and warrants to Lender that (i) it has all
necessary power and authority to execute and deliver this Amendment and perform
its obligations hereunder, (ii) this Amendment and the Agreement, as amended
hereby, constitute the legal, valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their terms, and (iii) all
representations and warranties of Borrower contained in the Agreement, as
amended, and all other agreements, instruments and other writings relating
thereto, are true, correct and complete as of the date hereof.
7. The parties hereto acknowledge and agree that the terms and provisions
of this Amendment amend, add to and constitute a part of the Agreement. Except
as expressly modified and amended by the terms of this Amendment, all of the
other terms and conditions of the Agreement and all documents executed in
connection therewith or referred to or incorporated therein remain in full
force and effect and are hereby ratified, reaffirmed, confirmed and approved.
8. If there is an express conflict between the terms of this Amendment and
the terms of the Agreement, or any of the other agreements or documents
executed in connection therewith or referred to or incorporated therein, the
terms of this Amendment shall govern and control.
2
<PAGE> 3
9. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original.
10. This Amendment was executed and delivered in Skokie, Illinois and
shall be governed by and construed in accordance with the internal laws (as
opposed to conflicts of law provisions) of the State of Illinois.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year specified at the beginning hereof.
ATTEST: VITA FOOD PRODUCTS, INC.,
a Nevada corporation
By: /s/ Stephen D. Rubin
- - ----------------- -----------------------------
Secretary Title: President
--------------------------
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO,
successor in interest to
NBD BANK
By: /s/ Martin V. Rarick
-----------------------------
Title: Assistant Vice President
--------------------------
3
<PAGE> 1
EXHIBIT 10.1.3
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Loan and Security Agreement, dated as of
_________ __, 1998, (this "Fourth Amendment") by and between Vita Food
Products, Inc., a Nevada corporation, (herein the "Borrower"), and American
National Bank and Trust Company of Chicago, a national banking association, and
successor to NBD Bank (the "Bank");
WITNESSETH
WHEREAS, the Borrower and the Bank have heretofore entered into a Loan and
Security Agreement dated as of March 20, 1995 (as amended from time to time the
"Credit Agreement"), pursuant to which the Bank has agreed to consider making
certain loans to the Borrower pursuant to the terms and on the conditions set
forth therein;
WHEREAS, the Borrower and the Bank mutually desire to further amend the
Credit Agreement to revise certain provisions thereof;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Section 1.64 of the Credit Agremeent is amended by deleting the date
"April 30, 1998" and inserting in place thereof the date "April 30, 1999".
2. Borrower agrees that it shall further execute and deliver to the Bank
any additional or further documents, including without limitation, any amended
or replacement notes, necessary to further effectuate the intent and purpose
of the Credit Agreement and this Fourth Amendment.
3. Borrower represents and warrants that:
(a) The execution, delivery and performance of this Fourth Amendment by
the Borrower is within its corporate powers, has been duly authorized, and is
not in contravention of any law, rule or regulation, or any judgment, decree,
writ, injunction, or order or award of an arbitrator, court or governmental
authority, or of the terms of its Articles of Incorporation or By-Laws or of
any contract to which it or its property may be bound or affected.
(b) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada, and is duly qualified
to do business, and is in good standing, in all additional jurisdictions where
such qualification is necessary under applicable law. Borrower has all
requisite corporate power to execute and deliver this Fourth Amendment. This
Fourth Amendment is a valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its terms.
(c) The most recent financial statements delivered to the Bank in
accordance with the Credit Agreement are complete and accurate in all material
respects and present fairly the financial condition of the Borrower as of such
date and the results of its operations for the periods covered thereby, in
accordance with generally accepted accounting principles. There has been no
material adverse change in the condition of the Borrower, financial or
otherwise, since the date of such statements.
<PAGE> 2
(d) After giving effect to the amendments contained herein, the
representations and warranties contained in the Credit Agreement are true on
and as of the date hereof with the same force and effect as if made on and as
of the date hereof.
4. This Fourth Amendment shall be governed by and construed in
accordance with the laws of the State of Illinois.
5. Except as specifically amended hereby, the Credit Agreement, and any
and all certificates, instruments and other documents executed pursuant
thereto shall in all respects continue in full force and effect. Except as
otherwise expressly defined herein, all terms used in this Fourth Amendment
shall have the respective meanings set forth in the Credit Agreement.
Witness the due execution hereof as of this __ day of ______________,
1998, which shall be the effective date of this Fourth Amendment,
notwithstanding the day and year first above written.
<TABLE>
<S> <C>
American National Bank Vita Food Products, Inc.
and Trust Company Of Chicago
By:________________________ By:________________________
Its:__________________________ Its:_______________________
</TABLE>
2
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 16th day of January, 1997, between
VITA FOOD PRODUCTS, INC., a Nevada corporation (the "COMPANY") and JAY H.
DEMBSKY (the "EMPLOYEE").
RECITALS
WHEREAS, the Company is engaged in the business of processing and
manufacturing cured and smoked herring and salmon products and distributing
other related products; and
WHEREAS, the Company has determined that in view of the Employee's
knowledge, expertise and experience in finance and accounting, the Employee's
services as chief financial officer of the Company will be of great value to
the Company, and accordingly, the Company desires to enter into this Agreement
with the Employee as set forth herein in order to secure such services; and
WHEREAS, the Employee desires to serve as chief financial officer of the
Company on the terms set forth herein.
NOW, THEREFORE, for and in consideration of the Employee's employment by
the Company, the above premises and the mutual agreements hereinafter set
forth, the Employee and the Company agree as follows:
1. DEFINITIONS.
(a) "CAUSE" means the Employee's (i) commission of any act of fraud
or dishonesty relating to and adversely affecting the business affairs of
the Company; (ii) conviction of any felony in connection with employment
by the Company; or (iii) habitual material failure after written notice
specifying such failure and a reasonable opportunity to cure such failure
to perform his material duties hereunder responsibly.
(b) "CHANGE IN CONTROL EVENT" means any of the following events: the
sale of all or substantially all of the assets of the Company; the
failure of the current members of the Company's Board of Directors (the
"BOARD") to constitute a majority of the Board; the sale or other
transfer of ownership or voting control of the majority of the voting
stock of the Company to any one entity/individual or to a group of
affiliated entities/individuals.
(c) "TOTAL DISABILITY" means the Employee's inability, through
physical or mental illness or accident, to perform the majority of his
usual duties and responsibilities hereunder (as such duties are
constituted on the date of the commencement of such disability) in the
manner and to the extent required under this Agreement for a period of at
least one hundred eighty (180) consecutive days. Total Disability shall
be deemed to have occurred on the first day following the expiration of
such one hundred eighty (180) day period.
<PAGE> 2
2. EMPLOYMENT; DUTIES.
(a) The Company agrees to employ the Employee as Vice President and
Treasurer - Chief Financial Officer of the Company with the duties and
responsibilities generally associated with such position and currently
performed by the Employee and such other reasonable additional
responsibilities and positions as may be added to the Employee's duties
from time to time by the Board consistent with the Employee's position.
(b) During the term of employment hereunder, Employee shall (i)
diligently follow and implement all management policies and decisions
communicated by the Board of Directors; and (ii) timely prepare and
forward to the Board all reports and accountings as may be requested.
(c) Employee's duties and responsibilities hereunder shall be
modified and/or excused during reasonable periods of absence due to
health or disability or vacation, as provided herein.
3. TERM. The term hereof shall commence on the date of this Agreement and
shall continue for a period of two (2) years (the "TERM").
4. COMPENSATION.
(a)(1) Employee shall be paid a base salary of One Hundred Ten
Thousand Dollars ($110,000) per year (the "BASE SALARY") for the twelve
(12) month period which began on October 14, 1996 and which ends on
October 13, 1997. The Base Salary shall accrue and be due and payable in
equal, or as nearly equal as practicable, weekly installments and the
Company may deduct from each such installment all amounts required to be
deducted and withheld in accordance with applicable federal and state
income, FICA and other withholding tax requirements. The Base Salary
shall be increased for the twelve (12) month period beginning on October
14, 1997 and ending on October 13, 1998 by a percentage equal to at least
the percentage increase in the cost of living. The Base Salary shall be
further increased for the period beginning on October 14, 1998 and ending
on the last day of the Term by a percentage equal to at least the
percentage increase in the cost of living.
(2) The Base Salary may be increased from time to time and at any
time by the Compensation Committee and approved by the Board, but shall
in no event be reduced or decreased below the highest level attained at
any time by Employee.
(3) If the Term shall begin on other than the first business day of
a calendar month and if the Term hereof shall terminate on other than the
last day of a calendar month, Employee compensation for such month shall
be prorated according to the number of days during such month that occur
within the Term.
(b) The Employee shall receive an annual bonus targeted between 25%
and 50% of his Base Salary based on the Company bonus plan and his
individual performance all as approved by the Compensation Committee and
by the Board (the "BONUS PAYMENT"). The Employee shall receive a minimum
Bonus Payment of $20,000 for the year ended December 31, 1997. All Bonus
Payments shall be paid on or
2
<PAGE> 3
before the 15th day of March following the year for which such Bonus
Payment was computed.
(c) While Employee is performing the services described herein, the
Company shall, upon request, reimburse Employee for all reasonable and
necessary expenses incurred by Employee in connection with the
performance of duties of employment hereunder.
(d) If the Company now maintains or, while Employee renders services
to the Company, establishes an incentive or other compensation plan
(however described or denominated) for the corporate, operating or
executive officers or other management of the Company, or if the Company
now maintains or, while Employee renders services to the Company,
establishes any other benefit program(s) (however described or
denominated) for corporate, operating or executive officers or other
management employees of the Company, Employee shall be eligible to fully
participate in each such plan or benefit program.
(e) During the Term, the Company shall provide health, medical,
disability and term life insurance to Employee in accordance with any
group plan which it now maintains or which may hereafter be established
by the Company.
(f) Employee shall receive not less than three (3) weeks paid
vacation during each twelve (12) month period of employment. Such
vacation period may be increased from time to time and at any time by the
Board but shall in no event be shortened to less than the longest period
attained by Employee at any time during his employment.
(g) On October 14, 1996, the Employee was granted incentive stock
options to purchase 80,000 shares of common stock pursuant to the
Company's 1996 Employee Stock Option Plan. The incentive stock option
will vest at the rate of 20% per year over five years (i.e. one year from
the date the incentive stock options are granted, options to purchase
16,000 shares of common stock will become exercisable).
5. TERMINATION.
(a) Employee's employment may be terminated only as follows:
(1) By the Company: For Cause; or
(2) By the Employee: (a) because of a breach of this
Agreement by the Company which is not cured within ten (10) days
after written notice of such breach is delivered to the Company; or
(b) if a Change in Control Event occurs; or (c) if the Company
enters into a contract to relocate or does actually relocate its
offices to a location which is more than fifty (50) miles from its
current offices; or
(3) Upon death of the Employee; or
(4) Upon the Total Disability of the Employee.
3
<PAGE> 4
(b) In the event that employment is terminated by Employee pursuant
to Section 5(a)(2)(c) or is terminated due to the Employee's death or
Total Disability, the Company will be obligated to pay to the Employee
the full amount of Base Salary earned by Employee through the effective
date of termination or death, as the case may be.
(c) In the event that employment is terminated by the Company for
Cause, the Company will have no obligations to pay any amount beyond the
effective date of such termination whether as Base Salary, Bonus Payment
or otherwise to provide any benefits arising hereunder or otherwise
except as required by law.
(d) In the event that employment with the Company is terminated
within one hundred eighty (180) days after a Change of Control Event,
either voluntarily or involuntarily, whether by the Company or Employee:
(i) The Company shall pay Employee on the date of such
termination an amount equal to two times his Base Salary and Bonus
for the last full fiscal year prior to the Change in Control Event
or an amount equal to $260,000 if such termination occurs prior to
January 1, 1998.
(ii) All stock options granted by the Company to Employee
under Section 4(g) shall become immediately vested and exercisable
in accordance with their terms.
6. CONFIDENTIAL INFORMATION. Employee acknowledges that the nature of his
engagement by the Company is such that Employee shall have access to
information of a confidential and/or trade secret nature which has great value
to the Company. Such information includes financial, manufacturing and
marketing data, business plans and methods, processes, product formulas,
developmental work, work in process, methods, trade secrets (including, without
limitation, customer lists, supplier lists and lists of customer, supplier and
food broker sources), and any other information relating to the products,
services, customers, sales or business affairs of the Company, which has value
and is treated as secret and/or confidential by the Company (the "CONFIDENTIAL
INFORMATION"). The Company has and will also have access to Confidential
Information of its suppliers ("SUPPLIERS" means any persons with whom the
Company has a co-packing or joint venture relationship with or who supplies any
products or materials to the Company). Confidential Information includes not
only information disclosed by the Company or its Suppliers to Employee in the
course of employment, but also information developed or learned by Employee
during the course of employment with the Company. Confidential Information is
to be broadly defined. Confidential Information includes all information that
has or could have commercial value or other utility in the business in which
the Company or Suppliers are engaged or in which they contemplate engaging.
Confidential Information also includes all information of which the
unauthorized disclosure could be detrimental to the interests of the Company or
Suppliers, whether or not such information is identified as Confidential
Information by the Company or Suppliers. You agree to keep all Confidential
Information that could be materially detrimental to the interests of the
Company or Suppliers in confidence during the term of this Agreement and at any
time thereafter and shall not use, disclose, publish or otherwise disseminate
any of such Confidential Information to any other person, except to the extent
such disclosure is (i) necessary to the performance of this Agreement and in
furtherance of the Company's best interests, (ii) required by applicable law,
(iii) lawfully obtainable from other sources, (iv) authorized in writing by the
Company, (v) no
4
<PAGE> 5
longer qualifies as a trade secret or confidential information
under applicable law, or (vi) necessary to enforce this Agreement. Upon
termination of employment with the Company, Employee shall deliver to the
Company all documents, records, notebooks, work papers, and all similar
material containing Confidential Information, whether prepared by Employee, the
Company or anyone else.
7. NON-COMPETITION. In order to protect the Confidential Information,
Employee agrees that during the term of employment, and for a period of one (1)
year thereafter, Employee will not, directly or indirectly, whether as an
owner, partner, shareholder, agent, employee, creditor, or otherwise, promote,
participate or engage in any activity or other business directly competitive
with the Company's then existing business if such activity or other business
involves any use of any of the Confidential Information by Employee.
8. NON-SOLICITATION OF CUSTOMERS OR SUPPLIERS. Employee agrees that for a
period of one (1) year after the termination of employment with the Company,
Employee will not, on his own behalf or on behalf of an other individual,
association or entity, call on any of the customers or Suppliers of the Company
for the purpose of soliciting or inducing any of such customers to acquire (or
providing to any of such customers) or any of the Suppliers to provide any
product or service provided by or to the Company, nor will Employee in any way,
directly or indirectly, as agent or otherwise, in any other manner solicit,
influence or encourage such customers or Suppliers to take away or to divert or
direct their business away from the Company to Employee or to any other person
or entity with which Employee is employed, associated, affiliated or otherwise
related.
9. NONINTERFERENCE WITH EMPLOYEES. In order to protect the Confidential
Information, Employee agrees that during the term hereof and for a period of
one (1) year thereafter, Employee will not, directly or indirectly, induce or
entice any employee of the Company with access to or possession of Confidential
Information, to leave such employment or cause anyone else to leave such
employment.
10. REMEDIES. The parties hereto agree that the services to be rendered
by Employee pursuant to this Agreement, and the rights and privileges granted
to the Company pursuant to this Agreement, are of a special, unique,
extraordinary and intellectual character, which gives them a peculiar value,
the loss of which cannot be reasonably or adequately compensated in damages in
any action at law, and that a breach by Employee of any of the terms of this
Agreement will cause the Company great and irreparable injury and damage.
Employee hereby expressly agrees that the Company shall be entitled to the
remedies of injunction, specific performance and other equitable relief to
prevent a breach of this Agreement by Employee. This Section 10 shall not be
construed as a waiver of any other rights or remedies which the Company may
have for damages or otherwise.
11. SEVERABILITY. In case any one or more of the provisions of this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, the same shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid or illegal
or unenforceable provision had never been contained herein.
12. ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereunder may not be assigned by either party hereto without the prior
written consent of the other party hereto.
5
<PAGE> 6
13. NOTICES. Except as otherwise specifically provided herein, any notice
required or permitted to be given to Employee pursuant to this Agreement shall
be given in writing, and personally delivered or mailed to Employee by
certified mail, return receipt requested, at the address set forth below
Employee's signature on this Agreement or at such other address as Employee
shall designate by written notice to the Company given in accordance with this
Section 13, and any notice required or permitted to be given to the Company
shall be given in writing, and personally delivered or mailed to the Company by
certified mail, return receipt requested, addressed to the Company at the
address set forth under the signature of the President of the Company or his
designee on this Agreement or at such other address as the Company shall
designate by written notice to Employee given in accordance with this Section
13. Any notice complying with this Section 13 shall be deemed received upon
actual receipt by the addressee.
14. WAIVER. The waiver by either party hereto of any breach of this
Agreement by the other party hereto shall not be effective unless in writing,
and no such waiver shall operate or be construed as the waiver of the same or
another breach on a subsequent occasion.
15. GOVERNING LAW. This Agreement and the rights of the parties hereunder
shall be governed by and construed in accordance with the laws of the State of
Illinois.
16. BENEFICIARY. All of the terms and provisions of this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, heirs, executors, administrators and
permitted assigns.
17. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of the
parties hereto relating to Employee's employment by the Company in the capacity
herein stated and, except as specifically provided herein, no provisions of any
employee manual, personnel policies, Company directives or other agreement or
document shall be deemed to modify the terms of this Agreement. No amendment or
modification of this Agreement shall be valid or binding upon Employee or the
Company unless made in writing and signed by the parties hereto. All prior
understandings and agreements relating to Employee's employment by the Company,
in whatever capacity, are hereby expressly terminated.
18. CONFIDENTIALITY. The terms, conditions and existence of this
Agreement shall be confidential.
IN WITNESS WHEREOF, Employee and the Company have executed and delivered
this agreement as of the date first shown above.
EMPLOYEE: THE COMPANY:
JAY H. DEMBSKY VITA FOOD PRODUCTS, INC.
__________________________________ By:_______________________________
Address:___________________________ Printed Name:______________________
___________________________ Title:______________________________
___________________________ Address: 2222 West Lake Street
Chicago, IL 60612
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 118,975
<SECURITIES> 0
<RECEIVABLES> 3,882,519
<ALLOWANCES> 322,000
<INVENTORY> 4,302,208
<CURRENT-ASSETS> 8,683,193
<PP&E> 5,907,215
<DEPRECIATION> 3,657,788
<TOTAL-ASSETS> 11,148,064
<CURRENT-LIABILITIES> 3,376,499
<BONDS> 4,953,242
0
0
<COMMON> 37,000
<OTHER-SE> 2,781,323
<TOTAL-LIABILITY-AND-EQUITY> 11,148,064
<SALES> 21,949,884
<TOTAL-REVENUES> 21,949,884
<CGS> 5,874,800
<TOTAL-COSTS> 5,874,800
<OTHER-EXPENSES> 6,560,925
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 391,460
<INCOME-PRETAX> (1,077,585)
<INCOME-TAX> 0
<INCOME-CONTINUING> (927,585)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (927,585)
<EPS-PRIMARY> $(0.25)
<EPS-DILUTED> $(0.25)
</TABLE>
