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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, 1999
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:
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
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. $22,965,749
Shares of common stock, par value $.01 per share outstanding at February 29,
2000 - 3,712,471. Aggregate market value of such shares held by non-affiliates
as of that date - $2,309,147, based on a closing price of $1.875 per share as
reported on the American Stock Exchange. The issuer has assumed that all
directors, executive officers, and holders of 10% or more of the shares of
Common Stock are affiliates for the purposes of this calculation.
Documents Incorporated by Reference: A portion of the Company's Proxy Statement
relating to its 2000 Annual Meeting of Shareholders is incorporated by reference
in Part III hereof.
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 70 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 70 years and cured and smoked
salmon products for over 30 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.
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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 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, Canada, Chile, and other regions, 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 one of the most popular types 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." Other products sold
under the VITA label include the VITA LEAN Salmon Burger, VITA Marinated Salmon,
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, and shrimp cocktail products. These products are used as appetizers,
snacks, and condiments to accompany light meals and holiday trays. These
products
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are marketed by the Company under the VITA brand name, but produced by third
parties pursuant to co-packing arrangements.
NEWER PRODUCTS
The Company's newer products are those introduced in the past few years
and 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 the "VITA LEAN
SALMON BURGER" in the fourth quarter of 1996, "VITA SALMON NUGGETS" in the third
quarter of 1997, and "VITA MARINATED SALMON" in the third quarter of 1999. All
products were developed and are produced by the Company. The Company has
capitalized 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 sales levels at the time of introduction. It is
expected that as sales of these products grow, the development and distribution
costs will decline on a relative basis.
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 an 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 four 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 its 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 88% of the
Company's net sales while Institutional Purchasers have accounted for the
remaining 12% of net sales. Approximately 97% of the Company's net sales to
Supermarkets are made through food brokers while the remaining 3% 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 70% of the 97% of net sales to the
retail market. Products purchased through food brokers by food distributors for
resale to Supermarkets account for 30% of the 97% of net sales to the retail
market. Approximately 80% of the Company's net sales
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to Institutional Purchasers are made through food brokers, including
international distributors, while the remaining 20% 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"). The geographic distribution of the Company's sales in
1999 were as follows:
Geographic Area % of Gross Sales Representative Retail Sales Customers
- --------------- ---------------- ---------------------------------------
Northeast 34% Waldbaums, A & P, Shop-Rite, Wegman's,
Stop & Shop, Shaw's
Midwest 36% Super Valu, Jewel, Dominick's, Meijer's
Southeast 19% Publix, Winn-Dixie
West 10% Safeway, Fred Meyer, Albertson's
International 1%
The Company's largest customer represented 10% of its net sales in both
1998 and 1999. 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 88% of 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.
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 15
warehouse facilities owned by third parties which are located throughout the
United States.
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As of December 31, 1998, the Company decided to suspend plans to
construct a new facility. The Company made this decision after careful
considerations of the costs and benefits related to the relocation to a new
facility, including the cost of building a new facility, the availability of
alternative suitable facilities in existence, the relative benefits of an
improved facility, and the financial risk it would pose to the Company and its
shareholders. As a result, costs incurred for this effort, including
architecture fees, were written off as "other expenses" in 1998. See Note 10 of
Item 8. "Financial Statements".
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 70 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.
In 1999, the Supplier purchased a major competitor from whom the
Company had from time to time secured a minor portion of its herring
requirements. The Company has maintained very good relations with the Supplier
for over 70 years, and, based upon discussions with the Supplier, the Supplier
has assured the Company that the acquisition will not materially affect the
supply or price of herring. The Company cannot make assurances that the
acquisition will not affect the Company's cost of herring.
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 four 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.
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 Lascco, Mama's
and Nathan's, among others. The Company believes it is the only independent
company with national distribution capabilities in this market.
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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 is involved in discussions with the District regarding the
user charges for certain prior years. See Note 5 of Item 8. "Financial
Statements". Although the Company is involved in this and other environmental
matters, it does not believe that compliance with Federal, state or local
provisions relating to protection of the environment will 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
trademark 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 the "ELF" brand name, of herring products
which the Company believes has widespread consumer recognition 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 a letter agreement (the "Letter Agreement"). Ownership of the "ELF"
trademark originally belonged to Food Marketing Corp. and was transferred to
SuperValu, Inc., which affirmed Lyon Food's right to use the mark as set forth
in the Letter Agreement and consented to the Company's 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 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.
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PRODUCT LIABILITY INSURANCE
The Company currently maintains product liability insurance for its
products with limits of $1,000,000 per occurrence 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 29, 2000, the Company had 115 full-time employees.
Additionally, up to 35 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.
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.
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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 February 29, 2000 there were approximately 400 beneficial holders of the
Company's Common Stock.
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.
Common Stock Market Price Warrant Market Price
Quarter High Low Quarter High Low
- ------- ---- --- ------- ---- ---
1st - 1998 2 3/8 1 3/8 1st - 1998 5/16 1/8
2nd - 1998 2 1/8 1 3/4 2nd - 1998 3/16 1/8
3rd - 1998 2 1/16 1 3rd - 1998 1/8 1/32
4th - 1998 1 3/16 1/4 4th - 1998 3/16 1/32
1st - 1999 1 3/8 7/8 1st - 1999 1/4 1/16
2nd - 1999 2 1 2nd - 1999 1/4 1/16
3rd - 1999 3 3/4 1 3rd - 1999 7/32 1/16
4th - 1999 2 5/8 1 11/16 4th - 1999 1/16 1/16
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, 1999
and the balance sheet data as of December 31, 1999 and 1998 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 Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------
STATEMENT OF INCOME DATA: 1999 1998
----------- -----------
(in thousands, except per
share amounts)
<S> <C> <C>
Net sales ............................................. $ 22,966 $ 22,295
Cost of goods sold .................................... 16,165 15,746
----------- -----------
Gross margin .......................................... 6,801 6,549
Selling, marketing and administrative expenses ........ 5,897 6,458
----------- -----------
Operating profit ...................................... 904 91
Interest and other, net ............................... 593(b)
700(a)
----------- -----------
Income (loss) before income tax expense (benefit) ..... 311 (609)
Income tax expense (benefit) .......................... 0
0
----------- -----------
Net income (loss) ..................................... $ 311 $ (609)
=========== ===========
Basic earnings (loss) per common share ................ $ 0.08 $ (0.16)
Weighted average number of common
shares outstanding ................................. 3,706,112 3,701,018
=========== ===========
Diluted earnings (loss) per common share .............. $ 0.08 $ (0.16)
Weighted average number of common
shares outstanding ................................. 3,714,741 3,701,018
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
<S> <C> <C>
STATEMENT OF INCOME DATA: ............................... 1999 1998
------ ------
Net sales ............................................ 100.0% 100.0%
Cost of goods sold ................................... 70.4 70.6
------ ------
Gross margin ......................................... 29.6 29.4
Selling, marketing and administrative expenses ....... 25.7 29.0
------ ------
Operating profit ..................................... 3.9 0.4
Interest and other, net .............................. 2.5(b) 3.1(a)
------ ------
Income (loss) before income tax expense (benefit) .... 1.4 (2.7)
Income tax expense (benefit) ......................... -- --
------ ------
Net income (loss) .................................... 1.4% (2.7)%
====== ======
</TABLE>
(a) Includes non-recurring write-off of relocation costs of $298,000, or 1.3%.
(b) Includes non-recurring write-off of acquisition costs of $236,000, or 1.0%.
YEARS ENDED
DECEMBER 31,
------------------
BALANCE SHEET DATA: 1999 1998(c)
------- --------
(in thousands)
Working capital .............. $ 4,007 $ 4,237
Total assets ................. 10,597 10,092
Current liabilities .......... 3,690 3,312
Long-term debt ............... 4,376 4,567
Shareholders' equity ......... 2,531 2,214
(c) Certain reclassifications were made to the 1998 balance sheet to provide
comparability between 1999 and 1998.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 AND THE
YEAR ENDED DECEMBER 31, 1998
REVENUES. Net sales for the year ended December 31, 1999 were $22,966,000
compared to $22,295,000 for the same period in 1998, an increase of $671,000 or
3%. The increase in sales was attributable in part to sales to a new large
customer and continued strong demand for salmon products. The breakdown by
product group was a combination of a 2% increase in sales of herring products, a
10% increase in sales of salmon products, and a 7% decrease in the sale of other
specialty products. Management believes that the increases in herring and salmon
products are consistent with, if not greater than, nationwide increases in
demand for similar products. Herring, salmon, and specialty product sales
represented 52%, 40%, and 8% of the Company's total sales, respectively.
GROSS MARGIN. Gross margin for the year ended December 31, 1999 was $6,800,000
compared to $6,549,000 for the same period in 1998, an increase of $251,000 or
4%. As a percentage of net sales, gross margin was 29.6% in 1999 versus 29.4% in
1998, an increase of 0.2% points. The increase in the gross margin percentage
was attributable in part to production labor efficiencies and cost reductions
arising from improved management of plant overhead, offset by increased costs
for herring and by a change in sales mix from higher margin herring products to
lower margin salmon products.
OPERATING EXPENSES. Selling, marketing, distribution and administrative expenses
for the year ended December 31, 1999 were $5,897,000 compared to $6,458,000 for
the same period in 1998, a decrease of $561,000 or 9%. As a percentage of net
sales, selling, marketing, distribution and administrative expenses decreased to
25.7% from 29.0% for the same period in 1998. The decrease in the selling,
marketing, distribution and administrative expense margin was attributable to a
combination of factors, including lower slotting and other promotional costs,
selling expenses, and distribution costs. Slotting costs are incurred to
increase distribution of new products, and the Company was more aggressive in
the prior year in increasing distribution of several of its newer products by
incurring a high amount of slotting costs. Selling expenses were lower primarily
as a result of reduced staffing, and distribution costs were lower as a result
of increased efforts at reducing freight costs.
INTEREST AND OTHER EXPENSE. Interest and other expense, net, for the year ended
December 31, 1999 was $593,000 compared to $701,000 for the same period in 1998,
a decrease of $108,000 or 15%. Both the interest expense component and other
expense component decreased. Interest expenses decreased $45,000 or 11%
attributable primarily to a lower level of bank debt outstanding from improved
inventory management and lower inventories, slightly offset by a higher interest
rate charged on the Company's bank credit facilities. Other expenses for 1999
comprised a $236,000 write-off of legal, accounting, finance and other due
diligence costs incurred in connection with a suspended acquisition. Other
expenses for 1998 comprised a non-recurring $298,000 write-off of architecture,
design, legal, and other costs related to a planned relocation of the primary
operations of the Company. The relocation was suspended and the associated costs
were expensed in the fourth quarter of 1998.
INCOME TAXES. The Company provided for no income tax expenses for the year ended
December 31, 1999 and for the year ended December 31, 1998. In 1999, the Company
used a portion of its net operating loss carryforward to offset income taxes
otherwise expensed. In 1998, the Company generated a loss and therefore incurred
no expense.
10
<PAGE> 12
NET INCOME (LOSS). As a result of the increases and decreases discussed above,
net income for the year ended December 31, 1999 was $310,000 or $0.08 per share
compared to net loss of $609,000 or $0.16 per share for the same period in 1998,
an increase of $920,000 or $0.24 per share, for both basic and diluted per share
amounts.
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.
NET SALES
--------------------------------------
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
(in thousands)
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
1998.................... 5,519 4,075 5,159 7,542
1999.................... 5,380 4,200 5,257 8,129
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.
NET INCOME (LOSS)
---------------------------------------
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
(in thousands)
1995(1)................. $63 $(270) $(548)(1) $886
1996.................... 69 (100) 3 846
1997.................... (162) (219) (307) (240)(2)
1998.................... (89) (463) (109) 52(3)
1999.................... (43) (143) 76 420(4)
- -------------
(1) The Company incurred unusual and non-recurring expenses in 1995 which
consisted of an Arbitration Award of $356,000, expensed in the third
quarter, 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
Company's bank credit facilities and legal fees and expenses totaling
$62,000 paid to Company counsel in connection with the Arbitration.
(2) The fourth quarter loss is not typical 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 non-recurring production
expenses.
(3) Includes a non-recurring charge of $298,000 to write off costs related to
the suspended relocation effort.
(4) Includes a non-recurring charge of $236,000 to write off costs related to
a suspended acquisition.
11
<PAGE> 13
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. However, the Company believes that
through the introduction of new non-seasonal or counter-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.
FINANCIAL CONDITION
At December 31, 1999, the Company had $4,007,000 in working capital, compared to
$4,237,000 at December 31, 1998, a decrease of $230,000 or 5%. The decrease was
primarily attributable to lower raw material inventories and higher current
maturities of long-term debt, offset by higher accounts receivable.
At December 31, 1999, the Company had $53,000 in cash, and a revolving credit
facility of $5,250,000 and term facility of $1,500,000 with its lender which
expire April 30, 2001. Amounts outstanding under the revolving facility and the
term facility at December 31, 1999 were $3,777,000 and $493,000, respectively.
The rate of interest on both facilities is the prime rate plus 0.5%. The
facilities contain customary representations, warranties, and covenants. At
December 31, 1999, the Company was in compliance with the covenants under its
credit agreement.
Since December 31, 1998, the Company's current ratio decreased to 2.1 from 2.3,
due to the working capital changes discussed above. The ratio of long-term
debt-to-total capitalization decreased to 63% from 67%, primarily as a result of
the improved profitability in 1999. The Company believes its financial resources
are adequate to fund its needs for the next twelve months.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operating activities
was $696,000 for the year ended December 31, 1999, compared to $719,000 for the
year ended December 31, 1998, a decrease of $23,000 or 3%. Increases in cash
flow from operating activities resulted from: higher net income and lower raw
material inventories in 1999. Decreases in cash flow from operating activities
resulted from: 1) the collection in 1998 of a $250,000 income tax receivable; 2)
higher accounts receivable in 1999 resulting from stronger December sales; and
3) increases in accrued expenses in 1998.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities was
$734,000 for capital spending for the year ended December 31, 1999, compared to
$294,000 for the year ended December 31, 1998. The $440,000 increase in cash
used in investing activities was primarily due to both higher capital spending
in 1999 and the absence of capital leasing activity in 1999, compared to
$399,000 of new capital leases in 1998. Investments in equipment financed by
capital leases are not included as cash used in investing activities.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing activities
was $12,000 for the year ended December 31, 1999, compared to net cash used in
financing activities of $454,000 for the year ended December 31, 1998. The
increase in net cash provided by financing activities was primarily attributable
to the changes outlined above which were financed by draws on the Company's
revolving line of credit.
12
<PAGE> 14
INFLATION
Inflation has historically not had a material effect on the Company's
operations.
YEAR 2000
The Company has established an overall plan to address systems-related
Year 2000 issues. The plan calls for testing, modification, or replacement of
several existing business system applications. The Company has tested all
critical information technology systems during the last 5 years and is
substantially satisfied that they are Year 2000 compliant. However, there can be
no assurances that after December 31, 1999, Year 2000 issues that would have an
adverse impact on the Company will not arise. To date, the Company has not
incurred any significant costs or experienced any material problems related to
Year 2000 issues.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use, including the requirement to capitalize and amortize specific
costs. The adoption of this standard did not have a material effect on its
capitalization policy.
In June of 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 has been amended by SFAS No. 137,
which delayed the effective date to periods beginning after June 15, 2000. The
Company, to date, has not engaged in derivative and hedging activities.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-KSB, including "Business," "Properties,"
"Legal Proceedings", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Year 2000" 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; (xiii)
consolidation of the Company's supplier base; and (xiv) 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.
13
<PAGE> 15
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.
ITEM 8. FINANCIAL STATEMENTS
Listed below are the financial statements included in this part of the
Annual Report on Form 10-KSB:
(a) Financial Statements Page No.
Report of Independent 15
Certified Public Accountants
Balance Sheets at December 31, 1998 16
and at December 31, 1999
Statements of Operations for the years ended 17
December 31, 1998 and 1999
Statements of Shareholders' Equity for 17
the years ended December 31, 1998 and 1999
Statements of Cash Flow for the years ended 18
December 31, 1998 and 1999
Notes to Financial Statements 19 - 27
14
<PAGE> 16
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, 1999 and 1998, 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, 1999 and 1998, 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 15, 2000
15
<PAGE> 17
BALANCE SHEETS VITA FOOD PRODUCTS, INC.
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 52,548 $ 78,488
Accounts receivable-trade, net of allowance for discounts, returns, and doubtful
accounts of $406,000 in 1999 and $370,000 in 1998 3,470,998 2,816,513
Inventories
Raw material and supplies 1,880,744 2,565,741
Work in process 96,156 77,698
Finished goods 1,625,364 1,400,678
Prepaid expenses and other current assets 371,706 409,193
Deferred income taxes 200,000 200,000
------------ ------------
Total Current Assets 7,697,516 7,548,311
Property, Plant and Equipment
Land 35,000 35,000
Building and Improvements 1,747,147 1,433,060
Machinery and Office Equipment 5,292,751 4,931,074
------------ ------------
7,074,898 6,399,134
Less accumulated depreciation and amortization (4,309,753) (3,933,410)
------------ ------------
Net Property Plant & Equipment 2,765,145 2,465,724
Other Assets 134,280 78,279
------------ ------------
Total Assets $ 10,596,941 $ 10,092,314
=====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 526,095 $ 329,810
Accounts payable 2,105,711 1,894,893
Accrued other expenses 1,058,483 1,086,829
------------ ------------
Total Current Liabilities 3,690,289 3,311,532
Long-term Obligations, Less Current Maturities 4,375,754 4,566,547
Commitments and Contingencies
Shareholders' Equity
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 3,712,471 shares in 1999 and 3,704,724 shares in 1998 37,124 37,047
Additional paid in capital 3,359,800 3,353,583
Deficit (866,026) (1,176,395)
------------
Total Shareholders' Equity 2,530,898 2,214,235
------------ ------------
Total Liabilities and Shareholders' Equity $ 10,596,941 $ 10,092,314
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 18
STATEMENTS OF OPERATIONS VITA FOOD PRODUCTS, INC.
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales (Note 7) $ 22,965,749 $ 22,294,793
Cost of Goods Sold 16,165,364 15,745,945
------------ ------------
Gross Margin 6,800,385 6,548,848
Selling and Administrative Expenses
Selling, Marketing & Distribution 3,953,421 4,646,766
Administrative 1,943,338 1,810,749
------------ ------------
Total 5,896,759 6,457,515
------------ ------------
Operating Profit 903,626 91,333
Other (Income) Expense
Write-off of Non-Recurring Costs (Notes 10 and 11) 235,511 297,699
Interest 357,746 403,079
------------ ------------
Income (loss) Before Income Tax Expense (benefit) 310,369 (609,445)
Income Tax Expense (Benefit) (Note 4) 0 0
------------ ------------
Net Income (Loss) $ 310,369 $ (609,445)
============ ============
Basic Earnings (Loss) Per Share $ 0.08 $ (0.16)
Weighted Average Common Shares Outstanding 3,706,112 3,701,018
Diluted Earnings (Loss) Per Share $ 0.08 $ (0.16)
Weighted Average Common Shares Outstanding 3,714,741 3,701,018
</TABLE>
STATEMENTS OF SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
-------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, at January 1, 1998 3,700,000 $ 37,000 $ 3,348,273 $ (566,950) $ 2,818,323
Proceeds from stock purchase
and stock option plans 4,724 $ 47 $ 5,310 $ 5,357
Net (loss) $ (609,445) $ (609,445)
- ------------------------------------------------------------------------------------------------------
Balance, at Dec 31, 1998 3,704,724 $ 37,047 $ 3,353,583 $(1,176,395) $ 2,214,235
Proceeds from stock purchase
and stock option plans 7,747 $ 77 $ 6,217 $ 6,294
Net income $ 310,369 $ 310,369
- ------------------------------------------------------------------------------------------------------
Balance, at Dec 31, 1999 3,712,471 $ 37,124 $ 3,359,800 $ (866,026) $ 2,530,898
======================================================================================================
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 19
STATEMENTS OF CASH FLOWS VITA FOOD PRODUCTS, INC.
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 310,369 (609,445)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 378,307 316,415
Write-offs of non-recurring costs 235,511 297,699
Changes in assets and liabilities:
(Increase) in accounts receivable (654,485) (234,216)
Decrease in Income tax receivable 0 250,000
Decrease in inventories 441,853 258,091
Decrease (increase) in prepaid expenses and other current assets (198,024) 10,808
Increase in accounts payable 210,818 88,661
Increase (decrease) in accrued expenses (28,346) 341,401
-------- --------
Net cash provided by operating activities 696,003 719,414
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (675,764) (131,958)
Other assets (57,965) (162,499)
-------- --------
Net cash (used in) investing activities (733,729) (294,457)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under revolving loan facility 334,419 (139,874)
Payments on term loan facility (246,447) (263,337)
Payments of capital lease obligations (82,480) (22,144)
Proceeds from stock purchase and stock option plans 6,294 5,357
Payments on bank and other debt obligations 0 (34,404)
-------- --------
Net cash provided by (used in) financing activities 11,786 (454,402)
-------- --------
Net (decrease) in cash (25,940) (29,445)
Cash, at beginning of year 78,488 107,933
-------- --------
Cash, at end of year 52,548 78,488
======================================================================================================
Supplemental Disclosure of Cash Flow Information
Cash paid for interest 352,524 409,270
Income taxes paid 0 0
Noncash Investing and Financing Activities
Capital lease obligations 0 398,790
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 20
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies utilized in the preparation
of the accompanying financial statements follows.
INDUSTRY
The Company processes and sells various herring, and cured and smoked salmon
products throughout the United States. In addition, the Company sells other
complementary specialty food products. The Company considers its products
and related operations as one business segment.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially 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 or dispose if the merchandise is not sold prior to
the expiration of its shelf life. Sales are reduced by a provision for
estimated future returns and disposals.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs are determined
by the first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are being provided, on 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 ASSETS
The Company reviews the carrying values 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. As of
December 31, 1999 there has been no impairment of long-lived assets.
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.
19
<PAGE> 21
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 $406,000
and $722,000 in 1999 and 1998, 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
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.
RECLASSIFICATIONS
Certain items in the prior year financial statements have been reclassified
to conform with the current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use, including the requirement to capitalize and amortize specific
costs. The adoption of this standard did not have a material effect on its
capitalization policy.
In June of 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS No. 133 has been amended by
SFAS No. 137, which delayed the effective date to periods beginning after
June 15, 2000. The Company, to date, has not engaged in derivative and
hedging activities.
2. ACCRUED EXPENSES
Accrued expenses consist of the following:
20
<PAGE> 22
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 1998
-------------------------------------------------------------------
Metropolitan Water Reclamation
District user charges 446,172 500,978
Accrued interest 37,084 31,862
Accrued salaries and bonuses 403,146 277,356
Other taxes 46,078 58,472
Other 126,003 218,161
-------------------------------------------------------------------
$1,058,483 $1,086,829
===================================================================
3. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving loan facility expires on April 30, 2001. Interest at prime
(8.5% at December 31, 1999) plus 0.5%(a). $3,776,938 $3,442,519
Term loan facility expires on April 30, 2001. Interest at prime plus 0.5%(a). 492,712 739,159
10% and 8% unsecured promissory notes to the shareholders of the Company (b). 280,750 280,750
Capitalized lease obligations 351,449 433,929
- -------------------------------------------------------------------------------------------------------
4,901,849 4,896,357
Less current maturities 526,095 329,810
- -------------------------------------------------------------------------------------------------------
$4,375,754 $4,566,547
=======================================================================================================
</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
minimum quarterly operating and tangible net worth results, and provides for
restrictions on the payment of dividends. At December 31, 1999, the Company was
in compliance with these covenants.
(b) The 10% notes, which total $190,096, mature in February 2000 and were repaid
in full at such time. Repayment of the 8% notes, which total $90,654 and are
subordinated to the advances under the loan and security agreement, is
contingent upon meeting certain circumstances under the Agreement. The Company
expects to meet these circumstances no sooner than April 30, 2001, the
expiration of the Agreement.
21
<PAGE> 23
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
Scheduled annual maturities of long-term obligations as of December 31, 1999
are as follows:
Year ending December 31,
----------------------------------------------------
2000 $ 526,095
2001 4,210,258
2002 84,243
2003 81,253
----------------------------------------------------
$4,901,849
====================================================
The Company incurred interest expense with related parties of $26,700 and
$30,000 for the years ended December 31, 1999 and 1998, respectively.
The Company leases certain equipment under capitalized lease agreements. The
leases are noncancellable and expire in 2001-2003. The following is a
schedule of future minimum payments under the capital leases as of December
31, 1999, together with the present value of net minimum lease payments:
Year ending December 31,
--------------------------------------------------------------------
2000 109,197
2001 109,197
2002 91,014
2003 83,430
--------------------------------------------------------------------
Net minimum lease payments 392,838
Less amount representing interest 41,389
--------------------------------------------------------------------
====================================================================
Present value of net minimum lease payments $351,449
====================================================================
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:
December 31, 1999 1998
----------------------------------------------------------
Cost $458,301 $458,301
Accumulated amortization (62,450) (26,484)
----------------------------------------------------------
$395,851 $431,817
==========================================================
22
<PAGE> 24
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of 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:
December 31, 1999 1998
-------------------------------------------------------------------
Deferred tax assets:
Uniform inventory capitalization $ 41,000 $ 41,000
Accrued liabilities 125,000 129,000
Contributions carryover 36,000
Net operating loss carryforwards 636,000 768,000
-------------------------------------------------------------------
838,000 938,000
Deferred tax liability:
Depreciation (129,000) (124,000)
-------------------------------------------------------------------
709,000 814,000
Less valuation allowance (509,000) (614,000)
-------------------------------------------------------------------
Net deferred tax asset $ 200,000 $ 200,000
===================================================================
The valuation allowance decreased by $105,000 in 1999 and increased by
$218,000 in 1998.
Based on its projected pretax income for the year ended December 31, 2000,
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 also
determined, as of December 31, 1999, 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.
Income tax expense (benefit) at December 31, 1999 and 1998 consists of the
following:
Year ended December 31, 1999 1998
---------------------------------------------------------------------
Current $ 0 $ 0
Deferred 105,000 (218,000)
Adjustment of valuation allowance (105,000) 218,000
---------------------------------------------------------------------
Income tax expense (benefit) $ 0 $ 0
=====================================================================
23
<PAGE> 25
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
The reconciliation of income tax computed at the United States federal
statutory tax rate of 34% to income tax expense (benefit) is as follows:
Year ended December 31, 1999 1998
--------------------------------------------------------------------------
Tax at federal statutory rate $ 118,000 $(211,000)
Change in deferred tax valuation allowance (105,000) 218,000
Other (13,000) (7,000)
--------------------------------------------------------------------------
Income tax expense (benefit) $ 0 $ 0
==========================================================================
At December 31, 1999 the Company had net operating loss carryforwards of
$1,590,000 and income tax credit carryforwards of $50,000. Both the net
operating loss carryforwards and income tax credit carryforwards begin to
expire in 2011.
5. COMMITMENTS AND CONTINGENCIES
A. In the ordinary course of business, the Company 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, 1999, the Company is required to purchase approximately
$674,000 under one of these agreements.
B. The Company is contesting the amount of user charges assessed by the
Metropolitan Water Reclamation District (the "District") for 1994 -
1997. The Company has provided accruals of approximately $311,000 as of
December 31, 1999 for user charges during this time period. These
accruals are based upon settlement negotiations between the Company and
the District. If the Company is not successful in its protest, the
Company may be required to pay an additional $230,000. 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.
C. 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 PLANS
The Company has established a qualified profit sharing plan covering its
non-union employees. Participants may elect to defer a portion of annual
compensation. The Company may contribute amounts at the discretion of the
board of directors.
24
<PAGE> 26
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
The Company expensed 401(k) matching contributions of $13,829 and $10,921 in
1999 and 1998, respectively.
Additionally, the Company participates in two multi-employer plans that
provide benefits to the Company's union employees. Contributions to the
plans for the years ended December 31, 1999 and 1998 were $34,972 and
$34,200, respectively.
7. MAJOR CUSTOMER
The Company had sales to one customer in 1999 and 1998 representing 10% of
net sales for each year. At December 31, 1999 and 1998 the accounts
receivable balance from this customer was $302,042 and $187,411,
respectively.
8. CAPITAL
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. Generally, options vest over a period of
up to five years and are exercisable for a period of ten years from the date
of grant. 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:
Year ended December 31, 1999 1998
---------------------------------------------------------------------------
Options outstanding at beginning of year 103,000 180,500
Options granted 106,500 10,000
Options canceled 1,500 87,500
---------------------------------------------------------------------------
Options outstanding at end of year 208,000 103,000
===========================================================================
Weighted average remaining
Contractual life 8.6 years 8.8 years
Options exercisable 118,200 36,600
=-=========================================================================
Option prices per share granted $0.94 - $1.50 $1.25
===========================================================================
===========================================================================
Weighted Average Exercise Price
---------------------------------------------------------------------------
Options Granted $1.36 $1.25
Options Exercisable $2.38 $3.42
Options Canceled $1.00 $3.50
===========================================================================
25
<PAGE> 27
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:
1999 1998
----------------------------------------------------------------------------
Weighted average fair value per options granted $ 0.59 $ 0.44
Significant assumptions (weighted average)
Risk-free interest rate at grant date 6.3% 6.1%
Expected stock price volatility 0.75 0.25
Expected dividend payout -0- -0-
Expected option life (years) 5 5
Net Income (loss)
As reported $ 310,369 $ (609,445)
Pro forma $ 272,635 $ (612,085)
Basic earnings (loss) per share
As reported $ 0.08 $ (0.16)
Pro forma $ 0.07 $ (0.17)
----------------------------------------------------------------------------
9. EMPLOYMENT CONTRACTS
The Company has employment agreements with three officers of the Company,
with two extending through January 2001 and the other through October 2000.
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 $125,000 annually
(adjusted annually for increases of at least the cost of living index), plus
bonuses, if any, and certain perquisites.
10. WRITE-OFF OF RELOCATION COSTS
At the end of 1998, the Company decided to suspend its plans to construct a
new facility after careful consideration of the costs and relative benefits
of a new facility. Architecture and design fees, process engineering fees,
and other costs incurred and previously capitalized in the amount of
$298,000 were written off in the fourth quarter of 1998.
26
<PAGE> 28
VITA FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
11. WRITE-OFF OF ACQUISITION COSTS
At the end of 1999, the Company suspended certain corporate acquisition
efforts. Legal, accounting, finance, and other due diligence costs incurred
and previously capitalized in the amount of $333,000 less estimated
recoveries from third parties of $97,000, for a net write-off of $236,000 in
the fourth quarter of 1999.
27
<PAGE> 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER
The information required by this Item 10 as to the Directors of the
Company is incorporated herein by reference to the information set forth under
the caption "Election of Directors" in the Company's definitive Proxy Statement
for the 2000 Annual Meeting of Stockholders, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference
to the information set forth under the caption "Compensation of Executive
Officers" in the Company's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
Company's fiscal year pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is incorporated by reference to
the information set forth under the caption "Security Ownership of Principal
Holders and Management" in the Company's definitive Proxy Statement for the 2000
Annual Meeting of Stockholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the Company's fiscal year pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 12 is incorporated by reference to
the information set forth under the caption "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
Company's fiscal year pursuant to Regulation 14A.
28
<PAGE> 30
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
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
(1)3.1 Articles of Incorporation of the Company (Ex. 3.1)
(1)3.2 By-laws of the Company (Ex. 3.2)
(1)4.1 Form of Common Stock Certificate (Ex. 4.1)
(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)
(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)
(1)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)
(3)10.1.1 Second Amendment to Loan and Security Agreement (Ex. 10.1.1)
- ----------
(1) Incorporated by reference to Form SB-2 Registration Statement (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.
(2) Incorporated by reference to Form SB-2 Registration Statement (File No.
333-5738), filed with the Securities and Exchange Commission on November 14,
1996. Form SB-2 Exhibit Number is included in parenthesis following the title of
the Exhibit.
(3) Incorporated by reference to Form 10-KSB for the fiscal year ended December
31, 1997, filed with the Securities and Exchange Commission on March 30, 1998.
Form 10-QSB Exhibit Number is included in parenthesis following the title of the
Exhibit.
29
<PAGE> 31
(3)10.1.2 Third Amendment to Loan and Security Agreement (Ex. 10.1.2)
(3)10.1.3 Form of Fourth Amendment to Loan and Security Agreement (Ex. 10.1.3)
(4)10.1.4 Fifth Amendment to Loan and Security Agreement (Ex. 10.1.4)
(5)10.1.5 Sixth Amendment to Loan and Security Agreement and Note (Ex. 10.1.5)
(6)10.1.6 Seventh Amendment to Loan and Security Agreement (Ex. 10.1.6)
(1)10.2 Form of 1996 Employee Stock Option Plan (Ex. 10.4)(x)
(1)10.3 Form of 1996 Stock Option Plan for Non-Employee Directors (Ex.
10.5)(x)
(1)10.4 Form of Employment Agreement between the Company and Stephen D.
Rubin (Ex. 10.7)(x)
(6)10.4.1 Amendment One to Employment Agreement between the Company and
Stephen D. Rubin(x) (Ex. 10.4.1)
(1)10.5 Form of Employment Agreement between the Company and Clark L.
Feldman (Ex. 10.8)(x)
(6)10.5.1 Amendment One to Employment Agreement between the Company and Clark
L. Feldman(x) (Ex. 10.5.1)
(1)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)
(1)10.7 Exclusive Distributorship Agreement dated as of December 1, 1994 by
and between the Company and Brookside Products, Ltd. (Ex. 10.10)
(3)10.8 Employment Agreement between the Company and Jay H. Dembsky(x) (Ex.
10.8)
- ----------
(4) Incorporated by reference to Form 10-QSB for the fiscal quarter ended June
30, 1998, filed with the Securities and Exchange Commission on August 7, 1998.
Form 10-QSB Exhibit Number is included in parenthesis following the title of the
Exhibit.
(5) Incorporated by reference to Form 10-QSB for the fiscal quarter ended
September 30, 1998, filed with the Securities and Exchange Commission on
November 9, 1998. Form 10-QSB Exhibit Number is included in parenthesis
following the title of the Exhibit.
(6) Incorporated by reference to Form 10-QSB for the fiscal quarter ended June
30, 1999, filed with the Securities and Exchange Commission on August 9, 1999.
Form 10-QSB 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.
30
<PAGE> 32
(6)10.8.1 Employment Agreement between the Company and Jay H. Dembsky(x) (Ex.
10.8)
(2)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
31
<PAGE> 33
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: /s/ Stephen D. Rubin
------------------------------
Stephen D. Rubin
President
Date: March 20, 2000
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, 2000.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ Stephen D. Rubin Director and President
- ----------------------------------------------- (Principal Executive Officer)
Stephen D. Rubin
/s/ Clark L. Feldman Director, Executive Vice President and Secretary
- -----------------------------------------------
Clark L. Feldman
/s/ Jay H. Dembsky Vice President, Chief Financial Officer
- ----------------------------------------------- and Treasurer
Jay H. Dembsky (Principal Financial and Accounting Officer)
/s/ Sam Gorenstein Director
- -----------------------------------------------
Sam Gorenstein
/s/ Michael Horn Director
- -----------------------------------------------
Michael Horn
/s/ Neal Jansen Director
- -----------------------------------------------
Neal Jansen
/s/ Steven A. Rothstein Director
- -----------------------------------------------
Steven A. Rothstein
/s/ Jeffrey C. Rubenstein Director
- -----------------------------------------------
Jeffrey C. Rubenstein
</TABLE>
32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 52,548
<SECURITIES> 0
<RECEIVABLES> 3,876,947
<ALLOWANCES> 405,949
<INVENTORY> 3,602,264
<CURRENT-ASSETS> 7,697,516
<PP&E> 7,074,898
<DEPRECIATION> (4,309,753)
<TOTAL-ASSETS> 10,596,941
<CURRENT-LIABILITIES> 3,690,289
<BONDS> 4,375,754
37,124
0
<COMMON> 0
<OTHER-SE> 2,493,774
<TOTAL-LIABILITY-AND-EQUITY> 10,596,941
<SALES> 22,965,749
<TOTAL-REVENUES> 22,965,749
<CGS> 16,165,364
<TOTAL-COSTS> 16,165,364
<OTHER-EXPENSES> 6,132,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 357,746
<INCOME-PRETAX> 310,369
<INCOME-TAX> 0
<INCOME-CONTINUING> 310,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310,369
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
