<PAGE>
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended SEPTEMBER 30, 1995
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Commission file number 0-2246
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VESTRO NATURAL FOODS INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 11-1676942
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1065 EAST WALNUT STREET, CARSON, CALIFORNIA 90746
- ------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(310) 886-8200
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 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
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As of October 1, 1995, 5,950,588 shares of the Registrant's
Common Stock, par value $.01 were issued and outstanding.
Page 1 of 11
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,000 $ 1,489,000
Accounts receivable trade - net 2,474,000 1,776,000
Inventories 2,712,000 2,547,000
Prepaid expenses and other 881,000 526,000
------------- -----------
Total current assets 6,082,000 6,338,000
----------- -----------
Properties, at cost:
Machinery and equipment 556,000 506,000
Leasehold improvements 12,000 9,000
----------- -----------
568,000 515,000
Less accumulated depreciation 406,000 349,000
----------- -----------
162,000 166,000
Excess of cost over net assets of
businesses acquired - net 6,961,000 7,120,000
Other assets 574,000 652,000
----------- -----------
Total assets $13,779,000 $14,276,000
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,631,000 $ 2,972,000
Notes Payable-current portion 644,000 549,000
Accrued liabilities 493,000 644,000
----------- -----------
Total current liabilities 3,768,000 4,165,000
Notes Payable 2,895,000 3,402,000
----------- -----------
Total liabilities 6,663,000 7,567,000
</TABLE>
Commitments and contingencies (Note 3)
<TABLE>
<S> <C> <C>
Common stock, $.01 par value, 30,000,000
shares authorized: 5,950,588
shares issued and outstanding 60,000 60,000
Additional paid-in capital 16,758,000 16,758,000
Accumulated deficit (9,702,000) (10,109,000)
----------- -----------
7,116,000 6,709,000
----------- -----------
Total liabilities and shareholders' equity $13,779,000 $14,276,000
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
1995 1994
------------ -----------
<S> <C> <C>
Net sales $ 6,231,000 $ 5,113,000
Cost of sales 4,421,000 3,668,000
------------ -----------
Gross profit 1,810,000 1,445,000
Selling, general and
administrative expense 1,594,000 1,301,000
------------ -----------
Operating income 216,000 144,000
Interest & other income (expense) (58,000) (30,000)
------------ -----------
Net income before income taxes 158,000 114,000
Income tax provision 1,000
------------ -----------
Net income $ 158,000 $ 113,000
EARNINGS PER COMMON SHARE
Net income $ .03 $ .02
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1995 1994
------------ -----------
<S> <C> <C>
Net sales $18,502,000 $16,879,000
Cost of sales 13,342,000 12,066,000
------------ -----------
Gross profit 5,160,000 4,813,000
Selling, general and
administrative expense 4,650,000 3,812,000
------------ -----------
Operating income 510,000 1,001,000
Interest & other income (expense) (99,000) 29,000
------------ -----------
Income before income taxes 411,000 1,030,000
Income tax provision 4,000 19,000
------------ -----------
Net income $ 407,000 $ 1,011,000
EARNINGS PER COMMON SHARE
Net income $ .07 $ .17
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 407,000 $1,011,000
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 216,000 216,000
Provision for doubtful accounts 27,000 27,000
Change in assets and liabilities,
net of effect of business acquisitions:
(Increase) decrease in accounts receivable (725,000) (338,000)
(Increase) decrease in inventories (165,000) (30,000)
(Increase) decrease in prepaid (439,000) (51,000)
expenses and other (341,000) 504,000
Increase (decrease) in accounts payable (110,000) (574,000)
Increase (decrease) in other accrued
liabilities
----------- ------------
Total adjustments (1,537,000) (246,000)
----------- ------------
Net cash provided (used) by
operating activities (1,130,000) 765,000
----------- ------------
Cash flows from investing activities: (53,000) (29,000)
Expenditures for equipment 84,000 213,000
Deferred proceeds from sale of net assets 37,000 (101,000)
(Increase) in other assets
----------- ------------
Net cash (used) in investing activities 68,000 83,000
----------- ------------
Cash flows from financing activities
Issuance of Common Stock -- 167,000
Dividends paid -- ( 94,000)
Net borrowings (payments) of
long-term obligations (412,000) (316,000)
----------- ------------
Net cash provided (used) by
financing activities (412,000) (243,000)
----------- ------------
Increase (decrease) in cash (1,474,000) 605,000
Cash and cash equivalents, beginning
of period 1,489,000 761,000
----------- ------------
Cash and cash equivalents, end of period $ 15,000 $1,366,000
----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 30, 1995, and the
consolidated statements of operations and cash flows for the three
months and nine months ended September 30, 1995 and September 30, 1994
have been prepared by the Company, without audit. In the opinion of
management, all adjustments necessary to present fairly the financial
position, results of operations and changes in financial position at
September 30, 1995 and for all periods presented have been made. Such
adjustments consisted only of normal recurring items.
Certain information and footnote disclosures normally included in
annual financial statements have been condensed or omitted. It is
suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1994. The results of operations for the periods ended September 30,
1995 and September 30, 1994 are not necessarily indicative of the
operating results for the full years.
NOTE 1. PROVISION FOR INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109 for
accounting for income taxes. The adoption of SFAS No. 109 did not have
a material effect on the Company's net income for the first quarter of
1995.
For Federal and California tax purposes, the Company has tax basis net
operating loss carryforwards of $5,200,000 and $600,000, respectively,
expiring through 2009. During the three months and nine months ended
September 30, 1995 and September 30, 1994, the income tax provision
reflects the utilization of available operating loss carryforwards in
lieu of income taxes that would have been incurred. Utilization of the
remaining carryforwards is dependent on future taxable income.
NOTE 2. EARNINGS PER SHARE
Earnings per share amounts are based on the weighted average number of
shares outstanding -
<TABLE>
<S> <C>
For the three months ended September 30, 1994 6,389,830
For the six months ended September 30, 1994 6,236,210
For the three months ended September 30, 1995 6,129,823
For the six months ended September 30, 1995 6,070,528
</TABLE>
Assumed exercise of outstanding options have been considered in the
computation of per share data to the extent they would cause dilution.
7
<PAGE>
NOTE 3. CONTINGENCIES
Management has considered information furnished by legal counsel of the
current status of all outstanding legal proceedings and the development
of these matters to date. Based upon this review, it is the opinion of
management that adequate provision has been made for all reasonable
estimable costs and that the ultimate aggregate liability, if any,
should not materially affect the consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995
Net sales for the quarter ended September 30, 1995 were $6,231,000
compared to $5,113,000 in the prior year's period or an increase of
22%. The increased sales were largely attributable to the Company's
introduction of its Chocolate Chip Classics and Cookie Jar Classics
Cookies earlier in this year and an increase in non-dairy beverage
sales.
Gross profit of the Company was $1,810,000 or 29.0% of sales for the
quarter ended September 30, 1995 compared to $1,445,000 or 28.3% of
sales in 1994. The gross margin increase of .7% was due to a reduced
level of off-invoice allowances to customers offset somewhat by
increased costs of purchases from certain suppliers.
Selling, general and administrative expenses were $1,594,000 or 25.6%
of sales for the quarter ended September 30, 1995 compared to
$1,301,000 or 25.4% of sales in 1994. The increase was due largely to
marketing and promotional expenditures to increase the visibility of
the Company's products to the marketplace. These expenditures included
point of purchase promotions and advertising in healthy lifestyle
magazines.
The Company had net interest and other expense of $58,000 in the
current quarter compared to $30,000 in the prior year.
As a result of the above, the Company recorded net income of $158,000
or $.03 per share for the quarter ended September 30, 1995, while in
the quarter ended September 30, 1994, the Company recorded net income
of $113,000, or $.02 per share.
NINE MONTHS ENDED SEPTEMBER 30, 1995
Net sales for the nine months ended September 30, 1995 were $18,502,000
compared to $16,879,000 in the prior year's period or an increase of
10%. The increased sales were largely attributable to the Company's
introduction of its Chocolate Chip Classics and Cookie Jar Classics
Cookies during this period and an improvement in non-dairy beverage
sales.
8
<PAGE>
Gross profit of the Company was $5,160,000 or 27.9% of sales for the
nine months ended September 30, 1995 compared to $4,813,000 or 28.5% of
sales in 1994. The gross margin decrease of .6% was due to higher
allowances to customers, primarily on product introductions during the
year, and increased costs of purchases from certain suppliers.
Selling, general and administrative expenses were $4,650,000 or 25.1%
of sales for the nine months ended September 30, 1995 compared to
$3,812,000 or 22.6% of sales in 1994. The increase was due largely to
marketing and promotional expenditures to increase the visibility of
the Company's products to the marketplace. These expenditures included
point of purchase promotions and extensive advertising in healthy
lifestyle magazines.
The Company had net interest and other expense of $99,000 in the
current period compared to net interest and other income of $29,000 in
the prior year. The Company recorded $4,000 of income tax expense,
representing the alternative minimum tax, in the nine months ended
September 30, 1995.
As a result of the above, the Company recorded net income of $407,000
or $.07 per share for the nine months ended September 30, 1995, while
in the nine months ended September 30, 1994, the Company recorded net
income of $1,011,000, or $.17 per share.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company had $15,000 of cash. The Company
has a line of credit with a bank to provide up to $4,000,000 of
financing based upon certain percentages of the Company's accounts
receivable and inventory. At September 30, 1995, the Company had
$2,500,000 of borrowing capacity.
The Company has $3,539,000 of Subordinated Notes outstanding. The
Subordinated Notes call for monthly principal and interest payments.
During the twelve months ending September 30, 1996, the Company is
obligated to pay $904,000 of principal and interest on these notes.
During the third quarter of 1995, the Company utilized $695,000 of
cash. This was largely a function of a substantial increase in
accounts receivable combined with a reduction in accounts payable and
increased investment in inventory and related supplies.
The Company projects that cash flow from operations together with its
current cash balance and the availability under its credit line should
be sufficient to support its operating needs for the foreseeable
future.
9
<PAGE>
Part II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) At the Annual Meeting of Shareholders held on July 26,
1995 the shareholders elected eight directors to serve
until the next Annual Meeting - Robert J. Cresci, Allan
Dalfen, Anthony Harnett, B. Allen Lay, Jay J. Miller,
Stephen Monticelli, Henry W. Poett III and Donald R.
Stroben. Subsequent to the meeting, the Board of
Directors elected Noel Perry as a Director to serve
until the next Annual Meeting.
10
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
VESTRO NATURAL FOODS INC.
Date: November 14, 1995 By: /s/ B. ALLEN LAY
---------------------- -----------------------
B. Allen Lay
President and Chief Executive
Officer
Date: November 14, 1995 By: /s/ STEPHEN SCHORR
---------------------- -----------------------
Stephen I. Schorr
Vice President, Finance
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 15,000
<SECURITIES> 0
<RECEIVABLES> 2,474,000
<ALLOWANCES> 0
<INVENTORY> 2,712,000
<CURRENT-ASSETS> 6,082,000
<PP&E> 568,000
<DEPRECIATION> 406,000
<TOTAL-ASSETS> 13,779,000
<CURRENT-LIABILITIES> 3,768,000
<BONDS> 2,895,000
<COMMON> 60,000
0
0
<OTHER-SE> 7,056,000
<TOTAL-LIABILITY-AND-EQUITY> 13,779,000
<SALES> 18,502,000
<TOTAL-REVENUES> 18,502,000
<CGS> 13,342,000
<TOTAL-COSTS> 4,650,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,000
<INCOME-PRETAX> 411,000
<INCOME-TAX> 4,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 407,000
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>