<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 March 31, 1996
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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
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1065 EAST WALNUT STREET, CARSON, CALIFORNIA 90746
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(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
----- -----
As of April 15, 1996, 5,950,588 shares of the Registrant's Common Stock, par
value $.01 were issued and outstanding.
Page 1 of 9
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,000 $ 192,000
Accounts receivable trade - net 2,504,000 2,084,000
Inventories 2,873,000 2,910,000
Prepaid expenses and other 935,000 973,000
----------- -----------
Total current assets 6,328,000 6,159,000
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Properties, at cost:
Machinery and equipment 604,000 566,000
Leasehold improvements 15,000 15,000
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619,000 581,000
Less accumulated depreciation 444,000 425,000
----------- -----------
175,000 156,000
Excess of cost over net assets of
businesses acquired - net 6,854,000 6,907,000
Other assets 495,000 545,000
----------- -----------
Total assets $13,852,000 $13,767,000
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,231,000 $ 2,409,000
Notes Payable-current portion 814,000 775,000
Accrued liabilities 685,000 507,000
----------- -----------
Total current liabilities 3,730,000 3,691,000
Notes Payable 2,553,000 2,765,000
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Total liabilities 6,283,000 6,456,000
Commitments and contingencies (Note 3)
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 (9,249,000) (9,507,000)
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7,569,000 7,311,000
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Total liabilities and shareholders' equity $13,852,000 $13,767,000
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net sales $8,100,000 $6,731,000
Cost of sales 5,062,000 4,380,000
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Gross profit 3,038,000 2,351,000
Selling, general and
administrative expense 2,704,000 2,157,000
---------- ----------
Operating income 334,000 194,000
Interest & other income (expense) (68,000) (61,000)
---------- ----------
Net Income before income taxes 266,000 133,000
Income tax provision 8,000 2,000
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Net Income $ 258,000 $ 131,000
Earnings per common share $ .04 $ .02
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</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 258,000 $ 131,000
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 72,000 71,000
Provision for doubtful accounts 9,000 9,000
Change in assets and liabilities,
net of effect of business acquisitions:
(Increase) decrease in accounts receivable (429,000) (481,000)
(Increase) decrease in inventories 37,000 19,000
(Increase) decrease in prepaid
expenses and other 38,000 (190,000)
Increase (decrease) in accounts payable (178,000) (53,000)
Increase (decrease) in other accrued
liabilities 178,000 (11,000)
--------- ----------
Total adjustments (273,000) (636,000)
--------- ----------
Net cash provided (used) by
operating activities (15,000) (505,000)
--------- ----------
Cash flows from investing activities:
Expenditures for equipment (38,000) (14,000)
(Increase) decrease in other assets 46,000 (3,000)
--------- ----------
Net cash provided (used) by investing
activities 8,000 (17,000)
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Cash flows from financing activities:
Net borrowings (payments) of
long-term obligations (169,000) (138,000)
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Net cash provided (used) by
financing activities (169,000) (138,000)
--------- ----------
Increase (decrease) in cash (176,000) (660,000)
Cash and cash equivalents, beginning
of period 192,000 1,489,000
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Cash and cash equivalents, end of period $ 16,000 $ 829,000
--------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1996, and the consolidated
statements of operations and cash flows for the three months ended March 31,
1996 and March 31, 1995 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 March 31, 1996 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, 1995. The results of
operations for the periods ended March 31, 1996 and March 31, 1995 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 $4,700,000 and $100,000, respectively,
expiring through 2009. During the first quarter of 1996, 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 (LOSS) PER SHARE
Earnings (loss) per share amounts are based on the weighted average number of
shares outstanding - 6,223,100 in 1996 and 6,029,889 in 1995. Assumed
exercise of outstanding warrants and options have been considered in the
computation of per share data to the extent they would cause dilution.
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
6
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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.
NOTE 4. RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 statements to conform to
the 1996 presentation.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1996 increased by 20% to $8,100,000
compared to $6,731,000 in the prior year's period. Significant sales
increases were experienced in virtually all product categories with
particularly strong increases in non dairy beverages, snack foods and canned
products. New product introductions - Big Bag versions of three of the
Company's most popular snack food products and three new flavors of its
premium cookies - accounted for a portion of the sales increase.
Gross profit of the Company was $3,038,000 or 37.5% of sales for the quarter
ended March 31, 1996 compared to $2,351,000 or 34.9% of sales in 1995. The
gross margin increase of 2.6% was caused by a positive change in product mix
during 1996 toward the Company's higher margin product categories. In
addition, the Company experienced much better margins on its Japanese
products sales with the strengthening of the U.S. dollar by over 20% since
the first quarter of 1995.
Selling, general and administrative expenses were $2,704,000 or 33.4% of
sales for the quarter ended March 31, 1996 compared to $2,157,000 or 32.0% of
sales in 1995. The increase was due largely to programs with distributors
and retailers to promote the Company's products at attractive retail prices.
The Company had net interest and other expense of $68,000 in the current
quarter compared to net interest and other expense of $61,000 in the prior
year. The Company recorded $8,000 of income tax expense, representing the
alternative minimum tax, in the quarter ended March 31, 1996.
As a result of the above, the Company recorded net income of $258,000 or $.04
per share for the first quarter ended March 31, 1996, while in the quarter
ended March 31, 1995, the Company recorded net income of $131,000, or $.02
per share.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $16,000 of cash. The Company has a line
of credit with a bank to provide up to $4,000,000 of financing based
7
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upon certain percentages of the Company's accounts receivable and inventory.
At March 31, 1996, the Company had borrowed $100,000 and had $2,500,000 of
borrowing capacity on this line of credit.
The Company has outstanding $3,233,000 of Subordinated Notes. The
Subordinated Notes call for monthly principal and interest payments. During
the 12 months ending December 31, 1996, the Company is obligated to pay
$675,000 of principal and $248,000 of interest on these notes.
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 at least the current fiscal year.
Part II - OTHER INFORMATION
None.
8
<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: April 30, 1996 By: /s/ B. Allen Lay
------------------ ------------------------------
B. Allen Lay
President and Chief Executive
Officer
Date: April 30, 1996 By: /s/ Stephen Schorr
------------------ ------------------------------
Stephen I. Schorr
Vice President, Finance
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,000
<SECURITIES> 0
<RECEIVABLES> 2,504,000
<ALLOWANCES> 0
<INVENTORY> 2,873,000
<CURRENT-ASSETS> 6,328,000
<PP&E> 619,000
<DEPRECIATION> 444,000
<TOTAL-ASSETS> 13,852,000
<CURRENT-LIABILITIES> 3,730,000
<BONDS> 2,553,000
0
0
<COMMON> 60,000
<OTHER-SE> 7,509,000
<TOTAL-LIABILITY-AND-EQUITY> 13,852,000
<SALES> 8,100,000
<TOTAL-REVENUES> 8,100,000
<CGS> 5,062,000
<TOTAL-COSTS> 2,704,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,000
<INCOME-PRETAX> 266,000
<INCOME-TAX> 8,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
