<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 June 30, 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
- ------------------------------- --------------------------
(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 August 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>
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 192,000
Accounts receivable trade - net 2,514,000 2,084,000
Inventories 3,789,000 2,910,000
Prepaid expenses and other 873,000 973,000
----------- -----------
7,176,000 6,159,000
----------- -----------
Properties, at cost:
Machinery and equipment 627,000 566,000
Leasehold improvements 15,000 15,000
----------- -----------
642,000 581,000
Less accumulated depreciation 468,000 425,000
----------- -----------
174,000 156,000
Excess of cost over net assets of
businesses acquired - net 6,801,000 6,907,000
Other assets 437,000 545,000
----------- -----------
Total assets $14,588,000 $13,767,000
=========== ===========
</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>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,885,000 $ 2,409,000
Notes Payable-current portion 753,000 775,000
Accrued liabilities 730,000 507,000
----------- -----------
4,368,000 3,691,000
Notes payable 2,338,000 2,765,000
----------- -----------
Total liabilities 6,706,000 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 (8,936,000) (9,507,000)
----------- -----------
7,882,000 7,311,000
----------- -----------
Total liabilities and shareholders' equity $14,588,000 $13,767,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>[cad 228]
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 9,091,000 $ 7,089,000
Cost of sales 5,631,000 4,541,000
----------- -----------
Gross profit 3,460,000 2,548,000
Selling, general and
administrative expense 3,043,000 2,448,000
----------- -----------
Operating income 417,000 100,000
Interest & other income (expense) ( 65,000) 20,000
----------- -----------
Net income before income taxes 352,000 120,000
Income tax provision 39,000 2,000
----------- -----------
Net income $ 313,000 $ 118,000
EARNINGS PER COMMON SHARE
Net income $ .05 $ .02
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $17,191,000 $13,820,000
Cost of sales 10,693,000 8,921,000
----------- -----------
Gross profit 6,498,000 4,899,000
Selling, general and
administrative expense 5,747,000 4,605,000
----------- -----------
Operating income 751,000 294,000
Interest & other income (expense) (133,000) (41,000)
----------- -----------
Income before income taxes 618,000 253,000
Income tax provision 47,000 4,000
----------- -----------
Net Income $ 571,000 $ 249,000
EARNINGS PER COMMON SHARE
Net income $ .09 $ .04
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 571,000 $ 249,000
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 149,000 141,000
Provision for doubtful accounts 18,000 18,000
Change in assets and liabilities,
net of effect of business acquisitions:
(Increase) decrease in accounts receivable (448,000) (318,000)
(Increase) decrease in inventories (879,000) (152,000)
(Increase) decrease in prepaid
expenses and other 100,000 (236,000)
Increase (decrease) in accounts payable 476,000 (171,000)
Increase (decrease) in other accrued
liabilities 223,000 112,000)
---------- -----------
Total adjustments (361,000) (830,000)
---------- -----------
Net cash provided (used) by
operating activities 210,000 (581,000)
---------- -----------
Cash flows from investing activities:
Expenditures for equipment (61,000) (46,000)
Deferred proceeds from sales of net assets -- 84,000
(Increase) in other assets 108,000 39,000
---------- -----------
Net cash provided (used) by
investing activities (47,000) 77,000
---------- -----------
Cash flows from financing activities:
-- --
-- --
Net borrowings (payments) of
long-term obligations (449,000) (275,000)
---------- -----------
Net cash provided (used) by
financing activities (449,000) (275,000)
---------- -----------
Increase (decrease) in cash (192,000) (779,000)
Cash and cash equivalents, beginning
of period 192,000 1,489,000
---------- -----------
Cash and cash equivalents, end of period $ -- $ 710,000
---------- -----------
</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 June 30, 1996, and the consolidated
statements of operations and cash flows for the three months and six months
ended June 30, 1996 and June 30, 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 June 30, 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 June 30, 1996 and June 30, 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 three months and six months ended
June 30, 1996.
For Federal tax purposes, the Company has a tax basis net operating loss
carryforward of $4,200,000 expiring through 2009. During the three months
and six months ended June 30, 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 -
For the three months ended June 30, 1995 6,051,823
For the six months ended June 30, 1995 6,040,856
For the three months ended June 30, 1996 6,222,301
For the six months ended June 30, 1996 6,163,057
Assumed exercise of outstanding options have been considered in the
computation of per share data to the extent they 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.
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
THREE MONTHS ENDED JUNE 30, 1996
Net sales for the quarter ended June 30, 1996 increased by 28% to $9,091,000
compared to $7,089,000 in the prior year's period. Significant sales
increases were experienced in the Company's non dairy beverages and canned
products. The introduction of non dairy beverages in half gallon sizes
provided the major impetus to the increase. Vestro is currently the only
company in its marketplace to offer this larger size. A new full truckload
promotion sparked the sale of canned products.
Gross profit of the Company was $3,460,000 or 38.1% of sales for the quarter
ended June 30, 1996 compared to $2,548,000 or 35.9% of sales in 1995. The
gross margin increase of 2.2% was caused by a positive change in product mix
during 1996 toward the Company's higher margin product categories. In
addition several of the Company's new product offerings provide better
margins than existing products.
Selling, general and administrative expenses were $3,043,000 or 33.5% of
sales for the quarter ended June 30, 1996 compared to $2,448,000 or 34.5% 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 believes that these expenditure helped produce the sales
increase that was experienced during this period.
The Company had net interest and other expense of $65,000 in the current
quarter compared to income of $20,000 in the prior year. In 1995 the Company
recognized $83,000 of income upon the collection of the final payment on a
note receivable from the purchaser of the Company's fine baked goods
operation. The Company recorded $39,000 of income tax expense, representing
state income taxes and the Federal alternative
8
<PAGE>
minimum tax, in the quarter ended June 30, 1996.
As a result of the above, the Company recorded net income of $313,000 or $.05
per share for the quarter ended June 30, 1996, while in the quarter ended
June 30, 1995 the Company recorded net income of $118,000, or $.02 per share.
SIX MONTHS ENDED JUNE 30, 1996
Net sales for the six months ended June 30, 1996 increased by 24% to
$17,191,000 compared to $13,820,000 in the prior year's period. Significant
sales increases were experienced in the Company's major product categories
with particularly strong increases in non dairy beverages, snack foods and
canned products. New product introductions- half gallon sizes of several of
the Company's best selling non dairy beverages and big bag versions of three
of the Company's best selling snack food products - accounted for a portion
of the sales increase.
Gross profit of the Company was $6,498,000 or 37.8% of sales for the quarter
ended June 30, 1996 compared to $4,899,000 or 35.4% of sales in 1995. The
gross margin increase of 2.4% was caused by a positive change in product mix
during 1996 toward the Company's higher margin product categories. In
addition several of the Company's new product offerings provide better
margins than previous products.
Selling, general and administrative expenses were $5,747,000 or 33.4% of
sales for the quarter ended June 30, 1996 compared to $4,605,000 or 33.3% 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 believes these expenditures helped lead to the sales increase
that was experienced.
The Company had net interest and other expense of $133,000 in the six months
ended June 30, 1996 compared to net interest and other expense of $41,000 in
the prior year. The Company recorded $47,000 of income tax expense,
representing state tax and the Federal alternative minimum tax, in the
quarter ended June 30, 1996.
As a result of the above, the Company recorded net income of $571,000 or $.09
per share for the six months ended June 30, 1996, while in the six months
ended June 30, 1995, the Company recorded net income of $249,000, or $.04 per
share.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company did not have a cash balance. However, 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 June 30, 1996, there was no balance outstanding under this
line of credit and $2,900,000 of borrowing capacity.
9
<PAGE>
The Company has outstanding $3,064,000 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.
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: August 8, 1996 By: /s/ B. ALLEN LAY
------------------- ------------------------------------
B. Allen Lay
President and Chief Executive
Officer
Date: August 8, 1996 By: /s/ STEPHEN I. SCHORR
------------------- ------------------------------------
Stephen I. Schorr
Vice President, Finance
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,514,000
<ALLOWANCES> 0
<INVENTORY> 3,789,000
<CURRENT-ASSETS> 7,176,000
<PP&E> 642,000
<DEPRECIATION> 468,000
<TOTAL-ASSETS> 14,588,000
<CURRENT-LIABILITIES> 4,368,000
<BONDS> 2,338,000
0
0
<COMMON> 60,000
<OTHER-SE> 7,822,000
<TOTAL-LIABILITY-AND-EQUITY> 14,588,000
<SALES> 17,191,000
<TOTAL-REVENUES> 17,191,000
<CGS> 10,693,000
<TOTAL-COSTS> 5,747,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,000
<INCOME-PRETAX> 618,000
<INCOME-TAX> 47,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 571,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
