<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, 1996
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Commission file number 0-2246
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VESTRO NATURAL FOODS INC.
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(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
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(Address of principal executive offices) (Zip code)
(310) 886-8200
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(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 25, 1996, 5,950,588 shares of the Registrant's Common Stock,
par value $.01 were issued and outstanding.
Page 1 of 11
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
September 30, December 31,
1996 1995
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(Unaudited)
Current assets:
Cash and cash equivalents $ - $ 192,000
Accounts receivable trade - net 2,649,000 2,084,000
Inventories 3,440,000 2,910,000
Prepaid expenses and other 852,000 973,000
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6,941,000 6,159,000
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Properties, at cost:
Machinery and equipment 632,000 566,000
Leasehold improvements 15,000 15,000
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647,000 581,000
Less accumulated depreciation 491,000 425,000
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156,000 156,000
Excess of cost over net assets of
businesses acquired - net 6,748,000 6,907,000
Other assets 414,000 545,000
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Total assets $14,259,000 $13,767,000
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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
September 30, December 31,
1996 1995
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(Unaudited)
Current liabilities:
Accounts payable $ 2,001,000 $ 2,409,000
Notes Payable-current portion 1,092,000 775,000
Accrued liabilities 834,000 507,000
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3,927,000 3,691,000
Notes payable 2,127,000 2,765,000
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Total liabilities 6,054,000 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 (8,613,000) (9,507,000)
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8,205,000 7,311,000
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Total liabilities and shareholders' equity $14,259,000 $13,767,000
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See accompanying notes to consolidated financial statements.
3
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
------------------------------
1996 1995
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Net sales $ 8,188,000 $ 7,066,000
Cost of sales 5,036,000 4,421,000
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Gross profit 3,152,000 2,645,000
Selling, general and
administrative expense 2,703,000 2,429,000
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Operating income 449,000 216,000
Interest & other income (expense) (64,000) (58,000)
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Net income before income taxes 385,000 158,000
Income tax provision 61,000
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Net income $ 324,000 $ 158,000
EARNINGS PER COMMON SHARE
Net income $ .05 $ .03
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See accompanying notes to consolidated financial statements.
4
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
------------------------------
1996 1995
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Net sales $25,378,000 $20,886,000
Cost of sales 15,728,000 13,342,000
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Gross profit 9,650,000 7,544,000
Selling, general and
administrative expense 8,453,000 7,034,000
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Operating income 1,197,000 510,000
Interest & other income (expense) (198,000) (99,000)
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Income before income taxes 999,000 411,000
Income tax provision 105,000 4,000
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Net Income $ 894,000 $ 407,000
EARNINGS PER COMMON SHARE
Net income $ .14 $ .07
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See accompanying notes to consolidated financial statements.
5
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
------------------------------
1996 1995
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Cash flows from operating activities:
Net income $ 894,000 $ 407,000
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 225,000 216,000
Provision for doubtful accounts 11,000 27,000
Change in assets and liabilities,
net of effect of business acquisitions:
(Increase) decrease in accounts receivable (576,000) (725,000)
(Increase) decrease in inventories (530,000) (165,000)
(Increase) decrease in prepaid
expenses and other (121,000) (439,000)
Increase (decrease) in accounts payable (408,000) (341,000)
Increase (decrease) in other accrued
liabilities 327,000 (110,000)
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Total adjustments (830,000) (1,537,000)
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Net cash provided (used) by
operating activities 64,000 (1,130,000)
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Cash flows from investing activities:
Expenditures for equipment (66,000) (53,000)
Deferred proceeds from sales of net assets -- 84,000
(Increase) decrease in other assets 116,000 37,000
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Net cash provided (used) by
investing activities 50,000 68,000
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Cash flows from financing activities:
Payments on subordinated notes (506,000) (412,000)
Net borrowings (payments) on
line of credit 200,000 --
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Net cash provided (used) by
financing activities (306,000) (412,000)
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Increase (decrease) in cash (192,000) (1,474,000)
Cash and cash equivalents, beginning
of period 192,000 1,489,000
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Cash and cash equivalents, end of period $ 0 $ 15,000
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See accompanying notes to consolidated financial statements.
6
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 30, 1996, and the consolidated
statements of operations and cash flows for the three months and nine months
ended September 30, 1996 and September 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 September 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 September 30, 1996 and September 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 nine months ended
September 30, 1996.
For Federal tax purposes, the Company has a tax basis net operating loss
carryforward of $3,800,000 expiring through 2009. During the three months
and nine months ended September 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 September 30, 1995 6,129,823
For the nine months ended September 30, 1995 6,070,528
For the three months ended September 30, 1996 6,348,042
For the nine months ended September 30, 1996 6,231,495
Assumed exercise of outstanding options have been considered in the
computation of per share data to the extent they may cause dilution.
7
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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 SEPTEMBER 30, 1996
Net sales for the quarter ended September 30, 1996 increased by 16% to
$8,188,000 compared to $7,066,000 in the prior year's period. Significant
sales increases were experienced in the Company's non dairy beverages and
canned products. The introduction of canned organic vegetables (peas, green
beans and corn) and the previously introduced non dairy beverages in half
gallon sizes provided the major impetus to the increase. A new full
truckload promotion sparked the sale of canned products, and snack foods, led
by Big Bag potato chips, produced an increase over the prior year.
Gross profit of the Company was $3,152,000 or 38.5% of sales for the quarter
ended September 30, 1996 compared to $2,645,000 or 37.4% of sales in 1995.
The gross margin increase of 1.1% was caused by a 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 $2,703,000 or 33.0% of
sales for the quarter ended September 30, 1996 compared to $2,429,000 or
34.4% 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 expenditures helped produce
the sales increase which was experienced during this period.
The Company had net interest and other expense of $64,000 in the current
quarter compared to expense of $58,000 in the prior year. The Company
recorded $61,000 of income tax expense, representing state income taxes and
the Federal alternative minimum tax, in the quarter ended September 30, 1996.
8
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As a result of the above, the Company recorded net income of $324,000 or $.05
per share for the quarter ended September 30, 1996, more than double the net
income of the quarter ended September 30, 1995 of $158,000 or $.03 per share.
NINE MONTHS ENDED SEPTEMBER 30, 1996
Net sales for the nine months ended September 30, 1996 increased by 22% to
$25,378,000 compared to $20,886,000 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, Big Bag versions of three of
the Company's best selling snack food products and canned organic vegetables
(peas, green beans and corn)- accounted for a portion of the sales increase.
A truckload promotion on the Company's canned products produced significant
increases in that product category.
Gross profit of the Company was $9,650,000 or 38.0% of sales for the nine
months ended September 30, 1996 compared to $7,544,000 or 36.1% of sales in
1995. The gross margin increase of 1.9% 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 $8,453,000 or 33.3% of
sales for the nine months ended September 30, 1996 compared to $7,034,000 or
33.7% 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 which was experienced.
The Company had net interest and other expense of $198,000 in the nine months
ended September 30, 1996 compared to net interest and other expense of
$99,000 in the prior year. The Company recorded $105,000 of income tax
expense, representing state income taxes and the Federal alternative minimum
tax, in the quarter ended September 30, 1996.
As a result of the above, the Company recorded net income of $894,000 or $.14
per share for the nine months ended September 30, 1996, more than double the
net income of the nine months ended September 30, 1995 of $407,000 or $.07
per share.
LIQUIDITY AND CAPITAL RESOURCES
At September 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 September 30, 1996, there was $300,000 outstanding under
this line of credit and $2,600,000 of additional borrowing capacity.
9
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The Company has outstanding $2,895,000 of Subordinated Notes. The Subordinated
Notes call for monthly principal and interest payments. During the next 12
months, through September 30, 1997, the Company is obligated to pay $792,000 of
principal and $203,000 of interest on these notes.
The Company projects that cash flow from operations together with 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
Item 4. Submission or Matters to a Vote or Security Holders
a) At the Annual Meeting of Shareholders held on June 20, 1996 the
shareholders:
1) Elected nine directors to serve until the next Annual Meeting -
Robert J. Cresci, Allan Dalfen, Anthony Harnett, B. Allen Lay,
Jay J. Miller, Stephen Monticelli, F. Noel Perry, Henry W. Poett
III and Donald R. Stroben.
2) Voted to adopt the 1996 Incentive Stock Plan.
3) Ratified and approved the grant of non-qualified options to
purchase an aggregate of 160,000 shares of common Stock to non-
employee directors.
10
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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 6, 1996 By: /s/ B. Allen Lay
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B. Allen Lay
President and Chief Executive
Officer
Date: November 6, 1996 By: /s/Stephen I. Schorr
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Stephen I. Schorr
Vice President, Finance
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,649,000
<ALLOWANCES> 0
<INVENTORY> 3,440,000
<CURRENT-ASSETS> 6,941,000
<PP&E> 647,000
<DEPRECIATION> 491,000
<TOTAL-ASSETS> 14,259,000
<CURRENT-LIABILITIES> 3,927,000
<BONDS> 2,127,000
0
0
<COMMON> 60,000
<OTHER-SE> 8,145,000
<TOTAL-LIABILITY-AND-EQUITY> 14,259,000
<SALES> 25,378,000
<TOTAL-REVENUES> 25,378,000
<CGS> 15,728,000
<TOTAL-COSTS> 8,453,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 198,000
<INCOME-PRETAX> 999,000
<INCOME-TAX> 105,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 894,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
