<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, 1997
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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
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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 April 30, 1997, 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
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 604,000 $ 1,000
Accounts receivable trade - net 2,110,000 2,105,000
Inventories 4,235,000 3,779,000
Prepaid expenses and other 665,000 632,000
----------- -----------
Total current assets 7,614,000 6,517,000
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Properties, at cost:
Machinery and equipment 690,000 667,000
Leasehold improvements 16,000 16,000
----------- -----------
706,000 683,000
Less accumulated depreciation 539,000 514,000
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167,000 169,000
Excess of cost over net assets of
businesses acquired - net 6,641,000 6,694,000
Other assets 329,000 395,000
----------- -----------
Total assets $14,751,000 $13,775,000
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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
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
Current liabilities:
Accounts payable $ 2,798,000 $ 1,713,000
Notes Payable-current portion 861,000 849,000
Accrued liabilities 608,000 786,000
----------- -----------
Total current liabilities 4,267,000 3,348,000
Notes Payable 1,687,000 1,913,000
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Total liabilities 5,954,000 5,261,000
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 (8,021,000) (8,304,000)
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8,797,000 8,514,000
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Total liabilities and shareholders' equity $14,751,000 $13,775,000
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See accompanying notes to consolidated financial statements.
3
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(Unaudited)
Three Months Ended
March 31,
------------------------
1997 1996
----------- -----------
Net sales $ 8,098,000 $ 8,100,000
Cost of sales 4,935,000 5,062,000
----------- -----------
Gross profit 3,163,000 3,038,000
Selling, general and
administrative expense 2,792,000 2,704,000
----------- -----------
Operating income 371,000 334,000
Interest & other income (expense) (47,000) (68,000)
----------- -----------
Net Income before income taxes 324,000 266,000
Income tax provision 41,000 8,000
----------- -----------
Net Income $ 283,000 $ 258,000
Earnings per common share $ .04 $ .04
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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 CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
------------------------
1997 1996
----------- -----------
Cash flows from operating activities:
Net income $ 283,000 $ 258,000
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 78,000 72,000
Provision for doubtful accounts 9,000 9,000
Change in assets and liabilities,
net of effect of business acquisitions:
(Increase) decrease in accounts receivable (14,000) (429,000)
(Increase) decrease in inventories (456,000) 37,000
(Increase) decrease in prepaid
expenses and other (33,000) 38,000
Increase (decrease) in accounts payable 1,085,000 (178,000)
Increase (decrease) in other accrued
liabilities (178,000) 178,000
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Total adjustments
491,000 (273,000)
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Net cash provided (used) by
operating activities 774,000 (15,000)
---------- ---------
Cash flows from investing activities:
Expenditures for equipment (23,000) (38,000)
(Increase) decrease in other assets 66,000 46,000
---------- ---------
Net cash provided (used) by investing
activities 43,000 8,000
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Cash flows from financing activities:
Net borrowings (payments) of
long-term obligations (214,000) (169,000)
---------- ---------
Net cash provided (used) by
financing activities (214,000) (169,000)
---------- ---------
Increase (decrease) in cash 603,000 (176,000)
Cash and cash equivalents, beginning
of period 1,000 192,000
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Cash and cash equivalents, end of period $ 604,000 $ 16,000
---------- ---------
See accompanying notes to consolidated financial statements.
5
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VESTRO NATURAL FOODS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1997, and the consolidated
statements of operations and cash flows for the three months ended March 31,
1997 and March 31, 1996 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, 1997 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, 1996. The results of
operations for the periods ended March 31, 1997 and March 31, 1996 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 1997.
For Federal tax purposes, the Company has a tax basis net operating loss
carryforward of $2,700,000 expiring through 2009. During the first quarter
of 1997, the income tax provision reflects the utilization of available
Federal 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 - 6,436,231 in 1997 and 6,223,100 in 1996. 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.
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, 1997 of $8,098,000 were even with
the prior year's level of $8,100,000. Sales of the Company's non dairy
beverage and canned product categories continued their growth compared to the
prior year, but the snack foods category was below the first quarter of 1996.
In the prior year, there were significant product introduction of snack foods
which enhanced the sales of that period.
Gross profit of the Company was $3,163,000 or 39.1% of sales for the quarter
ended March 31, 1997 compared to $3,038,000 or 37.5% of sales in 1996. The
gross margin increase of 1.6% was caused by the Company's policy of pricing
and formulating new products to meet higher margin standards than many of the
older items. As these new products attain a higher percentage of the
Company's sales volume, the mix has produced an overall increase in margins.
Selling, general and administrative expenses were $2,792,000 or 34.5% of
sales for the quarter ended March 31, 1997 compared to $2,704,000 or 33.4% of
sales in 1996. 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 $47,000 in the current
quarter compared to net interest and other expense of $68,000 in the prior
year. The Company recorded $41,000 of income tax expense, representing state
taxes and the federal alternative minimum tax, in the quarter ended March 31,
1997, compared to $8,000 in the first quarter of 1996.
As a result of the above, the Company recorded net income of $283,000 or $.04
per share for the first quarter ended March 31, 1997, while in the quarter
ended March 31, 1996, the Company recorded net income of $258,000, or $.04
per share.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $604,000 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
March 31, 1997, the Company had no borrowing and $2,600,000 of borrowing
capacity on this line of credit.
7
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The Company has outstanding $2,518,000 of Subordinated Notes. The
Subordinated Notes call for monthly principal and interest payments. During
the 12 months ending December 31, 1997, the Company is obligated to pay
$831,000 of principal and $187,000 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
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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: May 12, 1997 By: /s/ B. Allen Lay
------------------ ------------------------------------
B. Allen Lay
Chairman of the Board and Chief
Executive Officer
Date: May 12, 1997 By: /s/ Stephen Schorr
------------------ ------------------------------------
Stephen I. Schorr
Vice President, Finance
9
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 604,000
<SECURITIES> 0
<RECEIVABLES> 2,110,000
<ALLOWANCES> 0
<INVENTORY> 4,235,000
<CURRENT-ASSETS> 7,614,000
<PP&E> 706,000
<DEPRECIATION> 539,000
<TOTAL-ASSETS> 14,751,000
<CURRENT-LIABILITIES> 4,267,000
<BONDS> 1,687,000
0
0
<COMMON> 60,000
<OTHER-SE> 8,737,000
<TOTAL-LIABILITY-AND-EQUITY> 14,751,000
<SALES> 8,098,000
<TOTAL-REVENUES> 8,098,000
<CGS> 4,935,000
<TOTAL-COSTS> 2,792,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,000
<INCOME-PRETAX> 324,000
<INCOME-TAX> 41,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
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