<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, 1997
----------------------------
Commission file number 0-2246
----------------------------
WESTBRAE NATURAL,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
----- -----
As of August 1, 1997, 5,950,588 shares of the Registrant's Common Stock, par
value $.01 were issued and outstanding.
The Exhibit Index is located on Page Number 12.
Page 1 of 13
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WESTBRAE NATURAL,INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
ASSETS
------
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 507,000 $ 1,000
Accounts receivable trade - net 2,127,000 2,105,000
Inventories 4,092,000 3,779,000
Prepaid expenses and other 594,000 632,000
----------- ------------
Total current assets 7,320,000 6,517,000
----------- ------------
Properties, at cost:
Machinery and equipment 678,000 667,000
Leasehold improvements 16,000 16,000
----------- ------------
694,000 683,000
Less accumulated depreciation 538,000 514,000
----------- ------------
156,000 169,000
Excess of cost over net assets of
businesses acquired - net 6,588,000 6,694,000
Other assets 289,000 395,000
----------- ------------
Total assets $14,353,000 $13,775,000
----------- ------------
----------- ------------
See accompanying notes to consolidated financial statements.
2
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WESTBRAE NATURAL,INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
Current liabilities:
Accounts payable $ 2,090,000 $ 1,713,000
Notes Payable-current portion 811,000 849,000
Accrued liabilities 706,000 786,000
----------- ------------
Total current liabilities 3,607,000 3,348,000
Notes Payable 1,524,000 1,913,000
----------- ------------
Total liabilities 5,131,000 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 ( 7,596,000) ( 8,304,000)
----------- ------------
9,222,000 8,514,000
----------- ------------
Total liabilities and shareholders' equity $14,353,000 $13,775,000
----------- ------------
----------- ------------
See accompanying notes to consolidated financial statements.
3
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WESTBRAE NATURAL, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED INCOME STATEMENT
-----------------------------
(Unaudited)
Three Months Ended
June,30
-------------------------
1997 1996
------------ -----------
Net sales $ 9,404,000 $ 9,091,000
Cost of sales 5,634,000 5,631,000
------------ -----------
Gross profit 3,770,000 3,460,000
Selling, general and
administrative expense 3,249,000 3,043,000
------------ -----------
Operating income 521,000 417,000
Interest & other income (expense) (42,000) ( 65,000)
------------ -----------
Net Income before income taxes 479,000 352,000
Income tax provision 55,000 39,000
------------ -----------
Net Income $ 424,000 $ 313,000
Earnings per common share $ .07 $ .05
See accompanying notes to consolidated financial statements.
4
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WESTBRAE NATURAL, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED INCOME STATEMENT
-----------------------------
(Unaudited)
Six Months Ended
June 30,
-------------------------
1997 1996
------------ -----------
Net sales $17,502,000 $17,191,000
Cost of sales 10,569,000 10,693,000
------------ -----------
Gross profit 6,933,000 6,498,000
Selling, general and
administrative expense 6,041,000 5,747,000
------------ -----------
Operating income 892,000 751,000
Interest & other income (expense) (89,000) (133,000)
------------ -----------
Net Income before income taxes 803,000 618,000
Income tax provision 95,000 47,000
------------ -----------
Net Income $ 708,000 $ 571,000
Earnings per common share $ .11 $ .09
5
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WESTBRAE NATURAL,INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
Six Months Ended
June 30,
-------------------------
1997 1996
------------ -----------
Cash flows from operating activities:
Net income $ 708,000 $ 571,000
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 156,000 149,000
Provision for doubtful accounts 18,000 18,000
Change in assets and liabilities,
net of effect of business acquisitions:
(Increase) decrease in accounts receivable ( 40,000) (448,000)
(Increase) decrease in inventories (313,000) (879,000)
(Increase) decrease in prepaid
expenses and other 38,000 100,000
Increase (decrease) in accounts payable 375,000 476,000
Increase (decrease) in other accrued
liabilities ( 78,000) 223,000
------------ -----------
Total adjustments 156,000 (361,000)
------------ -----------
Net cash provided (used) by
operating activities 864,000 210,000
------------ -----------
Cash flows from investing activities:
Expenditures for equipment ( 37,000) ( 61,000)
(Increase) in other assets 94,000 108,000
------------ -----------
Net cash provided (used) by investing
activities 57,000 47,000
------------ -----------
Cash flows from financing activities:
-
-
Net borrowings (payments) of
long-term obligations (415,000) (449,000)
------------ -----------
Net cash provided (used) by
financing activities (415,000) (449,000)
------------ -----------
Increase (decrease) in cash 506,000 (192,000)
Cash and cash equivalents, beginning
of period 1,000 192,000
------------ -----------
Cash and cash equivalents, end of period $ 507,000 $ -
------------ -----------
------------ -----------
See accompanying notes to consolidated financial statements.
6
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WESTBRAE NATURAL,INC. AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------
The consolidated balance sheet as of June 30, 1997, and the consolidated
statements of operations and cash flows for the three and six months ended June
30, 1997 and June 30, 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
June 30, 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 June 30, 1997 and June 30, 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 FAS No. 109 for accounting for
income taxes. The adoption of FAS No. 109 did not have a material effect on the
Company's net income for the three months and six months ended June 30, 1997.
For Federal tax purposes, the Company has a tax basis net operating loss
carryforward of $2,200,000 expiring through 2009. During the three months and
six months ended June 30, 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 -
For the three months ended June 30, 1997 6,339,581
For the six months ended June 30, 1997 6,403,125
For the three months ended June 30, 1996 6,242,631
For the six months ended June 30, 1996 6,229,679
Assumed exercise of outstanding options have been considered in the computation
of per share data to the extent they cause dilution.
In March 1997, the Financial Accounting Standards Board issued Statement
7
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of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128")
which will become effective in the fourth quarter of 1997. FAS 128 replaces the
presentation of earnings per share reflected on the Income Statement with a dual
presentation of Basic earnings per share ("Basic EPS") and Diluted earnings per
share ("Diluted EPS"). Basic EPS excludes dilution and is computed by dividing
net income by the weighted average number of common shares outstanding during
the period. Diluted EPS reflects the potential dilution that could occur if
stock options and other commitments to issue common stock were exercised
resulting in the issuance of common stock which then shared in the earnings of
the Company. FAS 128 does not permit early application; however,it requires,
when implemented in the fourth quarter, the restatement of previously reported
earnings per share for each income statement presented. Pro forma disclosure of
earnings per share information as if the Company had implemented FAS 128 for the
three and six month periods, ending June 30, 1997 and June 30, 1996 is as
follows.
Pro Forma Earnings per Share: Three Months Ended Six Months Ended
(Unaudited) --------------------- ---------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- ---------- ---------- ----------
Net Income $ 424,000 $ 313,000 $ 708,000 $ 571,000
Weighted average shares 5,950,588 5,950,588 5,950,588 5,950,588
Basic earnings per share $ .07 $ .05 $ .12 $ .10
--------- ---------- ---------- ----------
Weighted average-shares
including the dilutive
effect of stock options 6,339,581 6,242,631 6,387,911 6,171,484
Diluted earnings per share $ .07 $ .05 $ .11 $ .09
--------- ---------- ---------- ----------
NOTE 3. CONTINGENCIES
Management has considered information furnished by legal counsel as to 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 JUNE 30, 1997
Net sales for the quarter ended June 30, 1997 were $9,404,000 compared to
$9,091,000 in the prior year's period. This was the highest sales level
8
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for any quarter in the Company's history. Period to period comparison is
strongly influenced by new product introductions in each period. In the
second quarter of 1997, the Company introduced Cafe Westbrae, a coffee
beverage with a nondairy base. The second quarter of 1996 benefitted from
the introduction of half gallon non dairy beverages, the largest introduction
in the Company's history. However, the continuing growth of the Company's non
dairy beverages and its canned products pushed the Company's revenues in the
second quarter of 1997 to a 3% increase over the second quarter of 1996.
Gross profit of the Company was $3,770,000 or 40.1% of sales for the quarter
ended June 30, 1997 compared to $3,460,000 or 38.1% of sales in 1996. The
gross margin increase of 2.0% 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 margin.
In addition, the Company experienced a positive change in product mix towards
its higher margin product lines. The second quarter of 1997 was the sixth
consecutive quarter of higher gross margin percentages for the Company.
Selling, general and administrative expenses were $3,249,000 or 34.5% of
sales for the quarter ended June 30, 1997 compared to $3,043,000 or 33.5% 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 $42,000 in the current
quarter compared to expense of $65,000 in the prior year. The Company
recorded $55,000 of income tax expense, representing state taxes and the
Federal alternative minimum tax, in the quarter ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1997
Net sales for the six months ended June 30, 1997 were $17,502,000 compared to
$17,191,000 in the prior year's period. New product introductions in 1997
did not reach the level of the first half of 1996, when the Company had its
largest product introduction, non dairy half gallons. However, continued
increases in the sales level of the Company's non dairy beverages and canned
products, accounted for the increase over the prior year.
Gross profit of the Company was $6,933,000 or 39.6% of sales for the six
months ended June 30, 1997 compared to $6,498,000 or 37.8% of sales in 1996.
The gross margin increase of 1.8% was caused by a positive change in product
mix during 1997 toward the Company's higher margin product categories. In
addition, the Company's new product offerings provide better margins than
previous products.
Selling, general and administrative expenses were $6,041,000 or 34.5% of
sales for the six months ended June 30, 1997 compared to $5,747,000 or 33.4%
of sales in the comparable period of 1996. The increase was due largely to
programs with distributors and retailers to promote the
9
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Company's products at attractive retail prices.
The Company had net interest and other expense of $89,000 in the six months
ended June 30, 1997 compared to net interest and other expense of $133,000 in
the prior years comparable period. The Company recorded $95,000 of income
tax expense, representing state tax and the Federal alternative minimum tax,
in the six months ended June 30, 1997.
As a result of the above, the Company recorded net income of $708,000 or $.11
per share for the six months ended June 30, 1997, an increase of 24% over the
six months ended June 30, 1996 in which the Company recorded net income of
$571,000 or $.09 per share.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had $507,000 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
June 30, 1997, the Company had no borrowing and $2,600,000 of borrowing
capacity on this line of credit.
The Company has outstanding $2,311,000 of Subordinated Notes. The
Subordinated Notes provide 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 next 12 months.
Part II - OTHER INFORMATION
Item 4. Submission or Matters to a Vote of Security Holders
a) At the Annual Meeting of Shareholders held June 17, 1997 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 change the Company's name from Vestro Natural Foods Inc.
to Westbrae Natural, Inc.
Item 6. Exhibits
(3.4) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
changing the name of the Corporation to Westbrae Natural,
Inc. effective June 17, 1997.
10
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WESTBRAE NATURAL,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.
WESTBRAE NATURAL,INC.
Date: August 12, 1997 By:/s/ B. Allen Lay
---------------------- -------------------------
B. Allen Lay
Chairman of the Board and Chief
Executive Officer
Date: August 12, 1997 By:/s/ Stephen Schorr
---------------------- -------------------------
Stephen I. Schorr
Vice President, Finance
11
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EXHIBIT INDEX
3.4 Certificate of Amendment of Certificate of Incorporation
12
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VESTRO NATURAL FOODS INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
WESTBRAE NATURAL FOODS, INC.
2. The certificate of incorporation of the corporation is hereby amended
by striking out Article FIRST thereof and by substituting in lieu of said
Article the following new Article:
"FIRST: The name of the Corporation is
WESTBRAE NATURAL, INC."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Vestro Natural Foods Inc. has caused this certificate
to be signed by B. Allen Lay, its President, and attested by Stephen Schorr, its
Secretary, this 17th day of June, 1997.
/s/ B. Allen Lay
---------------------
B. Allen Lay
Attest:
/s/ Stephen Schorr
- -------------------------
Stephen Schorr, Secretary
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 507,000
<SECURITIES> 0
<RECEIVABLES> 2,127,000
<ALLOWANCES> 9
<INVENTORY> 4,092,000
<CURRENT-ASSETS> 7,320,000
<PP&E> 694,000
<DEPRECIATION> 538,000
<TOTAL-ASSETS> 14,353,000
<CURRENT-LIABILITIES> 3,607,000
<BONDS> 1,524,000
0
0
<COMMON> 60,000
<OTHER-SE> 9,162,000
<TOTAL-LIABILITY-AND-EQUITY> 14,353,000
<SALES> 17,502,000
<TOTAL-REVENUES> 17,502,000
<CGS> 10,569,000
<TOTAL-COSTS> 6,041,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,000
<INCOME-PRETAX> 703,000
<INCOME-TAX> 95,000
<INCOME-CONTINUING> 708,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 708,000
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
