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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 30, 2004
Commission File No. 000-31797
VERMONT PURE HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 03-0366218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
67 Holly Court, Williston VT 05495
(Address of principal executive offices) (Zip Code)
(802) 860-1126
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class June 10, 2004
----- --------------
Common Stock, $.001 Par Value 21,499,399
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
INDEX
Page Number
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of April 30, 2004 (unaudited) and
October 31, 2003 (unaudited) 3
Condensed Consolidated Statements of
Operations for the Three and Six Months ended
April 30, 2004 and 2003 (unaudited) 4
Condensed Consolidated Statements of Cash
Flows for the Six Months ended April 30,
2004 and 2003 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 20-21
Item 4. Controls and Procedures 21
Part II - Other Information 22-27
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures and Exhibit Index 28-29
2
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, October 31,
2004 2003
------------- -------------
(unaudited) (unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 97,838 $ 1,170,321
Accounts receivable - net 6,410,710 6,198,942
Inventories 1,147,198 1,018,970
Current portion of deferred tax asset 1,093,000 1,093,000
Other current assets 2,570,332 1,761,617
Unrealized gain on derivatives 86,404 --
Dicontinued Operations -- 3,876,654
------------- -------------
TOTAL CURRENT ASSETS 11,405,482 15,119,504
------------- -------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 12,505,525 13,482,857
Discontinued Operations -- 7,142,676
------------- -------------
TOTAL PROPERTY AND EQUIPMENT 12,505,525 20,625,533
------------- -------------
OTHER ASSETS:
Goodwill 73,352,134 72,899,355
Other intangible assets - net of accumulated amortization 1,421,771 1,247,994
Deferred tax asset 1,171,259 1,156,000
Other assets 645,323 285,678
------------- -------------
TOTAL OTHER ASSETS 76,590,487 75,589,027
------------- -------------
TOTAL ASSETS $ 100,501,494 $ 111,334,064
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long term debt $ 5,836,832 $ 3,148,274
Accounts payable 2,300,616 2,318,720
Accrued expenses 2,408,275 2,329,163
Current portion of customer deposits 178,429 169,504
Unrealized loss on derivatives -- 35,504
Discontinued Operations -- 2,056,938
------------- -------------
TOTAL CURRENT LIABILITIES 10,724,152 10,058,103
Long term debt, less current portion 36,325,034 48,273,782
Customer deposits 2,795,381 2,655,560
------------- -------------
TOTAL LIABILITIES 49,844,567 60,987,445
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value, 500,000
authorized shares, none issued and outstanding --
Common stock - $.001 par value, 50,000,000 authorized shares,
21,479,400 issued and 21,407,850 outstanding shares as of
April 30, 2004 and 21,430,987 issued and 21,359,437
outstanding as of October 31, 2003 21,474 21,431
Additional paid in capital 57,696,920 57,535,069
Treasury stock, at cost, 71,550 shares (264,735) (264,735)
Accumulated deficit (6,883,136) (6,909,642)
Accumulated other comprehensive income (loss) 86,404 (35,504)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 50,656,927 50,346,619
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 100,501,494 $ 111,334,064
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended April 30, Six months ended April 30,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ----------- ------------ ------------
(unaudited) (unaudited)
NET SALES $ 13,182,212 $ 11,923,148 $ 25,179,780 $ 23,440,984
COST OF GOODS SOLD 5,959,610 4,844,344 11,319,548 9,668,470
------------ ------------ ------------ ------------
GROSS PROFIT 7,222,602 7,078,804 13,860,232 13,772,514
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative expenses 5,793,650 5,215,768 11,492,516 10,485,294
Advertising expenses 261,200 182,903 475,383 376,931
Amortization 89,510 38,229 162,964 71,448
Other compensation -- -- 18,951 38,997
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 6,144,360 5,436,900 12,149,814 10,972,670
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,078,242 1,641,904 1,710,418 2,799,844
------------ ------------ ------------ ------------
OTHER EXPENSE:
Interest (916,085) (991,900) (1,930,299) (2,079,074)
Miscellaneous (2,261) (4,394) (8,397) 13,416
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE (918,346) (996,294) (1,938,696) (2,065,658)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 159,896 645,610 (228,278) 734,186
INCOME TAX BENEFIT (EXPENSE) 26,696 (259,342) 95,876 (294,923)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 186,592 386,268 (132,402) 439,263
DISCONTINUED OPERATIONS:
(Loss) Income from discontinued operations (187,321) 168,945 (79,868) 259,084
Gain on disposal of segments of business 352,535 -- 352,535 --
Income tax expense from discontinued operations (68,628) (67,865) (113,759) (104,074)
------------ ------------ ------------ ------------
INCOME FROM DISCONTINUED OPERATIONS 96,586 101,080 158,908 155,010
------------ ------------ ------------ ------------
NET INCOME $ 283,178 $ 487,348 $ 26,506 $ 594,273
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - BASIC:
Continuing Operations $ 0.01 0.02 $ (0.01) 0.02
Discontinued Operations 0.00 0.00 0.01 0.01
------------ ------------ ------------ ------------
NET INCOME $ 0.01 $ 0.02 $ 0.00 $ 0.03
NET INCOME (LOSS) PER SHARE - DILUTED:
Continuing Operations $ 0.01 0.02 $ (0.01) 0.02
Discontinued Operations 0.00 0.00 0.01 0.01
------------ ------------ ------------ ------------
NET INCOME $ 0.01 $ 0.02 $ 0.00 $ 0.03
============ ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - BASIC 21,475,233 21,271,536 21,460,346 21,265,602
============ ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - DILUTED 21,693,432 21,678,293 21,684,154 21,845,098
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended April 30,
---------------------------
2004 2003
------------ -----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,506 $ 594,273
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 2,667,004 2,487,819
Amortization 162,963 78,348
Change in deferred tax asset (15,035) 348,000
Loss (Gain) on disposal of property and equipment 26,667 12,011
Loss (Gain) on the sale of business segments (352,535)
Non cash compensation 18,921 38,997
Changes in assets and liabilities (net of effect of acquisitions and sale of
business segments):
Accounts receivable 571,168 (1,362,142)
Inventories (671,924) 116,596
Other current assets (796,069) (367,898)
Other assets (251,593) (49,967)
Accounts payable 85,341 868,786
Accrued expenses (904,265) (87,107)
Customer deposits 148,746 140,555
------------ ------------
NET CASH PROVIDED BY CONTINUING OPERATIONS 715,895 2,818,271
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,838,002) (1,890,171)
Proceeds from sale of property and equipment 170,554 78,637
Cash used for acquisitions - net of cash acquired (627,653) (180,325)
Proceeds from sale of business segments - net of transaction costs 9,425,618 --
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 7,130,517 (1,991,859)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit borrowings 2,533,533 1,543,348
Principal payments of debt (11,563,724) (1,846,479)
Proceeds from issuance of common stock 111,294 89,729
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (8,918,897) (213,402)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,072,485) 613,010
CASH AND CASH EQUIVALENTS - beginning of period 1,170,321 652,204
------------ ------------
CASH AND CASH EQUIVALENTS - end of period $ 97,836 $ 1,265,214
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 1,999,206 $ 2,173,846
============ ============
Cash paid for taxes $ 169,639 $ 157,531
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND DISCONTINUED OPERATIONS
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Form 10-Q instructions and in the
opinion of management contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the condensed
consolidated financial position, results of operations, and cash flows
for the periods presented. The results have been determined on the
basis of generally accepted accounting principles and practices of the
United States of America ("GAAP"), applied consistently with the Annual
Report on Form 10-K of Vermont Pure Holdings, Ltd. (the "Company") for
the year ended October 31, 2003.
Certain information and footnote disclosures normally included in
audited consolidated financial statements presented in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted. The accompanying condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto incorporated by
reference in the Company's Annual Report on Form 10-K for the year
ended October 31, 2003. The results of operations for the interim
periods are not necessarily indicative of the results to be expected
for the full year.
On March 2, 2004 the Company completed the sale of the two retail
segments of its business. See Note 9 for more information.
2. STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Pro-forma
information regarding net (loss) income and net (loss) income per share
is presented below as if the Company had accounted for its employee
stock options under the fair value method using SFAS No. 123, net of
tax is as follows:
6
Three Months Ended Six Months Ended
April 30, April 30,
2004 2003 2004
--------- --------- -------- -----------
Net Income -As Reported $ 283,178 $ 487,348 $ 26,506 $ 594,273
Deduct: Effect of compensation expense
determined using fair value, net of
income tax 50,651 93,875 102,872 139,891
--------- --------- -------- -----------
Pro Forma Net Income (Loss) $ 232,527 $ 393,473 (76,366) $ 454,382
========= ========= ======== ===========
Basic Net Income Per Share:
As Reported $ .01 $ .03 $ .00 $ .03
========= ========= ======== ===========
Pro Forma $ .01 $ .03 $ .00 $ .02
========= ========= ======= ===========
Diluted Net (Loss) Income Per Share:
As Reported $ .01 $ .03 $ .00 $ .03
========= ========= ======== ===========
Pro Forma $ .01 $ .02 $ .00 $ .02
========= ========= ======== ===========
There were no options granted for the three month period ended April
30, 2004 and there were 65,000 options granted in each of the six month
periods ended April 30, 2004 and 2003. The weighted average fair value
of the options granted for the respective six month periods, using the
Black-Scholes option pricing model, was $1.27 and $1.70, respectively.
In the three month period ending April 30, 2004, there were 5,000
options exercised at an exercise price of $2.50 per share.
Assumptions used for estimating the fair value of the option on the
date of grant under the Black-Scholes option pricing model are as
follows for the three and six month periods ended April 30:
2004 2003
---- ----
Expected Dividend Yield 0% 0%
Expected Life 5 Years 5 Years
Risk free Interest Rate 3.0% 5.7%
Volatility 39% 36%
3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On July 24, 2001, the Company entered into a swap agreement with
Webster Bank to fix an additional $4,000,000 of our long term debt at
7.25% interest for three years. On June 11, 2003, we entered into an
interest rate swap agreement with Webster Bank for $10 million. The
agreement fixes the interest rate for that portion of our senior debt
for three years at 3.74%. The swaps are fixed at these rates based on
the current applicable margin of 2.25% under our loan and security
agreement with Webster Bank. Under the agreement, the applicable margin
can range, based on our financial performance, from 1.5% to 2.5%. The
7
swap rates are based on the floating 30-day LIBOR rate and are
structured such that if the loan rate for the period exceeds the fixed
rate of the swap then the bank pays the Company to lower the effective
interest rate and if the rate is lower than the fixed rate, the Company
pays the bank additional interest.
Based on the floating rate for the three and six months ended April 30,
2004, the Company paid $249,000 more in interest than it would have
without the swaps. The Company accounts for changes in the fair value
of the swap agreements by reporting the change in fair value as an
unrealized gain or loss for the purposes of calculating comprehensive
income (see Note 5).
4. SEGMENTS
The Company has traditionally prepared detailed information to evaluate
its operations on a segment basis. It accounted for the business in
three separate segments, "Retail", "Retail-Gallons" and "Home and
Office". Since the Company completed the sale of its two retail
segments in March 2004, its remaining operations are entirely in the
Home and Office segment. As a result of the sale, the results of
operations for the retail segments are classified as discontinued
operations in the periods reported. Consequently, the Company will not
report segment information in this report or in the future unless
required.
5. COMPREHENSIVE INCOME
The following table summarizes comprehensive income for the respective
three and six month periods:
Three Months Ended Six Months Ended
April 30, April 30,
2004 2003 2004 2003
---- ---- ---- ----
Net Income $283,178 $487,348 $ 26,506 $594,273
Other Comprehensive Income:
Change in unrealized gain on derivatives
designated as cash flow hedges - net of tax 83,440 146,628 121,908 242,940
-------- -------- -------- --------
Comprehensive Income $366,618 $633,976 $148,414 $837,213
======== ======== ======== ========
6. STOCKHOLDERS' EQUITY
Stock Issued to Directors
The Company issued 5,430 and 9,285 of its common shares to Directors in
lieu of cash for board fees in the first six months of fiscal years
2004 and 2003, respectively. Expense of $19,000 and $39,000 for the
respective periods was based on the market price on the date of
issuance. There was no such compensation in the second quarter of
either year.
8
Employee Stock Purchase Plan
The Company maintains an employee stock purchase program. The total
number of common shares issued under this plan during the six months
ended April 30, 2004 and 2003 were 37,983 for proceeds of $98,794 and
26,325 for proceeds of $89,729, respectively. For the three months
ended April 30, 2004 and 2003, there were no shares issued under the
plan.
7. INVENTORIES
Inventories consisted of the following at:
April 30, October 31,
2004 2003
---- ----
Raw Materials $ 147,422 $1,131,588
Finished Goods 999,776 1,833,866
---------- ----------
Total Inventories $1,147,198 $2,965,454
========== ==========
8. OPERATING LEASES
The Company's operating leases consist of trucks, office equipment and
rental property.
Future minimum rental payments over the terms of various lease
contracts are approximately as follows:
For the fiscal year ending October 31,:
2004 $ 1,184,000
2005 2,082,000
2006 1,772,000
2007 1,572,000
2008 1,334,000
Thereafter 1,877,000
------------
Total $ 9,821,000
------------
9. SALE OF BUSINESS SEGMENTS
On March 2, 2004 the Company completed the sale of substantially all of
the assets related to its Retail and Retail - Gallons segments. These
segments have been accounted for as discontinued operations.
The sale resulted in a gain, reported in discontinued operations, of
$352,535. The gain was calculated by deducting the net carrying value
of the assets and liabilities and transaction costs from the net
proceeds as follows:
9
Selling Price $ 10,567,998
Accounts Receivable (1,147,229)
Inventory (2,490,181)
Property, Plant, and Equipment (7,093,641)
Accounts Payable 1,739,347
Transaction Costs (1,223,759)
------------
Gain before Income Taxes $ 352,535
------------
In addition to cash proceeds of $10,067,998, the Company received a
$500,000 5% subordinated note from the buyer as consideration for the
sale. Interest is payable by the seller on a quarterly basis and the
total principal is due on the second anniversary of the sale.
Substantially all of the proceeds of the sale were used to reduce debt.
$5,000,000 was used to pay down the Company's senior term debt with
Webster Bank and $5,000,000 was used to pay down its subordinated debt.
Revenues, expenses, and costs have been excluded from the respective
captions in the related financial statements and reported as (loss)
income from discontinued operations, net of income taxes, for all
periods presented. For the three months ended April 30, 2004 and 2003,
revenue from discontinued operations were $1,537,000 and $6,144,000,
respectively. The loss before income taxes was $187,000 for the second
quarter in 2004 and income before taxes was $169,000 for the second
quarter in 2003. For the six months ended April 30, 2004 and 2003, net
sales from discontinued operations were $6,434,000 and $9,703,000,
respectively. The loss before income taxes was $80,000 for the first
half of 2004 and income before taxes was $260,000 fro the first half of
2003. The respective losses and income do not include any allocation of
corporate costs that were previously allocated to the discontinued
operations. Those costs are expected to continue in the future and will
be allocated only to the remaining line of business.
10. DEBT
During the six months ended April 30, 2004, the Company borrowed $2.3
million from its operating line of credit with Webster Bank. In
addition, it had letters of credit totaling $1 million and a balance of
$1.6 million on its acquisition line of credit.
Amendment to Senior Debt Agreement
In conjunction with the sale of the segments of business, the Company
amended its agreement with its senior lender to facilitate payment of
debt with the proceeds of the sale. The amendment allows for prepayment
of $5,000,000 of senior debt and $5,000,000 of subordinated debt
related to the sale and omits availability of $5,000,000 of credit
previously earmarked for subordinated debt repayment. Other significant
changes included increasing the applicable margin by 25 basis points
and changing the financial covenants to reduce the limit of the senior
debt to EBITDA ratio limit to 2.75 from 3.00 and splitting the debt
service ratio to senior and global ratios with respective limits of 1.5
and 1.1.
The Company's Loan and Security agreement requires that it be in
compliance with certain
10
financial covenants at the end of each fiscal quarter. The Company was
in compliance with all of the financial covenants in the agreement as
of April 30, 2004.
11. EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES
The Company considers outstanding in-the-money stock options as
potential common stock in its calculation of diluted earnings per share
and uses the treasury stock method to calculate the applicable number
of shares. The following calculation provides the reconciliation of the
denominators used in the calculation of basic and fully diluted
earnings per share:
Three Months Ended April 30, Six Months Ended April 30,
2004 2003 2003
---- ---- ----
Net Income $ 283,178 487,348 $ 26,506 $ 594,293
----------- ----------- ----------- -----------
Denominator:
Basic Weighted Average Shares Outstanding 21,475,233 21,271,536 21,460,346 21,265,602
Dilutive effect of Stock Options 218,199 1,095,634 223,808 579,496
----------- ----------- ----------- -----------
Diluted Weighted Average Shares Outstanding 21,693,432 21,678,293 21,684,154 21,845,098
Basic Earnings Per Share $ .01 $ .02 $ .00 $ .03
=========== =========== =========== ===========
Diluted Earnings Per Share $ .01 $ .02 $ .00 $ .03
=========== =========== =========== ===========
There were 2,512,990 options outstanding as of April 30, 2004.
For the three month period ended April 30, 2004, in addition to the
options used to calculate the effect of dilution, there were 1,249,200
additional options outstanding. For the three and six month periods
ended April 30, 2003 and 2004, there were 240,000 additional options
not used in the dilution calculation. These options were not included
in the dilution calculation because the options' exercise price
exceeded the market price of the underlying common shares.
12. Litigation Settlement
In January 2003, the Company settled a suit alleging that a vendor did
not adequately perform the services rendered in connection with
approximately $500,000 of unpaid billings. In settling the suit, the
Company agreed to pay $50,000 to the vendor in full settlement of the
litigation. In conjunction with the settlement, the parties released
each other from any further liability in the case. A gain of $150,000
was recognized in the first quarter of 2003 since the Company had set
up a reserve for settlement of the suit that exceeded the final amount
paid. The gain has been included as a reduction of selling, general and
administrative expenses.
11
PART I - Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto as filed in our Annual Report on Form
10-K for the year ended October 31, 2003 as well as the condensed consolidated
financial statements and notes contained herein.
Forward-Looking Statements
When used in the Form 10-Q and in our future filings with the Securities and
Exchange Commission, the words or phrases "will likely result," "we expect,"
"will continue," "is anticipated," "estimated," "project," "outlook," or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. We caution
readers not to place undue reliance on any such forward-looking statements, each
of which speaks only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. Among
these risks are water supply and reliance on commodity price fluctuations. We
have no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
Results of Operations
Business Overview
Throughout our history, we have marketed our bottled water through two major
channels - retail distribution and delivery to home and offices. On March 2,
2004 we completed the sale of the assets and certain liabilities of the retail
distribution portion of our business. Specifically, we sold the assets of
Vermont Pure Springs, Inc. that we used in the processing, bottling, marketing,
production, distribution and sale of spring water to retail channels of
distribution in PET packages of 1 gallon or smaller. This included our retail
consumer business under our own brands, as well as the private label business
that we packed for others. The sale included the springs, the manufacturing
facility, accounts receivable, the inventory and the related machinery and
equipment located in Randolph Center, Vermont.
The goal of this transaction was to enable us to concentrate on our higher
margin, and more profitable, Home & Office business, which distributes the
Crystal Rock(R) brand of water, as well as our Vermont Pure(R) water, coffee and
other products. It is the culmination of a strategy that we began pursuing in
1996, when we originally diversified into the Home & Office segment. Over time,
the retail PET business has become unprofitable to us as margins have been
reduced by intense competition in this segment of the market.
The reader should note that, after the sale, our business is made up of the Home
& Office delivery
12
segment only. In the financial statements contained herein, operations of the
retail segments have been reported as discontinued operations, net of taxes, for
all periods presented. In reporting the results of the discontinued operations,
operating expenses differ from those made in past segment reporting detail for
two reasons. First, past segment information for the retail segments include a
portion of our corporate overhead and interest expense that we allocated to
these two segments that is being absorbed by the Home & Office segment after the
sale. At the same time, with the proceeds from this sale, we have paid down a
significant amount of our corporate debt, which, other things being equal,
should reduce the amount of remaining interest expense that must be carried by
the Home & Office segment.
For the Three Months Ended April 30, 2004 (Second Quarter)
Sales
Sales from continuing operations for the first three months of 2004 were
$13,182,000 compared to $11,923,000 for the first three months of 2003, an
increase of $1,259,000 or 11%. The increase was primarily the result of
acquisitions. Net of acquisitions, sales were up 3%, due to increased sales of
coffee related products which offset a small decline in the base business of
water related products.
The comparative breakdown of sales of the product lines for the second quarter
of 2004 and 2003 is as follows:
Product Line 2004 2003 Difference % Diff.
------------ ---- ---- ---------- -------
(in 000's $) (in 000's $) (in 000's $)
Water $ 6,281 $ 5,886 $ 395 7%
Coffee and Other Products 4,685 3,914 771 20%
Equipment Rental 2,216 2,123 93 4%
------- ------- ------
Total $13,182 $11,923 $1,259 11%
Water - Net of acquisitions, water sales decreased 2%. Average sales price per
bottle remained flat for the quarter compared to last year as a result of
competitive pressure while volume increased. In addition, sales decreased 3%
because of the loss of a distributor.
Coffee and Other Products - The acquisition of a large office coffee distributor
during the second half of fiscal year 2003 accounted for a significant part of
the increase in sales for the second quarter of 2004 compared to the second
quarter of 2003. Net of acquisitions, the category increased 9%. Sales of
Keurig single-serve coffee packages are responsible for most of this growth.
However, the margin on single serve distribution is approximately half of
traditional coffee products.
Equipment Rental - Net of acquisitions, equipment rental income was down 1%.
Water cooler rental was down as a result of the lower market demand referred to
above and competition from retail outlets selling similar units. Average price
was down 1%. Brewer rentals increased slightly as a result of demand for single
serve units.
13
Gross Profit/Cost of Goods Sold
Gross profit increased $144,000, or 2%, to $7,223,000 for the second quarter of
2004 from $7,079,000 for the second quarter of 2003. The increase in gross
profit was attributable to higher sales. As a percentage of sales, gross profit
decreased to 55% of sales from 59% for the respective periods. The decrease in
gross profit, as a percentage of sales, was attributable to lower average
selling prices, higher costs, and higher percentage of sales of lower margin
non-water related products. Lower sales prices were primarily for our higher
margin water-related products. In addition, increased cost of sales lowered
margins. The increase in cost of sales is attributable to higher costs of
production as a result of higher costs of materials for bottles and labor, and
higher service costs as a result of lower sales volume per customer.
Income from Operations/Operating Expenses
Total operating expenses increased to $6,144,000 in the second quarter of 2004
from $5,437,000 in the second quarter of 2003, an increase of $707,000, or 13%.
Selling, general and administrative (SG&A) expenses were $5,794,000 and
$5,216,000 for the first quarters of 2004 and 2003, respectively, an increase of
$578,000, or 11%. Of total SG&A expenses, route distribution costs, primarily
labor, fuel, vehicle, and insurance costs, increased 23%. Selling costs
decreased 2% and administration costs increased 4%.
Advertising expenses were $261,000 in the second quarter of 2004 compared to
$183,000 in the second quarter of 2003, an increase of $78,000, or 43%. The
increase in advertising costs is related to increased yellow page advertising.
Amortization increased to $90,000 in the second quarter of 2004 from $38,000 in
the second quarter of 2003 as a result of intangible assets that were acquired
as part of several acquisitions in fiscal year 2003 and 2004.
Income from operations for the second quarter of 2004 was $1,078,000 compared to
$1,642,000 in the second quarter of 2003, a decrease of $564,000, or 34%. The
decrease was a result of a lower selling prices, a higher sales mix of lower
margin products, higher production and service costs, and higher operating
costs.
Interest, Taxes, and Other Expenses - Income from Continuing Operations
Net interest expense was $916,000 for the second quarter of 2004 compared to
$992,000 in the second quarter of 2003, a decrease of $73,000. Lower interest
costs were primarily a result of lower amounts of senior and subordinated debt
compared to a year ago.
Income from continuing operations before income tax expense was $160,000 for the
second quarter of 2004 compared to income from continuing operations before
taxes of $646,000 in the second quarter of 2003. The net tax benefit of $27,000
for the second quarter of 2004 compares to tax expense of $259,000 for the same
period a year ago. The effective tax benefit is a result of an adjustment of the
estimated annual effective rate. The rate for the year is estimated to be 42%
for the year compared to a rate of 40% that was accrued in the second quarter of
2003.
14
Income from continuing operations of $187,000 for the second quarter of 2004 was
$99,000 less than the second quarter of 2003.
Discontinued Operations
We have reported the results related to the sale of the retail segments as
discontinued operations as three separate captions. First, the loss from
operations for these segments for the three months ended April 30, 2004 has been
reported as a loss from discontinued operations of $187,000. The corresponding
tax benefit of $78,000 was calculated at 42%, the estimated annual rate for
2004. Income from discontinued operations for the second quarter of 2003 was
$169,000.
Second, we had a gain as a result of the sale of the assets. The gain on the
transaction was $353,000 and was determined by deducting the net value of the
assets and liabilities sold as well as the direct costs incurred in the
transaction from the sale price.
Finally, the net tax expense of $69,000 for the discontinued operations and
transaction was calculated using an effective tax rate of 42% for second quarter
of 2004 while the tax expense of $68,000 was calculated using an effective tax
rate of 40% for the second quarter of 2003.
The total income from discontinued operations was $97,000 in second quarter of
2004 compared to $101,000 is the second quarter of 2003, a decrease of $4,000.
Net Income
Net income of $283,000 for the second quarter of 2004 was a result of income
from operations and gain from the sale of the retail business which more than
offset the loss from discontinued operations. This represented a decrease in net
income of $204,000 from net income in the second quarter of 2003.
Based on the weighted average number of shares of common stock outstanding of
21,475,233 and 21,693,432 for the three months April 30, 2004, the net income
per share was $.01 per share - basic and diluted, respectively, in the second
quarter of 2004. This compares to net income of $.02 per share- basic and
diluted, in the second quarter of 2003.
For the Six Months Ended April 30, 2004
Sales
Sales from continuing operations for the first six months of 2004 were
$25,180,000 compared to $23,441,000 for the first six months of 2003, an
increase of $1,739,000 or 7%. The increase was the result of acquisitions. Net
of acquisitions, sales were substantially the same as the corresponding period
in the prior year.
The comparative breakdown of sales of the product lines for the first six months
of 2004 and 2003 is as follows:
15
Product Line 2004 2003 Difference % Diff.
------------ ---- ---- ---------- -------
(in 000's $) (in 000's $) (in 000's $)
Water $11,787 $11,334 $ 453 4%
Coffee and Other Products 8,985 7,837 1,148 15%
Equipment Rental 4,408 4,270 138 3%
------- ------- ------
Total $25,180 $23,441 $1,739 7%
Water - Net of acquisitions, water sales decreased 4%. Average sales price per
bottle decreased 1% as a result of competitive pressure while volume increased
as a result of acquisitions. In addition, sales decreased 3% because of the loss
of a distributor.
Coffee and Other Products - The acquisition of a large office coffee distributor
during the second half of fiscal year 2003 accounted for 5% of the increase in
sales for the first six months of 2004 compared to the comparable period in
2003. Net of acquisitions, the category increased 10%. Sales of Keurig
single-serve coffee packages are responsible for most of this growth. However,
the margin on single serve distribution is lower than traditional coffee
products.
Equipment Rental - Net of acquisitions, equipment rental income was down 2%.
Water cooler rental was down as a result of the lower market demand referred to
above and competition from retail outlets selling similar units. Average price
was down 1%. Brewer rentals increased slightly as a result of demand for single
serve units.
Gross Profit/Cost of Goods Sold
Gross profit increased $88,000, or 1%, to $13,860,000 for the first six months
of 2004 from $13,773,000 for the first six months of 2003. The increase in gross
profit was attributable to higher sales. As a percentage of sales, gross profit
decreased to 55% of sales from 59% for the respective periods. The decrease in
gross profit, as a percentage of sales, was attributable to lower average
selling prices, higher costs, and higher percentage of sales of non-water
related products. Lower sales prices were primarily for our higher margin
water-related products. In addition, increased cost of sales lowered margins.
The increase in cost of sales is attributable to higher costs of production as a
result of higher costs of materials for bottles and labor, and higher service
costs as a result of lower sales volume per customer.
Income from Operations/Operating Expenses
Total operating expenses increased to $12,150,000 in the first six months of
2004 from $10,973,000 in the first six months of 2003, an increase of
$1,177,000, or 11%.
Selling, general and administrative (SG&A) expenses were $11,493,000 and
$10,485,000 for the first six months of 2004 and 2003, respectively, an increase
of $1,008,000, or 10%. Of total SG&A expenses, route distribution costs,
primarily labor, fuel, vehicle, and insurance costs, increased 18%. Selling
costs decreased 4% and administration costs increased 1%.
Advertising expenses were $475,000 in the first six months of 2004 compared to
$377,000 in the first six months of 2003, an increase of $98,000, or 26%. The
increase in advertising costs is related to increased yellow page advertising.
16
Amortization increased to $163,000 in the first six months of 2004 from $71,000
in the first six months of 2003 as a result of intangible assets that were
acquired as part of several acquisitions in fiscal years 2003 and 2004.
Other compensation in the first six months of 2004 totaled $19,000 compared to
$39,000 in the first six months of 2003. This expense relates to compensation
paid to directors in company stock in lieu of cash for board fees.
Income from operations for the first six months of 2004 was $1,710,000 compared
to $2,800,000 in the first six months of 2003, a decrease of $1,090,000, or 39%.
The decrease was a result of lower selling prices, a higher sales mix of lower
margin products, higher production and service costs, and higher operating
costs.
Interest, Taxes, and Other Expenses - (Loss) Income from Continuing Operations
Net interest expense was $1,930,000 for the first six months of 2004 compared to
$2,079,000 in the first six months of 2003, a decrease of $149,000. Lower
interest costs were primarily a result of lower amounts of senior and
subordinated debt compared to a year ago.
The loss from continuing operations before income tax expense was $228,000 for
the first six months of 2004 compared to income from continuing operations
before taxes of $734,000 in the first six months of 2003, a decrease of
$962,000. The net tax benefit of $96,000 for the first six months of 2004
compares to tax expense of $295,000 for the same period a year ago. The tax
benefit for the first six months of 2004 is based on an estimated rate of 42%
for the year compared to a rate of 40% for the first six months of 2003.
The loss from continuing operations of $132,000 for the first six months of 2004
was $571,000 less income from operations of $439,000 for the first six months of
2003.
Discontinued Operations
The loss from operations for discontinued segments for the six months ended
April 30, 2004 was $80,000. The corresponding tax expense of loss from
discontinued operations combined with the gain on the sale of $114,000 was
calculated at 42%, the estimated effective annual rate for 2004. Income from
discontinued operations for the second quarter of 2003 was $259,000. Tax
expense, calculated at an effective rate of 40%, was $104,000. Total income from
discontinued operations was $158,000 in the first half of 2004 compared to
$155,000 in 2003.
Net Income
Net income of $27,000 for the six months of 2004 was attributable to a loss from
continuing operations and loss from discontinued operations that were not
completely offset by the gain on the sale of a portion of the retail business.
This represented a decrease in net income of $567,000 from net income in the
first six months of 2003.
Based on the weighted average number of shares of common stock outstanding of
21,460,000 for the first six months ended April 30, 2004, the net income per
share was $.00 per share - basic and
17
diluted in the first six months of 2004. This compares to net income of $.03 per
share- basic and diluted, in the first six months of 2003.
Trends
During the last 18 to 24 months the stagnant economic environment in our core
markets has continued to have a negative effect on sales in the Home & Office
segment. Net of acquisitions, these conditions have resulted in lower volume
through loss of customers, reduced business with continuing customers, and
increased competition causing lower average selling prices. In addition, the
products that reflect increased sales are lower margin products. Though we have
seen some abatement to these trends in the last couple of months, a reversing
trend has not developed. The prospect of increases in other costs such as fuel
and insurance remains uncertain. We believe that variable external factors such
as economic conditions and commodity pricing will not change current trends in
the near term but we are positioning our business for the long term.
We expect to be profitable for the year and continue to generate positive cash
flow. This will allow us to proceed with our strategic direction - increasing
market share by building density in our core markets though internal growth and
acquisitions. By continuing to build density our intent is to become more
efficient and position our business so that cyclical improvements in economic
conditions will be more likely to produce growth and improve our profitability.
Liquidity and Capital Resources
As of April 30, 2004 we had working capital of $681,000 compared to $5,062,000
on October 31, 2003, a decrease of $4,381,000. The decrease in working capital
was primarily a result the Company's line of credit $3,903,000 being due March
5, 2005 - becoming current debt during the quarter. In addition the Company used
cash for capital expenditures and repayment of debt in the first six months of
2004. Capital expenditures consisted of bottling equipment, and coolers,
brewers, bottles and racks related to home and office distribution. During the
quarter, we paid $648,000 for regularly scheduled debt repayments on our senior
credit facility.
As noted above, we sold the assets of our Retail and Retail - Gallons segments
in March, 2004. The sale produced cash proceeds of $10,068,000. The proceeds
were used reduce our debt. $5,000,000 was used to pay down the senior term debt
with Webster Bank and $5,000,000 was used to pay down our subordinated debt.
Also, in conjunction with the sale we paid down $280,000 of senior and
subordinated debt to other lenders. In addition, we received a promissory note
from the buyer for $500,000.
We borrowed $2,303,000 on our working capital line of credit during the quarter
and we had borrowed $1,600,000 on our acquisition line of credit as of April 30,
2004. In addition, there is $1,050,000 committed for letters of credit on our
working capital line of credit.
On November 3, 2003 a swap agreement for $10,000,000 matured and on April 2,
2004 a swap agreement for $4,000,000 matured. To date, we have $14,000,000 of
fixed rate debt in outstanding swap agreements. For a schedule and further
explanation of our fixed debt instruments, see Item 3.
18
As our swap agreements mature, lower fixed or market interest rates may lower
our debt service and provide more cash in future periods. We expect that cash on
hand and the cash generated from future operations combined with the operating
line of credit with Webster Bank will provide sufficient cash flow for routine
operations and growth in the foreseeable future. The operating and acquisition
lines of credit will mature in March 2005 at which time the acquisition line of
credit will convert to a term note. We believe that we will be able to extend
the facility in conjunction with the existing senior financing arrangement,
which runs until 2008. However, no assurance can be given that adequate
financing at reasonable interest rates will be secured if more cash is
needed other than that generated from operations. We are in compliance with the
financial covenants of our financing agreements as of April 30, 2004.
In addition to our senior and subordinated debt commitments, we have significant
future cash commitments, primarily in the form of operating leases that are not
reported on the balance sheet. The following table sets forth our contractual
commitments as of April 30, 2004:
Coffee Purchase
Fiscal Year Debt Operating Leases Commitments Total
- ----------- ----------- ---------------- --------------- ------
2004 $ 1,778,000 $ 1,184,000 $ 460,000 $ 3,422,000
2005 6,095,000 2,082,000 230,000 8,407,000
2006 3,975,000 1,772,000 5,747,000
2007 4,165,000 1,572,000 5,737,000
2008 26,149,000 1,334,000 27,483,000
Thereafter 0 1,877,000 1,877,000
=========== =========== ============
Total $42,162,000 $ 9,821,000 $ 690,000 $ 52,673,000
The debt obligation in fiscal year 2005 includes payoff of the operating line of
credit balance as of April 30, 2004 which matures in March 2005. As of the date
of this report, we have no other material contractual obligations or
commitments.
19
PART I - Item 3
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in
interest rates and commodity prices.
INTEREST RATE RISKS
At April 30, 2004, we had approximately $10,600,000 of long term debt subject to
variable interest rates. Under the loan and security agreement with Webster
Bank, we currently pay interest at a rate of LIBOR plus a margin of 2.25%. A
hypothetical 100 basis point increase in the LIBOR rate would result in an
additional $106,000 of interest expense on an annualized basis. Conversely, a
decrease would result in a proportionate interest cost savings.
We use interest rate "swap" agreements to curtail interest rate risk. The
following table summarizes our current agreements:
Notional Amount Fixed Interest Rate Maturity Date
$ 4,000,000 7.50% July 24, 2004
$ 10,000,000 3.99% June 11, 2006
In aggregate, we have fixed the interest rate on this $14,000,000 of debt at 5%
until July 2004. Currently, we believe that this is above market rates but we
expect our cumulative interest rates to be at or below market after July. We
will continue to evaluate swap rates as agreements mature. They serve to
stabilize our cash flow and expenses but ultimately may cost more or less in
interest than if we had carried all of our debt at a variable rate over the swap
term. Our strategy is to keep the fixed and variable portions of our senior debt
approximately equal to offset and minimize the respective risk of rising and
falling interest rates. Future low rates may compel us to fix a higher portion
to further stabilize cash flow and expenses as we monitor short and long term
rates and debt balances.
COMMODITY PRICE RISKS
Coffee
The cost of our coffee purchases are dictated by commodity prices. We enter into
contracts to mitigate market fluctuation of these costs by fixing the price for
certain periods. Currently we have fixed the price of our anticipated supply
through December 2004 at "green" prices ranging from $.61-$.74 per pound. We are
not insulated from price fluctuations beyond that date. At our existing sales
levels, an increase in pricing of $.10 per pound would increase our total cost
for coffee $75,000. In this case, competitors that had fixed pricing might have
a competitive advantage.
Diesel Fuel
We own and operate vehicles to deliver product to customers. The cost of fuel to
operate these vehicles fluctuates over time. During the most recent quarter,
fuel prices have increased
20
significantly. We estimate that a $0.10 increase per gallon in fuel cost would
result in an increase to operating costs of approximately $60,000.
PART I - Item 4.
CONTROLS AND PROCEDURES
Our Chief Executive Officer, our Chief Financial Officer, and other members of
our senior management team have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)). Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures, as
of the end of the period covered by this report, were adequate and effective to
provide reasonable assurance that information required to be disclosed by the
Company, including our consolidated subsidiaries, in reports that we file or
submit under the Exchange Act, is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms.
The effectiveness of a system of disclosure controls and procedures is subject
to various inherent limitations, including cost limitations, judgments used in
decision making, assumptions about the likelihood of future events, the
soundness of internal controls, and fraud. Due to such inherent limitations,
there can be no assurance that any system of disclosure controls and procedures
will be successful in preventing all errors or fraud, or in making all material
information known in a timely manner to the appropriate levels of management.
21
PART II - Other Information
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
(a) None.
(b) None.
(c) None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
On April 13, 2004, we held our annual stockholders meeting at 11:00
a.m. at the offices of Foley Hoag LLP, 155 Seaport Boulevard, 13th
Floor, Boston, Massachusetts 02210. There were two matters of business
requiring a stockholder vote, election of directors and a proposal to
approve and adopt our 2004 Stock Incentive Plan.
A total of 18,245,999 votes were cast and the following directors were
elected to one year terms with the corresponding vote tally:
Withhold
For Authority
--- ---------
Timothy G. Fallon 18,050,771 195,228
Henry E. Baker 18,031,641 214,358
Peter K. Baker 18,031,641 214,358
Phillip Davidowitz 18,169,402 76,597
Robert C. Getchell 18,169,402 76,597
Carol R. Lintz 18,169,402 76,597
David R. Preston 18,169,402 76,597
Ross Rapaport 18,032,916 213,083
Norman E. Rickard 18,169,402 76,597
Beat Schlagenhauf 18,032,916 213,083
A total of 12,461,071 votes were cast and it was decided to approve the
2004 Stock Incentive Plan as proposed in Annex B of our definitive
proxy statement dated March 9, 2004. The plan covers 250,000 shares of
our common stock and provides for the grant of incentive and
non-statutory stock options and awards of restricted and unrestricted
22
stock.
The vote tally was as follows:
Number of Votes For: 11,880,679
Number of Votes Against: 559,180
Number of Votes Abstaining: 21,212
Number of "Non-Votes": 5,784,928
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of the Company. (Incorporated by
reference to Exhibit B to Appendix A to the Proxy Statement
included in the S-4 Registration Statement filed by Vermont
Pure Holdings, Ltd., f/k/a VP Merger Parent, Inc., File No.
333-45226, on September 6, 2000 (the "S-4 Registration
Statement").)
3.2 Certificate of Amendment of Certificate of Incorporation of
the Company filed October 5, 2000. (Incorporated by reference
to Exhibit 4.2 of the Report on Form 8-K filed by the Company
on October 19, 2000 (the "Merger 8-K").)
3.3 By-laws of the Company. (Incorporated by reference from
Exhibit 3.3 to Form 10-Q for the Quarter ended July 31, 2001.)
4.1 Registration Rights Agreement among the Company, Peter K.
Baker, Henry E. Baker, John B. Baker and Ross Rapaport.
(Incorporated by reference to Exhibit 4.6 of the Merger 8-K.)
10.1* 1993 Performance Equity Plan. (Incorporated by reference from
Exhibit 10.9 of Registration Statement 33-72940.)
10.2* 1998 Incentive and Non-Statutory Stock Option Plan, as
amended. (Incorporated by reference to Appendix A to the
Definitive Proxy Statement dated March 10, 2003.)
23
10.3* 1999 Employee Stock Purchase Plan. (Incorporated by reference
to Exhibit A of the 1999 Definitive Proxy Statement.)
10.4* Employment Agreement between the Company and Timothy G.
Fallon. (Incorporated by reference to Exhibit 10.13 of the S-4
Registration Statement.)
10.5* Employment Agreement between the Company and Bruce S.
MacDonald. (Incorporated by reference to Exhibit 10.14 of the
S-4 Registration Statement.)
10.6* Employment Agreement between the Company and Peter K. Baker.
(Incorporated by reference to Exhibit 10.15 of the S-4
Registration Statement.)
10.7* Employment Agreement between the Company and John B. Baker.
(Incorporated by reference to Exhibit 10.16 of the S-4
Registration Statement.)
10.8* Employment Agreement between the Company and Henry E. Baker.
(Incorporated by reference to Exhibit 10.17 of the S-4
Registration Statement.)
10.9 Lease of Buildings and Grounds in Watertown, Connecticut from
the Baker's Grandchildren Trust. (Incorporated by reference to
Exhibit 10.22 of the S-4 Registration Statement.)
10.10 Lease of Grounds in Stamford, Connecticut from Henry E. Baker.
(Incorporated by reference to Exhibit 10.24 of the S-4
Registration Statement.)
10.11 Lease of Building in Stamford, Connecticut from Henry E.
Baker. (Incorporated by reference to Exhibit 10.23 of the S-4
Registration Statement.)
10.12 Loan and Security Agreement between the Company and Webster
Bank, M &T Bank, Banknorth Group, and Rabobank dated March 5,
2003. (Incorporated by reference to Exhibit 10.12 of Form 10-Q
for the quarter ended January 31, 2003.)
10.13 Form of Term Note from the Company to Webster Bank and
participants dated March 5, 2003. (Incorporated by reference
to Exhibit 10.12 of Form 10-Q for the quarter ended January
31, 2003.)
24
10.14 Amended and Restated Subordinated Promissory Note from the
Company to Henry E. Baker dated March 5, 2003. (Incorporated
by reference to Exhibit 10.12 of Form 10-Q for the quarter
ended January 31, 2003.)
10.15 Amended and Restated Subordinated Promissory Note from the
Company to Joan Baker dated March 5, 2003. (Incorporated by
reference to Exhibit 10.12 of Form 10-Q for the quarter ended
January 31, 2003.)
10.16 Amended and Restated Subordinated Promissory Note from the
Company to John B. Baker dated March 5, 2003. (Incorporated by
reference to Exhibit 10.12 of Form 10-Q for the quarter ended
January 31, 2003.)
10.17 Amended and Restated Subordinated Promissory Note from the
Company to Peter K. Baker dated March 5, 2003. (Incorporated
by reference to Exhibit 10.12 of Form 10-Q for the quarter
ended January 31, 2003.)
10.18 Amended and Restated Subordinated Promissory Note from the
Company to Ross S. Rapaport, Trustee, dated March 5, 2003.
(Incorporated by reference to Exhibit 10.12 of Form 10-Q for
the quarter ended January 31, 2003.)
10.19 Subordination and Pledge Agreement from Henry E. Baker to
Webster Bank dated March 5, 2003. (Incorporated by reference
to Exhibit 10.12 of Form 10-Q for the quarter ended January
31, 2003.)
10.20 Subordination and Pledge Agreement from Joan Baker to Webster
Bank dated March 5, 2003. (Incorporated by reference to
Exhibit 10.12 of Form 10-Q for the quarter ended January 31,
2003.)
10.21 Subordination and Pledge Agreement from John B. Baker to
Webster Bank dated November 1, 2001. (Incorporated by
reference to Exhibit 10.12 of Form 10-Q for the quarter ended
January 31, 2003.)
10.22 Subordination and Pledge Agreement from Peter K. Baker to
Webster Bank dated March 5, 2003. (Incorporated by reference
to Exhibit 10.12 of Form 10-Q for the quarter ended January
31, 2003.)
10.23 Subordination and Pledge Agreement from Ross S. Rapaport,
Trustee, to Webster Bank dated March 5, 2003. (Incorporated by
reference to Exhibit 10.12 of Form 10-Q for the quarter ended
January 31, 2003.)
10.24 Form of Acquisition/Capital Line of Credit Note from the
Company to Webster Bank and participants dated March 5, 2003.
(Incorporated by reference to Exhibit 10.12 of Form 10-Q for
the quarter ended January 31, 2003.)
25
10.25 Form of Revolving Line of Credit Note from the Company to
Webster Bank and participants dated March 5, 2003.
(Incorporated by reference to Exhibit 10.12 of Form 10-Q for
the quarter ended January 31, 2003.)
10.26** Form of Indemnification Agreements, dated November 1, 2002,
between the Company and the following Directors and Officers:
Henry E. Baker
John B. Baker
Peter K. Baker
Phillip Davidowitz
Timothy G. Fallon
Robert C. Getchell
David Jurasek
Carol R. Lintz
Bruce S. MacDonald
David R. Preston
Ross S. Rapaport
Norman E. Rickard
Beat Schlagenhauf
(Incorporated by reference to Exhibit 10.27 of Form 10-K for
the year ended October 31, 2002.)
10.27 Purchase and Sale Agreement among Vermont Pure Springs, Inc.,
Vermont Pure Holdings, Ltd. and Micropack Corporation dated as
of March 1, 2004. (Incorporated by reference to Exhibit 10.27
of Form 10-Q for the quarter ended January 31, 2004.)
10.28 Trademark License Agreement between Vermont Pure Holdings Ltd.
and MicroPack Corporation dated March 1, 2004. (Incorporated
by reference to Exhibit 10.28 of Form 10-Q for the quarter
ended January 31, 2004.)
10.29 Supply and Sublicense Agreement between Vermont Pure Holdings
Ltd. and MicroPack Corporation dated March 1, 2004.
(Incorporated by reference to Exhibit 10.29 of Form 10-Q for
the quarter ended January 31, 2004.)
10.30* 2004 Stock Incentive Plan. (Incorporated by reference to Annex
B to the Definitive Proxy Statement dated March 9, 2004.)
26
10.31 Amendment #2 to Loan and Security Agreement between the
Company and Webster Bank, M &T Bank, Banknorth Group, and
Rabobank dated March 5, 2003.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002.
* Relates to compensation
** The form contains all material information concerning the agreement
and the only differences are the name and the contact information of
the director or officer who is party to the agreement.
(b) Reports on Form 8-K
A Report on Form 8-K was filed on March 16, 2004 in conjunction with the
press release announcing our financial results for the quarter ended January
31, 2004.
27
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: June 14, 2004
Williston, Vermont
VERMONT PURE HOLDINGS, LTD.
By: /s/ Bruce S. MacDonald
----------------------
Bruce S. MacDonald
Vice President, Chief Financial Officer
(Principal Accounting Officer and Principal
Financial Officer)
28
Vermont Pure Holdings, Ltd.
Quarterly Report on Form 10-Q
for the Quarter Ended April 30, 2004
Exhibits Filed Herewith
Exhibit
Number Description
- ------ -----------
10.31 Amendment #2 to Loan and Security Agreement between the
Company and Webster Bank, M &T Bank, Banknorth Group, and
Rabobank dated March 5, 2003.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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