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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-12599
VITA FOOD PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 36-3171548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2222 WEST LAKE STREET, CHICAGO, ILLINOIS 60612
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (312) 738-4500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, PAR VALUE $.01 PER SHARE AMERICAN STOCK EXCHANGE & CHICAGO STOCK EXCHANGE
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
The aggregate market value of common stock held by non-affiliates of the
registrant as of February 28, 2003 was $5,100,310 and as of June 30, 2002 was
$7,678,566.
The number of shares outstanding of the registrant's common stock as of February
28, 2003 was 3,777,895.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in
connection with the Annual Meeting of Stockholders to be held May 14, 2003 are
incorporated by reference in Part III.
1
PART I
ITEM 1. BUSINESS.
INTRODUCTION
The Company has been engaged in the sale of specialty food products under
the VITA brand name for over 70 years. The Company believes that its long
history of producing and marketing quality products has created a strong
recognition of the VITA brand name among consumers and has enabled the Company
to build an extensive national distribution network of established food brokers
for the sale of its products to supermarket chains and wholesale clubs
(collectively "Supermarkets") and to institutional/food service operations, such
as restaurant chains, hotels, country clubs, cruise lines and other bulk
purchasers (collectively "Institutional Purchasers"). The Company believes that
"VITA" with its accompanying logo is the most widely recognized, and the only
nationally recognized, brand name in herring products and cured and smoked
salmon products. The Company is one of the leading processors of herring
products, and cured and smoked salmon products in the United States and has been
producing and selling herring products for over 70 years and cured and smoked
salmon products for over 30 years. The Company's products include a variety of
cuts of pickled herring in cream and wine based sauces, and lox and nova salmon.
The Company markets other complementary specialty food products, such as cream
cheese with salmon, shrimp cocktail, horseradish, cocktail, tartar sauces and
salad dressings, all of which it purchases from third party food producers and
markets under the VITA brand name pursuant to co-packing arrangements with the
exception of the salad dressing products, which are produced by the Company's
subsidiary. Historically, the Company has increased its sales through
acquisitions that have enabled the Company to add new product lines and expand
its existing product lines. The Company markets and, in some cases, also
produces related specialty food products under other brand names, some of which
are recognized regional brand names, in certain regions of the country, that
have been licensed to the Company.
The Company significantly expanded its line of specialty food products in
2002 and 2001 with the acquisitions of The Halifax Group, Inc. ("Halifax") and
the Virginia Honey Company, Inc. ("Virginia Honey") respectively. The Company
has formed Vita Specialty Foods, Inc. as a wholly owned subsidiary and a
separate business unit (the "Vita Specialty Foods Segment") to consolidate the
operations of Virginia Honey and Halifax (the Company's operations conducted
separately from the operations of the Vita Specialty Foods Segment are referred
to herein as the "Vita Segment"). Virginia Honey specializes in the processing
and marketing, under the VIRGINIA BRAND name, honey, salad dressings, sauces,
jams and jellies and gift basket products. Halifax produces and markets, under
its Oak Hill Farms(R) brand name a line of salad dressings, gourmet sauces, and
beverages along with its Scorned Woman(R) brand name, a line of hot sauce based
products. In addition, Halifax has brand name product licensing agreements with
JIM BEAM(R), DRAMBUIE(R) and HBO(R) under which the Company produces and markets
various cooking sauces, pasta sauces, steak sauces, marinades and other gourmet
related products. As a result of these acquisitions, the Company is leveraging
its sales and distribution network to provide national exposure to the products
of the Vita Specialty Foods Segment. The Company also expects to introduce new
products with a goal of enhancing the aforementioned brand names under VITA and
the Vita Specialty Foods Segment.
COMPANY BACKGROUND
The Company was originally incorporated as Vita Food Products, Inc. in
1928. In 1968, Brown and Williamson Tobacco Company, a British company,
purchased the Company. The Company was then acquired by Dean Foods Company in
1978. In 1982, Mr. Stephen D. Rubin and Mr. Clark L. Feldman, on behalf of an
investor group (the "Investors"), negotiated the acquisition of the Company from
Dean Foods Company and became the Company's largest shareholders. On September
20, 1996, the Company reincorporated in the State of Nevada through a merger of
Vita Food Products, Inc., an Illinois corporation ("Vita-Illinois"), and V-F
Acquisition, Inc., an Illinois corporation that was the largest shareholder of
Vita-Illinois, into the Company, a Nevada corporation formed for the purpose of
effecting the reincorporation. On January 23, 1997, the Company completed an
initial public offering of shares of its common stock, par value $.01 per share
("Common Stock"), and redeemable common stock purchase warrants resulting in net
proceeds before expenses of approximately $4.1 million.
Effective July 1, 2001 the Company acquired 100% of the outstanding shares
of capital stock of Virginia Honey. The results of Virginia Honey have been
included in the Company's consolidated financial
2
statements since the effective date. Virginia Honey was established in 1962 as a
small beekeeping business. Since then, Virginia Honey expanded its product
offerings to include salad dressings and by 1998 the company had grown to
include two production facilities, with one used to pack honey products and the
second to process and pack salad dressings, sauces and marinades.
Effective November 1, 2002 the Company acquired 100% of the outstanding
shares of capital stock of Halifax. The results of Halifax have been included in
the Company's consolidated financial statements since the effective date as part
of the Vita Specialty Foods Segment. Halifax specialized in product development
and marketing of its wide range of food products. The product list includes
salad dressings, barbeque sauce, steak sauce, gourmet sauces, hot sauces and
gift basket related items. In addition, Halifax has developed and marketed food
products through licensing agreements with well-recognized brands such as JIM
BEAM(R), HBO(R) (based on the restaurateur ARTIE BUCCO(TM) in THE SOPRANO'S(R)),
and Drambuie(R). Halifax operations are run in a production facility and
warehouse in Georgia.
STRATEGY
The Company's long-term strategy is to (i) focus on acquisitions; (ii)
capitalize on the goodwill associated with the VITA brand name; and (iii)
capitalize on the strength of the Company's national distribution network to
increase its market share for its existing products and introduce and market new
specialty food products, which will be sold under the VITA, VIRGINIA BRAND, OAK
HILL FARMS and other brand names owned, purchased or licensed from third
parties. The Company intends to implement its growth strategy through acquiring,
or entering into joint ventures with, companies producing complementary
specialty food products, introducing and developing new products and increasing
its marketing efforts.
PRODUCTS
The Company's products include herring products, cured and smoked salmon
products, complementary products, honey products, salad dressing products and a
variety of related ready to eat specialty food products. The Company's
refrigerated products can be located in the dairy department, meat and fish
department or deli department of Supermarkets. The Company also sells products
in the grocery sections of Supermarkets. Many of the Company's products are also
sold in bulk to Institutional Purchasers. The Company believes that, although
the market for herring products has been and is expected to remain constant, the
market for salmon products and certain other specialty products is increasing.
Consumption of fresh and frozen seafood in the United States has been
increasing, especially consumption of salmon. All of the Company's salmon,
herring and honey products, and most of its salad dressings, complementary and
other specialty food products are kosher and receive the symbol of certification
from the Orthodox Union. The Company also receives the symbol of certification
for the use of many of its products for Passover from the Orthodox Union. The
Company believes that the market for kosher foods will grow in the next few
years and that this represents a significant opportunity for the Company. The
increase in consumption of kosher food products is at least partially the result
of (i) the perception by certain consumers who are not bound by Judaism's
religious dietary restrictions that kosher certification indicates a superior
product, and (ii) an increase in the U.S. population of members of other
religious groups such as Islam, Hinduism and some branches of Christianity that
observe dietary restrictions similar to many Jewish people.
VITA SEGMENT PRODUCTS
HERRING
The Company, generally using the best available grade of ocean herring,
cures the herring and mixes the cured herring with a variety of high quality
spices, wines and other ingredients according to the Company's proprietary
formulations to produce a number of herring products. These products are then
either packaged in vacuum-sealed glass jars to preserve flavor for sale to
Supermarkets or packaged in bulk containers for sale to Institutional
Purchasers. Herring is a traditional Eastern European and Scandinavian staple,
being one of the most widely consumed fish in the world. In the United States,
however, herring is more of a specialty product that is served at parties or
holiday gatherings. Herring products are often served as appetizers, part of a
buffet, between-meal snacks or an ingredient in salads. The Company's most
popular herring products are its "VITA Herring Party Snacks" and "VITA Herring
in Sour Cream." The Company also sells a variety of other herring products under
the VITA and ELF brand names.
3
SALMON
The Company, using only premium and quality grades of salmon from
Southeastern Alaska, Canada, Chile, and other regions, cures, smokes, and slices
the salmon for most of its salmon products. The Company's retail salmon products
are packaged and sold either refrigerated or frozen to Supermarkets. The
institutional cured and smoked salmon products are packaged in bulk containers,
including three-pound trays, and sold refrigerated or frozen to Institutional
Purchasers. The Company introduced a new line of premium smoked Atlantic Salmon
products, under the "ATLANTIC BAY CLASSIC" name with the VITA logo, in the
fourth quarter of 2001. This product line is processed in Chile by a third party
pursuant to a co-packing arrangement. Salmon consumption has been increasing
over the past five years and salmon now represents one of the most popular types
of seafood consumed in the United States. The Company's salmon products are
generally served as part of buffets at parties, particularly during the
Christmas holiday season, or as a traditional brunch item with bagels. The
salmon products are also served as appetizers at formal parties and are being
more frequently used as light meals. The Company's salmon products include "VITA
Lox Salmon," "VITA Nova Salmon," and "VITA Peppered Salmon," "Atlantic Bay
Classic Salmon," "VITA Salmon Burger," "VITA Marinated Salmon," and "VITA Salmon
Spread."
COMPLEMENTARY PRODUCTS
The Company sells a number of spreads and condiments, including horseradish
products, cream cheese with smoked salmon, cocktail and tartar sauces, and
shrimp cocktail products. These products are used as appetizers, snacks, and
condiments to accompany light meals and holiday trays. These products are
marketed by the Company under the VITA brand name, but produced by third parties
pursuant to co-packing arrangements.
VITA SPECIALTY FOODS SEGMENT PRODUCTS
SALAD DRESSINGS
The Company manufactures and markets three premium lines of salad
dressings. One line is under the VIRGINIA BRAND name and is sold in the grocery
section. The second line is under the OAK HILL FARMS name and is also sold in
the grocery section. The third line, which has been developed since the
acquisition of Virginia Honey, is under the VITA brand name and is sold as
refrigerated. All salad dressing flavors feature the finest ingredients
available and most contain the ingredient Vidalia(R) Onion. While all of the
dressings boast premium quality and taste, some also feature nO cholesterol, low
fat, low carbohydrates, and low calories. The Company's customers are mainly
Supermarkets.
HONEY
Virginia Honey, followed by the Company, have been packing and marketing
Pure, Grade "A" honey under the VIRGINIA BRAND name since 1962. The honey is
available in several varieties and blends, including Clover, Wildflower, Orange
Blossom, and Acacia. Each variety is available in many sizes ranging from 6oz
mugs to 55-gallon drums used for food service. The Company's customers include
Supermarkets, Institutional purchasers, bakeries and major food processors.
SPECIALTY PRODUCTS
Virginia Honey, followed by the Company, manufactures and sells marinades,
steak sauce, hot sauces, pasta sauce and other gourmet cooking sauces. These
products are marketed by the Company under the OAK HILL FARMS and SCORNED WOMAN
brand names and under licensing agreements from JIM BEAM(R), DRAMBUIE(R) and
HBO(R).
In addition, the Company sells a wide array of other products including
marinades, steak sauce, hot sauces, molasses, baking mixes, syrups, condiments,
cider, mustard, jams, jellies, and preserves. These products are marketed by the
Company under the VIRGINIA BRAND name, but produced by third parties pursuant to
co-packing arrangements.
4
NEWER PRODUCTS
The Company's newer products are those being introduced now and in the past
year and are developed by the Company, acquired through acquisitions of other
companies, or marketed under co-packing arrangements or distribution agreements.
The Company, through its acquisition of Halifax, is introducing the ARTIE
BUCCO(TM) line of products, based on the restaurateur in the HBO(R) television
series, THE SOPRANOS(R), that includes pasta, pasta sauces, salad dressings and
barbeque sauce. The products were made available during the fourth quarter of
2002 through HBO(R)'s website and are being distributed to Supermarkets and
other outlets in 2003.
The Company also introduced in 2002, a line of salad dressings under the
VITA brand name and under the VIRGINIA BRAND name of fat-free salad dressings,
gourmet cooking sauces, barbecue and steak sauces. The products were distributed
to supermarkets and other outlets.
The Company has capitalized on its national distribution network and the
strong recognition of the VITA brand name to generate sales of these products.
In order to introduce these products, the Company incurs costs for development
and distribution, which are significant relative to sales levels at the time of
introduction. It is expected that as sales of these products grow, the
development and distribution costs will decline on a relative basis.
PRODUCT DISTRIBUTION AND SALES
The Company's products, under both segments, are currently sold through a
national distribution network of approximately 60 established retail and
institutional/food service brokers. The Company believes that it is the only
processor of herring products and cured and smoked salmon products that has
established such an extensive national distribution network. The Company
believes it has been successful in developing this network for a number of
reasons, including the recognition of the VITA brand name and the Company's
reputation for producing quality products. The Company has also been able to
develop and strengthen its distribution network by providing adequate shelf
space for its products. The Company's current marketing efforts and its
long-term relationship with many of the food brokers has also contributed to the
strength of this network. The Company, through its marketing efforts, attempts
to maintain good relationships with the Supermarkets and Institutional
Purchasers that purchase its products. The Company believes that its national
distribution network has, in turn, helped strengthen the VITA brand name and has
been an important factor in the Company's ability to introduce new products into
the marketplace and is an important component of its acquisition strategy.
The Company's regional sales managers oversee its national distribution
network. The Company employs full-time regional sales managers who maintain
contact with the food brokers in their region and monitor their performance. The
regional sales managers also assist the food brokers in their selling efforts
by, among other things, accompanying the food brokers on local sales calls. The
Company believes that it is one of the few companies in its market niche to
employ regional sales managers and that the presence of the regional sales
managers has solidified the Company's relationship with its national
distribution network.
The Company enters into an agreement with each food broker, which grants
the food broker an exclusive territory in which to sell its products and sets
forth the amount of commissions to be paid on such sales by the Company. Such
agreements do not permit the Company to make sales directly to Supermarkets
located in a food broker's exclusive territory unless the Company pays the food
broker the commission, which the food broker would have earned. The agreements
are terminable by either party upon 30 days' notice. The Company believes such
terms are standard in the Company's industry. The food brokers sell the
Company's products in both the retail and institutional/food service markets.
The retail market, consisting of Supermarkets, has generally accounted for
approximately 91% of the Company's net sales while Institutional Purchasers have
accounted for the remaining 9% of net sales.
In addition to the Company's five facilities, the Company also stores and
distributes its products through over 15 warehouse facilities owned by third
parties, which are located throughout the United States.
5
CUSTOMERS
The Company's customers include large regional supermarket chains,
wholesale clubs and gourmet shops throughout the country and in Canada and
Mexico. The Company's products sold under the VITA and VIRGINIA BRAND names are
particularly well known on the eastern seaboard.
The Company's largest customers represented 19% and 12% of its net sales in
2002, respectively. The Company does not have a long-term contractual
relationship with either customer. The Company believes the loss of either of
these customers would have a material adverse affect on the Company's business,
financial condition and results of operations. However, the Company believes the
present working relationships with these customers that has been built up over
time, is likely to continue.
The Company is aware that its customers are continually reviewing their
purchasing decisions which may result in such customers changing their current
orders from higher margin to lower margin products or reducing the amount of a
product or products purchased. Any material change in orders or reduction in the
amount of a product or products purchased by one or more significant customers
could adversely affect the Company's business, financial condition and results
of operations.
PRODUCT RETURN POLICY
The Company guarantees the sale of most of its products sold in
Supermarkets, excluding warehouse clubs, which sales represent approximately 60%
of the Company's sales. This guarantee helps ensure that consumers receive fresh
products. Under the guarantee, products not sold before the expiration date are
either returned to the Company through its food brokers or are disposed of by
the Supermarkets or food distributor. A credit is then issued to the Supermarket
or food distributor. The Company has established a reserve to be used for
credits for product returns and believes, based on its historical return rates,
which have been fairly consistent over the past several years, that this reserve
is adequate to fund all foreseeable product return credits.
PRODUCTION
SUPPLIERS
The Company relies on outside suppliers for its requirements in producing
its herring, salmon, honey, salad dressings, cooking sauces and other products.
The Company previously purchased most of its herring from one specialty herring
harvester and processor (the "Supplier") located in Canada, pursuant to a supply
agreement. Under the agreement, the Supplier had the option to supply 90% of the
Company's annual requirements for herring, provided it sold the herring at the
same prices which the Company would pay if it purchased herring elsewhere. The
Supplier guaranteed the first priority of supply of herring to the Company, in
an amount necessary to satisfy the Company's requirements. The agreement was
terminated in 2002, but has not changed the Company's decades-long relationship
with the Supplier, as the Company has been purchasing herring from the Supplier
since the Company began operations over 70 years ago. The absence of an
agreement has not impacted the Company, since the Company continues to buy from
the Supplier at competitive prices and the Company has established other sources
of supply it believes will be adequate in the event the Supplier ceases to offer
herring at competitive prices. The Company currently purchases its other raw
materials and co-packed products from a number of sources and the Company
believes that there are other suppliers from which the Company could meet its
requirements, if necessary.
QUALITY CONTROL
The Company believes that it was one of the first processors of herring
products and cured and smoked salmon products to institute quality control
procedures and that its quality control procedures are among the most stringent
in this market. The Company has six full-time employees in its Quality Control
Departments. The primary responsibility of these employees is to ensure the
quality of all its products by overseeing the production process and by
frequently testing the consistency of the products as they are produced. In
addition, the Company is using certain high-tech equipment in its production
process dedicated solely to quality control purposes that the Company believes
gives it a competitive advantage. The products produced through co-packing
arrangements are subject to both the quality control procedures of the
co-packing company and the same frequent product testing that is required of the
Company's products under its quality control procedures.
6
COMPETITION
The market for the Company's products is highly competitive. The Company
believes that consumers choose herring products, salmon products, honey
products, salad dressing products as well as its other specialty products based
primarily on product quality and price. Although the Company's competitors for
herring and salmon products are generally small regional food processors and
producers, certain of the Company's competitors may have greater financial and
other resources than the Company and may offer lower prices on comparable
products. Since a key competitive factor among producers of cured and smoked
salmon products and herring products is price, even smaller regional companies
may be able to compete effectively against the Company due to reduced shipping
costs. While the Company believes its prices are competitive for the quality
level of its products, the Company relies primarily on the recognition of the
VITA brand name, its reputation for selling quality products, and the strength
of its distribution network. The Company's main competitors in the herring
product and cured and smoked salmon product market are Lascco, Mama's and
Nathan's, among others. The Company believes it is the only independent company
with national distribution capabilities in this market. In the honey products
market the Company's main competitors are Dutch Gold Honey and Sioux Bee Honey.
The Company recognizes that the salad dressing market is very competitive and
there are large companies such as Kraft Foods, Inc. in this market. However, the
Company believes that there is a niche with the salad dressing products the
Company offers. Most of the salad dressings are based on the Vidalia(R) Onion as
an ingredient. The Vidalia(R) Onion ingredient, coupLed with the Company's
proprietary formulations, have created what the Company believes are unique
products.
ENVIRONMENTAL MATTERS
In the ordinary course of the Company's production process, at the Chicago
Illinois facility, spillage and cleaning results in a high concentration of
sugars and vinegars, which create Biological Oxygen Demands ("BODs") as well as
fats, oils and greases ("FOGs"), both of which enter the waste water treatment
system. The Company is assessed a user charge by the Metropolitan Water
Reclamation District (the "District"), based in part on the costs of treating
this waste water. If the level of FOGs entering the wastewater treatment system
exceeds a specified level over a specified period of time, the District,
following certain procedural requirements, has the authority to fine the Company
or to temporarily close the Company's production facility. The District has not
initiated or threatened to initiate proceedings against the Company for
violating specified levels for FOGs.
INTELLECTUAL PROPERTY
Trademarks and trade names are of critical importance to producers of food
products. A recognized trademark or trade name allows the consumer to
immediately identify the source of a product, even if the product is new to the
marketplace.
VITA SEGMENT
The Company owns the federally registered trademark "VITA" (with
accompanying design). The Company believes that this mark is widely recognized,
and provides immediate identification of the source of its products to
consumers. This recognition is the basis for the Company's ability to maintain a
significant share of the national market for refrigerated herring products and
cured and smoked salmon products. The Company believes the "VITA" brand name and
trademark has a substantial amount of goodwill associated with it. The Company
believes the VITA trademark and its accompanying design are critical to its
ability to market new products and to its marketing strategy in general.
The Company has also licensed the "ELF" brand name, of herring products,
which the Company believes has widespread consumer recognition in the Midwest
region of the country. The Company obtained all of Lyon Food's rights to the
"ELF" trademark in connection with herring products from Food Marketing Corp.
pursuant to a letter agreement (the "Letter Agreement"). Ownership of the "ELF"
trademark originally belonged to Food Marketing Corp. and was transferred to
SuperValu, Inc., which affirmed Lyon Food's right to use the mark as set forth
in the Letter Agreement and consented to the Company's right to use the
trademark in connection with smoked fish products. The Letter Agreement is
terminable upon six months notice to the Company. The Company also sells, under
a new product line of smoked Atlantic Salmon, "ATLANTIC BAY CLASSIC." The
Company has applied for a registered federal trademark for "ATLANTIC BAY
CLASSIC."
7
VITA SPECIALTY FOODS SEGMENT
With its acquisitions of Virginia Honey and Halifax, the Company also owns
the federally registered trademark "VIRGINIA BRAND", "OAK HILL FARMS" and
"SCORNED WOMAN". In addition, the Company is now producing and marketing
products under various third-party licensing agreements. The Company believes
that the brand names of JIM BEAM(R), DRAMBUIE(R) And the recognition brought to
the ARTIE BUCCO(TM) food product line from the HBO(R) television series THE
SOPRANOS(R) can aTtract consumer attention in a highly competitive marketplace.
The Company believes these licensing agreements are valuable and can provide
opportunities within the Company's national sales and distribution network to
add significant sales growth. The Company plans to explore the use of additional
brand names through third-party licensing agreements as part of its overall
strategy. The Company is not aware of any names or marks, which infringe any of
those the Company uses. Although the Company sells products under a number of
other brand and trade names, such other brand or trade names are not material to
the Company's marketing strategy. The Company also uses various recipes and
proprietary formulations in its products, which it maintains as trade secrets.
The Company does not believe its business is otherwise dependent upon any
patent, license, trademark, service mark or copyright.
PRODUCT LIABILITY INSURANCE
The Company currently maintains product liability insurance for its
products with limits of $10,000,000 per occurrence and $11,000,000 in the
aggregate, per annum for its operations. There can be no assurance that the
Company's insurance will be adequate to cover future product liability claims,
or that the Company will be able to maintain adequate product liability
insurance at commercially reasonable rates.
EMPLOYEES
At December 31, 2002, the Company had 166 full-time employees.
Additionally, up to 40 workers are hired on a temporary basis each year to meet
seasonal production demands. At the Chicago Illinois plant, except for
supervisors, all production employees are represented by the Local 546 United
Food & Commercial Workers, International Union and maintenance employees are
represented by the Local 399 International Union of Operating Engineers. The
Company has not experienced any work stoppages since the Company was acquired by
the Investors in 1982. The Company considers its relations with its employees to
be good.
GOVERNMENT REGULATION
The manufacture, processing, packaging, storage, distribution and labeling
of food products are subject to extensive federal and state laws and
regulations. In the United States, the Company's business is subject to
regulation by the Food and Drug Administration (the "FDA"). Applicable statutes
and regulations governing food products include "standards of identity" for the
content of specific types of foods, nutritional labeling and serving size
requirements. The Company believes that its current products satisfy, and its
new products will satisfy, all applicable regulations and that all of the
ingredients used in its products are "generally recognized as safe" by the FDA
for the intended purposes for which they will be used.
Halifax and its production facility are under license by the Department of
Alcohol, Tobacco and Firearms (the "ATF"), subject to extensive federal laws and
regulations in its use of alcohol as an ingredient in a number of its food
products. The Company believes that its current products and processes and
reporting requirements satisfy all applicable regulations set forth by ATF and
its licensing provisions.
ITEM 2. PROPERTIES.
The Company produces, packages, stores, and distributes its herring and
salmon products at the Company-owned facility located in Chicago, Illinois. The
Company's facility is located on 125,600 square feet of land. The facility
contains approximately 82,200 square feet of space, including approximately
65,000 square feet of production space, approximately 13,900 square feet of
refrigerated storage space, and approximately 3,300 square feet of office space.
American National Bank and Trust Company of Chicago ("ANB") has a mortgage on
this facility.
8
The Company produces, packages, stores, and distributes its Vita and
Virginia Brand salad dressing products at a leased facility located in
Martinsburg, West Virginia. The Company's facility is located on 8.75 acres of
land. The facility contains approximately 40,000 square feet of space, including
approximately 35,500 square feet of production space, and approximately 4,500
square feet of office space.
The Company processes, packages, stores, and distributes its honey products
at a leased facility located in Berryville, Virginia. The Company's facility is
located on 6.25 acres of land. The facility contains approximately 24,000 square
feet of space, including approximately 23,250 square feet of production space,
and approximately 750 square feet of office space.
The Company produces, packages, stores, and distributes its OAK HILL FARMS,
JIM BEAM(R) Brand, DRAMBUIE(R) BraNd, ARTIE BUCCO(TM) Brand and SCORNED WOMAN
Brand of products ranging from salad dressing, cooking sauces, pasta sauces, hOt
sauces and beverage products at a leased facility located in Atlanta, Georgia.
The facility contains approximately 33,000 square feet of production and storage
space. In addition, the Company has a warehouse for storing certain raw
materials and finished goods. The warehouse contains approximately 25,000 square
feet of space and is located in Lithonia, Georgia.
The Company believes that its current facilities provide sufficient
capacity for its needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently involved in any material pending legal
proceedings and is not aware of any material legal proceedings threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock began trading on the Chicago Stock Exchange on
January 17, 1997, and on the American Stock Exchange on May 12, 1997 under the
symbol "VSF". The Company believes that as of March 17, 2003 there were
approximately 400 beneficial holders of the Company's Common Stock.
The Company has never paid a cash dividend on its Common Stock and
currently anticipates that all of its earnings will be retained for use in the
operation and expansion of its business. The Company's revolving and term loan
facilities restrict the Company's ability to pay dividends. See Note 3 to Item 8
Financial Statements.
The following table set forth the high and low sales prices per share for
the Common Stock of the Company for each quarter within fiscal years 2002 and
2001.
Quarter High Low
--------------------------------------------
1st - 2002 5.99 3.41
2nd - 2002 8.50 3.50
3rd - 2002 6.45 4.55
4th - 2002 5.69 3.90
1st - 2001 1.65 1.125
2nd - 2001 3.00 1.60
3rd - 2001 2.75 2.05
4th - 2001 4.25 2.00
9
The Company's Warrants, which were traded on the American Stock Exchange
and Chicago Stock Exchange under the symbol "VSF.WS," expired on January 16,
2002, per the terms of the prospectus for the Company's January 16, 1997,
initial public offering.
EQUITY COMPENSATION PLAN INFORMATION
- --------------------------------------------------------------------------------------------------------------------
Plan Category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
(excluding securities
reflected in column (a))
- --------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans 328,500 $3.42 247,605
approved by security holders
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders 0 0 0
- --------------------------------------------------------------------------------------------------------------------
Total 328,500 $3.42 247,605
- --------------------------------------------------------------------------------------------------------------------
ITEM 6. SELECTED FINANCIAL DATA.
In thousands, except per share data
================================================================================
YEAR ENDED DECEMBER 31, 2002(2) 2001(1) 2000 1999 1998
NET SALES $42,863 $31,982 $25,127 $22,966 $22,295
OPERATING INCOME 2,915 2,099 1,104 904 91
OPERATING INCOME PER SHARE 0.78 0.56 0.30 0.24 0.02
OPERATING MARGIN 6.80% 6.56% 4.39% 3.94% 0.41%
NET INCOME (LOSS) 1,446 1,156 722 310 (609)
EARNINGS (LOSS) PER SHARE 0.39 0.31 0.19 0.08 (0.16)
DILUTED EARNINGS PER SHARE 0.38 0.31 0.19 0.08 (0.16)
CASH 46 529 14 53 78
TOTAL ASSETS 26,542 20,068 12,189 10,597 10,092
LONG-TERM DEBT 14,416 7,112 5,593 4,376 4,567
SHAREHOLDERS' EQUITY 5,993 4,430 3,267 2,531 2,214
================================================================================
(1) Includes the results of Virginia Honey since the effective date of July 1,
2001.
(2) Includes the results of Halifax since the effective date of November 1,
2002.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 AND THE
YEAR ENDED DECEMBER 31, 2001
REVENUES. Net sales for the year ended December 31, 2002 were $42,863,000
compared to $31,982,000 for the same period in 2001, an increase of $10,881,000
or 34%. Of this increase, $8,958,000 is attributable to Vita Specialty Foods and
is largely due to the inclusion of a full twelve months of sales from the
Virginia Honey operation in the 2002 results plus two months of sales from the
newly acquired Halifax business, this compared to sales for only six months from
Virginia Honey during 2001. The $1,923,000 balance of the sales increase was
attributable to Vita and represents a 7% increase over the previous year. This
increase in sales of the Vita product line was a result of a 2% increase for
herring products, a 16% increase for salmon products, a 12% decrease for other
specialty products with sales returns remaining substantially constant compared
to the prior year. Management believes these increases are consistent with
nationwide increases
10
in demand for similar products. Management is making changes to the packaging
and product line offerings in the other specialty product category in an effort
to turnaround the decreasing sales trend. Vita's herring, salmon, and specialty
product sales represented 49%, 46%, and 5% of the business unit's total gross
sales, respectively. Vita Specialty Foods' salad dressings/sauces, honey
products and specialty items represented 59%, 37% and 4% of the business unit's
total gross sales, respectively.
GROSS MARGIN. Gross margin for the year ended December 31, 2002 was $13,332,000
compared to $10,001,000 for the same period in 2001, an increase of $3,331,000
or 33.3%. Vita Specialty Food accounted for $2,544,000 of this increase with the
remaining $787,000 attributable to Vita. The large increase for Vita Specialty
Foods is a result of including the operations of Virginia Honey for a full
twelve months during 2002 plus two months results from the newly acquired
Halifax operation, compared to the inclusion of only six months of Virginia
Honey business during 2001. As a percentage of net sales, Vita Specialty Foods'
gross margin was 30.8% in 2002 verses 34.5% in 2001, a decrease of 3.7%. This
decrease is due to significantly higher raw honey cost in 2002 compared to 2001,
resulting in lower gross margins, with an impact to gross margin estimated at a
reduction of approximately $540,000. Vita's gross margin was 31.3% in 2002
versus 30.6% in 2001, an increase of 0.7%. This increase in the gross margin
percentage was once again, as in 2001, primarily attributable to a combination
of decreased costs for raw fish, a sales mix shift toward higher margin products
and processing volume efficiencies.
OPERATING EXPENSES. Selling, marketing, distribution and administrative expenses
for the year ended December 31, 2002 were $10,417,000 compared to $7,902,000 for
2001, an increase of $2,515,000 or 31.8%. As a percentage of net sales, these
expenses decreased slightly to 24.3% from 24.7% for the same period in 2001. Due
to the full year inclusion of Virginia Honey and the two months inclusion of
Halifax, Vita Specialty Foods accounted for $2,214,000 of the increase. The
remaining $301,000 was attributable to Vita, representing a 4.6% increase. Of
this increase in Vita's expenses, $90,000 was attributable to selling and
marketing where higher broker commissions and salesperson compensation along
with higher advertising and promotion expenses were partially offset by lower
spending in most other categories; the remaining $211,000 of the increase
reflects higher administrative spending, primarily for employment related
expenses of $82,000 and professional fees of $108,000.
INTEREST AND OTHER EXPENSE. Interest and other expense, net, for the year ended
December 31, 2002 was $602,000 compared to $562,000 for the same period in 2001,
an increase of $40,000 or 7.1%. This increase was primarily attributable to the
additional borrowings as detailed in Note 3 of the Company's financial
statements included in Item 8 of this Form 10-K; this increase was partially
offset by lower effective interest rates.
INCOME TAXES. The net operating loss carryforward, which had been used in prior
years to offset federal income tax, was fully utilized during 2001.
Consequently, a tax expense for the year ending December 31, 2002 of $867,000 or
38% of pretax income was recognized, compared to $382,000 or 25% of pretax
income during 2001. The majority of this tax liability in 2002 was current and
in 2001 was deferred.
NET INCOME. As a result of the operating results discussed above, net income for
the year ended December 31, 2002 was $1,446,000 or $0.39 per share compared to
net income of $1,156,000 or $0.31 per share for the same period in 2001, a 25.1%
increase totaling $290,000 or $0.08 per undiluted share. Net income represented
$0.38 per share in 2002 on a diluted per share basis, an increase of $0.07 per
share over the 2001 results.
RESULTS OF OPERATIONS COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 AND THE
YEAR ENDED DECEMBER 31, 2000
REVENUES. Net sales for the year ended December 31, 2001 were $31,982,000
compared to $25,127,000 for the same period in 2000, an increase of $6,855,000
or 27%. Of this increase, $5,809,000 is attributable to Vita Specialty Foods,
representing the net sales of this business unit since the July 1, 2001
effective acquisition date. The balance of the sales increase, or $1,046,000 was
attributable to Vita and represents a 4% increase over the previous year. This
increase in sales of the Vita product line was a result of a 2% increase for
herring products, a 4% increase for salmon products, a 2% increase for other
specialty products and a 15% reduction in sales returns compared to prior year.
Management believes these increases are consistent with nationwide increases in
demand for similar products. Vita's herring, salmon, and specialty product sales
represented 51%, 42%, and 7% of the business unit's total gross sales,
respectively. Vita
11
Specialty Food's salad dressings, honey products and specialty items represented
53%, 46% and 1% of the business unit's total gross sales, respectively.
GROSS MARGIN. Gross margin for the year ended December 31, 2001 was $10,001,000
compared to $7,198,000 for the same period in 2000, an increase of $2,803,000 or
38.9%. Vita Specialty Food accounted for $2,003,000 of this increase with the
remaining $800,000 attributable to Vita. Vita's gross margin was 30.6% in 2001
versus 28.6% in 2000, an increase of 2.0%. This increase in the gross margin
percentage was attributable to a combination of decreased costs for raw fish, a
sales mix shift toward higher margin products and successful programs resulting
in a reduction in the costs associated with product returns. As a percentage of
net sales, Vita Specialty Food's gross margin was 34.5%.
OPERATING EXPENSES. Selling, marketing, distribution and administrative expenses
for the year ended December 31, 2001 were $7,902,000 compared to $6,094,000 for
the same period in 2000, an increase of $1,808,000 or 29.7%. As a percentage of
net sales, these expenses increased slightly to 24.7% from 24.3% for the same
period in 2000. Vita Specialty Food accounted for $1,304,000 of the increase
with the remaining $504,000 attributable to Vita and representing a 8.3%
increase for this unit. Of this increase in Vita's expenses, $170,000 was
attributable to selling, marketing and distribution where higher freight costs
and market slotting expenses were partially offset by lower spending in most
other categories; the remaining $334,000 of the increase reflects higher
administrative spending, primarily for employment related expenses of $160,000;
professional fees of $116,000 and directors' and officers' expenses of $40,000.
INTEREST AND OTHER EXPENSE. Interest and other expense, net, for the year ended
December 31, 2001 was $562,000 compared to $402,000 for the same period in 2000,
an increase of $160,000 or 39.8%. This increase was primarily attributable to
the additional borrowings for the Virginia Honey Co. acquisition as detailed in
Note 3 of the Company's financial statements included in Item 8 of this Form
10-K; this increase was partially offset by lower effective interest rates.
INCOME TAXES. The net operating loss carryforward, which has been used in prior
years' to totally offset federal income tax, became fully exhausted during 2001.
Consequently a tax expense for the year ending December 31, 2001 of $382,000 was
recognized. The majority of this tax liability is deferred. In 2000 the company
used a portion of the net operating loss carry forward to offset income taxes,
which would otherwise have been recognized as an expense and recognized $20,000
as a tax benefit in anticipation of the usage of the net operating loss
carryforward during 2001.
NET INCOME. As a result of the operating results discussed above, net income for
the year ended December 31, 2001 was $1,156,000 or $0.31 per share compared to
net income of $722,000 or $0.19 per share for the same period in 2000, a 60.1%
increase totaling $434,000 or $0.12 per share, for both basic and diluted per
share amounts.
SEASONALITY; QUARTERLY RESULTS
The following table sets forth net sales information for each of the
Company's last 20 quarters. This unaudited net sales information has been
prepared on the same basis as the annual information presented elsewhere in this
Form 10-K and, in the opinion of management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented. Net sales for any quarter are not necessarily
indicative of sales for any future period.
NET SALES
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
------------------------------------------------------------------------
(in thousands)
1998 .......... $ 5,519 $ 4,075 $ 5,159 $ 7,542
1999 .......... 5,380 4,200 5,257 8,129
2000 .......... 6,218 4,757 5.434 8,718
2001 .......... 6,220 5,027 8,477(1) 12,259(1)
2002 .......... 10,067(1) 8,785(1) 9,292 14,719(2)
12
(1) Includes the results of Virginia Honey since the effective acquisition
date of July 1, 2001. The inclusion of the acquisition accounted for
$2,637,000 of the 2001 quarter three sales increase compared to that
quarter in the prior year, $3,172,000 of the 2001 quarter four sales
increase compared to that quarter in the prior year, $3,288,000 of the
2002 quarter one increase compared to that quarter of the previous
year and $3,317,000 of the quarter two sales increase compared to that
quarter of the prior year.
(2) Includes the results of Halifax since the effective acquisition date
of November 1, 2002. The inclusion of the acquisition accounted for
$959,000 of the 2002 quarter four sales increase compared to that
quarter in the previous year.
The following table sets forth net income (loss) information for each
of the Company's last 20 quarters. This unaudited net income (loss) information
has been prepared on the same basis as the annual information presented
elsewhere in this Form 10-K and, in the opinion of management, reflects all
adjustments (consisting of normal recurring entries) necessary for a fair
presentation of the information presented. Net income (loss) for any quarter is
not necessarily indicative of net income (loss) for any future period.
NET INCOME (LOSS)
-----------------------------------------------
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
-------------------------------------------------------------------------
(in thousands)
1998.................... $(89) $(463) $(109) $52(1)
1999.................... (43) (143) 76 420(2)
2000.................... 44 (110) (89) 878(3)
2001.................... 59 (88) 295(4) 891(4)
2002.................... 304(4) 132(4) 208 802(5)
(1) Includes a non-recurring charge of $298,000 to write off costs related to a
suspended relocation effort.
(2) Includes a non-recurring charge of $236,000 to write off costs related to a
suspended acquisition.
(3) Includes a net expense reduction of $57,000 as a result of a settlement
with the Metropolitan Water Reclamation District.
(4) Includes the results of Virginia Honey since the effective acquisition date
of July 1, 2001. The inclusion of this acquisition accounted for $80,000 of
the 2001 quarter three net income increase compared to that quarter in the
previous year, for $267,000 of the 2001 quarter four net income increase
compared to that quarter in the previous year, for $206,000 of the 2002
quarter one net income increase compared to that quarter in the previous
year and $173,000 of the 2002 quarter two net income increase compared to
that quarter of the previous year. The remaining increase is attributable
to Vita or as discussed in note (5) below.
(5) Includes the results of Halifax since the effective date of November 1,
2002.
The Company has in the past and expects in the future to experience
significant fluctuation in quarterly operating results. As the tables indicate,
historically the Company's net sales and net income have typically been the
highest in the fourth quarter of each year. The Company's business is seasonal
because its sales volume increases significantly during the Christmas holiday
season and, to a lesser extent, during other holidays in the fall and spring and
periods of colder weather in certain sections of the country. Certain of these
holidays, including Passover, Easter, Yom Kippur and Rosh Hashanah, may fall in
different quarters in different years and could cause the Company's quarterly
operating results to fluctuate in the future. However, the Company believes that
through the Vita Specialty Food acquisitions and the introduction of new
non-seasonal or counter-seasonal products, it can, over time, reduce the
variability in its quarterly operating results by increasing sales during the
second and third quarters of each year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, the Company had $6,489,000 in working capital, compared to
$1,665,000 at December 31, 2001, an increase of $4,824,000 or 290%. As a result,
the current ratio improved to 2.1 to 1.0 from 1.2 to 1.0. Of this increase,
$3,767,000 is attributed to a reduction in the current portion of debt. This
reduction occurred primarily as a result of the Company and its bank entering
into a new agreement to amend and restate the Loan and Security Agreement
originally dated August 15, 2001. This change in the Company's loan agreement
advanced the termination date for the revolving line of credit beyond the
current period by extending the term from July 31, 2002 until July 31, 2004.
When compared to the prior year, the working capital was further increased by
$1,057,000 primarily due to the $644,000 of working capital associated with
newly acquired Halifax.
At December 31, 2002, the Company had $46,000 in cash, an available revolving
credit facility of $8,500,000 and term facilities totaling $7,855,000. The
revolving loan facility matures July 31, 2004 and the term loans are payable in
monthly installments of $98,375 through November 30, 2005, $40,042 from December
1,
13
2005 through July 31, 2006 and balloon payments of $258,333 due on November 11,
2005 and $2,443,000 on July 31, 2006. Amounts outstanding under the revolving
facility and the term facilities at December 31, 2002 were $5,359,000 and
$6,406,000, respectively. The interest rates fluctuate based on the Funded Debt
to Adjusted EBITDA ratio as each such term is defined in the loan agreement. The
loan agreement contains customary representations, warranties, and covenants. At
December 31, 2002 and December 31, 2001, the Company was in compliance with
these covenants.
The Stock Purchase Agreement, including its Amendments, for Virginia Honey
provides for future payments to the former owner based upon 20% of five times
the average quarterly EBITDA less certain debt obligations of Virginia Honey,
for the period from January 1, 2001 through December 31, 2002. The present value
of this calculation resulted in $764,765, and has been recorded as a liability
at December 31, 2002. The payment is due to be paid on April 1, 2005. The
remaining payments under the Stock Purchase Agreement to the former owner of
Virginia Honey and the payments per the merger agreement to the former owner of
Halifax will be based on the earnings of Vita Specialty Foods, reflecting the
combined earnings of Halifax and Virginia Honey. There are two periods of
measurement remaining, the first covers January 1, 2003 until December 31, 2005
and the second covers January 1, 2006 until December 31, 2007. See Note 11 under
Notes to the Consolidated Financial Statements for a further discussion on the
earnout payments.
The aggregate amount of long-term debt maturing by year is presented in the
table below.
During 2002, the Company incurred rental expense of approximately $377,000,
primarily due to operating leases for the facilities in Martinsburg, West
Virginia and equipment at the herring and salmon product processing facility in
Chicago, Illinois. As part of the Halifax acquisition, the Company has entered
into a lease agreement with the former owner of the Atlanta facilities, which
involves a commitment of $119,000 in 2003 and $21,000 before expiration in 2004.
Future commitments under all operating leases are presented in the table below.
Also during 2002, in connection with the Halifax acquisition, the Company
acquired the licensing rights to various brand names. In connection with these
rights the Company has assumed the commitment to make minimum royalty payments
under the terms of these licensing agreements. These agreements fully expire in
2004 and the commitments are presented in the table below.
PAYMENTS DUE BY PERIOD
CONTRACTUAL OBLIGATIONS (in thousands)
- ----------------------------------------------------------------------------------------------------------------
2006
AND
TOTAL 2003 2004 2005 BEYOND
----- ---- ---- ---- ------
LONG-TERM DEBT $ 15,716 $ 1,300 $ 6,663 $ 2,219 $ 5,534
CAPITAL LEASES 131 131 0 0 0
OPERATING LEASES 432 391 31 10 0
LICENSING ROYALTIES 372 203 65 104 0
----------------------------------------------------------------
TOTAL CONTRACTUAL OBLIGATIONS $ 16,651 $ 2,025 $ 6,759 $ 2,333 $ 5,534
- ----------------------------------------------------------------------------------------------------------------
The ratio of long-term debt-to-total capitalization was 71% at December 31, 2002
compared to 62% at the prior year-end. The Company believes its financial
resources are adequate to fund its needs for the next twelve months.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operating activities
was $1,857,000 for the year ended December 31, 2002, compared to $3,565,000 for
the year ended December 31, 2001 and a net use of $437,000 for the year ended
December 31, 2000. This positive cash flow for the most recent year is primarily
a result of $2,248,000 provided by net income plus depreciation and $383,000
provided from reduced
14
accounts receivable less $654,000 of cash used to build inventory net of the
associated increase in accounts payable.
The $1,857,000 of cash flow provided through operations for the year ending
December 31, 2002 is $1,708,000 less than the $3,565,000 provided for the year
ending December 31, 2001. This is largely due to the fact that the cash flow
made available in the year ending December 2001, due to the reduction of
inventory net of associated accounts payable, totaled $1,430,000, thus resulting
in a $2,084,000 variance when compared to the net $654,000 of cash used in this
category for the most recent year. This negative variance was partially offset
since the cash flow provided by net income plus depreciation in 2002 exceeded
the prior year total by $462,000 and the cash flow provided by the reduction of
accounts receivable exceeded the prior year total by $258,000.
The $3,565,000 of positive cash flow for the year ending December 31, 2001,
represents a $4,002,000 improvement in cash flow when compared with the year
ended December 31, 2000. This was primarily a result of $683,000 of higher net
income and depreciation and the $3,017,000 improvement resulting from the
$1,433,000 of cash provided from accounts receivable and inventory net of
accounts payable and accruals when compared to the $1,584,000 of cash used to
increase these net asset categories during the year ended December 31, 2000.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities was
$1,490,000, $5,458,000 and $607,000 for the years ended December 31, 2002, 2001
and 2000 respectively. During the most recent year, this cash was used primarily
for capital additions of $1,245,000 and the acquisition of Halifax, net of cash
acquired, totaling $244,000. During the year ended December 31, 2001, $4,641,000
was paid for Virginia Honey, net of cash acquired and $721,000 was invested in
capital additions. The $593,000 of capital expenditures made during the year
ended December 31, 2000, accounts for the majority of that year's investing
activities.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used by financing activities was
$851,000 for the year ended December 31, 2002, compared to cash sources of
$2,408,000 and $1,006,000 for the years ended December 31, 2001, and December
31, 2000 respectively. The most recent year activity includes $117,000 of cash
provided from stock and stock option purchases less $928,000 for the net pay
down of outstanding debt. There was a net pay down of debt during 2002
primarily, as discussed above, due to the cash provided from operations
exceeding the net investing activities. It was necessary for the years ended
December 31, 2001 and 2000 to increase the bank debt since the cash provided
through operations was insufficient to cover the investing activities, most
notably the 2002 acquisition of Virginia Honey.
INFLATION
Inflation has historically not had a material effect on the Company's
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt" and an amendment of that Statement, SFAS No. 64,
"Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." This
Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." This Statement amends SFAS No. 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings or describe their applicability
under changed conditions. The provisions of this Statement are effective for
financial statements on or after May 15, 2002. Management does not believe that
the adoption of this Statement will have a material impact on the Company's
financial statements.
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit of Disposal Activities" ("SFAS 146"). This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
15
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit and Activity (including Certain Costs Incurred in Restructuring)." This
Statement requires that a liability for costs associated with an exit or
disposal activity be recognized and measured initially at fair value only when
the liability is incurred. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002.
Management does not believe that the adoption of this Statement will have a
material impact on the Company's financial statements.
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This Statement amends the transition
and disclosure requirements of FASB Statement No. 123, "Accounting for
Stock-Based Compensation." For most companies, the impact of Statement 148 is
more frequent and prominent disclosure of stock-based compensation expense
beginning with financial statements for fiscal years ending after December 15,
2002. Statement 148 amends existing disclosures that a company should make in
its annual financial statements and requires for the first time, disclosure in
interim financial reports.
In November 2002, FASB Interpretation No. 45 (FIN 45), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Indebtedness of Others" was issued. FIN 45 elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The required disclosures and a roll-forward of
product warranty liabilities are effective for financial statements of interim
or annual periods ending after December 15, 2002. At this time the Company does
not believe that the adoption of this interpretation will have a material effect
on its financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's financial statements reflect the selection and application of
accounting policies that require management to make significant estimates and
assumptions. The Company believes that the following are some of the more
critical judgment area in the application of its accounting policies that
currently affect the Company's financial condition and results of operations.
Preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions affecting the reported amounts of
assets, liabilities, revenues and expenses and related contingent liabilities.
On an on-going basis, the Company evaluates its estimates, including those
related to revenues, returns, bad debts, income taxes and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions.
Revenue is recognized upon shipment of product to customers in fulfillment
of customer orders. In accordance with industry practices, inventory is sold to
customers often with the right to return or dispose if the merchandise is not
sold prior to the expiration of its shelf life. In order to support the
Company's products, various marketing programs are offered to customers which
reimburse them for a portion or all or their promotional activities related to
the Company's products. The Company regularly reviews and revises, when it deems
necessary, estimates of costs to the Company for these marketing and
merchandising programs based on estimates of what has been incurred by
customers. Actual costs incurred by the Company may differ significantly if
factors such as the level and success of the customers' programs or other
conditions differ from expectations. Sales are reduced by a provision for
estimated future returns, disposals and promotional expenses.
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting basis of certain assets and liabilities based upon currently
enacted tax rates expected to be in effect when such amounts are realized or
settled.
16
In 2002, SFAS No. 142, "Goodwill and Other Intangible Assets" became
effective and as a result, the Company assesses the impairment of identifiable
intangibles, and related goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors the Company
considers important, which could trigger an impairment review include the
following:
o Significant underperformance relative to expected historical or
projected future operating results;
o Significant changes in the manner of the Company's use of the acquired
assets or the strategy for the Company's overall business;
o Significant negative industry or economic trends;
o Significant decline in the Company's stock price for a sustained
period; and
o The Company's market capitalization relative to net book value.
When the Company determines that the carrying value of intangibles, long-lived
assets and related goodwill may not be recoverable based upon the existence of
one or more of the above indicators of impairment, the Company will review for
impairment under the provisions of SFAS 142.
The provisions of SFAS 142 also required the completion of transitional
impairment test for goodwill and indefinite lived assets within 12 months of
adoption, with any impairment treated as a cumulative effect of change in
accounting principle. During the second quarter of 2002, the Company completed
the transitional impairment test, which did not result in impairment of recorded
goodwill.
During the fourth quarter, the Company completed its annual impairment test,
which did not result in impairment of recorded goodwill.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has a revolving line of credit with a bank, which bears
interest at the prime rate minus 0.35% (3.90% at December 31, 2002) or LIBOR
plus 2.40% (3.82% at December 31, 2002). This rate adjustment remains constant
from July 31, 2002, the date of the First Amendment to the Amended and Restated
Loan and Security Agreement, until April 1, 2003. Commencing on April 1, 2003
the interest rate is based upon certain financial covenants and may range from
prime minus 0.10% to prime minus 0.60% or LIBOR plus 2.65% to LIBOR plus 2.15%.
In addition, the Company has two term loan facilities, which bear interest at
the prime rate minus 0.05% (4.20% at December 31, 2002) or LIBOR plus 2.75%
(loan 1 - 4.15% and loan 2 - 4.16% at December 31, 2002) until April 1, 2003.
Commencing on April 1,2003 the interest rate is based on certain financial
covenants, which may range from prime plus 0.20% to prime minus 0.30% or LIBOR
plus 3.10% to LIBOR plus 2.45%. A 10% fluctuation in interest rates would not
have a material impact on the Company's financial statements.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K, including "Description of Business,"
"Description of Property," "Legal Proceedings" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains
forward-looking statements within the meaning of the "safe-harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Such statements are based
on management's current expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. Such factors and uncertainties
include, but are not limited to: (i) the impact of the level of the Company's
indebtedness; (ii) restrictive covenants contained in the Company's various debt
documents; (iii) general economic conditions and conditions in the retail
environment; (iv) the Company's dependence on a few large customers; (v) price
fluctuations in the raw materials used by the Company, particularly herring and
salmon; (vi) competitive conditions in the Company's markets; (vii) the seasonal
nature of the Company's business; (viii) the Company's ability to execute its
acquisition strategy; (ix) fluctuations in the stock market; (x) the extent to
which the Company is able to retain and attract key personnel; (xi)
relationships with retailers; (xii) relationships with key vendors; (xiii)
consolidation of the Company's supplier base; (xiv) successful integration of
Virginia Honey and Halifax and (xv) the impact of federal, state and local
environmental requirements (including the impact of current or future
environmental claims against the Company). As a result, the Company's operating
results may fluctuate, especially when measured on a quarterly basis.
The Company's business strategy contemplates that the Company will pursue
potential acquisitions. The Company currently has no agreements or
understandings with respect to any acquisitions and there can
17
be no assurance that the Company will be successful in pursuing other potential
acquisitions. However, the costs associated with this strategy, means of
financing any potential acquisitions, and consummation and integration of any
potential acquisitions could significantly impact the Company's financial and
operating performance.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Listed below are the financial statements included in this part of the
Annual Report on Form 10-K:
(a) Consolidated Financial Statements Page No.
--------------------------------- --------
Report of Independent
Certified Public Accountants 19
Consolidated Balance Sheets at December 31, 2002
and at December 31, 2001 20
Consolidated Statements of Income for the years
Ended December 31, 2002, 2001 and 2000 21
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 2002, 2001 and 2000 21
Consolidated Statements of Cash Flow for the years
Ended December 31, 2002, 2001 and 2000 22
Notes to Consolidated Financial Statements 23-38
Schedule I - Valuation and Qualifying Accounts 39
18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Vita Food Products, Inc.
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Vita Food
Products, Inc. and Subsidiary, as of December 31, 2002 and 2001, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2002. We have also audited
the schedule listed in the accompanying index. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements and schedule. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vita Food Products,
Inc. and Subsidiary, at December 31, 2002 and 2001, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States.
Also in our opinion, the schedule presents fairly, in all material respects, the
information set forth therein.
BDO Seidman, LLP
Chicago, Illinois
February 14, 2003
19
VITA FOOD PRODUCTS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------
December 31, 2002 2001
- ----------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 46,097 $ 529,354
Accounts receivable - trade, net of allowance for discounts,
returns and doubtful accounts of $277,000 in 2002
and $209,000 in 2001 5,325,254 4,859,224
Inventories
Raw material and supplies 4,570,782 2,553,473
Work in process 162,325 115,691
Finished goods 2,006,554 1,826,453
Prepaid expenses and other current assets 337,278 306,716
Income tax receivable 174,318 --
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 12,622,608 10,190,911
- ------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 35,000 35,000
Building and improvements 2,452,260 2,041,304
Leasehold improvements 706,181 270,240
Machinery and office equipment 8,674,011 7,323,451
- ------------------------------------------------------------------------------------------------------------------
11,867,452 9,669,995
Less accumulated depreciation and amortization (6,030,037) (5,295,43)
- ------------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 5,837,415 4,374,558
- ------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill 7,565,821 5,238,895
Other assets 303,648 263,596
Deferred income taxes 212,696 --
- ------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 8,082,165 5,502,491
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 26,542,188 $ 20,067,960
==================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 1,430,933 $ 5,198,198
Accounts payable 3,583,391 2,477,282
Accrued other expenses 1,119,116 798,425
Deferred income taxes -- 52,304
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 6,133,440 8,526,209
LONG-TERM OBLIGATIONS, less current maturities 14,415,776 7,112,008
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized 1,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized 10,000,000 shares; issued and
outstanding 3,773,895 shares in 2002 and 3,729,683 shares in 2001 37,738 37,296
Additional paid-in capital 3,496,483 3,379,931
Retained earnings 2,458,751 1,012,516
- ------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 5,992,972 4,429,743
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $26,542,188 $20,067,960
==================================================================================================================
See accompanying notes to consolidated financial statements.
20
VITA FOOD PRODUCTS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------
Year ended December 31, 2002 2001 2000
- -----------------------------------------------------------------------------------------------
NET SALES $ 42,862,746 $ 31,981,733 $ 25,127,389
COST OF GOODS SOLD 29,531,009 21,980,299 17,929,353
- -----------------------------------------------------------------------------------------------
Gross margin 13,331,737 10,001,434 7,198,036
SELLING AND ADMINISTRATIVE EXPENSES
Selling, marketing and distribution 6,483,715 5,057,905 4,093,422
Administrative 3,933,045 2,844,391 2,000,244
- -----------------------------------------------------------------------------------------------
Total 10,416,760 7,902,296 6,093,666
- -----------------------------------------------------------------------------------------------
OPERATING PROFIT 2,914,977 2,099,138 1,104,370
OTHER (INCOME) EXPENSE
Interest income (441) (657) (--)
Interest expense 602,183 561,827 401,957
- -----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE (BENEFIT) 2,313,235 1,537,968 702,413
INCOME TAX EXPENSE (BENEFIT) 867,000 381,839 (20,000)
- -----------------------------------------------------------------------------------------------
Net income $ 1,446,235 $ 1,156,129 $ 722,413
===============================================================================================
BASIC EARNINGS PER SHARE $ 0.39 $ 0.31 $ 0.19
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,750,176 3,725,420 3,716,818
DILUTED EARNINGS PER SHARE $ 0.38 $ 0.31 $ 0.19
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,854,462 3,753,780 3,728,631
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Additional Retained
Paid-in Earnings
Shares Amount Capital (Deficit) Total
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, at January 1, 2000 3,712,471 $ 37,124 $ 3,359,800 $ (866,026) $ 2,530,898
Proceeds from stock purchase and stock
option plans 12,075 120 13,106 13,226
Net income 722,413 722,413
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 2000 3,724,546 37,244 3,372,906 (143,613) 3,266,537
Proceeds from stock purchase and stock
option plans 5,137 52 7,025 7,077
Net income 1,156,129 1,156,129
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 2001 3,729,683 37,296 3,379,931 1,012,516 4,429,743
Proceeds from stock purchase and stock
option plans 44,212 442 116,552 116,994
Net income 1,446,235 1,446,235
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 2002 3,773,895 $ 37,738 $ 3,496,483 $ 2,458,751 $ 5,992,972
=======================================================================================================================
See accompanying notes to consolidated financial statements.
21
VITA FOOD PRODUCTS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,446,235 $ 1,156,129 $ 722,413
Adjustments to reconcile net income to net cash provided by (used in)
operating activities
Depreciation and amortization 802,121 630,423 381,131
Changes in assets and liabilities net of effects from purchase of
subsidiary
Decrease (increase) in accounts receivable 382,793 124,555 (583,727)
Decrease (increase) in deferred income tax asset (168,318) 207,484 (20,000)
Decrease (increase) in inventories (1,305,668) 2,416,184 (802,630)
Decrease in prepaid expenses and other current assets 52,297 20,040 63,516
(Decrease) increase in accounts payable 651,639 (986,344) 120,021
Decrease in accrued expenses (141,910) (121,010) (317,818)
Increase in deferred income tax liability 138,000 118,000 --
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,857,189 3,565,461 (437,094)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,245,432) (721,620) (593,178)
Payments for subsidiary net of cash acquired (243,531) (4,641,49) --
Other assets (703) (7,307) (13,934)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,489,666) (5,458,35) (607,112)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock purchase and stock option plans 116,994 7,077 13,226
Net borrowings (payments) under revolving loan facility 1,404,242 (1,628,00) 1,606,278
Net (payments on) term loan facility (4,525,111) (1,409,65) (225,910)
Proceeds from new term loan 2,300,000 5,555,000 --
Payments under capital lease obligations (107,240) (116,649) (106,712)
Amortizable loan costs (39,665) (87,928) --
Payments of other debt obligations -- -- (280,750)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (850,780) 2,407,769 1,006,132
- ----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (483,257) 514,880 (38,074)
CASH, at beginning of year 529,354 14,474 52,548
- ----------------------------------------------------------------------------------------------------------------------------
CASH, at end of year $ 46,097 $ 529,354 $ 14,474
============================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 600,587 $ 671,060 $ 350,212
Income taxes 1,014,900 -- --
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations -- -- 61,232
Additional purchase price payable related to the Virginia Honey
Company acquisition (Note3) 764,765 -- --
See accompanying notes to consolidated financial statements.
22
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies utilized in the preparation
of the accompanying financial statements follows.
INDUSTRY
The Company processes and sells various herring, and cured and smoked salmon
products and other complementary specialty food products throughout the
United States. The Vita Specialty Foods subsidiary manufactures and
distributes salad dressings, gourmet sauces, honey, jams and jellies. The
Company considers the products and related operations of Vita Specialty
Foods as a separate business segment.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Vita Food
Products, Inc. and its wholly owned subsidiary, Vita Specialty Foods. Vita
Specialty Foods includes Virginia Honey commencing on July 1, 2001, the
effective date of this acquisition and Halifax, commencing on November 1,
2002, the effective date of this acquisition. All significant intercompany
transactions and balances have been eliminated.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable. The Company primarily provides credit in the normal course of
business. The Company performs ongoing credit evaluations of its customers
and maintains allowances for potential credit losses, if necessary.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product to customers in fulfillment
of customer orders.
MERCHANDISE RETURNS
In accordance with industry practices, inventory is sold to customers often
with the right to return or dispose if the merchandise is not sold prior to
the expiration of its shelf life. Sales are reduced by a provision for
estimated future returns and disposals.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are customer obligations due under normal trade terms.
The Company sells products to distributors and retailers throughout the food
industry. The Company performs continuing credit evaluations of its
customers' financial condition.
Senior management reviews accounts receivable on a regular basis to
determine if any receivables will potentially be uncollectable. The Company
provides an allowance sufficient to cover any accounts receivable balances
that are potentially uncollectable, along with a general risk factor. After
attempts to collect the receivable have failed and it is considered to be
uncollectable it is written off against the allowance. Based on the
information available, the Company believes the allowance for doubtful
accounts as of December 31, 2002 to be adequate and not excessive. However,
it is still possible that in the future, actual write offs may exceed the
recorded balance.
23
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories are stated at the lower of cost or market. Costs are determined
by the first-in, first-out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are being provided, on straight-line methods, over the
estimated useful lives of the assets. Leasehold improvements are being
amortized on a straight-line basis over the lives of the respective leases
or the service lives of the improvements whichever is shorter. Amortization
of assets under capital lease is included in depreciation and amortization.
Repair and maintenance items are expensed as incurred.
LONG-LIVED ASSETS
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. Any long-lived assets held for disposal are reported at the
lower of their carrying amounts or fair value less cost to sell. As of
December 31, 2002 there has been no impairment of long-lived assets.
GOODWILL
On January 1, 2002, the Company adopted SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"), which addresses the financial accounting
and reporting standards for goodwill and other intangible assets subsequent
to their acquisition. This accounting standard requires that goodwill no
longer be amortized, and instead be tested for impairment on a periodic
basis.
The provision of SFAS 142 requires the completion of a transitional
impairment test within 12 months of adoption, with any impairment treated as
a cumulative effect of change in accounting principle. During the second
quarter of 2002, the Company completed the transitional impairment test,
which did not result in impairment of recorded goodwill. During the fourth
quarter, the Company completed its annual impairment test, which did not
result in impairment of recorded goodwill.
The Company's acquisition of Virginia Honey was accounted for under SFAS
141, "Business Combinations". Accordingly, the Company did not have goodwill
amortization expense in 2001 relating to this acquisition.
The changes in the carrying amount of goodwill for the years ended December
31, 2002 and 2001 are as follows:
Balance as of January 1, 2001 $ 0
Goodwill acquired during the year 5,238,895
----------
Balance as of December 31, 2001 5,238,895
Goodwill acquired during the year 1,562,161
Additional purchase price payable related to
Virginia Honey acquisition 764,765
----------
Balance as of December 31, 2002 $7,565,821
ESTIMATES
The accompanying financial statements include estimated amounts and
disclosures based on management's assumptions about future events. Actual
results may differ from those estimates.
24
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ADVERTISING
Advertising costs are expensed as incurred and included in selling and
marketing expenses and distribution expenses. Advertising expenses amounted
to approximately $370,000, $343,000 and $347,000 in 2002, 2001 and 2000,
respectively.
SHIPPING AND HANDLING FEES
The Company classifies shipping and handling costs billed to customers as
revenue. Costs related to shipping are classified as part of selling,
marketing and distribution.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting basis of certain assets and liabilities based upon
currently enacted tax rates expected to be in effect when such amounts are
realized or settled.
BASIC AND DILUTED EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding.
Diluted earnings per share follows the computation of basic earnings per
share and gives effect to all dilutive potential common shares that were
outstanding during the year.
The following is a reconciliation from basic earnings per share to diluted
earnings per share for each of the last three years:
Weighted
Average
Net Shares Earnings
Income Outstanding Per share
----------------------------------------------------------------------------
2002
Basic $1,446,235 3,750,176 $ 0.39
Effect of dilution:
Stock options 104,286
----------------------------------------------------------------------------
Diluted $1,446,235 3,854,462 $ 0.38
----------------------------------------------------------------------------
2001
Basic $1,156,129 3,725,420 $ 0.31
Effect of dilution:
Stock options 28,360
----------------------------------------------------------------------------
Diluted $1,156,129 3,753,780 $ 0.31
----------------------------------------------------------------------------
2000
Basic $ 722,413 3,716,818 $ 0.19
Effect of dilution:
Stock options 11,813
----------------------------------------------------------------------------
Diluted $ 722,413 3,728,631 $ 0.19
----------------------------------------------------------------------------
ACCOUNTING FOR STOCK BASED CONSIDERATION
The Company applies the intrinsic value method under APB Opinion 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its 1996 Stock Option Plan, 1996
Stock Option Plan for Non-Employee Directors and 1996 Employee Stock
Purchase Plan, as the market price of the stock did not exceed the exercise
price of the options on the measurement date.
25
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has elected to continue to utilize the accounting provisions of
APB 25 for stock options, and is required to provide proforma disclosures of
net income and earnings per share had the Company adopted the fair value
method under SFAS No. 123. The weighted-average, grant date fair value of
stock options granted to employees during the year and the weighted-average
significant assumptions used to determine those fair values, using a
modified Black-Sholes option pricing model, and the pro forma effect on
earnings of the fair value accounting for stock options under Statement of
Financial Accounting Standards No. 123, are as follows:
2002 2001 2000
-----------------------------------------------------------------------------------------------------------
Weighted average fair value per options granted $ 2.92 $ 1.59 $ 1.17
Significant assumptions (weighted average)
Risk-free interest rate at grant date 4.4% 5.1% 5.8%
Expected stock price volatility 0.74 0.75 0.75
Expected dividend payout - - -
Expected option life (years) 5 5 5
Net Income
As reported $ 1,446,235 $ 1,156,129 $ 722,413
Deduct total stock based compensation expense
determined under the fair value method (267,592) (52,863) (37,920)
-------------------------------------------------
Pro forma $ 1,178,643 $ 1,103,266 $ 684,493
=================================================
Basic earnings per share
As reported $ 0.39 $ 0.31 $ 0.19
Pro forma $ 0.31 $ 0.30 $ 0.18
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. This Statement rescinds SFAS No. 4, "Reporting Gains
and Losses from Extinguishment of Debt" and an amendment of that Statement,
SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund
Requirements." This Statement also rescinds SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers." This Statement amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed conditions. The
provisions of this Statement are effective for financial statements on or
after May 15, 2002. Management does not believe that the adoption of this
Statement will have a material impact on the Company's financial statements.
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit of Disposal Activities" ("SFAS 146"). This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit and Activity (including Certain Costs Incurred in
Restructuring)." This Statement requires that a liability for costs
associated with an exit or disposal activity be recognized and measured
initially at fair value only
26
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
when the liability is incurred. The provisions of this Statement are
effective for exit or disposal activities that are initiated after December
31, 2002. Management does not believe that the adoption of this Statement
will have a material impact on the Company's financial statements.
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This Statement amends the
transition and disclosure requirements of FASB Statement No. 123,
"Accounting for Stock-Based Compensation." For most companies, the impact of
Statement 148 is more frequent and prominent disclosure of stock-based
compensation expense beginning with financial statements for fiscal years
ending after December 15, 2002. Statement 148 amends existing disclosures
that a company should make in its annual financial statements and requires
for the first time, disclosure in interim financial reports.
In November 2002, FASB Interpretation No. 45 (FIN 45), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Indebtedness of Others" was issued. FIN 45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The required
disclosures and a roll-forward of product warranty liabilities are effective
for financial statements of interim or annual periods ending after December
15, 2002. At this time the Company does not believe that the adoption of
this interpretation will have a material effect on its financial statements.
2. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, 2002 2001
- --------------------------------------------------------------------------------
$ $
Accrued interest 52,361 56,436
Accrued salaries and bonuses 673,976 467,904
Other taxes 49,448 46,745
Income taxes - 97,745
Utilities, freight and other 343,331 129,595
- --------------------------------------------------------------------------------
$ 1,119,116 $ 798,425
================================================================================
27
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
December 31, 2002 2001
- -------------------------------------------------------------------------------------------------------------
Revolving loan facility, expired July 31, 2002. Interest fluctuated
and was 4.7% at December 31, 2001. (a) $ - $ 3,955,212
Revolving loan facility, expires July 31, 2004. Interest fluctuates
and was 3.84% at December 31, 2002. (a) 5,359,453 -
Term loan facility payable in monthly installments, matures July 31,
2006. Interest fluctuates and was 4.15% at December 31, 2002. (a) 4,164,333 5,194,832
Term loan-B payable in monthly installments, matures November 30, 2005.
Interest fluctuates and was 4.16% at December 31, 2002 (a) 2,241,667 -
Term loan payable in monthly installments of $24,760, including interest
through 2018, interest is 7.0% (b) 2,814,131 2,910,568
Additional purchase price payable related to The Virginia Honey Company
acquisition (c) 764,765 -
Robert J. Budd Note (d) 305,208 -
Capitalized lease obligations 131,030 189,320
Other notes payable 66,122 60,274
- -------------------------------------------------------------------------------------------------------------
15,846,709 12,310,206
Less current maturities 1,430,933 5,198,198
- -------------------------------------------------------------------------------------------------------------
$ 14,415,776 $ 7,112,008
=============================================================================================================
(a) The Company entered into an Amended and Restated Loan and Security Agreement
(the "Loan") with a bank on November 6, 2002 which consisted of an
$8,500,000 revolving loan facility and two term loan facilities totaling
$7,855,000. Borrowings under the revolving loan are limited to 80% of
eligible receivables and 60% of eligible inventory, as such terms are
defined in the Loan. The revolving loan facility matures July 31, 2004. The
term loans are payable in monthly installments totaling $98,375 through
November 30, 2005, $40,042 from December 1, 2005 through July 31, 2006, and
balloon payments of $258,333 on November 11, 2005 and $2,443,000 on July 31,
2006. The loans are collateralized by all of the assets of the Company.
Interest under the Loan is payable monthly. The interest rates fluctuate
based on the Funded Debt to Adjusted EBITDA ratio, as each such term is
defined in the Loan. The revolving loan facility bears interest at rates
ranging from LIBOR plus 2.65% to LIBOR plus 2.15%, or prime minus 0.10% to
prime minus 0.60%. Similarly, the term loan facility bears interest ranging
from LIBOR plus 3.10% to LIBOR plus 2.45%, or prime plus 0.20% to prime
minus 0.30%. At December 31, 2002, a portion of the revolving loan facility
bore interest at the prime rate (4.25%) minus 0.35% and another portion at
LIBOR (1.42%) plus 2.40%. At that date, the term loan facilities had a
portion bearing interest at the prime rate (4.25%) minus 0.05% and the
remainder split into two loans with one bearing interest at a LIBOR rate of
1.40% plus 2.75% and the second with a LIBOR rate of 1.41% plus 2.75%.
The Loan imposes certain restrictions upon the Company including capital
expenditures and payment of dividends, and requires the Company to maintain
certain financial covenants and ratios, including Tangible Net Worth and
EBITDA to Total Debt Service, as each such term is defined in the Loan. At
December 31, 2002 and December 31, 2001, the Company was in compliance with
these covenants.
28
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) As part of the acquisition agreement for Virginia Honey the Company assumed
a 7.0% note payable to a former Virginia Honey shareholder. At December 31,
2002 the balance due was $2,814,131. This note is payable in monthly
installments through 2018.
(c) The Stock Purchase Agreement, including its Amendments, for Virginia Honey
provides for future payments to the former owner based upon 20% of five
times the average quarterly EBITDA less certain debt obligations of Virginia
Honey, for the period from January 2001 through December 31, 2002. The
present value of this calculation resulted in $764,765, and has been
recorded as a liability at December 31, 2002. The payment is due to be paid
on April 1, 2005. The remaining payments under the Stock Purchase Agreement
to the former owner of Virginia Honey and the payments per the merger
agreement to the former owner of Halifax will be based on the earnings of
Vita Specialty Foods, the combined earnings of Halifax and Virginia Honey.
There are two periods of measurement remaining, the first covers January 1,
2003 until December 31, 2005 and the second covers January 1, 2006 until
December 31, 2007. See Note 11 under Notes to the Consolidated Financial
Statements for a further discussion on the earnout payments.
(d) The merger agreement with Halifax provides that, as part of the acquisition
price, the balance of a note due to the former owner by the acquired
organization will be repaid to that individual by the Company on April 1,
2006. No interest accrues on this debt. See Note 11 below for further
discussion of this merger agreement.
Scheduled annual maturities of long-term obligations as of December 31, 2002 are
as follows:
Year ending December 31,
----------------------------------------------------------------------------
2003 $ 1,430,933
2004 6,663,132
2005 2,218,903
2006 3,167,893
2007 149,491
2008 and subsequent 2,216,387
----------------------------------------------------------------------------
$ 15,846,709
============================================================================
The Company leases certain equipment under capitalized lease agreements. The
leases are non-cancelable and expire in 2003. The following is a schedule of
future minimum payments under the capital leases as of December 31, 2002,
together with the present value of net minimum lease payments:
Year ending December 31,
----------------------------------------------------------------------------
2003 $ 141,884
----------------------------------------------------------------------------
Net minimum lease payments 141,884
Less amount representing interest 10,854
----------------------------------------------------------------------------
Present value of net minimum lease payments $ 131,030
============================================================================
29
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The equipment, which is leased under the capitalized lease agreements and
classified as machinery and office equipment in the accompanying balance
sheets, is as follows:
December 31, 2002 2001
----------------------------------------------------------------------------
Cost $ 514,718 $ 546,510
Accumulated depreciation (160,104) (183,952)
----------------------------------------------------------------------------
$ 354,614 $ 362,558
----------------------------------------------------------------------------
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax
effects of existing temporary differences that give rise to significant
portions of the net deferred tax asset (liability) are as follows:
December 31, 2002 2001
----------------------------------------------------------------------------
Deferred tax asset (liability)
Uniform inventory capitalization $ 90,000 $ 74,000
Accrued liabilities 177,000 9,000
Empowerment credit - 92,000
Contributions carryover 23,000 17,000
Net operating loss carryforwards 791,000 -
----------------------------------------------------------------------------
1,081,000 192,000
Deferred tax liability
Depreciation (344,000) (244,304)
----------------------------------------------------------------------------
737,000 (52,304)
Less valuation allowance (524,304) -
----------------------------------------------------------------------------
Net deferred tax asset (liability) $ 212,696 $ (52,304)
============================================================================
The valuation allowance of $524,304 relates to the net operating loss
carryforward acquired in the Halifax acquisition (Note 11).
Income taxes at December 31, 2002, 2001 and 2000 consist of the following:
December 31, 2002 2001 2000
----------------------------------------------------------------------------
Current $ 729,000 $ 56,839 $ -
Deferred 138,000 506,000 308,000
Adjustment of valuation allowance - (181,000) (328,000)
----------------------------------------------------------------------------
Income tax expense (benefit) $ 867,000 $ 381,839 $ (20,000)
============================================================================
30
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation of income tax computed at the United States federal
statutory tax rate of 34% to income tax expense (benefit) is as follows:
Year ended December 31, 2002 2001 2000
----------------------------------------------------------------------------
Tax at federal statutory rate $ 786,000 $ 523,000 $ 239,000
Change in deferred tax valuation
allowance - (181,000) (328,000)
Other 81,000 39,839 69,000
----------------------------------------------------------------------------
Income tax expense (benefit) $ 867,000 $ 381,839 $ (20,000)
============================================================================
During 2001 and 2000 the Company recognized the benefit of net operating
loss carryforwards of $535,000 and $214,000, respectively.
5. COMMITMENTS AND CONTINGENCIES
A. In the ordinary course of business, the Company enters into purchase
commitments for raw materials and does not anticipate any losses. The
Company purchases a majority of its herring from one supplier. The Company's
former agreement with the supplier provided that the supplier had an option
to supply up to 90% of the Company's annual requirements for herring,
provided that the supplier agrees to supply the herring at competitive
prices. The agreement was terminated in 2002, however, the Company continues
to purchase from the supplier at competitive prices and has other supply
sources should the supplier's prices cease to be competitive.
B. In the ordinary course of business, the Company becomes involved in
litigation as a defendant in various lawsuits. In the opinion of management,
after considering the advice of counsel, the ultimate resolution of these
legal proceedings will not have a material effect on the financial
statements taken as a whole and thus no provision has been made in the
financial statements for any loss contingencies.
C. The Company leases its Virginia Honey warehouses from a former owner of
Virginia Honey, who is now an officer of Vita Specialty Foods, under two
leases that expire in 2003. The Company has the right to renew the leases
for four successive five-year terms. Future payments under these leases
amount to approximately $290,000 for the year ending 2003. Since July 1,
2001, the effective date of the acquisition, rent expense under these
agreements totaled $153,000 and $306,000 in 2001 and 2002, respectively.
D. The Company leases its Halifax warehouses from a former owner of Halifax,
who is now an officer of Vita Specialty Foods, under two leases, one that
expires at the end of 2003 while the other expires in the first quarter of
2004. Future payments under these leases amount to approximately $119,000
and $21,000 for the years ending 2003 and 2004, respectively. The Company is
seeking to consolidate the operations of Halifax with Virginia Honey's
operations and believes these leases will not be renewed.
6. EMPLOYEE BENEFIT PLANS
The Company has established a qualified, 401(k), profit sharing plan
covering its non-union employees. Participants may elect to defer a portion
of annual compensation. The Company may contribute amounts at the discretion
of the board of directors.
The Company expensed 401(k) matching contributions of $59,000, $29,000 and
$14,000 in 2002, 2001 and 2000, respectively.
31
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, the Company participates in two multi-employer plans that
provide benefits to the Company's union employees. Contributions to the
plans for the years ended December 31, 2002, 2001 and 2000 were $31,000,
$31,000 and $34,000, respectively.
7. MAJOR CUSTOMER
In the year ending December 31, 2002, the Company had sales to one customer
representing 19% and sales to another customer representing 12% of total
annual net sales. At December 31, 2002, these customers had open accounts
receivable balances of $1,016,000 and $634,000 respectively. At December 31,
2001 the Company had sales to one customer representing 12% of total annual
net sales; this customer had an open accounts receivable balance of
$712,000. In 2000, the Company had sales to a different customer
representing 10% of total annual net sales, and at December 31, 2000, that
customer had an open accounts receivable balance of $335,000.
8. CAPITAL
On September 11, 1996, the Company adopted the Vita Food Products, Inc. 1996
Stock Option Plan pursuant to which 325,000 shares of common stock have been
reserved for issuance upon the exercise of options designated as either an
"incentive stock option" or as a "nonqualified stock option." These options
vest at 20% per year and may be granted to employees or other constituencies
of the Company, including members of the board of directors who are
employees. On September 11, 1996, the Company also adopted the Vita Food
Products, Inc. 1996 Stock Option Plan for Non-Employee Directors. The plan
was amended and restated in 2000 to provide for 175,000 shares of common
stock to be reserved for issuance upon the exercise of options designated as
a "nonqualified stock option." These options become fully vested six months
after issuance and may be granted to directors who are not employees of the
Company. Generally, options are exercisable for a period of ten years from
the date of grant. Further, in September 1996, the Company adopted the 1996
Employee Stock Purchase Plan pursuant to which 150,000 shares of common
stock have been reserved for issuance.
Information with respect to the stock option plans follows:
Year ended December 31, 2002 2001 2000
---------------------------------------------------------------------------------
Options outstanding at beginning of year 221,500 168,500 208,000
Options granted 157,000 58,500 59,000
Options exercised 40,800 2,500 7,000
Options forfeited 9,200 3,000 91,500
----------------------------------------------------------------------------------
Options outstanding at end of year 328,500 221,500 168,500
==================================================================================
Weighted average remaining contractual life 8.0 YRS. 7.5 yrs. 7.9 yrs.
Options exercisable 150,400 147,400 114,600
==================================================================================
Option prices per share granted $4.00-$6.00 $1.50-$2.75 $1.50-$1.875
==================================================================================
32
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted Average Exercise Price
----------------------------------------------------------
January 1, 2000 $2.38
December 31, 2000 $2.60
Exercised $1.03
Exercisable $2.60
Forfeited $1.69
----------------------------------------------------------
December 31, 2001 $2.53
Exercised $1.50
Exercisable $2.52
Forfeited $3.50
----------------------------------------------------------
December 31, 2002 $3.42
Exercised $2.58
Exercisable $2.75
Forfeited $3.49
==========================================================
9. EMPLOYMENT CONTRACTS
The Company has employment agreements with two officers of the Company,
extending through December 2003. Under the terms of these agreements, the
officers are entitled to be paid a salary of $240,030 annually (adjusted
annually for increases of at least the cost of living index), plus bonuses,
if any, and certain perquisites.
The Company entered into an employment agreement with an officer of Virginia
Honey in conjunction with the purchase of Virginia Honey. The agreement
extends to December 31, 2004 and calls for the officer to receive a salary
of $300,000 per year with, at the sole discretion of Virginia Honey's board
of directors, a maximum raise equal to the percentage increase in the cost
of living index. In addition, the Company entered into an employment
agreement with an officer of Halifax in conjunction with the purchase of
Halifax. The agreement extends to December 31, 2007 and calls for the
officer to receive a salary of $242,500 per year with a 3% per year increase
starting January 1, 2004.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable and
short-term debt approximates fair value due to the short-term nature of
these instruments. The fair value of the Company's notes payable, and
capital lease obligations is based on rates currently available for debt
with similar terms and maturities from the bank issuing the Loan discussed
in Note 3.
11. ACQUISITIONS
THE VIRGINIA HONEY COMPANY, INC.
Effective July 1, 2001 Vita acquired 100% of the outstanding shares of
capital stock of Virginia Honey from Terry W. Hess. The results of Virginia
Honey have been included in the Company's consolidated financial statements
since the effective date. Virginia Honey is a manufacturer and distributor
of honey, salad dressings, sauces, jams and jellies and gift baskets. As a
result of the acquisition, the Company is leveraging its sales and
distribution network to provide national exposure to the products of
Virginia Honey. The Company also expects to introduce products that will be
jointly developed, thereby increasing the market presence of Vita and
Virginia Honey.
33
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate purchase price, including direct costs of the acquisition, of
$4,884,437 was paid in cash. The Stock Purchase Agreement, including its
Amendments, for Virginia Honey provides for future payments to the former
owner based upon 20% of five times the average quarterly EBITDA less certain
debt obligations of Virginia Honey, for the period from January 2001 through
December 31, 2002. The present value of this calculation resulted in
$764,765, and has been recorded as a liability at December 31, 2002 and, as
discussed in Note 3 above, is payable on April 1, 2005. The remaining
payments under the Stock Purchase Agreement to the former owner of Virginia
Honey and the payments per the merger agreement to the former owner of
Halifax will be based on the earnings of Vita Specialty Foods, the combined
earnings of Halifax and Virginia Honey. There are two periods of measurement
remaining, the first covers January 1, 2003 until December 31, 2005 and the
second covers January 1, 2006 until December 31, 2007.
As a result of the Halifax merger agreement discussed below, the operations
of Virginia Honey and Halifax have been merged effective November 1, 2002.
Accordingly, EBITDA applicable to the future contingent payments due to Mr.
Hess will be determined based upon a formula included as part of that merger
agreement. Should Virginia Honey maintain its current profitability levels,
the Company estimates that total remaining payments, with a net present
value of approximately $1.1 million, would be due and payable as contingent
consideration in accordance with the provisions of the Stock Purchase
Agreement. The following table summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition:
AT JUNE 30, 2001
(in 000's)
----------------------------------------------------
Current assets, including cash of $243 $3,724
Property, plant and equipment 1,219
Other assets 72
Goodwill 5,239
-----------------------------------------------------
Total assets acquired 10,254
Current liabilities (1,777)
Long-term debt (3,593)
-----------------------------------------------------
Total liabilities assumed (4,859)
-----------------------------------------------------
Net assets acquired $4,884
=====================================================
None of the amount of goodwill is expected to be deductible for tax
purposes.
The unaudited consolidated results of operation on a pro forma basis as
though Virginia Honey had been acquired as of the beginning of 2000 are as
follows ($000's except earnings per share data):
Twelve months ended December 31, 2001 2000
--------------------------------------------------------------
Net sales $ 38,452 $ 36,834
Net income $ 1,547 $ 1,630
Basic earnings per share $ 0.42 $ 0.44
Diluted earnings per share $ 0.41 $ 0.44
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Virginia Honey
acquisition been consummated as of the above dates, nor are they indicative
of future operating results.
34
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE HALIFAX GROUP, INC.
Effective November 1, 2002, Vita Food Products, Inc. acquired all of the
issued and outstanding shares of capital stock of Halifax, a Georgia
corporation, from Robert J. Budd and certain affiliates or associates of Mr.
Budd. Since the effective date, the results of Halifax have been fully
integrated with the results of Virginia Honey. This merger of Halifax and
Virginia Honey has resulted in a new subsidiary named Vita Specialty Foods.
Halifax is a manufacturer and distributor of licensed brand-named sauces,
marinades, salad dressings, various gourmet products and branded gift items,
many of which are similar to those of Virginia Honey. The Company expects to
enjoy both market synergies and production efficiencies as a result of this
merger.
On the November 6, 2002 closing date, as a direct cost of the acquisition,
the Company paid cash of $450,000 to Mr. Budd in partial payment of the
$795,781 preexisting debt owed to him by Halifax. The discounted value of
the remaining debt has been recorded by the Company as a long-term
obligation as discussed in Note 3 above. The Company also assigned to Mr.
Budd any potential rights or exposure associated with an unresolved legal
case involving Halifax, the actual dollar amount of which is indeterminable
at this time. The merger agreement further provides for two future
contingent payments to Mr. Budd. The first will be based upon 45% of five
times the Halifax portion of Vita Specialty Food's average quarterly EBITDA.
The agreement includes a formula that allocates EBITDA between Halifax and
Virginia Honey, based on the proportion of each unit's products sold.
This EBITDA will be averaged quarterly for calendar years 2003 through 2005.
This first contingent payment will be reduced by the remaining balance of
the preexisting debt discussed above. The second contingent payment will be
determined the same way except the percent will be reduced from 45% to 30%
and will be based upon the calendar years 2006 and 2007. If payable, the
first payment will be paid on or before April 1, 2006 and the second will be
paid on or before April 1, 2008 and both will be recorded as additional
acquisition costs. Should Vita Specialty Foods maintain its current
profitability levels, the Company estimates that the total remaining
payments, with a net present value of approximately $700,000, would be due
and payable as contingent consideration in accordance with the provisions of
the merger agreement. The following table summarizes the fair values of the
assets acquired and the liabilities assumed at the date of acquisition:
AT NOVEMBER 1, 2002
(in 000's)
------------------------------------------------------
Current assets $1,815
Property, plant and equipment 982
Other assets 560
Goodwill 1,562
------------------------------------------------------
Total assets acquired 4,919
Current liabilities (3,670)
Long-term debt (1,005)
------------------------------------------------------
Total liabilities assumed (4,675)
------------------------------------------------------
Net assets acquired $244
======================================================
None of the amount of goodwill is expected to be deductible for tax
purposes.
The unaudited consolidated results of operation on a pro forma basis as
though Halifax had been acquired as of the beginning of 2001 are as follows
($000's except earnings per share data):
Twelve months ended December 31, 2002 2001
-----------------------------------------------------------------
Net sales $ 50,275 $ 43,756
Net income $ 970 $ 1,036
Basic earnings per share $ 0.26 $ 0.28
Diluted earnings per share $ 0.25 $ 0.28
35
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Halifax acquisition been
consummated as of the above dates, nor are they indicative of future
operating results.
12. BUSINESS SEGMENTS
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Following the provisions of SFAS No. 131, the Company is
reporting two operating business segments in the same format as reviewed by
the Company's senior management. Segment one, Vita, processes and sells
various herring, and cured and smoked salmon products throughout the United
States. Segment two, Vita Specialty Foods, combines the products of Virginia
Honey and Halifax and manufactures and distributes honey, salad dressings,
sauces, marinades, jams and jellies and gift baskets. Management uses
operating profit as the measure of profit or loss by business segment. The
significant accounting policies as described in Note 1 were utilized in the
preparation of the financial statements for both segments.
36
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business segment information is as follows ($000's):
Twelve months ended December 31, 2002 2001 2000
- -----------------------------------------------------------------------
GOODWILL
Vita $ -- -- --
Vita Specialty Foods 7,566 5,239 --
- -----------------------------------------------------------------------
Total Goodwill $ 7,566 $ 5,239 --
=======================================================================
TOTAL ASSETS
Vita $18,566 $16,256 $12,189
Vita Specialty Foods 7,976 3,812 --
- -----------------------------------------------------------------------
Total Assets $26,542 $20,068 $12,189
=======================================================================
NET SALES
Vita $28,096 $26,173 $25,127
Vita Specialty Foods 14,767 5,809 --
- -----------------------------------------------------------------------
Total Net Sales $42,863 $31,982 $25,127
=======================================================================
OPERATING PROFIT
Vita $ 1,887 $ 1,400 $ 1,104
Vita Specialty Foods 1,028 699 --
- -----------------------------------------------------------------------
Total Operating Profit $ 2,915 $ 2,099 $ 1,104
=======================================================================
NET INCOME
Vita $ 983 $ 809 722
Vita Specialty Foods 463 347 --
- -----------------------------------------------------------------------
Total Net Income $ 1,446 $ 1,156 722
=======================================================================
DEPRECIATION AND AMORTIZATION
Vita $ 491 $ 470 381
Vita Specialty Foods 311 160 --
- -----------------------------------------------------------------------
Total Depreciation and Amortization $ 802 $ 630 381
=======================================================================
CAPITAL EXPENDITURES
Vita $ 1,034 $ 590 593
Vita Specialty Foods 211 131 --
- -----------------------------------------------------------------------
Total Capital Expenditures $ 1,245 $ 721 593
=======================================================================
37
VITA FOOD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
- -------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2002 2002 2002 2002
---------- ---------- ------------- -----------
REVENUES $ 10,067 $ 8,785 $ 9,292 $ 14,719
GROSS PROFIT 3,078 2,814 2,794 4,646
NET INCOME 304 132 208 802
BASIC EARNINGS PER SHARE 0.08 0.04 0.06 0.21
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,729,683 3,739,721 3,759,459 3,771,280
DILUTED EARNINGS PER SHARE 0.08 0.03 0.05 0.21
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,815,393 3,858,071 3,879,538 3,863,607
FOR THE THREE MONTH PERIOD ENDED
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2001 2001 2001 2001
---------- ---------- ------------- -----------
REVENUES $ 6,220 $ 5,027 $ 8,477 $ 12,259
GROSS PROFIT 1,693 1,346 2,641 4,321
NET INCOME (LOSS) 59 (88) 295 891
BASIC EARNINGS (LOSS) PER SHARE 0.02 (0.02) 0.08 0.24
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,724,546 3,724,546 3,726,225 3,726,334
DILUTED EARNINGS (LOSS) PER SHARE 0.02 (0.02) 0.08 0.24
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,732,727 3,724,546 3,761,401 3,771,094
FOR THE THREE MONTH PERIOD ENDED
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2000 2000 2000 2000
----------- ---------- ------------- -----------
REVENUES $ 6,218 $ 4,757 $ 5,434 $ 8,718
GROSS PROFIT 1,699 1,260 1,339 2,900
NET INCOME (LOSS) 44 (110) (89) 878
BASIC EARNINGS (LOSS) PER SHARE 0.01 (0.03) (0.02) 0.24
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,712,471 3,712,471 3,719,330 3,722,906
DILUTED EARNINGS (LOSS) PER SHARE 0.01 (0.03) (0.02) 0.24
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,733,320 3,712,471 3,719,330 3,731,538
38
SCHEDULE 1. VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------
BALANCE AT BALANCE AT
CALENDAR BEGINNING CHARGED TO WRITE-OFFS & ACQUISITION OF END
YEAR OF YEAR EXPENSE COLLECTIONS SUBSIDIARY OF YEAR
-------- --------- --------- ------------ -------------- ----------
2000 $ 406 14 226 0 $ 194
2001 $ 194 105 90 0 $ 209
2002 $ 209 6 39 101 $ 277
- ------------------------------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No changes in accountants or disagreements with accountants on
accounting and financial disclosure occurred.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item 10 as to the Directors, executive
officers and compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") is incorporated herein by reference to the
information set forth under the captions "Election of Directors," "Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance,"
respectively, in the Company's definitive Proxy Statement for the 2003 Annual
Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference
to the information set forth under the caption "Compensation of Executive
Officers" in the Company's definitive Proxy Statement for the 2003 Annual
Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item 12 is incorporated by reference
to the information set forth under the caption "Security Ownership of Principal
Holders and Management" in the Company's definitive Proxy Statement for the 2003
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference
to the information set forth under the caption "Certain Relationships and
Related Transactions" in the Company's definitive Proxy Statement for the 2003
Annual Meeting of Stockholders.
39
ITEM 14. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's
management team, the principal executive officer and principal financial officer
have evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures as defined in Rules 13a - 14(c) and 15d -
14(c) under the Exchange Act within 90 days of the filing date of this annual
report, and, based on their evaluation, have concluded that these controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation and up to the date of this
Annual Report on Form 10-K. There were no significant deficiencies or material
weaknesses, and therefore there were no corrective actions taken.
Disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and Procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files under the
Exchange Act is accumulated and communicated to the Company's management,
including its principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
It should be noted that any system of controls, however well designed
and operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions, regardless of how remote.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1), (a)(2) and (d): The Company has filed its consolidated financial
statements and financial statement schedule in Part II, Item 8 of this Annual
Report on Form 10-K.
(a)(3) Listed below are the exhibits filed as part of this Annual Report on Form
10-K:
40
NUMBER EXHIBIT TITLE
- ------ -------------
(1)2.1 Stock Purchase Agreement, dated as of June 29, 2001, between Vita
Food Products, Inc., Virginia Honey Company, Inc. and Terry W.
Hess (Ex. 2.1)
(2)2.2 Merger Agreement, dated as of October 17, 2002, between the
Company, Vita Holdings, Inc., Vita/Halifax Acquisition Company,
Halifax, Robert J. Budd, Oak Hill Family LLC and Terry W. Hess
(Ex 2.2)
(3)3.1 Articles of Incorporation of the Company (Ex. 3.1)
(3)3.2 By-laws of the Company (Ex. 3.2)
(3)4.1 Form of Common Stock Certificate (Ex. 4.1)
(3)10.1 Loan and Security Agreement dated as of March 20, 1995 by and
between the Company and NBD Bank, as amended (Ex. 10.1)
(4)10.1.1 Second Amendment to Loan and Security Agreement (Ex. 10.1.1)
(4)10.1.2 Third Amendment to Loan and Security Agreement (Ex. 10.1.2)
(4)10.1.3 Form of Fourth Amendment to Loan and Security Agreement
(Ex. 10.1.3)
(5)10.1.4 Fifth Amendment to Loan and Security Agreement (Ex. 10.1.4)
(6)10.1.5 Sixth Amendment to Loan and Security Agreement and Note
(Ex. 10.1.5)
(7)10.1.6 Seventh Amendment to Loan and Security Agreement (Ex. 10.1.6)
(3)10.2 Form of 1996 Employee Stock Option Plan (Ex. 10.4)x
- --------
(1) Incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on August 30, 2001. Form 8-K Exhibit Number is included in
parenthesis following the title of the exhibit.
(2) Incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on November 6, 2002. Form 8-K Exhibit Number is included in
parenthesis following the title of the exhibit.
(3) Incorporated by reference to Form SB-2 Registration Statement (File No.
333-5738), filed with the Securities and Exchange Commission on September 23,
1996. Form SB-2 Exhibit Number is included in parenthesis following the title of
the Exhibit.
(4) Incorporated by reference to Form 10-KSB for the fiscal year ended December
31, 1997, filed with the Securities and Exchange Commission on March 30, 1998.
Form 10-KSB Exhibit Number is included in parenthesis following the title of the
Exhibit.
(5) Incorporated by reference to Form 10-QSB for the fiscal quarter ended June
30, 1998, filed with the Securities and Exchange Commission on August 7, 1998.
Form 10-QSB Exhibit Number is included in parenthesis following the title of the
Exhibit.
(6) Incorporated by reference to Form 10-QSB for the fiscal quarter ended
September 30, 1998, filed with the Securities and Exchange Commission on
November 9, 1998. Form 10-QSB Exhibit Number is included in parenthesis
following the title of the Exhibit.
(7) Incorporated by reference to Form 10-QSB for the fiscal quarter ended June
30, 1999, filed with the Securities and Exchange Commission on August 9, 1999.
Form 10-QSB Exhibit Number is included in parenthesis following the title of the
exhibit.
(x) Indicates an employee benefit plan, management contract or compensatory plan
or arrangement.
41
(3)10.3 Form of 1996 Stock Option Plan for Non-Employee Directors
(Ex. 10.5)x
(3)10.4 Form of Employment Agreement between the Company and Stephen D.
Rubin (Ex. 10.7)x
(7)10.4.1 Amendment One to Employment Agreement between the Company and
Stephen D. Rubin (Ex. 10.4.1)x
(3)10.5 Form of Employment Agreement between the Company and Clark L.
Feldman (Ex. 10.8)x
(7)10.5.1 Amendment One to Employment Agreement between the Company and
Clark L. Feldman (Ex. 10.5.1)x
(3)10.6 Long Term Supply/Purchase Agreement dated as of September 1, 1992
by and between the Company and Barry's Limited (Ex. 10.9)
(3)10.9 Gorenstein Agreement dated September 20, 1996 by and among the
Company, Stephen D. Rubin, Clark L. Feldman, Sam Gorenstein,
David Gorenstein and J.B.F. Enterprises (Ex. 10.26)
(1)10.10 Form of Employment Agreement, dated as of July 1, 2001, between
Virginia Honey Company, Inc. and Terry W. Hess (First Exhibit to
Ex. 2.1)x
(8)10.11 Amended and Restated Loan and Security Agreement, dated August
15, 2001 (Ex. 10.11)
(8)10.11.1 First Amendment to Amended and Restated Loan and Security
Agreement, dated July 31, 2002 (Ex. 10.11.1)
21.1 Subsidiary of the Company.*
99.1 Principal Executive Officer Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
99.2 Principal Financial Officer Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
- ---------
(8) Incorporated by reference to Form 10-Q for the fiscal quarter ended
September 30, 2002, filed with the Securities and Exchange Commission on
November 14, 2002. Form 10-Q Exhibit Number is included in parenthesis following
the title of the exhibit.
* Filed herewith.
(b) Reports Filed on Form 8-K
A form 8-K/A was filed by the Company on January 21, 2003 to include the
required financial statements and pro forma financial information with respect
to the Company's merger agreement to acquire all of the outstanding capital
stock of The Halifax Group, Inc.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange
Act, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
VITA FOOD PRODUCTS, INC.
By: /s/ Stephen D. Rubin
------------------------------
Stephen D. Rubin
President
Date: March 31, 2003
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant in the
following capacities on March 31, 2003.
Signatures Title
---------- -----
/s/Stephen D. Rubin Director and President
- --------------------------------------------- (Principal Executive Officer)
Stephen D. Rubin
/s/Clark L. Feldman Director, Executive Vice President and Secretary
- ---------------------------------------------
Clark L. Feldman
/s/Clifford K. Bolen Executive Vice President, Chief Financial
- --------------------------------------------- Officer and Treasurer
Clifford K. Bolen (Principal Financial and Accounting Officer)
/s/Terry W. Hess Chief Executive Officer of Virginia Honey and
- --------------------------------------------- Director
Terry W. Hess
/s/Michael Horn Director
- ---------------------------------------------
Michael Horn
/s/Neal Jansen Director
- ---------------------------------------------
Neal Jansen
/s/Steven A. Rothstein Director
- ---------------------------------------------
Steven A. Rothstein
/s/Jeffrey C. Rubenstein Director
- ---------------------------------------------
Jeffrey C. Rubenstein
/s/John C. Seramur Director
- ---------------------------------------------
John C. Seramur
/s/Joel D. Spungin Director
- ---------------------------------------------
Joel D. Spungin
/s/Robert J. Budd Director
- ---------------------------------------------
Robert J. Budd
43
CERTIFICATION
I, Stephen D. Rubin, the President of Vita Food Products, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Vita Food
Products, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 31, 2003
By: /s/ Stephen D. Rubin
-------------------------------------
Stephen D. Rubin
President
(Principal Executive Officer)
44
CERTIFICATION
I, Clifford K. Bolen, the Executive Vice President; Chief Financial
Officer of Vita Food Products, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Vita Food
Products, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 31, 2003
By /s/ Clifford K. Bolen
-------------------------------------------------
Clifford K. Bolen
Executive Vice President; Chief Financial Officer
(Principal Financial and Accounting Officer)
45
EXHIBIT INDEX
NUMBER EXHIBIT TITLE
- ------ -------------
(1)2.1 Stock Purchase Agreement, dated as of June 29, 2001, between Vita
Food Products, Inc., Virginia Honey Company, Inc. and Terry W.
Hess (Ex. 2.1)
(2)2.2 Merger Agreement, dated as of October 17, 2002, between the
Company, Vita Holdings, Inc., Vita/Halifax Acquisition Company,
Halifax, Robert J. Budd, Oak Hill Family LLC and Terry W. Hess
(Ex 2.2)
(3)3.1 Articles of Incorporation of the Company (Ex. 3.1)
(3)3.2 By-laws of the Company (Ex. 3.2)
(3)4.1 Form of Common Stock Certificate (Ex. 4.1)
(3)10.1 Loan and Security Agreement dated as of March 20, 1995 by and
between the Company and NBD Bank, as amended (Ex. 10.1)
(4)10.1.1 Second Amendment to Loan and Security Agreement (Ex. 10.1.1)
(4)10.1.2 Third Amendment to Loan and Security Agreement (Ex. 10.1.2)
(4)10.1.3 Form of Fourth Amendment to Loan and Security Agreement
(Ex. 10.1.3)
(5)10.1.4 Fifth Amendment to Loan and Security Agreement (Ex. 10.1.4)
(6)10.1.5 Sixth Amendment to Loan and Security Agreement and Note
(Ex. 10.1.5)
(7)10.1.6 Seventh Amendment to Loan and Security Agreement (Ex. 10.1.6)
(3)10.2 Form of 1996 Employee Stock Option Plan (Ex. 10.4)x
- --------
(1) Incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on August 30, 2001. Form 8-K Exhibit Number is included in
parenthesis following the title of the exhibit.
(2) Incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on November 6, 2002. Form 8-K Exhibit Number is included in
parenthesis following the title of the exhibit.
(3) Incorporated by reference to Form SB-2 Registration Statement (File No.
333-5738), filed with the Securities and Exchange Commission on September 23,
1996. Form SB-2 Exhibit Number is included in parenthesis following the title of
the Exhibit.
(4) Incorporated by reference to Form 10-KSB for the fiscal year ended December
31, 1997, filed with the Securities and Exchange Commission on March 30, 1998.
Form 10-KSB Exhibit Number is included in parenthesis following the title of the
Exhibit.
(5) Incorporated by reference to Form 10-QSB for the fiscal quarter ended June
30, 1998, filed with the Securities and Exchange Commission on August 7, 1998.
Form 10-QSB Exhibit Number is included in parenthesis following the title of the
Exhibit.
(6) Incorporated by reference to Form 10-QSB for the fiscal quarter ended
September 30, 1998, filed with the Securities and Exchange Commission on
November 9, 1998. Form 10-QSB Exhibit Number is included in parenthesis
following the title of the Exhibit.
(7) Incorporated by reference to Form 10-QSB for the fiscal quarter ended June
30, 1999, filed with the Securities and Exchange Commission on August 9, 1999.
Form 10-QSB Exhibit Number is included in parenthesis following the title of the
exhibit.
46
(3)10.3 Form of 1996 Stock Option Plan for Non-Employee Directors
(Ex. 10.5)x
(3)10.4 Form of Employment Agreement between the Company and Stephen D.
Rubin (Ex. 10.7)x
(7)10.4.1 Amendment One to Employment Agreement between the Company and
Stephen D. Rubin (Ex. 10.4.1)x
(3)10.5 Form of Employment Agreement between the Company and Clark L.
Feldman (Ex. 10.8)x
(7)10.5.1 Amendment One to Employment Agreement between the Company and
Clark L. Feldman (Ex. 10.5.1)x
(3)10.6 Long Term Supply/Purchase Agreement dated as of September 1, 1992
by and between the Company and Barry's Limited (Ex. 10.9)
(3)10.9 Gorenstein Agreement dated September 20, 1996 by and among the
Company, Stephen D. Rubin, Clark L. Feldman, Sam Gorenstein,
David Gorenstein and J.B.F. Enterprises (Ex. 10.26)
(1)10.10 Form of Employment Agreement, dated as of July 1, 2001, between
Virginia Honey Company, Inc. and Terry W. Hess (First Exhibit to
Ex. 2.1)x
(8)10.11 Amended and Restated Loan and Security Agreement, dated August
15, 2001 (Ex. 10.11)
(8)10.11.1 First Amendment to Amended and Restated Loan and Security
Agreement, dated July 31, 2002 (Ex. 10.11.1)
21.1 Subsidiary of the Company.*
99.1 Principal Executive Officer Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
99.2 Principal Financial Officer Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
- ---------
(8) Incorporated by reference to Form 10-Q for the fiscal quarter ended
September 30, 2002, filed with the Securities and Exchange Commission on
November 14, 2002. Form 10-Q Exhibit Number is included in parenthesis following
the title of the exhibit.
(x) Indicates an employee benefit plan, management contract or compensatory plan
or arrangement.
* Filed herewith.
47