SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended July 31, 2004
Commission File No. 000-31797
VERMONT PURE HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 03-0366218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45 Krupp Drive, Williston, VT 05495
(Address of principal executive offices) (Zip Code)
(802) 860-1126
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares outstanding at
Class September 10, 2004
----- ---------------------
Common Stock, $.001 Par Value 21,470,106
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
INDEX
Page Number
Part I - Financial Information
Item 1.Financial Statements
Condensed Consolidated Balance Sheets
as of July 31, 2004 (unaudited) and
October 31, 2003 (unaudited) 3
Condensed Consolidated Statements of
Operations for the Three and Nine Months ended
July 31, 2004 and 2003 (unaudited) 4
Condensed Consolidated Statements of Cash
Flows for the Nine Months ended July 31,
2004 and 2003 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 20-21
Item 4. Controls and Procedures 21
Part II - Other Information 22-26
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of SecurityHolders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures and Exhibit Index 27-28
2
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, October 31,
2004 2003
------------ ------------
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 205,009 $ 1,170,321
Accounts receivable - net 6,838,728 6,198,942
Inventories 1,036,432 1,018,970
Current portion of deferred tax asset 1,093,000 1,093,000
Other current assets 2,237,138 1,761,617
Unrealized gain on derivatives 144,427 -
Dicontinued operations - 3,876,654
------------ ------------
TOTAL CURRENT ASSETS 11,554,734 15,119,504
------------ ------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 12,269,795 13,482,857
Discontinued Operations - 7,142,676
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 12,269,795 20,625,533
------------ ------------
OTHER ASSETS:
Goodwill 73,283,906 72,899,355
Other intangible assets - net of accumulated amortization 1,436,349 1,247,994
Deferred tax asset 951,601 1,156,000
Other assets 688,838 285,678
------------ ------------
TOTAL OTHER ASSETS 76,360,694 75,589,027
------------ ------------
TOTAL ASSETS $100,185,223 $111,334,064
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 5,720,042 $ 3,148,274
Accounts payable 1,835,039 2,318,720
Accrued expenses 2,131,954 2,329,163
Current portion of customer deposits 190,196 169,504
Unrealized loss on derivatives - 35,504
Discontinued Operations - 2,056,938
------------ ------------
TOTAL CURRENT LIABILITIES 9,877,231 10,058,103
Long term debt, less current portion 36,071,790 48,273,782
Customer deposits, less current portion 2,979,733 2,655,560
------------ ------------
TOTAL LIABILITIES 48,928,754 60,987,445
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value, 500,000
authorized shares, none issued and outstanding - -
Common stock - $.001 par value, 50,000,000 authorized
shares, 21,541,656 issued and 21,470,106 outstanding
shares as of July 31, 2004 and 21,430,987 issued and
21,359,437 outstanding as of October 31, 2003 21,542 21,431
Additional paid in capital 57,848,414 57,535,069
Treasury stock, at cost, 71,550 shares (264,735) (264,735)
Accumulated deficit (6,493,179) (6,909,642)
Accumulated other comprehensive income (loss) 144,427 (35,504)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 51,256,469 50,346,619
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $100,185,223 $111,334,064
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended July 31, Nine months ended July 31,
----------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
(unaudited) (unaudited)
NET SALES $ 13,554,893 $ 13,352,247 $ 38,734,674 $ 36,793,231
COST OF GOODS SOLD 5,745,224 5,537,499 17,064,773 15,205,969
------------ ------------ ------------ ------------
GROSS PROFIT 7,809,669 7,814,748 21,669,901 21,587,262
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative expenses 6,041,838 5,729,753 17,534,354 16,476,877
Advertising expenses 285,596 211,707 760,979 326,808
Amortization 95,548 54,257 258,512 125,705
Other compensation - - 18,951 38,997
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 6,422,982 5,995,717 18,572,796 16,968,387
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,386,687 1,819,031 3,097,105 4,618,875
------------ ------------ ------------ ------------
OTHER EXPENSE:
Interest (789,526) (1,112,926) (2,719,825) (3,192,000)
Miscellaneous 57,663 (3,225) 49,266 10,191
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE (731,863) (1,116,151) (2,670,559) (3,181,809)
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 654,824 702,880 426,546 1,437,066
INCOME TAX EXPENSE (264,867) (282,863) (170,304) (577,786)
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 389,957 420,017 256,242 859,280
DISCONTINUED OPERATIONS:
(Loss) income from discontinued operations - 243,866 (78,555) 502,950
Gain on disposal of segments of business - - 352,535 -
Income tax expense from discontinued operations - (98,141) (113,759) (202,215)
------------ ------------ ------------ ------------
INCOME FROM DISCONTINUED OPERATIONS - 145,725 160,221 300,735
------------ ------------ ------------ ------------
NET INCOME $ 389,957 $ 565,742 $ 416,463 $ 1,160,015
============ ============ ============ ============
NET INCOME PER SHARE - BASIC:
Continuing operations $ 0.02 0.02 $ 0.01 0.04
Discontinued operations - 0.01 0.01 0.01
------------ ------------ ------------ ------------
NET INCOME $ 0.02 $ 0.03 $ 0.02 $ 0.05
============ ============ ============ ============
NET INCOME PER SHARE - DILUTED:
Continuing operations $ 0.02 0.02 $ 0.01 0.04
Discontinued operations - 0.01 0.01 0.01
------------ ------------ ------------ ------------
NET INCOME $ 0.02 $ 0.03 $ 0.02 $ 0.05
============ ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - BASIC 21,519,378 21,283,020 21,476,292 21,267,451
============ ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - DILUTED 21,572,515 21,799,354 21,641,331 21,823,767
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended July 30,
------------------------------------
2004 2003
---- ----
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 416,463 $1,160,015
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,802,248 3,736,353
Amortization 258,512 125,705
Change in deferred tax asset 204,399 593,000
Loss (gain) on disposal of property and equipment (74,025) 35,473
Gain on the sale of business segments (352,535) -
Non cash compensation 18,951 38,997
Changes in assets and liabilities (net of effect of acquisitions
and sale of business segments):
Accounts receivable 143,154 (2,187,799)
Inventories (561,159) 659,746
Other current assets (475,520) (462,001)
Other assets 257,667 562,821
Accounts payable (380,232) 1,757,951
Accrued expenses (759,652) (244,481)
Customer deposits 344,865 -
---------- ----------
NET CASH PROVIDED BY CONTINUING OPERATIONS 2,843,136 5,775,780
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,917,766) (3,481,700)
Proceeds from sale of property and equipment 453,676 90,279
Cash used for acquisitions - net of cash acquired (994,505) (1,296,647)
Proceeds from sale of business segments - net of transaction costs 9,017,523 -
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,558,928 (4,688,068)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit borrowings 2,808,500 3,909,753
Principal payments of debt (12,438,725) (4,360,919)
Proceeds from issuance of common stock 262,849 191,925
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (9,367,376) (259,241)
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (965,312) 828,471
CASH AND CASH EQUIVALENTS - beginning of period 1,170,321 652,204
---------- ----------
CASH AND CASH EQUIVALENTS - end of period $ 205,009 $1,480,675
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $2,908,418 $3,285,333
========== ==========
Cash paid for income taxes $ 270,263 $ 198,433
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND DISCONTINUED OPERATIONS
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Form 10-Q instructions and in the
opinion of management contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the condensed consolidated
financial position, results of operations, and cash flows for the periods
presented. The results have been determined on the basis of generally
accepted accounting principles and practices of the United States of
America ("GAAP"), applied consistently with the Annual Report on Form 10-K
of Vermont Pure Holdings, Ltd. (the "Company") for the year ended October
31, 2003.
Certain information and footnote disclosures normally included in audited
consolidated financial statements presented in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto incorporated by reference in the Company's
Annual Report on Form 10-K for the year ended October 31, 2003. The
results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
On March 2, 2004 the Company completed the sale of the two retail segments
of its business. See Note 9 for more information.
2. STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Pro-forma information
regarding net income and net income per share, is presented below as if
the Company had accounted for its employee stock options under the fair
value method using SFAS No. 123:
6
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------- -----------------------
2004 2003 2004 2003
--------- --------- --------- ----------
Net Income - As Reported $ 389,957 $ 565,742 $ 416,463 $1,160,015
Deduct: Effect of compensation
expense determined using fair
value, net of income tax 154,232 63,242 257,104 203,133
--------- --------- --------- ----------
Pro Forma Net Income $ 235,725 $ 502,500 $ 159,359 $ 956,882
========= ========= ========= ==========
Basic Net Income Per Share:
As Reported $ .02 $ .03 $ .02 $ .05
========= ========= ========= ==========
Pro Forma $ .01 $ .02 $ .01 $ .04
========= ========= ========= ==========
Diluted Net Income Per Share:
As Reported $ .02 $ .03 $ .02 $ .05
========= ========= ========= ==========
Pro Forma $ .01 $ .02 $ .01 $ .04
========= ========= ========= ==========
There was an option for 200,000 shares granted in the three month period
ended July 31, 2004 and there were options granted for 265,000 shares and
65,000 shares in the nine month periods ended July 31, 2004 and 2003,
respectively. The weighted average fair value of the options granted for
the respective nine month periods, using the Black-Scholes option pricing
model, was $1.15 and $1.70, respectively. In the three and nine month
periods ended July 31, 2004, there were options exercised for 33,200 and
38,200 shares, respectively, at an exercise price of $2.50 per share.
There were no options exercised in either period in 2003.
Assumptions used for estimating the fair value of the option on the date
of grant under the Black-Scholes option pricing model are as follows for
the nine month period ended July 31:
2004 2003
---- ----
Expected Dividend Yield 0% 0%
Expected Life 5 Years 5 Years
Risk free Interest Rate 3.0% 5.7%
Volatility 39% 36%
3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses interest rate swaps to fix its long term interest rates.
The swap rates are based on the floating 30-day LIBOR rate and are
structured such that if the loan rate for the period exceeds the fixed
rate of the swap then the bank pays the Company to lower the effective
interest rate and if the rate is lower than the fixed rate, the Company
pays the bank additional interest.
Based on the rates for the nine months ended July 31, 2004, the Company
paid $236,000 more in interest than it would have without the swaps. The
Company accounts for changes in the fair value of the swap agreements by
reporting the change in fair value as an unrealized gain or loss for the
purposes of calculating comprehensive income (see Note 5).
7
4. SEGMENTS
The Company has traditionally prepared detailed information to evaluate
its operations on a segment basis. It accounted for the business in three
separate segments, "Retail", "Retail-Gallons" and "Home and Office". Since
the Company completed the sale of its two retail segments in March 2004,
its remaining operations are entirely in the Home and Office segment. As a
result of the sale, the results of operations for the retail segments are
classified as discontinued operations in the periods reported.
Consequently, the Company will not report segment information in this
report or in the future unless required.
5. COMPREHENSIVE INCOME
The following table summarizes comprehensive income for the respective
three and nine month periods:
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net Income $ 389,957 $ 565,742 $ 416,463 $ 1,160,015
Other Comprehensive Income:
Change in unrealized gain on derivatives
designated as cash flow hedges - net
of tax 58,023 233,657 179,931 379,421
--------- --------- --------- -----------
Comprehensive Income $ 447,980 $ 799,399 $ 596,394 $ 1,539,436
========= ========= ========= ===========
6. STOCKHOLDERS' EQUITY
Stock Issued to Directors
The Company issued 5,430 and 9,285 of its common shares to Directors in
lieu of cash for board fees in the first nine months of fiscal years 2004
and 2003, respectively. Expense of approximately $19,000 and $39,000 for
the respective periods was recorded relative to the issuance of these
shares. No shares where issued to directors during the three months ended
July 31, 2004 and 2003.
Employee Stock Purchase Plan
The Company maintains an employee stock purchase program. The total number
of common shares issued under this plan during the three months ended July
31, 2004 and 2003 were 34,057 for proceeds of $81,056 and 34,450 for
proceeds of $99,536, respectively. The total number of common shares
issued under this plan during the nine months ended July 31, 2004 and 2003
were 72,040 for proceeds of $179,850 and 60,775 for proceeds of $189,265,
respectively.
8
7. INVENTORIES
Inventories consisted of the following at:
July 31, October 31,
2004 2003
----------- -----------
Raw Materials $ 205,871 $ 52,605
Finished Goods 830,561 966,365
----------- -----------
Total Inventories $ 1,036,432 $ 1,018,970
=========== ===========
8. OPERATING LEASES
The Company's operating leases consist of trucks, office equipment and
rental property.
Future minimum rental payments over the terms of various lease contracts
are approximately as follows:
For the fiscal year ending October 31,:
2004 $ 685,000
2005 2,100,000
2006 1,784,000
2007 1,584,000
2008 1,345,000
Thereafter 1,881,000
-----------
Total $ 9,379,000
-----------
9. SALE OF BUSINESS SEGMENTS
On March 2, 2004 the Company completed the sale of substantially all of
the assets related to its Retail and Retail - Gallons segments. These
segments have been accounted for as discontinued operations.
The sale resulted in a gain, reported in discontinued operations, of
$352,535. The gain was calculated by deducting the net carrying value of
the assets and liabilities and transaction costs from the net proceeds as
follows:
Selling Price $ 10,567,998
Accounts Receivable (1,147,229)
Inventories (2,490,181)
Property, Plant, and Equipment (7,093,641)
Accounts Payable 1,739,347
Transaction Costs (1,223,759)
------------
Gain before Income Taxes $ 352,535
------------
9
In addition to cash proceeds of $10,067,998, the Company received a
$500,000 subordinated note, bearing interest at 5% per annum, from the
buyer as consideration for the sale. Interest is payable by the seller on
a quarterly basis and the total principal is due on the second anniversary
of the sale. Substantially all of the proceeds of the sale were used to
reduce debt. $5,000,000 was used to pay down the Company's senior term
debt with Webster Bank and $5,000,000 was used to pay down the Company's
subordinated debt.
Revenues, expenses, and costs for the discontinued operations have been
excluded from the respective captions in the related financial statements
and reported as income from discontinued operations, net of income taxes,
for all periods presented. For the nine months ended July 31, 2004 and
2003, net sales from discontinued operations were $6,434,000 and
$18,887,000, respectively. The loss before income taxes was $79,000 for
the first nine months of 2004 and income before taxes was $503,000 for the
first nine months of 2003. The respective periods do not include any
allocation of corporate costs that were previously allocated to the
discontinued operations. Those costs are expected to continue in the
future and are included in continuing operations.
10. DEBT
As of July 31, 2004 the Company had $2 million outstanding on its
operating line of credit with Webster Bank and letters of credit totaling
$1 million, leaving $3.5 million available. In addition, there was a
balance of $2.4 million on its acquisition line of credit and $7.6 million
of availibility.
In conjunction with the sale of the segments of business, the Company
amended its agreement with its senior lender to facilitate payment of debt
with the proceeds of the sale. The amendment allowed for prepayment of
$5,000,000 of senior debt and $5,000,000 of subordinated debt related to
the sale and eliminates availability of $5,000,000 of credit previously
earmarked for subordinated debt repayment. Other significant changes
included increasing the applicable margin by 25 basis points and changing
the financial covenants to reduce the limit of the senior debt to EBITDA
ratio to 2.75 from 3.00 and classifying the debt service ratio in two
different methods, senior and global, with respective limits of 1.5 and
1.1.
The Company's Loan and Security agreement, as amended, requires that it be
in compliance with certain financial covenants at the end of each fiscal
quarter. The Company was in compliance with all of the financial covenants
in the agreement as of July 31, 2004 except the global debt service
covenant (see Note 13).
11. EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES
The following calculation provides the reconciliation of the denominators
used in the calculation of basic and fully diluted earnings per share:
10
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net Income $ 389,957 $ 565,742 $ 416,463 $ 1,160,742
---------- ---------- ---------- -----------
Denominator:
Basic Weighted Average Shares Outstanding 21,519,378 21,283,020 21,476,292 21,267,451
Dilutive effect of Stock Options 53,137 516,334 165,039 556,316
---------- ---------- ---------- -----------
Diluted Weighted Average Shares Outstanding 21,572,515 21,799,354 21,641,331 21,823,767
Basic Earnings Per Share $ .02 $ .03 $ .02 $ .05
========== ========== ========== ===========
Diluted Earnings Per Share $ .02 $ .03 $ .02 $ .05
========== ========== ========== ===========
There were 2,684,790 options outstanding as of July 31, 2004.
For the three month period ended July 31, 2004 and 2003, in addition to
the options used to calculate the effect of dilution, there were 1,644,990
and 240,000 additional options outstanding, respectively. For the nine
month periods ended July 31, 2003 and 2004, there were 1,494,200 and
240,000 additional options not used in the dilution calculation,
respectively. These options were not included in the dilution calculation
because the options' exercise price exceeded the market price of the
underlying common shares.
12. Litigation Settlement
In January 2003, the Company settled a suit alleging that a vendor did not
adequately perform the services rendered in connection with approximately
$500,000 of unpaid billings. In settling the suit, the Company agreed to
pay $50,000 to the vendor in full settlement of the litigation. In
conjunction with the settlement, the parties released each other from any
further liability in the case. A gain of $150,000 was recognized in the
first quarter of 2003 since the Company had set up a reserve for
settlement of the suit that exceeded the final amount paid. The gain has
been included as a reduction of selling, general and administrative
expenses.
13. SUBSEQUENT EVENTS
Acquisition
On August 2, 2004, the Company purchased the assets of White Ribbon Spring
Water in Laconia, New Hampshire. The assets consisted primarily of
bottling equipment, customer lists, trucks, bottles and water coolers. The
total purchase price was $830,000 and $622,500 was borrowed from the
Company's acquisition line of credit to finance the transaction.
Financing
On August 19, 2004 two of the Company's subordinated debt holders agreed
to postpone the interest payment due to them on August 20, 2004 in the
$266,000 until October 31, 2004.
On September 13, 2004 Webster Bank, as agent for the Company's senior debt
bank group issued a waiver of the global debt service covenant for the
quarter ending July 31, 2004.
11
PART I - Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto as filed in our Annual Report on Form
10-K for the year ended October 31, 2003 as well as the condensed consolidated
financial statements and notes contained herein.
Forward-Looking Statements
When used in the Form 10-Q and in our future filings with the Securities and
Exchange Commission, the words or phrases "will likely result," "we expect,"
"will continue," "is anticipated," "estimated," "project," "outlook," or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. We caution
readers not to place undue reliance on any such forward-looking statements, each
of which speaks only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. Among
these risks are water supply and reliance on commodity price fluctuations. We
have no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.
Results of Operations
For the Three Months Ended July 31, 2004 (Third Quarter)
Sales
Sales for the three months ended July 31, 2004 were $13,554,000 compared to
$13,352,000 for the corresponding period in 2003, an increase of $202,000 or 2%.
The increase was the result of acquisitions. Sales from acquisitions for the
quarter totaled $537,000. Net of acquisitions, sales were down 3% for the three
months ended July 31, 2004 compared the corresponding period a year ago.
The comparative breakdown of sales of the product lines for the respective three
month periods ended July 31, 2004 and 2003 is as follows:
2004 2003 Difference
------------ ------------ ------------
Product Line (in 000's $) (in 000's $) (in 000's $) % Diff.
------------ ------------ ------------ ------------ -------
Water $ 6,733 $ 6,472 $ 261 4%
Coffee and Other Products 4,594 4,750 (156) (3%)
Equipment Rental 2,227 2,130 97 5%
-------- -------- ----- --
Total $ 13,554 $ 13,352 $ 202 2%
-------- -------- ----- --
12
Water - 96% of water sales are distributed by us and the balance is accomplished
through outside distributors. Sales of water and related products increased as a
result of a 5% increase in volume on our routes. This was offset by a 21%
decrease in volume for water sold to distributors resulting from the loss of a
large customer in 2003 - representing a 1% decrease in total sales. Sales to
distributors represent our lowest price and lowest margin sales. Average selling
price increased 1%. The increase in volume was attributable to acquisitions. Net
of acquisitions, water sales decreased 2%.
Coffee and Other Products - Sales of coffee and other products declined 3% as a
result of a relatively large non-recurring favorable adjustment of $359,000 a
year ago related to deposits on bottles not returned. Net of this adjustment
sales increased 4% for the period. Substantially all of the increase is
attributable to sales of single-serve coffee packages. Acquisitions accounted
for 1% of total sales in this category.
Equipment Rental - Net of acquisitions, equipment rental income was even with
the quarter last year. Water cooler rental was down as a result of the lower
market demand referred to above and competition from retail outlets selling
similar units. Average price was down 2%. Brewer rentals increased slightly as a
result of demand for single serve units.
Gross Profit/Cost of Goods Sold - For the three months ended July 31, 2004,
gross profit remained essentially flat, decreasing $5,000 to $7,810,000 from
$7,815,000 for the comparable period last year. As a percentage of sales, gross
profit decreased to 58% of sales from 59% for the respective period. The
decrease in gross profit, as a percentage of sales, was attributable to higher
costs and the bottle deposit adjustment referred to above. The increase in cost
of sales is attributable to higher costs of production as a result of higher
costs of materials for bottles and labor, and higher service costs as a result
of lower sales volume per customer.
Income from Operations/Operating Expenses
Total operating expenses increased to $6,422,000 in the third quarter of 2004
from $5,996,000 in the third quarter of 2003, an increase of $426,000, or 7%.
Selling, general and administrative (SG&A) expenses were $6,042,000 and
$5,730,000 for the third quarters of 2004 and 2003, respectively, an increase of
$312,000, or 5%. Of total SG&A expenses, route distribution costs, primarily
labor, fuel, vehicle, and insurance costs, increased 10%. In addition, selling
costs decreased 13% as a result of vacancies in our sales staffing and
administration costs increased 6% as a result of the costs of serving more
customers and increasing regulatory requirements.
Advertising expenses were $286,000 in the third quarter of 2004 compared to
$212,000 in the third quarter of 2003, an increase of $74,000, or 35%. The
increase in advertising costs is related to increased yellow page advertising.
Amortization increased to $96,000 in the third quarter of 2004 from $54,000 in
the third quarter of 2003. This increase is attributable to intangible assets
that were acquired as part of several acquisitions in fiscal years 2003 and
2004.
13
Income from operations for the third quarter of 2004 was $1,387,000 compared to
$1,819,000 in the third quarter of 2003, a decrease of $432,000, or 24%. The
decrease was a result of higher production, service, and operating costs and the
effect of the non recurring adjustment.
Interest, Taxes, and Other Expenses - Income from Continuing Operations Net
interest expense was $790,000 for the three months ended July 31, 2004 compared
to $1,113,000 in the three months ended July 31, 2003, a decrease of $323,000.
Lower interest costs were primarily a result of lower amounts of senior and
subordinated debt combined with lower fixed rate commitments compared to a year
ago.
Miscellaneous income of $58,000 was related to the sale of machinery and
equipment during the quarter ended July 31, 2004.
Income from continuing operations before income tax expense was $655,000 for the
three months ended July 31, 2004 compared to income from continuing operations
before taxes of $703,000 in the corresponding period of 2003. The tax expense
for the third quarter of 2004 was $265,000 compared to tax expense of $282,000
for the same period a year ago and was based on the expected effective tax rate
of 40% for both fiscal 2004 and 2003, respectively.
For the three months ended July 31, 2004, income from continuing operations was
$390,000, $31,000 less than income from continuing operations of $420,000 for
the corresponding period of 2003.
Discontinued Operations
The income from operations for discontinued retail segments for the three months
ended July 31, 2003 was $244,000. The corresponding tax expense of $98,000 was
calculated at an estimated effective rate as noted above of 40%. Consequently,
income from discontinued operations for the third quarter of 2003 was $146,000.
Net Income
Net income of $390,000 for the three months ended July 31, 2004 was a result of
income from operations. This represented a decrease in net income of $204,000
from net income of $566,000 in for the corresponding period in 2003 which
included income from both continuing operations and discontinued operations.
For the Nine Months Ended July 31, 2004
Sales
Sales from continuing operations for the first nine months ended July 31, 2004
were $38,735,000 compared to $36,793,000 during the same nine month period in
2003, an increase of $1,942,000 or 5%. The increase was the result of
acquisitions. Net of acquisitions, sales for the first three quarter were 1%
less than the comparable period in the prior year.
The comparative breakdown of sales of the product lines for the first nine
months of 2004 and 2003 is as follows:
14
2004 2003 Difference
------------ ------------ ------------
Product Line (in 000's $) (in 000's $) (in 000's $) % Diff.
------------ ------------ ------------ ------------ -------
Water $ 18,520 $ 17,806 $ 714 4%
Coffee and Other Products 13,579 12,585 994 8%
Equipment Rental 6,636 6,402 234 4%
--------- --------- ------- -
Total $ 38,735 $ 36,793 $ 1,942 5%
--------- --------- ------- -
Water - Higher volume of water sales off our routes generated a 6% increase in
sales while average sales price per bottle was unchanged. Distributor sales
decreased 30%, a 2% decrease in total sales, because of the loss of a
significant customer. Net of acquisitions, water sales decreased 2%.
Coffee and Other Products - The acquisition of a large office coffee distributor
during the second half of fiscal year 2003 accounted for 5% of the increase in
sales. Net of acquisitions, the category increased 4%. Sales of Keurig
single-serve coffee packages more than offset a decrease in conventional coffee
sales to account for the growth. However, the margin on single serve
distribution is lower than traditional coffee products. In addition, a
non-recurring favorable adjustment a year ago related to deposits for bottles
not returned resulted in a 3% decrease in sales for this category.
Equipment Rental - Growth from acquisitions resulted in a 5% increase in cooler
rental placements. Average rental price was down 1%. Brewer rentals increased
slightly as a result of demand for single serve units. Net of acquisitions,
rental income was down 1%.
Gross Profit/Cost of Goods Sold
Gross profit for the nine months ended July 31, 2004 was $21,670,000 compared to
$21,587,000 for the corresponding period in 2003, an increase of $83,000. The
increase in gross profit was attributable to higher sales. As a percentage of
sales, gross profit decreased to 56% of sales from 59% for the respective
periods. The decrease in gross profit, as a percentage of sales, was
attributable to higher costs of sales, higher percentage of sales of non-water
related products, and the bottle deposit adjustment referred to above. The
increase in cost of sales is attributable to higher costs of production as a
result of higher costs of materials for bottles and labor, and higher service
costs as a result of lower sales volume per customer.
Income from Operations/Operating Expenses
Total operating expenses increased to $18,573,000 in the first nine months of
2004 from $16,968,000 in the first nine months of 2003, an increase of
$1,605,000, or 9%.
Selling, general and administrative (SG&A) expenses were $17,534,000 and
$16,477,000 for the first nine months of 2004 and 2003, respectively, an
increase of $1,057,000, or 6%. Of total SG&A expenses, route distribution costs,
primarily labor, fuel, vehicle, and insurance costs, increased 14%. Selling
costs decreased 7% and administration costs increased 5%. Selling costs
decreased as a result of vacancies in our sales staffing and administration
costs increased as a result of the costs of serving more customers and
increasing regulatory requirements.
15
Advertising expenses were $761,000 in the first nine months of 2004 compared to
$327,000 in the first nine months of 2003, an increase of $434,000. The increase
in advertising costs is related to increased yellow page advertising.
Amortization increased to $259,000 in the first nine months of 2004 from
$126,000 in the first nine months of 2003 as a result of intangible assets that
were acquired as part of several acquisitions in fiscal years 2003 and 2004.
Other compensation in the first nine months of 2004 totaled $19,000 compared to
$39,000 in the first nine months of 2003. This expense relates to compensation
paid to directors in company stock in lieu of cash for board fees. Compensation
paid in cash is accounted for in SG&A expenses.
Income from operations for the first nine months of 2004 was $3,097,000 compared
to $4,619,000 in the first nine months of 2003, a decrease of $1,522,000, or
33%. The decrease was related to a higher sales mix of lower margin products,
higher production and service costs and higher operating costs.
Interest, Taxes, and Other Expenses - (Loss) Income from Continuing Operations
Net interest expense was $2,720,000 for the first nine months of 2004 compared
to $3,192,000 in the first nine months of 2003, a decrease of $472,000. Lower
interest costs were primarily a result of lower amounts of senior and
subordinated debt compared to a year ago.
Miscellaneous income for the respective nine month periods ending July 31, 2004
and 2003 of $49,000 and $10,000 was related to the sale of machinery and
equipment.
Income from continuing operations before income tax expense was $427,000 for the
first nine months of 2004 compared to income from continuing operations before
taxes of $1,437,000 in the first nine months of 2003, a decrease of $1,010,000.
The net tax expense for the first nine months of 2004 was $170,000 compares to
$577,000 for the same period a year ago. Tax expense for the first nine months
of 2004 and 2003 was based on an estimated rate of 40% for the respective years.
Income from continuing operations of $256,000 for the first nine months of 2004
was $604,000 less than income from continuing operations of $859,000 for the
first nine months of 2003.
Discontinued Operations
The loss from operations for discontinued segments for the nine months ended
July 31, 2004 was $79,000. This related to the four months of operations of the
discontinued retail segments. The gain on the sale of assets of the discontinued
operations was $353,000 in the nine month period. The corresponding tax expense
of loss from discontinued operations combined with the gain on the sale of
$114,000 was calculated at 42%. Income from discontinued operations for the nine
months ended July 31, 2003 was $503,000. Tax expense, calculated at an effective
rate of 40%, was $202,000. Total income from discontinued operations was
$160,000 in the first nine months of 2004 compared to $301,000 in 2003.
16
Net Income
Net income of $416,000 for the nine months ended July 31, 2004 was attributable
to income from continuing operations and loss from discontinued operations
combined with a gain on the sale of a portion of the retail business. This was a
decrease in net income of $745,000 from net income in the corresponding period
in 2003.
Trends
A stagnant economic environment in our core markets, particularly southern New
England, has continued to have a negative effect on our sales. Net of
acquisitions, the slow economic climate has resulted in slightly lower sales
revenues due to loss of customers, somewhat reduced business with our continuing
customers, and increased competition, which has also resulted in lower average
selling prices. In addition, water cooler rentals have declined somewhat as
customers increasingly purchase their own coolers in the retail market.
Revenues from coffee and other office refreshment products are currently growing
faster than revenues from our traditional water related products. The fastest
growing products are coffee in single-serve packages and the related machines
and refreshment products. At the same time, these products, while providing
improving sales, are lower margin products. We have seen some abatement to these
trends recently and though trends have not reversed, we believe that more stable
demand has yielded selected pricing and volume opportunities for higher margin
offerings. As a result, we expect sales to increase 3% in 2005 from 2004,
disregarding acquisitions.
Fuel costs have been unusually high in recent times, adversely affecting our
delivery and distribution costs. The prospect of increases in costs such as
fuel, insurance, and administration due to regulatory requirements remains
uncertain. We believe that variable external factors such as economic conditions
and commodity pricing may be stabilizing, and we are positioning our business
for the long term. We expect to be profitable for this year and continue to
generate positive cash flow for the remainder of the year. By being
opportunistic, we feel we can control costs and increase profitability in 2005
from 2004.
This will allow us to proceed with our strategic direction - increasing market
share by building density in our core markets though internal growth and
acquisitions. By continuing to build density, our intent is to become more
efficient and position our business so that cyclical improvements in economic
conditions will be more likely to produce growth and improve our profitability.
Liquidity and Capital Resources
As of July 31, 2004 we had working capital of $1,678,000 compared to $5,062,000
on October 31, 2003, a decrease of $3,384,000. The decrease in working capital
was primarily a result of our operating line of credit $2,000,000 being due
March 5, 2005 - becoming current debt during the year. In addition we used cash
for capital expenditures and repayment of debt in the first nine months of 2004.
Capital expenditures consisted of bottling equipment, and coolers, brewers,
bottles and racks related to home and office distribution. During the first nine
months of 2004, we paid $2,230,000 for regularly scheduled debt repayments on
our senior credit facility.
17
As noted above, we sold the assets of our Retail and Retail - Gallons segments
in March, 2004. The sale produced cash proceeds of $10,068,000. The proceeds
were used reduce our debt. $5,000,000 was used to pay down the senior term debt
with Webster Bank and $5,000,000 was used to pay down our subordinated debt.
Also, in conjunction with the sale we paid down $280,000 of senior and
subordinated debt to other lenders. In addition, we received a promissory note
from the buyer for $500,000.
As of July 31, 2004, we had borrowed $2,000,000 on our working capital line of
credit and $2,408,000 on our acquisition line of credit . In addition, there is
$1,050,000 committed for letters of credit on our working capital line of
credit.
On November 3, 2003 a swap agreement for $10,000,000 matured and on April 2,
2004 a swap agreement for $4,000,000 matured. As of July 31, 2004, we had
$14,000,000 of fixed rate debt in outstanding swap agreements. For a schedule
and further explanation of our fixed debt instruments, see Item 3.
In the first nine months of 2004 we have reduced our deferred tax asset by
$204,000 to reflect usage of federal net operating loss carryforwards to be used
in the current year.
In the third quarter of 2004, an independent firm completed an assessment on the
fair value of our business. The report determined that there was no impairment
of goodwill related to past acquisitions.
As our swap agreements have matured, lower fixed and market interest rates have
lowered our debt service and provided more available cash. We expect that cash
on hand and the cash generated from future operations combined with the
operating line of credit with Webster Bank will provide sufficient cash flow for
routine operations and growth in the foreseeable future. The operating and
acquisition lines of credit mature in March 2005 at which time the acquisition
line of credit will convert to a term note. We believe that we will be able to
negotiate acceptable terms with the bank to extend the facility in conjunction
with the existing senior financing arrangement, which runs until 2008. However,
no assurance can be given that adequate financing at reasonable interest rates
will be secured if more cash is needed other than that generated from
operations. We are in compliance with the financial covenants of our financing
agreements as of July 31, 2004 except the global debt service covenant. The
covenant requires a ratio of 1.10 and our actual ratio at the end of the quarter
was 1.07. The bank issued a waiver of this covenant for the period. We do not
believe the non-compliance is indicative of our lack of ability to service debt
in the future.
In addition to our senior and subordinated debt commitments, we have significant
future cash commitments, primarily in the form of operating leases that are not
reported on the balance sheet. The following table sets forth our contractual
commitments as of July 31, 2004:
18
Coffee Purchase
Fiscal Year Debt Operating Leases Commitments Total
- ----------- ---- ---------------- ----------- -----
2004 $ 875,000 $ 685,000 $ 230,000 $ 1,790,000
2005 5,854,000 2,100,000 230,000 8,184,000
2006 4,259,000 1,784,000 6,043,000
2007 4,567,000 1,584,000 6,151,000
2008 26,237,000 1,345,000 27,582,000
Thereafter 0 1,881,000 1,881,000
------------ ----------- ----------- ------------
Total $ 41,792,000 $ 9,379,000 $ 460,000 $ 51,631,000
------------ ----------- ----------- ------------
The debt obligation in fiscal year 2005 includes payoff of the operating line of
credit balance as of July 31, 2004 which matures in March 2005. As of the date
of this report, we have no other material contractual obligations or
commitments.
On August 2, 2004 we drew down $622,000 of our acquisition line of credit for an
acquisition. We will continue to evaluate potential acquisition opportunities in
the future and, if they are consummated, we will continue to use cash generated
from operations and funds from this line to finance the transactions.
19
PART I - Item 3
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in
interest rates and commodity prices.
INTEREST RATE RISKS
At July 31, 2004, we had approximately $10,200,000 of long term debt subject to
variable interest rates. Under the loan and security agreement with Webster
Bank, we currently pay interest at a rate of LIBOR plus a margin of 2.25%. A
hypothetical 100 basis point increase in the LIBOR rate would result in an
additional $102,000 of interest expense on an annualized basis. Conversely, a
decrease would result in a proportionate interest cost savings.
We use interest rate "swap" agreements to curtail interest rate risk. The
following table summarizes our current agreements:
Notional Amount Fixed Interest Rate Maturity Date
- --------------- ------------------- -------------
$ 4,000,000 7.50% August 5, 2004
$ 10,000,000 3.99% June 11, 2006
Our swap agreement with the highest rate expired shortly after the end of the
third quarter leaving us $10,000,000 of fixed debt at a rate that we believe is
favorable to the market. We will continue to evaluate swap rates as agreements
mature. They serve to stabilize our cash flow and expenses but ultimately may
cost more or less in interest than if we had carried all of our debt at a
variable rate over the swap term. Our strategy is to keep the fixed and variable
portions of our senior debt approximately equal to offset and minimize the
respective risk of rising and falling interest rates. Future low rates may
compel us to fix a higher portion to further stabilize cash flow and expenses as
we monitor short and long term rates and debt balances.
COMMODITY PRICE RISKS
Coffee
The cost of our coffee purchases are dictated by commodity prices. We enter into
contracts to mitigate market fluctuation of these costs by fixing the price for
certain periods. Currently we have fixed the price of our anticipated supply
through December 2004 at "green" prices ranging from $.61-$.74 per pound. We are
not insulated from price fluctuations beyond that date. At our existing sales
levels, an increase in pricing of $.10 per pound would increase our total cost
for coffee $75,000. In this case, competitors that had fixed pricing might have
a competitive advantage.
Diesel Fuel
We own and operate vehicles to deliver product to customers. The cost of fuel to
operate these vehicles fluctuates over time. During the most recent quarter,
fuel prices have increased
20
significantly. We estimate that a $0.10 increase per gallon in fuel cost would
result in an increase to operating costs of approximately $60,000. In aggregate,
we have spent approximately $80,000 on fuel as a result of higher price in the
first nine months of 2004 compared to the corresponding period in 2003.
PART I - Item 4.
CONTROLS AND PROCEDURES
Our Chief Executive Officer, our Chief Financial Officer, and other members of
our senior management team have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)). Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures, as
of the end of the period covered by this report, were adequate and effective to
provide reasonable assurance that information required to be disclosed by the
Company, including our consolidated subsidiaries, in reports that we file or
submit under the Exchange Act, is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms.
The effectiveness of a system of disclosure controls and procedures is subject
to various inherent limitations, including cost limitations, judgments used in
decision making, assumptions about the likelihood of future events, the
soundness of internal controls, and fraud. Due to such inherent limitations,
there can be no assurance that any system of disclosure controls and procedures
will be successful in preventing all errors or fraud, or in making all material
information known in a timely manner to the appropriate levels of management.
21
PART II - Other Information
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
(a) None.
(b) None.
(c) None.
Item 3 - Defaults upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of the Company. (Incorporated by reference
to Exhibit B to Appendix A to the Proxy Statement included in the S-4
Registration Statement filed by Vermont Pure Holdings, Ltd., f/k/a VP
Merger Parent, Inc., File No. 333-45226, on September 6, 2000 (the "S-4
Registration Statement").)
3.2 Certificate of Amendment of Certificate of Incorporation of the Company
filed October 5, 2000. (Incorporated by reference to Exhibit 4.2 of the
Report on Form 8-K filed by the Company on October 19, 2000 (the
"Merger 8-K").)
22
3.3 By-laws of the Company. (Incorporated by reference from Exhibit 3.3 to
Form 10-Q for the Quarter ended July 31, 2001.)
4.1 Registration Rights Agreement among the Company, Peter K. Baker, Henry
E. Baker, John B. Baker and Ross Rapaport. (Incorporated by reference
to Exhibit 4.6 of the Merger 8-K.)
10.1* 1993 Performance Equity Plan. (Incorporated by reference from Exhibit
10.9 of Registration Statement 33-72940.)
10.2* 1998 Incentive and Non-Statutory Stock Option Plan, as amended.
(Incorporated by reference to Appendix A to the Definitive Proxy
Statement dated March 10, 2003.)
10.3* 1999 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit A of the 1999 Definitive Proxy Statement.)
10.4* Employment Agreement between the Company and Timothy G. Fallon.
(Incorporated by reference to Exhibit 10.13 of the S-4 Registration
Statement.)
10.5* Employment Agreement between the Company and Bruce S. MacDonald.
(Incorporated by reference to Exhibit 10.14 of the S-4 Registration
Statement.)
10.6* Employment Agreement between the Company and Peter K. Baker.
(Incorporated by reference to Exhibit 10.15 of the S-4 Registration
Statement.)
10.7* Employment Agreement between the Company and John B. Baker.
(Incorporated by reference to Exhibit 10.16 of the S-4 Registration
Statement.)
10.8* Employment Agreement between the Company and Henry E. Baker.
(Incorporated by reference to Exhibit 10.17 of the S-4 Registration
Statement.)
10.9 Lease of Buildings and Grounds in Watertown, Connecticut from the
Baker's Grandchildren Trust. (Incorporated by reference to Exhibit
10.22 of the S-4 Registration Statement.)
10.10 Lease of Grounds in Stamford, Connecticut from Henry E. Baker.
(Incorporated by reference to Exhibit 10.24 of the S-4 Registration
Statement.)
23
10.11 Lease of Building in Stamford, Connecticut from Henry E. Baker.
(Incorporated by reference to Exhibit 10.23 of the S-4 Registration
Statement.)
10.12 Loan and Security Agreement between the Company and Webster Bank, M &T
Bank, Banknorth Group, and Rabobank dated March 5, 2003. (Incorporated
by reference to Exhibit 10.12 of Form 10-Q for the quarter ended
January 31, 2003.)
10.13 Form of Term Note from the Company to Webster Bank and participants
dated March 5, 2003. (Incorporated by reference to Exhibit 10.12 of
Form 10-Q for the quarter ended January 31, 2003.)
10.14 Amended and Restated Subordinated Promissory Note from the Company to
Henry E. Baker dated March 5, 2003. (Incorporated by reference to
Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)
10.15 Amended and Restated Subordinated Promissory Note from the Company to
Joan Baker dated March 5, 2003. (Incorporated by reference to Exhibit
10.12 of Form 10-Q for the quarter ended January 31, 2003.)
10.16 Amended and Restated Subordinated Promissory Note from the Company to
John B. Baker dated March 5, 2003. (Incorporated by reference to
Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)
10.17 Amended and Restated Subordinated Promissory Note from the Company to
Peter K. Baker dated March 5, 2003. (Incorporated by reference to
Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)
10.18 Amended and Restated Subordinated Promissory Note from the Company to
Ross S. Rapaport, Trustee, dated March 5, 2003. (Incorporated by
reference to Exhibit 10.12 of Form 10-Q for the quarter ended January
31, 2003.)
10.19 Subordination and Pledge Agreement from Henry E. Baker to Webster Bank
dated March 5, 2003. (Incorporated by reference to Exhibit 10.12 of
Form 10-Q for the quarter ended January 31, 2003.)
10.20 Subordination and Pledge Agreement from Joan Baker to Webster Bank
dated March 5, 2003. (Incorporated by reference to Exhibit 10.12 of
Form 10-Q for the quarter ended January 31, 2003.)
10.21 Subordination and Pledge Agreement from John B. Baker to Webster Bank
dated November 1, 2001. (Incorporated by reference to Exhibit 10.12 of
Form 10-Q for the quarter ended January 31, 2003.)
24
10.22 Subordination and Pledge Agreement from Peter K. Baker to Webster Bank
dated March 5, 2003. (Incorporated by reference to Exhibit 10.12 of
Form 10-Q for the quarter ended January 31, 2003.)
10.23 Subordination and Pledge Agreement from Ross S. Rapaport, Trustee, to
Webster Bank dated March 5, 2003. (Incorporated by reference to Exhibit
10.12 of Form 10-Q for the quarter ended January 31, 2003.)
10.24 Form of Acquisition/Capital Line of Credit Note from the Company to
Webster Bank and participants dated March 5, 2003. (Incorporated by
reference to Exhibit 10.12 of Form 10-Q for the quarter ended January
31, 2003.)
10.25 Form of Revolving Line of Credit Note from the Company to Webster Bank
and participants dated March 5, 2003. (Incorporated by reference to
Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)
10.26** Form of Indemnification Agreements, dated November 1, 2002, between the
Company and the following Directors and Officers:
Henry E. Baker
John B. Baker
Peter K. Baker
Phillip Davidowitz
Timothy G. Fallon
Robert C. Getchell
David Jurasek
Carol R. Lintz
Bruce S. MacDonald
David R. Preston
Ross S. Rapaport
Norman E. Rickard
Beat Schlagenhauf
(Incorporated by reference to Exhibit 10.27 of Form 10-K for the year
ended October 31, 2002.)
10.27 Purchase and Sale Agreement among Vermont Pure Springs, Inc., Vermont
Pure Holdings, Ltd. and Micropack Corporation dated as of March 1,
2004. (Incorporated by reference to Exhibit 10.27 of Form 10-Q for the
quarter ended January 31, 2004.)
25
10.28 Trademark License Agreement between Vermont Pure Holdings Ltd. and
MicroPack Corporation dated March 1, 2004. (Incorporated by reference
to Exhibit 10.28 of Form 10-Q for the quarter ended January 31, 2004.)
10.29 Supply and Sublicense Agreement between Vermont Pure Holdings Ltd. and
MicroPack Corporation dated March 1, 2004. (Incorporated by reference
to Exhibit 10.29 of Form 10-Q for the quarter ended January 31, 2004.)
10.30* 2004 Stock Incentive Plan. (Incorporated by reference to Annex B to the
Definitive Proxy Statement dated March 9, 2004.)
10.31 Amendment #2 to Loan and Security Agreement between the Company and
Webster Bank, M &T Bank, Banknorth Group, and Rabobank dated March 5,
2003. (Incorporated by reference to Exhibit 10.31 of Form 10-Q for the
quarter ended July 31, 2004.)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of
2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of
2002.
* Relates to compensation
** The form contains all material information concerning the agreement and
the only differences are the name and the contact information of the director or
officer who is party to the agreement.
(b) Reports on Form 8-K
A Report on Form 8-K was filed on June 15, 2004 in conjunction with the
press release announcing our financial results for the quarter ended April
30, 2004.
26
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: September 14, 2004
Williston, Vermont
VERMONT PURE HOLDINGS, LTD.
By: /s/ Bruce S. MacDonald
-------------------------
Bruce S. MacDonald
Vice President, Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
27
Vermont Pure Holdings, Ltd.
Quarterly Report on Form 10-Q
for the Quarter Ended July 31, 2004
Exhibits Filed Herewith
Exhibit
Number Description
- ------ -----------
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
28