UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 30, 2005
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 July 1, 2005
----- ------------
Common Stock, $.001 Par Value 21,624,877
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
Table of Contents
Page Number
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of April 30, 2005 October 31, 2004 (unaudited) 3
Condensed Consolidated Statements of
Operations for the Three and Six Months ended
April 30, 2005 and 2004 (unaudited) 4
Condensed Consolidated Statements of Cash
Flows for the Six Months ended April 30,
2005 and 2004 (unaudited) 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13 - 21
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 22
Item 4. Controls and Procedures 23
Part II - Other Information 24-25
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
Signature 26
2
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, October 31,
---------------- -----------------
2005 2004
---------------- -----------------
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,253,079 $ 783,445
Accounts receivable - net 7,511,028 7,065,530
Inventories 1,085,863 1,069,834
Current portion of deferred tax asset 1,439,446 1,439,446
Other current assets 1,877,003 1,379,104
Unrealized gain on derivatives 230,552 103,100
---------------- -----------------
TOTAL CURRENT ASSETS 13,396,971 11,840,459
---------------- -----------------
PROPERTY AND EQUIPMENT - net of accumulated depreciation 11,097,649 12,147,200
---------------- -----------------
OTHER ASSETS:
Goodwill 74,762,545 74,772,591
Other intangible assets - net of accumulated amortization 3,490,415 3,734,899
Deferred tax asset 655,187 749,713
Other assets 75,000 536,000
---------------- -----------------
TOTAL OTHER ASSETS 78,983,147 79,793,203
---------------- -----------------
TOTAL ASSETS $ 103,477,767 $ 103,780,862
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 3,612,203 $ 6,140,635
Accounts payable 2,038,035 2,828,789
Accrued expenses 2,391,057 2,318,486
Current portion of customer deposits 683,314 202,244
---------------- -----------------
TOTAL CURRENT LIABILITIES 8,724,609 11,490,154
---------------- -----------------
Long term debt, less current portion 40,400,000 37,853,696
Customer deposits 2,733,259 3,168,483
---------------- -----------------
TOTAL LIABILITIES 51,857,868 52,512,333
---------------- -----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.001 par value, 50,000,000 authorized shares
21,696,377 issued and 21,624,827 outstanding shares as of
April 30, 2005 and 21,569,711 issued and 21,498,161
outstanding as of October 31, 2004 21,621 21,569
Additional paid in capital 58,110,817 57,869,411
Treasury stock, at cost, 71,550 shares as of April 30, 2005
and October 31, 2004 (264,735) (264,735)
Unearned compensation (134,250) -
Accumulated deficit (6,249,580) (6,460,816)
Accumulated other comprehensive income, net of tax 136,026 103,100
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 51,619,899 51,268,529
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 103,477,767 $ 103,780,862
================ =================
See notes to the condensed consolidated financial statements.
3
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended April 30, Six months ended April 30,
---------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
(unaudited) (unaudited)
NET SALES $ 14,755,872 $ 13,182,212 $ 28,719,632 $ 25,179,780
COST OF GOODS SOLD 6,167,839 5,959,610 12,099,715 11,319,548
------------ ------------ ------------ ------------
GROSS PROFIT 8,588,033 7,222,602 16,619,917 13,860,232
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative expenses 6,896,252 5,793,650 13,673,106 11,492,516
Advertising expenses 294,709 261,200 550,548 475,383
Amortization 193,611 89,510 388,893 162,964
Other compensation - - - 18,951
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 7,384,572 6,144,360 14,612,547 12,149,814
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,203,461 1,078,242 2,007,370 1,710,418
------------ ------------ ------------ ------------
OTHER EXPENSE:
Interest (850,156) (916,085) (1,660,914) (1,930,299)
(Loss) gain on disposal of property and equipment (6,009) - 11,885 -
Miscellaneous - (2,261) - (8,397)
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE (856,165) (918,346) (1,649,029) (1,938,696)
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 347,296 159,896 358,341 (228,278)
INCOME TAX (EXPENSE) BENEFIT (142,573) 26,696 (147,105) 95,876
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 204,723 186,592 211,236 (132,402)
DISCONTINUED OPERATIONS:
Loss from discontinued operations - (187,321) - (79,868)
Gain on disposal of segments of business - 352,535 - 352,535
Income tax expense from discontinued operations - (68,628) - (113,759)
------------ ------------ ------------ ------------
INCOME FROM DISCONTINUED OPERATIONS - 96,586 - 158,908
------------ ------------ ------------ ------------
NET INCOME $ 204,723 $ 283,178 $ 211,236 $ 26,506
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - BASIC:
Continuing Operations $ 0.01 0.01 $ 0.01 (0.01)
Discontinued Operations - - - 0.01
------------ ------------ ------------ ------------
NET INCOME $ 0.01 $ 0.01 $ 0.01 $ 0.00
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE - DILUTED:
Continuing Operations $ 0.01 0.01 $ 0.01 (0.01)
Discontinued Operations - - - 0.01
------------ ------------ ------------ ------------
NET INCOME $ 0.01 $ 0.01 $ 0.01 $ 0.00
============ ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - BASIC 21,624,827 21,475,233 21,582,605 21,460,346
============ ============ ============ ============
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - DILUTED 21,635,277 21,693,432 21,591,115 21,684,154
============ ============ ============ ============
See notes to the condensed consolidated financial statements.
4
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended April 30,
---------------------------
2005 2004
------------ ------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 211,236 $ 26,506
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 2,505,794 2,667,004
Bad debt provision 223,492 124,505
Amortization 388,893 162,963
Deferred tax benefit - (15,035)
(Gain) loss on disposal of property and equipment (11,885) 26,667
Gain on the sale of segments of business - (352,535)
Non cash compensation 28,600 18,921
Changes in assets and liabilities:
Accounts receivable (668,990) 446,663
Inventories (16,029) (671,924)
Other current assets (497,899) (796,069)
Other assets 461,000 (251,593)
Accounts payable (790,754) 85,341
Customer deposits 45,845 148,746
Accrued expenses 72,571 (904,265)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,951,874 715,895
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,496,326) (1,838,002)
Proceeds from sale of fixed assets 102,604 170,554
Proceeds from the sale of segments of business - 9,425,618
Cash used for acquisitions - net of purchase price adjustments - (627,653)
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,393,722) 7,130,517
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 2,000,000 2,533,533
Payments on line of credit (2,100,000) -
Proceeds from debt 28,000,000 -
Principal payment on debt (27,882,128) (11,563,724)
Payments of debt issuance costs (185,000) -
Sale of common stock 78,610 111,294
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (88,518) (8,918,897)
------------ ------------
NET INCREASE (DECREASE) IN CASH 469,634 (1,072,485)
CASH - Beginning of period 783,445 1,170,321
------------ ------------
CASH - End of period $ 1,253,079 $ 97,836
============ ============
Cash paid for interest $ 1,736,779 $ 1,999,206
============ ============
Cash paid for income taxes $ 194,400 $ 169,639
============ ============
See notes to the condensed consolidated financial statements.
5
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
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/A
of Vermont Pure Holdings, Ltd. (the Company) for the year ended October
31, 2004.
Certain information and footnote disclosures normally included in audited
consolidated financial statements presented in accordance with GAAP have
been condensed or omitted. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K/A for the year ended October 31, 2004. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the full year.
In fiscal 2004 the Company merged all of its subsidiaries into the parent,
Vermont Pure Holdings, Ltd., and organized Crystal Rock LLC as a wholly
owned subsidiary to hold the Company's operating assets. The financial
statements herewith reflect the consolidated operations and financial
condition of Vermont Pure Holdings Ltd. and Crystal Rock LLC.
2. STOCK BASED COMPENSATION
The Company follows the accounting treatment prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," when accounting for stock-based compensation granted to
employees and directors.
Pro forma information regarding net income (loss) and net income (loss)
per share is presented below as if the Company had accounted for its
employee stock options under the fair value method using Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation," net of tax. Such pro forma information is not necessarily
representative of the effects on reported results of operations for future
years due primarily to option vesting periods and to the fair value of
additional options in future years.
6
Three Months Ended Six Months Ended
April 30, April 30,
2005 2004 2005 2004
-------- -------- -------- ---------
Net Income - As Reported $204,723 $283,178 $211,236 $ 26,506
Effect of compensation expense determined
under fair value method valuation for all
awards, net of income tax 135,256 50,651 177,552 102,872
-------- -------- -------- ---------
Pro Forma Net Income (Loss) $ 69,467 $232,527 $ 33,684 $ (76,366)
======== ======== ======== =========
Basic Net Income (Loss) Per Share:
As Reported $ .01 $ .01 $ .01 $ .00
======== ======== ======== =========
Pro Forma $ .00 $ .01 $ .00 $ .00
======== ======== ======== =========
Diluted Net Income (Loss) Per Share:
As Reported $ .01 $ .01 $ .01 $ .00
======== ======== ======== =========
Pro Forma $ .00 $ .01 $ .00 $ .00
======== ======== ======== =========
Stock Issued to Directors
The Company issued 5,430 shares of its common stock to directors in lieu
of cash for board fees in the first six months of fiscal year 2004.
Compensation expense of approximately $19,000 was recorded for that period
based on the market price on the date of issuance.
Employee Stock Purchase Plan
On June 15, 1999, the Company's stockholders approved the Vermont Pure
Holdings, Ltd. 1999 Employee Stock Purchase Plan. On January 1, 2001,
employees commenced participation in the plan. The total number of shares
of common stock issued under this plan during the six months ended April
30, 2005 was 51,666 for proceeds of $78,610. The total number of shares of
common stock issued under this plan during the six months ended April 30,
2004 was 37,983 for proceeds of $98,794.
Restricted Shares
On January 2, 2005, the Company issued 75,000 shares of restricted stock
under the 2004 Stock Incentive Plan. These shares vest in equal
installments over a three year period on the annual anniversary dates
contingent on certain criteria related to the financial performance of the
Company. Compensation expense related to these shares will be incurred
when it is determined that it is probable the performance criteria will be
met. No expense has been recorded related to the issuance of these shares
though April 30, 2005.
7
Critical Accounting Policies
In following the accounting treatment prescribed by APB Opinion No. 25,
the Company has recognized no compensation expense for its stock option
awards because the exercise price of the Company's stock options equals
the market price of the underlying stock on the date of option grant. If
the Company's compensation committee chose to award options at lower than
market prices, the Company would be required to recognize compensation
expense. There are currently no plans to issue options at prices lower
than the market value. The compensation committee has issued restricted
shares of the Company's stock and recorded compensation expense as a
result of the issuance.
The Company provides pro forma disclosure in the footnotes to its
financial statements to enable the reader to assess the impact on the
financial statements if the Company had used the fair value method using
SFAS 123. In doing so, the Company makes certain assumptions related to
interest rates and the volatility of its stock price. The accuracy of
these assumptions affects the eventual outcome of the amount of stock
based compensation reported in the footnote.
The Company estimates a risk free rate of return based on current (at the
time of option issuance) U. S. Treasury bonds and calculates the
volatility of its stock price over the past twelve months from the option
issuance date. The fluctuations in the volatility assumption used in the
calculation over the years reported is a direct result of the increases
and decrease in the stock price over that time. All other factors being
equal, a 10% increase in the volatility percentage results in
approximately a 12% increase in the fair value of the options, net of tax.
SFAS 123(R) will be effective for the Company starting with its fiscal
year ending October 31, 2006. In March 2005, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 107 (SAB 107) which
provides additional guidance regarding the pronouncement. The Company is
currently assessing the impact that SFAS will have on its results of
operations and financial position.
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. Conversely, if the rate is lower than the fixed rate, the
Company pays the bank additional interest. As of April 30, 2005, the
Company had one swap in the notional amount of $10 million maturing in
June 2006. As of April 30, 2004, the Company had two swap agreements for a
total notional amount of $14 million. One of the agreements, with a
notional amount of $4 million, expired in fiscal year 2004.
Based on the floating rate for six month periods ended April 30, 2005 and
2004, the Company paid $21,000 less and $249,000 more in interest,
respectively, than it would have without the swaps.
8
This swap is considered a hedge under SFAS Nos. 133 and 137. Since the
instrument is intended to hedge against variable cash flows, it is
considered a cash flow hedge. As a result, the change in the fair value of
the derivative is recognized as comprehensive income or loss until the
hedged item is recognized in earnings.
4. COMPREHENSIVE INCOME
The following table summarizes comprehensive income for the respective
periods:
Three Months Ended April 30, Six Months Ended April 30,
2005 2004 2005 2004
---- ---- ---- ----
Net Income $204,723 $283,178 $211,236 $ 26,506
Other Comprehensive Income:
Change in unrealized gain on derivatives
designated as cash flow hedges - net of
tax (1,434) 83,440 32,926 121,908
-------- -------- -------- --------
Comprehensive Income $203,289 $366,618 $244,162 $148,414
======== ======== ======== ========
5. INVENTORIES
Inventories consisted of the following at:
April 30, October 31,
2005 2004
---- ----
Finished Goods $ 924,074 $ 900,917
Raw Materials 161,789 168,917
---------- -----------
Total Inventories $1,085,863 $ 1,069,834
========== ===========
6. NET INCOME PER SHARE AND WEIGHTED AVERAGE SHARES
The Company considers outstanding in-the-money stock options as potential
common stock in its calculation of diluted earnings per share, unless the
effect would be anti-dilutive, and uses the treasury stock method to
calculate the applicable number of shares. The following calculation
provides the reconciliation of the denominators used in the calculation of
basic and fully diluted earnings per share:
9
Three Months Ended April 30, Six Months Ended April 30,
2005 2004 2005 2004
---- ---- ---- ----
Net Income $ 204,723 $ 283,178 $ 211,236 $ 26,506
Denominator:
Basic Weighted Average Shares Outstanding 21,624,827 21,475,233 21,582,605 21,460,346
Dilutive effect of Stock Options 10,450 218,199 8,510 223,808
------------- ----------- ------------ ------------
Diluted Weighted Average Shares Outstanding 21,635,277 21,693,432 21,591,115 21,684,154
------------- ----------- ------------ ------------
Basic Income Per Share $ .01 $ .01 $ .01 $ .00
============= =========== ============ ============
Diluted Income Per Share $ .01 $ .01 $ .01 $ .00
============= =========== ============ ============
There were 2,648,490 and 2,512,990 options outstanding as of April 30,
2005 and 2004, respectively. For the three and six month periods ended
April 30, 2005, in addition to the options included to calculate the
effect of dilution, there were 2,583,490 options not included in the
dilution calculation. For the three and six month periods ended April 30,
2004, there were 1,249,200 additional options not included in the dilution
calculation. These options were not included in the dilution calculation
because their effect would have been antidilutive.
7. DEBT
On April 6, 2005, the Company refinanced its credit facility. The new
lender is Bank of America. Webster Bank is a participant in the new loan.
The new facility refinanced $28 million of existing senior debt in the
form of a seven year term loan, provides a revolving credit facility of $6
million for working capital and letters of credit for a term of three
years, and makes available up to $7.5 million to be used for acquisitions
for a period of three years. The term loan may also provide funds for
future principal payment of the Company's subordinated debt if certain
financial covenants are met after the first two years of the loan.
The term loan amortizes over seven years and the new acquisition debt
amortizes as a term loan for five years after the first three years.
During the first three years of the acquisition debt, interest only is
paid on a monthly basis for amounts drawn down for acquisitions. Interest
on the term loan and revolving line of credit is tied to the Company's
performance based the 30 day LIBOR (3.08% as of April 30, 2005) plus 250
basis points, while the acquisition line has a 225 basis point spread over
the 30 day LIBOR.
With the $28 million of term debt, the Company paid off its borrowings
owed to Webster Bank, including $17.5 million under the old term loan and
$5.4 million under the old acquisition line of credit as well as $3.6
million of its subordinated debt. The balance of the new term loan as well
as $2.1 million of the new line of credit was used to pay a balance of
$3.5 million on the revolving line of credit with Webster Bank. At April
30, 2005, the Company had $1 million outstanding on its line of credit
with Bank of America primarily to
10
fund its operating account with Webster Bank since it had not been
transferred yet. In addition there were $1.4 million of letters of credit
outstanding. There was no balance on the acquisition line as of April 30,
2005.
The Company's Loan and Security agreement, described above, requires that
it be in compliance with certain financial covenants at the end of each
fiscal quarter. The covenants include senior fixed charge coverage of
greater than 1.25 to 1, total fixed charge coverage of greater than 1 to
1, and senior debt to earnings before interest, taxes, depreciation, and
amortization (EBITDA) of greater than 3.25 to 1.
As of April 30, 2005, the Company was in compliance with all of the
financial covenants of its new credit facility.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Major components of intangible assets at April 30, 2005 and October 31,
2004 consisted of:
April 30, 2005 October 31, 2004
----------------------------- -----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
---------- ------------ ---------- ------------
Amortizable Intangible Assets:
Customer Lists and Covenants
Not to Compete $4,108,840 $ 1,129,776 $4,152,840 $ 759,591
Other Intangibles 702,013 190,662 513,604 171,954
---------- ------------ ---------- ------------
Total $4,810,853 $ 1,320,438 $4,666,444 $ 931,545
========== ============ ========== ============
Amortization expense for the three month periods ending April 30, 2005 and
April 30, 2004 was $193,611 and $89,510 respectively.Amortization expense
for the six month periods ending April 30, 2005 and April 30, 2004 was
$388,893 and $162,964 respectively.
The changes in the carrying amount of goodwill for the six month periods
ended April 30, 2005 and the year ended October 31, 2004 are as follows:
April 30, 2005 October 31, 2004
-------------- ----------------
Beginning Balance $74,772,591 $72,899,355
Goodwill acquired during the period 3,271 1,875,263
Goodwill disposed of during the period (13,317) (2,027)
----------- -----------
Balance as of the end of the period $74,762,545 $74,772,591
=========== ===========
9. RECENT PRONOUNCEMENTS
In March 2005, FASB issued FIN 47, "Accounting for Conditional Asset
Retirement Obligations," as further guidance related to SFAS No. 143,
"Accounting for Asset Retirement Obligations." The pronouncement defines
when asset retirement would be required based on conditions or events that
may or may not be within the control of the
11
Company. If an asset should be retired under these circumstances, the
Company would recognize the liability based on the existing fair value of
the asset if it can be reasonably estimated. If applicable, the Company
would implement FIN 47 in fiscal year 2006. The Company is currently
evaluating the impact the pronouncement could potentially have on its
results from operations and financial position.
10. SUBSEQUENT EVENT
On May 3, 2005, the Company entered into an interest rate hedge ("swap")
agreement in conjunction with its new senior financing. The new credit
agreement requires that the Company fix the interest rate of its term debt
for the life of the loan. The swap fixes the interest rate at 4.66%, plus
the applicable margin, currently 2.50%, and amortizes concurrently with
the loan principal to fix the interest rate with respect to 75% of the
outstanding principal. The swaps constituting 75% of fixed rate principal
include the Company's existing swap.
12
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
consolidated financial statements and notes thereto as filed in our Annual
Report on Form 10-K for the year ended October 31, 2004 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
Results of Operations for the Three Months Ended April 30, 2005 Compared to the
Three Months Ended April 30, 2004
Sales
Sales for the three months ended April 30, 2005 were $14,756,000 compared to
$13,182,000 for the corresponding period in 2004, an increase of $1,574,000 or
12%. The increase was the result of the growth of existing product lines and
acquisitions. Net sales growth from acquisitions for the second quarter totaled
$949,000, accounting for a 7% increase in total sales. Excluding acquisitions,
sales increased 5% for the three months ended April 30, 2005 compared to the
corresponding period in 2004.
The comparative breakdown of sales of the product lines for the respective three
month periods ended April 30, 2005 and 2004 is as follows:
Product Line 2005 2004 Difference % Diff.
------------ ---- ---- ---------- -------
(dollars in thousands)
Water $ 7,043 $ 6,281 $ 762 12%
Coffee and Other Products 5,373 4,685 688 15%
Equipment Rental 2,340 2,216 124 6%
------- ------- ----------
Total $14,756 $13,182 $ 1,574 12%
======= ======= ==========
13
Water - Sales of water and related products increased as a result of a 9%
increase in volume and 3% increase in price. The increase in volume was
primarily a result of acquisitions. Average selling price increased as result of
increases in list prices. Net of acquisitions, water sales increased 2%.
Coffee and Other Products - Sales of coffee and other products increased 4% from
sales volume obtained in acquisitions. Net of acquisitions, sales in this
category increased 11%. The increase in sales was attributable to increased
volume of all products in this category but primarily to the growth of single
serve coffee, which grew 44% to $1,291,000 in the second quarter of fiscal year
2005 compared to $897,000 in the same period in fiscal year 2004.
Equipment Rental - Equipment rental revenue was up in the second quarter
compared to the same period in fiscal year 2004 as a result of more cooler
placements and additional coffee machine rentals from the sale of single serve
coffee. Net of acquisitions, equipment rental revenue was down 2% in the second
quarter compared the same period in fiscal year 2004. Water cooler placements in
the second quarter of fiscal year 2005, net of acquisitions, were down 1% from
the comparable quarter in fiscal year 2004 as a result of competition in the
retail market.
Gross Profit/Cost of Goods Sold - For the three months ended April 30, 2005,
gross profit increased $1,365,000, or 19%, to $8,588,000 from $7,223,000 for the
comparable period in 2004. The increase in gross profit was due to higher sales
and improving margins. As a percentage of sales, gross profit increased to 58%
of sales compared to 55% for the respective period in fiscal year 2004. The
increase in gross profit, as a percentage of sales, was attributable to higher
pricing and lower cost of goods sold. The lower costs reflected lower production
and transportation costs for water, most notably for our new production
locations in Vermont, which opened in May 2004, and in western New York, which
commenced in November 2004.
Cost of goods sold includes all costs to bottle water, costs of purchasing and
receiving products for resale, including freight, as well as costs associated
with product quality, warehousing and handling costs, internal transfers, and
the repair and service of rental equipment, but does not include the costs of
distributing our product to our customers. We include distribution costs in
selling, general, and administrative expense, and the amount is reported below.
The reader should be aware that other companies may include distribution costs
in their cost of goods sold, in which case, on a comparative basis, such other
companies may have a lower gross margin as a result.
Income from Operations/Operating Expenses
Total operating expenses increased to $7,385,000 in the second quarter of fiscal
year 2005 from $6,144,000 in the comparable period in fiscal year 2004, an
increase of $1,241,000, or 20%.
Selling, general and administrative (SG&A) expenses were $6,896,000 and
$5,794,000 for the second quarters of fiscal years 2005 and 2004, respectively,
an increase of $1,102,000, or 19%. Of total SG&A expenses, route distribution
costs increased 9%, primarily related to labor for commission-based sales from
increased product volume, fuel due to market prices, vehicle lease and repair
costs, and insurance costs due to market rates and loss experience. Total route
distribution costs for the second quarter of fiscal year 2005 were $3,297,000
compared to $3,015,000 for the same quarter in fiscal year 2004. In addition,
selling costs increased 15% as a result of increased
14
sales staffing. Administration costs increased 34% as a result of legal and
consulting costs totaling $65,000 related to regulatory compliance and costs
totaling $208,000 associated with the refinancing of the senior debt facility
with Bank of America.
Advertising expenses were $295,000 in the second quarter of fiscal year 2005
compared to $261,000 in the second quarter of fiscal year 2004, an increase of
$34,000, or 13%. The increase in advertising costs is related to increased
yellow page and other print advertising.
Amortization increased to $194,000 in the first quarter of fiscal year 2005 from
$90,000 in the second quarter of fiscal year 2004. This increase is attributable
to intangible assets that were acquired as part of several acquisitions in
fiscal year 2004.
Income from operations for the three months ended April 30, 2005 was $1,203,000
compared to $1,078,000 in the same period in 2004, an increase of $125,000, or
12%. The increase was a result of higher sales and an improved gross margin
despite proportionately higher administrative costs due to the bank refinancing.
Interest, Taxes, and Other Expenses - Income from Continuing Operations
Interest expense was $850,000 for the three months ended April 30, 2005 compared
to $916,000 in the three months ended April 30, 2004, a decrease of $66,000.
Lower interest costs were primarily a result of lower amounts of senior and
subordinated debt combined with lower fixed rate commitments compared to the
same period in fiscal year 2004.
Income from continuing operations before income taxes was $347,000 for the three
months ended April 30, 2005, compared to income from continuing operations
before income taxes of $160,000 in the corresponding period in fiscal year 2004,
an improvement of $187,000. The tax expense for the second quarter of fiscal
year 2005 was $143,000 and was based on the expected effective tax rate of 41%
for the entire fiscal year 2005. The effective tax was calculated by estimating
the federal tax liability, combined with the pertinent taxes in the states in
which we operate, for the full fiscal year. We recorded a tax benefit of $27,000
related to income from continuing operations in the second quarter of fiscal
year 2004. The tax benefit was a result of an adjustment in the effective tax
rate in the second quarter from the first quarter based on expected income taxes
to be paid for the entire fiscal year.
For the three months ended April 30, 2005, income from continuing operations was
$205,000 compared to $187,000 for the corresponding period of 2004, an
improvement of $18,000.
Discontinued Operations
There were no discontinued operations in the second quarter of fiscal year 2005.
The total income from discontinued operations was $97,000 in the second quarter
of fiscal year 2004.
The loss from operations for our discontinued retail PET segments for the three
months ended April 30, 2004 was $187,000. The gain on the sale of the assets of
our retail segment was $353,000 and was determined by deducting the net value of
the assets and liabilities sold as well as the direct costs incurred in the
transaction from the sale price. Net tax expense of $69,000 was determined by
15
netting the loss on discontinued operations and the gain on the sale of retail
assets and applying an effective tax rate of 42%.
Net Income
Net income of $205,000 for the three months ended April 30, 2005 was a result of
income from continuing operations. It was a decrease of $78,000 from net income
of $283,000 in the corresponding period in fiscal year 2004. The decrease is
attributable to the gain from the sale of the retail segments in the second
quarter of fiscal year 2004.
Results of Operations for the Six Months Ended April 30, 2005 Compared to the
Six Months Ended April 30, 2004
Sales
Sales from continuing operations for the first six months of 2005 were
$28,720,000 compared to $25,180,000 for the first six months of 2004, an
increase of $3,540,000 or 14%. The increase was primarily the result of
acquisitions as well as increases in prices of all of our product categories as
well as higher volume of single serve coffee products. Net of acquisitions,
sales increased 6% over the corresponding period in the prior year.
The comparative breakdown of sales of the product lines for the first six months
of 2004 and 2003 is as follows:
Product Line 2005 2004 Difference % Diff.
------------ ---- ---- ---------- -------
(in 000's $) (in 000's $) (in 000's $)
Water $13,483 $11,787 $1,696 14%
Coffee and Other Products 10,542 8,985 1,557 17%
Equipment Rental 4,695 4,408 287 7%
------- ------- ------
Total $28,720 $25,180 $3,540 14%
Water - Of the total increase in water sales, 3% was related to price and 11% to
volume. Average selling price increased as result of increases in list prices.
The increase in volume was primarily related to acquisitions. Net of
acquisitions, water sales increased 4%.
Coffee and Other Products - Net of acquisitions, revenues in the category
increased 14%. The increase in sales was attributable to increased volume of all
products in this category but primarily to the growth of single serve coffee,
which grew 47%, to $2,433,000 in the first half of fiscal year 2005 compared to
$1,650,000 in the same period in fiscal year 2004.
Equipment Rental - Equipment rental increased as a result of water cooler
placements and rental of single serve coffee equipment. Average price was
substantially unchanged from the same period a year ago. Cooler placements were
up 6% as a result of acquisitions. Net of acquisitions, equipment rental income
was down 2%.
16
Gross Profit/Cost of Goods Sold
Gross profit increased $2,760,000, or 20%, to $16,620,000 for the first six
months of 2005 from $13,860,000 for the first six months of 2004. The increase
in gross profit was attributable to higher sales and improving margins. As a
percentage of sales, gross profit increased to 58% of sales from 55% for the
respective period. The gross margin benefited from higher average selling prices
and lower costs of goods sold, which in part reflected lower production and
transportation costs for water, notably for our new production locations in
Vermont, which opened in May 2004, and in western New York, which commenced in
November 2004.
Cost of goods sold includes all costs to bottle water, costs of purchasing and
receiving products for resale, including freight, as well as costs associated
with product quality, warehousing and handling costs, internal transfers, and
the repair and service of rental equipment, but does not include the costs of
distributing our product to our customers. We include distribution costs in
selling, general, and administrative expense, and the amount is reported below.
The reader should be aware that other companies may include distribution costs
in their cost of goods sold, in which case, on a comparative basis, such other
companies may have a lower gross margin as a result.
Income from Operations/Operating Expenses
Total operating expenses increased to $14,613,000 in the first six months of
2005 from $12,150,000 in the first six months of 2004, an increase of
$2,463,000, or 20%.
Selling, general and administrative (SG&A) expenses were $13,673,000 and
$11,493,000 for the first six months of 2005 and 2004, respectively, an increase
of $2,180,000 or 19%. Of total SG&A expenses, route distribution costs increased
12% primarily related to labor for commission-based sales from increased product
volume, fuel due to market prices, vehicle lease and repair costs, and insurance
costs due to market rates and loss experience. Total route distribution costs
for the first half of fiscal year 2005 were $6,564,000 compared to $5,848,000
for the same period in fiscal year 2004. In addition, selling costs increased
16% as a result of increased sales staffing. Administration costs increased 28%
as a result of legal and consulting costs totaling $103,000 related to
regulatory compliance and costs totaling $208,000 associated with the
refinancing of the senior debt facility with Bank of America.
Advertising expenses were $551,000 in the first six months of 2005 compared to
$475,000 in the first six months of 2004, an increase of $76,000, or 16%. The
increase in advertising costs is related to increased yellow page and other
print advertising.
Amortization increased to $389,000 in the first six months of 2005 from $163,000
in the first six months of 2004 as a result of intangible assets that were
acquired as part of several acquisitions in fiscal year 2004.
Other compensation in the first six months of 2004 totaled $19,000. This expense
relates to compensation paid to directors in company stock in lieu of cash for
board fees.
Income from operations for the first six months of 2005 was $2,007,000 compared
to $1,710,000 in the first six months of 2004, an increase of $297,000, or 17%.
The increase was a result of higher
17
sales and an improved gross margin despite proportionately higher administrative
costs due to the bank refinancing.
Interest, Taxes, and Other Expenses - (Loss) Income from Continuing Operations
Interest expense was $1,661,000 for the first six months of 2005 compared to
$1,930,000 in the first six months of 2004, a decrease of $269,000. Lower
interest costs were primarily a result of lower amounts of senior and
subordinated debt combined with lower fixed rate commitments compared to the
same period in fiscal year 2004. While market rates have risen, as compared to
the first half of fiscal year 2004, our total effective interest rate has
decreased from the year earlier as a result of expiring interest rate swaps and
pay down of subordinated debt.
Income from continuing operations before income tax expense was $358,000 for the
first six months of 2005, compared to a loss from continuing operations before
taxes of $228,000 in the first six months of 2004, an improvement of $586,000.
The tax expense of $147,000 for the first six months of 2005 is an increase of
$243,000 from a tax benefit of $96,000 for the same period a year ago. The tax
expense and benefit were determined by using an annual effective tax rate of 41%
for fiscal year 2005 and 42% for fiscal year 2004, which represents the
estimated federal and state income tax expense for the respective years.
Income from continuing operations of $211,000 for the first six months of 2005
was a $343,000 improvement from a loss from operations of $132,000 for the first
six months of 2004.
Discontinued Operations
The loss from operations for discontinued segments for the six months ended
April 30, 2004 was $80,000. The corresponding tax expense of loss from
discontinued operations combined with the gain on the sale of $114,000 was
calculated at 42%, the estimated effective annual rate for 2004.
Net Income
Net income of $211,000 for the six months of 2005 was attributable to continuing
operations. This represented an improvement of $184,000 from net income, or
$27,000 in the first six months of 2004. Net income in the first six months of
2004 was largely a result of the gain on the sale of the retail assets in the
second fiscal quarter of 2004.
Trends
We feel the improvement in the results from continuing operations in the first
half of the year is reflective of changing business trends and that we will be
profitable for the remainder of the year. While growth for water and coffee
products in some markets has remained relatively flat, we have seen encouraging
growth trends in several markets. As mentioned above, pricing has been a key
reason for improved financial performance. Prices have increased in all markets
over the last year for all significant products and services. We continue to
experience competition from retail outlets for coolers but the effect of that
competition, though still reducing our base business, appears to be leveling
off. We are also experiencing growth in customers that are purchasing our water
services without renting a cooler. We believe that this trend will increase over
the next year but may not offset a decline in cooler rentals.
18
In addition, the potential for growth through acquisitions remains viable. We
have ample opportunities to acquire businesses through small acquisitions and
will take advantage of this based on price, potential synergies, and access to
capital.
However, profitability continues to be threatened by costs controlled by outside
conditions such as fuel, insurance, and administrative expenses related to
regulatory requirements. The SEC has extended the period to comply with Section
404 of the Sarbanes-Oxley Act for non-accelerated filers. This effectively
provides us with an additional year to comply. Consequently, we expect that this
will postpone a substantial portion of our anticipated cost for this compliance
from fiscal year 2005 to fiscal year 2006.
We feel that the general improvement in market conditions, combined with
acquisitions and cost efficiencies, will continue to improve profitability as
long as these conditions and opportunities exist.
Liquidity and Capital Resources
On April 6, 2005, the Company refinanced its credit facility. The new lender is
Bank of America, with Webster Bank as a participant in the new loan. The new
facility refinanced $28 million of existing senior debt in the form of a seven
year term loan, provides a revolving credit facility of $6 million for working
capital and letters of credit for a term of three years, and makes available up
to $7.5 million to be used for acquisitions for a period of three years. The
term loan may also provide funds for future principal payment of the Company's
subordinated debt if certain financial covenants are met after the first two
years of the loan.
The agreement amortizes the payback of the term loan over seven years and
amortizes the payback of the new acquisition debt as a term loan for five years
after the first three years. During the first three years, interest only is paid
on a monthly basis for amounts drawn down for acquisitions. Interest on the term
loan and revolving line of credit is tied to the Company's performance based on
the 30 day LIBOR plus 250 basis points while the acquisition line has a 225
basis point spread over the 30 day LIBOR.
With the $28 million of term debt, the Company paid off its borrowings owed to
Webster Bank, including $17.5 million under the term loan and $5.4 million under
the acquisition line of credit as well as $3.6 million of its subordinated debt.
The balance of the new term loan as well as $2.1 million of the new line of
credit was used to pay a balance of $3.5 million on the revolving line of credit
with Webster Bank. At April 30, 2005, the Company had $1 million outstanding on
its line of credit with Bank of America primarily to fund its operating account
with Webster Bank since it had not been transferred yet. In addition there were
$1.4 million of letters of credit outstanding. There was no balance on the
acquisition line.
The revolving line of credit with Webster Bank was due April 1, 2005. In an
agreement on that date, the Company agreed with Webster Bank, acting as agent
for its lending group, to extend the payment. The extension established a new
expiration date of April 11, 2005. All of the other terms of the facility and
the underlying Loan Agreement and associated loan documents, remained unchanged
until we closed on the Bank of America facility. There was no penalty for
19
paying off the debt to Webster Bank. Webster Bank is participant with Bank of
America on the new facility.
The Company's credit facility, described above, requires that it be in
compliance with certain financial covenants at the end of each fiscal quarter.
The covenants include senior fixed charge coverage of greater than 1.25 to 1,
total fixed charge coverage of greater than 1 to 1, and senior debt to EBITDA of
greater than 3.25 to 1.
As of April 30, 2005, the Company was in compliance with all of the financial
covenants of its new credit facility.
As of April 30, 2005, we had working capital of $4,672,000 compared to $350,000
as of October 31, 2004, an increase of $4,322,000. The increase in working
capital was primarily a result of the new senior debt facility. At the end of
fiscal 2004, the outstanding amount of our operating line of credit was
$1,500,000 which was, along with $200,000 of the acquisition line of credit,
classified as current debt. As a result of the refinancing, the $1,400,000
balance on the operating line of credit on April 30, 2005 was classified as long
term debt. In addition, the payment schedule of the new term loan reduced the
payments over the next 12 months by $900,000. The balance on the operating line
of credit on April 30, 2005 was attributable to funding our operating cash
accounts held at our former bank while we transition them to Bank of America. We
paid $185,000 in bank fees, which we are amortizing over the term of the new
credit facility. Also, to date, we spent $203,000 in legal fees that were
expensed in the second quarter as selling, general, and administrative expenses.
We routinely use cash for capital expenditures and repayment of debt. In the
first half of fiscal year 2005, we spent $1,496,000 on capital expenditures
including coolers, brewers, bottles and racks related to home and office
distribution.
As of April 30, 2005, we had $10 million of fixed rate debt in an outstanding
swap agreement. During the first half of fiscal year 2005, we recorded $32,000
of comprehensive income related to the appreciation of the value of our swap
agreement. On May 3, 2005, we entered into an interest rate hedge ("swap")
agreement in conjunction with our new senior financing. The credit agreement
requires that we fix the interest rate of the term debt for the life of the
loan. The swap fixes the interest rate at 4.66%, plus the applicable margin,
currently 2.50%, and amortizes concurrently with the loan principal to fix the
interest rate with respect to 75% of the outstanding principal. The swaps
constituting 75% of fixed rate principal include our existing swap. For a
further explanation of our fixed debt instruments, see Item 3.
In addition to our senior and subordinated debt commitments, we have significant
future cash commitments, primarily in the form of operating leases that are not
reported on the balance sheet. The following table sets forth our contractual
commitments as of April 30, 2005:
20
Fiscal Interest on Debt Operating Coffee Purchase
Year Debt (2) Leases Commitments (1) Total
---- ---- --- ------ --------------- -----
2005 $ 2,112,000 $ 1,678,000 $1,118,000 $325,000 $ 5,233,000
2006 3,125,000 3,333,000 1,941,000 162,000 8,561,000
2007 3,500,000 3,303,000 1,780,000 0 8,583,000
2008 5,275,000 3,028,000 1,528,000 0 9,831,000
2009 4,250,000 2,729,000 1,113,000 0 8,092,000
Thereafter 25,750,000 5,315,000 998,000 0 32,063,000
----------- ----------- ---------- -------- -----------
Total $44,012,000 $19,386,000 $8,478,000 $487,000 $72,363,000
=========== =========== ========== ======== ===========
(1) Please refer to "Commodity Price Risks -- Coffee" on page 22 of this
report for additional information on our coffee supply agreements.
(2) Interest includes fixed rate debt and variable rate debt assuming an
interest rate of 5.58% as of April 30, 2005
As of the date of this report, we have no other material contractual obligations
or commitments.
21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Market risks relating to our operations result primarily from changes in
interest rates and commodity prices.
INTEREST RATE RISKS
We use interest rate "swap" agreements to curtail interest rate risk. As of
April 30, 2005, we had one outstanding swap agreement, expiring June 11, 2006,
in the notional amount of $10 million. It fixes our interest rate on the
notional amount at 1.74% plus the applicable margin in our facility. At April
30, 2005, we had approximately $18.6 million of long term debt subject to
variable interest rates. Under the credit agreement with Bank of America, we
currently pay interest at a rate of LIBOR plus a margin of 2.50%. A hypothetical
100 basis point increase in the LIBOR rate would result in an additional
$186,000 of interest expense on an annualized basis. Conversely, a decrease
would result in a proportionate interest cost savings.
The new credit facility with Bank of America requires us to fix 75% of our term
debt with interest rate swaps. On May 3, 2005, the Company entered into a swap
agreement that fixes the interest rate at 4.66%, plus the applicable margin,
currently 2.50%, and amortizes concurrently with the loan principal to fix the
interest rate with respect to 75% of the outstanding principal. The swaps
constituting 75% of fixed rate principal include the Company's existing swap.
Swap agreements 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.
COMMODITY PRICE RISKS
Coffee
The cost of our coffee purchases is affected by commodity prices. We enter into
contracts to mitigate market fluctuation of these costs by fixing the price for
certain periods with our suppliers. Currently we have fixed the price of our
anticipated supply approximately through August 2005 at "green" prices ranging
from $1.16 to $1.28 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, on an annual basis.
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 first half of our fiscal
year 2005, fuel prices have increased significantly. We estimate that a $0.10
increase per gallon in fuel cost would result in an increase to annual operating
costs of approximately $60,000. In aggregate, we have spent approximately an
additional $259,000 on fuel and transportation as a result of higher prices in
the first half of fiscal year 2005 compared to the comparable period in fiscal
year 2004.
22
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE 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 us,
including our consolidated subsidiary, in reports that we file or submit under
the Securities Exchange Act of 1934, as amended, 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.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the three months ended April 30, 2005, there were no changes in our
internal control over financial reporting.
23
PART II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On April 13, 2005, we held our annual stockholders meeting at the offices
of Foley Hoag LLP, 155 Seaport Boulevard, Boston, Massachusetts 02210.
There was only one matter of business requiring a stockholder vote.
A total of 18,221,935 votes were cast and the following directors were
elected to one year terms with the corresponding vote tally:
Director For Withheld
-------- --- --------
Henry E. Baker 17,496,840 725,095
John B. Baker 17,520,875 701,060
Peter K. Baker 17,491,398 730,537
Phillip Davidowitz 18,084,832 137,103
Timothy G. Fallon 17,518,276 703,659
Robert C. Getchell 18,098,629 123,306
Carol R. Lintz 18,116,164 105,771
David R. Preston 18,115,164 106,771
Ross S. Rapaport 17,497,800 724,135
Norman E. Rickard 18,115,564 106,371
Beat Schlagenhauf 17,417,708 804,227
Item 6. Exhibits
Exhibit
Number Description
- ------- -----------
3.1 Certificate of Incorporation (Incorporated by reference to Exhibit B
to Appendix A to our registration statement on Form S-4, File No.
333-45226, filed with the SEC on September 6, 2000)
3.2 Certificate of Amendment of Certificate of Incorporation
(Incorporated by reference to Exhibit 4.2 of our current report on
Form 8-K, filed with the SEC on October 19, 2000)
3.3 By-laws, as amended (Incorporated by reference to Exhibit 3.3 to our
quarterly report on Form 10-Q, filed with the SEC on September 14,
2001)
10.1 Credit Agreement dated April 5, 2005 with Bank of America and
Webster Bank.
24
10.2 Form of Term Note dated April 5, 2005 issued to Bank of America and
Webster Bank.
10.3 Form Subordination and Pledge Agreement dated April 5, 2005 of Henry
E. Baker, Joan Baker, John B. Baker, and Peter K. Baker to Bank of
America.
10.4 Form of Second and Amended and Restated Promissory Note dated April
5, 2005 issued to Henry E. Baker, Joan Baker, John B. Baker, and
Peter K. Baker.
10.5 Form of Acquisition Note dated April 5, 2005 issued to Bank of
America and Webster Bank.
10.6 Form of Revolving Credit Note dated April 5, 2005 issued to Bank of
America and Webster Bank.
10.7* Employment Agreement dated March 24, 2005 with Bruce S. MacDonald
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
* Management contract or compensatory plan.
25
SIGNATURE
Pursuant to the requirements 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: July 8, 2005
VERMONT PURE HOLDINGS, LTD.
By: /s/ Bruce S. MacDonald
----------------------
Bruce S. MacDonald
Vice President, Chief Financial Officer
(Principal Accounting Officer and Principal
Financial Officer)
26
Exhibits Filed Herewith
Exhibit
Number Description
- ------- -----------
10.1 Credit Agreement dated April 5, 2005 with Bank of America and
Webster Bank.
10.2 Form of Term Note dated April 5, 2005 issued to Bank of America and
Webster Bank.
10.3 Form Subordination and Pledge Agreement dated April 5, 2005 of Henry
E. Baker, Joan Baker, John B. Baker, and Peter K. Baker to Bank of
America.
10.4 Form of Second and Amended and Restated Promissory Note dated April
5, 2005 issued to Henry E. Baker, Joan Baker, John B. Baker, and
Peter K. Baker.
10.5 Form of Acquisition Note dated April 5, 2005 issued to Bank of
America and Webster Bank.
10.6 Form of Revolving Credit Note dated April 5, 2005 issued to Bank of
America and Webster Bank.
10.7* Employment Agreement dated March 24, 2005 with Bruce S. MacDonald
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.
* Management contract or compensatory plan.
27