UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(
Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended July 31, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _____ to _________
Commission File Number: 000-31797
VERMONT PURE HOLDINGS, LTD.
(Exact name of registrant as specified in Its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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03-0366218
(I.R.S. Employer
Identification No.)
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1050 Buckingham St., Watertown, CT
(Address of principal executive offices)
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06795
(Zip Code)
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(860) 945-0661
(Registrants 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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
þ
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(Do not check if smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class
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Shares outstanding at
September 8, 2008
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Common Stock, $.001 Par Value
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21,498,188
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VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
Table of Contents
2
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
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July 31,
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October 31,
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2008
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2007
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(unaudited)
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(unaudited)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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1,426,853
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$
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1,873,385
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Accounts receivable net
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8,268,525
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7,522,831
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Inventories
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1,733,145
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1,711,366
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Deferred tax asset
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499,441
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499,441
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Other current assets
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1,081,551
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683,212
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TOTAL CURRENT ASSETS
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13,009,515
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12,290,235
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PROPERTY AND EQUIPMENT net
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11,500,272
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10,697,018
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OTHER ASSETS:
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Goodwill
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54,439,760
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54,423,997
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Other intangible assets net
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2,284,379
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2,653,488
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Other assets
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162,333
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696,139
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TOTAL OTHER ASSETS
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56,886,472
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57,773,624
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TOTAL ASSETS
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$
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81,396,259
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$
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80,760,877
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES:
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Line of credit
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$
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1,000,000
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$
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Current portion of long term debt
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3,337,814
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3,260,030
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Accounts payable
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2,521,841
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2,101,399
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Accrued expenses
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2,800,008
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3,454,487
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Current portion of customer deposits
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731,370
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755,965
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Unrealized loss on derivatives
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426,449
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109,722
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TOTAL CURRENT LIABILITIES
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10,817,482
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9,681,603
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Long term debt, less current portion
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15,381,698
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17,441,667
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Deferred tax liability
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3,123,091
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3,123,091
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Subordinated debt
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14,000,000
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14,000,000
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Customer deposits
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2,793,324
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2,910,875
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TOTAL LIABILITIES
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46,115,595
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47,157,236
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS EQUITY:
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Common stock $.001 par value, 50,000,000 authorized shares
21,862,738 issued and 21,498,188 outstanding shares as of
July 31, 2008 and 21,800,555 issued and 21,606,305
outstanding as of October 31, 2007
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21,863
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21,800
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Additional paid in capital
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58,395,551
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58,307,395
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Treasury stock, at cost, 364,550 shares as of July 31, 2008
and 194,250 shares as of October 31, 2007
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(707,042
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(474,441
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Accumulated deficit
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(22,172,536
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(24,183,977
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Accumulated other comprehensive income, net of tax
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(257,172
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(67,136
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TOTAL STOCKHOLDERS EQUITY
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35,280,664
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33,603,641
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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81,396,259
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$
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80,760,877
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See notes to the condensed consolidated financial statements.
3
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
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Three months ended July 31,
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Nine months ended July 31,
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2008
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2007
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2008
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2007
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(unaudited)
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(unaudited)
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NET SALES
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$
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17,986,301
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$
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17,107,306
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$
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51,809,210
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$
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48,086,185
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COST OF GOODS SOLD
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7,652,486
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7,168,897
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22,525,939
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20,910,196
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GROSS PROFIT
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10,333,815
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9,938,409
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29,283,271
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27,175,989
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OPERATING EXPENSES:
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Selling, general and administrative expenses
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7,503,559
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7,241,166
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22,142,488
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20,761,521
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Advertising expenses
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305,604
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713,476
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1,099,736
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1,231,396
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Amortization
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224,216
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213,513
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675,935
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630,904
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Gain on disposal of property and equipment
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(65,445
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1,085
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(125,091
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(14,267
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TOTAL OPERATING EXPENSES
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7,967,934
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8,169,240
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23,793,068
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22,609,554
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INCOME FROM OPERATIONS
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2,365,881
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1,769,169
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5,490,203
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4,566,435
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OTHER EXPENSE:
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Interest expense
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(731,568
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(818,088
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(2,294,396
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(2,442,883
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INCOME BEFORE INCOME TAXES
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1,634,313
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951,081
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3,195,807
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2,123,552
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INCOME TAX EXPENSE
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(605,676
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)
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(374,284
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)
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(1,184,366
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)
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(844,112
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NET INCOME
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$
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1,028,637
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$
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576,797
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$
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2,011,441
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$
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1,279,440
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NET INCOME PER SHARE BASIC
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$
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0.05
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0.03
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$
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0.09
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0.06
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NET INCOME PER SHARE DILUTED
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$
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0.05
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$
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0.03
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$
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0.09
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$
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0.06
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WEIGHTED AVERAGE SHARES USED IN COMPUTATION BASIC
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21,524,232
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21,625,571
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21,587,088
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21,626,220
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WEIGHTED AVERAGE SHARES USED IN COMPUTATION DILUTED
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21,524,232
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21,626,050
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21,587,088
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21,626,220
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See notes to the condensed consolidated financial statements.
4
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine months ended July 31,
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2008
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2007
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(unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income
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$
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2,011,441
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$
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1,279,440
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Adjustments to reconcile net income to
net cash provided by operating activities:
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Depreciation
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3,050,578
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3,049,752
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Provision for bad debts on accounts receivable
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258,686
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240,381
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Provision for bad debts on notes receivable
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526,008
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Amortization
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675,935
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630,904
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Non cash interest expense
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90,312
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77,911
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Gain on disposal of property and equipment
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(125,091
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)
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(14,267
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)
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Changes in assets and liabilities:
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Accounts receivable
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(1,004,380
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)
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(655,115
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)
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Inventories
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(21,779
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)
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(377,967
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)
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Other current assets
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(398,339
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)
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37,714
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Other assets
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7,798
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|
|
3,153
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Accounts payable
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420,442
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|
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104,450
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Accrued expenses
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(527,788
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)
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(406,119
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)
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Customer deposits
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(137,146
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)
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134,707
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NET CASH PROVIDED BY OPERATING ACTIVITIES
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4,826,677
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4,104,944
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Purchase of property and equipment
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(3,470,391
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)
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(3,202,249
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)
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Proceeds from sale of property and equipment
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|
228,705
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|
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68,092
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Cash used for acquisitions
|
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(427,430
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)
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(290,540
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)
|
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|
|
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NET CASH USED IN INVESTING ACTIVITIES
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(3,669,116
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)
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(3,424,697
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)
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|
|
|
|
|
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Net line of credit borrowings
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1,000,000
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|
|
|
47,273
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Proceeds from long term debt
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|
|
|
|
|
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13,678
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Principal payments on long term debt
|
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|
(2,459,711
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)
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|
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(2,651,486
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)
|
Purchase of treasury stock
|
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|
(232,601
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)
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|
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(50,623
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)
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Sale of common stock
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|
88,219
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|
|
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86,562
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|
|
|
|
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NET CASH USED IN FINANCING ACTIVITIES
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(1,604,093
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)
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|
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(2,554,596
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)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(446,532
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)
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|
|
(1,874,349
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)
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|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS Beginning of period
|
|
|
1,873,385
|
|
|
|
2,120,111
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS End of period
|
|
$
|
1,426,853
|
|
|
$
|
245,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,235,766
|
|
|
$
|
2,401,476
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
1,722,300
|
|
|
$
|
708,305
|
|
|
|
|
|
|
|
|
Notes payable issued in acquisitions
|
|
$
|
56,000
|
|
|
$
|
104,300
|
|
|
|
|
|
|
|
|
Property, plant and equipment financed with proceeds from debt
|
|
$
|
71,527
|
|
|
$
|
|
|
|
|
|
|
|
|
|
See notes to the condensed consolidated financial statements.
5
VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2007.
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 Companys Annual
Report on Form 10-K for the year ended October 31, 2007. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for the full
year.
The financial statements herewith reflect the consolidated operations and financial
condition of Vermont Pure Holdings Ltd. and its wholly owned subsidiary Crystal Rock, LLC.
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 160, Noncontrolling Interests in Consolidated
Financial Statements An amendment of ARB No. 51. SFAS No. 160 amends ARB No. 51 to
establish accounting and reporting standards for the noncontrolling interest in a subsidiary
and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December 15, 2008,
which is fiscal 2010 for the Company.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133. SFAS No. 161 amends SFAS 133
to require enhanced disclosures about an entitys derivative and hedging activities and
thereby improves the transparency of financial reporting. Enhanced disclosure requirements
include: objectives and strategies for the use of a derivative instrument, the
level of a companys derivative activity, tabular presentation of fair value of derivatives
6
included on the balance sheet and amounts of gains and losses on derivatives reported in the
income statement or other comprehensive income, and existence and nature of
credit-risk-related contingent features. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. The Company is currently assessing the impact, if any,
this pronouncement will have on its reporting and when, if necessary, to implement enhanced
reporting.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. This Statement identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with generally accepted
accounting principles (GAAP) in the United States. The FASB believes that the GAAP hierarchy
should be directed to entities because it is the entity (not its auditor) that is
responsible for selecting accounting principles for financial statements that are presented
in conformity with GAAP. The FASB does not believe this Statement will result in a change in
current practice. SFAS No. 162 is effective 60 days following the SECs approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of
Fairly in Conformity With Generally Accepted Accounting Principles.
Effective November 1, 2005, the Company adopted the provisions of SFAS No. 123R,
Share-Based Payments (revised 2004) (SFAS No. 123R). SFAS No. 123R requires companies to
measure the cost of employee services received in exchange for an award of equity
instruments based on the grant date fair value of the award. That cost will be recognized
over the period during which an employee is required to provide services in exchange for the
award, the requisite service period (usually the vesting period). Under SFAS No. 123R the
Company provides an estimate of forfeitures at the initial date of grant.
The Company has several stock-based compensation plans under which incentive and
non-qualified stock options and restricted shares are granted. In April 1998, the Companys
stockholders approved the 1998 Incentive and Non-Statutory Stock Option Plan. In April
2003, the Companys stockholders approved an increase in the authorized number of shares to
be issued under its 1998 Incentive and Non-Statutory Stock Option Plan from 1,500,000 to
2,000,000. This plan provides for issuances of options to purchase the Companys common
stock under the administration of the compensation committee of the Board of Directors. The
intent of the plan is to reward options to officers, employees, directors, and other
individuals providing services to the Company.
In April 2004, the Companys stockholders approved the 2004 Stock Incentive Plan. The plan
provides for issuances of awards of up to 250,000 restricted or unrestricted shares of the
Companys common stock, or incentive or non-statutory stock options to purchase such common
stock. Of the total amount of shares authorized under this plan, 149,000 option shares are outstanding, 26,000 restricted shares have been granted, and 75,000 shares are
available for grant at July 31, 2008.
7
The options issued under the plans generally vest in periods up to five years based on the
continuous service of the recipient and have 10 year contractual terms. Share awards
generally vest over one year. Option and share awards provide for accelerated vesting if
there is a change in control of the Company (as defined in the plan).
There was an option for 30,000 shares stock that expired in the third quarter of 2008.
Other than the expiration, there was no activity related to stock options and outstanding
stock option balances or other equity based compensation during the three and nine month
periods ended July 31, 2008 and 2007. The Company did not grant any equity based
compensation during the nine months ended July 31, 2008 and 2007.
The following table summarizes information pertaining to outstanding stock options, all of
which are exercisable, as of July 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
Intrinsic
|
Exercise
|
|
Outstanding
|
|
Remaining
|
|
Average
|
|
Value
|
Price
|
|
Options
|
|
Contractual
|
|
Exercise
|
|
as of
|
Range
|
|
(Shares)
|
|
Life
|
|
Price
|
|
July 31, 2008
|
$1.80 $2.60
|
|
|
234,500
|
|
|
|
6.5
|
|
|
$
|
2.32
|
|
|
$
|
|
|
$2.81 $3.38
|
|
|
358,200
|
|
|
|
2.0
|
|
|
|
3.24
|
|
|
|
$3.50 $4.25
|
|
|
40,000
|
|
|
|
3.5
|
|
|
|
3.80
|
|
|
|
$4.28 $4.98
|
|
|
5,000
|
|
|
|
3.4
|
|
|
|
4.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
637,700
|
|
|
|
3.8
|
|
|
$
|
2.95
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options were granted with lives of 10 years and provide for vesting over a term
of 0-5 years. Since all outstanding stock options were fully vested as of July 31, 2008
there was no unrecognized share based compensation related to unvested options as of that
date. All incentive and non-qualified stock option grants had an exercise price equal to
the market value of the underlying common stock on the date of grant.
Employee Stock Purchase Plan
On June 15, 1999, the Companys stockholders approved the Vermont Pure Holdings, Ltd. 1999
Employee Stock Purchase Plan (ESPP). On January 1, 2001, employees commenced
participation in the plan. The total number of shares of common stock issued under this
plan during the nine months ended July 31, 2008 and 2007 was 62,184 and 52,983 for proceeds
of $88,219 and $86,562, respectively.
On March 29, 2007, the Companys stockholders approved an increase in the number of shares
available under the plan from 500,000 to 650,000 shares. Effective January 1, 2006, ESPP shares are granted at 95% of the fair market value at the last day of the offering period.
Prior to that, ESPP shares were granted at 85% of the fair market value at the lower of the
first or last day of the offering period.
8
4.
|
|
INTEREST RATE SWAP AGREEMENTS
|
The Company uses interest rate swaps to fix certain 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 loan rate is lower than the fixed rate, the
Company pays the bank additional interest.
On October 5, 2007, the Company entered into an interest rate hedge swap agreement in
conjunction with an amendment to its facility with Bank of America. The intent of the
instrument is to fix the interest rate on 75% of the outstanding balance on the Term Loan
with Bank of America as required by the facility. The swap fixes the interest rate for the
swapped amount at 6.62% (4.87% plus the applicable margin, 1.75%).
As of July 31, 2008, the total notional amount committed to the swap agreement was $13.2
million. On that date, the variable rate on the remaining 25% of the term debt was 4.21%.
Based on the floating rate for respective three month periods ended July 31, 2008 and 2007,
the Company paid $77,000 more and $83,000 less in interest, respectively, than it would have
without the swaps.
These swaps are considered cash flow hedges under SFAS No. 133 because they are intended to
hedge, and are effective as a hedge, against variable cash flows. As a result, the changes
in the fair values of the derivatives, net of tax, are recognized as comprehensive income or
loss until the hedged item is recognized in earnings.
The following table summarizes comprehensive income for the respective periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net income
|
|
$
|
1,028,637
|
|
|
$
|
576,797
|
|
|
$
|
2,011,441
|
|
|
$
|
1,279,440
|
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on
derivatives
designated as cash
flow hedges net
of tax
|
|
|
78,409
|
|
|
|
(8,640
|
)
|
|
|
(190,036
|
)
|
|
|
(38,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,107,046
|
|
|
$
|
568,157
|
|
|
$
|
1,821,405
|
|
|
$
|
1,240,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Inventories consisted of the following at:
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2008
|
|
|
2007
|
|
Finished Goods
|
|
$
|
1,615,074
|
|
|
$
|
1,546,168
|
|
Raw Materials
|
|
|
118,071
|
|
|
|
165,198
|
|
|
|
|
|
|
|
|
Total Inventories
|
|
$
|
1,733,145
|
|
|
$
|
1,711,366
|
|
|
|
|
|
|
|
|
In the second quarter of fiscal year 2008, the Company provided a provision for bad debt
expense on an unsecured, subordinated note receivable from Trident LLC. The note, which was
due in full in 2011 and had a principal of $475,000, represented the remaining portion of
the sales price that was receivable from the sale of our retail operations in March, 2004.
The note was considered fully impaired primarily based on advice from Trident that it had
closed its principal facility and generally ceased its operations due to cash flow problems.
The provision for bad debt expense is reflected in selling, general and administrative
expenses during the nine month period ended July 31, 2008.
8.
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net Income
|
|
$
|
1,028,637
|
|
|
$
|
576,797
|
|
|
$
|
2,011,441
|
|
|
$
|
1,279,440
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Weighted Average Shares
Outstanding
|
|
|
21,524,232
|
|
|
|
21,625,571
|
|
|
|
21,587,088
|
|
|
|
21,626,220
|
|
Dilutive effect of Stock Options
|
|
|
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Weighted Average Shares
Outstanding
|
|
|
21,524,232
|
|
|
|
21,626,050
|
|
|
|
21,587,088
|
|
|
|
21,626,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income Per Share
|
|
$
|
.05
|
|
|
$
|
.03
|
|
|
$
|
.09
|
|
|
$
|
.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Income Per Share
|
|
$
|
.05
|
|
|
$
|
.03
|
|
|
$
|
.09
|
|
|
$
|
.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 637,700 and 724,500 options outstanding as of July 31, 2008 and 2007,
respectively. For the three month period ended July 31, 2008 and the nine month periods
ending July 31, 2008 and 2007 there were no options used to calculate the effect of dilution
because all of the outstanding options exercise prices exceeded the market price of the
underlying common shares. For the three month period ended July 31, 2007, there were 20,000
options used to calculate the effect of dilution and 704,500 options not included in the
dilution calculation because the options exercise prices exceeded the market price of the
underlying common shares.
10
As of July 31, 2008 the Company had outstanding balances of $17.6 million on its term loan,
$1,000,000 on its $7.5 million acquisition line of credit and $1,000,000 on the $6 million
revolving line of credit with Bank of America. In addition, there was an outstanding letter
of credit for $1,485,000 issued against the revolving line of credits availability. As of
July 31, 2008 there was $6,500,000 and $3,515,000 available on the acquisition and revolving
lines of credit, respectively.
As of July 31, 2008, the Company had approximately $6.4 million of debt subject to variable
interest rates. Under the senior credit agreement with Bank of America, interest is paid at
a rate of LIBOR plus a margin of 1.75% on term debt and 1.50% on the acquisition line of
credit resulting in variable interest rates of 4.21% and 3.96%, respectively at July 31,
2008.
The Companys credit facility requires the Company to be in compliance with certain
financial covenants at the end of each fiscal quarter. The covenants include senior debt
service coverage as defined of greater than 1.25 to 1, total debt service coverage as
defined of greater than 1 to 1, and senior debt to EBITDA of greater than 2.50 to 1. As of
July 31, 2008, the Company was in compliance with these covenants.
As of July 31, 2008, the Company had $14,000,000 of subordinated debt outstanding bearing an
interest rate of 12%.
10.
|
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
Major components of intangible assets at July 31, 2008 and October 31, 2007 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2008
|
|
|
October 31, 2007
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
Amortizable
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Lists and
Covenants Not to
Compete
|
|
$
|
5,874,801
|
|
|
$
|
3,902,478
|
|
|
$
|
5,477,663
|
|
|
$
|
3,227,854
|
|
Other Intangibles
|
|
|
508,394
|
|
|
|
196,338
|
|
|
|
598,705
|
|
|
|
195,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,383,195
|
|
|
$
|
4,098,816
|
|
|
$
|
6,076,368
|
|
|
$
|
3,422,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the three month periods ending July 31, 2008 and 2007 was $224,216
and $213,513, respectively. Amortization expense for the nine month periods ending July 31,
2008 and 2007 was $675,935 and $630,904, respectively.
The changes in the carrying amount of goodwill for the nine month period ending July 31,
2008 are as follows:
|
|
|
|
|
Balance as of October 31, 2007
|
|
$
|
54,423,997
|
|
Goodwill acquired during the period
|
|
|
15,763
|
|
|
|
|
|
Balance as of July 31, 2008
|
|
$
|
54,439,760
|
|
|
|
|
|
11
11.
|
|
RELATED PARTY TRANSACTIONS
|
Investment in Voyageur
The Company had an equity position in a software company named Voyageur Software, Inc.
(Voyageur) formerly Computer Design Systems, Inc. One of the Companys directors was a
member of the board of directors of Voyageur. On February 29, 2008, Voyageur sold
substantially all of its assets to another software company. As a result of the sale,
Voyageur ceased its operations. Software development and maintenance previously provided by
Voyageur to the Company will now be provided by the buyer.
12
Item 2. Managements 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, 2007 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
Overview and Trends
Our net income for the first nine months of our fiscal year increased from the same period last
year largely on the strength of increased sales. Our traditional product sales, water and equipment
rentals, are substantially unchanged as compared to last year. The sales increase was attributable
to single serve-coffee. In addition, we had a large proportionate increase in revenue related to
fees to offset increasing energy costs driven by market conditions. These are not allocated to
specific products as they are intended to offset increased energy related costs of goods sold and
operating costs. Net income for the nine month period increased despite the write off of a
significant note receivable related to the 2004 divesture of our retail business.
We will be devoting more resources in future quarters to sales support and advertising for our
traditional products. In the longer term, operating costs will continue to be adversely affected
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 certain companies and we have been able to take advantage of this extension. We absorbed some
of this compliance cost in fiscal year 2005 and expect that most of the remainder of the
anticipated cost to comply will be incurred throughout the current fiscal year.
We continue to reduce debt through scheduled principal payments of our senior debt. We have used
cash from our lines of credit for capital expenditures and to fund seasonal cash needs. In
addition, the potential of growth through acquisitions remains viable. We have ample opportunities to
acquire
13
businesses through small acquisitions and will take advantage of these opportunities based
on price, potential synergies, and access to capital. If we do exploit such opportunities, we
would likely increase our outstanding debt.
Results of Operations for the Three Months Ended July 31, 2008 (Third Quarter) Compared to the
Three Months Ended July 31, 2007
Sales
Sales for the three months ended July 31, 2008 were $17,986,000 compared to $17,107,000 for the
corresponding period in 2007, an increase of $879,000 or 5%. The increase was primarily the result
of coffee sales and sales of non-traditional products which increased at a greater rate than the
sales of traditional products. Sales as a result of acquisitions accounted for $135,000 of total
sales for the third quarter of 2008. Net of the acquisition related sales growth, sales grew 4%
from a year ago.
The comparative breakdown of sales of the product lines for the respective three-month periods
ended July 31, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Line
|
|
2008
|
|
|
2007
|
|
|
Difference
|
|
|
% Diff.
|
|
(000s $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water
|
|
$
|
8,005
|
|
|
$
|
8,096
|
|
|
$
|
(91
|
)
|
|
|
(1
|
%)
|
Coffee and Related
|
|
|
4,978
|
|
|
|
4,608
|
|
|
|
370
|
|
|
|
8
|
%
|
Equipment Rental
|
|
|
2,233
|
|
|
|
2,296
|
|
|
|
(63
|
)
|
|
|
(3
|
%)
|
Other
|
|
|
2,770
|
|
|
|
2,107
|
|
|
|
663
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,986
|
|
|
$
|
17,107
|
|
|
$
|
879
|
|
|
|
5
|
%
|
Water
Sales of water and related products decreased as a result of an decrease in the
amount of water sold and the higher price compared to the third quarter in the prior year. Volume
decreased 4% and price increased 3% in the third quarter of 2008 from the same quarter of 2007.
The decrease in volume for the period was, in part, offset by acquisitions which accounted for 1%
of the sales increase for the quarter.
Coffee and Related Products
The increase in sales in the third quarter of 2008 compared
to the comparable period in 2007 was attributable to increased volume of all products in this
category but primarily to the growth of single serve coffee, which grew 13%, to $2,109,000 in the
third quarter of 2008 compared to $1,870,000 in the same period in fiscal year 2007. Net of the
effects of acquisitions, sales for coffee and related products increased 12%.
Equipment Rental
Equipment rental revenue decreased in the third quarter of 2008
compared to the same period in 2007 primarily as a result of a decrease in the average rental price
that more than offset an increase in placements of equipment. Sales were 1% higher in the third
quarter of 2008 due to increased equipment placements and 4% lower as a result of lower prices as
compared to the third quarter of 2007. Acquisitions had no impact on equipment rental revenue.
Other
The substantial increase in other revenue is reflective of fees that are charged
as a result of higher energy costs for delivery and freight, raw materials, and bottling
operations. These charges increased to $930,000 in the third quarter of 2008 from $432,000 in the
same period in
14
2007. Sales of other products such as single-serve drinks, cups, and vending
items, in aggregate, increased 6% from the third quarter last year to the third quarter of 2008.
Gross Profit/Cost of Goods Sold
For the three months ended July 31, 2008, gross profit
increased $396,000, or 4%, to $10,334,000 from $9,938,000 for the comparable period in 2007. The
increase in gross profit was primarily due to higher sales that more than offset higher cost of
goods sold, as a percentage of sales. Higher cost of goods sold was largely a result of higher raw
material and product costs. As a percentage of sales, gross profit was 57% in the third quarter of
2008 compared to 58% for the third quarter of 2007. The lower gross profit, as a percentage of
sales, was largely due to higher sales single serve coffee which increased profitability overall
but has lower profit percentage than traditional products.
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.
Operating Expenses and Income from Operations
Total operating expenses decreased to $7,968,000 in the third quarter of 2008 from $8,169,000 in
the comparable period in 2007, a decrease of $201,000, or 2%.
Selling, general and administrative (SG&A) expenses of $7,504,000 in the third quarter of 2008
increased $263,000, or 4%, from $7,241,000 in the comparable period in 2007. Of total SG&A
expenses, (1) route distribution costs increased $51,000, or 1%, as a result of higher fuel costs;
(2) selling costs decreased $60,000, or 8%, as a result of lower sales-related compensation costs;
and administration costs increased $271,000, or 96%, primarily as a result of higher professional
fees related to compliance and litigation.
Advertising expenses were $306,000 in the third quarter of 2008 compared to $713,000 in the third
quarter of 2007, a decrease of $407,000, or 57%. The decrease in advertising costs is primarily
related to an advertising campaign run in the third quarter of 2007 in southern New England
comprised of radio, billboards, and distribution of samples which was not repeated in the third
quarter of 2008.
Amortization was $224,000 in the third quarter of 2008, a $10,000 increase from $214,000 in the
comparable quarter in 2007. Amortization is attributable to intangible assets that were acquired
as part of acquisitions in recent years.
Income from operations for the three months ended July 31, 2008 was $2,366,000 compared to
$1,769,000 in the comparable period in 2007, an increase of $597,000, or 34%. The increase was a
result of higher sales and gross margin while operating costs decreased slightly.
15
Interest, Taxes, and Other Expenses Income from Continuing Operations
Interest expense was $732,000 for the three months ended July 31, 2008 compared to $818,000 in the
three months ended July 31, 2007, a decrease of $86,000. The decrease is attributable to lower
outstanding debt and lower variable interest rates that more than offset higher fixed interest
rates. Higher interest rates were a result of fixing senior debt at a long term rate higher than
short term market rates when the debt was re-financed in 2007.
Income before income taxes was $1,634,000 for the three months ended July 31, 2008 compared to
income before income taxes of $951,000 in the corresponding period in 2007, an improvement of
$683,000, or 72%. The tax expense for the third quarter of fiscal year 2008 was $606,000 and was
based on the expected effective tax rate of 37% for the full year. We recorded a tax expense of
$374,000 related to income from operations in the second quarter of fiscal year 2007 based on an
anticipated effective tax rate of 40%.
Net Income
Net income of $1,029,000 for the three months ended July 31, 2008 increased from net income of
$577,000 in the corresponding period in 2007, an improvement of $452,000. The increase is
attributable to higher sales and gross margin and lower operating costs and taxes.
Results of Operations for the Nine Months Ended July 31, 2008 Compared to the Nine Months Ended
July 31, 2008
Sales
Sales for the nine months ended July 31, 2008 were $51,809,000 compared to $48,086,000 for the
corresponding period in 2007, an increase of $3,723,000 or 8%. The increase was primarily the
result of coffee sales and sales of non-traditional products. Sales as a result of acquisitions
accounted for $391,000 of total sales for the first nine months of 2008. Net of the acquisition
related sales growth, sales grew 7% from a year ago.
The comparative breakdown of sales of the product lines for the respective nine month periods ended
July 31, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Line
|
|
2008
|
|
|
2007
|
|
|
Difference
|
|
|
% Diff.
|
|
(000s $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water
|
|
$
|
21,910
|
|
|
$
|
21,866
|
|
|
$
|
44
|
|
|
|
|
|
Coffee and Related
|
|
|
15,865
|
|
|
|
14,405
|
|
|
|
1,460
|
|
|
|
10
|
%
|
Equipment Rental
|
|
|
6,692
|
|
|
|
6,858
|
|
|
|
(166
|
)
|
|
|
(2
|
%)
|
Other
|
|
|
7,342
|
|
|
|
4,957
|
|
|
|
2,385
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,809
|
|
|
$
|
48,086
|
|
|
$
|
3,723
|
|
|
|
8
|
%
|
Water
Sales of water increased slightly as a result of the higher price compared to the
first nine months of the prior year. Average selling price increased 2% in the first nine months
of 2008 while volume almost entirely offset that increase, decreasing 2% as compared to the same
period of 2007. Acquisitions for the first nine months of the fiscal year accounted for a 1% sales
increase so, net of acquisitions, water sales decreased from the comparable period in the prior
year.
16
Coffee and Related Products
The increase in sales in the first nine months of 2008
compared to the comparable period in 2007 was attributable to increased volume of all products in
this category but primarily to the growth of single serve coffee, which grew 18% to $6,856,000 in
the first nine months of 2008 compared to $5,793,000 in the same period in fiscal year 2007. Net
of the effects of acquisitions, sales for coffee and related products increased 17%.
Equipment Rental
Equipment rental revenue decreased in the first nine months of 2008
compared to the same period in 2007 primarily as a result of a decrease in the average rental price
that more than offset an increase in placements of equipment. Sales were 1% higher in the first
nine months of 2008 due to increased equipment placements and 3% lower as a result of lower prices
as compared to the first nine months of 2007. Acquisitions had no impact on equipment rental
revenue.
Other
The substantial increase in other revenue is reflective of fees that are charged
as a result of higher energy costs for delivery and freight, raw materials, and bottling
operations. These charges increased to $2,392,000 in the first nine months of 2008 from $881,000
in the same period in 2007. Sales of other products such as single-serve drinks, cups, and
vending items, in aggregate, increased 9% from the first nine months of last year to the same
period of 2008. In addition, the improvement in sales in this category reflects the fact that in
the second quarter of 2007, we had a charge of $201,000 because our estimate of container deposit
liability from a departing customer was too low. This effect did not recur in 2008.
Gross Profit/Cost of Goods Sold
For the nine months ended July 31, 2008, gross profit
increased $2,107,000, or 8%, to $29,283,000 from $27,176,000 for the comparable period in 2007.
The increase in gross profit was primarily due to higher sales and stable cost of goods sold, as a
percentage of sales. As a percentage of sales, gross profit was 57% in the first nine months of
the year for both 2008 and 2007.
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.
Operating Expenses and Income from Operations
Total operating expenses increased to $23,793,000 in the first nine months of 2008 from $22,610,000
in the comparable period in 2007, an increase of $1,183,000, or 5%.
Selling, general and administrative (SG&A) expenses of $22,142,000 in the first nine months of 2008
increased $1,380,000, or 7%, from $20,762,000 in the comparable period in 2007. Of total SG&A
expenses, (1) route distribution costs increased $291,000, or 3%, as a result of higher fuel and
sales-related compensation costs; (2) selling costs increased $100,000, or 5%, as a result of
higher sales-related compensation costs; and (3) administration costs increased $989,000, or 11%,
as a result of higher health insurance costs, professional fess related to compliance and
litigation, and a provision for bad debt of $475,000 on a note receivable that more than offset a
reduction of
17
accounting and computer-related fees. The note, which was due in full in 2011,
represented the remaining portion of the sales price that was receivable from the sale of our
retail operations in March, 2004. The note was considered fully impaired primarily based on advice
from the debtor that it had closed its principal facility and generally ceased its operations due
to cash flow problems.
Advertising expenses were $1,100,000 in the first nine months of 2008 compared to $1,231,000 in the
first nine months of 2007, a decrease of $131,000, or 11%. The decrease in advertising costs is
primarily related to the non recurrence of the southern New England advertising campaign that was
implemented in the third quarter of 2007.
Amortization was $676,000 in the first nine months of 2008, a $45,000 increase from $631,000 in the
comparable period in 2007. Amortization is attributable to intangible assets that were acquired as
part of acquisitions in recent years.
Income from operations for the nine months ended July 31, 2008 was $5,490,000 compared to
$4,566,000 in the comparable period in 2007, an increase of $924,000, or 17%. The increase was a
result of higher sales and stable cost of goods sold despite higher operating costs.
Interest, Taxes, and Other Expenses Income from Continuing Operations
Interest expense was $2,294,000 for the nine months ended July 31, 2008 compared to $2,443,000 in
the nine months ended July 31, 2007, a decrease of $149,000. The decrease is attributable to lower
outstanding debt and variable interest rates that more than offset higher fixed interest rates.
Higher interest rates were a result of fixing senior debt at a long term rate higher than short
term market rates when the debt was re-financed in 2007.
Income before income taxes was $3,196,000 for the nine months ended July 31, 2008 compared to
income before income taxes of $2,124,000 in the corresponding period in 2007, an improvement of
$1,072,000. The tax expense for the nine months of fiscal year 2008 was $1,184,000 and was based
on the expected effective tax rate of 37%. We recorded a tax expense of $844,000 related to income
from operations in the first nine months of fiscal year 2007 based on an anticipated effective tax
rate of 40%. The decrease in the effective tax rate was primarily a result of the affect of
expected tax credits for the installation of solar electricity generating equipment during fiscal
year 2008 partially offset by a valuation allowance set up for the write off of the note referenced
above.
Net Income
Net income of $2,011,000 for the nine months ended July 31, 2008 increased from net income of
$1,279,000 in the corresponding period in 2007, an improvement of $732,000, or 57%. The increase
is attributable to higher sales and gross margin despite higher operating costs, based largely on
the charge related to the note receivable in the second quarter, for the first nine months of 2008 as
compared to the same period in fiscal year 2007.
Liquidity and Capital Resources
As of July 31, 2008, we had working capital of $2,192,000 compared to $2,609,000 as of October 31,
2007, a decrease of $417,000. The decrease in working capital was primarily attributable to the
use of cash during the first nine months of the respective fiscal years for capital expenditures,
18
acquisitions and debt reduction. Net cash provided by operating activities increased $722,000 to
$4,827,000 in 2008 from $4,105,000 in 2007. The increase was attributable to higher net income, as
well as the fact that a material portion of selling, general, and administrative expenses was not a
cash item, as noted in more detail below. In addition, we generally used less cash to fund changes
in prepaid expenses and inventory which offset greater use of cash for seasonal increases in
accounts receivable in the first nine months of fiscal year 2008 as compared to the first nine
months of fiscal year 2007.
As mentioned above, we use cash provided by operations to repay debt and fund capital expenditures.
In the first nine months of fiscal year 2008, we used $2,460,000 for scheduled repayments of our
term debt. In addition, we used $3,470,000 for capital expenditures. Capital expenditures were
substantially higher than the same period last year because of $1,239,000 expended on our solar
electricity generation project and also included routine expenditures for coolers, brewers, bottles
and racks related to home and office distribution. The expenditures on the solar project are net
of $644,000 received from a grant for the project through July 31, 2008. The total cost of the
project is $2,092,000 and we anticipate receiving an additional $644,000 in related grant revenue
in the next six months.
In the second quarter of fiscal year 2008, we provided a provision for bad debt expense against the
entire balance, plus accrued interest, of an unsecured, subordinated note that was receivable from
Trident LLC. The note, which was due in full in 2011 and had a principal of $475,000, represented
the remaining portion of the sales price that was receivable from the sale of our retail operations
in March, 2004. The note was considered fully impaired primarily based on advice from Trident
that it had closed its principal facility and generally ceased its operations due to cash flow
problems. We have also made a provision of $51,000 in the first nine months of 2008 against
another note receivable that represents the portion that we estimate to be uncollectible.
As of July 31, 2008 we had outstanding balances of $17.6 million on our term loan, $1,000,000 on
our $7.5 million acquisition line of credit and $1,000,000 on our $6 million revolving line of
credit with Bank of America. In addition, there was an outstanding letter of credit for $1,485,000
issued against the revolving line of credits availability. As of July 31, 2008 there was
$6,500,000 and $3,515,000 available on the acquisition and revolving lines of credit, respectively.
Our credit facility requires that we be in compliance with certain financial covenants at the end
of each fiscal quarter. The covenants include senior debt service coverage as defined of greater
than 1.25 to 1, total debt service coverage as defined of greater than 1 to 1, and senior debt to
EBITDA as defined of no greater than 2.5 to 1. As of July 31, 2008, we were in compliance with all
of the financial covenants of our credit facility.
As of July 31, 2008, we had an interest rate swap agreement with Bank of America in effect. The
intent of the instrument is to fix the interest rate on 75% of the outstanding balance on the Term
Loan as required by the credit facility. The swap fixes the interest rate for the swapped amount
at 6.62% (4.87% plus the applicable margin, 1.75%).
The net deferred tax liability at July 31, 2008 represents temporary timing differences, primarily
attributable to depreciation and amortization, between book and tax calculations. We have used all
19
of our federal net operating loss carryforwards and will have to fund our tax liabilities with cash
in the current fiscal year and 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 in future fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by fiscal
year
|
|
|
|
|
|
|
|
|
|
|
Remainder
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations (1)
|
|
Total
|
|
|
of 2008
|
|
|
2009-2010
|
|
|
2011-2012
|
|
|
After 2012
|
|
Debt
|
|
$
|
33,719,000
|
|
|
$
|
811,000
|
|
|
$
|
7,916,000
|
|
|
$
|
6,900,000
|
|
|
$
|
18,092,000
|
|
Interest on Debt (2)
|
|
|
14,885,000
|
|
|
|
2,055,000
|
|
|
|
5,084,000
|
|
|
|
4,231,000
|
|
|
|
3,515,000
|
|
Operating Leases
|
|
|
13,281,000
|
|
|
|
740,000
|
|
|
|
6,043,000
|
|
|
|
3,603,000
|
|
|
|
2,895,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
61,885,000
|
|
|
$
|
3,606,000
|
|
|
$
|
19,043,000
|
|
|
$
|
14,734,000
|
|
|
$
|
24,502,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Customer deposits have been excluded from the table. Deposit balances vary from period to
period with water sales but future increases and decreases in the balances are not accurately
predictable. Deposits are excluded because, net of periodic additions and reductions, it is
probable that a customer deposit balance will always be outstanding as long as the business
operates.
(2) Interest based on 75% of outstanding senior debt at the hedged interest rate discussed above,
25% of outstanding senior debt at a variable rate of 4.21%, and subordinated debt at a rate of 12%.
We have no other material contractual obligations or commitments.
Inflation has had no material impact on our performance.
Item 3. Quantitative and Qualitative Disclosures about Market Risks.
Pursuant to Regulation S-K, Item 305(e), smaller reporting companies are not required to provide
this information.
Item 4. Controls and Procedures.
Our Chief Executive Officer and 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 Exchange Act, is recorded,
processed, summarized and reported, within the time periods specified in the Commissions rules and
forms. Our Chief Executive Officer and Chief Financial Officer also concluded that our disclosure
controls and procedures were effective to insure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, or other persons
performing similar functions, as appropriate to allow timely decisions regarding required
disclosure. Our
20
disclosure controls and procedures are designed to provide reasonable assurance
that the controls and procedures will meet their objectives.
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 nine months ended July 31, 2008, there were no changes in our internal control over
financial reporting that materially affected, or were reasonably likely to materially affect, our
internal control over financial reporting.
21
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments in our legal proceedings since they were disclosed in our
Annual Report on Form 10-K for the period ending October 31, 2007.
Item 1A. Risk Factors.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) The following table summarizes the stock repurchases, by month, that were made during the
three months ended July 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
Shares that May
|
|
|
|
|
|
|
|
|
|
|
Part of a Publicly
|
|
Yet be
|
|
|
Total Number of
|
|
Average Price
|
|
Announced
|
|
Purchased Under
|
|
|
Shares Purchased
|
|
Paid per Share
|
|
Program (1)
|
|
the Program (1)
|
May 1-31
|
|
|
3,000
|
|
|
$
|
1.30
|
|
|
|
3,000
|
|
|
|
19,700
|
|
June 1-30
|
|
|
19,700
|
|
|
|
1.33
|
|
|
|
19,700
|
|
|
|
0
|
|
July 1-31
|
|
|
43,000
|
|
|
|
1.25
|
|
|
|
43,000
|
|
|
|
207,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
65,700
|
|
|
$
|
1.29
|
|
|
|
65,700
|
|
|
|
|
|
|
(1)
|
|
On June 16, 2006, we announced a program to repurchase up to 250,000 shares of our
common stock at the discretion of management. We completed the repurchase of 250,000
shares in June 2008. On July 16, 2008 we announced that we would continue to repurchase
shares up to an additional 250,000 shares. There is no expiration date for the plan to
repurchase additional shares and the share limit may not be reached.
|
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
22
Item 6. Exhibits.
|
|
|
Exhibit
Number
|
|
Description
|
|
|
|
10.1
|
|
Fourth Amendment to the Credit
Agreement dated April 5, 2005 with Bank of America
|
|
|
|
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)
|
|
|
|
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
|
|
|
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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
|
23
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: September 15, 2008
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VERMONT PURE HOLDINGS, LTD.
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By:
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/s/ Bruce S. MacDonald
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Bruce S. MacDonald
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Vice President, Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
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24
Exhibits Filed Herewith
|
|
|
Exhibit
Number
|
|
Description
|
|
|
|
10.1
|
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Fourth Amendment to the Credit
Agreement dated April 5, 2005 with Bank of America
|
|
|
|
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.
|
25
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