UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(
Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly period ended April 30, 2009
OR
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
transition period from _____ to _________
Commission
File Number: 000-31797
VERMONT
PURE HOLDINGS, LTD.
(Exact
name of registrant as specified in Its charter)
|
Delaware
|
|
03-0366218
|
|
(State
or other jurisdiction of incorporation or
organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
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1050
Buckingham St., Watertown, CT
|
|
06795
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(860)
945-0661
(
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).
Yes
No ___
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.
|
Large accelerated
filer ____
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Accelerated
filer ___
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Non-accelerated
filer ___
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Smaller
reporting company
X_
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(Do not check if
smaller reporting company)
|
|
|
|
Indicate
by check mark whether the registrant is a shell company (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.
Class
Shares outstanding at
June 2,
2009
Common Stock, $.001 Par
Value 21,540,730
VERMONT
PURE HOLDINGS, LTD. AND SUBSIDIARY
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Page
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PART
I - FINANCIAL INFORMATION
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Item
1Financial Statements.
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Condensed
Consolidated Balance Sheets as of
April
30, 2009 and October 31, 2008 (unaudited)
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3
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Condensed
Consolidated Statements of Income
for
the Three Months and Six Months Ended
April
30, 2009 and 2008 (unaudited)
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4
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Condensed
Consolidated Statements of Cash
Flows
for the Six Months Ended April 30,
2009
and 2008 (unaudited)
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5
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Notes
to Condensed Consolidated Financial Statements (unaudited)
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6-12
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Management's
Discussion and Analysis of
Financial
Condition and Results of
Operations.
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13
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Item 3.
Quantitative and Qualitative Disclosures
About Market
Risk.
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20
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Item 4(T).
Controls and Procedures.
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20
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PART II - OTHER INFORMATION
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21
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Item 1.
Legal
Proceedings.
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21
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Item 1A.
Risk
Factors.
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21
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Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds.
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21
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Item 3.
Defaults Upon Senior
Securities.
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21
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Item 4.
Submission of Matters to a Vote of Security
Holders.
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21
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Item 5.
Other
Information.
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22
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Item 6.
Exhibits.
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22
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SIGNATURE
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23
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VERMONT PURE HOLDINGS, LTD. AND
SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE
SHEETS
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April
30,
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October
31,
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2009
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2008
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(unaudited)
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(Audited)
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ASSETS
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CURRENT
ASSETS:
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Cash
and cash equivalents
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$
|
349,733
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$
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1,181,737
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Accounts
receivable - net
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7,810,237
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7,842,819
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Inventories
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2,210,445
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1,669,949
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Deferred
tax asset
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744,087
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744,087
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Other
current assets
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842,758
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1,612,605
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TOTAL
CURRENT ASSETS
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11,957,260
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13,051,197
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PROPERTY
AND EQUIPMENT - net
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10,563,798
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10,563,388
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OTHER
ASSETS:
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Goodwill
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32,123,286
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32,080,669
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Other
intangible assets - net
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4,913,195
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2,084,542
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Other
assets
|
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132,333
|
|
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152,333
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|
|
|
|
|
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TOTAL
OTHER ASSETS
|
|
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37,168,814
|
|
|
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34,317,544
|
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|
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TOTAL
ASSETS
|
|
$
|
59,689,872
|
|
|
$
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57,932,129
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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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$
|
535,780
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$
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-
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Current
portion of long term debt
|
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3,816,090
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3,315,079
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Accounts
payable
|
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2,184,014
|
|
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2,542,711
|
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Accrued
expenses
|
|
|
2,350,343
|
|
|
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2,859,277
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Current
portion of customer deposits
|
|
|
683,029
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699,921
|
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Unrealized
loss on derivatives
|
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863,883
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|
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531,673
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TOTAL
CURRENT LIABILITIES
|
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10,433,139
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9,948,661
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Long
term debt, less current portion
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15,743,849
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14,561,928
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Deferred
tax liability
|
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3,403,696
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3,403,696
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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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|
2,603,676
|
|
|
|
2,666,870
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TOTAL
LIABILITIES
|
|
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46,184,360
|
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44,581,155
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COMMITMENTS
AND CONTINGENCIES
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STOCKHOLDERS'
EQUITY:
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Common
stock - $.001 par value, 50,000,000 authorized shares
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21,920,478
issued and 21,540,730 outstanding shares as of
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April
30, 2009 and 21,862,739 issued and 21,489,489
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outstanding
as of October 31, 2008
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21,920
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21,863
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Additional
paid in capital
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58,433,890
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58,395,551
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Treasury
stock, at cost, 379,748 shares as of April 30, 2009
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and
373,250 shares as of October 31, 2008
|
|
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(723,777
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)
|
|
|
(717,301
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)
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Accumulated
deficit
|
|
|
(43,692,708
|
)
|
|
|
(44,019,502
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)
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|
Accumulated
other comprehensive loss, net of tax
|
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|
(533,813
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)
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(329,637
|
)
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TOTAL
STOCKHOLDERS' EQUITY
|
|
|
13,505,512
|
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13,350,974
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
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$
|
59,689,872
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$
|
57,932,129
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See notes
to the condensed consolidated financial statements.
VERMONT PURE HOLDINGS, LTD. AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
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Three
months ended April 30,
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Six
months ended April 30,
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2009
|
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|
2008
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2009
|
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|
2008
|
|
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|
(unaudited)
|
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(unaudited)
|
|
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|
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NET
SALES
|
|
$
|
16,755,568
|
|
|
$
|
17,437,650
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|
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$
|
32,307,502
|
|
|
$
|
33,822,909
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COST
OF GOODS SOLD
|
|
|
7,928,948
|
|
|
|
7,636,634
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|
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15,360,422
|
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|
|
14,873,453
|
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GROSS
PROFIT
|
|
|
8,826,620
|
|
|
|
9,801,016
|
|
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|
16,947,080
|
|
|
|
18,949,456
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OPERATING
EXPENSES:
|
|
|
|
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|
|
|
|
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|
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|
|
|
|
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Selling,
general and administrative expenses
|
|
|
7,282,730
|
|
|
|
7,593,578
|
|
|
|
14,092,987
|
|
|
|
14,638,929
|
|
|
Advertising
expenses
|
|
|
214,393
|
|
|
|
453,132
|
|
|
|
497,782
|
|
|
|
794,132
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Amortization
|
|
|
256,947
|
|
|
|
226,544
|
|
|
|
457,360
|
|
|
|
451,719
|
|
|
Gain
on disposal of property and equipment
|
|
|
12,913
|
|
|
|
(50,351
|
)
|
|
|
6,067
|
|
|
|
(59,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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TOTAL
OPERATING EXPENSES
|
|
|
7,766,983
|
|
|
|
8,222,903
|
|
|
|
15,054,196
|
|
|
|
15,825,134
|
|
|
|
|
|
|
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|
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|
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|
INCOME
FROM OPERATIONS
|
|
|
1,059,637
|
|
|
|
1,578,113
|
|
|
|
1,892,884
|
|
|
|
3,124,322
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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OTHER
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(651,771
|
)
|
|
|
(781,814
|
)
|
|
|
(1,334,835
|
)
|
|
|
(1,562,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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INCOME
BEFORE INCOME TAXES
|
|
|
407,866
|
|
|
|
796,299
|
|
|
|
558,049
|
|
|
|
1,561,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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INCOME
TAX EXPENSE
|
|
|
(175,597
|
)
|
|
|
(325,717
|
)
|
|
|
(231,255
|
)
|
|
|
(578,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
232,269
|
|
|
$
|
470,582
|
|
|
$
|
326,794
|
|
|
$
|
982,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE - BASIC
|
|
$
|
0.01
|
|
|
|
0.02
|
|
|
$
|
0.02
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE - DILUTED
|
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES USED IN COMPUTATION - BASIC
|
|
|
21,540,730
|
|
|
|
21,623,789
|
|
|
|
21,521,277
|
|
|
|
21,618,861
|
|
|
WEIGHTED
AVERAGE SHARES USED IN COMPUTATION - DILUTED
|
|
|
21,540,730
|
|
|
|
21,623,789
|
|
|
|
21,521,277
|
|
|
|
21,618,861
|
|
See notes
to the condensed consolidated financial statements.
|
VERMONT PURE HOLDINGS, LTD. AND
SUBSIDIARY
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six
months ended April 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
326,794
|
|
|
$
|
982,804
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,954,475
|
|
|
|
2,135,332
|
|
|
Provision
for bad debts on accounts receivable
|
|
|
187,577
|
|
|
|
168,418
|
|
|
Provision
for bad debts on notes receivable
|
|
|
14,031
|
|
|
|
516,008
|
|
|
Amortization
|
|
|
457,360
|
|
|
|
451,719
|
|
|
Non
cash interest expense
|
|
|
39,584
|
|
|
|
62,811
|
|
|
Loss
(gain) on disposal of property and equipment
|
|
|
6,067
|
|
|
|
(59,646
|
)
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
223,438
|
|
|
|
(878,742
|
)
|
|
Inventories
|
|
|
(535,469
|
)
|
|
|
(130,761
|
)
|
|
Other
current assets
|
|
|
897,881
|
|
|
|
(32,651
|
)
|
|
Other
assets
|
|
|
5,969
|
|
|
|
7,798
|
|
|
Accounts
payable
|
|
|
(358,697
|
)
|
|
|
228,084
|
|
|
Accrued
expenses
|
|
|
(508,934
|
)
|
|
|
(985,567
|
)
|
|
Customer
deposits
|
|
|
(80,086
|
)
|
|
|
(242,944
|
)
|
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
2,629,990
|
|
|
|
2,222,663
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(953,693
|
)
|
|
|
(2,672,420
|
)
|
|
Proceeds
from sale of property and equipment
|
|
|
71,026
|
|
|
|
97,567
|
|
|
Cash
used for acquisitions
|
|
|
(1,460,202
|
)
|
|
|
(317,834
|
)
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(2,342,869
|
)
|
|
|
(2,892,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net
line of credit borrowings
|
|
|
535,780
|
|
|
|
674,672
|
|
|
Principal
payments on long term debt
|
|
|
(1,686,825
|
)
|
|
|
(1,640,081
|
)
|
|
Purchase
of treasury stock
|
|
|
(6,476
|
)
|
|
|
(147,430
|
)
|
|
Sale
of common stock
|
|
|
38,396
|
|
|
|
44,812
|
|
|
NET
CASH USED IN FINANCING ACTIVITIES
|
|
|
(1,119,125
|
)
|
|
|
(1,068,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(832,004
|
)
|
|
|
(1,738,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - Beginning of period
|
|
|
1,181,737
|
|
|
|
1,873,385
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND
CASH EQUIVALENTS - End of period
|
|
$
|
349,733
|
|
|
$
|
135,334
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
1,312,260
|
|
|
$
|
1,531,440
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
(received) paid for income taxes
|
|
$
|
(802,800
|
)
|
|
$
|
1,109,300
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable issued in acquisitions
|
|
$
|
3,039,928
|
|
|
$
|
112,395
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment financed with proceeds from debt
|
|
$
|
329,829
|
|
|
$
|
39,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes
to the condensed consolidated financial statements.
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,
2008.
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 for the year ended October
31, 2008. 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
April 2008, the FASB issued FSP FAS 142-3, “
Determination of the Useful Life of
Intangible Assets
.” This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under FASB Statement No. 142 (“SFAS 142”),
“
Goodwill and Other Intangible
Assets
.” The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under SFAS 142 and the period of
expected cash flows used to measure the fair value of the asset under FASB
Statement No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations,”
and other GAAP. This Statement is effective for fiscal years beginning on or
after December 15, 2008, and interim periods within those years. Early
application is not permitted. The Company has not yet determined the impact of
the adoption of FSP FAS 142-3 to the Company’s statement of financial position
or results of operations.
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 Company’s stockholders approved the 1998 Incentive and
Non-Statutory Stock Option Plan. In April 2003, the Company’s
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 Company’s 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 Company’s 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 Company’s 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 April 30, 2009.
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 5,000 shares of stock that expired in the first six months of
fiscal 2009. Other than the expiration, there was no activity related
to stock options and outstanding stock option balances or other equity based
compensation during the six month periods ended April 30, 2009 and
2008. The Company did not grant any equity based compensation during
the six months ended April 30, 2009 and 2008.
The
following table summarizes information pertaining to outstanding stock options,
all of which are exercisable, as of April 30, 2009:
|
Exercise
Price
Range
|
|
|
Outstanding
Options
(Shares)
|
|
|
Weighted
Average Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Intrinsic
Value
as
of
April
30, 2009
|
|
|
$
|
1.80
- $2.60
|
|
|
|
234,500
|
|
|
|
5.7
|
|
|
$
|
2.32
|
|
|
$
|
-
|
|
|
$
|
2.81
- $3.38
|
|
|
|
308,200
|
|
|
|
1.6
|
|
|
|
3.22
|
|
|
|
-
|
|
|
$
|
3.50
- $4.25
|
|
|
|
40,000
|
|
|
|
2.8
|
|
|
|
3.80
|
|
|
|
-
|
|
|
$
|
4.28
- $4.98
|
|
|
|
5,000
|
|
|
|
2.7
|
|
|
|
4.98
|
|
|
|
-
|
|
|
|
|
|
|
|
587,700
|
|
|
|
3.3
|
|
|
$
|
2.91
|
|
|
$
|
-
|
|
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 April 30, 2009 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 Company’s 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 six months ended April
30, 2009 and 2008 was 57,739 and 28,588 for proceeds of $38,397 and $44,812,
respectively.
On March
29, 2007, the Company’s 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.
Termination
Benefit
On
February 6, 2009 the Company entered into a Severance and Release Agreement with
an employee that has worked for the Company 59 years. Under the
agreement the Company is obligated to pay the employee, or his estate, $68,000 a
year for the next 4 years. On the date of the agreement, the Company
recognized the full expense related to this special termination
benefit.
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 6.37% (4.87% plus the applicable margin, 1.50%).
As of
April 30, 2009, the total notional amount committed to the swap agreement was
$11.4 million. On that date, the variable rate on the remaining 25%
of the term debt was 1.95%. Based on the floating rate for respective
six month periods ended April 30, 2009 and 2008, the Company paid $228,000 and
$65,000 more 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.
5.
COMPREHENSIVE
INCOME
The
following table summarizes comprehensive income for the respective
periods:
|
|
|
Three
Months Ended April 30,
|
|
|
Six
Months Ended April 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net
income
|
|
$
|
232,269
|
|
|
$
|
470,582
|
|
|
$
|
326,794
|
|
|
$
|
982,804
|
|
|
Other
comprehensive income (loss):
Unrealized
gain (loss) on derivatives designated as cash flow hedges – net of
tax
|
|
|
23,782
|
|
|
|
73,302
|
|
|
|
(204,176
|
)
|
|
|
(268,445
|
)
|
|
Comprehensive
income
|
|
$
|
256,051
|
|
|
$
|
543,884
|
|
|
$
|
122,618
|
|
|
$
|
714,359
|
|
6.
INVENTORIES
Inventories
consisted of the following at:
|
|
|
April
30, 2009
|
|
|
October
31, 2008
|
|
|
|
|
|
|
|
|
|
|
Finished
Goods
|
|
$
|
2,073,297
|
|
|
$
|
1,557,914
|
|
|
Raw
Materials
|
|
|
137,148
|
|
|
|
112,035
|
|
|
Total
Inventories
|
|
$
|
2,210,445
|
|
|
$
|
1,669,949
|
|
|
|
|
|
|
|
|
|
|
|
7.
OTHER
ASSETS
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 its 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 three and six month periods ended
April 30, 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
April
30,
|
|
|
Six
Months Ended
April
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net
Income
|
|
$
|
232,269
|
|
|
$
|
470,582
|
|
|
$
|
326,794
|
|
|
$
|
982,804
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Weighted Average Shares Outstanding
|
|
|
21,540,730
|
|
|
|
21,623,789
|
|
|
|
21,521,277
|
|
|
|
21,618,861
|
|
|
Dilutive
effect of Stock Options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Diluted
Weighted Average Shares Outstanding
|
|
|
21,540,730
|
|
|
|
21,623,789
|
|
|
|
21,521,277
|
|
|
|
21,618,861
|
|
|
Basic
Income Per Share
|
|
$
|
.01
|
|
|
$
|
.02
|
|
|
$
|
.02
|
|
|
$
|
.05
|
|
|
Diluted
Income Per Share
|
|
$
|
.01
|
|
|
$
|
.02
|
|
|
$
|
.02
|
|
|
$
|
.05
|
|
There
were 587,700 and 667,700 options outstanding as of April 30, 2009 and 2008,
respectively. For the three and six month periods ended April 30,
2009 and 2008 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.
9.
DEBT
As of
April 30, 2009 the Company had outstanding balances of $15,167,000 million on
its term loan, $3,800,000 on its $10 million acquisition line of credit and
$536,000 on the $6 million revolving line of credit with Bank of
America. In addition, there was an outstanding letter of credit for
$1,583,000 issued against the revolving line of credit’s
availability. As of April 30, 2009 there was $6,200,000 and
$3,881,000 available on the acquisition and revolving lines of credit,
respectively.
As of
April 30, 2009, the Company had approximately $8 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 1.50% on term
debt and 1.25% on the acquisition line of credit resulting in variable interest
rates of 1.95% and 1.70%, respectively at April 30, 2009.
The
Company’s 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 April 30, 2009, the Company
was in compliance with these covenants.
Our lines
of credit mature on April 5, 2010. On that date, any balance on the acquisition
line converts to a term loan with equal annual installments payable over the
next five years. Any balance on the revolving line will be due and
payable on April 5, 2010. We are currently negotiating to renew these
facilities. If we are unable to negotiate acceptable renewal terms,
and no alternative funding is available, we may experience a material adverse
financial impact.
As of
April 30, 2009, the Company had $14,000,000 of subordinated debt outstanding
bearing an interest rate of 12% and $593,000 due on term debt related to
acquisitions and capital improvements.
10.
GOODWILL AND OTHER
INTANGIBLE ASSETS
Major
components of intangible assets at April 30, 2009 and October 31, 2008 consisted
of:
|
|
|
April 30, 2009
|
|
|
October 31, 2008
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Amortizable
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
Lists and Covenants Not to Compete
|
|
$
|
9,152,578
|
|
|
$
|
4,569,515
|
|
|
$
|
5,866,981
|
|
|
$
|
4,113,807
|
|
|
Other
Intangibles
|
|
|
528,671
|
|
|
|
198,539
|
|
|
|
528,254
|
|
|
|
196,886
|
|
|
Total
|
|
$
|
9,681,249
|
|
|
$
|
4,768,054
|
|
|
$
|
6,395,235
|
|
|
$
|
4,310,693
|
|
|
|
Amortization
expense for the three month periods ending April 30, 2009 and 2008 was
$256,947 and $226,544, respectively. Amortization
expense for the six month periods ending April 30, 2009 and 2008 was
$457,360 and $451,719,
respectively.
|
|
|
The
changes in the carrying amount of goodwill for the six month period ending
April 30, 2009 are as follows:
|
|
Balance
as of October 31, 2008
|
|
$
|
32,080,669
|
|
|
Goodwill
acquired during the period
|
|
|
42,617
|
|
|
Balance
as of April 30, 2009
|
|
$
|
32,123,286
|
|
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 Company’s
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 and software development and maintenance previously provided by
Voyageur to the Company will now be provided by the buyer.
12.
SUBSEQUENT
EVENTS
Re-payment of Subordinated
Debt
As of May
6, 2009, Vermont Pure Holdings, Ltd. owed subordinated debt to Henry, Peter and
John Baker in the aggregate principal amount of $14,000,000. On May
7, 2009, with the consent of the three subordinated debt holders, the Company
paid $500,000 to John B. Baker as a payment of principal on his
note. The following table shows the holder and the corresponding
remaining principal amount on May 7, 2009 after the payment.
|
Related Party
|
|
Principal Balance
|
|
|
Henry
E. Baker
|
|
$
|
4,600,000
|
|
|
John
B. Baker
|
|
|
4,200,000
|
|
|
Peter
K. Baker
|
|
|
4,700,000
|
|
|
Total
|
|
$
|
13,500,000
|
|
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, 2008 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
business was less profitable in the first half of fiscal year 2009 than in the
same period a year ago. We believe that the financial performance for
the period in large measure reflected the overall softening of the economy which
started to affect our business in the fourth quarter of fiscal year 2008.
If, as many observers expect, the national and regional economy remains in a
recession in 2009, we are likely to experience lower profitability going
forward.
The
recessionary economic environment has affected the sales of our more profitable
products, water and cooler rentals, the most. Our single serve coffee
business grew for the period over last year but these products are less
profitable than our traditional products. In order to offset the
decrease in profitability, we have taken action to reduce our labor, product,
selling and administration costs. We will continue to explore new and
existing distribution channels in an effort to identify sales
opportunities.
Despite
reduced profitability, we continue to invest in our business and service
debt. As of January 31, 2009, we were in compliance with our bank
covenants and had substantial borrowing capacity available in our operating and
acquisition lines of credit. In the six months ended April 30, 2009 we used
$3,040,000 in bank and seller debt for acquisitions. We evaluate acquisition
opportunities, individually, as they arise.
Results of Operations for
the Three Months Ended April 30, 2009 (Second Quarter) Compared to the Three
Months Ended April 30, 2008
Sales
Sales for
the three months ended April 30, 2009 were $16,756,000 and $17,438,000 for the
corresponding period in 2008, a decrease of $682,000 or 4%. The
decrease was primarily the result of lower demand for all of the Company’s
products and services except for single serve coffee and lower fees that were
charged to offset energy costs for delivery and freight, raw materials, and
bottling operations. Sales as a result of acquisitions accounted for
$356,000 of total sales for the second quarter of 2009. Net of the acquisition
related sales, sales declined 6% from a year ago.
The
comparative breakdown of sales of the product lines for the respective
three-month periods ended April 30, 2009 and 2008 is as follows:
|
Product Line
|
|
|
2009
|
|
|
2008
|
|
|
Difference
|
|
|
% Diff.
|
|
|
(000’s
$
)
|
|
|
|
|
|
|
|
|
|
Water
|
|
|
$
|
6,910
|
|
|
$
|
7,284
|
|
|
$
|
(374
|
)
|
|
|
(5
|
%)
|
|
Coffee
and Related
|
|
|
|
5,653
|
|
|
|
5,535
|
|
|
|
118
|
|
|
|
2
|
%
|
|
Equipment
Rental
|
|
|
|
2,221
|
|
|
|
2,216
|
|
|
|
5
|
|
|
|
-
|
|
|
Other
|
|
|
|
1,972
|
|
|
|
2,403
|
|
|
|
(431
|
)
|
|
|
(18
|
%)
|
|
Total
|
|
|
$
|
16,756
|
|
|
$
|
17,438
|
|
|
$
|
(682
|
)
|
|
|
(4
|
%)
|
Water
– Sales of
water decreased compared to the same period in the prior year because volume in
the second quarter of 2009 decreased 3% from the second quarter of 2008 and
pricing decreased 2% for the second quarter of 2009 compared to the same period
a year ago. We believe the decrease in the amount of water sold was
attributable to the weaker economy and the decrease in price was attributable to
resulting competition.
Coffee and Related
Products
– The increase in sales in the second quarter of 2009 compared
to the comparable period in 2008 was attributable to the growth of single serve
coffee, which grew 18%, to $2,844,000 in the second quarter of 2009 compared to
$2,419,000 in the same period in fiscal year 2008. Other products in
this category decreased 11% over the same periods. Net of the effects
of acquisitions, sales for the category increased 2%.
Equipment Rental
–
Equipment rental revenue was substantially unchanged in the second quarter of
2009 compared to the comparable period in 2008. Acquisitions
increased placement 2%, so net of acquisitions, which had no significant effects
on this category, rental revenue was down due to lower placements.
Other
– The
substantial decrease in other revenue is reflective of fees that are charged to
offset energy costs for delivery and freight, raw materials, and bottling
operations. These charges decreased 56% to $342,000 in the second
quarter of 2009 from $779,000 in the same period in 2008. Sales
of other products such as single-serve drinks, cups, and vending items, in
aggregate, decreased 3% from the second quarter last year to the second quarter
of 2009.
Gross
Profit/Cost of Goods Sold
– For the three months ended April 30, 2009,
gross profit decreased $974,000, or 10%, to $8,827,000 from $9,801,000 for the
comparable period in 2008. As a percentage of sales, gross profit
decreased to 53% in the second quarter of 2009 from 56% in the second quarter of
2008. The decrease in gross profit was primarily due to lower sales
of higher margin products and a significant reduction in the fees that are
charged to offset energy costs.
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 $7,767,000 in the second quarter of 2009 from
$8,223,000 in the comparable period in 2008, a decrease of $456,000, or
6%.
Selling,
general and administrative (SG&A) expenses of $7,282,000 in the second
quarter of 2009 decreased $312,000, or 4%, from $7,594,000 in the comparable
period in 2008. Of total SG&A expenses, (1) route distribution
costs decreased $45,000, or 1%, as a result of lower fuel and sales-related
compensation costs; (2) selling costs increased $74,000, or 11%, as a result of
computer software implementation costs; and (3) administration costs decreased
$341,000, 10%, primarily as a result of the provision for
bad debt expense on a note receivable of $475,000 in the second quarter of 2008
that did not reoccur in 2009 which more than offset a $272,000 charge for a
termination arrangement in the second quarter of 2009 . 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 $214,000 in the second quarter of 2009 compared to $453,000 in the
second quarter of 2008, a decrease of $239,000, or 53%. The decrease in
advertising costs is primarily related to a decrease in yellow page advertising
due to a reduction of exposure in that medium in favor of increased internet
advertising which cost less during the period.
Amortization
was $257,000 in the second quarter of 2009, a $30,000 increase, or 13%, from
$227,000 in the comparable quarter in 2008. Amortization is
attributable to intangible assets that were acquired as part of acquisitions
recently.
Income
from operations for the three months ended April 30, 2009 was $1,060,000
compared to $1,578,000 in the comparable period in 2008, a decrease of $518,000,
or 33%. The decrease was a result of lower sales and product margins
despite lower operating costs.
Interest, Taxes, and Other
Expenses – Income from Continuing Operations
Interest
expense was $652,000 for the three months ended April 30, 2009 compared to
$782,000 in the three months ended April 30, 2008, a decrease of $130,000, or
17%. The decrease is attributable to lower outstanding debt and lower
interest rates during the 2009 quarter compared to the 2
nd
quarter
of 2008.
Income
before income taxes was $408,000 for the three months ended April 30, 2009
compared to income before income taxes of $796,000 in the corresponding period
in 2008, a decrease of $388,000, or 49%. The tax expense for
the second quarter of fiscal year 2009 was $176,000 and was based on the
expected effective tax rate of 43%. This rate increased from 37% the first
quarter of 2009 as a result of an adjustment in the anticipated effective tax
rate for the full fiscal year of 2009 of 41%. The adjustment was a reflection of
the impact the book-to-tax adjustments have on a smaller taxable income
base. We recorded a tax expense of $326,000 related to income from
operations in the second quarter of fiscal year 2008 based on an anticipated
effective tax rate of 41%.
Net
Income
Net
income of $232,000 for the three months ended April 30, 2009 decreased from net
income of $471,000 in the corresponding period in 2008, a decrease of $239,000,
or 51%. The decrease is attributable to lower sales and product
margins despite lower operating and interest costs for the first quarter of 2009
as compared to the same period in fiscal year 2008.
Results of Operations for
the Six Months Ended April 30, 2009 (First Half) Compared to the Six Months
Ended April 30, 2008
Sales
Sales for
the six months ended April 30, 2009 were $32,308,000 compared to $33,823,000 for
the corresponding period in 2008, a decrease of $1,515,000 or 4%. The
decrease was primarily the result of lower water sales and lower fees that were
charged to offset energy costs for delivery and freight, raw materials, and
bottling operations. Sales as a result of acquisitions accounted for
$415,000 of total sales for the first half of 2009. Net of the
acquisition related sales, total sales declined 6% in the first six months of
fiscal year 2009 from the same period a year ago.
The
comparative breakdown of sales of the product lines for the respective six month
periods ended April 30, 2009 and 2009 is as follows:
|
Product Line
|
|
2009
|
|
|
2008
|
|
|
Difference
|
|
|
% Diff.
|
|
|
|
|
|
|
|
|
|
|
Water
|
|
$
|
13,127
|
|
|
$
|
13,905
|
|
|
$
|
(778
|
)
|
|
|
(6
|
%)
|
|
Coffee
and Related
|
|
|
11,152
|
|
|
|
10,887
|
|
|
|
265
|
|
|
|
2
|
%
|
|
Equipment
Rental
|
|
|
4,363
|
|
|
|
4,459
|
|
|
|
(96
|
)
|
|
|
(2
|
%)
|
|
Other
|
|
|
3,666
|
|
|
|
4,572
|
|
|
|
(906
|
)
|
|
|
(20
|
%)
|
|
Total
|
|
$
|
32,308
|
|
|
$
|
33,823
|
|
|
$
|
(1,515
|
)
|
|
|
(4
|
%)
|
Water
– Sales of
water and related products decreased as a result of a lower amount of water sold
compared to the first half of the prior year. Volume decreased 6%
while price remained substantially the same in the first half of 2009 compared
to the same period of 2008. Net of acquisitions, water sales
decreased 8% for the period.
Coffee and Related
Products
– The increase in sales in the first half of 2009 compared to
the comparable period in 2008 was attributable to the growth of single serve
coffee, which grew 15%, to $5,438,000 in the first half of 2009 compared to
$4,747,000 in the same period in fiscal year 2008. Acquisitions had no
significant effects on this category.
Equipment Rental
–
Equipment rental revenue decreased in the first half of 2009 compared to the
same period in 2008 primarily as a result of a decrease in placements of
equipment. Net of acquisitions, equipment rental revenue decreased 3%
overall.
Other
– The
substantial decrease in other revenue is reflective of fees that are charged to
offset energy costs for delivery and freight, raw materials, and bottling
operations. These charges decreased $693,000, or 47%, to $769,000 in
the first half of 2009 from $1,462,000 in the same period in
2008. Sales of other products such as single-serve drinks,
cups, and vending items, in aggregate, decreased 4% from the first half of 2008
to the first half of 2009.
Gross
Profit/Cost of Goods Sold
– For the six months ended April 30, 2009,
gross profit decreased $2,002,000, or 11%, to $16,947,000 from $18,949,000 for
the comparable period in 2008. The decrease in gross profit was
primarily due to lower sales of higher margin products and a significant
reduction in the fees that are charged to offset energy costs. As a percentage
of sales, gross profit decreased to 52% in the first half of 2009 from 56% in
the first half of 2008.
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 $15,054,000 in the first half of 2009 from
$15,825,000 in the comparable period in 2008, a decrease of $771,000, or
5%.
Selling,
general and administrative (SG&A) expenses of $14,093,000 in the first half
of 2009 decreased $546,000, or 4%, from $14,639,000 in the comparable period in
2008. Of total SG&A expenses, (1) route distribution costs
decreased $189,000, or 3%, as a result of lower fuel and sales-related
compensation costs; (2) selling costs increased $70,000, or 5%, as a result of
computer software implementation costs; and (3) administration costs decreased
$427,000, or 7%, as a result of the provision for bad debt of $475,000 in the
first half of 2008 and did not reoccur in 2009 that did not offset a $272,000
charge for a termination arrangement in the first half of 2009. 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. In addition outside
computer and consulting services declined significantly in the first half of
2009 compared to the same period a year ago.
Advertising
expenses were $498,000 in the first half of 2009 compared to $794,000 in the
first half of 2008, a decrease of $296,000, or 37%. The decrease in advertising
costs is primarily related to a decrease in yellow page advertising due to a
reduction of exposure in that medium in favor of increased internet advertising
which cost less during the period.
Amortization
was $457,000 in the first half of 2009, a $5,000 increase from $452,000 in the
comparable period in 2008. Amortization is attributable to intangible
assets that were acquired as part of acquisitions recently.
Income
from operations for the six months ended April 30, 2009 was $1,893,000 compared
to $3,124,000 in the comparable period in 2008, a decrease of $1,231,000, or
39%. The decrease was a result of lower sales and product margins
despite lower operating costs.
Interest, Taxes, and Other
Expenses – Income from Continuing Operations
Interest
expense was $1,335,000 for the six months ended April 30, 2009 compared to
$1,563,000 in the six months ended April 30, 2008, a decrease of
$228,000. The decrease is attributable to lower outstanding debt and
lower interest rates during the first half of 2009 compared to the same period
in 2008.
Income
before income taxes was $558,000 for the six months ended April 30, 2009
compared to income before income taxes of $1,561,000 in the corresponding period
in 2008, a decrease of $1,003,000. The tax expense for the
first half of fiscal year 2009 was $231,000 and was based on the expected
effective tax rate of 41%. We recorded a tax expense of $579,000 related
to income from operations in the first half of fiscal year 2008 based on an
anticipated effective tax rate of 37%. The increase in the effective tax
rate was a result an increase in the 2009 rate from the impact that the
book-to-tax adjustments have on a smaller taxable income base and a decrease in
2008 rate as a consequence of the affect of tax credits for the installation of
solar electricity generating equipment during fiscal year. The decrease in the
2008 rate was partially offset by a valuation allowance set up for the write off
of the note referenced above.
Net
Income
Net
income of $327,000 for the six months ended April 30, 2009 decreased from net
income of $983,000 in the corresponding period in 2008, a decrease of
$656,000. The decrease is attributable to lower sales and product
margins despite lower operating and interest costs.
Liquidity and Capital
Resources
As of
April 30, 2009, we had working capital of $1,524,000 compared to $3,103,000 as
of October 31, 2008, a decrease of $1,579,000. The decrease in
working capital was primarily attributable to the reduction of cash generated by
operations and cash used for acquisitions during the first six months of fiscal
year 2009 even though less cash was used for capital expenditures and
acquisitions in the first half of 2009 compared to the first half of
2008. Net cash provided by operating activities increased $406,000 to
$2,629,000 in 2009 from $2,223,000 in 2008. The decrease was attributable to an
income tax refund that more than offset lower net income, and higher cash usage
for inventory and expenses.
As
mentioned above, we use cash provided by operations to repay debt and fund
capital expenditures. In the first six months of fiscal year 2009, we
used $1,687,000 for scheduled repayments of our term debt. In addition, we used
$954,000 for capital expenditures. Capital expenditures were substantially
higher last year for the same period last year because of $1,028,000 expended on
our solar electricity generation project. We spent less for coolers,
brewers, bottles and racks related to home and office distribution in the first
six months of 2009 compared to the respective period in 2008 as a result of
lower demand for rental units.
During
the first six months of fiscal year 2009, we borrowed $2,500,000 from our
acquisition line of credit and issued notes to sellers of $540,000 to finance
acquisitions. Over the same time, we borrowed $300,000 from our acquisition line
of credit to fund capital expenditures and $536,000 from our revolving line of
credit to fund seasonal operating cash requirements. As of April 30, 2009 we had
outstanding balances of $15,167,000 on our term loan, $3,800,000 on our
$10,000,000 acquisition line of credit, and $536,000 on our $6,000,000 revolving
line of credit with Bank of America. In addition, there was an
outstanding letter of credit for $1,583,000 issued against our revolving line of
credit. As of April 30, 2009 there was $6,200,000 and $3,881,000
available on the acquisition and revolving lines of credit,
respectively.
Our lines
of credit mature on April 5, 2010. On that date, any balance on the acquisition
line converts to a term loan with equal annual installments payable over the
next five years. Any balance on the revolving line will be due and
payable on that April 5, 2010. We are currently negotiating to renew
these facilities. If we are unable to negotiate acceptable renewal
terms, and no alternative funding is available, we may experience a material
adverse financial impact.
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 April 30, 2009, we were in
compliance with all of the financial covenants of our credit
facility.
As of
April 30, 2009, 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
6.37% (4.87% plus the applicable margin, 1.50%).
The net
deferred tax liability at April 30, 2009 represents temporary timing
differences, primarily attributable to depreciation and amortization, between
book and tax calculations.
We have used all 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
|
|
|
Contractual Obligations (1)
|
|
Total
|
|
|
Remainder
of 2009
|
|
|
|
2010-2011
|
|
|
|
2012-2013
|
|
|
After 2013
|
|
|
Debt
|
|
$
|
34,096,000
|
|
|
$
|
2,169,000
|
|
|
$
|
8,606,000
|
|
|
$
|
8,020,000
|
|
|
$
|
15,301,000
|
|
|
Interest
on Debt (2)
|
|
|
12,497,000
|
|
|
|
2,508,000
|
|
|
|
4,503,000
|
|
|
|
3,791,000
|
|
|
|
1,695,000
|
|
|
Operating
Leases
|
|
|
12,044,000
|
|
|
|
1,653,000
|
|
|
|
5,366,000
|
|
|
|
3,323,000
|
|
|
|
1,702,000
|
|
|
Total
|
|
$
|
58,637,000
|
|
|
$
|
6,330,000
|
|
|
$
|
18,475,000
|
|
|
$
|
15,134,000
|
|
|
$
|
18,698,000
|
|
(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 1.95%, 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.
Quantitati
ve and Qualitative Disclosures
a
bout Market
Risks
.
Pursuant
to Regulation S-K, Item 305(e), smaller reporting companies are not
required to provide this information.
Item
4(T). 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 Commission’s 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 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 six months ended April 30, 2009, 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.
PART II –
OTHER INFORMATION
Item
1. Legal Proceedings.
In the
quarter ended April 30, 2009, there were no material developments in our legal
proceedings from the information disclosed in our 2008 Annual Report on Form
10-K.
Item
1A. Risk Factors.
There was
no change during the six months ended April 30, 2009 from the Risk Factors
reported in our Annual Report on Form 10-K for the year ended October 31,
2008.
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds.
None.
Item
3. Defaults Upon Senior
Securities.
None.
Item
4. Submission of Matters to a Vote of
Security Holders.
On March
30, 2009, we held our annual stockholders meeting at the offices of Lamn,
Krielow, Dytrych & Co., 500 University Boulevard, Suite 215, Jupiter,
Florida 33458 at 2:00 p.m. local time. There was one matter of
business requiring a stockholder vote; to elect seven directors to hold office
until the Annual Meeting of Stockholders in 2010 and until their respective
successors have been duly elected and qualified.
A total
of 18,495,224 votes were cast and the following directors were elected to one
year terms with the corresponding vote tally:
|
Director
|
|
Number of Shares Voted For
|
|
|
Number of Shares for which Authority was
Withheld
|
|
|
Henry
E. Baker
|
|
|
17,395,852
|
|
|
|
1,099,372
|
|
|
John
B. Baker
|
|
|
17,398,952
|
|
|
|
1,096,272
|
|
|
Peter
K. Baker
|
|
|
17,475,652
|
|
|
|
1,019,572
|
|
|
Phillip
Davidowitz
|
|
|
18,321,293
|
|
|
|
173,931
|
|
|
Martin
A. Dytrych
|
|
|
18,303,787
|
|
|
|
191,437
|
|
|
John
M. LaPides
|
|
|
18,312,590
|
|
|
|
182,634
|
|
|
Ross
S. Rapaport
|
|
|
17,424,907
|
|
|
|
1,070,317
|
|
Item
5. Other
Information.
None.
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)
|
|
|
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
|
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.
VERMONT PURE HOLDINGS, LTD.
|
Dated: June
15, 2009
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Bruce S. MacDonald
|
|
|
|
|
Bruce
S. MacDonald
|
|
|
|
|
Vice
President, Chief Financial Officer
|
|
|
|
|
(Principal
Accounting Officer and Principal Financial Officer)
|
|
Exhibits
Filed Herewith
Exhibit
Number
Description
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
act of 2002.
|
|
|
|
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
act of 2002.
|
|
|
|
|
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
24
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