**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

| **x**                                                                                                                                                                                                            | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                             |       |                                                                                          |
| **For the  Quarterly Period Ended September 30, 2007**                                                                                                                                                           |
|                                                                                                                                                                                                             |       |                                                                                          |
| **o**                                                                                                                                                                                                            | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                             |       |                                                                                          |
| **For the  Transition Period  From                to              ** |

 

**CommissionFile Number 1-12599**

 

**VITA FOODPRODUCTS, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Nevada**                       | ** ** | **36-3171548**       |
|----------------------------------|------------|----------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer     |
| incorporation or  organization)  |       | Identification  No.) |

 

## **2222 West Lake Street, Chicago, Illinois    60612**

(Address ofprincipal executive offices)        (Zip Code)

 

Registrant’stelephone number, including area code:   **(312) 738-4500**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes  x   No  o

 

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):
| Large accelerated  filer  o | Accelerated  filer  o | Non-accelerated  filer  x |
|---------------------------------------|---------------------------------|-------------------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).  Yes  o   No  x

 

The number ofshares outstanding of registrant’s common stock as of September 30, 2007 was7,367,198.

 

 

----

 

**VITA FOODPRODUCTS, INC.**

 

**FORM 10-Q**

 

## **For the Quarter Ended September 30, 2007**

## ** **

## **INDEX**

## ** **

| ** **   | ** **                                                                                  | ** **                                                                                                     | **Page**   |
|--------------|---------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|------------|
| **PART I.**  | **FINANCIAL INFORMATION**                                                                   |                                                                                                           | ** ** |
|         |                                                                                        |                                                                                                           |       |
| Item 1.      | Financial Statements                                                                        |                                                                                                           |       |
|         |                                                                                        |                                                                                                           |
|         | a)                                                                                          | Consolidated Balance Sheets as of  September 30, 2007 and December 31, 2006                                    | 3          |
|         |                                                                                        |                                                                                                           |       |
|         | b)                                                                                          | Consolidated Statements of  Operations for the Three Months and Nine Months Ended September 30, 2007 and  2006 | 4          |
|         |                                                                                        |                                                                                                           |       |
|         | c)                                                                                          | Consolidated Statement of  Shareholders’ Equity for the Nine Months Ended September 30, 2007              | 4          |
|         |                                                                                        |                                                                                                           |       |
|         | d)                                                                                          | Consolidated Statements of  Cash Flows for the Nine Months Ended September 30, 2007 and 2006                   | 5          |
|         |                                                                                        |                                                                                                           |       |
|         | e)                                                                                          | Notes to  Consolidated Financial Statements                                                                    | 6          |
|         |                                                                                        |                                                                                                           |
| Item 2.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 11                                                                                                             |
|         |                                                                                        |                                                                                                           |       |
| Item 3.      | Quantitative  and Qualitative Disclosures About Market Risk                                 | 16                                                                                                             |
|         |                                                                                        |                                                                                                           |       |
| Item 4.      | Controls and  Procedures                                                                    |                                                                                                           | 16         |
|         |                                                                                        |                                                                                                           |       |
| **PART II.** | **OTHER INFORMATION**                                                                       |                                                                                                           |       |
|         |                                                                                        |                                                                                                           |       |
| Item 1A.     | Risk Factors                                                                                |                                                                                                           | 17         |
|         |                                                                                        |                                                                                                           |       |
| Item 6.      | Exhibits                                                                                    |                                                                                                           | 17         |
|         |                                                                                        |                                                                                                           |       |
| SIGNATURES   |                                                                                        | 18                                                                                                             |
|              |                                                                                             |                                                                                                                |            |  |

 

2

----

 

**PART 1. FINANCIAL STATEMENTS**

 

**Item 1.Financial Statements**

 
| **Consolidated Balance Sheets** | **Vita Food Products, Inc.** |
|---------------------------------|------------------------------|
|                            | **And Subsidiary**           |

 
| ** **                                                                                                                           | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                           | ** ** | **2007**               | ** ** | **2006**              | ** ** |
|                                                                                                                                 |       |                   |       |                  |       |
| **ASSETS**                                                                                                                           |       |                   |       |                  |       |
| Current Assets                                                                                                                       |       |                   |       |                  |       |
| Cash                                                                                                                                 |       | $                      | 24,340     |                  | $          | 54,194 |   |
| Accounts  receivable-trade, net of allowance for discounts, returns, and doubtful accounts of $814,253 in 2007 and  $947,729 in 2006 |       | 4,955,434              |       | 6,468,669             |       |
| Inventories                                                                                                                          |       |                   |       |                  |       |
| Raw material and  supplies                                                                                                           |       | 4,350,587              |       | 5,562,243             |       |
| Work in process                                                                                                                      |       | 268,812                |       | 170,167               |       |
| Finished goods                                                                                                                       |       | 3,506,838              |       | 2,178,575             |       |
| Prepaid expenses  and other current assets                                                                                           |       | 370,916                |       | 446,516               |       |
| Deferred income  tax                                                                                                                 |       | 1,012,571              |       | 610,714               |       |
|                                                                                                                                 |       |                   |       |                  |       |
| Total Current  Assets                                                                                                                |       | 14,489,498             |       | 15,491,078            |       |
| ** **                                                                                                                           | ** ** | ** **             | ** ** | ** **            | ** ** |
| Property, Plant  and Equipment                                                                                                       |       |                   |       |                  |       |
| Land                                                                                                                                 |       | 35,000                 |       | 35,000                |       |
| Building and  improvements                                                                                                           |       | 3,110,560              |       | 3,105,339             |       |
| Leasehold  improvements                                                                                                              |       | 502,776                |       | 582,620               |       |
| Machinery and  office equipment                                                                                                      |       | 11,719,734             |       | 11,970,640            |       |
|                                                                                                                                 |       |                   |       |                  |       |
|                                                                                                                                 |       | 15,368,070             |       | 15,693,599            |       |
| Less accumulated  depreciation and amortization                                                                                      |       | (10,095,322            | )          | (9,950,781            | )          |
|                                                                                                                                 |       |                   |       |                  |       |
| Net Property,  Plant and Equipment                                                                                                   |       | 5,272,748              |       | 5,742,818             |       |
|                                                                                                                                 |       |                   |       |                  |       |
| Goodwill                                                                                                                             |       | 5,571,012              |       | 5,571,012             |       |
| Other Assets                                                                                                                         |       | 187,752                |       | 403,572               |       |
| Deferred income  tax                                                                                                                 |       | 325,304                |       | 325,304               |       |
|                                                                                                                                 |       |                   |       |                  |       |
| Total Other  Assets                                                                                                                  |       | 6,084,068              |       | 6,299,888             |       |
|                                                                                                                                 |       |                   |       |                  |       |
| Total Assets                                                                                                                         |       | $                      | 25,846,314 |                  | $          | 27,533,784 |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                       |       |                   |       |                  |       |
| Current  Liabilities                                                                                                                 |       |                   |       |                  |       |
| Current  maturities of long-term obligations                                                                                         |       | $                      | 12,677,548 |                  | $          | 1,513,783 |   |
| Accounts payable                                                                                                                     |       | 3,660,381              |       | 6,520,166             |       |
| Accrued other  expenses                                                                                                              |       | 1,075,619              |       | 1,260,308             |       |
|                                                                                                                                 |       |                   |       |                  |       |
| Total Current  Liabilities                                                                                                           |       | 17,413,548             |       | 9,294,257             |       |
|                                                                                                                                 |       |                   |       |                  |       |
| Long-term  Obligations, Less Current Maturities                                                                                      |       | 2,306,941              |       | 14,373,490            |       |
|                                                                                                                                 |       |                   |       |                  |       |
| Shareholders’  Equity                                                                                                           |       |                   |       |                  |       |
| Preferred stock,  $.01 par value, authorized 1,000,000 shares; none issued                                                           |       | —                 |       | —                |       |
| Common stock,  $.01 par value; authorized 10,000,000 shares; outstanding 7,373,714 shares in  2007 and 4,941,763 in 2006             |       | 73,737                 |       | 49,417                |       |
| Treasury stock,  at cost 6,516 shares                                                                                                |       | (50,043                | )          | (50,043               | )          |
| Additional  paid-in capital                                                                                                          |       | 9,191,085              |       | 6,357,093             |       |
| Retained  earnings                                                                                                                   |       | (3,088,954             | )          | (2,490,430            | )          |
|                                                                                                                                 |       |                   |       |                  |       |
| Total  Shareholders’ Equity                                                                                                     |       | 6,125,825              |       | 3,866,037             |       |
|                                                                                                                                 |       |                   |       |                  |       |
| Total  Liabilities and Shareholders’ Equity                                                                                     |       | $                      | 25,846,314 |                  | $          | 27,533,784 |   |

 

See accompanying notes tothe consolidated financial statements.

 

3

----

 
| **Consolidated Statements of  Operations** | **Vita Food Products, Inc.** |
|--------------------------------------------|------------------------------|
| ** **                                 | **And Subsidiary**           |

 
| ** **                                  | ** ** | **For the three months ended** | ** ** | **For the Nine months ended** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                  | ** ** | **September 30**                              | ** ** | **September 30**                             | ** ** |
| ** **                                  | ** ** | **2007**                                           | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                  | ** ** | ** **                                         | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                   |       | $                                                  | 11,834,394 |                                              | $          | 12,417,606 |   | $ | 36,352,555 |   | $ | 36,915,258 |   |
| Cost of goods  sold                         |       | 9,676,562                                          |       | 10,010,867                                        |       | 26,635,016 |   | 27,359,109 |   |
|                                        |       |                                               |       |                                              |       |   |   |   |   |
| Gross margin                                |       | 2,157,832                                          |       | 2,406,739                                         |       | 9,717,539 |   | 9,556,149 |   |
|                                        |       |                                               |       |                                              |       |   |   |   |   |
| Selling and  administrative expenses        |       |                                               |       |                                              |       |   |   |   |   |
| Selling,  marketing & distribution      |       | 2,275,148                                          |       | 2,361,765                                         |       | 6,805,788 |   | 6,665,254 |   |
| Administrative                              |       | 927,314                                            |       | 922,648                                           |       | 2,983,459 |   | 3,007,880 |   |
|                                        |       |                                               |       |                                              |       |   |   |   |   |
| Total selling  and administrative expenses  |       | 3,202,462                                          |       | 3,284,413                                         |       | 9,789,247 |   | 9,673,134 |   |
|                                        |       |                                               |       |                                              |       |   |   |   |   |
| Operating loss                              |       | (1,044,630                                         | )          | (877,674                                          | )          | (71,708 | ) | (116,985 | ) |
|                                        |       |                                               |       |                                              |       |   |   |   |   |
| Interest expense                            |       | 307,618                                            |       | 330,917                                           |       | 925,816 |   | 970,573 |   |
|                                        |       |                                               |       |                                              |       |   |   |   |   |
| Income before  income taxes                 |       | (1,352,248                                         | )          | (1,208,591                                        | )          | (997,524 | ) | (1,087,558 | ) |
| Income tax  benefit                         |       | (540,000                                           | )          | (484,000                                          | )          | (399,000 | ) | (435,000 | ) |
|                                        |       |                                               |       |                                              |       |   |   |   |   |
| Net loss                                    |       | $                                                  | (812,248   | )                                                 | $          | (724,591 | ) | $ | (598,524 | ) | $ | (652,558 | ) |
|                                        |       |                                               |       |                                              |       |   |   |   |   |
| Basic loss per  share                       |       | $                                                  | (0.11      | )                                                 | $          | (0.15 | ) | $ | (0.10 | ) | $ | (0.14 | ) |
| Weighted average  common shares outstanding |       | 7,367,198                                          |       | 4,904,086                                         |       | 5,766,493 |   | 4,597,966 |   |
|                                        |       |                                               |       |                                              |       |   |   |   |   |
| Diluted loss per  share                     |       | $                                                  | (0.11      | )                                                 | $          | (0.15 | ) | $ | (0.10 | ) | $ | (0.14 | ) |
| Weighted average  common shares outstanding |       | 7,367,198                                          |       | 4,904,086                                         |       | 5,766,493 |   | 4,597,966 |   |

 
| **Statements of Shareholders’  Equity (Unaudited)** | **Vita Food Products, Inc.** |
|----------------------------------------------------------|------------------------------|
| ** **                                               | **And Subsidiary**           |

 
| ** **                                          | ** ** | ** **            | ** ** | ** **   | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **   | ** ** | ** ** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|--------------|------------|-------------|------------|----------------|------------|--------------|------------|------------|------------|
| ** **                                          | ** ** | **Common Stock** | ** ** | **Treasury** | ** ** | **Paid-in** | ** ** | **Retained**   | ** ** | ** **   | ** ** |
| ** **                                          | ** ** | **Shares**            | ** ** | **Amount**   | ** ** | **Stock**   | ** ** | **Capital**    | ** ** | **Earnings** | ** ** | **Total**  | ** ** |
|                                                |       |                  |       |         |       |        |       |           |       |         |       |       |       |
| Balance, at  January 1, 2007                        |       | 4,941,763             |       | $            | 49,417     |        | $          | (50,043        | )          | $            | 6,357,093  |       | $          | (2,490,430 | ) | $ | 3,866,037 |   |
|                                                |       |                  |       |         |       |        |       |           |       |         |       |       |       |
| Common stock  issuance net                          |       | 2,400,000             |       | 24,000       |       | —      |       | 2,976,000      |       | —       |       | 3,000,000  |       |
|                                                |       |                  |       |         |       |        |       |           |       |         |       |       |       |
| Stock based  compensation expense                   |       | 21,369                |       | 214          |       | —      |       | 5,045          |       | —       |       | 5,259      |       |
|                                                |       |                  |       |         |       |        |       |           |       |         |       |       |       |
| Proceeds from  stock purchase and stockoption plans |       | 10,582                |       | 106          |       | —      |       | 16,547         |       | —       |       | 16,653     |       |
|                                                |       |                  |       |         |       |        |       |           |       |         |       |       |       |
| Cost of Capital  infusion                           |       | —                |       | —       |       | —      |       | (163,600       | )          | —       |       | (163,600   | )          |
|                                                |       |                  |       |         |       |        |       |           |       |         |       |       |       |
| Net loss                                            |       | —                |       | —       |       | —      |       | —         |       | (598,524     | )          | (598,524   | )          |
|                                                |       |                  |       |         |       |        |       |           |       |         |       |       |       |
| Balance, at  September 30, 2007                     |       | $                     | 7,373,714  |         | $          | 73,737      |       | $              | (50,043    | )            | $          | 9,191,085  |       | $ | (3,088,954 | ) | $ | 6,125,825 |   |
|                                                     |            |                       |            |              |            |             |            |                |            |              |            |            |            |  |  |  |  |  |  |

 

See accompanying notes tothe consolidated financial statements.

 

4

----

 
| **Consolidated Statements of Cash  Flows** | **Vita Food Products, Inc.** |
|--------------------------------------------|------------------------------|
| ** **                                 | **And Subsidiary**           |

 
| ** **                                                                                | ** ** | **For the Nine months ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                | ** ** | **September 30,**                            | ** ** |
| ** **                                                                                | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| ** **                                                                                | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Cash  Flows From Operating Activities**                                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net loss                                                                                  |       | $                                                 | (598,524   | ) | $ | (652,558 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities |       |                                              |       |   |   |
| Depreciation and  amortization                                                            |       | 724,800                                           |       | 732,920 |   |
| Deferred income  tax benefit                                                              |       | (399,000                                          | )          | (435,000 | ) |
| Non-cash  compensation expense                                                            |       | 21,912                                            |       | 42,304 |   |
| Gain on sale of  fixed assets                                                             |       | (3,762                                            | )          | (500 | ) |
| Changes in  assets and liabilities:                                                       |       |                                              |       |   |   |
| Accounts  receivable                                                                      |       | 1,513,235                                         |       | (708,859 | ) |
| Inventories                                                                               |       | (215,255                                          | )          | (45,186 | ) |
| Prepaid expenses  and other current assets                                                |       | 72,742                                            |       | (80,906 | ) |
| Income taxes  receivable                                                                  |       | —                                            |       | 302,060 |   |
| Accounts payable                                                                          |       | (2,859,785                                        | )          | 2,094,010 |   |
| Accrued expenses  and other long-term obligations                                         |       | (407,944                                          | )          | (128,310 | ) |
|                                                                                      |       |                                              |       |   |   |
| Net cash  provided by (used in) operating activities                                      |       | (2,151,581                                        | )          | 1,119,976 |   |
|                                                                                      |       |                                              |       |   |   |
| **Cash  Flows From Investing Activities**                                                 |       |                                              |       |   |   |
| Capital  expenditures                                                                     |       | (282,682                                          | )          | (866,132 | ) |
| Proceeds from  sale of fixed asset                                                        |       | 74,447                                            |       | 500 |   |
| Change in other  assets                                                                   |       | 173,087                                           |       | (27,460 | ) |
|                                                                                      |       |                                              |       |   |   |
| Net cash used in  investing activities                                                    |       | (35,148                                           | )          | (893,092 | ) |
|                                                                                      |       |                                              |       |   |   |
| **Cash  Flows From Financing Activities**                                                 |       |                                              |       |   |   |
| Proceeds from  issuance of stock and warrants, net of costs                               |       | 2,836,400                                         |       | 2,409,833 |   |
| Payments under  revolving loan facility                                                   |       | (675,993                                          | )          | (1,290,679 | ) |
| Payments on term  loan facility                                                           |       | (1,003,533                                        | )          | (632,513 | ) |
| Proceeds from  new term loan                                                              |       | 1,000,000                                         |       | — |   |
| Payments on  other debt                                                                   |       | —                                            |       | (700,000 | ) |
|                                                                                      |       |                                              |       |   |   |
| Net cash  provided by (used in) financing activities                                      |       | 2,156,874                                         |       | (213,359 | ) |
|                                                                                      |       |                                              |       |   |   |
| Net increase  (decrease) in cash                                                          |       | (29,854                                           | )          | 13,525 |   |
|                                                                                      |       |                                              |       |   |   |
| Cash, at  beginning of period                                                             |       | 54,194                                            |       | 25,133 |   |
|                                                                                      |       |                                              |       |   |   |
| Cash, at end of  period                                                                   |       | $                                                 | 24,340     |   | $ | 38,658 |   |
|                                                                                      |       |                                              |       |   |   |
| Supplemental  Disclosure of Cash Flow Information                                         |       |                                              |       |   |   |
| Cash paid for  interest                                                                   |       | $                                                 | 927,636    |   | $ | 955,611 |   |
| Income taxes  paid (received)                                                             |       | $                                                 | 2,670      |   | $ | (302,061 | ) |

 

See accompanying notes tothe consolidated financial statements.

 

5

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## ** **

## **Vita Food Products, Inc. and Subsidiary**

## ** **

## **Notes to Consolidated Financial Statements**

## ** **

**(Unaudited)**

 

#### **Basisof Presentation**

#### ** **

In the opinion ofmanagement, the accompanying balance sheets and related interim statements ofoperations, cash flows, and shareholders’ equity include all adjustments,consisting only of normal recurring items necessary for their fair presentationin conformity with U.S. generally accepted accounting principles. Preparingfinancial statements requires management to make estimates and assumptions thataffect the reported amounts of assets, liabilities, revenue, and expenses. Examplesinclude provisions for returns, deductions, bad debts, and length of buildingand equipment lives. Actual results may differ from these estimates. Interim resultsare not necessarily indicative of results for a full year. The informationincluded in this Form 10-Q should be read in conjunction with Management’sDiscussion and Analysis of Financial Condition and Results of Operations andfinancial statements and notes thereto included in the Form 10-K for the fiscalyear ended December 31, 2006 of Vita Food Products, Inc. (“Vita Seafood”)together with its wholly owned subsidiary, Vita Specialty Foods, Inc. (“VitaSpecialty Foods”), hereinafter collectively referred to as the “Company”.

 

For the third quarterand nine month periods ended September 30, 2007 and 2006, diluted earnings pershare computations exclude 2,742,100 and 2,834,600 shares for 2007 and1,192,600 and 1,225,100 shares for 2006, respectively, issueable upon exerciseof stock options and warrants because the assumed exercise of these options andwarrants would be anti-dilutive.

 

Starting January1, 2007, the Company changed the classification of In-Store Advertising (RotoAd’s) expense, which had previously been included in the Selling, Marketing,and Distribution category of operating expenses, to be treated as a salesdeduction and thus classify these expenses as a reduction to arrive at the NetSales total. Additionally, the 2006 operating results, as presented above, havebeen adjusted to consider this change and thus make these results morecomparable with the 2007 results. The results of this reclassification, whichhad no affect on Operating Profit or Net Income (Loss), was to reduce both NetSales and Selling, Marketing and Distribution expenses, in an offsettingfashion, for the nine months ended September 30, 2007 and 2006 by $226,840 and$152,852, respectively and for the three months ended September 30, 2007 and2006 by $49,060 and $33,954, respectively.

 

**Principles of Consolidation**

 

The consolidatedfinancial statements include the accounts of Vita Seafood and Vita SpecialtyFoods. Vita Specialty Foods includes the integrated results of its twosubsidiaries, Virginia Honey Company, Inc. (“Virginia Honey”) acquired in 2001and The Halifax Group, Inc. (“Halifax”), acquired in 2002. All significantinter-company transactions and balances have been eliminated.

 

**SubsequentEvents**

 

OnNovember 2, 2007, after consulting with management, the Company’s Board ofDirectors determined to delist the Company’s common stock from the AmericanStock Exchange (the “AMEX”) and deregister its common stock under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), aftercarefully considering the advantages and disadvantages of continuingregistration and listing. The costs and administrative burdens associated withbeing a public company have significantly increased, particularly in light ofthe adoption of the Sarbanes-Oxley Act and the adoption of new rules by theSecurities and Exchange Commission (the “SEC”) and the AMEX. The Boarddetermined that the rising costs of compliance, as well as the substantialdemands on management time and resources compelled by the compliancerequirements, outweigh the benefits the Company receives from maintaining itsregistered and listed status. The Board believes that deregistering will resultin significant reductions in the Company’s accounting, legal and administrativeexpenses, avoid even higher future expenses and enable management to focus allof its time and resources on operating the Company and enhancing shareholdervalue. The Company furnished notification of delisting and deregistration tothe AMEX and issued a public press release on November 5, 2007. The Companywill file a Form 25, delisting its shares, on November 16, 2007 and a Form 15,deregistering them, on November 26, 2007, the effective date of delisting.

 

6

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TheCompany is eligible to deregister under the Exchange Act by filing aForm 15 because it has fewer than 300 holders of record of its commonstock. Upon the filing of the Form 15, the Company’s obligation to filecertain reports with the SEC, including Forms 10-K, 10-Q and 8-K, will immediatelybe suspended. The Company expects that the deregistration of its common stockwill become effective 90 days after the date of filing of the Form 15with the SEC. The Company expects, but cannot guaranty, that its common stockwill be quoted on the Pink Sheets after it delists from the AMEX. There canalso be no assurance that any brokerage firms will continue to make a market inthe common stock after the delisting. The Pink Sheets is a provider of pricingand financial information for the over-the-counter securities markets. It is acentralized quotation service that collects and publishes market maker quotesin real time primarily through its website, www.pinksheets.com, which providesstock and bond price quotes, financial news, and information about securities.

 

##### **Revenue Recognition**

##### ** **

# **Revenue is recognized upon the passing of title tothe customers, which occurs upon shipment of product to customers, includingbrokers, in fulfillment of customer orders. In order to support the Company’sproducts, various marketing programs are offered to customers, which reimbursethem for a portion, or all of their promotional activities related to theCompany’s products. The Company regularly reviews and revises, when it deemsnecessary, estimates of costs to the Company for these marketing andmerchandising programs based on estimates of what has been incurred bycustomers. Actual costs incurred by the Company may differ significantly iffactors such as the level and success of the customers’ programs or other conditionsdiffer from expectations. Sales are reduced by a provision for estimated futurereturns, disposals and promotional expense.**

# ** **

TheVita Seafood business segment guarantees the sale of most of its products soldin supermarket chains and wholesale clubs (“Supermarkets”). This guaranteehelps ensure that consumers receive fresh products. Under the guarantee, themajority of customers are issued an allowance off-invoice to cover products notsold before the expiration date. Other  customerswith product not sold before the expiration date have the right to returnunsold product to the Company through its food brokers or dispose of the unsoldproduct themselves or through a food distributor. A credit is then issued tothe Supermarket or food distributor. The Company provides a reserve that isrecorded concurrently with the sale. The Company believes, based on itshistorical return rates, which have been fairly consistent over the pastseveral years, that this reserve is adequate to recognize the cost of allforeseeable future product return credits associated with previously recognizedrevenues.

 

On February 16, 2007, the Company voluntarily recalledcertain products because the labels did not disclose that the productscontained a flavor ingredient derived from milk. No illnesses or adversereactions have been reported to date in connection with this label disclosureissue. Existing procedures have been reviewed and corrected where necessary. Therecall resulted in the establishment of a reserve of approximately $444,000 inthe fourth quarter of 2006, all of which was paid by June 30, 2007.

 

**EarnoutProvisions Under Acquisition Agreement**

 

Pursuant to the Company’s acquisition of VirginiaHoney in 2001, Terry Hess, the previous owner of Virginia Honey (“Hess”), wassubject to earnout provisions that resulted in additional payments by theCompany for Virginia Honey. As amended, the earnout provisions for Mr. Hessresulted in an additional amount of $840,000 paid to Mr. Hess in April 2005based on specific Vita Specialty Foods operating results from January 1, 2001to December 31, 2002. In addition, a second earnout payment to Mr. Hess in theamount of $700,000 was paid in April 2006 based on the operating results ofVita Specialty Foods for the period from January 1, 2003 to December 31, 2005. Provisionsfor a third earnout payment were cancelled as described below.

 

Effective December 2006, the Company entered intocertain agreements (the “Hess Agreements”) with Mr. Hess, who had resigned asVice Chairman and a member of the Company’s Board of Directors effectiveNovember 20, 2006 and retired from his position as Chief Executive Officer ofVita Specialty Foods effective August 25, 2006. The Hess Agreements include (i)an Earnout Agreement, (ii) a Termination Agreement and (iii) first amendmentsto the leases between Virginia Honey and an affiliate of Mr. Hess with respectto the Killer Bee Packaging Plant located in Martinsburg, West Virginia and thefacility located in Berryville, Virginia (the “Lease Amendments”).

 

The Earnout Agreement provides that all earnouts underthe Stock Purchase Agreement dated June 29, 2001, as amended, between theparties (the “Stock Purchase Agreement”) pursuant to which the Companypurchased the stock of Virginia Honey from Mr. Hess are satisfied in full andthat no further amounts are owed by the Company to Mr. Hess. The EarnoutAgreement also provides for the release of the shares of Virginia Honey’scapital stock from the Company’s

 

7

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pledge to Mr. Hess to secure the earnout payments under the StockPurchase Agreement. The Earnout Agreement includes mutual non-disparagementprovisions and releases between the Company and Virginia Honey, on the onehand, and Mr. Hess, on the other, except for the performance of obligationsunder the Hess Agreements and the Stock Purchase Agreement.

 

The Termination Agreement formalizes the terminationof Mr. Hess’ Employment Agreement with the Company, including reaffirming Mr.Hess’ five-year non-competition agreement with the Company. Pursuant to theLease Amendments, the Company has given up its option to purchase theBerryville, Virginia and Martinsburg, West Virginia properties owned by Mr.Hess’ affiliate. In addition, the Lease Amendments provided the Company with anoption to terminate the Berryville lease upon 60 days notice until December 31,2007, which the Company exercised on February 26, 2007 effective April 30,2007, and an option to terminate the Martinsburg lease upon 12 months notice atthe end of five and nine years from the date of the applicable Amendment. Inconnection with these agreements, Mr. Hess also resigned as a director andofficer of the Company and each of its subsidiaries.

 

#### **Bank Loan Agreement**

#### ** **

On September 8, 2003, the Company entered into a loanagreement with a bank (the “Loan Agreement”) and paid off its existing creditfacility with initial borrowings under this new Loan Agreement. The LoanAgreement was subsequently amended several times to, among other things, extendthe maturity dates of the revolver, change available borrowings and amendfinancial covenants. As of the April 13, 2007 amendment, the Loan Agreementprovides for a $9,500,000 revolver which is scheduled to terminate April 1,2008; a $7,750,000 Term A Loan due in monthly installments of $80,000 throughJuly 31, 2008 with a balloon payment of $3,682,000 due on August 31, 2008; a$150,000 capital expenditure Term B Loan due in monthly installments of $2,500from August 2006 through May 31, 2010 and the remainder due on September 30,2010; and a $1,000,000 Term C Loan due April 1, 2008. Outstanding borrowingsunder the Loan Agreement are secured by substantially all assets of theCompany.

 

Interest under each piece of the amended LoanAgreement is at a floating rate per annum equal to the prime rate plus 0.5%,other than the $1,000,000 Term C Loan which bears an interest rate of primeplus 2.0%. The prime rate was 7.75% as of September 30, 2007.

 

The Loan Agreement imposes certain restrictions on theCompany, including its ability to complete significant asset sales, merge oracquire businesses and pay dividends. Additionally, the Company had beenrequired to meet certain financial covenants at each quarter end during theterm of the Loan Agreement, including a Minimum Tangible Net Worth, a MinimumEBITDA and a Minimum Cash Flow Coverage Leverage ratio, all as defined in theLoan Agreement. During 2005 and 2006, the Company had violated certain of thesecovenants and had obtained permanent waivers from the bank for such violations.The March 24, 2006 amendment to the Loan Agreement retroactively amended thesefinancial covenants, and, as amended, the Company was in compliance with thosecovenants as of December 31, 2005 and June 30, 2006. During the third and fourthquarter of 2006, the Company was not in compliance with certain of the revisedcovenants. The March 30, 2007 amendment to the Loan Agreement waived these 2006covenant violations and the April 13, 2007 amendment, reset the covenants tostart with the six months ending June 30, 2007 and to only include a MinimumEBITDA and a Minimum Cash Flow Coverage Leverage Ratio. At September 30, 2007,the Company was out of compliance with the new covenants and has received awaiver from the bank.

 

The Company is currently in discussions with the bankregarding refinancing its Loan Agreement.

 

#### **Business Segments**

#### ** **

The Company reports twooperating business segments in the same format as reviewed by the Company’ssenior management. Segment one, Vita Seafood, processes and sells variousherring, and cured and smoked salmon products throughout the United States andMexico. Segment two, Vita Specialty Foods, combines the products of VirginiaHoney and Halifax and manufactures and distributes honey, salad dressings,sauces, marinades, jams and jellies and gift baskets throughout North America. Managementpredominately uses operating profit as the measure of profit or loss bybusiness segment.

 

8

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**Business segment information is asfollows ($000’s):**

 
| **Three months ended September 30,** | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  Sales**                                           |       |       |       |       |       |
| Vita Seafood                                             | ** ** | **$**      | **5,849**  |       | $          | 6,503 |   |
| Vita Specialty Foods                                     | ** ** | **5,985**  |       | 5,915      |       |
|                                                     |       |       |       |       |       |
| Total Net Sales                                          | ** ** | **$**      | **11,834** |       | $          | 12,418 |   |
|                                                     |       |       |       |       |       |
| **Operating  Loss**                                      |       |       |       |       |       |
| Vita Seafood                                             | ** ** | **$**      | **(343**   | )          | $          | (287 | ) |
| Vita Specialty Foods                                     | ** ** | **(702**   | )          | (591       | )          |
|                                                     |       |       |       |       |       |
| Total Operating Loss                                     | ** ** | **$**      | **(1,045** | )          | $          | (878 | ) |
|                                                     |       |       |       |       |       |
| **Net  Loss**                                            |       |       |       |       |       |
| Vita Seafood                                             | ** ** | **$**      | **(296**   | )          | $          | (291 | ) |
| Vita Specialty Foods                                     | ** ** | **(516**   | )          | (434       | )          |
|                                                     |       |       |       |       |       |
| Total Net Loss                                           | ** ** | **$**      | **(812**   | )          | $          | (725 | ) |
|                                                     |       |       |       |       |       |
| **Depreciation  and Amortization**                       |       |       |       |       |       |
| Vita Seafood                                             | ** ** | **$**      | **133**    |       | $          | 129 |   |
| Vita Specialty Foods                                     | ** ** | **100**    |       | 133        |       |
|                                                     |       |       |       |       |       |
| Total Depreciation  and Amortization                     | ** ** | **$**      | **233**    |       | $          | 262 |   |
|                                                     | ** ** | ** ** |       |       |       |
| **Capital  Expenditures**                                |       |       |       |       |       |
| Vita Seafood                                             | ** ** | **$**      | **39**     |       | $          | 230 |   |
| Vita Specialty Foods                                     | ** ** | **92**     |       | 108        |       |
|                                                     |       |       |       |       |       |
| Total Capital  Expenditures                              | ** ** | **$**      | **131**    |       | $          | 338 |   |

** **
| **Nine months ended September 30,** | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                    |       |       |       |       |       |
| **Goodwill**                                            |       |       |       |       |       |
| Vita Seafood                                            | ** ** | **$**      | **—** |       | $          | — |   |
| Vita Specialty Foods                                    | ** ** | **5,571**  |       | 6,697      |       |
|                                                    |       |       |       |       |       |
| Total Goodwill                                          | ** ** | **$**      | **5,571**  |       | $          | 6,697 |   |
|                                                    |       |       |       |       |       |
| **Total  Assets**                                       |       |       |       |       |       |
| Vita Seafood                                            | ** ** | **$**      | **17,779** |       | $          | 17,855 |   |
| Vita Specialty Foods                                    | ** ** | **8,067**  |       | 10,075     |       |
|                                                    |       |       |       |       |       |
| Total Assets                                            | ** ** | **$**      | **25,846** |       | $          | 27,930 |   |
|                                                    |       |       |       |       |       |
| **Net  Sales**                                          |       |       |       |       |       |
| Vita Seafood                                            | ** ** | **$**      | **17,809** |       | $          | 19,657 |   |
| Vita Specialty Foods                                    | ** ** | **18,544** |       | 17,258     |       |
|                                                    |       |       |       |       |       |
| Total Net Sales                                         | ** ** | **$**      | **36,353** |       | $          | 36,915 |   |
|                                                    |       |       |       |       |       |
| **Operating  Profit (Loss)**                            |       |       |       |       |       |
| Vita Seafood                                            | ** ** | **$**      | **70**     |       | $          | (221 | ) |
| Vita Specialty Foods                                    | ** ** | **(142**   | )          | 104        |       |
|                                                    |       |       |       |       |       |
| Total Operating Loss                                    | ** ** | **$**      | **(72**    | )          | $          | (117 | ) |
|                                                    |       |       |       |       |       |
| **Net  Income Loss**                                    |       |       |       |       |       |
| Vita Seafood                                            | ** ** | **$**      | **(277**   | )          | $          | (481 | ) |
| Vita Specialty Foods                                    | ** ** | **(322**   | )          | (172       | )          |
|                                                    |       |       |       |       |       |
| Total Net Loss                                          | ** ** | **$**      | **(599**   | )          | $          | (653 | ) |
|                                                    |       |       |       |       |       |
| **Depreciation  and Amortization**                      |       |       |       |       |       |
| Vita Seafood                                            | ** ** | **$**      | **399**    |       | $          | 376 |   |
| Vita Specialty Foods                                    | ** ** | **326**    |       | 357        |       |
|                                                    |       |       |       |       |       |
| Total Depreciation  and Amortization                    | ** ** | **$**      | **725**    |       | $          | 733 |   |
|                                                    | ** ** | ** ** |       |       |       |
| **Capital  Expenditures**                               |       |       |       |       |       |
| Vita Seafood                                            | ** ** | **$**      | **97**     |       | $          | 506 |   |
| Vita Specialty Foods                                    | ** ** | **186**    |       | 360        |       |
|                                                    |       |       |       |       |       |
| Total Capital  Expenditures                             | ** ** | **$**      | **283**    | ** ** | **$**      | **866** | ** ** |

 

9

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**Equity Issuance**

 

On June 29, 2007, the Company issued to MDBAlternative Investments L.L.C. (“MDB”), an entity controlled by Howard Bedford,a member of the Company’s Board of Directors (“Bedford”), 2,400,000 shares ofits common stock, par value $.01 per share, and warrants to purchase a total of2,000,000 additional shares of common stock in consideration for an initial$1,000,000 advance and subsequent $2,000,000 loan to the Company pursuant tothe Securities Purchase Agreement between the Company and Bedford dated May 14,2007. The warrants issued to MDB consist of the following:  two year warrants to purchase 500,000 shares of common stock at anexercise price of $1.25 per share; three-year warrants to purchase 500,000shares of common stock at an exercise price of $1.50 per share; four-yearwarrants to purchase 500,000 shares of common stock at an exercise price of$1.50 per share; and five-year warrants to purchase 500,000 shares of commonstock at an exercise price of $1.75 per share. This transactioncancelled the $2,000,000 6% promissory note, dated June 15, 2007, issued to MDBby the Company and secured by a second mortgage on the Company’s facility inChicago, Illinois. All of the sharesissued to MDB, as well as the shares underlying the warrants issued to MDB,have been approved for listing on the American Stock Exchange.

 

In February 2006, the Company entered into agreementspursuant to which five individuals or their affiliated entities invested atotal of $2,500,000 in the Company. Substantially all of these funds were usedto reduce funded debt. The investors received units consisting of an aggregateof 1,000,000 shares of common stock; three-year warrants to purchase 500,000shares of common stock at an exercise price of $5.00 per share; and five-yearwarrants to purchase an additional 500,000 shares of common stock at anexercise price of $7.50 per share. The investors include the following: (i)Stephen D. Rubin, then president and Chairman of the Board of Directors of theCompany, and as of May 24, 2007, Chairman Emeritus of the Board of Directors,(ii)  Clifford K. Bolen, then Senior VicePresident, Chief Operating Officer and Chief Financial Officer of the Company,and, as of August 18, 2006, President and Chief Executive Officer, (iii) DelphiCasualty Co., of which Glen S. Morris, then a director of the Company, owns a44% equity interest, (iv) a trust of which John C. Seramur, a director of theCompany, serves as trustee, as well as (v) Howard Bedford, then an unrelatedthird-party investor and, as of May 18, 2006, a director of the Company.

 

**Financial Accounting Standards BoardInterpretation No. 48**

 

The Company adopted FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes” as of January 1, 2007. The Company hasreviewed the status of possible tax uncertainties through the third quarter of2007. The Company’s review did not result in any uncertain tax positionsrequiring disclosure. The last Federal Tax examination was completed inFebruary 2006 for the year 2003. The result of the examination was a no changeletter. Should the Company need to record interest and/or penalties related touncertain tax positions or other tax authority assessments, it would classifysuch expenses as part of the income tax provision. The Company has not changedany of its tax policies nor adopted any new tax positions during the first ninemonths of 2007 and believes it has filed appropriate tax returns in alljurisdictions for which it has nexus. This review included the Company’s netdeferred income tax assets which management believes will be realized overfuture profitable years.

 

10

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**Item 2. Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

**RecentEvent**

 

OnNovember 2, 2007, after consulting with management, the Company’s Board ofDirectors determined to delist the Company’s common stock from the AmericanStock Exchange (the “AMEX”) and deregister its common stock under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), aftercarefully considering the advantages and disadvantages of continuingregistration and listing. The costs and administrative burdens associated withbeing a public company have significantly increased, particularly in light ofthe adoption of the Sarbanes-Oxley Act and the adoption of new rules by theSecurities and Exchange Commission (the “SEC”) and the AMEX. The Boarddetermined that the rising costs of compliance, as well as the substantialdemands on management time and resources compelled by the compliancerequirements, outweigh the benefits the Company receives from maintaining itsregistered and listed status. The Board believes that deregistering will resultin significant reductions in the Company’s accounting, legal and administrativeexpenses, avoid even higher future expenses and enable management to focus allof its time and resources on operating the Company and enhancing shareholdervalue. The Company furnished notification of delisting and deregistration tothe AMEX and issued a public press release on November 5, 2007. The Companywill file a Form 25, delisting its shares, on November 16, 2007 and a Form 15,deregistering them, on November 26, 2007, the effective date of delisting.

 

TheCompany is eligible to deregister under the Exchange Act by filing aForm 15 because it has fewer than 300 holders of record of its commonstock. Upon the filing of the Form 15, the Company’s obligation to filecertain reports with the SEC, including Forms 10-K, 10-Q and 8-K, willimmediately be suspended. The Company expects that the deregistration of itscommon stock will become effective 90 days after the date of filing of theForm 15 with the SEC. The Company expects, but cannot guaranty, that itscommon stock will be quoted on the Pink Sheets after it delists from the AMEX.There can also be no assurance that any brokerage firms will continue to make amarket in the common stock after the delisting. The Pink Sheets is a providerof pricing and financial information for the over-the-counter securities markets.It is a centralized quotation service that collects and publishes market makerquotes in real time primarily through its website, www.pinksheets.com, whichprovides stock and bond price quotes, financial news, and information aboutsecurities.

 

**Comparison of the Three Months Ended September 30,2007 and September 30, 2006**

 

***Revenues.   ***Netsales for the three months ended September 30, 2007 were approximately$11,834,000, compared to approximately $12,418,000 for the same period in 2006,a decrease of approximately $(584,000) or approximately (4.7)%. Vita Seafoodexperienced a decrease of approximately $(654,000), or approximately (10.1)%which was mainly attributable to the decline in salmon gross sales ofapproximately $(661,000) or (16.8) %, and a decrease in specialty product grosssales of approximately $(32,000) or (16.5)%, from the third quarter of 2006.Herring gross sales experienced a slight decrease of approximately $(18,000) or(0.6) % as compared to the third quarter of 2006. Vita Specialty Foods’ salesincreased in the 2007 third quarter by approximately $70,000 or 1.2% ascompared to the 2006 third quarter. This improvement was mainly the result ofincreased gross sales of sauces of approximately $543,000 or 23.2% combinedwith reduced spending on sales deductions of $262,000. This favorableperformance in sales is the result of a new sauce product line introduced inJune 2006. The increase was offset by reduced salad dressing gross sales ofapproximately $(579,000) or (20.0) %, reduced honey sales of approximately$(145,000) or (10.9) % and a $(10,000) or (31.8) % reduction in other Halifaxproducts as compared to the 2006 third quarter. Both business segments werenegatively impacted by price increases that reduced sales volume as compared tothe 2006 third quarter. For Vita Seafood, sales allowances were reduced in thethird quarter 2007 by $(57,000) or (10.9)%. The decreases are the result ofreductions in the allowance and coupon programs designed to support volume. Herring,salmon, and specialty product sales represented approximately 46%, 51%, 3%respectively, of Vita Seafood’s total gross sales during the 2007 third quarteras compared to approximately 42%, 55% and 3%, respectively, during the 2006third quarter. Salad dressings, sauces, honey products and specialty itemsrepresented approximately 36%, 45%, 18% and less than 1%, respectively, of VitaSpecialty Foods 2007 third quarter total gross sales compared to approximately44%, 35%, 20% and less than 1%, respectively, during the 2006 third quarter.

 

11

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***GrossMargin.   ***Gross margin for the thirdquarter ended September 30, 2007 was approximately $2,158,000, compared to$2,407,000 for the 2006 third quarter, a decrease of approximately $(249,000)or approximately (10.3)%  This decreasewas attributed to Vita Specialty Foods’ gross margin, which decreasedapproximately $(211,000) or (18.2)%, despite a small increase in sales. TheVita Seafood gross margin decreased approximately $(38,000) or (3.1)%. As apercent of net sales, the 2007 third quarter gross margin was approximately18.2% a decrease from the approximately 19.4% for the 2006 third quarter. Grossmargin for the Vita Seafood business, as a percentage of net sales, increasedto approximately 20.7% for the 2007 third quarter from approximately 19.2% forthe 2006 third quarter as a result of cost cutting programs, whichsubstantially offset the impact of lower sales. As a percent of net sales, VitaSpecialty Foods’ 2007 third quarter gross margin percentage was approximately15.9% compared to approximately 19.6% for the 2006 third quarter. The Companyrecorded a $500,000 reserve for obsolete and slow moving inventory, whichlowered the gross margin. The extra reserves resulted from a robust review ofthis segment’s products and management decisions to discontinue certain lowperforming business products.

 

***OperatingExpenses****.   *Selling,marketing, distribution and administrative expenses for the three months endedSeptember 30, 2007 were approximately $3,202,000, compared to approximately$3,284,000 for the same period in 2006, a decrease of approximately $(82,000)or approximately (2.5)%. These expenses represented approximately 27.1% of netsales for the quarter ended September 30, 2007 compared to 26.4% for the 2006third quarter. The dollar decrease resulted from an increase of approximately$5,000 in administration expenses and a decrease in selling, marketing anddistribution expenses of approximately $(87,000)*.*

 

***InterestExpense.   ***Interest expense for the threemonths ended September 30, 2007 was approximately $308,000, compared toapproximately $331,000 for the 2006 third quarter, a decrease of approximately$(23,000) or (7.0)%.

 

***IncomeTaxes.   ***The Company had an income taxbenefit of approximately $540,000 for the 2007 third quarter as compared to anincome tax benefit of approximately $484,000 for the 2006 third quarter. Bothrepresented approximately 40% of the pretax loss for those periods.

 

***NetIncome.   ***Reflecting the operating resultsdescribed above, the net loss for the quarter ended September 30, 2007 wasapproximately $(812,000) or approximately $(0.11) per share on both a basic anddiluted basis. This compares to a net loss of approximately $(725,000) for thequarter ended September 30, 2006, or approximately $(0.15) per share on bothbases. Weighted average outstanding shares increased due to the Company’s June29, 2007 issuance of 2,400,000 shares of common stock.

 

***Comparison of the Nine Months Ended September30, 2007 and September 30, 2006***

*** ***

***Revenues.   ***Net sales for the ninemonths ended September 30, 2007 were approximately $36,353,000, compared toapproximately $36,915,000 for the comparable period in 2006, a decrease ofapproximately $(562,000) or (1.5)%. Vita Seafood’s net sales decreased byapproximately $(1,847,000), or (9.4) %. Salmon gross sales for the nine monthsended September 30, 2007 were lower than the 2006 comparable nine month periodby approximately $(1,684,000) or (14.6)%. Herring gross sales increased byapproximately $1,000 or 0.0% for the first nine months of 2007 as compared tothe first nine months in 2006. Vita Specialty Foods net sales increased for thefirst nine months of 2007 by approximately $1,285,000 or 7.4% as compared tothe first nine months of 2006. This increase was driven by the introduction ofa new sauce product line in 2006 that generated an expansion in sauces grosssales of approximately $ 3,016,000 or 76.1% for the first nine months of 2007as compared to the first nine months of 2006. Offsetting this increase was adecline in salad dressing gross sales for the first nine month period of 2007of approximately $(1,457,000) or (14.5)% compared to the first nine monthperiod of 2006. The salad dressing gross sales decline was attributable to lostdistribution. Sales allowances decreased for the nine months ended September30, 2007 by approximately $(85,000) or (5.2)% for Vita Seafood and increasedapproximately $85,000 or 6.3% for Vita Specialty Foods as compared to the ninemonths ended September 30, 2006. The changes in both businesses were driven byseasonal coupons and promotional activity with customers and consumers.Herring, salmon, and specialty product sales represented approximately 47%, 51%and 2%, respectively, of Vita Seafood’s total gross sales during the first ninemonth period of 2007 compared to approximately 43%, 54%, and 3%, respectively,during the first nine month period of 2006. Salad dressings, sauces, honeyproducts and specialty items, represented approximately 43%, 35%, 22% and 0%,respectively, of Vita Specialty Foods’ 2007 first nine month period’s totalgross sales compared to approximately 54%, 21%, 24% and 0%, respectively,

 

12

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during the 2006 comparable nine month period.

 

***GrossMargin.   ***Gross margin for the nine monthsended September 30, 2007 was approximately $9,718,000, compared to $9,556,000for the nine months ended September 30, 2006, representing an increase ofapproximately $162,000 or 1.7%. This increase was attributed to the VitaSpecialty Foods’ gross margin, which increased approximately $368,000 or 7.7%in line with the sales increase. The Vita Seafood gross margin results declinedapproximately $(206,000) or (4.3) %. As a percent of net sales, gross margintotaled approximately 26.7%, an increase from approximately 25.9% for the sameperiod in 2006. The gross margin, as a percentage of net sales, for VitaSpecialty Foods remained the same at approximately 27.8% for the nine monthsended September 30, 2007 from approximately 27.8% for the comparable nine monthperiod in 2006. The Company recorded a $500,000 reserve for obsolete and slowmoving inventory, which lowered the gross margin. The extra reserves resultedfrom a robust review of this segment’s products and management decisions todiscontinue certain low performing business products. The gross margin for theVita Seafood business, as a percentage of net sales increased slightly, toapproximately 25.6% for the first nine months in 2007 compared to approximately24.2% for the first nine months of 2006. This improvement as a percent of saleswas largely the result of price increases and manufacturing cost controls.

 

***OperatingExpenses****.   *Selling,marketing, distribution and administrative expenses for the nine months endedSeptember 30, 2007 were approximately $9,789,000, compared to approximately$9,673,000 for the same period in 2006, an increase of approximately $116,000or 1.2%. As a percentage of net sales, these expenses were approximately 26.9%for the first nine months of 2007 compared with approximately 26.2% for thefirst nine months of 2006. This increase in 2007 is mainly attributable torising marketing expenses for free standing inserts related to the new sauceproduct line and corresponding promotional spending.

 

***InterestExpense.   ***Interest expense for the ninemonths ended September 30, 2007 was approximately $926,000, compared toapproximately $971,000 for the nine months ended September 30, 2006, a decreaseof approximately $(45,000) or (4.6)%.

 

***IncomeTaxes.   ***The Company provided expense ofapproximately $(399,000) for the nine months ended September 30, 2007 andapproximately $(435,000) for the nine months ended ending September 30, 2006. Bothrepresented approximately 40% of the pretax results for those periods.

 

***NetIncome.   ***Reflecting the operating resultsdescribed above, the net loss for the nine months ended September 30, 2007 wasapproximately $(599,000) or $(0.10) per share on both a basic and dilutedbasis. This result is net of an inventory adjustment of $500,000 at VitaSpecialty Foods. This compares to a net loss of approximately $(653,000) forthe nine months ended September 30, 2006 or $(0.14) per share on both bases. Weightedaverage outstanding shares increased due to the Company’s June 29, 2007issuance of 2,400,000 shares of common stock.

 

#### **FinancialCondition**

#### ** **

On June 29, 2007, the Company issued to MDBAlternative Investments L.L.C. (“MDB”), an entity controlled by Howard Bedford,a member of the Company’s Board of Directors (“Bedford”), 2,400,000 shares ofits Common Stock and warrants to purchase a total of 2,000,000 additionalshares of Common Stock in consideration for an initial $1,000,000 advance andsubsequent $2,000,000 loan to the Company pursuant to the Securities PurchaseAgreement, dated May 14, 2007, between the Company and Bedford. Thistransaction cancelled the $2,000,000 6% promissory note, dated June 15, 2007,issued by the Company to MDB and secured by a second mortgage on the Company’sfacility in Chicago, Illinois. All of the shares issued to MDB, as well as the shares underlying thewarrants issued to MDB, have been approved for listing on the American StockExchange. These funds were primarily used for working capital requirements.

 

In February 2006, the Company entered into agreementspursuant to which five individuals or their affiliated entities invested atotal of $2,500,000 in the Company. Substantially all of these funds were usedto reduce funded debt. The investors received units consisting of an aggregateof 1,000,000 shares of common stock; three-year warrants to purchase 500,000shares of common stock at an exercise price of $5.00 per share; and five-yearwarrants to purchase an additional 500,000 shares of common stock at an exerciseprice of $7.50 per share. The investors include the following: (i) Stephen D.Rubin, then president and Chairman of the Board of Directors of the Company,and as of May 24, 2007, Chairman Emeritus of the Board of Directors, (ii)  Clifford K. Bolen, then Senior VicePresident, Chief Operating Officer and Chief Financial Officer of the Company,and, as of August 18, 2006, President and Chief Executive Officer, (iii) Delphi

 

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Casualty Co., of which Glen S. Morris, then a director of the Company,owns a 44% equity interest, (iv) a trust of which John C. Seramur, a directorof the Company, serves as trustee, as well as (v) Howard Bedford, then anunrelated third-party investor and, as of May 18, 2006, a director of theCompany.

 

At September 30, 2007, the Company had approximately$(2,924,000) in working capital, versus approximately $6,197,000 at December31, 2006, and approximately $(234,000) at September 30, 2006. The current ratioat September 30, 2007 was .8 to 1.0 compared to 1.7 to 1.0 at December 31, 2006and 1.0 to 1.0 at September 30, 2006. Current assets decreased from December31, 2006 approximately $(1,001,000) mainly as a result of collections ofaccounts receivable partially offset by an increase of inventory levels. Currentliabilities increased from December 31, 2006 by approximately $8,119,000 as aresult of the reclassification of the bank debt from long term debt to currentdebt. The bank debt primarily matures in 2008 requiring classification as acurrent obligation.

 

On September 8, 2003, the Company entered into a loanagreement with a bank (the “Loan Agreement”) and paid off its existing creditfacility with initial borrowings under this new Loan Agreement. The LoanAgreement was subsequently amended several times to, among other things, extendthe maturity dates of the revolver, change available borrowings and amendfinancial covenants. As of the April 13, 2007 amendment, the Loan Agreementprovides for a $9,500,000 revolver which is scheduled to terminate April 1,2008; a $7,750,000 Term A Loan due in monthly installments of $80,000 throughJuly 31, 2008 with a balloon payment of $3,682,000 due on August 31, 2008; a$150,000 capital expenditure Term B Loan due in monthly installments of $2,500from August 2006 through May 31, 2010 and the remainder due on June 30, 2010;and a $1,000,000 Term C Loan due April 1, 2008. Outstanding borrowings underthe Loan Agreement are secured by substantially all assets of the Company.

 

Interest under each piece of the amended LoanAgreement is at a floating rate per annum equal to the prime rate plus 0.5%,other than the $1,000,000 Term C Loan which bears an interest rate of primeplus 2.0%. The prime rate was 7.75% as of September 30, 2007.

 

The Loan Agreement imposes certain restrictions on theCompany, including its ability to complete significant asset sales, merge oracquire businesses and pay dividends. Additionally, the Company had beenrequired to meet certain financial covenants at each quarter end during theterm of the Loan Agreement, including a Minimum Tangible Net Worth, a MinimumEBITDA and a Minimum Cash Flow Coverage Leverage ratio, all as defined in theLoan Agreement. During 2005 and 2006, the Company had violated certain of thesecovenants and had obtained permanent waivers from the bank for such violations.The March 24, 2006 amendment to the Loan Agreement retroactively amended thesefinancial covenants, and, as amended, the Company was in compliance with thosecovenants as of December 31, 2005 and September 30, 2006. During the third andfourth quarter of 2006, the Company was not in compliance with certain of therevised covenants. The March 30, 2007 amendment to the Loan Agreement waivedthese 2006 covenant violations and the April 13, 2007 amendment, reset thecovenants to start with the six months ending June 30, 2007, and to onlyinclude a Minimum EBITDA and a Minimum Cash Flow Coverage Leverage Ratio. TheCompany was not in compliance with the new covenants at September 30, 2007 andhas received a waiver from the bank.

 

The Company is currently in discussions with the bankregarding refinancing its Loan Agreement.

 

***Cashflows from operating activities.*** Net cash used inoperating activities was approximately $(2,152,000) for the nine months endedSeptember 30, 2007, primarily reflecting the reduction of approximately$(2,860,000) in accounts payable, primarily due to the working capital infusionplus an increase in inventory of approximately $(215,000) and offset by adecrease in accounts receivable of approximately $1,513,000 since December 31,2006. Cash provided by operating activities for the nine months ended September30, 2006 was approximately $1,120,000. This change between periods wasprimarily the result of a 2007 reduction of accounts payable by approximately$(2,860,000) partially offset by a decrease in 2007 of accounts receivable ofapproximately $1,513,000 compared to an increase in accounts payable in 2006 ofapproximately $2,094,000 and an increase in accounts receivable in 2006 ofapproximately $(709,000).

 

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***Cashflows from investing activities.***   Net cashused in investing activities was approximately $(35,000) for the nine monthsended September 30, 2007, which was approximately $862,000 less than the$(893,000) used during the same period of the prior year primarily for capitalexpenditures. The major contributor in 2007 was the reduction of capitalexpenditures and the realization of approximately $183,000, representing thecash surrender value under certain key man life insurance policies.

 

***Cashflows from financing activities.   ***Netcash provided by financing activities was approximately $2,157,000 for the ninemonths ended September 30, 2007 primarily due to the 2007 equity infusiondescribed above, net of debt repayments. The cash provided by financingactivities for the current year compares to the approximately $(213,000) usedduring the first nine months of 2006 when debt repayments more than offset the2006 equity infusion described above.

 

#### **Seasonality**

#### ** **

The Vita Seafood segmentof the Company’s business is highly seasonal in nature, primarily resultingfrom the effect of the timing of certain holidays on the demand for certainproducts. Historically, the segment’s sales and profits have been substantiallyhigher in the fourth quarter of each year.

 

**CriticalAccounting Policies and Estimates**

 

The Company’s financial statements reflect theselection and application of accounting policies that require management to makesignificant estimates and assumptions. The Company believes that the followingare some of the more critical judgment areas in the application of itsaccounting policies that currently affect the Company’s financial condition andresults of operations.

 

Preparation of the consolidated financial statementsin accordance with accounting principles generally accepted in the UnitedStates requires management to make estimates and assumptions affecting thereported amounts of assets, liabilities, revenues and expenses and relatedcontingent liabilities. On an on-going basis, the Company evaluates itsestimates, including those related to revenues, returns, bad debts, incometaxes and contingencies and litigation. The Company bases its estimates onhistorical experience and on various other assumptions that are believed to bereasonable under the circumstances. Actual results may differ from theseestimates under different assumptions or conditions.

 

# **Revenue is recognized upon the passing of title tothe customers, which occurs upon shipment of product to customers, includingbrokers, in fulfillment of customer orders. In accordance with industrypractices, inventory is sold to customers often with the right to return ordispose if the merchandise is not resold prior to the expiration of its shelflife. In order to support the Company’s products, various marketing programsare offered to customers, who reimburse them for a portion, or all, of theirpromotional activities related to the Company’s products. The Company regularlyreviews and revises, when it deems necessary, estimates of costs to the Companyfor these marketing and merchandising programs based on estimates of what hasbeen incurred by customers. Actual costs incurred by the Company may differsignificantly if factors such as the level and success of the customers’programs or other conditions differ from expectations. Sales are reduced by aprovision for estimated future returns, disposals and promotional expense.**

# ** **

TheVita Seafood business segment guarantees the sale of most of its products soldin supermarket chains and wholesale clubs (“Supermarkets”). This guaranteehelps ensure that consumers receive fresh products. Under the guarantee, themajority of customers are issued an allowance off-invoice to cover products notsold before the expiration date. Other customers with product not sold before the expiration date have theright to return unsold product to the Company through its food brokers ordispose of the unsold product themselves or through a food distributor. Acredit is then issued to the Supermarket or food distributor. The Companyprovides a reserve that is recorded concurrently with the sale. The Companybelieves, based on its historical return rates, which have been fairlyconsistent over the past several years, that this reserve is adequate torecognize the cost of all foreseeable future product return credits associatedwith previously recognized revenues.

 

The Company recognizes deferred income tax assets andliabilities for the expected future tax consequences of temporary differencesbetween the tax basis and financial reporting basis of certain assets andliabilities and certain income tax credit carry-forwards. In estimating futuretax consequences, the Company considers expected future events other thanenactments of changes in tax laws or rates. A valuation reserve is recognizedbased on the evidence available if it is more likely than not that some portionor the entire deferred income tax asset will not be realized.

 

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The Company assesses the impairment of itsidentifiable intangibles and goodwill whenever events or changes incircumstances indicate that the carrying value may not be recoverable and atleast annually. Factors the Company considers important, which could trigger animpairment review include the following:

 

•                  Significant underperformance relative to expectedhistorical or projected future operating results;

•                  Significant changes in the manner of the Company’s useof the acquired assets or the strategy for the Company’s overall business;

•                  Significant negative industry or economic trends;

•                  Significant decline in the Company’s stock price for asustained period; and

•                  The Company’s market capitalization relative to netbook value.

 

When the Company determines that the carrying value ofits intangible assets may not be recoverable based upon the existence of one ormore of the above indicators of impairment, the Company will review forimpairment under the provisions of SFAS 142.

 

The Company’s goodwill resulted from theacquisitions of Virginia Honey and Halifax. Annually, effective as of December31, the Company engages an independent appraiser to assist in management’sassessment as to whether the recorded goodwill is impaired. The independentappraisals are made using customary valuation methodologies, includingdiscounted cash flow and other fundamental analysis and comparisons. In its2004 and 2006 assessments, management determined that the Company’s recordedgoodwill was in excess of its fair value and accordingly, the Company recordedgoodwill impairment charges of $2,313,954 and $1,125,693 in 2004 and 2006,respectively. The impairments were principally due to the decline in the salesvolume of Halifax products in 2004 and overall performance issues in 2006.

 

#### **Forward-LookingStatements**

#### ** **

Certain statements inthis report, including statements in “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” are “forward-looking statements”as defined by the Federal securities laws. Such statements are based onmanagement’s current expectations and involve known and unknown risks anduncertainties which may cause the Company’s actual results, performance orachievements to differ materially from any results, performance or achievementsexpressed or implied in this report. By way of example and not limitation andin no particular order, known risks and uncertainties include the Company’sfuture growth and profitability, the potential loss of large customers oraccounts, downward product price movements, availability of raw materials,changes in raw material procurement costs, fluctuations in the market cost ofmajor commodities such as honey, changes in energy costs, the introduction andsuccess of new products, changes in economic and market conditions, integrationand management of acquired businesses, the seasonality of Vita Seafood’sbusiness, the Company’s ability to attract and retain key personnel, theCompany’s ability to maintain its relationships with key vendors and retailers,consolidation of the Company’s customer and supplier base, the potential impactof claims and litigation, the effects of competition in the Company’s markets,the success of the Company’s quality control procedures, the impact of theCompany’s substantial indebtedness, the adequacy of the Company’s reserves andthe dietary habits and trends of the general public. In light of these andother risks and uncertainties, the Company makes no representation that any futureresults, performance or achievements expressed or implied in this report willbe attained. The Company’s actual results may differ materially from anyresults expressed or implied by the forward-looking statements, especially whenmeasured on a quarterly basis.

 

**Item 3. Quantitativeand Qualitative Disclosures About Market Risk**

 

The Company is exposedto interest rate fluctuations, primarily as a result of its $18.4 million LoanAgreement with interest rates based on prime rate plus 0.5%, or 8.25% as ofSeptember 30, 2007 for all loans covered by the Loan Agreement other than thenew $1,000,000 term loan which bears interest at the prime rate plus 2.0%. TheCompany does not currently use derivative instruments to alter the interestrate characteristics of any of the debt.

 

**Item 4. Controlsand Procedures**

 

Under the supervision and with the participation ofthe Company’s management team, the principal executive officer and principalfinancial officer have evaluated the effectiveness of the design and operationof the Company’s disclosure controls and procedures as defined in Rules 13a –15(e) and 15d – 15(e) under the Exchange Act, as of September 30, 2007 and,based on their evaluation, have concluded that these controls and proceduresare effective. There were no changes in the Company’s internal control overfinancial reporting during the fiscal quarter ended

 

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September 30, 2007 that have materially affected, or are reasonablelikely to materially affect, the Company’s internal control over financialreporting.

 

Disclosure controls and procedures are designed to ensure thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the Securities and ExchangeCommission’s rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by the Company in the reports that it files under theExchange Act is accumulated and communicated to the Company’s management,including its principal executive officer and principal financial officer, asappropriate to allow timely decisions regarding required disclosure.

 

It should be noted thatany system of controls, however well designed and operated, can provide onlyreasonable, and not absolute, assurance that the objectives of the system aremet. In addition, the design of any control system is based in part uponcertain assumptions about the likelihood of future events. Because of these andother inherent limitations of control systems, there can be no assurance thatany design will succeed in achieving its stated goals under all potentialfuture conditions, regardless of how remote.

 

## **PART II - OTHER INFORMATION**

## ** **

#### **Item1A. Risk Factors**

#### ** **

The risk factors included in Part I, “Item 1A. RiskFactors” in our Annual Report on Form 10-K for the fiscal year ended December31, 2006 have not materially changed

 

#### **Item6. Exhibits**

#### ** **

| 31.1   |   | Principal Executive  Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. |
|--------|--------|--------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                   |
| 31.2   |   | Principal Financial  Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. |
|   |   |                                                                                                   |
| 32.1   |   | Principal Executive  Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of  2002. |
|   |   |                                                                                                   |
| 32.2   |   | Principal Financial  Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of  2002. |

 

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## **SIGNATURES**

## ** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                   |   | ** VITA FOOD PRODUCTS, INC.**            |                   |
|------------------------|--------|-----------------------------------------------|------------------------|
|                   |   | ** **                                    |                   |
|                   |   |                                          |                   |
| Date: November 9, 2007 |   | By:                                           | /s/  Clifford K. Bolen |   |
|                   |   | Clifford K. Bolen                             |                   |
|                   |   | President and Chief Executive Officer         |                   |
|                   |   | (Principal Executive Officer)                 |                   |
|                   |   |                                          |                   |
|                   |   |                                          |                   |
| Date: November 9, 2007 |   | By:                                           | /s/  R. Anthony Nelson |   |
|                   |   | R. Anthony  Nelson                            |                   |
|                   |   | Chief Financial  Officer                      |                   |
|                   |   | (Principal  Financial and Accounting Officer) |                   |

 

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**Exhibit Index**

 
| **Number** | ** ** | **Exhibit Title**                                                                                 |
|------------|------------|--------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                   |
| 31.1       |       | Principal Executive  Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of  2002. |
|       |       |                                                                                                   |
| 31.2       |       | Principal Financial Officer Certification pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.  |
|       |       |                                                                                                   |
| 32.1       |       | Principal Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   |
|       |       |                                                                                                   |
| 32.2       |       | Principal Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   |

 

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