**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                  |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                                                    |
| ** ** | **For the  Quarterly Period Ended September 30, 2004**                                                                                                                                                                        |
| ** ** | ** **                                                                                                                                                                                                                    |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                 |
| ** ** | ** **                                                                                                                                                                                                                    |
| ** ** | **For the  Transition Period From                    to              ** |

 

**Commission File Number 1-12599**

 

**VITAFOOD PRODUCTS, INC.**

(Exact name of registrantas specified in its charter)

 

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

 

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

(Address ofprincipal executive offices)         (ZipCode)

 

Registrant’s telephone number, including areacode:   **(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  ý No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Act).  Yeso  No ý

 

Thenumber of shares outstanding of registrant’s common stock as of October 31,2004 was 3,847,214.

 

 

----

 

**VITA FOODPRODUCTS, INC.**

 

**FORM 10-Q**

 

## **For the Quarter EndedSeptember 30, 2004**

 

## **INDEX**

 

 
| **PART I.**   | **FINANCIAL INFORMATION**                                                                   |                                                                                                    |
|---------------|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| Item 1.       | Financial Statements                                                                        |                                                                                                    |
|          | a)                                                                                          | Consolidated Balance Sheets  as of September 30, 2004 and December 31, 2003                             |   |
|          | b)                                                                                          | Consolidated  Statements of Operations for the Three and Nine Months Ended September 30,  2004 and 2003 |   |
|          | c)                                                                                          | Consolidated  Statements of Shareholders’ Equity for the Nine Months Ended September 30,  2004     |   |
|          | d)                                                                                          | Consolidated  Statements of Cash Flows for the Nine Months Ended September 30, 2004 and  2003           |   |
|          | e)                                                                                          | Notes to Financial  Statements                                                                          |   |
| Item 2.       | Management’s Discussion and Analysis  of Financial Condition and Results of Operations |                                                                                                    |
| Item 3.       | Quantitative and Qualitative Disclosures About  Market Risk                                 |                                                                                                    |
| Item 4.       | Controls and Procedures                                                                     |                                                                                                    |
| **PART  II.** | **OTHER  INFORMATION**                                                                      |                                                                                                    |
| Item 6.       | Exhibits and Reports on Form 8-K                                                            |                                                                                                    |
| SIGNATURES    |                                                                                        |

 

2

----

 

**PART 1. FINANCIAL STATEMENTS**

**Item 1. Financial Statements**

 

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

 

 
| ** **                                                                                                                                                                                            | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| **ASSETS**                                                                                                                                                                                            |       |                    |       |                   |       |
| Current Assets                                                                                                                                                                                        |       |                    |       |                   |       |
| Cash                                                                                                                                                                                                  |       | $                       | 75,201     |                   | $          | 125,457 |   |
| Accounts  receivable-trade, net of allowance for discounts, returns, and doubtful accounts  of $481,000 in 2004 and $301,000 in 2003                                                                  |       | 4,690,052               |       | 6,544,521              |       |
| Inventories                                                                                                                                                                                           |       |                    |       |                   |       |
| Raw material and  supplies                                                                                                                                                                            |       | 4,010,683               |       | 5,007,237              |       |
| Work in process                                                                                                                                                                                       |       | 214,718                 |       | 235,862                |       |
| Finished goods                                                                                                                                                                                        |       | 3,042,001               |       | 1,975,413              |       |
| Prepaid expenses  and other current assets                                                                                                                                                            |       | 434,995                 |       | 481,369                |       |
| Income taxes  receivable                                                                                                                                                                              |       | 149,148                 |       | 347,684                |       |
| Total Current  Assets                                                                                                                                                                                 |       | 12,616,798              |       | 14,717,543             |       |
|                                                                                                                                                                                                  |       |                    |       |                   |       |
| Property, Plant  and Equipment                                                                                                                                                                        |       |                    |       |                   |       |
| Land                                                                                                                                                                                                  |       | 35,000                  |       | 35,000                 |       |
| Building and  improvements                                                                                                                                                                            |       | 2,593,260               |       | 2,489,828              |       |
| Leasehold  improvements                                                                                                                                                                               |       | 424,693                 |       | 308,646                |       |
| Machinery and  office equipment                                                                                                                                                                       |       | 10,495,093              |       | 9,733,439              |       |
|                                                                                                                                                                                                  |       | 13,548,046              |       | 12,566,913             |       |
| Less accumulated  depreciation and amortization                                                                                                                                                       |       | (7,547,130              | )          | (6,864,222             | )          |
| Net Property,  Plant & Equipment                                                                                                                                                                  |       | 6,000,916               |       | 5,702,691              |       |
|                                                                                                                                                                                                  |       |                    |       |                   |       |
| Other Assets                                                                                                                                                                                          |       |                    |       |                   |       |
| Goodwill                                                                                                                                                                                              |       | 8,310,659               |       | 8,310,659              |       |
| Other assets                                                                                                                                                                                          |       | 408,235                 |       | 353,461                |       |
| Total Other  Assets                                                                                                                                                                                   |       | 8,718,894               |       | 8,664,120              |       |
| Total Assets                                                                                                                                                                                          |       | $                       | 27,336,608 |                   | $          | 29,084,354 |   |
|                                                                                                                                                                                                  |       |                    |       |                   |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                        |       |                    |       |                   |       |
| Current  Liabilities                                                                                                                                                                                  |       |                    |       |                   |       |
| Current  maturities of long-term obligations                                                                                                                                                          |       | $                       | 9,367,857  |                   | $          | 780,390 |   |
| Accounts payable                                                                                                                                                                                      |       | 2,608,831               |       | 2,299,580              |       |
| Accrued expenses                                                                                                                                                                                      |       | 764,897                 |       | 900,891                |       |
| Deferred income  taxes                                                                                                                                                                                |       | 0                       |       | 226,304                |       |
| Total Current  Liabilities                                                                                                                                                                            |       | 12,741,585              |       | 4,207,165              |       |
|                                                                                                                                                                                                  |       |                    |       |                   |       |
| Long-term  Obligations, Less Current Maturities                                                                                                                                                       |       | 8,006,064               |       | 17,684,931             |       |
|                                                                                                                                                                                                  |       |                    |       |                   |       |
| Shareholders’  Equity                                                                                                                                                                            |       |                    |       |                   |       |
| Preferred stock,  $.01 par value, authorized 1,000,000 shares; none issued  Common stock, $.01 par value; authorized 10,000,000 shares; issued 3,853,730  shares in 2004 and 3,819,116 shares in 2003 |       | 38,537                  |       | 38,191                 |       |
| Treasury stock,  at cost 6,516 shares                                                                                                                                                                 |       | (50,043                 | )          | 0                      |       |
| Additional  paid-in capital                                                                                                                                                                           |       | 3,748,379               |       | 3,647,262              |       |
| Retained  earnings                                                                                                                                                                                    |       | 2,852,086               |       | 3,506,805              |       |
| Total  Shareholders’ Equity                                                                                                                                                                      |       | 6,588,959               |       | 7,192,258              |       |
| Total  Liabilities and Shareholders’ Equity                                                                                                                                                      |       | $                       | 27,336,608 |                   | $          | 29,084,354 |   |

 

See accompanying notes tofinancial statements.

 

3

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

 

 
| ** **                                                                 | ** ** | **For the three months ended  September 30,** | ** ** | **For the nine months ended  September 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                 | ** ** | **2004**                                      | ** ** | **2003**                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net sales                                                                  |       | $                                             | 11,575,134 |                                         | $          | 11,651,609 |   | $ | 34,845,034 |   | $ | 37,463,666 |   |
| Cost of goods  sold                                                        |       | 8,514,949                                     |       | 7,810,900                                    |       | 24,840,433 |   | 25,442,191 |   |
| Gross margin                                                               |       | 3,060,185                                     |       | 3,840,709                                    |       | 10,004,601 |   | 12,021,475 |   |
|                                                                       |       |                                          |       |                                         |       |   |   |   |   |
| Selling and  administrative expenses Selling, marketing & distribution |       | 2,387,361                                     |       | 2,285,111                                    |       | 7,299,594 |   | 6,525,493 |   |
| Administrative                                                             |       | 940,535                                       |       | 1,126,206                                    |       | 3,246,924 |   | 3,640,319 |   |
| Total                                                                      |       | 3,327,896                                     |       | 3,411,317                                    |       | 10,546,518 |   | 10,165,812 |   |
| Operating profit  (loss)                                                   |       | (267,711                                      | )          | 429,392                                      |       | (541,917 | ) | 1,855,663 |   |
|                                                                       |       |                                          |       |                                         |       |   |   |   |   |
| Interest expense                                                           |       | 192,721                                       |       | 188,728                                      |       | 548,802 |   | 566,603 |   |
| Income (loss)  before income taxes                                         |       | (460,432                                      | )          | 240,664                                      |       | (1,090,719 | ) | 1,289,060 |   |
| Income tax  expense (benefit)                                              |       | (184,000                                      | )          | 96,000                                       |       | (436,000 | ) | 517,000 |   |
| Net income  (loss)                                                         |       | $                                             | (276,432   | )                                            | $          | 144,664 |   | $ | (654,719 | ) | $ | 772,060 |   |
|                                                                       |       |                                          |       |                                         |       |   |   |   |   |
| Basic earnings  (loss) per share                                           |       | $                                             | (0.07      | )                                            | $          | 0.04 |   | $ | (0.17 | ) | $ | 0.20 |   |
| Weighted average  common shares outstanding                                |       | 3,847,214                                     |       | 3,792,993                                    |       | 3,837,600 |   | 3,782,543 |   |
|                                                                       |       |                                          |       |                                         |       |   |   |   |   |
| Diluted earnings  (loss) per share                                         |       | $                                             | (0.07      | )                                            | $          | 0.04 |   | $ | (0.17 | ) | $ | 0.20 |   |
| Weighted average  common shares outstanding                                |       | 3,847,214                                     |       | 3,948,284                                    |       | 3,837,600 |   | 3,895,456 |   |

 

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

 

 
| ** **                                           | ** ** | ** **       | ** ** | ** **   | ** ** | **Additional** | ** ** | ** **   | ** ** | ** **   | ** ** |
|------------------------------------------------------|------------|------------------|------------|--------------|------------|----------------|------------|--------------|------------|--------------|------------|
| ** **                                           | ** ** | **Common Stock** | ** ** | **Treasury** | ** ** | **Paid-in**    | ** ** | **Retained** | ** ** | ** **   | ** ** |
| ** **                                           | ** ** | **Shares**       | ** ** | **Amount**   | ** ** | **Stock**      | ** ** | **Capital**  | ** ** | **Earnings** | ** ** | **Total** | ** ** |
| Balance, at  January 1, 2004                         |       | 3,819,116        |       | $            | 38,191     |           | $          | 0            |       | $            | 3,647,262  |   | $ | 3,506,805 |   | $ | 7,192,258 |   |
| Proceeds from  stock purchase and stock option plans |       | 34,614           |       | 346          |       | —         |       | 101,117      |       | —       |       | 101,463 |   |
| Treasury stock  purchases                            |       | —           |       | —       |       | (50,043        | )          | —       |       | —       |       | (50,043 | ) |
| Net loss                                             |       | —           |       | —       |       | —         |       | —       |       | (654,719     | )          | (654,719 | ) |
| Balance, at  September 30, 2004                      |       | 3,853,730        |       | $            | 38,537     |           | $          | (50,043      | )          | $            | 3,748,379  |   | $ | 2,852,086 |   | $ | 6,588,959 |   |

 

See accompanyingnotes to financial statements.

 

4

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

 

 
| ** **                                                                               | ** ** | **For the nine months ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                               | ** ** | **2004**                                     | ** ** | **2003** | ** ** |
| **Cash  Flows From Operating Activities**                                                |       |                                         |       |   |   |
| Net income  (loss)                                                                       |       | $                                            | (654,719   | ) | $ | 772,060 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities |       |                                         |       |   |   |
| Depreciation and  amortization                                                           |       | 722,981                                      |       | 707,721 |   |
| Loss on sale of  fixed asset                                                             |       | 3,877                                        |       | 0 |   |
| Deferred income  tax provision                                                           |       | (226,304                                     | )          | 0 |   |
| Changes in  assets and liabilities:                                                      |       |                                         |       |   |   |
| Accounts  receivable                                                                     |       | 1,854,469                                    |       | 658,742 |   |
| Inventories                                                                              |       | (48,890                                      | )          | (924,186 | ) |
| Prepaid expenses  and other current assets                                               |       | 46,375                                       |       | (190,379 | ) |
| Income tax  receivable                                                                   |       | 198,536                                      |       | 174,318 |   |
| Accounts payable                                                                         |       | 309,251                                      |       | 263,346 |   |
| Accrued expenses                                                                         |       | (135,994                                     | )          | (46,314 | ) |
| Net cash  provided by operating activities                                               |       | 2,069,582                                    |       | 1,415,308 |   |
|                                                                                     |       |                                         |       |   |   |
| **Cash  Flows From Investing Activities**                                                |       |                                         |       |   |   |
| Capital expenditures                                                                     |       | (1,002,693                                   | )          | (1,051,813 | ) |
| Proceeds from  sale of fixed asset                                                       |       | 7,400                                        |       | 0 |   |
| Other assets                                                                             |       | (59,090                                      | )          | (39,801 | ) |
| Net cash used in investing activities                                                    |       | (1,054,383                                   | )          | (1,091,614 | ) |
|                                                                                     |       |                                         |       |   |   |
| **Cash  Flows From Financing Activities**                                                |       |                                         |       |   |   |
| Proceeds from issuance  of stock and exercise of stock options                           |       | 101,463                                      |       | 91,138 |   |
| Purchase of  treasury stock                                                              |       | (50,043                                      | )          | 0 |   |
| Net (payments)  borrowings under revolving loan facility                                 |       | (532,443                                     | )          | 140,548 |   |
| Proceeds from  new term loan                                                             |       | 0                                            |       | 6,500,000 |   |
| Net payments on  term loan facility                                                      |       | (584,432                                     | )          | (6,535,490 | ) |
| Net payments  under capital lease obligations                                            |       | 0                                            |       | (131,040 | ) |
| Net cash (used  in) provided by financing activities                                     |       | (1,065,455                                   | )          | 65,156 |   |
|                                                                                     |       |                                         |       |   |   |
| Net (decrease)  increase in cash                                                         |       | (50,256                                      | )          | 388,850 |   |
|                                                                                     |       |                                         |       |   |   |
| Cash, at  beginning of period                                                            |       | 125,457                                      |       | 46,097 |   |
|                                                                                     |       |                                         |       |   |   |
| Cash, at end of  period                                                                  |       | $                                            | 75,201     |   | $ | 434,947 |   |
|                                                                                     |       |                                         |       |   |   |
| Supplemental  Disclosure of Cash Flow Information                                        |       |                                         |       |   |   |
| Cash paid for  interest                                                                  |       | $                                            | 489,635    |   | $ | 552,851 |   |
| Income taxes  (refunded) paid                                                            |       | $                                            | (384,967   | ) | $ | 249,183 |   |

 

See accompanying notes to financial statements.

 

5

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## **NOTESTO FINANCIAL STATEMENTS**

**(Unaudited)**

#### **Basis of Presentation**

 

In the opinion of management, the accompanyingbalance sheets and related interim statements of income, cash flows, andshareholders’ equity include all adjustments, consisting only of normalrecurring items, necessary for their fair presentation in conformity with U.S.generally accepted accounting principles. Preparing financial statements requires management to make estimates andassumptions that affect the reported amounts of assets, liabilities, revenue,and expenses.  Examples includeprovisions for returns, deductions, bad debts, and length of building andequipment lives.  Actual results maydiffer from these estimates.  Interimresults are not necessarily indicative of results for a full year. Theinformation included in this Form 10-Q should be read in conjunction withManagement’s Discussion and Analysis of Financial Condition and Results ofOperations and financial statements and notes thereto included in the 2003 Form10-K of Vita Food Products, Inc.  (VitaFood Products, Inc. (“Vita”), together with its wholly owned subsidiary, VitaSpecialty Foods, Inc. (“Vita Specialty Foods”), hereinafter referred to as the “Company”).

 

The third quarter and nine-month periods endedSeptember 30, 2004 diluted loss per share computations exclude 46,737 and95,158 shares, respectively, issuable upon exercise of stock options because theassumed exercise of these options would be anti-dilutive.

 

**Principles of Consolidation**

 

The consolidatedfinancial statements include the accounts of Vita and Vita SpecialtyFoods.  Vita Specialty Foods includesVirginia Honey Company, Inc. (“Virginia Honey”) and The Halifax Group, Inc. (“Halifax”).  All significant intercompany transactions andbalances have been eliminated.

 

##### **RevenueRecognition**

 

Revenue is recognized upon shipment of productto customers in fulfillment of customer orders.

 

### **Earn Out Provisions Under Acquisition Agreements**

 

Pursuantto the Company’s acquisitions of Virginia Honey and Halifax in 2001 and 2002,respectively, the previous owners of those businesses, both of whom are nowemployees and one of whom is a director of the Company, are subject to earn outprovisions that may result in additional proceeds paid by the Company for theacquired businesses.  As amended, theearn out provisions for Terry Hess, the previous owner of Virginia Honey, haveresulted in an additional amount due to Mr. Hess of $823,000 as of September30, 2004 with an interest rate of 4.2%, payable in April 2005.  This additional payment is based on theoperating results of Virginia Honey for the period from January 1, 2001 toDecember 31, 2002.  Potential remainingearn out payments to Mr. Hess will be based on the earnings of Vita SpecialtyFoods, as computed by a pre-defined allocation formula, for two separateperiods – January 1, 2003 to December 31, 2005 and January 1, 2006 to December31, 2007.  Should Vita Specialty Foodsmaintain its current profitability levels throughout these periods, managementestimates that additional payments with a net present value as of September 30,2004 of approximately $1,359,000 would be due to Mr. Hess.  Any future payments will be recorded asadditional goodwill when and if such payments are finally determined at the endof each of the periods described above.

 

Similarly,Mr. Budd, the previous owner of Halifax, has two separate earn out periods –January 1, 2003 to December 31, 2005 and January 1, 2006 to December 31,2007.  Potential remaining earn outpayments to Mr. Budd will be based on the earnings of Vita Specialty Foods, ascomputed by a pre-defined allocation formula. Should Vita Specialty Foods maintain its current profitability levelsthroughout these periods, management estimates that no additional paymentswould be due to Mr. Budd.  Any futurepayments will be recorded as additional goodwill when and if such payments arefinally determined at the end of each of the periods described above.

 

6

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#### **Bank Loan Agreement**

 

OnSeptember 9, 2003, the Company entered into a loan agreement (the “LoanAgreement”) with a bank and paid off its existing credit facility.  The Loan Agreement provides for a two year$8,500,000 revolving line of credit for working capital needs; a five year$6,500,000 term loan that represents the Company’s long term financing and asix year $3,000,000 term loan that is currently not being utilized.  The revolving loan facility matures August31, 2005 and has accordingly been classified as a current liability on thebalance sheet at September 30, 2004; the term loan is payable in monthlyinstallments of $54,000 through July 31, 2008, with a balloon payment of$3,368,000 due on August 31, 2008. Amounts outstanding under the revolving facility and the term facilitiesat September 30, 2004 were $7,759,000 and $5,798,000, respectively.  The interest rates on these facilities aresubject to adjustment at certain predetermined dates based upon the Funded Debtto EBITDA ratio as each such term is defined in the Loan Agreement.  The Loan Agreement contains customaryrepresentations, warranties and covenants. At December 31, 2003, the Company was in compliance with thesecovenants, however, at September 30, 2004 the impact of the loss on earningsbefore income taxes, depreciation and amortization for the twelve months thenended resulted in non-compliance with two of the Company’s debt covenants.  The Company received a permanent waiver fromits lender with respect to this instance of non-compliance and an amendment,which changed the financial covenants through December 31, 2004.  The Company intends to closely monitor itsdebt covenants going forward.

 

#### **Business Segments**

 

TheCompany is reporting two operating business segments in the same format asreviewed by the Company’s senior management. Segment one, Vita, processes andsells various herring and cured and smoked salmon products throughout theUnited States and includes the corporate headquarters.  Segment two, Vita Specialty Foods, combinesthe products of Virginia Honey and Halifax and manufactures and distributeshoney, salad dressings, sauces, marinades, jams and jellies and giftbaskets.  Management uses operatingprofit as the measure of profit or loss by business segment.

 

**Businesssegment information is as follows ($000’s):**

** **
| **Three months ended September 30,** | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|
|                                 |       |       |       |       |       |
| **Net  Sales**                       |       |       |       |       |       |
| Vita                                 | ** ** | **$**      | **6,239**  | ** ** | $          | 6,053 |   |
| Vita Specialty Foods                 | ** ** | **5,336**  | ** ** | 5,599      |       |
|                                 |       |       | ** ** |       |       |
| Total Net Sales                      | ** ** | **$**      | **11,575** | ** ** | $          | 11,652 |   |
|                                 |       |       | ** ** |       |       |
| **Operating  Profit (Loss)**         |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **(309**   | **)**      | $          | (223 | ) |
| Vita Specialty Foods                 | ** ** | **41**     | ** ** | 652        |       |
|                                 |       |       | ** ** |       |       |
| Total Operating  Profit (Loss)       | ** ** | **$**      | **(268**   | **)**      | $          | 429 |   |
|                                 |       |       | ** ** |       |       |
| **Net  Income (Loss)**               |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **(248**   | **)**      | $          | (189 | ) |
| Vita Specialty Foods                 | ** ** | **(28**    | **)**      | 334        |       |
|                                 |       |       | ** ** |       |       |
| Total Net Income  (Loss)             | ** ** | **$**      | **(276**   | **)**      | $          | 145 |   |
|                                 |       |       | ** ** |       |       |
| **Depreciation  and Amortization**   |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **124**    | ** ** | $          | 182 |   |
| Vita Specialty Foods                 | ** ** | **128**    | ** ** | 80         |       |
|                                 |       |       | ** ** |       |       |
| Total Depreciation  and Amortization | ** ** | **$**      | **252**    | ** ** | $          | 262 |   |
|                                 | ** ** | ** ** | ** ** | ** ** |       |   |   |
| **Capital  Expenditures**            |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **68**     | ** ** | $          | 172 |   |
| Vita Specialty Foods                 | ** ** | **162**    | ** ** | 253        |       |
|                                 |       |       | ** ** |       |       |
| Total Capital  Expenditures          | ** ** | **$**      | **230**    | ** ** | $          | 425 |   |

 

7

----

 

 
| **Nine  months ended September 30,** | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|
|                                 |       |       | ** ** |       |       |
| **Goodwill**                         |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **—** | ** ** | $          | — |   |
| Vita Specialty Foods                 | ** ** | **8,311**  | ** ** | 8,256      |       |
|                                 |       |       | ** ** |       |       |
| Total Goodwill                       | ** ** | **$**      | **8,311**  | ** ** | $          | 8,256 |   |
|                                 |       |       | ** ** |       |       |
| **Total  Assets**                    |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **18,586** | ** ** | $          | 18,605 |   |
| Vita Specialty Foods                 | ** ** | **8,751**  | ** ** | 9,279      |       |
|                                 |       |       | ** ** |       |       |
| Total Assets                         | ** ** | **$**      | **27,337** | ** ** | $          | 27,884 |   |
|                                 |       |       | ** ** |       |       |
| **Net  Sales**                       |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **17,335** | ** ** | $          | 18,352 |   |
| Vita Specialty Foods                 | ** ** | **17,510** | ** ** | 19,112     |       |
|                                 |       |       | ** ** |       |       |
| Total Net Sales                      | ** ** | **$**      | **34,845** | ** ** | $          | 37,464 |   |
|                                 |       |       | ** ** |       |       |
| **Operating  Profit (Loss)**         |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **(1,261** | **)**      | $          | (93 | ) |
| Vita Specialty Foods                 | ** ** | **719**    | ** ** | 1,949      |       |
|                                 |       |       | ** ** |       |       |
| Total Operating  Profit (Loss)       | ** ** | **$**      | **(542**   | **)**      | $          | 1,856 |   |
|                                 |       |       | ** ** |       |       |
| **Net  Income (Loss)**               |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **(918**   | **)**      | $          | (218 | ) |
| Vita Specialty Foods                 | ** ** | **263**    | ** ** | 990        |       |
|                                 |       |       | ** ** |       |       |
| Total Net Income  (Loss)             | ** ** | **$**      | **(655**   | **)**      | $          | 772 |   |
|                                 |       |       | ** ** |       |       |
| **Depreciation  and Amortization**   |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **370**    | ** ** | $          | 420 |   |
| Vita Specialty Foods                 | ** ** | **353**    | ** ** | 288        |       |
|                                 |       |       | ** ** |       |       |
| Total Depreciation  and Amortization | ** ** | **$**      | **723**    | ** ** | $          | 708 |   |
|                                 | ** ** | ** ** | ** ** | ** ** |       |   |   |
| **Capital  Expenditures**            |       |       | ** ** |       |       |
| Vita                                 | ** ** | **$**      | **579**    | ** ** | $          | 377 |   |
| Vita Specialty Foods                 | ** ** | **424**    | ** ** | 675        |       |
|                                 |       |       | ** ** |       |       |
| Total Capital  Expenditures          | ** ** | **$**      | **1,003**  | ** ** | $          | 1,052 |   |

 

 

**Accountingfor Stock Based Compensation**

 

The Company applies the intrinsic value method in accounting for itsstock based compensation plans. Accordingly, no compensation cost has been recognized for its 1996 StockOption Plan, 1996 Stock Option Plan for Non-Employee Directors and 1996Employee Stock Purchase Plan, as the market price of the stock did not exceedthe exercise price of the options on the measurement date.

 

**The Company is required toprovide pro forma disclosures of net income (loss) and earnings (loss) pershare as if the Company adopted the fair value method to account for stockbased compensation.  Theweighted-average, grant date fair value of stock options granted to employeesduring the period and the weighted-average significant assumptions used todetermine those fair values, using a modified Black-Scholes option pricingmodel, and the pro forma effect on earnings (loss) of the fair value accountingfor stock options are as follows:**

 

8

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| ** **                                                                            | ** ** | **Three Months** | ** ** | **Nine Months** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------|------------|-----------------|------------|
| **For the Period Ending September 30,**                                               | ** ** | **2004**         | ** ** | **2003**        | ** ** | **2004** | ** ** | **2003** | ** ** |
| Weighted average  fair value per options granted                                      |       | N/A              |       | $               | 3.21       |   | $ | 4.42 |   | $ | 2.71 |   |
|                                                                                  |       |             |       |            |       |   |   |   |   |
| Significant  assumptions (weighted average)                                           |       |             |       |            |       |   |   |   |   |
| Risk-free  interest rate at grant date                                                |       | N/A              |       | 4.3             | %          | 4.1 | % | 3.7 | % |
| Expected stock  price volatility                                                      |       | N/A              |       | 0.72            |       | 0.69 |   | 0.72 |   |
| Expected  dividend payout                                                             |       | N/A              |       | —          |       | — |   | — |   |
| Expected option  life (years)                                                         |       | N/A              |       | 5               |       | 5 |   | 5 |   |
|                                                                                  |       |             |       |            |       |   |   |   |   |
| Net income  (loss)                                                                    |       |             |       |            |       |   |   |   |   |
| As reported                                                                           |       | $                | (276,432   | )               | $          | 144,664 |   | $ | (654,719 | ) | $ | 772,060 |   |
| Deduct total  stock based compensation expense determined under the fair value method |       | 0                |       | (9,630          | )          | (132,660 | ) | (56,844 | ) |
| Pro forma                                                                             |       | $                | (276,432   | )               | $          | 135,034 |   | $ | (787,379 | ) | $ | 715,216 |   |
|                                                                                  |       |             |       |            |       |   |   |   |   |
| Basic earnings  (loss) per share                                                      |       |             |       |            |       |   |   |   |   |
| As reported                                                                           |       | $                | (0.07      | )               | $          | 0.04 |   | $ | (0.17 | ) | $ | 0.20 |   |
| Pro forma                                                                             |       | $                | (0.07      | )               | $          | 0.04 |   | $ | (0.21 | ) | $ | 0.19 |   |
|                                                                                  |       |             |       |            |       |   |   |   |   |
| Diluted earnings  (loss) per share                                                    |       |             |       |            |       |   |   |   |   |
| As reported                                                                           |       | $                | (0.07      | )               | $          | 0.04 |   | $ | (0.17 | ) | $ | 0.20 |   |
| Pro forma                                                                             |       | $                | (0.07      | )               | $          | 0.03 |   | $ | (0.21 | ) | $ | 0.18 |   |

 

### **Item 2**.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

 

***Comparison of the Three Months Ended September30, 2004 and September 30, 2003***

 

***Revenues.***  Net sales for the three months endedSeptember 30, 2004 were $11,575,000, compared to $11,652,000 for the sameperiod in 2003, a decrease of $77,000 or 0.7%. This decrease is primarily attributable to Vita Specialty Foods, whichexperienced a decrease of $263,000 led by higher sales deductions of $199,000,which were due primarily to increased promotions.  Sales of honey products decreased $436,000 asa result of certain 2003 sales that unexpectedly were not repeated in 2004.  Sales of salad dressings increased by$235,000, driven mainly by increased customer demand, and sauce productsincreased by $166,000, due largely to a timing issue where a large seasonalorder was timed to ship in this quarter when the comparable shipment from theprior year quarter occurred during the second quarter of 2003.  The increase in sales of salad dressings andsauces substantially offset the decline in sales of honey products.  Partially offsetting the decrease in netsales from Vita Specialty Foods was an increase of $186,000, or 3%, for theVita seafood business, which was primarily the result of a $227,000 or 7%increase in gross sales of herring products. The herring sales increase can be primarily attributed to one customer’sincrease in purchase volume.  Salmonproduct sales increased $12,000, or 0.4% but sales of specialty productsdecreased $35,000 or 11% and sales deductions were up $18,000 or 4% from the2003 quarter.  Herring, salmon, andspecialty product sales represented 49%, 47%, and 4%, respectively, of the Vitabusiness unit’s total gross sales during the period.  Vita Specialty Food’s salad dressings/sauces,honey products and specialty items, represented 74%, 25% and 1%, respectively,of the Vita Specialty Foods business unit’s total gross sale*s.*

 

***GrossMargin.***  Grossmargin for the three months ended September 30, 2004 was $3,060,000, comparedto $3,841,000 for the same period in 2003, a decrease of $781,000 or20.3%.  The Vita seafood businessaccounted for $80,000 of this decrease and $701,000 of the decline wasattributable to the Vita Specialty Foods business.  As a percent of net sales, gross margintotaled 26.4% in 2004, down from 33.0% for the same period in 2003.  Gross margin for the Vita Specialty Foodsbusiness, as a percentage of net sales, decreased to 31.0% from 42.0% for thesame period in 2003, largely as a result of the lower volume and higherpromotions described above.  Furthermore,it should also be noted that the prior year quarter had a one-time pick up of approximately$300,000 resulting from the final implementation of a new inventory costingsystem for the then recently acquired Halifax inventory.  For the Vita seafood business, gross marginas a percent of net sales, decreased to 22.6% for the current quarter versus24.6% for the same period in 2003.  Thischange was primarily attributable to the rise in the cost of raw salmon.

 

9

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***OperatingExpenses****.*  Selling, marketing, distribution andadministrative expenses for the three months ended September 30, 2004 were$3,328,000, compared to $3,411,000 for the same period in 2003, a decrease of$83,000 or 2.4%.  These expensesrepresented 28.8% of sales for the quarter ending September 30, 2004 comparedto 29.3% for the same period in 2003. The decreased dollar amount of these expenses was the net result of an$102,000 increase in selling, marketing and distribution expenses net of a$185,000 decrease in administrative expenses. The reduction in administrative spending included $115,000 for Vitaseafood and $70,000 for Vita Specialty Foods. Of this decrease, $80,000 reflected reduced compensation expenses and$46,000 lower amortization expenses.  Theincrease in selling, marketing and distribution expense was the net result of a$121,000 increase for Vita seafood net of a $19,000 decrease for Vita SpecialtyFoods.  Of this increase, $30,000 wasattributable to distribution expenses, primarily freight-out costs arising as aresult of higher rates and $64,000 was due to increased salaries.

 

***Interest Expense.***  Interest expense for the three months endedSeptember 30, 2004 was $192,000, compared to $189,000 for the same period in2003, an increase of $3,000 or 1.6%. During this period, the average debt increased to $16,600,000 from$15,100,000 or 9.9% compared to the third quarter of the prior year, and thusthe relatively small increase in interest expense is entirely attributable tolower effective interest rates under the Company’s Loan Agreement.

 

***Income Taxes.*** The Company recognized a credit of $184,000and an expense of $96,000 for the quarters ended September 30, 2004 and 2003,respectively.  The credit representsapproximately 40% of pre-tax loss for the period ended September 30, 2004 andthe expense represents approximately 40% of the pre-tax profit for the sameperiod in 2003.

 

***Net Income.***  Reflecting the operating results describedabove, the net loss for the three months ended September 30, 2004 totaled$(276,000) or $(0.07) per share on both a basic and fully diluted basis.  This contrasts to net income of $145,000 forthe same period in 2003 or $0.04 per share on both bases, thus representing areduction of $0.11 per share on both a basic and a fully diluted basis.

 

 

***Comparison of the Nine Months Ended September30, 2004 and September 30, 2003***

 

***Revenues.***  Net sales for the nine months ended September30, 2004 were $34,845,000, compared to $37,464,000 for the same period in 2003,a decrease of $2,619,000 or 7.0%.  Ofthis decrease, $1,602,000 is attributable to Vita Specialty Foods, representinga reduction of 8.4%, and $1,017,000 is attributable to Vita seafood,representing a reduction of 5.5%. The decrease for the Vita Specialty Foodsbusiness unit is a reflection of the sales of sauce products, which were down$1,558,000.  Sales decreases were alsoreflected in this business unit’s honey product line of $675,000 and resaleproducts of $200,000.  All decreases wereprimarily due to certain 2003 sales that unexpectedly were not repeated in2004.  In addition, returns andallowances increased by $368,000, primarily due to augmented salespromotions.  The decrease in sales ofcertain Vita Specialty Foods product lines was partially offset by a $1,199,000increase in the line of salad dressing products due to increased customerdemand.  Added to the decrease from VitaSpecialty Foods was a decline of $1,017,000, or 5.5%, for the Vita seafoodbusiness, which was primarily the result of a $1,030,000 or 11% decrease in gross sales of salmon products.  The salmon sales decrease was primarily aresult of Vita seafood’s largest customer discontinuing sales of a Vita salmonproduct during the third quarter of 2003. The Company believes that it will replace this lost salmon businessstarting in the fourth quarter of 2004. Herring, salmon, and specialty product sales represented 51%, 45%, and4%, respectively, of the Vita business unit’s total gross sales during theperiod.  Vita Specialty Food’s saladdressings/sauces, honey products and specialty items, represented 71%, 28% and1%, respectively, of the Vita Specialty Foods business unit’s total grosssales.

*** ***

***GrossMargin.***  Grossmargin for the nine months ended September 30, 2004 was $10,005,000, comparedto $12,021,000 for the same period in 2003, a decrease of $2,017,000 or16.8%.  The Vita seafood businessaccounted for $1,124,000 of this decrease and $893,000 of the decline wasattributable to the Vita Specialty Foods business.  As a percent of net sales, gross margintotaled 28.7% in 2004, down from 32.1% for the same period in 2003.  Gross margin for the Vita Specialty Foodsbusiness, as a percentage of net sales decreased to 34.2% from 36.0% for thesame period in 2003, largely as a result of unfavorable sales mix and higher salesreturns and allowances.  For the Vitaseafood business, gross margin as a percent of net sales decreased to 23.1% forthe current period versus 28.0% for the same period in 2003.  This change was primarily attributable to thecontinued rise in the cost of raw salmon, higher factory expenses necessary toprepare for production of new product lines and the lower than expected salesvolume.

*** ***

***OperatingExpenses****.*  Selling, marketing, distribution andadministrative expenses for the nine months ended September 30, 2004 were$10,547,000, compared to $10,166,000 for the same period in 2003, an increaseof $381,000 or 3.7%.  As a percentage ofnet sales, these expenses were 30.3% in 2004 compared with 27.1% in 2003.  The increased dollar amount of these expenseswas the net result of a $774,000 increase in selling, marketing anddistribution expenses and a 

 

10

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$393,000 decrease inadministrative expenses.  The improvementin administrative spending was largely a result of the decision to transfer theadministrative function previously performed in Atlanta to the Martinsburgoffice.  The increase in selling,marketing and distribution expense was primarily the result of a $633,000increase for Vita Specialty Foods and another $141,000 increase for Vita seafood.  Of the Vita Specialty Foods increase,$457,000 was attributable to distribution expenses, primarily freight-out costsarising as a result of higher rates; another $137,000 was attributable toselling expense, mostly salesperson salaries and another $39,000 to marketing,primarily for slotting costs of new products. The increase for Vita seafood reflects a $245,000 increase in sellingexpenses, mostly salesperson salaries; net of a $104,000 reduction in marketingand distribution, primarily reflecting lower slotting and promotionalincentives.  The operating expensesincreased as a percent of sales as a result of these expenses increasing indollars during a period of declining sales.

 

***Interest Expense.***  Interest expense for the nine months endedSeptember 30, 2004 was $549,000, compared to $567,000 for the same period in2003, a decrease of $18,000 or 3.2%. During this period, the average debt increased to $16,300,000 from$14,800,000 or 10% compared to the third quarter of the prior year, thus the decreasein interest expense was also attributable to lower effective interest ratesunder the Company’s Loan Agreement.

 

***Income Taxes.*** The Company recognized a credit of $436,000and an expense of $517,000 for the nine-month periods ended September 30, 2004and 2003, respectively.  The creditrepresents approximately 40% of pre-tax loss for the period ended September 30,2004 and the expense represents approximately 40% of the pre-tax profit for thesame period in 2003.

*** ***

***Net Income.*** Reflecting the operating results described above, the net loss for thenine months ended September 30, 2004 totaled $(655,000) or $(0.17) per share onboth a basic and fully diluted basis; this contrasts to net income of $772,000for the same period in 2003 or $0.20 per share on both a basic basis and fullydiluted basis thus representing a reduction of $0.37 per share on both a basicbasis and fully diluted basis.

 

 

#### **FinancialCondition**

 

At September 30, 2004, the Company’s outstandingrevolving bank debt was classified as a current obligation because the facilityis scheduled to terminate in August 2005. At September 30 and December 31, 2003, the outstanding revolver balancesof $5,500,000 and $8,291,000, respectively, were classified as long-termobligations.  Accordingly, workingcapital at September 30, 2004 was a negative $125,000 compared to a positive$7,325,000 and $10,510,000 at September 30 and December 31, 2003,respectively.  The classificationdifference also resulted in the current ratio going from 2.2 to 1.0 at September30, 2003 and 3.5 to 1.0 at December 31, 2003 to 1.0 to 1.0 at September 30,2004.  It is typical for a reduction inthe Company’s net working capital to occur during the first nine months of eachyear reflecting the liquidation in current assets following the busiest part ofthe year.  This year, the reduction incurrent assets totaled $2,101,000 primarily resulting from $1,854,000 of netreductions of accounts receivable and collection of income tax refunds of$199,000.  The increase in current liabilitiesduring the period, in addition to the classification of $7,759,000 of revolvingdebt as current at September 30, 2004, reflects the $823,000 classificationinto current liabilities of the Virginia Honey earnout payment which is due inApril 2005 and a $173,000 net increase in accounts payable and accruals; bothof these net of an offsetting $226,000 decrease in the deferred income taxliability.

 

At September 30, 2004, the Company had $75,000 in cash, a revolvingcredit facility of $8,500,000 and a term facility of $9,500,000 which consistsof a $6,500,000 facility that represents the Company’s long term borrowing anda $3,000,000 facility that is not currently being utilized.  The revolving loan facility matures August31, 2005 and the term loan is payable in monthly installments of $54,000through July 31, 2008, with a balloon payment of $3,368,000 due on August 31,2008.  Amounts outstanding under therevolving facility and the term facilities at September 30, 2004 were$7,759,000 and $5,798,000, respectively. The interest rates on these facilities are subject to adjustment atcertain predetermined dates based upon the Funded Debt to EBITDA ratio as eachsuch term is defined in the Loan Agreement. The next such predetermined date is December 31, 2004.  The loan agreement contains customaryrepresentations, warranties and covenants. At September 30, 2004 the impact of the loss on earnings before incometaxes, depreciation and amortization for the twelve months then ended resultedin non-compliance with two of the Company’s debt covenants.  The Company received a permanent waiver fromits lender with respect to this instance of non-compliance and an amendment,which changed the financial covenants through December 31, 2004.  The Company intends to closely monitor itsdebt covenants going forward.

 

Theratio of total debt to total capitalization of 73% at September 30, 2004 iscomparable to 72% at December 31, 2003. The Company believes its financial resources are adequate to fund itsneeds for the next twelve months.

 

11

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***Cash flows from operatingactivities.*** Net cash provided by operating activities was$2,070,000 for the nine months ended September 30, 2004, primarily reflecting$1,854,000 contributed from net collections of accounts receivable and $309,000from increased accounts payable, partially offset by a decrease in accruedexpenses of $136,000.  These cash flowsfrom operating activities for the current period compare to $1,415,000 for thesame period in 2003, an increase of $655,000 or 46%.  This increase occurred despite the $1,427,000decline in net income.  Again, theincrease was primarily attributable to the proceeds from net collections onreceivables, which exceeded those of the same period of the prior year by$1,196,000 and from inventory which increased $875,000 less than in the prioryear.

 

***Cash flows from investingactivities.*** Net cash used in investing activities was$1,054,000 for the nine months ended September 30, 2004, which was $38,000 lessthan the $1,092,000 used during the same period of the prior year.  For both periods these funds were usedprimarily to purchase machinery and equipment for the Company’s manufacturingoperations.

 

***Cash flows from financing activities.*** Net cashused in financing activities was $1,065,000 for the nine months ended September30, 2004, which reflects the $1,117,000 net repayment of debt.  This cash usage compares to $65,000 providedby financing activities for the same period in 2003, resulting in a differenceof $1,130,000.  This larger net debtrepayment in the current period primarily reflects the increased cash madeavailable through operations, net of the cash used in investing activities, asdescribed above and a decrease in the balance of operating cash.

 

 

#### **Seasonality**

 

TheVita segment of the Company’s business is seasonal in nature, primarilyresulting from the effect of the timing of certain holidays on the demand forcertain products. Historically, the Company’s sales and profits have beensubstantially higher in the fourth quarter of each year.

 

 

**CriticalAccounting Policies and Estimates**

 

The Company’sfinancial statements reflect the selection and application of accountingpolicies that require management to make significant estimates andassumptions.  The Company believes thatthe following are some of the more critical judgment areas in the applicationof its accounting policies that currently affect the Company’s financialcondition and results of operations.

 

Preparation of theconsolidated financial statements in accordance with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions affecting the reported amounts of assets, liabilities, revenuesand expenses and related contingent liabilities.  On an on-going basis, the Company evaluatesits estimates, including those related to revenues, returns, bad debts, incometaxes and contingencies and litigation. The Company bases its estimates on historical experience and on variousother assumptions that are believed to be reasonable under thecircumstances.  Actual results may differfrom these estimates under different assumptions or conditions.

 

Revenue isrecognized upon shipment of product to customers in fulfillment of customerorders.  In accordance with industrypractices, inventory is sold to customers often with the right to return ordispose if the merchandise is not sold prior to the expiration of its shelflife.  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 Companyregularly reviews and revises, when it deems necessary, estimates of costs tothe Company for these marketing and merchandising programs based on estimatesof what has been incurred by customers. Actual costs incurred by the Company may differ significantly if factorssuch as the level and success of the customers’ programs or other conditionsdiffer from expectations.  Sales arereduced by a provision for estimated future returns, disposals and promotionalexpenses.

 

The Company recognizes deferred income tax assets andliabilities for the expected future tax consequences of temporary differences betweenthe tax basis and financial reporting basis of certain assets and liabilitiesbased upon currently enacted tax rates expected to be in effect when suchamounts are realized or settled.

 

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 Companyconsiders important, which could trigger an impairment review include thefollowing:

 

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•                  Significant underperformance relative toexpected historical or projected future operating results;

•                  Significant changes in the manner of theCompany’s use of the acquired assets or the strategy for the Company’s overallbusiness;

•                  Significant negative industry or economictrends;

•                  Significant decline in the Company’sstock price for a sustained period; and

•                  The Company’s market capitalizationrelative to net book 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.

 

During the fourth quarter of 2003, the Companycompleted its annual impairment test, which did not result in impairment ofrecorded goodwill.

 

 

#### **Forward-LookingStatements**

 

Certainstatements in this report, including statements in “Management’s Discussion andAnalysis of Financial Condition and Results of Operations,” are “forward-lookingstatements” as defined by the Federal securities laws. Such statements arebased on management’s current expectations and involve known and unknown risksand uncertainties 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, changes in raw material costs, the potentialloss of large customers or accounts, the Company’s ability to maintain itsrelationships with key vendors and retailers, the introduction and success ofnew products, changes in economic and market conditions, integration andmanagement of acquired businesses, the seasonality of Vita’s business, theCompany’s ability to attract and retain key personnel, consolidation of theCompany’s supplier base, the potential impact of claims and litigation,downward product price movements, and the effects of competition in the Company’smarkets.  In light of these and otherrisks 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****.  Quantitative and QualitativeDisclosures About Market Risk**

 

The Company is exposed to interest ratefluctuations, primarily as a result of its $18 million Loan Agreement withinterest rates subject to market fluctuations. The Company does not currently use derivative instruments to alter theinterest rate characteristics of any of its debt.  The Loan Agreement includes a revolving lineof credit with a bank, which at September 30, 2004 bore interest at the primerate minus 0.50% resulting in a 4.25% rate for a portion of the debt and atLIBOR plus 2.00% resulting in a 4.14% rate for another portion.  This rate determination remains constantuntil December 31, 2004.  On that date,the interest rate may be adjusted based upon certain financial covenants andmay range from prime minus 0.50% to LIBOR plus 1.75% or, to LIBOR plus2.25%.  In addition, the Loan Agreementincludes two term loan facilities, one of which is active, and which atSeptember 30, 2004 bore interest at the prime rate minus 0.50% resulting in a4.25% rate.  On December 31, 2004, theinterest rate may be adjusted based on certain financial covenants, and mayrange from prime minus 0.50% to LIBOR plus 2.00% or, to LIBOR plus 2.50%.  A 10% fluctuation in interest rates would nothave a material impact on the Company’s financial statements.

 

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**Item 4****.  Controls and Procedures**

 

Under the supervision and withthe participation of the Company’s management team, the principal executiveofficer and principal financial officer have evaluated the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures asdefined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Actof 1934, as amended (the “Exchange Act”), as of September 30, 2004 and, basedon their evaluation, have concluded that these controls and procedures areeffective.  There were no changes in theCompany’s internal control over financial reporting during the fiscal quarterended September 30, 2004 that has materially affected, or is reasonable likelyto materially affect, the Company’s internal control over financial reporting.

 

Disclosure controlsand procedures are designed to ensure that information required to be disclosedby the Company in the reports that it files or submits under the Exchange Actis recorded, processed, summarized and reported, within the time periodsspecified in the Securities and Exchange Commission’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.

 

Itshould be noted that any system of controls, however well designed andoperated, can provide only reasonable, and not absolute, assurance that theobjectives of the system are met. In addition, the design of any control systemis based in part upon certain assumptions about the likelihood of futureevents. Because of these and other inherent limitations of control systems,there can be no assurance that any design will succeed in achieving its statedgoals under all potential future conditions, regardless of how remote.

 

 

## **PARTII**- OTHER INFORMATION

 

#### **Item 6**.  Exhibits

 

31.1                           PrincipalExecutive Officer Certification pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.

 

31.2                           PrincipalFinancial Officer Certification pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.

 

32.1                           PrincipalExecutive Officer Certification pursuant to Section 906 of the Sarbanes-OxleyAct of 2002.

 

32.2                           PrincipalFinancial Officer Certification pursuant to Section 906 of the Sarbanes-OxleyAct of 2002.

 

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## **SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
| ** ** |              | **VITA FOOD PRODUCTS, INC.**                     |
|------------|-------------------|--------------------------------------------------|
|       |              |                                             |
|       |              |                                             |
| Date:      | November 15, 2004 | By:                                              | /s/ Stephen D. Rubin |   |
|       |              |                                             |   Stephen D.  Rubin |   |
|       |              |                                             | *President* |   |
|       |              |                                             | (*Principal  Executive Officer*) |   |
|       |              |                                             |   |   |
|       |              |                                             |   |   |
| Date:      | November 15, 2004 | By:                                              | /s/ Clifford K. Bolen |   |
|       |              |                                             |   Clifford K.  Bolen |   |
|       |              | Senior *Vice President; Chief Financial Officer* |   |
|       |              | (*Principal  Financial and Accounting Officer*)  |   |

 

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