**UNITED STATES**

**SECURITIES AND 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 March 31, 2005**                                                                                                                                                |
|       |                                                                                                                                                                                                   |
| **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 FOOD PRODUCTS, INC.**

(Exact name ofregistrant as 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)            (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 by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.  Yes o  Noý

 

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes o  Noý

 

The number ofshares outstanding of registrant’s common stock as of April 29, 2005 was3,858,738.

 

 

----

 

**VITA FOODPRODUCTS, INC.**

 

**FORM 10-Q**

 

## **For the Quarter Ended March 31, 2005**

## ** **

## **INDEX**

## ** **

| ** **   | ** **                                                                                  | **Page No.**                                                                                         |
|--------------|---------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|
| **PART I.**  | **FINANCIAL INFORMATION**                                                                   |                                                                                                 |
|         |                                                                                        |                                                                                                 |
| Item 1.      | Financial Statements                                                                        |                                                                                                 |
|         |                                                                                        |
|         | a)                                                                                          | Consolidated Balance Sheets  as of March 31, 2005 and December 31, 2004                    | 3 |
|         |                                                                                        |                                                                                                 |   |
|         | b)                                                                                          | Consolidated  Statements of Operations for the Three Months Ended March 31, 2005 and  2004      | 4 |
|         |                                                                                        |                                                                                                 |   |
|         | c)                                                                                          | Consolidated  Statement of Shareholders’ Equity for the Three Months Ended March 31,  2005 | 4 |
|         |                                                                                        |                                                                                                 |   |
|         | d)                                                                                          | Consolidated  Statements of Cash Flows for the Three Months Ended March 31, 2005 and  2004      | 5 |
|         |                                                                                        |                                                                                                 |   |
|         | e)                                                                                          | Notes to Financial  Statements                                                                       | 6 |
|         |                                                                                        |
| Item 2.      | Management’s Discussion and  Analysis of Financial Condition and Results of Operations | 9                                                                                                    |
|         |                                                                                        |                                                                                                 |
| Item 3.      | Quantitative and Qualitative Disclosures About  Market Risk                                 | 12                                                                                                   |
|         |                                                                                        |                                                                                                 |
| Item 4.      | Controls and Procedures                                                                     | 12                                                                                                   |
|         |                                                                                        |                                                                                                 |
| **PART II.** | **OTHER INFORMATION**                                                                       |                                                                                                 |
|         |                                                                                        |                                                                                                 |
| Item 6.      | Exhibits                                                                                    | 13                                                                                                   |
|         |                                                                                        |                                                                                                 |
| SIGNATURES   | 14                                                                                          |
|              |                                                                                             |                                                                                                      |  |  |

 

2

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**PART 1****. FINANCIAL STATEMENTS**

**Item 1****. Financial Statements**

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

 
| ** **                                                                                                                           | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                           | ** ** | **2005**           | ** ** | **2004**              | ** ** |
|                                                                                                                                 |       |               |       |                  |       |
| **ASSETS**                                                                                                                           |       |               |       |                  |       |
| Current  Assets                                                                                                                      |       |               |       |                  |       |
| Cash                                                                                                                                 |       | $                  | 47,648     |                  | $          | 55,968 |   |
| Accounts  receivable-trade, net of allowance for discounts, returns, and doubtful  accounts of $431,000 in 2005 and $569,000 in 2004 |       | 3,985,621          |       | 5,118,517             |       |
| Inventories                                                                                                                          |       |               |       |                  |       |
| Raw  material and supplies                                                                                                           |       | 4,525,565          |       | 4,342,754             |       |
| Work  in process                                                                                                                     |       | 186,237            |       | 235,504               |       |
| Finished  goods                                                                                                                      |       | 2,447,174          |       | 2,390,924             |       |
| Prepaid  expenses and other current assets                                                                                           |       | 312,930            |       | 447,602               |       |
| Income  taxes receivable                                                                                                             |       | 38,733             |       | 35,441                |       |
|                                                                                                                                 |       |               |       |                  |       |
| Total  Current Assets                                                                                                                |       | 11,543,908         |       | 12,626,710            |       |
|                                                                                                                                 |       |               |       |                  |       |
| Property,  Plant and Equipment                                                                                                       |       |               |       |                  |       |
| Land                                                                                                                                 |       | 35,000             |       | 35,000                |       |
| Building  and improvements                                                                                                           |       | 2,626,097          |       | 2,626,097             |       |
| Leasehold  improvements                                                                                                              |       | 454,529            |       | 425,336               |       |
| Machinery  and office equipment                                                                                                      |       | 10,718,083         |       | 10,636,716            |       |
|                                                                                                                                 |       |               |       |                  |       |
|                                                                                                                                 |       | 13,833,709         |       | 13,723,149            |       |
| Less  accumulated depreciation and amortization                                                                                      |       | (8,022,329         | )          | (7,797,581            | )          |
|                                                                                                                                 |       |               |       |                  |       |
| Net  Property, Plant and Equipment                                                                                                   |       | 5,811,380          |       | 5,925,568             |       |
|                                                                                                                                 |       |               |       |                  |       |
| Goodwill                                                                                                                             |       | 5,996,705          |       | 5,996,705             |       |
| Other  assets                                                                                                                        |       | 376,300            |       | 373,695               |       |
| Deferred  income taxes                                                                                                               |       | 27,076             |       | —                |       |
|                                                                                                                                 |       |               |       |                  |       |
| Total  Assets                                                                                                                        |       | $                  | 23,755,369 |                  | $          | 24,922,678 |   |
|                                                                                                                                 |       |               |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                        |       |               |       |                  |       |
| Current  Liabilities                                                                                                                 |       |               |       |                  |       |
| Current  maturities of long-term obligations                                                                                         |       | $                  | 1,726,763  |                  | $          | 1,619,430 |   |
| Accounts  payable                                                                                                                    |       | 2,150,433          |       | 2,278,696             |       |
| Accrued  expenses                                                                                                                    |       | 901,143            |       | 817,919               |       |
| Deferred  income taxes                                                                                                               |       | —             |       | 144,924               |       |
|                                                                                                                                 |       |               |       |                  |       |
| Total  Current Liabilities                                                                                                           |       | 4,778,339          |       | 4,860,969             |       |
|                                                                                                                                 |       |               |       |                  |       |
| Long-term  Obligations, Less Current Maturities                                                                                      |       | 14,670,277         |       | 15,497,900            |       |
|                                                                                                                                 |       |               |       |                  |       |
| 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 and outstanding  3,865,254 shares in 2005 and 2004               |       | 38,652             |       | 38,652                |       |
| Treasury  stock, at cost 6,516 shares                                                                                                |       | (50,043            | )          | (50,043               | )          |
| Additional  paid-in capital                                                                                                          |       | 3,785,596          |       | 3,785,596             |       |
| Retained  earnings                                                                                                                   |       | 532,548            |       | 789,604               |       |
|                                                                                                                                 |       |               |       |                  |       |
| Total  Shareholders’ Equity                                                                                                     |       | 4,306,753          |       | 4,563,809             |       |
|                                                                                                                                 |       |               |       |                  |       |
| Total  Liabilities and Shareholders’ Equity                                                                                     |       | $                  | 23,755,369 |                  | $          | 24,922,678 |   |

 

See accompanying notes to consolidated financial statements.

 

3

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

 
| ** **                                  | ** ** | **For the three months ended** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **March 31,**             | ** ** |
| ** **                                  | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| ** **                                  | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net  Sales                                  |       | $                              | 11,019,915 |   | $ | 12,611,925 |   |
| Cost  of Goods Sold                         |       | 7,695,936                      |       | 8,776,610 |   |
|                                        |       |                           |       |   |   |
| Gross  Margin                               |       | 3,323,979                      |       | 3,835,315 |   |
|                                        |       |                           |       |   |   |
| Selling  and Administrative Expenses        |       |                           |       |   |   |
| Selling,  Marketing and Distribution        |       | 2,307,414                      |       | 2,528,556 |   |
| Administrative                              |       | 1,234,671                      |       | 1,190,551 |   |
|                                        |       |                           |       |   |   |
| Total  Selling and Administrative Expenses  |       | 3,542,085                      |       | 3,719,107 |   |
|                                        |       |                           |       |   |   |
| Operating  (Loss) Profit                    |       | (218,106                       | )          | 116,208 |   |
|                                        |       |                           |       |   |   |
| Interest  Expense                           |       | 210,950                        |       | 179,612 |   |
|                                        |       |                           |       |   |   |
| Loss  Before Income Tax Benefit             |       | (429,056                       | )          | (63,404 | ) |
| Income  Tax Benefit                         |       | (172,000                       | )          | (25,000 | ) |
|                                        |       |                           |       |   |   |
| Net  Loss                                   |       | $                              | (257,056   | ) | $ | (38,404 | ) |
|                                        |       |                           |       |   |   |
| Basic  Loss Per Share                       |       | $                              | (0.07      | ) | $ | (0.01 | ) |
| Weighted  Average Common Shares Outstanding |       | 3,858,738                      |       | 3,833,319 |   |
|                                        |       |                           |       |   |   |
| Diluted  Loss Per Share                     |       | $                              | (0.07      | ) | $ | (0.01 | ) |
| Weighted  Average Common Shares Outstanding |       | 3,858,738                      |       | 3,833,319 |   |

 

 
| **Consolidated Statement 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, 2005 |       | 3,865,254        |       | $            | 38,652     |        | $          | (50,043        | )          | $            | 3,785,596  |       | $          | 789,604 |   | $ | 4,563,809 |   |
|                              |       |             |       |         |       |        |       |           |       |         |       |       |       |
| Net  loss                         |       | —           |       | —       |       | —      |       | —         |       | (257,056     | )          | (257,056   | )          |
|                              |       |             |       |         |       |        |       |           |       |         |       |       |       |
| Balance,  at March 31, 2005  |       | 3,865,254        |       | $            | 38,652     |        | $          | (50,043        | )          | $            | 3,785,596  |       | $          | 532,548 |   | $ | 4,306,753 |   |

 

See accompanyingnotes to consolidated financial statements.

 

4

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

 
| ** **                                                                      | ** ** | **For the three months ended** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                      | ** ** | **March 31,**             | ** ** |
| ** **                                                                      | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| ** **                                                                      | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Cash Flows From Operating Activities**                                        |       |                           |       |   |   |
| Net  loss                                                                       |       | $                              | (257,056   | ) | $ | (38,404 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities |       |                           |       |   |   |
| Depreciation  and amortization                                                  |       | 234,425                        |       | 229,990 |   |
| Deferred  income tax provision (benefit)                                        |       | (172,000                       | )          | 150,000 |   |
| Changes  in assets and liabilities:                                             |       |                           |       |   |   |
| Accounts  receivable                                                            |       | 1,132,896                      |       | 2,179,204 |   |
| Inventories                                                                     |       | (189,794                       | )          | (156,162 | ) |
| Prepaid  expenses and other current assets                                      |       | 134,672                        |       | 5,699 |   |
| Accounts  payable                                                               |       | (128,264                       | )          | (149,585 | ) |
| Income  taxes receivable                                                        |       | (3,292                         | )          | (203,561 | ) |
| Accrued  expenses                                                               |       | 83,223                         |       | 1,626 |   |
|                                                                            |       |                           |       |   |   |
| Net  cash provided by operating activities                                      |       | 834,810                        |       | 2,018,807 |   |
|                                                                            |       |                           |       |   |   |
| **Cash Flows From Investing Activities**                                        |       |                           |       |   |   |
| Capital  expenditures                                                           |       | (110,557                       | )          | (361,305 | ) |
| Other  assets                                                                   |       | (3,520                         | )          | (16,977 | ) |
|                                                                            |       |                           |       |   |   |
| Net  cash used in investing activities                                          |       | (114,077                       | )          | (378,282 | ) |
|                                                                            |       |                           |       |   |   |
| **Cash Flows From Financing Activities**                                        |       |                           |       |   |   |
| Proceeds  from issuance of stock and exercise of stock options                  |       | —                         |       | 57,062 |   |
| Purchase  of treasury stock                                                     |       | —                         |       | (50,043 | ) |
| Net  payments under revolving loan facility                                     |       | (535,550                       | )          | (1,525,670 | ) |
| Payments  on term loan facility                                                 |       | (193,503                       | )          | (194,248 | ) |
|                                                                            |       |                           |       |   |   |
| Net  cash used in financing activities                                          |       | (729,053                       | )          | (1,712,899 | ) |
|                                                                            |       |                           |       |   |   |
| Net  decrease in cash                                                           |       | (8,320                         | )          | (72,374 | ) |
|                                                                            |       |                           |       |   |   |
| Cash,  at beginning of period                                                   |       | 55,968                         |       | 125,457 |   |
|                                                                            |       |                           |       |   |   |
| Cash,  at end of period                                                         |       | $                              | 47,648     |   | $ | 53,083 |   |
|                                                                            |       |                           |       |   |   |
| Supplemental  Disclosure of Cash Flow Information                               |       |                           |       |   |   |
| Cash  paid for interest                                                         |       | $                              | 202,000    |   | $ | 141,000 |   |
| Income  taxes paid                                                              |       | $                              | 3,000      |   | $ | 28,000 |   |

 

See accompanying notes to consolidated financial statements.

 

5

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## **NOTES TO**FINANCIALSTATEMENTS

## ** **

**(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 fairpresentation in conformity with U.S. generally accepted accountingprinciples.  Preparing financialstatements requires management to make estimates and assumptions that affectthe reported amounts of assets, liabilities, revenue, and expenses.  Examples include provisions for returns,deductions, bad debts, and length of building and equipment lives.  Actual results may differ from theseestimates.  Interim results are not necessarilyindicative of results for a full year. The information included in this Form10-Q should be read in conjunction with Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and financial statements andnotes thereto included in the 2004 Form 10-K of Vita Food Products, Inc.  (Vita Food Products, Inc. (“Vita Seafood”),together with its wholly owned subsidiary, Vita Specialty Foods, Inc. (“VSF”),hereinafter referred to as the “Company”).

 

The first quarter ended March 31,2005 and 2004 diluted loss per share computations exclude 260,100 and 144,434shares, 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 Seafood and VSF.  VSF includes Virginia Honey Company, Inc. (“VirginiaHoney”) and The Halifax Group, Inc. (“Halifax”).  All significant intercompany transactions andbalances have been eliminated.

 

##### **Revenue Recognition**

##### ** **

Revenue is recognizedupon the passing of title to the customers, which occurs upon shipment ofproduct to customers in fulfillment of customer orders.

 

### **EarnOut Provisions Under Acquisition Agreements**

### ** **

Pursuant to the Company’sacquisitions of Virginia Honey and Halifax in 2001 and 2002, respectively, theprevious owners of those businesses, both of whom are now employees and one ofwhom is a director of the Company, were subject to earn out provisions that mayresult in additional proceeds paid by the Company for the acquiredbusinesses.  As amended, the earn outprovisions for Terry Hess, the previous owner of Virginia Honey, have resultedin an additional amount due to Mr. Hess of $840,000 as of March 31, 2005with an interest rate of 4.2%, which was paid in April 2005.  This additional payment is based on theoperating results of Virginia Honey for the period from January 1, 2001 toDecember 31, 2002.  Potentialremaining earn out payments to Mr. Hess will be based on the earnings of VSF,as computed by a pre-defined allocation formula, for two separate periods – January 1,2003 to December 31, 2005 and January 1, 2006 to December 31,2007.  Should VSF maintain its currentprofitability levels throughout these periods, management estimates thatadditional payments with a net present value as of March 31, 2005 ofapproximately $883,000 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.

 

Mr. Budd, the previousowner of Halifax, had two separate earn out periods – January 1, 2003 to December 31,2005 and January 1, 2006 to December 31, 2007.  Potential earn out payments to Mr. Budd wereto be based on the earnings of VSF, as computed by a pre-defined allocationformula.  On January 7, 2005, theCompany terminated the Employment Agreement, made as of November 1, 2002between Halifax and Mr. Budd in connection with the Company’s acquisition ofHalifax.   The Company alleged a for “cause”termination as defined in the Employment Agreement, and, in connectiontherewith, filed suit against Mr. Budd which was settled in accordance with theterms and conditions of the Settlement Agreement entered into on March 28,2005.  Pursuant to the SettlementAgreement, the remaining potential earn out payments to Mr. Budd have beeneliminated entirely.

 

6

----

 

#### **Bank Loan Agreement**

#### ** **

On September 9,2003, the Company entered into a loan agreement (the “Loan Agreement”) with abank and paid off its existing credit facility. The Loan Agreement provides for a two year $8,500,000 revolving line ofcredit for working capital needs; a five year $6,500,000 term loan thatrepresents the Company’s long term financing and a six-year $3,000,000 termloan that is currently not being utilized. The revolving loan facility matures April 1, 2006 (as amended in January 2005);the term loan is payable in monthly installments of $54,000 through July 31,2008, with a balloon payment of $3,368,000 due on August 30, 2008.  Amounts outstanding under the revolvingfacility and the term facilities at March 31, 2005 were $7,142,000 and$5,474,000, respectively.  The interestrates on these facilities have been determined, subject to adjustment atcertain predetermined dates, based upon the Funded Debt to EBITDA ratio as eachsuch term is defined in the Loan Agreement. The Loan Agreement contains customary representations, warranties andcovenants (as amended in January 2005). At March 31, 2005, the Company was in compliance with thesecovenants.  In April 2005, the bankprovided the Company with a temporary overdraft of $800,000 due June 2005.  At that time, the interest rates on therevolving line of credit and the term loan were changed to prime and prime plus0.25% respectively.

 

#### **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, VSF, combines theproducts of Virginia Honey and Halifax and manufactures and distributes honey,salad dressings, sauces, marinades, jams and jellies and gift basketsthroughout North America.  Managementpredominately uses operating profit or loss as the measure of profit or loss bybusiness segment.

 

**Business segment information isas follows ($000’s):**

 
| **Three months ended March 31,** | ** ** | **2005**  | ** ** | **2004**   | ** ** |
|---------------------------------------|------------|-----------|------------|------------|------------|
|                                  |       |      | ** ** |       |       |
| **Net  Sales**                        |       |      | ** ** |       |       |
| Vita  Seafood                         | ** ** | **$**     | **5,997**  | ** ** | $          | 6,623 |   |
| VSF                                   | ** ** | **5,023** | ** ** | 5,989      |       |
|                                  |       |      | ** ** |       |       |
| Total  Net Sales                      | ** ** | **$**     | **11,020** | ** ** | $          | 12,612 |   |
|                                  |       |      | ** ** |       |       |
| **Operating  (Loss) Profit**          |       |      | ** ** |       |       |
| Vita  Seafood                         | ** ** | **$**     | **(371**   | **)**      | $          | (100 | ) |
| VSF                                   | ** ** | **153**   | ** ** | 216        |       |
|                                  |       |      | ** ** |       |       |
| Total  Operating (Loss) Profit        | ** ** | **$**     | **(218**   | **)**      | $          | 116 |   |
|                                  |       |      | ** ** |       |       |
| **Net  (Loss) Income**                |       |      | ** ** |       |       |
| Vita  Seafood                         | ** ** | **$**     | **(295**   | **)**      | $          | (107 | ) |
| VSF                                   | ** ** | **38**    | ** ** | 69         |       |
|                                  |       |      | ** ** |       |       |
| Total  Net (Loss)                     | ** ** | **$**     | **(257**   | **)**      | $          | (38 | ) |
|                                  |       |      | ** ** |       |       |
| **Depreciation  and Amortization**    |       |      | ** ** |       |       |
| Vita  Seafood                         | ** ** | **$**     | **123**    | ** ** | $          | 119 |   |
| VSF                                   | ** ** | **111**   | ** ** | 111        |       |
|                                  |       |      | ** ** |       |       |
| Total  Depreciation and Amortization  | ** ** | **$**     | **234**    | ** ** | $          | 230 |   |
| ** **                            |       |      | ** ** |       |       |
| **Capital  Expenditures**             |       |      | ** ** |       |       |
| Vita  Seafood                         | ** ** | **$**     | **5**      | ** ** | $          | 221 |   |
| VSF                                   | ** ** | **106**   | ** ** | 140        |       |
|                                  |       |      | ** ** |       |       |
| Total  Capital Expenditures           | ** ** | **$**     | **111**    | ** ** | $          | 361 |   |
|                                  |       |      | ** ** |       |       |
| **Goodwill**                          |       |      | ** ** |       |       |
| Vita  Seafood                         | ** ** | **$**     | **—** | ** ** | $          | — |   |
| VSF                                   | ** ** | **5,997** | ** ** | 8,311      | (a)        |
|                                  |       |      | ** ** |       |       |
| Total  Goodwill                       | ** ** | **$**     | **5,997**  | ** ** | $          | 8,311 |   |
|                                  |       |      | ** ** |       |       |
| **Total  Assets**                     |       |      | ** ** |       |       |
| Vita  Seafood                         | ** ** | **$**     | **15,867** | ** ** | $          | 18,307 |   |
| VSF                                   | ** ** | **7,888** | ** ** | 9,036      |       |
|                                  |       |      | ** ** |       |       |
| Total  Assets                         | ** ** | **$**     | **23,755** | ** ** | $          | 27,343 |   |

 

----

(a) Prior to a fourth quarter 2004 impairment charge.

 

7

----

 

 

**Accountingfor Stock Based Compensation**

 

The Company applies the intrinsic value methodin accounting for its stock based compensation plans.  Accordingly, no compensation cost has beenrecognized for the Company’s stock compensation plans, as the market price ofthe stock did not exceed the exercise price of the options on the measurementdate.

 

**The Company is required to provide pro forma disclosures ofnet income (loss) and earnings (loss) per share as if the Company adopted thefair value method to account for stock based compensation.  The weighted-average, grant date fair valueof stock options granted to employees during the period and theweighted-average significant assumptions used to determine those fair values,using a modified Black-Scholes option pricing model, and the pro forma effecton earnings (loss) of the fair value accounting for stock options are asfollows:**

** **
| **For  the Three Months Ending March 31,**                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted  average fair value per options granted                                      |       | $        | 2.03       |     | $          | 4.61 |   |
|                                                                                  |       |     |       |     |       |
| Significant  assumptions (weighted average)                                           |       |     |       |     |       |
| Risk-free  interest rate at grant date                                                |       | 4.2      | %          | 4.1      | %          |
| Expected  stock price volatility                                                      |       | 0.67     | ** ** | 0.71     |       |
| Expected  dividend payout                                                             |       | —   |       | —   |       |
| Expected  option life (years)                                                         |       | 5        |       | 5        |       |
|                                                                                  |       |     |       |     |       |
| Net  loss                                                                             |       |     |       |     |       |
| As  reported                                                                          |       | $        | (257,056   | )        | $          | (38,404 | ) |
| Deduct  total stock based compensation expense determined under the fair value method |       | (27,405  | )          | (124,470 | )          |
| Pro  forma                                                                            |       | $        | (284,461   | )        | $          | (162,874 | ) |
|                                                                                  |       |     |       |     |       |
| Basic  loss per share                                                                 |       |     |       |     |       |
| As  reported                                                                          |       | $        | (0.07      | )        | $          | (0.01 | ) |
| Pro  forma                                                                            |       | $        | (0.07      | )        | $          | (0.04 | ) |
|                                                                                  |       |     |       |     |       |
| Diluted  loss per share                                                               |       |     |       |     |       |
| As  reported                                                                          |       | $        | (0.07      | )        | $          | (0.01 | ) |
| Pro  forma                                                                            |       | $        | (0.07      | )        | $          | (0.04 | ) |

** **

**8**

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** **

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

### ** **

***Comparison of the Three Months Ended March 31,2005 and March 31, 2004***

*** ***

***Revenues.***  Net sales for the three months ended March 31,2005 were $11,020,000, compared to $12,612,000 for the same period in 2004, adecrease of $1,592,000 or 13%.  Of thisdecrease, $967,000 is attributable to VSF representing a 16% reduction and$625,000 is attributable to Vita Seafood, representing a 9% reduction.  The decrease in the VSF business is a reflectionin part, of gross sales of honey products which decreased $665,000 as a resultof both a market driven price reduction and certain 2004 sales of bulk materialthat were not repeated in 2005. Furthermore, gross sales of salad dressings decreased by $200,000partially as a result of issues arising from a major customer’s transition to anew package size.  Additionally, resaleand other products decreased by $149,000, largely as a result of a decision tophase out the resale packaging business. Further contributing to the decrease in net sales was the reduction of$625,000, or 9%, for the Vita Seafood business, which was primarily the resultof $413,000 and $311,000 decreases in gross sales of herring and salmonproducts respectively, both a result of lower demand.  Partially offsetting the lower sales resultsof the seafood business were reduced customer deductions of $94,000 reflectinglower promotion costs.  Herring, salmon,and specialty product sales represented 53%, 43%, and 4%, respectively, of theVita Seafood business unit’s total gross sales during the current periodcompared to 54%, 43% and 3% during the prior year quarter.  VSF’s salad dressings/sauces, honey productsand specialty items, represented 70%, 29% and 1%, respectively, of this businessunit’s total gross sales during the current quarter compared to 62%, 35% and 3%during the prior year quarter.

 

***GrossMargin.***  Grossmargin for the three months ended March 31, 2005 was $3,324,000, comparedto $3,835,000 for the same period in 2004, a decrease of $511,000 or13.3%.  The Vita Seafood businessaccounted for $302,000 of this decrease and $209,000 of the decline wasattributable to the VSF business.  As apercent of net sales, gross margin totaled 30.2% in 2005, down slightly from30.4% for the same period in 2004.  Grossmargin for the Vita Seafood business, as a percentage of net sales, decreasedto 25.1% from 27.3% for the same period in 2004, reflecting the effect of thelower sales volume described above.  ForVSF, despite lower sales, gross margin increased to 36.2% as a percent of netsales for the current quarter versus 33.8% for the same period in 2004.  This improvement was attributable to both areduction in the purchase cost of raw honey and a shift in sales mix in favorof the higher margin salad dressing/sauce products and away from the lowermargin honey products.

 

***OperatingExpenses****.*  Selling, marketing, distribution andadministrative expenses for the three months ended March 31, 2005 were$3,542,000, compared to $3,719,000 for the same period in 2004, a decrease of$177,000 or 4.8%.  As a percentage ofsales, these expenses increased to 32.1% for the quarter ending March 31,2005 compared to 29.5% for the same period in 2004.  VSF accounted for $145,000 of the expensedecrease and the remaining $32,000 was attributable to Vita Seafood.  Of this decrease, $221,000 resulted fromreduced selling, marketing and distribution expenses of which $124,000 wasattributable to distribution expenses, primarily freight-out costs resultingmostly from lower sales volume; another $71,000 was due to decreased salariesand $25,000 due to lower travel and tradeshow expense.  This decrease in selling, marketing anddistribution expense was partially offset by a $44,000 increase inadministrative expense.  Primarily, thisincrease is a result of $93,000 of higher legal and professional expensespartially relating to the litigation with Robert Budd (see “Notes to FinancialStatements, Earn Out Provisions Under Acquisition Agreements” for a further descriptionof the Budd litigation) largely offset by $36,000 of lower employment relatedexpenses.

 

***InterestExpense.***  Interestexpense for the three months ended March 31, 2005 was $211,000, comparedto $180,000 for the same period in 2004, an increase of $31,000 or 17.2%.  During this period, the average interestbearing debt balance decreased to $15,488,000 from $16,253,000 or 4.7% comparedto the first quarter of the prior year, and thus the increase in interest expenseis attributable to higher effective interest rates under the Company’s LoanAgreement.

 

***IncomeTaxes.*** The Companyrecognized income tax benefits of $172,000 and $25,000 for the quarters ended March 31,2005 and 2004, respectively.  Thebenefits represent approximately 40% of pre-tax loss for both periods.

 

***NetLoss.***  Reflectingthe operating results described above, the net loss for the three months ended March 31,2005 totaled $(257,000) or $(0.07) per share on both a basic and fully dilutedbasis.  This compares to the net loss of$(38,000) for the same period in 2004 or $(0.01) per share on both bases, thusrepresenting a reduction of $0.06 per share on both a basic and a fully dilutedbasis.

 

9

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#### **FinancialCondition**

#### ** **

At March 31, 2005the Company had $6,765,000 in net working capital compared to $8,608,000 and$7,766,000 at March 31 and December 31, 2004, respectively.  The current ratio went to 2.4 to 1.0 from 3.0to 1.0 at March 31, 2004 and 2.6 to 1.0 at December 31, 2004.  Due to the seasonality of the business, it istypical for a reduction in the Company’s current assets to occur during thefirst three months of each year since this period immediately follows thefourth quarter peak of the annual business cycle.  This year, the reduction in current assetstotaled $1,083,000 led by a $1,133,000 net reduction of accounts receivable.

 

At March 31, 2005,the Company had $48,000 in cash, a revolving credit facility of $8,500,000 andterm facilities totaling $9,500,000, consisting of a $6,500,000 facility thatrepresents the Company’s long term borrowing and a six year $3,000,000 facilitythat is not currently being utilized. The revolving loan facility matures April 1, 2006 (as amended in January 2005)and the term loan is payable in monthly installments of $54,000 through July 31,2008, with a balloon payment of $3,368,000 due on August 31, 2008.  Amounts outstanding under the revolvingfacility and the term facilities at March 31, 2005 were $7,142,000 and$5,474,000, respectively.  The interestrates on these facilities have been determined, subject to adjustment atcertain predetermined dates, based upon the Funded Debt to EBITDA ratio as eachsuch term is defined in the Loan Agreement. The Loan Agreement contains customary representations, warranties andcovenants (as amended in January 2005). At March 31, 2005 and December 31, 2004, the Company was incompliance with these covenants.  In April 2005,the bank provided the Company with a temporary overdraft of $800,000 due June 2005.  At that time, the interest rates on therevolving line of credit and the term loan were changed to prime and prime plus0.25% respectively.

 

The ratio of long-term debt to totalcapitalization of 71% at March 31, 2005 is comparable to 71% at December 31,2004.  The Company believes its financialresources are adequate to fund its needs for the next twelve months.

 

***Cashflows from operating activities.*** Net cash provided byoperating activities was $835,000 for the three months ended March 31,2005, primarily reflecting $1,133,000 contributed from net collections ofaccounts receivable, but partially offset by a $190,000 increase ininventory.  These cash flows fromoperating activities for the current period compare to $2,019,000 for the sameperiod in 2004, a decrease of $1,184,000 or 59%.  This decrease was primarily attributable tothe proceeds from net collections of receivables, which although significant inthe current year, fell short of the $2,179,000 prior year result by$1,046,000.  This decrease in receivablecollections is a result of the lower amount available for collection since thecurrent year opening balance, on January 1, 2005, of $5,119,000 was$1,426,000 below the January 1, 2004 opening balance of $6,545,000.

 

***Cashflows from investing activities.*** Net cash used ininvesting activities was $114,000 for the three months ended March 31,2005 and was thus $264,000 less than the $378,000 used during the same periodof the prior year.  For both periodsthese funds were used primarily to purchase machinery and equipment for theCompany’s manufacturing operations.

 

***Cashflows from financing activities.*** Net cash used infinancing activities was $729,000 for the three months ended March 31,2005 and was thus $984,000 less than the $1,713,000 used during the same periodof the prior year.  The majority of thecash flow from financing activities represents the net repayment of debt.  The amount of cash available for debtrepayment is primarily a reflection of the amount by which cash provided fromoperating activities exceeds the cash used in investing activities.  Thus, during the current period, the lowerdebt repayment is primarily a result of the reduced amount of cash providedfrom operating activities net of the lower amount used for investing activities,as described above.

 

#### **Seasonality**

#### ** **

The Vita Seafood segment of the Company’sbusiness is seasonal in nature, primarily resulting from the effect of thetiming of certain holidays on the demand for certain products. Historically,the Company’s sales and profits have been substantially higher in the fourthquarter of each year.

 

**Critical Accounting Policies andEstimates**

 

The Company’s financial statements reflect theselection and application of accounting policies that require management tomake significant estimates and assumptions. The Company believes that the following are some of the more criticaljudgment areas in the application of its accounting policies that currentlyaffect the Company’s financial condition and results of operations.

 

10

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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-goingbasis, the Company evaluates its estimates, including those related torevenues, returns, bad debts, income taxes and contingencies andlitigation.  The Company bases itsestimates on historical experience and on various other assumptions that arebelieved to be reasonable under the circumstances.  Actual results may differ from theseestimates under different assumptions or conditions.

 

Revenue is recognized upon the passing of title tocustomers, which occurs upon shipment of product to customers in fulfillment ofcustomer orders.  In accordance withindustry practices, inventory is sold to customers often with the right toreturn or dispose if the merchandise is not sold prior to the expiration of itsshelf life.  In order to support theCompany’s products, various marketing programs are offered to customers, whichreimburse them for a portion, or all of their promotional activities related tothe Company’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 differencesbetween the tax basis and financial reporting basis of certain assets andliabilities and certain income tax credit carryforwards.  In estimating future tax consequences, theCompany considers expected future events other than enactments of changes intax laws or rates.  A valuation reserveis recognized based on the evidence available; if it is more likely than notthat some portion or the entire deferred income tax asset will not be realized.

 

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:

 

•                  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 quarters of 2003 and 2002, theCompany completed its annual assessment of impairment regarding the goodwillrecorded as a result of the Virginia Honey acquisition ($6,004,000) and theHalifax acquisition ($2,307,000).  Thoseassessments, supported by independent appraisals of the fair value of VSF, didnot identify any impairment.  However,the 2004 independent appraisal – made using customary valuation methodologiesincluding discounted cash flows and fundamental analysis, did reveal impairmentissues.  The revised appraisal reflecteda decreased fair value of VSF, principally caused by the decline in operatingincome during 2004.  That decline wasprimarily a result of a substantial reduction in the sales of Halifax products– which were down $1,600,000 or 21% in 2004. Based on the appraised value of VSF, the resulting impairment charge ofapproximately $2,314,000 was recorded in the fourth quarter of 2004.

 

#### **Forward-LookingStatements**

#### ** **

Certain statements in this report,including statements in “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” are “forward-looking statements” asdefined by the Federal securities laws. Such statements are based on management’scurrent expectations and involve known and unknown risks and uncertaintieswhich may cause the Company’s actual results, performance or achievements todiffer materially from any results, performance or achievements expressed orimplied in this report. By way of example and not limitation and in noparticular order, known risks and uncertainties include the Company’s futuregrowth and profitability, changes in raw material costs, the potential loss oflarge customers or accounts, the Company’s ability to maintain its relationshipswith key vendors and retailers, the introduction and success of new products,changes in economic and market conditions, integration and management ofacquired businesses, the seasonality of Vita Seafood’s business, the Company’sability to attract and retain key personnel, 

 

11

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consolidation of the Company’s supplierbase, the potential impact of claims and litigation, downward product pricemovements, and the effects of competition in the Company’s markets.  In light of these and other risks anduncertainties, the Company makes no representation that any future results,performance or achievements expressed or implied in this report will beattained. The Company’s actual results may differ materially from any resultsexpressed or implied by the forward-looking statements, especially whenmeasured on a quarterly basis.

 

**Item 3****. Quantitative and Qualitative Disclosures About Market Risk**

 

The Company is exposedto interest rate fluctuations, primarily as a result of its $18 million LoanAgreement with interest rates subject to market fluctuations.  The Company does not currently use derivativeinstruments to alter the interest rate characteristics of any of its debt.  The Loan Agreement includes a revolving lineof credit with a bank, which at March 31, 2005 bore interest at the primerate minus 0.50% resulting in a 5.25% rate. In addition, the Loan Agreement includes two term loan facilities, oneof which is active, and which at March 31, 2005 also bore interest at theprime rate minus 0.50% resulting in a 5.25% rate.  Effective April 4, 2005, the LoanAgreement has been amended to, among other things, set the interest rates as afactor of prime.  As of April 4,2005 and continuing until maturity, the revolving line of credit will bearinterest at prime rate and the term loan facilities will bear interest at primerate plus 0.25%.  A 10% fluctuation ininterest rates would not have a material impact on the Company’s financialstatements.

 

**Item 4****.  Controls and 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 Securities Exchange Act of 1934, as amended(the “Exchange Act”), as of March 31, 2005 and, based on their evaluation,have concluded that these controls and procedures are effective.  There were no changes in the Company’sinternal control over financial reporting during the fiscal quarter ended March 31,2005 that has materially affected, or is reasonable likely to materiallyaffect, the Company’s internal control over financial reporting.

 

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.  Disclosurecontrols and procedures include, without limitation, controls and proceduresdesigned to ensure that information required to be disclosed by the Company inthe reports that it files under the Exchange Act is accumulated andcommunicated to the Company’s management, including its principal executiveofficer and principal financial officer, as appropriate to allow timelydecisions 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 upon certainassumptions about the likelihood of future events. Because of these and otherinherent limitations of control systems, there can be no assurance that anydesign will succeed in achieving its stated goals under all potential futureconditions, regardless of how remote.

 

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## **PART II**- OTHERINFORMATION

## ** **

#### **Item 6**.  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 FOODPRODUCTS, INC.**

 

 
| Date:   May  15, 2005 | By:                                              |       /s/  Stephen D. Rubin                    |   |
|--------------------------------------|--------------------------------------------------|-----------------------------------------------------------------------------------|--------|
|                                 |                                             | Stephen  D. Rubin                                                                 |   |
|                                 |                                             | *President*                                                                       |   |
|                                 |                                             | (*Principal  Executive Officer*)                                                  |   |
|                                 |                                             |                                                                              |
|                                 |                                             |                                                                              |
| Date:   May  15, 2005 | By:                                              |          /s/  Clifford K. Bolen |   |
|                                 |                                             | Clifford  K. Bolen                                                                |
|                                 | Senior *Vice President; Chief Financial Officer* |                                                                              |
|                                 | (*Principal Financial and Accounting Officer*)   |                                                                              |
|                                      |                                                  |                                                                                   |        |  |

 

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