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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549-1004
---------------
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 25, 2000
OR
| | Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-09559
COLORADO PRIME CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 11-2826129
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 BI-COUNTY BLVD., FARMINGDALE, NEW YORK 11735
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (631)-694-1111
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes|X| No|_|
At August 7, 2000, 1,000 shares of the registrant's Common Stock were
outstanding.
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COLORADO PRIME CORPORATION
INDEX
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<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 25, 2000 and December 24, 1999 1
Statements of Consolidated Operations
Thirteen weeks ended June 25, 2000 and
June 25, 1999 2
Statements of Consolidated Operations
Twenty-six weeks ended June 25, 2000 and June 25, 1999 3
Statements of Consolidated Cash Flows
Twenty-six weeks ended June 25, 2000 and June 25, 1999 4
Notes to Consolidated Financial Statements 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 6
PART II. OTHER INFORMATION
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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COLORADO PRIME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data)
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<CAPTION>
JUNE 25, DECEMBER 24,
ASSETS 2000 1999
--------- ---------
(UNAUDITED)
Current Assets:
<S> <C> <C>
Cash $ 213 $ 754
Accounts receivable - net 49,233 51,379
Inventories - net 2,844 3,217
Prepaid expenses and other current assets 1,854 1,830
Deferred income tax benefit 8,263 7,533
--------- ---------
Total current assets 62,407 64,713
--------- ---------
Property, Plant and Equipment - net 8,382 8,792
--------- ---------
Non-current accounts receivable - net 37,217 36,380
--------- ---------
Goodwill - net 43,175 43,986
--------- ---------
Other assets 6,076 6,677
--------- ---------
Deferred income tax benefit 3,834 3,834
--------- ---------
TOTAL ASSETS $ 161,091 $ 164,382
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 2,874 $ 4,868
Accrued expenses 9,767 12,084
Income and other taxes payable 527 622
Current portion of capital lease obligations 129 129
--------- ---------
Total current liabilities 13,297 17,703
--------- ---------
Revolver 44,213 40,477
--------- ---------
Senior unsecured notes, net of discount 84,287 84,155
--------- ---------
Long-term portion of capital lease obligations 3,633 3,694
--------- ---------
Other liabilities 1,513 1,978
--------- ---------
STOCKHOLDER'S EQUITY
Common Stock - par value, $.01, per share; 1,000 shares
authorized
issued and outstanding -- --
Paid-in capital 25,868 25,868
Accumulated deficit (11,720) (9,493)
--------- ---------
Total stockholder's equity 14,148 16,375
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 161,091 $ 164,382
========= =========
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1
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COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
JUNE 25, JUNE 25,
2000 1999
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<S> <C> <C>
PRODUCT SALES $ 30,154 $ 34,144
FINANCE INCOME EARNED 3,020 3,350
-------- --------
TOTAL REVENUE 33,174 37,494
COST OF GOODS SOLD 13,165 12,992
-------- --------
GROSS MARGIN 20,009 24,502
-------- --------
OTHER COST AND EXPENSES:
Selling, general and administrative 17,690 21,508
Amortization of goodwill 406 406
Interest expense 4,277 3,994
Other expense 129 150
-------- --------
Total cost and expenses 22,502 26,058
-------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES (2,493) (1,556)
BENEFIT FOR INCOME TAXES (710) (391)
-------- --------
NET LOSS ($ 1,783) ($ 1,165)
======== ========
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2
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COLORADO PRIME CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JUNE 25, JUNE 25,
2000 1999
-------- --------
<S> <C> <C>
PRODUCT SALES $ 61,714 $ 67,370
FINANCE INCOME EARNED 6,267 6,871
-------- --------
TOTAL REVENUE 67,981 74,241
COST OF GOODS SOLD 24,463 25,398
-------- --------
GROSS MARGIN 43,518 48,843
-------- --------
OTHER COST AND EXPENSES:
Selling, general and administrative 36,999 42,806
Amortization of goodwill 811 811
Interest expense 8,410 8,161
Other expense 255 297
-------- --------
Total cost and expenses 46,475 52,075
-------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES (2,957) (3,232)
AND EXTRAORDINARY ITEM
BENEFIT FOR INCOME TAXES (730) (825)
-------- --------
NET LOSS BEFORE EXTRAORDINARY ITEM (2,227) (2,407)
EXTRAORDINARY ITEM - GAIN ON
EXTINGUISHMENT OF DEBT - NET OF TAX -- 4,556
-------- --------
NET (LOSS) INCOME ($ 2,227) $ 2,149
======== ========
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COLORADO PRIME CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JUNE 25, JUNE 25,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($2,227) $ 2,149
------- -------
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 1,427 1,583
Amortization of debt issuance costs 609 599
Extraordinary gain, net -- (4,556)
Deferred income taxes (730) (825)
Provision for doubtful accounts 2,308 4,700
Change in operating assets and liabilities:
Accounts receivable (999) (2,349)
Inventories 373 125
Prepaid expenses and other (24) 82
Refundable income taxes -- 425
Other assets 124 59
Accounts payable (1,994) (478)
Accrued expenses (2,317) (4,039)
Other liabilities (465) (151)
Income and other taxes payable (95) 718
------- -------
Total adjustments (1,783) (4,107)
------- -------
Net cash used in operating activities (4,010) (1,958)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investments of property, plant and equipment (206) (582)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolver 3,736 8,353
Repurchase of senior notes -- (6,259)
Decrease in capital lease obligations (61) (53)
------- -------
Net cash provided by financing activities 3,675 2,041
------- -------
NET DECREASE IN CASH (541) (499)
CASH, BEGINNING OF PERIOD 754 994
------- -------
CASH, END OF PERIOD $ 213 $ 495
======= =======
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COLORADO PRIME CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Colorado Prime Corporation (the "Company" or "CPC") is a Delaware corporation
and was incorporated in 1986. The Company is a wholly-owned subsidiary of
Colorado Prime Holdings, Inc. ("CPH"), formerly KPC Holdings Corporation
("Holdings"). On May 9, 1997, pursuant to a merger agreement between Holdings
and Thayer Equity Investors III, L.P., a private equity investment limited
partnership ("Thayer"), Colorado Prime Acquisition Corp. ("CPAC"), a
transitory acquisition company established by Thayer prior to the
consummation of the merger, merged with and into Holdings (the "Merger")
following which Holdings was the surviving corporation and was renamed CPH.
2. Reference is made to the notes to consolidated financial statements contained
within the Company's audited financial statements for the period ended
December 24, 1999 included in the Company's Annual Report on Form 10-K. In
the opinion of management, the interim unaudited financial statements
included herein reflect all adjustments necessary, consisting of normal
recurring adjustments, for a fair presentation of such data on a basis
consistent with that of the audited data presented therein. The results of
operations for interim periods are not necessarily indicative of the results
to be expected for a full year.
Certain prior period balances have been reclassified to conform with the
current period presentation.
3. The Company has approved a change in its fiscal year end from the last Friday
to the last Sunday in December. Fiscal 2000 will be a 53 week year and end on
December 31, 2000.
4. The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries; Kal-Mar Properties Corp. ("Kal-Mar"), Concord
Financial Services, Inc. ("Concord") and Prime Foods Development Corporation
("Prime"). In connection with the Merger discussed in Note 1, the Company
issued $100.0 million of Senior Unsecured Notes (the "Notes"), which bear
interest at 12.5% per annum and mature in 2004. (See the Company's Annual
Report on Form 10-K for a further discussion of the Notes). In January 1999,
the Company repurchased in aggregate $14.7 million (face value) of the then
outstanding notes. The Notes are guaranteed on a senior unsecured basis by
all existing subsidiaries (there are no non-guarantor subsidiaries) and any
future U.S. subsidiaries of the Company. The guarantees of the subsidiaries
are full, unconditional, joint and several. Summary financial data for
Kal-Mar, Concord and Prime are as follows:
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JUNE 25, 2000
(DOLLARS IN THOUSANDS)
KAL-MAR CONCORD PRIME
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<S> <C> <C> <C>
Current assets $ 42 $ 86,830 $ 12
Non-current assets 978 36,161 --
Current liabilities -- (2,769) (711)
Non-current liabilities -- (66,953) --
-------- -------- --------
Net assets (liabilities) 1,020 53,269 (699)
======== ======== ========
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<CAPTION>
FOR THE TWENTY-SIX WEEKS ENDED
JUNE 25, 2000
(DOLLARS IN THOUSANDS)
KAL-MAR CONCORD PRIME
-------- -------- --------
<S> <C> <C> <C>
Net revenues $ 27 $6,264 $ --
Gross profit 27 8,837 --
(Loss) Income before provision for income tax (23) 3,825 --
</TABLE>
Separate financial statements of the Company's subsidiaries are not
presented, as the Company's management has determined that (i) the data
presented above provides meaningful information and (ii) the data in
separate financial statements other than that presented above would not be
material to investors in the Notes.
5. During January 1999, the Company repurchased in aggregate $14.7 million (face
value) of its Notes at a cost of $6.3 million. Additionally, the Company
wrote-off approximately $0.8 million of unamortized debt issuance cost
related to the repurchased Notes. The Company realized an extraordinary gain
of $4.6 million which was net of a tax provision of $3.0 million.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information set forth herein contains forward-looking statements, as
such term is defined in Section 27A of the Securities Act of 1933, as amended
and Section 21 E of the Securities Exchange Act of 1934. Such statements are
subject to certain risks and uncertainties discussed herein, which could cause
actual results to differ materially from those in the forward-looking
statements.
OVERVIEW
The Company is a leading direct marketer of high quality, value-added food
programs and products related to in-home dining and entertainment. Using a
combination of telemarketing and in-home selling, Colorado Prime Corporation
believes that it is the only company to offer this type of in-home shopping
service on a broad scale, currently serving 32 states through 74 sales offices.
The Company sells individually packaged, top quality meats and poultry, seafood,
assorted pasta dishes and a wide selection of prepared entrees for direct
delivery to consumer households. The Company's food products are of a quality
generally found only in specialty butchers, fine gourmet shops and high-end
restaurants and require simple preparation using a microwave, conventional oven
or grill. As a complement to its food products, the Company also sells
food-related and home entertainment appliances and accessories with unique
features not generally available in traditional retail channels. The purchase of
non-food items enables customers to earn a lifetime discount on food purchases.
RESULTS OF OPERATIONS
Thirteen Weeks Ended June 25, 2000 Compared To Thirteen Weeks Ended June 25,
1999.
Total revenue for the thirteen weeks ended June 25, 2000 decreased by $4.3
million, or 11.5%, to $33.2 million from $37.5 million for the thirteen weeks
ended June 25, 1999. Food revenue for the thirteen weeks ended June 25, 2000
decreased by $2.5 million, or 12.0%, to $18.4 million from $20.9 million for the
thirteen weeks ended June 25, 1999. Non-food revenue for the thirteen weeks
ended June 25, 2000 decreased by $1.5 million, or 11.3%, to $11.8 million from
$13.3 million for the thirteen weeks ended June 25, 1999. The reduction in food
revenue was due to lower average order size and volume for new and existing
customers. The decrease in non-food revenue was due to lower volume for new and
existing customers. Finance income for the thirteen weeks ended June 25, 2000
decreased by $0.3 million or 9.9% to $3.0 million from $3.3 million for the
thirteen weeks ended June 25, 1999. The decrease resulted from a reduction in
interest eligible non-food accounts.
Gross profit for the thirteen weeks ended June 25, 2000 decreased by $4.5
million, or 18.3%, to $20.0 million from $24.5 million for the thirteen weeks
ended June 25, 1999. The gross profit margin for the thirteen weeks ended June
25, 2000 decreased to 60.3% from 65.3% for the thirteen weeks ended June 25,
1999. The decrease in the gross profit margin was due primarily to an increase
in food costs. The increase in food costs was due primarily to market conditions
and non-recurring transitional cost related to the shift in the production and
fulfillment of food products from the Company owned facility to an outside
processor which was completed in March, 2000. The Company expects relief from
the market conditions in the latter part of the quarter ending September 2000.
Additionally, an increase in the average customer discount negatively impacted
the gross profit margin for the thirteen weeks ended June 25, 2000.
SG&A expenses are principally comprised of selling, telemarketing, delivery and
general and administrative expenses. For the thirteen weeks ended June 25, 2000,
these expenses decreased by $3.8 million, or 17.8%, to $17.7 million from $21.5
million for the thirteen weeks ended June 25, 1999. The decrease was due to
lower sales related variable cost from lower product sales, lower fixed payroll
and non-payroll cost from the cost reductions enacted in the third and fourth
quarters of fiscal 1999, lower bad debt expense from improved receivable
performance and lower telecommunication costs from the Company's new contract
with its long distance carrier.
Interest expense for the thirteen weeks ended June 25, 2000 increased to $4.3
million from $4.0 million for the thirteen weeks ended June 25, 1999. The
increase was attributable to a greater level of borrowing at a higher rate of
interest under the working capital revolver.
Other expense for the thirteen weeks ended June 25, 2000 and June 25, 1999 was
$0.1 million.
Benefit for income taxes for the thirteen weeks ended June 25, 2000 increased by
$0.3 million to a benefit of $0.7 million from a benefit of $0.4 million for the
thirteen weeks ended June 25, 1999. The increase was due to a higher pre-tax
loss.
Net loss for the thirteen weeks ended June 25, 2000 increased to $1.8 million
from a loss of $1.2 million for the thirteen weeks ended June 25, 1999 for the
reasons discussed above.
6
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Twenty-six Weeks Ended June 25, 2000 Compared to Twenty-six Weeks Ended June 25,
1999.
Total revenue for the twenty-six weeks ended June 25, 2000 decreased by
$6.3 million, or 8.4%, to $67.9 million from $74.2 million for the twenty-six
weeks ended June 25, 1999. Food revenue for the twenty-six weeks ended June 25,
2000 decreased by $5.0 million, or 12.2%, to $35.4 million from $40.4 million
for the twenty-six weeks ended June 25, 1999. Non-food revenue for the
twenty-six weeks ended June 25, 2000 decreased by $0.7 million, or 2.7%, to
$26.3 million from $27.0 million for the twenty-six weeks ended June 25, 1999.
The reduction in food revenue was due to lower average order size and volume for
new and existing customers. The decrease in non-food revenue was due to lower
average order size and volume for new and existing customers. Finance income for
the twenty-six weeks ended June 25, 2000 decreased by $0.6 million, or 8.8%, to
$6.3 million from $6.9 million for the twenty-six weeks ended June 25, 1999. The
decrease resulted from a reduction in interest eligible non-food accounts.
Gross Profit for the twenty-six weeks ended June 25, 2000 decreased by
$5.3 million, or 10.9%, to $43.5 million from $48.8 million for the twenty-six
weeks ended June 25, 1999. The gross profit margin for the twenty-six weeks
ended June 25, 2000 decreased to 64.0% from 65.8% for the twenty-six weeks ended
June 25, 1999. The decrease in the gross profit margin was due primarily to an
increase in food costs. The increase in food costs was due primarily to market
conditions and non-recurring transitional cost related to the shift in the
production and fulfillment of the food products from the Company owned facility
to an outside processor which was completed in March, 2000. The Company expects
relief from the market conditions in the latter part of the quarter ending
September 2000. Additionally, an increase in the average customer discount
negatively impacted the gross profit margin for the twenty-six weeks ended June
25, 2000.
SG&A expenses are principally comprised of selling, telemarketing,
delivery and general and administrative expenses. For the twenty-six weeks ended
June 25, 2000, these expenses decreased by $5.8 million, or 13.6%, to $37.0
million from $42.8 million for the twenty-six weeks ended June 25, 1999. The
decrease was due to lower sales related variable cost from lower product sales,
lower fixed payroll and non-payroll cost from the cost reductions enacted in the
third and fourth quarters of fiscal 1999, lower bad debt expense from improved
receivable performance and lower telecommunication costs from the Company's new
contract with its long distance carrier.
Interest expense for the twenty-six ended June 25, 2000 increased to $8.4
million from $8.2 million for the twenty-six weeks ended June 25, 1999. The
increase was attributable to a greater level of borrowing at a higher rate of
interest under its working capital revolver.
Other expense for the twenty-six weeks ended June 25, 2000 and June 25,
1999 was $0.3 million.
Benefit for income taxes for the twenty-six weeks ended June 25, 2000
decreased by $0.1 million to a benefit of $0.7 million from a benefit of $0.8
million for the twenty-six weeks ended June 25, 1999. The decrease was due to
lower pre-tax loss.
Extraordinary gain for the twenty-six weeks ended June 25, 1999
resulted from the repurchase of $14.7 million of Senior Notes at a cost of $6.3
million. Additionally, the Company incurred $0.8 million of non-cash charges
related to the repurchase. The Company realized an extraordinary gain of $4.6
million which was net of a tax provision of $3.0 million.
Net loss for the twenty-six weeks ended June 25, 2000 was $2.2 million
as compared to net income of $2.1 million for the twenty-six ended June 25, 1999
for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the twenty-six weeks ended June 25,
2000 was $4.0 million, primarily comprised of a net loss of $2.2 million, non
cash charges of $3.6 million, an increase in current assets of $0.7 million and
a decrease in current liabilities of $4.4 million.
Net cash used in investing activities for the twenty-six weeks ended June 25,
2000 of $0.2 million was for capital expenditures.
Net cash provided by financing activities for the twenty-six weeks ended June
25, 2000 was $3.7 million, comprised of borrowings under the revolver.
The Company had working capital of $49.1 million as of June 25, 2000 compared to
$47.0 million as of December 24, 1999.
7
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The Company has a $50.0 million working capital revolver, with $2.2 million of
unused availability as of June 25, 2000. The working capital revolver contains
certain covenants requiring the Company to meet certain financial tests
including a minimum fixed charge coverage ratio, a maximum leverage ratio, and a
limitation on capital expenditures. The working capital revolver and the senior
unsecured notes impose certain other restrictions on the Company, including
restrictions on its ability to incur indebtedness, pay dividends, make
investments, grant liens, sell its assets and engage in certain other
activities. In addition, the indebtedness of the Company under its working
capital revolver is secured by all of the assets of the Company, including the
Company's real and personal property, inventory, accounts receivable,
intellectual property and other intangibles. As of June 25, 2000, the Company
was in compliance with the provisions of the working capital revolver and had
cash on hand of $0.2 million.
The debt service obligation for the six months ended December 31, 2000 is
expected to be $7.5 million. Management is currently negotiating an alternative
source of cash which if consummated may provide sufficient cash to make
required payments of principal and interest and to fund other operating
requirements for at least the next 12 months. The ability of the Company to meet
its debt service obligations and reduce its total debt will be dependent,
however, upon the future performance of the Company which, in turn, will be
subject to general economic conditions and to financial, business and other
factors, including factors beyond the Company's control. Debt outstanding under
the working capital revolver will bear interest at floating rates; therefore,
the Company's financial condition is and will continue to be affected by changes
in prevailing interest rates.
Subject to market conditions and contractual requirements, the Company may
consider and effect the refinancing of a part of its indebtedness in fiscal 2000
in order to improve its debt service position and to reduce its net interest
expense.
The Company is subject to certain market risk factors related to its fixed rate
senior unsecured notes and its variable rate working capital revolver. The
Company does not believe the interest rate risk to be material and has disclosed
the factors in its Annual Report on Form 10-K for the year ended December 24,
1999.
Inflation
The Company believes that inflation has not had a material impact on its results
of operations for the thirteen weeks ended ended June 25, 2000.
8
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PART II OTHER INFORMATION
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) There were no Exhibits filed during the period
(b) There were no Forms 8-K filed during the period
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto daily authorized.
COLORADO PRIME CORPORATION
(Registrant)
Dated: August 7, 2000 By: /s/ Steven Lachenmeyer
Vice President Finance
10
