<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- ------------------
Commission file number 0-19263
---------
SUPREMA SPECIALTIES, INC.
------------------------------
(Exact Name of Registrant as
specified in its charter)
New York 11-2662625
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
510 EAST 35TH STREET
PATERSON, NEW JERSEY 07504
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(201) 684-2900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
As of May 1, 1996 there were 2,756,900 outstanding shares of the issuer's Common
Stock, $.01 par value.
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of 3
March 31, 1996 and June 30, 1995
Consolidated Statements of Earnings 4
For The Three and Nine Month Periods Ended
March 31, 1996 and 1995
Consolidated Statements of Cash Flows 5
For the Nine Month Periods Ended
March 31, 1996 and 1995
Notes to Consolidated Financial 7
Statements
ITEM 2. Management's Discussion and Analysis of 11
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
Mar. 31, June 30,
1996 1995
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ 709,941 $ 494,160
Accounts receivable, net of allowances
of $508,290 at March 31, 1996 and
$380,300 at June 30, 1995 7,971,790 5,350,823
Inventories 14,050,840 10,352,976
Current portion of notes receivable -- 300,000
Prepaid expenses and other current assets 1,884,233 1,353,558
Deferred income taxes 203,316 328,000
----------- -----------
Total current assets 24,820,120 18,179,517
PROPERTY AND EQUIPMENT, NET 10,986,539 8,536,195
NOTES RECEIVABLE -- 337,500
OTHER ASSETS 1,981,781 158,967
----------- -----------
$37,788,440 $27,212,179
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 6,111,488 $ 4,740,486
Current portion of long-term obligations 1,558,761 1,318,109
Mortgage payable - short term 35,810 --
Income taxes payable 178,886 535,732
Accrued expenses and other current
liabilities 397,449 341,532
Deferred income taxes 98,182 35,000
----------- -----------
Total current liabilities 8,380,576 6,970,859
DEFERRED INCOME TAXES 550,070 436,000
DEFERRED INCOME -- 412,500
REVOLVING CREDIT LOAN 9,400,000 7,700,000
SUBORDINATED DEBT 4,000,917 --
LONG-TERM CAPITAL LEASES 4,059,896 4,291,648
MORTGAGE PAYABLE - LONG TERM 1,014,189 --
WARRANTS (Subject to mandatory redemption) 1,100,000 --
STOCKHOLDERS' EQUITY:
Redeemable, convertible preferred stock,
$.01 par value, 2,500,000 shares authorized,
500,000 issued and outstanding at Mar. 31, 1996,
and June 30, 1995 1,108,977 1,108,977
Common stock, $.01 par value, 10,000,000
shares authorized, 2,756,900 and 2,450,000
issued and outstanding at March 31, 1996
and June 30, 1995 27,570 24,500
Additional paid-in capital 4,588,644 3,651,528
Retained earnings 3,557,601 2,616,167
----------- -----------
Total stockholders' equity 9,282,792 7,401,172
----------- -----------
$37,788,440 $27,212,179
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 16,302,059 $ 13,330,883 $ 46,530,675 $ 39,059,925
COST OF SALES 12,640,051 10,314,917 36,646,403 30,527,990
------------ ------------ ------------ ------------
GROSS MARGIN 3,662,008 3,015,966 9,884,272 8,531,935
------------ ------------ ------------ ------------
EXPENSES:
Selling and shipping 2,010,422 2,125,119 5,875,515 6,015,351
General and administrative 528,231 532,681 1,431,947 1,447,369
------------ ------------ ------------ ------------
2,538,653 2,657,800 7,307,462 7,462,720
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,123,355 358,166 2,576,810 1,069,215
OTHER INCOME (EXPENSE)
Interest expense, net (502,643) (186,857) (1,165,376) (468,648)
Other -- 232,936 412,500 483,107
------------ ------------ ------------ ------------
(502,643) 46,079 (752,876) 14,459
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 620,712 404,245 1,823,934 1,083,674
INCOME TAXES 254,000 170,306 770,000 444,306
------------ ------------ ------------ ------------
NET EARNINGS 366,712 233,939 1,053,934 639,368
PREFERRED STOCK DIVIDENDS (37,500) (37,500) (112,500) (112,500)
------------ ------------ ------------ ------------
NET EARNINGS APPLICABLE
TO COMMON STOCK $ 329,212 $ 196,439 $ 941,434 $ 526,868
============ ============ ============ ============
EARNINGS PER SHARE OF COMMON STOCK:
NET EARNINGS PER SHARE $ .10 $ .08 $ .31 $ .23
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET EARNINGS PER SHARE 3,332,606 2,485,952 3,085,235 2,335,438
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
March 31,
------------------
1996 1995
---- ----
INCREASE (DECREASE) IN CASH:
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings $ 1,053,934 $ 639,368
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Gain on sale of fixed asset --- (370,608)
Other income (412,500) (112,500)
Depreciation and amortization 657,492 349,687
Provision for doubtful accounts 82,030 560,500
(Increase) decrease in assets:
Accounts receivable (2,702,999) (1,370,898)
Inventories (3,697,864) (3,138,420)
Prepaid expenses and other
current assets (72,263) (8,967)
Other assets (1,341,040) 47,958
Increase (decrease) in liabilities:
Accounts payable 1,371,002 1,787,227
Income taxes payable (356,846) 81,712
Accrued expenses and other current
liabilities 55,917 154,262
Deferred income taxes 301,936 (103,796)
------------ -----------
Net cash used in operating
activities (5,061,201) (1,484,475)
------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Net payments for purchase of
property and equipment (1,263,509) (886,283)
Proceeds from sale of fixed assets -- 531,679
------------ -----------
Net cash used in investing
activities (1,263,509) (354,604)
------------ -----------
5
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
Nine Months Ended
March 31,
------------------
1996 1995
---- ----
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan $ 11,825,000 $1,850,000
Principal payments of revolving credit loan (10,125,000) (700,000)
Principal payments of capital leases (1,734,509) (547,953)
Proceeds from notes receivable 637,500 187,500
Proceeds from issuance of preferred stock -- 1,231,600
Payment of preferred stock dividend (112,500) (112,500)
Proceeds from subordinated debt loan 5,000,000 --
Proceeds from mortgage payable 1,050,000 --
Payments of financial fees related to placement
of preferred stock -- (195,000)
---------- -----------
Net cash provided by financing
activities 6,540,491 1,713,647
---------- ----------
NET (DECREASE) INCREASE IN CASH 215,781 (125,432)
CASH, BEGINNING OF PERIOD 494,160 428,846
---------- ----------
CASH, END OF PERIOD $ 709,941 $ 303,414
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized of
$265,788 in 1996 and $162,947 in 1995) $ 1,356,555 $ 679,523
=========== ==========
Income Taxes $ 825,562 $ 536,192
=========== ==========
Noncash investing and financing transactions:
Purchases of property and equipment through
capital leases $ 1,743,409 $4,261,609
=========== ==========
Decrease in prepaid expenses related to
placement of preferred stock $ -- $ 161,685
=========== ==========
Decrease in accrued expenses related to
placement of preferred stock $ $ 34,338
=========== ==========
Satisfaction of Marketing Service Agreements
through the issuance of common stock $ 940,186 $ ---
=========== ==========
Satisfaction of accounts payable through
the issuance of common stock $ -- $ 584,000
=========== ==========
See notes to consolidated financial statements.
6
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The unaudited balance sheet as of March 31, 1996, the unaudited
consolidated statements of earnings for the three and nine month
periods ended March 31, 1996 and 1995 and the unaudited consolidated
statements of cash flows for the nine month periods ended March 31,
1996 and 1995 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments (which include normal recurring
accruals) necessary to present fairly the financial position, results
of operations and cash flows at March 31, 1996 and 1995 and for the
three and nine month periods presented, have been included.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The attached
financial statements should be read in connection with the consolidated
financial statements and notes thereto included in the Company's 1995
Annual Report on Form 10-K for the year ended June 30, 1995.
The results of operations for the three and nine months ended March 31,
1996 are not necessarily indicative of the results to be expected for
the entire fiscal year.
2. INVENTORIES
Inventories are summarized as follows:
March 31, 1996 June 30, 1995
--------------- -------------
Finished goods $ 9,530,285 $ 7,101,025
Raw materials 3,959,989 2,695,134
Packaging 560,566 556,817
----------- -----------
$14,050,840 $10,352,976
=========== ===========
3. ISSUANCE OF PREFERRED STOCK
In August, 1994, the Company completed a private placement of 500,000
shares of Series A convertible preferred stock (the "Preferred Stock")
for gross proceeds of $1,500,000 or $3.00 per share. Costs and expenses
relating to the offering totalled $391,023. Each share of Preferred
Stock is convertible into one share of common stock at any time prior
to redemption at a conversion price of $3.00 per share. The Preferred
Stock is redeemable at the Company's option any time after the first
anniversary of the closing provided that the daily average of the high
and low price of the Company's common stock equals or exceeds $5.00 per
share for 10 consecutive days. Such redemption would be at $3.00 per
share plus accrued and unpaid dividends. Quarterly dividends are
7
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payable in cash, at an annual dividend rate of 10% and are cumulative.
Preferred Stock dividends in the amount of $37,500 in each of the three
months ended September 30, 1995, December 31, 1995 and March 31, 1996
were declared and paid respectively.
4. NOTES RECEIVABLE
On March 1, 1993, the Company entered into an agreement with an
unrelated third party (the "Licensee"), licensing the right to
manufacture, market, sell and distribute the Company's retail soft
cheese product line. The Company received a non-refundable fee of
$1,250,000, payable in installments over a fifteen year period,
commencing April 1, 1993. In addition, the Company was to receive
royalty payments in years three through fifteen, based on specified
sales levels.
On October 5, 1993, the notes received in connection with the sale of
the license and the royalty stream were sold for $500,000 in cash and
$450,000 in notes to an unrelated third party (the "Purchaser"). These
notes bear interest at the prime rate plus 1 and 1/2%, and are payable
in twelve equal quarterly installments beginning December 31, 1993. The
sale of the license has been included as other income in the statement
of earnings for the year ended June 30, 1993. The balance of the notes
receivable at June 30, 1995 was $187,500. In December 1995, this note
was collected in full. In the third quarter of fiscal 1994, the Company
was advised that the licensee was discontinuing production of the
retail soft cheese product line. As a result the purchaser acquired the
licensee's rights and assumed the obligations under the March 1, 1993
license agreement. During the fourth quarter of fiscal 1994, the
Company reached an agreement in principal to sub-license the rights to
produce the retail soft cheese products from the purchaser over a four
year period commencing July 1, 1994 in exchange for a royalty based on
specified sales levels of the related products. As an inducement to
have the Company enter into the sub-license agreement the purchaser
promised to pay the Company $600,000 in equal quarterly installments
over four years evidenced by a 6% promissory note effective April 1,
1994 in an equal amount. The note receivable and deferred income were
reflected in the June 30, 1995 10-K and the related deferred income was
being amortized on a straight-line basis over the term of the
agreement. The balance of the notes receivable and deferred income at
June 30, 1995 were $450,000 and $412,500, respectively. In December
1995, the agreement was terminated, the notes were paid in full and the
associated income was recognized.
5. MARKETING SERVICE AGREEMENT AND LICENSE AGREEMENTS
The Company has entered into marketing service agreements with
unaffiliated third parties expiring at various dates through June 1998,
pursuant to which the Company is provided with certain marketing and
program support services, including the payment of advertising
promotional expenditures by such parties in exchange for commissions
based on company sales of specified products. The Company is required
to pay these commissions without any set-off, notwithstanding any
termination of the agreements. In addition, two of the agreements
provide that after an initial period (as defined in the agreements)
under certain conditions, the Company or the providers of the marketing
services have the right to convert some or all of the remaining
estimated commissions to common stock of the Company at the market
8
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price at the time of conversion. Such conversion right is limited to no
more than 10% and 2 and 1/2%, as specified in each of the agreements,
of the Company's common stock issued and outstanding at the time of the
conversion.
On August 14, 1995, two of these providers informed the Company they
were exercising their conversion feature in the agreements. As a
result, the Company issued 306,900 shares of common stock in September
1995. The shares were recorded at approximate fair value at the date
the notice of conversion was received. The corresponding amount has
been reflected in other assets and is being amortized over the
remaining term of the related agreements, as the applicable sales
revenue is recorded.
During fiscal 1994 the Company made payments under the marketing
services agreements leading to a prepaid position of $430,000 which is
included in other current assets. The balance at June 30, 1995 amounted
to $622,500. In December 1995 an additional $300,000 was prepaid as
final settlement of these agreements. This amount will be charged to
expense over the remaining term of the related agreements as the
applicable sales revenue is recorded.
In connection with the amendment of two of its marketing Service
Agreements the Company granted warrants to purchase 50,000 shares of
the Company's common stock in September 1994. The warrants are
exercisable at $3.00 per share and terminate June 30, 1998.
In December 1995, the Company prepaid its remaining royalty obligation
under the sub-license agreement discussed in Note 4. Prepaid amounts
will be charged to expense over the remaining term of the agreement as
the applicable sales revenues are recorded.
6. LONG-TERM REVOLVING CREDIT LOAN
In January 1996, the loan agreement between the Company and NatWest
Bank, N.A. that provides the Company with a revolving credit facility
was amended to:
(a) increase the facility from $9 million to $12 million through June
30, 1996 and then $15 million through October 31, 1997;
(b) decrease the rate of interest on borrowings under the facility to
1/2% above the bank's prime rate of interest;
(c) amend the advance rate formula; and
(d) add or revise certain negative covenants and events of
default,including those covenants providing for maintenance of
minimum levels of tangible net worth, ratios of debt to tangible
net worth and capital expenditures.
The Company believes that it is currently in compliance with such
covenants. Borrowings under the facility are, and are required to be
used, for working capital purposes.
7. SUBORDINATED DEBT FACILITY
In October 1995, the Company entered into a Loan and Security Agreement
with CoreStates Enterprise Fund (the "Fund"), a division of CoreStates
Bank, N.A., pursuant to which the Fund loaned $5,000,000 to the
Company. The loan is secured by a subordinated security interest in
substantially all of the assets of the Company. The loan is
subordinated to the loan of the Company's senior lender, Natwest Bank,
9
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N.A. The loan bears interest at 11.75% per annum. The principal amount
of the loan is payable in twelve consecutive quarterly installments
commencing January 1, 1999. In addition, in connection with the
execution and delivery of the Loan Agreement, the Company delivered a
Warrant to the Fund exercisable for nominal additional consideration,
for 354,990 shares of the Company's Common Stock. The Warrant is
exercisable until September 30, 2001 and the shares issuable upon
exercise of the Warrant are subject to two demand registration rights
on the part of the Fund and piggyback registration rights. In addition,
after October 1, 2000, or upon the occurrence of certain other events,
the Fund has the right to put the Warrant to the company on a formula
basis. The Warrant was recorded at its relative fair value. The
corresponding debt discount will be amortized over the life of the loan
on the interest rate method. The recorded value of the Warrant
currently exceeds the formulated put price.
8. MORTGAGE PAYABLE
On March 29, 1996, the Company purchased its Paterson production
facility which it previously had leased. The purchase was financed
through a mortgage on the property. Proceeds of the loan were
$1,050,000, of which $686,250 was used to pay the remaining obligation
to the landlord. The balance of the proceeds, $363,750 is currently
held in an escrow account (included in cash on the balance sheet) from
which the Company will draw to complete its expansion of a 3,200 square
foot refrigerated storage facility. The five year note which bears
interest at 8.63% per annum is being amortized at a fifteen year rate
and requires a balloon payment at the end of year five of approximately
$840,000.
9. ISSUANCE OF COMMON STOCK
In December 1994, the Company issued 200,000 shares of Common Stock to
a supplier in consideration for the issuance by such supplier of a
$600,000 credit against current and future trade indebtedness due to
the supplier.
10. EARNINGS PER SHARE
The earnings per share for the three and nine month periods ended March
31, 1996 and 1995 were computed by subtracting the Company's Preferred
Stock dividend requirement from net earnings, and then dividing the
resulting net earnings applicable to common stock by the weighted
average number of shares outstanding. The preferred stock dividend
requirement for the three month periods ended March 31, 1996 and 1995
was $37,500. The preferred stock dividend requirement for the nine
month periods ended March 31, 1996 and 1995 was $112,500.
The weighted average number of issued and outstanding common shares for
the three and nine month periods ended March 31, 1996 are based upon
the 2,450,000 shares outstanding at the beginning of the year plus a
proration of the 306,900 shares issued in connection with the
conversion of the two marketing service agreements (see note 5). Also
included in the weighted average number of common shares are
incremental shares attributable to assumed exercise of options and
warrants.
The weighted average number of issued and outstanding common shares for
the three and nine month periods ended March 31, 1995 are based upon
10
<PAGE>
the 2,250,000 shares outstanding at the beginning of the year plus a
proration of the 200,000 shares issued in satisfaction of accounts
payable on December 28, 1994 (see note 9). Also included in the
weighted average number of common shares are incremental shares
attributable to assumed exercise of options and warrants.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations - Three months ended March 31, 1996 vs. three months ended
March 31, 1995.
- --------------------------------------------------------------------------------
Net sales for the three month period ended March 31, 1996 were approximately
$16,302,000 as compared to approximately $13,331,000 for the three months ended
March 31, 1995, an increase of approximately $2,971,000 or 22.3%. This increase
reflects higher sales volume for food service and food ingredient products
manufactured at the Company's Manteca California facility.
The Company's gross margin increased by approximately $646,000, from
approximately $3,016,000 in the three month period ended March 31, 1995 to
approximately $3,662,000 in the three month period ended March 31, 1996,
primarily as a result of the increased sales volume. The Company's gross margin
as a percentage of sales decreased slightly to 22.5% in the three month period
ended March 31, 1996 from 22.6% in the three month period ended March 31, 1995.
Selling and shipping expenses decreased approximately $115,000 from
approximately $2,125,000 for the three month period ended March 31, 1995 to
approximately $2,010,000 for the three month period ended March 31, 1996. This
decrease was due primarily to lower commission expense as well as lower
promotional and advertising expenses partialy offset by an increse in shipping
expense during the three months ended March 31, 1996. As a percentage of sales,
selling and shipping expenses decreased from 15.9% in the three month period
ended March 31, 1995 to 12.3% in the three month period ended March 31, 1996.
General and administrative ("G&A") expenses decreased by approximately $5,000 to
approximately $528,000 for the three month period ended March 31, 1996 as
compared to $533,000 for the comparable period in 1995. As a percentage of
sales, G&A expenses decreased to 3.2% for the three month period ended March 31,
1996, from 4.0% for the comparable period in 1995, as a result of the Company's
revenue growth in the current three month period.
Net interest expense increased to approximately $503,000 for the three month
period ended March 31, 1996 from approximately $187,000 for the three month
period ended March 31, 1995. The increase was due to the Company's increased
borrowing and lease financing obligations.
Other income decreased from approximately $233,000 in the three months ended
March 31, 1995 to $0 in the three month period ended March 31, 1996, primarily
as a result of an approximate $203,000 gain on the sale of excess production
equipment during the three months ended March 31, 1995.
The provision for income taxes for the three month period ended March 31, 1996
increased by approximately $84,000 compared to the three month period ended
March 31, 1995 as a result of increased taxable income.
Net earnings applicable to common stock increased by approximately $133,000 to
approximately $329,000 for the three month period ended March 31, 1996, from
approximately $196,000 for the comparable period ended March 31, 1995 due to the
increase in gross margin as well as a decrease in selling and shipping expenses,
partially offset by the decrease in other income and an increase in net interest
expense.
12
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Results of Operations - Nine months ended March 31, 1996 vs. nine months ended
March 31, 1995.
- --------------------------------------------------------------------------------
Net sales for the nine month period ended March 31, 1996 were approximately
$46,531,000 as compared to approximately $39,060,000 for the nine months ended
March 31, 1995, an increase of approximately $7,471,000 or 19.1%. This increase
reflects higher sales volume for food service and food ingredient products
manufactured at the Company's Manteca California facility.
The Company's gross margin increased by approximately $1,352,000, from
approximately $8,532,000 in the nine month period ended March 31, 1995 to
approximately $9,884,000 in the nine month period ended March 31, 1996,
primarily as a result of the increased sales volume. The Company's gross margin
as a percentage of sales decreased from 21.8% in the nine months ended March 31,
1995 to 21.2% for the comparable nine month period in 1996. The decrease in
gross margin as a percentage of sales was due primarily to the costs incurred
with the start-up of the new mozzarella production facility during the quarter
ended December 31, 1995.
Selling and shipping expenses decreased by approximately $140,000 from
approximately $6,015,000 for the nine month period ended March 31, 1995 to
approximately $5,875,000 for the nine month period ended March 31, 1996. As a
percentage of sales, selling and shipping expenses decreased from 15.4% for the
nine month period ended March 31, 1995 to 12.6% for the nine month period ended
March 31, 1996. This decrease is primarily the result of the Company's increased
revenue growth, accompanied by the increase in its allowance for bad debts
reserve during the nine months ended March 31, 1995, as well as a decrease in
commission expense during the nine months ended March 31, 1996.
General and administrative expenses decreased by approximately $15,000 from
approximately $1,447,000 for the nine month period ended March 31, 1995 to
$1,432,000 for the comparable period in 1996. As a percentage of sales, G&A
expenses decreased to 3.1% for the nine month period ended March 31, 1996 from
3.7% for the comparable period in 1995 as a result of the Company's revenue
growth in the current nine month period.
Net interest expense increased to approximately $1,165,000 for the nine month
period ended March 31, 1996 from approximately $469,000 for the nine month
period ended March 31, 1995. The increase was due primarily to the Company's
increased borrowing and lease financing obligations.
Other income decreased from approximately $483,000 in the nine month period
ended March 31, 1995 to approximately $413,000 in the nine month period ended
March 31, 1996, primarily as a result of other income associated with the
payment in full of the note pertaining to the licensing agreement during the
nine month period ended March 31, 1996 as compared to an approximate $378,000
gain on the sale of excess production equipment and deferred income of
approximately $105,000 during the nine month period ended March 31, 1995.
The provision for income taxes for the nine month period ended March 31, 1996
increased by $326,000 compared to the nine month period ended March 31, 1995 as
a result of increased taxable income.
Net earnings applicable to common stock increased to approximately $941,000 in
the nine months ended March 31, 1996 from approximately $527,000 in the
comparable period in 1995, or approximately $414,000. The increase in net
earnings applicable to common stock is primarily due to the increase in gross
margin accompanied by a decrease in selling and shipping charges partially
offset by an increase in interest expense and a decrease in other income.
13
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Financial Position, Liquidity and Capital Resources
- ---------------------------------------------------
At March 31, 1996 the Company had working capital of approximately $16,439,000
as compared with $11,209,000 at June 30, 1995, an increase of approximately
$5,230,000. The increase in working capital is primarily due to increased sales
and an increase in pre-paid expenses and other current assets as a result of the
conversion of two marketing service agreements which have been terminated, and
the pre-payment of the licensing agreement partially offset by the increase in
accounts payable and current portion of long-term obligations.
The Company has a bank revolving credit facility that, in January 1996, was
amended to increase the bank's potential commitment to $12,000,000 through June
1996 and then to $15,000,000 through October 1997 (see Note 6). At March 31,
1996 the Company's total outstanding debt to the bank was $9,400,000.
The Company also typically finances equipment purchases through capital lease
financing transactions. At March 31, 1996, the Company had obligations of
approximately $5,619,000 under capital leases, including $1,743,000 under
capital lease agreements entered into in the nine month period ended March 31,
1996. The increase in lease obligations is due to the capital leases entered
into in connection with the expansion of the Company's Manteca, California
facility.
On March 29, 1996, the Company purchased its Paterson production facility which
it previously had leased financed by a mortgage from NatWest Bank, N.A. Proceeds
of the loan amounted to $1,050,000, of which $686,250 was used to pay the
Company's remaining obligation to the landlord. The balance of the proceeds,
$363,750 is currently held in an escrow account (included in cash on the balance
sheet) from which the Company will draw to complete its expansion of a 3,200
square foot refrigerated storage facility. The five year note which bears
interest at 8.63% per annum is being amortized at a fifteen year rate with a
balloon payment of approximately $840,000 at the end of year five. At March 31,
1996, the Company had obligations of approximately $1,050,000 under mortgage
payable.
On October 25, 1995, the Company entered into a Subordinated Loan Agreement with
CoreStates Enterprise Fund which provided the Company with $5,000,000 (see note
7).
Management believes that with an increase in its line of credit facility from
$9,000,000 to $12,000,000 initially, and then to $15,000,000 and the
subordinated loan that the Company has adequate working capital to meet its
reasonably foreseeable cash requirements.
Net cash used in operating activities in the nine month period ended March 31,
1996 was approximately $5,061,000 as compared to $1,484,000 in the comparable
period of the prior year. The use of cash in operations was primarily the result
of increases in inventories and accounts receivable, prepaid expenses and other
current assets and other assets, partially offset by an increase in net earnings
as adjusted for non-cash expenses, and increases in accounts payable and
deferred income taxes. Accounts receivable and inventories were increased in
support of the Company's increased revenues, prepaid expenses, other current
assets and other assets were increased due to the payment of a licensing
agreement, which has since been terminated, granting the licensee the right to
manufacture and sell the Company's soft cheese products to the retail markets
(see note's 4 and 5). The cash used in operations was financed through cash flow
from financing activities. Net cash used in investing activities in the nine
month period ended March 31, 1996 was approximately $1,263,000, as compared to
$354,000 in the nine month period ended March 31, 1995, as a result of continued
expenditures for fixed assets (including capital equipment utilized in the
Company's California manufacturing facility). As a result, at March 31, 1996 the
14
<PAGE>
Company had cash of $709,941 (of which approximately $363,750 is held in escrow,
see note 8) as compared to $303,414 as at March 31, 1995.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
- --------
None
Reports on Form 8-K
- -------------------
None
16
<PAGE>
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 duly authorized.
SUPREMA SPECIALTIES, INC.
-------------------------
(registrant)
Date: May 6, 1996 By: /s/ Mark Cocchiola
-------------- -------------------
Mark Cocchiola
President &
Chief Executive Officer
Date: May 6, 1996 By: /s/ Steven Venechanos
-------------- ----------------------
Steven Venechanos
Chief Financial Officer &
Secretary
17
<PAGE>
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 duly authorized.
SUPREMA SPECIALTIES, INC.
-------------------------
(registrant)
Date: May 6, 1996 By:
------------------- -----------------------
Mark Cocchiola
President &
Chief Executive Officer
Date: May 6, 1996 By:
------------------- ------------------------
Steven Venechanos
Chief Financial Officer &
Secretary
18
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 709,941
<SECURITIES> 0
<RECEIVABLES> 7,971,790
<ALLOWANCES> 508,290
<INVENTORY> 14,050,840
<CURRENT-ASSETS> 24,820,120
<PP&E> 13,559,837
<DEPRECIATION> 2,573,298
<TOTAL-ASSETS> 37,788,440
<CURRENT-LIABILITIES> 8,380,576
<BONDS> 0
0
1,108,977
<COMMON> 27,570
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 37,788,440
<SALES> 16,302,059
<TOTAL-REVENUES> 16,302,059
<CGS> 12,640,051
<TOTAL-COSTS> 12,640,051
<OTHER-EXPENSES> 2,538,653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502,643
<INCOME-PRETAX> 620,712
<INCOME-TAX> 254,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,712
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
