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 September 30, 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 07543
(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 November 6, 1996 there were 4,546,672 outstanding shares of the issuer's
Common Stock, $.01 par value.
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of 2
September 30, 1996 and June 30, 1996
Consolidated Statements of Earnings 3
For The Three Month Periods Ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows 4
For the Three Month Periods Ended
September 30, 1996 and 1995
Notes to Consolidated Financial 6
Statements
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 11
1
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
Sept. 30, June 30,
1996 1996
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 455,741 $ 528,865
Accounts receivable, net of allowances
of $508,290 at Sept. 30, 1996 and
$508,290 at June 30, 1996 12,849,205 8,805,801
Inventories 17,403,742 16,901,355
Prepaid expenses and other current assets 2,406,162 1,954,589
Deferred income taxes 181,820 183,548
----------- -----------
Total current assets 33,296,670 28,374,158
PROPERTY AND EQUIPMENT, NET 15,596,143 11,444,496
OTHER ASSETS 1,262,348 1,843,905
----------- -----------
$50,155,161 $41,662,559
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,847,339 $ 6,504,476
Current portion of long-term obligations 1,860,614 1,562,953
Mortgage payable - current 37,383 36,588
Income taxes payable 38,068 244,413
Accrued expenses and other current
liabilities 484,554 569,502
Deferred income taxes 110,338 82,154
----------- -----------
Total current liabilities 10,378,296 9,000,086
DEFERRED INCOME TAXES 542,391 522,133
REVOLVING CREDIT LOAN 10,556,000 7,740,000
SUBORDINATED DEBT 4,122,018 4,061,468
LONG-TERM CAPITAL LEASES 6,927,585 4,077,386
MORTGAGE PAYABLE 995,095 1,004,745
----------- -----------
33,521,385 26,405,818
----------- -----------
WARRANTS (subject to mandatory redemption) 1,171,000 1,171,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000
shares authorized, 4,546,672 and 4,300,193
issued and outstanding at Sept. 30, 1996
and June 30, 1996, respectively 45,467 43,002
Additional paid-in capital 11,229,788 10,163,537
Retained earnings 4,187,521 3,879,202
----------- -----------
Total stockholders' equity 15,462,776 14,085,741
----------- -----------
$50,155,161 $41,662,559
=========== ===========
See notes to consolidated financial statements.
2
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended
September 30,
------------------------------
1996 1995
------------ ------------
NET SALES $ 21,921,764 $ 14,899,350
COST OF SALES 17,976,306 11,739,802
------------ ------------
GROSS MARGIN 3,945,458 3,159,548
------------ ------------
EXPENSES:
Selling and shipping expenses 2,424,136 2,060,479
General and administrative expenses 468,569 421,077
------------ ------------
2,892,705 2,481,556
------------ ------------
INCOME FROM OPERATIONS 1,052,753 677,992
OTHER INCOME (EXPENSE)
Interest expense, net (532,434) (264,776)
Other -- 37,500
------------ ------------
(532,434) (227,276)
EARNINGS BEFORE INCOME TAXES 520,319 450,716
INCOME TAXES 212,000 194,000
------------ ------------
NET EARNINGS 308,319 256,716
PREFERRED STOCK DIVIDENDS -- (37,500)
------------ ------------
NET EARNINGS APPLICABLE TO COMMON STOCK $ 308,319 $ 219,216
============ ============
EARNINGS PER SHARE OF COMMON STOCK:
NET EARNINGS PER SHARE $ .06 $ .08
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
USED TO COMPUTE NET EARNINGS PER
SHARE 5,094,131 2,811,326
============ ============
See notes to consolidated financial statements.
3
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
September 30,
---------------------------
1996 1995
----------- -----------
INCREASE (DECREASE) IN CASH:
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings $ 308,319 $ 256,716
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Other income -- (37,500)
Depreciation and amortization 349,402 170,433
Provision for doubtful accounts -- 69,990
(Increase) decrease in assets:
Accounts receivable (4,043,404) (1,892,060)
Inventories (502,387) (570,815)
Prepaid expenses and other
current assets (451,573) (202,203)
Other assets 581,557 4,826
Increase (decrease) in liabilities:
Accounts payable 1,342,863 1,041,840
Income taxes payable (206,345) (277,854)
Accrued expenses and other current
liabilities (84,948) 21,896
Deferred income taxes 50,170 182,344
----------- -----------
Net cash used in operating
activities (2,656,346) (1,232,387)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Net payments for purchase of
property and equipment (877,659) (306,687)
----------- -----------
Net cash used in investing
activities (877,659) (306,687)
----------- -----------
See notes to consolidated financial statements.
4
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
Three Months Ended
September 30,
---------------------------
1996 1995
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan $ 9,450,000 $ 2,750,000
Principal payments of revolving credit loan (6,634,000) (1,000,000)
Principal payments of capital leases (414,980) (311,464)
Principal payments of mortgage (8,855) --
Payment of preferred dividend -- (37,500)
Proceeds from secondary offering 1,068,716 --
----------- -----------
Net cash provided by financing
activities 3,460,881 1,401,036
----------- -----------
NET DECREASE IN CASH (73,124) (138,038)
CASH, BEGINNING OF PERIOD 528,865 494,160
----------- -----------
CASH, END OF PERIOD $ 455,741 $ 356,122
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest $ 540,263 $ 343,406
=========== ===========
Income Taxes $ 368,318 $ 290,163
=========== ===========
Noncash investing and financing transactions:
Purchases of property and equipment through
capital leases $ 3,562,840 $ 986,863
=========== ===========
Satisfaction of Marketing Service Agreements
through the issuance of common stock $ -- $ 940,186
=========== ===========
See notes to consolidated financial statements.
5
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of September 30, 1996, the
unaudited consolidated statements of earnings for the three month periods
ended September 30, 1996 and 1995, and the unaudited consolidated
statements of cash flows for the three month periods ended September 30,
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 September 30, 1996 and 1995 and for the three month
periods presented, have been included.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this quarterly
financial statement. The attached financial statements should be read in
connection with the consolidated financial statements and notes thereto
included in the Company's 1996 Annual Report on Form 10-K for the year
ended June 30, 1996.
The results of operations for the three months ended September 30, 1996
are not necessarily indicative of the results to be expected for the
entire fiscal year.
2. INVENTORIES
Inventories are summarized as follows:
September 30, 1996 June 30, 1996
------------------ -------------
Finished goods $13,580,674 $13,582,636
Raw materials 2,922,574 2,497,204
Packaging 900,494 821,515
----------- -----------
$17,403,742 $16,901,355
=========== ===========
3. ISSUANCE OF COMMON STOCK
In connection with the Company's secondary public offering, the Company
granted to the underwriter an option to purchase an aggregate of 225,000
shares of the Company's common stock at the price of $5.50 per share to
cover over-allotments. In July, 1996, the underwriter exercised its
option. Gross proceeds payable to the Company from the issuance was
approximately $1,237,500 and net proceeds to the Company was approximately
$1,069,000.
4. 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, Fleet Bank, N.A. The loan bears interest at
11.75% per annum; the principal amount of the loan is payable in 12
consecutive quarterly installments commencing September 30, 1998. In
addition, in connection with the execution and delivery of the Loan
Agreement, the Company delivered a Warrant to the Fund exercisable for
354,990 shares of the Company's Common
6
<PAGE>
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
market value at date of issue, $1,100,000. The corresponding debt discount
will be amortized over the life of the loan on the interest rate method.
5. EARNINGS PER SHARE
The earnings per share for the three months ended September 30, 1996 was
computed by dividing the weighted average number of shares outstanding
into net earnings. The earnings per share for the three months ended
September 30, 1995 was 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 months ended September 30, 1996 and 1995 was $0 and $37,500
respectively.
Fully diluted earnings per share computations for both periods have not
been set forth because the effect is antidilutive.
The weighted average number of issued and outstanding common shares for
the three month period ended September 30, 1996 is based upon the
4,300,193 shares outstanding at the beginning of the year plus a proration
of the 225,000 shares issued in connection with the exercise of the
underwriters over-allotment from the Company's secondary public offering
(see note 3). 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 month period ended September 30, 1995 is 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 two
marketing service agreements. Also included in the weighted average number
of common shares are incremental shares attributable to assumed exercise
of options and warrants.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations - Three months ended September 30, 1996 vs. three months
ended September 30, 1995.
Net sales for the three months ended September 30, 1996 were approximately
$21,922,000 as compared to approximately $14,899,000 for the three months ended
September 30,1995, an increase of approximately $7,023,000 or 47.1%. This
increase reflects higher sales volume for food service and food ingredient
products manufactured by the Company's California facility.
The Company's gross margin increased by approximately $785,000, from
approximately $3,160,000 for the three months ended September 30, 1995 to
approximately $3,945,000 for the three months ended September 30, 1996,
primarily as a result of the increased sales volume. The Company's gross margin
as a percentage of sales however decreased from 21.2% during the three months
ended September 30, 1995 to 18.0% for the three months ended September 30, 1996.
The decrease in gross margin as a percentage of sales was due to costs
associated with the start-up of the Company's manufacturing facility in
Ogdensburg, New York, as well as the shift toward lower margin sales associated
with the food service and food ingredient markets. Also contributing to the
decrease in gross margin was higher raw material costs during the first quarter
of fiscal 1997.
Selling and shipping expenses increased from approximately $2,060,000 during the
three months ended September 30, 1995 to approximately $2,424,000 during the
three months ended September 30, 1996, an increase of approximately $364,000.
This increase was primarily due to the increase in shipping charges associated
with the increase in the sales volume. As a percentage of sales, selling and
shipping expenses decreased to 11.1% for the three months ended September 30,
1996 as compared to 13.8% for the three month period ended September 30, 1995.
This decrease is primarily due to the Company's increased revenue growth.
General and administrative expenses increased from approximately $421,000 during
the three months ended September 30, 1995 to approximately $469,000 for the
three months ended September 30, 1996. General and administrative expenses as a
percentage of sales declined from 2.8% during the three months ended September
30, 1995 to 2.1% for the three months ended September 30, 1996.
Net interest expense increased to approximately $532,000 for the three months
ended September 30, 1996 as compared to approximately $265,000 for the three
month period ended September 30, 1995, or an increase of approximately $267,000.
The increase was the result of the Company's expanded borrowing and lease
financing requirements necessary for working capital needs and capital expansion
for the Manteca manufacturing facility.
Other income decreased from $37,500 for the three month period ended September
30, 1995 to $0 for the three months ended September 30, 1996. This decrease is a
result of other income associated with the licensing agreement being recognized
in full (along with the payment of the outstanding note) during fiscal 1996.
The provision for income taxes for the three months ended September 30, 1996
increased to $212,000 from $194,000 during the three months ended September 30,
1995. The increase is primarily a result of increased taxable income during the
three months ended September 30, 1996 partially offset by a higher effective tax
rate during the three months ended September 30, 1995.
Net earnings applicable to common stock increased to approximately $308,000 in
the three month period ended September 30, 1996 from approximately $219,000
during the three month period ended September 30, 1995, or approximately
$89,000. The increase in net earnings applicable to common stock is due to the
increase in gross margin resulting from increased sales partially offset by the
increase in selling and shipping expenses in support of the increased volume, an
increase in general and administrative expenses and an increase in interest
expense. Also contributing to
8
<PAGE>
the increase in net earnings applicable to common stock is the preferred
dividend requirement the company paid during the three months ended September
30, 1995 which is not applicable for the three months ended September 30, 1996.
Financial Position, Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of approximately
$22,918,000, as compared with $19,374,000 at June 30, 1996, an increase of
approximately $3,544,000. The increase in working capital is primarily due to
the increase in accounts receivable and inventory levels in support of the
Company's increased volumes as well as an increase in pre-paid expenses and
other current assets, partially offset by an increase in accounts payable.
The Company also typically finances equipment purchases through capital lease
financing transactions. At September 30, 1996, the Company had obligations of
approximately $8,788,000 under capital leases, including $3,563,000 under
capital lease agreements entered into in Fiscal 1997. 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 as well as capital
improvements for the Company's Ogdensburg, New York facility.
In March, 1996, the Company purchased its Paterson production facility which it
previously had leased. At September 30, 1996, the Company had outstanding
obligations of approximately $1,032,000 under the mortgage financing the
purchase of the Paterson facility.
The Company has a revolving credit facility under which the bank has a potential
commitment of up to $15,000,000. The rate of interest on amounts borrowed under
the revolving credit facility is the prime rate of the lending bank plus one
half (1/2) of one percent. The revolving credit loan agreement expires on
October 31, 1997. Advances under this facility are initially limited to 80% of
eligible accounts receivable, 40% of most inventory. The agreement contains
restrictive covenants, including the maintenance of total debt to tangible net
worth and debt service coverage ratios, minimum levels of tangible net worth,
and capital expenditure limitations. As of September 30, 1996, the Company is in
compliance with these covenants. At September 30, 1996 the Company's total
outstanding debt to the bank was $10,556,000.
In June 1996, the Company completed a public offering for 1,500,000 shares of
its $.01 par value common stock of which 1,000,000 shares were issued by the
Company and 500,000 shares were offered by selling shareholders upon conversion
of 500,000 shares of the Company's convertible preferred stock, at a purchase
price of $5.50 per share. Gross proceeds payable to the Company from the
offering was approximately $5,500,000 and net proceeds to the Company was
approximately $4,481,350. The Company received no proceeds from the shares sold
by the selling shareholders. In July, 1996, the underwriter exercised its option
to purchase 225,000 shares of the Company's common stock at the price of $5.50
per share to cover over-allotments (see note 3). Gross proceeds payable to the
Company from the over-allotment issuance was approximately $1,237,500 and net
proceeds to the Company was approximately $1,069,000.
Management believes that with its line of credit facility and the net cash
proceeds from the Company's secondary public offering, the company has adequate
working capital to meet its reasonably foreseeable cash requirements.
Net cash used in operating activities for the first quarter of Fiscal 1997 was
approximately $2,656,000 as compared to $1,232,000 in the comparable period of
Fiscal 1996. The use of cash in operations was primarily the result of increases
in accounts receivable, inventories and prepaid expenses and other current
assets, and a decrease in income taxes payable and other assets, partially
offset by an increase in net earnings as adjusted for non-cash expenses, and an
increase in accounts payable. The cash used in operations was financed through
cash flow from financing activities. Net cash used in investing activities for
the first quarter of fiscal 1997 was approximately $878,000, as compared with
$307,000 in the
9
<PAGE>
first quarter of fiscal 1996 as a result of continued expenditures for fixed
assets, including capital equipment utilized in the Company's California
manufacturing facility as well as the Company's Ogdensburg New York
manufacturing facility. As a result, at September 30, 1996 the Company had cash
of $455,741, as compared to $356,122 at September 30, 1995.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
None
Reports on Form 8-K
None
10
<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: November 13, 1996 By: /s/ Mark Cocchiola
----------------- ------------------------------
Mark Cocchiola
President &
Chief Executive Officer
Date: November 13, 1996 By: /s/ Steven Venechanos
----------------- ------------------------------
Steven Venechanos
Chief Financial Officer &
Secretary
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 455,741
<SECURITIES> 0
<RECEIVABLES> 12,849,205
<ALLOWANCES> 508,290
<INVENTORY> 17,403,742
<CURRENT-ASSETS> 33,296,670
<PP&E> 18,756,200
<DEPRECIATION> 3,160,057
<TOTAL-ASSETS> 50,155,161
<CURRENT-LIABILITIES> 10,378,296
<BONDS> 0
0
0
<COMMON> 45,467
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 50,155,161
<SALES> 21,921,764
<TOTAL-REVENUES> 21,921,764
<CGS> 17,976,306
<TOTAL-COSTS> 20,869,011
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 532,434
<INCOME-PRETAX> 520,319
<INCOME-TAX> 212,000
<INCOME-CONTINUING> 308,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308,319
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
