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, 1997
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, 1997 there were 4,562,800 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
September 30, 1997 and June 30, 1997 3
Consolidated Statements of Earnings
For The Three Month Periods Ended 4
September 30, 1997 and 1996
Consolidated Statements of Cash Flows
For the Three Month Periods Ended 5
September 30, 1997 and 1996
Notes to Consolidated Financial
Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
Sept. 30, June 30,
1997 1997
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 407,280 $ 480,225
Accounts receivable, net of allowances
of $470,290 at Sept. 30, 1997 and
$470,290 at June 30, 1997 18,824,712 14,667,008
Inventories 21,726,469 22,462,421
Income taxes receivable 592,832 921,243
Prepaid expenses and other current assets 1,275,279 679,781
Deferred income taxes 168,348 168,348
----------- -----------
Total current assets 42,994,920 39,379,026
PROPERTY AND EQUIPMENT, NET 6,439,557 6,135,082
OTHER ASSETS 1,382,356 1,528,434
----------- -----------
$50,816,833 $47,042,542
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,162,678 $ 5,411,478
Current portion of long-term obligations 434,864 402,877
Mortgage payable - current 40,742 39,875
Income taxes payable -- --
Accrued expenses and other current
liabilities 883,276 805,754
Deferred income taxes 172,653 172,653
----------- -----------
Total current liabilities 7,694,213 6,832,637
DEFERRED INCOME TAXES 420,952 420,952
REVOLVING CREDIT LOAN 18,016,837 15,589,856
SUBORDINATED DEBT 4,303,670 4,303,670
LONG-TERM CAPITAL LEASES 2,488,700 2,470,599
MORTGAGE PAYABLE 954,354 964,870
----------- -----------
33,878,726 30,582,584
----------- -----------
WARRANTS (subject to mandatory redemption) 1,171,000 1,171,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000
shares authorized, 4,562,800 and 4,562,800
issued and outstanding at Sept. 30, 1997
and June 30, 1997, respectively 45,628 45,628
Additional paid-in capital 11,243,347 11,243,347
Retained earnings 4,478,132 3,999,983
----------- -----------
Total stockholders' equity 15,767,107 15,288,958
----------- -----------
$50,816,833 $47,042,542
=========== ===========
See notes to consolidated financial statements.
3
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended
September 30,
1997 1996
------------ ------------
NET SALES $ 25,156,440 $ 21,921,764
COST OF SALES 20,884,249 17,976,306
------------ ------------
GROSS MARGIN 4,272,191 3,945,458
------------ ------------
EXPENSES:
Selling and shipping expenses 2,159,085 2,424,136
General and administrative expenses 662,804 468,569
------------ ------------
2,821,889 2,892,705
------------ ------------
INCOME FROM OPERATIONS 1,450,302 1,052,753
OTHER INCOME (EXPENSE)
Interest expense, net (640,153) (532,434)
Other -- --
------------ ------------
(640,153) (532,434)
EARNINGS BEFORE INCOME TAXES 810,149 520,319
INCOME TAXES 332,000 212,000
------------ ------------
NET EARNINGS 478,149 308,319
============ ============
EARNINGS PER SHARE OF COMMON STOCK:
NET EARNINGS PER SHARE $ .10 $ .06
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
USED TO COMPUTE NET EARNINGS PER
SHARE 4,986,435 5,094,131
============ ============
See notes to consolidated financial statements.
4
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
September 30,
1997 1996
--------------------------
INCREASE (DECREASE) IN CASH:
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings $ 478,149 $ 308,319
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 119,449 349,402
Provision for doubtful accounts -- --
(Increase) decrease in assets:
Accounts receivable (4,157,704) (4,043,404)
Inventories 735,952 (502,387)
Prepaid expenses and other
current assets (595,498) (451,573)
Prepaid Income Taxes 328,411 --
Other assets 146,078 581,557
Increase (decrease) in liabilities:
Accounts payable 751,200 1,342,863
Income taxes payable -- (206,345)
Accrued expenses and other current
liabilities 77,522 (84,948)
Deferred income taxes -- 50,170
----------- -----------
Net cash used in operating
activities (2,116,441) (2,656,346)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Net payments for purchase of
property and equipment (273,924) (877,659)
----------- -----------
Net cash used in investing
activities (273,924) (877,659)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan $ 6,939,981 $ 9,450,000
Principal payments of revolving credit loan (4,513,000) (6,634,000)
Principal payments of capital leases (99,912) (414,980)
Principal payments of mortgage (9,649) (8,855)
Proceeds from secondary offering -- 1,068,716
----------- -----------
Net cash provided by financing
activities 2,317,420 3,460,881
----------- -----------
NET DECREASE IN CASH (72,945) (73,124)
CASH, BEGINNING OF PERIOD 480,225 528,865
----------- -----------
CASH, END OF PERIOD $ 407,280 $ 455,741
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for:
Interest $ 640,154 $ 540,263
=========== ===========
Income Taxes $ -- $ 368,318
=========== ===========
Noncash investing and financing
transactions:
Purchases of property and equipment through
capital leases $ 150,000 $ 3,562,840
=========== ===========
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, 1997, the
unaudited consolidated statements of earnings for the three month periods ended
September 30, 1997 and 1996, and the unaudited consolidated statements of cash
flows for the three month periods ended September 30, 1997 and 1996 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, 1997 and 1996 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
1997 Annual Report on Form 10-K for the year ended June 30, 1997.
The results of operations for the three months ended September 30, 1997 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
2. INVENTORIES
Inventories are summarized as follows:
September 30, 1997 June 30, 1997
------------------ -------------
Finished goods $19,061,070 $19,293,624
Raw materials 1,838,201 2,236,541
Packaging 827,198 932,256
----------- -----------
$21,726,469 $22,462,421
=========== ===========
3. ISSUANCE OF COMMON STOCK
In association 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 $1,024,000.
4. EARNINGS PER SHARE
The earnings per share for the three months ended September 30, 1997 and
September 30, 1996 were computed by dividing the weighted average number of
shares outstanding into net earnings.
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, 1997 is based upon the 4,562,800 shares
outstanding at the beginning of the year. Also included in the weighted average
number of common shares are incremental shares attributable to assumed exercise
of options and warrants.
6
<PAGE>
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.
5. SUBSEQUENT EVENT
In October 1997, the Company entered into an agreement with Fleet Bank,
N.A. pursuant to which the bank provided bridge financing of $10,000,000 to the
Company. Approximately $6.6 million of the proceeds from the loan was used to
retire $5.0 million of subordinated debt with CoreStates Enterprise Fund and
repurchase from CoreStates warrants to purchase 354,990 shares of Suprema's
common stock. The balance of the proceeds will be used for general working
capital purposes. As a result of prepayment penalties related to the early
extinguishment of the subordinated debt, Suprema will report a non- operational
pre-tax charge against earnings of approximately $2.0 million in its fiscal
second quarter ending December 31, 1997.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations - Three months ended September 30, 1997 vs. three months
ended September 30, 1996.
Net sales for the three months ended September 30, 1997 were approximately
$25,156,000 as compared to approximately $21,922,000 for the three months ended
September 30,1996, an increase of approximately $3,234,000 or 14.7%. This
increase reflects higher sales volume for food service products manufactured by
the Company.
The Company's gross margin increased by approximately $327,000, from
approximately $3,945,000 for the three months ended September 30, 1996 to
approximately $4,272,000 for the three months ended September 30, 1997,
primarily as a result of the increased sales volume. The Company's gross margin
as a percentage of sales however decreased from 18.0% during the three months
ended September 30, 1996 to -17.0% for the three months ended September 30,
1997. The decrease in gross margin as a percentage of sales was due to costs
associated with the Company's manufacturing facility in Ogdensburg, New York, as
well as the shift toward lower margin sales associated with the foodservice and
food ingredient markets.
Selling and shipping expenses decreased from approximately $2,424,000 during the
three months ended September 30, 1996 to approximately $2,159,000 during the
three months ended September 30, 1997, a decrease of approximately $265,000.
This decrease was primarily due to the decrease in commission expenses, as well
as shipping expenses. As a percentage of sales, selling and shipping expenses
decreased to 8.6% for the three months ended September 30, 1997 as compared to
11.1% for the three month period ended September 30, 1996. This decrease is
primarily due to the Company's increased revenue growth, as well as decreases in
commission expenses and shipping expenses
General and administrative expenses increased from approximately $469,000 during
the three months ended September 30, 1996 to approximately $663,000 for the
three months ended September 30, 1997, or an increase of approximately $194,000.
The increase in general and administrative expenses is primarily a result of an
increase in personnel. As a percentage of sales general and administrative
expenses increased from 2.1% during the three months ended September 30, 1996 to
2.6% for the three months ended September 30, 1997.
Net interest expense increased to approximately $640,000 for the three months
ended September 30, 1997 as compared to approximately $532,000 for the three
month period ended September 30, 1996, or an increase of approximately $108,000.
The increase was the result of the Company's expanded borrowing requirements
necessary for working capital needs partially offset by a decrease in capital
lease interest expense due to the sale leaseback transaction completed during
the fourth quarter of fiscal 1997.
The provision for income taxes for the three months ended September 30, 1997
increased to $332,000 from $212,000 during the three months ended September 30,
1996. The increase is primarily a result of increased taxable income during the
three months ended September 30, 1997.
Net earnings applicable to common stock increased to approximately $478,000 in
the three month period ended September 30, 1997 from approximately $308,000
during the three month period ended September 30, 1996, or approximately
$170,000. The increase in net earnings applicable to common stock is due to the
increase in gross margin resulting from increased sales as well as a decrease in
selling and shipping expenses, partially offset by the increase in general and
administrative expenses and an increase in interest expense.
8
<PAGE>
Financial Position, Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of approximately
$35,301,000, as compared with $32,546,000 at June 30, 1997, an increase of
approximately $2,755,000. The increase in working capital is primarily due to
the increase in accounts receivable 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 and a decrease in inventory.
The Company also typically financed equipment purchases through capital lease
financing transactions. At September 30, 1997, the Company had obligations of
approximately $2,924,000 under capital leases, including $150,000 under capital
lease agreements entered into in Fiscal 1998. This amount reflects a decrease in
capital lease obligations due to the extinguished capital lease obligations
associated with the sale leaseback transaction during the fourth quarter of
fiscal 1997.
In March, 1996, the company purchased its Paterson production facility which it
previously had leased. At September 30, 1997, the Company had outstanding
obligations of approximately $995,000 under the mortgage financing the purchase
of the Paterson facility.
The Company has a bank revolving credit facility that, in January 1997 was
amended and increased the bank's potential commitment to $20,000,000 through
October 1998. The rate of interest on amounts borrowed under the revolving
credit facility is LIBOR plus 200 basis points. The revolving credit loan
agreement expires on October 31, 1998. Advances under this facility are 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, 1997, the
Company is in compliance with these covenants. At September 30, 1997 the
Company's total outstanding debt to the bank was $18,016,837.
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 to the Company from the offering was
approximately $5,500,000 and net proceeds to the Company was approximately
$4,481,000. 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 to the Company from the
issuance was approximately $1,237,500 and net proceeds to the Company was
approximately $1,024,000.
Management believes that 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 1998 was
approximately $2,116,000 as compared to $2,656,000 in the comparable period of
Fiscal 1997. The use of cash in operations was primarily the result of increases
in accounts receivable, and prepaid expenses and other current assets, a
decrease in net earnings as adjusted for non-cash expenses, partially offset by
an increase in accounts payable and a decrease in inventory. 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 1998 was
approximately $274,000, as compared with $878,000 in the first quarter of fiscal
1997. As a result, at September 30, 1997 the Company had cash of $407,280, as
compared to $480,225 at September 30, 1996.
9
<PAGE>
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 9, 1997 By: /s/ Mark Cocchiola
------------------ ----------------------------------
Mark Cocchiola
President &
Chief Executive Officer
Date: November 9, 1997 By: /s/ Steven Venechanos
------------------ -----------------------------------
Steven Venechanos
Chief Financial Officer &
Secretary
11
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 407,280
<SECURITIES> 0
<RECEIVABLES> 18,824,712
<ALLOWANCES> 470,290
<INVENTORY> 21,726,469
<CURRENT-ASSETS> 42,994,920
<PP&E> 7,542,550
<DEPRECIATION> 1,102,993
<TOTAL-ASSETS> 50,816,833
<CURRENT-LIABILITIES> 7,694,213
<BONDS> 0
0
0
<COMMON> 45,628
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 50,816,833
<SALES> 25,156,440
<TOTAL-REVENUES> 25,156,440
<CGS> 20,884,249
<TOTAL-COSTS> 23,706,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 640,153
<INCOME-PRETAX> 810,149
<INCOME-TAX> 332,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478,149
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
