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, 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 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 11, 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 3
March 31, 1997 and June 30, 1996
Consolidated Statements of Earnings 4
For The Three and Nine Month Periods Ended
March 31, 1997 and 1996
Consolidated Statements of Cash Flows 5
For the Nine Month Periods Ended
March 31, 1997 and 1996
Notes to Consolidated Financial 7
Statements
ITEM 2. Management's Discussion and Analysis of 10
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)
Mar. 31, June 30,
1997 1996
----------- -----------
(unaudited)
-----------
ASSETS
CURRENT ASSETS:
Cash $ 459,437 $ 528,865
Accounts receivable, net of allowances
of $470,290 at Mar. 31, 1997 and
$508,290 at June 30, 1996 14,122,813 8,805,801
Inventories 20,838,445 16,901,355
Prepaid expenses and other current assets 2,270,390 1,954,589
Prepaid income taxes 256,752 --
Deferred income taxes 168,348 183,548
----------- -----------
Total current assets 38,116,185 28,374,158
PROPERTY AND EQUIPMENT, NET 16,505,184 11,444,496
OTHER ASSETS 876,728 1,843,905
----------- -----------
$55,498,097 $41,662,559
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,902,833 $ 6,504,476
Current portion of long-term obligations 1,866,104 1,562,953
Mortgage payable - short term 39,027 36,588
Income taxes payable -- 244,413
Accrued expenses and other current
liabilities 729,183 569,502
Deferred income taxes 128,108 82,154
----------- -----------
Total current liabilities 10,665,255 9,000,086
DEFERRED INCOME TAXES 655,777 522,133
REVOLVING CREDIT LOAN 15,459,000 7,740,000
SUBORDINATED DEBT 4,243,119 4,061,468
LONG-TERM CAPITAL LEASES 6,047,577 4,077,386
MORTGAGE PAYABLE - LONG TERM 975,162 1,004,745
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 4,300,193
issued and outstanding at Mar 31, 1997
and June 30, 1996 45,628 43,002
Additional paid-in capital 11,243,347 10,163,537
Retained earnings 4,992,232 3,879,202
----------- -----------
Total stockholders' equity 16,281,207 14,085,741
----------- -----------
$55,498,097 $41,662,559
=========== ===========
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,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 21,785,880 $ 16,302,059 $ 66,014,748 $ 46,530,675
COST OF SALES 17,814,464 12,640,051 54,373,954 36,646,403
------------ ------------ ------------ ------------
GROSS MARGIN 3,971,416 3,662,008 11,640,794 9,884,272
------------ ------------ ------------ ------------
EXPENSES:
Selling and shipping 2,043,731 2,010,422 6,312,286 5,875,515
General and administrative 629,224 528,231 1,662,090 1,431,947
------------ ------------ ------------ ------------
2,672,955 2,538,653 7,974,376 7,307,462
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,298,461 1,123,355 3,666,418 2,576,810
OTHER INCOME (EXPENSE)
Interest expense, net (649,797) (502,643) (1,811,388) (1,165,376)
Other -- -- -- 412,500
------------ ------------ ------------ ------------
(649,797) (502,643) (1,811,388) (752,876)
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 648,664 620,712 1,855,030 1,823,934
INCOME TAXES 261,000 254,000 742,000 770,000
------------ ------------ ------------ ------------
NET EARNINGS 387,664 366,712 1,113,030 1,053,934
PREFERRED STOCK DIVIDENDS -- (37,500) -- (112,500)
------------ ------------ ------------ ------------
NET EARNINGS APPLICABLE
TO COMMON STOCK $ 387,664 $ 329,212 $ 1,113,030 $ 941,434
============ ============ ============ ============
EARNINGS PER SHARE OF COMMON STOCK:
NET EARNINGS PER SHARE $.08 $.10 $.22 $.31
==== ==== ==== ====
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET Earnings PER SHARE 5,018,409 3,332,606 5,053,506 3,085,235
========= ========= ========= =========
</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,
--------------------------
1997 1996
----------- -----------
INCREASE (DECREASE) IN CASH:
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings $ 1,113,030 $ 1,053,934
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Other income -- (412,500)
Depreciation and amortization 1,099,312 657,492
Provision for doubtful accounts (38,000) 82,030
(Increase) decrease in assets:
Accounts receivable (5,279,012) (2,702,999)
Inventories (3,937,090) (3,697,864)
Prepaid expenses and other
current assets (315,801) (72,263)
Prepaid Income Taxes (256,752) --
Other assets 967,177 (1,341,040)
Increase (decrease) in liabilities:
Accounts payable 1,398,357 1,371,002
Income taxes payable (244,413) (356,846)
Accrued expenses and other current
liabilities 159,681 55,917
Deferred income taxes 194,798 301,936
----------- -----------
Net cash used in operating
activities (5,138,713) (5,061,201)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Net payments for purchase of
property and equipment (2,365,105) (1,263,509)
Net cash used in investing
activities (2,365,105) (1,263,509)
----------- -----------
5
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SUPREMA SPECIALTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
Nine Months Ended
March 31,
--------------------------
1997 1996
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan $28,543,000 $11,825,000
Principal payments of revolving credit loan (20,824,000 (10,125,000)
Principal payments of capital leases (1,339,902) (1,734,509)
Principal payments of mortgage (27,144) --
Proceeds from notes receivable -- 637,500
Payment of preferred stock dividend -- (112,500)
Proceeds from subordinated debt loan -- 5,000,000
Proceeds from secondary offering (net) 1,082,436 --
Proceeds from mortgage payable 1,050,000
Net cash provided by financing
activities 7,434,390 6,540,491
----------- -----------
NET (DECREASE) INCREASE IN CASH (69,428) 215,781
CASH, BEGINNING OF PERIOD 528,865 494,160
----------- -----------
CASH, END OF PERIOD $ 459,437 $ 709,941
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized of
$276,208 in 1997 and $265,788 in 1996 $ 1,905,945 $ 1,356,555
=========== ===========
Income Taxes $ 1,048,512 $ 825,562
=========== ===========
Noncash investing and financing
transactions:
Purchases of property and equipment
through capital leases $ 3,613,244 $ 1,743,409
=========== ===========
Satisfaction of Marketing Service
Agreements through the issuance
of common stock $ -- $ 940,186
=========== ===========
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, 1997, the unaudited
consolidated statements of earnings for the three and nine month periods
ended March 31, 1997 and 1996 and the unaudited consolidated statements of
cash flows for the nine month periods ended March 31, 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
March 31, 1997 and 1996 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 1996 Annual Report
on Form 10-K for the year ended June 30, 1996.
The results of operations for the three and nine months ended March 31,
1997 are not necessarily indicative of the results to be expected for the
entire fiscal year.
2. INVENTORIES
Inventories are summarized as follows:
Mar. 31, 1997 June 30, 1996
-------------- -------------
Finished goods $16,558,676 $13,582,636
Raw materials 3,280,722 2,497,204
Packaging 999,047 821,515
----------- -----------
$20,838,445 $16,901,355
=========== ===========
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 $1,073,000.
4. LONG-TERM REVOLVING CREDIT LOAN
In January 1997, the loan agreement between the Company and Fleet Bank,
N.A. that provides the Company with a revolving credit facility was amended
to:
a) increase the facility from $15 million to $20 million through October
31, 1998;
7
<PAGE>
b) add or revise certain 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;
c) amend the advance rate formula.
The Company believes that it is currently in compliance with the covenants
under the loan agreement, as amended. Borrowings under the facility are
required to be used for working capital purposes.
5. 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 were payable in twelve equal
quarterly installments beginning December 31, 1993. The sale of the license
was 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
principle 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 agreed 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 financial statements
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.
6. MARKETING SERVICE AGREEMENT AND LICENSE AGREEMENTS
The Company has entered into marketing service agreements with unaffiliated
third parties which were to expire at various dates through June 1998,
pursuant to which the Company was provided with certain marketing and
program support services, including the payment of advertising promotional
expenditures by such parties in exchange for commissions based on sales of
specified products. The Company was required to pay these commissions
without any set-off, notwithstanding any
8
<PAGE>
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 had the
right to convert some or all of the remaining estimated commissions to
common stock of the Company at the market price at the time of conversion.
Such conversion right was 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 conversion 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 the
remaining agreements. This amount will be charged to expense over the
remaining term of the related agreements. 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.
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, Fleet Bank, 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. EARNINGS PER SHARE
The earnings per share for the three and nine month periods ended March 31,
1997 and 1996 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, 1997 and 1996 was $0 and $37,500
respectfully. The preferred stock dividend requirement for the nine month
periods ended March 31, 1997 and 1996 was $0 and $112,500 respectfully.
9
<PAGE>
The weighted average number of issued and outstanding common shares for the
three and nine month periods ended March 31, 1997 are 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 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 6). Also included in the weighted
average number of common shares are incremental shares attributable to
assumed exercise of options and warrants.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations - Three months ended March 31, 1997 vs. three months ended
March 31, 1996.
Net sales for the three month period ended March 31, 1997 were approximately
$21,786,000 as compared to approximately $16,302,000 for the three months ended
March 31, 1996, an increase of approximately $5,484,000 or 33.6%. This increase
reflects higher sales volume for food service and food ingredient products
manufactured by the Company.
The Company's gross margin increased by approximately $309,000 from
approximately $3,662,000 in the three month period ended March 31, 1996 to
approximately $3,971,000 in the three month period ended March 31, 1997,
primarily as a result of the increased sales volume. The Company's gross margin
as a percentage of sales decreased to 18.2% in the three month period ended
March 31, 1997 from 22.5% in the three month period ended March 31, 1996. The
decrease in gross margin as a percentage of sales was due to higher costs of raw
materials during the current three month period, costs associated with the
Ogdensburg New York facility and the shift toward lower margin sales associated
with food service and food ingredient markets.
Selling and shipping expenses increased approximately $33,000 from approximately
$2,010,000 for the three month period ended March 31, 1996 to approximately
$2,043,000 for the three month period ended March 31, 1997. As a percentage of
sales, selling and shipping expenses decreased from 12.3% in the three month
period ended March 31, 1996 to 9.4% in the three month period ended March 31,
1997. The decrease in selling and shipping expenses as a percentage of sales is
primarily due to the Company's increased revenue growth as well as decreases in
commission and freight expenses.
General and administrative expenses increased by approximately $101,000 to
approximately $629,000 for the three month period ended March 31, 1997 as
compared to $528,000 for the comparable period in 1996. The increase in general
and administrative expenses is primarily due to an increase in professional
fees. As a percentage of sales, general and administrative expenses decreased to
2.9% for the three month period ended March 31, 1997, from 3.2% for the
comparable period in 1996, primarily as a result of the Company's revenue growth
in the current three month period.
Net interest expense increased to approximately $650,000 for the three month
period ended March 31, 1997 from approximately $503,000 for the three month
period ended March 31, 1996. The increase was primarily the result of the
Company's expanded borrowing and lease financing requirements necessary for
working capital needs and expansion of the Manteca and Ogdensburg manufacturing
facilities.
10
<PAGE>
The provision for income taxes for the three month period ended March 31, 1997
increased by approximately $7,000 compared to the three month period ended March
31, 1996 as a result of increased taxable income.
Net earnings applicable to common stock increased by approximately $59,000 to
approximately $388,000 for the three month period ended March 31, 1997, from
approximately $329,000 for the comparable period ended March 31, 1996 due to the
increase in gross margin and the termination of the preferred stock dividend
requirement, partially offset by increases in selling and shipping expenses,
general and administrative expenses and interest expense.
11
<PAGE>
Results of Operations - Nine months ended March 31, 1997 vs. nine months ended
March 31, 1996.
Net sales for the nine month period ended March 31, 1997 were approximately
$66,015,000 as compared to approximately $46,531,000 for the nine months ended
March 31, 1996, an increase of approximately $19,484,000 or 41.9%. This increase
reflects higher sales volume for food service and food ingredient products
manufactured by the Company.
The Company's gross margin increased by approximately $1,757,000, from
approximately $9,884,000 in the nine month period ended March 31, 1996 to
approximately $11,641,000 in the nine month period ended March 31, 1997,
primarily as a result of the increased sales volume. The Company's gross margin
as a percentage of sales decreased from 21.2% in the nine months ended March 31,
1996 to 17.6% for the comparable nine month period in 1997. The decrease in
gross margin as a percentage of sales was due primarily to higher costs of raw
materials during the current nine month period, costs associated with the
Ogdensburg New York manufacturing facility and the shift toward lower margin
sales associated with the food service and food ingredient markets.
Selling and shipping expenses increased by approximately $437,000 from
approximately $5,875,000 for the nine month period ended March 31, 1996 to
approximately $6,312,000 for the nine month period ended March 31, 1997. This
increase is primarily due to an increase in advertising and promotional expenses
and commission expenses for the nine months ended March 31, 1997. As a
percentage of sales, selling and shipping expenses decreased from 12.6% for the
nine month period ended March 31, 1996 to 9.6% for the nine month period ended
March 31, 1997. The decrease in selling and shipping expenses as a percentage of
sales is primarily the result of the Company's increased revenues.
General and administrative expenses increased by approximately $230,000 from
approximately $1,432,000 for the nine month period ended March 31, 1996 as
compared to approximately $1,662,000 for the comparable period in 1997. The
increase in general and administrative expenses is primarily the result of an
increase in professional fees. As a percentage of sales however, general and
administrative expenses decreased to 2.5% for the nine month period ended March
31, 1997, from 3.1% for the comparable period in 1996, as a result of the
Company's revenue growth in the current nine month period.
Net interest expense increased to approximately $1,811,000 for the nine month
period ended March 31, 1997 from approximately $1,165,000 for the nine month
period ended March 31, 1996. The increase was primarily the result of the
Company's expanded borrowing and lease financing requirements necessary for
working capital needs and capital expansion for the Manteca California and
Ogdensburg New York manufacturing facilities.
Other income decreased from approximately $413,000 in the nine month period
ended March 31, 1996 to $0 in the nine month period ended March 31, 1997, as a
result of other income associated with the licensing agreement being recognized
in full during the nine month period ended March 31, 1996.
The provision for income taxes for the nine month period ended March 31, 1997,
decreased by approximately $28,000 compared to the nine month period ended March
31, 1996 primarily as a result of a lower effective tax rate.
Net earnings applicable to common stock increased to approximately $1,113,000 in
the nine months ended March 31, 1997 from approximately $941,000 in the
comparable period in 1996, or approximately $172,000. The increase in net
earnings applicable to common stock is due to the increase in gross margin and
the termination of the preferred stock dividend requirement, partially offset by
increases in selling and shipping expenses, general and administrative expenses
and interest expense and the decrease in other income.
12
<PAGE>
Financial Position, Liquidity and Capital Resources
At March 31, 1997 the Company had working capital of approximately $27,451,000,
as compared with $19,374,000 at June 30, 1996, an increase of approximately
$8,077,000. The increase in working capital is primarily due to the increase in
accounts receivable and inventory levels in support of the Company's increased
sales volumes, partially offset by the increase in accounts payable and accrued
expenses and other current liabilities.
The Company typically finances equipment purchases through capital lease
financing transactions. At March 31, 1997, the Company had obligations of
approximately $7,914,000 under capital leases, including $3,613,000 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 Paterson, New Jersey and Ogdensburg, New York
facilities.
In March 1996, the Company purchased its Paterson production facility which it
previously had leased. At March 31, 1997, the Company had outstanding
obligations of approximately $1,014,000 under the mortgage financing the
purchase of the Paterson facility.
The Company has a revolving credit facility that, in January 1997, was amended
and increased the bank's 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 initially limited to 80% of
eligible accounts receivable, 40% of most inventory. As of March 31, 1997 the
Company believes it is in compliance with these covenants. At March 31, 1997 the
Company's total outstanding debt to the bank was $15,459,000.
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 issuance was approximately $1,237,500 and net proceeds was
approximately $1,070,000.
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 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,
1997 was approximately $5,139,000 as compared to $5,061,000 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 in support of the Company's
increased revenue growth, and prepaid expenses and other current assets and a
decrease in other assets, partially offset by an increase in net earnings as
adjusted for non-cash expenses, and an increase in accounts payable and accrued
liabilities. The cash used in operations was financed through cash flow and from
financing activities. Net cash used in investing activities in the nine month
period ended March 31, 1997 was approximately $2,365,000, as compared to
$1,263,000 in the nine month period ended March 31, 1996, as a result of
continued expenditures for fixed assets (including capital equipment utilized in
the Company's California manufacturing facility and the Ogdensburg, New York
manufacturing facility). As a result, as at March 31, 1997 the Company had cash
of $459,437 as compared to $709,941 as at March 31, 1996.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
27. Financial Data Schedule (for SEC use only)
Reports on Form 8-K
None
14
<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 15, 1997 By: /s/ Mark Cocchiola
------------ ---------------------------------
Mark Cocchiola
President &
Chief Executive Officer
Date: May 15, 1997 By: /s/ Steven Venechanos
------------ ---------------------------------
Steven Venechanos
Chief Financial Officer &
Secretary
15
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 459,437
<SECURITIES> 0
<RECEIVABLES> 14,122,813
<ALLOWANCES> 470,290
<INVENTORY> 20,838,445
<CURRENT-ASSETS> 38,116,185
<PP&E> 20,294,050
<DEPRECIATION> 378,866
<TOTAL-ASSETS> 55,498,097
<CURRENT-LIABILITIES> 10,665,255
<BONDS> 0
0
0
<COMMON> 45,628
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 55,498,097
<SALES> 66,014,748
<TOTAL-REVENUES> 66,014,748
<CGS> 54,373,954
<TOTAL-COSTS> 62,348,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,811,388
<INCOME-PRETAX> 1,855,030
<INCOME-TAX> 742,000
<INCOME-CONTINUING> 1,113,030
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,113,030
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
