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, 1998
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)
(973) 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 April 30, 1998 there were 4,562,800 outstanding shares of the issuer's
Common Stock, $.01 par value.
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of 3
March 31, 1998 and June 30, 1997
Consolidated Statements of Earnings 4
For The Three and Nine Month Periods Ended
March 31, 1998 and 1997
Consolidated Statements of Cash Flows 5
For the Nine Month Periods Ended
March 31, 1998 and 1997
Notes to Consolidated Financial 7
Statements
ITEM 2. Management's Discussion and Analysis of 9
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
Mar. 31, June 30,
1998 1997
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 453,448 $ 480,225
Accounts receivable, net of allowances
of $407,290 at Mar. 31, 1998 and
$407,290 at June 30, 1997 19,749,136 14,667,008
Inventories 25,825,887 22,462,421
Income Taxes Receivable 649,832 921,243
Prepaid expenses and other current assets 1,040,352 679,781
Deferred income taxes 188,000 168,348
----------- -----------
Total current assets 47,906,655 39,379,026
PROPERTY AND EQUIPMENT, NET 6,756,430 6,135,082
OTHER ASSETS 1,453,917 1,528,434
----------- -----------
$56,117,002 $47,042,542
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,166,350 $ 5,411,478
Current portion of long-term obligations 488,357 402,877
Mortgage payable - short term 42,532 39,875
Income taxes payable -- --
Accrued expenses and other current
liabilities 863,250 805,754
Deferred income taxes 143,000 172,653
----------- -----------
Total current liabilities 6,703,489 6,832,637
DEFERRED INCOME TAXES 715,000 420,952
REVOLVING CREDIT LOAN 18,868,476 15,589,856
SUBORDINATED DEBT 10,500,000 4,303,670
LONG-TERM CAPITAL LEASES 2,396,159 2,470,599
MORTGAGE PAYABLE - LONG TERM 932,630 964,870
----------- -----------
WARRANTS (Subject to mandatory redemption) -- 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 Mar 31, 1998 and June 30, 1997 45,628 45,628
Additional paid-in capital 11,243,347 11,243,347
Retained earnings 4,712,273 3,999,983
----------- -----------
Total stockholders' equity 16,001,248 15,288,958
----------- -----------
$56,117,002 $47,042,542
=========== ===========
See notes to consolidated financial statements.
3
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 26,406,601 $ 21,785,880 $ 77,676,468 $ 66,014,748
COST OF SALES 21,681,197 17,814,464 64,207,757 54,373,954
------------ ------------ ------------ ------------
GROSS MARGIN 4,725,404 3,971,416 13,468,711 11,640,794
------------ ------------ ------------ ------------
EXPENSES:
Selling and shipping 1,999,747 2,043,731 6,230,483 6,312,286
General and administrative 895,373 629,224 2,300,994 1,662,090
------------ ------------ ------------ ------------
2,895,120 2,672,955 8,531,477 7,974,376
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,830,284 1,298,461 4,937,234 3,666,418
OTHER INCOME (EXPENSE)
Interest expense, net (715,075) (649,797) (1,960,943) (1,811,388)
Other -- -- -- --
------------ ------------ ------------ ------------
(715,075) (649,797) (1,960,943) (1,811,388)
------------ ------------ ------------ ------------
Earnings Before Income Taxes
And Extraordinary Item 1,115,209 648,664 2,976,291 1,855,030
Income Taxes 480,000 261,000 1,253,000 742,000
------------ ------------ ------------ ------------
Earnings Before
Extraordinary Item 635,209 387,664 1,723,291 1,113,030
Extraordinary Loss On
Extinguishment Of Debt
(Net of Taxes) -- -- (1,011,001) --
NET EARNINGS $ 635,209 $ 387,664 $ 712,290 $ 1,113,030
============ ============ ============ ============
EARNINGS PER SHARE OF COMMON STOCK:
NET EARNINGS PER SHARE
BEFORE EXTRAORDINARY ITEM (Basic) $ .14 $ .08 $ .38 $ .24
============ ============ ============ ============
NET EARNINGS PER SHARE
BEFORE EXTRAORDINARY ITEM (Diluted) $ .14 $ .08 $ .37 $ .22
============ ============ ============ ============
EXTRAORDINARY LOSS ON
EXTINGUISHMENT OF DEBT
(NET OF TAXES - Basic) -- -- (.22) --
============ ============ ============ ============
EXTRAORDINARY LOSS ON
EXTINGUISHMENT OF DEBT
(NET OF TAXES - Diluted) -- -- (.22) --
============ ============ ============ ============
NET EARNINGS PER SHARE (Basic) $ .14 $ .08 $ .16 $ .22
============ ============ ============ ============
NET EARNINGS PER SHARE (Diluted) $ .14 $ .08 $ .15 $ .22
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 4,562,800 4,562,800 4,562,800 4,554,882
DILUTED 4,679,798 5,018,409 4,764,830 5,053,506
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
March 31,
---------------------------
1998 1997
----------- -----------
INCREASE (DECREASE) IN CASH:
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings $ 712,290 $ 1,113,030
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Loss on extinguishment of debt 1,011,001
Depreciation and amortization 636,931 1,099,312
Provision for doubtful accounts -- (38,000)
(Increase) decrease in assets:
Accounts receivable (5,082,128) (5,279,012)
Inventories (3,363,466) (3,937,090)
Prepaid expenses and other
current assets (360,571) (315,801)
Prepaid Income Taxes 271,411 (256,752)
Other assets 74,517 967,177
Increase (decrease) in liabilities:
Accounts payable (245,128) 1,398,357
Income taxes payable -- (244,413)
Accrued expenses and other current
liabilities 57,496 159,681
Deferred income taxes 244,743 194,798
----------- -----------
Net cash used in operating
activities (6,042,904) (5,138,713)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Net payments for purchase of
property and equipment (660,312) (2,365,105)
Net cash used in investing
activities (660,312) (2,365,105)
----------- -----------
5
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
Nine Months Ended
March 31,
----------------------------
1998 1997
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan $ 19,190,981 $ 28,543,000
Principal payments of revolving credit loan (15,912,361) (20,824,000)
Principal payments of capital leases (318,960) (1,339,902)
Principal payments of mortgage (29,583) (27,144)
Proceeds from bridge loan financing 10,000,000 --
Principal payments of bridge loan financing (10,000,000) --
Proceeds from subordinated debt 10,500,000 --
Payment of subordinated debt (6,753,638) --
Proceeds from secondary offering/options -- 1,082,436
Net cash provided by financing
activities 6,676,439 7,434,390
------------ ------------
NET (DECREASE) INCREASE IN CASH (26,777) (69,428)
CASH, BEGINNING OF PERIOD 480,225 528,865
------------ ------------
CASH, END OF PERIOD $ 453,448 $ 459,437
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized of
$0 in 1998 and $276,208 in 1997) $ 1,977,018 $ 1,905,945
============ ============
Income Taxes $ 32,070 $ 1,048,512
============ ============
Noncash investing and financing transactions:
Purchases of property and equipment through
capital leases $ 330,000 $ 3,613,244
============ ============
See notes to consolidated financial statements.
6
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The unaudited balance sheet as of March 31, 1998, the unaudited
consolidated statements of earnings for the three and nine month periods
ended March 31, 1998 and 1997 and the unaudited consolidated statements of
cash flows for the nine month periods ended March 31, 1998 and 1997 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, 1998 and 1997 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 1997 Annual Report
on Form 10-K for the year ended June 30, 1997.
The results of operations for the three and nine months ended March 31,
1998 are not necessarily indicative of the results to be expected for the
entire fiscal year.
2. INVENTORIES
Inventories are summarized as follows:
March 31, 1998 June 30, 1997
-------------- -------------
Finished goods $23,068,355 $19,293,624
Raw materials 1,910,328 2,236,541
Packaging 847,204 932,256
----------- -----------
$25,825,887 $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 $1,021,791.
4. LONG-TERM REVOLVING CREDIT LOAN
In January 1998, 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 $21 million to $25 million through
November 2,1999;
b) add or revises 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.
7
<PAGE>
The rate of interest on amounts borrowed under the Facility is the adjusted
LIBOR rate, as defined, plus 200 basis points. The Facility is
collateralized by all existing and acquired assets of the Company, as
defined in the Facility agreement, and is guaranteed by Suprema Specialties
West, Inc. and Suprema Specialties Northeast, Inc.
The Company believes that it is currently in compliance with the covenants
under the loan agreement, as amended. Borrowings under the facility are,
and are required to be used for working capital purposes.
5. BRIDGE LOAN FACILITY
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 $6.7 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
the Company's common stock. The balance of the proceeds was used for
general working capital purposes. As a result of prepayment penalties
related to the early extinguishment of the subordinated debt and associated
fees, the Company took an extraordinary charge of approximately $1.7
million (approximately $1.0 million net of tax) during the second quarter
ended December 31, 1997.
6. SUBORDINATED DEBT FACILITY
In March 1998, the Company entered into a Loan and Security Agreement with
Albion Alliance Mezzanine Fund, L.P. and an affiliate ("the Fund"),
pursuant to which the Fund loaned $10.5 million to the Company. The
principal amount of the loan is payable in annual installments of $3.5
million commencing March, 2004 with the final payment to be made at
maturity in March, 2006. The note bears interest of 16.5% per annum, of
which 12% is payable monthly and the remaining 4.5% will be accrued until
payment is due on February, 2003. In addition, in connection with the loan,
the Fund was granted a warrant to purchase 105,000 shares of the Company's
common stock at the then current market price. Proceeds of the loan were
used to retire the bridge loan facility with Fleet Bank, N.A.
7. EARNINGS PER SHARE
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which
provides for the calculation of "basic" and "diluted" earnings per share.
This Statement effective for financial statements issued for periods ending
after December 15, 1997, requires restatement of all prior period EPS data
presented. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per
share reflect, in periods in which they have a dilutive effect, the effect
of common shares issuable upon exercise of stock options. All periods
presented have been restated to comply with provisions of SFAS No. 128.
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 and nine month periods ended March 31, 1998 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.
The weighted average number of issued and outstanding common shares for the
three and nine month periods ended March 31, 1997 is based upon the
4,300,193 shares outstanding at the beginning of the year plus a proration
of the 225,000 shares
8
<PAGE>
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.
Basic and diluted earnings per share for three and nine months ended March
31, 1998 and 1997 are calculated as follows:
<TABLE>
<CAPTION>
Three months ended March 31, 1998 Three months ended March 31, 1997
------------------------------------- -------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
before extraordinary item $ 635,209 4,562,800 $.14 $ 387,664 4,562,800 $.08
Basic earnings per share
after extraordinary item 635,209 4,562,800 .14 387,664 4,562,800 .08
Effect of assumed conversion
of warrants and employee
stock options 116,998 455,609
---------- ---------- ---- ---------- ---------- ----
Diluted earnings per share
before extraordinary item $ 635,209 4,679,798 $.14 $ 387,664 5,018,409 $.08
Diluted earnings per share
after extraordinary item $ 635,209 4,679,798 $.14 $ 387,664 5,018,409 $.08
<CAPTION>
Nine months ended March 31, 1998 Nine months ended March 31, 1997
------------------------------------- -------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
before extraordinary item $1,723,291 4,562,800 $.38 $1,113,030 4,554,882 $.24
Basic earnings per share
after extraordinary item 712,290 4,562,800 .16 $1,113,030 4,554,882 .24
Effect of assumed conversion
of warrants and employee
stock options 202,030 498,624
---------- ---------- ---- ---------- ---------- ----
Diluted earnings per share
before extraordinary item $1,723,291 4,764,830 $.37 $1,113,030 5,053,506 $.22
Diluted earnings per share
after extraordinary item $ 712,290 4,764,830 $.15 $1,113,030 5,053,506 $.22
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations - Three months ended March 31, 1998 vs. three months ended
March 31, 1997.
Net sales for the three month period ended March 31, 1998 were approximately
$26,407,000 as compared to approximately $21,786,000 for the three months ended
March 31, 1997, an increase of approximately $4,621,000 or 21.2%. 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 $754,000 from
approximately $3,971,000 in the three month period ended March 31, 1997 to
approximately $4,725,000 in the three month period ended March 31, 1998,
primarily as a result of the increased sales volume. The Company's gross margin
as a percentage of sales decreased to 17.9% in the three month period ended
March 31, 1998 from 18.2 % in the three month period ended March 31, 1997. The
decrease in gross margin as a percentage of sales was primarily due to higher
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 decreased approximately $43,000 from approximately
$2,043,000 for the three month period ended March 31, 1997 to approximately
$2,000,000 for the three month period ended March 31, 1998. The decrease in
selling and shipping expenses is primarily due to decreases in commission
expense and shipping expenses. As a percentage of sales, selling and shipping
expenses decreased from 9.4% in the three month period ended March 31, 1997 to
7.6% in the three month period ended March 31, 1998. The decrease in selling and
shipping expenses as a percentage of sales is primarily due to the Company's
increased revenue growth and to a lesser extent decreases in commission expenses
and shipping expenses.
General and administrative expenses increased by approximately $266,000 to
approximately $895,000 for the three month period ended March 31, 1998 as
compared to $629,000 for the comparable period in 1997. The increase in general
and administrative expenses is primarily due to an increase in personnel and
associated administrative expenses. As a percentage of sales, general and
administrative expenses increased to 3.4% for the three month period ended March
31, 1998, from 2.9% for the comparable period in 1997.
Net interest expense increased to approximately $715,000 for the three month
period ended March 31, 1998 from approximately $650,000 for the three month
period ended March 31, 1997. The increase in interest expense was primarily due
to 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 month period ended March 31, 1998
increased by approximately $219,000 compared to the three month period ended
March 31, 1997 as a result of increased taxable income.
Net earnings applicable to common stock increased to approximately $635,000 for
the three month period ended March 31, 1998, from approximately $388,000 for the
comparable period ended March 31, 1997 as a result of increased sales volumes
and a decrease in selling and shipping expenses, partially offset by increases
in general and administrative expenses and interest expense.
10
<PAGE>
Results of Operations - Nine months ended March 31, 1998 vs. nine months ended
March 31, 1997.
Net sales for the nine month period ended March 31, 1998 were approximately
$77,676,000 as compared to approximately $66,015,000 for the nine months ended
March 31, 1997, an increase of approximately $11,661,000 or 17.7%. 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 $1,828,000, from
approximately $11,641,000 in the nine month period ended March 31, 1997 to
approximately $13,469,000 in the nine month period ended March 31, 1998,
primarily as a result of the increased sales volume. The Company's gross margin
as a percentage of sales decreased from 17.6% in the nine months ended March 31,
1997 to 17.3% for the comparable nine month period in 1998. The decrease in
gross margin as a percentage of sales was due primarily to higher 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 partially offset by higher costs of raw materials during the nine month
period ended March 31, 1997.
Selling and shipping expenses decreased by approximately $82,000 from
approximately $6,312,000 for the nine month period ended March 31, 1997 to
approximately $6,230,000 for the nine month period ended March 31, 1998. This
decrease is primarily due to decreases in commission expenses as well as
shipping expenses. As a percentage of sales, selling and shipping expenses
decreased from 9.6% for the nine month period ended March 31, 1997 to 8.0% for
the nine month period ended March 31, 1998. The decrease in selling and shipping
expenses as a percentage of sales is primarily the result of the Company's
increased revenues and to a lesser extent, the decreases in commission expense
and shipping expenses.
General and administrative expenses increased by approximately $639,000 from
approximately $1,662,000 for the nine month period ended March 31, 1997 to
approximately $2,301,000 for the comparable period in fiscal 1998. The increase
in general and administrative expenses is primarily a result of an increase in
personnel and associated administrative expenses. As a percentage of sales
general and administrative expenses increased to 3.0% for the nine month period
ended March 31, 1998, from 2.5% for the comparable period in 1997, as a result
of the increase in personnel and associated administrative expenses during the
current nine month period.
Net interest expense increased to approximately $1,961,000 for the nine month
period ended March 31, 1998 from approximately $1,811,000 for the nine month
period ended March 31, 1997. The increase was primarily 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 nine month period ended March 31, 1998,
increased by approximately $511,000 as compared to the nine month period ended
March 31, 1997 primarily as a result of increased taxable income.
The Company took an extraordinary charge on the extinguishment of the
Subordinated Debt Notes net of tax of approximately $1,011,000 during the
quarter ended December 31, 1997. (See note 5) The charge was the result of
prepayment penalties related to the early extinguishment of the subordinated
debt and associated fees.
Net earnings applicable to common stock before the extraordinary charge on the
extinguishment of debt increased by approximately $610,000 to approximately
$1,723,000 for the nine month period ended March 31, 1998, from approximately
$1,113,000 for the comparable period ended March 31, 1997 due to the increase in
gross margin as a result of increased sales volumes, and to a lesser extent the
decrease in selling and shipping expenses, partially offset by the increases in
general and administrative expenses and interest expense.
11
<PAGE>
Financial Position, Liquidity and Capital Resources
At March 31, 1998 the Company had working capital of approximately $41,203,000,
as compared with $32,546,000 at June 30, 1997, an increase of approximately
$8,657,000. 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, as well as increases in prepaid expenses and other current
assets, partially offset by the decrease in prepaid income taxes and increases
in accrued expenses and other current liabilities and deferred income taxes.
The Company also typically financed equipment purchases through capital lease
financing transactions. At March 31, 1998, the Company had obligations of
approximately $2,885,000 under capital leases, including $330,000 under capital
lease agreements entered into in fiscal 1998. In March 1996, the Company
purchased its Paterson production facility which it previously had leased. At
March 31, 1998, the Company had outstanding obligations of approximately
$975,000 under the mortgage financing the purchase of the Paterson facility.
The Company has a revolving credit facility (the "Facility") that, in January
1998, was amended and increased the bank's potential commitment to $25,000,000
through November 2, 1999. The rate of interest on amounts borrowed under the
Facility is the adjusted LIBOR rate plus 2%. The Facility is collateralized by
substantially all existing and acquired assets of the Company, as defined in the
Facility, and is guaranteed by Suprema Specialties West, Inc. and Suprema
Specialties Northeast, Inc. The Facility expires on November 2, 1999. Advances
under the Facility are limited to 80% of eligible accounts receivable, and 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 March 31, 1998 the Company believes it is in compliance with
these covenants. At March 31, 1998 the Company's total outstanding debt to the
bank was $18,868,476.
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 $6.7 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 was used for general working capital
purposes. As a result of prepayment penalties related to the early
extinguishment of the Corestates debt and associated fees, Suprema took an
extraordinary charge of approximately $1.7 million (approximately $1.0 million
net of tax) during the second quarter ended December 31, 1997. In March 1998,
the Company entered into a Loan and Security Agreement with Albion Alliance
Mezzanine Fund, L.P. and an affiliate ("the Fund") (see note 6) pursuant to
which the Fund loaned $10.5 million to the Company. Proceeds of the Loan were
used to retire the bridge financing agreement with Fleet Bank, N.A. entered into
in October 1997.
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 $1,024,000.
Management believes that with an increase in its line of credit facility from
$20,000,000 to $25,000,000, and the proceeds from the subordinated debt
agreement with the Fund, 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,
1998 was approximately $6,043,000 as compared to $5,139,000 in the comparable
period of the prior year.
The use of cash in operations was primarily the result of increases in accounts
receivable and inventories in support of the Company's increased revenue growth,
and prepaid expenses and other
12
<PAGE>
current assets and a decrease in accounts payable, partially offset by an
increase in net earnings as adjusted for non-cash expenses, and increases in
deferred income taxes and accrued liabilities and other current liabilities. 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, 1998 was approximately $660,000, as compared to $2,365,000 in the nine
month period ended March 31, 1997, 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, at March 31, 1998 the Company had cash of $453,448 as compared to
$459,437 as at March 31, 1997.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 27. Financial Data Schedule
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: April 30, 1998 By: /s/ Mark Cocchiola
---------------- -------------------
Mark Cocchiola
President &
Chief Executive Officer
Date: April 30, 1998 By: /s/ Steven Venechanos
--------------- ----------------------
Steven Venechanos
Chief Financial Officer &
Secretary
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION
EXTRACTED FROM FORM 10-Q AT MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1998
<CASH> 453,448
<SECURITIES> 0
<RECEIVABLES> 20,156,426
<ALLOWANCES> 407,290
<INVENTORY> 25,825,887
<CURRENT-ASSETS> 47,906,655
<PP&E> 6,756,430
<DEPRECIATION> 636,931
<TOTAL-ASSETS> 56,117,002
<CURRENT-LIABILITIES> 6,703,489
<BONDS> 0
45,628
0
<COMMON> 0
<OTHER-SE> 15,955,620
<TOTAL-LIABILITY-AND-EQUITY> 56,117,002
<SALES> 77,676,468
<TOTAL-REVENUES> 77,676,468
<CGS> 64,207,757
<TOTAL-COSTS> 8,531,477
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,960,943
<INCOME-PRETAX> 2,976,291
<INCOME-TAX> 1,253,000
<INCOME-CONTINUING> 1,723,291
<DISCONTINUED> 0
<EXTRAORDINARY> (1,011,001)
<CHANGES> 0
<NET-INCOME> 712,290
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.15
</TABLE>
