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, 1999
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)
(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 May 1, 1999 there were 4,519,621 outstanding shares of the issuer's Common
Stock, $.01 par value.
1
<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, 1999 and June 30, 1998
Consolidated Statements of Earnings 4
For The Three and Nine Month Periods Ended
March 31, 1999 and 1998
Consolidated Statements of Cash Flows 5
For the Nine Month Periods Ended
March 31, 1999 and 1998
Notes to Consolidated Financial 7
Statements
ITEM 2. Management's Discussion and Analysis of 11
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
Mar. 31, June 30,
1999 1998
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 425,638 $ 489,890
Accounts receivable, net of allowances
of $407,290 at Mar. 31, 1999 and
$407,290 at June 30, 1998 33,035,778 23,239,810
Inventories 30,177,080 28,511,930
Prepaid expenses and other current assets 949,169 688,117
Deferred income taxes 188,000 188,000
----------- -----------
Total current assets 64,775,665 53,117,747
PROPERTY AND EQUIPMENT, NET 7,526,475 6,999,695
OTHER ASSETS 1,590,567 1,728,616
----------- -----------
$73,892,707 $61,846,058
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,853,883 $ 7,469,422
Current portion of long-term obligations 537,850 500,964
Mortgage payable - short term 46,353 43,457
Income taxes payable 1,646,310 245,498
Accrued expenses and other current
liabilities 1,477,307 1,467,034
Deferred income taxes -- --
----------- -----------
Total current liabilities 12,561,703 9,726,375
DEFERRED INCOME TAXES 475,340 475,340
REVOLVING CREDIT LOAN 28,375,600 21,262,000
SUBORDINATED DEBT 10,500,000 10,500,000
LONG-TERM CAPITAL LEASES 1,838,952 2,266,090
MORTGAGE PAYABLE - LONG TERM 883,220 921,413
----------- -----------
54,634,815 45,151,218
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000 shares
authorized, 4,598,897 and 4,562,800 issued and
outstanding at March 31, 1999 and June 30, 1998 45,989 45,628
Additional paid-in capital 11,242,986 11,243,347
Retained earnings 8,318,289 5,405,865
----------- -----------
19,607,264 16,694,840
Less: 68,670 shares treasury
stock at cost (349,372) --
TOTAL STOCKHOLDERS' EQUITY 19,257,892 16,694,840
----------- -----------
$73,892,707 $61,846,058
=========== ===========
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,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 45,863,269 $ 26,406,601 $ 127,414,216 $ 77,676,468
Cost of sales 38,157,107 21,681,197 105,657,190 64,207,757
------------- ------------- ------------- -------------
Gross margin 7,706,162 4,725,404 21,757,026 13,468,711
------------- ------------- ------------- -------------
Expenses:
Selling and shipping 3,856,142 1,999,747 10,698,345 6,230,483
General and administrative 971,143 895,373 2,944,088 2,300,994
------------- ------------- ------------- -------------
4,827,285 2,895,120 13,642,433 8,531,477
------------- ------------- ------------- -------------
Income from operations 2,878,877 1,830,284 8,114,593 4,937,234
Other income (expense)
Interest expense, net (1,089,539) (715,075) (3,179,169) (1,960,943)
Other -- -- -- --
------------- ------------- ------------- -------------
(1,089,539) (715,075) (3,179,169) (1,960,943)
------------- ------------- ------------- -------------
Earnings Before Income Taxes
And Extraordinary Item 1,789,338 1,115,209 4,935,424 2,976,291
Income Taxes 733,000 480,000 2,023,000 1,253,000
------------- ------------- ------------- -------------
Earnings Before
Extraordinary Item 1,056,338 635,209 2,912,424 1,723,291
Extraordinary Loss On
Extinguishment Of Debt
(Net of Taxes) -- -- -- (1,011,001)
Net earnings $ 1,056,338 $ 635,209 $ 2,912,424 $ 712,290
============= ============= ============= =============
EARNINGS PER SHARE OF COMMON STOCK:
Basic earnings per share
before extraordinary item $ .23 $ .14 $ .64 $ .38
============= ============= ============= =============
Basic earnings per share related
to extraordinary item -- -- -- (.22)
============= ============= ============= =============
Basic earnings per share .23 .14 .64 .16
============= ============= ============= =============
Diluted Earnings per share
before extraordinary item .21 .14 .61 .37
============= ============= ============= =============
Diluted earnings per share related
to extraordinary item -- -- -- (.22)
============= ============= ============= =============
Diluted earnings per share .21 .14 .61 .15
============= ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 4,520,579 4,562,800 4,541,783 4,562,800
Diluted 4,952,330 4,679,798 4,788,054 4,764,830
============= ============= ============= =============
</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,
---------------------------
1999 1998
----------- -----------
INCREASE (DECREASE) IN CASH:
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings $ 2,912,424 $ 712,290
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 431,654 636,931
Provision for doubtful accounts -- --
(Increase) decrease in assets:
Accounts receivable (9,795,968) (5,082,128)
Inventories (1,665,150) (3,363,466)
Prepaid expenses and other
current assets (261,052) (360,571)
Prepaid Income Taxes -- 271,411
Other assets 138,049 74,517
Increase (decrease) in liabilities:
Accounts payable 1,384,461 (245,128)
Income taxes payable 1,400,812 --
Accrued expenses and other current
liabilities 10,273 57,496
Deferred income taxes -- 244,743
----------- -----------
Net cash used in operating
activities (5,444,497) (6,042,904)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Net payments for purchase of
property and equipment (958,434) (660,312)
Purchase of treasury stock (349,372) --
----------- -----------
Net cash used in investing
activities (1,307,806) (660,312)
----------- -----------
See notes to consolidated financial statements.
5
<PAGE>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
Nine Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan $ 36,317,600 $ 19,190,981
Principal payments of revolving credit loan (29,204,000) (15,912,361)
Principal payments of capital leases (390,252) (318,960)
Principal payments of mortgage (35,297) (29,583)
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)
Net cash provided by financing
activities 6,688,051 6,676,439
------------ ------------
NET (DECREASE) INCREASE IN CASH (64,252) (26,777)
CASH, BEGINNING OF PERIOD 489,890 480,225
------------ ------------
CASH, END OF PERIOD $ 425,638 $ 453,448
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest $ 3,179,282 $ 1,977,018
============ ============
Income Taxes $ 630,896 $ 32,070
============ ============
Noncash investing and financing transactions:
Purchases of property and equipment through
capital leases $ -- $ 330,000
============ ============
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, 1999, the unaudited
consolidated statements of earnings for the three and nine month periods
ended March 31, 1999 and 1998 and the unaudited consolidated statements of
cash flows for the nine month periods ended March 31, 1999 and 1998 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, 1999 and 1998 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 1998 Annual Report
on Form 10-K for the year ended June 30, 1998.
The results of operations for the three and nine months ended March 31,
1999 are not necessarily indicative of the results to be expected for the
entire fiscal year.
2. INVENTORIES
Inventories are summarized as follows:
March 31, 1999 June 30, 1998
-------------- -------------
Finished goods $23,075,337 $24,046,053
Raw materials 6,170,239 3,640,655
Packaging 931,504 825,222
----------- -----------
$30,177,080 $28,511,930
=========== ===========
3. SUBORDINATED DEBT FACILITY
In October 1995, the Company entered into a Loan and Security Agreement
(the "1995 Loan Agreement") with CoreStates Enterprise Fund (the "Fund"), a
division of CoreStates Bank, N.A. pursuant to which the Fund loaned $5.0
million to the Company. In connection with the execution and delivery of
the 1995 Loan Agreement, the Company delivered a warrant to the Fund
exercisable for nominal additional consideration to purchase 354,990 shares
of the Company's Common Stock. After October 1, 2000, or upon the
occurrence of certain other rights, the Fund had the right to put the
warrant to the Company on a formula basis. The Warrant was recorded at its
relative fair value at date of issue, $1.1 million. The corresponding debt
discount was being amortized over the life of the loan on the interest rate
method.
In October 1997, the Company entered into an agreement with Fleet Bank,
N.A. pursuant to which the bank provided bridge financing of $10 million to
the Company. Approximately $6.7 million ($5.6 million during the second
quarter and $1.1 million during the third quarter of fiscal year 1998) of
the proceeds from such financing was used to retire $5.0 million of
subordinated debt with the Fund and repurchase from the Fund the warrants
to purchase 354,990 shares of the Company's Common Stock. The balance of
the proceeds was used for general working capital purposes. These
transactions resulted in an extraordinary loss of
7
<PAGE>
approximately $1,011,000, net, during the second quarter of fiscal year
1998. The extraordinary loss was comprised of the prepayment penalty of
$1,279,000 and the write-off of deferred financing costs and debt discount
of $494,000, net of the combined tax benefit of $762,000. The fair value of
the warrants was determined pursuant to the contractually agreed value.
In March, 1998, the Company entered into a Loan and Security Agreement,
(the "1998 Loan Agreement") with Albion Alliance Mezzanine Fund, L.P. and
the Equitable Life Assurance Society of the United States ("Alliance")
pursuant to which Alliance loaned $10.5 million to the Company. The loan is
unsecured and is subordinated to the loan of the Company's senior lender,
Fleet Bank, N.A. The loan bears interest at 16.5% with 12% interest payable
currently and the balance deferred until February 1, 2003 when it is due in
full. The principal amount of the loan is payable in three installments of
$3.5 million on each March 1, beginning in the year 2004. In addition, in
connection with the execution and delivery of the 1998 Loan Agreement, the
Company delivered a warrant to Alliance to purchase up to 105,000 shares of
the Company's Common Stock at an exercise price of $4.12 per share. The
warrant is exercisable until March 1, 2006. Proceeds of the Alliance loan
were used to retire the bridge loan from Fleet Bank, N.A.
4. LONG-TERM REVOLVING CREDIT LOAN
In December, 1998, the loan agreement (the "Facility Agreement") between
the Company and Fleet Bank, N.A. that provides the Company with a revolving
credit facility (the "Facility") was amended to increase the Facility from
$30 million to $35 million. The commitment for the revolving credit
Facility is through November 2000. 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.
Advances under the Facility are limited to 80% of eligible accounts
receivable, 40% of all inventory except packaging material, as defined in
the agreement. The Facility Agreement contains restrictive financial
covenants, including the maintenance of specified total debt to net worth
ratios, minimum levels of tangible net worth, and debt service coverage
ratios, as defined in the Facility Agreement, and a restriction on
dividends to common shareholders. As of March 31, 1999 the Company believes
that it is in compliance with the covenants under the Facility Agreement.
Borrowings under the Facility are used for working capital purposes.
5. TREASURY STOCK
Duringthe nine months ended March 31, 1999, the Company in accordance with
its stock repurchase plan, purchased 68,670 shares of its common stock at a
cost of approximately $349,372.
6. 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 earnings
per share 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 Statement of Financial Accounting Standards No. 128.
8
<PAGE>
The earnings per share for the three and nine month periods ended March 31,
1999 and 1998 were computed by dividing the weighted average number of
shares outstanding into net earnings.
The weighted average number of issued and outstanding common shares for the
three and nine month periods ended March 31, 1999 is based upon the
4,562,800 shares outstanding at the beginning of the year less a proration
of the 68,670 shares of treasury stock repurchased during the nine months
ended March 31, 1999. Also included in the weighted average number of
common shares are the pro-rata portion of 34,430 shares issued upon
exercise of warrants granted to an investment banker in 1994 in connection
with the private placement of Preferred Stock, as well as 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, 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.
Basic and diluted earnings per share for three and nine months ended March
31, 1999 and 1998 are calculated as follows:
<TABLE>
<CAPTION>
Three months ended March 31, 1999 Three months ended March 31, 1998
---------------------------------------- ---------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
---------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
before extraordinary item $1,056,338 4,520,579 $ .23 $ 635,209 4,562,800 $ .14
Basic earnings per share
after extraordinary item 1,056,338 4,520,579 .23 635,209 4,562,800 .14
Effect of assumed conversion
of warrants and employee
stock options 431,751 116,998
---------- ---------- ------- ---------- ---------- -------
Diluted earnings per share
before extraordinary item $1,056,338 4,952,330 $ .21 $ 635,209 4,679,798 $ .14
Diluted earnings per share
after extraordinary item 1,056,338 4,952,330 .21 $ 635,209 4,679,798 .14
<CAPTION>
Nine months ended Mar. 31, 1999 Nine months ended Mar. 31, 1998
---------------------------------------- ---------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
---------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
before extraordinary item $2,912,424 4,541,783 $ .64 $1,723,291 4,562,800 $ .38
Basic earnings per share
after extraordinary item 2,912,424 4,541,783 .64 $ 712,290 4,562,800 .16
Effect of assumed conversion
of warrants and employee
stock options 246,271 202,030
---------- ---------- ------- ---------- ---------- -------
Diluted earnings per share
before extraordinary item $2,912,424 4,788,054 $ .61 $1,723,291 4,764,830 $ .37
Diluted earnings per share
after extraordinary item $2,912,424 4,788,054 $ .61 $ 712,290 4,764,830 $ .15
</TABLE>
9
<PAGE>
7. MORTGAGE PAYABLE
On March 29, 1999, the Company refinanced its mortgage on its Paterson
facility for the principal amount of $929,573. The seven year note which
bears interest at 7.85% per annum is being amortized at a fifteen year rate
and requires a balloon payment at the end of year seven of approximately
$501,000.
8. SUBSEQUENT EVENTS
Subsequent to March 31, 1999, the Company repurchased an additional 9,700
shares of its common stock at a cost of approximately $46,998.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward- looking information involves
important known and unknown risks and uncertainties that could significantly
affect actual results, performance or achievements of the Company in the future
and, accordingly, such actual results, performance or achievements may
materially differ from those expressed or implied in any forward-looking
statements made by or on behalf of the Company. These risks and uncertainties
include, but are not limited to, those relating to the Company's growth
strategy, customer concentration, outstanding indebtedness, seasonality,
expansion and other activities of competitors, changes in federal or state laws
and the administration of such laws, protection of trademarks and other
proprietary rights, and the general condition of the economy and its effect on
the securities markets and other risks detailed in the Company's other filings
with the Securities and Exchange Commission. The words "believe," "expect,"
"anticipate," "intend," and "plan," and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date the statement
was made.
Results of Operations - Three months ended March 31, 1999 vs. three months ended
March 31, 1998.
Net sales for the three month period ended March 31, 1999 were approximately
$45,863,000, as compared to approximately $26,406,000 for the three month period
ended March 31, 1998, an increase of approximately $19,457,000 or 74%. This
increase reflects an increase in sales volume for food service products
manufactured by the Company.
The Company's gross margin increased by approximately $2,981,000 from
approximately $4,725,000 in the three month period ended March 31, 1998 to
approximately $7,706,000 in the three month period ended March 31, 1999,
primarily as a result of an increase in the Company's sales volume. The
Company's gross margin as a percentage of sales decreased to 16.8% in the three
month period ended March 31, 1999 from 17.9 % in the three month period ended
March 31, 1998. The decrease in gross margin as a percentage of sales was
primarily due to an increase in cost of raw materials during the three months
ended March 31, 1999, as well as the shift toward lower margin sales associated
with the food service market, partially offset by the increase in sales volume.
Selling and shipping expenses increased approximately $1,856,000 from
approximately $2,000,000 for the three month period ended March 31, 1998 to
approximately $3,856,000. As a percentage of sales, selling and shipping
expenses increased from 7.6% in the three month period ended March 31, 1998 to
8.4% in the three month period ended March 31, 1999. The increase in selling and
shipping expenses and the increase of such expenses as a percentage of sales is
primarily due to increases in advertising and promotional allowances, commission
expense and shipping expenses in support of the Company's revenue growth.
General and administrative expenses increased by approximately $76,000 to
approximately $971,000 for the three month period ended March 31, 1999 as
compared to $895,000 for the comparable period in 1998. The increase in general
and administrative expenses is primarily due to an increase in personnel and
other administrative expenses associated with the Company's revenue growth. As a
percentage of sales, general and administrative expenses decreased to 2.1% for
the three month period ended March 31, 1999, from 3.4% for the comparable period
in 1998. The decrease in general and administrative expenses as a percentage of
sales is primarily due to the increase in the Company's revenue growth,
partially offset by an increase in personnel and other administrative expenses.
Net interest expense increased to approximately $1,090,000 for the three month
period ended March 31, 1999 from approximately $715,000 for the three month
period ended March 31, 1998. The increase in interest expense was primarily due
to the Company's expanded borrowing requirements necessary for working capital
needs.
The provision for income taxes for the three month period ended March 31, 1999
increased by approximately $253,000 compared to the three month period ended
March 31, 1998 as a result of increased taxable income.
11
<PAGE>
Net earnings increased approximately $421,000 to approximately $1,056,000 for
the three month period ended March 31, 1999, from approximately $635,000 for the
comparable period ended March 31, 1998 due primarily to the increased sales
volumes partially offset by the increases in selling and shipping expenses,
general and administrative expenses and interest expense.
Results of Operations - Nine months ended March 31, 1999 vs. Nine months ended
March 31, 1998.
Net sales for the nine month period ended March 31, 1999 were approximately
$127,414,000 as compared to approximately $77,676,000 for the nine month period
ended March 31, 1998, an increase of approximately $49,738,000 or 64.0%. This
increase reflects an increase in sales volumes for food service products
manufactured by the Company as well as an increase in the average selling price
for cheese (as a result of the higher average CME Block Cheddar Market, the
commodity index on which bulk cheese prices are based).
The Company's gross margin increased by approximately $8,288,000, from
approximately $13,469,000 in the nine month period ended March 31, 1998 to
approximately $21,757,000 in the nine month period ended March 31, 1999,
primarily as a result of an increase in sales volume for food service products
manufactured by the Company as well as an increase in the average selling price
as a result of the higher average CME Block Cheddar Market. The Company's gross
margin as a percentage of sales decreased slightly from 17.3% in the nine months
ended March 31, 1998 to 17.1% for the comparable nine month period in 1999. The
decrease in gross margin as a percentage of sales was primarily due to the
higher costs of raw materials during the three months ended March 31, 1999 as
well as the shift toward lower margin sales associated with the food service
markets, partially offset by the increase in the sales volume.
Selling and shipping expenses increased by approximately $4,468,000 from
approximately $6,230,000 for the nine month period ended March 31, 1998 to
approximately $10,698,000 for the nine month period ended March 31, 1999. The
increase in selling and shipping expenses is primarily due to increases in
advertising and promotional allowances, commission expense and shipping expenses
in support of the Company's revenue growth. As a percentage of sales, selling
and shipping expenses increased from 8.0% for the nine month period ended March
31, 1998 to 8.4% for the nine month period ended March 31, 1999. The increase in
selling and shipping expenses as a percentage of sales is primarily due to
increases in advertising and promotional allowances, commission expense and
shipping expenses in support of the Company's revenue growth.
General and administrative expenses increased by approximately $643,000 from
approximately $2,301,000 for the nine month period ended March 31, 1998 to
approximately $2,944,000 for the comparable period in fiscal 1999. 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 decreased to 2.3% for the nine month period
ended March 31, 1999, from 3.0% for the comparable period in 1998, primarily due
to the increase in the Company's revenue growth, partially offset by an increase
in personnel and other administrative expenses.
Net interest expense increased to approximately $3,179,000 for the nine month
period ended March 31, 1999 from approximately $1,961,000 for the nine month
period ended March 31, 1998. The increase was primarily the result of the
Company's expanded borrowing requirements necessary for working capital needs.
The provision for income taxes for the nine month period ended March 31, 1999,
increased by approximately $770,000 as compared to the nine month period ended
March 31, 1998 primarily as a result of increased taxable income.
The Company took an extraordinary charge on the extinguishment of debt net of
tax of approximately $1,011,000 during the quarter ended December 31, 1997. (See
note 3 of Notes to Consolidated Financial Statements).
Net earnings before the extraordinary charge on the extinguishment of debt
increased by approximately $1,189,000 to approximately $2,912,000 for the nine
month period ended March 31, 1999, from approximately $1,723,000 for the
comparable period ended March 31, 1998 due to the increase in gross margin and
higher average selling price for the Company's food service products,
12
<PAGE>
partially offset by the increases in selling and shipping expenses, general and
administrative expenses and interest expense.
Net earnings increased by approximately $2,200,000 to approximately $2,912,000
for the nine month period ended March 31, 1999, from approximately $712,000 for
the comparable period ended March 31, 1998 due to the reasons discussed above.
13
<PAGE>
Financial Position, Liquidity and Capital Resources
At March 31, 1999 the Company had working capital of approximately $52,214,000,
as compared with $43,391,000 at June 30, 1998, an increase of approximately
$8,823,000. 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 increases in accounts payable and income taxes
payable, and a decrease in other assets
The Company finances equipment purchases through capital lease financing
transactions. At March 31, 1999, the Company had obligations of approximately
$2,376,802 under capital leases.
In March 1996, the Company purchased its Paterson production facility which it
previously had leased. On March 29, 1999, the Company refinanced its mortgage
(see Note 7 to the Consolidated Financial Statements). At March 31, 1999, the
Company had outstanding obligations of approximately $929,573 under the mortgage
refinancing the purchase of the Paterson facility.
The Company's revolving credit facility, ("the Facility") was amended in
December 1998 and increased the bank's potential commitment to $35,000,000
through November, 2000. The rate of interest on amounts borrowed under the
Facility is the adjusted LIBOR rate plus 200 basis points. The Facility is
collateralized by substantially all existing and acquired assets of the Company,
as defined in the Facility, and is guaranteed by the Company's subsidiaries,
Suprema Specialties West, Inc, and Suprema Specialties Northeast, Inc. Advances
under this Facility are limited to 80% of eligible accounts receivable, and 40%
of most inventory. The Facility 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, 1999 the Company believes it is in compliance with
these covenants. At March 31, 1999 the Company's total outstanding debt to Fleet
Bank, N.A. was $28,375,600.
In October 1997, the Company entered into an agreement with Fleet Bank, N.A.
pursuant to which the bank provided bridge financing of $10.0 million to the
Company. Approximately $6.7 million of the proceeds from such bridge 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 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 3 of Notes to
Consolidated Financial Statements) 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.
Management believes that with the increase in its line of credit facility from
$30,000,000 to $35,000,000, 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,
1999 was approximately $5,444,000 as compared to $6,042,000 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 current assets,
partially offset by an increase in net earnings as adjusted for non-cash
expenses, and increases in accounts payable and income taxes payable. 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,
1999 was approximately $1,308,000, as compared to $660,000 in the nine month
period ended March 31, 1998, 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
well as the repurchase of Company stock. As a result, at March 31, 1999 the
Company had cash of $425,638 as compared to $453,448 as at March 31, 1998.
14
<PAGE>
Year 2000 Issue
The Company has assessed the potential issues associated with the year 2000 and
believes that its costs to address such issues will not be material. The Company
anticipates that all of its operating systems are Year 2000 compliant. The
Company also believes that costs or consequences of an incomplete or untimely
resolution would not result in the occurrence of a material event or uncertainty
reasonably likely to have a material adverse effect on the Company. However, the
Company has not determined whether its principal suppliers and customers are
Year 2000 compliant. In the event any of the Company's principal suppliers and
customers are not Year 2000 compliant, it may have a material adverse effect on
the Company.
15
<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
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPREMA SPECIALTIES, INC.
(registrant)
Date: May 7, 1999 By: /s/ Mark Cocchiola
------------------------------
Mark Cocchiola
President &
Chief Executive Officer
Date: May 7, 1999 By: /s/ Steven Venechanos
----------------------------
Steven Venechanos
Chief Financial Officer &
Secretary
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q AT MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 425,638
<SECURITIES> 0
<RECEIVABLES> 33,035,778
<ALLOWANCES> 407,290
<INVENTORY> 30,177,080
<CURRENT-ASSETS> 64,775,665
<PP&E> 7,526,475
<DEPRECIATION> 0
<TOTAL-ASSETS> 73,892,707
<CURRENT-LIABILITIES> 12,561,703
<BONDS> 0
0
0
<COMMON> 45,989
<OTHER-SE> 19,257,892
<TOTAL-LIABILITY-AND-EQUITY> 73,892,707
<SALES> 127,414,216
<TOTAL-REVENUES> 127,414,216
<CGS> 105,657,190
<TOTAL-COSTS> 105,657,190
<OTHER-EXPENSES> 13,642,433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,179,169
<INCOME-PRETAX> 4,935,424
<INCOME-TAX> 2,023,000
<INCOME-CONTINUING> 2,912,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,912,424
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.61
</TABLE>
