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, 2001
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 12, 2001 there were 5,640,687 outstanding shares of the issuer's
Common Stock, $.01 par value.
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2001 (unaudited) and June 30, 2000 3
Consolidated Statements of Earnings
For The Three and Nine Month Periods Ended
March 31, 2001 and 2000 (unaudited) 4
Consolidated Statements of Cash Flows
For the Nine Month Periods Ended
March 31, 2001 and 2000 (unaudited) 5
Notes to Consolidated Financial 6
Statements
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of
Operations
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 11
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
<TABLE>
<CAPTION>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2001 2000
------------- -------------
(Unaudited)
---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 427,184 $ 950,121
Accounts receivable, net of allowances
of $770,290 at March 31, 2001 and
$770,290 at June 30, 2000 94,314,049 62,326,908
Inventories 64,562,744 51,630,343
Prepaid expenses and other current assets 918,621 755,067
Deferred income taxes 89,000 89,000
------------- -------------
Total current assets 160,311,598 115,751,439
PROPERTY AND EQUIPMENT, NET 10,029,554 7,181,208
OTHER ASSETS 1,625,382 2,027,069
------------- -------------
$ 171,966,534 $ 124,959,716
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,937,227 $ 13,989,065
Current portion of long-term obligations 543,070 609,690
Mortgage payable - short term 56,812 53,574
Income taxes payable 1,862,770 1,539,000
Accrued expenses and other current liabilities 2,497,559 3,743,917
------------- -------------
Total current liabilities 26,897,438 19,935,246
DEFERRED INCOME TAXES 749,000 749,000
REVOLVING CREDIT LOAN 90,705,262 65,887,000
SUBORDINATED DEBT 10,500,000 10,500,000
LONG-TERM CAPITAL LEASES 720,849 1,105,637
MORTGAGE PAYABLE - LONG TERM 772,156 814,920
OTHER LONG-TERM LIABILITIES 1,428,572 --
------------- -------------
131,773,277 98,991,803
STOCKHOLDERS' EQUITY:
Redeemable, convertible preferred stock, $.01
par value, 2,500,000 shares authorized, none
issued and outstanding at March 31, 2001
and June 30, 2000, respectively -- --
Common stock, $.01 par value, 10,000,000
Shares authorized, 5,854,057 and 4,655,564
Issued and outstanding at March 31, 2001
And June 30, 2000 58,540 46,555
Additional paid-in capital 19,432,627 11,365,207
Retained earnings 22,249,710 15,998,771
Treasury stock at cost, 224,877 at
March 31, 2001 and June 30, 2000 (1,547,620) (1,442,620)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 40,193,257 25,967,913
------------- -------------
$ 171,966,534 $ 124,959,716
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<TABLE>
<CAPTION>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- ------------------------------
2001 2000 2001 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 108,635,791 $ 75,563,918 $ 290,325,163 $ 202,268,133
Cost of sales 91,997,635 63,472,100 245,290,114 169,021,509
------------- ------------ ------------- -------------
Gross margin 16,638,156 12,091,818 45,035,049 33,246,624
------------- ------------ ------------- -------------
Expenses:
Selling and shipping 8,662,545 6,264,725 22,238,785 16,873,915
General and administrative 2,082,213 1,491,365 5,571,926 4,418,566
------------- ------------ ------------- -------------
10,744,758 7,756,090 27,810,711 21,292,481
------------- ------------ ------------- -------------
Income from operations 5,893,398 4,335,728 17,224,338 11,954,143
Other income (expense)
Interest expense, net (2,118,497) (1,582,001) (6,804,399) (4,259,981)
------------- ------------ ------------- -------------
(2,118,497) (1,582,001) (6,804,399) (4,259,981)
------------- ------------ ------------- -------------
Earnings Before Income Taxes 3,774,901 2,753,727 10,419,939 7,694,162
Income Taxes 1,579,000 1,132,000 4,169,000 3,155,000
------------- ------------ ------------- -------------
Net earnings $ 2,195,901 $ 1,621,727 $ 6,250,939 $ 4,539,162
============= ============ ============= =============
EARNINGS PER SHARE OF COMMON STOCK:
Basic earnings per share $ 0.39 $ 0.37 $ 1.17 $ 1.02
============= ============ ============= =============
Diluted earnings per share $ 0.34 $ 0.31 $ 1.03 $ 0.88
============= ============ ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 5,629,716 4,404,813 5,357,823 4,428,403
------------- ------------ ------------- -------------
Diluted 6,424,698 5,260,097 6,081,873 5,179,986
============= ============ ============= =============
</TABLE>
See notes to consolidated financial statements.
4
<TABLE>
<CAPTION>
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
March 31,
-----------------------------
2001 2000
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Earnings $ 6,250,939 $ 4,539,162
Adjustments to reconcile net earnings to net cash
Used in operating activities:
Depreciation and amortization 509,395 446,649
Provision for doubtful accounts -- --
Changes in operating assets and liabilities:
Accounts receivable (31,987,141) (22,387,535)
Inventories (12,932,401) (3,368,868)
Prepaid expenses and other current assets (163,554) 55,553
Other assets 401,687 83,996
Accounts payable 7,948,162 (751,859)
Income taxes payable 323,770 (752,739)
Accrued expenses and other current liabilities (1,246,358) (467,348)
Other liabilities 1,428,572 --
------------- ------------
Net cash used in operating activities (29,466,929) (22,602,989)
------------- ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (3,357,741) (882,121)
------------- ------------
Net cash used in investing activities (3,357,741) (882,121)
------------- ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan 101,374,999 56,640,001
Principal payments of revolving credit loan (76,556,737) (31,784,600)
Principal payments of capital leases (451,408) (407,780)
Principal payments of mortgage (39,526) (36,525)
Proceeds from secondary public offering (net) 7,974,405 --
Proceeds from options -- 118,620
Acquisition of treasury stock -- (1,046,250)
Net cash provided by financing activities 32,301,733 23,483,466
------------- ------------
NET (DECREASE) IN CASH (522,937) (1,644)
CASH, BEGINNING OF PERIOD 950,121 358,214
------------- ------------
CASH, END OF PERIOD $ 427,184 $ 356,570
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest $ 6,408,347 $ 4,261,904
============= ============
Income Taxes $ 5,051,603 $ 3,943,257
============= ============
</TABLE>
See notes to consolidated financial statements.
5
SUPREMA SPECIALTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of March 31, 2001, the
unaudited consolidated statements of earnings for the three and nine month
periods ended March 31, 2001 and 2000 and the unaudited consolidated
statements of cash flows for the nine month periods ended March 31, 2001
and 2000 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. The balance
sheet for June 30, 2000 is derived from audited financial statements. In
the opinion of management, all adjustments (which include normal recurring
accruals) necessary to present fairly the financial position and the
results of operations and cash flows at March 31, 2001 and for the three
and nine month periods presented, have been included.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from this quarterly
financial statement. The attached financial statements should be read in
connection with the consolidated financial statements and notes thereto
included in the Company's 2000 Annual Report on Form 10-K for the year
ended June 30, 2000.
The results of operations and cash flows for the three and nine months
ended March 31, 2001 are not necessarily indicative of the results to be
expected for the entire fiscal year.
2. INVENTORIES
Inventories are summarized as follows:
March 31, 2001 June 30, 2000
-------------- -------------
Finished goods $48,720,957 $38,430,322
Raw materials 14,270,962 11,872,836
Packaging 1,570,825 1,327,185
----------- -----------
$64,562,744 $51,630,343
=========== ===========
3. LONG-TERM REVOLVING CREDIT LOAN
We have a bank revolving credit facility (the "Facility") that, in January
2001, was amended and increased the bank's potential commitment to
$125,000,000. The commitment for the Facility is through February 15, 2004.
The rate of interest on amounts borrowed under the Facility is the adjusted
LIBOR rate, as defined, plus 175 basis points. The Facility is
collateralized by substantially all existing and acquired assets as defined
in the credit facility, and is guaranteed by our subsidiaries, Suprema
Specialties West, Inc., Suprema Specialties Northeast, Inc., and Suprema
Specialties Northwest, Inc. and the pledge of all of the stock of these
subsidiaries. Advances under the Facility are limited to 85% of eligible
accounts receivable and 60% of all inventory except packaging material, as
defined in the agreement. The Facility Agreement contains restrictive
financial covenants, including the maintenance of consolidated net worth,
and the maintenance of leverage and fixed charge ratios, as defined in the
agreement, and a restriction on dividends to common shareholders. As of
March 31, 2001, we were in compliance with the covenants under the Facility
Agreement. Borrowings under the Facility are required to be used for
working capital purposes.
6
4. ISSUANCE OF COMMON STOCK
In August 2000, we completed an underwritten secondary public offering of
shares of our common stock of which 1,100,000 shares were sold by us and
100,000 shares were sold by certain selling shareholders at a public
offering price of $8.00 per share. Gross proceeds of the shares sold by us
were $8,800,000 and net proceeds paid to us were $7,404,000. We received no
proceeds from the shares sold by the selling shareholders. In addition, in
association with the secondary public offering, the underwriters were
granted an option to purchase up to an additional 80,000 shares of common
stock from us and 100,000 shares of common stock from the selling
shareholders to cover over-allotments.
On September 15, 2000 the underwriters exercised the over-allotment option.
Gross proceeds of the over-allotment shares sold by us were$640,000 and net
proceeds to us were $570,000. We received no proceeds from the shares sold
by the selling shareholders.
5. EARNINGS PER SHARE
Basic and diluted earnings per share for the three and nine month periods
ended March 31, 2001 and March 31, 2000 are calculated as follows:
<TABLE>
<CAPTION>
Three months ended March 31, 2001 Three months ended March 31, 2000
--------------------------------- ---------------------------------
Net Income Shares Per Share Net Income Shares Per Share
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings
per share $2,195,901 5,629,716 $.39 $1,621,727 4,404,813 $.37
Effect of assumed
conversion of warrants
and employee stock
options 794,982 855,284
---------- --------- ---- ---------- --------- ----
Diluted earnings
Per share $2,195,901 6,424,698 $.34 $1,621,727 5,260,097 $.31
<CAPTION>
Nine months ended March 31, 2001 Nine months ended March 31, 2000
-------------------------------- --------------------------------
Net Income Shares Per Share Net Income Shares Per Share
<S> <C> <C> <C> <C> <C> <C>
Basic earnings
Per share $6,250,939 5,357,823 $ 1.17 $4,539,162 4,428,403 $1.02
Effect of assumed
conversion of warrants
and employee stock
options 724,050 751,583 --
---------- --------- ---- ---------- --------- -----
Diluted earnings
Per share $6,250,939 6,081,873 $ 1.03 $4,539,162 5,179,986 $ .88
</TABLE>
6. TREASURY STOCK
During the three months ended March 31, 2001, a total of 11,507 shares of
our common stock was tendered back to us by a member of the Board of
Directors, at a cost of $105,000.
7. SALE LEASE-BACK TRANSACTION
In December 2000, we purchased certain assets of Snake River Cheese L.L.C.
for $6 million. The acquisition was funded through a sale-leaseback
transaction whereby the equipment was sold for $5.9 million and leased back
under operating leases.
7
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 our
actual results, performance or achievements 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
us. These risks and uncertainties include, but are not limited to, those
relating to our 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 our
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, 2001 vs. Three months ended
March 31, 2000.
Net sales for the three month period ended March 31, 2001 were approximately
$108,636,000, as compared to approximately $75,564,000 for the three months
ended March 31, 2000, an increase of approximately $33,072,000 or 43.8%. This
increase reflects an increase in sales volume for food service products
manufactured and processed by us, partially offset by the lower average selling
price for cheese (as a result of the lower CME Block Cheddar Market, the
commodity index on which bulk cheese prices are based).
Our gross margin increased by approximately $4,546,000 from approximately
$12,092,000 in the three month period ended March 31, 2000 to approximately
$16,638,000 in the three month period ended March 31, 2001, primarily as a
result of an increase in the sales volume for food service products manufactured
and processed by us. Our gross margin as a percentage of sales decreased to
15.3% in the three month period ended March 31, 2001 from 16.0% in the three
month period ended March 31, 2000. The decrease in gross margin as a percentage
of sales was primarily due to the lower average selling price for cheese (as a
result of the lower average CME Block Cheddar Market, the commodity index on
which bulk cheese prices are based) during the three months ended March 31,
2001, and, to a lesser extent, the shift toward lower margin sales associated
with the food service markets, partially offset by the increase in sales volume.
Selling and shipping expenses increased approximately $2,398,000 from
approximately $6,265,000 for the three month period ended March 31, 2000 to
approximately $8,663,000 for the three month period ended March 31, 2001. 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 our revenue growth. As a percentage of sales, selling and shipping
expenses decreased from 8.3% in the three month period ended March 31, 2000 to
8.0% in the three month period ended March 31, 2001. The percentage decrease in
selling and shipping expenses, which is primarily due to the increase in our
revenue, was partially offset by the increases in advertising and promotional
allowances, commission expense and shipping expenses in support of our revenue
growth.
General and administrative expenses increased by approximately $591,000 to
approximately $2,082,000 for the three month period ended March 31, 2001 as
compared to approximately $1,491,000 for the comparable period in 2000. The
increase in general and administrative expenses is primarily due to an increase
in personnel and other administrative expenses associated with our revenue
growth. As a percentage of sales, general and administrative expenses decreased
from 2.0% in the three month period ended March 31, 2000 to 1.9% in the three
month period ended March 31, 2001. The percentage decrease in general and
administrative expenses, which is primarily due to the increase in our revenue,
was partially offset by the increases in personnel and other administrative
expenses associated with the increase in our revenue.
Net interest expense increased to approximately $2,118,000 for the three month
period ended March 31, 2001 from approximately $1,582,000 for the three month
period ended March 31, 2000. The increase in interest expense was primarily due
to our expanded borrowing requirements
8
necessary for working capital needs.
The provision for income taxes for the three month period ended March 31, 2001
increased by approximately $447,000 compared to the three month period ended
March 31, 2000 as a result of increased taxable income.
Net earnings increased approximately $574,000 to approximately $2,196,000 for
the three month period ended March 31, 2001, from approximately $1,622,000 for
the comparable period ended March 31, 2000 due to the increase in gross margin
as a result of increased sales volumes, which was 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, 2001 vs. Nine months ended
March 31, 2000.
Net sales for the nine month period ended March 31, 2001 were approximately
$290,325,000 as compared to approximately $202,268,000 for the nine months ended
March 31, 2000, an increase of approximately $88,057,000 or 43.5%. This increase
reflects an increase primarily in sales volumes for food service products
manufactured and processed by us partially offset by the lower average selling
price for cheese (as a result of the lower CME Block Cheddar Market, the
commodity index on which bulk cheese prices are based).
Our gross margin increased by approximately $11,788,000 from approximately
$33,247,000 in the nine month period ended March 31, 2000 to approximately
$45,035,000 in the nine month period ended March 31, 2001, primarily as a result
of an increase in sales volume for food service products manufactured and
processed by us. Our gross margin as a percentage of sales decreased from 16.4%
in the nine months ended March 31, 2000 to 15.5% for the comparable nine month
period in 2001. The decrease in gross margin as a percentage of sales was
primarily due to the lower average selling price for cheese (as a result of the
lower average CME Block Cheddar Market, the commodity index on which bulk cheese
prices are based) during the nine months ended March 31, 2001, and, to a lesser
extent, the shift toward lower margin sales associated with the food service
markets, which was partially offset by the increase in the sales volume.
Selling and shipping expenses increased by approximately $5,365,000 from
approximately $16,874,000 for the nine month period ended March 31, 2000 to
approximately $22,239,000 for the nine month period ended March 31, 2001. 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 our revenue growth. As a percentage of sales, selling and shipping
expenses decreased from 8.3% in the nine month period ended March 31, 2000 to
7.7% in the nine month period ended March 31, 2001. The percentage decrease in
selling and shipping expenses, which is primarily due to the increase in our
revenue, was partially offset by the increases in advertising and promotional
allowances, commission expense and shipping expenses in support of the increase
in our revenue.
General and administrative expenses increased by approximately $1,153,000 from
approximately $4,418,000 for the nine month period ended March 31, 2000 to
approximately $5,571,000 for the comparable period in fiscal 2001. The increase
in general and administrative expenses is primarily a result of an increase in
personnel and other administrative expenses associated with our revenue growth.
As a percentage of sales, general and administrative expenses decreased to 1.9%
for the nine month period ended March 31, 2001, from 2.2% for the comparable
period in fiscal 2000, which is primarily due to the increase in our revenue,
was partially offset by an increase in personnel and other administrative
expenses.
Net interest expense increased to approximately $6,804,000 for the nine month
period ended March 31, 2001 from approximately $4,260,000 for the nine month
period ended March 31, 2000. The increase was primarily the result of our
expanded borrowing requirements necessary for working capital needs.
The provision for income taxes for the nine month period ended March 31, 2001,
increased by approximately $1,014,000 as compared to the nine month period ended
March 31, 2000 primarily as a result of increased taxable income.
Net earnings increased by approximately $1,712,000 to approximately $6,251,000
for the nine month period ended March 31, 2001, from approximately $4,539,000
for the comparable period ended March 31, 2000 due to the increase in gross
margin primarily as a result of increased sales volumes, which was partially
offset by the increases in selling and shipping expenses, general and
administrative expenses and interest expense.
9
Financial Position, Liquidity and Capital Resources
At March 31, 2001, we had working capital of approximately $133,415,000, as
compared with $95,816,000 at June 30, 2000, an increase of approximately
$37,599,000. The increase in working capital is primarily due to the increase in
accounts receivable and inventory levels in support of our increased sales
volumes, as well as increases in other assets and decreases in accrued expenses
and other current liabilities, partially offset by increases in accounts
payable, income taxes payable and other liabilities.
In August 2000 we completed an underwritten secondary public offering of shares
of our common stock of which 1,100,000 shares were sold by us and 100,000 shares
were sold by certain selling shareholders at a public offering price of $8.00
per share. Gross proceeds of the shares sold by us were $8,800,000 and net
proceeds paid to us were $7,404,000. We received no proceeds from the shares
sold by the selling shareholders. In addition, in association with the secondary
public offering, the underwriters were granted an option to purchase up to an
additional 80,000 shares of common stock from us and 100,000 shares of common
stock from the selling shareholders to cover over-allotments.
On September 15, 2000 the underwriters exercised the over-allotment option.
Gross proceeds of the over-allotment shares sold by us were $640,000 and net
proceeds to us were $570,000. We received no proceeds from the shares sold by
the selling shareholders.
In March, 1996, we purchased our Paterson, New Jersey production facility which
we previously had leased. The purchase was financed through a mortgage on the
property. Proceeds of the loan were $1,050,000, of which $686,250 was used to
pay the remaining obligation to the landlord. The balance of the proceeds was
used to complete the expansion of a 7,800 square foot refrigerated storage
facility. The five year note which bore interest at 8.51% per annum was being
amortized at a fifteen year rate and required a balloon payment at the end of
year five of approximately $840,000. On March 29,1999, we refinanced the
mortgage on our 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. At March 31, 2001, we had outstanding obligations of
approximately $828,968 under the mortgage financing the purchase of the Paterson
facility.
We have a bank revolving credit facility, (the "Facility"), that in January 2001
was amended and increased the bank's potential commitment to $125,000,000
through February 15, 2004. The rate of interest on amounts borrowed under the
Facility is the LIBOR rate plus 175 basis points. The interest rate at March 31,
2001 was 7.23%. Advances under the Facility are limited to 85% of eligible
accounts receivable, and 60% of most inventory. The Facility agreement contains
restrictive covenants, including the maintenance of consolidated net worth and
the maintenance of leverage and fixed charge ratios as defined in the agreement,
and restriction on dividends to common shareholders. As of March 31, 2001, we
are in compliance with these covenants. At March 31, 2001 our total outstanding
debt to the bank was $90,705,262.
We previously entered into certain capital lease financing transactions to
purchase equipment. At March 31, 2001, we had obligations of approximately
$1,263,919 under capital leases.
Management believes that with an increase in the Facility to $125,000,000, we
have adequate working capital to meet our reasonably foreseeable cash
requirements.
Net cash used in operating activities in the nine month period ended March 31,
2001 was approximately $29,467,000 as compared to $22,603,000 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 our increased
revenue growth, and decreases in accrued expenses and other current liabilities
partially offset by increases in accounts payable, income taxes payable, and
other liabilities, and net earnings as adjusted for non-cash expenses. 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, 2001
was approximately $3,358,000, as compared to $882,000 in the nine month period
ended March 31, 2000, as a result of continued expenditures for fixed assets
including the purchase from Snake River Cheese, L.L.C. of land and building
located in Blackfoot, Idaho, and capital equipment utilized in our California
and New York manufacturing facilities. In August 2000, we completed an
underwritten secondary public offering of shares of our common stock of which
1,100,000 shares were sold by us and 100,000 shares were sold by certain selling
10
shareholders at a public offering price of $8.00 per share. Gross proceeds of
the shares sold by us were $8,800,000 and net proceeds paid to us were
$7,404,000. We received no proceeds from the shares sold by the selling
shareholders. In addition, in association with the secondary public offering,
the underwriters were granted an option to purchase up to an additional 80,000
shares of common stock from us and 100,000 shares of common stock from the
selling shareholders to cover over-allotments. On September 15, 2000 the
underwriters exercised the over-allotment option. Gross proceeds of the
over-allotment shares sold by us were $640,000 and net proceeds to us were
$570,000. We received no proceeds from the shares sold by the selling
shareholders. As a result of the foregoing, at March 31, 2001 we had cash of
$427,184.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
None.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
On February 20, 2001 we held our Annual Meeing of shareholders at
which time the following persons were duly elected as members of
our Board of Directors by the votes set forth below:
Names of Nominees Number of Votes For Number of Votes Withheld
----------------- ------------------- ------------------------
Mark Cocchiola 5,326,814 81,800
Paul Lauriero 5,326,814 81,800
Marco Cocchiola 5,326,814 81,800
Dr. Rudolph Acosta, Jr 5,332,514 76,100
Paul DeSocio 5,332,514 76,100
Barry S. Rutcofsky 5,332,514 76,100
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 10.1 Increase Supplement dated as of February 15, 2001 to Third
Amendment and Restated Revolving Loan, Guaranty and Security
Agreement among Fleet Bank, N.A., Sovereign Bank, Mellon Bank,
N.A., European American Bank, N.A., PNC Bank, N.A., National City
Bank, Suprema Specialties, Inc., Suprema Specialties West, Inc.,
Suprema Specialties Northeast, Inc., and Suprema Specialties
Northwest, Inc.
Reports on Form 8-K
None
11
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 11, 2001 By: /s/ Mark Cocchiola
------------- ---------------------------------
President &
Chief Executive Officer
Date: May 11, 2001 By: /s/ Steven Venechanos
------------- ------------------------------
Chief Financial Officer &
Secretary
12
Exhibit 10.1
INCREASE SUPPLEMENT
INCREASE SUPPLEMENT, dated as of February 15, 2001, to the Third Amended
and Restated Revolving Loan, Guaranty and Security Agreement, dated as of'
September 23, 1999, (as amended from time to time the "Loan Agreement"), among
Fleet National Bank, as administrative and collateral agent (the "Agent"),
Sovereign Bank, as Syndication Agent and Mellon Bank, N.A., as Documentation
Agent, the banks signatory thereto, Suprema Specialties, Inc. (the "Borrower"),
Suprema Specialties West, Inc. ("Suprema West"), a California corporation,
Suprema Specialties Northeast, Inc. ("Suprema Northeast"), a New York
corporation and Suprema Specialties Northwest, Inc, ("Suprema Northwest"), a
Delaware corporation (Suprema West, Suprema Northeast and Suprema Northwest
collectively the "Guarantor"). Capitalized terms used herein that are not
otherwise defined herein and are defined in the Loan Agreement shall have the
meanings therein defined.
1. Pursuant to Section 2.1(b) of the Loan Agreement, the Borrower hereby
proposes to increase (the "Increase") the total Commitment of all the Banks from
$111,000,000.00 to $125,000,000.00.
2. Each of the following proposed institutions (each a "New Bank") has been
invited by the Borrower, and is ready, willing and able to become a "Bank" and
assume or provide a Commitment under the Loan Agreement as follows:
Name of Proposed Institution Commitment
---------------------------------------- -------------
First Pioneer Farm Credit, ACA $8,500,000.00
National Bank of Canada $8,500,000.00
3. In connection with the New Banks becoming a "Bank" and assuming and
providing a Commitment under the Loan Agreement, Fleet National Bank has agreed
to decrease its Commitment to $27,000,000.00.
4. In connection with the New Banks becoming a "Bank" and assuming and
providing a Commitment under the Loan Agreement, each New Bank hereby assigns
and/or assumes from each other Bank such rights, and assigns to or assumes from
or delegates to such other Bank such obligations, in each case without recourse,
representation or warranty, as shall cause (i) the outstanding principal balance
of its Loans to be an amount equal to its Percentage of the aggregate amount of
all outstanding Loans and (ii) its Commitment to be the Commitment as set forth
in Section 2.1(a) of the Loan Agreement, as modified by Paragraph 6 below. Each
New Bank shall make such payments to, and as directed by, the Agent and the
Agent shall make such payments to the Banks in order to cause the outstanding
principal balance of the Loans by each Bank to be an amount equal to its
Percentage of the aggregate amount of all outstanding Loans
after giving effect to the Commitment adjustments contemplated by this Increase
Supplement. As used herein, a Bank's "Percentage" shall be determined by
dividing the Commitment of such Bank as set forth in Section 2.1(a) of the Loan
Agreement, as modified by Paragraph 6 below, by the total Commitment of all the
Banks as set forth in such Section 2. 1 (a), as modified by Paragraph 6 below;
provided, that, the term "Banks" shall include all existing Batiks and each of
the New Banks.t, the term "Banks" shall include all existing Batiks and each of
the New Banks.
5. The Borrower hereby agrees that (x) any amount that a New Bank so pays
to another Bank pursuant to this Increase Supplement shall be entitled to all
rights of a Bank under the Loan Agreement and such payments to Banks shall
constitute Loans held by each such New Bank under this Agreement, (y) that each
such New Bank may, to the fullest extent permitted by law, exercise all of its
right of payment (including the right of set-off) with respect to such amounts
as fully as if such New Bank had initially advanced the Borrower the amount of
such payments and (z) in connection with this Increase Supplement all
outstanding Eurodollar Loans are being prepaid by the Borrower and in connection
therewith the Borrower shall pay to each existing Bank the breakage fee
described in the Loan Agreement. .
6. The table set forth in Section 2.1(a) of the Loan Agreement is hereby
amended and replaced in its entirety by the immediately following table (which
immediately following table gives effect to the new and decreased Commitments
effected pursuant to this Increase Supplement) and the Commitment of each Bank
(including each New Bank and the decreased Commitment of Fleet National Bank) is
hereby amended and adjusted to be the Commitment set forth below:
Name of Bank Amount
------------------------- --------------
Fleet National Bank $27,000,000.00
Sovereign Bank $25,000,000.00
Mellon Bank, N.A. $22,500,000.00
National City Bank $15,000,000.00
PNC Bank, National Association $10,000,000.00
European American Bank $8,500,000.00
First Pioneer farm Credit, ACA $8,500,000.00
National Bank of Canada $8,500,000.00
TOTAL $125,000,000.00
-2-
7. The proposed effective date for this Increased Supplement is February
15, 2001.
8. The Borrower hereby represents and warrants to the Agent and each Bank
(including each New Bank) that (i) immediately before and after giving effect to
the transactions contemplated by this Increase Supplement, no Default or Event
of Default exists or would exist and each of the representations and warranties
set forth in the Loan Documents is true and correct in all material respects
(except to the extent any such representation or warranty expressly relates to
an earlier date) and (ii) immediately after giving effect thereto (and taking
into account any prior increases), the total Commitment of all the Banks does
not exceed $125,000,000.
9. Pursuant to Section 2.1(b) of the Loan Agreement, by execution and
delivery of this Increase Supplement, together with the satisfaction of all of
the other requirements set forth in said Section 2.1 (b), each Bank (i) shall
have, on and as of the effective date of this Increase Supplement, a Commitment
equal to the amount set forth in Section 6 above next to its name and (ii) with
respect to each New Bank, shall be and shall be deemed to be a "Bank" under, and
as such term is defined in, the Loan Agreement.
10. Each New Bank hereby confirms to and agrees with the Borrower, the
Agent and the existing Banks as follows:
(a) The Agent and/or the Banks have made no representation or warranty
and shall have no responsibility with respect to any statements, warranties
or representations made in or in connection with the Loan Agreement or the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency, collectibility or value of the Loan Agreement,
the other Loan Documents, and Collateral, or any other instrument or
document furnished pursuant to the Agreement.
(b) The Agent and/or the Banks have made no representation or warranty
and shall have no responsibility with respect to the financial condition of
the Borrower and its Subsidiaries or any other Person primarily or
secondarily liable in respect of any of their obligations under the Loan
Agreement or any of the other Loan Documents, or the performance or
observance by the Borrower and its Subsidiaries or any other Person
primarily or secondarily liable in respect of their obligations under the
Loan Agreement or any of the other Loan Documents or any other instrument
or document furnished pursuant thereto.
(c) Each New Bank confirms that it has received a copy of the Loan
Agreement and the other Loan Documents, together with copies of the most
recent financial statements referred to in the Loan Agreement and such
other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Increase Supplement and
the documents, instruments and agreements executed pursuant hereto or in
connection herewith.
-3-
(d) Each New Bank will, independently and without reliance upon the
other Banks or the Agent and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Agreement.
(e) Each New Bank appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Loan
Agreement and the other Loan Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental
thereto.
(f) Each New Bank agrees that it will perform in accordance with their
terms all of the obligations that by the terms of the Loan Agreement and
other Loan Documents are required to be performed by it as a Bank.
(g) Each New Bank represents and warrants that it is legally
authorized to enter into this Increase Supplement and the documents,
instruments and agreements executed pursuant hereto or in connection
herewith.
11. It is expressly agreed that this Increase Supplement shall serve as the
notice the Agent is required to furnish to each Bank pursuant to Section 2.1(b)
of the Loan Agreement, which notice is to include the revised table set forth in
Section 2.1(a) of the Loan Agreement to reflect the adjustments to the
Commitments contemplated hereby and by Section 2.1(b)(iv) of the Loan Agreement.
A copy of this Increase Supplement shall be distributed by the Agent to each
Bank.
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Increase Supplement
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
SUPREMA SPECIALTIES, INC.
By: /s/ Mark Cocchiola
-----------------------------------------
Name: Mark Cocchiola
Title: President
Each of the guarantors indicated below hereby consents to this Increase
Supplement and reaffirms its continuing obligations under its guarantee as set
forth in the Loan Agreement as amended hereby and all the documents, instruments
and agreements executed pursuant thereto or in connection therewith, without
offset, defense or counterclaim (any such offset, defense or counterclaim as may
exist being hereby irrevocably waived by each such guarantor).
SUPREMA SPECIALTIES WEST, INC.,
as a Guarantor
By: /s/ Mark Cocchiola
-----------------------------------------
Name: Mark Cocchiola
Title: President
SUPREMA SPECIALTIES NORTHEAST, INC.,
as a Guarantor
By: /s/ Mark Cocchiola
-----------------------------------------
Name: Mark Cocchiola
Title: President
SUPREMA SPECIALTIES NORTHWEST, INC.
as a Guarantor
By: /s/ Mark Cocchiola
-----------------------------------------
Name: Mark Cocchiola
Title: President
-5-
FLEET NATIONAL BANK, as Agent and a Bank
By: /s/ Edward D. Harrington
-----------------------------------------
Name: Edward D. Harrington
Title: Vice President
FIRST PIONEER FARM CREDIT, ACA,
as a Bank
By: /s/ James M. Papai
-----------------------------------------
Name: James M. Papai
Title: Vice President
Address for Notices:
174 South Road
Enfield, Connecticut 06082
Attention: James M. Papai,
Commercial Loan Officer
NATIONAL BANK OF CANADA, as a Bank
By: /s/ John P. Liefer
-----------------------------------------
Name: John P. Liefer
Title: Vice President
By: /s/ Timothy J. Smith
----------------------------------------
Name: Timothy J. Smith
Title: Vice President & Manager
Address for Notices:
50 Division Street
Somerville, New Jersey 08876
Attention: John Leifer, Vice President
-6-