SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1996 Commission File
Number 1-12506
LUCILLE FARMS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2963923
(State or other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation)
150 River Road, P.O. Box 517
Montville, New Jersey 07045
(Address of Principal Executive Offices) (Zip Code)
(201) 334-6030 N/A
(Registrant's Telephone Number, Former name, former address and
Including Area Code) former fiscal year, if changed since
last report.
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
The number of shares of Registrant's common stock, par value
$.001 per share, outstanding as of August 2, 1996 was:
3,002,500.
The number of Registrant's Common Stock Purchase Warrants
outstanding as of August 2, 1996 was: 1,437,500.<PAGE>
LUCILLE FARMS, INC.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet at
June 30, 1996 (unaudited) and March 31, 1996 3
Consolidated Statement of Operations (unaudited)
For the Three Months Ended June 30, 1996 and 1995 5
Consolidated Statement of Cash Flows (unaudited)
For the Three Months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. Other Information 10
Signatures 11
<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
JUNE 30, 1996 MARCH 31, 1996
CURRENT ASSETS (unaudited) (unaudited)
Cash and cash equivalents $1,092,000 $1,697,000
Accounts receivable, net of
allowances of $35,000 at
June 30,1996 and $35,000
at March 31, 1996 4,187,000 4,109,000
Inventories 2,525,000 1,549,000
Deferred income taxes 37,000 37,000
Prepaid expenses and
other current assets 135,000 147,000
Total Current Assets 7,976,000 7,539,000
PROPERTY, PLANT AND
EQUIPMENT, NET 4,877,000 4,365,000
OTHER ASSETS:
Due from officers 170,000 195,000
Deferred income taxes 351,000 431,000
Deposits on Equipment 180,000
Other 107,000 63,000
Total Other Assets 628,000 869,000
TOTAL ASSETS $13,481,000 $12,773,000
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 1996 MARCH 31, 1996
CURRENT LIABILITIES (unaudited) (unaudited)
Accounts payable $3,021,000 $3,285,000
Revolving credit loan 2,229,000 1,389,000
Current portion of long-term
debt and capital lease
obligations 207,000 227,000
Accrued expenses 254,000 293,000
Total Current Liabilities 5,711,000 5,194,000
LONG-TERM LIABILITIES:
Long-term debt 2,058,000 1,902,000
Deferred income taxes 468,000 468,000
Total Long-term Liabilities 2,526,000 2,370,000
TOTAL LIABILITIES 8,237,000 7,564,000
STOCKHOLDERS' EQUITY:
Common stock - $.001 par value,
10,000,000 shares authorized,
3,052,500 shares issued 3,000 3,000
Additional paid-in capital 4,512,000 4,512,000
Retained earnings 854,000 694,000
5,369,000 5,209,000
Less: 50,000 shares treasury
stock at cost (125,000)
Total Stockholders' Equity 5,244,000 5,209,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,481,000 $12,773,000
See notes to consolidated financial statements
<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
SALES $11,195,000 $9,115,000
COST OF SALES 10,316,000 8,540,000
GROSS PROFIT 879,000 575,000
OTHER EXPENSE (INCOME):
Selling 422,000 439,000
General and administrative 157,000 133,000
Interest income (17,000) (22,000)
Interest expense 77,000 80,000
TOTAL OTHER EXPENSE (INCOME) 639,000 630,000
PROFIT (LOSS) BEFORE INCOME TAXES 240,000 (55,000)
(Provision) Benefit for income taxes (80,000) 14,000
NET PROFIT (LOSS) $160,000 $(41,000)
NET PROFIT (LOSS) PER SHARE $.05 $(.01)
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 3,013,500 3,052,500
See notes to consolidated financial statements
<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME $160,000 $(41,000)
Adjustments to reconcile net (loss)
income to net cash provided
by (used in) operating activities:
Depreciation and amortization 75,000 60,000
Deferred income taxes 80,000 (15,000)
(Increase) decrease in assets:
Accounts receivable (78,000) (393,000)
Inventories (976,000) (161,000)
Prepaid expenses and
other current assets 12,000 56,000
Other assets 161,000 (59,000)
Increase (decrease) in liabilities:
Accounts payable (264,000) (338,000)
Accrued expenses (39,000) (57,000)
Net Cash (Used In) Operating
Activities (869,000) (948,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Treasury Stock (125,000)
(Increase) in investment in
short-term U.S. Treasury Bills (9,000)
Purchase of property,
plant and equipment (587,000) (63,000)
Net Cash (Used By) Investing
Activities (712,000) (72,000)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving
credit loan-net 840,000 748,000
Proceeds from (payments of)
long-term debt and notes 136,000 (57,000)
Net Cash Provided by
Financing Activities 976,000 691,000
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (605,000) (329,000)
CASH AND CASH EQUIVALENTS -
BEGINNING 1,697,000 950,000
CASH AND CASH EQUIVALENTS -
ENDING $1,092,000 $621,000
See notes to consolidated financial statements
<PAGE>
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of June 30, 1996, the
Consolidated Statement of Operations for the three month periods
ended June 30, 1996 and 1995 and the Consolidated Statement of
Cash Flows for the three month periods ended June 30, 1996 and
1995 have been prepared by the Company without audit. In the
opinion of the management, the accompanying consolidated
financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
financial position of Lucille Farms, Inc. as of June 30, 1996,
the results of its operations for the three months ended June
30, 1996 and 1995 and the changes in its cash position for the
three months ended June 30, 1996 and 1995.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"), although the Company believes that
the disclosures are adequate to make the information presented
not misleading. It is suggested that these financial statements
be read in conjunction with the year-end financial statements
and notes thereto for the fiscal year ended March 31, 1996
included in the Company's Annual Report on Form 10-K as filed
with the SEC.
The accounting policies followed by the Company are set forth
in the notes to the Company's consolidated financial statements
as set forth in its Annual Report on Form 10-K as filed with the
SEC.
2. The results of operations for the three months ended June 30,
1996 are not necessarily indicative of the results to be
expected for the entire fiscal year.
3. Inventories are summarized as follows:
June 30, 1996 March 31, 1996
Finished goods $ 1,110,000 $ 567,000
Raw materials 1,103,000 656,000
Supplies and Packaging 312,000 326,000
$ 2,525,000 $ 1,549,000
4. Income per share of common stock was computed by dividing net
income by the weighted average number of common shares
outstanding during the period.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The Company's conventional cheese products, which account for
substantially all of the Company's sales, are commodity items.
The Company prices its conventional cheese products
competitively with others in the industry, which pricing is
referenced to the Wisconsin Block Cheddar Market. The price the
Company pays for fluid milk, a significant component of cost of
goods sold, is not determined until the month after its cheese
has been sold. While the Company generally can anticipate a
change in the price of milk, it cannot anticipate the extent
thereof. By virtue of the pricing structure for its cheese and
the competitive nature of the marketplace, the Company cannot
always pass along to the customer the changes in the cost of
milk in the price of its conventional cheese. As a consequence
thereof, the Company's gross profit margin for such cheese is
subject to fluctuation, which fluctuation, however slight, can
have a significant effect on profitability. The Company is
unable to predict any future increase or decrease in the prices
in the Wisconsin Block Cheddar Market as such markets are
subject to fluctuation based on factors and commodity markets
outside of the control of the Company. Although the cost of
fluid milk does tend to move correspondingly with the Wisconsin
Block Cheddar Market, the extent of such movement and the timing
thereof is also not predictable as it is subject to government
control and support. As a result of these factors, the Company
is unable to predict pricing trends.
Three months ended June 30, 1996 compared to three months ended
June 30, 1995
Sales for the three months ended June 30, 1996 increased to
$11,195,000 from $9,115,000 for the comparable period in 1995,
an increase of $2,080,000 (or 22.8%). Approximately $650,000
(or 31.3%) of such increase was due to an increase in the number
of pounds of cheese sold and approximately $1,430,000 (or 68.7%)
of such increase was due to an increase in the average selling
price for cheese. The volume increase was the result of the
Company's competitive pricing in order to maintain optimum plant
utilization and market share. The increase in average selling
price was the result of favorable Wisconsin Block Cheddar Market
prices, a different product mix (e.g. whole milk and part skim
shredded, loaf and diced mozzarella - the price of each of which
is referenced to the Wisconsin Block Cheddar Market) and
customer mix during the comparative periods.
Cost of sales and gross profit margin for the three months
ended June 30, 1996 was $10,316,000 (or 92.1% of sales) and
$879,000 (or 7.9% of sales), respectively, compared to a cost of
sales and gross profit margin of $8,540,000 (or 93.7% of sales)
and $575,000 (or 6.3% of sales), respectively, for the
comparable period in 1995. The decrease in cost of sales and
corresponding increase in gross profit margin for 1996 (as a
percent of sales) was primarily due to a decrease in the
Company's cost of raw materials as a percentage of selling price
and the application of fixed overhead to greater unit sales
volume.
Selling, general and administrative expenses for the three
months ended June 30, 1996 amounted to $579,000 (or 5.2% of
sales) compared to $572,000 (or 6.3% of sales) for the
comparable period in 1995. The decrease of selling, general and
administrative expenses as a percentage of sales was due to cost
containment efforts by the Company.
Interest expense for the three months ended June 30, 1996
amounted to $77,000 compared to $80,000 for the three months
ended March 31, 1995.
The provision for income tax for the three months ended June
30, 1996 of $80,000 reflects the effects of reducing the
valuation allowance by $12,000 in 1996 and providing for taxes
at statutory rates on period income. The 1995 benefit of
$14,000, resulted primarily from the availability of net
operating loss carryforwards and investment tax credit
carryforwards for future utilization. Such amounts are
re-evaluated each quarter based on the results of operations.
The Company's net income of $160,000 for the three months ended
June 30, 1996 represents an increase of $201,000 from the net
loss of $41,000 for the comparable period in 1995. The primary
factors contributing to these changes are discussed above.
Liquidity and Capital Resources
At June 30, 1996 the Company had working capital of $2,265,000,
as compared to working capital of $2,345,000 at March 31, 1996.
The Company has a $5,000,000 revolving bank line of credit
available for working capital requirements, which line of credit
expires on September 1, 1997. Advances under this facility are
limited to 50% of inventory and 80% of receivables. Such
borrowings are secured by substantially all of the Company's
assets, including accounts receivable, inventory and equipment.
Interest is at the prime lending rate plus 1%. At June 30,
1996, $2,229,000 was outstanding under such revolving line of
credit and $1,083,000 was available for additional borrowing.
The Company intends to continue to utilize this line of credit
as needed for operations.
On June 17, 1994 the Company entered into an agreement with
Chittenden Bank for a $2,000,000 five year term loan which
requires monthly principal and interest payments based upon a
ten year amortization, except that interest payments only were
required to be made through December 1994. Interest is at the
prime lending rate plus 1%. A major portion of the proceeds of
the loan was used to complete the renovation of the Company's
waste treatment facility in Vermont. The balance was used to
refinance certain of its existing loans.
On April 30, 1996 Chittenden Bank entered into a commitment
with the Company to provide an additional term loan of up to
$1,000,000 for the financing of equipment and capital
improvements. Interest is at the prime lending rate plus 1%.
The bank has also agreed to reduce the rate of interest on the
existing term loan to prime plus 1% (from prime plus 1.25%).
The Company finalized this agreement with the bank on June 13,
1996. At June 30, 1996 this facility had not yet been utilized.
During the year ended March 31, 1996 the Company entered into
an agreement with a supplier, to provide the Company with an
equipment loan to be converted to a term note in the amount of
$500,000 upon completion of additional borrowings. Borrowings
as of June 30, 1996 amounted to $438,000. Upon conversion, the
Company will make 84 monthly payments including interest at 6%.
It is anticipated that payments under this facility will begin
August 15, 1996.
The Company's major source of external working capital
financing has been and is currently the revolving line of
credit. For the foreseeable future the Company believes that
along with the proceeds of its 1993 public offering allocated
to working capital purposes and any proceeds from the exercise
of publicly-traded Warrants issued in the public offering
(should such exercise occur), this line of credit will continue
to represent the Company's major source of working capital
financing besides income generated from operations.
For the three months ended June 30, 1996 cash used in operating
activities was $869,000. In addition to the income from
operations, decreases in prepaid expenses and other assets of
$173,000 provided cash. Cash was also utilized by a decrease in
accrued expenses of $39,000, and a decrease in accounts payable
of $264,000 in the period. Increases in accounts receivable of
$78,000 and inventories of $976,000 utilized cash.
Net cash used by investing activities was $712,000 for the
three months ended June 30, 1996. Purchases of property, plant
and equipment utilizing cash amounted to $587,000 during the
period. The Company also utilized $125,000 for the purchase of
Treasury Stock.
Net cash provided by financing activities was $976,000 in the
period. Proceeds from the revolving credit loan in the amount
of $840,000 and $136,000 of additional long-term borrowings
provided cash.
The Company estimates that based upon its current plans, its
resources, including revenues from operations and utilization of
its existing credit lines, will be sufficient to meet its cash
requirements for at least the next 24 months.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) There were no reports on Form 8-K filed during the three
months ended June 30, 1996
<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.
August 6, 1996
Lucille Farms, Inc.
(Registrant)
By: /s/ Alfonso Falivene
Alfonso Falivene,
President (Duly Authorized Officer)
By: /s/ Stephen M. Katz
Stephen M. Katz,
Vice President-Finance
and Administration
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE THREE MONTH
PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,092,000
<SECURITIES> 0
<RECEIVABLES> 4,222,000
<ALLOWANCES> 35,000
<INVENTORY> 2,525,000
<CURRENT-ASSETS> 7,976,000
<PP&E> 8,759,000
<DEPRECIATION> 3,882,000
<TOTAL-ASSETS> 13,481,000
<CURRENT-LIABILITIES> 5,711,000
<BONDS> 2,058,000
0
0
<COMMON> 3,000
<OTHER-SE> 5,366,000
<TOTAL-LIABILITY-AND-EQUITY> 13,481,000
<SALES> 11,195,000
<TOTAL-REVENUES> 11,195,000
<CGS> 10,316,000
<TOTAL-COSTS> 10,316,000
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 240,000
<INCOME-TAX> 80,000
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<NET-INCOME> 160,000
<EPS-PRIMARY> .05
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</TABLE>
