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: September 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 November 12, 1996 was:
3,002,500.
The number of Registrant's Common Stock Purchase Warrants
outstanding as of November 12, 1996 was: 1,437,500.<PAGE>
LUCILLE FARMS, INC.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet at
September 30, 1996 (unaudited) and March 31, 1996 3
Consolidated Statement of Operations (unaudited)
For the Three Months Ended September 30, 1996 and 1995 5
For the Six Months Ended September 30, 1996 and 1995 6
Consolidated Statement of Cash Flows (unaudited)
For the Six Months ended September 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. Other Information 13
Signatures 14
<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
SEPTEMBER 30, 1996 MARCH 31, 1996
CURRENT ASSETS : (unaudited) (unaudited)
Cash and cash equivalents $689,000 $1,697,000
Accounts receivable, net of allowances
of $60,000 at September 30, 1996
and $35,000 at March 31, 1996 5,390,000 4,109,000
Inventories 2,197,000 1,549,000
Deferred income taxes 37,000 37,000
Prepaid expenses and other
current assets 128,000 147,000
Total Current Assets 8,441,000 7,539,000
PROPERTY, PLANT AND EQUIPMENT,
NET OTHER ASSETS: 5,034,000 4,365,000
Due from officers 156,000 195,000
Deferred income taxes 243,000 431,000
Deposits on Equipment 180,000
Other 123,000 63,000
Total Other Assets 522,000 869,000
TOTAL ASSETS $13,997,000 $12,773,000
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, 1996 MARCH 31, 1996
CURRENT LIABILITIES : (unaudited) (unaudited)
Accounts payable $3,232,000 $3,285,000
Revolving credit loan 2,375,000 1,389,000
Current portion of long-term debt 209,000 227,000
Accrued expenses 193,000 293,000
Total Current Liabilities 6,009,000 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 8,535,000 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 1,072,000 694,000
5,587,000 5,209,000
Less: 50,000 shares treasury
stock at cost (125,000)
Total Stockholders' Equity 5,462,000 5,209,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,997,000 $12,773,000
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
SALES $12,876,000 $10,503,000
COST OF SALES 11,845,000 9,623,000
GROSS PROFIT 1,031,000 880,000
OTHER EXPENSE (INCOME):
Selling 441,000 450,000
General and administrative 196,000 174,000
Interest income (18,000) (18,000)
Interest expense 84,000 101,000
TOTAL OTHER EXPENSE (INCOME) 703,000 707,000
INCOME BEFORE INCOME TAXES 328,000 173,000
Provision for income taxes (110,000) (15,000)
NET INCOME $218,000 $158,000
NET INCOME PER SHARE $.07 $.05
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 3,002,500 3,052,500
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
SALES $24,071,000 $19,618,000
COST OF SALES 22,161,000 18,163,000
GROSS PROFIT 1,910,000 1,455,000
OTHER EXPENSE (INCOME):
Selling 863,000 889,000
General and administrative 353,000 307,000
Interest income (35,000) (40,000)
Interest expense 161,000 181,000
TOTAL OTHER EXPENSE (INCOME) 1,342,000 1,337,000
INCOME BEFORE INCOME TAXES 568,000 118,000
Provision for income taxes (190,000) (1,000)
NET INCOME $378,000 $117,000
NET INCOME PER SHARE $.13 $.04
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 3,008,000 3,052,500
See notes to consolidated financial statements
<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $378,000 $117,000
Adjustments to reconcile net income
to net cash provided by
(used by) operating activities:
Depreciation and amortization 150,000 120,000
Provision for doubtful accounts 25,000 20,000
Deferred income taxes 188,000
(Increase) decrease in assets:
Accounts receivable (1,306,000) (1,167,000)
Inventories (648,000) 211,000
Prepaid expenses and other current assets 19,000 85,000
Other assets 159,000 (62,000)
Increase (decrease) in liabilities:
Accounts payable (53,000) (61,000)
Accrued expenses (100,000) (59,000)
Net Cash Provided By (Used by)
Operating Activities (1,188,000) (796,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Treasury Stock (125,000)
Increase in investment in
short-term U.S. Treasury Bills (16,000)
Purchase of property, plant and equipment (819,000) (174,000)
Net Cash (Used By) Investing Activities (944,000) (190,000)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan-net 986,000 615,000
Proceeds from (payments of)
long-term debt and notes 138,000 (117,000)
Net Cash Provided by Financing Activities 1,124,000 498,000
NET (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,008,000) (488,000)
CASH AND CASH EQUIVALENTS - BEGINNING 1,697,000 950,000
CASH AND CASH EQUIVALENTS - ENDING $689,000 $462,000
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of September 30, 1996, the
Consolidated Statement of Operations for the three and six month
periods ended September 30, 1996 and 1995 and the Consolidated
Statement of Cash Flows for the six month periods ended
September 30, 1996 and 1995 have been prepared by the Company
without audit. In the opinion of 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 September 30, 1996 the results of its operations for the
three and six months ended September 30, 1996 and 1995 and the
changes in its cash flows for the six months ended September 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 and six months ended
September 30, 1996 are not necessarily indicative of the results
to be expected for the entire fiscal year.
3. Inventories are summarized as follows:
September 30, 1996 March 31, 1996
Finished goods $ 1,058,000 $ 567,000
Raw materials 823,000 656,000
Supplies and Packaging 316,000 326,000
$ 2,197,000 $ 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 September 30, 1996 compared to three months
ended September 30, 1995
Sales for the three months ended September 30, 1996 increased
to $12,876,000 from $10,503,000 for the comparable period in
1995, an increase of $2,373,000 (or 22.6%). Approximately
$80,000 (or 3.4%) of such increase was due to an increase in the
number of pounds of cheese sold and approximately $2,293,000 (or
96.6%) of such increase was due to an increase in the average
selling price for cheese. 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 September 30, 1996 was $11,845,000 (or 92.0% of sales) and
$1,031,000 (or 8.0% of sales), respectively, and was relatively
unchanged (as a percentage of sales) from cost of sales and
gross profit margin of $9,623,000 (or 91.6% of sales) and
$880,000 (or 8.4% of sales), respectively, for the comparable
period in 1995.
Selling, general and administrative expenses for the three
months ended September 30, 1996 amounted to $637,000 (or 4.9% of
sales) compared to $624,000 (or 5.9% 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 September 30, 1996
amounted to $84,000 compared to $101,000 for the three months
ended September 30, 1995.
The provision for income taxes for the three months ended
September 30, 1996 of $110,000 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
$15,000 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 $218,000 for the three months ended
September 30, 1996 represents an increase of $60,000 from the
net income of $158,000 for the comparable period in 1995. The
primary factors contributing to these changes are discussed
above.
Six months ended September 30, 1996 compared to six months ended
September 30, 1995
Sales for the six months ended September 30, 1996 increased to
$24,071,000 from $19,618,000 for the comparable period in 1995,
an increase of $4,453,000 (or 22.7%). Approximately $730,000
(or 16.4%) of such increase was due to an increase in the number
of pounds of cheese sold and approximately $3,723,000 (or 83.6%)
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 is sold
at different prices above such Market) and customer mix during
the comparative periods.
Cost of sales and gross profit margin for the six months ended
September 30, 1996 was $22,161,000 (or 92.1% of sales) and
$1,910,000 (or 7.9% of sales), respectively, compared to a cost
of sales and gross profit margin of $18,163,000 (or 92.6% of
sales) and $1,455,000 (or 7.4% of sales), respectively, for the
comparable period in 1995. The decrease in cost of sales and
corresponding increase in gross profit margin, as a percent of
sales, is 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 six months
ended September 30, 1996 increased to $1,216,000 (or 5.1% of
sales) from $1,196,000 (or 6.1% 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 six months ended September 30, 1996
amounted to $161,000 compared to $181,000 for the six months
ended September 30, 1995.
The provision for income tax for the six months ended September
30, 1996 of $190,000 reflects the effects of reducing the
valuation allowance by $24,000 in 1996 and providing for taxes
at statutory rates on period income.
The Company's net income of $378,000 for the six months ended
September 30, 1996 represents an increase of $261,000 from the
net income of $117,000 for the comparable period in 1995. The
primary factors contributing to these changes are discussed
above.
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of
$2,432,000 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
September 30, 1996, $2,375,000 was outstanding under such
revolving line of credit and $2,484,000 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. 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 June 13, 1996 Chittenden Bank entered into an agreement 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%.
At September 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 September 30, 1996 amounted to $476,948. Upon conversion,
the Company will make 84 monthly payments including principal
and interest at 6%. It is anticipated that payments under this
facility will begin November 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 its current working capital position and any proceeds
from the exercise of publicly-traded Warrants issued in the
Company's initial 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. In October 1996, the Company
extended the expiration date of its warrants from November 1,
1996 to November 1, 1997.
For the six months ended September 30, 1996 cash used in
operating activities was $1,188,000. In addition to the income
from operations, decreases in prepaid expenses and other assets
of $178,000 provided cash. Cash was utilized by a decrease in
accrued expenses of $100,000, and a decrease in accounts payable
of $53,000 in the period. Increases in accounts receivable of
$1,306,000 and inventories of $648,000 also utilized cash.
Net cash used by investing activities was $944,000 for the six
months ended September 30, 1996. Purchases of property, plant
and equipment utilizing cash amounted to $819,000 during the
period. The Company also utilized $125,000 for the purchase of
Treasury Stock.
Net cash provided by financing activities was $1,124,000 for
the six months ended September 30, 1996. Proceeds from the
revolving credit loan in the amount of $986,000 and $138,000 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 6, 1996, Lucille Farms, Inc. was served with a
complaint filed June 14, 1996 by Lifeline Food Company, Inc. in
the Superior Court of California, County of Monterey, alleging
breach of contract, breach of warranty, negligence, intentional
misrepresentation and negligent misrepresentation against
Lucille Farms Products, Inc., Golden Cheese Company of
California, Simplot / Mountain Farms, Wildcat Construction Co.,
Inc., L.W. Miller, Gary Olsen Trucking, Pacific Cheese, and DOES
I through XX, Inclusive. The plaintiff seeks special damages of
$150,000 for breach of contract and $1,500,000 for general
damages based on alleged loss of future profits, and unspecified
punitive damages. This action is based upon a contract whereby
the Company was to supply cheese to Lifeline Food Company, Inc.
which the plaintiff alleges was not fulfilled. Lucille has
engaged council to defend against these claims. On November 8,
1996, Council for Lucille Farms, Inc. filed a demurrer in
Superior Court. In as much as Management believes that all
claims against Lucille Farms, Inc. are without merit, no
provision has been made in the financial statements for any
liability which may arise from this matter.
Item 6. Exhibits and Reports on Form 8-K
(b) There were no reports on Form 8-K filed during the three
months ended September 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.
November 14, 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 SIX
MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FORM 10-Q FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 689,000
<SECURITIES> 0
<RECEIVABLES> 5,450,000
<ALLOWANCES> 60,000
<INVENTORY> 2,197,000
<CURRENT-ASSETS> 8,441,000
<PP&E> 8,992,000
<DEPRECIATION> 3,958,000
<TOTAL-ASSETS> 13,997,000
<CURRENT-LIABILITIES> 6,009,000
<BONDS> 2,058,000
0
0
<COMMON> 3,000
<OTHER-SE> 5,584,000
<TOTAL-LIABILITY-AND-EQUITY> 13,997,000
<SALES> 24,071,000
<TOTAL-REVENUES> 24,071,000
<CGS> 22,161,000
<TOTAL-COSTS> 22,161,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161,000
<INCOME-PRETAX> 568,000
<INCOME-TAX> 190,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 378,000
<EPS-PRIMARY> .13
<EPS-DILUTED> .0
</TABLE>
