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, 1997
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)
(Registrant's Telephone Number, Including Area Code) (201)334-6030
Former name, former address and former fiscal year, if changed
since last report. N/A
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 3, 1997 was:
3,002,500.
<PAGE>
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
September 30, 1997 March 31, 1997
CURRENT ASSETS: (unaudited)
Cash and cash equivalents $587,000 $1,422,000
Accounts receivable, net of 3,220,000 2,999,000
allowances of $57,000 at
September 30, 1997 and $57,000
at March 31, 1997
Inventories 2,143,000 2,704,000
Deferred income taxes 37,000 37,000
Prepaid expenses and other current 98,000 104,000
assets
Total Current Assets 6,085,000 7,266,000
PROPERTY, PLANT AND EQUIPMENT, NET 5,389,000 5,322,000
OTHER ASSETS:
Due from officers: 166,000 176,000
Deferred income taxes 441,000 441,000
Deposits on Equipment 9,000
Other 132,000 116,000
Total Other Assets 739,000 742,000
TOTAL ASSETS $12,213,000 $13,330,000
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1997 March 31, 1997
CURRENT LIABILITIES: (unaudited)
Accounts payable $3,356,000 $2,954,000
Revolving credit loan 3,140,000
Current portion of long-term debt 230,000 240,000
Accrued expenses 145,000 219,000
Total Current Liabilities 3,731,000 6,553,000
LONG TERM LIABILITIES:
Revolving credit loan 2,800,000
Long-term debt 2,039,000 2,150,000
Deferred income taxes 478,000 478,000
Total Long-term Liabilites 5,317,000 2,628,000
TOTAL LIABILITES 9,048,000 9,181,000
STOCKHOLDERS' EQUITY:
Common stock - $.001 par value, 3,000 3,000
10,000,000 shares authorized,
3,052,500 shares issued
Additional paid-in capital 4,512,000 4,512,000
Retained (Deficit) earnings (1,225,000) (241,000)
3,290,000 4,274,000
Less: 50,000 shares treasury
stock at cost (125,000) (125,000)
Total Stockholders'
Equity 3,165,000 4,149,000
TOTAL LIABILITIES AND $12,213,000 $13,330,000
STOCKHOLDERS' EQUITY
See notes to consolidated financial statements
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Six Months Ended September 30,
1997 1996
SALES $16,627,000 $24,071,000
COST OF SALES 16,359,000 22,161,000
GROSS PROFIT 268,000 1,910,000
OTHER EXPENSE (INCOME):
Selling 745,000 863,000
General and administrative 317,00 353,000
Gain on sale of equipment (24,000)
Interest Income (23,000) (35,000)
Interest Expense 235,000 161,000
TOTAL OTHER EXPENSE (INCOME) 1,250,000 1,342,000
(Loss) Income Before Income Taxes (982,000) 568,000
(Provision) for income taxes (2,000) (190,000)
NET (LOSS) INCOME $(984,000) $378,000
NET (LOSS) INCOME PER SHARE $(.33) $.13
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 3,002,500 3,008,000
See notes to consolidated financial statements
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Three Months Ended September 30,
1997 1996
SALES $8,252,000 $12,876,000
COST OF SALES 8,018,000 11,845,000
GROSS PROFIT 234,000 1,031,000
OTHER EXPENSE (INCOME):
Selling 366,000 441,000
General and administrative 198,000 196,000
Gain on sale of equipment ( 5,000)
Interest Income (13,000) (18,000)
Interest Expense 131,000 84,000
Total Other Expense (Income) 677,000 703,000
(Loss) Income Before Income Taxes (443,000) 328,000
(Provision) for income taxes (110,000)
NET (LOSS) INCOME $(443,000) $218,000
NET (LOSS) INCOME PER SHARE $(.15) $.07
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 3,002,500 3,002,500
See notes to consolidated financial statements
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME $(984,000) $378,000
Adjustments to reconcile net (loss)
income to net cash provided by
(used by) operating activities:
Depreciation and amortization 150,000 150,000
Provision for doubtful accounts 25,000
Deferred Income Taxes 188,000
(Increase) decrease in assets:
Accounts receivable (221,000) (1,306,000)
Inventories 561,000 (648,000)
Prepaid expenses and other current assets 6,000 19,000
Other Assets 3,000 159,000
Increase (decrease) in liabilities:
Accounts Payable 402,000 (53,000)
Accrued expenses (74,000) (100,000)
Net Cash (Used by) Operating Activities (157,000) (1,188,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Treasury Stock (125,000)
Purchase of property, plant and equipment (217,000) (819,000)
Net Cash (Used by) Investing Activities (217,000) (944,000)
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from revolving
credit loan-net (340,000) 986,000
(Payments of) proceeds from long-term
debt and notes (121,000) 138,000
Net Cash (Used by) Provided by Financing
Activities (461,000) 1,124,000
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (835,000) (1,008,000)
CASH AND CASH EQUIVALENTS - BEGINNING 1,422,000 1,697,000
CASH AND CASH EQUIVALENTS - ENDING $587,000 $689,000
See notes to Consolidated Financial Statements
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of September 30, 1997 the
Consolidated Statement of Operations for the three and six month
periods ended September 30, 1997 and 1996 and the Consolidated
Statement of Cash Flows for the six month periods ended
September 30, 1997 and 1996 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, 1997, the results of its operations for the
three months and six months ended September 30, 1997 and 1996
and the changes in its cash flows for the six months ended
September 30, 1997 and 1996.
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, 1997
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, 1997 are not necessarily indicative of the results
to be expected for the entire fiscal year.
3. Inventories are summarized as follows:
September 30, 1997 March 31, 1997
Finished goods $ 1,408,000 $ 1,564,000
Raw materials 398,000 763,000
Supplies and Packaging 337,000 377,000
$ 2,143,000 $ 2,704,000
4. Income (loss) per share of common stock was computed by
dividing net income (loss) 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
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, since
May 1997, is referenced to the Chicago Mercantile Exchange (and
was formerly 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 the company's profitability. The Company is unable to
predict any future increase or decrease in the prices on the
Chicago Mercantile Exchange 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 prices on the Chicago
Mercantile Exchange, 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. In the last half of the
fiscal year ended March 31, 1997 there was a steep decline in
the block cheddar market without a corresponding change in the
cost of milk and other raw materials resulting in a significant
decrease in gross profit margin and a significant negative
effect on profitability. This effect continued into the current
fiscal year.
Three months ended September 30, 1997 compared to three months
ended September 30, 1996
Sales for the three months ended September 30, 1997 decreased
to $8,252,000 from $12,876,000 for the comparable period in
1996, a decrease of $4,624,000 (or 35.9%). Approximately
$2,080,000 (or 45.0%) of such decrease was due to a decrease in
the number of pounds of cheese sold and approximately $2,544,000
(or 55.0%) of such decrease was due to a decrease in the average
selling price for cheese. The volume decrease was due to
intense competition in the commodity markets and excess
availability of cheese in the period. The decrease in average
selling price was the result of lower block cheddar market
prices resulting in a lower selling price per pound of cheese.
Cost of sales and gross profit margin for the three months
ended September 30, 1997 was $8,018,000 (or 97.2% of sales) and
$234,000 (or 2.8% of sales), respectively, compared to a cost of
sales and gross profit margin of $11,845,000 (or 92.0% of sales)
and $1,031,000 (or 8.0% of sales), respectively, for the
comparable period in 1996. The increase in cost of sales and
corresponding decrease in gross profit margin for 1997 (as a
percent of sales) was primarily due to an increase in the
Company's cost of raw materials as a percentage of selling price
and the application of fixed overhead to lower unit sales volume.
Selling, general and administrative expenses for the three
months ended September 30, 1997 amounted to $564,000 (or 6.8% of
sales) compared to $637,000 (or 4.9% of sales) for the
comparable period in 1996. The decrease of selling, general and
administrative expenses was due to cost containment efforts by
the Company.
Interest expense for the three months ended September 30, 1997
amounted to $131,000 compared to $84,000 for the three months
ended September 30, 1996. This increase is the result of
increased borrowings due to the addition of new plant production
equipment and higher revolving credit line usage.
The provision for income tax for the three months ended
September 30, 1996 of $110,000 reflects the effects of reducing
the valuation allowance by $16,000 and providing for taxes at
statutory rates on period income. Such amounts are re-evaluated
each quarter based on the results of operations. Credits for
income taxes were offset by increases in the valuation allowance
for the three months ended September 30, 1997.
The Company's net loss of $443,000 for the three months ended
September 30, 1997 represents a decrease of $661,000 from the
net income of $218,000 for the comparable period in 1996. The
primary factors contributing to these changes are discussed
above.
Six months ended September 30, 1997 compared to six months
September 30, 1996
Sales for the six months ended September 30, 1997 decreased to
$16,627,000 from $24,071,000 for the comparable period in 1996,
a decrease of $7,444,000 (or 30.9%). Approximately $2,984,000
(40.1%) of such decrease was due to a decrease in the number of
pounds of cheese sold and approximately $4,460,000 (or 59.9%) of
such decrease was due to a decrease in the average selling price
for cheese. The volume decrease was due to intense competition
in the commodity markets and excess availability of cheese in
the period. The decrease in average selling price was the
result of lower block cheddar market prices resulting in a lower
selling price per pound of cheese.
Cost of sales and gross profit margin for the six months ended
September 30, 1997 was $16,359,000 (or 98.4% of sales) and
$268,000 (or 1.6% of sales), respectively, compared to a cost of
sales and gross profit margin of $22,161,000 (or 92.1% of sales)
and $1,910,000 (or 7.9% of sales), respectively, for the
comparable period in 1996. The increase in cost of sales and
corresponding decrease in gross profit margin for 1997 (as a
percent of sales) was primarily due to an increase in the
Company's cost of raw materials as a percentage of selling price
and the application of fixed overhead to lower unit sales volume.
Selling, general and administrative expenses for the six months
ended September 30, 1997 amounted to $1,062,000 (or 6.4% of
sales) compared to $1,216,000 (or 5.1% of sales) for the
comparable period in 1996. The decrease of selling, general and
administrative expenses was due to cost containment efforts by
the Company.
Interest expense for the three months ended September 30, 1997
amounted to $235,000 compared to $161,000 for the three months
ended September 30, 1996. This increase is the result of
increased borrowings due to the addition of new plant production
equipment and higher revolving credit line usage.
The 1997 provision for income taxes of $2,000, resulted
primarily from state tax at statutory rates. Credits for
federal income taxes were offset by increases in the valuation
allowance for the six months ended September 30, 1997. 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 $28,000 and providing for taxes at statutory rates
on period income. Such amounts are re-evaluated each quarter
based on the results of operations.
The Company's net loss of $984,000 for the six months ended
September 30, 1997 represents a decrease of $1,362,000 from the
net income of $378,000 for the comparable period in 1996. The
primary factors contributing to these changes are discussed
above.
Liquidity and Capital Resources
At September 30, 1997 the Company had working capital of
$2,354,000 as compared to working capital of $713,000 at March
31, 1997. This increase is due to the extension of the
Company's revolving credit line from September 30, 1997 to May
1999 and its consequent reclassification as a non-current
liability. The Company's revolving bank line of credit, which
is for a maximum of $5,000,000, is available for the company's
working capital requirements.
At September 30, 1997, $2,800,000 was outstanding under such
revolving line of credit and $613,000 was available for
additional borrowing at that time (based on the inventory and
receivable formula). Advances under this facility are limited
to 50% of inventory and 80% of receivables. The rate of
interest on amounts borrowed against the revolving credit
facility is prime plus 1%. A .25% annual unused line fee is
also charged on this facility. The agreement contains various
restrictive convenants the most significant of which relates to
limitations on capital expenditures ($1,000,000 annually outside
of those financed with the lender under its term loan facility).
This loan is cross collateralized with other loans from the
lender and secured by substantially all of the Company's assets,
including accounts receivable, inventory and equipment. 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 was at the
prime lending rate plus 1.25%. 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. The interest rate on
this facility was reduced to prime plus 1% in June, 1996.
In June, 1996 Chittenden Bank entered into a 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,
1997, $174,000 was outstanding and $826,000 is available for
future capital improvements through September, 1998.
During the year ended March 31, 1996 the Company entered into
an agreement pursuant to which a supplier agreed to provide an
equipment loan to be converted to a term note in the amount of
$500,000 upon completion of additional borrowings. The $500,000
loan, secured by equipment, was fully funded and beginning
November 1, 1996, 84 monthly payments including interest at 6%
commenced.
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
its current working capital and its existing lines of credit
will continue to represent the Company's major source of working
capital financing besides income generated from operations.
For the six months ended September 30, 1997 cash used by
operating activities was $157,000. In addition to the loss from
operations, increases in accounts receivable of $221,000 used
cash. Cash was also used by a decrease in accrued expenses of
$74,000. Increases in accounts payable of $402,000 and a
decrease in prepaid expenses and other assets of $9,000 provided
cash. A decrease in inventories of $561,000 also provided cash.
Net cash used by investing activities was $217,000 for the six
months ended
September 30, 1997 which represented purchases of property,
plant and equipment.
Net cash used by financing activities was $461,000 for the six
months ended
September 30, 1997. Net payments on the revolving credit loan
in the amount of $340,000 and repayment of long-term debt
obligations in the amount of $121,000 utilized cash in the
period.
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
anticipated needs for at least 12 months.
PART II - OTHER INFORMATION
Item 4. Submissions of matters to a vote of security holders
On October 9, 1997 the Company held an Annual Meeting of
Shareholders in Parsippany,
New Jersey. The shareholders voted on two matters.
The following votes were cast for the nominees for election of
directors, and all such nominees were elected.
Philip Falivene 2,817,862 votes for 9,950 votes withheld
Gennaro Falivene 2,818,062 votes for 9,750 votes withheld
Alfonso Falivene 2,818,762 votes for 9,050 votes withheld
Stephen M. Katz 2,821,162 votes for 6,650 votes withheld
Howard S. Breslow 2,816,162 votes for 11,650 votes
withheld
The votes cast on the ratification of the selection of Citrin,
Cooperman & Company., LLP, as independent public accountants
for the Company for the Fiscal Year ending March 31, 1998 was as
follows:
2,820,962 shares voted for the ratification and appointment
1,600 shares voted against the ratification and appointment
5,250 shares abstained from voting
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, 1997
<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.
October 13, 1997
Lucille Farms, Inc.
(Registrant)
By:
Alfonso Falivene,
President (Duly Authorized Officer)
By:
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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FORM 10Q FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.
</LEGEND>
<CIK> 0000908179
<NAME> LUCILLE FARMS, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 587,000
<SECURITIES> 0
<RECEIVABLES> 3,277,000
<ALLOWANCES> 57,000
<INVENTORY> 2,143,000
<CURRENT-ASSETS> 6,085,000
<PP&E> 9,669,000
<DEPRECIATION> 4,280,000
<TOTAL-ASSETS> 12,213,000
<CURRENT-LIABILITIES> 3,731,000
<BONDS> 4,839,000
0
0
<COMMON> 3,000
<OTHER-SE> 3,162,000
<TOTAL-LIABILITY-AND-EQUITY> 12,213,000
<SALES> 16,627,000
<TOTAL-REVENUES> 16,627,000
<CGS> 16,359,000
<TOTAL-COSTS> 16,359,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235,000
<INCOME-PRETAX> (982,000)
<INCOME-TAX> 2,000
<INCOME-CONTINUING> (984,000)
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<EPS-PRIMARY> (.33)
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