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: December 31, 1996 Commission
File Number 1-12506
LUCILLE FARMS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2963923
(State or other (I.R.S. Employer Identification No.)
Jurisdiction 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 Former name, former address and
Number, 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 February 12, 1996 was:
3,002,500.
The number of Registrant's Common Stock Purchase Warrants
outstanding as of February 12, 1997 was: 1,437,500.
<PAGE>
LUCILLE FARMS, INC.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet at
December 31, 1996 (unaudited) and March 31, 1996 3
Consolidated Statement of Operations (unaudited)
For the Three Months Ended December 31, 1996 and 1995 5
For the Nine Months Ended December 31, 1996 and 1995 6
Consolidated Statement of Cash Flows (unaudited)
For the Nine Months ended December 31, 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
DECEMBER 31, 1996 MARCH 31, 1996
CURRENT ASSETS : (unaudited) (unaudited)
Cash and cash equivalents $907,000 $1,697,000
Accounts receivable, net of
allowances of $60,000 at
December 31, 1996 and
$35,000 at March 31, 1996 4,074,000 4,109,000
Inventories 1,674,000 1,549,000
Deferred income taxes 37,000 37,000
Prepaid expenses and other
current assets 114,000 147,000
Total Current Assets 6,806,000 7,539,000
PROPERTY, PLANT AND
EQUIPMENT, NET 5,247,000 4,365,000
OTHER ASSETS:
Due from officers 156,000 195,000
Deferred income taxes 431,000 431,000
Deposits on Equipment 180,000
Other 125,000 63,000
Total Other Assets 712,000 869,000
TOTAL ASSETS $12,765,000 $12,773,000
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, 1996 MARCH 31, 1996
CURRENT LIABILITIES : (unaudited) (unaudited)
Accounts payable $3,596,000 $3,285,000
Revolving credit loan 1,173,000 1,389,000
Current portion of
long-term debt 227,000 227,000
Accrued expenses 173,000 293,000
Total Current Liabilities 5,169,000 5,194,000
LONG-TERM LIABILITIES:
Long-term debt 2,033,000 1,902,000
Deferred income taxes 468,000 468,000
Total Long-term Liabilities 2,501,000 2,370,000
TOTAL LIABILITIES 7,670,000 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 705,000 694,000
5,220,000 5,209,000
Less: 50,000 shares
treasury stock at cost (125,000)
Total Stockholders' Equity 5,095,000 5,209,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $12,765,000 $12,773,000
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
SALES $11,100,000 $11,038,000
COST OF SALES 11,007,000 9,906,000
GROSS PROFIT 93,000 1,132,000
OTHER EXPENSE (INCOME):
Selling 365,000 439,000
General and administrative 194,000 196,000
Interest income (16,000) (18,000)
Interest expense 103,000 85,000
TOTAL OTHER EXPENSE (INCOME) 646,000 702,000
(LOSS) INCOME BEFORE INCOME TAXES (553,000) 430,000
Benefit (Provision) for income taxes 186,000
NET (LOSS) INCOME $(367,000) $430,000
NET (LOSS) INCOME PER SHARE $(.12) $.14
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 NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
SALES $35,171,000 $30,656,000
COST OF SALES 33,168,000 28,069,000
GROSS PROFIT 2,003,000 2,587,000
OTHER EXPENSE (INCOME):
Selling 1,228,000 1,328,000
General and administrative 547,000 503,000
Interest income (51,000) (58,000)
Interest expense 264,000 266,000
TOTAL OTHER EXPENSE (INCOME) 1,988,000 2,039,000
INCOME BEFORE INCOME TAXES 15,000 548,000
Provision for income taxes (4,000) (1,000)
NET INCOME $11,000 $547,000
NET INCOME PER SHARE $.00 $.18
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 3,006,000 3,052,500
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $11,000 $547,000
Adjustments to reconcile net
income to net cash provided by
(used by) operating activities:
Depreciation and amortization 220,000 180,000
Provision for doubtful accounts 25,000 40,000
(Increase) decrease in assets:
Accounts receivable 10,000 (1,361,000)
Inventories (125,000) 34,000
Prepaid expenses and
other current assets 33,000 92,000
Other assets 157,000 (63,000)
Increase (decrease) in liabilities:
Accounts payable 311,000 263,000
Accrued expenses (120,000) 52,000
Net Cash Provided By (Used by)
Operating Activities 522,000 (216,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Treasury Stock (125,000)
Increase in investment in short-term
U.S. Treasury Bills (24,000)
Purchase of property,
plant and equipment (1,102,000) (386,000)
Net Cash (Used By)
Investing Activities (1,227,000) (410,000)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments of (proceeds from)
revolving credit loan-net (216,000) 763,000
Proceeds from (payments of)
long-term debt and notes 131,000 (179,000)
Net Cash (Used By) Provided by
Financing Activities (85,000) 584,000
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (790,000) (42,000)
CASH AND CASH EQUIVALENTS -
BEGINNING 1,697,000 950,000
CASH AND CASH EQUIVALENTS -
ENDING $907,000 $908,000
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of December 31, 1996, the
Consolidated Statement of Operations for the three and nine
month periods ended December 31, 1996 and 1995 and the
Consolidated Statement of Cash Flows for the nine month periods
ended December 31, 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 December 31, 1996 the results of its
operations for the three and nine months ended December 31, 1996
and 1995 and the changes in its cash flows for the nine months
ended December 31, 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 nine months ended
December 31, 1996 are not necessarily indicative of the results
to be expected for the entire fiscal year.
3. Inventories are summarized as follows:
December 31, 1996 March 31, 1996
Finished goods $ 778,000 $ 567,000
Raw materials 528,000 656,000
Supplies and Packaging 368,000 326,000
$ 1,674,000 $ 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 December 31, 1996 compared to three months
ended December 31, 1995
Sales for the three months ended December 31, 1996 increased to
$11,100,000 from $11,038,000 for the comparable period in 1995,
an increase of $62,000 (or 0.6%). Although, sales increased
approximately $430,000 due to an increase in the number of
pounds of cheese sold, this increase was offset by a decrease in
sales of approximately $368,000 resulting from a drop in the
average selling price for cheese. This drop was the result of
significant reductions in Wisconsin Block Cheddar Market prices
upon which our sales price is referenced. Subsequent to
December 31, 1996, the Wisconsin Block Cheddar Market increased
resulting in a corresponding price increase by the Company,
although offset in part by an increase in the price of raw
materials. While this favorably effects gross margins it is
probably insufficient, at this time, to bring the Company back to
profitability. As stated above the Company is unable to predict
the future trends of these prices.
Cost of sales and gross profit margin for the three months
ended December 31, 1996 was $11,007,000 (or 99.2% of sales) and
$93,000 (or 0.8% of sales), respectively, compared to a cost of
sales and gross profit margin of $9,906,000 (or 89.7% of sales)
and $1,132,000 (or 10.3% of sales), respectively, for the
comparable period in 1995. The increase in cost of sales and
corresponding decrease in gross profit margin, as a percent of
sales, is primarily due to significantly lower Wisconsin Block
Cheddar Market prices, and an increase in the cost of raw
materials as a percentage of selling price in the period.
Selling, general and administrative expenses for the three
months ended December 31, 1996 amounted to $559,000 (or 5.0% of
sales) compared to $635,000 (or 5.8% 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 December 31, 1996
amounted to $103,000 compared to $85,000 for the three months
ended December 31, 1995. This increase is the result of
increased borrowings due to the addition of new plant production
equipment and higher revolving credit line usage in the quarter.
The benefit for income taxes for the three months ended
December 31, 1996 of $186,000 reflects the effect of reducing
the amount previously provided for in 1996 in order to provide
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 $367,000 for the three months ended
December 31, 1996 represents a decrease of $797,000 from the net
income of $430,000 for the comparable period in 1995. The
primary factors contributing to these changes are discussed
above.
Nine months ended December 31, 1996 compared to nine months
ended December 31, 1995
Sales for the nine months ended December 31, 1996 increased to
$35,171,000 from $30,656,000 for the comparable period in 1995,
an increase of $4,515,000 (or 14.7%). Approximately $1,160,000
(or 25.7%) of such increase was due to an increase in the number
of pounds of cheese sold and approximately $3,355,000 (or 74.3%)
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 during the first half of the fiscal year. In the last
three months there was, what the Company believes was, a record
decline in the Wisconsin Block Cheddar Market causing a decrease
in unit product pricing which resulted in level third quarter
sales.
Cost of sales and gross profit margin for the nine months ended
December 31, 1996 was $33,168,000 (or 94.3% of sales) and
$2,003,000 (or 5.7% of sales), respectively, compared to a cost
of sales and gross profit margin of $28,069,000 (or 91.6% of
sales) and $2,587,000 (or 8.4% of sales), respectively, for the
comparable period in 1995. The increase in cost of sales and
corresponding decrease in gross profit margin, as a percent of
sales, is primarily due to an increase in the Company's cost of
raw materials as a percentage of selling price.
Selling, general and administrative expenses for the nine
months ended December 31, 1996 decreased to $1,775,000 (or 5.0%
of sales) from $1,831,000 (or 6.0% 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 nine months ended December 31, 1996
amounted to $264,000 compared to $266,000 for the nine months
ended December 31, 1995.
The provision for income tax for the nine months ended December
31, 1996 of $4,000 and $1,000 for the nine months ended December
31, 1995 represent management's estimates of the overall tax for
the year. Such amounts are re-evaluated each quarter based on
the results of operations.
The Company's net income of $11,000 for the nine months ended
December 31, 1996 represents a decrease of $536,000 from the net
income of $547,000 for the comparable period in 1995. The
primary factors contributing to these changes are discussed
above.
Liquidity and Capital Resources
At December 31, 1996, the Company had working capital of
$1,637,000 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
December 31, 1996, $1,173,000 was outstanding under such
revolving line of credit and $2,955,000 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 December 31, 1996, this facility had not yet been utilized.
On November 1, 1996, a supplier provided the Company with an
equipment loan in the amount of $500,000. Under the terms of
this loan, commencing November 15, 1996, the Company will make
84 monthly payments including principal and interest at 6%.
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 nine months ended December 31, 1996 cash provided by
operating activities was $522,000. In addition to the income
from operations, decreases in prepaid expenses and other assets
of $190,000, accounts receivable of $10,000 and an increase in
accounts payable of $311,000 provided cash. Cash was utilized
by an increase in inventory of $125,000 and a decrease in
accrued expenses of $120,000.
Net cash used by investing activities was $1,227,000 for the
nine months ended December 31, 1996. Purchases of property,
plant and equipment utilizing cash amounted to $1,102,000 during
the period. The Company also utilized $125,000 for the
purchase of Treasury Stock.
Net cash used by financing activities was $85,000 for the nine
months ended December 31, 1996. Net payments on the revolving
credit loan in the amount of $216,000 utilized cash and $131,000
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. On November 12,
1996, Golden Cheese Company of California filed a cross
complaint for breach of contract, negligence, defamation,
indemnification and apportionment of liability naming Lifeline
Food Company, Inc., Lucille Farms Products, Inc. and DOES 1-25,
Inclusive. On January 24, 1997, Lucille Farms, Inc. filed a
cross complaint against Lifeline Food Company, Inc. and Golden
Cheese Company of California and DOES 1-50. 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 4. Submission of matters to a vote of security holders
On October 11, 1996 the Company held an Annual Meeting of
Shareholders in East Elmhurst, New York. 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 2,537,685 votes for 6,050 votes withheld
Gennaro Falivene 2,537,885 votes for 5,850 votes withheld
Alfonso Falivene 2,537,885 votes for 5,850 votes withheld
Stephen M. Katz 2,538,885 votes for 4,850 votes withheld
Howard S. Breslow 2,538,885 votes for 4,850 votes withheld
The votes cast on the ratification of the selection of
Robbins, Greene, Horowitz, Lester & Co., LLP, as independent
public accountants for the Company for the Fiscal Year ending
March 31, 1997 was as follows:
2,515,735 shares voted for the ratification and appointment
3,150 shares voted against the ratification and appointment
24,850 shares abstained from voting
The two matters voted upon were passed.
Item 6. Exhibits and Reports on Form 8-K
(b) There were no reports on Form 8-K filed during the three
months ended December 31, 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.
February 14, 1997
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 NINE
MONTH PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FORM 10-Q FOR QUARTERLY PERIOD ENDED DECEMBER 31, 1996.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 907,000
<SECURITIES> 0
<RECEIVABLES> 4,134,000
<ALLOWANCES> 60,000
<INVENTORY> 1,674,000
<CURRENT-ASSETS> 6,806,000
<PP&E> 9,495,000
<DEPRECIATION> 4,028,000
<TOTAL-ASSETS> 12,765,000
<CURRENT-LIABILITIES> 5,169,000
<BONDS> 2,033,000
0
0
<COMMON> 3,000
<OTHER-SE> 5,217,000
<TOTAL-LIABILITY-AND-EQUITY> 12,765,000
<SALES> 35,171,000
<TOTAL-REVENUES> 35,171,000
<CGS> 33,168,000
<TOTAL-COSTS> 33,168,000
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<INTEREST-EXPENSE> 264,000
<INCOME-PRETAX> 15,000
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