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, 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)
(201) 334-6030 (Registrant's Telephone Number, Including Area
Code)
N/A Former name, former address and 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 1, 1997 was:
3,002,500.
The number of Registrant's Common Stock Purchase Warrants
outstanding as of July 31, 1997 was: 1,437,500.<PAGE>
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
JUNE 30, 1997 MARCH 31, 1997
CURRENT ASSETS (unaudited) (unaudited)
Cash and cash equivalents $1,079,000 $1,422,000
Accounts receivable, net of allowances of $57,000 at June 30,
1997 and $57,000 at March 31, 1997 2,918,000 2,999,000
Inventories 2,594,000 2,704,000
Deferred income taxes 37,000 37,000
Prepaid expenses and other current assets 124,000 104,000
Total Current Assets 6,752,000 7,266,000
PROPERTY, PLANT AND EQUIPMENT, NET 5,347,000 5,322,000
OTHER ASSETS:
Due from officers 176,000 176,000
Deferred income taxes 441,000 441,000
Deposits on Equipment 9,000
Other 126,000 116,000
Total Other Assets 743,000 742,000
TOTAL ASSETS $12,842,000 $13,330,000
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, 1997 MARCH 31, 1997
CURRENT LIABILITIES (unaudited) (unaudited)
Accounts payable $3,232,000 $2,954,000
Revolving credit loan 2,996,000 3,140,000
Current portion of long-term debt 240,000 240,000
Accrued expenses 194,000 219,000
Total Current Liabilities 6,662,000
6,553,000
LONG-TERM LIABILITIES:
Long-term debt 2,094,000 2,150,000
Deferred income taxes 478,000 478,000
Total Long-term Liabilities 2,572,000 2,628,000
TOTAL LIABILITIES 9,234,000 9,181,000
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 (782,000) (241,000)
3,733,000 4,274,000
Less: 50,000 shares treasury stock at cost (125,000)
(125,000)
Total Stockholders' Equity 3,608,000 4,149,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$12,842,000 $13,330,000
See notes to consolidated financial statements
<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30,
1997 1996
SALES $8,375,000 $11,195,000
COST OF SALES 8,341,000 10,316,000
GROSS PROFIT 34,000 879,000
OTHER EXPENSE (INCOME):
Selling 379,000 422,000
General and administrative 119,000 157,000
Gain on sale of equipment (19,000)
Interest income (10,000) (17,000)
Interest expense 104,000 77,000
TOTAL OTHER EXPENSE (INCOME) 573,000 639,000
(LOSS) INCOME BEFORE INCOME TAXES (539,000) 240,000
(Provision) for income taxes (2,000) (80,000)
NET (LOSS) INCOME $(541,000) $160,000
NET (LOSS) INCOME PER SHARE $(.18) $.05
WEIGHTED AVERAGE SHARES OUTSTANDING USED TO COMPUTE NET INCOME
PER SHARE
3,002,500 3,013,500
See notes to consolidated financial statements
<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME $(541,000) $160,000
Adjustments to reconcile net (loss) income to net cash provided
by (used by) operating activities:
Depreciation and amortization 80,000 75,000
Deferred income taxes 80,000
(Increase) decrease in assets:
Accounts receivable 81,000 (78,000)
Inventories 110,000 (976,000)
Prepaid expenses and other current assets (20,000)
12,000
Other assets (1,000) 161,000
Increase (decrease) in liabilities:
Accounts payable 278,000 (264,000)
Accrued expenses (25,000) (39,000)
Net Cash (Used by) Operating Activities (38,000)
(869,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Treasury Stock (125,000)
Purchase of property, plant and equipment (105,000) (587,000)
Net Cash (Used by) Investing Activities (105,000)
(712,000)
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from revolving credit loan-net (144,000)
840,000
(Payments of) proceeds from long-term debt and notes (56,000)
136,000
Net Cash (Used by) Provided by Financing Activities
(200,000) 976,000
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (343,000)
(605,000)
CASH AND CASH EQUIVALENTS - BEGINNING 1,422,000 1,697,000
CASH AND CASH EQUIVALENTS - ENDING $1,079,000 $1,092,000
See notes to consolidated financial statements<PAGE>
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of June 30, 1997, the
Consolidated Statement of Operations for the three month periods
ended June 30, 1997 and 1996 and the Consolidated Statement of
Cash Flows for the three month periods ended June 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 June 30, 1997, the results
of its operations for the three months ended June 30, 1997 and
1996 and the changes in its cash position for the three months
ended June 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 months ended June 30,
1997 are not necessarily indicative of the results to be
expected for the entire fiscal year.
3. Inventories are summarized as follows:
June 30, 1997 March 31, 1997
Finished goods $ 1,469,000 $ 1,564,000
Raw materials 774,000 763,000
Supplies and Packaging 351,000 377,000
$ 2,594,000 $ 2,704,000
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
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 profitability. The Company is unable to predict any future
increase or decrease in the prices in 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 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 throughout the quarter ended June 30, 1997.
Three months ended June 30, 1997 compared to three months ended
June 30, 1996
Sales for the three months ended June 30, 1997 decreased to
$8,375,000 from $11,195,000 for the comparable period in 1996, a
decrease of $2,820,000 (or 25.2%). Approximately $1,070,000 (or
37.9%) of such increase was due to a decrease in the number of
pounds of cheese sold and approximately $1,750,000 (or 62.1%) 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 unfavorable Block Cheddar Market prices resulting in
low unit selling price per pound of cheese - the price of which
is referenced to the Chicago Mercantile Exchange.
Cost of sales and gross profit margin for the three months
ended June 30, 1997 was $8,341,000 (or 99.6% of sales) and
$34,000 (or 0.4% of sales), respectively, compared to a cost of
sales and gross profit margin of $10,316,000 (or 92.1% of sales)
and $879,000 (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 three
months ended June 30, 1997 amounted to $498,000 (or 5.9% of
sales) compared to $579,000 (or 5.2% 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 June 30, 1997
amounted to $104,000 compared to $77,000 for the three months
ended June 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. 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 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 $541,000 for the three months ended
June 30, 1997 represents a decrease of $701,000 from the net
income of $160,000 for the comparable period in 1996. The
primary factors contributing to these changes are discussed
above.
Liquidity and Capital Resources
At June 30, 1997 the Company had working capital of $90,000, as
compared to working capital of $713,000 at March 31, 1997. The
Company has a $5,000,000 revolving bank line of credit available
for working capital requirements, which line of credit was to
expire on September 30, 1997 and has been extended to May 30,
1999. At June 30, 1997, $2,996,000 was outstanding under such
revolving line of credit and $178,000 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 covenants 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 June 30,
1997, $174,000 was outstanding and $826,000 is available for
future capital acquisitions 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 three months ended June 30, 1997 cash used by operating
activities was $38,000. In addition, to the loss from
operations, increases in prepaid expenses and other assets, of
$21,000 used cash. Cash was also used by a decrease in accrued
expenses of $25,000. Decreases in accounts receivable of
$81,000 and an increase in accounts payable of $278,000 provided
cash. A decrease in inventories of $110,000 also provided cash.
Net cash used by investing activities was $105,000 for the
three months ended June 30, 1997 which represented purchases of
property, plant and equipment.
Net cash used by financing activities was $200,000 for the
three months ended June 30, 1997. Net Payments on the revolving
credit loan in the amount of $144,000 and repayment of long-term
debt obligations in the amount of $56,000 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 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, 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.
July 31, 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)<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.
July 31, 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 THREE
MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1997.
</LEGEND>
<CIK> 0000908179
<NAME> JENNIE
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,079,000
<SECURITIES> 0
<RECEIVABLES> 2,975,000
<ALLOWANCES> 57,000
<INVENTORY> 2,594,000
<CURRENT-ASSETS> 6,752,000
<PP&E> 9,557,000
<DEPRECIATION> 4,210,000
<TOTAL-ASSETS> 12,842,000
<CURRENT-LIABILITIES> 6,662,000
<BONDS> 2,094,000
0
0
<COMMON> 3,000
<OTHER-SE> 3,605,000
<TOTAL-LIABILITY-AND-EQUITY> 12,842,000
<SALES> 8,375,000
<TOTAL-REVENUES> 8,375,000
<CGS> 8,341,000
<TOTAL-COSTS> 8,341,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104,000
<INCOME-PRETAX> (539,000)
<INCOME-TAX> 2,000
<INCOME-CONTINUING> (541,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (541,000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> .0
</TABLE>
