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, 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) (973) 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 February 9, 1998 was
3,002,500.
<PAGE>
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, 1997 March 31, 1997
CURRENT ASSETS: (UNAUDITED)
Cash and Cash Equivalents $1,743,000 $1,422,000
Accounts receivable, net 3,496,000 2,999,000
of allowances of $80,000
at December 31, 1997 and
$57,000 at March 31, 1997
Inventories 1,623,000 2,704,000
Deferred income taxes 37,000 37,000
Prepaid expenses and other
current assets 104,000 104,000
Total Current Assets 7,003,000 7,266,000
PROPERTY, PLANT AND EQUIPMENT, 5,470,000 5,322,000
NET
OTHER ASSETS:
Due from officers 160,000 176,000
Deferred income taxes 441,000 441,000
Deposits on Equipment 9,000
Other 141,000 116,000
Total Other Assets 742,000 742,000
TOTAL ASSETS $13,215,000 $13,330,000
See notes to consolidated financial statements
<PAGE>
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 1997 March 31, 1997
CURRENT LIABILITIES: (UNAUDITED)
Accounts Payable $3,817,000 $2,954,000
Revoloving credit loan 3,140,000
Current portion of long-term debt 229,000 240,000
Accrued expenses 194,000 219,000
Total Current Liabilites 4,240,000 6,553,000
LONG TERM LIABILITIES:
Revoloving credit loan 3,544,000
Long-term debt 1,980,000 2,150,000
Deferred income taxes 478,000 478,000
Total Long-term Liabilities 6,002,000 2,628,000
TOTAL LIABILITIES 10,242,000 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 (1,417,000) (241,000)
3,098,000 4,274,000
Less: 50,000 shares treasury
stock at cost (125,000) (125,000)
Total Stockholders' Equity 2,973,000 4,149,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,215,000 $13,330,000
See notes to consolidated financial statements
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31,
1997 1996
SALES $27,165,000 $35,171,000
COST OF SALES 26,390,000 33,168,000
GROSS PROFIT 775,000 2,003,000
OTHER EXPENSE(INCOME):
SELLING 1,163,000 1,228,000
GENERAL AND ADMINISTRATIVE 507,000 547,000
GAIN ON SALE OF EQUIPMENT (29,000)
INTEREST INCOME (34,000) (51,000)
INTEREST EXPENSE 342,000 264,000
TOTAL OTHER EXPENSE (INCOME) 1,949,000 1,988,000
(LOSS) INCOME BEFORE INCOME TAXES (1,174,000) 15,000
(PROVISION) FOR INCOME TAXES (2,000) (4,000)
NET (LOSS) INCOME $(1,176,000) $ 11,000
NET (LOSS) INCOME PER SHARE $(.39) $.00
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 3,002,500 3,006,000
See notes to consolidated financial statements
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
Three Months Ended December 31,
1997 1996
SALES $10,538,000 $11,100,000
COST OF SALES 10,031,000 11,007,000
GROSS PROFIT 507,000 93,000
OTHER EXPENSE(INCOME):
SELLING 418,000 365,000
GENERAL AND ADMINISTRATIVE 190,000 194,000
GAIN ON SALE OF EQUIPMENT ( 5,000)
INTEREST INCOME (11,000) (16,000)
INTEREST EXPENSE 107,000 103,000
TOTAL OTHER EXPENSE (INCOME) 699,000 646,000
(LOSS) BEFORE INCOME TAXES (192,000) (553,000)
(PROVISION)BENEFIT FOR INCOME TAXES 186,000
NET (LOSS) $(192,000) $(367,000)
NET (LOSS)PER SHARE $(.06) $(.12)
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)
Nine Months Ended December 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME $(1,176,000) $11,000
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 225,000 220,000
Provision for doubtful accounts 23,000 25,000
(Increase) decrease in assets:
Accounts receivable (520,000) 10,000
Inventories 1,081,000 (125,000)
Prepaid expenses and other current assets 33,000
Other assets 157,000
Increase(decrease) in liabilities:
Accounts payable 863,000 311,000
Accrued expenses (25,000) (120,000)
Net Cash provided by Operating
Activities 471,000 522,000
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Treasury Stock (125,000)
Purchase of property, plant
and equipment (373,000) (1,102,000)
Net Cash (Used by) Investing
Activities (373,000) (1,227,000)
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from revolving
credit loan-net 404,000 (216,000)
(Payments of) proceeds from long-term
debt and notes (181,000) 131,000
Net Cash (Used by) Provided by
Financing Activities 223,000 (85,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 321,000 (790,000)
CASH AND CASH EQUIVALENTS - BEGINNING 1,422,000 1,697,000
CASH AND CASH EQUIVALENTS - ENDING $1,743,000 $ 907,000
See notes to consolidated financial statements
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of December 31, 1997, the
Consolidated Statement of Operations for the three and nine
month periods ended December 31, 1997 and 1996 and the
Consolidated Statement of Cash Flows for the nine month periods
ended December 31, 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 December 31, 1997, the results of its
operations for the three months and nine months ended December
31, 1997 and 1996 and in its cash flows for the nine months
ended December 31, 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 nine months ended
December 31, 1997 are not necessarily indicative of the results
to be expected for the entire fiscal year.
3. Inventories are summarized as follows:
December 31, 1997 March 31, 1997
Finished goods $ 957,000 $ 1,564,000
Raw materials 318,000 763,000
Supplies and Packaging 348,000 377,000
$ 1,623,000 $ 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. Basic and diluted
per share amounts are the same for all periods, since the
effect of stock options would be antidulutive and therefore
not taken into consideration.
<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 December 31, 1997 compared to three months
ended December 31, 1996
Sales for the three months ended December 31, 1997 decreased to
$10,538,000 from $11,100,000 for the comparable period in 1996,
a decrease of $562,000 (or 5.1%). Approximately $612,000 (or
108.9%) of such amount was due to a decrease in the number of
pounds of cheese sold, and approximately $50,000 (or 8.9%) of
such decrease was offset by an increase 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 increase in average selling price was
the result of an increase in block cheddar market prices
resulting in a higher selling price per pound of cheese.
Cost of sales and gross profit margin for the three months
ended December 31, 1997 was $10,031,000 (or 95.2% of sales) and
$507,000 (or 4.8% of sales), respectively, compared to a cost of
sales and gross profit margin of $11,007,000 (or 99.2% of sales)
and $93,000 (or 0.8% of sales), respectively, for the comparable
period in 1996. The decrease in cost of sales and corresponding
increase in gross profit margin for 1997 (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.
Selling, general and administrative expenses for the three
months ended December 31, 1997 amounted to $608,000 (or 5.8% of
sales) compared to $559,000 or 5.0% of sales) for the comparable
period in 1996. The increase in selling, general and
administrative expenses was due to increased shipping costs and
expanded sales costs incurred by the company in order to regain
customer base.
Interest expense for the three months ended December 31, 1997
amounted to $107,000 compared to $103,000 for the three months
ended December 31, 1996.
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.
Credits for income taxes were offset by increases in the
valuation allowance for the three months ended December 31, 1997.
The Company's net loss of $192,000 for the three months ended
December 31, 1997 represents a improvement of $175,000 from the
net loss of $367,000 for the comparable period in 1996. The
primary factors contributing to these changes are discussed
above.
Nine months ended December 31, 1997 compared to nine months
ended December 31, 1996
Sales for the nine months ended December 31, 1997 decreased to
$27,165,000 from $35,171,000 for the comparable period in 1996,
a decrease of $8,006,000 (or 22.8%). Approximately $3,596,000
(or 44.9%) of such decrease was due to a decrease in the number
of pounds of cheese sold and approximately $4,410,000 (or 55.1%)
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 lower block cheddar market prices resulting in a
lower selling price per pound of cheese.
Cost of sales and gross profit margin for the nine months ended
December 31, 1997 was $26,390,000 (or 97.1% of sales) and
$775,000 (or 2.9% of sales), respectively, compared to a cost of
sales and gross profit margin of $33,168,000 (or 94.3% of sales)
and $2,003,000 (or 5.7% 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 nine
months ended December 31, 1997 amounted to $1,670,000 (or 6.1%
of sales) compared to $1,775,000 (or 5.0% 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, although not in proportion to the decrease in sales.
Interest expense for the nine months ended December 31, 1997
amounted to $342,000 compared to $264,000 for the nine months
ended December 31, 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 provision for state tax at statutory rates.
Credits for federal income taxes were offset by increases in the
valuation allowance for the nine months ended December 31, 1997.
The provision for income tax for the nine months ended December 31, 1996
of $4,000 reflects provision 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 $1,176,000 for the nine months ended
December 31, 1997 represents a decrease of $1,187,000 from the
net income of $11,000 for the comparable period in 1996. The
primary factors contributing to these changes are discussed
above.
Liquidity and Capital Resources
At December 31, 1997 the Company had working capital of
$2,763,000 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 December 31, 1997, $3,544,000 was outstanding under such
revolving line of credit and $128,000 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 December 31,
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 nine months ended December 31 1997 cash provided by
operating activities was $471,000. In addition to the loss from
operations, increases in accounts receivable of $520,000 used
cash. Cash was also used by a decrease in accrued expenses of
$25,000. Increases in accounts payable of $863,000 and a
decrease in inventories of $1,081,000 provided cash.
Net cash used by investing activities was $373,000 for the nine
months ended December 31, 1997 which represented purchases of
property, plant and equipment.
Net cash provided by financing activities was $223,000 for the
nine months ended December 31, 1997. Net proceeds from the
revolving credit loan in the amount of $404,000 provided cash.
Repayment of long-term debt obligations in the amount of
$181,000 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 December 31, 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.
February 11, 1998
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 NINE MONTH
PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FORM 10Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000908179
<NAME> LUCILLE FARMS, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,743,000
<SECURITIES> 0
<RECEIVABLES> 3,576,000
<ALLOWANCES> 80,000
<INVENTORY> 1,623,000
<CURRENT-ASSETS> 7,003,000
<PP&E> 9,821,000
<DEPRECIATION> 4,351,000
<TOTAL-ASSETS> 13,215,000
<CURRENT-LIABILITIES> 4,240,000
<BONDS> 5,524,000
0
0
<COMMON> 3,000
<OTHER-SE> 2,970,000
<TOTAL-LIABILITY-AND-EQUITY> 13,215,000
<SALES> 27,165,000
<TOTAL-REVENUES> 27,165,000
<CGS> 26,390,000
<TOTAL-COSTS> 26,390,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 342,000
<INCOME-PRETAX> (1,174,000)
<INCOME-TAX> 2,000
<INCOME-CONTINUING> (1,176,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,176,000)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
