<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1998
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Commission File Number 1-12506
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LUCILLE FARMS, INC.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2963923
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(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 of 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 6, 1998 was 3,002,500.
1
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Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1998 March 31, 1998
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<S> <C> <C>
CURRENT ASSETS: (UNAUDITED)
Cash and cash equivalents $ 635,000 $ 737,000
Accounts receivable, net 3,761,000 2,833,000
of allowances of $98,000
at June 30, 1998 and $78,000
at March 31, 1998
Inventories 2,081,000 1,895,000
Deferred income taxes 45,000 45,000
Prepaid expenses and other
current assets 94,000 69,000
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Total Current Assets 6,616,000 5,579,000
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PROPERTY, PLANT AND EQUIPMENT, NET 5,316,000 5,314,000
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OTHER ASSETS:
Due from officers 169,000 169,000
Deferred income taxes 453,000 471,000
Deposits on equipment 14,000
other 151,000 123,000
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Total Other Assets 787,000 763,000
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TOTAL ASSETS $12,719,000 $11,656,000
</TABLE>
See notes to consolidated financial statements
2
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LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1998 MARCH 31, 1998
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<S> <C> <C>
CURRENT LIABILITIES: (UNAUDITED)
Accounts payable $4,370,000 $3,791,000
Revolving credit loan 3,448,000
Current portion of long-term debt 278,000 282,000
Accrued expenses 231,000 224,000
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Total Current Liabilities 8,327,000 4,297,000
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LONG TERM LIABILITIES:
Long-term debt 1,830,000 1,885,000
Revolving credit line 2,947,000
Deferred income taxes 498,000 516,000
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Total Long-term Liabilities 2,328,000 5,348,000
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TOTAL LIABILITIES 10,655,000 9,645,000
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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 (2,326,000) (2,379,000)
----------- -----------
2,189,000 2,136,000
Less: 50,000 shares treasury
stock at cost (125,000) (125,000)
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Total Stockholder's Equity 2,064,000 2,011,000
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $12,719,000 $11,656,000
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</TABLE>
See notes to consolidated financial statements.
3
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LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------
<S> <C> <C>
1998 1997
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SALES $9,548,000 $8,375,000
COST OF SALES 8,797,000 8,341,000
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GROSS PROFIT 751,000 34,000
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OTHER EXPENSE (INCOME):
SELLING 438,000 379,000
GENERAL AND ADMINISTRATIVE 145,000 119,000
GAIN ON SALE OF EQUIPMENT (19,000)
INTEREST INCOME (12,000) (10,000)
INTEREST EXPENSE 126,000 104,000
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TOTAL OTHER EXPENSE (INCOME) 697,000 573,000
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(LOSS) INCOME BEFORE INCOME TAXES 54,000 (539,000)
(PROVISION) FOR INCOME TAXES (1,000) (2,000)
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NET (LOSS) INCOME $ 53,000 $ (541,000)
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---------- ----------
NET (LOSS) INCOME PER SHARE $ .02 $ (.18)
WEIGHTED AVERAGE SHARES ---------- ----------
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE $3,002,500 $3,002,500
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements
4
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LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30,
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1998 1997
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<S> <C> <C>
Cash flows from operating activities:
NET INCOME (LOSS) $ 53,000 $ (541,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 90,000 80,000
Provision for doubtful accounts 20,000
(Increase) decrease in assets:
Accounts receivable (948,000) 81,000
Inventories (186,000) 110,000
Prepaid expenses and other current assets (25,000) (20,000)
Other assets (42,000) (1,000)
Increase (decrease) in liabilities:
Accounts payable 579,000 278,000
Accrued expenses 7,000 (25,000)
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Net Cash provided (used) by Operating
Activities (452,000) (38,000)
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (92,000) (105,000)
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Net Cash (Used by) Investing Activities (92,000) (105,000)
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CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from revolving
credit loan-net 501,000 (144,000)
(Payments of) proceeds from long-term
debt and notes (59,000) (56,000)
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Net Cash (Used by) Provided by
Financing Activities 442,000 (200,000)
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NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (102,000) (343,000)
CASH AND CASH EQUIVALENTS - BEGINNING 737,000 1,422,000
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CASH AND CASH EQUIVALENTS - ENDING $ 635,000 $1,079,000
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----------- -----------
</TABLE>
See notes to consolidated financial statements
LUCILLE FARMS, INC.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of June 30, 1998, the Consolidated
Statement of Operations for the three month periods ended June 30, 1998
and 1997 and the Consolidated Statement of Cash Flows for the three month
periods ended June 30, 1998 and 1997 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, 1998, the
results of its operations for the three months ended June 30, 1998 and
1997 and in its cash flows for the three months ended June 30, 1998 and
1997.
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, 1998
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, 1998 are
not necessarily indicative of the results to be expected for the entire
fiscal year.
3. Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998
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<S> <C> <C>
Finished goods.................. $1,367,000 $1,236,000
Raw materials................... 363,000 312,000
Supplies and Packaging.......... 351,000 347,000
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$2,081,000 $1,895,000
</TABLE>
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
antidilutive and therefore not taken into consideration.
6
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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 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.
Three months ended June 30, 1998 compared to three months ended June 30, 1997.
Sales for the three months ended June 30, 1998 increased to $9,548,000 from
$8,375,000 for the comparable period in 1997, an increase of $1,173,000 (or
14.0%). Approximately $363,000 (0r 30.9%) of such amount was due to a
increase in the number of pounds of cheese sold, and approximately $810,000
(or 69.1%) of such increase was due to an increase in the average selling
price for cheese. The volume increase was due to increased demand in the
commodity markets. 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 June 30,
1998 was $8,797,000 or (92.1% of sales) and $751,000 (or 7.9% of sales),
respectively, compared to a cost of sales and gross profit margin of
$8,341,000 (of 99.6% of sales) and $34,000 (or 0.4% of sales), respectively,
for the comparable period in 1997. The decrease in cost of sales (as a
percent of sales) and corresponding increase in gross profit margin for 1998
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
June 30, 1998 amounted to $583,000 (or 6.1% of sales) compared to $498,000 or
5.9% of sales) for the comparable period in 1997. 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 June 30, 1998 amounted to
$126,000 compared to $104,000 for the three months ended June 30, 1997. This
7
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increase is the result of increased borrowings due to the addition of new
plant production equipment and higher revolving credit line usage.
The 1998 and 1997 provision for income taxes of $1,000 and $2,000
respectively, results primarily from provision for state tax at statutory
rates. Charges for federal income taxes in 1998 were offset by decreases in
the valuation allowance for the three months ended June 30, 1998. Credits for
income taxes were offset by increases in the valuation allowance for the
three months ended June 30, 1997. Such amounts are re-evaluated each quarter
based on the results of operations.
The Company's net income of $53,000 for the three months ended June 30,
1998 represents an improvement of $594,000 from the net loss of $541,000 for
the comparable period in 1997. The primary factors contributing to these
changes are discussed above.
Liquidity and Capital Resources
At June 30, 1998 the Company had working capital of $(1,711,000) as
compared to working capital of $1,282,000 at March 31, 1998. This decrease is
due to the scheduled maturity of the Company's revolving credit line which is
currently May 1999 and its consequent reclassification as a current
liability. The Company's revolving bank line of credit is available for the
Company's working capital requirements.
At June 30, 1998, $3,448,000 was outstanding under such revolving line
of credit and $47,000 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 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, 1997, $174,000 was outstanding and $826,000
available for future capital improvements through September, 1998.
8
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As of July 8, 1998, the revolving credit loan and the other loans with
the bank were modified due to the Company's 1998 losses. The modifications
among other things includes the reduction of the revolving credit line to
$4,250,000, the reduction of the capital expenditure line to $924,000, the
interest rates on all loans with the bank will increase to prime plus 1.5%
effective September 1, 1998 and increase .25% the first of every month
thereafter until the interest rate reaches prime plus 2.50%. The Company does
not believe that this will have a material effect on the operations of the
Company. The Company believes that it will be able to negotiate a better rate
and extend the maturity of its revolving credit line with its current lender,
however there can be no assurances as to whether such negotiations will be
successful.
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 assets 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, 1998 cash used by operating
activities was $452,000. Increases in accounts receivable of $948,000,
inventories of $186,000 and prepaid expenses and other assets of $67,000 used
cash. Cash was provided by income from operations and an increase in accounts
payable of $579,000. An increase in accrued expenses of $7,000 also provided
cash.
Net cash used by investing activities was $92,000 for the three months
ended June 30, 1998 which represented purchases of property, plant and
equipment.
Net cash provided by financing activities was $442,000 for the three
months ended June 30, 1998. Proceeds from the revolving credit loan of $501,000
provided cash. Repayment of long-term debt obligations in the amount of
$59,000 utilized cash in the period.
The Company estimates that based upon its current plans, its resources,
including revenues from operations and utilization of its credit lines, will
be sufficient to meet its anticipated needs for at least 12 months.
9
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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, 1998.
10
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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.
August 11, 1998
Lucille Farms, Inc.
(Registrant)
By: /s/ Alfonso Falivene
----------------------------------
Alfonso Falivene,
President (Duly Authorized Officer)
By: /s/ Stephen M. Katz
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Stephen M. Katz,
Vice President-Finance
and Administration
(Principal Financial Officer)
11
<TABLE> <S> <C>
<PAGE>
<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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 635,000
<SECURITIES> 0
<RECEIVABLES> 3,859,000
<ALLOWANCES> 98,000
<INVENTORY> 2,081,000
<CURRENT-ASSETS> 6,616,000
<PP&E> 9,860,000
<DEPRECIATION> 4,544,000
<TOTAL-ASSETS> 12,719,000
<CURRENT-LIABILITIES> 8,327,000
<BONDS> 1,830,000
0
0
<COMMON> 3,000
<OTHER-SE> 2,061,000
<TOTAL-LIABILITY-AND-EQUITY> 12,719,000
<SALES> 9,548,000
<TOTAL-REVENUES> 9,548,000
<CGS> 8,797,000
<TOTAL-COSTS> 8,797,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,000
<INCOME-PRETAX> 54,000
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 53,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,000
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
