SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITITES AND
EXCHANGE ACT OF 1934
For the Quarterly Period Ended:
June 30, 1999
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
of Incorporation) Identification number)
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 and 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, 1999
was 2,971,342
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
JUNE 30, 1999 MARCH 31, 1999
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $189,000 $1,924,000
Accounts receivable, net 3,687,000 3,618,000
Of allowances of $157,000
At June 30, 1999 and $132,000
At March 31, 1999
Inventories 2,055,000 1,785,000
Deferred income taxes 67,000 67,000
Prepaid expenses and other
Current assets 130,000 143,000
Total current assets 6,128,000 7,537,000
PROPERTY, PLANT AND EQUIPMENT, NET 7,898,000 7,591,000
OTHER ASSETS:
Due from officers 139,000 139,000
Deferred income taxes 469,000 469,000
Deferred loan costs, net 265,000 268,000
Other 169,000 152,000
Total Other Assets 1,042,000 1,028,000
TOTAL ASSETS $15,068,000 $16,156,000
See notes to consolidated financial statements
2
LUCILLE FARMS,INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDER'S EQUITY
JUNE 30, 1999 MARCH 31, 1999
(UNAUDITED)
CURRENT LIABILITES:
Accounts Payable $4,441,000 $4,323,000
Current portion of long-term debt 91,000 97,000
Accrued expenses 294,000 371,000
Total Current Liabilities 4,826,000 4,791,000
LONG TERM LIABILITIES:
Long-term debt 4,843,000 4,863,000
Revolving credit line 2,126,000 3,300,000
Deferred income taxes 536,000 536,000
Total Long-Term Liabilities 7,505,000 8,699,000
TOTAL LIABILITIES 12,331,000 13,490,000
STOCKHOLDERS EQUITY:
Common stock - $.001 par value, 3,000 3,000
10,000,000 shares authorized,
2,971,342 share issued
Additional paid-in capital 4,438,000 4,438,000
Retained (Deficit) earnings (1,579,000) (1,650,000)
2,862,000 2,791,000
Less: 50,000 shares treasury
Stock at cost (125,000) (125,000)
Total Stockholders' Equity 2,737,000 2,666,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,068,000 $16,156,000
See notes to consolidated financial statements
3
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
1999 1998
SALES $10,801,000 $9,548,000
COST OF SALES 9,933,000 8,797,000
GROSS PROFIT 868,000 751,000
OTHER EXPENSES (INCOME):
SELLING 470,000 438,000
GENERAL AND ADMINISTRATIVE 152,000 145,000
INTEREST INCOME (4,000) (12,000)
INTEREST EXPENSE 177,000 126,000
TOTAL OTHER EXPENSE (INCOME) 795,000 697,000
INCOME BEFORE INCOME TAXES 73,000 54,000
(PROVISION) FOR INCOME TAXES (2,000) (1,000)
NET INCOME $71,000 $53,000
NET INCOME PER SHARE $.02 $.02
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 2,971,000 3,002,500
See notes to consolidated financial statements
4
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
1999 1998
Cash flows from operating activities:
NET INCOME $71,000 $53,000
Adjustments to reconcile net income
To net cash provided(used) by
Operating activities:
Depreciation and amortization 120,000 90,000
Provision for doubtful accounts 25,000 20,000
(Increase) decrease in assets:
Accounts receivable (94,000) (948,000)
Inventories (270,000) (186,000)
Prepaid expenses and other current 13,000 (25,000)
assets
Other assets (14,000) (42,000)
Increase (decrease) in liabilities
Accounts payable 118,000 579,000
Accrued expenses (77,000) 7,000
Net Cash (used by) Operating
Activities (108,000) (452,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant
And equipment (427,000) (92,000)
Net Cash (Used by) Investing
Activities (427,000) (92,000)
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from revolving
credit loan-net (1,174,000) 501,000
(Payments of)proceeds from long-term
debt and notes (26,000) (59,000)
Net Cash (Used by) Provided by
Financing Activities (1,200,000) 442,000
NET (DECREASED) IN CASH AND
CASH EQUIVALENTS (1,735,000) (102,000)
CASH AND CASH EQUIVALENTS-BEGINNING 1,924,000 737,000
CASH AND CASH EQUIVALENTS-ENDING $189,000 $635,000
See notes to consolidated financial statements
5
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of June 30, 1999,
the Consolidated Statement of Operations for the
three month periods ended June 30, 1999 and 1998 and
the Consolidated Statements of Cash Flows for the three
month periods ended June 30, 1999 and 1998 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, 1999, the results of its operations for the three months
ended June 30, 1999 and 1998 and its cash flows for the
three months ended June 30, 1999 and 1998.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principals 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, 1999
included in the Companies 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, 1999 are not necessarily indicative of the
results to be expected for the entire fiscal year.
3. Inventories are summarized as follows:
June 30, 1999 March 31, 1999
Finished goods $868,000 $855,000
Raw Materials 806,000 572,000
Supplies and Packaging 381,000 358,000
$2,055,000 $1,785,000
4. On February 8, 1999, a new $4,950,000 bank loan
agreement was signed. The new loan is collateralized
by the Company's plant and equipment. Provisions of the
new loan are as follows:
A $3,960,000 commercial term note with interest
fixed at 9.75 percent having an amortization period
of 20 years with a maturity in February, 2019.
6
A $990,000 commercial term note with interest fixed
at 10.75 percent having an amortization period of
20 years with a maturity in February, 2019.
5. 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 or immaterial and therefore not taken into
consideration.
7
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, 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 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 also is 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, 1999 compared to the three months ended
June 30, 1998
Sales for the three months ended June 30, 1999 increased to
$10,801,000 from $9,548,000 for the comparable period in 1998, an
increase of $1,253,000 (or 13.1%). Approximately $1,608,000 (or
128.3%) of such amount was due to an increase in the number of pounds
of cheese sold. This increase was offset by approximately $355,000
(or 28.3%) due to an decrease in the average selling price for cheese.
The volume increase was due to increased demand in the commodity cheese
markets. The Company anticipates volume increases and increased demand
in the months ahead, although there can be no assurance in this regard.
The decrease in average selling price was the result of a decrease in
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
June 30, 1999 were $9,933,000 (or 92.0% of sales) and $868,000 (or 8.0%
of sales), respectively, compared to a cost of sales and gross profit
margin of $8,797,000 (or 92.1% of sales) and $751,000 (or 7.9% of
sales), respectively, for the comparable period in 1998. The cost of
sales and gross profit margin for 1999 as a percentage of sales has
remained constant as compared to the comparable 1998 period.
8
Selling, general and administrative expenses for the period ended
June 30, 1999 amounted to $622,000 (or 5.8% of sales) compared to
$583,000 (or 6.1% of sales) for the comparable period in 1998. The
decrease in selling, general and administrative expenses as a
percentage of sales was primarily due to the increased sales in the
period without a corresponding increase in these expenses.
Interest expense for the period ended June 30, 1999 amounted to
$177,000 compared to $126,000 for the period ended June 30, 1998 an
increase of $51,000. This increase is the result of increased borrowing
due to the addition of a new whey facility and production equipment and
higher revolving credit line usage in the period.
The provision for income tax for the period ended June 30, 1999
of $2,000 and June 30, 1998 of $1,000 reflect minimum state taxes.
Charges for Federal income taxes were offset by decreases in the
valuation allowances for the three months ended June 30, 1999 and June
30, 1998. Such amounts are re-evaluated each year based on the results
of operations.
The Company's net income of $71,000 for the period ended
June 30, 1999 represents an improvement of $18,000 from the net income
of $53,000 for the comparable period in 1998. The primary factors
contributing to these changes are discussed above.
With respect to its gross profit margin, the Company is
continuing its efforts to increase sales of its value added products
which are less dependent on the Chicago Mercantile Exchange. The
selling price for the Company's nutritional line of cheeses is less
dependent on the Block Cheddar Market, which dictates the Company's
commodity cheese prices. With respect to its nutritional line of
cheeses, the Company is continuing its efforts to increase sales of
such products. To date sales of nutritional cheese has not been
significant. The Company has now positioned itself to co-pack private
label retail products. However, there can be no assurance as to
whether such sales can be achieved or maintained. In addition, the
Company has continued to upgrade its equipment to enable it to reduce
costs and add product lines with greater margins.
Liquidity and Capital Resources
At June 30, 1999 the Company had working capital of $1,302,000 as
compared to working capital of $2,746,000 at March 31, 1999. The
Company's revolving bank line of credit is available for the Company's
working capital requirements.
At June 30, 1999, $2,126,000 was outstanding under such revolving
credit line of credit and $1,411,000 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 ($500,000 annually without bank
consent).
9
In addition, the Company is required to generate an
increase in its dollar amount of net worth annually. The Company
intends to continue to utilize this line of credit as needed for
operations.
On February 8, 1999, a new $4,950,000 bank loan agreement was
signed. The new loan is collateralized by the Company's plant
and equipment. Provisions of the loan are as follows:
A $3,960,000 commercial term note with interest
fixed at 9.75 percent having an amortization period
of 20 years with a maturity in February, 2019.
A $990,000 commercial term note with interest
fixed at 10.75 percent having an amortization period
of 20 years with a maturity in February, 2019.
Proceeds of the new loans were used to repay the $2,647,000
of the long term debt outstanding at December 31, 1998, reduce
the revolving credit loan by $954,000 and the balance was
added to the working capital of the Company.
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, 1999 cash used by operating
activities was $108,000. In addition to the income from operations,
increases in accounts payable of $118,000, and a decrease in prepaid
expenses and other current assets of $13,000 provided cash. Cash was
decreased by increases in accounts receivable of $94,000. Increases in
inventories of $270,000, an increase in other assets of $14,000 and an
decrease in accrued expenses of $77,000 also decreased cash.
Net cash used by investing activities was $427,000 for the period
ended June 30, 1999 which represented purchase of property, plant and
equipment.
Net cash used by financing activities was $1,200,000 for the
period ended June 30, 1999. Repayments of the revolving credit loan of
$1,174,000 and long-term debt and notes of $26,000, used 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.
10
Year 2000 Issue
The Company has assessed the potential issues associated with
the year 2000 and believes that its costs to address such issues
would not be material. The Company anticipates that all of its
operating systems are or will shortly be Year 2000 compliant. The
Company also believes that costs or consequences of an incomplete or
untimely resolution would not result in the occurrence of a material
event or uncertainty reasonably likely to have a material adverse
effect on the Company. However, the Company has not determined
whether its principal suppliers and customers are year 2000
compliant. In the event any of the Company's principal suppliers and
customers are not year 2000 compliant it may have a material adverse
effect on the Company.
Forward Looking Statements
This Quaterly Report on Form 10Q (and any other reports issued by
the Company from time to time) contains certain forward-looking
statements made in reliance upon the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements, including statements regarding the Company's ability to
improve margins and increase retail sales, are based on current
expectations that involve numerous risks and uncertainties. Actual
results could differ materially from those anticipated in such forward-
looking statements as a result of various known and unknown factors
including, without limitation, future economic, competitive,
regulatory, and market conditions, future business decisions, the
uncertainties inherent in the pricing of cheese on the Chicago
Mercantile Exchange upon which the Company's prices are based, changes
in consumer tastes, fluctuations in milk prices, and those factors
discussed above under Management's Discussion and Analysis of Financial
Condition and Results of Operations. Words such as "believes,"
"anticipates," "expects," "intends," "may," and similar expressions are
intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. The Company undertakes
no obligation to revise any of these forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
not applicable
11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months
ended June 30, 1999
12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
August 10, 1999 Lucille Farms, Inc.
(Registrant)
By: /s/Alfonso Falivene
Alfonso Falivene,
President (Duly Authorized)
By: /s/Stephen M. Katz
Stephen M. Katz,
Vice President-Finance
and Administration
(Principal Financial Officer)
13
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FORM 10Q FOR THE QUARTERLY PERIOD ENDED JUNE 30,1999.
</LEGEND>
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<NAME> LUCILLE FARMS, INC.
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 189,000
<SECURITIES> 0
<RECEIVABLES> 3,844,000
<ALLOWANCES> 157,000
<INVENTORY> 2,055,000
<CURRENT-ASSETS> 6,128,000
<PP&E> 12,648,000
<DEPRECIATION> 4,750,000
<TOTAL-ASSETS> 15,068,000
<CURRENT-LIABILITIES> 4,826,000
<BONDS> 6,969,000
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<COMMON> 3,000
<OTHER-SE> 2,734,000
<TOTAL-LIABILITY-AND-EQUITY> 15,068,000
<SALES> 10,801,000
<TOTAL-REVENUES> 10,801,000
<CGS> 9,933,000
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<INTEREST-EXPENSE> 177,000
<INCOME-PRETAX> 73,000
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 71,000
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