SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( x )QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly period Ended:
September 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 No.)
150 River Road,P.O. Box 517 07045
Montville, New Jersey (Zip Code)
(Address of Principal
Executive Offices)
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 November 8,
1999 was 2,971,342.
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
SEPTEMBER 30, 1999 MARCH 31, 1999
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 940,000 $1,924,000
Accounts receivable, net of 5,010,000 3,618,000
allowances of $188,000 at
September 30, 1999 and
$132,000 at March 31, 1999
Inventories 1,679,000 1,785,000
Deferred income taxes 67,000 67,000
Prepaid expenses and other
current assets 378,000 143,000
Total Current Assets 8,074,000 7,537,000
PROPERTY, PLANT AND
EQUIPMENT, NET 7,995,000 7,591,000
OTHER ASSETS:
Due from officers 139,000 139,000
Deferred income taxes 469,000 469,000
Deferred loan costs, net 264,000 268,000
Other 102,000 152,000
Total Other Assets 974,000 1,028,000
TOTAL ASSETS $17,043,000 $16,156,000
see notes to consolidated financial statements
2
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDER'S EQUITY
SEPTEMBER 30, 1999 MARCH 31, 1999
CURRENT LIABILTIES:
Accounts payable $ 3,872,000 $4,323,000
Current portion of
long-term debt 98,000 97,000
Accrued expenses 364,000 371,000
Total Current
Liabilities 4,334,000 4,791,000
LONG TERM LIABILITIES
Long-term debt 4,823,000 4,863,000
Revolving credit line 3,608,000 3,300,000
Deferred income taxes 536,000 536,000
Total Long-term
Liabilities 8,967,000 8,699,000
TOTAL LIABILITIES 13,301,000 13,490,000
STOCKHOLDER'S EQUITY:
Common stock- $.001
par value,10,000,000 shares
authorized,3,021,342 shares
issued 3,000 3,000
Additional paid-in capital 4,438,000 4,438,000
Retained (Deficit)earnings (574,000) (1,650,000)
3,867,000 2,791,000
Less: 50,000 shares
treasury stock at cost (125,000) (125,000)
Total Stockholders' Equity 3,742,000 2,666,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $17,043,000 $16,156,000
see notes to consolidated financial statements
3
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMEBER 30, 1999 AND 1998
(UNADUTIED)
Six Months Ended September 30,
1999 1998
SALES $ 24,153,000 $21,536,000
COST OF SALES 21,799,000 20,043,000
GROSS PROFIT 2,354,000 1,493,000
OTHER EXPENSE (INCOME):
Selling 878,000 844,000
General and administrative 307,000 326,000
Interest income (8,000) (18,000)
Interest expense 355,000 259,000
Insurance proceeds realized
-Key Man (256,000) ___-____
TOTAL OTHER EXPENSE (INCOME) 1,276,000 1,411,000
INCOME BEFORE INCOME TAXES 1,078,000 82,000
(Provision) for income taxes (2,000) (1,000)
NET INCOME $1,076,000 $81,000
NET INCOME PER SHARE $.36 $.03
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 2,971,342 3,002,500
see notes to consolidated financial statements
4
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
Three Months Ended September 30,
1999 1998
SALES $ 13,352,000 $11,988,000
COST OF SALES 11,866,000 11,246,000
GROSS PROFIT 1,486,000 742,000
OTHER EXPENSE (INCOME)
Selling 408,000 406,000
General and administrative 155,000 181,000
Interest income (4,000) (6,000)
Interest expense 178,000 133,000
Insurance proceeds realized
-Key Man (256,000) _____-____
TOTAL OTHER EXPENSE (INCOME) 481,000 714,000
INCOME BEFORE INCOME TAXES 1,005,000 28,000
(Provision) for income taxes - -___
NET INCOME $1,005,000 $28,000
NET INCOME PER SHARE $.34 $.01__
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE 2,971,342 3,002,000
see notes to consolidated financial statements
5
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended September 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITES:
NET INCOME $ 1,076,000 $81,000
Adjustments to reconcile net
income to net cash(used by)
operating activities:
Depreciation and amortization 240,000 180,000
Provision for doubtful accounts 56,000 40,000
(Increase) decrease in assets:
Accounts receivable (1,448,000) (1,630,000)
Inventories 106,000 526,000
Prepaid expenses & other current
assets (235,000) (14,000)
Other assets 54,000 (34,000)
Increase (decrease) in liabilities:
Accounts payable (451,000) 699,000
Accrued expenses (7,000) 30,000
Net Cash (Used by) Operating
Activities (609,000) (122,000)
CASH FLOW FROM INVESTING
ACTIVITIES:
Purchase of property, plant
equipment (644,000) (562,000)
Net Cash (used by) Investing
Activities (644,000) (562,000)
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from
revolving credit loan-net 308,000 359,000
(Payments of) proceeds from
long-term debt and notes (39,000) (92,000)
Net Cash (Used by) Provided
by Financing Activities 269,000 267,000
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (984,000) (417,000)
CASH AND CASH EQUIVALENTS-BEGINNING 1,924,000 737,000
CASH AND CASH EQUIVALENTS-ENDING $940,000 $320,000
see notes to consolidated financial statements
6
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of September 30, 1999,
the Consolidated Statement of Operations for the three and
six month periods ended September 30, 1999 and 1998 and
the Consolidated Statement of Cash Flows for the six month
period ended September 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 September 30, 1999, the results
of its operations for the three months and six months ended
September 30, 1999 and 1998 and the changes in its cash flows
for the six months ended September 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 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 six months ended
September 30, 1999 are not necessarily indicative of the
results to be expected for the entire fiscal year.
3. Inventories are summarized as follows:
September 30, 1999 March 31, 1999
Finished goods $1,030,000 $855,000
Raw Materials 323,000 572,000
Supplies and Packaging 326,000 358,000
$1,679,000 $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.
7
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 and therefore
not taken into consideration.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERTAIONS
General
The Company's conventional cheese product's, 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 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 prices on 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 September 30, 1999 compared to three months
ended September 30, 1998
Sales for the three months ended September 30, 1999
increased to $13,352,000 from $11,988,000 for the comparable
period in 1998, an increase of $1,364,000(or 11.4%).
Approximately $1,064,000 (or 78%) of such amount was due
to a increase in the number of pounds of cheese sold and
approximately $300,000(or 22%) of such increase was due
to increased whey sales produced in our new facility. The
average selling price for cheese remained relatively constant
when compared with the year ago quarter. The volume increase was
due to increased demand in the commodity cheese markets.
Cost of sales and gross profit for the three months
ended September 30, 1999 was $11,866,000 (or 88.9% of sales) and
$1,486,000 (or 11.1% of sales), respectively, compared to a cost
of sales and gross profit margin of $11,246,000 (or 93.8% of sales)
and $742,000 (or 6.2% of sales), respectively, for the
comparable period in 1998. The decrease in cost of sales and
corresponding increase in gross profit margin for 1999(as a
percent of sales and corresponding increases in gross profit
margin in 1999) was primarily due to a decrease in the Company's
cost of raw materials as a percentage of selling price.
9
Selling, general and administrative expense for the
three months ended September 30, 1999 amounted to $563,000
(or 4.2% of sales) compared to $587,000 or (4.9% 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 three months ended September 30,
1999 amounted to $178,000 compared to $133,000 for the three
months ended September 30, 1998 an increase of $45,000. This
increase is the result of increased borrowing due to the
addition of a new whey facility and production equipment and
higher revolving line usage in the period.
There was no increase in the provision for income tax for
the three month period ended September 30, 1999 and September
30, 1998. Charges for federal income taxes were offset by
decreases in the valuation allowances for the three months
ended September 30, 1999 and September 30, 1998. Such amounts
are re-evaluated each quarter based on the results of
operations.
The Company's net operating income of $749,000 for the
three months ended September 30, 1999 represents an improvement
of $721,000 from the net income of $28,000 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.
Six months ended September 30, 1999 compared to six months
September 30, 1998.
Sales for the six months ended September 30, 1999
increased to $24,153,000 from $21,536,000 for the comparable
period in 1998, an increase of $2,617,000(or 12.2%).
Approximately $2,787,000 (or 106.5%) of such amount was due
to a increase in the number of pounds of cheese sold.
Approximately $500,000(or 19.1%) of such amount was due
increased whey sales produced in our new facility. These amounts
were offset by approximately $670,000 (or 25.6%) due to a decrease
in the average selling price for cheese.
10
The decrease in average selling price was the result of a
decrease in block cheddar market prices resulting in a lower
average selling price per pound of cheese in the period.
Cost of sales and gross profit for the six months
ended September 30, 1999 was $21,799,000 (or 90.3% of sales) and
$2,354,000 (or 9.7% of sales), respectively, compared to a cost
of sales and gross profit margin of $20,043,000 (or 93.1% of sales)
and $1,493,000 (or 6.9% of sales), respectively, for the
comparable period in 1998. The decrease in cost of sales and
corresponding increase in gross profit margin for 1999(as a
percent of sales and corresponding increases in gross profit
margin in 1999) was primarily due to a decrease in the Company's
cost of raw materials as a percentage of selling price.
Selling, general and administrative expense for the
six months ended September 30, 1999 amounted to $1,185,000
(or 4.9% of sales) compared to $1,170,000 or (5.4% 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 six months ended September 30,
1999 amounted to $355,000 compared to $259,000 for the six
months ended September 30, 1998 an increase of $96,000. This
increase is the result of increased borrowing due to the
addition of a new whey facility and production equipment and
higher revolving line usage in the period.
The provision for income tax for the six month period ended
September 30, 1999 of $2,000 and September 30, 1998 of $1,000
reflect minimum state taxes. Charges for federal income taxes were
offset by decreases in the valuation allowances for the six months
ended September 30, 1999 and September 30, 1998. Such amounts
are re-evaluated each quarter based on the results of
operations.
The Company's net operating income of $820,000 for the
six months ended September 30, 1999 represents an improvement
of $739,000 from the net income of $81,000 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
11
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 September 30, 1999 the Company had working capital of
$3,740,000 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 September 30, 1999, $3,608,000 was outstanding under such
revolving credit line of credit and $968,000 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 without bank consent).
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.
12
For the six months ended September 30, 1999 cash used by
operating activities was $609,000. In addition to the income from
operations, decreases in inventories of $106,000, and a decrease in
other assets of $54,000 provided cash. Cash was decreased by increases
in accounts receivable of $1,448,000. Decreases in prepaid expenses and
other current assets of $235,000, and a decrease in accounts payable of
$451,000 also decreased cash.
Net cash used by investing activities was $644,000 for the period
ended September 30, 1999 which represented purchase of property, plant
and equipment.
Net cash provided by financing activities was $269,000 for the
period ended September 30, 1999. Proceeds from the revolving credit
loan of $308,000 provided cash. Payments of long-term debt and notes of
$39,000 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.
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 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.
The Company believes that 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.
13
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
14
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 September 30, 1999
15
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.
November 9, 1999 Lucille Farms, Inc.
(Registrant)
By: /s/Alfonso Falivene
Alfonso Falivene
President (Duly Authorized)
By: /s/Stephen M. Katz
Vice President-Finance
and Administration
(Principal Financial Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE SIX MONTH
PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FORM 10Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,1999.
</LEGEND>
<CIK> 0000908179
<NAME> LUCILLE FARMS INC
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 940,000
<SECURITIES> 0
<RECEIVABLES> 5,198,000
<ALLOWANCES> 188,000
<INVENTORY> 1,679,000
<CURRENT-ASSETS> 8,074,000
<PP&E> 12,865,000
<DEPRECIATION> 4,870,000
<TOTAL-ASSETS> 17,043,000
<CURRENT-LIABILITIES> 4,334,000
<BONDS> 8,431,000
0
0
<COMMON> 3,000
<OTHER-SE> 3,739,000
<TOTAL-LIABILITY-AND-EQUITY> 17,043,000
<SALES> 24,153,000
<TOTAL-REVENUES> 24,153,000
<CGS> 21,799,000
<TOTAL-COSTS> 21,799,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355,000
<INCOME-PRETAX> 1,078,000
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 1,076,000
<DISCONTINUED> 0
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<NET-INCOME> 1,076,000
<EPS-BASIC> .36
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