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, 1998
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 07045
Montville, New Jersey (Zip Code)
(Address of Principal 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
$0.001
per share, outstanding as of February 8, 1999 was: 2,971,342.
-1-
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
DECEMBER 31, 1998 MARCH 31, 1998
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 157,000 $ 737,000
Accounts receivable, net of 5,529,000 2,833,000
allowances of $148,000 at
December 31, 1998 and
$78,000 at March 31, 1998
Inventories 1,974,000 1,895,000
Deferred income taxes 45,000 45,000
Prepaid expenses and other 94,000 69,000
current assets ___________ _________
Total Current Assets 7,799,000 5,579,000
PROPERTY, PLANT AND 6,858,000 5,314,000
EQUIPMENT, NET
OTHER ASSETS:
Due from officers 156,000 169,000
Deferred income taxes 443,000 471,000
Other 144,000 123,000
Total Other Assets 743,000 763,000
TOTAL ASSETS $15,400,000 $11,656,000
see notes to consolidated financial statements
- -2-
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDER'S EQUITY
DECEMBER 31, 1998 MARCH 31, 1998
(unaudited)
CURRENT LIABILITIES:
Accounts payable $5,391,000 $3,791,000
Revolving credit loan 3,898,000
Current portion of long-term debt 80,000 282,000
Accrued expenses 297,000 224,000
Total Current Liabilities 9,666,000 4,297,000
LONG TERM LIABILITIES:
Long-Term debt 2,567,000 1,885,000
Revolving credit line - 2,947,000
Deferred income taxes 488,000 516,000
Total Long-term Liabilities 3,055,000 5,348,000
TOTAL LIABILITIES 12,721,000 9,645,000
STOCKHOLDERS' EQUITY:
Common stock- $.001 par value,10,000,000 3,000
3,000 shares authorized, 3,052,500 shares issued
Additional paid-in capital 4,512,000 4,512,000
Retained (Deficit) earnings (1,711,000) (2,379,000)
2,804,000 2,136,000
Less: 50,000 shares treasury stock at cost (125,000)
(125,000)
Total Stockholders' Equity 2,679,000 2,011,000
TOTAL LIABILITIES AND $15,400,000 $11,656,000
STOCKHOLDERS' EQUITY
see notes to consolidated financial statements
- -3-
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
Nine Months Ended December 31,
1998 1997
SALES $35,496,000 $27,165,000
COST OF SALES 32,654,000 26,390,000
GROSS PROFIT 2,842,000 775,000
OTHER EXPENSE (INCOME):
Selling 1,250,000 1,163,000
General and administrative 527,000 507,000
Gain on sale of equipment - (29,000)
Interest income (25,000) (34,000)
Interest expense 421,000 342,000
TOTAL OTHER EXPENSE (INCOME) 2,173,000 1,949,000
INCOME (LOSS) BEFORE INCOME TAXES 669,000 (1,174,000)
(Provision) for income taxes (1,000) (2,000)
NET INCOME (LOSS) $668,000 $(1,176,000)
NET INCOME (LOSS) PER SHARE $.22
$(.39)
WEIGHTED AVERAGE SHARES 3,002,500 3,002,500
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE
see notes to consolidated financial statements
- -4-
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
1998 1997
Three Months Ended December 31,
SALES $13,960,000 $10,538,000
COST OF SALES 12,611,000 10,031,000
GROSS PROFIT 1,349,000 507,000
OTHER EXPENSE (INCOME):
Selling 406,000 418,000
General and administrative 201,000 190,000
Gain on sale of equipment - (5,000)
Interest income (7,000) (11,000)
Interest expense 162,000 107,000
TOTAL OTHER EXPENSE (INCOME) 762,000 699,000
INCOME (LOSS) BEFORE INCOME TAXES 587,000 (192,000)
(Provision) for income taxes _____-____ ____-_____
NET INCOME (LOSS) $587,000 $(192,000)
NET INCOME (LOSS) PER SHARE $.19 $(.06)
WEIGHTED AVERAGE SHARES 3,002,500 3,002,500
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE
see notes to consolidated financial statements
- -5-
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended December 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $668,000 $(1,176,000)
Adjustments to reconcile net income
(loss) to net cash provided by
(used by) operating activities:
Depreciation and amortization 300,000 225,000
Provision for doubtful accounts 70,000 23,000
(Increase) decrease in assets:
Accounts receivable (2,766,000) (520,000)
Inventories (79,000) 1,081,000
Prepaid expenses & other current assets (25,000)
- -
Other assets (8,000) -
Increase (decrease) in liabilities:
Accounts payable 1,600,000 863,000
Accrued expenses 73,000 (25,000)
Net Cash (Used by) Operating Activities (167,000)
471,000
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant equipment (1,844,000)
(373,000)
Net Cash (used by)Investing Activities(1,844,000)
(373,000)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from revolving 951,000
404,000
credit loan-net
(Payments of) proceeds from long-term 480,000 (181,000)
debt and notes _________ __________
Net Cash Provided by
Financing Activities 1,431,000 223,000
NET (DECREASE)IN CASH AND CASH EQUIVALENTS (580,000) 321,000
CASH AND CASH EQUIVALENTS-BEGINNING 737,000 1,422,000
CASH AND CASH EQUIVALENTS-ENDING $157,000 $1,743,000
see notes to consolidated financial statements
-6-
<PAGE>
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of December 31, 1998
the Consolidated Statement of Operations for the three and
nine month periods ended December 31, 1998 and 1997 and
the Consolidated Statement of Cash Flows for the nine
month
periods ended December 31, 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 December 31, 1998, the results of its
operations for the three months and nine months ended December
31, 1998 and 1997 and the changes in its cash flows for the
nine months ended December 31, 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 and nine months ended
December 31, 1998 are not necessarily indicative of the
results to be expected for the entire fiscal year.
3. Inventories are summarized as follows:
December 31, 1998 March 31, 1998
Finished goods $1,122,000 $1,236,000
Raw materials 524,000 312,000
Supplies and Packaging 328,000 347,000
$1,974,000 $1,895,000
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 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 amortizaton
period
of 20 years with a maturity in February, 2019.
-7-
Proceeds of the new loan were used to repay the
$2,647,000
of 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.
Maturites of
long term debt at December 31,1998 reflect the above
restructuring.
5. Subsequent to December 31, 1998, the Company repurchased
an additional 31,158 shares of its common
stock at a cost of $70,000.
6. 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.
-8-
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 1998, 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 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
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 December 31, 1998 compared to three months
ended December 31, 1997
Sales for the three months ended December 31,1998
increased to $13,960,000 from $10,538,000 for the comparable
period in 1997, an increase of $3,422,000 (or 32.4%).
Approximately $510,000 (or 14.9%) of such increase was due
to a increase in the number of pounds of cheese sold and
approximately $2,912,000 (or 85.1%) of such increase was due
to an increase in the average selling price for cheese.
-9-
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 December 31, 1998 were $12,611,000 (or 90.3% of sales) and
and $1,349,000 (or 9.7% of sales), respectively, compared to a
cost
of sales and gross profit margin of $10,031,000 (or 95.2% of
sales)
and $507,000 (or 4.8% of sales), respectively, for the
comparable period in 1997. The decrease in cost of sales and
corresponding increase in gross profit margin (as a percentage
of
sales), in 1998 as compared to 1997 was primarily due to an
increase
in the Company's average selling price, a decrease in the
Company's
cost of raw materials (as a percentage of selling price) and
the application of fixed overhead to higher unit sales volume.
Selling, general and administrative expenses for the three
months ended December 31, 1998 amounted to $607,000 (or 4.3% of
sales)
compared to $608,000 (or 5.8% of sales) for the comparable
period
in 1997. The decrease in selling, general, and administrative
expenses as a percentage of sales was primarily due to the
expanded sales in the period without a corresponding increase
in general
and administrative expenses.
Interest expense for the three months ended December 31,
1998 amounted to $162,000 compared to $107,000 for the three
months
ended September 30, 1997. This increase is the result of
increased
borrowings due to the addition of new plant production
equipment
and higher revolving credit line usage.
Charges for federal income taxes in 1998 were offset by
decreases in the valuation allowance for the three months ended
December 31, 1998. Credits for income taxes were offset by
increases in the valuation allowances for the three months ended
December 31, 1997. Because of these offsets no provision for
income taxes was required in these periods. Such amounts are
re-evaluated each quarter based on the results of operations.
The Company's net income of $587,000 for the three months
ended December 31, 1998 represents an improvement of $779,000
from the net loss of $192,000 for the comparable period in
1997. The primary factors contributing to these changes are
discussed above.
Nine months ended December 31, 1998 compared to nine months
December 31, 1997
Sales for the nine months ended December 31, 1998
increased to $35,496,000 from $27,165,000 for the comparable
period in 1997, an increase of $8,331,000 (or 30.7%).
Approximately $2,879,000 (or 34.6%) of such increase was due to
an increase in the number of pounds of cheese sold and
approximately $5,452,000 (or 65.4%) of such an increase was due
-10-
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 block cheddar market prices resulting in a
higher
selling price per pound of cheese.
Cost of sales and gross profit margin for the nine months
ended December 31, 1998 were $32,654,000 (or 92.0% of sales)
and $2,842,000 (or 8.0% of sales), respectively, compared to a
cost
of sales and gross profit margin of $26,390,000 (or 97.1% of
sales)
and $775,000 (or 2.9% of sales), respectively, for the
comparable period in 1997. The decrease in cost of sales and
correspondng increase in the gross profit margin
for 1998 (as a percentage of sales) was primarily
due to an increase
in the Company's average selling price, a decrease in the
Company's
cost of raw materials (as a percentage of selling price) and
the application of fixed overhead to higher unit sales volume.
Selling, general and administrative expenses for the nine
months ended December 31, 1998 amounted to $ 1,777,000 (or 5.0%
of sales) compared to $1,670,000 (or 6.1% of sales) for
the comparable period in 1997. The decrease of selling,
general and administrative expenses as a percentage of sales
was
primarily due to the expanding sales in the period without a
corresponding increase in general and administrative expenses.
Interest expense for the nine months ended December 31,
1998 amounted to $421,000 compared to $342,000 for the nine
months ended December 31, 1997. This 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 provisions 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 nine months ended December 31, 1998. Credits for income
taxes were offset by increases in the valuation allowances for
the nine months ended December 31, 1997. Such amounts are
re-evaluated each quarter based on the results of operations.
The Company's net income of $668,000 for the nine months
ended December 31, 1998 represents an improvement of
$1,844,000
from the net loss of $1,176,000 for the comparable period in
1997. The primary factors contributing to these changes are
discussed above.
Liquidity and Capital Resources
At December 31, 1998 the Company had working capital
of ($1,867,000) 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.
-11-
At December 31, 1998, $3,898,000 was outstanding under
such revolving line of credit and $352,000 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 February 8, 1999, a new $4,950,000 bank loan agreeement 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 commerical 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 commerical term note with
interest fixed at 10.75 percent
having an amortization period of
20 years with a maturity in February, 2019.
Proceedes 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 captial of the Company.
The Company's major source of external working
capital
financing has been and currently is 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 nine months ended December 31, 1998 cash used
by operating activities was $167,000. In addition to income
from operations an increase in accounts payable of
$1,600,000 and an increase in acrued expenses of
$73,000 provided cash. An increase in accounts
receivable of $2,766,000, an increase in
inventories of $79,000 and an increase in prepaid expenses and
other assets of $33,000 used cash in the period.
Net cash provided by financing activities proceeds was
$1,431,000 for the nine months ended December 31, 1998. Net
proceeds from the
revolving credit loan in the amount of $951,000 provided cash.
Proceedes from long-term debt obligations in the amount of
$480,000
also provided cash in the period.
-12-
Net cash used by investing activities was $1,844,000 for
the
nine months ended December 31, 1998. This was the result of
the
purchase of manufacturing equipment and plant improvements and
additions 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 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.
Safe Harbor Statement
"Safe Harbor" statement under the Private Securities
Litigation Reform Act of 1995. The statements which are not
historical facts
contained in this 10 Q Report are forward-looking statements
that involve risks and uncertainties, including, but not
limited to
the Company's relative success in improving its margins and the
uncertainties inherent in the pricing of cheese on the
Chicago
Mercanitle Exchange upon which the Company's prices are based.
Additional risks and uncertainties include variances in the
demand
for the Company's products due to customer developments and
industry
developments, as well as variances in milk costs to produce such
products including normal volatility with costs. As a result,
in
the Company's actual financial results could differ materially
from
the results estimated by, forcasted by, or implied by the
Company in such forward-looking statements.
- -13-
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, 1998.
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 12, 1999
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)
-14-
[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 31,1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FORM 10Q FOR QUARTERLY PERIOD ENDED DECEMBER 31 1998.
[/LEGEND]
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] MAR-31-1999
[PERIOD-START] APR-01-1998
[PERIOD-END] DEC-31-1998
[CASH] 157,000
[SECURITIES] 0
[RECEIVABLES] 5,677,000
[ALLOWANCES] 148,000
[INVENTORY] 1,974,000
[CURRENT-ASSETS] 7,799,000
[PP&E] 11,612,000
[DEPRECIATION] 4,754,000
[TOTAL-ASSETS] 15,400,000
[CURRENT-LIABILITIES] 9,666,000
[BONDS] 2,567,000
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 3,000
[OTHER-SE] 2,676,000
[TOTAL-LIABILITY-AND-EQUITY] 15,400,000
[SALES] 35,496,000
[TOTAL-REVENUES] 35,496,000
[CGS] 32,654,000
[TOTAL-COSTS] 32,654,000
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 421,000
[INCOME-PRETAX] 669,000
[INCOME-TAX] 1,000
[INCOME-CONTINUING] 668,000
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 668,000
[EPS-PRIMARY] .22
[EPS-DILUTED] .22
</TABLE>
