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, 2000
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 6,
2000 was 2,971,342.
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
SEPTEMBER 30, 2000 MARCH 31, 2000
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 175,000 $447,000
Accounts receivable, net of 4,038,000 3,122,000
allowances of $142,000 at
September 30, 2000 and
$103,000 at March 31,2000
Inventories 1,748,000 2,175,000
Deferred income taxes 60,000 60,000
Prepaid expenses and other
current assets 106,000 107,000
Total Current Assets 6,127,000 5,911,000
PROPERTY, PLANT AND
EQUIPMENT, NET 8,586,000 8,328,000
OTHER ASSETS:
Due from officers 144,000 144,000
Deferred income taxes 490,000 490,000
Deferred loan costs, net 270,000 256,000
Other 93,000 94,000
Total Other Assets 997,000 984,000
TOTAL ASSETS $15,710,000 $15,223,000
see notes to consolidated financial statements
2
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDER'S EQUITY
SEPTEMBER 30, 2000 MARCH 31, 2000
CURRENT LIABILTIES:
Accounts payable $ 4,077,000 $3,556,000
Current portion of
long-term debt 96,000 103,000
Accrued expenses 195,000 307,000
Total Current
Liabilities 4,368,000 3,966,000
LONG TERM LIABILITIES
Long-term debt 5,030,000 4,853,000
Revolving credit line 3,578,000 3,117,000
Deferred income taxes 550,000 550,000
Total Long-term
Liabilities 9,158,000 8,520,000
TOTAL LIABILITIES 13,526,000 12,486,000
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 (2,132,000) (1,579,000)
2,309,000 2,862,000
Less: 50,000 shares
treasury stock at cost (125,000) (125,000)
Total Stockholders' Equity 2,184,000 2,737,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,710,000 $15,223,000
see notes to consolidated financial statements
3
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMEBER 30, 2000 AND 1999
(UNADUTIED)
Six Months Ended September 30,
2000 1999
SALES $ 20,342,000 $24,153,000
COST OF SALES 19,231,000 21,799,000
GROSS PROFIT 1,111,000 2,354,000
OTHER EXPENSE (INCOME):
Selling 888,000 878,000
General and administrative 379,000 307,000
Interest income (5,000) (8,000)
Interest expense 400,000 355,000
Insurance proceeds realized
-Key Man - (256,000)
TOTAL OTHER EXPENSE (INCOME) 1,662,000 1,276,000
(LOSS)INCOME BEFORE INCOME
TAXES (551,000) 1,078,000
(Provision) for income taxes (2,000) (2,000)
NET (LOSS)INCOME $(553,000) $1,076,000
NET(LOSS)INCOME PER SHARE
:Basic $(.19) $.36
:Diluted $(.19) $.36
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE :Basic 2,971,342 2,971,342
:Diluted 2,971,342 2,971,342
see notes to consolidated financial statements
4
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
Three Months Ended September 30,
2000 1999
SALES $ 10,941,000 $13,352,000
COST OF SALES 10,283,000 11,866,000
GROSS PROFIT 658,000 1,486,000
OTHER EXPENSE (INCOME)
Selling 461,000 408,000
General and administrative 212,000 155,000
Interest income (2,000) (4,000)
Interest expense 208,000 178,000
Insurance proceeds realized
-Key Man - (256,000)
TOTAL OTHER EXPENSE (INCOME) 879,000 481,000
(LOSS)INCOME BEFORE INCOME
TAXES (221,000) 1,005,000
(Provision) for income taxes (1,000) -___
NET (LOSS)INCOME $(222,000) $1,005,000
NET (LOSS)INCOME PER SHARE
:Basic $(.08) $.34
:Diluted $(.08) $.34
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE :Basic 2,971,342 2,971,342
:Diluted 2,971,342 2,971,342
see notes to consolidated financial statements
5
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended September 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITES:
NET (LOSS)INCOME $(553,000) $ 1,076,000
Adjustments to reconcile net
(loss)income to net cash(used by)
operating activities:
Depreciation and amortization 300,000 240,000
Provision for doubtful accounts 39,000 56,000
(Increase) decrease in assets:
Accounts receivable (955,000) (1,448,000)
Inventories 427,000 106,000
Prepaid expenses & other current
assets 1,000 (235,000)
Other assets (13,000) 54,000
Increase (decrease) in liabilities:
Accounts payable 521,000 (451,000)
Accrued expenses (112,000) (7,000)
Net Cash (Used by) Operating
Activities (345,000) (609,000)
CASH FLOW FROM INVESTING
ACTIVITIES:
Purchase of property, plant
equipment (558,000) (644,000)
Net Cash (used by) Investing
Activities (558,000) (644,000)
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from
revolving credit loan-net 461,000 308,000
(Payments of) proceeds from
long-term debt and notes 170,000 (39,000)
Net Cash (Used by) Provided
by Financing Activities 631,000 269,000
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (272,000) (984,000)
CASH AND CASH EQUIVALENTS-BEGINNING 447,000 1,924,000
CASH AND CASH EQUIVALENTS-ENDING $175,000 $940,000
see notes to consolidated financial statements
6
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of September 30, 2000,
the Consolidated Statement of Operations for the three and
six month periods ended September 30, 2000 and 1999 and
the Consolidated Statement of Cash Flows for the six month
periods ended September 30, 2000 and 1999 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, 2000, the results
of its operations for the three months and six months ended
September 30, 2000 and 1999 and the changes in its cash flows
for the six months ended September 30, 2000 and 1999.
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,
2000 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, 2000 are not necessarily indicative of the
results to be expected for the entire fiscal year.
3. Inventories are summarized as follows:
September 30, 2000 March 31,2000
Finished goods $857,000 $1,169,000
Raw Materials 397,000 524,000
Supplies and Packaging 494,000 482,000
$1,748,000 $2,175,000
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.
The Company's revolving credit line of $ 5,000,000 matures on
June 1,2002.
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, 2000 compared to three months
ended September 30, 1999
Sales for the three months ended September 30, 2000
decreased to $10,941,000 from $13,352,000 for the comparable
period in 1999, a decrease of $2,411,000(or 18.1%).
Approximately $42,000(or 1.7%) of such amount was due
to a decrease in the number of pounds of cheese sold and
approximately $2,369,000(or 98.3%) of such amount was due
to a decrease in the average selling price for cheese. The volume
decrease was due to decreased demand in the commodity cheese markets.
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 September 30, 2000 was $10,283,000 (or 94.0% of sales) and
$658,000 (or 6.0% of sales), respectively, compared to a cost
of sales and gross profit margin of $11,866,000 (or 88.9% of sales)
and $1,486,000 (or 11.1% of sales), respectively, for the
comparable period in 1999. The increase in cost of sales (as a
percentage of sales) and corresponding decrease in gross profit margin
for 2000(as a percentage of sales) was primarily due to an increase 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, 2000 amounted to $673,000
(or 6.2% of sales) compared to $563,000 or (4.2% of sales)
for the comparable period in 1999. The increase in selling,
general, and administrative expenses as a percentage of sales
was primarily due to the decreased sales in the period, and an
increase in consulting and freight costs.
Interest expense for the three months ended September 30,
2000 amounted to $208,000 compared to $178,000 for the three
months ended September 30, 1999 an increase of $30,000. This
increase is the result of increased borrowing due to the
addition of new production equipment and higher revolving line
credit usage in the period.
The provision for income tax for the period ended September 30,
2000 of $1,000, reflects minimum state taxes. Charges and credits for
Federal income taxes were offset by changes in the valuation allowances
for the three months ended September 30, 2000 and September 30, 1999.
Such amounts are re-evaluated each quarter based on the results of
operations.
The Company realized key man insurance proceeds of $256,000
in the three month period ended September 30, 1999. There was no
corresponding recovery in the period ended September 30, 2000.
The Company's net operating loss of $222,000 for the
three months ended September 30, 2000 represents a decrease
of $1,227,000 from the net income of $1,005,000 for the comparable
period in 1999. 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, 2000 compared to six months
ended September 30, 1999.
Sales for the six months ended September 30, 2000
decreased to $20,342,000 from $24,153,000 for the comparable
period in 1999, a decrease of $3,811,000(or 15.8%).
Approximately $629,000(or 16.5%) of such amount was due
to a decrease in the number of pounds of cheese sold.
Approximately $3,182,000(or 83.5%) of such amount was due to a decrease
in the average selling price for cheese.
10
The volume decrease was due to decreased demand in the commodity cheese
markets. 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 margin for the six months
ended September 30, 2000 was $19,231,000 (or 94.5% of sales) and
$1,111,000 (or 5.5% of sales), respectively, compared to a cost
of sales and gross profit margin of $21,799,000 (or 90.3% of sales)
and $2,354,000 (or 9.7% of sales), respectively, for the
comparable period in 1999. The decrease in cost of sales and
corresponding decrease in gross profit margin for 2000(as a
percent of sales and corresponding decreases in gross profit
margin in 2000) was primarily due to a increase 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, 2000 amounted to $1,267,000
(or 6.2% of sales) compared to $1,185,000 or (4.9% of sales)
for the comparable period in 1999. The increase in selling,
general, and administrative expenses as a percentage of sales
was primarily due to the decreased sales in the period, and an
increase in consulting and freight costs.
Interest expense for the six months ended September 30,
2000 amounted to $400,000 compared to $355,000 for the six
months ended September 30, 1999 an increase of $45,000. This
increase is the result of increased borrowing due to the
addition of new production equipment and higher revolving line
usage in the period.
The provision for income tax for the six month period ended
September 30, 2000 of $2,000 and September 30, 1999 of $2,000
reflect minimum state taxes. Charges for Federal income taxes were
offset by changes in the valuation allowances for the six months
ended September 30, 2000 and September 30, 1999. Such amounts
are re-evaluated each quarter based on the results of
operations.
The Company realized key man insurance proceeds of $256,000
in the three month period ended September 30, 1999. There was no
corresponding recovery in the period ended September 30, 2000.
The Company's net operating loss of $553,000 for the
six months ended September 30, 2000 represents a decrease
of $1,629,000 from the net income of $1,076,000 for the comparable
period in 1999. The primary factors contributing to these
changes are discussed above.
11
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 September 30, 2000 the Company had working capital of
$1,759,000 as compared to working capital of $1,945,000 at March 31,
2000. The Company's revolving bank line of credit is available for the
Company's working capital requirements.
At September 30, 2000, $3,578,000 was outstanding under such
revolving credit line of credit and $413,000 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
maintain a minimum two million dollars of net worth. 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.
12
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 six months ended September 30, 2000 cash used by operating
activities was $345,000. A loss from operations of $553,000 decreased
cash. In addition an increase in accounts payable of $521,000, a
decrease in inventories of $427,000 and a decrease in prepaid expenses
and other current assets of $1,000 provided cash. Cash was decreased
by an increase in accounts receivable of $955,000 and a decrease in
accrued expenses of $112,000. An increase in other assets of $13,000
also decreased cash.
Net cash used by investing activities was $558,000 for the period
ended September 30, 2000 which represented purchase of property, plant
and equipment.
Net cash provided by financing activities was $631,000 for the
period ended September 30, 2000. Net proceeds from the revolving credit
loan of $461,000 and proceeds from long-term debt and notes of $170,000
provided 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, should be sufficient to meet its anticipated
needs for at least 12 months. If, however, the cheese markets and/or
milk market do not provide improved operating margins, the Company may
be required to seek additional financing for its operating needs.
13
Forward Looking Statements
This Quarterly 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 value added and nutritional 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
The registrant does not utilize market rate sensitive instruments for
trading or other purposes.
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, 2000.
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, 2000 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
