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, 2001
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 2, 2001 was 2,971,342.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
JUNE 30, 2001 MARCH 31, 2001
------------- --------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 199,000 $ 212,000
Accounts receivable, net 4,796,000 4,614,000
Of allowances of $153,000
At June 30, 2001 and $132,000
At March 31, 2001
Inventories 2,885,000 2,163,000
Deferred income taxes 71,000 71,000
Prepaid expenses and other
Current assets 109,000 119,000
----------- -----------
Total current assets 8,060,000 7,179,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 9,557,000 9,011,000
----------- -----------
OTHER ASSETS:
Due from officers 134,000 133,000
Deferred income taxes 527,000 527,000
Deferred loan costs, net 261,000 247,000
Other 83,000 97,000
----------- -----------
Total Other Assets 1,005,000 1,004,000
----------- -----------
TOTAL ASSETS $18,622,000 $17,194,000
----------- -----------
See notes to consolidated financial statements
2
LUCILLE FARMS,INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDER'S EQUITY
JUNE 30,2001 MARCH 31, 2001
------------ --------------
(UNAUDITED)
CURRENT LIABILITES:
Accounts Payable $ 4,208,000 $ 5,515,000
Current portion of long-term debt 171,000 171,000
Revolving credit line 4,510,000 --
Accrued expenses 213,000 390,000
------------ ------------
Total Current Liabilities 9,102,000 6,076,000
------------ ------------
LONG TERM LIABILITIES:
Long-term debt 6,869,000 4,983,000
Revolving credit line -- 4,267,000
Deferred income taxes 598,000 598,000
------------ ------------
Total Long-Term Liabilities 7,467,000 9,848,000
------------ ------------
TOTAL LIABILITIES 16,569,000 15,924,000
------------ ------------
STOCKHOLDERS EQUITY:
Preferred stock- face value 540,000 --
Common stock - $.001 par value, 3,000 3,000
10,000,000 shares authorized,
3,021,342 share issued
Additional paid-in capital 4,450,000 4,448,000
Retained (Deficit) earnings (2,815,000) (3,056,000)
------------ ------------
2,178,000 1,395,000
Less: 50,000 shares treasury
Stock at cost (125,000) (125,000)
------------ ------------
Total Stockholders' Equity 2,053,000 1,270,000
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 18,622,000 $ 17,194,000
------------ ------------
See notes to consolidated financial statements
3
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
---------------------------
2001 2000
------------ ------------
SALES $ 12,136,000 $ 9,401,000
COST OF SALES 10,873,000 8,948,000
------------ ------------
GROSS PROFIT 1,263,000 453,000
------------ ------------
OTHER EXPENSE/(INCOME):
SELLING 560,000 427,000
GENERAL AND ADMINISTRATIVE 260,000 167,000
INTEREST INCOME (3,000) (3,000)
INTEREST EXPENSE 204,000 192,000
------------ ------------
TOTAL OTHER EXPENSE (INCOME) 1,021,000 783,000
------------ ------------
(LOSS)INCOME BEFORE INCOME
TAXES 242,000 (330,000)
(PROVISION) FOR INCOME TAXES (1,000) (1,000)
------------ ------------
NET(LOSS) INCOME $ 241,000 $ (331,000)
------------ ------------
NET(LOSS)INCOME PER SHARE
:BASIC $ .08 $ (.11)
------------ ------------
:DILUTED .08 $ (.11)
------------ ------------
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE:BASIC 2,971,342 2,971,342
------------ ------------
:DILUTED 2,977,649 2,971,342
------------ ------------
See notes to consolidated financial statements
4
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
---------------------------
2001 2000
----------- -----------
Cash flows from operating activities:
NET (LOSS)INCOME $ 241,000 $ (331,000)
Adjustments to reconcile net(loss)/
income To net cash provided(used) by
Operating activities:
Value of options issued for service 2,000 --
Depreciation and amortization 154,000 153,000
Provision for doubtful accounts 21,000 19,000
(Increase) decrease in assets:
Accounts receivable (203,000) (165,000)
Inventories (722,000) (220,000)
Prepaid expenses and other current 10,000 33,000
assets
Other assets (5,000) (15,000)
Increase (decrease) in liabilities
Accounts payable (1,307,000) 697,000
Accrued expenses (177,000) 11,000
----------- -----------
Net Cash provided(used) by
Operating Activities (1,986,000) 182,000
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant
And equipment (156,000) (333,000)
----------- -----------
Net Cash (Used by) Investing
Activities (156,000) (333,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from revolving
credit loan-net 243,000 12,000
(Payments of)proceeds from long-term
debt and notes 1,886,000 143,000
----------- -----------
Net Cash Provided by
Financing Activities 2,129,000 155,000
----------- -----------
NET INCREASE(DECREASED) IN CASH AND
CASH EQUIVALENTS (13,000) 4,000
CASH AND CASH EQUIVALENTS-BEGINNING 212,000 447,000
----------- -----------
CASH AND CASH EQUIVALENTS-ENDING $ 199,000 $ 451,000
----------- -----------
See notes to consolidated financial statements
5
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of June 30, 2001, the Consolidated
Statement of Operations for the three month periods ended June 30, 2001
and 2000 and the Consolidated Statement of Cash Flows for the three
month periods ended June 30, 2001 and 2000 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, 2001, the
results of its operations for the three months ended June 30, 2001 and
2000 and its cash flows for the three months ended June 30, 2001 and
2000.
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, 2001 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, 2001 are
not necessarily indicative of the results to be expected for the entire
fiscal year.
3. Inventories are summarized as follows:
June 30, 2001 March 31, 2001
------------- --------------
Finished goods $2,181,000 $1,011,000
Raw Materials 147,000 617,000
Supplies and Packaging 557,000 535,000
---------- ----------
$2,885,000 $2,163,000
4. In May 2001 the Company obtained a new $2,000,000 bank loan. The loan,
collaterized by the Company's plant and equipment, bears interest at 1%
above the bank's national variable rate. The loan is due in annual
principal installments of $500,000 beginning May 2003. Interest is
payable monthly.
6
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 in accordance with the provisions of the
Statement of Financial Accounting Standards No. 128. The dilution in
the three month period ended June 30, 2001 is due to the net
incremental effect of incentive stock options and warrants of 6,307
shares. Basic and diluted per share amounts are the same for the three
month period ended June 30,2000 since the effect of stock options would
be antidilutive and therefore not taken into consideration. Conversion
of preferred stock was not taken into consideration since the effect
would be antidilutive.
6. For the 3 months ended June 30,2001, non cash investing and financing
activities were $540,000 for the preferred stock issued for equipment.
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, 2001 compared to the three months ended June 30,
2000.
Sales for the three months ended June 30, 2001 increased to $12,136,000
from $9,401,000 for the comparable period in 2000, an increase of $2,735,000 (or
29.1%). Approximately $2,815,000 (or 102.9%) of such amount was due to an
increase in the average selling price of cheese and approximately $ 281,000 or
(10.3%) was due to increased whey sales produced in our new facility. These
increases were offset by a decrease in the number of pounds of cheese sold
resulting in a $361,000 or (13.2%) decrease in sales when compared to the year
ago period.
Cost of sales and gross profit margin for the three months ended June 30, 2001
were $10,873,000 (or 89.6% of sales) and $1,263,000 (or 10.4% of sales),
respectively, compared to a cost of sales and gross profit margin of $8,948,000
(or 95.2% of sales) and $453,000 (or 4.8% of sales), respectively, for the
comparable period in 2000. The decrease in cost of sales and corresponding
increase in gross profit margin for 2001 as a percentage of sales is primarily
due to a decrease in the Company's cost of raw materials as a percentage of
selling price
8
Selling, general and administrative expenses for the period ended June 30,
2001 amounted to $820,000 (or 6.7% of sales) compared to $594,000 (or 6.3% of
sales) for the comparable period in 2000. The increase in selling, general and
administrative expenses as a percentage of sales was primarily due to the
increased sales in the period and a corresponding increase in freight out
expenses and consulting fees.
Interest expense for the period ended June 30, 2001 amounted to
$204,000 compared to $192,000 for the period ended June 30, 2000 an increase of
$12,000. This increase is the result of increased borrowing due to the addition
of new production equipment and higher revolving credit line usage in the
period.
The provision for income tax for the period ended June 30, 2001 of
$1,000 and June 30, 2000 of $1,000 reflect minimum state taxes. Charges and
credits for Federal income taxes were offset by changes in the valuation
allowances for the three months ended June 30, 2001 and June 30, 2000. Such
amounts are re-evaluated each quarter based on the results of operations.
The Company's net income of $241,000 for the period ended June 30, 2001
represents an increase of $572,000 from the net loss of $331,000 for the
comparable period in 2000. The primary factors contributing to these changes are
discussed above.
Liquidity and Capital Resources
The Company's revolving bank line of credit which is available for the
Company's working capital requirements has been reclassified from long term to
current due to an expiration date of June 1, 2002.
At June 30, 2001, $4,510,000 was outstanding under such revolving line
of credit and $245,000 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 Company intends to
continue to utilize this line of credit as needed for operations.
9
On February 8, 1999, a $4,950,000 bank loan agreement was signed. The
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.
On May 23, 2001, a new $ 2,000,000 bank loan agreement was signed. The
new loan is collaterized by the Company's plant and equipment. Provisions of the
loan are as follows:
A promissory note with interest payable at 1% above the rate of
interest established by the bank as its National Variable Rate and principle
repayable in four consecutive annual installements of $500,000.00 with the first
such installment due on May 1, 2003 and the last such installment due on May 1,
2006.
Proceeds of the new loan were used for working capital.
The Company's major source of external working capital financing has
been the revolving line of credit. For the foreseeable future the Company
believes that its current working capital, it's new $2,000,000 bank loan, 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, 2001 cash used by operating
activities was $1,986,000. Income from operations of $241,000 increased cash. In
addition increases in accounts receivable of $203,000, and an increase in
inventories of $722,000 decreased cash. Decreases in accounts payable of
$1,305,000, accrued expenses of $177,000 also decreased cash. A net decrease in
prepaid expenses and other assets of $5,000 provided cash.
Net cash used by investing activities was $156,000 for the period ended
June 30, 2001 which represented purchase of property, plant and equipment.
Net cash provided by financing activities was $2,128,000 for the period
ended June 30, 2001. Net proceeds from the revolving credit loan of $243,000 and
net proceeds from long-term debt of $1,886,000 provided cash in the period.
10
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.
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 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
The registrant does not utilize market rate sensitive instruments for trading or
other purposes.
11
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On June 12, 2001, the Company sold $540,000 of Series A Redeemable
Convertible Preferred Stock to an accredited investor in exchange for
roll drying equipment. The shares were sold pursuant to Section 4(2) of
the Securities Act and Rule 506 of Regulation D promulgated thereunder.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
June 30, 2001.
12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 2, 2001 Lucille Farms, Inc.
-------------------
(Registrant)
By: /s/ Alfonso Falivene
--------------------
Alfonso Falivene,
President
By: /s/ Stephen M. Katz
-------------------
Stephen M. Katz,
Vice President-Finance
and Administration
(Principal Financial Officer)
13