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, 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 No.)
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 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, 2001 was 2,971,342.
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
SEPTEMBER 30, 2001 MARCH 31, 2001
------------------ --------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 447,000 $ 212,000
Accounts receivable, net of allowances of
$167,000 at September 30, 2001 and
$132,000 at March 31,2001 4,973,000 4,614,000
Inventories 2,935,000 2,163,000
Deferred income taxes 71,000 71,000
Prepaid expenses and other current assets 84,000 119,000
----------- -----------
Total Current Assets 8,510,000 7,179,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 9,803,000 9,011,000
----------- -----------
OTHER ASSETS:
Due from officers 134,000 133,000
Deferred income taxes 527,000 527,000
Deferred loan costs, net 294,000 247,000
Other 91,000 97,000
----------- -----------
Total Other Assets 1,046,000 1,004,000
----------- -----------
TOTAL ASSETS $19,359,000 $17,194,000
----------- -----------
See notes to consolidated financial statements
2
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, 2001 MARCH 31, 2001
------------------ --------------
(UNAUDITED)
CURRENT LIABILTIES:
Accounts payable $ 4,842,000 $5,515,000
Current portion of long-term debt 181,000 171,000
Revolving credit line 4,312,000 --
Accrued expenses 386,000 390,000
------------ -----------
Total Current Liabilities 9,721,000 6,076,000
------------ -----------
LONG-TERM LIABILITIES:
Long-term debt 6,840,000 4,983,000
Revolving credit line -- 4,267,000
Deferred income taxes 598,000 598,000
------------ -----------
Total Long-term Liabilities 7,438,000 9,848,000
------------ -----------
TOTAL LIABILITIES 17,159,000 15,924,000
------------ -----------
STOCKHOLDERS' EQUITY:
Preferred Stock- face value 540,000 --
Common stock- $.001 par value,
10,000,000 shares authorized,
3,021,342 shares issued 3,000 3,000
Additional paid-in capital 4,452,000 4,448,000
Retained (Deficit)earnings (2,670,000) (3,056,000)
------------ -----------
2,325,000 1,395,000
Less: 50,000 shares treasury stock at cost (125,000) (125,000)
------------ -----------
Total Stockholders' Equity 2,200,000 1,270,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,359,000 $17,194,000
----------- -----------
See notes to consolidated financial statements
3
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMEBER 30, 2001 AND 2000
Six Months Ended September 30,
-------------------------------
2001 2000
---- ----
SALES $ 25,130,000 $ 20,342,000
COST OF SALES 22,673,000 19,231,000
------------ ------------
GROSS PROFIT 2,457,000 1,111,000
------------ ------------
OTHER EXPENSE (INCOME):
Selling 1,134,000 888,000
General and administrative 491,000 379,000
Interest income (6,000) (5,000)
Interest expense 449,000 400,000
------------ ------------
TOTAL OTHER EXPENSE 2,068,000 1,662,000
------------ ------------
INCOME(LOSS) BEFORE INCOME TAXES 389,000 (551,000)
(Provision) for income taxes (3,000) (2,000)
------------ ------------
NET INCOME(LOSS) $ 386,000 $ (553,000)
------------ ------------
NET INCOME(LOSS) PER SHARE
:Basic $ .13 $ (.19)
------------ ------------
:Diluted $ .13 $ (.19)
------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING
USED TO COMPUTE NET INCOME PER SHARE
:Basic 2,971,342 2,971,342
------------ ------------
:Diluted 2,979,572 2,971,342
------------ ------------
See notes to consolidated financial statements
4
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Three Months Ended September 30,
--------------------------------
2001 2000
---- ----
SALES $ 12,994,000 $ 10,941,000
COST OF SALES 11,800,000 10,283,000
------------ ------------
GROSS PROFIT 1,194,000 658,000
------------ ------------
OTHER EXPENSE (INCOME):
Selling 574,000 461,000
General and administrative 231,000 212,000
Interest income (3,000) (2,000)
Interest expense 245,000 208,000
------------ ------------
TOTAL OTHER EXPENSE (INCOME) 1,047,000 879,000
------------ ------------
INCOME(LOSS) BEFORE INCOME TAXES 147,000 (221,000)
(Provision) for income taxes (2,000) (1,000)
------------ ------------
NET INCOME(LOSS) $ 145,000 $ (222,000)
------------ ------------
NET INCOME(LOSS)PER SHARE
:Basic $ .05 $ (.08)
------------ ------------
:Diluted $ .05 $ (.08)
------------ ------------
WEIGHTED AVERAGE SHARES OUTSTANDING
USED TO COMPUTE NET INCOME PER SHARE
:Basic 2,971,342 2,971,342
------------ ------------
:Diluted 2,981,761 2,971,342
------------ ------------
See notes to consolidated financial statements
5
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended September 30,
------------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITES:
NET INCOME(LOSS) $ 386,000 $ (553,000)
Adjustments to reconcile net (loss)
income to net cash (used by)
Operating activities:
Value of options issued for service 4,000 --
Depreciation and amortization 349,000 300,000
Provision for doubtful accounts 35,000 39,000
(Increase) decrease in assets:
Accounts receivable (394,000) (955,000)
Inventories (772,000) 427,000
Prepaid expenses and other current assets 35,000 1,000
Other assets (42,000) (13,000)
Increase (decrease) in liabilities:
Accounts payable (673,000) 521,000
Accrued expenses (4,000) (112,000)
----------- -----------
Net Cash (Used by) Operating Activities (1,076,000) (345,000)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant equipment (601,000) (558,000)
----------- -----------
Net Cash (used by) Investing Activities (601,000) (558,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from revolving credit loan-net 45,000 461,000
(Payments of) proceeds from long-term debt and notes - net 1,867,000 170,000
----------- -----------
Net Cash (Used by) Provided by Financing Activities 1,912,000 631,000
----------- -----------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 235,000 (272,000)
CASH AND CASH EQUIVALENTS-BEGINNING 212,000 447,000
----------- -----------
CASH AND CASH EQUIVALENTS-ENDING $ 447,000 $ 175,000
----------- -----------
See notes to consolidated financial statements
6
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of September 30, 2001,the Consolidated
Statement of Operations for the three and six month periods ended September
30, 2001 and 2000 and the Consolidated Statement of Cash Flows for the six
month periods ended September 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 September 30, 2001, the results of
its operations for the three months and six months ended September 30, 2001
and 2000 and its cash flows for the six months ended September 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 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,
2001 are not necessarily indicative of the results to be expected for the
entire fiscal year.
7
3. Inventories are summarized as follows:
September 30, 2001 March 31,2001
------------------ -------------
Finished goods $1,800,000 $1,011,000
Raw Materials 610,000 617,000
Supplies and Packaging 525,000 535,000
---------- ----------
$2,935,000 $2,163,000
---------- ----------
4. In May 2001 the Company obtained a new $2,000,000 bank loan. The loan,
collateralized 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.
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 and six
month periods ended September 30, 2001 is due to the net incremental effect
of incentive stock options and warrants of 10,419 and 8,230 shares,
respectively. Basic and diluted per share amounts are the same for the
three and six month periods ended September 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 six months ended September 30,2001, non cash investing and
financing activities were $540,000 for the preferred stock issued for
equipment.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERTAIONS
Results of Operations
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, 2001 compared to three months ended September
30, 2000.
Sales for the three months ended September 30, 2001 increased to
$12,994,000 from $10,941,000 for the comparable period in 2000, an increase of
$2,053,000(or 18.8%). Approximately $2,911,000(or 141.8%) of such amount was due
to an increase in the average selling price of cheese and approximately
$303,000(or 14.8%)was due to increased whey sales produced in our new facility.
Those increases were offset by a decrease in the number of pounds of cheese sold
resulting in a $1,161,000, or (56.6%) decrease in sales when compared to the
same period in 2000.
Cost of sales and gross profit margin for the three months ended September
30, 2001 was $11,800,000 (or 90.8% of sales) and $1,194,000 (or 9.2% of sales),
respectively, compared to a cost of sales and gross profit margin of $10,283,000
(or 94.0% of sales) and $658,000 (or 6.0% of sales), respectively, for the
comparable period in 2000. The decrease in cost of sales (as a percentage of
sales) and corresponding increase in gross profit margin for 2001(as a
percentage of sales) 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 expenses for the three months ended
September 30, 2001 amounted to $805,000 (or 6.2% of sales) compared to $673,000
or (6.2% 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 three months ended September 30, 2001 amounted to
$245,000 compared to $208,000 for the three months ended September 30, 2000 an
increase of $37,000. 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 three month periods ended September
30, 2001 of $2,000, and September 30, 2000 of $1000 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, 2001 and
September 30, 2000. Such amounts are re-evaluated each quarter based on the
results of operations.
The Company's net income of $145,000 for the three months ended September
30, 2001 represents an increase of $367,000 from the net operating loss of
$222,000 for the comparable period in 2000. 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, 2001 compared to six months ended September 30,
2000.
Sales for the six months ended September 30, 2001 increased to $25,130,000
from $20,342,000 for the comparable period in 2000, an increase of $4,788,000(or
23.5%). Approximately $464,000(or 9.7%) of such amount was due to a decrease in
the number of pounds of cheese sold but was offset by approximately
$4,668,000(or 97.5%) due to an increase in the average selling price for cheese,
and approximately $584,000 or (12.2%) was due to increased whey sales produced
in our new facility.
10
The volume decrease was due to decreased demand in the commodity cheese markets.
The increase in average selling price was the result of an increase in block
cheddar market prices resulting in a higher average selling price per pound of
cheese in the period.
Cost of sales and gross profit margin for the six months ended September
30, 2001 was $22,673,000 (or 90.2% of sales) and $2,457,000 (or 9.8% of sales),
respectively, compared to a cost of sales and gross profit margin of $19,231,000
(or 94.5% of sales) and $1,111,000 (or 5.5% 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 percent of sales and corresponding
increases in gross profit margin in 2001) was primarily due to a decrease in the
Company's cost of raw materials as a percentage of selling price.
Selling, general and administrative expenses for the six months ended
September 30, 2001 amounted to $1,625,000 (or 6.5% of sales) compared to
$1,267,000 or (6.2% 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 an increase in
consulting and freight costs.
Interest expense for the six months ended September 30, 2001 amounted to
$449,000 compared to $400,000 for the six months ended September 30, 2000 an
increase of $49,000. 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,
2001 of $3,000 and September 30, 2000 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, 2001 and September 30, 2000.
Such amounts are re-evaluated each quarter based on the results of operations.
The Company's net income of $386,000 for the six months ended September 30,
2001 represents an increase of $939,000 from the net loss of $553,000 for the
comparable period in 2000. The primary factors contributing to these changes are
discussed above.
11
Liquidity and Capital Resources
The Company's $5,000,000 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 September 30,2001, $4,312,000 was outstanding under such revolving line
of credit and $551,000 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.
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 installments 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, its new $2,000,000 bank loan, and its existing
line 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, 2001 cash used by operating
activities was $1,076,000. An increase in accounts receivable of $394,000,
inventories of $772,000, other assets of $42,000, accrued expenses of $4,000 and
a decrease in accounts payable of $673,000 decreased cash while a decrease of
prepaid expenses and other current assets of $35,000 provided cash. Income from
operations of $386,000 also provided cash for this period.
12
Net cash used by investing activities was $601,000 for the period ended
September 30, 2001 which represented purchase of property, plant and equipment.
Net cash provided by financing activities was $1,912,000 for the period
ended September 30, 2001. Net proceeds from the revolving credit loan of $45,000
and proceeds from long-term debt and notes of $1,867,000 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.
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 2. Changes in Securities and Use of Proceeds
On June 12, 2001, the Company issued $ 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 3. Quantitative and Qualitative Disclosures about Market Risk
The registrant does not utilize market rate sensitive instruments for
trading or other purposes.
13
PART II - OTHER INFORMATION
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
September 30, 2001.
14
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.
October 30, 2001
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)
15