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: December 31, 2001
Commission File Number 1-12506
LUCILLE FARMS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-2963923
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(State or other Jurisdiction (I.R.S. Employer
Of Incorporation) Identification No.)
150 River Road, P.O. Box 517
Montville, New Jersey 07045
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(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
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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 2,951,442.
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
DECEMBER 31, 2001 MARCH 31, 2001
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(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 237,000 $ 212,000
Accounts receivable, net of allowances of
$148,000 at December 31, 2001 and
$132,000 at March 31, 2001 3,506,000 4,614,000
Inventories 3,135,000 2,163,000
Deferred income taxes 71,000 71,000
Prepaid expenses and other current assets 117,000 119,000
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Total Current Assets 7,066,000 7,179,000
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PROPERTY, PLANT AND EQUIPMENT, NET 10,205,000 9,011,000
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OTHER ASSETS:
Due from officers 94,000 133,000
Deferred income taxes 527,000 527,000
Deferred loan costs, net 285,000 247,000
Other 93,000 97,000
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Total Other Assets 999,000 1,004,000
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TOTAL ASSETS $ 18,270,000 $ 17,194,000
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See notes to consolidated financial statements
2
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, 2001 MARCH 31, 2001
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(UNAUDITED)
CURRENT LIABILTIES:
Accounts payable $ 5,839,000 $ 5,515,000
Current portion of long-term debt 171,000 171,000
Revolving credit line 3,306,000 --
Accrued expenses 344,000 390,000
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Total Current Liabilities 9,660,000 6,076,000
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LONG-TERM LIABILITIES:
Long-term debt 6,784,000 4,983,000
Revolving credit line -- 4,267,000
Deferred income taxes 598,000 598,000
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Total Long-term Liabilities 7,382,000 9,848,000
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TOTAL LIABILITIES 17,042,000 15,924,000
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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 4,454,000 4,448,000
Retained (Deficit) earnings (3,604,000) (3,056,000)
--------------- ---------------
1,393,000 1,395,000
Less: 69,900 shares at December 31, 2001
and 50,000 shares at March 31, 2001
treasury stock at cost (165,000) (125,000)
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Total Stockholders' Equity 1,228,000 1,270,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,270,000 $ 17,194,000
--------------- ---------------
See notes to consolidated financial statements
3
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMEBER 31, 2001 AND 2000
Nine Months Ended December 31,
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2001 2000
---- ----
SALES $ 34,698,000 $ 29,532,000
COST OF SALES 32,096,000 28,231,000
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GROSS PROFIT 2,602,000 1,301,000
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OTHER EXPENSE (INCOME):
Selling 1,767,000 1,333,000
General and administrative 742,000 589,000
Interest income (7,000) (7,000)
Interest expense 646,000 617,000
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TOTAL OTHER EXPENSE 3,148,000 2,532,000
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INCOME(LOSS) BEFORE INCOME TAXES (546,000) (1,231,000)
(Provision) for income taxes (2,000) (2,000)
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NET INCOME(LOSS) $ (548,000) $ (1,233,000)
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NET INCOME(LOSS) PER SHARE
:Basic $ (.18) $ (.42)
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:Diluted $ (.18) $ (.42)
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WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE: Basic 2,964,709 2,971,342
--------------- ---------------
: Diluted 2,964,709 2,971,342
--------------- ---------------
See notes to consolidated financial statements
4
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
Three Months Ended December 31,
------------------------------
2001 2000
---- ----
SALES $ 9,568,000 $ 9,190,000
COST OF SALES 9,423,000 9,000,000
--------------- ---------------
GROSS PROFIT 145,000 190,000
--------------- ---------------
OTHER EXPENSE (INCOME):
Selling 633,000 445,000
General and administrative 251,000 210,000
Interest income (1,000) (2,000)
Interest expense 197,000 217,000
--------------- ---------------
TOTAL OTHER EXPENSE (INCOME) 1,080,000 870,000
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INCOME(LOSS) BEFORE INCOME TAXES (935,000) (680,000)
(Provision) benefit for income taxes 1,000 --
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NET INCOME(LOSS) $ (934,000) $ (680,000)
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NET INCOME(LOSS)PER SHARE
:Basic $ (.32) $ (.23)
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:Diluted $ (.32) $ (.23)
--------------- ---------------
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE
:Basic 2,951,442 2,971,342
--------------- ---------------
:Diluted 2,951,442 2,971,342
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See notes to consolidated financial statements
5
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended December 31,
------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITES:
NET INCOME(LOSS) $ (548,000) $ (1,233,000)
Adjustments to reconcile net (loss)
income to net cash (used by)
Operating activities:
Value of options issued for service 6,000 --
Depreciation and amortization 533,000 450,000
Provision for doubtful accounts 16,000 60,000
(Increase) decrease in assets:
Accounts receivable 1,092,000 (370,000)
Inventories (972,000) 86,000
Prepaid expenses and other current assets 2,000 29,000
Other assets (35,000) (49,000)
Increase (decrease) in liabilities:
Accounts payable 324,000 1,181,000
Accrued expenses (46,000) 48,000
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Net Cash (Used by) Operating Activities 372,000 202,000
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant equipment (1,187,000) (797,000)
--------------- ---------------
Net Cash (used by) Investing Activities (1,187,000) (797,000)
---------------
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from revolving credit loan-net (961,000) 347,000
(Payments of) proceeds from long-term debt and notes-net 1,801,000 (13,000)
--------------- ---------------
Net Cash (Used by) Provided by Financing Activities 840,000 334,000
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 25,000 (261,000)
CASH AND CASH EQUIVALENTS-BEGINNING 212,000 447,000
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CASH AND CASH EQUIVALENTS-ENDING $ 237,000 $ 186,000
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See notes to consolidated financial statements
6
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of December 31, 2001,the Consolidated
Statement of Operations for the three and nine month periods ended December 31,
2001 and 2000 and the Consolidated Statement of Cash Flows for the nine month
periods ended December 31, 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 December 31, 2001, the results of its operations for
the three months and nine months ended December 31, 2001 and 2000 and its cash
flows for the nine months ended December 31, 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 nine months ended December 31,
2001 are not necessarily indicative of the results to be expected for the entire
fiscal year.
7
3. Inventories are summarized as follows:
December 31, 2001 March 31, 2001
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Finished goods $ 2,014,000 $ 1,011,000
Raw Materials 586,000 617,000
Supplies and Packaging 535,000 535,000
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$ 3,135,000 $ 2,163,000
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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. The Company is in the process of negotiating an extension to
this line of credit for an additional twelve months. Should the Company
be unable to secure the required financing, it will result in a
material adverse effect in the Company's liquidity.
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. Basic and diluted
per share amounts are the same for the three and nine month periods
ended December 31, 2001 and 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 nine months ended December 31,2001, non cash investing and
financing activities were $540,000 for the preferred stock issued for
equipment. and reduction of amounts due from officers of $39,800 in
exchange for 19,900 shares of treasury stock
7. The Company has requested waivers from its lending institutions in
order to comply with its working capital and capital expenditure
covenants.
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. With respect to the effect of the events of September 11, 2001,
and its resultant effects on the economy, management believes that there has
been a significant impact on the results of this quarter.
Three months ended December 31, 2001 compared to three months ended December 31,
2000.
Sales for the three months ended December 31, 2001 increased to $9,568,000
from $9,190,000 for the comparable period in 2000, an increase of $378,000(or
4.1%). Approximately $1,202,000(or 318.0%) of such amount was due to an increase
in the average selling price of cheese and approximately $258,000(or 68.3%) 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
$1,082,000, or (286.2%) decrease in sales when compared to the same period in
2000.
Cost of sales and gross profit margin for the three months ended December
31, 2001 was $9,423,000 (or 98.5% of sales) and $145,000 (or 1.5% of sales),
respectively, compared to a cost of sales and gross profit margin of $9,000,000
(or 97.9% of sales) and $190,000 (or 2.1% of sales), respectively, for the
comparable period in 2000. Both periods experienced rising cost of materials (as
a percentage of sales) and shrinking gross profit margins due to an increase 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
December 31, 2001 amounted to $884,000 (or 9.2% of sales) compared to $655,000
or (7.1% 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 insurance expense.
Interest expense for the three months ended December 31, 2001 amounted
to $197,000 compared to $217,000 for the three months ended December 31, 2000 a
decrease of $20,000. This decrease is the result of falling interest rates and
lower revolving line credit usage in the period and interest capitalized during
construction during the period of $20,000.
The benefit for income tax for the three month periods ended December
31, 2001 of $1,000, and December 31, 2000 of $0.00 reflects minimum state taxes.
Charges and credits for Federal income taxes were offset by changes in the
valuation allowances for the three months ended December 31, 2001 and December
31, 2000. Such amounts are re-evaluated each quarter based on the results of
operations.
The Company's net loss of $934,000 for the three months ended December
31, 2001 represents an increase of $254,000 from the net operating loss of
$680,000 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 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.
Nine months ended December 31, 2001 compared to nine months ended
December 31, 2000.
Sales for the nine months ended December 31, 2001 increased to
$34,698,000 from $29,532,000 for the comparable period in 2000, an increase of
$5,166,000(or17.5%). Approximately $3,151,000(or 61.0%) of such amount was due
to a decrease in the number of pounds of cheese sold but was offset by
approximately $7,475,000(or 144.7%) due to an increase in the average selling
price for cheese, and approximately $842,000 or (16.3%) 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 nine months ended
December 31, 2001 was $32,096,000 (or 92.5% of sales) and $2,602,000 (or 7.5% of
sales), respectively, compared to a cost of sales and gross profit margin of
$28,231,000 (or 95.6% of sales) and $1,301,000 (or 4.4% 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 nine months ended
December 31, 2001 amounted to $2,509,000 (or 7.3% of sales) compared to
$1,922,000 or (6.5% 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 insurance
and depreciation expense.
Interest expense for the nine months ended December 31, 2001 amounted
to $646,000 compared to $617,000 for the nine months ended December 31, 2000 an
increase of $29,000. This increase is the result of increased borrowing due to
the addition of new production equipment and higher revolving line usage in the
period, less interest capitalized during construction during the period of
$20,000.
The provision for income tax for the nine month period ended December
31, 2001 of $2,000 and December 31, 2000 of $2,000 reflect minimum state taxes.
Charges for Federal income taxes were offset by changes in the valuation
allowances for the nine months ended December 31, 2001 and December 30, 2000.
Such amounts are re-evaluated each quarter based on the results of operations.
The Company's net loss of $548,000 for the nine months ended December
31, 2001 represents a decrease of $685,000 from the net loss of $1,233,000 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 December 31,2001, $3,306,000 was outstanding under such revolving line
of credit and $1,694,000 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 nine months ended December 31,2001, cash used by operating
activities was $372,000. An increase in inventory of $972,000 with a
decrease in accrued expenses of $46,000 and other assets of $35,000
decreased cash while a decrease in accounts receivable of $1,092,000,
prepaid expenses of $2,000 along with an increase in accounts payable of
$324,000 provided cash. A loss from operations of $548,000 also decreased
cash in the period.
12
Net cash used by investing activities was $1,187,000 for the period ended
December 31, 2001 which represented purchase of property, plant and equipment.
Net cash provided by financing activities was $840,000 for the period
ended December 31, 2001. Net proceeds from long-term debt and notes of
$1,801,000 provided cash in the period. Payments of the revolving credit loan of
$961,000 decreased cash in the period.
The Company is presently negotiating to renew its $5,000,000 revolving
credit line for an additional 12 months from June 1, 2002. The Company estimates
that based on current plans and its ability to extend this revolving line of
credit its resources, including revenues from operations and utilization from
its existing credit line, should be sufficient to meet anticipated needs for at
least 12 months. Should the Company be unable to secure the required financing,
it will result in a material adverse effect in the Company's liquidity.
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.
Effective October 1,2001 the Company acquired 19,900 shares of common
stock from the estate of a former stockholder in settlement of $39,800 of
amounts due to the Company.
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 1. Legal Proceedings
None.
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. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders was held on December 4, 2001. The
matters voted on at the meeting and the votes cast were as follows.
(a) The following directors were reappointed to serve as directors
until the Annual Meeting of Stockholders of the Company to be held
in the year 2002.
Votes For Votes Withheld
--------- --------------
Gennaro Falivene 2,178,875 204,050
Alfonso Falivene 2,190,825 192,100
Stephen M. Katz 2,191,025 191,900
Howard S. Breslow 2,337,325 45,600
Jay Rosengarten 2,336,325 46,600
Dr. Mali Reddy 2,337,325 45,600
(b) The selection of Citrin, Cooperman & Company, LLP as independent
auditors for the year ending March 31, 2001 was ratified.
For Against Abstain
---- ------- -------
2,330,425 52,300 200
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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.
February 8, 2002
Lucille Farms, Inc.
-------------------
(Registrant)
By: /s/ Alfonso Falivene
------------------------
Alfonso Falivene
President (Duly Authorized)
By: /s/ Stephen Katz
------------------------
Vice President-Finance
and Administration
(Principal Financial Officer)
15