SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT I
(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, 2002
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, 2002 was 3,284,775.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LUCILLE FARMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
JUNE 30, 2002 MARCH 31, 2002
-------------- --------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 120,000 $ 175,000
Accounts receivable, net 2,999,000 3,688,000
of allowances of $109,000
at June 30, 2002 and $144,000
at March 31, 2002
Inventories 3,015,000 3,169,000
Deferred income taxes 72,000 72,000
Prepaid expenses and other
current assets 359,000 164,000
----------- -----------
Total current assets 6,565,000 7,268,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 10,512,000 10,503,000
----------- -----------
OTHER ASSETS:
Due from officers 101,000 101,000
Deferred loan costs, net 245,000 250,000
Other 108,000 118,000
----------- -----------
Total other assets 454,000 469,000
----------- -----------
TOTAL ASSETS $17,531,000 $18,240,000
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See notes to consolidated financial statements
2
LUCILLE FARMS,INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDER'S EQUITY
` JUNE 30, 2002 MARCH 31, 2002
------------- --------------
` (UNAUDITED)
CURRENT LIABILITES:
Revolving credit loan $ 2,784,000 $ 3,744,000
Accounts payable 2,373,000 6,824,000
Current portion of long-term debt 701,000 201,000
Accrued expenses 481,000 384,000
------------ ------------
Total Current Liabilities 6,339,000 11,153,000
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt 7,308,000 6,771,000
Deferred income taxes 72,000 72,000
------------ ------------
Total Long-Term Liabilities 7,380,000 6,843,000
------------ ------------
TOTAL LIABILITIES 13,719,000 17,996,000
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STOCKHOLDERS' EQUITY:
Preferred stock, $ 0.001 per value,
250,000 shares authorized:
216 shares Series A convertible
issued and outstanding 1,000 1,000
583 shares Series B convertible
issued and outstanding 1,000 --
Common stock, $ 0.001 per value,
10,000,000 shares authorized, 3,284,775 shares issued 3,000 3,000
at June 30, 2002 and 3,021,342 shares issued at
March 31, 2002
Additional paid in capital 8,425,000 5,001,000
Accumulated deficit (4,453,000) (4,596,000)
------------ ------------
3,977,000 409,000
Less cost of 69,900 shares of treasury stock (165,000) (165,000)
------------ ------------
Total Stockholders' Equity 3,812,000 244,000
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 17,531,000 $ 18,240,000
------------ ------------
See notes to consolidated financial statements
3
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS
ENDED JUNE 30,
2002 2001
------------ ------------
SALES $ 9,318,000 $ 12,136,000
COST OF SALES 9,415,000 11,284,000
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GROSS PROFIT (LOSS) (97,000) 852,000
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OTHER EXPENSE/(INCOME):
SELLING 176,000 149,000
GENERAL AND ADMINISTRATIVE 258,000 260,000
INTEREST INCOME (2,000) (3,000)
INTEREST EXPENSE 202,000 204,000
------------ ------------
TOTAL OTHER EXPENSE (INCOME) 634,000 610,000
------------ ------------
(LOSS)INCOME BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM (731,000) 242,000
(PROVISION) FOR INCOME TAXES (1,000) (1,000)
------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM $ (732,000) $ 241,000
EXTRAORDINARY ITEM: GAIN ON
DEBT RESTRUCTURING, NET $ 875,000 --
------------ ------------
NET INCOME $ 143,000 $ 241,000
------------ ------------
EARNINGS PER SHARE
BASIC:
INCOME BEFORE
EXTRAORDINARY ITEM $ (.23) $ .08
EXTRAORDINARY ITEM $ .28 $ .00
NET INCOME $ .05 $ .08
DILUTED:
INCOME BEFORE
EXTRAORDINARY ITEM $ (.19) $ .08
EXTRAORDINARY ITEM $ .23 $ .00
NET INCOME $ .04 $ .08
WEIGHTED AVERAGE SHARES
OUTSTANDING USED TO COMPUTE
NET INCOME PER SHARE
:BASIC 3,118,109 2,971,342
:DILUTED 3,920,639 2,977,649
See notes to consolidated financial statements
4
LUCILLE FARMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended June 30,
2002 2001
----------- -----------
Cash flows from operating activities:
NET INCOME $ 143,000 $ 241,000
Adjustments to reconcile net(loss)/
income To net cash provided(used) by
operating activities:
Gain on debt restructuring (875,000) --
Value of options issued for service -- 2,000
Depreciation and amortization 210,000 154,000
Provision for doubtful accounts (35,000) 21,000
(Increase) decrease in assets:
Accounts receivable 724,000 (203,000)
Inventories 154,000 (722,000)
Prepaid expenses and other current (195,000) 10,000
assets
Other assets 10,000 (5,000)
Increase (decrease) in liabilities
Accounts payable 1,049,000 (1,307,000)
Accrued expenses 97,000 (177,000)
----------- -----------
Net Cash provided(used) by
operating activities 1,282,000 (1,986,000)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant
and equipment (214,000) (156,000)
----------- -----------
Net Cash (Used by) investing
Activities (214,000) (156,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments of) proceeds from revolving
credit loan-net (960,000) 243,000
(Payments of) proceeds from long-term
debt and notes (163,000) 1,886,000
----------- -----------
Net Cash provided (used) by
financing activities (1,123,000) 2,129,000
----------- -----------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (55,000) (13,000)
CASH AND CASH EQUIVALENTS-BEGINNING 175,000 212,000
----------- -----------
CASH AND CASH EQUIVALENTS-ENDING $ 120,000 $ 199,000
----------- -----------
See notes to consolidated financial statements
5
LUCILLE FARMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Consolidated Balance Sheet as of June 30, 2002, the Consolidated
Statement of Operations for the three month periods ended June 30, 2002
and 2001 and the Consolidated Statement of Cash Flows for the threemonth
periods ended June 30, 2002 and 2001 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, 2002, the
results of its operations for the three months ended June 30, 2002 and
2001 and its cash flows for the three months ended June 30, 2002 and
2001.
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, 2002
included in the Company's Annual Report on Form 10-K as filed with the
SEC. The Company also suggests that the Form 8K filed with the SEC on
July 11, 2002, be read in conjunction with this report.
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, 2002 are
not necessarily indicative of the results to be expected for the entire
fiscal year.
3. Inventories are summarized as follows:
June 30, 2002 March 31, 2002
------------- --------------
Finished goods $2,028,000 $2,244,000
Raw Materials 540,000 281,000
Supplies and Packaging 447,000 644,000
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$3,015,000 $3,169,000
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. The first installment due May 2003, has been classified
as a current liability at June 30, 2002.
6
The Company is presently seeking to replace its $5,000,000 secured
revolving credit line, the maturity of which has been extended to
November 1, 2002. Should the Company not be able to secure alternative
financing by the extended due date it will request and additional
extension of this maturity until such financing is secured. However,
there can be no assurance that such financing can be secured or the
extension granted. Should the Company be unable to secure such financing
or receive such extension it will result in a significant negative effect
on the Company's liquidity.
5. Income per share of common stock was computed by dividing net income 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.
6. For the three months ended June 30, 2002, non-cash investing and
financing activities were $5,500,000 for accounts payable restructuring
for a value ascribed to common stock, preferred stock, warrants and debt
issued in connection with the restructuring of $4,500,000.
For the three months ended June 30, 2001, non-cash investing and
financing activities were $540,000 for preferred stock issued for
equipment.
7. In May 2002, the Company restructured $5,500,000 of accounts payable form
its main supplier through the issuance of 333,333 shares of common stock,
583 shares of Series B Preferred Stock with a detachable 10-year warrant
and a $1,000,000 convertible not payable in April 2005 which had an
ascribed value of approximately $4,500,000.
The restructuring resulted in an extraordinary gain of $875,000, net of
expenses of $125,000 and income taxes calculated to be zero due to the
offset of net operation loss carry forwards previously unrealized.
8. In June 2002, the Company issued a 10-year warrant to B & W Investment
Associates, a partnership in which a director of the Company is a partner
to purchase 500,000 shares of common stock at $3.00 per share. The
warrant was issued to satisfy outstanding professional services in
connection with the restructuring of accounts payable.
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 block cheddar price on 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.
Regulatory factors effecting our milk suppliers such as dairy subsidies and
price supports may have an effect on our raw material costs, but that impact
cannot be predicted. Milk is generally sold above the subsidy price, which is
established by government regulation. The subsidy price generally establishes a
floor for such costs. While the Company generally can anticipate a change in
price of milk, it cannot anticipate the extent thereof. There is no
corresponding floor on the commodity mercantile exchange block cheddar price.
Therefore, if the block cheddar price to which our selling price is referenced
changes at a different rate than the price of milk our margins are affected
accordingly. By virtue of the pricing structure for its cheese, the delay in the
determination of cost, and the competitive nature of the marketplace, the
Company cannot 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 increases or decreases in the prices
for block cheddar on the Chicago Mercantile Exchange as such price is 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 block cheddar price on the Chicago Mercantile Exchange, the extent of such
movement and the timing thereof 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, 2002 compared to the three months ended June 30,
2001
Sales for the three months ended June 30, 2002 decreased to $9,318,000 from
$12,136,000 for the comparable period in 2001, a decrease of $2,818,000 (or
23.2%). Approximately $641,000 (or 22.7%) of such amount was due to a decrease
in the number of pounds of cheese sold. Approximately $1,831,000 (or 65.0%) of
such decrease 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. Due
to the weak cheese markets, the Company anticipates volume decreases and
decreased demand in the months ahead, although there can be no assurance in this
regard. The decrease in average selling price was the result of a decrease in
the block cheddar market prices resulting in a lower selling price per pound of
cheese. Of the $2,818,000 sales decrease this period, approximately $346,000 (or
12.3%) represented decreased whey sales produced in our new facility. In the
periods ended June 30, 2002, and June 30, 2001, approximately 6,618,000 and
7,013,000 pounds of cheese were sold, respectively.
During the three month period ended June 30, 2002, the average quarterly selling
price was approximately $1.35. During the three month period ended, June 30,
2001, the average quarterly selling price was approximately $1.62. There is no
way to predict the trend of block cheddar prices on the Chicago Mercantile
Exchange and, therefore, we can provide no guidance as to future trends as to
range of selling price for commodity cheese.
8
In the three month period ended June 30, 2002, and June 30, 2001, sales of whey
amounted to $410,000 and $756,000, respectively.
Cost of sales and gross profit margin for the three month period ended June 30,
2002 were $9,415,000 (or 101.0% of sales) and ($97,000) (or (1.0%) of sales),
respectively, compared to a cost of sales and gross profit margin of $11,284,000
(or 92.9% of sales) and $852,000 (or 7.1% of sales), respectively, for the
comparable period in 2001. The cost of sales and corresponding decrease in gross
profit margin for 2002 as a percentage of sales was the result of lower average
selling price for cheese due to decreases in the block cheddar market in the
period without a corresponding decrease in raw material costs.
Selling, general and administrative expenses for the three month period ended
June 30, 2002 amounted to $434,000 (or 4.7% of sales) compared to $409,000 (or
3.4% of sales) for the comparable period in 2001. The Company is currently
classifying all freight expense as a component of cost of sales and has
reclassified prior years to conform.
Selling expenses are mainly variable in nature. The most significant amount in
selling expense is sales commission expense, which was $93,000 and $63,000 in
2002 and 2001, respectively. The increase resulted from a increase in
commissionable sales in the period ended June 30, 2002. General and
administrative expenses are generally fixed in nature and remained relatively
constant in the period.
Interest expense for the period ended June 30, 2002 amounted to $202,000
compared to $204,000 for the period ended June 30, 2001, a decrease of $2,000.
The provision for income tax for the periods ended June 30, 2002, and 2001 of
$1,000 and $1,000, respectively, reflect minimum state taxes with the tax
benefits of operating losses being offset by the effect of changes in the
valuation allowance. Such amounts are re-evaluated each period based on the
results of the operations.
The Company's net income of $143,000 for the three-month period ended June 30,
2002 represents a decrease of $98,000 from the net income of $241,000 for the
comparable period in 2001. The primary factors contributing to these changes are
discussed above, including the restructuring of $5,500,000 of accounts payable
resulting in an extraordinary gain of $875,000 during May 2002.
9
Liquidity and Capital Resources
The Company had available a $5,000,000 revolving credit facility at June 30,
2002 that was to expire on June 1, 2002 and had been extended to September 1,
2002. The bank has provided an additional extension of the facility to November
1, 2002 at which time the outstanding principal is due. The rate of interest on
amounts borrowed against the revolving credit facility is based upon the New
York prime rate plus 1% (5.75% at June 30, 2002). Advances under this facility
are limited to 50% of inventory (with a cap on inventory borrowings of
$1,000,000) and 80% of receivables as defined in the agreement. The commitment
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 generate an increase in its dollar
amount of net worth annually. The Company is seeking alternative financing to
replace this loan. Should the Company not be able to secure alternative
financing by the extended due date it will request an additional extension until
such financing is secured. However, there is no assurance that such financing
can be secured or the extension granted. Failure to secure such financing or
receive such extension will result in a significant negative effect on the
Company's liquidity.
At June 30, 2002 the Company had working capital of $226,000 as compared to
negative working capital of ($3,885,000) at March 31, 2002. The Company's
revolving bank line of credit is available for the Company's working capital
requirements.
At June 30, 2002, $2,784,000 was outstanding under such revolving credit line
and $437,000 was available for additional borrowing at that time.
On February 8, 1999, a $4,950,000 bank loan agreement was signed. The loan is
collateralized by the Company's plant and equipment and guaranteed by the USDA.
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 collateralized by a second position on 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 principal
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.
10
On May 16, 2002, Lucille Farms, Inc. entered into an agreement with St. Albans
Cooperative Creamery, Inc., the Company's primary supplier of raw materials,
pursuant to which St. Albans (i) converted $1,000,000 of accounts payable owed
by Lucille Farms to St. Albans into 333,333 shares of common stock, (ii)
converted $3,500,000 of accounts payable owed by Lucille Farms to St. Albans
into (A) preferred stock convertible into 583,333 shares of common stock, which
preferred stock (1) automatically converts into such number of shares of common
stock if the common stock is $8.00 or higher for 30 consecutive trading days,
and (2) may be redeemed by Lucille Farms for $3,500,000, and (B) a 10-year
warrant to purchase 583,333 shares of common stock (subject to adjustment under
certain circumstances to a maximum of 1,416,667 shares of common stock) at $.01
per share, which warrant (1) may not be exercised for a period of three-years,
(2) terminates if, during such three-year period, Lucille Farms' common stock is
$8.00 or higher for 30 consecutive trading days, and, (3) in the event Lucille
Farms' common stock is not $8.00 or higher for 30 consecutive trading days
during such three-year period, may only be exercised on the same basis
percentage wise as the preferred shares are converted, (iii) converted an
additional $1,000,000 of accounts payable owed by Lucille Farms to St. Albans
into a convertible promissory note due on April 14, 2005, which note is
convertible into common stock at $6.00 per share at any time by St. Albans and,
at the option of Lucille Farms, automatically shall be converted into common
stock at $6.00 per share if the common stock is $8.00 or higher for a period of
30 consecutive trading days, and (iv) provided Lucille Farms with a pricing
structure for milk and milk by-products, for a minimum of one-year and a maximum
of four-years (subject to renegotiation at the expiration of the applicable
period), designed to produce profitability for Lucille Farms.
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
the Company's revolving line of credit will continue to represent the major
source of working capital financing besides income generated from operations.
However, there is no assurance that replacement of the revolving line or an
extension thereof can be secured and failure to secure such replacement
financing or extension can have a significant negative effect on the Company's
liquidity.
Accounts receivable turnover is directly related to the sales volume in the
month proceeding the statement date. Therefore, any change in turnover rate is
not attributable to rate of collections or changes in customer base.
For the three month period ended June 30, 2002, cash provided by operating
activities was $1,282,000. In addition, decreases in accounts receivable of
$724,000, and increases in accrued expenses of $97,000 provided cash. An
increase in accounts payable of $1,049,000 also provided cash in the period. A
decrease in prepaid expenses and other assets of $34,000 provided cash.
Net cash used by investing activities was $214,000 for the period ended June 30,
2002, which represented purchase of property, plant and equipment.
Net cash used by financing activities was $1,123,000 for the period ended June
30, 2002. Payments of the revolving credit loan of $960,000 decreased cash.
Payments of long-term debt and notes of $63,000 also decreased cash.
In the three month period ended June 30, 2002, the Company spent $214,000 on
plant machinery and improvements most of which were related to the packaging
room and plant operation. These expenditures were considered necessary in order
to competitively enter new markets. The Company has budgeted approximately
$1,000,000, $200,000 of which was anticipated to complete current projects in
process and $800,000 of which is budgeted for additional capital expenditures
during the fiscal year ended March 31, 2003. The Company anticipates financing a
significant portion of these expenditures; however, the ability to obtain such
financing cannot be assured.
11
The Company presently is seeking to replace its $5,000,000 secured revolving
credit line, the maturity of which has been extended to November 1, 2002. The
Company estimates that based on current plans and its ability to replace or
extend the revolving line of credit, its resources, including revenues from
operations and utilization of its revolving credit lines, should be sufficient
to meet anticipated needs for at least 12 months. Failure to secure such
financing or receive such extension will result in a significant negative effect
on the Company's liquidity.
..
Safe Harbor Statement
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 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. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The registrant does not utilize market rate sensitive instruments for trading or
other purposes.
The Company is subject to interest rate exposure on variable rate debt. The
amount of that debt at balance sheet date, June 30, 2002 and March 31, 2002
amounted to $4,784,000, and $5,744,000, respectively. In as much as this debt is
based upon the Prime Rate plus 1%, the cost of this debt will increase or
decrease accordingly with changes in the prime rate.
The Company has exposure to the commodity price for cheese, dry whey and fluid
milk. We have addressed these exposures in the general paragraph of MD&A Item 2.
12
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.
On May 16, 2002, Lucille Farms, Inc. entered into an agreement with St. Albans
Cooperative Creamery, Inc., the Company's primary supplier of raw materials,
pursuant to which St. Albans (i) converted $1,000,000 of accounts payable owed
by Lucille Farms to St. Albans into 333,333 shares of common stock, (ii)
converted $3,500,000 of accounts payable owed by Lucille Farms to St. Albans
into (A) preferred stock convertible into 583,333 shares of common stock, which
preferred stock (1) automatically converts into such number of shares of common
stock if the common stock is $8.00 or higher for 30 consecutive trading days,
and (2) may be redeemed by Lucille Farms for $3,500,000, and (B) a 10-year
warrant to purchase 583,333 shares of common stock (subject to adjustment under
certain circumstances to a maximum of 1,416,667 shares of common stock) at $.01
per share, which warrant (1) may not be exercised for a period of three-years,
(2) terminates if, during such three-year period, Lucille Farms' common stock is
$8.00 or higher for 30 consecutive trading days, and, (3) in the event Lucille
Farms' common stock is not $8.00 or higher for 30 consecutive trading days
during such three-year period, may only be exercised on the same basis
percentage wise as the preferred shares are converted, (iii) converted an
additional $1,000,000 of accounts payable owed by Lucille Farms to St. Albans
into a convertible promissory note due on April 14, 2005, which note is
convertible into common stock at $6.00 per share at any time by St. Albans and,
at the option of Lucille Farms, automatically shall be converted into common
stock at $6.00 per share if the common stock is $8.00 or higher for a period of
30 consecutive trading days, and (iv) provided Lucille Farms with a pricing
structure for milk and milk by-products, for a minimum of one-year and a maximum
of four-years (subject to renegotiation at the expiration of the applicable
period), designed to produce profitability for Lucille Farms.
On June 10, 2002, B&W Investment Associates, a partnership of which Howard S.
Breslow, a director of the Company, is a partner, purchased, for $25,000, a ten
year warrant to purchase 500,000 shares of Common Stock at $3.00 per share. This
transaction took place in connection with the conversion into equity and long
term debt of outstanding accounts payable owed by the Company to St. Albans
Cooperative Creamery, Inc. and the revision of the pricing structure for milk
and milk by-products.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Loan and Security/Stock Purchase Agreement, dated May 16, 2002, by and
among Lucille Farms, Inc., Lucille Farms of Vermont, Inc. and St Albans
Cooperative Creamery, Inc. Portions have been omitted pursuant to a
request for confidential treatment and have been filed separately with
the Securities and Exchange Commission. (1)
99.1 Certification of Quarterly Report
99.2 Certification of Quarterly Report
(b) Reports on Form 8-K
Current Report on Form 8-K, filed July 11, 2002, relating to the
transaction between the Company and St. Albans Cooperative
Creamery, Inc.
13
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 12, 2002 Lucille Farms, Inc.
-------------------
(Registrant)
By: /s/ Jay Rosengarten
--------------------
Jay Rosengarten,
Chief Executive Officer
By: /s/ Albert Moussab
--------------------
Albert Moussab,
Chief Financial Officer
CERTIFICATION
I, Jay Rosengarten, Chief Executive Officer of Lucille Farms, Inc. (the
"Company"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The Company's other certifying officers and I am responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to me
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: February 14, 2003
By: /s/ Jay M. Rosengarten
---------------------------
Jay Rosengarten
Chief Executive Officer
CERTIFICATION
I, Albert N. Moussab, Chief Financial Officer of Lucille Farms, Inc.
(the "Company"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The Company's other certifying officers and I am responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to me
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: February 14, 2003
By: /s/ Albert N. Moussab
--------------------------
Albert N. Moussab
Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
-------- ---------------------------
99.1* Certification of Periodic Report dated February 14, 2003
99.2* Certification of Periodic Report dated February 14, 2003
* Filed herewith