Exhibit 99.1
LUCILLE FARMS, INC. ANNOUNCES RESULTS
FOR THE QUARTER AND YEAR ENDED MARCH 31, 2005
MONTVILLE, NJ--JULY 14, 2005 -- LUCILLE FARMS, INC. (NASDAQ-LUCY) a manufacturer
and marketer of low moisture mozzarella cheese (including whole milk, part skim
and reduced fat low moisture mozzarella cheese) and pizza cheese today announced
its results for the quarter and fiscal year ending March 31, 2005.
Three Months Ended Year Ending
March 31, 2005 March 31, 2005
2005 2004 2005 2004
---- ---- ---- ----
Net Sales $11,458 $11,975 47,802 $42,174
Net (loss) Income $(2,846) $186 $(3,269) $209
Net income (Loss) Per Share
Basic: $(0.85) $0.06 $(0.98) $0.07
Diluted: $(0.85) $0.06 $(0.98) $0.07
Weighted Average Shares
Basic: 3,329,116 3,137,937 3,329,116 3,162,410
Diluted: 3,329,116 3,137,937 3,329,116 3,162,410
Net loss for the quarter and year ended March 31, 2005 was $(2,846,000) and
$(3,269,220), respectively, compared to a profit of $186,000 and $209,000,
respectively, for the prior year. The Company had a negative gross profit of
$(1,668,000) for the quarter ended March 31, 2005, reflecting a continued and
exacerbated disconnect between the price of cheese and the price of milk that
started in the quarter ended December 31, 2004.
While the Company has made great strides over the past two years in reducing its
operating expenses and, through efficiencies, bringing down its cost of
producing a pound of cheese, consistent profitability for the Company is
dependent upon stability in the price of block cheddar on the CME and the price
of milk ( the principal ingredient and cost factor in the manufacture of
cheese). Generally, the price of milk for any particular month, is computed,
based on formulas determined by the United States Department of Agriculture
(USDA), by the National Agricultural Statistical Service (NASS) after the end of
the month by reference to the average selling price of block cheddar cheese,
barrel cheddar cheese, butter, non-fat dry milk and whey. Thus, everything else
being equal and there being stability in the price of cheese, the price of milk
will follow the price of cheese in an orderly manner, the normal spread between
the selling price of cheese and the cost of milk will be maintained, and there
will be stability in the Company's gross profit margin. However, sometimes
things are not equal. For one thing, the market information required by NASS to
compile the price of milk is not immediately available and takes time to
collect. For this reason, the commodity prices used to calculate the milk price
is two weeks old when the NASS receives it at the end of a particular month
(i.e. it includes the commodity prices for two weeks of the current month and
two weeks of the prior month), creating a "lag" between the data used for
determining the selling price of cheese for the month (the CME Block Market
prices for the month) and the data used for determining the cost of milk for the
month (based upon commodity prices for two weeks of the current month and two
weeks of the prior month). Thus, if there is a precipitous increase or decrease
in the price of block cheddar cheese during a given month, it may not be
reflected in the average selling price of block cheddar cheese utilized in
computing the price of milk for such month. In such event, there is a disconnect
between the average price of cheese for the month and the cost of milk for the
month. In such case, the price of milk does not increase or decrease as fast as
the price of cheese, and the Company's gross profit margin is affected
accordingly. By virtue of the fact that the Company does not know its cost of
milk for the month until the following month and customers are billed for cheese
when its shipped to them during the month, the Company cannot pass along to
customers the changes in the cost of milk. As a consequence thereof, the
Company's gross profit margin for its product is subject to fluctuation, which
fluctuation, however slight, can have a significant effect on profitability. The
decline of gross profit margin has affected all cheese makers throughout the
United States.
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At March 31, 2005, the Company was in default of certain covenants under its
borrowing facility, for the test period ended March 31, 2005, relating to, among
other things, the maintenance of a Tangible Net Worth of not less than
$2,500,000, and the maintenance of a Fixed Charge Coverage Ratio of not less
than 1.00 x 1.00. On July 14, 2005, the Company has received waivers for the
existing defaults at March 31, 2005 and amended such covenants to suspend the
Company's compliance with (a) the Tangible Net Worth Covenant for the test
periods ended April 30, 2005, May 31, 2005 and June 30, 2005, and (b) the Fixed
Charge Coverage test for the ten (10) month period ended April 30, 2005, the
eleven (11) month period ending May 31, 2005, and the twelve (12) month period
ended June 30, 2005. Also, the Company's borrowing facility was amended to (x)
reduce the total borrowing facility to $9,200,000 from $11,000,000, (y) reduce
the revolving loan to $5,500,000 from $7,000,000, and (z) reduce the capital
expenditure loans to $700,000 from $1,000,000 and make it subject to various
conditions precedent.
The Company's financial statements, for the fiscal year ended March 31, 2005,
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
At March 31, 2005, the Company has a loss from continuing operations of
$3,269,000, cash used in operating activities of $1,026,000 and a deficiency in
assets of $262,000. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.
To try to remedy the situation, the Company has developed a business plan
designed to improve gross margins and reduce its dependency on the spread
allowed by the calculation of the milk price. The plan calls for various capital
improvements that will significantly reduce the cost of producing cheese and
change the type of whey produced by the Company to a highly profitable whey
protein concentrate for human and animal consumption. The capital improvements
needed to achieve the business plan will require an infusion of capital of
approximately $8,000,000. Discussions are currently underway with St. Albans
Cooperative, the Company's milk supplier, the Vermont Economic Development
Authority, the United States Department of Agriculture, the Franklyn County
Economic Development Authority, the Village of Swanton, Vermont, UPS Business
Credit, LLC and LaSalle Business Credit, LLC to structure a financing package
that would provide a portion of such financing as well as strengthen the
Company's balance sheet. Also, the Company is having conversations with a
potential joint venture partner that would provide the necessary financing to
modify the Company's whey facility. However, there can be no assurance that such
a financing package or joint venture will be forthcoming.
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This press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements include, but are not
limited to the availability of financing and future profitability. Such
forward-looking statements involve risks and uncertainties that may cause the
actual results or objectives to be materially different from those expressed or
implied by such forward-looking statements.
Contact: Jay Rosengarten, CEO, (973) 334-6030
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