This document consists of 17 pages, of which this is page Number 1.
The index to Exhibits is on Page 15.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended January 31, 1997, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number: 0-27446
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
California 94-3025618
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3603 Haven Avenue
Menlo Park, California 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(415) 306-1650
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 at least the past 90 days.
Yes X No
---- ----
As of February 5, 1997, 10,768,154 shares of the Registrant's common stock
were outstanding.
-1-
<PAGE>
LANDEC CORPORATION
FORM 10-Q For the Quarter Ended January 31, 1997
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Statements
Item 1. a) Consolidated condensed balance sheets as of January 31,
1997 and October 31, 1996 3
b) Consolidated statements of operations for the three
months ended January 31, 1997 and 4 1996 4
c) Consolidated statements of cash flows for the three
months ended January 31, 1997 and 5 1996 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information 13
Signature 14
Index to Exhibits 15
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands)
January 31, October 31,
1997 1996
---------- -----------
Assets
Current Assets:
Cash and cash equivalents $10,370 $14,185
Short-term investments 24,429 22,325
Accounts receivable, net 102 23
Inventories 478 549
Prepaid expenses and other current assets 215 188
------- --------
Total Current Assets 35,594 37,270
Property and equipment, net 1,255 963
Other assets 125 125
------- --------
$36,974 $38,358
======= ========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 298 $ 484
Accrued compensation 307 250
Other accrued liabilities 202 259
Current portion of capital lease obligations 237 229
Deferred revenue 229 166
------- --------
Total Current Liabilities 1,273 1,388
Non-current portion of capital lease obligations 267 330
Shareholders' Equity:
Preferred stock - -
Common stock 68,296 68,242
Notes receivable from shareholders (13) (13)
Deferred compensation (283) (311)
Accumulated deficit (32,566) (31,278)
------- --------
Total Shareholders' Equity 35,434 36,640
------- --------
$36,974 $38,358
======= ========
See accompanying notes.
-3-
<PAGE>
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended January 31,
1997 1996
--------- --------
Revenues:
Product sales $ 173 $ 131
Research and development revenues 217 288
-------- --------
Total revenues 390 419
Operating costs and expenses:
Cost of product sales 309 244
Research and development 916 953
Selling, general and administrative 934 491
-------- --------
Total operating costs and expenses 2,159 1,688
-------- --------
Operating loss (1,769) (1,269)
Interest income 494 67
Interest expense (20) (46)
-------- --------
Net loss $ (1,295) $ (1,248)
======== ========
Net loss per share $ (.12) $ (2.26)
======== ========
Shares used in computation of
net loss per share 10,760 552
======== ========
Supplemental net loss per share $ (.17)
========
Shares used in computation of supplemental
net loss per share 7,403
========
See accompanying notes.
-4-
<PAGE>
<TABLE>
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
January 31,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,295) $ (1,248)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 108 96
Amortization of deferred compensation 28 28
Changes in current assets and liabilities:
Accounts receivable (79) (77)
Inventory 71 -
Prepaid expenses and other current assets (27) (20)
Accounts payable (186) 279
Accrued compensation 57 (70)
Other accrued liabilities (57) (30)
Deferred revenue 63 (129)
-------- --------
Total adjustments (22) 77
-------- --------
Net cash used in operating activities (1,317) (1,171)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (400) (105)
Purchases of available-for-sale securities (8,597) (1,024)
Maturities of available-for-sale securities 6,500 -
-------- --------
Net cash used in investing activities: (2,497) (1,129)
-------- --------
Cash flows from financing activities:
Proceeds from sale of common stock 54 8
Payments of capital lease obligations (55) (57)
Initial public offering expenditures - (423)
-------- --------
Net cash used in financing activities (1) (472)
-------- --------
Net decrease in cash and cash equivalents (3,815) (2,772)
Cash and cash equivalents at beginning of period 14,185 3,585
-------- --------
Cash and cash equivalents at end of period $ 10,370 $ 813
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
-5-
<PAGE>
LANDEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Landec
Corporation (the "Company" or "Landec") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments necessary to present fairly the financial
position, results of operations, and cash flows at January 31, 1997, and for all
periods presented, have been made. Although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information normally included in financial
statements and related footnotes prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The accompanying
financial data should be reviewed in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1996.
The results of operations for the three month period ended January 31,
1997 are not necessarily indicative of the results that may be expected for the
fiscal year ended October 31, 1997.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market and consisted of the following:
January 31, October 31,
1997 1996
----------- ------------
Raw materials.......................... $ 127 $ 149
Work in process........................ 218 245
Finished goods......................... 133 155
----------- ------------
$ 478 $ 549
=========== ============
3. Net Loss Per Share
Net loss per share is computed using the weighted average number of
common shares outstanding. Common equivalent shares are excluded from the
computation as their effect is antidilutive. Supplemental per share data is
provided to show the calculation on a consistent basis for the periods
presented. It has been computed by giving retroactive effect from the date of
issuance to the conversion of preferred stock and promissory notes which
automatically converted to common shares upon the closing of the Company's
initial public offering in February, 1996.
-6-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes thereto included in Part
I--Item 1 of this Form 10-Q and the audited consolidated financial statements
and notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1996.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and, in particular
the factors described below under "Additional Factors That May Affect Future
Results," and those mentioned in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1996.
Overview
Since its inception in October 1986, the Company has been primarily
engaged in the research and development of its Intelimer(R) technology and
related products. The Company launched its first product line, QuickCast(TM)
splints and casts, in April 1994. The Company launched its second product line,
Intellipac(TM) breathable membranes for the fresh-cut produce packaging market,
in September 1995. To date, the Company has recognized $1,864,000 in total
QuickCast product and Intellipac breathable membrane sales. The balance of
revenues to date have resulted from license fees, collaborative arrangements and
Small Business Innovative Research ("SBIR") government grants. The Company has
been unprofitable since its inception and expects to incur additional losses,
primarily due to the continuation of its research and development activities and
expenditures necessary to further develop its manufacturing and marketing
capabilities. From inception through January 31, 1997, the Company's accumulated
deficit was $32,566,000.
Results of Operations
Total revenues were $390,000 for the first quarter of fiscal year 1997
compared to $419,000 for the first quarter of fiscal year 1996. Revenues from
product sales increased to $173,000 in the first quarter of fiscal year 1997
from $131,000 in the first quarter of fiscal year 1996 due primarily to the
increased sales volumes of Intellipac breathable membrane products. Revenues
from research and development funding decreased to $217,000 for the first
quarter of fiscal year 1997 from $288,000 for the first quarter of fiscal year
1996 due to the discontinuation of revenue related to a modification of the
Company's agreement with The BFGoodrich Company in March 1996.
Cost of product sales consists of material, labor and overhead. Cost of
product sales was $309,000 for the first quarter of fiscal year 1997 compared to
$244,000 for the first quarter of fiscal year 1996, an increase of 27%. Cost of
product sales as a percentage of product sales decreased to 179% in the first
quarter of fiscal year 1997 from 186% in the first quarter of fiscal year 1996.
The decrease in the cost of product sales as a percentage of product sales was
primarily the result of increased sales volumes of the Intellipac breathable
membrane products. The Company experienced negative gross margins for its
products sales due to the early stage of commercialization of the Company's
products and related initial production costs. The Company anticipates that if
revenues from product sales increase, gross margins should improve as the fixed
portion of cost of product sales will be allocated over higher sales.
Improvements in gross margins due to increased products sales, if any, may be
offset in the future if the Company increases the fixed portion of cost of
product sales. Due to the early stage of commercialization, however, the Company
is unable to predict with any certainty future gross margins.
Research and development expenses were $916,000 for the first quarter
of fiscal year 1997 compared to $953,000 for the first quarter of fiscal year
1996, a decrease of 4%. Research and development expenses decreased primarily as
a result of decreased development costs in the Company's QuickCast products. In
future periods, the
-7-
<PAGE>
Company expects that spending for research and development will increase in
absolute dollars, although it may vary as a percentage of total revenues.
Selling, general and administrative expenses were $934,000 for the
first quarter of fiscal year 1997 compared to $491,000 for the first quarter of
fiscal year 1996, an increase of 90%. Selling, general and administrative
expenses increased primarily as a result of increased sales and marketing
expenses and the additional administrative costs associated with supporting a
public company. Selling, general and administrative expenses consist primarily
of sales and marketing expenses associated with the Company's product sales,
business development and administrative expenses. Sales and marketing expenses
increased to $536,000 for the first quarter of fiscal year 1997 from $205,000
for the first quarter of fiscal year 1996. The increase in sales and marketing
expenses was attributable to the costs to support four national U.S.
distributors for QuickCast products, including the creation of an internal sales
department. The Company expects that selling, general and administrative
spending will increase in absolute dollars in future periods, although it may
vary as a percentage of total revenues.
Net interest income for the first quarter of fiscal year 1997 was
$474,000 compared to $21,000 for the first quarter of fiscal year 1996. Net
interest income increased due to interest income earned on the Company's initial
public offering proceeds.
Liquidity and Capital Resources
As of January 31, 1997 the Company had $34,799,000 of cash, cash
equivalents and short-term investments. Cash used in operating activities
increased $146,000 to $1,317,000 for the first quarter of fiscal year 1997 from
$1,171,000 for the comparable period in fiscal year 1996. This increase in cash
used in operations was due primarily to a decrease in current liabilities.
During the first quarter of fiscal year 1997, the Company purchased seed
processing equipment and incurred leasehold improvement expenditures to support
Intellicoat's product development. These expenditures represented the majority
of property and equipment purchases during the first quarter of fiscal year
1997. The Company believes that existing cash, cash equivalents and short-term
investments, including the proceeds from the initial public offering, will be
sufficient to finance its operational and capital requirements through at least
the next twelve months. The Company's future capital requirements, however,
depend on numerous factors, including the progress of its research and
development programs; the development of commercial scale manufacturing
capabilities; the development of marketing, sales and distribution capabilities;
the ability of the Company to maintain existing collaborative arrangements and
establish and maintain new collaborative arrangements; payments received under
research and development agreements; the costs involved in preparing, filing,
prosecuting, defending and enforcing intellectual property rights; complying
with regulatory requirements; competing technological and market developments;
the effectiveness of product commercialization activities and arrangements; and
other factors. If the Company's currently available funds together with the
internally generated cash flow are not sufficient to satisfy its financing
needs, the Company would be required to seek additional funding through other
arrangements with collaborative partners, bank borrowings and public or private
sales of its securities. The Company has no credit facility or other committed
sources of capital. There can be no assurance that additional funds, if
required, will be available to the Company on favorable terms.
Additional Factors That May Affect Future Results
The Company desires to take advantage of the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Specifically, the
Company wishes to alert readers that the following important factors, as well as
other factors, could in the future affect, and in the past have affected, the
Company's actual results and could cause the Company's results for future
quarters to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company.
History of Operating Losses and Accumulated Deficit. The Company has
incurred net losses in each year since its inception, including net losses of
$1,295,000 and $1,248,000 during the first quarter of fiscal years 1997 and
1996, respectively, and the Company's accumulated deficit as of January 31, 1997
totaled $32,566,000. The
-8-
<PAGE>
Company expects to incur additional losses for the foreseeable future. The
amount of future net losses and time required by the Company to reach
profitability are highly uncertain.
Early Commercialization; Dependence on New Products and Technologies;
Uncertainty of Market Acceptance. While the Company recently commenced marketing
certain of its products, it is in the early stage of product commercialization
and many of its potential products are in development. The Company believes that
its future success will depend in large part on its ability to develop and
market new products in its target markets and in new markets. In particular, the
Company expects that its ability to compete effectively with existing
industrial, food packaging, medical and agricultural companies will depend
substantially on successfully developing, commercializing, achieving market
acceptance of and reducing the cost of producing the Company's products. In
addition, commercial applications of the Company's temperature switch polymer
technology are relatively new and evolving. There can be no assurance that the
Company will be able to successfully develop, commercialize, achieve market
acceptance of or reduce the cost of producing the Company's products, or that
the Company's competitors will not develop competing technologies that are less
expensive or otherwise superior to those of the Company. There can be no
assurance that the Company will be able to develop and introduce new products
and technologies in a timely manner or that new products and technologies will
gain market acceptance. The failure to develop and market successfully new
products could have a material adverse effect on the Company's business,
operating results and financial condition.
The success of the Company in generating significant sales of its
products will depend in part on the ability of the Company and its partners to
achieve market acceptance of the Company's products and technology. The extent
to which, and rate at which, market acceptance and penetration are achieved by
the Company's current and future products is a function of many variables
including, but not limited to, price, safety, efficacy, reliability, conversion
costs and marketing and sales efforts, as well as general economic conditions
affecting purchasing patterns. There can be no assurance that markets for the
Company's products will develop or that the Company's products and technology
will be accepted and adopted. The failure of the Company's products to achieve
market acceptance could have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence on Collaborative Partners. The Company's strategy for the
development, clinical and field testing, manufacturing, commercialization and
marketing of certain of its current and future products includes entering into
various collaborations with corporate partners, licensees and others. To date,
the Company has entered into collaborative arrangements with The BFGoodrich
Company and Hitachi Chemical Co., Ltd. ("Hitachi") in connection with its
Intelimer polymer systems, Fresh Express Farms and PrintPack, Inc. in connection
with its Intellipac breathable membrane products, Nitta Corporation ("Nitta")
and Hitachi in connection with its industrial adhesive products and Smith &
Nephew Medical Limited ("Smith & Nephew"), Physician Sales and Services, Inc.,
North Coast Medical, Inc. and Sammons Preston, Inc. in connection with its
QuickCast orthopedic products. The Company is dependent on its corporate
partners to develop, test, manufacture and/or market certain of its products.
Although the Company believes that its partners in these collaborations have an
economic motivation to succeed in performing their contractual responsibilities,
the amount and timing of resources to be devoted to these activities are not
within the control of the Company. A significant portion of Landec's revenues to
date have been derived from commercial research and development collaborations
and license agreements. In the first quarter of fiscal year 1997, development
funding from these collaborative arrangements comprised approximately 56% of the
Company's total revenues. Development funding from Hitachi and Nitta represented
approximately 48% of the Company's revenues for the first quarter of fiscal year
1997. There can be no assurance that such partners will perform their
obligations as expected or that the Company will derive any additional revenue
from such arrangements. There can be no assurance that the Company's partners
will pay any additional option or license fees to the Company or that they will
develop and market any products under the agreements. Moreover, certain of the
collaborative agreements provide that they may be terminated at the discretion
of the corporate partner, and certain of the collaborative agreements provide
for termination under certain circumstances.
The Company anticipates that it will terminate its relationship with
Smith & Nephew during the second quarter of fiscal year 1997 for the sales and
distribution of QuickCast products in certain European and Pacific
-9-
<PAGE>
Rim countries, Canada and South Africa, and, as a result, the Company is
currently in the process of initiating distribution relationships with other
independent distributors in selected countries.
There can be no assurance that the partners will not pursue existing or
alternative technologies in preference to the Company's technology. Furthermore,
there can be no assurance that the Company will be able to negotiate additional
collaborative arrangements in the future on acceptable terms, if at all, or that
such collaborative arrangements will be successful. To the extent that the
Company chooses not to or is unable to establish such arrangements, it would
experience increased capital requirements to undertake research, development,
manufacture, marketing or sale of its current and future products in such
markets. There can be no assurance that the Company will be able to
independently develop, manufacture, market, or sell its current and future
products in the absence of such collaborative agreements.
Competition and Technological Change. The Company operates in highly
competitive and rapidly evolving fields, and new developments are expected to
continue at a rapid pace. Competition from large industrial, food packaging,
medical and agricultural companies is expected to be intense. In addition, the
nature of the Company's collaborative arrangements may result in its corporate
partners becoming competitors of the Company. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company, and may have substantially greater
experience in conducting clinical and field trials, obtaining regulatory
approvals and manufacturing and marketing commercial products. There can be no
assurance that these competitors will not succeed in developing alternative
technologies and products that are more effective, easier to use or less
expensive than those which have been or are being developed by the Company or
that would render the Company's technology and products obsolete and
non-competitive.
Limited Manufacturing Experience; Dependence on Third Parties. The
Company's success is dependent in part upon its ability to manufacture its
products in commercial quantities in compliance with regulatory requirements and
at acceptable costs. There can be no assurance that the Company will be able to
achieve this. The Company has experienced negative gross margins for its product
sales to date. The Company intends to build or acquire large-scale polymer
manufacturing and formulations facilities by 1998. Production in
commercial-scale quantities may involve technical challenges for the Company.
Establishing its own manufacturing capabilities would require significant
scale-up expenses and additions to facilities and personnel. The Company may
also consider seeking collaborative arrangements with other companies to
manufacture certain of its products. If the Company is dependent upon third
parties for the manufacture of its products, then the Company's profit margins
and its ability to develop and deliver such products on a timely basis may be
adversely affected. Moreover, there can be no assurance that such parties will
adequately perform and any failures by third parties may delay the submission of
products for regulatory approval, impair the Company's ability to deliver
products on a timely basis, or otherwise impair the Company's competitive
position. The occurrence of any of these factors could have a material adverse
effect on the Company's business, operating results and financial condition. The
manufacture of the Company's products will be subject to periodic inspection by
regulatory authorities. There can be no assurance that the Company will be able
to obtain necessary regulatory approvals on a timely basis or at all. Delays in
receipt of or failure to receive such approvals or loss of previously received
approvals would have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Single Source Suppliers. Many of the raw materials used
in manufacturing certain of the Company's products are currently purchased from
a single source, including certain monomers used to synthesize Intelimer
polymers and substrate materials for the Company's breathable membrane products.
Upon manufacturing scale-up, the Company may enter into alternative supply
arrangements. Although to date the Company has not experienced difficulty
acquiring materials for the manufacture of its products, no assurance can be
given that interruptions in supplies will not occur in the future, that the
Company will be able to obtain substitute vendors, or that the Company will be
able to procure comparable materials at similar prices and terms within a
reasonable time. Any such interruption of supply could have a material adverse
effect on the Company's ability to manufacture its products and, consequently,
could materially and adversely affect the Company's business, operating results
and financial condition.
-10-
<PAGE>
Patents and Proprietary Rights. The Company's success depends in large
part on its ability to obtain patents, maintain trade secret protection and
operate without infringing on the proprietary rights of third parties. There can
be no assurance that any pending patent applications will be approved, that the
Company will develop additional proprietary products that are patentable, that
any patents issued to the Company will provide the Company with competitive
advantages or will not be challenged by any third parties or that the patents of
others will not prevent the commercialization of products incorporating the
Company's technology. The Company has received, and may in the future receive,
from third parties, including some of its competitors, notices claiming that it
is infringing third party patents or other proprietary rights. For example, the
Company recently received a letter alleging that the Company's breathable
membrane product infringes patents of another party. The Company has
investigated this matter and believes that its breathable membrane product does
not infringe the specified patents of such party. The Company has received an
opinion of patent counsel that the breathable membrane product does not infringe
any valid claims of such patents. If the Company were determined to be
infringing any third-party patent, the Company could be required to pay damages,
alter its products or processes, obtain licenses or cease certain activities. If
the Company is required to obtain any licenses, there can be no assurance that
the Company will be able to do so on commercially favorable terms, if at all.
Litigation, which could result in substantial costs to and diversion of effort
by the Company, may also be necessary to enforce any patents issued or licensed
to the Company or to determine the scope and validity of third-party proprietary
rights. Any such litigation or interference proceeding, regardless of outcome,
could be expensive and time consuming and could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company to cease using such technology and,
consequently, could have a material adverse effect on the Company's business,
operating results and financial condition.
Government Regulation. The Company's products and operations are
subject to substantial regulation in the United States and foreign countries.
Although Landec believes that it will be able to comply with all applicable
regulations regarding the manufacture and sale of its products and polymer
materials, such regulations are always subject to change and depend heavily on
administrative interpretations and the country in which the products are sold.
There can be no assurance that future changes in regulations or interpretations
relating to such matters as safe working conditions, laboratory and
manufacturing practices, environmental controls, and disposal of hazardous or
potentially hazardous substances will not adversely effect the Company's
business. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations in the future,
or that such laws or regulations will not have a material adverse effect on the
Company's business, operating results and financial condition. Failure to comply
with the applicable regulatory requirements can, among other things, result in
fines, injunctions, civil penalties, suspensions or withdrawal of regulatory
approvals, product recalls, product seizures, including cessation of
manufacturing and sales, operating restrictions and criminal prosecution.
Limited Sales or Marketing Experience. The Company has only limited
experience marketing and selling its products. While the Company intends to
distribute certain of its products through its corporate partners and other
distributors, the Company intends to sell certain other products through a
direct sales force. Establishing sufficient marketing and sales capability may
require significant resources. There can be no assurance that the Company will
be able to recruit and retain skilled sales management, direct salespersons or
distributors, or that the Company's sales efforts will be successful. The
Company is currently in the process of changing its distribution approach with
respect to the QuickCast product line in the United States to include several
national distributors. To the extent that the Company enters into distribution
arrangements for the sale of its products, the Company will be dependent on the
efforts of third parties. There can be no assurance that such efforts will be
successful.
International Operations and Sales. In the first quarter of the fiscal
years 1997 and 1996, approximately 51% and 46% of the Company's total revenues
were derived from product sales to and collaborative agreements with
international customers, and the Company expects that international revenues
will continue to account for a significant portion of its total revenues. A
number of risks are inherent in international transactions. International sales
and operations may be limited or disrupted by the regulatory approval process,
government controls, export license requirements, political instability, price
controls, trade restrictions, changes in tariffs or difficulties in staffing and
managing international operations. Foreign regulatory agencies have or may
establish product standards different from those in the United States, and any
inability to obtain foreign regulatory approvals on a
-11-
<PAGE>
timely basis could have an adverse effect on the Company's international
business and its financial condition and results of operations. While the
Company's foreign sales are priced in dollars, fluctuations in currency exchange
rates may reduce the demand for the Company's products by increasing the price
of the Company's products in the currency of the countries to which the products
are sold. There can be no assurance that regulatory, geopolitical and other
factors will not adversely impact the Company's operations in the future or
require the Company to modify its current business practices.
Quarterly Fluctuations in Operating Results. The Company's results of
operations have varied significantly from quarter to quarter. Quarterly
operating results will depend upon several factors, including the timing and
amount of expenses associated with expanding the Company's operations, the
timing of collaborative agreements with, and performance of, potential partners,
the timing of regulatory approvals and new product introductions, the mix
between pilot production of new products and full-scale manufacturing of
existing products and the mix between domestic and export sales. In addition,
the Company cannot predict rates of licensing fees and royalties received from
its partners or ordering rates by its distributors, some of which place
infrequent stocking orders, while others order at regular intervals. As a result
of these and other factors, the Company expects to continue to experience
significant fluctuations in quarterly operating results, and there can be no
assurance that the Company will become or remain consistently profitable in the
future.
Product Liability Exposure and Availability of Insurance. The testing,
manufacturing, marketing, and sale of the products being developed by the
Company involve an inherent risk of allegations of product liability. While no
product liability claims have been made against the Company to date, if any such
claims were made and adverse judgments obtained, they could have a material
adverse effect on the Company's business, financial condition and results of
operations. Although the Company has taken and intends to continue to take what
it believes are appropriate precautions to minimize exposure to product
liability claims, there can be no assurance that it will avoid significant
liability. The Company currently maintains medical product liability insurance
in the minimum amount of $2.0 million per occurrence with a minimum annual
aggregate limit of $2.0 million and non-medical product liability insurance in
the minimum amount of $5.0 million per occurrence with a minimum annual
aggregate limit of $5.0 million. There can be no assurance that such coverage is
adequate or will continue to be available at an acceptable cost, if at all. A
product liability claim, product recall or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the Company's business, operating results and financial condition.
No Prior Public Market; Possible Volatility of Stock Price. Factors
such as announcements of technological innovations, the attainment of (or
failure to attain) milestones in the commercialization of the Company's
technology, new products, new patents or changes in existing patents, or
development of new, collaborative arrangements by the Company, its competitors
or other parties, as well as government regulations, investor perception of the
Company, fluctuations in the Company's operating results and general market
conditions in the industry may cause the market price of the Company's Common
Stock to fluctuate significantly. In addition, the stock market in general has
recently experienced extreme price and volume fluctuations, which have
particularly affected the market prices of technology companies and which have
often been unrelated to the operating performance of such companies. These broad
fluctuations may adversely effect the market price of the Company's Common
Stock.
-12-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.1 Computation of loss per share (See Note 3 to
Financial Statements in Part I of this Form 10-Q.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LANDEC CORPORATION
By:/s/ JOY T. FRY
------------------------------------------
Joy T. Fry
Vice President, Finance and Administration
and Chief Financial Officer
(Duly Authorized and Principal Financial
and Accounting Officer)
Date: March 7, 1997
-14-
<PAGE>
LANDEC CORPORATION
INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Numbered Page
- ------- ------- -------------
11.1 Statement Regarding Computation of Net Loss Per Share 16
27.1 Financial Data Schedule 17
-15-
Exhibit 11.1
LANDEC CORPORATION
<TABLE>
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per share data)
<CAPTION>
Three Months Ended January 31,
1997 1996
------------ ------------
<S> <C> <C>
Net Loss $ (1,295) $ (1,248)
============ ============
Shares used in calculating net loss per share:
Weighted average shares of common stock outstanding 10,760 552
============ =============
Net loss per share $ (.12) $ (2.26)
============ =============
Shares used in calculating supplemental net loss per share:
Weighted average shares of common stock outstanding 552
Weighted average shares of the assumed conversion of preferred
stock and promissory notes from the date of issuance
6,851
=============
Total shares used in calculating supplemental net loss per share 7,403
=============
Supplemental net loss per share $ (.17)
=============
</TABLE>
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 10,370
<SECURITIES> 24,429
<RECEIVABLES> 134
<ALLOWANCES> (32)
<INVENTORY> 478
<CURRENT-ASSETS> 35,594
<PP&E> 3,648
<DEPRECIATION> (2,393)
<TOTAL-ASSETS> 36,974
<CURRENT-LIABILITIES> 1,273
<BONDS> 0
<COMMON> 68,296
0
0
<OTHER-SE> (32,862)
<TOTAL-LIABILITY-AND-EQUITY> 36,974
<SALES> 173
<TOTAL-REVENUES> 390
<CGS> 309
<TOTAL-COSTS> 1,225
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> (1,295)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,295)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
