<PAGE>
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 APRIL 30, 1998, 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:
(650) 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 June 5, 1998, 12,790,143 shares of the Registrant's common stock were
outstanding.
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LANDEC CORPORATION
FORM 10-Q For the Quarter Ended April 30, 1998
<TABLE>
<CAPTION>
INDEX
Page
<S> <C>
Facing sheet 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
a) Consolidated condensed balance sheets as of April 30, 1998
and October 31, 1997 3
b) Consolidated statements of operations for the three and six
months ended April 30, 1998 and 1997 4
c) Consolidated statements of cash flows for the six months
ended April 30, 1998 and 1997 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults in Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits 18
b) Reports on Form 8-K 18
Signature 19
Index to Exhibits 20
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
April 30, October 31,
1998 1997
--------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,934 $ 5,163
Short-term investments 1,985 9,506
Restricted investment -- 8,837
Accounts receivable, net 2,443 2,162
Inventory 3,232 2,652
Prepaid expenses and other current assets 1,229 1,720
-------- --------
Total Current Assets 19,823 30,040
Property and equipment, net 5,829 5,023
Intangible assets, net 14,807 14,985
Other assets 54 112
-------- --------
$ 40,513 $ 50,160
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 844 $ 642
Accrued compensation 958 836
Other accrued liabilities 1,545 1,520
Payable related to acquisition of Dock Resins Corporation -- 9,189
Deferred revenue 324 2,326
Current portion of long term debt 12 6
-------- --------
Total Current Liabilities 3,683 14,519
Non-current portion of long term debt 30 26
Shareholders' Equity:
Preferred stock -- --
Common stock 75,787 75,679
Notes receivable from shareholders -- (8)
Deferred compensation (142) (198)
Accumulated deficit (38,845) (39,858)
-------- --------
Total Shareholders' Equity 36,800 35,615
-------- --------
$ 40,513 $ 50,160
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
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<PAGE>
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product sales $17,499 $ 662 $21,693 $ 740
License fees -- -- 500 --
Research and development revenues 422 242 787 459
------- ------- ------- -------
Total revenues 17,921 904 22,980 1,199
Operating costs and expenses:
Cost of product sales 10,763 442 13,908 555
Research and development 1,425 1,030 2,635 1,946
Selling, general and administrative 3,085 945 5,545 1,565
Purchase of in-process research
and development -- 3,022 -- 3,022
------- ------- ------- -------
Total operating costs and expenses 15,273 5,439 22,088 7,088
------- ------- ------- -------
Operating profit (loss) 2,648 (4,535) 892 (5,889)
Interest income 212 438 464 931
Interest expense (23) (10) (105) (22)
------- ------- ------- -------
Income (loss) from continuing
operations before provision
for income taxes 2,837 (4,107) 1,251 (4,980)
Provision for income taxes (228) -- (228) --
------- ------- ------- -------
Income (loss) from continuing operations 2,609 (4,107) 1,023 (4,980)
Loss from discontinued QuickCast operation -- (465) -- (887)
------- ------- ------- -------
Net income (loss) $ 2,609 $(4,572) $ 1,023 $(5,867)
------- ------- ------- -------
------- ------- ------- -------
Basic net income (loss) per share:
Continuing operations $ 0.20 $ (0.38) $ 0.08 $ (0.46)
Discontinued operations -- (0.04) -- (0.08)
------- ------- ------- -------
Total basic net income (loss) per share $ 0.20 $ (0.42) $ 0.08 $ (0.54)
------- ------- ------- -------
------- ------- ------- -------
Diluted net income (loss) per share:
Continuing operations $ 0.18 $ (0.38) $ 0.07 $ (0.46)
Discontinued operations -- (0.04) -- (0.08)
------- ------- ------- -------
Total diluted net income (loss)
per share $ 0.18 $ (0.42) $ 0.07 $ (0.54)
------- ------- ------- -------
------- ------- ------- -------
Shares used in computation of net
income (loss) per share:
Basic 12,728 10,829 12,717 10,794
------- ------- ------- -------
------- ------- ------- -------
Diluted 13,734 10,829 13,487 10,794
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
SEE ACCOMPANYING NOTES.
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<PAGE>
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended April 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 1,023 $ (4,980)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 964 268
Amortization of deferred compensation 56 56
Write-off of purchased in-process research and
development -- 3,022
Loss from discontinued operations -- (887)
Changes in current assets and liabilities (net of
effects of Dock Resins acquisition in April, 1997):
Accounts receivable (281) (69)
Inventories (580) 91
Prepaid expenses and other current assets 491 (63)
Accounts payable 202 (177)
Accrued compensation 122 114
Other accrued liabilities (353) (71)
Deferred revenue (2,002) 125
------- --------
Total adjustments (1,381) (2,409)
------- --------
Net cash used in operating activities (358) (2,571)
------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,214) (675)
Decrease in other assets 58 1
Acquisition of Dock Resins, net of cash acquired -- (3,230)
Purchases of available-for-sale securities (2,079) (14,404)
Sale of available-for-sale securities 2,856 4,041
Maturities of available-for-sale securities 6,734 13,550
------- --------
Net cash provided by (used in) investing activities: 6,355 (717)
------- --------
Cash flows from financing activities:
Proceeds from sale of restricted investment 8,837 --
Purchase of restricted investment -- (8,837)
Proceeds from sale of common stock 108 94
Proceeds from repayment of notes receivable 8 --
Payment of payable related to acquisition (9,189) --
Proceeds from issuance of long term debt 29 --
Payments on long term debt (19) (111)
------- --------
Net cash used in financing activities (226) (8,854)
------- --------
Net increase (decrease) in cash and cash equivalents 5,771 (12,142)
Cash and cash equivalents at beginning of period 5,163 14,185
------- --------
Cash and cash equivalents at end of period $10,934 $ 2,043
------- --------
------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
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<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 (consisting of normal recurring accruals)
necessary to present fairly the financial position, results of operations, and
cash flows at April 30, 1998, 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,
1997.
The results of operations for the three and six month periods ended April
30, 1998 are not necessarily indicative of the results that may be expected for
the fiscal year ended October 31, 1998. For instance, due to the cyclical
nature of the corn seed industry, a significant portion of Fielder's Choice
Hybrids' ("Fielder's Choice", a division of Intellicoat Corporation, a
subsidiary of the Company) revenues and profits will be concentrated over a few
months during the spring planting season (generally during the Company's second
fiscal quarter).
2. RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements to conform to the current year presentation.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consisted of the following:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1998 1997
--------- -----------
<S> <C> <C>
Raw materials $ 709 $ 617
Work in process 544 152
Finished goods 1,979 1,883
------ ------
$3,232 $2,652
------ ------
------ ------
</TABLE>
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<PAGE>
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended April 30, Six Months Ended April 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from continuing
operations for basic earnings per share $ 2,609 $(4,107) $ 1,023 $(4,980)
Less: Minority interest in income
of subsidiary (134) -- (40) --
------- ------- ------- -------
Net income (loss) from continuing
operations for diluted earnings per share $ 2,475 $(4,107) $ 983 $(4,980)
Denominator:
Weighted average shares for basic income
(loss) per share 12,728 10,829 12,717 10,794
Effect of dilutive securities:
Stock Options 969 -- 750 --
Warrants 37 -- 20 --
------- ------- ------- -------
Total dilutive common shares 1,006 -- 770 --
Weighted average shares for diluted
income (loss) per share 13,734 10,829 13,487 10,794
Basic income (loss) per share from
continuing operations $ 0.20 $ (0.38) $ 0.08 $ (0.46)
Diluted income (loss) per share from
continuing operations $ 0.18 $ (0.38) $ 0.07 $ (0.46)
</TABLE>
5. LICENSING OF PORT-TM- TECHNOLOGY
In December 1997, the Company licensed the rights to worldwide
manufacturing, marketing and distribution of the PORT-TM- ophthalmic devices to
Alcon Laboratories, Inc. ("Alcon") in exchange for $500,000 in cash, and future
license revenue, research and development revenue and royalties on the sale of
commercial products. For the six months ended April 30, 1998, the Company
recognized $500,000 in license revenues and $289,000 in research and development
revenues associated with this arrangement.
6. COMMITMENTS
In December 1997, Dock Resins Corporation ("Dock Resins"), a wholly owned
subsidiary of the Company, entered into a loan and security agreement which
provides a $1,250,000 working capital line of credit and a $2,750,000 term loan
to finance capital expenditures. Borrowings under the loan agreement are
collateralized by substantially all of Dock Resins' assets. As of April 30,
1998, no amounts had been borrowed against this line of credit.
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<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, 1997.
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, 1997.
OVERVIEW
Since its inception in October 1986, the Company has been primarily
engaged in the research and development of its Intelimer-Registered
Trademark- technology and related products. The Company has launched three
product lines from this core development -- QuickCast-TM- splints and casts,
in April 1994; Intellipac-Registered Trademark- breathable membranes for the
fresh-cut produce packaging market, in September 1995; and Intelimer Polymer
Systems for the industrial specialties market in June 1997. As part of an
effort to focus and build on three strategic businesses -- Food Products,
Industrial Specialties and Agriculture -- the Company has recently completed
several strategic transactions. In April 1997, the Company acquired Dock
Resins, which is primarily engaged in the manufacturing and marketing of
specialty acrylics and other polymers. In September 1997, Intellicoat
Corporation ("Intellicoat"), a subsidiary of the Company, acquired Fielder's
Choice, a direct marketer of hybrid seed corn. In August 1997, the Company
sold its QuickCast product line to Bissell Healthcare Corporation of
Bolingbrook, Illinois. In December 1997, the Company licensed the rights to
worldwide manufacturing, marketing and distribution of the PORT ophthalmic
devices to Alcon. With the exception of the current quarter, 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,
charges related to acquisitions, and expenditures necessary to further
develop its manufacturing and marketing capabilities. From inception through
April 30, 1998, the Company's accumulated deficit was $38.8 million.
RESULTS OF OPERATIONS
The Company's results of operations reflect only continuing operations of
the Company. The results of the discontinued QuickCast operation are discussed
separately in the respective sections.
Total revenues were $17.9 million for the second quarter of fiscal year
1998 compared to $904,000 for the second quarter of fiscal year 1997.
Revenues from product sales increased to $17.5 million in the second quarter
of fiscal year 1998 from $662,000 in the second quarter of fiscal year 1997
due primarily to product sales of $12.9 million and $4.2 million from
Fielder's Choice and Dock Resins, respectively. Also contributing to the
increase was Intellipac breathable membrane product sales which increased
from $147,000 in the second quarter of fiscal year 1997 to $422,000 in the
second quarter of fiscal year 1998, due primarily to an increase in unit
sales. Product sales for the discontinued QuickCast product line for the
second quarter of fiscal year 1997 were $105,000 which was included in the
loss from discontinued operations. Revenues from research and development
funding were $422,000 for the second quarter of fiscal year 1998 compared to
$242,000 for the second quarter of fiscal year 1997. The increase in
research and development revenues was primarily due to an agreement the
Company entered into in December 1997 with Alcon for the funding of the PORT
program. For the first six months of fiscal year 1998 total revenues were
$23.0 million compared to $1.2 million during the same period in 1997.
Revenue from product sales for the first six months of fiscal year 1998
increased to $21.7 million from $740,000 during the same period in 1997 due
principally to product sales of $12.9 million and $7.6 million from Fielder's
Choice and Dock Resins, respectively. Also contributing to the increase was
the Intellipac breathable membrane product sales which increased to $1.2
million for the first six months of fiscal year 1998 from $225,000 for the
first six months of fiscal year 1997 due primarily to an increase in unit
sales. Product sales for the discontinued QuickCast product line for the
first six months of
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<PAGE>
fiscal year 1997 were $200,000 which was included in the loss from
discontinued operations. Revenues from license fees were $500,000 for the
first six months of fiscal year 1998 compared to none during the same period
in 1997. The increase in license fees was due to an upfront payment received
from Alcon in exchange for the license rights to worldwide manufacturing,
marketing and distribution of the PORT ophthalmic devices. Revenues from
research and development funding for the first six months of fiscal year 1998
increased to $787,000 from $459,000 during the same period in 1997. The
increase in research and development revenues was primarily due to the
agreement with Alcon for the funding of the PORT program.
Cost of product sales consists of material, labor and overhead. Cost of
product sales was $10.8 million for the second quarter of fiscal year 1998
compared to $442,000 for the second quarter of fiscal year 1997. Cost of
product sales as a percentage of product sales decreased to 62% in the second
quarter of fiscal year 1998 from 67% in the second quarter of fiscal year 1997.
Cost of product sales for the first six months of fiscal year 1998 was $13.9
million compared to $555,000 during the same period in 1997. Cost of product
sales as a percentage of product sales decreased to 64% for the first six months
of fiscal year 1998 from 75% during the same period in 1997. These decreases in
the cost of product sales as a percentage of product sales were primarily the
result of higher margins resulting from product sales of the Fielder's Choice
products. Cost of product sales for the discontinued QuickCast product line for
the second quarter and for the first six months of fiscal year 1997 were
$192,000 and $388,000, respectively and were included in the loss from
discontinued operations. The Company anticipates that gross margins as a
percentage of revenue will fluctuate from quarter to quarter due to the seasonal
nature of the Company's agriculture product line and will probably decrease
during the second half of fiscal year 1998 due to Fielder's Choice recognizing
virtually all of its revenue and profits during the first six months of fiscal
year 1998.
Research and development expenses were $1.4 million for the second
quarter of fiscal year 1998 compared to $1.0 million for the second quarter
of fiscal year 1997, an increase of 38%. For the first six months of fiscal
year 1998 research and development expenses were $2.6 million compared to
$1.9 million during the same period in 1997, an increase of 35%. The
Company's research and development expenses consist primarily of expenses
involved in the development, process scale-up and efforts to protect
intellectual property content of the Company's enabling side chain
crystallizable polymer technology and research and development expenses
related to Dock Resins' products. The increase in research and development
expenses for the three and six month periods ended April 30, 1998 compared to
the same periods of fiscal year 1997 was primarily due to the addition of
development costs related to Dock Resins, which was acquired in April 1997.
In future periods, the Company expects that spending for research and
development will continue to increase in absolute dollars, although it may
vary as a percentage of total revenues.
Selling, general and administrative expenses were $3.1 million for the
second quarter of fiscal year 1998 compared to $945,000 for the second
quarter of fiscal year 1997, an increase of 226%. For the first six months
of fiscal year 1998 selling, general and administrative expenses were $5.5
million compared to $1.6 million during the same period in 1997, an increase
of 254%. Selling, general and administrative expenses consist primarily of
sales and marketing expenses associated with the Company's product sales,
business development expenses, and staff and administrative expenses. The
increase in selling, general and administrative expenses for the three and
six month periods ended April 30, 1998 compared to the same periods of fiscal
year 1997 was primarily due to the addition of selling, general and
administrative costs related to the acquisitions of Dock Resins in April,
1997 and Fielder's Choice in September, 1997. Sales and marketing expenses
increased to $2.0 million for the second quarter of fiscal year 1998 from
$372,000 for the second quarter of fiscal year 1997. For the first six
months of fiscal year 1998 sales and marketing expenses increased to $3.4
million compared to $594,000 during the same period in 1997. The increase in
sales and marketing expenses for the three and six month periods ended April
30, 1998 compared to the same periods of fiscal year 1997 was primarily
attributable to the addition of sales and marketing costs related to the
acquisitions of Dock Resins in April, 1997 and Fielder's Choice in September,
1997. Sales and marketing costs for the discontinued QuickCast product line
for the second quarter and for the first six months of fiscal year 1997 were
$371,000 and $684,000 respectively and were included in the loss from
discontinued operations. In future periods, the Company expects total
selling, general and administrative spending will continue to increase in
absolute dollars, while it may vary as a percentage of total revenues.
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<PAGE>
Net interest income for the three and six month periods ended April 30,
1998 were $189,000 and $359,000, respectively, compared to $428,000 and $909,000
for the same periods of fiscal year 1997. These decreases in net interest
income were due principally to less cash being available for investing.
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1998 the Company had unrestricted cash, cash equivalents
and short-term investments of $12.9 million, a net decrease of $1.8 million from
$14.7 million as of October 31, 1997. This decrease was primarily due to cash
used in operations of $358,000 for the first six months of fiscal year 1998 and
the purchase of $1.2 million of property and equipment. Although the Company
reduced the cash used in operations during the first six months of fiscal year
1998 as compared to the same period during 1997, there can be no assurance that
the Company will continue to do so in future periods. In particular, because of
the seasonal nature of some of the Company's lines of business, the Company
expects its operating results to fluctuate substantially from quarter to
quarter. See "Quarterly Fluctuations in Operating Results".
During the first six months of fiscal year 1998, the Company purchased seed
processing equipment and computer hardware and software and incurred building
improvement expenditures to support the development of Intellicoat products,
incurred leasehold improvement expenditures at its Menlo Park location to
upgrade existing facilities and incurred building improvement expenditures at
Dock Resins to expand capacity. These expenditures represented the majority of
the $1.2 million of property and equipment purchased during the first six months
of fiscal year 1998.
The Company believes that existing cash, cash equivalents and short-term
investments will be sufficient to finance its operational and capital
requirements through at least the next twelve months. The Company's future
capital requirements, however, will 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 and licensing arrangements and establish and maintain new
collaborative and licensing arrangements; the assimilation and integration of
Dock Resins and Fielder's Choice into Landec and Intellicoat, respectively; the
timing and amount, if any, of payments received under licensing and research and
development agreements; the costs involved in preparing, filing, prosecuting,
defending and enforcing intellectual property rights; the ability to comply with
regulatory requirements; the emergence of competitive technology and market
forces; 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 from operations, 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. There can be no
assurance that additional funds, if required, will be available to the Company
on favorable terms if at all.
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 and of Section 21E and Rule
3b-6 under the Securities Exchange Act of 1934. Specifically, the Company
wishes to alert readers that the following important factors, as well as other
factors including, without limitation, those described elsewhere in this Report,
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 periods to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. The Company assumes no obligation to update such
forward-looking statements.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT. As a result of the
seasonal nature of Fielder's Choice's business, which results in most of its
revenues and profits being concentrated during the Company's second fiscal
quarter, the Company realized net income of $1.0 million for the first six
months of fiscal year 1998. However, since its inception, the Company has
incurred net losses in each fiscal year, and the Company's accumulated deficit
as of April 30, 1998 totaled $38.8 million. The Company may incur additional
losses in the future. The amount of future net losses is highly uncertain and
there can be no assurance that the Company will be able to sustain profitability
or reach profitability for an entire fiscal year.
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<PAGE>
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. In the past, the Company's
results of operations have varied significantly from quarter to quarter and such
fluctuations are expected to continue in the future. 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. The Company also cannot
predict rates of licensing fees and royalties received from its partners. In
addition, due to the cyclical nature of the corn seed industry, a significant
portion of Fielder's Choice revenues and profits will be concentrated over a few
months during the spring planting season (generally during the Company's second
quarter). 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 remain profitable in the
future.
UNCERTAINTY RELATING TO INTEGRATION OF NEW BUSINESS ACQUISITIONS. The
successful combination of the Company and Dock Resins and Intellicoat and
Fielder's Choice will require substantial effort from each organization. The
diversion of the attention of management and any difficulties encountered in the
transition process could have a material adverse effect on the Company's ability
to realize the anticipated benefits of the acquisitions. The successful
combination of the companies will also require coordination of their research
and development, manufacturing, and sales and marketing efforts. In addition,
the process of combining the organizations could cause the interruption of, or a
loss of momentum in, the Company's activities. There can be no assurance that
the Company will be able to retain key management, technical, sales and customer
support personnel of Dock Resins and Fielder's Choice, or that the Company will
realize the anticipated benefits of the acquisitions, and the failure to do so
would have a material adverse effect on the Company's business, operating
results and financial condition.
EARLY COMMERCIALIZATION; DEPENDENCE ON NEW PRODUCTS AND TECHNOLOGIES;
UNCERTAINTY OF MARKET ACCEPTANCE. While the Company recently commenced
marketing certain of its Intelimer polymer products, it is in the early stage
of product commercialization of these products 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 food products,
industrial, agricultural and medical 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 costs 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
successfully market new products would 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 and licensees
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 would have a material adverse effect on
the Company's business, operating results and financial condition.
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 food products, industrial,
agricultural and medical companies is expected to be intense. In addition, the
nature of the Company's collaborative arrangements may result in its corporate
partners and licensees 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
-11-
<PAGE>
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 on certain of
its products sold. Although the Company believes Dock Resins will provide
Landec with practical knowledge in the scale-up of Intelimer polymer products,
production in commercial-scale quantities may involve technical challenges for
the Company. The Company anticipates that a substantial portion of the
Company's products will be manufactured in the Linden, New Jersey facility
acquired in the purchase of Dock Resins. The Company's reliance on this
facility involves a number of potential risks, including the absence of adequate
capacity, the unavailability of, or interruption in access to, certain process
technologies and reduced control over delivery schedules, and low manufacturing
yields and high manufacturing costs. The Company may also need to consider
seeking collaborative arrangements with other companies to manufacture certain
of its products. If the Company becomes 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 Intellipac breathable
membrane products. In addition, virtually all of the hybrid corn varieties
sold by Fielder's Choice are purchased from a single source. Upon
manufacturing scale-up and increases in hybrid corn sales, 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 nor has Fielder's Choice experienced difficulty in acquiring hybrid
corn varieties, 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 or
hybrid corn varieties at similar prices and terms, or at all, within a
reasonable time. Any such interruption of supply could have a material
adverse effect on the Company's ability to manufacture and distribute its
products and, consequently, could materially and adversely affect the
Company's business, operating results and financial condition.
CUSTOMER CONCENTRATION. For the three and six months ended April 30,
1998, sales to the Company's top five customers accounted for approximately
12% and 20%, respectively, of the Company's product sales with the top
customer accounting for 6% and 9%, respectively of the Company's product
sales. The Company expects that for the foreseeable future a limited number
of customers may account for a substantial portion of its net revenues. The
Company may experience changes in the composition of its customer base as
Dock Resins and Fielder's Choice have experienced in the past. The Company
does not have long-term purchase agreements with any of its customers. The
reduction, delay or cancellation of orders from one or more major customers
for any reason or the loss of one or more of such major customers could
materially and adversely affect the Company's business, operating results and
financial condition. In addition, since the products manufactured in the
Linden, New Jersey facility are often sole sourced to its customers, the
Company's operating results could be materially and adversely affected if one
or more of its major customers were to develop other sources of supply.
There can be no assurance that the Company's current customers will continue
to place orders, that orders by existing customers will not be canceled or
will continue at the levels of previous periods or that the Company will be
able to obtain orders from new customers.
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
-12-
<PAGE>
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
has received a letter alleging that its Intellipac breathable membrane
product infringes patents of another party. The Company has investigated
this matter and believes that its Intellipac breathable membrane product does
not infringe the specified patents of such party. The Company has received
an opinion of patent counsel that the Intellipac 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.
ENVIRONMENTAL REGULATIONS. Federal, state and local regulations impose
various environmental controls on the discharge or disposal of toxic, volatile
or otherwise hazardous chemicals and gases used in certain manufacturing
processes. Dock Resins is involved in various investigations and proceedings
conducted by the federal Environmental Protection Agency and certain state
environmental agencies regarding disposal of waste materials and the remediation
of its Linden, New Jersey facility. Although the factual situations and the
progress of each of these matters differ, the Company believes certain escrowed
funds will prove adequate to account for any resultant liability, including any
New Jersey Industrial Site Recovery Act remediation regarding its Linden, New
Jersey facility. In most cases, the Company believes its liability will be
limited to sharing clean-up or other remedial costs with other potentially
responsible parties. Any failure by the Company to control the use of, or to
restrict adequately the discharge of, hazardous substances under present or
future regulations could subject it to substantial liability or could cause its
manufacturing operations to be suspended and could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that changes in environmental regulations will not
impose the need for additional capital equipment or other requirements.
LIMITED SALES AND MARKETING EXPERIENCE. The Company has only limited
experience marketing and selling its Intelimer polymer products. While Dock
Resins will provide consultation and in some cases direct marketing support for
Landec's Intelimer polymer products, establishing sufficient marketing and sales
capability will require significant resources. The Company intends to
distribute certain of its products through its corporate partners and other
distributors and to sell certain other products through a direct sales force.
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 and marketing efforts will be successful. To the extent that
the Company has or will enter into distribution or other collaborative
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 sales and
marketing efforts will be successful and any failure in such efforts could have
a material adverse effect on the Company's business, operating results and
financial condition.
-13-
<PAGE>
DEPENDENCE ON COLLABORATIVE PARTNERS AND LICENSEES. The Company's
strategy for the development, clinical and field testing, manufacture,
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 in connection with its
Intelimer Polymer Systems; Fresh Express Farms, Apio, Inc., Roplast Industries,
Inc. and PrintPack, Inc. in connection with its Intellipac breathable membrane
products; and Nitta Corporation and Hitachi Chemical in connection with its
adhesive 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. 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 other
circumstances. In addition, there can be no assurance as to the amount of
royalties, if any, on future sales of QuickCast and PORT products as the Company
no longer has control over the sales of such products since the sale of the
QuickCast and the license of the PORT product lines.
There can be no assurance that the Company's 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. 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 and failure to do so
could have a material adverse effect on the Company's business, operating
results and financial condition.
INTERNATIONAL OPERATIONS AND SALES. In the second quarters of the fiscal
years 1998 and 1997, approximately 2% and 22%, respectively, 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, although down from historical levels, will continue to be an important
component 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 timely basis could have a material adverse effect on
the Company's international business and its financial condition and results of
operations. While the Company's foreign sales are currently priced in dollars,
fluctuations in currency exchange rates, such as those recently experienced in
many Asian countries which comprise a part of the territories of certain of the
Company's collaborative partners, 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.
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, operating results and financial
condition. 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 and non-medical product
liability insurance in the minimum amount of $4.0 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.
-14-
<PAGE>
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, the acquisition of new businesses or the sale or
disposal of a part of the Company's businesses, 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 been unrelated
to the operating performance of such companies. These broad fluctuations may
adversely effect the market price of the Company's Common Stock.
IMPACT OF YEAR 2000. The Company is in the process of performing its
assessment of the impact of year 2000 on its operations. Management is in the
process of formalizing its assessment procedures and developing a plan to
address identified issues. The Company has evaluated its financial and
accounting and inventory tracking systems and concluded that they are not
materially affected by the year 2000. The extent, if any, of the impact of the
year 2000 on other systems and equipment is unknown. A corporate-wide inventory
of computer applications is being performed and is expected to be completed by
the end of fiscal year 1998 after which the Company will attempt to remedy any
issues. The Company has also begun communications with its facilities managers
to determine the impact on building security and related equipment. There can
be no assurance that all third parties will address the year 2000 issue in a
timely fashion if at all. Any year 2000 compliance problems of either the
Company, its suppliers, its manufacturers, its collaborative partners and
licensees or its customers could have a material adverse effect on the Company's
business, operating results and financial condition.
-15-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with its initial public offering in 1996, the Company
filed a Registration Statement on Form S-1, SEC File No. 33-80723 (the
"Registration Statement"), which was declared effective by the Commission on
February 12, 1996. Pursuant to the Registration Statement, the Company
registered 3,220,000 shares of its Common Stock, $0.001 par value per share,
for its own account. The offering commenced on February 15, 1996 and did not
terminate until all of the registered shares had been sold. The aggregate
offering price of the registered shares was $38,640,000. The managing
underwriters of the offering were Smith Barney and Lehman Brothers.
From February 1, 1996 to April 30, 1998, the Company incurred the
following expenses in connection with the offering:
<TABLE>
<S> <C>
Underwriting discounts and commissions $2,705,000
Other expenses 900,000
----------
Total Expenses $3,605,000
----------
</TABLE>
All of such expenses were direct or indirect payments to others.
The net offering proceeds to the Company after deducting the total
expenses above were $35,035,000. From February 1, 1996 to April 30, 1998,
the Company used such net offering proceeds, in direct or indirect payments
to others, as follows:
<TABLE>
<S> <C>
Purchase and installment of machinery and equipment $ 2,900,000
Repayment of indebtedness $ 600,000
Acquisitions of other businesses $17,300,000
Working capital $ 5,100,000
-----------
Total $25,900,000
</TABLE>
Each of such amounts is a reasonable estimate of the application of
the net offering proceeds. This use of proceeds does not represent a
material change in the use of proceeds described in the prospectus of the
Registration Statement.
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
-16-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on April 15,
1998 the following proposals were adopted by the margins indicated:
<TABLE>
<CAPTION>
Number of
Shares
Voted For Withheld
--------- ---------
<S> <C> <C>
1. Four Class II directors were elected by
the margins indicated to serve until the
next even numbered year Annual Meeting
(2000) during which their successors will
be elected and qualified:
Gary T. Steele 10,526,148 18,711
Kirby L. Cramer 10,525,448 19,411
Richard Dulude 10,525,448 19,411
Damion E. Wicker M.D. 10,526,148 18,711
The three Class I directors were not up
for election at the Annual Meeting. These
three Class I directors, Ray F. Stewart,
Stephen E. Halprin, and Richard S.
Schneider, Ph.D., will serve as Class I
directors until the next odd-numbered Annual
Meeting (1999), when their successors will
be elected and qualified.
</TABLE>
<TABLE>
<CAPTION>
Voted Voted Broker
For Against Abstain Non-Votes
----- ------- ------- ---------
<S> <C> <C> <C> <C>
2. To approve an amendment to 7,233,969 1,374,698 13,033 1,923,159
the Company's 1996 Stock Option
Plan to increase the number of
shares of Common Stock reserved
for issuance by 750,000 shares.
3. To approve amendments to 7,152,411 1,486,394 13,392 1,892,665
the Company's 1995 Directors'
Stock Option Plan to increase
the number of shares of Common
Stock reserved for issuance
thereunder by 200,000 shares, to
change the subsequent option
grants made to each nonemployee
director to 5,000 for the 1997
Annual Meeting and to 10,000
shares annually thereafter and
to reprice the exercise price of
all options previously granted
under the 1995 Directors' Stock
Option Plan.
4. To ratify the appointment 10,527,872 11,001 5,986 0
of Ernst & Young LLP as
independent public accountants
of the Company for the fiscal
year ending October 31, 1998.
</TABLE>
-17-
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the quarter ended
April 30, 1998.
-18-
<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: June 11, 1998
-19-
<PAGE>
LANDEC CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ------- ------- -------------
<S> <C> <C>
27.1 Financial Data Schedule 21
</TABLE>
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 10,934
<SECURITIES> 1,985
<RECEIVABLES> 2,509
<ALLOWANCES> (66)
<INVENTORY> 3,232
<CURRENT-ASSETS> 19,823
<PP&E> 8,772
<DEPRECIATION> (2,943)
<TOTAL-ASSETS> 40,513
<CURRENT-LIABILITIES> 3,683
<BONDS> 0
0
0
<COMMON> 75,787
<OTHER-SE> (38,987)
<TOTAL-LIABILITY-AND-EQUITY> 40,513
<SALES> 21,693
<TOTAL-REVENUES> 22,980
<CGS> 13,908
<TOTAL-COSTS> 16,543
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 1,251
<INCOME-TAX> 228
<INCOME-CONTINUING> 1,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,023
<EPS-PRIMARY> .08
<EPS-DILUTED> .07
</TABLE>
