<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended DECEMBER 31, 1994 or
-----------------
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-14802
CALGENE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 68-0115089
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1920 FIFTH STREET, DAVIS, CALIFORNIA 95616
(Address of principal executive offices) (Zip Code)
(916) 753-6313
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
- - - ----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK OUTSTANDING AT JANUARY 31, 1995: 30,211,984 SHARES
This report contains a total of 20 sequentially numbered pages.
The Index to Exhibits begins on page 20.
1
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CALGENE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information (unaudited)
Condensed consolidated balance sheets - December 31, 1994
and June 30, 1994............................................. 4
Condensed consolidated statements of operations - three months
ended December 31, 1994 and 1993 and six months ended
December 31, 1994 and 1993..................................... 5
Condensed consolidated statements of cash flows - six months
ended December 31, 1994 and 1993............................... 6
Notes to condensed consolidated financial statements........... 7
Management's discussion and analysis of financial condition and
results of operations.......................................... 9
Part II. Other Information
Item 1. Legal Proceedings..................................... 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...................... 18
Signatures............................................................. 19
</TABLE>
2
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PART I. FINANCIAL INFORMATION
3
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Calgene Inc.
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31 June 30
1994 1994
----------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 13,238 $ 5,286
Cash held in escrow 3,750 -
Available-for-sale securities 4,084 15,457
Accounts receivable, net of allowances 6,183 4,792
Inventories 9,851 5,068
Prepaid expenses and other current assets 2,195 1,099
Net assets held for sale 786 1,179
Total current assets 40,087 32,881
--------- ---------
Property, plant and equipment:
Land 763 763
Buildings 3,700 3,622
Leasehold improvements 8,611 8,486
Furniture, fixtures and equipment 20,597 18,600
Construction in progress 1,504 892
--------- ---------
35,175 32,363
Less accumulated depreciation and amortization 14,473 12,872
--------- ---------
Property, plant and equipment, net 20,702 19,491
Available-for-sale securities - pledged 1,331 1,415
Product rights, patents and other intangible
assets, less accumulated amortization 13,488 13,100
Costs in excess of fair values assigned to net
assets acquired, less accumulated amortization 10,256 10,577
Other non current assets 762 848
--------- ---------
$ 86,626 $ 78,312
========= =========
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 8,027 $ 8,650
Accounts payable 5,310 7,916
Accrued payroll and related expenses 1,658 1,803
License contract payable 750 1,500
Amounts due customers 332 3,328
Other accrued liabilities 3,518 3,260
Current portion of long-term debt 1,084 1,728
--------- ---------
Total current liabilities 20,679 28,185
License contract payable, long-term 750 1,500
Long-term debt 4,210 4,204
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value; 50,000,000
shares authorized; 30,211,984 and 26,506,312
shares issued and outstanding at
December 31, 1994 and June 30, 1994, respectively 30 27
Additional paid-in capital 222,681 190,934
Accumulated deficit (161,724) (146,538)
--------- ---------
Total shareholders' equity 60,987 44,423
--------- ---------
$ 86,626 $ 78,312
========= =========
</TABLE>
See accompanying notes.
4
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Calgene, Inc.
Condensed Consolidated Statements of Operations
($ in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31 Ended December 31
----------------------- -----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 8,850 $ 5,499 $ 15,113 $ 10,803
Product development
revenues 4,166 587 4,433 1,175
Interest income 242 178 540 483
Other income, net 32 35 54 83
---------- ---------- ---------- ----------
13,290 6,299 20,140 12,544
Costs and expenses:
Cost of goods sold 10,336 7,244 19,055 14,203
Research and development 4,703 4,092 8,509 7,754
Selling, general and
administrative 3,702 5,455 7,342 11,155
Interest expense 173 155 357 255
---------- ---------- ---------- ----------
18,914 16,946 35,263 33,367
Minority interest share
of net (income) loss (4) 17 26 46
Equity in net loss of
affiliate (11) (169) (65) (434)
Gain from sale of assets 8 38 9 28
---------- ---------- ---------- ----------
Loss from operations
before income taxes (5,631) (10,761) (15,153) (21,183)
Provision for income
taxes 17 7 33 9
---------- ---------- ---------- ----------
Net loss $ (5,648) $ (10,768) $ (15,186) $ (21,192)
========== ========== ========== ==========
Net loss per share $ (0.19) $ (0.44) $ (0.53) $ (0.86)
========== ========== ========== ==========
Shares used in per share
calculations 29,683,717 24,592,239 28,650,108 24,527,749
</TABLE>
See accompanying notes.
5
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Calgene, Inc.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31
----------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (15,186) $ (21,192)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,257 1,660
Equity in net loss of affiliate 65 434
Stock compensation 226 471
Other 19 (18)
Net changes in:
Operating assets (10,500) (5,265)
Operating liabilities (5,489) 1,300
----------- -----------
Net cash used in operating activities (28,608) (22,610)
Cash flows from investing activities:
Proceeds from sales of securities 16,732 20,030
Purchase of securities (5,416) (7,726)
Investment in affiliate (68) (432)
Capital expenditures for property, plant and equipment (2,373) (3,149)
Purchases of product rights, patents and
other intangible assets (2,108) (1,894)
Other 11 39
---------- ----------
Net cash provided by investing activities 6,778 6,868
Cash flows from financing activities:
Proceeds from notes payable 10,912 10,106
Payments on notes payable (11,535) (10,618)
Decrease in securities-pledged 84 136
Principal payments on long-term debt (1,260) (399)
Sale of common stock 31,581 9,664
--------- ----------
Net cash provided by financing activities 29,782 8,889
--------- ----------
Net increase (decrease) in cash and equivalents 7,952 (6,853)
Cash and equivalents at beginning of period 5,286 15,009
Cash and equivalents at end of period $ 13,238 $ 8,156
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 346 $ 181
Income taxes $ 28 $ 22
</TABLE>
See accompanying notes.
6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the interim periods. These financial statements
should be read in conjunction with the Company's audited financial statements
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994.
In the opinion of management, the interim financial statements reflect
all adjustments necessary, consisting only of normal recurring adjustments, to
present fairly the Company's consolidated financial position at December 31,
1994 and the consolidated results of operations and cash flows for the fiscal
quarters and six month periods ended December 31, 1994 and 1993. Results for
the period ended December 31, 1994 are not necessarily indicative of results to
be expected for the entire fiscal year.
Calgene's quarterly operating performance is affected by seasonal
factors. Cotton seed sales normally occur primarily in the third and fourth
fiscal quarters.
Net loss per share has been computed by dividing the net loss by the
weighted average number of common shares outstanding during each period. Common
shares issuable upon the exercise of stock options have been excluded from the
computation of net loss per share since their inclusion would be antidilutive.
Certain amounts reported in the fiscal quarter and six month period
ended December 31, 1993 have been reclassified to conform with the presentation
of the fiscal quarter and the six month period ended December 31, 1994.
2. Accounting Change
-----------------
In May 1993 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." The Company adopted the provisions of the new
standard for investments held as of or acquired after July 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle. The cumulative effect
as of July 1, 1994 of adopting Statement 115 was not material.
3. Inventories
-----------
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market value. Inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, 1994 June 30, 1994
----------------- -------------
<S> <C> <C>
Raw materials $2,306 $ 858
Work in progress 2,878 2,093
Finished goods 4,667 2,117
------ ------
$9,851 $5,068
====== ======
</TABLE>
7
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Patent and Legal Proceedings
----------------------------
See Part II - Other Information
Item 1. Legal Proceedings
5. Sale of Common Stock
--------------------
During July 1994, the Company sold 1,651,800 shares of its Common Stock
resulting in net proceeds of approximately $14.8 million.
On October 25, 1994, the Company sold, pursuant to an underwritten public
offering, 2,000,000 shares of its Common Stock resulting in net proceeds of
approximately $16.4 million.
6. License Sale
------------
In December 1994, Calgene and a contractual partner sold a license to two
companies that allow them to use certain plant herbicide tolerance technology
developed by Calgene. The technology license sold was not related to Calgene's
core product areas. The $3,750,000 the Company received from the sale were held
in an escrow account at December 31, 1994, pending allocation of related legal
expenses among Calgene and its partner.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Discontinued Operations
At the end of fiscal 1991, Calgene decided to sell its specialty corn seed
company and its alfalfa seed operations. The discussion of results of
operations below pertains to continuing operations, except as otherwise
indicated.
Revenues
Calgene's product sales in the second quarter of fiscal 1995 increased 60.9%
to $8.9 million from $5.5 million in the comparable period of the prior year.
The increase reflects $2.1 million in higher sales of fresh market tomatoes,
higher cotton seed sales of $944,000 and higher sales of specialty oleochemical
products. These increases were partly offset by a $233,000 reduction in sales
of specialty canola oil produced from crop grown under contract. Plant based
oil product sales were $3.8 million and tomato sales were $3.1 million in the
second quarter of fiscal 1995. Product sales for the six month period ended
December 31, 1994 increased 39.9% to $15.1 million from $10.8 million in the
comparable period of the prior year. Tomato sales increased by $3.4 million and
cotton seed sales increased $668,000. In addition, the increase reflects higher
sales of specialty oleochemical products.
Following FDA approval of the FLAVR SAVR(TM) tomato in May 1994, the Company
began selling limited quantities of FLAVR SAVR varieties and began planting
increased acreage in order to increase availability in fiscal 1995. Calgene has
exclusive rights to genetically engineer certain third-party proprietary tomato
lines bred for superior taste and agronomic performance and is currently
developing varieties from these and other materials which are expected to have
the agronomic characteristics required for all growing regions and seasons. The
Company does not yet have suitable varieties from this program for every growing
region and has not yet completed the testing of such varieties. Although these
factors are expected to constrain the scale-up of the Company's fresh market
tomato business, sales are expected to be higher in fiscal 1995 as compared to
the prior year, particularly in the fourth fiscal quarter.
Product development revenues in fiscal 1995 increased by $3.6 million in the
second quarter and by $3.3 million in the first six months as compared to the
corresponding periods of the prior year due to a non-recurring $3,750,000
technology license sale. The increase was partly offset by the conclusion of
certain research contracts.
Interest income in fiscal 1995 increased by $64,000 in the second quarter and
by $57,000 in first six months as compared to the corresponding periods in the
prior year. The increase in the second quarter was primarily due to an increase
in cash and equivalents and available-for-sale securities.
Gross Loss
Calgene's gross loss on net product sales was $1.5 million in the second
quarter of fiscal 1995 as compared to a gross loss of $1.7 million in the
comparable period of the prior year. The improvement is primarily due to a
gross profit increase of $303,000 from higher cotton seed sales. Gross loss in
the first six months of fiscal 1995 was $3.9 million as compared to $3.4 million
in the corresponding period of the prior year. The second
9
<PAGE>
quarter and year to date gross loss reflects the high cost and low volume of
vine-ripe tomatoes at Calgene Fresh. In addition, due to unusually adverse
weather conditions in the second quarter, as well as the lack of adequate
packing facilities for vine-ripened tomatoes, there was limited volume of
premium quality tomatoes. Consequently, a large portion of the crop in the
second fiscal quarter was sold as commodity tomatoes at a lower average sales
price.
The Company's fresh market tomato business is continuing to experience
negative gross margins and will not achieve positive gross margins unless the
Company realizes substantial reductions in the high unit costs that the Company
has continually incurred in the production, distribution and marketing of vine-
ripened tomatoes. The Company believes that such cost reductions will depend
primarily on (i) tomatoes with the FLAVR SAVR gene providing substantial cost
savings due to reduced spoilage; (ii) the Company achieving lower costs from
increased crop yields, innovative production, packaging, handling and
distribution methods and from additional experience in the business; and (iii)
production, and sales volumes reaching levels that will provide substantial
economies of scale. Although Calgene has increased the planting of tomatoes with
the FLAVR SAVR gene since FDA approval was obtained in May 1994, these tomatoes
will not be available except in very limited quantities until the fourth quarter
of fiscal 1995. Accordingly, the Company expects to continue to incur negative
gross margins in its tomato business at least through the third quarter of
fiscal 1995. In order to reduce the handling damage and improve the percentage
of high quality tomatoes successfully packed and transported to customers, the
Company currently is constructing fresh tomato packing and shipping facilities
located in two of its primary production areas. These facilities are expected to
be completed by the end of the third fiscal quarter. The Company's achievement
of its targeted sales levels for vine-ripened tomatoes in the fourth quarter
will depend, in part, on the timely completion of these facilities.
Research and Development Expenses
Research and development expenses increased by $611,000 or 14.9% in the second
quarter and by $755,000 or 9.7% in the first six months of fiscal 1995 as
compared to the corresponding periods of the prior year. The increases are
primarily due to higher expenses for licensing activities and higher product
development expenses for genetically modified cotton seed production. These
increases were partly offset by lower regulatory and product development
expenses at Calgene Fresh.
In January 1995, the Company implemented a program to reduce ongoing research
and selling, general and administrative expenses which is expected to have a
positive fiscal 1996 impact of approximately $2 million. This program included
staff reductions of approximately 10% of the Company's 320 regular full time
employees, and reflects a shift in resources from research into product
development to focus on commercialization of the Company's genetically
engineered products.
Selling, General and Administrative Expenses
Calgene's selling, general and administrative expenses decreased by $1.8
million or 32.1% in the second quarter of fiscal 1995 and by $3.8 million or
34.2% in the first six months as compared to the same periods of the prior year.
The decreases are primarily due to a $2.2 million and a $4.1 million reduction
in expenses at Calgene Fresh for the second quarter and first six months of
fiscal 1995, respectively, which reflects lower consulting, payroll and
marketing expenses. These reductions were partly offset by higher general
corporate expenses. Selling, general and administrative expenses in fiscal 1995
are expected to continue to decrease in comparison with fiscal 1994 as a result
of the March
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1994 scale back of operations at Calgene Fresh and a planned reduction in
consulting expense.
Interest Expense
Interest expense, which reflects the Company's borrowings on its bank line of
credit and long-term debt obligations, increased by $18,000 in the second
quarter of fiscal 1995 and by $102,000 in the first six months as compared to
the corresponding periods of the prior year. The increase in the first six
months of fiscal 1995 was due primarily to higher borrowings on the Company's
bank line of credit to finance inventories and receivables, and higher interest
rates on the bank line of credit.
Equity in Net Loss of Affiliate
In the second quarter of fiscal 1995, Calgene recorded $11,000 in losses
related to its investment in Osmotica Foods Inc., compared to $169,000 in the
comparable period of the prior year. For the first six months of fiscal 1995
Calgene recognized $65,000 in losses as compared to $434,000 in the
corresponding period of the prior year. The lower losses reflect reduced
business and product development activities as the 50% owned affiliate scales
back operations and focuses on technology licensing opportunities.
Loss Before Income Taxes
In the second quarter of fiscal 1995, Calgene incurred a pre-tax loss of $5.6
million as compared to a pre-tax loss of $10.8 million in the corresponding
period of the prior year. In the first six months of fiscal 1995, Calgene
incurred a pre-tax loss of $15.2 million as compared to $21.2 million in the
corresponding period of the prior year. The decreased fiscal second quarter and
year-to-date pre-tax losses are primarily attributable to higher product
development revenues, and lower selling, general and administrative expenses at
Calgene Fresh. In addition, the decreased pre-tax losses reflect increases in
gross profits from Stoneville and lower losses related to Calgene's investment
in Osmotica. These factors were partly offset by higher research and
development expenses and higher gross losses at Calgene Fresh.
The Company expects to incur another substantial pre-tax loss in fiscal 1995,
primarily as a result of high costs and expenses at Calgene Fresh.
Provision for Income Taxes
For federal income tax return purposes, as of June 30, 1994 the Company has a
net operating loss carryover of approximately $150 million which expires between
1997 and 2009, and a general business tax credit carryover of approximately $3
million which expires between 1995 and 2009. In addition, as of June 30, 1994
the Company has a net operating loss carryover of approximately $100 million for
state income tax purposes which expires between 1995 and 2009. Approximately
$20 million and $3 million of the federal and state net operating loss
carryovers, respectively, and $700,000 of the general business tax credit
carryover, are available only to offset the separate federal and state taxable
income, if any, of Calgene Fresh. For financial reporting purposes, a valuation
allowance of approximately $61.1 million has been recognized to offset the
deferred tax assets related to all of the aforementioned carryforwards.
Because of the change in ownership provisions of the Tax Reform Act of 1986, a
portion of the Company's federal net operating loss and tax credit carryovers
will be subject to an annual limitation regarding their utilization against
taxable income in future
11
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periods. The Company expects that the annual limitation will not have a material
adverse effect on the Company's ability to utilize the net operating loss and
credit carryovers prior to the expiration of the carryover period.
Seasonality
Tomato prices are generally higher and unit volume lower during winter months
due to adverse weather conditions. The opposite effect occurs in summer months.
Sales of planting seed are seasonal, causing significant fluctuations in product
sales and working capital requirements. Cotton seed sales are concentrated in
the quarters ending March 31 and June 30. Sales of winter canola seed varieties
occur almost entirely in the quarters ending September 30 and December 31. Seed
potato sales occur in March and April. Calgene Chemical's sales are not
seasonal.
Patent Litigation
See "Part II - Other Information, Item 1. Legal Proceedings" regarding
litigation in which another company has claimed that Calgene's products
developed with antisense technology, including the FLAVR SAVR tomato, infringe
the other company's patent rights and has challenged the validity of Calgene's
antisense patent.
Government Farm Legislation
Cotton seed sales are affected by changes in U.S. government agricultural
policy, which generally imposes limitations on planting acreage as a criterion
for farmers' eligibility to receive government subsidy payments and other
benefits. An increase in the acreage set-aside for a subsidized crop (such as
cotton) will generally reduce farmer demand for seed for that crop, and a
decrease in the set-aside will generally increase demand for the seed. In
situations where growing conditions give farmers the alternative of planting
either of two crops, an increase in the set-aside for one crop will tend to
increase farmer demand for the seed of the competing crop.
Inflation and Changing Prices
Calgene regularly incurs crop production costs for fresh market tomatoes. The
market price of fresh market tomatoes can experience substantial fluctuations in
short periods. These price fluctuations directly affect the portion of
Calgene's tomato production sold below premium prices and to a lesser extent
also can affect the prices obtained for premium MacGregor's brand tomatoes. As
a result, Calgene bears a significant risk with respect to its gross margins.
Calgene's plant oil and cotton operations can also be affected by changes in
prices of commodity plant oil and cotton seed oil and meal. The effects of
general inflation have not had a material impact on Calgene's consolidated
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994 Calgene had cash and equivalents and short term
available-for-sale securities of approximately $17.3 million, excluding $3.8
million in cash held in escrow and $1.3 million in securities pledged as
collateral for certain obligations. This was a decrease of $3.4 million from
June 30, 1994. Uses of cash in fiscal 1995 included financing the Company's
$15.2 million net loss, a $10.5 million increase in operating assets, a $5.5
million decrease in operating liabilities, the acquisition of $2.4 million in
property, plant and equipment, the investment of $2.1 million in product rights,
patents and
12
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other intangible assets (including capitalized patent legal defense costs),
payments of $1.3 million on long-term debt, and a $623,000 decrease in notes
payable. Sources of cash included the Company's October 1994 and July 1994
offerings of Common Stock which contributed net proceeds of $16.4 million and
$14.8 million, respectively, and additional Common Stock proceeds of $355,000
primarily resulting from the exercise of employee stock options. The Company's
investment policy is to invest excess cash in high quality, liquid, short-term
fixed income securities.
Current operating assets increased by $10.5 million at December 31, 1994
(including the effects of discontinued operations) as compared to June 30, 1994
due to a $4.3 increase in inventories, a $3.8 million increase in cash held in
escrow, a $1.5 million increase in accounts receivable, and an increase in
prepaid expenses and other current assets. Inventories increased due to the
seasonal build-up of cotton-seed at Stoneville, the ramp-up of tomato growing
costs at Calgene Fresh and higher inventory levels at PG-K and Calgene Chemical.
These increases were partly offset by a $894,000 reduction of specialty canola
oil inventory and a $452,000 decrease in alfalfa seed inventory. The increase
in cash held in escrow resulted from the non-recurring sale of a technology
license. The increase in accounts receivable resulted primarily due to higher
seasonal sales of cotton seed. This increase was partly offset by lower
receivables for decreased sales of specialty canola grown under contract for the
Company. In addition, prepaids and other current assets increased $940,000 due
to prepaid tomato growing costs.
Current liabilities decreased $7.5 million at December 31, 1994 as compared to
June 30, 1994 largely due to a $3.0 million decrease in amounts due customers, a
$2.6 million decrease in trade accounts payable, a $750,000 decrease in license
contract payable, a $644,000 decrease in current portion of long-term debt, and
a $623,000 decrease in notes payable. The decrease in amounts due customers
primarily reflects seasonal incentive payments and refunds due customers for
prior year cottonseed returns consistent within current industry practice. The
decrease in license contract payable reflects a payment made for the acquisition
of a license granting Calgene Fresh the exclusive royalty-free worldwide rights
to produce and sell fresh market tomatoes containing the FLAVR SAVR gene. The
decrease in notes payable reflects seasonal utilization of the Company's bank
line of credit.
Net working capital increased $14.7 million from $4.7 million at June 30, 1994
to $19.4 million at December 31, 1994 primarily due to the $10.5 million
increase in current operating assets, the $7.5 million decrease in current
liabilities and the $3.4 million decrease in cash and available-for-sale-
securities.
At December 31, 1994 the Company had net assets held for sale from
discontinued operations of $786,000 as compared to $1.2 million at June 30,
1994. The decrease reflects the sale of consigned alfalfa inventory in the
first six months of fiscal 1995. The assets held for sale include $1.2 million
in the net assets of the alfalfa seed division less a reserve for corn seed
asset disposal costs.
A $13 million bank line of credit is used to help finance working capital
requirements for Calgene's subsidiaries. Borrowings under the line of credit
bear interest at the greater of one quarter percent over the bank's prime rate
or two and one half percent over the federal funds rate. On January 31, 1995
the bank's prime rate was 8.50% and the federal funds rate was 5.875%. The
weighted average annual interest rate under the line of credit was 6.56% for the
fiscal year ended June 30, 1994 and 8.01% for the six month period ended
December 31, 1994. As of December 31, 1994, $6.4 million of indebtedness was
outstanding on the bank line of credit, which expires on February 28, 1995. The
line of credit contains financial covenants, with which the Company was in
compliance as of December 31, 1994. Although the Company expects the line of
credit to be renewed upon
13
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its expiration in February 1995, there is no assurance that it will be renewed
or that its terms will not be modified, that the Company will continue to
satisfy the financial covenants in the future or that in the event of non-
compliance the bank would grant waivers.
In the normal course of business, the Company enters into various grower
contracts with third party growers. Pursuant to these contracts, the Company
contracts with growers to purchase their crop, subject to certain quality
standards, at the end of the growing cycle which is generally less than one
year. The amount of outstanding grower contract commitments was approximately
$1.4 million at December 31, 1994. Calgene Fresh is contracting with growers to
supply tomatoes which in many cases will require the Company to advance payments
through the growing season. These commitments are expected to increase as
Calgene Fresh expands its commercialization efforts. The Company's bank line of
credit allows it to finance up to 60 percent of the qualifying crop inventory
purchases with the exception of advance payments for growing crops.
The Company has capitalized the legal fees incurred in its lawsuit with Enzo
Biochem, Inc. related to Calgene's defense of its antisense patent. If the
defense of Calgene's patent is unsuccessful, the Company would have to expense
all of these unamortized legal costs. At December 31, 1994, the amount of these
unamortized costs was $4.6 million. The Company believes that future legal
defense costs may be substantial.
In connection with the removal of an underground petroleum storage tank at a
subsidiary's facility in Illinois, the Company discovered that the soil and
ground water at the site were contaminated with petroleum hydrocarbons. The
tank was installed by a prior owner of the facility. Calgene is remediating the
site pursuant to the requirements of the Illinois Environmental Protection
Agency and has received reimbursement for a portion of its cleanup expenses from
the Illinois underground storage tank cleanup fund. Reimbursement, if funds
continue to be available, is subject to an annual maximum amount of $1.0 million
and a deductible of $10,000. The Company believes that the ultimate resolution
of this matter will not have a material adverse effect on its business,
financial condition or results of operations.
The Company expects that capital expenditures in fiscal 1995 will be
approximately $8 million, a significant portion of which the Company expects to
fund with debt or lease financing.
The Company's cash, equivalents and short-term available-for-sale securities
at December 31, 1994, are expected to be sufficient to meet Calgene's cash
requirements at least through calendar 1995. However, this expectation is based
on the Company's anticipated levels of future losses, which are difficult to
predict. The Company's future liquidity is expected to depend largely on the
level of profit or losses generated by the Company's tomato business, at least
until commercialization of the Company's other genetically engineered products.
In addition, the Company anticipates that, if its tomato, cotton, and plant oil
businesses expand significantly, they will require increasing levels of working
capital. Thus, the Company may be required to issue equity securities, incur
debt or enter into other financing arrangements in the future. In such event,
there is no assurance that the Company will be successful in raising sufficient
additional capital or that the terms of any funding will be favorable.
14
<PAGE>
PART II. OTHER INFORMATION
15
<PAGE>
ITEM 1. Legal Proceedings
-----------------
Calgene currently is engaged in litigation with Enzo Biochem, Inc. ("Enzo"), a
biotechnology company in the human health care product industry. Enzo is the
exclusive licensee of three U.S. patents issued in 1993 to the State University
of New York ("SUNY"). Enzo asserts that these patents (the "SUNY/Enzo Patents")
contain claims covering the use of antisense technology in all cells, including
plant cells. Antisense technology is used in some of Calgene's products,
including tomato varieties with the FLAVR SAVR gene. Calgene believes that the
claims in the SUNY/Enzo Patents (No. 5,190,931, No. 5,208,149 and No. 5,272,065)
are invalid, unenforceable and not infringed. Calgene further believes that even
if the SUNY/Enzo Patents claims directed to the use of antisense technology in
all cells were valid and infringed, this would not invalidate Calgene's patent
(No. 5,107,065) directed to antisense in plant cells (the "Calgene Antisense
Patent") and that commercialization by any company of products using antisense
technology in plant cells would in such case require a license under both the
SUNY/Enzo Patent and Calgene Antisense Patent.
In 1993, Enzo filed patent litigation against Calgene in the United States
District Court in Delaware (Civ. No. 93-110-JJF) alleging willful patent
infringement of the first issued SUNY/Enzo patent (No. 5,190,931) and unfair
competition by Calgene, and requesting a declaratory judgment that the Calgene
Antisense Patent is invalid. Enzo also claims that Calgene has threatened Enzo
and its prospective licensees, that Calgene conducted bad-faith negotiations
with Enzo regarding the possible granting of a license by Enzo under its then
pending application, that Calgene commenced frivolous litigation against Enzo in
California, and that Calgene has slandered Enzo. Calgene has asserted that
Calgene does not infringe the SUNY/Enzo Patent No. 5,190,931 and that the
SUNY/Enzo Patent No. 5,190,931 is invalid and unenforceable. Calgene has also
denied the other claims in Enzo's complaint. Calgene has received a written
opinion from its patent counsel, Lyon & Lyon, that the SUNY/Enzo Patent No.
5,190,931 is invalid and not infringed by Calgene.
On February 9, 1994, Enzo filed a second patent suit in the United States
District Court in Delaware alleging willful infringement by Calgene of SUNY/Enzo
Patent No. 5,208,149 (Civ. No. 94-57). The patent at issue in this litigation is
a daughter application of the SUNY/Enzo Patent No. 5,190,931 and contains claims
which are directed to antisense constructs having a particular stem and loop
structure. Calgene has answered the complaint by denying its essential
allegations and asserting that Patent No. 5,208,149 is invalid, unenforceable
and not infringed. Calgene has also counterclaimed requesting a declaratory
judgment that a third antisense patent exclusively licensed from SUNY (SUNY/Enzo
Patent No. 5,272,065) is invalid and unenforceable. Calgene has also received
written opinions from patent counsel, Lyon & Lyon, that the SUNY/Enzo Patent No.
5,208,149 and Patent No. 5,272,065 are invalid and not infringed by Calgene.
The two Delaware actions have now been consolidated. Trial is scheduled to
begin on April 4, 1995.
On March 22, 1994, Enzo filed suit in the United States District Court for the
Western District of Washington naming Calgene and the Fred Hutchinson Cancer
Research Center ("FHCRC") as co-defendants. The suit alleges five claims, only
one of which is specifically directed to Calgene. In that claim, which names
Calgene and the FHCRC, Enzo seeks to have the sublicense granted by the FHCRC to
Calgene under a pending FHCRC patent application, which is also directed to
antisense technology, declared invalid as against public policy. A motion to
amend the complaint is pending. Enzo has requested a jury trial in its
complaint.
Although Calgene believes that the SUNY/Enzo Patents are invalid,
unenforceable and not infringed, a court might not agree. If a court were to
determine that any claim validly
16
<PAGE>
covers plant cells and is infringed by Calgene's sale of products using
antisense technology, Calgene could be held liable for significant damages and
be precluded from producing and selling the FLAVR SAVR tomato, as well as other
products under development, without a license. There is no assurance that a
license, if necessary, could be obtained by Calgene on commercially acceptable
terms. If the court were to determine that the Calgene Antisense Patent is
invalid or unenforceable, Calgene would be deprived of the competitive and
licensing advantages afforded by its patent. Moreover, the Company would have to
expense the capitalized legal fees related to the defense of the Calgene's
Antisense Patent, which amounted to approximately $4.6 million at December 31,
1994.
Although the results of litigation cannot be predicted with any assurance,
Calgene believes that the Enzo litigation will not have a materially adverse
effect on its consolidated financial position or results of operations, based on
Calgene's belief that the SUNY/Enzo Patents are invalid and not infringed by
Calgene and that the Calgene Antisense Patent is valid.
The Company is party to other pending litigation incidental to its business
and has from time to time been notified of various claims that are not the
subject of pending litigation. While the results of litigation and claims
cannot be predicted with certainty, the Company believes that the final outcome
of all such other litigation matters and claims will not have a materially
adverse effect on its consolidated financial position or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders was held on November 16, 1994. The
following table shows voting information for each item voted upon:
<TABLE>
<CAPTION>
WITHHELD/ BROKER
FOR AGAINST ABSTAINED NON-VOTE
---------- ------- --------- --------
<S> <C> <C> <C> <C>
NOMINEES FOR
- - - ------------
ELECTION AS
- - - -----------
DIRECTORS
- - - ---------
Donald L. Baeder 22,838,472 - 458,843 0
Robert E. Baker 22,845,613 - 451,702 0
Warren R. Haug 22,805,936 - 491,379 0
Donald Helinski 22,843,134 - 454,181 0
Howard D. Palefsky 22,840,749 - 456,566 0
Roger H. Salquist 22,794,118 - 503,197 0
Roderick N. Stacey 22,846,714 - 450,601 0
Carl V. Stinnett 22,848,556 - 448,759 0
Allen J. Vangelos 22,840,981 - 456,334 0
Ann M. Veneman 22,842,696 - 454,619 0
John L. Vohs 22,807,867 - 489,448 0
CONFIRMATION OF
- - - ---------------
AUDITORS 22,873,721 197,651 225,943 0
- - - --------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
WITHHELD/ BROKER
FOR AGAINST ABSTAINED NON-VOTE
--------- ------- --------- --------
<S> <C> <C> <C> <C>
AMENDMENT OF
- - - ------------
1991 STOCK
- - - ----------
OPTION PLAN 21,009,757 1,936,982 350,576 0
- - - -----------
Increasing the number
of shares of Common
Stock authorized and
reserved for issuance
from 1,250,000 to
2,500,000
</TABLE>
ITEM 5. Other Information
-----------------
On November 17, 1994, John L. Vohs resigned as a Calgene Inc. Director.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
27. Financial Data Schedule
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.
CALGENE, INC.
Date: February 10, 1995
/s/ Michael J. Motroni
----------------------
Michael J. Motroni
Vice President of Finance
(Principal Financial and
Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION
- - - -------------- -----------
27 Article 5 of Financial Data Schedule for
4th Quarter 10-Q
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 16,988
<SECURITIES> 4,084
<RECEIVABLES> 6,183
<ALLOWANCES> 0
<INVENTORY> 9,851
<CURRENT-ASSETS> 40,087
<PP&E> 35,175
<DEPRECIATION> 14,473
<TOTAL-ASSETS> 86,626
<CURRENT-LIABILITIES> 20,679
<BONDS> 4,210
<COMMON> 30
0
0
<OTHER-SE> 60,957
<TOTAL-LIABILITY-AND-EQUITY> 86,626
<SALES> 15,113
<TOTAL-REVENUES> 19,546
<CGS> 19,055
<TOTAL-COSTS> 27,564<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 357
<INCOME-PRETAX> (15,114)
<INCOME-TAX> 33
<INCOME-CONTINUING> (15,186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,186)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> 0
<FN>
<F1>Total Costs include expenses for both funded and unfunded R&D Projects.
</FN>
</TABLE>
