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 March 31, 1995 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 (I.R.S. Employer Identification No.)
incorporation or organization
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 April 30, 1995: 30,242,226 shares
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CALGENE, INC.
INDEX
Page No.
Part I. Financial Information (unaudited)
Condensed consolidated balance sheets -
March 31, 1995 and June 30, 1994 ................................. 4
Condensed consolidated statements
of operations - three months ended
March 31, 1995 and 1994 and
nine months ended March 31, 1995 and 1994 ........................ 5
Condensed consolidated statements of
cash flows - nine months ended
March 31, 1995 and 1994 .......................................... 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 ....................................... 17
Item 5. Other Information ....................................... 18
Item 6. Exhibits and Reports on Form 8-K ........................ 18
Signatures ................................................................ 19
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PART I. FINANCIAL INFORMATION
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Calgene, Inc.
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited)
March 31 June 30
Assets 1995 1994
--------- ---------
Current assets:
Cash and equivalents $ 10,673 $ 5,286
Available-for-sale securities 6,620 15,457
Accounts receivable, net of allowances 14,336 4,792
Inventories 9,334 5,068
Prepaid expenses and other current assets 2,194 2,278
--------- ---------
Total current assets 43,157 32,881
Property, plant and equipment:
Land 763 763
Buildings 3,710 3,622
Leasehold improvements 9,324 8,486
Furniture, fixtures and equipme 20,335 18,600
Construction in progress 2,446 892
--------- ---------
36,578 32,363
Less accumulated depreciation and amortization 15,057 12,872
--------- ---------
Property, plant and equipment, net 21,521 19,491
Available-for-sale securities - pledged 1,281 1,415
Product rights, patents and other intangible
assets, less accumulated amortization 14,985 13,100
Costs in excess of fair values assigned to net
assets acquired, less accumulated amortization 10,095 10,577
Other non current assets 722 848
--------- ---------
$ 91,761 $ 78,312
========= =========
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 12,663 $ 8,650
Accounts payable 8,049 7,916
Accrued payroll and related expenses 1,936 1,803
License contract payable 1,625 1,500
Amounts due customers 1,491 3,328
Other accrued liabilities 3,494 3,260
Current portion of long-term debt 1,025 1,728
--------- ---------
Total current liabilities 30,283 28,185
License contract payable, long-term 750 1,500
Long-term debt 3,955 4,204
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value; 50,000,000
shares authorized; 30,228,235 and 26,506,312
shares issued and outstanding at
March 31, 1995 and June 30, 1994, respectively 30 27
Additional paid-in capital 222,926 190,934
Accumulated deficit (166,183) (146,538)
--------- ---------
Total shareholders' equity 56,773 44,423
--------- ---------
$ 91,761 $ 78,312
========= =========
See accompanying notes.
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Calgene, Inc.
Condensed Consolidated Statements of Operations
($ in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31 Ended March 31
----------------------------- ------------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
Revenues:
<S> <C> <C> <C> <C>
Product sales, net $ 18,399 $ 12,739 $ 33,512 $ 23,542
Product development revenues 797 367 5,230 1,542
Interest income 253 123 793 606
Other income, net 67 94 121 177
------------ ------------ ------------ ------------
19,516 13,323 39,656 25,867
Costs and expenses:
Cost of goods sold 15,039 13,855 34,094 28,058
Research and development 3,330 4,186 11,839 11,940
Selling, general and administrative 4,583 4,784 11,925 15,939
Interest expense 257 230 614 485
------------ ------------ ------------ ------------
23,209 23,055 58,472 56,422
Minority interest share of net loss 7 31 33 77
Equity in net loss of affiliate (7) (77) (72) (511)
Gain (loss) on disposition of assets (653) (7) (644) 21
------------ ------------ ------------ ------------
Loss from operations before
income taxes (4,346) (9,785) (19,499) (30,968)
Provision for income taxes 113 4 146 13
------------ ------------ ------------ ------------
Net loss $ (4,459) $ (9,789) $ (19,645) $ (30,981)
============ ============ ============ ============
Net loss per share $ (0.15) $ (0.39) $ (0.67) $ (1.25)
============ ============ ============ ============
Shares used in per share calculations 30,214,756 25,328,216 29,171,658 24,794,571
See accompanying notes.
</TABLE>
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Calgene, Inc,
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash Equivalents
($ in Thousands)
(Unaudited)
Nine Months Ended
March 31
--------------------
1995 1994
---- ----
Cash flows from operating activities:
Net loss $(19,645) $(30,981)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 3,678 2,627
Loss (gain) on disposition of assets 644 (21)
Equity in net loss of affiliate 72 511
Stock compensation 339 584
Other (6) (25)
Net changes in:
Operating assets (13,565) (8,618)
Operating liabilities (1,337) 4,168
-------- --------
Net cash used in operating activities (29,820) (31,755)
Cash flows from investing activities:
Proceeds from sales of securities 16,732 21,251
Purchase of securities (7,916) (7,722)
Collection of notes receivable -- 1,645
Investment in affiliate (69) (491)
Capital expenditures for property,
plant and equipment (4,750) (3,810)
Purchases of product rights, patents
and other intangible assets (3,066) (4,091)
Other 26 55
-------- --------
Net cash provided by investing activities 957 6,837
Cash flows from financing activities:
Proceeds from notes payable 18,712 12,767
Payments on notes payable (14,699) (11,052)
Decrease in securities-pledged 134 136
Principal payments on long-term debt (1,574) (659)
Sale of common stock 31,677 10,318
-------- --------
Net cash provided by financing activities 34,250 11,510
-------- --------
Net increase (decrease) in cash and equivalents 5,387 (13,408)
Cash and equivalents at beginning of period 5,286 15,009
-------- --------
Cash and equivalents at end of period $ 10,673 $ 1,601
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 595 $ 407
Income taxes $ 42 $ 41
See accompanying notes.
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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 March 31, 1995
and the consolidated results of operations and cash flows for the fiscal
quarters and nine month periods ended March 31, 1995 and 1994. Results for the
period ended March 31, 1995 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 nine month period ended
March 31, 1994 have been reclassified to conform with the presentation of the
fiscal quarter and the nine month period ended March 31, 1995.
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):
March 31, 1995 June 30, 1994
-------------- -------------
Raw materials $1,092 $ 858
Work in progress 4,892 2,093
Finished goods 3,350 2,117
------ ------
$9,334 $5,068
====== ======
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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. Calgene recorded $3,750,000 from that sale. The technology
license sold was not related to Calgene's core product areas.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview of Calgene Fresh
Following FDA approval of the Company's 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, as discussed below, sales are expected
to be higher in fiscal 1995 as compared to the prior year, particularly in the
fourth fiscal quarter.
The Company's fresh market tomato business continued to experience negative
gross margins in the third quarter and will not achieve positive gross margins
until 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. In order to reduce the handling damage
and improve the percentage of high quality tomatoes successfully packed and
transported to customers, the Company established fresh tomato packing and
shipping facilities located near its three primary crop production areas. The
Company's Florida facility began operations at the start of the fourth fiscal
quarter and its Georgia and California facilities are expected to commence
operations in May.
The Company's financial results in its fourth quarter of fiscal 1995 will
depend in large part on its yields of vine-ripened tomatoes and the proportion
that can be packed and sold as premium tomatoes. As part of its continuous
tomato production program, the Company currently has tomato crops containing the
FLAVR SAVR gene planted in five locations--four of which are for harvest and
sale in the fourth quarter of fiscal 1995. Yields and packouts of premium
tomatoes at the first location harvested in Florida were lower than expected by
the Company, and this lower output will result in lower than planned revenues,
and a higher than planned net loss, for the fourth quarter of fiscal 1995. The
Company's initial indications are that the yield and premium fruit pack-out at
the remaining locations to be harvested in the balance of the fourth quarter
will be, in the aggregate, consistent with the Company's expected output for
such remaining locations. There can be no assurance, of course, as to the output
levels of premium tomatoes that will be achieved. The superior quality of the
Company's premium tomato products has resulted in the sale of all available
premium fruit production to date at wholesale prices substantially higher than
the prevailing market price for commodity tomatoes. This trend is expected to
continue through the fourth quarter.
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Revenues
Calgene's product sales in the third quarter of fiscal 1995 increased 44.4%
to $18.4 million from $12.7 million in the comparable period of the prior year.
The increase reflects $3.5 million in higher cotton seed sales, $1.0 million in
higher sales of specialty oleochemical products and $1.0 million in higher sales
of fresh market tomatoes. In the third quarter of fiscal 1995, cotton seed sales
were $10.6 million, plant based oil product sales were $4.6 million and tomato
sales were $2.9 million. Product sales for the nine month period ended March 31,
1995 increased 42.3% to $33.5 million from $23.5 million in the comparable
period of the prior year. Tomato sales increased by $4.4 million and cotton seed
sales increased $4.2 million. In addition, the increase reflects $1.6 million in
higher sales of specialty oleochemical products.
Product development revenues in fiscal 1995 increased by $430,000 in the
third quarter and by $3.7 million in the first nine months as compared to the
corresponding periods of the prior year. The third quarter increase reflects
$325,000 in research contract milestone payments and the addition of a new
research contract . The increase in year-to-date product development revenues is
due to a non-recurring $3,750,000 technology license sale in December 1994. The
increases in the third quarter and first nine month periods of fiscal 1995 were
partly offset by the conclusion of certain research contracts.
Interest income in fiscal 1995 increased by $130,000 in the third quarter
and by $187,000 in first nine months as compared to the corresponding periods in
the prior year. The increase in the third quarter was primarily due to higher
interest rates.
Gross Profit
Calgene's gross profit on net product sales was $3.4 million in the third
quarter of fiscal 1995 as compared to a gross loss of $1.1 million in the
comparable period of the prior year. The increase in gross profit is primarily
due to a third quarter improvement of $2.8 million at Calgene Fresh. In the
third quarter of the prior year Calgene Fresh incurred substantial gross losses
from the sale of non-genetically engineered tomatoes grown for the Company in
Mexico by contract growers. The improved gross profit in the third quarter of
fiscal 1995 also reflects an increase of $1.3 million at Stoneville attributable
to a higher volume of cotton seed sales, and an increase at Calgene Chemical.
Gross loss in the first nine months of fiscal 1995 was $582,000 as compared to
$4.5 million in the corresponding period of the prior year. The year-to-date
reduction in gross loss reflects a $1.9 million decrease in the gross loss of
Calgene Fresh. In addition, the reduction in gross loss reflects gross profit
increases of $1.6 million at Stoneville and $287,000 at Calgene Chemical
primarily from higher sales.
Research and Development Expenses
Research and development expenses decreased by $856,000 or 20.4% in the
third quarter and by $101,000 in the first nine months of fiscal 1995 as
compared to the corresponding periods of the prior year. The decreases are
primarily due to lower product development, regulatory and distribution testing
expenses at Calgene Fresh. The third quarter and year-to-date decreases were
partly offset by higher expenditures for licensing activities and higher product
development expenses for genetically modified rapeseed oils.
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
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time employees, and reflects a shift in resources from research into product
development to focus on commercialization of the Company's genetically
engineered products. Expenses associated with this reduction in force were
$201,000 in the third quarter of fiscal 1995.
Selling, General and Administrative Expenses
Calgene's selling, general and administrative expenses decreased by
$201,000 or 4.2% in the third quarter of fiscal 1995 and by $4.0 million or
25.2% in the first nine months as compared to the same periods of the prior
year. The decreases are primarily due to a $1.0 million and a $5.1 million
reduction in expenses at Calgene Fresh for the third quarter and first nine
months of fiscal 1995, respectively. The third quarter and year-to-date decrease
at Calgene Fresh reflects the fiscal 1994 third quarter scale back charge of
$608,000 attributable to the reduction of non-genetically engineered tomato
marketing operations, and lower payroll expenses. In addition, the nine month
decrease reflects lower consulting and marketing expenses. These decreases were
partly offset by higher general corporate expenses which include a $483,000
write-off of costs associated with Calgene's decision to conclude discussions
with a potential strategic partner.
Interest Expense
Interest expense, which reflects the Company's borrowings on its bank line
of credit and long-term debt obligations, increased by $27,000 in the third
quarter of fiscal 1995 and by $129,000 in the first nine months as compared to
the corresponding periods of the prior year. The increases were due primarily to
higher interest rates on the Company's bank line of credit, and higher
borrowings on the bank line of credit to finance inventories and receivables.
Equity in Net Loss of Affiliate
For the first nine months of fiscal 1995 Calgene recognized $72,000 in
losses as compared to $511,000 in the corresponding period of the prior year.
The lower loss reflects reduced business and product development activities as
the 50% owned affiliate, Osmotica, scales back operations and focuses on
technology licensing opportunities.
Gain (Loss) on Disposition of Assets
Loss on disposition of assets in the third quarter of fiscal 1995 was
$653,000 as compared to $7,000 in the comparable period of the prior year. For
the first nine months of fiscal 1995, loss on disposition of assets was $644,000
as compared to a gain of $21,000 in the corresponding period of the prior year.
The increased losses reflect the third quarter $686,000 write-off of obsolete
assets by Calgene Fresh.
Loss Before Income Taxes
In the third quarter of fiscal 1995, Calgene incurred a pre-tax loss of
$4.3 million as compared to a pre-tax loss of $9.8 million in the corresponding
period of the prior year. In the first nine months of fiscal 1995, Calgene
incurred a pre-tax loss of $19.5 million as compared to $31.0 million in the
corresponding period of the prior year. The decreased fiscal 1995 third quarter
and year-to-date pre-tax losses are primarily attributable to lower selling,
general and administrative expenses at Calgene Fresh, a reduction in gross
losses on net product sales at Calgene Fresh and higher product development
revenues. In addition, the decreased pre-tax losses reflect increases in gross
profits on net product sales from Stoneville and Calgene Chemical, decreases in
research and development expenses, and lower losses related to Calgene's
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investment in Osmotica. These factors were partly offset by higher selling,
general and administrative expenses for general corporate expenditures, and the
loss on the disposition of obsolete assets.
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 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 generally 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.
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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 March 31, 1995 Calgene had cash and equivalents and short term
available-for-sale securities of approximately $17.3 million, excluding $1.3
million in securities pledged as collateral for certain obligations. This was a
decrease of $3.5 million from June 30, 1994. Uses of cash in fiscal 1995
included financing the Company's $19.6 million net loss, a $13.6 million
increase in operating assets, the acquisition of $4.8 million in property, plant
and equipment, the investment of $3.1 million in product rights, patents and
other intangible assets (including capitalized patent legal defense costs),
payments of $1.6 million on long-term debt, and a $1.3 million decrease in
operating liabilities. 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, a $4.0 million increase in notes
payable, and additional Common Stock proceeds of $450,000 resulting from the
exercise of employee stock options and employee participation in the Company's
stock purchase plan. The Company's investment policy is to invest excess cash in
high quality, liquid, short-term fixed income securities.
Current operating assets increased by $13.6 million at March 31, 1995
(including the effects of discontinued operations) as compared to June 30, 1994
due to a $9.9 million increase in accounts receivable, a $3.4 increase in
inventories, and an increase in prepaid expenses and other current assets. The
increase in accounts receivable was primarily due to higher seasonal sales of
cotton seed, and higher sales at Calgene Chemical. This increase was partly
offset by the collection of product development contract revenue receivables and
lower tomato receivables. Inventories increased primarily due to the ramp-up of
tomato growing costs at Calgene Fresh, and to higher seasonal inventories of
potato tubers and cotton seed. These increases were partly offset by a $883,000
reduction of specialty canola oil inventory and a $846,000 decrease in alfalfa
seed inventory. Prepaids and other current assets increased $212,000 due to
advances on tomato grower contracts.
Current liabilities increased $2.1 million at March 31, 1995 as compared to
June 30, 1994 largely due to a $4.0 increase in notes payable. In addition, the
aggregate increase in accounts payable, accrued payroll and related expenses,
license contract payable, and other accrued liabilities totaled $625,000. These
increases were partly offset by a $1.8 million decrease in amounts due customers
and a $703,000 decrease in current portion of long-term debt. The increase in
notes payable reflects seasonal utilization of the Company's bank line of
credit. The decrease in amounts due customers primarily reflects refunds due
customers for prior year cottonseed returns consistent within current industry
practice.
Net working capital increased $8.2 million from $4.7 million at June 30,
1994 to $12.9 million at March 31, 1995 primarily due to the $13.6 million
increase in current operating assets, partly offset by the $3.5 million decrease
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in cash and available-for-sale-securities and the $2.1 million increase in
current liabilities.
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 March 31, 1995 the
bank's prime rate was 9.0% and the federal funds rate was 5.56%. The weighted
average annual interest rate under the line of credit was 6.56% for the fiscal
year ended June 30, 1994 and 8.63% for the nine month period ended March 31,
1995. As of March 31, 1995, $11.2 million of indebtedness was outstanding on the
bank line of credit, which expires on January 31, 1996. The line of credit
contains financial covenants, with which the Company was in compliance as of
March 31, 1995. There is no assurance that the line of credit 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
$4.3 million at March 31, 1995. Calgene Fresh is contracting with growers to
supply tomatoes which require the Company to either directly pay for crop
growing and harvesting costs or make 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 and tomatoes.
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 March 31, 1995, the amount of these
unamortized costs was $5.2 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 remaining capital expenditures in fiscal 1995 will
be approximately $4 million, a 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 March 31, 1995, 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
14
<PAGE>
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.
15
<PAGE>
PART II. OTHER INFORMATION
16
<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 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, Enzo's claim is still pending, and that Calgene has slandered Enzo
have been dismissed with prejudice by 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. A bench trial was held before
Judge Farnan from April 4 through April 21, 1995. Enzo's claims for unfair
negotiations, reliance on improper science, unfair press release and slander
were dismissed with prejudice. The Judge's decision will not be rendered for at
lease several months.
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. As amended by Enzo, the suit alleges
seven 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. Enzo has requested a jury trial in its complaint.
17
<PAGE>
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 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 $5.2 million at March 31, 1995.
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 5. Other Information
On April 26, 1995, Ann M. Veneman resigned as a Calgene Inc. Director.
ITEM 6. Exhibits and Reports on Form 8-K
None.
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: May 12, 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
3rd Quarter 10-Q
20
<PAGE>
<TABLE> <S> <C>
<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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 10,673
<SECURITIES> 6,620
<RECEIVABLES> 14,336
<ALLOWANCES> 0
<INVENTORY> 9,334
<CURRENT-ASSETS> 43,157
<PP&E> 36,578
<DEPRECIATION> 15,057
<TOTAL-ASSETS> 91,761
<CURRENT-LIABILITIES> 30,283
<BONDS> 3,955
<COMMON> 30
0
0
<OTHER-SE> 56,743
<TOTAL-LIABILITY-AND-EQUITY> 91,761
<SALES> 33,512
<TOTAL-REVENUES> 38,742
<CGS> 34,094
<TOTAL-COSTS> 45,933<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 614
<INCOME-PRETAX> (19,460)
<INCOME-TAX> 146
<INCOME-CONTINUING> (19,645)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,645)
<EPS-PRIMARY> (.67)
<EPS-DILUTED> 0
<FN>
<F1>TOTAL COSTS INCLUDE EXPENSES FOR BOTH FUNDED AND UNFUNDED R&D PROJECTS.
</FN>
</TABLE>
