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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995.
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: 0-16159
LECTEC CORPORATION
(Exact name of Registrant as specified in its charter)
Minnesota 41-1301878
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10701 Red Circle Drive, Minnetonka, Minnesota 55343
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 933-2291
Securities registered pursuant to Section 12(b)
of the Act: None
Securities registered pursuant to Section 12(g)
of the Act: Common stock, par
value $0.01 per share.
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.
Yes _X_ No ____
The number of shares outstanding of the registrant's common stock as of November
1, 1995 was 3,797,554 shares.
LECTEC CORPORATION
Table of Contents
Part I
Financial Information
Item 1. Financial Statements . . . . . . . . . . . . . I-1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. I-7
Part II
Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . II-1
Item 2. Changes in Securities. . . . . . . . . . . . . II-1
Item 3. Defaults Upon Senior Securities. . . . . . . . II-1
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . II-1
Item 5. Other Information. . . . . . . . . . . . . . . II-1
Item 6. Exhibits and Reports on Form 8-K . . . . . . . II-1
Signature Page. . . . . .. . . . . . . . . . . II-2
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $419,428 $839,942
Receivables
Trade, less allowance for doubtful accounts of $26,999
(unaudited) and $18,000 at September 30, 1995 and
June 30, 1995, respectively 2,250,337 2,027,985
Refundable income taxes 125,357 119,540
Other 305,874 268,247
2,681,568 2,415,772
Inventories
Raw materials 1,317,235 1,162,559
Work-in-process 324,500 218,351
Finished goods 727,078 716,344
Total inventories 2,368,813 2,097,254
Prepaid expenses and other 405,068 229,796
Deferred tax asset 254,000 254,000
Total current assets 6,128,877 5,836,764
Property, Plant and Equipment - at Cost
Building and improvements 1,613,887 1,673,069
Equipment 6,161,282 5,447,479
Furniture and fixtures 429,761 422,265
8,204,930 7,542,813
Less accumulated depreciation 2,997,655 2,813,760
5,207,275 4,729,053
Construction in progress 75,683 583,023
Land 247,731 247,731
5,530,689 5,559,807
Other Assets
Patents and trademarks, less accumulated
amortization of $586,203 (unaudited) and $554,286
at September 30, 1995 and June 30, 1995, respectively 373,467 386,470
Goodwill, less accumulated amortization of $295,002
(unaudited) and $245,835 at September 30, 1995
and June 30, 1995, respectively 294,998 344,165
Long-term investments 579,930 568,156
Other 20,386 23,784
1,268,781 1,322,575
$12,928,347 $12,719,146
</TABLE>
See accompanying notes to the consolidated financial statements
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
Current Liabilities
Notes payable $83,595 $0
Accounts payable 1,024,904 771,471
Accrued expenses
Payroll related 288,368 375,282
Distributor bonuses 70,736 71,384
Product returns 18,792 77,831
Other 109,908 50,000
Total current liabilities 1,596,303 1,345,968
Deferred Income Taxes 167,000 167,000
Shareholders' Equity
Common stock, $.01 par value: 15,000,000 shares
authorized; issued and outstanding: 3,795,200
shares (unaudited) at September 30, 1995 and
3,786,500 shares at June 30, 1995 37,952 37,865
Additional paid-in capital 10,056,320 10,013,949
Unrealized losses on securities available-for-sale (39,042) (50,816)
Retained earnings 1,109,814 1,205,180
11,165,044 11,206,178
$12,928,347 $12,719,146
</TABLE>
See accompanying notes to the consolidated financial statements
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
September 30,
1995 1994
Revenues (Unaudited) (Unaudited)
<S> <C> <C>
Product sales $3,462,451 $2,904,523
Total revenues 3,462,451 2,904,523
Cost of goods sold 2,123,247 1,557,214
Gross profit 1,339,204 1,347,309
Operating expenses
Selling, general and administrative 941,490 789,290
Research and development 511,033 477,220
1,452,523 1,266,510
Operating profit (loss) (113,319) 80,799
Other income (expense)
Interest income 9,823 19,624
Dividend income 9,131 9,231
Interest expense 0 0
Other 0 (5,659)
18,954 23,196
Earnings (loss) before income tax expense (94,365) 103,995
Income tax expense 1,001 25,059
Net earnings (loss) ($95,366) $78,936
Net earnings (loss) per common and common
equivalent share ($0.03) $0.02
Weighted average number of common and common equivalent
shares outstanding during the period 3,788,308 3,760,340
</TABLE>
See accompanying notes to the consolidated financial statements
I - 3
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
September 30, September 30,
1995 1994
Cash flows from operating activities: (Unaudited) (Unaudited)
<S> <C> <C>
Net earnings (loss) ($95,366) $78,936
Adjustments to reconcile net earnings (loss) to net cash used
in operating activities:
Depreciation and amortization 264,979 174,436
Changes in operating assets and liabilities:
Trade and other receivables (265,796) (296,991)
Inventories (271,559) (705,026)
Prepaid expenses and other (171,874) (125,756)
Accounts payable 253,433 46,689
Income taxes payable 0 25,059
Accrued expenses (86,693) 56,963
Net cash used in operating activities (372,876) (745,690)
Cash flows from investing activities:
Purchase of property, plant and equipment (154,777) (253,583)
Investment in patents and trademarks (18,914) (47,307) 0
Purchase of marketable securities and other investments 0 (250,341)
Sale of marketable securities and other investments 0 863,354
Net cash (used in) provided by investing activities (173,691) 312,123
Cash flows from financing activities:
Issuance of common stock 42,458 22,263
Proceeds from notes payable 83,595 0
Net cash provided by financing activities 126,053 22,263
Net decrease in cash and cash equivalents (420,514) (411,304)
Cash and cash equivalents at beginning of period 839,942 785,770
Cash and cash equivalents at end of period $419,428 $374,466
</TABLE>
See accompanying notes to the consolidated financial statements
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Disclosures in Financial Statements
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
September 30, September 30,
1995 1994
(Unaudited) (Unaudited)
Cash paid during the period for:
<S> <C> <C>
Interest expense $0 $0
Income taxes 8,000 0
</TABLE>
See accompanying notes to the consolidated financial statements
LECTEC CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1995
(1) General
The accompanying consolidated financial statements include the accounts of
LecTec Corporation (the "Company"), LecTec International Corporation, a
wholly-owned subsidiary, and Natus Corporation, a fifty-one percent owned
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation. The interim financial statements are unaudited and
in the opinion of management, reflect all adjustments (which consist only of
adjustments of a normal recurring nature) necessary for a fair presentation of
results for the periods presented. Results for interim periods are not
necessarily indicative of results for the year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Product sales for the first quarter of fiscal 1996 were $3,462,451 as
compared with $2,904,523 for the first quarter of fiscal 1995. The 19.2%
increase in product sales was primarily the result of volume increases in
medical tape products. Medical tape sales increased by 73.9% from the first
quarter of fiscal 1995 primarily due to sales of a new product offering and
sales to a major new retail customer. Conductive product sales decreased by 2.4%
from the first quarter of fiscal 1995 to the first quarter of fiscal 1996
primarily due to delayed orders for diagnostic electrode products. Therapeutic
product sales increased by 30.9% from the first quarter of fiscal 1995 to the
first quarter of fiscal 1996 primarily due to increased analgesic pain patch
sales by the Natus subsidiary.
Gross profit for the first quarter of fiscal 1996 was $1,339,204 as
compared with $1,347,309 compared to the first quarter of fiscal 1995. Gross
profit as a percent of total revenues for the first quarter of fiscal 1996 was
38.7% as compared to 46.4% for the first quarter of fiscal 1995. The decrease in
gross profit percent for the quarter was primarily a reflection of a shift in
the sales mix to the lower margin medical tape products and increased raw
material costs for all products.
Selling, general and administrative expenses for the first quarters of
fiscal 1996 and 1995, as a percentage of total revenues, were 27.2%. Selling,
general and administrative expenses were $941,490 and $789,290 during the first
quarter of fiscal 1996 and fiscal 1995, respectively. Increased selling, general
and administrative expenses associated with restructuring the direct
selling/network marketing organization of the Natus subsidiary were primarily
responsible for this dollar amount increase.
Research and development expenses for the first quarter, as a percentage of
total revenues, were 14.8% and 16.4% for fiscal 1996 and 1995, respectively.
Research and development expenses for the first quarter of fiscal 1996 increased
to $511,033 from $477,220 in fiscal 1995. The increase in expense is primarily
attributable to the research and development costs associated with the
non-nicotine smoking cessation product.
Other income (expense) decreased in the first quarter of fiscal 1996 to
$18,954 from $23,196 in the first quarter of fiscal 1995. The decline resulted
primarily from a reduction of interest and dividend income due to the
liquidation of short-term investments to finance the acquisition of a new
medical tape production line and a new therapeutic production line plus the
increases in receivables and inventory necessary to support the growing
business.
The Company had a loss before income tax expense of $94,365 in the first
quarter of fiscal 1996 compared to earnings before income tax expense of
$103,995 in the first quarter of fiscal 1995. The decrease in earnings before
income taxes for the quarter was the result of an increase in the sales mix of
lower margin medical tape products, increased raw material costs for products
sold, expenses associated with restructuring the direct selling/network
marketing organization of the Natus subsidiary and increased research and
development expense. These factors offset the beneficial aspects of the
increased overall sales.
Liquidity and Capital Resources
The Company has used internally generated cash to support growth and
capital spending. The Company has a $1,000,000 line of credit available to meet
current operating requirements. The Company estimates that capital expenditures
will approach $3,300,000 for equipment and capital improvements during fiscal
1996 with expenditures anticipated to be financed by operations. The Company
continues to have a strong Balance Sheet with no long-term debt and a current
ratio at the end of the first quarter of fiscal 1996 of 3.84 as compared to 4.34
at the end of fiscal 1995. Working capital, at the end of the first quarter of
fiscal 1996, increased to $4,532,574 from $4,490,796 at the end of fiscal 1995.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
There have been no changes in the rights of security holders.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
The registrant is not aware of any other information of material
importance to be included in this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K
None
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.
LECTEC CORPORATION
Date November 13, 1995 /s/ Erwin W. Templin II
Erwin W. Templin II, EVP & CFO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 419,428
<SECURITIES> 0
<RECEIVABLES> 2,708,567
<ALLOWANCES> 26,999
<INVENTORY> 2,368,813
<CURRENT-ASSETS> 6,128,877
<PP&E> 8,528,344
<DEPRECIATION> 2,997,655
<TOTAL-ASSETS> 12,928,347
<CURRENT-LIABILITIES> 1,596,303
<BONDS> 0
<COMMON> 37,952
0
0
<OTHER-SE> 11,127,092
<TOTAL-LIABILITY-AND-EQUITY> 12,928,347
<SALES> 3,462,451
<TOTAL-REVENUES> 3,462,451
<CGS> 2,123,247
<TOTAL-COSTS> 2,123,247
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (94,365)
<INCOME-TAX> 1,001
<INCOME-CONTINUING> (95,366)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,366)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
