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 MARCH 31, 1998.
[ ] 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 May 12,
1998 was 4,054,766 shares.
<PAGE>
LECTEC CORPORATION
FORM 10-Q - REPORT FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements and Notes to Financial Statements. . . . . . I-1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . I-8
Item 3. Quantitative and Qualitative Disclosures About Market Risks . . . I-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . II-1
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . 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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,609,537 $ 665,190
Short-term investments -- 577,587
Receivables
Trade, net of allowances of $102,352 (unaudited) and $67,126
at March 31, 1998 and June 30, 1997 3,270,236 2,178,984
Refundable income taxes 70,266 401,263
Other 20,119 22,780
----------- -----------
3,360,621 2,603,027
Inventories
Raw materials 1,239,376 1,655,924
Work-in-process 86,975 184,208
Finished goods 413,385 736,889
----------- -----------
Total inventories 1,739,736 2,577,021
Prepaid expenses and other 178,781 84,871
Deferred income taxes 351,000 366,000
----------- -----------
Total current assets 7,239,675 6,873,696
PROPERTY, PLANT AND EQUIPMENT - AT COST
Building and improvements 1,807,086 1,635,157
Equipment 6,754,696 6,578,960
Furniture and fixtures 372,530 371,670
----------- -----------
8,934,312 8,585,787
Less accumulated depreciation 4,759,960 4,241,214
----------- -----------
4,174,352 4,344,573
Land 247,731 247,731
----------- -----------
4,422,083 4,592,304
OTHER ASSETS
Patents and trademarks, less accumulated amortization of $966,424
(unaudited) and $846,914 at March 31, 1998 and June 30, 1997 293,031 363,343
Long-term investments 8,013 8,013
----------- -----------
301,044 371,356
----------- -----------
$11,962,802 $11,837,356
=========== ===========
</TABLE>
See Accompanying notes to the consolidated financial statements.
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,052,749 $ 779,699
Accrued expenses
Payroll related 313,308 324,381
Restructuring charge 82,416 1,521,107
Other 207,886 213,425
------------ ------------
Total current liabilities 1,656,359 2,838,612
DEFERRED INCOME TAXES 211,000 211,000
SHAREHOLDERS' EQUITY
Common stock, $.01 par value: 15,000,000 shares authorized; issued and
outstanding 4,064,800 shares (unaudited) at March 31, 1998 and
3,842,800 shares at June 30, 1997 40,648 38,428
Additional paid-in capital 11,893,619 10,476,428
Unrealized losses on securities available-for-sale (9,171) (33,372)
Retained deficit (1,829,653) (1,693,740)
------------ ------------
10,095,443 8,787,744
------------ ------------
$ 11,962,802 $ 11,837,356
============ ============
</TABLE>
See Accompanying notes to the consolidated financial statements.
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 3,256,759 $ 3,034,079 $ 10,196,531 $ 9,035,680
Cost of goods sold 2,521,775 1,996,535 7,306,118 5,833,520
------------ ------------ ------------ ------------
Gross profit 734,984 1,037,544 2,890,413 3,202,160
Operating expenses
Sales and marketing 192,875 102,669 698,099 357,810
General and administrative 574,155 556,021 1,575,848 1,736,253
Research and development 280,411 316,524 788,740 1,228,452
Restructuring charge -- 1,500,000 -- 1,500,000
------------ ------------ ------------ ------------
1,047,441 2,475,214 3,062,687 4,822,515
------------ ------------ ------------ ------------
Loss from operations (312,457) (1,437,670) (172,274) (1,620,355)
Other income (expense), net 21,205 12,990 42,622 54,294
------------ ------------ ------------ ------------
Loss before income taxes and equity
in losses of unconsolidated subsidiary (291,252) (1,424,680) (129,652) (1,566,061)
Income tax expense (benefit) (1,739) 1,693 6,261 4,009
------------ ------------ ------------ ------------
Loss before equity in losses of
unconsolidated subsidiary (289,513) (1,426,373) (135,913) (1,570,070)
Equity in losses of unconsolidated subsidiary -- 42,824 -- 129,067
------------ ------------ ------------ ------------
Net loss $ (289,513) $ (1,469,197) $ (135,913) $ (1,699,137)
============ ============ ============ ============
Net loss per share
Basic $ (0.07) $ (0.38) $ (0.03) $ (0.44)
============ ============ ============ ============
Diluted $ (0.07) $ (0.38) $ (0.03) $ (0.44)
============ ============ ============ ============
Weighted average shares outstanding
Basic 4,064,766 3,835,989 3,989,433 3,835,978
============ ============ ============ ============
Diluted 4,064,766 3,835,989 3,989,433 3,835,978
============ ============ ============ ============
</TABLE>
See Accompanying notes to the consolidated financial statements.
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
----------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (135,913) $(1,696,137)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 638,256 797,091
Warrants granted for services 33,401 --
Loss on sale of investments 10,915 --
Deferred income taxes 15,000 88,000
Gain on sale of equipment -- (15,000)
Equity in losses of unconsolidated subsidiary -- 126,067
Restructuring charge -- 1,500,000
Changes in operating assets and liabilities:
Trade and other receivables (1,088,591) (369,318)
Refundable income taxes 309,653 --
Inventories 837,285 (431,636)
Prepaid expenses and other (77,311) (6,819)
Accounts payable 273,050 (8,232)
Accrued expenses (64,548) (48,596)
----------- -----------
Net cash provided by (used in) operating activities 751,197 (64,580)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (348,525) (148,725)
Proceeds from sale of equipment -- 15,000
Investment in patents and trademarks (49,198) (83,019)
Sale of investments 590,873 --
----------- -----------
Net cash provided by (used in) investing activities 193,150 (216,744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock -- 1,128
----------- -----------
Net cash provided by financing activities -- 1,128
----------- -----------
Net increase (decrease) in cash and cash equivalents 944,347 (280,196)
Cash and cash equivalents at beginning of period 665,190 800,693
----------- -----------
Cash and cash equivalents at end of period $ 1,609,537 $ 520,497
=========== ===========
</TABLE>
See Accompanying notes to the consolidated financial statements.
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $ 1,106 $ 5,996
Income taxes 16,732 6,000
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Conversion of subsidiary's notes payable to shareholders' equity $ -- $ 83,595
Conversion of Pharmadyne minority shareholders' interest in the
Pharmadyne subsidiary into LecTec Corporation common stock $1,369,411 $ --
Warrants granted for future services $ 16,599 $ --
</TABLE>
See Accompanying notes to the consolidated financial statements.
<PAGE>
LECTEC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
(1) GENERAL
The accompanying consolidated financial statements include the accounts of
LecTec Corporation (the "Company"), LecTec International Corporation, a
wholly-owned subsidiary, and Pharmadyne Corporation, a wholly-owned subsidiary
which was merged into LecTec Corporation on December 31, 1997. (See note 2
below.) All significant intercompany balances and transactions have been
eliminated in consolidation. The Company's financial statements for the three
and nine months ended March 31, 1998 should be read in conjunction with its
Annual Report on Form 10-K and its Annual Report to Shareholders for the fiscal
year ended June 30, 1997. The interim financial statements are unaudited and in
the opinion of management, reflect all adjustments necessary for a fair
presentation of results for the periods presented. Results for interim periods
are not necessarily indicative of results for the year.
(2) PHARMADYNE CORPORATION AND RESTRUCTURING CHARGE
During fiscal 1997 the Company adopted a plan for eliminating the Pharmadyne
Corporation subsidiary and recorded a nonrecurring restructuring charge of
$2,180,353. The restructuring charge included approximately $1,369,000 for the
planned acquisition of the minority interests in Pharmadyne in exchange for
newly issued shares of LecTec Corporation common stock. In October 1997, the
Company issued 221,948 new shares of its common stock to acquire the minority
interests in Pharmadyne. In November 1997, the newly issued shares were
registered with the Securities and Exchange Commission. Effective October 2,
1997, Pharmadyne became a wholly-owned subsidiary of the Company and on December
31, 1997, Pharmadyne Corporation was merged into LecTec Corporation.
(3) STOCK REPURCHASE PROGRAM
In April 1998, The Company's Board of Directors authorized a stock repurchase
program pursuant to which up to 500,000 shares, or approximately 12.3% of the
Company's outstanding common stock, may be repurchased. The shares may be
purchased from time to time through open market transactions, block purchases,
tender offers, or in privately negotiated transactions.
(4) RECENTLY ADOPTED ACCOUNTING STANDARD
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 - "Earnings per Share" ("SFAS 128"). As required by SFAS 128,
all current and prior year earnings (loss) per share data have been restated to
conform to the provisions of SFAS 128.
The Company's basic net earnings (loss) per share amounts have been computed by
dividing net earnings (loss) by the weighted average number of outstanding
common shares. The Company's diluted net earnings (loss) per share amounts have
been computed by dividing net earnings (loss) by the weighted average number of
outstanding common shares and common share equivalents, when dilutive. Options
to purchase 893,652 and 625,249 shares of common stock with a weighted average
exercise price of $7.90 and $9.33 were outstanding during the three months ended
March 31, 1998 and 1997 and options to purchase 742,833 and 461,625 shares of
common stock with a weighted average exercise price of $8.40 and $9.54 were
outstanding during the nine months ended March 31, 1998 and 1997, but were
excluded from the computation of diluted net earnings (loss) because they were
antidilutive.
<PAGE>
(5) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income," and
SFAS 131, "Disclosures about Segments of an Enterprise and Related Information,"
which are effective for fiscal year 1999. SFAS 130 will require the Company to
display an amount representing total comprehensive income, as defined by the
statement, as part of the Company's basic financial statements. Comprehensive
income will include items such as unrealized gains or losses on certain
investment securities. SFAS 131 will require the Company to disclose financial
and other information about its business segments, their products and services,
geographic areas, major customers, sales, profits, assets and other information.
The adoption of these statements is not expected to have a material effect on
the consolidated financial statements of the Company.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997
RESULTS OF OPERATIONS
NET SALES
Net sales for the third quarter of fiscal 1998 were $3,256,759 compared to net
sales of $3,034,079 for the third quarter of fiscal 1997, an increase of 7.3%.
The increase was primarily the result of increased medical tape sales.
Conductive product sales, the Company's largest product group, increased by 3.7%
from the prior year while medical tape product sales, the Company's second
largest product group, increased by 57.1% and therapeutic product sales
decreased by 75.3%. The conductive sales increase was primarily the result of
increased volumes to existing customers. Medical tape sales increased primarily
due to increased sales to a large customer who purchases intermittently. The
therapeutic sales decrease was primarily due to the absence of analgesic patch
sales to the Company's two major distributors in the third quarter of fiscal
1998. The Company is working to expand channels of distribution for its
analgesic pain patches and plans to assume responsibility for retail sales from
one of its major distributors.
Net sales for the first nine months of fiscal 1998 were $10,196,531 compared to
net sales of $9,035,680 for the first nine months of fiscal 1997, an increase of
12.9%. The increase was primarily the result of increased medical tape product
sales. Conductive product sales increased by 4.4% from the prior year while
medical tape product sales increased by 44.6% and therapeutic product sales
decreased by 22.7%. The conductive and medical tape sales increases for the
first nine months were primarily due to the same factors as the sales increases
for the third quarter. The therapeutic sales decrease for the first nine months
of fiscal 1998 was primarily due to a customer's delay of an order for wart
remover product into the fourth quarter of fiscal 1998.
GROSS PROFIT
Gross profit for the third quarter of fiscal 1998 was $734,984 compared to
$1,037,544 for the third quarter of fiscal 1997. Gross profit as a percent of
net sales for the third quarter of fiscal 1998 was 22.6% compared to 34.2% for
the third quarter of fiscal 1997. The decrease in gross profit percent for the
quarter resulted primarily from a shift in the sales mix from higher margin
conductive and therapeutic products to lower margin medical tape products, and
increased material costs.
Gross profit for the first nine months of fiscal 1998 was $2,890,413 compared to
$3,202,160 for the first nine months of fiscal 1997. Gross profit as a percent
of net sales for the first nine months of fiscal 1998 was 28.3% compared to
35.4% for the first nine months of fiscal 1997. The decrease in gross profit
percent for the first nine months resulted primarily from a shift in the sales
mix from higher margin conductive and therapeutic products to lower margin
medical tape products, increased material costs, and a shift in labor costs from
research and development to manufacturing.
SALES AND MARKETING EXPENSES
Sales and marketing expenses were $192,875 and $102,669 for the third quarters
of fiscal 1998 and 1997, and as a percentage of net sales, were 5.9% and 3.4%.
Sales and marketing expenses were $698,099 and $357,810 for the first nine
months of fiscal 1998 and 1997, and as a percentage of net sales, were 6.8% and
4.0%. The increase in sales and marketing expense for both the quarter and the
first nine months was primarily due to staffing level increases, and increased
sales promotion and consulting expenses. The Company anticipates that due to
increased sales and marketing efforts, particularly marketing programs
associated with the analgesic pain patch, sales and marketing expenses
<PAGE>
will continue to increase as a percent of sales for the next several quarters.
However, the Company also expects the gross margin on patch sales to increase
since the Company will be selling directly to retail outlets and consumers
rather than selling exclusively to distributors.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $574,155 and $556,021 for the third
quarters of fiscal 1998 and 1997, and as a percentage of net sales, were 17.6%
and 18.3%. General and administrative expenses were $1,575,848 and $1,736,253
for the first nine months of fiscal 1998 and 1997, and as a percentage of net
sales, were 15.5% and 19.2%. The increase in general and administrative expenses
for the quarter was primarily due to increased staffing levels and legal fees
which were partially offset by no goodwill amortization. The decrease in general
and administrative expenses for the first nine months was primarily due to lower
legal fees associated with Pharmadyne, lower fees associated with executive
recruitment and no goodwill amortization.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the third quarters of fiscal 1998 and 1997
were $280,411 and $316,524, and as a percentage of net sales, were 8.6% and
10.4%. Research and development expenses for the first nine months of fiscal
1998 and 1997 were $788,740 and $1,228,452, and as a percentage of net sales,
were 7.7% and 13.6%. The decrease in research and development expense for both
the quarter and first nine months primarily reflects reductions in research
costs associated with the internal development of the cotinine-based smoking
cessation product as well as a shift in labor costs to manufacturing as
discussed above. The Company is pursuing potential strategic partners to assist
in the further development and potential ultimate commercialization of a
cotinine-based pill.
RESTRUCTURING CHARGE
During fiscal 1997 the Company adopted a plan for eliminating the Pharmadyne
Corporation subsidiary and recorded a nonrecurring restructuring charge of
$2,180,353. $1,500,000 of this charge was recorded in the third quarter of
fiscal 1997 and $680,353 was recorded in the fourth quarter of fiscal 1997.
Effective October 2, 1997, Pharmadyne became a wholly-owned subsidiary of the
Company and on December 31, 1997, Pharmadyne Corporation was merged into LecTec
Corporation.
LOSS BEFORE INCOME TAXES AND EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY
The loss before income taxes and equity in losses of an unconsolidated
subsidiary was $291,252 for the third quarter of fiscal 1998 compared to a loss
of $1,424,680 for the third quarter of 1997. The loss for the third quarter was
less than the prior year primarily due to the restructuring charge in 1997 which
more than offset a decline in the gross margin in fiscal 1998. For the first
nine months of fiscal 1998 the loss before income taxes and equity in losses of
an unconsolidated subsidiary was $129,652 as compared to a loss of $1,566,061 in
the prior year. The loss for the first nine months was less than the prior year
primarily due to the restructuring charge in 1997 which more than offset a
decline in the gross margin in fiscal 1998.
INCOME TAX EXPENSE (BENEFIT)
The Company recorded an income tax benefit of $1,739 in the third quarter of
fiscal 1998 compared to income tax expense of $1,693 in 1997. For the first nine
months of fiscal 1998 the Company recorded income tax expense of $6,261 compared
to income tax expense in the first nine months of the prior year of $4,009.
Amounts recorded in the third quarter and first nine months of both fiscal years
reflect minimal income tax expense due to the utilization of NOL carryforwards.
<PAGE>
EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY
In fiscal 1996, the Company contributed the direct marketing related assets of
Pharmadyne Corporation to Natus L.L.C. (an Arizona limited liability company) in
exchange for a 15% interest in Natus L.L.C. This investment was accounted for
using the equity method. During the third quarter and first nine months of
fiscal 1997, the Company recorded $42,824 and $129,067 of equity in losses of
Natus L.L.C. The investment in Natus L.L.C. was fully written off in the third
quarter of fiscal 1997.
NET LOSS PER SHARE
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 - "Earnings per Share" ("SFAS 128"). As required by SFAS 128,
all current and prior year net earnings (loss) per share data have been restated
to conform to the provisions of SFAS 128.
EFFECT OF INFLATION
Inflation has not had a significant impact on the Company as it has generally
had an immaterial impact on the costs of materials and other expenses.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1998 cash and cash equivalents increased
by $944,347 to $1,609,537 at March 31, 1998. Short and long-term investments
decreased by $577,587 to $8,013 during the first nine months of fiscal 1998 due
to the sale of investments. Trade accounts receivable increased by $1,091,252 to
$3,270,236 during the first nine months of fiscal 1998 due primarily to
increased sales in the month of March and extended terms to a large customer.
Refundable income taxes decreased by $330,997 due to the receipt of income tax
refunds. Inventories decreased by $837,285 to $1,739,736 during the first nine
months of fiscal 1998 due to the implementation of programs designed to more
effectively manage raw material inventories. Accounts payable increased by
$273,050 to $1,052,749 during the first nine months of fiscal 1998 primarily due
to a planned increase in the average number of days outstanding before payment.
Capital spending for plant renovations, upgrades and various equipment totaled
$348,525 for the first nine months of fiscal 1998. There were no material
commitments for capital expenditures at March 31, 1998.
In April 1998, the Company announced a stock repurchase program authorizing the
repurchase of up to 500,000 shares to be funded with internally generated funds.
(See note 3 of the Notes to Consolidated Financial Statements.) As of May 12,
1998 the Company has repurchased 10,000 shares of common stock under the program
for an aggregate purchase price of approximately $44,000.
Working capital, at the end of the first nine months of fiscal 1998, had
increased to $5,583,316 from $4,035,084 at the end of fiscal 1997. The Company
had a current ratio at the end of the first nine months of fiscal 1998 of 4.4 as
compared to 2.4 at the end of fiscal 1997. The increase in working capital and
improved current ratio as of March 31, 1998 resulted primarily from the
reduction of the accrued restructuring charge at June 30, 1997 due to the
issuance of LecTec Corporation common stock to the Pharmadyne minority
shareholders. (See note 2 of the Notes to Consolidated Financial Statements.)
The Company had no short or long-term debt as of March 31, 1998. During August
1997, the Company obtained an unsecured $1,000,000 working capital line of
credit which expires in September 1998. The previous working capital line of
credit expired January 1, 1997. There were no borrowings outstanding on the line
of credit during the first nine months of fiscal 1998 nor during all of fiscal
1997. Shareholders' equity increased by $1,307,699 to $10,095,443 during the
first nine months of fiscal 1998 due primarily to the issuance of LecTec
Corporation common stock in connection with the acquisition of the minority
interest in Pharmadyne Corporation.(See note 2 of the Notes to Consolidated
Financial Statements.)
<PAGE>
Management believes that internally-generated cash-flow and the existing
short-term line of credit will be sufficient to support anticipated operating
and capital spending requirements for the foreseeable future.
FORWARD-LOOKING STATEMENTS
From time to time, in reports filed with the Securities and Exchange Commission,
in press releases, and in other communications to shareholders or the investment
community, the Company may provide forward-looking statements concerning
possible or anticipated future results of operations or business developments
which are typically preceded by the words "believes", "expects", "anticipates",
"intends", "will", "may", "should" or similar expressions. Such forward-looking
statements are subject to risks and uncertainties which could cause results or
developments to differ materially from those indicated in the forward-looking
statements. Such risks and uncertainties include, but are not limited to, the
buying patterns of major customers; competitive forces including new products or
pricing pressures; costs associated with and acceptance of the Company's new
brand strategy; impact of interruptions to production; dependence on key
personnel; need for regulatory approvals; changes in governmental regulatory
requirements or accounting pronouncements; and ability to satisfy funding
requirements for operating needs, expansion or capital expenditures.
PART I - FINANCIAL INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Financial data schedule.
(b) REPORTS ON FORM 8-K
None.
<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.
LECTEC CORPORATION
Date May 14, 1998 /s/ Rodney A. Young
------------ ----------------------------------------------------
Rodney A. Young, Chief Executive Officer & President
Date May 14, 1998 /s/ Deborah L. Moore
------------ ----------------------------------------------------
Deborah L. Moore, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,609,537
<SECURITIES> 0
<RECEIVABLES> 3,462,973
<ALLOWANCES> 102,352
<INVENTORY> 1,739,736
<CURRENT-ASSETS> 7,239,675
<PP&E> 9,182,043
<DEPRECIATION> 4,759,960
<TOTAL-ASSETS> 11,962,802
<CURRENT-LIABILITIES> 1,656,359
<BONDS> 0
0
0
<COMMON> 40,648
<OTHER-SE> 10,054,795
<TOTAL-LIABILITY-AND-EQUITY> 11,962,802
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<TOTAL-COSTS> 7,306,118
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<INTEREST-EXPENSE> 1,083
<INCOME-PRETAX> (129,652)
<INCOME-TAX> 6,261
<INCOME-CONTINUING> (135,913)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (135,913)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
