UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended DECEMBER 31, 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 O-4136
Lifecore Biomedical, Inc.
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(Exact name of Registrant as specified in its charter)
Minnesota 41-0948334
- ----------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3515 Lyman Boulevard
Chaska, Minnesota 55318
- ------------------------------- ---------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 612-368-4300
------------
Indicate by checkmark 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, $.01 per
value, as of January 19, 1996 was 10,582,316 shares.
1
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
PART I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets for
December 31, 1995 and June 30, 1995 3
Consolidated Condensed Statements of Operations for Three
Months and Six Months Ended December 31, 1995 and 1994 4
Consolidated Condensed Statements of Cash Flows for
Six Months Ended December 31, 1995 and 1994 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-9
PART II. Other Information
Item 6. a. Exhibit Index 10
b. Reports on Form 8-K 10
SIGNATURES 11
2
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1995 1995
---------------- --------------
ASSETS
Current assets
Cash and cash equivalents $ 3,075,000 $ 2,726,000
Short-term investments 10,353,000 --
Accounts receivable 1,699,000 1,598,000
Inventories 5,463,000 4,753,000
Prepaid expenses 622,000 404,000
---------------- --------------
21,212,000 9,481,000
Property, plant and equipment
Land, building and equipment 13,225,000 12,784,000
Less accumulated depreciation ( 4,953,000) ( 4,642,000)
---------------- --------------
8,272,000 8,142,000
Other assets
Long-term investments 6,134,000 --
Intangibles 4,450,000 4,634,000
Security deposits 1,042,000 1,022,000
Inventory 1,839,000 1,405,000
Other 1,094,000 838,000
---------------- --------------
14,559,000 7,899,000
---------------- --------------
$ 44,043,000 $ 25,522,000
---------------- --------------
---------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term obligations $ 739,000 $ 1,139,000
Accounts payable 1,089,000 746,000
Accrued compensation 467,000 417,000
Accrued expenses 617,000 404,000
Customers' deposits 2,418,000 2,788,000
---------------- -------------
5,330,000 5,494,000
Long-term obligations 7,274,000 7,888,000
Customers' deposits 743,000 1,952,000
Shareholders' equity 30,696,000 10,188,000
---------------- -------------
$ 44,043,000 $ 25,522,000
---------------- -------------
---------------- -------------
The accompanying notes are an integral part of these statements.
3
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
1995 1994 1995 1994
-------------- ------------- ------------ -------------
Net sales $ 3,274,000 $ 2,189,000 $ 6,003,000 $ 4,031,000
Cost of goods sold 2,115,000 1,560,000 4,105,000 3,300,000
-------------- ------------ ----------- -----------
Gross profit 1,159,000 629,000 1,898,000 731,000
Operating expenses
Research and development 639,000 293,000 1,022,000 605,000
Marketing and sales 1,185,000 765,000 2,117,000 1,492,000
General and administrative 773,000 565,000 1,335,000 1,106,000
-------------- ------------ ----------- -----------
2,597,000 1,623,000 4,474,000 3,203,000
-------------- ------------ ----------- -----------
Loss from operations (1,438,000) (994,000) (2,576,000) (2,472,000)
Other income (expense)
Interest income 246,000 68,000 314,000 100,000
Interest expense (214,000) (215,000) (421,000) (427,000)
-------------- ------------ ----------- -----------
32,000 (147,000) (107,000) (327,000)
-------------- ------------ ----------- -----------
Net loss $ (1,406,000) $ (1,141,000) $(2,683,000) $(2,799,000)
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
Net loss per common share $ (.14) $ (.14) $ (.30) $ (.36)
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
Weighted average
shares outstanding 9,965,553 7,953,206 8,973,886 7,792,611
-------------- ------------ ----------- -----------
-------------- ------------ ----------- -----------
4
The accompanying notes are an integral part of these statements.
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
DECEMBER 31,
1995 1994
------------ -----------
Net cash provided from (used in) operating activities $ (4,612,000) $ 4,025,000
Cash flows from investing activities:
Purchase of investments (16,487,000) --
Purchases of property, plant and equipment (441,000) (283,000)
Purchases of intangibles (10,000) (35,000)
Other (278,000) (5,000)
------------ -----------
Net cash used in investing activities (17,216,000) (323,000)
Cash flows from financing activities:
Payment of deposit to bond trustee (35,000) (64,000)
Payments of long-term obligations (980,000) (282,000)
Proceeds from stock issuance 23,192,000 2,610,000
------------ -----------
Net cash provided from financing activities 22,177,000 2,264,000
------------ -----------
Net increase in cash and cash equivalents 349,000 5,966,000
Cash and cash equivalents at beginning of period 2,726,000 2,275,000
------------ -----------
Cash and cash equivalents at end of period $ 3,075,000 $ 8,241,000
------------ -----------
------------ -----------
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $409,000 $418,000
Income taxes 4,000 2,000
The accompanying notes are an integral part of these statements.
5
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A - FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (which consist only of accruals of
a normal recurring nature) necessary for fair presentation of the interim
results. These interim results are not necessarily indicative of the results
for the full year or of the results for any future periods.
These financial statements are presented in accordance with the requirements of
Form 10-Q and, consequently, may not include all disclosures normally required
by generally accepted accounting principles.
NOTE B - INVESTMENTS
The Company has invested its excess cash from the public offering completed in
the second quarter of fiscal 1995 in commercial paper, government agencies and
medium term notes. These investments are classified as held-to-maturity given
the Company's intent and ability to hold the securities to maturity. In
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", held-to-maturity
securities are carried at amortized cost. Investments that have maturities of
less than one year have been classified as short-term investments.
NOTE C - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventory not expected to be consumed within one year is classified as
a long-term asset. Inventories consist of the following:
December 31, June 30,
1995 1995
----------- -----------
(Unaudited)
Raw materials $ 1,833,000 $ 1,551,000
Work in progress 310,000 95,000
Finished goods 5,159,000 4,512,000
----------- -----------
$ 7,302,000 $ 6,158,000
----------- -----------
----------- -----------
NOTE D - CUSTOMERS' DEPOSITS
In November 1994, Lifecore renewed its current supply contract with Alcon
Laboratories, Inc., an indirect subsidiary of Nestle S.A. ("Alcon") through
December 1998. The agreement contains minimum annual purchase requirements
totalling $10,400,000 for calendar years 1995 through 1998. Lifecore received a
$6,300,000 cash advance from Alcon against future contract purchases.
Approximately $743,000 of the cash advance is classified as long-term as it is
not expected to be realized during the next twelve months.
6
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1995
As security for the cash advance, Lifecore granted Alcon a right to accelerate
delivery of certain finished hyaluronate inventory. The amount of inventory
that is subject to acceleration is limited to the amount purchasable by the
outstanding cash advance based upon the contract price.
NOTE E - STOCKHOLDERS' EQUITY
On October 18, 1995, the Company received net proceeds of approximately
$19,852,000 from the sale of 2,200,000 shares of its common stock through a
public offering. On November 16, 1995, the Company received net proceeds of
approximately $3,010,000 when the underwriters purchased an additional 330,000
shares of common stock related to the over-allotment option.
In August 1994, Lifecore and Ethicon, Inc. ("Ethicon"), a subsidiary of Johnson
& Johnson, entered into a Conveyance, License, Development and Supply Agreement
(the "Ethicon Agreement"). At the same time, Lifecore, Ethicon and Johnson &
Johnson Development Corporation ("JJDC"), a subsidiary of Johnson & Johnson,
entered into a Stock Purchase Agreement.
Under the terms of the Ethicon Agreement, Ethicon transferred to Lifecore its
ownership in certain technology related to research and development previously
conducted on the Company's sodium hyaluronate material. The technology
transferred to Lifecore includes written technical documents related to
Ethicon's research and development of a product to inhibit the formation of
surgical adhesions. These documents include product specifications, methods and
techniques, technology, know-how and certain patent applications. Lifecore has
assumed responsibility for continuing the anti-adhesion development project
including conducting human clinical trials on a second generation hyaluronate
based product. Lifecore has granted Ethicon exclusive world-wide marketing
rights through 2008 to the products developed by Lifecore within defined fields
of use.
Under the terms of the Stock Purchase Agreement, JJDC purchased 757,396
unregistered shares of Lifecore common stock for total consideration of $4
million consisting of $2.6 million cash and $1.4 million conversion of a
customer deposit from Ethicon held by Lifecore. Lifecore granted JJDC certain
registration rights which provide JJDC the option of having up to one half of
the shares registered on, or after, June 30, 1995 and the remaining shares
registered on, or after, June 30, 1996.
7
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THREE MONTHS AND
SIX MONTHS ENDED DECEMBER 31, 1994
Net sales for the three months and six months ended December 31, 1995 increased
$1,085,000 and $1,972,000, respectively, an increase of 50% and 49%,
respectively, compared with the same periods of last fiscal year. Hyaluronate
product sales for the three-month and six-month periods ended December 31, 1995
increased 21% and 26%, respectively, compared with the same periods of last
fiscal year. The hyaluronate product sales increases were primarily
attributable to sales to a new customer and to a lesser extent, increased sales
to existing customers. Oral restorative product sales for the three-month and
six-month periods ended December 31, 1995 increased 77% and 73%, respectively,
compared with the same periods of last fiscal year. The increase in oral
restorative product sales reflected the expanding product lines and the effect
of increased marketing and sales activities.
Cost of goods sold, as a percentage of net sales, decreased to 65% and 68%,
respectively, for the three-month and six-month periods ended December 31, 1995
from 71% and 82%, respectively, for the same periods of last fiscal year. The
decrease resulted from two main factors. First, fixed expenses were spread over
increased product sales. Second, continuing direct charges for idle capacity
relating to the Company's manufacturing facility for hyaluronate products were
lower than in the same period last year. These improvements were partially
offset by the negative impact of periodic costs incurred for the scale-up of
aseptic ophthalmic syringe product.
Research and development expenses increased $346,000, or 118%, for the current
quarter as compared to the same quarter of last fiscal year and $417,000, or
69%, for the six months ended December 31, 1995 as compared with the same period
of last fiscal year. The increase resulted principally from the costs
associated with human clinical trials on Lubricoat Gel which began in late
fiscal 1995 and continued through the current periods.
Marketing and sales expenses increased $420,000, or 55%, for the current quarter
as compared to the same quarter of last fiscal year and $625,000, or 42%, for
the six months ended December 31, 1995 as compared with the same period of last
fiscal year. The increase reflected compensation costs from additional sales
personnel, increased advertising and sales literature costs, and expenses from
the direct sales force at Lifecore Biomedical SpA, which has been in operation
since April 1995.
General and administrative expenses increased $208,000, or 37%, for the current
quarter as compared to the same quarter of last fiscal year and $229,000, or
21%, for the six months ended December 31, 1995 as compared with the same period
of last fiscal year. This increase in the current periods resulted mainly from
higher personnel costs as compared to the same periods of last fiscal year.
8
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONT.)
LIQUIDITY AND CAPITAL RESOURCES
The Company's amended Annual Report on Form 10-K/A for the year ended June 30,
1995 contains a detailed discussion of Lifecore's liquidity and capital
resources. In conjunction with this Quarterly Report on Form 10-Q, investors
should read the 1995 Form 10-K/A.
The Company incurred losses in each of the three years in the period ended June
30, 1995, reflecting the significant costs incurred in validating and operating
the Company's facilities, research and development and marketing. Historically,
the Company has financed its operations with debt and lease obligations and the
sale of its common stock.
Due to the Company's fixed obligations and anticipated operating cash flow
deficits through fiscal 1997, the Company expects its cash requirements to
significantly exceed the cash generated from anticipated operations. On October
18, 1995, the Company received net proceeds of approximately $19,852,000 from
the sale of 2,200,000 shares of its common stock through a public offering. The
net proceeds and shares sold include $2,000,000 received from Johnson & Johnson
Development Corporation for the purchase of 205,128 shares at the same price per
share as to the public. On November 16, 1995, the company received net proceeds
of approximately $3,010,000 when the underwriters purchased an additional
330,000 shares of common stock related to the over-allotment option. The
Company has used, and will continue to use, the proceeds of the offering to
finance capital expenditures relating to production scale-up; research and
development, including clinical trials; repayment of indebtedness; and general
working capital purposes. Due to the uncertainties involved in development,
regulatory approval and market acceptance of its new products and adequate
growth in its existing products, no assurance can be given that these resources
will be sufficient to allow the Company to attain and maintain positive cash
flow. If the Company exhausts the net proceeds of the offering prior to
achieving and maintaining positive cash flow, additional financing will be
necessary. If additional financing is needed, no assurance can be given that
such financing will be available and, if available, will be on terms favorable
to the Company and its shareholders.
9
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits and Exhibit Index
None Required
b. Reports on Form 8-K
None
10
LIFECORE BIOMEDICAL, INC. AND SUBSIDIARIES
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.
LIFECORE BIOMEDICAL, INC.
Dated: January 29, 1996 /s/ JAMES W. BRACKE
------------------------------------
James W. Bracke
President & Chief Executive Officer
(Principal Financial Officer)
11