e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Quarter Ended November 26, 2006, or
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o |
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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: 0-27446
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
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California
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94-3025618 |
(State or other jurisdiction of
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(IRS Employer |
incorporation or organization)
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Identification Number) |
3603 Haven Avenue
Menlo Park, California 94025
(Address of principal executive offices)
Registrants telephone number, including area code:
(650) 306-1650
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 at
least the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer þ Non Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes o No þ
As of December 19, 2006, there were 25,142,414 shares of Common Stock outstanding.
LANDEC CORPORATION
FORM 10-Q For the Fiscal Quarter Ended November 26, 2006
INDEX
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDEC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
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November 26, |
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May 28, |
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2006 |
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2006 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
11,751 |
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$ |
15,164 |
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Accounts receivable, less allowance for
doubtful accounts of $351 and $245 at
November 26, 2006 and May 28, 2006 |
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16,355 |
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15,288 |
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Accounts receivable, related party |
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368 |
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561 |
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Inventory |
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8,331 |
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6,134 |
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Notes and advances receivable |
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1,568 |
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376 |
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Notes receivable, related party |
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14 |
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Prepaid expenses and other current assets |
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1,033 |
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1,237 |
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Assets held for sale (Note 12) |
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35,048 |
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31,838 |
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Total Current Assets |
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74,454 |
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70,612 |
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Property, plant and equipment, net |
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19,625 |
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16,882 |
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Goodwill, net |
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21,248 |
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21,248 |
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Trademarks, net |
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8,228 |
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8,228 |
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Notes receivable |
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525 |
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631 |
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Other assets |
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1,838 |
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1,424 |
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Total Assets |
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$ |
125,918 |
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$ |
119,025 |
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Current Liabilities: |
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Accounts payable |
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$ |
13,072 |
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12,443 |
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Related party payables |
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79 |
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533 |
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Accrued compensation |
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1,823 |
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2,764 |
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Other accrued liabilities |
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1,995 |
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1,968 |
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Deferred revenue |
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440 |
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811 |
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Current maturities of long term debt |
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39 |
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2,018 |
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Liabilities assumed by buyer of FCD (Note 12) |
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20,298 |
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11,668 |
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Total Current Liabilities |
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37,746 |
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32,205 |
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Minority interest |
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1,602 |
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1,771 |
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Total Liabilities |
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39,348 |
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33,976 |
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Shareholders Equity: |
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Common stock and additional paid in capital,
$0.001 par value; 50,000,000 shares
authorized; 25,141,164 and 24,917,298 shares
issued and outstanding at November 26, 2006
and May 28, 2006, respectively |
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127,687 |
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126,288 |
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Accumulated deficit |
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(41,117 |
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(41,239 |
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Total Shareholders Equity |
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86,570 |
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85,049 |
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Total Liabilities and Shareholders Equity |
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$ |
125,918 |
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$ |
119,025 |
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See accompanying notes.
-3-
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended |
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Six Months Ended |
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November 26, |
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November 27, |
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November 26, |
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November 27, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenues: |
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Product sales |
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$ |
53,584 |
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$ |
52,560 |
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$ |
103,631 |
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$ |
100,888 |
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Services revenue, related party |
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831 |
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922 |
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1,674 |
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2,093 |
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License fees |
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681 |
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172 |
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881 |
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294 |
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Royalty revenues, related party |
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71 |
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58 |
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121 |
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134 |
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Research, development and royalty revenues |
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27 |
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35 |
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8 |
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Total revenues |
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55,194 |
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53,712 |
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106,342 |
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103,417 |
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Cost of revenue: |
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Cost of product sales |
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45,557 |
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44,861 |
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88,845 |
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85,706 |
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Cost of product sales, related party |
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673 |
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1,166 |
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2,222 |
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2,829 |
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Cost of services revenue |
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688 |
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596 |
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1,442 |
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1,203 |
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Total cost of revenue |
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46,918 |
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46,623 |
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92,509 |
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89,738 |
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Gross profit |
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8,276 |
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7,089 |
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13,833 |
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13,679 |
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Operating costs and expenses: |
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Research and development |
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840 |
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820 |
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1,624 |
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1,579 |
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Selling, general and administrative |
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7,289 |
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7,154 |
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12,191 |
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13,335 |
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Total operating costs and expenses |
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8,129 |
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7,974 |
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13,815 |
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14,914 |
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Operating income (loss) |
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147 |
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(885 |
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18 |
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(1,235 |
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Interest income |
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177 |
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130 |
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413 |
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250 |
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Interest expense |
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(121 |
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(177 |
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(191 |
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(250 |
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Minority interest expense |
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(97 |
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(101 |
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(115 |
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(316 |
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Other income (expense) |
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2 |
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(4 |
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(3 |
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(7 |
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Net income (loss) |
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$ |
108 |
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$ |
(1,037 |
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$ |
122 |
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$ |
(1,558 |
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Basic net income (loss) per share |
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$ |
0.00 |
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$ |
(0.04 |
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$ |
0.00 |
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$ |
(0.06 |
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Diluted net loss per share (Note 4) |
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$ |
(0.00 |
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$ |
(0.04 |
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$ |
(0.01 |
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$ |
(0.06 |
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Shares used in computing basic and diluted net
loss per share |
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25,039 |
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24,350 |
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24,988 |
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24,233 |
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See accompanying notes.
-4-
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Six Months Ended |
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November 26, |
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November 27, |
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2006 |
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2005 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
122 |
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$ |
(1,558 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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1,766 |
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1,529 |
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Stock-based compensation expense |
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382 |
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Loss on sale of property and equipment |
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29 |
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16 |
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Minority interest |
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123 |
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316 |
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Investment in unconsolidated business |
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(481 |
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Changes in current assets and current liabilities, net of effects of
acquisition of assets of Heartland Hybrids, Inc.: |
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Accounts receivable, net |
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(532 |
) |
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(2,562 |
) |
Inventory |
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(9,553 |
) |
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(8,890 |
) |
Issuance of notes and advances receivable |
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(1,427 |
) |
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(1,064 |
) |
Collection of notes and advances receivable |
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221 |
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329 |
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Prepaid expenses and other current assets |
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1 |
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498 |
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Accounts payable |
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1,920 |
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(1,143 |
) |
Related party payables |
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(465 |
) |
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(395 |
) |
Accrued compensation |
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(1,123 |
) |
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282 |
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Other accrued liabilities |
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(1 |
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120 |
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Deferred revenue |
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2,248 |
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2,511 |
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Net cash used in operating activities |
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(6,770 |
) |
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(10,011 |
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Cash flows from investing activities: |
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Purchases of property, plant and equipment |
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(4,651 |
) |
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(1,533 |
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Purchase of marketable securities |
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(991 |
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Proceeds from maturities of marketable securities |
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2,959 |
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Issuance of notes and advances receivable |
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(27 |
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(18 |
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Collection of notes and advances receivable |
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161 |
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172 |
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Acquisition of assets of Heartland Hybrids, Inc., net of cash acquired |
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(1,050 |
) |
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(3,630 |
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Net cash used in investing activities |
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(5,567 |
) |
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(3,041 |
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Cash flows from financing activities: |
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Proceeds from sale of common stock |
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1,017 |
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501 |
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Proceeds from the exercise of subsidiary options |
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10 |
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Decrease in other assets |
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67 |
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199 |
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Borrowings on lines of credit |
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4,941 |
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11,103 |
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Payments on lines of credit |
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(3,831 |
) |
Payments on long term debt |
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(1,979 |
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(1,011 |
) |
Distributions to minority interest |
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(302 |
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(329 |
) |
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Net cash provided by financing activities |
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3,754 |
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6,632 |
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Net decrease in cash and cash equivalents |
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(8,583 |
) |
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(6,420 |
) |
Cash and cash equivalents at beginning of period, including FCD |
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20,519 |
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12,871 |
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Cash and cash equivalents at end of period, including FCD |
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11,936 |
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|
6,451 |
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Less: Cash included in assets held for sale |
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(185 |
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Cash and cash equivalents at end of period |
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$ |
11,751 |
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$ |
6,451 |
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Supplemental schedule of noncash operating activities: |
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Preferred stock received from investment in unconsolidated business |
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$ |
481 |
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$ |
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|
See accompanying notes.
-5-
LANDEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Landec Corporation and its subsidiaries (Landec or the Company) design, develop,
manufacture, and sell temperature-activated and other specialty polymer products for a variety of
food products, agricultural products, and licensed partner applications. The Company sells
Intellicoat® coated seed products through its Landec Ag, Inc. (Landec Ag) subsidiary and
specialty packaged fresh-cut vegetables and whole produce to retailers and club stores, primarily
in the United States and Asia through its Apio, Inc. (Apio) subsidiary.
The accompanying unaudited consolidated financial statements of Landec have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments (consisting of normal recurring accruals) have been made
which are necessary to present fairly the financial position at November 26, 2006 and the results
of operations and cash flows for all periods presented. Although Landec believes that the
disclosures in these financial statements are adequate to make the information presented not
misleading, certain information normally included in financial statements and related footnotes
prepared in accordance with U.S. accounting principles generally accepted have been condensed or
omitted per the rules and regulations of the Securities and Exchange Commission. The accompanying
financial data should be reviewed in conjunction with the audited financial statements and
accompanying notes included in Landecs Annual Report on Form 10-K for the fiscal year ended May
28, 2006.
The results of operations for the three and six months ended November 26, 2006 are not
necessarily indicative of the results that may be expected for an entire fiscal year. For
instance, due to the cyclical nature of the corn seed industry, Fielders Choice Direct (FCD),
Landecs former direct sales and marketing seed company which was sold on December 1, 2006 (see
Note 12) and Landec Ag realize virtually no revenues during the first six months of each fiscal
year and therefore recognize substantial losses during the first half of Landecs fiscal year.
Use of Estimates
The preparation of financial statements in conformity with U.S. accounting principles
generally accepted requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported results of operations during the reporting
period. Actual results could differ materially from those estimates.
For instance, the carrying value of notes and advances receivable, are impacted by current
market prices for the related crops, weather conditions and the fair value of the underlying
security obtained by the Company, such as, liens on property and crops. The Company recognizes
losses when it estimates that the fair value of the related crops or security is insufficient to
cover the advance or note receivable.
Investments
Equity investments in non-public companies with no readily available market value are carried
on the balance sheet at cost as adjusted for impairment losses, if any. If reductions in the
market value of the investments to an amount that is below cost are deemed by management to be
other than temporary, the reduction in market value will be realized, with the resulting loss in
market value reflected on the income statement (see Note 2).
Goodwill and Other Intangibles
The Company is required under SFAS 142 to review goodwill and indefinite lived intangible
assets at least annually. During the six months ended November 26, 2006, the Company completed its
annual impairment review. The review is performed by grouping the net book value of all long-lived
assets for reporting entities,
including goodwill and other intangible assets, and comparing this value to the related estimated
fair value. The determination
-6-
of fair value is based on estimated future discounted cash flows
related to these long-lived assets. The discount rate used was based on the risks associated with
the reporting entities. The determination of fair value was performed by management using the
services of an independent appraiser. The review concluded that the fair value of the reporting
entities exceeded the carrying value of their net assets and thus no impairment charge was
warranted as of November 26, 2006.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (FIN
No. 48), which clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with FASB Statement No. 109, Accounting for Income
Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition and defines the criteria that must be met
for the benefits of a tax position to be recognized. The provisions of FIN No. 48 will be effective
for the Company commencing at the start of fiscal 2008, May 28, 2007. The Company is currently
evaluating the impact of adopting FIN No. 48 on its consolidated financial statements.
Reclassifications
Certain reclassifications have been made to prior period financial statements to conform to
the current period presentation. The assets of FCD and the liabilities assumed by the buyer of FCD
have been reclassed in the accompanying Consolidated Balance Sheets (see Note 12).
2. License Agreements
In December 2005, Landec entered into an exclusive licensing agreement with Aesthetic Sciences
Corporation. At that time Landec received cash and preferred stock in Aesthetic Sciences. As part
of the original agreement, Landec was to receive additional shares upon the completion of a
specific milestone. On November 22, 2006, that milestone was met and as a result Landec received
an additional 800,000 shares of preferred stock valued at $481,000. Landec currently has a 19.9%
ownership interest in Aesthetic Sciences. The $481,000 is included in other assets in the
accompanying Consolidated Balance Sheet and is recorded as licensing revenue in the accompanying
Consolidated Statements of Operations since Landec has no further obligations under this agreement.
3. Stock-Based Compensation
On May 29, 2006, the Company adopted SFAS 123R, which is a revision of SFAS No. 123
Accounting for Stock-Based Compensation (SFAS 123), and supersedes APB No. 25, Accounting for
Stock Issued to Employees (APB 25). Among other items, SFAS 123R requires companies to record
compensation expense for stock-based awards issued to employees and directors in exchange for
services provided. The amount of the compensation expense is based on the estimated fair value of
the awards on their grant dates and is recognized over the required service periods. The Companys
stock-based awards include stock option grants and restricted stock unit awards (RSUs).
Prior to the adoption of SFAS 123R, the Company applied the intrinsic value method set forth
in APB 25 to calculate the compensation expense for stock-based awards. The Company has
historically set the exercise price for its stock options equal to the market value on the grant
date. As a result, the options had no intrinsic value on their grant dates, and therefore the
Company did not record any compensation expense unless the terms of the stock options were
subsequently modified. For RSUs, the calculation of compensation expense under APB 25 and SFAS
123R is similar except for the accounting treatment for forfeitures as discussed below.
The Company adopted SFAS 123R using the modified prospective transition method, which requires
the application of the accounting standard to (i) all stock-based awards issued on or after May 29,
2006 and (ii) any outstanding stock-based awards that were issued but not vested as of May 29,
2006. Accordingly, the Companys condensed consolidated financial statements as of November 27,
2005, and for the three and six months then-ended, were accounted for under the provisions of APB
25. In the three and six months ended November 26, 2006, the
-7-
Company recognized stock-based
compensation expense of $136,000 and $382,000 or $0.01 and $0.02 per basic and diluted share,
respectively, which included $42,000 and $75,000 for restricted stock unit awards and $94,000 and
$307,000 for stock option grants, respectively.
The following table summarizes the stock-based compensation by income statement line item:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Six Months Ended |
|
|
|
November 26, 2006 |
|
|
November 26, 2006 |
|
Research and development |
|
$ |
23,000 |
|
|
$ |
42,000 |
|
Sales, general and administrative |
|
$ |
113,000 |
|
|
$ |
340,000 |
|
|
|
|
|
|
|
|
Total amortization of stock-based compensation |
|
$ |
136,000 |
|
|
$ |
382,000 |
|
The estimated fair value for stock options, which determines the Companys calculation of
compensation expense, is based on the Black-Scholes pricing model. Upon the adoption of SFAS 123R,
the Company changed its method of calculating and recognizing the fair value of stock-based
compensation arrangements to the straight-line, single-option method. Compensation expense for all
stock option and restricted stock awards granted prior to May 29, 2006 will continue to be
recognized using the straight-line, multiple-option method. In addition, SFAS 123R requires the
estimation of the expected forfeitures of stock-based awards at the time of grant. As a result,
the Company uses historical data to estimate pre-vesting forfeitures and records stock-based
compensation expense only for those awards that are expected to vest and revises those estimates in
subsequent periods if the actual forfeitures differ from the prior estimates. In the pro-forma
information required under SFAS 123 for periods prior to May 29, 2006, the Company accounted for
forfeitures as they occurred.
Valuation Assumptions
As of November 26, 2006 and November 27, 2005, the fair value of stock option grants was
estimated using the Black-Scholes option pricing model. The following weighted average assumptions
were used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
November 26, |
|
November 27, |
|
November 26, |
|
November 27, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Stock Option plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-Free interest rate |
|
|
|
|
|
|
4.23 |
% |
|
|
5.08 |
% |
|
|
4.11 |
% |
Dividend Yield |
|
|
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Volatility |
|
|
|
|
|
|
54 |
% |
|
|
51 |
% |
|
|
54 |
% |
Expected term in years |
|
|
|
|
|
|
4.01 |
|
|
|
4.27 |
|
|
|
4.61 |
|
-8-
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to
expense over the service period of the options using the straight-line method. The Companys pro
forma information follows (in thousands except for per share data):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
November 27, |
|
|
November 27, |
|
|
|
2005 |
|
|
2005 |
|
Net loss |
|
$ |
(1,037 |
) |
|
$ |
(1,558 |
) |
Deduct: |
|
|
|
|
|
|
|
|
Stock-based employee expense
determined under SFAS 123 |
|
|
(428 |
) |
|
|
(665 |
) |
|
|
|
|
|
|
|
Pro forma net loss |
|
$ |
(1,465 |
) |
|
$ |
(2,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per
share as reported |
|
$ |
(0.04 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
Basic and diluted pro forma net
loss per share |
|
$ |
(0.06 |
) |
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
Stock-Based Compensation Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Outstanding |
|
|
Stock Options Outstanding |
|
|
|
RSUs and |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Options |
|
|
Number of |
|
|
Average |
|
|
|
|
|
|
Weighted |
|
|
|
Available |
|
|
Restricted |
|
|
Grant Date |
|
|
Number of |
|
|
Average |
|
|
|
for Grant |
|
|
Shares |
|
|
Fair Value |
|
|
Stock Options |
|
|
Exercise Price |
|
Balance at May 28, 2006 |
|
|
857,705 |
|
|
|
833 |
|
|
$ |
7.53 |
|
|
|
3,117,516 |
|
|
$ |
4.85 |
|
Granted |
|
|
(153,335 |
) |
|
|
38,335 |
|
|
$ |
8.86 |
|
|
|
115,000 |
|
|
$ |
8.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(207,368 |
) |
|
$ |
4.51 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,417 |
) |
|
$ |
4.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 26, 2006 |
|
|
704,370 |
|
|
|
39,168 |
|
|
$ |
8.83 |
|
|
|
3,019,731 |
|
|
$ |
5.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information concerning stock options outstanding and
exercisable at November 26, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Range of |
|
|
|
|
|
Remaining |
|
|
Average |
|
|
Aggregate |
|
|
|
|
|
|
Average |
|
|
|
|
Exercise |
|
Number of Shares |
|
|
Contractual |
|
|
Exercise |
|
|
Intrinsic |
|
|
Number of Shares |
|
|
Exercise |
|
|
Aggregate |
|
Prices |
|
Outstanding |
|
|
Life |
|
|
Price |
|
|
Value |
|
|
Exercisable |
|
|
Price |
|
|
Intrinsic Value |
|
|
|
(in years) |
|
|
(in years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.660 - $3.180 |
|
|
408,459 |
|
|
|
5.71 |
|
|
$ |
2.61 |
|
|
$ |
2,973,582 |
|
|
|
397,283 |
|
|
$ |
2.61 |
|
|
$ |
2,892,220 |
|
$3.250 - $3.400 |
|
|
414,850 |
|
|
|
3.78 |
|
|
$ |
3.38 |
|
|
$ |
2,700,674 |
|
|
|
412,349 |
|
|
$ |
3.38 |
|
|
$ |
2,684,392 |
|
$3.470 - $4.938 |
|
|
408,385 |
|
|
|
4.06 |
|
|
$ |
4.30 |
|
|
$ |
2,282,872 |
|
|
|
406,196 |
|
|
$ |
4.31 |
|
|
$ |
2,266,574 |
|
$5.000 - $5.000 |
|
|
641,128 |
|
|
|
1.09 |
|
|
$ |
5.00 |
|
|
$ |
3,135,116 |
|
|
|
641,128 |
|
|
$ |
5.00 |
|
|
$ |
3,135,116 |
|
$5.250 - $6.125 |
|
|
109,909 |
|
|
|
3.17 |
|
|
$ |
5.83 |
|
|
$ |
446,231 |
|
|
|
102,096 |
|
|
$ |
5.84 |
|
|
$ |
413,489 |
|
$6.130 - $6.130 |
|
|
308,000 |
|
|
|
5.58 |
|
|
$ |
6.13 |
|
|
$ |
1,158,080 |
|
|
|
214,250 |
|
|
$ |
6.13 |
|
|
$ |
805,580 |
|
$6.250 - $6.750 |
|
|
387,500 |
|
|
|
4.75 |
|
|
$ |
6.66 |
|
|
$ |
1,251,625 |
|
|
|
387,500 |
|
|
$ |
6.66 |
|
|
$ |
1,251,625 |
|
$6.790 - $8.860 |
|
|
341,500 |
|
|
|
7.46 |
|
|
$ |
7.71 |
|
|
$ |
744,470 |
|
|
|
265,798 |
|
|
$ |
7.40 |
|
|
$ |
661,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.660 - $8.860 |
|
|
3,019,731 |
|
|
|
4.21 |
|
|
$ |
5.02 |
|
|
$ |
14,692,650 |
|
|
|
2,826,600 |
|
|
$ |
4.90 |
|
|
$ |
14,110,826 |
|
The aggregate intrinsic value in the table above represents the total pretax intrinsic
value, based on the Companys closing stock price of $9.89 on November 24, 2006, which would have
been received by holders of stock options had all holders of stock options exercised their stock
options that were in-the-money as of that date.
The total number of in-the-money stock options exercisable as of November 26, 2006, was
approximately 2.8
-9-
million shares. The aggregate intrinsic value of stock options exercised during
the three and six months ended November 26, 2006, was $822,000 and $1.1 million, respectively.
Shares Subject to Vesting
The following table summarizes the activity relating to unvested stock option grants and RSUs
during the six month period ended November 26, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
Restricted Stock |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average Fair |
|
|
|
|
|
Average Fair |
|
|
Shares |
|
Value |
|
Shares |
|
Value |
Unvested at May 28, 2006 |
|
|
182,586 |
|
|
$ |
2.43 |
|
|
|
833 |
|
|
$ |
7.53 |
|
Granted |
|
|
115,000 |
|
|
$ |
4.05 |
|
|
|
38,335 |
|
|
$ |
8.32 |
|
Vested/Awarded |
|
|
(99,038 |
) |
|
$ |
2.73 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(5,417 |
) |
|
$ |
4.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at November 26, 2006 |
|
|
193,131 |
|
|
$ |
3.18 |
|
|
|
39,168 |
|
|
$ |
8.30 |
|
As of November 26, 2006, there was $939,000 of total unrecognized compensation expense
related to unvested equity compensation awards granted under the Companys incentive stock plans.
Total expense is expected to be recognized over the weighted-average period of 1.51 years.
As of November 26, 2006 the Company has reserved 3.8 million shares of common stock for future
issuance under its current and former stock plans.
4. Net Income Per Diluted Share
The following table sets forth the computation of diluted net income for the periods with net
income (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended |
|
Ended |
|
|
November 26, |
|
November 26, |
|
|
2006 |
|
2006 |
Numerator: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
108 |
|
|
$ |
122 |
|
Less: Minority interest income of subsidiary |
|
|
(228 |
) |
|
|
(341 |
) |
|
|
|
Net loss for diluted net loss per share |
|
$ |
(120 |
) |
|
$ |
(219 |
) |
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average shares for diluted net loss per share |
|
|
25,039 |
|
|
|
24,988 |
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
For the three months ended November 26, 2006 and November 27, 2005, the computation of the
diluted net loss per share excludes the impact of options to purchase 1,446,608 shares and
1,647,824 shares of Common Stock, respectively, as such impacts would be antidilutive for these
periods.
For the six months ended November 26, 2006 and November 27, 2005, the computation of the
diluted net loss per share excludes the impact of options to purchase 1,412,325 shares and
1,833,452 shares of Common Stock, respectively, as such impacts would be antidilutive for these
periods.
-10-
5. Debt
On August 29, 2006, Landec Ag amended and restated its revolving line of credit with Old
National Bank which increased the line from $7.5 million to $10 million. The interest rate on the
revolving line of credit was reduced from prime plus 0.375% to prime minus 0.50% (7.75% at November
26, 2006). The line of credit contained certain restrictive covenants, which, among other things,
restricted the ability of Landec Ag to make payments on debt owed by Landec Ag to Landec. Landec
Ag was in compliance with all of the loan covenants during the first six months of fiscal year
2007. Landec had pledged substantially all of the assets of Landec Ag to secure the line of
credit. At November 26, 2006, $4.9 million was outstanding under Landec Ags revolving line of
credit. In conjunction with the sale of FCD to American Seeds, Inc. (ASI) on December 1, 2006 (see
Note 12) Landec Ags line of credit was paid in full and subsequently terminated.
6. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market and
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 26, |
|
|
May 28, |
|
|
|
2006 |
|
|
2006 |
|
Raw material |
|
$ |
6,148 |
|
|
$ |
3,764 |
|
Finished goods |
|
|
2,183 |
|
|
|
2,193 |
|
Work in process |
|
|
|
|
|
|
177 |
|
|
|
|
|
|
|
|
Total |
|
$ |
8,331 |
|
|
$ |
6,134 |
|
|
|
|
|
|
|
|
7. Related Party
Apio provides cooling and distributing services for farms in which the Chief Executive Officer
of Apio (the Apio CEO) has a financial interest and purchases produce from those farms. Apio
also purchases produce from Beachside Produce LLC (formerly known as Apio Fresh) for sale to third
parties. Beachside Produce is owned by a group of entities and persons that supply produce to
Apio. One of the owners of Beachside Produce is the Apio CEO. Revenues, cost of product sales and
the resulting payable, and the note receivable from advances for ground lease payments, and crop
and harvesting costs are classified as related party in the accompanying financial statements as of
November 26, 2006 and May 28, 2006 and for the three and six months ended November 26, 2006 and
November 27, 2005.
Apio leases, for approximately $535,000 on an annual basis, agricultural land that is either
owned, controlled or leased by the Apio CEO. Apio, in turn, subleases that land at cost to growers
who are obligated to deliver product from that land to Apio for value added products. There is
generally no net statement of operations impact to Apio as a result of these leasing activities but
Apio creates a guaranteed source of supply for the value added business. Apio has loss exposure on
the leasing activity to the extent that it is unable to sublease the land. For the three and six
months ended November 26, 2006 the Company subleased all of the land leased from the Apio CEO and
received sublease income of $121,000 and $232,000, respectively, which is equal to the amount the
Company paid to lease that land for the period.
Apios domestic commodity vegetable business was sold to Beachside Produce, effective June 30,
2003. The Apio CEO is a 12.5% owner in Beachside Produce. During the three and six months ended
November 26, 2006, the Company recognized revenues of $16,000 and $21,000, respectively, from the
sale of products to Beachside Produce and royalty revenue of $71,000 and $121,000, respectively,
from the use by Beachside Produce of Apios trademarks. The related accounts receivable from
Beachside Produce are classified as related party in the accompanying financial statements as of
November 26, 2006 and May 28, 2006.
In addition, the Apio CEO has a 6% ownership interest in Apio Cooling LP, a limited
partnership in which Apio is the general partner with a 60% ownership interest. Included in the
minority interest liability as of November 26, 2006 and May 28, 2006 is $205,000 and $237,000,
respectively, owed to the Apio CEO.
-11-
All related party transactions are monitored quarterly by the Company and approved by the
Audit Committee of the Board of Directors.
8. Insurance Settlement
On August 25, 2006 the Company received a cash payment of $1.6 million from the settlement of
insurance claims associated with a fire that occurred at its Dock Resins facility in February 2000.
The settlement resulted in the Company recording a reduction to selling, general and
administrative expenses of $1.3 million, net of expenses, during the Companys first quarter of
fiscal year 2007. In addition, $381,000 had been placed in escrow pending the outcome of certain
disputed professional fees. In September 2006, the Company resolved the fee dispute and paid
professional fees of $227,000 from the escrow and received the balance of $154,000 which the
Company recorded as a reduction to selling, general and administrative expenses during the three
months ended November 26, 2006.
9. Comprehensive Income (Loss)
The comprehensive net income (loss) of Landec is the same as the net income (loss).
10. Shareholders Equity
During the three and six months ended November 26, 2006, 152,972 and 223,866 shares of Common
Stock, respectively, were issued upon the exercise of options under the Companys stock option
plans and the Companys former Employee Stock Purchase Plan.
-12-
11. Business Segment Reporting
Landec operates in two business segments: the Food Products Technology segment and the
Agricultural Seed Technology segment. The Food Products Technology segment markets and packs
specialty packaged whole and fresh-cut vegetables that incorporate the BreatheWay® specialty
packaging for the retail grocery, club store and food services industry. The Agricultural Seed
Technology segment markets and distributes hybrid seed corn and seed coatings using Landecs
patented Intellicoat® seed coatings to the farming industry. The Food Products Technology and
Agricultural Seed Technology segments include charges for corporate services allocated from the
Corporate and Other segment. Corporate and other amounts include non-core operating activities and
corporate operating costs. All of the assets of the Company are located within the United States
of America.
Operations by Business Segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural |
|
|
|
|
|
|
Food Products |
|
Seed |
|
Corporate |
|
|
Three months ended November 26, 2006 |
|
Technology |
|
Technology |
|
and Other |
|
TOTAL |
Net revenues |
|
$ |
54,469 |
|
|
$ |
17 |
|
|
$ |
708 |
|
|
$ |
55,194 |
|
International sales |
|
$ |
17,964 |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
17,964 |
|
Gross profit |
|
$ |
7,641 |
|
|
$ |
(73 |
) |
|
$ |
708 |
|
|
$ |
8,276 |
|
Net income (loss) |
|
$ |
3,329 |
|
|
$ |
(3,558 |
) |
|
$ |
337 |
|
|
$ |
108 |
|
Interest expense |
|
$ |
4 |
|
|
$ |
117 |
|
|
$ |
¾ |
|
|
$ |
121 |
|
Interest income |
|
$ |
153 |
|
|
$ |
4 |
|
|
$ |
20 |
|
|
$ |
177 |
|
Depreciation and amortization |
|
$ |
660 |
|
|
$ |
194 |
|
|
$ |
25 |
|
|
$ |
879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 27, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
53,403 |
|
|
$ |
20 |
|
|
$ |
289 |
|
|
$ |
53,712 |
|
International sales |
|
$ |
19,921 |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
19,921 |
|
Gross profit |
|
$ |
6,869 |
|
|
$ |
19 |
|
|
$ |
201 |
|
|
$ |
7,089 |
|
Net income (loss) |
|
$ |
2,398 |
|
|
$ |
(3,188 |
) |
|
$ |
(247 |
) |
|
$ |
(1,037 |
) |
Interest expense |
|
$ |
75 |
|
|
$ |
101 |
|
|
$ |
1 |
|
|
$ |
177 |
|
Interest income |
|
$ |
109 |
|
|
$ |
14 |
|
|
$ |
7 |
|
|
$ |
130 |
|
Depreciation and amortization |
|
$ |
624 |
|
|
$ |
173 |
|
|
$ |
23 |
|
|
$ |
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended November 26, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
105,295 |
|
|
$ |
131 |
|
|
$ |
916 |
|
|
$ |
106,342 |
|
International sales |
|
$ |
31,774 |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
31,774 |
|
Gross profit |
|
$ |
12,995 |
|
|
$ |
(78 |
) |
|
$ |
916 |
|
|
$ |
13,833 |
|
Net income (loss) |
|
$ |
5,051 |
|
|
$ |
(6,447 |
) |
|
$ |
1,518 |
|
|
$ |
122 |
|
Interest expense |
|
$ |
74 |
|
|
$ |
117 |
|
|
$ |
¾ |
|
|
$ |
191 |
|
Interest income |
|
$ |
345 |
|
|
$ |
45 |
|
|
$ |
23 |
|
|
$ |
413 |
|
Depreciation and amortization |
|
$ |
1,332 |
|
|
$ |
383 |
|
|
$ |
51 |
|
|
$ |
1,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended November 27, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
102,901 |
|
|
$ |
20 |
|
|
$ |
496 |
|
|
$ |
103,417 |
|
International sales |
|
$ |
36,642 |
|
|
$ |
¾ |
|
|
$ |
¾ |
|
|
$ |
36,642 |
|
Gross profit |
|
$ |
13,330 |
|
|
$ |
19 |
|
|
$ |
330 |
|
|
$ |
13,679 |
|
Net income (loss) |
|
$ |
4,282 |
|
|
$ |
(5,313 |
) |
|
$ |
(527 |
) |
|
$ |
(1,558 |
) |
Interest expense |
|
$ |
148 |
|
|
$ |
101 |
|
|
$ |
1 |
|
|
$ |
250 |
|
Interest income |
|
$ |
198 |
|
|
$ |
26 |
|
|
$ |
26 |
|
|
$ |
250 |
|
Depreciation and amortization |
|
$ |
1,200 |
|
|
$ |
279 |
|
|
$ |
50 |
|
|
$ |
1,529 |
|
During the six months ended November 26, 2006 and November 27, 2005, sales to the Companys
top five customers accounted for approximately 50% and 47%, respectively, of revenues, with the
Companys top customers from the Food Products Technology segment, Costco Wholesale Corp.,
accounting for approximately 20% and 15%, respectively, and Pomina Enterprise Co. LTD, accounting
for approximately 9% and 11%, respectively of revenues. The Company expects that, for the
foreseeable future, a limited number of customers may
continue to account for a significant portion of its net revenues. Virtually all of the
Companys international sales are to Asia.
-13-
12. Subsequent Events
On December 1, 2006, Landec sold its direct marketing and sales seed company Fielders Choice
Direct (FCD), which included the Fielders Choice Direct® and Heartland Hybrid®
brands, to American Seeds, Inc. (ASI), a wholly owned subsidiary of Monsanto Company. The
acquisition price for FCD was $50 million in cash paid at the close with an additional earn-out
amount of up to $5 million based on FCD results for the twelve months ended May 31, 2007. Landec
will record during its fiscal third quarter income from the sale, net of expenses and estimated
taxes, of approximately $20 million to $21 million. The income, before expenses and estimated
taxes, that will be recorded is equal to the difference between the fair value of FCD and its net
book value. In accordance with generally accepted accounting principles, any portion of the $50
million of proceeds in excess of the fair value of FCD will be allocated to the technology license
agreement described below and will be recognized as revenue ratably over the five year term of the
technology license agreement. The determination of fair value was performed by management using
the services of an independent appraiser. Based on the appraisal, it was determined that the fair
market value of FCD was $40 million which is $10 million less than the $50 million received at
close. Therefore, the $10 million will be recognized as revenue and income ratably over the term
of the technology license agreement or $2 million per year.
On December 1, 2006, Landec also entered into a five-year co-exclusive technology license and
polymer supply agreement with Monsanto Company for the use of Landecs Intellicoat
polymer seed coating technology. In addition, Monsanto will pay all operating costs,
including research and development funding, over the term of the agreement. This agreement
provides for a fee payable to Landec of $4 million if Monsanto elects to terminate the agreement or
a fee payable to Landec of $8 million if Monsanto elects to buyout the technology. Accordingly, if
the agreement is eventually terminated, Landec will receive minimum guaranteed payments of $17
million for license fees and polymer supply payments over five years or $21 million in maximum
payments if Monsanto elects to buyout the licensed technology. The minimum guaranteed payments
will result in Landec recognizing revenue and operating income of $3.4 million per year for five
years. If Monsanto elects to purchase the technology, an additional $4 million of license fee
revenue will be recognized at the time of payment.
If the purchase option is exercised before the fifth anniversary of the Intellicoat agreement,
all annual license fees and supply payments that have not been paid to Landec will become due upon
the purchase. If Monsanto does not exercise its purchase option by the fifth anniversary of the
Intellicoat agreement, Landec will receive the termination fee and all rights to the
Intellicoat seed coating technology will revert to Landec. If Monsanto exercises its
purchase option, Landec and Monsanto will enter into a new long-term supply agreement in which
Landec will continue to be the exclusive supplier of Intellicoat polymer materials to
Monsanto.
In exchange for the annual payments, Monsanto receives (1) a co-exclusive right to use
Landecs Intellicoat temperature activated seed coating technology worldwide during the
license period, (2) the right to be the exclusive global sales and marketing agent for the
Intellicoat seed coating technology, and (3) the right to purchase the technology any time during
the five year term of the Intellicoat agreement. In addition, Monsanto will fund all operating
costs, including all Intellicoat research and development, product development and
non-replacement capital costs during the five year agreement period.
In conjunction with the sale of FCD, Landec purchased all of the outstanding common stock and
options of Landec Ag not owned by Landec at the fair market value of each share of Landec Ag as if
all options had been exercised as of December 1, 2006. As a result, Landec paid $7.3 million of
the proceeds from the sale of FCD to purchase all of the common stock and options of Landec Ag not
owned by Landec. After the purchase, Landec Ag became a wholly owned subsidiary of Landec. In
accordance with SFAS 123R, this purchase will not result in an expense to the Company because all
of the stock and options purchased were fully vested at the time of the purchase and were purchased
for fair value on the date of the purchase.
FCD revenues for the three and six months ended November 26, 2006 and November 27, 2005 were
$131,000 and $20,000, respectively. The net losses for FCD for the three and six months ended
November 26, 2006 and November 27, 2005 were $6.0 million and $4.8 million, respectively. FCD had
cash balances at November 26, 2006 and May 28, 2006 of $185,000 and $5.4 million, respectively.
-14-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited consolidated
financial statements and accompanying notes included in Part IItem 1 of this Form 10-Q and the
audited consolidated financial statements and accompanying notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations included in Landecs Annual Report on
Form 10-K for the fiscal year ended May 28, 2006.
Except for the historical information contained herein, the matters discussed in this report
are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934. These forward-looking statements involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking statements. Potential risks
and uncertainties include, without limitation, those mentioned in this report and, in particular
the factors described below under Additional Factors That May Affect Future Results, and those
mentioned in Landecs Annual Report on Form 10-K for the fiscal year ended May 28, 2006. Landec
undertakes no obligation to update or revise any forward-looking statements in order to reflect
events or circumstances that may arise after the date of this report.
Critical Accounting Policies and Use of Estimates
There have been no material changes to the Companys critical accounting policies which are
included and described in the Form 10-K for the fiscal year ended May 28, 2006 filed with the
Securities and Exchange Commission on July 27, 2006 with the exception of the adoption of SFAS No.
123(R).
Accounting for Stock-Based Compensation
Effective May 29, 2006, we measure compensation expense for our stock-based compensation plans
using the fair value method as defined in SFAS No. 123(R). Under SFAS 123R, stock-based
compensation expense is calculated based on the value of the award on the date of grant and is
recognized as expense on a straight line basis over the vesting period. Determining the fair value
of stock-based awards on the grant date requires judgment, including estimating the variables
necessary to determine the fair value of awards granted. To the extent actual results or updated
estimates differ from our prior estimates, such amounts will be recorded as a cumulative adjustment
in the period that any such estimates are revised. If actual results differ significantly from what
we previously estimated, our stock-based compensation expense and our results of operations could
be materially impacted.
The Company
Landec Corporation and its subsidiaries (Landec or the Company) design, develop,
manufacture and sell temperature-activated and other specialty polymer products for a variety of
food products, agricultural products, and licensed partner applications. This proprietary polymer
technology is the foundation, and a key differentiating advantage, upon which Landec has built its
business.
Landecs core polymer products are based on its patented proprietary Intelimerâ
polymers, which differ from other polymers in that they can be customized to abruptly change their
physical characteristics when heated or cooled through a pre-set temperature switch. For instance,
Intelimer polymers can change within the range of one or two degrees Celsius from a non-adhesive
state to a highly tacky, adhesive state; from an impermeable state to a highly permeable state; or
from a solid state to a viscous state. These abrupt changes are repeatedly reversible and can be
tailored by Landec to occur at specific temperatures, thereby offering substantial competitive
advantages in Landecs target markets.
Landec has historically had two core businesses Food Products Technology and Agricultural
Seed Technology, in addition to our Technology Licensing/Research and Development business which is
included in Corporate and Other for segment disclosure purposes (see Note 11 of Notes to
Consolidated Financial Statements).
-15-
Our Food Products Technology business is operated through a subsidiary, Apio, Inc., and
combines our proprietary food packaging technology with the capabilities of a large national food
supplier and value-added produce processor. Value-added processing incorporates Landecs
proprietary packaging technology with produce that is processed by washing, and in some cases
cutting and mixing, resulting in packaged produce to achieve increased shelf life and reduced
shrink (waste) and to eliminate the need for ice during the distribution cycle. This
combination was consummated in 1999 when the Company acquired Apio, Inc. and certain related
entities (collectively, Apio).
Our Agricultural Seed Technology business is operated through a subsidiary, Landec Ag, Inc.,
(Landec Ag) and combines our proprietary Intellicoat® seed coating technology with our unique
e-commerce, direct marketing and consultative selling capabilities which we obtained when we
acquired Fielders Choice Direct (FCD). FCD was sold to American Seeds, Inc. (ASI), a wholly
owned subsidiary of Monsanto Corporation, on December 1, 2006 (see Note 12 of Notes to Consolidated
Financial Statements).
In addition to our two core businesses, the Company also operates a Technology
Licensing/Research and Development business that licenses and/or supplies products outside of our
core businesses to industry leaders such as Air Products and Chemicals, Inc.
Landec was incorporated in California on October 31, 1986. We completed our initial public
offering in 1996 and our Common Stock is listed on the Nasdaq National Market under the symbol
LNDC. Our principal executive offices are located at 3603 Haven Avenue, Menlo Park, California
94025 and our telephone number is (650) 306-1650.
Description of Core Business
Landec has historically participated in two core business segments Food Products Technology
and Agricultural Seed Technology. In addition to these two core segments, we license technology
and conduct ongoing research and development through our Technology Licensing/Research and
Development Business.
Food Products Technology Business
The Company began marketing in early 1996 our proprietary Intelimer-based specialty packaging
for use in the fresh-cut produce market, one of the fastest growing segments in the produce
industry. Our proprietary packaging technology, when combined with produce that is processed by
washing, and in some cases cut and mixed, results in packaged produce with increased shelf life,
reduced shrink (waste) and without the need for ice during the distribution cycle, which we refer
to as our value-added products. In 1999, we acquired Apio, our largest customer at that time in
the Food Products Technology business and one of the nations leading marketers and packers of
produce and specialty packaged fresh-cut vegetables. Apio provides year-round access to produce,
utilizes state-of-the-art fresh-cut produce processing technology, distributes products to the top
U.S. retail grocery chains, major club stores and the foodservice industry. Our proprietary
Intelimer-based packaging business has been combined with Apio. This vertical integration within
the Food Products Technology business gives Landec direct access to the large and growing fresh-cut
produce market.
Based in Guadalupe, California, Apio, when acquired in 1999, consisted of two major businesses
first, the fee-for-service selling and marketing of whole produce and second, the specialty
packaged fresh-cut and whole value-added processed products that are washed and packaged in our
proprietary BreatheWay® packaging.
-16-
The fee-for-service business historically included field
harvesting and packing, cooling and marketing of vegetables and fruit on a contract basis for
growers in Californias Santa Maria, San Joaquin and Imperial Valleys as well as in Arizona and
Mexico. The Company exited this business and certain assets associated with the business were sold
in June 2003 to Beachside Produce LLC (formerly known as Apio Fresh) (Beachside). Beachside is
owned by a group of entities and persons that supply produce to Apio, including Nicholas Tompkins,
Apios President and Chief Executive Officer. Under the terms of the sale, Beachside purchased
certain equipment and carton inventory from Apio in exchange for approximately $410,000. In
connection with the sale, Beachside pays Apio an on-going royalty fee per carton sold for the use
of Apios brand names and Beachside and its growers
entered into a long-term supply agreement with Apio to supply produce to Apio for its fresh-cut
value-added products. The fresh-cut value-added processed products business markets a variety of
fresh-cut and whole vegetables to the top retail grocery chains and club stores. During the fiscal
year ended May 28, 2006, Apio shipped more than seventeen million cartons of produce to leading
supermarket retailers, wholesalers, foodservice suppliers and club stores throughout the United
States and internationally, primarily in Asia.
There are five major distinguishing characteristics of Apio that provide competitive
advantages in the Food Products Technology market:
|
|
|
Value-Added Supplier: Apio has structured its business as a marketer and seller of
fresh-cut and whole value-added produce. It is focused on selling products under its Eat
Smart® brand and other brands for its fresh-cut and whole value-added products. As retail
grocery and club store chains consolidate, Apio is well positioned as a single source of a
broad range of products. |
|
|
|
|
Reduced Farming Risks: Apio reduces its farming risk by not taking ownership of
farmland, and instead, contracts with growers for produce. The year-round sourcing of
produce is a key component to the fresh-cut and whole value-added processing business. |
|
|
|
|
Lower Cost Structure: Apio has strategically invested in the rapidly growing fresh-cut
and whole value-added business. Apios 96,000 square foot value-added processing plant,
which was recently expanded from 60,000 square feet, is automated with state-of-the-art
vegetable processing equipment. Virtually all of Apios value-added products utilize
Apios proprietary BreatheWay packaging technology. Apios strategy is to operate one
large central processing facility in one of Californias largest, lowest cost growing
regions (Santa Maria Valley) and use packaging technology to allow for the nationwide
delivery of fresh produce products. |
|
|
|
|
Export Capability: Apio is uniquely positioned to benefit from the growth in export
sales to Asia and Europe over the next decade with its export business, CalEx. Through
CalEx, Apio is currently one of the largest U.S. exporters of broccoli to Asia and is
selling its iceless products to Asia using proprietary BreatheWay packaging technology. |
|
|
|
|
Expanded Product Line Using Technology: Apio, through the use of its BreatheWay
packaging technology, is introducing on average fifteen new value-added products each year.
These new product offerings range from various sizes of fresh-cut bagged products, to
vegetable trays, to whole produce, to a meal line of products. During the last twelve
months, Apio has introduced 21 new products. |
Agricultural Seed Technology Business
Following the sale of FCD, Landec Ags strategy is to work closely with Monsanto to further
develop its patented, functional polymer coating technology that can be broadly sold and/or
licensed to the seed industry. In accordance with its license, supply and R&D agreement with
Monsanto, Landec Ag is currently focused on commercializing products for the corn and soybean
markets and then plans to broaden its applications to other seed crops.
Landec Ags Intellicoat seed coating applications are designed to control seed germination
timing, increase crop yields, reduce risks and extend crop-planting windows. These coatings are
currently available on hybrid corn, soybeans and male inbred corn used for seed production. In
fiscal year 2000, Landec Ag launched its first commercial product, Pollinator Plusâ coatings,
which is a coating application used by seed companies as a
-17-
method for spreading pollination to
increase yields and reduce risk in the production of hybrid seed corn. There are approximately
650,000 acres of seed production in the United States and in 2006 Pollinator Plus was used by 35
seed companies on approximately 15% of the seed production acres in the U.S.
In 2003, Landec Ag commercialized Early Plantâ corn by selling the product directly to
farmers through the Fielders Choice Directâ brand. This application allows farmers to plant
into cold soils without the risk of chilling injury, and enables farmers to plant as much as four
weeks earlier than normal. With this capability, farmers are able to utilize labor and equipment
more efficiently, provide flexibility during the critical planting period and avoid yield losses
caused by late planting. In 2006, nine seed companies offered Intellicoat on their hybrid seed
corn offerings.
The third commercial application is the RelayÔ Cropping system of wheat and Intellicoat
coated soybeans, which allows farmers to plant and harvest two crops in the same year on the same
ground in geographic areas where double cropping is not possible. This provides significant
financial benefit especially to farmers in the corn belt who grow wheat as a single crop.
Technology Licensing/Research and Development Businesses
We believe our technology has commercial potential in a wide range of industrial, consumer and
medical applications beyond those identified in our core businesses. For example, our core
patented technology, Intelimer materials, can be used to trigger the release of small molecule
drugs, catalysts, pesticides or fragrances just by changing the temperature of the Intelimer
materials or to activate adhesives through controlled temperature change. In order to exploit
these opportunities, we have entered into and will enter into licensing and collaborative corporate
agreements for product development and/or distribution in certain fields. However, given the
infrequency and unpredictability of when the Company may enter into any such licensing and research
and development arrangements, the Company is unable to disclose its financial expectations in
advance of entering into such arrangements.
Results of Operations
Revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Three months |
|
|
|
|
|
Six months |
|
Six months |
|
|
|
|
ended 11/26/06 |
|
ended 11/27/05 |
|
Change |
|
ended 11/26/06 |
|
ended 11/27/05 |
|
Change |
|
|
|
Apio Value Added |
|
$ |
35,812 |
|
|
$ |
30,479 |
|
|
|
17 |
% |
|
$ |
70,842 |
|
|
$ |
60,136 |
|
|
|
18 |
% |
Apio Tech |
|
|
41 |
|
|
|
83 |
|
|
|
(51 |
%) |
|
|
54 |
|
|
|
87 |
|
|
|
(38 |
%) |
|
|
|
Technology Subtotal |
|
|
35,853 |
|
|
|
30,562 |
|
|
|
17 |
% |
|
|
70,896 |
|
|
|
60,223 |
|
|
|
18 |
% |
Apio Trading |
|
|
18,616 |
|
|
|
22,841 |
|
|
|
(18 |
%) |
|
|
34,399 |
|
|
|
42,678 |
|
|
|
(19 |
%) |
|
|
|
Total Apio |
|
|
54,469 |
|
|
|
53,403 |
|
|
|
2 |
% |
|
|
105,295 |
|
|
|
102,901 |
|
|
|
2 |
% |
Landec Ag |
|
|
17 |
|
|
|
20 |
|
|
|
(15 |
%) |
|
|
131 |
|
|
|
20 |
|
|
|
555 |
% |
Corporate |
|
|
708 |
|
|
|
289 |
|
|
|
145 |
% |
|
|
916 |
|
|
|
496 |
|
|
|
85 |
% |
|
|
|
Total Revenues |
|
$ |
55,194 |
|
|
$ |
53,712 |
|
|
|
3 |
% |
|
$ |
106,342 |
|
|
$ |
103,417 |
|
|
|
3 |
% |
Apio Value Added
Apios value-added revenues consist of revenues generated from the sale of specialty packaged
fresh-cut and whole value-added processed vegetable products that are washed and packaged in our
proprietary packaging and sold under Apios Eat Smart brand and various private labels. In
addition, value-added revenues include the revenues generated from Apio Cooling, LP, a vegetable
cooling operation in which Apio is the general partner with a 60% ownership position.
The increase in Apios value-added revenues for the three and six months ended November 26,
2006 compared to the same periods last year is due to increased product offerings, increased sales
to existing customers, the addition of new customers and product mix changes to higher priced
products. Specifically, sales of Apios value-added 12-ounce specialty packaged retail product
line grew 16% and 19%, respectively, during the three and
six months ended November 26, 2006 compared to the same periods last year. In addition, sales
of Apios value-added vegetable tray products grew 24% and 23%, respectively, during the three and
six months ended November
-18-
26, 2006 compared to the same periods last year. Overall value-added
unit sales volume increased 15% during the second quarter of fiscal year 2006 compared to the same
period last year and 16% for the six months ended November 26, 2006 compared to the same period of
the prior year.
Apio Tech
Apio Tech consists of Apios packaging technology business using its BreatheWay membrane
technology. The first commercial application included in Apio Tech is our banana
packaging technology. Virtually all of the revenues currently generated from Apio Tech are
revenues derived from our banana packaging program with Chiquita.
The decrease in revenues at Apio Tech during the three and six months ended November 26, 2006
compared to the same periods last year was not material to consolidated Landec revenues.
Apio Trading
Apio trading revenues consist of revenues generated from the purchase and sale of primarily
whole commodity fruit and vegetable products to Asia through Apios export company, Cal-Ex and from
the purchase and sale of whole commodity fruit and vegetable products domestically. The export
portion of trading revenues for the three and six months ended November 26, 2006 were $18.0 million
and $31.8 million, or 96% and 92%, respectively, of total trading revenues.
The decrease in revenues in Apios trading business for the three and six months ended
November 26, 2006 compared to the same periods last year was primarily due to decreases of 78% and
56%, respectively, in domestic buy/sell commodity sales. In addition, export revenues decreased
10% and 13%, for the three and six months ended November 26, 2006, due to unit volume decreases of
18% and 21%, respectively. Export volume decreases were partially offset by a mix shift to higher
valued products.
Landec Ag
Landec Ag revenues have historically consisted of revenues generated from the sale of hybrid
seed corn to farmers under the Fielders Choice Direct brand and from the sale of hybrid seed corn
and soybeans under the Heartland Hybrids® brand (these brands and the related assets were sold to
ASI on December 1, 2006, see Note 12 of Notes to Consolidated Financial Statements) and from the
sale of Intellicoat coated corn and soybean seeds to farmers and seed companies. Virtually all of
Landec Ags revenues are generated during the Companys third and fourth quarters.
The change in revenues at Landec Ag during the three and six months ended November 26, 2006
compared to the same periods last year was not material to consolidated Landec revenues.
Corporate
Corporate revenues consist of revenues generated from partnering with others under research
and development agreements and supply agreements and from fees for licensing our proprietary
Intelimer technology to others and from the corresponding royalties from these license agreements.
The increase in Corporate revenues for the three and six months ended November 26, 2006
compared to the same periods of the prior year was not material to consolidated Landec revenues.
-19-
Gross Profit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Three months |
|
|
|
|
|
Six months |
|
Six months |
|
|
|
|
ended 11/26/06 |
|
ended 11/27/05 |
|
Change |
|
ended 11/26/06 |
|
ended 11/27/05 |
|
Change |
|
|
|
Apio Value Added |
|
$ |
6,420 |
|
|
$ |
5,488 |
|
|
|
17 |
% |
|
$ |
10,943 |
|
|
$ |
11,002 |
|
|
|
(1 |
%) |
Apio Tech |
|
|
16 |
|
|
|
60 |
|
|
|
(73 |
%) |
|
|
20 |
|
|
|
62 |
|
|
|
(68 |
%) |
|
|
|
Technology Subtotal |
|
|
6,436 |
|
|
|
5,548 |
|
|
|
16 |
% |
|
|
10,963 |
|
|
|
11,064 |
|
|
|
(1 |
%) |
Apio Trading |
|
|
1,205 |
|
|
|
1,321 |
|
|
|
(9 |
%) |
|
|
2,032 |
|
|
|
2,266 |
|
|
|
(10 |
%) |
|
|
|
Total Apio |
|
|
7,641 |
|
|
|
6,869 |
|
|
|
11 |
% |
|
|
12,995 |
|
|
|
13,330 |
|
|
|
(3 |
%) |
Landec Ag |
|
|
(73 |
) |
|
|
19 |
|
|
|
N/M |
|
|
|
(78 |
) |
|
|
19 |
|
|
|
N/M |
|
Corporate |
|
|
708 |
|
|
|
201 |
|
|
|
252 |
% |
|
|
916 |
|
|
|
330 |
|
|
|
178 |
% |
|
|
|
Total Gross Profit |
|
$ |
8,276 |
|
|
$ |
7,089 |
|
|
|
17 |
% |
|
$ |
13,833 |
|
|
$ |
13,679 |
|
|
|
1 |
% |
General
There are numerous factors that can influence gross profits including product mix, customer
mix, manufacturing costs, volume, sale discounts and charges for excess or obsolete inventory, to
name a few. Many of these factors influence or are interrelated with other factors. Therefore, it
is difficult to precisely quantify the impact of each item individually. The Company includes in
cost of sales all the costs related to the sale of products in accordance with U.S. accounting
principles generally accepted. These costs include the following: raw materials (including
produce, seeds and packaging), direct labor, overhead (including indirect labor, depreciation, and
facility related costs) and shipping and shipping related costs. The following discussion
surrounding gross profits includes managements best estimates of the reasons for the changes for
the three and six months ended November 26, 2006, compared to the same periods last year as
outlined in the table above.
Apio Value-Added
The increase in gross profits for Apios value-added specialty packaged vegetable business for
the three months ended November 26, 2006 compared to the same period last year was due to an
increase in value-added sales which increased 17% during the quarter. The decrease in gross profit
for Apios value-added specialty packaged vegetable business for the six months ended November 26,
2006 compared to the same period last year was primarily due to the increased costs for raw
materials in the first quarter of fiscal year 2007 compared to the first quarter of last year which
was attributable to weather related shortages of contracted product which required Apio to procure
supplemental product on the open market at costs significantly above contracted prices. The
increase in raw material costs was almost completely offset by an increase in revenues of 18%
during the first six months of fiscal year 2007 compared to the first six months of last year and
by changes in product mix to higher margin products coupled with improved operational efficiencies.
Apio Trading
Apios trading business is a buy/sell business that realizes a commission-based margin in the
4-6% range. The decrease in gross profits during the three and six months ended November 26, 2006
compared to the same periods last year was primarily due to decreased trading revenues of 18% and
19%, respectively. The decreases in gross profits due to lower revenues were partially offset by a
shift during the first half of fiscal year 2007 to higher margin export products from lower margin
domestic commodity products compared to the first half of last year.
Apio Tech and Landec Ag
The change in gross profits for Apio Tech and Landec Ag for the three and six months ended
November 26, 2006 compared to the same periods last year was not material to consolidated Landec
gross profits.
-20-
Corporate
The increase in gross profits for Corporate for the three and six months ended November 26,
2006 compared to the same periods last year was primarily due to $481,000 in revenues recognized
from the receipt of 800,000 shares of preferred stock in Aesthetic Sciences Corporation, an
unconsolidated subsidiary, in November 2006.
Operating Expenses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Three months ended |
|
|
|
|
|
Six months |
|
Six months |
|
|
|
|
ended 11/26/06 |
|
11/27/05 |
|
Change |
|
ended 11/26/06 |
|
ended 11/27/05 |
|
Change |
|
|
|
Research and
Development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
$ |
323 |
|
|
$ |
275 |
|
|
|
17 |
% |
|
$ |
563 |
|
|
$ |
541 |
|
|
|
4 |
% |
Landec Ag |
|
|
129 |
|
|
|
154 |
|
|
|
(16 |
%) |
|
|
265 |
|
|
|
307 |
|
|
|
(14 |
%) |
Corporate |
|
|
388 |
|
|
|
391 |
|
|
|
(1 |
%) |
|
|
796 |
|
|
|
731 |
|
|
|
9 |
% |
|
|
|
Total R&D |
|
$ |
840 |
|
|
$ |
820 |
|
|
|
2 |
% |
|
$ |
1,624 |
|
|
$ |
1,579 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General
and Administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apio |
|
$ |
3,343 |
|
|
$ |
3,497 |
|
|
|
(4 |
%) |
|
$ |
6,134 |
|
|
$ |
6,918 |
|
|
|
(11 |
%) |
Landec Ag |
|
|
2,769 |
|
|
|
2,587 |
|
|
|
7 |
% |
|
|
5,094 |
|
|
|
4,216 |
|
|
|
21 |
% |
Corporate |
|
|
1,177 |
|
|
|
1,070 |
|
|
|
10 |
% |
|
|
963 |
|
|
|
2,201 |
|
|
|
(56 |
%) |
|
|
|
Total S,G&A |
|
$ |
7,289 |
|
|
$ |
7,154 |
|
|
|
2 |
% |
|
$ |
12,191 |
|
|
$ |
13,335 |
|
|
|
(9 |
%) |
Research and Development
Landecs research and development expenses consist primarily of expenses involved in the
development and process scale-up initiatives. Research and development efforts at Apio are focused
on the Companys proprietary BreatheWay membranes used for packaging produce, with recent focus on
extending the shelf life of bananas and other shelf-life sensitive vegetables and fruit. At Landec
Ag, the research and development efforts are focused on the Companys proprietary Intellicoat
coatings for seeds, primarily corn seed. At Corporate, the research and development efforts are
focused on uses for the proprietary Intelimer polymers outside of food and agriculture.
The increase in research and development expenses for the three months and six months ended
November 26, 2006 compared to the same periods last year was not material.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of sales and marketing expenses
associated with Landecs product sales and services, business development expenses and staff and
administrative expenses.
The increase in selling, general and administrative expenses for the three months ended
November 26, 2006 compared to the same period last year was not material. The decrease in selling,
general and administrative expenses for the six months ended November 26, 2006 compared to the same
period last year was primarily due to new packaging design and marketing related costs that were
incurred at Apio during the first quarter of fiscal year 2006 and the recording of the net proceeds
of $1.5 million from the insurance settlement (see Note 8 of Notes to Consolidated Financial
Statements) to Corporate selling, general and administrative expenses during the first six months
of fiscal year 2007. These decreases were partially offset by $1.2 million of selling, general and
administrative costs incurred at Heartland Hybrids during the first six months this year compared
to $529,000 during the first six months last year because Heartland Hybrids was not acquired until
the beginning of Landecs second fiscal quarter in fiscal year 2006.
-21-
Other (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
Three months ended |
|
|
|
|
|
Six months |
|
Six months |
|
|
|
|
ended 11/26/06 |
|
11/27/05 |
|
Change |
|
ended 11/26/06 |
|
ended 11/27/05 |
|
Change |
|
|
|
Interest Income |
|
$ |
177 |
|
|
$ |
130 |
|
|
|
36 |
% |
|
$ |
413 |
|
|
$ |
250 |
|
|
|
65 |
% |
Interest Expense |
|
|
(121 |
) |
|
|
(177 |
) |
|
|
(32 |
%) |
|
|
(191 |
) |
|
|
(250 |
) |
|
|
(24 |
%) |
Minority Int. Exp. |
|
|
(97 |
) |
|
|
(101 |
) |
|
|
(4 |
%) |
|
|
(115 |
) |
|
|
(316 |
) |
|
|
(64 |
%) |
Other Income (Exp.) |
|
|
2 |
|
|
|
(4 |
) |
|
|
N/M |
|
|
|
(3 |
) |
|
|
(7 |
) |
|
|
(57 |
%) |
|
|
|
Total Other |
|
$ |
(39 |
) |
|
$ |
(152 |
) |
|
|
(74 |
%) |
|
$ |
104 |
|
|
$ |
(323 |
) |
|
|
(132 |
%) |
Interest Income
The increase in interest income for the three and six month periods ended November 26, 2006
compared to the same periods last year was due to the increase in cash available for investing and
higher interest rates on the cash invested.
Interest Expense
The decrease in interest expense during the three and six months ended November 26, 2006
compared to the same periods last year was due to the Companys reduction of debt.
Minority Interest Expense
The minority interest expense consists of the minority interest associated with the limited
partners equity interest in the net income of Apio Cooling, LP.
The decrease in the minority interest for the three months ended November 26, 2006 compared to
the same period of last year was not material. The decrease in the minority interest for the six
months ended November 26, 2006 was due to non-recurring gains for Apio Cooling during the first
quarter of fiscal year 2006.
Other Expense
Other consists of non-operating income and expenses.
Liquidity and Capital Resources
As of November 26, 2006, the Company, including FCD, had cash and cash equivalents of $11.9
million, a net decrease of $8.6 million from $20.5 million at May 28, 2006.
Cash Flow from Operating Activities
Landec used $6.8 million of cash flow in operating activities during the six months ended
November 26, 2006 compared to using $10.0 million from operating activities for the six months
ended November 27, 2005. The primary source of cash during the six months ended November 26, 2006
was an increase in deferred revenue of $2.2 million as a result of cash deposits for future seed
corn shipments. The primary uses of cash in operating activities were from the purchase of seed
corn inventory by Landec Ag of $7.4 million and an increase in inventory at Apio of $2.2 million
primarily related to increased seasonal raw material requirements for Apios value added business.
Cash Flow from Investing Activities
Net cash used in investing activities for the six months ended November 26, 2006 was $5.6
million compared to $3.0 million for the same period last year. The primary uses of cash for
investing activities during the first six months of fiscal year 2007 were from the purchase of $4.7
million of property, plant and equipment primarily for the further expansion and automation of
Apios value-added facility.
Cash Flow from Financing Activities
-22-
Net cash provided by financing activities for the six months ended November 26, 2006 was $3.8
million compared to $6.6 million for the same period last year. The cash provided by financing
activities during the first six months of fiscal year 2007 was primarily due to net borrowings
under Landec Ags line of credit of $4.9 million for the purchase of seed corn and $1.0 million of
cash received from employees exercising their stock options. The cash used in financing activities
during the first quarter of fiscal year 2007 was primarily used to pay off all of Apios long-term
bank debt totaling $2.0 million.
Capital Expenditures
During the six months ended November 26, 2006, Landec expanded Apios value added processing
facility and purchased vegetable processing equipment to support the further automation of Apios
value added processing facility. These expenditures represented the majority of the $4.7 million
of capital expenditures.
Debt
On November 1, 2005, Apio amended its revolving line of credit with Wells Fargo Bank N.A. that
was scheduled to expire on August 31, 2006. The line was reduced from $10.0 million to $7.0
million and outstanding amounts under the line of credit now bear interest at either the prime rate
less 0.25% or the LIBOR adjustable rate plus 1.75% (7.07% at November 26, 2006). The revolving
line of credit with Wells Fargo (collectively, the Loan Agreement) contains certain restrictive
covenants, which require Apio to meet certain financial tests, including minimum levels of net
income, maximum leverage ratio, minimum net worth and maximum capital expenditures. Landec has
pledged substantially all of the assets of Apio to secure the line of credit with Wells Fargo. At
November 26, 2006, no amounts were outstanding under the revolving line of credit. Apio has been
in compliance with all loan covenants in the Loan Agreement since the inception of this loan.
On August 29, 2006, Landec Ag amended and restated its revolving line of credit with Old
National Bank which increased the line from $7.5 million to $10 million. The interest rate on the
revolving line of credit was reduced from prime plus 0.375% to prime minus 0.50% (7.75% at November
26, 2006). The line of credit contained certain restrictive covenants, which, among other things,
restricted the ability of Landec Ag to make payments on debt owed by Landec Ag to Landec. Landec
Ag was in compliance with all of the loan covenants during the first six months of fiscal year
2007. Landec had pledged substantially all of the assets of Landec Ag to secure the line of
credit. At November 26, 2006, $4.9 million was outstanding under Landec Ags revolving line of
credit. In conjunction with the sale of FCD to ASI on December 1, 2006 (see Note 12 of Notes to
Consolidated Financial Statements) Landec Ags line of credit was paid in full and subsequently
terminated.
At November 26, 2006, Landecs total debt, including current maturities and capital lease
obligations, was $39,000 and the total debt to equity ratio was 0% as compared to 2% at May 28,
2006. This debt was comprised of capital lease obligations.
Landec is not a party to any agreements with, or commitments to, any special purpose entities
that would constitute material off-balance sheet financing other than the operating lease
commitments listed above.
Landecs future capital requirements will depend on numerous factors, including the progress
of its research and development programs; the development of commercial scale manufacturing
capabilities; the development of marketing, sales and distribution capabilities; the ability of
Landec to establish and maintain new collaborative and licensing arrangements; any decision to
pursue additional acquisition opportunities; weather conditions that can affect the supply and
price of produce, the timing and amount, if any, of payments received under licensing and research
and development agreements; the costs involved in preparing, filing, prosecuting, defending and
enforcing intellectual property rights; the ability to comply with regulatory requirements; the
emergence of competitive technology and market forces; the effectiveness of product
commercialization activities and arrangements; and other factors. If Landecs currently available
funds, together with the internally generated cash flow from operations are not sufficient to
satisfy its capital needs, Landec would be required to seek additional funding through other
arrangements with collaborative partners, additional bank borrowings and public or private sales of
its securities. There can be no assurance that additional funds, if required, will be available to
Landec on favorable terms if at all.
-23-
Landec believes that its debt facilities, cash from operations, along with existing cash, cash
equivalents and existing borrowing capacities will be sufficient to finance its operational and
capital requirements for the foreseeable future.
Additional Factors That May Affect Future Results
Landec desires to take advantage of the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995 and of Section 21E and Rule 3b-6 under the Securities Exchange Act of
1934. Specifically, Landec wishes to alert readers that the following important factors, as well
as other factors including, without limitation, those described elsewhere in this report, could in
the future affect, and in the past have affected, Landecs actual results and could cause Landecs
results for future periods to differ materially from those expressed in any forward-looking
statements made by or on behalf of Landec. Landec assumes no obligation to update such
forward-looking statements.
Our Future Operating Results Are Likely to Fluctuate Which May Cause Our Stock Price to Decline
In the past, our results of operations have fluctuated significantly from quarter to quarter
and are expected to continue to fluctuate in the future. Historically, Landec Ag has been the
primary source of these fluctuations, as its revenues and profits are concentrated over a few
months during the spring planting season (generally during our third and fourth fiscal quarters).
In addition, Apio can be heavily affected by seasonal and weather factors which have impacted
quarterly results, such as the high cost of sourcing product in March/April 2005 and June/July 2006
due to a shortage of essential value-added produce items. Our earnings may also fluctuate based on
our ability to collect accounts receivables from customers and note receivables from growers and on
price fluctuations in the fresh vegetables and fruits markets. Other factors that affect our food
and/or agricultural operations include:
|
|
|
the seasonality of our supplies; |
|
|
|
|
our ability to process produce during critical harvest periods; |
|
|
|
|
the timing and effects of ripening; |
|
|
|
|
the degree of perishability; |
|
|
|
|
the effectiveness of worldwide distribution systems; |
|
|
|
|
total worldwide industry volumes; |
|
|
|
|
the seasonality of consumer demand; |
|
|
|
|
foreign currency fluctuations; and |
|
|
|
|
foreign importation restrictions and foreign political risks. |
As a result of these and other factors, we expect to continue to experience fluctuations in
quarterly operating results.
We May Not Be Able to Achieve Acceptance of Our New Products in the Marketplace
Our success in generating significant sales of our products will depend in part on the ability
of us and our partners and licensees to achieve market acceptance of our new products and
technology. The extent to which, and rate at which, we achieve market acceptance and penetration
of our current and future products is a function of many variables including, but not limited to:
|
|
|
price; |
|
|
|
|
safety; |
|
|
|
|
efficacy; |
|
|
|
|
reliability; |
|
|
|
|
conversion costs; |
-24-
|
|
|
marketing and sales efforts; and |
|
|
|
|
general economic conditions affecting purchasing patterns. |
We may not be able to develop and introduce new products and technologies in a timely manner
or new products and technologies may not gain market acceptance. We are in the early stage of
product commercialization of certain Intelimer-based specialty packaging, Intellicoat seed coatings
and other Intelimer polymer products and many of our potential products are in development. We
believe that our future growth will depend in large part on our ability to develop and market new
products in our target markets and in new markets. In particular, we expect that our ability to
compete effectively with existing food products, agricultural, industrial and medical companies
will depend substantially on successfully developing, commercializing, achieving market acceptance
of and reducing the cost of producing our products. In addition, commercial applications of our
temperature switch polymer technology are relatively new and evolving. Our failure to develop new
products or the failure of our new products to achieve market acceptance would have a material
adverse effect on our business, results of operations and financial condition.
We Face Strong Competition in the Marketplace
Competitors may succeed in developing alternative technologies and products that are more
effective, easier to use or less expensive than those which have been or are being developed by us
or that would render our technology and products obsolete and non-competitive. We operate in
highly competitive and rapidly evolving fields, and new developments are expected to continue at a
rapid pace. Competition from large food products, agricultural, industrial and medical companies
is expected to be intense. In addition, the nature of our collaborative arrangements may result in
our corporate partners and licensees becoming our competitors. Many of these competitors have
substantially greater financial and technical resources and production and marketing capabilities
than we do, and may have substantially greater experience in conducting clinical and field trials,
obtaining regulatory approvals and manufacturing and marketing commercial products.
We Have a Concentration of Manufacturing in One Location for Apio and May Have to Depend on Third
Parties to Manufacture Our Products
Any disruptions in our primary manufacturing operation at Apios facility in Guadalupe,
California would reduce our ability to sell our products and would have a material adverse effect
on our financial results. Additionally, we may need to consider seeking collaborative arrangements
with other companies to manufacture our products. If we become dependent upon third parties for
the manufacture of our products, our profit margins and our ability to develop and deliver those
products on a timely basis may be affected. Failures by third parties may impair our ability to
deliver products on a timely basis and impair our competitive position. We may not be able to
continue to successfully operate our manufacturing operations at acceptable costs, with acceptable
yields, and retain adequately trained personnel.
Our Dependence on Single-Source Suppliers and Service Providers May Cause Disruption in Our
Operations Should Any Supplier Fail to Deliver Materials
We may experience difficulty acquiring materials or services for the manufacture of our
products or we may not be able to obtain substitute vendors. We may not be able to procure
comparable materials at similar prices and terms within a reasonable time. Several services that
are provided to Apio are obtained from a single provider. Several of the raw materials we use to
manufacture our products are currently purchased from a single source, including some monomers used
to synthesize Intelimer polymers and substrate materials for our breathable membrane products. Any
interruption of our relationship with single-source suppliers or service providers could delay
product shipments and materially harm our business.
-25-
We May Be Unable to Adequately Protect Our Intellectual Property Rights
We may receive notices from third parties, including some of our competitors, claiming
infringement by our products of patent and other proprietary rights. Regardless of their merit,
responding to any such claim could be time-consuming, result in costly litigation and require us to
enter royalty and licensing agreements which may not be offered or available on terms acceptable to
us. If a successful claim is made against us and we fail to develop or license a substitute
technology, we could be required to alter our products or processes and our business, results of
operations or financial position could be materially adversely affected. Our success depends in
large part on our ability to obtain patents, maintain trade secret protection and operate without
infringing on the proprietary rights of third parties. Any pending patent applications we file may
not be approved and we may not be able to develop additional proprietary products that are
patentable. Any patents issued to us may not provide us with competitive advantages or may be
challenged by third parties. Patents held by others may prevent the commercialization of products
incorporating our technology. Furthermore, others may independently develop similar products,
duplicate our products or design around our patents.
Our Operations Are Subject to Regulations that Directly Impact Our Business
Our food packaging products are subject to regulation under the Food, Drug and Cosmetic Act
(the FDC Act). Under the FDC Act, any substance that when used as intended may reasonably be
expected to become, directly or indirectly, a component or otherwise affect the characteristics of
any food may be regulated as a food additive unless the substance is generally recognized as safe.
We believe that food packaging materials are generally not considered food additives by the FDA
because these products are not expected to become components of food under their expected
conditions of use. We consider our breathable membrane product to be a food packaging material not
subject to regulation or approval by the FDA. We have not received any communication from the FDA
concerning our breathable membrane product. If the FDA were to determine that our breathable
membrane products are food additives, we may be required to submit a food additive petition for
approval by the FDA. The food additive petition process is lengthy, expensive and uncertain. A
determination by the FDA that a food additive petition is necessary would have a material adverse
effect on our business, operating results and financial condition.
Federal, state and local regulations impose various environmental controls on the use,
storage, discharge or disposal of toxic, volatile or otherwise hazardous chemicals and gases used
in some of the manufacturing processes. Our failure to control the use of, or to restrict
adequately the discharge of, hazardous substances under present or future regulations could subject
us to substantial liability or could cause our manufacturing operations to be suspended and changes
in environmental regulations may impose the need for additional capital equipment or other
requirements.
Our agricultural operations are subject to a variety of environmental laws including, the Food
Quality Protection Act of 1966, the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Comprehensive
Environmental Response, Compensation and Liability Act. Compliance with these laws and related
regulations is an ongoing process. Environmental concerns are, however, inherent in most
agricultural operations, including those we conduct. Moreover, it is possible that future
developments, such as increasingly strict environmental laws and enforcement policies could result
in increased compliance costs.
The Company is subject to the Perishable Agricultural Commodities Act (PACA) law. PACA
regulates fair trade standards in the fresh produce industry and governs all the products sold by
Apio. Our failure to comply with the PACA requirements could among other things, result in civil
penalties, suspension or revocation of a license to sell produce, and in the most egregious cases,
criminal prosecution, which could have a material adverse effect on our business.
Adverse Weather Conditions and Other Acts of God May Cause Substantial Decreases in Our Sales
and/or Increases in Our Costs
Our Food Products business is subject to weather conditions that affect commodity prices, crop
yields, and decisions by growers regarding crops to be planted. Crop diseases and severe
conditions, particularly weather conditions such as floods, droughts, frosts, windstorms,
earthquakes and hurricanes, may adversely affect the supply of vegetables and fruits used in our
business, which could reduce the sales volumes and/or increase the unit production
-26-
costs. Because a significant portion of the costs are fixed and contracted in advance of each
operating year, volume declines due to production interruptions or other factors could result in
increases in unit production costs which could result in substantial losses and weaken our
financial condition.
We Depend on Strategic Partners and Licenses for Future Development
Our strategy for development, clinical and field testing, manufacture, commercialization and
marketing for some of our current and future products includes entering into various collaborations
with corporate partners, licensees and others. We are dependent on our corporate partners to
develop, test, manufacture and/or market some of our products. Although we believe that our
partners in these collaborations have an economic motivation to succeed in performing their
contractual responsibilities, the amount and timing of resources to be devoted to these activities
are not within our control. Our partners may not perform their obligations as expected or we may
not derive any additional revenue from the arrangements. Our partners may not pay any additional
option or license fees to us or may not develop, market or pay any royalty fees related to products
under the agreements. Moreover, some of the collaborative agreements provide that they may be
terminated at the discretion of the corporate partner, and some of the collaborative agreements
provide for termination under other circumstances. Our partners may pursue existing or alternative
technologies in preference to our technology. Furthermore, we may not be able to negotiate
additional collaborative arrangements in the future on acceptable terms, if at all, and our
collaborative arrangements may not be successful.
Both Domestic and Foreign Government Regulations Can Have an Adverse Effect on Our Business
Operations
Our products and operations are subject to governmental regulation in the United States and
foreign countries. The manufacture of our products is subject to periodic inspection by regulatory
authorities. We may not be able to obtain necessary regulatory approvals on a timely basis or at
all. Delays in receipt of or failure to receive approvals or loss of previously received approvals
would have a material adverse effect on our business, financial condition and results of
operations. Although we have no reason to believe that we will not be able to comply with all
applicable regulations regarding the manufacture and sale of our products and polymer materials,
regulations are always subject to change and depend heavily on administrative interpretations and
the country in which the products are sold. Future changes in regulations or interpretations
relating to matters such as safe working conditions, laboratory and manufacturing practices,
environmental controls, and disposal of hazardous or potentially hazardous substances may adversely
affect our business.
We are subject to USDA rules and regulations concerning the safety of the food products
handled and sold by Apio, and the facilities in which they are packed and processed. Failure to
comply with the applicable regulatory requirements can, among other things, result in:
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fines, injunctions, civil penalties, and suspensions, |
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withdrawal of regulatory approvals, |
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product recalls and product seizures, including cessation of manufacturing and sales, |
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operating restrictions, and |
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criminal prosecution. |
We may be required to incur significant costs to comply with the laws and regulations in the
future which may have a material adverse effect on our business, operating results and financial
condition.
-27-
Our International Operations and Sales May Expose Our Business to Additional Risks
For the six months ended November 26, 2006, approximately 30% of our total revenues were
derived from product sales to international customers. A number of risks are inherent in
international transactions. International sales and operations may be limited or disrupted by any
of the following:
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regulatory approval process, |
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government controls, |
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export license requirements, |
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political instability, |
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price controls, |
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trade restrictions, |
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changes in tariffs, or |
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difficulties in staffing and managing international operations. |
Foreign regulatory agencies have or may establish product standards different from those in
the United States, and any inability to obtain foreign regulatory approvals on a timely basis could
have a material adverse effect on our international business, and our financial condition and
results of operations. While our foreign sales are currently priced in dollars, fluctuations in
currency exchange rates may reduce the demand for our products by increasing the price of our
products in the currency of the countries to which the products are sold. Regulatory, geopolitical
and other factors may adversely impact our operations in the future or require us to modify our
current business practices.
Cancellations or Delays of Orders by Our Customers May Adversely Affect Our Business
During the first six months of fiscal year 2007, sales to our top five customers accounted for
approximately 50% of our revenues, with our largest customers, Costco Wholesale Corp. accounting
for approximately 20% of our revenues. We expect that, for the foreseeable future, a limited
number of customers may continue to account for a substantial portion of our net revenues. We may
experience changes in the composition of our customer base as we have experienced in the past. We
do not have long-term purchase agreements with any of our customers. The reduction, delay or
cancellation of orders from one or more major customers for any reason or the loss of one or more
of our major customers could materially and adversely affect our business, operating results and
financial condition. In addition, since some of the products processed by Apio at its Guadalupe,
California facility are sole sourced to its customers, our operating results could be adversely
affected if one or more of our major customers were to develop other sources of supply. Our
current customers may not continue to place orders, orders by existing customers may be canceled or
may not continue at the levels of previous periods or we may not be able to obtain orders from new
customers.
Our Sale of Some Products May Increase Our Exposure to Product Liability Claims
The testing, manufacturing, marketing, and sale of the products we develop involve an inherent
risk of allegations of product liability. If any of our products were determined or alleged to be
contaminated or defective or to have caused a harmful accident to an end-customer, we could incur
substantial costs in responding to complaints or litigation regarding our products and our product
brand image could be materially damaged. Either event may have a material adverse effect on our
business, operating results and financial condition. Although we have taken and intend to continue
to take what we believe are appropriate precautions to minimize exposure to product liability
claims, we may not be able to avoid significant liability. We currently maintain product liability
insurance. While we believe the coverage and limits are consistent with industry standards, our
coverage may not be adequate or may not continue to be available at an acceptable cost, if at all.
A product liability claim, product recall or other claim with respect to uninsured liabilities or
in excess of insured liabilities could have a material adverse effect on our business, operating
results and financial condition.
Our Stock Price May Fluctuate in Accordance with Market Conditions
The following events may cause the market price of our common stock to fluctuate
significantly:
-28-
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technological innovations applicable to our products, |
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our attainment of (or failure to attain) milestones in the commercialization of our technology, |
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our development of new products or the development of new products by our competitors, |
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new patents or changes in existing patents applicable to our products, |
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our acquisition of new businesses or the sale or disposal of a part of our businesses, |
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development of new collaborative arrangements by us, our competitors or other parties, |
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changes in government regulations applicable to our business, |
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changes in investor perception of our business, |
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fluctuations in our operating results and |
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changes in the general market conditions in our industry. |
These broad fluctuations may adversely affect the market price of our common stock.
Since We Order Cartons and Film for Our Products from Suppliers in Advance of Receipt of Customer
Orders for Such Products, We Could Face a Material Inventory Risk
As part of our inventory planning, we enter into negotiated orders with vendors of cartons and
film used for packing our products in advance of receiving customer orders for such products.
Accordingly, we face the risk of ordering too many cartons and film since orders are generally
based on forecasts of customer orders rather than actual orders. If we cannot change or be
released from the orders, we may incur costs as a result of inadequately predicting cartons and
film orders in advance of customer orders. Because of this, we may have an oversupply of cartons
and film and face the risk of not being able to sell such inventory and our anticipated reserves
for losses may be inadequate if we have misjudged the demand for our products. Our business and
operating results could be adversely affected as a result of these increased costs.
Recently Enacted Changes in Securities Laws and Regulations Have and Will Continue to Increase Our
Costs
The Sarbanes-Oxley Act of 2002 (the Act) that became law in July 2002 required changes in
some of our corporate governance, public disclosure and compliance practices. In addition, Nasdaq
has made revisions to its requirements for companies, such as Landec, that are listed on The NASDAQ
Global Market. These developments have increased our legal and financial compliance costs. These
changes could make it more difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced coverage or incur substantially
higher costs to obtain coverage. These developments could make it more difficult for us to attract
and retain qualified members for our board of directors, particularly to serve on our audit
committee.
Our Controlling Shareholders Exert Significant Influence over Corporate Events that May Conflict
with the Interests of Other Shareholders
Our executive officers and directors and their affiliates own or control approximately 23% of
our common stock (including options exercisable within 60 days). Accordingly, these officers,
directors and shareholders may have the ability to exert significant influence over the election of
our Board of Directors, the approval of amendments to our articles and bylaws and the approval of
mergers or other business combination transactions requiring shareholder approval. This
concentration of ownership may have the effect of delaying or preventing a merger or other business
combination transaction, even if the transaction or amendments would be beneficial to our other
shareholders. In addition, our controlling shareholders may approve amendments to our articles or
bylaws to implement anti-takeover or management friendly provisions that may not be beneficial to
our other shareholders.
-29-
We May Be Exposed to Employment Related Claims and Costs that Could Materially Adversely Affect Our
Business
We have been subject in the past, and may be in the future, to claims by employees based on
allegations of discrimination, negligence, harassment and inadvertent employment of illegal aliens
or unlicensed personnel, and we may be subject to payment of workers compensation claims and other
similar claims. We could incur substantial costs and our management could spend a significant
amount of time responding to such complaints or litigation regarding employee claims, which may
have a material adverse effect on our business, operating results and financial condition.
We Are Dependent on Our Key Employees and if One or More of Them Were to Leave, We Could Experience
Difficulties in Replacing Them and Our Operating Results Could Suffer
The success of our business depends to a significant extent upon the continued service and
performance of a relatively small number of key senior management, technical, sales, and marketing
personnel. The loss of any of our key personnel would likely harm our business. In addition,
competition for senior level personnel with knowledge and experience in our different lines of
business is intense. If any of our key personnel were to leave, we would need to devote
substantial resources and management attention to replace them. As a result, management attention
may be diverted from managing our business, and we may need to pay higher compensation to replace
these employees.
We May Issue Preferred Stock with Preferential Rights that Could Affect Your Rights
Our Board of Directors has the authority, without further approval of our shareholders, to fix
the rights and preferences, and to issue shares, of preferred stock. In November 1999, we issued
and sold shares of Series A Convertible Preferred Stock and in October 2001 we issued and sold
shares of Series B Convertible Preferred Stock. The Series A Convertible Preferred Stock was
converted into 1,666,670 shares of Common Stock on November 19, 2002 and the Series B Convertible
Preferred Stock was converted into 1,744,102 shares of Common Stock on May 7, 2004.
The issuance of new shares of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding stock, and the holders of such
preferred stock could have voting, dividend, liquidation and other rights superior to those of
holders of our Common Stock.
We Have Never Paid any Dividends on Our Common Stock
We have not paid any cash dividends on our Common Stock since inception and do not expect to
do so in the foreseeable future. Any dividends may be subject to preferential dividends payable on
any preferred stock we may issue.
Our Profitability Could Be Materially And Adversely Affected if it Is Determined that the Book
Value of Goodwill is Higher than Fair Value
Our balance sheet includes an amount designated as goodwill that represents a portion of our
assets and our shareholders equity. Goodwill arises when an acquirer pays more for a business
than the fair value of the tangible and separately measurable intangible net assets. Under
Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets,
beginning in fiscal year 2002, the amortization of goodwill has been replaced with an impairment
test which requires that we compare the fair value of goodwill to its book value at least annually
and more frequently if circumstances indicate a possible impairment. If we determine at any time
in the future that the book value of goodwill is higher than fair value then the difference must be
written-off, which could materially and adversely affect our profitability.
-30-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following table presents information about the Companys debt obligations and derivative
financial instruments that are sensitive to changes in interest rates. The table presents
principal amounts and related weighted average interest rates by year of expected maturity for the
Companys debt obligations. The carrying value of the Companys debt obligations approximates the
fair value of the debt obligations as of November 26, 2006.
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Remainder |
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There- |
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of 2007 |
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2008 |
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2009 |
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2010 |
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2011 |
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after |
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Total |
Liabilities (in 000s) |
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Lines of Credit |
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$ |
4,941 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
4,941 |
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Avg. Int. Rate |
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7.75 |
% |
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7.75 |
% |
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Long term debt,
including current
portion |
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Fixed Rate |
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$ |
39 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
39 |
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Avg. Int. Rate |
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5.90 |
% |
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5.90 |
% |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management evaluated, with participation of our Chief Executive Officer and our Chief
Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief
Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and
procedures are effective in ensuring that information required to be disclosed in reports filed
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission, and to provide reasonable assurance that
information required to be disclosed by the Company in such reports is accumulated and communicated
to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the quarter
ended November 26, 2006 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
-31-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation arising in the normal course of business. The Company
is currently not a party to any legal proceedings which would result in the payment of any amounts
that would be material to the business or financial condition of the Company.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Companys Annual Meeting of Shareholders held on October 12, 2006 the following
proposals were adopted by the margins indicated:
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Number of Shares |
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Voted For |
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Withheld |
1. |
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Four Class I directors were elected by
the margins indicated to serve for a term
of office to expire at the second
succeeding annual meeting of shareholders
at which their successors will be elected
and qualified: |
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Frederick Frank |
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21,719,268 |
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285,203 |
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Stephen E. Halprin |
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21,668,489 |
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335,982 |
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Richard S. Schneider, Ph.D. |
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21,666,573 |
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337,898 |
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Kenneth E. Jones |
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21,718,583 |
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285,888 |
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The Class II directors were not up
for election at the Annual Meeting.
The four current Class II directors,
Gary T. Steele, Nicholas Tompkins,
Duke Bristow, Ph.D. and Robert Tobin
will serve as Class II directors
until the next Annual Meeting, when
their successors will be elected and
qualified. |
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Voted |
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Voted |
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For |
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Against |
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Abstain |
2. |
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To ratify the appointment of
Ernst & Young LLP as
independent public accountants
of the Company for the 2007
fiscal year. |
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21,901,057 |
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91,245 |
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12,169 |
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-32-
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit |
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Number |
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Exhibit Title: |
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31.1+
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CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2+
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CFO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1+
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CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2+
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CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
-33-
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.
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LANDEC CORPORATION
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By: |
/s/ |
Gregory S. Skinner
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Gregory S. Skinner |
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Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer) |
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Date: January 5, 2007
-34-
Exhibit Index
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Exhibit |
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Number |
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Exhibit Title: |
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31.1+
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CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2+
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CFO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1+
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CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2+
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CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
exv31w1
Exhibit 31.1
CERTIFICATION
I, Gary T. Steele, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Landec Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in
this quarterly report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this quarterly report based on such
evaluation, and
(d) disclosed in this quarterly report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial reporting;
and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: January 5, 2007
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Gary T. Steele |
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Chief Executive Officer |
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exv31w2
Exhibit 31.2
CERTIFICATION
I, Gregory S. Skinner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Landec Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in
this quarterly report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this quarterly report based on such
evaluation; and
(d) disclosed in this quarterly report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial reporting;
and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
Date: January 5, 2007
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Gregory S. Skinner |
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Chief Financial Officer |
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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Landec Corporation (the Company) on Form 10-Q for
the period ending November 26, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Gary T. Steele, Chief Executive Officer and President of the
Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
Date: January 5, 2007
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/s/ Gary T. Steele
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Gary T. Steele |
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Chief Executive Officer and President
(Principal Executive Officer) |
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* |
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The foregoing certification is being furnished solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63
of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as
a separate disclosure document. |
exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Landec Corporation (the Company) on Form 10-Q for
the period ending November 26, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Gregory S. Skinner, Vice President of Finance and Adminstration and
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
Date: January 5, 2007
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/s/ Gregory S. Skinner
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Gregory S. Skinner |
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Vice President and Chief Financial Officer
(Principal Accounting Officer) |
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* |
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The foregoing certification is being furnished solely pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63
of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as
a separate disclosure document. |