UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 20, 1997
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
0-27446 94-3025618
(Commission file number) (IRS Employer Identification No.)
3603 Haven Avenue, Menlo Park, California 94025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 306-1650
N/A
(Former name or former address, if changed from last report)
The undersigned Registrant hereby amends the following items from the
Current Report on Form 8-K filed with the Securities and Exchange Commission on
October 15, 1997. The Registrant is amending Item 7 to include certain required
financial statements and pro forma financial information and exhibits associated
therewith.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Item 7 is amended and restated in its entirety to read as follows:
(a) Financial Statements of Acquired Business
The following pages 3 through 6 contain (1) the unaudited
condensed balance sheets of Williams & Sun, Inc., an Indiana
corporation ("Williams & Sun") as of July 31, 1997 and October 31,
1996 and the notes thereto and (2) the unaudited statements of
operations and cash flows of Williams & Sun and the notes thereto
for the nine months ended July 31, 1997 and 1996. The audited
financial statements of Williams & Sun as of October 31, 1996 and
1995 and for the years then ended with the Report of Katz, Sapper
& Miller, LLP, Independent Auditors thereon have been included as
Exhibit 99.1 to this filing.
(b) Pro Forma Financial Information
The following pages 7 through 15 contain (1) the unaudited pro
forma condensed combined balance sheets of the Registrant and
Williams & Sun as of July 31, 1997 and the notes thereto and (2)
the unaudited pro forma combined statement of operations of the
Registrant and Williams & Sun for the nine months ended July 31,
1997 and for the year ended October 31, 1996 and the notes
thereto.
(c) Exhibits
2.1*+ Agreement and Plan of Reorganization by and among the
Registrant, Intellicoat Corporation, Williams & Sun, Inc.
and Michael L. Williams dated August 20, 1997.
2.2* Agreement of Merger by and between Intellicoat Corporation
and Williams & Sun, Inc. dated September 30, 1997.
2.3* Articles of Merger of Williams & Sun into Intellicoat
Corporation dated September 30, 1997.
23.1 Consent of Katz, Sapper & Miller, LLP, Independent Auditors.
99.1 Williams & Sun Financial Statements for October 31, 1996 and
1995 and the years then ended with Report of Katz, Sapper &
Miller, LLP, Independent Auditors.
- ------------------------------
* Previously filed.
+ The Registrant hereby agrees to file with the Securities and Exchange
Commission any schedules or exhibits to such agreement which are not
filed herewith, upon the request of the Securities and Exchange
Commission.
-2-
WILLIAMS & SUN, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands)
July 31, October 31,
1997 1996
------ ------
Assets
Current Assets:
Cash and cash equivalents $ 945 $1,435
Accounts receivable, net 27 9
Notes receivable -- 350
Income tax receivable -- 16
Receivables from related parties 229 8
Inventories 506 152
Prepaid expenses 156 756
------ ------
Total Current Assets 1,863 2,726
Property and equipment, net 921 680
Other assets 44 44
------ ------
$2,828 $3,450
====== ======
Liabilities and Stockholder's Equity
Current Liabilities:
Accounts payable $ 222 $ 287
Accrued compensation 16 55
Other accrued liabilities 777 136
Deferred revenue -- 1,911
Payables to related parties -- 332
Current portion of long term debt 24 93
------ ------
Total Current Liabilities 1,039 2,814
Long-term debt 91 95
Stockholder's Equity:
Common stock 11 11
Retained earnings 1,687 530
------ ------
Total Stockholder's Equity 1,698 541
------ ------
$2,828 $3,450
====== ======
See accompanying notes
-3-
WILLIAMS & SUN, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Nine Months Ended July 31,
1997 1996
-------- --------
Net product sales $ 10,647 $ 8,070
Operating costs and expenses:
Cost of product sales 5,861 4,369
Selling, general and administrative 2,924 2,343
-------- --------
Total operating costs and expenses 8,785 6,712
-------- --------
Income from operations 1,862 1,358
Interest and other income 103 121
Interest expense (37) (85)
-------- --------
Net income before income tax 1,928 1,394
Provision for income tax 771 558
-------- --------
Net income $ 1,157 $ 836
======== ========
See accompanying notes.
-4-
WILLIAMS & SUN, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended July 31,
1997 1996
------- -------
Cash flows from operating activities:
Net income $ 1,157 $ 836
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 92 97
Changes in operating assets and liabilities:
Accounts receivable (18) (3)
Other receivables 145 1,108
Inventories (354) 520
Prepaid expenses 600 1,100
Accounts payable (65) (124)
Accrued compensation (39) (2)
Other accrued liabilities 641 84
Payable to related parties (332) (84)
Deferred revenue (1,911) (1,493)
------- -------
Total adjustments (1,241) 1,203
------- -------
Net cash provided by (used in) operating activities (84) 2,039
------- -------
Cash flows from investing activities:
Capital expenditures (333) (102)
Decrease in other assets -- 136
------- -------
Net cash provided by (used in) investing activities (333) 34
------- -------
Cash flows from financing activities:
Long-term debt borrowings -- 58
Payments of long-term debt (73) (939)
------- -------
Net cash used in financing activities (73) (881)
------- -------
Net increase (decrease) in cash and cash equivalents (490) 1,192
Cash and cash equivalents at beginning of period 1,435 6
------- -------
Cash and cash equivalents at end of period $ 945 $ 1,198
======= =======
See accompanying notes.
-5-
WILLIAMS & SUN, INC.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the unaudited financial statements contain all
adjustments necessary to present fairly the financial position of Williams &
Sun, Inc. ("Williams & Sun") at July 31, 1997, and the results of operations and
cash flows for the nine months ended July 31, 1997 and 1996. Interim results for
the nine-month periods are not necessarily indicative of operating results to be
expected for the full year.
2. RECLASSIFICATIONS
Certain prior year balances have been reclassified in the balance sheet to
conform with current year presentation.
3. INVENTORIES
Inventories are stated at the lower of cost (determined by the first-in,
first-out method, "FIFO") or market. At July 31, 1997 and October 31, 1996, the
FIFO inventory value approximated current cost and consisted primarily of
carryover seed corn and related packaging supplies which represented finished
goods inventory.
4. SUBSEQUENT EVENTS
Pursuant to an Agreement and Plan of Reorganization by and among Landec
Corporation ("Landec"), Intellicoat Corporation, a Delaware corporation and
wholly-owned subsidiary of Landec ("Intellicoat"), Williams & Sun an Indiana
corporation ("Williams & Sun") and Michael L. Williams, dated August 20, 1997
(the "Reorganization Agreement") and a related Agreement of Merger and Articles
of Merger both dated September 30, 1997, Williams & Sun was merged with and into
Intellicoat ("the Merger"). As a result of the Merger, the separate existence of
Williams & Sun has ceased and Intellicoat continues as the surviving
corporation. Intellicoat continues to conduct direct marketing of specialty
hybrid seed corn products with the assets so acquired.
In connection with the Merger, the shareholders of Williams & Sun received
approximately $2.9 million in cash and approximately 1.4 million shares of
Landec common stock. The majority shareholder of Williams & Sun is also entitled
to receive additional cash consideration from Intellicoat depending on the
future performance of the business acquired. The timing and amount of the
consideration paid in connection with the Merger was the result of arms-length
negotiations between representatives of Landec, Intellicoat and Williams & Sun.
-6-
LANDEC CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements (collectively,
"the Pro Forma Financial Statements") were prepared to give effect to the merger
of Intellicoat Corporation ("Intellicoat"), a wholly owned subsidiary of Landec
Corporation ("Landec" or, the "Company") and Williams & Sun, Inc. ("Williams &
Sun").
On May 5, 1997, the Company filed Current Report on Form 8-K which was amended
on July 3, 1997, reporting that on April 18, 1997 the Company acquired all of
the outstanding capital stock of Dock Resins Corporation ("Dock Resins").
The pro forma information is based on the historical financial statements of the
Company, Dock Resins and Williams & Sun giving effect to the transactions under
the purchase method of accounting and the assumptions and adjustments in the
accompanying notes to the pro forma financial statements. The historical balance
sheet of the Company as of July 31, 1997 includes Dock Resins. The pro forma
condensed combined balance sheet as of July 31, 1997, gives effect to the
Williams & Sun acquisition as if it occurred on July 31, 1997. The pro forma
condensed combined statement of operations for the nine months ended July 31,
1997, and for the fiscal year ended October 31, 1996 give effect to both the
Dock Resins and Williams & Sun acquisitions as if they occurred on November 1,
1995. The Pro Forma Financial Statements do not purport to represent what
Landec's financial position or results of operations would have been if the
transactions in fact had occurred on the date or at the beginning of the periods
indicated or to project Landec's financial position or results of operations for
any future date or period.
The pro forma adjustments are based upon available information and upon certain
assumptions as described in Note 1 to the Pro Forma Financial Statements that
Landec believes are reasonable under the circumstances. The purchase price for
Williams & Sun and Dock Resins has been allocated to the acquired assets and
liabilities based on their respective fair market values as determined by
independent valuations and other studies. The Pro Forma Financial Statements and
accompanying notes should be read in conjunction with the respective historical
consolidated financial statements of Landec, Dock Resins, and Williams & Sun,
and the notes thereto. The historical consolidated financial statements of
Landec are included in its Quarterly Report on Form 10-Q for the period ended
July 31, 1997, as filed with the Securities and Exchange Commission on September
15, 1997 and in its Annual Report on Form 10-K for the fiscal year ended October
31, 1996, as filed with the Securities and Exchange Commission on January 29,
1997. The historical financial statements of Dock Resins are included in the
Company's Form 8-K/A, as filed with the Securities and Exchange Commission on
July 3, 1997. The historical financial statements of Williams & Sun are included
as Exhibit 99.1 to this Form 8-K/A.
-7-
LANDEC CORPORATION
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
July 31, 1997
(in thousands)
Landec Williams & Pro Forma Pro Forma
Corporation Sun Adjustments Combined
-------------- --------------- --------------- ------------
Assets
Current Assets:
Cash and cash equivalents $ 7,740 $ 945 $ (738)(a) $ 5,085
50(b)
(2,912)(c)
Short-term investments 11,280 -- -- 11,280
Restricted investment 8,837 -- -- 8,837
Accounts receivable, net 2,318 27 (13)(b) 2,332
Receivables from related parties -- 229 (229)(b) --
Inventory 2,125 506 -- 2,631
Prepaid expenses and other current assets 567 156 302(b) 1,025
-------- -------- -------- --------
Total Current Assets 32,867 1,863 (3,540) 31,190
Property and equipment, net 4,078 921 74(b) 5,073
Intangible assets 6,916 -- 8,246(a) 15,162
Other assets 202 44 (44)(b) 202
-------- -------- -------- --------
$ 44,063 $ 2,828 $ 4,736 $ 51,627
======== ======== ======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 1,079 $ 222 120(b) $ 1,421
Accrued compensation 441 16 114(b) 571
Other accrued liabilities 694 777 (630)(b) 841
Payable related to acquisition of Dock Resins 9,105 -- -- 9,105
Current portion of long term debt 292 24 (24)(b) 292
Deferred revenue 104 -- 1,770(a) 1,874
-------- -------- -------- --------
Total Current Liabilities 11,715 1,039 1,350 14,104
Non-current portion of long term debt 129 91 (91)(b) 129
Deferred compensation 135 -- -- 135
Stockholders' Equity:
Common stock - Landec 70,490 -- 5,175(c) 75,665
Notes receivable from shareholders - Landec (13) -- -- (13)
Deferred compensation - Landec (226) -- -- (226)
Accumulated deficit - Landec (38,167) -- -- (38,167)
Common stock - Williams & Sun -- 11 (11)(a) --
Retained earnings - Williams & Sun -- 1,687 (1,687)(a) --
-------- -------- -------- --------
Total Stockholders' Equity 32,084 1,698 3,477 37,259
-------- -------- -------- --------
$ 44,063 $ 2,828 $ 4,736 $ 51,627
======== ======== ======== ========
See accompanying notes.
-8-
LANDEC CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
July 31, 1997
1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined balance sheet information has been
prepared by combining the unaudited condensed consolidated balance sheet of
Landec with the unaudited condensed balance sheet of Williams & Sun at July 31,
1997, and gives effect to the pro forma adjustments as described in the notes
below.
(a) The acquisition of Williams & Sun, which was accounted for as a purchase,
has been recorded based upon available information and upon certain
assumptions that Landec believes are reasonable under the circumstances.
Estimated acquisition expenses of $738,000 includes expenses for finder's
fees, legal, accounting, consulting and miscellaneous costs. The purchase
price has been allocated to the acquired assets and liabilities based on
their relative fair market values, subject to final adjustments. These
allocations are based on independent valuations and other studies. The
final values may differ from those set forth below.
(In thousands)
------------
Estimated purchase price (Note c) $ 8,087
Estimated acquisition expenses 738
------------
Total estimated acquisition cost $ 8,825
============
Historical net book value of the assets at July 31, 1997 $ 1,698
Decrease in net book value of assets acquired (Note b) (1,119)
Covenant not to compete 200
Customer base 1,900
Work force in place 220
Tradename 4,200
Goodwill 1,726
------------
$ 8,825
============
(b) The decrease in the net book value of the assets from July 31, 1997 to the
close date of September 30, 1997 is a result of the difference in the net
book value of assets acquired due to operating activities from July 31,
1997 to September 30, 1997 and the elimination of certain assets and
liabilities that were not assumed by Landec in the acquisition.
(c) The acquisition by Landec of certain assets of Williams & Sun was
exchanged for the following:
(In thousands)
------------
Landec common stock (1,425,648 shares) $ 5,175
Cash paid at closing 2,912
------------
Purchase price $ 8,087
============
The majority shareholder of Williams & Sun is also entitled to receive
additional cash consideration from Intellicoat depending on the future
performance of the business acquired.
-9-
LANDEC CORPORATION
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Nine Months Ended July 31, 1997
(in thousands, except per share amounts)
Williams &
Dock Resins Sun
Landec Dock Resins Williams & Pro Forma Pro Forma Pro Forma
Corporation Corporation* Sun Adjustments Adjustments Combined
----------- ----------- --------- ----------- ----------- ----------
Revenues:
Product sales $ 5,076 $ 6,719 $ 10,647 $ -- $ -- $ 22,442
Research and development
revenues 671 -- -- 671
-------- -------- -------- -------- -------- --------
Total revenues 5,747 6,719 10,647 -- -- 23,113
Operating costs and expenses
Cost of product sales 3,731 4,766 5,861 19(a) -- 14,531
154(b)
Research and development 3,316 613 -- -- -- 3,929
Selling, general and 3,715 1,024 2,924 93(b) 428(g) 8,176
administrative (8)(c)
Purchase of in-process
research and development 3,022 -- -- (3,022)(d) -- --
-------- -------- -------- -------- -------- --------
Total operating costs and expenses 13,784 6,403 8,785 (2,764) 428 26,636
-------- -------- -------- -------- -------- --------
Operating income (loss) (8,037) 316 1,862 2,764 (428) (3,523)
Interest and other income 1,353 26 103 -- -- 1,482
Interest expense (197) (61) (37) 49(c) 41(h) (205)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes (6,881) 281 1,928 2,813 (387) (2,246)
Provision (benefit) for state
income tax -- (49) 771 54(e) (698)(i) 78
-------- -------- -------- -------- -------- --------
Net income (loss) $ (6,881) $ 330 $ 1,157 $ 2,759 $ 311 $ (2,324)
======== ======== ======== ======== ======== ========
Net loss per share $ (0.63) $ (0.18)
======== ========
Shares used in calculating per
share information 10,938 262(f) 1,426(j) 12,626
======== ======== ======== ========
* Represents the results of operations of Dock Resins for the period November 1,
1996 to April 18, 1997. On April 18, 1997, all of the outstanding capital stock
of Dock Resins was purchased by Landec, and, accordingly, the consolidated
statement of operations of Landec include the results of operations of Dock
Resins from April 19, 1997 through July 31, 1997.
-10-
LANDEC CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
July 31, 1997
The unaudited pro forma combined statement of operations information has been
prepared by combining the unaudited consolidated statement of operations of
Landec, the unaudited statement of operations of Dock Resins for the period from
November 1, 1996 to April 18, 1997 (the date upon which Dock Resins was
acquired), and the unaudited statement of operations of Williams & Sun for the
nine months ended July 31, 1997, and gives effect to the pro forma adjustments
as described in the notes below.
Dock Resins
- -----------
(a) Represents depreciation expense for the write-up of property, plant and
equipment arising from the Dock Resins acquisition.
(b) Represents amortization expense of intangible assets arising from the
Dock Resins acquisition.
(c) Represents the elimination of interest expense and loan guarantee fees
that arose from the debt of Dock Resins which was retained by the
previous owner upon the close of the acquisition.
(d) In accordance with general accepted accounting principles, Landec
allocated approximately $3.0 million of the purchase price to in-process
research and development. This amount was reflected in the historical
consolidated financial statements of the Company as of July 31, 1997.
However, due to its non-recurring nature, this charge is reflected in the
unaudited pro forma condensed combined balance sheet, but not in the
unaudited pro forma combined statement of operations.
(e) Income tax expense associated with Dock Resins on an historical basis
reflects "S" Corporation status. The pro forma adjustment eliminates this
status which provided a benefit resulting from the reversal of a
prior-year accrual and assumes "C" Corporation status for Dock Resins for
state income tax purposes only since the Company on a consolidated basis
generated a loss.
(f) The pro forma adjustment reflects the issuance of 396,096 shares of
Landec common stock on April 18, 1997 that were issued in connection with
the acquisition of Dock Resins. These shares were assumed to have been
issued on November 1, 1995 for purposes of pro forma statement of
operations, the weighting of which from November 1, 1996 through April
18, 1997 resulted in an additional 262,000 shares used in calculating the
per share information. For the period from April 19, 1997 to July 31,
1997, the shares issued in the acquisition were included in Landec's
historical share calculation.
Williams & Sun
- --------------
(g) Represents amortization expense of intangible assets arising from the
Williams & Sun acquisition reflected as follows (dollars in thousands):
Period of Nine Months
Amount Amortization Amortization
--------- ------------ ------------
Intangible assets:
Covenant not to compete $ 200 5 years $ 30
Customer base 1,900 10 years 142
Work force in place 220 5 years 33
Tradename 4,200 20 years 158
Goodwill 1,726 20 years 65
--------- --------
$ 8,246 $ 428
========= ========
(h) Represents the elimination of interest expense that arose from the debt
of Williams & Sun which was retained by the previous owner upon the close
of the acquisition.
(i) Represents the elimination of federal tax as a result of the pro forma
consolidated net loss of the Company.
-11-
LANDEC CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
July 31, 1997
(j) Represents the issuance of 1,425,648 shares of Landec common stock that
were exchanged as part of the acquisition of Williams & Sun. These shares
were assumed to have been issued on November 1, 1995 for purposes of the
pro forma statement of operations.
-12-
LANDEC CORPORATION
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Fiscal Year Ended October 31, 1996
(in thousands, except per share amounts)
Williams &
Dock Resins Sun
Landec Dock Resins Williams & Pro Forma Pro Forma Pro Forma
Corporation Corporation Sun Adjustments Adjustments Combined
----------- ----------- --------- ----------- ----------- ----------
Revenues:
Product sales $ 755 $ 13,498 $ 8,075 $ -- $ -- $ 22,328
License fees 600 -- -- -- -- 600
Research and development
revenues 1,096 -- -- -- -- 1,096
-------- -------- -------- -------- -------- --------
Total revenues 2,451 13,498 8,075 -- -- 24,024
Operating costs and expenses
Cost of product sales 1,004 8,540 4,361 249(d)) -- 14,542
336(b)
52(a)
Research and development 3,808 1,097 -- -- -- 4,905
Selling, general and 3,288 3,183 3,399 202(b) 570(h) 10,625
administrative (17)(e)
-------- -------- -------- -------- -------- --------
Total operating costs and expenses 8,100 12,820 7,760 822 570 30,072
-------- -------- -------- -------- -------- --------
Operating income (loss) (5,649) 678 315 (822) (570) (6,048)
Interest and other income 1,548 18 148 -- 1,714
Interest expense (99) (96) (81) (355)(f) 81(i) (465)
85 (e)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes (4,200) 600 382 (1,092) (489) (4,799)
Provision (benefit) for state
income tax -- (5) 140 5(g) (140)(j) --
-------- -------- -------- -------- -------- --------
Net income (loss) $ (4,200) $ 605 $ 242 $ (1,097) $ (349) $ (4,799)
======== ======== ======== ======== ======== ========
Net income (loss) per share $ (0.55) $ (0.50)
======== ========
Shares used in calculating per
share information 7,699 396(c) 1,426(k) 9,521
======== ======== ======== ========
See accompanying notes.
-13-
LANDEC CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
October 31, 1996
The unaudited pro forma combined statement of operations information has been
prepared by combining the historical consolidated statement of operations of
Landec for the fiscal year ended October 31, 1996, the historical statement of
operations of Dock Resins for the year ended December 31, 1996, and the
historical statement of operations of Williams & Sun for the fiscal year ended
October 31, 1996 and gives effect to the pro forma adjustments as described in
the notes below.
Dock Resins
- -----------
(a) Depreciation expense of $52,000 for the write-up of property, plant and
equipment arising from the Dock Resins acquisition was reflected as a pro
forma adjustment.
(b) Represents amortization expense of intangible assets arising from the
Dock Resins acquisition.
(c) The pro forma adjustment reflects the issuance of 396,039 shares of
Landec common stock that were issued in connection with the acquisition
of Dock Resins. These shares were assumed to have been issued on November
1, 1995 for purposes of the pro forma statement of operations.
(d) Cost of product sales includes the charge for the inventory recorded in
connection with the purchase price allocation and assumes that the
inventory was sold during the twelve months ended October 31, 1996 based
on historical inventory turnover.
(e) Interest expense and loan guarantee fees that arose from the debt of Dock
Resins have been eliminated as the debt was retained by the previous
owner upon the close of the acquisition.
(f) Interest expense associated with the secured promissory note exchanged in
the purchase price of Dock Resins.
(g) Income tax expense associated with Dock Resins on an historical basis
reflects "S" Corporation status. The pro forma adjustment eliminates this
status which provided a benefit resulting from the reversal of a
prior-year accrual and assumes "C" Corporation status for Dock Resins
which requires the elimination of the income tax expense as a result of
the pro forma combined net loss.
Williams & Sun
- --------------
(h) Represents amortization expense of intangible assets arising from the
Williams & Sun acquisition reflected as follows (dollars in thousands):
Period of Annual
Amount Amortization Amortization
------ ------------ ------------
Intangible assets:
Covenant not to compete $ 200 5 years $ 40
Customer base 1,900 10 years 190
Work force in place 220 5 years 44
Tradename 4,200 20 years 210
Goodwill 1,726 20 years 86
--------- ---------
$ 8,246 $ 570
========= =========
-14-
LANDEC CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
October 31, 1996
(i) Represents the elimination of interest expense that arose from the debt
of Williams & Sun which was retained by the previous owner upon the close
of the acquisition.
(j) Represents the elimination of income tax expense as a result of the pro
forma combined net loss.
(k) Represents the issuance of 1,425,648 shares of Landec common stock that
were exchanged as part of the acquisition of Williams & Sun. These shares
were assumed to have been issued on November 1, 1995 for purposes of the
pro forma statement of operations.
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LANDEC CORPORATION
Registrant
Date: December 15, 1997 By: /s/ Joy T. Fry
---------------------
Joy T. Fry
Vice President of Finance and
Administration and Chief Financial Officer
-16-
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated July 17, 1997, with respect to the
financial statements of Williams & Sun, Inc. included in the Current Report on
Form 8-K/A dated December 15, 1997 of Landec Corporation, filed with the
Securities and Exchange Commission.
KATZ, SAPPER & MILLER, LLP
Indianapolis, Indiana
December 12, 1997
-17-
Exhibit 99.1
WILLIAMS & SUN, INC.
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
October 31, 1996 and 1995
-18-
/h/ Katz, Sapper & Miller, LLP letterhead
Independent Auditors' Report
Board of Directors
Williams & Sun, Inc.
We have audited the accompanying balance sheets of Williams & Sun, Inc. as of
October 31, 1996 and 1995, and the related statements of operations and retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Williams & Sun, Inc. at October
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
As discussed in Note 6 to the financial statements, certain errors resulting in
the overstatement of previously reported receivables from related parties and of
prepaid advertising costs, were discovered in 1997. Accordingly, the financial
statements for the years ended October 31, 1996 and 1995 have been restated to
correct the errors.
KATZ, SAPPER & MILLER, LLP
Certified Public Accountants
Indianapolis, Indiana
July 17, 1997 (except for Note 5,
for which the date is September 30, 1997)
-19-
WILLIAMS & SUN, INC.
BALANCE SHEETS
October 31, 1996 and 1995
ASSETS 1996 1995
---------- ----------
CURRENT ASSETS-Note 3
Cash and equivalents $1,434,529 $ 6,355
Accounts receivable-trade, less allowance for doubtful
accounts of $5,700 in 1996 and $19,200 in 1995 9,455 19,474
Note receivable-supplier 350,000 9,765
Notes receivable from related parties-Note 4 -- 1,040,469
Income tax refund receivable 16,465 70,879
Receivables - related parties-Note 4 8,105 18,865
Inventories 151,832 562,166
Prepaid seed corn -- 441,413
Prepaid advertising expenses 756,013 735,469
---------- ----------
Total Current Assets 2,726,399 2,904,855
---------- ----------
PROPERTY AND EQUIPMENT-Note 3
Land and improvements 140,914 140,914
Buildings 190,801 190,801
Leasehold improvements 165,936 165,499
Machinery and equipment 628,494 513,284
---------- ----------
1,126,145 1,010,498
Less: Accumulated depreciation 445,729 308,905
---------- ----------
Total Property and Equipment 680,416 701,593
---------- ----------
OTHER ASSETS
Receivable from stockholder for split-dollar life insurance -- 94,477
Lease deposit 43,750 43,750
Deferred tax asset-Note 2 -- 123,663
---------- ----------
Total Other Assets 43,750 261,890
---------- ----------
TOTAL ASSETS $3,450,565 $3,868,338
========== ==========
See Accompanying Notes to Financial Statements.
-20-
WILLIAMS & SUN, INC.
BALANCE SHEETS (continued)
October 31, 1996 and 1995
LIABILITIES AND STOCKHOLDER'S EQUITY
1996 1995
---------- ----------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 478,158 $ 641,903
Seed corn deposits 1,910,464 1,492,726
Note payable to bank-Note 3 -- 805,000
Note payable to stockholder-Note 4 332,224 337,770
Current maturities of long-term debt-Note 3 93,373 103,408
---------- ----------
Total Current Liabilities 2,814,219 3,380,807
---------- ----------
LONG-TERM DEBT-Note 3
Capital lease obligations 115,773 206,480
Mortgage note payable 66,399 72,291
Term note payable-bank 6,165 12,896
---------- ----------
188,337 291,667
Less: Current maturities 93,373 103,408
---------- ----------
Total Long-term Debt 94,964 188,259
---------- ----------
Total Liabilities 2,909,183 3,569,066
---------- ----------
STOCKHOLDER'S EQUITY
Common stock, no par value; 1,000 shares authorized,
100 shares issued and outstanding 11,124 11,124
Retained earnings 530,258 288,148
---------- ----------
Total Stockholder's Equity 541,382 299,272
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,450,565 $3,868,338
========== ==========
See Accompanying Notes to Financial Statements.
-21-
WILLIAMS & SUN, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years Ended October 31, 1996 and 1995
1996 1995
----------- -----------
SALES $ 8,075,066 $ 5,465,486
COST OF SALES 4,360,845 2,972,919
----------- -----------
Gross Profit 3,714,221 2,492,567
----------- -----------
OPERATING EXPENSES
General and administrative 1,532,834 1,182,687
Marketing and sales 1,866,478 1,411,607
----------- -----------
Total Operating Expenses 3,399,312 2,594,294
----------- -----------
Income (Loss) from Operations 314,909 (101,727)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense-Note 4 (81,421) (85,698)
Interest income-Note 4 91,072 53,526
Rental income-Note 4 41,658 41,550
Other 15,292 (20,019)
----------- -----------
Total Other Income (Expense) 66,601 (10,641)
----------- -----------
Net Income (Loss) before Income Taxes 381,510 (112,368)
INCOME TAX PROVISION (BENEFIT)-Note 2 139,400 (47,300)
----------- -----------
NET INCOME (LOSS) 242,110 (65,068)
RETAINED EARNINGS
Beginning of Year 288,148 353,216
----------- -----------
End of Year $ 530,258 $ 288,148
=========== ===========
See Accompanying Notes to Financial Statements.
-22-
WILLIAMS & SON, INC.
STATEMENTS OF CASH FLOWS
Years Ended October 31, 1996 and 1995
1996 1995
----------- -----------
OPERATING ACTIVITIES
Net income (loss) $ 242,110 $ (65,068)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation of property and equipment 136,837 155,388
Deferred income tax (benefit) 123,663 (80,591)
Loss on retirement of assets -- 33,045
(Increase) decrease in certain current assets:
Accounts receivable-trade 10,019 (7,361)
Receivables-related parties 10,760 (15,363)
Income tax refund receivable 54,414 (70,879)
Inventories 410,334 (520,280)
Prepaid seed corn 441,413 (29,124)
Prepaid expenses (20,544) (433,901)
Increase (decrease) in certain current liabilities:
Accounts payable and accrued expenses (163,745) 571,083
Income taxes payable -- (112,780)
Seed corn deposits 417,738 619,833
----------- -----------
Net Cash Provided by Operating Activities 1,662,999 44,002
----------- -----------
INVESTING ACTIVITIES
(Increase) in notes receivable-supplier (340,235) (4,015)
Decrease (increase) in notes receivable from related parties 1,040,469 (883,282)
Decrease (increase) in receivable from stockholder for insurance 94,477 (27,457)
Purchases of property and equipment (119,896) (244,273)
Proceeds from sale of property and equipment 4,236 --
----------- -----------
Net Cash Provided (Used) by Investing Activities 679,051 (1,159,027)
----------- -----------
FINANCING ACTIVITIES
Proceeds of bank line of credit borrowings 50,000 2,280,000
Principal payments on bank line of credit (855,000) (1,475,000)
Principal payments on long-term debt (103,330) (96,564)
Proceeds of note payable to stockholder 191,722 193,583
Principal payments on note payable to stockholder (197,268) --
----------- -----------
Net Cash Provided (Used) by Financing Activities (913,876) 902,019
----------- -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1,428,174 (213,006)
CASH AND EQUIVALENTS
Beginning of Year 6,355 219,361
----------- -----------
End of Year $ 1,434,529 $ 6,355
=========== ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 89,454 $ 78,060
Cash paid for income taxes 25,131 216,950
See Accompanying Notes to Financial Statements.
-23-
WILLIAMS & SUN, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Williams & Sun, Inc. (the Company) engages in the retail sale of seed corn from
its base in Monticello, Indiana. The Company grants credit to its customers,
most of whom are farmers located throughout the United States.
Estimates: Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.
Cash and Equivalents: For purposes of the statement of cash flows, cash
equivalents may include bank time deposits, money market fund shares, and all
short-term investments with original terms of three months or less. The Company
maintains cash in bank deposit accounts which, at times, may exceed federally
insured limits.
Inventories are valued at the lower of cost (first-in, first-out method) or
market, and consist primarily of carryover seed corn and related packaging
supplies.
Property and Equipment are recorded at cost and are being depreciated over the
estimated useful lives of the assets using primarily accelerated methods except
for buildings, land improvements and leasehold improvements, for which the
straight-line method is used. Amortization of equipment acquired pursuant to
capital leases is included in depreciation expense. The estimated lives are as
follows:
Land improvements 15 years
Buildings 31.5 years
Leasehold improvements 39 years
Machinery and equipment 3-7 years
Prepaid Seed Corn represents payments made to the Company's major supplier
(which supplies 98% of the Company's inventory) to finance the supplier's
production of inventory. When the seed corn is purchased for resale by the
Company, the prepayment is reduced.
Prepaid Expenses include payments made for direct response advertising and
related costs. Such costs are amortized over the related estimated benefit
period, usually five months. All other advertising costs are expensed as
incurred. Total advertising expense was $1,132,604 and $774,651 for the years
ended October 31, 1996 and 1995, respectively.
Revenue Recognition: The Company recognizes revenue upon shipment of seed to
customers.
-24-
NOTE 2 - INCOME TAXES
The income tax provision (benefit) is comprised of the following for the years
ended October 31, 1996 and 1995:
1996 1995
---------- ----------
Currently payable:
Federal $ 7,354 $ 23,468
State 8,383 9,823
---------- ----------
15,737 33,291
---------- ----------
Deferred:
Federal 100,846 (63,268)
State 22,817 (17,323)
---------- ----------
123,663 (80,591)
---------- ----------
Income Tax Provision (Benefit) $ 139,400 $ (47,300)
========== ==========
The deferred tax asset of $123,663 at October 31, 1995, resulted from operating
losses. The Company has no other significant temporary differences in the
recognition of revenue and expenses between financial reporting and tax
reporting.
Following is a reconciliation of tax expense (benefit) computed at the federal
statutory rate to the income tax provision (benefit) reflected in the
accompanying statements of operations for the years ended October 31, 1996 and
1995:
1996 1995
----------- ------------
Tax expense (benefit) computed at 34% $ 129,713 $ (38,205)
State income taxes, net of federal income tax 20,592 (4,950)
Other (10,905) (4,145)
----------- ------------
Income Tax Provision (Benefit) $ 139,400 $ (47,300)
=========== ============
NOTE 3 - DEBT AND CREDIT ARRANGEMENTS
Long-term debt at October 31, 1996 and 1995 consisted of:
1996 1995
----------- ------------
Capital lease obligation payable in monthly installments of $4,018,
including interest imputed at a rate of 6.25%, to August 1998. Secured
by the related equipment recorded at a cost of $170,849. $ 83,457 $ 125,219
Capital lease obligation payable in monthly installments of $2,741,
including interest imputed at a rate of 10.16%, to September 1997.
Secured by the related equipment recorded at a cost of $85,304. 28,736 57,311
Capital lease obligation payable in monthly installments of $1,810,
including interest imputed at a rate of 9.60%, to January 1997.
Secured by the related equipment recorded at a cost of $56,775. 3,580 23,950
----------- ------------
115,773 206,480
-25-
NOTE 3 - DEBT AND CREDIT ARRANGEMENTS (CONTINUED)
1996 1995
----------- ------------
Mortgage note payable in monthly installments of $1,380, including
interest at prime plus 1%, until November 14, 2001. Secured. 66,399 72,291
Term note payable to a bank in monthly installments of $632, including
interest at 8.5%, until August 30, 1997. Secured by automobile. $ 6,165 $ 12,896
----------- ------------
188,337 291,667
Less: Current maturities 93,373 103,408
----------- ------------
Total Long-term Debt $ 94,964 $ 188,259
=========== ============
At October 31, 1996, the aggregate note principal maturities and the minimum
future capital lease payments required by the above long-term obligations were
as follows:
Payable In Note Capital
Year Ending Principal Lease
October 31, Maturities Payments
----------- ---------- --------
1997 $ 16,687 $ 81,989
1998 13,162 40,183
1999 14,690
2000 15,841
2001 12,184
----------
Total Capital Lease Payments 122,172
Less: Amount representing interest 6,399
----------
Net Capital Lease Obligations $ 115,773
==========
At October 31, 1995, the Company had borrowed $805,000 under a secured bank line
of credit. Interest was payable monthly and computed at the Bank's prime lending
rate plus 2% (see Note 5).
NOTE 4 - RELATED PARTY TRANSACTIONS
At October 31, 1995, the Company had notes receivable aggregating $1,040,469
from companies owned by the Company's stockholder. Interest earned on these
notes for the years ended October 31, 1996 and 1995 was $47,002 and $47,567,
respectively.
The Company has a demand note payable to its stockholder in the amount of
$332,224 and $337,770 at December 31, 1996 and 1995, respectively. Interest on
the note is payable monthly and is calculated at an annual rate of 15.5%.
Interest expense was $44,847 and $22,458 for the years ended October 31, 1996
and 1995, respectively.
The Company rents its facilities from its stockholder. The related rent expense
was $30,000 for each of the years ended October 31, 1996 and 1995. Total rental
expense was $45,601 and $45,128 for the years ended October 31, 1996 and 1995,
respectively.
-26-
The Company rents a portion of its facilities and common usage equipment to an
entity owned by the Company's stockholder. The related rental income for the
years ended October 31, 1996 and 1995 was $41,658 and $41,550, respectively. At
October 31, 1995, rent receivable from the stockholder was $11,000.
NOTE 5 - SUBSEQUENT EVENTS
On November 13, 1996, the Company obtained a $3,000,000 letter of credit for the
purchase of seed corn. Interest on letter of credit draws is computed at the
Bank's prime lending rate plus 2.5%. The letter of credit is secured by
substantially all of the Company's assets and is guaranteed by the Company's
stockholder. The letter of credit expired on February 28, 1997.
On November 14, 1996, the Company entered into new financing agreements with a
bank which provide for short-term line of credit borrowings of up to $700,000,
and a term note of $66,843. For both agreements, interest is computed at the
Bank's prime lending rate plus .5%. Both agreements are secured by substantially
all of the Company's assets and are guaranteed by the Company's stockholder.
Pursuant to an Agreement and Plan of Reorganization by and among Landec
Corporation ("Landec"), Intellicoat Corporation, a Delaware corporation and
wholly-owned subsidiary of Landec ("Intellicoat"), Williams & Sun, Inc. and
Michael L. Williams, the majority stockholder of Williams & Sun, Inc., dated
August 20, 1997 (the "Reorganization Agreement") and a related Agreement of
Merger and Articles of Merger both dated September 30, 1997, Williams & Sun,
Inc. was merged with and into Intellicoat ("the Merger"). As a result of the
merger, the separate existence of Williams & Sun has ceased and Intellicoat
continues as the surviving corporation. Intellicoat continues to conduct direct
marketing of sepcialty hybrid seed corn products with the assets so acquired.
In connection with the merger, the stockholders of Williams & Sun received
approximately $2.9 million in cash and approximately 1.4 million shares of
Landec common stock. The majority stockholder of Williams & Sun is also entitled
to receive additional cash consideration from Intellicoat depending on the
future performance of the business acquired. The timing and amount of the
consideration paid in connection with the merger was the result of arms-length
negotiations between representatives of Landec, Intellicoat and Williams & Sun.
NOTE 6 - RESTATEMENT OF FINANCIAL STATEMENTS
The financial statements for the years ended October 31, 1996 and 1995 have been
restated to reflect the correction of errors in the amounts of certain
receivables from related parties and prepaid advertising costs. As a result,
retained earnings at October 31, 1995 and 1994, have been decreased $170,429 and
$28,154, respectively, from amounts previously reported. Net income for the year
ended October 31, 1995 was decreased $142,275 from the amount previously
reported. In addition, net income for the year ended October 31, 1996 was
increased $170,429 from the amount previously reported.
- ------------
(a)
-27-
