-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HJGYZhmozpQKprY/U4ctArL8yEg2S82zb8iPV7l8rKWeKMVbKjTixYHDiUXoSBpM UsH47e++uCzNWknhT61nTw== 0000950005-97-001004.txt : 19971216 0000950005-97-001004.hdr.sgml : 19971216 ACCESSION NUMBER: 0000950005-97-001004 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 ITEM INFORMATION: FILED AS OF DATE: 19971215 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDEC CORP \CA\ CENTRAL INDEX KEY: 0001005286 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 943025618 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-27446 FILM NUMBER: 97738641 BUSINESS ADDRESS: STREET 1: 3603 HAVEN AVE CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 4152613697 MAIL ADDRESS: STREET 1: 3603 HAVEN AVE CITY: MINLO PARK STATE: CA ZIP: 94025 8-K/A 1 FORM 8-K/A 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- EX-23.1 2 CONSENT OF INDEPENDENT AUDITORS 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- EX-99.1 3 FINANCIAL STATEMENTS AND REPORT 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- -----END PRIVACY-ENHANCED MESSAGE-----