-----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, QhqbcFALhtwYnt2I+gM6FEw0eeVW94/GgmFxYXkZOy5DjszbmKyJhs8W8Fnae0Ek qQHZE4pEWsN9tjlclqXh6w== 0000897101-96-000274.txt : 19960517 0000897101-96-000274.hdr.sgml : 19960517 ACCESSION NUMBER: 0000897101-96-000274 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LECTEC CORP /MN/ CENTRAL INDEX KEY: 0000805928 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 431301878 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16159 FILM NUMBER: 96566576 BUSINESS ADDRESS: STREET 1: 10701 RED CIRCLE DR CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 612-933-2291 MAIL ADDRESS: STREET 2: 10701 RED CIRCLE DRIVE CITY: MINNETONKA STATE: MN ZIP: 55343 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ to_____________ Commission file number: 0-16159 LECTEC CORPORATION (Exact name of Registrant as specified in its charter) Minnesota 41-1301878 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10701 Red Circle Drive, Minnetonka, Minnesota 55343 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (612) 933-2291 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $0.01 per share. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of the registrant's common stock as of May 1, 1996 was 3,807,733 shares. LECTEC CORPORATION Table of Contents Part I Financial Information Item 1. Financial Statements I-1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations I-7 Part II Other Information Item 1. Legal Proceedings II-1 Item 2. Changes in Securities II-1 Item 3. Defaults Upon Senior Securities II-1 Item 4. Submission of Matters to a Vote of Security Holders II-1 Item 5. Other Information II-1 Item 6. Exhibits and Reports on Form 8-K II-1 Signature Page II-2 LECTEC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, June 30, 1996 1995 ----------- ----------- (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 229,852 $ 839,942 Receivables Trade, less allowance for doubtful accounts of $17,771 (unaudited) and $18,000 at March 31, 1996 and June 30, 1995, respectively 2,485,830 2,027,985 Refundable income taxes 125,357 119,540 Other 289,566 268,247 ----------- ----------- 2,900,753 2,415,772 Inventories Raw materials 1,142,953 1,162,559 Work-in-process 280,996 218,351 Finished goods 658,432 716,344 ----------- ----------- Total inventories 2,082,381 2,097,254 Prepaid expenses and other 134,359 229,796 Deferred tax asset 254,000 254,000 ----------- ----------- Total current assets 5,601,345 5,836,764 Property, Plant and Equipment - at Cost Building and improvements 1,625,321 1,673,069 Equipment 6,206,245 5,447,479 Furniture and fixtures 353,993 422,265 ----------- ----------- 8,185,559 7,542,813 Less accumulated depreciation 3,311,637 2,813,760 ----------- ----------- 4,873,922 4,729,053 Construction in progress 75,053 583,023 Land 247,731 247,731 ----------- ----------- 5,196,706 5,559,807 Other Assets Patents and trademarks, less accumulated amortization of $652,794 (unaudited) and $554,286 at March 31, 1996 and June 30, 1995, respectively 385,965 386,470 Goodwill, less accumulated amortization of $393,336 (unaudited) and $245,835 at March 31, 1996 and June 30, 1995, respectively 196,664 344,165 Long-term investments 1,193,750 568,156 Other 13,592 23,784 ----------- ----------- 1,789,971 1,322,575 ----------- ----------- $12,588,022 $12,719,146 =========== ===========
See accompanying notes to the consolidated financial statements LECTEC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, June 30, 1996 1995 ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) Current Liabilities Notes payable $ 83,595 $ 0 Accounts payable 1,075,737 771,471 Accrued expenses Payroll related 260,054 375,282 Distributor bonuses 20,593 71,384 Product returns 0 77,831 Other 288,196 50,000 ------------ ------------ Total current liabilities 1,728,175 1,345,968 Deferred Income Taxes 167,000 167,000 Shareholders' Equity Common stock, $.01 par value: 15,000,000 shares authorized; issued and outstanding: 3,803,900 shares (unaudited) at March 31, 1996 and 3,786,500 shares at June 30, 1995 38,039 37,865 Additional paid-in capital 10,116,444 10,013,949 Unrealized losses on securities available-for-sale (50,162) (50,816) Retained earnings 588,526 1,205,180 ------------ ------------ 10,692,847 11,206,178 ------------ ------------ $12,588,022 $12,719,146 =========== ===========
See accompanying notes to the consolidated financial statements LECTEC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended March 31, March 31, --------------------------- ---------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues Product sales $ 3,812,332 $ 4,232,402 $ 10,529,893 $ 10,822,734 ------------ ------------ ------------ ------------ Total revenues 3,812,332 4,232,402 10,529,893 10,822,734 Cost of goods sold 2,339,427 2,497,670 6,420,131 6,435,146 ------------ ------------ ------------ ------------ Gross profit 1,472,905 1,734,732 4,109,762 4,387,588 Operating expenses Selling, general and administrative 803,230 1,034,310 3,212,770 2,708,480 Research and development 531,675 449,235 1,546,226 1,337,607 ------------ ------------ ------------ ------------ 1,334,905 1,483,545 4,758,996 4,046,087 ------------ ------------ ------------ ------------ Operating profit (loss) 138,000 251,187 (649,234) 341,501 Other income (expense) Interest income 1,566 6,149 17,171 33,649 Dividend income 8,830 8,930 28,898 29,355 Interest expense (3,916) 5,659 (10,331) 0 Other 0 (5,166) 0 2,693 ------------ ------------ ------------ ------------ 6,480 15,572 35,738 65,697 ------------ ------------ ------------ ------------ Earnings (loss) before income tax expense 144,480 266,759 (613,496) 407,198 Income tax expense 1,981 82,216 3,158 104,388 ------------ ------------ ------------ ------------ Net earnings (loss) $ 142,499 $ 184,543 ($ 616,654) $ 302,810 ============ ============ ============ ============ Net earnings (loss) per common and common equivalent share Primary $ 0.04 $ 0.05 ($ 0.16) $ 0.08 Fully diluted $ 0.04 $ 0.05 ($ 0.16) $ 0.08 Weighted average number of common and common equivalent shares outstanding during the period Primary 3,872,428 3,808,253 3,870,896 3,806,196 Fully diluted 3,872,553 3,859,488 3,872,818 3,823,325
See accompanying notes to the consolidated financial statements LECTEC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months Nine months Ended Ended March 31, March 31, 1996 1995 ----------- ----------- (Unaudited) (Unaudited) Cash flows from operating activities: Net (loss) earnings ($ 616,654) $ 302,810 Adjustments to reconcile net (loss) earnings to net cash used in operating activities: Depreciation and amortization 818,061 616,840 Loss on disposal of assets 300,000 0 Changes in operating assets and liabilities: Trade and other receivables (517,771) (618,139) Inventories (367,629) (522,609) Prepaid expenses and other (24,079) (125,920) Accounts payable 304,266 96,538 Accrued expenses (305,654) 100,539 ----------- ----------- Net cash used in operating activities (409,460) (149,941) Cash flows from investing activities: Purchase of property, plant and equipment (288,891) (1,196,780) Investment in patents and trademarks (98,003) (105,877) Purchase of marketable securities and other investments 0 (234,317) Sale of marketable securities and other investments 0 1,613,354 ----------- ----------- Net cash (used in) provided by investing activities (386,894) 76,380 Cash flows from financing activities: Issuance of common stock 102,669 36,569 Proceeds from notes payable 83,595 0 ----------- ----------- Net cash provided by financing activities 186,264 36,569 ----------- ----------- Net decrease in cash and cash equivalents (610,090) (36,992) Cash and cash equivalents at beginning of period 839,942 785,770 ----------- ----------- Cash and cash equivalents at end of period $ 229,852 $ 748,778 =========== ===========
See accompanying notes to the consolidated financial statements LECTEC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Disclosures in Financial Statements Nine months Nine months Ended Ended March 31, March 31, 1996 1995 ---------- ----------- (Unaudited) (Unaudited) Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest expense $ 4,987 $ 0 Income taxes 27,632 94,462 Supplemental Schedule Of Noncash Activities: During fiscal 1996 the Company recorded the sale of certain assets. The effect of the transaction during the nine months ended March 31, 1996 was as follows: Reduction of accounts receivable $ 32,791 Reduction of inventories 382,502 Reduction of prepaid expenses and other 135,708 Reduction of property and equipment 154,115 Reduction of accumulated depreciation (74,176) --------- $ 630,940 ========= See accompanying notes to the consolidated financial statements LECTEC CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements March 31, 1996 (1) General The accompanying consolidated financial statements include the accounts of LecTec Corporation (the "Company"), LecTec International Corporation, a wholly-owned subsidiary, and Pharmadyne Corporation, a fifty-one percent owned subsidiary(formerly Natus Corporation which was renamed Pharmadyne Corporation). All significant intercompany balances and transactions have been eliminated in consolidation. The interim financial statements are unaudited and in the opinion of management, reflect all adjustments (which consist only of adjustments of a normal recurring nature) necessary for a fair presentation of results for the periods presented. Results for interim periods are not necessarily indicative of results for the year. (2) Sale of the Direct Marketing Related Assets of the Pharmadyne Subsidiary During the quarter ended March 31, 1996 the Company completed the sale of the direct marketing related assets of the Pharmadyne Corporation subsidiary. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Product sales for the third quarter of fiscal 1996 were $3,812,332 as compared with $4,232,402 for the third quarter of fiscal 1995. Product sales, for the third quarter, decreased overall by 9.9% from the prior year. The net decrease was the result of decreased medical tape product sales and decreased therapeutic product sales partially offset by increased conductive product sales. Conductive product sales, the Company's largest product group, increased by 15.2% from the prior year while medical tape product sales decreased by 14.5% and therapeutic product sales decreased by 44.6%. Conductive product sales increased for both diagnostic and hydrogel products as a result of volume increases and increased market share. The medical tape product sales decrease was primarily due to the absence of a major tape converter order in the current year as compared to the prior year. The therapeutic product sales decrease was primarily the result of decreased direct marketing sales of Natus brand named products, reductions in pain patch media sales and decreased sales of other therapeutic products. Product sales for the first nine months of fiscal 1996 were $10,529,893 as compared with $10,822,734 for the first nine months of fiscal 1995. Product sales, for the first nine months, decreased by 2.7% from the prior year as a result of decreased medical tape product sales and therapeutic product sales partially offset by increased conductive product sales. Conductive product sales increased by 8.6% from the prior year primarily as a result of volume increases and increased market share. Medical tape product sales decreased by 11.8% primarily due to the absence of a major tape converter order in the current year as compared to the prior year which more than offset increased sales due to a new product offering and sales to a major new retail customer. Therapeutic product sales decreased 16.6% from the prior year due to decreased direct marketing sales of Natus brand named products as a result of the sale of the direct marketing related assets of the Pharmadyne subsidiary, decreased pain patch media sales volumes and decreased sales of other therapeutic products. Gross profit for the third quarter of fiscal 1996 was $1,472,905 as compared with $1,734,732 compared to the third quarter of fiscal 1995. Gross profit as a percent of total revenues for the third quarter of fiscal 1996 was 38.6% as compared to 41.0% for the third quarter of fiscal 1995. The decrease in gross profit percent for the third quarter was primarily a reflection of decreased sales of higher margin therapeutic products. Gross profit for the first nine months of fiscal 1996 was $4,109,762 as compared with $4,387,588 compared to the first nine months of fiscal 1995. Gross profit as a percent of total revenues for the first nine months of fiscal 1996 was 39.0% as compared to 40.5% for the first nine months of fiscal 1995. The decrease in gross profit percent for the first nine months was primarily due to decreased sales of higher margin therapeutic products as well as increased raw material costs for all products. Selling, general and administrative expenses were $803,230 and $1,034,310 during the third quarters of fiscal 1996 and fiscal 1995, respectively. Selling, general and administrative expenses for the third quarters of fiscal 1996 and 1995, as a percentage of total revenues, were 21.1% and 24.4%, respectively. Selling, general and administrative expenses were $3,212,770 and $2,708,480 during the first nine months of fiscal 1996 and fiscal 1995, respectively. Selling, general and administrative expenses for the first nine months of fiscal 1996 and 1995, as a percentage of total revenues, were 30.5% and 25.0%, respectively. Selling, general and administrative expenses in the third quarter were reduced primarily due to completion of the sale of the direct marketing related assets of the Pharmadyne subsidiary. Increased selling, general and administrative expenses associated with the operations of the Pharmadyne subsidiary and the expenses associated with the sale of the direct marketing related assets of the Pharmadyne subsidiary were primarily responsible for the increase in the first nine months. Research and development expenses for the third quarters of fiscal 1996 and 1995 were $531,675 and $449,235, respectively. Research and development expenses for the third quarter, as a percentage of total revenues, were 14.0% and 10.6% for fiscal 1996 and 1995, respectively. Research and development expenses for the first nine months of fiscal 1996 increased to $1,546,226 from $1,337,607 in fiscal 1995. Research and development expenses for the first nine months, as a percentage of total revenues, were 14.7% and 12.4% for fiscal 1996 and 1995, respectively. The increase in expense for both the third quarter and the first nine months is primarily attributable to the research and development costs associated with the non-nicotine smoking cessation product and the pain patch program. Other income (expense) decreased in the third quarter of fiscal 1996 to $6,480 from $15,572 in the third quarter of fiscal 1995. Other income (expense) decreased in the first nine months of fiscal 1996 to $35,738 from $65,697 in the first nine months of fiscal 1995. The decline in both the third quarter and the first nine months resulted primarily from a reduction of interest and dividend income due to the liquidation of short-term investments to finance the acquisition of a new therapeutic products production line as well as to finance the losses associated with the Pharmadyne subsidiary. The Company had earnings before income tax expense of $144,480 in the third quarter of fiscal 1996 compared to earnings before income tax expense of $266,759 in the third quarter of fiscal 1995. The Company had a loss before income tax expense of $613,496 in the first nine months of fiscal 1996 compared to earnings before income tax expense of $407,198 in the first nine months of fiscal 1995. The decrease in earnings before income taxes for the third quarter and the first nine months was primarily the result of the loss on the sale of the direct marketing related assets of the Pharmadyne subsidiary, the operating loss and parent Company expenses associated with the direct marketing activities of the Pharmadyne subsidiary and increased research and development expense. The Company did not record a tax benefit in connection with losses generated during the first nine months as the losses relate primarily to the Pharmadyne subsidiary and cannot be utilized by the Company at this time. LIQUIDITY AND CAPITAL RESOURCES The Company has used internally generated cash to support growth and capital spending. The Company has a $1,000,000 line of credit available to meet current operating requirements. The Company estimates that capital expenditures will approach $400,000 for equipment and capital improvements during fiscal 1996 with expenditures anticipated to be financed by operations. The Company continues to have a strong Balance Sheet with no long-term debt and a current ratio at the end of the third quarter of fiscal 1996 of 3.24 as compared to 4.34 at the end of fiscal 1995. Working capital, at the end of the third quarter of fiscal 1996, decreased to $3,873,170 from $4,490,796 at the end of fiscal 1995. PART II OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities There have been no changes in the rights of security holders. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information The registrant is not aware of any other information of material importance to be included in this report. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LECTEC CORPORATION Date May 15, 1996 /s/ Erwin W. Templin II ---------------- ------------------------------------- Erwin W. Templin II, EVP & CFO EX-27 2
5 9-MOS JUN-30-1996 MAR-31-1996 229,852 0 2,918,524 17,771 2,082,381 5,601,345 8,508,343 3,311,637 12,588,022 1,728,175 0 0 0 38,039 10,654,808 12,588,022 10,529,893 10,529,893 6,420,131 6,420,131 0 0 10,331 (613,496) 3,158 (616,654) 0 0 0 (616,654) (.16) (.16)
-----END PRIVACY-ENHANCED MESSAGE-----