LARGE SCALE BIOLOGY CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2002.

o	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 0-31275

LARGE SCALE BIOLOGY CORPORATION
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		77-0154648 (I.R.S. employer identification number)

3333 Vaca Valley Parkway, Suite 1000, Vacaville, CA 95688 (Address of principal executive offices and zip code)

(707) 446-5501 (Registrant’s telephone number, including area code)

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

The number of shares outstanding of registrant’s common stock, $0.001 par value, as of November 8, 2002: 25,075,150

Some of the statements contained in this report constitute forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify these statements by forward-looking words such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate” or “continue” and variations of these words or comparable words. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations contain many such forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and situations that may cause our or our industry’s actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. The risk factors contained in this report, under the heading Factors That May Affect Our Business, as well as any other cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ from the expectations described or implied in our forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Except as required by law, we do not undertake to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Large Scale Biology Corporation, LSBC, our logo, GENEWARE, PLURIGEN, ProGex and other product names are trademarks of or registered trademarks of Large Scale Biology Corporation in the United States and/or other countries. References in this report to “the Company,” “our,” “we” and “us” refer collectively to Large Scale Biology Corporation, a Delaware corporation, and its predecessors and subsidiaries.

Large Scale Biology Corporation
Form 10-Q
For the Quarter Ended September 30, 2002
Table of Contents

		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 (Unaudited)	1

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001 (Unaudited)	2

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 (Unaudited)	3

	Notes to Condensed Consolidated Financial Statements (Unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II – OTHER INFORMATION

Item 2.	Changes in Securities and Use of Proceeds	22

Item 6.	Exhibits and Reports on Form 8-K	22

SIGNATURE		23

CERTIFICATIONS		24

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Large Scale Biology Corporation
Condensed Consolidated Balance Sheets
(Unaudited)

			September 30, 2002			December 31, 2001

Assets
Current assets:
	Cash and cash equivalents		$	8,880,000		$	24,055,000
	Marketable securities			18,371,000			24,724,000
	Prepaid expenses and other current assets			1,397,000			1,217,000

		Total current assets		28,648,000			49,996,000
Property, plant, and equipment, net				16,457,000			18,882,000
Patents and intellectual property licenses, net				4,980,000			5,233,000
Goodwill, net				839,000			839,000
Other intangible assets, net				291,000			893,000
Other assets				826,000			1,069,000

			$	52,041,000		$	76,912,000

Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable		$	1,498,000		$	1,816,000
	Accrued expenses			564,000			1,105,000
	Current portion of long-term debt			104,000			107,000
	Deferred revenue and customer advances			400,000			278,000

		Total current liabilities		2,566,000			3,306,000
Long-term debt				217,000			249,000
Long-term deferred revenue				—			320,000

		Total liabilities		2,783,000			3,875,000

Stockholders’ equity:
	Common stock, issued and outstanding:
	September 30, 2002 — 25,080,306 shares
	December 31, 2001 — 24,892,989 shares			192,061,000			191,901,000
	Stockholders’ notes receivable			(47,000	)		(50,000	)
	Deferred compensation			(1,171,000	)		(3,093,000	)
	Accumulated deficit			(141,585,000	)		(115,721,000	)

		Total stockholders’ equity		49,258,000			73,037,000

			$	52,041,000		$	76,912,000

See accompanying notes to condensed consolidated financial statements.

Large Scale Biology Corporation
Condensed Consolidated Statements of Operations
(Unaudited)

					Three Months Ended September 30,						Nine Months Ended September 30,

					2002			2001			2002			2001

Revenues					$	710,000		$	5,129,000		$	1,625,000		$	17,053,000

Costs and expenses:
			Development agreements			579,000			681,000			867,000			3,216,000
			Research and development			4,525,000			5,794,000			16,758,000			16,376,000
		General and administrative				2,370,000			3,781,000			9,983,000			10,266,000
	Amortization of purchased intangibles					156,000			325,000			468,000			975,000

				Total costs and expenses		7,630,000			10,581,000			28,076,000			30,833,000

Loss from operations						(6,920,000	)		(5,452,000	)		(26,451,000	)		(13,780,000	)
Interest income, net						156,000			651,000			587,000			2,710,000

Net loss					$	(6,764,000	)	$	(4,801,000	)	$	(25,864,000	)	$	(11,070,000	)

Net loss per share - basic and diluted					$	(0.27	)	$	(0.20	)	$	(1.04	)	$	(0.45	)

Weighted average shares outstanding - basic and diluted						24,993,496			24,573,282			24,961,799			24,536,891

See accompanying notes to condensed consolidated financial statements.

Large Scale Biology Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)

					Nine Months Ended September 30,

					2002			2001

Cash flows from operating activities:
	Net loss				$	(25,864,000	)	$	(11,070,000	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation of property, plant and equipment				3,136,000			2,968,000
		Amortization of intangible assets				1,434,000			1,226,000
		Stock compensation expense				1,942,000			1,953,000
		Interest received in excess of accrued interest and amortized discount on marketable securities				182,000			568,000
		Common stock issued for services				—			7,000
		Changes in assets and liabilities:
			Prepaid expenses and other current assets			(180,000	)		(2,506,000	)
			Other assets			100,000			348,000
			Accounts payable			(359,000	)		1,201,000
			Accrued expenses			(406,000	)		885,000
			Deferred revenue and customer advances			(198,000	)		(8,458,000	)

				Net cash used in operating activities		(20,213,000	)		(12,878,000	)

Cash flows from investing activities:
	Purchases of marketable securities					(17,116,000	)		(49,955,000	)
	Proceeds from matured marketable securities					23,287,000			63,213,000
	Capital expenditures					(714,000	)		(11,334,000	)
	Increase in patents and intellectual property licenses					(535,000	)		(901,000	)

			Net cash provided by investing activities			4,922,000			1,023,000

Cash flows from financing activities:
	Proceeds from issuance of common stock					5,000			154,000
	Proceeds from stockholder loan payments					3,000			15,000
	Change in restricted cash					143,000			523,000
	Principal payments on long-term debt					(35,000	)		(1,865,000	)

			Net cash provided by (used in) financing activities			116,000			(1,173,000	)

Net decrease in cash and cash equivalents						(15,175,000	)		(13,028,000	)
Cash and cash equivalents at beginning of period						24,055,000			40,030,000

Cash and cash equivalents at end of period					$	8,880,000