UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
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For the quarterly period ended March 31, 2003 | ||
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
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For the transition period from _____ to _____. | ||
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| Commission File Number 000-31275 | |||
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| LARGE SCALE BIOLOGY CORPORATION | |||
| (Exact name of registrant as specified in its charter) | |||
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| Delaware |
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77-0154648 | |
| (State or other jurisdiction of incorporation or organization) |
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(I.R.S. employer identification number) | |
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| 3333 Vaca Valley Parkway, Vacaville, CA 95688 | |||
| (Address of principal executive offices and zip code) | |||
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| (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.
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No o |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
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No x |
The number of shares outstanding of registrant’s common stock, $0.001 par value, as of May 9, 2003: 25,526,842
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,” “expect,” “plan,” “anticipate,” “believe,” 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 Business section and 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 and trade names are trademarks of or registered trademarks of Large Scale Biology Corporation in the United States and/or other countries. Other product and trade names mentioned herein may be trademarks and/or registered trademarks of their respective companies. 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 March 31, 2003
Table of Contents
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| Item 1. |
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Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 (Unaudited) |
1 |
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2 | |
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3 | |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
4 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
6 |
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| Item 3. |
18 | |
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| Item 4. |
18 | |
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| Item 2. |
19 | |
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| Item 6. |
19 | |
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| 21 | ||
PART I – FINANCIAL INFORMATION
Large Scale Biology Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
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March 31, 2003 |
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December 31, 2002 |
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| Assets |
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| Current assets: |
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| Cash and cash equivalents |
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$ |
6,752,000 |
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$ |
8,238,000 |
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| Marketable securities |
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12,369,000 |
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14,840,000 |
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| Prepaid expenses and other current assets |
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1,209,000 |
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1,529,000 |
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| Total current assets |
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20,330,000 |
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24,607,000 |
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| Property, plant, and equipment, net |
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12,410,000 |
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14,865,000 |
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| Patents and intellectual property licenses, net |
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4,012,000 |
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4,434,000 |
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| Other intangible assets, net |
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— |
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52,000 |
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| Other assets |
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621,000 |
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783,000 |
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$ |
37,373,000 |
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$ |
44,741,000 |
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| Liabilities and Stockholders’ Equity |
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| Current liabilities: |
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| Accounts payable |
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$ |
1,032,000 |
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$ |
956,000 |
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| Accrued expenses |
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608,000 |
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571,000 |
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| Current portion of long-term debt |
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146,000 |
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145,000 |
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| Deferred revenue and customer advances |
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245,000 |
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245,000 |
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| Total current liabilities |
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2,031,000 |
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1,917,000 |
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| Long-term debt |
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152,000 |
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165,000 |
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| Total liabilities |
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2,183,000 |
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2,082,000 |
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| Stockholders’ equity: |
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| Common stock, issued and outstanding: March 31, 2003 — 25,564,092 shares; December 31, 2002 — 25,223,753 shares |
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192,280,000 |
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192,160,000 |
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| Stockholders’ notes receivable |
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(29,000 |
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(46,000 |
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| Deferred compensation |
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(521,000 |
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(550,000 |
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| Accumulated deficit |
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(156,540,000 |
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(148,905,000 |
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| Total stockholders’ equity |
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35,190,000 |
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42,659,000 |
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$ |
37,373,000 |
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$ |
44,741,000 |
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See accompanying notes to condensed consolidated financial statements.
1
Large Scale Biology Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended March 31, |
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2003 |
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2002 |
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| Revenues |
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$ |
854,000 |
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$ |
425,000 |
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| Costs and expenses: |
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| Development agreements |
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935,000 |
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127,000 |
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| Research and development |
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3,233,000 |
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6,325,000 |
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| General and administrative |
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2,641,000 |
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3,588,000 |
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| Impairment of property |
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1,698,000 |
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— |
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| Amortization of purchased intangibles |
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52,000 |
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156,000 |
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| Total costs and expenses |
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8,559,000 |
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10,196,000 |
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| Loss from operations |
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(7,705,000 |
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(9,771,000 |
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| Interest income, net |
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70,000 |
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225,000 |
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| Net loss |
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$ |
(7,635,000 |
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$ |
(9,546,000 |
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| Net loss per share – basic and diluted |
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$ |
(0.30 |
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$ |
(0.38 |
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| Weighted average shares outstanding – basic and diluted |
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25,253,244 |
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24,933,122 |
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See accompanying notes to condensed consolidated financial statements.
2
Large Scale Biology Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended March 31, |
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2003 |
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2002 |
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| Cash flows from operating activities: |
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| Net loss |
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$ |
(7,635,000 |
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$ |
(9,546,000 |
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| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation of property, plant and equipment |
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762,000 |
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1,042,000 |
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| Amortization of intangible assets |
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276,000 |
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412,000 |
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| Stock compensation expense |
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129,000 |
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598,000 |
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| Impairment of property |
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1,698,000 |
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— |
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| Write-off of capitalized patent costs |
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199,000 |
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— |
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| Loss on sale of equipment |
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156,000 |
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— |
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| Provision for doubtful accounts receivable |
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154,000 |
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— |
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| Interest received (accrued) in excess of interest accrued (received) |
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40,000 |
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(3,000 |
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| Changes in assets and liabilities: |
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| Prepaid expenses and other current assets |
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10,000 |
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43,000 |
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| Other assets |
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19,000 |
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60,000 |
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| Accounts payable |
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76,000 |
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288,000 |
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| Accrued expenses |
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52,000 |
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(82,000 |
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| Deferred revenue and customer advances |
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— |
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(79,000 |
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| Net cash used in operating activities |
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(4,064,000 |
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(7,267,000 |
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| Cash flows from investing activities: |
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| Purchases of marketable securities |
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(3,627,000 |
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(9,013,000 |
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| Proceeds from matured marketable securities |
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6,058,000 |
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8,929,000 |
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| Capital expenditures |
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(5,000 |
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(219,000 |
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| Increase in patents and intellectual property licenses |
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— |
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(127,000 |
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| Net cash provided by (used in) investing activities |
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2,426,000 |
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(430,000 |
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| Cash flows from financing activities: |
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| Proceeds from issuance of common stock |
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4,000 |
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1,000 |
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| Proceeds from stockholder loan payments |
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17,000 |
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3,000 |
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| Change in restricted cash |
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143,000 |
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— |
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| Principal payments on long-term debt |
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(12,000 |
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(12,000 |
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| Net cash provided by (used in) financing activities |
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152,000 |
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(8,000 |
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| Net decrease in cash and cash equivalents |
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(1,486,000 |
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(7,705,000 |
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| Cash and cash equivalents at beginning of period |
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8,238,000 |
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24,055,000 |
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| Cash and cash equivalents at end of period |
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$ |
6,752,000 |
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$ |
16,350,000 |
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See accompanying notes to condensed consolidated financial statements.
3
Large Scale Biology Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The Company and Summary of Significant Accounting Policies
Large Scale Biology Corporation is a research and development company. Our goals include the development of therapeutic products using our proprietary technologies and expertise and the delivery of services to potential customers including protein marker discovery and the biomanufacture of therapeutic proteins, vaccines and industrial biomolecules. Examples of therapeutic products we are developing include:
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a proprietary form of human alpha-galactosidase A for the treatment of Fabry disease, a lysosomal storage disorder; |
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a generic form of bovine aprotinin, a protease inhibitor used in cardiac surgery; and |
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a series of prototype vaccines and prototype products for the expansion of bone marrow and cord blood stem cells. |
The Company’s proprietary systems are supported by patents and patent applications. The Company’s corporate office and genomics research facility are located in Vacaville, California. The Company’s biomanufacturing plant is located in Owensboro, Kentucky, and the Company’s proteomics research facility is located in Germantown, Maryland.
The Company incurred net losses of $33,184,000 and $20,689,000 and negative operating cash flows of $23,932,000 and $18,451,000 in the years ended December 31, 2002 and 2001, respectively. These negative cash flows were financed primarily by proceeds from the Company’s IPO in 2000. If we are unable to generate significant revenues in 2003 or generate other potential sources of working capital including partnerships, mergers or sales of assets or technologies, the Company’s operations may be adversely affected.
Basis of Presentation — The unaudited condensed consolidated financial statements have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial information. Accordingly, these financial statements and notes thereto do not include certain disclosures normally associated with financial statements prepared in accordance with accounting principles generally accepted in the United States of America. This interim financial information should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2002 included in the Company’s Annual Report on Form 10-K.
The unaudited condensed consolidated financial statements include the accounts of Large Scale Biology Corporation and its subsidiaries. All intercompany balances and transactions have been eliminated. In the opinion of the Company’s management, the unaudited condensed consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) and disclosures considered necessary for a fair presentation of the results of the interim periods presented. This interim financial information is not necessarily indicative of the results of any future interim periods or for the Company’s full year ending December 31, 2003.
Segment Reporting — The Company operates in one reportable segment.
Stock-Based Compensation — We account for stock-based employee compensation plans using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. Stock options issued to non-employees as consideration for goods or services provided to the Company are accounted for under the fair value method in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”, which requires that compensation expense be recognized for all such options.
4
The following table presents the pro forma effect on the Company’s reported net loss and net loss per share if we had applied the fair value method to our stock-based employee compensation plans for all periods presented:
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Three Months Ended March 31, |
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2003 |
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2002 |
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| Net loss as reported |
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$ |
(7,635,000 |
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$ |
(9,546,000 |
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| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |
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(798,000 |
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(1,288,000 |
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| Pro forma net loss |
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$ |
(8,433,000 |
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$ |
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