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 MARCH 31, 2002.
[ ] 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: (952) 933-2291
Former fiscal year: June 30
New fiscal year: December 31
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 14,
2002 was 3,953,576 shares.
LECTEC CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements and Notes to Condensed Financial Statements
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . I-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . 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
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED FINANCIAL STATEMENTS AND NOTES TO CONDENSED
FINANCIAL STATEMENTS
LECTEC CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2002 2001
---------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 389,070 $ 1,425,205
Trade receivables and other, net of allowances of $106,500
and $99,000 at March 31, 2002 and December 31, 2001 933,589 547,838
Inventories
Raw materials 1,030,549 1,159,685
Work-in-process 23,083 5,198
Finished goods 560,775 362,660
---------------- ---------------
1,614,407 1,527,543
Prepaid expenses and other 271,271 290,401
---------------- ---------------
Total current assets 3,208,337 3,790,987
PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 2,136,590 2,262,094
OTHER ASSETS
Patents and trademarks, less accumulated amortization of $1,249,240
and $1,227,627 at March 31, 2002 and December 31, 2001 298,607 297,073
---------------- ---------------
$ 5,643,534 $ 6,350,154
================ ===============
See accompanying notes to the condensed financial statements.
I-1
LECTEC CORPORATION
CONDENSED BALANCE SHEETS - CONTINUED
(UNAUDITED)
March 31, December 31,
2002 2001
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations 940,695 938,800
Accounts payable 741,053 628,363
Accrued expenses 1,001,988 937,390
Customer deposits 75,000 75,000
Restructuring charges 38,767 105,232
---------------- ----------------
Total current liabilities 2,797,503 2,684,785
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES 93,804 125,170
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value: 15,000,000 shares authorized;
3,953,578 and 3,940,920 shares issued and outstanding at
March 31, 2002 and December 31, 2001 39,536 39,409
Additional paid-in capital 11,379,434 11,360,552
Accumulated deficit (8,666,743) (7,859,762)
---------------- ----------------
2,752,227 3,540,199
---------------- ----------------
$ 5,643,534 $ 6,350,154
================ ================
See accompanying notes to the condensed financial statements.
I-2
LECTEC CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
---------------------------------
2002 2001
--------------- ----------------
Net sales $ 1,514,495 $ 3,748,560
Cost of goods sold 1,026,144 2,735,137
--------------- ----------------
Gross profit 488,351 1,013,423
Operating expenses
Sales and marketing 491,116 686,649
General and administrative 595,478 708,984
Research and development 170,025 219,236
--------------- ----------------
1,256,619 1,614,869
--------------- ----------------
Loss from operations (768,268) (601,446)
Other income (expenses)
Interest expense (38,766) (44,932)
Gain on sale of assets - 103,624
Other, net 53 (1,027)
--------------- ----------------
Loss before income taxes (806,981) (543,781)
Income taxes - -
--------------- ----------------
Net loss $ (806,981) $ (543,781)
=============== ================
Net loss per share - basic and diluted $ (0.20) $ (0.14)
=============== ================
Weighted average shares outstanding - basic and diluted 3,950,343 3,915,676
=============== ================
See accompanying notes to the condensed financial statements.
I-3
LECTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
--------------------------------------
2002 2001
--------------- --------------
Cash flows from operating activities:
Net loss $ (806,981) $ (543,781)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Gain on sale of assets - (103,624)
Depreciation and amortization 157,294 165,141
Common stock issued for consulting services 19,009 -
Changes in operating assets and liabilities:
Trade and other receivables (385,751) (195,037)
Inventories (86,864) 62,296
Prepaid expenses and other 19,130 44,659
Accounts payable 112,690 (423,099)
Accrued expenses and other 64,598 277,438
Restructuring charge (66,465) -
Customer deposits - (75,000)
--------------- --------------
Net cash used in operating activities (973,340) (791,007)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (10,177) (127,755)
Investment in patents and trademarks (23,147) (35,083)
Net proceeds from sale of tape equipment - 630,000
--------------- --------------
Net cash provided by (used in) investing activities (33,324) 467,162
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit - 92,342
Repayment of long-term obligations (29,471) (5,733)
--------------- --------------
Net cash provided by (used in) financing activities (29,471) 86,609
--------------- --------------
Net decrease in cash and cash equivalents (1,036,135) (237,236)
Cash and cash equivalents at beginning of period 1,425,205 285,620
--------------- --------------
Cash and cash equivalents at end of period $ 389,070 $ 48,384
=============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $ 38,815 $ 47,982
Income taxes $ - $ -
See accompanying notes to the condensed financial statements.
I-4
LECTEC CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The accompanying condensed financial statements include the accounts
of LecTec Corporation (the "Company") as of and for the three months ended March
31, 2002 and 2001. The Company's condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and should be read in conjunction with its Transition
Report on Form 10-K for the transition period from July 1, 2001 to December 31,
2001. The interim condensed financial statements are unaudited and in the
opinion of management, reflect all adjustments 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) NET LOSS PER SHARE
The Company's basic net loss per share amounts have been computed by
dividing net loss by the weighted average number of outstanding common shares.
The Company's diluted net loss per share amounts have been computed by dividing
net loss by the weighted average number of outstanding common shares and common
share equivalents, when dilutive. Options and warrants to purchase 1,258,557 and
1,037,570 shares of common stock with a weighted average exercise price of $4.62
and $5.26 were outstanding during the three months ended March 31, 2002 and
2001, but were excluded from the calculation because they were antidilutive.
(3) SEGMENTS
The Company operates its business in one reportable segment - the
manufacture and sale of products based on advanced skin interface technologies.
Each of the Company's major product lines has similar economic characteristics,
technology, manufacturing processes, and regulatory environments. Customers and
distribution and marketing strategies vary within major product lines as well as
overlap between major product lines. The Company's executive decision makers
evaluate sales performance based on the total sales of each major product line
and profitability on a total company basis, due to shared infrastructures, to
make operating and strategic decisions. The Company's initial sales of skin care
products occurred during the quarter ended March 31, 2002. The Company sold the
conductive and medical tape product lines during the fiscal year ended June 30,
2001. Net sales by major product line were as follows:
Three months ended March 31,
2002 2001
---------- ----------
Therapeutic consumer products $ 897,207 $1,837,543
Skin care products 292,072 -
Conductive and medical tape products 325,216 1,911,017
---------- ----------
$1,514,495 $3,748,560
========== ==========
(4) NOTE PAYABLE TO BANK
The Company finalized a two year extension of its $2,000,000 asset
based line of credit in November 2001 with terms similar to the terms of the
$2,000,000 line of credit as originally finalized in November 1999. There were
no borrowings outstanding on the line of credit at March 31, 2002. The Company
was in default at March 31, 2002 with covenants relating to the minimum book net
worth and the maximum loss before income taxes. Until the Company cures or
receives a waiver for the covenant defaults, the line of credit is not available
for borrowings.
I-5
(5) LONG-TERM OBLIGATION
In December 2000, the Company entered into a mortgage agreement with
gross proceeds of $820,000. The principal balance of the mortgage is due in
December 2002. Monthly payments of interest are computed at the prime rate plus
five percentage points (effective rate of 9.75% at March 31, 2002). The mortgage
is collateralized by the Company's real property.
(6) DISPOSITION OF MEDICAL TAPE ASSETS
In March 2001, the Company sold its medical tape manufacturing
equipment and other related assets. The sale of the medical tape equipment
finalized the Company's plan to exit the medical tape business that was adopted
at the end of the fiscal year ended June 30, 2000.
(7) SALE OF CONDUCTIVE BUSINESS ASSETS AND RESTRUCTURING
In April 2001, the Company sold its diagnostic electrode and
electrically conductive adhesive hydrogel business assets that were used to
produce the Company's conductive products. The conductive products included
diagnostic electrodes and electrically conductive adhesive hydrogels. Under a
manufacturing and supply agreement between the Company and the buyer, the
Company continued to manufacture, and supply to the buyer, certain conductive
products through January 2002. The Company supplied the products at its cost of
production through October 31, 2001, and at its cost of production plus ten
percent from November 1, 2001 through January 31, 2002. The Company is
continuing to manufacture and supply the buyer electrically conductive adhesive
hydrogels, at margins of approximately 30%, subsequent to expiration of the
manufacturing and supply agreement. The Company anticipates supplying the
product to the buyer on a limited basis through the second quarter of calendar
2002.
A non-recurring restructuring charge of $303,759 was incurred in the
quarter ended June 30, 2001 relating to the sale of the Company's conductive
business assets. The restructuring charge consists primarily of future rental
payments for a leased facility, separation costs, and other costs associated
with the wind-down of conductive business activity. The restructuring accrual at
March 31, 2002 was $38,767. The Company expects to complete the restructuring by
June 30, 2002.
Selected information regarding the restructuring accrual is as follows:
Separation Facility Other
costs costs costs Total
----------- --------- --------- --------
Accrual at December 31, 2001 $ 21,930 $ 61,352 $ 21,950 $105,232
Payments (21,930) (30,675) (13,860) (66,465)
-------- -------- -------- -------
Accrual at March 31, 2002 $ - $ 30,677 $ 8,090 $ 38,767
========== ========= ======== ========
(8) CHANGE IN FISCAL YEAR END
On September 5, 2001, the Company elected to change its fiscal year
end from June 30 to December 31. Previously, the fiscal year ran from July 1
through June 30. The Company filed a Transition Report on Form 10-K for the six
months ended December 31, 2001. Hereafter, the fiscal year will correspond with
the calendar year.
(9) INCOME TAXES
The provision for income taxes for the three months ended March 31,
2002, has been offset principally by a valuation allowance for deferred taxes.
I-6
(10) RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002 the Company adopted Statement of Financial
Accounting Standards (SFAS) 141, "Business Combinations," SFAS 142, "Goodwill
and Intangible Assets," SFAS 143, "Accounting for Asset Retirement Obligations,"
and SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS 141 eliminates the pooling-of-interest method of accounting for
business combinations and requires intangible assets acquired in business
combinations to be recorded separately from goodwill. The adoption of SFAS 141
did not affect the Company's financial position or results of operations.
SFAS 142 eliminates the amortization of goodwill and other intangible
assets with indefinite lives and requires that these assets be tested for
impairment annually or whenever an impairment indicator arises using the two
step impairment test outlined in SFAS 142. The adoption of SFAS 142 did not
affect the Company's financial position or results of operations.
Amortized intangible assets consist of the following:
March 31,2002 December 31, 2001
------------------------------- -----------------------------
Gross carrying Accumulated Gross carrying Accumulated
amount amortization amount amortization
-------------- ------------- -------------- ------------
Patents $1,516,878 $1,244,403 $1,494,003 $1,223,859
Trademarks 30,969 4,837 30,697 3,768
---------- ---------- ---------- ----------
$1,547,847 $1,249,240 $1,524,700 $1,227,627
========== ========== ========== ==========
Amortization expense of amortized intangible assets totaled $21,613 and $17,808
for the three months ended March 31, 2002 and 2001. Amortization expense for the
succeeding years is expected to be as follows:
Years ended December 31:
2002 $88,000
2003 88,000
2004 75,000
2005 55,000
2006 12,000
SFAS 143 applies to all entities that have legal obligations
associated with the retirement of a tangible long-lived asset that result from
acquisition, construction, or development and (or) normal operations of the
long-lived asset. For purposes of SFAS 143, a liability for an asset retirement
obligation should be recognized if the obligation meets the definition of a
liability in FASB Concepts Statement 6, "Elements of Financial Statements," and
if the amount of the liability can be reasonably estimated. Consequently, an
entity should recognize a liability for an asset retirement obligation if (a)
the entity has a duty or responsibility to settle an asset retirement
obligation, (b) the entity has little or no discretion to avoid the future
transfer or use of assets, and (c) the transaction or other event obligating the
entity has occurred. The adoption of SFAS 143 did not affect the Company's
consolidated financial position or results of operations.
SFAS 144 retains the requirement from SFAS 121 to test a long-lived
asset or asset group for impairment using a two-step impairment test whenever a
triggering event occurs and provides an additional triggering event, a current
expectation that, more likely than not, a long-lived asset or asset group will
be sold or disposed of significantly before the end of its previously estimated
useful life would indicate the need to test that asset or asset group for
impairment. The adoptions of SFAS 144 did not affect the Company's consolidated
financial position or results of operations.
I-7
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
RESULTS OF OPERATIONS
Net sales for the first quarter of calendar 2002 were $1,514,495
compared to net sales of $3,748,560 for the first quarter of calendar 2001, a
decrease of 59.6%. The decrease was primarily the result of decreased conductive
product sales due to the sale of the assets of the conductive products division
in April 2001 and decreased sales of consumer contract therapeutic patch
products. Therapeutic consumer product sales decreased by 51.2% from $1,837,543
to $897,207 while conductive and medical tape product sales decreased by 83.0%
from $1,911,017 to $325,216. The therapeutic consumer product sales decrease was
primarily the result of decreased demand from consumer contract therapeutic
patch customers resulting from the slowing economy and a weaker than expected
cough/cold season. The Company expects decreased conductive product sales to
continue due to the sale of the assets used to produce the conductive products.
As part of this asset sale, the Company entered into a Manufacturing and Supply
Agreement with the buyer. Under the terms of this Agreement, the Company
supplied the products at its cost of production through October 31, 2001, and at
its cost of production plus ten percent from November 1, 2001 through January
31, 2002. The Company is continuing to manufacture and supply the buyer, on a
limited basis, electrically conductive adhesive hydrogels, at margins of
approximately 30%, subsequent to expiration of the manufacturing and supply
agreement. The Company anticipates supplying the product to the buyer through
June 30, 2002. In February 2002, the Company expanded into the skin care
cosmeceutical market by launching a line of skin care products under the
Company's brand name NeoSkin(R). These products include pre-formed face masks
and under eye gel patches. Initial sales of skin care products totaled $292,072
for the first quarter of calendar 2002.
Gross profit for the first quarter of calendar 2002 was $488,351,
compared to $1,013,423 for the first quarter of calendar 2001, a decrease of
51.8%. Gross profit as a percent of net sales for the first quarter of calendar
2002 was 32.2% compared to 27.0% for the first quarter of calendar 2001. The
decrease in gross profit for the three months resulted primarily from decreased
sales. The increase in gross profit as a percent for the quarter resulted
primarily from a shift in the sales mix toward higher margin LecTec branded
therapeutic consumer and skin care products.
Sales and marketing expenses were $491,116 and $686,649 during the first
quarters of calendar 2002 and 2001, and as a percentage of net sales, were 32.4%
and 18.3% respectively. The decrease in sales and marketing expenses for the
quarter was primarily due to a decrease in product promotional expenses
resulting from aggressive cost control/reduction programs implemented by
management.
General and administrative expenses were $595,478 and $708,984 during
the first quarters of calendar 2002 and 2001, and as a percentage of net sales,
were 39.3% and 18.9% respectively. The decrease in general and administrative
expenses for the quarter was primarily due to a decrease of $77,000 in
compensation related expenses and a decrease of $22,000 in travel and lodging
expenses.
Research and development expenses for the first quarters of calendar
2002 and 2001 were $170,025 and $219,236, and as a percentage of net sales, were
11.2% and 5.8% respectively. The decrease in research and development expenses
for the current quarter was primarily due to a decrease of $46,000 in
compensation related expenses.
Interest expense decreased in the first quarter of calendar 2002 to
$38,766 from $44,932 in the first quarter of calendar 2001. The decrease
resulted primarily from the absence of borrowings under the line of credit that
was offset by interest expense associated with the mortgage. Other income for
the first quarter of calendar 2002 was $53 compared to other expense of $1,027
for the first quarter of calendar 2001. The current quarter increase was
primarily the result of increased interest income due to higher cash and cash
equivalent balances. During the first quarter of calendar 2001 the Company
recorded a gain on sale of assets of $103,624 related to the sale of the medical
tape manufacturing equipment.
I-8
The Company recorded a loss before income taxes of $806,981 in the first
quarter of calendar 2002 compared to a loss before income taxes of $543,781 for
the first quarter of calendar 2001. The increase in loss before income taxes for
the current quarter was primarily the result of decreased gross profit and sales
volume related to the sale of the assets of the conductive products division and
decreased demand from consumer contract therapeutic patch customers. The
decreased gross profit more than offset a decrease in operating expenses
resulting from aggressive cost control/reduction programs implemented by
management.
The provision for income taxes in the first quarters of calendar 2002
and 2001 has been offset principally by a valuation allowance for deferred
taxes.
Inflation has not had a significant impact on the Company's operations
or cash flow.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $1,036,135 to $389,070 during the
first quarter of calendar 2002. The decrease in cash and cash equivalents was
primarily due to lower sales volume resulting in more cash used in operating
activities. Accounts receivable increased by $385,751 to $933,589 during the
first quarter of calendar 2002 primarily due to increased March sales in 2002.
Inventories increased by $86,864 to $1,614,407 primarily due to increased skin
care product inventory. Accounts payable of $741,053 at March 31, 2002 increased
by $112,690 during the first quarter of calendar 2002 due to the Company's
increase in the number of days between vendor invoice receipt and payment.
Capital spending for manufacturing equipment and plant improvements totaled
$10,177 during the first quarter of calendar 2002. There were no material
commitments for capital expenditures at March 31, 2002.
The Company had working capital of $410,834 and a current ratio of 1.1
at March 31, 2002 compared to working capital of $1,106,202 and a current ratio
of 1.4 at December 31, 2001. The decreases resulted primarily from lower cash
and cash equivalent balances.
The Company finalized a two year extension of its $2,000,000 asset based
line of credit in November 2001 with terms similar to the terms of the
$2,000,000 line of credit as originally finalized in November 1999. There were
no borrowings outstanding on the line of credit as of March 31, 2002. The
Company was in default at March 31, 2002 with covenants relating to the minimum
book net worth and the maximum loss before income taxes. This was the result of
financial results not meeting expectations due to the continued soft economy.
Until the Company cures or receives a waiver for the covenant defaults, the line
of credit is not available for borrowings.
In December 2000, the Company entered into a mortgage agreement with
gross proceeds of $820,000. The principal balance of the mortgage is due in
December 2002. Monthly payments of interest are computed at the prime rate plus
five percentage points (effective rate of 9.75% at March 31, 2002). The mortgage
is collateralized by the Company's real property.
Management expects the Company to continue to operate at a net loss and
experience negative cash flow from operating activities for the foreseeable
future. In May 2002 the Company renegotiated its Supply Agreement with a major
customer. Pursuant to the revised agreement, the Company will receive advance
payments from the customer for future product orders. The Company has also
received an offer to factor its receivables and continues to seek ways to reduce
costs. In addition, management is exploring other options for additional
capital. Management believes that the Company will have sufficient cash and
borrowing capacity to ensure the Company will continue operations in the near
term. Maintaining adequate levels of working capital depends in part upon the
success of the Company's products in the marketplace, the relative profitability
of those products and the Company's ability to control operating expenses.
Funding of the Company's operations in future periods may require additional
investments in the Company in the form of equity or debt. There can be no
assurance that the Company will achieve desired levels of sales or
profitability, or that future capital infusion will be available.
I-9
FORWARD-LOOKING STATEMENTS
From time to time, in reports filed with the Securities and Exchange
Commission (including this Form 10-Q), in press releases, and in other
communications to shareholders or the investment community, the Company may
provide forward-looking statements concerning possible or anticipated future
results of operations or business developments which are typically preceded by
the words "believes", "expects", "anticipates", "intends", "will", "may",
"should" or similar expressions. Such forward-looking statements are subject to
risks and uncertainties that could cause results or developments to differ
materially from those indicated in the forward-looking statements. Such risks
and uncertainties include, but are not limited to, the buying patterns of major
customers; competitive forces including new products or pricing pressures; costs
associated with and acceptance of the Company's TheraPatch brand strategy;
impact of interruptions to production; dependence on key personnel; need for
regulatory approvals; changes in governmental regulatory requirements or
accounting pronouncements; ability to satisfy funding requirements for operating
needs, expansion or capital expenditures; and the matters discussed on our
"Cautionary Statements" filed as Exhibit 99.1 to form 10-K for the transition
period from July 1, 2001 to December 31, 2001.
I-10
PART I - FINANCIAL INFORMATION
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no history of, and does not anticipate in the future,
investing in derivative financial instruments, derivative commodity instruments
or other such financial instruments. Transactions with international customers
are entered into in U.S. dollars with the exception of TheraPatch sales to
Canadian customers, precluding the need for foreign currency hedges. Canadian
sales have not been material. Additionally, the Company invests in money market
funds that experience minimal volatility. Thus, the exposure to market risk is
not material.
I-11
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
None.
II-1
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, 2002 /s/ Rodney A. Young
------------ ----------------------------------------
Rodney A. Young, Chief Executive Officer
& President
Date May 15, 2002 /s/ Douglas J. Nesbit
------------ ----------------------------------------
Douglas J. Nesbit, Chief Financial
Officer & Secretary (Principal
Financial Officer and Chief Accounting
Officer)
II-2