<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 of 15(d) of the Securities
- - ----- Exchange Act of 1934
For the quarterly period ended March 31, 1995
------------------------------------------------
or
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 0-13502
---------------------------------------------------------
TSENG LABS, INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
UTAH 87-0391229
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6 Terry Drive, Newtown, PA 18940
- - ------------------------------------------ ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 968-0502
---------------------------
- - ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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
X Yes No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report (applicable
only to corporate issuers).
Class - Common Stock, $.005 Par Value
- - -------------------------------------------------------------------------------
Outstanding at March 31, 1995 - 18,916,737 shares
- - -------------------------------------------------------------------------------
This report includes a total of 9 pages.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TSENG LABS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1995 1994
- - ------ --------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,926 $ 38,542
Short-term investments 24,889 --
Accounts receivable, net 7,006 10,591
Inventories 2,797 3,786
Prepaid expenses and other 1,012 1,223
-------- --------
Total current assets 53,630 54,142
-------- --------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$3,512 and $3,246 6,629 6,565
-------- --------
DEFERRED COSTS, net 3,772 3,644
-------- --------
OTHER ASSETS 1,886 1,468
-------- --------
$ 65,917 $ 65,819
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 3,242 $ 3,138
Accrued expenses 828 573
-------- --------
Total current liabilities 4,070 3,711
-------- --------
DEFERRED INCOME TAXES 2,247 2,247
-------- --------
SHAREHOLDERS' EQUITY:
Common stock 97 97
Additional paid-in-capital 9,997 9,997
Retained earnings 54,149 54,039
Treasury stock, at cost (4,643) (4,272)
-------- --------
59,600 59,861
-------- --------
$ 65,917 $ 65,819
======== ========
</TABLE>
See accompanying notes to financial statements
<PAGE> 3
TSENG LABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the
Three Months
Ended
March 31
-----------------------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
NET SALES $11,980 $21,944
COST OF SALES 8,036 16,438
------- -------
Gross Profit 3,944 5,506
RESEARCH AND DEVELOPMENT 765 314
SELLING, GENERAL, AND ADMINISTRATIVE 1,559 1,635
------- -------
Income before income taxes 1,620 3,557
INCOME TAXES 564 1,280
------- -------
NET INCOME $ 1,056 $ 2,277
======= =======
NET INCOME PER SHARE $ .06 $ .12
======= =======
Weighted Average Common and Common
Equivalent Shares Outstanding 18,965 19,244
======= =======
</TABLE>
See accompanying notes to financial statements
<PAGE> 4
TSENG LABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the
Three Months
Ended
March 31
---------------------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,056 $ 2,277
Adjustments to reconcile net income
to cash provided by operating activities -
Depreciation and amortization 555 461
(Increase) decrease in -
Accounts receivable 3,585 (1,134)
Inventories 989 1,322
Prepaid expenses and other 211 889
Other assets (418) (43)
Increase (decrease) in -
Accounts payable 104 (946)
Accrued expenses 255 194
--------- --------
Net cash provided by operating activities 6,337 3,020
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (24,889) --
Purchases of property and equipment (330) (541)
Increase in deferred costs (417) (550)
--------- --------
Net cash (used in) investing activities (25,636) (1,091)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options -- 4
Purchase of treasury stock (371) (904)
Dividends paid (946) (972)
--------- --------
Net cash (used in) provided by financing activities (1,317) (1,872)
--------- --------
Net (decrease) increase in cash and cash equivalents (20,616) 57
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 38,542 35,027
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,926 $ 38,542
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 564 $ 71
========= ========
</TABLE>
See accompanying notes to financial statements
<PAGE> 5
TSENG LABS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY FINANCIAL INFORMATION AND RESULTS OF OPERATIONS:
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position as of March 31,
1995, the results of operations and the changes in financial position for the
periods covered.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes included in the Company's latest annual
report on Form 10-K. The results of operations for the interim periods presented
are not necessarily indications of the results for the full year.
2. NET INCOME PER SHARE:
Earnings per share was computed using the weighted average number of common
shares and share equivalents outstanding during the periods.
3. INVENTORIES:
Inventories are stated at the lower of weighted average cost or market and
consist of the following:
March 31, December 31,
1995 1994
--------- ------------
(In Thousands)
Raw materials and work-in-process $2,407 $3,379
Finished goods 390 407
------ ------
$2,797 $3,786
====== ======
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 1995 were $11,980,000, a 45%
decrease from the corresponding period in 1994. The decrease in revenues in the
three-month period ended March 31, 1995 was primarily due to lower shipments and
selling prices of the Company's second generation accelerator products as these
products reached maturation in a rapidly evolving personal computer marketplace.
Unit shipments of older W32- and W32i-based products decreased significantly
between periods. Higher sales of W32p were not sufficient to offset lower unit
shipments of the W32 and W32i and lower selling prices on all of the Company's
major products. The mix of VLSI graphics chips and board level enhancement
products between the two periods remained consistent, however, included in the
accelerator products during 1995 is the Company's video accelerator, the VIPeR,
which began contributing to sales in the third quarter of 1994. The Company had
previously announced its focus on its next generation of graphic accelerator,
the ET6000. Due to short product design cycles in the computer industry as a
whole, announced and anticipated new product introductions by competitors of the
Company, and anticipated design changes from major customers, the Company
expects that pricing pressures on existing products will continue to intensify
and revenues and earnings will continue to be lower than 1994 levels until the
ET6000 begins commercial delivery. In addition, because of the risk involved in
bringing new technologies to market and the competitive nature of the graphics
market as a whole, there can be no assurance that revenues and earnings from the
ET6000 will be sufficient to return the Company's operating results to historic
levels.
In the three-month periods ended March 31, 1995 and 1994, sales of W32i-based
products to one OEM represented 22% and 43%, respectively, of the Company's
revenues. Sales to this entity represented 42% of revenues for the year ended
December 31, 1994. The Company does not expect sales of the W32i-based products
to represent a significant portion of revenues for the balance of 1995. Sales of
W32p-based product to an additional OEM represented 14% of total revenues for
the three-month period ended March 31, 1995. In addition, sales to unaffiliated
distributors, primarily in the Far East, accounted for 13% and 2% of total
revenues for the three-month periods ended March 31, 1995 and 1994,
respectively.
Cost of sales as a percentage of revenues decreased to 67% of revenues in the
three-month period ended March 31, 1995 from 74% in the corresponding period in
1994 due to decreased production costs as a result of the Company's increased
cost reduction efforts on certain products. In 1994, the Company undertook
active cost reduction programs on its W32i and W32p graphics accelerator
products. As a result, unit cost of the W32i and W32p decreased substantially in
1994, carrying over into the first quarter 1995. Because of the price
competitive nature of the market, anticipated pricing pressures on mature
products and the current volatility in the yen/dollar exchange rate, there can
be no assurance that the Company will be successful in obtaining cost reductions
necessary to enable the Company to maintain its current margin levels.
Operating expenses increased to 13% of revenues in the three-month period ended
March 31, 1995 from 7.5% in the corresponding period in 1994. The increase is
due to both increased legal costs associated with the Company's efforts in
defending allegations associated with an ongoing class action lawsuit and the
fixed nature of certain of the Company's operating expenses.
<PAGE> 7
Research and development expense increased by 144% in the three-month period
ended March 31, 1995 when compared to the corresponding period in 1994. This
increase is due primarily to increased personnel and outside consulting costs to
support the development of the next generation graphics accelerator, the ET6000,
and due to the pursuit of new opportunities to expand the Company's line of
products addressing multimedia applications. The Company currently expects that
its research and development expenditures will continue to increase as the
Company continues to attempt to respond to both shorter product life cycles in
the graphics and PC market as a whole and develop new technologies to address
multimedia applications.
The Company's effective income tax rate was 34% for the three-month period
ended March 31, 1995, compared to 36% in the corresponding period in 1994. The
primary reason for the decrease in the effective income tax rate is the small
benefit derived from higher tax credits resulting from increased research and
development expenditures and a lower effective state income tax rate.
Inflation is not expected to have a significant adverse impact on the Company's
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to generate cash adequate to meet its requirements results
primarily from operating cash flow and the availability of bank borrowing. The
Company believes that these sources are sufficient to fund the Company's 1995
working capital requirements. Total working capital was $49,560,000 and
$50,431,000 at March 31, 1995 and December 31, 1994, respectively. The Company
also has a bank line of credit providing total availability of $2,500,000. There
were no borrowings under this line in the during the three months ended March
31, 1995.
<PAGE> 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Report 8-K
(a) The following is a list of exhibits filed as part of the Form 10-Q:
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
March 31, 1995.
<PAGE> 9
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.
TSENG LABS, INC.
Date: May 12, 1995 By: /s/ Jack H-N Tseng
--------------------
Jack H-N Tseng
Chairman and President
Date: May 12, 1995 By: /s/ John J. Gibbons
----------------------
John J. Gibbons
Vice-Chairman
Date: May 12, 1995 By: /s/ Mark H. Karsch
--------------------
Mark H. Karsch
Senior Vice President
Chief Financial Officer
Date: May 12, 1995 By: /s/ Barbara J. Hawkins
-------------------------
Barbara J. Hawkins
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 17,926
<SECURITIES> 24,889
<RECEIVABLES> 7,905
<ALLOWANCES> (899)
<INVENTORY> 2,797
<CURRENT-ASSETS> 53,630
<PP&E> 10,141
<DEPRECIATION> 3,512
<TOTAL-ASSETS> 65,917
<CURRENT-LIABILITIES> 4,070
<BONDS> 0
<COMMON> 97
0
0
<OTHER-SE> 59,503
<TOTAL-LIABILITY-AND-EQUITY> 65,917
<SALES> 11,980
<TOTAL-REVENUES> 11,980
<CGS> 8,036
<TOTAL-COSTS> 8,036
<OTHER-EXPENSES> 2,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,620
<INCOME-TAX> 564
<INCOME-CONTINUING> 1,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,056
<EPS-PRIMARY> .06
<EPS-DILUTED> 0.00
</TABLE>
