<PAGE>
United States
Securities and Exchange Commission
Washington, DC 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 June 30, 1996
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or
/ / Transition Report Pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-13502
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TSENG LABS, INC.
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(Exact name of registrant as specified in its charter)
UTAH 87-0391229
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6 Terry Drive, Newtown, PA 18940
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 968-0502
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`
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(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
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Outstanding at June 30, 1996 - 19,034,637 shares
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This report includes a total of 11 pages.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TSENG LABS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30 December 31,
ASSETS 1996 1995
- ------ ------- -------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,844 $ 9,004
Short-term investments 25,496 30,210
Accounts receivable, net 5,009 5,924
Inventories 3,548 3,408
Prepaid expenses and other 3,300 1,771
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Total current assets 39,197 50,317
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PROPERTY AND EQUIPMENT, net of
of accumulated depreciation
of $5,040 and $4,326 8,811 7,696
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DEFERRED COSTS, net 5,166 3,817
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NOTES RECEIVABLE 6,500 803
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OTHER ASSETS 2,135 2,038
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$61,809 $64,671
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 2,380 $ 2,834
Accrued expenses 658 1,131
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Total current liabilities 3,038 3,965
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DEFERRED INCOME TAXES 2,311 2,311
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SHAREHOLDERS' EQUITY:
Common stock 98 97
Additional paid-in capital 10,828 10,316
Retained earnings 50,177 52,625
Treasury stock, at cost (4,643) (4,643)
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56,460 58,395
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$61,809 $64,671
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</TABLE>
See accompanying notes to financial statements.
<PAGE>
TSENG LABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the
Three Months
Ended
June 30
------------------------
1996 1995
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(Unaudited)
<S> <C> <C>
NET SALES $ 6,744 $ 9,498
COST OF SALES 5,515 7,309
-------- --------
Gross Profit 1,229 2,189
RESEARCH AND DEVELOPMENT 1,193 712
SELLING, GENERAL AND ADMINISTRATIVE 1,989 1,612
-------- --------
OPERATING INCOME (LOSS) (1,953) (135)
INTEREST INCOME 367 570
-------- --------
Income (loss) before income taxes (1,586) 435
INCOME TAXES (BENEFIT) (555) 131
-------- --------
NET INCOME (LOSS) $ (1,031) $ 304
======== ========
NET INCOME (LOSS) PER SHARE $ (.05) $ .02
======== ========
Weighted Average Common and Common
Equivalent Shares Outstanding 18,988 18,988
======== ========
</TABLE>
See accompanying notes to financial statements
<PAGE>
TSENG LABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the
Six Months
Ended
June 30
------------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
NET SALES $ 10,851 $ 20,980
COST OF SALES 9,345 15,345
-------- --------
Gross Profit 1,506 5,635
RESEARCH AND DEVELOPMENT 2,480 1,477
SELLING, GENERAL AND ADMINISTRATIVE 3,614 3,171
-------- --------
OPERATING INCOME (LOSS) (4,588) 987
INTEREST INCOME 821 1,068
-------- --------
Income (loss) before income taxes (3,767) 2,055
INCOME TAXES (BENEFIT) (1,319) 695
-------- --------
NET INCOME (LOSS) $ (2,448) $ 1,360
======== ========
NET INCOME (LOSS) PER SHARE $ (.13) $ .07
======== ========
Weighted Average Common and Common
Equivalent Shares Outstanding 18,978 18,977
======== ========
</TABLE>
See accompanying notes to financial statements
<PAGE>
TSENG LABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the
Six Months
Ended
March 31
------------------------
1996 1995
--------- --------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net income (loss) $ (2,448) $ 1,360
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities -
Depreciation and amortization 1,179 1,139
(Increase) decrease in -
Accounts receivable 915 3,564
Inventories (140) (763)
Prepaid expenses and other (1,626) 89
Other assets (96) (588)
Increase (decrease) in -
Accounts payable (454) (842)
Accrued expenses (473) 429
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Net cash (used in) provided by operating activities (3,143) 4,388
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,829) (1,116)
Increase in deferred costs (1,717) (869)
Decrease (increase) in short-term investments 4,714 (29,780)
Increase in notes receivable (5,697) --
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Net cash used in investing activites (4,529) (31,765)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 512 105
Purchase of Treasury stock -- (371)
Dividends paid -- (1,890)
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Net cash (used in) provided by financing activities 512 (2,156)
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Net decrease in cash and cash equivalents (7,160) (29,533)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,004 38,542
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,844 $ 9,009
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ -- $ 1,443
======== ========
</TABLE>
See accompanying notes to financial statements
<PAGE>
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 June 30,
1996, the results of operations and the changes in financial position for the
periods presented.
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 (LOSS) PER SHARE:
Net income (loss) 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:
June 30, December 31,
1996 1995
------ ------
(In Thousands)
Purchased parts $1,526 $ 662
Finished goods 2,022 2,746
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$3,548 $3,408
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4. SHORT-TERM INVESTMENTS
In connection with its purchase of short-term investments, in 1995 the Company
adopted Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." Management determines the
appropriate classification of debt and equity securities at the time of purchase
and reevaluates such designation as of each balance sheet date. At June 30,
1996, all short-term investments have been classified as held-to-maturity.
Held-to-maturity securities are carried at amortized cost, with coupon interest
and dividends and discount and premium amortization included in income each
period.
5. ADVANCES
During the quarter ending June 30, 1996, the Company amended and expanded a
secured agreement with the entity that designed, manufactures and markets MDRAM.
Under the expanded agreement, the Company advanced this entity $6,500,000 in the
form of a secured, interest bearing loan. The note has a term of 24 months, with
$5,000,000 subject to call at the Company's option in November 1996. The Company
has the right, at its option, to convert a portion of the advance into equity at
valuations specified in the agreement. Advances to this entity were
approximately $803,000 at March 31, 1996.
6. RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current
year presentation.
7. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Accounting Standards
Nos. 121 and 123. The adoption of these standards did not have a material impact
on the Company's financial position or results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Revenues for the three-and six-month periods ended June 30, 1996 were $6,744,000
and $10,851,000, 29% and 48% reductions from the corresponding periods in 1995.
The decrease in both periods was due to anticipated lower shipments and selling
prices for the Company's second generation accelerator products as these
products reached maturation in a rapidly evolving personal computer market.
The 64% increase in revenues during the three months ended June 30, 1996 as
compared to the first quarter of 1996 reflects initial volume shipments of the
ET6000 which commenced late in the June quarter.
Sales to three customers represented approximately 57% and 61% of the Company's
revenues in the three-and six-month periods ended June 30, 1996. Sales to three
customers represented approximately 49% of sales in the three-month period ended
June 30, 1995, and sales to two customers represented approximately 31% of
revenues for the six-month period ended June 30, 1995.
Cost of sales as a percentage of revenues increased to 82% and 86% of revenues
in the three-and six-month periods ended June 30, 1996 from 77% and 73%,
respectively, in the corresponding periods in 1995. The increase between periods
is largely due to lower margins on older products due to significant competitive
pressures on these products and a $600,000 write-down on older technology based
inventory recorded in the first quarter of 1996. While the Company expects
margins to increase in the third quarter of 1996 as sales of the ET6000-based
products are expected to increase, the markets in which the Company competes
continue to be very competitive and the Company expects pricing pressures to
continue and possibly intensify in these markets.
Research and development expense increased by 68% in both the three-and
six-month periods ended June 30, 1996 when compared to the corresponding periods
in 1995. This increase is due primarily to increased personnel to support the
development of the ET6000 family of graphics accelerators, and the pursuit of
new opportunities to expand the Company's line of products addressing multimedia
and communications 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 and
communications applications.
Operating expenses increased to 29% and 33% of revenues in the three-and
six-month periods ended June 30, 1996 from 16% and 14% in the corresponding
periods in 1995. The increase is due to lower revenue levels between periods,
increased investments in personnel to enhance the Company's operations,
marketing and sales efforts, and the fixed nature of certain of the Company's
operating expenses.
The Company's effective income tax rate was a benefit of 35% for the three-and
six-month periods ended June 30, 1996, compared to an expense of 35% in the
corresponding periods in 1995. The primary reason for the change is the
difference in pretax income between periods.
Inflation is not expected to have a significant adverse impact on the Company's
operations.
<PAGE>
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
short-term working capital requirements. Total working capital was $36,159,000
and $46,352,000 at June 30, 1996 and December 31, 1995, respectively. The
decrease in working capital was caused primarily by the Company's investment in
facilities, equipment and tools to enhance its advanced research and product
development facilities, systems and functions and its secured advance to the
entity that designs, manufactures and markets MDRAM (see Note 5 to financial
statements). 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 June 30, 1996.
<PAGE>
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 June 30, 1996.
<PAGE>
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.
Dated: August 14, 1996 By: /s/ Jack H-N Tseng
----------------------------------
Jack H-N Tseng
Chairman, President and CEO
Dated: August 14, 1996 By: /s/ John A. Vigna
---------------------------------
John A. Vigna
Executive Vice President
Chief Operating Officer
Dated: August 14, 1996 By: /s/ Mark H. Karsch
---------------------------------
Mark H. Karsch
Senior Vice President
Chief Financial Officer
Dated: August 14, 1996 By: /s/ Barbara J. Hawkins
---------------------------------
Barbara J. Hawkins
Vice President
Chief Administrative Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,844
<SECURITIES> 25,496
<RECEIVABLES> 5,599
<ALLOWANCES> (590)
<INVENTORY> 3,548
<CURRENT-ASSETS> 39,197
<PP&E> 13,851
<DEPRECIATION> (5,040)
<TOTAL-ASSETS> 61,809
<CURRENT-LIABILITIES> 3,038
<BONDS> 0
0
0
<COMMON> 98
<OTHER-SE> 56,362
<TOTAL-LIABILITY-AND-EQUITY> 61,809
<SALES> 6,744
<TOTAL-REVENUES> 6,744
<CGS> 5,515
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 367
<INCOME-PRETAX> (1,586)
<INCOME-TAX> (555)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,031)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0.00
</TABLE>
