<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 March 31, 1997
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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 of (I.R.S. Employer Identification No.)
incorporation or organization)
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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(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 March 31, 1997 - 19,061,837 shares
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This report includes a total of 9 pages.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TSENG LABS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
ASSETS 1997 1996
- ----------------------------------------------- ---------- ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 5,226 $ 7,996
Short-term investments 19,515 14,916
Accounts receivable, net 3,391 5,165
Inventories 1,865 2,369
Notes receivable 0 4,441
Recoverable income taxes 7,257 5,824
Prepaid expenses and other 254 877
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Total current assets 37,508 41,588
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PROPERTY AND EQUIPMENT, net of
accumulated depreciation
of $6,252 and $5,758 9,283 9,333
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OTHER ASSETS 754 618
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$ 47,545 $ 51,539
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 198 $ 2,098
Accrued expenses 2,948 3,222
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Total current liabilities 3,146 5,320
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DEFERRED INCOME TAXES 991 991
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SHAREHOLDERS' EQUITY:
Common stock 98 98
Additional paid-in capital 11,120 11,113
Retained earnings 36,908 38,660
Treasury stock, at cost (4,718) (4,643)
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43,408 45,228
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$ 47,545 $ 51,539
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See accompanying notes to financial statements.
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TSENG LABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
For the
Three Months
Ended
March 31
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1997 1996
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(Unaudited)
NET SALES $ 2,600 $ 4,107
COST OF SALES 1,938 3,830
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Gross Profit 662 277
RESEARCH AND DEVELOPMENT 2,357 1,287
SELLING, GENERAL AND ADMINISTRATIVE 1,370 1,625
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OPERATING LOSS (3,065) (2,635)
INTEREST INCOME 369 454
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Loss before income taxes (2,696) (2,181)
INCOME TAXES (BENEFIT) (944) (764)
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NET LOSS $ (1,752) $ (1,417)
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NET LOSS PER SHARE $ (.09) $ (.07)
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Weighted Average Common and Common
Equivalent Shares Outstanding 19,085 18,967
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See accompanying notes to financial statements
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TSENG LABS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the
Three Months
Ended
March 31
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1997 1996
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITES:
Net loss $(1,752) $(1,417)
Adjustments to reconcile net loss
to cash used in operating activities -
Depreciation and amortization 494 540
(Increase) decrease in -
Accounts receivable 1,774 4,146
Inventories 504 (806)
Recoverable income taxes (1,433) (637)
Prepaid expenses and other 623 (921)
Other assets (134) (72)
Increase (decrease) in -
Accounts payable (1,900) (1,132)
Accrued expenses (274) (33)
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Net cash used in operating activities (2,098) (332)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (444) (994)
Increase in deferred costs 0 (657)
Decrease (increase) in short-term investments (4,599) 139
Decrease in notes receivable 4,441 --
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Net cash used in investing activites (602) (1,512)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 5 32
Purchase of treasury stock (75) --
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Net cash (used in) provided by financing activities (70) 32
Net decrease in cash and cash equivalents (2,770) (1,812)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,996 9,004
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,226 $ 7,192
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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 March 31,
1997, 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:
March 31, December 31,
1997 1996
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(In Thousands)
Purchased parts $ 137 $ 769
Finished goods 1,728 1,600
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$1,865 $2,369
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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 March 31,
1997, 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. RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current
year presentation.
6. 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 months ended March 31, 1997 were $2,600,000, a 37%
decrease from the corresponding period in 1996. The decrease is due primarily to
the fact that shipments of ET6000-based products, which commenced in volume in
the second quarter of 1996, were not sufficient to offset lower shipments and
selling prices of the Company's second generation accelerator products as these
products reached maturation in a rapidly evolving personal computer market.
Sales volumes and selling prices of the Company's ET6000 chip were adversely
affected by both high solution costs for ET6000-based solutions as the ET6000
was designed primarily for use with MDRAM and MDRAM prices have not kept pace
with more industry-standard EDO memory prices and the market transition at the
high end of the graphics market to first generation 3D graphic accelerators
which accelerated in the fourth quarter of 1996. The Company expects operating
losses to continue until the Company is successful in developing and introducing
a 3D graphics product which receives market acceptance. While the Company is
currently attempting to complete development of its first 3D graphics chip,
because of the risks involved in bringing new technologies to market, in the
production process of custom integrated circuits, and the competitive nature of
the graphics market as a whole, there can be no assurance that revenues and
earnings from this product will be sufficient to return the Company to
profitability.
Sales to two customers represented approximately 41% and 54% of the Company's
revenues in the three-month periods ended March 31, 1997 and 1996, respectively.
Cost of sales as a percentage of revenues was 75% and 93%, respectively, for the
three-month periods ended March 31, 1997 and 1996, respectively. The decrease
was due to a change in product mix, with margins on ET6000 sales in the first
quarter being higher than margins generated by the Company's second generation
accelerator products during the corresponding prior year period. The Company
expects pricing pressures to intensify for its 2-D graphics products.
Research and development expense increased by 83% in the three-month period
ended March 31, 1997 when compared to the corresponding period in 1996. The
increase was due to additional personnel and consulting costs to support the
development of the Company's initial 3D graphics products. The Company
anticipates that it will continue to incur significant research and development
expenditures as it continues to develop products to address the very competitive
graphics market
Operating expenses decreased 16% in the three-month period ended March 31, 1997
when compared to the corresponding prior year period as the Company implemented
a plan to reduce operating expenses. Contributing to the decrease were
reductions in non-research personnel costs and lower sales and marketing
expenditures.
The Company recorded an income tax benefit of 35% in both the three-month
periods ended March 31, 1997 and 1996.
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
short-term working capital requirements. Total working capital was $34,362,000
and $36,268,000 at March 31, 1997 and December 31, 1996, respectively. The
decrease in working capital was caused primarily by the Company's operating loss
in the quarter and its investment in facilities, equipment and tools to enhance
its advanced research and product development facilities, systems and functions.
The Company also has a bank line of credit providing total availability of
$2,500,000. There were no borrowings under this line during the three months
ended March 31, 1997.
<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 March 31, 1997.
<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: May 13, 1997 By: /s/JACK TSENG
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Jack H-N Tseng
Chairman, President and CEO
Dated: May 13, 1997 By: /s/JOHN J. GIBBONS
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John J. Gibbons
Executive Vice President
Chief Operating Officer
Dated: May 13, 1997 By: /s/MARK H. KARSCH
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Mark H. Karsch
Senior Vice President
Chief Financial Officer
Dated: May 13, 1997 By: /s/BARBARA J. HAWKINS
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Barbara J. Hawkins
Vice President
Chief Administrative Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,226
<SECURITIES> 19,515
<RECEIVABLES> 3,597
<ALLOWANCES> (206)
<INVENTORY> 1,865
<CURRENT-ASSETS> 37,508
<PP&E> 15,535
<DEPRECIATION> (6,252)
<TOTAL-ASSETS> 47,545
<CURRENT-LIABILITIES> 3,146
<BONDS> 0
0
0
<COMMON> 98
<OTHER-SE> 43,310
<TOTAL-LIABILITY-AND-EQUITY> 47,545
<SALES> 2,600
<TOTAL-REVENUES> 2,600
<CGS> 1,938
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 369
<INCOME-PRETAX> (2,696)
<INCOME-TAX> (944)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,752)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
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