<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 0-12992
SYNTHETECH, INC.
(Exact name of registrant as specified in its charter)
Oregon 84-0845771
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1290 Industrial Way, Albany, Oregon 97321
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(503) 967-6575
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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The number of shares of the registrant's common stock, $.001 par value,
outstanding as of August 7, 1995 was 12,073,062.
Transitional Small Business Disclosure Format (check):
Yes No X
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYNTHETECH, INC.
BALANCE SHEETS
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(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, March 31,
1995 1995
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ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $2,414,000 $1,199,000
Securities available for sale 278,000 250,000
Accounts receivable, less allowance for
doubtful accounts of $13,000 for both periods 936,000 840,000
Inventories 1,655,000 1,581,000
Prepaid expenses 31,000 54,000
Deferred income taxes 39,000 39,000
Other current assets - 7,000
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TOTAL CURRENT ASSETS 5,353,000 3,970,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net 1,088,000 1,052,000
SECURITIES AVAILABLE FOR SALE 1,518,000 1,619,000
OTHER ASSETS 19,000 20,000
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TOTAL ASSETS $7,978,000 $6,661,000
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</TABLE>
See notes to financial statements.
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SYNTHETECH, INC.
BALANCE SHEETS
--------------
(unaudited)
(continued)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, March 31,
1995 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 322,000 $ 179,000
Accrued compensation 93,000 160,000
Income taxes payable 480,000 47,000
Other accrued liabilities 4,000 10,000
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TOTAL CURRENT LIABILITIES 899,000 396,000
DEFERRED INCOME TAXES 21,000 6,000
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding,
12,073,000 and 12,054,000 shares 12,000 12,000
Paid-in capital 5,212,000 5,196,000
Unrealized gain on securities available for sale 52,000 27,000
Retained earnings 1,782,000 1,024,000
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TOTAL SHAREHOLDERS' EQUITY 7,058,000 6,259,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,978,000 $6,661,000
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</TABLE>
See notes to financial statements.
<PAGE>
SYNTHETECH, INC.
STATEMENTS OF INCOME
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(unaudited)
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<CAPTION>
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For The Three Month Period Ended June 30 1995 1994
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REVENUES $2,214,000 $967,000
COST OF SALES 747,000 539,000
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GROSS PROFIT 1,467,000 428,000
RESEARCH AND DEVELOPMENT 59,000 32,000
SELLING, GENERAL AND ADMINISTRATIVE 236,000 167,000
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OPERATING EXPENSE 295,000 199,000
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OPERATING INCOME 1,172,000 229,000
OTHER INCOME (EXPENSE) 59,000 (8,000)
INTEREST EXPENSE - 6,000
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INCOME BEFORE INCOME TAXES 1,231,000 215,000
PROVISION FOR INCOME TAXES 473,000 64,000
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NET INCOME $ 758,000 $151,000
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NET INCOME PER COMMON SHARE 0.06 0.01
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SHARES USED IN PER SHARE CALCULATION 13,115,735 13,088,006
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</TABLE>
See notes to financial statements.
<PAGE>
SYNTHETECH, INC.
STATEMENTS OF CASH FLOWS
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(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
For The Three Month Period Ended June 30 1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 758,000 $151,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and other 47,000 35,000
Gain on sales of property, plant and equipment - (3,000)
Loss on marketable trading securities - 43,000
Purchases of marketable trading securities - (381,000)
Proceeds from sale of marketable trading securities - 354,000
Accrued interest on securities available for sale (28,000) -
Realized gain on sale of securities available for sale (8,000) -
(Increase) decrease in assets:
Accounts receivable, net (96,000) (193,000)
Inventories (74,000) 123,000
Prepaid expenses 23,000 12,000
Other assets 8,000 -
Increase (decrease) in liabilities:
Accounts payable, accrued liabilities and income taxes payable 503,000 (115,000)
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Net cash provided by operating activities 1,133,000 26,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment purchases (82,000) (36,000)
Proceeds from sales of property, plant and equipment - 3,000
Proceeds from sale of securities available for sale 148,000 -
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Net cash used by investing activities 66,000 (33,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt obligations - (7,000)
Proceeds from stock option exercises 16,000 3,000
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Net cash provided by (used by) financing activities 16,000 (4,000)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,215,000 (11,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,199,000 579,000
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,414,000 $568,000
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NON-CASH INVESTING ACTIVITIES:
Unrealized gain on securities available for sale, net of
deferred taxes of $15,000 $ 25,000 -
</TABLE>
See notes to financial statements.
<PAGE>
NOTE A. GENERAL AND BUSINESS
The summary financial statements included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although Synthetech management believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these summary financial statements be read in conjunction with the financial
statements and the notes thereto included in Synthetech's 1995 Form 10-KSB.
Interim financial statements are by necessity somewhat tentative;
judgments are used to estimate quarterly amounts for items that are normally
determinable only on an annual basis. For example, provision for income taxes
is an estimate of the annual liability pro-rated over the quarters of the fiscal
year based on estimates of annual income. Further, all inventory quantities are
verified by physically counting the units on hand at least once a year.
Normally, most inventories are counted at the end of each month. For those
inventories not counted at the end of the quarter, quantities are determined
using measured sales and production data for the period.
The interim period information included herein reflects all
adjustments which are, in the opinion of Synthetech management, necessary for a
fair statement of the results of the respective interim periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for an entire year.
NOTE B. STATEMENTS OF CASH FLOWS
Supplemental cash flow disclosures for the three month period ended
June 30:
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<CAPTION>
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Cash Paid
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1995 1994
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Income Taxes $ 40,000 $ -
Interest $ - $ 7,586
</TABLE>
NOTE C. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of common
shares and common stock equivalents (stock options and warrants) outstanding
during the applicable period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth, for the periods indicated, the percentage
of revenues by each item included in the Statements of Income.
<TABLE>
<CAPTION>
Percentage of Revenues
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For The Three Month Period Ended June 30 1995 1994
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Revenues 100.0% 100.0%
Cost of Sales 33.7 55.7
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Gross Profit 66.3 44.3
Research and Development 2.7 3.3
Selling, General
and Administrative 10.7 17.3
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Operating Expense 13.4 20.6
Operating Income 52.9 23.7
Other Income (Expense) 2.7 (0.8)
Interest Expense - 0.6
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Income Before Income Taxes 55.6 22.3
Provision For Income Taxes 21.4 6.6
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Net Income 34.2% 15.7%
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</TABLE>
REVENUES
Revenues increased by 129% to $2.21 million in the first quarter of fiscal
1996 from $967,000 in the first quarter of fiscal 1995. Sales of Peptide
Building Blocks (PBBs), the Company's primary product line, increased by 173% to
$2.17 million in the first quarter of fiscal 1996 from $796,000 for the first
three months of fiscal 1995. The growth in revenue during the first quarter of
fiscal 1996 as compared to the first quarter of 1995 reflected a significant
increase in the number of customers buying substantial amounts of PBBs. These
larger sales were predominantly for use as raw materials for drugs in various
stages of preclinical and clinical development.
International sales, mainly to Japan and Western Europe, were $629,000 in
the first quarter of fiscal 1996 as compared to $382,000 for the first quarter
of fiscal 1995.
The substantial increase in revenues during the first quarter of fiscal
1996 again demonstrated the continuing potential for
<PAGE>
fluctuations in sales of products. The Company has not yet established a stable
baseload of demand for its products. The Company's products are part of a new
and emerging market with sizable fluctuations in orders between periods. In
most instances, order or reorder cycles for products are not predictable.
Demand for peptide building blocks is extremely variable since individual
clinical trial programs are always subject to significant risk of suspension or
early cancellation and only a small percentage of drugs in clinical trial
programs are ultimately approved for market use. As a result, the Company
expects to continue to see fluctuations in its revenue from period to period.
(See "Industry Factors" below.)
GROSS PROFIT
Gross profit was $1.47 million or 66.3% of revenues in the first quarter of
fiscal 1996 as compared to $428,000 or 44.3% of revenues in the first quarter of
fiscal 1995. The increase in gross profit as a percentage of revenue resulted
from the increased level of revenue combined with the mix of products. The
Company expects these factors to continue to fluctuate from period to period and
cause variations in gross profit margins. Increased revenues positively effect
gross profit margins since a portion of the Company's manufacturing overhead
costs are relatively fixed.
OPERATING EXPENSES
Research and development (R&D) and selling, general and administrative
(SG&A) expenses were $295,000 in the first quarter of fiscal 1996 compared to
$199,000 in the first quarter of fiscal 1995. As a percentage of revenues, R&D
and SG&A expenses decreased to 13.4% in the first quarter of fiscal 1996 from
20.6% in the same period of fiscal 1995 due to the increased level of revenues.
OPERATING INCOME
Operating income increased to $1.17 million or 52.9% of revenues in the
first quarter of fiscal year 1996 compared with $229,000 or 23.7% of revenues in
the first quarter of fiscal year 1995.
OTHER INCOME (EXPENSE)
The $59,000 net other income in the first quarter of fiscal 1996 included
$52,000 of interest earnings, an $8,000 recognized gain on the sale of
securities available for sale, and $1,000 in miscellaneous expense. The $8,000
net expense in the first quarter of fiscal 1995 included $35,000 of interest
earnings, $27,000 in realized losses from the sale of marketable trading
securities, a $19,000 write down of the Company's holdings of marketable trading
securities, and a $3,000 gain on the sale of equipment. In January, 1995, the
Company discontinued its active trading policy with respect to its marketable
securities
<PAGE>
and instead will hold them until maturity unless the Company's cash flow needs
or changes in investment markets dictate otherwise.
NET INCOME
For the first quarter of fiscal 1996 the Company earned $1.23 million
before income taxes. A provision for income taxes of $473,000 resulted in net
income of $758,000. The Company's effective tax rate for the first quarter was
38.4% compared to 29.8% for the first quarter of fiscal 1995. This increase is
primarily attributable to the utilization of all remaining federal net operating
loss carryforwards in fiscal 1995.
INDUSTRY FACTORS
The market for peptide building blocks is driven by the market for the
peptide-based drugs in which they are incorporated. Since there are only a
handful of approved peptide-based drugs on the market today, this market is
still very early in development and a substantial amount of the activity is
occurring at the research level. Developments of new biological information are
creating additional peptide-based drug candidates. Cost pressures in the
pharmaceutical industry, however, have tightened the criteria used to assess
drug prospects at all phases of drug development programs.
As a supplier of building blocks for peptide-based drugs, Synthetech's
revenues will be affected by these industry factors. The high cancellation rate
for drug development programs results in a significant likelihood that there
will be no subsequent or "follow-on" peptide building block sales for any
particular drug development program. Since the majority of Synthetech's revenue
historically has been from peptide building blocks used in drug development
programs, the overall impact on Synthetech's business from this cancellation
rate will depend, to a large extent, on the rate of new drug development efforts
being commenced.
These industry factors combined with timing of customer and regulatory
decisions and other unanticipated events may produce substantial fluctuations in
Synthetech's revenue for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had working capital of $4.45 million compared
to $3.57 million at March 31, 1995. The Company's cash, cash equivalents and
short term securities available for sale at June 30, 1995 totaled $2.69 million.
In addition, the Company had a $1,000,000 bank line of credit of which there was
no amount outstanding at June 30, 1995.
<PAGE>
The increase in accounts receivable to $936,000 at June 30, 1995 from
$840,000 at March 31, 1995 reflected the higher level of sales in the quarter.
The increase of inventory to $1.66 million at June 30, 1995 from $1.58 million
at March 31, 1995 primarily resulted from higher levels of work-in-process
inventory partially offset by lower levels of finished products inventory.
The Company had approximately $82,000 of capital expenditures primarily for
equipment and equipment upgrades during the first three months of fiscal 1996.
The Company anticipates total capital expenditures for fiscal 1996 to be
approximately $350,000. The Company continues to expect to finance these
capital expenditures from operations. The Company believes that its existing
funds, together with cash flow from operations and proceeds from banking
relationships, should be sufficient to meet anticipated funding requirements
over the near term. In addition, the Company is continuing to explore the costs
associated with building additional plant capacity.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) 10.12(1) 1995 Incentive Compensation Plan.
(b) No reports on Form 8-K were filed during the quarter.
---------------
(1) Incorporated by reference to Exhibit A of the definitive copy of
registrant's Proxy Statement (dated June 7, 1995) for the 1995 Annual Meeting of
Shareholders
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYNTHETECH, INC.
----------------
(Registrant)
Date: August 11, 1995 /s/ M. Sreenivasan
-------------------
M. Sreenivasan
President & C.E.O.
Date: August 11, 1995 /s/ Charles B. Williams
------------------------
Charles B. Williams
Vice President, Finance
and Administration,
Chief Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the June 30, 1995 10QSB Balance Sheets, Income Statements, and Cash Flow
Statements, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 2414000
<SECURITIES> 278000
<RECEIVABLES> 949000
<ALLOWANCES> 13000
<INVENTORY> 1655000
<CURRENT-ASSETS> 5353000
<PP&E> 1088000
<DEPRECIATION> 0
<TOTAL-ASSETS> 7978000
<CURRENT-LIABILITIES> 899000
<BONDS> 0
<COMMON> 12000
0
0
<OTHER-SE> 7046000
<TOTAL-LIABILITY-AND-EQUITY> 7978000
<SALES> 2214000
<TOTAL-REVENUES> 2214000
<CGS> 747000
<TOTAL-COSTS> 1042000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1231000
<INCOME-TAX> 473000
<INCOME-CONTINUING> 758000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 758000
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
