<PAGE>
U.S. 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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from to
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Commission file number 0-21410
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INTERNATIONAL CANINE GENETICS, INC.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 23-2418859
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
271 Great Valley Parkway, Malvern, PA 19355
-------------------------------------------
(Address of principal executive offices)(Zip Code)
(610)-640-1244
--------------
(Issuer's telephone number)
Not Applicable
-------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report).
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the close of the latest practical date: 2,819,155 shares of
common stock, par value $.00006 per share, as of May 10, 1996.
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Balance Sheets as of June 30, 1995 and
March 31, 1996..........................................................3
Statements of Operations for the Three Months and
Nine Months Ended March 31, 1995 and 1996 ..............................4
Statements of Cash Flows for the
Nine Months Ended March 31, 1995 and 1996...............................5
Notes to Financial Statements.........................................6-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................10-15
PART II - OTHER INFORMATION..................................................15
SIGNATURES...................................................................16
2
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INTERNATIONAL CANINE GENETICS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1995 1996
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $247,559 $146,975
Accounts receivable, less allowance for doubtful accounts of $47,792
and $47,097 at June 30, 1995 and March 31, 1996, respectively 97,018 153,839
Inventories 64,864 97,140
Prepaid expenses and other current assets 35,935 99,738
------------ ----------
Total current assets 445,376 497,692
Property and equipment, net 236,156 208,246
Intangible assets, net 65,882 99,670
Other assets 58,047 43,747
------------ ----------
Total assets $805,461 $849,355
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $400,000 $500,000
Notes payable-funding agreements 107,162 72,576
Capital leases-current portion 44,877 49,672
Accounts payable 165,087 176,077
Accrued expenses 89,940 144,224
------------ ----------
Total current liabilities 807,066 942,549
------------ ----------
Notes payable-funding agreements 362,769 378,564
Capital leases-long term 102,747 65,437
Notes payable-shareholder 8,880 9,323
Deferred compensation 168,851 193,068
------------ ----------
Total liabilities 1,450,313 1,588,941
------------ ----------
Stockholders' deficit:
Common stock, par value $.00006, authorized 10,000,000 shares, issued 1,835,000
and 2,843,115 shares at June 30, 1995 and
March 31, 1996, respectively 109 169
Additional paid-in capital 10,341,478 11,551,560
Treasury stock, at cost, 23,960 shares (8,439) (8,439)
Accumulated deficit (10,978,000) (12,282,876)
------------- -----------
Total stockholders' deficit (644,852) (739,586)
============= ===========
Total liabilities and stockholders' equity $805,461 $849,355
============= ===========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
March 31, March 31,
-------------------------- -------------------------
(Unaudited) (Unaudited)
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $393,919 $461,144 $1,087,709 $1,218,689
Cost of revenues 209,436 260,159 590,132 685,452
---------- ---------- ------------ ------------
Gross profit 184,483 200,985 497,577 533,237
---------- ---------- ------------ ------------
Operating expenses:
Research and development expenditures 140,606 144,933 413,477 417,456
Selling, general and administrative 415,899 363,307 1,161,549 1,137,793
Advertising and promotional expense 96,218 51,902 219,316 243,981
---------- ---------- ------------ ------------
652,723 560,142 1,794,342 1,799,230
---------- ---------- ------------ ------------
Loss from operations (468,240) (359,157) (1,296,765) (1,265,993)
Interest income 5,320 3,421 26,795 11,771
Interest expense (12,453) (24,395) (35,161) (50,893)
Other income, net 12,357 (173) 13,379 239
---------- ---------- ------------ ------------
Net loss ($463,016) ($380,304) ($1,291,752) ($1,304,876)
========== ========== ============ ============
Net loss per share of common stock ($0.26) ($0.13) ($0.71) ($0.49)
========== ========== ============ ============
Shares of common stock outstanding
(weighted average) 1,811,040 2,819,155 1,811,040 2,646,230
========== ========== ============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended March 31,
---------------------------
(Unaudited)
1995 1996
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net loss ($1,291,752) ($1,304,876)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 34,118 37,704
Deferred compensation 36,339 24,217
Provision for uncollectible accounts 4,015 --
Gain on sale of property and equipment (17,500) --
Change in operating assets and liabilities:
Increase in accounts receivable (39,571) (56,821)
Increase in inventories (4,212) (32,276)
Increase in prepaid expenses and other current assets (29,977) (63,803)
(Decrease) increase in accounts payable (26,842) 10,990
(Decrease) increase in accrued expenses (3,001) 64,424
Increase in accrued interest payable-note payable-shareholder 443 443
Increase in accrued interest payable-funding agreements 18,743 15,795
----------- -----------
Total adjustments (27,445) 673
----------- -----------
Net cash used by operating activities (1,319,197) (1,304,203)
----------- -----------
Cash flow from investing activities:
Capital Expenditures (32,770) (2,644)
Purchase of technology license -- (40,938)
----------- -----------
Net cash used by investing activities (32,770) (43,582)
----------- -----------
Cash flow from financing activities:
Net proceeds from issuance of common stock -- 800,000
Borrowings under note payable -- 500,000
Payments under notes payable-funding agreements (12,210) (34,586)
Payments under notes payable-shareholder (295) --
Decrease in security deposits 3,412 14,301
Payment of obligations under capital leases (25,601) (32,514)
----------- -----------
Net cash (used in) provided by financing activities (34,694) 1,247,201
----------- -----------
Net decrease in cash and cash equivalents (1,386,661) (100,584)
Cash and cash equivalents at beginning of period 1,575,673 247,559
----------- -----------
Cash and cash equivalents at end of period $ 189,012 $ 146,975
=========== ===========
Supplemental cash flow disclosures:
Cash used in operating activities include:
Cash paid for interest $28,478 $48,755
Noncash investing and financing activities:
Disposal of asset-note received $17,500 --
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation:
The financial information included herein as of March 31, 1996 and
for the three and nine month periods ended March 31, 1996 and 1995 is unaudited;
however, such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the statement of results of operations for the interim
periods. The results of operations for the three and nine month periods ended
March 31, 1996 are not necessarily indicative of the results to be expected for
the year.
Note 2. Liquidity:
The Company has incurred losses from operations since inception as it
has been developing its products and marketing channels. The continuing losses
and the Company's current working capital position raise substantial doubt about
the Company's ability to continue as a going concern. The Company's ability to
support its operations with product sales is dependent on the Company's ability
to raise additional funds to finance further product development and marketing,
as well as, the successful completion of such activities.
Management believes that the Company will be able to attract new
sources of funds to enable the Company to continue the development and marketing
of its products and services until such time as the Company can internally
support its operations with sales of products and services. However, no
assurance can be given that such funds will be available or that the funds will
be available on terms which are satisfactory or advantageous to the Company or
its shareholders.
Note 3. Net Loss Per Share of Common Stock:
The net loss per share of Common Stock is computed using the weighted
average number of shares of Common Stock outstanding during the period. In the
calculation, the effect of stock options and warrants are excluded as their
effect is anti-dilutive.
Note 4. Supplemental Cash Flow Information:
During the nine months ended March 31, 1996, the principal
shareholder of the Company converted $400,000 of demand notes and $10,144 of
accrued interest into 328,115 shares of Common Stock at $1.25 per share.
Note 5. Capitalization:
In January, 1993 the Company entered into an agreement with Gilford
Securities Inc. (Gilford) whereby Gilford would underwrite, on a firm commitment
basis, the public offering of the Company's Common Stock and Common Stock
Warrants. Pursuant to a letter of intent with Gilford, the Company, upon written
approval of a majority of the shareholders of all classes of stock, entered into
a Recapitalization Agreement.
In accordance with the Recapitalization Agreement, all outstanding
shares of Series A and B Convertible Preferred Stock were converted into shares
of Common Stock and concurrently, a reverse stock split was effected and all
outstanding shares of Common Stock were converted on a 1 for 6 basis, $760,000
of bridge loans plus $55,591 of accrued interest were converted into 116,513
6
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INTERNATIONAL CANINE GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
shares of Common Stock, 70,000 Preferred-A warrants were exchanged for 1,667
shares of Common Stock, warrants to purchase 43,452 shares of Series A Preferred
Stock were exchanged for warrants to purchase 7,242 shares of Common Stock
exercisable at $8.40 per share over five years, 18,623 Preferred B warrants were
exchanged for warrants to purchase 3,104 shares of Common Stock exercisable at
$8.40 per share over five years, and 300,000 Common Stock warrants, exercisable
at $1.50 per share over five years, were exchanged for warrants to purchase
50,000 shares of Common Stock at $8.40 per share over five years.
On March 31, 1993, the Company received gross proceeds of $5,005,000
and net proceeds of $4,121,908 after payments of $883,093 of expenses in
connection with the initial public offering and sales of 715,000 units (each
unit consisting of one share of Common Stock and one Common Stock warrant). On
April 1, 1993, the Company utilized part of the net proceeds from the offering
to repay $611,697 of short term borrowings and accumulated interest thereon.
In accordance with the terms of the Company's initial public
offering, the 715,000 Units separated into 715,000 shares of Common Stock and
715,000 Warrants to purchase Common Stock on March 24, 1994. The shares of
Common Stock and Warrants trade separately on the OTC Bulletin Board and trading
of the Units, all of which have been separated, has ceased.
On August 17, 1995, S.R. One Limited, the Company's major
shareholder, invested cash of $850,000 and converted $400,000 of demand notes
and accrued interest of $10,144 into 1,008,115 newly issued shares of Common
Stock at $1.25 per share.
On December 22, 1995, the Company borrowed $500,000 from S. R. One,
Limited, under the terms of a demand note agreement bearing interest at the
prime rate plus two points.
Note 6. Stock Option Plan:
The Company maintains a stock option plan whereby employees,
consultants and advisors may be granted incentive stock options ("ISO") or
non-qualified stock options ("NSQ") to purchase up to 490,000 shares of the
Company's Common Stock. The ISO exercise price is determined by the Compensation
and Stock Option Committee subject to a minimum exercise price equal to the fair
market value of the Company's Common Stock on the date of the grant. The NSQ
exercise price is determined by the Compensation and Stock Option Committee. The
options vest over a four year period and expire 10 years from the date of the
grant.
7
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
A summary of stock option activity is as follows:
Outstanding as of June 30, 1993 42,042 $1.35
Granted ........................ 82,332 $7.00
Granted ........................ 99,250 $2.00
Exercised ...................... -- --
Canceled ....................... -- --
------- --------------
Outstanding as of June 30, 1994 223,624 $1.35 - $7.00
Granted ........................ -- --
Exercised ...................... -- --
Canceled ....................... 5,510 $2.00 - $7.00
------- --------------
Outstanding as of June 30, 1995 218,114 $1.35 - $7.00
Granted ........................ 150,450 $1.25
Exercised ...................... -- --
Canceled ....................... 11,465 $1.25 - $7.00
------- --------------
Outstanding as of March 31, 1996 357,099 $1.25 - $7.00
======= ==============
At March 31, 1996, options for 202,949 shares were exercisable and
132,901 shares were available for future grants under the plan.
During the nine month period ended March 31, 1996, the Company
recognized $24,217, as compensation expense in connection with options granted
at a price below the initial public offering price of the Common Stock.
Note 7. Stock Warrants:
In March 1993, 715,000 warrants ("Public Warrants") to purchase
Common Stock were issued as part of the Company's initial public offering. In
this offering, the Company sold 715,000 Units each consisting of one share of
Common Stock and one Common Stock warrant. The warrants were originally issued
with a term of five years and an initial exercise price of $10.00 per warrant.
However, as the Company did not generate revenues of $7 million during the
fiscal year ending June 30, 1995, the exercise price was reduced to $5.00 per
warrant.
In addition, the underwriter of the Company's initial public offering
received, as part of its compensation, warrants ("Underwriters' Warrants") to
purchase 71,500 Units (each Unit consisting of one share of Common Stock and one
redeemable Common Stock Warrant). The Underwriters' Warrants were originally
issued with a term of five years and an exercise price of $8.40 per Warrant. The
Common Stock Warrants contained in the Units had the same terms and
characteristics as the Public Warrants issued as part of the initial public
offering.
8
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
The terms of the Public Warrant and the Underwriters' Warrant
Agreements provided the holders of the Warrants with anti-dilution protection if
the Company issued Common Stock or equivalents, including stock options, at a
price below the exercise prices of those Warrants. During the year ended June
30, 1994, the Company issued stock options under its 1992 Stock Option Plan at
$7.00 per share and $2.00 per share. As a result, the exercise price of the
Public Warrants adjusted to $9.66 per Warrant and the number of shares covered
by the Public Warrants increased to 740,166 shares. The exercise price of the
Underwriters' Warrants adjusted to $1.76 per share and the securities covered by
the Underwriters' Warrants adjusted to 341,250 shares of Common Stock and
341,250 Redeemable Warrants. The Redeemable Warrants contained in the
Underwriters' Warrants had an exercise price of $9.66 per share and were
exercisable into 353,262 shares of Common Stock.
On August 16, 1995, the Board of Directors approved modifications to
the 715,000 Public Warrants. The exercise price of the Public Warrants was
reduced from $5.00 per warrant to $1.25 per Warrant and the term of each Public
Warrant was extended from March 24, 1998 to March 24, 2000.
In addition, in order to simplify the Company's capital structure and
eliminate certain onerous anti-dilution provisions, the holders of 60,346
warrants to purchase Common Stock at an exercise price of $8.40 per warrant
exchanged their warrants for 245,692 warrants to purchase Common Stock with the
same terms and conditions as the Public Warrants. Also, the Underwriter of the
Company's initial public offering exchanged the 71,500 Underwriters' Warrants
for 71,500 warrants to purchase Common Stock on the same terms and conditions as
the Public Warrants.
Note 8. Commitments and Contingent Liabilities:
The Company leases equipment and office, research,
manufacturing/warehouse space under various non-cancelable operating leases with
third parties. The leases range from three to five years and require the Company
to pay all insurance, taxes and operating expenses.
During the year ended June 30, 1994, the Company entered into a
5-year lease agreement and expanded its Malvern, PA facility from 4,725 square
feet to 9,240 square feet. Also during the year, in connection with its facility
expansion, the Company acquired office, product development, manufacturing and
warehouse equipment under non-cancelable capital lease agreements. Under the
terms of the leases, the Company is required to pay all taxes, insurance
premiums and maintenance expenses related to the leased equipment.
At March 31, 1996, the Company has a letter of credit outstanding in
the amount of $15,700 which guarantees a telephone equipment lease. The contract
amount of the letter of credit is for approximately 40% of the fair value of the
lease at its inception and decreases annually over the life of the lease.
9
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INTERNATIONAL CANINE GENETICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating Results - Three months ended March 31, 1996 compared with the three
months ended March 31, 1995.
Revenues
Net revenues for the three months ended March 31, 1996 were $461,000
representing an increase of 17% compared to the $394,000 reported for the three
months ended March 31, 1995.
Overall diagnostic product and service revenues increased 24% to
$148,000 in the third quarter of fiscal 1996 compared to $119,000 in the same
quarter of fiscal 1995. Revenues from the Company's ovulation timing diagnostic
kits sold to veterinarians increased 20% to $132,000 in the fiscal 1996 quarter
from $110,000 in the fiscal 1995 quarter as the Company continued to expand the
market awareness of the benefits of these products. Optimate, the Company's
at-home ovulation confirmation test sold to dog breeders and which was
introduced in October, 1995, contributed $12,000 to overall diagnostic revenues
during the fiscal 1996 quarter. Partially offsetting the above increases were
lower revenues from the Company's in-house testing services which declined from
$10,000 in the fiscal 1995 quarter to $4,000 in the fiscal 1996 quarter. The
reduction was due in part to the use, by veterinarians, of the Company's
diagnostic kits compared to the in-house testing service.
Overall revenues from PennHIP, the Company's canine hip dysplasia
diagnostic technology, grew 41% to $87,000 in the fiscal 1996 quarter from
$62,000 in the fiscal 1995 quarter. Revenues from the training of new
veterinarians in the PennHIP technology increased 42% to $67,000 in the fiscal
1996 quarter from $47,000 in the fiscal 1995 quarter. This increase was due
entirely to the initiation of the PennHIP program in Japan. In March, 1996, the
Japan Kennel Club (JKC) agreed to include PennHIP in the JKC HIP Registry and
the Company conducted the first international training seminar for veterinarians
in Tokyo and Kyoto. These training seminars contributed $45,000 to total
training revenues. Revenues from the Company's evaluation of PennHIP
radiographs, submitted by trained and certified veterinarians, increased 36% to
$20,000 in the fiscal 1996 quarter from $15,000 in the fiscal 1995 quarter.
Overall breeding services revenues, which consist of frozen and chilled
semen products and services, increased 8% to $180,000 in the fiscal 1996 quarter
from $167,000 in the fiscal 1995 quarter. Frozen semen revenues increased 10% to
$140,000 in the fiscal 1996 quarter from $127,000 in the fiscal 1995 quarter.
The increase was principally due to higher frozen semen revenues generated at
the Company's Malvern, PA facility and by independently owned and operated semen
freezing centers, driven by increased awareness and acceptance of the benefits
of frozen semen by dog breeders and their veterinarians, as well as increased
frozen semen storage fees.
Overall chilled semen revenues increased 1%. Higher veterinary
reproductive service fees offset slightly lower revenues from sales of kits to
perform chilled semen breedings and veterinary training materials.
Nutritional supplement revenues increased 15% to $22,000 in the fiscal
1996 quarter from $19,000 in the fiscal 1995 quarter.
10
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INTERNATIONAL CANINE GENETICS, INC.
During the three months ended March 31, 1996, revenues from the
Duurstede line of grooming products declined 17% from $9,000 in the fiscal 1995
quarter to $7,000 in the fiscal 1996 quarter. The decline was due primarily to
the timing of dog show distributor orders.
During the third quarter of fiscal 1995, the Company recorded
revenues of $6,000 in connection with the Military Working Dog contract. As the
first and second phases of this contract are now complete, the Company did not
generate any revenue in the fiscal 1996 quarter from this activity. The Company
expects to complete the third and final phase of the contract during the fourth
quarter of fiscal 1996.
Gross Profit
Gross profit increased 9% to $201,000 in the fiscal 1996 quarter from
$184,000 in the fiscal 1995 quarter. The gross profit margin for the fiscal 1996
quarter was 43.6% of net revenues compared to a gross profit margin of 46.8% of
net revenues in the fiscal 1995 quarter. The major reason for the decline in the
gross profit margin was the cost involved in conducting the PennHIP training
sessions in Japan which was significantly higher than domestic training
sessions.
Operating Expenses
Research and development expenditures increased 3% to $145,000 in the
fiscal 1996 quarter from $141,000 in the fiscal 1995 quarter. The increase in
expenses is due entirely to the costs involved with the development of a canine
pregnancy test kit.
Selling, general and administrative expenses declined 13% from
$416,000 in the fiscal 1995 quarter to $363,000 in the fiscal 1996 quarter. The
major reasons for this reduction were expense control measures implemented by
the Company in December, 1995, which included a reduction in the number of
employees.
Advertising and promotional expenses declined 46% from $96,000 in the
fiscal 1995 quarter to $52,000 in the 1996 quarter. The decline is due entirely
to the expense control measures implemented by the Company in December, 1995
which curtailed advertising expenditures.
Loss from Operations
The Company's loss from operations declined 23% to $359,000 in the
fiscal 1996 quarter from $468,000 in the fiscal 1995 quarter, as a result of the
growth in revenues and gross profit and the reduction in operating expenses.
Interest Income
Interest income for the three months ended March 31, 1996 was $3,000
compared to $5,000 for the three months ended March 31, 1995. The decrease in
interest income was due entirely to the reduced amount of cash available for
investment by the Company.
11
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INTERNATIONAL CANINE GENETICS, INC.
Interest Expense
Interest expense in the 1996 fiscal quarter was $24,000 compared to
$12,000 in the 1995 fiscal quarter. The increase is due entirely to the interest
expense incurred on the S. R. One, Limited., bridge loan of $500,000, which was
borrowed in December, 1995 to continue to fund operations.
Other Income and Expense
Net Loss per Share of Common Stock
The net loss per share of Common Stock for the fiscal 1996 quarter
was $0.13 compared to a net loss per share of Common Stock of $0.26 during the
fiscal 1995 quarter. The increase in the number of shares of Common Stock
outstanding during the fiscal 1996 quarter accounted for $0.08 of the reduction
in the net loss per share while a reduction in the Company's net loss accounted
for $0.05 of the reduction in the net loss per share.
Operating Results - Nine months ended March 31, 1996 compared with the nine
months ended March 31, 1995.
Revenues
Net revenues for the nine months ended March 31, 1996 were
$1,219,000, representing a 12% increase compared to the $1,088,000 in net
revenues reported for the nine months ended March 31, 1995.
Overall diagnostic revenues increased 16% to $363,000 for the nine
months ended March 31, 1996 compared to $314,000 for the comparable nine months
ended March 31, 1995. Revenues from the Company's ovulation timing kits sold to
veterinarians increased 14% to $322,000 in the fiscal 1996 period from $281,000
in the fiscal 1995 period as the Company continued to expand the awareness of
its ovulation timing products. Optimate, the Company's at-home ovulation
confirmation test which is sold to dog breeders and which was introduced in
October, 1995, contributed $28,000 to overall diagnostic revenues. Partially
offsetting the above increases were lower revenues from the Company's in-house
testing services which declined from $33,000 in the fiscal 1995 period to
$14,000 in the fiscal 1996 period. The decline was due primarily to the use, by
veterinarians, of the Company's diagnostic kits compared to the Company's
in-house testing service.
Overall PennHIP revenues grew 7% to $201,000 in the fiscal 1996
period from $188,000 in the fiscal 1995 period. Revenues from the Company's
evaluation of PennHIP radiographs, increased 98% to $58,000 in the fiscal 1996
period from $29,000 in the fiscal 1995 period as the Company continued to expand
its network of trained and certified veterinarians who are making PennHIP
available to their clients. Revenues from training new veterinarians in the
PennHIP technology declined 10% to $143,000 in the fiscal 1996 period from
$159,000 in the fiscal 1995 period as the Company trained fewer veterinarians
domestically.
Overall breeding services revenues, which include both frozen and
chilled semen, increased 12% to $506,000 in the fiscal 1996 period from $452,000
in the fiscal 1995 period. Frozen semen revenues increased 17% to $400,000 in
the fiscal 1996 period from $341,000 in the fiscal 1995 period. Revenues from
the collection and freezing of semen at the Company's Malvern, PA facility and
through the network of independently owned and operated veterinary practices
increased 5% to $249,000 in the fiscal 1996 period from $238,000 in the fiscal
1995 period. Revenues from the long term storage of frozen semen increased 37%
to $98,000 in the fiscal 1996 period from $72,000 in the fiscal 1995 period.
Revenues from the training and equipping of new veterinary centers in the
12
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INTERNATIONAL CANINE GENETICS, INC.
collecting and freezing of semen added $52,000 to the overall increase of frozen
semen revenues during the fiscal 1996 period compared to $53,000 during the
fiscal 1995 period.
Overall chilled semen revenues declined 4% to $106,000 in the fiscal
1996 period from $111,000 in the fiscal 1995 period. Higher revenues from
reproductive veterinary services, which increased to $24,000 in the fiscal 1996
period from $19,000 in the fiscal 1995 period, were offset by lower revenues
from kits to perform long range breedings and from veterinary training
materials.
Nutritional supplement product revenues declined 9% from $66,000 in
the fiscal 1995 period to $60,000 in the fiscal 1996 period as the Company has
been actively evaluating alternate means of marketing and distribution
Revenues from the Company's grooming products, which it markets under
an exclusive marketing agreement entered into in September, 1994, increased from
$13,000 in the fiscal 1995 period to $31,000 in the fiscal 1996 period.
Gross Profit
The Company's gross profit increased 7% from $498,000 for the nine
months ended March 31, 1995 to $533,000 for the nine months ended March 31,
1996. The gross profit margin declined to 43.8% of net revenues in the fiscal
1996 period from 45.7% of net revenues in the fiscal 1995 period. The major
reason for the decline in the gross profit margin was the higher cost involved
in conducting the PennHIP training seminars and from increased facility overhead
expenses.
Operating Expenses
Selling, general and administrative expenses declined 2% to
$1,138,000 in the fiscal 1996 period from $1,162,000 in the fiscal 1995 period.
The expense decline was due to expense control measures implemented by the
Company in December, 1995, which included a reduction in the number of
employees.
Advertising and promotional expenses increased 11% to $244,000 in the
fiscal 1996 period from $219,000 in the fiscal 1995 period. The increase in
advertising and promotional expenses was due primarily to market introduction
activities related to Optimate, the Company's at-home ovulation confirmation
test, which was released to the market in October, 1995.
Loss from Operations
The Company's loss from operations decreased 2% to $1,266,000 in the
fiscal 1996 period from $1,297,000 in the fiscal 1995 period and was due
entirely to the increase in sales and gross profit.
Interest Income
Interest income for the nine months ended March 31, 1996 was $12,000
compared to $27,000 for the nine months ended March 31, 1995. The decline in
interest income was due entirely to the reduced amount of cash available for
investment by the Company.
13
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
Interest Expense
Interest expense for the nine months ended March 31, 1996 was $51,000
compared to $35,000 for the nine months ended March 31, 1995. The primary reason
for the increase was the interest incurred on the $500,000 borrowed from S. R.
One, Limited in December, 1995.
Net Loss per Share of Common Stock
The net loss per share of Common Stock was $0.49 for the fiscal 1996
period compared to $0.71 for the fiscal 1995 period. The decrease in the loss
per share of Common Stock was due entirely to the increase in the number of
shares outstanding as a result of the $1,250,000 investment by S. R. One,
Limited in August, 1995. The impact of the increase in the number of shares of
Common Stock outstanding was to reduce the net loss per share of Common Stock in
the fiscal 1996 period by $0.23 per share.
Liquidity and Capital Resources
At March 31, 1996, the Company had a net working capital deficiency of
$445,000 and net cash used in operating activities for the nine months ended
March 31, 1996, of $1,304,000. The Company has incurred losses from inception
and had an accumulated deficit of $12,283,000 as of March 31, 1996. These facts
raise substantial doubt about the Company's ability to continue as a going
concern. The Company will require funds in addition to those currently available
to continue its sales, marketing and product development activities for at least
the next twelve months. To that end, on August 17, 1995, S. R. One, Limited, the
Company's majority shareholder, invested $850,000 and converted $400,000 of
demand notes and accrued interest of $10,144 into 1,008,115 shares of newly
issued Common Stock at $1.25 per share. In addition, on December 22, 1995, S. R.
One, Limited advanced to the Company $500,000 under the terms of a demand note
bearing interest at the prime rate plus two points. Management continues to
explore other financing options, however, no assurances can be given that such
funds will be available or that such funds will be available on terms which are
satisfactory or advantageous to the Company or its shareholders.
The Company had a cash flow deficiency from operations of $1,304,000
for the nine months ended March 31, 1996, compared to a deficiency of $1,319,000
for the nine months ended March 31, 1995. The Company's net loss increased from
$1,292,000 in the fiscal 1995 period to $1,305,000 in the fiscal 1996 period as
the increase in operating expenses outpaced the growth of revenues and gross
profit. The increase in operating expenses was due entirely to costs associated
with the market introduction of Optimate, the Company's new at-home ovulation
confirmation diagnostic test kit, which was introduced in October, 1995. The
Company expects to continue spending for research and product development,
selling, general and administrative and advertising and promotional activities
and expects cash flow from operations to continue to be negative unless and
until such time as revenues and gross profits from sales of products and
services exceed operating expenditures.
During the nine months ended March 31, 1996, the Company purchased
approximately $3,000 of capital equipment. The Company, subject to the
availability of resources, expects to continue to invest in capital equipment
based on its need to expand capabilities to support research, product
development, manufacturing and distribution, the PennHIP program and to
accommodate increased sales volume.
On October 19, 1995, the Company signed an agreement with the Cornell
Research Foundation, the University of Medicine and Dentistry of New Jersey and
New York University for the exclusive rights to the U. S. patent entitled
14
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
"Relaxin Testing for Early Detection of Pregnancy in Dogs." Payments associated
with this agreement and legal fees incurred with this transaction amounted to
$41,000. In addition, the Company has entered into a Sponsored Research
Agreement with each university for the co-development of a canine pregnancy test
kit based on the underlying technology covered by the patent.
Part II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES
NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
NOT APPLICABLE
ITEM 5. OTHER INFORMATION
NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NOT APPLICABLE
15
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
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.
International Canine Genetics, Inc.
(Registrant)
Date: May 14, 1996 /s/ Paul A. Rosinack
-------------------
Paul A. Rosinack
President and
Chief Executive Officer
Date: May 14, 1996 /s/ John R. Bauer
----------------
John R. Bauer
Chief Financial Officer, Treasurer
and Secretary
16
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