ITEM 1. BUSINESS
The following discussion of Synthetech's business should be read in conjunction with our financial statements and the related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements relating to future events or the future financial performance of Synthetech. Synthetech’s actual results could differ materially from those anticipated in these forward-looking statements. Please see "Forward-Looking Statements" included in Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Item 1A
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below as well as the other information contained in this Annual Report on Form 10-K in evaluating us, our business and your investment in us. If any of the following risks actually occur, our business, financial condition, operating results or cash flows could be harmed. Additional risks, uncertainties and other factors that are not currently known to us or that we believe are not currently material may also adversely affect our business, financial condition, operating results or cash flows.
Synthetech's cash position is limited and at times in the past we have incurred substantial losses and negative cash flow. As of March 31, 2010, Synthetech had cash and cash equivalents of $1.1 million. Synthetech was not profitable from fiscal 2001 through 2006 and again in fiscal 2008. Further significant losses or negative cash flow and a resulting deterioration in Synthetech’s cash position and working capital would impair our ability to continue operations in their present form, if at all. Operating losses, unanticipated expenses or our pursuit of strategic opportunities may require additional debt or equity financing. Any required financing may not be available when needed or on acceptable terms. If we were to raise additional funds by issuing equity, the percentage ownership of our existing shareholders would be diluted, and these securities might have rights superior to those of our common stock. If we were to incur additional indebtedness, our interest expense and leverage would increase, as would the number of creditors’ claims taking priority over any distributions to shareholders if we were to cease operations.
As a manufacturer, Synthetech continually faces risks regarding the availability and costs of raw materials and labor, the sourcing of and financing for additional capital equipment and increased maintenance costs.
The market for our products is uncertain, which could cause period-to-period revenue fluctuations. Historically, Synthetech has experienced substantial period-to-period revenue fluctuations reflecting the industry environment in which Synthetech operates and fluctuating levels of customer orders. The market for our products is driven primarily by the market for synthetically manufactured peptide, peptidomimetic, small molecule and other drugs into which they are incorporated. The drug development process is dictated by the marketplace, drug companies and the regulatory environment. Synthetech has no control over the pace of peptide, peptidomimetic, small molecule and other drug development, which drugs get selected for clinical trials, which drugs are approved by the FDA, and, even if approved, the ultimate market potential of such drugs. Recurring sales of Synthetech’s products for discovery or clinical trial stage development programs are not consistent or predictable. The high failure rates for drug development programs results in a significant likelihood that there will be no subsequent or “follow-on” sales for any particular drug development program. Accordingly, the level of purchasing by our customers for specific drug development programs varies substantially from period to period and we cannot rely on any one customer or project as a consistent source of revenue.
Although revenue associated with marketed products is more likely to provide a longer term, ongoing revenue stream than revenue associated with drugs at the clinical or discovery stages, continuation of customer demand for our products from customers with marketed products remains subject to various market conditions, including potential use of alternative manufacturing methods, continued market demand for drugs that we support, and competition from other suppliers. Accordingly, while significant orders related to marketed products provide substantial and more predictable revenue, we expect revenue to continue to fluctuate significantly from period to period.
We depend on a small number of customers. A few Synthetech customers, who generally vary from year to year, and their large-scale projects have accounted for the majority of our revenue each year. We expect this dependence to continue. During fiscal 2010, our top ten customers accounted for approximately 84% of our revenue and the largest three customers accounted for approximately 62% of our revenue. The loss of any key customer or the loss or termination of any large-scale project could significantly harm our operating results, financial condition and business.
Production problems may decrease our revenues and increase our costs. We have seen significant improvements in our production processes during fiscal 2009 and 2010. However, in prior periods, production process difficulties have reduced revenue and increased per unit costs, significantly hindering our financial results. We continue to address weaknesses in our manufacturing processes. In addition, despite Synthetech's process technology and manufacturing experience, initial batches of new products and scaling up production of existing products may result in significantly lower than expected yields or may require substantial rework to meet the required specification. Production of new products may result in write-offs if the manufacturing costs associated with new processes exceed the selling price for the initial batches of product. Any write-offs reduce our gross margin.
The present economic downturn may impair the financial soundness or continuing viability of our customers, which could adversely affect Synthetech’s results of operations. If Synthetech’s customers are unsuccessful in generating sufficient revenue or are precluded from securing financing, they may reduce their purchases of our products or may not be able to pay, or may delay payment of, accounts receivable that are owed to us. In particular, revenue from emerging biopharmaceutical companies could be adversely affected if these customers are unable to obtain necessary additional funding from the financial markets. In addition, the economic downturn may cause some of our customers to discontinue operations. Any inability of current or future customers to continue to purchase products or to pay us for purchased products will adversely affect our results of operations and cash flow.
The current capital and credit market conditions may adversely affect our access to capital and cost of capital. The general economic and capital market conditions in the United States and other parts of the world have adversely affected access to capital and increased the cost of capital. If these conditions continue or become worse, Synthetech’s cost of capital and our access to capital could be adversely affected. Synthetech’s current lender is a finance company that receives its liquidity and lending capacity from bank borrowings. If Synthetech’s lender is unable to borrow funds from its banks, our ability to continue to borrow under our line of credit with the lender or refinance our term debt with such lender if needed would be impaired.
The current economic downturn may adversely affect parties that control our cash management system, which could adversely affect our liquidity and business. We are subject to a cash management system as part of our credit facility arrangement, pursuant to which most or all of our cash flows to accounts controlled by our lender. If the current economic downturn or other factors were to affect the continued viability of this lender, our access to cash subject to this system could be harmed, which would adversely affect our financial condition, liquidity and ability to meet our financial obligations.
Some of our products are subject to downward price pressure. As successful customer projects develop into larger volume orders either during late-stage clinical trials, product pre-launch or for marketed products, Synthetech’s per unit price may decline. Additionally, the international fine chemicals industry, in which Synthetech is a niche participant, has been marked by overcapacity and increasing competition from developing countries, resulting in downward pressure on pricing. Downward price pressure and resulting price declines could significantly decrease our gross margin if not offset by an increase in customer requirements.
The loss of any of our key personnel could materially adversely affect our business. Synthetech’s success depends largely on its President and Chief Executive Officer, its Vice President of Finance and Chief Financial Officer, its Vice President of Sales and Marketing, its Vice President of Operations and its Technical Director and other key employees, particularly its chemists. Synthetech does not have key-man life insurance on any of these employees. The loss of any of these key employees could result in delays to production, loss of sales and diversion of management resources. There is substantial competition for experienced technical and, sales and marketing personnel in the fine chemicals industry where some of Synthetech's competitors have greater resources than Synthetech. If Synthetech is unable to retain its existing personnel, or attract and retain additional qualified personnel, it could have a material adverse effect on Synthetech.
We face increasing competition. As the market for our products has continued to mature with multi-ton order sizes becoming more prevalent, the competition in our market sector has intensified. Current competition in the multi-kilo or smaller quantities of natural amino acid based products comes primarily from several European fine chemical companies. Multi-ton order sizes of these natural amino acid based products have begun to attract competition from a wider group of domestic and international chemical companies. In the area of synthetic amino acid based products, we face competition on a selective product basis from fine chemical producers in Europe, Japan and the United States. Competition from companies in China, India and South Korea persists and management believes that this source of competition will continue in the foreseeable future. Competitors with operations based in developing countries may benefit from a lower cost structure than similar operations based in developed countries such as the United States.
We face risks of technological change. The market for Synthetech’s products is characterized by changes in both product and process technologies. Our future operating results will depend upon our ability to improve and market our existing products and to successfully develop, manufacture and market new products. We may not be able to continue to improve and market our existing products or develop and market new products, and technological developments could cause our existing products and technologies to become obsolete or noncompetitive.
Industry cost factors beyond our control may adversely affect our revenue and profits. The market for Synthetech’s products used by pharmaceutical companies depends on the market for pharmaceutical products. The levels of revenue and profitability of pharmaceutical companies may be adversely affected by the continuing efforts of governmental and third party payers to contain or reduce the cost of health care through various means. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar government controls on pricing or profitability. In addition, in the United States and elsewhere, sales of prescription pharmaceuticals depend in part on the availability of reimbursement to the consumer from third party payers such as government and private insurance plans. Third party payers are increasingly challenging the prices charged for medical products and services. Peptide, peptidomimetic and small molecule drugs may not be considered cost effective, and reimbursement may not be available or sufficient to allow these drugs to be sold on a profitable basis. In addition, as cost pressures in the pharmaceutical industry have tightened, the cancellation rate for drug development programs has increased. Industry cost pressures can also cause pharmaceutical companies to investigate alternative drug manufacturing processes that may not include Synthetech’s products.
We are subject to significant environmental regulation. Synthetech is subject to a variety of federal, state and local laws, rules and regulations related to the discharge or disposal of toxic, volatile or other hazardous chemicals. The failure to comply with present or future regulations could result in fines being imposed on Synthetech, suspension of production or cessation of operations. Third parties may also have the right to sue to enforce compliance. Moreover, it is possible that increasingly strict requirements imposed by environmental laws and enforcement policies thereunder could require us to make significant capital expenditures. The operation of a chemical manufacturing plant entails an inherent risk of environmental damage or personal injury due to the handling of potentially harmful substances, and we may incur material costs and liabilities in the future because of an accident or other event resulting in personal injury or unauthorized release of such substances into the environment. In addition, Synthetech generates hazardous materials and other wastes that are disposed at various offsite facilities. Synthetech may be liable, irrespective of fault, for material cleanup costs or other liabilities incurred at these disposal facilities in the event of a release of hazardous substances by such facilities into the environment. Although we have obtained environmental risk insurance, it may be inadequate to cover Synthetech’s potential environmental liabilities.
Our property, plant and equipment may become further impaired. As of March 31, 2010, the net book value of property, plant and equipment reported on our balance sheet was $4.1 million, or approximately 37% of shareholders’ equity. We perform a periodic assessment of the carrying value of our property, plant and equipment for potential impairment. If property, plant or equipment is determined to be impaired in the future we would reduce the book value of the applicable assets and record a corresponding charge to our results of operations.
Our costs may increase to comply with cGMP guidelines or to produce APIs. Because Synthetech’s products are intermediates sold to drug manufacturers, we generally have not been directly affected by FDA regulation, which is primarily directed at the drug manufacturers for active pharmaceutical ingredients (APIs). However, some customers request that Synthetech manufacture and supply products with additional processing that complies with the FDA’s Current Good Manufacturing Practice (cGMP) guidelines for APIs. Because these programs include more extensive quality assurance systems and documentation, our expenses associated with establishing and maintaining cGMP compliant programs may increase, including additional capital expenditures.
Our business is subject to risks associated with doing business internationally. Sales to customers outside the United States accounted for approximately 46% of our net sales during fiscal 2010 and 56% for fiscal 2009. We expect that international sales will continue to account for a significant percentage of net sales. Our business is and will be subject to the risks generally associated with doing business internationally, including changes in demand resulting from fluctuations in exchange rates, foreign governmental regulation and changes in economic conditions. These factors, among others, could influence our ability to sell our products in international markets. In addition, sales of Synthetech's products are subject to the risks associated with legislation and regulation relating to exports, including quotas, duties or taxes and other charges, restrictions and retaliatory actions on international sales. We are also subject to similar risks with respect to the importation of raw materials from foreign countries. Changes in these regulations could increase costs or prevent us from accessing materials necessary for our products.
We substantially operate from a single facility, which make us vulnerable to any disruption thereof, and demand for our products may not match our manufacturing capacity. We utilize a single facility located in Albany, Oregon, for substantially all of our manufacturing, administrative, research and development and other functions. We depend on our laboratories and manufacturing facilities for the continued operation of our business. A disruption in our production or distribution or damage to or destruction of our facility due to an earthquake, explosion or other event would have a material adverse effect on our financial results and business. Conversely, we may not have sufficient product demand to efficiently utilize our existing capacity, which excess capacity could also have a material adverse effect on our operating results.
Product liability claims could have a material adverse effect on our business, reputation and financial condition. Use of Synthetech’s products in pharmaceuticals and the subsequent testing, marketing and sale of such products involves an inherent risk of product liability. Claims for product liability could be asserted against us and we may not be able to successfully defend any claim that may be asserted. Even if Synthetech is successful, the costs of defense could materially affect our business and financial condition. Therefore, regardless of the outcome, a product liability claim could have a material adverse effect on our business, reputation or financial condition. Our existing insurance coverage may be inadequate to cover our potential liabilities and we are responsible for deductible amounts under each of our insurance policies.
Our common stock trades on the OTC Bulletin Boards, which may adversely affect its liquidity. Since May 23, 2007, prices for Synthetech’s common stock have been reported on the OTC Bulletin Boards under the symbol NZYM.OB. Synthetech’s inability to list its common stock on a national securities exchange may adversely affect the liquidity of the common stock.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2.
ITEM 2. PROPERTIES
Synthetech’s headquarters and production facility are located in Albany, Oregon. Synthetech purchased its production facility in 1987. Since then, the site has undergone a number of plant and building expansions. At present, Synthetech’s operating facilities aggregate 47,700 square feet and are comprised of production, pilot plant, laboratory, warehouse and office space. These facilities include a separate 20,000 square foot production facility. Synthetech also owns an office and warehouse facility adjacent to its production facilities. This building contains approximately 1,700 square feet of office space and approximately 3,000 square feet of warehouse space.
In February 2010, Synthetech entered into a lease for approximately 3,700 square feet of laboratory and office space. The leased facility in located in San Diego, California and is referred to as Synthetech San Diego Research Center (SDRC). The lease expires in August 2013.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Synthetech is presently not a party to any legal proceedings. From time to time Synthetech may be involved in litigation arising in the normal course of its business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Synthetech did not submit any matters to a vote of its shareholders during the fourth quarter of fiscal 2010.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information about our current executive officers.
Name
Age
Positions and Offices with Synthetech
Officer Since
Dr. Gregory R. Hahn
President and Chief Executive Officer
Gary A. Weber
Vice President of Finance and Administration, Chief Financial Officer, Secretary and Treasurer
Brett S. Reynolds
Vice President of Sales and Marketing
Dr. Frederic C. Farkas
Vice President of Operations
Gregory R. Hahn, Ph.D. Dr. Hahn joined Synthetech as President and Chief Operating Officer in September 2006. Dr. Hahn assumed the responsibilities of Synthetech's President and Chief Executive Officer on July 1, 2008. From 1999 until joining Synthetech, Dr. Hahn worked for the FMC Corporation and most recently was the Organics Global Business Director for its Lithium Division, based in Charlotte, North Carolina. His experience previous to FMC was as Vice President, Sales, at Sigma Aldrich Fine Chemicals, St. Louis, Missouri and as Marketing and Development Manager at Koch Chemical Company, Corpus Christi, Texas. Dr. Hahn received his Bachelor of Science in Chemistry from Pacific Lutheran University, Tacoma, Washington, and his Ph.D in Organic Chemistry from the University of California, Davis.
Gary A. Weber. Mr. Weber joined Synthetech as Vice President of Finance and Administration in June 2002 and was subsequently appointed to the positions of Chief Financial Officer, Treasurer and Secretary. From 1998 until March 2002, Mr. Weber was Vice President of Finance for Wah Chang and Oremet-Wah Chang, a division of Allegheny Technologies Incorporated that manufactures specialty metals and chemicals. From 1994 to 1998, Mr. Weber was Controller for Oregon Metallurgical Corporation, a manufacturer of titanium products. From 1981 to 1994 Mr. Weber held various positions of increasing responsibility for Coopers & Lybrand, a predecessor firm of PricewaterhouseCoopers. Although not presently in public practice, Mr. Weber has been a Certified Public Accountant since 1983 (currently inactive status) and holds a B.S. degree in Accounting from the University of Oregon.
Brett Reynolds. Mr. Reynolds was appointed as Synthetech’s Vice President of Sales and Marketing in July 2008. Mr. Reynolds joined Synthetech in 1994 as an analytical technician. In 1996, he was promoted to Manager of Sales and Marketing of Synthetech. Mr. Reynolds was named Director of Sales and Marketing in 2004 and was responsible for corporate marketing and strategic direction and business development for the West Coast, Western Europe and Asia. Mr. Reynolds holds a B.Sc. in Biochemistry and an MBA from Oregon State University.
Frederic C. Farkas, Ph.D. Dr. Farkas joined Synthetech as Director of Manufacturing in October 2008 and was promoted to Vice President of Operations in March 2009. Dr. Farkas has over 13 years experience with amino acid derivatives, peptides and API manufacturing from previous positions in manufacturing and supply chain management in Switzerland mainly at Novartis AG, Bachem Corporation and Senn Chemicals Company, where he served until 2007 as Director of Manufacturing. Dr. Farkas earned a Bachelor of Science degree in Chemistry in 1985 and a Ph.D. in Organic Chemistry in 1991 from the University Basel in Switzerland.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S
COMMON STOCK, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a)
Market Information.
Stock Listing and Quarterly Highs and Lows:
Beginning May 23, 2007 prices for Synthetech’s common stock were reported on the OTC Bulletin Boards under the symbol NZYM.OB. The last sales price as reported by the OTC Bulletin Boards, as of March 31, 2010 was $0.60 per share.
The following table sets forth the range of high and low bid information and high and low sales prices for the common stock for the last two fiscal years as reported by the OTC Bulletin Boards.
(b)
Holders. The number of record holders of Synthetech common stock as of June 8, 2010 was 452.
(c)
Dividends. Synthetech has not paid dividends on its common stock since its inception. We do not anticipate that we will pay dividends in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data was derived from Synthetech’s audited financial statements. The following data should be read in conjunction with “Item 8. Financial Statements and Supplementary Data” and “Item 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying financial statements and the notes thereto included within this Annual Report on Form 10-K. This discussion contains forward-looking statements relating to future events or the future performance of Synthetech. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see “Forward-Looking Statements” at the end of this discussion and Item 1A “Risk Factors” for a discussion of certain of the uncertainties, risks and assumptions associated with these statements.
OVERVIEW
Synthetech, Inc., based in Albany, Oregon, is a fine chemicals company specializing in organic synthesis, biocatalysis and chiral technologies. We develop and manufacture proprietary custom chiral intermediates, amino acid derivatives, specialty amino acids, and peptide fragments primarily for the pharmaceutical industry. Synthetech produces advanced pharmaceutical intermediates in accordance with Current Good Manufacturing Practices (cGMP) in compliance with U.S. Food and Drug Administration (FDA) regulations. Our products support the development and manufacture of therapeutic peptides, peptidomimetic (peptide-like) and small molecule drugs from early stages of a customer’s clinical development through market launch and into commercial production. Synthetech’s products also support the production of chemically-based medical devices. Synthetech’s domestic and international customer base includes major and mid-size pharmaceutical, contract drug synthesis, emerging biopharmaceutical, established biopharmaceutical and medical device companies. We also supply catalog quantities of specialty amino acids to research institutions, universities and drug discovery firms.
Financial Results
Synthetech generated revenue of $15.2 million for the fiscal year ended March 31, 2010. Related fiscal 2010 gross income was $5.2 million, or 34% of revenue, operating income was $1.4 million, or 9% of revenue, and net income was $1.2 million, or $0.08 per share of common stock. In fiscal 2009, Synthetech reported revenue and related net income of $19.9 million and $1.2 million, or $0.08 per common share, respectively. As a result of aggressive cost reduction efforts, fiscal 2010 net income slightly exceeded fiscal 2009 net income on $4.6 million, or 23%, less revenue.
During fiscal 2010 Synthetech generated $1.1 million in cash from operations and used $220,000 in capital expenditures and used another $424,000 for debt repayment. The outstanding balance on our credit facility at the beginning and end of fiscal 2010 was $-0-. Working capital increased $1.3 million to $7.3 million as of March 31, 2010, compared to $5.9 million at March 31, 2009.
Market Overview
During recent years a substantial portion of Synthetech’s annual revenue has been derived from multiple customers’ development projects that target a common indication. Management commonly refers to this indication as Synthetech’s “Hepatitis C drug franchise” business. While this franchise business had a significant impact on our operating results in the first quarter of fiscal 2010, it has been in, what we believe to be, a temporary quiet cycle for the remainder of fiscal 2010. This fluctuation is typical for projects moving through clinical development. The length of time between orders for phase II and Phase III clinical studies is difficult to predict. For fiscal 2010 and 2009, approximately 25% and 29%, respectively, of our revenue was derived from these franchise projects. Management believes the franchise business has strong growth potential but that revenues from these projects will continue to fluctuate on a quarterly basis. With quarter to quarter revenue fluctuations common in our industry, management believes year over year results are more indicative of our performance.
During the fourth quarter of fiscal 2010 we began establishing a small laboratory facility in San Diego, California. Our San Diego Research Center (SDRC) is designed for the manufacture of small-scale laboratory projects and will begin operations in the first quarter of fiscal 2011. Initially, the leased laboratory facility will be staffed by two newly-hired chemists with experience in the synthesis of small molecules. We believe that some of the small-scale business generated from SDRC will have the potential to mature into larger drug development projects which can be manufactured in our facility in Albany, Oregon.
We believe that in recent years Synthetech has been able to capitalize on new revenue opportunities because of its proprietary technology positions in both amino acid chemistry and multi-step chiral organic synthetic chemistry. Several large multi-national pharmaceutical companies have made a strategic decision to outsource more of their manufacturing requirements. We believe we are well positioned to compete for these new opportunities because of our long association with the pharmaceutical industry, large-scale domestic manufacturing facility and our experienced research and development group.
We have increasingly targeted market opportunities at both established and emerging biopharmaceutical and chemically-based medical device companies. These opportunities are being driven in large part by the need of large pharmaceutical companies to develop new drugs. A number of block-buster drugs will lose patent protection and become generic over the next five years, and large pharmaceutical companies are seeking to offset the impact of this development with increased internal drug development efforts augmented by the in-licensing of promising new drug candidates from emerging biopharmaceutical companies. Most emerging biopharmaceutical companies have limited manufacturing expertise, which we believe provides a company like Synthetech with additional market opportunities.
Synthetech’s revenues are largely based on the status of individual, large-scale customer projects and can vary significantly from period to period and by customer market category. Approximate revenue by customer market category for all types of projects for fiscal 2010 and 2009 was as follows:
Information relating to the above table includes the following:
·
Decreased revenue in fiscal 2010 from major and mid-size pharmaceutical companies was primarily the result of order timing related to existing large-scale projects. We believe that our fiscal 2011 revenue from major and mid-size pharmaceutical companies may be adversely impacted by current economic conditions and uncertainties related to the issues surrounding healthcare reform. However, we believe that revenue from these types of companies depends more upon the status of individual drug development projects and customer acceptance of marketed products rather than on the prevailing economic or regulatory environment.
·
A portion of our fiscal 2010 revenue from contract drug synthesis companies was unfavorably affected by the level of business our customers receive from their pharmaceutical customers. We expect that this trend may continue in fiscal 2011. Our fiscal 2011 revenues from this customer category will depend to a larger extent upon the status of individual drug development and market for commercial projects in which we supply materials.
·
Despite the difficult economic environment, we continue to receive new orders and significant inquiries from some of our emerging biopharmaceutical customers.
·
Revenue from our specialty chemical customer market category is primarily in support of projects in a sector outside of pharmaceuticals and medical devices. We expect these projects to continue into fiscal 2011.
·
Medical device revenues for fiscal 2010 and for a substantial portion of fiscal 2009 resulted from one project with a single customer. Due to existing high customer inventory levels, we are uncertain when customer demand for our product will return. We understand that the product we supply is in support of a commercial contact lens application that is being rolled out to broader geographical markets.
·
Revenues during fiscal 2010 and 2009 from established biopharmaceutical companies primarily represent sales to a single company in support of a particular drug development project. We understand this drug development project remains active but are uncertain regarding the timing of orders for the next level of development.
Synthetech’s order backlogs as of March 31, 2010 and 2009 were approximately $1.3 million and $6.8 million, respectively. We expect that a majority of the March 31, 2010 backlog will ship during the first quarter of fiscal 2011, which ends on June 30, 2010. The decrease in the backlog between the two periods primarily relates to a large order Synthetech received in fiscal 2009 that shipped in fiscal 2009 and 2010. Synthetech’s order backlog can change quickly with the addition of a new large order or the shipment of a significant order. Our project-based business model makes forecasting difficult, with many uncertainties. While we face market challenges, we are optimistic of Synthetech's performance as we continue to address costs for raw materials, production wastes, and supplies while pursuing new and existing top line growth opportunities. For fiscal 2011, we anticipate an increase in our cost structure as we bring SDRC on-line and hire additional sales personnel. We believe that these additional costs will be more than offset by increased revenue.
Customer inquiries remain active and there are multiple large projects where Synthetech is pursuing orders. Over the past year, customers have appeared more cautious in placing orders and we believe that some order decisions are being deferred as a result of customers’ economic and regulatory considerations. Uncertainty related to the present status of healthcare reform may be hindering the funding of certain customer drug development projects. Given this environment, we continue to focus on expanding our project pipeline and further developing a culture of improving operational efficiencies and cost reductions.
In addition to our organic growth initiatives, from time to time we may evaluate potential acquisition opportunities with complementary technologies and markets as a potential means of increasing the consistency of our quarterly revenue and expanding our markets.
Our primary competition is from a variety of fine chemical companies headquartered in Western Europe. We occasionally encounter competition from developing countries in Asia that have substantially lower cost structures.
Customer Project Pipeline
Our portfolio of clinical pipeline and marketed drug development projects remains active and includes a number of projects that we believe have significant revenue-generating potential. The following table summarizes current projects that Synthetech's management believes are most significant based upon a variety of subjective criteria that relate to, among other things, the customer involved, the project size and its potential for future growth. The clinical phase of the listed drug development project is based on Synthetech’s knowledge of its customer’s project and may not be current or accurate.
OPERATIONS
The following table sets forth, for the periods indicated, the percentage of revenue represented by each item included in Synthetech’s Statements of Operations.
Revenue
Synthetech’s revenue was $15.2 million and $19.9 million in fiscal 2010 and 2009, respectively. Revenue decreased 23% in fiscal 2010 as compared to fiscal 2009 and increased 36% in fiscal 2009 as compared to fiscal 2008. The decrease in revenue between fiscal 2010 and 2009 was primarily the result of a decrease in activity related to our medical device customer projects and to a lesser extent all other customer market categories excluding specialty chemical. A decrease of $2.0 million between the two periods in the medical device sector relates to the timing of customer marketing strategies, market acceptance and adequate customer inventories. The decrease across all market categories except specialty chemical was indicative of the economic environment in which Synthetech operated during fiscal 2010. Fiscal 2010 revenue includes $664,000 from the specialty chemical market category, which relates to a single customer project that is not related to the pharmaceutical market.
Revenue from large-scale customer projects was $8.9 million and $12.2 million for fiscal 2010 and 2009, respectively.
The eight large-scale projects for fiscal 2010 supported three marketed products and five drug development projects. The marketed products include a cancer drug, a product for a specialty chemical customer and a chemically derived medical device. The remaining five large scale projects all support customer drug development programs.
In addition to large-scale projects, a number of mid-sized and smaller projects significantly contributed to our revenues during both fiscal 2010 and 2009. While individually smaller in dollar value, these projects support a wide variety of programs for our major pharmaceutical, emerging and established biopharmaceutical and contract drug synthesis customers.
International revenue, mainly from sales to Europe, was $7.1 million in fiscal 2010 and $11.1 million in fiscal 2009.
To the extent successful customer projects develop into larger volumes, either during late stage clinical trials, pre-launch or as a marketed product, Synthetech’s per unit pricing may decline. There is a risk that the impact on future sales and profitability from declines in pricing may not be offset by an increase in volume.
The level of Synthetech’s business from period to period is largely unpredictable. Although revenue associated with marketed products is more likely to provide a longer term, ongoing revenue stream than revenue associated with drugs at the clinical or discovery stages, continuation of customer demand for our products from customers with marketed products remains subject to various market conditions, including potential use of alternative manufacturing methods, continued market demand for drugs that we support, and competition from other suppliers. Accordingly, while significant orders related to marketed products provide substantial and more predictable revenue, we expect revenue to continue to fluctuate from period to period.
Gross income
Cost of revenue in fiscal 2010 was $10.0 million, resulting in gross income of $5.2 million. Cost of revenue in fiscal 2009 was $14.3 million, resulting in gross income of $5.5 million. Cost of revenue includes raw materials, direct labor, manufacturing overhead, other direct costs, and adjustments to inventory.
Gross income for fiscal 2010 decreased $330,000, to $5.2 million, or 34% of revenue, compared to gross income of $5.5 million, or 28% of revenue in fiscal 2009. Gross income in fiscal 2010 compared to fiscal 2009 was unfavorably impacted by a 23% decrease in revenue but was favorably impacted by aggressive cost reduction efforts and gains in plant efficiencies.
Manufacturing department costs decreased $1.2 million during fiscal 2010 compared to fiscal 2009, primarily as variable operating costs such as labor, maintenance and supplies expenses decreased between the periods as a result of cost controls and lower production levels.
Gross income for fiscal 2010 reflects charges for impaired inventory of $866,000 compared to $903,000 in fiscal 2009. Synthetech routinely develops manufacturing processes to produce new products or to refine procedures for existing products. It is not unusual for manufacturing costs associated with new processes or certain existing processes to exceed the selling price for batches of product, which results in an inventory write off. Synthetech also writes off inventory that is specific to a customer project if the project is discontinued.
Operating Expenses
R&D Expense. Research and development (R&D) expenses were $1.1 million and $1.3 million in fiscal 2010 and 2009, respectively, or approximately 7% of revenue in both fiscal periods.
The decrease of $182,000 in R&D expense between fiscal 2010 and 2009 included:
·
aggregate decreases during fiscal 2010 in compensation and related costs of $229,000, primarily due to cost reduction efforts, the transfer of an R&D chemist to the Production Department and certain temporary vacancies, partially offset by general increases in salaries and benefits;
·
decreases during fiscal 2010 in laboratory supplies of $54,000;
·
decrease during fiscal 2010 in technical services of $42,000; and
·
net decreases during fiscal 2010 in various expenses of $63,000;
partially offset by:
·
start-up expenses related to Synthetech’s San Diego Research Center (SDRC) of $107,000; and
·
an increase during fiscal 2010 of $99,000 arising from decreases in the amount of R&D department costs allocated to inventory for the manufacture of customer products, as described below.
Synthetech’s R&D department primarily develops processes to manufacture and optimize the production of our products and their related scale-up to manufacturing quantities. Additionally, the R&D department at times manufactures small-scale products. The cost of producing these small-scale products is captured in inventory and not reflected in R&D expense. The amount of R&D department costs charged to the manufacture of small-scale products can cause fluctuations between reporting periods in the amount of reported R&D expense. R&D department costs charged to inventory in fiscal 2010 and 2009 were $85,000 and $184,000, respectively.
Synthetech expects SDRC to become operational during the first quarter of fiscal 2011. The purpose of establishing SDRC is to involve Synthetech in customer projects which we typically may not have participated and to quickly produce small quantities of early stage material for an expanding customer base.
SG&A Expense. Selling, general and administrative (SG&A) expense was $2.7 million, or 18% of revenue in fiscal 2010, and $2.9 million, or 15% of revenue, in fiscal 2009.
The decrease of $199,000 in SG&A expense between fiscal 2010 and 2009 included an aggregate $221,000 decrease in employee incentives partially offset by various net increases in other expense categories.
SG&A expense consists of compensation and related fringe benefits for sales and administrative employees, cost of professional services, marketing costs, costs associated with being a public company and costs related to administrative facilities and information services.
Interest expense
Interest expense in fiscal 2010 was $134,000, compared to $164,000 in fiscal 2009. Synthetech had minimal borrowings on its line of credit during fiscal 2010 and fiscal 2009. For additional information about our line of credit and debt agreements, please see Notes G and H to the Financial Statements included in Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Page
Reports of Independent Registered Public Accounting Firm
Financial Statements:
Balance Sheets as of March 31, 2010 and 2009
Statements of Operations for the years ended March 31, 2010 and 2009
Statements of Shareholders’ Equity for the years ended March 31, 2010 and 2009
Statements of Cash Flows for the years ended March 31, 2010 and 2009
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Synthetech, Inc.
Albany, Oregon
We have audited the accompanying balance sheets of Synthetech, Inc. ("the Company") as of March 31, 2010 and 2009, and the related statements of operations, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Synthetech, Inc. as of March 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
/S/ PETERSON SULLIVAN LLP
Seattle, Washington
June 10, 2010
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
SYNTHETECH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A. GENERAL AND BUSINESS
Synthetech, Inc., an Oregon corporation, is a fine chemicals company specializing in organic synthesis, biocatalysis and chiral technologies. Synthetech develops and manufactures proprietary custom chiral intermediates, amino acid derivatives, specialty amino acids and peptide fragments primarily for the pharmaceutical industry. Synthetech’s products support the development and manufacture of therapeutic peptides, peptidomimetic (peptide-like), and small molecule drugs at every stage of a customer’s clinical development pipeline, and are used as ingredients in drugs for the treatment of AIDS, cancer, cardiovascular and other diseases. Synthetech’s products also support the production of chemically based medical devices.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the valuation of inventory, accounts receivable, deferred tax assets and the carrying amount of property, plant and equipment.
Cash and Cash Equivalents: Cash and cash equivalents include demand cash and highly liquid debt instruments with maturities of three months or less when purchased. Synthetech may have cash and cash equivalents in financial institutions in excess of federally insured limits.
Cash and cash equivalents consist of the following:
Accounts receivable: Accounts receivable are recorded at the invoiced amount and do not bear interest. Synthetech does not finance its trade receivables by factoring the balances to a third party. The allowance for doubtful accounts is established by a review of aged accounts receivables and a review for collectability of specific accounts. The allowance for doubtful accounts as of March 31, 2010 and 2009 was $15,000. For the years ended March 31, 2010 and 2009, Synthetech’s provision for credit losses were insignificant.
Concentrations of Credit Risk: Financial instruments that potentially subject Synthetech to significant concentrations of credit risk consist principally of cash equivalents and trade accounts receivable. Cash equivalents primarily consist of money market accounts with maturities at purchase of less than three months. Synthetech’s customers consist primarily of major and mid-size pharmaceutical companies as well as contract drug synthesis firms, emerging and established biopharmaceutical and medical device companies. Synthetech’s customers are primarily located in the United States and Western Europe. At March 31, 2010, four customers had accounts receivable balances of 28%, 16%, 16% and 14% of total accounts receivable. At March 31, 2009, five customers had accounts receivable balances of 24%, 18%, 14%, 13% and 11% of total accounts receivable. During fiscal 2010 and 2009, Synthetech’s ten largest customers accounted for approximately 84% and 83% of total revenue, respectively. Synthetech’s reliance on major customers and the absence of long term contracts could adversely affect operating results if a major customer were lost or failed to pay Synthetech. Revenue from emerging biopharmaceutical companies could be adversely impacted if these customers are unable to obtain necessary additional funding from the financial markets.
Inventories: Inventories are stated at the lower of cost or market, determined on the first-in, first-out basis. Costs include direct material, direct labor, applicable manufacturing overhead, and other direct costs.
Management evaluates Synthetech’s inventory for impairment whenever it becomes aware that indicators of impairment exist. It is Synthetech’s policy to write-down inventories to reflect an estimate for impairment in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Write-downs of inventory are reported as a component of cost of revenue in the relevant period.
Property, Plant and Equipment: Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are expensed as incurred. Expenditures that materially increase values, change capacities or extend useful lives are capitalized. When assets are retired, sold or otherwise disposed of, the applicable costs and accumulated depreciation are removed from the accounts and the resulting gain or loss is recognized. Depreciation and amortization are provided on the straight-line basis over the estimated useful lives of the individual assets which range from three to 40 years. In Synthetech’s statements of operations, depreciation and amortization is charged to cost of revenue, research and development and selling, general and administrative, on a basis consistent with the utilization of the underlying asset.
Synthetech assesses the impairment of property, plant and equipment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If Synthetech determines that the carrying value of property, plant and equipment may not be recoverable, Synthetech compares the carrying values of its property, plant and equipment to the undiscounted cash flows expected to be generated by the asset group. If the carrying value exceeds the undiscounted cash flows an impairment charge may be recorded. An impairment charge is recognized to the extent that the carrying amount of property, plant and equipment is in excess of their determined fair value.
Income Taxes: Deferred tax assets arise from the tax benefit of amounts expensed for financial reporting purposes but not yet deducted for tax purposes and from unutilized tax credits and net operating loss carryforwards. Synthetech evaluates its deferred tax assets on a regular basis to determine if a valuation allowance is required. Synthetech records a valuation allowance to the extent it is determined that it is more likely than not that Synthetech will be unable to recognize a deferred tax asset.
A tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. The amount recognized is the largest benefit that the Company believes has a greater than 50% likelihood of being realized upon settlement.
Synthetech reports a liability, if any, for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties, if any, are recorded as a component of income taxes. No liability has been recorded for uncertain tax positions, or related interest or penalties. Fiscal years 2007 through 2010 remain open and subject to audit by the Internal Revenue Service and equivalent state agencies.
.
Deferred Revenue: Deferred revenue represents customer advances for materials that have not yet been manufactured. From period to period, the amount of deferred revenue will vary significantly depending on the customer agreements that are in place at the time. Deferred revenue is recognized as revenue consistent with Synthetech’s revenue recognition policy.
Revenue Recognition: Synthetech recognizes revenue, including shipping and handling charges billed to customers, when the following criteria are met:
·
persuasive evidence of an arrangement exists;
·
delivery has occurred or services have been rendered;
·
Synthetech’s price to its customer is fixed or determinable; and
·
collectability is reasonably assured.
Shipping and handling costs are classified as part of cost of revenue. Synthetech analyzes its agreements to determine whether elements can be separated and accounted for individually or as a single unit of accounting. Allocation of revenue to individual elements which would qualify for separate accounting is based on the estimated fair value of the respective elements.
Research and Development Costs: Research and development costs are expensed as incurred.
Stock-Based Compensation: Stock-based compensation expense for stock-based compensation awards is based on the grant-date fair value. Synthetech recognizes these compensation costs net of estimated forfeitures over the requisite service period of the award, which is generally the vesting term of one to five years for stock options. Please refer to Note N to these condensed financial statements for a further discussion of stock-based compensation.
Fair value of financial instruments: The carrying value of all financial instruments classified as current assets or current liabilities is deemed to approximate fair value because of the short maturity of these instruments. The interest rate on long-term debt adjusts with changes in the prime rate subject to minimums, and is estimated that fair value closely approximates carrying values.
Comprehensive Income or Loss: Synthetech has no material components of comprehensive income/loss other than net income/loss. Accordingly, comprehensive income/loss was equal to net income/loss for all periods presented.
Income Per Share: Basic income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period, calculated using the treasury stock method. Common stock equivalents are not used to calculate diluted loss per share because their effect would be anti-dilutive.
Shares used to compute earnings per share are as follows:
Supplemental cash flow disclosures are as follows:
Cash paid during the year for interest is set forth below:
RECENT ACCOUNTING PRONOUNCEMENTS:
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-13, “Multiple-Deliverable Revenue Arrangements”, which addresses how revenues should be allocated among all products and services included in our sales arrangements. It establishes a selling price hierarchy for determining the selling price of each product or service, with vendor-specific objective evidence (VSOE) at the highest level, third-party evidence of VSOE at the intermediate level, and a best estimate at the lowest level. It replaces “fair value” with “selling price” in revenue allocation guidance. It also significantly expands the disclosure requirements for such arrangements. ASU 2009-13 will be effective prospectively for sales entered into or materially modified in fiscal years beginning on or after June 15, 2010. The FASB permits early adoption of ASU 2009-13, applied retrospectively, to the beginning of the year of adoption.
NOTE C. INVENTORIES
The major components of inventories are as follows:
NOTE D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
NOTE E. ACCRUED COMPENSATION
Accrued compensation consists of the following:
NOTE F. INCOME TAXES
For fiscal 2010 the accompanying Statement of Operations contains a provision for income taxes of $75,000. The accompanying Statement of Operations contains no provision or benefit for income taxes in fiscal 2009. For both fiscal 2010 and 2009 Synthetech utilized its net operating loss carryforwards to reduce or eliminate both federal and State of Oregon taxable income.
Synthetech accounts for income taxes utilizing the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Significant components of Synthetech’s deferred tax assets and liabilities are as follows:
Based on Synthetech’s past operating results and management’s evaluation of available tax planning strategies, management concluded that for the foreseeable future Synthetech may be unable to recognize its net deferred tax assets as an income tax benefit, continuing for an uncertain period of time. The deferred tax valuation allowance decreased $464,000 in fiscal 2010 and decreased $435,000 in fiscal 2009.
The reconciliation between the effective tax rate and the statutory federal income tax rate is as follows:
As of March 31, 2010, Synthetech had gross federal and state of Oregon net operating loss carryforwards of approximately $8.7 million and $12.3 million, which will expire beginning in fiscal 2023 and 2016, respectively.
NOTE G. LINE OF CREDIT
Synthetech’s credit facility, with a finance company, provides for borrowings of up to $2.0 million or the maximum available under the borrowing base, whichever is less. The borrowing base now equals the sum of (a) the lesser of $750,000 or 50% of the value of raw materials and finished goods inventory plus (b) the lesser of $1.25 million or 85% of the value of eligible accounts receivable. Interest is payable at (a) 9% or (b) the prime rate plus 5%, whichever is higher. The annual fee for the credit facility is $20,000. Additionally, the credit facility has a minimum monthly fee of $2,500, which is reduced by interest charges. The facility contains no financial covenants and is collateralized by cash, cash equivalents, accounts receivable, inventories and property, plant and equipment. The credit facility is scheduled to expire on September 15, 2010. As of March 31, 2010, Synthetech had no borrowings outstanding under the facility and $2.0 million in availability. Availability is computed as the total commitment of $2.0 million less amounts which are utilized by borrowings or other commitments, less amounts not supported by eligible accounts receivable or inventory.
NOTE H. LONG-TERM DEBT
Synthetech has entered into term loan facilities from the same finance company that provided Synthetech’s line of credit facility. The loans contain no financial covenants and are collateralized by cash, cash equivalents, accounts receivable, inventories, and property, plant and equipment. Terms of the loans are as follows:
·
In November 2008, Synthetech entered into a term loan facility under which it borrowed $500,000. The loan matures on November 5, 2011, and requires 36 monthly principal payments equal to $8,333, plus interest, beginning on December 1, 2008, with a balloon payment of $200,000 due on maturity. The note bears interest at (a) 9% or (b) the prime rate plus 5%, whichever is higher. Synthetech used the term loan proceeds for working capital purposes. The amount outstanding under this term loan facility as of March 31, 2010 was $367,000.
·
In May 2008, Synthetech entered into a term loan facility under which it borrowed $550,000. The loan matures on May 5, 2011, and requires 36 monthly principal payments equal to $9,167, plus interest, beginning on June 1, 2008, with a balloon payment of $220,000 due on maturity. The note bears interest at (a) 8% or (b) the prime rate plus 4%, whichever is higher. In May 2009 and 2010, Synthetech paid an annual loan fee equal to 1% of the then outstanding principal balance of the loan. Synthetech used the term loan proceeds to expand its large-scale reactor capacity and to install a distillation column and equipment intended to recycle spent solvents. The amount outstanding under this term loan facility as of March 31, 2010 was $348,000.
Scheduled long-term debt principal repayments under the term loan facilities are as follows:
NOTE I. NOTES PAYABLE
During November and December 2009, Synthetech financed $200,000 of annual premiums for certain of its insurance policies. As of March 31, 2010, remaining payments under the two financings consisted of three monthly installments of $24,000, and one monthly installments of $16,000, including interest at 3.6%. The aggregate amount outstanding under the finance agreements as of March 31, 2010
was $88,000.
NOTE J. LEASE COMMITMENTS
Synthetech leases laboratory facilities and related office space in San Diego, California. The lease expires in August 2013. Synthetech is responsible for paying its pro-rata share of maintenance, taxes and insurance costs in addition to the minimum lease payments.
Future minimum lease payments as of March 31, 2010 are as follows:
NOTE K. CONTINGENCIES
Although Synthetech is not currently party to any material legal proceedings, Synthetech is from time to time subject to claims and lawsuits related to its business operations. Synthetech accrues for loss contingencies when a loss is probable and the amount can be reasonably estimated. Legal fees, which could be material in any given period, are expensed as incurred. Management believes that current claims against the Company, individually and in the aggregate, will not result in loss contingencies that will have a material adverse effect on the Company’s financial condition, cash flows or results of operations.
NOTE L. SHAREHOLDERS’ EQUITY
Amended and Restated Shareholders Rights Agreement
In July 1998, Synthetech adopted a Shareholder Rights Plan (the Original Rights Agreement). Under the Original Rights Agreement, Synthetech declared a dividend of one common share purchase right (each a Right) for each share of common stock outstanding at the close of business on August 4, 1998. The Rights are attached to, and automatically trade with, the outstanding shares of Synthetech’s common stock. In July 2008, Synthetech adopted an Amended and Restated Shareholder Rights Agreement (the Current Rights Agreement). The Current Rights Agreement extends the Rights' expiration date and adjusts the purchase price from $30.00 to $2.00 per share, subject to adjustment. If any person or group other than Synthetech, a Synthetech subsidiary or a Synthetech employee benefit plan acquires 15% or more of Synthetech's common stock, then that person or group's Rights will be void and proper provision will be made so that every other Rights holder will have the right to receive upon exercise an amount of Synthetech common stock with a market value twice that of the Right exercise price. In addition, if Synthetech is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold after a person or group has acquired 15% or more of Synthetech's common stock, then proper provision will be made so that each Rights holder will have the right to receive, upon the exercise of its Rights at the then current Right exercise price, an amount of common stock of the acquiring company that at the time of such a transaction will have a market value twice that of the exercise price. Synthetech may redeem the Rights at a price of $0.0001 per Right at any time prior to the earlier of (i) the expiration of the Rights in August 2018 or (ii) a certain amount of time after a person or group has begun to acquire or announced that it plans to acquire 15% or more of the outstanding shares of Synthetech common stock. Until a Rights holder exercises its Rights, the Rights holder does not have rights as a shareholder of Synthetech, including, without limitation, voting or distribution rights.
NOTE M. 401(K) PROFIT SHARING PLAN
Synthetech established a 401(k) Profit Sharing Plan on April 1, 1992. This plan is offered to eligible employees, who may elect to contribute up to 20% of compensation and includes a company matching contribution. Synthetech’s matching contribution is $0.50, $0.75 or $1.00 for each $1.00 contributed, up to 10% of compensation depending on the employee's length of service with Synthetech. Synthetech’s matching contribution becomes fully vested for each employee after 5 years of employment. Synthetech matching contributions for fiscal 2010 and 2009 were $169,000 and $193,000 respectively.
NOTE N. EMPLOYEE STOCK BENEFIT PLANS
Description of the Plans
Stock Plan
Synthetech grants equity-based compensation under its 2005 Equity Incentive Plan (the 2005 Plan). Stock options, restricted stock awards and stock appreciation rights are authorized for issuance to employees, consultants and non-employee directors under the 2005 Plan. Stock options are granted with an exercise price equal to the fair market value of Synthetech’s common stock on the date of grant. Employee options generally vest (a) one-third on the date of grant and in equal annual installments between the date of grant and the subsequent two years or (b) over a three year period on their annual anniversary dates. On occasion, individual options may have different vesting terms. Options granted to non-management Directors generally vest ratably over the five succeeding years from the date of grant. All options expire no later than ten years from the date of grant. As of March 31, 2010, 284,850 shares were available for issuance under the 2005 Plan.
No stock options were granted in fiscal 2010. On November 13, 2008, the Compensation Committee of the Board of Directors awarded key employees options to purchase an aggregate of 452,000 shares of Synthetech common stock. The options were awarded at $0.50 per share, the market price of Synthetech common stock on the date of grant. The incentive stock options were issued as part of the 2005 Plan. One-third of these options will vest on each of the first three anniversaries of the grant date. On November 13, 2008, the Compensation Committee awarded an employee an option to purchase 45,000 shares of Synthetech common stock pursuant to the terms of an employment agreement. The options were awarded at $0.50 per share, the market price of Synthetech common stock on the date of grant. The incentive stock options were issued as part of the 2005 Plan. One-third of these options vested on the date of grant and an additional one-third will vest on each of the first two anniversaries of the grant date.
On November 6, 2008, the Board of Directors revised the non-employee Board of Director’s compensation policy as it relates to stock-based compensation. Pursuant to the prior policy, members of the Board of Directors received a grant of 15,000 shares once every five years, which vested 3,000 shares per year, over five years. The Board of Directors modified this policy to increase the standard five-year award to non-employee Directors from 15,000 options to 37,500 options. To phase-in this transition in light of existing stock option grants made in different years to various directors, the Board of Directors approved transition grants to increase each non-employee Director’s annual vesting to 7,500 shares from the present 3,000 shares, taking into account currently outstanding grants. Consequently, on November 13, 2008, the Compensation Committee of the Board of Directors awarded non-employee Directors an aggregate of 186,000 options to purchase Synthetech’s common stock. The options were awarded at $0.50 per share, the market price of Synthetech’s common stock on the date of grant. The nonqualified stock options were issued as part of the 2005 Plan.
Stock Option Agreements - The right to purchase shares pursuant to existing stock option agreements typically vests pro-rata at each option anniversary date over a one to five-year period. The options, which are granted with option exercise prices equal to the fair market value of Synthetech shares on the date of grant, expire within ten years from the date of grant. Synthetech has not issued any options to consultants or advisors. Stock options are a component of director’s compensation.
Restricted stock awards (RSAs) - Awards of restricted stock may be either grants of restricted stock, restricted stock units or performance-based stock units that are issued at no cost to the recipient. For RSAs, at the date of grant the recipient has the rights of a shareholder, subject to certain restrictions on transferability and a risk of forfeiture. Synthetech’s most recently issued RSAs had an original vesting period of two years. Synthetech has not awarded restricted stock units or performance-based stock units. Compensation cost for RSAs is determined using the market value of Synthetech’s common stock on the date of grant and the resulting expense is recognized on a straight-line basis over the vesting term.
Stock Option Activity
A summary of the changes in stock options outstanding under Synthetech’s 2005 Plan and otherwise during the two years ended March 31, 2010 is presented below:
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Synthetech’s closing stock price on the last trading day of fiscal 2010 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had option holders exercised their options on March 31, 2010. This amount changes based upon changes in the fair market value of Synthetech’s stock.
As of March 31, 2010, $116,000 of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock options is expected to be recognized over a weighted-average period of approximately 1.4 years.
Valuation Information
In order to calculate the fair value of stock option awards Synthetech has elected to use the Black-Scholes option pricing model, which incorporates various assumptions as follows:
Expected Price Volatility
Expected price volatility is a measure of the amount by which the price of a security has fluctuated or is expected to fluctuate. Synthetech uses actual historical changes in the market value of its stock to calculate the volatility assumption. Synthetech calculates monthly market value changes from the date of grant over a past period representative of the expected life of the options to determine volatility. Synthetech determined that due to its small volume of stock trades and the spread between the bid and ask price, the use of monthly market values, as compared to daily or weekly values, provides the most reasonable determination of expected volatility. An increase in the expected price volatility will increase compensation expense.
Risk-Free Interest Rate
For the risk-free interest rate, Synthetech uses the U.S. Treasury rate for the week of the grant having a term approximating the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.
Expected Term
Expected term is the period of time over which the options granted are expected to remain outstanding, and is based on an average of the vesting period and the term of the option. Options granted have a term of ten years. An increase in the expected term life will increase compensation expense.
Dividend Yield
Synthetech has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. An increase in the dividend will decrease compensation expense.
Recognition of Compensation Expense and Forfeitures
The fair value of each option is amortized into compensation expense on a straight-line basis over the vesting period. Synthetech reduces the straight-line compensation expense by an estimated forfeiture rate to account for the estimated impact of options that are expected to be forfeited before becoming fully vested. Synthetech’s calculation of stock-based compensation expense assumes a forfeiture rate of 3%. An increase in the forfeiture rate would decrease compensation expense.
No stock options were granted in fiscal 2010. The weighted-average fair value of stock options granted in fiscal 2009 was determined utilizing the assumptions below:
Expense Information
Stock-based compensation expense was allocated as follows:
NOTE O.
SEGMENT INFORMATION; SIGNIFICANT CUSTOMERS; FOREIGN SALES
Synthetech operates in one business segment for the development and manufacture of proprietary custom chiral intermediates, amino acid derivatives, specialty amino acids, peptide fragments and chemically based medical devices primarily for the pharmaceutical industry. Long-lived assets, other than in the United States, are not material.
Significant Customers: During fiscal 2010, three customers accounted for approximately 62% of revenue. During fiscal 2009, two customers accounted for an aggregate of approximately 39% of revenue.
The following table reflects revenue and percent of total revenues based on the geographic location of the customer:
NOTE P. RELATED PARTY TRANSACTIONS
Paul Ahrens, a Director, assists with Synthetech’s new product development efforts. Although no fees have been charged, aggregate expenses reimbursed by Synthetech under this arrangement during fiscal 2010 and 2009 were $1,000 and $2,000, respectively
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures as of March 31, 2010, and they concluded that these controls and procedures are effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failure. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2010. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission’s Internal Control-Integrated Framework.
Based on our assessment, management has concluded that, as of March 31, 2010, the Company’s internal control over financial reporting was effective based on those criteria.
Attestation Report of the Independent Registered Public Accounting Firm
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Control Over Financial Reporting
There were no changes in Synthetech’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during Synthetech’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, Synthetech’s internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required about Synthetech's executive officers by this Item is included in Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K. The remaining information required by this item is set forth in Synthetech's Proxy Statement for its 2010 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after March 31, 2010.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in Synthetech's Proxy Statement for its 2010 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after March 31, 2010.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Equity Compensation Plan Information
Synthetech has two equity compensation plans, each of which has been approved by our shareholders: the 2000 Stock Incentive Plan (the 2000 Plan) and the 2005 Equity Incentive Plan (the 2005 Plan). The 2000 Plan was suspended with respect to new grants when the 2005 Plan became effective. During fiscal 2007 and 2008 we issued nonqualified options to purchase Synthetech common stock outside of any stock plan approved by our shareholders. The following table summarizes information about equity awards as of March 31, 2010.
(1)
Consists of shares available for issuance under the 2005 Plan. Shares previously available for issuance under our 2000 Plan were rolled into our 2005 Plan upon its approval by our shareholders on August 11, 2005, and any shares subject to outstanding awards under our 2000 Plan on that date that cease to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in shares) likewise roll into our 2005 Plan, up to an aggregate maximum of 1,303,750 shares. Shares available for issuance under our 2005 Plan may be granted in the form of stock options, stock awards, restricted stock awards, restricted stock units, stock appreciation rights or any other form of equity compensation approved by the Compensation Committee or the Board.
Description of Equity Compensation Not Approved By Stockholders
Equity Compensation Awards Granted Outside of the 2005 Plan
On September 11, 2006, the Compensation Committee granted nonqualified stock options outside of the 2005 Plan, but governed by the terms and conditions of the 2005 Plan, as an inducement award for Synthetech's newly hired President and Chief Operating Officer, Dr. Gregory Hahn, to purchase 300,000 shares of our common stock at an exercise price of $0.31 per share.
On April 17, 2007, the Compensation Committee granted 525,000 nonqualified stock options outside of the 2005 Plan, but governed by the terms and conditions of the 2005 Plan, to 33 Synthetech employees. The individual awards ranged in size between options to purchase 1,000 and 100,000 shares of our common stock at an exercise price of $0.87 per share. As of March 31, 2010, 111,000 of these options had been cancelled due to the termination of employment of the employee option holder and are not available for reissuance.
Administration. These options may be administered by our board of directors or any committee appointed by the board to administer the 2005 Plan. The plan administrator’s decisions, determinations and interpretations are binding on the holders of these options.
Vesting and Exercise. The exercise price for shares purchased under these options must be paid in a form acceptable to the plan administrator, which forms may include cash, a check, shares of already owned common stock, a broker-assisted cashless exercise or such other consideration as the plan administrator may permit. Each of these options will vest and become exercisable by the holder based on a vesting schedule as follows: one-third vest on the date of grant, one-third on the first anniversary and the remaining one-third on the second anniversary. Unless the plan administrator determines otherwise, options vested as of the date of termination of each optionee’s employment or service relationship with Synthetech by reason of death or disability generally will be exercisable for one year after the date of termination unless the option term expires as of an earlier date. In the event of termination for a reason other than death or disability, these options will be exercisable for a period of time determined by the plan administrator, generally three months after the date of termination, and in no event may these options be exercisable after the expiration of their respective terms. A transfer of employment or service relationship between us, our subsidiaries and any parent of Synthetech will not be deemed a termination for purposes of these options.
Transferability. Unless otherwise determined by the plan administrator, these options may not be transferred or assigned except by will or the laws of descent and distribution, and may not be exercised by anyone other than the holder during the holder’s lifetime.
Adjustment of Shares. In the event of stock splits, stock dividends, reclassification or similar changes in our capital structure, the board of directors, in its sole discretion, will make equitable adjustments in (a) the number of shares covered by each of these options and (b) the purchase price of the common stock underlying each option.
Company Transaction. In the event of merger or consolidation of Synthetech with or into any other company or a sale, lease, exchange or other transfer of all or substantially all our then outstanding securities or all or substantially all our assets, these options will be assumed or substituted for successor company. If the successor company refuses to assume or substitute for these options, these options will become immediately vested and exercisable immediately prior to the effective date of the transaction and will then be terminated.
Termination and Amendment. The board of directors may at any time amend these options. No amendment of these options may impair the rights of the holder of the amended option without that holder’s written consent. These options will expire on the tenth anniversary of the grant date, unless earlier terminated by their terms.
U.S. Federal Income Tax Consequences
The following provides only a general summary of the U.S. federal income tax laws that apply to stock options granted outside of the 2005 Plan with an exercise price at least equal to the fair market value of the underlying shares on the date of the grant and no additional deferral features. The summary is based on the Internal Revenue Code of 1986, as amended, applicable Treasury regulations under the Code, rulings and other guidance issued by the Internal Revenue Service and judicial decisions now in effect, all of which are subject to change, possibly with retroactive effect. This summary is not intended to address all aspects of U.S. federal income taxation that may be relevant to holders of stock options granted outside of the 2005 Plan, such as aspects of U.S. federal income taxation that may be relevant to option holders subject to special treatment under U.S. federal tax laws or who are residents of, or are employed in, a country other than the United States. Furthermore, this summary does not address any tax consequences under the laws of any foreign, state or local jurisdiction. Accordingly, holders of stock options granted outside of the 2005 Plan are urged to consult with their own tax advisors regarding the U.S. federal tax consequences of such grants in light of their own particular circumstances, as well as the effect of any foreign, state or local tax laws.
In general, an option holder will not recognize taxable income upon the grant or vesting of a stock option granted outside of the 2005 Plan.
Upon the exercise of the option, the option holder will recognize compensation taxable as ordinary income equal to the difference between the fair market value of the shares acquired on the date of exercise and the option exercise price. The tax basis of the shares acquired upon exercise of an option will be equal to the greater of the fair market value of the shares on the exercise date or the option exercise price, and the holding period for the shares will begin on the exercise date. When an option holder sells the shares acquired upon exercise of an option, the option holder generally will recognize short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount that the option holder receives from the sale and the tax basis of the shares disposed of.
Special rules apply if an option holder uses already owned shares to pay the exercise price or if the shares received upon exercise of the option are subject to a substantial risk of forfeiture by the option holder.
Under Section 162(m) of the Code, Synthetech generally is prohibited from deducting for U.S. federal income tax purposes compensation (including compensation attributable to the exercise of stock options granted outside the 2005 Plan) paid to Synthetech's chief executive officer and three other most highly compensated executive officers (other than the chief financial officer) in excess of $1,000,000 per person in any year.
The additional information required by this Item 12 is set forth in Synthetech’s Proxy Statement for its 2010 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after March 31, 2010.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 is set forth in Synthetech's Proxy Statement for its 2010 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after March 31, 2010.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 is set forth in Synthetech's Proxy Statement for its 2010 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission within 120 days after March 31, 2010.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) and (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
The information required by these Items is included under Item 8 of this Annual Report on Form 10-K.
(a)(3) EXHIBITS.
The following documents are filed as part of this Annual Report on Form 10-K and this list is intended to constitute the exhibit index:
Exhibit No.
Description
3.1
Articles of Incorporation, as amended (incorporated by reference to Synthetech’s Annual Report on Form 10-K for the fiscal year ended March 31, 1991 (File No. 000-12992)).
3.2
Bylaws, as amended (incorporated by reference to Synthetech’s Current Report on Form 8-K dated February 15, 2006).
Amended and Restated Rights Agreement, (incorporated by reference to Synthetech’s Current Report on Form 8-K dated July 31, 2008).
10.1 †
2000 Stock Incentive Plan (incorporated by reference to Synthetech’s Tender Offer Statement on Schedule TO-I (File No. 005-36505) filed on June 15, 2001).
10.2 †
2005 Equity Incentive Plan (incorporated by reference to Synthetech’s Definitive Proxy Statement on Schedule 14A for its Annual Meeting of Shareholders held on August 11, 2005 filed on July 7, 2005).
10.3†
Form of Stock Option Grant Notices and Agreements, dated as of April 17, 2007, between Synthetech and 33 Synthetech employees (incorporated by reference to Synthetech's Registration Statement on Form S-8 dated December 20, 2007).
10.4†
Stock Option Grant Notice and Agreement, dated as of September 11, 2006, between Synthetech, Inc. and Gregory Robert Hahn (incorporated by reference to Synthetech's Registration Statement on Form S-8 dated January 30, 2007).
10.5†
Summary of Non-Employee Director Compensation (incorporated by reference to Synthetech’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009). (File No. 000-12992).
10.6†
Employment Agreement dated April 1, 2010 between Synthetech, Inc. and Gregory R. Hahn.
10.7†
Employment Agreement dated November 30, 2007 between Synthetech, Inc. and Gary Weber (incorporated by reference to Synthetech’s Current Report on Form 8-K dated December 4, 2007).
10.8†
Employment Agreement dated October 1, 2008 between Synthetech, Inc. and Frederic Farkas (incorporated by reference to Synthetech’s Current Report on Form 8-K dated October 1, 2008).
10.9
Loan and Security Agreement, dated as of June 15, 2006, between Synthetech and Access Business Finance, LLC (incorporated by reference to Synthetech's Current Report on Form 8-K, dated June 20, 2006).
10.10
Second Amendment of Loan and Security Agreement, dated as of June 15, 2007, between Synthetech and Access Business Finance, LLC (incorporated by reference to Synthetech's Current Report on Form 8-K, dated June 20, 2007).
10.11
Third Amendment of Loan and Security Agreement, dated as of March 28, 2008, between Synthetech and Access Business Finance, LLC (incorporated by reference to Synthetech's Current Report on Form 8-K, dated March 28, 2008).
10.12
Deed of Trust, dated as of June 20, 2006, between Synthetech and Access Business Finance, LLC (incorporated by reference to the corresponding exhibit to Synthetech’s Annual Report on Form 10-K for the year ended March 31, 2008).
10.13
Fourth Amendment of Loan and Security Agreement dated as of May 1, 2008, between Synthetech and Access Business Finance, LLC (incorporated by reference to Synthetech’s Current Report on Form 8-K, dated May 5, 2008).
10.14
Promissory Note dated as of May 1, 2008 between Synthetech and Access Business Finance, LLC (incorporated by reference to Synthetech’s Current Report on Form 8-K, dated May 5, 2008).
10.15
Amended and Restated Loan and Security Agreement dated as of November 1, 2008, between Synthetech and Access Business Finance, LLC (incorporated by reference to Synthetech’s Current Report on Form 8-K, dated November 10, 2008).
10.16
Promissory Note Dated as of November 1, 2008, between Synthetech and Access Business Finance, LLC (incorporated by reference to Synthetech’s Current Report on Form 8-K, dated November 10, 2008).
10.17
Loan Modification Agreement Dated as of November 1, 2008, between Synthetech and Access Business Finance, LLC (incorporated by reference to Synthetech’s Current Report on Form 8-K, dated November 10, 2008).
10.18
Second Modification of Deed of Trust, Assignment of Rents and Leases, and Security Agreement Dated as of November 1, 2008, between Synthetech and Access Business Finance, LLC (incorporated by reference to Synthetech’s Current Report on Form 8-K, dated November 10, 2008).
23.1
Consent of Peterson Sullivan LLP, Independent Registered Public Accounting Firm.
31.1
Rule 13a-14(a) Certification of Chief Executive Officer.
31.2
Rule 13a-14(a) Certification of Chief Financial Officer.
21.1
Section 1350 Certification of Chief Executive Officer.
32.2
Section 1350 Certification of Chief Financial Officer.
__________________________
† Management contract or compensatory plan.
(b) See (a)(3) above.
(c) See (a)(1) and (2) above
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 10, 2010
SYNTHETECH, INC.
By /s/ Gregory R. Hahn
Gregory R. Hahn
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Gregory R. Hahn
Gregory R. Hahn
President, Chief Executive Officer (Principal Executive Officer) and Board Member
June 10, 2010
/s/ Gary A. Weber
Gary A. Weber
Vice President of Finance and Administration, Chief Financial Officer, Secretary, Treasurer (Principal Financial Officer and Principal Accounting Officer)
June 10, 2010
/s/ Daniel T. Fagan
Daniel T. Fagan
Chairman of the Board of Directors
June 10, 2010
/s/ Paul C. Ahrens
Paul C. Ahrens
Director
June 10, 2010
/s/ Howard L. Farkas
Howard L. Farkas
Director
June 10, 2010
/s/ Donald E. Kuhla
Donald E. Kuhla
Director
June 10, 2010
/s/ Hans C. Noetzli
Hans C. Noetzli
Director
June 10, 2010
/s/ Charles B. Williams
Charles B. Williams
Director
June 10, 2010