x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2001 |
OR |
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
California | 95-3737816 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
11011 Via Frontera | ||
San Diego, California | 92127 | |
(Address of principal executive offices) | (Zip Code) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2000 | 2001 | 2000 | |||||||||
Revenues: | ||||||||||||
Net sales | $7,195,000 | $8,562,000 | $15,157,000 | $17,735,000 | ||||||||
License fees | 908,000 | 61,000 | 969,000 | 122,000 | ||||||||
Royalties | 2,000 | 2,000 | 4,000 | 4,000 | ||||||||
8,105,000 | 8,625,000 | 16,130,000 | 17,861,000 | |||||||||
Operating expenses: | ||||||||||||
Cost of sales | 3,252,000 | 3,684,000 | 6,460,000 | 8,663,000 | ||||||||
Research and development | 399,000 | 538,000 | 905,000 | 1,085,000 | ||||||||
Selling and marketing | 1,492,000 | 2,582,000 | 3,056,000 | 5,089,000 | ||||||||
General and administrative | 1,596,000 | 1,966,000 | 3,192,000 | 3,693,000 | ||||||||
6,739,000 | 8,770,000 | 13,613,000 | 18,530,000 | |||||||||
Income (loss) from operations | 1,366,000 | (145,000 | ) | 2,517,000 | (669,000 | ) | ||||||
Other income (expense): | ||||||||||||
Interest, net | (232,000 | ) | (273,000 | ) | (526,000 | ) | (605,000 | ) | ||||
Income (loss) before income taxes | 1,134,000 | (418,000 | ) | 1,991,000 | (1,274,000 | ) | ||||||
Provision for income taxes | 23,000 | 373,000 | 51,000 | 351,000 | ||||||||
Income (loss) before extraordinary item | 1,111,000 | (791,000 | ) | 1,940,000 | (1,625,000 | ) | ||||||
Early extinguishment of debt, net of tax | (583,000 | ) | (583,000 | ) | ||||||||
Net income (loss) | 1,111,000 | (1,374,000 | ) | 1,940,000 | (2,208,000 | ) | ||||||
Translation adjustment | (86,000 | ) | 314,000 | (571,000 | ) | 206,000 | ||||||
Comprehensive income (loss) | $1,025,000 | $(1,060,000 | ) | $ 1,369,000 | $ (2,002,000 | ) | ||||||
Basic and diluted income (loss) per share: | ||||||||||||
Income (loss) from continuing operations | $ 0.11 | $ (0.09 | ) | $ 0.19 | $ (0.18 | ) | ||||||
Early extinguishment of debt, net of tax | (0.06 | ) | (0.06 | ) | ||||||||
Net income (loss) | $ 0.11 | $ (0.15 | ) | $ 0.19 | $ (0.24 | ) | ||||||
June 30, 2001 | December 31, 2000 | |||||
---|---|---|---|---|---|---|
(unaudited) | (audited) | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and equivalents | $ 1,275,000 | $ 951,000 | ||||
Accounts receivable | 3,715,000 | 3,490,000 | ||||
Inventories | 5,095,000 | 5,273,000 | ||||
Other current assets | 969,000 | 911,000 | ||||
11,054,000 | 10,625,000 | |||||
Property and equipment, net | 1,750,000 | 1,983,000 | ||||
Goodwill | 12,523,000 | 13,161,000 | ||||
Deferred tax assets | 109,000 | 122,000 | ||||
Deferred debt issuance costs | 20,000 | 33,000 | ||||
Investment in W3 held for sale | 2,713,000 | |||||
Other assets | 2,987,000 | 3,565,000 | ||||
$28,443,000 | $32,202,000 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current Liabilities: | ||||||
Accounts payable and accrued expenses | $ 5,765,000 | $ 6,296,000 | ||||
Current portion of long-term debt | 7,832,000 | 8,432,000 | ||||
Deferred revenue | 242,000 | |||||
Other current liabilities | 600,000 | 1,000,000 | ||||
14,197,000 | 15,970,000 | |||||
Long-term debt | 2,813,000 | |||||
Deferred revenue | 727,000 | |||||
Other liabilities | 1,731,000 | 1,668,000 | ||||
1,731,000 | 5,208,000 | |||||
Mandatorily redeemable common stock | 3,107,000 | 3,027,000 | ||||
Non-mandatorily redeemable common stock and other shareholders’ equity: | ||||||
Common stock, no par value, 24,800,000 shares authorized, 9,003,000 and 8,752,000 shares issued and outstanding at June 30, 2001 and December 31, 2000 | 40,286,000 | 40,164,000 | ||||
Common stock warrants | 1,035,000 | 1,035,000 | ||||
Accumulated other comprehensive loss | (1,656,000 | ) | (1,085,000 | ) | ||
Accumulated deficit | (30,257,000 | ) | (32,117,000 | ) | ||
Total non-mandatorily redeemable common stock and other shareholders’ equity | 9,408,000 | 7,997,000 | ||||
$28,443,000 | $32,202,000 | |||||
Six Months Ended June 30, | ||||||
---|---|---|---|---|---|---|
2001 | 2000 | |||||
Cash flows from operating activities: | ||||||
Net income (loss) | $1,940,000 | $(2,208,000 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | ||||||
Depreciation and amortization | 1,149,000 | 1,101,000 | ||||
Early extinguishment of debt | 937,000 | |||||
Changes in assets and liabilities (net of acquisitions and dispositions): | ||||||
Accounts receivable | (401,000 | ) | (740,000 | ) | ||
Inventories | 46,000 | (1,362,000 | ) | |||
Deferred taxes | (8,000 | ) | (22,000 | ) | ||
Other assets | (120,000 | ) | 211,000 | |||
Accounts payable and accrued expenses | (244,000 | ) | 133,000 | |||
Deferred revenue | (969,000 | ) | (121,000 | ) | ||
Other liabilities | (332,000 | ) | 61,000 | |||
Net cash provided by (used for) operating activities | 1,061,000 | (2,010,000 | ) | |||
Cash flows from investing activities: | ||||||
Acquisition of property and equipment | (97,000 | ) | (374,000 | ) | ||
Proceeds from sale of investment in W3 held for sale | 9,000 | |||||
Proceeds from sale of securities available for sale | 2,127,000 | |||||
Acquisition of KPL poultry product line | (3,554,000 | ) | ||||
Net cash used for investing activities | (88,000 | ) | (1,801,000 | ) | ||
Cash flows from financing activities: | ||||||
Proceeds from issuance of long-term debt | 10,000,000 | |||||
Payments of long-term debt | (600,000 | ) | (7,450,000 | ) | ||
Proceeds from issuance of common stock, net | 136,000 | |||||
Net cash (used for) provided by financing activities | (600,000 | ) | 2,686,000 | |||
Net increase (decrease) in cash and equivalents | 373,000 | (1,125,000 | ) | |||
Effect of exchange rates on cash | (49,000 | ) | 206,000 | |||
Cash and equivalents—beginning of period | 951,000 | 2,260,000 | ||||
Cash and equivalents—end of period | $1,275,000 | $1,341,000 | ||||
On June 1, 2001, the Company assigned its feline leukemia vaccine distribution agreement with Intervet, Inc. to Merial Limited, Merial S.A.S. and Merial, Inc. (collectively “Merial”). In exchange, Merial waived its right to sell to the Company 621,000 shares of the Company’s common stock at $5.00 per share (the “Put Right”). Merial also agreed to allow the Company to pay accrued royalties totalling $613,000 under a separate agreement ($175,000 of which was due in May 2001 and the remainder was due in October 2001) in ten monthly installments of $61,300 which began in July 2001. If the Company fails to meet its royalty payment obligation, the Put Right will revert to Merial.When the final royalty payment has been made in April 2002, and the Put Right is extinguished, the Company will reclassify the mandatorily redeemable common stock to equity.
In March 1999, the Company amended its U.S. feline leukem a virus vaccine supply agreement with Merial, and the Company received $1,453,000 which it was recognizing as license fee revenue ratably over the remaining life of the supply agreement. As the Company has assigned its distribution agreement with Intervet, Inc. to Merial, the Company has no further contractual obligations under the supply agreement and recognized, in June 2001, the remaining $868,000 of deferred license fee revenue.
June 30, 2001 | December 31, 2000 | |||
---|---|---|---|---|
(unaudited) | (audited) | |||
Inventories: | ||||
Raw materials | $2,353,000 | $2,293,000 | ||
Work in process | 286,000 | 409,000 | ||
Finished goods | 2,456,000 | 2,571,000 | ||
$5,095,000 | $5,273,000 | |||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2001 | 2000 | 2001 | 2000 | |||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||
Basic and diluted net income (loss) used: | ||||||||||||
Income (loss) from continuing operations | $1,111,000 | $ (791,000 | ) | $1,940,000 | $(1,625,000 | ) | ||||||
Less accretion of mandatorily redeemable common stock | (46,000 | ) | (33,000 | ) | (79,000 | ) | (65,000 | ) | ||||
Income (loss) from continuing operations used in computing basic income (loss) from continuing operations per share | 1,065,000 | (824,000 | ) | 1,861,000 | (1,690,000 | ) | ||||||
Early extinguishment of debt, net of tax | (583,000 | ) | (583,000 | ) | ||||||||
Net income (loss) used in computing basic and diluted net income (loss) per share | $1,065,000 | $(1,407,000 | ) | $1,861,000 | $(2,273,000 | ) | ||||||
Shares used: | ||||||||||||
Weighted average common shares outstanding used in computing basic income (loss) per share | 9,624,000 | 9,369,000 | 9,624,000 | 9,312,000 | ||||||||
Weighted average options and warrants to purchase common stock as determined by the treasury method | 235,000 | 236,000 | ||||||||||
Shares used in computing diluted income (loss) per share | 9,859,000 | 9,369,000 | 9,860,000 | 9,312,000 | ||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
---|---|---|---|---|---|---|---|---|
2001 | 2000 | 2001 | 2000 | |||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||
Diagnostics | $6,795,000 | $6,473,000 | $14,082,000 | $13,028,000 | ||||
Vaccines | 34,000 | 1,464,000 | 276,000 | 3,503,000 | ||||
Instruments | 366,000 | 625,000 | 799,000 | 1,204,000 | ||||
Other revenues | 910,000 | 63,000 | 973,000 | 126,000 | ||||
$8,105,000 | $8,625,000 | $16,130,000 | $17,861,000 | |||||
Other revenues for the three months ended June 30, 2001 consist primarily of deferred license fee revenues that were recognized in conjunction with the assignment of a distribution agreement (Note 2).
The following are revenues and long-lived assets information by geographic area:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
---|---|---|---|---|---|---|---|---|
2001 | 2000 | 2001 | 2000 | |||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||
Revenues: | ||||||||
United States | $6,280,000 | $6,340,000 | $11,602,000 | $12,851,000 | ||||
France | 411,000 | 854,000 | 1,095,000 | 2,146,000 | ||||
Other foreign countries | 1,414,000 | 1,431,000 | 3,433,000 | 2,864,000 | ||||
$8,105,000 | $8,625,000 | $16,130,000 | $17,861,000 | |||||
June 30, 2001 | December 31, 2000 | |||
---|---|---|---|---|
(unaudited) | (audited) | |||
Long-lived assets: | ||||
United States | $12,721,000 | $12,921,000 | ||
France | 4,559,000 | 5,337,000 | ||
$17,280,000 | $18,258,000 | |||
· | the decreased vaccine sales which have historically had low margins; |
· | sales of the newly acquired poultry diagnostic products which have significantly higher margins; |
· | an offset due to the fact that a significant portion of our manufacturing costs are fixed costs; and |
· | an offset due to the increased distributor rebates during 2001. |
We depend on third party manufacturers
· | reduced control over delivery schedules; |
· | quality assurance; |
· | manufacturing yields and costs; |
· | the potential lack of adequate capacity during periods of excess demand; |
· | limited warranties on products supplied to us; and |
· | increases in prices and the potential misappropriation of our intellectual property. |
· | pay substantial damages, including treble damages if we are held to have willfully infringed; |
· | cease the manufacture, use and sale of infringing products; |
· | expend significant resources to develop non-infringing technology; or |
· | obtain licenses to the infringing technology. |
· | the patent coverage which we receive could be significantly narrower than the patent coverage we seek in our patent applications; and |
· | our patent positions involve complex legal and factual issues which can be hard for patent examiners or lawyers asserting patent coverage to successfully resolve. |
Synbiotics Corporation v. Heska Corporation—United States District Court for the Southern District of California |
2.9.1 | Letter Agreement between the Registrant and Kirkegaard & Perry Laboratories, Inc., dated April 23, 2001. | |
10.7.1 | Amendment of Employment Agreement between the Registrant and Paul A. Rosinack, dated February 14, 2001†. | |
10.8 | Employment Agreement between the Registrant and Michael K. Green, dated July 9, 1997†. |
10.8.1 | Amendment of Employment Agreement between the Registrant and Michael K. Green, dated February 14, 2001†. | |
10.9.1 | Amendment of Employment Agreement between the Registrant and Francois Guillemin, dated February 14, 2001†. | |
10.10 | Employment Agreement between the Registrant and Serge Leterme, dated August 1, 1998†. | |
10.10.1 | Amendment of Employment Agreement between the Registrant and Serge Leterme, dated February 14, 2001†. | |
10.11 | Employment Agreement between the Registrant and Robert Buchanan, dated April 24, 2000†. | |
10.11.1 | Amendment of Employment Agreement between the Registrant and Robert Buchanan, dated February 14, 2001†. | |
10.76 | Asset Sale and Assignment Agreement by and among the Registrant and Merial Limited, Merial S.A.S. and Merial, Inc., dated as of June 1, 2001. |
None. |
SYNBIOTICS CORPORATION |
/s/ MICHAEL K. GREEN |
Michael K. Green |
Senior Vice President and Chief Financial Officer |
(signing both as a duly authorized officer and as |
principal financial officer) |
Exhibit No. | Exhibit | |
---|---|---|
2.9.1 | Letter Agreement between the Registrant and Kirkegaard & Perry Laboratories, Inc., dated April 23, 2001. | |
10.7.1 | Amendment of Employment Agreement between the Registrant and Paul A. Rosinack, dated February 14, 2001†. | |
10.8 | Employment Agreement between the Registrant and Michael K. Green, dated July 9, 1997†. | |
10.8.1 | Amendment of Employment Agreement between the Registrant and Michael K. Green, dated February 14, 2001†. | |
10.9.1 | Amendment of Employment Agreement between the Registrant and Francois Guillemin, dated February 14, 2001†. | |
10.10 | Employment Agreement between the Registrant and Serge Leterme, dated August 1, 1998†. | |
10.10.1 | Amendment of Employment Agreement between the Registrant and Serge Leterme, dated February 14, 2001†. | |
10.11 | Employment Agreement between the Registrant and Robert Buchanan, dated April 24, 2000†. | |
10.11.1 | Amendment of Employment Agreement between the Registrant and Robert Buchanan, dated February 14, 2001†. | |
10.76 | Asset Sale and Assignment Agreement by and among the Registrant and Merial Limited, Merial S.A.S. and Merial, Inc., dated as of June 1, 2001. |
† | Management contract or compensatory plan or arrangement. |