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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-11303
SYNBIOTICS CORPORATION
(Exact name of small business issuer as specified in its charter)
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)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 451-3771
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
As of November 8, 1995, 5,816,033 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes [_] No [X]
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SYNBIOTICS CORPORATION
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statement of Operations - Three and
nine months ended September 30, 1995 and 1994 2
Condensed Balance Sheet - September 30, 1995
and December 31, 1994 3
Condensed Statement of Cash Flows - Nine
months ended September 30, 1995 and 1994 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 9
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PART I. FINANCIAL INFORMATION
-----------------------------
ITEM I. FINANCIAL STATEMENTS
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SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Product sales $ 2,284,000 $ 2,030,000 $10,921,000 $ 9,376,000
License fees and other 92,000 66,000 239,000 171,000
Interest 17,000 27,000 35,000 76,000
------------- ------------ ----------- ------------
2,393,000 2,123,000 11,195,000 9,623,000
------------- ------------ ----------- ------------
Cost and expenses:
Cost of sales 1,651,000 1,080,000 6,138,000 4,700,000
Research and development 274,000 283,000 692,000 802,000
Selling and marketing 965,000 1,096,000 3,324,000 3,875,000
General and administrative 377,000 512,000 1,090,000 1,957,000
------------- ------------ ----------- ------------
3,267,000 2,971,000 11,244,000 11,334,000
------------- ------------ ----------- ------------
Loss before gain on disposition of
investment in affiliated company (874,000) (848,000) (49,000) (1,711,000)
Gain on disposition of investment in
affiliate 2,036,000 931,000 2,036,000
------------- ------------ ----------- ------------
Income (loss) before income taxes (874,000) 1,188,000 882,000 325,000
Provision for income taxes (20,000) 2,000 2,000
------------- ------------ ----------- ------------
Net income (loss) $ (854,000) $ 1,188,000 $ 880,000 $ 323,000
============= ============ =========== ============
Net income (loss) per share $ (.15) $ .20 $ .15 $ .06
============= ============ =========== ============
Weighted average shares outstanding 5,809,000 5,824,000 5,827,000 5,857,000
============= ============ =========== ============
Net income (loss) per share was computed based upon the weighted average
number of shares outstanding, including common stock equivalents.
See accompanying notes to condensed financial statements.
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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SYNBIOTICS CORPORATION
CONDENSED BALANCE SHEET
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SEPTEMBER 30, DECEMBER 31,
1995 1994
---- ----
(unaudited) (audited)
ASSETS
Current assets:
Cash and equivalents $ 1,436,000 $ 447,000
Securities available for sale 507,000 502,000
Accounts receivable 849,000 1,444,000
Inventories 2,728,000 2,763,000
Other current assets 677,000 963,000
------------ ------------
Total current assets 6,197,000 6,119,000
Property and equipment, net 979,000 1,329,000
Securities available for sale 3,377,000 942,000
Other assets 1,679,000 1,921,000
------------ ------------
$ 12,232,000 $ 10,311,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,168,000 $ 1,662,000
Other current liabilities 697,000 695,000
------------ ------------
Total current liabilities 1,865,000 2,357,000
------------ ------------
Shareholders' equity:
Common stock, no par value, 24,800,000 shares authorized,
5,815,000 and 5,803,000 shares issued and outstanding at
September 30, 1995 and December 31, 1994, respectively 29,346,000 29,318,000
Unrealized holding losses from securities available for sale (190,000) (1,695,000)
Accumulated deficit (18,789,000) (19,669,000)
------------ ------------
Total shareholders' equity 10,367,000 7,954,000
------------ ------------
$ 12,232,000 $ 10,311,000
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See accompanying notes to condensed financial statements.
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
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NINE MONTHS ENDED
SEPTEMBER 30,
------------
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 880,000 $ 323,000
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 761,000 629,000
Inventory reserve 243,000
Gain on disposition of investment in affiliate (931,000) (2,036,000)
Changes in assets and liabilities:
Accounts receivable 595,000 481,000
Receivable from affiliates 105,000
Inventories (208,000) (185,000)
Other assets 243,000 (101,000)
Accounts payable and accrued expenses (494,000) (355,000)
Other liabilities 2,000 (8,000)
----------- -----------
Net cash provided by (used for) operating activities 1,091,000 (1,147,000)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (125,000) (441,000)
Loans to affiliates (450,000)
----------- -----------
Net cash used for investing activities (125,000) (891,000)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 23,000
----------- -----------
Net cash provided by financing activities 23,000
----------- -----------
Net increase (decrease) in cash and equivalents 989,000 (2,038,000)
Cash and equivalents - beginning of year 447,000 3,928,000
----------- -----------
Cash and equivalents - end of period $ 1,436,000 $ 1,890,000
=========== ===========
See accompanying notes to condensed financial statements.
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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SYNBIOTICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1 - INTERIM FINANCIAL STATEMENTS:
The accompanying balance sheet as of September 30, 1995 and the statements of
operations and of cash flows for the nine month periods ended September 30, 1995
and 1994 have been prepared by Synbiotics Corporation (the Company) and have not
been audited. These financial statements, in the opinion of management, include
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial position, results of operations and cash
flows for all periods presented. The financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB filed for the nine month period ended
December 31, 1994. Interim operating results are not necessarily indicative of
operating results for the full year.
NOTE 2 - SECURITIES AVAILABLE FOR SALE:
Included in current assets are securities available for sale which consist of
U.S. Government Treasury bills.
On June 30, 1995, the Company received 573,000 shares of Texas Biotechnology
Corporation ("TBC") common stock resulting from the satisfaction of a certain
contingency on May 31, 1995 related to the acquisition of ImmunoPharmaceutics,
Inc. ("IPI") by TBC in July 1994. Accordingly, the Company recognized a gain
for financial reporting purposes in the amount of $931,000, based on the closing
price of TBC common stock on May 31, 1995 of $1.625 per share as reported on the
American Stock Exchange.
The Company may receive an additional 409,000 shares of TBC common stock (the
"Contingent Shares") pending the outcome of certain remaining contingencies. No
amounts have been recorded related to the Contingent Shares, and no amounts will
be recorded until such time as the contingencies are satisfied.
NOTE 3 - INVENTORIES:
Inventories consist of the following:
September 30, December 31,
1995 1994
---- ----
Raw materials $ 534,000 $ 576,000
Work in process 803,000 756,000
Finished goods 1,391,000 1,431,000
------------ -----------
$ 2,728,000 $ 2,763,000
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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RESULTS OF OPERATIONS
Total revenue for the third quarter of 1995 increased by $270,000 or 13% over
the quarter ended September 30, 1994, and increased for the nine months ended
September 30, 1995 by $1,572,000 or 16% over the nine months ended September 30,
1994. The increases are primarily due to an increase in product sales of
$254,000 or 13% during the third quarter of 1995, and an increase in product
sales of $1,545,000 or 16% during the nine months ended September 30, 1995,
respectively.
The increase in product sales during the third quarter of 1995 and the nine
months ended September 30, 1995 is primarily due to an increase in diagnostic
sales of $228,000 or 17% and $1,467,000 or 25%, respectively. The increased
diagnostic sales are primarily due to sales of ICT GOLD(TM) HW, the Company's
new canine heartworm diagnostic, which was introduced in March 1995. Sales of
this new product more than offset declines in the Company's other canine
heartworm diagnostic products, which were caused (for microwell tests) by
competition from a major competitor's improved product and (for stat tests) by
customer shifts to ICT GOLD(TM) HW. The Company is developing a modified
DiroCHEK(R) canine heartworm diagnostic, with greater ease-of-use to match the
competitor's microwell product modification, to regain unit sales and price
points in this important product line. Vaccine sales increased modestly during
the quarter and nine months ended September 30, 1995, as compared to the quarter
and nine months ended September 30, 1994.
The cost of sales as a percentage of product revenue increased to 56% for the
nine months ended September 30, 1995 as compared to 50% for the nine months
ended September 30, 1994. The cost of sales as a percentage of product revenue
increased even more sharply, to 72%, for the third quarter of 1995 as compared
to 53% for the quarter ended September 30, 1994. The increases are due to
increased unapplied manufacturing overhead, resulting from a larger percentage
of product sales during 1995 being generated from products which are
manufactured for the Company by third parties, and a $243,000 (11% of third
quarter product revenue) write-off of vaccine inventory which became unsalable
because its expiration date occurred during the third quarter of 1995. Among
the Company's major products, DiroCHEK(R) canine heartworm diagnostic products
are manufactured at Company facilities, whereas ICT GOLD(TM) HW and all vaccines
are manufactured by third parties. The cost of sales percentage was worsened by
domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc.
(located in Athens, Georgia) during the first nine months of 1995. The Company
has contracted to sell bulk vaccine to Rhone Merieux, Inc. at cost because the
Company receives a royalty on Rhone Merieux, Inc.'s resulting product sales in
the United States. By contrast, the Company's international sales of bulk
feline leukemia vaccine to Rhone-Merieux of France are at a profit, not at cost.
Cost of sales as a percentage of product revenue would have been 59% and 49%
during the quarters ended September 30, 1995 and 1994, respectively, and 49% and
48% for the nine months ended September 30, 1995 and 1994, respectively, if the
inventory write-off and zero margin bulk sales were not taken into
consideration. The 1995 cost of sales percentage was also hurt by reduced
average selling prices due to increased competition (as to DiroCHEK/(R)/) and
promotional programs accounted for as reductions in revenue; the cost of sales
percentage suffers when more units of product must be manufactured and sold to
achieve the same revenue.
Research and development expenses during the third quarter of 1995 decreased by
$9,000 or 3% from the quarter ended September 30, 1994, and decreased during the
nine months ended September 30, 1995 by $110,000 or 14% from the nine months
ended September 30, 1994. The decreases are primarily due to a decrease in
contracted research and development resulting from the completion of the
development of the Company's ICT GOLD(TM) HW canine heartworm diagnostic test
which was introduced in March 1995, offset by additional research programs with
outside research and development contractors.
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Selling and marketing expenses during the third quarter of 1995 decreased by
$131,000 or 12% from the quarter ended September 30, 1994, and decreased during
the nine months ended September 30, 1995 by $551,000 or 14% from the nine months
ended September 30, 1994. The decreases are due primarily to the non-recurrence
of significant 1994 advertising and special sales promotion expenses related to
the launch of the Company's new vaccine product line.
General and administrative expenses during the third quarter of 1995 decreased
by $135,000 or 26% from the quarter ended September 30, 1994, and decreased
during the nine months ended September 30, 1995 by $867,000 or 44% from the nine
months ended September 30, 1994. The decreases are due to a decrease in legal
expenses as a result of the settlement of major litigation in December 1994.
On June 30, 1995, the Company received 573,000 shares of Texas Biotechnology
Corporation ("TBC") common stock resulting from the satisfaction of a certain
contingency on May 31, 1995 related to the acquisition of ImmunoPharmaceutics,
Inc. ("IPI") by TBC in July 1994. The Company had been a major shareholder of
IPI, and had previously recognized a $2,036,000 gain on the transaction for
financial reporting purposes. In the second quarter of 1995, the Company
recognized an additional gain for financial reporting purposes in the amount of
$931,000. The Company may receive an additional 409,000 shares of TBC common
stock pending the outcome of certain remaining contingencies. The Company will
recognize additional income when, and if, these contingencies are satisfied.
FINANCIAL CONDITION
Management believes that the Company's present capital resources, which included
working capital of $4,332,000 at September 30, 1995, are sufficient to meet its
current normal working capital needs. The Company intends to try to negotiate
the deferral of payment of approximately $700,000 owed in the fourth quarter of
1995 under a 1992 agreement relating to the purchase of certain canine and
feline vaccine products.
Although TBC is a publicly traded company, the TBC common stock received by the
Company in 1994 and 1995 is subject to certain securities-law and contractual
restrictions against resale. TBC has filed a Registration Statement on Form S-
3, which has not yet been declared effective by the Securities and Exchange
Commission, for the purpose of registering these and other shares for resale to
the public. The Company's present intent is to hold its 1,228,000 TBC shares
for investment unless an unexpected need for large cash outlays arises.
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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No material developments.
ITEM 2. CHANGES IN SECURITIES
---------------------
None.
-7-
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The Annual Meeting of Shareholders was held on July 12, 1995. The following
matters were submitted to a vote, with the results indicated below:
(a) Election of directors:
Broker
Nominee For Against Abstain Withheld Non-votes
------- --- ------- ------- -------- ----------
Patrick Owen Burns 5,103,711 n/a n/a 50,985 0
James C. DeCesare 5,103,011 n/a n/a 51,685 0
Theodor H. Heinrichs 5,102,061 n/a n/a 52,635 0
M. Blake Ingle, Ph.D. 5,100,211 n/a n/a 54,485 0
Donald E. Phillips 5,103,461 n/a n/a 51,235 0
Robert L. Widerkehr 5,104,586 n/a n/a 50,110 0
(b) Approval of the Company's 1995 Stock Option/Stock Issuance Plan:
For: 3,635,579 Against: 289,203 Abstain: 50,546 Withheld: n/a
Broker Non-votes: 1,179,368
(c) Approval of the amendment to Article I, Section 2 of the Company's
Bylaws:
For: 4,931,625 Against: 49,096 Abstain: 39,536 Withheld: n/a Broker
Non-votes: 134,439
(d) Ratification of selection of Price Waterhouse LLP as the Company's
independent accountants:
For: 5,118,369 Against: 24,341 Abstain: 11,986 Withheld: n/a Broker
Non-votes: 0
ITEM 5. OTHER INFORMATION
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None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
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10.50+ 1995 Stock Option/Stock Issuance Plan, as amended.
11.1 Computation of Earnings (Loss) Per Share.
27 Financial Data Schedule (for electronic filing purposes
only).
___________________
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
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None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SYNBIOTICS CORPORATION
Date: November 10, 1995 /s/ Michael K. Green
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Michael K. Green
Vice President of Finance and Chief
Financial Officer
(signing both as a duly authorized
officer and as principal financial officer)
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM 10-QSB
UNDER
SECURITIES EXCHANGE ACT OF 1934
SYNBIOTICS CORPORATION
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
10.50 1995 Stock Option/Stock Issuance Plan, as amended.
11.1 Computation of Earnings (Loss) Per Share.
27 Financial Data Schedule (for electronic filing purposes only).