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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 March 31, 1996
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 April 30, 1996, 5,974,880 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. Condensed Statement of Operations -
Three months ended March 31, 1996 and 1995 3
Condensed Balance Sheet -
March 31, 1996 and December 31, 1995 4
Condensed Statement of Cash Flows -
Three months ended March 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis or Plan of Operation 7
Part II. Other Information 8
2
ITEM 1. FINANCIAL STATEMENTS
--------------------
SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
Three Months Ended
March 31,
------------------------
1996 1995
---------- ----------
Revenues:
Product sales $5,750,000 $4,826,000
License fees and other 171,000 50,000
Interest 11,000 9,000
---------- ----------
5,932,000 4,885,000
Cost and expenses:
Cost of sales 2,779,000 2,183,000
Research and development 216,000 201,000
Selling and marketing 1,229,000 1,378,000
General and administrative 385,000 351,000
---------- ----------
4,609,000 4,113,000
---------- ----------
Income before gain on sale of securities
available for sale 1,323,000 772,000
Gain on sale of securities available for sale 385,000
---------- ----------
Income before income taxes 1,708,000 772,000
Provision for income taxes 57,000 18,000
---------- ----------
Net income $1,651,000 $ 754,000
========== ==========
Net income per share $ .28 $ .13
========== ==========
Weighted average shares outstanding 5,911,000 5,803,000
========== ==========
Net income per share was computed based upon the weighted average
number of shares outstanding, including common stock equivalents.
See accompanying notes to condensed financial statements.
3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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SYNBIOTICS CORPORATION
CONDENSED BALANCE SHEET
________________________________________________________________________________
March 31, December 31,
1996 1995
------------ -------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and equivalents $ 1,620,000 $ 1,017,000
Securities available for sale 715,000
Accounts receivable 3,572,000 1,430,000
Inventories 4,082,000 3,439,000
Other current assets 557,000 578,000
------------ -------------
Total current assets 10,546,000 6,464,000
Property and equipment, net 765,000 879,000
Securities available for sale 2,840,000 2,533,000
Other assets 1,885,000 1,582,000
------------ -------------
$16,036,000 $ 11,458,000
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,063,000 $ 1,613,000
Other current liabilities 686,000 697,000
------------ -------------
Total current liabilities 2,749,000 2,310,000
------------ -------------
Shareholders' equity:
Common stock, no par value, 24,800,000 shares authorized,
5,970,000 and 5,816,000 shares issued and outstanding at
March 31, 1996 and December 31, 1995 29,748,000 29,351,000
Unrealized holding gains (losses) from securities available for sale 1,056,000 (1,035,000)
Accumulated deficit (17,517,000) (19,168,000)
------------ -------------
Total shareholders' equity 13,287,000 9,148,000
------------ -------------
$ 16,036,000 $ 11,458,000
============ =============
See accompanying notes to condensed financial statements.
4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------
SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
________________________________________________________________________________
Three Months Ended
March 31,
-------------------------
1996 1995
----------- -----------
Cash flows from operating activities:
Net income $ 1,651,000 $ 754,000
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 231,000 251,000
Gain on sale of securities available for sale (385,000)
Changes in assets and liabilities:
Accounts receivable (2,142,000) (579,000)
Inventories (643,000) (107,000)
Other assets 16,000 65,000
Accounts payable and accrued expenses 450,000 379,000
Other liabilities (11,000) 6,000
----------- ----------
Net cash (used for) provided by operating activities (833,000) 769,000
----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (16,000) (60,000)
Investment in securities available for sale (715,000) (5,000)
Proceeds from sale of securities available for sale 2,167,000
----------- ----------
Net cash provided by (used for) investing activities 1,436,000 (65,000)
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Net increase in cash and equivalents 603,000 704,000
Cash and equivalents - beginning of year 1,017,000 447,000
----------- ----------
Cash and equivalents - end of period $ 1,620,000 $1,151,000
=========== ==========
See accompanying notes to condensed financial statements.
5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------
SYNBIOTICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
_______________________________________________________________________________
NOTE 1 - INTERIM FINANCIAL STATEMENTS:
The accompanying balance sheet as of March 31, 1996 and the statements of
operations and of cash flows for the three month periods ended March 31, 1996
and 1995 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 year ended December 31,
1995. 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
primarily of short-term commercial paper.
NOTE 3 - INVENTORIES:
Inventories consist of the following:
March 31, December 31,
1996 1995
---------- ------------
Raw materials $1,044,000 $ 665,000
Work in process 642,000 633,000
Finished goods 2,396,000 2,141,000
---------- ------------
$4,082,000 $3,439,000
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6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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RESULTS OF OPERATIONS
Total revenue for the first quarter of 1996 increased by $1,047,000 or 21% over
the first quarter of 1995. Product sales during the first quarter of 1996
increased $924,000 or 19%. The increase is due to an increase of $644,000 or
49% in vaccine sales and a $280,000 or 8% increase in diagnostic sales. Vaccine
sales increased primarily due to $640,000 of international shipments of bulk
feline leukemia vaccine to Rhone-Merieux, which bottles and markets the
Company's feline leukemia vaccine under its own brand name in certain parts of
Europe, for which there were no comparable sales during the first quarter of
1995. The increased diagnostic sales are primarily due to sales of the
Company's ICT GOLD(TM) HW product, which was introduced in March 1995, and sales
of D-TEC/(R)/ CB (canine brucellosis) which had been on back order for
approximately one year as a result of third-party manufacturer production
problems.
License fees and other revenue during the first quarter of 1996 increased
$121,000 or 242% over the first quarter of 1995 due to increased royalties
earned on certain of the Company's products which are licensed to Rhone Merieux,
Inc. (located in Athens, Georgia) and license fees received in conjunction with
an exclusive distribution agreement with Daiichi Pharmaceutical Co., Ltd. for
the distribution of the Company's vaccine and diagnostic products in Japan. The
Daiichi arrangement is not expected to generate significant revenues until at
least 1998.
The cost of sales as a percentage of product revenue increased to 48% during the
first quarter of 1996 as compared to 45% for the first quarter of 1995. The
increase is due primarily to increased unapplied manufacturing overhead,
resulting from a larger percentage of product sales during 1996 being generated
from products which are manufactured for the Company by third parties. The
Company's manufacturing costs are predominantly fixed costs. 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. In addition to affecting gross margins, this
shift in product mix renders the Company relatively more dependent on the third-
party manufacturers.
Selling and marketing expenses during the first quarter of 1996 decreased by
$149,000 or 11% from the first quarter of 1995. The decrease is due primarily to
a reduction in advertising and promotion costs which were higher during the
first quarter of 1995 resulting from the introduction of the Company's ICT
GOLD(TM) HW canine heartworm diagnostic test.
On February 27, 1996 and February 28, 1996, the Company sold a total of 614,000
shares of Texas Biotechnology Corporation ("TBC") common stock on the American
Stock Exchange at an average selling price of $3.573 per share. As a result of
the transactions, the Company recognized a gain of $385,00 during the first
quarter of 1996. As a result of the sale of the shares, the Company's ownership
of TBC was reduced to approximately 3%. During the period April 25, 1996 to May
2, 1996, the Company sold its remaining 614,000 shares of TBC common stock on
the American Stock Exchange at an average selling price of $4.205 per share. As
a result of the transactions, the Company will recognize a gain of $774,000
during the second quarter of 1996. The net proceeds received from the sales,
which totalled $4,727,000, will be used primarily for working capital
requirements and to fund business opportunities such as acquisitions.
The Company's business is seasonal, and is concentrated within the canine
heartworm selling season, which falls mainly in the quarters ending March 31 and
June 30 of each year. Sales and results from operations in the quarters ending
September 30 and December 31 of each year are expected to be less favorable than
in the heartworm selling season.
7
FINANCIAL CONDITION
Management believes that the Company's present capital resources, which included
working capital of $7,797,000 at March 31, 1996, are sufficient to meet its
current working capital needs.
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS:
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None.
ITEM 2. CHANGES IN SECURITIES:
----------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
--------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
----------------------------------------------------
None.
ITEM 5. OTHER INFORMATION:
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None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
---------------------------------
(a) Exhibits
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10.53 Distribution Agreement between the Registrant and Daiichi
Pharmaceutical Co., Ltd., dated January 16, 1996./(1)/
10.54 License Agreement between the Registrant and Engene
Biotechnologies, Inc., dated March 6, 1996./(1) /
10.55 Research and Development Agreement between the Registrant and
Engene Biotechnologies, Inc., dated March 6, 1996./(1)/
10.56 Scientific Advisor Agreement between the Registrant and J.
Kevin Steele, dated March 6, 1996./(1)/
8
10.57 Inducement Agreement between the Registrant and Engene
Biotechnologies, Inc., dated March 6, 1996./(1)/
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule (for electronic filing purposes only).
______________________
(1) Certain confidential portions of this exhibit have been
omitted by means of blacking out the text (the "Mark").
This exhibit has been filed separately with the Secretary of
the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24-
b-2 under the Securities Exchange Act of 1934, as amended.
(b) Reports on Form 8-K
-------------------
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, thereto duly
authorized.
SYNBIOTICS CORPORATION
Date: May 15, 1996 /s/ Michael K. Green
----------------------
Michael K. Green
Vice President of Finance and
Chief Financial Officer
(signing both as a duly authorized
officer and as principal financial
officer)
9
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
10.53 Distribution Agreement between the Registrant and Daiichi Pharmaceutical
Co., Ltd., dated January 16, 1996./(1)/
10.54 License Agreement between the Registrant and Engene Biotechnologies,
Inc., dated March 6, 1996./(1)/
10.55 Research and Development Agreement between the Registrant and Engene
Biotechnologies, Inc., dated March 6, 1996./(1)/
10.56 Scientific Advisor Agreement between the Registrant and J. Kevin Steele,
dated March 6, 1996./(1)/
10.57 Inducement Agreement between the Registrant and Engene Biotechnologies,
Inc., dated March 6, 1996./(1)/
11.1 Computation of Loss Per Share.
27 Financial Data Schedule (for electronic filing purposes only).
_____________________
(1) Certain confidential portions of this exhibit have been omitted by means
of blacking out the text (the "Mark"). This exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant
to the Company's Application Requesting Confidential Treatment under Rule
24b-2 under the Securities Exchange Act of 1934, as amended.
10