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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 July 26, 1996, 5,999,956 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 and six months ended June 30, 1996 and 1995 2
Condensed Balance Sheet -
June 30, 1996 and December 31, 1995 3
Condensed Statement of Cash Flows -
Six months ended June 30, 1996 and 1995 4
Notes to Condensed Financial Statements 5
Management's Discussion and Analysis or Plan of Operation 6
PART II. Other Information 7
1
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ------------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
Revenues:
Product sales $ 5,101,000 $ 3,811,000 $10,851,000 $8,637,000
License fees and other 59,000 97,000 230,000 148,000
Interest 44,000 9,000 54,000 17,000
----------- ----------- ----------- ----------
5,204,000 3,917,000 11,135,000 8,802,000
----------- ----------- ----------- ----------
Cost and expenses:
Cost of sales 2,556,000 2,304,000 5,334,000 4,487,000
Research and development 244,000 217,000 461,000 418,000
Selling and marketing 1,130,000 982,000 2,358,000 2,360,000
General and administrative 469,000 361,000 854,000 712,000
----------- ----------- ----------- ----------
4,399,000 3,864,000 9,007,000 7,977,000
----------- ----------- ----------- ----------
Income before gain on sale of securities
available for sale and gain on disposition
of investment in affiliated company 805,000 53,000 2,128,000 825,000
Gain on sale of securities available for sale 774,000 1,159,000
Gain on disposition of investment in affiliate 931,000 931,000
----------- ----------- ----------- ----------
Income before income taxes 1,579,000 984,000 3,287,000 1,756,000
Provision for income taxes 60,000 4,000 118,000 22,000
----------- ----------- ----------- ----------
Net income $ 1,519,000 $ 980,000 $3,169,000 $1,734,000
=========== =========== =========== ==========
Net income per share $ .25 $ .17 $ .53 $ .30
=========== =========== =========== ==========
Weighted average shares outstanding 6,028,000 5,806,000 5,968,000 5,805,000
=========== =========== =========== ==========
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.
2
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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SYNBIOTICS CORPORATION
CONDENSED BALANCED SHEET
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JUNE 30, DECEMBER 31,
1996 1995
------------ -------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and equivalents $ 2,970,000 $ 1,017,000
Securities available for sale 3,087,000
Accounts receivable 2,124,000 1,430,000
Inventories 4,824,000 3,439,000
Other current assets 565,000 578,000
------------ -------------
Total current assets 13,570,000 6,464,000
Property and equipment, net 715,000 879,000
Securities available for sale 2,533,000
Other assets 1,778,000 1,582,000
------------ -------------
$16,063,000 $ 11,458,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 1,590,000 $ 1,613,000
Other current liabilities 671,000 697,000
------------ -------------
Total current liabilities 2,261,000 2,310,000
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Shareholders' equity:
Common stock, no par value, 24,800,000 shares authorized,
6,000,000 and 5,816,000 shares issued and outstanding at
June 30, 1996 and December 31, 1995 29,801,000 29,351,000
Unrealized holding losses from securities available for sale (1,035,000)
Accumulated deficit (15,999,000) (19,168,000)
------------ -------------
Total shareholders' equity 13,802,000 9,148,000
------------ -------------
$16,063,000 $ 11,458,000
============ =============
See accompanying notes to condensed financial statements.
3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
- -------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
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Cash flows from operating activities:
Net income $ 3,169,000 $1,734,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 417,000 507,000
Gain on sale of securities available for sale (1,159,000)
Gain on disposition of investment in affiliate (931,000)
Changes in assets and liabilities:
Accounts receivable (694,000) (385,000)
Inventories (1,385,000) 111,000
Other assets 35,000
Accounts payable and accrued expenses (23,000) (144,000)
Other liabilities (26,000) 2,000
----------- -----------
Net cash provided by operating activities 299,000 929,000
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (37,000) (75,000)
Investment in securities available for sale (3,087,000)
Proceeds from sale of securities available for sale 4,727,000
----------- -----------
Net cash provided by (used for) investing activities 1,603,000 (75,000)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 51,000 (10,000)
----------- -----------
Net cash provided by (used for) financing activities 51,000 (10,000)
----------- -----------
Net increase in cash and equivalents 1,953,000 844,000
Cash and equivalents - beginning of year 1,017,000 447,000
----------- -----------
Cash and equivalents - end of period $ 2,970,000 $1,291,000
=========== ===========
See accompanying notes to condensed financial statements.
4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------
SYNBIOTICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------------
NOTE 1 - INTERIM FINANCIAL STATEMENTS:
The accompanying balance sheet as of June 30, 1996 and the statements of
operations and of cash flows for the six month periods ended June 30, 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:
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
Raw materials $ 911,000 $ 665,000
Work in process 636,000 633,000
Finished goods 3,277,000 2,141,000
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$4,824,000 $3,439,000
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5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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RESULTS OF OPERATIONS
Total revenue for the second quarter of 1996 increased by $1,287,000 or 33% over
the quarter ended June 30, 1995, and increased for the six months ended June 30,
1996 by $2,333,000 or 27% over the six months ended June 30, 1995. The
increases are primarily due to an increase in product sales of $1,290,000 or 34%
during the second quarter of 1996, and an increase in product sales of
$2,214,000 or 26% during the six months ended June 30, 1996, respectively.
The increase in product sales during the second quarter of 1996 comprises an
increase in diagnostic sales of $1,183,000 or 53% and a $107,000 or 7% increase
in the sales of vaccines. The increased diagnostic sales are primarily due to
increased average selling prices and the introduction of Assure/(R)//Parvo, for
the detection of canine parvovirus, and ICT GOLD(TM) FeLV, the Company's new
feline leukemia diagnostic. The increased average selling prices of the
Company's existing diagnostic products resulted from a general price increase
during the second quarter of 1996, as well as the non-recurrence of promotional
pricing which was in effect during the second quarter of 1995. Vaccine sales
increased due to sales through new distribution channels, offset by decreased
international and domestic shipments of bulk feline leukemia vaccine. The six
months ended June 30, 1996 saw an increase in diagnostic sales of $1,463,000 or
26% and a $751, 000 or 26% increase in vaccine sales, both explained by the
respective factors discussed above. Also, in 1996 the Company was able to
market its ICT GOLD(TM) HW canine heartworm diagnostic for the full six months
(the product was introduced in March 1995).
The cost of sales as a percentage of product revenue decreased to 50% during the
second quarter of 1996 as compared to 60% for the quarter ended June 30, 1995.
The decrease is due to the increase in average selling prices discussed above,
as well as decreased domestic shipments of bulk feline leukemia vaccine to Rhone
Merieux, Inc. (located in Athens, Georgia) during the second quarter of 1996.
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 47% and 55% during the quarters ended June 30, 1996 and 1995,
respectively, if the zero margin bulk sales were not taken into consideration.
The cost of sales as a percentage of product revenue decreased to 49% for the
six months ended June 30, 1996 as compared to 52% for the six months ended June
30, 1995. The increase is primarily due to factors similar to those discussed
in the quarterly comparison.
Research and development expenses during the second quarter of 1996 increased by
$27,000 or 12% over the quarter ended June 30, 1995, and increased during the
six months ended June 30, 1996 by $43,000 or 10% over the six months ended June
30, 1995. The increases are primarily due to amortization and consulting
expenses related to certain technologies licensed from third parties in March
1996.
Selling and marketing expenses during the second quarter of 1996 increased by
$148,000 or 15% over the quarter ended June 30, 1995, and remained relatively
unchanged during the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995. The increase during the second quarter is due
primarily to advertising and sales promotion expenses related to the launch of
the Company's new diagnostic products, Assure/(R)//Parvo and ICT GOLD(TM) FeLV,
as well as continuing promotional expenses related to the Company's existing
products.
General and administrative expenses during the second quarter of 1996 increased
by $108,000 or 30% over the quarter ended June 30, 1995, and increased during
the six months ended June 30, 1996 by $142,000 or 20% over the six months ended
June 30, 1995. The increases are due to the addition of a new Chief Executive
Officer in May 1996 and an increase in certain patent-related legal expenses.
6
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.
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 recognized 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.
FINANCIAL CONDITION
Management believes that the Company's present capital resources, which included
working capital of $11,309,000 at June 30, 1996, are sufficient to meet its
current working capital needs and also the working capital needs associated with
the intended acquisition of International Canine Genetics, Inc. ("ICG") (see
Part II, Items 5-6). ICG has had operating losses to date and the Company
expects that business's losses to continue through at least 1997.
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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
--------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
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None.
7
ITEM 5. OTHER INFORMATION:
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As of July 23, 1996, the Company entered into a definitive Purchase Agreement
calling for the Company to acquire substantially all of the assets of
International Canine Genetics, Inc., subject to shareholder approval.
On July 31, 1996, Robert L. Widerkehr retired from his positions as President
and Chief Operating Officer of the Company, and resigned from his Director
position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
---------------------------------
(a) Exhibits
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11.1 Computation of Earnings Per Share.
27 Financial Data Schedule (for electronic filing purposes only).
(b) Reports on Form 8-K
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The Company filed a Current Report on Form 8-K dated May 14, 1996
announcing it had entered into a non-binding letter of intent to
acquire the assets of International Canine Genetics, Inc. and
announcing the appointment of Kenneth M. Cohen to the positions of
Chief Executive Officer and Director.
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: August 2, 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)
8