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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-QSB/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
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 October 28, 1994, 5,803,876 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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<PAGE>
This amendment (dated March 24, 1995) to the issuer's quarterly report on Form
10-QSB for the period ended September 30, 1994 reflects changes made to the
information contained in Part I, Items 1 and 2, and Part II, Item 6. The
information contained in Part II, Items 1, 2, 3, 4 and 5 has not changed since
the original filing.
SYNBIOTICS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. Condensed Statement of Operations -
Three and six months ended September 30, 1994 and 1993 3
Condensed Balance Sheet -
September 30, 1994 and March 31, 1994 4
Condensed Statement of Cash Flows -
Six months ended September 30, 1994 and 1993 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis or Plan of Operation 7
PART II. Other Information 9
</TABLE>
2
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PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Product sales $2,030,000 $2,202,000 $3,890,000 $6,252,000
License fees and other 66,000 106,000 31,000
Interest 27,000 23,000 61,000 74,000
---------- ---------- ---------- ----------
2,123,000 2,225,000 4,057,000 6,357,000
---------- ---------- ---------- ----------
Cost and expenses:
Cost of sales 1,080,000 1,080,000 2,016,000 2,822,000
Research and development 283,000 94,000 553,000 174,000
Selling and marketing 1,096,000 824,000 2,455,000 1,930,000
General and administrative 512,000 594,000 1,163,000 1,281,000
---------- ---------- ---------- ----------
2,971,000 2,592,000 6,187,000 6,207,000
---------- ---------- ---------- ----------
(Loss) income before income taxes (848,000) (367,000) (2,130,000) 150,000
Provision for income taxes (8,000) 2,000 3,000
---------- ---------- ---------- ----------
(Loss) income before gain on disposition of
investment in affiliated company (848,000) (359,000) (2,132,000) 147,000
Gain on disposition of investment in
affiliated company 2,036,000 2,036,000
---------- ---------- ---------- ----------
Net income (loss) $1,188,000 $ (359,000) $ (96,000) $ 147,000
========== ========== ========== ==========
Net income (loss) per share $ .20 $ (.06) $ (.02) $ .03
========== ========== ========== ==========
Weighted average shares outstanding 5,824,000 5,840,000 5,839,000 5,651,000
========== ========== ========== ==========
</TABLE>
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.
3
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------
SYNBIOTICS CORPORATION
CONDENSED BALANCE SHEET
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<TABLE>
<CAPTION>
September 30, March 31,
1994 1994
------------ ------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 1,890,000 $ 3,635,000
Accounts receivable 895,000 3,135,000
Receivable from affiliate 5,000 88,000
Note receivable from affiliate 150,000 600,000
Inventories 2,976,000 2,148,000
Other current assets 503,000 517,000
------------ ------------
Total current assets 6,419,000 10,123,000
Property and equipment, net 1,400,000 1,286,000
Securities available for sale 1,203,000
Other assets 1,866,000 2,041,000
------------ ------------
$ 10,888,000 $ 13,450,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,019,000 $ 2,041,000
Other current liabilities 217,000 217,000
------------ ------------
Total current liabilities 1,236,000 2,258,000
------------ ------------
Other liabilities 475,000 486,000
------------ ------------
Shareholders' equity:
Common stock, no par value, 24,800,000 shares authorized,
5,803,000 shares issued and outstanding at
September 30, 1994 and March 31, 1994 29,317,000 29,317,000
Unrealized holding losses from securities available for sale (1,433,000)
Accumulated deficit (18,707,000) (18,611,000)
------------ ------------
Total shareholders' equity 9,177,000 10,706,000
------------ ------------
$ 10,888,000 $ 13,450,000
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------
SYNBIOTICS CORPORATION
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
Six Months Ended
September 30,
------------------------
1994 1993
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ (96,000) $ 147,000
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 385,000 393,000
Gain on disposition of investment in affiliated company (2,036,000)
Changes in assets and liabilities:
Accounts receivable 2,240,000 421,000
Receivable from affiliates 83,000 14,000
Inventories (828,000) (168,000)
Other assets 1,000 116,000
Accounts payable and accrued expenses (1,022,000) (116,000)
Other liabilities (11,000) 25,000
----------- ----------
Net cash (used for) provided by operating activities (1,284,000) 832,000
----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (311,000) (110,000)
Loans to affiliates (150,000) (600,000)
----------- ----------
Net cash used for investing activities (461,000) (710,000)
----------- ----------
Cash flows from financing activities:
Payments of long-term debt (3,000)
Issuance of common stock 586,000
----------- ----------
Net cash provided by financing activities 583,000
----------- ----------
Net (decrease) increase in cash and equivalents (1,745,000) 705,000
Cash and equivalents - beginning of year 3,635,000 3,652,000
----------- ----------
Cash and equivalents - end of period $ 1,890,000 $4,357,000
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
--------------------
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, 1994 and the statements of
operations and of cash flows for the three and six month periods ended September
30, 1994 and 1993 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 March 31, 1994. Interim operating results are not necessarily
indicative of operating results for the full year.
NOTE 2 - INVENTORIES:
Inventories consist of the following:
September 30, March 31,
1994 1994
------------- ----------
Raw materials $ 640,000 $ 469,000
Work in process 997,000 907,000
Finished goods 1,339,000 772,000
---------- ----------
$2,976,000 $2,148,000
========== ==========
Note 3 - Disposition of Investment in Affiliated Company:
On July 25, 1994, ImmunoPharmaceutics, Inc. ("IPI"), of which Synbiotics
Corporation (the "Company") was a 41% shareholder, was acquired by Texas
Biotechnology Corporation ("TBC") in a triangular merger transaction whereby
unregistered shares of TBC common stock were issued in exchange for all of the
outstanding stock of IPI.
The carrying value of the Company's investment in IPI had previously been
reduced to zero due to the application of the equity method of accounting for
the investment in IPI. In conjunction with the acquisition, the Company
converted its $600,000 note receivable from IPI into voting stock of IPI, which
is considered to be a non-cash investing activity for purposes of the statement
of cash flows.
As a result of the transaction, the Company received approximately 655,000
shares of TBC common stock, and may receive an additional 982,000 shares of TBC
common stock if certain contingencies are met by IPI. In fact, approximately
409,000 of the approximately 982,000 shares have been formally issued to the
Company, and are being held in escrow pending the outcome of the contingencies.
The Company has valued its investment in TBC at $4.025 per share and, as a
result, recognized a gain for financial reporting purposes of approximately
$2,036,000
6
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in the fiscal quarter ending September 30, 1994. No amounts have been recorded
related to the approximately 982,000 contingent shares of TBC common stock, and
no amounts will be recorded until such time as the contingencies are satisfied.
In accordance with Statement of Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", the Company's investment in
TBC is classified as securities available for sale and is required to be carried
at fair market value. Unrealized losses on the investment, which are classified
as a separate component of shareholders' equity, totalled $1,433,000 for the
three and six months ended September 30, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
RESULTS OF OPERATIONS
Total revenue for the second quarter of fiscal 1995 decreased by $102,000 or 5%
from the second quarter of fiscal 1994. The decrease comprises a $172,000 or 8%
decrease in product sales offset by a $70,000 increase in interest, license fees
and other revenue. Total revenue for the six months ended September 30, 1994
decreased by $2,300,000 or 36% from the six months ended September 30, 1993.
Product sales during the second quarter of fiscal 1995 decreased primarily due
to the fact that this fiscal year's international shipments of bulk feline
leukemia vaccine to Rhone-Merieux, who bottles and markets the Company's feline
leukemia vaccine under their own brand name in certain parts of Europe, will be
made in the third quarter but last year these shipments occurred in the second
quarter. This factor was offset by an increase of $151,000 or 13% in the sales
of the Company's diagnostic products, due to increased promotional programs, as
well as $138,000 of sales of vaccine products which were introduced in the third
quarter of fiscal 1994. For the six months ended September 30, 1994, product
sales declined significantly as compared to fiscal 1994. The factors causing
this decrease operated primarily in the first quarter. Product sales during the
first quarter of fiscal 1995 decreased $2,191,000 or 54%. The decrease in
product sales was primarily the result of timing of shipments to distributors.
The timing of shipments to distributors is dependent upon, among other things,
distributor inventory levels, anticipated seasonal inventory requirements and
the timing of both the Company's and its competitors' promotional programs. In
the fourth quarter of fiscal 1993 the Company's manufacturing facility was on
back order for several products which resulted in those products being shipped
in the first quarter of fiscal 1994, whereas there was no back order situation
in the fourth quarter of fiscal 1994 and no corresponding benefit to the first
quarter of fiscal 1995. Also, the Company strove to make all possible shipments
before the end of the 1994 fiscal year, even if doing so reduced reportable
sales for the first quarter of fiscal 1995. Therefore, the year-to-year
comparison of first quarters favors fiscal 1994 over fiscal 1995.
Sales of the Company's recently acquired vaccine products have been below
expectations, due primarily to competitors' unusually aggressive promotions.
The Company is planning a major sales promotional campaign for these products in
the third quarter of fiscal 1995. Nonetheless, sales of these vaccine products
in the last six months of fiscal 1995 are expected to trail such sales in the
last six months of fiscal 1994, due to volume generated by extremely aggressive
pricing during last year's sales launch.
The cost of sales as a percentage of product revenue increased to 53% during the
second quarter of fiscal 1995 as compared to 49% for the second quarter of
fiscal 1994. The increase is due to shipments of bulk feline leukemia vaccine
to Rhone Merieux, Inc. of Athens, Georgia, during the second quarter of fiscal
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 sales of bulk
feline leukemia vaccine to Rhone-Merieux of France are at a profit, not at
cost.) There were no corresponding shipments to Rhone Merieux, Inc. during the
second quarter of fiscal 1994. Had these shipments not been made the cost of
7
<PAGE>
sales as a percentage of product revenue would have been 49%, the same as that
for the second quarter of fiscal 1994. The cost of sales as a percentage of
product revenue increased to 52% during the six months ended September 30, 1994
as compared to 45% for the six months ended September 30, 1993. The increase is
due to the decrease in production (and a corresponding decrease in economies of
scale) as a result of the decrease in product sales during the first quarter of
fiscal 1995, and to higher sales of bulk vaccine at cost to Rhone Merieux, Inc.
during the six months ended September 30, 1994.
Research and development expenses during the second quarter of fiscal 1995
increased by $189,000 or 201% over the first quarter of fiscal 1994, and
increased during the six months ended September 30, 1994 by $379,000 or 218%
over the six months ended September 30, 1993. The increases are due to
continuing outsourced development of certain companion animal diagnostics
utilizing licensed technology, which began in the third quarter of fiscal 1994,
as well as the addition of a senior manager of research and development during
the third quarter of fiscal 1994.
Selling and marketing expenses during the second quarter of fiscal 1995
increased $272,000 or 33% over the second quarter of fiscal 1994, and increased
during the six months ended September 30, 1994 by $525,000 or 27% over the six
months ended September 30, 1993. The increases are due primarily to sales
promotional programs implemented in the first and second quarters of fiscal
1995, as well as the addition of one field sales representative during the
fourth quarter of fiscal 1994 and two field sales representatives during the
first quarter of fiscal 1995.
On July 25, 1994, ImmunoPharmaceutics, Inc. ("IPI"), of which the Company was a
41% shareholder, was acquired by Texas Biotechnology Corporation ("TBC") in a
triangular merger transaction whereby unregistered shares of TBC common stock
were issued in exchange for all of the outstanding stock of IPI. The Company
received approximately 655,000 shares of TBC common stock, and may receive an
additional 982,000 shares of TBC common stock if certain contingencies are met
by IPI. In fact, approximately 409,000 of the approximately 982,000 shares have
been formally issued to the Company, and are being held in escrow pending the
outcome of the contingencies. As a result of the merger transaction, the
Company recognized a gain for financial reporting purposes of approximately
$2,036,000 during the second quarter of fiscal 1995. The Company now owns
approximately 7% of TBC (including the escrowed shares) and will account for
this investment on the cost method.
The Company had originally valued its investment in TBC at $4.625 per share, the
closing price on July 25, 1994 of a TBC common stock/warrant unit as reported by
the American Stock Exchange. The per unit price was not discounted to reflect a
value for the warrant component of the unit based on the following factors: 1)
the warrants were not separately tradeable on July 25, 1994; 2) the warrants,
which have an exercise price of $8.4375 per share, were significantly out-of-
the-money on July 25, 1994; 3) there was no reliable method for valuing non-
tradeable warrants; 4) management believed that, if there was a value for the
warrants, any value would be de minimis in nature and 5) based on the previously
mentioned factors, management believed that there was no justification for
assigning a value, other than zero, to the warrants. On November 7, 1994, the
TBC units were split into separately trading common stock and warrants, and the
closing market price of the warrants on that day (with the warrants even more
out-of-the-money than they had been on July 25, 1994) was $0.25 per warrant.
The Company then had a reliable method, in hindsight, of valuing the warrant at
July 25, 1994 and adjusted its estimate of the fair market value of its
investment in TBC accordingly. The result was a reduction in the recognized
gain of approximately $393,000.
FINANCIAL CONDITION
Management believes that the Company's present capital resources, which included
working capital of $5,183,000 at September 30, 1994, are sufficient to meet its
current working capital needs. The reduction in working capital since March 31,
1994 is attributable to the operating loss for the six months ended September
30, 1994. The reduction in cash is also due, in part, to a buildup of
inventories of vaccines in anticipation of third quarter sales promotions.
8
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In conjunction with the acquisition of IPI by TBC, the Company converted its
$600,000 bridge loan to IPI into shares of IPI common stock which were then
exchanged for shares of TBC common stock.
TBC is a publicly traded company. However, the TBC stock received by the
Company in the merger is subject to certain securities-law and contractual
restrictions against resale. The Company's present intention is to hold its TBC
stock for investment.
In June 1994, the Company entered into a $150,000 bridge loan agreement with
UniSyn Technologies, Inc. ("UniSyn"), of which the Company is a 23% shareholder.
The note was due on August 1, 1994, bears interest at the rate of prime plus 2%,
and was secured by certain of UniSyn's receivables. In August 1994, the note
was amended to extend the due date to no later than January 26, 1995 and is now
secured by all of the assets of UniSyn. UniSyn also has additional debt
totalling $610,000 which has a pari passu security interest in the same
collateral that the Company has. The Company has no obligation to provide
additional capital resources to UniSyn in the future.
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS:
------------------
No further disclosure required.
ITEM 2. CHANGES IN SECURITIES:
----------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
--------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
----------------------------------------------------
The Annual Meeting of Shareholders was held on August 25, 1994. The following
matters were submitted to a vote, with the results indicated below:
(a) Ratification of selection of Price Waterhouse as the Company's
independent accountants:
For: 4,572,957 Against: 9,107 Abstain: 10,660 Withheld: 0
Broker Non-votes: 0
9
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(b) Election of directors:
<TABLE>
<CAPTION>
Broker
Nominee For Against Abstain Withheld Non-votes
------- --- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Patrick Owen Burns 4,572,112 n/a n/a 20,612 0
James C. DeCesare 4,573,012 n/a n/a 19,712 0
Theodor H. Heinrichs 4,573,637 n/a n/a 19,087 0
Edward L. McConnell 4,569,342 n/a n/a 23,382 0
Donald E. Phillips 4,572,212 n/a n/a 20,512 0
Robert L. Widerkehr 4,570,877 n/a n/a 21,847 0
</TABLE>
ITEM 5. OTHER INFORMATION:
------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
---------------------------------
(a) Exhibits
--------
11.1 Computation of Loss Per Share.
(b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K, as amended, dated July 25,
1994 reflecting the acquisition of ImmunoPharmaceutics, Inc. ("IPI"),
of which the Company was a 41% shareholder, by Texas Biotechnology
Corporation ("TBC") in a triangular merger transaction whereby
unregistered shares of TBC common stock were issued in exchange for
all of the outstanding stock of IPI.
SIGNATURE
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: March 24, 1995 /s/ Michael K. Green
-----------------------------------
Michael K. Green
Vice President of Finance and Chief
Financial Officer
10
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EXHIBIT 11.1
------------
SYNBIOTICS CORPORATION
COMPUTATION OF LOSS PER SHARE
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<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1994 1993 1994 1993
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
PRIMARY INCOME (LOSS) PER SHARE:
Net income (loss) per statement of operations $1,188,000 $ (359,000) $ (96,000) $ 147,000
========== ========== =========== ==========
Weighted average number of shares outstanding 5,824,000 5,840,000 5,839,000 5,651,000
========== ========== =========== ==========
Primary income (loss) per share $ .20 $ (.06) $ (.02) $ .03
========== ========== =========== ==========
FULLY DILUTED INCOME (LOSS) PER SHARE:/(1)/
Net income (loss) per statement of operations $1,188,000 $ (359,000) $ (96,000) $ 147,000
========== ========== =========== ==========
Reconciliation of weighted average number of
shares per primary computation above, to
amount used for fully diluted computation:
Weighted average number of shares outstanding,
per primary computation 5,824,000 5,840,000 5,839,000 5,651,000
Add-effect of outstanding options (as determined
by the application of the treasury method) (9,000) 33,000 (2,000) 28,000
---------- ---------- ----------- ----------
Weighted average number of shares, as adjusted 5,815,000 5,873,000 5,837,000 5,679,000
========== ========== =========== ==========
Fully diluted income (loss) per share $ .20 $ (.06) $ (.02) $ .03
========== ========== =========== ==========
</TABLE>
/(1)/ This computation is submitted, for the six months ended September 30, 1994
and the three months ended September 30, 1993, in accordance with
Regulation S-B Item 601(b)(11) although it is contrary to paragraph 40 of
APB Opinion No. 15 because it produces an anti-dilutive result.
