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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-11303
SYNBIOTICS CORPORATION
(Name of small business issuer 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
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK
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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ending December 31, 1995 were $14,118,000.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 29, 1996 was approximately $13,813,000 based on the
closing sale price in the over-the-counter market as reported by the Nasdaq
National Market.
As of February 29, 1996, 5,816,033 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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<PAGE>
PART I
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ITEM 1. BUSINESS
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GENERAL
Founded in 1982, Synbiotics Corporation (the "Company") has evolved from a
research and development company into a developer, manufacturer and marketer of
monoclonal antibody based diagnostic products and conventionally derived
biological products for use in the animal health care field. The Company has
substantially increased its revenue base through the introduction of new
products and increasing sales of existing products. The Company currently
markets twenty diagnostic test kits and devices for detection of infectious and
other diseases in animals, one veterinary immunotherapeutic product and ten
vaccines.
BUSINESS STRATEGY
The core of Synbiotics' development since inception has been monoclonal antibody
technology. The Company's near-term strategy is to develop its business through
sales of its animal health products and through in-licensing and co-marketing of
third parties' animal health products wherever possible. This strategy is
intended to provide a base of revenue, build the Company's presence in the
marketplace and provide a foundation from which to develop the next generation
of diagnostic products.
The Company believes it may be able to leverage its expertise developed in the
animal health market into other diagnostic areas. In March 1996, the Company
acquired an exclusive worldwide license to a number of enabling recombinant DNA
and PCR technologies for a variety of diagnostic areas, including animal health,
agriculture, aquaculture and food safety.
MARKET AND PRODUCT OVERVIEW
The Company sells its products both in the United States and in foreign
countries. The total number of family owned dogs and cats is estimated to
exceed 100 million in the United States alone. The Company believes that the
market for sales of diagnostic, therapeutic and vaccine products to United
States veterinarians for dogs and cats was approximately $160,000,000 in 1995.
The Company believes that its current and intended future products will offer
veterinarians an opportunity to improve the quality and expand the scope of
veterinary health care services.
In March 1995, Synbiotics introduced ICT GOLD/(TM)/, the first third-generation
diagnostic test format to be used in the animal health market. This format is
more convenient, easier to use and faster than the predominantly used animal
health diagnostic formats, while providing the same degree of accuracy. The
first test kit, ICT GOLD/(TM)/ HW, which tests for canine heartworm, provides
Synbiotics with an opportunity to increase its modest penetration of the $16.5
million U.S. in-clinic stat canine heartworm market. The Company's second ICT
GOLD/(TM)/ product, utilizing the ICT GOLD/(TM)/ format for feline leukemia,
will be introduced in April 1996.
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Synbiotics Products Marketed as of December 31, 1995:
- -----------------------------------------------------
<TABLE>
<CAPTION>
DIAGNOSTICS:
- ------------
<S> <C> <C>
ASSURE/(R)//CH - Heartworm antigen test kit (canine and feline)
ASSURE/(R)//FeLV - Feline leukemia virus antigen test kit
CRF/(R)/ - Canine rheumatoid factor test kit
DiroCHEK/(R)/ - Heartworm antigen test kit (canine and feline)
D-TEC/(R)/ BRUCELLA A. - Brucella abortus antibody test kit (bovine and bison)
D-TEC/(R)/ CB - Canine brucellosis antibody test kit
EstruCHEK/(R)/ - Progesterone test kit (bovine, canine and equine)
FUNGASSAY/(R)/ - Dermatophyte test medium
ICT GOLD/TM/ HW - Canine heartworm antigen test kit
LAB-EZ/TM//EIA - Equine infectious anemia test kit
LEUKASSAY/(R)/ B - Bovine leukemia virus antigen test kit
LymeCHEK/TM/ - Canine borrelia burgdorferi antibody test kit
MIP/(R)/ COLOR-CHEK - Pregnant mare gonadotropin test kit
OVASSAY/(R)/ Plus - Fecal diagnostic system
TUBERCULIN/TM/ OT - Mammalian intradermic skin test
TUBERCULIN/TM/ PPD - Bovine intradermic skin test
UNI-TEC/(R)/ CHW - Heartworm antibody test kit (canine and feline)
UNI-TEC/(R)/ FeLV - Feline leukemia virus antigen test kit
ViraCHEK/(R)//FeLV - Feline leukemia virus antigen test kit
ViraCHEK/(R)//FIV - Feline immunodeficiency virus antigen test kit (not marketed in the United States)
BIOLOGICALS:
- ------------
CL/MAb 231 - Canine lymphoma monoclonal antibody 231 therapeutic
VacSYN/TM//FeLV - Feline leukemia virus (killed) vaccine
PANACINE/(R)/ RC - Feline rhinotracheitis (MLV), calicivirus (MLV), panleukopenia (MLV) vaccine
PANACINE/(R)/-5 - Feline rhinotracheitis (MLV), calicivirus (MLV), panleukopenia (MLV),
chlamydia (MLV), leukemia (killed) vaccine
PANAVAC/(R)/ RC - Feline rhinotracheitis (MLV), calicivirus (MLV), panleukopenia (killed) vaccine
SENTRYRAB-1/TM/ - Rabies (killed) vaccine (canine and feline)
SENTRYPAR/(R)/ - Canine parvovirus (MLV) vaccine
SENTRYPAR/(R)/ DHP - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV), parvovirus
(MLV) vaccine
SENTRYPAR/(R)/ DHP/L - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV), parvovirus
(MLV), lepto (killed) vaccine
SENTRYVAC/TM/ DHP - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV) vaccine
SENTRYVAC/TM/ DHP/L - Canine distemper (MLV), hepatitis (MLV), parainfluenza (MLV), lepto (killed)
vaccine
</TABLE>
Currently, the Company's most commercially successful products are its canine
heartworm diagnostic products. This has caused some seasonality in the
Company's business, with sales highest in the December to April time period as
distributors purchase these products to sell to veterinarians for the heartworm
season.
MARKETING
The Company markets its products to veterinarians, primarily through independent
distributors. The Company's United States distributors have approximately 90
outlets and a total sales force of approximately 600 field sales representatives
and approximately 200 telemarketing sales representatives. This allows the
Company to focus its major emphasis on developing and manufacturing products.
However, this strategy results in a large percentage of
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sales being to only a few customers. During the year ended December 31, 1995,
sales to two distributors totalled 44% of the Company's gross revenues.
While the Company currently does not maintain a direct marketing sales force,
its internal marketing staff and regional field representatives service the
external sales network by training distributor sales representatives, responding
to customer technical inquiries, advertising and promoting the Company's
products through journals, magazines and direct mail, and organizing training
workshops and symposia presentations at trade and professional association
meetings. The Company has established its own telemarketing operation to sell
its products to domestic market segments not reached by its marketing partners
and to gather critical field marketing data.
The Company markets its products outside of the U.S. through distributors and on
an OEM basis. The Company is increasing its penetration in international
markets, primarily focusing on the European and Pacific Rim marketplaces. In
January 1996, the Company signed an exclusive distribution agreement with
Daiichi Pharmaceutical Co., Ltd. for the distribution of the Company's vaccine
and diagnostic products in Japan. This arrangement is not expected to generate
significant revenues until 1998.
PATENTS AND TRADE SECRETS
The Company believes that its proprietary technology is an important competitive
factor in its business, and that protection of its intellectual property rights
is a high priority. Despite the existence of patent litigation in the
monoclonal antibody industry, not involving the Company, the Company believes
that the basic hybridoma (the cell that produces the monoclonal antibody)
technology is in the public domain and is therefore not patentable. The complex
biological and chemical process, however, is subject to numerous improvements,
variations and applications of hybridoma technology which may prove to be
patentable. Considering the difficulty of enforcing any patent rights to such
improvements, and the rapid advancements in the field, the Company generally has
sought and will continue to seek to protect its interests by treating its
particular variations in the production of monoclonal antibodies as trade
secrets. The Company also has pursued and intends to continue aggressively to
pursue protection for new products, new methodological concepts, and
compositions of matter through the use of patents and trademarks where
obtainable. At present, the Company has been granted nine U.S. patents.
GOVERNMENT REGULATION
Most diagnostic test kits for animal health applications require approval by the
United States Department of Agriculture ("USDA"). In addition, the Company
manufactures and sells one product which does not require USDA licensing but has
been registered with the Center for Veterinary Medicine of the United States
Food and Drug Administration ("FDA") .
The Company's manufacturing facility has been registered with the FDA and is
licensed by the USDA. The Company adheres to Good Manufacturing Practices (GMP)
standards.
In addition to the foregoing, the Company's operations may be subject to future
legislation and/or rules issued by domestic or foreign governmental agencies
with regulatory authority relating to the Company's business. The Company has
no reason to believe that any such future legislation and/or rules would be
materially adverse to its business.
COMPETITION
Competition in the animal health care industry is intense. Many competitors,
such as Pfizer Animal Health, Mallinckrodt Veterinary and IDEXX Laboratories,
have substantially greater financial, manufacturing, marketing and product
research resources than the Company. Large companies in particular have
extensive expertise in conducting
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pre-clinical and clinical testing of new products and in obtaining the necessary
regulatory approvals to market products. Competition is based on test
sensitivity, accuracy and speed; product price; and similar factors. IDEXX
Laboratories requires its distributors not to carry the products of competitors
such as the Company. The Company believes that it is the second-leading
competitor in the dog and cat veterinary diagnostic market.
RESEARCH AND DEVELOPMENT
The Company spent approximately $906,000 and $833,000 on research and
development activities during the year ended December 31, 1995 and the nine
months ended December 31, 1994, respectively. During the year ended December
31, 1995 and the nine months ended December 31, 1994, the Company contracted for
research and development activities with outside parties relating to certain
companion animal diagnostic products which utilize licensed technology.
EMPLOYEES
As of December 31, 1995, the Company had a total of 60 employees, 57 of whom
were full-time.
RAW MATERIALS
The manufacturing of diagnostics, therapeutics and vaccines requires raw
materials which are, and have been, readily available from several sources.
Certain of the Company's products are manufactured by third parties under the
terms of distribution and/or manufacturing agreements. In the event that these
third parties are unable to supply the Company with sufficient finished product,
the Company has the right, under certain circumstances, under the agreements to
use alternate manufacturing sources.
OTHER
The Company also founded two biotechnology companies, UniSyn Technologies, Inc.
(of which the Company is now a less than 5% shareholder) and
ImmunoPharmaceutics, Inc. (which was acquired by Texas Biotechnology Corporation
during 1994).
ImmunoPharmaceutics, Inc. ("IPI") engaged in human drug discovery utilizing
proprietary rational drug design technology. On July 25, 1994, 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's TBC shares were registered effective December 6,
1995. As of December 31, 1995, the Company owned 7% of TBC's outstanding common
stock.
ITEM 2. PROPERTIES
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The Company leases two buildings in San Diego, California. The buildings
contain approximately 49,000 square feet of space, and house the Company's
corporate and sales headquarters, executive offices, research and development
laboratories and manufacturing facilities. The Company subleases approximately
19,000 square feet of this space to ImmunoPharmaceutics, Inc. Management
believes that the remaining 30,000 square feet are adequate for the Company's
current level of operations. The Company also leases a telemarketing facility
in Kansas City, Missouri.
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ITEM 3. LEGAL PROCEEDINGS
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Unasserted Claim
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The Jewish Hospital of St. Louis (the "Hospital") is the owner of a patent which
it believes covers the Company's canine heartworm diagnostic products. The
Company is also the owner of several patents which cover its canine diagnostic
products. The Hospital has notified the Company that it believes the Company's
canine heartworm diagnostic products infringe the Hospital's patent, and has
offered to license their patent to the Company. The Company believes that it
does not infringe the Hospital's patent.
The Hospital is currently suing IDEXX Laboratories, Inc., the Company's primary
competitor for canine heartworm diagnostics, for patent infringement under the
Hospital's patent; IDEXX's defense involves an assertion that the patent is
invalid. If the Hospital sues the Company and if the Hospital is successful, the
Company could be precluded from selling canine heartworm diagnostic products or
be required to pay damages or make additional royalty payments with respect to
such sales. The Company's business and results of operations could be materially
adversely affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
The Company's common stock is traded on the Nasdaq Stock Market under the symbol
SBIO. Price ranges reported are the high and low trade price information as
reported by the Nasdaq National Market. No cash dividends have ever been paid,
and the Company does not currently anticipate paying cash dividends in the
foreseeable future. As of February 29, 1996, there were approximately 490
shareholders of record of the Company's common stock.
<TABLE>
<CAPTION>
Year Quarter High Low
---- ------- ---- ---
<S> <C> <C> <C>
1994 First Quarter $5.13 $3.13
Second Quarter $4.50 $3.25
Third Quarter $3.63 $2.38
Fourth Quarter $2.75 $1.63
1995 First Quarter $3.13 $1.50
Second Quarter $3.25 $2.38
Third Quarter $5.25 $2.50
Fourth Quarter $4.13 $1.88
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
RESULTS OF OPERATIONS
Year Ended December 31,1995 Compared to (Twelve-Month) Year Ended December 31,
- ------------------------------------------------------------------------------
1994
- ----
Total revenue for the year ended December 31, 1995 increased $2,011,000 or 17%
over the year ended December 31, 1994. The increase comprises a $1,958,000 or
17% increase in product sales and an increase in interest, license fees and
other revenue of $53,000 or 14%.
The increase in product sales was due primarily to ICT GOLD/(TM)/ HW, the
Company's new canine heartworm diagnostic, which was introduced in March 1995
and generated $2,355,000 of sales during 1995 despite not becoming available
until midway into the 1995 heartworm selling season. These sales were partly
offset by 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 has developed an improved DiroCHEK/(R)/ canine heartworm diagnostic,
with greater ease-of-use to match the
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<PAGE>
competitor's microwell product modification. Intending to regain unit sales and
price points in this important product line, the Company introduced its improved
microwell product (called DiroCHEK/(R)/ TF) in January 1996.
In addition, in 1995 there was an increase in domestic shipments of bulk feline
leukemia vaccine to Rhone Merieux, Inc. (located in Athens, Georgia) of
$425,000.
License fees and other revenue increased $97,000 or 33% during the year ended
December 31, 1995 due to increased royalties earned on certain of the Company's
products which are licensed to Rhone Merieux, Inc.
The cost of sales as a percentage of product revenue increased to 59% during the
year ended December 31, 1995 as compared to 56% for the year ended December 31,
1994. The increase is due primarily 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.
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.
The cost of sales percentage was also negatively impacted by the increased
domestic shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc. during
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 53% and 51% during the years ended December 31, 1995 and 1994,
respectively, if the zero margin bulk sales were not taken into consideration.
Finally, the 1995 cost of sales percentage also increased as a result of 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. All of these factors outweighed the economies of
scale associated with the Company's increased 1995 product revenues. In fact,
revenues from products manufactured at the Company's facilities actually
decreased slightly in 1995.
Research and development expenses decreased $185,000 or 17% from the year ended
December 31, 1994. The decrease is due primarily 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. This factor was partly offset by additional research programs
with outside research and development contractors. In 1996 the Company intends
to introduce several interesting new products, including DiroCHEK/(R)/ TF.
Selling and marketing expenses decreased $609,000 or 13% from the year ended
December 31, 1994 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 decreased $929,000 or 39% from the year
ended December 31, 1994. The decrease is due to decreased 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
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certain remaining contingencies. The Company will recognize additional income
when, and if, these contingencies are satisfied.
Nine Months Ended December 31, 1994 Compared to Nine Months Ended December 31,
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1993
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Total revenue for the nine months ended December 31, 1994 decreased $2,525,000
or 28% from the nine months ended December 31, 1993. The decrease comprises a
$2,425,000 or 28% decrease in product sales and a decrease in interest, license
fees and other revenue of $100,000 or 24%. (The comparison in this section is
of the two respective nine-month periods because in 1994 the Company changed its
fiscal year-end from March 31 to December 31.)
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 quarter ended March 31, 1993 the Company's
manufacturing facility was on back order for several products (particularly
canine heartworm diagnostics) which resulted in those products being shipped in
the quarter ended June 30, 1993, whereas there was no back order situation in
the quarter ended March 31, 1994 and no corresponding benefit to the quarter
ended June 30, 1994. Also, the Company strove to make all possible shipments
before the end of the March 31, 1994 fiscal year, even if doing so reduced
reportable sales for the quarter ended June 30, 1994. Therefore, the period-to-
period comparison favors the nine months ended December 31, 1993 over the nine
months ended December 31, 1994. In addition, the Company believes that the
December 1994 introduction by a competitor of a revised canine heartworm
diagnostic kit caused distributors to wait until January 1995 to purchase the
Company's heartworm diagnostic products, which they would ordinarily have
purchased in December 1994, in order to evaluate the new kit and evaluate
Synbiotics' response.
Also, 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, decreased by $850,000 from the nine
months ended December 31, 1993. Rhone-Merieux had made unusually large
purchases in 1993 in anticipation of launching its product in the United
Kingdom, and that launch later was delayed.
The Company's sales of its own feline leukemia virus products declined in the
1994 period, primarily because of product maturation and because the Company was
preliminarily enjoined in 1993 from selling a feline immunodeficiency virus
diagnostic which had been sold in combination with the feline leukemia virus
diagnostic. That injunction has now become permanent.
As a partial counterpart to these decreases, there was an increase in domestic
shipments of bulk feline leukemia vaccine to Rhone Merieux, Inc. (located in
Athens, Georgia) of $454,000.
The decrease in license fees and other revenue of $53,000 or 18% during the nine
months ended December 31, 1994 is primarily due to the receipt in the 1993 time
period of a final license fee payment related to the Japanese distribution
agreement with Kyoritsu Shoji Co., Ltd., which was terminated in January 1994.
This factor was partially offset by an increase in royalties earned on certain
of the Company's products which were cross-licensed to Rhone Merieux, Inc. in
fiscal 1993.
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Interest income decreased $47,000 or 39% from the nine months ended December 31,
1993 due to less cash being available for investment as the Company made cash
withdrawals to meet its operating cash flow requirements.
Cost of sales as a percentage of product revenue increased to 62% during the
nine months ending December 31, 1994 as compared to 45% for the nine months
ended December 31, 1993. The increase is primarily due to the decrease in
product sales, as the Company's manufacturing costs are predominantly fixed
costs. The increase is also due to the increase in domestic shipments of bulk
feline leukemia vaccine to Rhone Merieux, Inc. (located in Athens, Georgia)
during the nine months ended December 31, 1994. 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 54% and 43% during the nine months
ended December 31, 1994 and 1993, respectively, if the zero margin bulk sales
were not taken into consideration.
Research and development expenses increased $471,000 or 130% over the nine
months ended December 31, 1993. The increase is due primarily to the continuing
outsourced development of certain companion animal diagnostics utilizing
immunochromatographic technology ("ICT") licensed from Binax, Inc. ("Binax"),
which began in the quarter ended December 31, 1993, the addition of a research
and development manager during the quarter ended December 31, 1993 and increased
overhead related to moving the research and development group into larger
laboratory facilities.
Selling and marketing expenses increased $463,000 or 16% over the nine months
ended December 31, 1993 due primarily to sales promotional programs. Marketing
competition from large competitors in the biologicals area was particularly
heavy in 1994, and the Company was forced to incur substantial expenses to try
to respond. Despite its response, the Company experienced disappointing sales
of biologicals in the nine-month 1994 period.
General and administrative expenses decreased $344,000 or 17% from the nine
months ended December 31, 1993. The decrease is due primarily to a decrease in
legal expenses. Legal expenses were unusually high in both the 1994 and 1993
periods due to patent litigation brought by IDEXX Laboratories, Inc., the
Company's primary competitor, which was settled in December 1994.
On July 25, 1994, IPI, of which the Company was a 41% shareholder, was acquired
by 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. As a
result of the merger transaction, the Company recognized during the nine months
ended December 31, 1994 a gain for financial reporting purposes of approximately
$2,036,000.
FINANCIAL CONDITION
- -------------------
Liquidity and Capital Resources
- -------------------------------
Cash provided by operations during the year ended December 31, 1995 was $229,000
as compared to cash used by operations during the (twelve-month) year ended
December 31, 1994 of $2,000,000. The increase in cash is directly related to
the increase in revenues and decreased legal fees due to the settlement of
patent litigation in December 1994, and the resultant reduced net operating loss
during the year ended December 31, 1995. These factors were partly offset by
the Company's decision to purchase in late 1995 substantial amounts of ICT
GOLD/TM/ HW inventory from Binax in advance of 1996 orders; as a result, the
Company had relatively higher inventory and relatively lower cash at December
31, 1995.
As of December 31, 1995, the Company held 7% of TBC's common stock. TBC filed a
Registration Statement on Form S-3, effective December 6, 1995, relating to the
shares issued to the former IPI shareholders. On February
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27, 1996 and February 28, 1996, the Company sold a total of 614,000 shares of
TBC common stock on the American Stock Exchange at an average selling price of
$3.573 per share. The net proceeds received from the sale, which totalled
$2,169,000, will be used primarily for working capital requirements and to fund
business opportunities such as acquisitions. As a result of the sale of the
shares, the Company's ownership of TBC was reduced to approximately 3%. The
Company's present intention is to hold its remaining TBC stock for investment.
Management believes that the Company's present capital resources, which included
working capital of $4,154,000 at December 31, 1995, are sufficient to meet its
working capital needs through 1996. The working capital figure does not include
any of the Company's TBC stock, which was classified as securities available for
sale; the 1996 proceeds from selling TBC stock would augment the previous
working capital total.
The Company's operations have become seasonal due to the success of its canine
heartworm diagnostic products. Sales and profits tend to be concentrated in the
December to April time period, as veterinarians prepare for the heartworm
season.
Capital Expenditures
- --------------------
Capital expenditures for the year ended December 31, 1995 were not significant.
During the nine months ended December 31, 1994 capital expenditures totalled
$424,000, of which $242,000 was related to building improvements in the
Company's manufacturing facility for biological production laboratories. The
Company has no material commitments for capital expenditures in 1996.
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ITEM 7. FINANCIAL STATEMENTS
--------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants 11
Balance Sheet as of December 31, 1995 and 1994 12
Statement of Operations for the year ended December 31, 1995,
the nine months ended December 31, 1994 and the year ended March 31, 1994 13
Statement of Cash Flows for the year ended December 31, 1995
the nine months ended December 31, 1994 and the year ended March 31, 1994 14
Statement of Shareholders' Equity for the year ended December 31, 1995,
the nine months ended December 31, 1994 and the year ended March 31, 1994 15
Notes to Financial Statements 17
</TABLE>
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REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders
of Synbiotics Corporation
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Synbiotics
Corporation at December 31, 1995 and 1994, and the results of its operations and
its cash flows for the year ended December 31, 1995, the nine months ended
December 31, 1994 and the year ended March 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Diego, California
February 15, 1996
-11-
<PAGE>
Synbiotics Corporation
Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 1,017,000 $ 447,000
Accounts receivable (net of allowance for doubtful accounts
of $51,000 and $82,000 at December 31, 1995 and 1994) 1,430,000 1,444,000
Inventories 3,439,000 2,763,000
Securities available for sale 502,000
Other current assets 578,000 963,000
------------ ------------
Total current assets 6,464,000 6,119,000
Property and equipment, net 879,000 1,329,000
Securities available for sale 2,533,000 942,000
Other assets 1,582,000 1,921,000
------------ ------------
$ 11,458,000 $ 10,311,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,613,000 $ 1,662,000
Other current liabilities 697,000 695,000
------------ ------------
Total current liabilities 2,310,000 2,357,000
------------ ------------
Commitments (Note 9)
Shareholders' equity:
Common stock, no par value, 24,800,000 shares authorized,
5,816,000 and 5,803,000 shares issued and outstanding at
December 31, 1995 and 1994 29,351,000 29,318,000
Unrealized holding losses from securities available for sale (1,035,000) (1,695,000)
Accumulated deficit (19,168,000) (19,669,000)
------------ ------------
Total shareholders' equity 9,148,000 7,954,000
------------ ------------
$ 11,458,000 $ 10,311,000
============ ============
</TABLE>
See accompanying notes to financial statements.
-12-
<PAGE>
Synbiotics Corporation
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
1995 1994 1994
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Products $13,676,000 $ 6,233,000 $14,144,000
Interest 46,000 75,000 137,000
License fees and other 396,000 234,000 352,000
----------- ----------- -----------
14,118,000 6,542,000 14,633,000
----------- ----------- -----------
Cost and expenses:
Cost of products 8,009,000 3,835,000 6,700,000
Research and development 906,000 833,000 611,000
Selling and marketing 4,147,000 3,338,000 4,264,000
General and administrative 1,486,000 1,630,000 2,701,000
----------- ----------- -----------
14,548,000 9,636,000 14,276,000
----------- ----------- -----------
(Loss) income before gain on
disposition of investment in
affiliate (430,000) (3,094,000) 357,000
Gain on disposition of
investment in affiliate 931,000 2,036,000
----------- ----------- -----------
Net income (loss) $ 501,000 $(1,058,000) $ 357,000
=========== =========== ===========
Net income (loss) per share $ .09 $ (.18) $ .06
=========== =========== ===========
Weighted average shares
outstanding 5,832,000 5,803,000 5,859,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-13-
<PAGE>
Synbiotics Corporation
Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
1995 1994 1994
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 501,000 $(1,058,000) $ 357,000
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,028,000 677,000 1,003,000
Gain on disposition of investment in affiliate (931,000) (2,036,000)
Changes in assets and liabilities:
Accounts receivable 14,000 1,691,000 (1,297,000)
Receivables from affiliates 88,000 (58,000)
Inventories (676,000) (615,000) (504,000)
Other assets 334,000 (472,000) (172,000)
Accounts payable and accrued expenses (43,000) (379,000) 878,000
Other liabilities 2,000 (8,000) 40,000
---------- ----------- -----------
Net cash provided by (used for) operating activities 229,000 (2,112,000) 247,000
---------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (189,000) (424,000) (295,000)
Investment in securities available for sale 502,000 (502,000)
Loans to affiliate (150,000) (1,200,000)
Payment received on loans to affiliate 600,000
---------- ----------- -----------
Net cash provided by (used for) investing activities 313,000 (1,076,000) (895,000)
---------- ----------- -----------
Cash flows from financing activities:
Principal payments of long-term debt (3,000)
Proceeds from issuance of common stock, net 28,000 634,000
---------- ----------- -----------
Net cash provided by financing activities 28,000 631,000
---------- ----------- -----------
Net increase (decrease) in cash 570,000 (3,188,000) (17,000)
Cash and equivalents - beginning 447,000 3,635,000 3,652,000
---------- ----------- -----------
Cash and equivalents - ending $1,017,000 $ 447,000 $ 3,635,000
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-14-
<PAGE>
Synbiotics Corporation
Statement of Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
LOSSES FROM
COMMON STOCK SERIES B COMMON STOCK SECURITIES
----------------------- --------------------- AVAILABLE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT FOR SALE DEFICIT TOTAL
--------- ----------- ------ ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993 5,248,000 $28,671,000 2,000 $ 1,000 $(18,968,000) $ 9,704,000
Issuance of subscribed
common stock 530,000
Collection of receivable for
subscribed
common stock 570,000 570,000
Issuance of common stock
pursuant
to exercise of stock options 23,000 73,000 73,000
Cancellation of stock options 2,000 2,000
Conversion of Series B
common stock
to common stock 2,000 1,000 (2,000) (1,000)
Net income for the year 357,000 357,000
--------- ----------- ------ ------- ------------ ------------
Balance at March 31, 1994 5,803,000 29,317,000 (18,611,000) 10,706,000
Cancellation of stock options 1,000 1,000
Unrealized holding losses
from securities available
for sale $(1,695,000) (1,695,000)
--------- ----------- ------ ------- ------------ ------------ ------------
Net loss for the period (1,058,000) (1,058,000)
Balance at December 31, 1994 5,803,000 29,318,000 - - (1,695,000) (19,669,000) 7,954,000
Issuance of common stock
pursuant
to exercise of stock options 13,000 33,000 33,000
Unrealized holding gains from
securities available for
sale 660,000 660,000
</TABLE>
-15-
<PAGE>
Synbiotics Corporation
Statement of Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
LOSSES FROM
COMMON STOCK SERIES B COMMON STOCK SECURITIES
----------------------- --------------------- AVAILABLE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT FOR SALE DEFICIT TOTAL
--------- ----------- ------ ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income for the year 501,000 501,000
--------- ----------- ------ ------- ------------ ------------ ------------
Balance at December 31, 1995 5,816,000 $29,351,000 - $ - $ (1,035,000) $(19,168,000) $ 9,148,000
========= =========== ====== ======= ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
Synbiotics Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Synbiotics Corporation (the "Company"), incorporated in 1982, is an animal
health business which develops, manufactures and markets biological products and
monoclonal antibody based diagnostic products for use in the animal health care
field. The Company's principal markets are veterinarians and veterinary
clinical laboratories in the United States and Europe. The Company's products
are sold primarily to wholesale distributors.
INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined using
the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are recorded at cost.
Maintenance costs are charged to operations as incurred. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of five to eight years or the lease terms, if shorter.
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
Effective April 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115") on a prospective basis. In accordance with SFAS 115,
the Company determines the appropriate classification of its U.S. Government and
equity securities at the time of acquisition and reevaluates such designation as
of each balance sheet date. The Company has recorded these investments at fair
market value as it has designated them as "available for sale". Unrealized
holding losses on these investments, which are classified as a separate
component of shareholders' equity, totalled $1,035,000 and $1,695,000 at
December 31, 1995 and 1994, respectively.
PATENTS AND LICENSES
Patent and license costs are amortized ratably over the life of the respective
patent or license.
INVESTMENTS IN FORMER AFFILIATES
UniSyn Technologies, Inc. ("UniSyn"), of which the Company was a 23% shareholder
at March 31, 1994, provides research, pilot and production scale bioreactors and
disposables, and contract production, for the manufacture and purification of
mammalian cell-derived products. In June 1994, the Company entered into a bridge
loan agreement whereby $150,000 was loaned to UniSyn. In December 1994, UniSyn
issued additional shares of voting stock through a private placement offering,
which reduced the Company's effective ownership to 6%. In connection with this
private placement, the Company converted into common stock all of its shares of
convertible preferred stock, and exchanged the $150,000 note receivable into
convertible preferred stock. The conversion of the note receivable is
considered to be a non-cash investing activity for the purposes of the statement
of cash flows. As a result of the change in effective ownership, the Company
began utilizing the cost method to account for its investment in UniSyn, which
is included in other assets at December 31, 1995 and 1994.
-17-
<PAGE>
Synbiotics Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
ImmunoPharmaceutics, Inc. ("IPI"), of which the Company was a 41% shareholder at
March 31, 1994, is engaged in human drug discovery utilizing proprietary
rational drug design technology. In July 1994, IPI was acquired by Texas
Biotechnology Corporation (Note 3).
REVENUE RECOGNITION
Revenue from products is recognized when the products are shipped.
ADVERTISING COSTS
The Company recognizes the production costs of advertising at the time such
charges are incurred. Advertising expense totalled $629,000, $393,000 and
$706,000 during the year ended December 31, 1995, the nine months ended December
31, 1994 and the year ended March 31, 1994, respectively.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which is effective for years beginning after December 15, 1995.
SFAS 123 defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" and including pro forma disclosures of net income and earnings per
share as if the fair value method had been applied. The Company has elected to
continue to measure its stock-based compensation in accordance with APB 25 and,
accordingly, does not expect the adoption of SFAS 123 to have a significant
effect on its financial position or results of operations.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities.
NET INCOME (LOSS) PER SHARE
Computations of net income (loss) per share are based on the weighted average
number of common shares outstanding during each year. Shares issuable upon the
exercise of outstanding stock options have not been considered in the
computations for the nine months ended December 31, 1994 because their effect is
anti-dilutive.
STATEMENT OF CASH FLOWS
For purposes of this statement, cash includes cash investments which are highly
liquid and, generally, have an original maturity of three months or less.
-18-
<PAGE>
Synbiotics Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - CHANGE IN FISCAL YEAR:
During 1994, the Company changed its fiscal year from March 31 to December 31.
Accordingly, the Company's transition period, which ended on December 31, 1994,
includes the nine months from April 1 to December 31, 1994. The Company's full
fiscal year ending March 31, 1994 includes twelve months.
The following unaudited results of operations for the year ending December 31,
1994 and the nine months ending December 31, 1993 include all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results for that period.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1994 1993
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Products $11,718,000 $8,658,000
Interest 90,000 122,000
License fees and other 299,000 287,000
----------- ----------
12,107,000 9,067,000
----------- ----------
Cost and expenses:
Cost of products 6,519,000 3,918,000
Research and development 1,091,000 362,000
Selling and marketing 4,756,000 2,875,000
General and administrative 2,415,000 1,974,000
----------- ----------
14,781,000 9,129,000
----------- ----------
Loss before gain on disposition of
investment in affiliate (2,674,000) (62,000)
Gain on disposition of investment
in affiliate 2,036,000
----------- ----------
Net loss $ (638,000) $ (62,000)
=========== ==========
Net loss per share $ (.11) $ (.01)
=========== ==========
</TABLE>
-19-
<PAGE>
Synbiotics Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
NOTE 3 - DISPOSITION OF INVESTMENT IN AFFILIATED COMPANY:
In February 1994, the Company entered into a bridge loan agreement whereby
$600,000 was loaned to IPI. The note was due on March 31, 1994, bore interest
at the rate of prime plus 1% and was secured by substantially all of the assets
of IPI. On July 25, 1994, 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's TBC shares were
registered effective December 6, 1995.
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 by TBC, the Company
exchanged 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. The Company valued its investment in TBC, which is
accounted for utilizing the cost method, at $4.025 per share, and, as a result,
recognized a gain for financial reporting purposes of approximately $2,036,000.
On June 30, 1995, the Company received an additional 573,000 shares of TBC
common stock resulting from the satisfaction of a certain contingency on May 31,
1995 related to the acquisition of IPI by TBC. 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 4 - PRODUCT AGREEMENTS:
In December 1992, the Company entered into an agreement with SmithKline Beecham
Animal Health, a division of SmithKline Beecham Corporation, whereby the Company
acquired certain distribution, manufacturing and licensing rights to ten
companion animal biological products in exchange for $1,000,000. As of December
31, 1995, $453,000 had been paid, and the remaining $547,000, which is included
in other liabilities, will be paid based on sales of the acquired products. Any
remaining balance, plus interest in the amount of $150,000, shall be due and
payable in October 1996. Sales of the related products, which commenced in
November 1993, totalled $757,000, $258,000 and $618,000 during the year ended
December 31, 1995, the nine months ended December 31, 1994 and the year ended
March 31, 1994, respectively.
-20-
<PAGE>
Synbiotics Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
NOTE 5 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
---- ----
<S> <C> <C>
Inventories:
Raw materials $ 665,000 $ 576,000
Work in process 633,000 756,000
Finished goods 2,141,000 1,431,000
----------- -----------
$ 3,439,000 $ 2,763,000
=========== ===========
Property and equipment:
Laboratory equipment $ 2,098,000 $ 1,968,000
Leasehold improvements 1,826,000 1,826,000
Office equipment 468,000 529,000
----------- -----------
4,392,000 4,323,000
Less accumulated
depreciation and
amortization (3,513,000) (2,994,000)
----------- -----------
$ 879,000 $ 1,329,000
=========== ===========
</TABLE>
Depreciation expense was $639,000, $381,000 and $426,000 during the year ended
December 31, 1995, the nine months ended December 31, 1994 and the year ended
March 31, 1994, respectively.
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
---- ----
<S> <C> <C>
Other assets:
Patents $ 79,000 $ 142,000
Licenses 1,556,000 1,825,000
Other 525,000 917,000
----------- -----------
2,160,000 2,884,000
Less current portion (578,000) (963,000)
----------- -----------
$ 1,582,000 $ 1,921,000
=========== ===========
</TABLE>
Accumulated amortization of patents and licenses was $1,406,000 and $1,016,000
at December 31, 1995 and 1994, respectively.
-21-
<PAGE>
Synbiotics Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Accounts payable and accrued liabilities:
Accounts payable $1,101,000 $1,235,000
Accrued vacation 125,000 109,000
Accrued compensation 72,000 78,000
Other 315,000 240,000
---------- ----------
$1,613,000 $1,662,000
========== ==========
</TABLE>
NOTE 6 - RELATED PARTY TRANSACTIONS:
The Company charged its former affiliates, UniSyn and IPI, and currently charges
IPI, now a wholly-owned subsidiary of TBC (Note 3), for shared costs including,
but not limited to, rent, utilities and property taxes. In addition, the
Company charged IPI for employee benefits, insurance and certain administrative
services during the nine months ended December 31, 1994 and the year ended March
31, 1994. Such charges to UniSyn, which terminated in June 1993, totalled
$51,000 during the year ended March 31, 1994. IPI was charged $357,000,
$388,000 and $624,000 during the year ended December 31, 1995, the nine months
ended December 31, 1994 and the year ended March 31, 1994, respectively.
In June 1991, the Company entered into a three year agreement with IPI whereby
IPI provided certain raw materials and/or services to the Company. The
agreement called for guaranteed quarterly payments of $50,000, totalling
$200,000 per year. Raw materials received by the Company were not significant
during the year ended March 31, 1994. During the nine months ended December 31,
1994 and the year ended March 31, 1994, the Company charged $33,000 and
$200,000, respectively, to income relating to the agreement. The agreement was
terminated in May 1994.
NOTE 7 - SHAREHOLDERS' EQUITY:
SERIES B COMMON STOCK
In March 1994, all outstanding shares of Series B common stock were converted
into shares of common stock.
STOCK OPTION PLANS
The Company had adopted a series of non-qualified and incentive stock option
plans (the "Predecessor Plans"). In April 1995, the Company adopted the 1995
Stock Option/Stock Issuance Plan (the "1995 Plan") whereby an aggregate of
1,300,000 shares of the Company's common stock, inclusive of all optioned shares
that were exercisable and/or issuable under the Predecessor Plans, were reserved
for issuance. No further option grants may be made under the Predecessor Plans.
The 1995 Plan is administered by the Board of Directors and provides that
exercise prices shall not be less than 85 percent (non-qualified options) and
100 percent (incentive options) of the fair market value of the shares at the
date of grant. Options will generally vest at the rate of 1/16th of the granted
shares in each continuous quarter of employment and have an exercise period not
more than ten years from date of grant. At
-22-
<PAGE>
Synbiotics Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
December 31, 1995 options to purchase 620,000 shares are exercisable and 383,000
shares are available for future grant under the 1995 Plan.
The following is a summary of the stock option plans' activity:
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OPTION PRICES UNDERLYING
PER SHARE OPTIONS
------------- ------------
<S> <C> <C>
March 31, 1993 $2.45-$9.25 519,000
Options granted $3.25-$4.88 92,000
Options canceled $2.55-$5.50 (20,000)
Options exercised $2.45-$3.72 (23,000)
-------
March 31, 1994 $2.45-$9.25 568,000
Options granted $2.38-$3.88 193,000
Options canceled $2.45-$7.87 (45,000)
-------
December 31, 1994 $2.45-$9.25 716,000
Options granted $1.63-$3.25 209,000
Options canceled $2.45-$6.59 (13,000)
Options exercised $2.00-$3.72 (13,000)
-------
December 31, 1995 $1.63-$9.25 899,000
=======
</TABLE>
NOTE 8 - INCOME TAXES:
The Company did not record a provision for Federal income taxes during the year
ended December 31, 1995 and the nine months ended December 31, 1994 due to net
operating losses for tax purposes. The Company did not record a provision for
Federal income taxes during the year ended March 31, 1994 due to the utilization
of net operating loss carryforwards. The provisions for state income taxes were
$2,000 during the year ended December 31, 1995, the nine months ended December
31, 1994 and the year ended March 31, 1994, and represent minimum franchise
taxes and are included in general and administrative expenses.
-23-
<PAGE>
Synbiotics Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
Deferred tax assets comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994
--------------- -------------
<S> <C> <C>
Federal:
Net operating loss carryforwards $ 5,626,000 $ 5,487,000
Equity in losses of investees 714,000 1,031,000
Investment tax, research and development and alternative
minimum tax credit carryforwards 859,000 848,000
--------------- -------------
7,199,000 7,366,000
Less valuation allowance (7,199,000) (7,366,000)
--------------- -------------
$ - $ -
State:
Net operating loss carryforwards $ 634,000 $ 721,000
Equity in losses of investees 195,000 282,000
Investment tax and research and development credit carryforwards 216,000 215,000
--------------- -------------
1,045,000 1,218,000
Less valuation allowance (1,045,000) (1,218,000)
--------------- -------------
$ - $ -
=============== =============
</TABLE>
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate to income before income taxes
follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
------------ ------------ -----------
<S> <C> <C> <C>
Amounts computed at statutory Federal rate $ 170,000 $(360,000) $ 121,000
State income taxes, net of Federal benefit 31,000 (98,000) 33,000
(Deductions) income for financial reporting purposes
for which there is no current tax (benefit) provision (201,000) 458,000
Utilization of Federal net operating loss carryforwards (121,000)
Utilization of state net operating loss carryforwards (33,000)
State minimum franchise tax 2,000 2,000 2,000
------------ ------------ -----------
$ 2,000 $ 2,000 $ 2,000
============ ============ ===========
</TABLE>
-24-
<PAGE>
Synbiotics Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
The net changes in the valuation allowances for the year ended December 31, 1995
for Federal and state deferred tax assets were a decrease of $167,000 and
$173,000 for Federal and state tax purposes, respectively, and are due to the
net operating loss incurred during the year ended December 31, 1995, offset by
the realization of a portion of the equity in losses of IPI due to the
acquisition by TBC (Note 3). In addition, the valuation allowance for state
deferred tax assets was further reduced due to the expiration of a portion of
the state net operating loss carryforwards. The net changes in the valuation
allowances for the nine months ended December 31, 1994 for Federal and state
deferred tax assets were an increase of $167,000 and a decrease of $64,000 for
Federal and state tax purposes, respectively. The changes are due to the net
operating loss incurred during the nine months ended December 31, 1994, offset
by the realization of a portion of the equity in losses of IPI due to the
acquisition by TBC (Note 3).
The Company has available Federal net operating loss carryforwards at December
31, 1995 of approximately $16,548,000, which expire between 2001 and 2010.
Available state net operating loss carryforwards at December 31, 1995 total
approximately $6,816,000, which expire between 1996 and 2000. If certain
substantial changes in the Company's ownership should occur, there would be an
annual limitation on the amount of carryforwards which can be utilized. Unused
investment tax and research and development credits at December 31, 1995
aggregate approximately $1,075,000 and expire between 1998 and 2006.
NOTE 9 - COMMITMENTS:
The Company leases office, laboratory and manufacturing facilities and equipment
under operating leases. The facilities leases provide for escalating rental
payments. Future minimum rentals under noncancelable operating leases as of
December 31, 1995 are $435,000, all of which are due in 1996. Total rent
expense under noncancelable operating leases was $377,000, $282,000 and $351,000
during the year ended December 31, 1995, the nine months ended December 31, 1994
and the year ended March 31, 1994, respectively.
NOTE 10 - SIGNIFICANT CUSTOMERS:
The Company had sales to two customers totalling 44% of gross revenues during
the year ended December 31, 1995. During the nine months ended December 31,
1994, sales to two customers totalled 35% of gross revenues. Sales totalling 40%
of gross revenues during the year ended March 31, 1994 were made to two
customers. Sales to foreign customers totalled 12%, 13%, 15% of product revenues
during the year ended December 31, 1995, the nine months ended December 31, 1994
and the year ended March 31, 1994, respectively. The Company grants credit to
all of its customers, substantially all of whom are in the animal health
products industry.
-25-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
--------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------
Directors
<TABLE>
<CAPTION>
Name; Positions; Business Experience During the Director
Past Five Years; Directorships in Reporting Companies Since Age
- ------------------------------------------------------------------------------------- -------- ---
<S> <C> <C>
Patrick Owen Burns................................................................... 1988 58
Vice President of R&D Funding Corp, an affiliate of Prudential Securities Inc.,
and Senior Vice President of Prudential Securities Inc. since 1986; Director
of Ecogen, Inc., Creative BioMolecules, Inc. and Texas Biotechnology
Corporation.
James C. DeCesare.................................................................... 1993 64
President and Chief Operating Officer of Boehringer Ingelheim Animal Health
from 1986 to 1992 when he retired; currently a consultant to the animal health
and pharmaceutical industries.
M. Blake Ingle, Ph.D................................................................. 1994 53
President and Chief Executive Officer of Canji, Inc. March 1993 to February
1996; Acting President of Telios Pharmaceuticals, Inc. December 1994 to June
1995; President and Chief Executive Officer of IMCERA Group, Inc. (now
known as Mallinckrodt Group Inc.) from 1991 to 1993; President and Chief
Operating Officer of IMCERA Group, Inc. (now known as Mallinckrodt
Group Inc.) from 1990 to 1991; Director of Corvas International, Inc.
Robert J. Kunze...................................................................... 1995 60
General Partner, H&Q Life Science Ventures, a San Francisco based
investment banking and venture capital firm, since 1987; Director of Intelligent
Surgical Lasers, Inc. and Abaxis, Inc.
Donald E. Phillips................................................................... 1987 63
Chairman of the Board of Directors of the Company since August 1994; Vice
Chairman of the Board of Directors of the Company from 1993 to August
1994; a consultant to IMCERA Group, Inc. (now known as Mallinckrodt
Group Inc.) from 1988 to 1990, when he retired; Director of Potash
Corporation of Saskatchewan (Canada).
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Name; Positions; Business Experience During the Director
Past Five Years; Directorships in Reporting Companies Since Age
- ------------------------------------------------------------------------------------- ------- ---
<S> <C> <C>
Robert L. Widerkehr.................................................................. 1992 58
President and Chief Executive Officer of the Company since August 1992;
Senior Vice President and Chief Operating Officer of the Company from 1991
to 1992; Vice President for the U.S. and Canada of SmithKline Beecham
Animal Health from 1989 to 1991.
</TABLE>
The Board of Directors of the Company held a total of ten meetings during the
fiscal year ended December 31, 1995. Except for Mr.Kunze, each director
attended more than seventy-five percent (75%) of the meetings of the Board of
Directors (and the Board committees of which he was a member) held during the
time he was a member of the Board.
The Company currently has Compensation and Audit Committees of the Board of
Directors. The Company does not have a Nominating Committee of the Board of
Directors. The current membership of each committee is as follows:
Compensation Committee Audit Committee
James C. DeCesare Patrick Owen Burns, Chairman
M. Blake Ingle, Ph.D., Chairman Robert J. Kunze
Donald E. Phillips Donald E. Phillips
The function of the Compensation Committee is to review the Company's
compensation policies. The Audit Committee oversees the Company's accounting
and financial reporting policies, reviews with the independent accountants the
accounting principles and practices followed, reviews the annual audit and
financial results and makes recommendations to the Board regarding any of the
preceding. The Audit Committee met three times and the Compensation Committee
met once during the fiscal year ended December 31, 1995.
Dr. Ingle became an executive officer of Telios Pharmaceuticals, Inc. in
December 1994, shortly after that company's primary product failed a clinical
trial. In January 1995, Telios filed a voluntary bankruptcy petition. The
Company believes these facts do not impugn Dr. Ingle's ability or integrity in
any way.
For their services as directors, each of the outside directors of the Company
received fees of $1,000, plus $500 for travel, for each Board of Directors
meeting attended, except for Mr. Burns. Fees payable to Mr Burns are paid
instead to R&D Funding Corp. Outside directors do not receive any fees for
committee meetings attended as committee members. Employee directors do not
receive any fees for attendance at meetings of the Board of Directors or
committee meetings. In addition, Mr. Phillips was paid fees of $24,996 during
the fiscal year ended December 31, 1995 pursuant to consulting agreement with
the Company. On July 12, 1995, pursuant to the Automatic Grant Program under
the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"), Mr. Burns, Mr.
DeCesare, Dr. Ingle and Mr. Phillips were each granted an option to purchase
7,000 shares of Common Stock at $2.75 per share. The options, which expire on
July 12, 2005, vest ratably over a one-year period following the grant date.
On November 2, 1995, pursuant to the Automatic Grant Program under the 1995
Plan, Mr. Kunze was granted an option to purchase 7,000 shares of Common Stock
at $3.25 per share. The option, which expires on November 2, 2005, vests
ratably over a one-year period following the grant date.
-27-
<PAGE>
Executive Officers and Significant Employees
<TABLE>
<CAPTION>
NAME, AGE, AND BUSINESS EXPERIENCE
POSITION DURING THE PAST FIVE YEARS
- --------------------------------------- ------------------------------------
Executive Officers
<S> <C>
President and Chief Executive Officer - Robert L. Widerkehr (58)
since August 1992 Formerly, Senior Vice President and
Chief Operating Officer for the
Company 1991 - 1992; Vice President
for the U.S. and Canadian operations
of SmithKline Beecham Animal Health
1989 - 1991
Vice President - Finance, Chief Michael K. Green (40)
Financial Officer Formerly, Senior Manager with Price
and Secretary - since May 1991 Waterhouse 1980 - 1991
Significant Employees
Corporate Controller and Chief Keith A. Butler (34)
Accounting Officer - Formerly, Manager with Price
since March 1991 Waterhouse 1984 -1991
Director of Research and Development - John A. Cutting (57)
since August 1995 Formerly, Senior Manager of Research
and Development for the Company
November 1993 - August 1995; Director
of Research of AVID Therapeutics,
Inc., 1992 - November 1993; Senior
Scientist, Virology of Solvay Animal
Health, 1985 - 1992
Director of Operations - Clifford Frank (46)
since September 1992 Formerly, Manager of Manufacturing
for the Company 1991 - 1992;
President of Akorn Pharmaceuticals
and President of Walnut
Pharmaceuticals, a division of Akorn
Pharmaceuticals, 1990 - 1991
Manager - Business Development and Gregory A. Soulds (49)
International Marketing - since Formerly, Vice President - Marketing
1992 (with the Company since 1983) and Sales for the Company 1989 - 1992
</TABLE>
Compliance With Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership of the Company's equity securities with the Securities and Exchange
Commission. Officers, directors
-28-
<PAGE>
and greater than 10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms furnished to the Company,
or written representations that no Forms 5 were required, the Company believes
that during the fiscal year ended December 31, 1995, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with, with the following exception:
On November 2, 1995 Mr. Kunze became a director of the Company, at which
time a Form 3 should have been filed. However, due to an oversight by the
Company the Form 3 was not filed until March 22, 1996.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following table provides certain summary information concerning the
compensation earned by the Company's President and Chief Executive Officer and
its Vice President - Finance (the "Named Executive Officers") for services
rendered in all capacities to the Company for the fiscal year ended December 31,
1995, the nine month fiscal year ended December 31, 1994 and the fiscal year
ended March 31, 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------------------------------- Awards
Other Securities
Name and Annual Underlying All Other
Principal Fiscal Compen- Options/ Compensa-
Position Year Salary ($)/(1)/ Bonus ($) sation ($) SARS (#) tion ($)/(2)/
- -------------------- ---------- --------------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Widerkehr 1995 $179,375 - $2,188/(3)/ 30,000 $3,587
President and Chief 1994/(4)/ $131,250 - $8,750/(3)/ 22,000 $2,625
Executive Officer 1994 $135,000 $19,280 $8,750/(3)/ 78,000 $2,700
Michael K. Green 1995 $101,853 - - 25,000 $2,213
Vice President 1994/(4)/ $ 73,805 - - 15,000 $1,476
1994 $ 93,721 $10,677 - - $1,874
</TABLE>
(1) Includes amounts deferred under the 401(k) Compensation Deferral Savings
Plan pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended.
(2) Consists of matching contributions made by the Company to Mr. Widerkehr's
401(k) account and Mr. Green's 401(k) account.
(3) Forgiveness of a loan made to Mr. Widerkehr to defray relocation expenses.
The loan was fully forgiven as of December 31, 1995.
(4) Information is for the nine month fiscal year ended December 31, 1994.
-29-
<PAGE>
The following table contains information concerning the grant of stock options
to the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise
Name Granted (#)/(1)/ Fiscal Year Price ($/Sh) Expiration Date
- --------------------- --------------- -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Robert L. Widerkehr 30,000 18.02% $2.63 04/27/05
Michael K. Green 25,000 15.02% $2.63 04/27/05
</TABLE>
(1) The options become exercisable ratably over a two-year period following the
date of grant. The grant date for the options listed in the above table is
April 27, 1994. The option has a maximum term of 10 years, subject to
earlier termination in the event of optionee's cessation of service with
the Company.
The following table provides information, with respect to the Named Executive
Officers, concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year. No shares were
acquired on exercise of options by the Named Executive Officers during the
fiscal year ended December 31, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised in-the-Money
Unexercised Options/SARs Options/SARs
at December 31, 1995 (#) at December 31, 1995/(1)/
------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Robert L. Widerkehr 214,500 65,500 $ - $ -
Michael K. Green 25,937 24,063 $ - $ -
</TABLE>
(1) Value is defined as market price of the Company's Common Stock at fiscal
year end less exercise price. The closing sale price of the Company's
Common Stock at December 31, 1995 was $2.38.
-30-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth the beneficial ownership of the Company's Common
Stock as of March 20, 1996, of each of the Company's directors, director
nominees, 5% shareholders and the Named Executive Officers, and of the directors
and executive officers of the Company as a group. Except as noted, each person
has sole investment and voting power over the shares shown. Percentages are
calculated in accordance with the method set forth in the Securities and
Exchange Commission's rules.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNER OF CLASS
------------------------------------ ----------- ---------
<S> <C> <C>
Patrick Owen Burns/(1) (3)/ 504,053 8.1%
c/o R&D Funding Corp
1 Seaport Plaza
16th Floor
New York, NY 10292
James C. DeCesare/(3)/ 24,250 *
5260 S. Landings Drive, #200
Ft. Myers, FL 33919
Michael K. Green/(3)/ 30,000 *
c/o Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
M. Blake Ingle, Ph.D./(3)/ 10,250 *
Plaza Del Mar 300-6
12526 High Bluff Drive
San Diego, CA 92130
Robert J. Kunze/(2)(3)/ 492,541 8.0%
c/o H&Q Life Science Ventures
One Bush Street
San Francisco, CA 94104
Donald E. Phillips/(3)/ 38,750 *
372 Fannin Landing Circle
Brandon, MS 39042
Robert L. Widerkehr/(3)/ 231,625 3.7%
c/o Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNER OF CLASS
------------------------------------ ----------- ---------
<S> <C> <C>
Daniel F. Cain 350,000 5.7%
1719 Centennial Road
Fort Collins, CO 80525
Gruber & McBaine Capital Management/(4)/ 586,300 9.5%
c/o John P. Broadhurst, Esq.
Shartsis, Friese & Ginsburg
One Maritime Plaza
18th Floor
San Francisco, CA 94111
H&Q Life Science Ventures 489,041 7.9%
One Bush Street
San Francisco, CA 94104
Mallinckrodt Group Inc. 458,806 7.4%
7733 Forsyth Boulevard
St. Louis, MO 63105
Edward T. Maggio, Ph.D./(5)/ 461,999 7.5%
c/o ImmunoPharmaceutics, Inc.
11011 Via Frontera
San Diego, CA 92127
PruTech Research and Development Partnership II 460,303 7.4%
3945 Freedom Circle
Suite 800
Santa Clara, CA 95054
All executive officers and directors
as a group/(1)(2)(3)/ (7 persons) 1,331,469 21.5%
</TABLE>
/*/ Less than one percent.
(1) Includes 460,303 shares of Common Stock held by PruTech Research and
Development Partnership II, which is a public research and development
partnership sponsored by R&D Funding Corp. Mr. Burns is a Vice President
of R&D Funding Corp, and disclaims any beneficial ownership of these
shares.
(2) Includes 489,041 shares of Common Stock held by H&Q Life Science Ventures,
a California limited partnership. Mr. Kunze is a general partner of H&Q
Life Science Ventures.
(3) Includes options to purchase shares of Common Stock, which are exercisable
on or before May 31, 1996, as follows: Mr. Burns - 43,750 shares; Mr.
DeCesare - 19,250 shares; Mr. Green - 30,000 shares; Dr. Ingle - 10,250
shares; Mr. Kunze - 3,500; Mr. Phillips - 38,750 shares; Mr. Widerkehr -
229,625 shares.
-32-
<PAGE>
(4) Owned by a group of six persons who granted their respective powers of
attorney to Gruber & McBaine Capital Management ("GMCM"), a California
corporation, to handle any and all necessary filings in connection with
these securities. The direct ownership of these shares is as follows:
GMCM - 29,500 shares; Jon D. Gruber ("Gruber") - 68,000 shares; J.
Patterson McBaine ("McBaine") - 55,400 shares; Lagunitas Partners
("Lagunitas") - 235,800; GMJ Investments, LP ("GMJ") - 6,500 shares;
Proactive Partners, a California Limited Partnership ("Proactive") -
191,100 shares. Gruber and McBaine are the sole directors and sole
executive officers of GMCM. GMCM, Gruber and McBaine are the general
partners of Lagunitas and GMJ. Gruber and McBaine are general partners in
the entity which is the general partner of Proactive. Gruber and McBaine
disclaim beneficial ownership of the shares held by GMCM, Lagunitas, GMJ
and Proactive except to the extent of their respective pecuniary interests.
GMCM disclaims beneficial ownership of the shares held by Gruber, McBaine,
Lagunitas and GMJ except to the extent of its pecuniary interest.
(5) Includes options to purchase 6,999 shares of Common Stock, which are
exercisable on or before May 31, 1996, held by Dr. Maggio.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibit Index
-------------
Exhibits marked with an asterisk have not been included with this
Annual Report on Form 10-KSB, but instead have been incorporated by
reference to other documents filed by the Company with the Securities
and Exchange Commission. The Company will furnish a copy of any one
or more of these exhibits, except for Exhibit 27 which is for
electronic filing purposes only, to a shareholder who so requests upon
receipt of payment for the cost of duplicating and mailing the
requested items.
<TABLE>
<CAPTION>
EXHIBIT TITLE METHOD OF FILING
------- ------------------------------------------ -------------------------------------------
<S> <C> <C>
2.1/*/ Plan and Agreement of Merger of Texas Incorporated herein by reference to Exhibit
Biotechnology Corporation, TBC Acquisition 2.1 to the Registrant's Current Report on
Company No. 1 and ImmunoPharmaceutics, Form 8-K, as amended, dated July 25, 1994.
Inc. dated as of June 17, 1994.
3.1 Articles of Incorporation, as amended. Filed herewith.
3.2/*/ Bylaws, as amended. Incorporated herein by reference to Exhibit
3.2 to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended
June 30, 1995.
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT TITLE METHOD OF FILING
- ------- -------------------------------------------- ---------------------------------------------
<S> <C> <C>
10.1/*/ Lease of Premises by Registrant located at Incorporated herein by reference to Exhibit
11011 Via Frontera, San Diego, California, 10.1 to the Registrant's Annual Report on
dated November 28, 1989. Form 10-K for its fiscal year ended March 31,
1991.
10.4/*+/ 1983 Stock Option Plan. Incorporated herein by reference to the
Registrant's Registration Statement on Form
S-18, Registration No. 2-83602, dated August
25, 1983.
10.4.1/*+/ First Amendment to 1983 Stock Option Plan. Incorporated herein by reference to Exhibit
10.4.1 to the Registrant's Annual Report on
Form 10-K for its fiscal year ended March 31,
1988.
10.5/*+/ 1984 Stock Option Plan. Incorporated herein by reference to Exhibit
10.5 to the Registrant's Registration Statement
on Form S-1, Registration No. 33-5292, dated
July 16, 1986.
10.5.1/*+/ First and Second Amendments to 1984 Stock Incorporated herein by reference to Exhibit
Option Plan. 10.5.1 to the Registrant's Annual Report on
Form 10-K for its fiscal year ended March 31,
1988.
10.6/*+/ 1986 Stock Option Plan. Incorporated herein by reference to Exhibit
10.6 to the Registrant's Registration Statement
on Form S-1, Registration No. 33-5292, dated
July 16, 1986.
10.6.1/*+/ First Amendment to 1986 Stock Option Plan. Incorporated herein by reference to Exhibit
10.6.1 to the Registrant's Annual Report on
Form 10-K for its fiscal year ended March 31,
1988.
10.21/*/ Distribution Agreement between Vedco, Inc. Incorporated herein by reference to Exhibit
and the Registrant, dated October 15, 1986. 10.21 to the Registrant's Registration
Statement on Form S-1, Registration No. 33-
5292, dated July 16, 1986.
10.26/*+/ 1987 Stock Option Plan. Incorporated herein by reference to Exhibit 28
to the Registrant's Registration Statement on
Form S-8, Registration No. 33-15712, dated
July 9, 1987.
10.26.1/*+/ First Amendment to 1987 Stock Option Plan. Incorporated herein by reference to Exhibit
10.26.1 to the Registrant's Annual Report on
Form 10-K for its fiscal year ended March 31,
1988.
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT TITLE METHOD OF FILING
- ------- ---------------------------------------------- --------------------------------------------
<S> <C> <C>
10.33/*/ Lease of Premises (expansion) by the Incorporated herein by reference to Exhibit
Registrant located at 16410 Via Esprillo, San 10.33 to the Registrant's Annual Report on
Diego, California, dated February 25, 1988. Form 10-K for its fiscal year ended March 31,
1988.
10.33.1/*/ First Amendment to Lease of Premises by the Incorporated herein by reference to Exhibit
Registrant located at 16410 Via Esprillo, San 10.33.1 to the Registrant's Annual Report on
Diego, California, dated August 9, 1988. Form 10-K for its fiscal year ended March 31,
1989.
10.36/*/ Marketing Agreement between the Registrant Incorporated herein by reference to Exhibit
and Bio-Trends International, Inc., dated May 10.36 to the Registrant's Annual Report on
10, 1989. Form 10-K for its fiscal year ended March 31,
1989.
10.36.1/*/ Distribution Agreement between the Incorporated herein by reference to Exhibit
Registrant and Bio-Trends International, Inc., 10.36.1 to the Registrant's Annual Report on
dated February 7, 1990. Form 10-K for its fiscal year ended March 31,
1990.
10.39/*/ Distribution Agreement between the Incorporated herein by reference to Exhibit
Registrant and Bio-Trends International, Inc., 10.39 to the Registrant's Annual Report on
dated August 1, 1990. Form 10-K for its fiscal year ended March 31,
1991.
10.40/*/ Framework Agreement between Pitman- Incorporated herein by reference to Exhibit
Moore, Inc. and the Registrant, dated June 26, 7.01 to the Registrant's Current Report on
1992. Form 8-K dated July 13, 1992, as amended
Form 8 on November 4, 1992 and December
10, 1992.
10.41/*/ Agreement between the Registrant and Rhone Incorporated herein by reference to Exhibit
Merieux, dated July 9, 1992. 7.01 to the Registrant's Current Report on
Form 8-K dated July 23, 1992.
10.43/*+/ 1991 Stock Option Plan, as amended Incorporated herein by reference to Exhibit
4.1 to the Registrant's Registration Statement
on Form S-8, Registration No. 33-55992,
dated December 21, 1992.
10.44/*/ Purchase Agreement between SmithKline Incorporated herein by reference to Exhibit
Beecham Animal Health and the Registrant, 7.01 to the Registrant's Current Report on
dated December 10, 1992. Form 8-K dated December 30, 1992.
10.46/*/ Agreement Regarding Licensing, Incorporated herein by reference to Exhibit
Development, Marketing and Manufacturing 10.46 to the Registrant's Quarterly Report on
between the Registrant and Binax, Inc., dated Form 10-QSB for the quarter ended
as of June 30, 1993. December 31, 1993.
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT TITLE METHOD OF FILING
- --------- --------------------------------------------- ---------------------------------------------
<S> <C> <C>
10.47/*/ Amendment No. One to Agreement Regarding Incorporated herein by reference to Exhibit
Licensing, Development, Marketing and 10.47 to the Registrant's Quarterly Report on
Manufacturing between the Registrant and Form 10-QSB for the quarter ended
Binax, Inc., dated December 9, 1993. December 31, 1993.
10.48 Amendment No. Two to Agreement Filed herewith.
Regarding Licensing, Development, Marketing
and Manufacturing between the Registrant and
Binax, Inc., dated as of July 27, 1994.
10.50/*+/ 1995 Stock Option/Stock Issuance Plan, as Incorporated herein by reference to Exhibit
amended. 10.50 to the Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended
September 30, 1995.
10.51/*+/ Form of Notice of Grant/Stock Option Incorporated herein by reference to Exhibit
Agreement, as used under the 1995 Stock 99.2 to the Registrant's Registration Statement
Option/Stock Issuance Plan. on Form S-8, Registration No. 33-61103,
dated July 17, 1995.
10.52 Contract Manufacturing Agreement, dated as Certain confidential portions of this exhibit
of March 31, 1995. 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.
11.1 Computation of Earnings Per Share. Filed herewith.
23.1 Consent of Independent Accountants. Filed herewith.
27 Financial Data Schedule. Filed herewith for electronic filing purposes
only.
</TABLE>
/*/ Incorporated by reference.
/+/ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
-------------------
None.
-36-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 28, 1996 SYNBIOTICS CORPORATION
By /s/ Michael K. Green
------------------------------
Michael K. Green
Vice President - Finance
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert L. Widerkehr Chief Executive Officer, President and Director March 28, 1996
- ------------------------
Robert L. Widerkehr
/s/ Michael K. Green Chief Financial Officer March 28, 1996
- ------------------------
Michael K. Green
/s/ Keith A. Butler Chief Accounting Officer and Corporate Controller March 28, 1996
- ------------------------
Keith A. Butler
/s/ Patrick Owen Burns Director March 28, 1996
- ------------------------
Patrick Owen Burns
/s/ James C. DeCesare Director March 28, 1996
- ------------------------
James C. DeCesare
/s/ M. Blake Ingle Director March 28, 1996
- ------------------------
M. Blake Ingle
/s/ Robert J. Kunze Director March 28, 1996
- ------------------------
Robert J. Kunze
/s/ Donald E. Phillips Director March 28, 1996
- ------------------------
Donald E. Phillips
</TABLE>
-37-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM 10-KSB
UNDER
SECURITIES EXCHANGE ACT OF 1934
SYNBIOTICS CORPORATION
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
2.1/*/ Plan and Agreement of Merger of Texas Biotechnology Corporation,
TBC Acquisition Company No. 1 and ImmunoPharmaceutics, Inc. dated
as of June 17, 1994.
3.1 Articles of Incorporation, as amended.
3.2/*/ Bylaws, as amended.
10.1 Lease of Premises by Registrant located at 11011 Via Frontera, San
Diego, California, dated November 28, 1989.
10.4/*/ 1983 Stock Option Plan.
10.4.1/*/ First Amendment to 1983 Stock Option Plan.
10.5/*/ 1984 Stock Option Plan.
10.5.1/*/ First and Second Amendments to 1984 Stock Option Plan.
10.6/*/ 1986 Stock Option Plan.
10.6.1/*/ First Amendment to 1986 Stock Option Plan.
10.21/*/ Distribution Agreement between Vedco, Inc. and the Registrant,
dated October 15, 1986.
10.26/*+/ 1987 Stock Option Plan.
10.26.1/*/ First Amendment to 1987 Stock Option Plan.
10.33/*/ Lease of Premises (expansion) by the Registrant located at 16410
Via Esprillo, San Diego, California, dated February 25, 1988.
10.33.1/*/ First Amendment to Lease of Premises by the Registrant located at
16410 Via Esprillo, San Diego, California, dated August 9, 1988.
10.36/*/ Marketing Agreement between the Registrant and Bio-Trends
International, Inc., dated May 10, 1989.
10.36.1/*/ Distribution Agreement between the Registrant and Bio-Trends
International, Inc., dated February 7, 1990.
10.39/*/ Distribution Agreement between the Registrant and Bio-Trends
International, Inc., dated August 1, 1990.
10.40/*/ Framework Agreement between Pitman-Moore, Inc. and the Registrant,
dated June 26, 1992.
10.41/*/ Agreement between the Registrant and Rhone Merieux, dated July 9,
1992.
10.43/*/ 1991 Stock Option Plan, as amended.
<PAGE>
Exhibit No. Exhibit
- ----------- -------
10.44/*/ Purchase Agreement between SmithKline Beecham Animal Health and the
Registrant, dated December 10, 1992.
10.46/*/ Agreement Regarding Licensing, Development, Marketing and
Manufacturing between the Registrant and Binax, Inc., dated as of
June 30, 1993.
10.47/*/ Amendment No. One to Agreement Regarding Licensing, Development,
Marketing and Manufacturing between the Registrant and Binax, Inc.,
dated December 9, 1993.
10.48 Amendment No. Two to Agreement Regarding Licensing, Development,
Marketing and Manufacturing between the Registrant and Binax, Inc.,
dated as of July 27, 1994.
10.50/*/ 1995 Stock Option/Stock Issuance Plan, as amended.
10.51/*/ Form of Notice of Grant/Stock Option Agreement, as used under the
1995 Stock Option/Stock Issuance Plan.
10.52 Contract Manufacturing Agreement, dated as of March 31, 1995.
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 Exchange Act.
11.1 Computation of Earnings Per Share.
23.1 Consent of Independent Accountants.
27 Financial Data Schedule (for electronic filing purposes only).
- -------------
/*/ Incorporated by reference.
<PAGE>
EXHIBIT 3.1
-----------
RESTATED ARTICLES OF INCORPORATION
of
SYNBIOTICS CORPORATION
Robert L. Widerkehr and Michael K. Green certify that:
1. They are the president and secretary, respectively, of Synbiotics
Corporation, a California Corporation.
2. The articles of incorporation of this corporation are amended and restated
to read as follows:
FIRST: That the name of the corporation is: SYNBIOTICS CORPORATION
SECOND: That the purpose of the corporation is to engage in any lawful
act or activity for which a corporation may be organized under
the General Corporation Law of California other than the banking
business, the trust company business or the practice of a
profession permitted to be incorporated by the California
Corporations Code.
THIRD: That the county in the State of California where the principal
office for the transaction of the business of the corporation
shall be located is San Diego County.
FOURTH: Capitalization:
---------------
A. The total number of shares which the corporation is
authorized to issue is 25,000,000.
B. 24,800,000 shares of the stock authorized hereinabove are
hereby designated "Common Stock", and 200,000 shares of the
stock authorized hereinabove are hereby designated "Series B
Common Stock".
C. Notwithstanding any other provisions of these Articles of
Incorporation to the contrary, the rights, preferences,
privileges and restrictions of Common Stock and Series B
Common Stock shall be identical in all respects, except as
follows:
1. Voting Rights. On all matters submitted to a vote of
the holders of this corporation's stock, each share of
Common Stock shall entitle the holder thereof to one
vote, and each share of Series B Common Stock shall
entitle the holder thereof to one-tenth vote.
2. Liquidation Preference. In the event of any
liquidation, dissolution or winding up of this
corporation, whether voluntary or involuntary, the
holders of Common Stock shall be entitled to receive,
prior and in
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<PAGE>
preference to any distribution of the assets of the
corporation to the holders of Series B Common Stock by
reason of their ownership thereof, the greater of (a)
ten dollars for each share of Common Stock then held by
them or (b) an amount for each share of Common Stock
then held by them equal to ten times the amount which,
after such distribution, would remain available for
distribution to holders of Series B Common Stock for
each share of Series B Common Stock then held by them.
If, upon the occurrence of such event, the assets
available for distribution among the holders of the
stock are insufficient to permit the payment to the
holders of Common Stock of the aforesaid preferential
amount, then the entire amount of assets available for
distribution to the holders of the stock shall be
distributed among the holders of Common Stock in
proportion to the number of shares of Common Stock then
held by each of them.
3. Dividends. No dividends may be declared or paid with
respect to any share of Series B Common Stock.
D. Upon the occurrence of any of the following events, each
share of Series B Common Stock shall automatically be
converted into or reconstituted as one share of Common
Stock.
1. Immediately prior to the effectiveness of any merger or
consolidation of the corporation with or into another
corporation, or any reorganization, as defined in
Section 181 of the California Corporations Code, in
which the corporation is directly or indirectly the
acquired company, or any sale of all or substantially
all of the assets of the corporation;
2. The last day of any twelve-month period ending March
31, June 30, September 30 or December 31 in which this
corporation realizes revenues, excluding interest
income and the effects on income before taxes of the
conversion of the Series B Common Stock into Common
Stock, of at least $10,000,000; or
3. The last day of any twelve-month period ending March
31, June 30, September 30 or December 31 in which this
corporation realizes income before taxes and
extraordinary items (but excluding interest income and
the effects on income before taxes of the conversion of
Series B Common Stock) of at least $2,000,000.
E. Each conversion of Series B Common Stock hereunder shall be
effected by the surrender at the office of this corporation
or any transfer agent for such shares of the certificate or
certificates therefor, duly endorsed, in such form and
accompanied by such documents, if any, as the corporation
may require. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office a certificate
or certificates representing the number of shares of Common
Stock into which such shares are convertible hereunder.
Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of
such surrender of the Series B Common Stock to be converted,
and the person or persons entitled to receive the shares of
Common Stock issuable upon
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<PAGE>
such conversion shall be treated for all purposes as the
record holder or holders of shares of Common Stock on such
date.
F. In the event of any stock split, reverse stock split or
other subdivision or combination of the Common Stock payable
in Common Stock, an appropriate pro rata adjustment or
adjustments shall be made in the voting rights and
liquidation preference set forth in section D hereinabove.
No fractional shares shall be issued upon conversion of
Series B Common Stock. In lieu of any fractional shares to
which a shareholder would otherwise be entitled, this
corporation shall pay cash equal to such fraction multiplied
by the then fair market value per share of Series B Common
Stock as determined in good faith by the corporation's Board
of Directors.
FIFTH: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible
under California law.
SIXTH: The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the Corporations Code) for
breach of duty to the corporation and its stockholders through
Bylaw provision or through agreements with the agent, or both, in
excess of the indemnification otherwise permitted by Section 317
of the Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the Corporations
Code.
3. The foregoing amendment and restatement of articles of incorporation has
been duly approved by the board of directors.
4. The foregoing amendment and restatement of articles of incorporation does
not itself alter or amend the articles of incorporation in any respect
except to omit the names and addresses of the first directors and of the
initial agent for service of process; and therefore (pursuant to Sections
905 and 910 of the Corporations Code) does not require any approval of the
outstanding shares.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: December 15, 1995
/s/ Robert L. Widerkehr
------------------------------
Robert L. Widerkehr, President
/s/ Michael K. Green
------------------------------
Michael K. Green, Secretary
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<PAGE>
Exhibit 10.48
-------------
AMENDMENT NUMBER TWO
TO
AGREEMENT REGARDING LICENSING,
DEVELOPMENT, MARKETING AND MANUFACTURING
This Amendment Number Two to Agreement Regarding Licensing, Development,
Marketing and Manufacturing ("Amendment"), is made and entered into as of July
27, 1994 by and between Synbiotics Corporation, a California corporation
("Synbiotics"), and Binax, Inc., a Delaware corporation ("Binax").
RECITALS
WHEREAS, Synbiotics and Binax entered into that certain Agreement Regarding
Licensing, Development, Marketing and Manufacturing dated June 30, 1993, as
previously amended by Amendment Number One thereto dated December 9, 1993
(together the "Agreement").
WHEREAS, the parties desire to amend and modify certain of the provisions of the
Agreement pursuant to Section 16.2 of the Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The sixth sentence of Section 4.1.2(a) of the Agreement is hereby amended
and restated to read as follows (with newly added language indicated by
underscoring):
Synbiotics shall have the right, in its sole discretion, to terminate any
development project for a Synbiotics Sublicensed Product anytime during the
sixth month or the ninth month of the development term (except with respect
------------------
to the Sensor CH (Canine Heartworm Antigen Test) product, as to which
---------------------------------------------------------------------
Synbiotics shall have such right at any time during the sixth, ninth, tenth
-------------------------------------------------------------------------
or eleventh month of the development term), and such product will cease
-------------------------------------------
being a Synbiotics Product hereunder; provided, however, that Binax
shall have no right to develop, market, license or distribute such former
Synbiotics Sublicensed Product unless Binax acquires such rights from
Synbiotics on terms acceptable to Synbiotics.
-1-
<PAGE>
2. The third sentence of Schedule 4.1 of the Agreement is hereby amended to
read as follows (with newly added language indicated by underscoring):
Synbiotics shall have the right, in its sole discretion, to terminate the
development project for either or both of the First Two Products any time
during the sixth month or the ninth month of the 14-month development term
(except with respect to the Sensor CH (Canine Heartworm Antigen Test)
---------------------------------------------------------------------
product, as to which Synbiotics shall have such right at any time during
------------------------------------------------------------------------
the sixth, ninth, tenth or eleventh month of the development term).
-------------------------------------------------------------------
3. Except as amended as set forth in Sections 1 and 2 above, the Agreement
shall remain unchanged and shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment to the
Agreement to be effective as of the date first above written.
WITNESS: SYNBIOTICS CORPORATION
Clifford Frank By: Gregory A. Soulds
- -------------------- -------------------
Its: Vice President
-------------------
Date: September 22, 1994
-------------------
WITNESS: BINAX, INC.
Robert Bruce By: Roger A. Piasio
- -------------------- -------------------
Its: President
-------------------
Date: September 12, 1994
-------------------
(SIGNATURE PAGE TO AMENDMENT NUMBER TWO TO
AGREEMENT REGARDING LICENSING, DEVELOPMENT,
MARKETING AND MANUFACTURING)
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<PAGE>
EXHIBIT 10.52
-------------
CONTRACT MANUFACTURING AGREEMENT
This Agreement is entered into on this 31st day of March, 1995 by and between
[*], an [*] corporation [*] and SYNBIOTICS CORPORATION, 11011 Via Frontera, San
Diego, CA 92127-1702, a California corporation ("Customer").
WHEREAS, Customer desires to engage [*] to manufacture certain products and
perform other services for Customer pursuant to and in accordance with the terms
and conditions of this Agreement, and [*] desires to accept such engagement.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. PRODUCTION
1.01 [*] agrees to manufacture and sell and Customer agrees to purchase from [*]
those products identified on Exhibit A hereto ("Products") pursuant to and
in accordance with the terms and conditions of this Agreement. [*] agrees
to perform those additional processes, if any, such as packaging and
labeling, in connection with the manufacture of the Products as may be
described on Exhibit A hereto. [*] agrees to perform such other services
for Customer in connection with the Products as may be described on Exhibit
A ("Services"). Customer agrees to compensate [*] for performing the
Services in the amounts shown in Exhibit D.
1.02 [*] and Customer agree that the Products will be manufactured in accordance
with specifications described in Exhibits B and C hereto
("Specifications"). All operations, manufacturing and control procedures
shall be done in accordance with applicable United States Department of
Agriculture ("USDA") regulations. [*] warrants that the Products delivered
to the Customer hereunder shall conform to the description of and
Specifications for the Products attached hereto as Exhibit C and to all
applicable USDA regulations and requirements therefor. Further, [*]
warrants that all containers employed in the packaging of Product will be
free of defect when released by [*] for shipment at its plant, but does not
warrant the condition of such containers after handling by common carrier
or others.
1.03 All of the Products shall be manufactured by [*] at its plant located in
[*].
1.04 [*]'s procedures and practices with respect to manufacturing the Products
may be inspected by Customer from time to time during normal business hours
upon reasonable notice by Customer. Any input or absence of such from the
Customer in conjunction with any reviews or observations shall not be
deemed to be approval or disapproval of any procedure or practice. [*] has
the final responsibility to manufacture the Products pursuant to the
Specifications.
- ------------
[*] Certain confidential portions of this Exhibit were omitted by means of
blackout of 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.
-1-
<PAGE>
SECTION 2. SPECIFICATION CHANGES
2.01 The Specifications may be changed at any time by mutual agreement of the
parties. Any disagreement concerning revisions to the Specifications shall
be resolved by mutual discussion and negotiation. Except to the extent the
parties may otherwise agree in writing, any increases in costs resulting
from Specification changes (including, but not limited to, those relating
to packaging, labeling and raw materials) will be passed through to
Customer.
2.02 Customer shall be responsible for the design and content of all packaging,
labels and Product inserts. [*] shall obtain all required USDA approvals
of such packaging, labels and inserts. Packaging design will be done with
the advice and consultation of [*] to ensure compatibility with [*]'s
equipment. Customer will be responsible for all costs involved in label
changes, updates and any other requested changes by Customer. Any obsolete
or unused packaging inventory and labels as a result of Customer's changes
will be the responsibility of the Customer and Customer will promptly
reimburse [*] therefor.
SECTION 3. PRICE: PAYMENT
3.01 Customer agrees to compensate [*] for performing the Services in the
amounts shown in Exhibit D.
3.02 Prices set forth in Exhibit D will be adjusted upwards for each subsequent
contract year by any increase in the Producer Price Index during the twelve
month period ending on the last day of the third month preceding the end of
the current contract year. [*] will notify Customer of such price
adjustments at least 60 days prior to the end of each contract year and
will furnish Customer a revised Exhibit D to this Agreement.
3.03 [*] shall also be authorized to pass through any cost increases for raw
materials and packaging components provided by [*] to the extent such
increases would cause total cost of goods of finished Products to increase
by more than 2%. [*] will advise Customer in writing of any such cost
increases quarterly at the time [*] confirms in writing Customer's purchase
order. Upon Customer's request, [*] will furnish supporting documentation
therefor.
3.04 [*] shall notify Customer of the date when Products are ready for shipment
to Customer. [*] shall invoice the Customer for Products on the date the
Products are shipped, provided, however, that [*] shall immediately invoice
Customer for Products for which [*] has not received shipping instructions
from Customer and the common carrier selected by Customer has not picked up
the Products within fifteen (15) days of notification from [*] to Customer
that such Products are ready for shipment. Payment terms shall be net 30
days from the date of each such invoice. An interest charge of one and
one-half percent (1 1/2%) per month or portion of a month shall be charged
for late payments.
3.05 In the event Customer shall fail to make any payment when due, [*] shall be
authorized to commence or undertake judicial or non-judicial actions to
collect the delinquent payment. Customer agrees to pay all costs incurred
by [*] in any collection action, including reasonable attorneys fees.
SECTION 4. LABEL CODES: QUALITY ASSURANCE
4.01 [*] shall code all labels affixed to each unit of the packaged Products to
identify the Product batch. A copy of the coded label for each batch along
with a report on the date and number and type of units packaged and labeled
shall be promptly forwarded to the Customer.
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<PAGE>
4.02 Prior to shipping any Product to the Customer, [*] shall analyze the
Product for the purpose of determining whether it conforms with the
Specifications, such analysis to be made in accordance with methods of
analysis to be in compliance with each licensed product Outline of
Production as expressed in Section V thereof referenced in Exhibits B and C
attached hereto. For each batch of Product delivered to the Customer, [*]
shall, concurrently with delivery of notice of Product completion pursuant
to Section 3.04 above, deliver to the Customer a certificate of analysis
specifying the results of the analysis required to show conformity of the
Product to Specifications.
4.03 The Customer shall have 30 days after receipt of the Product to inspect the
Product and reject the same. If the Product is rejected, written notice
must be given to [*] no later than 30 days after receipt by the Customer.
In the event it is determined through consultation between both parties, or
by a third party acceptable to and at the shared expense of both parties,
that any Product shipped by [*] hereunder does not conform with the
Specifications, at the Customer's option, (i) [*] shall be relieved of any
obligation to deliver any Product with respect to the non-conforming
shipment and in such case [*] shall credit against future purchases by
Customer the purchase price of such non-conforming Product paid by Customer
together with any shipping costs paid by the Customer for delivery of such
non-conforming Product, or (ii) [*] shall replace the non-conforming
Product with substitute Product which conforms with said Specifications and
any other requirements of this Agreement, within the time agreed to by both
parties, in which case the Customer shall pay to [*] amounts in accordance
with Section 3 hereof based on the substitute shipment. The non-conforming
Product shall become the property of and returned to [*] at [*]'s expense.
[*] shall dispose of such Product at its own expense according to all
appropriate regulations.
4.04 [*] shall substitute Product at no cost to the Customer to complete any
Product recall required by subsequent determination that the Product was
not produced in accordance with Specifications when released to the
Customer or was not produced in compliance with applicable USDA
regulations. The Customer shall be responsible for all other recalls.
4.05 [*] shall promptly communicate in writing to Customer all inquiries or
complaints about the Products made to [*] by customers of the Customer.
Any testing of Products by [*] done as a result of a request or complaint
of a customer of the Customer shall be at the Customer's expense, if
approved by the Customer in writing prior to the testing.
4.06 All Products with the exception of [*] shall be delivered at least 18
months in advance of the shelf expiration date for such Products. The [*]
shall be delivered at least 12 months in advance of the shelf expiration
date for the [*]. Unless otherwise specifically and mutually agreed to in
writing by both parties, Products with less than the minimum expiration
dating may be accepted at the discretion of Customer. Customer is
responsible for the cost and handling of all outdated Products.
4.07 The remedies described in this Section 4 are exclusive and in lieu of any
other remedy Customer would otherwise have against [*] with respect to
defective Products or any breach of [*]'s warranty contained in Section
1.02; provided, that this section shall not limit [*]'s indemnity
obligation set forth in Section 13 with respect to third party claims.
SECTION 5. FORECASTS; ORDER PROCEDURES; DELIVERIES
5.01 Except to the extent the parties may otherwise agree in writing with
respect to a particular shipment, at least sixty (60) days prior to the
beginning of each calendar quarter the Customer shall give [*] a firm
written purchase order or orders for the types and quantities of the
Products for the upcoming calendar quarter with required delivery dates.
[*] shall not be obligated to manufacture and supply any quantity or type
of Products until it shall have confirmed in writing Customer's purchase
order. [*] agrees that with respect
-3-
<PAGE>
to Products covered by a purchase order confirmed by it in writing, the
Products shall be available for shipment on the specified delivery dates,
except to the extent it is prevented from doing so due to conditions beyond
its control as provided in Section 9. The terms and conditions of the
Customer's purchase orders shall apply to any Products purchased hereunder,
provided they are not in conflict with the terms and conditions of this
Agreement. Any terms and conditions on either a Customer purchase order or
a [*] acknowledgement or any other document relating to the purchase, sale
or transfer of Products between the parties, which are in conflict with,
diminish or are additive to any of the terms of this Agreement, shall be
null and void and without legal effect unless they are agreed to by way of
the signatures of both parties on a single document which plainly expresses
an intention to alter such terms (and expressly refers to this Section 5.01
by number). All orders shall be placed in full batch sizes as described in
Exhibit D hereto.
5.02 Within 15 days after the date hereof, Customer will furnish [*] a written
forecast of the quantities and types of Products that Customer anticipates
it will order from [*] during the first twelve (12) months of this
Agreement. Each time Customer furnishes its purchase order pursuant to
Section 5.01 to [*], Customer will also furnish revised written estimates
of the quantities it anticipates it will order during the succeeding twelve
(12) month period. The forecasts will not be deemed binding commitments,
but are for the purpose of enabling [*] to more effectively schedule the
use of its facilities.
5.03 The terms of delivery of the Products shall be F.O.B. [*] plant properly
packaged to prevent damage during shipment. [*] shall ship the Products at
Customer's expense and in accordance with Customer's instructions. Title
and risk of loss of the Products shall pass to the Customer upon the
earlier of: (i) delivery of the Products to the insured common carrier
selected by Customer, or (ii) seven (7) days following [*]'s notification
to Customer that Products are ready for shipment.
5.04 [*] agrees to store the Products as required by the Customer for a period
not to exceed thirty (30) days from the date [*] notifies Customer the
Products are ready for shipment. With respect to Products that are not
picked up by the common carrier designated by Customer's shipping
instructions within thirty (30) days from the date [*] notifies Customer
the Products are ready for shipment, [*] shall charge a warehousing fee of
two (2%) percent of the invoice amount per month or portion thereof until
the Product is shipped.
SECTION 6. TERM; TERMINATION
6.01 The initial term of this Agreement shall be for a period of sixty (60)
months, commencing on the date of this Agreement, and shall automatically
renew thereafter for additional renewal terms of twelve (12) months each,
unless either party gives written notice to the other at least twelve (12)
months prior written notice that it does not wish to renew this Agreement.
6.02 Subject to the provisions of Section 9, if either party hereto shall fail
to perform or fulfill, at any time and in the manner herein provided, any
obligation or condition required to be performed or fulfilled by such
party, and such party fails to remedy such failure within ninety (90) days
after receipt of written notice thereof from the nondefaulting party which
specifies the particulars of the default, the nondefaulting party may
terminate this Agreement, except for those obligations of the parties which
by their terms survive termination or expiration hereof. Such termination
shall be effective upon delivery of written notice from the nondefaulting
party to the defaulting party.
6.03 Upon termination of this Agreement for any reason: (a) Products
manufactured pursuant to confirmed purchase orders shall be delivered on
the Invoice Delivery Dates and Customer shall pay [*] therefor not later
than thirty (30) days thereafter; (b) all raw materials and labeling
furnished by Customer shall be promptly returned, paid for by [*] or, if
approved by Customer, destroyed by [*] as per USDA guidelines; (c) all
costs of unused raw materials, packaging and labeling shall be paid for by
Customer unless kept by
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<PAGE>
[*]. All costs of destroying raw materials and labeling or the costs of
its returned shipment shall be paid by Customer.
SECTION 7. REPRESENTATIONS AND WARRANTIES; COVENANTS
7.01 [*] represents and warrants to Customer that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of [*];
(b) all corporate acts required to execute and deliver this Agreement have
been duly taken by [*]; the execution, delivery and performance hereof
by [*] has been duly authorized, and the Agreement, as so executed and
delivered, is a valid and binding obligation of [*], enforceable
against it in accordance with its terms;
(c) the execution and delivery of this Agreement by [*], and the
performance of its obligations hereunder, does not require the consent
of any third party and will not violate, with or without notice, the
lapse of time or both, any agreement, contract, license or permit to
which [*] is a party or its organizational documents;
(d) it has, and will maintain, all required manufacturing establishment
designations, permits and licenses; and
(e) has the requisite experience, knowledge and expertise, suitable
facilities and qualified personnel to manufacture the Products and to
perform its other obligations hereunder in a sound, safe, lawful and
workmanlike manner.
7.02 Customer represents and warrants to [*] that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of California;
(b) all corporate acts required to execute and deliver this Agreement have
been duly taken by Customer; the execution, delivery and performance
hereof by Customer has been duly authorized, and the Agreement, as so
executed and delivered, is a valid and binding obligation of Customer,
enforceable against it in accordance with its terms;
(c) the execution and delivery of this Agreement by Customer, and the
performance of its obligations hereunder, does not require the consent
of any third party and will not violate, with or without notice, the
lapse of time or both, any agreement, contract, license or permit to
which Customer is a party or its organizational documents; and
(d) it has legal rights to authorize [*] to manufacture the Products on
its behalf pursuant to this Agreement and that the manufacture, sale,
packaging and labeling of the Products pursuant to this Agreement will
not infringe upon any patent, license, trademark or copyright of any
third party.
7.03 [*] covenants and agrees that for the duration of this Agreement:
(a) it shall maintain at all times the physical, technological,
managerial, human resources and financial capacity to meet all of
Customer's reasonably anticipatable demand for Products hereunder;
-5-
<PAGE>
(b) subject to the terms hereof, it will maintain USDA licensure at all
times on manufacturing facilities and ascertain and comply with all
applicable laws and regulations and standards of industry or
professional conduct in connection with the manufacture of Products;
and
(c) it shall maintain the original copies of the required regulatory
documentation provided to [*] by Customer, including licensing
documents for the Products, as per USDA guidelines.
7.04 Customer covenants and agrees that it will provide [*] original copies of
the required regulatory documentation, including licensing documents for
the Products, as per USDA guidelines.
SECTION 8. NOTIFICATIONS
8.01 [*] agrees that it will promptly notify the Customer of any contact, claim
or other communication by any entity or agency that related to, or may
relate to [*]'s ability to perform its responsibilities herein. Any
communication, either initiated by [*] or by USDA that references a Product
in this Agreement or the submission of any Product will immediately be
brought to the attention of the Customer.
8.02 Customer agrees that it will promptly notify [*] of any contact, claim or
other communication by any entity or agency that related to, or may relate
to Customer's ability to perform its responsibilities herein. Any
communication, either initiated by Customer or by USDA that references a
Product in this Agreement or the submission of any such Product will
immediately be brought to the attention of [*].
SECTION 9. FORCE MAJEURE
9.01 No party shall be held liable or responsible for failure or delay in
fulfilling or performing any obligation of this Agreement in case such
failure or delay is due to Acts of God, strikes or other labor disputes,
governmental regulations or actions, inability to obtain material, labor,
equipment or transportation, or any other condition beyond the reasonable
control of the affected party, provided such party has taken reasonable
steps to avert such causes or conditions. Each party agrees to give the
other party prompt written notice of the occurrence and the nature of any
such condition, and the extent to which the affected party will be unable
fully to perform its obligation hereunder. Each party further agrees to
use all reasonable efforts to correct the condition as quickly as possible.
9.02 [*] shall make a good faith best effort to equitably allocate its available
resources and production capacity for the manufacture of Products among the
Customer and [*]'s other customers (including production for [*]'s own
account); provided, [*] shall not be required to take any action that would
cause it to become in default under the terms of any third party contract.
9.03 If, as a result of causes or conditions described in this Section, either
party is unable fully to perform its obligations hereunder for any
consecutive period of three (3) months, the other party shall have the
right to terminate this Agreement upon at least thirty (30) days prior
written notice.
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<PAGE>
SECTION 10. CONFIDENTIAL INFORMATION
10.01 As used in this paragraph the term, "Confidential Information" shall mean
all information disclosed in writing, or by oral communications and
confirmed as confidential within thirty (30) days of disclosure, by
either party to the other relating to raw materials; product
specifications, formulations and compositions; scientific know-how;
chemical compound and composition data; manufacturing processes;
analytical methodology; product applications including safety and
efficacy data; current and future product and marketing plans and
projections; and other information of a technical or economic nature
related to the Products.
10.02 All Confidential Information disclosed hereunder shall remain the
property of the disclosing party and shall be maintained in confidence
and not disclosed by the receiving party to any person except to
officers, employees and consultants to whom it is necessary to disclose
the information for the purpose specified above. Each party shall take
all steps it would normally take to protect its own Confidential
Information to ensure that the received Confidential Information shall be
maintained in confidence and not disclosed.
10.03 Unless otherwise agreed in writing all Confidential Information disclosed
hereunder shall be used by the parties only pursuant to and in accordance
with this Agreement.
10.04 The obligations of [*] and Customer under this paragraph shall not apply
to:
(a) Information which, at the time of disclosure, is in the public
domain or thereafter becomes within the public domain other than as
a result of breach of this Agreement; or
(b) Information which either party can establish was in its possession
at the time of disclosure; or
(c) Information which was received from a third party not under an
obligation of confidentiality; or
(d) Information which either party can establish was independently
developed without reference to the information received hereunder.
10.05 Upon termination of this Agreement, [*] and Customer agree to return to
the other all written or other physical embodiments of the Confidential
Information, except for one record copy. The obligations under this
paragraph shall be binding on any affiliate, parent, subsidiary,
successor or assign of [*] or Customer as if a party to the Agreement.
The obligations of confidentiality and non-use of the Confidential
Information under this Agreement shall continue throughout the term of
this Agreement and for a period of two (2) years following the
termination or expiration of this Agreement.
10.06 With respect to the Products described in this Agreement, the provisions
of this paragraph shall supersede the provisions of that certain Non-
Disclosure/Confidentiality Agreement previously entered into between the
parties.
10.07 Except to the extent required by law, neither party shall disclose to
third parties the subject matter or terms of this Agreement or the
negotiations giving rise to this Agreement.
SECTION 11. OWNERSHIP OF INTELLECTUAL PROPERTY
11.01 Any and all design, patent, copyright and other relevant ownership and
other rights in and to the intellectual property aspects of the Products
which are the subject of this Agreement and all modifications,
adjustments, changes and derivatives thereto and thereof (collectively,
the "Rights") shall belong exclusively to Customer, and no such ownership
shall be in [*]. [*] shall own the raw materials and Products, subject to
any security interest, until title passes pursuant to Section 5.03. [*]
agrees that it does not have, and will not claim, any Rights in any
Product delivered pursuant to this Agreement or aspect thereof. [*]
covenants that it will not,
-7-
<PAGE>
in the process of manufacturing or testing any product hereunder, violate
any Right of any person. [*] agrees not to affix its trademark or trade
name (or any trademark or trade name which is not expressly authorized in
writing by Customer to be so affixed) on any Product delivered hereunder.
SECTION 12. MISCELLANEOUS
12.01 All notices or other communications provided for in this Agreement shall
be in writing and shall be considered delivered upon the latest of actual
receipt, or personal or courier delivery, or sending by facsimile with
confirmation of receipt in good order requested and received, or on the
--
fourth business day after they are deposited in the United States mail,
certified first class or air mail postage prepaid, addressed to the
respective parties as follows:
(a) If to [*]:
[*]
(b) If to Customer:
Synbiotics Corporation
16420 Via Esprillo
San Diego, CA 92127-1702
ATTN: Clifford Frank
Fax (619) 451-3826
With a copy to:
Brobeck, Phleger & Harrison
550 West "C" St.
Suite 1300
San Diego, CA 92101
ATTN: Hayden J. Trubitt
Fax (619) 234-3848
The parties may, at any time, change their addresses or other information
in this Section by written notice delivered under this Section.
12.02 [*] is and shall always remain an independent contractor in its
performance of this Agreement. The provisions of this Agreement shall not
be construed as authorizing or reserving to the Customer any right to
exercise any control or direction over the operations, activities,
employees, or agents of [*] in connection with this Agreement except to
the extent required by law, it being understood and agreed that the
control and direction of such operations, activities, employees, or
agents shall otherwise remain with [*]. Neither party to this Agreement
shall have any authority to employ any person as an employee or agent for
or on behalf of the other party to this Agreement, nor any person
performing any duties or engaging in any work at the request of such
party, shall be deemed to be an employee or agent of the other party to
this Agreement.
12.03 Law Governing and Venue:
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of California (as to proceedings initiated by
[*]) or [*] (as to proceedings initiated by Customer) as if the
Agreement had been delivered in such State and all acts performed or
required to be performed hereunder have been performed entirely
within that State.
-8-
<PAGE>
(b) Any dispute or controversy arising out of or relating to this
Agreement, any document or instrument delivered pursuant to, or in
connection with, or simultaneously with this Agreement; or any breach
of this Agreement or any such document or instrument, shall be resolved
(as to proceedings initiated by [*]) in San Diego, California, or (as
to proceedings initiated by Customer) in [*].
12.04 Whenever possible, each provision of this Agreement shall be interpreted
in such a manner as to be effective and valid under applicable law, but
if any provision hereof shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
12.05 No modification or waiver of any provision of this Agreement shall be
effective unless the modification is made in writing and signed by both
parties, and the same shall then be effective only for a period and on
the conditions and for the specific instances and purposes specified in
such writing. No course of dealing between [*] and the Customer or delay
or failure to exercise any rights hereunder shall operate a waiver of
such rights or preclude the exercise of any other rights hereunder.
12.06 Termination or expiration of this Agreement shall not relieve either
party from any obligation under this Agreement which may have accrued
prior thereto or which survives by its terms.
12.07 The captions set forth in this Agreement are for convenience only and
shall not be used in any way to construe or interpret this Agreement.
12.08 Neither party to this Agreement may assign this Agreement or its rights
or obligations hereunder without the prior written consent of the other
party; except that either party may assign its rights and delegate its
obligations hereunder without prior consent of the other party to any
successor entity by way of merger, consolidation, or reorganization. Any
permitted assignee shall assume all obligations of its assignor under
this Agreement. No assignment shall relieve either party of
responsibility for the performance of any accrued obligation which it has
hereunder. Any consent required shall not be unreasonably withheld.
12.09 This Agreement (including the Exhibits hereto) constitute the entire
understanding of the parties with respect to the subject matter hereof
and supersede all prior negotiations or communications, however given,
regarding the subject matter hereof. There are no other understandings,
representations or warranties of any kind, express or implied.
12.10 Dispute Resolution, Arbitration:
(a) Customer and [*] agree that in the case of a dispute or difference of
any kind, the parties in the first instance shall attempt to settle
the dispute amicably.
All disputes and differences of any kind arising under this Agreement,
or arising between the parties including the existence or continued
existence of this Agreement and the arbitrability of a particular
issue which cannot be settled amicably by the parties shall be
submitted to arbitration. The arbitration shall be conducted in [*]
(as to proceedings initiated by Customer) or San Diego, California (as
to proceedings initiated by [*]), and shall be finally settled in
accordance with the Rules of Arbitration of the American Arbitration
Association in [*] (as to proceedings initiated by Customer) or San
Diego (as to proceedings initiated by [*]) by one or more arbitrators
appointed in accordance with the above-mentioned Rules.
The decision of the arbitration tribunal shall be final and binding
upon the parties and may be enforced in any court of competent
jurisdiction, and no party shall seek redress against the other
-9-
<PAGE>
in any court or tribunal except solely for the purpose of obtaining
execution of the arbitration award or of obtaining a judgement
consistent with the reward.
(b) During any adjudication pursuant to Section (a) of this paragraph, the
Customer and [*] shall continue to fulfill their respective
obligations under this Agreement, unless the subject matter of the
dispute is of such a nature that this is by no means possible until
the dispute has been finally settled.
12.11 This Agreement is for the benefit of the parties hereto and is not
intended to, and shall not be construed as benefitting or creating rights
in any person or entity other than the signatories hereto.
12.12 [*] acknowledges and agrees that the legal remedies available to Customer
in the event [*] violates the covenants and agreements made in this
Agreement would be inadequate and that Customer shall be entitled,
without posting any bond or other security, to temporary, preliminary and
permanent injunctive relief, specific performance and other equitable
remedies in the event of such a violation, in addition to any other
remedies which Customer may have at law or in equity.
SECTION 13. INDEMNIFICATION
13.01 [*] hereby agrees to defend, indemnify and hold the Customer harmless
against any and all expense, including reasonable attorneys fees and
court costs, damages, claims and liabilities arising out of (a) any
breach of warranty hereunder or material non-fulfillment or non-
performance by [*] of any agreement, covenant or obligation of [*] under
this Agreement; or (b) [*]'s failure to manufacture a Product in
compliance with its Specifications.
13.02 The Customer hereby agrees to defend, indemnify and hold [*] harmless
against any and all expense, including reasonable attorney fees and court
costs, damages, claims and liabilities arising out of (a) a material non-
fulfillment or non-performance by Customer of any agreement, covenant or
obligation of Customer under this Agreement; (b) the use by the Customer
or customers of the Customer of the Product, sale or distribution by the
Customer of any of the Product which has been manufactured in compliance
with the Specifications and (c) any alleged patent, trademark or
copyright infringement.
13.03 In the event either party incurs, or expects to incur expenses, damages,
claims, or liability for which it intends to seek indemnification from
the other party, the party claiming indemnification (the "Indemnitee")
shall promptly notify the other party (the "Indemnitor") and will permit
the Indemnitor at the Indemnitor's sole discretion, to settle any such
claim or suit and agrees to the complete control of such defense or
settlement by the Indemnitor, and the Indemnitor shall not be responsible
for any legal fees or other costs incurred other than as provided in the
Agreement. The Indemnitee, its employees and agent(s) shall cooperate
fully with the Indemnitor and its legal representatives in the
investigation and defense of any claims or suits covered by the
indemnification provisions of this Agreement.
13.04 [*] will maintain insurance in amounts meeting statutory requirements to
protect [*] and the Customer from claims under any Worker's Compensation
Acts and will maintain general comprehensive personal liability insurance
in the minimum amount of $500,000 for any one occurrence to protect [*]
and Customer from any other damages from personal injury, including
death, which may be sustained by [*]'s agents, servants or employees and
the general public and/or claims of property damage which might be
sustained from any one of them due to the negligence of [*]. [*] shall,
upon request, furnish the Customer a certificate of insurance.
-10-
<PAGE>
13.05 The provision of this Section 13 shall survive the expiration or
termination of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate by their duty authorized representatives:
[*] SYNBIOTICS CORPORATION
By [*] By Robert L. Widerkehr
-------------------- ---------------------
Title President - C.O.O. Title President - C.E.O.
-------------------- ---------------------
Date 7/3/95 Date 6/30/95
-------------------- ---------------------
-11-
<PAGE>
EXHIBIT A
PRODUCTS, PROCESSES, AND SERVICES
[*]
<PAGE>
EXHIBIT B
COMPONENT SPECIFICATIONS
[*]
<PAGE>
CONTRACT MANUFACTURING AGREEMENT
between [*] and Synbiotics Corporation
Date:
EXHIBIT C
FINISHED PRODUCT SPECIFICATIONS
[*]
<PAGE>
EXHIBIT D
PRICE/BATCH SIZE
[*]
<PAGE>
EXHIBIT E
Addition of New Products/Process Improvements/Changes
- -----------------------------------------------------
a. Addition of New Products
Pricing of New Products will be negotiated on a case by case basis.
b. Process Improvements/Changes
Pricing of New Products will be negotiated on a case by case basis.
If additional capital equipment is added at [*] to improve the efficiency of
[*]'s manufacture of the Products, and if Customer fund the acquisition cost of
this equipment resulting reductions in [*]'s cost of manufacturing the Products,
efficiencies will be passed on to Customer in the from of reduced prices for the
Products. The specific terms of this arrangement will be agreed to separately
by the parties.
<PAGE>
SYNBIOTICS CORPORATION EXHIBIT 11.1
------------
COMPUTATION OF (LOSS) EARNINGS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
------------ ------------- -----------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE:
Net income (loss) per statement of operations $ 501,000 $(1,058,000) $ 357,000
========== =========== ==========
Weighted average number of shares outstanding 5,832,000 5,803,000 5,859,000
========== =========== ==========
Primary net income (loss) per share $ .09 $ (.18) $ .06
========== =========== ==========
FULLY DILUTED EARNINGS (LOSS) PER SHARE:/(1)/
Net income (loss) per statement of operations $ 501,000 $(1,058,000) $ 357,000
========== =========== ==========
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 5,832,000 5,803,000 5,859,000
Add - effect of outstanding options and warrants
(as determined by the application of the
treasury method) 5,000 27,000 -
---------- ----------- ----------
Weighted average number of shares, as adjusted 5,837,000 5,830,000 5,859,000
========== =========== ==========
Fully diluted net income (loss) per share $ .09 $ (.18) $ .06
========== =========== ==========
</TABLE>
/(1)/ This calculation is submitted, for the nine months ended December 31,
1994, 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.
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No.'s 33-55990 and
33-68250) and in the Registration Statements on Form S-8 (No.'s 33-10742, 33-
15712, 33-24444, 33-55992, 33-85908 and 33-61103) of Synbiotics Corporation of
our report dated February 15, 1996 appearing on page 11 of this Form 10-KSB.
PRICE WATERHOUSE LLP
San Diego, California
March 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE BALANCE SHEET AS OF DECEMBER 31, 1995 AND THE RELATED STATEMENTS OF
OPERATIONS, CASH FLOWS AND SHAREHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31,
1995 INCLUDED ELSEWHERE IN THIS FORM 10-KSB.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,017
<SECURITIES> 0
<RECEIVABLES> 1,481
<ALLOWANCES> 51
<INVENTORY> 3,439
<CURRENT-ASSETS> 6,464
<PP&E> 4,392
<DEPRECIATION> 3,513
<TOTAL-ASSETS> 11,458
<CURRENT-LIABILITIES> 2,310
<BONDS> 0
0
0
<COMMON> 29,351
<OTHER-SE> (20,203)
<TOTAL-LIABILITY-AND-EQUITY> 11,458
<SALES> 13,676
<TOTAL-REVENUES> 14,118
<CGS> 8,009
<TOTAL-COSTS> 14,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 501
<INCOME-TAX> 0
<INCOME-CONTINUING> 501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
