SYNBIOTICS CORP - 10-Q Quarterly Report

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

o TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-11303

SYNBIOTICS CORPORATION
(Exact name of registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization)		95-3737816 (I.R.S. Employer Identification No.)

11011 Via Frontera San Diego, California (Address of principal executive offices)		92127 (Zip Code)

Registrant’s telephone number, including area code: (858) 451-3771

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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

As of November 8, 2002, 17,953,514 shares of common stock were outstanding.

SYNBIOTICS CORPORATION

INDEX

			Page

Part I	Item 1.	Financial Statements:

		Condensed Consolidated Balance Sheet - September 30, 2002 and December 31, 2001	1

		Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income - Three and nine months ended September 30, 2002 and 2001	2

		Condensed Consolidated Statement of Cash Flows - Nine months ended September 30, 2002 and 2001	3

		Notes to Condensed Consolidated Financial Statements	4

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18

	Item 4.	Controls and Procedures	19

Part II	Item 1.	Legal Proceedings	20

	Item 2.	Changes in Securities and Use of Proceeds	20

	Item 3.	Defaults Upon Senior Securities	20

	Item 4.	Submission of Matters to a Vote of Security Holders	20

	Item 5.	Other Information	21

	Item 6.	Exhibits and Reports on Form 8-K	21

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Synbiotics Corporation
Condensed Consolidated Balance Sheet

		September 30, 2002			December 31, 2001

		(unaudited)			(audited)
Assets
Current assets:
	Cash and equivalents	$	1,324,000		$	1,039,000
	Accounts receivable		2,342,000			2,983,000
	Inventories		5,981,000			5,059,000
	Other current assets		915,000			796,000

			10,562,000			9,877,000
Property and equipment, net			1,400,000			1,648,000
Goodwill			4,275,000			12,074,000
Intangibles, net			2,712,000			2,744,000
Deferred debt issuance costs						7,000
Other assets			530,000			152,000

		$	19,479,000		$	26,502,000

Liabilities and Shareholders Equity:
Current Liabilities:
	Accounts payable and accrued expenses	$	5,205,000		$	5,915,000
	Current portion of long-term debt		1,400,000			1,200,000
	Deferred revenue		75,000			300,000

			6,680,000			7,415,000

Long-term debt			4,922,000			6,032,000
Other liabilities			1,920,000			1,804,000

			6,842,000			7,836,000

Mandatorily redeemable stock			2,604,000			3,107,000

Non-mandatorily redeemable common stock and other shareholders’ equity:
	Common stock, no par value, 70,000,000 shares authorized, 17,954,000 and 8,990,000 shares issued and outstanding at September 30, 2002 and December 31, 2001		46,050,000			40,286,000
	Common stock warrants		1,035,000			1,035,000
	Accumulated other comprehensive loss		(1,200,000	)		(1,411,000	)
	Accumulated deficit		(42,532,000	)		(31,766,000	)

	Total non-mandatorily redeemable common stock and other shareholders’ equity		3,353,000			8,144,000

		$	19,479,000		$	26,502,000

See accompanying notes to condensed consolidated financial statements.

-1-

Item 1. Financial Statements (continued)

Synbiotics Corporation
Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income (unaudited)

		Three Months Ended September 30,						Nine Months Ended September 30,

		2002			2001			2002			2001

Revenues:
	Net sales	$	4,465,000		$	5,835,000		$	16,964,000		$	20,546,000
	License fees		75,000						225,000			969,000
	Royalties		1,000			1,000			6,000			5,000

			4,541,000			5,836,000			17,195,000			21,520,000

Operating expenses:
	Cost of sales		2,069,000			2,411,000			7,469,000			8,519,000
	Research and development		354,000			434,000			1,044,000			1,222,000
	Selling and marketing		1,141,000			1,531,000			3,951,000			4,555,000
	General and administrative		1,556,000			1,483,000			7,412,000			4,630,000

			5,120,000			5,859,000			19,876,000			18,926,000

(Loss) Income from operations			(579,000	)		(23,000	)		(2,681,000	)		2,594,000
Other income (expense):
	Interest, net		(165,000	)		(217,000	)		(522,000	)		(744,000	)

(Loss) income before income taxes			(744,000	)		(240,000	)		(3,203,000	)		1,850,000
(Benefit from) provision for income taxes			(111,000	)		(34,000	)		175,000			29,000

(Loss) income from continuing operations			(633,000	)		(206,000	)		(3,378,000	)		1,821,000
Discontinued operations, net of tax			340,000			(10,000	)		261,000			(97,000	)

(Loss) income before cumulative effect of a change in accounting principle			(293,000	)		(216,000	)		(3,117,000	)		1,724,000
Cumulative effect of a change in accounting principle, net of tax									(7,649,000	)

Net (loss) income			(293,000	)		(216,000	)		(10,766,000	)		1,724,000
Translation adjustment			(96,000	)		405,000			211,000			(166,000	)

Comprehensive income (loss)		$	(389,000	)	$	189,000		$	(10,555,000	)	$	1,558,000

Basic and diluted (loss) income per share:
	(Loss) income from continuing operations		(0.04	)		(0.02	)		(0.26	)		0.18
	Discontinued operations, net of tax		0.02						0.02			(0.01	)
	Cumulative effect of a change in accounting principle, net of tax								(0.56	)

	Net (loss) income	$	(0.02	)	$	(0.02	)	$	(0.80	)	$	0.17

See accompanying notes to condensed consolidated financial statements.

-2-

Item 1. Financial Statements (continued)

Synbiotics Corporation
Condensed Consolidated Statement of Cash Flows (unaudited)

			Nine Months Ended September 30,

			2002			2001

Cash flows from operating activities:
	Net (loss) income		$	(10,766,000	)	$	1,724,000
	Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities:
		Depreciation and amortization		770,000			1,716,000
		Retention bonus payable in common stock		2,641,000
		Legal settlement payable in common stock		15,000
		Note receivable for discontinued operations		(500,000	)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents