10-Q

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 March 31, 2003
OR
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		95-3737816
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
11011 Via Frontera San Diego, California		92127
(Address of principal executive offices)		(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   x No   o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   o No   x

As of May 14, 2003, 19,619,621 shares of common stock were outstanding.

SYNBIOTICS CORPORATION

INDEX

			Page
Part I	Item 1.	Financial Statements:
		Condensed Consolidated Balance Sheet - March 31, 2003 and December 31, 2002	1
		Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) Three months ended March 31, 2003 and 2002	2
		Condensed Consolidated Statement of Cash Flows - Three months ended March 31, 2003 and 2002	3
		Notes to Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
	Item 4.	Controls and Procedures	16
Part II	Item 1.	Legal Proceedings	16
	Item 2.	Changes in Securities and Use of Proceeds	16
	Item 3.	Defaults Upon Senior Securities	16
	Item 4.	Submission of Matters to a Vote of Security Holders	16
	Item 5.	Other Information	16
	Item 6.	Exhibits and Reports on Form 8-K	17

PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements

Synbiotics Corporation
Condensed Consolidated Balance Sheet

	March 31, 2003			December 31, 2002
	(unaudited)			(audited)
Assets
Current assets:
Cash and equivalents	$	1,345,000		$	869,000
Accounts receivable		3,509,000			2,455,000
Inventories		5,348,000			5,438,000
Other current assets		1,033,000			673,000
		11,235,000			9,435,000
Property and equipment, net		1,435,000			1,409,000
Goodwill		1,397,000			1,397,000
Intangibles, net		2,564,000			2,737,000
Other assets		661,000			458,000
	$	17,292,000		$	15,436,000
Liabilities and Shareholders Equity:
Current liabilities:
Accounts payable and accrued expenses	$	5,517,000		$	4,919,000
Current portion of long-term debt		5,610,000			1,475,000
		11,127,000			6,394,000
Long-term debt					4,516,000
Other liabilities		2,003,000			1,962,000
		2,003,000			6,478,000
Shareholders’ equity:
Common stock, no par value, 70,000,000 shares authorized, 19,620,000 and 17,954,000 shares issued and outstanding at March 31, 2003 and December 31, 2002		46,263,000			46,050,000
Series C preferred stock, $1,000 liquidation preference per share (aggregating $2,800,000 at March 31, 2003 and December 31, 2002), 4,000 shares authorized, 2,800 shares issued and outstanding at March 31, 2003 and December 31, 2002		2,604,000			2,604,000
Common stock warrants		1,035,000			1,035,000
Accumulated other comprehensive loss		(760,000	)		(958,000	)
Accumulated deficit		(44,980,000	)		(46,167,000	)
Total shareholders’ equity		4,162,000			2,564,000
	$	17,292,000		$	15,436,000

See accompanying notes to condensed consolidated financial statements.

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

	Three Months Ended March 31,
	2003			2002
Revenues:
Net sales	$	6,148,000		$	6,456,000
License fees					75,000
Royalties		2,000			3,000
		6,150,000			6,534,000
Operating expenses:
Cost of sales		2,963,000			2,780,000
Research and development		265,000			360,000
Selling and marketing		1,065,000			1,308,000
General and administrative		818,000			4,758,000
Patent litigation settlement		(515,000	)
		4,596,000			9,206,000
Income (loss) from operations		1,554,000			(2,672,000	)
Other income (expense):
Interest, net		(135,000	)		(167,000	)
Income (loss) before income taxes		1,419,000			(2,839,000	)
Provision for income taxes		21,000			198,000
Income (loss) from continuing operations		1,398,000			(3,037,000	)
Discontinued operations, net of tax					(66,000	)
Income (loss) before cumulative effect of a change in accounting principle		1,398,000			(3,103,000	)
Cumulative effect of a change in accounting principle, net of tax					(7,649,000	)
Net income (loss)		1,398,000			(10,752,000	)
Translation adjustment		198,000			(145,000	)
Comprehensive income (loss)	$	1,596,000		$	(10,897,000	)
Basic income (loss) per share:
Income (loss) from continuing operations	$	0.07		$	(0.32	)
Discontinued operations, net of tax					(0.01	)
Cumulative effect of a change in accounting principle, net of tax					(0.79	)
Net income (loss)	$	0.07		$	(1.12	)
Diluted income (loss) per share:
Income (loss) from continuing operations	$	0.03		$	(0.32	)
Discontinued operations, net of tax					(0.01	)
Cumulative effect of a change in accounting principle, net of tax					(0.79	)
Net income (loss)	$	0.03		$	(1.12	)

See accompanying notes to condensed consolidated financial statements.

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Synbiotics Corporation
Condensed Consolidated Statement of Cash Flows (unaudited)

	Three Months Ended March 31,
	2003			2002
Cash flows from operating activities:
Net income (loss)	$	1,398,000		$	(10,752,000	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization		333,000			419,000
Receivable from patent litigation settlement		(515,000	)
Retention bonus payable in common stock					2,641,000
Cumulative effect of a change in accounting principle					7,769,000
Changes in assets and liabilities:
Accounts receivable		(1,000,000	)		(863,000	)
Inventories		153,000			(933,000	)
Other assets		58,000			(216,000	)
Accounts payable and accrued expenses		505,000			555,000
Deferred revenue					(75,000	)
Other liabilities		40,000			36,000
Net cash provided by (used for) operating activities		972,000			(1,419,000	)
Cash flows from investing activities:
Acquisition of property and equipment		(133,000	)		(64,000	)
Net cash used for investing activities		(133,000	)		(64,000	)
Cash flows from financing activities:
Payments of long-term debt		(381,000	)		(300,000	)
Proceeds from issuance of mandatorily redeemable preferred stock, net					2,601,000
Net cash (used for) provided by financing activities		(381,000	)		2,301,000
Net increase in cash and equivalents		458,000			818,000
Effect of exchange rates on cash		18,000			(7,000	)
Cash and equivalents – beginning of period		869,000			1,039,000
Cash and equivalents – end of period	$	1,345,000		$	1,850,000

See accompanying notes to condensed consolidated financial statements.

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SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 – Interim Financial Statements:

The accompanying condensed consolidated balance sheet as of March 31, 2003 and the condensed consolidated statements of operations and comprehensive income (loss) and of cash flows for the three months ended March 31, 2003 and 2002 have been prepared by Synbiotics Corporation (the “Company”) and have not been audited.  The condensed consolidated financial statements of the Company include the accounts of its wholly-owned subsidiary Synbiotics Europe SAS (“SBIO-E”).  All significant intercompany transactions and accounts have been eliminated in consolidation.  These financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial position, results of operations and cash flows for all periods presented.  The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2002.  Interim operating results are not necessarily indicative of operating results for the full year.

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 – Going Concern:

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company incurred a net loss of $14,401,000 during the year ended December 31, 2002, and had an accumulated deficit of $44,980,000 as of March 31, 2003.

As of March  31, 2003, the Company had an outstanding principal balance under its bank debt totaling $5,610,000, of which $1,250,000 will be paid in monthly installments through January 1, 2004 and the remaining $4,360,000 is due and payable on January 25, 2004.  The Company believes that its cash flow from operations will be insufficient to meet its January 25, 2004 obligation; and that the Company will have to restructure or refinance the bank debt, or obtain additional capital.  These factors raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.  The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company believes it will be able to restructure or refinance the bank debt, and is planning on beginning the restructuring process in the second half of 2003.  However, no assurance can be given that the Company will be successful in this effort.

Note 3 – Discontinued Operations:

In August 2002, the Company sold its instrument manufacturing operations, located in Rome, New York, to Danam Acquisition Corp., located in Dallas, Texas.  In November 2002, the Company terminated the license agreement for its PennHIP® operations, located in Malvern, Pennsylvania, and transferred all of the assets related to the PennHIP® operations to the University of Pennsylvania.

The Company has restated prior amounts related to the disposed operations.  A reconciliation of the restated amounts for the three months ended March 31, 2002 is as follows:

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SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

	Three Months Ended March 31, 2002
Amounts previously reported in:
Net sales	$	240,000
Cost of sales		(225,000	)
Research and development		(50,000	)
Sales and marketing		(15,000	)
General and administrative		(27,000	)
Provision for (benefit from) income taxes		11,000
Discontinued operations, net of tax	$	(66,000	)

Note 4 – Inventories:

Inventories consist of the following:

	March 31, 2003		December 31, 2002
	(unaudited)		(audited)
Raw materials	$	2,748,000	$	2,621,000
Work in process		434,000		415,000
Finished goods		2,166,000		2,402,000
	$	5,348,000	$	5,438,000

Note 5 – Goodwill and Other Intangible Assets:

The Company has allocated all of its goodwill to its only reporting unit, which is also its only reportable segment (Note 9).  Changes in the carrying amount of goodwill were as follows:

Balance at December 31, 2001	$	12,074,000
Impairment loss		(10,633,000	)
Effect of currency exchange rates		(44,000	)
Balance at December 31, 2002 and March 31, 2003	$	1,397,000

Other intangible assets were as follows:

	March 31, 2003				December 31, 2002
	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Patents	$	4,543,000	$	2,198,000	$	4,404,000	$	1,903,000
Licenses		618,000		399,000		618,000		382,000
	$	5,161,000	$	2,597,000	$	5,022,000	$	2,285,000

The weighted-average amortization periods for patents and licenses are 9 years and 10 years, respectively, and the weighted-average amortization period for total intangible assets is 9 years.  Annual pretax amortization for other intangibles over the next five

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SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

years is estimated to be as follows:

2004	$	471,000
2005		438,000
2006		428,000
2007		321,000
2008		321,000
	$	1,979,000

Note 6 – Preferred Stock Dividend:

On March 26, 2003, the Company declared a dividend on the Series C preferred stock totalling $214,000, for dividends accrued and payable as of January 31, 2003.  Redwood West Coast, LLC (“Redwood”), the holder of the Series C preferred stock, as permitted by the Certificate of Determination of the Series C preferred stock, elected to receive shares of the Company’s common stock in lieu of the cash dividends.  As a result, 1,663,000 shares of the Company’s common stock were issued to Redwood’s distributees on March 26, 2003.

Note 7 – Patent Litigation Settlement:

In November 1998, the Company filed a lawsuit against Heska Corporation in the United States District Court for the Southern District of California alleging that Heska infringed a patent owned by the Company relating to heartworm diagnostic technology.  In March 2003, the Company and Heska entered into settlement and license agreements which have resolved all outstanding claims in the lawsuit.  As part of those agreements, each party has licensed certain intellectual property rights from the other party, including Heska licensing from the Company the patent relating to the heartworm diagnostic technology.  In addition, the Company received $250,000 in April 2003, will receive $265,000 in 24 monthly installments of $11,000 beginning in January 2004 and will receive royalty payments on future sales of licensed canine heartworm diagnostic products.  As a result, the Company has recorded a one-time credit to operating expenses totalling $515,000 during the three months ended March 31, 2003.

Note 8 – Income (Loss) per Share:

The following is a reconciliation of net income (loss) and share amounts used in the computations of income (loss) per share:

	Three Months Ended March 31,
	2003			2002
Basic net income (loss) used:
Income (loss) from continuing operations	$	1,398,000		$	(3,037,000	)
Less cumulative preferred stock dividends		(53,000	)		(38,000	)
Income (loss) used in computing basic income (loss) from continuing operations		1,345,000			(3,075,000	)
Discontinued operations, net of tax					(66,000	)
Cumulative effect of a change in accounting principle, net of tax					(7,649,000	)
Net income (loss) used in computing basic net income (loss) per share	$	1,345,000		$	(10,790,000	)

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SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

	Three Months Ended March 31,
	2001		2002
Diluted net income (loss) used:
Income (loss) used in computing basic income (loss) from continuing operations	$	1,345,000	$	(3,075,000	)
Add cumulative preferred stock dividends		53,000
Income (loss) used in computing diluted income (loss) from continuing operations		1,398,000		(3,075,000	)
Discontinued operations, net of tax				(66,000	)
Cumulative effect of a change in accounting principle, net of tax				(7,649,000	)
Net income (loss) used in computing diluted net income (loss) per share	$	1,398,000	$	(10,790,000	)
Shares used:
Weighted average common shares outstanding used in computing basic income (loss) per share		18,786,000		9,611,000
Weighted average options and warrants to purchase common stock as determined by the treasury method		333,000
Weighted average common shares issuable upon conversion of preferred stock as determined by the if-converted method		21,797,000
Shares used in computing diluted income (loss) per share		40,916,000		9,611,000

Weighted average options and warrants to purchase common stock as determined by the application of the treasury method totalling 335,000 shares have been excluded from the shares used in computing diluted net (loss) per share for the three months ended March 31, 2002 as their effect is anti-dilutive.  In addition, warrants to purchase 250,000 shares of common stock at $2.00 per share have been excluded from the shares used in computing diluted net income (loss) per share for the three months ended March 31, 2003 and 2002, as their exercise price is higher than the weighted average market price for those periods.  In addition, the effect of the warrants to purchase 250,000 shares of common stock at $2.00 per share was anti-dilutive for the three months ended March 31, 2002.

Note 9 – Segment Information and Significant Customers:

The Company has determined that it has only one reportable segment based on the fact that all of its products are animal health products.  Although the Company sells diagnostic and instrument products, it does not base its business decision making on a product category basis.

The following are revenues for the Company’s diagnostic and instrument products:

	Three Months Ended March 31,
	2003		2002
	(unaudited)		(unaudited)
Diagnostics	$	5,891,000	$	6,271,000
Instruments		257,000		185,000
Other revenues		2,000		78,000
	$	6,150,000	$	6,534,000

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SYNBIOTICS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited)

The following are revenues and long-lived assets information by geographic area:

	Three Months Ended March 31,
	2003		2002
	(unaudited)		(unaudited)
Revenues:
United States	$	3,925,000	$	4,420,000
France		692,000		593,000
Other foreign countries		1,533,000		1,521,000
	$	6,150,000	$	6,534,000

	March 31, 2003		December 31, 2002
	(unaudited)		(audited)
Long-lived assets:
United States	$	3,557,000	$	3,401,000
France		2,500,000		2,600,000
	$	6,057,000	$	6,001,000

There were no sales to any one customer that totalled 10% or more of total revenues during the three months ended March 31, 2003. The Company had sales to one customer totalling $680,000 during the three months ended March 31, 2002.

Note 10 – Income Taxes:

The Company's provision for income taxes for the three months ended March 31, 2003, is less than the amount expected by applying the Federal statutory rate to income before income taxes, resulting from the Company's utilization of certain Federal net operating loss carryforwards and certain state general business tax credit carryforwards, and the corresponding change in the Company's valuation allowance for deferred tax assets.

Note 11 – Subsequent Event:

On April 9, 2003, the Company was notified by Agen Biomedical, Ltd. (“Agen”) that Agen was terminating its supply agreement with the Company due to the Company’s alleged breach of contract.  Agen manufactured certain of the Company’s Witness® in-clinic diagnostic products including canine heartworm, feline leukemia, feline heartworm and canine parvovirus.  These Witness® products represented $2,281,000 and $2,620,000 of the Company’s net sales during the three months ended March 31, 2003 and 2002, respectively, and $8,069,000 of the Company’s net sales during the year ended December 31, 2002.  The Company has notified Agen that Agen does not have the right to terminate the Agreement.

On April 23, 2003, Agen filed a lawsuit against the Company in San Diego County Superior Court claiming $779,000 in damages for breach of contract, and seeking certain forms of provisional relief.  On April 29, 2003 the San Diego County Superior Court granted a temporary protective order in Agen’s favor that requires the Company to reserve $235,000 of its cash, except for certain specified uses of funds, for this temporary protective order.

The Company believes that its underlying disputes with Agen, if not previously settled, will ultimately be decided by arbitration. The Company has identified an alternate source of supply of the products previously manufactured by Agen.  If the Company’s commercial relationship with Agen is not repaired, the Company’s results of operations will be materially adversely affected for at least the second and third quarters of 2003; and the Company’s results of operations and financial condition could be materially adversely affected beyond that period if the Company is unable to reintroduce the alternate-source products to the market in the anticipated timeframe.

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

The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q contains both historical financial information and forward-looking statements.  Forward-looking statements are characterized by words such as “intend”, “plan”, “believe”, “will”, “would”, etc.  Historical financial information may not be indicative of future financial performance.  In fact, future financial performance may be materially different than the historical financial information presented herein.  Moreover, the forward-looking statements about future business or future results of operations are subject to significant uncertainties and risks, including those detailed under the caption “Certain Risk Factors”, which could cause actual future results to differ materially from what is suggested by the forward-looking information.

Results of Operations

Our profits increased in the first quarter of 2003 over the first quarter of 2002, even if one excludes the 2002 charges of $3,682,000 for retention bonuses and $7,649,000 for goodwill impairment.  Expense reductions outweighed a 5% decrease in sales.  A 2003 litigation settlement further improved the 2003 results.

Our net sales for the first quarter 2003 decreased by $308,000 or 5% from the first quarter of 2002.  The decrease reflects a decrease in our diagnostic product sales of $380,000, offset by an increase in our instrument product sales of $72,000.  Sales of our diagnostic products decreased due to continued increased competition in the canine heartworm diagnostic market, and decreases in sales of our poultry diagnostic products, particularly in Europe and the Middle East resulting from uncertainties surrounding the war in Iraq.  Our instrument product sales increased primarily due to increased placements of our SCA 2000™ blood coagulation timing instrument, and the resulting sales of the related consumables.

In April 2003, we were notified by Agen Biomedical, Ltd. (“Agen”) that Agen was terminating its supply agreement with us due to our alleged breach of contract.  Agen manufactured certain of our Witness® in-clinic diagnostic products including canine heartworm, feline leukemia, feline heartworm and canine parvovirus.  These Witness® products represented $2,281,000 and $2,620,000 of our net sales during the three months ended March 31, 2003 and 2002, respectively, and $8,069,000 of our net sales during the year ended December 31, 2002.  We have notified Agen that Agen does not have the right to terminate the Agreement. 

We believe that our underlying disputes with Agen, if not previously settled, will ultimately be decided by arbitration.  We have identified an alternate source of supply of the products previously manufactured by Agen, and we anticipate having these products available for sale later in 2003.  We also believe that if our commercial relationship with Agen is not repaired, our results of operations will be materially adversely affected for at least the second and third quarters of 2003; and our results of operations and financial condition could be materially adversely affected beyond that period if we are unable to successfully reintroduce the alternate-source products into the market in the anticipated timeframe.

We recognize revenue from product sales when title and risk of loss transfers to our customer, which is generally upon shipment. Amounts we charge to our customers for shipping and handling are included in our net sales.  We provide promotional discounts and rebates to certain of our distributors.  Based upon the structure of these rebate programs and our past history, we are able to accurately estimate the amount of rebates at the time of sale.  These rebates are recorded as a reduction of our net sales.  We recognize license fee revenue ratably over the license term when we have further performance obligations to our licensee.  In the event that we have no further performance obligations to our licensee, we recognize license fee revenue upon receipt.

Our cost of sales as a percentage of our net sales was 48% during the first quarter of 2003 compared to 43% during the first quarter of 2002.  The lower gross margins are a due to the decrease in our sales during the first quarter of 2003, promotional programs in the first quarter of 2003 involving free goods, an increase in foreign currency exchange rates in the first quarter of 2003 compared to the first quarter of 2002, and the fact that a significant portion of our manufacturing costs are fixed.

Among our major products, our DiroCHEK^® canine heartworm diagnostic products are manufactured at our facilities, whereas our WITNESS^® in-clinic canine heartworm and feline leukemia diagnostic products and our SCA 2000™ instrument products are

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manufactured by third parties.  In addition to affecting our gross margins, outsourcing of manufacturing renders us relatively more dependent on the third-party manufacturers.  Agen, the previous manufacturer of certain of our Witness® products, has ceased to supply us with those products as part of a contractual dispute.  We have identified an alternate source of supply of the products previously manufactured by Agen, and we believe that the cost of these products will be lower than the cost of those manufactured by Agen.

Our research and development expenses decreased by $95,000 or 26% during the first quarter of 2003 as compared to the first quarter of 2002.  The decrease is a result of a cost reduction program that was implemented at the end of the third quarter of 2002.  Our research and development expenses as a percentage of our net sales were 4% and 6% during the first quarter of 2003 and 2002, respectively.

Our selling and marketing expenses decreased by $243,000 or 19% during the first quarter of 2003 as compared to the first quarter of 2002.  The decrease is a result of a cost reduction program, including reductions in headcount, that was implemented at the end of the third quarter of 2002.  Our selling and marketing expenses as a percentage of our net sales were 17% and 20% during the first quarter of 2003 and 2002, respectively.

Our general and administrative expenses during the first quarter of 2003 decreased by $3,940,000 or 83% as compared to the first quarter of 2002.  The decrease is primarily due to the non-recurrence of $3,682,000 of retention bonuses that became payable in the first quarter of 2002, as well as to a cost reduction program, including reductions in headcount, that was implemented at the end of the third quarter of 2002, and favorable effects of foreign currency exchange rates on our intercompany balances.  Our general and administrative expenses as a percentage of our net sales were 13% and 74% during the first quarter of 2003 and 2002, respectively.  Excluding the first quarter 2002 bonus expense our general and administrative expenses would have been $1,076,000 or 17% of our net sales during the first quarter of 2002.

In November 1998, we filed a lawsuit against Heska Corporation in the United States District Court for the Southern District of California alleging that Heska infringed a patent owned by us relating to heartworm diagnostic technology.  In March 2003, we entered into settlement and license agreements with Heska which resolved all outstanding claims in the lawsuit.  As part of those agreements, each party has licensed certain intellectual property rights from the other party, including Heska licensing from us the patent relating to the heartworm diagnostic technology.  In addition, we received $250,000 in April, 2003, we will receive $265,000 in 24 monthly installments of $11,000 beginning in January 2004 and we will receive royalty payments on future sales of licensed canine heartworm diagnostic products.  As a result, we have recorded a one-time credit to operating expenses totalling $515,000 during the three months ended March 31, 2003.

Our net interest expense decreased by $32,000 or 19% during the first quarter of 2003 as compared to the first quarter of 2002.  The decrease is due to decreases in the outstanding principal balances of our bank debt.

We recognized a provision for income taxes of $21,000 during the first quarter of 2003 as compared to a provision for income taxes of $198,000 during the first quarter of 2002.  The change is primarily due to the treatment of the retention bonuses as permanent differences between income for financial reporting purposes and tax reporting purposes in 2002.  We are limited in the utilization of certain of our Federal and state net operating loss carryforwards.  As a result of this limitation, $15,999,000 of our Federal net operating loss carryforwards, and $969,000 of our state net operating loss carryforwards, may expire before they can be utilized.  In addition, California has placed a moratorium on the utilization of net operating loss carryforwards for 2003.

In the first quarter of 2002, we adopted Statement of Financial Accounting Standards No. 142 (“FAS 142”), “Goodwill and Other Intangible Assets”.  In connection with the adoption of FAS 142, we performed a transitional goodwill impairment assessment.  As a result of this impairment assessment, we recorded an impairment of $7,649,000, net of income tax benefit of $106,000, which is classified as a cumulative effect of a change in accounting principle in the first quarter of 2002.  FAS 142 requires that we perform subsequent impairment assessments on annual basis, or on an interim basis if events occur that may cause an impairment of our goodwill and other intangible assets.  The contractual dispute with Agen may be an event which will require us to perform an interim impairment assessment.  We will determine during the second quarter of 2003 whether an interim assessment is necessary.

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Financial Condition and Liquidity

The following table summarizes the future cash payments related to our contractual obligations (other than trade payables) as of March 31, 2003 (amounts are in thousands):

	Total		2003		2004		2005		2006		2007		Thereafter
Long-term debt	$	5,610	$	1,125	$	4,485
Operating leases		5,389		652		810	$	829	$	668	$	426	$	2,004
Other long-term obligations		2,500						1,000		1,500

We believe that our present capital resources are insufficient to meet our working capital needs and meet our contractual obligations for at least the next twelve months, given that our bank loan has a $4,360,000 balloon payment which is due on January 25, 2004, which is within that twelve-month period.  Aside from the bank loan balloon payment, we believe our present working capital resources would be sufficient for our operations for at least the next twelve months.  We currently expect that we will be able to extend or refinance the bank loan.

As previously mentioned, Agen, who manufactured certain of our Witness® in-clinic diagnostic products including canine heartworm, feline leukemia, feline heartworm and canine parvovirus, has ceased to supply us with these products.  These Witness® products represented $2,281,000 and $2,620,000 of our net sales during the three months ended March 31, 2003 and 2002, respectively, and $8,069,000 of our net sales during the year ended December 31, 2002.  In addition, Agen has filed a lawsuit against us in San Diego County Superior Court claiming $779,000 in damages for breach of contract, and seeking certain forms of provisional relief.  The San Diego County Superior Court granted a temporary protective order in Agen’s favor that requires us to reserve $235,000 of our cash, except for certain specified uses of funds, for this temporary protective order.  In addition, a hearing on Agen’s motion for a writ of attachment is scheduled for May 16, 2003.  Agen is seeking a writ for the full amount it claims. We have the financial resources to pay Agen any and all money which we owe Agen, and we will seek to protect our rights in any litigation or arbitration with Agen. 

We have identified an alternate source of supply of the products, and we anticipate having these products available for sale later in 2003 if we do not re-establish supply from Agen.  If our commercial relationship with Agen is not repaired, we believe that our sales will be materially adversely affected for at least the second and third quarters of 2003; and our results of operations and financial condition could be materially adversely affected beyond that period if we are unable to successfully reintroduce the alternate-source products into the market in the anticipated timeframe. 

Our operations are seasonal due to the sales of our canine heartworm diagnostic products.  Our sales and profits tend to be concentrated in the first half of the year, as our distributors prepare for the heartworm season by purchasing diagnostic products for resale to veterinarians.  The operations of SBIO-E have reduced our seasonality as sales of their large animal diagnostic products tend to occur evenly throughout the year.  In addition, sales of our SCA 2000™ instruments and supplies and our poultry diagnostic products reduce our seasonality.

Certain Risk Factors

Our future operating results are subject to a number of factors, including:

We will need additional capital in the future

We will not be able to repay the $4,360,000 balloon payment on our bank loan when it comes due in January 2004, and we will have to restructure the note with Comerica or refinance it with another lending source.  However, we may also need to raise additional funds if our estimates of revenues (as a result of, for example, delay in our schedule for introducing our alternate-source in-clinic diagnostic products), working capital and/or capital expenditure requirements change or prove inaccurate or in order for us to respond to unforeseen technological or marketing hurdles or to take advantage of unanticipated opportunities.

Further, our future capital requirements will depend on many factors beyond our control or ability to accurately estimate, including continued scientific progress in our product development programs, the cost of manufacturing scale-up, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, the cost involved in patent infringement litigation,

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competing technological and market developments, and the cost of establishing effective sales and marketing arrangements.  Such funds may not be available at the time or times needed, or available on terms acceptable to us.  If adequate funds are not available, or are not available on acceptable terms, we may not be able to take advantage of market opportunities, to develop new products, or to otherwise respond to competitive pressures.  This inability could materially harm our business.

The potential impact on our results of operations, financial condition and liquidity of the contractual dispute with Agen mentioned above may also hinder our ability to restructure or refinance our bank loan, or obtain any other necessary additional capital.

The market in which we operate is intensely competitive, even with regard to our key canine heartworm diagnostic products, and many of our competitors are larger and more established

The market for animal health care products is extremely competitive.  Companies in the animal health care market compete to develop new products, to market and manufacture products efficiently, to implement effective research strategies, and to obtain regulatory approval.  Our current competitors include IDEXX Laboratories, a significantly larger company, and Heska Corporation.  These companies have greater financial, manufacturing, marketing, and research resources than we do.  IDEXX Laboratories’ combination in-clinic diagnostic test has gained some market share from our in-clinic canine heartworm diagnostic tests.  In addition, IDEXX Laboratories prohibits its distributors from selling competitors’ products, including ours.  Further, additional competition could come from new entrants to the animal health care market.  Agen has announced that it is actively seeking to supply veterinary diagnostic products to the U.S. market through alternative distribution partners.  We cannot assure you that we will be able to compete successfully in the future or that competition will not harm our business.

Our canine heartworm diagnostic products constituted 34% of our sales for the first quarter of 2003.  In addition to our historic competition with IDEXX Laboratories, the sales leader in this product category, our sales have been substantially affected since 1999 by a heartworm product from Heska.

As previously mentioned, as a result of our contractual dispute with Agen we believe that our sales will be materially adversely affected for at least the second and third quarters of 2003, and could be materially adversely affected beyond that period if we are unable to successfully reintroduce the alternate-source products into the market in the anticipated timeframe.  The Witness® products previously manufactured by Agen represented 38% of our net sales for the year ending December 31, 2002.  There can be no assurances that we will be able to achieve our previous sales levels of these in-clinic products.

We have a history of losses and an accumulated deficit

We did not achieve profitability for the years ended December 31, 2002 and 2000, and we have had a history of annual losses.  We have incurred a consolidated accumulated deficit of $44,980,000 at March 31, 2003.  We may not achieve annual profitability again and if we are profitable in the future there can be no assurance that profitability can be sustained.

We rely on third party distributors for a substantial portion of our sales

We have historically depended upon distributors for a large portion of our sales, and we may not have the ability to establish and maintain an adequate independent sales and marketing capability in any or all of our targeted markets.  Distributor agreements render our sales exposed to the efforts of third parties who are not employees of Synbiotics and over whom we have no control.  Their failure to generate significant sales of our products could materially harm our business.  Reduction by these distributors of the quantity of our products which they distribute would materially harm our business.  Also, the distributors are not bound to us by long-term agreements, and a decision by any major distributor to stop doing business with us could materially hurt our revenues.  IDEXX Laboratories’ prohibition against its distributors carrying competitors’ products, including ours, has made, and could continue to make, some distributors unavailable to us.  In the past, we have lost major distributors to IDEXX Laboratories.

We depend on key executives and personnel, but we have experienced executive turnover

Our future success will depend, to a significant extent, on the ability of our management to operate effectively, both individually and as a group.  Competition for qualified personnel in the animal health care products industry is intense, and we may not be successful in attracting and retaining such personnel.  There are only a limited number of persons with the requisite skills to serve in those positions and it may become increasingly difficult to hire such persons.  The loss of the services of any of our key

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personnel or the inability to attract or retain qualified personnel could harm our business.  At the end of the third quarter of 2002, our chief executive officer and our chief financial officer both resigned.  We replaced our chief financial officer by promoting our corporate controller, and we hired Paul Hays, our new president, at the end of December 2002.  In May 2003, we hired Kent Luther, our new vice president of sales and marketing, to replace our former vice president who resigned in April 2003.

We depend on third party manufacturers, and may experience problems in obtaining supplies of our key products

We contract for the manufacture of some of our products, including our Witness^® in-clinic canine heartworm and feline leukemia diagnostic products and our SCA 2000™ instrument products.  We also expect that some of our anticipated new products will be manufactured by third parties, including our alternate-source in-clinic diagnostic products.  In addition, some of the products manufactured for us by third parties are licensed to us by their manufacturers.  There are a number of risks associated with our dependence on third-party manufacturers including:

• the potential for a decision by the manufacturer to make and market competing products;

• reduced control over delivery schedules;

• quality assurance;

• manufacturing yields and costs;

• the potential lack of adequate capacity during periods of excess demand;

• limited warranties on products supplied to us;

• increases in prices and the potential misappropriation of our intellectual property; and

• limited negotiating leverage in the event of disputes with the third-party manufacturers.

If our third party manufacturers fail to supply us with an adequate number of finished products, our business would be significantly harmed.  We have no long-term contracts or arrangements with any of our vendors that guarantee product availability, the continuation of particular payment terms or the extension of credit limits.

If we encounter delays or difficulties in our relationships with our manufacturers, the resulting problems could have a material adverse effect on us.

As mentioned above, Agen, the previous manufacturer of certain of our Witness® in-clinic products, has ceased to supply us with those products as part of a contractual dispute.

We rely on new and recent products

We rely to a significant extent on new and recently developed products, and expect that we will need to continue to introduce new products to be successful in the future.  There can be no assurance that we will obtain and maintain market acceptance of our products.  There can be no assurance that future products, including our alternate-source in-clinic diagnostic products, will meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable cost or be successfully commercialized.

There can be no assurance that new products can be manufactured at a cost or in quantities necessary to make them commercially viable.  If we are unable to produce internally, or to contract for, a sufficient supply of our new products on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers, the introduction of new products would be delayed, which could have a material adverse effect on our business.

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Our canine heartworm business is seasonal

Our operations are seasonal due to the timing of sales of our canine heartworm diagnostic products.  Our sales and profits tend to be concentrated in the first half of the year as our distributors prepare for the heartworm season by purchasing diagnostic products for resale to veterinarians.  One effect of this is a need to devote large amounts of cash to building canine heartworm diagnostic products inventory in preparation for the canine heartworm selling season at a time when our working capital is relatively low.

Any failure to adequately establish or protect our proprietary rights may adversely affect us

We rely on a combination of patent, copyright, and trademark laws, trade secrets, and confidentiality and other contractual provisions to protect our proprietary rights.  These measures afford only limited protection.  We currently have 13 issued U.S. patents and one pending patent application.  Our means of protecting our proprietary rights in the U.S. or abroad may not be adequate and competitors may independently develop similar technologies.  Our future success will depend in part on our ability to protect our proprietary rights and the technologies used in our principal products.  Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use trade secrets or other information that we regard as proprietary.  In addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States.  Issued patents may not preserve our proprietary position.  Even if they do, competitors or others may develop technologies similar to or superior to our own.  If we do not enforce and protect our intellectual property, our business will be harmed. From time to time, third parties, including our competitors, have asserted patent, copyright, and other intellectual property rights to technologies that are important to us.  We expect that we will increasingly be subject to infringement claims as the number of products and competitors in the animal health care market increases.

The results of any litigated matter are inherently uncertain.  In the event of an adverse result in any litigation with third parties that could arise in the future, we could be required to:

• pay substantial damages, including treble damages if we are held to have willfully infringed;

• cease the manufacture, use and sale of infringing products;

• expend significant resources to develop non-infringing technology; or

• obtain licenses to the infringing technology.

Licenses may not be available from any third party that asserts intellectual property claims against us on commercially reasonable terms, or at all.

Also, litigation is costly regardless of its outcome and can require significant management attention.

Also, because our patents and patent applications cover novel diagnostic approaches:

• the patent coverage which we receive could be significantly narrower than the patent coverage we seek in our patent applications; and

• our patent positions involve complex legal and factual issues which can be hard for patent examiners or lawyers asserting patent coverage to successfully resolve.

Because of this, our patent position could be vulnerable and our business could be materially harmed.  In any event, our important United States canine heartworm diagnosis patent will expire in December 2005.

The U.S. patent application system also exposes us to risks.  In the United States, the first party to make a discovery is granted the right to patent it and patent applications are generally maintained in secrecy for 18 months.  For these reasons, we can never know if we are the first to discover particular technologies.  Therefore, we can never be certain that our technologies will be

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patented and we could become involved in lengthy, expensive, and distracting disputes concerning whether we were the first to make the disputed discovery.  Any of these events would materially harm our business.

Our business is regulated by the United States and various foreign governments

Our business is subject to substantial regulation by the United States government, most notably the United States Department of Agriculture, and the French government.  In addition, our operations may be subject to future legislation and/or rules issued by domestic or foreign governmental agencies with regulatory authority relating to our business.  There can be no assurance that we will continue to be in compliance with any of these regulations.

For marketing outside the United States, we and our suppliers are subject to foreign regulatory requirements, which vary widely from country to country.  There can be no assurance that we and our suppliers will meet and sustain compliance with any such requirements.

We use hazardous materials

Our business requires that we store and use hazardous materials and chemicals.  Although we believe that our procedures for storing, handling, and disposing of these materials comply with the standards prescribed by local, state, and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. If any of these materials were mishandled, or if an accident with them occurred, the consequences could be extremely damaging and we could be held liable for them.  Our liability for such an event would materially harm our business and could exceed all of our available resources for satisfying it.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

Our market risk consists primarily of the potential for changes in interest rates and foreign currency exchange rates.

Interest Rate Risk

The fair value of our debt at March 31, 2003 was approximately $5,610,000, which has a variable interest rate based on the prime rate.

A change in interest rates of five percentage points would have a material impact on our financial condition, results of operations and cash flows as it relates to our variable rate debt.  In addition, higher interest rates would make it more difficult for us to successfully restructure or refinance our bank debt, which has a balloon payment of $4,360,000 due in January 2004.

Foreign Currency Exchange Rate Risk

Our foreign currency exchange rate risk relates to the operations of SBIO-E as it transacts business in Euros, its local currency.  However, this risk is limited to our intercompany receivable from SBIO-E and the conversion of its financial statements into the U.S. dollar for consolidation.  There is no foreign currency exchange rate risk related to SBIO-E’s transactions outside of the European Union as those transactions are denominated in Euros.  Similarly, all of the foreign transactions of our U.S. operations are denominated in U.S. dollars.  We do not hedge our cash flows on intercompany transactions, nor do we hold any other derivative securities or hedging instruments based on currency exchange rates.  As a result, the effects of a 5% change in exchange rates would have a material impact on our financial condition, results of operations and cash flows, but only to the extent that it relates to the conversion of SBIO-E’s financial statements, including its intercompany payable to us, into the U.S. dollar for consolidation.  In the first quarter of 2003, 33% of our net sales were net sales of SBIO-E.

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Item 4.     Controls and Procedures

(a)          Evaluation of disclosure controls and procedures

Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective.

(b)          Changes in internal controls

There were no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the Evaluation Date.

PART II - OTHER INFORMATION

Item 1.      Legal Proceedings

Agen Biomedical Ltd. v. Synbiotics Corporation – San Diego County Superior Court

On April 23, 2003, Agen Biomedical Ltd. filed a lawsuit against us claiming $779,000 in damages for breach of contract, and seeking certain forms of provisional relief.  On April 29, 2003 the Court granted a temporary protective order in Agen’s favor that requires us to reserve $235,000 of our cash, except for certain specified uses of funds, for this temporary protective order.  A hearing is scheduled for May 16, 2003 on Agen’s motion seeking a writ of attachment for the full amount claimed.

Item 2.     Changes in Securities and Use of Proceeds

None.

Item 3.     Defaults Upon Senior Securities

On the date of filing this report, a cumulative dividend arrearage of $53,000 existed on our Series C preferred stock.

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

None.

Item 5.     Other Information

On March 26, 2003, we declared a dividend on the Series C preferred stock totalling $214,000, for dividends accrued and payable as of January 31, 2003.  Redwood West Coast, LLC (“Redwood”), the holder of the Series C preferred stock, as permitted by the Certificate of Determination of the Series C preferred stock, elected to receive shares of our common stock in lieu of the cash dividends.  As a result, 1,663,000 shares of our common stock were issued to Redwood’s distributees on March 26, 2003.

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Item 6.     Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit	Title
10.90#	Settlement Agreement and Mutual Release of Claims by and between the Registrant and Heska Corporation, dated March 28, 2003.
10.91#	License Agreement by and between the Registrant and Heska Corporation, dated March 28, 2003.
10.92#	License Agreement by and between the Registrant and Heska Corporation, dated March 28, 2003.
10.93	Consent Judgment and Injunction, dated April 22, 2003.
99.1	Certification Under Section 906 of the Sarbanes-Oxley Act of 2002.

^# Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text (the “Mark”). This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to an Application Requesting Confidential Treatment under Rule 12b-24 under the Securities Exchange Act of 1934.

(b)	Reports on Form 8-K
	On January 15, 2003, we filed a Form 8-K announcing the hiring of Paul R. Hays as our President and Chief Operating Officer, and that Mr. Hays had been appointed to our Board of Directors.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SYNBIOTICS CORPORATION

Date:  May 15, 2003	/s/ KEITH A. BUTLER
	Keith A. Butler Vice President – Finance and Chief Financial Officer (signing both as a duly authorized officer and as principal financial officer)

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Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Paul R. Hays, the principal executive officer of Synbiotics Corporation, certify that:

1.          I have reviewed this quarterly report on Form 10-Q of Synbiotics Corporation;
2.          Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.          Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	(a)          designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	(b)          evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	(c)          presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	(a)          all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	(b)          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  May 15, 2003

/s/ PAUL R. HAYS

Paul R. Hays
Principal Executive Officer

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Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Keith A. Butler, the principal financial officer of Synbiotics Corporation, certify that:

1.          I have reviewed this quarterly report on Form 10-Q of Synbiotics Corporation;
2.          Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.          Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	(a)          designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	(b)          evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	(c)          presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	(a)          all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	(b)          any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:  May 15, 2003

/s/ KEITH A. BUTLER

Keith A. Butler
Principal Financial Officer

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

EXHIBITS

TO

FORM 10-Q

UNDER

SECURITIES EXCHANGE ACT OF 1934

SYNBIOTICS CORPORATION

Exhibit Index

Exhibit No.	Exhibit
10.90#	Settlement Agreement and Mutual Release of Claims by and between the Registrant and Heck Corporation, dated March 28, 2003.
10.91#	License Agreement by and between the Registrant and Heck Corporation, dated March 28, 2003.
10.92#	License Agreement by and between the Registrant and Heck Corporation, dated March 28, 2003.
10.93	Consent Judgment and Injunction, dated April 22, 2003.
99.1	Certification Under Section 906 of the Sarbanes-Oxley Act of 2002.

^# Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text (the “Mark”). This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to an Application Requesting Confidential Treatment under Rule 12b-24 under the Securities Exchange Act of 1934.

EX-10.90

Exhibit 10.90

SETTLEMENT AGREEMENT
AND MUTUAL RELEASE OF CLAIMS

          This SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF CLAIMS (“Agreement”) is made and entered into this 28th day of March, 2003, by and between Synbiotics Corporation, a California corporation (“Synbiotics”), on the one hand, and Heska Corporation, a Delaware corporation (“Heska”), on the other hand.  (Heska or Synbiotics, or both, shall sometimes be referred to as the “Party” or the “Parties”, as the context indicates.)

RECITALS

          A.          Synbiotics is in the business of developing, manufacturing and marketing veterinary diagnostics, vaccines and other animal heath related products worldwide.

          B.          Heska is in the business of developing, manufacturing and marketing innovative health products for dogs, cats and horses.

          C.          Synbiotics is the owner of United States Patent No. 4,789,631 issued on December 6, 1988 to Edward T. Maggio, entitled “Immunoassay for Anti-Dirofilaria Immitis Antibody” (the “‘631 Patent”).

          D.          Heska is the owner of United States Patent No. 6,391,569 B1 issued on May 21, 2002 to Robert B. Grieve, et al., entitled “Method to Detect Dirofilaria Immitis Infection” (the “‘569 Patent”). 

          E.          On or about November 12, 1998, Synbiotics filed a lawsuit against Heska entitled Synbiotics Corporation vs. Heska Corporation, United States District Court for the Southern District of California, Case No. 98 CV 2076 TW (the “Complaint”), in which it asserted claims for damages and injunctive relief against Heska for Heska’s alleged infringement of the ‘631 Patent.  On or about January 15, 1999, Heska filed an Answer and Counterclaim and on or about June 1, 1999, Heska filed an Amended Answer and Counterclaim (the “Counterclaim”).  In the Counterclaim, Heska denied the claims asserted in the Complaint and sought a declaration from the court that the ‘631 Patent was invalid, unenforceable and not infringed by Heska.  Synbiotics filed a Reply in which it denied the claims asserted in the Counterclaim.  The proceedings relating to the Complaint and the Counterclaim shall hereinafter be referred to as the “Lawsuit.”

          F.          The Parties intend to resolve their dispute in accordance with the terms of this Agreement and to fully and finally compromise, settle and discharge all claims, controversies, demands, actions or causes of action which each may have or claim to have against the other.

[*] Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text (the “Mark”). This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to an Application

Requesting Confidential Treatment under Rule 12b-24 under the Securities Exchange Act of 1934.

TERMS OF AGREEMENT

          NOW THEREFORE, in consideration of the mutual promises contained herein and for good and valuable consideration, the Parties agree as follows:

                    1.          Payment by Heska. 

                                 1.1.           Within the earlier of (a) thirty (30) days after the complete execution of this Agreement or (b) April 30, 2003 if the Agreement has been signed by both Parties,  Heska shall pay Synbiotics the sum of TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($250,000.00) in the form of wire transfer pursuant to written instructions provided by Synbiotics.

                                 1.2.           Heska agrees to pay Synbiotics TWO HUNDRED SIXTY-FIVE THOUSAND DOLLARS AND NO CENTS ($265,000.00) in twenty-four (24) equal installments by check in the amount of  ELEVEN THOUSAND FORTY-ONE DOLLARS AND SIXTY-SIX CENTS ($11,041.66) per month, due without notice or grace period on or before the fifth day of each month beginning January 2004.  Such payment will be made by check, payable to Synbiotics Corporation, and will be sent to the address provided by Synbiotics in writing.

                    2.          License of ‘631 Patent to Heska. 

                                 2.1.           Synbiotics will provide a non-exclusive license to Heska under the ‘631 Patent, in the form of the license attached hereto as Attachment 1, for Heska to make, have made, use, sell and have sold “Mab-based Licensed Products” as defined therein.  Under this license, Heska will pay Synbiotics an annual royalty of [*] of net sales of Mab-based Licensed Products for the remaining life of the ‘631 Patent (i.e., for sales made from the effective date of the license through and including December 6, 2005), with royalty payments under the license for a given year to be made in a lump sum no later than each April 30 of the succeeding year.

                                 2.2.           Synbiotics will further provide a [*] non-exclusive license to Heska under the ‘631 Patent, in the form of the license attached hereto as Attachment 1, for Heska to make, have made, use, sell and have sold “Di33-based Licensed Products” as defined therein. 

                    3.          License of ‘569 Patent to Synbiotics.  Heska will provide a [*] non-exclusive license to Synbiotics under the ‘569 Patent, in the form of the license attached hereto as Attachment 2, for Synbiotics to make, have made, use, sell and have sold products for the detection of heartworm antibodies in non-adapted hosts using Di33 protein.  This license shall be coterminous with the ‘569 Patent and shall expire on September 18, 2016.

                    4.          Entry of Consent Judgment and Enforcement of Settlement.  Simultaneously with the execution of this Agreement by both Synbiotics and Heska, the Parties shall execute and have entered by the United States District Court, Southern District of California, the Consent Judgment and Injunction attached hereto as Attachment 3, and further agree to enter into and file all other documents that may reasonably be required to effectuate the entry of a consent judgment and injunction.

                    5.          Mutual and General Release of Claims.

                                 5.1.           Synbiotics releases any present or future claims, known or unknown, which it may have against Heska arising out of, or related in any way to (i) any alleged past infringement by Heska of any claims of the ‘631 Patent by Heska; and (ii) the filing and prosecution of the Counterclaim by Heska.  Thereby, Synbiotics irrevocably and unconditionally releases Heska and its officers, directors, employees, agents, attorneys, shareholders, partners, affiliates, customers, insurers, successors and assigns, from all manner of causes of action, lawsuits, claims, demands, charges, liabilities or complaints of whatever kind, present or future, known or unknown, which arise out of or relate to in any way to (i) any alleged past infringement by Heska of any claims of the ‘631 Patent by Heska; and (ii) the filing and prosecution of the Counterclaim by Heska.  Excluded from this release are all obligations set forth in (i) this Agreement, (ii) the licenses for the ‘631 and ‘569 Patents described in Articles 2 and 3 of this Agreement, and (iii) the Consent Judgment and Injunction described in Article 4 (the “Integrated Agreement”).

                                 5.2.           Heska releases any present or future claims, known or unknown, which it may have against Synbiotics arising out of, or related in any way to (i) any possible past infringement by Synbiotics of any claims of the ‘569 Patent; and (ii) the filing and prosecution of the Complaint by Synbiotics.  Thereby, Heska irrevocably and unconditionally releases Synbiotics and its officers, directors, employees, agents, attorneys, shareholders, partners, affiliates, customers, insurers, successors and assigns, from all manner of causes of action, lawsuits, claims, demands, charges, liabilities or complaints of whatever kind, present or future, known or unknown, which arise out of or relate to (i) any possible past infringement by Synbiotics of any claims of the ‘569 Patent; and (ii) the filing and prosecution of the Complaint. Excluded from this release are all obligations set forth in the Integrated Agreement. 

                                 5.3.           Synbiotics and Heska each acknowledges that it may hereafter discover facts different from, or in addition to, those which it now knows or believes to be true with respect to all or any of the liabilities, claims, defenses, causes of action, costs or demands herein released.  Nevertheless, each agrees that the releases set forth herein shall be and remain effective in all respects, notwithstanding the discovery of such additional or different facts.  Synbiotics and Heska each waives any and all rights and benefits conferred by the provisions of Section 1542 of the Civil Code of the State of California, and any similar law of any state or territory of the United States or any other jurisdiction.  Said Section 1542 provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

                                 5.4.           Synbiotics and Heska agree that the releases they have given to each other will become effective upon their execution of this Agreement.

                                 5.5.           Synbiotics and Heska each represents and warrants that nothing which would have been released hereunder if owned by them on the date hereof has been transferred, assigned, or given away prior to the date hereof to any person, firm, or entity which would not be bound hereby.

                    6.          Confidentiality.  The Parties and their attorneys and representatives shall treat the terms of the Integrated Agreement as confidential and shall use commercially reasonable efforts not to voluntarily disclose such terms to any third persons, except to the extent required by governmental agencies (including, but not limited to, the Securities and Exchange Commission, regulatory agencies and the like), applicable laws or court order. 

          The Parties acknowledge that each Party is a public company which may from time to time be required to report and discuss the Integrated Agreement, and its commercial effects, and/or include the Integrated Agreement as an exhibit, in its reports under the Securities Exchange Act of 1934 and/or its registration statements.  The Parties therefore agree as follows with regard to disclosures in SEC filings.  Each of Synbiotics and Heska shall, in its respective Form 10-K for the year ended December 31, 2002, make in Item 3 of Part I of Form 10-K the disclosures regarding the Lawsuit and the Integrated Agreement which are set forth on Attachment 4 hereto, and only such disclosures regarding the Lawsuit and the Integrated Agreement.   Either Party shall be entitled to include the Integrated Agreement as an exhibit in its Form 10-Q for the quarter ended March 31, 2003, or in any other SEC filing; provided however that any such filing shall be accompanied by a Request for Confidential Treatment filed with the Office of the Secretary of the SEC under Rule 406 of the Securities Act of 1933 or Rule 24b-2 of the Securities Exchange Act of 1934.  Prior to any such filing, the Parties shall redact such portions thereof as Heska requests Synbiotics to redact and which Synbiotics (after consultation with Heska) in good faith concludes, on the basis of the advice of Synbiotics’ outside counsel, that it is entitled by law to redact 

          The parties further acknowledge that in time the SEC will grant, grant in part, or deny such application for confidential treatment.  To the extent that such application is granted only in part or is denied (or the confidential treatment grant is later revoked in whole or in  part by the SEC), then thereafter the extent to which either Party is required to maintain in its SEC filings the confidentiality of specific provisions of the Integrated Agreement shall be governed not by the extent of the original redactions but rather by the extent of the redactions as allowed by the SEC.

          The Parties acknowledge that either Party may from time to time be required to make other references, in various SEC filings, to the Integrated Agreement and/or its commercial effects (for example, in financial statements and in MD&A), or to the Lawsuit as an example of patent litigation.  Either Party shall be entitled to make such disclosures in their respective SEC filings to the extent that either Party concludes in good faith, on the basis of the advice of outside counsel, and after consultation with the other Party as contemplated by the following paragraph, that such disclosure is required by law, so long as such disclosure is limited to the minimum amount that the first Party concludes, in good faith, on the basis of the advice of outside counsel, is necessary to comply with such law.

          If either Party (the “Disclosing Party”) determines that it is required by law or court order to disclose in SEC filings or elsewhere any additional provisions of this Agreement, above and beyond what is allowable as set forth above, it will provide reasonable notice to the other Party (the “Non-Disclosing” Party) and will consult in good faith with the Non-Disclosing Party before such disclosure; and to the extent that the law entitles the Non-Disclosing Party to do so in its own name and right, the Non-Disclosing Party shall be entitled to seek a protective order or other confidential treatment.

          If either Party desires to make any further public disclosure, not required by law or court order, above and beyond what is allowable as set forth above, it shall not make any such disclosure without the prior written approval of the other Party. 

          Notwithstanding anything foregoing to the contrary, either Party shall in all events be allowed to (i) disclose non-confidentially to any person, either in a SEC filing or otherwise, any information which the other Party has disclosed in the publicly available portion of any SEC filing or disclosed to any third party who has no obligation of confidentiality with regard to such information, and (ii) disclose confidentially to any current or prospective lending financial institution, or any prospective acquirer or investor, the unredacted Integrated Agreement.

          The Parties do not intend for the confidentiality provisions of this Agreement to supersede, modify, amend, cancel or alter in any way the terms of other nondisclosure agreements previously entered into between them; provided that the terms of this Section 6 shall control any conflict with the terms of any such nondisclosure agreements.

                    7.          Compromise, Adjustment and Settlement.

                                 7.1.           This entire Agreement, including the Parties’ consent to the issuance of the Consent Judgment and Injunction (attached hereto as Attachment 3) by the United States District Court, Southern District Of California, is the result of good faith compromise of disputed claims, demands and liabilities, including attorneys’ fees or other costs incurred in connection with the Lawsuit, and shall not be considered an admission of liability or responsibility by either Party for any purpose not otherwise contemplated by this Agreement.

                                 7.2.           Each Party will bear its own costs, expenses, and attorneys’ fees, whether taxable or otherwise, incurred in, arising out of or in any way related to the matters forborne herein including, without limitation, the Lawsuit. 

                    8.          California Law.  This Agreement shall be governed by and interpreted in accordance with the laws of the State of California. The Parties agree that the United States District Court, Southern District of California has jurisdiction over each of them and will retain jurisdiction to interpret and enforce the terms and provisions of the Integrated Agreement, including the terms and provisions of the attached licenses and Consent Judgment and Injunction.

                    9.          Representations and Warranties.  The Parties warrant that no other person or entity has claimed or now claims any interest in the subject to which this Settlement Agreement relates, and that they have the sole right and exclusive authority to execute this Settlement Agreement.

                    10.         Voluntary and Knowing.  This Settlement Agreement is executed voluntarily and without any duress or undue influence on the Parties hereto.  The Parties acknowledge that:

                                  10.1.           They have read this Settlement Agreement;

                                  10.2.           They have been represented in the preparation, negotiation and execution of this Settlement Agreement by legal counsel of their own choice; and

                                  10.3.           They are fully aware of the legal and binding effect of this Settlement Agreement and sign the same of their own free will.

                    11.         Binding Effect.  Synbiotics and Heska agree that this Agreement, and each of its parts, shall be binding upon and inure to the benefit of each of their respective heirs, representatives, executors, administrators, successors and assigns.

                    12.         Severability.  In the event any provision of this Agreement shall be determined to be invalid, illegal or unenforceable, such provision shall be severable from the remainder of the Agreement, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

                    13.         Counterparts.  This Agreement may be executed in counterparts, each of which is deemed to be an original, but all of which together shall constitute one and the same instrument.  Facsimile and photocopy signatures shall carry the same force and effect, and shall bind the Parties hereto in the same manner, as original signatures to the Settlement Agreement.

                    14.         Integration and Modification.  Each Party represents and warrants that as of the date of the full execution of this Settlement Agreement, no promise, inducement or agreement not expressed herein has been made to it in connection with the Integrated Agreement, and that the Integrated Agreement contains the entire agreement between the Parties as to the subject matter relating hereto and supersedes any previous agreements, negotiations, promises or understandings between them as to the subject matter contained herein.  It is expressly agreed that this Agreement may not be altered, modified or amended except by a writing duly executed by the undersigned Parties.

                    15.         Construction.

                                  15.1.           The language and terms of this Settlement Agreement are to be understood in their ordinary sense (except where otherwise defined herein) and are not to be interpreted in a technical manner so as to unfairly deprive any Party of substantive rights.

                                  15.2.           The text of this Settlement Agreement is the product of negotiation among both Parties and is not to be construed as having been prepared by one Party or the other.

                    16.         Warranty of Authorized Signatories.  Each of the signatories to this Agreement warrants and represents that he or she is competent and authorized to enter into this Agreement on behalf of the Party for whom he or she purports to sign.

                    17.         Termination.  Synbiotics may terminate this Agreement by written notice to Heska if Heska is in default of its payment obligations under Section 1 and has not cured such default within [*] after receipt from Synbiotics of written notice of such breach.  In the event of such termination, each Party shall remain responsible for its breaches and obligations accrued before the date of termination.  The Consent Judgment and Injunction shall remain in place.

                    18.         Waiver.  Failure at any time to require performance of any of the provisions herein shall not waive or diminish a Party’s right thereafter to demand compliance therewith or with any other provision. Waiver of any default shall not waive any other default. A Party shall not be deemed to have waived any rights hereunder unless such waiver is in writing and signed by a duly authorized officer of the Party making such waiver.

                    19.         Survival.  The provisions of Article 6 shall survive the expiration or termination of this Agreement. 

SYNBIOTICS CORPORATION
By:	/s/ PAUL R. HAYS
Name:	Paul R. Hays
Title:	President
HESKA CORPORATION
By:	/s/ CAROL TALKINGTON VERSER
Name:	Carol Talkington Verser, Ph.D.
Title:	Executive Vice President

Attachment 1

License Agreement

Incorporated herein by reference to Exhibit 10.91 to this quarterly report on Form 10-Q.

Attachment 2

License Agreement

Incorporated herein by reference to Exhibit 10.92 to this quarterly report on Form 10-Q.

Attachment 3

Consent Judgment and Injunction

Incorporated herein by reference to Exhibit 10.93 to this quarterly report on Form 10-Q.

Attachment 4

In November 1998, Synbiotics Corporation filed a lawsuit against Heska Corporation in the United States District Court for the Southern District of California alleging that Heska infringed a patent owned by Synbiotics relating to heartworm diagnostic technology.

In March 2003, Synbiotics and Heska entered into settlement and license agreements which have resolved all outstanding claims in the lawsuit. As part of those agreements, each party has licensed certain intellectual property rights from the other party, including Heska licensing from Synbiotics the patent relating to the heartworm diagnostic technology.

EX-10.91

Exhibit 10.91

LICENSE AGREEMENT

          This LICENSE AGREEMENT (“Agreement”) is made and entered into this 28th day of March, 2003, by and between Synbiotics Corporation, a California corporation (“Synbiotics”), on the one hand, and Heska Corporation, a Delaware corporation (“Heska”), on the other hand.

RECITALS

          A.          Synbiotics is in the business of developing, manufacturing and marketing veterinary diagnostics, vaccines and other animal health related products worldwide.

          B.          Heska is in the business of developing, manufacturing and marketing innovative health products for dogs, cats and horses.

          C.          Synbiotics is the owner of United States Patent No. 4,789,631 issued on December 6, 1988 to Edward T. Maggio, entitled “Immunoassay for Anti-Dirofilaria Immitis Antibody” (the “631 Patent”).

          D.          Heska is the owner of United States Patent No. 6,391,569 B1 issued on May 21, 2002 to Robert B. Grieve, et al., entitled “Method to Detect Dirofilaria Immitis Infection” (the “569 Patent”).

          E.          On or about November 12, 1998, Synbiotics filed a lawsuit against Heska entitled Synbiotics Corporation vs. Heska Corporation, United States District Court for the Southern District of California, Case No. 98 CV 2076 TW (the “Complaint”), in which it asserted claims for damages and injunctive relief against Heska for Heska’s alleged infringement of the ‘631 Patent.  On or about January 15, 1999, Heska filed an Answer and Counterclaim and on or about June 1, 1999, Heska filed an Amended Answer and Counterclaim (the “Counterclaim”).  In the Counterclaim, Heska denied the claims asserted in the Complaint and sought a declaration from the court that the ‘631 Patent was invalid, unenforceable and not infringed by Heska.  Synbiotics filed a Reply in which it denied the claims asserted in the Counterclaim.  The proceedings relating to the Complaint and the Counterclaim shall hereinafter be referred to as the “Lawsuit.”

          F.          In furtherance of the settlement of the Lawsuit, Synbiotics is willing to license certain of its intellectual property to Heska.

[*] Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text (the “Mark”). This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to an Application Requesting Confidential Treatment under Rule 12b-24 under the Securities Exchange Act of 1934.

TERMS OF AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for good and valuable consideration, the Parties hereby agree as follows:

ARTICLE 1     DEFINITIONS

For purposes of this Agreement, the following words and phrases shall have the following meanings:

1.1	“Affiliate(s)”  shall mean (a) a business entity which owns, directly or indirectly, a controlling interest of at least fifty percent (50%) of a Party to this Agreement, by stock ownership or otherwise; or (b) a business entity which is at least fifty percent (50%) owned or controlled by a Party to this Agreement, either directly or indirectly, by stock ownership or otherwise; or (c) a business entity, the ownership of which is directly or indirectly common with at least fifty percent (50%) ownership of a Party to this Agreement, by stock ownership or otherwise.
1.2	“Calendar Year” shall mean, with respect to the first Calendar Year, commencing on April 1, 2003 and ending on December 31, 2003.  The second Calendar Year shall commence on January 1, 2004 and end on December 31, 2004.  The third Calendar Year shall commence on January 1, 2005 and end on December 6, 2005.
1.3	“Calendar Quarter” shall mean a period of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31 of any Calendar Year, with the exception that in 2005, the fourth quarter shall end on December 6 rather than December 31.
1.4	“Di33-based Licensed Products” shall mean any heartworm antibody detection test product or part thereof using at least one recombinant Di33 protein, wherein a Di33 protein has properties as set forth in the ‘569 Patent, including any said heartworm antibody detection test product or part thereof within the scope of a claim in the Patent Rights or manufactured by a process within the scope of a claim in the Patent Rights.
1.5	“Effective Date” means the date first noted above.
1.6	“Licensed Products” shall mean Mab-based Licensed Products and/or Di33-based Licensed Products.
1.7	“Mab-based Licensed Products” shall mean any heartworm antigen detection test product or part thereof having or using at least one monoclonal antibody that reacts with Dirofilaria immitis antigenic extract, including any said heartworm antigen detection test product or part thereof within the scope of a claim in the Patent Rights or manufactured by a process within the scope of a claim in the Patent Rights.  For avoidance of doubt, the

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	Parties agree that Heska’s SOLO STEP® CH product and canine and feline reference laboratory heartworm antigen detection tests using such a monoclonal antibody are “Mab-based License Products”.
1.8	“Net Sales” shall mean Heska’s actual gross receipts from sales made between April 1, 2003 and December 6, 2005, of Mab-based Licensed Products (whether or not such Mab-based Licensed Products would also qualify as Di33-based Licensed Products), less the sum of the following:
	(a)	actual cost of freight charges or freight absorption, separately stated in such invoice;
	(b)	actual trade, quantity or cash discounts allowed, if any;
	(c)	amounts actually repaid or credited by reason of rejection or return; and
	(d)	sales, tariff duties and/or use taxes separately stated on each invoice.
	If any Mab-based Licensed Products are sold in combination with other separate products (“Other Products”) for a single unit price, Net Sales for such combination products shall be a percentage of the unit price determined by dividing the fair market sales price of the Mab-based Licensed Products by the aggregate fair market sales prices of such Mab-based Licensed Products and the Other Products. If any Other Product does not have a separately established fair market sales price, the Parties will negotiate in good faith to determine one.   If the Parties can not agree to such a fair market sales price, the Parties will determine such a price pursuant to Article 8.  For purposes of clarity, should Heska sell a combination product that qualifies as both  a Mab-based Licensed Product and a Di33-based Licensed Product intended to detect both heartworm antigen and heartworm antibodies, Net Sales for such a  combination productwould be a percentage of the unit price of such  combination productdetermined by dividing the fair market price of the Mab-based Licensed Product by the aggregate fair market sales prices of such Mab-based Licensed Product and such Di33-based Licensed Product.
1.9	“Party” or “Parties” shall mean Heska or Synbiotics, or both, as the context indicates.
1.10	“Patent Rights” shall mean the ‘631 Patent.
1.11	“Territory” shall mean the United States, including its territories and possessions.

ARTICLE 2     GRANT

2.1 Synbiotics hereby grants to Heska and its Affiliates a non-exclusive [*] license to the Patent Rights, without the right to sublicense except as approved by Synbiotics in writing, to make, have made, use, sell and have sold Mab-based Licensed Products in the Territory, except products utilizing the format technology that is

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	proprietary and that, as of today, is provided by AGEN to Synbiotics in the test format in Synbiotics’ current WITNESS heartworm diagnostic products.  For purposes of clarity, Synbiotics hereby acknowledges Heska’s right to have such Mab-based Licensed Products or any component thereof manufactured by a third party. This license grant is limited only to Heska’s own Mab-based Licensed Products whereas products which Heska may distribute for other parties that may otherwise infringe the Patent Rights are specifically excluded, except as approved by Synbiotics in writing.
2.2	Synbiotics hereby also grants to Heska and its Affiliates a non-exclusive [*] license to the Patent Rights, without the right to sublicense except as approved by Synbiotics in writing, to make, have made, use, sell and have sold Di33-based Licensed Products in the Territory, except products utilizing the format technology that is proprietary and that, as of today, is provided by AGEN to Synbiotics in the test format in Synbiotics’ current WITNESS heartworm diagnostic products.  For purposes of clarity, Synbiotics hereby acknowledges Heska’s right to have such Di33-based Licensed Products or any component thereof manufactured by a third party.  Furthermore, the Parties agree that, as contemplated by Section 1.8, if a product qualifies as both a Mab-based Licensed Product and a Di33-based Licensed Product, it shall be subject to royalties under Section 3.1. This license grant is limited only to Heska’s own Di33-based Licensed Products whereas products which Heska may distribute for other parties that may otherwise infringe the Patent Rights are specifically excluded, except as approved by Synbiotics in writing.
2.3	Heska shall be responsible, at its sole expense, for all marketing and regulatory approvals of Licensed Products sold by it under this Agreement.

ARTICLE 3     ROYALTIES 

3.1

In consideration of the rights, privileges and licenses granted by Synbiotics under [*], Heska shall pay royalties to Synbiotics in an amount equal to [*]of Net Sales of Mab-based Licensed Products sold by Heska and its Affiliates.  On sales between Heska and any Affiliates for resale to an independent third party other than a Heska Affiliate, the royalty shall be based on the resale to an independent third party.

3.2

Heska shall make annual royalty payments for Net Sales of Mab-based Licensed Products pursuant to Section 3.1 to Synbiotics in United States dollars according to the following schedule, without notice or grace period:

Period of Net Sales	Royalty Due Date
Apr. 1, 2003 – Dec. 31, 2003	April 30, 2004
Jan. 1, 2004 – Dec. 31, 2004	April 30, 2005
Jan. 1, 2005 – Dec. 6, 2005	April 30, 2006

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Such payments will be made by either check or wire transfer, at Heska’s discretion, payable to Synbiotics Corporation, and will be sent to the address provided by Synbiotics in writing.

ARTICLE 4     REPORTS; AUDITS

4.1	Heska shall deliver to Synbiotics true and accurate reports of the following information to accompany royalty payments of Article 3 above:
	(a)	Gross receipts from sales for the pertinent period for each respective MAb-based Licensed  Product sold by Heska and its Affiliates under this Agreement for each Calendar Year;
	(b)	The sum of (a) through (d) set forth in Section 1.7; and
	(c)	total royalties due.
4.2	Heska will provide Synbiotics a written report of quarterly royalty accruals for each Calendar Quarter within thirty (30) days of the end of such Calendar Quarter.
4.3	Heska shall keep full true and accurate books of account, in accordance with generally accepted accounting principles, containing all information that may be necessary for the purpose of showing the amounts payable to Synbiotics hereunder.  Said books of account shall be kept at Heska’s principal place of business. Said books and the supporting data shall be open for audit no more than once per Calendar Year, and at reasonable times upon reasonable notice to Heska, for three (3) years following the end of the Calendar Year to which they pertain, to the inspection of an independent, nationally-recognized certified public accountant reasonably acceptable to Heska for the purpose of verifying Heska’s royalty statement or compliance in other respects with this Agreement, all at the expense of Synbiotics; provided, however, if an audit correctly discloses that the royalties payable by Heska for any audited period are more than [*] of the royalties actually paid for such period, then Heska shall pay the fees and expenses charged by the accountant.  Such independent accountant will not disclose to Synbiotics any information other than the accuracy of Heska’s reports and calculations.

ARTICLE 5     PATENT INFRINGEMENT ACTIONS

5.1 During the term of this Agreement, Synbiotics shall be obligated, to the extent it is commercially reasonable to do so, to prosecute at its own expense and in good faith all third party infringements of the ‘631 Patent.  The total cost of any such infringement action commenced or defended by Synbiotics shall be borne by Synbiotics and Synbiotics shall keep any recovery for damages for infringement derived therefrom.  Heska shall reasonably cooperate with such prosecution, including notifying Synbiotics of any potential third party infringement of the ‘631 Patent, provided that all out-of-pocket costs will be borne by Synbiotics.  Furthermore, if Heska expects that any such cooperation

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with respect to any single infringement prosecution will exceed sixteen (16) hours of Heska’s time, the Parties agree to discuss fair compensation of Heska prior to Heska beginning such cooperation activity.

5.2

If within six (6) months after having been notified of or having given notice of any alleged infringement of the Patent Rights, Synbiotics shall have been unsuccessful in persuading the alleged infringer to desist and shall not have brought and shall not be diligently prosecuting an infringement action (unless it is not commercially reasonable to prosecute), or if Synbiotics shall notify Heska at any time prior thereto of its intention not to bring suit against any alleged infringer, (unless it is not commercially  reasonable to prosecute), then the license granted under [*] of this Agreement shall be [*].  It is conclusively deemed to be not commercially reasonable to bring any prosecution against a party selling less than [*] per Calendar Year of allegedly infringing product.

ARTICLE 6     REPRESENTATIONS / INDEMNIFICATION / LIMITATION OF LIABILITY

6.1	Synbiotics represents and warrants to Heska that it has full right and authority to grant the licenses under this Agreement, and that it has no relationship with any other entity that would preclude it from carrying out its obligations under this Agreement.  Heska represents and warrants to Synbiotics that it has the full right and authority to enter into and perform this Agreement, and that it has no relationship with any other entity that would preclude it from carrying out its obligations under this Agreement. Heska further represents and warrants to Synbiotics that, as of the Effective Date, it has no commercially reasonable knowledge of any potential third party infringement of the ‘631 patent.
6.2	Heska shall at all times during the term of this Agreement and thereafter, indemnify, defend and hold Synbiotics, its directors, officers, employees, agents and Affiliates (“Indemnified Party”) harmless against all claims and expenses, including legal expenses and reasonable attorneys’ fees, arising out of the death of or injury to any person or persons or out of any damage to property or the environment, and against any other claim, proceeding, demand, expense and liability of any kind whatsoever resulting from Heska’s production, manufacture, sale, use, lease, consumption or advertisement of the Licensed Products or arising from any of Heska’s obligations hereunder, except to the extent such claims and expenses are due to the gross negligence or willful misconduct of Synbiotics.
6.3	If an Indemnified Party seeks indemnification from Heska, it shall promptly give notice to Heska of any such claim or suit threatened, made or filed against it by a third party which forms the basis for such claim or suit.  Heska shall have the sole right to defend such claim or suit, including the right to select counsel.  No settlement or compromise shall be binding on an Indemnified Party hereto without its prior written consent, which consent shall not be unreasonably withheld.

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6.4 SYNBIOTICS MAKES NO REPRESENTATIONS THAT THE LICENSED PRODUCTS WILL NOT INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

ARTICLE 7     ASSIGNMENT

7.1 This Agreement or any right or obligation hereunder may not be assigned or otherwise transferred without the prior written consent of the other Party, which consent will not be unreasonably withheld; provided, however, such consent shall not be required in the case of a sale or other transfer to a third party of all or substantially all of (a) the stock or (b) the assets of a Party’s business, in which event written notice of such sale or other transfer shall be provided to the other Party. For purposes of this Section 7.1, acquisition by reverse triangular merger shall be deemed a transfer of all stock.  Any permitted assignee shall assume all obligations of its assignor under the Agreement.

ARTICLE 8   DISPUTE RESOLUTION

8.1	The Parties shall attempt in good faith to resolve any dispute or disagreement (“Dispute”) arising out of or relating to this Agreement promptly by negotiation between representatives who have authority to settle the controversy.  Any Party may give the other Party written notice of any Dispute not resolved in the normal course of business.  Within fifteen (15) days after delivery of the notice, the receiving Party shall submit to the other Party a written response.  The notice and the response shall include (a) a statement of each Party’s position and a summary of arguments supporting that position, and (b) the name and title of the representative who will represent that Party and of any other person who will accompany the representative.  Within thirty (30) days after delivery of the disputing Party’s notice, the representatives of both Parties shall meet at a mutually acceptable time and place and thereafter as often as they reasonably deem necessary, to attempt to resolve the Dispute.  All reasonable requests for information made by one Party to the other Party will be honored.
8.2	All negotiations pursuant to this Article 8 are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.  If the Dispute has not been resolved by negotiation within forty-five (45) days of the disputing Party’s notice, or if the Parties failed to meet within thirty (30) days, the Parties shall endeavor to settle the Dispute by mediation under the then current CPR Model Mediation Procedure for Business Disputes. Each Party shall bear its own costs.
8.3	If the Parties are unable to resolve the Dispute by mediation in accordance with Section 8.2, then the Dispute will be finally settled by binding arbitration to be conducted in San

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	Francisco, California (or at such other location as the Parties may agree) under the commercial arbitration rules then prevailing of the American Arbitration Association by one arbitrator appointed in accordance with those rules.  The arbitrator shall be chosen from a panel of arbitrators knowledgeable in the companion animal health care industry.  The arbitrator will apply the law specified in Section 11.1 to the merits of the Dispute.  The decision of the arbitrator shall be final, conclusive and binding on the Parties to the arbitration.  Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.  The arbitrator may grant permanent injunctions or other relief in such dispute or claim; provided that the arbitrator may not grant licenses to any intellectual property owned by either Party nor may the arbitrator award punitive damages.
8.4	Notwithstanding the foregoing, without breach of the arbitration provision and without reference to Article 8, either Party may seek to enforce any violation of the settlement, including this Agreement, through the process of the United States District Court, Southern District of California.
8.5	Nothing in this Article 8 shall modify, alter or supersede the rights of either Party contained in the Consent Judgment and Injunction entered into pursuant to the Settlement Agreement.

ARTICLE 9     TERM AND TERMINATION

9.1	This Agreement shall be effective as of the Effective Date and shall continue in effect until December 6, 2005, unless earlier terminated as set forth in Section 9.2 or 9.3.  Upon expiration of this Agreement, Heska shall have a fully paid, irrevocable license to the Patent Rights.
9.2	This Agreement may be terminated by either Party at any time during the term of this Agreement:
	(a)	if the other Party is in breach of its material obligations hereunder and (i) in the case of any breach other than nonpayment, has not within ninety (90) days after written notice requesting cure of the breach commenced substantial efforts toward cure of the breach and continuously and diligently conducted such efforts until (even after the 90th day, if necessary) the breach is cured, or (ii) in the case of nonpayment, has not within [*] after written notice requesting cure of the breach cured the breach;  provided, however, in the event of a good faith dispute with respect to the existence of a material breach, the ninety (90) day cure period shall begin when the Dispute is resolved pursuant to Article 8;
	(b)	upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets for the benefit of creditors by the other Party; provided, however, in the case of any involuntary bankruptcy proceeding such right to terminate shall only

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		become effective if the Party consents to the involuntary bankruptcy or such proceeding is not dismissed within ninety (90) days after the filing thereof.
9.3	This Agreement shall be coterminous with the Settlement Agreement and Mutual Release of Claims (“Settlement Agreement”) entered into between the Parties on even date herewith if the Settlement Agreement is terminated before the expiration date of this Agreement.
9.4	Unless terminated pursuant to Section 9.2(b), in the event this Agreement is rejected by Synbiotics or its receiver or trustee under applicable bankruptcy laws due to Synbiotics’ bankruptcy, then all rights and licenses granted under this Agreement by Synbiotics to Heska are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code and any similar law or regulation, licenses of rights to “intellectual property” as defined under Section 101(52) of the Bankruptcy Code.  The Parties agree that all intellectual property rights licensed hereunder, including the Parties’ Patent Rights, are part of the “intellectual property” as defined under Section 101(52) of the Bankruptcy Code subject to the protections afforded the non-terminating Party under Section 365(n) of the Bankruptcy Code.
9.5	Upon expiration or termination of this Agreement, neither Party shall be released from any obligation that matured prior to the effective date of such expiration or termination.
9.6	The provisions of Articles 3.2, 4, 6, 8, 9.1 (in the event of expiration, only), 9.5, 10 and 11 shall survive the expiration or termination of this Agreement.

ARTICLE 10     NOTICES

10.1	Any notice or communication pursuant to this Agreement shall be sufficiently made or given if sent by personal delivery, by a nationally-recognized overnight courier, or by certified, first-class mail, postage prepaid, addressed to the address below, or such other address that a Party has given by written notice under this Section 10.1.
	In the case of Heska:
		Heska Corporation
		1613 Prospect Parkway
		Fort Collins, CO 80525
		Attention:	Chief Executive Officer
		Copy to:	Executive Vice President, Intellectual Property
			and Business Development

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In the case of Synbiotics:
	Synbiotics Corporation
	11011 Via Frontera
	San Diego, CA  92127
	Attention:	President
	Copy to:	Hayden Trubitt; Heller Ehrman White & McAuliffe LLP
		4350 La Jolla Village Drive, 7th Floor; San Diego, CA 92122

ARTICLE 11     MISCELLANEOUS

11.1	California Law.  This Agreement shall be governed by and interpreted in accordance with California law.
11.2	Integration and Modification.  Each Party represents and warrants that as of the date of the full execution of this Agreement, no promise, inducement or agreement not expressed herein has been made to it in connection with this Agreement, and that this Agreement, the Consent Judgment and Injunction, the Settlement Agreement and the License Agreement relating to the ‘569 Patent, contain the entire agreement between the Parties as to the subject matter related hereto and supersede any previous agreements, negotiations, promises or understandings between them as to the subject matter contained herein.  It is expressly agreed that this Agreement may not be altered, modified or amended except by a writing duly executed by the undersigned Parties.
11.3	Headings.  The headings of the several sections are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
11.4	Promotional Activities.  Except as specified herein, nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity or other promotional activities any name, trade name, trademark, or other designation (including any contraction, abbreviation, or simulation of any of the foregoing) of the other Party without the express written approval of the other Party.  Neither Party shall use any designation of the other Party in any promotional activity associated with this Agreement or the Licensed Product without the express written consent of the other Party.
11.5	Severability.  In the event any provision of this Agreement shall be determined to be invalid, illegal or unenforceable, such provision shall be severable from the remainder of the Agreement, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
11.6	Waiver.  Failure at any time to require performance of any of the provisions herein shall not waive or diminish a Party’s right thereafter to demand compliance therewith or with

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	any other provision. Waiver of any default shall not waive any other default. A Party shall not be deemed to have waived any rights hereunder unless such waiver is in writing and signed by a duly authorized officer of the Party making such waiver.
11.7	Force Majeure.  Neither Party shall be held responsible for the failure or delay in performance herein when such failure or delay is due to any act of God or of the public enemy, war, compliance with laws, governmental acts or regulations, fire, flood, epidemic, strikes and labor interruption, accident, unusually severe weather or other causes similar to the foregoing beyond their reasonable control.  Any Party whose performance is affected by such force majeure shall promptly give notice to the other Party of such force majeure upon which such Party intends to rely to excuse its performance.
11.8	Independent Contractors.  The relationship between Synbiotics and Heska under this Agreement shall be that of independent contractors engaged in the operation of their own respective businesses.  Nothing in this Agreement is intended or is to be construed to constitute Heska and Synbiotics as partners, employer/employee, or principal/agent, or the employees or agents of any Party hereto as employees or agents of the other Party.  Neither Party has the express or implied right or authority to assume or create any obligations for or on behalf of the other Party, to bind the other Party to any contract or undertaking with any third party or to make any warranties or representations for or on behalf of the other Party.
11.9	Counterparts.  This Agreement may be executed in counterparts, each of which is deemed to be an original, but all of which together shall constitute one and the same instrument.  Facsimile and photocopy signatures shall carry the same force and effect, and shall bind the parties hereto in the same manner, as original signatures to this Agreement.
11.10	Construction.
	11.10.1	The language and terms of this Agreement are to be understood in their ordinary sense (except where otherwise defined herein) and are not to be interpreted in a technical manner so as to unfairly deprive any Party of substantive rights.
	11.10.2	The text of this Agreement is the product of negotiation among both Parties and is not to be construed as having been prepared by one Party or the other.
11.11	Warranty of Authorized Signatories.  Each of the signatories to this Agreement warrants and represents that he or she is competent and authorized to enter into this Agreement on behalf of the Party for whom he or she purports to sign.
11.12	Confidentiality.  The Parties shall treat the existence and terms of this Agreement in accordance with Article 6 of the Settlement Agreement between Synbiotics Corporation and Heska Corporation.

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ARTICLE 12  PATENT MARKING

12.1 Heska shall, within a reasonable amount of time from the Effective Date, mark all Licensed Product in accordance with applicable laws and regulatory requirements with (at a minimum) United States Patent Number 4,789,631.  It is agreed that patent markings on product inserts shall be sufficient.

HESKA CORPORATION		SYNBIOTICS CORPORATION
By:	/s/ CAROL TALKINGTON VERSER	By:	/s/ PAUL R. HAYS
Name:	Carol Talkington Verser, Ph.D.	Name:	Paul R. Hays
Title:	Executive Vice President	Title:	President

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EX-10.92

Exhibit 10.92

LICENSE AGREEMENT

          This LICENSE AGREEMENT (“Agreement”) is made and entered into this 28th day of March, 2003, by and between Synbiotics Corporation, a California corporation (“Synbiotics”), on the one hand, and Heska Corporation, a Delaware corporation (“Heska”), on the other hand.

RECITALS

          A.          Synbiotics is in the business of developing, manufacturing and marketing veterinary diagnostics, vaccines and other animal health related products worldwide.

          B.          Heska is in the business of developing, manufacturing and marketing innovative health products for dogs, cats and horses.

          C.          Synbiotics is the owner of United States Patent No. 4,789,631 issued on December 6, 1988 to Edward T. Maggio, entitled “Immunoassay for Anti-Dirofilaria Immitis Antibody” (the “631 Patent”).

          D.          Heska is the owner of United States Patent No. 6,391,569 B1 issued on May 21, 2002 to Robert B. Grieve, et al., entitled “Method to Detect Dirofilaria Immitis Infection” (the “569 Patent”).

          E.          On or about November 12, 1998, Synbiotics filed a lawsuit against Heska entitled Synbiotics Corporation vs. Heska Corporation, United States District Court for the Southern District of California, Case No. 98 CV 2076 TW (the “Complaint”), in which it asserted claims for damages and injunctive relief against Heska for Heska’s alleged infringement of the ‘631 Patent.  On or about January 15, 1999, Heska filed an Answer and Counterclaim and on or about June 1, 1999, Heska filed an Amended Answer and Counterclaim (the “Counterclaim”).  In the Counterclaim, Heska denied the claims asserted in the Complaint and sought a declaration from the court that the ‘631 Patent was invalid, unenforceable and not infringed by Heska.  Synbiotics filed a Reply in which it denied the claims asserted in the Counterclaim.  The proceedings relating to the Complaint and the Counterclaim shall hereinafter be referred to as the “Lawsuit.”

          F.          In furtherance of the settlement of the Lawsuit, Heska is willing to license certain of its intellectual property to Synbiotics.

[*] Certain confidential portions of this Exhibit were omitted by means of redacting a portion of the text (the “Mark”). This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the Mark pursuant to an Application Requesting Confidential Treatment under Rule 12b-24 under the Securities Exchange Act of 1934.

TERMS OF AGREEMENT

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for good and valuable consideration, the Parties hereby agree as follows:

ARTICLE 1     DEFINITIONS

For purposes of this Agreement, the following words and phrases shall have the following meanings:

1.1	“Affiliate(s)” shall mean (a) a business entity which owns, directly or indirectly, a controlling interest of at least fifty percent (50%) of a Party to this Agreement, by stock ownership or otherwise; or (b) a business entity which is at least fifty percent (50%) owned or controlled by a Party to this Agreement, either directly or indirectly, by stock ownership or otherwise; or (c) a business entity, the ownership of which is directly or indirectly common with at least fifty percent (50%) ownership of a Party to this Agreement, by stock ownership or otherwise.
1.2	“Effective Date” means the date first noted above.
1.3	“Licensed Product” shall mean any product or part thereof that at the time of manufacture, use or sale by Synbiotics:
	(a)	is within the scope of a claim contained in the Patent Rights; or
	(b)	is manufactured by using a process within the scope of a claim contained in the Patent Rights.
1.4	“Patent Rights” shall mean the ‘569 Patent, as well as any continuations, divisionals, continuations-in-part, reissues, renewals, revalidations, re-examinations, extensions, and additions thereof, if any,  directed to subject matter specifically described in the ‘569 Patent, but only to the extent such Patent Rights pertain to the detection of heartworm in non-adapted hosts using Di33 protein.
1.5	“Party” or “Parties” shall mean Heska or Synbiotics, or both, as the context indicates.
1.6	“Territory” shall mean the United States, including its territories and possessions.

ARTICLE 2     GRANT

2.1 Heska hereby grants to Synbiotics and its Affiliates a non-exclusive [*] license, without the right to sublicense, to make, have made, use, sell and have sold Licensed Products covered by Patent Rights within the Territory.

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2.2 Synbiotics shall be responsible, at its sole expense, for all marketing and regulatory approvals of Licensed Products sold by it under this Agreement.

ARTICLE 3     REPRESENTATIONS / INDEMNIFICATION / LIMITATION OF LIABILITY

3.1	Heska represents and warrants to Synbiotics that it has full right and authority to grant the license under this Agreement, and that it has no relationship with any other entity that would preclude it from carrying out its obligations under this Agreement.  Synbiotics represents and warrants to Heska that it has full right and authority to enter into and perform this Agreement, and that it has no relationship with any other entity that would preclude it from carrying out its obligations under this Agreement.
3.2	Synbiotics shall at all times during the term of this Agreement and thereafter, indemnify, defend and hold Heska, its directors, officers, employees, agents and Affiliates (“Indemnified Party”), harmless against all claims and expenses, including legal expenses and reasonable attorneys’ fees, arising out of the death of or injury to any person or persons or out of any damage to property or the environment, and against any other claim, proceeding, demand, expense and liability of any kind whatsoever resulting from Synbiotics’ production, manufacture, sale, use, lease, consumption or advertisement of Licensed Products or arising from any obligation of Synbiotics hereunder, except to the extent such claims and expenses are due to the gross negligence or willful misconduct of Heska.
3.3	If an Indemnified Party seeks indemnification from Synbiotics, it shall promptly give notice to Synbiotics of any such claim or suit threatened, made or filed against it by a third party which forms the basis for such claim or suit.  Synbiotics shall have the sole right to defend such claim or suit, including the right to select counsel.  No settlement or compromise shall be binding on an Indemnified Party hereto without its prior written consent, which consent shall not be unreasonably withheld.
3.4	HESKA MAKES NO REPRESENTATIONS THAT THE LICENSED PRODUCTS WILL NOT INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

ARTICLE 4     ASSIGNMENT

4.1 This Agreement or any right or obligation hereunder may not be assigned or otherwise transferred without the prior written consent of the other Party, which consent will not be unreasonably withheld; provided, however, such consent shall not be required in the case

3

of a sale or other transfer to a third party of all or substantially all of (a) the stock or (b) the assets of a Party’s business, in which event a written notice of such sale or other transfer shall be given to the other Party.  For purposes of this Section 4.1, acquisition by reverse triangular merger shall be deemed a transfer of all stock.  Any permitted assignee shall assume all obligations of its assignor under the Agreement.

ARTICLE 5     DISPUTE RESOLUTION

5.1	The Parties shall attempt in good faith to resolve any dispute or disagreement (“Dispute”) arising out of or relating to this Agreement promptly by negotiation between representatives who have authority to settle the controversy.  Any Party may give the other Party written notice of any Dispute not resolved in the normal course of business.  Within fifteen (15) days after delivery of the notice, the receiving Party shall submit to the other Party a written response.  The notice and the response shall include (a) a statement of each Party’s position and a summary of arguments supporting that position, and (b) the name and title of the representative who will represent that Party and of any other person who will accompany the representative.  Within thirty (30) days after delivery of the disputing Party’s notice, the representatives of both Parties shall meet at a mutually acceptable time and place and thereafter as often as they reasonably deem necessary, to attempt to resolve the Dispute.  All reasonable requests for information made by one Party to the other Party will be honored.
5.2	All negotiations pursuant to this Article 5 are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.  If the Dispute has not been resolved by negotiation within forty-five (45) days of the disputing Party’s notice, or if the Parties failed to meet within thirty (30) days, the Parties shall endeavor to settle the Dispute by mediation under the then current CPR Model Mediation Procedure for Business Disputes. Each Party shall bear its own costs.
5.3	If the Parties are unable to resolve the Dispute by mediation in accordance with Section 5.2, then the Dispute will be finally settled by binding arbitration to be conducted in San Francisco, California (or at such other location as the Parties may agree) under the commercial arbitration rules then prevailing of the American Arbitration Association by one arbitrator appointed in accordance with those rules.  The arbitrator shall be chosen from a panel of arbitrators knowledgeable in the companion animal health care industry.  The arbitrator will apply the law specified in Section 8.1 to the merits of the Dispute.  The decision of the arbitrator shall be final, conclusive and binding on the Parties to the arbitration.  Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.  The arbitrator may grant permanent injunctions or other relief in such dispute or claim; provided that the arbitrator may not grant licenses to any intellectual property owned by either Party nor may the arbitrator award punitive damages.  Notwithstanding the foregoing, without breach of this arbitration provision either Party may apply to any court within the jurisdiction specified in Section 8.1 for temporary injunctive relief.

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ARTICLE 6     TERM AND TERMINATION

6.1	This Agreement shall be effective as of the Effective Date and shall continue in effect until the last to expire patent within the Patent Rights set forth in this Agreement, unless earlier terminated as set forth in Section 6.2 or 6.3.  Upon expiration of this Agreement, Synbiotics shall have a fully paid, irrevocable license to the  Patent Rights.
6.2	This Agreement may be terminated by either Party at any time during the term of this Agreement:
	(a)	if the other Party is in breach of its material obligations hereunder and has not cured such breach or has not taken substantial steps toward curing such breach within ninety (90) days after written notice requesting cure of the breach; provided, however, in the event of a good faith dispute with respect to the existence of a material breach, the ninety (90) day cure period shall begin when the Dispute is resolved pursuant to Article 5;
	(b)	upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets for the benefit of creditors by the other Party; provided, however, in the case of any involuntary bankruptcy proceeding such right to terminate shall only become effective if the Party consents to the involuntary bankruptcy or such proceeding is not dismissed within ninety (90) days after the filing thereof.
6.3	This Agreement shall be coterminous with the Settlement Agreement and Mutual Release of Claims (“Settlement Agreement”) entered into between the Parties on even date herewith if the Settlement Agreement is terminated before the expiration date of this Agreement.
6.4	Unless terminated pursuant to Section 6.2(b), in the event this Agreement is rejected by Heska or its receiver or trustee under applicable bankruptcy laws due to Heska’s bankruptcy, then all rights and licenses granted under this Agreement by Heska to Synbiotics are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code and any similar law or regulation, licenses of rights to “intellectual property” as defined under Section 101(52) of the Bankruptcy Code.  The Parties agree that all intellectual property rights licensed hereunder, including the Parties’ Patent Rights, are part of the “intellectual property” as defined under Section 101(52) of the Bankruptcy Code subject to the protections afforded the non-terminating Party under Section 365(n) of the Bankruptcy Code.
6.5	Upon expiration or termination of this Agreement, neither Party shall be released from any obligation that matured prior to the effective date of such expiration or termination.

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6.6 The provisions of Articles 3, 5, 6.5, 7 and 8 shall survive the expiration or termination of this Agreement. 

ARTICLE 7     NOTICES

7.1	Any notice or communication pursuant to this Agreement shall be sufficiently made or given if sent by personal delivery, by a nationally-recognized overnight courier, or by certified, first-class mail, postage prepaid, addressed to the address below, or such other address that a Party has given by written notice under this Section 7.1.
	In the case of Heska:
		Heska Corporation
		1613 Prospect Parkway
		Fort Collins, CO 80525
		Attention:	Chief Executive Officer
		Copy to:	Executive Vice President, Intellectual Property
			and Business Development
	In the case of Synbiotics:
		Synbiotics Corporation
		11011 Via Frontera
		San Diego, CA  92127
		Attention:	President
		Copy to:	Hayden Trubitt, Heller Ehrman White & McAuliffe LLP
			4350 La Jolla Village Drive, 7th Floor; San Diego, CA 92122

ARTICLE 8     MISCELLANEOUS

8.1

California Law.  This Agreement shall be governed by and interpreted in accordance with California law.

8.2

Integration and Modification.  Each Party represents and warrants that as of the date of the full execution of this Agreement, no promise, inducement or agreement not expressed herein has been made to it in connection with this Agreement, and that this Agreement, the Settlement Agreement, the Consent Judgment and Injunction  and the License Agreement relating to the ‘631 Patent, contain the entire agreement between the Parties as to the subject matter related hereto and supersede any previous agreements, negotiations, promises or understandings between them as to the subject matter contained herein.  It is expressly agreed that this Agreement may not be altered, modified or amended except by a writing duly executed by the undersigned Parties.

6

8.3	Headings.  The headings of the several sections are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
8.4	Promotional Activities.  Except as specified herein, nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity or other promotional activities any name, trade name, trademark, or other designation (including any contraction, abbreviation, or simulation of any of the foregoing) of the other Party without the express written approval of the other Party.  Neither Party shall use any designation of the other Party in any promotional activity associated with this Agreement or the Licensed Product without the express written consent of the other Party.
8.5	Severability.  In the event any provision of this Agreement shall be determined to be invalid, illegal or unenforceable, such provision shall be severable from the remainder of the Agreement, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
8.6	Waiver.  Failure at any time to require performance of any of the provisions herein shall not waive or diminish a Party’s right thereafter to demand compliance therewith or with any other provision. Waiver of any default shall not waive any other default. A Party shall not be deemed to have waived any rights hereunder unless such waiver is in writing and signed by a duly authorized officer of the Party making such waiver.
8.7	Force Majeure.  Neither Party shall be held responsible for the failure or delay in performance herein when such failure or delay is due to any act of God or of the public enemy, war, compliance with laws, governmental acts or regulations, fire, flood, epidemic, strikes and labor interruption, accident, unusually severe weather or other causes similar to the foregoing beyond their reasonable control.  Any Party whose performance is affected by such force majeure shall promptly give notice to the other Party of such force majeure upon which such Party intends to rely to excuse its performance.
8.8	Independent Contractors.  The relationship between Synbiotics and Heska under this Agreement shall be that of independent contractors engaged in the operation of their own respective businesses.  Nothing in this Agreement is intended or is to be construed to constitute Heska and Synbiotics as partners, employer/employee, or principal/agent, or the employees or agents of any Party hereto as employees or agents of the other Party.  Neither Party has the express or implied right or authority to assume or create any obligations for or on behalf of the other Party, to bind the other Party to any contract or undertaking with any third party or to make any warranties or representations for or on behalf of the other Party.
8.9	Counterparts.  This Agreement may be executed in counterparts, each of which is deemed to be an original, but all of which together shall constitute one and the same instrument.  Facsimile and photocopy signatures shall carry the same force and effect, and shall bind the parties hereto in the same manner, as original signatures to this Agreement.

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8.10	Construction.
	8.10.1	The language and terms of this Agreement are to be understood in their ordinary sense (except where otherwise defined herein) and are not to be interpreted in a technical manner so as to unfairly deprive any Party of substantive rights.
	8.10.2	The text of this Agreement is the product of negotiation among both Parties and is not to be construed as having been prepared by one Party or the other.
8.11	Warranty of Authorized Signatories.  Each of the signatories to this Agreement warrants and represents that he or she is competent and authorized to enter into this Agreement on behalf of the Party for whom he or she purports to sign.
8.12	Confidentiality. The Parties shall treat the terms of this Agreement in accordance with Article 6 of the Settlement Agreement between Synbiotics Corporation and Heska Corporation.

ARTICLE 9     PATENT MARKING

9.1 Synbiotics shall, within a reasonable amount of time from the Effective Date, mark all Licensed Product in accordance with applicable laws and regulatory requirements, with (at a minimum) United States Patent Number 6,391,569 B1.  It is agreed that patent markings on product inserts shall be sufficient.

HESKA CORPORATION		SYNBIOTICS CORPORATION
By:	/s/ CAROL TALKINGTON VERSER	By:	/s/ PAUL R. HAYS
Name:	Carol Talkington Verser, Ph.D	Name:	Paul R. Hays
Title:	Executive Vice President	Title:	President

8

EX-10.93

Exhibit 10.93

PAUL, HASTINGS, JANOFSKY & WALKER LLP

DOUGLAS E. OLSON (State Bar No. 38649)

JOHN E. PETERSON (State Bar No. 197978)

12390 El Camino Real

San Diego, CA 92130-2081

Telephone: (858) 720-2500

Facsimile: (858) 720-2555

Attorneys for Plaintiff

SYNBIOTICS CORPORATION

FARELLA, BRAUN & MARTEL LLP

ROBERT H. SLOSS (State Bar No. 87757)

Russ Building, 235 Montgomery St. 30th Floor

San Francisco, CA 94101

Telephone: (415) 954-4400

Facsimile: (415) 954-4480

Attorneys for Defendant

HESKA CORPORATION

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SYNBIOTICS CORPORATION, a California corporation Plaintiff, v. HESKA CORPORATION, a Delaware corporation Defendant.	) ) ) ) ) ) ) ) ) )	Case No. 98 CV 2076-B (NLS) CONSENT JUDGMENT AND INJUNCTION
HESKA CORPORATION, a Delaware corporation Counterclaimant, v. SYNBIOTICS CORPORATION, a California corporation Counterdefendant.	) ) ) ) ) ) ) ) )

CONSENT JUDGMENT AND INJUNCTION

WHEREAS Synbiotics Corporation (“Synbiotics”) and Heska Corporation (“Heska”) have agreed to settlement of the matter in issue between them per the terms of a Settlement Agreement that includes the grant of a license to Heska and to entry of this judgment, it is ORDERED, ADJUDGED AND DECREED THAT:

1.    This Court has jurisdiction over each of the parties in this action and over the subject matter in issue. The Court retains jurisdiction up to and including December 6, 2005 to interpret and enforce the terms and provisions of the settlement, which consists of a Settlement Agreement together with two License Agreements and this Consent Judgment and Injunction. Venue is proper in this Court.

2.    Synbiotics and Heska have agreed to settlement of the matter in issue between them per the terms of the Settlement Agreement and have further agreed to the entry of this Consent Judgment and Injunction.

3.    Synbiotics is by assignment the owner of all rights, title and interest in United States Patent Number 4,789,631 (“the ‘631 patent”), a copy of which is attached hereto as Exhibit 1. This patent issued on December 6, 1988 and expires on December 6, 2005.

4.    The ‘631 patent is valid and enforceable. Heska does not contest the validity and/or enforceability of this patent and agrees not to contest the validity and/or enforceability of this patent in the future or directly or indirectly aid, assign or participate in any action contesting the validity or enforceability of this patent.

5.    Heska has manufactured, advertised, used, sold, offered for sale and/or distributed heartworm antigen detection tests using a monoclonal antibody that reacts with Dirofilaria immitis antigen extract.

6.    Synbiotics alleges that the ‘631 patent has been infringed by Heska’s manufacture, use, advertisement, sale, offer for sale and/or distribution of heartworm antigen detection tests using a monoclonal antibody that reacts with Dirofilaria immitis antigen extract that embodies the ‘631 patent.

7.    In accordance with the principles of equity, to prevent the violation of rights secured by patent, Heska, its agents, officers, servants, employees, and attorneys, and all persons in active

1.

concert and participation with them who receive actual notice of this Order by personal service or otherwise, are hereby enjoined from manufacturing, importing, distributing, marketing, advertising, promoting, displaying, using, selling, inducing the manufacture or sale of, contributing to the manufacture of sale of, or offering for sale Heska’s SOLO STEP^® CH product, Heska’s canine and feline reference laboratory heartworm antigen detection tests having or using at least one monoclonal antibody that reacts with Dirofilaria immitis antigenic extract, or any other heartworm antigen detection test product or part thereof having or using at least one monoclonal antibody that reacts with Dirofilaria immitis antigenic extract, including any said heartworm antigen detection test product or part thereof within the scope of a claim in the ‘631 patent or manufactured by a process within the scope of a claim in the ‘631 patent, in the United States, until the ‘631 patent expires on December 6, 2005, except as otherwise permitted by the license to the ‘631 patent granted to Heska by Synbiotics.

8.    Service by mail upon Heska, addressed to Chief Executive Officer, Heska Corporation, 1613 Prospect Parkway, Fort Collins, CO 80525, of a copy of this Consent Judgment and Injunction entered by the Court is deemed sufficient notice to Defendants under Rule 65(d) of the Federal Rules of Civil Procedure. It shall not be necessary for Heska to sign any form of acknowledgement of service.

9.    The parties shall bear their own attorneys’ fees and costs.

IT IS SO ORDERED.

Dated:	4-22-03	By:	/s/    RUDI M. BREWSTER
			United States District Judge

2.

Approved as to form and content:

PAUL, HASTINGS, JANOFSKY & WALKER LLP

Douglas E. Olson

John E. Peterson

By:	/s/    DOUGLAS E. OLSON
	Douglas E. Olson

Attorneys for Plaintiff

SYNBIOTICS CORPORATION

Dated: April 21, 2003        

FARELLA, BRAUN & MARTEL LLP

Robert H. Sloss

By:	/s/    ROBERT H. SLOSS
	Robert H. Sloss

Attorneys for Defendant

HESKA CORPORATION

Dated: April 21, 2003

3.

EX-99.1

Exhibit 99.1

Certification Under Section 906 of the Sarbanes–Oxley Act of 2002

Paul R. Hays and Keith A. Butler hereby certify that:

1.	They are the chief executive officer and Chief Financial Officer, respectively, of Synbiotics Corporation.
2.	The Form 10-Q report of Synbiotics Corporation that this certification accompanies fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934.
3.	The information contained in the Form 10-Q report of Synbiotics Corporation that this certification accompanies fairly presents, in all material respects, the financial condition and results of operations of Synbiotics Corporation.

Dated:     May 15, 2003

/s/ PAUL R. HAYS

Paul R. Hays

/s/ KEITH A. BUTLER

Keith A. Butler