FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995 Commission File Number: 1-12748
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-1176514
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11412 Cronridge Drive, Owings Mills, MD 21117 2834
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(Address of principal executive offices) (zip code) (SIC)
(410) 998-9800
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(Registrant's telephone number, including area code)
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
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The number of shares outstanding of each of the issuer's classes of common stock
as of September 30, 1995 and September 30, 1994:
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Outstanding at Outstanding at
Class September 30, 1995 September 30, 1994
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Class A Common Stock, $.01 par value 3,979,938 3,890,052
Class B Common Stock, $.01 par value -0- -0-
Page 1 of 10
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
TABLE OF CONTENTS
Page
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Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of
September 30, 1995 and March 31, 1995 . . . . . . . . 3
Consolidated Statements of Operations for
the three months and six months ended
September 30, 1995 and 1994 . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the six months ended September 30, 1995
and 1994. . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1995 1995
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(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 87,092 $ 160,792
Accounts receivable, net of allowance
for doubtful accounts of $10,000 and
$4,000, respectively 796,763 673,893
Inventories (Notes 1 and 3) 1,614,304 1,450,720
Prepaid expenses 49,391 48,706
Other receivables 16,354 17,513
Deferred tax asset (Note 5) 130,384 243,000
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TOTAL CURRENT ASSETS 2,694,288 2,594,624
PROPERTY AND EQUIPMENT, net
(Notes 1 and 4) 1,500,813 1,515,639
OTHER ASSETS 27,690 27,690
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TOTAL ASSETS $ 4,222,791 $ 4,137,953
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 291,545 $ 465,600
Short term borrowings 249,409 127,991
Current portion of long term debt and
capital lease obligations
(Notes 2 and 4) 49,769 51,295
Deferred revenue (Note 1) 111,810 127,983
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TOTAL CURRENT LIABILITIES 702,533 772,869
LONG TERM LIABILITIES:
Long term debt and capital lease
obligations, net of current portion
(Notes 2 and 4) 131,358 154,240
Other liabilities 97,690 102,771
Deferred tax liability (Note 5) 33,000 33,000
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TOTAL LIABILITIES 964,581 1,062,880
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COMMITMENTS AND CONTINGENCIES
(NOTE 2)
STOCKHOLDERS' EQUITY
Class A common stock, par value
$.01 per share; 8,000,000 shares
authorized; 3,979,938 and 3,979,938
shares issued and outstanding 39,799 39,799
Class B common stock, par value $.01 per
share; 2,000,000 shares authorized; no
shares issued and outstanding --- ---
Additional paid-in capital 3,827,182 3,827,182
Accumulated deficit (608,771) (791,908)
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TOTAL STOCKHOLDERS' EQUITY 3,258,210 3,075,073
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 4,222,791 $ 4,137,953
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The accompanying notes are an integral part of these consolidated balance
sheets.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
September 30, September 30,
1995 1994 1995 1994
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(unaudited) (unaudited)
OPERATING REVENUE $1,676,980 $1,794,718 $3,537,556 $3,485,052
COST OF SALES 1,087,783 1,359,668 2,330,949 2,670,060
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GROSS PROFIT 589,197 435,050 1,206,607 814,992
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OPERATING EXPENSES
General and administrative 302,767 287,056 623,533 594,152
Selling 107,130 57,217 253,540 120,395
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INCOME FROM OPERATIONS 179,300 90,777 329,534 100,445
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OTHER INCOME (EXPENSE)
Interest income 419 1,508 908 3,801
Interest expense (9,047) (2,712) (14,689) (4,770)
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Total (8,628) (1,204) (13,781) (969)
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INCOME BEFORE PROVISION FOR INCOME
TAXES 170,672 89,573 315,753 99,476
PROVISION FOR INCOME TAXES
(NOTES 1 AND 5) (71,682) (8,593) (132,616) (9,045)
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NET INCOME $ 98,990 $ 80,980 $ 183,137 $ 90,431
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NET INCOME PER COMMON AND
EQUIVALENT SHARE $ .025 $ .020 $ .046 $ .022
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WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 3,979,938 4,062,506 3,979,938 4,062,506
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The accompanying notes are an integral part of these consolidated statements
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
September 30,
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1995 1994
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(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 183,137 $ 90,431
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 156,244 125,703
Provision for deferred income taxes 112,616 ---
Decrease (increase) in accounts receivable (122,870) (481,630)
Decrease (increase) in inventories (163,584) (8,150)
Decrease (increase) in prepaid expenses (685) (29,229)
Decrease (increase) in other receivables 1,159 75,453
Increase (decrease) in deferred revenue (16,173) (37,137)
Increase (decrease) in accounts payable
and accrued expenses (174,055) (103,893)
Increase (decrease) in other liabilities (5,081) 4,872
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (29,292) (363,580)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (141,418) (295,903)
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NET CASH USED IN INVESTING ACTIVITIES (141,418) (295,903)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 121,418 135,513
Proceeds from sale-leaseback of equipment --- 51,199
Repayments of capital lease obligations and debt (24,408) (54,923)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 97,010 131,789
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INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (73,700) (527,694)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 160,792 634,391
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 87,092 $ 106,697
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CASH PAID DURING THE PERIOD FOR:
INTEREST $ 14,689 $ ---
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INCOME TAXES $ 20,000 $ 8,593
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The accompanying notes are an integral part of these consolidated statements.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIEARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES:
The consolidated financial statements included herein for Chesapeake
Biological Laboratories, Inc. (the "Company" or "Registrant") and its
wholly owned subsidiary, CBL Development Corp. (the "Subsidiary"), have
been prepared from the records of the Company without audit and include in
management's opinion, all adjustments necessary for a fair presentation.
All such adjustments were of a normal recurring nature. The results for an
interim period are not necessarily indicative of results to be expected for
a full fiscal year. The financial statements have been prepared in
conformity with the accounting principles described in Note 1 to the
Financial Statements included in the Company's 1995 Annual Report on Form
10-K.
INVENTORIES:
Inventories consist of raw materials, work-in-process and finished goods
which are stated at the lower of cost or market, determined under the
first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation.
Equipment is depreciated using the straight-line method over the estimated
useful lives of three to ten years. Leasehold improvements are amortized
over the term of the lease.
REVENUE RECOGNITION:
The Company recognizes income when product is shipped or services have been
provided to the customer. Deferred revenue represents deposits normally
required of development customers.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include amounts invested in accounts which are
readily convertible to known amounts of cash with a maturity of three
months or less.
INCOME TAXES:
The Company has adopted the provisions of Statement No. 109, "Accounting
for Income Taxes", which was issued by the Financial Accounting Standards
Board in February 1992.
PER SHARE INFORMATION:
Per share information is based on the weighted average number of shares of
common and common equivalent shares outstanding. The Company uses the
Treasury Stock method to calculate the dilutive effect of outstanding
warrants and options at period end based on the Company's stock price on
the AMEX Emerging Company Marketplace.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIEARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. STRATEGIC ALLIANCES:
As a result of negotiations during fiscal 1994, Allergan, a major customer,
has forgiven all of the indebtedness outstanding from CBL to Allergan.
Allergan remains obligated to purchase up to 240,000 units per year of
their Vitrax-TM- requirements which are to be resold in the United States,
exclusively from CBL until February 1997. Allergan may now purchase the
United States requirements for Vitrax-TM- in excess of 240,000 units per
year and all of its requirements for Vitrax-TM- for resale outside of the
United States from CBL or elsewhere.
During the fourth quarter of fiscal 1994, a contingent Note Payable to
Weck, shown as $349,000 on the Company's Balance Sheet as of March 31,
1993, was compromised and settled. Under the terms of this compromise and
settlement, the Company agreed to make payments in the amount of $66,500 in
full satisfaction of the contingent Note, $26,500 of which was paid in
March 1994, with the balance of $40,000 paid in April 1994. As a result,
the Company had an additional extraordinary gain of $286,000, net of taxes,
in fiscal 1994. Also as part of the compromise and settlement of the
contingent Note, a security interest formerly held by Weck in certain of
the Company's assets was released.
3. INVENTORIES:
Inventories consist of the following:
September 30, March 31,
1995 1995
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Raw Materials $ 445,766 $ 447,745
Work-in-Process 1,142,756 951,872
Finished Goods 25,782 51,103
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$1,614,304 $1,450,720
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4. LEASES:
In December 1993, the Company entered into a non-cancelable operating lease
agreement for a second facility to house its corporate offices,
warehousing, shipping and receiving. The lease expires December 31, 1998
with two renewal terms of two years each. The rent expense under the lease
agreement was $75,738 and $69,560 for the 6 months ended September 30, 1995
and September 30, 1994, respectively.
The Company's original facility will be primarily used for production and
is occupied under a non-cancelable operating lease agreement with an
initial six and one-half year term, expiring December 31, 1998 with two
renewal terms of two years each. Related rental payments for the 6 months
ended September 30, 1995 and 1994 were $117,276 and $114,430, respectively.
The operating lease agreement contains terms which feature reduced rental
payments in the early years and accelerated payments toward the end of the
lease term. For financial reporting purposes, rental expense represents an
average of the minimum annual rental payments over the initial six and one-
half year term. On an annual basis, this expense is approximately
$192,000.
The Company has also entered into several non-cancelable capital lease
obligations for various pieces of laboratory equipment and furniture that
expire during fiscal year 1999.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES:
As of March 31, 1995, CBL had net operating loss carryforwards of
approximately $450,000 for income tax purposes. These carryforwards begin
to expire in 2004. In addition, as of March 31, 1995, CBL had research and
development and investment tax credit carryforwards of approximately
$105,000 and $10,000, respectively. As of March 31, 1995, the Company
recorded $210,000 to recognize the tax benefit of its remaining Net
Operating Loss carryforwards. The Net Operating Loss carryforward is being
utilized currently to offset taxable income and the related deferred tax
asset is being realized during the year.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The management discussion below should be read in conjunction with the
quarterly financial reports and footnotes as well as the Company's Annual Report
for 10-K as of March 31, 1995.
Three and six months ended September 30, 1995 and 1994:
Operating revenue of $1,677,000 for the quarter ended September 30, 1995,
was down 7% from the comparable quarter last year, but operating revenue for the
six month period ended September 30, 1995, was up 1.5% to $3,538,000, as
compared to the same period last year. A decrease in Vitrax sales as a result
of a decision by Allergan to reduce its Vitrax inventory levels was the primary
cause of the decrease in operating revenue for the second quarter. Modification
of invoicing procedures with another of the Company's customers, CelSci
Corporation, resulted in some reduction in recorded revenues, but had little
overall effect on gross profit.
Gross profit for the quarter ended September 30, 1995, was $589,000, up
$154,000, or 35%, from the comparable quarter last year, despite the decline
in operating revenue. Gross profit of $1,207,000 for the six months ended
September 30, 1995, is up $392,000, or 48%, as compared to the same period last
year. The improvement in gross profit is evidence of improved production
procedures implemented by the Company over the past twelve months.
Selling and general administrative expenses of $410,000 for the quarter
ended September 30, 1995, and $877,000 for the six month period ended September
30, 1995, represents an increase of $66,000 and $163,000, respectively, compared
to the same periods last year. Expansion of the Company's customer base, and
corresponding increases in advertising expenses and sales commissions,
contributed to the increase in selling and general and administrative expenses
over the three and six month periods ended September 30, 1995. In addition, the
Company has recently expanded its internal customer support staff in an effort
to improve service to both new and existing customers.
Second quarter pre-tax income of $171,000 was up 91%, while year-to-date
pre-tax income of $316,000 was up 217%, as compared to the year-to-date figure
for September 30, 1994. The Company recorded a provision for income taxes of
$72,000 for the second quarter, compared to $9,000 for the second quarter last
year, and recorded a provision for income taxes of $133,000 for the six month
period ended September 30, 1995, compared to $9,000 for the six month period
ended September 30, 1994. This increase as a percentage of pre-tax earnings to
42%, from approximately 9%, is due in part to realization of a portion of the
deferred tax asset recognized during the last quarter of fiscal year 1995.
FINANCIAL CONDITION AND LIQUIDITY
On September 30, 1995, CBL had cash and cash equivalents of $87,000,
compared to $161,000 at March 31, 1995. This decrease is due to a variety of
reasons including increases in accounts receivable and inventory, plus $142,000
in capital expenditures. As of September 30, 1995, the Company had borrowed
$249,000 against the $750,000 Revolving Line of Credit available to the Company
from First Fidelity Bank.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
Exhibit 27
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.
CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
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Registrant
DATE: November 1, 1995 By: /s/ N. BENNET BEATY, PH.D.
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N. Bennet Beaty, Ph.D.
President
DATE: November 1, 1995 By: /s/ THOMAS C. MENDELSOHN
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Thomas C. Mendelsohn
Secretary