FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1998 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
- - ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1111 S. Paca Street, Baltimore, Maryland 21230 2834
- - ------------------------------------------ --------- ----
(Address of principal executive offices) (zip code) (SIC)
(410) 843-5000
----------------------------------------------------
(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
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of June 30, 1998 and June 30, 1997:
Outstanding at Outstanding at
Class June 30, 1998 June 30, 1997
----- ------------- -------------
Class A Common Stock, $.01 par value 5,288,832 5,119,558
Class B Common Stock, $.01 par value -0- -0-
Page 1 of 13
1
Chesapeake Biological Laboratories, Inc.
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Table of Contents
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Page
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Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of
June 30, 1998 and March 31, 1998 . . . . . . . . . 3
Consolidated Statements of Operations for
the three months ended June 30, 1998 and
1997 . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Changes in
Stockholders' Equity for the three months
ended June 30, 1998 . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the three months ended June 30, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . 7-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . 11
Part II. Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 12
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
ASSETS 1998 1998
- - ------ ----------- ----------
CURRENT ASSETS: (Unaudited) (Audited)
Cash and cash equivalents $ 2,970,830 $ 3,041,705
Restricted cash 350,000 350,000
Accounts receivable, net 747,051 1,259,560
Inventories 865,897 524,996
Prepaid expenses 355,527 404,696
Deferred tax asset 353,297 92,208
Interest receivable 11,465 18,817
---------- ----------
Total current assets 5,654,067 5,691,982
PROPERTY AND EQUIPMENT, net 10,062,256 9,428,831
BOND FUNDS HELD BY TRUSTEE 441,474 778,454
DEFERRED FINANCING COSTS 342,642 344,021
OTHER ASSETS 76,272 69,912
---------- ----------
Total assets $16,576,711 $16,313,200
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 428,405 $ 223,481
Line of credit 338,357 ---
Current portion of long term debt 386,860 389,547
Current portion capital lease obligations 21,436 28,098
Deferred revenue 309,888 177,593
---------- ----------
Total current liabilities 1,484,946 818,719
LONG TERM LIABILITIES:
Long term debt, net of current portion 8,280,184 8,283,102
Capital lease obligations, net of current portion --- 854
Deferred rent 15,006 22,523
Deferred tax liability 124,084 124,084
--------- ---------
Total liabilities 9,904,220 9,249,282
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock, par value $.01 per share;
8,000,000 shares authorized; 5,288,832 and
5,276,195 shares issued and outstanding 52,888 52,762
Class B Common Stock, par value $.01 per share;
2,000,000 shares authorized; no shares issued
and outstanding --- ---
Additional paid-in capital 7,369,121 7,369,039
Accumulated deficit (749,518) (357,883)
---------- ----------
Total stockholders' equity 6,672,491 7,063,918
---------- ----------
Total liabilities and stockholders' equity $16,576,711 $16,313,200
---------- ----------
---------- ----------
The accompanying notes are an integral part of these consolidated balance
sheets.
3
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
---------------------------------------
1998 1997
---- ----
(Unaudited) (Unaudited)
OPERATING REVENUE $ 1,117,172 $ 1,716,595
COST OF REVENUE 1,172,044 1,346,257
--------- ---------
GROSS (LOSS) PROFIT (54,872) 370,338
OPERATING EXPENSES
General and administrative 372,550 384,001
Selling 247,063 126,103
Research and development --- 26,703
--------- ---------
Loss from operations (674,485) (166,469)
INTEREST INCOME, net 21,761 46,931
--------- ---------
Loss before benefit from income taxes (652,724) (119,538)
BENEFIT FROM INCOME TAXES 261,089 44,229
--------- ---------
NET LOSS $ (391,635) $ (75,309)
--------- ---------
--------- ---------
LOSS PER COMMON AND COMMON
EQUIVALENT SHARE:
Basic
Net Loss $ (0.07) $ (0.02)
--------- ---------
--------- ---------
Diluted
Net Loss $ (0.07) $ (0.02)
--------- ---------
--------- ---------
WEIGHTED AVERAGE COMMON
COMMON OUTSTANDING
Basic 5,282,487 4,318,390
--------- ---------
--------- ---------
Diluted 5,282,487 4,318,390
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--------- ---------
The accompanying notes are an integral part of these consolidated statements.
4
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1998
Additional Accumulated
Shares Par Value Paid-In Capital Deficit Total
- - ---------------------- --------- ------------- ----------- --------------- -----------
BALANCE, March 31, 1998 5,276,195 $ 52,762 $ 7,369,039 $ (357,883) $ 7,063,918
Issuance of shares pursuant to
exercise of stock options 12,637 126 82 --- 208
Net loss --- --- --- (391,635) (391,635)
- - ---------------------- --------- ------------- ----------- --------------- -----------
BALANCE, June 30, 1998 5,288,832 $ 52,888 $ 7,369,121 $ (749,518) $ 6,672,491
- - ---------------------- --------- ------------- ----------- --------------- -----------
- - ---------------------- --------- ------------- ----------- --------------- -----------
The accompanying notes are an integral part of this consolidated statement.
5
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
June 30,
------------------------------------
1998 1997
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (391,635) $ (75,309)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization 81,885 92,286
Deferred income taxes (261,089) ---
Decrease (increase) in accounts receivable 512,509 (383,073)
(Increase) decrease in inventories (340,901) 283,639
Decrease in prepaid expenses 49,169 34,393
Decrease (increase) in interest receivable 7,352 (3,712)
Increase in other assets (6,360) (32,527)
Increase (decrease) in accounts payable
and accrued expenses 204,924 (113,919)
Increase (decrease) in deferred revenue 132,295 (5,075)
Decrease in deferred rent (7,517) (7,517)
----------- -----------
Net used in operating activities (19,368) (210,814)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (713,931) (1,018,824)
Decrease in bond funds held by Trustee 336,980 966,343
----------- -----------
Net cash used in investing activities (376,951) (52,481)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term borrowings net 338,357 ---
Repayments of long term debt (5,605) (5,605)
Repayments of capital lease obligations (7,516) (7,387)
Net proceeds from sale of stock 208 3,228,128
----------- -----------
Net cash provided by financing activities 325,444 3,215,136
----------- -----------
(Decrease) increase in cash and cash equivalents (70,875) 2,951,841
CASH AND CASH EQUIVALENTS,
beginning of period 3,041,705 1,432,944
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,970,830 $ 4,384,785
----------- -----------
----------- -----------
CASH PAID DURING THE PERIOD FOR:
Interest $ 38,071 $ 20,445
Income taxes $ --- $ ---
The accompanying notes are an integral part of these consolidated statements.
6
CHESAPEAKE BIOLOGICAL LABORATORIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization:
-------------
Chesapeake Biological Laboratories, Inc. ("CBL" or "the Company") is an
established provider of pharmaceutical and biopharmaceutical product
development and production services on a contract basis for a broad range
of customers, from major international pharmaceutical firms to emerging
biotechnology companies. Since 1990, CBL has provided its product
development services to more than 90 pharmaceutical and biotechnology
companies and has contributed to the development and production of more
than 100 therapeutic products intended for human clinical trials.
Customers contract with the Company to produce development stage products
for use in Food and Drug Administration ("FDA") clinical trials and to
produce and manufacture FDA approved products for commercial sale. The
Company's business depends, in part, on strict government regulation of
the drug development process, especially in the United States. CBL's
production facility operates under the current Good Manufacturing
Practices ("cGMP") established and regulated by the FDA.
2. Summary of Significant Accounting Policies:
-------------------------------------------
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
CBL and its wholly-owned subsidiary, CBL Development Corp.
Accounts Receivable
-------------------
Accounts receivable are stated net of allowances for doubtful accounts of
$62,457 and $70,300 as of June 30, 1998 and March 31, 1998, respectively.
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 estimated
useful lives of three to ten years. The building is depreciated over an
estimated useful life of thirty years. Leasehold improvements are
amortized over the term of the lease.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include amounts invested in securities with
maturities of six months or less which are readily convertible to known
amounts of cash. Included in restricted cash are Company funds of
$350,000 which are being held by the Bond Trustee as collateral for the
Company's obligations under the Letter of Credit and Reimbursement
Agreement with First Union National Bank of North Carolina (see Note 6).
Revenue Recognition
-------------------
The Company recognizes income when product is shipped or the service has
been provided to the customer. Deferred revenues represent deposits
normally required of customers with development products.
Income Taxes
------------
Deferred income taxes are computed using the liability method, which
provides that deferred tax assets and liabilities are recorded based on
the differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
7
CHESAPEAKE BIOLOGICAL LABORATORIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Plans
------------------
The Company accounts for its stock-option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations.
As such compensation expense would be recorded on the date of the grant
only if the current market price of the underlying stock exceeded the
exercise price.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of 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.
3. Concentrations of Credit Risk/Significant Customers:
----------------------------------------------------
The Company's customers span the range of the pharmaceutical and medical
device industries. For many customers, the Company requires an up-front
payment on orders. There are some recurring customers, however, for which
CBL has waived that practice.
The contract manufacturing agreement between the Company and Allergan
Botox, Ltd. ("Allergan") for the production of VitraxTM originally
expired in February 1997. Subsequent thereto, an agreement was reached
between CBL and Allergan which called for the production of VitraxTM
through December 31, 1997, on modified terms using active ingredients
supplied by Allergan, rather than active ingredients manufactured by CBL.
In addition, Allergan was relieved of any obligation to purchase VitraxTM
exclusively from the Company. In September 1997, the Company made its
final shipment of VitraxTM to Allergan and no further shipments have been
made and no further revenues are expected from Allergan relative to
VitraxTM.
The Company has been actively seeking to increase and diversify its
customer base and has been successful in its diversification efforts, 11
new customers were added during the fiscal year 1998. However, there can
be no assurance that the Company's annual results will not be dependent
upon the performance of a few large projects.
4. Inventories:
------------
Inventories consist of the following:
June 30, March 31,
1998 1998
--------- -----------
Raw materials $ 322,946 $ 280,344
Work-in-process 542,951 244,652
Finished goods -- --
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$ 865,897 $ 524,996
--------- ---------
--------- ---------
5. Leases:
-------
In December 1993, the Company entered into a non-cancelable operating lease
agreement for what was then a second facility in Owings Mills, Maryland to
house its corporate offices, warehousing, shipping and receiving
8
CHESAPEAKE BIOLOGICAL LABORATORIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
functions. The lease terms had provided for an initial expiration date of
December 31, 1998. However, as of June 1, 1997, the Company negotiated
termination of the Owings Mills facility lease, effective June 1, 1997,
in exchange for a termination fee of $30,200 paid by the Company,
resulting in net savings to the Company of approximately $200,000 over
the remaining initial term of the lease.
The Company's Seton Business Park facility is primarily used for
experimental development and production and is occupied under a
non-cancelable operating lease agreement with an initial six and one-half
year term, expiring December 31, 1998 and two renewal terms of two years
each. Related rental payments for the three months ended June 30, 1998
and 1997, were $59,142 and $59,142, respectively. The operating lease
agreement for the Seton Business Park facility contains terms which
feature reduced rental payments in the early years and increased 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.
During previous years, the Company entered into several non-cancelable
capital lease obligations for various pieces of laboratory equipment and
furniture that expire during fiscal year 1999. In addition, in fiscal
year 1997, the Company entered into several operating leases that expire
during fiscal year 2001.
On April 14, 1998, the Company exercised the right to renew the lease of
its Seton facility. The lease now expires on December 31, 2000, and may,
at the Company's option, be renewed again for another two year period
thereafter.
6. Long Term Debt:
---------------
In November 1996, the Company completed the acquisition of an
approximately 70,000 square foot building on 3.48 acres in Baltimore,
Maryland, which the Company has renovated to provide CBL with office,
warehouse and pharmaceutical manufacturing space. The Company
successfully completed the initial FDA general facility inspection on
this commercial production facility in July, 1998. The Company is actively
seeking opportunities and customer contracts to utilize these FDA
approved expanded capabilities. The purchase and renovation costs were
financed with a $7,000,000 Economic Development Bond issued by the
Maryland Industrial Development Financing Authority, and a $1,500,000
loan from the Mayor and City Council of Baltimore City by and through the
Department of Housing and Community Development. The loan from the City
of Baltimore has an interest rate which is fixed at 6.5%. The bonds are
variable rate, tax-exempt and may be converted to a fixed rate.
The Company has also entered into an interest rate agreement with First
Union National Bank of North Carolina to reduce the potential impact of
the variable interest rates on the bonds. This agreement results in a
maximum interest rate on the bonds of 5.51%, and relates to $6 million of
the outstanding bonds. The agreement became effective in November 1996
and will expire in November 2003.
The principal portion of the Bonds, and the accrued interest thereon, is
payable from monies drawn under a direct pay Letter of Credit issued by
First Union National Bank of North Carolina (the "Bank"), in amounts up
to $7,280,000. Interest is payable quarterly, commencing February 1,
1997, and principal portions of the bonds are subject to redemption, in
part, commencing November 1998, in accordance with a schedule set forth
in the bonds. The Maturity Date is August 1, 2018. The loan from the City
of Baltimore requires interest only payments for the first two years, and
monthly principal and interest payments due thereafter through November
2016.
Under the documentation applicable to the Bond financing, the Company is
obligated to maintain certain financial ratios and balances, including a
minimum tangible net worth, a liability to net worth ratio, an EBITDA
ratio and a current ratio, all as defined and established in the
applicable documents. The documentation applicable to the Bond financing
includes several additional covenants, including a ceiling on capital
expenditures and a limitation on the incurrence of other indebtedness, as
defined and established therein. During fiscal year 1998, and subsequent
thereto, the Company and the Bank agreed to modify certain of the ratios
and balances provided for under the Bond financing documentation, and the
Bank agreed to waive through April 1, 1999, the requirement that the
Company maintain a certain EBITDA ratio, which was not otherwise met as of
9
CHESAPEAKE BIOLOGICAL LABORATORIES, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998. As of June 30, 1998, the Company was in compliance with
all of the other ratios and balances required to be maintained under the
terms of the Bond financing documentation.
Other long term debt as of June 30, 1998, consists of loans for a truck
and various equipment. The truck loan bears interest at 6.9% and is
repayable through December 8, 1998, in equal monthly installments. The
equipment loan bears interest at 8.5% and is repayable through April 1,
1999 in variable monthly installments.
7. Earnings per share:
-------------------
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." SFAS 128 simplifies the standards for computing earnings per
share ("EPS") previously found in APB Opinion No. 15, "Earnings per
Share." It replaces the presentation of primary and fully diluted EPS
with a presentation of basic and diluted EPS and requires a
reconciliation of the numerator and denominator of the basic and diluted
EPS calculation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed
similarly to primary EPS pursuant to APB Opinion No. 15. The adoption of
SFAS 128 did not have a significant impact on the Company for the three
months ended June 30, 1998, because of the Company's net loss. Earnings
per share information for the prior quarter has been restated to reflect
the new requirements.
8. New accounting pronouncements:
------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." The statements will affect the presentation and
disclosure requirements for annual and interim financial statements
beginning in fiscal year 1999. The Company expects that the new reporting
requirements will not have a material impact on its financial statements.
10
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
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 Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
Three months ended June 30, 1998 and 1997.
Operating revenues were $1,117,000 for the three months ended June 30,
1998, as compared to $1,717,000 for the comparable quarter in the prior year.
The decrease was attributed to the elimination of sales to Allergan which
accounted for $618,000 in sales for the same quarter in the prior year.
Gross profit for the quarter was a loss of $55,000 as compared to a
gross profit of $370,000 for the same quarter last year. This decrease in gross
profit is primarily attributable to the decrease in operating revenues and the
increase in operating costs associated with the Company's recently completed
pharmaceutical production and warehouse space, located at the Camden Industrial
Park, Baltimore, Maryland. Included among the operating costs associated with
the new Camden facility were the costs necessarily incurred to maintain the
pharmaceutical production facility in a state of operational readiness in
connection with validation and FDA inspection, which was successfully completed
on July 8, 1998. Excluding operating costs associated with the new facility
would result, on an adjusted basis, in a positive gross margin of 25% for the
quarter ended June 30, 1998, as compared to an actual gross margin of 27% for
the same quarter in the prior year.
Quarterly sales and marketing expenses of $247,000 for the quarter were
up $121,000 as compared to the same quarter last year. This increase is
primarily the result of $71,000 in expenses incurred in connection with
reorganization of the Company's Sales and Marketing Department, and an increased
focus on marketing and advertising programs. General and Administrative expenses
were down 3% for the quarter compared to the same quarter last year.
The $674,000 in operating loss for the three months ended June 30, 1998,
compares to a $166,000 operating loss for the comparable quarter in the prior
year. This loss is the direct result of the decreased revenues and the operating
expenses associated with the Camden facility which generated no revenue as it
was being validated and inspected during the period.
Other income of $22,000 for the three months ended June 30, 1998,
compares to $47,000 of other income for the comparable quarter in the prior
year. Interest income on the proceeds from the June 1997, follow-on public
equity offering was the primary source of the other income for the three months
ended June 30, 1998.
Financial Condition and Liquidity
- - ---------------------------------
On June 30, 1998, CBL had cash and cash equivalents of $2,971,000
compared to $3,042,000 at March 31, 1998. These balances do not include $350,000
held as collateral for the Company's obligations under the Letter of Credit and
Reimbursement Agreement with First Union National Bank of North Carolina,
pursuant to which a letter of credit was issued as credit enhancement for bonds
issued by the Maryland Industrial Development Financing Authority. The proceeds
of these bonds were and are being used by the Company to finance a portion of
the purchase price and the renovation and equipping of the Camden production
facility. In addition, and not included in the above sums, $441,000 was held at
June 30, 1998, by the Bond Trustee, under the Trust Indenture entered into in
connection with the bond financing. These funds are held by the Trustee pending
disbursement, subject and pursuant to the terms of the financing documents, to
defray the continuing costs of renovation and equipping of the Camden Industrial
Park facility. The Company continues to maintain a $750,000 Revolving Line of
Credit from the First Union National Bank of Maryland and there was an
outstanding balance of $338,000 at June 30, 1998.
Net cash used in the operating activities of $19,000 for the three
months ended June 30, 1998, was primarily the result of the net loss for the
period and increase in deferred income taxes which was offset in part by
decreases in accounts receivables and prepaid expenses. This compares to net
cash used in operating activities for the comparable period in the prior year of
$211,000. Net cash used in investing activities of $377,000 for the three
months ended June 30, 1998, was a direct result of the final validation and
completion of the FDA approved Camden production facility offset in part by
disbursements from the bond fund Trustee. This compares to net cash used in
investing activities for the
11
comparable period in the prior year of $53,000. Net cash provided by financing
activities of $325,000 for the three months ended June 30, 1998 was comprised
primarily of short term borrowings from the Company's revolving Line of Credit.
This compares to the net cash provided by financing activities for the
comparable period in the prior year of $3,215,000. Cash provided by financing
activities in the previous year is a direct result of the Company's follow-on
public offering of Class A Common Stock.
Year 2000 Issue
- - ---------------
In conjunction with the Company' expansion of its commercial production
facility, the Company plans to upgrade both its computer hardware and software.
Management believes the software upgrade will resolve the Year 2000 issue for
the Company. An independent consultant's study of the Company's current
information technology status and recommended changes is nearing completion. The
study is recommending installation of commercially available software packages.
Installation of critical modules is expected to be completed by late 1998. The
software packages under review have been upgraded to handle the Year 2000 by the
software provider. Time-sensitive internal programs have been reviewed and will
require only minor modifications to resolve the Year 2000 issue.
Statements Regarding Forward-Looking Disclosure
- - -----------------------------------------------
Certain information contained in this Report includes forward-looking
statements which can be identified by the use of forward-looking terminology
such as "may", "will", "expect", "should", "believes", "anticipates", "intends",
or words of similar import. These statements may involve risks and uncertainties
that could cause actual results to differ materially from those described in the
statements. These risks and uncertainties include (without limitation) general
economic and business conditions, changes in business strategy or development
plans, and others. Given these uncertainties, the reader is cautioned not to
place undo reliance on such forward-looking statements.
Part II. Other Information
Item 1. Legal Proceedings
-----------------
None
Item 5. Other Information
-----------------
The Annual Meeting of Stockholders of the Company was held on
July 9, 1998, at 10:00 a.m. at the offices of the Company
located at 1111 S. Paca Street, Baltimore, Maryland 21230. At
the Annual Meeting of Stockholders, the only action taken by
the stockholders was the election of six (6) persons to serve
as directors of the Company until the next Annual Meeting of
Stockholders and until their successors are duly elected and
qualified. These six persons, who constitute the entire Board
of Directors of the Corporation, are Narlin B. Beaty, Regis F.
Burke, Harvey L. Miller, Thomas P. Rice, William P. Tew and
John C. Weiss, III. Thomas C. Mendelsohn, who had served as
Director of the Company since 1991, and had been nominated
for re-election, resigned from the Board of Directors
effective July 7, 1998, and withdrew his name from the ballot
and is no longer associated with the Company as a director,
officer or employee.
Subsequent to The Annual Meeting of Stockholders of the
Company, the Board of Directors elected Robert J. Mello,
Ph.D. as Secretary of the Corporation. Dr. Mello, Vice
President of Quality and Regulatory Affairs since rejoining
the Company in 1994, holds a Ph.D. degree in Biochemistry
from the Johns Hopkins University School of Medicine. Dr.
Mello had been with the Company for ten years before joining
Lederle Laboratories in 1992 as Manager, Validation
Services. During his ten years with the Company, Dr. Mello
served originally as Director of Research and Development
and then as Director, Quality Assurance and Regulatory
Affairs, and as Secretary.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits:
27 - Financial Data Schedule
b. Reports on Form 8-K:
No reports on Form 8-K were filed by the
Registrant during the quarter for which this
report is filed.
12
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
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.
---------------------------
Registrant
DATE: 8/3/98 By: /s/ John C. Weiss, III
- - ------------- --------------------------------
John C. Weiss, III
President
DATE: 8/3/98 By: /s/ Robert J. Mello
- - ------------- --------------------------------
Robert J. Mello
Secretary
13