<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 000-21281
CN BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0509785
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10394 PACIFIC CENTER COURT, SAN DIEGO, CA 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 450-5500
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securitites 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 ( )
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date:
Class August 6, 1997
Common Stock, $.01 Par Value 5,561,225
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CN BIOSCIENCES, INC.
INDEX TO FORM 10-Q
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996 3
Condensed Consolidated Statements of Income for the Three
Months and Six Months Ended June 30, 1997 and 1996
(unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996 (unaudited) 5
Notes to Interim Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES
INDEX OF EXHIBITS
</TABLE>
2
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ART I. FINANCIAL INFORMATION
tem 1. Financial Statements
CN BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(UNAUDITED) (Note)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $ 16,733,000 $ 14,704,000
Accounts receivable, net 6,335,000 4,487,000
Inventories 15,573,000 14,733,000
Other current assets 2,401,000 2,436,000
------------ ------------
Total current assets 41,042,000 36,360,000
Property and equipment, net 3,890,000 3,688,000
Intangible assets, net 4,644,000 4,836,000
Other assets 966,000 1,378,000
------------ ------------
Total assets $ 50,542,000 $ 46,262,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,266,000 $ 2,303,000
Accrued expenses 2,277,000 1,906,000
Other current liabilities 1,281,000 1,920,000
------------ ------------
Total current liabilities 5,824,000 6,129,000
Other liabilities 1,053,000 1,233,000
Stockholders' equity:
Common stock 56,000 52,000
Additional paid-in capital 42,242,000 38,736,000
Retained earnings (accumulated deficit) 1,809,000 (63,000)
Foreign currency translation adjustment (346,000) 271,000
Note receivable from stockholder (96,000) (96,000)
------------ ------------
Total stockholders' equity 43,665,000 38,900,000
------------ ------------
Total liabilities and stockholders' equity $ 50,542,000 $ 46,262,000
============ ============
</TABLE>
See accompanying notes.
Note: The balance sheet at December 31, 1996 has been derived from the audited
consolidated financial statements at that date, but does not include all
of the disclosures required by generally accepted accounting principles.
3
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CN BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 10,206,000 $ 8,347,000 $ 19,791,000 $ 16,565,000
Cost of sales 4,530,000 3,808,000 8,890,000 7,602,000
------------ ------------ ------------ ------------
Gross profit 5,676,000 4,539,000 10,901,000 8,963,000
Operating expenses:
Selling, general and
administrative 3,578,000 3,170,000 7,049,000 6,185,000
Research and development 614,000 524,000 1,236,000 1,065,000
------------ ------------ ------------ ------------
Total operating expenses 4,192,000 3,694,000 8,285,000 7,250,000
------------ ------------ ------------ ------------
Income from operations 1,484,000 845,000 2,616,000 1,713,000
Interest income (expense), net 128,000 (188,000) 244,000 (394,000)
------------ ------------ ------------ ------------
Income before income taxes 1,612,000 657,000 2,860,000 1,319,000
Provision for income taxes 550,000 264,000 988,000 462,000
------------ ------------ ------------ ------------
Net income $ 1,062,000 $ 393,000 $ 1,872,000 $ 857,000
============ ============ ============ ============
Net income per share $ .19 $ .11 $ .33 $ .25
============ ============ ============ ============
Shares used in per share
computations 5,726,000 3,477,000 5,626,000 3,477,000
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
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CN BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,872,000 $ 857,000
Adjustments to reconcile net income to net
cash (used in) provided by operations:
Depreciation and amortization 1,171,000 892,000
Additions to inventory reserve 180,000 20,000
Additions to allowance for doubtful accounts - 7,000
Loss on disposal of property and equipment - 5,000
Changes in assets and liabilities:
Accounts receivable, trade (2,165,000) (868,000)
Inventories (1,403,000) (365,000)
Other current assets 176,000 (447,000)
Other assets (333,000) (753,000)
Accounts payable, trade 253,000 181,000
Accrued expenses 383,000 44,000
Other current liabilities (594,000) 294,000
Other liabilities (190,000) 230,000
------------ ------------
Net cash (used in) provided by operating activities (650,000) 97,000
INVESTING ACTIVITIES
Purchases of property and equipment (705,000) (164,000)
Other 6,000
------------ ------------
Net cash used in investing activities (705,000) (158,000)
FINANCING ACTIVITIES
Proceeds from lines of credit - 700,000
Payments on lines of credit - (200,000)
Payments on long-term debt - (498,000)
Proceeds from the sale of common stock 3,491,000
------------ ------------
Net cash provided by financing activities 3,491,000 2,000
Effect of exchange rate changes on cash (107,000) (26,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,029,000 (85,000)
Balance at beginning of period 14,704,000 1,203,000
------------ ------------
Balance at end of period $ 16,733,000 $ 1,118,000
============ ============
Supplemental cash flow information:
Interest paid during the period $ 53,000 $ 420,000
============ ============
Income taxes paid during the period $ 875,000 $ 12,000
============ ============
</TABLE>
See accompanying notes.
5
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CN BIOSCIENCES, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim unaudited condensed consolidated financial statements of CN
Biosciences, Inc. (the "Company") contained herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1996 included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission. In management's opinion,
the unaudited information includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented.
Interim results are not necessarily indicative of results to be expected for the
full year.
2. NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share ("Statement 128"), which is effective for
both interim and annual financial statements for periods ending after December
15, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options and other common stock equivalents will be
excluded. The impact is expected to result in an increase in primary earnings
per share for the quarters ended June 30, 1997 and June 30, 1996 to $.20 and
$.12 per share, respectively. The impact of Statement 128 on the calculation of
fully diluted earnings per share, if applicable, for these quarters is not
expected to be material.
3. PUBLIC OFFERING
In April 1997, the Company effected a public offering of 239,810 shares of
common stock, par value $.01 per share, at $13.50 per share. The offering also
included 910,190 shares sold by one of the Company's founding stockholders. The
Company raised net proceeds of $2,593,000 after deducting underwriters'
commissions and expenses. Proceeds from the offering will be used for general
corporate purposes and possible future acquisitions. Pending such uses, proceeds
will be invested in high-quality investment-grade securities of short maturity
consistent with the Company's investment policy.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
Finished products $ 13,628,000 $ 13,777,000
Semi-finished products, raw materials
and supplies 5,024,000 4,131,000
Work-in-progress 605,000 525,000
------------ ------------
19,257,000 18,433,000
Reserves for excess materials (3,684,000) (3,700,000)
------------ ------------
Total $ 15,573,000 $ 14,733,000
============ ============
</TABLE>
6
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in 1992 with the purchase of the Company's
subsidiaries, including the Calbiochem biochemical and immunochemical operations
headquartered in San Diego, California, and the Novabiochem peptide operations
headquartered in Laufelfingen, Switzerland, from Biodor Holding AG, Ixora
Holding AG and Biodor US Holding Corporation. During 1993, the Company hired its
current Chief Executive Officer and reorganized its worldwide operations to
better focus its business and corporate strategy on core products. In 1993, the
Company recorded a one-time charge of approximately $2.0 million principally
related to its European operations to reserve for costs of facilities no longer
required, impaired inventory and costs of terminating employees. From 1993 to
1995, the Company invested in excess of $3.2 million for capital expenditures,
principally for infrastructure upgrades to its facilities, automated fulfillment
systems and computer information systems. The Company also hired additional
scientific personnel, particularly employees holding Ph.D.s, to enable it to
expand its internal development and manufacturing capabilities. These
initiatives contributed to improved operating results, and in 1994 the Company
commenced its niche research market strategy with the introduction of the Signal
Transduction specialty catalog.
In August 1995, the Company expanded its immunochemical and molecular
biology capabilities with the purchase of the Oncogene Research Products
business from Oncogene Science, Inc. ("OSI") for $6.2 million cash, which was
funded by bank debt. Assets acquired included primarily inventory and property
and equipment. Approximately 30 employees, including four holding Ph.D.s, all of
whom were previously employed by OSI in the Oncogene Research Products business,
joined the Company upon the consummation of the acquisition. The acquisition and
successful integration of this business enhanced the depth and breadth of the
Company's scientific resources, while providing a complementary base of products
and customers.
The Company uses general and specialty catalogs to market a broad range of
brand-name research products to life sciences researchers worldwide at
pharmaceutical and biotechnology companies, academic institutions and government
laboratories. The Company invests significantly in producing each of its
catalogs, and associated costs are capitalized and amortized over the estimated
useful life of the catalog, generally 12 to 24 months.
Since 1993, the Company has increasingly focused its strategy on its
higher margin core business of providing standard laboratory quantity sizes of
products (generally ranging from 100 nanograms to 100 grams), and has reduced
the focus on its bulk business. Bulk quantities (generally up to ten kilograms)
are generally offered at discounts to catalog prices, and bulk sales are
characterized as relatively high dollar sales made to a limited number of
customers. Thus, the absence or presence of bulk sales has had and could have a
material impact on results of operations in any individual period.
The Company maintains significant levels of inventory relative to its net
sales in order to meet short delivery times required by researchers. In
addition, products manufactured internally are made in economic batch sizes
which often represent quantities sufficient to supply more than one year of
sales. The Company's products generally have a relatively long shelf life, often
in excess of five years, and quality and storage conditions are continually
monitored to ensure that quality products are delivered to customers. The
Company regularly evaluates the level and composition of inventory through the
analysis of recent sales history and forecasted product demand to ensure that
inventory reserve levels are adequate to properly reflect their net realizable
value. Fluctuations in inventory reserve levels, other than those related to
reserves recorded in 1993 for impaired inventory described above, have not been
material to the Company's financial position or results of operations.
7
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The Company's reporting currency is the U.S. dollar. Historically, a
majority of the Company's sales have been denominated in U.S. dollars, with the
balance denominated in foreign currencies. These foreign currency sales have
been effected principally by the Company's international subsidiaries. In
accordance with U.S. accounting requirements, sales denominated in foreign
currencies are translated into the local functional currency and then into U.S.
dollars, at an average exchange rate in effect during the period. In addition,
the Company incurs manufacturing costs in Swiss Francs in connection with its
Swiss operations and also incurs operating expenses in local currencies at each
of its other international locations. Thus, changes from reporting period to
reporting period in the exchange rates between various foreign currencies and
the U.S. dollar have had, and will in the future continue to have, an impact on
revenues and expenses reported by the Company, and such effect may be material
in any individual reporting period. To the extent that the Company incurs
operating expenses in local currencies at its foreign subsidiaries, the Company
has a natural hedge against a portion of the possible fluctuation in foreign
currency exchange rates of billings in such currencies. Although the Company
does not engage in significant amounts of foreign currency hedging transactions,
the Company has, from time to time, entered into forward contracts to hedge
certain of its foreign currency exposures, principally related to fixed expense
commitments of its Japanese subsidiary.
Additionally, the balance sheets of the Company's international
subsidiaries are translated into U.S. Dollars and consolidated with the balance
sheets of the Company's domestic subsidiary in accordance with U.S. accounting
requirements. Changes in the U.S. dollar value of the foreign currency
denominated assets are accounted for as an adjustment to stockholders' equity.
Therefore, changes from reporting period to reporting period in the exchange
rates between various foreign currencies and the U.S. dollar have had, and will
continue to have an impact on the foreign currency translation component of
stockholders' equity reported by the Company, and such effect may be material in
any individual reporting period.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items from the
Company's Condensed Consolidated Statements of Income expressed as a percentage
of sales.
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales:
Core 82.4% 83.3% 83.0% 81.8%
Bulk 17.6 16.7 17.0 18.2
----- ----- ----- -----
Total sales 100.0 100.0 100.0 100.0
Cost of sales 44.4 45.6 44.9 45.9
----- ----- ----- -----
Gross profit 55.6 54.4 55.1 54.1
Selling, general and administrative 35.1 38.0 35.6 37.3
Research and development 6.0 6.3 6.2 6.4
----- ----- ----- -----
Income from operations 14.5 10.1 13.3 10.4
Interest income (expense), net 1.3 (2.2) 1.2 (2.4)
----- ----- ----- -----
Income before income taxes 15.8 7.9 14.5 8.0
Provision for income taxes 5.4 3.2 5.0 2.8
----- ----- ----- -----
Net income 10.4% 4.7% 9.5% 5.2%
===== ===== ===== =====
</TABLE>
8
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Three Months Ended June 30, 1997 Compared to the Three Months Ended June
30, 1996
Sales. Sales increased 22.3% to $10.2 million for the three-month period
ended June 30, 1997 from $8.3 million for the comparable period in 1996. This
increase resulted primarily from a 21.1% increase in core product sales,
enhanced by an increase in bulk sales of 28.2%. These gains in sales were made
despite the general strengthening of the U.S. dollar which had the effect of
decreasing the dollar value of sales denominated in foreign currencies recorded
in the three-month period ended June 30, 1997. Additional factors which
management believes contributed to the increase in sales during the period
include increased marketing initiatives and advertising resulting in additional
orders from the Company's general and specialty catalogs.
Gross Profit. The Company's gross profit percentage increased to 55.6% for
the three-month period ended June 30, 1997 from 54.4% for the comparable period
in 1996. This increase resulted primarily from an increase in sales of higher
margin core products. Management believes that additional factors which
contributed to improvements in gross margins include continued improved
operating efficiencies from increased volume, and selected price increases.
Selling, General and Administrative. Selling, general and administrative
expenses increased 12.9% to $3.6 million for the three-month period ended June
30, 1997 from $3.2 million for the comparable period in 1996, but decreased to
35.1% of sales for the period from 38.0% for the comparable period in 1996. The
dollar increase in selling, general and administrative expenses resulted from
increased selling costs related to advertising programs and catalogs, and
additional administrative expenses related to reporting obligations and investor
relations activities as a public company. The decrease in selling, general and
administrative expenses as a percentage of sales was attributable to the
increased level of sales.
Research and Development. Research and development expenses increased
17.2% to $614,000 for the three-month period ended June 30, 1997 from $524,000
for the comparable period in 1996, but decreased to 6.0% of sales for the period
from 6.3% for the comparable period in 1996. The dollar increase in research and
development expenses resulted from development activity related to Oncogene
Research Products brand products, and increased research in the area of
glycobiology and neurosciences, which is expected to continue. The decrease in
research and development expenses as a percentage of sales was attributable to
the increased level of sales.
Interest income (expense), net. Interest income (expense), net increased
to interest income of $128,000 for the three-month period ended June 30, 1997
from interest expense of $188,000 for the comparable period in 1996. The
increase resulted from increased cash balances and reduced debt levels as a
result of the completion of the Company's initial public and follow-on offerings
of common stock in October 1996 and April 1997, respectively.
Income Taxes. Income tax expense increased to $550,000 for the three-month
period ended June 30, 1997 from $264,000 for the comparable period in 1996. The
increase resulted primarily from increased profitability and increased estimated
tax rates in 1997 due to the decrease in available operating loss carryforwards,
certain of which were used in prior years.
Net Income. As a result of the above factors, net income increased 170.2%
to $1,062,000 for the three-month period ended June 30, 1997 from $393,000 for
the comparable period in 1996.
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30,
1996
Sales. Sales increased 19.5% to $19.8 million for the six-month period
ended June 30, 1997 from $16.6 million for the comparable period in 1996. This
increase resulted primarily from a 21.2% increase in core product sales,
enhanced by a moderate increase in bulk sales of 11.7%. These gains in sales
were made despite the general strengthening of the U.S. dollar which had the
effect of decreasing the dollar value of sales denominated in foreign currencies
recorded in the six-month period ended June 30, 1997.
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Additional factors which management believes contributed to the increase in
sales during the period include increased marketing initiatives and advertising
resulting in additional orders from the Company's catalogs.
Gross Profit. The Company's gross profit percentage increased to 55.0% for
the six-month period ended June 30, 1997 from 54.1% for the comparable period in
1996. This increase resulted primarily from an increase in sales of higher
margin core products. Management believes that additional factors which
contributed to improvements in gross margins include continued improved
operating efficiencies from increased volume, and selected price increases.
Selling, General and Administrative. Selling, general and administrative
expenses increased 14% to $7.0 million for the six-month period ended June 30,
1997 from $6.2 million for the comparable period in 1996, but decreased to 35.6%
of sales for the period from 37.3% for the comparable period in 1996. The dollar
increase in selling, general and administrative expenses resulted from increased
selling costs related to advertising programs and catalogs, and additional
administrative expenses related to reporting obligations and investor relations
activities as a public company. The decrease in selling, general and
administrative expenses as a percentage of sales was attributable to the
increased level of sales.
Research and Development. Research and development expenses increased
16.1% to $1.2 million for the six-month period ended June 30, 1997 from $1.1
million for the comparable period in 1996, but decreased to 6.2% of sales for
the period from 6.4% for the comparable period in 1996. The dollar increase in
research and development expenses resulted from development activity related to
Oncogene Research Products brand products, and increased research in the area of
glycobiology and neurosciences, which is expected to continue. The decrease in
research and development expenses as a percentage of sales was attributable to
the increased level of sales.
Interest income (expense), net. Interest income (expense), net increased
to interest income of $244,000 for the six-month period ended June 30, 1997 from
interest expense of $394,000 for the comparable period in 1996. The increase
resulted from increased cash balances and reduced debt levels as a result of the
completion of the Company's initial public and follow-on offerings of common
stock in October 1996 and April 1997, respectively.
Income Taxes. Income tax expense increased to $1.0 million for the
six-month period ended June 30, 1997 from $462,000 for the comparable period in
1996. The increase resulted primarily from increased profitability and increased
estimated tax rates in 1997 due to the decrease in available operating loss
carryforwards, certain of which were used in prior years.
Net Income. As a result of the above factors, net income increased 118.4%
to $1,872,000 for the six-month period ended June 30, 1997 from $857,000 for the
comparable period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $650,000 of cash in operating activities in the
six-months ended June 30, 1997 as compared to $97,000 of cash provided by
operating activities in the comparable prior period. Operating activities
required cash for the six-month period ended June 30, 1997 primarily to support
increases in accounts receivable and inventory resulting from the growth in core
product sales. Cash provided by operating activities in the comparable prior
period in 1996 resulted primarily from positive operating results.
Net cash used in investing activities was $705,000 in the six-month period
ended June 30, 1997, as compared to $158,000 in the comparable period in 1996.
Cash used in investing activities during both periods consisted of capital
expenditures for property and equipment. In 1997, these expenditures related
primarily to improvements to manufacturing and distribution capabilities in
various locations.
In October 1996, the Company completed an initial public offering of
1,840,000 shares of Common Stock at $12.50 per share. In April 1997, the Company
completed a follow-on public offering of 239,810
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shares of Common Stock at $13.50 per share. The follow-on offering also included
910,190 shares sold by a founding stockholder of the Company. The net proceeds
from these offerings were $20,140,000 and $2,593,000, respectively.
During the six-month period ended June 30, 1997, the Company's foreign
currency translation account reduced stockholders' equity by $617,000 as a
result of the translation of the Company's international subsidiaries balance
sheets into U.S. Dollars. Such changes would not be realized through the
Company's income statement unless the underlying foreign-currency denominated
assets were liquidated.
The Company is a holding company, the principal assets of which are the
capital stock of its subsidiaries, and has no independent means of generating
revenues. As a holding company, the Company depends on dividends and other
permitted payments from its subsidiaries, including its international
subsidiaries, to meet its cash needs. The Company maintains cash balances at its
various subsidiaries based upon local results of operations. The amount of
foreign-sourced earnings to be repatriated to the United States is determined
based upon foreign entity capitalization, local cash needs, local and U.S. tax
implications and requirements for cash in the U.S. operations.
At June 30, 1997, the Company had cash, cash-equivalents and short term
investments of $16.7 million and working capital of $35.2 million. At June 30,
1997, $5.0 million was available under a Credit Facility with a commercial bank
which expires in June 1999.
The Company believes that its existing capital resources will be
sufficient to fund its operations through at least 1998. If, however, the
Company were to undertake a significant acquisition or if working capital or
other capital requirements are greater than currently anticipated, the Company
could be required to seek additional funds through sales of equity, debt or
convertible securities or increased credit facilities. There can be no assurance
that additional financing will be available or that, if available, the financing
will be on terms favorable to the Company and its stockholders.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements
which involve risks and uncertainties. The Company's actual results in the
future could differ significantly from the results discussed in such
forward-looking statements. Factors that could cause or contribute to such a
difference include, but are not limited to, those set forth under the captions
Risk Factors and Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RISK FACTORS
Dependence on Research and Development Budgets and Government Research
Funding. The Company's customers include research scientists at pharmaceutical
and biotechnology companies, academic institutions and government and private
research laboratories. Fluctuations in the research and development budgets of
these companies and institutions can have a significant effect on the demand for
the Company's products. Such budgets are based on a wide variety of factors
including the resources available to make such expenditures, the spending
priorities among various types of research and the policies regarding such
expenditures during recessionary periods. Any decrease in life sciences research
and development expenditures by such companies and institutions could have a
material adverse effect on the Company's business, financial condition and
results of operations.
A significant portion of the Company's sales have been to research
scientists, universities, government research laboratories, private foundations
and other institutions whose funding is dependent on grants from government
agencies such as the U.S. National Institutes of Health ("NIH") and similar
domestic and international agencies. The funding associated with approved NIH
grants generally becomes available at particular times of the year, as
determined by the federal government, and may result in fluctuations in the
Company's operating results. Although research funding has increased during the
past several years, grants
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<PAGE> 12
have, in the past, been frozen for extended periods or have otherwise become
unavailable to various institutions, sometimes without advance notice.
Furthermore, government proposals aiming to reduce or eliminate budgetary
deficits have included reduced allocations to the NIH and the other government
agencies that fund research and development activities. If government funding,
especially NIH grants, were to become unavailable to researchers for any
extended period of time or if overall research funding were to decrease, there
could be a material adverse effect on the Company's business, financial
condition and results of operations.
Risks Inherent in Growth, Expansion and Acquisition Strategy. The Company
has sought and will continue to seek growth in sales and profitability primarily
through the internal development and acquisition of new product lines,
additional customers and new businesses. A significant portion of the Company's
historical revenue growth is attributable to internal product development,
sourcing of third-party products and, more recently, from its acquisition of the
Oncogene Research Products business from Oncogene Science, Inc., a
biopharmaceutical company. The ability of the Company to achieve its expansion
objectives and to manage its growth effectively depends upon a variety of
factors, including (i) the ability to internally develop products, (ii) the
ability to identify and license products sourced from third parties, (iii) the
ability to successfully position and market its products, (iv) the ability to
identify and consummate attractive acquisitions and (v) the ability to integrate
new businesses, facilities and personnel into existing operations. If the
Company is unable to manage growth effectively, there could be a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company competes for acquisition and expansion opportunities with
other companies that have significantly greater financial and other resources
than those of the Company. There can be no assurance that suitable acquisition
or investment opportunities will be identified, consummated, or, if consummated,
integrated successfully and profitably into the Company's operations. Moreover,
there can be no assurance that the Company's historic rate of growth or
expansion will continue, or that further growth or expansion will result in
continued profitability.
Reliance on Niche Research Market Strategy. Key elements of the Company's
strategy include the targeting and penetration of emerging life sciences niche
research markets and the continued development of the niche research markets
currently served by the Company. If the Company is unable to successfully target
and penetrate these niche research markets or is unable to continue developing
the niche research markets currently served or if the Company's new products are
not accepted by research scientists, there could be a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the Company currently benefits from its participation in emerging
niche research markets which, as they expand, may attract the attention of the
Company's competitors. Further, as these niche research markets mature, products
that were once innovative, thus commanding higher margins, may become
commodities.
Dependence on New Products; Rapid Technological Change. The life sciences
research products market is characterized by rapid technological change and
frequent product introductions. The Company's future success will depend, in
part, on its ability to develop and introduce, on a timely basis, products that
address the evolving needs of its customers. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of products. The Company has
experienced, and may in the future experience, delays in the development and
introduction of products, and there can be no assurance that the Company will
keep pace with the rapid rate of change in life sciences research, and will not
experience additional delays in the future. In addition, there can be no
assurance that new products will adequately meet the requirements of the
marketplace or achieve market acceptance. Factors affecting whether such
products will be accepted by the market include use of the product by research
scientists, citation of the product in published research, the timing of market
entry of the product relative to competitive products and general trends in life
sciences research. If the Company is unable, for technological or other reasons,
to develop and introduce products in a timely manner in response to changing
market environments or customer requirements, there could be a material adverse
effect on the Company's business, financial condition and results of operations.
12
<PAGE> 13
Dependence on Licensing as a Source of Products. Many of the Company's
products are manufactured or sold pursuant to license agreements under which the
Company pays royalties to the patent holder based upon a percentage of the
product's sales. There can be no assurance that the Company will be able to
continue to successfully identify new products developed by others, and if
identified, to negotiate license agreements on favorable terms. Additionally,
there can be no assurance that the Company will be able to renew any existing
license agreements upon their expiration.
Highly Competitive Market. The market for the Company's products is highly
competitive, and the Company expects competition to increase. Furthermore,
although the life sciences research products market continues to grow, its rate
of growth in recent years has been declining and may continue to decline. The
Company competes with many other life sciences research products suppliers, both
larger and smaller than the Company. Some of the Company's competitors,
including two of its largest competitors, Sigma-Aldrich Corporation and
Boehringer Mannheim GmbH (who's parent company was acquired by F. Hoffman-La
Roche AG in May 1997), offer a broad range of equipment, laboratory supplies and
other products, including many of the research products offered by the Company.
To the extent that researchers exhibit loyalty to the supplier that first
supplies them with a particular research product, the Company's competitors may
have an advantage over the Company with respect to products first developed by
such competitors. In addition, many of the Company's competitors have
significantly greater research and development, marketing, financial and other
resources than the Company, and therefore represent and will continue to
represent significant competition in the Company's existing and future markets.
Because of their size and the breadth of their product offerings, certain of
these companies have been able to establish managed accounts by which, through a
combination of direct computer links and volume discounts, they seek to gain a
disproportionate share of orders for research products from particular academic
institutions or pharmaceutical or biotechnology companies. Such managed accounts
raise significant competitive barriers for the Company. The Company currently
benefits from its participation in emerging niche research markets which, as
they expand, may attract the attention of the Company's competitors.
Reliance on Catalogs, Distributors and Direct Marketing Efforts; Limited
Sales Force. The Company sells its products principally through catalogs
distributed to research scientists and laboratories, and uses only a very
limited number of salespeople in certain of its markets. There can be no
assurance that the Company would be able to successfully establish other methods
of marketing and sales of its products should it become necessary or desirable
in the future. Additionally, the Company's catalogs are generally reissued every
12 to 24 months and price adjustments between catalog publication dates have
historically been infrequent. A significant portion of the Company's
international sales are made through independent distributors over which the
Company has no control and who also represent products of other companies.
Additionally, the Company recently entered into a joint distribution agreement
relating to its Apoptosis specialty catalog. The loss of any of these
distribution methods could have a material adverse effect on the Company's
business, financial condition and results of operations.
Volatility of Bulk Sales Business. In addition to sales of its core
products in standard laboratory quantity sizes (generally ranging from 100
nanograms to 100 grams), the Company offers certain products in bulk quantities
(generally up to ten kilograms) at discounts from catalog prices. Bulk sales,
which represented 17.0% of net sales during the six months ended June 30, 1997,
are generally characterized as relatively high dollar sales made to a limited
number of customers. Thus, the absence or presence of a bulk sale could have a
material impact on quarterly results. Furthermore, the Company's bulk sales
business fluctuates more and is less predictable than its core business, and the
uncertain timing and volatility of bulk sales has in the past and may continue
in the future to materially affect the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Significant Fluctuations in Quarterly Earnings. The Company's quarterly
operating results may vary significantly from quarter to quarter as a result of
a number of factors including new editions of existing catalogs, introduction of
additional specialty catalogs and bulk sales of the Company's products. Other
factors which may affect quarterly operating results include the timing of the
U.S. Government approval of the NIH budget, lower European and academic sales
during the summer months and various holiday breaks and fluctuations in weather.
The Company's current and planned expense levels are based in part upon its
13
<PAGE> 14
expectations as to future revenues. Consequently, if revenues in a particular
quarter do not meet expectations, the Company may not be able to adequately
adjust operating expenses to compensate for the shortfall. Operating results may
therefore vary significantly from quarter to quarter and will not necessarily be
indicative of results in subsequent periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Uncertainty of Future Operating Results. Although the Company has had net
income for the past two years, the Company incurred net losses for the period
from its inception (March 11, 1992) through December 31, 1992 and the years
ended December 31, 1993 and 1994. Future operating results will depend on many
factors, including demand for the Company's products, the levels and timing of
government and private sector funding of life sciences research and development
activities, the timing of the introduction of products and catalogs by the
Company or its competitors, and the Company's ability to control costs.
Furthermore, the Company's gross margins can be significantly affected by the
presence or absence of bulk sales during any particular period and quarterly
fluctuations in sales relative to operating expenses. There can be no assurance
that the Company will be able to grow in future periods or remain profitable.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risks Relating to International Sales and Operations. Historically,
product sales to customers outside the United States have accounted for
approximately 50% of the Company's net sales, and the Company expects that
international sales will continue to account for a significant percentage of
revenues in the future. International sales and operations may be materially
adversely affected by trade restrictions, changes in tariffs and taxes, export
license requirements, difficulties in staffing and managing international
operations, problems in establishing or managing distributor relationships and
general economic conditions.
A majority of the Company's sales are denominated in U.S. dollars, with
the balance denominated in foreign currencies. Additionally, the Company
publishes a number of its catalogs priced in foreign currencies and price
adjustments between catalog publication dates to reflect fluctuations in the
value of foreign currencies relative to the U.S. dollar have historically been
infrequent. Consequently, fluctuations in the value of foreign currencies
relative to the U.S. dollar could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risk of Patent Infringement. Because of the breadth of the Company's
product offerings and ambiguities in intellectual property law, the Company
periodically receives in the ordinary course of business notices of potential
infringement of patents held by others. Although the Company historically has
been able to satisfactorily resolve such claims and believes that any
outstanding claims will be satisfactorily resolved, there can be no assurance
that the Company may not be forced to discontinue the sale of one or more of its
products, some or all of which could be material. As the Company develops
product offerings focused on certain niche research markets, intellectual
property rights of the Company or others related to such markets may become
increasingly important, and the Company's failure to obtain and retain such
rights may have a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Key Personnel. The Company's future success depends in
significant part on the continued service of, and on the Company's continuing
ability to attract and retain, highly qualified technical, managerial and sales
personnel. Competition for such personnel is intense in the Company's industry
and geographic locations, and there can be no assurance that the Company will be
able to retain or attract such employees in the future. The loss of key
personnel or the inability to hire or retain qualified personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has entered into employment agreements with
Stelios B. Papadopoulos, its Chairman, Chief Executive Officer and President,
and Ben Matzilevich, its Vice President, Market Development -- Niche
Applications.
Risk Relating to the Influence of the Internet on Marketing and Catalogs.
The Internet has begun to change marketing patterns in a wide variety of
industries. The high degree of personal computer usage within scientific
research organizations may lead to entirely new methods of marketing and sales
of
14
<PAGE> 15
research products. While the Company has established home pages on the Internet
for the Calbiochem, Novabiochem and Oncogene Research Products brands, the
Company may not be able to keep pace with the rate of change in its markets
brought about by the Internet and may invest in catalogs or Internet-based
projects which future changes may render obsolete.
Compliance with Government and Environmental Regulations. The Company is
subject to various forms of government regulations, including environmental and
safety laws and regulations and laws governing use and storage of hazardous
materials. The Company has in the past been notified of minor violations of
government and environmental regulations. The Company has promptly corrected
such violations without any material impact on the Company's operations. Any
future violation of, and the cost of compliance with, these laws and regulations
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Because of the nature of its operations and the use of hazardous
substances in its ongoing manufacturing and research and development activities,
the Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacturing, storage,
air emission, effluent discharge, handling and disposal of certain materials and
wastes. Prior to the Company's inception, its U.S. subsidiary, at the time it
was owned by its former owners, was involved in two separate incidents related
to the release of hazardous materials into the environment at a leased facility
which is no longer occupied by the Company. The Company believes from a review
of correspondence from various regulatory agencies that these incidents were
investigated and remediated by the U.S. subsidiary's former owners. Although the
Company believes it is in material compliance with all applicable government and
environmental laws, rules, regulations, and policies, there can be no assurance
that the Company's business, financial condition and results of operations will
not be materially adversely affected by current or future environmental laws,
rules, regulations and policies or by liability arising out of any past or
future releases or discharges of materials that could be hazardous.
Product Liability Risk; Limited Insurance Coverage. Although the Company
does not sell products intended for use in humans, or, with the exception of its
Clinalfa products, sell products intended for use in human clinical trials, the
Company's business could expose it to potential liability risks. The Company
currently has only limited product liability insurance, and there can be no
assurance that it will be able to maintain such insurance or obtain additional
insurance on acceptable terms or that insurance will provide adequate coverage
against potential liabilities. A successful product liability claim or a series
of claims brought against the Company in excess of its insurance coverage limits
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Holding Company Structure. The Company is a holding company, the principal
assets of which are the capital stock of its subsidiaries, and has no
independent means of generating operating revenues. As a holding company, the
Company depends on dividends and other permitted payments from its subsidiaries,
including its international subsidiaries, to meet its cash needs. The Company
maintains cash balances at its various subsidiaries adequate to support local
operations. The amount of foreign-sourced earnings to be repatriated to the
United States is determined based upon foreign entity capitalization, local cash
needs, local and U.S. tax implications and requirements for cash in the U.S.
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Substantial Influence of Principal Stockholder. The Company's principal
stockholder, Warburg, Pincus Investors, L.P. ("Warburg") beneficially owned
approximately 40.4% of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), as of August 6, 1997. Because of such ownership, Warburg has
substantial influence over the election of all members of the Board of Directors
and corporate actions requiring stockholder approval. Additionally, pursuant to
an agreement with the Company, Warburg has certain rights to nominate directors
as long as it continues to own specified percentages of the outstanding shares
of Common Stock.
Anti-Takeover Provisions. Under the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation"), the Company's
Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those
15
<PAGE> 16
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue shares of Preferred Stock. The Company is also subject to
the provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law. Additionally, the Company has entered into severance
arrangements with each of its executive officers which provide, among other
things, for severance payments if, within 90 days of a "change in control" of
the Company (as defined in the applicable agreements), the executive's
employment is terminated other than for cause or the executive resigns. Such
arrangements could have an anti-takeover effect.
16
<PAGE> 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders (the "Annual
Meeting") on April 23, 1997. Of the 5,172,367 shares of Common Stock
which could be voted at the Annual Meeting, 4,794,393 shares of Common
Stock, representing 92.7%, were represented at the Annual Meeting in
person or by proxy, which constituted a quorum. Voting results were as
follows:
(a) Election of the following persons to the Company's Board of
Directors, to hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified:
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
Joseph P. Landy 4,793,343 1,050
S. Joshua Lewis 4,793,343 1,050
Robert E. McGill III 4,793,343 1,050
Dr. Richard A. Lerner 4,793,343 1,050
Stelios B. Papadopoulos 4,793,343 1,050
</TABLE>
(b) Amendment of the Company's Amended and Restated 1992 Stock Option
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 250,000 shares from 835,000 shares to 1,085,000
shares:
FOR AGAINST ABSTAIN
--- ------- -------
4,791,343 2,450 600
(c) Ratification of the appointment by the Board of Directors of Ernst
& Young LLP as the independent public auditors of the Company for the
fiscal year ending December 31, 1997:
FOR AGAINST ABSTAIN
--- ------- -------
4,793,122 1,090 181
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3(a) Amended and Restated Certificate of Incorporation*
3(b) Amended and Restated By-Laws*
10(n)(xx) Amendment to Loan Agreement, dated June 27, 1997, by
and between Silicon Valley Bank and
Calbiochem-Novabiochem Corporation.
10(n)(xxi) Schedule to Loan and Security Agreement, dated June
27, 1997, by and between Silicon Valley Bank and
Calbiochem-Novabiochem Corporation.
11 Statement re computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the three
months ended June 30, 1997.
- ---------------------
* Incorporated by reference from the Registrant's Form 10-Q for the
quarterly period ended September 30, 1996 (File No. 000-21281)
18
<PAGE> 19
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.
CN BIOSCIENCES, INC.
August 11, 1997 /s/ Stelios B. Papadopoulos
---------------------------
Stelios B. Papadopoulos
Chief Executive Officer, Chairman
and President
(duly authorized officer)
August 11, 1997 /s/ James G. Stewart
--------------------
James G. Stewart
Vice President, Chief Financial Officer
and Secretary
(principal financial officer)
19
<PAGE> 20
INDEX OF EXHIBITS
Exhibit Number Description
3(a) Amended and Restated Certificate of Incorporation*
3(b) Amended and Restated By-Laws*
10(n)(xx) Amendment to Loan Agreement, dated June 27, 1997, by and
between Silicon Valley Bank and Calbiochem-Novabiochem
Corporation.
10(n)(xxi) Schedule to Loan and Security Agreement, dated June 27, 1997,
by and between Silicon Valley Bank and Calbiochem-Novabiochem
Corporation.
11 Statement re computation of per share earnings
27 Financial Data Schedule
- ---------------------
* Incorporated by reference from the Registrant's Form 10-Q for the
quarterly period ended September 30, 1996 (File No. 000-21281)
20
<PAGE> 1
EXHIBIT 10(n)xx
[LOGO] SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: CALBIOCHEM-NOVABIOCHEM CORPORATION
ADDRESS: 10394 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA 92121
DATE: JUNE 27, 1997
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend, effective as of the date hereof, the Loan
and Security Agreement between them dated July 28, 1995, as amended by that
Amendment to Loan Agreement dated November 22, 1995, effective as of September
30, 1995, as amended by that Amendment to Loan Agreement dated January 24, 1996,
and as amended by that Amendment to Loan Agreement dated May 27, 1997 (as so
amended and as otherwise amended from time to time, the "Loan Agreement") as
follows: (Capitalized terms used but not defined in this Amendment, shall have
the meanings set forth in the Loan Agreement.)
1. MODIFICATION TO SCHEDULE. The Schedule to the Loan Agreement is
hereby deleted and replaced with the Schedule to Loan Agreement as attached
hereto, provided that the Supplement to Schedule to Loan Agreement shall not be
considered deleted and shall be deemed attached to the Schedule as amended
hereby.
2. MODIFICATION TO SUPPLEMENT TO SCHEDULE. The Supplement to Schedule
to Loan Agreement is hereby amended by replacing the definition of "Interest
Rate" set forth in Section 1 thereof with the definition of "Interest Rate" as
set forth below:
"'Interest Rate' shall mean as to: (a) Prime Rate Revolving Loans, a
rate per annum equal to the Prime Rate; and (b) LIBOR Rate Revolving
Loans, a rate of 2.35% per annum in excess of the LIBOR Rate (based on
the LIBOR Rate applicable for the Interest Period selected by the
Borrower)."
3. FEE. Borrower shall pay to Silicon a fee in the amount of $12,500,
which shall be in addition to interest and to all other amounts payable
hereunder, and which shall not be refundable.
4. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
-1-
<PAGE> 2
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
- --------------------------------------------------------------------------------
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
BORROWER: SILICON:
CALBIOCHEM-NOVABIOCHEM CORPORATION SILICON VALLEY BANK
BY /s/ LINDA LE BEAU
------------------------------
BY /s/ JAMES G. STEWART TITLE SVP
------------------------------- ----------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ ARTHUR E. ROKE
-------------------------------
SECRETARY OR ASS'T SECRETARY
CONSENT
The undersigned guarantors acknowledge that their consent to the
foregoing Amendment is not required, but the undersigned nevertheless do hereby
consent to the foregoing Amendment and to the documents and agreements referred
to therein and to all future modifications and amendments thereto, and to any
and all other present and future documents and agreements between or among the
foregoing parties. Nothing herein shall in any way limit any of the terms or
provisions of the Guaranties executed by the undersigned in favor of Silicon,
all of which are hereby ratified and affirmed and shall continue in full force
and effect.
CN BIOSCIENCES, INC. CALBIOCHEM-NOVABIOCHEM AG
By: /s/ JAMES G. STEWART By: /s/ STELIOS B. PAPADOPOULOS
------------------------------ -----------------------------
Title: VICE PRESIDENT Title: DIRECTOR
--------------------------- --------------------------
-2-
<PAGE> 1
EXHIBIT 10(n)xxi
[LOGO] SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: CALBIOCHEM-NOVABIOCHEM CORPORATION
ADDRESS: 10394 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA 92121
DATE: JUNE 27, 1997
THIS SCHEDULE is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
CREDIT LIMIT
(Section 1.1):
An amount not to exceed $5,000,000 at
any one time outstanding (the "Revolving
Loans" and the loan facility is referred
to as the "Revolving Loan Facility").
LETTER OF CREDIT SUBLIMIT: Silicon, in its reasonable discretion,
will from time to time during the term
of this Agreement issue letters of
credit for the account of the Borrower
("Letters of Credit"), in an aggregate
amount at any one time outstanding not
to exceed $500,000, upon the request of
the Borrower, provided that, on the date
the Letters of Credit are to be issued,
Borrower has availability under the
Revolving Loan Facility in an amount
equal to or greater than the face amount
of the Letters of Credit to be issued.
Prior to the issuance of any Letters of
Credit, Borrower shall execute and
deliver to Silicon Applications for
Letters of Credit and such other
documentation as Silicon shall specify
(the "Letter of Credit Documentation").
Fees for the Letters of Credit shall be
as provided in the Letter of Credit
Documentation. Letters of Credit may
have a maturity date up to twelve months
beyond the Maturity Date in effect from
time to time, provided that if on the
Maturity Date, or on any earlier
effective date of termination, there are
any outstanding letters of credit issued
by Silicon or issued by another
institution based upon an application,
guarantee, indemnity or similar
agreement on the part of Silicon, then
on such date Borrower shall provide to
Silicon cash collateral in an amount
equal to the face amount of all such
letters of credit plus all interest,
fees and costs due or to become due in
connection therewith, to secure all of
the Obligations relating to said letters
of credit, pursuant to Silicon's then
standard form cash pledge agreement.
The Loans available under Revolving Loan
Facility at any time shall be reduced by
the face amount of Letters of Credit
from time to time outstanding.
-1-
<PAGE> 2
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
RESERVE RELATING LOAN The Loans available under
the Revolving Loan Facility at any time
shall be reduced by an amount determined
by Silicon, in its discretion, up to
$200,000 relating to the loan made by
Silicon to Stelios Papadopoulos.
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $3,000,000 (the "Contract Limit")
may be utilized for spot and future
foreign exchange contracts (the
"Exchange Contracts"). The Credit Limit
regarding the Revolving Loan Facility
available at any time shall be reduced
by the following amounts (the "Foreign
Exchange Reserve") on each day (the
"Determination Date"): (i) on all
outstanding Exchange Contracts on which
delivery is to be effected or settlement
allowed more than two business days from
the Determination Date, 10% of the gross
amount of the Exchange Contracts; plus
(ii) on all outstanding Exchange
Contracts on which delivery is to be
effected or settlement allowed within
two business days after the
Determination Date, 100% of the gross
amount of the Exchange Contracts. In
lieu of the Foreign Exchange Reserve for
100% of the gross amount of any Exchange
Contract, the Borrower may request that
Silicon debit the Borrower's bank
account with Silicon for such amount,
provided Borrower has immediately
available funds in such amount in its
bank account.
Silicon may, in its discretion,
terminate the Exchange Contracts at any
time (a) that an Event of Default occurs
or (b) that there is not sufficient
availability under the Credit Limit and
Borrower does not have available funds
in its bank account to satisfy the
Foreign Exchange Reserve. If either
Silicon or Borrower terminates the
Exchange Contracts, and without
limitation of the FX Indemnity
Provisions (as referred to below),
Borrower agrees to reimburse Silicon for
any and all fees, costs and expenses
relating thereto or arising in
connection therewith.
Borrower shall not permit the total
gross amount of all Exchange Contracts
on which delivery is to be effected and
settlement allowed in any two business
day period to be more than $500,000 (the
"Settlement Limit"), nor shall Borrower
permit the total gross amount of all
Exchange Contracts to which Borrower is
a party, outstanding at any one time, to
exceed the Contract Limit.
Notwithstanding the above, however, the
amount which may be settled in any two
(2) business day period may, in
Silicon's sole discretion, be increased
above the Settlement Limit up to, but in
no event to exceed, the amount of the
Contract Limit (the "Discretionary
Settlement Amount") under either of the
following circumstances (the
"Discretionary Settlement
Circumstances"):
(i) if there is sufficient
availability under the Credit Limit
regarding the Revolving Loan
Facility in the amount of the
Foreign Exchange Reserve as of each
Determination Date, provided that
Silicon in advance shall reserve the
full amount of the Foreign Exchange
Reserve against the Credit Limit
regarding the Revolving Loan
Facility; or
-2-
<PAGE> 3
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
(ii) if there is insufficient
availability under the Credit Limit
regarding the Revolving Loan
Facility as to settlements within
any two (2) business day period if
Silicon is able to: (A) verify good
funds overseas prior to crediting
Borrower's deposit account with
Silicon (in the case of Borrower's
sale of foreign currency); or (B)
debit Borrower's deposit account
with Silicon prior to delivering
foreign currency overseas (in the
case of Borrower's purchase of
foreign currency);
Provided that it is expressly understood
that Silicon's willingness to adopt the
Discretionary Settlement Amount is a
matter of Silicon's sole discretion and
the existence of the Discretionary
Settlement Circumstances in no way means
or implies that Silicon shall be
obligated to permit the Borrower to
exceed the Settlement Limit in any two
business day period.
In the case of Borrower's purchase of
foreign currency, Borrower in advance
shall instruct Silicon upon settlement
either to treat the settlement amount as
an advance under the Credit Limit
regarding the Revolving Loan Facility,
or to debit Borrower's account for the
amount settled.
The Borrower shall execute all standard
form applications and agreements of
Silicon in connection with the Exchange
Contracts, and without limiting any of
the terms of such applications and
agreements, the Borrower will pay all
standard fees and charges of Silicon in
connection with the Exchange Contracts.
Without limiting any of the other terms
of this Loan Agreement or any such
standard form applications and
agreements of Silicon, Borrower agrees
to indemnify Silicon and hold it
harmless, from and against any and all
claims, debts, liabilities, demands,
obligations, actions, costs and expenses
(including, without limitation,
attorneys' fees of counsel of Silicon's
choice), of every nature and
description, which it may sustain or
incur, based upon, arising out of, or in
any way relating to any of the Exchange
Contracts or any transactions relating
thereto or contemplated thereby
(collectively referred to as the "FX
Indemnity Provisions").
The Exchange Contracts shall have
maturity dates no later than the
Maturity Date.
SUPPLEMENT: The Supplement to Schedule to Loan
Agreement (the "Supplement") as attached
to the original Schedule to Loan
Agreement, as amended, is incorporated
into and forms a part of this Schedule
and this Loan Agreement.
INTEREST RATE (Section 1.2): Interest on the Loans shall be paid at
the applicable Interest Rate (as defined
in the Supplement).
Interest shall be calculated on the
basis of a 360-day year for the actual
number of days elapsed.
"Prime Rate" means the rate announced
from time to time by Silicon as its
"prime rate;" it is a base rate upon
which other rates charged by Silicon are
based, and it is not necessarily the
best rate
-3-
<PAGE> 4
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
available at Silicon. The interest rate
applicable to the Prime Rate-based
Obligations shall change on each date
there is a change in the Prime Rate.
LOAN ORIGINATION FEE
(Section 1.3): See Amendment to Loan Agreement of even
date herewith.
MATURITY DATE
(Section 5.1): JUNE 27, 1999
PRIOR NAMES OF BORROWER
(Section 3.2): CALBIOCHEM CORPORATION; CBC ACQUISITION
CORPORATION
TRADE NAMES OF BORROWER
(Section 3.2): NONE
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): BOULEVARD INDUSTRIAL PARK, PADGE ROAD,
BEESTON, NOTTINGHAM UNITED KINGDOM NG9
2JR; 80-84 ROGERS STREET, CAMBRIDGE,
MASSACHUSETTS.
MATERIAL ADVERSE LITIGATION
(Section 3.10): NONE
NEGATIVE COVENANTS-EXCEPTIONS
(Section 4.6): Without Silicon's prior written consent,
Borrower may do the following, provided
that, after giving effect thereto, no
Event of Default has occurred and no
event has occurred which, with notice or
passage of time or both, would
constitute an Event of Default, and
provided that the following are done in
compliance with all applicable laws,
rules and regulations: (i) Borrower may
upstream funds and make loans to the
Parent without any restriction; and (ii)
Borrower may pay or declare dividends on
Borrower's stock in any form.
FINANCIAL COVENANTS
(Section 4.1): Borrower shall cause the Parent to
comply with all of the following
covenants on a consolidated basis.
Compliance shall be determined as of the
end of each quarter, except as otherwise
specifically provided below:
QUICK ASSET RATIO: Parent shall maintain a ratio of "Quick
Assets" to current liabilities of not
less than 1.75 to 1.
TANGIBLE NET WORTH: Parent shall maintain a tangible net
worth of not less than $34,000,000,
excluding the amount of the foreign
currency translation account.
DEBT TO TANGIBLE
NET WORTH RATIO: Parent shall maintain a ratio of total
liabilities to tangible net worth of not
more than 1.00 to 1.
-4-
<PAGE> 5
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
CLEAN-UP PERIOD: During each annual period on and after
the IPO Consummation, there shall be
period of 30 days when no Loans shall be
outstanding.
DEFINITIONS: "Current assets," and "current
liabilities" shall have the meanings
ascribed to them in accordance with
generally accepted accounting
principles.
"Tangible net worth" means the excess of
total assets over total liabilities,
determined in accordance with generally
accepted accounting principles,
excluding however all assets which would
be classified as intangible assets under
generally accepted accounting
principles, including without limitation
goodwill, licenses, patents, trademarks,
trade names, copyrights, capitalized
software and organizational costs,
licences and franchises.
"Quick Assets" means cash on hand or on
deposit in banks, readily marketable
securities issued by the United States,
readily marketable commercial paper
rated "A-1" by Standard & Poor's
Corporation (or a similar rating by a
similar rating organization),
certificates of deposit and banker's
acceptances, and accounts receivable
(net of allowance for doubtful
accounts).
DEFERRED REVENUES: For purposes of the above quick asset
ratio, deferred revenues shall not be
counted as current liabilities. For
purposes of the above debt to tangible
net worth ratio, deferred revenues shall
not be counted in determining total
liabilities but shall be counted in
determining tangible net worth for
purposes of such ratio. For all other
purposes deferred revenues shall be
counted as liabilities in accordance
with generally accepted accounting
principles.
SUBORDINATED DEBT: "Liabilities" for purposes of the
foregoing covenants do not include
indebtedness which is subordinated to
the indebtedness to Silicon under a
subordination agreement in form
specified by Silicon or by language in
the instrument evidencing the
indebtedness which is acceptable to
Silicon.
OTHER COVENANTS
(Section 4.1): Borrower shall at all times comply with
all of the following additional
covenants:
1. BANKING RELATIONSHIP. Borrower
shall at all times maintain its primary
banking relationship with Silicon.
2. WARRANTS. Borrower shall continue
in effect the Warrant to Purchase Stock
and related documents it entered into
with Silicon in connection with the
original execution of the Loan
Agreement.
3. LINE FEE. Borrower shall pay to
Silicon a quarterly unused line fee
equal to .125% per annum calculated upon
the amount by which the Credit Limit
regarding Revolving Loans exceeds the
average daily principal balance of the
outstanding Revolving Loans and Letters
of Credit during the immediately
preceding quarter (or part thereof)
while this Agreement is in effect and
for so long thereafter as any of the
Obligations are outstanding, which fee
shall be payable on the first day of
each quarter in arrears.
-5-
<PAGE> 6
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the undersigned have
caused this Agreement to be executed by
their duly authorized representatives.
BORROWER:
CALBIOCHEM-NOVABIOCHEM CORPORATION
BY /s/ JAMES G. STEWART
--------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ ARTHUR E. ROKE
-------------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY /s/ LINDA LE BEAU
--------------------------------
BY SVP
-------------------------------
-6-
<PAGE> 1
Exhibit 11.1
CN BIOSCIENCES, INC.
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------- ----------------
1997 1996 1997 1996
---------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) 1,062 393 1,872 857
Average common shares outstanding 5,426 1,848 5,435 1,848
Net effect of dilutive common share equivalents
based on the treasury stock method 300 199 191 199
Adjustments to reflect requirements of the
Securities and Exchange Commission (Effect
of SAB 83) - 50 - 50
----- ----- ----- -----
Adjusted shares outstanding 5,726 2,097 5,626 2,097
----- ----- ----- -----
Historical net income (loss) per share reflecting
requirements of the SEC $0.19 $0.19 $0.33 $0.41
----- ----- ----- -----
Effect of assumed conversion of preferred
shares from date of issuance - 1,380 - 1,380
----- ----- ----- -----
Adjusted shares outstanding 5,726 3,477 5,626 3,477
----- ----- ----- -----
Pro Forma net income (loss) per share $0.19 $0.11 $0.33 $0.25
----- ----- ----- -----
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,733
<SECURITIES> 0
<RECEIVABLES> 6,335
<ALLOWANCES> 0
<INVENTORY> 15,573
<CURRENT-ASSETS> 41,042
<PP&E> 3,890
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,542
<CURRENT-LIABILITIES> 5,824
<BONDS> 0
0
0
<COMMON> 56
<OTHER-SE> 43,609
<TOTAL-LIABILITY-AND-EQUITY> 50,542
<SALES> 19,791
<TOTAL-REVENUES> 19,791
<CGS> 8,890
<TOTAL-COSTS> 8,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,860
<INCOME-TAX> 988
<INCOME-CONTINUING> 1,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,872
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
