U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- ------- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
_______ 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: 001-13467
COMMONWEALTH BIOTECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Virginia 56-1641133
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
911 East Leigh Street, Suite G-19, Richmond, Virginia 23219
(Address of principal executive offices)
(804) 648-3820
(Issuer's telephone number)
-----------
Check mark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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 No X
As of November 30, 1997, 1,620,514 shares of Common Stock, no par
value, of the registrant were outstanding.
Transitional Small Business Disclosure Format (Check one) Yes: No: X
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
(a) Balance Sheets - September 30, 1997 (Unaudited)
and December 30, 1996
(b) Statements of Operation (Unaudited) - Three and Nine Month
Periods Ended September 30, 1997 and 1996
(c) Statements of Changes in Shareholders' Equity (Unaudited) -
September 30, 1997
(d) Statements of Cash Flows (Unaudited) - Nine Month Period
Ended September 30, 1997
(e) Notes to Unaudited Financial Statements
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(Unaudited) 1996
<S><C> ------------------ ------------------
Current assets
Cash and cash equivalents $ 1,694,238 $ 260,357
Accounts receivable 166,526 116,437
Prepaid expenses 76,930 1,080
------------------ ------------------
Total current assets 1,937,694 377,874
------------------ ------------------
Property and equipment, net 1,169,090 243,611
------------------ ------------------
Other assets
Organization costs, net 1,417 3,183
Deposits 27,955 9,525
Deferred loan costs, net 341,827 -
------------------ ------------------
Total other assets 371,199 12,708
------------------ ------------------
$ 3,477,983 $ 634,193
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Demand note payable $ 42,000 $ -
Current portion of long-term debt 37,293 37,293
Accounts payable 373,799 48,944
Accrued interest payable 205,446 -
Deferred revenue - 200,000
Convertible subordinated notes payable 3,000,000 -
------------------ ------------------
Total current liabilities 3,658,538 286,237
Long-term debt 276,437 185,687
------------------ ------------------
Total liabilities 3,934,975 471,924
------------------ ------------------
Shareholders' equity (deficit)
Common stock, no par value, 10,000,000 shares authorized, 71,273 shares
issued and outstanding at September 30, 1997 (unaudited) and December
31, 1996, and on a proforma basis, 1,506,275
shares issued and outstanding at September 30, 1997 (unaudited) 760 760
Additional paid-in capital 387,391 134,662
Retained earnings (deficit) (845,143) 26,847
------------------ ------------------
Total stockholder's equity (deficit) (456,992) 162,269
------------------ ------------------
$ 3,477,983 $ 634,193
================== ==================
</TABLE>
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
<S><C> ------------------ ------------------ ----------------- -----------------
Revenue
Laboratory services $ 260,112 $ 345,311 $ 688,414 $1,404,523
------------------ ------------------ ----------------- -----------------
Costs and expenses
Cost of services 63,947 270,261 147,950 566,533
Sales, general and administrative 68,714 468,386 166,615 717,607
Research and development 109,651 147,864 195,278 367,975
------------------ ------------------ ----------------- -----------------
Total cost and expenses 242,312 886,511 509,843 1,652,115
------------------ ------------------ ----------------- -----------------
Operating income (loss) 17,800 (541,200) 178,571 (247,592)
------------------ ------------------ ----------------- -----------------
Other income (expense)
Interest expense (4,820) (217,122) (8,591) (227,797)
Amortization of loan costs - (113,942) - (113,942)
Interest income 81 27,121 131 30,476
------------------ ------------------ ----------------- -----------------
Total other income (expense) (4,739) (303,943) (8,460) (311,263)
------------------ ------------------ ----------------- -----------------
Net income (loss) $ 13,061 $ (845,143) $ 170,111 $ (558,855)
================== ================== ================= =================
Proforma presentation applicable
to conversion from
S Corporation to C Corporation
Net income (loss) before proforma
income tax expense $ 47,590 $ (845,143) $ 170,111 $ (558,855)
Proforma income tax expense 20,143 - 44,688 -
------------------ ------------------ ----------------- -----------------
Proforma net income (loss) $ 27,447 $ (845,143) $ 125,423 $ (558,855)
================== ================== ================= =================
Proforma earnings (loss) per
common and common
equivalent share $ 0.05 $ (1.67) $ 0.25 $ (1.10)
Proforma weighted average
common and common
equivalent shares outstanding 506,273 506,273 506,273 506,273
================== ================== ================= =================
</TABLE>
<PAGE>
COMMONWEALTH BIOTECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1997
<S><C> ------------------ ------------------
Cash flows from operating activities
Net income (loss) $ 170,111 $ (558,855)
------------------ ------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 20,956 213,728
Contributed services - 36,346
Changes in:
Accounts receivable (41,193) (50,089)
Prepaid expenses (2,261) (75,850)
Organization costs 394 -
Accounts payable 578 324,854
Accrued interest payable - 205,446
Deferred revenue - (200,000)
------------------ ------------------
Total adjustments (21,526) 454,435
------------------ ------------------
Net cash provided by (used in) operating activities 148,585 (104,420)
------------------ ------------------
Cash flows from investing activities
Purchases of property and equipment (177,492) (1,023,499)
Deposits - (18,430)
------------------ ------------------
Net cash used in investing activities (177,492) (1,041,929)
------------------ ------------------
Cash flows from financing activities
Proceeds from purchase of warrants by founding shareholders - 100
Proceeds from notes payable 230,800 168,481
Principal payments on long-term debt (63,860) (35,731)
Principal payments on capital lease obligations (25,468) -
Principal payments on related party notes payable (1,956) -
Payments made for expenses related to inital public offering - (82,038)
Proceeds from issuance of convertible subordinated notes, net of
deferred loan costs - 2,626,269
Shareholder distributions (64,144) (96,851)
------------------ ------------------
Net cash provided by financing activities 75,372 2,580,230
------------------ ------------------
Net increase in cash and cash equivalents 46,465 1,433,881
Cash and cash equivalents, beginning of period (2,016) 260,357
------------------ ------------------
Cash and cash equivalents, end of period $ 44,449 $ 1,694,238
================== ==================
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 8,591 $ 22,351
================== ==================
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, therefore, do
not include all of the disclosures and notes required by generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the three months and nine month
periods ended September 30, 1997 and 1996 are not necessarily indicative of the
results that may be expected for the entire year or any interim periods.
NOTE B - EARNINGS PER SHARE
The proforma earnings per common and common equivalent share were computed by
dividing the proforma net income, including applying the effects of proforma
income taxes for 1996, by the weighted average number of shares of common stock
and common stock equivalents outstanding during each period. Common stock
equivalents include the effect of the Company's convertible subordinated notes
and warrants that are assumed to be exercised or converted into common stock for
the earliest period presented. The Company's warrants are antidilutive. However,
pursuant to Securities and Exchange Commission ("SEC") rules (Staff Accounting
Bulletin No. 83), shares of stock sold, stock options and warrants granted and
convertible subordinated notes issued within one year of the date of the
contemplated initial public offering (but exclusive of the initial public
offering itself) have been included in the calculation of common stock
equivalents, using the treasury stock method, as if they were outstanding for
all periods presented, even if the effect is antidilutive.
The number of shares outstanding for the purpose of presenting proforma earnings
per common and common equivalent share gives effect retroactively to the
93.78-for-one stock split that occurred on June 17, 1997. After giving
retroactive effect to the stock split, the weighted average number of shares
outstanding during the year ended December 31, 1996 and the nine months ended
September 30, 1997 (unaudited) was 71,273. For December 31, 1996, and September
30, 1997 (unaudited) and September 30, 1996 (unaudited), the average common
equivalent shares used to calculate proforma earnings per common and common
equivalent share were 506,273. This includes the Company's presently outstanding
common shares of 71,273, plus 500,000 shares relating to the Company's
convertible subordinated notes on an "as if converted" basis, and the
antidilutive effect of the Company's 100,000 warrants converted using the
Treasury Stock method to reduce the shares outstanding by 65,000. The
antidilutive component results from the exercise price of $9.90 for each of the
Company's warrants being greater than the $6.00 anticipated market price of the
Company's common stock.
NOTE C - PRIVATE PLACEMENT OFFERING
On June 25, 1997, the Company sold 60 convertible subordinated notes ("notes"),
with a principal amount of $50,000 per note, in a private placement offering at
an offering price of $50,000 per note. Each note bears interest at the rate of
20% and is payable upon the conversion of the note into shares of the Company's
common stock. Interest will be paid through the date of the conversion in the
form of additional shares of common stock that will be issued based on a
conversion price of $6.00 for each share of common stock. Each note will be
automatically converted into a minimum of 8,333.33 shares of the Company's
common stock, upon the earlier of the closing of the Company's proposed IPO, or
on June 25, 1998, the maturity date. Upon conversion, the actual number of
shares issued will equal the principal amount of the notes plus accrued interest
divided by the stated conversion price of $6.00. The Company received net
proceeds of $2,626,269, after underwriting and other offering costs of $373,731.
<PAGE>
NOTE C - PRIVATE PLACEMENT OFFERING(concluded)
Upon the closing of the private placement offering, the Company issued warrants
to members of Management for the purchase of 100,000 shares of common stock. The
warrants were issued to the management team at $.001 per share, and will be
exercisable for a period of ten years at an exercise price of $9.90 per share.
NOTE D - SUBSEQUENT EVENT
On October 28, 1997, the Company consummated an Initial Public Offering (IPO) of
1,015,000 shares at $6 per share for a total of $6,090,000 before offering
expenses. Offering expenses were estimated to be $687,200, which will be netted
against additional paid-in capital. In connection with the IPO, 534,241
additional shares of stock were issued upon conversion of the notes, including
34,241 shares issued for interest on the notes payable. Unamortized loan costs
incurred in connection with the private placement of the notes will be charged
against additional paid-in capital in the fourth quarter.
<PAGE>
Recent Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities. This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities. Those standards are based on consistent
application of a financial components approach that focuses on control of the
affected asset or liability that it controls or surrenders. This Statement is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and is to be applied
prospectively, CBI is not presently expected to be impacted by this Statement in
the foreseeable future.
In October 1996, the FASB issued FASB Statement No. 127 Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125, which deferred
for one year paragraphs 9-12 (Accounting for Transfers and Servicing of
Financial Assets) under FASB No. 125 for securities lending, repurchase
agreements, dollar rolls, and other secured transactions. The FASB also agreed
to defer for one year paragraph 15 (Secured Borrowings and Collateral) under
FASB No. 125 for all transactions.
In February 1997, the FASB issued FASB Statement No. 128, Earnings Per Share.
This statement simplifies the calculation of earnings per share (EPS). It
replaced primary earnings per share with a calculation known as basic EPS. Basic
EPS is calculated by dividing income available to common shareholders by the
weighted average number of common shares outstanding during the period. Fully
diluted EPS has not changed significantly but has been renamed diluted EPS.
Under the new rules, income available to common shareholders should be adjusted
for the assumed conversion of all potentially dilutive securities. The treasury
stock method is used to calculate the dilutive effect of option and warrants.
The treasury stock method is applied using the average market price of CBI's
common stock during the period rather than the higher of the average market
price or ending market price. The dilutive effect of convertible debt or
convertible preferred stock will be calculated using the if-converted method,
which assumes conversion at the beginning of the period if the effect is
dilutive. FASB No. 128 is effective for both interim and annual financial
statements for periods ending after December 15, 1997. Earlier application is
not permitted; however, the statement requires restatement of all prior-period
EPS data presented.
With respect to calculating EPS during the period when an initial public
offering becomes effective, certain Securities and Exchange Commission financial
reporting requirements (Staff Accounting Bulletin (SAB) No. 83, Earnings Per
Share Computations in an Initial Public Offering) are inconsistent with FASB No.
128. Currently, the status of SAB No. 83 is pending; however it is our current
understanding that the requirements of SAB No. 83 should continue to be
followed. If that is the case, the 1997 EPS calculations will not be effected.
However, due to the treatment of antidilutive common stock equivalents under SAB
No. 83, and if, SAB No. 83 is withdrawn or superseded, the denominator of the
EPS calculation would be increased by 65,000 shares for diluted EPS, as defined
by statement No. 128.
In February 1997, the FASB also issued FASB No. 129, Disclosure of Information
about Capital Structure. This statement consolidates the existing guidance from
several other pronouncements relating to an entity's capital structure.
Management does not expect the application of this pronouncement to have a
material impact on CBI's financial statements.
<PAGE>
During June 1997, the FASB issued FASB Statement No. 130, Reporting
Comprehensive Income. This pronouncement establishes standards for reporting and
display of comprehensive income and its components (revenue, expenses, gains and
losses) in a full set of general purpose financial statements. FASB No. 130, is
effective for financial statements beginning after December 15, 1997. Management
does not expect the application of this pronouncement to have a material impact
on CBI's financial statements.
Additionally during June of 1997, the FASB issued FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
pronouncement establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic area and major
customers. This statement becomes, effective for financial statements for
periods beginning after December 31, 1997. Management is currently assessing the
impact of this statement on the Company's future disclosures.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following should be read in conjunction with the Company's
Financial Statements and Notes thereto included as Item 1 to this Form 10-QSB.
Results of Operation
Revenues
The Company's revenues are derived principally from providing
protein/peptide and DNA/RNA chemistries and related analytical services to
researchers in the biotechnology industry. The Company's customers contract with
the Company to provide a discrete range of specific services or to conduct a
more comprehensive research program consisting of a wider variety of services.
In providing these services, the Company has no ownership or other interest in
any intellectual properties which may result from the research. The Company also
derives revenue from government grants which fund the Company's research on its
proprietary technologies.
Gross revenues in the third quarter of 1997 (the "1997 Quarter")
increased $85,199 or 32.8%, from $260,112 in the third quarter of 1996 (the
"1996 Quarter") to $345,311 in the 1997 Quarter. Gross revenues increased
$716,109 or 104.0%, from $688,414 during the nine month period ended September
30, 1996 (the "1996 Period") to $1,404,523 during the nine month period ended
September 30, 1997 (the "1997 Period"). Revenue generated by virtually all
services offered by the Company increased during both the 1997 Quarter and the
1997 Period, with the DNA sequence analysis service showing the largest
percentage revenue increase, in the amount of $48,476 or 185.1%, from $26,190 in
the 1996 Quarter to $74,666 in the 1997 Quarter. Revenues attributable to DNA
sequence analysis increased by $149,740 or 143.9%, from $104,060 in the
1996 Period to $253,800 during the 1997 Period. Revenue realized from various
contract research programs increased by $199,891 or 160.6%, from $124,423 in the
1996 Period to $324,314 in the 1997 Period.
In addition, the Company experienced an increase in revenue realized from
government grants in the amount of $19,390 or 15.0% from $129,454 in the 1996
Quarter to $148,844 in the 1997 Quarter. Revenue attributable to government
grants also increased $148,844 or 150.2%, from $99,117 in the 1996 Period to
$247,960 in the 1997 Period. These grants were provided by the United States
Public Health Service National Institutes of Health or the United States
Department of Agriculture, under the auspices of two different Small Business
Technology Transfer Research Grants and a Small Business Innovative Research
award. The government grants are expense reimbursement grants which provide for
reimbursement of the Company's direct costs incurred in a research project, plus
indirect costs stated as a percentage of direct costs. The Company generally
receives grant payments semi-monthly, with the amount of each payment being
determined by the amount of the costs incurred in the immediately preceding
two-week period.
<PAGE>
Management believes that this increase in revenue is primarily
attributable to an expanded client base and to larger orders from individual
clients resulting from to the Company's enhanced reputation in the industry and
to more effective advertising activities. New marketing initiatives include
expanded advertising in professional journals, attendance at two trade shows,
design of a new marketing brochure, and recruitment of sales representatives in
three major biotechnology markets: Boston/New York, the San Francisco Bay area
and San Diego.
The Company experiences quarterly fluctuations in revenues which arise
primarily from variations in contract status with its large customers. In
addition, the majority of other customer projects are individual orders for
specific projects ranging from $6,000 to $200,000. Engagement for subsequent
projects is highly dependent upon the customer's satisfaction with the services
previously provided, and upon factors beyond the Company's control such as the
timing of product development and commercialization programs of the Company's
customers. The Company is unable to predict for more than a few months in
advance the volume and dollar amount of future projects in any given period.
Therefore, the timing of significant projects could have a significant impact on
the financial results of any given period. The combined impact of several large
contracts from customers and the unpredictable project fluctuations can result
in very large fluctuations in financial performance from quarter to quarter.
Performance of research contracts for two clients was completed in the
third quarter of 1997. One of these clients has indicated that it will probably
begin two new research contracts with the Company in the first quarter of 1998
(totaling $265,000 in revenue over the ensuing year). Additionally, the Company
has bids for several contracts pending, an award of any of which would have a
significant impact on revenues.
Expenses
Cost of services consists primarily of labor and laboratory supplies.
The cost of services increased $206,314 or 322.6%, from $63,947 in the 1996
Quarter to $270,261 in the 1997 Quarter. The cost of services increased by
$418,583 or 282.9%, from $147,950 in the 1996 Period to $566,533 in the 1997
Period. This increase primarily reflects the addition of technical personnel and
experienced scientists to the Company payroll as the Company has expanded its
operations. The Company anticipates hiring additional technical and scientific
personnel in the next several fiscal quarters. Cost of services as a percentage
of revenue was 24.6% in the 1996 Quarter and 78.3% in the 1997 Quarter. Cost of
services as a percentage of revenue was 21.5% in the 1996 Period and 40.3% in
the 1997 Period. The Company experienced increased laboratory supplies cost in
the third quarter of 1997 which reflects one-time additions to inventory
necessary to bring new DNA sequencers, an amino acid analyzer, and a peptide
synthesizer on-line. Cost of services is subject to fluctuation and can cause
results of operations to fluctuate from quarter to quarter, particularly if the
Company purchases supplies but does not record the revenue from the performance
of services until a subsequent quarter.
Sales, general and administrative expenses consist primarily of
compensation and related costs, depreciation and amortization, professional fees
and advertising. Sales, general and administrative expenses increased $399,672
or 581.6%, from $68,714 in the 1996 Quarter to
<PAGE>
$468,386 in the 1997 Quarter. Sales, general and administrative expenses
increased by $550,992 or 330.7%, from $166,615 in the 1996 Period to $717,607 in
the 1997 Period. Sales, general and administrative expenses as a percentage of
revenue were 26.4% in the 1996 Quarter and 135.6% in the 1997 Quarter. Sales,
general and administrative expenses as a percentage of revenue were 24.2% for
the 1996 Period and 51.1% for the 1997 Period. The increase in the percentage
relationship of sales, general and administrative expenses to revenue is
primarily attributable to the addition of the Company's executive officers to
the payroll on a full-time basis in the third quarter of 1997, amounting to
$111,250, and payment of bonuses to the executive officers totaling $150,000, of
which $75,000 has been recognized in the third quarter of 1997 and the balance
will be recognized in the fourth quarter of 1997, and to the addition of
additional personnel to the payroll in 1997. Also contributing to the increase
in sales, general and administrative expenses were increased marketing efforts
in the second and third quarters of 1997, which are expected to continue into
the fourth quarter of 1997. Marketing and advertising expenses increased $15,189
or 90.7%, from $16,736 in the 1996 Quarter to $31,925 in the 1997 Quarter.
Marketing and advertising expenses increased $34,582 or 129.0% from $26,813 in
the 1996 Period to $61,395 in the 1997 Period.
In the third quarter, the Company also experienced a substantial
increase in interest expense in the amount of $219,206 or 2551.5%, from $8,591
in the 1996 Period to $227,797 in the 1997 Period, and an increase in
amortization of loan costs associated with the Company's private placement of
$3,000,000 aggregate principal amount of convertible notes (the "Notes"), in the
amount of $113,942 in the 1997 Period. The Company experienced a one-time charge
to interest expense amounting to $205,446 in the third quarter as a result of
issuance of the Notes in June 1997.
Research and development costs increased $38,213, or 34.8%, from
$109,651 in the 1996 Quarter to $147,864 in the 1997 Quarter. Research and
development costs increased $172,679 or 88.4%, from 195,278 in the 1996 Period
to 367,975 in the 1997 Period. Research and development costs as a percentage of
revenue were 42.2% in the 1996 Quarter and 42.8% in the 1997 Quarter. Research
and development costs as a percentage of revenue were 28.4 % in the 1996 Period
and 26.2% in the 1997 Period. The increase in research and development expenses
is primarily related to developing and improving the Company's automated
sequencing and protein analysis capabilities. Research and development expenses
are likely to continue to increase as the Company's expansion efforts continue.
Liquidity and Capital Resources
The Company has experienced significant fluctuating demands on working
capital due to actual and anticipated growth in all current services. Operating
cash flow provided by (used in) operating activities was ($104,420) in the 1997
Period and $145,585 in the 1996 Period. Net working capital (deficit) was
($1,720,844) in the 1997 Period and $91,637 in the 1996 Period. The working
capital deficit at September 30, 1997 was due to the private placement of the
Notes. Upon completion of an initial public offering of the Company's common
stock on October 28, 1997, the Notes converted into shares of common stock. The
net proceeds from the sale of the Notes amounted to $2,626,269.
<PAGE>
During the first quarter of 1997, the Company received the proceeds of
a term loan from a financial institution in the amount of $102,800. The Company
also financed the purchase of a vehicle under a term loan in the amount of
$23,682. In addition, the Company received the proceeds of a demand loan from a
financial institution in the amount of $42,000. During October 1997, the Company
consolidated its demand and term notes into a single term loan.
For the 1997 Period, the Company made capital expenditures on new
instrumentation, computers and peripheral scientific equipment amounting to
$1,023,499. As a part of its growth strategy, the Company expects to incur
approximately $3,100,000 of capital expenditures, consisting of approximately
$2,600,000 of expenditures on laboratory equipment and related computer
equipment and software, and approximately $500,000 of expenditures on fitting up
new laboratory and office space. The Company expects to incur these expenditures
during the next eighteen months. In the meantime, available funds are invested
in an interest-bearing account at a commercial bank.
Prior to the completion of the private placement of the Notes, the
Company, as a corporation governed by Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), made distributions to its shareholders which
totaled an aggregate of $79,533 in 1996 and $96,851 for the first six months of
1997. In June 1997, the Company altered its taxable status to that of a
corporation governed by Subchapter C of the Code. Due to the operating loss
incurred by the Company during the 1997 Quarter, the Company accrued no
corporate income taxes.
Year 2000 Project
The Year 2000 presents problems for businesses that are dependent on
computer hardware and software to perform date dependent calculations and logic
comparisons. A great deal of software and microchip technology was developed
utilizing two digit years rather than four digit years (example: 97 instead of
1997). Technology utilizing two digit years most likely will not be able to
distinguish the year 2000 from 1900, and therefore may shut down or perform
miscalculations and comparisons as much as 100 years off.
Management is fully aware this presents a potential business
disruption, and has begun a program of due diligence in addressing the impact of
the Year 2000 on the Company and its operations. Once identified, areas of
exposure will be prioritized as to severity and time to cure, with a plan
developed to make the Company and its subsidiaries Year 2000 compliant.
Management anticipates the Company will be Year 2000 compliant.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
On October 28, 1997, the Company completed its initial public offering
of Common Stock (the "Initial Public Offering"). The net proceeds to the Company
from the Initial Public Offering were $5,402,800. Through November 30, 1997, the
Company has not expended any of the Initial Public Offering proceeds, which are
currently invested in an interest-bearing account at a commercial bank.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On September 1, 1997, the shareholders of the Company, by unanimous
written consent, amended the Company's 1997 Stock Incentive Plan to increase the
number of shares of the Company's common stock, no par value per share ("Common
Stock"), issuable thereunder from 376,667 shares to 410,000 shares. Of the
410,000 shares issuable under the Plan, 270,000 shares were reserved for
issuance to Richard J. Freer, Robert B. Harris, Gregory A. Buck and Thomas R.
Reynolds, the Company's founders.
Item 5. Other Information
Not applicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Number Description of Exhibit
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Amended and Restated Bylaws (2)
4.1 Form of Common Stock Certificate (3)
4.2 Form of Underwriter's Warrant, as amended (4)
4.3 Form of Management Warrant, as amended (5)
10.1 Placement Agreement by and between the Company and
Anderson & Strudwick, Incorporated (6)
10.2 Warrant Agreement between the Company and Anderson &
Strudwick, Incorporated(7)
10.3 Warrant Agreement between the Company and Richard J.
Freer, as amended (8)
10.4 Warrant Agreement between the Company and Thomas R.
Reynolds, as amended (9)
10.5 Warrant Agreement between the Company and Gregory A.
Buck, as amended (10)
10.6 Warrant Agreement between the Company and Robert B.
Harris, as amended (11)
10.7 Employment Agreement for Richard J. Freer (12)
10.8 Employment Agreement for Thomas R. Reynolds (13)
10.9 Employment Agreement for Gregory A. Buck (14)
10.10 Employment Agreement for Robert B. Harris (15)
10.11 Executive Severance Agreement for Richard J. Freer (16)
10.12 Executive Severance Agreement for Thomas R. Reynolds (17)
10.13 Executive Severance Agreement for Gregory A Buck (18)
10.14 Executive Severance Agreement for Robert B. Harris (19)
10.15 1997 Stock Incentive Plan, as amended (20)
10.16 Form of Incentive Stock Option Agreement (21)
11.1 Statement re: computation of per share earnings (22)
27.1 Financial Data Schedule (23)
- -------------
(1) Incorporated by reference to Exhibit 3.1 filed with the Company's
Registration Statement on Form SB-2, Registration No. 333-31731.
(2) Incorporated by reference to Exhibit 3.2 filed with the Company's
Registration Statement on Form SB-2, Registration No. 333-31731.
(3) Incorporated by reference to Exhibit 4.1 filed with Amendment No. 1 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(4) Incorporated by reference to Exhibit 4.3 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(5) Incorporated by reference to Exhibit 4.4 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
<PAGE>
(6) Incorporated by reference to Exhibit 10.1 filed with the Company's
Registration Statement on Form SB-2, Registration No. 333-31731.
(7) Incorporated by reference to Exhibit 10.2 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(8) Incorporated by reference to Exhibit 10.3 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(9) Incorporated by reference to Exhibit 10.4 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(10) Incorporated by reference to Exhibit 10.5 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(11) Incorporated by reference to Exhibit 10.6 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(12) Incorporated by reference to Exhibit 10.7 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(13) Incorporated by reference to Exhibit 10.8 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(14) Incorporated by reference to Exhibit 10.9 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(15) Incorporated by reference to Exhibit 10.10 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(16) Incorporated by reference to Exhibit 10.11 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(17) Incorporated by reference to Exhibit 10.12 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(18) Incorporated by reference to Exhibit 10.13 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(19) Incorporated by reference to Exhibit 10.14 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(20) Incorporated by reference to Exhibit 10.15 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(21) Incorporated by reference to Exhibit 10.16 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(22) Filed herewith.
(23) To be filed by amendment.
(b) Reports on Form 8-K.
The Company did not file a Current Report on Form 8-K during the fiscal
quarter ended September 30, 1997.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
COMMONWEALTH BIOTECHNOLOGIES, INC.
By: /s/ Robert B. Harris
--------------------
Robert B. Harris
President
December 10, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Amended and Restated Bylaws (2)
4.1 Form of Common Stock Certificate (3)
4.2 Form of Underwriter's Warrant, as amended (4)
4.3 Form of Management Warrant, as amended (5)
10.1 Placement Agreement by and between the Company and Anderson &
Strudwick, Incorporated (6)
10.2 Warrant Agreement between the Company and Anderson &
Strudwick, Incorporated (7)
10.3 Warrant Agreement between the Company and Richard J.
Freer, as amended (8)
10.4 Warrant Agreement between the Company and Thomas R.
Reynolds, as amended (9)
10.5 Warrant Agreement between the Company and Gregory A.
Buck, as amended (10)
10.6 Warrant Agreement between the Company and Robert B.
Harris, as amended (11)
10.7 Employment Agreement for Richard J. Freer (12)
10.8 Employment Agreement for Thomas R. Reynolds (13)
10.9 Employment Agreement for Gregory A. Buck (14)
10.10 Employment Agreement for Robert B. Harris (15)
10.11 Executive Severance Agreement for Richard J. Freer (16)
10.12 Executive Severance Agreement for Thomas R. Reynolds (17)
10.13 Executive Severance Agreement for Gregory A Buck (18)
10.14 Executive Severance Agreement for Robert B. Harris (19)
10.15 1997 Stock Incentive Plan, as amended (20)
10.16 Form of Incentive Stock Option Agreement (21)
11.1 Statement re: computation of per share earnings (22)
27.1 Financial Data Schedule (23)
- ---------------
(1) Incorporated by reference to Exhibit 3.1 filed with the Company's
Registration Statement on Form SB-2, Registration No. 333-31731.
(2) Incorporated by reference to Exhibit 3.2 filed with the Company's
Registration Statement on Form SB-2, Registration No. 333-31731.
(3) Incorporated by reference to Exhibit 4.1 filed with Amendment No. 1 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(4) Incorporated by reference to Exhibit 4.3 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(5) Incorporated by reference to Exhibit 4.4 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(6) Incorporated by reference to Exhibit 10.1 filed with the Company's
Registration Statement on Form SB-2, Registration No. 333-31731.
(7) Incorporated by reference to Exhibit 10.2 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(8) Incorporated by reference to Exhibit 10.3 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
<PAGE>
(9) Incorporated by reference to Exhibit 10.4 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(10) Incorporated by reference to Exhibit 10.5 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(11) Incorporated by reference to Exhibit 10.6 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(12) Incorporated by reference to Exhibit 10.7 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(13) Incorporated by reference to Exhibit 10.8 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(14) Incorporated by reference to Exhibit 10.9 filed with Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(15) Incorporated by reference to Exhibit 10.10 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(16) Incorporated by reference to Exhibit 10.11 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(17) Incorporated by reference to Exhibit 10.12 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(18) Incorporated by reference to Exhibit 10.13 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(19) Incorporated by reference to Exhibit 10.14 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(20) Incorporated by reference to Exhibit 10.15 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(21) Incorporated by reference to Exhibit 10.16 filed with Amendment No. 2
to the Company's Registration Statement on Form SB-2, Registration No.
333-31731.
(22) Filed herewith.
(23) To be filed by amendment.
Exhibit 11.1
<TABLE>
<CAPTION>
STATEMENT REGARDING
COMPUTATIONS PER SHARE Three months ended Nine months ended
EARNINGS 9/30/96 9/30/97 9/30/96 9/30/97
<S> <C>
EARNINGS PER COMMON AND
EQUIVALENT SHARE
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES (1) 571,273 571,273 571,273 571,273
NET EFFECT OF DILUTIVE
STOCK OPTIONS IN
ACCORDANCE WITH TREASURY
STOCK METHOD (1) (65,000) (65,000) (65,000) (65,000)
---------- ---------- ---------- ----------
TOTAL SHARES OUTSTANDING
506,273 506,273 506,273 506,273
PROFORMA NET INCOME(LOSS)
AFTER PROFORMA INCOME
TAXES $ 67,733 $ (845,143) $ 214,799 $ (558,855)
---------- ---------- ---------- ----------
PER SHARE AMOUNTS:
NET INCOME (LOSS) $ .05 $ (1.67) $ .25 $ (1.10)
---------- ---------- ---------- ----------
</TABLE>
(1) FOR ASSUMPTIONS USED IN THIS EXHIBIT PLEASE SEE NOTE B TO THE
FINANCIAL STATEMENTS
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS
FOR SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,694,238
<SECURITIES> 0
<RECEIVABLES> 166,526
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,937,694
<PP&E> 1,401,882
<DEPRECIATION> 232,792
<TOTAL-ASSETS> 3,477,983
<CURRENT-LIABILITIES> 3,658,538
<BONDS> 0
0
0
<COMMON> 760
<OTHER-SE> (457,752)
<TOTAL-LIABILITY-AND-EQUITY> 3,477,983
<SALES> 1,404,523
<TOTAL-REVENUES> 1,404,523
<CGS> 0
<TOTAL-COSTS> 1,652,115
<OTHER-EXPENSES> 83,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227,797
<INCOME-PRETAX> (558,855)
<INCOME-TAX> 0
<INCOME-CONTINUING> (558,855)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (558,855)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
