<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended SEPTEMBER 30, 1996 Commission File Number: 1-12748
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-1176514
- ---------------------------------- -------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11412 CRONRIDGE DRIVE, OWINGS MILLS, MD 21117 2834
- ---------------------------------------- ------- ------
(Address of principal executive offices) (zip code) (SIC)
(410) 998-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------
The number of shares outstanding of each of the issuer's classes of common stock
as of SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995:
Outstanding at Outstanding at
CLASS SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
----- ------------------ ------------------
Class A Common Stock, $.01 par value 3,986,188 3,979,938
Class B Common Stock, $.01 par value -0- -0-
Page 1 of
1
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
TABLE OF CONTENTS
PAGE
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of
September 30, 1996 and March 31, 1996 . . . . . . 3
Consolidated Statements of Operations for
the three months and six months ended
September 30, 1996 and 1995 . . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the six months ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 9
2
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, March 31,
1996 1996
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(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 406,786 $ 240,583
Accounts receivable, net of allowance
for doubtful accounts of $23,900 and
$16,400, respectively 1,466,236 616,458
Inventories (Notes 1 and 3) 1,140,888 1,687,616
Prepaid expenses 67,840 43,637
Other receivables 547 55,168
Deferred tax asset 87,454 134,639
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TOTAL CURRENT ASSETS 3,169,751 2,778,101
PROPERTY AND EQUIPMENT, net (Notes 1 and 4) 1,417,051 1,514,167
OTHER ASSETS 27,690 27,690
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TOTAL ASSETS $4,614,492 $4,319,958
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 444,989 $ 351,742
Current portion of long term debt and
capital lease obligations
(Notes 2 and 4) 49,769 49,769
Deferred revenue (Note 1) 159,975 215,513
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TOTAL CURRENT LIABILITIES 654,733 617,024
LONG TERM LIABILITIES:
Long term debt and capital lease obligations,
net of current portion (Notes 2 and 4) 79,880 105,668
Other liabilities 67,623 82,657
Deferred tax liability 145,463 130,598
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TOTAL LIABILITIES 947,699 935,947
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COMMITMENTS AND CONTINGENCIES (NOTE 2)
STOCKHOLDERS' EQUITY
Class A common stock, par value $.01 per share;
8,000,000 shares authorized; 3,986,188 and
3,979,938 shares issued and outstanding 39,862 39,799
Class B common stock, par value $.01 per
share; 2,000,000 shares authorized; no
shares issued and outstanding --- ---
Additional paid-in capital 3,832,119 3,827,182
Accumulated deficit (205,188) (482,970)
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TOTAL STOCKHOLDERS' EQUITY 3,666,793 3,384,011
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,614,492 $4,319,958
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The accompanying notes are an integral part
of these consolidated balance sheets.
3
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
(unaudited) (unaudited)
OPERATING REVENUE $3,015,325 $1,676,980 $4,579,424 $3,537,556
COST OF SALES 1,920,526 1,087,783 3,126,884 2,330,949
---------- ---------- ---------- ----------
GROSS PROFIT 1,094,799 589,197 1,452,540 1,206,607
---------- ---------- ---------- ----------
OPERATING EXPENSES
General and
administrative 375,608 302,767 688,113 623,533
Selling 98,323 107,130 211,232 253,540
Research and development 37,983 --- 105,889 ---
---------- ---------- ---------- ----------
INCOME FROM
OPERATIONS 582,885 179,300 447,306 329,534
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income 764 419 2,838 908
Interest expense (5,360) (9,047) (9,220) (14,689)
---------- ---------- ---------- ----------
Total (4,596) (8,628) (6,382) (13,781)
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INCOME BEFORE PROVISION
FOR INCOME TAXES 578,289 170,672 440,924 315,753
PROVISION FOR INCOME
TAXES (NOTES 1) (213,967) (71,682) (163,142) (132,616)
---------- ---------- ---------- ----------
NET INCOME $ 364,322 $ 98,990 $ 277,782 $ 183,137
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME PER COMMON
AND EQUIVALENT SHARE $ .089 $ .025 $ .068 $ .046
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,096,788 3,979,938 4,093,698 3,979,938
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated statements
4
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
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(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 277,782 $ 183,137
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 178,140 156,244
Provision for deferred income taxes 62,050 112,616
Increase (decrease) in accounts receivable (849,778) (122,870)
Decrease (increase) in inventories 546,728 (163,584)
Increase (decrease) in prepaid expenses (24,203) (685)
Decrease (increase) in other receivables 54,621 1,159
Increase (decrease) in deferred revenue (55,538) (16,173)
Increase (decrease) in accounts payable
and accrued expenses 93,247 (174,055)
Increase (decrease) in other liabilities (15,034) (5,081)
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NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 268,015 (29,292)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (81,024) (141,418)
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NET CASH USED IN INVESTING ACTIVITIES (81,024) (141,418)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings --- 121,418
Net proceeds from sale of stock 5,000 ---
Repayments of capital lease
obligations and debt (25,788) (24,408)
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NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (20,788) 97,010
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INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 166,203 (73,700)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 240,583 160,792
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 406,786 $ 87,092
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CASH PAID DURING THE PERIOD FOR:
INTEREST $ 9,220 $ 14,689
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INCOME TAXES $ 7,773 $ 20,000
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The accompanying notes are an integral part of these consolidated statements.
5
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES:
The consolidated financial statements included herein for Chesapeake
Biological Laboratories, Inc. (the "Company" or "Registrant") and its
wholly owned subsidiary, CBL Development Corp. (the "Subsidiary"), have
been prepared from the records of the Company without audit and include,
in management's opinion, all adjustments necessary for a fair presentation.
All such adjustments were of a normal recurring nature. The results for an
interim period are not necessarily indicative of results to be expected for
a full fiscal year. The financial statements have been prepared in
conformity with the accounting principles described in Note 1 to the
Financial Statements included in the Company's 1996 Annual Report on
Form 10-K.
INVENTORIES:
Inventories consist of raw materials, work-in-process and finished goods
which are stated at the lower of cost or market, determined under the
first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost less accumulated depreciation.
Equipment is depreciated using the straight-line method over the estimated
useful lives of three to ten years. Leasehold improvements are amortized
over the term of the lease.
REVENUE RECOGNITION:
The Company recognizes income when product is shipped or services have been
provided to the customer. Deferred revenue represents deposits normally
required of development customers.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include amounts invested in accounts which are
readily convertible to known amounts of cash with a maturity of three
months or less.
INCOME TAXES:
The Company has adopted the provisions of Statement No. 109, "Accounting
for Income Taxes", which was issued by the Financial Accounting Standards
Board in February 1992.
PER SHARE INFORMATION:
Per share information is based on the weighted average number of shares of
common and common equivalent shares outstanding. The Company uses the
Treasury Stock method to calculate the dilutive effect of outstanding
warrants and options at period end based on the Company's stock price on
the AMEX Emerging Company Marketplace.
6
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2. STRATEGIC ALLIANCES:
As a result of negotiations during fiscal 1994, Allergan, a major customer,
has forgiven all of the indebtedness outstanding from CBL to Allergan.
Allergan remains obligated to purchase up to 240,000 units per year of
their VitraxTM requirements which are to be resold in the United States,
exclusively from CBL until February 1997. Allergan may now purchase the
United States requirements for VitraxTM in excess of 240,000 units per
year and all of its requirements for VitraxTM for resale outside of the
United States from CBL or elsewhere.
3. INVENTORIES:
Inventories consist of the following:
September 30, March 31,
1996 1996
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Raw Materials $ 352,125 $ 371,954
Work-in-Process 782,526 1,288,163
Finished Goods 6,237 27,499
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$1,140,888 $1,687,616
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4. LEASES:
In December 1993, the Company entered into a non-cancelable operating lease
agreement for a second facility to house its corporate offices, warehousing,
shipping and receiving. The lease expires December 31, 1998, with two
renewal terms of two years each. The rent expense under the lease agreement
was $72,983 and $75,738 for the 6 months ended September 30, 1996 and
September 30, 1995, respectively.
The Company's original facility is primarily used for production and is
occupied under a non-cancelable operating lease agreement with an initial
six and one-half year term, expiring December 31, 1998, with two renewal
terms of two years each. Related rental payments for the 6 months ended
September 30, 1996, and 1995, were $117,719 and $117,276, respectively. The
operating lease agreement contains terms which feature reduced rental
payments in the early years and accelerated payments toward the end of the
lease term. For financial reporting purposes, rental expense represents an
average of the minimum annual rental payments over the initial six and
one-half year term. On an annual basis, this expense is approximately
$192,000.
The Company has also entered into several non-cancelable capital lease
obligations for various pieces of laboratory equipment and furniture that
expire during fiscal year 1999.
7
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The management discussion below should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996.
Three and six months ended September 30, 1996 and 1995:
Operating revenue was $3,015,000 for the three month period ended
September 30, 1996, compared to $1,677,000 for the comparable period last
year. Although sales to Allergan accounted for most of the increase,
sales to other customers also increased. For the six month period ended
September 30, 1996, operating revenues of $4,579,000 were up 29% versus
operating revenues of $3,538,000 for the comparable period of last year.
Gross profit on sales was $1,095,000 for the three month period, and
$1,453,000 for the six month period, ended September 30, 1996, compared to
$589,000 and $1,207,000 respectively, for the same periods last year. Gross
margin for the three month period ended September 30, 1996, as a percent of
sales, was 36.3%, compared to 35.1% last year for the comparable period. The
increase was despite a charge of $151,000 to write-off costs related to
preliminary efforts in connection with the proposed expansion of the
Company's facilities at one location, but which was abandoned in favor of
pursuing the purchase of an existing building at another location.
Selling, general and administrative expenses of $474,000 for the three
month period ended September 30, 1996, increased $64,000 when compared to the
same period last year, and increased $22,000, to $899,000, for the six month
period ended September 30, 1996, as compared to the same period last year.
Selling, general and administrative expenses decreased to 16% of operating
revenue for the three months ended September 30, 1996, compared to 24% for
the same period last year, and were 20% of operating revenues for the six
month period ended September 30, 1996, versus 25% for the same period last
year. Research and development expenses were $38,000 and $106,000,
respectively, for the three and six months ended September 30, 1996, versus
$0 for the same periods last year.
Net income was $364,000 for the three month period ended September 30,
1996, compared to net income of $99,000 for the same period last year, with
net income of $278,000 for the six month period ended September 30, 1996, as
compared to $183,000 for the same period last year.
FINANCIAL CONDITION AND LIQUIDITY
On September 30, 1996, CBL had cash and cash equivalents of $407,000
compared to $241,000 at March 31, 1996. The major reasons for the increase
in cash were the net income offset by capital expenditures of $81,000 for the
six month period ended September 30, 1996. As of September 30, 1996, the
Company had no balance due under its $750,000 Revolving Line of Credit from
The First Union National Bank.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 5. OTHER INFORMATION.
None
8
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CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE NO.
A. EXHIBITS:
None
B. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Registrant during
the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
-----------------------------
Registrant
DATE: ------------------ By:_____________________________
John C. Weiss, III
President
DATE: ------------------ By:_______________________________
Thomas C. Mendelsohn
Secretary
9
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