<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, 1997 Commission File Number: 1-12748
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-1176514
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1111 S. Paca Street, Baltimore, MD 21230 2834
(Address of principal executive offices) (zip code) (SIC)
(410) 843-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of each of the issuer's classes of common
stock as of September 30, 1997 and September 30, 1996:
<TABLE>
<CAPTION>
OUTSTANDING AT OUTSTANDING AT
CLASS SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
- - ----------------------------------------- ------------------ ------------------
<S> <C> <C>
Class A Common Stock, $.01 par value 5,216,225 3,986,188
Class B Common Stock, $.01 par value -0- -0-
</TABLE>
Page 1 of 13
1
<PAGE>
Chesapeake Biological Laboratories, Inc.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
and March 31, 1997..................................... 3
Consolidated Statements of Operations for the three
months and six months ended September 30, 1997
and 1996............................................... 4
Consolidated Statements of Changes in Stockholders'
Equity for the six months ended September 30, 1997..... 5
Consolidated Statements of Cash Flows for the six
months ended September 30, 1997 and 1996............... 6
Notes to Consolidated Financial Statements.............. 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K......................... 12
Signatures................................................................. 13
</TABLE>
2
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
ASSETS 1997 1997
CURRENT ASSETS: (UNAUDITED) (AUDITED)
<S> <C> <C>
Cash and cash equivalents (Note 2)........ $ 3,965,756 $ 1,432,944
Restricted cash (Note 2).................. 350,000 350,000
Accounts receivable, net (Note 2)......... 1,350,994 714,793
Inventories (Notes 2 and 4)............... 486,466 760,075
Prepaid expenses.......................... 147,147 140,160
Deferred tax asset........................ 50,540 50,540
Interest receivable....................... 51,772 32,616
----------- --------------
Total current assets.................... 6,402,675 3,481,128
PROPERTY AND EQUIPMENT, net (Note 2)....... 7,283,182 4,857,664
BOND FUNDS HELD BY TRUSTEE (Note 6)........ 2,263,798 4,682,998
DEFERRED FINANCING COSTS................... 590,824 395,138
OTHER ASSETS............................... 16,490 27,690
----------- --------------
Total assets............................ $16,556,969 $ 13,444,618
----------- --------------
----------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..... $ 355,791 $ 551,112
Current portion of long term debt and
capital lease obligations (Notes 5 and
6)...................................... 49,769 49,769
Deferred revenue (Note 2)................. 168,579 85,887
----------- ----------------
Total current liabilities............... 574,139 686,768
LONG TERM LIABILITIES:
Long term debt and capital lease
obligations, net of current portion
(Notes 5 and 6).......................... 8,527,972 8,553,985
Deferred rent (Note 5).................... 37,556 52,590
Deferred tax liability.................... 108,549 108,549
---------- ----------------
Total liabilities....................... 9,248,216 9,401,892
---------- ----------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and
5)
STOCKHOLDERS' EQUITY:
Class A common stock, par value $.01 per share;
8,000,000 shares authorized; 5,216,225 and
4,114,558 shares issued and outstanding.. 52,162 41,145
Class B common stock, par value $.01 per share;
2,000,000 shares authorized; no shares
issued and outstanding................... -- --
Additional paid-in capital................ 7,343,951 3,980,836
(Accumulated deficit) retained earnings... (87,360) 20,745
---------- ----------------
Total stockholders' equity (Note 7)....... 7,308,753 4,042,726
----------- ----------------
Total liabilities and stockholders'
equity................................... $16,556,969 $ 13,444,618
----------- ----------------
----------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUE............................. $ 1,745,265 $ 3,015,325 $ 3,461,860 $ 4,579,424
COST OF SALES................................. 1,328,117 1,920,526 2,674,374 3,126,884
------------ ------------ ------------ ------------
GROSS PROFIT.................................. 417,148 1,094,799 787,486 1,452,540
------------ ------------ ------------ ------------
OPERATING EXPENSES
General and administrative................... 368,342 375,608 698,554 688,113
Selling...................................... 167,956 98,323 294,059 211,232
Research and development..................... 13,036 37,983 39,739 105,889
------------ ------------ ------------ ------------
(Loss) income before non-recurring expenses. (132,186) 582,885 (244,866) 447,306
------------ ------------ ------------ ------------
TERMINATED LEASE EXPENSES..................... -- -- 53,789 --
------------ ------------ ------------ ------------
(Loss) income from operations............... (132,186) 582,885 (298,655) 447,306
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income/other income................. 118,304 764 200,013 2,838
Interest expense/other expense............... (38,176) (5,360) (72,954) (9,220)
------------ ------------ ------------ ------------
Total....................................... 80,128 (4,596) 127,059 (6,382)
------------ ------------ ------------ ------------
(Loss) income before benefit from/(provision
for) income taxes........................... (52,058) 578,289 (171,596) 440,924
BENEFIT FROM/(PROVISION FOR) INCOME TAXES
(Note 2).................................... 19,262 (213,967) 63,491 (163,142)
------------ ------------ ------------ ------------
NET (LOSS) INCOME............................. $ (32,796) $ 364,322 $ (108,105) $ 277,782
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET (LOSS) INCOME PER COMMON AND COMMON
EQUIVALENT SHARE............................ $ (.006) $ .089 $ (.023) $ .068
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING.......................... 5,180,217 4,096,788 4,750,573 4,093,698
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
4
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PAID-IN (ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT) TOTAL
---------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, March 31, 1997..................... 4,114,558 $ 41,145 $ 3,980,836 $ 20,745 $ 4,042,726
Issuance of shares pursuant to follow-on
public offering........................... 1,034,793 10,348 3,329,093 -- 3,339,441
Issuance of shares pursuant to exercise of
stock options............................. 66,874 669 34,022 -- 34,691
Net income.................................. -- -- -- (108,105) (108,105)
---------- ----------- -------------- ------------ ------------
BALANCE, September 30, 1997................. 5,216,225 $ 52,162 $ 7,343,951 $ (87,360) $ 7,308,753
---------- ----------- -------------- ------------ ------------
---------- ----------- -------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------
<S> <C> <C>
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................. $ (108,105) $ 277,782
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization........................................................ 177,246 178,140
Deferred income taxes................................................................ -- 62,050
Increase in accounts receivable...................................................... (636,201) (850,157)
Decrease in inventories.............................................................. 273,609 546,728
Increase in prepaid expenses......................................................... (6,987) (24,203)
Increase in interest receivable...................................................... (19,156) --
Increase in other assets............................................................. (6,060) --
Decrease in refundable income taxes.................................................. -- 55,000
(Decrease) increase in accounts payable and accrued expenses......................... (195,321) 93,247
Increase (decrease) in deferred revenue.............................................. 82,692 (55,538)
Decrease in deferred rent............................................................ (15,034) (15,034)
----------- -----------
Net cash (used in) provided by operating activities................................. (453,317) 268,015
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................................................... (2,781,190) (81,024)
Decrease in bond funds held by Trustee............................................... 2,419,200 --
----------- -----------
Net cash used in investing activities............................................... (361,990) (81,024)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long term debt......................................................... (11,210) (11,210)
Repayments of capital lease obligations.............................................. (14,803) (14,578)
Net proceeds from sale of stock...................................................... 3,374,132 5,000
----------- -----------
Net cash provided by (used in) financing activities................................. 3,348,119 (20,788)
----------- -----------
Increase in cash and cash equivalents................................................ 2,532,812 166,203
CASH AND CASH EQUIVALENTS, beginning of period......................................... 1,432,944 240,583
----------- -----------
CASH AND CASH EQUIVALENTS, end of period............................................... $ 3,965,756 $ 406,786
----------- -----------
----------- -----------
CASH PAID DURING THE PERIOD FOR:
Interest............................................................................. $ 55,625 $ 9,220
----------- -----------
----------- -----------
Income taxes......................................................................... $ 1,300 $ 7,773
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Chesapeake Biological Laboratories, Inc. ("CBL" or "the Company") is an
established provider of pharmaceutical and biopharmaceutical product
development and production services on a contract basis for a broad range of
customers, from major international pharmaceutical firms to emerging
biotechnology companies. Since 1990, CBL has provided its product development
services to more than 80 pharmaceutical and biotechnology companies and has
contributed to the development and production of more than 100 therapeutic
products intended for human clinical trials. Customers contract with the
Company to produce development stage products for use in Food and Drug
Administration ("FDA") clinical trials and to produce and manufacture FDA
approved products for commercial sale. The Company's business depends, in
part, on strict government regulation of the drug development process,
especially in the United States. CBL's production facility operates under the
current Good Manufacturing Practices ("cGMP") established and regulated by
the FDA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
CBL and its wholly-owned subsidiary, CBL Development Corp.
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of allowances for doubtful accounts of
$19,300 and $10,300 as of September 30, 1997 and March 31, 1997, respectively.
INVENTORIES
Inventories consist of raw materials, work-in-process and finished goods
which are stated at the lower of cost or market, determined under the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Equipment is depreciated using the straight-line method over estimated useful
lives of three to ten years. The building is depreciated over an estimated
useful life of thirty years. Leasehold improvements are amortized over the term
of the lease.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include amounts invested in securities with
maturities of six months or less which are readily convertible to known amounts
of cash. Included in restricted cash are Company funds of $350,000 which are
being held by First Union National Bank of North Carolina as collateral for the
Company's obligations under the Letter of Credit and Reimbursement Agreement
with First Union National Bank of North Carolina (see Note 6).
REVENUE RECOGNITION
The Company recognizes income when product is shipped or the service has
been provided to the customer. Deferred revenues represent deposits normally
required of customers with development products.
7
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
Deferred income taxes are computed using the liability method, which
provides that deferred tax assets and liabilities are recorded based on the
differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes.
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 options during the
period. No dilution is included for periods with a net loss.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could significantly differ from those
estimates.
3. CONCENTRATIONS OF CREDIT RISK/SIGNIFICANT CUSTOMERS:
The Company's customers span the range of the pharmaceutical and medical
device industries. For most customers, the Company requires an up-front payment
on orders. There are some recurring customers, however, for which CBL has waived
that practice.
The contract manufacturing agreement between the Company and Allergan
Botox, Ltd. ("Allergan") for the production of Vitrax-TM- originally expired
in February 1997. Subsequent to fiscal year ended March 31, 1997, an
agreement was reached between CBL and Allergan which calls for the production
of Vitrax-TM- through December 31, 1997, on modified terms using active
ingredients supplied by Allergan, rather than active ingredients manufactured
by CBL. In addition, Allergan has been relieved of any obligation to purchase
Vitrax-TM- exclusively from the Company.
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
------------- ----------
<S> <C> <C>
Raw materials....................... $ 318,351 $ 324,417
Work-in-process..................... 167,279 433,454
Finished goods...................... 836 2,204
------------- ----------
$ 486,466 $ 760,075
------------- ----------
------------- ----------
</TABLE>
5. LEASES:
In December 1993, the Company entered into a non-cancelable operating
lease agreement for what was then a second facility in Owings Mills, Maryland
to house its corporate offices, warehousing, shipping and receiving
functions. The lease terms had provided for an initial expiration date of
December 31, 1998. However, as of June 1, 1997, the Company negotiated
termination of the Owings Mills facility lease,
8
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LEASES: (CONTINUED)
effective June 1, 1997, in exchange for a termination fee of $30,200 paid by
the Company, resulting in net savings to the Company of approximately
$200,000 over the remaining term of the lease. The rent expense to the
Company under the lease agreement was $25,089 and $72,983 for the six months
ended September 30, 1997 and September 30, 1996, respectively.
The Company's Seton Business Park 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 and two renewal terms of
two years each. Related rental payments for the six months ended September 30,
1997 and 1996, were $118,284 and $117,719, respectively. The operating lease
agreement for the Seton Business Park facility 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.
During previous years, the Company entered into several non-cancelable
capital lease obligations for various pieces of laboratory equipment and
furniture that expire during fiscal year 1999. In addition, in fiscal years 1997
and 1998, the Company entered into several operating leases that expire during
fiscal year 2002.
6. LONG TERM DEBT:
In November 1996, the Company completed the acquisition of an approximately
70,000 square foot building on 3.48 acres in Baltimore, Maryland, which the
Company is now in the process of renovating to provide CBL with office,
warehouse and pharmaceutical manufacturing space. The Company is actively
seeking opportunities and customer contracts to utilize these expanded
capabilities. The purchase and renovation costs were financed with a $7,000,000
Economic Development Bond issued by the Maryland Industrial Development
Financing Authority, and a $1,500,000 loan from the Mayor and City Council of
Baltimore City by and through the Department of Housing and Community
Development. The loan from the City of Baltimore has an interest rate which is
fixed at 6.5%. The bonds are variable rate, tax-exempt and may be converted to a
fixed rate.
The Company has also entered into an interest rate agreement with First
Union National Bank of North Carolina to reduce the potential impact of the
variable interest rates on the bonds. This agreement results in a maximum
interest rate on the bonds of 5.51%, and relates to $6 million of the
outstanding bonds. The agreement became effective in November 1996 and will
expire in November 2003.
The principal portion of the Bonds, and the accrued interest thereon, is
payable from monies drawn under a direct pay Letter of Credit issued by First
Union National Bank of North Carolina (the "Bank"), in amounts up to
$7,280,000. Interest is payable quarterly, commencing February 1, 1997, and
principal portions of the bonds are subject to redemption, in part, commencing
November 1998, in accordance with a schedule set forth in the bonds. The
Maturity Date is August 1, 2018. The loan from the City of Baltimore requires
interest only payments for the first two years, and monthly principal and
interest payments due thereafter through November 2016.
The Company's other long term debt as of September 30, 1997, consists of
loans for a truck and various equipment. The truck loan bears interest at
6.9% and is repayable through December 8, 1998, in equal monthly
installments. The equipment loan bears interest at 8.5% and is repayable
through April 1, 1999, in variable monthly installments.
9
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OFFERING:
On June 11, 1997, the Company entered into an Underwriting Agreement with
Ferris, Baker Watts, Incorporated, pursuant to which Ferris, Baker Watts,
Incorporated agreed to underwrite, on a firm commitment basis, the offering and
sale of 1,000,000 shares covered by the Registration Statement. On June 16,
1997, the initial closing occurred pursuant to the Underwriting Agreement and
the Company sold to the Underwriter 1,000,000 shares of Class A Common Stock in
exchange for net proceeds (after Underwriter's commissions, Underwriter's
expense allowance and other expenses) of approximately $3.2 million.
On July 8, 1997, a closing occurred in connection with the partial exercise
by the Underwriter of its overallotment option, resulting in additional net
proceeds (after Underwriter's commission and expense allowance) to the Company
in the amount of $121,000.
8. NEW ACCOUNTING PRONOUNCEMENTS:
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 simplifies the standards for
computing earnings per share ("EPS") previously found in APB Opinion No. 15,
"Earnings per Share". It replaces the presentation of primary EPS with a
presentation of basic EPS and requires a reconciliation of the numerator and
denominator of the diluted EPS calculation. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed similarly to primary EPS pursuant to APB Opinion No. 15. SFAS 128 is
effective for fiscal years ending after December 15, 1997, and early adoption is
not permitted. When adopted, it will require restatement of prior years' EPS.
Adoption at September 30, 1997 would not have had an impact on EPS for the
quarter.
10
<PAGE>
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, 1997.
Three and six months ended September 30, 1997 and 1996:
Operating revenue was $1,745,000 for the quarter and $3,462,000 for the
six months ended September 30, 1997, compared to $3,015,000 and $4,579,000
for the comparable periods last year. The decrease was attributable to a
decrease in sales of Vitrax-TM- to Allergan from the prior year by $1,533,000
for the quarter and $1,689,000 for the six month period. The contract
manufacturing agreement for the manufacture of Vitrax-TM- for Allergan had
expired in February 1997, but in April 1997, an agreement was reached between
CBL and Allergan which called for extension of the agreement until December
31, 1997, on modified terms providing for the production of Vitrax-TM- using
active ingredient supplied by Allergan, rather than active ingredient
manufactured by CBL. Allergan plans to manufacture Vitrax-TM- at its own
facility in Ireland, and the terms of the extension relieve Allergan of any
obligation to purchase Vitrax-TM- exclusively from CBL. The sales decrease to
Allergan was partially offset by a 23% increase in sales to other customers
for the quarter and a 30% increase in sales to other customers for the six
month period ended September 30, 1997.
Gross profit on sales was $417,000 for the three month period, and $787,000
for the six month period ended September 30, 1997, compared to $1,095,000 and
$1,453,000, respectively, for the same periods last year. The decrease in gross
profit for the quarter and six month period was due primarily to the reduction
in Allergan revenues and, to a lesser extent, the indirect overhead expenses
related to the build-out of the Camden Industrial Park facility.
Selling, general and administrative expenses of $536,000 for the three month
period ended September 30, 1997, increased $62,000 when compared to the same
period last year, and increased $93,000 to $993,000 for the six month period
ended September 30, 1997, as compared to the same period last year. The increase
in these costs are primarily due to an increase in the Company's marketing
effort which has already resulted in sales to new customers. Research and
development expenses were $13,000 and $40,000 for the three and six months ended
September 30, 1997, respectively, versus $38,000 and $106,000 for the same
periods last year. The decrease reflects the fact that the Company's current
customers have products that are further along in the development process than
those being serviced last year.
Other income is up significantly for both the three and six month periods
ended September 30, 1997, compared to the same periods last year. This income is
mainly comprised of interest income on an increased operating cash balance and
on the $3,321,000 raised from the June 1997 public offering. In addition, there
is interest being generated on the unused portion of the MIDFA bond which is
partially offset by the interest expense on the bond.
As a result of the sales decrease to Allergan and increased marketing costs,
there was a net loss for the quarter of $33,000 compared to a net profit of
$364,000 for the comparable quarter last year and a net loss for the six months
of $108,000 versus a $278,000 profit in the prior year period.
FINANCIAL CONDITION AND LIQUIDITY
On September 30, 1997, CBL had cash and cash equivalents of $3,966,000
compared to $1,433,000 at March 31, 1997. These balances do not include $350,000
held as collateral for the Company's obligations under the Letter of Credit and
Reimbursement Agreement with First Union National Bank of North Carolina,
pursuant to which a letter of credit was issued as credit enhancement for bonds
issued by the Maryland Industrial Development Financing Authority. The proceeds
of these bonds were and are being used by the Company to finance a portion of
the purchase price and the renovation and equipping of the Camden Industrial
Park facility. In addition, and not
11
<PAGE>
included in the above sums, $2,264,000 was held at September 30, 1997, by the
Bond Trustee, under the Trust Indenture, entered into in connection with the
bond financing. These funds are held by the Trustee pending disbursement,
subject and pursuant to the terms of the financing documents, to pay the
continuing costs of renovation and equipping of the Camden Industrial Park
facility. The Company continues to maintain a $750,000 Revolving Line of
Credit from the First Union National Bank of Maryland, under which there was
no outstanding balance at September 30, 1997.
The increase in cash and cash equivalents was primarily due to the
completion by the Company of a follow-on public offering of Class A Common
Stock. On April 25, 1997, the Company filed a Registration Statement on Form
S-2 (No. 333-25903), with the United States Securities and Exchange
Commission, pursuant to the Securities Act of 1933, as amended, with respect
to the offering and sale by the Company of 1,000,000 shares of its Class A
Common Stock, together with another 150,000 shares to cover over-allotments.
On June 11, 1997, the Company entered into an Underwriting Agreement with
Ferris, Baker Watts, Incorporated, pursuant to which Ferris, Baker Watts,
Incorporated agreed to underwrite, on a firm commitment basis, the offering
and sale of 1,000,000 shares covered by the Registration Statement. On June
16, 1997, the initial closing occurred pursuant to the Underwriting Agreement
and the Company sold to the Underwriter 1,000,000 shares of Class A Common
Stock in exchange for net proceeds (after Underwriter's commissions,
Underwriter's expense allowance and other expenses) of approximately $3.2
million. On July 8, 1997, an additional 34,793 shares were sold to the
Underwriter in exchange for net proceeds of approximately $121,000. The
proceeds of the offering will be used by the Company for working capital and
other general corporate purposes to fund the Company's continued growth.
Part II. Other Information
Item 1. Legal Proceedings.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
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.
12
<PAGE>
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
-----------------------
Registrant
DATE: By:
---------------------
John C. Weiss, III
President
DATE: By:
----------------------
Thomas C. Mendelsohn
Secretary
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,316
<SECURITIES> 0
<RECEIVABLES> 1,370
<ALLOWANCES> 19
<INVENTORY> 486
<CURRENT-ASSETS> 6,403
<PP&E> 9,240
<DEPRECIATION> 1,957
<TOTAL-ASSETS> 16,557
<CURRENT-LIABILITIES> 574
<BONDS> 8,500
0
0
<COMMON> 7,396
<OTHER-SE> (87)
<TOTAL-LIABILITY-AND-EQUITY> 16,557
<SALES> 3,462
<TOTAL-REVENUES> 3,462
<CGS> 2,674
<TOTAL-COSTS> 3,761
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> (127)
<INCOME-PRETAX> (171)
<INCOME-TAX> (63)
<INCOME-CONTINUING> (108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108)
<EPS-PRIMARY> (.023)
<EPS-DILUTED> (.023)
</TABLE>
