Add
CBTE to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| CBTE > SEC Filings for CBTE > Form 10-Q on 14-Aug-2009 | All Recent SEC Filings |
14-Aug-2009
Quarterly Report
The following should be read in conjunction with the Company's Financial Statements and Notes included herein.
Overview
Commonwealth Biotechnologies, Inc. (the "Company" or "CBI") is a specialized life sciences outsourcing business that offers cutting-edge expertise and a complete array of discovery chemistry and biology products and services through CBI Services, Fairfax Identity Labs ("FIL") and Mimotopes Pty Limited ("Mimotopes"), each a division or subsidiary of CBI. In March 2008, the Company entered into a Joint Venture with Beijing-based, Venturepharm Laboratories, Ltd. in order to offer high throughput, low cost drug discovery services through new facilities in China. As of September 30, 2008 Exelgen Limited ("Exelgen") (formerly Tripos Discovery Research Ltd) was closed and is recorded on the financial statements as a discontinued operation.
Business Units
Revenues from all business units are derived principally from providing macromolecular synthetic and analytical services to researchers in the biotechnology industry or to researchers who are engaged in life sciences research in government or academic labs throughout the world. This arrangement distinguishes CBI from many other biotechnology companies in that revenues are derived from services rather than from the successful commercialization of a new biotechnology product. CBI believes that Mimotopes, CBI Services and FIL have all developed a strong reputation as leading providers in their respective markets. Finally, in 2008 CBI entered into a Joint Venture with Beijing based Venturepharm Laboratories, Inc. in anticipation of being able to provide scale and scope to its current offerings. The areas of expertise and value propositions are outlined below.
At its Richmond, Virginia location, CBI Services' core competencies are in the area of genomics and proteomics, principally serving the early stage research and development needs of its clients. These support true drug discovery at the most fundamental stage but also support many of the pre-clinical needs of our clients and, most recently, several clinical trials are being supported. We provide these services under the FDA's Good Laboratory Practices (GLP) Guidelines (21CFR Part 58). CBI is also able to provide clinical trial support under Good Clinical Practices (GCP) Guidelines by virtue of its Clinical Laboratory Improvement Act (CLIA) certification. Finally, CBI is increasing its capability to provide Good Manufacturing Practices (GMP) support for drug product release and drug product testing criteria.
A unique feature of the Richmond location is its Bio-Safety Level 3 (BSL-3) laboratory and its CDC Registration for Select Agents. The Company has capabilities in the area of bacterial and viral organisms and a very strong program in bio-threat toxin analysis. This capability has been at the core of the Company's government-based contracts.
Also at the Richmond location is Fairfax Identity Laboratories (FIL). FIL has been at the forefront of DNA technology of profiling for identity since it opened its doors in 1990. FIL's rigorous standards are designed to provide credible evidence that affects decisions regarding criminal trials, paternity, immigration, estate settlement, adoption, and other issues of identity. FIL provides Forensics, Paternity and Convicted Offender DNA Index System ("CODIS") services to government and private concerns. FIL is accredited by the American Association of Blood Banks, the National Forensic Science Technology Center, and the Department of Health, State of New York. All testing is done under CLIA guidelines. Its employees have extensive laboratory and courtroom experience.
The Melbourne-based Mimotopes Pty Ltd was acquired by CBI in 2007. It provides world class research grade peptide synthesis and analysis. They also have several proprietary technologies for the preparation of peptide and small molecule libraries for drug discovery and for epitope analysis in support of its clients' vaccine development programs. They also have a formal peptide alliance with Genzyme Pharmaceuticals, a world class provider of GMP pharmaceutical grade peptides and also enjoys a strong relationship with GL Biochem, a Shanghai-based peptide synthesis and reagent company.
CBI's China based Joint Venture (JV) with Venturepharm Laboratories, Ltd was signed in March, 2008. As of June 30, 2009, no revenues have been generated as the development of the operations have taken longer than anticipated.
All business units cater to the outsourcing requirements of pharmaceutical and biotechnology companies for reagents (such as peptides, proteins and small molecules), as well as drug research and development. The adoption of outsourcing by the pharmaceutical and biotechnology industries is driven by three major deliverables:
(1) Speed. Faster discovery results accelerate the time to fail or advance a drug through the development pipeline. Eliminating bad leads early or shaving weeks or months from the time it takes to get a drug to market can mean millions of dollars in cost savings.
(2) Quality. All the advantages of an accelerated drug discovery program can be jeopardized if the results do not meet the strict quality standards of the pharmaceutical industry. High quality results depend on quality control, quality equipment and quality people.
(3) Cost. Speed and quality are necessary but insufficient conditions for success. The economic scarcity problem of unlimited wants and needs and limited resources applies to drug discovery outsourcing as well. The more suppliers can offer for less, the more successful they will be.
Going Concern
The accompanying financial statements have been prepared on a going concern basis which contemplates realization of assets and satisfaction of liabilities in the normal course of business. If the Company is unable to improve operating results and meet its debt obligations, it may have to cease operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Losses for the Company were $557,105 and $810,359 for the quarter ended June 30, 2009 and 2008 respectively. For the quarter ended June 30, 2009 and 2008, losses from continuing operations were $557,105 and $678,337 respectively. Losses resulting from the discontinued operation were $0 and $132,022 for the quarter ended June 30, 2009 and 2008, respectively.
Total losses for the Company for the six months ended June 30, 2009 and 2008 were $1,372,208 and 1,922,338 respectively. Recent operating losses may continue into future periods and there can be no assurance by management that the Company's financial outlook will improve. For the six months ended June 30, 2009 and 2008, losses from continuing operations were $1,372,208 and $1,752,073 respectively. Losses resulting from the discontinued operation were $0 and $170,265 for the six months ended June 30 2009 and 2008, respectively.
The Company generated positive cash flows in 2009 of $116,702 and negative cash flows in 2008 of $1,878,708. Net working capital as of June 30, 2009 and 2008 was ($5,300,315) and ($5,256,055) respectively.
The 2009 period reflects cash provided by operating activities of $16,165 as compared to cash used in operating activities of $930,240 during the 2008 period. The reduction over the prior period resulted from savings in selling, general and administrative costs by the Company. Cash provided by investing activities for the 2009 period was $64,465 in comparison to used in investing activities of $6,142 in the 2008 period. The net change relates primarily to the proceeds from the sale of the VenturePharm Stock. Cash provided by financing activities for the 2009 period was $35,076 as compared to cash used in financing activities of $939,726 in the 2008 period. This change reflects the exercising of stock from convertible debt.
During 2009, the Company expects to re-negotiate the terms of its outstanding mortgage debt which becomes due in November 2009, including any non compliance with covenants which causes the Company to be in default. The mortgage includes certain restrictive covenants, which require the Company to maintain minimum levels of the current ratio, debt to net worth and cash flow ratio's. At June 30, 2009, the Company was in violation of the covenants, however, the Company was granted a waiver of the covenants by the bank for six months to June 30, 2009. The Company plans to renegotiate the existing mortgage with either the same financial institution or another one. However there is no certainty that the Company will be successful in renegotiating its outstanding mortgage. The Company also believes that it will be able to satisfy its current debt obligations with LH Financial and Fornova through the issuance of common stock in lieu of cash payment. Subject to compliance with NASDAQ listing standards, the Company believes it will be able to satisfy its debt obligations.
The cash position of the Company will again remain uncertain in 2009. However, the Company will continue to address the immediate needs for cash and liquidity through an aggressive approach on a number of fronts. As indicated previously, when confronted with static revenues and declining cash reserves, management reduced staffing through layoffs and attrition and reduced or eliminated non-production related expenditures. Fiscal practices have been strictly enforced which restricts all material purchases to service on-going work only and serve to minimize all material inventories. Management will continue adhering to these policies for the foreseeable future.
The lack of adequate cash resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. The Company is actively exploring the availability of varying financial and strategic transactions, which, if consummated, would address the Company's need to improve its financial condition and/or its operations.
On June 16, 2009, LH Financial exercised it options on the principal and interest outstanding in the amount of 750,447 shares reducing the liability owed to LH Financial from $1,805,000 to $1,315,900.
On June 22, 2009, the registrant completed the issuance of an aggregate principal amount of $369,950 of subordinated notes (the "Notes") convertible into shares of the registrant's common stock, without par value per share ("Common Stock"), to 6 institutional investors (the "Investors"). The Notes mature on December 31, 2009, and have an interest rate of 8% per annum. The registrant will pay any interest and principal on the maturity date. Prior to maturity, a holder of a Note may convert such Note into shares of the registrant's Common Stock at a conversion price of $0.50 per share. The purchase price for the Notes was paid by the partial surrender of certain outstanding promissory notes and deemed payment of interest in connection therewith. According to the registrant's transfer agent, on June 22, 2009, the registrant had issued and outstanding 7,416,896 shares of common stock. The amount of common stock underlying the Notes represents less than 9.99% of the registrant's issued and outstanding common stock on June 22, 2009. Total shares exercised amounted were 750,447.
On July 16, 2009 the Company announced that an agreement has been signed with Bostwick Laboratories, Inc. ("Bostwick") for the sale of the assets of CBI's Fairfax Identity Laboratories ("FIL") and CBI Services divisions. Bostwick has agreed to purchase such assets for a purchase price of $1,075,000, in cash and certain royalty payments to CBI over a five-year period. In addition, CBI will lease to Bostwick the building located at 601 Biotech Drive, Richmond, Virginia, housing the CBI Services and Fairfax Identity Laboratories. Subject to Bostwick's satisfaction of its two week due diligence inspection and approval of the sale by CBI's shareholders and lenders, the sale is expected to close in the third fiscal quarter of 2009.
On July 22, 2009, the Company reached an agreement with its PIPE investors to extend for 6 months its convertible note facilities of approximately $1.3M that matured on June 30 and has also received consent to suspend the financial covenants under such note facilities through the 3rd Quarter.
On July 22, 2009, the Company entered into a definitive agreement with Biosignal Ltd., an Australian biotechnology company, pursuant to which Biosignal will complete a $1,600,000 investment in the Company and will agree to assign its biofilm technology to the Company. The biofilm technology is based around a family of natural products which disrupt bacterial colonization and thereby inhibit growth. Such biofilm disrupters are expected to be commercialized to support a variety of medical and industrial application.
Pursuant to the terms of a Share Subscription Agreement, Biosignal will purchase 1,600,000 shares of the Company's common stock, without par value, for the purchase price of $1,600,000, paid in the form of a 12 month unsecured convertible note bearing interest at 10% per annum. To the extent Biosignal obtains shareholder approval, Biosignal may, at its option, convert the note and all accrued interest into the aggregate of 65,339,458 shares of Biosignal.
In addition, the Company and Biosignal will enter into a Deed of Assignment to which Biosignal will convey certain intellectual property and contracts related to the development and possible exploitation of Biosignal's biofilm technology to the Company subject to the satisfactory completion of due diligence and other conditions. Biogignal will retain licensed rights to use this intellectual property to service some contracts that are not assigned to the company.
There can be no assurance that any funds required during the next twelve months or thereafter can be generated from operations or that if such required funds are not internally generated that funds will be available from external sources, such as debt or equity financing or other potential sources.
During the last year, the Company's business has undergone substantial change in relation to size, scale and scope of activities. The Company has developed significant capacity in peptide chemistry through the acquisition of Mimotopes. This strategic transaction compliments the core capabilities in genomics and proteomics at CBI Services and FIL. In addition, resources have been invested in the establishment of VenturePharm Asia. The Company views this relationship as a key strategy in expanding production capabilities and services which will further the Company's ability to compete in the global market.
As a result of the above, there is substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
The Company's independent auditors have included a paragraph emphasizing "going concern" in their report on the 2008 financial statements. These financial statements do not include any adjustments relating to the recoverability or classification of asset carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Results of Operations
Three Months Ended June 30, 2009 Compared with Three Months Ended June 30, 2008.
Revenues
During the course of the year, the Company had experienced fluctuations in all revenue categories. Continuation of existing projects or engagement for future projects is usually dependent upon the customer's satisfaction with the scientific results provided in initial phases of the scientific program. Continuation of existing projects or engagement of future projects also often depends upon factors beyond the Company's control, such as the timing of product development and commercialization programs of the Company's customers. The combined impact of commencement and termination of research contracts from several large customers and unpredictable fluctuations in revenue for laboratory services can result in very large fluctuations in financial performance.
Total revenues decreased by $454,214 or 16.6% from $2,736,123 during the second Quarter of 2008 ("the 2008 Quarter") to $2,281,909 during the second Quarter of 2009 ("the 2009 Quarter").
Revenues realized from commercial contracts decreased by $559,105 or 34.0%, from $1,643,399 in the 2008 Quarter to $1,084,294 in the 2009 Quarter. Due to the current economic conditions many clients again have placed future projects on a temporary hold. Anticipated start-up dates for these projects are expected to begin late in the third quarter.
Revenues realized from government contracts decreased by $86,846 or 17.2%, from $505,443 in the 2008 Quarter to $418,597 in the 2009 Quarter. The Company is continuing to work on three bio-security based government contracts that were awarded in 2008. The fourth project which ended in the second quarter has received additional funding and will continue to ramp up in the third quarter in 2009. Work on the three existing projects will be renewed and will continue throughout 2009.
Genetic identity revenues increased by $51,731 or 11.7%, from $440,705 in the 2008 Quarter to $492,436 in the 2009 Quarter. The genetic identify sector has grown both organically and through the expansion of service into the global market. The increase in private and immigration testing have led to the increase.
Other revenue increased by $140,682, or 129.4%, from $108,739 in the 2008 Quarter to $249,421 in the 2009 Quarter. This increase resulted from two grants payments awarded from the Australian Government for Mimotopes in the amount of $150,000 and $85,707. Theses grants were export market development grants and were for the 2005 and 2006 years.
Cost of Services
Cost of services consists primarily of costs associated with direct materials, direct labor and overhead. Cost of services decreased by $266,588 or 13.9%, from $1,913,811 in the 2008 Quarter to $1,647,223 in the 2009 Quarter. Cost of services as a percentage of revenue increased from 70.0% in the 2008 Quarter to 72.2% in the 2009 Quarter.
Direct materials decreased by $81,871 or 15.3% from $536,007 in the 2008 Quarter to $454,136 in the 2009 Quarter. The cost of direct materials as a percentage of revenue increased from 19.6% in the 2008 Quarter to 19.9% in the 2009 Quarter. This increase, as a percentage of revenue, correlates to the shift in rely on a greater usage of materials.
Direct labor decreased by $58,132 or 10.2%, from $572,369 in the 2008 Quarter to $514,237 in the 2009 Quarter. The cost of direct labor as a percentage of revenue however, increased from 20.9% in the 2008 Quarter to 22.5% in the 2009 Quarter. The increase as a percentage of revenue primarily relates to the shift in revenues for projects on hand that are more labor intensive.
Overhead represents costs such as indirect labor, depreciation, freight charges, repairs and miscellaneous supplies indirectly related to a particular project. Overhead decreased by $126,585 or 15.7% from $805,435 in the 2008 Quarter to $678,850 in the 2009 Quarter. The cost of overhead as a percentage of revenue increased from 29.4% in the 2008 Quarter to 29.7% in the 2009 Quarter. Overhead costs in 2009 showed a modest reduction in all accounts.
Selling, General and Administrative
Selling, general and administrative expenses ("SGA") consist primarily of compensation and related costs for administrative, marketing and sales personnel, facility expenditures, professional fees, consulting, taxes, and depreciation. The Company sees SGA as a vital portion of the business however management has made the decision to reduce all costs associated with in these categories.
Total SGA costs decreased by $321,468 or 29.5%, from $1,090,066 in the 2008 Quarter to $768,598 in the 2009 Quarter. The cost of SGA as a percentage of revenue decreased from 39.81% in the 2008 Quarter to 33.7% in the 2009 Quarter.
Total selling and marketing costs decreased by $228,913 or 66.6%, from $343,695 in the 2008 Quarter to $114,782 in the 2009 Quarter. This decrease is primarily due to the reorganization of the sales and marketing team not currently in place.
Total general and administrative expenses decreased by $92,559 or 12.4%, from $746,375 in the 2008 Quarter to $653,816 in the 2009 Quarter. Compensation costs decreased by $154,041 or 34.6% from $445,368 in the 2008 Quarter to $291,327 during the 2009 Quarter. This decrease was primarily due to the resignation of Paul D'Sylva in early January and the reduction of salaries by management over the quarter. Professional fees increased by $48,235 or 27.4% from $175,798 in the 2008 Quarter to $224,033 in the 2009 Quarter. This increase results from the legal costs associated with the selling of the Company's assets. Associated office expenses decreased by $32,980 or 56.8% from $58,034 in the 2008 Quarter to $25,054 in the 2009 Quarter. This decrease resulted from the decision in 2009 to curtail all travel costs.
Other Income (Expenses)
Other income decreased by $1,269 or 92.9% from $1,366 during the 2008 Quarter to $97 in the 2009 Quarter resulting from the decrease in interest earning investments.
Other expenses remained relatively flat from $411,949 in the 2008 Quarter to $423,290 in the 2009 Quarter. Other expenses incurred by the Company include interest, amortization and loss on investment. Interest expense increased by $47,610 or 59.5% from $80,036 in the 2008 Quarter to $127,646 in the 2009 Quarter. This resulted from a reduction in the swap agreement in the 2008 Quarter. Debt amortization decreased by $161,245 or 48.6% from $331,913 in the 2008 Quarter to $170,668 in the 2009 Quarter. This reduction is the result from the refinancing of the LH Financial Debt. Realized losses in 2009 amounted to $56,478. This was due to the sale of the VenturePharm stock. There were no gains or losses in 2008.
Discontinued Operations
On September 23, 2008, the Company's wholly owned subsidiary, Exelgen Limited ("Exelgen") entered into administration under the jurisdiction of the High Court of Justice, Bristol District Registry, Chancery Division, in the United Kingdom (the "High Court"). Exelgen filed a Notice of appointment of an administrator, appointing PricewaterhouseCoopers LLP effective September 23, 2008.
Administration is the United Kingdom's insolvency process, which is governed by the Enterprise Act 2002. A company must be insolvent as defined in the Insolvency Act of 1986 in order to qualify for administration. Administration is designed to enable a business to be held together while plans are formed either to put in place a financial restructuring to rescue the company, or to sell the business and assets to produce a better result for creditors that would be achieved at liquidation. Exelgen is subject to the protection of the High Court and creditors' enforcement actions and will be automatically stayed while the administrators formulate plans to the sell the business and assets.
The Company's decision and approval by the Board of Directors to enter Administration for the Exelgen operation was based upon various profitability analyses and projections. The subsidiary's inability to support existing operational costs despite restructuring, combined with the lack of securing new contracts, were key factors supporting this action. In the coming period, the appointed administrator will actively pursue the sale of these assets on an individual basis. The Company reported a loss from discontinued operations of $132,022 in the 2008 Quarter with the Exelgen operation.
Six Months Ended June 30, 2009 Compared with Six Months Ended June 30, 2008.
Revenues
During the course of the year, the Company had experienced fluctuations in all revenue categories. Continuation of existing projects or engagement for future projects is usually dependent upon the customer's satisfaction with the scientific results provided in initial phases of the scientific program. Continuation of existing projects or engagement of future projects also often depends upon factors beyond the Company's control, such as the timing of product development and commercialization programs of the Company's customers. The combined impact of commencement and termination of research contracts from several large customers and unpredictable fluctuations in revenue for laboratory services can result in very large fluctuations in financial performance.
Total revenues decreased by $910,251 or 17.7% from $5,144,816 in the 2008 Period to $4,234,565 in the 2009 Period.
Revenues realized from commercial contracts decreased by $1,049,885 or 34.0%, from $3,087,782 in the 2008 Period ("the 2008 Period") to $2,037,897 in the 2009 Period ("the 2009 Period"). Due to the current economic conditions many clients have placed future projects on a temporary hold. Anticipated start-up dates for these projects are expected to begin late in the third quarter.
Revenues realized from government contracts increased by $114,747 or 16.6%, from $690,575 in the 2008 Period to $805,322 in the 2009 Period. The continuation of the four bio-security based government contracts that were awarded in 2008 led to the increase. Work on three of the four projects, are continuing with the fourth one being renewed.
Genetic identity revenues increased by $123,927 or 13.8%, from $899,780 in the 2008 Period to $1,023,707 in the 2009 Period. The genetic identify sector has grown both organically and through the expansion of service into the global market. The increase in private and immigration testing have led to the increase.
Clinical testing revenues decreased by $258,053 or 81.7%, from $315,857 in the 2008 Period to $57,804 in the 2009 Period. This decrease resulted from the completion of a clinical trial testing that has not been renewed or replaced during the 2009 Period. As mentioned in commercial contracts, many clients have placed any future projects on a temporary hold.
Other revenue increased by $159,013 or 105.4%, from $150,822 in the 2008 Period to $309,835 in the 2009 Period.
This increase resulted from two grants payments awarded from the Australian Government for Mimotopes in the amount of $150,000 and $85,707. Theses grants were export market development grants and were for the 2005 and 2006 years.
Cost of Services
Cost of services consists primarily of costs associated with direct materials, direct labor and overhead. Cost of services decreased by $359,362 or 9.8%, from . . .
|
|