<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1995
-----------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-5776
--------------------------------
BIOSPHERICS -Registered Trademark- INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of small business issuer in its charter)
Delaware 52-0849320
- ------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12051 Indian Creek Court, Beltsville, Maryland 20705
- --------------------------------------------------------------------------------
(Address of principal executive offices)
301-419-3900
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of outstanding shares of the registrant's Common Stock on May 1,
1995, was 3,911,670.
Transitional Small Business Disclosure Format (Check One): Yes No X
---- ---
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- 1 -
<PAGE>
BIOSPHERICS INCORPORATED
-----------
FORM 10-QSB
Index
Page No.
---------
Face Sheet 1
Index 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations for the
three months ended March 31, 1995 and 1994 (unaudited) 3
Consolidated Balance Sheets at March 31, 1995 (unaudited) 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1995 and 1994 (unaudited) 5
Notes to the Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan of Operation 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 11
- 2 -
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BIOSPHERICS INCORPORATED
Consolidated Statements of Operations
(unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------------
1995 1994
------------- --------------
<S> <C> <C>
REVENUES
Contract revenues $ 4,017,446 $ 3,696,688
Other 3,250 1,995
-------------- ---------------
Total revenues 4,020,696 3,698,683
OPERATING EXPENSES
Direct contract costs and operating expenses 3,061,768 3,009,291
General and administrative 584,758 529,358
Research and development expenses 117,562 223,427
Depreciation and amortization expenses 104,732 89,099
-------------- ---------------
Total operating expenses 3,868,820 3,851,175
-------------- ---------------
Income (loss) from operations 151,876 (152,492)
Other income (expense)
Other income 2,443 19,558
Interest expense (22,849) (26,708)
-------------- ---------------
Income (loss) before taxes 131,470 (159,642)
Income tax benefit (expense) (50,549) 61,622
-------------- ---------------
NET INCOME (LOSS) $ 80,921 $ (98,020)
-------------- ---------------
-------------- ---------------
NET INCOME (LOSS) PER SHARE $ 0.02 $ (0.03)
-------------- ---------------
-------------- ---------------
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
BIOSPHERICS INCORPORATED
Consolidated Balance Sheet
March 31, 1995
(unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 229,419
Trade accounts receivable, net 3,162,341
Costs and estimated earnings in excess of billings on contracts 264,688
Other receivables 90,648
Prepaid expenses and other assets 525,475
Current deferred income taxes 53,545
------------
Total current assets 4,326,116
Restricted cash-security deposit 27,408
Property and equipment, net 1,701,638
Patents, net 95,074
------------
TOTAL ASSETS $ 6,150,236
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ 1,225,000
Accounts payable and accrued expenses 1,260,648
Accrued salaries and benefits 690,489
Accrued vacation 191,436
Income taxes payable 82,321
------------
Total current liabilities 3,449,894
Deferred compensation 148,626
Deferred income taxes 190,425
Deferred rent 148,044
------------
Total liabilities 3,936,989
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 18,000,000 shares
authorized, 3,921,770 shares issued, 3,911,670 outstanding 39,218
Paid-in capital in excess of par 830,519
Treasury stock, 10,100 shares at cost (65,145)
Retained earnings 1,408,655
------------
Stockholders' equity 2,213,247
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,150,236
------------
------------
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
BIOSPHERICS INCORPORATED
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------
1995 1994
---------- -----------
<S> <C> <C>
Net income (loss) $ 80,921 $ (98,020)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation and amortization 104,732 89,099
Provision for uncollectible accounts 9,000 9,000
Decrease in trade accounts receivable 106,582 163,012
Decrease (increase) in costs and estimated earnings
in excess of billings on contracts 74,122 (50,960)
Decrease in other receivables 111,744 172,497
Increase in income taxes receivable - (38,049)
Increase in prepaid expenses and other assets (50,852) (75,379)
Increase (decrease) in accounts payable, accrued expenses, and other liabilities (70,458) 126,524
Increase in accrued salaries and benefits 220,522 156,964
Increase in accrued vacation 17,774 27,908
Increase (decrease) in income taxes payable 50,549 (23,573)
Decrease in deferred rent (11,085) (57,534)
----------- -----------
Total adjustments 562,630 499,509
Net cash provided by operating activities 643,551 401,489
Cash flows from investing activities:
Purchases of property and equipment (105,185) (205,495)
Additions to patent costs (6,926) (6,910)
----------- -----------
Net cash used by investing activities (112,111) (212,405)
Cash flows from financing activities:
Net repayments under line of credit (310,000) (196,901)
----------- -----------
Net cash used by financing activities (310,000) (196,901)
Net increase (decrease) in cash 221,440 (7,817)
Cash, beginning of period 7,979 9,045
----------- -----------
Cash, end of period $ 229,419 $ 1,228
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
BIOSPHERICS INCOPORATED
Notes to Consolidated Financial Statements
(Unaudited)
_____________
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements of Biospherics
Incorporated (the "Company") do not include all of the information and
disclosures generally required for annual financial statements and are
unaudited. In the opinion of management, all material adjustments considered
necessary for a fair presentation of the results of interim periods have been
included. This report should be read in conjunction with the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1994.
The Consolidated Statement of Cash Flows for the three months ended March
31, 1995 has been prepared using the "indirect method" in accordance with
Statement of Financial Accounting Standards No. 95 ("SFAS 95"). The
Consolidated Statement of Cash Flows for the three months ended March 31, 1994
was previously reported using the "direct method" under SFAS 95, but has been
restated to conform to the 1995 presentation. Management believes the indirect
method provides a more concise presentation of the significant factors that
impact cash flows.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common shares outstanding during the period. Outstanding common stock
equivalent consist of shares under option. There were no other common stock
equivalents and, accordingly, primary and fully diluted earnings per share are
equal. There were 4,323,363 and 3,904,270 shares used in the net income (loss)
per share computation for the period ended March 31, 1995 and 1994,
respectively, including 411,693 common stock equivalents in 1995.
3. BANK LINE OF CREDIT
On September 28, 1994, the Company entered into an Amended and Restated Loan
Agreement (the "Credit Agreement") which replaced the Company's previous bank
line of credit. The Credit Agreement, which expires on May 31, 1995, provides
for borrowings of up to $2 million, subject to an advance rate as defined in the
agreement. Amounts outstanding under the Credit Agreement accrue interest at
the bank's prime rate plus 1% per annum and are collateralized by substantially
all assets of the Company. The Credit Agreement contains covenants which
require the Company to meet certain tangible net worth and cash flow coverage
ratios and limits direct BioTech expenditures. The Company was in compliance
with all covenants as of March 31, 1995. Amounts outstanding under this
facility as of March 31, 1995 were $1,225,000. On March 2, 1995, the agreement
was amended to increase BioTech expenditures to certain levels, subject to the
Company obtaining certain before tax profit margin targets. The Company is
currently negotiating the renewal of the Credit Agreement and expects to
implement a new agreement upon the expiration of the current agreement.
4. COMMITMENTS AND CONTINGENCIES
As a result of routine audits of the Company's Federal income tax returns by
the Internal Revenue Service ("IRS"), the IRS has disputed certain rent expense
deductions during the 1986 through 1992 tax years. The aggregate amount of the
IRS' claims and penalties were $348,666 and $79,808, respectively. The
deficiencies in question constitute temporary differences regarding the period
in which certain rent expenses should be deducted, and therefore, if the IRS is
successful, the outcome will not have an impact on the Company's Consolidated
Statements of Operations. However, if any interest and penalties are assessed,
such amounts would result in a charge to the Company's Consolidated Statements
of Operations. The Company has filed a petition in the United
- 6 -
<PAGE>
BIOSPHERICS INCORPORATED
Notes to Consolidated Financial Statements
(Unaudited)
_______________
States Tax Court disputing all of the claims and penalties, and a hearing was
held February 13, 1995. At the hearing, the Company and the IRS jointly
requested and the court granted more time to negotiate a settlement out of
court. The Company believes that the ultimate amount paid to settle this
dispute will be substantially less than the claims and penalties originally
asserted and should not have a material impact on the Company's results of
operations.
- 7 -
<PAGE>
BIOSPHERICS INCORPORATED
__________
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company earned net income of $80,921 for the first quarter of 1995,
compared with a net loss of $98,020 during the first quarter of 1994. Revenues
increased 9% to $4,017,000 in the first quarter of 1995 compared to $3,699,000
for the first quarter of 1994. As reflected in the chart below, the improvement
in the results of operations is primarily a result of significant improvement in
operations of the information services business. These fluctuations are
discussed further below (amounts have been rounded to the nearest thousand).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
INFORMATION SERVICES 1995 1994
- --------------------------------------------- ----------- -----------
<S> <C> <C>
Revenues 3,505,000 3,150,000
Operating expenses 3,081,000 2,999,000
----------- -----------
Operating profit 424,000 151,000
----------- -----------
----------- -----------
ENVIRONMENTAL AND LABORATORY SERVICES
- ---------------------------------------------
Revenues 513,000 525,000
Operating expenses 664,000 565,000
----------- -----------
Operating loss (151,000) (40,000)
----------- -----------
----------- -----------
BIOTECH PROGRAMS
- ---------------------------------------------
Revenues 3,000 24,000
Operating expenses 124,000 287,000
----------- -----------
Operating loss (121,000) (263,000)
----------- -----------
----------- -----------
</TABLE>
Information services revenues were $3,505,000, which reflects an increase
of 11% or $355,000, compared with revenues of $3,150,000 during the first
quarter of 1994. Operating profit increased $273,000 or 180% from the first
quarter of 1994. The increases in revenues and profitability were primarily the
result of strong commercial business growth somewhat offset by a decline in
government contract revenue. The percentage of commercial and government
business changed from 70% and 30%, respectively, during the 1994 period, to 45%
and 55%, respectively during the first quarter of 1995. The change in the mix
of business contributed to the improved operating profit along with improvements
in the results of operations of a Department of Agriculture forest service
reservation contract. Information services revenues continue to represent a
substantial part of the Company's revenues with 87% during the first quarter of
1995 and 85% for the same 1994 period.
Environmental services revenues were $513,000, which reflects a decline of
2% or $12,000, compared with revenues of $525,000 during the first quarter of
1994. The operating loss increased to $151 from $40 in 1994. The decline in
results of operations was primarily caused by competitive market pressure on
pricing as well as ongoing high levels of overhead. The continuing high
overhead is partly the result of an increased emphasis on marketing and sales
efforts to increase revenues and improve profitability, offset by cost
reductions in other areas. Management is continuing to seek ways to decrease
operating costs in order to operate profitably in a highly competitive market
place.
BioTech operating expenses declined by $163,000 or 57% primarily because of
higher expenses during the first quarter of 1994. The 1994 expenses were higher
primarily as a result of toxicology testing and initial overseas marketing costs
for Sugaree-TM-, which is the Company's patented non-fattening, bulk sugar
substitute scientifically known as D-tagatose. Expenses incurred during 1995
primarily relate to ongoing efforts to develop an economical manufacturing
process for Sugaree, overseas travel to continue negotiating distribution
agreements covering the Asian and Oceania markets, and travel to potential toll-
producers to discuss large-scale production of Sugaree. Management believes
that significant progress continues in improving the economies of its
manufacturing process; however, process scale-up has been slower than
anticipated with market entry production still months away. If the
manufacturing
- 8 -
<PAGE>
BIOSPHERICS INCORPORATED
__________
process can be implemented, the commercialization of Sugaree could have a
substantial impact on future results of operations.
During the first quarter of 1995, the Company submitted its application for
EPA approval of a product label for its safe-for-humans pesticide,
"Wingdinger -TM-". The April 5, 1995 issue of the FEDERAL REGISTER carried an
announcement of the Company's application. If the product label is approved,
the Company will seek to commercialize Wingdinger.
No assurance can be given that the Company will be successful in its
efforts to commercialize its products.
Under the Company's working capital facility dated September 28, 1994 (see
"Liquidity and Capital Resources" below), BioTech direct quarterly expenditures
(before overhead and selling, general, and administrative expenses ("SG&A")
allocations) were limited. On March 2, 1995, the agreement was amended to
permit an increase in quarterly BioTech expenditures, subject to the Company
obtaining certain before tax profit margin targets.
SG&A has been fully allocated to each segment's operating results discussed
above. As reflected in the accompanying Consolidated Statements of Operations,
SG&A increased $56,000 from $529,000 in the first quarter of 1994 to $585,000 in
the first quarter of 1995. This increased cost is primarily a result of the
formation of a corporate communications group along with related fringe
benefits, in addition to higher rent and other facility expenses allocated to
SG&A.
LIQUIDITY AND CAPITAL RESOURCES
On September 28, 1994, the Company entered into an Amended and Restated Loan
Agreement (the "Credit Agreement") which replaced the Company's previous bank
line of credit. The Credit Agreement, which expires on May 31, 1995, provides
for borrowings of up to $2 million, subject to an advance rate as defined in the
agreement. Amounts outstanding under the Credit Agreement accrue interest at
the bank's prime rate plus 1% per annum and are collateralized by substantially
all assets of the Company. The Credit Agreement contains covenants which
require the Company to meet certain tangible net worth and cash flow coverage
ratios and limits direct BioTech expenditures. The Company was in compliance
with all covenants as of March 31, 1995. Amounts outstanding under this
facility as of March 31, 1995 were $1,225,000. The Company is currently
negotiating the renewal of the Credit Agreement and expects to implement a new
agreement upon the expiration of the current agreement.
As reflected in the Consolidated Statements of Cash Flows, cash flows
provided by operating activities increased by $242,000 primarily as a result of
the improvement in earnings. Net cash used in investing activities decreased
$100,000 because of a decrease in purchases of property and equipment. This
decrease was primarily due to high purchases in 1994 when the Company was
upgrading its computer and telecommunications capability in the information
services business. With the improvement in cash flow, the Company was able to
decrease borrowings under its credit facility, as reflected by the net cash used
in financing activities.
Consistent with the Company's policy, excess profits will be retained by the
Company to help bring Sugaree, Wingdinger and its other products to market, and
invest in the expansion of the information services business. Thus, no
dividends are anticipated in 1995. While management believes that continuing
operations of the business will generate positive cash flow, management is
pursuing additional financing alternatives to accelerate bringing its products
to market and to support growth of its core businesses. However, there can be
no assurance that such alternatives will be available on terms satisfactory to
the Company.
- 9 -
<PAGE>
BIOSPHERICS INCORPORATED
__________
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 4 Commitments and Contingencies in the accompanying Notes to the
Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K
On April 5, 1995, the Company filed a report on Form 8-K which disclosed
certain information under Item 4 Changes in Registrant's Certifying Accountant.
As more fully described in that Form 8-K, the decision to change accountants was
based upon a comparison of qualifications and fee for services, and was not
related in any way to disagreements on accounting, financial reporting or any
other matter.
- 10 -
<PAGE>
BIOSPHERICS INCORPORATED
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BIOSPHERICS INCORPORATED
Date: May 15, 1995 By: /s/ Richard Levin
------------------------------ --------------------------
Richard C. Levin
Vice President
- 11 -
