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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 June 30, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____________ to _______________
Commission file number 0-5576
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BIOSPHERICS-Registered Trademark- INCORPORATED
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(Exact name of small business issuer in its charter)
Delaware 52-0849320
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12051 Indian Creek Court, Beltsville, Maryland 20705
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(Address of principal executive offices)
301-419-3900
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(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
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The number of outstanding shares of the registrant's Common Stock on
July 30, 1996, was 7,906,962.
Transitional Small Business Disclosure Format (Check One): Yes No X
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<PAGE>
FORM 10-QSB
INDEX
Page No.
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Face Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Operations for the three and six
months ended June 30, 1996 and 1995 (unaudited) . . . . . . . . 3
Balance Sheet as of June 30, 1996 (unaudited) . . . . . . . . . 4
Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 (unaudited) . . . . . . . . 5
Notes to Financial Statements (unaudited) . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis, or Plan of Operation. . . 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 10
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
1996 1995 1996 1995
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Contract revenues $ 3,788,907 $ 4,136,485 $ 6,726,528 $ 7,640,923
Other 117 0 3,925 3,250
------------- ------------ ------------ ------------
Total revenues 3,789,024 4,136,485 6,730,453 7,644,173
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Operating expenses
Direct contract costs and operating expenses 2,809,657 2,907,125 4,951,171 5,432,723
General and administrative 617,238 629,671 1,233,952 1,202,273
Research and development expenses 135,261 179,508 247,728 297,070
Depreciation and amortization expenses 132,253 103,047 243,412 196,761
------------- ------------ ------------ ------------
Total operating expenses 3,694,409 3,819,351 6,676,263 7,128,827
------------- ------------ ------------ ------------
Income/loss from operations 94,615 317,134 54,190 515,346
------------- ------------ ------------ ------------
Other income (expense)
Interest expense (16,655) (33,798) (39,407) (56,647)
Other; net 130,904 (16,369) 130,285 (13,926)
------------- ------------ ------------ ------------
Net income/(loss) from continuing operations 208,864 266,967 145,068 444,773
Income tax benefit (expense) (79,368) (105,538) (55,125) (173,695)
------------- ------------ ------------ ------------
Net income/(loss) before discontinued operations 129,496 161,429 89,943 271,078
Loss from discontinued operations, net of
applicable income tax (benefit) of $ (51,295) and
$ (27,204) in 1996 and 1995, respectively (52,214) (8,839) (83,692) (37,567)
------------- ------------ ------------ ------------
Net income/(loss) $ 77,282 $ 152,590 $ 6,251 $ 233,511
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Net income/(loss) per share data:
(Loss) income per share from continuing operations $ 0.01 $ 0.02 $ 0.01 $ 0.03
(Loss) income per share from discontinuing operations 0.00 0.00 (0.01) 0.00
------------- ------------ ------------ ------------
Net (loss) income per share $ 0.01 $ 0.02 $ 0.00 $ 0.03
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
See notes to financial statements.
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<PAGE>
Balance Sheet
June 30, 1996
(unaudited)
ASSETS
Current assets
Cash $ 102,894
Trade accounts receivable, net 2,367,066
Costs and estimated earnings in excess
of billings on contract 162,558
Other accounts receivable 465,182
Current deferred income taxes 99,594
Prepaid expenses and other assets 766,020
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Total current assets 3,963,314
Property and equipment, net 1,686,070
Patents, net 125,727
Restricted cash-security deposit 27,408
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Total assets $ 5,802,519
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit $ 400,000
Accounts payable and accrued expenses 1,144,324
Accrued salaries and benefits 549,688
Accrued vacation 153,445
Income taxes payable 19,552
Deferred revenue 161,992
Note payable-current 103,830
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Total current liabilities 2,532,831
Deferred compensation 110,626
Deferred income taxes 148,028
Deferred rent 100,621
Note payable-long term 171,247
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Total liabilities 3,063,353
Redeemable common stock 169,595
Stockholders' equity
Common stock, $.01 par value, 18,000,000 shares
authorized; 7,906,962 outstanding 63,077
Paid in capital in excess of par value 1,039,820
Treasury stock (261,603)
Retained earnings 1,728,277
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Total stockholders' equity 2,739,166
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Total liabilities and stockholders' equity $ 5,802,519
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See notes to financial statements.
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<PAGE>
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
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1996 1995
--------- ----------
<S> <C> <C>
Operating Activities
Net income (loss) $ 6,251 $ 233,512
Loss (gain) from discontinued operations (31,477) -
Depreciation & amortization 246,503 216,699
Loss on disposal of property & equipment 1,119 32,415
Changes in assets and liabilities:
Provision for uncollectible accounts 50,024 22,301
Trade accounts receivable (814,604) 388,371
Costs and estimated earnings in excess of billings on contracts (113,528) 114,772
Other A/R 97,525 96,193
Prepaids, other (227,087) (23,090)
Payables and accrued expenses (166,899) (147,375)
Salaries and benefits 167,487 255,413
Accrued vacation 19,672 23,018
Current taxes payable (46,458) 33,128
Deferred rent (14,119) (22,219)
Deferred revenue (29,469) -
Deferred comp - -
Current deferred taxes - -
Current deferred taxes (62,873) 3,990
Net assets in discontinued operations not disposed 278,696 -
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Net cash provided by/(used in) operating activities (639,205) 1,227,128
Investing activities
Proceeds from sale of ELSD, net of expenses 432,260 -
Sale of property and equipment 1,090 -
Purchases of property and equipment (318,608) (249,883)
Additions to patent costs (34,365) (10,974)
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Net cash provided by (used in) investing activities 80,377 (260,857)
Financing activities
Net repayments on line of credit 79,000 (745,000)
Net change in book overdraft 266,007 -
Long term loan 85,268 -
Issuance of common stock 306,921
Issuance of treasury shares (105,335) -
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Net cash provided by (used in) financing activities 631,861 (745,000)
Net change in cash 73,033 221,271
Cash, beginning of period 29,861 7,979
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Cash, end of period $ 102,894 $ 229,250
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</TABLE>
See notes to financial statements.
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<PAGE>
Notes to Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
The accompanying interim 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 and
Report on Form 10-KSB for the year ended December 31, 1995. On May 15, 1996,
the Company effected a 2-for-1 stock split. All references to shares and per
share data have been restated to reflect this split.
2. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common shares and, when appropriate, common stock equivalents outstanding
during the period. Common stock equivalents consist of shares under option.
Fully-diluted earnings per share is not materially different from primary
earnings per share. The weighted average number of common shares and common
stock equivalents outstanding during the three- and six- month periods ended
June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 7,869,213 7,825,020 7,850,632 7,825,020
Common stock equivalents 1,833,228 1,075,056 1,743,706 959,140
--------- --------- --------- ---------
Weighted average shares and common
stock equivalents outstanding 9,702,441 8,900,076 9,594,338 8,784,160
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
3. DISCONTINUED OPERATIONS
On February 29, 1996, the Company sold substantially all Environmental
and Laboratory Services Division net assets, totaling $432,000, to ManTech
International Corporation, except for the division's office in Cleveland and
certain receivables retained by the Company relating to completed contracts.
It was the intent of management as of year end 1995 to either sell or
discontinue its Cleveland branch office if certain contracts were not expanded
and/or maintained. The Cleveland branch was discontinued as of May 31, 1996.
The net assets in discontinued operations of $52,000 represent current tax
benefit associated with loss from ELSD Division. In addition, the Company has
taken into account an allowance equal to 100% of receivables associated with
discontinued operations.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS, OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The Company earned an operating profit of $95,000 for the second quarter of
1996, compared to $317,000 for the same period in 1995. Revenues decreased
$347,000 or 8% to $3,789,000 in the second quarter of 1996, from $4,136,000 in
the same period of 1995. The decrease in operating profit was primarily caused
by loss in revenue from the Company's core business, the Information Services
Division.
($ rounded to thousand) Three Months Ended June 30,
---------------------------
Information Services 1996 1995
- --------------------------------------- ---------- ----------
Revenues $3,789,000 $4,136,000
Operating expenses 3,558,000 $3,614,000
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Operating profit $ 231,000 $ 522,000
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BioTech Programs
- --------------------------------------
Revenues $ - $ -
Operating expenses 136,000 205,000
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Operating loss $ (136,000) $ (205,000)
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Information services revenues were $3,789,000, which reflects a decrease
of 8% or $347,000, compared with revenues of $4,136,000 during the second
quarter of 1995. Information Services operating profit decreased by 56% or
$291,000 from the second quarter of 1995. The decrease is a direct result of
reallocation of general and administrative expenses from the sale of the
Environmental and Laboratory Services Division (ELSD), and loss of profit
directly related to overall lower level of revenue in the second quarter of
1996. The lower level of revenue in the commercial business, compared to
last year, is primarily because of the expiration of a major contract in
October 1995. This loss was offset by increased revenue generated from the
government sector. The government segment expanded its level of revenue by
28% or $517,000, compared to the same period in 1995, of which $405,000 is
directly related to a new contract won to provide tourism information
services to the public. The remaining increases reflect expansion of
existing government contracts, primarily from the Federal Information Center
(FIC) and U.S. Forest Service.
BioTech operating expenses decreased by $69,000 or 34% compared to the
same period in 1995. The expenses incurred during the second quarter of 1996
were primarily related to visits to Denmark and support in the start up of
the pilot plant to produce D-tagatose. The pilot plant constructed under the
cooperative agreement between Biospherics and MD Foods amba of Denmark to
make the nonfattening sugar has been completed and is operating. It has
produced target amounts of D-tagatose for use in formulating various food
products by prospective customers. The design of a full-scale plant is now
under way. Negotiations to license D-tagatose to MD Foods are on schedule.
The Company continues to petition for approval of its safe-for-humans
pesticide, WingDinger-TM-, by the U.S. Environmental Protection Agency (EPA).
The EPA found the pesticide to be nontoxic in April 1996; however, the EPA
questioned aspects of efficacy. The Company has appealed this finding. EPA
approval must be obtained before the product can be marketed. In another
subsequent event, the EPA delisted the active ingredient of another Company
pesticide from its list of toxic compounds. State acceptances of the EPA
delisting are being sought, as are marketing partners.
As reflected in the accompanying Statement of Operations, General and
Administrative expense decreased $13,000 from $630,000 in the second quarter of
1995 to $617,000 in the second quarter of 1996. The level of consistency in
cost reflects little change in G&A operations. The higher rent and other
facility expenses allocated to SG&A as a result of ELSD sale have been
reimbursed by ManTech International Corporation.
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RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
The Company earned an operating profit of $54,000 for the first half of
1996, compared with earnings of $515,000 during the first half of 1995.
Revenues decreased 12% to $6,731,000 in the first half of 1996, compared with
$7,644,000 for the first half of 1995. The decrease in the results of
operations is primarily a result of the Company's core business Information
Services Division.
SIX MONTHS ENDED JUNE 30,
---------------------------
INFORMATION SERVICES 1996 1995
- ----------------------------------------------- --------- ---------
Revenues 6,727,000 7,641,000
Operating expenses 6,411,000 6,796,000
--------- ---------
Operating profit (loss) 316,000 845,000
--------- ---------
--------- ---------
RESEARCH AND DEVELOPMENT
- -----------------------------------------------
Revenues 4,000 3,000
Operating expenses 266,000 333,000
--------- ---------
Operating loss (262,000) (330,000)
--------- ---------
--------- ---------
Information services revenues were $6,727,000, which reflect a decrease
of 12% or $914,000, compared with revenues of $7,641,000 during the first half
of 1995. The decrease in revenues is primarily a result of lower level of
revenue generated by the commercial services, offset by increase in revenue by
the government services division. The percentage of commercial and government
information services business changed from 55% and 45%, respectively, during
the 1995 period, to 42% and 58%, respectively during the six months ended June
30, 1996. The government services expanded its business by $463,000, of which
$426,000 is directly related to a new contract won to provide tourism
information services to the public. The remaining increase reflects expansion
of existing government business, primarily from the Federal Information Center
(FIC) and U.S. Forest Service contracts.
Research and development operating loss decreased by $68,000 or 21%,
primarily because of lower expenses during the first half of 1996. The
expenses incurred to date were primarily related to efforts in the start up of
the pilot plant to produce D-tagatose. The pilot plant constructed under the
cooperative agreement between Biospherics and MD Foods amba of Denmark to make
the nonfattening sugar has been completed and is operating. It has produced
target amounts of D-tagatose for use in formulating various food products by
prospective customers. The design of a full-scale plant is now under way.
Negotiations to license D-tagatose to MD Foods are on schedule.
As reflected in the accompanying Consolidated Statements of Operations,
General and Administrative expense increased by $32,000, from $1,202,000 in
the first half of 1995 to $1,234,000 in the first half of 1996. This
increased cost is primarily a result of the formation of a corporate
communications group along with related fringe benefits.
DISCONTINUED OPERATIONS
On February 29, 1996, the Company sold substantially all Environmental
Laboratory Services Division (ELSD) net assets to ManTech International
Corporation, except for the Cleveland branch and certain receivables retained
by the Company relating to completed contracts. It was the intent of
management as of year end 1995 to either sell or discontinue its Cleveland
branch office if certain contracts were not expanded or maintained. The
Cleveland branch was discontinued as of May 31, 1996. The $84,000 net loss
from the division represents losses from operation of $47,000 and $37,000
during the phase out period for Beltsville's and Cleveland's branches,
respectively. Substantially all losses have been incurred and recorded,
including $26,000 bad debt associated with uncollectible receivables. There
are no significant remaining liabilities or costs attributable to this
discontinued operation.
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LIQUIDITY AND CAPITAL RESOURCES
On April 25, 1996, the Company entered into a $118,000 Promissory Note,
that will mature in three years. The Promissory Note will provide financing for
start-up equipment costs related to new contract wins. The Promissory Note is
collateralized by new equipment purchased and will accrue interest at the rate
of 8.75% per annum. The Company is required to make monthly payments of
interest and principal.
On May 31, 1996, the Company renewed a "Loan Agreement" that replaced the
Company's previous bank line of credit. The renewed Loan Agreement, which
expired on May 31, 1996, provides for borrowings of up to $2 million , subject
to an advance rate as defined in the agreement. Amounts outstanding under the
Loan Agreement accrue interest at the bank's prime rate plus .75% per annum and
are collaterilized by the Company's accounts receivable. The New Loan agreement
contains covenants which require the Company to meet certain tangible net worth
and cash flow coverage ratios, and excludes a specific limitation on research
and development expenditures. The Company was in compliance with all covenants
as of June 30, 1996.
Cash flows from operating activities for year to date 1996 reflect a net
use of $639,205. The result is primarily due to increases in accounts
receivable and cost and estimated earnings in excess of billings on contract of
$957,500, offset by $385,000 final cash settlement received by the Company in
February 1996 in connection with the disputed contract with the Forest Service.
The Forest Service settlement by the U.S. Department of Agriculture was in
acknowledgment of the Company's claims of Government responsibility in the loss
the Company suffered in that contract in 1994. Net cash provided in investing
activities increased by $80,000, primarily because of proceeds received from
sale of ELSD of $432,000, offset by purchases of property and equipment and
additions to patent costs, all totaling $353,000.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT 11, COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------ -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net earnings $77,282 $152,591 $6,251 $233,511
Weighted average shares outstanding 7,869,213 7,825,020 7,850,632 7,825,020
Dilutive common stock equivalents for
primary earnings per share 1,833,228 1,075,056 1,743,706 959,140
Weighted average shares and common stock
equivalent shares outstanding or primary earnings per
share 9,702,441 8,900,076 9,594,338 8,784,160
--------- --------- --------- ---------
Additional equivalent shares assuming full dilution 66,153 194,785 155,675 310,701
Weighted average shares and common equivalent
shares for fully diluted earnings per share 9,768,594 9,094,861 9,750,013 9,094,861
--------- --------- --------- ---------
Earnings per share
Primary $0.01 $0.02 $0.00 $0.03
--------- --------- --------- ---------
Fully diluted $0.01 $0.02 $0.00 $0.03
--------- --------- --------- ---------
</TABLE>
REPORTS OF FORM 8-K
On June 7, 1996, the Company filed a report on Form 8-K that disclosed
certain information regarding the 2-for-1 stock split that was effected May 15,
1996. As more fully described in that Form 8-K, this action was approved by
the requisited percentage of Registrant's shareholders at its annual meeting on
May 15, 1996.
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<PAGE>
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: By: /s/ Richard Levin
-------------------------- -----------------------------
Richard C. Levin
Vice President
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 102,894
<SECURITIES> 0
<RECEIVABLES> 2,457,968
<ALLOWANCES> (90,902)
<INVENTORY> 0
<CURRENT-ASSETS> 3,963,315
<PP&E> 4,696,408
<DEPRECIATION> (3,010,338)
<TOTAL-ASSETS> 5,802,519
<CURRENT-LIABILITIES> 2,532,831
<BONDS> 0
0
0
<COMMON> 63,077
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,802,519
<SALES> 6,726,528
<TOTAL-REVENUES> 6,730,453
<CGS> 4,951,171
<TOTAL-COSTS> 6,676,263
<OTHER-EXPENSES> (130,285)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,407
<INCOME-PRETAX> 145,068
<INCOME-TAX> 55,125
<INCOME-CONTINUING> 89,943
<DISCONTINUED> (83,692)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,251
<EPS-PRIMARY> .0
<EPS-DILUTED> .0
</TABLE>
