<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 September 30, 1996
------------------
/ / 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
--------------------------------------
BIOSPHERICS-Registered Trademark- INCORPORATED
- ------------------------------------------------------------------------------
(Exact name of small business issuer in its charter)
Delaware 52-0849320
- --------------------------------------------- ------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
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
November 12, 1996, was 7,909,962.
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
1
<PAGE>
FORM 10-QSB
INDEX
Page No.
--------
Face Sheet............................................................ 1
Index................................................................. 2
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Operations for the three and nine
months ended September 30, 1996 and 1995 (unaudited)....... 3
Balance Sheet as of September 30, 1996 (unaudited)......... 4
Statements of Cash Flows for the nine months
ended September 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............................................................. 10
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statements of Operations
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Contract revenues $3,300,095 $3,524,904 $10,030,548 $11,169,077
Licensing fee 750,000 -- 750,000 --
---------- ---------- ----------- -----------
Total revenues $4,050,095 $10,780,548
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
OPERATING EXPENSES
Direct contract costs and operating expenses 2,456,301 2,617,127 7,407,472 8,049,850
General and administrative 577,535 555,254 1,811,487 1,757,526
Research and development 122,107 114,288 369,835 411,358
Depreciation and amortization 185,071 109,019 428,483 305,780
---------- ---------- ----------- -----------
Total operating expenses 3,341,014 3,395,688 10,017,277 10,524,514
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 709,081 129,216 763,271 644,563
Other income (expense)
Other income 15,310 4,958 114,147 (8,968)
Interest expense (17,094) (88,043) (56,501) (144,690)
---------- ---------- ----------- -----------
Income before taxes 707,297 46,131 820,917 490,905
Income tax benefit (expense) (262,737) 53,160 (305,912) (120,535)
----------- ---------- ----------- -----------
Net income before discontinued operations 444,560 99,291 515,005 370,370
Income (loss) from discontinued operations, net of
applicable income tax (benefit) of $(29,609) and
$(4,745) in 1996 and 1995, respectively -- 31,014 (64,194) (6,553)
----------- ---------- ----------- -----------
Net income $ 444,560 $ 130,305 $ 450,811 $ 363,817
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Net income per share $ 0.05 $ 0.01 $ 0.05 $ 0.04
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See notes to financial statements.
3
<PAGE>
Balance Sheet
September 30, 1996
(unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash $ 370,364
Trade accounts receivable, net 2,000,498
Costs and estimated earnings in excess
of billings on contract 132,796
Other accounts receivable 204,137
Current deferred income taxes 36,721
Prepaid expenses and other assets 461,741
----------
Total current assets 3,206,257
Property and equipment, net 1,800,316
Patents, net 148,938
Restricted cash--security deposit 27,408
Other assets 361,350
----------
Total assets $5,544,269
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 724,353
Accrued salaries and benefits 468,707
Accrued vacation 138,548
Income taxes payable 235,852
Deferred revenue 209,978
Note payable--current 106,165
----------
Total current liabilities 1,883,603
Deferred compensation 110,626
Deferred income taxes 148,028
Deferred rent 63,412
Note payable--long term 142,873
----------
Total liabilities 2,348,542
----------
Redeemable common stock 169,595
----------
Stockholders' equity
Common stock, $.01 par value, 18,000,000 shares
authorized; 7,952,968 and 7,909,962 shares,
issued and outstanding, respectively, of which
1,642,253 shares are classified in redeemable
common stock 46,714
Paid in capital in excess of par value 1,068,183
Treasury Stock, 43,006 shares at cost (261,603)
Retained earnings 2,172,838
----------
Stockholders' equity 3,026,132
----------
Total Liabilities and stockholders' equity $5,544,269
----------
----------
</TABLE>
See notes to financial statements.
4
<PAGE>
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Operating Activities
Net income $ 450,811 $ 363,817
Loss (gain) from discontinued operations (29,313) --
Depreciation and amortization 428,483 339,534
Loss on disposal of property and equipment 1,695 32,415
Changes in assets and liabilities:
Provision for uncollectible accounts 3,871 22,617
Trade accounts receivable (401,884) 505,511
Costs and estimated earnings in excess of billings on contracts (83,766) 44,742
Other accounts receivable 358,569 75,438
Prepaids expenses and other assets (148,835) 8,227
Account payables and accrued expenses (99,930) (204,926)
Accrued salaries and benefits 86,505 49,061
Accrued vacation 4,775 7,577
Income taxes payable 169,842 (30,876)
Deferred rent (51,329) (33,304)
Deferred revenue 18,517 --
Net assets in discontinued operations not disposed 278,698 --
--------- ---------
Net cash provided by operating activities 986,709 1,179,833
Investing activities
Proceeds from sale of ELSD, net of expenses 433,216 --
Sale of property and equipment 1,131 --
Purchases of property and equipment (750,451) (326,450)
Additions to patent costs (60,989) (11,599)
--------- ---------
Net cash provided by (used in) investing activities (377,093) (338,049)
Financing activities
Net repayments on line of credit (541,927) (807,000)
Long term loan 59,228 --
Issuance of common stock 318,921 15,243
Purchase of treasury shares (105,335) --
--------- ---------
Net cash provided by (used in) financing activities (269,113) (791,757)
Net change in cash 340,503 50,027
Cash, beginning of period 29,861 7,979
--------- ---------
Cash, end of period $ 370,364 $ 58,006
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
5
<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 nine-month periods ended
September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- -------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding 7,903,309 7,827,332 7,873,222 7,825,238
Common stock equivalents 1,981,303 1,533,477 1,870,664 1,335,994
--------- --------- --------- ---------
Weighted average shares and common
stock equivalents outstanding 9,884,612 9,360,809 9,743,886 9,161,232
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
3. DISCONTINUED OPERATIONS
On February 29, 1996, the Company sold substantially all Environmental
and Laboratory Services Division (ELSD) 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. The Cleveland branch was discontinued as of May 31,
1996. The Company has estimated $30,000 of current tax benefit associated
with loss from the ELSD.
4. D-tagatose LICENSING AGREEMENT
On September 27, 1996, the Company signed an exclusive worldwide
licensing agreement with MD Foods Ingredients amba of Denmark for the use,
manufacture and sale of Biospherics' nonfattening sugar, D-tagatose, as a
sweetener (see 8-K filed October 22, 1996). The Company received a
non-refundable $750,000 initial partial payment on signing. This $750,000 is
classified as a licensing fee operating revenue in the financial statements.
The Company will also receive an additional payment of $1,750,000 on January
6, 1997, upon successful completion of MD Foods' due diligence. $750,000
completes the initial non-refundable payment. The remaining $1 million of the
$1.75 million will be paid as a non-refundable advance against future
royalties, recoverable at 50% of such annual royalties until paid. Full
running royalties will be paid to the Company on sales, which the Company
believes will begin overseas in 1998 when the first full-scale production
plant for D-tagatose is called for in the licensing agreement. The Company
expects sales will escalate rapidly to become a major source of revenue.
Under the terms of the agreement, MD Foods Ingredients has full
responsibility for all development costs, including any regulatory
requirements to sell in the U.S. and European Countries and costs of
production and sales. In addition, MD Foods will support Biospherics' efforts
on helping commercialize D-tagatose to the extent of approximately $250,000
per year for 1996/1997 and 1997/1998.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS, OR PLAN OF OPERATION
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 1996
The Company earned a net income of $445,000 for the third quarter of
1996, compared to $130,000 for the same period in 1995. The net income is a
direct result of signing an exclusive licensing agreement with MD Foods
Ingredients amba (MDFI) of Denmark for the use, manufacture, and sale of
Biospherics' nonfattening sugar, D-tagatose. The Company received a
non-refundable $750,000 as a partial initial payment for signing that
agreement.
The income from operations of $709,000 for the third quarter of 1996,
compared to $129,000 for the same period in 1995, is a direct result of the
non-refundable $750,000 licensing fee offset by the lower level of revenues
generated by the Company's Information Services Division. The Company's
revenues increased by $525,000 or 15% to $4,050,000 in the third quarter of
1996.
($ ROUNDED TO THOUSAND)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
Information Services 1996 1995
- -------------------- ---- ----
<S> <C> <C>
Revenues $3,297,000 $3,509,000
Operating expenses 3,210,000 3,261,000
---------- ----------
Income from
operations $ 87,000 $ 248,000
---------- ----------
---------- ----------
BioTech Programs
- ----------------
Revenues $ 753,000 $ 16,000
Operating expenses 131,000 135,000
---------- ----------
Income (loss) from
operations $ 622,000 $ (119,000)
---------- ----------
---------- ----------
</TABLE>
Information Services revenues were $3,297,000, which
reflects a decrease of 6% or $212,000, compared with revenues of $3,509,000
during the third quarter of 1995. Information Services operating profit
decreased by 65% or by $161,000 from the third quarter of 1995. The
decrease in operating profit is directly related to the overall lower level
of revenue in the third quarter of 1996, and the reallocation of general and
administrative expenses from the sale of the Environmental and Laboratory
Services Division (ELSD). The lower level of revenue in the commercial
business, compared to last year, is primarily because of the expiration of a
major commercial 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 21% or by $347,000, compared to the same
period in 1995, of which $260,000 is directly related to a new contract to
provide tourism information to the public. The remaining increase reflects
expansion of existing government business, primarily for the Federal
Information Center (FIC) and the U.S. Forest Service contracts.
BioTech's revenues were $753,000, which reflects an increase of $737,000
compared with revenues of $16,000 during the third quarter of 1995.
On September 27, 1996, the Company signed an exclusive worldwide
licensing agreement with MD Foods Ingredients amba of Denmark for the use,
manufacture and sale of Biospherics' nonfattening sugar, D-tagatose, as a
sweetener (see 8K filed October 22, 1996). The Company received a
non-refundable $750,000 initial partial payment on signing. This $750,000 is
classified as a licensing fee operating revenue in the financial statements.
The Company will also receive an additional payment of $1,750,000 on January
6, 1997, upon successful completion of MD Foods' due diligence. $750,000
completes the initial non-refundable payment. The remaining $1 million of the
$1.75 million will be paid as a non-refundable advance against future
royalties, recoverable at 50% of such annual royalties until paid. Full
running royalties will be paid to the Company on sales which the Company
believes will begin overseas in 1998 when the first full-scale production
plant for D-tagatose is called for in the licensing agreement. The Company
expects sales will escalate rapidly to become a major source of revenue.
Under the terms of the agreement, MD Foods ingredients has full
responsibility for all development costs, including any regulatory
requirements to sell in the U.S. and European Countries and costs of
production and sales. In addition, MD Foods will support Biospherics' efforts
on helping commercialize D-tagatose to the extent of approximately $250,000
per year for 1996/1997 and 1997/1998.
As reflected in the accompanying Statement of Operations,
General and Administrative expense increased by $22,000 from $555,000 in the
third quarter of 1995 to $577,000 in the same quarter of 1996. The increase
is primarily due to the higher rent and other facility expenses allocated to
G&A as a result of the ELSD sale.
Depreciation and amortization increased $76,000 or 70%. This
increase is directly related to the increased purchases of property and
equipment.
7
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995
The Company earned net income for the first nine months of
1996 of $451,000, compared to $364,000 in 1995, for an increase of $87,000 or
24%. This increase was primarily due to the $750,000 partial initial payment
the Company received in signing the MD Foods exclusive licensing agreement,
offset by the reduction in revenues and the increase in depreciation and
amortization.
The Company's income from operations increased $118,000 or 18% from
$645,000 to $763,000. This increase was due to the non-refundable $750,000
licensing fee received from MD Foods offset by a reduction in Information
Services revenues of 10% or $1,127,000 and a related increase in depreciation
and amortization from $306,000 to $428,000.
<TABLE>
<CAPTION>
Information Services 1996 1995
- -------------------- ---- ----
<S> <C> <C>
Revenues $10,023,000 $11,150,000
Income from operations 9,620,000 10,056,000
----------- -----------
Operating profit $ 403,000 $ 1,094,000
----------- -----------
----------- -----------
Research and Development
- ------------------------
Revenues $ 757,000 $ 19,000
Operating expenses 397,000 468,000
----------- -----------
Income (loss) from
operations $ 360,000 $ (449,000)
----------- -----------
----------- -----------
</TABLE>
Information Services revenues were $10,023,000, which reflect a decrease
of 10% or $1,127,000, compared with revenues of $11,150,000 during the first
nine months 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 percentages of commercial
and government information services business changed from 58% and 42%,
respectively, during the 1995 period, to 45% and 55%, respectively during the
nine months ended September 30, 1996. The government services expanded its
business by $809,000, of which $687,000 is directly related to a new contract
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.
BioTech's revenues were $757,000 which reflects an increase of $738,000
compared with revenues of $19,000 during the third quarter of 1995.
On September 27, 1996, the Company signed an exclusive worldwide
licensing agreement with MD Foods Ingredients amba of Denmark for the use,
manufacture and sale of Biospherics' nonfattening sugar, D-tagatose, as a
sweetener (see 8K filed October 22, 1996). The Company received a
non-refundable $750,000 initial partial payment on signing. This $750,000 is
classified as a licensing fee operating revenue in the financial statements.
The Company will also receive an additional payment of $1,750,000 on January
6, 1997, upon successful completion of MD Foods' due diligence. $750,000
completes the initial non-refundable payment. The remaining $1 million of the
$1.75 million will be paid as a non-refundable advance against future
royalties, recoverable at 50% of such annual royalties until paid. Full
running royalties will be paid to the Company on sales, which the Company
believes will begin overseas in 1998 when the first full-scale production
plant for D-tagatose is called for in the licensing agreement. The Company
expects sales will escalate rapidly to become a major source of revenue.
Under the terms of the agreement, MD Foods ingredients has full
responsibility for all development costs, including any regulatory
requirements to sell in the U.S. and European Countries and costs of
production and sales. In addition, MD Foods will support Biospherics' efforts
on helping commercialize D-tagatose to the extent of approximately $250,000
per year for 1996/1997 and 1997/1998.
Research and development operating loss decreased by $59,000
or 13%, primarily because of lower expenses generated during the nine months
of 1996. The expenses incurred to date were primarily related to the start up
of the pilot plant to produce D-tagatose and negotiations leading to the
support of the signing of an exclusive licensing agreement with MD Foods amba
of Denmark. The pilot plant constructed under the cooperative agreement
between Biospherics and MD Foods Ingredients 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.
As reflected in the accompanying Consolidated Statements of
Operations, General and Administrative expense increased by $53,000, from
$1,758,000 in the nine months ended September 30, 1995, to $1,811,000 for the
same period in 1996. This increased cost is primarily a result of the
formation of a new corporate management group, and its related benefits.
Depreciation and amortization increased $122,000 or 40% from
$306,000 to $428,000 in 1996. This increase is directly related to the
purchases of property and equipment of $326,000 in 1995 and $796,000 in 1996.
DISCONTINUED OPERATIONS
On February 29, 1996, the Company sold substantially all
Environmental and 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. The
Cleveland branch was discontinued as of May 31, 1996. The $48,000 net loss
represents losses from operation of $31,000 and $37,000 during the phase out
period for Beltsville's and Cleveland's branches, respectively. The losses
were offset by $20,000 gain (net of tax) from the sale of the division.
There are no significant remaining liabilities or costs attributable to this
discontinued operation.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for year to date 1996 reflect a net cash provided of
$987,000. The result was primarily due to the non-refundable $750,000 initial
payment received by the Company in September 1996 in connection with the
signing of an exclusive licensing agreement with MD Foods Ingredients amba of
Denmark.
The $987,000 in cash provided from operations was offset by the
cash utilized to purchase property and equipment and by the cash utilized to
pay down the bank line of credit.
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Exhibit 11, Computation of Earnings per Share September 30 September 30
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $444,560 $130,305 $450,811 $363,817
--------- --------- --------- ---------
Weighted average shares outstanding 7,903,309 7,827,332 7,873,222 7,825,238
Dilutive common stock equivalents for
primary earnings per share 1,981,303 1,533,477 1,870,664 1,335,994
--------- --------- --------- ---------
Weighted average shares and common stock
equivalent shares outstanding or primary
earnings per share 9,884,612 9,360,809 9,743,886 9,161,232
Additional equivalent shares assuming full dilution -- 219,483 54,255 382,717
--------- --------- --------- ---------
Weighted average shares and common equivalent
shares for fully diluted earnings per share 9,884,612 9,580,292 9,798,141 9,543,949
--------- --------- --------- ---------
Earnings per share
Primary $0.05 $0.01 $0.05 $0.04
--------- --------- --------- ---------
Fully diluted $0.05 $0.01 $0.05 $0.04
--------- --------- --------- ---------
</TABLE>
9
<PAGE>
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 requisite percentage of Registrant's shareholders at its
annual meeting on May 15, 1996.
On October 22, 1996, the Company filed a report on Form 8-K
that disclosed the signing of an exclusive licensing agreement with MD Foods
Ingredients amba of Denmark for the use, manufacture, and sale of the
Company's nonfattening sugar, D-tagatose, as a low calorie sweetener.
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
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 370,364
<SECURITIES> 0
<RECEIVABLES> 2,045,248
<ALLOWANCES> (44,750)
<INVENTORY> 0
<CURRENT-ASSETS> 3,206,257
<PP&E> 4,945,461
<DEPRECIATION> (3,145,145)
<TOTAL-ASSETS> 5,544,269
<CURRENT-LIABILITIES> 1,883,603
<BONDS> 0
0
0
<COMMON> 46,714
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,544,269
<SALES> 10,030,548
<TOTAL-REVENUES> 10,780,548
<CGS> 7,407,472
<TOTAL-COSTS> 10,017,277
<OTHER-EXPENSES> (114,147)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,501
<INCOME-PRETAX> 820,917
<INCOME-TAX> 305,912
<INCOME-CONTINUING> 515,005
<DISCONTINUED> 64,194
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 450,811
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
