- --------------------------------------------------------------------------------
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, 1997
[ ] 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(R) INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of small business issuer in its charter)
Delaware 52-0849320
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation 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 April
23, 1997, was 7,995,218.
Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|
- --------------------------------------------------------------------------------
<PAGE>
Biospherics Incorporated
----------
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 months
ended March 31, 1997 and 1996 (unaudited)..................... 3
Balance Sheet at March 31, 1997 (unaudited)................... 4
Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited)..................... 5
Notes to the 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.............................. 9
Signature .............................................................. 10
-2-
<PAGE>
Biospherics Incorporated
----------
Part I - Financial Information
Item 1. Financial Statements
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues
Contract revenues $ 3,515,645 $ 2,937,621
Licensing fee revenue 750,000 --
Other 4,129 3,808
----------- -----------
Total revenues 4,269,774 2,941,429
=========== ===========
Operating expenses
Direct contract costs and operating 2,679,093 2,141,514
General and administrative 677,240 616,714
Research and development 93,892 112,467
Depreciation and amortization 184,312 111,159
----------- -----------
Total operating expenses 3,634,537 2,981,854
----------- -----------
Income (loss) from operations 635,237 (40,425)
----------- -----------
Other income (expense)
Interest, net 2,218 (22,752)
Other, net 200 (619)
----------- -----------
Income (loss) from continuing operations 637,655 (63,796)
Income tax (expense) benefit (223,179) 24,243
----------- -----------
Net income (loss) before discontinued operations 414,476 (39,553)
Loss from discontinued operations, net of
applicable income tax benefit of $19,294 in 1996 -- (31,478)
----------- -----------
Net income (loss) $ 414,476 $ (71,031)
=========== ===========
Net income (loss) per share data:
Income (loss) per share from continuing operations $ 0.04 $ (0.01)
Income (loss) per share from discontinuing operations 0.00 0.00
----------- -----------
Net income (loss) per share $ 0.04 $ (0.01)
=========== ===========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
Biospherics Incorporated
----------
Balance Sheet
March 31, 1997
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 2,710,634
Trade accounts receivable, net 2,606,876
Costs and estimated earnings in excess
of billings on contracts 210,401
Other accounts receivable 165,696
Current deferred income taxes 83,247
Prepaid expenses and other assets 392,987
-----------
Total current assets 6,169,841
Property and equipment, net 1,564,046
Patents, net 146,999
Restricted cash-security deposit 27,408
-----------
Total assets $ 7,908,294
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit $ 510,000
Accounts payable and accrued expenses 1,227,623
Accrued salaries and benefits 478,536
Accrued vacation 154,533
Income taxes payable 283,457
Deferred rent 105,943
Deferred revenue 1,290,990
Note payable, current 108,729
-----------
Total current liabilities 4,159,811
Deferred compensation 47,844
Deferred income taxes 939
Deferred rent 63,217
Note payable, long term 79,495
-----------
Total liabilities 4,351,306
Redeemable common stock 167,320
Stockholders' equity
Common stock, $.005 par value, 18,000,000 shares authorized, 23,846
7,988,618 shares outstanding
Paid-in capital in excess of par value 1,421,931
Treasury stock, 43,006 shares at cost (261,603)
Retained earnings 2,205,494
-----------
Total stockholders' equity 3,389,668
-----------
Total liabilities and stockholders' equity $ 7,908,294
===========
See notes to financial statements.
-4-
<PAGE>
Biospherics Incorporated
----------
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
----------- ---------
<S> <C> <C>
Operating activities
Net income (loss) $ 414,476 $ (71,031)
Adjustment to reconcile net income to net cash
provided by operating activities:
Gain from sale of discontinued operations -- (31,482)
Write down of other assets 120,716 --
Depreciation and amortization 184,312 114,250
Loss on sales and retirements of property and equipment -- 576
Provision for uncollectible accounts 5,067 41,024
Deferred income taxes -- (77,721)
Changes in assets and liabilities: --
Trade accounts receivable (595,818) (361,985)
Costs and estimated earnings in excess of billings on contracts (91,478) (135,239)
Other receivables 28,594 426,703
Prepaid expenses and other assets 12,152 (180,840)
Accounts payable and accrued expenses 81,868 58,334
Accrued salaries and benefits 61,777 91,057
Accrued vacation 25,631 6,570
Income taxes payable 180,679 (66,010)
Deferred rent (32,847) (11,085)
Deferred revenue 1,148,102 --
Liquidation of discontinued operations assets -- 180,386
----------- ---------
Net cash provided by (used in) operating activities 1,543,231 (16,493)
----------- ---------
Investing activities
Proceeds from sale of ELSD, net of expenses -- 432,295
Sale of property and equipment -- 1,000
Purchases of property and equipment (54,961) (145,120)
Additions to patent costs (1,446) (27,937)
----------- ---------
Net cash (used in) provided by investing activities (56,407) 260,238
----------- ---------
Financing activities
Net borrowings (repayments) under line of credit 275,000 (11,000)
Net change in book overdraft 66,730 (162,218)
Payments on long term loan (26,321) (15,013)
Exercise of employee stock options 112,288 7,188
----------- ---------
Net cash provided by (used in) financing activities 427,697 (181,043)
----------- ---------
Net increase in cash and cash equivalents 1,914,521 62,702
Cash and cash equivalents, beginning of period 796,113 29,861
----------- ---------
Cash and cash equivalents, end of period $2,710,631 $ 92,563
========== =========
</TABLE>
See notes to financial statements.
-5-
<PAGE>
Biospherics Incorporated
----------
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 on Form 10-KSB
for the year ended December 31, 1996.
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. In the first quarter of 1997,
outstanding common stock equivalents consisted of stock options. The effect of
fully dilutive earnings per share is equivalent to the primary earnings per
share and therefore is not presented in the statements of operations. Because of
the net loss in the first quarter of 1996, outstanding common stock equivalents
were not included in the calculation of earnings per share.
3. Establish Information Services Division ("ISD") as a Wholly Owned
Subsidiary
On February 18, 1997, the Board of Directors approved a plan to convert
the Information Services Division (ISD) into a wholly-owned subsidiary. The plan
will be proposed to Shareholders at the Company's May 15, 1997, Annual Meeting.
The new company will continue all of the current ISD business and will feature
an expansion of its healthcare business into demand management. The subsidiary
will evaluate methods of increasing its capitalization, including a possible
IPO, in order to accelerate growth. Under the reorganization, ISD, which to date
has funded all of the Company's nonfattening sugar (D-tagatose) development
costs, will be free to concentrate on opportunities in its primary field, the
healthcare market. With the recent worldwide licensing of D-tagatose to MD Foods
Ingredients of Denmark, the Company has received funds that, together with
anticipated continuing royalties, will allow it to continue to develop other
proprietary products.
4. New accounting pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS
128), which is effective for years ending after December 15, 1997. FAS 128
simplifies the existing earnings per share (EPS) computations under Accounting
Principles Board Opinion No. 15. FAS 128 revises the disclosure requirements and
increases the comparability of EPS data on an international basis. In
simplifying the EPS computations, the presentation of primary EPS is replaced
with basic EPS, with the principal difference being that common stock
equivalents are not considered in computing basic EPS. In addition, FAS 128
requires dual presentation of basic and diluted EPS. If the new pronouncement
were applied, the basic earnings per share would have been $.005 and the diluted
earnings per share would have been $.004 for the three months ended March 31,
1997.
-6-
<PAGE>
Biospherics Incorporated
----------
ITEM 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Certain oral and written statements of management of the Company included
in the Form 10-QSB may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.
The Company realized net income of $414,000 for the first quarter of
1997, compared with net loss of $71,000 during the first quarter of 1996.
Revenues increased 45% to $4,270,000 in the first quarter of 1997 compared to
$2,941,000 the first quarter of 1996. The increase in revenue was primarily
related to a $750,000 payment received from MD Foods Ingredients amba of Denmark
(MDF) upon successful completion of their due diligence and an increase in
operating revenue from current contracts of $578,000. As reflected in the chart
below, the increase in operating profit was a direct result of the payment from
MDF, offset by one-time costs associated with establishing the Information
Services Division as a wholly-owned subsidiary. Details are fully described
below:
Three Months Ended March 31,
Information Services 1997 1996
- ------------------------------------------ ----------- -----------
Revenues $ 3,480,000 $ 2,938,000
Operating expenses 3,535,000 2,853,000
----------- -----------
Operating (loss) profit $ (55,000) $ 85,000
----------- -----------
BioTech Programs
- ------------------------------------------
Revenues $ 790,000 $ 4,000
Operating expenses 100,000 129,000
----------- -----------
Operating profit (loss) $ 690,000 $ (125,000)
----------- -----------
Information services revenues were $3,480,000, which reflects an increase
of 18% or $542,000, compared with revenues of $2,938,000 during the first
quarter of 1996. The increase in revenues is directly related to current
contracts. Operating profit decreased by $140,000 from the first quarter of
1996. The decrease in profitability was primarily a result of $85,000 in
one-time costs associated with establishing the Information Services Division as
a wholly-owned subsidiary, and of $120,000 in software development costs
associated with a major commercial contract.
BioTech operating profit increased by $815,000, resulting from the
licensing agreement with MD Foods Ingredients amba of Denmark. On January 6,
1997, the Company received an additional payment under the agreement of
$1,750,000, of which $750,000 represented the remaining portion of the initial
non-refundable payment and $1,000,000 was a non -refundable advance against
future royalties, recoverable at 50% of such annual royalties. In addition, MD
Foods supports Biospherics' efforts in helping to commercialize D-tagatose to
the extent of approximately $250,000 per year for 1996/1997 and 1997/1998. The
decrease in operating expenses was primarily related to efforts completed in
1996 for the start up of a pilot plant to produce D-tagatose. The pilot plant
was designed in cooperation with MD Foods to produce samples of the nonfattening
sugar for evaluation by food manufacturers and to obtain data for the design of
the first commercial plant.
The Company continues to petition for approval of its safe-for-humans
pesticide, WingDingerTM, by the U.S. Environmental Protection Agency (EPA). The
EPA has reviewed the Company's application for approval of this novel pesticide
and has found the safety data acceptable but requested a faster kill rate. The
EPA feels that the kill rate for this obviously safe compound should be faster
because the target insect, the common housefly, is a disease vector. Development
efforts continued to design a product that will allow faster kill rates of
common flies while examining non-disease vector pests for efficacy.
-7-
<PAGE>
Biospherics Incorporated
----------
General and administrative costs increased by $61,000 compared to the
first quarter 1996. The increase in cost is primarily a result of higher rent
and other facility expenses allocated to G&A from the sale of the Environmental
and Laboratory Services Division ("ELSD").
Liquidity and Capital Resources
On February 18, 1997, the Board of Directors approved a plan to convert
ISD into a wholly-owned subsidiary. The plan will be proposed to Shareholders at
the Company's May 15, 1997, Annual Meeting. The new company will continue all of
the current ISD business and will feature an expansion of its healthcare
business into demand management. The subsidiary will evaluate methods of
increasing its capitalization, including a possible IPO in order to accelerate
growth. Under the reorganization, ISD, which to date has funded all of the
Company's nonfattening sugar (D-tagatose) development costs, will be free to
concentrate on opportunities in its primary field, the healthcare market. With
the recent worldwide licensing of D-tagatose to MD Foods Ingredients of Denmark,
the Company has received funds that, together with anticipated continuing
royalties, will allow it to continue to develop other proprietary products.
On March 17, 1997, the Company signed a commitment letter to borrow up to
$1 million for financing start-up equipment costs related to potential new
contracts. The new Promissory Note will be collateralized by new equipment
purchases and will accrue interest at a rate of 2 3/4% over corresponding
treasury index. The Company will be required to make monthly payments of
interest and principal according to the terms of the new Promissory Note.
Cash flow from operating activities for the first quarter of 1997
reflects a net cash inflow of $1,543,000. The increase primarily resulted from a
$1,750,000 payment received for signing the licensing agreement with MD Foods
Ingredients amba of Denmark, offset by a decrease in cash associated with an
increased accounts receivable balance of $596,000 from three major contracts.
-8-
<PAGE>
Biospherics Incorporated
----------
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were required to be filed for the first quarter of
the year ending December 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended
Exhibit 11. Computation of Earnings per Share March 31,
-----------------------
1997 1996
---------- -----------
<S> <C> <C>
Net earnings $ 414,476 $ (71,031)
---------- -----------
Weighted average shares outstanding 7,930,956 7,843,374
Dilutive common stock equivalents for primary earnings per share 1,987,204 --
---------- -----------
Weighted average shares and common stock equivalent shares
outstanding or primary earnings per share 9,918,160 7,843,374
Additional equivalent shares assuming full dilution -- --
---------- -----------
Weighted average shares and common equivalent shares for fully
diluted earnings per share 9,918,160 7,843,374
---------- -----------
Earnings per share
Primary $ 0.04 $ (0.01)
---------- -----------
Fully diluted $ 0.04 $ (0.01)
---------- -----------
</TABLE>
-9-
<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, 1997 By: /s/ Richard C. Levin
-----------------------------
Richard C. Levin
Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,710,634
<SECURITIES> 0
<RECEIVABLES> 3,042,848
<ALLOWANCES> (59,875)
<INVENTORY> 0
<CURRENT-ASSETS> 6,169,841
<PP&E> 3,159,054
<DEPRECIATION> (1,595,008)
<TOTAL-ASSETS> 7,908,294
<CURRENT-LIABILITIES> 4,159,811
<BONDS> 0
0
0
<COMMON> 23,846
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,908,294
<SALES> 3,515,645
<TOTAL-REVENUES> 4,269,774
<CGS> 2,677,093
<TOTAL-COSTS> 3,634,537
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,172
<INCOME-PRETAX> 637,655
<INCOME-TAX> 223,179
<INCOME-CONTINUING> 414,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414,476
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
