<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 June 30, 1997
-----------------------
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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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 (I.R.S. Employer
incorporation or organization) Identification No.)
12051 Indian Creek Court, Beltsville, Maryland 20705
- -------------------------------------------------------------------------------
(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
--- ---
The number of outstanding shares of the registrant's Common Stock on July
30, 1997, was 8,072,590.
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
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1
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BIOSPHERICS INCORPORATED
---------
Form 10-QSB
INDEX
<TABLE>
PAGE NO.
-------------
<S> <C>
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, 1997 and 1996 (unaudited)................... 3
Balance Sheet as of June 30, 1997 (unaudited)..................... 4
Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 (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 4. Submission of Matters to a Vote of Security Holders............... 9
Item 6. Exhibits and Reports on Form 8-K.................................. 10
Signature................................................................. 11
</TABLE>
2
<PAGE>
BIOSPHERICS INCORPORATED
---------------
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Contract revenues..................................... $ 3,632,423 $ 3,788,907 $ 7,148,068 $ 6,726,528
Licensing fee revenue................................. -- -- 750,000 --
Other................................................. -- 117 4,129 3,925
------------ ------------ ------------ ------------
Total revenues........................................ 3,632,423 3,789,024 7,902,197 6,730,453
------------ ------------ ------------ ------------
Operating expenses
Direct contract costs and operating costs............. 2,687,648 2,809,657 5,366,741 4,951,171
General and administrative............................ 634,862 617,238 1,312,102 1,233,952
Research and development.............................. 129,404 135,261 223,296 247,728
Depreciation and amortization......................... 116,777 132,253 301,089 243,412
------------ ------------ ------------ ------------
Total operating expenses.............................. 3,568,691 3,694,409 7,203,228 6,676,263
------------ ------------ ------------ ------------
Income from operations................................... 63,732 94,615 698,969 54,190
------------ ------------ ------------ ------------
Other income (expense)
Interest, net......................................... 23,271 (16,655) 25,489 (39,407)
Other, net............................................ -- 130,904 200 130,285
------------ ------------ ------------ ------------
Net income from continuing operations.................... 87,003 208,864 724,658 145,068
Income tax expense....................................... (30,451) (79,368) (253,630) (55,125)
------------ ------------ ------------ ------------
Net income before discontinued operations................ 56,552 129,496 471,028 89,943
Loss from discontinued operations, net of applicable
income tax benefit of $51,295 in 1996.................. -- (52,214) -- (83,692)
------------ ------------ ------------ ------------
Net income............................................... $ 56,552 $ 77,282 $ 471,028 $ 6,251
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share data:
Income per share from continued operations............ $ 0.01 $ 0.01 $ 0.05 $ 0.01
Loss per share from discontinuing operations.......... 0.00 0.00 0.00 (0.01)
------------ ------------ ------------ ------------
Net income per share.................................. $ 0.01 $ 0.01 $ 0.05 $ 0.00
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
3
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BIOSPHERICS INCORPORATED
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Balance Sheet
June 30, 1997
(unaudited)
ASSETS
Current assets
Cash and cash equivalents................................. $2,814,659
Trade accounts receivable, net............................ 2,060,437
Costs and estimated earnings in excess of
billings on contracts................................... 375,136
Other accounts receivable................................. 171,826
Current deferred income taxes............................. 83,247
Prepaid expenses and other assets......................... 374,322
----------
Total current assets.......................... 5,879,627
Property and equipment, net of accumulated
depreciation of $1,372,628.............................. 1,673,747
Patents, net of accumulated amortization of $64,656....... 144,784
Restricted cash, security deposit......................... 27,408
----------
Total assets.................................. $7,725,566
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit....................................... $ 290,000
Accounts payable and accrued expenses..................... 1,081,621
Accrued salaries and benefits............................. 440,379
Accrued vacation.......................................... 148,903
Income taxes payable...................................... 313,908
Deferred rent, current.................................... 119,283
Deferred revenue.......................................... 1,290,990
Notes payable, current.................................... 110,543
----------
Total current liabilities..................... 3,795,627
Deferred compensation........................................ 49,878
Deferred income taxes........................................ 939
Deferred rent, long term..................................... 48,282
Notes payable, long term..................................... 50,974
----------
Total liabilities............................. 3,945,700
Redeemable common stock...................................... 167,320
Stockholders' equity
Common stock, $.005 par value, 18,000,000 shares authorized;
8,072,590 shares outstanding............................ 24,265
Paid-in capital in excess of par value.................... 1,747,087
Treasury stock, 69,006 shares at cost..................... (420,852)
Retained earnings......................................... 2,262,046
----------
Total stockholders' equity.................... 3,612,546
----------
Total liabilities and stockholders' equity.... $7,725,566
----------
----------
See notes to financial statements.
4
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BIOSPHERICS INCORPORATED
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Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Operating activities
Net income............................................................................... $ 471,028 $ 6,251
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) from sale of discontinued operations....................................... -- (31,477)
Write down of other assets............................................................. 126,224 --
Depreciation and amortization.......................................................... 301,089 246,503
Loss on sales and retirements of property and equipment................................ -- 1,119
Provision for uncollectible accounts................................................... 18,000 50,024
Changes in assets and liabilities:
Trade accounts receivable............................................................ (62,313) (814,604)
Costs and estimated earnings in excess of billings on contracts...................... (256,213) (113,528)
Other accounts receivables........................................................... 22,464 97,525
Prepaid expenses and other assets.................................................... (57,268) (227,087)
Accounts payables and accrued expenses............................................... 27,228 (166,899)
Accrued salaries and benefits........................................................ 23,620 167,487
Accrued vacation..................................................................... 20,001 19,672
Income taxes payable................................................................. 211,130 (46,458)
Deferred rent........................................................................ (34,441) (14,119)
Deferred revenue..................................................................... 1,148,101 (29,437)
Deferred comp........................................................................ 2,034 --
Deferred taxes....................................................................... -- (62,873)
Liquidation of discontinued operations assets.......................................... -- 278,696
---------- ----------
Net cash provided by (used in) operating activities...................................... 1,960,684 (639,205)
---------- ----------
Investing activities
Proceeds from sale of ELSD, net of expenses............................................ -- 432,260
Sale of property and equipment......................................................... -- 1,090
Purchases of property and equipment.................................................... (196,648) (318,608)
Additions to patent costs.............................................................. (1,445) (34,365)
---------- ----------
Net cash (used in) provided by investing activities...................................... (198,093) 80,377
---------- ----------
Financing activities
Net change on line of credit........................................................... 55,000 79,000
Net change in book overdraft........................................................... (24,630) 266,007
Long term loan......................................................................... -- 85,268
Payment on long term loan.............................................................. (53,029) --
Issuance of common stock............................................................... 437,863 306,921
Issuance of treasury shares............................................................ (159,249) (105,335)
---------- ----------
Net cash provided by financing activities................................................ 255,955 631,861
Net change in cash....................................................................... 2,018,546 73,033
Cash, beginning of period................................................................ 796,113 29,861
---------- ----------
Cash, end of period...................................................................... 2,814,659 102,894
---------- ----------
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</TABLE>
See notes to financial statements.
5
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BIOSPHERICS INCORPORATED
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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 half of 1997 and 1996,
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.
3. ESTABLISH INFORMATION SERVICES DIVISION ("ISD") AS A WHOLLY OWNED SUBSIDIARY
On May 15, 1997, at the Annual Meeting, the Shareholders of the Company
approved a plan to convert the Information Services Division (ISD) into a
wholly-owned subsidiary. 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 $.06 and the diluted earnings per share would have been
$.05 for the six months ended June 30, 1997.
6
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BIOSPHERICS INCORPORATED
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
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 earned an operating profit of $64,000 for the second quarter of
1997, compared to $95,000 for the same period in 1996. Revenues decreased
$157,000 or 4% to $3,632,000 in the second quarter of 1997, from $3,789,000 in
the same period of 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Information Services
Revenues.............................................................................. $ 3,580,000 $ 3,789,000
Operating expenses.................................................................... 3,430,000 3,558,000
------------ ------------
Operating profit.................................................................... $ 150,000 $ 231,000
------------ ------------
------------ ------------
BioTech Programs
Revenues.............................................................................. $ 52,000 $ --
Operating expenses.................................................................... 138,000 136,000
------------ ------------
Operating loss..................................................................... $ (86,000) $ (136,000)
------------ ------------
------------ ------------
</TABLE>
Information Services revenues decreased by $209,000 in the second quarter of
1997 from those of the second quarter of 1996. In comparison, the Information
Services operating profit for the second quarter of 1997 decreased by $81,000
from that of the second quarter of 1996. The decrease in operating profit is
primarily a result of the expiration of two contracts. In addition, start-up
costs were incurred in the development of several new programs, including the
nurse triage program, which will provide both clinical and administrative
services. ISD has won several contracts, which will start small, but are
expected to grow and have a positive impact on the bottom line. ISD is currently
in the procurement process on the renewal of several of its government programs
as well as a number of new ones.
BioTech recognized $52,000 in revenue from the performance of several tasks
in connection with the D-tagatose agreement with MD Foods Ingredients amba of
Denmark. As a result of this revenue, BioTech realized a decrease of $50,000 in
operating losses in the second quarter of 1997 from those of the second quarter
of 1996.
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 one of
the Company's pesticides 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 increased $18,000, an increase of 3%, in the second
quarter of 1997 in comparison to the second quarter of 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").
7
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BIOSPHERICS INCORPORATED
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RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
The Company earned an operating profit of $699,000 for the first half of
1997, compared with earnings of $54,000 during the first half of 1996. Revenues
increased by 17% to $7,902,000 in the first half of 1997, compared with
$6,730,000 for the first half of 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Information Services
Revenues.............................................................................. $ 7,060,000 $ 6,727,000
Operating expenses.................................................................... 6,965,000 6,411,000
------------ ------------
Operating profit.................................................................... $ 95,000 $ 316,000
------------ ------------
------------ ------------
BioTech Programs
Revenues.............................................................................. $ 842,000 $ 4,000
Operating expenses.................................................................... 238,000 266,000
------------ ------------
Operating profit (loss)............................................................. $ 604,000 $ (262,000)
------------ ------------
------------ ------------
</TABLE>
Information Services revenues for the first half of 1997 increased by
$333,000 or 5% compared with the first half of 1996. The increase in revenues is
primarily a result of increased activity from government contracts. Operating
profits decreased by $221,000, primarily as a result of $85,000 in one-time
costs associated with establishing the Information Services Division as a
wholly-owned subsidiary, and $120,000 in software development costs associated
with a major commercial contract.
BioTech operating profits increased by $866,000, 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.
As reflected in the accompanying Statements of Operations, General and
Administrative expense increased by $78,000, an increase of 6%, in the first
half of 1997 in comparison to the first half of 1996. The increase in cost is
primarily a result of professional fees incurred in relation to the plan to
convert ISD into a wholly-owned subsidiary and as a result of rent and other
facility expenses allocated to G&A due to the sale of the Environmental and
Laboratory Services Division ("ELSD").
8
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BIOSPHERICS INCORPORATED
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LIQUIDITY AND CAPITAL RESOURCES
On March 17, 1997, the Company signed a commitment letter to borrow up to $1
million for financing 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 half of 1997 reflects a
net cash inflow of $2,019,000. The increase primarily resulted from a $1,750,000
payment received for signing the licensing agreement with MD Foods Ingredients
amba of Denmark.
FORMATION OF SUBSIDERY
On May 15, 1997, at the Annual Meeting, the Shareholders of the Company
approved a plan to convert the Information Services Division (ISD) into a
wholly-owned subsidiary. 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.
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 15, 1997,
where the following actions were taken:
(1) On May 15, 1997, Gilbert V. Levin,
Lionel V. Baldwin, David A. Blake, A. Bruce Cleveland, Rita R. Colwell, George
S. Jenkins, M. Karen Levin, and Anne S. MacLeod were elected as directors to
serve until the next Annual Meeting pursuant to the following vote tabulation:
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD VOTES ABSTAINED UNVOTED
- ---------------------------------------------------------- ---------- --------------- --------------------- -------------
<S> <C> <C> <C> <C>
Gilbert V. Levin.......................................... 6,925,936 35,813 0 0
Lionel V. Baldwin......................................... 6,916,754 44,995 0 0
David A. Blake............................................ 6,925,936 35,813 0 0
A. Bruce Cleveland........................................ 6,926,436 35,313 0 0
Rita R. Colwell........................................... 6,926,536 35,213 0 0
George S. Jenkins......................................... 6,924,836 36,913 0 0
M. Karen Levin............................................ 6,924,936 36,813 0 0
Anne S. MacLeod........................................... 6,926,536 35,213 0 0
</TABLE>
(2) A proposal to establish a wholly owned subsidiary consisting of the assets,
liabilities, and personnel of the Information Services Division was approved
with 5,179,831 shares voted in favor, 127,144 shares voted against, 43,792
shares abstaining, and 1,611,782 shares unvoted.
(3) The selection of Coopers & Lybrand L.L.P as auditors of the Company for
the year 1997 was ratified, with 6,906,161 shares voted in favor, 31,232 shares
voted against, 24,356 shares abstaining, and no shares unvoted.
9
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BIOSPHERICS INCORPORATED
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were required to be filed for the second quarter of
the year ending December 31, 1997.
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---------- ---------- ---------- ----------
Net earnings.................................................. $ 56,552 $ 77,282 $ 471,028 $ 6,251
Weighted average shares outstanding........................... 7,973,352 7,869,213 7,973,598 7,850,632
Dilutive common stock equivalents for primary earnings per
share....................................................... 1,867,308 1,833,228 1,867,308 1,743,706
Weighted average shares and common stock equivalent shares
outstanding or primary earnings per share................... 9,840,660 9,702,441 9,840,906 9,594,338
---------- ---------- ---------- ----------
Additional equivalent shares assuming full dilution........... -- 66,153 -- 155,675
Weighted average shares and common equivalent shares for fully
diluted earnings per share.................................. 9,840,660 9,768,594 9,840,906 9,750,013
---------- ---------- ---------- ----------
Earnings per share
Primary..................................................... $ 0.01 $ 0.01 $ 0.05 $ 0.00
---------- ---------- ---------- ----------
Fully diluted............................................... $ 0.01 $ 0.01 $ 0.05 $ 0.00
---------- ---------- ---------- ----------
</TABLE>
10
<PAGE>
BIOSPHERICS INCORPORATED
-------------------
SIGNATURE
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: August 15, 1997 By: /s/ Richard Levin
---------------------- ---------------------------------------
Richard C. Levin
Vice President
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,814,659
<SECURITIES> 0
<RECEIVABLES> 2,628,034
<ALLOWANCES> (20,635)
<INVENTORY> 0
<CURRENT-ASSETS> 5,879,627
<PP&E> 3,046,375
<DEPRECIATION> (1,372,628)
<TOTAL-ASSETS> 7,725,566
<CURRENT-LIABILITIES> 3,795,627
<BONDS> 0
0
0
<COMMON> 24,265
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,725,566
<SALES> 7,148,068
<TOTAL-REVENUES> 7,902,197
<CGS> 5,366,741
<TOTAL-COSTS> 7,203,228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 724,658
<INCOME-TAX> 253,630
<INCOME-CONTINUING> 471,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471,028
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
