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Previous: BIO RAD LABORATORIES INC, 10-Q/A, 1999-11-15 |
Next: BLACK GIANT OIL CO, NT 10-Q, 1999-11-15 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
| /x/ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 1999.
| / / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-5576
BIOSPHERICS® INCORPORATED
(Exact name of Registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
52-0849320 (I.R.S. Employer Identification No.) |
12051 Indian Creek Court, Beltsville, Maryland 20705
(Address of principal executive offices)
301-419-3900
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock, as of the latest practicable date.
| Class |
Outstanding as of September 30, 1999 |
|
| Common Stock, $0.005 par value | 9,649,452 shares |
Transitional Small Business Disclosure Format (Check One): Yes / / No /x/
Biospherics Incorporated
Form 10-QSB
For the Quarter Ended September 30, 1999
Index
| |
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Page No. |
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|---|---|---|---|---|
| Part I. Financial Information |
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| Item 1. |
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Financial Statements (Unaudited) |
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|
| |
|
Statements of Operations for the three-month and nine-month periods ended September 30, 1999 and 1998 |
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3 |
| |
|
Balance Sheets as of September 30, 1999, and December 31, 1998 |
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4 |
| |
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Statements of Cash Flows for the nine-month periods ended September 30, 1999 and 1998 |
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5 |
| |
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Notes to Financial Statements |
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6 |
| Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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7 |
| Part II. Other Information |
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| Item 6. |
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Exhibits and Reports on Form 8-K |
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10 |
| Signatures |
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11 |
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| |
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Part I. Financial Information
Item 1. Financial Statements
Statements of Operations
(Unaudited)
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
1999 |
1998 |
1999 |
1998 |
|||||||||
| Revenue | $ | 3,473,073 | $ | 4,718,123 | $ | 10,022,347 | $ | 13,748,156 | |||||
| Operating expense |
|
|
|
|
|
|
|
|
|
|
|
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| Direct contract and operating costs | 2,152,762 | 3,782,815 | 7,326,659 | 9,941,931 | |||||||||
| Selling, general and administrative expense | 720,132 | 939,155 | 2,469,702 | 2,708,490 | |||||||||
| Research and development expense | 93,910 | 129,473 | 307,417 | 318,679 | |||||||||
| Depreciation and amortization expense | 444,248 | 384,153 | 1,268,680 | 898,826 | |||||||||
| Total operating expense | 3,411,052 | 5,235,596 | 11,372,458 | 13,867,926 | |||||||||
| Income (loss) from operations | 62,021 | (517,473 | ) | (1,350,111 | ) | (119,770 | ) | ||||||
| Interest, net | (44,394 | ) | (48,513 | ) | (168,081 | ) | (81,401 | ) | |||||
| Income (loss) before taxes |
|
|
17,827 |
|
|
(565,986 |
) |
|
(1,518,192 |
) |
|
(201,171 |
) |
| Income tax (benefit) expense | — | (211,962 | ) | 300,000 | (74,291 | ) | |||||||
| Net income (loss) | $ | 17,627 | $ | (354,024 | ) | $ | (1,818,192 | ) | $ | (126,880 | ) | ||
| Net loss per share, basic | $ | — | $ | (0.04 | ) | $ | (0.19 | ) | $ | (0.01 | ) | ||
| Net loss per share, diluted | $ | — | $ | (0.04 | ) | $ | (0.19 | ) | $ | (0.01 | ) | ||
| Weighted average shares outstanding, basic | 9,641,691 | 8,788,584 | 9,343,159 | 8,788,584 | |||||||||
| Weighted average shares outstanding, diluted | 12,186,536 | 8,788,584 | 9,343,159 | 8,788,584 | |||||||||
See accompanying notes to financial statements.
Biospherics Incorporated
Balance Sheets
| |
September 30, 1999 |
December 31, 1998 |
|||||
|---|---|---|---|---|---|---|---|
| |
(Unaudited) |
|
|||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 1,911,666 | $ | 2,288,834 | |||
| Trade accounts receivable, net of allowance for doubtful accounts of $40,000 and $145,000 | 1,865,160 | 1,642,820 | |||||
| Other receivables | 203,492 | 210,188 | |||||
| Deferred income taxes | — | 114,532 | |||||
| Prepaid expenses and other assets | 549,752 | 588,070 | |||||
| Total current assets | 4,530,070 | 4,814,444 | |||||
| Property and equipment, net of accumulated depreciation of $3,426,426 and $2,756,472 | 6,485,049 | 6,435,581 | |||||
| Deferred income taxes | — | 185,468 | |||||
| Patents, net of accumulated amortization of $96,204 and $85,506 | 136,664 | 128,745 | |||||
| Restricted cash, security deposit | — | 70,000 | |||||
| Total assets | $ | 11,151,783 | $ | 11,634,238 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities | |||||||
| Bank line of credit | $ | 750,930 | $ | 1,148,006 | |||
| Accounts payable and accrued expenses | 941,651 | 1,636,602 | |||||
| Accrual salaries and benefits | 615,691 | 699,781 | |||||
| Notes payable | 603,120 | 513,144 | |||||
| Capital lease obligations | 349,827 | 394,143 | |||||
| Deferred revenue | 111,161 | 144,804 | |||||
| Total current liabilities | 3,372,380 | 4,536,480 | |||||
| Notes payable | 382,192 | 672,930 | |||||
| Capital lease obligations | 400,681 | 649,447 | |||||
| Deferred rent | 102,308 | 106,923 | |||||
| Deferred revenue | 1,000,000 | 1,000,000 | |||||
| Total liabilities | 5,257,561 | 6,965,780 | |||||
| Commitments and contengencies | |||||||
| Redeemable common stock, 3,213,506 shares | 325,710 | 325,710 | |||||
| Stockholders' equity | |||||||
| Preferred stock, $0.01 par value, 2,000,000 shares authorized; none issued and outstanding | — | — | |||||
| Common stock, $.005 par value, 18,000,000 shares authorized; 9,683,690 and 8,973,691 issued, 9,649,452 and 8,933,085 shares outstanding, of which 3,213,506 shares are classified as redeemable common stock, at September 30, 1999, and December 31, 1998, respectively | 32,351 | 28,801 | |||||
| Paid-in capital in excess of par value | 7,913,150 | 4,912,744 | |||||
| Treasury stock, 34,238 and 40,606 shares at cost, at September 30, 1999, and December 31, 1998, respectively | (222,106 | ) | (267,368 | ) | |||
| Accumulated deficit | (2,154,883 | ) | (331,428 | ) | |||
| Total stockholders' equity | 5,568,512 | 4,342,748 | |||||
| Total liabilities and stockholders' equity | $ | 11,151,783 | $ | 11,634,238 | |||
See accompanying notes to financial statements.
Biospheries Incorporated
Statements of Cash Flows
(Unaudited)
| |
Nine Months Ended September 30, |
||||||
|---|---|---|---|---|---|---|---|
| |
1999 |
1998 |
|||||
| Cash flows from operating activities | |||||||
| Net Loss | $ | (1,818,192 | ) | $ | (126,880 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
| Depreciation and amortization | 1,286,599 | 898,826 | |||||
| Loss on sales or write-down of assets | — | 56,464 | |||||
| Treasury stock issued in payment of expense | 40,000 | — | |||||
| Changes in assets and liabilities: | |||||||
| Trade accounts receivable | (117,340 | ) | (972,942 | ) | |||
| Provision for uncollectible accounts receivable | (105,000 | ) | (6,000 | ) | |||
| Other receivables | 6,696 | (454,891 | ) | ||||
| Prepaid expenses and other assets | 8,318 | (291,230 | ) | ||||
| Prepaid income taxes | — | (100,000 | ) | ||||
| Deferred income taxes | 300,000 | 117,384 | |||||
| Accounts payable and accrued expenses | (236,820 | ) | 40,684 | ||||
| Income taxes payable | — | (123,067 | ) | ||||
| Deferred rent | (4,615 | ) | (24,182 | ) | |||
| Deferred compensation | — | 522 | |||||
| Deferred revenue | (33,643 | ) | (21,366 | ) | |||
| Net cash used in operating activities | (673,997 | ) | (1,006,678 | ) | |||
| Cash flow from investing activities |
|
|
|
|
|
|
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| Purchases of property and equipment | (1,254,909 | ) | (3,056,060 | ) | |||
| Restricted cash, security deposit | — | 27,408 | |||||
| Additions to patent costs | (19,077 | ) | — | ||||
| Net cash used in investing activities | (1,273,986 | ) | (3,028,652 | ) | |||
| Cash flow from financing activities |
|
|
|
|
|
|
|
| Net change on bank line of credit | (397,076 | ) | 1,766,184 | ||||
| Net change in book overdraft | (542,221 | ) | 115,699 | ||||
| Proceeds from notes payable | 198,491 | 580,812 | |||||
| Payments on notes payable | (399,253 | ) | (345,171 | ) | |||
| Payments on capital lease obligations | (293,082 | ) | (195,548 | ) | |||
| Proceeds from issuance of common stock | 3,013,575 | — | |||||
| Cost of issuance of common stock | (9,619 | ) | (45,491 | ) | |||
| Net cash provided by financing activities | 1,570,815 | 1,876,485 | |||||
| Net decrease in cash and cash equivalents |
|
|
(377,168 |
) |
|
(2,158,845 |
) |
| Cash and cash equivalents, beginning of period | 2,288,834 | 5,228,773 | |||||
| Cash and cash equivalents, end of period | $ | 1,911,666 | $ | 3,069,928 | |||
See accompanying notes to financial statements.
Biosherics 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, the accompanying unaudited financial statements contain all material adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of September 30, 1999, and the results of its operations for the three-month and nine-month periods ended September 30, 1999 and 1998, and its cash flows for the nine-month periods ended September 30, 1999 and 1998. This report should be read in conjunction with the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
2. Net Income Per Share
Basic earnings (loss) per common share have been computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted loss per common share has been computed by dividing net loss by the weighted average number of common shares outstanding without an assumed increase in common shares outstanding for common stock equivalents, as stock equivalents are antidilutive. Diluted earnings per share have been computed by dividing net income by the weighted average number of common shares outstanding with an assumed increase in common shares outstanding for common stock equivalents.
The following table reconciles the weighted average number of common shares outstanding during each period for basic earnings per share with the comparable amount for diluted earnings per share.
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||
|---|---|---|---|---|---|---|---|---|
| |
1999 |
1998 |
1999 |
1998 |
||||
| Weighted average shares outstanding for basic earnings per share | 9,641,691 | 8,788,584 | 9,343,159 | 8,788,584 | ||||
| Weighted average dilutive common stock equivalents | 2,544,845 | — | — | — | ||||
| Weighted average shares and common stock equivalents outstanding for diluted earnings per share | 12,186,536 | 8,788,584 | 9,343,159 | 8,788,584 | ||||
3. Income Taxes
Based on the Company's losses for the nine months ended September 30, 1999, and its accumulated deficit, the Company has provided a full valuation allowance against the net deferred tax asset.
4. Deferred Revenue
Deferred revenue includes a $1,000,000 non-refundable advance against future royalties from the D-tagatose licensing agreement with MD Foods Ingredients amba of Denmark. The advance will be recoverable at 50% of such annual royalties.
5. Treasury Stock Transaction
During April 1999, the Company issued 6,368 shares of Common Stock previously held in the treasury in payment of expenses. The excess of the purchase price of the treasury stock over the value of the stock on the date of issuance has been charged to retained earnings in the amount of $5,263.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Quarterly Report on 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 and are identified by the use of forward-looking words or phrases, such as "believes," "expects," is or are "expected," "anticipates," "anticipated," "should," and words of similar impact. These forward-looking statements are based on the Company's current expectations. Because forward-looking statements involve risks and uncertainties, the Company's actual results could differ materially. See the Company's Form 8-K filing dated March 26, 1999, for a more detailed statement concerning forward-looking statements.
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company is managed along two business segments, the Information Services Division (ISD) and the BioTech Programs Unit.
Results of Operations for the Three and Nine Months Ended September 30, 1999 and 1998
| |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
1999 |
1998 |
1999 |
1998 |
|||||||||
| Information Services | |||||||||||||
| Revenue | $ | 3,465,847 | $ | 4,620,330 | $ | 9,896,394 | $ | 13,535,444 | |||||
| Operating expenses | 3,313,773 | 5,105,567 | 11,005,562 | 13,540,153 | |||||||||
| Operating profit (loss) | $ | 152,074 | $ | (485,237 | ) | $ | (1,109,168 | ) | $ | (4,709 | ) | ||
| BioTech |
|
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|
|
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|
|
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|
|
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| Revenue | 7,226 | 97,793 | 125,953 | 212,712 | |||||||||
| Operating expenses | 97,279 | 130,029 | 366,896 | 327,773 | |||||||||
| Operating loss | $ | (90,053 | ) | $ | (32,236 | ) | $ | (240,943 | ) | $ | (115,061 | ) | |
The Company reported a net income of $17,627 ($0.00 per share) on sales of $3,473,073, and a net loss of $1,818,192 ($0.19 per share) on sales of $10,022,347 for the three months and nine months ended September 30, 1999, respectively.
The Information Services Division's revenue for the three and nine months ended September 30, 1999, decreased $1.2 million and $3.6 million, respectively, in relation to the same periods in 1998. The decrease in revenue in 1999 is the result of non-sustained, short-term, projects in 1998 and several long-term government contracts completed in 1998. Starting in the first quarter of 1999, the Company initiated significant re-engineering efforts across its business lines, through the reduction of labor and renegotiation of contracts, in combination with a marketing strategy designed to take advantage of the Company's technology investment. It targeted growth in the business line in which the Company is the most competitive, the health and pharmaceutical business. These efforts have increased the profitability of the health and pharmaceutical business, to make this line the Company's profit leader. The government business also has seen significant results in increased profitability on all contracts. Results from operations over the past four quarters demonstrates the positive trend of these initiatives: $1.8 million loss for the fourth quarter 1998, reduced to half in the first quarter of 1999 with a loss of $928,000, again reduced to half in the second quarter of 1999 with a loss from operations of $484,000, and the realization of a profitable third quarter for 1999. The Company's third quarter results are the best attained in the past four years, while carrying significantly more leverage from the Company's technology investments. The third quarter 1999 profits of $62,000 from operations, $17,000 net income, are contrasted to 1998 third quarter results of a $517,000 loss from operations, nearly a $600,000 improvement. The Company is currently negotiating on several new commercial and government contracts and anticipates seeing results of these efforts in the fourth quarter of 1999 and first quarter of 2000.
BioTech revenue for the three and nine months ended September 30, 1999, were down from those of the prior year as a result of the completion of the technical support services provided to MD Foods Ingredients amba of Denmark. Decreases in operating expenses are a result of a temporary reduction in labor costs from a job vacancy that the Company is currently looking to fill as part of the Company's plan to strengthen the efforts of the BioTech Programs Unit. In addition to an initial license fee of $1.5 million, the Company received payment aggregating $1,000,000 in the first quarter of 1997 under the MDFI License Agreement, representing a non-refundable advance against future royalties. This payment is classified as deferred revenue in the balance sheet.
Selling, general and administrative expenses ("S,G&A") for the three and nine months ended September 30, 1999, decreased $219,023 and $238,788, respectively, from those of 1998 as a result of the Company's re-engineering efforts.
Depreciation expense increased $60,095 and $369,854 for the three and nine months ended September 30, 1999, compared with the same periods in 1998. The increase was due to the Company's increased investment in technology and product development. Included in the research and development expense for the nine months ended September 30, 1999, is depreciation expense of $17,919.
Based on the Company's losses for the nine months ended September 30, 1999, and its accumulated deficit, the Company has provided a full valuation allowance against the net deferred tax asset.
Liquidity and Capital Resources
The Company renewed its Loan Agreement (the "Agreement") with Bank of America (the "Bank") on October 27, 1999, which provides for borrowing up to $1.5 million, subject to advance rates as defined in the Agreement. Outstanding borrowings under the Agreement aggregated $750,930 at September 30, 1999, and are collateralized by the Company's accounts receivable. The interest rate is the Bank's prime rate plus 2% per annum. The Loan Agreement contains covenants that require the Company to meet certain tangible net worth and cash flow coverage ratios. As of September 30, 1999, the Company was in compliance with the bank Covenants. The line expires on January 31, 2000, but the Company anticipates that the line will be renewed. However, if the Company is unable to extend the line of credit and obtain adequate financing, material adverse consequences could result.
Cash flow for the nine months ended September 30, 1999, reflects a net cash outflow of $377,168, resulting from $0.7 million used in operating activities, $1.3 million used in investing activities, and $1.6 million provided by financing activities. Cash flow from operating activities in the first nine months of 1999 increased $332,847 from those of the prior year. Investment in property and equipment aggregated $1.3 million and represented a $1.8 million reduction from that of the prior year as a result of the completion of the Company's major product development, which includes the computer-telephony integration (CTI) system, ReserveSuite™ and HealthSuite™. The investment was used in upgrading the Company's information and telecommunications systems and in the continued development of the Company's new software products used by ISD. The Company considers the development of these products adequate for the near term. It does not anticipate major continued capital investment. The above investments were financed in part through proceeds from the exercise of stock warrants and borrowings under the Bank's equipment lines of credit.
Working capital as of September 30, 1999, was $1.2 million, which represents a $0.6 million decrease from working capital of $1.8 million at September 30, 1998.
It is anticipated that royalties on sales by MDFI could begin in 2001.
Y2K Disclosure
Biospherics Incorporated utilizes software, information systems, and infrastructure components that may be affected by Year 2000 issues. During fiscal year 1998, the Company began to implement plans to ensure that those systems continue to meet its internal and external requirements via its Y2K Project. During fiscal year 1998, the Company's largest division, Information Services Division, completed modifications and testing of its primary information systems. These systems modifications included a complete modernization of the Company's infrastructure systems as well as testing and modification to all critical and secondary enterprise systems. In September of 1999, the Company performed an enterprise-wide millennium "roll-forward" test, clocking the Company's entire infrastructure to December 31, 1999, and rolling forward into a simulated millennial change. All systems performed successfully.
The Company is in the process of obtaining the remaining 10% of the determination documentation from vendors for Year 2000 impact. The Company will continually monitor its vendors and suppliers and is now focusing on clients to evaluate their progress and impact. The Company has evaluated its non-information systems components, such as facility systems, telephone services, and the like. To date, evaluations have yielded marked progress in all third party areas with no evidence of critical issue or impact.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the three months ended September 30, 1999.
Pursuant to the requirements of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIOSPHERICS INCORPORATED (Registrant) |
|||
| Date: November 11, 1999 |
|
By: |
/s/ GILBERT V. LEVIN Gilbert V. Levin Chairman of the Board, President, and Treasurer |
|
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