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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 MARCH 31, 2000.
[ ] 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(R) INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified 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
(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 April 27, 2000
- ------------------------------ --------------------------------
Common Stock, $0.005 par value 10,586,607 shares
Transitional Small Business Disclosure Format (Check One): Yes / / No /X/
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BIOSPHERICS INCORPORATED
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FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Statements of Operations for the three-month periods ended
March 31, 2000 and 1999............................................................................ 3
Balance Sheets as of March 31, 2000 and December 31, 1999.......................................... 4
Statements of Cash Flows for the three-month periods ended
March 31, 2000 and 1999............................................................................ 5
Notes to Financial Statements...................................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................ 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................... 10
Signatures .................................................................................................. 11
</TABLE>
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BIOSPHERICS INCORPORATED
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
2000 1999
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<S> <C> <C>
REVENUE $ 5,253,517 $ 2,965,895
------------ ------------
OPERATING EXPENSE
Direct contract and operating costs 2,971,857 2,540,742
Selling, general and administrative expense 867,798 880,685
Research and development expense 43,014 68,221
Depreciation and amortization expense 349,838 404,007
------------ ------------
Total operating expense 4,232,507 3,893,655
------------ ------------
INCOME (LOSS) FROM OPERATIONS 1,021,010 (927,760)
------------ ------------
Interest, net (2,632) (66,054)
------------ ------------
Income (loss) before taxes 1,018,377 (993,814)
Income tax expense -- --
------------ ------------
NET INCOME (LOSS) $ 1,018,377 $ (993,814)
============ ============
Net income (loss) per share, basic $ 0.10 $ (0.11)
============ ============
Net income (loss) income per share, diluted $ 0.09 $ (0.11)
============ ============
Weighted average shares outstanding, basic 10,105,094 9,237,584
============ ============
Weighted average shares outstanding, diluted 11,532,839 9,237,584
============ ============
</TABLE>
See accompanying notes to financial statements.
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BIOSPHERICS INCORPORATED
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BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
(UNAUDITED)
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,831,991 $ 1,437,280
Restricted cash 500,000 500,000
Trade accounts receivable, net of allowance for
doubtful accounts of $215,000 and $200,000 3,993,602 1,616,012
Other receivables 173,733 149,149
Prepaid expenses and other assets 438,581 476,866
Inventory 28,600 --
------------ ------------
Total current assets 9,966,507 4,179,307
Property and equipment, net of accumulated depreciation of $3,429,747 and $3,555,415 4,941,731 4,239,776
Patents, net of accumulated amortization of $103,868 and $100,085 132,743 136,526
------------ ------------
Total assets $ 15,040,981 $ 8,555,609
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit $ 1,344,222 $ 1,277,853
Accounts payable and accrued expenses 1,077,871 1,095,199
Accrued salaries and benefits 1,031,545 682,034
Notes payable 529,559 634,716
Capital lease obligations 123,577 317,445
Deferred revenue 111,161 111,161
------------ ------------
Total current liabilities 4,217,935 4,118,408
Notes payable 164,149 206,000
Capital lease obligations 107,509 332,604
Deferred rent 128,995 116,154
Deferred revenue 1,000,000 1,000,000
------------ ------------
Total liabilities 5,618,588 5,773,166
------------ ------------
Commitments and contingencies
Redeemable common stock, 3,054,273 shares 547,337 547,337
------------ ------------
Stockholders' equity
Preferred stock, $0.01 par value, 2,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.005 par value, 18,000,000 shares authorized;
10,614,945 and 9,781,488 issued, 10,583,607 and 9,747,650
shares outstanding, of which 3,054,273 shares are classified as
redeemable commom stock at March 31, 2000 and
December 31, 1999, respectively 37,803 33,636
Paid-in capital in excess of par value 13,566,745 7,963,339
Treasury stock, 31,338 and 33,838 shares at cost, at
March 31, 2000, and December 31, 1999, respectively (199,979) (219,054)
Accumulated deficit (4,529,513) (5,542,815)
------------ ------------
Total stockholders' equity 8,875,056 2,235,106
------------ ------------
Total liabilities and stockholders' equity $ 15,040,981 $ 8,555,609
============ ============
</TABLE>
See accompanying notes to financial statements.
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BIOSPHERICS INCORPORATED
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STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,018,377 $ (993,814)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 349,838 404,007
Treasury stock issued in payment of expenses 14,000 --
Changes in assets and liabilities:
Trade accounts receivable (2,377,590) (244,147)
Other receivables (24,584) 11,396
Prepaid expenses and other assets 23,650 (3,817)
Inventory (28,600) --
Accounts payable and accrued expenses 369,948 (108,221)
Income taxes payable -- 73,089
Deferred rent 12,841 13,846
Deferred revenue -- (29,726)
----------- -----------
Net cash used in operating activities (642,120) (877,387)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,434,871) (620,038)
Additions to patent costs -- (105)
----------- -----------
Net cash used in investing activities (1,434,871) (620,143)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change on bank line of credit 66,369 (99,367)
Net change in book overdraft 52,137 (118,297)
Payments on notes payable (147,008) (133,515)
Payments on capital lease obligations (107,369) (94,723)
Proceeds from issuance of common stock 5,638,326 1,220,496
Cost of issuance of common stock (30,753) --
----------- -----------
Net cash provided by financing activities 5,471,702 774,594
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,394,711 (722,936)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,437,280 2,288,834
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,831,991 $ 1,565,898
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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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, 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 March 31, 2000, and the results of
its operations and its cash flows for the three-month periods ended March 31,
2000 and 1999. This report should be read in conjunction with the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999.
2. PER SHARE PRESENTATION
Basic income per common share has been computed by dividing net income
(loss) by the weighted-average number of common shares outstanding during the
year. Diluted income per common share has 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. 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 common stock equivalents are
antidiluted.
3. 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 ("MDFI"). The advance will be recognized as revenue
at a rate of 50% of annual royalties generated from future sales.
4. PRIVATE PLACEMENTS
In February 2000, the Company completed a $5 million private offering of
723,982 units to a single institutional investor (the "Investor"). Each unit
consisted of one share of Common Stock and one and one-half (1 1/2) warrants,
with an exercise price of $6.91 per share. The Warrants are exercisable
throughout a four year period. All shares issued in connection with the February
2000 private placement, including all which may be issued pursuant to exercise
of the warrants, have been registered by the Company.
In connection with the above-described private placement, the Investor
has agreed that it will not exercise any of the warrants to the extent that it
would acquire shares of Common Stock exceeding 9.9% of the outstanding Common
Stock nor to knowingly sell shares to anyone to the extent that their holding in
the Company would exceed 4.9% of the outstanding Common Stock.
5. TREASURY STOCK TRANSACTION
During January 2000, the Company issued 2,500 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 $5,075.
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BIOSPHERICS INCORPORATED
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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 risk
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 management, in
deciding how to allocate resources and in assessing performance. In 1999, the
Company was managed along two business segments, the Information Services
Division ("ISD") and the Biotechnology Division ("BioTech"). Beginning in
January 2000, the ISD division was restructured into two separate divisions, the
Commercial Information Services Division ("CISD") and the Government Information
Services Division ("GISD"). As comparative information for the two new divisions
is not available from the prior year, GISD and CISD will also be presented on a
combined basis for comparison with the prior year activity of ISD.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
The Company reported net income of $1,018,000 ($0.09 per share, diluted)
on sales of $5.3 million for the first quarter of 2000 compared with net loss of
$994,000 ($0.11 per share, diluted) on sales of $3.0 million in the same period
of 1999.
<TABLE>
<CAPTION>
COMBINED
THREE MONTHS ENDED MARCH 31,
----------------------------
INFORMATION SERVICES DIVISIONS COMMERCIAL GOVERNMENT 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 3,015,000 $ 2,238,000 $ 5,253,000 $ 2,920,000
Operating expense 1,583,000 2,484,000 4,067,000 3,769,000
----------- ----------- ----------- -----------
Operating income (loss) $ 1,432,000 $ (246,000) $ 1,186,000 $ (849,000)
=========== =========== =========== ===========
</TABLE>
The Information Services Division's revenue for the three months ended
March 31, 2000, increased $2.3 million (80%) in relation to the same period in
1999, resulting in an operating income of $1,186,000 for the quarter. The
increase between years is largely the result of successfully winning a targeted
pharmaceutical contract, the majority of which took place during the first
quarter of 2000 (the "Contract"). The increase in direct costs related to this
project were largely off-set by decreases in indirect costs as a result of the
Company's re-engineering efforts when compared to the first quarter of the prior
year. This Contract was largely completed during the first quarter and will have
minimum contribution to the operations for the second quarter of 2000. The
Company's recently established Business Development Group is targeting
successful continued growth in our commercial segment and is currently
negotiating on several Pharmaceutical/Health related contracts, although no
assurance can be given that these efforts will result in new business for the
Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
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BIOTECHNOLOGY DIVISION 2000 1999
--------- ---------
<S> <C> <C>
Revenue $ 1,000 $ 46,000
Operating expense 166,000 125,000
--------- ---------
Operating loss $(165,000) $ (79,000)
========= =========
</TABLE>
First quarter revenues from the Biotechnology Division 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 ("MDFI"). The
increased operating expense is related to the product launch of FlyCracker, the
Company's newly-developed biodegradable pesticide. The decrease in R&D expenses
is largely a result of the Division's indirect costs now being
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BIOSPHERICS INCORPORATED
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allocated between direct contract and operating costs, research and development,
and selling, general and administrative costs as a result of the migration of
the BioTech products into the marketplace.
Selling, general and administrative expense ("S,G&A") for the first
quarter was consistent between years.
Depreciation expense decreased $54,000 in the first quarter of 2000 in
comparison to the same period in 1999 as a result of the write-down of assets
during the fourth quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Loan Agreement (the "Agreement") with Bank of America (the
"Bank") provides for borrowing up to $1.5 million, subject to advance rates as
defined in the Agreement. Outstanding borrowings under the Agreement aggregated
$1,344,222 at March 31, 2000, and are collateralized by the Company's eligible
accounts receivable and $500,000 from the Company's money market account. The
interest rate under the new agreement is the Bank's prime rate plus 2.5% per
annum. The total amount available to the Company was $123,629 under the
Agreement at March 31, 2000. In the fall of 1999 and in early 2000, the Bank
extended the line of credit but provided that absent an additional agreement
with the Company, all loans would become due and payable on a date certain. At
present, this date is June 30, 2000. The Company is in discussions with the Bank
and other institutional lenders to extend the line of credit and related term
loans.
In February 2000, the Company completed a $5 million private offering of
723,982 units to a single institutional investor (the "Investor"). Each unit
consisted of one share of Common Stock and one and one-half (1 1/2) warrants,
with an exercise price of $6.91 per share. The Warrants are exercisable
throughout a four year period. All shares issued in connection with the February
2000 private placement, including all which may be issued pursuant to exercise
of the warrants, have been registered by the Company. Given the increased
liquidity of the Company, principally resulting from the private placement, the
Company believes that it will obtain an appropriate extension of the line of
credit. However, if the Company is unable to extend the line of credit, the
Company believes that it has adequate funds to meet all of its current
obligations for the balance of 2000.
Cash flow for the quarter ended March 31, 2000, reflects a net cash
inflow of $3.4 million consisting of $642,000 used in operating activities,
$1,435,000 used in investing activities, and $5,472,000 million provided by
financing activities. Cash flow from operating activities in 2000 increased
$235,000 from those of the prior year as a result of the Company's
re-engineering efforts. Investment in property and equipment increased by
$815,000 as a direct result of a one time $1.3 million purchase of telephone
equipment previously under capital and operating leases. This investment was
financed through the proceeds from the private offering.
Working capital as of March 31, 2000, was $5,749,000, which represents a
$5,675,000 increase from working capital of $74,000 at March 31, 1999. This
increase is due to the February 2000 private offering and the increase in trade
receivables. Trade receivables increased principally due to the Contract; the
receivable for the Contract has now been paid in full.
The Company considers the upgrading of its information and
telecommunications systems complete and adequate for the near term. Future
capital needs to start new contracts and maintain existing programs, while
upgrading information and telecommunication systems, will be proportionately
less. The Company is anticipating sufficient cash flow from operating activities
during 2000 to cover its continuing capital needs. The Company used $1.3 million
of the proceeds from the February 24, 2000, private placement to purchase
certain telephone equipment previously under leases. It is also anticipated that
royalties on sales by MDFI could begin in late 2001.
No dividends were paid in 1999 and none are anticipated in 2000.
SALES OF SECURITY
The Company completed the above-described private offering in February
2000. The Company has registered the shares of Common Stock sold to the
Investor, as well as all shares which may be obtained by the Investor pursuant
to stock purchase warrants, for resale by the Investor on Form S-3 (Registration
No 333-32504).
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BIOSPHERICS INCORPORATED
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The Company has previously engaged in private offerings with the Investor
in December 1997, March 1999, and May 1999, all as reported in the Company's
Form 10-KSB for the period ended December 31, 1999.
IMPACT OF THE YEAR 2000
To date, the Company has experienced no significant adverse effects
related to the Year 2000 computer issue. The important internal information
technology systems made a seamless transition into the Year 2000 and there were
no notable problems with equipment or systems that may have been affected by
faulty embedded chips or other Year 2000 problems. The Company is not aware of
any significant Year 2000 problems at any of its customers nor has the Company
noted any disruption in its supply chain related to Year 2000 issues.
The Company implemented a comprehensive project plan to identify
internal and external information technology and non-information technology
systems which required modification or upgrade to be made Year 2000 compliant.
An inventory and assessment of these systems was completed in the fourth quarter
of 1998. Remediation and testing of non-Year 2000 compliant systems was
completed during the second quarter of 1999. As part of this project, the
Company developed and tested contingency plans which identified workarounds in
the event of a malfunction of a system designated as a priority system at the
inventory stage. In addition, the Company identified suppliers of key goods and
services to all business areas, requested information about their Year 2000
readiness, and audited certain key suppliers for Year 2000 readiness.
The Company has spent approximately $200,000 principally for capital
expenditures as of December 31, 1999 to become Year 2000 compliant. These
expenditures are for external costs and do not include costs of Company
employees who implemented the comprehensive project plan described above. The
Company believes that any additional resources needed to address Year 2000
issues will not be material. However, there can be no assurance that currently
unidentified Year 2000 issues, if any, will not arise, especially in areas
outside the Company; that these issues will not have a material adverse effect
on the Company; or, that additional resources needed to address these issues
will not be material.
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BIOSPHERICS INCORPORATED
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On March 3, 2000, the Company filed a report on Form 8-K dated
February 24, 2000, pursuant to Item 5 thereof, to report the issuance of 723,982
units consisting of one share of Common Stock and one and one-half warrants with
an exercise price of $6.91 per share.
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BIOSPHERICS INCORPORATED
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SIGNATURES
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: May 12, 2000 By: /s/ GILBERT V. LEVIN
--------------------------- ---------------------------------------
Gilbert V. Levin
Chair, CEO, President, and
Treasurer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,331,991
<SECURITIES> 0
<RECEIVABLES> 3,993,607
<ALLOWANCES> 215,000
<INVENTORY> 28,600
<CURRENT-ASSETS> 9,966,507
<PP&E> 8,371,478
<DEPRECIATION> 3,429,747
<TOTAL-ASSETS> 15,040,981
<CURRENT-LIABILITIES> 4,217,935
<BONDS> 0
0
0
<COMMON> 37,803
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,040,981
<SALES> 5,253,517
<TOTAL-REVENUES> 5,253,517
<CGS> 4,232,507
<TOTAL-COSTS> 4,232,507
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,424
<INCOME-PRETAX> 1,018,377
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,018,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,018,377
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.09
</TABLE>
