<PAGE>
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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 SEPTEMBER 30, 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
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BIOSPHERICS(R) INCORPORATED
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(Exact name of Registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
52-0849320
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(I.R.S. Employer Identification No.)
12051 INDIAN CREEK COURT, BELTSVILLE, MARYLAND 20705
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(Address of principal executive offices)
301-419-3900
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(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
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Common Stock, $0.005 par value
Outstanding as of September 30, 2000
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10,618,231 shares
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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<PAGE>
BIOSPHERICS INCORPORATED
----------
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements (Unaudited)
Statements of Operations for the three-month and
nine-month periods ended September 30, 2000 and 1999............................................... 3
Balance Sheets as of September 30, 2000, and December 31, 1999..................................... 4
Statements of Cash Flows for the nine-month periods
ended September 30, 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>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- -------------
2000 1999 2000 1999
----- ----- ----- ----
<S> <C> <C> <C> <C>
REVENUE $ 4,418,867 $ 3,473,073 $ 14,354,915 $ 10,022,347
OPERATING EXPENSE
Direct contract and operating costs 2,709,145 2,152,762 8,573,360 7,326,659
Selling, general and administrative expense 925,112 720,132 2,830,406 2,469,702
Research and development expense 84,028 93,910 192,715 307,417
Depreciation and amortization expense 330,370 444,248 1,022,902 1,268,680
------- ------- --------- ---------
Total operating expense 4,048,655 3,411,052 12,619,383 11,372,458
--------- --------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 370,212 62,021 1,735,532 (1,350,111)
------- ------ --------- ----------
Interest, net 68,178 (44,394) 108,196 (168,081)
Income (loss) before taxes 438,390 17,627 1,843,728 (1,518,192)
Income tax expense - - - 300,000
------- ------ --------- ----------
NET INCOME (LOSS) $ 438,390 $ 17,627 $ 1,843,728 $ (1,818,192)
============ ============ ============ ============
Net income (loss) per share, basic $ 0.04 $ - $ 0.18 $ (0.19)
============ ============ ============ ============
Net income (loss) per share, diluted $ 0.04 $ - $ 0.17 $ (0.19)
============ ============ ============ ============
Weighted average shares outstanding, basic 10,615,924 9,641,691 10,441,868 9,343,159
========== ========= ========== =========
Weighted average shares outstanding, diluted 10,663,648 12,186,536 10,683,442 9,343,159
========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 December 31,
ASSETS (UNAUDITED) 1999
------------ ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,938,750 $ 1,437,280
Restricted cash 500,000 500,000
Trade accounts receivable, net of allowance for doubtful
accounts of $130,000 and $200,000 2,653,762 1,616,012
Other receivables 39,389 149,149
Prepaid expenses and other assets 241,761 476,866
------- -------
Total current assets 9,373,662 4,179,307
Property and equipment, net of accumulated
depreciation of $4,095,244 and $3,555,415 4,617,171 4,239,776
Patents, net of accumulated amortization of $111,435 and $100,085 135,550 136,526
------- -------
Total assets $ 14,126,383 $ 8,555,609
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit $ 84,486 $ 1,277,853
Accounts payable and accrued expenses 1,136,292 1,095,199
Accrued salaries and benefits 760,229 682,034
Notes payable 356,573 634,716
Capital lease obligations 88,239 317,445
Deferred revenue 111,161 111,161
------- -------
Total current liabilities 2,536,980 4,118,408
Notes payable 80,447 206,000
Capital lease obligations 72,224 332,604
Deferred rent 150,653 116,154
Deferred revenue 1,000,000 1,000,000
--------- ---------
Total liabilities 3,840,304 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, $.005 par value, 50,000,000 shares authorized;
10,666,945 and 9,781,488 issued, 10,618,231 and 9,747,650 shares
outstanding, of which 48,714 and 33,838 shares are classified as
redeemable common stock at September 30, 2000, and December 31,
1999, respectively 38,063 33,636
Paid-in capital in excess of par value 13,733,570 7,963,339
Treasury stock, 48,714 and 33,838 shares at cost, at September 30, 2000, and
December 31, 1999, respectively (327,976) (219,054)
Accumulated deficit (3,704,915) (5,542,815)
---------- ----------
Total stockholders' equity 9,738,742 2,235,106
--------- ---------
Total liabilities and stockholders' equity $ 14,126,383 $ 8,555,609
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,843,728 $(1,818,192)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,022,902 1,286,599
Treasury stock issued in payment of expense 17,749 40,000
Changes in assets and liabilities:
Trade accounts receivable (1,037,750) (222,340)
Other receivables 109,760 6,696
Prepaid expenses and other assets 220,470 8,318
Deferred income taxes - 300,000
Accounts payable and accrued expenses 187,313 (236,820)
Deferred rent 34,499 (4,615)
Deferred revenue - (33,643)
--------- --------
Net cash provided by (used in) operating activities 2,398,671 (673,997)
--------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,806,068) (1,254,909)
Additions to patent costs (10,374) (19,077)
---------- ----------
Net cash used in investing activities (1,816,442) (1,273,986)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Net change on bank line of credit (1,193,367) (397,076)
Net change in book overdraft 52,137 (542,221)
Proceeds from notes payable - 198,491
Payments on notes payable (403,696) (399,253)
Payments on capital lease obligations (177,992) (293,082)
Proceeds from issuance of common stock 5,686,326 3,013,575
Cost of issuance of common stock (44,167) (9,619)
--------- ---------
Net cash provided by financing activities 3,919,241 1,570,815
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,501,470 (377,168)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,437,280 2,288,834
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,938,750 $ 1,911,666
=========== ===========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim financial statements of Biospherics Incorporated
(the "Company") do not include all of the information and disclosures generally
required for annual financial statements and are unaudited. In the opinion of
management, 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, 2000, and the
results of its operations for the three-month and nine-month periods ended
September 30, 2000 and 1999, and its cash flows for the nine-month periods ended
September 30, 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. NET INCOME PER SHARE
Basic net income (loss) per common share has been computed by dividing net
income (loss) by the weighted-average number of common shares outstanding during
the year. Diluted net 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 net 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") (subsequently merged into Arla to become
Arla Foods). The advance will be recognized as revenue at a rate of 50% of
annual royalties generated from future sales.
4. PRIVATE PLACEMENT
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
and it will not 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 accumulated deficit in the amount of $5,075.
During July 2000, the Company issued 590 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 accumulated deficit in the amount of $753.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is intended to update the information contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999, and
the Company's Quarterly Reports on Form 10-QSB for the periods ended March 31,
and June 30, 2000, and presumes that readers have access to, and will have read,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in such Form 10-KSB and Forms 10-QSB.
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 management in
deciding how to allocate resources and assess 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"). The strategic focus of CISD is to provide prescription and
over-the-counter product support and customer relationship management services
to the pharmaceutical industry. The strategic focus of GISD is the reservation
and tourism industry, utilizing the Company's ReserveSuite product and services,
and information center services. 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's activity of
ISD.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
1999
The Company reported net income of $438,390 ($0.04 per diluted share) on
sales of $4,418,867, and net income of $1,843,728 ($0.17 per diluted share) on
sales of $14,354,915 for the three months and nine months ended September 30,
2000, respectively.
<TABLE>
<CAPTION>
INFORMATION SERVICES DIVISIONS COMBINED
THREE MONTHS ENDED SEPT. 30,
COMMERCIAL GOVERNMENT 2000 1999
---------- ---------- ----- ----
<S> <C> <C> <C> <C>
Revenue $1,195,434 $3,142,047 $4,337,481 $3,465,847
Operating expense 1,072,487 2,833,229 3,905,716 3,313,773
---------- ---------- ---------- ----------
Operating income (loss) $ 122,947 $ 308,818 $ 431,765 $ 152,074
========== ========== ========== ==========
<CAPTION>
COMBINED
NINE MONTHS ENDED SEPT. 30,
COMMERCIAL GOVERNMENT 2000 1999
---------- ---------- ----- ----
<S> <C> <C> <C> <C>
Revenue $ 5,740,422 $ 8,518,994 $ 14,259,416 $ 9,896,394
Operating expense 3,896,441 8,275,620 12,172,061 11,005,562
------------ ------------ ------------ ------------
Operating income (loss) $ 1,843,981 $ 243,374 $ 2,087,355 $ (1,109,168)
============ ============ ============ ============
</TABLE>
The Information Services Division's revenue for the three and nine months
ended September 30, 2000, increased $871,634 (25%) and $4,363,022 (44%),
respectively, in relation to the same periods in 1999, resulting in operating
income of $431,765 and $2,087,355 for the periods ended September 30, 2000. The
increase between years is largely the result of winning several new
pharmaceutical contracts coupled with the strategic growth of various government
contracts. The increase in direct costs related to these projects was largely
offset by decreases in indirect costs as a result of the Company's
re-engineering efforts when compared to the same periods of the prior year.
<PAGE>
The Company's Business Development Group is targeting the commercial
pharmaceutical segment, the government Information Center and Technology
segments, and the ReserveSuite product and services segment, for continued
growth. Currently the Company is negotiating on several contracts along these
business segments, although no assurance can be given that these efforts will
result in new business for the Company. Nonetheless, the efforts of the Business
Development Group have put the Company in a better position as the Company
approaches the fourth quarter, which is historically its weakest portion of the
year due to reduced reservation/tourism business.
CISD contracts are typically for shorter terms than GISD contracts and that
can result in substantial variations in CISD revenues.
The Company's Federal Information Center ("FIC") contract, through the
General Services Administration, concluded on October 13, 2000. The FIC
contract, for the nine months ended September 30, 2000, accounted for
approximately $2.6 million in revenue or 18% of total revenue for the period.
The Company expects the revenue loss from the FIC contract to be offset
beginning near the end of the first quarter of 2001 by its recent award of a
contract from Michigan Department of Natural Resources to operate its Central
Reservation System. The base amount of the award is $9.5 million over three
years, excluding additional options for two one-year extensions.
<TABLE>
<CAPTION>
BIOTECHNOLOGY DIVISION THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
-------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 81,386 $ 7,226 $ 95,499 $ 125,953
Operating expense 142,939 97,279 447,322 366,896
--------------- ---------------- --------------- ----------------
Operating loss $ (61,553) $ (90,053) $ (351,823) $ (240,943)
=============== ================ =============== ================
</TABLE>
The Biotechnology Division revenue for the three months ended September 30,
2000, saw an increase of $74,160 and a decrease of $30,454 for the three and
nine months ended September 30, 2000, respectively, in comparison to those of
the corresponding prior year periods. The overall reduction in revenue for the
year, from those of the prior year, was as a result of the completion of the
technical support services provided to MD Foods Ingredients amba of Denmark
("MDFI"). The increased revenue in the third quarter was the result of the sale
of a specialty carbohydrate manufactured by the Division. The material is being
used for R&D purposes of a major corporation. There is no guarantee of future
sales of this material. The increased operating expense for the nine months
ended September 30, 2000, resulted from the FlyCracker product launch.
FlyCracker sales were approximate $9,000 for the year to date, with good
customer reception indicating a significant improvement for the coming season
when it is anticipated that major distributors will sign on. The decrease in R&D
expense from those of the prior year is largely a result of the Division's
indirect costs now being 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. However,
the third quarter did see an increase in R&D activity related to the non-food
uses of tagatose.
Selling, general and administrative expenses ("S,G&A") for the Company for
the three and nine months ended September 30, 2000, increased $204,980 and
$360,704, respectively, from those of 1999. The increase is the result of
increased marketing expenditures and legal fees associated with the unsuccessful
FIC protest.
Depreciation expense decreased $113,878 and $245,778 for the three and nine
months ended September 30, 2000, compared with the same periods in 1999. The
decrease was due to the write-down of assets during the fourth quarter of 1999.
Interest income exceeded interest expense for each of the three and nine
months ended September 30, 2000 as a result of the $5 million private offering
in the first quarter and increased profitability, in contrast to the same
periods in 1999 when interest expense exceeded interest income.
The Company has recognized no income tax expense in connection with its
2000 profits due to tax loss carryforwards of $8,143,495.
<PAGE>
Due to the expiration of the FIC contract and the traditional year-end
slowdown in the Company's reservation/tourism business, the Company currently
anticipates that it will operate at a loss during the fourth quarter of 2000,
although not at the levels reported in 1999 and 1998. The magnitude of the loss
will depend in large part on the success of the Company's efforts to secure
additional CISD business during this period.
LIQUIDITY AND CAPITAL RESOURCES
The Company renewed its Loan Agreement (the "Agreement") with Bank of
America (the "Bank") on June 30, 2000, which provides for borrowing up to $1.5
million, subject to advance rates as defined in the Agreement. Outstanding
borrowings under the Agreement aggregated $84,486 at September 30, 2000, and are
collateralized by the Company's accounts receivable and $500,000 from the
Company's money market account. The interest rate is the Bank's prime rate plus
.25% per annum. The total unused balance available to the Company under the line
of credit was $1,415,514 at September 30, 2000. The Loan Agreement contains
covenants that require the Company to meet certain tangible net worth and cash
flow coverage ratios. The Company was in compliance with the bank covenants as
of September 30, 2000. The line expires on June 30, 2001, but the Company
anticipates that the line will be renewed.
In February 2000, the Company completed a $5 million private offering of
723,982 units to a single institutional 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.
Accounts receivable at September 30, 2000, increased by slightly more than
$1 million over the year-end amount due to increased business activities in
2000.
Cash flow for the nine months ended September 30, 2000, reflects a net cash
inflow of $4.5 million consisting of $2.4 million provided by operating
activities, $3.9 million provided by financing activities, less investing
activities totaling $1.8 million. Cash flow from operating activities in 2000
increased $3.0 million from those of the prior year as a result of several new
contracts and the Company's re-engineering efforts. Investment in property and
equipment increased by $542,000, as a result of the Company's one time $1.3
million purchase of telephone equipment during the first quarter (previously
held under capital and operating leases) which was offset by overall reductions
in other capital improvements. This purchase was financed through the proceeds
from the private offering.
Working capital as of September 30, 2000, was $6,836,682, which represents
a $6,775,783 increase from working capital of $60,899 at December 31, 1999. This
increase is due to the February 2000 private offering and profitable operations
during the first nine months of 2000.
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 2000, private placement to purchase certain
telephone equipment previously held under leases.
It is also anticipated that royalties on sales of tagatose by MDFI could
begin in 2002. GRAS approval has as yet not been provided, although Arla Foods,
successor to the Company's licensee MD Foods, continues to advise the Company
that it expects to receive such GRAS approval by year-end.
YEAR 2000 ISSUES
To date, the Company has not encountered any significant effects of the
Year 2000 issue either internally or with third parties. The Company cannot
guarantee that problems will not occur in the future or have not yet been
detected.
<PAGE>
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, 2000.
<PAGE>
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: November 7, 2000 By: /s/ Gilbert V. Levin
-------------------- --------------------------
Gilbert V. Levin
Chairman of the Board, President, and
Treasurer
