<PAGE>
THIS IS A CONFIRMING ELECTRONIC COPY OF A FORM 10-Q
FILED ON PAPER WITH THE SECURITIES AND EXCHANGE
COMMISSION IN NOVEMBER 1995
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1995
OR
( ) 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 0-11625
- --------------------------------------------------------------------------------
MICROFLUIDICS INTERNATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2793022
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Ossipee Road, P.O. Box 9101, Newton, Massachusetts 02164
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 969-5452
- --------------------------------------------------------------------------------
(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 Securities 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
--- ---
Registrant had 5,053,407 shares of Common Stock, par value $.01 per share,
outstanding on November 10, 1995.
Total Number of Pages:11
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MICROFLUIDICS INTERNATIONAL CORPORATION
<TABLE>
<CAPTION>
INDEX PAGE
NUMBER
<S> <C> <C>
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets as of 3
September 30, 1995 and December 31, 1994
Consolidated Statements of 5
Operations for the three and nine months
ended September 30, 1995 and 1994
Consolidated Statements of Cash 6
Flows for the nine months ended
September 30, 1995 and 1994
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. Other Information
ITEM 6. Exhibits and Reports on Form 8-K 10
</TABLE>
Page 2 of 11 Pages
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ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
(unaudited)
ASSETS
Cash and cash equivalents $2,138,448 $1,673,811
Marketable Securities 128,080 104,738
Accounts receivable (less allowance for
doubtful accounts of $7,382 and
$5,464 at September 30, 1995 and
December 31, 1994, respectively) 1,366,857 2,991,184
Other receivables 47,865 26,838
Inventory 2,915,400 2,844,689
Prepaid expense 223,785 107,727
---------- ----------
Total current assets 6,820,435 7,748,987
Equipment and leasehold improvements, at cost
Furniture, fixtures and office equipment 245,398 219,450
Machinery and equipment 221,560 198,706
Leasehold improvements 113,518 110,403
---------- ----------
580,476 528,559
Less: accumulated depreciation and 452,388 418,637
amortization ---------- ----------
128,088 109,922
Patents, licenses and other intangible assets
(net of accumulated amortization of
$410,183 at September 30, 1995
and $369,476 at December 31, 1994) 188,355 229,062
Deferred tax asset 1,084,197 1,104,534
---------- ----------
Total assets $8,221,075 $9,192,505
========== ==========
</TABLE>
(The accompanying notes are an integral part of the financial statements)
Page 3 of 11 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 550,495 $ 994,005
Accrued compensation 96,717 6,433
Accrued vacation pay 51,399 62,300
Customer advances 48,000
Corporate income taxes payable 12,243 12,243
------------ ------------
Total current liabilities 710,854 1,122,981
Stockholders' equity
Common Stock, par value $.01 per
share, 20,000,000 shares authorized;
5,052,082 and 5,021,348 shares issued
and outstanding at September 30, 1995
and at December 31, 1994, respectively 50,520 50,212
Additional paid-in-capital 10,308,058 10,254,572
Accumulated deficit (2,479,007) (1,852,601)
Unrealized appreciation on marketable
securities 76,848 62,843
Less: Treasury Stock, at cost of
102,019 and, 101,839 shares at
September 30, 1995 and
December 31, 1994, respectively (446,198) (445,502)
----------- -----------
Total stockholders' equity 7,510,221 8,069,524
Total liabilities and stockholders' equity $ 8,221,075 $ 9,192,505
============ ============
</TABLE>
(The accompanying notes are an integral part of the financial statements)
Page 4 of 11 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------- -----------------
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 825,344 $2,035,256 $3,825,513 $5,509,745
Cost of revenues 464,321 879,584 1,810,408 2,207,953
---------- ---------- ---------- ----------
Gross profit on revenues 361,023 1,155,672 2,015,105 3,301,792
Operating expenses
Research and development 217,049 198,006 493,824 615,003
Selling, general and
administrative 739,911 762,768 2,301,883 2,245,241
---------- ---------- ---------- ----------
Total operating expenses 956,960 960,774 2,795,707 2,860,244
Income (loss) from operations (595,937) 194,898 (780,602) 441,548
Interest income 28,334 8,182 71,957 19,917
Gain on sale of investment 93,239 93,239
---------- ---------- ---------- ----------
Income before taxes (474,364) 203,080 (615,406) 461,465
Income tax (provision) benefit (5,449) (11,000) (30,383)
---------- ---------- ---------- ----------
Net income (loss) $ (474,364) $ 197,631 $ (626,406) $ 431,082
========== ========== ========== ==========
Net income (loss) per Common Share:
Weighted average
shares outstanding 4,949,063 4,935,879
Net income (loss) per share $ (.10) $ (.13)
========== ==========
Primary average
shares outstanding 5,025,366 5,028,062
Net income (loss) per share $ .04 $ .09
========== ==========
Fully diluted average
shares outstanding 5,007,210 4,994,260
Net income (loss) per share $.04 $.09
========== ==========
</TABLE>
(The accompanying notes are an integral part of the financial statements)
Page 5 of 11 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
-----------------
1995 1994
---- ----
(unaudited)
<S> <C> <C>
Cash flows from (used by) operations
Net income (loss) $(626,406) $431,082
Reconciliation of net income (loss) to
cash used by operations:
Depreciation and amortization 74,458 62,957
Gain on sale of investment (93,239)
Federal income taxes 11,000
Effects of changes in operating working
capital items:
(Increase) decrease trade and other 1,603,300 (1,161,271)
receivables
(Increase) decrease inventories (70,711) (600,406)
(Increase) decrease prepaid expense (116,058) (11,787)
Increase (decrease) accounts payable (443,510) 268,041
and accrued expenses
Increase (decrease) accrued payroll 90,284 (46,359)
Increase (decrease) vacation pay (10,901) 4,576
Increase (decrease) customer advances (48,000) (44,614)
Increase (decrease) corporate income taxes 1,634
---------- -----------
Net cash used by operations 370,217 (1,096,147)
Cash flows from (used by) investing
activities:
Capital equipment (51,917) (41,517)
Proceeds from sale of investment 93,239
---------- ----------
Net cash from (used by) investing 41,322 (41,517)
activities
Cash flows from financing
Issuance of Common Stock pursuant to 13,807 8,670
employee stock purchase plan
Issuance of Common Stock pursuant to
the Company's Stock Option Plans 39,291 158,526
------ -------
Net cash from financing 53,098 167,196
---------- -----------
Net increase (decrease) in cash 464,637 (970,468)
Cash and cash equivalents at beginning 1,673,811 3,197,043
Cash and cash equivalents at end $2,138,448 $ 2,226,575
========== ===========
Supplemental disclosure information:
Supplemental schedule of non-cash
investing and financing activities
Treasury stock acquired upon
exercise of employees' stock options $ (696) $ (52,500)
========== ===========
</TABLE>
(The accompanying notes are an integral part of the financial statement)
Page 6 of 11 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. The results of operations for the
three and nine months ended September 30, 1995 and 1994 are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements and footnotes included in the
Company's annual report for the year ended December 31, 1994.
2. EARNINGS (LOSS) PER SHARE
-------------------------
Primary and fully diluted earnings per common and common equivalent share are
computed by dividing net income by the weighted average number of shares of
Common Stock and Common Stock Equivalents outstanding during the year. The
calculation of fully diluted income (loss) per Common Share assumes a different
market price than the primary earnings (loss) per Common Share for the
reacquisition of Common Shares. This calculation does not reflect outstanding
warrants as their inclusion would be anti-dilutive.
Loss per Common Share is calculated by dividing net loss by the weighted average
number of shares of Common Stock and Common Stock Equivalents outstanding during
the year. Options are not reflected in the calculation of loss per Common Share
as their inclusion would be anti-dilutive.
3. INVENTORY
---------
The Components of Inventory at the respective dates are as follows:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
(unaudited)
<S> <C> <C>
Raw Materials $1,653,653 $1,577,841
Work in Process 427,065 162,532
Finished Goods 834,682 1,104,316
--------- ---------
$2,915,400 $2,844,689
========= =========
</TABLE>
Page 7 of 11 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1. RESULTS OF OPERATIONS
Revenues for the quarter ended September 30, 1995 were $825,344 as compared to
revenues of $2,035,256 in the corresponding period last year, a decrease of
$1,209,912 or 59%. Revenues for the nine months ended September 30, 1995 were
$3,825,513 a decrease of $1,684,232 from the corresponding period last year or
31%. The year to date decrease in revenues is due to less units sold in those
periods, as 112 units were sold in the nine months ended September 30, 1994,
while 71 units were sold in the nine months ended September 30, 1995.
International revenues for the nine months ended September 30, 1995 were
approximately $2,093,000, representing 55% of total revenues, as compared to
approximately $1,974,000 for the same period in 1994, which represented 36% of
total revenues, an increase of approximately $119,000. The increase in
international revenues as a percentage of total revenues reflects the Company's
transition to sales representatives rather than direct sales people in domestic
territories.
Cost of revenues for the nine months ended September 30, 1995 were $1,810,408 or
47% of revenues as compared to $2,207,953 or 40% of revenues for the same period
last year. For the three months ended September 30, 1995, cost of revenues were
$464,321 or 56% of revenues as compared to $879,584 or 43% of revenues for the
corresponding period last year. The Company's three major product lines have
different profit margins, as well as multiple profit margins within each product
line. In the course of the periods compared, there may be significant changes
in the cost of revenues as a percentage of revenues depending on the mix of
products sold. The sizes of units also vary and have different costs associated
with them. The cost of sales as a percentage of revenues differ between
laboratory and pilot plant units sold due to the difference in costs between air
driven and electric-hydraulic units.
Operating expenses for the three months ended September 30, 1995 were $956,960
as compared to $960,774 for the same period last year, a decrease of $3,814.
Operating expenses for the nine months ended September 30, 1995 were $2,795,707
as compared to $2,860,244 for the period last year, a decrease of $64,537. In
the first nine months ended September 30, 1995, research and development
expenses decreased by $121,179, of which approximately $100,000 was due to the
receipt by the Company of a joint federal grant whereby the Company is
reimbursed 48% of its costs related to its research with Catalytica, Inc.
Selling and marketing expenses have increased by $176,130 mainly due to the
opening of the Company's sales office in Germany. General and administrative
expenses have decreased by $119,488 due to decrease in salaries and legal and
auditing expenses.
Interest income increased for the nine months ended September 30, 1995 to
$71,957 as compared to $19,917 in the same period last year due to the increase
in the amount of cash available for investment.
Page 8 of 11 Pages
<PAGE>
The Company had a backlog of $93,316 and $364,614 at September 30, 1995 and 1994
respectively, consisting of purchase commitments for Microfluidizer equipment.
2. LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The cash and cash equivalents balance of the Company was $2,138,448 on
September 30, 1995, an increase of $464,637 from the December 31, 1994 balance
of $1,673,811. The Company continues to have a line of credit with the First
National Bank of Boston equal to the lesser of $750,000 or 80% of domestic
accounts receivable less than 60 days old. The available line as of
October 31, 1995 was $261,680.
The Company does not currently have any other significant capital commitments.
The Company may, from time to time, consider acquisitions of complementary
business, products or technology, although it has no present understanding,
commitments or agreements with respect to any such acquisitions.
The Company believes that its cash on hand and available borrowings under its
bank line of credit will be sufficient to support its current and anticipated
operations through at least the next twelve months.
Page 9 of 11 Pages
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period
covered by this report.
Page 10 of 11 Pages
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROFLUIDICS INTERNATIONAL
CORPORATION
/s/ Michael A. Lento
--------------------
Michael A. Lento
President and Treasurer
Date: November 13, 1995
Page 11 of 11 Pages
