<PAGE>
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 quarterly period ended September 30, 1996
OR
() TRANSITION REPORT PURSUANT TO 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 0-11625
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MICROFLUIDICS INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 04-2793022
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
30 Ossipee Road, P.O. Box 9101, Newton, Massachusetts 02164
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(Address of Principal Executive Offices) (Zip Code)
(617)969-5452
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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 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 4,931,352 shares of Common Stock, par value $.01 per share,
outstanding on November 8, 1996.
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MICROFLUIDICS INTERNATIONAL CORPORATION
<TABLE>
<CAPTION>
INDEX PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of September 3
30,1996 and December 31, 1995
Consolidated Statements of Operations for the 5
three and nine months ended September 30, 1996
and September 30, 1995
Consolidated Statements of Cash Flows for the 6
nine months ended September 30, 1996 and
September 30,1995
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
Page 2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
September 30, 1996 1995
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(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,407,191 $1,903,418
Marketable securities 91,436 83,640
Accounts receivable(less
allowance for doubtful accounts
of $46,076 at September 30, 1996
and $47,382 at December
31, 1995) 1,688,634 1,751,199
Other receivables 52,586 29,820
Inventory 2,246,106 2,456,389
Prepaid expense 44,888 62,153
---------- ----------
Total current assets 6,530,841 6,286,619
Equipment and leasehold
improvements, at cost
Furniture, fixtures and 309,949 297,228
office equipment
Machinery and equipment 225,396 223,829
Leasehold improvements 113,233 111,249
---------- ----------
648,578 632,306
Less: accumulated depreciation
and amortization 496,220 457,910
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152,358 174,396
Patents, licenses and other
intangible assets (net of
accumulated amortization of
$329,158 at September 30, 1996
and $296,218 at December
31, 1995) 222,031 254,971
---------- ----------
Total assets $6,905,230 $6,715,986
========== ==========
</TABLE>
(The accompanying notes are an integral part of the
consolidated financial statements)
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MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
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<TABLE>
<CAPTION>
December 31,
September 30, 1996 1995
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(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses $ 465,931 $ 513,640
Accrued compensation 55,275 124,555
Accrued vacation pay 48,711 48,710
Customer advances 6,125
----------------- -------------
Total current liabilities 576,042 686,905
Stockholders' equity
Common Stock, par value $.01 per
share, 20,000,000 shares authorized;
5,083,671 and 5,058,203 shares
issued and outstanding at September
30,1996 and at December 31,1995,
respectively 50,737 50,582
Additional paid-in-capital 10,358,290 10,319,350
Accumulated deficit (3,633,388) (3,969,920)
Unrealized appreciation on
marketable securities 91,436 83,640
Less: Treasury Stock, at cost,
154,119 shares at September
30,1996 and 107,019 shares at
December 31,1995 respectively ( 537,887) ( 454,571)
----------------- -------------
Total stockholders' equity 6,329,188 6,029,081
----------------- -------------
Total liabilities and
stockholders' equity $ 6,905,230 $ 6,715,986
================= =============
</TABLE>
(The accompanying notes are an integral part of the
consolidated financial statements)
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MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
------ ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $1,525,395 $ 825,344 $4,620,342 $3,825,513
Cost of goods sold 642,328 464,321 2,084,060 1,810,408
---------- ---------- ---------- ----------
Gross profit on
revenues 883,067 361,023 2,536,282 2,015,105
Operating expenses:
Research and
development 113,817 217,049 316,396 493,824
Selling, general and
administrative 666,040 739,911 1,994,762 2,301,883
---------- ---------- ---------- ----------
Total operating
expenses 779,857 956,960 2,311,158 2,795,707
Income(loss) from
operations 103,210 (595,937) 225,124 (780,602)
Interest income 22,355 28,334 73,899 71,957
Other income 12,503 93,239 37,509 93,239
---------- ---------- ---------- ----------
Income(loss)before taxes 138,068 (474,364) 336,532 (615,406)
Income tax(provision) (11,000)
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Net Income(loss) $ 138,068 $ (474,364) $ 336,532 $ (626,406)
========== ========== ========== ==========
Income(loss)per Common Share:
Primary:
Average shares outstanding 4,980,439 5,025,366 4,989,185 5,028,062
Net income(loss) per share $ .03 $ (.09) $ .07 $ (.12)
========== ========== ========== ==========
Fully Diluted:
Average shares outstanding 4,980,439 5,007,210 4,989,185 4,994,260
Net income(loss) per share $ .03 $ (.09) $ .07 $ (.13)
========== ========== ========== ==========
</TABLE>
(The accompanying notes are an integral part of the consolidated financial
statements)
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MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
-----------------
September 30,
1996 1995
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<S> <C> <C>
Cash flows from (used by) operations:
Net income (loss) $ 336,532 $ (626,406)
Reconciliation of net income (loss) to cash used by
Operations:
Gain on sale of investment (93,239)
Depreciation and amortization 71,250 74,458
Federal income taxes 11,000
Effects of changes in operating working capital items:
Decrease trade and other receivables 39,799 1,603,300
(Increase)decrease inventories 210,283 (70,711)
(Increase)decrease prepaid expenses 17,265 (116,058)
(Decrease)accounts payable and accrued
expenses (110,863) (412,127)
----------- ----------
Net cash from operations 564,266 370,217
Cash flows from(used by) investing activities:
Capital equipment (16,272) (51,917)
Proceeds from sale of investment 93,239
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Net cash from (used by) investing activities (16,272) 41,322
Cash flows from financing
Issuance of Common Stock option agreements 39,095 39,291
Issuance of Common Stock Pursuant to
Employee Purchase Plan 13,807
Treasury Stock purchased (83,316)
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Net cash from (used for) financing (44,221) 53,098
Net increase in cash 503,773 464,637
Cash and cash equivalents at beginning 1,903,418 1,673,811
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Cash and cash equivalents at end $2,407,191 2,138,448
=========== ==========
Supplemental disclosure information:
Treasury stock acquired upon exercise of
employees' stock options $ 696
==========
</TABLE>
(The accompanying notes are an integral part of the consolidated
financial statements)
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MICROFLUIDICS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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, 1996 and 1995 are
not necessarily indicative of the results to be expected for the full year. For
further information, refer to the consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
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.
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MICROFLUIDICS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. INVENTORY
The components of inventories on the following dates were:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
<S> <C> <C>
Raw Materials $1,703,084 $1,530,614
Work in Progress 214,772 418,738
Finished Goods 328,250 507,037
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Total $2,246,106 $2,456,389
========== ==========
</TABLE>
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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
Total Company revenues for the quarter ended September 30, 1996 were $1,525,395
as compared to revenues of $825,344 in the corresponding period last year,
representing an increase of $700,051, or 84.8%. For the nine month period ended
September 30, 1996, revenues increased 20.8% to $4,620,342 from $3,825,513 for
the first nine months of 1995. These increases in revenues are primarily the
result of increased unit shipments in North America in each of the respective
periods, offset by a decrease in unit shipments in foreign markets. North
American sales for the three month period ended September 30, 1996 increased to
$1,227,622 from $154,344 for the three months ended September 30, 1995. Foreign
sales were $297,773 for the quarter ended September 30, 1996, compared to
approximately $671,000 for the quarter ended September 30, 1995, a decrease of
$373,227, or 55.6%. For the nine month period ended September 30, 1996, North
American sales increased 85.6% to $3,216,315 from $1,732,513 for the first nine
months of 1995. Foreign sales were $1,404,027 for the nine month period ended
September 30, 1996, compared to approximately $2,093,000 for the nine month
period ended September 30, 1995, a decrease of $688,973, or 32.9%. Management
believes that the increased unit shipments were due to an increase in the demand
in the various markets for the Company's products. There can be no assurance
that these market conditions will continue to generate increased unit shipments
or revenues.
Cost of goods sold for the three months ended September 30, 1996 was $642,328,
or 42.1% of revenue, compared to $464,321, or 56.3% of revenue, for the same
period last year. The cost of goods sold for the three month period ended
September 30, 1995 included a write-off of $36,565, or 4.4% of revenue, for
obsolete inventory. For the nine month period ended September 30, 1996, cost of
goods sold, as a percentage of sales, decreased 2.2 percentage points to 45.1%,
or $2,084,060 from 47.3%, or $1,810,408 for the nine month period ended
September 30, 1995. The increase in the absolute dollar amount of cost of goods
sold in each period primarily reflects the increased volume of units sold. The
reduction in the cost of goods sold as a percentage of revenue was due to
operating efficiencies.
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 revenue depending on the mix of product sold. Also, the cost of
sales as a percent of revenue will 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, 1996 were $779,857,
or 51.1% of revenue, as compared to $956,960, or 116.0% of revenue for the same
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MICROFLUIDICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
period last year, a decrease of $177,103 or 18.5%. Operating expenses for the
nine months ended September 30, 1996 were $2,311,158, or 50.0% of revenue, as
compared to $2,795,707, or 73.1% of revenue, for the same period last year, a
decrease of $484,549, or 17.3%. Research and Development expenses decreased by
$177,428, of which approximately $97,600 was due to a reduction in costs related
to a research project to solve equipment performance problems in the field,
$42,100 was due to a reduction in payroll and related expenses, $14,000 was due
to a reduction in travel, and $17,300 was due to a net reduction in the cost of
a project jointly run by the Company and Catalytica, Inc., whereby the Company
is reimbursed for up to 48% of its costs related to its grant-related research.
The cost of Marketing and Sales decreased by approximately $224,561, from
$1,470,811 to $1,246,250, due to a conscientious effort by management to make
more cost effective expenditures in this area. Key line items reduced and the
amount of the reductions were: payroll and related expenses of approximately
$86,400, travel and entertainment expenses of $66,318, and advertising expenses
of $55,504. General and administrative expenses decreased from $320,159 to
$255,144, or $65,015, for the three months ended September 30, 1996 as compared
to the same period last year. Such expenses decreased from $831,072 to 748,512,
or $82,560, for the nine month period ended September 30, 1996 as compared to
the same period last year. The principal reason for the dollar decrease in all
periods was reduced spending on investor relations and professional fees.
Interest income for the three months ended September 30, 1996 decreased 21.1% to
$22,355 from $28,334 for the three months ended September 30, 1995. Interest
income increased for the nine months ended September 30, 1996 to $73,899 from
$71,957 in the same period last year, an increase of $1,942 or 2.7%. This
increase is due to an increase in the amount of cash available for investment.
The Company received other income of $12,503 and $37,509 for the three and nine
months ended September 30,1996, respectively. The other income resulted from
royalty income of $4,168 per month due to the sale of the Company's Dermasome(R)
product line in December, 1995. The gain on the sale of an investment for the
three months ended September 30, 1995 of $93,239 was attributable to the sale of
a portion of the Company's holdings in PolyMedica Industries, Inc. The Company
had a backlog of $101,357 and $93,316 at September 30, 1996 and September 30,
1995, respectively, consisting of purchase commitments for Microfluidizer
equipment.
2. LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its' operations primarily through the use of cash and
cash equivalents on hand, and cash flow from operations. The cash and cash
equivalents balance of the Company was $2,407,191 at September 30, 1996, an
increase of $503,773 from the December 31, 1995 balance of $1,903,418,
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MICROFLUIDICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
principally from a decrease in inventories and income from operations. The
Company continues to maintain a line of credit with the Bank of Boston. The line
of credit facility provides for maximum borrowing equal to the lesser of:
$750,000 or; 80% of the domestic accounts receivable less than 60 days old. As
of September 30, 1996 and October 31, 1996, the Company had no borrowings
outstanding under its line of credit.
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 end of 1997.
3. BUSINESS OUTLOOK
The Company believes that this report may contain forward-looking statements
within the meaning of the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties that could
cause actual results to differ materially from those described in the forward-
looking statements. Such factors and uncertainties include, but are not limited
to, the uncertainty that the performance advantages of the Microfluidizer
equipment will be realized commercially or that a commercial market for
Microfluidizer equipment will continue to develop; the dependence by the Company
on key customers; the loss of the services of one or more of the Company's key
employees, which could have a material adverse impact on the Company; the
development of competing or superior technologies and products from other
manufacturers, many of which have substantially greater financial, technical and
other resources than the Company; the cyclical nature of the materials
processing industry, which has historically negatively affected the Company's
sales of Microfluidizer equipment during industry downturns and which could do
so in the future; the availability of additional capital to fund expansion on
acceptable terms, if at all; and general economic conditions.
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MICROFLUIDICS INTERNATIONAL CORPORATION
PART II- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period
covered by this report.
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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
(Principal Financial and Accounting Officer)
Date: November 11, 1996
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,407,191
<SECURITIES> 91,436
<RECEIVABLES> 1,688,634
<ALLOWANCES> 0
<INVENTORY> 2,246,106
<CURRENT-ASSETS> 6,530,841
<PP&E> 648,578
<DEPRECIATION> 496,220
<TOTAL-ASSETS> 6,905,230
<CURRENT-LIABILITIES> 576,042
<BONDS> 0
0
0
<COMMON> 50,737
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,905,230
<SALES> 0
<TOTAL-REVENUES> 4,620,342
<CGS> 2,084,060
<TOTAL-COSTS> 4,395,218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 336,532
<INCOME-TAX> 0
<INCOME-CONTINUING> 336,532
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 336,532
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
