<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 June 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___________
Commission file number 0-11625
------------------------------
MICROFLUIDICS INTERNATIONAL CORPORATION
---------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2793022
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of 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 5,078,953 shares of Common Stock, par value $.01 per share,
outstanding on August 5, 1996.
Page 1
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MICROFLUIDICS INTERNATIONAL CORPORATION
<TABLE>
<CAPTION>
PAGE
INDEX NUMBER
------- ------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 3
1996 and December 31, 1995
Consolidated Statements of Operations for the 5
three and six months ended June 30, 1996 and
June 30, 1995
Consolidated Statements of Cash Flows for the 6
six months ended June 30, 1996 and June 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 4. Submission of matters to a vote of 12
security holders
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,
June 30, 1996 1995
-------------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,542,181 $1,903,418
Marketable securities 98,561 83,640
Accounts receivable(less
allowance for doubtful accounts
of $47,382 at June 30, 1996
and December 31, 1995) 1,521,628 1,751,199
Other receivables 118,566 29,820
Inventory 2,250,990 2,456,389
Prepaid expense 81,765 62,153
---------- ----------
Total current assets 6,613,691 6,286,619
Equipment and leasehold
improvements, at cost
Furniture, fixtures and
Office equipment 305,091 297,228
Machinery and equipment 224,851 223,829
Leasehold improvements 111,249 111,249
---------- ----------
641,191 632,306
Less:accumulated depreciation
and amortization 482,820 457,910
---------- ----------
158,371 174,396
Patents, licenses and other
intangible assets (net of
accumulated amortization of
$318,178 at June 30, 1996 and
$296,218 at December
31, 1995) 233,011 254,971
---------- ----------
Total assets $7,005,073 $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)
---------------------------------------
<TABLE>
<CAPTION> December 31,
June 30, 1996 1995
-------------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses $ 671,727 $ 513,640
Accrued compensation 25,759 124,555
Accrued vacation pay 48,711 48,710
Customer advances 1,697
----------- -----------
Total current liabilities 747,894 686,905
Stockholders' equity
Common Stock, par value $.01 per
share, 20,000,000 shares authorized;
5,078,953 and 5,058,203 shares
issued and outstanding at June 30,
1996 and at December 31,1995
respectively 50,690 50,582
Additional paid-in-capital 10,350,817 10,319,350
Accumulated deficit (3,771,457) (3,969,920)
Unrealized appreciation on
marketable securities 98,561 83,640
Less: Treasury Stock, at cost,
116,319 shares at June 30,
1996 and 107,019 shares at
December 31,1995 respectively ( 471,432) ( 454,571)
----------- -----------
Total stockholders' equity 6,257,179 6,029,081
----------- -----------
Total liabilities and
stockholders' equity $ 7,005,073 $ 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
-------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
------ ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $1,600,487 $1,413,642 $3,094,947 $3,000,169
Cost of goods sold 710,551 651,969 1,441,732 1,346,087
---------- ---------- ---------- ----------
Gross profit on
revenues 889,936 761,673 1,653,215 1,654,082
Operating expenses:
Research and
development 115,877 128,877 202,579 276,775
Selling, general and
administrative 764,209 822,297 1,328,722 1,561,972
---------- ---------- ---------- ----------
Total operating
expenses 880,086 951,174 1,531,301 1,838,747
Income(loss) from
operations 9,850 (189,501) 121,914 (184,665)
Interest income 28,569 20,792 51,544 43,623
Other income 12,503 25,006
Income before taxes 50,922 (168,709) 198,464 (141,042)
Income tax(provision)
benefit (11,000)
----------
Net Income(loss) $ 50,922 $ (168,709) $ 198,464 $ (152,042)
========== ========== ========== ==========
Income(loss)per Common Share:
Primary:
Average shares outstanding 5,000,070 5,038,153 4,989,011 5,038,501
Net income(loss) per share $.01 $(.03) $.04 $ (.03)
========== ========== ========== ==========
Fully Diluted:
Average shares outstanding 5,000,070 5,039,724 4,991,961 5,038,986
Net income(loss) per share $.01 $(.03) $.04 $ (.03)
========== ========== ========== ==========
</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>
Six months ended
----------------
June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from (used by) operations:
Net income (loss) $198,464 $ (152,042)
Reconciliation of net income (loss) to cash used by
Operations:
Depreciation and amortization 46,870 49,636
Federal income taxes 11,000
Effects of changes in operating working capital items:
Decrease trade and other receivables 140,825 1,041,794
Decrease inventories 205,399 94,990
(Increase)prepaid expenses (19,612) (178,689)
Increase(decrease)accounts payable and accrued
expenses 60,988 (301,295)
---------- ----------
Net cash from operations 632,934 565,394
Cash flows (used by) investing activities:
Capital equipment (8,885) (45,338)
---------- ----------
Net cash (used by) investing activities (8,885) (45,338)
Cash flows from financing
Issuance of Common Stock option agreements 31,575 25,917
----------
Treasury Stock purchased (16,861)
----------
Net cash from financing 14,714 25,917
Net increase in cash 638,763 545,973
Cash and cash equivalents at beginning 1,903,418 1,673,811
---------- ----------
Cash and cash equivalents at end $2,542,181 2,219,784
========== ==========
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 six months ended June 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>
June 30, 1996 December 31, 1995
<S> <C> <C>
Raw Material $1,636,449 $1,530,614
Work in Progress 259,728 418,738
Finished Goods 354,813 507,037
---------- ----------
Total $2,250,990 $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 June 30, 1996 were $1,600,487
as compared to revenues of $1,413,642 in the corresponding period last year,
representing an increase of $186,845, or 13.2%. For the six month period ended
June 30, 1996, revenues increased 3.2% to $3,094,947 from $3,000,169 for the
first six months of 1995. North American sales for the three month period ended
June 30, 1996 increased 58.7% to $1,224,089 from $771,462 for the three months
ended June 30, 1995. Foreign sales were $376,398 for the quarter ended June 30,
1996, compared to approximately $642,000 for the quarter ended June 30, 1995, a
decrease of $265,602, or 41.4%. For the six month period ended June 30, 1996,
North American sales increased 26.0% to $1,988,693 from $1,578,169 for the first
six months of 1995. Foreign sales were $1,106,254 for the six month period ended
June 30, 1996, compared to approximately $1,422,000 for the six month period
ended June 30, 1995, a decrease of $315,746, or 22.2%.
Cost of goods sold for the three months ended June 30, 1996 were $710,551, or
44% of revenue, compared to $651,969, or 46% of revenue, for the same period
last year. For the six month period ended June 30, 1996, cost of goods sold
increased 7.1% to $1,441,732 from $1,346,087 for the six month period ended June
30, 1995. 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 June 30, 1996 were $880,086 as
compared to $951,174 for the same period last year, a decrease of $71,088 or
7.5%. Operating expenses for the six months ended June 30, 1996 were $1,531,301
as compared to $1,838,747 for the same period last year, a decrease of $307,446,
or 17%. Research and Development expenses decreased by $74,196, of which
approximately $29,600 was due to a reduction in payroll and related expenses,
$15,000 due to a reduction in travel, and the receipt by the Company and
Catalytica, Inc. of a joint federal grant, 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 $215,705, from $1,051,059 to
$835,354, 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 $51,500,
travel and entertainment of $40,437, advertising expenses of $46,086, and
delivery expenses of $8,561. General and administrative expenses decreased by
$17,545, or 3.4%.
Page 9
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MICROFLUIDICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Interest income for the three months ended June 30, 1996 increased 37.4% to
$28,569 from $20,792 for the three months ended June 30, 1995. Interest income
increased for the six months ended June 30, 1996 to $51,544 from $43,623 in the
same period last year, an increase of $7,921 or 18.2%. These increases were due
to an increase in the amount of cash available for investment.
The Company received other income of $12,503 and $25,006 for the three and six
months ended June 30, 1996, respectively. The other income resulted from royalty
income of $4,168 per month due to the sale of the Company's Dermasome product
line in December, 1995. The Company had a backlog of $36,762 and $414,551 at
June 30, 1996 and June 30, 1995, respectively, consisting of purchase
commitments for Microfluidizer equipment.
2. LIQUIDITY AND CAPITAL RESOURCES
The cash and cash equivalents balance of the Company was $2,542,181 at June 30,
1996, an increase of $638,763 from the December 31, 1995 balance of $1,903,418.
The increase in cash and cash equivalents was principally the result of the
decrease in inventories, an increase in accounts payable, and a decrease in
receivables. 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 June 30, 1996 and July 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 antipated
operations through at least the end of 1996.
Page 10
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MICROFLUIDICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
3. BUSINESS OUTLOOK
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 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 11, 1996, The Company held a special meeting in lieu of its annual
meeting of its stockholders. The following matters were voted on at the special
meeeting:
1. The election of, Irwin J. Gruverman, Robert L. Bogomolny, Marshall S.
Sterman, Michael K. Hooker and James N. Little;
2. The amendment of the 1989 Non-Employee Director Stock Option Plan; and
3. The ratification of the appointment of Coopers & Lybrand L.L.P. as
auditors for the Company for the fiscal year ending December 31, 1996.
The following chart shows the number of votes cast for or against, as well as
the number of abstentions and broker nonvotes, as to each matter voted on at the
special meeting:
<TABLE>
<CAPTION>
Matter For Against Abstain Broker Nonvotes
-------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Election of Mr. Gruverman 4,639,753 90,210 N/A N/A
Election of Mr. Bogomolny 4,653,853 76,110 N/A N/A
Election of Mr. Sterman 4,643,703 86,260 N/A N/A
Election of Mr. Hooker 4,649,503 80,460 N/A N/A
Election of Mr. Little 4,655,953 74,010 N/A N/A
Amendment of 1989
Option Plan 2,844,785 277,737 58,894 1,548,547
Appointment of Coopers&
Lybrand L.L.P. 4,689,813 30,800 9,350 N/A
</TABLE>
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.
Page 12
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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: August 5, 1996
Page 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,542,181
<SECURITIES> 98,561
<RECEIVABLES> 1,521,628
<ALLOWANCES> 0
<INVENTORY> 2,250,990
<CURRENT-ASSETS> 6,613,691
<PP&E> 641,191
<DEPRECIATION> 482,820
<TOTAL-ASSETS> 7,005,073
<CURRENT-LIABILITIES> 747,894
<BONDS> 0
0
0
<COMMON> 50,690
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,005,073
<SALES> 0
<TOTAL-REVENUES> 3,094,947
<CGS> 1,441,732
<TOTAL-COSTS> 2,973,033
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 198,464
<INCOME-TAX> 0
<INCOME-CONTINUING> 198,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 198,464
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
