<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 March 31, 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
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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
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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 5,075,453 shares of Common Stock, par value $.01 per share,
outstanding on May 10, 1996.
Total Number of Pages: 13
Exhibit Index at Page: 13
Page 1 of 13 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
PAGE
INDEX NUMBER
----- ------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 3
1996 and December 31, 1995
Consolidated Statements of Operations for the 5
three months ended March 31, 1996 and March 31,
1995
Consolidated Statements of Cash Flows for the 6
three months ended March 31, 1996 and March 31,
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 11
Signatures 12
Exhibit Index 13
Page 2 of 13 Pages
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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,
March 31, 1996 1995
--------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $2,336,484 $1,903,418
Marketable securities 108,035 83,640
Accounts receivable (less
allowance for doubtful accounts
of $47,382 at March 31, 1996
and December 31, 1995) 1,788,161 1,751,199
Other receivables 86,492 29,820
Inventory, principally raw
materials 2,182,352 2,456,389
Prepaid expense 90,815 62,153
---------- ----------
Total current assets 6,592,339 6,286,619
Equipment and leasehold
improvements, at cost
Furniture, fixtures and
Office equipment 300,356 297,228
Machinery and equipment 223,829 223,829
Leasehold improvements 111,249 111,249
---------- ----------
635,434 632,306
Less:accumulated depreciation
and amortization 470,189 457,910
---------- ----------
165,245 174,396
Patents, licenses and other
intangible assets (net of
accumulated amortization of
$307,198 at March 31, 1996 and
$296,218 at December 31, 1995) 243,991 254,971
---------- ----------
Total assets $7,001,575 $6,715,986
========== ==========
</TABLE>
(The accompanying notes are an integral part of the
consolidated financial statements)
Page 3 of 13 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
---------------------------------------
<TABLE>
<CAPTION>
December 31,
March 31, 1996 1995
-------------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses $ 475,597 $ 513,640
Accrued compensation 93,612 124,555
Accrued vacation pay 48,711 48,710
Customer advances 157,188
----------- -----------
Total current liabilities 775,108 686,905
Stockholders' equity
Common Stock, par value $.01 per
share, 20,000,000 shares authorized;
5,075,453 and 5,058,203 shares
issued and outstanding at March 31,
1996 and at December 31,1995
respectively 50,655 50,582
Additional paid-in-capital 10,344,727 10,319,350
Accumulated deficit (3,822,379) (3,969,920)
Unrealized appreciation on
marketable securities 108,035 83,640
Less: Treasury Stock, at cost,
107,019 shares at March 31,
1996 and December 31,
1995 respectively ( 454,571) ( 454,571)
----------- -----------
Total stockholders' equity 6,226,467 6,029,081
----------- -----------
Total liabilities and
stockholders' equity $ 7,001,575 $ 6,715,986
=========== ===========
</TABLE>
(The accompanying notes are an integral part of the
consolidated financial statements)
Page 4 of 13 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
1996 1995
---- ----
<S> <C> <C>
Revenues $1,494,460 $1,586,527
Cost of goods sold 731,181 694,118
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Gross profit on revenues 763,279 892,409
Operating expenses
Research and Development 86,702 147,898
Selling, general and administrative 564,513 739,675
---------- ----------
Total operating expenses 651,215 887,573
---------- ----------
Income (loss) from operations 112,064 4,836
Interest income 22,975 22,831
Other income 12,503
---------- ----------
Income (loss)before income taxes 147,542 27,667
Tax (provision) benefit (11,000)
---------- ----------
Net income (loss) $ 147,542 $ 16,667
========== ==========
Income per Common Share
Primary:
Average shares outstanding 5,075,036 5,036,884
Net income per Common Share $.03 $.00
========== ==========
Fully diluted
Average shares outstanding 5,047,317 5,007,849
Net income per Common Share $.03 $.00
========== ==========
</TABLE>
(The accompanying notes are an integral part of
the consolidated financial statements)
Page 5 of 13 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------
March 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from (used by) operations:
Net income (loss) $ 147,542 $ 16,667
Reconciliation of net income (loss) to
cash used by
Operations:
Depreciation and amortization 23,259 24,819
Federal income taxes 11,000
Effects of changes in operating working
capital items:
(Increase)decrease trade and other
receivables (93,634) 666,978
(Increase)decrease inventories 274,037 102,780
(Increase)decrease prepaid expenses (28,662) (153,784)
Increase(decrease)accounts payable and
accrued expenses 88,202 (237,144)
---------- -----------
Net cash from (used by) operations 410,744 431,316
Cash flows from (used by) investing
activities:
Capital equipment (3,128) (37,962)
---------- ----------
Net cash from (used by) investing
activities (3,128) (37,962)
Cash flows from financing
Issuance of Common Stock option
agreements 25,450 12,110
---------- ----------
Net cash from financing 25,450 12,110
Net increase (decrease) in cash 433,066 405,464
Cash and cash equivalents at beginning 1,903,418 1,673,811
---------- ----------
Cash and Cash equivalents at end $2,336,484 $2,079,275
========== ==========
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)
Page 6 of 13 Pages
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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 three months ended March 31, 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.
Page 7 of 13 Pages
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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>
March 31, 1996 December 31, 1995
<S> <C> <C>
Raw Material $1,531,269 $1,530,614
Work in Progress 393,180 418,738
Finished Goods 257,903 507,037
---------- ----------
Total $2,182,352 $2,456,389
========== ==========
</TABLE>
Page 8 of 13 Pages
<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. RESULTS OF OPERATIONS
Three months ended March 31, 1996 and 1995
Total revenues for the quarter ended March 31, 1996 were $1,494,460, as compared
to revenues of $1,586,527 in the corresponding period last year, representing a
decrease of $92,067, or 5.8%. Revenues were lower in the first quarter of 1996
than in the same period in 1995 due to one less lab system being sold. Foreign
sales were $729,856 for the period ended March 31, 1996, compared to
approximately $780,000 for the period ended March 31, 1995, a decrease of
$50,144, or 6.4%.
Cost of goods sold for the three months ended March 31, 1996 increased to
$731,181, or 49% of revenue, as compared to $694,118 or 44% of revenue for the
same 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 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 March 31, 1996 were $651,215, as
compared to $887,573 for the same period last year, a decrease of $236,358 or
26.6%. Research and Development expenses decreased by $61,196, mainly due to a
reduction in payroll and related expenses of approximately $24,000 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 $158,000
due to a conscientious effort by management to more efficiently allocate funds.
General and administrative expenses decreased by $17,231, or 7.0%.
Interest income remained essentially the same: $22,975 for the three months
ended March 31, 1996, and $22,831 for the period ended March 31, 1995.
The Company received other income of $12,503 for the three months ended March
31, 1996 from royalty income of $4,168 per month due to the sale of its'
Dermasome(R) product line in December, 1995.
Page 9 of 13 Pages
<PAGE>
MICROFLUIDICS INTERNATIONAL COPORATION
ITEM 2. MANAGEMENT'S DICUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company had a backlog of $507,500 and $31,561 at March 31, 1996 and
March 31, 1995, respectively, consisting of purchase commitments for
Microfluidizer(R) equipment.
2. LIQUIDITY AND CAPITAL RESOURCES
The cash and cash equivalents balance of the Company was $2,336,484 at March 31,
1996, an increase of $433,066 from the December 31, 1995 balance of $1,903,418.
The increase in cash and cash equivalents were principally the result of the
decrease in inventories and an increase in accounts payable. 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
(i)$750,000 or (ii)80% of the domestic accounts receivable less than 60 days
old. As of April 30, 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.
3. BUSINESS OUTLOOK
This report contains 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 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.
Page 10 of 13 Pages
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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.
Page 11 of 13 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
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.
/s/ Michael A. Lento
---------------------
Michael A. Lento
President and Treasurer
(Principal Financial and Accounting Officer)
Date: May 10,1996
Page 12 of 13 Pages
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MICROFLUIDICS INTERNATIONAL CORPORATION
Exhibit Index
Exhibit Description
- ------- -----------
27 Financial Data Schedule
Page 13 of 13 Pages
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMETS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,336,484
<SECURITIES> 108,035
<RECEIVABLES> 1,788,161
<ALLOWANCES> 0
<INVENTORY> 2,182,352
<CURRENT-ASSETS> 6,592,339
<PP&E> 635,434
<DEPRECIATION> 470,189
<TOTAL-ASSETS> 7,001,575
<CURRENT-LIABILITIES> 775,108
<BONDS> 0
50,655
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,001,575
<SALES> 0
<TOTAL-REVENUES> 1,494,460
<CGS> 731,181
<TOTAL-COSTS> 1,382,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 147,542
<INCOME-TAX> 0
<INCOME-CONTINUING> 147,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,542
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
