<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, 1997
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 4,923,212 shares of Common Stock, par value $.01 per share,
outstanding on May 9, 1997.
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MICROFLUIDICS INTERNATIONAL CORPORATION
INDEX
----- PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 3
1997 and December 31, 1996
Consolidated Statements of Operations for the 5
three months ended March 31, 1997 and March 31,
1996
Consolidated Statements of Cash Flows for the 6
three months ended March 31, 1997 and March 31,
1996
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 13
Signatures 14
Exhibit Index 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
March 31, 1997 December 31,1996
--------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $3,239,092 $2,786,554
Marketable securities 82,300 67,437
Accounts receivable(less
allowance for doubtful accounts
of $48,576 and $41,076 at March
31, 1997 and December 31, 1996)1,372,467 1,605,932
Other receivables 126,157 53,873
Inventory 2,200,458 2,291,768
Prepaid expense 83,137 21,858
---------- ----------
Total current assets 7,103,611 6,827,422
Equipment and leasehold
improvements, at cost
Furniture, fixtures and
office equipment 320,521 312,664
Machinery and equipment 242,375 226,395
Leasehold improvements 114,883 114,883
---------- ----------
677,779 653,942
Less:accumulated depreciation
and amortization (523,391) (509,091)
---------- ----------
154,388 144,851
Patents, licenses and other
intangible assets (net of
accumulated amortization of
$346,609 at March 31, 1997 and
$335,629 at December 31, 1996) 200,071 211,051
---------- ----------
Total assets $7,458,070 $7,183,324
========== ==========
</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>
March 31, 1997 December 31,1996
-------------- -----------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses $ 556,056 $ 602,939
Accrued compensation 51,211 36,567
Accrued vacation pay 37,295 37,295
Customer advances 184,526 78,000
----------- -----------
Total current liabilities 829,088 754,801
Stockholders' equity
Common Stock, par value $.01 per
share, 20,000,000 shares authorized;
5,115,331 and 5,094,781 shares
issued and outstanding at March 31,
1997 and at December 31,1996
respectively 51,153 50,948
Additional paid-in-capital 10,405,230 10,374,508
Accumulated deficit (3,313,747) (3,468,416)
Unrealized appreciation on
marketable securities 82,300 67,437
Less: Treasury Stock, at cost,
192,119 shares at March 31,
1997 and December 31,
1996 respectively ( 595,954) ( 595,954)
----------- -----------
Total stockholders' equity 6,628,982 6,428,523
----------- -----------
Total liabilities and
stockholders' equity $ 7,458,070 $ 7,183,324
=========== ===========
</TABLE>
(The accompanying notes are an integral part of the consolidated
financial statements)
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<PAGE>
MICROFLUIDICS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Three months ended
----------------------
March 31,
1997 1996
---------- ----------
<S> <C> <C>
Revenues $1,715,334 $1,494,460
Cost of goods sold 821,288 731,181
---------- ----------
Gross profit on revenues 894,046 763,279
Operating expenses
Research and Development 113,240 86,702
Selling, general and administrative 665,829 564,513
---------- ----------
Total operating expenses 779,069 651,215
---------- ----------
Income from operations 114,977 112,064
Interest income 27,189 22,975
Other income 12,503 12,503
---------- ----------
Net income $ 154,669 $ 147,542
========== ==========
Income per Common Share
Primary:
Average shares outstanding 4,970,374 5,075,036
Net income per Common Share $.03 $.03
========== ==========
Fully diluted
Average shares outstanding 4,970,374 5,047,317
Net income per Common Share $.03 $.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>
Three months ended
---------------------
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows provided by operations:
Net income $ 154,669 $ 147,542
Reconciliation of net income to cash provided by
Operations:
Depreciation and amortization 25,280 23,259
Issuance of common stock employee compensation 7,500 24,000
Bad Debt Expense 7,500
Effects of changes in operating working capital items:
Decrease(increase)trade and other receivables 153,681 (93,634)
Decrease(increase)inventories 91,310 274,037
(Increase)decrease prepaid expenses (38,779) (28,662)
Increase(decrease)current liabilities 74,287 88,202
---------- ----------
Net cash provided by operations 475,448 434,744
Cash flows (used by) investing activities:
Capital equipment (23,837) (3,128)
---------- ----------
Net cash (used by) investing activities (23,837) (3,128)
Cash flows from financing
Issuance of Common Stock option agreements 927 1,450
---------- ----------
Net cash from financing 927 1,450
Net increase in cash 452,538 433,066
Cash and cash equivalents at beginning 2,786,554 1,903,418
---------- ----------
Cash and cash equivalents at end $3,239,092 $2,336,484
========== ==========
</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 three months ended March 31, 1997 and 1996 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, 1996.
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>
March 31, 1997 December 31, 1996
<S> <C> <C>
Raw Material 1,468,902 $1,525,398
Work in Progress 381,354 434,717
Finished Goods 350,202 331,653
--------- ----------
Total 2,200,458 $2,291,768
========= ==========
</TABLE>
4. TAXES
The Company utilized net operating loss carryforwards to fully offset taxes
computed at statutory rates. The Company continues to fully reserve
deferred tax assets.
5. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 128,"Earnings per share" ("SFAS 128"),
which is effective for fiscal years ending December 15, 1997, including
interim periods. Earlier application is not permitted. However, an entity
is permitted to disclose pro forma earnings per share amounts computed
using SFAS 128 in the notes to financial statements in periods prior to
adoption. SFAS 128 requires restatement of all prior-period earnings per
share data present after the effective date. SFAS 128 specifies the
computation, presentation and disclosure requirements for earnings per
share and is substantially similar to the standard recently issued by the
International Accounting Committee entitled International Accounting
Standard,"Earnings Per Share" ("IAS 33"). The Company plans to adopt SFAS
128 in 1997 and has issued not yet determined the impact.
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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 March 31, 1997 were $1,715,334 as
compared to revenues of $1,494,460 in the corresponding period last year,
representing an increase of $220,874, or 14.8%. North American sales for the
three month period ended March 31, 1997 increased to $1,269,902, or 66.1%, from
$764,604 for the three months ended March 31, 1996. This increase in revenue
was principally due to an increase in sales of M-210 machines of approximately
$312,000, and an increase in spare part sales of approximately $230,000. Foreign
sales were $445,432 for the quarter ended March 31, 1997, compared to
approximately $729,856 for the quarter ended March 31, 1996, a decrease of
$284,424, or 39.0%. This decrease in revenue was principally due to a decrease
in sales of the M-110 series of machines of approximately $265,000. Management
believes that the increased revenues 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 revenues.
Cost of goods sold for the three months ended March 31, 1997 was $821,288, or
47.9% of revenue, compared to $731,181, or 48.9% of revenue, for the same period
last year. The cost of goods sold for the three month period ended March 31,
1997 includes a write-off of $25,343, or 1.5% of revenue, for obsolete
inventory. The increase in the absolute dollar amount of cost of goods sold for
the three month period ended 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 March 31, 1997 were $779,069, or
45.4% of revenue, as compared to $651,215, or 43.6% of revenue for the same
period last year, an increase of $127,854 or 19.6%. Research and Development
expenses increased by $26,538, of which approximately $15,000 was due to an
increase in costs related to a research project, and $16,000 was due to a net
increase 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
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Selling expenses increased by approximately $48,895 from $335,933 to $384,828.
The main increase of approximately $36,700 was for payroll and related expenses.
General and administrative expenses increased from $228,580 to $281,001, or
$52,421, for the three months ended March 31, 1997 as compared to the same
period last year. The principal reasons for the increase were: payroll and
related expenses of approximately $26,000; employee benefits of $9,500; and an
increase in the accounts receivable reserve account of $7,500.
Interest income for the three months ended March 31, 1997 increased 18.3% to
$27,189 from $22,975 for the three months ended March 31, 1996. This increase is
due to an increase in the amount of cash available for investment.
The Company utilized net operating loss carryforwards to fully offset taxes
computed at statutory rates. The Company continues to fully reserve deferred tax
assets.
The Company received other income of $12,503 for the three months ended March
31, 1997 and 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 Company had a backlog of $721,272 and $507,500 at March
31, 1997 and March 31, 1996, 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 Company generated cash of $475,448 and $434,744 from operations for the
three months ended March 31, 1997 and 1996, respectively. In the first quarter
of 1997, this amount was principally the result of net income from operations,
decreases in trade and other receivables and inventories, an increase in current
liabilities, partially offset by an increase in prepaid expenses. In the first
quarter of 1996, this amount was principally the result of net income from
operations and decreases in inventories, an increase in current liabilities,
partially offset by an increase in trade and other receivables and prepaid
expenses.
The Company utilized $23,837 and $3,128 for investing activities for the three
months ended March 31, 1997 and 1996, respectively. Net cash used for investing
activities in each period related to the purchase of capital equipment. As of
March 31, 1997, the Company had no material commitments for capital
expenditures.
For financing activities, the Company received cash of $927 and $1,450 for the
three months ended March 31,1997 and 1996,respectively,from the
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issuance of Common Stock pursuant to the exercise stock option agreements
pursuant to the Company's employee stock purchase plan and stock option plan.
The cash and cash equivalents balance of the Company was $3,239,092 at March 31,
1997, an increase of $452,538 from the December 31, 1996 balance of $2,786,554.
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 March 31, 1997 and May 9,1997, the Company had no borrowings outstanding
under its line of credit.
Assuming that there is no significant change in the Company's business, the
Company believes that cash flows from operations, together with existing cash
balances, will be sufficient to meet its working capital requirements for at
least the next twelve months.
The Company may, from time to time, consider an acquisition of complementary
businesses, products, or technologies, although it has no present
understandings, commitments, or agreements with respect to any such
acquisitions.
3. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per share" ("SFAS 128"), which
is effective for fiscal years ending December 15, 1997, including interim
periods. Earlier application is not permitted. However, an entity is permitted
to disclose pro forma earnings per share amounts computed using SFAS 128 in the
notes to financial statements in periods prior to adoption. SFAS 128 requires
restatement of all prior-period earnings per share data present after the
effective date. SFAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share and is substantially similar to the standard
recently issued by the International Accounting Committee entitled International
Accounting Standard, "Earnings Per Share" ("IAS 33"). The Company plans to adopt
SFAS 128 in 1997 and has not yet determined the impact.
4. BUSINESS OUTLOOK
The Company believes that this report may contain forward-looking statements
that are subject to certain risks and uncertainties. These forward-looking
statements include statements regarding the Company's liquidity and potential
strategic arrangements. 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
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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 10(a) 1988 Stock Plan was filed as Appendix B to the Company's
Proxy Statement filed with the Securities and Exchange Commission on
April 22, 1997, and is incorporated herein by reference.
Exhibit 11 Statement regarding computation of Per Share Earnings
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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<PAGE>
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: May 9, 1997
Page 14
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
10(a) 1988 Stock Plan was filed
as Appendix B to the
Company's Proxy Statement
filed with the Securities
and Exchange Commission on
April 22, 1997,and is
incorporated herein by
reference.
11 Statement regarding
computation of per share
earnings.
27 Financial Data Schedule
Page 15
<PAGE>
Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Weighted Average Common
Stock Outstanding 4,922,479 5,075,036
Options Outstanding 47,345
Options Exercised 550
---------
4,970,374 5,075,036
Income 154,669 147,542
--------- ---------
Income Per Share .03 .03
========= =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,239,092
<SECURITIES> 82,300
<RECEIVABLES> 1,498,624
<ALLOWANCES> 0
<INVENTORY> 2,200,458
<CURRENT-ASSETS> 7,103,611
<PP&E> 677,779
<DEPRECIATION> 523,391
<TOTAL-ASSETS> 7,458,070
<CURRENT-LIABILITIES> 829,088
<BONDS> 0
0
0
<COMMON> 51,153
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,458,070
<SALES> 0
<TOTAL-REVENUES> 1,715,334
<CGS> 821,288
<TOTAL-COSTS> 1,600,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 154,669
<INCOME-TAX> 0
<INCOME-CONTINUING> 154,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,669
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
