<PAGE> 1
================================================================================
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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.
--- 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 0-27082
FUISZ TECHNOLOGIES LTD.
(Exact name of registrant as specified in charter)
Delaware 52-1579474
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3810 Concorde Parkway, Suite 100
Chantilly, Virginia 20151
(Address of Principal Executive Offices)
Registrant's telephone number including area code: (703) 803-3260
Indicate by check mark whether the registrant (1) has filed all reports 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
--- ---
As of July 31, 1996, the Registrant had outstanding 20,196,227 shares of
Common Stock, par value $.01.
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<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
FUISZ TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
DECEMBER 31, JUNE 30,
1995 1996
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,554 $ 16,853
Marketable securities 10,167 51,813
Accounts receivable and other 197 669
---------- ---------
Total current assets 32,918 69,335
Property and equipment, net 1,200 2,496
Patents, net 128 122
Other assets 148 168
---------- ---------
Total assets $ 34,394 $ 72,121
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 58 $ 14
Accounts payable 1,177 855
Accrued liabilities and other 718 637
Deferred revenue 527 1,233
---------- ---------
Total current liabilities 2,480 2,739
---------- ---------
Long-term debt:
Capital lease obligations 12 8
---------- ---------
Total long-term debt 12 8
---------- ---------
Total liabilities 2,492 2,747
---------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 1,000,000
shares; none issued or outstanding - -
Common stock, par value $.01 per share; authorized 50,000,000
shares; issued and outstanding 18,038,987 and 20,045,627 180 200
shares at December 31, 1995 and June 30, 1996, respectively
Additional paid-in capital 54,452 90,532
Deficit accumulated during the development stage (22,629) (21,335)
Deferred compensation on stock options granted (101) (23)
---------- ---------
Total stockholders' equity 31,902 69,374
---------- ---------
Total liabilities and stockholders' equity $ 34,394 $ 72,121
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
FUISZ TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS - UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE PERIOD
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 9, 1988
JUNE 30, JUNE 30, (INCEPTION) TO
-------------------- ---------------------- JUNE 30,
1995 1996 1995 1996 1996
------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Research and development $ 382 $ 735 $ 974 $ 1,171 $ 5,007
Licensing fees - 2,500 400 4,725 9,751
Royalties - 42 200 42 242
Other, net 9 24 16 24 261
------- --------- ---------- --------- -----------
Total operating revenues 391 3,301 1,590 5,962 15,261
------- --------- ---------- --------- -----------
Operating expenses:
Research and development 1,040 1,950 1,992 3,284 16,695
General and administrative 923 1,325 1,693 2,282 18,818
Depreciation and amortization 91 130 180 246 1,559
------- --------- ---------- --------- -----------
Total operating expenses 2,054 3,405 3,865 5,812 37,072
------- --------- ---------- --------- -----------
Net operating income (loss) (1,663) (104) (2,275) 150 (21,811)
------- --------- ---------- --------- -----------
Other income (expense):
Interest income 37 738 94 1,147 1,844
Interest expense (73) - (145) (3) (660)
------- --------- ---------- --------- -----------
Total other income (expense) (36) 738 (51) 1,144 1,184
------- --------- ---------- --------- -----------
Net income (loss), before cumulative effect of a change
in accounting (1,699) 634 (2,326) 1,294 (20,627)
Cumulative effect of change in accounting for patent
application costs - - - - (708)
------- --------- ---------- --------- -----------
Net income (loss) $ (1,699) $ 634 $ (2,326) $ 1,294 $ (21,335)
======= ========= ========== ========= ===========
Net income (loss) per common share $ (0.18) $ 0.03 $ (0.24) $ 0.06 $ (2.23)
======= ========= ========== ========= ===========
Weighted average common shares and common
share equivalents outstanding 9,624 21,583 9,624 20,743 9,551
======= ========= ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
FUISZ TECHNOLOGIES LTD.
STATEMENTS OF CASH FLOWS - UNAUDITED
(A DEVELOPMENT STAGE ENTERPRISE)
(in thousands)
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE PERIOD
SIX MONTHS ENDED JUNE 9, 1988
JUNE 30, (INCEPTION) TO
---------------------- JUNE 30,
1995 1996 1996
---------- --------- ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ (2,326) $ 1,294 $ (21,335)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Cumulative effect of change in accounting principle - - 708
Depreciation and amortization 180 246 1,559
Noncash compensation expense 114 45 978
Loss on disposal of leasehold improvements - - 99
Noncash interest expense - - 314
Changes in working capital items:
Decrease (increase) in accounts receivable
and other assets (61) (472) (810)
Increase (decrease) in accounts payable
and other current liabilities (179) 250 2,161
---------- --------- ------------
Net cash provided by (used by) operating activities (2,272) 1,363 (16,326)
---------- --------- ------------
Investing activities:
Purchases of marketable securities - (41,646) (53,964)
Sales and maturities of marketable securities - - 2,151
Additions to property and equipment, net (121) (1,536) (3,562)
Additions to patents - - (765)
---------- --------- ------------
Net cash used by investing activities (121) (43,182) (56,140)
---------- --------- ------------
Financing activities:
Net proceeds from sale of Preferred Stock - - 17,253
Proceeds from issuance of debt - - 4,660
Net proceeds from sale of Common Stock - 35,823 68,084
Proceeds from exercise of stock options - 233 282
Proceeds from exercise of stock warrants - 130 130
Principal payments under long-term debt (76) (48) (1,063)
Increase in deposits and escrow funds (26) (20) (27)
---------- --------- ------------
Net cash provided by (used by) financing activities (102) 36,118 89,319
---------- --------- ------------
Net increase (decrease) in cash and cash equivalents (2,495) (5,701) 16,853
Cash and cash equivalents, beginning of period 4,288 22,554 -
---------- --------- ------------
Cash and cash equivalents, end of period $ 1,793 $ 16,853 $ 16,853
========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The Company's activities to date principally have been the planning
and organization of the Company, initiation and execution of research and
development programs, and securing capital for growth and operations.
Accordingly, the Company is complying with Statement of Financial Accounting
Standards No. 7, "Accounting and Reporting by Development Stage Enterprises,"
which prescribes requirements in reporting for development stage enterprises.
The information at June 30, 1996 and for the three and six months
ended June 30, 1996 and 1995 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) which the management of the
Company believes necessary for fair presentation of the results for the periods
presented. Interim results are not necessarily indicative of results for a
full year. The financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1995, included in
the Company's 1995 Form 10-K.
On March 22, 1996, the Board of Directors authorized a three-for-two
split of the outstanding shares of the Company's common stock, effected in the
form of a stock dividend, effective as of April 16, 1996 to all holders of
record as of April 2, 1996. These financial statements and related notes have
been adjusted to reflect this split.
Earnings per common and common equivalent share as presented on the
face of the statements of operations represent primary earnings per share.
Dual presentation of primary and fully diluted earnings per share has not been
made because the differences are insignificant.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Since its inception in June 1988, the Company has been in the
development stage, engaged in the development and commercialization of its
proprietary Shearform Matrix and other technologies for oral drug delivery and
food applications. Substantially all revenues to date have been research and
development fees and license fees. The Company has not been profitable to
date, on a full fiscal year basis, and expects to incur additional losses in
the foreseeable future, primarily due to the continuation of its research and
development activities and the start-up of its production facilities. From its
inception in 1988 through December 31, 1995, the Company has incurred net
losses in each year, including net losses of approximately $3.3 million during
the year ended December 31, 1995. These losses have resulted in an accumulated
deficit of approximately $21.3 million at June 30, 1996.
RESULTS OF OPERATIONS
Operating revenues were $3,301,000 for the quarter ended June 30,
1996, and $5,962,000 for the six months ended June 30, 1996, compared to
$391,000 for the quarter ended July 30, 1995 and $1,590,000 for the six months
ended June 30, 1995. The increases were primarily due to licensing fees
attributable to additional licensing agreements entered into by the Company.
Research and development expenses were $1,950,000 for the quarter
ended June 30, 1996, and $3,284,000 for the six months ended June 30, 1996,
compared to $1,040,000 for the quarter ended June 30, 1995 and $1,992,000 for
the six months ended June 30, 1995. The increases were primarily due to
increases in research personnel and facility expansion to support the Company's
additional development and license agreements and the Company's continued
emphasis on developing its technologies.
General and administrative expenses were $1,325,000 for the quarter
ended June 30, 1996, and $2,282,000 for the six months ended June 30, 1996,
compared to $923,000 for the quarter ended June 30, 1995 and $1,693,000 for the
six months ended June 30, 1995. The increases were primarily due to expanded
administrative activities.
Net interest income was $738,000 for the quarter ended June 30, 1996,
and $1,144,000 for the six months ended June 30, 1996, compared to net interest
expense of $36,000 for the quarter ended June 30, 1995 and $51,000 for the six
months ended June 30, 1995. The increases in net interest income were
primarily due to funds generated from the initial public offering (the "IPO")
of the Company's common stock in December 1995 and a second registered public
offering (the "Secondary Offering") of the Company's common stock in April
1996 which were available for investment in 1996.
6
<PAGE> 7
As a result of the foregoing, net income was $634,000 for the quarter
ended June 30, 1996, and $1,294,000 for the six months ended June 30, 1996
compared to a net loss of $1,699,000 for the quarter ended June 30, 1995 and
$2,326,000 for the six months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
On December 20, 1995, the Company completed its IPO of 4,125,000
shares of common stock at a price of $8.00 per share. The Company received
net proceeds from the IPO of approximately $30.2 million.
In January 1996, the Company received approximately $130,000 from the
exercise of stock warrants.
On May 3, 1996, the Company completed the Secondary Offering of
3,900,000 shares of common stock at a price of $25.00 per share. Of the
3,900,000 shares of common stock offered in the Secondary Offering, 1,125,000
shares were sold by the Company and 2,775,000 shares were sold by certain
selling stockholders. Pursuant to the underwriters' over-allotment option for
the Secondary Offering, on May 9, 1996, the Company sold an additional 368,000
shares of common stock and certain selling stockholders sold an additional
217,000 shares of common stock at a price of $25.00 per share. The Company did
not receive any proceeds from the sale of shares by the selling stockholders,
except for $1.1 million relating to the exercise of 401,550 stock options. The
Company received net proceeds from the Secondary Offering (including the $1.1
million relating to the exercise of stock options and the sale of the
additional shares pursuant to the underwriters' over-allotment option) of
approximately $35.8 million.
During the quarter ended June 30, 1996, the Company received
approximately $233,000 from the exercise of stock options.
Prior to the IPO and the Secondary Offering, the Company financed its
operations primarily through private sales of its equity securities, issuances
of convertible debt, and license and development fees. Through June 30, 1996,
the Company had received net offering proceeds from private sales of equity
securities and issuance of convertible notes of approximately $24.0 million and
had generated license and development fees of approximately $14.8 million.
As of June 30, 1996, the Company's portfolio of cash and marketable
securities totaled $68.7 million. Major uses of cash during the six months
ended June 30, 1996 included capital expenditures of $1.5 million for property
and equipment.
7
<PAGE> 8
The Company expects to incur additional losses in the foreseeable
future. The Company expects that, at least for the near future, its revenues
will be derived principally from development fees, license fees and, to a
lesser extent, royalties from collaborative partners. In addition, pending
disbursement for capital expenditures and working capital, the Company expects
to realize income from the investment of the funds generated in its public
offerings. The Company believes that the currently available funds and
internally generated cash flow, will be adequate to meet the Company's current
cash needs. The Company's capital needs, however, will depend on many factors,
including continued progress in the research and development of the Company's
technologies, the ability of the Company to establish and maintain additional
collaborative agreements with others and the terms thereof, payment received
from collaborative partners under research and development agreements, the cost
involved in filing and enforcing patent claims, the status of competitive
products and other factors. If the Company's currently available funds and
internally generated cash flow are not sufficient to satisfy its financing
needs, the Company would be required to seek additional funding through other
arrangements with collaborative partners, through bank borrowings and through
public or private sales of its securities, including equity securities. There
can be no assurance that additional funds, if required, will be available to
the Company on favorable terms.
Part II
ITEM 1. LEGAL PROCEEDINGS
The Company is currently not a party to any legal proceedings, and
does not know of any threatened legal proceedings, that the Company believes
will have a material adverse effect on the Company's financial position or
results of operations. See the Company's Form 10-Q for the guarter ended
March 31, 1996 for description of other litigation.
ITEM 2. CHANGES IN SECURITIES
On March 22, 1996, the Board of Directors authorized a three-for-two
split of the outstanding shares of the Company's common stock, effected in the
form of a stock dividend, effective as of April 16, 1996 to all holders of
record as of April 2, 1996. The financial statements and related notes
contained in this report have been adjusted to reflect this split.
8
<PAGE> 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statements Regarding Weighted Average Common
and Common Equivalent Shares Used in
Computation of Earnings (Loss) Per Share
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FUISZ TECHNOLOGIES, LTD.
Date: By: /S/
------------------- -----------------------------
Patrick D. Scrivens
Executive Vice President and
Chief Financial Officer
Date: By: /S/
------------------- -----------------------------
Lars G. Okeson
Controller
(Principal Accounting Officer)
9
<PAGE> 1
EXHIBIT 11.1
STATEMENTS REGARDING WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES USED IN COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Primary
-----------------------------------------------------------------------------------------
CUMULATIVE
FOR THE PERIOD
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, JUNE 30, 1988
------------------------- --------------------------------- (INCEPTION)
1995 1996 1995 1996 TO JUNE 30, 1996
----------- -------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ (1,699) $ 634 $ (2,326) $ 1,294 $ (21,335)
=========== ======== ============ ========= ================
Weighted average common shares
outstanding 8,794 19,350 8,794 18,713 8,799
Add shares issuable from assumed
exercise of options and warrants - 2,233 - 2,030
Add shares issuable upon the exercise
of outstanding options and warrants
issued within one year of initial
public offering 830 - 830 - 752
----------- -------- ------------ --------- ----------------
Total weighted average shares 9,624 21,583 9,624 20,743 9,551
----------- -------- ------------ --------- ----------------
Net income (loss) per common share ($0.18) $0.03 ($0.24) $0.06 ($2.23)
=========== ======== ============ ========= ================
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED (1)
------------------------------------------------------------------------------------------
CUMULATIVE
FOR THE PERIOD
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, JUNE 30, 1988
------------------------- --------------------------------- (INCEPTION)
1995 1996 1995 1996 TO JUNE 30, 1996
----------- -------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C>
Net Income (loss) $ (1,699) $ 634 $ (2,326) $ 1,294 $ (21,335)
----------- -------- ------------ --------- ----------------
Weighted average common shares
outstanding 8,794 19,350 8,794 18,713 8,799
Add shares issuable from assumed
exercise of options and warrants - 2,012 - 2,033 -
Add shares issuable upon the exercise
of outstanding options and
warrants issued within one year
of initial public offering 830 - 830 - 752
----------- -------- ------------ --------- ----------------
Total weighted average shares 9,624 21,362 9,624 20,746 9,551
=========== ======== ============ ========= ================
Net income (loss) per common share $ (0.18) $ 0.03 $ (0.24) $ 0.06 $ (2.23)
=========== ======== ============ ========= ================
</TABLE>
(1) Earnings per common and common equivalent share as presented on the face
of the statements of operations represent primary earnings per share.
Dual presentation of primary and fully diluted earnings per share has not
been made on the face of the statements of operations because the
differences are insignificant.
All share and per share amounts have been restated to reflect the effects of a
three-for-two split of the outstanding shares of the Company's common stock,
effected in the form of a stock dividend, effective as of April 16, 1996
to all holders of record as of April 2, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000873064
<NAME> FUISZ TECHNOLOGIES, LTD.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 16,853,000
<SECURITIES> 51,813,000
<RECEIVABLES> 669,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 69,335,000
<PP&E> 3,898,000
<DEPRECIATION> (1,402,000)
<TOTAL-ASSETS> 72,121,000
<CURRENT-LIABILITIES> 2,739,000
<BONDS> 0
0
0
<COMMON> 200,000
<OTHER-SE> 69,174,000
<TOTAL-LIABILITY-AND-EQUITY> 72,121,000
<SALES> 0
<TOTAL-REVENUES> 3,301,000
<CGS> 0
<TOTAL-COSTS> 3,405,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 634,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 634,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 634,000
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
