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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, 1998.
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)
14555 Avion at Lakeside
Chantilly, Virginia 20151
(Address of Principal Executive Offices)
Registrant's telephone number including area code: (703) 995-2400
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, 1998, the Registrant has outstanding 22,326,492 shares of Common
Stock, par value $.01.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 8,622 $ 5,548
Marketable securities . . . . . . . . . . . . . . . . . . . . . 38,861 73,134
Accounts receivable, trade . . . . . . . . . . . . . . . . . . . 12,984 10,237
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,376 5,375
Other current assets . . . . . . . . . . . . . . . . . . . . . . 1,950 1,263
------------- ------------
Total current assets . . . . . . . . . . . . . . . . . . . 67,793 95,557
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,800 10,255
Property, plant and equipment, net . . . . . . . . . . . . . . . . . 24,255 22,941
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . 51,184 34,883
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,676 6,484
------------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 157,708 $ 170,120
============= ============
LIABILITIES, REDEEMABLE PREFERENCE SHARES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,125 $ 1,042
Current portion of notes payable . . . . . . . . . . . . . . . . 2,081 2,605
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 8,195 9,047
Accrued liabilities and other . . . . . . . . . . . . . . . . . . 4,804 4,305
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . 209 622
------------- ------------
Total current liabilities . . . . . . . . . . . . . . . . . . 16,414 17,621
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,651 90,055
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 1,072 1,131
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,123 532
------------- ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 109,260 109,339
------------- ------------
Commitments and contingencies
Redeemable preference shares of subsidiary . . . . . . . . . . . . . 948 1,173
------------- ------------
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 22,326,492 and 22,189,462 shares,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . 223 222
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 110,197 109,332
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (61,478) (49,055)
Accumulated other comprehensive income (loss) . . . . . . . . . . . (1,442) (891)
------------- ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 47,500 59,608
------------- ------------
Total liabilities, redeemable preference shares and stockholders' equity $ 157,708 $ 170,120
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------
1998 1997 1998 1997
----------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Operating revenues:
Product sales . . . . . . . . . . . $ 12,130 $ 733 $ 23,977 $ 733
Research and development . . . . . . 1,151 2,002 2,833 3,572
Licensing fees . . . . . . . . . . . 1,950 2,950 1,950 2,980
Royalties . . . . . . . . . . . . . 1,000 210 1,000 460
Other . . . . . . . . . . . . . . . 73 - 547 -
----------- ---------- -------- ---------
Total operating revenues . . . 16,304 5,895 30,307 7,745
----------- ---------- -------- ---------
Operating expenses:
Cost of sales . . . . . . . . . . . 7,518 342 14,850 342
Research and development . . . . . . 6,252 3,530 11,659 6,704
General and administrative . . . . . 7,557 3,076 14,646 4,936
Other operating expenses . . . . . . - 2,400 - 2,400
----------- ---------- -------- ---------
Total operating expenses . . . 21,327 9,348 41,155 14,382
----------- ---------- -------- ---------
Net operating loss . . . . . . . . . . . (5,023) (3,453) (10,848) (6,637)
----------- ---------- -------- ---------
Other income (expense):
Interest income . . . . . . . . . . 788 586 1,862 1,366
Interest expense . . . . . . . . . . (1,660) (16) (3,413) (16)
----------- ---------- -------- ---------
Total other income (expense). . (872) 570 (1,551) 1,350
----------- ---------- -------- ---------
Net loss . . . . . . . . . . . . . . . . $ (5,895) $ (2,883) $(12,399) $ (5,287)
=========== ========== ========= =========
Net loss per share (basic and diluted). . $ (0.26) $ (0.14) $ (0.56) $ (0.26)
=========== ========== ========= =========
Weighted average shares outstanding
(basic and diluted) . . . . . . . . . 22,298 20,743 22,259 20,719
=========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
----------- ------------
<S> <C> <C>
Operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . $(12,399) $ (5,287)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization . . . . . . . . . 4,252 572
Amortization of deferred financing costs . . . 212 -
Amortization of discount on notes payable . . . 593 -
Increase (decrease) in cash resulting from changes
in working capital items:
Accounts receivable and other current assets (2,004) (713)
Accounts payable and other current liabilities (1,748) 1,059
----------- ------------
Net cash used by operating activities . . . . . (11,094) (4,369)
----------- ------------
Investing activities:
Decrease in marketable securities . . . . . . . . . 34,273 19,788
Capital expenditures . . . . . . . . . . . . . . . (1,936) (4,866)
Acquisitions of businesses, net of acquired cash . . (19,403) (6,059)
Additions to intangibles . . . . . . . . . . . . . . (91) (100)
Decrease (increase) in other assets . . . . . . . . 1,433 (1,416)
----------- ------------
Net cash provided by investing activities . . . 14,276 7,347
----------- ------------
Financing activities:
Proceeds from exercise of stock options . . . . . . 866 150
Proceeds from exercise of stock warrants . . . . . . - 156
Redemption of preference shares of subsidiary . . . (209) -
Net borrowings under line of credit agreements . . . 88 (686)
Payments of debt obligations . . . . . . . . . . . . (604) (556)
Increase (decrease) in long-term liabilities . . . . (221) -
----------- ------------
Net cash used by financing activities . . . . . (80) (936)
----------- ------------
Effect of exchange rate changes on cash . . . . . . . . . (28) (25)
----------- ------------
Net increase in cash and cash equivalents . . . . . . . . 3,074 2,017
Cash and cash equivalents, beginning of period . . . . . 5,548 5,282
----------- ------------
Cash and cash equivalents, end of period . . . . . . . . 8,622 7,299
Marketable securities, end of period . . . . . . . . . . 48,661 35,430
----------- ------------
Cash, cash equivalents and marketable securities, end of period $ 57,283 $ 42,729
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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FUISZ TECHNOLOGIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) -- UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss . . . . . . . . . . . . . . . $ (5,895) $ (2,883) $ (12,399) $ (5,287)
Foreign currency translation adjustments 900 (25) (551) (25)
------------ ---------- ----------- -----------
Comprehensive loss . . . . . . . . . . $ (4,995) $ (2,908) $ (12,950) $ (5,312)
============ ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Fuisz Technologies Ltd., a Delaware corporation, was formed on June 9,
1988 (Fuisz Technologies Ltd., together with its wholly owned subsidiaries, is
referred to collectively herein as the "Company"). The Company is engaged in
the development, manufacture and commercialization of its proprietary
technologies for a wide range of pharmaceutical, nutraceutical and food
applications. The Company's primary focus is on the commercialization of
products incorporating its CEFORM microsphere technology and its Shearform
technology, including controlled release and rapid dissolve over-the-counter
("OTC") and prescription (or "ethical") pharmaceuticals.
The accompanying consolidated financial statements include the
accounts of Fuisz Technologies Ltd. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated. The
information at June 30, 1998 and for the six months ended June 30, 1998 and
1997, 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
consolidated financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1997, included in
the Company's 1997 Annual Report on Form 10-K.
2. COMPREHENSIVE INCOME
As of March 31, 1998, the Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
requires additional disclosures with respect to certain changes in assets and
liabilities that previously were not required to be reported as results of
operations for the period.
3. ACQUISITION
In March 1998, the Company completed the acquisition (effective
February 1, 1998) of all of the issued and outstanding equity interests of Dr.
Rentschler GmbH & Co. Medizin KG ("Fuisz Pharma KG"), a subsidiary of Dr.
Rentschler Arzneimittel GmbH & Co., a pharmaceutical sales and distribution
limited partnership based in Laupheim, Germany, for an aggregate purchase price
of approximately $19.4 million in cash, including expenses. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $19.2 million will be allocated between goodwill and other
intangible assets and will be amortized over five to fifteen years.
This acquisition was accounted for under the purchase method of
accounting. The results of operations of Fuisz Pharma KG are included in the
Company's consolidated statements of operations since February 1, 1998, the
effective date on which it became owned by the Company. The final allocation
of the purchase price is subject to further review and is therefore subject to
change. However, that allocation is not expected to differ materially from the
initial allocation.
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4. INVENTORY
Inventory consists of the following at June 30, 1998 and December 31,
1997:
<TABLE>
<CAPTION>
(in thousands)
---------------------------------
June 30, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Raw materials $ 2,343 $ 1,874
Work in process 1,021 1,130
Finished goods 2,012 2,371
-------------- --------------
$ 5,376 $ 5,375
============== ==============
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of certain of its
financial instruments, which include cash equivalents, marketable securities,
accounts receivable, accounts payable, accrued liabilities, term loans and
installment notes approximates fair value due to the relatively short maturity
of these instruments. As of June 30, 1998, the fair value of the $75.0 million
aggregate principal amount of 7% Convertible Subordinated Debentures due
October 15, 2004, was approximately $84.8 million.
6. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
became effective for reporting periods beginning after December 15, 1997.
Interim reporting is not required under SFAS No. 131 prior to adoption. SFAS
No. 131 requires financial and descriptive information with respect to
"operating segments" of an entity based on the way management makes internal
operating decisions. The Company will begin making the disclosures required by
SFAS No. 131 for its operating segments with financial statements for the
period ending December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company will be required to adopt this new accounting standard beginning
with the quarter ended March 31, 2000. The Company believes that the effect of
adoption of SFAS No. 133 will not be significant.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NOTICE CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements that involve risks and
uncertainties. The actual future results of Fuisz Technologies Ltd. may differ
materially due to a number of factors, including but not limited to, dependence
on collaborative partners, capital requirements, risk of manufacturing
scale-up, product commercialization including delays of introductions of new
products or enhancements, size and timing of individual orders, rapid
technological changes, acquisitions of marketing and sales distribution
organizations, market acceptance of new products, regulatory approvals, and
future competition. These and other factors are more fully discussed in the
Company's Annual Report on Form 10-K in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OVERVIEW
Fuisz Technologies Ltd., a Delaware corporation, was formed on June 9, 1988
(Fuisz Technologies Ltd., together with its wholly owned subsidiaries, is
referred to collectively herein as the "Company"). The Company is engaged in
the development, manufacture and commercialization of its proprietary
technologies for a wide range of pharmaceutical, nutraceutical and food
applications. The Company's primary focus is on the commercialization of
products incorporating its CEFORM microsphere technology and its Shearform
technology, including controlled release and rapid dissolve over-the-counter
("OTC") and prescription (or "ethical") pharmaceuticals.
During the first half of 1998, the Company signed several new agreements for
various drug formulations that incorporate the Company's technology. One of
these agreements, with the Whitehall-Robins Healthcare Division of American
Home Products Corporation, represents the Company's first external licensing of
an internally-developed drug project. In addition, during the first half of
1998, two of the Company's partners submitted registrations for product
approval to governmental regulatory authorities for OTC and prescription drug
formulations that incorporate the Company's technology. Following the
acquisition of four businesses in 1997, in March 1998, the Company completed
the acquisition of all of the outstanding equity interests of Dr. Rentschler
GmbH & Co. Medizin KG ("Fuisz Pharma KG"), a pharmaceutical sales and
distribution limited partnership based in Laupheim, Germany, for approximately
$19.4 million. The five acquired companies are collectively referred to herein
as the "Acquired Companies." Each of the acquisitions was accounted for as a
purchase and, accordingly, their operating results have been included in the
Company's consolidated financial statements since the respective date of
acquisition. Four of the Acquired Companies provide a substantial portion of
their products and services in Europe. Consequently, the Company derives a
significant portion of its consolidated revenues from its European operations.
Finally, the Company has continued this year to devote significant resources to
the expansion of its research and development and production capabilities in
Virginia and Ireland as part of its ongoing investment in product research and
development for Company internal and partner projects.
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<PAGE> 9
The Company has not been profitable to date, on a full fiscal year basis, and
expects to incur additional losses in the near term, primarily due to the
continuation of its research and development activities and the expansion of
its manufacturing operations.
RESULTS OF OPERATIONS
Operating revenues were $16,304,000 for the quarter ended June 30, 1998 and
$30,307,000 for the six months ended June 30, 1998, compared to $5,895,000 for
the quarter ended June 30, 1997 and $7,745,000 for the six months ended June
30, 1997. The increases were primarily due to the inclusion of product sales
from each of the five Acquired Companies for a full six months in 1998, except
Fuisz Pharma KG, which was acquired effective February 1, 1998. Corresponding
amounts for 1997 include product sales for only two of the Acquired Companies,
which were each realized after its respective date of acquisition.
Cost of sales was $7,518,000 for the quarter ended June 30, 1998 and
$14,850,000 for the six months ended June 30, 1998, compared to $342,000 for
the quarter and six months ended June 30, 1997. The increase was due to the
increased cost of product sales by the Acquired Companies associated with the
increase in product sales as discussed in the preceding paragraph.
Research and development expenses were $6,252,000 for the quarter ended June
30, 1998 and $11,659,000 for the six months ended June 30, 1998, compared to
$3,530,000 for the quarter ended June 30, 1997 and $6,704,000 for the six
months ended June 30, 1997. The increase was primarily due to increases in
research personnel, pharmaceutical bioavailability studies and materials and
supplies necessary to support the Company's continued investment in product
research and development for Company internal and partner projects.
General and administrative expenses were $7,557,000 for the quarter ended
June 30, 1998 and $14,646,000 for the six months ended June 30, 1998, compared
to $3,076,000 for the quarter ended June 30, 1997 and $4,936,000 for the six
months ended June 30, 1997. The increase was primarily due to increases in
personnel (primarily sales personnel), selling and marketing costs and expanded
administrative activities associated with the operations of the Acquired
Companies.
Net interest expense was $872,000 for the quarter ended June 30, 1998 and
$1,551,000 for the six months ended June 30, 1998, compared to net interest
income of $570,000 for the quarter ended June 30, 1997 and $1,350,000 for the
six months ended June 30, 1997. The increase in net interest expense was
primarily due to the interest expense associated with the 7% Convertible
Subordinated Debentures issued in October 1997 which was partially offset by
additional interest income resulting from an increase in the average balance of
funds available for investment.
As a result of the foregoing, the net loss was $5,895,000 for the quarter
ended June 30, 1998 and $12,399,000 for the six months ended June 30, 1998,
compared to a net loss of $2,883,000 for the quarter ended June 30, 1997 and
$5,287,000 for the six months ended June 30, 1997.
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<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company's portfolio of cash and marketable
securities totaled $57.3 million (including $9.8 million which is pledged as
collateral for the installment notes issued in connection with the purchase of
Clonmel), compared to $88.9 million as of December 31, 1997. Major uses of
cash during the first half of 1998 included approximately $19.4 million for the
acquisition of Fuisz Pharma KG (see below), $600,000 for installment note and
term loan obligations, $1.9 million in capital expenditures financed by the
Company and $8.8 million on Company-sponsored research and development.
In March 1998, the Company completed the acquisition of all the issued and
outstanding equity interests of Fuisz Pharma KG, for an aggregate purchase
price of approximately $19.4 million in cash, including expenses. During the
next several years, the Company may periodically evaluate additional
acquisitions of businesses, products and technologies that extend or enhance
the Company's current business and line of products.
During 1998, the Company anticipates capital expenditures ranging from $17.0
to $19.0 million, some of which may be financed with the equipment leasing line
of credit discussed below. Such expenditures will be used to further expand
and improve the Company's laboratory and production facilities in both Virginia
and Ireland.
The Company has an $18.0 million equipment leasing line of credit (the
"Equipment LOC") with an outside group of lenders. The Equipment LOC is
available through June 30, 1999, provides equipment financing under three or
four year operating leases, and may be utilized to finance a portion of the
1998 capital expenditures mentioned above (approximately $6.5 million of
equipment was financed during the first half of 1998). Through June 30, 1998,
the Company has financed a total of approximately $9.9 million of equipment
under the Equipment LOC.
The Company's long-term debt consists of notes payable of $92.7 million as of
June 30, 1998. Notes payable includes $75.0 million related to the Company's
7% Convertible Subordinated Debentures (the "Debentures") due October 15, 2004.
The Debentures were privately placed on October 22, 1997 and the Company
received net proceeds of approximately $72.8 million related to the sale
thereof. The Debentures are subordinated to the Company's present and future
Senior Indebtedness (as defined) and interest is payable semiannually. In
addition, long-term debt includes $11.2 million (using June 30, 1998 exchange
rates) related to installment notes issued in connection with the acquisition
of Clonmel Healthcare Limited ("Clonmel"), net of discount, and $6.5 million
(using June 30, 1998 exchange rates) related to term loans and other long-term
obligations, net of discount. Maturities of notes payable during the next
twelve months, excluding maturities which are being financed, will be
approximately $2.1 million. The Company has available international banking
lines of credit totaling approximately $2.4 million for short-term financing.
In connection with the September 1997 acquisition of Clonmel, the Company
assumed the obligation of the 750,000 cumulative redeemable preference shares
of Clonmel. Cumulative dividends of 3% on 300,000 shares and 6.5% on 450,000
shares are payable annually. Clonmel redeemed 150,000 shares in February 1998
for approximately $209,000 and redeemed the remaining 600,000 shares in July
1998 for approximately $950,000, including accrued dividends.
10
<PAGE> 11
The Company expects to continue to incur substantial expenses related to
further research and development of its technologies and products, increased
staffing levels, acquisition and support of patent rights, additional capital
equipment for research and development activities and facility expansion. The
Company expects to incur additional losses in the near term. The Company
expects that, at least for the near term, its revenues will be derived
principally from product sales, development and 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 October
1997 Debenture offering. The Company believes that the currently available
funds and internally generated cash flow will be adequate to meet the Company's
cash needs through 1999.
The Company's capital needs, however, will depend on many factors, including
revenues from product sales, 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,
payments received from collaborative partners under research and development
agreements, the cost involved in filing and enforcing patent claims, and 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, if at all.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which became effective for reporting
periods beginning after December 15, 1997. Interim reporting is not required
under SFAS No. 131 prior to adoption. SFAS No. 131 requires financial and
descriptive information with respect to "operating segments" of an entity based
on the way management makes internal operating decisions. The Company will
begin making the disclosures required by SFAS No. 131 for its operating
segments with financial statements for the period ending December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company will be required to adopt this new accounting standard beginning
with the quarter ended March 31, 2000. The Company believes that the effect of
adoption of SFAS No. 133 will not be significant.
11
<PAGE> 12
IMPACT OF YEAR 2000
The Company is developing plans to address the possible exposures related to
the impact on its computer systems for the Year 2000. Key financial
information and operational systems are being assessed and plans are being
developed to address system modifications required by December 31, 1999. The
financial impact of making the required systems changes is not expected to be
material to the Company's consolidated financial position, results of
operations or cash flows. There can be no assurance, however, that the Company
will be able to identify all aspects of its business that are subject to Year
2000 problems, or identify Year 2000 problems of customers or suppliers that
affect the Company's business. There also can be no assurance that the
Company's software vendors are correct in their assertions that the software is
Year 2000 compliant or that the Company's estimate of the cost of systems
preparation for Year 2000 compliance will prove ultimately to be accurate.
12
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently not a party to any material legal
proceedings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 21,
1998 for the purpose of electing one director to serve a two-year term
expiring in 2000 and three directors to serve three-year terms
expiring in 2001 and to ratify the appointment of Coopers & Lybrand,
L.L.P. as the Company's independent public accountants for the year
ending December 31, 1998. The number of votes cast for or against
each director nominee is as follows:
<TABLE>
<CAPTION>
Director Nominee Term Expiration Votes For Votes Withheld
---------------- --------------- --------- --------------
<S> <C> <C> <C>
Daniel Tierney 2000 20,512,008 45,910
Louis Lauer 2001 20,510,330 47,588
Kenneth W. McVey 2001 20,510,780 47,138
Donald E. O'Neill 2001 20,510,208 47,710
</TABLE>
Messrs. Richard C. Fuisz and Antone J. Lazos will continue to
serve as Class I directors, until their terms expire at the Company's
1999 Annual Meeting, and Messrs. John R. Fuisz and Fredrik C.
Schreuder will continue to serve as Class II directors, until their
terms expire at the Company's 2000 Annual Meeting, and, in each case,
when their successors are elected and qualified.
The proposal to ratify the appointment of Coopers & Lybrand,
L.L.P. as the Company's independent public accountants for the year
ending December 31, 1998 received 20,481,615 votes for and 37,246
votes against. There were 39,057 abstentions.
ITEM 5. OTHER INFORMATION
Under the Company's Amended and Restated Bylaws (the
"Bylaws"), a stockholder who wishes to propose business for
consideration at the Company's Annual Meeting of Stockholders to be
held in 1999 or to nominate persons for election to the Board of
Directors must deliver to the Company no later than March 10, 1999
the information specified in the Company's Bylaws regarding such
proposal or nomination. Under the SEC's Rule 14a-4, as recently
amended, the Company may exercise discretionary voting authority
under proxies it solicits to vote on proposals made by stockholders
not seeking to include such proposals in the Company's proxy
statement pursuant to Rule 14a-8, unless the proposing stockholder
notifies the Company about the proposal on or prior to March 10, 1999
and satisfies the other requirements of Rule 14a-4(c). Separately,
under SEC Rule 14a-8, a stockholder wishing to submit a proposal that
qualifies for inclusion in the Company's proxy statement must submit
his or her proposal to the Company on or before December 10, 1998 and
must satisfy the other requirements of SEC Rule 14a-8.
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K, dated July 20, 1998,
regarding signing of an agreement with the
Whitehall-Robins Healthcare Division of American Home
Products Corporation.
14
<PAGE> 15
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.
FUISZ TECHNOLOGIES LTD.
Date: August 14, 1998 By: /S/ Patrick D. Scrivens
---------------- -----------------------------
Patrick D. Scrivens
Executive Vice President and
Chief Financial Officer
Date: August 14, 1998 By: /S/ Lars G. Okeson
--------------- ---------------------------------
Lars G. Okeson
Controller
(Principal Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000873064
<NAME> FUISZ TECHNOLOGIES LTD.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,622,000
<SECURITIES> 38,861,000
<RECEIVABLES> 13,794,000
<ALLOWANCES> (810,000)
<INVENTORY> 5,376,000
<CURRENT-ASSETS> 67,793,000
<PP&E> 28,666,000
<DEPRECIATION> (4,411,000)
<TOTAL-ASSETS> 157,708,000
<CURRENT-LIABILITIES> 16,414,000
<BONDS> 90,651,000
948,000
0
<COMMON> 223,000
<OTHER-SE> 47,277,000
<TOTAL-LIABILITY-AND-EQUITY> 157,708,000
<SALES> 12,130,000
<TOTAL-REVENUES> 16,304,000
<CGS> 7,518,000
<TOTAL-COSTS> 21,327,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,660,000
<INCOME-PRETAX> (5,895,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,895,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,895,000)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
