<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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: 0-21130
ENERGY BIOSYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3078857
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 Research Forest Drive
The Woodlands, Texas 77381
(address of principal executive offices) (zip code)
281-364-6100
(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
------- -------
As of August 7, 1997 there were outstanding 11,764,343 shares of Common
Stock, par value $.01 per share, of registrant.
<PAGE>
Form 10-Q for the Quarter Ended June 30, 1997
INDEX
Page
----
Statement Regarding Forward-Looking Statements 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 4
Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996 5
Statements of Operations for the Three Months and
Six Months Ended June 30, 1997 and 1996 (Unaudited) 6
Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 (Unaudited) 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
<PAGE>
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words
"anticipate", "believe", "expect", "estimate", "project" and similar expressions
are intended to identify forward-looking statements. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed,
expected, estimated or projected. These risks and uncertainties include
technological uncertainty and risks associated with the commercialization of the
Company's technology, the Company's history of operating losses and uncertainty
of future profitability, manufacturing risks and uncertainties, uncertainty of
market acceptance of the Company's technology, the Company's reliance on
environmental regulation, uncertainties as to the protection offered by the
Company's patents and proprietary technology, the Company's dependence on
collaborations, the Company's need for additional funds, limited marketing
experience and dependence on key personnel, government regulation, competition
and other risks and uncertainties described in the Company's filings with the
Securities and Exchange Commission. For additional discussion of such risks,
uncertainties and assumptions ("Cautionary Statements"), see "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" included elsewhere in this report
and "Item 1. Business - Risk Factors" in the Company's Annual Report on Form
10-K for the year ended December 31, 1996. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules
and regulations, although the Company believes that the disclosures made
herein are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
The information presented in the accompanying financial statements is
unaudited, but in the opinion of management, reflects all adjustments (which
include only normal recurring adjustments) necessary to present fairly such
information.
4
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
BALANCE SHEETS
June 30, December 31,
1997 1996
------------ ------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 14,669,688 $ 3,106,004
Short term investments -- 5,891,584
Prepaid expenses and other current assets 694,487 767,893
------------ ------------
Total current assets 15,364,175 9,765,481
Notes receivable -- 6,683
Furniture, equipment and leasehold improvements,
net 2,757,702 3,136,635
Intangible and other assets, net 905,735 801,832
------------ ------------
Total assets $ 19,027,612 $ 13,710,631
------------ ------------
------------ ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 373,940 $ 537,583
Current portion of deferred revenue 180,000 193,500
Current portion of obligations under capital
lease 7,687 11,632
Note payable 49,043 252,443
------------ ------------
Total current liabilities 610,670 995,158
Stockholders' equity:
Series A Convertible Preferred Stock, $0.01 par
value (liquidation value $100,000 and
$24,000,000; 508,800 shares authorized, 2,000
and 480,000 shares issued and outstanding,
respectively) 97,627 23,295,585
Series B Convertible Preferred Stock, $0.01 par
value (liquidation value $35,105,000; 760,000
shares authorized, 702,100 and zero shares issued
and outstanding, respectively) 33,676,485 --
Common Stock, $0.01 par value (30,000,000 shares
authorized, 11,712,758 and 11,497,135 issued
and outstanding, respectively) 117,127 114,972
Additional paid-in capital 33,110,079 32,018,218
Accumulated deficit (48,584,376) (42,713,302)
------------ ------------
Total stockholders' equity $ 18,416,942 $ 12,715,473
------------ ------------
Total liabilities and stockholder's equity $ 19,027,612 $ 13,710,631
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Sponsored research revenues $ 536,520 $ 381,035 $ 987,972 $ 881,507
Interest and investment income 151,316 223,472 280,230 476,042
----------- ----------- ----------- -----------
Total revenues 687,836 604,507 1,268,202 1,357,549
COSTS AND EXPENSES:
Research and development 2,343,748 1,839,293 4,518,462 3,855,062
General and administrative 647,798 705,246 1,250,262 1,326,471
----------- ----------- ----------- -----------
Total costs and expenses 2,991,546 2,544,539 5,768,724 5,181,533
----------- ----------- ----------- -----------
NET LOSS $(2,303,710) $(1,940,032) $(4,500,522) $(3,823,984)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE $ (0.27) $ (0.23) $ (0.52) $ (0.46)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE 11,677,358 11,239,483 11,602,987 11,117,242
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,500,522) $(3,823,984)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 682,602 530,460
Changes in assets and liabilities:
Decrease in trading securities -- 2,952,105
Decrease in prepaid expenses and other
current assets 73,406 140,071
Increase in intangible and other assets and
notes receivable (129,457) (60,044)
Decrease in accounts payable and accrued
liabilities (163,643) (291,305)
Decrease in deferred revenues (13,500) (567,000)
----------- -----------
Net cash provided by (used in) operating
activities (4,051,114) (1,119,697)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (271,432) (427,959)
Net sale (purchase) of investments 5,891,584 (460,128)
----------- -----------
Net cash provided by (used in) investing
activities 5,620,152 (888,087)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on capital lease obligations (3,945) (3,531)
Payment on notes payable (203,400) (206,349)
Issuance of notes payable -- 76,200
Issuance of stock, net 10,201,991 320,891
----------- -----------
Net cash provided by financing
activities 9,994,646 187,211
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 11,563,684 (1,820,573)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 3,106,004 6,172,400
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $14,669,688 $ 4,351,827
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Energy BioSystems Corporation (the "Company"), formerly Environmental
BioScience Corporation, was incorporated in the State of Delaware on December
20, 1989. Since inception, the Company has devoted substantially all of its
efforts to research and development. The Company's revenues consist of
sponsored research revenues and interest and investment income. Management
of the Company anticipates continued operating losses for at least the next
several years. The accompanying unaudited interim financial statements
reflect all adjustments which, in the opinion of management, are necessary
for a fair presentation of the results for the interim periods presented.
These financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, for the fiscal year ended December 31, 1996.
Net Loss Per Common Share
Net loss per share has been computed by dividing the net loss, which has
been increased for periodic accretion and accrued dividends on the Series A
Convertible Preferred Stock issued in October 1994 and the Series B
Convertible Preferred Stock issued in February and March 1997, by the
weighted average number of shares of common stock outstanding during the
period. In all applicable periods, common stock equivalents were
antidilutive and, accordingly, were not included in the computation.
Pending Accounting Change
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 128, "Earnings Per Share." Statement 128 simplifies
the standards for computing earnings per share previously found in APB Opinion
No. 15, EARNINGS PER SHARE, and makes them comparable to international earnings
per share standards. The Statement also retroactively revises the presentation
of earnings per share in the financial statements. The Company will adopt this
Standard for the year ended December 31, 1997 and management believes that this
statement will have no material impact on its financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2. SERIES B CONVERTIBLE PREFERRED STOCK
In February and March 1997, the Company sold an aggregate of 224,100 shares
of Series B Convertible Preferred Stock ("Series B Preferred Stock") at $50.00
per share in a private placement. The net proceeds from the offering were
approximately $10.2 million. The
8
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
placement agents for the Series B Preferred Stock received warrants to purchase
an aggregate of 20,319 shares of Series B Preferred Stock at an exercise price
of $50.00 per share of Series B Preferred Stock in addition to customary
commissions. The warrants have been recorded at an estimated fair value of
$466,000 which was computed using the Black-Scholes option pricing model and the
following assumptions: risk free interest rate of 6.51 percent; expected
dividend yield of zero; expected life of three years, and an expected volatility
of 68 percent.
Dividends on the Series B Preferred Stock are cumulative from February 27,
1997 and payable semi-annually commencing May 1, 1997, at an annual rate equal
to (i) $4.00 per share of Series B Preferred Stock to the extent the dividend is
paid in cash and (ii) $4.50 per share of Series B Preferred Stock to the extent
the dividend is paid in common stock. During the second quarter of 1997, the
Company paid $552,904 in dividends by issuing 107,076 shares of common stock.
Dividends on shares of Series B Preferred Stock will be payable in cash or
common stock of the Company or a combination thereof, at the Company's option.
Shares of Series B Preferred Stock are convertible at the option of the
holder at any time after the expiration of 60 days following the last date of
original issuance into shares of common stock at a conversion price equal to
$7.25 per share, subject to certain adjustments. The Series B Preferred Stock
may be redeemed by the Company under certain circumstances during the period
beginning on February 26, 1999 and is required to be redeemed, subject to
certain limitations, on February 26, 2002 at a redemption price of $50.00 per
share, plus accrued and unpaid dividends. It is the Company's intent, however,
to redeem the Series B Preferred Stock for common stock. Accordingly, the
Series B Preferred Stock is included in stockholders' equity.
Concurrently with the private placement, the Company conducted an exchange
offering and consent solicitation with respect to its outstanding Series A
Convertible Preferred Stock ("Series A Preferred Stock"), pursuant to which the
Company offered to exchange one share of Series B Preferred Stock for each
of its 480,000 outstanding shares of Series A Preferred Stock and requested the
holders of its Series A Preferred Stock consent to the ranking of the Series B
Preferred Stock on a parity with the Series A Preferred Stock with respect to
the payment of dividends and liquidation preference. The Company did not
receive any cash proceeds from the exchange offering. Of the 480,000 shares of
Series A Preferred Stock outstanding, 478,000 shares were exchanged for the same
number of shares of Series B Preferred Stock.
The carrying amount of the Series B Preferred Stock is increased for
accrued and unpaid dividends plus periodic accretion, using the effective
interest method, such that the carrying amount will equal the redemption
amount on the Series B Preferred Stock on February 26, 2002.
NOTE 3. SERIES A CONVERTIBLE PREFERRED STOCK
In October 1994, the Company sold 480,000 shares of Series A Preferred
Stock at $50.00 per share in a private placement. The net proceeds from the
offering were approximately $22.2 million. The placement agents for the
Series A Preferred Stock received warrants to purchase an aggregate of 28,800
shares of Series A Preferred Stock at an exercise price of $50.00 per share
of Series A Preferred Stock in addition to customary commissions.
9
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (Continued)
Dividends on the Series A Preferred Stock are cumulative from October 27,
1994 and payable semi-annually commencing May 1, 1995, at an annual rate equal
to (i) $4.00 per share to the extent the dividend is paid in cash and (ii) $4.50
per share to the extent the dividend is paid in common stock. During the second
quarter of 1997, the Company paid $1,575 in dividends by issuing 305 shares of
common stock. All but 2,000 shares of the 480,000 shares of Series A Preferred
Stock outstanding were exchanged for shares of Series B Preferred Stock in the
exchange offering. See Note 2.
Shares of Series A Preferred Stock are convertible into shares of the
Company's common stock at the option of the holder at a conversion price equal
to $8.25 per share of common stock, subject to certain adjustments. The Series
A Preferred Stock may be redeemed by the Company under certain circumstances
during the period beginning November 7, 1996 and is required to be redeemed on
November 7, 1999 at a redemption price of $50.00 per share, plus accrued and
unpaid dividends. It is the Company's intent, however, to redeem the Series A
Preferred Stock for common stock. Accordingly, the Series A Preferred Stock is
included in stockholders' equity.
The carrying amount the Series A Preferred Stock is increased for
accrued and unpaid dividends plus periodic accretion, using the effective
interest method, such that the carrying amount will equal the redemption
amount on the Series A Preferred Stock on November 7, 1999.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in December 1989, the Company has devoted
substantially all resources to its research and development. To date, all of
the Company's revenues have resulted from interest income and sponsored
research payments from collaborative agreements. The Company has incurred
cumulative net losses since inception and expects to incur substantial losses
for at least the next several years, due primarily to the increase in its
research and development activities and acceleration of the development of
its biocatalyst, fermentation and bioreactor programs. The Company expects
that losses will fluctuate from quarter to quarter and that such fluctuations
may be substantial. As of June 30, 1997 the Company's accumulated deficit
was $48,584,376.
RESULTS OF OPERATIONS
The Company had total revenues for the six months ended June 30, 1997 and
1996 of $1,268,202 and $1,357,549, respectively. The decrease resulted
primarily from a decrease in interest and investment income, partially offset by
an increase in sponsored research revenues. The Company had sponsored research
revenues of $987,972 during the first six months of 1997 as compared to $881,507
during the first six months of 1996. The Company recognized revenues of
$13,500 and $567,000 under its research collaboration agreement with Petrolite
Corporation ("Petrolite") for the six month periods ended June 30, 1997 and
1996, respectively. Payments under the Petrolite agreement were initiated on
April 1, 1992 and the final payment was received in March 1994. Revenue
attributable to the Petrolite agreement, however, has been recognized ratably
over the period for which research and development costs have been incurred
under the terms of the agreement. The increase of $106,465 in sponsored
research revenues resulted from the Company's receipt of sponsored research
revenue of $250,000 from an agreement with The Carbide/Graphite Group, Inc.
("Carbide/Graphite") during the first six months of 1997 compared to $150,000
during the first six months of 1996 and an increase in the sponsored research
revenues received from a National Institute of Standards and Technology ("NIST")
grant to $724,472 for the six months ended June 30, 1997 from $164,507 for the
six months ended June 30, 1996, more than offsetting the net decrease of
sponsored research revenues under the Petrolite agreement of $553,500.
Interest and other investment income decreased by $195,812 for the first
six months of 1997 compared to the first six months of 1996 primarily as a
result of a decrease in the available cash from which interest and other
investment income are generated.
The Company had total revenues for the three months ended June 30, 1997 and
1996 of $687,836 and $604,507, respectively. The Company had sponsored research
revenues of $536,520 during the second quarter of 1997 as compared to $381,035
during the second quarter of 1997. The increase in sponsored research revenues
of $155,485 for the second quarter of 1997 compared to the second quarter of
1996 is attributable to the increase in expenditures reimbursable from the NIST
grant offset in part by a decrease in the sponsored research revenues recognized
under the Petrolite agreement. Interest and other investment income decreased
by $72,156 for the three months ended June 30, 1997 compared to the second
quarter of 1996 as a
11
<PAGE>
result of the decrease in available cash from which interest and other
investment income are generated.
The Company had research and development expenses for the three months
ended June 30, 1997 and 1996 of $2,343,748 and $1,839,293, respectively, and
for the six months ended June 30, 1997 and 1996 of $4,518,462 and $3,855,062,
respectively. The increase in research and development expenses of $504,455
and $663,400, respectively for the three and six months ended June 30, 1997
as compared to the corresponding prior year periods resulted primarily from
the addition of four research and development personnel, reimbursement of the
direct out-of-pocket costs incurred by Petrolite for their employees at the
pilot plant and the hiring of additional consultants. The Company expects
its research and development expenses to increase during the remainder of
1997, reflecting increased expenditures related to hiring additional
personnel. The Company's research and development expenses will increase
substantially, however, if the Company makes the $9,000,000 payment to
exercise the Petrolite option in 1997, the entire amount of which will be
recorded as a research and development expense. The Company does not
presently intend to exercise the Petrolite option until it has raised
additional funds or received additional capital.
The Company had general and administrative expenses for the six months
ended June 30, 1997 and 1996 of $1,250,262 and $1,326,471, respectively, and for
the three months ended June 30, 1997 and 1996 of $647,798 and $705,246,
respectively. The decrease of $57,448 for the three months ended June 30, 1997
as compared to the second quarter of 1996 resulted from a decrease in travel
expenses and consulting fees. The decrease of $76,209 for the six months ended
June 30, 1997 as compared to the corresponding prior year period resulted
primarily from a decrease in consulting fees for marketing in Asia, travel
expenses and a decrease in insurance expense. The Company expects a slight
increase in its general and administrative expenses during the remainder of 1997
in support of its expanded research activities and corporate development
activities.
LIQUIDITY AND CAPITAL RESOURCES
In February and March 1997 the Company privately placed 224,100 shares of
Series B Convertible Preferred Stock ("Series B Preferred Stock") resulting in
net cash proceeds of approximately $10.2 million. Concurrently with the private
placement, the Company conducted an exchange offering and consent solicitation
pursuant to which 478,000 shares of Series A Preferred Stock were exchanged for
the same number of shares of Series B Preferred Stock, leaving 2,000 shares of
Series A Preferred Stock outstanding. Dividends on the Series B Preferred Stock
are cumulative from the date of the initial closing, February 27, 1997, and are
payable in cash or common stock of the Company, or a combination thereof, at an
annual rate equal to $4.00 per share to the extent the dividend is paid in cash
and $4.50 per share to the extent the dividend is paid in common stock. During
the second quarter of 1997 the Company paid $552,904 in dividends on Series B
Preferred Stock by issuing 107,076 shares of common stock.
In October 1994 the Company completed a convertible preferred stock
offering resulting in net cash proceeds of approximately $22.2 million in
exchange for the sale of 480,000 shares of its Series A Convertible Preferred
Stock ("Series A Preferred Stock"). During the first six months of 1997 the
Company paid $691,575 in dividends on Series A Preferred Stock by issuing
12
<PAGE>
98,519 shares of common stock. The Company completed its initial public
offering in March 1993 resulting in net cash proceeds of approximately $14.9
million.
Prior to its initial public offering, the Company had financed its
operations through private placements of equity securities, revenues from
collaborative research agreements and interest income earned on the net
proceeds from these private placements.
For the six months ended June 30, 1997, the Company used $4,051,114 of
net cash in operating activities, incurred $271,432 in capital expenditures
and received $9,994,646 from financing activities. At June 30, 1997, the
Company had cash, cash equivalents and short term investments totaling
$14,669,688 and working capital of $14,753,505.
The Company intends to spend approximately $560,000 during the remainder of
1997 for the purchase of laboratory and analytical instrumentation. The Company
also expects to incur substantial additional research and development expenses,
including expenses associated with biocatalyst, fermentation and bioreactor
development. The Company has funding commitments through 1997 requiring the
Company to spend approximately $42,500 under research and development
agreements. In addition, the Company is subject to cost sharing arrangements
under various collaboration agreements. The Company also expects its general
and administrative expenses to increase slightly during the remainder of 1997 in
support of its research and corporate development activities.
To supplement its research and development budgets, the Company intends to
seek additional collaborative research and development agreements with corporate
partners. In this regard, the Company has entered into collaborative agreements
with Petrolite Corporation, Texaco Exploration and Production Technology
Division, Total Raffinage Distribution S.A., The M. W. Kellogg Company, Koch
Refining Company and The Carbide/Graphite Group, Inc., among others, as more
fully described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
The Company's operations to date have consumed substantial amounts of cash.
The negative cash flow from operations is expected to continue over the
foreseeable future. The Company believes that its available cash, investments
and interest income will be adequate to satisfy its funding needs through
year-end 1998. Thereafter, the Company may need to raise additional funds to
continue development and commercialization of its biorefining technology.
The Company's future funding requirements will depend on many factors,
including the progress of the Company's research and development, timing of
environmental regulations, the rate of technological advances, determinations
as to the commercial potential of the Company's technology under development,
the status of competitive technology, the establishment of biocatalyst
manufacturing capacity or third-party manufacturing arrangements, the
establishment of collaborative relationships, the success of the Company's
sales and marketing programs, the cost of filing, prosecuting and defending
and enforcing patents and intellectual property rights, and other changes in
economic, regulatory or competitive conditions in the Company's planned
business. Estimates about the adequacy of funding for the Company's
activities are based upon certain assumptions, including assumptions that the
research and development programs relating to the Company's technology can be
conducted at projected costs. There can be no assurance that changes in the
Company's research and development plans, acquisitions or other events will
not result in accelerated or unexpected expenditures. The Company may seek
additional funding through public or private financings, including equity
financings, and through collaborative
13
<PAGE>
arrangements. There can be no assurance that any such funding will be
available when needed or on terms acceptable to the Company. If adequate
funds are not available when needed, the Company may be required to delay,
scale back or eliminate some or all of its research and product development
programs. If the Company is successful in obtaining additional financing,
the terms of such financing may have the effect of diluting or adversely
affecting the holdings or the rights of the holders of the Company's Common
Stock.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Proposal 1: The Election of Directors
At the Company's 1997 Annual Meeting of Stockholders held on June 4, 1997,
the following individuals were elected as directors to hold office until the
next annual meeting of the stockholders of the Company or until their successors
have been duly elected and qualified.
FOR WITHHELD
Ramon Lopez 13,870,462 7,860
John H. Webb 13,870,462 7,860
R. James Comeaux 13,870,462 7,860
Edward B. Lurier 13,870,462 7,860
Thomas E. Messmore 13,870,462 7,860
Daniel J. Monticello, Ph.D. 13,869,462 8,860
William E. Nasser 13,870,462 7,860
John S. Patton 13,870,462 7,860
William D. Young 13,870,462 7,860
Proposal 2: The approval of the Company's 1997 Stock Option Plan.
For 9,191,152 Against 1,189,975 Abstain 104,818
Proposal 3: The approval of the appointment of Arthur Andersen LLP
as the Company's independent public accountants for 1997.
For 13,853,804 Against 13,400 Abstain 11,018
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1 Extension and Assignment of Research Collaboration
Agreement, dated June 30, 1997, between the Company and
Texaco Group, Inc.
11.1 Statement regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule.
b. Reports on Form 8-K
None.
15
<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.
Energy BioSystems Corporation
By: /s/ John H. Webb
--------------------------------------
John H. Webb
President and Chief Executive Officer
Date: August 12, 1997
By: /s/ Paul G. Brown III
--------------------------------------
Paul G. Brown III
Vice President, Finance and Administration
Date: August 12, 1997
16
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ENERGY BIOSYSTEMS CORPORATION
EXHIBIT 10.1
17
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
EXTENSION OF
RESEARCH COLLABORATION AGREEMENT
The parties to the Research Collaboration Agreement dated July 8, 1993,
Energy BioSystems Corporation and Texaco Group, Inc. (by assignment from Texaco,
Inc.), hereby agree to extend this Agreement for one year until July 8, 1998
under the same terms and conditions.
ENERGY BIOSYSTEMS CORPORATION
By /s/ Mark W. John
---------------------------------------
Name Mark W. John
------------------------------------
Title Vice President - Sales & Marketing
-----------------------------------
Date 7/7/97
------------------------------------
TEXACO GROUP, INC.
By /s/ P. L. Sigwardt
---------------------------------------
Name P. L. Sigwardt
------------------------------------
Title General Manager - EPTD
-----------------------------------
Date 6/30/97
------------------------------------
18
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
The following schedules reflect the information used in calculating the
number of shares in the computation of net loss per share for each of the
periods set forth in the Statements of Operations.
19
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
WEIGHTED AVERAGE SHARES OUTSTANDING:
TOTAL # DAYS
SHARES OUTSTANDING
----------------------------------
11,497,135 x 15 = 172,457,025
11,502,135 x 1 = 11,502,135
11,502,235 x 7 = 80,515,645
11,502,395 x 18 = 207,043,110
11,505,395 x 8 = 92,043,160
11,506,053 x 13 = 149,578,689
11,507,163 x 6 = 69,042,978
11,605,377 x 52 = 603,479,604
11,712,758 x 61 = 714,478,238
--- -------------
181 / 2,100,140,584 = 11,602,987
--- ------------- -----------
--- ------------- -----------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
LOSS PER SHARE:
Net Loss plus dividend accrual
plus accretion of offering costs ($5,997,658) = ($0.52)
- --------------------------------- ----------- ------
Weighted Avg. Shares 11,602,987 ------
20
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1997
WEIGHTED AVERAGE SHARES OUTSTANDING:
TOTAL # DAYS
SHARES OUTSTANDING
----------------------------------
11,605,377 x 30 = 348,161,310
11,712,758 x 61 = 714,478,238
--- --------------
91 1,062,639,548 11,677,358
--- -------------- ----------
--- -------------- ----------
FOR THE THREE MONTHS ENDED JUNE 30, 1997
LOSS PER SHARE:
Net Loss plus dividend accrual
plus accretion of offering costs ($3,181,016) = ($0.27)
- --------------------------------- ----------- -------
Weighted Avg. Shares 11,677,358 -------
21
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
WEIGHTED AVERAGE SHARES OUTSTANDING:
TOTAL # DAYS
SHARES OUTSTANDING
----------------------------------
10,584,268 x 23 = 243,438,164
11,107,568 x 14 = 155,505,952
11,139,268 x 27 = 300,760,236
11,140,768 x 8 = 89,126,144
11,142,868 x 55 = 612,857,740
11,301,975 x 28 = 316,455,300
11,302,025 x 16 = 180,832,400
11,303,525 x 7 = 79,124,675
11,309,295 x 1 = 11,309,295
11,309,355 x 3 = 33,928,065
--- -------------
182 2,023,337,971 11,117,242
--- ------------- ----------
--- ------------- ----------
FOR THE SIX MONTHS ENDED JUNE 30, 1996
LOSS PER SHARE:
Net Loss plus dividend accrual
plus accretion of offering costs ($5,064,031) = ($0.46)
------------ -------
Weighted Avg. Shares 11,117,242 -------
22
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1996
WEIGHTED AVERAGE SHARES OUTSTANDING:
TOTAL # DAYS
SHARES OUTSTANDING
----------------------------------
11,142,868 x 36 = 401,143,248
11,301,975 x 28 = 316,455,300
11,302,025 x 16 = 180,832,400
11,303,525 x 7 = 79,124,675
11,309,295 x 1 = 11,309,295
11,309,355 x 3 = 33,928,065
-- -------------
91 / 1,022,792,983 = 11,239,483
-- ------------- ----------
-- ------------- ----------
FOR THE THREE MONTHS ENDED JUNE 30, 1996
LOSS PER SHARE:
Net Loss plus dividend accrual
plus accretion of offering costs ($2,560,952) = ($0.23)
------------ -------
Weighted Avg. Shares 11,239,483 -------
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,669,688
<SECURITIES> 0
<RECEIVABLES> 376,494
<ALLOWANCES> 0
<INVENTORY> 15,051
<CURRENT-ASSETS> 15,364,175
<PP&E> 6,422,155
<DEPRECIATION> 3,664,453
<TOTAL-ASSETS> 19,027,612
<CURRENT-LIABILITIES> 610,670
<BONDS> 0
0
33,774,112
<COMMON> 117,127
<OTHER-SE> 33,110,079
<TOTAL-LIABILITY-AND-EQUITY> 19,027,612
<SALES> 0
<TOTAL-REVENUES> 1,268,202
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,768,197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 527
<INCOME-PRETAX> (4,500,522)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,500,522)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,500,522)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> 0
</TABLE>
