<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 September 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 November 4, 1997 there were outstanding 12,218,434 shares of Common
Stock, par value $.01 per share, of registrant.
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE
----
Statement Regarding Forward-Looking Statements 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 4
Balance Sheets as of September 30, 1997 (unaudited)
and December 31, 1996 5
Statements of Operations for the Three Months and Nine
Months Ended September 30, 1997 and 1996 (Unaudited) 6
Statements of Cash Flows for the Nine Months Ended
September 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 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
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ENERGY BIOSYSTEMS CORPORATION
BALANCE SHEETS
<TABLE>
September 30, December 31,
1997 1996
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 12,533,246 $ 3,106,004
Short term investments -- 5,891,584
Prepaid expenses and other current assets 889,680 767,893
------------ ------------
Total current assets 13,422,926 9,765,481
Notes receivable -- 6,683
Furniture, equipment and leasehold improvements, net 2,660,191 3,136,635
Intangible and other assets, net 919,618 801,832
------------ ------------
Total assets $ 17,002,735 $ 13,710,631
------------ ------------
------------ ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 647,381 $ 537,583
Deferred revenue 180,000 193,500
Obligations under capital lease 5,658 11,632
Note payable 299,812 252,443
------------ ------------
Total current liabilities 1,132,851 995,158
Stockholders' equity:
Series A Convertible Preferred Stock, $0.01 par value
(liquidation value zero and $24,000,000;
508,800 shares authorized, zero and 480,000
shares issued and outstanding, respectively) -- 23,295,585
Series B Convertible Preferred Stock, $0.01 par value
(liquidation value $35,105,000; 760,000 and zero shares
authorized, 702,100 and zero shares issued and
outstanding, respectively) 34,553,693 --
Common Stock, $0.01 par value (30,000,000 shares
authorized, 11,780,704 and 11,497,135 shares issued
and outstanding, respectively) 117,807 114,972
Additional paid-in capital 33,144,146 32,018,218
Accumulated deficit (51,945,768) (42,713,302)
------------ ------------
Total stockholders' equity 15,869,884 12,715,473
------------ ------------
Total liabilities and stockholders' equity $ 17,002,735 $ 13,710,631
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Sponsored research revenues $ 152,147 $ 437,273 $ 1,140,119 $ 1,318,780
Interest and investment income 200,505 178,194 480,735 654,236
----------- ----------- ----------- -----------
Total revenues 352,652 615,467 1,620,854 1,973,016
COSTS AND EXPENSES:
Research and development 2,352,404 2,108,329 6,870,866 5,963,391
General and administrative 570,152 600,796 1,820,414 1,927,267
----------- ----------- ----------- -----------
Total costs and expenses 2,922,556 2,709,125 8,691,280 7,890,658
----------- ----------- ----------- -----------
NET LOSS $(2,569,904) $(2,093,658) $(7,070,426) $(5,917,642)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE $ (0.29) $ (0.24) $ (0.81) $ (0.70)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE 11,767,017 11,319,087 11,658,264 11,185,015
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Nine Months Ended
September 30,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,070,426) $(5,917,642)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,035,384 795,690
Changes in assets and liabilities:
Decrease in trading securities -- 2,946,555
Decrease (increase) in prepaid expenses and other
current assets (121,787) 307,100
Increase in intangible and other assets and notes
receivable (160,071) (104,486)
Increase (decrease) in accounts payable and accrued
liabilities 109,798 (141,930)
Decrease in deferred revenues (13,500) (850,500)
----------- -----------
Net cash provided by (used in) operating activities (6,220,602) (2,965,213)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (509,972) (637,736)
Net sale (purchase) of investments 5,891,584 1,078,934
----------- -----------
Net cash provided by (used in) investing activities 5,381,612 441,198
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on capital lease obligations (5,974) (5,369)
Payment on notes payable (277,042) (326,468)
Issuance of notes payable 324,411 76,200
Issuance of stock, net 10,224,837 364,932
----------- -----------
Net cash provided by financing activities 10,266,232 109,295
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 9,427,242 (2,414,720)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 3,106,004 6,172,400
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,533,246 $ 3,757,680
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 and
disclosures of contingent 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. Dividends on shares of
Series B Preferred Stock are payable in cash or common stock of the Company,
or a combination thereof, at the Company's option. On May 1, 1997, the
Company paid a dividend of $552,904 on the Series B Preferred Stock by
issuing 107,076 shares of common stock.
Shares of Series B Preferred Stock are convertible 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 after 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 first nine months of 1997, the Company paid dividends of $691,575
on the Series A Preferred Stock by issuing 98,519 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 after 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. In September 1997, the remaining 2,000 shares of Series A
Preferred Stock not exchanged for Series B Preferred Stock were converted
into 12,581 shares of common stock.
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 and investment 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 September 30, 1997 the Company's
accumulated deficit was $51,945,768.
RESULTS OF OPERATIONS
The Company had total revenues for the nine months ended September 30,
1997 and 1996 of $1,620,854 and $1,973,016, respectively. The decrease in
total revenues was attributable to decreases in sponsored research revenues
and in interest and investment income. The Company had sponsored research
revenues of $1,140,119 during the first nine months of 1997 as compared to
$1,318,780 during the first nine months of 1996. The decrease of $178,661 in
sponsored research revenues resulted from a decrease in revenues recognized
under the Company's research collaboration agreement with Petrolite
Corporation (now Baker Petrolite, a subsidiary of Baker-Hughes Corporation,
"Petrolite") to $13,500 in the nine months ended September 30, 1997 from
$850,500 during the corresponding period in 1996, offset in part by (i) an
increase in sponsored research revenue from an agreement with The
Carbide/Graphite Group, Inc. ("Carbide/Graphite") to $250,000 during the
first nine months of 1997 compared to $150,000 during the first nine months
of 1996 and (ii) an increase in the sponsored research revenues received from
a National Institute of Standards and Technology ("NIST") grant to $876,619
for the nine months ended September 30, 1997 from $318,280 for the nine
months ended September 30,
11
<PAGE>
1996. The sponsored research revenues recognized under the Petrolite
agreement in 1996 and 1997 represent the recognition of the remaining
deferred revenues attributable to the research and development payments made
to the Company by Petrolite under the agreement. Petrolite made research and
development payments aggregating $5,400,000 under the agreement beginning on
April 1, 1992 and ending with a final payment in March 1994. The revenues
associated with such payments were recognized ratably over the period in
which the Company incurred research and development expenses under the
agreement.
The Company had interest and investment income of $480,735 in the first
nine months of 1997 as compared to $654,236 in the first nine months of 1996.
The decrease of $173,501 in interest and investment income resulted primarily
because the Company's average balances of cash, cash equivalents and
short-term investments during the first quarter of 1997, prior to the
completion of its private placement of Series B Convertible Preferred Stock
("Series B Preferred Stock"), were less than those during the corresponding
period of 1996.
The Company had total revenues for the three months ended September 30,
1997 and 1996 of $352,652 and $615,467, respectively. The Company had
sponsored research revenues of $152,147 during the third quarter of 1997 as
compared to $437,273 during the third quarter of 1997. The decrease in
sponsored research revenues of $285,126 for the third quarter of 1997
compared to the third quarter of 1996 was attributable to the decrease in
sponsored research revenues recognized under the Petrolite agreement.
Interest and investment income increased by $22,311 for the three months
ended September 30, 1997 compared to the third quarter of 1996 as a result of
an increase in interest rates.
The Company had research and development expenses for the three months
ended September 30, 1997 and 1996 of $2,352,404 and $2,108,329, respectively,
and for the nine months ended September 30, 1997 and 1996 of $6,870,866 and
$5,963,391, respectively. The increase in research and development expenses
of $244,075 and $907,475, respectively for the three and nine months ended
September 30, 1997 as compared to the corresponding prior year periods
resulted primarily from the addition of seven 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 if the Company elects to
make the $9,000,000 payment to exercise its option to reduce the percentage
of site license fees and adjusted gross profit payable under its agreement
with Petrolite because the entire amount of such payment would be recorded as
a research and development expense. The Company does not presently intend to
exercise the Petrolite option, however, until it has raised additional funds
or received additional capital.
The Company had general and administrative expenses for the three months
ended September 30, 1997 and 1996 of $570,152 and $600,796, respectively, and
for the nine months ended September 30, 1997 and 1996 of $1,820,414 and
$1,927,267, respectively. The decrease of $30,644 for the three months ended
September 30, 1997 as compared to the third quarter of 1996 resulted from a
decrease of two personnel. The decrease of $106,853 for the nine months ended
September 30, 1997 as compared to the corresponding prior year period resulted
primarily from a decrease in consulting fees for marketing in Asia, travel
expenses, fewer personnel and a decrease in insurance expense. The Company
expects a slight increase in its general and
12
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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 sold an aggregate of 224,100
shares of Series B Convertible Preferred Stock in a private placement,
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 its Series A
Convertible Preferred Stock ("Series A Preferred Stock") were exchanged for
the same number of shares of Series B Preferred Stock. 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 (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. On May 1, 1997, the Company paid a
dividend of $552,904 on the Series B Preferred Stock by issuing 107,076
shares of common stock.
In October 1994, the Company sold 480,000 shares of Series A Preferred
Stock in a private placement, resulting in net cash proceeds of approximately
$22.2 million. During the first nine months of 1997, the Company paid
dividends of $691,575 on the Series A Preferred Stock by issuing 98,519 shares
of common stock.
For the nine months ended September 30, 1997, the Company used
$6,220,602 of net cash in operating activities, incurred $509,972 in capital
expenditures and received $10,266,232 from financing activities. At
September 30, 1997, the Company had cash, cash equivalents and short term
investments totaling $12,533,246 and working capital of $12,290,075.
The Company intends to spend approximately $320,000 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 $21,000 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, the Exploration and Production
Technology Division of Texaco, Inc., Total Raffinage Distribution S.A.
("Total"), The M. W. Kellogg Company, Koch Refining Company and
Carbide/Graphite, among others, as more fully described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
Based upon the progress of its research and development efforts in 1997
and its current expectations regarding the continued development of its
biocatalytic desulfurization ("BDS") technology, the Company expects to
commence contract negotiations with Petro Star Inc. ("Petro Star") during the
first half of 1998 regarding an initial commercial application of its BDS
13
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technology at Petro Star's Valdez, Alaska refinery. In addition, the Company
is continuing to develop its BDS technology in collaboration with Total, and
is continuing to conduct process simulations at the Company's pilot plant
using deeply desulfurized diesel fuel provided by Total. The Company's
objective is to commence contract negotiations with Total regarding the
installation of a pilot BDS unit at Total's European Center for Research and
Technology and the concurrent installation of a commercial BDS unit at one of
Total's refineries, following the achievement of results satisfactory to Total
from pilot plant process simulations. The Company's ability to reach agreements
with Petro Star, Total or other parties with respect to commercial applications
of its BDS technology, and its ability to commercialize such technology
generally, will depend upon its ability to achieve additional improvements in
the productivity of the biocatalyst (e.g., specific activity, production and
longevity) and process engineering (e.g., bioreactor design, separations
technology and byproduct disposition), and is subject to numerous risks and
uncertainties. Although the Company has made substantial progress to date in
improving the productivity of the biocatalyst and the process engineering used
in its pilot BDS unit, no assurance can be made that the Company will be able
to achieve the improvements necessary for its BDS technology to become
commercially viable or to reach agreements with respect to the commercial
application of its technology within the time anticipated or at all. See
"Statement Regarding Forward-Looking Statements".
The Company has experienced negative cash flow from operations since its
inception and has funded its activities to date primarily from equity
financings and sponsored research revenues. The Company will continue to
require substantial funds to continue its research and development activities
and to market, sell and commercialize its technology. The Company believes
that its available cash, investments and interest income will be adequate to
satisfy its funding operations through year-end 1998. The Company will need
to raise substantial additional capital to fund its operations thereafter.
The Company's capital requirements will depend on many factors, including the
problems, delays, expenses and complications frequently encountered by
companies developing and commercializing new technologies; the progress of
the Company's research and development activities; 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 and that progress towards the commercialization
of its technology will be timely and successful. 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. To
satisfy its capital requirements, the Company may seek additional funding
through public or private financings, including equity financings, and
through collaborative arrangements. There can be no assurance that any such
funding will be available to the Company on favorable terms or at all. 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
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
11.1 Statement regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule.
b. Reports on Form 8-K
None.
15
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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/ Ramon Lopez
------------------------------------
Ramon Lopez,
Chairman of the Board
Date: November 12, 1997
By: /s/ Paul G. Brown III
------------------------------------
Paul G. Brown III
Vice President, Finance and Administration
Date: November 12, 1997
16
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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.
17
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 63 = 737,903,754
11,763,593 x 20 = 235,271,860
11,764,343 x 36 = 423,516,348
11,765,343 x 8 = 94,122,744
11,777,924 x 24 = 282,670,176
11,778,204 x 1 = 11,778,204
11,780,704 x 1 = 11,780,704
--- -------------
273 = 3,182,706,136
3,182,706,136 / 273 = 11,658,264
----------
----------
LOSS PER SHARE:
Net Loss plus dividend accrual
plus accretion of offering costs ($9,447,419) = ($0.81)
- -------------------------------- ------------- ----------
Weighted Avg. Shares 11,658,264 ----------
18
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
WEIGHTED AVERAGE SHARES OUTSTANDING:
TOTAL # DAYS
SHARES OUTSTANDING
- ---------------------------------------
11,712,758 x 2 = 23,425,516
11,763,593 x 20 = 235,271,860
11,764,343 x 36 = 423,516,348
11,765,343 x 8 = 94,122,744
11,777,924 x 24 = 282,670,176
11,778,204 x 1 = 11,778,204
11,780,704 x 1 = 11,780,704
--- -------------
92 1,082,565,552 / 92 = 11,767,017
----------
----------
LOSS PER SHARE:
Net Loss plus dividend accrual
plus accretion of offering costs ($3,449,012) = ($0.29)
- -------------------------------- ------------- ----------
Weighted Avg. Shares 11,767,017 ----------
19
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 5 = 56,546,775
11.310,855 x 7 = 79,175,985
11,311,955 x 5 = 56,559,775
11,316,955 x 4 = 45,267,820
11,318,210 x 28 = 316,909,880
11,320,010 x 4 = 45,280,040
11,320,210 x 23 = 260,364,830
11,325,210 x 19 = 215,178,990
--- -------------
274 3,064,694,001 11,185,015
--- ------------- ----------
--- ------------- ----------
LOSS PER SHARE:
Net Loss plus dividend accrual
plus accretion of offering costs ($7,780,444) = ($0.70)
- -------------------------------- ------------- ----------
Weighted Avg. Shares 11,185,015 ----------
20
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
WEIGHTED AVERAGE SHARES OUTSTANDING:
TOTAL # DAYS
SHARES OUTSTANDING
- ---------------------------------------
11,309,355 x 2 = 22,618,710
11,310,855 x 7 = 79,175,985
11,311,955 x 5 = 56,559,775
11,316,955 x 4 = 45,267,820
11,318,210 x 28 = 316,909,880
11,320,010 x 4 = 45,280,040
11,320,210 x 23 = 260,364,830
11,325,210 x 19 = 215,178,990
--- -------------
92 / 1,041,356,030 = 11,319,087
--- ------------- ----------
--- ------------- ----------
LOSS PER SHARE:
Net Loss plus dividend accrual
plus accretion of offering costs ($2,716,413) = ($0.24)
- -------------------------------- ------------- ----------
Weighted Avg. Shares 11,319,087 ----------
21
<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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,533,246
<SECURITIES> 0
<RECEIVABLES> 446,230
<ALLOWANCES> 0
<INVENTORY> 18,895
<CURRENT-ASSETS> 13,422,926
<PP&E> 6,660,695
<DEPRECIATION> 4,000,504
<TOTAL-ASSETS> 17,002,735
<CURRENT-LIABILITIES> 1,132,851
<BONDS> 0
0
34,553,693
<COMMON> 117,801
<OTHER-SE> 33,144,152
<TOTAL-LIABILITY-AND-EQUITY> 17,002,735
<SALES> 0
<TOTAL-REVENUES> 1,620,854
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,691,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,070,426)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,070,426)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,070,426)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> 0
</TABLE>
