<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, 1998
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 11, 1998, there were outstanding 13,011,833 shares of
Common Stock, par value $.01 per share, of the registrant.
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
Page
----
<S> <C>
Factors Affecting Forward-Looking Statements 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 4
Balance Sheets as of June 30, 1998 (Unaudited)
and December 31, 1997 5
Statements of Operations for the Three and Six Months
Ended June 30, 1998 and 1997 (Unaudited) 6
Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 (Unaudited) 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE>
FACTORS AFFECTING 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,
1997. 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, 1997.
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
<TABLE>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $6,222,870 $ 9,661,310
Short term investments - 693,279
Prepaid expenses and other current assets 412,167 1,013,872
---------- -----------
Total current assets 6,635,037 11,368,461
Furniture, equipment and leasehold improvements, net 2,114,225 2,624,332
Intangible and other assets, net 1,082,983 972,266
---------- -----------
Total assets $9,832,245 $14,965,059
---------- -----------
---------- -----------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 301,802 $ 864,674
Deferred revenue 380,000 180,000
Obligations under capital lease - 3,556
Note payable 61,612 218,606
------------ -----------
Total current liabilities 743,414 1,266,836
Stockholders' equity:
Series B Convertible Preferred Stock, $0.01 par value
(liquidation value $35,105,000; 760,000 shares
authorized, 698,100 and 702,100 shares issued
and outstanding, respectively) 33,842,599 33,853,380
Common Stock, $0.01 par value (30,000,000 shares
authorized, 12,995,112 and 12,251,434 shares issued
and outstanding, respectively) 129,951 122,514
Additional paid-in capital 36,952,326 34,926,594
Accumulated deficit (61,836,045) (55,204,265)
------------ -----------
Total stockholders' equity 9,088,831 13,698,223
------------ -----------
Total liabilities and stockholders' equity $ 9,832,245 $14,965,059
------------ -----------
------------ -----------
</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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Sponsored research revenues $ 88,474 $ 536,520 $ 257,067 $ 987,972
Interest and investment income 64,795 151,316 158,508 280,230
----------- ----------- ----------- -----------
Total revenues 153,269 687,836 415,575 1,268,202
COSTS AND EXPENSES:
Research and development 1,888,038 2,343,748 4,412,232 4,518,462
General and administrative 505,954 647,798 1,052,698 1,250,262
----------- ----------- ----------- -----------
Total costs and expenses 2,393,992 2,991,546 5,464,930 5,768,724
----------- ----------- ----------- -----------
NET LOSS $(2,240,723) $(2,303,710) $(5,049,355) $(4,500,522)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.24) $ (0.27) $ (0.53) $ (0.52)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE 12,739,286 11,677,358 12,496,708 11,602,987
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Six Months Ended
June 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,049,355) $(4,500,522)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 704,111 682,602
Issuance of warrants 404,500
Changes in assets and liabilities:
Decrease in prepaid expenses and other current assets 601,706 73,406
Increase in intangible and other assets and notes
receivable (144,179) (129,457)
Decrease in accounts payable and accrued
liabilities (562,872) (163,643)
Increase (decrease) in deferred revenues 200,000 (13,500)
------------ ------------
Net cash used in operating activities (3,846,089) (4,051,114)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (160,542) (271,432)
Net sale of investments 693,279 5,891,584
------------ ------------
Net cash provided by investing activities 532,737 5,620,152
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on capital lease obligations (3,556) (3,945)
Payments on notes payable, net (156,995) (203,400)
Issuance of stock, net 35,463 10,201,991
------------ ------------
Net cash provided by (used in) financing activities (125,088) 9,994,646
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,438,440) 11,563,684
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 9,661,310 3,106,004
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,222,870 $14,669,688
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
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
resources to research and development. To date, all of the Company's
revenues resulted from sponsored research payments from collaborative
agreements and interest and investment income. The Company has incurred
cumulative losses since inception and expects to incur substantial losses for
at least the next several years, due primarily to its research and
development activities and 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. 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, 1997.
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 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 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 adopted this Standard for the year ended December 31, 1997 and
management believes that this statement has 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 placement agent for the
Series B Preferred Stock received warrants to purchase an aggregate of
8
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
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.
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. In April 1998, 4,000 shares of the Series B Preferred
Stock were converted to 27,586 shares of common 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.
9
<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 its
research and development activities and 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, 1998, the Company's accumulated deficit was
$61,836,045.
RESULTS OF OPERATIONS
The Company had total revenues for the six months ended June 30, 1998
and 1997 of $415,575 and $1,268,2020, respectively. The decrease in total
revenues was attributable to decreases in sponsored research revenues and
interest and investment income. The Company had sponsored research revenues
of $257,067 during the first six months of 1998 as compared to $987,972
during the first six months of 1997. The decrease of $730,905 in sponsored
research revenues resulted primarily from the decrease in sponsored research
revenues from a National Institute of Standards and Technology ("NIST") grant
to $55,934 in the first six months of 1998 compared to $724,472 in the first
six months of 1997 and the completion in 1997 of sponsored research under a
collaboration agreement with The Carbide/Graphite Group, Inc.
(Carbide/Graphite") under which the Company received $250,000 in sponsored
research revenue in the first six months of 1997, offset in part by sponsored
research revenues of $201,133 received from a Department of Energy ("DOE")
grant in the first six months of 1998.
The Company had interest and investment income of $158,508 for the first
six months of 1998 compared to $280,230 for the first six months of 1997.
The decrease of $121,722 in interest and investment income resulted primarily
from 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, 1998
and 1997 of $153,269 and $687,836, 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 $88,474 during the second quarter of 1998 as compared to $536,520 during
the second quarter of 1997. The decrease of $448,046 in sponsored research
revenues resulted from the completion of the NIST grant in the first quarter
of 1998 and the completion of the sponsored research under the collaboration
agreement with Carbide/Graphite Group in the final quarter of 1997, which
decrease was, however, offset in part by sponsored research revenue received
under a DOE grant.
The Company had interest and investment income of $64,795 in the second
quarter of 1998 as compared to $151,316 in the second quarter of 1997. The
decrease of $86,521 in interest and investment income resulted primarily
because the Company's average balances of
10
<PAGE>
cash, cash equivalents and short-term investments during the second quarter
of 1998 were less than those during the corresponding period of 1997.
The Company had research and development expenses for the three months
ended June 30, 1998 and 1997 of $1,888,038 and $2,343,748, respectively, and
for the six months ended June 30, 1998 and 1997 of $4,412,232 and
$4,518,462, respectively. The decrease in research and development expenses
of $455,710 and $106,230, respectively, for the three and six months ended
June 30, 1998 as compared to the corresponding prior year periods resulted
primarily from a reduction in research and development personnel, offset in
part by a charge to research and development expense in the first quarter of
1998 for warrants issued to Petro Star in the amount of $404,500. The
Company expects its research and development expenses to remain below 1997
levels for the remainder of 1998, reflecting a reduction in the workforce at
the end of the first quarter of 1998.
The Company had general and administrative expenses for the three months
ended June 30, 1998 and 1997 of $505,954 and $647,798, respectively, and for
the six months ended June 30, 1998 and 1997 of $1,052,698 and $1,250,262,
respectively. The decrease of $141,844 and $197,564 for the three and six
months ended June 30, 1998, respectively, as compared to the corresponding
periods of 1997 resulted from the reduction of the general and
administrative personnel at the end of the first quarter of 1998 and the
resignation of the company's chief executive officer in October 1997. The
Company expects a slight decrease from 1997 levels in its general and
administrative expenses during the remainder of 1998, reflecting a reduction
in administrative personnel at the end of the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
In February and March 1997, the Company sold an aggregate of 224,100
shares of Series B 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 were exchanged for the same number of shares of Series B
Preferred Stock. In April 1998, 4,000 shares of the Series B Preferred
Stock were converted to 27,586 shares of common 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.
For the three months ended June 30, 1998, the Company used $3,846,089 of
net cash in operating activities, incurred $160,542 in capital expenditures
and used $125,088 in financing activities. At June 30, 1998, the Company had
cash and cash equivalents totaling $6,222,870 and working capital of
$5,891,623.
The Company intends to spend approximately $340,000 during the remainder
of 1998 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 1998
requiring the Company to spend approximately $25,000 under research and
development agreements. In addition, the Company is subject to cost sharing
arrangements under various collaboration agreements.
11
<PAGE>
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 and Koch Refining Company, among others,
as more fully described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
In March 1998, the Company entered into a site license agreement with
Petro Star regarding the design and installation of a biocatalytic
desulfurization ("BDS") unit at Petro Star's refinery in Valdez, Alaska. The
agreement involves several stages of work, the first of which, involving the
completion of scoping economics, is currently underway. In addition, the
agreement provides the Company with certain rights to conduct development
work and demonstrations of its BDS technology at Petro Star's refinery. The
agreement calls for the payment of staged site license fees and royalties to
the Company, including a $200,000 initial site license fee which was paid
upon execution of the agreement and has been recorded as deferred revenue.
The revenue will be recognized ratably over the completion of the initial
phase of the agreement. As is customary in such agreements in the petroleum
refining industry, the agreement provides certain approval and termination
rights to Petro Star at the completion of each stage prior to
commercialization. In connection with the execution of the agreement, the
Company issued a four-year warrant entitling Petro Star to purchase 200,000
shares of its common stock at an exercise price of $3.11 per share. The
warrants have been recorded at an estimated fair value of $404,500, which was
computed using the Black-Scholes option pricing model and the following
assumptions: risk free interest rate of 5.37 percent; expected dividend
yield of zero; expected life of four years, and expected volatility of 75.43
percent.
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. In July 1998, Total informed the Company of its intent to build a BDS
pilot plant in one European industrial facility in 1999. Pilot plant studies
are important milestones in implementing new technologies. Notable expense
is involved in gaining information on commercial design parameters as well as
hands-on operations experience. In contemplation of Total's plans, the
Company and Total have extended the term of their collaboration agreement and
are evaluating the conditions under which the pilot plant would be
implemented. Construction and operation of the BDS pilot plant is the first
step in the process of commercialization. Successful completion of the pilot
test program will lead directly to detailed design, engineering and
construction of the commercial process. 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 "Factors Affecting Forward-Looking Statements".
12
<PAGE>
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
fund its operations through early 1999. 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.
YEAR 2000 ISSUES
Year 2000 issues result from the inability of certain computer programs or
computerized equipment to accurately calculate, store or use date subsequent to
December 31, 1999. The erroneous date can be interpreted in a number of
different ways; typically the year 2000 is represented as the year 1900. This
could result in system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business transactions.
The Company is in the process of assessing all financial and operational
systems and equipment to ensure year 2000 compliance, and plans to complete the
assessment by December 31, 1998. Based on reviews to date and preliminary
information, the Company does not anticipate that it will incur any significant
costs relating to the assessment and remediation of year 2000 issues. The
Company believes that the potential impact, if any, of its systems not being
year 2000 compliant should not impact the Company's ability to continue its
research and development activities. However, there can be no assurance that
the Company, its business partners, vendors or customers will successfully be
able to identify and remedy all potential year 2000 problems or that a system
failure resulting from a failure to identify any such problems would not have a
material adverse effect on the Company.
13
<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 1998 Annual Meeting of Stockholders held on June 2,
1998, 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.
<TABLE>
FOR WITHHELD
<S> <C> <C>
Ramon Lopez 14,456,136 42,640
R. James Comeaux 14,456,336 42,440
Edward B. Lurier 14,456,536 42,240
Thomas E. Messmore 14,456,536 42,240
Daniel J. Monticello, Ph.D. 14,456,536 42,240
William E. Nasser 14,456,336 42,440
John S. Patton 14,456,136 42,640
William D. Young 14,456,336 42,440
</TABLE>
Proposal 2: The approval of the appointment of Arthur Andersen LLP as
the Company's independent public accountants for 1998.
For 14,457,553 Against 11,580 Abstain 29,643
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.
14
<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/ William E. Nasser
------------------------------------
William E. Nasser
Chairman of the Board, Chief Executive Officer and President
Date: August 11, 1998
By: /s/ Paul G. Brown III
------------------------------------
Paul G. Brown III
Vice President, Finance and Administration
Date: August 11, 1998
15
<PAGE>
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.
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED JUNE 30, 1998
Weighted Average Shares Outstanding:
<TABLE>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C> <C> <C>
12,251,434 x 29 = 355,291,586
12,281,591 x 1 = 12,281,591
12,970,112 x 40 = 518,804,480
12,995,112 x 21 = 272,897,352
----- -------------
91 = 1,159,275,009
----- -------------
----- -------------
1,159,275,009 / 91 = 12,739,286
----------
----------
Loss Per Share:
Net Loss plus dividend accrual
plus accretion of offering costs $ (3,033,285) = $ (0.24)
- --------------------------------- ------------- ----------
Weighted Avg. Shares 12,739,286 ----------
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED JUNE 30, 1997
Weighted Average Shares Outstanding:
<TABLE>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C> <C> <C>
11,605,377 x 30 = 348,161,310
11,712,758 x 61 = 714,478,238
----- -------------
91 1,062,639,548
----- -------------
----- -------------
1,062,639,548 /91 = 11,677,358
----------
----------
Loss Per Share:
Net Loss plus dividend accrual
plus accretion of offering costs $ (3,181,016) = $ (0.27)
- --------------------------------- ------------- ----------
Weighted Avg. Shares 11,677,358 ----------
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
SIX MONTHS ENDED JUNE 30, 1998
Weighted Average Shares Outstanding:
<TABLE>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C> <C> <C>
12,251,434 x 119 = 1,457,920,646
12,281,591 x 1 = 12,281,591
12,970,112 x 40 = 518,804,480
12,995,112 x 21 = 272,897,352
----- -------------
181 2,261,904,069
----- -------------
----- -------------
2,261,904,069 /181 = 12,496,708
----------
----------
Loss Per Share:
Net Loss plus dividend accrual
plus accretion of offering costs $ (6,631,780) = $ (0.53)
- --------------------------------- -------------- ----------
Weighted Avg. Shares 12,496,708 ----------
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
SIX MONTHS ENDED JUNE 30, 1997
Weighted Average Shares Outstanding:
<TABLE>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C> <C> <C>
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
----- -------------
----- -------------
2,100,140,584 /181 = 11,602,987
----------
----------
Loss Per Share:
Net Loss plus dividend accrual
plus accretion of offering costs $ (5,997,658) = $ (0.52)
- --------------------------------- ------------- ----------
Weighted Avg. Shares 11,602,987 ----------
</TABLE>
<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 THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,222,870
<SECURITIES> 0
<RECEIVABLES> 261,209
<ALLOWANCES> 0
<INVENTORY> 29,624
<CURRENT-ASSETS> 6,635,037
<PP&E> 6,993,282
<DEPRECIATION> 4,879,057
<TOTAL-ASSETS> 9,832,245
<CURRENT-LIABILITIES> 743,414
<BONDS> 0
0
33,842,599
<COMMON> 129,951
<OTHER-SE> 36,952,326
<TOTAL-LIABILITY-AND-EQUITY> 9,832,245
<SALES> 0
<TOTAL-REVENUES> 415,575
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,464,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,049,355)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,049,355)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,049,355)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
