<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, 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 November 12, 1998, there were outstanding 15,241,169 shares of
Common Stock, par value $.01 per share, of the registrant.
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Factors Affecting Forward-Looking Statements 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 4
Balance Sheets as of September 30, 1998 (Unaudited)
and December 31, 1997 5
Statements of Operations for the Three and Nine Months
Ended September 30, 1998 and 1997 (Unaudited) 6
Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (Unaudited) 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
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>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,544,464 $ 9,661,310
Short term investments -- 693,279
Prepaid expenses and other current assets 327,985 1,013,872
------------ ------------
Total current assets 4,872,449 11,368,461
Furniture, equipment and leasehold improvements, net 1,783,575 2,624,332
Intangible and other assets, net 1,124,382 972,266
------------ ------------
Total assets $ 7,780,406 $ 14,965,059
------------ ------------
------------ ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 225,120 $ 864,674
Deferred revenue 180,000 180,000
Obligations under capital lease -- 3,556
Note payable -- 218,606
------------ ------------
Total current liabilities 405,120 1,266,836
Stockholders' equity:
Series B Convertible Preferred Stock, $0.01 par value
(liquidation value $35,105,000; 760,000 shares
authorized, 696,400 and 702,100 shares
issued and outstanding, respectively) 34,636,934 33,853,380
Common Stock, $0.01 par value (30,000,000 shares
authorized, 13,011,833 and 12,251,434 shares issued
and outstanding, respectively) 130,118 122,514
Additional paid-in capital 36,949,010 34,926,594
Accumulated deficit (64,340,776) (55,204,265)
------------ ------------
Total stockholders' equity 7,375,286 13,698,223
------------ ------------
Total liabilities and stockholders' equity $ 7,780,406 $ 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>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Sponsored research revenues $ 304,592 $ 152,147 $ 561,659 $ 1,140,119
Interest and investment income 180,649 200,505 339,157 480,735
----------- ----------- ----------- -----------
Total revenues 485,241 352,652 900,816 1,620,854
COSTS AND EXPENSES:
Research and development 1,741,727 2,352,404 6,153,959 6,870,866
General and administrative 464,158 570,152 1,516,856 1,820,414
----------- ----------- ----------- -----------
Total costs and expenses 2,205,885 2,922,556 7,670,815 8,691,280
----------- ----------- ----------- -----------
NET LOSS $(1,720,644) $(2,569,904) $(6,769,999) $(7,070,426)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.19) $ (0.29) $ (0.72) $ (0.81)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE 13,006,238 11,767,017 12,668,418 11,658,264
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,769,999) $(7,070,426)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,055,708 1,035,384
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and other
current assets 685,887 (121,787)
Increase in intangible and other assets and notes
receivable (202,309) (160,071)
Increase (decrease) in accounts payable and accrued
liabilities (639,554) 109,798
Increase (decrease) in deferred revenues -- (13,500)
----------- -----------
Net cash used in operating activities (5,870,267) (6,220,602)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (164,758) (509,972)
Net sale of investments 693,279 5,891,584
----------- -----------
Net cash provided by investing activities 528,521 5,381,612
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on capital lease obligations (3,556) (5,974)
Payments on notes payable (218,606) (277,042)
Issuance of notes payable -- 324,412
Issuance of stock, net 447,062 10,224,836
----------- -----------
Net cash provided by (used in) financing activities 224,900 10,266,232
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,116,846) 9,427,242
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 9,661,310 3,106,004
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,544,464 $12,533,246
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 and July 1998, 4,000 shares and 1,700 shares
of the Series B Preferred Stock were converted to 27,586 shares and 11,724
shares of common stock, respectively.
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 September 30, 1998, the Company's accumulated deficit was
$64,340,776.
RESULTS OF OPERATIONS
The Company had total revenues for the nine months ended September 30,
1998 and 1997 of $900,816 and $1,620,854, respectively. The decrease of
$720,038 in total revenues was attributable to decreases in sponsored
research revenues and interest and investment income. The Company had
sponsored research revenues of $561,659 during the first nine months of 1998
as compared to $1,140,119 during the first nine months of 1997. The decrease
of $578,460 in sponsored research revenues resulted primarily from the
decrease in sponsored research revenues from a National Institute of
Standards and Technology ("NIST") grant to $33,954 in the first nine months
of 1998 compared to $876,619 in the first nine 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 nine months of
1997, offset in part by sponsored research revenues of $327,705 received from
a Department of Energy ("DOE") grant and a $200,000 site license fee received
from Petro Star Inc. ("Petro Star") in the first nine months of 1998.
The Company had interest and investment income of $339,157 for the first
nine months of 1998 compared to $480,735 for the first nine months of 1997.
The decrease of $141,578 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 September 30,
1998 and 1997 of $485,241 and $352,652, respectively. The increase in total
revenues of $132,589 was attributable to increases in sponsored research
revenues offset in part by a decrease in interest and investment income. The
Company had sponsored research revenues of $304,592 during the third quarter
of 1998 as compared to $152,147 during the third quarter of 1997. The
increase of $152,445 in sponsored research revenues resulted primarily from
the recognition of $200,000 in deferred revenue under the Petro Star
agreement at completion of the first phase.
The Company had interest and investment income of $180,649 in the third
quarter of 1998 as compared to $200,505 in the third quarter of 1997. The
decrease of $19,856 in interest and investment income resulted primarily
because the Company's average balances of cash, cash equivalents and
short-term investments during the third quarter of 1998 were less than those
during the corresponding period of 1997.
10
<PAGE>
The Company had research and development expenses for the three months
ended September 30, 1998 and 1997 of $1,741,727 and $2,352,404, respectively,
and for the nine months ended September 30, 1998 and 1997 of $6,153,959 and
$6,870,866, respectively. The decrease in research and development expenses
of $610,677 and $716,907, respectively, for the three and nine months ended
September 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 September 30, 1998 and 1997 of $464,158 and $570,152, respectively, and
for the nine months ended September 30, 1998 and 1997 of $1,516,856 and
$1,820,414, respectively. The decrease of $105,994 and $303,558 for the three
and nine months ended September 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. 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 and July 1998, 4,000 and 1,700 shares of Series B
Preferred Stock were converted to 27,586 and 11,724 shares of common stock,
respectively. 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 nine months ended September 30, 1998, the Company used
$5,870,267 of net cash in operating activities, incurred $164,758 in capital
expenditures and provided $224,900 in financing activities. At September 30,
1998, the Company had cash and cash equivalents totaling $4,544,464 and
working capital of $4,467,329.
The Company intends to spend approximately $335,000 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. In addition, the Company is subject to cost sharing
arrangements under various collaboration agreements.
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, Baker Petrolite
11
<PAGE>
Corporation, 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, involved the
completion of scoping economics, is completed. 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. 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. 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. 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".
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
12
<PAGE>
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
Certain computer programs or computerized equipment are unable to
accurately calculate, store or use dates 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. Year 2000 problems
may 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 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: November 13, 1998
By: /s/ Paul G. Brown III
------------------------
Paul G. Brown III
Vice President, Finance and Administration
Date: November 13, 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 SEPTEMBER 30, 1998
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C>
12,995,112 x 29 = 376,858,248
13,006,836 x 6 = 78,041,016
13,011,836 x 57 = 741,674,652
--- -------------
92 = 1,196,573,916
--- -------------
--- -------------
1,196,573,916 / 92 = 13,006,238
----------
----------
Loss Per Share:
Net Loss plus dividend accrual
plus accretion of offering costs $(2,504,731) = $ (0.19)
- --------------------------------- ----------- -------
Weighted Avg. Shares 13,006,238 -------
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED SEPTEMBER 30, 1997
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C>
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
--- -------------
--- -------------
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 ------
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
NINE MONTHS ENDED SEPTEMBER 30, 1998
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <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 50 = 649,755,600
13,006,836 x 6 = 78,041,016
13,011,836 x 57 = 741,674,652
--- -------------
273 3,458,477,985
--- -------------
--- -------------
3,458,477,985 / 273 = 12,668,418
----------
----------
Loss Per Share:
Net Loss plus dividend accrual
plus accretion of offering costs $(9,136,511) = $(0.72)
- --------------------------------- ----------- ------
Weighted Avg. Shares 12,668,418 ------
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
NINE MONTHS ENDED SEPTEMBER 30, 1997
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <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 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 2 = 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 ------
</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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,544,464
<SECURITIES> 0
<RECEIVABLES> 269,101
<ALLOWANCES> 0
<INVENTORY> 28,736
<CURRENT-ASSETS> 4,872,449
<PP&E> 6,997,499
<DEPRECIATION> 5,213,923
<TOTAL-ASSETS> 7,780,406
<CURRENT-LIABILITIES> 405,120
<BONDS> 0
0
34,636,934
<COMMON> 130,118
<OTHER-SE> 36,949,010
<TOTAL-LIABILITY-AND-EQUITY> 7,780,406
<SALES> 0
<TOTAL-REVENUES> 900,816
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,670,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,769,999)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,769,999)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,769,999)
<EPS-PRIMARY> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>
